Persistence Gold Group Ltd - Capital/Financing Update 2007

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this prospectus or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shanghai Merchants Holdings Limited (the “Company”), you should at once hand this prospectus, together with copy of each of the PAL (as defined herein) and EAF (as defined herein) to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee. Dealings in the Shares (as defined herein) may be settled through the CCASS (as defined herein) and you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser for the details of those settlement arrangements and how such arrangements may affect your rights and interests.

A copy of each of this prospectus, the PAL (as defined herein) and EAF (as defined herein) have been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). A copy of each of this prospectus, the PAL (as defined herein) and EAF (as defined herein) will be filed with the Registrar of Companies in Bermuda as soon as reasonably practicable after the date of this prospectus in accordance with section 26 of the Companies Act 1981 of Bermuda (as amended). The Registrar of Companies in Hong Kong and the Registrar of Companies in Bermuda take no responsibility as to the contents of any of the documents referred to above.

The Stock Exchange (as defined herein) and HKSCC (as defined herein) take no responsibility for the contents of this prospectus, 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 prospectus.

SHANGHAI MERCHANTS HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 1104)

RIGHTS ISSUE OF 1,259,000,000 RIGHTS SHARES AT HK$0.30 PER RIGHTS SHARE ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE AND ISSUE OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES

Underwriter to the Rights Issue

The Underwriter may terminate the arrangements set out in the Underwriting Agreement by notice in writing issued to the Company 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 if there occurs any one or more than one of the following events:

(i) the Underwriter shall become aware of the fact that, any of the warranties contained in the Underwriting Agreement was, then or at the material time, untrue, inaccurate or misleading, or that the Company or the Majority Shareholders or either of them is/are in breach of any provision of the Underwriting Agreement or the Irrevocable Undertaking;
(ii) 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;
(iii) 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; or
(iv) 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:

(a) likely to have a material adverse effect on the business or financial or trading position or prospect of the Company or the Group; or
(b) likely to have a material adverse effect on the success of the Rights Issue or the level of Shares underwritten by the Underwriter; or
(c) 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 forthwith.

If the Underwriter terminates or rescinds the Underwriting Agreement, the Rights Issue will not proceed.

If the Underwriting Agreement is terminated or rescinded by the Underwriter, the provisions of the Underwriting Agreement shall forthwith cease and determine, and no party shall have any claim against any other party except claims arising out of any antecedent breaches of any of the provisions of the Underwriting Agreement.

It should be noted that the Shares have been dealt with on an ex-rights basis from Wednesday, 20 December 2006 and that the Rights Shares are expected to be dealt with in their nil-paid form from Monday, 8 January 2007 to Wednesday, 17 January 2007 (both days inclusive). Such dealings will take place when the conditions of the Rights Issue remain unfulfilled. Any person dealing in the Shares from now up to the date on which all such conditions are fulfilled and any person dealing in the nil-paid Rights Shares from Monday, 8 January 2007 to Wednesday, 17 January 2007 (being the first and last days of dealing in the nil-paid Rights Shares, respectively) will accordingly bear the risk that the Rights Issue may not become unconditional and may not proceed. Any person dealing or contemplating any dealing in the Shares and/or the Rights Shares in their nil-paid forms during the aforesaid period who is in any doubt about his or her or its position is recommended to consult his or her or its own professional adviser.

If the Underwriter terminates the Underwriting Agreement, or the conditions of the Rights Issue are not fulfilled, the Rights Issue will not proceed and the Rights Issue will lapse.

Any Shareholder or other person dealing or contemplating any dealing in the Shares and/or the Rights Shares in their nil-paid forms up to the date when the conditions of the Rights Issue are fulfilled (which is expected to be Thursday, 25 January 2007) will accordingly bear the risk that the Rights Issue may not become unconditional and may not proceed.

The latest time for acceptance and payment for the Rights Shares and application for excess Rights Shares is 4:00 p.m. on Monday, 22 January 2007. The procedures for acceptance or transfer of the Rights Shares and application for the excess Rights Shares are set out on pages 18 to 20 of this prospectus.

* For identification purpose only

4 January 2007

			Page
Expected timetable	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . .	1
Termination of the Underwriting Agreement . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . .	6
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . .	8
Appendix I —	Financial Information on the Group . . . . . . . .	. . . . . . . . . . . . . . . . .	30
Appendix II —	Pro Forma Financial Information of the Group	. . . . . . . . . . . . . . . .	79
Appendix III —	Summary of the terms of the Bonus Warrants	. . . . . . . . . . . . . . . . .	82
Appendix IV —	General Information . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . .	91

— i —

EXPECTED TIMETABLE

Year 2006

Events Year 2006 Last day of dealings in Shares on a cum-right basis . . . . . . . . . . . . . . . . . . .Tuesday, 19 December First day of dealings in Shares on an ex-right basis . . . . . . . . . . . . . . . . .Wednesday, 20 December Latest time for lodging transfers of Shares in order to be qualified for the Rights Issue . . . . . . . . . . . .4:00 p.m. on Thursday, 21 December Register of members for the Shares closes . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 22 December to Thursday, 4 January 2007 (both dates inclusive) Year 2007 Latest time for lodging forms of proxy for the purpose of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . .10:00 a.m. on Tuesday, 2 January Time and date of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . .10:00 a.m. on Thursday, 4 January Despatch of the Rights Issue Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 4 January Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 4 January Publication of results of SGM in newspapers and on the Stock Exchange’s website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 5 January Register of members for the Shares reopens . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 5 January First day of trading in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 8 January Latest time for splitting nil-paid Rights Shares . . . . . . . . . . . . . . .4:00 p.m. on Friday, 12 January Last day of trading in nil-paid Rights Shares . . . . . . . . . . . . .4:00 p.m. on Wednesday, 17 January Latest time for acceptance of and payment for Rights Shares (Note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Monday, 22 January Latest time for the Rights Issue to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5:00 p.m. on Thursday, 25 January Announcement of the results of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . .Thursday, 1 February Despatch of refund cheques in respect of wholly or partly unsuccessful excess applications . . . . . . . . . . . . . . . . . . . .Thursday, 1 February

— ii —

EXPECTED TIMETABLE

Share certificates for fully-paid Rights Shares and

certificates for Bonus Warrants to be posted . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 1 February

Dealings in fully-paid Rights Shares and

the Bonus Warrants commence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 5 February

Effect of bad weather on the latest time for acceptance of and payment for Rights Shares:

The latest time for acceptance of and payment for Rights Shares will not take place.

Note: If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong on the latest date for acceptance of and payment for Rights Shares (i) at any local time before 12:00 noon and no longer in force after 12:00 noon on 22 January 2007, the latest time of acceptance of and payment for Rights Shares will be extended to 5:00 p.m. on the same Business Day and (ii) at any local time between 12:00 noon and 4:00 p.m. on 22 January 2007, the latest time of acceptance of and payment for Rights Shares will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the latest time for acceptance of and payment for Rights Shares does not take place on the Final Acceptance Date, the dates mentioned in this section may be affected. A press announcement will be made by the Company in such event.

The expected timetable for the Rights Issue and the Bonus Warrants Issue set out above is for indicative purposes only and it has been prepared on the assumption that all the conditions of the Rights Issue and the Bonus Warrants Issue will be fulfilled. The expected timetable is subject to change, and any changes will be announced in a separate announcement by the Company as and when appropriate. All times and dates in this prospectus refer to Hong Kong local times and dates.

It should be noted that the Underwriting Agreement contains provisions granting the Underwriter, by notice in writing, the right to terminate its obligations thereunder on the occurrence of certain events. These events are set out in the paragraph headed “Termination of the Underwriting Agreement” on pages 6 and 7 and 21 to 23 of this prospectus. If the Underwriting Agreement is terminated by the Underwriter or does not become unconditional, the Rights Issue and the Bonus Warrants Issue will not proceed.

— iii —

DEFINITIONS

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

“Announcement” the announcement of the Company dated 9 November 2006 in relation to, amongst other things, (i) the Acquisition Agreement; (ii) the Rights Issue and the Bonus Warrants Issue; and (iii) the Underwriting Agreement “Acquisition Agreement” the conditional sale and purchase agreement dated 27 October 2006 entered into between the Purchaser and the Vendors relating to the sale and purchase of the Sale Shares

“associates” has the meaning ascribed to it under the Listing Rules “Board” board of the Directors
“Bonus Warrant(s)” or 251,800,000 warrants of the Company “Warrant(s)”

“Bonus Warrants Issue” the issue of one Bonus Warrant for every five Rights Shares successfully subscribed by the Qualifying Shareholders which will entitle the Bonus Warrants holder to subscribe for new Shares at the Bonus Warrants Subscription Price “Bonus Warrants Subscription an initial subscription price of HK$0.30 per Share (subject to Price” adjustment) upon exercise of one Bonus Warrant “Business Day” a day (excluding Saturday, Sunday or any day on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks are generally open for business in Hong Kong “Bye-laws” the bye-laws of the Company “China” or “PRC” the People’s Republic of China which, for the purpose of this prospectus, excludes Hong Kong, Macau and Taiwan “Circular Posting Date” 12 December 2006 “Company” Shanghai Merchants Holdings limited, a company incorporated in Bermuda with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange “Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

— 1 —

DEFINITIONS

“Conditional Acquisition”	the conditional acquisition of the Sale Shares, representing
	approximately 8.79% interest in Mount Gibson as at 7
	November 2006 (Australian time) (subject to dilution effect,
	if any, from time to time contemplated by Mount Gibson
	issuing shares as a result of the unconditional takeover offer
	in respect of Aztec Resources Limited) by Fortune Desire
	Investments Limited pursuant to the terms and conditions of
	the Acquisition Agreement
“connected person”	has the meaning ascribed to it under the Listing Rules
“Consideration”	the consideration of HK$244,474,752 payable by the Group to
	the Vendors for the acquisition of the Sale Shares,
	representing approximately 8.79% interest in Mount Gibson
	as at 7 November 2006 (Australian time) (subject to dilution
	effect, if any, from time to time contemplated by Mount
	Gibson issuing shares as a result of the unconditional
	takeover offer in respect of Aztec Resources Limited)
	pursuant to the Acquisition Agreement
“Directors”	the directors of the Company
“EAF(s)”	form(s) of application for excess Rights Shares in the agreed
	form issued to the Qualifying Shareholders
“Excluded Shareholders”	Existing Shareholders whose registered address, as shown in
	the register of member of the Company at the close of
	business on the Record Date, are located in a jurisdiction
	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 and the Bonus
	Warrants Issue in accordance with the Bye-Laws
“Final Acceptance Date”	22 January 2007 or such other date as the Company and the
	Underwriter may agree in writing, being the latest time for
	acceptance of and payment for Rights Shares
“Group”	the Company and its subsidiaries
“HKAS”	Hong Kong Accounting Standards issued by the HKICPA
“HKFRS”	Hong Kong Financial Reporting Standards
“HKICPA”	Hong Kong Institute of Public Certified Accountants
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC

— 2 —

DEFINITIONS

“Independent Shareholders”	Shareholders other than the controlling shareholder of the
	Company, i.e. Profit Harbour and its associates
“Last Trading Date”	26 October 2006, being the last full trading day immediately
	before the suspension of trading in the Shares prior to the
	publication of the Announcement
“Latest Practicable Date”	29 December 2006, being the latest practicable date prior to
	the printing of this prospectus for the purpose of ascertaining
	certain information contained in this prospectus
“Majority Shareholders”	Profit Harbour and Shougang
“Mount Gibson”	Mount Gibson Iron Limited, a corporation incorporated under
	the laws of Australia, the shares of which are listed on the
	Australian Stock Exchange
“Mr. Yue”	Mr. Yue Jialin, the chairman and executive director of the
	Company. Mr. Yue is the sole shareholder of Profit Harbour
	and therefore deemed to be interested in 596,699,801 Shares
	held by it, representing approximately 47.39% of the existing
	issued share capital of the Company as at the Latest
	Practicable Date pursuant to the SFO
“PAL(s)”	the renounceable provisional allotment letter(s) issued to the
	Qualifying Shareholders in respect of the Rights Shares in the
	agreed form
“Profit Harbour”	Profit Harbour Investments Limited, a company incorporated
	in the British Virgin Islands with limited liability whose
	registered office is at P.O. Box 957, Offshore Incorporations
	Centre, Road Town, Tortola, British Virgin Islands, and is
	wholly and beneficially owned by Mr. Yue. As at the Latest
	Practicable Date, Profit Harbour was interested in
	596,699,801 Shares, representing approximately 47.39% of
	the existing issued share capital of the Company
“Prospectus Posting Date”	4 January 2007 or such other date as the Company and the
	Underwriter may agree in writing
“Purchaser”	Fortune Desire Investments Limited, a company incorporated
	with limited liability in the British Virgin Islands, with its
	registered office at P.O. Box 957, Offshore Incorporations
	Centre, Road Town, Tortola, British Virgin Islands and a
	direct wholly-owned subsidiary of the Company
“Qualifying Shareholders”	Shareholders on the register of members of the Company on
	the Record Date other than the Excluded Shareholders

— 3 —

DEFINITIONS

“Record Date”	Thursday, 4 January 2007 or such other date as the Company
	and the Underwriter may agree in writing, being the date by
	reference to which entitlements under the Rights Issue will be
	determined
“Rights Issue”	the issue of the 1,259,000,000 Rights Shares at the
	Subscription Price on the basis of one Rights Share for every
	existing Share held on the Record Date
“Rights Issue Documents”	this prospectus, PAL and EAF
“Rights Share(s)”	the 1,259,000,000 Shares to be issued pursuant to the Rights
	Issue
“Sale Shares”	48,373,197 ordinary shares representing approximately
	8.79% of interest in Mount Gibson as at 7 November 2006
	(Australian time) (subject to dilution effect, if any, from time
	to time contemplated by Mount Gibson issuing shares as a
	result of the unconditional takeover offer in respect of Aztec
	Resources Limited), to be sold as contemplated under the
	Acquisition Agreement
“Settlement Date”	the date falling three Business Days after the later of (a) Final
	Acceptance Date, and (b) the date on which the Company
	notifies the Underwriter of the final number of the Shares
	being underwritten or such other date as the Underwriter and
	the Company may agree in writing
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Shareholders of the
	Company convened at 10:00 a.m. on Thursday, 4 January
	2007 for the purposes of considering and, if thought fit,
	approving, among other things, the Acquisition Agreement,
	the Rights Issue, the Bonus Warrants Issue, the Underwriting
	Agreement, and the increase of the authorised share capital of
	the Company
“Share(s)”	ordinary share(s) of HK$0.10 each in the issued share capital
	of the Company
“Shareholder(s)”	holder(s) of the Share(s)

— 4 —

	DEFINITIONS
“SHK International”	Sun Hung Kai International Limited, a licensed corporation to
	carry out type 1 (dealing in securities) and type 6 (advising on
	corporate finance) regulated activities under the SFO, which
	is not a connected person (as defined in the Listing Rules) of
	the Company
“Shougang”	Shougang Holding (Hong Kong) Limited, a private company
	incorporated with limited liability in Hong Kong whose
	registered office is at 7th Floor, Bank of East Asia Harbour
	View Centre, 56 Gloucester Road, Wanchai, Hong Kong. As at
	the Latest Practicable Date, Shougang was interested in
	300,000,000 Shares, representing approximately 23.83% of
	the existing issued share capital of the Company through its
	wholly-owned subsidiary, Benefit Rich Limited
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	the subscription price of HK$0.30 per Rights Share pursuant
	to the Rights Issue
“Underwriter”	SHK International
“Underwriting Agreement”	the underwriting agreement dated 8 November 2006 entered
	into between the Company and the Underwriter in relation to
	the Rights Issue
“Underwritten Shares”	362,300,199 Rights Shares, being the total number of Rights
	Shares to be issued pursuant to the Rights Issue less those
	Rights Shares agreed and undertaken to be taken up by Profit
	Harbour and Shougang
“Vendors”	Honest Opportunity Limited and New Fortress Investments
	Limited, both being companies incorporated with limited
	liability in the British Virgin Islands and each of them being
	individually referred to as “Vendor”
“2006 AGM”	the annual general meeting of the Company held on 23 May
	2006
“A$”	Australian dollar(s), the lawful currency of Australia
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“US$” of “US dollar(s)”	United States dollar(s), the lawful currency of the United
	States of America
“%”	per cent.

— 5 —

TERMINATION OF THE UNDERWRITING AGREEMENT

(i) the Underwriter shall become aware of the fact that, any of the warranties contained in the Underwriting Agreement was, then or at the material time, untrue, inaccurate or misleading, or that the Company or the Majority Shareholders or either of them is/are in breach of any provision of the Underwriting Agreement or the Irrevocable Undertaking;
(ii) 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;
(iii) 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; or
(iv) 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:

(a) likely to have a material adverse effect on the business or financial or trading position or prospect of the Company or the Group; or
(b) likely to have a material adverse effect on the success of the Rights Issue or the level of Shares underwritten by the Underwriter; or
(c) so material and prejudicial as to make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue,

If the Underwriter terminates or rescinds the Underwriting Agreement, the Rights Issue will not proceed.

If the Underwriting Agreement is terminated or rescinded by the Underwriter, the provisions of the Underwriting Agreement shall forthwith cease and determine and no party shall have any claim against any other party except claims arising out of any antecedent breaches of any of the provisions of the Underwriting Agreement.

— 6 —

TERMINATION OF THE UNDERWRITING AGREEMENT

If the Underwriter terminates the Underwriting Agreement, or the conditions of the Rights Issue are not fulfilled, the Rights Issue will not proceed and the Rights Issue will lapse.

— 7 —

LETTER FROM THE BOARD

SHANGHAI MERCHANTS HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock code: 1104)

Executive Directors:

Mr. Yue Jialin (Chairman)

Mr. Lau Yau Cheung (Chief Executive Officer)

Independent non-executive directors

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Mr. Wong Wing Kuen, Albert

Mr. Tsui Robert Che Kwong

Mr. Yang Weiming

Mr. Michael J. Bogue

Head office and principal place

of business in Hong Kong: Rooms 2808-10

28/F., Wing On House 71 Des Voeux Road Central Hong Kong

4 January 2007

To the Shareholders,

Dear Sir or Madam,

RIGHTS ISSUE OF 1,259,000,000 RIGHTS SHARES AT HK$0.30 PER RIGHTS SHARE ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE AND ISSUE OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES

INTRODUCTION

On 9 November 2006, the Directors announced that, the Company entered into the Acquisition Agreement on 27 October 2006 with the Vendors pursuant to which, among other things, the Purchaser, a wholly owned subsidiary of the Company, has conditionally agreed to acquire 48,373,197 ordinary shares in Mount Gibson, representing approximately 8.79% interest in Mount Gibson as at 7 November 2006 (Australian time) (subject to dilution effect, if any, from time to time contemplated by Mount Gibson issuing shares as a result of the unconditional takeover offer in respect of Aztec Resources Limited) by the Group.

— 8 —

LETTER FROM THE BOARD

The completion of the Acquisition Agreement is subject to the approval by the Independent Shareholders on a vote taken by way of poll at the SGM and at which the controlling shareholder (i.e. Profit Harbour) and its associates shall abstain from voting on the basis that the completion of the Acquisition Agreement is conditional on the completion of the Rights Issue which is also subject to the approval by the Independent Shareholders on a vote taken by way of poll at the SGM and at which the controlling shareholder (i.e. Profit Harbour) and its associates shall abstain from voting.

The Directors further announced that the Company proposed to raise HK$377,700,000 before expenses by way of the Rights Issue of 1,259,000,000 Rights Shares at a price of HK$0.30 each payable in full on acceptance. The Company also proposed a bonus issue of one Bonus Warrant for every five Rights Shares successfully subscribed by the Qualifying Shareholders. Based on 1,259,000,000 Rights Shares to be issued pursuant to the Rights Issue, the total number of Bonus Warrants to be issued will be 251,800,000 warrants, entitling the holders thereof to subscribe for the same number of Shares. The Bonus Warrants will entitle their holders to subscribe for new Shares at an initial subscription price of HK$0.30 per Share (subject to adjustment) upon exercise of one Bonus Warrant.

The Rights Issue will be fully underwritten by the Underwriter, on the terms and conditions set out in the Underwriting Agreement entered into between the Company and the Underwriter on 8 November 2006. Details of the major terms and conditions of the Underwriting Agreement are set out in the paragraph headed “Underwriting Arrangements” below.

The Rights Issue and the Bonus Warrants Issue are conditional upon the fulfillment or waiver of certain other conditions as set out in the paragraph headed “Conditions of the Rights Issue and the Bonus Warrants Issue” below. In particular, they are subject to the Underwriting Agreement not being terminated in accordance with its terms. If the conditions of the Rights Issue and the Bonus Warrants Issue are not fulfilled and/or waived, the Rights Issue and the Bonus Warrants Issue will not proceed.

The purpose of this prospectus is to give you further information on, among other things, details of the Rights Issue and the Bonus Warrants Issue, including information on dealings in and transfers and acceptances of the Rights Shares.

RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

The Company will raise HK$377,700,000 before expenses by way of the Rights Issue of 1,259,000,000 Rights Shares at a price of HK$0.30 each Rights Share payable in full on acceptance. The Company also proposes a bonus issue of one Bonus Warrant for every five Rights Shares successfully subscribed by the Qualifying Shareholders. Based on 1,259,000,000 Rights Shares to be issued pursuant to the Rights Issue, the total number of Bonus Warrants to be issued will be 251,800,000 warrants, entitling the holders thereof to subscribe for the same number of Shares. The Bonus Warrants will entitle their holders to subscribe for new Shares at an initial subscription price of HK$0.30 per Share (subject to adjustment) upon exercise of one Bonus Warrant.

— 9 —

LETTER FROM THE BOARD

Part of the proceeds raised from the Rights Issue in the sum of HK$224,474,752 will be applied towards payment of the balance of the Consideration. In respect of the balance in the sum of HK$153,225,248, (i) HK$20,000,000 will be deducted by the Company, being the deposit paid in respect of the Conditional Acquisition, to recover the same amount of money which has been previously reserved for base metal trading in the previous rights issue of the Company; (ii) approximately HK$3,700,000 will be used for the payment of professional fees and expenses in relation to the transactions contemplated under the Rights Issue and the Bonus Warrants Issue; and (iii) the balance thereof, i.e. approximately HK$129,525,248 will be used by the Company to acquire further investment interests in the resources industry, where opportunities arise to make additional investments where returns are maximised for the Shareholders, and as general working capital and for future investment purposes.

The Rights Issue is conditional and is fully underwritten. The Bonus Warrants Issue is conditional on the completion of the Rights Issue.

In particular, the Rights Issue and the Bonus Warrants Issue are subject to (i) the approval by the Independent Shareholders on a vote taken by way of poll at the SGM and at which the controlling shareholder (i.e. Profit Harbour) and its associates shall abstain from voting, (ii) the increase of authorised share capital of the Company having taken effect and (iii) the Underwriter not terminating the Underwriting Agreement in accordance with its terms (see “Termination of the Underwriting Agreement” below).

The Company will provisionally allot one nil-paid Rights Share for every existing Share held by the Qualifying Shareholders whose names appear on the register of members of the Company on the Record Date. If the conditions of the Rights Issue and the Bonus Warrants Issue cannot be fulfilled, the Rights Issue will not proceed.

Issue statistics of the Rights Issue

Basis of Rights Issue — One Rights Share for every existing Share held on the Record Date Existing issued share capital — 1,259,000,000 Shares (comprising 413,000,000 issued Shares before the resumption of trading in Shares on the Stock Exchange as of the 2006 AGM and 826,000,000 Shares allotted and issued pursuant to the previous rights issue upon resumption of trading in Shares and 20,000,000 Shares allotted and issued upon conversion of the convertible bonds of the Company) Number of Rights Shares — 1,259,000,000 Rights Shares Subscription price — HK$0.30 for each Rights Share

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company has no outstanding convertible securities, options or warrants in issue which confer any right to subscribe for or convert or exchange into the Shares.

The total amount of Rights Shares represent 100% of the existing issued share capital of the Company and 50% of the issued share capital of the Company as enlarged by the completion of the Rights Issue. Based on the Subscription Price of HK$0.30 per Rights Share, the net proceeds to be raised by the Company from the Rights Issue is approximately HK$374,000,000 after deduction of expenses including, among others, underwriting commission and professional fees.

Subscription Price for Rights Shares

HK$0.30 per Rights Share, payable in full when a Qualifying Shareholder accepts the provisional allotment of the Rights Shares or applies for excess Rights Shares or when a transferee of nil-paid Rights Shares applies for the relevant Rights Shares.

The Subscription Price represents:

(i) a discount of approximately 26.8% to the closing price of HK$0.41 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 24.1% to the average closing price of approximately HK$0.395 per Share as quoted on the Stock Exchange for the last 5 full trading days up to and including the Last Trading Day;
(iii) a discount of approximately 18.8% to the average closing price of approximately HK$0.3695 per Share as quoted on the Stock Exchange for the last 10 full trading days up to and including the Last Trading Day;
(iv) a discount of approximately 15.5% to the theoretical ex-right price of approximately HK$0.355 per Share, calculated on the basis of the closing price of HK$0.41 per Share on the Last Trading Day;
(v) a premium of approximately 690% over the unaudited net tangible asset value of approximately HK$0.038 per Share based on the unaudited net tangible assets of approximately HK$15,787,000 as at 30 June 2006 and 413,000,000 Shares in issue as at 30 June 2006; and
(vi) the same as the closing price of HK$0.30 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was determined on the basis of arm’s length negotiations between the Company and the Underwriter with reference to the then prevailing market price of the Shares and recent financial conditions of the Group. The Subscription Price was set at a discount to the market price of the Shares in order to give an incentive to the Shareholders to participate in the Rights Issue.

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LETTER FROM THE BOARD

Basis of provisional allotment of Rights Shares

One Rights Share in nil-paid form will be issued for every existing Share held by a Qualifying Shareholder on the Record Date. The board lot of the Rights Shares in nil-paid form will be 20,000, which is the same as the board lot of the Shares.

Entitlements to subscribe for Rights Shares under such provisional allotments are transferable off the market at the sole discretion of the holders of the nil-paid Rights Shares. If Qualifying Shareholders wish to accept only part of their provisional allotments or transfer a part or all of their rights to subscribe for the Rights Shares provisionally allotted, or to transfer their rights to more than one person, the entire PAL(s) must be surrendered and lodged for cancellation by not later than 4:00 p.m. on Friday, 12 January 2007 to the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Securities Limited, who will cancel the original PAL(s) and issue new PAL(s), free of charge, in the denomination(s) required. Any entitlements to subscribe for the Rights Shares not taken up by the Qualifying Shareholders will be available for excess application in the manner as described in the paragraph headed “Application for excess Rights Shares” under the section headed “Letter from the Board” in this prospectus.

Previous rights issue and conversion of redeemable bond

Previous rights issue

Since 2006 AGM, the Company had issued 826,000,000 rights shares, on the basis of two rights shares for every Share at a subscription price of HK$0.10 per rights share payable in full when a Qualifying Shareholder had accepted his/her/its provisional allotment of the rights shares under the previous rights issue or applied for excess of the rights shares. The dealings in such fully-paid rights shares had commenced on 17 July 2006. Such subscription price represented:

the par value of such rights shares;
a discount of approximately 61.5% to the closing price of HK$0.26 per Share as quoted on the Stock Exchange on 30 May 2003;
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 30 May 2003;
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 30 May 2003; and
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 the annual report 2005 of the Company.

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LETTER FROM THE BOARD

Previous conversion of redeemable bond

The Company had also allotted and issued 20,000,000 Shares upon conversion of a redeemable convertible bond of the Company exchangeable into new Shares for the principal sum of HK$2,000,000 at a conversion price of HK$0.15 per new Share (subject to adjustment), being the initial conversion price for such convertible bond, which had been subsequently adjusted to HK$0.10 per new Share. The conversion of the new Shares was completed in September 2006. Such initial conversion price of HK$0.15 per new Share represented:

a discount of approximately 42.3% to the closing price of HK$0.26 per Share as quoted on the Stock Exchange on 30 May 2003;
a discount of approximately 44.4% 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 30 May 2003; and
a premium of approximately 183.0% 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 the annual report 2005 of the Company.

As at the Latest Practicable Date, the Company had 1,259,000,000 Shares in issue.

The Bonus Warrants Issue

Number of Bonus Warrants

Based on 1,259,000,000 Rights Shares to be issued pursuant to the Rights Issue, the total number of Bonus Warrants to be issued will be 251,800,000 warrants, entitling the holders thereof to subscribe for the same number of Shares, representing approximately 20% of the existing share capital of the Company, approximately 10% of the issued share capital as enlarged by the completion of the Rights Issue and approximately 9.09% of the issued share capital as enlarged by the completion of the Rights Issue and full exercise of the Bonus Warrants.

Application has been made to the Stock Exchange for the listing of, and permission to deal in, the Rights Shares, in both nil-paid and fully-paid forms, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the Bonus Warrants.

The Bonus Warrants will be traded in board lot of 40,000.

Subscription Period of the Bonus Warrants

The Bonus Warrants will be exercisable at any time from the date on which the Bonus Warrants are listed on the Stock Exchange (the “Commencement Date”) up to and including the day before the 3rd anniversary of the Commencement Date of the Bonus Warrants.

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LETTER FROM THE BOARD

Bonus Warrants Subscription Price

The Bonus Warrants will entitle their holders to subscribe for new Shares at an initial subscription price of HK$0.30 per Share (subject to adjustment) upon exercise of one Bonus Warrant.

The Bonus Warrants Subscription Price represents:

(i) a discount of approximately 26.8% to the closing price of HK$0.41 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 24.1% to the average closing price of approximately HK$0.395 per Share as quoted on the Stock Exchange for the last 5 full trading days up to and including the Last Trading Day;
(iii) a discount of approximately 18.8% to the average closing price of approximately HK$0.3695 per Share as quoted on the Stock Exchange for the last 10 full trading days up to and including the Last Trading Day;
(iv) a discount of approximately 15.5% to the theoretical ex-right price of approximately HK$0.355 per Share, calculated on the basis of the closing price of HK$0.41 per Share on the Last Trading Day;
(v) a premium of approximately 690% over the unaudited net tangible asset value of approximately HK$0.038 per Share based on the unaudited net tangible assets of approximately HK$15,787,000 as at 30 June 2006 and 413,000,000 Shares in issue as at 30 June 2006; and
(vi) the same as the closing price of HK$0.30 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Qualifying Shareholders

The Company will send the Rights Issue Documents to the Qualifying Shareholders. The Company will send this 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, Shareholders must at the close of business on the Record Date be registered as a member of the Company. Shareholders having an address in Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Rights Issue. Shareholders having addresses outside Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Rights Issue, only if the Board, after making relevant enquiry with lawyers in the relevant jurisdictions, considers that the offer to these Shareholders would not contravene any legal restriction under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place and such offer will not require any relevant registration.

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LETTER FROM THE BOARD

If at the close of business on the Record Date, a Shareholder’s address on the Company’s register of members is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Rights Issue. The Rights Issue Documents will not be registered or filed under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda. The Company will comply with all necessary requirements specified in Rule 13.36(2) of the Listing Rules. The Board has made enquiries with lawyers in the relevant jurisdictions as to whether the issue of Rights Shares to the Excluded Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange. After making such enquiry, the Board was 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 requirement of the relevant regulatory body or stock exchange in that place, not to offer the Rights Shares to such Excluded Shareholders, no provisional allotment of nil-paid Rights Shares or allotment of fully-paid Rights Shares will be made to such Excluded Shareholders. In such circumstances, the Rights Issue has not been extended to the Excluded Shareholders. The Company will send the Rights Issue Documents (except the PALs or EAFs) to the Excluded Shareholders for their information only. As at the day before the Latest Practicable Date, all the Shareholders on the Company’s register of members have Hong Kong registered addresses.

Arrangements will be made for the Rights Shares which would have otherwise been provisionally allotted to the Excluded Shareholders to be sold in the market in their nil-paid form as soon as practicable after dealings in the nil-paid Rights Shares commence on the Stock Exchange and in any event before the last day for dealings in nil-paid Rights Shares, if a premium (net of expenses) can be obtained. The proceeds of each sale, less expenses and, of HK$100 or more will be paid to the relevant Excluded Shareholder in Hong Kong dollars. The Company will retain individual amounts of less than HK$100 for the benefit of the Company.

Excluded Shareholders

The Rights Issue Documents have not been registered or filed under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda. No person receiving a copy of this prospectus or the PAL or EAF in any jurisdiction outside Hong Kong may treat it as an offer or invitation to apply for the Rights Shares, unless in the relevant jurisdiction such an offer or invitation could lawfully be made without compliance with any registration or other legal or regulatory requirements.

Based on the Company’s register of members on the day before the Latest Practicable Date, all the Shareholders had their registered addresses in Hong Kong, and therefore there is no Excluded Shareholder.

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LETTER FROM THE BOARD

Status of the Rights Shares and the Shares to be issued upon exercise of the Bonus Warrants

The Rights Shares when allotted and fully-paid and the Shares to be issued upon exercise of the Bonus Warrants will rank pari passu in all respects with the existing Shares in issue on the date of allotment of such Shares in fully-paid form. Holders of such Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the close of business on any Business Day falling during the subscription period on which any of the subscription rights represented by such Bonus Warrants are duly exercised.

Share certificates for the Rights Shares and the Bonus Warrants

Subject to the fulfillment of the conditions of the Rights Issue and the Bonus Warrants Issue, the respective share certificates for all fully-paid Rights Shares and the Bonus Warrants are expected to be posted to the Qualifying Shareholders who have accepted and applied for (where appropriate) and paid for the Rights Shares on or before Thursday, 1 February 2007 at their own risk.

Fractional entitlements

Fractional entitlements will not be issued but will be aggregated and sold for the benefit of the Company. The Bonus Warrants Issue is conditional on completion of the Rights Issue. Bonus Warrants will be allotted and issued to the Qualifying Shareholders who have successfully subscribed for the Rights Shares. Subscription for the Rights Shares is renounceable.

Conditions of the Rights Issue and the Bonus Warrants Issue

Completion of the Rights Issue and the Bonus Warrants Issue is conditional upon, among others, fulfillment of the following conditions:

(i) the circular of the Company (duly approved by the Stock Exchange) being posted to the Shareholders on or before the Circular Posting Date and with the respective resolutions duly passed by the Independent Shareholders on a vote taken by way of poll at the SGM and at which the controlling shareholder (i.e. Profit Harbour) and its associates shall abstain from voting in respect of the Rights Issue and the Bonus Warrants Issue, together with a resolution duly passed approving the increase in authorised share capital of the Company to facilitate the issue of Rights Shares and the Shares which may fall to be issued upon the exercise of the Bonus Warrants, in compliance with the Listing Rules on or before the Prospectus Posting Date;
(ii) the Stock Exchange granting or agreeing to grant (subject to allotment and despatch of certificates in respect of Rights Shares, as appropriate, the posting of the Rights Issue Documents and any other condition which may be agreed in their reasonable opinion by the Company and the Underwriter) the listing of, and permission to deal in, the Rights Shares (in both their nil-paid and fully paid forms), the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the Bonus Warrants on the Stock Exchange on or before 5:00 p.m. on the second Business Day after the Final Acceptance Date;

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LETTER FROM THE BOARD

(iii) the filing with and registration of the Rights Issue Documents by the Registrar of Companies in Hong Kong in compliance with the Companies Ordinance;
(iv) the posting to Qualifying Shareholders of the Rights Issue Documents on the Prospectus Posting Date; and
(v) the delivery to the Underwriter on the Prospectus Posting Date a copy of each of the Rights Issue Documents, duly signed for and on behalf of the Company by a duly authorized officer thereof.

In the event that the above conditions precedent have not been fulfilled or otherwise waived, released or modified (in whole or in part) in writing by the Underwriter (other than conditions (i) and (ii) above which cannot be waived) with the agreement of the Company, or shall become incapable of being fulfilled on or before such date, currently expected to be on or around 7 February 2007, without being so waived, released or modified, the Underwriting Agreement may be terminated by the Underwriter by written notice to the Company, in which case, all liabilities of the parties to the Underwriting Agreement shall cease and determine and none of the parties shall have any claim against the other except, among other things, claims arising out of any antecedent breach of any of the provisions of the Underwriting Agreement.

Copies of the Rights Issue Documents will be filed with the Registrar of Companies in Bermuda as soon as reasonably practicable after the publication thereof in accordance with section 26 of the Companies Act 1981 of Bermuda (as amended).

Application for listing of the Rights Shares, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the Bonus Warrants on the Stock Exchange

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the Bonus Warrants.

Subject to the Stock Exchange granting the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants on the Stock Exchange, the Rights Shares in both their nil-paid and fully-paid forms, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants 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 Rights Shares in both their nil-paid and fully-paid forms, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants 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.

All necessary arrangements have been made enabling the securities to be admitted into CCASS.

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LETTER FROM THE BOARD

Dealings in the Rights Shares in their nil-paid and fully-paid forms will be subject to the payment of stamp duty in Hong Kong.

PROCEDURE FOR ACCEPTANCE AND PAYMENT OF TRANSFER

A PAL is enclosed with this prospectus which entitles the Qualifying Shareholders to subscribe for the number of Rights Shares indicated on the PAL. If the Qualifying Shareholders wish to exercise the right to subscribe for all the Rights Shares specified in the enclosed PAL, the Qualifying Shareholders must lodge the PAL in accordance with the instructions printed thereon, together with a remittance for the full amount payable on acceptance of the number of Rights Shares provisionally allotted to the Qualifying Shareholders, with the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by not later than 4:00 p.m. on the Final Acceptance Date. All remittances must be made in Hong Kong dollars and cheques must be drawn on a bank account with, or cashier’s orders must be issued by, a licensed bank in Hong Kong and made payable to “Shanghai Merchants Holdings Limited — Provisional Allotment Account” and crossed “Account Payee Only”. No receipt will be given for such remittance.

It should be noted that unless the PAL, together with the appropriate remittance, has been lodged with the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by not later than 4:00 p.m. on the Final Acceptance Date, whether by the original allottee or any person in whose favour the rights have been validly transferred, that provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If the Qualifying Shareholders wish to accept only part of the provisional allotment or to transfer all or part of their rights to subscribe for the Rights Shares provisionally allotted under the PAL to more than one person, the entire PAL must be surrendered by not later than 4:00 p.m. on Friday, 12 January 2007 to the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong who will cancel the original PAL and issue a new PAL in the denominations required. The PALs contain full information regarding the procedures to be followed if the Qualifying Shareholders wish to accept only part of the provisional allotment or if the Qualifying Shareholders wish to transfer all or part of their provisional allotment.

All cheques and cashier’s orders will be presented for payment following receipt and any interest earned on such monies will be retained for the benefit of the Company. Any PAL in respect of which a cheque or cashier’s order is dishonoured on first presentation are liable to be rejected and in that event the provisional allotment of Rights Shares and all rights thereunder will be deemed to have been declined and will be cancelled. If the Underwriter exercises the right to terminate its obligations under the Underwriting Agreement on or before 5:00 p.m. on the second Business Day after the Final Acceptance Date, or if any of the conditions of the Underwriting Agreement (as set out in the paragraph headed “Conditions of the Rights Issue and the Bonus Warrants Issue” above in this

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LETTER FROM THE BOARD

prospectus) is not fulfilled or waived on or before 25 January 2007, the Rights Issue will not proceed and the monies received in respect of the relevant provisional allotment of Rights Shares will be returned to the relevant persons without interest, by means of cheques to be despatched by the ordinary post at the risk of the relevant applicants on or before 1 February 2007.

Application for excess Rights Shares

Qualifying Shareholders may apply for any unsold entitlements of the Excluded Shareholders and any Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise subscribed for by transferees of nil-paid Rights Shares. Application can be made by completing the EAF which is enclosed with this prospectus and lodging the same with remittance for the excess Rights Shares. The Directors will allocate the excess Rights Shares at their discretion and on a fair and equitable basis, but preference will be given to topping-up odd lots to whole board lots.

Shareholders with their Shares held by a nominee company should note that the Board will regard the nominee as a single Shareholder according to the register of members of the Company. Accordingly, the Shareholders should note that the aforesaid arrangement in relation to topping-up odd lots for allocation of excess Rights Shares will 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 for the registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date.

For 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, they must lodge all necessary documents with the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, for completion of the relevant registration by 4:00 p.m. on Thursday, 21 December 2006.

If the Qualifying Shareholders wish to apply for any Rights Shares in addition to their provisional allotment, they must complete and sign the enclosed EAF as indicated thereon and lodge it, together with a separate remittance for the amount payable on application in respect of the excess Rights Shares applied for, with the Company’s branch registrar in Hong Kong, Hong Kong Branch Share Registrar and Transfer Office, Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by not later than 4:00 p.m. on the Final Acceptance Date. All remittances must be made in Hong Kong dollars and cheques must be drawn on a bank account with, or cashier’s orders must be issued by, a licensed bank in Hong Kong and made payable to “Shanghai Merchants Holdings Limited — Excess Application Account” and crossed “Account Payee Only”. No receipt will be given for such remittance.

If no excess Rights Shares are allotted to the Qualifying Shareholders, the amount tendered on the unsuccessful application for the excess Right Shares is expected to be refunded in full to the Qualifying Shareholders by ordinary post at their own risks on or before Thursday, 1 February 2007. If the number of excess Rights Shares allotted to the Qualifying Shareholders is less than that applied for, the surplus application monies are also expected to be refunded to the Qualifying Shareholders by ordinary post at their own risks on or before Thursday, 1 February 2007. If the Underwriter exercises the right to terminate its obligations under the Underwriting Agreement on or before 5:00 p.m. on the

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LETTER FROM THE BOARD

second Business Day after the Final Acceptance Date, or if any of the conditions of the Underwriting Agreement (as set out in the paragraph headed “Conditions of the Rights Issue and the Bonus Warrants Issue” above in this prospectus) is not fulfilled or waived on or before 25 January 2007, the Rights Issue will not proceed and the monies received in respect of the relevant successful applications for excess Rights Shares will be returned to the Qualifying shareholders without interest, by means of cheques to be despatched by the ordinary post at the risk of the relevant applicants on or before 1 February 2007.

Refund cheques in respect of the wholly or partially unsuccessful applications for excess Rights Shares (if any) are expected to be posted by Thursday, 1 February 2007 by ordinary post to the relevant unsuccessful applicants at their own risk.

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

As at the Latest Practicable Date, the Majority Shareholders have not decided on whether to make any excess application under the Rights Issue.

TAXATION

Shareholders are recommended to consult their professional adviser if they are in any doubt as to the taxation implications of any subscription, holding, disposal of or dealings in the Rights Shares and the Bonus Warrants. It is emphasised that none of the Company, the Directors or any other parties involved in the Rights Issue accepts responsibility for any tax effects or liabilities of the Shareholders resulting from the subscription, holding, disposal of or dealings in the Rights Shares and the Bonus Warrants.

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR RIGHTS SHARES AND APPLICATION FOR EXCESS RIGHTS SHARES

The latest time of acceptance of and payment for Rights Shares and application for excess Rights Shares will not take place if there is:

a “black” rainstorm warning, or
a tropical cyclone warning signal number 8 or above,
(i) at any local time before 12:00 noon and no longer in force after 12:00 noon on 22 January 2007, the latest time of acceptance of and payment for Rights Shares will be extended to 5:00 p.m. on the same Business Day; and
(ii) at any local time between 12:00 noon and 4:00 p.m. on 22 January 2007, the latest time of acceptance of and payment for Rights Shares will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

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LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENTS

Underwriting agreement

Date: 8 November 2006 Underwriter: SHK International Number of Rights Shares A total of 362,300,199 Rights shares, representing underwritten: approximately 28.78% of the issued share capital of the Company, are underwritten by the Underwriter. Commission: 2% of the aggregate Subscription Price for the Underwritten Shares, which is expected to be approximately HK$2,173,801.19.

To the best knowledge, information and belief of the Directors having made all reasonable enquiries, the Underwriter and its ultimate beneficial owners are independent third parties not connected with the Company or its subsidiaries or any of their respective associates, or any of the connected persons of the Company or its subsidiaries or any of their respective associates.

Irrevocable Undertakings from Profit Harbour and Shougang

As at the date of the Underwriting Agreement, Profit Harbour is interested in 596,699,801 Shares, representing approximately 47.39% of the existing issued share capital of the Company, and Shougang is interested in 300,000,000 Shares, representing approximately 23.83% of the existing issued share capital of the Company. Each of Profit Harbour and Shougang has irrevocably undertaken to take up 596,699,801 Rights Shares and 300,000,000 Rights Shares respectively which will be provisionally allotted to them under the Rights Issue.

Termination of the Underwriting Agreement

(i) the Underwriter shall become aware of the fact that, any of the warranties contained in the Underwriting Agreement was, then or at the material time, untrue, inaccurate or misleading, or that the Company or the Majority Shareholders or either of them is/are in breach of any provision of the Underwriting Agreement or the Irrevocable Undertaking;

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LETTER FROM THE BOARD

(ii) 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;
(iii) 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; or
(iv) 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:

(a) likely to have a material adverse effect on the business or financial or trading position or prospect of the Company or the Group; or
(b) likely to have a material adverse effect on the success of the Rights Issue or the level of Shares underwritten by the Underwriter; or
(c) so material and prejudicial as to make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue,

If the Underwriter terminates or rescinds the Underwriting Agreement, the Rights Issue will not proceed.

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LETTER FROM THE BOARD

It should be noted that the Shares have been dealt with on an ex-rights basis from Wednesday, 20 December 2006 and that the Rights Shares are expected to be dealt with in their nil-paid form from Monday, 8 January 2007 to Wednesday, 17 January 2007 (both days inclusive). Such dealings will take place when the conditions of the Rights Issue remain unfulfilled. Any person dealing in the Shares from now up to the date on which all such conditions are fulfilled and any person dealing in the nil-paid Rights Shares from Monday, 8 January 2007 to Wednesday, 17 January 2007 (being the first and last days of dealing in the nil-paid Rights Shares, respectively) will accordingly bear the risk that the Rights Issue may not become unconditional and may not proceed. Any person dealing or contemplating any dealing in the Shares and/or the Rights Shares in their nil-paid forms during this period who is in any doubt about his or her or its position is recommended to consult his or her or its own professional adviser.

If the Underwriter terminates the Underwriting Agreement, or the conditions of the Rights Issue are not fulfilled, the Rights Issue will not proceed and the Rights Issue will lapse.

REASONS FOR AND BENEFITS OF THE RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

The amount of HK$244,474,752 from the aggregate amount of Rights Issue (after expenses including underwriting commission, professional fees, printing charges and sundry expenses) will be applied towards payment of the Consideration for the Conditional Acquisition. As mentioned above, the Directors are of the view that the Conditional Acquisition is in the interests of the Company and the Shareholders as a whole as it will help strengthening the asset base of the Group. Accordingly, the Directors consider that it is fair and reasonable for the Company to raise the required financing for the Conditional Acquisition by way of the Rights Issue as the exercise provides opportunities for the Shareholders to maintain their stakes in the Company and to enjoy the anticipated benefits from the Conditional Acquisition.

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.

In the event that the Conditional Acquisition is not completed, the Board intends to apply the proceeds from the Rights Issue to acquire further investment interests in the resources industry, where opportunities arise to make additional investments where returns are maximised for Shareholders, and as general working capital and for future investment purposes.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE BEFORE AND AFTER THE RIGHTS ISSUE AND THE BONUS WARRANTS ARE EXERCISED IN FULL

Set out below is a table showing the shareholding structure of the Company as at the Latest Practicable Date, after completion of the Rights Issue assuming different levels of acceptance of the Rights Shares by the Qualifying Shareholders:

						Immediately
						following
					Immediately	completion of the
					following	Rights Issue
				Immediately	completion of the	assuming the
			Immediately	following	Rights Issue	Majority
			following	completion of the	assuming all	Shareholders
			completion of the	Rights Issue	Qualifying	having fully taken
			Rights Issue	assuming the	Shareholders have	up their
			assuming all	Majority	taken up their	entitlements and
			Qualifying	Shareholders have	respective	fully underwritten
			Shareholders have	fully taken up their	entitlements and	by the Underwriter
			taken up their	entitlements and	the Bonus	and the Bonus
	As at the Latest		respective	fully underwritten	Warrants are	Warrants are
Shareholders	Practicable Date		entitlements	by the Underwriter	exercised in full	exercised in full
	Number	Share-	Number Share-	Number Share-	Number Share-	Number Share-
	of Shares	holding	of Shares holding	of Shares holding	of Shares holding	of Shares holding
		(%)	(%)	(%)	(%)	(%)
Profit Harbour	596,699,801	47.39%	1,193,399,602 47.39%	1,193,399,602 47.39%	1,312,739,562 47.39%	1,312,739,562 47.39%
Shougang	300,000,000	23.83%	600,000,000 23.83%	600,000,000 23.83%	660,000,000 23.83%	660,000,000 23.83%
Existing public
Shareholders	362,300,199	28.78%	724,600,398 28.78%	362,300,199 14.39%	797,060,438 28.78%	362,300,199 13.08%
Underwriter	—	—	— —	362,300,199 14.39%	— —	434,760,239 15.70%
Total	1,259,000,000	100%	2,518,000,000 100%	2,518,000,000 100%	2,769,800,000 100%	2,769,800,000 100%

MAINTENANCE OF THE LISTING OF THE SHARES AFTER RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

Following completion of the Rights Issue and/or the Bonus Warrants Issue are exercised in full, the Underwriter will become a substantial shareholder of the Company if none of the Qualifying Shareholders (except the Majority Shareholders) is willing to take up his/her/its entitlements of such number of Rights Shares. The Underwriter will own approximately as to 14.39% of the issued share capital of the Company as enlarged by the completion of the Rights Issue (as set out in the fourth column of the table above) and 15.70% of the issued share capital of the Company as enlarged by the completion of the Rights Issue and full exercise of the Bonus Warrants (as set out in the sixth column of the table above).

It is the intention of the Underwriter to place out at least 10.61% of the issued share capital of the Company as enlarged by the completion of the Rights Issue and 11.92% of the issued share capital of the Company as enlarged by the completion of the Rights Issue and full exercise of the Bonus Warrants respectively, to other independent investors in the capital market for the purpose of maintaining the public float requirement of 25% under the Listing Rules.

— 24 —

LETTER FROM THE BOARD

It is also the intention of the Company to maintain the listing of the Shares on the Stock Exchange after the completion of the Conditional Acquisition, the Rights Issue and the Bonus Warrants Issue. Accordingly, the Company undertakes that it will take such appropriate steps as may be necessary or required to maintain and/or restore the minimum public float for Shares at all times upon completion of the Rights Issue and the Bonus Warrants Issue.

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

a false market exists or may exist in the trading in the Shares; or
there are too few shares of the Shares in public hands to maintain an orderly market,

then it will consider exercising its discretion to suspend trading in the Shares until a sufficient public float is attained. In this connection, it should be noted that upon completion of the Rights Issue, there may be insufficient public float for the Shares and therefore trading in the Shares may be suspended until a sufficient level of public float is attained.

USE OF PROCEEDS FROM THE RIGHTS ISSUE

The Company will raise HK$377,700,000 before expenses by way of the Rights Issue of 1,259,000,000 Rights Shares at a price of HK$0.30 per Rights Share payable in full on acceptance. Part of the proceeds raised from the Rights Issue in the sum of HK$224,474,752 will be applied towards the payment of the balance of the Consideration for the Conditional Acquisition. In respect of the balance in the sum of HK$153,225,248, (i) HK$20,000,000 will be deducted by the Company, being the deposit paid in respect of the Conditional Acquisition, to recover the same amount of money which has been previously reserved for base metal trading in the previous rights issue of the Company; (ii) approximately HK$3,700,000 will be spent for the professional fees and expenses in relation to the Rights Issue and the Bonus Warrants Issue; and (iii) the balance of approximately HK$129,525,248 will be used by the Company to acquire further investment interests in the resources industry, when opportunities arise to make additional investments where returns are maximized for Shareholders, and as general working capital and for future investment purposes.

— 25 —

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES OF THE COMPANY FOR THE 12 MONTHS ENDING ON THE DATE OF THE ANNOUNCEMENT

The following table summarises the fund raising activities of the Company for the 12 months ending on the date of the Announcement:

Date of
announcement/	Fund raising	Net proceeds	Proposed use of
circular/prospectus	event	raised	proceeds	Actual use of proceeds
11 May 2006	previous rights	Approximately	Approximately	Approximately
30 May 2006	issue	HK$81,000,000	HK$25,000,000 to invest	HK$16,000,000 has been
1 June 2006			in fabric and other	used in the fabric and other
20 June 2006			merchandises trading	merchandises trading
11 July 2006			business	(including HK$8,000,000
				increase in pledge bank
				deposit for obtaining bank
				facilities)
				Approximately
				HK$9,000,000 has been
				reserved in the bank to be
				used for fabric and other
				merchandises trading
			Approximately	HK$20,000,000 has been
			HK$20,000,000 to invest	used as deposit for the
			in base metal trading	Conditional Acquisition of
			business (Note 1)	the Sales Shares
			Approximately	Approximately
			HK$36,000,000 reserved	HK$26,000,000 has been
			as general working	used for the acquisition of
			capital (Note 2)	Aztec’s shares as	a stock in
				its trading portfolio
				Approximately
				HK$3,000,000 has been
				used for the acquisitions of
				stocks listed on the Stock
				Exchange as stocks in its
				trading portfolio
				Approximately
				HK$2,500,000 has been
				used to settle outstanding
				payables before the
				previous rights issue and
				expenses incurred in the
				second half of 2006
				Approximately
				HK$4,500,000 has been
				reserved as general
				working capital deposited
				in the bank

— 26 —

LETTER FROM THE BOARD

Date of
announcement/	Fund raising	Net proceeds	Proposed use	of
circular/prospectus	event	raised	proceeds		Actual use of	proceeds
15 June 2006	Conversion of	Approximately	Approximately		The entire sum of
	Convertible	HK$2,000,000	HK$2,000,000 used to		approximately
	Bonds		pay for the consideration		HK$2,000,000 was used to
			of acquiring		pay for the consideration
			approximately	60%	of acquiring approximately
			interest in Chinaright		60% interest in Chinaright
			Electronics Limited		Electronics Limited

Notes:

The amount of HK$20,000,000 earmarked for base metal trading business will be used in the following manner: a sum of HK$10,000,000 will be deposited in bank(s) to be used for pledge as security for trading facilities and a sum of HK$10,000,000 will be used for settlement of purchases of base metal for a period of two months with respect to the two-months credit period granted to the customers in physical base metal trading.
In order to maximize return for the Shareholders, the Board had decided that the general working capital of the Company should not be left idle and should be fully utilized in acquiring interests in sound investments of potential growth and return on a short term basis in September 2006. The Directors of the Company had considered the use of the general working capital to build up short term trading portfolio in shares in listed companies. The intended usage as general working capital can be achieved on the basis that the stocks of Aztec and other listed shares on the Stock Exchange held by the Company can be sold at any time through the Australian Stock Exchange and the Stock Exchange respectively, hence, the proceeds of selling such stocks/shares can easily be applied for use as general working capital from time to time.

INFORMATION ON THE COMPANY

The Company is incorporated as an exempted company with limited liability in Bermuda under Companies Act 1981 of Bermuda (as amended) and its shares are listed on the Stock Exchange. The Group is principally engaged in (i) trading in base metals and (ii) trading in fabric products and other merchandises. These two divisions are the basis on which the Group reports its primary segment information. For the business and geographical segments of the Group, the following table provides an analysis of the Group’s sales by geographical market (as disclosed in the annual report 2005 of the Company), irrespective of the origin of the goods:

Geographical segment	Sales revenue by	geographical market
	2005	2004
	HK$ (approximately)	HK$ (approximately)
Hong Kong (both in trading in base
metals and trading in fabric products
and other merchandises)	49,635,000	14,788,000
Africa (trading in fabric products and
other merchandises)	18,758,000	7,517,000
Total	68,393,000	22,305,000

— 27 —

LETTER FROM THE BOARD

BUSINESS PLAN AND FUTURE INTENTIONS

The Group is principally engaged in trading of base metals and fabric products and other merchandise.

All along, the Company has future plans which included enhancement and expansion of its business prospects and operations by undertaking or investing in trading in new products or commodities. Eventually, the Company identified a potential supplier for iron ore in Mount Gibson and intended to expand its business operations to the trading of iron ore and other commodities so as to increase the Group’s profit margin. The Board believed that carrying on commodities trading such as iron ore in addition to its physical copper trading would enhance the Group’s business prospects and profit margin which was in line with the Group’s principal business and objective.

In this regard, acquisition of the Mount Gibson Shares meets such business plan and development strategy of the Group as Mount Gibson provides supply of iron ore materials for physical commodity trading to potentially complement the base metal trading business of the Group.

Since the Company does not want to stretch its financial position at the moment, it chooses to fund such business move in the form of the Acquisition by the Rights Issue which is fully underwritten. The Independent Non-Executive Directors consider that it has been the business policy and strategy of the Company to look out for, and the Company has been looking out for, investment and commodities trading opportunities and the Acquisition allows the Company to implement and materialize its business policy and strategy and corporate objective.

The Company is looking for business and investment opportunities that complement, enhance and reinforce it. An investment in natural resources industry such as in a company like Mount Gibson being an iron ore exploration and producing company fits in with the Company’s business strategy, corporate objectives and principal business activities. The Conditional Acquisition as an attempt to assure the supply of raw iron ore materials for engaging in such physical commodities trading helps to consolidate the asset and earning bases of the Group.

The Company will continue to maintain its existing principal business and look for investment opportunities to enhance its operation and results.

The Company does not have any current representation in the board of directors of Mount Gibson (the “Mount Gibson Board”) or any other involvement save and except for its shareholding interest in Mount Gibson. In an effort to consolidate and strengthen its interest in Mount Gibson as the platform to pursue its strategy of securing long-term iron ore supply from the Midwest region of Australia, the Company may choose to work constructively with the Mount Gibson Board and its management team so as to add value to the Company’s shareholding interest in Mount Gibson. The Company may, in due course, seek formal representation on the Mount Gibson Board, but to date, no discussions have been had with Mount Gibson in relation to the matter.

The Independent Non-Executive Directors endorse the Board’s decision in an effort to enhance the Company’s financial performance and business prospects through investment in business opportunities that conform with the Company’s business objectives and activities.

— 28 —

LETTER FROM THE BOARD

MAJOR CUSTOMERS AND SUPPLIERS

As at the latest published audited accounts of the Group, the Group’s three customers in aggregate accounted for the entire turnover of the Group and the largest customer, the sole agent of the Group’s base metal trade, accounted for approximately 65.7% of the total turnover of the Group.

The aggregate purchases attributable to the Group’s five suppliers during the year accounted for 99.4% purchases of the Group and the largest supplier, the sole agent of the Group’s base metal trade, accounted for approximately 67.8% of the total purchases of the Group.

At no time during the last financial year did a Director, an associate of a Director or a Shareholder of the Company, who/which to the knowledge of the Directors owns more than 5% of the Company’s issued share capital, have an interest in any of the five largest customers and suppliers of the Group.

FURTHER INFORMATION

Your attention is drawn to the financial and general information as set out on the appendices to this prospectus.

On behalf of the Board of Shanghai Merchants Holdings Limited Yue Jialin Chairman

— 29 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

SUMMARY OF RESULTS AND ASSETS AND LIABILITIES OF THE GROUP FOR THREE FINANCIAL YEARS ENDED 31 DECEMBER 2005

Set out below is a summary of results and assets and liabilities of the Group for three financial years ended 31 December 2005 as extracted from the Company’s annual reports 2003, 2004 and 2005 respectively.

Financial Summary

Results

	2003	2004	2005
	HK$’000	HK$’000	HK$’000
Turnover	62,198	22,305	68,393
Cost of sales	(69,626)	(21,369)	(66,113)
Gross profit/(loss)	(7,428)	936	2,280
Other income	37	13	474
Credit arising from a scheme of arrangement with
creditors	—	—	15,421
Distribution costs	(266)	(429)	(1,353)
Administrative expenses	(18,147)	(8,455)	(8,539)
Allowance for bad and doubtful debts	(29,013)	(14,816)	—
Profit/(loss) from operations	(54,817)	(22,751)	8,283
Finance costs - interest on bank and
other borrowings	(118)	(335)	(1,744)
Allowance for advance to an investee company	—	(24,806)	—
Gain on de-consolidation of a subsidiary	—	11,624	—
Profit/(loss) before taxation	(54,935)	(36,268)	6,539
Income tax expense	—	(31)	(38)
Profit/(loss) for the year	(54,935)	(36,299)	6,501

— 30 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Assets and liabilities

	2003	2004	2005
	HK$’000	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	23,895	23	—
Investment in security	—	—	—
Available-for-sale investment	—	—	—
	23,895	23	—
Current assets
Trade and other receivables	36,046	42,576	37,526
Pledged bank deposits	—	8,000	4,012
Bank balances and cash	16,831	6,929	1,465
	52,877	57,505	43,003
Current liabilities
Trade and other payables	15,023	27,093	6,053
Secured other loans	—	15,000	15,000
Taxation payable	10,070	55	69
	25,093	42,148	21,122
Net current assets	27,784	15,357	21,881
Total assets less current liabilities	51,679	15,380	21,881
Capital and reserves
Share capital	41,300	41,300	41,300
Reserves	10,379	(25,920)	(19,419)
	51,679	15,380	21,881

— 31 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITORS’ REPORT

The Company’s auditors have disclaimed their opinion on the Group’s financial statements for the year ended 31 December 2003 and issued qualified opinions relating to limitation of scopes for the Group’s financial statements for the two years ended 31 December 2005. Reproduced below is the auditors’ report for the year ended 31 December 2005 issued by Graham H.Y. Chan & Co. as extracted from the Company’s annual report 2005.

To the Shareholders of

Shanghai Merchants Holdings Limited

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 17 to 46 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as set out below.

— 32 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Included in the consolidated balance sheet at 31 December 2005, there was available-for-sale investment. Such investment represents the Group’s 100% equity interest in Chaoyang Hua Loong Textiles and Dyeing Limited (“Chaoyang Hua Loong”), a company established in the People’s Republic of China, and is stated at nil value. In addition, full allowance against an amount of HK$24,806,000 due from Chaoyang Hua Loong had been made by the Group in previous years. In the absence of reliable current financial information relating to the assets and liabilities of Chaoyang Hua Loong, we are unable to satisfy ourselves as to whether the interest in Chaoyang Hua Loong at 31 December 2005 is free from material misstatement and also whether the full allowance against the amount due from Chaoyang Hua Loong is appropriate. Any adjustment found to be necessary to the value of the available-for-sale investment and the amount due from Chaoyang Hua Loong would affect the profit of the Group for the year ended 31 December 2005 and its net assets as at that date.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Qualified opinion arising from limitations of audit scope

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the matters referred to in the basis of opinion section of this report, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2005 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books of account had been kept.

Graham H. Y. Chan & Co.

Certified Public Accountants (Practising)

Hong Kong 24 April 2006

— 33 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

The financial information set out below is an extract from pages 17 to 46 of the annual report 2005 for the year ended 31 December 2005. All information in this paragraph should be read in conjunction with the audited accounts which are included in the annual report 2005 for the year ended 31 December 2005.

Consolidated Income Statement

For the year ended 31 December 2005

Notes Turnover 5 Cost of sales Gross profit Other income 5 Credit arising from a scheme of arrangement with creditors 7 Distribution costs Administrative expenses 8 Allowance for bad and doubtful debts Profit/(loss) from operations Finance costs - interest on other loans Allowance for advance to an investee company 14 Gain on de-consolidation of a subsidiary 20 Profit/(loss) before taxation Income tax expense 10 Profit/(loss) for the year Earnings/(loss) per share - Basic 11	2005 HK$’000 68,393 (66,113)	2004 HK$’000 22,305 (21,369) 936 13 — (429) (8,455) (14,816) (22,751) (335) (24,806) 11,624 (36,268) (31) (36,299) (8.79) cents
	2,280 474 15,421 (1,353) (8,539) — 8,283 (1,744) — — 6,539 (38)	936 13 — (429 (8,455 (14,816
		(22,751 (335 (24,806 11,624
		(36,268 (31
	6,501 1.57 cents

— 34 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2005

		2005	2004
	Notes	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	12	—	23
Investment in security	14	—	—
Available-for-sale investment	14	—	—
		—	23
Current assets
Trade and other receivables	15	37,526	42,576
Pledged bank deposits	25	4,012	8,000
Bank balances and cash		1,465	6,929
		43,003	57,505
Current liabilities
Trade and other payables	16	6,053	27,093
Secured other loans	17	15,000	15,000
Taxation payable		69	55
		21,122	42,148
Net current assets		21,881	15,357
Total assets less current liabilities		21,881	15,380
Capital and reserves
Share capital	18	41,300	41,300
Reserves		(19,419)	(25,920)
Equity attributable to equity holders of the parent		21,881	15,380

— 35 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

At 31 December 2005

		2005	2004
	Notes	HK$’000	HK$’000
Non-current assets
Interests in subsidiaries	13	6,296	32,121
Current assets
Other receivables		145	218
Bank balances		7	5,566
		152	5,784
Current liabilities
Other payables		3,840	7,525
Secured other loans	17	15,000	15,000
		18,840	22,525
Net current liabilities		(18,688)	(16,741)
		(12,392)	15,380
Capital and reserves
Share capital	18	41,300	41,300
Reserves		(53,692)	(25,920)
		(12,392)	15,380

— 36 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Statement of Changes in Equity

For the year ended 31 December 2005

		Share
	Share	premium	Contributed	Special	Accumulated
	capital	account	surplus	reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
The Group
At 1 January 2004	41,300	106,957	—	(14,980)	(81,598)	51,679
Loss for the year	—	—	—	—	(36,299)	(36,299)
At 31 December 2004	41,300	106,957	—	(14,980)	(117,897)	15,380
Profit for the year	—	—	—	—	6,501	6,501
At 31 December 2005	41,300	106,957	—	(14,980)	(111,396)	21,881
The Company
At 1 January 2004	41,300	106,957	60,274	—	(157,429)	51,102
Loss for the year	—	—	—	—	(35,722)	(35,722)
At 31 December 2004	41,300	106,957	60,274	—	(193,151)	15,380
Loss for the year	—	—	—	—	(27,772)	(27,772)
At 31 December 2005	41,300	106,957	60,274	—	(220,923)	(12,392)

The special reserve represents the difference between the nominal value of the aggregate share capital of the subsidiaries acquired and the nominal value of the share capital of the Company issued for the acquisition at the time of a group reorganisation in 1998.

The contributed surplus represents the difference between the consolidated net assets of the subsidiaries acquired and the nominal value of the share capital of the Company issued for the acquisition at the time of a group reorganisation in 1998.

In addition to accumulated profits, under the Companies Act 1981 of Bermuda (as amended), contributed surplus of the Company is also available for distribution to shareholders. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:

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

In the opinion of the directors, the Company had no reserve available for distribution to shareholders at the balance sheet date.

— 37 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2005

	2005	2004
	HK$’000	HK$’000
Operating Activities
Profit/(loss) from operations	8,283	(22,751)
Adjustments for:
Depreciation and amortisation	7	17
Loss on disposal of property, plant and equipment	16	112
Allowance for bad and doubtful debts	—	14,816
Credit arising from scheme of arrangement with creditors	(15,421)	—
Interest income	(160)	(4)
Operating cash flows before working capital changes	(7,275)	(7,810)
Decrease/(increase) in trade and other receivables	5,050	(7,212)
Decrease in trade and other payables	(5,619)	(1,549)
Cash used in operations	(7,844)	(16,571)
Interest paid	(1,744)	(335)
Hong Kong profits tax paid	(24)	—
Net Cash Used in Operating Activities	(9,612)	(16,906)
Investing Activities
Decrease/(increase) in pledged bank deposits	3,988	(8,000)
Interest received	160	4
Net Cash from/(used in) Investing Activities	4,148	(7,996)
Financing Activities
Secured other loans raised	15,000	15,000
Repayment of other loans	(15,000)	—
Net Cash from Financing Activities	—	15,000
Net Decrease in Cash and Cash Equivalents	(5,464)	(9,902)
Cash and Cash Equivalents at 1 January	6,929	16,831
Cash and Cash Equivalents at 31 December
representing bank balances and cash	1,465	6,929

— 38 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31 December 2005

1. General

The Company is incorporated as an exempted company with limited liability in Bermuda under the Companies Act 1981 of Bermuda (as amended) and its shares are listed on The Stock Exchange of Hong Kong Limited (the”Stock Exchange”). Its parent and ultimate holding company is Profit Harbour Investments Limited (“Profit Harbour”), a company incorporated in the British Virgin Islands. The address of its registered office and principal place of business of the Company are disclosed in the “Corporate Information” section of the annual report.

The Company is an investment holding company. The principal activities of its subsidiaries are set out in note 29.

The financial statements are presented in Hong Kong dollars (“HK$”) which is the Company’s functional and presentation currency.

Impact of New Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Accounting Standards (“HKASs”)

The Hong Kong Institute of Certified Public Accountants (the “HKICPA”) has issued a number of new HKFRSs, HKASs and Interpretations that are effective for accounting periods beginning on or after 1 January 2005. The Group has adopted the following HKFRSs and HKASs which are pertinent to its operations and relevant to these financial statements.

—	HKAS 1	Presentation of Financial Statements
—	HKAS 7	Cash Flow Statements
—	HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
—	HKAS 10	Events after the Balance Sheet Date
—	HKAS 12	Income Taxes
—	HKAS 17	Leases
—	HKAS 18	Revenue
—	HKAS 19	Employee Benefits
—	HKAS 21	The Effects of Changes in Foreign Exchange Rates
—	HKAS 24	Related Party Disclosures
—	HKAS 27	Consolidated and Separate Financial Statements
—	HKAS 32	Financial Instruments: Disclosure and Presentation
—	HKAS 33	Earnings per Share
—	HKAS 36	Impairment of Assets
—	HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
—	HKAS 39	Financial Instruments: Recognition and Measurement
—	HKAS 39 (Amendment)	Transition and Initial Recognition of Financial Assets and Financial Liabilities
—	HKFRS 2	Share-based Payment

The adoption of HKASs 7, 8, 10, 12, 17, 18, 19, 21, 27, 33, 36 and 37 has had no material impact on the Group’s accounting policies and the methods of computation, presentation and disclosure in the Group’s financial statements. The major effects on adoption of the other HKFRSs and HKASs are summarised as follows:

(a) The adoption of HKAS 1 requires the disclosure of judgments (apart from those involving estimations) and key assumptions concerning the future and other sources of estimation uncertainty. These disclosures are detailed in note 3 to the financial statements.

— 39 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) The adoption of HKAS 24 affects the identification of related parties and the disclosure of related party transactions.
(c) The adoption of HKAS 32 and HKAS 39 has resulted in a change in accounting policy for recognition, measurement, derecognition and disclosure of financial instruments. HKAS 32 requires retrospective application. The application of HKAS 32 has had no material impact on how financial instruments of the Group are presented for current and prior accounting periods. HKAS 39 which is effective for annual periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 39 are summarised below.

The Group has applied the relevant transitional provisions of HKAS 39 with respect to classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

On or before 31 December 2004, the Group classified and measured its equity securities as investment securities, which are carried at cost less impairment losses (if any), in accordance with the benchmark treatment of Statement of Standard Accounting Practice 24 “Accounting for Investments in Securities” issued by the HKICPA. From 1 January 2005 onwards, the Group classifies and measures its equity securities as “available-for-sale financial assets”, which are carried at cost, as the equity securities do not have a quoted market price in an active market and whose fair value cannot be reliably measured, in accordance with HKAS 39. No adjustment on fair value of the equity securities has been required.

(d) The adoption of HKFRS2 has resulted in a change in accounting policy for share options. Prior to this, no recognition and measurement of share-based transactions in which share options granted over shares in the Company was required until such options were exercised, at which time the share capital and share premium were credited with the proceeds received.

With effect from 1 January 2005, in order to comply with HKFRS 2, the Group has adopted a new policy for share options. Under the new policy, the Group recognises the fair value of such share options as an expense with a corresponding increase recognised in a capital reserve within equity. Further details of the new policy are set out in note 4.

There were no options granted by the Company after 7 November 2002 but had not vested before 1 January 2005. Accordingly, the adoption of HKFRS 2 in respect of share options granted has had no effect on these financial statements.

The Group has not early applied the following new HKFRSs that have been issued by the HKICPA but not yet effective. The Group has considered these standards and interpretations but does not expect that they will have a material effect on how the results of operation and financial position of the Group are prepared and presented.

—	HKAS 1 (Amendment)	Capital Disclosures 1
—	HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures 2
—	HKAS 21 (Amendment)	The Effects of Changes in Foreign Exchange Rates —
		Net Investment in a Foreign Operation 2
—	HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup Transactions 2
—	HKAS 39 (Amendment)	The Fair Value Option 2
—	HKAS 39 and HKFRS 4	Financial Instruments: Recognition and Measurement and Insurance
	(Amendment)	Contracts — Financial Guarantee Contracts 2
—	HKFRS 6	Exploration for and Evaluation of Mineral Resources 2
—	HKFRS 7	Financial Instruments: Disclosures 1
—	HK(IFRIC) - INT 4	Determining Whether an Arrangement Contains a Lease 2

— 40 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

— HK(IFRIC) - INT 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds[2] — HK(IFRIC) - INT 6 Liabilities Arising from Participating in a Specific Market - Waste, Electrical and Electronic Equipment[3] — HK(IFRIC) - INT 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[4] 1 Effective for the annual period beginning on or after 1 January 2007 2 Effective for the annual period beginning on or after 1 January 2006 3 Effective for the annual period beginning on or after 1 December 2005 4 Effective for the annual period beginning on or after 1 March 2006

3. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumption concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

There is no significant risk of key assumptions concerning the future and other key sources of estimation at the balance sheet date which will cause an adjustment to carrying amounts of assets and liabilities within the next year.

There are no significant effects on amounts recognised in the financial statements arising from the judgment or estimates used by management.

4. Significant Accounting Policies

The financial statements have been prepared in accordance with HKFRSs and HKASs issued by the HKICPA. They have been prepared under the historical cost convention. The principal accounting policies adopted are set out below:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, until the date such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly, controls more than 50% of its voting power or issued share capital or controls the composition of its board of directors or has power to govern its financial and operating policies.

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Property, plant and equipment

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

— 41 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Depreciation and amortisation are provided to write off the cost of items of property, plant and equipment over their estimated useful lives, using the straight-line method, at the following rates per annum:

Leasehold land Over the shorter of the term of the lease, or 50 years Buildings Over the shorter of the term of the lease, or 50 years Plant and machinery 12% Furniture, fixtures and equipment 20-33[1] ⁄3%

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

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 loss is recognised as an expense immediately.

When 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.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed or when the relevant sales contracts become unconditional.

Interest income is recognised as it accrues using the effective interest method.

Foreign currencies

In preparing the financial statements, transactions in currencies other than the Group entity’s functional currency (foreign currencies) are recorded at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

On consolidation, the assets and liabilities of the Group’s operations outside Hong Kong 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.

— 42 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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

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

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

Financial instruments

Financial assets

The Group’s financial asset is classified as available-for-sale investments.

Available-for-sale investments are those non-derivative financial assets in equity securities or are not classified in any of the other three categories under the scope of HKAS 39. After initial recognition, available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. For investments where there is no active market and whose fair value cannot be reliably measured, such investments are measured at cost less any impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts.

— 43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with bank and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

Trade and other payables

Trade and other payable are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings using the effective interest method.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are taken to equity as a deduction, net of tax, from the proceeds.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rental payments applicable to such operating leases are charged to the income statement on the straight-line basis over the lease periods.

Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are charged to the income statement in the year in which they are incurred.

Provision

Provision are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

Employee benefits costs

Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

Contributions to Mandatory Provident Fund as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the income statement as incurred.

— 44 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Share-based payments

The Company operates share option schemes for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company, if applicable.

The cost of equity-settled transaction is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date of which the relevant employees became fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settlement transactions at each balance sheet date until the vesting date reflects the extent to which (i) the vesting period has expired, and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movements in cumulative expense recognised as at the beginning and end of the period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

— 45 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. Revenue and Other Income

The principal business of the Group is trading of base metals and fabric products and other merchandises to outsider customers. Turnover and revenue recognised during the year are as follows:

Turnover Sales revenue from trading of base metals Sales revenue from trading of fabric products and other merchandises Other income Interest income Exchange gain Others Total income	2005 HK$’000 44,937 23,456	2004 HK$’000 13,522 8,783
	68,393 160 — 314 474	22,305
		4 7 2
		13
	68,867	22,318

6. Business and Geographical Segments

Business segments

For management purposes, the Group is currently organised into two operating divisions - trading in base metals and trading in fabric products and other merchandises. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Continuing operations:
Trading in base metals	—	trading in base metals
Trading in fabric products and	—	trading in fabric products and other merchandises
other merchandises
Discontinued operation:
Fabric processing	—	processing of raw fabric and the sale of finished fabric

In 2002, former directors of the Company determined to cease the Group’s fabric processing operation which had been carried out under Chaoyang Hua Loong. Chaoyang Hua Loong was de-consolidated from the Group with effect from 1 January 2004, hence, except for the gain on de-consolidation of a subsidiary and allowance made on advance to an investee company, no results, assets and liabilities were attributable to the fabric processing operation during the year ended 31 December 2004. Details are set out in note 14.

— 46 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Segment information about these businesses is presented below.

2005

Turnover
External sales
Results
Segment profit
Unallocated corporate expenses
Credit arising from a scheme of arrangement
with creditors
Finance costs - interest on other loans
Profit before taxation
Income tax expense
Profit for the year
Balance Sheet
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities

Continuing operations
Discontinued
operation
Trading
in base
metals
Trading
in fabric
products and
other
merchandises
Fabric
processing
Consolidated
HK$’000
HK$’000
HK$’000
HK$’000
44,937
23,456
—
68,393
110
966
—
1,076
(8,214)
15,421
(1,744)
6,539
(38)
6,501
432
1,719
—
2,151
40,852
43,003
—
1,570
—
1,570
19,552
21,122

— 47 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2004

Turnover
External sales
Results
Segment profit
Allowance for advance to an investee
company
Gain on de-consolidation of a subsidiary
Unallocated corporate expenses
Finance costs - interest on other loans
Loss before taxation
Income tax expense
Loss for the year
Balance Sheet
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities

Continuing operations
Discontinued
operation
Trading
in base
metals
Trading
in fabric
products and
other
merchandises
Fabric
processing
Consolidated
HK$’000
HK$’000
HK$’000
HK$’000
22
8,783
—
22,305
121
393
—
514
—
—
(24,806)
(24,806)
—
—
11,624
11,624
(23,265)
(335)
(36,268)
(31)
(36,299)
622
6,635
—
7,257
50,271
57,528
1,287
3,467
—
4,754
37,394
42,148

— 48 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

The following tables provide an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

Hong Kong Africa	Sales revenue by geographical market 2005 2004 HK$’000 HK$’000 49,635 14,788 18,758 7,517 68,393 22,305	Sales revenue by geographical market 2005 2004 HK$’000 HK$’000 49,635 14,788 18,758 7,517 68,393 22,305
		22,305

All segment assets are located in Hong Kong. There was no addition of property, plant and equipment for each of the year ended 31 December 2004 and 2005 respectively.

7. Credit Arising from a Scheme of Arrangement with Creditors

On 28 February 2005, Merchants (Hong Kong) Limited (“Merchants HK”), a wholly-owned subsidiary of the Company, held a meeting with its creditors pursuant to the Order of The Honourable Deputy Justice Poon on 2 February 2005 authorising the convening of such meeting, at which a scheme of arrangement (the “Scheme”) allowing Merchants HK to compromise its debts with its creditors was duly approved by the creditors present thereat. A petition hearing before the High Court took place on 19 April 2005 at which the Court also sanctioned the Scheme, the Order for which was duly filed with the Registrar of Companies in Hong Kong on the same date whereupon the Scheme has become fully effective with the effect of reducing the Group’s liabilities by approximately HK$15,421,000.

8. Administrative Expenses

	2005	2004
	HK$’000	HK$’000
Administrative expenses include the following:
Auditors’ remuneration	250	430
Depreciation and amortisation	7	17
Legal and professional fees	4,760	5,093
Loss on disposal of property, plant and equipment	16	112
Retirement benefits scheme contributions, net of nil (2004: Nil) forfeited
contributions	55	15
Staff costs, including directors’ emoluments (Note 9) (NB)	1,513	496

NB: Staff costs to the amount of HK$213,000 (2004: HK$80,000) was also included in distribution costs in the consolidated income statement.

— 49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Directors’ and Employees’ Emoluments

The remuneration of each director for the year ended 31 December 2005 and 2004 are set out below.

2005

Executive directors Yue Jialin Lau Yau Cheung Independent Non-Executive Directors Wong Wing Kuen, Albert Tsui Robert Che Kwong Wu Guo Jian Total 2004 Executive directors Yue Jialin Lau Yau Cheung Independent Non-Executive Directors Wong Wing Kuen, Albert Tsui Robert Che Kwong Wu Guo Jian Total	Fees Salaries, allowances, and benefits in kind Retirement scheme contribution HK$’000 HK$’000 HK$’000 — — — — 300 15 40 — — 40 — — 40 — — 120 300 15 Fees Salaries, allowances, and benefits in kind Retirement scheme contribution HK$’000 HK$’000 HK$’000 — — — — — — 20 — — 20 — — 20 — — 60 — —	Total HK$’000 — 315 40 40 40
		435
		Total HK$’000 — — 20 20 20
		60

During the year ended 31 December 2005, Mr. Lau Yau Cheung waived part of the emoluments amounting to HK$300,000, which were excluded in the above disclosure. Apart from the above, no director has waived or agreed to waive any emoluments during the years ended 31 December 2005 and 2004.

— 50 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Of the five individuals with the highest emoluments in the Group, one (2004: one) individual was a director of the Company whose emoluments are included in the disclosure set out above. The aggregate emoluments of the five highest paid individuals were as follows:

Salaries and allowances Retirement benefits scheme contributions	2005 HK$’000 1,393 55 1,448	2004 HK$’000 456 15
		471

The remuneration of each of the five highest paid individuals for the years ended 31 December 2005 and 2004 fell within Nil to HK$1,000,000 band.

During the years ended 31 December 2005 and 2004, no emoluments were paid by the Group to any of the directors or the five highest paid individuals, including directors and employees, as an inducement to join or upon joining the Group or as compensation for loss of office.

10. Income Tax Expense

Hong Kong Profits Tax is calculated at 17.5% of the assessable profit for the year.

The charge for the year can be reconciled to the profit/(loss) before taxation per the income statement as follows:

Profits /(loss) before taxation Tax at Hong Kong Profits Tax rate of 17.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax loss not recognised Utilisation of tax loss previously not recognised Tax charge for the year	2005 HK$’000 6,539	2004 HK$’000 (36,268)
	1,144 1,454 (2,755) 193 2	(6,347) 8,309 (2,051) 120 —
	38	31

At 31 December 2005, the Group had unused tax losses of approximately HK$4,164,000 (2004: HK$23,702,000) available for offset against future profits. No deferred tax asset has been recognised in respect of such losses due to the unpredictability of future profit streams. The tax losses may be carried forward indefinitely.

The Company had no significant unprovided deferred taxation at the balance sheet date.

— 51 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. Earnings/(Loss) Per Share

The calculation of the basic earnings/(loss) per share is based on the profit for the year of HK$6,501,000 (2004: loss of HK$36,299,000) and on 413,000,000 (2004: 413,000,000) shares in issue during the year.

Diluted loss per share has not been presented for the years ended 31 December 2005 and 2004 as there were no potential dilutive shares outstanding during both years.

12. Property, Plant and Equipment

Leasehold land and buildings Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 HK$’000 47,578 24,985 1,017 — — (201) (47,578) (24,985) —	Leasehold land and buildings Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 HK$’000 47,578 24,985 1,017 — — (201) (47,578) (24,985) —	Leasehold land and buildings Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 HK$’000 47,578 24,985 1,017 — — (201) (47,578) (24,985) —	Total HK$’000 73,580 (201) (72,563) 816 816 (816) — 49,685 17 (89) (48,820) 793 793 7 (800) — — 23
— — — — 33,030 — — (33,030) — — — — —	— — — — 15,790 — — (15,790) — — — — —	816 816 (816) — 865 17 (89) — 793 793 7 (800) —	816
			816 (816
			—
			49,685 17 (89 (48,820
			793
			793 7 (800
			—
— —	— —	— 23

— 52 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. Interests in Subsidiaries

Unlisted investments Amounts due from subsidiaries, less allowances Less: Impairment loss	The Company 2005 2004 HK$’000 HK$’000 75,274 75,274 6,296 32,121 81,570 107,395 (75,274) (75,274) 6,296 32,121	The Company 2005 2004 HK$’000 HK$’000 75,274 75,274 6,296 32,121 81,570 107,395 (75,274) (75,274) 6,296 32,121
	81,570 (75,274)	107,395 (75,274
	6,296

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment. In the opinion of the Directors, the amounts will not be repaid in the next twelve months from the balance sheet date and the amounts are therefore shown as non-current.

At the balance sheet date, the Directors had reviewed the carrying value of the investments in subsidiaries and identified that the recoverable amounts of certain subsidiaries were estimated to be lower than the carrying values of the investment in the respective subsidiary. The recoverable amount was determined by the Directors with reference to the existing operation plan and the recoverable value of the underlying assets and liabilities of the respective subsidiaries.

Particulars of the Company’s subsidiaries at 31 December 2005 are set out in note 29.

14. Available-for-sale Investment/Investment in Security

Overseas unlisted investment security (Note 20) Advance to an investee company Less: Allowance	The Group 2005 2004 HK$’000 HK$’000 — — 24,806 24,806 (24,806) (24,806) — —

The investment represents a 100% equity interest in the registered capital of Chaoyang Hua Loong Textiles and Dyeing Limited (“Chaoyang Hua Loong”), a company established in the PRC which is engaged in fabric processing and manufacturing. On 12 April 2003, the Company entered into a sale and purchase agreement to dispose of the entire issued share capital of Park Well International Group Limited (“Park Well”), including the 100% equity interest in Chaoyang Hua Loong held by a wholly-owned subsidiary of Park Well, to Show Goods Inc., a company incorporated in the British Virgin Islands, (the “Park Well Disposal Agreement”). Based on the Receivers’ (who were appointed on 17 June 2003 and were discharged on 2 July 2004) investigations, they are of the view that despite the Park Well Disposal Agreement, the purported disposal of Park Well was rescinded and not completed and therefore the Company remains to be the beneficial owner of Park Well. The Receivers had since then taken steps to secure control over various companies comprising the Park Well Group. However, Chaoyang Hua Loong remains not under the control of the Company. Having obtained legal advice, in the opinion of the directors, the Group is still unable to exercise control over the financial and operating decisions of Chaoyang Hua Loong. Accordingly, Chaoyang

— 53 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Hua Loong was not regarded as a subsidiary of the Company with effect from 1 January 2004 and was accounted for as an investment security and stated in the consolidated balance sheet at 31 December 2004 at nil value. The investment was reclassified as available-for-sale investment upon adoption of HKAS 39 in January 2005. Details of which are set out in note 20.

The advance to Chaoyang Hua Loong is unsecured, non-interest bearing and has no fixed terms of repayment. Despite the efforts placed by the directors to secure control over Chaoyang Hua Loong and its related assets and in light of the events described above, the directors have made full allowance against the advance to Chaoyang Hua Loong in the interests of prudence.

15. Trade and Other Receivables

The Group allows an average credit period of 60 days to its trade customers.

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

Trade receivables - 0 to 30 days Other receivables	The Group 2005 2004 HK$’000 HK$’000 2,151 7,249 35,375 35,327 37,526 42,576	The Group 2005 2004 HK$’000 HK$’000 2,151 7,249 35,375 35,327 37,526 42,576
		42,576

The balance at the balance sheet date includes an amount of approximately HK$35.1 million (2004: HK$35.1 million) receivable from Great Center Limited (the “Debt”). Details of the Debt, and related litigations, are set out in notes 24(i) to (iii). Subsequent to the balance sheet date, on 12 April 2006, the Company and its controlling shareholder, Profit Harbour entered into a deed of assignment, pursuant of which Profit Harbour has conditionally agreed to acquire from the Company, the Debt at the consideration of US$4.5 million (equivalent to approximately HK$35.1 million) (the “Assignment of Debt”). The Assignment of Debt constitutes a connected transaction and a major transaction of the Company under the Rules Governing the Listing of Securities on of The Stock of Exchange of Hong Kong Limited and is therefore subject to independent shareholders’ approval.

16. Trade and Other Payables

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

Trade payables 0 to 30 days Over 365 days Other payables	The Group 2005 2004 HK$’000 HK$’000 1,554 3,069 — 1,287	The Group 2005 2004 HK$’000 HK$’000 1,554 3,069 — 1,287
	1,554 4,499	4,356 22,737
	6,053	27,093

— 54 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. Secured Other Loans

As at 31 December 2005, the secured other loans bear interest at the Hong Kong Prime Rate plus 5% per annum and are due on 30 October 2006. Details of the assets pledged are set out in note 25.

18. Share Capital

Number of ordinary shares of HK$0.10 each Authorised: At 1 January 2004, 31 December 2004 and 31 December 2005 1,000,000,000 Issued and fully paid: At 1 January 2004, 31 December 2004 and 31 December 2005 413,000,000	Amount HK$’000 100,000
	41,300

19. Share Options Schemes

The existing share option scheme was adopted by the Company pursuant to an ordinary resolution passed on 22 September 2004 for the primary purpose of providing incentives to directors and eligible employees, and will expire on 21 September 2014 (the “Scheme”). Under the Scheme, the board of directors of the Company may grant options to eligible persons, including directors of the Company and its subsidiaries, to subscribe for shares in the Company.

Options granted must be taken up within 28 days of the date of grant, upon payment of HK$1 per grant. Options may be exercised at any time from the date of grant of the share option to the 10th anniversary of the date of grant. The exercise price is determined by the directors of the Company, and will not be less than the highest of the closing price of the Company’s shares on the date of grant, the nominal value of the Company’s shares and the average closing price of the shares for the five business days immediately preceding the date of grant.

The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue as at 22 September 2004, being the date of passing of the resolution regarding the Scheme, without prior approval from the Company’s shareholders. The number of shares in respect of which options may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. Options granted to substantial shareholders or independent Non-Executive Directors in excess of 0.1% of the Company’s share capital or with a value in excess of HK$5 million must be approved in advance by the Company’s shareholders.

No option has been granted under the Scheme since its adoption.

— 55 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. De-consolidation of a Subsidiary

As set out in note 14, having obtained legal advice, in the opinion of the Directors the Group is not in a position to exercise control over the financial and operating decisions of Chaoyang Hua Loong. Accordingly, Chaoyang Hua Loong was not regarded as a subsidiary of the Company with effect from 1 January 2004 and was excluded from the consolidated financial statements of the Company on the same date.

Net liabilities de-consolidated: Property, plant and equipment Trade and other payables Advance from Park Well Taxation payable Gain on de-consolidation of a subsidiary Reclassification of investment in a subsidiary to investment security (Note 14)	2005 HK$’000 — — — —	2004 HK$’000 23,743 (515) (24,806) (10,046) (11,624) 11,624 —
	— —	(11,624 11,624
	—

Chaoyang Hua Loong was de-consolidated during the year ended 31 December 2004 and it did not contribute to the turnover, operating results or cash flows of the Group.

21. Major Non-cash Transaction

As detailed on note 7 above, during the year, a wholly-owned subsidiary of the Company had effected a scheme of arrangement with creditors, with which the Group’s liabilities were reduced by approximately HK$15,421,000.

During the year ended 31 December 2004, other receivables amounting to HK$14,134,000, which were offset against other payables of the same amount in prior year by the Receivers, were carried at their respective gross amounts.

22. Financial Risk Management

The Group’s activities exposed it mainly to currency risk and credit risk. The Group’s overall risk management programme seeks to minimize potential adverse effects on the Group’s financial performance.

Currency risk

The Group operates internationally and certain trade receivables are denominated in foreign currencies, which is mainly in United Stated dollars that are pegged with Hong Kong dollars. Therefore, the Group does not have any significant exposure to currency risk.

— 56 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Credit risk

The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. It arises primarily from the Group’s bank deposits and trade and other receivables. The Group only traded with recognised and creditworthy third parties. Receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. Bank balances are placed with high-credit-quality institutions and directors of the Company considered that the credit risk for such is minimal.

Interest rate risk

The Group’s interest rate risk relates to impact of interest rate changes on interest bearing secured other loan. The interest rates and terms of repayment of the borrowings are disclosed in note 17.

The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

23. Commitments

Operating Lease - The Group as lessee

		2005	2004
		HK$’000	HK$’000
Minimum	lease payments under operating leases in respect of rented premises
during	the year	465	748

At the balance sheet date, the Group had commitments for future minimum lease payments under noncancellable operating leases in respect of rented premises, which fall due as follows:

Within one year In the second to fifth year inclusive	The Group 2005 2004 HK$’000 HK$’000 366 252 153 — 519 252	The Group 2005 2004 HK$’000 HK$’000 366 252 153 — 519 252
		252

Operating lease payments represent rental payable by the Group for certain of its office premises. Leases are negotiated for an average term of two years.

Capital Commitment

On 19 April 2005, the Company has entered into a Heads of Terms with a third party in respect of a proposed acquisition of a company which is engaged in the trading of electronics parts at a consideration of HK$4,500,000.

Apart from the above, the Company and/or the Group had no commitment at the balance sheet date.

— 57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. Litigation and Contingent Liabilities

At 31 December 2005, the Group had the following litigation and contingent liabilities:

(i) Having obtained legal advice, the Receivers commenced legal proceedings on 2 July 2003 against Great Center Limited (“Great Center”), a company incorporated in the British Virgin Islands, for the repayment of two sums totaling US$4.5 million (or approximately HK$35.1 million), remitted on or about 21 May 2003 with no apparent justification, from the bank accounts of Merchants (Hong Kong) Limited (“Merchants HK”), a wholly-owned subsidiary of the Company, to a bank account maintained in the name of Great Center, and interest thereon, damages and costs of the legal proceedings (“the Great Center Action”). In order to prevent the dissipation of Great Center’s assets, an injunction order was applied for, and successfully obtained on 30 June 2003, from the High Court to restrict Great Center from, inter alia, disposing of or otherwise dealing with or diminishing assets of Great Center up to the value of US$4.5 million (the “Injunction Order”). The relevant bank, the lawyers of Great Center and other relevant persons have been notified of the Injunction Order. The Injunction Order remained valid up to and including 11 July 2003 on which date the Injunction Order was continued until further order or final determination of the Great Center Action.
(ii) The writ of summons issued on 2 July 2003 in relation to the claim against Great Center for the repayment of US$4.5 million was amended on 10 July 2004 (the “Amended Writ”) to include the claims for (i) the repayment of HK$12.8 million remitted from a bank account of the Company to a bank account in the name of Great Center on or about 17 April 2003; and (ii) the repayment of HK$22.0 million remitted from a bank account of the Company to a bank account in the name of Modern Shine Enterprises Limited (“Modern Shine”), a company incorporated in the British Virgin Islands, on or about 22 April 2003, interest thereon, damages and costs of legal proceedings. The sum of claims under the Amended Writ amounts to approximately HK$69.9 million (the “Great Center Claim”). The Amended Writ also includes a bank in Hong Kong, Modern Shine, certain former executive directors, officers and employees of the Group, and all directors or authorised signatories of Great Center and Modern Shine as defendants (the “Defendants”) for the purposes of seeking orders against them for the disclosure of documents and/or information. An application was made on 10 July 2003 to the High Court for an order (the “Disclosure Order”) that the Defendants disclose to the Company and Merchants HK all relevant information and documents relating to the transfers of the amounts comprising the Great Center Claim. The Disclosure Order was granted by the High Court on 18 July 2003.
(iii) Solicitors instructed by the directors have pursued the claim against Great Center and Modern Shine further and obtained the following directions from the court:
(a) The Company do file and serve its list of documents by 21 March 2005;
(b) Great Center and Modern Shine do file and serve their lists of documents by 28 March 2005;
(c) There be inspection of documents by 11 April 2005;
(d) The parties do exchange signed witness statements of facts within 25 April 2005;
(e) The application for leave to set the case down for trial be adjourned to 25 April 2005 at 10:00 a.m. before the Listing Clerk for fixing an appointment before the Listing Master;
(f) The application to set down was adjourned by the court to a date to be fixed as Greater Centre was not ready to exchange its witness statements with the Company; and
(g) The date to exchange witness statements was postponed to 14 September 2005. The Company will apply to set down for trial after the exchange of witness statements.

— 58 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Company and Great Center have exchanged their lists of documents and solicitors for the Company have received copy documents from Great Center’s solicitors for inspection. Modern Shine has failed to comply with the direction to file and serve its list of documents. Solicitors for the Company have taken out an application against Modern Shine for an order that it must serve and file its list of documents within 7 days of the order, failing which solicitors for the Company will further apply for an order that unless Modern Shine do comply with the direction of the court within 14 days, judgment be entered against it for the full amount claimed. After that it will be for the Company to trace the assets of Modern Shine in order to recover the judgment sum. As Modern Shine has failed to file its list of documents within the time limit imposed by the court, the court entered judgment against Modern Shine on 7 November 2005 for the sum of HK$22,000,000 plus interest and damages for conversion and interest thereon.

Regarding the claim against Great Center, the Company is in negotiation with Great Center’s liquidators for an amicable settlement.

(iv) As a result of the information provided to the Company and Merchants HK under the Disclosure Order, the Receivers have discovered that, together with certain funds out of the Great Center Claim, an aggregate amount of approximately HK$37 million was transferred, by a series of transfers, by Great Center and Modern Shine to Win Victory Holdings Limited (“Win Victory”), a company incorporated in Hong Kong and Mr. Chau Ching Ngai, former substantial shareholder of the Company and the spouse of Ms. Mo Yuk Ping, and Ms. Mo Yuk Ping, former chairman of the Company, are the registered shareholders of 49% and 51%, respectively, of the issued share capital of Win Victory, without apparent legitimate commercial reason. Having obtained legal advice, the Receivers commenced legal proceedings on 23 August 2003 against WinVictory (the “Win Victory Action”) for the repayment of the HK$37 million, interest thereon, damages and costs of legal proceedings (the “Win Victory Claim”). It should be noted that should any of the amount claimed against Win Victory be recovered from Great Center and/or Modern Shine in the Great Center Claim such amounts will be taken into account in the Win Victory Action. In order to prevent the dissipation of Win Victory’s assets, the Company applied for, and obtained on 22 August 2003, from the High Court an injunction order against Win Victory (the “Win Victory Injunction Order”) to restrict Win Victory from, among other things, disposing of or otherwise dealing with or diminishing the value of its assets up to the value of HK$37 million. On 29 August 2003, the Win Victory Injunction Order was continued until further order or final determination of the Win Victory Action.
(v) Having obtained legal advice, the Receivers, on behalf of the Company, petitioned for the winding-up of Win Victory on the grounds that Win Victory is unable to pay its debts and/or it is just and equitable for Win Victory to be wound up and obtained an order from the High Court on 24 September 2003, among other things, appointing Messrs. Desmond Chung Seng Chiong and Roderick John Sutton of Ferrier Hodgson Limited of 14th Floor, Hong Kong Club Building, 3A Chater Road, Hong Kong as the provisional liquidators of Win Victory. In the first instance, this order would remain valid up to and including 7 October 2003, on which date the matter would be heard again by the High Court.
(vi) The appointment of Provisional Liquidators is continued by an order of the court made by Madam Justice Kwan on 7 October 2003 until the determination of the Winding Up Petition, which has been adjourned. Due to the lack of funds in Win Victory, the Provisional Liquidators have not undertaken an extensive investigation. The Provisional Liquidators have recently made an application to the court for the discharge of their appointment and their application is fixed to be heard on 20 April 2006. The continuation of the Petition was to enable a more thorough investigation of the flow of funds in and out of Win Victory. The Petition is being opposed by Mr. Chau Ching Ngai. Solicitors for the Company will continue with the Winding Up proceedings. In view of the application by the Provisional Liquidators, the official receiver made an application to restore the Petition, which has been adjourned to 24 April 2006 for hearing. The court had on the hearing of 24 April 2006 ordered that Win Victory be wound-up on the petition of the Company.

— 59 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(vii) Solicitors for the Company issued a writ of Summons on 17 December 2004 against Mr. Tsoi Hon Chung and his son Mr. Tsoi Chun Bun for the return of all statutory books, records and documents of Park Well Group on the basis that on 15 July 2003, those documents were sent by Secretaries Limited to Mr. Tsoi Chun Bun as the agent of Mr. Tsoi Hon Chun, who was at the material times the sole director of Park Well. The Company has a copy of the signed receipt by Mr. Tsoi Chun Bun for the above documents. Both Mr. Tsoi Hon Chun and Mr. Tsoi Chun Bun deny the receipt and/or receipt as agent of such statutory books and records in their Defence filed in February 2005. Solicitors for the Company have taken out a Summons for Directions for the exchange of lists of documents and witness statements in order to set the case down for trial. The court made an order for Directions on 27 April 2005 and the Company has exchanged list of documents with Mr. Tsoi Hon Chung and Mr. Tsoi Chun Bun. Mr. Tsoi Hon Chung has filed his witness statements denying knowledge of the whereabouts of the statutory books, records and document so the Park Well Group. Mr. Tsoi Chun Bun has exchanged his witness statement with the Company 20 August 2005.
Pledge of Assets

		The	Group	The	Company
		2005	2004	2005	2004
		HK$’000	HK$’000	HK$’000	HK$’000
(a)	Banking facilities of HK$4 million
	(2004: HK$8 million) granted by a bank
	and secured by bank deposits of the Group	4,012	8,000	—	—
(b)	Other loan facilities of HK$15 million
	(2004: HK$15 million) granted by a
	financial institution and secured by
	floating charges over:
	— Trade and other receivables	1,864	6,853	145	218
	— Bank balances and cash	1,376	6,917	7	5,566
		3,240	13,770	152	5,784
		7,252	21,770	152	5,784

In addition, the Company’s interests in its subsidiaries had been pledged under floating charges to secure the other loan facilities granted by a financial institution to the Group.

26. Retirement Benefits Scheme

The Group operates a Mandatory Provident Fund scheme for all qualifying employees of its Hong Kong subsidiaries. The assets of the scheme are held separately from those of the Group in funds under the control of trustees. The Group contributed 5% of the relevant payroll costs to the scheme, which contribution is matched by employees.

The total cost charged to the consolidated income statement of HK$55,000 (2004: HK$15,000) represents contributions payable to the scheme by the Group at rates specified in the rules of the scheme.

At the balance sheet date, there was no forfeited contribution, which arose upon employees leaving the retirement benefits scheme and which was available to reduce the contribution payables in the future years.

— 60 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. Related Party Transactions

Other than related party transactions in respect of key management personnel remuneration which was disclosed in note 9 above, the Group had no material related party transactions during the years ended 31 December 2005 and 2004.

28. Post Balance Sheet Events

The following event took place subsequent to 31 December 2005.

On 12 April 2006, the Company and its controlling shareholder, Profit Harbour entered into a deed of assignment, pursuant of which Profit Harbour has conditionally agreed to acquire from the Company, the Debt at the consideration of US$4.5 million (equivalent to approximately HK$35.1 million) (the “Assignment of Debt”). The Assignment of Debt constitutes a connected transaction and a major transaction of the Company under the Rules Governing the Listing of Securities on of The Stock of Exchange of Hong Kong Limited and is therefore subject to independent shareholders’ approval.

29. Particulars of Subsidiaries

Particulars of the subsidiaries of the Company as at 31 December 2005 are as follows:

			Proportion of	Proportion of
	Place/country of		nominal	value of
	incorporation/	Paid up issued	issued capital held		by	Principal
	establishment	ordinary share	the Company			activities
Name of subsidiary	and operations	capital	Directly	Indirectly
			%		%
Asia Cheer Trading Limited	Hong Kong	HK$1 ordinary	100		—	Trading in fabric
		share				products and other
						merchandises
First Landmark Limited	British Virgin	US$1 ordinary	100		—	Investment holding
	Islands	share
Merchants HK	Hong Kong	HK$2 ordinary	—	100		Inactive
		shares
Park Well International Group	British Virgin	US$6 ordinary	100		—	Investment holding
Limited	Islands	shares
Sino Chance Trading Limited	Hong Kong	HK$1 ordinary	100		—	Trading in base
		share				metals
Sky Joy Management Limited	Hong Kong	HK$1 ordinary	100		—	Provision of
		share				management
						services

The above list contains only the particular of subsidiaries which principally affected the results, assets or liabilities of the Group.

— 61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

Set out below is the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2006 together with the comparative unaudited figures for the corresponding period in 2005, extracted from 2006 interim report of the Company.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2006

Notes Revenue 6 Cost of sales Gross profit Other income Credit arising from a scheme of arrangement with creditors Distribution costs Administrative expenses 7 Finance costs (Loss)/profit before taxation Taxation 8 (Loss)/profit for the period (Loss)/earnings per share - Basic 9	Six months ended 30 June 2006 2005 HK$’000 HK$’000 (unaudited) (unaudited) 5,788 41,055 (5,774) (39,298) 14 1,757 183 30 — 15,421 — (762) (5,331) (4,927) (958) (841) (6,092) 10,678 (2) (146) (6,094) 10,532 (1.48) cents 2.55 cents	Six months ended 30 June 2006 2005 HK$’000 HK$’000 (unaudited) (unaudited) 5,788 41,055 (5,774) (39,298) 14 1,757 183 30 — 15,421 — (762) (5,331) (4,927) (958) (841) (6,092) 10,678 (2) (146) (6,094) 10,532 (1.48) cents 2.55 cents
	14 183 — — (5,331) (958) (6,092) (2)	1,757 30 15,421 (762 (4,927 (841
		10,678 (146
	(6,094) (1.48) cents

— 62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 June 2006

		30 June	31 December
		2006	2005
	Notes	HK$’000	HK$’000
		(unaudited)	(audited)
Non-current assets
Available-for-sale investment	10	—	—
Current assets
Trade and other receivables	11	748	37,526
Pledged bank deposits	17	2,014	4,012
Bank balances and cash		20,426	1,465
		23,188	43,003
Current liabilities
Trade and other payables	12	7,367	6,053
Secured other loans		—	15,000
Tax payable		34	69
		7,401	21,122
Net current assets		15,787	21,881
Total assets less current liabilities		15,787	21,881
Capital and reserves
Share capital	13	41,300	41,300
Reserves		(25,513)	(19,419)
Equity attributable to equity holders of the parent		15,787	21,881

— 63 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2006

	Share	Share	Special	Accumulated
	capital	premium	reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2005	41,300	106,957	(14,980)	(117,897)	15,380
Profit for the period	—	—	—	10,532	10,532
At 30 June 2005	41,300	106,957	(14,980)	(107,365)	25,912
At 1 January 2006	41,300	106,957	(14,980)	(111,396)	21,881
Loss for the period	—	—	—	(6,094)	(6,094)
At 30 June 2006	41,300	106,957	(14,980)	(117,490)	15,787

— 64 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2006

	Six months ended	Six months ended
	30	June
	2006	2005
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Net Cash From/(Used In) Operating Activities	31,780	(2,093)
Net Cash From/(Used In) Investing Activities	2,181	(17)
Net Cash Used In Financing Activities	(15,000)	—
Net Increase/(Decrease) in Cash and Cash Equivalents	18,961	(2,110)
Cash and Cash Equivalents at 1 January	1,465	6,929
Cash and Cash Equivalents at 30 June	20,426	4,819
Analysis of the balances of cash and cash equivalents
Bank balances and cash	20,426	4,819

— 65 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30 June 2006

1. General

The Company is incorporated as an exempted company with limited liability in Bermuda under the Companies Act 1981 of Bermuda (as amended) and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The directors regard Profit Harbour Investments Limited (“Profit Harbour”), a company incorporated in the British Virgin Islands, to be the parent and ultimate parent company of the Company. The address of its registered office is Clarendon House, 2 Church street, Hamilton HM11, Bermuda and the address of its principal office in Hong Kong is Rooms 2808-10, 28/F., Wing On House, 71 Des Voeux Road Central, Hong Kong.

The Company and its subsidiaries (collectively referred to as “the Group”) are principally engaged in the trading of base metals and fabric products and other merchandises.

These condensed consolidated interim financial statements (“Interim Financial Statements”) are presented in Hong Kong dollars (“HK$”), which is the Company’s functional and presentation currency. These Interim Financial Statements have been approved for issue by the Board of Directors on 8 September, 2006.

2. Basis of Preparation and Accounting Policies

These unaudited Interim Financial Statements are prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34, “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

These Interim Financial Statements should be read in conjunction with the 2005 annual report.

3. Change In Accounting Policies

The accounting policies adopted are consistent with those of the consolidated financial statements for the year ended 31 December 2005.

The following new standards, amendments to standards and interpretations which are relevant to the Group’s operations are mandatory for the financial year ending 31 December 2006.

—	HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures
—	HKAS 21 (Amendment)	The Effects of Changes in Foreign Exchange Rates — Net Investment in a
		Foreign Operation
—	HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup Transactions
—	HKAS 39 (Amendment)	The Fair Value Option
—	HKAS 39 and HKFRS 4	Financial Instruments: Recogntion and Measurement and Insurance Contracts
	(Amendment)	— Financial Guarantee Contracts
—	HK(IFRIC) - INT 4	Determining Whether an Arrangement Contains a Lease

The adoption of the above new/revised standards and interpretations did not result in substantial change to the Group’s accounting policies.

— 66 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Capital Disclosures[[1]]

— HKAS 1 (Amendment) Capital Disclosures[[1]] — HKFRS 7 Financial Instruments: Disclosures[1] — HK(IFRIC) — INT 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] — HK(IFRIC) — INT 8 Scope of HKFRS 2[3] — HK(IFRIC) — INT 9 Reassessment of Embedded Derivatives[4]

1 Effective for the period beginning on or after 1 January 2007
2 Effective for the period beginning on or after 1 March 2006
3 Effective for periods beginning on or after 1 May 2006
4 Effective for periods beginning on or after 1 June 2006

4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

The Group makes estimates and assumption concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

There are no significant effects on amounts recognised in the financial statements arising from the judgment or estimates used by management.

5. Financial Risk Management

Currency risk

Credit risk

— 67 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. Segment Information

Business segments

For management purposes, the Group is currently organised into two operating divisions — trading in base metals and trading in fabric products and other merchandises. These divisions are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

Six months ended 30 June 2006

		Trading in
		fabric products
	Trading in	and other
	base metals	merchandises	Consolidated
	HK$’000	HK$’000	HK$’000
Revenue
External sales	5,788	—	5,788
Results
Segment profit	15	65	80
Unallocated corporate expenses			(5,214)
Finance costs — interest on other loans			(958)
Loss before taxation			(6,092)
Taxation			(2)
Loss for the period			(6,094)

— 68 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Six months ended 30 June 2005

Trading in base metals Trading in fabric products and other merchandises Consolidated HK$’000 HK$’000 HK$’000 Revenue External sales 23,015 18,040 41,055 Results Segment profit 83 768 851 Unallocated corporate expenses (4,763) Unallocated corporate income 10 Finance costs — interest on other loans (841) Credit arising from a scheme of arrangement with creditors 15,421 Profit before taxation 10,678 Taxation (146) Profit for the period 10,532	Trading in base metals Trading in fabric products and other merchandises Consolidated HK$’000 HK$’000 HK$’000 Revenue External sales 23,015 18,040 41,055 Results Segment profit 83 768 851 Unallocated corporate expenses (4,763) Unallocated corporate income 10 Finance costs — interest on other loans (841) Credit arising from a scheme of arrangement with creditors 15,421 Profit before taxation 10,678 Taxation (146) Profit for the period 10,532	Trading in base metals Trading in fabric products and other merchandises Consolidated HK$’000 HK$’000 HK$’000 Revenue External sales 23,015 18,040 41,055 Results Segment profit 83 768 851 Unallocated corporate expenses (4,763) Unallocated corporate income 10 Finance costs — interest on other loans (841) Credit arising from a scheme of arrangement with creditors 15,421 Profit before taxation 10,678 Taxation (146) Profit for the period 10,532
		851
		(4,763) 10 (841) 15,421
		10,678 (146)
		10,532

Geographical segments

The following tables provide an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

		Six months ended	Six months ended
		30 June
		2006		2005
		HK$’000	HK$’000
		(unaudited)	(unaudited)
Hong	Kong	5,788		27,713
Africa		—		13,342
		5,788		41,055

— 69 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. Administrative Expenses

	Six months ended	Six months ended
	30 June
	2006	2005
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Administrative expenses include the following:
Depreciation and amortisation	—	7
Legal and professional fees	3,133	3,062
Retirement benefits scheme contributions	37	20
Staff costs, including directors’ emoluments	843	575

8. Taxation

Hong Kong profits tax is calculated at 17.5% (2005: 17.5%) of the assessable profit for the period.

The Company had no significant unprovided deferred taxation at the balance sheet date.

9. (Loss)/Earnings Per Share

The calculation of the basic (loss)/earnings per share is based on the loss for the period of HK$6,094,000 (2005: profit of HK$10,532,000) and on 413,000,000 (2005: 413,000,000) shares in issue during the period.

Diluted (loss)/earnings per share has not been presented for the six months ended 30 June 2006 and 2005, as there were no potential dilutive shares outstanding during both periods.

10. Available-For-Sale Investment

30 June 2006 31 HK$’000 (Unaudited) Advance to an investee company 24,806 Less: Allowance (24,806) —	December 2005 HK$’000 (Audited) 24,806 (24,806)
	—

The investment represents a 100% equity interest in the registered capital of Chaoyang Hua Loong Textiles and Dyeing Limited (“Chaoyang Hua Loong”), a company established in the PRC which is engaged in fabric processing and manufacturing. On 12 April 2003, the Company entered into a sale and purchase agreement to dispose of the entire issued share capital of Park Well International Group Limited (“Park Well”), including the 100% equity interest in Chaoyang Hua Loong held by a wholly-owned subsidiary of Park Well, to Show Goods Inc., a company incorporated in the British Virgin Islands, (the “Park Well Disposal Agreement”). Based on the Receivers’ investigations, they are of the view that despite the Park Well Disposal Agreement, the purported disposal of Park Well was rescinded and not completed and therefore the Company remains to be the beneficial owner of Park Well. The Receivers had since then taken steps to secure control over various companies comprising

— 70 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

the Park Well Group. However, Chaoyang Hua Loong remains not under the control of the Company. Having obtained legal advice, in the opinion of the Directors, the Group is still unable to exercise control over the financial and operating decisions of Chaoyang Hua Loong. Accordingly, Chaoyang Hua Loong was not regarded as a subsidiary of the Company with effect from 1 January 2004 and was accounted for as an investment security and stated in the consolidated balance sheet at 31 December 2004 at nil value. The investment was reclassified as available-for-sale investment upon adoption of HKAS 39 in January 2005.

The advance to Chaoyang Hua Loong is unsecured, non-interest bearing and has no fixed terms of repayment. Despite the efforts placed by the Directors to secure control over Chaoyang Hua Loong and its related assets and in light of the events described above, the Directors have made full allowance against the advance to Chaoyang Hua Loong in the interests of prudence.

11. Trade and Other Receivables

The Group allows an average credit period of 60-90 days to its trade customers.

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

30 June 2006 31 HK$’000 (Unaudited) Trade receivables - 0 to 30 days 545 Other receivables 203 748	December 2005 HK$’000 (Audited) 2,151 35,375
	37,526

The fair value of the trade and other receivables approximates its carrying amount.

The balance at 31 December 2005 included an amount of approximately HK$35.1 million receivable from Great Center Limited (the “Debt”). Details of the Debt, and related litigations, are set out in notes 24(i) to (iii) of the annual report for the year ended 31 December 2005. On 12 April 2006, the Company and its controlling shareholder, Profit Harbour Investments Limited (“Profit Harbour”) entered into a deed of assignment, pursuant of which Profit Harbour has conditionally agreed to acquire from the Company the Debt at the consideration of US$4.5 million (equivalent to approximately HK$35.1 million) (the “Assignment of Debts”). The Assignment of Debts constitutes a connected transaction and a major transaction of the Company under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and were approved by independent shareholders by way of poll on special general meeting of the Company held on 23 May 2006. On 26 May 2006, the amount was deposited into a bank account of the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. Trade and Other Payables

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

30 June 2006 31 HK$’000 (Unaudited) Trade payables - 0 to 30 days — Other payables 7,367 7,367 The fair value of trade and other payables approximates its carrying amount.	December 2005 HK$’000 (Audited) 1,554 4,499
	6,053

Share Capital

	Number of
	ordinary shares of
	HK$0.10 each	Amount
		HK$’000
Authorised:
At 1 January 2006	1,000,000,000	100,000
Increased during the period	1,000,000,000	100,000
At 30 June 2006	2,000,000,000	200,000
Issued and fully paid:
At 1 January 2006 and 30 June 2006	413,000,000	41,300

Pursuant to a special resolution passed on 19 June 2006, the authorised share capital of the Company was increased to HK$200,000,000 by the creation of 1,000,000,000 shares of HK$0.1 each.

14. Share Options Schemes

The Company adopted the share option scheme (the “Scheme”) on 22 September 2004, under which the board of directors of the Company may grant options to eligible persons, including directors of the Company and its subsidiaries, to subscribe for shares in the Company. The purpose of the Scheme is to provide incentives to directors and eligible employees. The Scheme will expire on 21 September 2014.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

No option has been granted under the Scheme since its adoption.

15. Commitments

At the balance sheet date, the Group had commitments for future minimum lease payments under non- cancellable operating leases in respect of rented premises, which fall due as follows:

30 June 2006 31 HK$’000 (Unaudited) Within one year 335 In the second to fifth year inclusive — 335	December 2005 HK$’000 (Audited) 366 153
	519

16. Litigation and Contingent Liabilities

At 30 June 2006, the Group had the following litigation and contingent liabilities:

(i) Having obtained legal advice, the Receivers commenced legal proceedings on 2 July 2003 against Great Center Limited (“Great Center”), a company incorporated in the British Virgin Islands, for the repayment of two sums totaling US$4.5 million (or approximately HK$35.1 million), remitted on or about 21 May 2003 with no apparent justification, from the bank accounts of Merchants (Hong Kong) Limited (“Merchants HK”), a wholly-owned subsidiary of the Company, to a bank account maintained in the name of Great Center, and interest thereon, damages and costs of the legal proceedings (“the Great Center Action”). In order to prevent the dissipation of Great Center’s assets, an injunction order was applied for, and successfully obtained on 30 June 2003, from the High Court to restrict Great Center from, inter alia, disposing of or otherwise dealing with or diminishing assets of Great Center up to the value of US$4.5 million (the “Injunction Order”). The relevant bank, the lawyers of Great Center and other relevant persons have been notified of the Injunction Order. The Injunction Order remained valid up to and including 11 July 2003 on which date the Injunction Order was continued until further order or final determination of the Great Center Action.
(ii) The writ of summons issued on 2 July 2003 in relation to the claim against Great Center for the repayment of US$4.5 million was amended on 10 July 2004 (the “Amended Writ”) to include the claims for (i) the repayment of HK$12.8 million remitted from a bank account of the Company to a bank account in the name of Great Center on or about 17 April 2003; and (ii) the repayment of HK$22.0 million remitted from a bank account of the Company to a bank account in the name of Modern Shine Enterprises Limited (“Modern Shine”), a company incorporated in the British Virgin Islands, on or about 22 April 2003, interest thereon, damages and costs of legal proceedings. The sum of claims under the Amended Writ amounts to approximately HK$69.9 million (the “Great Center Claim”). The Amended Writ also includes a bank in Hong Kong, Modern Shine, certain former executive

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

directors, officers and employees of the Group, and all directors or authorised signatories of Great Center and Modern Shine as defendants (the “Defendants”) for the purposes of seeking orders against them for the disclosure of documents and/or information. An application was made on 10 July 2003 to the High Court for an order (the “Disclosure Order”) that the Defendants disclose to the Company and Merchants HK all relevant information and documents relating to the transfers of the amounts comprising the Great Center Claim. The Disclosure Order was granted by the High Court on 18 July 2003.

(iii) Solicitors instructed by the Directors have pursued the claim against Great Center and Modern Shine further and obtained the following directions from the court:
(a) The Company do file and serve its list of documents by 21 March 2005;
(b) Great Center and Modern Shine do file and serve their lists of documents by 28 March 2005;
(c) There be inspection of documents by 11 April 2005;
(d) The parties do exchange signed witness statements of facts within 25 April 2005;
(e) The application for leave to set the case down for trial be adjourned to 25 April 2005 at 10:00 a.m. before the Listing Clerk for fixing an appointment before the Listing Master;
(f) The application to set down was adjourned by the court to a date to be fixed as Great Center was not ready to exchange its witness statements with the Company; and
(g) The date to exchange witness statements was postponed at 14 September 2005. The Company will apply to set down for trial after the exchange of witness statements.

Regarding the claim against Great Center, the Company is in negotiation with Great Center’s liquidators for an amicable settlement.

(iv) As a result of the information provided to the Company and Merchants HK under the Disclosure Order, the Receivers have discovered that, together with certain funds out of the Great Center Claim, an aggregate amount of approximately HK$37 million was transferred, by a series of transfers, by Great Center and Modern Shine to Win Victory Holdings Limited (“Win Victory”), a company incorporated in Hong Kong and Mr. Chau Ching Ngai, former substantial shareholder of the Company and the spouse of Ms. Mo Yuk Ping, and Ms. Mo Yuk Ping, former chairman of the Company, are the registered shareholders of 49% and 51%, respectively, of the issued share capital of Win Victory, without apparent legitimate commercial reason. Having obtained legal advice, the Receivers commenced legal proceedings on 23 August 2003 against Win Victory (the “Win Victory Action”) for the repayment of the HK$37 million, interest thereon, damages and costs of legal proceedings (the “Win Victory

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Claim”). It should be noted that should any of the amount claimed against Win Victory be recovered from Great Center and/or Modern Shine in the Great Center Claim such amounts will be taken into account in the Win Victory Action. In order to prevent the dissipation of Win Victory’s assets, the Company applied for, and obtained on 22 August 2003, from the High Court an injunction order against Win Victory (the “Win Victory Injunction Order”) to restrict Win Victory from, among other things, disposing of or otherwise dealing with or diminishing the value of its assets up to the value of HK$37 million. On 29 August 2003, the Win Victory Injunction Order was continued until further order or final determination of the Win Victory Action.

(v) Having obtained legal advice, the Receivers, on behalf of the Company, petitioned for the winding-up of Win Victory on the grounds that Win Victory is unable to pay its debts and/or it is just and equitable for Win Victory to be wound up (the “Winding-Up Petition”) and obtained an order from the High Court on 24 September 2003, among other things, appointing Messrs. Desmond Chung Seng Chiong and Roderick John Sutton of Ferrier Hodgson Limited of 14th Floor, Hong Kong Club Building, 3A Chater Road, Hong Kong as the provisional liquidators of Win Victory (the “Provisional Liquidators”). In the first instance, this order would remain valid up to and including 7 October 2003, on which date the matter would be heard again by the High Court.
(vi) The appointment of Provisional Liquidators is continued by an order of the Court made by Madam Justice Kwan on 7 October 2003 until the determination of the Winding-Up Petition, which has been adjourned. Due to the lack of funds in Win Victory, the Provisional Liquidators have not undertaken an extensive investigation. The Provisional Liquidators have recently made an application to the court for the discharge of their appointment and their application is fixed to be heard on 20 April 2006. The continuation of the Winding-Up Petition was to enable a more thorough investigation of the flow of funds in and out of Win Victory. In view of the application by the Provisional Liquidators, the Receivers made an application to restore the Winding-Up Petition, which has been adjourned to 24 April 2006 for hearing. The Court had on the hearing of 24 April 2006 ordered that Win Victory be wound-up. At the hearing on 6 September 2006, the Court had adjourned the Company’s application for the costs of Provisional Liquidators to be paid out of the assets of Win Victory and gave leave for the Company to provide documentary proof regarding the Provisional Liquidators’ fees.

17. Pledge of Assets

30 June 2006 31 HK$’000 (Unaudited) (a) Banking facilities of HK$2 million (2005: HK$4 million) granted by a bank and secured by bank deposits of the Group 2,014 (b) Other loan facilities of Nil (2005: HK$15 million) granted by a financial institution and secured by floating charges over: — Trade and other receivables — — Bank balances and cash — 2,014	30 June 2006 31 HK$’000 (Unaudited) (a) Banking facilities of HK$2 million (2005: HK$4 million) granted by a bank and secured by bank deposits of the Group 2,014 (b) Other loan facilities of Nil (2005: HK$15 million) granted by a financial institution and secured by floating charges over: — Trade and other receivables — — Bank balances and cash — 2,014	December 2005 HK$’000 (Audited) 4,012 1,864 1,376
	—	3,240
	2,014	7,252

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. Related Party Transactions

Key management personnel compensation:

Key management personnel compensation:
	Six months ended
	30 June
	2006	2005
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Basic salaries and other allowances	300	—
Bonuses	25	—
Retirement benefits scheme contributions	15	—
	340	—

Post Balance Sheet Events
(i) On 14 June 2006, Rise Cheer Limited (the “Purchaser”), a wholly owned subsidiary of the Company and the registered and beneficial owner (the “Vendor”) of 60% issued equity interest of Chinaright Electronics Limited (“Chinaright”), entered into an acquisition agreement. Pursuant to the acquisition agreement, the Purchaser has agreed to purchase and the Vendor agreed to sell the Sales Interest and the Sales Loan at face value to the Purchaser. The Sales Interest, being the 60,001 shares of nominal value of HK$1.00 each (representing approximately 60.0% of the entire issued capital of Chinaright) in the issued capital of Chinaright and the Sales Loan amounted to approximately HK$1 million. The consideration amounted to HK$2.0 million and will be satisfied by the issuance of the convertible bond by the Company upon the completion of the acquisition agreement. The transaction was completed on 19 July 2006.
(ii) The Company completed a rights issue on 14 July 2006, which raised gross proceeds of HK$82.6 million by issuing 826 million rights shares at HK$0.1 each. After the rights issue, Mr. Yue, via Profit Harbour, owns 928,699,801 shares of the Company.
(iii) On 24 August 2006, the convertible bond of HK$2 million issued to the Vendor as mentioned in (i) above was converted into 20,000,000 new shares of the Company.

WORKING CAPITAL

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

STATEMENT OF INDEBTEDNESS OF THE GROUP

Borrowings

At the close of business on 30 November 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had margin financing of approximately HK$72,185,000. Margin loan facility is secured by securities with carrying amount of A$22.8 million as at 30 November 2006.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-Group liabilities, as at the close of business of 30 November 2006, the Group did not have any debt securities issued and outstanding, or authorised or otherwise created but unissued, any term loans (secured, unsecured, guaranteed or not), any other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments (whether secured or unsecured, guaranteed or not), any mortgages or charges, or other material contingent liabilities or guarantee.

The Directors confirm that there is no material change in indebtedness and contingent liabilities of the Group since 30 November 2006 up to and including the Latest Practicable Date.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited accounts of the Company have been made up.

FINANCIAL AND TRADING PROSPECTS

Over the past few years the Company has continued to review and evaluate numerous business and investment opportunities consistent with its operations of trading particularly in the lucrative commodities industry. Until now the Company has not identified suitable investment or significant commodity trading opportunities in line with its corporate objectives and principal business activities. The Board believes that the Conditional Acquisition represents a unique strategic investment holding in the Australian resources sector upon which to build a significant investment and commodities trading portfolio primarily focused on the natural resources and related sectors.

The Company has identified a number of geographic regions and commodity markets which it believes present attractive opportunities to pursue the Company’s principal activities of commodities trading and strategic investment and where rationalization and consolidation is likely to occur.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

— 78 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following is the text of an accountants’ report from Graham H.Y. Chan & Co., the reporting accountants, on the unaudited pro forma financial information.

==> picture [38 x 38] intentionally omitted <==

GRAHAM H.Y. CHAN & CO. CERTIFIED PUBLIC ACCOUNTANTS HONG KONG

Unit 1, 15/F., The Center, 99 Queen’s Road Central, Hong Kong

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF SHANGHAI MERCHANTS HOLDINGS LIMITED

We report on the unaudited pro forma financial information of Shanghai Merchants Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on page 81 under the headings of “Pro Forma Financial Information of the Group” in Appendix II of the Company’s prospectus dated 4 January 2007, in connection with the rights issue of 1,259,000,000 rights shares at HK$0.30 per rights share on the basis of one rights share for every existing share held on the record date (the “Prospectus”). The unaudited pro forma financial information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the rights issue have affected the relevant financial information of the Group. The basis of preparation of the unaudited pro forma financial information is set out on page 81 of the Prospectus.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to AG7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

— 79 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29 (1) of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 June 2006 or any future date.

Opinion

In our opinion:

a. the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Graham H.Y. Chan & Co.

Certified Public Accountants (Practising) Hong Kong

4 January 2007

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PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following is the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group which has been prepared to illustrate the effect of the Rights Issue on the net tangible assets of the Group as if the Rights Issue had been completed on 30 June 2006. As it is prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial positions of the Group upon completion of the Rights Issue.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group is prepared based on the unaudited consolidated net tangible assets value of the Group as at 30 June 2006, as shown in the interim report of the Group for the six months ended 30 June 2006, and adjusted to reflect the effect of the Rights Issue.

Unaudited consolidated		Unaudited proforma
net tangible assets		adjusted consolidated net
of the Group as at	Estimated net proceeds	tangible assets immediately
30 June 2006	from the Rights Issue	after the Rights Issue
	(note 2)
HK$’000	HK$’000	HK$’000
15,787	374,000	389,787
Unaudited		Unaudited proforma
consolidated net		adjusted consolidated
tangible assets		net tangible assets
per share as at		per share immediately
30 June 2006		after the Rights Issue
(note 1)		(note 3)
HK$		HK$
0.038		0.23

Note:

The calculation of the unaudited consolidated net tangible assets per share is based on the unaudited consolidated net tangible assets of approximately HK$15,787,000, as shown in the interim report of the Group for the six months ended 30 June 2006 and 413,000,000 shares in issue as at 30 June 2006.
The estimated net proceeds from the proposed Rights Issue are based on 1,259,000,000 rights shares at a price of HK$0.30 per rights share, after deducting the estimated underwriting fees and other related expenses amounting to approximately HK$3.7 million to be incurred by the Company.
The unaudited proforma adjusted consolidated net tangible assets per share immediately after the Rights Issue is calculated based on the 413,000,000 shares in issue as at 30 June 2006 together with the 1,259,000,000 rights shares.

— 81 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

SUMMARY OF THE TERMS OF THE WARRANTS

The Warrants are proposed to be created and constituted by the instrument by way of deed poll executed by the Company (the “Instrument”) and will be issued in registered form and will form one class and rank pari passu in all respects with each other.

Warrantholders (as defined below) shall be entitled to the benefit of, be bound by, and be deemed to have notice of all the provisions of the Instrument. Copies of the Instrument, the principal provisions of which are summarised below, will be available at the registered office of the Company or such other place as may be notified to the Warrantholders (as defined below) from time to time.

References in this summary to “Shares” are to the shares of HK$0.10 each in the authorised share capital of the Company existing on the date of issue of the Warrants and all other (if any) stock or shares from time to time and for the time being ranking pari passu therewith and all other (if any) shares or stock in the Equity Share capital of the Company resulting from any sub-division, consolidation or re-classification of Shares.

Subscription
(a) The Warrantholder shall have rights (“Subscription Rights”) to subscribe in cash for fully-paid Shares but not in respect of any fraction of a Share at a price (subject to the adjustments referred to below) of HK$0.30 per Share (“Subscription Price”). Upon exercise of each Warrant, the Warrantholder is entitled to one share at the Subscription Price. The Subscription Rights attaching to the Warrants held by a Warrantholder may be exercised, in respect of all or part of the Warrants so held, at any time between the date when dealings in the Warrants on the Stock Exchange commence (which is expected to be 5 February, 2007) (“Commencement Date”) and a date before the 3rd Anniversary of the Commencement Date (which is expected to be 4 February, 2010) (both dates inclusive, and if either such date is not a Business Day, then the Business Day immediately preceding such date) (“Subscription Period”). Any Subscription Rights which have not been exercised during or before the end of the Subscription Period will thereafter lapse and the relevant Warrants will cease to be valid for any purpose.
(b) A Warrantholder may exercise his Subscription Rights by completing and signing the subscription form endorsed on the Warrant certificate or the separate subscription form which the Company permits to be used (both of which shall, once signed and completed, be irrevocable) and delivering the Warrant certificate, together with the separate subscription form if appropriate, to the warrant registrar of the Company for the time being (“Registrar”), together with a remittance for the subscription moneys for the Shares in respect of which the Subscription Rights are being exercised. The date on which such documents (duly completed and signed) and the relevant remittances are delivered to the Registrar shall be the date on which the relevant Subscription Rights are exercised and is hereafter referred to as the “Subscription Date”. In each case, compliance must also be made with any exchange control, fiscal or other laws or regulations for the time being applicable.

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

(c) No fraction of a Share will be allotted but any balance of the subscription moneys paid on the exercise of the Subscription Rights will be refunded by the Company to the relevant Warrantholder, provided that if the Subscription Rights comprised in two or more Warrant certificates are exercised by a Warrantholder on the same Subscription Date then, for the purpose of determining whether any (and if so what) fraction of a Share arises, the Subscription Rights represented by such Warrant certificates shall be aggregated.
(d) The Company undertakes in the Instrument that Shares falling to be issued upon the exercise of the Subscription Rights will be issued and allotted not later than twenty-eight (28) days after the relevant Subscription Date and will rank pari passu in all respects with the fully-paid Shares in issue on the relevant Subscription Date and accordingly shall entitle the holders thereof to participate in all dividends and/or other distributions declared, paid or made and/or offers of further securities made by the Company on or after the relevant Subscription Date unless adjustment thereof has been made as provided in Clause 4 of the Instrument and other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date (as defined in the Instrument) therefor is before the relevant Subscription Date and notice of the amount and record date therefor has been given to the Stock Exchange prior to the relevant Subscription Date.
(e) As soon as practicable after the relevant allotment of Shares (and not later than twenty-eight (28) days after the relevant Subscription Date), there will be issued free of charge to the Warrantholder:
(i) certificate (or certificates) for the relevant Shares in the name(s) of the Warrantholder(s);
(ii) (if applicable) a balancing Warrant certificate in registered form in the name(s) of such Warrantholder(s) in respect of any Subscription Rights comprised within the Warrant certificate(s) delivered as described in sub-paragraph (b) above remaining unexercised;
(iii) (if applicable) a cheque representing any fractional entitlement to Shares not allotted as mentioned in sub-paragraph (c) above; and
(iv) (if applicable) a Deficiency Certificate (as defined in the Instrument).

The certificate for Shares arising on the exercise of Subscription Rights, the balancing Warrant certificate (if any), the cheque in respect of a refund (if any) and the said Deficiency Certificate (if any) will be sent by post at the risk of the said Warrantholder to the address of such Warrantholder (or in the case of a joint holding to that one of the joint Warrantholders whose name stands first in the Register). If the Company agrees, such certificates and cheque may by prior arrangement be retained by the Registrar to await collection by the relevant Warrantholder.

— 83 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

2. Adjustment of Subscription Price

The Instrument contains detailed provisions relating to the adjustment of the Subscription Price. The following is a summary of, and is subject to, the provisions of clause 4 of the Instrument.

(a) The Subscription Price shall (except as mentioned in sub-paragraphs (b) and (c) below) be adjusted as provided in the Instrument in each of the following cases:
(i) an alteration to the nominal amount of the Shares by reason of any consolidation or subdivision;
(ii) an issue (other than pursuant to a scrip dividend scheme in lieu of a cash dividend) by the Company of Shares credited as fully-paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);
(iii) a capital distribution (as defined in the Instrument) being made by the Company, whether on a reduction of capital or otherwise, to holders of Shares (in their capacity as such);
(iv) a grant by the Company to the holders of Shares (in their capacity as such) of rights to acquire for cash any assets of the Company or any of its Subsidiaries (as defined in the Instrument);
(v) an offer of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe for new Shares, at a price which is less than 90% of the market price (calculation as provided in the Instrument) being made by the Company to holders of Shares (in their capacity as such);
(vi) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total Effective Consideration (as defined in the Instrument) per new Share is less than 90% of the market price (calculation as provided in the Instrument), or the conversion, exchange or subscription rights of any such issue are altered so that the said total Effective Consideration is less than 90% of the market price (calculation as provided in the Instrument);
(vii) an issue of Shares being made by the Company wholly for cash other than pursuant to a Share Option Scheme (as defined in the Instrument) at a price less than 90% of the market price (calculation as provided in the Instrument); and
(viii) the purchase by the Company of Shares or securities convertible into new Shares or any rights to acquire Shares (other than on the Stock Exchange or any other stock exchange) in circumstances where the Directors consider that it may be appropriate to make an adjustment to the Subscription Price.

— 84 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

(b) Except as mentioned in sub-paragraph (c) below, no such adjustment as is referred to in sub-paragraphs (a)(ii) to (viii) above will be made in respect of:
(i) an issue of fully-paid Shares upon the exercise of any conversion rights attached to securities convertible into Shares or upon the exercise of any rights (including the Subscription Rights) to acquire Shares;
(ii) an issue by the Company of Shares, or by the Company or any Subsidiary of securities convertible into or carrying rights to acquire Shares, in any such case in consideration of part consideration for the acquisition of any other securities, assets or business;
(iii) an issue of fully-paid Shares by way of capitalisation of all or part of the Subscription Right Reserve (as defined in the Instrument) to be established in certain circumstances pursuant to the terms and conditions contained in the Instrument (or any similar reserve which has been or may be established pursuant to the terms of any other securities convertible into or carrying rights to acquire Shares); or
(iv) an issue of Shares pursuant to a scrip dividend scheme in lieu of a cash dividend where an amount not less than the nominal amount of the Shares so issued is capitalised and the market value (calculation as provided in the Instrument) of such Shares is not more than 110% of the amount of dividend which holders of Shares could elect to or would otherwise receive in cash; or
(v) an issue by the Company of Shares or by the Company or any of its subsidiaries of securities convertible into or exchangeable for or carrying rights of subscription for Shares pursuant to a share option scheme.
(c) Notwithstanding the provisions referred to in sub-paragraphs (a) and (b) above, in any circumstances where the Directors consider that an adjustment to the Subscription Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Subscription Price should be made notwithstanding that no such adjustment is required under the said provisions or that an adjustment should take effect on a different date or with effect from a different time from that provided for under the said provisions, the Company may appoint either an Approved Merchant Bank or the Auditors (both as defined in the Instrument) to consider whether for any reason whatsoever the adjustment to be made (or the absence of adjustment) would or might not fairly and appropriately reflect the relevant interests of the persons affected thereby and, if such Approved Merchant Bank or the Auditors (as the case may be) shall consider this to be the case, the adjustment shall be modified or nullified, or an adjustment made instead of no adjustment, in such manner (including, without limitation, making an adjustment calculated on a different basis and/or the adjustment shall take effect from such other date and/or time) as shall be certified by the Approved Merchant Bank or the Auditors to be in their opinion appropriate.

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

(d) Any adjustment to the Subscription Price shall be made to the nearest one cent so that any amount under half a cent shall be rounded down and any amount of half a cent or more shall be rounded up and in no event shall any adjustment be made to the Subscription Price in any case in which the amount by which the Subscription Price would be reduced would be less than one cent and any adjustment which would otherwise then be required shall not be carried forward. In no event shall an adjustment be made (otherwise than upon the consolidation of Shares into shares of a larger nominal amount each or upon a repurchase of Shares) which would increase the Subscription Price or which would result in the Shares being issued at a discount to their nominal value (unless otherwise provided in the Instrument).
(e) Every adjustment to the Subscription Price shall be certified by the Approved Merchant Bank or the Auditors (acting as experts (and not as arbitrators) whose decision, in the absence of manifest error, shall be conclusive and binding on the Company and the Warrantholders) and notice of each adjustment (giving the relevant particulars) shall be given to the Warrantholders. Any such certificates of the Approved Merchant Bank and/or the Auditors will be available for inspection at the registered office of the Company or such other place as may be notified to the Warrantholders from time to time where copies may be obtained.
Registered Warrants

The Warrants will be issued in registered form. The Company shall be entitled to treat the registered holder(s) of any Warrants as the absolute owner(s) thereof and accordingly shall not, except as ordered by a court of competent jurisdiction or as required by law, be bound to recognise any equitable or other claim to or interest in such Warrants on the part of any other person, whether or not the Company has express or other notice thereof.

4. Transfer, transmission and registration

The Warrants will be transferable, in whole amounts or integral multiples of HK$0.30, by instrument of transfer in any usual or common form or in any other form which may be approved by the Directors. Where the transferor or the transferee is HKSCC Nominees Limited or its successor thereto (or such other company as may be approved by the Directors for this purpose), the transfers may be executed under the hands of authorized person(s) or by machine imprinted signature(s) on its behalf, as the case may be. The Company shall maintain a register of Warrantholders accordingly. Transfers of Warrants must be executed by both the transferor and the transferee. The provisions of the Company’s Bye-laws relating to the registration, transfer and transmission of Shares shall apply, mutatis mutandis, to the registration, transfer and transmission of the Warrants (except to the extent there are express provisions in relation thereto in the Instrument).

Persons who hold Warrants and have not registered the Warrants in their own names and wish to exercise the Warrants should note that they may incur additional costs and expenses in connection with any expedited re-registration of the Warrants prior to the transfer or exercise of the Warrants, in particular during the period commencing ten (10) Business Days prior to and including the last day for subscription (which is expected to be 4 February, 2010).

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

Since the Warrants will be admitted to CCASS, so far as applicable laws or regulations of relevant regulatory authorities, terms of the Instrument and circumstances permit, the Company may determine the last trading day of the Warrants to be a date at least three trading days before the last day of the Subscription Period (which is expected to be 4 February, 2010).

5. Closure of register of Warrantholders

The registration of transfers may be suspended and the register of Warrantholders may be closed for such periods as the Directors may from time to time direct, provided that the same may not be closed for a period, or for periods together, of more than thirty (30) days in any one year. Any transfer or exercise of the Subscription Rights attached to the Warrants made while the register of Warrantholders is so closed shall, as between the Company and the person claiming under the relevant transfer of Warrants or, as the case may be, as between the Company and the Warrantholder who has so exercised the Subscription Rights attached to his Warrants (but not otherwise), be considered as made immediately after the re-opening of the register of Warrantholders.

6. Purchase and cancellation

The Company or any Subsidiaries may at any time purchase Warrants:

(a) in the open market or by tender (available to all Warrantholders alike) at any price; or
(b) by private treaty at a price per Warrant, exclusive of expenses, not exceeding 110% of the closing price of the Warrants on the Stock Exchange prior to the date of purchase of the Warrants,

but not otherwise. All Warrants purchased shall be cancelled forthwith and may not be re-issued or re-sold.

7. Meetings of Warrantholders and modification of rights

(a) The Instrument contains provisions for convening meetings of Warrantholders to consider any matter affecting the interests of Warrantholders, including the modification by Special Resolution (as defined in the Instrument) of the provisions of the Instrument and/or of the Conditions. A Special Resolution duly passed at any such meeting of Warrantholders shall be binding on the Warrantholders, whether present or not.
(b) All or any of the rights for the time being attached to the Warrants (including any of the provisions of the Instrument) may from time to time (whether or not the Company is being wound up) be altered or abrogated (including, but without prejudice to that generality by waiving compliance with, or by waiving or authorising any past or proposed breach of, any of the provisions of the Conditions and/or the Instrument) with the prior sanction of a Special Resolution and may be effected only by deed poll executed by the Company and expressed to be supplemental to the Instrument.

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APPENDIX III

SUMMARY OF TERMS OF THE BONUS WARRANTS

(c) Where the Warrantholder is a recognised clearing house (within the meaning of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)) or its nominee(s), it may authorise such person or persons as it thinks fit to act as its representative (or representatives) or proxy (or proxies) at any Warrantholders’ meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number and class of Warrants in respect of which each such person is so authorised. The person so authorised will be entitled to exercise the same power on behalf of the recognised clearing house as that clearing house or its nominee(s) could exercise as if such person were an individual Warrantholder.

8. Quorum

A quorum of a meeting of Warrantholders will be two or more persons holding Warrants and/or being proxies and being or representing in the aggregate the holders of not less than 5% in value of the Subscription Rights for the time being outstanding or exercisable.

9. Replacement of Warrant certificates

If a Warrant certificate is mutilated, defaced, lost or destroyed, it may, at the Company’s discretion, be replaced at the office of the Registrar on payment of such costs which may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require and on payment of such fee not exceeding HK$2.50 per certificate (or such other amount as may from time to time be permitted under the rules of the Stock Exchange) as the Company may determine. Mutilated or defaced Warrant certificates must be surrendered before replacements will be issued.

In the case of lost Warrant certificates, section 71A of the Companies Ordinance shall apply as if shares referred to therein included Warrants.

10. Protection of Subscription Rights

The Instrument contains certain undertakings by and restrictions on the Company designed to protect the Subscription Rights.

11. Call

If at any time the aggregate of the amount of Exercise Moneys (as defined in the Instrument) attached to the outstanding Warrants is equal to or less than 20% of the amount of moneys payable on exercise of all the Warrants issued under the Instrument, then the Company may, on giving not less than three months’ notice, require Warrantholders either to exercise their Subscription Rights or to allow them to lapse. On expiry of such notice, all unexercised Warrants will be automatically cancelled, without compensation to Warrantholders.

12. Further issues

The Company shall be at liberty to issue further warrants in such manner and on such terms as it sees fit.

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

Undertakings by the Company

The Company undertakes in the Instrument that:

(a) upon the exercise of any Subscription Rights it will within twenty-eight (28) days after the relevant Subscription Date allot and issue the number of Shares for which subscription is made;
(b) all Shares allotted on the exercise of the Subscription Rights will rank pari passu in all respects with the fully-paid Shares in issue on the relevant Subscription Date and shall accordingly entitle the holders thereof to participate in full in all dividends and/or other distributions, declared, paid or made and/or offers of further securities made by the Company on or after the relevant Subscription Date unless adjustment therefor has been made as provided in the Instrument and other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the Record Date therefor shall be before the relevant Subscription Date and notice of the amount and Record Date for which shall have been given to the Stock Exchange prior to the relevant Subscription Date;
(c) it will send to each Warrantholder, at the same time as the same are sent to Shareholders, its audited financial statements and all other notices, reports and communications despatched by it to the Shareholders generally;
(d) it will pay (if applicable) all Hong Kong stamp and capital duties, registration fees or similar charges in respect of the execution of the Instrument, the creation and initial issue of the Warrants in registered form, the exercise of the Subscription Rights and the issue of Shares upon exercise of the Subscription Rights;
(e) it will use its best endeavours to ensure that all Shares allotted on exercise of the Subscription Rights shall be admitted to listing on the Stock Exchange provided that no admission shall be obtained in the event that the Shares cease to be listed on the Stock Exchange as a result of an offer being made to the holders of Shares (or to holders excluding the offeror and/or its nominee(s) to acquire all or a proportion of the Shares);
(f) it will keep available for issue sufficient Ordinary Capital (as defined in the Instrument) to satisfy in full all rights for the time being outstanding of subscription or conversion into Shares; and
(g) it will use its best endeavours to procure that at all times during the Subscription Period, the Warrants may be dealt in on the Stock Exchange (save that this obligation will lapse in the event that the listing of the Warrants on the Stock Exchange is withdrawn following an offer for all or any other Warrants), and all Shares allotted and issued upon exercise of the Subscription Rights may upon allotment and issue or as soon as reasonably practicable thereafter, be dealt on the Stock Exchange (save that this obligation will lapse in the event that the listing of the Shares on the Stock Exchange is withdrawn following an offer for all or any of the Shares where a like offer is extended to the Warrantholders).

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX III

Winding up of the Company
(a) If an effective resolution is passed during the Subscription Period for the voluntary winding-up of the Company, then if such winding-up is for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the Warrantholders, or some person(s) designated by them for such purpose by Special Resolution, shall be a party or in conjunction with which a proposal is made to the Warrantholders and is approved by Special Resolution, the terms of such scheme of arrangement or (as the case may be) proposal will be binding on all the Warrantholders; and
(b) in the event a notice is given by the Company to its Shareholders during the Subscription Period to convene a general meeting for the purposes of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as or soon after it despatches such notice to each Shareholder give notice thereof to all Warrantholders (together with a notice of the existence of this provision) and thereupon, each Warrantholder shall be entitled to exercise all or any of the Subscription Rights attaching to his Warrants at any time not later than two Business Days prior to the proposed general meeting of the Company by delivering to the Company the completed Subscription Form(s), accompanied by payment of the relevant subscription money, whereupon the Company shall as soon as possible and, in any event, no later than the Business Day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the Warrantholders credited as fully paid. Subject to the foregoing, if the Company is wound-up, all Subscription Rights which have not been exercised at the date of the passing of such resolution will lapse and each Warrant certificate will cease to be valid for any purpose.

15. Overseas Warrantholders

The Instrument contains provisions giving certain discretion to the Directors in the case of any Warrantholder who has a registered address in any territory (other than Hong Kong) where (after making enquiry regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange), in the opinion of the Directors, the issue of Shares upon exercise of any of the Subscription Rights represented by any Warrants held by such Warrantholder may be unlawful or impracticable.

16. Notices

The Instrument contains provisions relating to notices to be given to Warrantholders.

17. Governing law

The Instrument and the Warrants are governed by and will be construed in accordance with the laws of Hong Kong.

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GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This prospectus includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group.

The Directors collectively and individually accept the responsibility for the accuracy of the information contained in this prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge, information and belief, there are no other facts not contained in this prospectus, the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and completion of the Rights Issue and full exercise of the Bonus Warrants were as follows:

Authorised		HK$
2,000,000,000	Shares as at the Latest Practicable Date (Note)	200,000,000
Issued and fully paid or credited as fully paid
1,259,000,000	Shares as at the Latest Practicable Date	125,900,000
2,518,000,000	Shares after completion of the Rights Issue	251,800,000
2,769,800,000	Shares after completion of the Rights Issue and full	276,980,000
	exercise of the Bonus Warrants

Note: The Directors has proposed to seek the Shareholders’ approval at the SGM to approve the requisite resolution to increase the Company’s authorised capital from HK$200,000,000.00 to HK$800,000,000.00 divided into 8,000,000,000 Shares of nominal value of HK$0.10 each. The proposed increase of the authorised share capital will be subject to and become effective upon the passing of the ordinary resolution by the Shareholders at the SGM.

The issued Shares are listed on the Stock Exchange. No part of the Shares of the Company is listed or dealt in, nor is listing of or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

All existing Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital. The Shares in issue are listed on the Stock Exchange.

All Rights Shares, the Shares which may fall to be issued upon the exercise of the Bonus Warrants will be listed on the Stock Exchange. There is no arrangement under which future dividends are/will be waived or agreed to be waived as at the Latest Practicable Date.

No share or loan capital of the Company or any member of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant, derivative or conversion right affecting the Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

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GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF INTERESTS BY DIRECTORS

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

(a) Long position in Shares

		Number of	Approximate
Name of Director	Capacity and nature	ordinary shares	% holding
Mr. Yue	Interest of controlled	596,699,801	47.39 (Note 2)
	corporation (Note 1)
Long position in Shares	and Rights Shares *(Note 3*)
		Number of	Approximate %
Name of Director	Capacity and nature	ordinary shares	holding
Mr. Yue	Interest of controlled	1,193,399,602	47.39% (Note 3)
	corporation (Note 1)	(Note 3)

(b) Long position in Shares and Rights Shares (Note 3 )
(c) Long position in Shares and Rights Shares and the Shares which may fall to be issued upon the exercise of the Bonus Warrants (Note 4)

		Number of	Approximate %
Name of Director	Capacity and nature	ordinary shares	holding
Mr. Yue	Interest of controlled	1,312,739,562	47.39% (Note 4)
	corporation (Note 1)	(Note 4)

Notes:

These Shares are registered/will be registered (as the case may be) in the name of and beneficially owned by Profit Harbour.
The percentage shareholding is calculated on the basis of the Company’s issued share capital of 1,259,000,000 Shares as at the Latest Practicable Date.
Profit Harbour had undertaken to subscribe for its full entitlement under the Rights Issue which is 596,699,801 Rights Shares. As a result, Profit Harbour will hold 1,193,399,602 Shares in aggregate. The percentage shareholding is calculated on the basis of the Company’s issued share capital of 2,518,000,000 Shares as enlarged by the completion of the Rights Issue.

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GENERAL INFORMATION

APPENDIX IV

In addition to the details set out in Note 3 above, Profit Harbour will be entitled to 119,339,960 Shares which fall to be issued upon exercise of the Bonus Warrants attributed to it. As a result, Profit Harbour will hold 1,312,739,562 Shares in aggregate. The percentage of shareholding is calculated on the basis of the Company’s issued share capital of 2,769,800,000 Shares as enlarged by the completion of the Rights Issue and the Bonus Warrants being exercised in full by the respective holders.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.

Save as disclosed above, none of the Directors or proposed directors of the Company (if any) had any interest or short position in Shares or underlying Shares of the Company which would fall to be disclosed pursuant to the provision of Divisions 2 and 3 of Part XV of the SFO.

(d) Interests in competing businesses

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with any businesses of the Group.

(e) Interests in assets

As at the Latest Practicable Date, save for the Assignment of Debt which Mr. Yue Jialin (being the chairman and an executive director of the Company) was indirectly interested in as a result of his shareholding in Profit Harbour, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by or leased to any members of the Group since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

(f) Interests in contracts

None of the Directors was materially interested in any contracts or arrangements entered into by any members of the Group and subsisting as at the Latest Practicable Date which were significant in relation to the business of the Group.

(g) Remuneration of the Directors

There will be no variation in relation to the remuneration payable to and benefits in kind receivable by the Directors in consequence of the Conditional Acquisition.

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GENERAL INFORMATION

APPENDIX IV

4. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons (not being Directors or chief executives of the Company) had, or were deemed to have, interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company or the Stock Exchange under the provisions of Divisions 2 and 3 of part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had an option in respect of such capital:

(a) Long position in Shares and underlying Shares

		Number of
		Shares and	Approximate
		Underlying	% holding
Name of Shareholders	Capacity and nature	Shares	(Note 2)	Notes
Profit Harbour	Beneficial owner	1,312,739,562	104.27%	1,3
SHK International	Beneficial owner	434,760,239	34.53%	5
Sun Hung Kai Securities	Corporate Interests	1,234,760,239	98.07%	6,7
Limited (“SHK Securities”)	(interest of controlled
	corporation)
Sun Hung Kai & Co. Limited	Corporate Interests	1,234,760,239	98.07%	6,7
(“SHK”)	(interest of controlled
	corporation)
Allied Properties (H.K.)	Corporate Interests	1,234,760,239	98.07%	8
Limited (“APL”)	(interest of controlled
	corporation)
Allied Group Limited	Corporate Interests	1,234,760,239	98.07%	9
(“AGL”)	(interest of controlled
	corporation)
Lee and Lee Trust	Corporate Interests	1,234,760,239	98.07%	10
(“LL Trust”)	(interest of controlled
	corporation)
Benefit Rich Limited	Corporate Interests	660,000,000	52.42%	11
(“Benefit”)	(interest of controlled
	corporation)
Shougang	Beneficial owner	660,000,000	52.42%	12

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GENERAL INFORMATION

APPENDIX IV

(b) Long position in Rights Shares and the Shares which may fall to be issued upon the exercise of the Bonus Warrants in full and assuming the Placing Shares are fully placed out or underwritten

		Number of
		Shares and	Approximate
		Underlying	% holding
Name of Shareholders	Capacity and nature	Shares	(Note 4)	Notes
Profit Harbour	Beneficial owner	1,312,739,562	36.77%	1,3
SHK International	Beneficial owner	434,760,239	12.17%	5
SHK Securities	Corporate Interests	1,234,760,239	34.58%	6,7
	(interest of controlled
	corporation)
SHK	Corporate Interests	1,234,760,239	34.58%	6,7
	(interest of controlled
	corporation)
APL	Corporate Interests	1,234,760,239	34.58%	8
	(interest of controlled
	corporation)
AGL	Corporate Interests	1,234,760,239	34.58%	9
	(interest of controlled
	corporation)
LL Trust	Corporate Interests	1,234,760,239	34.58%	10
	(interest of controlled
	corporation)
Benefit	Corporate Interests	660,000,000	18.49%	11
	(interest of controlled
	corporation)
Shougang	Beneficial owner	660,000,000	18.49%	12

Notes:

The entire issued share capital of Profit Harbour is owned by Mr. Yue.
The percentage of shareholding is calculated on the basis of the Company’s issued share capital of 1,259,000,000 Shares as at the Latest Practicable Date.
Profit Harbour had undertaken to subscribe for its full entitlement under the Rights Issue which is 596,699,801 Rights Shares. As a result, Profit Harbour will hold 1,193,399,602 Shares in aggregate. Further, Profit Harbour will be entitled to 119,339,960 Shares which fall to be issued upon exercise of the Bonus Warrants attributed to it. Profit Harbour will therefore hold 1,312,739,562 Shares in aggregate after the completion of the Rights Issue and its entitlement to the Bonus Warrants are exercised in full.
Rights Shares refer to the 1,259,000,000 new Shares offered by the Company pursuant to the Rights Issue. Shares which fall to be issued upon exercise of the Bonus Warrants in full refer to 251,800,000 new Shares pursuant to the Bonus Warrants Issue. Shares pursuant to the Placing Agreement (as defined below) refer to 800,000,000 new

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GENERAL INFORMATION

APPENDIX IV

Shares (the “Placing Shares”). The number of existing issued shares of the Company plus the aforesaid new Shares will be 3,569,800,000 Shares in aggregate. The percentage of shareholding is calculated on the basis of the Company’s issued share capital of 3,569,800,000 Shares as enlarged by the completion of Rights Issue, the Bonus Warrants Issue and assuming the Placing Shares are fully placed out or underwritten.

The interest of SHK International as the Underwriter to the Rights Issue. It will fully underwrite the Rights Shares to the extent of 434,760,239 Rights Shares.
The interest of Sun Hung Kai Investment Services Limited (“SHKIS”) as placing agent, a wholly-owned subsidiary of SHK Securities, had entered into a placing agreement with the Company on 9 November 2006 (the “Placing Agreement”) in relation to the placing of the Placing Shares, which will be fully underwritten by SHKIS.
SHK International and SHKIS are both wholly-owned subsidiaries of SHK Securities, which is in turn a wholly-owned subsidiary of SHK. Accordingly, both SHK Securities and SHK are deemed to have the same long positions as SHK International and SHKIS under the SFO for the said 434,760,239 Rights Shares and 800,000,000 new Shares in the Company respectively, i.e. 1,234,760,239 new Shares in the Company in aggregate.
SHK is a non wholly-owned subsidiary of AP Emerald Limited, which is in turn a wholly-owned subsidiary of AP Jade Limited (“AP Jade”). AP Jade is a wholly-owned subsidiary of APL. Accordingly, APL is deemed to have the same long position as SHK under the SFO.
APL is a non wholly-owned subsidiary of AGL. Accordingly, AGL is deemed to have the same long position as APL under the SFO.
Mr. Lee Seng Hui, Ms. Lee Su Hwei and Mr. Lee Seng Huang are the trustees of the LL Trust, being a discretionary trust. They together owned approximately 41.25% interest in the issued share capital of AGL as at the Latest Practicable Date and were therefore deemed to have the same long position as AGL under the SFO.
Benefit was interested in 300,000,000 Shares and was a wholly-owned subsidiary of Shougang as at the Latest Practicable Date. Shougang had undertaken to procure Benefit to subscribe for its full entitlement under the Rights Issue which is 300,000,000 Rights Shares. As a result, Benefit will hold 600,000,000 Shares in aggregate (in which 300,000,000 Shares are the existing number of Shares held by Benefit as at the Latest Practicable Date). Further, Benefit will be entitled to 60,000,000 Shares which fall to be issued upon exercise of the Bonus Warrants attributed to it. Benefit will therefore hold 660,000,000 Shares in aggregate after the completion of the Rights Issue and its entitlement to the Bonus Warrants are exercised in full.
Benefit was a wholly-owned subsidiary of Shougang as at the Latest Practicable Date. As a result, Shougang is deemed to have the same long position as Benefit under the SFO for 660,000,000 Shares in aggregate after the completion of the Rights Issue and its entitlement to the Bonus Warrants are exercised in full.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any other persons (other than Directors or chief executives of the Company) had, or were deemed to have, interests or short positions in the Shares and underlying shares (including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

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GENERAL INFORMATION

APPENDIX IV

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any members of the Group excluding contracts expiring or determinable by the employer within one year without payment of compensations other than statutory compensation.

6. MATERIAL LITIGATIONS

As at the Latest Practicable Date, so far as the Directors are aware, the following are the only litigations or claims of material importance which have been pending or threatened against any members of the Group:

Reference is made to the disclosure of litigation and contingent liabilities in the annual reports 2005 and 2004 of the Company.

After taking legal advice, the receivers of the Company, Mr. Alan Chung Wah Tang and Ms. Alison Wong Lee Fung Ying, both from Grant Thornton, Certified Public Accountants (the “ Receivers ”), commenced legal proceedings on 2 July 2003 against Great Center for the repayment of two sums totaling US$4.5 million (or approximately HK$35.1 million), remitted on or about 21 May 2003 with no apparent justification, from the bank of Merchants (Hong Kong) Limited, to a bank account maintained in the name of Great Center, and interest thereon, damages and costs of the legal proceedings (the “Great Center Action”).
The writ of summons issued on 2 July 2003 in relation to the claim against Great Center for the repayment of US$4.5 million was amended on 10 July 2004 (the “Amended Writ”) to include the claims for (i) the repayment of HK$12.8 million remitted from a bank account of the Company to a bank account in the name of Great Center on or about 17 April 2003; and (ii) the repayment of HK$22.0 million remitted from a bank account of the Company to a bank account in the name of Modern Shine Enterprises Limited (“Modern Shine”), a company incorporated in the British Virgin Islands, on or about 22 April 2003, interest thereon, damages and costs of legal proceedings. The sum of claims under the Amended Writ amounts to approximately HK$69.9 million. At last, the court entered judgment against Modern Shine on 7 November 2005 for the sum of HK$22,000,000 plus interest and damages for conversion and interest thereon. Regarding the claim against Great Center, the Company has reached an amicable settlement with Great Center’s liquidators. The settlement was approved by the court on 6th November 2006. The terms of the settlement are that the Company will accept US$2,637,000 plus interest. The Company expects to receive the settlement sum by the end of November 2006. The Company has not obtained the judgment sum of HK$22,000,000. Since Modern Shine is a company incorporated in the British Virgin Islands, it makes the enforcement extremely costly. Further, the Company has no information on the financial status and asset position of Modern Shine. As advised by the legal advisers to the Company, the viable course of action includes the petitioning for winding up of Modern Shine, which is also a very costly process.

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GENERAL INFORMATION

APPENDIX IV

On 23 August 2003, the Receivers commenced legal proceedings against Win Victory Holdings Limited (“Win Victory”), a company incorporated in Hong Kong, for the repayment of a sum of HK$37.0 million, together with interest thereon, damages and costs of the legal proceedings. Further, the Receivers, on behalf of the Company, petitioned for the winding-up of Win Victory on the grounds, inter alia, that Win Victory is unable to pay its debts and provisional liquidators were appointed. Due to the lack of funds in Win Victory, the provisional liquidators have not undertaken an extensive investigation and have recently made an application to the court for the discharge of their appointment and their application is fixed to be heard on 20 April 2006. The continuation of the winding-up petition was to enable a more thorough investigation of the flow of funds in and out of Win Victory. In view of the application by the provisional liquidators, the official receiver made an application to restore the winding-up petition, which has been adjourned to 24 April 2006 for hearing. The court had on the hearing of 24 April 2006 ordered that Win Victory be wound-up on the petition of the Company. The Company is making arrangement to prove its debts and to recover its costs of the winding up proceedings in the liquidation of Win Victory.

The Directors are of the opinion that the above litigations or claims would have no material impact on the operations of the Group.

As at the Latest Practicable Date and save for those disclosed above, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any members of the Group.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of this prospectus and are or may be material:

(i) the loan agreement and the supplemental loan agreement dated 30 August 2004 and 22 November 2004 respectively entered into between the lender, being an independent third party and qualified money lender under the Money Lenders Ordinance, and the Company, pursuant to which the lender had agreed to provide to the Company a six months term loan facility commencing from the drawdown date on 30 August 2004, for an amount of HK$5,000,000.00 at the interest rate of 1% per month payable monthly in arrears, and such loan facility were subsequently increased to HK$15,000,000.00 pursuant to the supplemental loan agreement commencing from the drawdown of such increased sum on 22 November 2004;
(ii) the loan agreement dated 26 April 2005 entered into between the lender, being an independent third party and qualified money lender under the Money Lenders Ordinance, and the Company, pursuant to which the lender had agreed to provide to the Company a term loan for one year for amount of HK$15,000,000 with interests at 5% per annum over prime interest rate payable monthly in arrears, and such term loan was subsequently renewed on 23 August 2005;

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GENERAL INFORMATION

APPENDIX IV

(iii) the deed of assignment dated 12 April 2006 entered into between the Company and Profit Harbour in relation to the assignment of debt of US$4.5 million in full at face value from the Company to Profit Harbour;
(iv) the conditional agreement dated 11 May 2006 entered into between the Company and Sun Hung Kai International Limited relating to the underwriting and after arrangements in respect of the previous rights issue of 826,000,000 new Shares of the Company offered on the basis of two rights shares for every existing Share of the Company held on 19 June 2006, at the subscription price of HK$0.10 per rights share, details of which are disclosed in the circular and the prospectus of the Company dated 2 June 2006 and 20 June 2006 respectively;
(v) the agreement dated 14 June 2006 entered into among the Company, Professional Trading Limited and Rise Cheer Limited (a wholly-owned subsidiary of the Company) regarding the acquisition of approximately 60% interest in Chinaright Electronics Limited for an aggregate consideration of HK$2.0 million to be satisfied by the issue of the convertible bond by the Company upon completion thereof, the details of which are disclosed in the circular of the Company dated 30 June 2006;
(vi) the option agreement dated 14 June 2006 entered into between Professional Trading Limited and Rise Cheer Limited (a wholly-owned subsidiary of the Company) granting to Rise Cheer Limited an option to put to Professional Trading Limited for repurchase for an aggregate consideration of HK$800,000 all of the 60% interest in Chinaright Electronics Limited together with an amount represented by the amount of debt owed by Chinaright Electronics Limited to Professional Trading Limited as at completion of the acquisition, the details of which are disclosed in the circular of the Company dated 30 June 2006;
(vii) the deed dated 14 June 2006 in respect of the assignment of the debt of approximately HK$1 million (owed by Chinaright Electronics Limited to Professional Trading Limited as at the date of completion of the acquisition agreement) executed by Professional Trading Limited in favour of Rise Cheer Limited as part of the acquisition, the details of which are disclosed in the announcement of the Company dated 15 June 2006;
(viii) the Acquisition Agreement;
(ix) the Underwriting Agreement; and
(x) the Placing Agreement.

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GENERAL INFORMATION

APPENDIX IV

8. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this prospectus:

Name Qualification

Graham H. Y. Chan & Co. Certified Public Accountants (Practising)

Graham H. Y. Chan & Co. has given and not withdrawn its written consent to the issue of this prospectus with the inclusion of its letters or reports dated 4 January 2007 and references to its name in the form and context in which it appears.

9. EXPERT’S INTEREST IN ASSETS

As at the Latest Practicable Date, Graham H. Y. Chan & Co., Certified Public Accountants (Practising), did not have any shareholding interest in any members of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any members of the Group.

As at the Latest Practicable Date, Graham H. Y. Chan & Co. did not have any direct or indirect interests in any assets which had since 31 December 2005 (being the date to which the latest published audited consolidated financial statements of the Group were made up) been acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired or disposed of by or leased to any member of the Group.

10. CORPORATE INFORMATION

Registered office Clarendon House 2 Church Street Hamilton HM11 Bermuda Head office and principal place Rooms 2808-10 of business 28th Floor Wing On House 71 Des Voeux Road Central Hong Kong

Authorised representatives Lau Yau Cheung and Ng Kwok Ping

Company secretary and qualified Ng Kwok Ping accountant

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GENERAL INFORMATION

APPENDIX IV

Hong Kong legal advisers to the	P. C. Woo & Co.
Company	12th Floor, Prince’s Building
	10 Chater Road
	Central
	Hong Kong
Bermuda legal advisers to the	Conyers Dill & Pearman
Company	2901 One Exchange Square
	8 Connaught Place
	Hong Kong
Auditors	Graham H. Y. Chan & Co.
	Certified Public Accountants (Practising)
	Unit 1, 15th Floor, The Center
	99 Queen’s Road Central
	Hong Kong
Principal bankers	Standard Chartered Bank (Hong Kong) Limited
	13th Floor Standard Chartered Bank Building
	4-4A Des Voeux Road Central
	Hong Kong
	Liu Chong Hing Bank Limited
	24 Des Voeux Road Central
	Hong Kong
Principal share registrar and	Butterfield Fund Services (Bermuda) Limited
transfer office	Rosebank Centre
	11 Bermudiana Road
	Pembroke
	Bermuda
Hong Kong branch share registrar	Secretaries Limited
and transfer office	26th Floor, Tesbury Centre
	28 Queen’s Road East
	Wanchai, Hong Kong

11. EXPENSES

The expenses in connection with the Rights Issue and the Bonus Warrants Issue, including financial and legal advisory fees, underwriting commission, printing and translation expenses, are estimated to be approximately HK$3,700,000 and will be payable by the Company.

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GENERAL INFORMATION

APPENDIX IV

12. PARTICULARS OF DIRECTORS AND SENIOR MANAGEMENT

Name Address

Executive Directors

Yue Jialin Apartment E-09, Sha He Golf Course Shenzhen PRC Lau Yau Cheung Flat A, 14/F., Block 3 Flora Garden 7 Chun Fai Road Jardine’s Lookout Hong Kong Independent Non-Executive Directors Wong Wing Kuen, Albert Flat D, 18/F., Ilford Court Perth Garden 5 Perth Street Ho Man Tin Kowloon Tsui Robert Che Kwong Flat 1, 1/F., Block 1 Middleton Towers 140 Pok Fu Lam Road Hong Kong Yang Weiming No.201, 20 Dong, Lian Hua Ercun, Futian Qu Shenzhen Shi People’s Republic of China Michael Joseph Bogue 81 Cliff Avenue Northbridge NSW 2063 Australia Senior Management Ng Kwok Ping Flat F, 6/F., Block 6 Oscar By The Sea 8 Pung Loi Road Tseung Kwan O New Territories

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GENERAL INFORMATION

APPENDIX IV

Executive Directors

Mr. Yue Jialin, aged 38, appointed on 26 April 2004, is the Chairman and Executive Director of the Company. Mr. Yue is 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 previous role as a judge in the Economic Court of People’s Court in Luowu District, Shenzhen, the People’s Republic of China (the “PRC”) during 1989 to 1992. Mr. Yue also sits on the school of business administration of Changhun Industrial University as visiting professor. Mr. Yue has engaged in legal consultation in respect of the acquisition of state owned assets and foreign investments in the PRC.

Mr. Lau Yau Cheung, aged 46, appointed on 26 April 2004, is an Executive Director of the Company. Mr. Lau is the Company’s Chief Executive Officer and responsible for the overall management and general administrative activities. Mr. Lau graduated in 1984 from the University of Toronto in Canada with a Bachelor of Commerce degree and has served in various senior management positions with both private and publicly listed companies in Hong Kong in the past years. Mr. Lau is also an Independent Non-Executive Director of Chai-Na-Ta Corp., a Canadian company which is the world’s largest supplier of North American ginseng with shares listed on the NASDAQ - OTCBB in the United States, since November 2006.

Independent Non-Executive Directors

Mr. Wong Wing Kuen, Albert, aged 55, appointed on 6 July 2004, is an Independent Non-executive Director of the Company. Mr. Wong is fellow member of The Institute of Chartered Secretaies and Administrators, a fellow member of The Hong Kong Institute of Company Secretaries, a fellow member of the Taxation Institute of Hong Kong, a member of Hong Kong Securities Institute, a fellow member of Association of International Accountants, a fellow member of Society of Registered Financial Planners, a member of The Chartered Institute of Arbitrators, a member of The Chartered Institute of Bankers in Scotland and a full member of Macau Society of Certified Practising Accountants. Mr. Wong was also a director of Minghua Group International Holdings Limited, a listed public company in the USA, until 30 June 2004. Currently, Mr. Wong is the Managing Director of Charise Financial Consultants Limited, a private professional consulting firm in Hong Kong.

Mr. Tsui Robert Che Kwong, aged 53, appointed on 6 July 2004, is an Independent Non-executive Director of the Company. Mr. Tsui is a graduate of University of Buckingham, England, with a bachelor degree in Law. He is the sole proprietor of Robert C.K. Tsui & Co., a firm of solicitors in Hong Kong. Mr. Tsui has been practicing in the legal field for more than 20 years. He is also an Independent Non-Executive Director of Teem Foundation Group Limited (Stock Code: 628), a company listed on the Main Board of The Stock Exchange of Hong Kong Limited since August 2004.

Mr. Yang Weiming, aged 47, appointed on 8 August 2006, is an Independent Non-Executive Director of the Company. Mr. Yang is graduated with a bachelor’s degree from the correspondence school of Guangdong Provincial Committee Party School of CPC in 2003. He had worked at the Centre

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GENERAL INFORMATION

APPENDIX IV

for Development and Leasing of Housing, Shenzhen Housing Bureau ( ) from 1997 to 2004, specializing in the development of properties in China. Presently, Mr. Yang is also a director of New Gold International Limited which is a private limited company incorporated in Hong Kong.

Mr. Michael Joseph Bogue, aged 35, appointed on 25 September 2006, is an Independent Non-Executive Director of the Company. Mr. Bogue holds a Bachelor of Commerce degree from the University of Western Australia and has a diverse and successful background in senior executive roles related to the global resources sector. Over the last 14 years he has undertaken numerous mergers and acquisitions, equity and debt capital market issuances and derivatives transactions across the global resources sector. He is the current Managing Director and Chief Executive Officer of RIMCapital Limited, a resources focused Investment Company listed on the Australian Stock Exchange. Previous executive positions have included roles within a global investment Bank as Co-Head of Mining & Metals for Asia Pacific, a senior Business Development & Finance role within a top tier Australian resources house and as principal of a boutique investment and advisory firm specializing in the resources sector.

Senior Management

Mr. Ng Kwok Ping, aged 38, joined the Group in July 2004 and is the Financial Controller and Secretary of the Company. Mr. Ng has had over 10 years of experience in finance and accounting field. He has worked in an international audit firm and companies listed on the Stock Exchange. He has a Master’s Degree of Science in Finance and is a member of the Hong Kong Institute of Certified Public Accountants.

13. PROCEDURES FOR DEMANDING A POLL

Pursuant to Bye-law 66 of the Bye-laws of the Company, at any general meeting a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

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GENERAL INFORMATION

APPENDIX IV

(d) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

DOCUMENTS DELIVERED TO THE REGISTRARS OF COMPANIES IN HONG KONG AND BERMUDA

A copy of this prospectus, together with copy of each of the PAL and EAF, having attached thereto the written consent referred to under the heading “Expert and Consent” in this appendix, have been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance. A copy of each of the Rights Issue Documents will be filed with the Registrar of Companies in Bermuda as soon as reasonably practicable after the date of this prospectus in accordance with section 26 of the Companies Act 1981 of Bermuda (as amended).

MISCELLANEOUS

a. The company secretary and the qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Mr. Ng Kwok Ping. Mr. Ng Kwok Ping is a qualified accountant and member of the Hong Kong Institute of Certificate Public Accountants.
b. The English text of this prospectus shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours at the offices of P. C. Woo & Co., 12th Floor, Prince’s Building, 10 Chater Road, Central, Hong Kong from the date of this prospectus up to and including the Final Acceptance Date:

a. the memorandum of association and Bye-laws of the Company;
b. the material contracts referred to under the paragraph headed “Material contracts” in this appendix;
c. the annual reports of the Company for the two financial years ended 31 December 2005;
d. the accountants’ report from Graham H. Y. Chan & Co. on unaudited pro forma financial information of the Group which includes a written statement in respect of the adjustments of the unaudited pro forma financial information, the text of which is set out in Appendix II to this prospectus;
e. the consent letter from Graham H. Y. Chan & Co., referred to in the paragraph headed “Expert and consent” in this appendix;

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GENERAL INFORMATION

APPENDIX IV

f. the circular and prospectus of the Company dated 1 June 2006 and 20 June 2006 respectively regarding, inter alia, the previous rights issue of the Company;
g. the circular of the Company dated 30 June 2006 regarding the proposed acquisition of trading business involving the issuance of convertible bond and reallocation of use of proceeds;
h. the circular of the Company dated 12 December 2006 regarding, inter alia, the Conditional Acquisition, the Rights Issue and the Bonus Warrants Issue; and
i. this prospectus.

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AI assistant

Persistence Gold Group Ltd — Capital/Financing Update 2007

50623_rns_2007-01-04_f343eebc-2c5f-4448-a612-f2b21a76ed13.pdf

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

SHANGHAI MERCHANTS HOLDINGS LIMITED

RIGHTS ISSUE OF 1,259,000,000 RIGHTS SHARES AT HK$0.30 PER RIGHTS SHARE ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE AND ISSUE OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES

Underwriter to the Rights Issue

CONTENTS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

TERMINATION OF THE UNDERWRITING AGREEMENT

SHANGHAI MERCHANTS HOLDINGS LIMITED

*

(Stock code: 1104)

RIGHTS ISSUE OF 1,259,000,000 RIGHTS SHARES AT HK$0.30 PER RIGHTS SHARE ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY EXISTING SHARE HELD ON THE RECORD DATE AND ISSUE OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES

INTRODUCTION

LETTER FROM THE BOARD

RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

LETTER FROM THE BOARD

The Rights Issue is conditional and is fully underwritten. The Bonus Warrants Issue is conditional on the completion of the Rights Issue.

Issue statistics of the Rights Issue

LETTER FROM THE BOARD

Subscription Price for Rights Shares

Basis of provisional allotment of Rights Shares

Previous rights issue and conversion of redeemable bond

Previous rights issue

LETTER FROM THE BOARD

Previous conversion of redeemable bond

The Bonus Warrants Issue

Subscription Period of the Bonus Warrants

LETTER FROM THE BOARD

Bonus Warrants Subscription Price

Qualifying Shareholders

LETTER FROM THE BOARD

Excluded Shareholders

Status of the Rights Shares and the Shares to be issued upon exercise of the Bonus Warrants

Share certificates for the Rights Shares and the Bonus Warrants

Fractional entitlements

Conditions of the Rights Issue and the Bonus Warrants Issue

Application for listing of the Rights Shares, the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the Bonus Warrants on the Stock Exchange

LETTER FROM THE BOARD

PROCEDURE FOR ACCEPTANCE AND PAYMENT OF TRANSFER

LETTER FROM THE BOARD

Application for excess Rights Shares

LETTER FROM THE BOARD

TAXATION

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR RIGHTS SHARES AND APPLICATION FOR EXCESS RIGHTS SHARES

LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENTS

Underwriting agreement

Irrevocable Undertakings from Profit Harbour and Shougang

Termination of the Underwriting Agreement

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

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.

SHAREHOLDING STRUCTURE BEFORE AND AFTER THE RIGHTS ISSUE AND THE BONUS WARRANTS ARE EXERCISED IN FULL

MAINTENANCE OF THE LISTING OF THE SHARES AFTER RIGHTS ISSUE AND THE BONUS WARRANTS ISSUE

LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE RIGHTS ISSUE

FUND RAISING ACTIVITIES OF THE COMPANY FOR THE 12 MONTHS ENDING ON THE DATE OF THE ANNOUNCEMENT

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

BUSINESS PLAN AND FUTURE INTENTIONS

MAJOR CUSTOMERS AND SUPPLIERS

FURTHER INFORMATION

SUMMARY OF RESULTS AND ASSETS AND LIABILITIES OF THE GROUP FOR THREE FINANCIAL YEARS ENDED 31 DECEMBER 2005

Financial Summary

Results

Assets and liabilities

AUDITORS’ REPORT

To the Shareholders of

Respective responsibilities of directors and auditors

Basis of opinion

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Qualified opinion arising from limitations of audit scope

Graham H. Y. Chan & Co.

Persistence Gold Group Ltd Capital/Financing Update 2007