Persistence Gold Group Ltd — Capital/Financing Update 2006

May 12, 2006

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

SHANGHAI MERCHANTS HOLDINGS LIMITED

---

(incorporated in Bermuda with limited liability)

(Stock Code: 1104)

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

CHANGE IN BOARD LOT SIZE

AND

PROPOSED RIGHTS ISSUE OF TWO RIGHTS SHARES FOR EVERY EXISTING SHARE HELD AT HK$0.10 PER RIGHTS SHARE

Financial Adviser to the Company

Underwriter

SUN HUNG KAI INTERNATIONAL LIMITED

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

The Company proposes to increase the authorised share capital of the Company from HK$100,000,000 divided into 1,000,000,000 Shares to HK$200,000,000 divided into 2,000,000,000 Shares by the creation of an additional 1,000,000,000 unissued Shares.

CHANGE IN BOARD LOT SIZE

The Board also proposes to change the board lot size for trading in the ordinary shares in the capital of the Company from 2,000 Shares to 20,000 Shares with effect from Friday, 14 July 2006.

— 1 —

PROPOSED RIGHTS ISSUE

The Company proposes to raise approximately HK$82.6 million before expenses by way of a rights issue of 826,000,000 Rights Shares at a price of HK$0.10 per Rights Share on the basis of two Rights Shares for every Share held on the Record Date. The net proceeds of approximately HK$81 million from the Rights Issue will be used as to approximately HK$20 million for working capital to finance the base metals trading business, as to approximately HK$10 million for working capital to finance the fabric products and other merchandises trading business of the Group, as to approximately HK$15 million for repayment of loan and the remaining balance of approximately HK$36 million for general working capital of the Group.

The Company will provisionally allot to the Qualifying Shareholders two Rights Shares for every Share held on the Record Date. The Rights Issue will not be available to the Excluded Shareholders.

Subject to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms, Profit Harbour holding an aggregate of approximately 63.58% in the existing issued share capital of the Company has irrevocably undertaken to the Company that no Shares owned by it will be disposed of or transferred from the date of the undertaking to the Final Acceptance Date and that its entitlement under the Rights Issue will be taken up in full.

Pursuant to the Underwriting Agreement, the Rights Shares (other than the Rights Shares to be allotted provisionally in respect of the Shares beneficially owned by Profit Harbour) have been fully underwritten by the Underwriter.

To qualify for the Rights Issue, a Shareholder must be a registered member of the Company at the close of business on the Record Date and not being an Excluded Shareholder. In order to be registered as a member at the close of business on the Record Date, Shareholders must lodge any transfers of Shares (together with the relevant share certificates) with the Registrar no later than 4:00 p.m. on Thursday, 15 June 2006.

GENERAL

The SGM will be held to consider and, if thought fit, pass the resolutions to approve the proposed increase in authorised share capital of the Company and the proposed Rights Issue.

The proposed resolution for the increase in the authorised share capital of the Company is subject to the approval of all Shareholders at the SGM.

In accordance with Rule 7.19(6)(a) of the Listing Rules, the proposed resolution for the Rights Issue is subject to the approval of the Independent Shareholders at the SGM by a resolution on which any controlling Shareholders and their associates shall abstain from voting in favour at the SGM. Accordingly, Profit Harbour, which is interested in 262,602,000 Shares, representing approximately 63.58% of the entire issued share capital of the Company, and its associates, if any, shall abstain from voting to approve the Rights Issue at the SGM and the voting on such proposed resolution will be conducted by way of poll.

— 2 —

An independent board committee will be established to make recommendation to the Independent Shareholders in relation to the proposed Rights Issue and VC Capital Limited has been appointed as the independent financial adviser to advise the independent board committee and the Independent Shareholders in relation to the proposed Rights Issue.

CONTINUED SUSPENSION OF TRADING IN SHARES

Trading in the Shares on the Stock Exchange was suspended from 9:30 a.m. on 2 June 2003 at the request of the Company. The Stock Exchange has allowed the Company to proceed with its resumption proposal, which includes, as conditions, inter alia, the Assignment of Debt and the Rights Issue. As trading in the Shares on the Stock Exchange is currently suspended, the usual trading of nil-paid Rights Shares is not applicable in this case.

Application will be made to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange upon the completion of, amongst others, the Assignment of Debt and the Rights Issue. The settlement of application monies from the Rights Issue is expected to occur no later than Wednesday, 12 July 2006. In the event that the approval for the resumption of trading in the Shares on the Stock Exchange was not granted by the Stock Exchange and the trading of the Shares on the Stock Exchange is unable to be resumed on or before 14 July 2006 (or any subsequent date as may be agreed in writing by the Company and the Underwriter), all subscription of the Rights Shares will be cancelled and further announcement will be made by the Company in this regard. In that case, there will be no change in board lot size and the board lot size for trading in Shares will remain at 2,000 Shares. For details of the refund arrangement, please refer to the paragraph headed “Certificates for Rights Shares and refund cheques” below.

Trading of Shares will continue to be suspended until further notice. The release of this announcement does not necessarily indicate that the Share will be resumed for trading upon the completion of the Rights Issue, which is subject to several conditions precedent.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the date of this announcement, the authorised share capital of the Company was HK$100,000,000 divided into 1,000,000,000 Shares, of which 413,000,000 Shares had been issued and fully paid or credited as fully paid. In order to facilitate the issue of the Rights Shares, the Directors propose to increase the authorised share capital of the Company from HK$100,000,000 divided into 1,000,000,000 Shares to HK$200,000,000 divided into 2,000,000,000 Shares by the creation of an additional 1,000,000,000 unissued Shares. The Directors currently have no intention to issue any part of the increased authorised share capital other than the Rights Issue.

The increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM which is independent of the resolution approving the Rights Issue.

— 3 —

CHANGE IN BOARD LOT SIZE

The Board proposes to change the board lot size for trading in the ordinary shares in the capital of the Company from 2,000 Shares to 20,000 Shares with effect from Friday, 14 July 2006.

The Directors believe that the increase in board lot size could reduce the number of board lots in the market and, as a result, the transaction costs incurred by the shareholders and potential investors of the Company based on the number of board lots of the Shares would be lower.

In order to facilitate the trading of odd lots of the Shares after the change in board lot size, the Company will procure an agent to arrange for the matching of odd lots on behalf of the Shareholders. Details of such arrangements will be disclosed in the circular of the Company to be despatched to the Shareholders.

Shareholders should note that successful matching of the sale and purchase of odd lots of the Shares is not guaranteed.

PROPOSED RIGHTS ISSUE

Issue statistics

Basis of Rights Issue : Two Rights Shares for every Share held on the Record Date Number of existing Shares in issue : 413,000,000 Shares as at the date of this announcement Number of Rights Shares : 826,000,000 Rights Shares, representing 200% of the existing issued share capital of the Company and approximately 66.67% of the enlarged issued share capital of the Company after completion of the Rights Issue Number of Rights Shares to be taken : 525,204,000 Rights Shares up by Profit Harbour or its nominees pursuant to the Irrevocable Undertaking Number of Rights Shares : 300,796,000 Rights Shares underwritten by the Underwriter Subscription Price : HK$0.10 per Rights Share, payable in full upon acceptance

As at the date of this announcement, there were no outstanding options, warrants or securities convertible or exchangeable into Shares.

— 4 —

Qualifying Shareholders

The Company will send the Prospectus Documents to the Qualifying Shareholders. The Company will send the Overseas Letter together with the Prospectus to the Excluded Shareholders for their information only but the Company will not send any PAL and EAF to them.

To qualify for the Rights Issue, a Shareholder must:

• (i) be registered as a member of the Company at the close of business on the Record Date; and

• (ii) not be an Excluded Shareholder.

In order to be registered as a member at the close of business on the Record Date, Shareholders must lodge any transfers of Shares (together with the relevant share certificates) with the Registrar no later than 4:00 p.m. on Thursday, 15 June 2006.

The address of the Registrar is:

Secretaries Limited 26th Floor Tesbury Centre 28 Queen’s Road East Wanchai Hong Kong

Closure of register of members

The register of members of the Company will be closed from Friday, 16 June 2006 to Monday, 19 June 2006, both dates inclusive, to determine the eligibility of Shareholders to the Rights Issue and the entitlement of the Qualifying Shareholders to subscribe for the Rights Shares on an assured basis. No transfers of Shares will be registered during this period.

Basis of provisional allotment

Qualifying Shareholders will be entitled to subscribe for, on an assured basis, two Rights Shares for every one Share held by them on the Record Date. Rights Shares will be provisionally allotted by the Company to the Qualifying Shareholders on such basis.

Entitlement to subscribe for Rights Shares under such provisional allotment is transferable but there will be no trading in nil-paid Rights Shares on the Stock Exchange. Any entitlement to subscribe for the Rights Shares not taken up by the Qualifying Shareholders will be available for excess application in the manner as described below.

— 5 —

Subscription Price for the Rights Shares

The Subscription Price will be HK$0.10 per Rights Share, payable in full when a Qualifying Shareholder accepts his/her provisional allotment of the Rights Shares under the Rights Issue or applies for excess Rights Shares. The Subscription Price represents:

1. the par value of the Share;

2. a discount of approximately 61.5% to the closing price of HK$0.26 per Share as quoted on the Stock Exchange on the Last Trading Day;

3. a discount of approximately 34.8% to the theoretical ex-rights price of approximately HK$0.1533 per Share based on the closing price of HK$0.26 per Share as quoted on the Stock Exchange on the Last Trading Day;

4. a discount of approximately 63.0% to average closing price of approximately HK$0.27 per Share as quoted on the Stock Exchange for the last ten Trading Days up to and including the Last Trading Day; and

5. a premium of approximately 88.7% over the audited consolidated net asset value per Share of approximately HK$0.053 with reference to the audited consolidated net asset value of the Group as at 31 December 2005 as shown in annual report 2005 of the Company.

The Subscription Price was arrived at after arm’s length negotiations between the Company and the Underwriter with reference to, inter alia, the net asset value per Share of approximately HK$0.053 as at 31 December 2005 as disclosed in the annual report 2005 of the Company and the long suspension status of the Company. The Directors (including the independent non-executive Directors) consider the terms of the Rights Issue, including the Subscription Price, to be fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

Status of the Rights Shares

The Rights Shares, when allotted, issued and fully-paid, will rank pari passu in all respects with the then existing Shares in issue. Holders of such Rights Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of allotment and issue of the Rights Shares.

Rights Shares will be traded in the new board lot size of 20,000 Shares and the dealing of which will be subject to the payment of stamp duty in Hong Kong.

Certificates for Rights Shares and refund cheques

Subject to the fulfillment of the conditions of the Rights Issue, certificates for all fully-paid Rights Shares are expected to be posted on or before Wednesday, 12 July 2006 to those who

— 6 —

have accepted and (where applicable) applied for, and paid for the Rights Shares, by ordinary post at their own risks, and refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares are also expected to be posted on or before Wednesday, 12 July 2006 by ordinary post at the subscribers’ own risks.

In the event that the trading of the Shares on the Stock Exchange is unable to be resumed on or before 14 July 2006 (or any subsequent date as may be agreed in writing by the Company and the Underwriter), all subscription of the Rights Shares (including those subscribed or procured by the Underwriter for subscription) will be cancelled in compliance with the Bye-Laws and all applicable laws and regulations and refund cheques in respect of the amount validly tendered and received for subscription (including such amount received by the Company for Rights Shares subscribed or procured by the Underwriter for subscription), in full without interest, will be sent by ordinary post to the subscribers at their own risks, or other person(s) entitled thereto, on or before 21 July 2006 and further announcement will be made by the Company in this regard. In that case, there will be no change in board lot size and the board lot size for trading in Shares will remain at 2,000 Shares.

Rights of Excluded Shareholders

If at the close of business on the Record Date, a Shareholder’s address on the register of members of the Company is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Rights Issue as the Prospectus Documents will not be registered and/or filed under the applicable securities legislation of any jurisdictions other than Hong Kong and Bermuda. The Board will make enquiries as to whether the issue of Rights Shares to the Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange pursuant to Rule 13.36(2)(a) of the Listing Rules. If, after making such enquiry, the Board is of the opinion that it would be necessary or expedient, on account either of the legal restrictions under the laws of the relevant place or any requirements of the relevant regulatory body or stock exchange in that place, not to offer Rights Shares to such Overseas Shareholders, no provisional allotment of Rights Shares will be made to such Overseas Shareholders. The basis for excluding the Excluded Shareholders, if any, from the Rights Issue pursuant to Rule 13.36(2)(a) will be set out in the Prospectus to be issued by the Company. Based on the register of members of the Company as at the date of this announcement, all Shareholders had their registered addresses in Hong Kong.

The Company will send the Overseas Letter together with the Prospectus, for their information only, to the Excluded Shareholders but will not send the PAL and EAF to them.

The Underwriter will use its reasonable endeavours on a best effort basis to procure that all or as many as possible of the entitlements of the Excluded Shareholders for Rights Shares are sold at such a premium in excess of the expenses of sale as may reasonably be obtained as soon as practicable, in any event before 4:00 p.m. on the Final Acceptance Date.

Any unsold entitlements of the Excluded Shareholders, together with any Rights Shares provisionally allotted but not accepted, will be made available for application of the excess Rights Shares on the EAF by the Qualifying Shareholders.

— 7 —

Fractions of Rights Shares

The Rights Issue will not create any fractions of Rights Shares.

Applications for excess Rights Shares

Qualifying Shareholders shall be entitled to apply for the entitlements of Excluded Shareholders and any Rights Shares provisionally allotted but not accepted and paid by the Qualifying Shareholders. Application may be made by completing the EAF and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors will allocate the excess Rights Shares at their discretion on a fair and equitable basis, but will give preference to topping-up odd lots to whole board lots.

Shareholders with Shares held by a nominee company should note that the Board would regard the nominee company as a single Shareholder according to the register of members of the Company. Accordingly, Shareholders should note that the aforesaid arrangement in relation to the allocation of the excess Rights Shares would not be extended to beneficial owners individually. Shareholders with their Shares held by a nominee company are advised to consider whether they would like to arrange registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date.

Shareholders whose Shares are held by their nominee(s) and would like to have their names registered on the register of members of the Company, must complete the relevant registration with the Registrar by 4:00 p.m. on Thursday, 15 June 2006.

The latest time for acceptance of, and payment for, the Rights Shares and application for excess Rights Shares is expected to be at 4:00 p.m. on the Final Acceptance Date.

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in the Rights Shares.

UNDERWRITING ARRANGEMENTS

Underwriting Agreement:

Date: 11 May 2006 Underwriter: Sun Hung Kai International Limited, an independent third party not connected with any Director, chief executive or substantial Shareholder of the Company or any of its subsidiaries or an associate of any of them Number of Rights Shares 300,796,000 Rights Shares, representing approximately underwritten: 72.8% of the existing issued share capital of the Company and approximately 24.3% of the enlarged issued share capital of the Company after completion of the Rights Issue

— 8 —

Commission:

2.0 % of the aggregate Subscription Price in respect of 300,796,000 Rights Shares (inclusive of any subunderwriting expenses)

Pursuant to the Underwriting Agreement, the Underwriter has agreed to underwrite the Rights Shares (other than the Rights Shares to be allotted provisionally in respect of the Shares beneficially owned by Profit Harbour) which have not been taken up and fully-paid for up to Final Acceptance Date. Accordingly, the Rights Issue is fully underwritten.

The 2.0% commission payable to the Underwriter was determined after arm’s length negotiations between the Company and the Underwriter based on normal commercial terms with reference to market rates.

Sub-underwriting by Profit Harbour

Profit Harbour has agreed with the Underwriter to sub-underwrite for up to the full amount of 300,796,000 Rights Shares underwritten by the Underwriter pursuant to the Underwriting Agreement

Undertaking from Profit Harbour

Profit Harbour is interested in an aggregate of 262,602,000 Shares, representing approximately 63.58% of the existing issued Shares.

Subject to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms, Profit Harbour has irrevocably undertaken to the Company by the Irrevocable Undertaking that no Shares owned by it will be disposed of or transferred from the date of the Irrevocable Undertaking to the Final Acceptance Date and that its entitlement, representing a total of 525,204,000 Rights Shares under the Rights Issue, will be taken up in full.

As at the date of this announcement, Profit Harbour has not decided on whether to make any excess application under the Rights Issue.

CONDITIONS OF THE RIGHTS ISSUE

The Rights Issue and obligations of the Underwriter under the Underwriting Agreement are conditional upon:

• (a) a circular (duly approved by the Stock Exchange) in relation to the Rights Issue, being posted to the Shareholders on or before 1 June 2006 (or on such other date as agreed by the Underwriter and the Company in writing), and the resolution for approving the Rights Issue, together with the resolution approving the increase in the Company’s authorised share capital to facilitate the issue of Rights Shares under the Rights Issue, being duly passed at the SGM in compliance with the Listing Rules on or before the Prospectus Posting Date;

— 9 —

• (b) Profit Harbour having acquired the full debt of US$4.5 million due from Great Center at face value for cash consideration pursuant to the Assignment of Debt for the Company to proceed with its resumption proposal;

• (c) The Stock Exchange granting or agreeing to grant (subject to allotment and dispatch of certificates in respect of Rights Shares, as appropriate, the posting of the Prospectus Documents and any other condition which may be agreed in their reasonable opinion by the Company and the Underwriter) the listing of or the permission to deal in the Rights Shares (in their fully paid form) on the Stock Exchange on or before 5:00 p.m. on the second Business Day after the Final Acceptance Date;

• (d) the filing with and registration of the Prospectus Documents by the Registrar of Companies in Hong Kong in compliance with the Ordinance and the Registrar of Companies in Bermuda in compliance with the Companies Act 1981 of Bermuda (as amended from time to time) on or before the Prospectus Posting Date;

• (e) the posting to Qualifying Shareholders of the Prospectus Documents on the Prospectus Posting Date; and

• (f) the delivery to the Underwriter on the Prospectus Posting Date a copy of each of the Prospectus Documents, duly signed for and on behalf of the Company by a duly authorised officer thereof.

The Rights Issue shall become fully unconditional as to acceptance and the obligations of the Underwriter under the Underwriting Agreement shall become unconditional (subject only to the force majure events as detailed in the paragraph headed “Termination of the Underwriting Agreement” below) upon all of the aforesaid conditions being fulfilled in full by the respective due dates thereof. It is expected that the Rights Issue will become unconditional on or before, 7 July 2006.

If any of the above conditions are not fulfilled on or before the date set for its fulfillment or otherwise waived, released or modified (in whole or in part) in writing by the Underwriter with the agreement of the Company, or shall become incapable of being fulfilled on or before such date without being so waived, released or modified, the Underwriting Agreement may be terminated by the Underwriter by written notice to the Company and the Rights Issue shall not proceed.

The Company has undertaken to the Underwriter to use all reasonable endeavours to procure that all of the conditions are fulfilled by the respective due dates thereof.

TERMINATION OF THE UNDERWRITING AGREEMENT

If at any time between the date of the Underwriting Agreement and 5:00 p.m. on the second Business Day after the Final Acceptance Date one or more of the following events or matters (whether or not forming part of a series of events) shall occur, arise, or exist:

• (a) the Underwriter shall become aware of the fact that, any of the Warranties was, then or at the material time, untrue, inaccurate or misleading, or that the Company or Profit Harbour is in breach of any provision of the Underwriting Agreement or the Irrevocable Undertaking;

— 10 —

• (b) the enactment of any new law or regulation, any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong or otherwise in a jurisdiction relevant in the context of the Rights Issue;

• (c) any change in local, international, financial, political, economic or stock market conditions, whether in Hong Kong or otherwise in a jurisdiction relevant in the context of the Rights Issue;

• (d) any change or development involving a prospective change in taxation or exchange controls in Hong Kong,

and such event or events is or are in the bona fide and reasonable opinion of the Underwriter:

• (i) likely to have a material adverse effect on the business or financial or trading position or prospect of the Company or the Group; or

• (ii) likely to have a material adverse effect on the success of the Rights Issue or the level of Rights Shares to be taken up by the Underwriter under the Underwriting Agreement; or

• (iii) so material and prejudicial as to make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue,

then the Underwriter may, in addition to and without prejudice to any other remedies to which the Underwriter may be entitled, after consultation with the Company and its professional advisers, by notice in writing to the Company on or before 5:00 p.m. on the third Business Day after the Final Acceptance Date to terminate the Underwriting Agreement.

In the event that the Underwriting Agreement shall have been terminated, the Rights Issue shall not proceed.

Save for all reasonable costs, fees, charges and expenses which may be incurred in connection with the Rights Issue, upon the giving of notice of termination, all obligations of the Underwriter under the Underwriting Agreement shall cease and no party shall have any claims against any other parties in respect of any matters or things arising out of or in connection with the Underwriting Agreement.

— 11 —

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company immediately before and after completion of the Rights Issue

				Immediately after completion of
				the Rights Issue (assuming no	Immediately after completion of
				Qualifying Shareholder other	the Rights Issue (assuming all
				than Profit Harbour takes up its	**Qualifying Shareholders **		take up
	Immediately before completion			entitlements under the	their entitlements under the
Name/Share	of the Rights Issue			Rights Issue)	Rights Issue)
	Shares	Percentage		Shares Percentage	Shares	Percentage
		(approximately)		(approximately)		(approximately)
Profit Harbour
(Note)	262,602,000		63.58%	787,806,000 63.58%	787,806,000		63.58%
The Underwriter	—		—	300,796,000 24.28%	—		—
Other public
Shareholders	150,398,000		36.42%	150,398,000 12.14%	451,194,000		36.42%
Total	413,000,000	100.00%		1,239,000,000 100.00%	1,239,000,000		100.00%

Note: Profit Harbour became the controlling shareholder of the Company in August 2003. The entire issued share capital of Profit Harbour is owned by Mr. Yue. Accordingly, Mr. Yue is deemed to be interested in all the shares in which Profit Harbour has interest pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

Mr. Yue was appointed as the chairman and executive director of the Company on 26 April 2004. After the discharge of the receivership in July 2004 by the court, Mr. Yue has been responsible for the strategic planning and corporate development of the Group. Mr. Yue has established in-depth knowledge of the PRC economic development and policies through his pervious role as a judge in the Economic Court of People’s Court in Luowu District, Shenzhen, the PRC during 1982 to 1992. Mr. Yue also sits on the school of business administration of Changchun Industrial University as visiting professor. Recently, Mr. Yue is engaged in legal consultation in respect of the acquisition of state owned assets and foreign investments in the PRC.

RESTORATION OF PUBLIC FLOAT

As shown under the section headed “Shareholding structure of the Company” above, immediately upon the completion of the Rights Issue, assuming the provisional allotments of the Rights Shares of all Shareholders are taken up by the Underwriter, the public float will drop to approximately 12.14%. Profit Harbour and the Directors undertake that they will make or procure to make the appropriate steps to place down or sub-underwrite such amounts of the Rights Shares before completion of the Rights Issue to ensure the minimum public float is maintained immediately after the issue of the Rights Issue.

The Stock Exchange has stated that if, upon completion of the Rights Issue, less than 25% of the Shares are held by the public or if the Stock Exchange believes that:

(i) a false market exists or may exist in the trading in the Shares; or

(ii) there are too few Shares in public hands to maintain an orderly market;

— 12 —

then the trading of the Shares will remain to be suspended until a sufficient public float is attained.

REASONS FOR THE RIGHTS ISSUE

The principal reason for the Rights Issue is to provide additional working capital and financial flexibility to the business operation and future development of the Group.

Base metals trading is currently one of the Group’s principal activities. As stated in annual report 2005 of the Company, turnover for this sector for the year ended 31 December 2005 was approximately HK$44.9 million (2004:HK$13.5 million). A growth of approximately 232% was recorded as compared with last year. Following the resumption of the base metals trading business in 2004, the Group has scaled up its operation in this sector in the year 2005. The base metals trading business segment contributed approximately HK$110,000 (2004:HK$121,000) to the Group’s operating profits which represented a drop of approximately 9%.

The Group plans to focus mainly on the trading of copper pipes and sheeting for its physical base metals trading business. As stated in the paragraph headed “Use of proceeds from the Rights Issue” below, the Company will use part of the proceeds from the Rights Issue as working capital to finance the physical base metals trading and fabric products and other merchandises trading businesses of the Group. To enhance operational effectiveness, the Board has been actively searching for and has identified a candidate who has entrenched relationships with overseas suppliers and PRC clients. The Group will finalise the terms of engagement with this candidate, who will assist in the execution of the Group’s physical base metals trading, after resumption of trading in Shares. The Directors are optimistic as to the up trend of copper markets in the long run and intend to commence trading in the physical base metals products such as the trading of copper pipes and sheeting as soon as the proceeds from the Rights Issue becomes available.

The Group’s management has also been taking active actions to expand the operation of the fabric products and other merchandises trading business. The Group’s turnover for fabric products and other merchandises trading business segment reached approximately HK$23.5 million for the year ended 31 December 2005 (2004: HK$8.8 million), an increase of approximately 167% over that of 2004. Segment profit attributable to the Group for the year ended 31 December 2005 amounted to approximately HK$966,000 (2004:HK$393,000), an increase of approximately 146% as compared with 2004.

The Group did not have any capital raising activities for 12 months immediately before the date of this announcement.

In addition, the Board considers that the Rights Issue will enlarge the capital base of the Company while enabling the Qualifying Shareholders to maintain their proportionate interests in the Company and continue to participate in the future growth and development of the Company should they wish to do so. Therefore, the Board, having considered the terms of the Rights Issue, is of the view that it is in the interests of the Company and its Shareholders as a whole.

— 13 —

However, those Qualifying Shareholders who do not take up the Rights Shares to which they are entitled should note that their shareholdings in the Company will be diluted.

USE OF PROCEEDS FROM THE RIGHTS ISSUE

The gross proceeds from the Rights Issue will be HK$82.6 million. The net proceeds of approximately HK$81 million from the Rights Issue will be used as to approximately HK$20 million for working capital to finance the base metals trading business, as to approximately HK$10 million for working capital to finance fabric products and other merchandises trading business of the Group and as to approximately HK$15 million for the repayment of loan and as to approximately HK$36 million for general working capital of the Group.

As disclosed in annual report 2005 of the Company, the loan of HK$15 million was granted by a financial institution as a term loan facility which is secured by floating charges over all assets of the Company and one of its subsidiaries.

As at the date of this announcement, the Company did not have any investment plans except for the acquisition of a target engages in the trading of electronic component business, the consideration of which will be satisfied by issuance of convertible bonds by the Company. For details of the proposed acquisition, please refer to the announcement of the Company dated 12 April 2006.

EXPECTED TIMETABLE

2006

Despatch of circular in relation to, among other things, the increase in authorised share capital and the Rights Issue . . . . . . . . .Thursday, 1 June

Last day of dealings in Shares on a cum-rights basis (Note 1) . . . . . . . . .Tuesday, 13 June Commencement date of dealings in Shares on an ex-rights basis (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday,14 June Latest time for lodging transfers of Shares in order to be entitled to the Rights Issue (Note 1) . . . . . . . . . . . .4:00 p.m. on Thursday, 15 June Register of members closes (both dates inclusive) . . . . . . . . . . . . . . . . . . .Friday, 16 June to Monday, 19 June Latest time for lodging forms of proxy for the purpose of the SGM (not less than 48 hours) . . . . . . . . .10.00 a.m. on Saturday, 17 June SGM Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.00 a.m. on Monday, 19 June Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 19 June Announcement of results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 20 June

— 14 —

Despatch of the Prospectus Documents (in the case of the Excluded Shareholders, the Overseas Letter and the Prospectus only) . . . . . . . . . . . . . . . . . . . . . .Tuesday, 20 June Register of members reopens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 20 June Latest time for acceptance of, and payment of Rights Shares and application for excess Right Shares . . . . . . . .4:00 p.m. on Wednesday, 5 July Expected date for the Rights Issue to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5:00 p.m. on Friday, 7 July Announcement of results of the Rights Issue and excess applications for the excess Rights Shares . . . . . . . . . . . . . . . . .Wednesday, 12 July Despatch of certificates for the fully-paid Rights Shares on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Wednesday, 12 July Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Wednesday, 12 July Dealings in fully-paid Rights Shares commence (Notes 2 and 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 14 July Effective date for the change in board lot size from 2,000 Shares to 20,000 Shares (Note 3) . . . . . . . . . . . . . . . . . . . . . . .Friday, 14 July

All the times in this announcement refer to Hong Kong times. The dates stated in this announcement for events mentioned in the timetable are for indicative purpose only and may be extended or varied. Any change to the expected timetable for the Rights Issue will be announced as appropriate.

Notes:

1. Since the trading of Shares will continue to be suspended until further notice, there will be no dealing in Shares on a cum-rights or ex-rights basis and the trading of nil-paid Rights Shares is not applicable in this case.

2. In the event that the trading of the Shares on the Stock Exchange is unable to be resumed on or before 14 July 2006 (or any subsequent date as may be agreed in writing by the Company and the Underwriter), all subscription of the Rights Shares (including those subscribed or procured by the Underwriter for subscription) will be cancelled in compliance with the Bye-Laws and all applicable laws and regulations and refund cheques in respect of the amount validly tendered and received for subscription (including such amount received by the Company for Rights Shares subscribed or procured by the Underwriter for subscription), in full without interest, will be sent by ordinary post to the subscribers at their own risks, or other person(s) entitled thereto, on or before 21 July 2006 and further announcement will be made by the Company in this regard. In that case, there will be no change in board lot size and the board lot size for trading in Shares will remain at 2,000 Shares.

— 15 —

1. The Rights Shares certificates will be issued in board lots of 20,000 Rights Shares or its multiples, whenever possible.

In order to facilitate the trading of odd lots of the Shares after the change in board lot size, the Company will procure an agent to arrange for the matching of odd lots on behalf of the Shareholders. Details of such arrangements will be disclosed in the circular of the Company to be despatched to the Shareholders.

GENERAL

The SGM will be held to consider and, if thought fit, pass the resolutions to approve the proposed increase in authorised share capital of Company and the proposed Rights Issue.

The proposed resolution for the increase in the authorised share capital of the Company is subject to the approval of all Shareholders at the SGM. In accordance with Rule 7.19(6)(a) of the Listing Rules, the proposed resolution for the Rights Issue is subject to the approval of the Independent Shareholders at the SGM by a resolution on which any controlling Shareholders and their associates shall abstain from voting in favour at the SGM. Accordingly, Profit Harbour, which is interested in 262,602,000 Shares, representing approximately 63.58% of the entire issued share capital of the Company, and its associates, if any, shall abstain from voting to approve the Rights Issue at the SGM and the voting on such proposed resolution will be conducted by way of poll.

An independent board committee will be established to make recommendation to the Independent Shareholders in relation to the proposed Rights Issue and VC Capital Limited has been appointed as the independent financial adviser to advise the independent board committee and the Independent Shareholders in relation to the proposed Rights Issue.

A circular containing, among other things, details of the proposed increase in authorised share capital of Company, the change in board lot size and the proposed Rights Issue, the recommendations of the independent board committee to the Independent Shareholders, a letter of advice from the independent financial adviser to the independent board committee and the Independent Shareholders in relation to the proposed Rights Issue, the Company’s business and prospects and updates on the various litigations and the notice of SGM, will be despatched to the Shareholders on or before Thursday, 1 June 2006.

CONTINUED SUSPENSION OF TRADING IN SHARES

Trading in the Shares on the Stock Exchange was suspended from 9:30 a.m. on 2 June 2003 at the request of the Company. The Stock Exchange has allowed the Company to proceed with its resumption proposal, which includes, as conditions, inter alia, the Assignment of Debt and the Rights Issue. As trading in the Shares on the Stock Exchange is currently suspended, the usual trading of nil-paid Rights Shares is not applicable in this case. Application will be made to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange upon the completion of, amongst others, the Assignment of Debt and the Rights Issue. The settlement of application monies from the Rights Issue is expected to occur no later than Wednesday, 12 July 2006. In the event that the approval for the resumption of trading in the Shares on the Stock Exchange was not granted by the Stock Exchange and the trading of the Shares on the Stock Exchange is unable to be resumed on or before 14 July 2006 (or any subsequent date as may be agreed in writing by the Company

— 16 —

and the Underwriter), all subscription of the Rights Shares will be cancelled and further announcement will be made by the Company in this regard. In that case, there will be no change in board lot size and the board lot size for trading in Shares will remain at 2,000 Shares. For details of the refund arrangement, please refer to the paragraph headed “Certificates for Rights Shares and refund cheques” above.

Trading of Shares will continue to be suspended until further notice. The release of this announcement does not necessarily indicate that the Share will be resumed for trading upon completion of the Rights Issue, which is subject to several conditions precedent.

DEFINITIONS

“Assignment of Debt” the assignment of the debt of US$4.5 million in full from the Company at face value to Profit Harbour pursuant to a deed of assignment entered into between the Company and Profit Harbour dated 12 April 2006. Please refer to the announcement and circular of the Company dated 12 April 2006 and 4 May 2006 respectively in this regard.

• “associates” has the meaning ascribed to it under the Listing Rules

• “Board” the board of Directors

• “Business Day” any day (other than a Saturday) on which banks are generally open for business in Hong Kong

• “Bye-Laws” the memorandum of association and bye-laws of the Company prevailing from time to time

• “Company” Shanghai Merchants Holdings Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange

• “Director(s)” director(s) of the Company

• “EAF(s)” the excess application form(s) in the agreed form pursuant to which Qualifying Shareholders may apply to subscribe for additional Rights Shares over and above their entitlements under the Rights Issue as specified under the PAL(s) on the terms and conditions set out in the Prospectus Documents

• “Excluded Existing Shareholders whose registered addresses, as shown Shareholder(s)” in the register of members of the Company at the close of business on the Record Date, are located in jurisdictions outside Hong Kong, which the Directors have (having made such enquiry concerning the applicable legal and regulatory requirements thereof) concluded it expedient to exclude such existing Shareholders from the Rights Issue in accordance with the Bye-Laws

— 17 —

• “Final Acceptance Date”

• Wednesday, 5 July 2006 or such other date as the Underwriter and the Company may agree in writing as the last date for acceptance and payment in respect of provisional allotments and excess applications under the Rights Issue

• “Great Center”

• Great Center Limited, a company incorporated in the British Virgin Islands with limited liability

• “Group”

• the Company and its subsidiaries

• “Hong Kong”

• Hong Kong Special Administrative Region of the PRC

• “Independent Shareholders other than Profit Harbour and its associates, if Shareholders” any

• “Irrevocable Undertaking” a deed of undertaking dated 14 February 2006 executed by Profit Harbour in favour of the Company, whereby Profit Harbour undertakes to subscribe for or procure subscription of its full entitlement under the Rights Issue

• “Last Trading Day”

• 30 May 2003, being the last trading day prior to the suspension of the trading of the Shares on the Stock Exchange on 2 June 2003

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Mr. Yue”

• Mr. Yue Jialin, the chairman and executive director of the Company. Mr. Yue was also deemed to be interested in 262,602,000 Shares, representing approximately 63.58% in the existing issued share capital of the Company as at the date of this announcement by virtue of his interest in Profit Harbour pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Overseas Letter”

• a letter from the Company to the overseas Shareholders advising them of the arrangement of their entitlements under the Rights Issue

• “Overseas Shareholders”

• Shareholders with registered addresses (as shown in the register of members of the Company on the Record Date) which are located in jurisdictions outside Hong Kong

• “PAL(s)”

• the renounceable provisional allotment letter(s) to be issued to the Qualifying Shareholders in respect of the Rights Shares in the agreed form

• “PRC”

• the People’s Republic of China

— 18 —

“Profit Harbour”

Profit Harbour Investments Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly and beneficially owned by Mr. Yue. Profit Harbour was interested in 262,602,000 Shares, representing approximately 63.58% in the existing issued share capital of the Company as at the date of this announcement

• “Prospectus”

• the prospectus to be issued by the Company in relation to the Rights Issue

• “Prospectus Documents”

the Prospectus, the PAL and the EAF

• “Prospectus Posting Date”

• Tuesday, 20 June 2006, or such other date as may be agreed between the Company and the Underwriter in writing, to despatch the Prospectus Documents to the Qualifying Shareholders and the Overseas Letter together with the Prospectus, for information only, to the Excluded Shareholders

• “Qualifying the Shareholder(s), other than the Excluded Shareholder(s), Shareholder(s)” whose name(s) appear(s) on the register of members of the Company on the Record Date

• “Record Date”

• Monday, 19 June 2006 or such other date as may be agreed in writing between the Company and the Underwriter, being the record date for determining Shareholders’ entitlements to the Rights Issue

• “Registrar” Secretaries Limited, being the share registrar of the Company in Hong Kong

• “Rights Issue” the issue of the Rights Shares on the basis of two Rights Shares for every existing Share held on the Record Date at the Subscription Price as described in this announcement

• “Rights Share(s)” the 826,000,000 new Share(s) to be offered and issued in respect of the Rights Issue

• “SGM”

• the special general meeting of the Company to be convened to approve, inter alia, the increase in authorised share capital and the Rights Issue

• “Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company

• “Shareholder(s)” holder(s) of the Share(s)

• “Stock Exchange”

The Stock Exchange of Hong Kong Limited

— 19 —

“Subscription Price” the subscription price of HK$0.10 per Rights Share “Trading Day(s)” a day on which the Stock Exchange is open for trading “Underwriter” Sun Hung Kai International Limited, a licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), which is not a connected person (as defined in the Listing Rules) of the Company

• “Underwriting the conditional agreement dated 11 May 2006 entered into Agreement” between the Company and the Underwriter relating to the underwriting and other arrangements in respect of the Rights Issue

• “Warranties” warranties as specified in the Underwriting Agreement “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “US$” United States dollars, the lawful currency of the United States

• “%”

per cent.

By order of the Board Shanghai Merchants Holdings Limited Yue Jialin Chairman

Hong Kong, 11 May 2006

As at the date of this announcement, the Board comprises two executive Directors, namely Mr. Yue Jialin (Chairman) and Mr. Lau Yau Cheung (Chief Executive Officer) and three independent non-executive Directors namely Mr. Wong Wing Kuen, Albert, Mr. Tsui Robert Che Kwong and Mr. Wu Guo Jian.

* for identification purpose only

Please also refer to the published version of this announcement in The Standard.

— 20 —