Persistence Gold Group Ltd — Proxy Solicitation & Information Statement 2003

Mar 19, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shanghai Merchants Holdings Limited (the “Company”), you should at once hand this circular with the accompanying proxy form to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

==> picture [282 x 87] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

CONNECTED TRANSACTION

SUBSCRIPTION OF NEW SHARES BY CONTROLLING SHAREHOLDER

Independent financial adviser to the Independent Board Committee

CSC Asia Limited

A notice convening a special general meeting of Shanghai Merchants Holdings Limited to be held at 67th Floor, The Center, Hong Kong on 2nd April, 2003 at 10:00 a.m. is set out on pages 23 to 24 of this circular. Whether or not you intend to be present at the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Company’s Hong Kong branch share registrar, Secretaries Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so desire.

18th March, 2003

* for identification purposes only

CONTENTS

	Page
Responsibility statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2-3
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4-5
The Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5-7
Change of Shareholding Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Reasons for the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Use of Proceeds from the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Use of Proceeds from the Previous Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Principal business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Connected transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Application for listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from CSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12-18
Appendix – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19-22
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23-24

• i -

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained in this circular, the omission of which would make any statement herein misleading.

• 1 -

DEFINITIONS

In this circular (other than in the notice of the SGM), the following expressions have the meanings respectively set opposite them unless the context otherwise requires:

“Angel Field”	Angel Field Limited, a company incorporated in the British Virgin
	Islands with limited liability, which is the controlling shareholder
	of the Company interested in 181,986,000 Shares, representing
	approximately 63.18% of the Company’s existing issued share
	capital
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	board of Directors
“business day”	a day (excluding Saturday) on which banks are open for business
	in Hong Kong
“CSC”	CSC Asia Limited, an investment adviser registered under the
	Securities Ordinance (Chapter 333 of the Laws of Hong Kong)
	and the independent financial adviser to the Independent Board
	Committee
“Company”	Shanghai Merchants Holdings Limited, a company incorporated
	in Bermuda with limited liability and the securities of which are
	listed on the Stock Exchange
“Completion”	completion of the Subscription Agreement
“Controlling Shareholder”	Angel Field
“Director(s)”	director(s) of the Company
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	an independent committee of the Board comprising Mr. Lau Siu
	and Mr. Gordon Ng
“Independent Financial Adviser”	CSC
“Independent Shareholder(s)”	Shareholder(s) other than the Controlling Shareholder
“Latest Practicable Date”	14th March, 2003, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information for inclusion in this circular

• 2 -

DEFINITIONS

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

• “PRC” the People’s Republic of China but, for the purpose of this circular, excluding Hong Kong

• “SDI Ordinance” Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)

• “SGM” the special general meeting of the Company to be held on 2nd April, 2003, the notice of which is set out on pages 23 to 24 of this circular

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

• “Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription” the subscription of the Subscription Shares by Angel Field at the Subscription Price

• “Subscription Agreement” the subscription agreement dated 6th March, 2003 entered into between the Company and Angel Field in respect of the Subscription

• “Subscription Price” the subscription price of HK$0.4 per Subscription Share “Subscription Share(s)” 125,000,000 new Shares “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

• 3 -

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors:

Ms. Mo Yuk Ping (Chairman) Mr. Shi Zhi Hong Mr. Shan Zhenglin Ms. Gong Bei Ying

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

Independent non-executive Directors: Mr. Lau Siu Mr. Gordon Ng

Principal place of business in Hong Kong: 67th Floor, The Center 99 Queen’s Road Central Hong Kong

18th March, 2003

To the Shareholders and

option holders for information only

Dear Sir or Madam,

CONNECTED TRANSACTION

SUBSCRIPTION OF NEW SHARES BY CONTROLLING SHAREHOLDER

1. INTRODUCTION

It was announced on 6th March, 2003 that the Company and Angel Field had entered into the Subscription Agreement on 6th March, 2003, pursuant to which, the Company has conditionally agreed to allot and issue and Angel Field has conditionally agreed to subscribe for 125,000,000 new Shares at an issue price of HK$0.4 per Subscription Share. The Subscription Shares represent approximately 43.4% of the existing issued share capital of the Company and approximately 30.3% of the Company’s issued share capital as enlarged by the issue of the Subscription Shares.

* for identification purposes only

• 4 -

LETTER FROM THE BOARD

Angel Field, the controlling shareholder of the Company, which presently holds about 63.18% of the Company’s existing issued share capital, will hold about 74.30% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. Accordingly, Angel Field is a connected person of the Company under the Listing Rules and therefore the Subscription constitutes a connected transaction of the Company. Under Rule 14.26(3) of the Listing Rules, the Subscription is subject to approval by the Independent Shareholders at a general meeting of the Company at which Angel Field and its associates shall abstain from voting.

The net proceeds of the Subscription will amount to approximately HK$49.9 million and will be used for the Group’s fabric trading business and the development of international trading and market of consumer products and for general working capital purposes.

2. THE SUBSCRIPTION AGREEMENT

Date of the Subscription Agreement

6th March, 2003

Subscriber

Angel Field is the controlling shareholder of the Company and is beneficially and solely owned by Mr. Chau Ching Ngai, who is the spouse of Ms. Mo Yuk Ping, the chairman and a Director. As at the date of the Subscription Agreement, Angel Field is interested in 181,986,000 Shares, representing approximately 63.18% of the Company’s existing issued share capital.

Mr. Chau Ching Ngai is a Hong Kong resident and has since 1997 been principally engaged in property investment in Hong Kong and the PRC. Mr. Chau has also invested in agriculture and high technology projects in the PRC, as well as engaging in trading of various industrial and consumer products including fabrics.

Number of Subscription Shares

125,000,000 new Shares, representing 43.4% of the Company’s existing issued share capital and approximately 30.3% of the Company’s issued share capital as enlarged by the issue of the Subscription Shares.

Subscription Price

The Subscription Price of HK$0.4 per Subscription Share was determined after arm’s length negotiations between the Company and Angel Field with reference to the prevailing market prices of the Shares. The Subscription Price represents:

• (a) a premium of 5.3% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 6th March, 2003, being the last day of trading in the Shares on the Stock Exchange prior to the signing of the Subscription Agreement;

• 5 -

LETTER FROM THE BOARD

• (b) a premium of approximately 3.2% to the average closing price of HK$0.3875 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 6th March, 2003;

• (c) a premium of approximately 8.1% to the pro forma consolidated net assets per Share as per the Company’s circular dated 19th August, 2002; and

• (d) a premium of approximately 6.7% to the closing price of the Shares of HK$0.375 as at the Latest Practicable Date.

Ranking of the Subscription Shares

The Subscription Shares, when issued and fully paid, will rank pari passu in all respects with the Shares in issue on the date of allotment and issue of the Subscription Shares including the right to any dividends or distributions.

Conditions of the Subscription

The Subscription is conditional upon the following conditions:

• (1) the passing of an ordinary resolution by the Independent Shareholders at the SGM of the Company to be convened to approve the Subscription Agreement and the transactions contemplated thereunder (including the issue of the Subscription Shares);

• (2) the Listing Committee granting the listing of, and permission to deal in, the Subscription Shares; and

• (3) the filing of relevant documents or obtaining the necessary waiver relating to the Subscription as required by law in Bermuda, if necessary.

In the event that the conditions set out above are not fulfilled on or before 31st May, 2003 (or such later date as may be agreed between Angel Field and the Company), the Subscription Agreement shall lapse.

Completion of the Subscription

Completion shall take place on or before the second business day following the date on which all the abovementioned conditions are fulfilled (or such other date as may be agreed between Angel Field and the Company). Upon Completion, the Company will receive the gross proceeds of the Subscription in cash from Angel Field. The Directors confirm that the Subscription will not result in less than 25% of the enlarged issued share capital of the Company in public hands.

• 6 -

LETTER FROM THE BOARD

Issue of the Subscription Shares

The Subscription Shares will be issued under the authorization proposed to be obtained from the Independent Shareholders at the SGM.

3. CHANGE OF SHAREHOLDING STRUCTURE

Name Angel Field Public shareholders	Number of Immediately % of the issued Shares held % of the after the share capital as before the existing issued completion of enlarged by the Subscription share capital the Subscription Subscription 181,986,000 63.19 306,986,000 74.33 106,014,000 36.81 106,014,000 25.67 288,000,000 100.00 413,000,000 100.00	Number of Immediately % of the issued Shares held % of the after the share capital as before the existing issued completion of enlarged by the Subscription share capital the Subscription Subscription 181,986,000 63.19 306,986,000 74.33 106,014,000 36.81 106,014,000 25.67 288,000,000 100.00 413,000,000 100.00
		100.00

So far as the Directors are aware of, no connected persons of the Company other than Angel Field and its associates were interested in the Shares.

4. REASONS FOR THE SUBSCRIPTION

The Company is principally engaged in the processing of raw fabric and trading of fabric and the development of international trading and market of consumer products. As the Directors have experienced difficulties in securing independent placing agents/underwriters in the market to raise fund required through placing and rights issue, the Directors are of the view that the Subscription will provide a relatively convenient method to raise fund under the current market condition. The Directors are also of the view that the Subscription could enlarge the capital base of the Company and will strengthen the financial position of the Group by providing a cost-effective means of raising additional capital for the Group. The Directors currently have no intention to make a further placement of Shares.

The Subscription Price was determined after arm’s length negotiations between the Company and Angel Field with reference to the closing price of the Shares as quoted on the Stock Exchange on 6th March, 2003, being the last day of trading in the Shares on the Stock Exchange prior to the signing of the Subscription Agreement. The Directors consider that the terms of the Subscription Agreement are fair and reasonable as the Subscription Price represents a premium of (i) approximately 5.3% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 6th March, 2003; (ii) approximately 3.2% to the average closing price of HK$0.3875 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 6th March, 2003; and (iii) approximately 8.1% to the pro forma consolidated net assets per Share as per the Company’s circular dated 19th August, 2002, and believe that the Subscription is in the best interests of the Company and its Shareholders as a whole.

• 7 -

LETTER FROM THE BOARD

5. USE OF PROCEEDS FROM THE SUBSCRIPTION

The Directors intend to use the net proceeds from the Subscription of approximately HK$49.9 million as to approximately HK$20 million for the Group’s fabric trading business and the development of international trading and market of consumer products and as to the balance of approximately HK$29.9 million for the Group’s general working capital, including but not limited to, administrative expenses for its operations of approximately HK$10 million and funding for potential acquisition of approximately HK$19.9 million. However, the Directors confirm that there is currently no concrete acquisition plan or negotiation with any target company.

6. USE OF PROCEEDS FROM THE PREVIOUS SUBSCRIPTIONS

During twelve months preceding the date of this circular, the Company has also successfully raised new funding of approximately HK$41.1 million in aggregate.

The table below sets out the details of the respective placing:

Date of		Amount raised	Intended and actual usage	Intended and actual usage
announcement	Placee(s)	(HK$million)	of	proceeds
29th July, 2002	Angel Field	19.8	•	HK$8 million for trade
				payables
7th May, 2002	Independent third parties	3.8	•	For general working capital
16th April, 2002	Independent third parties	17.5	•	HK$5 million for fabric
				business

• HK$12.5 million for general working capital, including but not limited to, administrative expenses for its Hong Kong operations of approximately HK$8 million and expenses for the relocation of its Hong Kong office of approximately HK$1.5 million

The Directors confirm that the subsequent actual usage of the funds raised above was in line with the intended use as mentioned in the respective announcements.

7. PRINCIPAL BUSINESS OF THE COMPANY

The Company is principally engaged in the processing of raw fabric and trading of fabric and the development of international trading and market of consumer products.

• 8 -

LETTER FROM THE BOARD

8. CONNECTED TRANSACTION

Angel Field, the controlling shareholder of the Company, which presently holds about 63.18% of the Company’s existing issued share capital, will hold about 74.30% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. Angel Field is beneficially and solely owned by Mr. Chau Ching Ngai, who is the spouse of Ms. Mo Yuk Ping, the chairman and a Director. Accordingly, Angel Field is a connected person of the Company under the Listing Rules and the Subscription constitutes a connected transaction of the Company. Under Rule 14.26(3) of the Listing Rules, the Subscription is subject to approval by the Independent Shareholders at a general meeting of the Company at which Angel Field and its associates shall abstain from voting.

9. APPLICATION FOR LISTING

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

10. SGM

The SGM is to be held at 10:00 a.m. on Wednesday, 2nd April, 2003 at 67th Floor, The Center, Hong Kong. A notice of the SGM is set out on pages 23 to 24 of this circular. At the SGM, ordinary resolution will be proposed to approve the Subscription Agreement and the issue of the Subscription Shares.

A form of proxy for use at the SGM is enclosed. Whether or not you intend to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the office of the Company’s branch share registrar in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you wish.

11. RECOMMENDATION

An Independent Board Committee comprising Mr. Lau Siu and Mr. Gordon Ng has been appointed to advise the Independent Shareholders in relation to the terms and conditions of the Subscription Agreement. The Independent Financial Adviser has been appointed to advise the Independent Board Committee in this respect.

The Independent Board Committee, having taken into account the reasons set out on page 7 of this circular under the paragraph headed “Reasons for the Subscription” and based on the principal factors and reasons considered by the Independent Financial Adviser and as stated in its letter of advice as set out on pages 12 to 18 of this circular, considers that the terms and conditions of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Subscription Agreement and the issue of the Subscription Shares.

• 9 -

LETTER FROM THE BOARD

12. ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 11 of this circular, the letter from the Independent Financial Adviser set out on pages 12 to 18 of this circular, the notice of SGM set out on pages 23 to 24 of this circular and to the general information set out in the appendix to this circular.

Yours faithfully, For and on behalf of the Board of Shanghai Merchants Holdings Limited Mo Yuk Ping

Chairman

• 10 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Bermuda with limited liability)

18th March, 2003

To the Independent Shareholders,

Dear Sir or Madam,

CONNECTED TRANSACTION

SUBSCRIPTION OF NEW SHARES BY CONTROLLING SHAREHOLDER

Reference is made to the circular of Shanghai Merchants Holdings Limited dated 18th March, 2003 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We are independent non-executive Directors who have been appointed by the Board to advise you as to whether, in our opinion, the terms and conditions of the Subscription Agreement are fair an reasonable so far as the Independent Shareholders as a whole are concerned.

The Independent Board Committee has appointed CSC as the independent financial adviser to advise the Independent Board Committee on the Subscription Agreement. The text of the letter from CSC containing its advice, together with the principal factors taken into consideration in arriving thereat, are set out on pages 12 to 18 of the Circular.

Having considered the terms of the Subscription Agreement and the advice given by CSC, the Independent Board Committee is of the opinion that the terms of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders as a whole are concerned. Accordingly, the Independent Board Committee recommends that Independent Shareholders should vote in favour of the ordinary resolution in respect of the Subscription Agreement to be proposed at the SGM.

Your attention is drawn to the letter from the Board set out on pages 4 to 10 of the Circular and the additional information set out in the appendix to this Circular.

Yours faithfully, For and on behalf of The Independent Board Committee

Lau Siu and Gordon Ng Independent non-executive Directors

* for identification purposes only

• 11 -

LETTER FROM CSC

The following is the text of the letter of advice to the Independent Board Committee from CSC setting out its opinion regarding the Subscription for the purpose of inclusion in this circular.

CSC Asia Limited 28th Floor, COSCO Tower Grand Millennium Plaza 183 Queen’s Road Central Hong Kong

18th March, 2003

To the Independent Board Committee of Shanghai Merchants Holdings Limited

Dear Sirs,

CONNECTED TRANSACTION

SUBSCRIPTION OF NEW SHARES BY CONTROLLING SHAREHOLDER

INTRODUCTION

We refer to our engagement by the Company to advise the Independent Board Committee in respect of the terms of the Subscription Agreement entered into between the Company and Angel Field on 6th March, 2003, particulars of which have been set out in a circular to the Shareholders dated 18th March, 2003 (the “Circular”) and in which this letter is reproduced. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

CSC has been appointed as the independent financial adviser to the Independent Board Committee to give our recommendation as to whether the terms of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Details of the reasons for the execution of the Subscription Agreement are set out in the “Letter from the Board” in the Circular.

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Group and have assumed that all information and representations made by the Group and the Directors were true, accurate and complete at the time they were made and continue to be so as at the date of the Circular. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have not, however, conducted an independent indepth investigation into the affairs of the Group nor have we carried out any independent verification of the information supplied.

• 12 -

LETTER FROM CSC

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion in relation to the Subscription Agreement, we have taken into consideration the following factors and reasons:

1. Reason for the entering into of the Subscription Agreement

• 1.1 Financial performance of the Company

According to the Company’s Interim Report 2002 dated 18th September, 2002 (the “Interim Report”), the Group has been able to identify opportunities to improve its business operations since new management took over in April 2002. During the six months ended 30th June, 2002, the Group recorded turnover of approximately HK$34,891,000, representing an increase of approximately 111.2% over the turnover of approximately HK$16,518,000 recorded during the six months ended 30th June, 2001. Loss attributable to Shareholders during the six months ended 30th June, 2002 was approximately HK$1,204,000, representing a decrease of approximately 90.0% over the loss attributable to Shareholders of approximately HK$12,052,000 recorded during the six months ended 30th June, 2001. However, as the Company still incurred loss attributable to Shareholders, it is reasonable for the Company to further strengthen the financial position of the Group. As stated in the section headed “Letter from the Board” in the Circular, the Directors are of the view that the Subscription could enlarge the capital base of the Company and will strengthen the financial position of the Group by providing a cost-effective means of raising additional capital for the Group.

• 1.2 Use of proceeds from the Subscription

As stated in the section headed “Letter from the Board” in the Circular, the Directors intend to apply the estimated net proceeds from the Subscription of approximately HK$49,900,000 as to approximately HK$20,000,000 for the Group’s fabric trading business and the development of international trading and market of consumer products and as to the balance of approximately HK$29,900,000 for the Group’s general working capital, including but not limited to administrative expenses for its operations and funding for potential acquisition.

2. Terms of the Subscription Agreement

2.1 The Subscription Price

According to the Circular, the Subscription Price of HK$0.40 per Subscription Share was determined after arm’s length negotiation between the Company and Angel Field with reference to the prevailing market price of the Shares. The Subscription Price represents:

• (a) a premium of approximately 5.3% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 6th March, 2003, being the last day of trading in the Shares on the Stock Exchange prior to the signing of the Subscription Agreement;

• 13 -

LETTER FROM CSC

• (b) a premium of approximately 3.2% to the average closing price of approximately HK$0.3875 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 6th March, 2003;

• (c) a premium of approximately 6.7% to the closing price of the Shares of HK$0.375 per Share as at the Latest Practicable Date;

• (d) a premium of approximately 9.3% to the pro forma adjusted consolidated net assets per Share before the Subscription of approximately HK$0.3661 as shown under the section headed “Financial effects of entering into the Subscription Agreement”; and

• (e) a premium of approximately 6.3% to the pro forma adjusted consolidated net assets per Share after the Subscription of approximately HK$0.3762 as shown under the section headed “Financial effects of the Subscription Agreement” below.

• 2.2 Historical performance of the Shares

The closing price and daily turnover of the Shares on the Stock Exchange covering the period from 6th March, 2002 to the Latest Practicable Date are set out in the charts below:

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

0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
6-Mar-0220-Mar-02 3-Apr-0217-Apr-021-May-0215-May-0229-May-0212-Jun-0226-Jun-0210-Jul-0224-Jul-02 7-Aug-0221-Aug-024-Sep-0218-Sep-02 2-Oct-0216-Oct-0230-Oct-0213-Nov-0227-Nov-0211-Dec-0225-Dec-028-Jan-0322-Jan-03 5-Feb-0319-Feb-035-Mar-03
Price per Share (HK$)
----- End of picture text -----

• 14 -

LETTER FROM CSC

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

80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
6-Mar-0220-Mar-023-Apr-0217-Apr-021-May-0215-May-0229-May-0212-Jun-0226-Jun-0210-Jul-0224-Jul-027-Aug-0221-Aug-024-Sep-0218-Sep-022-Oct-0216-Oct-0230-Oct-0213-Nov-0227-Nov-0211-Dec-0225-Dec-028-Jan-0322-Jan-035-Feb-0319-Feb-035-Mar-03
Trading Volume (Shares)
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During the period from 6th March, 2002 to the Latest Practicable Date, the closing price per Share ranged from a low of HK$0.37 on 23rd September, 2002 to a high HK$0.83 on 17th April, 2002. The average closing price per Share during the aforementioned period was HK$0.47825. The average daily trading volume from 6th March, 2002 to the Latest Practicable Date was approximately 1,409,867 Shares, representing approximately 0.49% of the issued share capital as at the Latest Practicable Date.

• 2.3 Recent placing or subscription of new shares of other listed companies

For the purpose of comparison, we have examined 5 transactions involving placing or subscription of shares of listed companies in Hong Kong during the month of February 2003. We set out information of these transactions below:

			Approximate
			discounts to
			closing
			share price
			immediately
			prior to the
		Subscription	release of the
	Date of	price per	relevant
Name of listed company	announcement	share	announcement
		HK$	%
Haywood Investments Limited	28th February, 2003	0.04	23.1
Intcera High Tech Group Limited	20th February, 2003	0.14	16.2
Heng Tai Consumables Group Limited	20th February, 2003	0.59	11.9
Shougang Concord Grand (Group) Limited	19th February, 2003	0.48	18.6
Sun Man Tai Holdings Company Limited	17th February, 2003	0.14	17.1

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LETTER FROM CSC

The discounts to the respective closing share prices of the above listed transactions range from a low of approximately 11.9% to a high of approximately 23.1%. As the Subscription price of HK$0.40 represents a premium of approximately 5.3% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 6th March, 2003 and premiums of approximately 9.3% and 6.3% to the pro forma adjusted consolidated net assets per Share before the Subscription and pro forma adjusted consolidated net assets per Share after the Subscription respectively, we are of the view that the Subscription Price is fair and reasonable so far as the Independent Shareholders are concerned.

2.4 Dilution of shareholding of other Shareholders

Should all of the conditions as set out under the paragraph headed “Conditions of the Subscription” in the section headed “Letter from the Board” in the Circular be met on or before 31st May, 2003 (or such later date as may be agreed between Angel Field and the Company), 125,000,000 new Shares, representing approximately 43.4% and 30.3% of the existing issued share capital and the enlarged issued share capital respectively, will be allotted and issued by the Company to Angel Field. The effect on Shareholders’ shareholding is set out in the table below.

Shareholder Angel Field Other Shareholders Total	Number of Shares held as at the Latest Practicable Date 181,986,000 106,014,000 288,000,000	Approximate percentage of shareholding 63.19 36.81 100.00	Number of Shares held immediately after the Subscription 306,986,000 106,014,000 413,000,000	Approximate percentage of shareholding 74.33 25.67
				100.00

We note that Angel Field has acquired over 50% shareholding in the Company on 12th March, 2002. Accordingly, the Subscription will not have any effect on the control of the Company. We are of the view that the Subscription may lead to (1) improvement in the financial position of the Company, (2) improvement in the net assets per Share which is beneficial to both the Company and the Independent Shareholders and (3) increase in the resources of the Company so as to enable it to devote additional funding in its fabric trading business and development of international trading and market of consumer products and to improve the working capital of the Group. Based on such positive effects, we are of the view that the Subscription is in the interest of the Independent Shareholders and therefore the dilution effect mentioned above is acceptable to them.

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LETTER FROM CSC

• 2.5 Financial effects of the Subscription

Net assets

We set out below a statement of pro forma consolidated net assets of the Group based on the unaudited net assets value of the Group as at 30th June, 2002 as stated in the Interim Report.

Unaudited consolidated net assets of the Group as at 30th June, 2002 Proceeds from the subscription of Shares as stated in the Company’s announcement dated 29th July, 2002 Pro forma adjusted consolidated net assets of the Group before the Subscription Estimated net proceeds from the Subscription Pro forma adjusted consolidated net assets of the Group after the Subscription Pro forma adjusted consolidated net assets per Share before the Subscription_(Note 1) Pro forma adjusted consolidated net assets per Share after the Subscription(Note 2)_	HK$’000 85,650 19,800
	105,450 49,900
	155,350
	0.3661
	0.3762

Notes:

1. The pro forma adjusted consolidated net assets per Share before the Subscription was calculated based on a net assets value of HK$105,450,000 as stated above and 288,000,000 Shares in issue as at the Latest Practicable Date.

2. The pro form adjusted consolidated net assets per Share after the Subscription was calculated based on a net assets value of HK$155,350,000 as stated above and 413,000,000 Shares in issue immediately after the Subscription.

3. 17 -

LETTER FROM CSC

Current ratio

As stated in the Interim Report, the Group had unaudited current assets and current liabilities of approximately HK$36,291,000 and HK$10,961,000 respectively as at 30th June, 2002, translating into a current ratio (current assets/current liabilities) of approximately 3.31. On the assumption that the financial position of the Group remained unchanged since 30th June, 2002, it is anticipated that the estimated net proceeds from the Subscription of approximately HK$49,900,000 will increase the Group’s current assets to approximately HK$86,191,000 and improve the current ratio to approximately 7.86.

Based on the above, we concur with the Board’s view that the Subscription Agreement is in the interests of the Group and the Shareholders as a whole.

CONCLUSION

Having considered the above principal factors, we are of the opinion that the entering into of the Subscription Agreement is in the interest of the Group and the Shareholders so far as the Independent Shareholders as a whole are concerned and the terms of the Subscription Agreement are fair and reasonable. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favor of the ordinary resolution to approve the Subscription Agreement at the SGM.

Yours faithfully, For and on behalf of CSC Asia Limited Howard Tang Director

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GENERAL INFORMATION

APPENDIX

1. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests of the Directors and their associates in the share capital of the Company and its associated corporations (within the meaning of the SDI Ordinance) which were recorded in the register kept by the Company pursuant to section 29 of the SDI Ordinance were as follows:

(i) Interest in Shares

		Number of Shares
	Personal	Corporate	Family
Name of Director	interests	interests	interests
Mo Yuk Ping	–	181,986,000	181,986,000
		(Note)	(Note)

Note: Ms. Mo Yuk Ping is the spouse of Mr. Chau Ching Ngai who is deemed to be interested in 181,986,000 Shares in the issued share capital of the Company.

(ii) Interest in share options granted under the share option scheme

	Number of	Exercise	Exercise
Name of Director	share options	price	period
		HK$
Mo Yuk Ping	240,000	0.556	2nd July, 2002 to
			1st July, 2007
Shi Zhi Hong	2,400,000	0.556	2nd July, 2002 to
			1st July, 2007
Shan Zhenglin	2,400,000	0.556	2nd July, 2002 to
			1st July, 2007
Gong Bei Ying	2,400,000	0.556	2nd July, 2002 to
			1st July, 2007

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or their associates had any personal interests, family interests, corporate interests or other interests in the securities of the Company or any of its associated corporations (within the meaning of the SDI Ordinance) which have to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which were required pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to have been notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to since 31st December, 2001 (the date to which the latest published audited consolidated accounts of the Company were made up) or proposed to be so acquired, disposed of or leased.

There is no contract or arrangement subsisting at the Latest Practicable Date in which any of the Directors is materially interested and which is significant in relation to the business of the Group taken as a whole.

2. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, and save for the interests disclosed in paragraph 1 of this appendix, according to the register of substantial shareholders maintained under Section 16(1) of the SDI Ordinance and so far as is known to, or can be ascertained after reasonable enquiry by the Directors the followings were interested in 10% or more in the issued share capital of the Company.

		Percentage of the
	Number of	total issued share
Name of Shareholder	Shares held	capital of the Company
Angel Field	181,986,000	63.18%
Mr. Chau Ching Ngai*	181,986,000	63.18%

• As at the Latest Practicable Date, Mr. Chau Ching Ngai was deemed under Sections 8(2), (3) and (4) of the SDI Ordinance to be interested in the 181,986,000 Shares held by Angel Field in which he can exercise one-third or more of its voting rights by virtue of his beneficial holding of the entire issued share capital of Angel Field.

Save as disclosed above, the Company had not been notified by any person who holds interests representing 10% or more in the issued share capital of the Company.

3. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31st December, 2001 being the date to which the latest published audited accounts of the Group were made up.

4. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

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GENERAL INFORMATION

APPENDIX

5. SERVICE CONTRACTS

As at the Latest Practicable Date, there are no existing or proposed directors’ service contracts with any member of the Group, other than contracts terminable on not more than one year’s notice without compensation (other than statutory compensation).

6. CONSENT

The following is the qualifications of the expert which has given its opinion or advice which is contained in this circular:

Name Qualification CSC Registered investment adviser

CSC has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

CSC also confirms that it does not have any shareholding in the Company or any of its subsidiaries or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

CSC also confirms that it does not have any interest, direct or indirect, in any assets which have been, since 31st December, 2001 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

7. MISCELLANEOUS

1. The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

2. The head office and principal place of business of the Company in Hong Kong is at 67th Floor, The Center, 99 Queen’s Road Central, Hong Kong.

3. The company secretary of the Company is Tse Wai Kuen, Catherine who is an associate member of the Institute of Chartered Secretaries and Administrators in the United Kingdom and The Hong Kong Institute of Company Secretaries.

4. The branch share registrar of the Company in Hong Kong is Secretaries Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

5. The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

6. 21 -

GENERAL INFORMATION

APPENDIX

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company, at 67th Floor, The Center, 99 Queen’s Road Central, Hong Kong during normal business hours on any weekday (public holidays excepted) up to and including the date of the SGM:

• (i) the memorandum of association and bye-laws of the Company;

• (ii) the letter from the Independent Board Committee set out on page 11 of this circular;

• (iii) the letter of advice from CSC, the text of which is set out on pages 12 to 18 of this circular;

• (iv) the written consent from CSC referred to in the paragraph headed “Consent” in this appendix;

• (v) the audited consolidated financial statements of the Group for the year ended 31st December, 2001; and

• (vi) the Subscription Agreement dated 6th March, 2003 entered into between the Company and Angel Field.

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NOTICE OF THE SGM

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(Incorporated in Bermuda with limited liability)

NOTICE is hereby given that a special general meeting of Shanghai Merchants Holdings Limited (the “Company”) will be held at 10:00 a.m. on 2nd April, 2003 at 67th Floor, The Center, 99 Queen’s Road Central, Hong Kong for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the subscription agreement dated 6th March, 2003 entered into between the Company and Angel Field Limited as subscriber in relation to the subscription by Angel Field Limited of 125,000,000 new shares of HK$0.4 each (“Subscription Shares”) at the total subscription price of HK$50,000,000 be and it is hereby approved in all respects and that all the transactions contemplated therein be and they are hereby approved and that any of the directors of the Company be and they are hereby authorized to allot and issue the Subscription Shares to Angel Field Limited or as it may direct at completion of the subscription agreement and take all actions which are in their opinion necessary, appropriate, desirable or expedient for the implementation and contemplation of the transactions therein contemplated and all other matters incidental thereto or in connection therewith and to agree to the variation and waiver of all matters relating thereto that are, in the opinion of the directors of the Company, not material to transactions contemplated thereby and are in the best interests of the Company.”

By order of the Board of Shanghai Merchants Holdings Limited Mo Yuk Ping Chairman

Hong Kong, 18th March, 2003

Principal place of business in Hong Kong:

67th Floor, The Center 99 Queen’s Road Central Hong Kong

* for identification purposes only

• 23 -

NOTICE OF THE SGM

Notes:

• (1) A member entitled to attend and vote at the above meeting is entitled to appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a member of the Company.

• (2) A form of proxy of the meeting is enclosed. If the appointer is a corporation, the form of proxy must be under its common seal or, under the hand of an officer or attorney duly authorised on its behalf.

• (3) To be valid, a form of proxy must be deposited at the Company’s Hong Kong branch share registrar, Secretaries Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof.

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