National Electronics Holdings Limited - Proxy Solicitation & Information Statement 2003

IMPORTANT

If you are in any doubt about this circular or to the action to be taken, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your securities in Chi Cheung and/or Chinese Estates, you should at once hand this circular and the accompanying form(s) of proxy (as the case may be) to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

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CHINESE ESTATES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

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CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

(Incorporated in Hong Kong with limited liability)

PROPOSED ASSET TRANSACTION

(Major and connected transaction of Chi Cheung and connected transaction of Chinese Estates), PROPOSED CAPITAL REORGANISATION OF CHI CHEUNG, GRANT OF GENERAL MANDATE AND REPURCHASE MANDATE TO CHI CHEUNG

Financial adviser to Chi Cheung

Independent financial adviser to the Chi Cheung Independent Director

Q u a m C a p i t a l L i m i t e d

A Subsidiary of Quam Limited

Independent financial adviser to the Chinese Estates Independent Director

Core Pacific - Yamaichi Capital Limited

A letter from the Chi Cheung Independent Director (as defined herein) and a letter from Quam (as defined herein), containing its advice to the Chi Cheung Independent Director are set out on page 28 and pages 30 to 40 of this circular respectively.

A letter from the Chinese Estates Independent Director (as defined herein) and a letter from CPY (as defined herein), containing its advice to the Chinese Estates Independent Director are set out on page 29 and pages 41 to 51 of this circular respectively.

Notices convening the EGM (as defined herein) and the SGM (as defined herein) to be held on 28th March, 2003 are set out on pages 152 to 155 and page 156 of this circular respectively. Whether or not you are able to attend the EGM and/or the SGM or any adjournment thereof, you are strongly urged to complete, sign and return the enclosed white form of proxy in respect of the EGM and/or the enclosed blue form of proxy in respect of the SGM, in accordance with the instructions printed thereon as soon as possible but in any event not less than 48 hours before the time appointed for holding of the EGM and/or SGM (as the case may be). Completion and return of the form(s) of proxy will not preclude you from attending and voting in person at the respective meetings should you so wish.

5th March, 2003

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Joint letter from the Chinese Estates Board and
the Chi Cheung Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Chi Cheung Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Letter from the Chinese Estates Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Letter from Quam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter from CPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Appendix I – Accountants’ report on the Sale Companies . . . . . . . . . . . . . . . . . . .	52
Appendix II – Financial information on the Chi Cheung Group . . . . . . . . . . . . . .	76
Appendix III – Property valuation of the Properties . . . . . . . . . . . . . . . . . . . . . . . . . .	110
Appendix IV – Property valuation of the Hillier Property. . . . . . . . . . . . . . . . . . . . .	135
Appendix V – Explanatory statement relating to grant of
Repurchase Mandate of Chi Cheung. . . . . . . . . . . . . . . . . . . . . . . . .	139
Appendix VI – General information on the Chi Cheung Group. . . . . . . . . . . . . . . .	142
Appendix VII – General information on the Chinese Estates Group . . . . . . . . . . .	147
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	152
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	156

DEFINITIONS

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

“Announcement”

the joint announcement dated 11th February, 2003 issued by Chi Cheung and Chinese Estates relating to, inter alia , the Asset Transaction and the Capital Reorganisation

“Asset Transaction” the transaction in relation to the transfer of the Properties, the entire issued share capital of the Sale Companies, the Hillier Property, the entire issued share capital of Super Series, the Sale Loan, the Super Series Loan and the Assumed Debt as contemplated under the S&P Agreement
“Associate(s)”

has the meaning ascribed thereto under the Listing Rules

“Assumed Debt”
all sums owing by other members of the Chinese Estates Group to the Sale Companies or their respective subsidiaries and associated companies as at the date of the S&P Agreement, which amounted to approximately HK$0.5 million
“BNP Paribas Peregrine” BNP Paribas Peregrine Capital Limited, the financial adviser to Chi Cheung and an investment adviser and a dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)
“Business Day” a day (except Saturday) on which banks in Hong Kong are open for general banking transactions
“C Consideration”
the consideration payable by Chinese Estates for the purchase of the entire issued share capital of Super Series and the benefits of the Super Series Loan under the S&P Agreement
“Capital Reduction”
the proposed reduction of the nominal value of each of the issued and unissued CC Consolidated Shares from HK$5.00 to HK$0.01
“Capital Reorganisation” the Share Consolidation, the Capital Reduction and the Increase in Capital
“CCASS”

the Central Clearing and Settlement System established and operated by HKSCC

“CC Consideration” the aggregate consideration payable by Chi Cheung for the purchase of the entire issued share capital of the Sale Companies and the benefits of the Sale Loan under the S&P Agreement
“CC Consolidated Share(s)”
share(s) of HK$5.00 each in the share capital of Chi Cheung proposed to be created by the Share Consolidation
“Chi Cheung”

Chi Cheung Investment Company, Limited, a company incorporated in Hong Kong with limited liability, the securities of which are listed on the Stock Exchange

“Chi Cheung Board”

board of directors of Chi Cheung

DEFINITIONS

“Chi Cheung Disclosure Letter” a disclosure letter regarding the warranties given by Chi Cheung and Jumbo Legend to be issued by Chi Cheung and Jumbo Legend to Chinese Estates together with all attachments thereto “Chi Cheung Group” Chi Cheung and its subsidiaries “Chi Cheung Independent Mr. Eddie Chan, Kwok-wai, an independent non-executive Director” director of Chi Cheung, who has been appointed to advise the independent shareholders of Chi Cheung in relation to the Asset Transaction “Chi Cheung Share(s)” ordinary share(s) of HK$0.10 each in the share capital of Chi Cheung “Chinese Estates” Chinese Estates Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange “Chinese Estates Board” board of directors of Chinese Estates “Chinese Estates Disclosure a disclosure letter regarding the warranties given by Chinese Letter” Estates to be issued by Chinese Estates to Jumbo Legend and Chi Cheung together with all attachments thereto “Chinese Estates Group” Chinese Estates and its subsidiaries, excluding the Chi Cheung Group “Chinese Estates Independent Ms. Wong, Sin-yee, an independent non-executive director Director” of Chinese Estates, who has been appointed to advise the independent shareholders of Chinese Estates in relation to the Asset Transaction “Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong Kong) “Court” the Court of First Instance of the High Court of Hong Kong “CPY” Core Pacific – Yamaichi Capital Limited, the independent financial adviser to the Chinese Estates Independent Director and an investment adviser and a dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) “EGM” extraordinary general meeting of Chi Cheung to consider and approve the Asset Transaction, the Capital Reorganisation, the General Mandate and the Repurchase Mandate to be held at 10:45 a.m. on Friday, 28th March, 2003 at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong, notice of which is set out on pages 152 to 155 of this circular, or any adjournment thereof “General Mandate” the general mandate proposed to be granted to the directors of Chi Cheung, conditional upon the Capital Reorganisation becoming effective and completion of the S&P Agreement, to allot, issue and deal with the New Shares as described on page 25 of this circular

DEFINITIONS

“Group” Chinese Estates and its subsidiaries “HKSCC” Hong Kong Securities Clearing Company Limited “Hillier Property” the property located at nos. 253–265 Queen’s Road Central and nos. 30–38 Hillier Street, Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Increase in Capital” a proposal to increase the authorised share capital of Chi Cheung immediately following the Capital Reduction becoming effective to restore the authorised share capital of Chi Cheung to the original amount of HK$500,000,000
“Jumbo Legend” Jumbo Legend Limited, a company incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of Chi Cheung
“Latest Practicable Date” 27th February, 2003, 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 of Hong Kong Limited
“Mr. Joseph Lau” Mr. Joseph Lau, Luen-hung, an executive director of Chinese Estates and Chi Cheung
“Mr. Thomas Lau” Mr. Thomas Lau, Luen-hung, the Chairman and an executive director of Chinese Estates and Chi Cheung
“New Share(s)” share(s) of HK$0.01 each in the share capital of Chi Cheung upon the Capital Reorganisation becoming effective
“PRC” or “China” the People’s Republic of China “Properties” the property interests held (directly or indirectly) by the Sale Companies, as set out under the paragraph headed “the Properties” in the section headed “Information on the Properties and Hillier Property” in the “Joint letter from the Chinese Estates Board and the Chi Cheung Board” in this circular

“Quam” Quam Capital Limited, the independent financial adviser to the Chi Cheung Independent Director and an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) “Repurchase Mandate” the general mandate proposed to be granted to the directors of Chi Cheung, conditional upon the Capital Reorganisation becoming effective and completion of the S&P Agreement, to repurchase the New Shares as described on page 25 of this circular

DEFINITIONS

“Sale Companies”	the group of wholly-owned subsidiaries of Chinese Estates
	holding direct or indirect interests in the Properties as set out
	under paragraph headed “the Properties” in the section headed
	“Information on the Properties and Hillier Property” in the
	“Joint letter from the Chinese Estates Board and the Chi
	Cheung Board” in this circular
“Sale Loan”	all sums due by the Sale Companies, their respective
	subsidiaries or associated companies to the other members of
	the Chinese Estates Group as at the date of the S&P
	Agreement, which amounted to approximately HK$557.3
	million
“SDI Ordinance”	Securities (Disclosure of Interests) Ordinance (Chapter 396 of
	the Laws of Hong Kong)
“SGM”	special general meeting of Chinese Estates to consider and
	approve the Asset Transaction to be held at 10:00 a.m. on
	Friday, 28th March, 2003 at Drawing Room, Mezzanine Floor,
	Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong,
	notice of which is set out on page 156 of this circular, or any
	adjournment thereof
“Share Consolidation”	the proposed consolidation of every 50 issued and unissued
	Chi Cheung Shares into one CC Consolidated Share
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Super Series”	Super Series Limited, a company incorporated in the British
	Virgin Islands with limited liability and is a wholly-owned
	subsidiary of Chi Cheung, which holds a 100% direct interest
	in a company holding the entire interest of the Hillier Property
“Super Series Loan”	all sums due by Super Series to Chi Cheung as at the date of
	the S&P Agreement, which amounted to approximately
	HK$322.7 million

“S&P Agreement” the sale and purchase agreement dated 11th February, 2003 entered into among Chinese Estates, Jumbo Legend and Chi Cheung relating to (i) the sale and purchase of the entire issued share capital of the Sale Companies, the benefits of the Sale Loan and the assumption of the Assumed Debt; and (ii) the sale and purchase of the entire issued share capital of Super Series and the benefits of the Super Series Loan
“Warrants” 594,261,068 units of listed warrants issued by Chi Cheung on 20th November, 2000, each entitling the warrantholder to subscribe for one Chi Cheung Share (subject to adjustment) during the period of three years commencing on 21st November, 2000
“HK$” Hong Kong dollar(s), the lawful currency in Hong Kong
“sq.ft.”

square feet

EXPECTED TIMETABLE

2003

Latest time for lodging of proxies of SGM . . . . . . . . . . . . . . . . 10:00 a.m. on Wednesday, 26th March Latest time for lodging of proxies of EGM . . . . . . . . . . . . . . . . 10:45 a.m. on Wednesday, 26th March SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Friday, 28th March EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:45 a.m. on Friday, 28th March Effective date of the Capital Reorganisation[1] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 14th May The following events are conditional upon, among others, the Court hearing:

Dealings in New Shares commence[2] . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 14th May Temporary counter for trading in New Shares in board lots of 40 New Shares (in the form of existing certificate(s) for existing Chi Cheung Shares) opens and original counter for trading in Chi Cheung Shares in board lots of 2,000 closes[2] . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 14th May

First day for free exchange of certificate(s) for existing Chi Cheung Shares for new certificate(s) for New Shares[2] . . . . . . . . . . . . . . . Wednesday, 14th May Original counter for trading in New Shares in board lots of 2,000 New Shares (in the form of new certificate(s) for New Shares) re-opens[2] . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 28th May Parallel trading commences[2] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 28th May Temporary counter for trading in New Shares in board lots of 40 New Shares (in the form of existing share certificate(s) for existing Chi Cheung Shares) closes[2] . . . . . . . . . . . . . . Thursday, 19th June Parallel trading ends[2] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Thursday, 19th June Last day for free exchange of certificate(s) for existing Chi Cheung Shares for new certificate(s) for New Shares[2] . . . . . . . . . . . . . . Wednesday, 25th June

Notes:

The effective date of the Capital Reorganisation is subject to the actual dates of the summons for direction and the petition to confirm the Capital Reduction. It is assumed that the Capital Reorganisation will become effective on 14th May, 2003, the date following Court hearing of petition to confirm the Capital Reduction.
These dates are based upon the assumption that the Court hearings referred to in Note 1 above proceed (without adjournment) upon the date indicated above.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

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CHINESE ESTATES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

Directors:

Mr. Thomas Lau, Luen-hung (Chairman) Mr. Joseph Lau, Luen-hung Ms. Wong, Sin-yee[] Ms. Constance Choy, Hok-man[]

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CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

(Incorporated in Hong Kong with limited liability)

Directors:

Mr. Thomas Lau, Luen-hung (Chairman) Mr. Joseph Lau, Luen-hung Mr. Eddie Chan, Kwok-wai[#] Mr. Shum, Man-wai[#]

* Independent non-executive directors of Chinese Estates

Independent non-executive directors of Chi Cheung

Registered Office: Cedar House 41 Cedar Avenue Hamilton, HM 12 Bermuda

Registered office: 26th Floor MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Principal Office in Hong Kong: 26th Floor MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

5th March, 2003

To the shareholders of Chinese Estates and the shareholders of Chi Cheung and for information only, the warrantholders of Chi Cheung

Dear Sir or Madam,

PROPOSED ASSET TRANSACTION (Major and connected transaction of Chi Cheung and connected transaction of Chinese Estates), PROPOSED CAPITAL REORGANISATION OF CHI CHEUNG, GRANT OF GENERAL MANDATE AND REPURCHASE MANDATE TO CHI CHEUNG

INTRODUCTION

It was announced on 11th February, 2003 that Chinese Estates had on 11th February, 2003 entered into the S&P Agreement with Chi Cheung and Jumbo Legend in relation to the Asset Transaction. Upon completion of the Asset Transaction, Chi Cheung will own the entire interest of the Sale Companies and Chinese Estates will own the entire interest of Super Series.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

In order to facilitate the Asset Transaction, the directors of Chi Cheung would propose the Capital Reorganisation to the shareholders of Chi Cheung for approval.

The Asset Transaction constitutes a major transaction for Chi Cheung under the Listing Rules. As Chinese Estates is the controlling shareholder of Chi Cheung, the Asset Transaction also constitutes a connected transaction for Chi Cheung under the Listing Rules and is therefore subject to the approval of the independent shareholders of Chi Cheung. As at the Latest Practicable Date, Chinese Estate was interested in 2,159,475,904 Chi Cheung Shares, representing approximately 72.7% of the existing issued share capital of Chi Cheung. In view of Chinese Estates’s interest in the Asset Transaction, Chinese Estates will abstain from voting on the resolution in respect of the Asset Transaction at the EGM.

The Asset Transaction also constitutes a connected transaction for Chinese Estates as Chi Cheung is a non wholly-owned subsidiary of Chinese Estates and is subject to the approval of the independent shareholders of Chinese Estates. As at the Latest Practicable Date, Mr. Joseph Lau, Mr. Thomas Lau and their respective Associates were interested in 1,649,460,855 shares in Chinese Estates, representing approximately 72.5% of the issued share capital of Chinese Estates. In compliance with the undertaking given by Chinese Estates to the Stock Exchange on 20th September, 1990 (as supplemented and amended), Mr. Joseph Lau and Mr. Thomas Lau and their respective Associates will abstain from voting on the resolution in respect of the Asset Transaction at the SGM.

Chi Cheung Independent Director and Chinese Estates Independent Director have been appointed to advise the independent shareholders of Chi Cheung and Chinese Estates respectively in relation to the Asset Transaction. Quam has been appointed to advise the Chi Cheung Independent Director regarding the Asset Transaction. CPY has been appointed to advise Chinese Estates Independent Director regarding the Asset Transaction.

THE S&P AGREEMENT

Date

11th February, 2003

Parties involved

In respect of the Sale Companies, the Sale Loan and the Assumed Debt

Vendor: Chinese Estates Purchaser: Jumbo Legend Guarantor: Chi Cheung In respect of Super Series and the Super Series Loan Vendor: Chi Cheung Purchaser: Chinese Estates

Subject matter

Chinese Estates has agreed to sell or procure the sale of, and Jumbo Legend has agreed to purchase or procure the purchase of, the entire issued share capital of each of the Sale Companies and the benefits of the Sale Loan. The entire issued shares in the Sale Companies to be acquired by Jumbo Legend shall be free from any mortgages, charges, liens, pledges, options and third party

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

claims or other encumbrances (if any) at completion and with all rights attached thereto as from completion including all rights to dividends and other distributions declared paid or made in respect thereof after completion of the Asset Transaction. Jumbo Legend has also agreed to assume the liabilities of the Assumed Debt by way of novation.

Chi Cheung has agreed to sell or procure the sale of, and Chinese Estates has agreed to purchase or procure the purchase of, the entire issued share capital of Super Series and the benefits of the Super Series Loan. The entire issued share in Super Series to be acquired by Chinese Estates shall be free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances (if any) at completion and with all rights attached thereto as from completion including all rights to dividends and other distributions declared paid or made in respect thereof after completion of the Asset Transaction.

Chi Cheung has agreed to guarantee the performance of Jumbo Legend under the S&P Agreement.

The consideration

The C Consideration has been determined after arm’s length negotiations among Chinese Estates and Chi Cheung and will be satisfied in cash. The C Consideration will be an amount equal to the audited consolidated net liabilities of Super Series as at 30th November, 2002 (having adjusted for the revaluation of the Hillier Property as at 30th November, 2002) taking account of the Super Series Loan. The Hillier Property was valued at approximately HK$125.0 million as at 30th November, 2002 by Norton Appraisals Limited, an independent professional property valuer. Under the S&P Agreement, Chi Cheung has warranted that the unadjusted consolidated net liabilities of Super Series on completion of the Asset Transaction will not exceed the audited unadjusted consolidated net liabilities of Super Series as at 30th November, 2002. On the basis of the audited consolidated account of Super Series for the 11 months ended 30th November, 2002, the C Consideration amounts to approximately HK$103.9 million (representing a deficit of approximately HK$21.1 million to the book value of the Hillier Property as at 30th November, 2002). The C Consideration is calculated on the basis of the audited consolidated net liabilities of Super Series of approximately HK$218.8 million as at 30th November, 2002 (having adjusted for the revaluation of the Hillier Property as at 30th November, 2002) taking account of the Super Series Loan of approximately HK$322.7 million.

The CC Consideration has been determined after arm’s length negotiations among Chi Cheung, Jumbo Legend and Chinese Estates and will be satisfied partly by an amount equal to the C Consideration in cash and partly by the allotment and issue of approximately 11,375.6 million Chi Cheung Shares (subject to adjustments), credited as fully paid, to Chinese Estates. The CC Consideration will be an amount equal to the aggregate audited consolidated net assets/liabilities of each of the Sale Companies as at 30th November, 2002 taking account of the Sale Loan and the Assumed Debt, adjusted for the revaluation of the Properties as at 30th November, 2002, the land premium to be paid and excluding the book/adjusted value of the properties contracted to be sold and including the net sale proceeds of properties contracted to be sold prior to the date of completion of the S&P Agreement. The Properties were valued at approximately HK$640.0 million as at 30th November, 2002 by Norton Appraisals Limited, an independent professional property valuer. Under the S&P Agreement, Chinese Estates has warranted that the aggregate unadjusted consolidated net assets/liabilities of each of the Sale Companies on completion of the Asset Transaction (disregarding any revaluation adjustment, the properties contracted to be sold prior to completion and the receipt and utilisation of any sale proceeds (including any deposit or part payment) thereof received after 30th November, 2002), shall not exceed (in case of net assets, shall not be less than) the aggregate audited consolidated net assets/liabilities of each of the Sale Companies (disregarding the matters mentioned above) as at 30th November, 2002. On the basis of the aggregate audited consolidated accounts of each of the Sale Companies for the 11 months ended 30th November,

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

2002, the CC Consideration amounts to approximately HK$615.8 million. The CC Consideration is calculated on the basis of the aggregate audited consolidated net assets/liabilities of each of the Sale Companies of approximately HK$67.3 million as at 30th November, 2002 taking account of the Sale Loan of approximately HK$557.3 million and the Assumed Debt of approximately HK$0.5 million and adjusted for the valuation surplus of the Properties as at 30th November, 2002 of approximately HK$153.1 million (being the difference between the book value of approximately HK$486.9 million and the revaluated amount of approximately HK$640.0 million of the Properties as at 30th November, 2002), the land premium to be paid of approximately HK$23.6 million and excluding the book value of properties contracted to be sold of approximately HK$28.7 million and including the net sale proceeds of the properties contracted to be sold prior to the date of completion of the S&P Agreement, which is estimated to be approximately HK$25.5 million as at the Latest Practicable Date.

Under the S&P Agreement, the parties thereto have agreed that the sum payable by Chinese Estates to Chi Cheung and the cash portion of the CC Consideration payable to Chinese Estates (estimated to be approximately HK$103.9 million as mentioned above) shall set off each other at completion. In respect of the payment of remaining balance of the CC Consideration (estimated to be approximately HK$511.9 million), it is estimated that approximately 11,375.6 million Chi Cheung Shares (subject to adjustments) at an issue price of HK$0.045 per Chi Cheung Share (equivalent to approximately 227.5 million New Shares) will be issued to Chinese Estates. On this basis, the respective market value of approximately 11,375.6 million Chi Cheung Shares to be issued as part of the CC Consideration are approximately HK$318.5 million and HK$125.1 million based on the closing price of HK$0.028 and HK$0.011 per Chi Cheung Share on 5th February, 2003 and as at the Latest Practicable Date.

The directors of each of Chinese Estates and Chi Cheung acknowledge that the transfer of the entire issued share capital of certain Sale Companies and the benefits of their related Sale Loan may require consents or approvals from independent third parties. If Chinese Estates fails to obtain all the necessary approvals or consents on or before 10th February, 2004 (or such other date as the parties may agree), the parties will proceed to completion of the Asset Transaction for the remaining Sale Companies and the assignment of the benefits of the related Sale Loan owing by such remaining Sale Companies or their respective subsidiaries or associated companies in respect of which necessary consents have been obtained and/or are not required and a further announcement will be made by Chi Cheung and Chinese Estates. In that event, the CC Consideration (the amount to be satisfied by the issue of the Chi Cheung Shares) shall be reduced by an amount equal to the audited consolidated net asset/liability value of such relevant Sale Companies (those without consents or approvals) as at 30th November, 2002 taking account of the related Sale Loan and adjusted for the revaluation of the related Properties as at 30th November, 2002.

The issue price per Chi Cheung Share as consideration of HK$0.045 has been determined on the basis of the published unaudited consolidated net asset value per Chi Cheung Share of approximately HK$0.045 as at 30th June, 2002. The price of HK$0.045 per Chi Cheung Share represents:

a premium of approximately 60.7% over the closing price of HK$0.028 per Chi Cheung Share as quoted on the Stock Exchange on 5th February, 2003 (the last trading day prior to suspension of trading in the Chi Cheung Shares before the issue of the Announcement);
a premium of approximately 60.7% over the average closing price of HK$0.028 per Chi Cheung Share over the 10 trading days up to and including 5th February, 2003;
a premium of approximately 45.2% over the average closing price of HK$0.031 per Chi Cheung Share over the 60 trading days up to and including 5th February, 2003;

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

a premium of approximately 309.1% over the closing price of HK$0.011 per Chi Cheung Share as quoted on the Stock Exchange on the Latest Practicable Date;
a premium of approximately 221.4% over the average closing price of HK$0.014 per Chi Cheung Share over the 10 trading days up to and including the Latest Practicable Date; and
a premium of approximately 66.7% over the average closing price of HK$0.027 per Chi Cheung Share over the 60 trading days up to and including the Latest Practicable Date.

In considering the issue price of the Consideration Shares, the directors of Chinese Estates and the directors of Chi Cheung have taken into account the following matters:

the net asset value per Chi Cheung Share amounting to approximately HK$0.045 as at 30th June, 2002;
the fact that the C Consideration and the CC Consideration should be the amount equal to the respective adjusted net asset value of Super Series and the Sale Companies together with the Super Series Loan and the Sale Loan respectively; and
the then prevailing market price of Chi Cheung Shares.

The respective directors of Chi Cheung and Chinese Estates consider that the terms of the S&P Agreement are fair and reasonable and the S&P Agreement is on normal commercial terms and in the interests of the shareholders taken as a whole.

Conditions

Completion of the Asset Transaction is conditional on the following conditions precedent being fulfilled (or waived) on or before 10th February, 2004, or such other date as may be agreed by Chinese Estates, Chi Cheung and Jumbo Legend:

(i) all necessary approvals from regulatory authorities including approvals from the Stock Exchange having been obtained;
(ii) all necessary approvals in respect of the Asset Transaction as may be necessary or desirable under any contractual arrangements to which Super Series and its subsidiary is party having been obtained in terms satisfactory to the parties thereto;
(iii) all necessary approvals in respect of the Asset Transaction as may be necessary or desirable under any contractual arrangements to which Chinese Estates or any of the Sale Companies, their respective subsidiaries or associated companies is party having been obtained in terms satisfactory to the parties thereto;
(iv) all necessary approvals by the shareholders of Chi Cheung in the EGM in respect of the Asset Transaction and the Capital Reorganisation in a manner as required under the Listing Rules, its articles of association and applicable legislation having been obtained;
(v) all necessary approvals by the shareholders of Chinese Estates in the SGM in respect of the Asset Transaction in a manner as required under the Listing Rules and applicable legislation having been obtained;

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

(vi) the Stock Exchange granting the listing of and permission to deal in
(a) the New Shares then in issue and which may be issued pursuant to the exercise of any subscription rights attached to the Warrants upon the Capital Reorganisation becoming effective; and
(b) the consideration shares of Chi Cheung to be issued;
(vii) Jumbo Legend and Chi Cheung being satisfied with the results of a financial, legal and operational due diligence review of the Sale Companies, the Sale Loan and the Properties to be carried out on the behalf of Jumbo Legend and Chi Cheung and the content of the Chinese Estates Disclosure Letter;
(viii) Chinese Estates being satisfied with the results of a financial, legal and operational due diligence review of Super Series, the Super Series Loan and the Hillier Property to be carried out on the behalf of Chinese Estates and the content of the Chi Cheung Disclosure Letter;
(ix) the Capital Reorganisation becoming effective;
(x) arrangement for restoring the public float of the New Shares after the completion of the Asset Transaction and Capital Reorganisation in compliance with the relevant requirements of the Listing Rules in such manner to be agreed by Chinese Estates and Chi Cheung having been made;
(xi) the delivery of the audited consolidated account of Super Series as at 30th November, 2002 to Chinese Estates;
(xii) the delivery of the audited consolidated accounts of each of the Sale Companies as at 30th November, 2002 to Chi Cheung; and
(xiii) the obtaining of written confirmation to release and discharge all guarantees and indemnities given by the members of the Chinese Estates Group (other than the Sale Companies and their respective subsidiaries and associated companies) in respect of the obligations or liabilities of the Sale Companies and their respective subsidiaries and associated companies (other than those companies which necessary consents for the transfer of the relevant Sale Loan and/or shares in the relevant Sale Companies have not been obtained) (including without limitation any guarantees or indemnities given under any shareholders agreement to which any of the Sale Companies and their respective subsidiaries and associates companies is a party) and accept Chi Cheung’s guarantees or indemnities in their place from such party or parties in whose favour such guarantees and indemnities have been given.

As at the Latest Practicable Date, save conditions (xi) and (xii), the remaining conditions of the S&P Agreement have not been fulfilled.

If Chinese Estates fails to obtain all the necessary approvals or consents for the transfer of the entire issued share capital of certain Sale Companies or their related Sale Loan on or before 10th February, 2004 (or such other date as the parties may agree), notwithstanding condition (iii) mentioned above, the parties will proceed to completion of the Asset Transaction for the remaining Sale Companies and the assignment of the benefits of the related Sale Loan owing by such remaining Sale Companies or their respective subsidiaries or associated companies as set out above under the section headed “The consideration” of this circular.

A further announcement will be made by Chi Cheung and Chinese Estates upon completion of the Asset Transaction.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

INFORMATION ON THE PROPERTIES AND HILLIER PROPERTY

The Properties

The Sale Companies are indirect wholly-owned subsidiaries of Chinese Estates, the principal assets of which are their direct or indirect interests in the Properties. The Properties are free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances. Particulars of the Properties are as follows:

Attributable interest to Usage the Group Sale Companies

Properties	Properties	Usage	the Group	Sale Companie
In	Hong Kong
Property interests held for investment
1.	Units A–C on the upper part of 3rd Floor, Units	Godown	100.0%	View Success
	A–G & H (including the store room thereof)			Investments
	on 4th Floor, Units C, G & H (including the			Limited
	store room thereof) on 5th Floor, Unit H
	(including the store room thereof) on 6th Floor
	and Unit C (including the store room thereof)
	on 13th Floor and the Roof together with 50
	Car Parking Spaces on 1st, 2nd, and lower
	part of 3rd Floors, Gemstar Tower,
	No. 23 Man Lok Street, Hung Hom, Kowloon
2.	Unit 301 on 3rd Floor, Sim City of Chung Kiu	Commercial	100.0%	First Castle
	Commercial Building, Nos. 47–51 Shantung Street,			Limited
	Mong Kok, Kowloon
3.	Roof Nos. 1–6, 8, 9, 11 and 12, Kwai Shun	Industrial	100.0%	Queensway
	Industrial Centre, Nos. 51–63 Container Port Road,			Development
	Kwai Chung, New Territories			Ltd. carrying
				on business in
				Hong Kong
				under the
				name of
				Queensway
				Properties
				Limited
4.	Canteen on Main Roof including the Flat Roof	Commercial	100.0%	Sanewing
	on the Upper Roof immediately thereabove			Investments
	and the Remaining Portion of the Flat Roof			Limited
	on the Main Roof, Meeco Industrial Building,
	Nos. 53–55 Au Pui Wan Street, Sha Tin,
	New Territories
5.	Various portions of No. 1 Hung To Road,	Industrial	331/3%	E-Trade.Com
	Kwun Tong, Kowloon		(Note 3)	Limited

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Attributable interest to

Properties	Properties	Usage	the Group	Sale Companies
6.	The whole of 3rd Floor and the adjacent Flat	Commercial	50.0%	Comford
	Roof and the whole of 8th Floor,		(Note 3)	Tower Limited
	Inter-Continental Plaza, No. 94 Granville Road,
	Tsim Sha Tsui, Kowloon
7.	Shop Nos. 14 and 16 on Ground Floor and	Commercial	50.0%	Farnell
	Cinema (including all that portion of the		(Note 3)	Venture Inc.
	Flat Roof over the Cinema and all those the
	external walls above the canopy level of
	the Cinema portion and those external walls
	beneath the canopy level of the Cinema
	portion not being the external walls of any
	shop or transformer room of the building
	and all those three water tanks),
	Tuen Mun Centre, Nos. 2–8 Wo Ping Path,
	Nos. 7–35 Yan Ching Street, Tuen Mun,
	New Territories
Property interest held for sale
8.	Units C to H (including the store room thereof)	Godown	100.0%	View Success
	on 7th Floor and Units A to G (including the			Investments
	store room thereof) on 16th Floor, Gemstar Tower,			Limited
	No. 23 Man Lok Street, Hung Hom, Kowloon
Property interests held for future development
9.	9/24th equal and undivided shares of and in Lot	Agricultural	100.0%	Country Homes
	Nos. 2, 4, 7, 8 and 9 in Demarcation District 464,			Limited
	So Shi Tau, Clear Water Bay, New Territories
10.	The Remaining Portion of Lot No. 453 in	Agricultural	100.0%	Country Honour
	Demarcation District 401, Po Lam Road,			Limited
	Ma Yau Tong, Sai Kung, New Territories
In the PRC
Property interest held for sale
11.	Unsold portion of Winson Plaza,	Office/Retail/	50.0%	Jade Mountain
	146 Weidi Road, Hexi District,	Residential	(Note 3)	Limited
	Tianjin, the PRC_(Note 2)_
Property interests held for future development
12.	Chenghai Royal Garden, Estuary of Xinjin River,	Residential	100.0%	Jinline
	Chenghai City, Shantou, Guangdong Province,			Investments
	the PRC_(Note 1)_			Ltd.
13.	Panyu Technology Park, East of Shiguang Road,	Industrial	100.0%	Kinloch
	Zhongcun Town, Panyu District, Guangzhou,			Investments
	Guangdong Province, the PRC_(Note 2)_			Corp.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Notes:

A wholly-owned subsidiary of Jinline Investments Ltd. has obtained the contractual right of a contract for the pre-registration of grant of State-owned land use right made between Shantou Company of Guangdong Trust and Real Estate Development Corp. (廣東省信托房產開發公司汕頭公司 ) and Chenghai County Land Administrative Bureau in relation to the property. The contract for grant of land use right and the certificate for State-owned land use right in relation to the property have not been entered into or obtained and there is an outstanding land premium of approximately HK$23.6 million to be paid by the wholly-owned subsidiary of Jinline Investments Ltd.
All land use rights have been obtained and the land premium have been paid by the relevant holding companies holding these properties.
The remaining interests of property nos. 5, 6, 7 and 11 not attributable to the respective Sale Companies are held by independent third parties.

Details of the Properties are set out in appendix III to this circular.

A summary of the aggregate audited results of each of the Sale Companies for the two years ended 31st December, 2001 and for the 11 months ended 30th November, 2002, adjusted for the impairment loss on an advance to an associate of approximately HK$55.6 million and HK$0.1 million for the year ended 31st December, 2001 and for the 11 months ended 30th November, 2002 respectively, is set out below.

	For the year ended	For the year ended	11 months ended
	31st December,		30th November,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	26,542	24,160	11,380
Operating (loss)/profit	(39,626)	12,261	(1,597)
(Loss)/profit before taxation	(125,389)	7,170	(7,004)
(Loss)/profit for the year/period
attributable to shareholders	(126,559)	6,078	(7,269)

The adjusted aggregate audited net liabilities of each of the Sale Companies were approximately HK$36.2 million and HK$67.3 million as at 31st December, 2001 and 30th November, 2002.

The combined audited net liabilities of the Sale Companies as at 30th November, 2002 prepared on the basis of presentation set out in the accountants’ report of the Sale Companies in appendix I to this circular were approximately HK$11.6 million without taking account of the impairment loss on advance to an associate of approximately HK$55.7 million.

Hillier Property

Super Series is a company incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of Chi Cheung. The principal asset of Super Series is its 100% interest in a company holding the entire interest of the Hillier Property.

The Hillier Property is located at Nos. 253–265 Queen’s Road Central and Nos. 30–38 Hillier Street, Hong Kong and has a site area of approximately 4,570 sq.ft.. At present, it is expected that a residential/commercial building with total gross floor area of approximately 42,314 sq.ft. will be built on the site. The foundation works for the development of Hillier Property has been completed and superstructure works have commenced in mid 2002. The estimated completion date of the development of Hillier Property is in the fourth quarter of 2003. The Hillier Property (valued at

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

approximately HK$190 million as at 30th June, 2000) was injected into Chi Cheung with reference to its valuation as at 30th June, 2000 by Chinese Estates pursuant to a debt restructuring proposal in 2000.

A summary of the audited consolidated results of Super Series for the two years ended 31st December, 2001 and the audited consolidated results of Super Series for the 11 months ended 30th November, 2002 is set out below.

	For the year ended	For the year ended	11 months ended
	31st December,		30th November,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	–	–	–
Other operating income	14	–	6
Other operating expenses	(8)	(30)	(15)
Impairment loss recognised on
property under development	(49,569)	(35,544)	(15,946)
Loss before taxation	(49,563)	(35,574)	(15,955)
Loss for the year/period attributable
to shareholders	(49,563)	(35,574)	(15,955)

The audited consolidated net liabilities of Super Series were approximately HK$202.9 million and HK$218.8 million as at 31st December, 2001 and 30th November, 2002.

CAPITAL REORGANISATION

As at the Latest Practicable Date, the authorised share capital of Chi Cheung was HK$500,000,000 divided into 5,000,000,000 Chi Cheung Shares, of which 2,971,305,343 Chi Cheung Shares had been issued and were fully paid. In order to facilitate the Asset Transaction, the directors of Chi Cheung would propose the Capital Reorganisation to be approved at the EGM:

(i) to consolidate every 50 Chi Cheung Shares of HK$0.10 each in the issued and unissued share capital of Chi Cheung into one CC Consolidated Share of HK$5.00 each;
(ii) to reduce the nominal value of each issued and unissued CC Consolidated Share from HK$5.00 each to New Share of HK$0.01 each; and
(iii) immediately after the Capital Reduction becoming effective, to restore the authorised share capital of Chi Cheung to the original amount of HK$500,000,000.

Share Consolidation and Capital Reduction

The Share Consolidation will be made whereby every 50 shares of Chi Cheung (whether issued or unissued) of HK$0.10 each will be consolidated into one CC Consolidated Share of HK$5.00 each and fractions of a CC Consolidated Share will not be issued. After the Share Consolidation, the nominal value of the issued and unissued CC Consolidated Shares will be reduced from HK$5.00 to HK$0.01 each pursuant to the Capital Reduction.

The credit of approximately HK$296,536,273.2 expected to arise as a result of the Capital Reduction will, to the extent permitted by the Court and subject to any conditions which the Court may impose, be applied towards the elimination of the accumulated losses of Chi Cheung.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

As at the Latest Practicable Date, there were no outstanding employees share options and there were 594,261,068 outstanding Warrants. If any such Warrants were to be exercised prior to the effective date of the Capital Reorganisation, additional Chi Cheung Shares would be in issue and the additional credit would arise from the Capital Reduction. Such credit (if any), to the extent permitted by the Court and subject to any conditions which the Court may impose, will also be applied towards the elimination of the accumulated losses of Chi Cheung. The remaining balance of such credit (if any) will be transferred to the special capital reserve account of Chi Cheung.

The New Shares will be traded in board lots of 2,000 New Shares. The New Shares to be in issue would rank pari passu in all respects with each other as to dividends, voting rights and capital. The New Shares would have all rights of ordinary shares and would be listed. The voting power of the New Shares will bear a reasonable relationship to the equity interest of such shares when fully paid as required by the Listing Rules.

Upon the Capital Reorganisation becoming effective, the number of New Shares resulted from the exercise of the Warrants and/or the exercise price of the Warrants shall be adjusted in accordance with the terms of the instrument constituting the Warrants. The Capital Reorganisation will not have any effect on the remaining terms of the Warrants.

If Chi Cheung shall issue any further warrants prior to the effective date of the Capital Reorganisation, Chi Cheung will request the auditors of Chi Cheung to provide a certificate as to the adjustment (if any) required to be made in accordance with the terms and conditions of the Warrants once the Capital Reorganisation becomes effective.

Effects of the Capital Reduction and the Increase in Capital

As at the Latest Practicable Date, the authorised share capital of Chi Cheung was HK$500,000,000 comprising 5,000,000,000 Chi Cheung Shares of which 2,971,305,343 Chi Cheung Shares had been issued and were fully paid. On the basis of such issued share capital, there will be 59,426,106 New Shares in issue immediately upon the Share Consolidation and Capital Reduction becoming effective and the total value of the issued share capital of Chi Cheung will be reduced from HK$297,130,534.3 to HK$594,261.1. Immediately upon the Share Consolidation and the Capital Reduction becoming effective, the authorised share capital of Chi Cheung will be HK$1,000,000 divided into 100,000,000 New Shares.

It is further proposed that immediately after the Share Consolidation and the Capital Reduction becoming effective, the authorised share capital of Chi Cheung will be restored to the original amount of HK$500,000,000 by the creation of the requisite number of New Shares. Accordingly, it is expected that 49,900,000,000 additional New Shares will be created.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

The effect of the Capital Reorganisation is tabulated as follows:

			Immediately after
Before		the Capital	the Capital Reorganisation
	Reorganisation		becoming effective
	(extracted from		(assuming no Warrants
the audited accounts			were to be exercised and
of	Chi	Cheung for	no change in these amounts
	the	year ended	has occurred since the
31st December, 2001)			Latest Practicable Date)
	(HK$ million)		(HK$ million)
Authorised share capital:
5,000,000,000 Chi Cheung Shares		500.0	–
50,000,000,000 New Shares		–	500.0
		500.0	500.0

Shareholders’ funds:
Issued share capital:
2,971,305,343 Chi Cheung Shares		297.1	–
59,426,106 New Shares		–	0.6
Share premium		66.2	66.2
Accumulated losses		(297.8) (1.3)
		65.5	65.5

Implementation of the Capital Reorganisation, which involves the Share Consolidation, the Capital Reduction and the Increase in Capital will not, by themselves or either of them, alter the underlying assets, business operations, management or financial position of Chi Cheung and the Chi Cheung Group or the proportionate interests of the shareholders in Chi Cheung, except for the payment of the related expenses (including legal costs, printing and related expenses) which is expected to be approximately HK$1.0 million. The Chi Cheung Board believes that the Capital Reorganisation will not have any material adverse effect in the financial position of the Chi Cheung Group. Further, the Capital Reduction will not involve either the diminution of any liability in respect of any unpaid capital of Chi Cheung or the repayment to the shareholders of Chi Cheung of any paid up capital of Chi Cheung. The amount of approximately HK$296,536,273.2 arising from the cancellation of the paid up capital pursuant to the Capital Reduction, to the extent permitted by the Court and subject to any conditions which the Court may impose, be applied towards the elimination of the accumulated losses of Chi Cheung.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Conditions of the Capital Reorganisation

It is expected that the Capital Reorganisation will be conditional upon the following:

(i) a special resolution to approve the Share Consolidation and the Capital Reduction being passed at the EGM;
(ii) an ordinary resolution to approve the Increase in Capital being passed at the EGM;
(iii) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the New Shares; and
(iv) the confirmation by the Court of the Capital Reduction and the registration by the Registrar of Companies in Hong Kong of an office copy of the Court order and the minutes containing the particulars required under Section 61 of the Companies Ordinance.

Assuming the above conditions are fulfilled, it is expected that the Capital Reduction will become effective immediately following the registration of the Court order and the minutes containing the particulars required by Section 61 of the Companies Ordinance. An application will be made to the Court in respect of the Capital Reduction.

The Capital Reorganisation is not conditional on the completion of the Asset Transaction. The Asset Transaction is conditional upon the Capital Reorganisation becoming effective.

Trading Arrangement for the New Shares

The Chi Cheung Shares are listed and dealt in on the Stock Exchange. No part of the Chi Cheung’s securities are listed or dealt in on any other stock exchange, nor is listing or permission to deal in on any other stock exchange being or proposed to be sought. An application will be made to the Listing Committee of the Stock Exchange for the grant of the listing of, and permission to deal in, the New Shares pending the Capital Reorganisation becoming effective.

The New Shares will be listed on the Stock Exchange only and not on any other stock exchange. All necessary arrangements will be made enabling the New Shares to be admitted into CCASS.

Subject to the granting of the listing of, and permission to deal in, the New Shares on the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Upon the Capital Reorganisation becoming effective, the arrangement proposed for dealings in the New Shares are expected to be as follows:

(i) From 14th May, 2003, the original counter for trading in Chi Cheung Shares in board lots of 2,000 Chi Cheung Shares will be temporarily closed. A temporary counter will be established for trading in the New Shares in board lots of 40 New Shares. Certificates for Chi Cheung Shares may only be traded at this temporary counter.
(ii) With effect from 28th May, 2003, the original counter for trading in Chi Cheung Shares will be re-opened for trading in the New Shares in board lots of 2,000 New Shares.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

(iii) From 28th May, 2003 to 19th June, 2003, both days inclusive, there will be parallel trading at the above two counters.
(iv) The temporary counter for trading in the New Shares in board lots of 40 New Shares will be removed after the close of trading on 19th June, 2003. Thereafter, trading will be in New Shares only and the existing share certificates for Chi Cheung Shares will cease to be marketable and will not be acceptable for dealing purpose. However, such share certificates will remain effective as documents of title.

Free exchange of certificates

Assuming that the Capital Reorganisation will become effective, new share certificates for the New Shares will be issued in light purple colour in order to distinguish them from existing share certificates (in pink colour) for the Chi Cheung Shares.

Shareholders of Chi Cheung may exchange their existing share certificates for new share certificates free of charge by delivering the existing share certificates to the share registrar and transfer office of Chi Cheung, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong. Based on the current expected timetable, shareholders of Chi Cheung may do so from 14th May, 2003 to 25th June, 2003 (both dates inclusive). Thereafter, existing share certificates will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) for each new share certificate issued for the New Shares. The existing share certificates will cease to be valid for trading after the temporary counter for trading in the New Shares in board lots of 40 New Shares shall close (which is currently expected to be on 19th June, 2003) but will continue to be good evidence of legal title to the Chi Cheung Shares and may be exchanged into new share certificates in accordance with the foregoing. A shareholder of Chi Cheung will be entitled to aggregate his/her Chi Cheung Shares registered in his/her name in order to obtain new share certificates in the board lots of 2,000 New Shares. Details and exact dates of such free exchange of share certificates will be announced as soon as the effective date of the Capital Reduction is ascertainable.

It is expected that new share certificates will be available for collection on or before the 10th Business Day from the date of submission of the existing share certificates to the share registrar and transfer office of Chi Cheung, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong for exchange. Unless otherwise instructed by the shareholders of Chi Cheung at the time of delivering the existing share certificate(s) to the share registrar and transfer office of Chi Cheung, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong for exchange, new share certificates will be issued in board lots of 2,000 New Shares.

Arrangement for odd lot trading

In order to facilitate the trading of odd lots of New Shares, Chi Cheung has procured a broker to arrange for the sale and purchase of odd lots of New Shares on behalf of the shareholders of Chi Cheung, at prevailing market prices. Based on the current expected timetable, the odd lots trading arrangement will be available from 14th May, 2003 to 19th June, 2003 (both dates inclusive). Shareholders of Chi Cheung should note that the sale and purchase of odd lots of New Shares are not guaranteed and all related transaction costs and commission shall be payable by the shareholders of Chi Cheung. Holders of odd lots of New Shares who wish to take advantage of this facility in order to dispose of odd lots or to top-up odd lots to board lots should contact Mr. Albert Tam of Fair Eagle Securities Company Limited at 3rd Floor, Hong Kong Diamond Exchange Building, 8 Duddell Street, Central, Hong Kong (telephone no. 2526 2538) within the aforesaid period. If shareholders of Chi Cheung are in any doubt, they are recommended to consult their stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If the Capital Reorganisation results in any shareholder of Chi Cheung becoming entitled to fractions of a New Share, all such fractions will, after the end of the odd lots trading arrangement, be aggregated and sold by an agent appointed by the directors of Chi Cheung for that purpose, and the proceeds of such sale will be retained for the benefit of Chi Cheung.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

REASONS FOR THE ASSET TRANSACTION AND THE CAPITAL REORGANISATION

The Chinese Estates Group is principally engaged in property investment and development in Hong Kong and China. Its property portfolio comprises properties held for investment, properties under development, properties held for future development, properties held for sale, properties contracted to be sold and properties contracted to be acquired.

As mentioned in the joint document of Chinese Estates and Chi Cheung dated 29th August, 2000, it has been the intention of Chinese Estates to develop Chi Cheung into its Hong Kong property development arm upon completion of the acquisition of majority stake in Chi Cheung by Chinese Estates. It was also mentioned that future opportunities for investment in property development projects would be given to Chi Cheung subject to its financial strength, size of the investment opportunity, the joint venture partner, where applicable, and other circumstantial factors surrounding the investment opportunity.

Due to the continuous deterioration of the property market in Hong Kong after late 2000, the directors of Chinese Estates consider that the previous intention to develop Chi Cheung into its property development arm may not be beneficial to the Chi Cheung Group and the Group taken as a whole but it would be of the interest of the Group to undergo a group reorganisation with an aim to re-focus the property business of the Chi Cheung Group. The reasons are as follows:

(i) the Hillier Property was injected into Chi Cheung by Chinese Estates pursuant to a debt restructuring proposal in 2000. It has been some two years since the Chinese Estates Group completed the acquisition of Chi Cheung. During such period, Chi Cheung has held a property as investment before the disposal of such property, Chi Cheung has been operating virtually as a single project company with only the Hillier Property under development. As the Hillier Property is yet to complete, the Chi Cheung Group has been recording a minimal level of revenue;
(ii) given the current financial position and property portfolio of the Chi Cheung Group, it would be difficult for the Chi Cheung Group to undertake any further meaningful development projects by itself without the support of Chinese Estates. This is evidenced by the Chinese Estates Group providing guarantee to Chi Cheung for the purpose of obtaining bank finance for the development of the Hillier Property;
(iii) over the past year, the property development market is deteriorating with the supply of stock of unsold properties continuously exceeding demand and taking account of the inherent risks to property development business, it is not expected that the business operation of the Chi Cheung Group would experience any significant improvement in the near future; and
(iv) the Asset Transaction provides an opportunity for the Chi Cheung Group to strengthen not only its capital base, but also the income base. As Chi Cheung is a subsidiary of Chinese Estates, the Chinese Estates Group will benefit from the growth of Chi Cheung.

The directors of Chinese Estates consider that the primary aim of the re-focus is to provide an income base and greater flexibility to the Chi Cheung Group for its future development. In this regard, properties held for resale, “small-sized” investment properties and those properties (other than properties under development) in which the Chinese Estates Group does not have a majority interest and/or is not the single largest shareholder and those vacant sites held for future development in Hong Kong and China would be transferred from the Chinese Estates Group to the Chi Cheung Group, except for property no. 1 (which is a “large-sized” investment property) which would be transferred to the Chi Cheung Group as it is at the same location of property no. 8 and, as such, the Hillier Property would be transferred from the Chi Cheung Group to the Chinese Estates Group.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

The Properties to be transferred from the Chinese Estates Group to the Chi Cheung Group comprise interests in 13 properties, which were valued at approximately HK$640.0 million as at 30th November, 2002 by Norton Appraisals Limited, an independent professional property valuer while the Hillier Property was valued at approximately HK$125.0 million as at the same date by the same valuer. The Properties have generated an attributable rental income amounting to approximately HK$1.7 million in November 2002. On disposal of the Properties, the Chinese Estates Group will record a profit of approximately HK$187.3 million. On disposal of the Hillier Property, the Chi Cheung Group recorded a loss of approximately HK$15.9 million, which has been reflected in the consolidated results of Chi Cheung Group for the 11 months ended 30th November, 2002.

The directors of Chi Cheung consider that the Asset Transaction is beneficial to the shareholders of Chi Cheung. The reasons are as follows:

(i) through disposal and/or reinvestment of the Properties as and when opportunities arise, the Chi Cheung Group may be able to capture opportunities that were not made available to it before the Asset Transaction. The directors of Chi Cheung consider that although the Hillier Property, being a residential/commercial building of an estimated gross floor area of 42,314 square feet, is scheduled to be completed in the fourth quarter of 2003, thus would by then provide a return to the Chi Cheung Group, it would be difficult for the Chi Cheung Group to further develop its property business on the basis of the existing resources; and
(ii) the Asset Transaction provides an opportunity for the Chi Cheung Group to strengthen not only its capital base, but also the income base.

As such, the directors of Chi Cheung have decided to put forward the Asset Transaction to the independent shareholders for their consideration.

Chinese Estates will endeavour to avoid direct competition between Chinese Estates itself and Chi Cheung. Chinese Estates is aware that there may be potential competition and conflict of interests as the Chinese Estates Group is principally engaged in property investment and development. Upon completion of the Asset Transaction, Chinese Estates Group will continue to engage in the property investment and development business while Chi Cheung will conduct its property business with focus on property investment and property trading. It is expected that upon completion of the Asset Transaction, Chinese Estates will focus on relatively larger size investment properties while Chi Cheung will focus on relatively smaller size investment properties. It is intended that Chi Cheung Group will hold the Properties and, should opportunities arise, dispose of the Properties. It is also intended that the Chi Cheung Group will engage in the property investment and trading business after the Asset Transaction depending on the resources available to it. The directors of Chi Cheung will also explore other business opportunities, if available, for the Chi Cheung Group to grow and prosper.

In order to achieve a better delineation of the property investment business between Chinese Estates and Chi Cheung upon completion of the Asset Transaction, the directors of Chinese Estates consider that for any future property investment project with the value of less than or equal to 50% of the net asset value of the Chi Cheung Group as from time to time (with reference to the latest published accounts), Chinese Estates will, so long as Chinese Estates is the controlling shareholder (as that term is defined from time to time in the Listing Rules) of Chi Cheung, give Chi Cheung the first right of refusal to undertake the project, subject to the financial resources of Chi Cheung at that time. Details of the relevant property investment project will be disclosed in the annual report of Chi Cheung and is subject to review by the directors (both executive directors and independent non-executive directors) annually.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

The directors of Chinese Estates note that the Asset Transaction would constitute a change in the intention as set out in the joint document of Chinese Estates and Chi Cheung dated 29th August, 2000 as mentioned above. Nevertheless, the directors of Chinese Estates also note that the terms of the Asset Transaction would be opined by the independent financial advisers of Chinese Estates and Chi Cheung and subject to their respective independent shareholders approval.

Chinese Estates was established in 1922 in Hong Kong with limited liability and Chi Cheung became a member of the Group in November 2000. As at 30th June, 2002, the net asset value per Chi Cheung Share was approximately HK$0.045 and the closing price of the Chi Cheung Shares were in the range of HK$0.026 and HK$0.048 with an average closing price of HK$0.031 during the past 3-month period, all of which amount are below the nominal value of the Chi Cheung Shares of HK$0.10. Under the Companies Ordinance, it is not permissible for a company to issue shares at a discount to the nominal value of such share without the consent of the Court. In order to facilitate the Asset Transaction and provide flexibility for further issue of shares in Chi Cheung, the directors of Chi Cheung believe that it would be beneficial to Chi Cheung to effect a proposal which would result effectively in a reduction in nominal value of the ordinary shares in Chi Cheung. As mentioned above, it is estimated that an equivalent of approximately 11,375.6 million Chi Cheung Shares (equivalent to approximately 227.5 million New Shares) will be issued as consideration under the S&P Agreement. As such, it is also estimated that Chinese Estates would have an equivalent of some 13,535.1 million Chi Cheung Shares (equivalent to approximately 270.7 million New Shares) in issue upon completion of the S&P Agreement. To enhance the market value of each share in Chi Cheung, the directors of Chi Cheung also believe that it would be beneficial to Chi Cheung to effect a proposal to consolidate the shares in Chi Cheung. The directors of Chi Cheung consider that the Capital Reorganisation is in the interests of Chi Cheung and is permissible under the Companies Ordinance.

SHAREHOLDING STRUCTURE OF CHI CHEUNG

Set out below is a table showing the existing shareholding structure of Chi Cheung (i) before the Capital Reorganisation becoming effective and the issue of the New Shares as part of the CC Consideration; (ii) after the Capital Reorganisation becoming effective but before the issue of New Shares as part of the CC Consideration; and (iii) after the Capital Reorganisation becoming effective and the issue of the New Shares as part of the CC Consideration, assuming no Warrants were exercised during the period from the Latest Practicable Date to the completion of the Asset Transaction and the Capital Reorganisation.

	Existing shareholding	Shareholding structure	Shareholding structure	Shareholding structure
	structure of Chi Cheung	of Chi Cheung after the	of Chi Cheung after the
	before the Capital	Capital Reorganisation	Capital Reorganisation
	Reorganisation becoming	becoming effective but	becoming effective
	effective and the issue of	before the issue of the	and the issue of	the
	the New Shares	New Shares	New Shares
	as part of the	as part of the	as part of the
	CC Consideration	CC Consideration	CC Consideration
	Number of	Number of	Number of
	shares %	shares %	shares	%
Chinese Estates	2,159,475,904 72.7	43,189,518 72.7	270,695,776	94.3
Public shareholders
of Chi Cheung	811,829,439 27.3	16,236,588 27.3	16,236,588	5.7
	2,971,305,343 100.0	59,426,106 100.0	286,932,364	100.0

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

The directors of Chinese Estates and of Chi Cheung note that after taking account of the issue of the New Shares to be issued as part of the CC Consideration, assuming no Warrants were exercised during the period from the Latest Practicable Date to the completion of the Capital Reorganisation, Chinese Estates would be interested in approximately 270.7 million New Shares, representing approximately 94.3% of the then issued share capital of Chi Cheung. It is the intention of Chinese Estates to maintain the listing of Chi Cheung on the Stock Exchange. The directors of Chi Cheung are aware of the regulatory requirement of rule 8.08 of the Listing Rules and noncompliance of such rule will constitute a breach of the Listing Rules. In this relation, Chinese Estates and Chi Cheung have undertaken to the Stock Exchange that appropriate steps will be taken to ensure that sufficient public float as required under the Listing Rules will be restored for the New Shares, as soon as practicable, following completion of the Asset Transaction and the Capital Reorganisation. Depending on the market conditions, such steps may involve placement of shares and/or distribution of shares. Further announcement will be made in respect of the details of the arrangement.

The Stock Exchange has stated that, if less than 25% of the issued New Shares are in public hands following the completion, or if the Stock Exchange believes that a false market exists or may exist in the trading of the New Shares or that there are insufficient New Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the New Shares.

The Stock Exchange has also stated that in the event that less than 10% of the issued New Shares are held by the public at completion of the Asset Transaction and the Capital Reorganisation, it will exercise its discretion to suspend trading in the New Shares.

INFORMATION ON CHINESE ESTATES

Chinese Estates is an investment holding company incorporated in Bermuda with limited liability and its shares are listed on the Stock Exchange. The Group is principally engaged in the property investment and development, securities investment and brokerage and money lending.

A summary of the audited consolidated results of the Group for each of the two years ended 31st December, 2001 and the unaudited consolidated results for the six months ended 30th June, 2002 is set out below.

	For the year ended	For the year ended	Six months ended
	31st December,		30th June,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	649,698	714,520	395,031
Operating profit/(loss)	459,584	232,864	(89,083)
Loss before taxation	(469,322)	(679,263)	(218,625)
Loss before minority interests	(481,536)	(622,245)	(233,004)
Loss for the year/period attributable
to shareholders	(472,598)	(535,797)	(177,804)

As at 30th June, 2002, the unaudited consolidated net tangible assets of the Group were approximately HK$15,518 million, or approximately HK$6.51 per share (based on 2,382,544,134 shares of Chinese Estates in issue as 30th June, 2002).

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

INFORMATION ON CHI CHEUNG

Chi Cheung is an investment holding company incorporated in Hong Kong with limited liability and its securities are listed on the Stock Exchange. The Chi Cheung Group is principally engaged in property investment and development.

A summary of the audited consolidated results of the Chi Cheung Group for each of the two years ended 31st December, 2001 and the unaudited consolidated results for the six months ended 30th June, 2002 is set out below.

	For the year ended	For the year ended	Six months ended
	31st December,		30th June,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	5,158	4,612	1,175
Operating loss	(40,736)	(42,697)	(974)
Profit/(loss) before taxation	478,181	(47,133)	(819)
Profit/(loss) before minority interests	476,127	(46,630)	(819)
Profit/(loss) for the year/period
attributable to shareholders	584,916	(46,630)	(819)

As at 30th June, 2002, the unaudited consolidated net tangible assets of the Chi Cheung Group were approximately HK$135 million, or approximately HK$0.045 per share (based on 2,971,305,343 Chi Cheung Shares in issue as at 30th June, 2002).

MAINTAINING LISTING OF CHI CHEUNG

Upon completion of the Asset Transaction, it is the intention of Chinese Estates to maintain the listing of Chi Cheung on the Stock Exchange. The directors of Chinese Estates note that after taking account of the issue of the New Shares as part of the CC Consideration, assuming no Warrants were exercised during the period from the Latest Practicable Date to completion of the Capital Reorganisation and the Asset Transaction, Chinese Estates would be interested in 270,695,776 New Shares, representing approximately 94.3% of the then issued share capital of Chi Cheung. In this relation, Chinese Estates and Chi Cheung have undertaken to the Stock Exchange that appropriate steps will be taken to ensure that sufficient public float as required under the Listing Rules will be restored for the New Shares, as soon as practicable, following completion of the Asset Transaction and the Capital Reorganisation. Depending on the market conditions, such steps may involve placement of shares and/or distribution of shares. Further announcement will be made in respect of the details of the arrangement.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

GENERAL MANDATE TO REPURCHASE NEW SHARES

At the EGM, an ordinary resolution will be proposed to grant to the directors of Chi Cheung authority, conditional upon the Capital Reorganisation becoming effective and completion of the S&P Agreement, to repurchase, as for the fully paid New Shares, of up to 10% of the share capital of Chi Cheung in issue immediately following the Capital Reorganisation becoming effective and completion of the S&P Agreement.

The Repurchase Mandate, when becomes effective, will remain in effect until the earliest of (i) the conclusion of the next annual general meeting of Chi Cheung; (ii) the expiration of the period within which the next annual general meeting of Chi Cheung is required to be held by the law or the articles of association of Chi Cheung; and (iii) its revocation or variation by an ordinary resolution of the shareholders of Chi Cheung in general meeting.

An explanatory statement in relation to the Repurchase Mandate as required by the relevant provisions of the Listing Rules concerning the regulation of repurchases by companies of their own securities on the Stock Exchange is set out in appendix V to this circular.

GENERAL MANDATE TO ISSUE NEW SHARES

At the EGM, an ordinary resolution will also be proposed that the directors of Chi Cheung be given, conditional upon the Capital Reorganisation becoming effective and completion of the S&P Agreement, a general mandate to allot, issue and deal with New Shares not exceeding 20% of the aggregate nominal amount of the share capital of Chi Cheung in issue immediately following the Capital Reorganisation becoming effective and completion of the S&P Agreement in order to increase the flexibility for raising capital to facilitate expansion plan of Chi Cheung as the directors of Chi Cheung consider appropriate.

The General Mandate, when becomes effective, will remain in effect until the earliest of (i) the conclusion of the next annual general meeting of Chi Cheung; (ii) the expiration of the period within which the next annual general meeting of Chi Cheung is required to be held by the law or the articles of association of Chi Cheung; and (iii) its revocation or variation by an ordinary resolution of the shareholders of Chi Cheung in general meeting.

In addition, if the Repurchase Mandate is granted, an ordinary resolution will be proposed at the EGM providing that any New Shares repurchased under the Repurchase Mandate will be added to the total number of the New Shares which may be allotted and issued under the General Mandate.

With respect to the Repurchase Mandate and the General Mandate, the directors of Chi Cheung wish to state that they have no present intention of exercising the Repurchase Mandate to repurchase the New Shares and the General Mandate to allot New Shares in the share capital of Chi Cheung upon the Capital Reorganisation becoming effective and completion of the S&P Agreement.

EGM

Set out on pages 152 to 155 of this circular is a notice convening the EGM to be held at 10:45 a.m. on Friday, 28th March, 2003 at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong at which resolutions will be proposed to the shareholders of Chi Cheung to approve the Asset Transaction, the Capital Reorganisation, the General Mandate and the Repurchase Mandate. As at the Latest Practicable Date, Chinese Estates was interested in 2,159,475,904 Chi Cheung Shares, representing approximately 72.7% of the existing issued share capital of Chi Cheung. In view of Chinese Estates’s interest in the Asset Transaction, Chinese Estates will abstain from voting on the resolution in respect of the Asset Transaction at the EGM.

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

A white form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the registrar and transfer office of Chi Cheung, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time for the holding of the EGM. Completion and the return of the white form of proxy will not preclude you from attending and voting in person at the EGM should you so wish.

SGM

Set out on page 156 of this circular is a notice convening the SGM to be held at 10:00 a.m. on Friday, 28th March, 2003 at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong at which an ordinary resolution will be proposed to the shareholders of Chinese Estates to approve the Asset Transaction. As at the Latest Practicable Date, Mr. Joseph Lau, Mr. Thomas Lau and their respective Associates were interested in 1,649,460,855 shares in Chinese Estates, representing approximately 72.5% of the issued share capital of Chinese Estates. In compliance with the undertaking given by Chinese Estates to the Stock Exchange on 20th September, 1990 (as supplemented and amended), they will abstain from voting the resolution in respect of the Asset Transaction at the SGM.

A blue form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch registrar and transfer office of Chinese Estates in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in an event not less than 48 hours before the time for the holding of the SGM. Completion and the return of the blue form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.

ADVICE

The directors of Chi Cheung consider that the Capital Reorganisation is in the interest of Chi Cheung. Accordingly, the directors of Chi Cheung recommend the shareholders of Chi Cheung to vote in favour of the resolutions relating to the Capital Reorganisation to be proposed at the EGM.

The Chi Cheung Independent Director has been appointed to advise the independent shareholders of Chi Cheung in relation to the Asset Transaction. As Mr. Shum, Man-wai is currently a partner of Messrs. Sit, Fung, Kwong & Shum, a law firm acting as the Hong Kong legal adviser of Chinese Estates in respect of the S&P Agreement and the Asset Transaction, he is not considered to be sufficiently independent for the purpose of advising the independent shareholders of Chi Cheung. The independent non-executive director, Mr. Eddie Chan, Kwok-wai, will advise the independent shareholders of Chi Cheung in this connection. Quam has been appointed as the independent financial adviser to advise the Chi Cheung Independent Director on his advice to the independent shareholders of Chi Cheung concerning the Asset Transaction. The advice of the Chi Cheung Independent Director and the advice from Quam to the Chi Cheung Independent Director in respect of the Asset Transaction are set out on page 28 and pages 30 to 40 of this circular respectively.

The Chinese Estates Independent Director has been appointed to advise the independent shareholders of Chinese Estates in relation to the Asset Transaction. As Ms. Constance Choy, Hokman is currently a partner of Messrs. Sidley Austin Brown and Wood, a law firm acting as the Hong Kong legal adviser of Chi Cheung in respect of the S&P Agreement and the Asset Transaction, she is not considered to be sufficiently independent for the purpose of advising the independent

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

shareholders of Chinese Estates. The independent non-executive director, Ms. Wong, Sin-yee, will advise the independent shareholders of Chinese Estates in this connection. CPY has been appointed as the independent financial adviser to advise the Chinese Estates Independent Director on her advice to the independent shareholders of Chinese Estates concerning the Asset Transaction. The advice of the Chinese Estates Independent Director and the advice from CPY to the Chinese Estates Independent Director in respect of the Asset Transaction are set out on page 29 and pages 41 to 51 of this circular respectively.

ADDITIONAL INFORMATION

Application will be made to the Listing Committee of the Stock Exchange seeking approval for the listing of, and permission to deal in the New Shares pending the Capital Reorganisation becoming effective.

The Asset Transaction constitutes a connected transaction for Chinese Estates as Chi Cheung is a non wholly-owned subsidiary of Chinese Estates and is subject to the approval of the independent shareholders of Chinese Estates.

The Capital Reorganisation is subject to, among other things, the approval by the shareholders of Chi Cheung and confirmation by the Court.

Your attention is drawn to (i) the accountants’ report on the Sale Companies; (ii) the financial information on the Chi Cheung Group; (iii) the property valuation report of the Properties; (iv) the property valuation report of the Hillier Property; (v) explanatory statement relating to grant of Repurchase Mandate of Chi Cheung (vi) the general information on the Chi Cheung Group; and (vii) the general information on the Chinese Estates Group set out in appendices to this circular.

Yours faithfully, For and on behalf of Chinese Estates Board Thomas Lau, Luen-hung Chairman

Yours faithfully, For and on behalf of Chi Cheung Board Thomas Lau, Luen-hung Chairman

LETTER FROM THE CHI CHEUNG INDEPENDENT DIRECTOR

==> picture [72 x 42] intentionally omitted <==

CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

(Incorporated in Hong Kong with limited liability)

5th March, 2003

To the independent shareholders of Chi Cheung

Dear Sir or Madam,

I have been appointed to advise you in connection with the Asset Transaction, details of which are set out in the “Joint letter from the Chinese Estates Board and the Chi Cheung Board” contained in the joint circular of Chi Cheung and Chinese Estates dated 5th March, 2003 (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.

Having considered the terms of the Asset Transaction and the advice from Quam in relation thereto as set out on pages 30 to 40 of the Circular, I concur with the view of Quam that the Asset Transaction is in the interest of the independent shareholders of Chi Cheung and the terms and conditions of the S&P Agreement are fair and reasonable so far as the independent shareholders of Chi Cheung are concerned. I therefore recommend that you vote in favour of the resolutions to be proposed at the EGM to approve the Asset Transaction.

Yours faithfully,

Eddie Chan, Kwok-wai

Independent non-executive director of Chi Cheung

LETTER FROM THE CHINESE ESTATES INDEPENDENT DIRECTOR

==> picture [65 x 54] intentionally omitted <==

CHINESE ESTATES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

5th March, 2003

To the independent shareholders of Chinese Estates

Dear Sir or Madam,

Having considered the Asset Transaction and the advice from CPY in relation thereto as set out on pages 41 to 51 of the Circular, I concur with the view of CPY that the Asset Transaction is in the interest of the independent shareholders of Chinese Estates and the terms of the Asset Transaction are fair and reasonable so far as the independent shareholders of Chinese Estates are concerned. I therefore recommend that you vote in favour of the resolution to be proposed at the SGM to approve the Asset Transaction.

Yours faithfully,

Wong, Sin-yee

Independent non-executive director of Chinese Estates

LETTER FROM QUAM

The following is the text of a letter of advice from Quam, the independent financial adviser to the Chi Cheung Independent Director, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Chi Cheung Independent Director in connection with the Asset Transaction.

Q u a m C a p i t a l L i m i t e d

A Subsidiary of Quam Limited

香港中環畢打街11號置地廣場告羅士打大廈3308室 Room 3308 Gloucester Tower The Landmark 11 Pedder Street Central, Hong Kong

5th March, 2003

The Chi Cheung Independent Director Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

PROPOSED ASSET TRANSACTION MAJOR AND CONNECTED TRANSACTION

We refer to our appointment as the independent financial adviser to the Chi Cheung Independent Director in respect of the proposed Asset Transaction. Details of the proposed Asset Transaction are set out in the joint letter from the Chinese Estates Board and the Chi Cheung Board contained in the joint circular issued by Chinese Estates and Chi Cheung to their respective shareholders dated 5th March, 2003 (the “Joint Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Joint Circular unless the context otherwise requires.

As the independent financial adviser to the Chi Cheung Independent Director, our role is to give an independent opinion as to whether the terms and conditions of the proposed Asset Transaction are, or are not fair and reasonable as far as the independent shareholders of Chi Cheung are concerned.

In formulating our opinion, we have relied on the information and facts supplied to us by Chi Cheung and its advisers. We have assumed that all the information and representations contained or referred in the Joint Circular concerning the Chi Cheung Group and the Chinese Estates Group, which have been provided by their respective directors and for which they are wholly responsible, were true and accurate in all respect at the date thereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Joint Circular were true at the time they were made and continue to be true at the date of the Joint Circular. We have no reason to doubt the truth, accuracy and completeness of the information provided, and representations made, to us by the directors of Chi Cheung, and we have sought and received confirmation from them that no material factors have been omitted from the information supplied and referred to in the Joint Circular.

We consider that we have reviewed sufficient information to reach an informed view and to provide a reasonable basis for our recommendation regarding the proposed Asset Transaction. We have not, however, conducted an independent investigation into the affairs of the Chi Cheung Group or the Chinese Estates Group.

LETTER FROM QUAM

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the proposed Asset Transaction, we have considered the following principal factors and reasons:

Background of and reasons for the proposed Asset Transaction

Chinese Estates became the holding company of Chi Cheung in November 2000, and it injected the Hillier Property, a project under development into Chi Cheung in the same year. Ever since then Chi Cheung has been operating virtually as a single project company.

It was stated in the joint document of Chinese Estates and Chi Cheung dated 29th August, 2000, that it was the intention of Chinese Estates to develop Chi Cheung into its Hong Kong property development arm, and that future opportunities for investment in property development projects would be given to Chi Cheung subject to its financial strength, size of investment opportunity, the joint venture partner, where applicable, and other circumstantial factors surrounding the investment opportunity.

In the Joint Circular, the directors of Chinese Estates consider that the previous intention of Chinese Estates regarding the future development of Chi Cheung as mentioned above may not be beneficial to the Chi Cheung Group and the Group as a whole, due to the continuous deterioration of the property market in Hong Kong after late 2000. They also consider that it would be in the interest of the Group to undergo a group reorganisation with an aim to re-focus the property business of the Chi Cheung Group, in order to provide it with an income base and greater flexibility for its future development.

Under the proposed Asset Transaction, the Properties, which comprised of interests in 13 properties, will be transferred from the Chinese Estates Group to the Chi Cheung Group (the “Acquisition”). On the other hand, the Hillier Property, the sole property project currently owned by the Chi Cheung Group will be transferred from the Chi Cheung Group to the Chinese Estates Group (the “Disposal”).

The Hillier Property, a residential/commercial building with an estimated gross floor area of 42,314 square feet, is scheduled to be completed in the fourth quarter of this year. Thus it would by then be able to provide a return to the Chi Cheung Group. However, it is noted that the Properties were valued at around HK$640.0 million as at 30th November, 2002, while the appraised value of the Hillier Property was valued at only HK$125.0 million as at 30th November, 2002 by an independent professional valuer. The net asset position of the Chi Cheung Group would be notably strengthened upon completion of the proposed Asset Transaction as the majority of the consideration payable by the Chi Cheung Group for the Acquisition will be satisfied by issue of New Shares to Chinese Estates (the “Consideration Shares”). As such, we are of the view that upon completion of the proposed Asset Transaction, the Chi Cheung Group with a much improved capital base will be in a stronger position and more flexible to further develop and expand its property business in future, through disposal and/or reinvestment of the Properties as and when opportunities arise.

With the Hillier Property yet to be completed, the Chi Cheung Group has recorded a minimal level of turnover for the financial year ended 31st December, 2001, with the unaudited consolidated turnover for the six months ended 30th June, 2002 amounted to around HK$1.2 million only. It is noted that the Properties, eight of which are investment properties, have generated an attributable rental income of around HK$1.7 million in November 2002, with the estimated annualised income of around HK$20.4 million. Hence, the proposed Asset Transaction will provide the Chi Cheung Group with a recurrent income base, which is currently not available to it without the proposed Asset Transaction. It is also noted that, as disclosed in Appendix II to the Joint Circular, the directors of Chi Cheung have stated that they are satisfied that the Chi Cheung Group has sufficient

LETTER FROM QUAM

working capital to satisfy its present requirements after taking into account the banking facilities, internal resources, other loan arrangements of the Chi Cheung Group and barring any unforeseen circumstances.

On above bases, we concur with the view of the directors of Chi Cheung that the proposed Asset Transaction would be in the interest of the Chi Cheung Group and its independent shareholders.

The Disposal and the C Consideration

Basis of the C Consideration

Pursuant to the S&P Agreement, Chi Cheung agreed to sell or procure the sale of, and Chinese Estates agreed to purchase or procure the purchase of the entire issued share capital of Super Series and the benefits of the Super Series Loan. Super Series is a wholly-owned subsidiary of Chi Cheung, the principal asset of which is its 100% holding interest in a company holding the entire interest of the Hillier Property.

The C Consideration payable to Chi Cheung will be of an amount equivalent to the audited consolidated net liabilities of Super Series as at 30th November, 2002 taking into account of the Super Series Loan and adjusted for the revaluation of the Hillier Property as at 30th November, 2002. The C Consideration is estimated to be around HK$103.9 million, representing a deficit of around HK$21.1 million to the book value of the Hillier Property as at 30th November, 2002, and was arrived at after arm’s length negotiation and taking into account the following:

The audited consolidated net liabilities of Super Series of around HK$218.8 million as at 30th November, 2002;
The Super Series Loan of around HK$322.7 million as at 30th November, 2002 due to Chi Cheung and the benefits of which will be assumed by Chinese Estates upon completion of the proposed Asset Transaction; and
The market value of the Hiller Property of around HK$125.0 million as at 30th November, 2002 based on an independent professional property valuation.

It is noted that the appraised value of the Hillier Property as at 9th December, 2002 by the independent professional valuer is the same as its appraised value as at 30th November, 2002.

In view of the above, as the C Consideration will be equivalent to the adjusted audited consolidated net liabilities of Super Series taking into account of the Super Series Loan, we consider the consideration payable to Chi Cheung for the Disposal to be fair and reasonable insofar as the independent shareholders of Chi Cheung are concerned.

The valuation of the Hillier Property

In determining the market value of the Hillier Property as at 30th November, 2002, we noted that Norton Appraisals Limited (“Norton”), the independent professional property valuer has valued the property on an open market value basis in its existing state using direct comparison approach by making reference to comparable transactions available in the relevant market and have also taken into account the construction costs that will be expended to complete the developments to reflect the development potential of the Hillier Property and the quality of the completed development.

LETTER FROM QUAM

We are of the view that the appraisal method used by Norton is a generally accepted method used for valuation of property project of a nature similar to the Hillier Property, and that the bases and assumptions adopted by Norton in performing the valuation are fair and reasonable.

Settlement of the C Consideration

As stated in the Joint Circular, the C Consideration will be payable to Chi Cheung in cash and will be satisfied by setting off against the cash portion of the consideration payable by Chi Cheung to Chinese Estates of the same amount for the Acquisition. Therefore, we are of the opinion that the settlement method of the C Consideration to be fair and reasonable insofar the independent shareholders of Chi Cheung are concerned.

The Acquisition and the CC Consideration

Basis of the CC Consideration

Pursuant to the S&P Agreement, Chinese Estates agreed to sell or procure the sale of, and Jumbo Legend, a wholly-owned subsidiary of Chi Cheung agreed to purchase or procure the purchase of the entire issued share capital of the Sale Companies and the benefits of the Sale Loan for the CC Consideration, and Jumbo Legend will also assume the liabilities of the Assumed Debt by way of novation. The Sale Companies are the group of wholly-owned subsidiaries of Chinese Estates, the principal assets of which are their direct or indirect holding interest in the Properties.

The CC Consideration payable to Chi Cheung will be of an amount equivalent to the aggregate audited consolidated net assets/liabilities of each of the Sales Companies as at 30th November, 2002 taking into account of the Sale Loan and the Assumed Debt and adjusted for the valuation surplus of the Properties as at 30th November, 2002 and the land premium to be paid and excluding the book value of properties contracted to be sold prior to 30th November, 2002 (the “Sold Properties”) and the cost of certain of the Properties contracted to be sold after 30th November, 2002 but prior to completion of the S&P Agreement (the “Excluded Properties”) at valuation as at 30th November, 2002 and including the net sale proceeds of the Sold Properties and the Excluded Properties. The CC Consideration amounts to around HK$615.8 million and was arrived at after arm’s length negotiation and taking into account the following:

The aggregate audited consolidated net assets/liabilities of each of the Sale Companies of around HK$67.3 million as at 30th November, 2002;
The Sale Loan of around HK$577.3 million as at 30th November, 2002 due to other members of the Chinese Estates Group and the benefits of which will be assumed by Chi Cheung upon completion of the proposed Asset Transaction;
The Assumed Debt of around HK$0.5 million due from other members of the Chinese Estates Group, and the liabilities of which will be assumed by Jumbo Legend upon completion of the proposed Asset Transaction;
The market value of the Properties of around HK$640.0 million as at 30th November, 2002 based on an independent professional property valuation;
The revaluation surplus of the Properties of around HK$153.1 million as at 30th November, 2002 (being the difference between the book value of around HK$486.9 million and the revaluation amount of HK$640.0 million as at 30th November, 2002) but excluding the relevant revaluation surplus of the Excluded Properties;
Exclusion of the book value of the Sold Properties of around HK$28.7 million and the cost of the Excluded Properties at valuation as at 30th November, 2002;

LETTER FROM QUAM

The net sale proceeds of the Sold Properties and the Excluded Properties; and
The land premium to be paid in respect of certain of the Properties of around HK$23.6 million.

It is noted that the appraised value of the Properties as at 9th December, 2002 by the independent professional valuer is the same as its appraised value as at 30th November, 2002 but certain residential and retail portion of the property numbered 11 as detailed in Appendix III to the Joint Circular have been sold to third parties between 4th December, 2002 and 7th December, 2002 at a total consideration of around RMB8.4 million.

Based on the foregoing, as the CC Consideration will be equivalent to the aggregate adjusted audited consolidated net liabilities of the Sales Companies as at 30th November, 2002, we consider the CC Consideration and the assumption of the Assumed Debt by Jumbo Legend to be fair and reasonable insofar as the independent shareholders of Chi Cheung are concerned.

The Adjustment Provision for the CC Consideration

We noted that the transfer of the entire issued share capital of and benefits of the Sale Loan due from certain Sale Companies may require consents or approvals from independent third parties. If Chinese Estates fails to obtain the necessary consents or approvals on or before 10th February, 2004 (or such other date as the parties may agree), the parties will proceed to completion of the proposed Asset Transaction for the remaining Sale Companies and the assignment of the benefits of the related Sale Loan owing to such remaining Sale Companies or their respective subsidiaries/ associated companies in respect of which necessary consents have been obtained and/or are not required. In such event, the amount of the CC Consideration to be satisfied by the issue of the Consideration Shares shall accordingly be reduced by an amount equal to the audited consolidated net asset value of such relevant Sale Companies (i.e. those fail to obtain the aforementioned consents or approvals) as at 30th November, 2002 taking into account of the related Sale Loan and adjusted for the revaluation of the related Properties as at 30th November, 2002.

On the above basis, we are of the view that the adjustment provisions for the CC Consideration payable by Chi Cheung for the Acquisition are fair and reasonable insofar the independent shareholders of Chi Cheung are concerned.

Valuation of the Properties

We noted that Norton, the independent valuer has appraised the market value of the Properties as at 30th November, 2002 using the following approach:

The property interests which are held for investment purposes by the Sale Companies in Hong Kong were valued on the investment approach taking into account the current passing rents and the reversionary income potential of the tenancies;
The property interests which are held for future development by Sale Companies in Hong Kong and the PRC were valued using the direct comparison approach assuming such property interest were available for sale in their existing states with the benefit of vacant possession and by making reference to comparable transactions as available in the relevant market; and
The property interest, which is held for sale by the Sale Companies in the PRC, was valued on the direct comparison approach with reference to comparable transactions as available in the relevant market.

LETTER FROM QUAM

We are of the view that the appraisal methods adopted by Norton in regard to the Properties are generally accepted method used for valuation of property projects of nature similar to the Properties, and that the bases and assumptions adopted by Norton in performing the valuations are fair and reasonable.

Funding of the CC Consideration

The CC Consideration payable by Chi Cheung under the S&P Agreement is to be satisfied partly by setting off against the C Consideration payable to Chi Cheung for the Disposal with the balance by the allotment and issue of around 11,375.6 million Chi Cheung Shares (subject to adjustments) equivalent to around 227.5 million New Shares upon completion of the Capital Reorganisation, credited as fully paid to Chinese Estates.

We are of the opinion that the settlement method is in the interest of Chi Cheung that it will not draw on the limited existing cash resources of the Chi Cheung Group and will raise permanent equity capital for Chi Cheung.

The issue price of the Consideration Shares

The issue price of the Consideration Shares is equivalent to HK$0.045 per Chi Cheung Shares before the completion of the Capital Reorganisation (the “Issue Price”). It is noted that the Issue Price is at par with the unaudited net asset value per Chi Cheung Share of around HK$0.045 as at 30th June, 2002.

Set out below is a table showing the premium over the historical price of the Chi Cheung Shares represented by the Issue Price:

		Premium
	The closing price/	represented
	the average	by the
	closing price	Issue Price
	HK$	%
As at the Latest Practicable Date	0.011	309.1
As at 5th February, 2002 (being the last trading day
immediately preceding the suspension of trading
in the Chi Cheung Shares pending the release of
the Announcement)	0.028	60.7
For the 10 trading days up to and
including 5th February, 2002	0.028	60.7
For the 30 trading days up to and
including 5th February, 2002	0.029	55.2
For the 60 trading days up to and
including 5th February, 2002	0.031	45.2

LETTER FROM QUAM

As illustrated above, the Issue Price is at a substantial premium to the market price of the Chi Cheung Shares. Based on this and together with the fact that it is at par with the unaudited net asset value per Chi Cheung Share as at 30th June, 2002, we therefore consider the Issue Price to be fair and reasonable insofar as the independent shareholders of Chi Cheung are concerned.

Financial effects of the proposed Asset Transaction on the Chi Cheung Group

Revenue and earnings

The Chi Cheung Group has recorded loss attributable to shareholders of around HK$46.6 million and HK$0.8 million for the year ended 31st December, 2001 and the six months ended 30th June, 2002 respectively. As mentioned above, Chi Cheung has been operating virtually as a single project company with only the Hillier Property under development since November 2000. As the Hillier Property is yet to be completed, the Chi Cheung Group has been recording a minimal level of revenue.

Upon completion of proposed Asset Transaction, Super Series, the ultimate holding company of the Hillier Property will cease to be a subsidiary of Chi Cheung, and the Sales Companies will become subsidiaries of Chi Cheung. Accordingly, the results of the Sales Companies will be consolidated into the accounts of the Chi Cheung Group.

The audited results of the Sale Companies for the three financial years ended 31st December, 2001 and the eleven months ended 30th November, 2002 are set out in Appendix I to the Joint Circular (the “Historical Information”). It should be noted though that the Historical Information could only reflect the historical results of the Sale Companies in their past investment and trading in properties, which were then held by the Group during the reported period. Therefore, the Historical Information would not be exemplary of the possible future performance of the Sale Companies, with the Properties as the principal assets after completion of the proposed Asset Transaction. As such, there is no guarantee that the Chi Cheung Group will return to profitability after the completion of the proposed Asset Transaction.

However, we noted that eight of the Properties are investment properties located in Hong Kong (the “Investment Properties”). The Investment Properties have generated an attributable rental income of around HK$1.7 million in November 2002, with an estimated annualised income of around HK$20.4 million while the remaining five of the Properties are properties held for future development or held for sale and hence have not generated any rental income. This will provide the Chi Cheung Group with a recurrent income base, which is currently unavailable without the proposed Asset Transaction. We were advised by the directors of Chi Cheung that upon completion of the proposed Asset Transaction, the Investment Properties will generate net cash inflow after expenses related to the relevant Investment Properties, for example government rents & rates and administrative expenses.

For the Properties other than the Investment Properties, we were also advised by the directors of Chi Cheung that there will be no obligations on part of the Chi Cheung Group for any capital commitment under contracts or by law except for administrative expense such as government rents and rates and the land premium to be paid (as discussed in the paragraph headed “The Acquisition and the CC Consideration” of this letter) after the completion of the proposed Asset Transaction.

LETTER FROM QUAM

It is also noted that as disclosed in Appendix II of the Joint Circular, the directors of Chi Cheung have stated that they are satisfied that the Chi Cheung Group has sufficient working capital to satisfy its present requirements after taking into account the banking facilities, internal resources, other loan arrangement of the Chi Cheung Group and barring any unforeseen circumstances.

Based on the foregoing, we are of the view that on balance, the proposed Asset Transaction is in the interest of the Chi Cheung Group and its independent shareholders.

Net asset value

As at 30th June, 2002, the Chi Cheung Group had an audited net assets of around HK$135 million equivalent to around HK$0.045 per Chi Cheung Share or HK$2.273 per New Share based on 2,971,305,343 existing issued Chi Cheung Shares and 59,426,106 New Shares in issue following completion of the Capital Reorganisation respectively.

As disclosed in the section headed “PRO FORMA INFORMATION ON THE CHI CHEUNG GROUP UPON COMPLETION OF THE ASSET TRANSACTION” in Appendix II to the Joint Circular, assuming the completion of the proposed Asset Transaction and the Capital Reorganisation and that the Chi Cheung Group will be able to obtain the land use rights related to the property numbered 13 as described in Appendix III to the Joint Circular after payment of the related land premium, the adjusted unaudited pro forma consolidated net tangible assets (the “NAV”) of the Chi Cheung Group would be around HK$635.3 million. In this regard, it should be noted that the directors of Chi Cheung have stated that they are confident that the Chi Cheung Group will be able to obtain the said land use rights upon payment of the relevant land premium.

On the above basis, there will be an increase of around 370.4% over the unaudited net asset value of the Chi Cheung Group as at 30th June 2002. Although the pro forma NAV per New Share will decrease from HK$2.273 to around HK$2.214, this represents a decrease of around 2.6% only.

LETTER FROM QUAM

In view of the foregoing, we consider the significant improvement in the pro forma net asset position of the Chi Cheung Group following completion of the proposed Asset Transaction to be in the interest of Chi Cheung and its independent shareholders despite the slight decrease in the pro forma NAV per New Share on the basis that the Chi Cheung Group will be able to obtain the relevant land use rights of the aforementioned property.

Gearing position

As at 30th November, 2002, the Sale Companies with the Properties as their principal assets has no long-term debts outside the Chinese Estates Group. Upon completion of the proposed Asset Transaction, the benefits of the Sale Loan due to other members of the Chinese Estates Group by the Sale Companies will be assumed by Chi Cheung. With a much-improved net asset position as a result of the issue of the Consideration Shares as discussed above, therefore the proposed Asset Transaction will not have any adverse impact on the gearing position of the Chi Cheung Group.

Dilution effect on the shareholding interest of the independent shareholders of Chi Cheung

Assuming the completion of the Capital Reorganisation, the Consideration Shares would represent around 382.8% of the existing issued share capital of Chi Cheung or 79.3% of the issued share capital of Chi Cheung as enlarged by the issue of the Consideration Shares. Accordingly, the issue of the Consideration Shares will result in a dilution of the percentage shareholding of the independent shareholders of Chi Cheung from around 27.3% to around 5.7%.

However, having taken into consideration that the proposed Asset Transaction will result in a significant improvement in the capital base with a slight change in the adjusted pro forma NAV per New Share on the basis that the Chi Cheung Group will be able to obtain the land use rights related to the property numbered 13 as described in Appendix III to the Joint Circular after the payment of the related land premium and expansion of the income base of the Chi Cheung Group following its completion, we are of the view that the dilution effect on the percentage shareholding of the independent shareholders of Chi Cheung though material is acceptable.

Risk factors

In our opinion, the proposed Asset Transaction carries certain risks, which are set out below:

Insufficient public float

Upon completion of the proposed Asset Transaction and the Capital Reorganisation, assuming no warrants of Chi Cheung are exercised during the period from the Latest Practicable Date to the completion of the Capital Reorganisation, Chinese Estates would be interested in 270,695,776 New Shares, representing around 94.3% of the then issued share capital of Chi Cheung. It is stated in the Joint Circular that it is the intention of Chinese Estates to maintain the listing of Chi Cheung on the Stock Exchange, and Chinese Estates and Chi Cheung have undertaken to the Stock Exchange that appropriate steps will be taken to ensure that sufficient public float as required under the Listing Rules will be restored for the New Shares, as soon as practicable, following completion of the proposed Asset Transaction and the Capital Reorganisation.

On the other hand, the Stock Exchange has also stated that, if less than 25% of the issued New Shares are in the public hands following completion, or it believes that a false market exists or may exist in the trading of the New Shares or there are insufficient New Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the New Shares.

Hence, in the event that the objective of achieving 25% public float can not be fulfilled in time following completion of the proposed Asset Transaction, there may be a risk that trading in the New Shares may be suspended on the Stock Exchange before the public float is restored to the level as required by the Stock Exchange.

LETTER FROM QUAM

Potential conflict of interest between the Chinese Estates Group and the Chi Cheung Group

As both the Chi Cheung Group and its controlling shareholder, Chinese Estates are principally engaged in property investment, there has been a potential conflict of interest and direct competition between the two groups since November 2000 when Chinese Estates became the holding company of Chi Cheung. While the current situation will not be worsened by the proposed Asset Transaction, the proposed Asset Transaction will not by itself help to remove the potential conflict or competition.

However, it is noted that as a proposal to achieve a better delineation of the property investment business between the two groups upon completion of the proposed Asset Transaction, the directors of Chinese Estates have stated in the Joint Circular that they consider that for any future property investment project with the value of less than or equal to 50% of the net asset value of the Chi Cheung Group as from time to time (with reference to its latest published accounts), Chinese Estates will, so long as it remains the controlling shareholder of Chi Cheung, give Chi Cheung the first right of refusal to undertake the project, subject to its financial resources at that time. Details of the relevant property investment project will be disclosed in the annual report of Chi Cheung and is subject to review by the directors (both executive and independent non-executive directors) annually.

Short of a fundamental change in the principal business of the Chi Cheung Group, the existing potential conflict of interest and direct competition would be inevitable. Nevertheless, the proposal by the directors of Chinese Estates will serve to give clear bases for demarcation of the future property investment business of the two groups. With the review process in place, we are of the opinion that the proposed arrangements by the directors of Chinese Estates are acceptable as a safeguard measure to protect the interests of the independent shareholders of Chi Cheung in relation to the potential conflict of interests and direct competition between the Chinese Estates Group and the Chi Cheung Group.

RECOMMENDATION

Having taken into account the principal factors and reasons as detailed above, and in particular the following:

The respective basis of consideration of the Disposal and the Acquisition is fair and reasonable;
There will be significant improvement in the pro forma net asset position of the Chi Cheung Group following completion of the proposed Asset Transaction and the decrease in the pro forma NAV per New Share will be less than 3% on the basis that the Chi Cheung Group will be able to obtain the land use rights related to the property numbered 13 as described in Appendix III to the Joint Circular after the payment of the related land premium;
The Acquisition will provide the Chi Cheung Group with a recurrent income base which is currently not available to it without the proposed Asset Transaction; and
The materiality of the dilution effect of the issue of the Consideration Shares on the percentage shareholding of the independent shareholders of Chi Cheung;

we are of the opinion that the proposed Asset Transaction is in overall beneficial to the Chi Cheung Group, as the benefits would outweigh the dilution effect on shareholding interests of the independent shareholders of Chi Cheung. As such, we consider that the proposed Asset Transaction is in the interests of Chi Cheung and its shareholders as a whole, and that the terms and conditions of the S&P Agreement are fair and reasonable so far as the independent shareholders of Chi Cheung are concerned.

LETTER FROM QUAM

Accordingly we advise the Chi Cheung Independent Director to recommend the independent shareholders of Chi Cheung to vote in favour of the ordinary resolution to be proposed at the EGM to approve the S&P Agreement.

Yours faithfully, For and on behalf of Quam Capital Limited Richard D Winter Karen C Wong Managing Director Director

LETTER FROM CPY

The following is the text of a letter of advice from CPY, the independent financial adviser to the Chinese Estates Independent Director, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Chinese Estates Independent Director in connection with the Asset Transaction.

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Core Pacific - Yamaichi Capital Limited

36[th] Floor, Cosco Tower Grand Millennium Plaza 183 Queen’s Road Central, Hong Kong TEL : (852) 2826 0700 FAX : (852) 2537 5079 TELEX : 73747 YAMAH HX

5th March, 2003

Chinese Estates Independent Director Chinese Estates Holdings Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Madam,

PROPOSED ASSET TRANSACTION (Connected transaction of Chinese Estates)

We, CPY, refer to our appointment by Chinese Estates as the independent financial adviser to the Chinese Estates Independent Director to give our recommendation as to whether the terms of the proposed Asset Transaction are fair and reasonable in so far as the independent shareholders of Chinese Estates are concerned, particulars of which have been set out in a joint circular to the shareholders of Chinese Estates and the shareholders of Chi Cheung dated 5th March, 2003 (“Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

The proposed Asset Transaction constitutes a connected transaction for Chinese Estates as Chi Cheung is a non-wholly owned subsidiary of Chinese Estates. Accordingly, the approval by the independent shareholders of Chinese Estates will be sought by Chinese Estates at the SGM to approve the proposed Asset Transaction.

In formulating our opinion and recommendation, we have relied on the statements, information, opinions, reports and representations contained in the Circular which have been provided to us by the directors of Chinese Estates, the directors of Chi Cheung and other professionals. We have assumed that all statements, information, opinions, reports and representations contained or referred to in the Circular were true, complete and accurate in all aspects at the time they were made and given and continue to be so in all respects as at the date of despatch of the Circular. We have also assumed that all statements of beliefs, opinions and intentions made by the directors of Chinese Estates in the Circular were reasonably made after due and careful enquiry and were based on

LETTER FROM CPY

honestly-held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representation provided to us by the directors of Chinese Estates and the directors of Chi Cheung and we have been advised by the directors of Chinese Estates that no material facts have been omitted from the information and representations provided in and referred to in the Circular.

We consider that we have been provided with sufficient information to enable us to reach an informed view to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide reasonable basis for our recommendation. We have no reason to suspect that any relevant information or reports have been withheld, nor are we aware of any facts or circumstances which would render the information provided and the representations made to us to be untrue, inaccurate, or misleading. We have not, however, carried out any independent verification of the information and representations provided to us by the directors of Chinese Estates and the directors of Chi Cheung, nor have we conducted any form of independent investigation into any related transactions referred to in the Circular, the businesses, affairs and prospects of Chinese Estates and Chi Cheung or any of their respective subsidiaries and associates.

In formulating our opinions and recommendations, we have not considered the taxation implication on the shareholders of Chinese Estates as a result of the approval of the proposed Asset Transaction by the independent shareholders of Chinese Estates, since these are particular to the individual circumstances of each shareholder of Chinese Estates. It is emphasised that we will not accept responsibility for any tax effects on or liabilities of any person resulting from the proposed Asset Transaction being approved by the independent shareholders of Chinese Estates, and any shareholder of Chinese Estates who is in any doubt about his/her own tax position should consult his/her own professional adviser(s).

SUMMARY OF THE PROPOSED ASSET TRANSACTION

The S&P Agreement

On 11th February, 2003, Chinese Estates entered into the S&P Agreement with Chi Cheung and Jumbo Legend, under which:

(i) Chinese Estates has agreed to sell or procure the sale of, and Jumbo Legend has agreed to purchase or procure the purchase of, the entire issued share capital of the Sale Companies and the benefits of the Sale Loan and Jumbo Legend has also agreed to assume the liabilities of the Assumed Debt by way of novation; and
(ii) Chi Cheung has agreed to sell or procure the sale of, and Chinese Estates has agreed to purchase or procure the purchase of, the entire issued share capital of Super Series and the benefits of the Super Series Loan.

Based on the audited consolidated account of Super Series for the 11 months ended 30th November, 2002, the C Consideration is estimated to be approximately HK$103.9 million which will be satisfied in cash. Based on the aggregate audited consolidated accounts of each of the Sale Companies for the 11 months ended 30th November, 2002, the CC Consideration is estimated to be approximately HK$615.8 million which will be satisfied partly by an amount equal to the C Consideration in cash (approximately HK$103.9 million) and partly (as to the balance of the consideration, approximately HK$511.9 million) by the allotment and issue of approximately 11,375.6 million Chi Cheung Shares at an issue price of HK$0.045 per Chi Cheung Share (equivalent to approximately 227.5 million New Shares), credited as fully paid, to Chinese Estates. Under the S&P Agreement, the parties thereto have agreed that the sum payable by Chinese Estates to Chi Cheung and the cash portion of the CC Consideration payable to Chinese Estates shall set off each other at completion.

LETTER FROM CPY

Connected transaction

As at the Latest Practicable Date, Chinese Estates was interested in approximately 72.7% of the entire issued share capital of Chi Cheung. As Chi Cheung is a non-wholly owned subsidiary of Chinese Estates, pursuant to Chapter 14 of the Listing Rules, the proposed Asset Transaction constitutes a connected transaction for Chinese Estates and is subject to the approval of the independent shareholders of Chinese Estates. As at the same date, Mr. Joseph Lau, Luen-hung, Mr. Thomas Lau, Luen-hung and their respective Associates are interested in 1,649,460,855 shares in Chinese Estates, representing approximately 72.5% of the issued share capital of Chinese Estates. In compliance with the undertaking given by Chinese Estates to the Stock Exchange on 20th September, 1990 (as supplemented and amended), Mr. Joseph Lau, Luen-hung and Mr. Thomas Lau, Luen-hung and their respective Associates will abstain from voting the resolution in respect of the proposed Asset Transaction at the SGM.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our advice to the Chinese Estates Independent Director relating to the proposed Asset Transaction, we have taken into consideration, inter alia, the following principal factors and reasons:

Background of the proposed Asset Transaction

The proposed Asset Transaction includes, inter alia , (i) the acquisition of Super Series, which holds 100% interest in a company holding the entire interest of the Hillier Property; and (ii) the disposal of the Sales Companies, which hold 100% direct or indirect interests in the Properties.

The Hillier Property is located at Nos. 253-265 Queen’s Road Central and Nos. 30-38 Hillier Street, Hong Kong and has a site area of approximately 4,570 sq.ft.. The following table sets out the audited consolidated results of Super Series for each of the two years ended 31st December, 2001 and the 11 months ended 30th November, 2002 respectively:

			For the 11
	For the year ended		months ended
	31st December,		30th November,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	–	–	–
Other operating income	14	–	6
Other operating expenses	(8)	(30)	(15)
Impairment loss recognised on
property under development	(49,569)	(35,544)	(15,946)
Loss before taxation	(49,563)	(35,574)	(15,955)
Loss for the year/period attributable
to shareholders_(Note)_	(49,563)	(35,574)	(15,955)

Note: For each of the two years ended 31st December, 2001 and the 11 months ended 30th November, 2002, the loss for the year/period attributable to shareholders include the impairment loss on the Hillier Property of approximately HK$49.6 million, HK$35.5 million and HK$15.9 million respectively.

LETTER FROM CPY

Although the Hillier Property had been incurring losses for the two years ended 31st December, 2001 and the 11 months ended 30th November, 2002, as stated in the joint letter from the Chinese Estates Board and the Chi Cheung Board (“Joint Letter”), the foundation works for the development of the Hillier Property has been completed and the superstructure works have commenced in mid 2002. The estimated completion date of the development of the Hillier Property is in the fourth quarter of 2003. It is also stated in the Joint Letter that, at present, it is expected that a residential/ commercial building with a total gross floor area of approximately 42,314 sq.ft. will be built on the site. The directors of Chinese Estates expect that the building will be sold prior to or upon completion of construction. In view of the above, we consider that the Hillier Property is expected to generate sales income to Chinese Estates.

The Properties are the property interests held (directly or indirectly) by the Sales Companies, which are indirect wholly owned subsidiaries of Chinese Estates. The Properties consist of 13 properties in both Hong Kong and the PRC. The following table sets out the aggregate audited results of each of the Sales Companies (having adjusted for an impairment loss on an advance to an associate) for each of the two years ended 31st December, 2001 and the 11 months ended 30th November, 2002 respectively:

			For the 11
	For the year ended		months ended
	31st December,		30th November,
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Turnover	26,542	24,160	11,380
Operating (loss)/profit	(39,626)	12,261	(1,597)
(Loss)/Profit before taxation	(125,389)	7,170	(7,004)
(Loss)/Profit for the year/period
attributable to the shareholders	(126,559)	6,078	(7,269)

The Sale Companies, in aggregate, were in a loss-making position for the year ended 31st December, 2000 and the 11 months ended 30th November, 2002 and the loss attributable to the shareholders for such year/period amounted to approximately HK$126.6 million and approximately HK$7.3 million respectively. We note from the accountants’ report on the Sale Companies as set out in appendix I to the Circular that such losses were mainly attributable to the allowance for bad debts on advances to a fellow subsidiary of approximately HK$50.0 million and the allowance for bad debts on advances to associates of approximately HK$76.8 million for the year ended 31st December, 2000 and other operating expenses of approximately HK$10.3 million for the 11 months ended 30th November, 2002.

It is stated in the Joint Letter that, on disposal of the Properties, the Chinese Estates Group will record a profit of approximately HK$187.3 million. The directors of Chinese Estates have advised that the Group will not record any gain or loss on disposal of the Properties.

Business strategies of the Group

The Chinese Estates Group is principally engaged in property investment and development in Hong Kong and the PRC. Its property portfolio comprises properties held for investment, properties under development, properties held for future development, properties held for sale, properties contracted to be sold and properties contracted to be acquired.

LETTER FROM CPY

One of the major reasons for Chinese Estates to enter into the proposed Asset Transaction is that it is a business strategy of the Group to have a better delineation of the property businesses between the Chinese Estates Group and Chi Cheung. As stated in the Joint Letter, upon completion of the proposed Asset Transaction, the Chinese Estates Group will continue to engage in the property investment and development business while Chi Cheung will conduct its property business with a focus on property investment and property trading. It is expected that upon completion of the proposed Asset Transaction, Chinese Estates will focus on relatively larger size investment properties while Chi Cheung will focus on relatively smaller size investment properties. The directors of Chinese Estates consider that, through the asset restructuring contemplated under the proposed Asset Transaction, the Chinese Estates Group and Chi Cheung will have a clear competitive positioning in the industry. In particular, although there will be no change in the overall property portfolio of the Group as a result of the proposed Asset Transaction, the Chinese Estates Group will gain the benefits of being recognised as a market player with a focus on the property investment and development business for relatively large size investment properties; whilst Chi Cheung will focus on the property investment and trading for relatively smaller size investment properties. In particular, the directors of Chinese Estates expect that such clear competitive positioning will assist the Chinese Estates Group in acquiring large size property investment and development projects in the future. At the same time, with better delineation of the property businesses, the resource allocation within the Group and the operation of each property business unit within the Group will be more efficient and effective. For instance, the directors of Chinese Estates may consider the allocation of relevant staff with expertise in the property investment and development for relatively larger size investment properties to the Chinese Estates Group; whilst relevant staff with expertise in the property investment and trading for relatively smaller size properties may be allocated to Chi Cheung.

We note from the joint document of Chinese Estates and Chi Cheung dated 29th August, 2000 (“Joint Document”) that the Hillier Property was injected into Chi Cheung by Chinese Estates pursuant to a debt restructuring proposal in 2000 (“Debt Restructuring”) and it had been the intention (“Intention”) of Chinese Estates to develop Chi Cheung into its Hong Kong property development arm upon completion of the acquisition of majority stake in Chi Cheung. However, due to the continuous deterioration of the property market in Hong Kong after late 2000 and having taken into account that the Chinese Estates Group has more existing resources, in terms of its financial position, net asset value and market capitalisation, than that of Chi Cheung, the directors of Chinese Estates consider that the Intention may not be beneficial to the Chi Cheung Group and the Group taken as a whole but it would be in the interest of the Group to undergo a group reorganisation to re-focus the property business of the Chi Cheung Group. Accordingly, as a result of the proposed Asset Transaction, Chi Cheung will conduct investment and trading businesses for the Properties (with ten of them in Hong Kong and three in the PRC), which constitutes a change in the Intention.

As stated in the Joint Letter, Chi Cheung has been operating virtually as a single project company with only the Hillier Property under development and the limited business operation and property portfolio of Chi Cheung Group also restricts its development and growth without the support of Chinese Estates, which can be evidenced by the fact that the Chinese Estates Group has been providing guarantee to Chi Cheung for the purpose of obtaining bank finance for the development of the Hillier Property.

Although the whole development project of the Hillier Property will be completed by the fourth quarter of 2003 and would provide a return to the Chi Cheung Group then, the directors of Chinese Estates consider that it would be difficult for the Chi Cheung Group to further develop its property business on the basis of existing resources. Under such circumstances, the directors of Chinese Estates consider that the business operation of the Chi Cheung Group would not experience any significant improvement in the future and the Intention may not be beneficial to the Chi Cheung Group. Whilst it is expected that Chi Cheung Group may not be able to make a significant

LETTER FROM CPY

contribution to the Group with the original Intention, the directors of Chinese Estates consider that the Intention may also not be beneficial to the Group taken as a whole. On the basis of the above factors and the principal activities and the existing resources of Chinese Estates as compared with that of Chi Cheung as mentioned above, we consider that it is suitable for Chinese Estates to undertake the development project of the Hillier Property following the asset restructuring under the Asset Transaction.

On the other hand, as set out in the Joint Letter, the Properties to be transferred from Chinese Estates to Chi Cheung include properties held for resale, small size investment properties, and some vacant sites held for future development in Hong Kong and the PRC. Given that the Properties will provide rental income and opportunities for resale, we consider that the proposed Asset Transaction will provide Chi Cheung with greater flexibility for its future development in the property industry. In addition, as stated in the Joint Letter, the Properties have generated an attributable rental income amounting to approximately HK$1.7 million in November 2002. The directors of Chinese Estates have advised that such rental income was mainly contributed by (i) rental income from a property interest in various portions of No. 1 Hung To Road, Kwun Tong, Kowloon, Hong Kong of approximately HK$710,000; and (ii) rental income from two properties interests in Gemstar Tower, No. 23 Man Lok Street, Hung Hom, Kowloon, Hong Kong of approximately HK$680,000. Hence, we concur with the directors of Chinese Estates that the proposed Asset Transaction will strengthen the income base of Chi Cheung.

It is stated in the Joint Letter that Chinese Estates will focus on relatively larger size investment properties whilst Chi Cheung will focus on relatively smaller size investment properties (the “Refocus”) which investment amount for any future property investment project will be no more than 50% of the net asset value of Chi Cheung Group from time to time (with reference to the latest published accounts). According to the interim reports of Chinese Estates and Chi Cheung for the six months ended 30th June, 2002, the unaudited consolidated net tangible assets of Chinese Estates and Chi Cheung as at 30th June, 2002 were approximately HK$15,518.3 million and HK$135.1 million respectively. We note from the financial information on the Chi Cheung Group as set out in appendix II to the Circular that, after the completion of the proposed Asset Transaction and the Capital Reorganisation, the unaudited net tangible assets of the enlarged Chi Cheung Group will be approximately HK$635.3 million. Accordingly, 50% of the unaudited net tangible assets of the Chi Cheung Group as at 30th June, 2002 was approximately HK$67.6 million and 50% of the unaudited net tangible assets of the enlarged Chi Cheung Group after the completion of the proposed Asset Transaction and the Capital Reorganisation will be approximately HK$317.7 million. We note that no single property of the Properties has a value of more than 50% of the unaudited net tangible assets of the enlarged Chi Cheung Group after the completion of the proposed Asset Transaction and the Capital Reorganisation. The directors of Chinese Estates further consider that with 50% of the net asset value of Chi Cheung Group from time to time as the relevant benchmark, it will ensure that there will be no overweighting of any single investment property in the property portfolio of the Chi Cheung Group. Having taken into account the above, we consider that the Refocus will serve to better delineate the property business within the Group and accordingly, is in the interests of the independent shareholders of Chinese Estates as a whole.

It is also stated in the Joint Letter that, in order to achieve a better delineation of the property investment business between Chinese Estates and Chi Cheung upon the completion of the proposed Asset Transaction, Chinese Estates will, so long as Chinese Estates is a controlling shareholder (as defined in accordance with the Listing Rules) of Chi Cheung, give a first right of refusal (“First Right of Refusal”) to Chi Cheung to undertake the project (subject to the financial resources of Chi Cheung at that time) for any future property investment with a value of less than or equal to 50% of the net asset value of the Chi Cheung Group as from time to time (with reference to the latest published accounts). The directors of Chinese Estates consider that instead of creating a potential restriction or limitation on the investment opportunities of Chinese Estates, the First Right of Refusal will enable Chinese Estates to reallocate its property portfolio between the Chinese Estates Group and Chi Cheung to achieve a better delineation of the property investment business

LETTER FROM CPY

of the Group. At the same time, with such First Right of Refusal, Chi Cheung is expected to undertake further property investment projects for relatively smaller size investment properties. As Chi Cheung is a subsidiary of Chinese Estates, the Group will benefit from the growth of Chi Cheung. Having taken into account the above, we consider that the First Right of Refusal will serve to better delineate the property business within the Group and accordingly, is in the interests of the independent shareholders of Chinese Estates as a whole.

The directors of Chinese Estates consider that the proposed Asset Transaction provides an opportunity for the Chi Cheung Group to strengthen not only its capital base, but also its income base. As Chi Cheung is a subsidiary of Chinese Estates, the Group will benefit from the growth of Chi Cheung. As advised by the directors of Chinese Estates, it is the objective of Chinese Estates to enhance the ability of Chi Cheung, as a separate listed entity, in generating income by itself in the future through the asset restructuring under the proposed Asset Transaction. The directors of Chinese Estates have also advised that Chinese Estates has no present intention to provide further financial support to Chi Cheung. Having taken into account the above factors, we consider that the transfer of the Properties being contemplated under the proposed Asset Transaction will not only enable the Group to delineate its property businesses within the Group, but also to achieve the primary aim of the Re-focus which is to provide an income base and greater flexibility to Chi Cheung Group for its future development.

Consideration

The directors of Chinese Estates consider that the C Consideration has been determined after arm’s length negotiations between Chinese Estates and Chi Cheung on the basis of the audited consolidated account of Super Series for the 11 months ended 30th November, 2002 and is derived as follows:

Super Series Loan_(Note 1) _Less:_Audited consolidated net liabilities of Super Series as at 30th November, 2002(Note 2)_ The C Consideration	Approximately HK$ million 322.7 (218.8) 103.9

Notes:

The Super Series Loan represents all sums due by Super Series to Chi Cheung as at the date of the S&P Agreement.
The revaluation deficit of the Hillier Property as at 30th November, 2002 has been reflected in the audited consolidated net liabilities of Super Series as at 30th November, 2002.
We note from the property valuation of the Hillier Property as set out in appendix IV to the Circular that the values of the Hillier Property as at 30th November, 2002 and 9th December, 2002 are the same.

LETTER FROM CPY

The directors of Chinese Estates consider that the CC Consideration has been determined after arm’s length negotiations among Chi Cheung, Jumbo Legend and Chinese Estates on the basis of the aggregate audited consolidated net assets/liabilities value of each of the Sale Companies as at 30th November, 2002 and is derived as follows:

Sale Loan_(Note 1)
_Less:_Aggregate audited consolidated net liabilities
of each of the Sale Companies as at 30th November, 2002
_Less:_Assumed Debt(Note 2)
_Add:_Revaluation surplus of the Properties as at
30th November, 2002 (being the difference between
the book value of approximately HK$486.9 million and
the revalued amount of approximately of HK$640.0 million)(Note 3)
_Less:_Land premium to be paid to廣東省澄海市國土局
(The Bureau of Land of Chenghai City of Guangdong Province)
_Less:_The book value of properties contracted to be sold
prior to 30th November, 2002
_Add:_The net sale proceeds of the properties contracted
to be sold up to the Latest Practicable Date
The CC Consideration
_Notes:

Approximately
HK$ million
557.3
(67.3)
(0.5)
153.1
(23.6)
(28.7)
25.5
615.8

The Sale Loan represents all sums due by the Sale Companies, their respective subsidiaries or associated companies to the other members of the Chinese Estates Group as at the date of S&P Agreement.
The Assumed Debt represents all sums owing by other members of the Chinese Estates Group to the Sale Companies, their respective subsidiaries or associated companies as at the date of S&P Agreement.
Each of the Properties was revalued by Norton Appraisals Limited, an independent professional property valuer, as at 30th November, 2002. As stated in the Circular, the valuation has been prepared under the generally accepted valuation procedures and is in compliance with Practice Note 12 of the Listing Rules. We note from the property valuation of the Properties as set out in appendix III to the Circular that the values of the Properties as at 30th November, 2002 and 9th December, 2002 are the same.

Having taken into account the above factors, we consider that the determination and the basis of the C Consideration and the CC Consideration are fair and reasonable so far as the independent shareholders of Chinese Estates are concerned.

Under the S&P Agreement, the parties thereto have agreed that the sum payable by Chinese Estates to Chi Cheung and the cash portion of the CC Consideration payable to Chinese Estates shall set off each other at completion. In respect of the payment of the remaining balance of the CC Consideration, 11,375.6 million Chi Cheung Shares will be issued at an issue price of HK$0.045 per Chi Cheung Share (equivalent to approximately 227.5 million New Shares) to Chinese Estates. According to the interim report of Chi Cheung for the six months ended 30th June, 2002, the bank balance and cash and the net tangible assets of Chi Cheung Group as at 30th June, 2002 were

LETTER FROM CPY

approximately HK$3.5 million and HK$135.1 million respectively. Taken into account the financial position of Chi Cheung Group, we consider that it may be difficult for Chi Cheung to obtain bank financing for an amount equal to the remaining balance of the CC Consideration of approximately HK$511.9 million (which represents approximately 83.1% of the CC Consideration) at favorable terms. Should Chi Cheung be unable to obtain bank financing at favourable terms, the Group may incur a financial burden resulting from the interest payments to be made for such bank financing. In view of the above, we consider that receiving the remaining balance of the CC Consideration in the form of Chi Cheung Shares as consideration is fair and reasonable as far as the independent shareholders of Chinese Estates are concerned.

Having considered the nature of industry and the assets to be transferred under the proposed Asset Transaction, we consider that the C Consideration and the CC Consideration being determined based on the net asset value of the Properties are fair and reasonable.

Comparison of the issue price of HK$0.045 per Chi Cheung Share to net asset value per Chi Cheung Share

As set out in the Joint Letter, the CC Consideration of approximately HK$615.8 million shall set off with the C Consideration of approximately HK$103.9 million and the remaining balance of the CC Consideration of approximately HK$511.9 million shall be settled by the issuance of approximately 11,375.6 million Chi Cheung Shares at HK$0.045 per Chi Cheung Share to Chinese Estates. According to the interim report of Chi Cheung for the six months ended 30th June, 2002, the net asset value per Chi Cheung Share was approximately HK$0.045 as at 30th June, 2002 which is equal to the issue price of HK$0.045 per Chi Cheung Share.

Comparison of the issue price of HK$0.045 per Chi Cheung Share to the trading price of Chi Cheung Shares

As stated above, approximately 11,375.6 million Chi Cheung Shares at HK$0.045 per Chi Cheung Share shall be issued to Chinese Estates for the remaining balance of the CC Consideration of approximately HK$511.9 million.

The following table depicts the closing price or average closing price (as the case may be) of Chi Cheung Shares as quoted on the Stock Exchange on the date during the respective periods as stated below and the respective premiums of the issue price of HK$0.045 per Chi Cheung Share over such price:

		Premium of the
		issue price of
		HK$0.045 per
	Closing price/	Chi Cheung Share
	average	over the closing
	closing price	price/average
Date/period	for the period	closing price
	(HK$)	(%)
Latest Practicable Date	0.011	309.1%
The last 10 trading days up to and
including the Latest Practicable Date	0.014	221.4%
The last 60 trading days up to and
including the Latest Practicable Date	0.027	66.7%

Source: Bloomberg

LETTER FROM CPY

As shown in the above table, the issue price per Chi Cheung Share represents a premium of approximately 309.1% over the closing price of HK$0.011 per Chi Cheung Share as quoted on the Stock Exchange on the Latest Practicable Date, a premium of approximately 221.4% over the average closing price of HK$0.014 per Chi Cheung Share over the 10 trading days up to and including the Latest Practicable Date, and a premium of approximately 66.7% over the average closing price of HK$0.027 per Chi Cheung Share over the 60 trading days up to and including the Latest Practicable Date.

The total number of the Chi Cheung Shares and the average daily number of the Chi Cheung Shares traded on the Stock Exchange in each of the three months prior to the Announcement, for the period from 4th February, 2003 to 11th February, 2003 (being the date of the Announcement) and for the period from 12th February, 2003 to the Latest Practicable Date were as follows:

	Total number of	Average of the daily
	Chi Cheung Shares	number of Chi Cheung
Month/period	traded	Shares traded
November 2002	2,290,000	109,048
December 2002	292,000	14,600
January 2003	468,000	22,286
4th February, 2003 to
11th February, 2003	–	–
12th February, 2003 to
the Latest Practicable Date	1,826,000	152,167

Source: Bloomberg

The average monthly turnover of Chi Cheung Shares from November 2002 to January 2003 was 1,016,667 Chi Cheung Shares, representing approximately 0.034% of the issued share capital of Chi Cheung as at the date of the Announcement.

For the period from 4th February, 2003 to 11th February, 2003 (being the date of the Announcement), there was no trading of Chi Cheung Shares on any trading date on the Stock Exchange. During the period from 12th February, 2003 to the Latest Practicable Date, the daily average trading volume of Chi Cheung Shares was 152,167 Chi Cheung Shares, representing approximately 0.005% of the issued share capital of Chi Cheung as at the Latest Practicable Date. The issue price of HK$0.045 per Chi Cheung Share represents significant premiums of approximately 309.1%, 221.4% and 66.7% over the closing price/average closing price of Chi Cheung Share for (i) the Latest Practicable Date, (ii) the last 10 trading days up to and including the Latest Practicable Date, and (iii) the last 60 trading days up to and including the Latest Practicable Date respectively. Although the issue price of HK$0.045 represents a significant premium over the trading prices of the Chi Cheung Shares, however, in view of the low liquidity of Chi Cheung Shares, we consider that the use of trading price of Chi Cheung Shares to determine the issue price per Chi Cheung Share for the remaining balance of the CC Consideration of approximately HK$511.9 million may not represent the true and fair value of Chi Cheung Shares. Having taken into account the nature of the industry and the assets to be transferred under the proposed Asset Transaction, we consider that using net asset value per Chi Cheung Share as at 30th June, 2002 to determine the remaining balance of the CC Consideration of approximately HK$511.9 million is acceptable as far as the independent shareholders of Chinese Estates are concerned.

LETTER FROM CPY

On the other hand, we note that immediately after the proposed Asset Transaction and the Capital Reorganisation, Chinese Estates will hold approximately 94.3% interests in Chi Cheung and as stated in the Joint Letter, in order to maintain the listing of Chi Cheung on the Stock Exchange, Chinese Estates and Chi Cheung have undertaken that appropriate steps will be taken to ensure that sufficient public float as required under the Listing Rules will be restored for the New Shares, as soon as practicable, following the completion of the proposed Asset Transaction and the Capital Reorganisation. As a result, Chinese Estates’ interests in Chi Cheung will be reduced to no more than 75%. It is stated in the Joint Letter that, depending on market conditions, such steps may involve placement of shares and/or distribution of shares. Independent shareholders of Chinese Estates should note that there may be a potential loss arising from the resumption of public float by way of placement of New Shares by Chinese Estates if the placement price is set below the issue price per Chi Cheung Share of HK$0.045. However, we consider that maintaining the status as a listed company will provide Chi Cheung an opportunity for its future financing in the capital market and hence is in the interests of the independent shareholders of Chinese Estates as a whole.

Financial effects of the proposed Asset Transaction to the Group

According to the unaudited financial statements of Chinese Estates for the six months ended 30th June, 2002, the loss attributable to shareholders of Chinese Estates was approximately HK$177.8 million for the six months ended 30th June, 2002 and the net asset value of Chinese Estates was approximately HK$15,518.3 million as at 30th June, 2002. As at the Latest Practicable Date, Chinese Estates held approximately 72.7% interests in Chi Cheung and 100% interests in the Sales Companies; and Chi Cheung held 100% interests in Super Series. Immediately after the completion of the proposed Asset Transaction and the Capital Reorganisation, Chinese Estates will hold approximately 94.3% interests in Chi Cheung and 100% interests in Super Series respectively; and Chi Cheung will hold 100% interests in the Sales Companies. As mentioned above, Chinese Estates and Chi Cheung have undertaken that appropriate steps will be taken to ensure that sufficient public float will be restored for the New Shares. As the proposed Asset Transaction is an asset restructuring within the Group and the C consideration and the CC Consideration were determined with reference to the respective net asset value of the Properties and the Hillier Property, the directors of Chinese Estates consider that there has been no adverse change in the net asset value per share of Chinese Estates before and immediately after the proposed Asset Transaction. In addition, the directors of Chinese Estates have advised that, except for the payment of related expenses, there will be no significant change in the unaudited pro forma net asset value and the unaudited pro forma net tangible asset value of the Group as a result of the proposed Asset Transaction. Having reviewed the information provided by, and discussed with, the management of Chinese Estates, we consider that there will be no adverse financial impact to the Group as a result of the Asset Transaction.

RECOMMENDATION

Having taken into account the principal factors and reasons referred to above, we are of the opinion that the terms of the proposed Asset Transaction are fair and reasonable in so far as the independent shareholders of Chinese Estates are concerned. Accordingly, we advise the Chinese Estates Independent Director to recommend the independent shareholders of Chinese Estates to vote in favour of the ordinary resolution in relation to the proposed Asset Transaction at the SGM.

Yours faithfully, For and on behalf of

Core Pacific – Yamaichi Capital Limited Philip Wan

Executive Director & Head of Corporate Finance

APPENDIX I ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

The following is the text of the accountants’ report, prepared for the inclusion in this circular, from the independent reporting accountants of the Sale Companies, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

香港中環干諾道中111號永安中心26樓

==> picture [98 x 54] intentionally omitted <==

5th March, 2003

The Directors Chinese Estates Holdings Limited Chi Cheung Investment Company, Limited

Dear Sirs,

We set out below our report on the combined financial information relating to the companies set out in note 3 to the combined financial information (thereinafter collectively referred to as the “Combined Group”) for each of the three years ended 31st December, 2001 and the eleven months ended 30th November, 2002 (the “Relevant Periods”) for inclusion in the joint circular of Chinese Estates Holdings Limited (“Chinese Estates”) and Chi Cheung Investment Company, Limited (“Chi Cheung”) in connection with the proposed asset transaction and proposed capital reorganisation of Chi Cheung (the “Circular”).

Pursuant to a conditional sale and purchase agreement entered into on 11th February, 2003, as described more fully in the section headed “Joint Letter From The Chinese Estates Board and The Chi Cheung Board” included in the Circular, Chi Cheung has conditionally agreed to acquire from Chinese Estates the entire interest of the companies comprising the Combined Group. We have acted as auditors of the companies comprising the Combined Group for the three years ended 31st December, 2001, or since their respective date of acquisition where this is a shorter period. 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 management accounts of the companies comprising the Combined Group for the eleven months ended 30th November, 2002.

The statutory financial statements of Chenghai Royal Garden Co. Ltd. (“Chenghai Royal Garden”) and Gemstar Technology Park Ltd. (“Gemstar Technology Park”), indirect subsidiaries, for the three years ended 31st December, 2001 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by Shantou Hengshi Public Accountant Co., Ltd. (汕頭市恆實會計師事務所 ) and Guangzhou Yeqin Certified Public Accountants Co., Ltd. (廣州業勤會計師事務所有限公司 ), certified public accountants in the People’s Republic of China (the “PRC”), respectively.

APPENDIX I ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

The financial statements of the following associates of the Combined Group (with noncoterminous year end dates compared with the Combined Group) were audited by certified public accountants in Hong Kong:

Name of company Financial period Auditors Finedale Industries Limited Each of the three years W.M. Sum & Co ended 30th June, 2002 Healthy Point Limited Each of the three years W.M. Sum & Co ended 30th June, 2002

The statutory financial statements of an associate of the Combined Group, Tianjin Winson Real Estate Development Co., Ltd. (“Tianjin Winson”) were prepared in accordance with relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by Tian Di Certified Public Accountants (天津天地會計師事務所), certified public accountants registered in the PRC.

We have examined the audited financial statements or, where appropriate, management accounts (the “Underlying Financial Statements”) of the companies comprising the Combined Group for each of the Relevant Periods or since their respective dates of incorporation or acquisition to 30th November, 2002. 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 financial information of the Combined Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements of the companies comprising the Combined Group on the basis set out in note 1 to the combined financial information after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the Directors of the companies comprising the Combined Group. The Directors of the companies comprising the Combined Group are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the combined financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the combined financial information and to report our opinion to you.

In our opinion, on the basis of preparation set out in note 1 to the combined financial information, the combined financial information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Combined Group as at 31st December, 1999, 31st December, 2000, 31st December, 2001 and 30th November, 2002 and of the combined results and combined cash flows of the Combined Group for the Relevant Periods.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

I. COMBINED FINANCIAL INFORMATION

Set out below is the combined financial information of the Combined Group as at 31st December, 1999, 2000, 2001 and 30th November, 2002 and for each of the Relevant Periods prepared on the basis set out in note 1 to the combined financial information.

Combined income statements

Year ended 31st December,
1999
2000
2001
Notes
HK$’000
HK$’000
HK$’000
Turnover
4
21,118
26,542
24,160
Direct expenses
(2,532)
(2,211)
(1,153)
Cost of sales
–
–
(7,192)
Gross profit
18,586
24,331
15,815
Other operating income
609
903
2,830
Administrative expenses
(4,173)
(3,753)
(3,537)
Other operating expenses
(2,997)
(11,107)
(1,012)
(Allowance) write-back of allowance
for bad debt on advance to a
fellow subsidiary
–
(50,000)
50,000
Impairment loss recognised on
– property interests held for
future development
–
–
(45,769)
– property under development
–
–
(6,066)
Profit (loss) from operations
6
12,025
(39,626)
12,261
Finance costs
7
(7,070)
(9,953)
(8,972)
Share of results of associates
(5,368)
997
3,881
(Allowance) write-back of allowance
for bad debts on advances
to associates
(26,632)
(76,807)
55,592
(Loss) profit before taxation
(27,045)
(125,389)
62,762
Taxation
8
3,906
(1,170)
(1,092)
(Loss) profit for the year/period
(23,139)
(126,559)
61,670

Eleven
months
ended 30th
November,
2002
HK$’000
11,380
(1,097)
–
10,283
55
(1,648)
(10,287)
–
–
–
(1,597)
(3,464)
(27)
(1,823)
(6,911)
(265)
(7,176)

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined balance sheets

As 1999 Notes HK$’000 Non-current assets Investment properties 12 83,900 Property interests held for future development 13 140,937 Properties held for future development 13 – Property under development 13 – Property and other fixed assets 14 4,924 Interests in associates 15 458,872 Advance to a fellow subsidiary 16 50,000 Advance to immediate holding company 16 371 739,004 Current assets Properties held for sale 49,117 Debtors, deposits and prepayments 17 5,399 Taxation recoverable 43 Bank balances 609 55,168 Current liabilities Creditors and accruals 18 6,733 Deposits and receipts in advance 2,593 Deposits for disposal of properties held for sale – Amounts due to fellow subsidiaries 19 – Taxation payable 109 9,435 Net current assets 45,733 Total assets less current liabilities 784,737 Non-current liabilities Advances from immediate holding companies 20 498,193 Advances from fellow subsidiaries 21 128,237 Loan from a fellow subsidiary 22 75,000 Advances from intermediate holding companies 23 – Advance from an associate 24 7,379 708,809 Net assets (liabilities) 75,928 Capital and reserves Combined share capital 25 177 Reserves 75,751 75,928	at 31st December, 2000 2001 HK$’000 HK$’000 78,700 84,900 113,182 71,373 19,162 – – 13,096 4,480 4,378 363,969 271,955 748 904 – – 580,241 446,606 52,531 45,000 2,432 2,407 5 22 2,536 718 57,504 48,147 7,356 199 2,536 2,709 2,973 – 619 34 19 494 13,503 3,436 44,001 44,711 624,242 491,317 326,721 300,888 316,367 135,896 45,000 45,000 – 6,098 7,789 9,949 695,877 497,831 (71,635) (6,514) 177 177 (71,812) (6,691) (71,635) (6,514)	As at 30th November, 2002 HK$’000 71,150 71,373 – 8,035 4,288 269,277 – 501 424,624 46,748 705 7 763 48,223 201 2,877 3,036 10 – 6,124 42,099 466,723 294,122 124,696 45,000 3,992 10,539 478,349 (11,626) 177 (11,803) (11,626)

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined statement of changes in equity

At 1st January, 1999 Deficit on revaluation of investment properties Exchange differences on translation of overseas operations Share of reserve movement of associates Recognised gains (losses) not recognised in combined income statements Loss for the year At 31st December, 1999 Exchange differences on translation of overseas operations Share of reserve movement of associates Recognised gains (losses) not recognised in combined income statements Loss for the year At 31st December, 2000 Surplus on revaluation of investment properties Exchange differences on translation of overseas operations Share of reserve movement of associates Recognised (losses) gains not recognised in combined income statements Surplus realised on disposal Profit for the year At 31st December, 2001 Deficit on revaluation of investment properties Exchange differences on translation of overseas operations Share of reserve movement of associates Recognised (losses) gains not recognised in combined income statements Surplus realised on disposal Loss for the period At 30th November, 2002	Share capital HK$’000 177 – – – – – 177 – – – – 177 – – – – – – 177 – – – – – – 177	Exchange reserve HK$’000 392 – 160 – 160 – 552 265 – 265 – 817 – (5) – (5) – – 812 – (27) – (27) – – 785	Investment properties revaluation reserve HK$’000 141,786 (5,185) – (46,500) (51,685) – 90,101 – (21,269) (21,269) – 68,832 6,948 – (3,333) 3,615 (159) – 72,288 (1,295) – 4,296 3,001 (910) – 74,379	Retained profits (accumulated losses) HK$’000 8,237 – – – – (23,139) (14,902) – – – (126,559) (141,461) – – – – – 61,670 (79,791) – – – – – (7,176) (86,967)	Total HK$’000 150,592 (5,185 160 (46,500
					(51,525 (23,139
					75,928 265 (21,269
					(21,004 (126,559
					(71,635 6,948 (5 (3,333
					3,610 (159 61,670
					(6,514 (1,295 (27 4,296
					2,974 (910 (7,176
					(11,626

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined cash flow statements

Profit (loss) from operations
Adjustments for:
Depreciation
Loss on disposal of
investment properties
Loss on disposal of property and
other fixed assets
Deficit (surplus) on revaluation of
investment properties
Impairment loss recognised on property
interests held for future development
Impairment loss recognised on
property under development
Operating cash flow before
movements in working capital
Decrease in properties held for sale
(Increase) decrease in debtors,
deposits and prepayments
Increase (decrease) in creditors and
accruals
Increase (decrease) in deposits
and receipts in advance
Increase (decrease) in deposits for
disposal of properties held for sale
Increase (decrease) in amounts due
to fellow subsidiaries
Cash generated from (used in)
operations
Income taxes refunded (paid)
Interest paid
NET CASH FROM (USED IN)
OPERATING ACTIVITIES

Eleven
months
ended 30th
Year ended 31st December,
November,
1999
2000
2001
2002
HK$’000
HK$’000
HK$’000
HK$’000
12,025
(39,626)
12,261
(1,597)
1,148
428
102
95
–
437
192
4,592
–
16
–
–
1,804
948
(2,752)
–
–
–
45,769
–
–
–
6,066
–
14,977
(37,797)
61,638
3,090
–
7,920
7,531
3,600
(676)
2,967
25
1,702
500
623
(7,157)
2
678
(57)
173
168
–
2,973
(2,973)
3,036
–
619
(585)
(24)
15,479
(22,752)
58,652
11,574
3,901
(85)
(115)
(370)
(7,070)
(9,953)
(8,972)
(3,464)
12,310
(32,790)
49,565
7,740

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

				Eleven
				months
				ended 30th
	Year ended 31st December,			November,
	1999	2000	2001	2002
	HK$’000	HK$’000	HK$’000	HK$’000
INVESTING ACTIVITIES
Acquisition of property and other
fixed assets	–	–	–	(5)
Acquisition of investment properties	(6,862)	–	–	(1,480)
Acquisition of property interests held for
future development	(12,222)	(2,686)	(3,960)	–
Acquisition of properties held for future
development	–	(55)	–	–
Proceeds on disposal of investment
properties	–	3,815	3,149	8,146
(Advances to) repayment from associates	(14,527)	(3,313)	147,635	4,750
Repayment from (advance to) a fellow
subsidiary	–	49,252	(156)	904
Repayment from (advance to)
immediate holding company	49,449	371	–	(501)
NET CASH FROM INVESTING
ACTIVITIES	15,838	47,384	146,668	11,814
FINANCING ACTIVITIES
Advances from (repayment to) immediate
holding companies	40,609	(171,472)	(25,833)	(6,766)
Advances from (repayment to) fellow
subsidiaries	9,412	188,130	(180,471)	(11,200)
Repayment of loan from a
fellow subsidiary	(80,954)	(30,000)	–	–
Advances from (repayment to)
intermediate holding companies	–	–	6,098	(2,106)
Advance from an associate	1,777	410	2,160	590
NET CASH USED IN FINANCING
ACTIVITIES	(29,156)	(12,932)	(198,046)	(19,482)
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS	(1,008)	1,662	(1,813)	72
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE
YEAR/PERIOD	1,457	609	2,536	718
EFFECT OF FOREIGN EXCHANGE
RATE CHARGES	160	265	(5)	(27)
CASH AND CASH EQUIVALENTS
AT END OF THE YEAR/PERIOD,
representing bank balances and cash	609	2,536	718	763

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Notes to the combined financial information

1. Basis of presentation of combined financial information

The combined financial information set out herein has been prepared on the basis as if the companies set out in note 3 had formed a group throughout the three years ended 31st December, 2001 and eleven months ended 30th November, 2002.

All significant intra-group transactions and balances within the Combined Group have been eliminated on combination.

The combined financial information has been prepared on a going concern basis on the basis that the proposed disposal of the Combined Group to Chi Cheung will be completed and that Chi Cheung will ensure that the Combined Group has sufficient funding to enable the Combined Group to meet in full its financial obligations as they fall due for the foreseeable future.

2. Principal accounting policies

The combined financial information set out in this report has been prepared under the historical cost convention as modified for the revaluation of certain properties and in accordance with the accounting policies set out below which conform with the accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below.

Interests in associates

The combined income statements include the Combined Group’s share of the post-acquisition results of its associates for the year. In the combined balance sheets, interests in associates are stated at the Combined Group’s share of the net assets of the associates less any identified impairment loss.

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 values. Any surplus or deficit 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 deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statements. Where a deficit has previously been charged to the income statements and a revaluation surplus subsequently arises, this surplus is credited to the income statements to the extent of the deficit previously charged.

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

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

Property interests held for future development

Property interests represent a right to develop properties on a piece of land upon payment of a final amount, and are carried at cost less any identified impairment loss.

Properties held for future development

Land and building held for future development are carried at cost, less any impairment loss.

Property under development

Land and building in the course of development for production, rental or administrative purposes or for purposes net yet determined are carried at cost, less any impairment loss.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Property and other fixed assets

Property and other fixed assets are stated at cost less depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property and other fixed assets over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rates per annum:

Leasehold land Over the term of the lease Buildings Over the shorter of the term of the lease and 40 years Furniture, fixtures and equipment 3 to 10 years Motor vehicles 3 to 10 years

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 income statements.

Land and buildings in the course of development for rental or administrative purposes or for purposes not yet determined, are carried at cost less any identified impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its 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.

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.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value.

Revenue recognition

Revenue from properties developed for sale is recognised on the execution of a binding sales agreement or when the relevant occupation permit is issued by the binding authority, whichever is the later.

Revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and grouped under current liabilities.

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

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

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 statements.

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

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Taxation

The charge for taxation is based on the results for the Relevant Periods 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 timing differences, computed using 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.

Operating leases

Leases of assets in respect of which substantially all the rewards and risks of ownership remain with the lessors are accounted for as operating leases. Rental paid and payable under operating leases are charged to the income statements on a straight line basis over such term of the relevant lease.

3. List of companies

As at the date of this report, particulars of the companies comprising the Combined Group are as follows:

	Date and	Issued and	Percentage	Percentage
	place of	fully paid	attributable to
	incorporation/	up share/	the Combined Group
Name of company	establishment registered capital		Directly	Indirectly	Principal activities
Chenghai Royal Garden Co. Ltd.	PRC	RMB34,504,540	–	100%	Property development
Comford Tower Ltd.	Republic of Liberia	US$1	100%	–	Investment holding
Country Homes Ltd.	Hong Kong	HK$165,600	100%	–	Property investment
Country Honour Ltd.	Hong Kong	HK$2	100%	–	Property investment
E-Trade.com Ltd.	British Virgin Islands	US$1,000	100%	–	Investment holding
Farnell Venture Inc.	British Virgin Islands	US$1	100%	–	Investment holding
First Castle Ltd.	British Virgin Islands	US$1	100%	–	Property investment
Gemstar Technology Park Ltd.	PRC	US$5,400,000	–	100%	Property development
Jade Mountain Ltd.	British Virgin Islands	US$1	100%	–	Investment holding
Jinline Investments Ltd.	British Virgin Islands	US$1	100%	–	Investment holding
Kinloch Investments Corporation	British Virgin Islands	US$100	100%	–	Investment holding
Queensway Development Ltd.	British Virgin Islands	US$1	100%	–	Property investment
Sanewing Investments Ltd.	Hong Kong	HK$10,000	100%	–	Property investment
Union Spark Investment Limited	Hong Kong	HK$2	–	100%	Investment holding
View Success Investments Ltd.	Hong Kong	HK$2	100%	–	Property investment

4. Turnover

Turnover represents the aggregate of amounts received and receivable from the sales of properties, property rental income and interest income from loans to associates.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

5. Business and geographical segments

Business segments

For management purposes, the Combined Group is currently organised into three operating divisions – property development, property leasing and money lending. These divisions are the basis on which the Combined Group reports its primary segment information.

Principal activities are as follows:

Property development and sale of properties

Property development – Property leasing – Property rental Money lending – Loan financing to associates

Segment information about these businesses is presented below.

Combined income statement

For eleven months ended 30th November, 2002

Property development HK$’000 Revenue Revenue from external sales – Result Segment result – Unallocated corporate expenses Loss from operations Finance costs – Share of results of associates – Allowance for bad debts on advances to associates – Loss before taxation Taxation Loss for the period	Property leasing HK$’000 9,996 8,899 – (27) (1,823)	Money lending HK$’000 1,384 1,384 – – –	Combined HK$’000 11,380

			10,283 (11,880
			(1,597 (3,464 (27 (1,823
			(6,911 (265
			(7,176

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined balance sheet

At 30th November, 2002

Property development HK$’000 Assets Segment assets 84,627 Interests in associates 93 84,720 Liabilities Segment liabilities 182,056 Other information For eleven months ended 30th November, 2002 Property development HK$’000 Capital additions – Depreciation – Combined income statement For the year ended 31st December, 2001 Property development HK$’000 Revenue Revenue from external sales 7,063 Result Segment result (51,964) Unallocated corporate income Profit from operations Finance costs – Share of results of associates – Write-back of allowance for bad debts on advances to associates 47,410 Profit before taxation Taxation Profit for the year	Property leasing HK$’000 118,943 269,184 388,127 302,417 Property leasing HK$’000 1,485 95 Property leasing HK$’000 11,997 10,023 – 3,881 8,182	Money lending HK$’000 – – – – Money lending HK$’000 – – Money lending HK$’000 5,100 5,100 – – –	Combined HK$’000 203,570 269,277
			472,847

			484,473

			Combined HK$’000 1,485 95

			Combined HK$’000 24,160

			(36,841 49,102
			12,261 (8,972 3,881 55,592
			62,762 (1,092
			61,670

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined balance sheet

At 31st December, 2001

Property development HK$’000 Assets Segment assets 84,588 Interests in associates 56 84,644 Liabilities Segment liabilities 182,015 Other information For the year ended 31st December, 2001 Property development HK$’000 Capital additions 3,960 Depreciation – Impairment loss recognised 51,835 Combined income statement For the year ended 31st December, 2000 Property development HK$’000 Revenue Revenue from external sales – Result Segment result (4,624) Unallocated corporate expenses Loss from operations Finance costs – Share of results of associates – Allowance for bad debts on advances to associates (76,865) Loss before taxation Taxation Loss for the year	Property leasing HK$’000 138,210 271,899 410,109 319,252 Property leasing HK$’000 – 102 – Property leasing HK$’000 11,057 5,549 – 997 58	Money lending HK$’000 – – – – Money lending HK$’000 – – – Money lending HK$’000 15,485 15,485 – – –	Combined HK$’000 222,798 271,955
			494,753

			501,267

			Combined HK$’000 3,960 102 51,835

			Combined HK$’000 26,542

			16,410 (56,036
			(39,626 (9,953 997 (76,807
			(125,389 (1,170
			(126,559

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined balance sheet

At 31st December, 2000

Property development HK$’000 Assets Segment assets 141,265 Interests in associates 101,222 242,487 Liabilities Segment liabilities 334,668 Other information For the year ended 31st December, 2000 Property development HK$’000 Capital additions 2,741 Depreciation – Combined income statement For the year ended 31st December, 1999 Property development HK$’000 Revenue Revenue from external sales – Result Segment result – Unallocated corporate expenses Profit from operations Finance costs – Share of results of associates – Allowance for bad debts on advances to associates (26,247) Loss before taxation Taxation Loss for the year	Property leasing HK$’000 132,511 262,747 395,258 374,712 Property leasing HK$’000 – 428 Property leasing HK$’000 9,182 6,650 – (5,368) (385)	Money lending HK$’000 – – – – Money lending HK$’000 – – Money lending HK$’000 11,936 11,936 – – –	Combined HK$’000 273,776 363,969
			637,745

			709,380

			Combined HK$’000 2,741 428

			Combined HK$’000 21,118

			18,586 (6,561
			12,025 (7,070 (5,368 (26,632
			(27,045 3,906
			(23,139

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

Combined balance sheet

At 31st December, 1999

Property development HK$’000 Assets Segment assets 144,980 Interests in associates 164,909 309,889 Liabilities Segment liabilities 328,853 Other information For the year ended 31st December, 1999 Property development HK$’000 Capital additions 12,222 Depreciation –	Property leasing HK$’000 190,320 293,963 484,283 389,391 Property leasing HK$’000 6,862 1,148	Money lending HK$’000 – – – – Money lending HK$’000 – –	Combined HK$’000 335,300 458,872
			794,172

			718,244

			Combined HK$’000 19,084 1,148

Geographical segments

The Combined Group’s operations are located in Hong Kong and in the PRC. The Combined Group’s property leasing and money lending are located in Hong Kong and property development is carried out in the PRC.

The following table provides an analysis of the Group’s revenue and contributions to profit (loss) from operations by geographical market:

Hong Kong PRC Unallocated corporate expenses Profit (loss) from operations	Revenue by geographical market Eleven months ended 30th Year ended 31st December, November, 1999 2000 2001 2002 HK$’000 HK$’000 HK$’000 HK$’000 9,182 14,152 17,097 11,380 11,936 12,390 7,063 – 21,118 26,542 24,160 11,380	Contribution to profit (loss) from operations	Contribution to profit (loss) from operations
		Eleven months ended 30th Year ended 31st December, November, 1999 2000 2001 2002 HK$’000 HK$’000 HK$’000 HK$’000 1,225 (46,164) 64,368 (1,543) 10,800 6,538 (52,107) (54) 12,025 (39,626) 12,261 (1,597) – – – – 12,025 (39,626) 12,261 (1,597)
			(1,597) –
			(1,597)

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

The following is an analysis of the carrying amount of segment assets and capital additions analysed by geographical area in which the assets are located:

Hong Kong PRC	Carrying amount of segment assets Eleven months ended 30th Year ended 31st December, November, 1999 2000 2001 2002 HK$’000 HK$’000 HK$’000 HK$’000 484,283 395,258 410,109 388,127 309,889 242,487 84,644 84,720 794,172 637,745 494,753 472,847	Capital additions	Capital additions
		Eleven months ended 30th Year ended 31st December, November, 1999 2000 2001 2002 HK$’000 HK$’000 HK$’000 HK$’000 6,862 – – 1,485 12,222 2,741 3,960 – 19,084 2,741 3,960 1,485
			1,485

6. Profit (loss) from operations

Profit (loss) from operations has been arrived at after charging (crediting): Directors’ emoluments Other staff costs_(note 11)_ Total staff costs Auditors’ emoluments Depreciation Deficit (surplus) on revaluation of investment properties Loss on disposal of investment properties Loss on disposal of property and other fixed assets Bank interest income Net exchange gain Gross rental income from investment properties _Less:_Outgoings	Year 1999 HK$’000 – 648 648 84 1,148 1,804 – – (25) (577) (9,182) 2,532 (6,650)	ended 31st December, 2000 2001 HK$’000 HK$’000 – – 119 265 119 265 84 71 428 102 948 (2,752) 437 192 16 – (12) (30) (873) (11) (11,057) (11,997) 2,211 1,153 (8,846) (10,844)	Eleven months ended 30th November, 2002 HK$’000 – 177
			177
			30 95 – 4,592 – (6 (28 (9,996 1,097
			(8,899

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

7. Finance costs

Interest on: Advance from immediate holding company Advance from an intermediate holding company Loan from a fellow subsidiary	Year ended 31st 1999 2000 HK$’000 HK$’000 – 3,279 – – 7,070 6,674 7,070 9,953	December, 2001 HK$’000 4,091 586 4,295 8,972	Eleven months ended 30th November, 2002 HK$’000 1,050 212 2,202
			3,464

8. Taxation

Taxation
The (credit) charge comprises: Profit for the year/period Hong Kong PRC Taxation attributable to the Combined Group Share of taxation attributable to associates	Year ended 31st 1999 2000 HK$’000 HK$’000 (3,906) 1,170 – – (3,906) 1,170 49 33 (3,955) 1,137 (3,906) 1,170	December, 2001 HK$’000 606 486 1,092 573 519 1,092	Eleven months ended 30th November, 2002 HK$’000 383 (118
			265

			(109 374
			265

Hong Kong Profits Tax is calculated at 16% of the estimated assessable profits for the Relevant Periods. Income tax has been provided for at appropriate rates on the estimated assessable profits in the PRC.

The Combined Group’s subsidiaries and associates in the PRC are generally required under the Foreign Investment Enterprise and the Foreign Enterprise Income Tax Law to pay PRC income tax at a rate of 33%.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

The major components of deferred taxation credit (charge) not recognised for the Relevant Periods are as

follows:

Tax effect of timing differences attributable to: Difference of tax allowances and depreciation Tax losses arising (utilised)	Year ended 31st 1999 2000 HK$’000 HK$’000 105 36 1,285 23 1,390 59	December, 2001 HK$’000 (12) (782) (794)	Eleven months ended 30th November, 2002 HK$’000 (11 (361
			(372

At the balance sheet date, the major components of deferred taxation asset not recognised in the financial statements are as follows:

Tax effect of timing differences attributable to: Difference of tax allowances and depreciation Unutilised tax losses	1999 HK$’000 28 2,156 2,184	As at 31st December, 2000 2001 HK$’000 HK$’000 64 52 2,179 1,397 2,243 1,449	As at 30th November, 2002 HK$’000 41 1,036
			1,077

A deferred tax asset has not been recognised as it is not certain that the tax benefits will be recognised in the foreseeable future.

No deferred taxation is provided on the revaluation surplus arising on the valuation of investment properties situated in Hong Kong as future profits arising on the disposal of the assets would not be subject to taxation. The revaluation therefore does not constitute a timing difference for taxation purpose.

9. Dividend

No dividend has been paid or declared by any of the companies comprising the Combined Group during the Relevant Periods.

10. Loss per share

No loss per share information is presented as this would not be meaningful for the purpose of this report be based on preparation of the results on a combined basis, as set out in note 1.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

11. Employees’ emoluments

Employees’ emoluments

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

Salaries and allowances Retirement benefits scheme contributions	Year ended 31st 1999 2000 HK$’000 HK$’000 648 116 – 3 648 119	December, 2001 HK$’000 256 9 265	Eleven months ended 30th November, 2002 HK$’000 169 8
			177

The emoluments of each of the five highest paid employees for the Relevant Periods were less than HK$1,000,000.

No directors waived any emoluments and no incentive payment or compensation for loss of office was paid or payable to any Director during the Relevant Periods.

12. Investment properties

VALUATION At 1st January, 1999 Additions Surplus (deficit) on revaluation At 31st December, 1999 Disposals (Deficit) surplus on revaluation At 31st December, 2000 Disposals (Deficit) surplus on revaluation At 31st December, 2001 Additions Disposals Deficit on revaluation Transfer to properties held for sale At 30th November, 2002	Properties in Hong Kong held under long lease HK$’000 10,027 – 1,973 12,000 – (1,500) 10,500 (3,500) (1,500) 5,500 – (2,750) (750) – 2,000	Properties in Hong Kong held under medium term lease HK$’000 74,000 6,862 (8,962) 71,900 (4,252) 552 68,200 – 11,200 79,400 1,480 (10,898) (545) (287) 69,150	Total HK$’000 84,027 6,862 (6,989
			83,900 (4,252 (948
			78,700 (3,500 9,700
			84,900 1,480 (13,648 (1,295 (287
			71,150

The Combined Group’s investment properties were revalued at their open market value at 31st December, 1999 and 2000 by Brooke International Limited and B.I. Appraisals Limited, respectively, and at 31st December, 2001 and 30th November, 2002 by Norton Appraisals Limited, independent registered professional surveyors.

All of the Combined Group’s investment properties are rented out under operating leases.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

13. Property interests held for future development, property held for future development and property under development

COST At 1st January, 1999 Additions At 31st December, 1999 Reclassification Additions Transfer to properties held for sale At 31st December, 2000 Reclassification Additions At 31st December, 2001 Transfer to properties held for sale At 30th November, 2002 IMPAIRMENT LOSS At 1st January, 1999 and at 31st December, 1999 and 2000 Loss recognised in the year At 31st December, 2001 and 30th November, 2002 NET BOOK VALUE At 30th November, 2002 At 31st December, 2001 At 31st December, 2000 At 31st December, 1999	Property interests held for future development HK$’000 128,715 12,222 140,937 (30,441) 2,686 – 113,182 – 3,960 117,142 – 117,142 – 45,769 45,769 71,373 71,373 113,182 140,937	Property held for future development HK$’000 – – – 30,441 55 (11,334) 19,162 (19,162) – – – – – – – – – 19,162 –	Property under development HK$’000 – –
			– – – –
			– 19,162 –
			19,162 (5,061
			14,101
			– 6,066
			6,066
			8,035

			13,096

			–

			–

The property interests held for future development are located in Shantou, the PRC. The Group is in the process of obtaining the land use right certificate for their land in Shantou held under long lease and is now holding a pre-registration land use right for such property interests. The land use right certificate will be obtained pending for final payment of RMB24,861,000 (approximately HK$23,563,000).

Property held for future development and property under development are situated in the PRC and are held under medium term leases.

The Directors regularly review the carrying amount of property interests held for future development and property under development for any impairment loss. Accordingly, the carrying amount of property interests held for future development and property under development is reduced to their recoverable amounts which is determined by reference to the market selling price of similar properties net of estimated cost to complete. Accordingly, impairment losses of HK$45,769,000 and HK$6,066,000 were recognised for property interests held for future development and for property under development respectively for the year ended 31st December, 2001.

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

14. Property and other fixed assets

COST At 1st January, 1999 Disposals At 31st December, 1999 Disposals At 31st December, 2000 and at 31st December, 2001 Additions At 30th November, 2002 DEPRECIATION At 1st January, 1999 Eliminated on disposals Provided for the year At 31st December, 1999 Eliminated on disposals Provided for the year At 31st December, 2000 Provided for the year At 31st December, 2001 Provided for the period At 30th November, 2002 NET BOOK VALUE At 30th November, 2002 At 31st December, 2001 At 31st December, 2000 At 31st December, 1999	Land and buildings held under medium term lease HK$’000 4,914 – 4,914 – 4,914 – 4,914 246 – 98 344 – 98 442 99 541 90 631 4,283 4,373 4,472 4,570	Furniture and fixtures HK$’000 3,916 – 3,916 – 3,916 5 3,921 2,794 – 784 3,578 – 330 3,908 3 3,911 5 3,916 5 5 8 338	Motor vehicles HK$’000 1,416 (1,185) 231 (231) – – – 1,134 (1,185) 266 215 (215) – – – – – – – – – 16	Total HK$’000 10,246 (1,185
				9,061 (231
				8,830 5
				8,835
				4,174 (1,185 1,148
				4,137 (215 428
				4,350 102
				4,452 95
				4,547
				4,288

				4,378

				4,480

				4,924

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

15. Interests in associates

Share of net assets Advances to associates Less: Allowance in respect of advances to associates	As at 31st December, 1999 2000 2001 HK$’000 HK$’000 HK$’000 143,152 121,743 121,772 384,324 387,637 240,002 527,476 509,380 361,774 (68,604) (145,411) (89,819) 458,872 363,969 271,955	As at 30th November, 2002 HK$’000 125,667 235,252
		360,919 (91,642
		269,277

The advances are unsecured, have no fixed repayment terms and interest free, except for an amount of HK$320,728,000, HK$333,061,000, HK$120,402,000 and HK$116,797,000 for the years ended 31st December, 1999, 2000, 2001 and eleven months ended 30th November, 2002, respectively, which bears interests at rate mutually agreed by both parties. The advances are not repayable within one year and are therefore shown as non-current.

Included in accumulated losses of the Combined Group is retained profits of HK$53,048,000, HK$52,907,000, HK$56,270,000 and HK$55,868,000, respectively for the years ended 31st December, 1999, 2000, 2001 and eleven months ended 30th November, 2002.

16. Advances to a fellow subsidiary and immediate holding company

The advances are unsecured, interest free and have no fixed repayment terms. The advances are not repayable within one year and are therefore shown as non-current.

17. Debtors, deposits and prepayments

Included in debtors, deposits and prepayments are trade debtors of HK$126,000, HK$275,000, HK$246,000 and HK$43,000 comprising mainly of rental receivables which are billed in advance and settlements are expected upon receipts of billing.

The aged analysis of rental receivables at the respective balance sheet date is as follows:

0–30 days 31–60 days 61 days Over 90 days	As at 31st December, 1999 2000 2001 HK$’000 HK$’000 HK$’000 31 29 – 31 – – 31 – – 33 246 246 126 275 246	As at 30th November, 2002 HK$’000 43 – – –
		43

18. Creditors and accruals

None of the creditors are trade payables and accordingly no aged analysis is presented.

19. Amounts due to fellow subsidiaries

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

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

20. Advances from immediate holding companies

The advances are unsecured, have no fixed repayment terms and interest free, except for an amount of HK$51,198,000, HK$1,312,000, HK$118,555,000 and HK$114,520,000 for the years ended 31st December, 1999, 2000, 2001 and eleven months ended 30th November, 2002, respectively, which bears interest at rate mutually agreed by both parties. The advances are not repayable within one year and are therefore shown as non-current.

21. Advances from fellow subsidiaries

The advances are unsecured, have no fixed repayment terms and interest free, except for an amount of HK$1,100,000, HK$1,312,000, HK$1,000,000 and HK$503,000 for the years ended 31st December, 1999, 2000, 2001 and eleven months ended 30th November, 2002, respectively, which bears interests at rates mutually agreed by both parties. The advances are not repayable within one year and are therefore shown as non-current.

22. Loan from a fellow subsidiary

The loan is unsecured, has no fixed repayment terms and bears interest at rate mutually agreed by both parties. The loan is not repayable within one year and is therefore shown as non-current.

23. Advances from intermediate holding companies

The advances are unsecured, have no fixed repayment terms and interest free, except for an amount of HK$6,098,000 and HK$3,941,000 for the year ended 31st December, 2001 and eleven months ended 30th November, 2002, respectively, which bears interest at rate mutually agreed by both parties. The advances are not repayable within one year and is therefore shown as non-current.

24. Advances from an associate

The advance is unsecured, interest free and has no fixed repayment terms. The amount is not repayable within one year and are therefore shown as non current.

25. Combined share capital

For the purpose of this report, the share capital as at 31st December, 1999, 2000, 2001 and eleven months ended 30th November, 2002 represent the aggregate amount of the nominal value of the issued and fully paid share capital of the companies comprising the Combined Group.

26. Lease commitment

The investment properties of the Combined Group are expected to generate rental yields of 7.1%, 7.1%, 7.1% and 9.1% at 31st December, 1999, 2000, 2000 and at 30th November, 2002, respectively on an ongoing basis. All of the properties held have committed tenants for the next 2–3 years.

At each balance sheet date, the Combined Group had contracted with tenants for the following future minimum lease payments.

Within one year In the second to fifth year inclusive	Year ended 31st 1999 2000 HK$’000 HK$’000 5,139 7,165 3,941 7,058 9,080 14,223	December, 2001 HK$’000 5,127 842 5,969	Eleven months ended 30th November, 2002 HK$’000 4,891 2,560
			7,451

ACCOUNTANTS’ REPORT ON THE SALE COMPANIES

APPENDIX I

27. Capital commitment

Capital expenditure in respect of the acquisition of properties in the PRC, contracted for but not provided in the financial statements Capital expenditure in respect of the capital injection in the PRC enterprise, authorised but not contract for	Year ended 31st 1999 2000 HK$’000 HK$’000 23,346 23,441 38,092 38,246	December, 2001 HK$’000 23,440 31,864	Eleven months ended 30th November, 2002 HK$’000 23,563

			31,852

28. Related parties transactions

In addition to notes 15, 16, 19, 20, 21, 22, 23 and 24, the Combined Group entered into the following transactions with related parties during the Relevant Periods:

				Eleven
				months
				ended 30th
	Year ended 31st		December,	November,
	1999	2000	2001	2002
	HK$’000	HK$’000	HK$’000	HK$’000
Interest paid to intermediate holding
company	–	–	586	212
Interest paid to fellow subsidiaries	7,070	6,674	4,295	2,202
Management fee paid to a fellow
subsidiary	–	619	1,065	971
Interest received from associates	11,936	15,485	6,100	1,384
Rental income received from a fellow
subsidiary	–	–	–	630
Interest paid to immediate holding
company	–	3,279	4,091	1,050

The Directors of the companies comprising the Combined Group have the transactions with the above related parties were carried out in normal commercial terms. Office rental and building management fee were determined on terms similar to those applicable to transactions with unrelated parties.

II. SUBSEQUENT FINANCIAL INFORMATION

No audited financial information of the companies comprising the Combined Group have been prepared in respect of any period subsequent to 30th November, 2002 and no dividend or other distribution has been declared, made or paid by the companies comprising the Combined Group in respect of any period subsequent to 30th November, 2002.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

FINANCIAL SUMMARY

The following is a summary of the audited consolidated results of the Chi Cheung Group for each of the five years ended 31st December, 2001 extracted from Chi Cheung’s annual report for each of the five years ended 31st December, 2001:

Results Turnover_(note 5)_ (Loss) profit before taxation Taxation (Loss) profit after taxation Minority interests (Loss) profit attributable to shareholders	1997 HK$’000 555,523 (60,260) (3,424) (63,684) (3,198) (66,882)	Year ended 31st December, 1998 1999 2000 HK$’000 HK$’000 HK$’000 454,701 108,367 5,158 (1,307,250) (235,542) 478,181 (401) (7,231) (2,054) (1,307,651) (242,773) 476,127 24,183 2 108,789 (1,283,468) (242,771) 584,916	2001 HK$’000 4,612 (47,133) 503 (46,630) – (46,630)

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2001

The following information is extracted from the audited financial statements of the Chi Cheung Group as contained in Chi Cheung’s annual report for the year ended 31st December, 2001:

Consolidated Income Statement

For the year ended 31st December, 2001

Notes Turnover 5 Property expenses Net rental income Other revenue 7 Administrative expenses Other operating expenses 8 Impairment loss recognised in respect of properties under development 20 Loss from operations 9 Impairment loss on interest in an associate Investment loss Restructuring cost Finance costs 10 Share of results of associates Gain on debt restructuring 11 (Loss) profit before taxation Taxation 14 (Loss) profit after taxation Minority interests 15 (Loss) profit attributable to shareholders and transfer to reserve 31 (Loss) earnings per share 17 – basic – diluted	2001 HK$’000 4,612 (2,590) 2,022 2,542 (3,327) (7,890) (36,044) (42,697) (488) – – (3,948) – – (47,133) 503 (46,630) – (46,630) (1.57) cents N/A	2000 HK$’000 (As restated) 5,158 (3,558) 1,600 2,259 (14,811) (6,497) (23,287) (40,736) – (3,073) (12,376) (729) (2) 535,097 478,181 (2,054) 476,127 108,789 584,916 93.5 cents N/A

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Consolidated Balance Sheet

As at 31st December, 2001

Notes Non-current assets Investment properties 18 Property and other fixed assets 19 Properties under development 20 Interest in an associate 22 Other asset Current assets Property held for sale Debtors, deposits and prepayments 23 Taxation recoverable Bank balances and cash Current liabilities Creditors and accruals 24 Advance from immediate holding company 25 Advance from an associate 27 Taxation payable Borrowings – due within one year 28 Net current liabilities Total assets less current liabilities Non-current liabilities Advance from immediate holding company 25 Loans from minority shareholders of subsidiaries – due after one year Minority interests Capital and reserves Share capital 29 Reserves 31	2001 HK$’000 48,930 825 146,500 – 270 196,525 – 830 – 8,682 9,512 5,926 12,226 – – 52,000 70,152 (60,640) 135,885 – 45,100 45,100 (45,100) 135,885 297,131 (161,246) 135,885	2000 HK$’000 (As restated) 23,550 975 170,000 488 270 195,283 2,200 1,740 168 10,468 14,576 11,848 – 53 1,353 1,856 15,110 (534) 194,749 12,226 108,787 121,013 (108,779) 182,515 297,131 (114,616) 182,515

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Balance Sheet

As at 31st December, 2001

Notes Non-current assets Property and other fixed assets 19 Interests in subsidiaries 21 Other asset Current assets Deposits and prepayments Taxation recoverable Bank balances and cash Current liabilities Creditors and accruals Advance from immediate holding company 25 Net current (liabilities) assets Total assets less current liabilities Non-current liabilities Advance from immediate holding company 25 Advances from subsidiaries 26 Capital and reserves Share capital 29 Reserves 31	2001 HK$’000 161 119,096 270 119,527 362 – 7,949 8,311 2,410 12,226 14,636 (6,325) 113,202 – 47,660 47,660 65,542 297,131 (231,589) 65,542	2000 HK$’000 273 290,992 270 291,535 406 168 4,611 5,185 4,674 – 4,674 511 292,046 12,226 136,736 148,962 143,084 297,131 (154,047) 143,084

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the year ended 31st December, 2001

Notes Net cash outflow from operating activities 32 Returns on investments and servicing of finance Interest received Interest paid Net cash (outflow) inflow from returns on investments and servicing of finance Taxation Hong Kong Profits Tax paid Hong Kong Profits Tax refunded Investing activities Additions to properties under development Dissolution/disposal of subsidiaries (net of cash and cash equivalents disposed of) 33 Advances to associates Net proceeds from disposal of investment properties Proceeds from disposal of other fixed assets Decrease in restricted bank balances Acquisition of subsidiaries (net of cash and cash equivalents acquired) 34 Net cash inflow from investing activities Net cash inflow (outflow) before financing Financing 35 Proceeds from issue of shares Repayment of borrowings Repayment of convertible guaranteed bonds Repayment of amount due to former ultimate holding company Repayment of loans advanced from minority shareholders of subsidiaries Net cash (outflow) inflow from financing (Decrease) increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Waiver of bank overdraft Cash and cash equivalents at the end of the year Analysis of the balances of cash and cash equivalents Bank balances and cash	2001 HK$’000 (3,329) 140 (3,454) (3,314) – 171 171 (544) (152) – 20,180 58 – – 19,542 13,070 – (14,856) – – – (14,856) (1,786) 10,468 – 10,468 8,682 8,682	2000 HK$’000 (18,853) 898 (311) 587 (9,946) – (9,946) (134) 23 (1) – – 22,535 2,371 24,794 (3,418) 60,000 (26,650) (20,739) (4,014) (2,098) 6,499 3,081 (52,741) 60,128 7,387 10,468 10,468

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Notes to the financial statements

1. General

Chi Cheung is incorporated in Hong Kong with limited liability and its securities are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is Chinese Estates Holdings Limited (“Chinese Estates”), a company incorporated in Bermuda with its securities listed on the Stock Exchange.

Chi Cheung acts as an investment holding company and its subsidiaries are principally engaged in property investment and development. The principal activities and other particulars of its principal subsidiaries are set out in note 42 to the financial statements.

2. Basis of preparation of financial statements

The financial statements have been prepared on a going concern basis because Chinese Estates has agreed to provide adequate funds for Chi Cheung to meet its financial obligations as they fall due for the foreseeable future.

3. Adoption of statements of standard accounting practice/changes in accounting policies

In the current year, the Chi Cheung Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice (“SSAP”) issued by the Hong Kong Society of Accountants. Adoption of these Standards has led to a number of changes in the Chi Cheung Group’s accounting policies. The revised accounting policies are set out in note 4. In addition, the new and revised Standards have introduced additional and revised disclosure requirements which have been adopted in these financial statements. Comparative amounts for the prior year have been restated in order to achieve a consistent presentation.

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

Segment reporting

In the current year, the Chi Cheung Group has changed the basis of identification of reportable segments to that required by SSAP 26 “Segment Reporting”. Segment disclosures for the year ended 31st December, 2000 have been amended so that they are presented on a consistent basis.

Goodwill

In the current year, the Chi Cheung Group has adopted SSAP 30 “Business Combinations” and has elected to restate goodwill (negative goodwill) previously eliminated against (credited to) reserves. Accordingly, the amount of such goodwill (negative goodwill) has been remeasured in accordance with the requirements of SSAP 30. Accumulated amortisation and impairment losses in respect of goodwill between the date of acquisition of the subsidiary and the date of adoption of SSAP 30 have been recognised retrospectively. Negative goodwill which would have been recognised as income between the date of acquisition of the relevant subsidiary and the date of adoption of SSAP 30 has been recognised retrospectively.

Goodwill arising on acquisitions after 1st January, 2001 is capitalised and amortised over its estimated useful life. Negative goodwill arising on acquisitions after 1st January, 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.

The effect of these changes in accounting policies resulted in a decrease in accumulated losses and goodwill reserve at 1st January, 2000 of approximately HK$6,922,000.

4. Significant accounting policies

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

APPENDIX II FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

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

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Chi Cheung and its subsidiaries made up to 31st December 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 up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances between the Chi Cheung Group enterprises are eliminated on consolidation.

Investments in subsidiaries

Investments in subsidiaries are included in Chi Cheung’s balance sheet at cost less any identified impairment loss.

Interests in associates

The consolidated income statement includes the Chi Cheung 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 Chi Cheung Group’s share of the net assets of the associates, less any identified impairment loss.

The results of associates are accounted for by Chi Cheung on the basis of dividends received and receivable during the year. In Chi Cheung’s balance sheet, investments in associates are stated at cost, as reduced by any identified impairment loss.

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 independent professional valuations at the balance sheet date. Any surplus or deficit 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 deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

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

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

Property and other fixed assets

Property and other fixed assets are stated at cost less depreciation and amortisation and accumulated impairment losses.

Depreciation and amortisation are provided to write off the cost of property and other fixed assets over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rates per annum:

Type Basis

Leasehold land Over the term of the lease Buildings Over the shorter of the unexpired period of the lease and 20 years Furniture, fixtures and 10% and 20% equipment Motor vehicles 25%

The gain or loss arising from the disposal or retirement of an item of property or other fixed asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Properties under development

Land and buildings in the course of development for production, rental or administrative purposes or for purposes not yet determined, are carried at cost, less any impairment loss. Cost includes professional fees and borrowing costs capitalised in accordance with the Chi Cheung Group’s accounting policy. Depreciation or amortisation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Other assets

Other assets representing club memberships, are stated at cost less any identified impairment loss.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost includes land cost and other direct costs including borrowing costs capitalised attributable to such properties. Net realisable value represents the estimated selling prices less direct selling expenses, if any.

Impairment

At each balance sheet date, the Chi Cheung Group reviews the carrying amounts of its tangible 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. An impairment loss is recognised as an expense immediately.

Foreign currencies

Transactions in currencies other than Hong Kong Dollars are translated into Hong Kong Dollars at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in currencies other than Hong Kong Dollars are retranslated 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.

Operating leases

Leases of assets in respect of which substantially all the rewards and risks of ownership remain with the lessor are accounted for as operating leases. Rental expenses paid or payable under operating leases are accounted for in the income statement on a straight-line basis over the periods of the respective leases.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are nonassessable 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 using 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.

Revenue recognition

Rental income from properties under operating leases is recognised on a straight-line basis over the term of the relevant lease.

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

Cash equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advances.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

5. Turnover

Turnover represents the amounts received and receivable from the property rental income.

6. Segmental information

Business segments

For management purposes, the Chi Cheung Group is currently organised into two operating divisions – property development and property leasing. These divisions are the basis on which the Chi Cheung Group reports its primary segment information.

Principal activities are as follows:

Property development – Property development and sales of properties Property leasing – Property rental

Segment information about these businesses is presented below.

	Year ended 31st December, 2001	Year ended 31st December, 2001	Year ended 31st December, 2001
	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000		HK$’000
Segment revenue	–	4,612	–		4,612

Segment result	(36,494)	(5,418)	–		(41,912)

Other revenue					2,542
Unallocated operating expenses					(3,327)
Loss from operations					(42,697)
Impairment loss on interest in
an associate					(488)
Finance costs					(3,948)
Loss before taxation					(47,133)
Taxation					503
Loss after taxation					(46,630)
Minority interests					–
Loss attributable to shareholders					(46,630)

Consolidated balance sheet
Assets
Segment assets	146,500	49,166	–		195,666
Unallocated corporate assets					10,371
Consolidated total assets					206,037

Liabilities
Segment liabilities	13,075	40,707	–		53,782
Unallocated corporate liabilities					61,470
Consolidated total liabilities					115,252

Other information
Capital additions	12,544	53,000	–		65,544
Depreciation and amortisation	–	–	150		150

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

	Year ended 31st December, 2000	Year ended 31st December, 2000	Year ended 31st December, 2000
	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000		HK$’000
Segment revenue	–	5,158	–		5,158

Segment result	(23,287)	1,600	–		(21,687)

Other revenue					2,259
Unallocated operating expenses					(21,308)
Loss from operations					(40,736)
Investment loss					(3,073)
Restructuring cost					(12,376)
Finance costs					(729)
Share of results of associates					(2)
Gain on debt restructuring					535,097
Profit before taxation					478,181
Taxation					(2,054)
Profit after taxation					476,127
Minority interests					108,789
Profit attributable to shareholders					584,916

Consolidated balance sheet
Assets
Segment assets	170,000	24,099	–		194,099
Unallocated corporate assets					15,760
Consolidated total assets					209,859

Liabilities
Segment liabilities	1,209	4,602	–		5,811
Unallocated corporate liabilities					130,312
Consolidated total liabilities					136,123

Other information
Capital additions	193,287	42,447	–		235,734
Depreciation and amortisation	–	–	2,310		2,310

Geographical segments

Substantially all of the activities of the Chi Cheung Group during the year were carried out in Hong Kong. Accordingly, no geographical analysis of information is presented.

7. Other revenue

	2001	2000
	HK$’000	HK$’000
Included in other revenue is:
Interest income	140	903
Gain on disposal of other fixed assets	58	–
Gain on dissolution/disposal of subsidiaries	1,835	600

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

8. Other operating expenses Loss on disposal of property held for sale Loss on disposal of investment properties Deficit on revaluation of investment properties Loss on disposal of other fixed assets Allowance for bad and doubtful debts prior to debt restructuring 9. Loss from operations Loss from operations has been arrived at after charging: Auditors’ remuneration: Current year Underprovision in prior years Depreciation and amortisation Loss on disposal of other fixed assets Operating lease rentals in respect of rented premises Staff costs, including Directors emoluments and after crediting: Gross rental income from properties under operating leases _Less:_Outgoings 10. Finance costs Interest on bank borrowings wholly repayable within five years	2001 HK$’000 (450) (2,820) (4,620) – – (7,890) 2001 HK$’000 150 4 150 – 480 872 4,612 (2,590) 2,022 2001 HK$’000 (3,948)	2000 HK$’000 – – – (667 (5,830
		(6,497

		2000 HK$’000 600 – 2,310 667 2,453 4,789 5,158 (3,558
		1,600

		2000 HK$’000 (729

11. Gain on debt restructuring

Pursuant to the compromise agreement entered into between Chi Cheung, Billion Up Limited, Chinese Estates and certain bankers and creditors whose names were set out in the creditors’ document dated 29th August, 2000, Chi Cheung issued a total of 662.5 million new shares and 594.2 million warrants, together with a cash payment of about HK$57 million, to repay as full and final settlement of the unsecured debts owed to the banks and certain creditors. Any difference between the amount of settlement and the book values of the debts was credited to the income statement in the prior year.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

12. Directors’ emoluments

Fees: Executive directors Independent non-executive directors Other emoluments: Executive directors – Salaries and other emoluments – Retirement benefit scheme contributions Total emoluments	2001 HK$’000 – 60 – – 60	2000 HK$’000 19 18 2,621 10
		2,668

No other emolument was payable to independent non-executive directors in both 2001 and 2000.

Emoluments of the Directors were within the following bands:

	Number of directors	Number of directors
	2001	2000
HK$Nil – HK$1,000,000	4	8
HK$1,000,001 – HK$1,500,000	–	1

During the year, no emoluments were paid by the Chi Cheung Group to the Directors of Chi Cheung as an inducement to join or upon joining the Chi Cheung Group or as compensation for loss of office.

13. Employees’ emoluments

Of the five individuals with the highest emoluments in the Chi Cheung Group, one (2000: three) Director of Chi Cheung whose emoluments are included in note 12 above. The emoluments of the remaining four (2000: two) individuals disclosed pursuant to the Rules Governing The Listing of Securities on the Stock Exchange were as follows:

Salaries and other benefits Retirement benefit scheme contributions	2001 HK$’000 511 27 538	2000 HK$’000 587 5
		592

Their emoluments were all below HK$1,000,000.

14. Taxation

(a) Current taxation

The taxation credit (charge) comprises: Hong Kong Profits Tax Profit for the year Over(under)provision in respect of prior years	2001 HK$’000 – 503 503	2000 HK$’000 – (2,054
		(2,054

No provision for Hong Kong Profits Tax has been made for the year as the Chi Cheung Group did not have any assessable profits.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

(b) Deferred taxation

At 31st December, 2001, the Chi Cheung Group and Chi Cheung had potential deferred taxation assets principally resulting from estimated tax losses. The potential deferred taxation asset has not been recognised in the financial statements as it is not certain that the benefit will be realised in the foreseeable future.

15. Minority interests

The loss attributable to minority interests in 2000 represented their respective share of losses of the nonwholly owned subsidiaries of Chi Cheung prior to debt restructuring.

16. Dividends

No interim dividend was paid during the year and no final dividend is recommended by the Directors.

17. (Loss) Earnings per share

The calculation of the basic (loss) earnings per share is based on the loss attributable to shareholders of approximately HK$46,630,000 (2000: profit of approximately HK$584,916,000) and on the weighted average number of 2,971,305,343 (2000: 625,403,704) ordinary shares in issue during the year.

The computation of diluted (loss) earnings per share does not assume the conversion of Chi Cheung’s warrants since the exercise price is higher than the average fair market value of the shares for both 2001 and 2000.

18. Investment properties

	The Chi Cheung Group
	HK$’000
At valuation
At 1st January, 2001	23,550
Repossessed by the Chi Cheung Group	53,000
Disposal	(23,000)
Deficit on revaluation	(4,620)
At 31st December, 2001	48,930

Pursuant to the debt restructuring scheme effective on 20th November, 2000 made between the Chi Cheung Group and the secured creditors, the secured creditors may within two years request the Chi Cheung Group to sell the mortgaged properties at the price determined by the secured creditors. During the year, the Chi Cheung Group renegotiated with the secured creditor and repaid HK$13,000,000, being a portion of the mortgage loan, to a secured creditor. The Chi Cheung Group then reinstated an investment property of HK$53,000,000 and a property under development of HK$12,000,000 together with the corresponding mortgage loans HK$52,000,000 in the financial statements.

The investment properties of the Chi Cheung Group were revalued at 31st December, 2001 on an open market value basis by Norton Appraisals Limited, an independent professional valuer. This valuation gave rise to a revaluation deficit of HK$4,620,000 (2000: Nil), which has been charged to the income statement. Investment properties with an aggregate value of approximately HK$48,930,000 (2000: HK$23,550,000) are rented out under operating leases.

The Chi Cheung Group’s investment properties are situated in Hong Kong and held under long leases.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

19. Property and other fixed assets

The Chi Cheung Group At cost At 1st January, 2001 Disposals At 31st December, 2001 Depreciation and amortisation At 1st January, 2001 Provided for the year Eliminated on disposals At 31st December, 2001 Net book values At 31st December, 2001 At 31st December, 2000	Leasehold Furniture, land and fixtures and buildings equipment HK$’000 HK$’000 1,840 3,406 – (2,289) 1,840 1,117 1,138 3,133 38 112 – (2,289) 1,176 956 664 161 702 273	Motor vehicles HK$’000 330 (330) – 330 – (330) – – –	Total HK$’000 5,576 (2,619)
			2,957
			4,601 150 (2,619)
			2,132
			825

			975

The Chi Cheung Group’s leasehold land and buildings are situated in Hong Kong and held under mediumterm lease.

Furniture, fixtures and equipment HK$’000 Chi Cheung At cost At 1st January, 2001 3,406 Disposals (2,289) At 31st December, 2001 1,117 Depreciation At 1st January, 2001 3,133 Provided for the year 112 Eliminated on disposals (2,289) At 31st December, 2001 956 Net book values At 31st December, 2001 161 At 31st December, 2000 273	Motor vehicles HK$’000 330 (330) – 330 – (330) – – –	Total HK$’000 3,736 (2,619)
		1,117
		3,463 112 (2,619)
		956
		161

		273

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

20. Properties under development

	Properties held
	under long leases
	in Hong Kong
	HK$’000
The Chi Cheung Group
At cost
At 1st January, 2001	193,287
Repossessed by the Chi Cheung Group_(note 18)_	12,000
Additions	544
At 31st December, 2001	205,831
Accumulated impairment losses
At 1st January, 2001	23,287
Provided during the year	36,044
At 31st December, 2001	59,331
Net book values
At 31st December, 2001	146,500
At 31st December, 2000	170,000

No borrowing cost has been capitalised during the year.

The carrying amount of properties under development is reduced to their recoverable amounts which is determined by reference to the market selling price of similar properties net of estimated cost to complete. Accordingly, an impairment loss of HK$36,044,000 (2000: HK$23,287,000) has been recognised in the current year.

21. Interests in subsidiaries

Unlisted shares, at cost Advances to subsidiaries _Less:_impairment loss recognised	Chi Cheung 2001 2000 HK$’000 HK$’000 12,692 23,635 119,096 281,314 131,788 304,949 (12,692) (13,957 119,096 290,992	Chi Cheung 2001 2000 HK$’000 HK$’000 12,692 23,635 119,096 281,314 131,788 304,949 (12,692) (13,957 119,096 290,992
		304,949 (13,957
		290,992

22. Interest in an associate

	The Chi Cheung	Group
	2001	2000
	HK$’000	HK$’000
Share of net assets	–	488

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

23. Debtors, deposits and prepayments

The Chi Cheung Group

Included in debtors, deposits and prepayments are trade debtors of approximately HK$236,000 (2000: approximately of HK$549,000) comprising mainly rental receivables. The following is an aged analysis of trade debtors at the balance sheet date:

0 – 30 days 31 – 60 days Over 60 days	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 59 150 43 125 134 274 236 549	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 59 150 43 125 134 274 236 549
		549

24. Creditors and accruals

Included in creditors and accruals are trade payables of approximately HK$73,000 (2000: approximately of HK$424,000). The following is an aged analysis of trade creditors at the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 29 220 23 86 18 118 3 – 73 424	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 29 220 23 86 18 118 3 – 73 424
		424

25. Advance from immediate holding company

The Chi Cheung Group and Chi Cheung

The amount is unsecured, non-interest bearing and is scheduled to repay in May 2002.

26. Advances from subsidiaries

Chi Cheung

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

27. Advance from an associate

The Chi Cheung Group

The amount was unsecured, non-interest bearing and was repaid during the year.

28. Borrowings – due within one year

	The Chi Cheung	Group
	2001	2000
	HK$’000	HK$’000
Bank loans, secured	52,000	1,856

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

29. Share Capital

Movements during the year in the share capital of Chi Cheung were as follows:

Notes Authorised: At 1st January, 2000 Reduction of share capital (a)(i) Increase in authorised share capital At 31st December, 2000 and 31st December, 2001 Issued and fully paid: At 1st January, 2000 Reduction of share capital (a)(i) Issue of shares At 31st December, 2000 and 31st December, 2001	Par value of ordinary share HK$ 0.20 each – 0.10 each 0.10 each 0.10 each 0.20 each – 0.10 each 0.10 each 0.10 each	Number of ordinary shares 500,000,000 – 500,000,000 4,500,000,000 5,000,000,000 321,305,343 – 321,305,343 2,650,000,000 2,971,305,343	Value HK$’000 100,000 (50,000
			50,000 450,000
			500,000

			64,261 (32,130
			32,131 265,000
			297,131

Notes:

(a) During the year ended 31st December, 2000, Chi Cheung has undergone a share capital reorganisation (the “Reorganisation”). Details of the Reorganisation are set out in the circular dated 29th August, 2000 issued by Chi Cheung.

At the extraordinary general meeting of Chi Cheung held on 22nd September, 2000, special and ordinary resolutions approving the Reorganisation were passed. On registration of the Order of the High Court of the Hong Kong Special Administrative Region dated 24th October, 2000 confirming the reduction of capital of Chi Cheung and the Minute with the Registrar of Companies on 25th October, 2000, the following capital reorganisation took effect:

(i) The authorised share capital of Chi Cheung was reduced from HK$100,000,000 divided into 500,000,000 ordinary shares of HK$0.20 each to HK$50,000,000 divided into 500,000,000 ordinary shares of HK$0.10 each. The issued share capital of Chi Cheung was also reduced by cancelling paid up capital to the extent of HK$0.10 per ordinary share upon each of the 321,305,343 ordinary shares in issue;
(ii) the authorised share capital of Chi Cheung was then increased to HK$500,000,000 by the creation of an additional 4,500,000,000 ordinary shares of HK$0.10 per share.
(b) Pursuant to the Reorganisation, Chi Cheung issued and allotted a total of 2,650,000,000 ordinary shares of HK$0.10 each as follows:
(i) 662,500,000 ordinary shares at HK$0.10 each, credited as fully paid, for the partial settlement of the unsecured indebtedness of the Chi Cheung Group;
(ii) 1,387,500,000 ordinary shares at an issue price of approximately HK$0.1477 per share in partial consideration for the acquisition of the entire interests in Star Glory Limited and Super Series Limited, and the relevant shareholders’ loans; and
(iii) 600,000,000 ordinary shares at HK$0.10 each for cash.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

30. Warrants

Pursuant to the Reorganisation, 594,261,068 warrants were issued in 2000. Each warrant carries an entitlement to subscribe in cash at the initial subscription price of HK$0.10 (subject to adjustment) for one ordinary share of Chi Cheung during the period of 3 years commencing on the business day immediately following the completion date of the Reorganisation, i.e. 21st November, 2000.

No warrantholders exercised their rights to subscribe for ordinary shares of Chi Cheung during the year. At 31st December, 2001 and 31st December, 2000, Chi Cheung had 594,261,068 outstanding warrants. Exercise in full of such warrants would result in the issue of 594,261,068 additional ordinary shares of HK$0.10 each.

31. Reserves

The Chi Cheung Group At 1st January, 2000 Prior year adjustment At 1st January, 2000 (as restated) Reduction of share capital (note a) Transfer to accumulated losses Premium arising from issue of shares Profit for the year At 31st December, 2000 Loss for the year At 31st December, 2001 Chi Cheung At 1st January, 2000 Reduction of share capital (note a) Transfer to accumulated losses Premium arising from issue of shares Profit for the year At 31st December, 2000 Loss for the year At 31st December, 2001	Capital Share redemption premium reserve HK$’000 HK$’000 380,123 1,155 – – 380,123 1,155 (380,123) (1,155) – – 66,250 – – – 66,250 – – – 66,250 – 380,123 1,155 (380,123) (1,155) – – 66,250 – – – 66,250 – – – 66,250 –	Goodwill reserve HK$’000 6,922 (6,922) – – – – – – – – – – – – – – – –	General Accumulated reserve losses HK$’000 HK$’000 1,000 (1,187,112) – 6,922 1,000 (1,180,190) – 413,408 (1,000) 1,000 – – – 584,916 – (180,866) – (46,630) – (227,496) 1,000 (1,078,484) – 413,408 (1,000) 1,000 – – – 443,779 – (220,297) – (77,542) – (297,839)	Total HK$’000 (797,912) –
				(797,912) 32,130 – 66,250 584,916
				(114,616) (46,630)
				(161,246)

				(696,206) 32,130 – 66,250 443,779
				(154,047) (77,542)
				(231,589)

Notes:

(a) As part of the Reorganisation, an Order on Petition dated 24th October, 2000 was issued by the High Court of the Hong Kong Special Administrative Region in connection with the reduction of the capital of Chi Cheung from HK$100,000,000 divided into 500,000,000 ordinary shares of HK$0.20 each (of which 321,305,343 ordinary shares had been issued and were fully paid) to HK$50,000,000 divided into 500,000,000 ordinary shares of HK$0.10 each and the cancellation of the share premium account and the capital redemption reserve account of Chi Cheung totalling HK$381,278,000 to be applied to reduce an equivalent amount of the accumulated losses of Chi Cheung as at 31st December, 1999.

(b) Chi Cheung did not have any reserves available for distribution to shareholders as at 31st December, 2001 and 2000.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

32. Reconciliation of (loss) profit before taxation to net cash outflow from operating activities

(Loss) profit before taxation Share of results of associates Interest income Interest expense Depreciation and amortisation Impairment loss on interest in an associate Gain on debt restructuring Gain on dissolution/disposal of subsidiaries Loss on disposal of investment properties (Gain) loss on disposal of other fixed assets Impairment loss recognised in respect of properties under development Deficit on revaluation of investment properties Investment loss Allowance for bad and doubtful debts prior to debt restructuring Movement in assets/liabilities held for operating activities: Decrease in property held for sale Decrease (increase) in debtors, deposits and prepayments Decrease in amount due from former ultimate holding company (Decrease) increase in creditors and accruals Net cash outflow from operating activities 33. Dissolution/disposal of subsidiaries Net assets disposed of comprise: Debtors, deposits and prepayments Bank balances and cash Creditors and accruals Advance from an associate Taxation payable Loans from minority shareholders of subsidiaries Minority interests Satisfied by: Cash consideration Gain on dissolution/disposal of subsidiaries Net inflow of cash and cash equivalents in respect of dissolution/ disposal of subsidiaries: Cash consideration received Bank balances and cash disposed of Net (outflow) inflow of cash and cash equivalents	2001 HK$’000 (47,133) – (140) 3,948 150 488 – (1,835) 2,820 (58) 36,044 4,620 – – 2,200 910 – (5,343) (3,329) 2001 HK$’000 – 152 (1,073) (53) (853) (63,687) 63,679 (1,835) – (1,835) (1,835) – (152) (152)	2000 HK$’000 478,181 2 (903 729 2,310 – (535,097 (600 – 667 23,287 – 3,073 5,830 – (3,008 251 6,425
		(18,853

		2000 HK$’000 311 578 (888 – – – –
		1

		601 (600
		1

		601 (578
		23

The subsidiaries dissolved/disposed of during the year did not contribute significantly to the results and cashflows of the Chi Cheung Group.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

34. Acquisition of subsidiaries

Net assets acquired comprise: Properties under development Investment properties Debtors, deposits and prepayments Bank balances and cash Creditors and accruals Satisfied by: Issue of shares Shareholders’ loans Net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries representing bank balances and cash acquired No subsidiary was acquired by the Chi Cheung Group during the year.	2001 HK$’000 – – – – – – – – – –	2000 HK$’000 193,153 23,000 146 2,371 (1,444)
		217,226

		205,000 12,226
		217,226

		2,371

35. Analysis of changes in financing during the year

At 1st January, 2000 Transfer to accumulated losses as a result of the reduction of capital and share premium account Issue of shares to finance the acquisition of subsidiaries Issue of shares as a result of debt restructuring Proceeds from issue of shares Carrying value of properties possessed by mortgagees Reclassified to loans from minority shareholders of subsidiaries Repayment Waiver of debts At 31st December, 2000 Carrying value of properties repossessed by the Chi Cheung Group Repayment Dissolution of subsidiaries At 31st December, 2001	Share capital and premium HK$’000 444,384 (412,253) 205,000 66,250 60,000 – – – – 363,381 – – – 363,381	Borrowings Loans from (excluding minority bank shareholders overdrafts) of subsidiaries HK$’000 HK$’000 525,427 134,126 – – – – (31,215) (2,458) – – (304,081) – – 11 (26,650) (2,098) (161,625) (20,794) 1,856 108,787 65,000 – (14,856) – – (63,687) 52,000 45,100	Convertible guaranteed bonds HK$’000 227,571 – – (24,292) – – – (20,739) (182,540) – – – – –	Amount due to former ultimate holding company HK$’000 48,000 – – (4,702) – – – (4,014) (39,284)
				– – – –
				–

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

36. Major non-cash transactions

In 2000, a share capital reorganisation took place, pursuant to which Chi Cheung’s capital and share premium account amounting to approximately HK$412,253,000 in aggregate had been reduced and transferred to Chi Cheung’s accumulated losses. Pursuant to the Reorganisation, properties with an aggregate carrying value of approximately HK$304,081,000 were taken in possession by the respective mortgagee for the partial settlement of the relevant secured loans. In addition, Chi Cheung issued and allotted a total of 662,500,000 ordinary shares at HK$0.10 each, credited as fully paid, for the partial settlement of the unsecured indebtedness of the Chi Cheung Group. Any remaining balances owed were waived.

In 2001, the Chi Cheung Group repossessed investment property of HK$53,000,000 and property under development of HK$12,000,000 from the mortgagees.

37. Pledge of assets

At the balance sheet date, the carrying amount of the assets pledged by the Chi Cheung Group to the banks to secure credit facilities granted to the Chi Cheung Group are analysed as follows:

Investment properties Properties under development Properties held for sale	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 48,380 – 11,500 – – 2,200 59,880 2,200	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 48,380 – 11,500 – – 2,200 59,880 2,200
		2,200

Chi Cheung did not pledge any of its assets at 31st December, 2001 and 2000.

38. Operating lease commitments

The Chi Cheung Group and Chi Cheung as lessee

	2001	2000
	HK$’000	HK$’000
Minimum lease payments under operating leases
recognised in the income statement for the year	480	2,453

At the balance sheet date, the Chi Cheung Group and Chi Cheung had outstanding commitments under non-cancellable operating leases, which fall due as follows:

Within one year In the second to fifth years inclusive	The Chi Cheung Group 2001 2000 HK$’000 HK$’000 – 480 – 240 – 720	Chi Cheung 2001 2000 HK$’000 HK$’000 – 480 – 240 – 720	Chi Cheung 2001 2000 HK$’000 HK$’000 – 480 – 240 – 720
			720

Operating lease payments represent rentals payable by the Chi Cheung Group and Chi Cheung for certain of its office premises.

The Chi Cheung Group as lessor

Property rental income earned during the year was HK$4,612,000 (2000: HK$5,158,000). The investment properties of the Chi Cheung Group are expected to generate rental at reasonable yields on an ongoing basis. The property held has committed tenants for the next year.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

At the balance sheet date, the Chi Cheung Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth years inclusive	2001 HK$’000 1,772 1,533 3,305	2000 HK$’000 630 –
		630

Chi Cheung had not contracted with any tenants for future minimum lease payments at 31st December, 2001 and 2000.

39. Capital commitments

	2001	2000
	HK$’000	HK$’000
At the balance sheet date, there were commitments authorised
but not contracted for in the financial statements in respect of:
Development expenditure of properties in Hong Kong	32,216	–

Chi Cheung did not have any significant capital commitments at 31st December, 2001 and 2000.

40. Related party transactions

Details of the outstanding balances of the Chi Cheung Group and Chi Cheung with related parties are set out in notes 21, 25, 26 and 27.

During the year, the Chi Cheung Group paid operating lease rentals of HK$480,000 (2000: HK$55,000) in respect of office premises to a subsidiary of Chinese Estates. Such rental was determined on terms similar to those applicable to transactions with unrelated parties.

During the year, the Chi Cheung Group paid secretarial fees to a subsidiary of Chinese Estates at an aggregate amount of HK$52,500 (2000: Nil). The fee was charged based on an appropriate allocation of costs incurred by central administration departments of the Chinese Estates Group.

41. Post balance sheet event

Subsequent to 31st December, 2001, the Chi Cheung Group disposed of an investment property at a consideration of HK$48,380,000.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

42. Particulars of principal subsidiaries

The Directors are of the opinion that a complete list of the particulars of all subsidiaries would be of excessive length and therefore the following list discloses only the particulars of those subsidiaries as at 31st December, 2001 which principally affect the results or assets of the Chi Cheung Group.

				Proportion	Proportion
				of nominal
	Place of		Issued	value of issued
	incorporation/	Class of	ordinary	capital	held by
Name of subsidiary	operation	shares held	share capital	Chi Cheung		Principal activity
				Directly	Indirectly
Fame Winner Limited	Hong Kong	Ordinary	HK$2	–	100%	Property development
Konshing Enterprises	Hong Kong	Ordinary	HK$1,000	–	51%	Property development
Limited
Lucky Guide	Hong Kong	Ordinary	HK$2	–	51%	Property investment
International
Limited
Moregift Investments	Hong Kong	Ordinary	HK$10,000	100%	–	Property holding
Limited
Proxy Investment	Hong Kong	Ordinary	HK$2	–	100%	Property investment
Limited
Star Glory Limited	British Virgin	Ordinary	US$1	100%	–	Investment holding
	Islands
Super Series Limited	British Virgin	Ordinary	US$1	100%	–	Investment holding
	Islands
Wing Lee Development	Hong Kong	Ordinary	HK$2	–	100%	Property investment
Limited

None of the subsidiaries had any loan capital subsisting at the end of the year or at anytime during the year.

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

INTERIM RESULTS

The following information is extracted from the unaudited financial statements of the Chi Cheung Group as contained in Chi Cheung’s interim report for the six months ended 30th June, 2002:

Condensed Consolidated Income Statement

For the six months ended 30th June, 2002

Turnover_(Note 3)
Cost of sales
Gross profit
Other revenue(Note 5)
Administrative expenses
Other operating expenses(Note 7)
Impairment loss recognised in respect of properties
under development
Loss from operations
Written back of allowance for
amount due from an associate
Finance costs
Loss before taxation
Taxation(Note 8)
Loss transfer to reserve
Loss per share(Note 9)_
Basic
Diluted
Interim dividend per share

Six months ended
30th June,
2002
2001
HK$’000
HK$’000
(Unaudited)
(Unaudited)
1,175
2,505
(657)
(1,380)
518
1,125
256
353
(1,500)
(1,804)
(248)
(450)
–
(5,000)
(974)
(5,776)
900
–
(745)
(2,323)
(819)
(8,099)
–
404
(819)
(7,695)
(0.03) cents
(0.26) cents
N/A
N/A
–
–

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Condensed Consolidated Balance Sheet

As at 30th June, 2002

Non-current assets
Investment properties_(Note 10)
Property and other fixed assets
Properties under development
Other asset
Current assets
Debtors, deposits and prepayments(Note 11)
Bank balances and cash
Current liabilities
Creditors and accruals(Note 12)
Advance from immediate holding company
Borrowings – due within one year
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Loans from minority shareholders of subsidiaries
– due after one year
Minority interests
Capital and reserves
Share capital(Note 13)_
Reserves

30th June, 31st December,
2002
2001
HK$’000
HK$’000
(Unaudited)
(Audited)
550
48,930
786
825
147,080
146,500
270
270
148,686
196,525
62
830
3,483
8,682
3,545
9,512
5,165
5,926
–
12,226
12,000
52,000
17,165
70,152
(13,620)
(60,640)
135,066
135,885
45,100
45,100
(45,100)
(45,100)
135,066
135,885
297,131
297,131
(162,065)
(161,246)
135,066
135,885

100

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30th June, 2002

At 1st January, 2001 Loss for the period At 1st July, 2001 Loss for the period At 31st December, 2001 Loss for the period At 30th June, 2002	Share Capital HK$’000 297,131 – 297,131 – 297,131 – 297,131	Share Accumulated Premium Losses HK$’000 HK$’000 66,250 (180,866) – (7,695) 66,250 (188,561) – (38,935) 66,250 (227,496) – (819) 66,250 (228,315)	Total HK$’000 182,515 (7,695) 174,820 (38,935) 135,885 (819) 135,066

Condensed Consolidated Cash Flow Statement

For the six months ended 30th June, 2002

Net cash inflow (outflow) from operating activities Net cash (outflow) inflow from investing activities Net cash outflow from financing Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Analysis of cash and cash equivalents Bank balances and cash	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 (Unaudited) (Unaudited and restated) 35,049 (6,762) (248) 1,552 (40,000) (1,750) (5,199) (6,960) 8,682 10,468 3,483 3,508 3,483 3,508

101

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Notes to the condensed financial statements

For the six months ended 30th June, 2002

1. Basis of presentation

The condensed financial statements have been prepared on a going concern basis because Chinese Estates Holdings Limited has agreed to provide adequate funds for Chi Cheung to meet its financial obligations as they fall due.

The condensed financial statements have been prepared in accordance with SSAP 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants and with the applicable disclosure requirements of Appendix 16 to the Listing Rules.

2. Accounting policies

The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain properties.

The accounting policies adopted are consistent with those followed in the preparation of the Chi Cheung Group’s annual financial statements for the year ended 31st December, 2001, except as described below.

In the current period, the Chi Cheung Group has adopted, for the first time, a number of new and revised Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants. The adoption of these Standards has resulted in a change in the format of presentation of the cash flow statement and the statement of changes in equity, but has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

Cash flow statements

In accordance with SSAP 15 (Revised) “Cash Flow Statement”, cash flows are classified under three headings: “cash flows from operating activities”, “cash flows from investing activities”, and “cash flows from financing activities”. Interest and dividends, which were previously presented under a separate heading, should be classified on a consistent basis under either operating, investing or financing activities. Cash flows arising from taxes on income would typically be classified as operating activities, unless they can be separately identified with investing or financing activities.

In addition, cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

3. Turnover

Turnover represents the amounts received and receivable from the property rental income.

102

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

4. Segment information

Business segments

Property development Six months ended 30th June, 2002 2001 HK$’000 HK$’000 Segment revenue – – Segment result – (5,021) Unallocated operating expenses Loss from operations Written back of allowance for amount due from an associate Finance costs Loss before taxation Taxation Loss transfer to reserve	Property leasing Six months ended 30th June, 2002 2001 HK$’000 HK$’000 1,175 2,505 526 (474)	Consolidated Six months ended 30th June, 2002 2001 HK$’000 HK$’000 1,175 2,505 526 (5,495 (1,500) (281 (974) (5,776 900 – (745) (2,323 (819) (8,099 – 404 (819) (7,695	Consolidated Six months ended 30th June, 2002 2001 HK$’000 HK$’000 1,175 2,505 526 (5,495 (1,500) (281 (974) (5,776 900 – (745) (2,323 (819) (8,099 – 404 (819) (7,695

			(5,495 (281
			(5,776 – (2,323
			(8,099 404
			(7,695

Geographical segments

Substantially all of the activities of the Chi Cheung Group during the period were carried out in Hong Kong. Accordingly, no geographical analysis of information is presented.

5. Other revenue

Property management income Others	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 200 217 56 136 256 353	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 200 217 56 136 256 353
		353

6. Staff expenses and depreciation

Staff expenses Administrative expenses Property expenses Depreciation Administrative expenses	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 174 96 – 185 174 281 40 75	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 174 96 – 185 174 281 40 75
		281

		75

103

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

7. Other operating expenses

Loss on disposal of property held for sale Loss on disposal of investment property	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 – 450 248 – 248 450	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 – 450 248 – 248 450
		450

8. Taxation

The credit (charge) comprises: Company and subsidiaries Hong Kong profits tax Overprovision for prior years Provision for the period	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 – 511 – (107) – 404	Six months ended 30th June, 2002 2001 HK$’000 HK$’000 – 511 – (107) – 404
		404

No provision for Hong Kong profits tax has been made for the period as the Chi Cheung Group did not have any assessable profits.

At 30th June, 2002, the Chi Cheung Group had potential deferred taxation assets principally resulting from estimated tax losses. The potential deferred taxation asset has not been recognised in the condensed financial statements as it is not certain that the benefit will be realised in the foreseeable future.

9. Loss per share

The calculation of the basic loss per share is based on the loss attributable to shareholders for the period of HK$819,000 (period ended 30th June, 2001: HK$7,695,000) and on the weighted average number of 2,971,305,343 (period ended 30th June, 2001: 2,971,305,343) ordinary shares in issue throughout the period.

The computation of diluted loss per share does not assume the conversion of Chi Cheung’s warrants since the exercise price is higher than the average fair market value of the shares for both 2002 and 2001.

10. Investment Properties

At valuation At 1st January, 2002 Disposal At 30th June, 2002	HK$’000 48,930 (48,380)
	550

The properties are situated in Hong Kong and are held under long lease.

11. Debtors, deposits and prepayments

Included in debtors, deposits and prepayments are trade debtors of HK$8,000 (at 31st December, 2001: HK$236,000) comprising mainly rental receivables which are billed in advance and settlements are expected upon receipts of billings.

104

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

The following is an aged analysis of trade debtors at the balance sheet date:

0–30 days 31–60 days Over 60 days	30th June, 31st 2002 HK$’000 4 4 – 8	December, 2001 HK$’000 59 43 134
		236

12. Creditors and accruals

Included in creditors and accruals are trade payables of HK$Nil (at 31st December, 2001: HK$73,000).

The following is an aged analysis of trade creditors at the balance sheet date:

30th June, 31st 2002 HK$’000 0–30 days – 31–60 days – Over 60 days – – Share capital Number of ordinary shares Ordinary shares of HK$0.10 each Authorised: At 31st December, 2001 and 30th June, 2002 5,000,000,000 Issued and fully paid: At 31st December, 2001 and 30th June, 2002 2,971,305,343	30th June, 31st 2002 HK$’000 0–30 days – 31–60 days – Over 60 days – – Share capital Number of ordinary shares Ordinary shares of HK$0.10 each Authorised: At 31st December, 2001 and 30th June, 2002 5,000,000,000 Issued and fully paid: At 31st December, 2001 and 30th June, 2002 2,971,305,343	December, 2001 HK$’000 29 23 21
		73

		Nominal value HK$’000 500,000

		297,131

13. Share capital

14. Capital commitments

At the balance sheet date, the Chi Cheung Group had the following commitments:

Development expenditure of properties in Hong Kong – Contracted but not provided for – Authorised but not contracted for	30th June, 31st 2002 HK$’000 57,800 11,150	December, 2001 HK$’000 –

		32,216

105

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

15. Related party transaction

During the period, the Chi Cheung Group entered into the following transaction with a related party:

	Six months ended
	30th June,
	2002 2001
	HK$’000 HK$’000
Rent paid to a fellow subsidiary	110 240

Office rental was determined on terms similar to those applicable to transactions with unrelated parties.

LIQUIDITY, FINANCIAL RESOURCES AND WORKING CAPITAL

Indebtedness

As at the close of business on 31st December, 2002, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Chi Cheung Group had an outstanding secured bank borrowing of approximately HK$22.0 million. The secured bank loan was secured by the Hillier Property. In addition, there were loans from minority shareholders of Chi Cheung’s subsidiaries amounted to HK$45.1 million.

Save as aforesaid and apart from intra-Chi Cheung Group liabilities, as at the Latest Practicable Date, the Chi Cheung Group did not have any outstanding bank overdrafts, loans, or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities.

The directors of Chi Cheung confirmed that there has been no material change in the indebtedness and contingent liabilities of the Chi Cheung Group since 31st December, 2001, the date to which its latest published audited financial statements were made up.

Working capital

Taking into account the banking facilities, internal resources, other loan arrangements of the enlarged Chi Cheung Group and barring any unforeseen circumstances, the directors of Chi Cheung are of the opinion that the enlarged Chi Cheung Group has sufficient working capital to satisfy its present requirements.

Material changes

Save as disclosed in the interim report for the six months ended 30th June, 2002, the directors of Chi Cheung are not aware of any material adverse change in the financial or trading position of the Chi Cheung Group since 31st December, 2001, the date to which its latest published audited financial statements were made up.

106

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

PRO FORMA INFORMATION ON THE CHI CHEUNG GROUP UPON COMPLETION OF THE ASSET TRANSACTION

Statement of pro forma unaudited adjusted net tangible assets of the enlarged Chi Cheung Group

The following is a statement of the pro forma unaudited adjusted net tangible assets of the enlarged Chi Cheung Group immediately following completion. It is based on the unaudited consolidated financial statements of the Chi Cheung Group as at 30th June, 2002 and after adjustments for the unaudited consolidated results of the Chi Cheung Group for the five months ended 30th November, 2002 and assuming the completion of the Asset Transaction and the Capital Reorganisation.

HK$’000
Unaudited net tangible assets of the Chi Cheung Group
as at 30th June, 2002
Less: Unaudited loss for the five months ended
30th November, 2002 (based on management
accounts of the Chi Cheung Group)
Add: Face value of Sale Loan less Assumed Debt
556,776
Add: Aggregate audited net tangible liabilities of each of
the Sale Companies adjusted for the valuation surplus
on the Properties as at 30th November, 2002
85,759
Less: Unpaid land premium
(23,563)
Less: Book value of properties contracted to be sold prior to
30th November, 2002
(28,704)
Less: Cost of properties at valuation contracted to be sold
after 30th November, 2002 and up to the
Latest Practicable Date
(7,309)
Add: Sale proceeds received on disposal of properties
contracted to be sold up to the Latest Practicable Date
32,856
Less: Disposal of the entire issued share capital of
Super Series and the benefits of the Super Series Loan
Unaudited net tangible assets of the enlarged Chi Cheung
Group without taking account of the adjustment
on property no. 13_(Note)
Adjusted for the valuation surplus on property no. 13 and
the related unpaid land premium not recognised
Unaudited net tangible assets of the enlarged Chi Cheung Group
taking account of the adjustment on property no. 13
Pro forma net tangible assets value per New Share
based on 286,932,364 New Shares in issue upon completion of
the Asset Transaction and the Capital Reorganisation
taking account of the adjustment on property no. 13
Pro forma net tangible assets value per New Share
based on 286,932,364 New Shares in issue upon completion
of the Asset Transaction and the Capital Reorganisation
without taking account of the adjustment on property no. 13(Note)_

HK$’000
135,066
(11,632)
615,815
(103,926)
635,323
(115,064)
520,259
HK$1.813
HK$2.214

Note: The directors of Chi Cheung are confident that upon payment of the unpaid land premium, the Chi Cheung Group will be able to obtain the land use right.

107

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Pro forma statement of assets and liabilities of the enlarged Chi Cheung Group

The following is a pro forma statement of the assets and liabilities of the enlarged Chi Cheung Group based on the unaudited consolidated balance sheet of the Chi Cheung Group as at 30th June, 2002, adjusted for the unaudited consolidated results of the Chi Cheung Group for the five months ended 30th November, 2002, and as if the Sale Companies became wholly-owned subsidiaries of Chi Cheung on 30th November, 2002 and Super Series ceased to be a wholly-owned subsidiary of Chi Cheung on 30th November, 2002:

ASSETS NON-CURRENT ASSETS Investment properties Property and other fixed assets Properties under development Properties held for future development Property interests held for future development Other Investments Advance to immediately holding company (Assumed Debt) Interests in associates Loan to an associate – Tianjin Winson CURRENT ASSETS Cash and bank balances Debtors, deposits and prepayments Properties held for sale Taxation recoverable TOTAL ASSETS	Chi Cheung consolidated accounts As at 30th June, 2002 HK$’000 550 786 147,080 – – 270 – – – 148,686 3,483 62 – – 3,545 152,231	Chi Cheung movement from 1st July, 2002 to 30th November, 2002 HK$’000 – (33) (10,580) – – – – – – (10,613) 21,046 17 – – 21,063 10,450	Disposal of Super Series taking account of the Super Series Loan HK$’000 – – (125,000) – – – – – – (125,000) (1,970) (38) – – (2,008) (127,008)	Acquisition of the Sale Companies taking account of the Sale Loan and the Assumed Debt HK$’000 71,150 4,288 8,035 – 71,373 – 501 212,552 80,982 448,881 763 705 46,748 7 48,223 497,104	Adjustment for the properties revaluation as at 30th November, 2002 HK$’000 – 10,217 – 5,965 138,627 – – (3,039) – 151,770 – – 1,300 – 1,300 153,070	Adjustment for the land premium to be paid, book value of properties contracted to be sold and the relevant sale proceeds received up to the Latest Practicable Date HK$’000 – – – – (23,563) – – (2,988) – (26,551) – – (169) – (169) (26,720)	Adjustment to eliminate the Sale Loan, Assumed Debt and Super Series Loan HK$’000 – – – – – – (501) – – (501) – – – – – (501)	Total HK$’000 71,700 15,258 19,535 5,965 186,437 270 – 206,525 80,982
								586,672
								23,322 746 47,879 7
								71,954
								658,626

108

FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX II

Chi Cheung Consolidated Accounts As at 30th June, 2002 HK$’000 LIABILITIES CURRENT LIABILITIES Creditors and accruals (5,165) Bank loan (12,000) Deposits received and receipts in advance – Deposits received for properties sold – Amount due to the Chinese Estates Group (Sale Loan) – (17,165) NON-CURRENT LIABILITIES Bank loan – Loans from minority shareholders of subsidiaries (45,100) Minority interests 45,100 Amount due to immediate holding company (Super Series Loan) – Amount due to the Chinese Estates Group (Sale Loan) – – TOTAL LIABILITIES (17,165) TOTAL ASSETS LESS TOTAL LIABILITIES 135,066	Chi Cheung Movement from 1st July, 2002 to 30th November, 2002 HK$’000 (82) – – – – (82) (22,000) – – – – (22,000) (22,082) (11,632)	Disposal of Super Series taking account of the Super Series Loan HK$’000 1,082 – – – – 1,082 22,000 – – 322,748 – 344,748 345,830 218,822	Acquisition of the Sale Companies taking account of the Sale Loan and the Assumed Debt HK$’000 (201) – (2,877) (4,060) (10) (7,148) – – – – (557,267) (557,267) (564,415) (67,311)	Adjustment for the properties revaluation as at 30th November, 2002 HK$’000 – – – – – – – – – – – – – 153,070	Adjustment for the land premium to be paid, book value of properties contracted to be sold and the relevant sale proceeds received up to the Latest Practicable Date HK$’000 – – – – – – – – – – – – – (26,720)	Adjustment to eliminate the Sale Loan, Assumed Debt and Super Series Loan HK$’000 – – – – 10 10 – – – (322,748) 557,267 234,519 234,529 234,028	Total HK$’000 (4,366 (12,000 (2,877 (4,060 –
							(23,303
							– (45,100 45,100 – –
							–
							(23,303

							635,323

109

APPENDIX III

PROPERTY VALUATION OF THE PROPERTIES

The following is the text of the letter, summary of values and valuation certificates received from Norton Appraisals Limited, an independent qualified valuer, prepared for the purpose of inclusion in this circular, in connection with its valuation of the Properties.

Norton A ppraisals

Registered Professional Surveyors, Valuers & Property Advisers

Room 4135, Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong Tel: (852) 2810 7337 Fax: (852) 2810 6337

5th March, 2003

The Directors Chinese Estates Holdings Limited 26/F., MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests (as specified in the Summary of Values as attached) held by Chinese Estates Holdings Limited (hereinafter referred to as the “Company”) and its subsidiaries and associated companies (hereinafter together referred to as the “Group”) in the Hong Kong Special Administrative Region (“Hong Kong”) and the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of values of such property interests as at 30th November, 2002 and 9th December, 2002 (hereinafter referred to as the “dates of valuation”).

Our valuations are our opinion of the open market 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 the 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;
(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.”

In valuing the property interests, we have assumed that the Group has valid and enforceable title to the property interests which are freely transferable, and has free and uninterrupted right to use the same, for the whole of the unexpired lease/land use terms granted subject to payment of annual Government rent/land use fees and all requisite land premium/purchase consideration payable has been fully settled.

110

APPENDIX III

PROPERTY VALUATION OF THE PROPERTIES

We have valued the properties on the basis that each of them is considered individually. We have not allowed for any discount for the properties to be sold to a single party nor have taken into account any effect on the values if the properties are to be offered for sale at the same time as a portfolio.

In valuing the property interests under Group I which are held for investment purposes by the Group in Hong Kong, we have adopted the Investment Approach by taking into account the current passing rents and the reversionary income potential of the tenancies.

In valuing the property interests under Groups II and V which are held for future development by the Group in Hong Kong and the PRC, we have valued the property interests by the Direct Comparison Approach assuming such property interests are available for sale in their existing states with the benefit of vacant possession and by making reference to comparable transactions as available in the relevant market.

In valuing the property interests under Groups III and IV which are held for sale by the Group in Hong Kong and the PRC, we have adopted the Direct Comparison Approach by making reference to comparable transactions as available in the relevant market.

Our valuations have been made on the assumption that the Group sells the properties on the open market in their existing states without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of such property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting sales of the properties and no forced sale situation in any manner is assumed in our valuations.

In valuing those property interests located in Hong Kong, the Government Leases of which have expired before 30th June, 1997, we have taken into account the provisions contained in the Basic Law of the Hong Kong Special Administrative Region and the New Territories (Extension) Ordinance 1988 that such leases have been extended without any additional payment of premium until 30th June, 2047 and that an annual rent equivalent to three per cent of the rateable value of the properties will be charged from the date of extension.

In valuing those property interests located in the PRC, we have assumed the followings:

(a) that transferable land use rights in respect of the properties for respective lease terms at nominal annual land use fees have been granted and that any land premium payable has already been fully paid;
(b) that the Group has legal and enforceable title to the property interests;
(c) that the design and construction of the properties are in compliance with the local planning regulations and have been approved by the relevant authorities;
(d) that the properties, whether as a whole or on strata-titled basis, may be disposed of freely to both local and overseas purchasers; and
(e) that all consents, approvals and licences from relevant government authorities for the properties have been granted without any onerous conditions or undue delay which might effect their values.

For those properties located in Hong Kong, we have, as agreed with the Group, caused sampling title searches at the relevant Land Registries. We have not, however, searched the original documents to verify ownership or to determine the existing of any lease amendments which do not appear on the copies handed to us.

111

APPENDIX III

PROPERTY VALUATION OF THE PROPERTIES

For those properties located in the PRC, we have been provided with extracts of copies of title documents of the property interests but have not scrutinized the original documents. We have relied on the advice given by the Group and its legal adviser on the PRC Law, Commerce and Finance Law Office (the “PRC legal adviser”), regarding the title to each of the properties in Groups IV and V.

All dimensions, measurements and areas included in the attached valuation certificates are based on information contained in the documents provided to us by the Group and are therefore only approximations.

We have inspected the exteriors and, where possible, the interiors of each of the properties. However, we have not carried out investigations on site to determine the suitability of the ground conditions and the services, etc. for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. 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, nor were any tests carried out to any of the services. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site and floor areas of the properties and we have assumed that the areas shown on the documents handed to us are correct.

We have relied to a considerable extent on the information provided by the Group and have accepted advice on such matters as planning approvals, statutory notices, easements, tenures, completion dates of buildings, particulars of occupancy, tenancy summaries, development proposals, construction costs already expended, estimated outstanding construction costs, site and floor areas and all other relevant matters in the identification of the properties in which the Group has valid interests.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on any of the properties 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.

Our valuations have been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute of Surveyors in March 2000. Our valuations have also been prepared under the generally accepted valuation procedures and are in compliance with Practice No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Unless otherwise stated, all sums stated in our valuation certificates are in Hong Kong Dollars. The exchange rates adopted in our valuations are approximately HK$1 = RMB1.06 and US$1 = HK$7.8 which were approximately the prevailing exchange rates as at the date of valuation.

Our Summary of Values and the Valuation Certificates are enclosed herewith.

Yours faithfully, For and on behalf of Norton Appraisals Limited M. K. Wong MRICS, AHKIS, RPS (G.P.) Director

Note: Mr. M. K. Wong is a Registered Professional Surveyor who has more than 10 years’ experience in valuation of properties in Hong Kong and in the PRC.

112

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

SUMMARY OF VALUES

			Capital values		Capital values
			in its existing	Interest	attributable to
			state as at	attributable	the Group as at
		30th November,		to the	30th November,
			2002 and	Group in	2002 and
Property 9th		December, 2002		percentage	9th December, 2002
			HK$		HK$
Group I – Property interests held for			investment by	the Group in	Hong Kong
1.	Shops 14 and 16 on Ground Floor		71,000,000	50%	35,500,000
	and Cinema (including all that
	portion of the flat roof over the
	Cinema and all those the external
	walls above the canopy level of the
	Cinema portion and those external
	walls beneath the canopy level of
	the cinema portion not being the
	external walls of any shop or
	transformer room of the building
	and all those three water tanks),
	Tuen Mun Centre, Nos. 2–8 Wo Ping
	Path, Nos. 7–35 Yan Ching Street,
	Tuen Mun, New Territories,
	Hong Kong
2.	Various Portions of No. 1 Hung To		620,000,000	331/3%	206,666,667
	Road, Kwun Tong, Kowloon,
	Hong Kong
3.	Units A–C on the upper part of		68,000,000	100%	68,000,000
	3rd Floor, Units A–G & H (including
	the store room thereof) on 4th Floor,
	Units C, G & H (including the store
	room thereof) on 5th Floor, Unit H
	(including the store room thereof)
	on 6th Floor and Unit C (including
	the store room thereof) on 13th
	Floor and the Roof together with
	50 Car Parking Spaces on 1st, 2nd
	and lower part of 3rd Floors,
	Gemstar Tower, No. 23 Man Lok
	Street, Hung Hom, Kowloon,
	Hong Kong

113

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

		Capital values		Capital values
		in its existing	Interest	attributable to
		state as at	attributable	the Group as at
		30th November,	to the	30th November,
		2002 and	Group in	2002 and
Property 9th		December, 2002	percentage	9th December, 2002
		HK$		HK$
4.	Roof Nos. 1–6, 8, 9, 11 and 12,	1,150,000	100%	1,150,000
	Kwai Shun Industrial Centre,
	Nos. 51–63 Container Port Road,
	Kwai Chung, New Territories,
	Hong Kong
5.	Unit 301 on 3rd Floor, Sim City of	2,000,000	100%	2,000,000
	Chung Kiu Commercial Building,
	Nos. 47–51 Shantung Street,
	Mong Kok, Kowloon, Hong Kong
6.	The whole of 3rd Floor and the	52,000,000	50%	26,000,000
	adjacent Flat Roof and the whole
	of 8th Floor, Inter-Continental Plaza,
	No. 94 Granville Road, Tsim Sha
	Tsui, Kowloon, Hong Kong
7.	Canteen on Main Roof including	1,700,000	100%	1,700,000
	the Flat Roof on the Upper Roof
	immediately thereabove and the
	Remaining Portion of the Flat Roof
	on the Main Roof, Meeco Industrial
	Building, Nos. 53–55 Au Pui Wan
	Street, Sha Tin, New Territories,
	Hong Kong
	Sub-total:	815,850,000		341,016,667
Group II – Property interests held for future development by the				Group in Hong Kong
8.	9/24th equal and undivided shares	11,000,000	100%	11,000,000
	of and in Lot Nos. 2, 4, 7, 8 and 9
	in Demarcation District 464,
	So Shi Tau, Clear Water Bay,
	New Territories, Hong Kong
9.	The Remaining Portion of Lot	3,500,000	100%	3,500,000
	No. 453 in Demarcation District
	401, Po Lam Road, Ma Yau Tong,
	Sai Kung, New Territories,
	Hong Kong
	Sub-total:	14,500,000		14,500,000

114

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

Property

Capital values Capital values in its existing Interest attributable to state as at attributable the Group as at 30th November, to the 30th November, 2002 and Group in 2002 and 9th December, 2002 percentage 9th December, 2002 HK$ HK$

Group III – Property interest held for sale by the Group in Hong Kong

Units C to H (including the store 41,000,000 100% 41,000,000 room thereof) on 7th Floor and Units A to G (including the store room thereof) on 16th Floor, Gemstar Tower, No.23 Man Lok Street, Hung Hom, Kowloon, Hong Kong Sub-total: 41,000,000 41,000,000 Group IV – Property interest held for sale by the Group in the PRC 11. Unsold portions of Winson Plaza, 39,000,000 50% 19,500,000 146 Weidi Road, Hexi District, Tianjin, the PRC Sub-total: 39,000,000 19,500,000 Group V – Property interests held for future development by the Group in the PRC 12. Panyu Technology Park, East of 14,000,000 100% 14,000,000 Shiguang Road, Zhongcun Town, Panyu District, Guangzhou, Guangdong Province, the PRC 13. Chenghai Royal Garden, Estuary 210,000,000 100% 210,000,000 of Xinjin River, Chenghai City, Shantou, Guangdong Province, the PRC Sub-total: 224,000,000 224,000,000 Grand Total: 1,134,350,000 640,016,667

Group IV – Property interest held for sale by the Group in the PRC

Group V – Property interests held for future development by the Group in the PRC

115

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

VALUATION CERTIFICATE

Group I – Property interests held for investment by the Group in Hong Kong

Property Description and tenure

Shops 14 and 16 on Tuen Mun Centre comprises Ground Floor and two 12-storey residential Cinema (including all buildings erected over a 4-level that portion of the flat commercial/cinema podium roof over the Cinema completed in 1977. and all those the external walls above The property comprises two the canopy level of retail shop units and the two the Cinema portion foyers of cinema on Ground and those external Floor, the whole of cinema walls beneath the portions on 1st, 2nd and 3rd canopy level of the Floors with a total saleable area cinema portion not of approximately 1,742.75 sq.m. being the external (18,759 sq.ft.). The flat roof on walls of any shop or 4th Floor has an area of transformer room of approximately 545.71 sq.m. the building and all (5,874 sq.ft.). those three water tanks), Tuen Mun The Lot is held under New Centre, Nos. 2–8 Wo Grant No.1838 for a term of 99 Ping Path, Nos. 7–35 years less the last three days Yan Ching Street, thereof commenced from 1st Tuen Mun, New July, 1898, which is statutorily Territories, Hong extended to 30th June, 2047. Kong 125/951st equal and undivided shares of and in Castle Peak Town, Lot No. 57 (the “Lot”)

Capital values in its existing state as at 30th November, 2002 and 9th December, 2002

Particulars of occupancy

The cinema portion of the $71,000,000 property is vacant whereas Shop No. 14 and (50% interest Shop No. 16 on Ground attributable to Floor are subject to the Group: various licences, yielding $35,500,000) a total monthly licence fee of $65,000.

Notes:

(i) The registered owner of the property is Earn Elite Development Limited, which is a subsidiary of the Group, vide an Assignment Memorial No. 826206 dated 31st October, 1997 and two Assignments Memorial Nos. 827083 and 827786 both dated 19th November, 1997.
(ii) In the course of our valuation, we have assumed that the user restriction in respect the cinema portion had been released from cinema use to commercial use and the premium, if any, having been fully paid.

116

APPENDIX III

PROPERTY VALUATION OF THE PROPERTIES

Description and tenure

Property

Various Portions of No. 1 Hung To Road (the No. 1 Hung To Road, “Building”) is a 33-storey Kwun Tong, Kowloon, industrial building with Hong Kong ancillary car parking, loading and unloading areas completed

626,263/800,000th in 1994. equal and undivided shares of and in The property comprises 444 Kwun Tong Inland Lot workshop units on various No. 415 (the “Lot”) floors, 3 container parking spaces, 36 lorry parking spaces and 38 private car parking spaces of the Building.

Capital values in its existing state as at 30th November, 2002 and 9th December, 2002

Particulars of occupancy

The property is let under $620,000,000 various tenancies and licences, yielding a total (33[1] /3% interest monthly income of about attributable to $2.13 million exclusive of the Group: rates and service $206,666,667) charges. Occupancy rate is approximately 37.3%.

The total gross floor area and saleable area of the property (excluding the car parking spaces) are approximately 54,994.98 sq.m. (591,966 sq.ft.) and 38,354.24 sq.m. (412,845 sq.ft.) respectively.

The Lot is held under Conditions of Sale No. 7697 for a term of 21 years commencing from 1st July, 1962, renewable for a further term of 14 years (less the last 3 days thereof), which is statutorily extended until 30th June, 2047.

Notes:

(i) The property comprises the whole of the Ground Floor (comprising Factory Units 1–3, 3A, 5–8) and 2nd Floor (comprising Factory Units 1–3, 5 & 6), Units 2, 3, 6, 7, 8, 9, 10, 12, 13, 15, 16, 17, 18, 19, 20, 21 and 23 on 6th Floor, the whole of the 7th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), Units 1, 2, 3, 6, 7, 8, 9, 10, 12, 13, 15, 16, 17, 18, 19, 20, 21, 22 and 23 on 8th Floor, Unit 23 on 10th Floor, the whole of 11th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), 12th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), 15th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), 16th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), 17th Floor comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), 18th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23) and 19th Floor (comprising Factory Units 1–3, 5–13, 15–22 and Store Room Unit 23), Units 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 19, 22 and 23 on 20th Floor, Units 11, 12, 13, 16, 17, 18 and 23 on 21st Floor, the whole of 23rd Floor (comprising Factory Units 1–3, 5–13, 15–22) and 25th Floor (comprising Factory Units 1–3, 5–13, 15–22), Units 3, 5, 6, 7, 8, 9, 12, 13, 15, 16, 17, 18, 19, 20, 21 and 22 on 26th Floor, the whole of 28th Floor (comprising Factory Units 1–3, 5–13, 15–22), 29th Floor (comprising Factory Units 1–3, 5–13, 15–22), 30th Floor (comprising Factory Units 1–3, 5–13, 15–22), 31st Floor (comprising Factory Units 1–3, 5–13, 15–22) 32nd Floor (comprising Factory Units 1–3, 5–13, 15–22) and 33rd Floor (comprising Factory Units 1–3, 5–13, 15–22), Units 12, 13, 15, 16, 17, 18, 19, 20, 21 and 22 on 35th Floor, Units 1, 3, 5, 6, 7, 8, 9, 11, 12, 15, 16, 17, 18, 19, 20 and 22 on 36th Floor, and all the 77 parking spaces (comprising Car Parking Spaces C1–C3 on Ground Floor, Car Parking Spaces L1–L36 on 1st Floor, Car Parking Spaces CP1–CP38 on 3rd Floor), Roof, retained area and common area of the Building.
(ii) The registered owner of the property is Finedale Industries Limited, which is a subsidiary of the Group, vide an Assignment Memorial No. 3956667 dated 30th December, 1988.

117

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

Description and tenure

Property

Units A–C on the Gemstar Tower (the “Building”) upper part of 3rd is a 17-storey godown with Floor, Units A–G & H godown/car parking spaces on (including the store the Ground Floor, car parking room thereof) on 4th spaces with loading/unloading Floor, Units C, G & H areas on the 1st and 2nd Floors (including the store and godown on Upper Floors room thereof) on 5th completed in 1992. Floor, Unit H (including the store The property comprises the room thereof) on 6th whole 4th Floor and 8 godown Floor and Unit C units on various floors and the (including the store Roof of the Building together room thereof) on 13th with a total of 50 car parking Floor and the Roof spaces including 2 container together with 50 Car car parking spaces. 22 lorry Parking Spaces on parking spaces and 26 private 1st, 2nd and lower car parking spaces located on part of 3rd Floors, 1st Floor, 2nd Floor and lower Gemstar Tower, No. part of 3rd Floor of the Building. 23 Man Lok Street, Hung Hom, Kowloon, The total gross floor area Hong Kong (excluding Car Parking Spaces) is approximately 7,586.68 sq.m. 223,537/691,680th (81,663 sq.ft.) and the roof area equal and undivided is approximately 3,283.07 sq.m. shares of and in Hung (35,339 sq.ft.). Hom Inland Lot No. 545 (the “Lot”) The Lot is held under Conditions of Sale No. 12089 for a term commencing from 23rd January, 1990 and expiring on 30th June, 2047.

Capital values in its existing state as at 30th November, 2002 and 9th December, 2002

Particulars of occupancy

Except with a total of 19 $68,000,000 car parking spaces which are vacant, the property (100% interest is let under various attributable to tenancies and licences, the Group: yielding a total monthly $68,000,000) income of $470,189.80 exclusive of rates and service charges.

Note: The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Group, held under Conditions of Sale No. 12089 of the Lot.

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Description and tenure

Property

Roof Nos. 1–6, 8, 9, 11 Kwai Shun Industrial Centre and 12, Kwai Shun (the “Building”) is a 13-storey Industrial Centre, industrial building completed in Nos. 51–63 Container 1980. Port Road, Kwai Chung, New The property comprises 10 Territories, Hong portions of the Roof of the Kong Building with a total area of approximately 1,956 sq.m.

42/3,608th equal and (21,054 sq.ft.). undivided shares of and in Kwai Chung The Lot is held under New Town Lot No. 355 (the Grant No. 5472 for a term of 99 “Lot”) years less the last three days thereof commenced from 1st July, 1898, which is statutorily extended to 30th June, 2047.

Capital values in its existing state as at 30th November, 2002 and 9th December, 2002

Particulars of occupancy

With the exception of $1,150,000 Roof No. 4 which is subject to a monthly (100% interest licence at a monthly attributable to licence fee of $2,000 the Group: inclusive of rates and $1,150,000) management fees, the property is vacant.

Note: The registered owner of the property is Queensway Development Ltd. carrying on business in Hong Kong under the name of Queensway Properties Limited, which is a wholly-owned subsidiary of the Group, vide an Assignment Memorial No. 1481864 dated 9th September, 2002.

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Property Description and tenure
1. Unit 301 on 3rd Floor, The property comprises an Sim City of Chung arcade shop on 3rd floor of a 4- Kiu Commercial storey commercial podium Building, Nos. 47–51 where an 18-storey office tower Shantung Street, erected upon (excluding Mong Kok, Kowloon, basement Floor and plant/ Hong Kong mechanical Floor). The building was completed in or about
20,976/520,667th of 1977. 21/400th equal and undivided shares of The property has a gross floor Kowloon Inland Lot area of approximately 42.09 No. 10253 (the “Lot”) sq.m. (453 sq.ft.) and a saleable area of approximately 21.0 sq.m. (226 sq.ft.). The Lot is held under a Conditions of Regrant No. 10669 for a term of 150 years commencing 27th June, 1910.

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 The property is subject to $2,000,000 a tenancy at a monthly rent of $16,500 (exclusive (100% interest of rate and management attributable to fee.) the Group: $2,000,000)

Note: The registered owner of the property is First Castle Limited, which is a wholly-owned subsidiary of the Group, vide an Assignment Memorial No. 7526985 dated 22nd June, 1998.

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Description and tenure

Property

The whole of 3rd Inter-Continental Plaza is a 15Floor and the storey (including two basement adjacent Flat Roof levels) commercial building and the whole of 8th completed in 1982. Floor, InterContinental Plaza, No. The property comprises two 94 Granville Road, office floors and flat roof of the Tsim Sha Tsui, building. The total gross floor Kowloon, Hong Kong area and saleable area of the two office floors are

321/3,000th equal and approximately 2,062.80 sq.m. undivided shares of (22,204 sq.ft.) and 1,784.28 and in Kowloon sq.m.(19,206 sq.ft.) respectively. Inland Lot No.10603 The flat roof on 3rd Floor has an (the “Lot”) area of approximately 174.28 sq.m. (1,876 sq.ft.).

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 With the exception of a $52,000,000 total gross floor area of approximately 672.43 (50% interest sq.m. (7,238 sq.ft.) which attributable to is vacant, the property is the Group: let under various $26,000,000) tenancies, yielding a total monthly rental income of $206,408 (exclusive of rates and service charges).

The Lot is held under Conditions of Sale No. 11258 for a term of 75 years commencing from 30th October,1978 renewable for a further term of 75 years.

Note: The registered owner of the property is Healthy Point Limited, which is a subsidiary of the Group, vide an Assignment Memorial No. 3741408 dated 25th May, 1988.

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Property Description and tenure
1. Canteen on Main Roof The property comprises a including the Flat canteen on the Main Roof Floor Roof on the Upper including the Flat Roof on the Roof immediately Upper Roof immediately thereabove and the thereabove and portion of Flat Remaining Portion of Roof on the Main Roof of a 15the Flat Roof on the storey industrial building Main Roof, Meeco completed in about 1985. Industrial Building, Nos. 53-55 Au Pui The saleable area of the Wan Street, Sha Tin, canteen is approximately New Territories, Hong 138.61 sq.m. (1,492 sq.ft.) and Kong the total roof area is approximately 270.16 sq.m.
6/434th euqal and (2,908 sq.ft.). undivided shares of and in Shatin Town The Lot is held under a New Lot No. 171 (the Grant No. 11641 for a term of 99 “Lot”) years less the last three days thereof commencing from 1st July, 1898, which is statutorily extended to 30th June, 2047.

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 The property is subject to $1,700,000 a licence and the licence fee is $19,000 per month. (100% interest attributable to the Group: $1,700,000)

Note: The registered owner of the property is Sanewing Investments Limited, which is a wholly-owned subsidiary of the Group, held under New Grant No. 11641 of the Lot.

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Group II – Property interests held for future development by the Group in Hong Kong

Property

Description and tenure

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002

9/24th equal and The property comprises five undivided shares of contiguous lots of irregular and in Lot Nos. 2, 4, shape located in Sai Kung 7, 8 and 9 in District of New Territories. The Demarcation District total registered site area is 464, So Shi Tau, Clear approximately 34,458.57 sq.m. Water Bay, New (370,912 sq.ft.). Territories, Hong Kong Lot Nos. 2, 4, 7 and 8 in Demarcation District 464 are held under Block Government Lease for a term of 75 years commencing from 1st July, 1898 with a right to renew for a further term of 24 years less the last 3 days thereof whilst Lot No. 9 in Demarcation District 464 is held under Government Lease for a term of 99 years, both are statutorily extended to 30th June, 2047.

The property is currently $11,000,000 vacant. (100% interest attributable to the Group: $11,000,000)

The total annual Government Rent for the property is $13.98.

Note: The registered owner of the property is Country Homes Limited, which is a wholly-owned subsidiary of the Group, (4/12 and 1/24) vide two Assignments Memorial Nos. 78320 and 78321 both dated 30th November, 1964, an Assignment Memorial No. 78481 dated 4th January, 1965, an Assignment Memorial No. 86150 dated 2nd May, 1973 and an Assignment Memorial No. 86215 dated 8th May, 1973.

As advised by the Group, the Group cannot prove its title to the property as at the date of our valuation since some title deeds necessary to provide title are not produced.

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Property Description and tenure
1. The Remaining The property comprises an Portion of Lot No. 453 agricultural lot of irregular in Demarcation shape located in Sai Kung District 401, Po Lam District of the New Territories. Road, Ma Yau Tong, The registered site area of the Sai Kung, New property is approximately Territories, Hong 2,292.4 sq.m. (24,675 sq.ft.). Kong

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 The property is currently $3,500,000 vacant. (100% interest attributable to the Group: $3,500,000)

Lot No. 453 in Demarcation District 401 is held under a Government Lease for a term of 75 years commencing from 1st July, 1898 renewable for 24 years less the last three days thereof which is statutorily extended to 30th June, 2047.

The annual Government Rent for the property is $1.48.

Notes:

(i) The registered owner of the property is Country Honour Limited, which is a wholly-owned subsidiary of the Group, vide an Assignment Memorial No. 153780 dated 19th February, 1990.
(ii) The property is subject to a Waiver Letter vide Memorial No. 190803 dated 2nd January, 1992.

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Group III – Property interest held for sale by the Group in Hong Kong

Description and tenure

Property

Units C to H Gemstar Tower (the “Building:”) (including the store is a 17-storey godown with room thereof) on 7th godown/car parking spaces on Floor and Units A to the Ground Floor, car parking G (including the store spaces with loading/unloading room thereof) on 16th areas on the 1st and 2nd Floors Floor, Gemstar Tower, and godown on the upper floors No. 23 Man Lok completed in 1992. Street, Hung Hom, Kowloon, Hong Kong The property comprises units C to H on 7th Floor and units A to 57,477/691,680th G on 16th Floor of the Building equal and undivided with a total gross floor area of shares of and in Hung approximately 6,036.42 sq.m. Hom Inland Lot No. (64,976 sq.ft.). 545 (the “Lot”)

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 With the exception of 1 $41,000,000 godown unit having a total gross floor area of (100% interest approximately 788.83 attributable to sq.m. (8,491 sq.ft.) which the Group: is vacant, the property is $41,000,000) let under various tenancies, yielding a total monthly rental income of $209,967 exclusive of rates and service charges.

Particulars of occupancy

The Lot is held under Conditions of Sale No. 12089 for a term commencing from 23rd January, 1990 and expiring on 30th June, 2047.

Note: The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Group, held under Conditions of Sale No. 12089 of the Lot.

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Group IV – Property interest held for sale by the Group in the PRC

Description and tenure

Property

Unsold portion of Winson Plaza (the Winson Plaza, 146 “Development”) is a Weidi Road, Hexi commercial/residential District, Tianjin, the development comprising one PRC 25-storey residential tower and one 28-storey office tower standing on a 2-level podium. The Development was completed in 1997.

The property comprises the unsold portion of the Development and the details of the gross floor area of the property are listed as follows:

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2003 (Note ii) Part of the property, $39,000,000 having a total gross floor area of approximately (50% interest 6,859.29 sq.m. (73,834 attributable to sq.ft.), is currently leased the Group: to various third-party $19,500,000) tenants for terms of 1 to 3 years with the latest expiring on 30th September, 2005. The current total monthly rental is approximately RMB229,983 (excluding management fee) whilst the remaining portion is vacant.

Particulars of occupancy

Use Residential Office Retail Car Parking (67 nos.) Basement Total	Approximate Gross Floor Area sq.m. sq.ft. 636.90 6,856 7,276.48 78,324 2,557.82 27,532 3,318.20 35,717 3,037.96 32,701 16,827.36 181,130	Approximate Gross Floor Area sq.m. sq.ft. 636.90 6,856 7,276.48 78,324 2,557.82 27,532 3,318.20 35,717 3,037.96 32,701 16,827.36 181,130
	16,827.36	181,130

The land use rights of the Development have been granted for a term of 50 years from 5th October, 1995 to 4th October, 2045.

Notes:

Section I: Title Documents

(i) Pursuant to the Certificate for State-owned Land Use Rights No. (95)063 (referred to as the “Certificate for State-owned Land Use Rights”) issued by Tianjin Municipal Land Administrative Bureau (referred to as the “Bureau”) on 5th October, 1995, the land use rights of the land on which the Development is erected (referred to as the “Land”) having a site area of approximately 7,217 sq.m. have been granted to Tianjin Winson Real Estate Development Company Limited (referred to as the “WFOE”) for a term of 50 years from 5th October, 1995 to 4th October, 2045 for commercial, residential and office use.
(ii) As informed by the Group that 2 residential and 5 retail units with a total gross floor area of 2,176 sq.m. have been sold to third parties under 4 separate Sale & Purchase Agreements dated between 4th December, 2002 and 7th December, 2002 (both inclusive) at a total consideration of RMB8,371,353. In the course of our valuation, we have not taken into account the said agreements.

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Section II: Corporate Background

(iii) Pursuant to the Joint Venture Agreement dated 15th August, 1994 (referred to as the “Wholly Foreign Owned Enterprise Contract”) entered into between Bontec Developments Ltd. (referred to as “Bontec”), Jade Mountain Limited (Referred to as “Jade Mountain”) and Shortridge Limited (referred to as “Shortridge”), the parties agreed to establish the WFOE and to develop the Development. The salient conditions as stipulated in the Wholly Foreign Owned Enterprise Contract are summarised as follows:
(a) Name of the WFOE: Tianjin Winson Real Estate Development Company Limited
(b) Period of operation: 20 years
(c) Total investment amount: US$6,000,000
(d) All parties have the responsibility to appoint directors, management personnel, provide the WFOE with property development information, raise finance, appoint agents, purchase equipment and building materials etc. and to sell and lease the Development. Jade Mountain and Shortridge have to attend to all application procedures and obtain the business licence.
(e) The percentage of equity interests held by each party, both reflecting the percentage of the registered capital injected and representing the percentage of profit to which each party entitled, is as follows:

		Percentage of
	Registered capital	registered capital
Shortridge	US$750,000	25%
Bontec	US$750,000	25%
Jade Mountain	US$1,500,000	50%

(iv) Pursuant to the Business Licence No. 0477379 (Registration No. Qi Du Yu Zong Zi 005642) dated 27th February, 2002, the WFOE has been established with a registered capital of US$3,000,000 for an operation period of 20 years from 22nd December, 1993 to 21st December, 2013 and the scope of the business is to develop, construct, sell and lease real estate and to provide related property management and composite services.
(v) As confirmed by the Group, Jade Mountain is 100% owned by the Company. Therefore, the Group is effectively entitled to a 50% interest in the WFOE.

Section III: Status of the Property

(vi) Pursuant to the Certificate for Construction and Engineering Planning No. (95)233 issued by Tianjin Municipal Urban Planning Administrative Bureau on 25th December, 1995, the WFOE is permitted to construct the superstructure of the Development with a total gross floor area of approximately 45,407 sq.m..
(vii) Pursuant to the Supplemental Land Use Contract between the Bureau and the WFOE on 15th March, 2001, the permitted total gross floor area of the Development has been adjusted to 57,121 sq.m..
(viii) Pursuant to the Certificate Sales of Commodity Housing No. (1995) Jin Fang Quan Shou Zi 018 issued by Tianjin Municipal Real Estate Market Administrative Bureau on 10th January, 2003, the Development, having a total gross floor of 54,449 sq.m., is permitted to be sold in both the domestic/overseas market.

Section IV: Legal Opinion on the PRC Law

(ix) The opinion of the Group’s legal adviser on the PRC law stated that:
(a) The WFOE has obtained the Certificate for State-owned Land Use Rights of the Land.
(b) The building ownership of the property is lawfully held by the WFOE.
(c) During the land use rights term from 5th October, 1995 to 4th October, 2045, the WFOE is entitled to sell, transfer, mortgage, lease or otherwise dispose of the remaining part of the land use rights of the Land and the building ownership of the property without (i) obtaining approval from the PRC Government or relevant competent authority or (ii) payment of any land premium or land grant fee, subject to the requisite legal formalities in respect of such sale or transfer etc. being attended to and payment of the requisite fees and taxes.

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(d) The WFOE has been duly organized and validly existing as a limited liability company capable of suing or being sued and is not required regarding its organization to make any additional registration or filing with, or obtain any further approvals, permits, consents or regulations from any governmental authority of the PRC.
(e) The WFOE has full corporate power and legal capacity to carry on the related business specified in the Business Licence.
(f) Each of the parties to the WFOE is entitled to assign all or part of its equity interests or rights and obligations prescribed in the Wholly Foreign-owned Enterprise Contract subject to (i) obtaining the consent of the other parties; (ii) obtaining the approval of the board of directors of the WFOE; and (iii) approval from Tianjin Municipal People’s Government.
(g) All registered capital required to be paid by each party to the WFOE under the Wholly Foreign-Owned Enterprise Contract have been paid in full.

Section V: Valuation Assumptions

(x) We have prepared our valuation on the following assumptions:
(a) The WFOE is in possession of a proper legal title to the property and is entitled to transfer the property with residual term of its land use rights at no extra land premium or other onerous payment payable to the government.
(b) All land premium and other costs of ancillary utility services have been settled in full.
(c) The design and construction of the proposed development are in compliance with the local planning regulations and have been approved by the relevant authorities.
(d) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to both domestic and overseas purchasers.

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Group V – Property interests held for future development by the Group in the PRC

Property Description and tenure
1. Panyu Technology The property comprises a Park, East of parcel of land with a site area Shiguang Road, of approximately 28,402 sq.m. Zhongcun Town, (305,719 sq.ft.) (the “Land”) and Panyu District, is proposed to be developed Guangzhou, into an industrial development Guangdong Province, with ancillary residential the PRC premises with a total gross floor area of approximately 62,348 sq.m (671,114 sq.ft).

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 The property is currently $14,000,000 a vacant site. (100% interest attributable to the Group: $14,000,000)

The land use rights of the Land have been granted for a term of 50 years for industrial purpose.

Notes:

Section I: Title Documents

(i) Pursuant to the Certificate for State-owned Land Use Rights No. Pan Fu Guo Yong Zi (2002) G03-000301 issued by the People’s Republic Government of Panyu District, Guangzhou dated 3rd April, 2002, the land use rights of the Land, having a site area of 28,402 sq.m., have been granted to Panyu Gemstar Technology Park Properties Investment Ltd. (referred to as the “WFOE”) for a term upto 1st August, 2046 for industrial use.

Section II: Corporate Background

(ii) Pursuant to the Business Licence No. 0067970 (Registration No. Qi Du Yue Hui Zong Zi 300412) issued by Guangzhou City Administration of Industry and Commerce on 21st January, 2000, the WFOE was established as a wholly-foreign owned enterprise with a registered capital of US$5,400,000 for a period of 50 years commencing from 2nd March, 1993 to 2nd March, 2043, and its scope of business is to develop, construct, sell, lease, transfer and manage land designated for industrial use in Panyu.
(iii) As confirmed by the Group, the WFOE is wholly-owned by Kinloch Investments Corp., a wholly-owned subsidiary of the Company.

Section III: Legal Opinion on the PRC Law

(iv) The opinion of the Group’s legal adviser on the PRC law stated that:
(a) The WFOE has obtained the Certificates for State-owned Land Use Rights of the Land and the land use rights of the Land are lawfully held by the WFOE.
(b) During the term of the land use rights as mentioned in the Certificate for State-owned Land Use Rights above, the WFOE is entitled to (a) sell, transfer, lease or otherwise dispose of the land use rights of the land referred to in note (i) above (i.e. the Land) provided that (i) the amount invested in the Land shall have reached 25% of the total investment amount (excluding the land grant fee payable under Contracts for Grant of State-owned Land Use Rights in relation to the Land, in respect of the development of the Land or (ii) the completed construction scale of the building on the Land has reached 25% of the total construction scale as designed and (b) mortgage the land use rights of the Land (provided that the mortgage loan shall be applied towards development of the Land), without (i) obtaining approval from the PRC Government or relevant competent authority or (ii) payment of any land premium or land grant fee, subject to the requisite legal formalities in respect of such sale, mortgage or transfer etc. being attended to and payment of the requisite fees and taxes.
(c) The WFOE has been duly organised and validly existing as a limited liability company capable of suing or being sued and is not required regarding its organization to make any additional registration or filing with, or obtain any further approvals, permits, consents or regulations from any governmental authority of the PRC.

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(d) The WFOE has full corporate power and legal capacity to carry on the business specified in the Business Licence.
(e) Kinloch Investments Corp. is entitled to assign all or part of its equity interests or rights and obligations prescribed in the Articles of Association subject to (i) obtaining the approval of the board of directors of the Company; and (ii) approval from the Guangzhou City People’s Government.
(f) The term of the WFOE is 50 years commencing from 2nd March, 1993 and ending on 2nd March, 2043.
(g) All registered capital required to be paid by Kinloch Investments Corp. under the Articles of Association have been paid in full.
(h) Kinloch Investments Corp. is entitled to convert any and all distribution of profits received from the WFOE and all revenue received by it from the liquidation or transfer of its rights in the WFOE into foreign exchange and remit them out of the PRC after tax payment in respect of the portion of the aggregate revenue obtained in liquidation or transfer of its rights in the WFOE, which is in excess of its aggregate capital contribution to the WFOE.

Section IV: Valuation Assumptions

(v) We have prepared our valuation on the following assumptions:
(a) The WFOE is in possession of a proper legal title to the property and is entitled to transfer the property with residual term of its land use rights at no extra land premium or other onerous payment payable to the government.
(b) All land premium and other costs of ancillary utility services have been settled in full.
(c) The design and construction of the proposed development are in compliance with the local planning regulations and have been approved by the relevant authorities.
(d) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to both domestic and overseas purchasers.

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Property Description and tenure
1. Chenghai Royal The property comprises a Garden, Estuary of roughly rectangular-shaped site Xinjin River, with a total site area of Chenghai City, approximately 466,662 sq.m. Shantou, Guangdong (5,023,150 sq.ft.) (the “Land”). Province, the PRC Phase I of the proposed development which comprises a site area of approximately 63,333 sq.m. (681,716 sq.ft.) is planned to provide a total gross floor area of approximately 126,666 sq.m. (1,363,433 sq.ft.), accommodating residential premises, villas, shopping arcade and club house.

Capital values in its existing state as at Particulars of 30th November, 2002 occupancy and 9th December, 2002 The property is currently $210,000,000 a Greenfield site. (100% interest attributable to the Group: $210,000,000)

The land use rights of the property to be officially granted will be for a term of 60 years.

Notes:

Section I: Title Documents

(i) Pursuant to the Contract for Pre-registration of Grant of State-owned Land Use Rights dated 5th August, 1992 (referred to as the “Pre-registration Contract”) entered into between Chenghai County Land Administrative Bureau (referred to as the “County Bureau”) and Shantou Branch Company of Guangdong Province Trust Real Estate Development Corp. (currently named as Shantou Real Estate Development Corp. of Guangdong International Trust & Investment Corp., referred to as the “PRC Partner”), the County Bureau agreed to preregister a grant of the land use rights of a site area of approximately 800,000 sq.m. to the PRC Partner. The salient conditions stipulated in the Pre-registration Contract are summarised as follows:

(a) Site area: 800,000 sq.m. (1,200 mu) (b) Use: Commodity housing and composite use (c) Land use rights term: 60 years from the date of land grant contract (d) Land premium: RMB133,475,400 (e) Payment terms: 1st payment: 5% within 10 days of signing the Pre-registration Contract 2nd payment: 45% within 15 days of signing the Pre-registration Contract 3rd payment: remaining premium will be paid within 10 days upon the County Bureau approving the land use rights of each portion of the site area

(f) The validity period of the Pre-registration Contract is one year.
(ii) Pursuant to the approval letter issued by Chenghai Municipal Land and Real Estate Administrative Bureau (referred to as the “Municipal Bureau”) dated 17th April, 1996, the Pre-registration Contract was confirmed as valid and pre-registration of land use rights of the Land (being part of 1,200 mu site area as stipulated in the Pre-registration Contract) in the name of Chenghai Royal Garden Co. Limited (referred to as “Royal Garden Co. Limited”) has been approved.
(iii) Pursuant to the Memorandum to the Pre-registration Contract issued by the Bureau on 24th March, 1999, the Municipal Bureau confirmed that the pre-registered land use rights of the Land is owned by Royal Garden Co. Limited and Royal Garden Co. Limited should complete the development planning and make application for the land use rights of the Land before 2001.

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(iv) Pursuant to the Report for Extending Development Construction Planning dated 17th July, 2002, the Municipal Bureau agreed to grant Royal Garden Co. Limited a 2-year extension for the completion of the development planning of the proposed development up to 16th July, 2004.

Section II: Corporate Background

(v) Pursuant to the Sino-foreign Co-operative Joint Venture Contract dated 27th March, 1996 (referred to as the “Co-operative Joint Venture Contract”) entered into between the PRC Partner and Jinline Investments Ltd. (referred to as “Jinline”) (a wholly-owned subsidiary of the Company), both parties agreed to establish a cooperative joint venture company (referred to as the “Royal Garden Co. Limited”). The salient conditions of the Co-operative Joint Venture Contract are summarised as follows:

(a) Name of joint venture company: Chenghai Royal Garden Company Limited

(b) Period of operation: 30 years from the date of the issuance of the business licence (Note: the period of operation has been approved for 20 years from 30th March, 1996 to 29th March, 2016)

(c) Total investment: RMB1,250,000,000 (Phase I: RMB170,000,000 to be contributed by Jinline) (d) Registered capital: RMB68,300,000

(e) Scope of business: To develop, construct, sell, lease and manage real estates
(f) Term: (a) Both parties have agreed to develop the property comprising a site area of 700 mu (466,662 sq.m.) at a total land premium of RMB77,861,040.
(b) The use of the property is designated for composite development use.
(c) The respective land use terms for commercial use is 50 years and for residential use is 70 years.
(g) Parties’ major responsibilities:

The PRC Partner:–

(a) provide land use rights of the property and obtain approvals to set up the joint venture company;
(b) obtain relevant permits for the property.

Jinline:–

(a) contribute all of the joint venture company’s capital;
(b) design and construction of the projects, sale, management and leasing of the property.
(vi) Pursuant to the Supplementary Contract to the Co-operative Joint Venture Contract entered into between the PRC Partner and Jinline dated 27th November, 1998, both parties agreed that Royal Garden Co. Limited has been changed from a sino-foreign co-operative joint venture to a wholly foreign-owned enterprise and Jinline will be entitled to all profits and be responsible for all losses of Royal Garden Co. Limited subject to a fixed profit of RMB3,000,000 and a service fee of RMB7,000,000 payable by Jinline to the PRC Partner. Pursuant to a supplemental agreement between the parties dated 15th January, 1999, RMB10,000,000 had been paid by Jinline to the PRC Partner.
(vii) Pursuant to the Business Licence No. 0112359 (Registration No. Qi Du Yue Shan Zong Zi 004940) dated 23rd July, 2002, Royal Garden Co. Limited has been established with a registered capital of RMB68,300,000 (of which RMB34,500,000 has been paid) for an operation period of 20 years from 30th March, 1996 to 29th March, 2016 and the business scope is to develop, construct, sell, lease and manage real estates.

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PROPERTY VALUATION OF THE PROPERTIES

Section III: Development Status of the Property

(viii) Pursuant to the Approval Letter No. (96)24 (referred to as “Approval 24”) from Chenghai Municipal Planning and Statistics Bureau (referred to as the “Planning Bureau”) to the PRC Partner dated 14th March, 1996, the Planning Bureau agreed to the PRC Partner and Jinline jointly developing Stage I of Phase I of the property with a site area of 50 mu (33,333 sq.m.) and having a total planned gross floor area of 66,667 sq.m. 50% of which can be sold overseas.
(ix) Pursuant to the Approval Letter No. (96)25 (referred to as “Approval 25”) from the Planning Bureau to the PRC Partner dated 21st March, 1996, the Planning Bureau agreed to the PRC Partner and Jinline jointly developing Stage II of Phase I of the property with a site area of 45 mu (29,999.7 sq.m.) and having a total planned gross floor area of 60,000 sq.m. 50% of which can be sold overseas.
(x) On the assumption that the plot ratio for the remaining site, which having an area of approximately 403,329 sq.m., will be the same as Phase I of the property, the additional developable gross floor area will be approximately 806,658 sq.m.

Section IV: Legal Opinion on the PRC Law

(xi) The opinion of the Group’s legal adviser on the PRC law stated that:
(a) Royal Garden Co. Limited’s contractual rights under the Pre-registration Contract are legal and enforceable.
(b) Upon payment of all land premium and obtaining the Certificate for State-owned Land Use Rights of the Land by Royal Garden Co. Limited, and subject to the contract for grant of land use rights, the land use rights of the Land are freely transferable by way of transfer, mortgage or letting without in any of such cases the necessity of paying any further land premium or other sums other than of a nominal nature.
(c) Pursuant to the terms of Approval 24 and Approval 25 (referred to as the “Approval Letters”), which represented the approval in 1996, Stage I of the property on the Land was to occupy a portion of the Land of 50 mu and the total floor area to be constructed thereon was 66,667 square metres with 50% thereof permitted to be sold overseas and (ii) Stage II of Phase I of the property was to occupy a portion of the Land of 45 mu and the total floor area to be constructed thereon was 60,000 square metres with 50% thereof to be permitted to be sold overseas. The actual construction scale and the design of the building to be erected on the Land has yet to be approved by Chenghai Municipal Urban Planning Construction Administrative Bureau when Royal Garden Co. Limited applies for the construction engineering planning certificate in respect of the building to be erected on the Land.
(d) Notwithstanding note (xi)(c) above, Royal Garden Co. Limited will have to apply for and obtain (i) certificate for commencing construction, (ii) certificate for construction and land usage planning and (iii) certificate for construction and engineering planning for the purpose of carrying out and completion of construction of the buildings on the Land, in accordance with the requirements of the PRC law.
(e) Royal Garden Co. Limited has been duly organised and validly existing as a limited liability company capable of suing or being sued and is not required its organization to make any additional registration or filing with, or obtain any further approvals, permits, consents or regulations from any governmental authority of the PRC.
(f) Royal Garden Co. Limited has full corporate power and legal capacity to carry on the business specified in the Business Licence.
(g) Jinline is entitled to assign all or part of rights and interest in Royal Garden Co. Limited subject to (i) obtaining the approval of the board of directors of Royal Garden Co. Limited; and (ii) approval from Shantou Municipal People’s Government.
(h) The term of Royal Garden Co. Limited is 20 years commencing from 30th March, 1996 and ending on 29th March, 2015.
(i) Jinline is entitled to convert any and all distribution of profits received from Royal Garden Co. Limited and all revenue received by it from the liquidation or transfer of its rights in Royal Garden Co. Limited into foreign exchange and remit them out of the PRC after tax payment in respect of the portion of the aggregate revenue obtained in liquidation or transfer of its rights in Royal Garden Co. Limited, which is in excess of its aggregate capital contribution to Royal Garden Co. Limited.

133

PROPERTY VALUATION OF THE PROPERTIES

APPENDIX III

Section V: Valuation Assumptions

(xii) We have prepared our valuation on the following assumptions:
(a) Royal Garden Co. Limited is in possession of a proper legal title to the property and is entitled to transfer the property with residual term of its land use rights at no extra land premium or other onerous payment payable to the government.
(b) All land premium and other costs of ancillary utility services have been settled in full.
(c) The design and construction of the proposed development are in compliance with the local planning regulations and have been approved by the relevant authorities.
(d) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to both domestic and overseas purchasers.

134

APPENDIX IV PROPERTY VALUATION OF THE HILLIER PROPERTY

The following is the text of the letter and valuation certificate received from Norton Appraisals Limited, an independent qualified valuer, prepared for the purpose of inclusion in this circular, in connection with its valuation of the Hillier Property.

Norton A ppraisals Registered Professional Surveyors, Valuers & Property Advisers

Room 4135, Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong Tel: (852) 2810 7337 Fax: (852) 2810 6337

5th March, 2003

The Directors

Chi Cheung Investments Company, Limited 26/F, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interest held by Chi Cheung Investments Company, Limited (hereinafter referred to as the “Company”) and its subsidiaries and associated companies (hereinafter together referred to as the “Group”) for a development site located at Nos. 253-265 Queen’s Road Central and Nos. 30-38 Hillier Street, Sheung Wan, Hong Kong, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the captioned property in its existing state as at 30th November, 2002 and 9th December, 2002 (hereinafter referred to as the “dates of valuation”).

Our valuation is our opinion of the open market 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 the 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;
(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.”

In valuing the property interest, we have assumed that the Group has valid and enforceable title to the property interest which is freely transferable, and has free and uninterrupted right to use the same, for the whole of the unexpired lease granted subject to payment of annual Government rent and all requisite land premium/purchase consideration payable have been fully settled.

135

PROPERTY VALUATION OF THE HILLIER PROPERTY

APPENDIX IV

We have valued the property interest on the basis that the property will be developed in accordance with the latest development proposals provided to us by the Group. We have assumed that approvals for the proposed development have been obtained. In arriving at our opinion of the value of the property interest, we have adopted Direct Comparison Approach by making reference to comparable transactions available in the relevant market and have also taken into account the construction costs that will be expended to complete the developments to reflect the development potential of the property and the quality of the completed development.

Our valuation has been made on the assumption that the Group sells the property on the open market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the value of such property interest. In addition, no account has been taken of any option or right of preemption concerning or affecting sales of the property and no forced sale situation in any manner is assumed in our valuation.

We have caused searches to be made at the Urban Land Registry. We have not, however, searched the original documents to verify ownership or to determine the existing of any lease amendments which do not appear on the copies handed to us.

All dimensions, measurements and areas included in the attached valuation certificate are based on information contained in the documents provided to us by the Group and are therefore only approximations.

We have inspected the property. During the course of our inspections, we did not note any serious defects. However, no structural survey has been made and we are therefore unable to report as to whether the property is free from rot, infestation or other defects.

Furthermore, we did not carry out any site investigations to determine or otherwise the suitability of the ground conditions, the presence or otherwise of contamination and the provision of/or suitability for services etc. for future development. Our valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site area of the property and we have assumed that the areas shown on the documents handed to us are correct.

We have relied to a considerable extent on the information provided by the Group and have accepted advice on such matters as planning approvals, statutory notices, easements, tenures, completion dates of buildings, particulars of occupancy, development proposals, construction costs already expended, estimated outstanding construction costs, site and floor areas and all other relevant matters in the identification of the property in which the Group has valid interest.

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

136

APPENDIX IV PROPERTY VALUATION OF THE HILLIER PROPERTY

Our valuation has been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute of Surveyors in March 2000. Our valuation has also been prepared under the generally accepted valuation procedures and is in compliance with Practice No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Unless otherwise stated, all sums stated in our valuation certificate are in Hong Kong Dollars.

Our Valuation Certificate is enclosed herewith.

Yours faithfully, For and on behalf of Norton Appraisals Limited M. K. Wong MRICS, AHKIS, RPS (G.P.) Director

Note : Mr. M. K. Wong is a Registered Professional Surveyor who has more than 10 years’ experience in valuation of properties in Hong Kong and in the PRC.

137

PROPERTY VALUATION OF THE HILLIER PROPERTY

APPENDIX IV

VALUATION CERTIFICATE

Description and tenure

Property

The whole of development site of Nos. 253–265 Queen’s Road Central and Nos. 30–38 Hillier Street, Sheung Wan, Hong Kong

The property comprises a “Class B” corner site of irregular shape bounded by Queen’s Road Central and Hillier Street.

Street, Sheung Wan, According to the information Hong Kong provided to us, the developable site area is approximately 424.55 sq.m. Sub-sections 1 and 2 (4,570 sq.ft.). of Section A, the Remaining Portion of We have been provided with a set Section A, Section E, of approved development plans for Section F and the the proposed commercial/ Remaining Portion of residential development comprising Inland Lot No. 99 (the a 28-storey building with a total “Lot”) gross floor area of approximately 3,931.07 sq.m. (42,314 sq.ft.).

Capital values in its existing state as at 30th November, 2002 and 9th December, 2002

Particulars of occupancy

At the date of valuation, $125,000,000 foundation works for the proposed development (100% interests have been completed and attributable to the proposed development the Group: is scheduled to be $125,000,000) completed by fourth quarter of 2003.

The Lot is held under a Government Lease for a term of 999 years from 26th June, 1843.

The total annual Government Rent payable for the Lot is $92.1.

Notes:

(i) The registered owner of the property is Fame Winner Limited, a wholly-owned subsidiary of the Group, vide an Assignment Memorial No. 7165381 dated 20th June, 1997.
(ii) The property is subject to a No-objection Letter (in connection to the proposed modification for the removal of 5 trades from the “Offensive Trades” clause contained in the Government Lease under which the Lot is held) from The Government of Hong Kong Special Administrative Region by The District Lands Officer/HK West vide Memorial No. 8038248 dated 16th March, 2000.
(iii) The property is subject to a Debenture in favour of Hang Seng Bank Limited vide Memorial No. 8775681 dated 9th September, 2002.
(iv) We have been instructed to assess the open market value of the subject property with the benefit of the approved building plans. As advised by the Group, the expended construction cost and the total outstanding construction cost to complete the development as at 30th November, 2002 were approximately $21,400,000 and $59,100,000 respectively. In the course of our valuation, we have taken into account the said outstanding construction cost.
(v) The “capital value when completed” of the proposed development is approximately $204,500,000.

138

APPENDIX V EXPLANATORY STATEMENT RELATING TO GRANT OF REPURCHASE MANDATE OF CHI CHEUNG

This Appendix serves as an explanatory statement, as required by the Listing Rules, to provide all the information in relation to the Repurchase Mandate for your consideration and also constitute the memorandum required under section 49BA of the Companies Ordinance.

I. Listing Rules Relating to the Repurchases of Securities

The Listing Rules permit companies whose primary listing is on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions. The Company is empowered by its memorandum and articles of association to repurchase its own securities.

II. Reason for Repurchase

Upon the Capital Reorganisation becoming effective and completion of the S&P Agreement, any existing mandates which have been granted or to be granted in the annual general meeting of Chi Cheung to the directors of Chi Cheung will not extend to the New Shares. The directors of Chi Cheung believe that it is in the best interest of Chi Cheung and the shareholders of Chi Cheung to continue to have a general authority from the shareholders of Chi Cheung to enable the directors of Chi Cheung to repurchase the New Shares on the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net value of Chi Cheung and its assets and/or its earnings per New Share and will only be made when the directors of Chi Cheung believe that such repurchases will benefit Chi Cheung and the shareholders of Chi Cheung.

III. Share Capital

On the basis that: (i) the issued share capital as at the Latest Practicable Date comprised 2,971,305,343 Chi Cheung Shares; (ii) no Chi Cheung Shares will be issued (pursuant to the Warrants or otherwise) prior to the Capital Reorganisation becoming effective and completion of the S&P Agreement; and (iii) approximately 11,375.6 million Chi Cheung Shares (subject to adjustments) will be issued to Chinese Estates pursuant to the S&P Agreement, subject to the passing of the relevant ordinary resolution approving the Repurchase Mandate, Chi Cheung would be allowed under the Repurchase Mandate to repurchase a maximum of approximately 28,693,236 New Shares upon the Capital Reorganisation becoming effective and completion of the S&P Agreement.

IV. Funding of Repurchase

Repurchases of Chi Cheung’s securities must be made out of funds legally available for the purpose in accordance with the memorandum and articles of association of Chi Cheung and the Companies Ordinance. The Companies Ordinance provides that the amount of capital repaid in connection with a share repurchase may only be paid from the distributable profits of Chi Cheung or the proceeds of a new issue of shares made for the purpose of the repurchase and any premium payable on repurchase shall be paid out of distributable profits of Chi Cheung.

On the basis of the consolidated financial position of Chi Cheung as at 31st December, 2001 (being the date to which the latest published audited financial statements of Chi Cheung have been made up) and in particular the working capital position of Chi Cheung at that time and the number of issued shares and warrants outstanding, the directors of Chi Cheung consider that there might be a material adverse impact on the working capital position or the gearing position of Chi Cheung in the event that the directors of Chi Cheung exercise the power to repurchase the securities of Chi Cheung pursuant to the Repurchase Mandate in full during the Repurchase Mandate period. No purchase would be made in circumstances that would have a material adverse impact on the working capital position or the gearing position of Chi Cheung (as compared with the position disclosed in the latest published audited financial statements).

139

EXPLANATORY STATEMENT RELATING TO GRANT OF REPURCHASE MANDATE OF CHI CHEUNG

APPENDIX V

V. Share Prices

The highest and lowest prices at which Chi Cheung Shares have been traded on the Stock Exchange during each of the previous twelve months preceding the Latest Practicable Date were as follows:

	per Chi Cheung Share	per Chi Cheung Share
	Highest	Lowest
2002	HK$	HK$
February	0.09	0.06
March	0.101	0.068
April	0.086	0.07
May	0.085	0.072
June	0.07	0.042
July	0.05	0.042
August	0.058	0.049
September	0.045	0.045
October*	N/A	N/A
November	0.052	0.022
December	0.03	0.024
2003
January	0.032	0.023
February (up to and including the Latest Practicable Date)	0.028	0.011

* No transaction on Chi Cheung Shares was recorded for the month.

VI. Shares Repurchases Made by Chi Cheung

Neither Chi Cheung nor any of its subsidiaries had purchased any Shares (whether on the Stock Exchange or otherwise) in the six months preceding the Latest Practicable Date.

VII. General

The directors of Chi Cheung have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Hong Kong.

The directors of Chi Cheung do not propose to exercise the Repurchase Mandate to such extent as would cause the percentage of the issued share capital of Chi Cheung being held by the public to fall below the minimum percentage prescribed under the Listing Rules.

If, as a result of a repurchase of New Shares a shareholder’s proportionate interest in the voting rights of the repurchasing company increases, such increase will be treated as an acquisition of voting rights for the purposes of the Code on Takeovers and Mergers (the “Takeovers Code”). The directors of Chi Cheung are not aware of any shareholders, or a group of shareholders acting in concert, who may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code in the event that the directors of Chi Cheung exercise the power to repurchase securities pursuant to the Repurchase Mandate. The directors of Chi Cheung currently do not intend to exercise the Repurchase Mandate to such extent that it would cause any shareholder to become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code.

140

APPENDIX V EXPLANATORY STATEMENT RELATING TO GRANT OF REPURCHASE MANDATE OF CHI CHEUNG

None of the directors of Chi Cheung nor, to the best of their knowledge having made all reasonable enquiries, any of their respective Associates has any present intention, in the event that the Repurchase Mandate is approved by the shareholders of Chi Cheung, to sell any New Shares to Chi Cheung.

No connected person (as defined in the Listing Rules) has notified Chi Cheung that he has a present intention to sell any New Shares to Chi Cheung nor has any such connected person undertaken not to sell any of the New Shares held by him to Chi Cheung in the event that the Repurchase Mandate is approved by the shareholders of Chi Cheung.

141

GENERAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX VI

RESPONSIBILITY STATEMENT

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

SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued share capital of Chi Cheung were as follows:

Authorised: 5,000,000,000 Chi Cheung Shares Issued and fully paid or credited as fully paid: 2,971,305,343 Chi Cheung Shares	HK$ 500,000,000.00

	297,130,534.30

DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, the interests of the directors and chief executives of Chi Cheung in the securities of Chi Cheung or any of its associated corporations (within the meaning of the SDI Ordinance), which have been notified to Chi Cheung pursuant to the Model Code for Securities Transactions by directors of Listed Companies in the Listing Rules or section 28 of the SDI Ordinance (including interests in which a director is deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein, were as follows:
(i) Interest in Chi Cheung

		Number of	Shareholding	Units of
Name of director	Chi	Cheung Shares	percentage	Warrants
				(note 1)
Mr. Joseph Lau
– Corporate interests	(note 2)	2,159,475,904	72.68%	383,527,348

142

GENERAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX VI

(ii) Interest in associated corporation of Chi Cheung

Chinese Estates

Name of director

Number of Shares

Mr. Joseph Lau – Personal interests 431,573,668 – Other interests 1,000,000,000 (note 3) Total interests 1,431,573,668 Mr. Thomas Lau – Corporate interests 11,508,000 – Other interests 206,379,187 (note 4) Total interests 217,887,187

Notes:

(1) Holders of every unit of the warrants are entitled to subscribe for one fully paid share of Chi Cheung at HK$0.10 each during the period from 21st November, 2000 to 20th November, 2003.
(2) Mr. Joseph Lau, by virtue of his 62.95% interest in the issued share capital of Chinese Estates, was deemed to be interested in the said securities of Chi Cheung under the provisions of the SDI Ordinance.
(3) These shares were indirectly held by a discretionary trust of which certain family members of Mr. Joseph Lau are eligible beneficiaries.
(4) These shares were indirectly held by another discretionary trust of which certain family members of Mr. Thomas Lau are eligible beneficiaries.

Save as disclosed above, none of the other directors or chief executives of Chi Cheung had or was deemed to have any interest in the securities of Chi Cheung or any of its associated corporations (within the meaning of the SDI Ordinance), which have been notified to Chi Cheung pursuant to the Model Code for Securities Transactions by directors of Listed Companies in the Listing Rules or section 28 of the SDI Ordinance (including interests in which a director is deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein as at the Latest Practicable Date.

(b) Save as disclosed herein, none of the directors of Chi Cheung is materially interested in any contracts or arrangements entered into by any member of the Chi Cheung Group subsisting as at the date of this circular which are significant in relation to the business of the Chi Cheung Group.
(c) Save as disclosed herein, none of the directors of Chi Cheung has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Chi Cheung Group, or which are proposed to be acquired or disposed of by or leased to any member of the Chi Cheung Group since 31st December, 2001 (being the date to which the latest published audited accounts of Chi Cheung were made up).

There will be no variation in the aggregate of the remuneration payable to and benefits in kind receivable by the directors of Chi Cheung in consequence of the Asset Transaction.

143

GENERAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX VI

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as are known to the directors of Chi Cheung, the following parties (other than the directors of Chi Cheung) were recorded in the register kept by Chi Cheung under Section 16(1) of the SDI Ordinance as being, directly or indirectly, interested and/or deemed to be interested in 10% or more of the nominal value of the issued share capital of Chi Cheung:

Name of shareholder

Number of Chi Cheung Shares

Billion Up Limited 2,159,475,904 (notes 1 & 3) Lucky Years Ltd. 2,159,475,904 (notes 1 & 3) Chinese Estates 2,159,475,904 (notes 1 & 3) Global King Ltd. 2,159,475,904 (notes 2 & 3) Credit Suisse Trust Limited as trustee 2,159,475,904 (notes 2 & 3)

Notes:

(1) Billion Up Limited is a wholly-owned subsidiary of Lucky Years Ltd., which in turn is a wholly-owned subsidiary of Chinese Estates, and its interests in the shares in Chi Cheung are duplicated and included in the shareholding stated against Lucky Years Ltd. and Chinese Estates.
(2) These shares relate to the same parcel of shares in Chi Cheung which are duplicated in the shareholding stated against Chinese Estates due to its interests in Chinese Estates.
(3) The shareholdings stated against the above shareholders relate to the same parcel of shares referred to in corporate interests of Mr. Joseph Lau under the paragraph headed “Disclosure of interests” in this appendix.

As at the Latest Practicable Date, so far as are known to the directors of Chi Cheung, the following companies were, directly or indirectly interested in 10% or more of the equity interests of the members of the Chi Cheung Group:

Name of	Name of substantial	Percentage of
subsidiaries	shareholders	shareholdings
Apexwell Properties Limited	Kenichi Holdings Limited	40%
Konshing Enterprises Limited	Earlway International	49%
	& Development Ltd.

Save as disclosed above, there is no person known to the directors of Chi Cheung who was, as at the Latest Practicable Date, directly or indirectly, interested in 10% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any members of the Chi Cheung Group or any options in respect of such capital.

SERVICE CONTRACT

As at the Latest Practicable Date, none of the directors of Chi Cheung has entered or is proposing to enter into a service contract with any member of the Chi Cheung Group (excluding contracts expiring or determinable within one year without payment of compensation (other than statutory compensation)).

144

GENERAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX VI

LITIGATION

A member of the Chi Cheung Group has been involved in a dispute with a contractor for the delay in completion of the demolition, site formation, temporary shoring and pilling foundation installation works of the Hillier Property. A member of the Chi Cheung Group has issued a statuary demand pursuant to section 178(1)(a) of the Companies Ordinance in December 2002 and the amount claimed by the Chi Cheung Group was approximately HK$89 million. In February, 2003, the contractor issued a writ of summons against a member of the Chi Cheung Group for (inter alia) payment of works done pursuant to the building contract.

Save as disclosed above, as at the Latest Practicable Date, neither Chi Cheung nor any of its subsidiaries is engaged in any litigation or arbitration or claim of material importance and no litigation or arbitration or claim of material importance was known to the directors of Chi Cheung to be pending or threatened by or against Chi Cheung or any of its subsidiaries.

MATERIAL CONTRACTS

A sale and purchase agreement dated 11th February, 2002 was entered into between Wing Lee Development Limited, a wholly-owned subsidiary of Chi Cheung, as vendor and Hindstar Limited as purchaser for the selling of a piece of land at Central and registered in the Land Registry as The Remaining Portion of Inland Lot No. 4083 together with messuages, erections and the buildings thereon now known as No. 2 Arbuthnot Road, Central, Hong Kong for a consideration of approximately HK$48 million.

Save as disclosed above, neither Chi Cheung nor any of its subsidiaries has entered into any contracts, not being contracts in the ordinary course of business, within the two years preceding the date of this circular.

EXPERTS

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

Name	Qualifications
Quam	Investment adviser registered under the Securities Ordinance
	(Chapter 333 of the Laws of Hong Kong)
Deloitte Touche Tohmatsu	Certified Public Accountants
Norton Appraisals Limited	Property valuer

None of the persons referred to above (i) has any shareholding in any member of the Chi Cheung Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Chi Cheung Group; or (ii) has, and has had any direct or indirect interest in any assets which have since 31st December, 2001, being the date to which the latest published audited accounts of the Chi Cheung Group were made up, been acquired or disposed of by, or leased to, Chi Cheung or any of its subsidiaries, or which are proposed to be acquired or disposed of by, or leased to, Chi Cheung or any of its subsidiaries.

CONSENTS

Each of Quam, Deloitte Touche Tohmatsu and Norton Appraisals Limited has given and has not withdrawn its written consents to the issue of this circular with the inclusion of its letter and report, as the case may be, and references to its names, as the case may be, in the form and context in which they respectively appear.

145

GENERAL INFORMATION ON THE CHI CHEUNG GROUP

APPENDIX VI

MISCELLANEOUS

Mr. Lam, Kwong-wai (FCCA) is the company secretary of Chi Cheung.

The registered office of Chi Cheung is located at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

The share registrar and transfer office of Chi Cheung in Hong Kong is Secretaries Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of Sidley Austin Brown & Wood, 49th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong, during normal business hours on any day up to and including the date of EGM:

(a) the S&P Agreement;
(b) the Memorandum and Articles of Association of Chi Cheung;
(c) the material contract referred to under the paragraph headed “Material contracts” in this appendix;
(d) the letter of consent from each of Quam, Deloitte Touche Tohmatsu and Norton Appraisals Limited referred to under the paragraph headed “Consents” in this appendix;
(e) the letter of recommendation from the Chi Cheung Independent Director to the independent shareholders of Chi Cheung, the text of which is set out on page 28 of this circular;
(f) the letter of advice received from Quam to the Chi Cheung Independent Director, the text of which is set out on pages 30 to 40 of this circular;
(g) the letters and certificates from Norton Appraisals Limited regarding the property valuations of the Properties and the Hillier Property, the text of which are set out in appendice III and IV to this circular respectively;
(h) the annual reports of Chi Cheung for each of the three years ended 31st December, 1999, 2000 and 2001 and the interim report of Chi Cheung for the six months ended 30th June, 2002;
(i) the accountants’ report on the Sales Companies, the text of which is set out in appendix I to this circular and the related statement of adjustments;
(j) the discloseable transaction circular of Chi Cheung dated 18th February, 2002 in respect of disposal of No. 2 Arbuthnot Road, Central, Hong Kong; and
(k) this circular.

146

GENERAL INFORMATION ON THE CHINESE ESTATES GROUP

APPENDIX VII

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of providing information with regard to Chinese Estates. The directors of Chinese Estates collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained in this circular, the omission of which would make any statement contained herein misleading.

SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued share capital of Chinese Estates were as follows:

Authorised: 3,100,000,000 shares of Chinese Estates of HK$0.10 each Issued and fully paid or credited as fully paid: 2,274,314,212 shares of Chinese Estates of HK$0.10 each	HK$ 310,000,000.0

	227,431,421.2

DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, the interests of the directors and chief executive of Chinese Estates in the securities of Chinese Estates or any of its associated corporations (within the meaning of the SDI Ordinance), which have been notified to Chinese Estates pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules or Section 28 of the SDI Ordinance (including interests in which a director is deemed or taken to have under Section 31 or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein, were as follows:
(i) Interest in Chinese Estates

Name of director Chinese Mr. Joseph Lau – Personal interests – Other interests Total interests Mr. Thomas Lau – Corporate interests – Other interests Total interests	Number of Shareholding Estates Shares percentage 431,573,668 1,000,000,000 (note 1) 1,431,573,668 62.95% 11,508,000 206,379,187 (note 2) 217,887,187 9.58%

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APPENDIX VII

Notes:

(1) These shares were indirectly owned by a discretionary trust of which certain family members of Mr. Joseph Lau are eligible beneficiaries.
(2) These shares were indirectly owned by another discretionary trust of which certain family members of Mr. Thomas Lau are eligible beneficiaries.
(ii) Interest in associated corporations of Chinese Estates

Name of associated	Name of director	Number	Units of
corporation	of Chinese Estates	of shares	warrants
1. Chi Cheung	Mr. Joseph Lau	2,159,475,904	383,527,348
	– Corporate interests		(note 2)
	(note 1)
2. The Kwong Sang	Mr. Joseph Lau	586,672,047	N/A
Hong International	– Corporate interests
Limited (“Kwong	(note 1)
Sang Hong”)

Notes:

(1) Mr. Joseph Lau by virtue of his approximately 62.95% interest in the issued share capital of Chinese Estates as disclosed above, was deemed to be interested in the shares of Kwong Sang Hong and securities of Chi Cheung.
(2) Holders of every unit of the Warrants were entitled to subscribe for one fully-paid share of Chi Cheung at HK$0.10 each during the period from 21st November, 2000 to 20th November, 2003.

Save as disclosed above, none of the other directors of Chinese Estates had or were deemed to have any interest in the securities of Chinese Estates or any of its associated corporations (within the meaning of the SDI Ordinance), which have been notified to Chinese Estates pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules or Section 28 of the SDI Ordinance (including interests in which a director is deemed or taken to have under Section 31 or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein as at the Latest Practicable Date.

(b) None of the directors of Chinese Estates is materially interested in any contracts or arrangements entered into by any member of the Chinese Estates Group subsisting as at the date of this circular which are significant in relation to the business of the Chinese Estates Group.
(c) None of the directors of Chinese Estates has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Chinese Estates Group, or which are proposed to be acquired or disposed of by or leased to any member of the Chinese Estates Group since 31st December, 2001 (being the date to which the latest published audited accounts of Chinese Estates were made up).

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GENERAL INFORMATION ON THE CHINESE ESTATES GROUP

APPENDIX VII

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as are known to the directors of Chinese Estates, the following parties (other than the directors of Chinese Estates) were recorded in the register kept by Chinese Estates under Section 16(1) of the SDI Ordinance as being, directly or indirectly, interested and/or deemed to be interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of Chinese Estates:

	Number of	Shareholding
Name of shareholders	Chinese Estates Shares	percentage
Global King Ltd.	1,000,000,000 (note)	43.97%
Credit Suisse Trust Limited as trustee	1,000,000,000 (note)	43.97%

Note:

Credit Suisse Trust Limited as trustee of a family trust was the holding company of Global King Ltd. and therefore was regarded as interested in the same parcel of shares held by Global King Ltd.

These shares were the same parcel of shares referred to in “Other interests” of Mr. Joseph Lau under the paragraph headed “Disclosure of interests” in this appendix.

As at the Latest Practicable Date, so far as are known to the directors of Chinese Estates, the following companies were, directly or indirectly interested in 10% or more of the equity interests of the subsidiaries of Chinese Estates:

Name of	Name of substantial	Percentage of
subsidiaries	shareholders	shareholdings
Dollar Union Limited	Steamroller Limited	25%
Modern City Investment Limited	Rothschild Investments Limited	25%
Conduit Road	Rush Will Limited	30%
Development Limited
Apexwell Properties Limited	Kenichi Holdings Limited	40%
Konshing Enterprises Limited	Earlway International	49%
	& Development Ltd.

Save as disclosed above, there is no person known to the directors of Chinese Estates or chief executive of Chinese Estates who was, as at the Latest Practicable Date, directly or indirectly, interested in 10% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or any options in respect of such capital.

SERVICE CONTRACT

As at the Latest Practicable Date, none of the directors of Chinese Estates has entered or is proposing to enter into a service contract with any member of the Chinese Estates Group (excluding contracts expiring or determinable within one year without payment of compensation (other than statutory compensation)).

149

APPENDIX VII GENERAL INFORMATION ON THE CHINESE ESTATES GROUP

LITIGATION

The Chinese Estates Group is not engaged in any litigation or arbitration or claim of material importance and no litigation or arbitration or claim of material importance is known to the directors of Chinese Estates to be pending or threatened by or against Chinese Estates Group.

EXPERTS

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

Name	Qualifications
CPY	Investment adviser and dealer registered under the
	Securities Ordinance (Chapter 333 of the Laws of Hong
	Kong)
Deloitte Touche Tohmatsu	Certified Public Accountants
Norton Appraisals Limited	Property valuer

None of the persons referred to above (i) has any shareholding in any member of the Chinese Estates Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Chinese Estates Group; or (ii) has, and has had any direct or indirect interest in any assets which have since 31st December, 2001, being the date to which the latest published audited accounts of the Chinese Estates Group were made up, been acquired or disposed of by, or leased to, Chinese Estates or any of its subsidiaries, or which are proposed to be acquired or disposed of by, or leased to, Chinese Estates or any of its subsidiaries.

MATERIAL CHANGE

The directors of Chinese Estates are not aware of any material adverse change in the financial or trading positions of the Group since 31st December, 2001, being the date to which the latest published audited accounts of the Group were made up.

CONSENTS

Each of CPY, Deloitte Touche Tohmatsu and Norton Appraisals Limited has given and has not withdrawn its written consents to the issue of this circular with the inclusion of its letter and report, as the case may be, and references to its names, as the case may be, in the form and context in which they respectively appear.

MISCELLANEOUS

Mr. Lam, Kwong-wai (FCCA) is the company secretary of Chinese Estates.

The registered office of Chinese Estates is situated at Cedar House, 41 Cedar Avenue, Hamilton, HM 12, Bermuda. The principal place of business of Chinese Estates in Hong Kong is situated at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

The branch share registrar and transfer office of Chinese Estates in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

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GENERAL INFORMATION ON THE CHINESE ESTATES GROUP

APPENDIX VII

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of Sit Fung Kwong & Shum, Suite 4428, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Hong Kong, during normal business hours on any day up to and including the date of SGM:

(a) the S & P Agreement;
(b) the letter of consent from each of CPY, Deloitte Touche Tohmatsu and Norton Appraisals Limited referred to under the paragraph headed “Consents” in this appendix;
(c) the letter of recommendation from the Chinese Estates Independent Director to the Chinese Estates Independent Shareholders, the text of which is set out on page 29 of this circular;
(d) the letter of advice received from CPY to the Chinese Estates Independent Director, the text of which is set out on pages 41 to 51 of this circular;
(e) the letters and certificates from Norton Appraisals Limited regarding the property valuations of the Properties and the Hillier Property, the text of which are set out in appendice III and IV to this circular respectively; and
(f) the accountants’ report on the Sales Companies, the text of which is set out in appendix I to this circular, and the related statement of adjustments.

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NOTICE OF EGM

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CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

(Incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of Chi Cheung Investment Company, Limited (“ Company ”) will be held at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai Hong Kong on Friday, 28th March, 2003 at 10:45 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the resolutions set out below:

SPECIAL RESOLUTION

“ THAT subject to the sanction of the Court of First Instance of the High Court of the Hong Kong Special Administrative Region (“ Court ”) of the capital reduction contemplated in subparagraph (b) below,
(a) every 50 shares of HK$0.10 each in the share capital of the Company (whether issued or unissued) on the date on which the petition for the confirmation of the capital reduction herein is heard by the Court be consolidated (“ Share Consolidation ”) into a share of HK$5.00 each (“ Consolidated Share ”) ;
(b) immediately following the Share Consolidation, the par value of each of the Consolidated Shares be reduced from HK$5.00 to HK$0.01 (“ Capital Reduction ”); and
(c) the credit arising as a result of the Capital Reduction (as defined in sub-paragraph (b) above) be, to the extent permitted by the Court and subject to any conditions which the Court may impose, applied towards the elimination of the accumulated losses of the Company.

ORDINARY RESOLUTIONS

2. “ THAT

subject to and forthwith upon the Capital Reduction (as defined in Resolution No. 1(b) of the notice of the general meeting of the Company of which this resolution forms part) taking effect, the authorised share capital of the Company be increased to HK$500,000,000 by the creation of such number of new shares of HK$0.01 each (“ New Shares ”) the aggregate nominal amount of which is equal to the amount by which the capital of the Company is reduced pursuant to Resolution No. 1(b) of the notice of the general meeting of the Company of which this resolution forms part (“ Increase in Capital ”).”

“ THAT
(a) the conditional sale and purchase agreement dated 11th February, 2003 (“ Agreement ”) between the Company, Jumbo Legend Limited (“ Jumbo Legend ”) and Chinese Estates Holdings Limited (“ Chinese Estates ”), a copy of which has been signed by the chairman of this meeting and for the purpose of identification marked “A”, pursuant to which, inter alia, (i) the Company agrees to sell or procure the sale of, and Chinese Estates agrees to purchase or procure the purchase of, the Super Series Shares (as defined in the Agreement) together with the Super Series Loan (as defined in the

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Agreement); (ii) Chinese Estates agrees to sell or procure the sale of, and Jumbo Legend agrees to purchase or procure the purchase of, the Sale Shares (as defined in the Agreement) together with the Sale Loan (as defined in the Agreement); and (iii) Jumbo Legend agrees to assume the Assumed Debt (as defined in the Agreement), in each case, on terms and conditions as set out in the Agreement be and is hereby generally and unconditionally approved;

(b) the allotment and issue of the Consideration Shares (as defined in the Agreement) by the Company to Chinese Estates pursuant to the terms of the Agreement be and is hereby approved; and
(c) the authority to the directors of the Company to do all such further acts and things and execute such further documents and take all such steps which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of the Agreement be and is hereby approved.”
“ THAT :
(a) conditional upon the Share Consolidation (as defined in Resolution No. 1(a) of the notice of the general meeting of the Company of which this resolution forms part), the Capital Reduction (as defined in Resolution No. 1(b) of the notice of the general meeting of the Company of which this resolution forms part) and the Increase in Capital (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) (together the “ Capital Reorganisation ”) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part) and subject to sub-paragraph (c) below, pursuant to Section 57B of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong, the exercise by the directors of the Company during the Relevant Period of all powers of the Company to allot additional New Shares (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) and to make or grant offers, agreements and options which might require the exercise of such power, be and is hereby generally and unconditionally approved;
(b) the approval in sub-paragraph (a) above shall authorise the directors of the Company during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such power after the end of the Relevant Period;
(c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted, issued or dealt with (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in sub-paragraphs (a) and (b) above, otherwise than pursuant to Rights Issue and the exercise of options granted under any share option scheme adopted by the Company, shall not in aggregate exceed 20 per cent. of the nominal amount of the share capital of the Company in issue immediately after the Capital Reorganisation (as defined in sub-paragraph (a) above) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part) and the said approval shall be limited accordingly; and
(d) for the purpose of this Resolution:

” Relevant Period ” means the period from immediately after the Capital Reorganisation (as defined in sub-paragraph (a) above) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part) until whichever is the earliest of:

(aa) the conclusion of the next annual general meeting of the Company;

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NOTICE OF EGM

(bb) the expiration of the period within the next annual general meeting of the Company is required by the law or the articles of association of the Company to be held; and
(cc) the revocation or variation of this Resolution by an ordinary resolution of the shareholders of the Company in general meeting.

“ Rights Issue ” means the allotment, issue or grant of shares pursuant to an offer made to the shareholders of the Company, excluding for that purpose any shareholder who is resident in a place where such offer is not permitted or is impracticable under the law of that place, and, where appropriate, to holders of other equity securities for the time being in issue (if any) entitled to be offered them pro rata (apart from fractional entitlements) to their then holdings of New Shares (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) (or such other equity securities).”

“ THAT :
(a) conditional upon the Capital Reorganisation (as defined in Resolution No. 4(a) of the notice of the general meeting of the Company of which this resolution forms part) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part), the exercise by the directors of the Company during the Relevant Period of all the powers of the Company to purchase New Shares (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) be and is hereby generally and unconditionally approved;
(b) the total nominal amount of the New Shares (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) to be purchased pursuant to the approval in sub-paragraph (a) above shall not exceed 10 per cent. of the total nominal amount of the share capital of the Company in issue immediately after the Capital Reorganisation (as defined in Resolution No. 4(a) of the notice of the general meeting of the Company of which this resolution forms part) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part) and the said approval shall be limited accordingly; and
(c) for the purpose of this Resolution, “ Relevant Period ” means the period from immediately after the Capital Reorganisation (as defined in Resolution No. 4(a) of the notice of the general meeting of the Company of which this resolution forms part) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part) until whichever is the earliest of:
- (aa) the conclusion of the next annual general meeting of the Company;
- (bb) the expiration of the period within which the next annual general meeting of the Company is required by the law or the articles of association of the Company to be held; and
- (cc) the revocation or variation of this Resolution by an ordinary resolution of the shareholders of the Company in general meeting.”

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NOTICE OF EGM

“ THAT conditional upon the Capital Reorganisation (as defined in Resolution No. 4(a) of the notice of the general meeting of the Company of which this resolution forms part) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part), the general mandate granted to the directors of the Company to allot, issue and deal with additional New Shares (as defined in Resolution No. 2 of the notice of the general meeting of the Company of which this resolution forms part) pursuant to Ordinary Resolution set out in Resolution No. 4 of the notice of the general meeting of the Company of which this resolution forms part, be and is hereby extended by the addition thereto of an amount representing the aggregate nominal amount of the share capital of the Company which may be repurchased by the Company under the authority granted pursuant to Ordinary Resolution set out in Resolution No. 5 of the notice of the general meeting of the Company of which this resolution forms part, provided that such amount shall not exceed 10 per cent. of the aggregate nominal amount of the issued share capital of the Company immediately after the Capital Reorganisation (as defined in Resolution No. 4(a) of the notice of the general meeting of the Company of which this resolution forms part) becoming effective and completion of the Agreement (as defined in Resolution No. 3(a) of the notice of the general meeting of the Company of which this resolution forms part).”

By Order of the Board Chi Cheung Investment Company, Limited Lam, Kwong-wai Company Secretary

Hong Kong, 5th March, 2003

Notes:

(1) A member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead of him. A proxy need not be a member of the Company.
(2) To be valid, a form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, must be deposited at the Company’s registrar and transfer office, Secretaries Limited at Ground 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 at any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending the Meeting and voting in person.
(3) Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders is present at the Meeting personally or by proxy, the joint member whose name stands first on the register of members of the Company in respect of such share, or his proxy, shall be entitled to vote in respect thereof.

155

NOTICE OF SGM

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CHINESE ESTATES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of Chinese Estates Holdings Limited (the “ Company ”) will be held at 10:00 a.m. on Friday, 28th March, 2003 at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolution, with or without amendments, as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the S&P Agreement (as defined in the circular of the Company dated 5th March, 2003 to its shareholders, a copy of which was marked “A” and has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification) dated 11th February, 2003 entered into between the Company, Jumbo Legend Limited and Chi Cheung Investment Company, Limited, a copy of which was marked “B” and has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, AND THAT the directors of the Company be and are hereby authorised, for and on behalf of the Company, to do all such acts and things and execute all such documents as they may consider necessary, desirable or expedient in their sole and absolute opinion for the purpose of, or in connection with, the implementation and performance of the S&P Agreement and the transactions contemplated thereunder.”

By Order of the Board Chinese Estates Holdings Limited Lam, Kwong-wai Company Secretary

Hong Kong, 5th March, 2003

Notes:

(a) Any shareholder entitled to attend and vote at the meeting is entitled to appoint one or more separate proxies to attend and, on a poll, to vote instead of him. A proxy need not be a shareholder of the Company.
(b) To be valid, a form of proxy in the prescribed form 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 branch registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712– 1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding of the special general meeting or at any adjournment thereof.

156

AI assistant

National Electronics Holdings Limited — Proxy Solicitation & Information Statement 2003

49038_rns_2003-03-07_3d57cb84-4eb3-4a98-9107-eda81dcf6088.pdf

IMPORTANT

CHINESE ESTATES HOLDINGS LIMITED

CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

PROPOSED ASSET TRANSACTION

Q u a m C a p i t a l L i m i t e d

Core Pacific - Yamaichi Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

CHINESE ESTATES HOLDINGS LIMITED

CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

Independent non-executive directors of Chi Cheung

INTRODUCTION

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

THE S&P AGREEMENT

Date

Parties involved

Subject matter

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

The consideration

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Conditions

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

INFORMATION ON THE PROPERTIES AND HILLIER PROPERTY

The Properties

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Attributable interest to

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Hillier Property

CAPITAL REORGANISATION

Share Consolidation and Capital Reduction

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Effects of the Capital Reduction and the Increase in Capital

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Conditions of the Capital Reorganisation

Trading Arrangement for the New Shares

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

Free exchange of certificates

Arrangement for odd lot trading

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

REASONS FOR THE ASSET TRANSACTION AND THE CAPITAL REORGANISATION

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

SHAREHOLDING STRUCTURE OF CHI CHEUNG

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

INFORMATION ON CHINESE ESTATES

INFORMATION ON CHI CHEUNG

MAINTAINING LISTING OF CHI CHEUNG

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

GENERAL MANDATE TO REPURCHASE NEW SHARES

GENERAL MANDATE TO ISSUE NEW SHARES

EGM

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

SGM

ADVICE

JOINT LETTER FROM THE CHINESE ESTATES BOARD AND THE CHI CHEUNG BOARD

ADDITIONAL INFORMATION

CHI CHEUNG INVESTMENT COMPANY, LIMITED （至祥置業有限公司）

Eddie Chan, Kwok-wai

LETTER FROM THE CHINESE ESTATES INDEPENDENT DIRECTOR

CHINESE ESTATES HOLDINGS LIMITED

Wong, Sin-yee

Q u a m C a p i t a l L i m i t e d

PROPOSED ASSET TRANSACTION MAJOR AND CONNECTED TRANSACTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

Background of and reasons for the proposed Asset Transaction

LETTER FROM QUAM

The Disposal and the C Consideration

Basis of the C Consideration

The valuation of the Hillier Property

LETTER FROM QUAM

Settlement of the C Consideration

National Electronics Holdings Limited Proxy Solicitation & Information Statement 2003