THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Qilu Expressway Company Limited (the “ Company ”), you should at once hand this circular with the enclosed form of proxy 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.

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

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1576)

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT; 3. THE R&E PROJECT ON THE JIHE EXPRESSWAY; 4. ADJUSTMENTS TO 2021 FINANCIAL BUDGET PLAN; AND NOTICE OF THE EGM

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Capitalised terms used in this cover shall have the same meanings as those defined in this circular.

The letter from the Board is set out on pages 1 to 32 of this circular. The letter from the Independent Board Committee containing its recommendations to the Independent Shareholders of the Company is set out on pages 33 to 34 of this circular. A letter from Gram Capital, the Independent Financial Adviser, containing its recommendations to the Independent Board Committee and the Independent Shareholders of the Company is set out on pages 35 to 61 of this circular.

A notice for convening the EGM to be held at 10:00 a.m. on Monday, 13 December 2021 at Conference Room (Autumn), 2/F, Enjoy Hotel, No. 44 Gongye South Road, High-tech Zone, Jinan City, the PRC is set out on pages EGM-1 to EGM-3 of this circular.

If you wish to appoint proxy(ies) to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon. For the holders of H Shares, the aforementioned documents shall be lodged with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. The form of proxy must be returned not less than 24 hours before the time scheduled for holding the EGM (or any adjournment thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

15 November 2021

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	33
LETTER FROM	GRAM CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
APPENDIX I	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	I-1
NOTICE OF THE EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1

– i –

DEFINITIONS

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

“2021-2023 Financial Services Framework Agreement”

a financial services framework agreement entered into between the Company and Weihai City Commercial Bank on 31 August 2021

“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“CBIRC”
China Banking and Insurance Regulatory Commission
“Company”

Qilu Expressway Company Limited (齊魯高速公路股份有限公司), a joint stock company incorporated in the PRC with limited liability on 6 December 2016, the H Shares of which are listed on the Main Board of the Stock Exchange (stock code: 1576)

“Company Law”
Company Law of the People’s Republic of China (《中華人民共和國公司法》)
“connected person(s)”
has the meaning ascribed to it under the Listing Rules
“Contract for Technical Service for Commissioning Evaluation”
“Contract for Technical Service for Compilation of Forest Land Use Feasibility Report”

a contract dated 1 July 2021 and entered into between the Company and Shandong Hi-Speed Group in relation to the technical service project for compilation of a preliminary special report for the R&E Project of the Jihe Expressway – Technical Service for Commissioning Evaluation a contract dated 18 June 2021 and entered into between the Company and Shandong Hi-Speed Group in relation to the technical service project for compilation of a preliminary special report for the R&E Project of the Jihe Expressway – Technical Service for Compilation of Forest Land Use Feasibility Report

“Contract for Technical Service for Compilation of Social Stability Risk Analysis Report”

a contract dated 3 May 2021 and entered into between the Company and Shandong Hi-Speed Group in relation to the R&E Project of the Jihe Expressway – Technical Service Project for Compilation of Social Stability Risk Analysis Report

– ii –

DEFINITIONS

“Contract for Technical Service for Investigation Evaluation on Existing Expressways”
“controlling shareholder(s)”
“COSCO SHIPPING”
“COSCO SHIPPING (Hong Kong)”
“Deshang and Shennan Expressways”
“Deshang Expressway (Liaocheng – Fan County section)”
“Director(s)”
“Domestic Share(s)”

a contract dated 24 September 2021 and entered into between the Company and Shandong Hi-Speed Group in relation to the R&E Project of the Jihe Expressway – Technical Service for Investigation Evaluation on Existing Expressways

has the meaning ascribed to it under the Listing Rules

China COSCO Shipping Corporation Limited (中國遠洋海運集團有限公司), a limited liability company incorporated in the PRC on 5 February 2016, the entire equity interest of which is held by the Stated-owned Assets Supervision and Administration Commission of the State Council of the PRC, and a controlling shareholder of the Company as at the Latest Practicable Date

COSCO SHIPPING (Hong Kong) Co., Limited (中遠海運(香港)有限公司), a company incorporated in Hong Kong with limited liability on 3 September 1992 and a controlling shareholder of the Company holding approximately 30.00% equity interest of the Company as at the Latest Practicable Date
collectively, the Deshang Expressway (Liaocheng – Fan County section) and the Shennan Expressway
an expressway running from West Ring Expressway of Liaocheng City, Shandong Province to the intersection of Gucheng Town of Shen County and Yancunpu Town of Fan County (Shandong-Henan boundary), and connecting to the Fan County section of the Deshang Expressway in Henan Province, with a total length of approximately 68.942 km
director(s) of the Company

ordinary Share(s) in the share capital of the Company with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB

– iii –

DEFINITIONS

“EGM”

“Existing 2021-2023 General Services Framework Agreement”
“Existing Annual Caps”
“General Highway Business Operation Services”
“Gram Capital” or “Independent Financial Adviser”

“Group”

the extraordinary general meeting of the Company to be held at 10:00 a.m. on Monday, 13 December 2021 at Conference Room (Autumn), 2/F, Enjoy Hotel, No. 44 Gongye South Road, High-tech Zone, Jinan City, the PRC to consider and, if thought fit, approve (1) the revision of the annual caps under the Existing 2021-2023 General Services Framework Agreement; (2) the 2021-2023 Financial Services Framework Agreement, and the transactions contemplated thereunder; (3) the R&E Project on the Jihe Expressway; and (4) the adjustments to 2021 Financial Budget Plan

the agreement dated 18 June 2021 and entered into between the Company and Shandong Hi-Speed Group in relation to the procurement of the General Highway Business Operation Services from Shandong Hi-Speed Group and its relevant Subordinated Entities for the three years ending 31 December 2023
the existing annual caps under the Existing 2021-2023 General Services Framework Agreement for each of the three years ending 31 December 2023, being RMB43 million
various services in relation to highway business operation, including highway design services, highway inspection and maintenance services, highway research and analysis services and highway construction supporting services

Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of (1) the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps

the Company and its subsidiaries

– iv –

DEFINITIONS

“H Share(s)”
“Hong Kong”
“Independent Board Committee”
“Independent Shareholders”
“Independent Third Party(ies)”
“Jihe Expressway”
“June 2021 Announcement”
“km”
“Latest Practicable Date”
overseas listed foreign invested ordinary Share(s) in the share capital of the Company, with a nominal value of RMB1.00 each, which is/are listed and traded on the Stock Exchange
the Hong Kong Special Administrative Region of the PRC
the independent board committee comprising all the independent non-executive Directors, namely Mr. Cheng Xuezhan, Mr. Li Hua, Mr. Wang Lingfang, Mr. He Jiale and Mr. Han Ping
Shareholders other than (i) Shandong Hi-Speed Group and its associates (including Shandong Hi-Speed Investment); and (ii) those who are required to abstain from voting at the EGM to be convened for the purpose of approving (1) the Proposed Revised Annual Caps; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps
third party(ies) independent of and not connected with the Company and its connected persons
Jinan to Heze Expressway, the approximately 153.6 km expressway running through nine districts/counties under four cities from Jinan City to Heze City in Shandong Province
the Company’s announcement dated 18 June 2021, which disclosed, among others, the entering into of the Existing 2021-2023 General Services Framework Agreement and the terms and conditions of the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement which constituted continuing connected transactions for the Company under the Listing Rules
kilometre(s)
3 November 2021, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

– v –

DEFINITIONS

“Listing Rules”

“MOF”

“MOT”

“NDRC”

“Other Financial Services”

“PBOC”

“PRC” or “State”
“Preliminary R&E Works Contracts”
“Proposed Revised Annual Caps”
“RMB”

the Rules Governing the Listing of Securities on the Stock Exchange

the Ministry of Finance of the People’s Republic of China (中華人民共和國財政部)

the Ministry of Transport of the People’s Republic of China (中華人民共和國交通運輸部)

the National Development and Reform Commission of the PRC (中國國家發展和改革委員會), which is a comprehensive functional department of the State in charge of the management of national economy and social development
services including bank acceptance notes, discounting of commercial bills, domestic letters of guarantees, letters of credit, online remittance, foreign exchange remittance and other financial services approved by CBIRC

the People’s Bank of China, the central bank of the PRC

the People’s Republic of China (excluding, for the purpose of this circular, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan)
collectively, the Two-Stage Survey and Design and TwoInstitutional Consulting Contract, the Contract for Technical Service for Compilation of Social Stability Risk Analysis Report, the Contract for Technical Service for Compilation of Forest Land Use Feasibility Report, the Contract for Technical Service for Commissioning Evaluation and the Contract for Technical Service for Investigation Evaluation on Existing Expressways
the revised annual caps under the Existing 2021-2023 General Services Framework Agreement for each of the three years ending 31 December 2023 proposed by the Board on 26 August 2021, being RMB100 million, RMB200 million and RMB100 million, respectively

Renminbi, the lawful currency of the PRC

– vi –

DEFINITIONS

“R&E Project”

the reconstruction and expansion project of Jihe Expressway

“SDRC”

Shandong Provincial Development and Reform Committee (山東省發展和改革委員會)

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shandong Hi-Speed” Shandong Hi-Speed Company Limited (山東高速股份有限公司), a limited liability company incorporated in the PRC, the shares of which are listed on the Shanghai Stock Exchange (stock code: 600350.SH)
“Shandong Hi-Speed Group”
Shandong Hi-Speed Group Company Limited* (山東高速集團有限公司), a limited liability company incorporated in the PRC, holding approximately 38.93% of the total issued Shares as at the Latest Practicable Date, is an existing controlling shareholder
“Shandong Hi-Speed Group and its relevant Subordinated Entities”
Shandong Hi-Speed Group and its subsidiaries, branch companies and associates
“Shandong Hi-Speed Investment”
Shandong Hi-Speed Investment Holdings Co., Ltd. (山東高速投資控股有限公司), a limited liability company incorporated in the PRC and a direct wholly-owned subsidiary of Shandong Hi-Speed Group
“Shandong Provincial Government”
the Shandong Provincial People’s Government of the PRC
“Share(s)”
ordinary share(s) in the share capital of the Company with a nominal value of RMB1.00 each, including Domestic Shares and H Shares
“Shareholder(s)”
holder(s) of the Shares

– vii –

DEFINITIONS

“Shennan Expressway”

an expressway running from the K150+400 point of Deshang Expressway at the south of Beixuzhuang Village, Shen County, Shandong Province, the PRC, and connecting to the Henan-Shandong Boundary-Nanle section of Nanlin Expressway in Henan Province at the east bank of the Tuhai River in the south of Xiduantun Village, with a total length of approximately 18.267 km

“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subordinated Entities” subsidiaries, branch companies and associates
“subsidiary(ies)” has the meaning ascribed to it under the Listing Rules
“Supervisor(s)” the member(s) of the Supervisory Committee
“Supervisory Committee” the supervisory committee of the Company established pursuant to the Company Law
“Two-Stage Survey and Design a contract dated 30 September 2021 and entered into and Two-Institutional between the Company and Shandong Hi-Speed Group in Consulting Contract” relation to the R&E Project of the Jihe Expressway – Two-Stage Survey and Design and Two-Institutional Consulting
“Weihai City Commercial Bank” Weihai City Commercial Bank Co., Ltd. (威海市商業銀行股份有限公司), a joint stock company incorporated in the PRC with limited liability and is listed on the Stock Exchange (stock code: 9677)

“%” per cent

Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders, and vice versa. The term “person(s)” shall include corporation(s).

Any reference in this circular to any enactment refers to that enactment as for the time being amended or re-enacted. Any word defined under the Listing Rules or any modification thereof and used in this circular shall, where applicable, have the meaning assigned to it under the Listing Rules or any modification thereof, as the case may be.

– viii –

LETTER FROM THE BOARD

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1576)

Executive Directors: Mr. Wang Zhenjiang (Chairman of the Board) Mr. Peng Hui Mr. Liu Qiang

Non-executive Directors: Mr. Chen Dalong Mr. Wang Shaochen Mr. Zhou Cenyu Mr. Su Xiaodong Ms. Kong Xia Mr. Tang Haolai Mr. Du Zhongming

Registered office: Room 2301, Block 4, Zone 3, Hanyu Financial & Business Centre, No. 7000 Jingshi East Road, High-tech Zone, Jinan City, Shandong Province, PRC

Principal place of business in Hong Kong: 40th Floor, Dah Sing Financial Centre, No. 248 Queen’s Road East, Wanchai, Hong Kong

Independent non-executive Directors:

Mr. Cheng Xuezhan Mr. Li Hua Mr. Wang Lingfang Mr. He Jiale Mr. Han Ping

15 November 2021

To the Shareholders

Dear Sir or Madam,

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT;

3. THE R&E PROJECT ON THE JIHE EXPRESSWAY;

4. ADJUSTMENTS TO 2021 FINANCIAL BUDGET PLAN;

AND NOTICE OF THE EGM

INTRODUCTION

References are made to (1) the June 2021 Announcement; (2) the announcement of the Company dated 26 August 2021 in relation to the proposed revision of the annual caps under the Existing 2021-2023 General Services Framework Agreement; (3) the announcement of the Company dated 31 August 2021 in relation to the entering into of the 2021-2023 Financial

– 1 –

LETTER FROM THE BOARD

Services Framework Agreement; and (4) the announcement of the Company dated 3 May 2021 in relation to the receipt of a notice by the Company from the Shandong Provincial Traffic Transport Department that the R&E Project on the Jihe Expressway has been listed as a project planned to be implemented under the “14th Five-Year Plan”, and the Company was required to accelerate the commencement of the relevant preliminary preparation works.

The purpose of this circular is to provide you with, among other things, (i) further details in respect of (1) the Proposed Revised Annual Caps; (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps; (3) the R&E Project on the Jihe Expressway; and (4) the adjustments to 2021 Financial Budget Plan; (ii) the recommendations from the Independent Board Committee to the Independent Shareholders in respect of (1) the Proposed Revised Annual Caps; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps; (iii) the recommendations from Gram Capital to the Independent Board Committee and the Independent Shareholders in respect of (1) the Proposed Revised Annual Caps; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps; (iv) other information as required under the Listing Rules; and (v) the notice of the EGM, to enable you to make an informed decision while voting on the relevant resolutions at the EGM.

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT

THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT

The key terms of the Existing 2021-2023 General Services Framework Agreement are set out as follows:

Date: 18 June 2021 Parties: (i) the Company; and (ii) Shandong Hi-Speed Group

Effective period: From 18 June 2021 to 31 December 2023 (both days inclusive)

– 2 –

LETTER FROM THE BOARD

Subject matters:

Demand estimation:

Pursuant to the Existing 2021-2023 General Services Framework Agreement, Shandong HiSpeed Group and its relevant Subordinated Entities will provide the Group with General Highway Business Operation Services, including (i) highway design services including planning, renovation, engineering, survey and system design of flyovers, road surfaces, highways and ancillary facilities; (ii) highway inspection and maintenance services including regular inspections of roadbed and road surface, regular and ad-hoc inspections of bridges and tunnels as well as maintenance and repair of flyovers and road surfaces; (iii) highway research and analysis services including survey and analysis of road sections, research on the treatment measures and techniques, projection of and research on traffic volume and toll income, operational management of toll collection; and (iv) highway construction supporting services including monitoring of highway technologies, project supervision, project contracting, supply of bulk materials and other related or similar services.

Other than those that require public bidding, the Group shall submit an estimation of its demand for services for the next year or any adjustment plan on service projects for the current year to Shandong Hi-Speed Group by 31 October of each year. Both parties shall also reach a consensus on the plan before 30 November of the same year. In the event that the service demand plan of the Group for the next year is more or less the same as that for the current year, Shandong Hi-Speed Group and its relevant Subordinated Entities shall fulfill the plan.

– 3 –

LETTER FROM THE BOARD

Pricing Policies

The pricing of each of the services provided under the Existing 2021-2023 General Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

(i) government-prescribed price: where the central or local government imposes price control on a particular service at any time within the agreement period of the Existing 2021-2023 General Services Framework Agreement, the price of such service shall be determined in accordance with the prescribed price published on the website of the relevant government authority or the authoritative price list;
(ii) government-guided price: where the central or local government guided price standard is available for a particular service and such guided price standard has been published on the website of relevant government authority or via authoritative price list, the price of such service shall be determined within the range of the government-guided price through negotiation;
(iii) market price: where the above two price standards are not available for a particular service or the previous government prescribed or guided price are no longer applicable to such service, and such service does not fall within those services subject to tender process pursuant to laws and regulations, the price of such service shall be determined with reference to the market price through negotiation between both parties to the agreement. If the service falls within those services subject to tender process pursuant to laws and regulations, the price shall be determined by tender process. The Company must determine the counterparty through bidding when its relevant projects reach the required thresholds, and if Shandong Hi-Speed Group and its relevant Subordinated Entities win the bid, they must fulfill the winning bid.

For prices that shall be determined through mutual negotiation, both parties shall take into consideration the following key factors:

(a) the prevailing market price charged by any third party providing a similar service in the region where the service is provided by one of the parties, the quotation from other service suppliers providing the same service and a minimum of two comparable transactions carried out with Independent Third Parties during the same period; and
(b) the same or similar service provided by Shandong Hi-Speed Group and its relevant Subordinated Entities to any third party, and the minimum quotation for such service.

– 4 –

LETTER FROM THE BOARD

For prices that shall be determined through tender process:

The relevant laws and regulations governing the procedures of tenders and bids include the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法》), the Implementing Regulations on the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法實施條例》) and the Measures for the Administration of the Bidding for Highway Construction Projects (《公路工程建設項目招標投標管理辦法》), and the Regulations on Construction Projects Required to be Tendered (《必須招標的工程項目規定》) promulgated by the NDRC. Pursuant to the Regulations on Construction Projects Required to be Tendered (《必須招標的工程項目規定》) promulgated by the NDRC, procurement of the General Highway Business Operation Services shall be subject to bidding if they meet any of the following thresholds: (i) estimated contract sum of over RMB4 million in respect of a single contract under a construction project; (ii) procurement of key machineries and materials with an estimated consideration of over RMB2 million for a single contract; or (iii) procurement of project survey, design, and supervision services with an estimated consideration of over RMB1 million.

The basic procedures for the bidding under the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法》), the Implementing Regulations on the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法實施條例》) and the Measures for the Administration of the Bidding for Highway Construction Projects (《公路工程建設項目招標投標管理辦法》) are as follows:

(i) bid invitation documents shall be prepared and the bidding notice shall be issued by the tenderee in accordance with the provisions of the relevant laws and regulations;
(ii) the bidder shall submit the bidding application and the tenderee shall, examine the bidder’s qualification based on qualification examination standards such as the bidder’s business licence, survey qualification certificate, design qualification certificate and whether the bidder’s qualification meets the requirements of the bid invitation documents;
(iii) the tenderee shall not open the bids until at least three applications have been received from the bidders;
(iv) the bidding applications shall be examined by the bid evaluation commission, which shall be comprised of expert members selected, on a random basis, from the list of professional experts who have been enrolled in the Shandong Integrated Bid Expert Database for Public Resources Trading (山東省公共資源交易綜合評標專家庫) as administrated by Shandong Public Resources Trading Center (山東省公共資源交易中心) in accordance with the Administrative Measures for Shandong Integrated Bid Examination and Evaluation Expert Database and Experts for Public Resources Trading (《山東省公共資源交易綜合評標評審專家庫和專家管理辦法》), with reference to the standards and methods as provided by the bid-invitation documents. The standards and shortlisting methods for candidates are based on:
(a) the technical proposals submitted by the bidders regarding the project’s technical requirements;

– 5 –

LETTER FROM THE BOARD

(b) the experience of the bidders’ key personnel;
(c) the business performance of the bidders;
(d) the contract performance reputation of the bidders; and
(e) the bidding quotation.

The bid evaluation committee shall submit a written report to the tenderee and make recommendations as to candidates for the winning bid. There shall be no more than three candidates for the winning bid and order shall be indicated in the report;

(v) an announcement of candidates for the winning bid shall be made by the tenderee within 3 days from receiving the evaluation report;
(vi) with respect to the projects in which state-owned capital occupies the controlling or dominant position and that are subject to bid invitation, the tenderee shall make the candidate ranking first as the bid winner. If the candidate ranking first as the bid winner surrenders the bid winning, or such a candidate fails to meet the conditions for winning the bid as a result of failing to perform the contract due to force majeure, or failing to submit a performance bond according to the requirements of the bidding documents, or being found to have committed any illegal act that affects the bid winning result, the tenderee may determine another candidate as the bid winner according to the sequence of candidates in the list of bid wining candidates provided by the bid evaluation committee, or the tenderee may launch a new bid invitation;
(vii) the tenderee shall enter into a written contract with the bid winner in accordance with relevant laws and regulations; and
(viii) the bid winner shall fulfill its obligations as provided in the contract and complete the bid winning project.

However, the Board confirms that none of the services currently provided under the Existing 2021-2023 General Services Framework Agreement is subject to governmentprescribed price or government-guided price. Market price is applicable for all other General Highway Business Operation Services.

– 6 –

LETTER FROM THE BOARD

Annual caps and historical amounts

The Existing Annual Caps and the Proposed Revised Annual Caps for the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement for each of the three years ending 31 December 2023 shall be respectively as follows:

		For the year ending 31	For the year ending 31	December
		2021	2022	2023
		RMB’000	RMB’000	RMB’000
The	Existing Annual Caps	43,000	43,000	43,000
The	Proposed Revised Annual Caps	100,000	200,000	100,000

In respect of the Existing 2021-2023 General Services Framework Agreement, approximately RMB2.90 million was recorded for the nine months ended 30 September 2021.

Basis of the Proposed Revised Annual Caps

In determining the Proposed Revised Annual Caps, the Company has considered the following factors:

(i) the transaction amount for the procurement of the General Highway Business Operation Services from Shandong Hi-Speed Group and its Subordinated Entities in respect of the Jihe Expressway for the three years ended 31 December 2020 and for the nine months ended 30 September 2021 of approximately RMB1.28 million, RMB2.32 million, RMB2.44 million and RMB2.90 million respectively;
(ii) the General Highway Business Operation Services required by the Company in the course of its daily operations such as (a) the routine maintenance works and repair works expected to be performed on the Jihe Expressway, the Deshang Expressway (Liaocheng – Fan County section) and the Shennan Expressway as part of the Group’s preventive maintenance measures upon consideration of the technical conditions of such expressways; and (b) the development, maintenance, upgrade and improvement of the information systems of the Jihe Expressway, the Deshang Expressway (Liaocheng – Fan County section) and the Shennan Expressway;
(iii) the General Highway Business Operation Services to be required by the Company to facilitate the preliminary works under the R&E Project on the Jihe Expressway; and

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LETTER FROM THE BOARD

(iv) the Company must determine the counterparty through bidding and the considerations for the contracts shall be determined on the basis of the bidding quotations of bidders when the relevant projects mentioned in factors (i) to (iii) above reach the required thresholds under the Regulations on Construction Projects Required to be Tendered (《必須招標的工程項目規定》), and if Shandong HiSpeed Group and its relevant Subordinated Entities bid and win the projects, such transactions will constitute connected transactions of the Company under the Listing Rules.

The estimated amounts for factor (ii) are approximately RMB43 million for each of the three years ending 31 December 2023, which are within the Existing Annual Caps, being RMB43 million. The table below shows the estimated amount for factor (ii) for the year ending 31 December 2021:

Highway inspection and maintenance services, reconstruction services and highway design service Toll operation management, including the development, maintenance, upgrade and improvement of the information systems Highway construction supporting services including material supply Total	For the year ending 31 December 2021 RMB’0,000 3,834 240 226
	4,300

The Board is of the view that the total estimated amount for factor (ii) for the two years ending 31 December 2023 will be at similar level as compared to that for the year ending 31 December 2021.

– 8 –

LETTER FROM THE BOARD

The substantial increase in the Revised Annual Caps is justified by the progress of preliminary works under the R&E Project, including highway survey, design and feasibility study, etc., which are commencing in 2021. The table below shows the estimated demand for factor (iii) for the three years ending 31 December 2023:

Feasibility study report for the R&E Project Technical service for compilation of social stability risk analysis report Technical service for compilation of forest land use feasibility report Technical service for commissioning evaluation Technical service for investigation evaluation on existing expressways Two-stage survey and design and two- institutional consulting Surveying, demarcation and classification services Smart expressway design services Total	For the year ending 31 December 2021 2022 2023 RMB’0,000 RMB’0,000 RMB’0,000 400 300 – 110 – – 31 71 – 198 85 – 909 606 – 1,660 11,758 3,182 392 654 261 1,540 – – 5,240 13,474 3,443	For the year ending 31 December 2021 2022 2023 RMB’0,000 RMB’0,000 RMB’0,000 400 300 – 110 – – 31 71 – 198 85 – 909 606 – 1,660 11,758 3,182 392 654 261 1,540 – – 5,240 13,474 3,443
		3,443

The Proposed Revised Annual Cap for 2021 approximates the estimated demand for the General Highway Business Operation Services in 2021 (with difference of less than 5%), while the Proposed Revised Annual Caps for 2022 and 2023 are higher than the estimated demand for the General Highway Business Operation Services in 2022 and 2023 by an amount of approximately RMB22.3 million and RMB22.57 million respectively (the “ Buffer Amounts ”). Taking into account the determination of the estimated demand for the Preliminary Works Amounts under the R&E Project for each of the three years ending 31 December 2023 is based on the total of the above Preliminary Works Amounts under the R&E Project and the expected timetable for the preliminary works under the R&E Project, any delay or acceleration in completion of the works at any stage may lead to a change in the expenses actually paid by the Company in the periods. The Board is of the view that if this occurs, it will be impracticable or burdensome to revise the Proposed Annual Cap for that period or delay progress payments. Due to the fact that the Buffer Amounts represent approximately 10% of the estimated total demand for the Preliminary Works Amounts under the R&E Project and having considered that (i) the first or the last installment generally accounts for over 10% of the total contract value of the project under the Preliminary R&E Works Contracts; (ii) the projects which are expected

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to be carried out in a particular year may postpone to the following year or may advance that particular year; and (iii) the Company experienced the postponement in the settlement of services fees in previous contracts, the Board considers that the Buffer Amounts for 2022 and 2023 are fair and reasonable.

Reasons for and benefits of revision of the Existing Annual Caps

Reference is made to the section headed “Reasons for and benefits of entering into the New 2021-2023 General Services Framework Agreement” in the June 2021 Announcement, Shandong Hi-Speed Group and its relevant Subordinated Entities have been providing General Highway Business Operation Services to the Group in order to build up the business chain and promote the sustainable development of Shandong provincial roads. The reasons for the transactions carried out between us and Shandong Hi-Speed Group and its relevant Subordinated Entities are as follows:

(i) members of the Group have established business relationships with Shandong Hi-Speed Group and its relevant Subordinated Entities;
(ii) the relevant service suppliers have the expertise in their respective fields and may possess licences and/or experienced and skilled technical staff necessary for carrying out professional business;
(iii) the Group will benefit from economy of scale due to the professional technical support from Shandong Hi-Speed Group and its relevant Subordinated Entities which are devoted to providing services in relation to highway operation business and the use of such services will be more cost effective;
(iv) for certain sophisticated technical support and repair and maintenance services, the existing arrangements with Shandong Hi-Speed Group and its relevant Subordinated Entities will save cost when compared with the procurement of similar technical support and services from domestic and overseas service providers; and
(v) the services provided to the Group by Shandong Hi-Speed Group and its relevant Subordinated Entities have been on no less favourable terms as compared with the services provided by Independent Third Parties, taking into account the service quality, price, understanding of the business needs and operational requirements of the Group, familiarity with the projects of the Group and value-added contributions that could be offered, and these services are in compliance with the applicable industry requirements of road safety and maintenance in general.

In addition to the reasons and benefits as disclosed above, having taken into account that the demand of the Company for the provision of the General Highway Business Operation Services by Shandong Hi-Speed Group and its relevant Subordinated Entities will increase due to the preliminary works of the R&E Project on the Jihe Expressway, the Company expects that it will be necessary to increase the Existing Annual Caps.

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LETTER FROM THE BOARD

In view of the reasons and benefits discussed above, the Board is not aware of any disadvantages to the Company of revision of the Existing Annual Caps.

The Board (excluding Mr. Zhou Cenyu, Ms. Kong Xia and Mr. Tang Haolai who were required to abstain from voting on the relevant Board resolutions and the independent non-executive Directors, whose views are contained in the letter from the Independent Board Committee in this circular) is of the view that, the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

LISTING RULES IMPLICATIONS

Non-Exempt Continuing Connected Transaction

As at the Latest Practicable Date, Shandong Hi-Speed Group and its direct wholly-owned subsidiary, Shandong Hi-Speed Investment, hold approximately 38.93% and 5.19% of the issued Shares of the Company respectively and Shandong Hi-Speed Group is a controlling shareholder of the Company. Pursuant to Rule 14A.07 of the Listing Rules, Shandong Hi-Speed Group is a connected person of the Company. Therefore, the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement constitute a continuing connected transaction under Chapter 14A of the Listing Rules.

Pursuant to Rule 14A.54(2) of the Listing Rules, if the Company proposes to revise the Existing Annual Caps, the Company will need to re-comply with the relevant provisions under Chapter 14A of the Listing Rules in relation to the relevant continuing connected transactions. As the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) (other than the profits ratio) in respect of the Proposed Revised Annual Caps are more than 5%, the Proposed Revised Annual Caps and the transactions under the Existing 2021-2023 General Services Framework Agreement are subject to the reporting, announcement, annual review, circular and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

In addition, the Company further confirms that it will comply with the relevant requirements under Chapter 14 of the Hong Kong Listing Rules in the event that any specific agreement to be entered into pursuant to the Existing 2021-2023 General Services Framework Agreement constitutes a notifiable transaction as defined under Chapter 14 of the Hong Kong Listing Rules on a standalone basis.

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LETTER FROM THE BOARD

INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS

Reference is made to the section headed “Internal Control Measures in Relation to the Continuing Connected Transactions” in the June 2021 Announcement, the Group has established a comprehensive internal control system to ensure that the continuing connected transactions under the Existing 2021-2023 General Services Framework Agreement are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole. Relevant internal control measures include the following:

(i) the Company has completed the approval of the Existing 2021-2023 General Services Framework Agreement in accordance with the connected transaction management measures and internal control system;
(ii) the Group has designated a team comprising the management of the Company, the office of the Board, the financial management department, the human resources department, the corporate management department and the audit and legal department to continuously monitor the continuing connected transactions and report to the Board on a regular basis;
(iii) the Company will regularly monitor the service fees for the continuing connected transactions to ensure that they are fair and reasonable and in accordance with the relevant pricing basis:
(a) the Company will regularly conduct market survey and review the applicable laws, rules, regulations and policies, and collect information to determine the quality of the relevant service personnel, their remuneration level, and the fee rates of the service provider;
(b) the Company will regularly review the usage of services on a monthly basis and ensure the transaction amounts are within the annual caps;
(c) for provision of services under the Existing 2021-2023 General Services Framework Agreement, to ensure that the transactions thereunder are on normal commercial terms and terms no less favourable than those available from Independent Third Parties, where comparable services are available on the market from Independent Third Parties, before engaging for the provision of the services, the Group will obtain quotations from at least two Independent Third Parties for the comparable services and conduct an overall assessment on the terms of provision of services. The relevant members of the Group would only engage Shandong Hi-Speed Group and its relevant Subordinated Entities for the provision of the services when, according to the results of the overall assessment by the Group, Shandong Hi-Speed Group and its relevant Subordinated Entities offer the best terms of supply for the services, and the

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corporate management department and the audit and legal department of the Group have (i) reviewed the terms for the supply of goods or services; and (ii) separately given their approval for engaging Shandong Hi-Speed Group and its relevant Subordinated Entities. If the quotation and service terms offered by Shandong Hi-Speed Group and its relevant Subordinated Entities are not the most favourable to the Company, the Company will engage Independent Third Parties to provide the services. The quotations obtained from the Independent Third Parties would be recorded in the internal system of the Group which would be updated from time to time so that the members of the Group would have an easy access of information regarding market price and other terms of supply;
(iv) the management team of the Group will, together with the financial management department, regularly review the usage of services and the actual amount of service fees incurred to ensure that the relevant annual caps will not be exceeded;
(v) the management team of the Group organises and conducts internal control tests on a regular basis to assess the completeness and effectiveness of the internal control measures in relation to the continuing connected transactions;
(vi) the Board reviews the implementation of the Existing 2021-2023 General Services Framework Agreement on an annual basis and the financial statements on a semi-annual basis. The review mainly includes whether the Group and the connected persons have fulfilled the terms of the said agreements during the relevant year, and whether the actual transaction amounts incurred between the Group and the connected persons are within the annual caps;
(vii) the independent non-executive Directors review the continuing connected transactions on annual basis and make annual confirmation in the annual report of the Company in respect of whether the continuing connected transactions have been entered into (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or better and on terms that are fair and reasonable; (c) in accordance with the terms of the relevant agreements; and (d) are in the interests of the Company and the Shareholders as a whole;
(viii)the audit committee of the Company reviews the annual financial statements and opines on the continuing connected transactions during the year, including whether the terms of the continuing connected transactions are fair and reasonable and whether the transaction amounts are within the relevant annual caps; and
(ix) to assist the Company in complying with the applicable rules set out in Chapter 14A of the Listing Rules, the auditor of the Company has performed work on the continuing connected transactions of the Company in accordance with the requirements of “Hong Kong Standard on Assurance Engagements 3000 – Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”

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and with reference to “Practice Note 740 – Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants and issued a letter on the continuing connected transactions disclosed in the annual report of the Company in accordance with the applicable accounting standards and the Listing Rules.

DIRECTORS’ INTERESTS IN THE ABOVE TRANSACTIONS

As our non-executive Directors, Mr. Zhou Cenyu is the secretary of the party general branch and the chairman of the board of directors (a legal representative) of Shandong Hi-Speed Supply Chain Management Co., Ltd. (山東高速供應鏈管理有限公司) which is a wholly-owned subsidiary of Shandong Hi-Speed Group, Ms. Kong Xia is the deputy head of the organisation department of the party committee (party committee of the head office) of Shandong Hi-Speed Group and Mr. Tang Haolai is the vice general manager and a member of party committee of Shandong Hi-Speed Investment which is a direct wholly-owned subsidiary of Shandong Hi-Speed Group, and Shandong Hi-Speed Group is a connected person of the Company, they are materially interested in the resolution approving the Proposed Revised Annual Caps and therefore have abstained from voting on the relevant Board resolution. Save for the above, none of the Directors has a material interest in the above matter and is required to abstain from voting on the relevant Board resolution.

INFORMATION ON THE COMPANY AND THE PARTIES

The Company

The Company is principally engaged in (i) the construction, maintenance, operation, management and other businesses of the Jihe Expressway; and (ii) the maintenance, operation, management and other businesses of the Deshang and Shennan Expressways in Shandong Province, the PRC.

Shandong Hi-Speed Group

Shandong Hi-Speed Group is a limited liability company incorporated in the PRC. It is a state-owned capital investment company in infrastructure sector in Shandong Province. Its major objectives are to operate and manage the expressways within its jurisdiction, carry out the construction of major transportation projects assigned by the Shandong Provincial Government, and revitalise, integrate, operate and manage the authorised non-expressway transportation assets. It is an investment and financing platform for the transportation industry development of the Shandong Provincial Government and the investment and financing entity of major transportation projects in Shandong Province.

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LETTER FROM THE BOARD

2. CONTINUING CONNECTED TRANSACTION

2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

The principal terms of the 2021-2023 Financial Services Framework Agreement are set out as follows:

Date:

31 August 2021

Parties:

(i) the Company
(ii) Weihai City Commercial Bank

Duration: From 31 August 2021 to 31 December 2023

Conditions precedent:

The 2021-2023 Financial Services Framework Agreement is subject to (i) the approval of the 2021-2023 Financial Services Framework Agreement and the transactions contemplated thereunder by the Board; and (ii) the consideration and approval of the 2021-2023 Financial Services Framework Agreement and the transactions contemplated thereunder by the Independent Shareholders at the EGM of the Company.

Subject matters:

Weihai City Commercial Bank agreed to provide the Group with the following financial services pursuant to the terms and conditions of the 20212023 Financial Services Framework Agreement:

(1) deposit services, including but not limited to current deposit, time deposit, call deposit and agreement deposit, etc.

The Group’s daily maximum deposit balance (including accrued interests) in Weihai City Commercial Bank shall be RMB500 million, RMB1,000 million and RMB1,000 million for 2021, 2022 and 2023, respectively.

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LETTER FROM THE BOARD

(2) bank acceptance notes, discounting of commercial bills, domestic letters of guarantees, letters of credit, online remittance, foreign exchange remittance and other financial services approved by CBIRC (collectively the “ Other Financial Services ”).

Subject to the terms and conditions of the 20212023 Financial Services Framework Agreement, the Group shall sign further specific contracts with Weihai City Commercial Bank in relation to the deposit services and the Other Financial Services to set out the specific matters for providing such services.

PRICING POLICY

Weihai City Commercial Bank has undertaken to provide the above financial services to the Group in accordance with the following pricing policies:

(1) the deposit interest rate provided by Weihai City Commercial Bank to the Group shall not be lower than any of the following: the interest rates offered by Weihai City Commercial Bank to other members of Shandong Hi-Speed Group for the same type of deposits on the same conditions; and the interest rates offered by other PRC commercial banks to the Company and its subsidiaries for the same type of deposits.
(2) the fees charged by Weihai City Commercial Bank for provision of the Other Financial Services to the Group shall meet all of the following criteria:
(i) it shall not be higher than the standard interest rates as issued by the PBOC or CBIRC (if applicable);
(ii) it shall not be higher than or shall be equivalent to the interest or service fees charged by other commercial banks or other financial institutions in respect of the provision of similar services; and
(iii) it shall not be higher than the interest or service fees charged by Weihai City Commercial Bank in respect of the provision of similar services to other members of Shandong Hi-Speed Group.

HISTORICAL TRANSACTION AMOUNT

Up to the Latest Practicable Date, the Group did not conduct any transactions with Weihai City Commercial Bank in respect of any financial services.

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LETTER FROM THE BOARD

PROPOSED ANNUAL CAPS AND BASIS OF DETERMINATION

(1) Deposit Services

The Company proposed that the daily maximum deposit balance (including accrued interests) in Weihai City Commercial Bank for each of the three years ending 31 December 2023 shall be RMB500 million, RMB1,000 million and RMB1,000 million for 2021, 2022 and 2023 respectively, having considered:

(i) the daily maximum deposit balances of the Group at banks plus interest income thereon for the three years ended 31 December 2018, 31 December 2019 and 31 December 2020 amounting to approximately RMB1,409 million, RMB1,523 million and RMB1,594 million, respectively;
(ii) the balance of cash and cash equivalents of the Group as at 30 June 2021 amounting to RMB205 million;
(iii) the cash to be generated from daily operations of the Group;
(iv) the operating cash flow requirements and financial requirements for the Group’s operation and business expansion in the future; and
(v) based on the fact that Weihai City Commercial Bank is supervised by CBIRC and maintains satisfactory operating results and financial position, and implements good risk control and standardised management to reduce potential risks, it is expected that the interest income from the deposits at Weihai City Commercial Bank will increase accordingly.

(2) The Other Financial Services

The Company proposed that the annual caps for the total amount payable to Weihai City Commercial Bank in respect of the Other Financial Services shall be RMB10 million for each of the three years ending 31 December 2023 respectively, having considered:

(i) the estimated handling fees for issuing commercial bank drafts being approximately RMB1 million calculated based on the estimated rates of handling fees for issuing drafts being approximately 0.05%, for each of the three years ending 31 December 2023 respectively;
(ii) the estimated agency and service charges, advisory and consultancy fees and finance leasing fees with reference to the future development plan of the Group being approximately RMB9 million, calculated based on the rates of handling fees of Weihai City Commercial Bank ranging from 0.05% to 10%, for each of the three years ending 31 December 2023, respectively; and
(iii) with the innovation in financial services, the Group’s future business demands for the Other Financial Services in accordance with the development goal of the Company in the coming three years.

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REASONS FOR AND BENEFITS OF ENTERING INTO THE 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

Weihai City Commercial Bank is a bank financial institution regulated by the PBOC and CBIRC and is authorised to provide various financial services to the Group. The principal reasons for and the benefits of entering into the 2021-2023 Financial Services Framework Agreement are as follows:

(i) the Group can use Weihai City Commercial Bank as a medium to facilitate more efficient deployment of funds among the Company’s subsidiaries;
(ii) the Group can maximise the efficiency of its capital by expanding the use of the available funds and by using the funds collected to repay the external commercial loans of the Company’s subsidiaries;
(iii) to save finance costs, which in turn will enhance the profitability of the Group and the Shareholders of the Company (including the minority Shareholders) will be able to benefit from it; and
(iv) since its incorporation, Weihai City Commercial Bank has a well-developed organisational structure and standardised internal control mechanism, and its operating conditions are sound and its financial results are good.

In view of the reasons and benefits discussed above, the Board is not aware of any disadvantages to the Company of entering into the 2021-2023 Financial Services Framework Agreement.

The Board (excluding Mr. Zhou Cenyu, Ms. Kong Xia and Mr. Tang Haolai who were required to abstain from voting on the relevant Board resolutions and the independent non-executive Directors, whose views are contained in the letter from the Independent Board Committee in this circular) is of the view that the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and are in the interests of the Group and the Shareholders as a whole.

The Board (excluding Mr. Zhou Cenyu, Ms. Kong Xia and Mr. Tang Haolai who were required to abstain from voting on the relevant Board resolutions but including the independent non-executive Directors) is of the view that the Other Financial Services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Shandong Hi-Speed Group and its controlled subsidiary, Shandong Hi-Speed, hold approximately 37.06% and 11.6% of the issued shares of Weihai City Commercial Bank respectively. Therefore, pursuant to Rule 14A.13 of the Listing Rules, Weihai City Commercial Bank is an associate of Hi-Speed Group and thus also a connected person of the Company under the Listing Rules. As such, the transactions contemplated under the 2021-2023 Financial Services Framework Agreement constitute a continuing connected transaction under Chapter 14A of the Listing Rules.

For the deposit services to be provided by Weihai City Commercial Bank to the Group, as the highest applicable percentage ratio (as defined under Rule 14.07 of the Listing Rules) in respect of deposit services is more than 5%, the deposit services are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

For the Other Financial Services to be provided by Weihai City Commercial Bank to the Group, as the highest applicable percentage ratio in respect of the Other Financial Services is more than 0.1% but less than 5%, the Other Financial Services are subject to the reporting, annual review and announcement requirements, but are exempt from the Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS

The Group has established a comprehensive internal control system to ensure that the continuing connected transactions under the 2021-2023 Financial Services Framework Agreement are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole. Relevant internal control measures include the following:

(i) the Company has completed the approval of the 2021-2023 Financial Services Framework Agreement in accordance with the connected transaction management measures and internal control system; and
(ii) the Group has designated a team comprising the management of the Company, the office of the Board, the financial management department, the human resources department, the corporate management department and the audit and legal department to continuously monitor the continuing connected transactions and report to the Board on a regular basis.

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(1) Deposit Services

The Company has adopted internal control measures relating to the deposit services, including:

(i) before entering into any deposit arrangements with Weihai City Commercial Bank, the Company will negotiate with Weihai City Commercial Bank on an arm’s length basis in respect of the deposit interest rate of the deposit services, and ensure that such interest rate is determined: (a) by reference to and is not lower than the interest rates offered by Weihai City Commercial Bank to other members of Shandong Hi-Speed Group for the same type of deposits on the same conditions; (b) by reference to and is not lower than the benchmark interest rate then published by the PBOC for the same type of deposits on the same conditions and in case of any change in the benchmark deposit interest rate, the deposit interest rate to be payable by Weihai City Commercial Bank shall be determined by reference to and not lower than such benchmark deposit interest rate; and (c) by reference to and is not lower than the deposit interest rate offered by at least two other independent domestic commercial banks in the PRC for the same type of deposits on the same conditions. As such, the Company will be able to ensure the deposit interest rate of the deposit services for the same type of deposits on the same conditions will not be less favourable than that offered by Weihai City Commercial Bank to other members of Shandong Hi-Speed Group; that published by the PBOC; and that offered by two other independent domestic commercial banks in the PRC;
(ii) the financial management department of the Company will monitor the deposit services on a daily basis to ensure the daily maximum balance (including accrued interests) will not be exceeded;
(iii) the financial management department of the Company will report to the management of the Company, giving an update on the deposit arrangements entered into with Weihai City Commercial Bank on a monthly basis;
(iv) the Directors (including the independent non-executive Directors) will review the transactions contemplated under the 2021-2023 Financial Services Framework Agreement and its proposed annual cap each year, to ensure that the transactions contemplated under the 2021-2023 Financial Services Framework Agreement are conducted (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or better and on terms that are fair and reasonable; (c) in accordance with the terms of the relevant agreements; and (d) are in the interests of the Company and the Shareholders as a whole;
(v) the audit committee of the Company will also review the annual financial statements and opine on the continuing connected transactions during the year, including whether the terms of the continuing connected transactions are fair and reasonable and whether the transaction amounts are within the relevant annual caps; and
(vi) the auditor of the Company will perform annual reviews on the pricing and annual caps of such transactions.

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LETTER FROM THE BOARD

(2) The Other Financial Services

The internal control procedures adopted by the Company in relation to the Other Financial Services include: before receiving the Other Financial Services, the Company will enquire at least two independent domestic financial institutions in the PRC about the service fee rates and undergo a comprehensive comparison according to the preferential conditions and service fee rates given by each independent domestic financial institution in the PRC in the negotiation process to determine the optimal choice to ensure that the Company’s Other Financial Services are most cost-effective.

Taking into account of the relevant pricing policy, the basis for determining the proposed annual caps, the reasons for and benefits of entering into the 2021-2023 Financial Services Framework Agreement as well as the Company’s internal control measures, (1) the Board (excluding Mr. Zhou Cenyu, Ms. Kong Xia and Mr. Tang Haolai who were required to abstain from voting on the relevant Board resolutions and the independent non-executive Directors, whose views are contained in the letter from the Independent Board Committee in this circular) is of the view that the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (2) the Board (excluding Mr. Zhou Cenyu, Ms. Kong Xia and Mr. Tang Haolai who were required to abstain from voting on the relevant Board resolutions but including the independent non-executive Directors) is of the view that the Other Financial Services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

At the same time, the Company considers that it has adequate mechanisms and internal control procedures in place to ensure compliance and strict adherence to the terms of the 2021-2023 Financial Services Framework Agreement in respect of the continuing connected transactions.

CAPITAL RISK CONTROL MEASURES

Weihai City Commercial Bank is a bank financial institution legally holding the financial business licence issued by the banking and insurance regulatory and administrative authority and is strictly regulated by CBIRC and the PBOC. Weihai City Commercial Bank is governed by the Administrative Measures for the Capital of Commercial Banks (Provisional) (《商業銀行資本管理辦法(試行)》), which were administrative measures issued by the former CBRC, stipulating that commercial banks shall be subject to the capital adequacy ratio requirement and shall ensure the safety of fund deposits.

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DIRECTORS’ INTERESTS IN THE ABOVE TRANSACTIONS

As our non-executive Directors, Mr. Zhou Cenyu is the secretary of the party general branch and the chairman of the board of directors (a legal representative) of Shandong Hi-Speed Supply Chain Management Co., Ltd. (山東高速供應鏈管理有限公司) which is a wholly-owned subsidiary of Shandong Hi-Speed Group, Ms. Kong Xia is the deputy head of the organisation department of the party committee (party committee of the head office) of Shandong Hi-Speed Group and Mr. Tang Haolai is the vice general manager and a member of party committee of Shandong Hi-Speed Investment which is a direct wholly-owned subsidiary of Shandong Hi-Speed Group, and Shandong Hi-Speed Group is a connected person of the Company, they are materially interested in the transactions contemplated under the 2021-2023 Financial Services Framework Agreement and therefore have abstained from voting on the relevant Board resolutions. In addition to those set out above, none of the Directors has a material interest in the above matters and is required to abstain from voting on the relevant Board resolutions.

INFORMATION ON THE COMPANY AND THE PARTIES

The Company

Weihai City Commercial Bank

Weihai City Commercial Bank is a joint stock company incorporated with limited liability and validly subsisting in the PRC.

Weihai City Commercial Bank is a bank financial institution legally holding the financial business licence issued by the banking and insurance regulatory and administrative authority and is principally engaged in taking deposits from the public, extending short-term, medium-term and long-term loans, effecting domestic settlements, discounting bills, and acting as an agent for issuance of, settlement for, and underwriting of, government bonds, and other financial services.

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LETTER FROM THE BOARD

3. THE R&E PROJECT ON THE JIHE EXPRESSWAY

Set out below are the subject matters of the R&E Project on the Jihe Expressway:

Background:

The Jihe Expressway, which was commissioned in September 2007, is a two-way four-lane expressway. It has a designed speed limit of 120 km per hour with a roadbed width of 28.0 metres. With the implementation of development strategies nationwide and locally in Shandong Province, rapid economic and social development, together with improved regional expressway network, in 2019, the average traffic volume of the expressway section from Yinjialin Hub to Dongpinghu Hub was 62,480 pcu/d (annual average daily traffic volume) and the average traffic volume of the expressway section from Dongpinghu Hub to Wangguantun Hub was 41,810 pcu/d, with the proportion of large vehicles reaching 26.6%. In terms of level of service, the expressway section from Yinjialin Hub to Dongpinghu Hub ranged from 4 to 6; the expressway section from Dongpinghu Hub to Wangguantun Hub stood at 3; and most of other expressway sections were close to 4. The standard of two-way four-lane expressways can no longer accommodate the needs arising from economic, social and regional development strategies. Therefore, the implementation of the R&E Project on the Jihe Expressway is instrumental in optimising the expressway networks of the PRC and Shandong Province, improving the road capacity, level of service and transportation efficiency of national highway transport routes, thoroughly implementing the national development strategy, and promoting regional economic and social development.

Route direction:

The route starts from Yinjialin Hub Interchange and shall be reconstructed and expanded along the original line, running through Shizhong District, Changqing District and Pingyin County of Jinan City; Dongping County of Tai’an City; Wenshang County, Liangshan County and Jiaxiang County of Jining City, Yuncheng County and Juye County of Heze City, and ends at Wangguantun Hub Interchange.

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General information of the construction:

With reference to the traffic volume forecast and based on the road capacity analysis, the entire route will be reconstructed and expanded from a two-way four-lane expressway to a two-way eight-lane expressway according to the standard under the Technical Standard of Highway Engineering (《公路工程技術標準》) (JTG B01 2014) of the MOT.

The route has a total length of 154.576 km, the construction of which includes roadbed earthwork of 16,120 thousand cubic metres; roadbed and surface drainage of 76,500 cubic metres; roadbed protection of 210 thousand cubic metres; surface engineering of 4,963.991 thousand square metres; development of 1 viaduct (to be widened on the left side by 3,535 metres and on the right side by 3,485 metres), 1 extra-large bridge of 1,277 metres (to be increased by half of its width), 16 large bridges of 4,907 metres (14 of them are to be widened and 2 of them are to be rebuilt after demolition), 36 medium bridges of 2,325 metres (all of them are to be widened), 22 small bridges of 564 metres (all of them are to be widened), 129 box culverts (all of them are to be widened); 15 interchanges (4 hub interchanges (2 of them are to be used and 2 of them are to be reconstructed and expanded at the original locations)); 11 typical interchanges (6 of them are to be reconstructed and expanded at the original locations, 2 of them are to be rebuilt at new locations and 3 of them are to be newly built), 42 gradeseparated interchanges (4 of them are to be rebuilt after demolition, 1 of them is to be newly built and 37 of them are to be widened), 254 passageways (1 of them is to be rebuilt after demolition, 2 of them are to be used and 251 of them are to be widened), 7 bridges (all of them are to be rebuilt after demolition); 3 services areas, 2 parking areas (all of them are to be used), 1 control and communication centre (to be newly built), 1 emergency rescue centre (to be used). The total site area covers 1,351.755 hectares.

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LETTER FROM THE BOARD

Estimated total investment amount and mode of project investment:
The estimated total investment amount for the R&E Project on the Jihe Expressway is approximately RMB20 billion, representing an average cost per km of RMB130 million. Approximately RMB4 billion (representing 20.0% of the total investment amount) will be sourced by the Company from its owned funds, and will be deemed as the capital of the R&E Project on the Jihe Expressway. The remaining construction capital of approximately RMB16 billion (representing 80.0% of the total investment amount) will be financed through ways such as loans from domestic banks.
Expected commencement time and duration of the construction:
It is scheduled to complete the preliminary and construction preparatory works and formally commence construction for the R&E Project on the Jihe Expressway by the end of 2021, and put it into operation by the end of December 2024. The duration of the construction shall be 36 months.
Method of operation:
For-profit toll collection services
Toll rates and toll collection period:
The R&E Project on the Jihe Expressway is subject to the approval from the People’s Government of Shandong Province in respect of the toll collection period and therefore the future toll collection period is uncertain.

Analysis of the feasibility of the R&E Project on the Jihe Expressway

A report titled “Study Report on the Feasibility of the Reconstruction and Expansion Project of the Jinan – Guangzhou Expressway (Jinan to Heze Section)” (the “ Report ”) has been prepared by Shandong Provincial Communications Planning & Design Institute Co., Ltd. (山東省交通規劃設計院有限公司) after conducting a study on the details of the R&E Project on the Jihe Expressway according to the requirements under the Codes for Compilation of Feasibility Study Report on Highway Construction Projects (《公路建設項目可行性研究報告編製辦法》) and the Guidelines for Design of Expressway Reconstruction and Extension (《高速公路改擴建設計細則》) (JTG/T L11-2014) as issued by the MOT and based on the characteristics of the project.

According to the findings in the Report about the traffic volume forecast, having considered, among other things, the functions and effects of the R&E Project on the Jihe Expressway to China’s expressway system and the expressway network in Shandong Province, the topographical and geological conditions along the line, the economic and social development in the region, the construction urgency and the development of tourism resources in the vicinity, the R&E Project on the Jihe Expressway would bring positive economic and social benefits and align with the development and business needs of the Company.

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LETTER FROM THE BOARD

Project risks and countermeasures

(i) Official approval for toll collection period has not yet been obtained

The R&E Project on the Jihe Expressway is subject to the approval from the People’s Government of Shandong Province in respect of the toll collection period and therefore the future toll collection period is uncertain.

Countermeasures:

The Company will strengthen the communication with the government and competent authorities and will submit formalities to Shandong Provincial Traffic Transport Department and SDRC at earliest possible for the approval for toll collection period. It will also seek to start over the toll collection period from the date of commissioning of the R&E Project on the Jihe Expressway. In accordance with the Regulations on the Administration of Toll Roads (《收費公路管理條例》), the maximum toll collection period for for-profit toll roads shall be up to 25 years. In light of the approval for 25 years of toll collection period upon the commissioning of the reconstruction and expansion project of Jinan – Qingdao Expressway in Shandong Province, the R&E Project on the Jihe Expressway is of sufficient policy bases and feasibility for obtaining the official approval for toll collection period.

(ii) Official approval for toll rates has not yet been obtained

At present, the toll rates of high-class highways in China are basically fixed by the government whereas companies have no right to do so. Hence, companies should not rule out any introduction of unfavourable toll rate adjustments and any possible resulting impacts on operating environment and benefits.

Countermeasures:

The Company will strengthen the liaison and communication with relevant government authorities, particularly the competent PRC transportation and finance authorities pursuant to the Implementation Plan for Comprehensively Promoting Differentiated Toll Collection on Expressways (《全面推廣高速公路差異化收費實施方案》) issued by the MOT, NDRC and MOF, striving to gain government policy support for the R&E Project on the Jihe Expressway. The Company will also timely update itself of the latest information about government policy and study further on the underlying government approach and policy in order to implement countermeasures ahead of any changes in government policy to minimise any adverse impact of policy changes on the operation of the R&E Project on the Jihe Expressway.

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LETTER FROM THE BOARD

(iii) Risks of investment and time overruns

As the R&E Project on the Jihe Expressway will take a relatively long period of time and involve a wide spectrum of different stages of works including land acquisition, demolition and relocation of advertising facilities and pipelines along the expressway, design, tendering, construction and completion settlement, there are a number of unforeseeable factors such as rising raw material prices and labour costs, material omission of inspection on the geological condition of construction sites along the expressway, uncooperative behaviour of administrative units and entities along the expressway. These may result in overruns of total investment amount and scheduled time of the R&E Project on the Jihe Expressway.

Countermeasures:

During the reconstruction and expansion of the Jihe Expressway, the Company will procure raw materials in strict compliance with a designated procurement approach through multiple channels, which has the advantages of reducing intermediate links, expanding procurement channels and creating long-term, stable and flexible network to ensure supply for highway construction. In addition, the Company will increase its effort in studying the feasibility of the R&E Project on the Jihe Expressway by focusing on pre-construction standardisation works, seriously implementing the Measures for the Administration of the Bidding for Highway Construction Projects (《公路工程建設項目招標投標管理辦法》) and the Measures for the Supervision of Highway Construction Projects (《公路工程施工監理辦法》) of the MOT, avoiding overruns in construction cost, strictly adhering to the planned management and eliminating the risks of work delays and construction defects. The Company will execute an internationally recognised construction supervision system to ensure punctual and quality completion of the project.

(iv) Operating risk

The traffic volume and toll income of the project are materially affected by the regional economic development, overall traffic development and road network changes, and the cyclic economic movements may have certain possible impacts on the benefits from the R&E Project on the Jihe Expressway, which may reduce the accuracy of predictions and therefore, actual income may not meet expectations.

Countermeasures:

Upon approval of the R&E Project on the Jihe Expressway, the Company will work on standardising operational management, strengthening road management, upgrading ancillary services, improving passageway environment, ensuring good and smooth road conditions, enhancing service consciousness, raising service quality, with views to fully capitalising on the quickness, convenience, safety and affordability of high-class highways for short to mid-haul transportation, providing better services to the society, and reducing operating cost while attracting traffic volume. The Jihe Expressway is an

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LETTER FROM THE BOARD

integral part of China’s arterial expressway network and strategically located in prime area, it has considerable growth potential in traffic volume and toll income. Moreover, when projecting traffic volume, the Company has fully taken into account the future economic, traffic planning and road network changes in the region, and also considered the diversion effect of other road sections and other means of transport.

(v) Interest rate risk

The larger scale of a project is, the larger scale of its debt financing will be and the greater impact of market interest rate changes on investment income will be. Any increase in loan interest rates or change in financing structure will result in higher finance costs.

Countermeasures:

The Company will raise the funds through various ways for which low-cost financing is most preferable and a certain proportion of fixed-rate financing shall be included. The Company will also consider taking advantage on its credibility to open up a number of financing channels such as bank borrowings, equity financing, corporate bonds and private capital contribution for satisfying its capital requirements and reducing finance costs.

(vi) Political, economic, natural disaster and other force majeure factors

Business activities may be adversely affected by political, economic, natural disaster and other force majeure factors.

Countermeasures:

As the risk of occurring any force majeure event is highly improbable, the Company will put in place proactive precautionary measures to enable it to take immediate emergency response actions and reduce loss should any such event occurs.

Effects on the Company and reasons for investing in the R&E Project on the Jihe Expressway

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LETTER FROM THE BOARD

Expressway, significantly improve its road capacity and level of service and induce further increase in traffic volume, which would drive and safeguard the development of the Company’s principal business and promote sustainable growth of the Company.

Furthermore, based on the financial evaluation results in the “Report on Analysis of Investment Benefits of Jinan – Guangzhou Expressway (Jinan to Heze Section)” (《濟廣高速濟南至菏澤段投資效益分析報告》), all bank loans (with repayment term of 13.3 years commencing from the borrowing year) are able to be settled within the operation period of the R&E Project on the Jihe Expressway, which demonstrates that it has the ability of making principal repayments and interest payments. The capital invested in the R&E Project on the Jihe Expressway can be recovered within the operation period, with capital recovery period of 12.2 years and internal rate of return of 23.3%.

In view of the forgoing, the Board is in the opinion that the investment and implementation of the R&E Project on the Jihe Expressway is in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

The Company expects to conduct a series of transactions in respect of the R&E Project on the Jihe Expressway with various parties. Those transactions contemplated thereunder, if implemented, may constitute notifiable transactions and/or connected transactions under Chapter 14 and Chapter 14A of the Listing Rules. The Company will comply with the requirements under the Listing Rules in respect of those transactions.

4. ADJUSTMENTS TO 2021 FINANCIAL BUDGET PLAN

The adjustments to 2021 Financial Budget Plan (the “ Plan ”) were considered and approved by the Board on 29 October 2021. According to the Plan, as the Company is affected by factors such as growth rate of traffic volume, road operation conditions and road reconstruction in neighbouring areas, it is necessary to adjust the consolidated revenue from operations, consolidated profit and consolidated net profit as budgeted for 2021. Meanwhile, due to the R&E Project on the Jihe Expressway, the budgeted capital expenditures of the Company for 2021 have to be adjusted from RMB85.622 million to RMB1.711 billion (comprising land use fees and compensations for demolition and relocation of approximately RMB1.5 billion, the payments of which are dependent on the progress of communication and coordination with cities along the expressway, which is uncontrollable. Excluding such uncontrollable land use fees and compensations for demolition and relocation, the capital expenditures would be RMB210,932,500).

THE EGM

The EGM will be held at 10:00 a.m. on Monday, 13 December 2021 at Conference Room (Autumn), 2/F, Enjoy Hotel, No. 44 Gongye South Road, High-tech Zone, Jinan City, the PRC. The notice of the EGM is set out on pages EGM-1 to EGM-3 of this circular.

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LETTER FROM THE BOARD

A form of proxy for the EGM is enclosed with this circular. If you wish to appoint proxy(ies) to attend the EGM or any adjourned meeting thereof, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon. For holders of H Shares, the aforementioned documents shall be lodged with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. The form of proxy must be served not less than 24 hours before the time scheduled for holding the EGM (or any adjournment thereof). Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof should you so wish.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company has been closed from Saturday, 13 November 2021 to Monday, 13 December 2021 (both days inclusive), during which period no transfer of shares of the Company will be registered. In order to qualify for attending the EGM, unregistered shareholders shall ensure that all transfers of shares accompanied by the relevant share certificates and the appropriate transfer documents must be lodged with the Company’s Hong Kong H share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H Shares), or the head office of the Company in the PRC at Room 2301, Block 4, Zone 3, Hanyu Financial & Business Centre, No. 7000 Jingshi East Road, High-tech Zone, Jinan City, Shandong Province, the PRC (for holders of Domestic Shares), and in any case no later than 4:30 p.m. on Friday, 12 November 2021.

VOTING BY POLL

Pursuant to the Listing Rules, voting by poll is mandatory at all general meetings (except where the chairman of the meeting, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted by a show of hands). The chairman of the EGM will request for voting by poll on all the proposed resolutions in the notice of the EGM. The results of the poll will be published on the websites of the Company and the Stock Exchange on the day of the EGM.

On a poll, every Shareholder present in person or by proxy or (being a corporation) by its duly authorised representative shall have one vote for each Share registered in his/her name in the register of members of the Company. A Shareholder entitled to more than one vote need not use all his/her votes or cast all the votes he/she uses in the same manner.

ABSTENTION OF SHAREHOLDERS FROM VOTING

By virtue of Shandong Hi-Speed Group having material interests in the (1) the Proposed Revised Annual Caps; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps, Shandong Hi-Speed Group and its associates will be required to abstain from voting on the resolutions to be proposed at the EGM to approve the matters. To the best of the Directors’ knowledge, information and belief having

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LETTER FROM THE BOARD

made all reasonable enquiries, save for Shandong Hi-Speed Group and its associates (including Shandong Hi-Speed Investment), no Shareholder is required to abstain from voting on the resolutions to be considered at the EGM.

RECOMMENDATIONS

The Board (including the independent non-executive Directors whose views have been set out in this circular together with the advice of the Independent Financial Adviser) is of the view that the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement are entered into in the ordinary and usual course of business of the Group on normal commercial terms, and are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Proposed Revised Annual Caps.

The Board (including the independent non-executive Directors whose views have been set out in this circular together with the advice of the Independent Financial Adviser) is of the view that the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the usual and ordinary course of business of the Group on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the deposit services under the 2021 -2023 Financial Services Framework Agreement and its proposed annual caps.

The Board is of the view that the R&E Project on the Jihe Expressway and the adjustments to 2021 Financial Budget Plan are in the interests of the Company and its Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the relevant resolutions to be proposed in this regard at the EGM.

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LETTER FROM THE BOARD

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with respect to the Company. The information contained herein relating to the Company has been supplied by the Directors, who 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, no other facts are omitted in this circular which would make any statement herein misleading insofar as it relates to the Company.

Yours faithfully, By order of the Board Qilu Expressway Company Limited Wang Zhenjiang Chairman

Shandong, the PRC

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1576)

15 November 2021

To the Independent Shareholders

Dear Sir or Madam,

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

We refer to the circular of the Company of even date (the “ Circular ”), of which this letter forms part. Unless the context otherwise requires, terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed by the Board to form the Independent Board Committee to consider whether (1) the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps, the details of which are set out in the letter from the Board, are fair and reasonable so far as the Independent Shareholders are concerned and to advise you in this regard.

Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to (1) the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps. The details of the opinion of Gram Capital and the principal factors considered in arriving at such opinion are set out in the letter from Gram Capital on pages 35 to 61 of the Circular.

Your attention is also drawn to the letter from the Board on pages 1 to 32 and other information set out in the appendix of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATIONS

Having taken into account the interests of the Independent Shareholders and the opinion from Gram Capital, we are of the view that: (1) the Proposed Revised Annual Caps and the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement are entered into in the ordinary and usual course of business of the Group on normal commercial terms and are fair and reasonable and are in the interests of the Company and its Shareholders as a whole; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps are entered into in the ordinary and usual course of business on normal commercial terms, and are fair and reasonable and are in the interests of the Company and its Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve (1) the Proposed Revised Annual Caps; and (2) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps.

Yours faithfully,

For and on behalf of the Independent Board Committee of

Qilu Expressway Company Limited Mr. Cheng Xuezhan Mr. Li Hua Mr. Wang Lingfang Mr. He Jiale Mr. Han Ping

Independent non-executive Directors

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LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions for the purpose of inclusion in the Circular.

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

15 November 2021

To: The independent board committee and the independent shareholders of Qilu Expressway Company Limited

Dear Sir/Madam,

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the Proposed Revised Annual Caps and the transactions (the “ Services Transactions ”) contemplated under the Existing 2021-2023 General Services Framework Agreement (the “ Annual Caps Revision ”); and (ii) the deposit services under the 2021-2023 Financial Services Framework Agreement and its proposed annual caps (the “ Deposit Services ”, together with the Annual Caps Revision, the “ Transactions ”), details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 15 November 2021 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Annual Caps Revision

The Company entered into the Existing 2021-2023 General Services Framework Agreement with Shandong Hi-Speed Group on 18 June 2021. The Existing Annual Caps are RMB43 million for each of the three years ending 31 December 2023.

The Company received a notice from the Shandong Provincial Traffic Transport Department that the reconstruction and expansion project of Jihe Expressway (the “ R&E Project ”) has been listed as a planned project to be implemented under the “14th Five-Year Plan”, and the Company is required to accelerate the commencement of relevant preliminary

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LETTER FROM GRAM CAPITAL

preparation works. Taking into account the scope of services that can be provided by Shandong Hi-Speed Group and its relevant Subordinated Entities, the progress of preliminary works under the R&E Project of the Jihe Expressway and the expected increase in demand for such services of the Company, the Board passed a resolution on 26 August 2021 (the “ Date of Board Resolution ”) to adopt the Proposed Revised Annual Caps, being RMB100 million, RMB200 million and RMB100 million respectively for the three years ending 31 December 2023.

With reference to the Board Letter, pursuant to Rule 14A.54(2) of the Listing Rules, if the Company proposes to revise the Existing Annual Caps, the Company is required to re-comply with the relevant provisions under Chapter 14A of the Listing Rules in relation to the relevant continuing connected transactions. As the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) (other than the profits ratio) in respect of the Proposed Revised Annual Caps are more than 5%, the Proposed Revised Annual Caps are subject to the reporting, announcement, annual review, circular and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Deposit Services

On 31 August 2021, the Company entered into the 2021-2023 Financial Services Framework Agreement with Weihai City Commercial Bank, pursuant to which, Weihai City Commercial Bank agreed to provide deposit services and the Other Financial Services to the Group, subject to the terms and conditions of the 2021-2023 Financial Services Framework Agreement.

With reference to the Board Letter, for the deposit services to be provided by Weihai City Commercial Bank to the Group, as the highest applicable percentage ratio (as defined under Rule 14.07 of the Listing Rules) in respect of deposit services is more than 5%, the deposit services are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Mr. Cheng Xuezhan, Mr. Li Hua, Mr. Wang Lingfang, Mr. He Jiale and Mr. Han Ping (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Transactions are on normal commercial terms and are fair and reasonable; (ii) whether the Transactions are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Transactions at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Gram Capital was engaged as an independent financial adviser in relation to the Company’s very substantial acquisition and connected transaction, details of which are set out in the Company’s circular dated 26 June 2020.

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LETTER FROM GRAM CAPITAL

Notwithstanding the aforesaid engagement, as at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company, or any other parties that could be reasonably regarded as hindrance to Gram Capital’s independence to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions.

Besides, apart from the advisory fee and expenses payable to us in connection with this engagement as the Independent Financial Adviser, there is no arrangement whereby we shall be entitled to receive any other fees or benefits from the Company.

Having considered the above, in particular (i) none of the circumstances as set out under the Rule 13.84 of the Listing Rules existed as at the Latest Practicable Date; and (ii) the aforesaid past engagement will not affect our independence to act as the Independent Financial Adviser due to the fact that (a) we were appointed as independent financial adviser to advise the Independent Board Committee and the then independent Shareholders and the past engagement did not fall into any circumstances as set out under the Rule 13.84 of the Listing Rules, therefore we maintained our independence from the Company during the aforesaid past engagement; and (b) the advisory fee of the aforesaid past engagement paid by the Company to us accounted for an insignificant portion of our revenue for the relevant period, we are of the view that we are independent to act as the Independent Financial Adviser.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Transactions. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Circular, for which the Directors collectively and individually accept full responsibility, includes the particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading

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LETTER FROM GRAM CAPITAL

or deceptive, and there are no other matters the omission of which would make any statement therein or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Shandong Hi-Speed Group, Weihai City Commercial Bank or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Transactions. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Transactions, we have taken into consideration the following principal factors and reasons:

Business overview of the Company

With reference to the Board Letter, the Company is principally engaged in (i) the construction, maintenance, operation, management and other businesses of the Jihe Expressway; and (ii) the maintenance, operation, management and other businesses of the Deshang and Shennan Expressways in Shandong Province, the PRC.

A. ANNUAL CAPS REVISION

Background of and reasons for the Annual Caps Revision

Information on Shandong Hi-Speed Group

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LETTER FROM GRAM CAPITAL

Government, and revitalise, integrate, operate and manage the authorised non-expressway transportation assets. It is an investment and financing platform for the transportation industry development of the Shandong Provincial Government and the investment and financing entity of major transportation projects in Shandong Province.

Reasons for and benefits of the Annual Caps Revision

We understood from the Directors that the reasons for the transactions carried out between the Group and Shandong Hi-Speed Group and its relevant Subordinated Entities are as follows: (i) members of the Group have established business relationships with Shandong Hi-Speed Group and its relevant Subordinated Entities; (ii) the relevant service suppliers have expertise in their respective fields and may possess licenses and/or experienced and skilled technical staff necessary for carrying out professional business; (iii) the Group will benefit from economy of scale due to professional technical support from Shandong Hi-Speed Group and its relevant Subordinated Entities which are devoted to providing services in relation to highway operation business and the use of such services will be more cost effective; (iv) for certain sophisticated technical support and repair and maintenance services, the existing arrangements with Shandong Hi-Speed Group and its relevant Subordinated Entities will save cost when compared with the procurement of similar technical support and services from domestic and overseas service providers; and (v) the services provided to the Group by Shandong Hi-Speed Group and its relevant Subordinated Entities have been on no less favourable terms as compared with the services provided by Independent Third Parties, taking into account the service quality, price, understanding of the business needs and operational requirements of the Group, familiarity with the projects of the Group and value-added contributions that could be offered, and these services are in compliance with the applicable industry requirements of road safety and maintenance in general.

As confirmed by the Directors, as the Services Transactions will be entered into in the ordinary and usual course of business of the Group and on a frequent and regular basis, it would be costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the Independent Shareholders as required by the Listing Rules, if necessary.

Pursuant to the Existing 2021-2023 General Services Framework Agreement with Shandong Hi-Speed Group on 18 June 2021, where government-prescribed price or government-guided price are not available for a particular service or the previous government prescribed or guided price are no longer applicable to such service, the price of such service shall be determined with reference to the market price through negotiation between both parties to the agreement. In determining the market price, both parties shall take into consideration the following key factors: (a) the prevailing market price charged by any third party providing a similar service in the region where the service is provided by one of the parties, the quotation from other service suppliers providing the same service and a minimum of two comparable transactions carried out with Independent Third Parties during the same period; and (b) the same or similar service provided by Shandong Hi-Speed Group and its relevant Subordinated Entities to any third party, and the minimum quotation for such service.

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Having considered the above, we are of the view that the Services Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.

With reference to the Board Letter, in addition to the reasons and benefits as disclosed in the June 2021 Announcement, having taken into account that the demand of the Company for the provision of the General Highway Business Operation Services by Shandong Hi-Speed Group and its relevant Subordinated Entities will increase due to the preliminary works of the R&E Project on the Jihe Expressway, the Company expects that it will be necessary to increase the Existing Annual Caps.

Having considered the above and (i) the Services Transactions are in the interests of the Company and the Shareholders as a whole; and (ii) the Company expects that it will be necessary to increase the Existing Annual Caps as the Existing Annual Caps may not be sufficient, we are of the view the Annual Caps Revision is in the interests of the Company and the Shareholders as a whole.

1. PRINCIPAL TERMS OF THE ANNUAL CAPS REVISION

Major terms of the Annual Caps Revision are set out as follows, details of which are set out under the section headed “THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT” of the Board Letter:

Date

18 June 2021

Parties

(i) the Company; and
(ii) Shandong Hi-Speed Group

Effective period

From 18 June 2021 to 31 December 2023 (both days inclusive)

Subject matter

Shandong Hi-Speed Group and its relevant Subordinated Entities will provide the Group with the General Highway Business Operation Services, including (i) highway design services including planning, renovation, engineering, survey and system design of flyovers, road surfaces, highways and ancillary facilities; (ii) highway inspection and maintenance services including regular inspections of roadbed and road surface, regular and ad-hoc inspections of bridges and tunnels as well as maintenance and repair of flyovers and road surfaces; (iii) highway research and analysis services including survey and analysis of road sections, research on the treatment measures and techniques, projection of and research on the traffic volume and

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toll income, operational management of toll collection; and (iv) highway construction supporting services including monitoring of highway technologies, project supervision, project contracting, supply of bulk materials and other related or similar services.

Demand estimation

Other than those that require public bidding, the Group shall submit an estimation of its demand for services for the next year or any adjustment plan on service projects for the current year to Shandong Hi-Speed Group by 31 October of each year. Both parties shall also reach a consensus on the plan before 30 November of the same year. In the event that the service demand plan for the next year is more or less the same as that of the current year, Shandong Hi-Speed Group and its relevant Subordinated Entities shall fulfill the plan.

Pricing Policies

The pricing of each of the services provided under the Existing 2021-2023 General Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

(i) government-prescribed price: where the central or local government imposes price control on a particular service at any time within the agreement period of the Existing 2021-2023 General Services Framework Agreement, the price of such service shall be determined in accordance with the prescribed price published on the website of the relevant government authority or the authoritative price list;
(ii) government-guided price: where the central or local government guided price standard is available for a particular service and such guided price standard has been published on the website of relevant government authority or via authoritative price list, the price of such service shall be determined within the range of the government-guided price through negotiation;
(iii) market price: where the above two price standards are not available for a particular service or the previous government prescribed or guided price are no longer applicable to such service, and such service does not fall within those services subject to tender process pursuant to laws and regulations, the price of such service shall be determined with reference to the market price through negotiation between both parties to the agreement. If the service falls within those services subject to tender process pursuant to laws and regulations, the price shall be determined by tender process. The Company must determine the counterparty through bidding when its relevant projects reach the required thresholds, and if Shandong Hi-Speed Group and its relevant Subordinated Entities win the bid, they must fulfill the winning bid.

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For prices that shall be determined through mutual negotiation, both parties shall take into consideration the following key factors:

(a) the prevailing market price charged by any third party providing a similar service in the region where the service is provided by one of the parties, the quotation from other service suppliers providing the same service and a minimum of two comparable transactions carried out with Independent Third Parties during the same period; and
(b) the same or similar service provided by Shandong Hi-Speed Group and its relevant Subordinated Entities to any third party, and the minimum quotation for such service.

For prices that shall be determined through tender process:

The relevant laws and regulations governing the procedures of tenders and bids include the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法》), The Implementing Regulations on the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法實施條例》) and the Measures for the Administration of the Bidding for Highway Construction Projects (《公路工程建設項目招標投標管理辦法》), and the Regulations on Construction Projects Required to be Tendered (《必須招標的工程項目規定》) promulgated by the NDRC. Pursuant to the Regulations on Construction Projects Required to be Tendered (《必須招標的工程項目規定》) promulgated by the NDRC, procurement of the General Highway Business Operation Services shall be subject to bidding if they meet any of the following thresholds: (i) estimated contract sum of over RMB4 million in respect of a single contract under a construction project; (ii) procurement of key machineries and materials with an estimated consideration of over RMB2 million for a single contract; or (iii) procurement of project survey, design, and supervision services with an estimated consideration of over RMB1 million. Please refer to the sub-section headed “Pricing Policies” under the section headed “THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT” in the Board Letter for details of the basic procedures for the bidding.

As stated in the Board Letter, the Board confirms that none of the services currently provided under the Existing 2021-2023 General Services Framework Agreement is subject to government-prescribed price or government-guided price. Market price is applicable for all other General Highway Business Operation Services.

Upon our request, the Company advised us that there were around 10 projects which (i) individual agreements were entered into between the Group and Shandong High-Speed Group or its Subordinated Entities); or (ii) successful tender notices (note: successful tender notice means a notice to formally inform the bidder who is successfully selected as service provider/products supplier by way of tendering and bidding procedures) were issued to Shandong High-Speed Group or its Subordinated Entities during the period from January 2021

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to August 2021. For our due diligence purpose, we selected six projects (being over half of aforesaid projects) on a random basis and obtained relevant documents (e.g. individual agreements (including draft agreements), successful tender notice, relevant tendering and bidding documents). According to the aforesaid documents, we noted that (i) there were at least three bidders participating in the bidding procedures for the selection of service provider; (ii) service provider was selected after taking into account various factors, such as background, technical proposal, price quotations; (iii) service fees charged by Shandong High-Speed Group’s Subordinated Entities fell within or below the quotations provided by independent third party participants for five of the six projects and Shandong High-Speed Group’s Subordinated Entities gained the highest final scores; and (iv) for one of the six projects, Shandong High-Speed Group’s Subordinated Entities offered a higher service fee than other two participants but gained the highest final scores (score in the aspect of (a) price quotations gained by the connected person was lower than that gained by two other participants; (b) technical proposal gained by the connected person was higher than that gained by the two other participants; (c) background gained by all three participants was the same).

Upon our further request, the Directors provided us internal reporting documents for one of the projects with the highest contract value among the above mentioned individual agreements. The project comprised three sub-projects. As the projects have the highest contract value among the abovementioned individual agreements and the project comprised three sub-projects, we consider that the number of projects as mentioned in the internal reporting documents is sufficient for us to form our view and is appropriate. According to relevant tendering documents and internal reporting documents, (i) the Group set a upper limit for bidding price (最高投標限價) for each of the sub-projects; (ii) the upper limit for bidding price (最高投標限價) was determined with reference to, among other things, 《工程勘察設計收費標準》(Fee Standard for Survey and Design for Engineering Projects*); (iii) there were three bidders participating in the bidding procedures for the selection of service provider; (iv) Shandong High-Speed Group’s Subordinated Entity was only selected as service provider for one of the sub-projects as it obtained the highest final scores during the bid evaluation process. In addition, the service fees charged by such Shandong High-Speed Group’s Subordinated Entity fell within the quotations provided by independent third party participants; and (v) in respect of other two sub-projects, the Shandong High-Speed Group’s Subordinated Entity was not selected as service provider because the final scores obtained by it was not the highest score during the bid evaluation process and we also noted that the service fees to be charged by such Shandong High-Speed Group’s Subordinated Entity were higher than the service fees to be charged by other two independent third party bidders. Accordingly, we consider the transactions contemplated under the Existing 2021-2023 General Services Framework Agreements were determined in accordance with the above pricing principles in ascending order.

To safeguard the interests of the shareholders as whole, the Company adopted internal control measures relating to the Services Transactions, details of which are set out under the section headed “INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS” of the Board Letter. Having considered that (i) the Group will obtain quotations from at least two Independent Third Parties for comparable services and

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conduct overall assessment on the terms of relevant services before procuring the same; and (ii) bidders are required to provide historical comparable track record with contract values during bidding procedures, we consider that the effective implantation of the procedures would help to ensure fair pricing of the Services Transactions according to the pricing policies. Having also considered our findings in respect of the individual agreements and relevant tendering and bidding documents as mentioned above, we consider the internal control measures relating to the Services Transactions to be effective.

Based on (i) the above our review results on individual agreements and internal reporting documents; and (ii) the internal control measures relating to the Services Transactions to be effective, we concur with the Directors that the Company followed the pricing policy stipulated in the 2021-2023 General Services Framework Agreement.

The Proposed Revised Annual Caps

		For the	For the	For the
		year ending	year ending	year ending
		31 December	31 December	31 December
		2021	2022	2023
		(“FY2021”)	(“FY2022”)	(“FY2023”)
		RMB’000	RMB’000	RMB’000
The	Existing Annual Caps	43,000	43,000	43,000
The	Proposed Revised Annual Caps	100,000	200,000	100,000

In respect of the Existing 2021-2023 General Services Framework Agreement, the actual transaction amount was approximately RMB2.90 million for the nine months ended 30 September 2021.

In determining the Proposed Revised Annual Caps, the Company has considered various factors, details of which are set out under the section headed “Basis of the Proposed Revised Annual Caps” of the Board Letter.

The Proposed Revised Annual Caps represented significant increases as compared to the Existing Annual Caps for each of the three years ending 31 December 2023. As advised by the Directors, the aforesaid increases are mainly due to the General Highway Business Operation Services required by the Company to facilitate the preliminary works under the R&E Project on the Jihe Expressway (the “ Preliminary Works Amounts ”). The Proposed Revised Annual Caps were calculated by the sum of (i) the Existing Annual Caps which cover the originally estimated General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) (the “ Original Works Amounts ”) of approximately

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RMB43 million for each of the three years ending 31 December 2023; and (ii) the Preliminary Works Amounts of approximately RMB52 million, RMB135 million and RMB34 million for each of the three years ending 31 December 2023.

Original Works Amounts

We understood that the Original Works Amounts were determined with reference to, among other things, the nature and amounts of services involved in the specific contracts entered into between members of the Group Shandong Hi-Speed Group and its Subordinated Entities. Upon our request, the Directors provided us a list showing the breakdowns of the Original Works Amounts. According to the list, the Original Works Amounts comprised various amounts and natures of services being provided/to be provided by Shandong Hi-Speed Group and its Subordinated Entities to the Group.

According to the list, part of Original Works Amounts amounted to approximately RMB19.1 million was anticipated to incur for FY2021 based on signed contracts/successful tender notice (Note: successful tender notice means a notice to formally inform the bidder who is successfully selected as service provider/products supplier by way of tendering and bidding procedures). For our due diligence purpose, we obtained from the Company signed contracts/successful tender notices for five out of six projects relating (i) maintenance services of information system; and (ii) reconstruction services (being a one-off project with estimated duration of 365 days), which (the summation of (i) and (ii)) substantiate more than 90% of the aforesaid total amount of RMB19.1 million. As we obtained the contracts/successful tender notices for five projects (the contracts/successful tender notices of all the five projects were signed/issued during the period from 1 January 2021 to the Date of Board Resolution) covering over 90% of the aforesaid total amount of RMB19.1 million, we consider the number of contracts/successful tender notice to be sufficient and appropriate. According to the aforesaid individual contracts, the estimated fees to be incurred during FY2021 generally conform with the expected payment schedule as mentioned in the individual contracts or estimated work done (based on number of working days to the estimated duration as mentioned in the individual contracts).

In addition to the aforesaid anticipated amount, the Group also anticipated to incur Original Works Amounts of approximately RMB23.9 million for FY2021, comprising of:

RMB16.3 million as service fees for intermediate maintenance and repair works. We understood from the Directors that in accordance with the technical standards for PRC expressway operations, the Jihe Expressway is expected to undergo intermediate maintenance and repairment during 2021 to 2023 in order to maintain the expressway structural and surface conditions and extend its useful life in the long run. Intermediate maintenance and repair include periodic reinforcement of normal wear and tear and partial damage to the road and ancillary facilities to restore the average technical condition of the expressway. As such, intermediate maintenance and repair works are expected to be in a relative large scale and generally involve a number of infrastructure parts of the expressway with a relative substantial contract sum. Upon our further request, the Directors advised us the

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historical service fees paid to all relevant service providers (including both connected persons and independent third parties) for the intermediate maintenance and repair works for the year ended 31 December 2019 (“ FY2019 ”) and for the year ended 31 December 2020 (“ FY2020 ”). Such historical amounts were substantially larger than the expected amounts for such services to be paid to Shandong High-Speed and its Subordinated Entities, which indicated the Group’s possible demand of services for the intermediate maintenance and repair works from Shandong High-Speed and its Subordinated Entities and independent third parties.

RMB5.4 million as service fees for the routine maintenance works and minor repair works expected to be performed on the expressways as part of the Group’s preventive maintenance measures. As advised by the Directors, the anticipated service fees are determined with reference to the technical conditions and historical and expected traffic flow of the Deshang Expressway (Liaocheng – Fan County section), the Shennan Expressway and the Jihe Expressway; and maintenance costs (mainly including cost of raw materials for maintenance and labour cost). Upon our further request, the Directors advised us the historical service fees paid to all relevant service providers (including both connected persons and independent third parties) for the routine maintenance works and minor repair works for FY2019 and FY2020. Such historical amounts were substantially larger than the expected amounts for such services to be paid to Shandong High-Speed and its Subordinated Entities, which indicated the Group’s possible demand of services for the routine maintenance works and minor repair works from Shandong High-Speed and its Subordinated Entities and independent third parties. In addition, as the Group completed the acquisition of toll collection rights of Deshang Expressway (Liaocheng – Fan County section) and the Shennan Expressway in 2020, the Group’s demand in routine maintenance works and minor repair works may further increase.

Based on the above factors, we consider the estimated amounts of RMB43 million for General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) during FY2021 to be justifiable. As further advised by the Directors, they assumed the demand of the General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) for FY2022 and FY2023 will be at similar level as compared to that for FY2021. Accordingly, they anticipated the amounts of General Highway Business Operation Services (other than Preliminary works under the R&E Project on the Jihe Expressway) for each of FY2022 and FY2023 to be remained at similar level (differences were less than 0.1%) as that for FY2021.

We understood from the Directors that designated teams from each of the Group’s management centres and the Group’s maintenance and emergency response centre conduct daily patrol on relevant highway and report on the conditions of the road. In addition to the traditional passive mode of maintenance where repair works are conducted whenever damages are discovered, the Group also conducts preventive maintenance measures on relevant highway express annually to maintain the road in good condition and maximise the efficiency of such highway during its service cycle. As the General Highway Business Operation Services (other

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than Preliminary works under the R&E Project on the Jihe Expressway) will be conducted in the ordinary and usual course of business of the Group and on a regular and frequent basis and having also considered following factors:

(i) the Company set same annual caps for 2018 to 2020;
(ii) it is common for companies listed on the Stock Exchange to set annual caps at same amounts for each of the three-year period;
(iii) the Directors assumed the demand of the General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) for FY2022 and FY2023 will be at similar level as compared to that for FY2021;
(iv) the estimated amounts of reconstruction services for FY2021 accounted for approximately one third to the total contract value of the reconstruction services; and
(v) as confirmed by the Directors, the General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) are recurrent in nature.

We noted (a) that the Group recorded service fees paid for intermediate maintenance, repair works, routine maintenance works and minor repair works for FY2019 and FY2020; (b) from the Company’s annual reports that the Group has an improvement project of the Company for the construction of a new interchange on the Jihe Expressway with a ramp connecting to the Changqing University Science Park (construction period starting from 9 January 2019 and the interchange was formally put into commissioning on 18 August 2021); and (c) that the Group recorded historical transaction amounts of the General Highway Business Operation Services (other than preliminary works under the R&E Project on the Jihe Expressway) for the each of the three years ended 31 December 2020 and for the period from 1 January 2021 to the Date of Board Resolution,

we consider the assumption that the amounts of General Highway Business Operation Services (other than Preliminary works under the R&E Project on the Jihe Expressway) for each of FY2022 and FY2023 to be remained at similar level (differences were less than 0.1%) as that for FY2021 is reasonable.

Preliminary Works Amounts

After performing following analyses, we consider the Preliminary Works Amounts for each of the three years ending 31 December 2023 to be justifiable:

Upon our request, we obtained a list showing the breakdowns for the Preliminary Works Amounts for the three years ending 31 December 2023.

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The table below shows the estimated demand for the Preliminary Works Amounts for the three years ending 31 December 2023:

Feasibility study report for the R&E Project Technical service for compilation of social stability risk analysis report Technical service for compilation of forest land use feasibility report Technical service for commissioning evaluation Technical service for investigation evaluation on existing expressways Two-stage survey and design and two-institutional consulting Surveying, demarcation and classification services Smart expressway design services Total	FY2021 RMB’000 4,000 1,100 310 1,980 9,090 16,600 3,920 15,400 52,400	FY2022 RMB’000 3,000 – 710 850 6,060 117,580 6,540 – 134,740	FY2023 RMB’000 – – – – – 31,820 2,610 – 34,430	Total contract value RMB’000 7,000 1,100 1,020 2,830 15,150 166,000 13,070 15,400
				221,570

Among the Preliminary Works Amounts, the estimated amounts of two-stage survey and design works (兩階段勘察設計) amounted to RMB166 million, accounting for approximately 75% to the total Preliminary Works Amounts. Upon our request, we obtained successful tender notice (showing the successful bidder for the project of two-stage survey and design works (兩階段勘察設計)) from the Company. According to the aforesaid notice, (i) the total estimated amounts for two-stage survey and design works were the same as the final price as shown in the notice; (ii) the successful bidder is a member of Shandong High-Speed Group.

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Upon our further request, we obtained all services agreements/tendering documents/successful tender notice from the Company in respect of members of Shandong High-speed Group to provide other four different types of preliminary works under the R&E Project on the Jihe Expressway (i.e. (i) technical service for compilation of social stability risk analysis report; (ii) technical service for compilation of forest land use feasibility report; (iii) technical service for commissioning evaluation; and (iv) technical service for investigation evaluation on existing expressways) (the “ Other R&E Project Documents ”) with total contract values of approximately RMB20.1 million. According to the aforesaid documents, the estimated amounts of such services were the same as the value of the aforesaid documents and accounted for approximately 9% to the total Preliminary Works Amounts.

Details of anticipated allocation for FY2021 and FY2022 (note: no amount to be recorded in FY2023), expected timetable and payment terms of four different types of preliminary works under the R&E Project on the Jihe Expressway are set out as follows:

				Anticipated time
Project name	FY2021	FY2022	Payment terms	schedule	Our conclusion
Technical service for	RMB1.1	–	(i) 40% of contract value	Shall obtain approval	As all work (relating to
compilation of social	million		is payable upon the	from the Ministry of	the payment milestones)
stability risk analysis			principal receiving notice	Natural Resources and	will be completed within
report			of work; (ii) 30% of	the Department of	2 months (commencing
Contract value:			contract value is payable	Natural Resources of	from the issue of
RMB1.1 million			upon the completion of	Shandong Province	successful tender notice
			report preparing and	within 2 months	by the Company as the
			passing the assessment	(commencing from the	tenderee) and the
			by industry experts; (iii)	issue of successful tender	successful tender notice
			remaining contract value	notice by the Company	was issued in May 2021,
			is payable upon the	as the tenderee)	we consider the
			approval of the report		settlement in FY2021 in
					full to be reasonable.

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				Anticipated time
Project name	FY2021	FY2022	Payment terms	schedule	Our conclusion
Technical service for	RMB0.31	RMB0.71	(i) 30% of contract value	The report shall be	As advised by the
compilation of forest	million	million	is payable upon the	completed by 30 August	Directors, the
land use feasibility			principal receiving notice	2021 and shall pass the	commencement of the
report			of work; (ii) up to 70%	assessment by industry	project was postponed to
Contract value:			of contract value is	experts by 30 September	November 2021 and
RMB1.02 million			payable upon the	2021	remaining work is
			completion of compiling		expected to be completed
			report and passing the		in FY2022. We consider
			assessment by industry		the settlement for first
			experts; (iii) remaining		instalment in FY2021
			contract value is payable		(accounting for
			upon the approval of the		approximately 30% to
			report		the contract value) and
					the settlement for
					remaining instalments in
					FY2022 (being remaining
					amount) to be
					reasonable.
Technical service for	RMB1.98	RMB0.85	(i) 30% of contract value	The consultant shall be	As the report shall be
commissioning	million	million	is payable upon the	responsible for	completed by 15 August
evaluation			principal receiving notice	conducting	2021 and shall pass the
Contract value:			of work; (ii) up to 70%	commissioning	assessment by industry
RMB2.83 million			of contract value is	evaluation and research	experts by 31 August
			payable upon the	studies in respect of the	2021, up to 70% of
			completion of compiling	R&E Project and	contract value shall be
			report and passing the	compiling a report which	paid in 2021 according
			assessment by industry	shall be completed by	to the contract and the
			experts; (iii) remaining	15 August 2021 and shall	approval is expected to
			contract value is payable	pass the assessment by	be obtained in FY2022,
			upon the approval of the	industry experts by	we consider the
			report	31 August 2021.	settlement in FY2021
					(accounting for
					approximately 70% to
					the contract value) and
					the settlement in FY2022
					(being remaining
					amount) to be
					reasonable.

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				Anticipated time
Project name	FY2021	FY2022	Payment terms	schedule	Our conclusion
Technical service for	RMB9.09	RMB6.06	(i) 60% of contract value	The inspection results	As the inspection results
investigation	million	million	(exclusive provisional	required for initial design	required for initial design
evaluation on existing			amounts) is payable upon	shall be provided by the	shall be provided by the
expressways			the submission of the	end of August and other	end of August, therefore
Contract value:			inspection results	inspection services shall	the Company is expected
Approximately			required for initial design	be provided in	to settle the first
RMB15.15 million			and recognized by the	accordance with the	instalment of service fees
			Company; (ii) remaining	overall inspection plan	in FY2021. The
			amounts is payable upon	and arrangement of the	estimated amounts of
			within one month from	owner	RMB9.09 million is in
			the completion of all		line with the first
			inspection works and		instalment of service fees
			recognized by the		(difference is less than
			Company and the		5%). Accordingly, we
			inspector submit the		consider the estimated
			application of assessment		amounts in 2021 to be
			of work.		reasonable. As advised
					by the Directors, they
					expected the completion
					of the project to take
					place in FY2022,
					accordingly, we consider
					the settlement of
					remaining 40% in
					FY2022 to be reasonable.
					Accordingly, we consider
					the estimated amounts in
					FY2022 to be reasonable.

The estimated amounts for the cost of preparing feasibility study report, being part of the preliminary works under the R&E Project on the Jihe Expressway, accounted for approximately 3% to the Preliminary Works Amounts. As advised by the Directors, the estimated amounts for such cost was determined with reference to cost of preparing feasibility study report for the Shandong High-Speed Group’s or its Subordinated Entities’ projects and the length of Jihe Expressway. Upon our request, the Company provided us the cost for preparing feasibility study report for other four expressway projects in Shandong Province with relevant contracts value. The feasibility study reports were prepared by Subordinated Entities of Shandong High-Speed Group. As the estimated amounts for the cost of preparing feasibility study report was estimated for the service fees to be paid by the Group to the Subordinated Entities of Shandong High-Speed Group should the Subordinated Entities of Shandong High-Speed Group is successfully selected as service provider, we consider that the estimated cost being made with reference to the service fees charged by Subordinated Entities of Shandong High-Speed Group is appropriate.

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Based on the average cost for preparing feasibility study report for other four expressway projects in Shandong Province and the length of Jihe Expressway, the estimated amounts for the cost of preparing feasibility study report was in line with the aforesaid implied amount (with difference of approximately 5% and calculated by per unit cost times length of Jihe Expressway).

Upon our further request, the Directors provided us the draft contract of feasibility study report for the R&E Project. We noted that there will be two instalments of payment, i.e. (i) 60% of contract value to be paid upon the completion of relevant reports and passing the assessment by relevant authority(ies); (ii) the remaining 40% is payable upon the completion of report for preliminary assessment on safety and the commencement of the construction of relevant project. As also advised by the Directors, the works as mentioned in (i) and (ii) are expected to take place in FY2021 and FY2022 respectively. Accordingly, the estimated payments in FY2021 and FY2022 conform with the payment milestone contemplated under the draft contract of the feasibility study report for the R&E Project.

In respect of the remaining estimated amounts of Preliminary Works Amounts (i.e. accounting for approximately 13% of the Preliminary Works Amounts), the Directors advised us the nature of the aforesaid projects with estimated amounts. We noted that (i) the remaining estimated amounts of Preliminary Works Amounts were the summation of two projects (i.e. surveying, demarcation and classification services project and smart expressway design services project); (ii) the estimated amounts of surveying, demarcation and classification services project was based on the tendering documents; and (iii) the estimated amounts of smart expressway design services project was determined based on the preliminary discussion between the Group and a professional design institution (the “ Professional Design Institution ”), who is also a Subordinated Entity of Shandong High-Speed Group.

Surveying, demarcation and classification services project

We obtained the tendering documents and noted that the estimated amounts was about the same as the upper limit for bidding price. Accordingly, we consider the estimated amounts of the project to be reasonable. We further noted from the tendering documents that (i) the estimated duration of the project is 36 months; (ii) there will be four instalment of payments, of which the first instalment of 20% of contract value is payable within 28 days after signing the contract and final instalment of 20% of contract value is payable after obtaining all the work of the real estate registration certificate. We noted that the first and final instalment of payments and that (i) as confirmed by the Directors, the contract was expected to be signed in FY2021; (ii) all the work of the real estate registration certificate was expected to be obtained in FY2023; and (iii) the estimated amounts of the project in FY2021, FY2022, FY2023 accounted for approximately 30%, 50% and 20% to the contract value. Despite that the proportions of estimated amounts of the project in FY2021, FY2022, FY2023 to the contract value (i.e. approximately 30%, 50% and

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LETTER FROM GRAM CAPITAL

20%) were not the same as the instalment of payments according to the tendering documents after taking into account the anticipated time schedule as aforementioned, having considered that the differences were acceptable and the actual progress may vary (which will further affect the payment schedule), we consider the estimated amounts in the three years ending 31 December 2023 to be justifiable.

Smart expressway design services project

Upon our request, the Company provided us two contracts in respect of the Professional Design Institution’s provision of survey and design services to a connected person of the Company for an expressway. According to the two contracts, (i) we noted the provision of smart expressway design services being part of the survey and design services; (ii) we calculated the implied per unit cost of services fees for smart expressway design services project (calculated by the services fees for smart express way design services under each contract divided by the length of expressway involving in each project). Based on the implied per unit cost of services fees for smart expressway design services project according to the two contracts and the length of Jihe Expressway, the estimated amounts of smart expressway design services project for Jihe Expressway is close to the implied services fees for smart expressway design services project for Jihe Expressway based on aforesaid calculation (with difference of less than 1%).

According to the website of the Professional Design Institution, (i) the Professional Design Institution is a comprehensive engineering design and survey enterprise focusing on traffic design. The Professional Design Institution owns various certificates for engineering design, including 工程設計公路行業(甲級) (Engineering Design for Road Industry (Grade A)), 工程設計市政行業(道路工程、橋樑工程、城市隧道工程)專業甲級 (Engineering Design for Municipal Industry (Road Engineering, Bridge Engineering, Urban Tunnel Engineering) (Professional Grade)), etc..

Based on (i) the qualification of Professional Design Institution as mentioned above; and (ii) the estimated amounts of smart expressway design services project for Jihe Expressway is close to the implied services fees for smart expressway design services project for Jihe Expressway based on aforesaid calculation (with difference of less than 1%), we consider the estimated amounts of smart expressway design services project for Jihe Expressway to be reasonable.

As advised by the Directors, they did not allocate any specific amounts of total estimated amounts for smart expressway design services project in FY2022 or FY2023 due to the fact that the biding work for the selection of services supplier did not take place as at the Latest Practicable Date and there was no specific time schedule for the Smart expressway design services project. Having considered that (i) there was no specific time schedule for the smart expressway design services

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LETTER FROM GRAM CAPITAL

project; and (ii) the buffer amounts (i.e. the differences between the total estimated amounts of General Highway Business Operation and Proposed Revised Annual Caps for FY2022 and FY2023 of approximately RMB22.3 million and RMB22.6 million respectively) could cover the estimated amounts of smart expressway design services project for Jihe Expressway, we consider the allocation of all estimated amounts for smart expressway design services project to FY2021 to be acceptable.

As advised by the Company, the estimated Preliminary Works Amounts for each of the three years ending 31 December 2023 was determined based on the total Preliminary Works Amounts as mentioned above and anticipated time schedules for relevant preliminary works.

According to the breakdowns for Preliminary Works Amounts, the estimated Preliminary Works Amounts for the year ending 31 December 2022 were substantially more than those for the year ending 31 December 2021 and 31 December 2023, which was mainly due to the substantial amounts of the two-stage survey and design works to be recorded during the year ending 31 December 2022. The estimated amounts of the two-stage survey and design works to be recorded (i) for the year ending 31 December 2021 accounted for approximately 10% (the “ 10% Payment ”) to the estimated amounts of two-stage survey and design works of RMB166 million; and (ii) for the two years ending 31 December 2022 accounted for approximately 80% (the “ Up to 80% Payment ”) to the estimated amounts of two-stage survey and design works of RMB166 million. Based on our discussion with the Directors, they expected (i) the preliminary engineering construction drawing design documents to be completed and sent for review and approval in 2021; (ii) all relevant engineering construction drawing design documents to be completed and sent for review and approval in 2022. According to the tendering documents of the project and with the aforesaid expected timetable, the 10% Payment and the Up to 80% Payment conform with the payment milestone as stated in the tendering documents for the project.

According to the Other R&E Project Documents and with the expected timetable of relevant work in each project, the estimated amounts for the year ending 31 December 2021 conform with the payment milestone as stated in the Other R&E Project Documents.

Having considered the above our analyses on the Original Works Amounts and the Preliminary Works Amounts, we consider the estimated demand of the General Highway Business Operation Services for the three years ending 31 December 2023 to be justifiable.

The Proposed Revised Annual Caps for FY2021 was close to (with difference of less than 5%) the estimated demand of the General Highway Business Operation Services for FY2021; and the Proposed Revised Annual Caps for FY2022 and FY2023 were approximately RMB22.3 million and RMB22.6 million higher than the estimated demand of the General Highway Business Operation for FY2022 and FY2023 respectively. Having considered that the estimated

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LETTER FROM GRAM CAPITAL

demand of Preliminary Works Amounts for each of the three years ending 31 December 2023 was determined based on the total Preliminary Works Amounts as mentioned above and anticipated time schedules for relevant preliminary works, any postponed or expedited completion of the works at any stage may cause changes to actual expense to be paid by the Group during each period. In the event that the aforesaid circumstances arise, it would be impractical or burdensome to revised proposed annual cap for such period or postpone the payment of progress payment.

As the buffer amounts for FY2022 and FY2023 represented approximately 10% of the total estimated demand of the Preliminary Works Amounts and having considered following factors, including:

the first instalment or final instalment of payment were generally over 10% of the total contract value for such project according to all services agreements/tendering documents we received;
the projects which was expected to proceed in a specific year may be postponed to the next year or proceeded before that specific year;
we noted that the Company experienced the postpone in the settlement of services fees in previous contracts, the amounts of which accounted for approximately 12% to total services fees paid by the Group for such projects,

we consider the buffer amounts for FY2022 and FY2023 to be acceptable. Accordingly, we consider the Proposed Revised Annual Caps for the three years ending 31 December 2023 to be fair and reasonable.

Shareholders should note that as the Proposed Revised Annual Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2023, and they do not represent forecasts of cost to be incurred from the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement. Consequently, we express no opinion as to how closely the actual cost to be incurred from the transactions contemplated under the Existing 2021-2023 General Services Framework Agreement will correspond with the Proposed Revised Annual Caps.

In light of the above, we are of the view that the terms of the Annual Caps Revision are on normal commercial terms and are fair and reasonable.

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LETTER FROM GRAM CAPITAL

B. THE DEPOSIT SERVICES

Background of and reasons for the Deposit Services

Information on Weihai City Commercial Bank

Weihai City Commercial Bank is a joint stock company incorporated with limited liability and validly subsisting in the PRC.

Weihai City Commercial Bank is a bank financial institution legally holding the financial business licence issued by the banking and insurance regulatory and administrative authority and is principally engaged in taking deposits from the public, extending short-term, medium-term and long-term loans, effecting domestic settlements, discounting bills, and acting as an agent for issuance of, settlement for, and underwriting of, government bonds, and other financial services.

The table below sets out the capital adequacy ratio requirements of the 《商業銀行資本管理辦法(試行)》(the Administrative Measures for Capital of Commercial Banks (for Trial Implementation), the “ Administrative Measures for Capital* ”) promulgated by the China Banking Regulatory Commission (now known as CBIRC) which took effect on 1 January 2013 (Note: the previous version of Administrative Measures for Capital was revoked on the same date) and the respective capital adequacy ratio of the bank as at 31 December 2019 and 2020 and 30 June 2021 as extracted from the bank’s annual report for the year ended 31 December 2020 and interim report for the six months ended 30 June 2021:

		As at	As at	As at
		30 June	31 December	31 December
	Requirements	2021	2020	2019
	%	%	%	%
Core tier-one capital
adequacy ratio	7.5	9.11	9.88	9.76
Tier-one capital adequacy ratio	8.5	10.61	11.53	11.78
Capital adequacy ratio	10.5	13.97	15.18	16.03

Reasons for and benefit of the Deposit Services

With reference to the Board Letter, Weihai City Commercial Bank is a bank financial institution regulated by PBOC and CBIRC and is authorised to provide various financial services to the Group. The principal reasons for and the benefits of entering into the 2021-2023 Financial Services Framework Agreement are as follows: (i) the Group can use Weihai City

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LETTER FROM GRAM CAPITAL

Commercial Bank as a medium to facilitate more efficient deployment of funds among the Company’s subsidiaries; (ii) the Group can maximise the efficiency of the Group’s capital by expanding the use of the available funds and by using the funds collected to repay the external commercial loans of the Company’s subsidiaries; (iii) to save finance costs, which in turn will enhance the profitability of the Group and the Shareholders of the Company (including the minority Shareholders) will be able to benefit from it; and (iv) since its incorporation, Weihai City Commercial Bank has a sound organizational structure and standardised internal control mechanism, and its operating conditions are sound and its financial results are good.

Pursuant to the 2021-2023 Financial Services Framework Agreement, the deposit interest rate provided by Weihai City Commercial Bank shall not be lower than any of the following: the interest rates offered by Weihai City Commercial Bank to other members of Shandong Hi-Speed Group for the same type of deposits on the same conditions; and the interest rates offered by other PRC commercial banks to the Company and its subsidiaries for the same type of deposits.

In light of the above reasons, in particular, the pricing policy of the Deposit Services, we consider the Deposit Services are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group.

Principal terms of the Deposit Services

Set out below are the key terms of the Deposit Services, details of which are set out under the section headed “CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT” of the Board Letter.

Date: 31 August 2021 Parties: (i) the Company (ii) Weihai City Commercial Bank Term of the agreement: From 31 August 2021 to 31 December 2023 Deposit services: Weihai City Commercial Bank agreed to provide the Group with deposit services, including but not limited to current deposit, time deposit, call deposit and agreement deposit, etc.

Pricing policy:

Weihai City Commercial Bank has undertaken to provide the Deposit Services in accordance with the following pricing policies: the deposit interest rate provided by Weihai City Commercial Bank shall not be lower than any of the following: the interest rates offered

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LETTER FROM GRAM CAPITAL

by Weihai City Commercial Bank to other members of Shandong Hi-Speed Group for the same type of deposits on the same conditions; and the interest rates offered by other PRC commercial banks to the Company and its subsidiaries for the same type of deposits.

To safeguard the interests of the shareholders as whole, the Company adopted internal control measures relating to the Deposit Services (the “ Deposit Measures ”), details of which are set out under the section headed “INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS” of the Board Letter. Having considered that before entering into any deposit arrangements with Weihai City Commercial Bank, the Company will negotiate with Weihai City Commercial Bank on an arm’s length basis in respect of the deposit interest rates with reference to (i) benchmark interest rate then published by the PBOC; (ii) at least two other independent domestic commercial banks in the PRC for deposit services; and (iii) the Group will enquire Weihai City Commercial Bank in respect of deposit rates for same type of deposits offered by them to other members of Shandong Hi-Speed Group, we consider that the effective implantation of the procedures would help to ensure fair determination of interest rates for the Deposit Services according to the pricing policies.

We also discussed with staff of the Company’s finance department and understood that the finance department’s staffs were aware of the Deposit Measures and would comply with Deposit Measures when accepting the Deposit Services. Therefore, we consider the implementation of the Deposit Measures to be effective.

The historical amounts and the proposed annual caps

Set out below are the proposed annual caps for Deposit Services for the three years ending 31 December 2023:

	For the four	For the	For the
	months ending	year ending	year ending
	31 December	31 December	31 December
	2021	2022	2023
	(RMB’ million)	(RMB’ million)	(RMB’ million)
Daily maximum deposit balance
(including accrued interests) in
Weihai City Commercial Bank
(the “Proposed Deposit Caps”)	500	1,000	1,000

Details of the bases for determining the Proposed Deposit Caps are set out under the section headed “PROPOSED ANNUAL CAPS AND BASIS OF DETERMINATION” of the Board Letter.

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LETTER FROM GRAM CAPITAL

With reference to the Board Letter, before entering into the 2021-2023 Financial Services Framework Agreement, the Group did not conduct any transactions with Weihai City Commercial Bank in respect of any financial services. Accordingly, there is no comparison with historical amounts.

To assess the fairness and reasonableness of the Proposed Deposit Caps for the four months ending 31 December 2021, FY2022 and FY2023, in particular, the substantial increases for FY2022 and FY2023 as compared to FY2021, we performed the following analyses:

We noted from the 2021 Interim Report that as at 30 June 2021, the Group recorded (i) cash and cash equivalents amounted to approximately RMB205.3 million (as at 31 December 2020: approximately RMB74.7 million); (ii) trade and bills receivables (Note: (i) trade and bills receivables may convert into cash when such receivables are settled; (ii) payables were not considered as the Proposed Deposit Caps are daily maximum amounts but not accumulated amounts) amounted to approximately RMB80.5 million (as at 31 December 2020: approximately RMB83.1 million); and (iii) structured bank deposits amounted to approximately RMB400.6 million (as at 31 December 2020: approximately RMB452.6 million). The sum of aforesaid items amounted to RMB686.4 million as at 30 June 2021 (as at 31 December 2020: approximately RMB610.4 million). The sum of the aforesaid items (which is more than the Proposed Deposit Cap for FY2021) indicates the Group’s possible demand of deposit services to be provided by commercial banks, including Weihai City Commercial Bank and other independent commercial banks.
As advised by the Company, the daily maximum deposit balances of the Group at banks plus interest income thereon for the six months ended 30 June 2021 was approximately RMB363 million, indicating the Group’s demand on deposit services provided by other independent commercial banks during first half of 2021.
According to the 2021 Interim Report, the Group recorded net cash flows from operating activities of approximately RMB613 million for the six months ended 30 June 2021.

Having considered the above factors, including (i) that the sum of abovementioned items as at 30 June 2021 (which is more than the Proposed Deposit Cap for the year ending 31 December 2021) indicates the Group’s possible demand of deposit services to be provided by commercial banks, including Weihai City Commercial Bank; (ii) the daily maximum deposit balances of the Group at banks plus interest income thereon for the six months ended 30 June 2021; and (iii) the net cash flows from operating activities for the six months ended 30 June 2021, we consider the Proposed Deposit Cap for the four months ending 31 December 2021 to be fair and reasonable.

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LETTER FROM GRAM CAPITAL

The Proposed Deposit Caps for the two years ending 31 December 2023 represented a significant increase of RMB500 million as compared to that for the four months ending 31 December 2021. Having considered that (i) the Group recorded net cash flows from operating activities of approximately RMB613 million for the six months ended 30 June 2021 (representing an increase of approximately RMB282 million as compared to that for the six months ended 30 June 2020); and (ii) the Group recorded financial assets (which were mainly structured bank deposits) at fair value through profit or loss amounted to approximately RMB400.6 million as at 30 June 2021, we consider the increase of RMB500 million to be justifiable. Accordingly, we consider the Proposed Deposit Caps for the two years ending 31 December 2023 to be fair and reasonable.

In light of the above, we are of the view that the terms of the Deposit Services are on normal commercial terms and are fair and reasonable.

Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values/maximum values of the transactions must be restricted by the relevant annual caps for the period concerned under the Existing 2021-2023 General Services Framework Agreement/2021-2023 Financial Services Framework Agreement; (ii) the terms of the aforesaid transactions must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors’ annual review on the terms of the aforesaid transactions must be included in the Company’s subsequent published annual reports.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the aforesaid transactions (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded the annual caps.

In the event that the maximum amounts of the aforesaid transactions are anticipated to exceed their respective annual caps, or that there is any proposed material amendment to the terms of the transactions, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Transactions and thus the interest of the Independent Shareholders would be safeguarded.

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LETTER FROM GRAM CAPITAL

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Transactions are on normal commercial terms and are fair and reasonable; and (ii) the Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Transactions and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 25 years of experience in investment banking industry.
For identification purpose only

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GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

As at the Latest Practicable Date, based on the information available to the Company and to the best knowledge of the Directors, none of the Directors, Supervisors or chief executive of the Company had any interests or short positions in any Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which had to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or were recorded in the register required to be kept by the Company under section 352 of the SFO, or were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

Further details of the Directors and Supervisors being a director, supervisor or employee of a company which has an interest or short position in the shares and underlying shares of the issuer which would fall to be disclosed to the issuer under the provisions of Divisions 2 and 3 of Part XV of the SFO are set out as follows:

Mr. Wang Shaochen, a non-executive Director, currently serves as a deputy director of the human resources sharing services centre (Jinan branch) of Shenhua National Power Group Company, and the chairman of the labour union and a member of the party committee of Guoneng Power Technology & Engineering Co., Ltd. (國能電力技術工程有限公司);
Mr. Zhou Cenyu, a non-executive Director, is currently the secretary of the party general branch and the chairman of the board of directors (a legal representative) of Shandong Hi-Speed Supply Chain Management Co., Ltd. (山東高速供應鏈管理有限公司);
Mr. Su Xiaodong, a non-executive Director, currently serves as the investment director and general manager of the capital and investment department of COSCO SHIPPING (Hong Kong);
Ms. Kong Xia, a non-executive Director, is the deputy head of the organisation department of the party committee (party committee of the head office) of Shandong Hi-Speed Group;

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GENERAL INFORMATION

APPENDIX I

Mr. Tang Haolai, a non-executive Director, serves as the vice general manager and a member of party committee of Shandong Hi-Speed Investment Holdings Co., Ltd (山東高速投資控股有限公司);
Mr. Du Zhongming, a non-executive Director, serves as a departmental general manager of CITIC-Prudential Asset Management Company Limited (中信保誠資產管理有限責任公司);
Ms. Meng Xin, the chairman of the Supervisory Committee, serves as the general manager of the financial department of COSCO SHIPPING (Hong Kong);
Mr. Wu Yongfu, a Shareholder representative Supervisor, serves as the financial manager of Guoneng Power Technology & Engineering Co., Ltd.; and
Mr. Zhang Yin, a Shareholder representative Supervisor, and serves as the director of the project development and capital operation centre of Shandong Hi-Speed Group.

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, based on the information available to the Company and to the best knowledge of the Directors, the following persons (other than the Company’s Directors, Supervisors and chief executives) or corporations had interests or short positions in the Shares, underlying Shares and debentures of the Company which had to be notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO, or were recorded in the register required to be kept by the Company under section 336 of the SFO:

				Approximate
				percentage of	Approximate
				the total issued	percentage of
				share capital of	the total issued	Long
	Number of			relevant class of	share capital of	position/short
Name of Shareholders	Shares held	Capacity	Class of Shares	the Company	the Company	position
Shandong Hi-Speed Group	778,500,000	Beneficial interest	Domestic Shares	86.50%	38.93%	Long position
(Note 1)
	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
		corporation
COSCO SHIPPING (Hong Kong)	600,000,000	Beneficial interest	H Shares	54.55%	30.00%	Long position
Co., Limited
China Shipping Group Company	600,000,000	Interest in controlled	H Shares	54.55%	30.00%	Long position
Limited_(Note 2)_		corporation
China COSCO Shipping	600,000,000	Interest in controlled	H Shares	54.55%	30.00%	Long position
Corporation Limited_(Note 2)_		corporation

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GENERAL INFORMATION

APPENDIX I

				Approximate
				percentage of	Approximate
				the total issued	percentage of
				share capital of	the total issued	Long
	Number of			relevant class of	share capital of	position/short
Name of Shareholders	Shares held	Capacity	Class of Shares	the Company	the Company	position
Guoneng Power Technology &	121,500,000	Beneficial interest	Domestic Shares	13.50%	6.08%	Long position
Engineering Co., Ltd.
Shenhua National Power Group	121,500,000	Interest in controlled	Domestic Shares	13.50%	6.08%	Long position
Limited_(Note 3)_		corporation
China Energy Investment	121,500,000	Interest in controlled	Domestic Shares	13.50%	6.08%	Long position
Corporation Limited_(Note 3)_		corporation
CITIC-Prudential Life Insurance	103,750,000	Beneficial interest	H Shares	9.43%	5.19%	Long position
Company Ltd.
Prudential Corporation Holdings	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
Limited_(Note 4)_		corporation
Prudential Holdings Limited	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
(Note 4)		corporation
Prudential Corporation Asia	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
Limited_(Note 4)_		corporation
Prudential plc_(Note 4)_	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
		corporation
CITIC Corporation Limited	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
(Note 5)		corporation
CITIC Limited_(Note 5)_	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
		corporation
CITIC Glory Limited_(Note 5)_	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
		corporation
CITIC Polaris Limited_(Note 5)_	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
		corporation
CITIC Group Corporation	103,750,000	Interest in controlled	H Shares	9.43%	5.19%	Long position
(Note 5)		corporation
Shandong Hi-Speed Investment	103,750,000	Beneficial interest	H Shares	9.43%	5.19%	Long position
Holdings Co., Ltd.

Notes:

Shandong Hi-Speed Investment Holdings Co., Ltd. is wholly owned by Shandong Hi-Speed Group. Therefore, Shandong Hi-Speed Group is deemed to be interested in the H Shares held by Shandong Hi-Speed Investment Holdings Co., Ltd. under the SFO.
COSCO SHIPPING (Hong Kong) Co., Limited is wholly owned by China Shipping Group Company Limited. China Shipping Group Company Limited is wholly owned by China COSCO Shipping Corporation Limited. Therefore, China Shipping Group Company Limited and China COSCO Shipping Corporation Limited are deemed to be interested in the H shares held by COSCO SHIPPING (Hong Kong) Co., Limited under the SFO.

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GENERAL INFORMATION

APPENDIX I

Guoneng Power Technology & Engineering Co., Ltd. is wholly owned by Shenhua National Power Group Company Limited. Shenhua National Power Group Company Limited is wholly owned by China Energy Investment Corporation Limited. Therefore, Shenhua National Power Group Company Limited and China Energy Investment Corporation Limited are deemed to be interested in the Domestic Shares held by Guoneng Power Technology & Engineering Co., Ltd.* under the SFO.
50% shares of CITIC-Prudential Life Insurance Company Ltd. are owned by Prudential Corporation Holdings Limited. Prudential Corporation Holdings Limited is wholly owned by Prudential Holdings Limited. Prudential Holdings Limited is wholly owned by Prudential Corporation Asia Limited. Prudential Corporation Asia Limited is wholly owned by Prudential plc. Therefore, Prudential Corporation Holdings Limited, Prudential Holdings Limited, Prudential Corporation Asia Limited and Prudential plc are deemed to be interested in the H Shares held by CITIC-Prudential Life Insurance Company Ltd. under the SFO.
The remaining 50% shares of CITIC-Prudential Life Insurance Company Ltd. are owned by CITIC Corporation Limited. CITIC Corporation Limited is wholly owned by CITIC Limited. Shares of CITIC Limited are owned by CITIC Glory Limited and CITIC Polaris Limited as to 23.38% and 29.58%, respectively. CITIC Glory Limited is wholly owned by CITIC Group Corporation and CITIC Polaris Limited is wholly owned by CITIC Group Corporation. Therefore, CITIC Corporation Limited, CITIC Limited, CITIC Glory Limited, CITIC Polaris Limited and CITIC Group Corporation are deemed to be interested in the H Shares held by CITIC Prudential Life Insurance Company Ltd. under the SFO.

Save as disclosed above, as at the Latest Practicable Date, the Company had not been notified by any person (other than the Directors, Supervisors or chief executives of the Company) or corporation which had an interest or short position in the Shares, underlying Shares and debentures of the Company which would be notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO or as recorded in the register required to be kept by the Company under section 336 of the SFO.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, to the best knowledge of the Directors, there was no material adverse change in the financial position or trading position of the Group since 31 December 2020, being the date to which the latest published audited financial statements of the Group were made up.

5. MATERIAL LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claims of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened by or against any member of the Group.

– I-4 –

GENERAL INFORMATION

APPENDIX I

6. INTERESTS OF DIRECTORS AND SUPERVISORS IN COMPETING BUSINESSES

The table below summarises the positions concurrently held by the Directors and Supervisors in road operation companies of the controlling shareholders and/or their associates (other than the Company):

Name/Positions held with the Company

Directorship, supervisorship, senior management or other positions held with road operation companies of the controlling shareholders and/or their associates (other than the Company) as at the Latest Practicable Date

Chen Dalong (陳大龍)/ Vice chairman of the Board, Non-executive Director

Director and general manager of COSCO SHIPPING (Hong Kong) Industry & Trade Limited (中遠海運(香港)工貿有限公司) (held by the COSCO SHIPPING as to 100%), director of Smart Watch Assets Limited, Freetech Intelligent Road Regeneration Engineering Investment Co., Ltd. (英達智能道路再生工程投資有限公司) (held by COSCO SHIPPING Industry & Trade as to 49.00%) and director of Tianjin Expressway Maintenance Company Limited (天津市高速公路養護有限公司) (held by Freetech Intelligent Road Regeneration Engineering Investment Co., Ltd. as to 55.00%), as well as chairman of the board of directors of the following companies: (i) Hebei Jixing Expressway Co., Ltd. (河北冀星高速公路有限公司); (ii) Tianjin Tianyu Expressway Co., Ltd. (天津天預高速公路有限公司); (iii) Tianjin Tian’ang Expressway Co., Ltd. (天津天昂高速公路有限公司); (iv) Tianjin Tianxu Expressway Co., Ltd. (天津天旭高速公路有限公司); (v) Tianjin Tianda Expressway Co., Ltd. (天津天達高速公路有限公司); (vi) Tianjin Tianwei Expressway Co., Ltd. (天津天偉高速公路有限公司); (vii) Tianjin Tianduo Expressway Co., Ltd. (天津天奪高速公路有限公司); (viii) Tianjin Tianfu Expressway Co., Ltd. (天津天富高速公路有限公司); (ix) Tianjin Tianyong Expressway Co., Ltd. (天津天永高速公路有限公司); and (x) Tianjin Tianxian Expressway Co., Ltd. (天津天顯高速公路有限公司) (Smart Watch Assets Limited is a wholly-owned subsidiary of COSCO SHIPPING (Hong Kong) and the parent company of companies (i) to (x))

– I-5 –

GENERAL INFORMATION

APPENDIX I

Name/Positions held with the Company

Su Xiaodong (蘇曉東)/ Non-executive Director
Zhou Cenyu (周岑昱)/ Non-executive Director
Kong Xia (孔霞)/ Non-executive Director

Investment director and general manager of the capital and investment department of COSCO SHIPPING (Hong Kong); as well as director of the following companies: (i) Hebei Jingshi Expressway Development Co., Ltd. (河北京石高速公路開發有限公司); (ii) COSCO H.K. (Beijing) Investment Co., Limited (香遠(北京)投資有限公司); (iii) Hebei Jixing Expressway Co. Ltd. (河北冀星高速公路有限公司); (iv) Tianjin Tianyu Expressway Co., Ltd. (天津天預高速公路有限公司); (v) Tianjin Tian’ang Expressway Co., Ltd. (天津天昂高速公路有限公司); (vi) Tianjin Tianxu Expressway Co., Ltd. (天津天旭高速公路有限公司); (vii) Tianjin Tianda Expressway Co., Ltd. (天津天達高速公路有限公司); (viii) Tianjin Tianwei Expressway Co., Ltd. (天津天偉高速公路有限公司); (ix) Tianjin Tianduo Expressway Co., Ltd. (天津天奪高速公路有限公司); (x) Tianjin Tianfu Expressway Co., Ltd. (天津天富高速公路有限公司); (xi) Tianjin Tianyong Expressway Co., Ltd. (天津天永高速公路有限公司); and (xii) Tianjin Tianxian Expressway Co., Ltd. (天津天顯高速公路有限公司) (Smart Watch Assets Limited is the holding company of the above companies (i) to (xii))

Secretary of the party general branch and chairman of the board of directors (a legal representative) of Shandong Hi-Speed Supply Chain Management Co., Ltd. (山東高速供應鏈管理有限公司) (formerly known as Qilu Transportation and Logistics Development Company Limited (齊魯交通物流發展有限公司))

Deputy head of the organisation department of the party committee (party committee of the head office) of Shandong Hi-Speed Group

– I-6 –

GENERAL INFORMATION

APPENDIX I

Name/Positions held with the Company

Meng Xin (孟昕)/Chairman of the Supervisory Committee
Assistant to president and general manager of the finance department of COSCO SHIPPING (Hong Kong); director of COSCO SHIPPING (Hong Kong) Industry & Trade Limited; director of COSCO Treasury Company Limited, held as to 100% by COSCO SHIPPING; director of Great Victory Holdings Ltd., held as to 100% by COSCO SHIPPING; director of Peaktrade Investments Limited, held as to 100% by COSCO SHIPPING; director of Smart Watch Assets and the following companies: (i) Hebei Jixing Expressway Co. Ltd. (河北冀星高速公路有限公司); (ii) Tianjin Tianyu Expressway Co., Ltd. (天津天預高速公路有限公司); (iii) Tianjin Tian’ang Expressway Co., Ltd. (天津天昂高速公路有限公司); (iv) Tianjin Tianxu Expressway Co., Ltd. (天津天旭高速公路有限公司); (v) Tianjin Tianda Expressway Co., Ltd. (天津天達高速公路有限公司); (vii) Tianjin Tianwei Expressway Co., Ltd. (天津天偉高速公路有限公司); (viii) Tianjin Tianduo Expressway Co., Ltd. (天津天奪高速公路有限公司); (ix) Tianjin Tianfu Expressway Co., Ltd. (天津天富高速公路有限公司); (viii) Tianjin Tianyong Expressway Co., Ltd. (天津天永高速公路有限公司); and (x) Tianjin Tianxian Expressway Co., Ltd. (天津天顯高速公路有限公司)
Zhang Yin (張 Director of the project development and capital operation centre of 引)/Shareholder Shandong Hi-Speed Group Representative Supervisor

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or Supervisors of the Company holds any interest in business other than the business of the Group which directly or indirectly competes or is likely to compete with the business of the Group.

7. INTERESTS OF DIRECTORS AND SUPERVISORS IN ASSETS AND CONTRACTS

As at the Latest Practicable Date, none of the Directors or Supervisors had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to (or are proposed to be acquired or disposed of by or leased to) any member of the Group since 31 December 2020, being the date to which the latest published audited financial statements of the Group were made up.

– I-7 –

GENERAL INFORMATION

APPENDIX I

Other than those disclosed in the section headed “Connected Transactions” in the Prospectus and the section headed “Directors’ Interests in the Above Transactions” in the letter from the Board, none of the Directors or Supervisors or any of their respective associates was materially interested in any contract or arrangement which was significant in relation to the business of the Group subsisting as at the Latest Practicable Date.

8. SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS

As at the Latest Practicable Date, none of the Directors or Supervisors had entered, or proposed to enter, into a service contract with any member of the Group which is not determinable by the employer within one (1) year without payment of compensation (other than statutory compensation).

9. QUALIFICATION AND CONSENT OF EXPERT

The following is the qualification of the expert who has given an opinion or advice contained in this circular or reference to its name has been made in this circular:

Name Qualification

Gram Capital A licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO

As at the Latest Practicable Date, the above expert:

(i) did not have any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and
(ii) did not have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

The above expert has given and has not withdrawn its written consent to the issue of this circular, with the inclusion therein of its letter, report, opinion and/or the reference to its name in the form and context in which it appears.

– I-8 –

GENERAL INFORMATION

APPENDIX I

10. GENERAL

(i) The registered office, headquarters and principal place of business in the PRC of the Company is situated at Room 2301, Block 4, Zone 3, Hanyu Financial & Business Centre, No. 7000 Jingshi East Road, High-tech Zone, Jinan City, Shandong Province, PRC.
(ii) The principal place of business in Hong Kong of the Company is at 40th Floor, Dah Sing Financial Centre, No. 248 Queen’s Road East, Wanchai, Hong Kong.
(iii) The H Share registrar of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(iv) The joint company secretaries of the Company are Mr. Lian Shengguo and Ms. So Shuk Yi Betty. Ms. So is an associate member of The Hong Kong Chartered Governance Institute and The Chartered Governance Institute since 1997.
(v) The English text of this circular, the accompanying form of proxy and the notice of the EGM shall prevail over the Chinese version in case of any inconsistency.

11. DOCUMENTS ON DISPLAY

Copies of the following documents will be published on the HKExnews’ website and the Company’s website from the date of this circular up to and including the date of the EGM:

(i) the Existing 2021-2023 General Services Framework Agreement; and
(ii) the 2021-2023 Financial Services Framework Agreement.

– I-9 –

NOTICE OF THE EGM

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1576)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting (the “ EGM ”) of Qilu Expressway Company Limited (the “ Company ”) will be held at 10:00 a.m. on Monday, 13 December 2021 at Conference Room (Autumn), 2/F, Enjoy Hotel, No. 44 Gongye South Road, High-tech Zone, Jinan City, the People’s Republic of China (the “ PRC ”), for the purpose of considering and, if thought fit, passing the following resolutions:

SPECIAL RESOLUTIONS

“ THAT

(a) the revision of the annual caps under the Existing 2021-2023 General Services Framework Agreement for each of the three years ending 31 December 2023 to RMB100 million, RMB200 million and RMB100 million respectively (the “ Proposed Revised Annual Caps ”) be and are hereby considered, approved and confirmed in all respects; and
(b) the board (the “ Board ”) of director(s) (the “ Director(s) ”) of the Company be and is hereby authorised to do all such acts as he/she may consider necessary or expedient for the purpose of implementing and/or giving effect to the Proposed Revised Annual Caps;
(a) the 2021-2023 Financial Services Framework Agreement (the “ 2021-2023 Financial Services Framework Agreement ”) dated 31 August 2021 and entered into between Weihai City Commercial Bank and the Company, a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for identification purpose; the transactions contemplated thereunder; and its proposed annual caps for deposit services be and are hereby considered, approved and confirmed in all respects; and
(b) any Director(s) be and is/are hereby authorised, for and on behalf of the Company, to enter into any agreement, deed or instrument and/or to execute and deliver all such documents and/or do all such acts on behalf of the Company as he/she may consider necessary, desirable or expedient for the purpose of, or in connection with (i) the implementation and completion of the 2021-2023 Financial Services Framework Agreement and transactions

– EGM-1 –

NOTICE OF THE EGM

contemplated thereunder; and/or (ii) any amendment, variation or modification of the 2021-2023 Financial Services Framework Agreement and the transactions contemplated thereunder upon such terms and conditions as the Board may think fit.”

ORDINARY RESOLUTIONS

To consider and approve the resolution in respect of the Reconstruction and Expansion Project on the Jihe Expressway.
To consider and approve the resolution in respect of the Adjustments to 2021 Financial Budget Plan.

By order of the Board Qilu Expressway Company Limited Wang Zhenjiang Chairman

Shandong, the PRC 15 November 2021

– EGM-2 –

NOTICE OF THE EGM

Notes:

The register of members of the Company has been closed from Saturday, 13 November 2021 to Monday, 13 December 2021 (both days inclusive), during which period no transfer of shares of the Company will be registered.
Any shareholders entitled to attend and vote at the EGM can appoint one or more proxies to attend and vote on his/her behalf. A proxy need not be a shareholder of the Company.
In order to be valid, the proxy form must be deposited in person or by post to the Company’s Hong Kong H share registrar and transfer office, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H shares), or to the correspondence address of the Company (attention: secretary of the Board) (for holders of domestic shares) not less than 24 hours before the time for holding the EGM (or any adjournment thereof) or the time appointed for polling. If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and delivery of the proxy form will not preclude shareholders from attending and voting in person at the EGM or any adjournment thereof should they so wish.
Shareholders or their proxies shall produce their identification documents when attending the EGM.
The EGM is expected to last for no more than half a day. Shareholders who attend the EGM shall bear their own travelling and accommodation expenses.
The correspondence address of the Company is as follows:

Address: Room 2301, Block 4, Zone 3, Hanyu Financial & Business Centre, No. 7000 Jingshi East Road, High-tech Zone, Jinan City, Shandong Province, the PRC Postal Code: 250101 Fax: (+86) 0531-87207077

The voting at the EGM shall be conducted by way of poll. The results of the poll will be published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.qlecl.com).

As at the date of this notice, the executive Directors are Mr. Wang Zhenjiang, Mr. Peng Hui and Mr. Liu Qiang; the non-executive Directors are Mr. Chen Dalong, Mr. Wang Shaochen, Mr. Zhou Cenyu, Mr. Su Xiaodong, Ms. Kong Xia, Mr. Tang Haolai and Mr. Du Zhongming; and the independent non-executive Directors are Mr. Cheng Xuezhan, Mr. Li Hua, Mr. Wang Lingfang, Mr. He Jiale and Mr. Han Ping.

– EGM-3 –

AI assistant

Qilu Expressway Company Limited — Proxy Solicitation & Information Statement 2021

50013_rns_2021-11-12_f41ccce6-4292-4cbf-980e-b3370ebc0b03.pdf

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(Stock Code: 1576)

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT;

3. THE R&E PROJECT ON THE JIHE EXPRESSWAY;

4. ADJUSTMENTS TO 2021 FINANCIAL BUDGET PLAN;

AND NOTICE OF THE EGM

INTRODUCTION

LETTER FROM THE BOARD

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT

THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT

LETTER FROM THE BOARD

Pricing Policies

Annual caps and historical amounts

Basis of the Proposed Revised Annual Caps

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for and benefits of revision of the Existing Annual Caps

LISTING RULES IMPLICATIONS

Non-Exempt Continuing Connected Transaction

INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

DIRECTORS’ INTERESTS IN THE ABOVE TRANSACTIONS

INFORMATION ON THE COMPANY AND THE PARTIES

The Company

Shandong Hi-Speed Group

2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

PRICING POLICY

HISTORICAL TRANSACTION AMOUNT

PROPOSED ANNUAL CAPS AND BASIS OF DETERMINATION

(1) Deposit Services

(2) The Other Financial Services

REASONS FOR AND BENEFITS OF ENTERING INTO THE 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

LISTING RULES IMPLICATIONS

INTERNAL CONTROL MEASURES IN RELATION TO THE CONTINUING CONNECTED TRANSACTIONS

(1) Deposit Services

(2) The Other Financial Services

CAPITAL RISK CONTROL MEASURES

DIRECTORS’ INTERESTS IN THE ABOVE TRANSACTIONS

INFORMATION ON THE COMPANY AND THE PARTIES

The Company

Weihai City Commercial Bank

3. THE R&E PROJECT ON THE JIHE EXPRESSWAY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Analysis of the feasibility of the R&E Project on the Jihe Expressway

Project risks and countermeasures

(i) Official approval for toll collection period has not yet been obtained

(ii) Official approval for toll rates has not yet been obtained

(iii) Risks of investment and time overruns

Countermeasures:

(iv) Operating risk

(v) Interest rate risk

(vi) Political, economic, natural disaster and other force majeure factors

Effects on the Company and reasons for investing in the R&E Project on the Jihe Expressway

LISTING RULES IMPLICATIONS

4. ADJUSTMENTS TO 2021 FINANCIAL BUDGET PLAN

THE EGM

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

VOTING BY POLL

ABSTENTION OF SHAREHOLDERS FROM VOTING

RECOMMENDATIONS

RESPONSIBILITY STATEMENT

Qilu Expressway Company Limited 齊魯高速公路股份有限公司

(Stock Code: 1576)

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

RECOMMENDATIONS

1. PROPOSED REVISION OF ANNUAL CAPS UNDER THE EXISTING 2021-2023 GENERAL SERVICES FRAMEWORK AGREEMENT; 2. CONTINUING CONNECTED TRANSACTION – 2021-2023 FINANCIAL SERVICES FRAMEWORK AGREEMENT

INTRODUCTION

Qilu Expressway Company Limited Proxy Solicitation & Information Statement 2021