The Wharf (Holdings) Limited

THIS DOCUMENT 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 The Wharf (Holdings) Limited , you should at once hand this circular to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser(s) or the transferee(s).

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

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 4)

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board of Directors of the Company is set out on pages 6 to 20 of this circular and a letter from the Independent Board Committee containing its recommendations to the Independent Shareholders is set out on pages 21 and 22 of this circular. A letter from Somerley Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 23 to 38 of this circular.

26 January 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Rationalisation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
The Share Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
The Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Information on the MTL Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Information on the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Reasons for the Rationalisation and the MTL Disposal. . . . . . . . . . . . . . . . . . . . .	18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Regulatory aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Independent Shareholders’ Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix − General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39

– i –

DEFINITIONS

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

“Adjustment Sum” the adjustment sum payable to MTL by CMH in the event that SCT3 and Land Co. are not debt free as at the relevant dates of each of the four stages of completion under the Rationalisation Agreement
“ARH” Achieve Ridge Holdings Limited, a company incorporated in the British Virgin Islands with limited liability
“Berths” Berths No. 1 to 9 at Jetty III of the Shekou Container Terminal in Shenzhen, the PRC, and “Berth” refers to the relevant one of them
“Board” the board of Directors
“Business Day” a day on which banks are open for business in Hong Kong and in the PRC (excluding Saturdays, Sundays and public holidays in Hong Kong or in the PRC)
“CMH” China Merchants Holdings (International) Company Limited, a company incorporated in Hong Kong with limited liability and whose shares are listed on the Main Board of the Stock Exchange
“CMH Group” CMH and its subsidiaries
“Company”
The Wharf (Holdings) Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange
“Directors” the directors of the Company
“Group” the Company together with its subsidiaries
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the independent board committee comprising 5 independent non-executive Directors, namely, Mr. Paul M. P. Chan, Professor Edward K. Y. Chen, Dr. Raymond K. F. Ch’ien, Hon. Vincent K. Fang and Mr. James E. Thompson

– 1 –

DEFINITIONS

“Independent Financial Adviser” Somerley Limited, the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder
“Independent Shareholder(s)” has the meaning as ascribed to it under the Listing Rules
“Land Co.”
(An Yun Jie Port
and Warehouse Services (Shenzhen) Company Limited*), a wholly foreign owned enterprise established under the laws of the PRC
“Latest Practicable Date”
23 January 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Mega SCT”
Mega Shekou Container Terminals Limited, a company in the British Virgin Islands with limited liability to be formed to act as the holding company for SCT1, SCT2, SCT3 and Land Co. pursuant to the Rationalisation
“MTL”
Modern Terminals Limited, a company incorporated in Hong Kong with limited liability, a 67.94%-owned subsidiary of the Company
“MTL BVI”
Modern Terminals SCT Phase I Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of MTL
“MTL Disposal”
disposal of the MTL Equity Interests pursuant to the Share Purchase Agreement in the event that the Stage 1 Completion under the Rationalisation Agreement does not occur on or before 15 March 2007 or such other date as the parties may agree in writing
“MTL Equity Interests”
the sole issued share of MTL BVI, the shareholder’s loan due to MTL Shekou by MTL BVI and 1,960 shares in ARH, representing 20% of the total issued shares in the capital of ARH
“MTL Group”
MTL and its subsidiaries

– 2 –

DEFINITIONS

“MTL Shekou” MTL Shekou Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, a wholly-owned subsidiary of MTL “P&O” P&O Dover Limited, a

P&O Dover (Holdings) Limited, a company incorporated in England with limited liability
“P&O BVI” Singleton Capital Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of P&O
“P&O Equity Interests” all the issued shares of P&O BVI and 4,410 shares in ARH, representing 45% of the total issued shares in the capital of ARH
“PRC” the People’s Republic of China
“Put Option” the put option to be granted by CMH to MTL under the Shareholders Agreement in respect of MTL’s interests in Mega SCT
“Rationalisation” the consolidation and rationalisation of interests in SCT1, SCT2, SCT3 and Land Co. in accordance with the Rationalisation Agreement
“Rationalisation Agreement” the agreement dated 14 December 2006 between MTL and CMH pursuant to which MTL and CMH will form a joint venture to hold their interests in SCT1, SCT2, SCT3 and Land Co.
“SCT1” (Shekou Container Terminals Limited*), a wholly foreign owned enterprise established under the laws of the PRC
“SCT2” (Shekou Container
Terminals (Phase II) Company Limited*) a wholly foreign owned enterprise established under the laws of the PRC
“SCT3” (Shekou Container Terminals (Phase III) Company Limited*) a wholly foreign owned enterprise established under the laws of the PRC
“SFO” Securities and Futures Ordinance, Cap. 571 of the Laws of Hong Kong

– 3 –

DEFINITIONS

“Share Purchase Agreement” the share purchase agreement dated 14 December 2006 among MTL, MTL Shekou, Swire, P&O, and CMH relating to the Swire/P&O Disposal and the MTL Disposal
“Shareholders” the shareholders of the Company
“Shareholders Agreement” the shareholders agreement to be entered into amongst MTL, CMH and Mega SCT in respect of Mega SCT upon Stage 1 Completion
“Share(s)” the ordinary share(s) with a par value of HK$1.00 each in the share capital of the Company
“Stage 1 Completion” completion of initial stage of the Rationalisation under the Rationalisation Agreement
“Stage 2 Completion” completion of the second stage of the Rationalisation under the Rationalisation Agreement
“Stage 3 Completion” completion of the third stage of the Rationalisation under the Rationalisation Agreement
“Stage 4 Completion” completion of the fourth stage of the Rationalisation under the Rationalisation Agreement
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Swire” Swire Pacific Limited, a company incorporated in Hong Kong with limited liability and whose shares are listed on the Main Board of the Stock Exchange
“Swire BVI” Glory Merit Limited, a company incorporated in the British Virgin Islands with limited liability
“Swire Equity Interests” the sole issued share of Swire BVI and 3,430 shares in ARH, representing 35% of the total issued shares in the capital of ARH
“Swire/P&O Disposal” disposal of the Swire Equity Interests and the P&O Equity Interests under the Share Purchase Agreement by Swire and P&O
“Voctor Investments Limited” Voctor Investments Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of CMH

– 4 –

DEFINITIONS

“Wheelock”

Wheelock and Company Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange, which effectively holds approximately 48% of the issued share capital of the Company

“WPL” Wheelock Properties Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange, a subsidiary of Wheelock

“%” per cent.

The English translation of the Chinese name is included in this circular for information purpose only and should not be regarded as its official English translation.

– 5 –

LETTER FROM THE BOARD

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THE WHARF (HOLDINGS) LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 4)

Directors: Mr. Peter K. C. Woo, GBS, JP (Chairman) Mr. Gonzaga W. J. Li (Senior Deputy Chairman) Mr. Stephen T. H. Ng (Deputy Chairman & Managing Director) Mr. Paul M. P. Chan Professor Edward K. Y. Chen, GBS, CBE, JP Dr. Raymond K. F. Ch’ien, GBS, CBE, JP Hon Vincent K. Fang, JP Mr. Hans Michael Jebsen, BBS Ms. Doreen Y. F. Lee Mr. T. Y. Ng Mr. James E. Thompson, GBS

Registered Office: 16/F, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong

(* Independent Non-executive Directors)

26 January 2007

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

INTRODUCTION

On 15 December 2006, the Company announced that MTL, a 67.94%-owned subsidiary of the Company, entered into the Rationalisation Agreement with CMH on 14 December 2006, pursuant to which MTL and CMH will form a joint venture to hold their interests in SCT1, SCT2, SCT3 and Land Co. The joint venture will be held as to 30% by the MTL Group and as to 70% by the CMH Group upon Stage 1 Completion. Upon Stage 1 Completion, MTL and CMH will also enter into the Shareholders Agreement to regulate the rights of MTL and CMH as shareholders of Mega SCT.

On 14 December 2006, MTL and MTL Shekou, a wholly-owned subsidiary of MTL, entered into the Share Purchase Agreement with Swire, P&O and CMH, pursuant to which, if Stage 1 Completion does not take place in accordance with the terms set out in the Rationalisation Agreement on or before 15 March 2007 or such other date as the parties may

– 6 –

LETTER FROM THE BOARD

agree in writing, MTL Shekou shall sell and CMH shall purchase, the MTL Equity Interests. MTL also agreed to guarantee the due performance by MTL Shekou of its obligations contained in the Share Purchase Agreement.

The purposes of this circular are to provide you with (i) the particulars of the Rationalisation Agreement, the Share Purchase Agreement and the Shareholders Agreement; (ii) the letter of recommendation from the Independent Board Committee; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (iv) other information required by the Listing Rules.

Background

At present, MTL indirectly holds 10% interest in SCT1 and 9.8% interest in SCT2, while the remaining interests in SCT1 and SCT2 are owned by the CMH Group, Swire and P&O.

Current Shareholding Structure

The diagram below shows the current shareholding structure of SCT1 and SCT2 as of the Latest Practicable Date:

==> picture [425 x 250] intentionally omitted <==

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

Swire MTL P&O CMH
45%
20%
35%
100% 100% 100% 100%
Voctor
Swire BVI MTL BVI P&O BVI ARH Investments
Limited
17.5% 10% 22.5% 50% 49% 51% 100% 100%
SCT 1 SCT 2 SCT 3 Land Co
Gatehouse+
Berths No. Berths No. Berths No. surrounding
1 & 2 3 & 4 5, 6, 7, 8 & 9 land approx.
180,000 sq.m.
----- End of picture text -----

Certain wholly-owned intermediate holding companies are not shown in the above diagram.

Set out below are the principal terms of the Rationalisation Agreement, the Share Purchase Agreement and the Shareholders Agreement.

– 7 –

LETTER FROM THE BOARD

RATIONALISATION AGREEMENT

Date

14 December 2006

Parties

MTL, a 67.94%-owned subsidiary of the Company

CMH

Principal terms of the Rationalisation Agreement

Pursuant to the Rationalisation Agreement, MTL and CMH have agreed to rationalise and consolidate their respective equity interests in SCT1, SCT2, SCT3 and Land Co. to form a new joint venture company (Mega SCT) whereby Mega SCT will act as the holding company of each of SCT1, SCT2, SCT3 and Land Co.

Subject to satisfaction of the relevant conditions therein, completion of the Rationalisation Agreement will take place in four stages. In consideration of the construction and development of Berths No. 7, 8 and 9 by CMH, MTL’s interest in Mega SCT will gradually decrease from 30% upon Stage 1 Completion to 20% upon Stage 4 Completion.

Stage 1 Completion

For the purpose of Stage 1 Completion, MTL will transfer the MTL Equity Interests, representing 10% indirect interest in SCT1 and 9.8% indirect interest in SCT2, to Mega SCT. In consideration of the transfer of the MTL Equity Interests, the MTL Group will receive 6% interest in Mega SCT.

CMH will inject the following interests into Mega SCT in exchange for 94% interest in Mega SCT:

(1) the CMH Group’s existing 50% interest in SCT1 and 51% interest in SCT2;
(2) the Swire Equity Interests and the P&O Equity Interests to be acquired by CMH under the Share Purchase Agreement; and
(3) the CMH Group’s 100% interests in each of SCT3 and Land Co.

The MTL Group will also purchase from the CMH Group a 24% interest in Mega SCT for a cash consideration of HK$3,168 million payable upon Stage 1 Completion. Such consideration is intended to be funded by MTL’s internal resources and bank borrowings. The consideration was determined and agreed between the parties after arm’s length negotiations by reference to the profits of SCT1 and SCT2 for the year ended 31 December 2005 and the price earning multiples of port operating companies in the market.

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LETTER FROM THE BOARD

Immediately following Stage 1 Completion, Mega SCT will hold a 100% indirect interest in each of SCT1, SCT2, SCT3 and Land Co., and will be owned as to 30% by the MTL Group and 70% by the CMH Group.

CMH and MTL have agreed that SCT3 and Land Co. will be injected into Mega SCT on a debt-free basis. Accordingly, CMH will make an adjustment sum to MTL in the event of SCT3 and Land Co. not being debt free (being the Adjustment Sum) as at the date of Stage 1 Completion.

Conditions for Stage 1 Completion

Stage 1 Completion is conditional upon, amongst other things, the following conditions being satisfied on or before 15 March 2007 or such other date as the parties may agree in writing:

(1) the Company having obtained all other necessary approvals for the Rationalisation and the arrangements set out under the Rationalisation Agreement as required under the Listing Rules;
(2) CMH having obtained approval from its shareholders at a duly convened and held general meeting to approve the Rationalisation Agreement and the arrangements set out under the Rationalisation Agreement and the Shareholders’ Agreement; and having obtained all other necessary approvals as required under the Listing Rules; and
(3) completion of the Swire/P&O Disposal.

Subject to satisfaction of the above conditions, it is currently expected that Stage 1 Completion will take place immediately following the completion of the Swire/P&O Disposal.

Stage 2 Completion

Stage 2 Completion will take place after Berth No. 7 having been completed and become commercially operational. Upon Stage 2 Completion, the MTL Group will transfer a 3% interest in Mega SCT to the CMH Group for a nominal consideration of HK$1 and, if applicable, the payment of the Adjustment Sum by CMH. Immediately after Stage 2 Completion, Mega SCT will be owned as to 27% by the MTL Group and 73% by the CMH Group respectively.

Stage 3 Completion

Stage 3 Completion will take place after Berth No. 8 having been completed and become commercially operational. Upon Stage 3 Completion, the MTL Group will transfer a 2% interest in Mega SCT to the CMH Group for a nominal consideration of HK$1 and, if applicable, the payment of the Adjustment Sum by CMH. Immediately after Stage 3 Completion, Mega SCT will be owned as to 25% by the MTL Group and 75% by the CMH Group.

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LETTER FROM THE BOARD

Stage 4 Completion

The final stage of completion will take place after Berth No. 9 having been completed and become commercially operational. Upon Stage 4 Completion, the MTL Group will transfer a 5% interest in Mega SCT to the CMH Group for a nominal consideration of HK$1 and, if applicable, the payment of the Adjustment Sum by CMH. Immediately after Stage 4 Completion, Mega SCT will be owned as to 20% by the MTL Group and 80% by the CMH Group.

The consideration of the transfer of its interest in Mega SCT by the MTL Group was determined and agreed between the parties after arm’s length negotiations with reference to the obligation of CMH in financing the construction and development costs of Berths No. 7, 8 and 9.

There is no funding commitment from the MTL Group in relation to the Rationalisation.

Progress of construction

Berth No. 7 is expected to be completed by December 2007 and the development of Berths No. 8 and 9 will depend on the progress of the construction work and the Group currently expects that Berth No. 8 will be completed by December 2008 and the whole development will be completed by the end of December 2009.

Information in relation to each of SCT1, SCT2, SCT3 and Land Co.

SCT1 is principally engaged in the operation of Berths No. 1 and 2 at Jetty III of the Shekou Container Terminals in Shenzhen, the PRC, whereas SCT2 is principally engaged in the operation of Berths No. 3 and 4 at Jetty III of the Shekou Container Terminals.

SCT3 and Land Co. are currently indirect wholly-owned subsidiaries of CMH. The principal business of SCT3 is to construct, develop and operate Berths No. 5, 6, 7, 8 and 9. Berths No. 5 and 6 are in operation, while Berths No. 7, 8 and 9 are still under construction or to be developed. The principal assets of Land Co. are two pieces of land in Shekou with a total area of approximately 180,000 square meters for use by SCT 3.

The following table illustrates the design capacity of each of SCT1, SCT2 and SCT3:

		SCT1	SCT2	SCT3
		(TEU)	(TEU)	(TEU)
Design	capacity	800,000	1,200,000	2,500,000

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LETTER FROM THE BOARD

The net asset value and net profits (both before tax and extraordinary items and after tax) of each of SCT1, SCT2, SCT3 and Land Co. for the two years ended 31 December 2004 and 31 December 2005 are as follows:

SCT 1

				As at		As at
			31 December 2004		31 December 2005
				HK$’ million		HK$’ million
	Net asset value			903		1,194
			For the year ended		For the year ended
			31 December 2004		31 December 2005
				HK$’ million		HK$’ million
	Net profit before tax and
		extraordinary items		306		340
	Net profit after tax			306		315
*SCT*	2
				As at		As at
			31 December 2004		31 December 2005
				HK$’ million		HK$’ million
	Net asset value			877		936
			For the year ended		For the year ended
			31 December 2004		31 December 2005
				HK$’ million		HK$’ million
	Net profit before tax and
		extraordinary items		300		329
	Net profit after tax			300		329

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LETTER FROM THE BOARD

SCT 3

		As at		As at
	31 December 2004		31 December 2005
		HK$’ million		HK$’ million
Net asset value		99		508
	For the year ended		For the year ended
	31 December 2004		31 December 2005
		HK$’ million		HK$’ million
Net profit before tax and
extraordinary items		Nil		43
Net profit after tax		Nil		36

As SCT3 has not commenced operation until 2005, the information regarding net profits (both before tax and extraordinary items and after tax) for the year ended 31 December 2004 is not available.

The unaudited net asset value of Land Co. for the eleven months ended 30 November 2006 is as follows:

*Co.*
					As at
				30	November 2006
					HK$’ Million
Unaudited	net	asset	value		16

As Land Co. was incorporated in December 2005. It is expected to commence operation around mid 2007, the information regarding net profits (both before tax and extraordinary items and after tax) for the year ended 31 December 2005 is not available.

– 12 –

LETTER FROM THE BOARD

Shareholding Structure after Stage 4 Completion

Set out below is the shareholding structure of Mega SCT immediately after Stage 4 Completion (assuming no other changes in the shareholding structure before Stage 4 Completion).

==> picture [425 x 300] intentionally omitted <==

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

CMH MTL
80% 20%
Mega SCT
100% 100% 100%
100% 100% 100%
Voctor
Swire BVI MTL BVI P&O BVI ARH Investments
Limited
50% 17.5% 10% 22.5% 49% 51% 100% 100%
SCT 1 SCT 2 SCT 3 Land Co
Gatehouse+
Berths No. Berths No. Berths No. surrounding
1 & 2 3 & 4 5, 6, 7, 8 & 9 land approx.
180,000 sq.m.
----- End of picture text -----

Certain wholly-owned intermediate holding companies are not shown in the above diagram.

THE SHARE PURCHASE AGREEMENT

Date

14 December 2006

Parties

Sellers: Swire, P&O and MTL Shekou Purchaser: CMH Guarantor to MTL Shekou: MTL

– 13 –

LETTER FROM THE BOARD

Details of MTL Disposal

Pursuant to the Share Purchase Agreement, MTL Shekou and CMH have agreed that (if Stage 1 Completion does not take place in accordance with the terms set out in the Rationalisation Agreement for any reason whatsoever on or before 15 March 2007 or such other date as the parties may agree in writing) MTL Shekou will sell and CMH will purchase, subject to the conditions set out below, the MTL Equity Interests, being (i) all the issued share of MTL BVI, (ii) the shareholder’s loan due to MTL Shekou by MTL BVI and (iii) 1,960 shares in ARH, representing 20% of the total issued shares in the capital of ARH. MTL agreed to guarantee the due performance by MTL Shekou of all the agreements, obligations, commitments and undertakings contained in the Share Purchase Agreement.

The Consideration

The consideration for the MTL Disposal payable by CMH to the MTL Group upon completion of the MTL Disposal is HK$792 million which will be satisfied in cash. The consideration was determined and agreed between the parties after arm’s length negotiations by reference to the profits of SCT1 and SCT2 for the year ended 31 December 2005 and the price earning multiples of port operating companies in the market.

Information in relation to the MTL Equity Interests

The sole asset of MTL BVI is 10% interests in the registered capital of SCT1.

The sole asset of ARH is its 49% interests in the registered capital of SCT2.

Please refer to the paragraph headed “Information in relation to each of SCT1, SCT2, SCT3 and Land Co.” above for the principal businesses of SCT1 and SCT2.

Financial information

The net asset value and net profits (both before tax and extraordinary items and after tax) attributable to the MTL Equity Interests for the two financial years ended 31 December 2004 and 31 December 2005 are as follows:

				As at	As at
			31	December 2004	31 December 2005
				HK$’ million	HK$’ million
Net	asset	value		170	211

– 14 –

LETTER FROM THE BOARD

For the year ended For the year ended 31 December 2004 31 December 2005 HK$’ million HK$’ million

Net profit before tax and
extraordinary items	58	66
Net profit after tax	58	64

Conditions

The MTL Disposal is conditional upon:

(1) the passing of a resolution by the shareholders of CMH in accordance with the Listing Rules approving the purchase by CMH of the MTL Equity Interests from MTL Shekou; and
(2) completion of the Swire/P&O Disposal.

Completion of the MTL Disposal will take place on the fifth Business Day after the earlier of (i) date on which Stage 1 Completion fails to take place in accordance with the terms of the Rationalisation Agreement as referred to above; and (ii) 15 March 2007.

Use of Proceeds

The sale proceeds (which would only be receivable by MTL Group in the event of Stage 1 Completion not materialising), if receivable by MTL Group, would be intended to be used as general working capital of the MTL Group and repayment of debt.

Other Terms

The consideration of HK$792 million for the MTL Disposal was agreed by the parties on an ex-dividend basis. Accordingly, MTL Shekou would be entitled to its indirect share of distributable profits of by SCT1 and SCT2 accruing up to and including the respective dates of completion of MTL Disposal.

In order to avoid the additional costs to be incurred and time required for ascertaining the amount of distributable profits of SCT1 and SCT2 for the period from 1 January 2006 up to and including the relevant completion dates, the parties have agreed that CMH will pay to MTL Shekou an amount in satisfaction of such dividend entitlement, such amount to be calculated based on the audited profits attributable to MTL for the year ended 31 December 2006.

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LETTER FROM THE BOARD

The Swire/P&O Disposal

Pursuant to the Share Purchase Agreement, Swire and P&O have agreed to sell and CMH has agreed to purchase:

(1) the Swire Equity Interests, being 100% interest in Swire BVI and a 35% interest in ARH; and
(2) the P&O Equity Interests, being a 100% interest in P&O BVI and a 45% interest in ARH.

The consideration payable by CMH under the Share Purchase Agreement to Swire and P&O is HK$1,386 million and HK$1,782 million respectively, representing an aggregate consideration of HK$3,168 million.

Condition for the Swire/P&O Disposal

Completion of the Swire/P&O Disposal is conditional upon the passing of a resolution by the shareholders of CMH approving the Swire/P&O Disposal and the transactions contemplated under the Share Purchase Agreement in accordance with the Listing Rules. Completion of the Swire/P&O Disposal will take place on the fifth Business Day after the date on which the foregoing condition for the Swire/P&O Disposal has been satisfied. If such condition is not satisfied on or before 15 March 2007 (or such later date as Swire or P&O may extend), the Share Purchase Agreement will automatically terminate.

Completion of the Swire/P&O Disposal is not conditional upon completion of the Rationalisation Agreement. However, Stage 1 Completion under the Rationalisation Agreement is conditional upon completion of the Swire/P&O Disposal as referred to above.

THE SHAREHOLDERS AGREEMENT

Upon Stage 1 Completion, MTL and CMH will enter into the Shareholders Agreement to regulate the rights of MTL and CMH as shareholders of Mega SCT. Summarised below are the key terms of the Shareholders Agreement.

Put Option

Pursuant to the Shareholders’ Agreement, MTL will be granted a put option by CMH. Under the Put Option, MTL will have the right to require CMH to purchase all of its shares in Mega SCT (representing 30% of the issued share capital of Mega SCT) for an amount equal to HK$3,960 million. No premium or consideration is payable to CMH for the grant of the Put Option. The Put Option price of HK$3,960 million represents the aggregate of (i) the consideration of HK$3,168 million payable by MTL to CMH for the transfer of the 24% interest in Mega SCT as part of the Stage 1 Completion as described above; and (ii) the value of the 6% interest in Mega SCT being HK$792 million received by MTL upon Stage 1 Completion.

– 16 –

LETTER FROM THE BOARD

The Put Option is exercisable, in whole but not in part, by written notice from MTL to CMH given at any time during the one calendar year period from and including the date of Stage 1 Completion. The option notice will be irrevocable and unconditional.

Upon completion of the sale and purchase of the option shares, CMH will also pay to MTL a sum equal to any dividend to which MTL would have been directly or indirectly entitled in respect of the distributable profits of Mega SCT during the period from the date of Stage 1 Completion to the date of completion of the sale and purchase of the option shares.

Under Rule 14A.70 of the Listing Rules, the grant of the Put Option to MTL constitutes a connected transaction of the Company and is subject to the announcement, reporting and shareholders’ approval requirements.

Board Representation

The board of directors of each of Mega SCT and its subsidiaries shall have up to 10 directors. Each of MTL and CMH will be entitled to appoint one director for every 10% of the issued shares of Mega SCT held by it. Accordingly, upon Stage 1 Completion, MTL will be entitled to appoint up to three directors and CMH will be entitled to appoint up to seven directors to each of Mega SCT and its subsidiaries.

The board of Mega SCT shall have one chairman appointed by CMH and one vice-chairman appointed by MTL provided that such person appointed as chairman or vice-chairman is a director of Mega SCT.

INFORMATION ON THE MTL GROUP

MTL is a 67.94%-owned subsidiary of the Company and the principal business activity of MTL is the operation of container terminals in Hong Kong and the PRC. MTL Shekou, a wholly-owned subsidiary of MTL, is an investment holding company incorporated in the British Virgin Islands.

INFORMATION ON THE PARTIES

CMH is a company incorporated in Hong Kong with limited liability and whose shares are listed on the Main Board of the Stock Exchange. The core business of the CMH Group includes port and port-related services.

Swire is a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. The principal business activity of Swire is investment holding.

P&O is a company incorporated in England. It forms part of DP World, whose business is in marine terminal operations and development, logistics and related services.

To the best of knowledge, information and belief of the Directors having made all reasonable enquiry, save for being joint venture partners of MTL, Swire, P&O and their ultimate beneficial owners (in the case of a corporation), if any, are/is independent third party(ies) of the Company and not connected person(s) of the Company.

– 17 –

LETTER FROM THE BOARD

Financial effect of the Rationalisation

The consideration for acquiring the interests in Mega SCT is intended to be funded from MTL’s internal resources and bank borrowings. Accordingly, upon Stage 1 Completion, the assets (excluding cash and cash equivalents) of the Company’s consolidated account will be increased by about HK$3,168 million. In addition, the bank borrowings of the Group will be increased by about HK$2,868 million, while the Group’s cash or cash equivalents will be decreased by about HK$300 million. The Company believes that the completion of the Stage 1 Completion will not have any significant effect on the Group’s earnings.

Financial effect of the MTL Disposal

Taking into account the consideration of HK$792 million of the MTL Disposal upon completion of the MTL Disposal (in the event of Stage 1 Completion not materializing), the gain on the MTL Disposal before expenses to accrue to the Company’s consolidated account is estimated to be not less than HK$500 million. Taking into account the Company’s 67.94%-interest in MTL Group, upon completion of the MTL Disposal, the net gain on the MTL Disposal before expenses, after the 32.06% minority interest, to accrue to the Company’s consolidated account is estimated to be not less than HK$340 million. The assets (excluding cash and cash equivalents) of the Group will be decreased by approximately HK$220 million and the net debt of the Group will be decreased by HK$792 million. The Company believes that the completion of the MTL Disposal will not have significant effect on the Group’s future earnings.

Financial effect of the Put Option

It is estimated that, if the Put Option is exercised pursuant to the Shareholders’ Agreement, the Group will record a net gain of not less than HK$340 million. The Company’s consolidated net assets attributable to Shareholders will be increased by not less than HK$340 million. The assets (excluding cash and cash equivalents) of the Group will be decreased by approximately HK$220 million and the net debt of the Group will be decreased by HK$792 million. The Company believes that the exercising of the put Option in full will not have significant effect on the Group’s future earnings.

REASONS FOR THE RATIONALISATION AND THE MTL DISPOSAL

At present, MTL indirectly holds 10% interest in SCT1 and 9.8% interest in SCT2, and the remaining interest in SCT1 and SCT2 are owned by CMH, Swire and P&O, while SCT3 is owned by CMH. The Rationalisation enables the SCT1, SCT2 and SCT3 to be operated under a single management as a single entity which, in the belief of the Directors, will enhance the operating efficiency and economic values to the Shareholders. It is further envisaged that the resultant consolidated position will help improve the overall operational efficiency of the Mega SCT terminals through cost effective use of terminal resources.

The Group expects that Rationalisation will enable the MTL Group to maintain its growth strategy in the PRC and strengthen its investment portfolios in the western Shenzhen ports.

– 18 –

LETTER FROM THE BOARD

If Swire/P&O Disposal has taken place but Stage 1 Completion does not take place on or before 15 March 2007 or such other date as the parties may agree in writing, the relative influence of MTL attributable to the MTL Equity Interests will be reduced resulting from CMH’s gaining control upon completion of Swire/P&O Disposal and such interests in SCT1 and SCT2 will not be regarded as meaningful shareholding in the opinion of the board of directors of MTL. The boards of directors of each of the Company and MTL believe that the MTL Disposal will provide a fall back position to enable the MTL Group to dispose of the interest in SCT1 and SCT2 on the same terms as those of the Swire/P&O Disposal if Stage 1 Completion fails to take place.

GENERAL

The principal business activities of the Group are ownership of properties for letting, property development and investment, container terminals and communications, media and entertainment.

REGULATORY ASPECTS

As CMH is a substantial shareholder of MTL, it is a connected person of the Company under the Listing Rules, and the transactions contemplated under the MTL Disposal, the Rationalisation Agreement and the Shareholders Agreement (including the grant of the Put Option) constitute connected transactions of the Company under the Listing Rules.

Since one or more of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement will exceed the 2.5% threshold under Rule 14A.34 of the Listing Rules, the transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement (including the grant of the Put Option) will be subject to the reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.34 of the Listing Rules. Furthermore, since one or more of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement (including the grant of the Put Option) also exceed 5% but are below 25%, such transactions also constitute a discloseable transaction for the Company.

As one or more of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the transactions contemplated under the MTL Disposal will exceed the de minimis level, being 0.1% or HK$1,000,000, under Rule 14A.33(3) of the Listing Rules but below the 2.5% threshold under Rule 14A.34 of the Listing Rules, the transactions contemplated under the MTL Disposal are exempt from the Independent Shareholders’ approval requirement under Rule 14A.34 of the Listing Rules but will be subject to the reporting and announcement requirements under Rule 14A.46 of the Listing Rules.

INDEPENDENT SHAREHOLDERS’ APPROVAL

The Company has submitted an application to the Stock Exchange for, and the Stock Exchange has granted, a waiver from the requirement to hold general meeting under Rule 14A.35(4) of the Listing Rules to approve the Rationalisation and the Shareholders Agreement on the bases that (i) to the best of the Directors’ knowledge, information and belief having made reasonable enquiries, no Shareholder is required to abstain from voting if

– 19 –

LETTER FROM THE BOARD

the Company were to convene a general meeting for the approval of the transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement; and (ii) the Company has obtained a written approval from a closely allied group of shareholders of the Company holding in aggregate 1,223,938,662 Shares (representing 50.00001% in nominal value of the Shares) having the right to attend and vote at the Company’s general meeting, the Stock Exchange has, on application by the Company, granted a waiver to the Company from the requirement to hold general meeting under Rule 14A.35(4) of the Listing Rules.

The closely allied group of shareholders of the Company include Mr. Gonzaga Wei Jen Li, who holds 686,549 Shares and is a director of Wheelock and the Company; Mr. Stephen Tin Hoi Ng, who holds 650,057 Shares and is a director of Wheelock and the Company; Mr. Tze Yuen Ng, who holds 178,016 Shares and is a director of WPL (a subsidiary of Wheelock); Lynchpin Limited, which holds 172,337,029 Shares and is a wholly-owned subsidiary of WPL, which in turn is a subsidiary of Wheelock; and WF Investment Partners Limited, which holds 1,050,087,011 Shares and is an indirect wholly-owned subsidiary of Wheelock.

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee set out in this circular which contains the recommendations of the Independent Board Committee to the Independent Shareholders on the terms of the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder; and (ii) the letter from the Independent Financial Adviser set out in this circular which contains its recommendations to the Independent Board Committee and Independent Shareholders in relation to the terms of the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder. The Directors (excluding the independent non-executive Directors whose opinion is included in the letter from the Independent Board Committee set out on pages 21 to 22 of this circular) are of the view that the Rationalisation Agreement and the Shareholders Agreement have been entered into on normal commercial terms, are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors (including the independent non-executive Directors) are also of the view that the terms of the MTL Disposal are on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

Your attention is also drawn to the general information set out in the appendix of this circular.

Yours faithfully, For and on behalf of

The Wharf (Holdings) Limited Peter K. C. Woo Chairman

– 20 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [50 x 35] intentionally omitted <==

THE WHARF (HOLDINGS) LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 4)

26 January 2007

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

We refer to the circular to the Shareholders dated 26 January 2007 (the “ Circular ”), of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meanings given to them in the definition section of the Circular.

In compliance of the Listing Rules, we have been appointed to advise the Independent Shareholders in relation to the entering into of the Rationalisation Agreement, the Shareholders Agreement and the related transactions contemplated thereunder which constitute connected and discloseable transactions for the Company under the Listing Rules. In this connection, Somerley Limited has been appointed as an Independent Financial Adviser to advise on whether the terms in relation to the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and whether the Rationalisation Agreement, Shareholders Agreement and the related transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Details of, and the reasons for, the entering into of the Rationalisation Agreement, the Shareholders Agreement and the related transactions contemplated thereunder are contained in the Letter from the Board set out on pages 6 to 20 of the Circular.

We acknowledge that the Company has applied to the Stock Exchange for a waiver from the requirement to hold general meeting under Rule 14A.35(4) of the Listing Rules to approve the Rationalisation Agreement, and Shareholders Agreement and the transactions contemplated thereunder on the basis that (i) to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, none of the Shareholders or their associates has any interest in the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder, and accordingly, no Shareholder needs to abstain from voting as regards the Rationalisation Agreement, Shareholders Agreement and the transactions contemplated thereunder; and (ii) a closely allied group of the Shareholders holding in aggregate 1,223,938,662 Shares (representing 50.00001% in

– 21 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

nominal value of the Shares) having the right to attend and vote at the Company’s general meeting, has approved the Rationalisation Agreement, the Shareholders Agreement and the transactions contemplated thereunder.

Having considered the terms of the Rationalisation Agreement and the Shareholders Agreement, and the advice and recommendation of the Independent Financial Adviser, in our opinion, the terms of the Rationalisation Agreement and Shareholders Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned, and the entering into of the Rationalisation Agreement, the Shareholders Agreement and the related transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole.

Yours faithfully, For and on behalf of Independent Board Committee

Paul M. P. Chan Edward K. Y. Chen Independent non-executive Independent non-executive Director Director Vincent K. Fang Independent non-executive Director

Raymond K.F. Ch’ien Independent non-executive Director James E. Thompson Independent non-executive Director

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Somerley Limited prepared for incorporation in this circular.

SOMERLEY LIMITED

10th Floor The Hong Kong Club Building 3A Chater Road Central Hong Kong

26 January 2007

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement (including the grant of the Put Option). Details of the Rationalisation and the grant of the Put Option are contained in the circular to the shareholders dated 26 January 2007 (the “Circular”), of which this letter forms part, and are summarised below. Unless otherwise defined, terms used in this letter shall have the same meanings as defined in the Circular.

The transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement constitute discloseable transactions for the Company under the Listing Rules. As CMH is a substantial shareholder of MTL, which is a subsidiary of the Company, CMH is a connected person of the Company under the Listing Rules, and the transactions contemplated under the MTL Disposal, the Rationalisation Agreement and the Shareholders Agreement (including the grant of the Put Option) constitute connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the MTL Disposal are below the 2.5% threshold under Rule 14A.34 of the Listing Rules, the MTL Disposal is exempt from the Independent Shareholders’ approval requirement under the Listing Rules. However, the transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement are subject to approval by the Independent Shareholders. In this case, as there is no conflict of interest, no Shareholder is required to abstain from voting in the general meeting for approving the Rationalisation Agreement and Shareholders Agreement.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company has already obtained a written approval of the Rationalisation Agreement and the Shareholders Agreement from a closely allied group of Shareholders holding in aggregate 1,223,938,662 Shares (representing just over 50% in nominal value of the Shares). On this basis, the Company has applied to the Stock Exchange for a waiver (the “Waiver”) from the requirement to hold a general meeting of the Shareholders and for permission for the shareholders’ approval of the Rationalisation to be given in writing under the terms of Rule 14A.43 of the Listing Rules. The Stock Exchange granted the Waiver on 20 December 2006.

The Independent Board Committee comprising Mr. Paul M. P. Chan, Professor Edward K. Y. Chen, Dr. Raymond K. F. Ch’ien, Hon Vincent K. Fang and Mr. James E. Thompson, all of whom are independent non-executive Directors, has been formed to give an opinion to the Independent Shareholders as regards the fairness and reasonableness of the terms of the Rationalisation Agreement and the Shareholders Agreement. We, Somerley Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

We are not connected with the Company, CMH or their respective substantial shareholders or associates and accordingly are considered suitable to give independent financial advice on the terms of the Rationalisation Agreement and the Shareholders Agreement. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, CMH or their respective substantial shareholders or associates.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the directors and management of the Group, which we have assumed to be true, accurate and complete. We have sought and received confirmation from the Directors that to their best knowledge all material relevant information has been supplied to us and no material facts have been omitted which would make any statements made to us misleading. We consider that the information we have received is sufficient for us to reach the opinion set out at the end of this letter and to justify our relying on such information. We have no reason to doubt the truth and accuracy of the information provided to us or that any material information has been omitted or withheld. However, we have not conducted any independent investigation into the business and financial position of the Group or of SCT1 or of SCT2 or of SCT3 or of the Land Co.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion on the terms of the Rationalisation Agreement and the Shareholders Agreement, we have taken into consideration the following principal factors and reasons:

1. MTL and CMH

MTL is an approximately 68%-owned subsidiary of the Company. The other shareholders are CMH (27%) and Jebsen Securities Ltd. (5%). MTL was one of the original operators when Hong Kong established the container terminal in Kwai Chung. In 2005, MTL handled throughput of approximately 5 million twenty-foot equivalent units (TEUs).

CMH, which is a member of the China Merchants Group, is principally engaged in ports operations and ports-related operations and is listed in Hong Kong. China Merchants Group established the Shekou Industrial Zone in Shekou, western Shenzhen in the late 1970s. The container terminals of SCT1, SCT2 and SCT3 located at Shekou, which are at present jointly managed by CMH, MTL, Swire and P&O, have grown in recent years and in 2005 handled 2.43 million TEUs, an increase of approximately 14% over 2004. Details of its nine berths are set out below.

2. Ownership, business and financial results of SCT1, SCT2, SCT3 and Land Co.

(i) Ownership

The present capacity and the percentage attributable ownership of SCT1, SCT2, SCT3 and Land Co. are as follows:

				Total
		No. of	Design	quay		Swire
		berths	capacity	length	MTL	group	P&O	CMH	Total
			(’000
			TEUs)	(meters)	%	%	%	%	%
SCT1		2	800	650	10.00	17.50	22.50	50.00	100.00
SCT2		2	1,200	700	9.80	17.15	22.05	51.00	100.00
SCT3		5*	2,500	2,090	–	–	–	100.00	100.00
Land	Co.	–	–	–	–	–	–	100.00	100.00

two operating and three under construction or to be developed

A fuller diagram of the present ownership structure is set out on page 7 of the Circular.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Business

SCT1 is principally engaged in the operation of Berths No. 1 and 2 at Jetty III of the Shekou Container Terminals in Shenzhen, the PRC. The design annual capacity of SCT1 is approximately 800,000 TEUs. SCT1 was granted operating rights up to the year 2019. SCT2 is principally engaged in the operation of Berths No. 3 and 4 at Jetty III of the Shekou Container Terminals. The design annual capacity of SCT2 is approximately 1,200,000 TEUs. SCT2 was granted operating rights up to the year 2053.

The principal business of SCT3 is to construct, develop and operate Berths No. 5, 6, 7, 8 and 9. Berths No. 5 and 6 came into operation in 2005, while Berths No. 7, 8 and 9 are still under construction or to be developed. The total design annual capacity of SCT3 is approximately 2,500,000 TEUs. SCT3 was granted operating rights up to the year 2053. Land Co. owns two pieces of land in Shekou with a total area of approximately 180,000 square meters which are needed for use by SCT3, including as a gatehouse. Land Co.’s net assets are relatively minor, having a book value of approximately HK$16 million as at 30 November 2006.

(iii) Financial results

Set out below is audited financial information on each of SCT1, SCT2 and SCT3 for the two years ended 31 December 2004 and 31 December 2005 and unaudited financial information on Land Co. as at 30 November 2006 prepared in accordance with the general accepted accounting principles (“GAAP”) in the PRC. MTL advised us that there are no significant differences between PRC GAAP and Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants in respect of the financial information of SCT1, SCT2, SCT3 and Land Co.

SCT1

	As at	As at
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Total assets	1,540	1,428
Net asset value	903	1,194

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	For the	For the
	year ended	year ended
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Turnover	464	512
Net profit before tax and extraordinary
items	306	340
Net profit after tax	306	315
*SCT2*
	As at	As at
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Total assets	1,809	1,762
Net asset value	877	936
	For the	For the
	year ended	year ended
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Turnover	477	549
Net profit before tax and extraordinary
items	300	329
Net profit after tax	300	329

The assets of SCT1 and SCT2 mainly comprise interests in land, building and container terminals, and plant and equipment for terminal operation. PRC experienced strong economic growth in 2005 with its gross domestic product increased by approximately 9.9% over 2004. The accelerating PRC economy had a positive impact on its imports and exports. This led to continuing economic development in the Pearl River Delta Region, which in turn benefited the ports in the Shenzhen district. As a result, more throughput volume was handled by SCT1 and SCT2 in 2005 and both the turnover and the net profit after tax increased in 2005.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

SCT3

	As at	As at
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Total assets	607	1,548
Net asset value	99	508
	For the	For the
	year ended	year ended
	31 December	31 December
	2004	2005
	HK$’ million	HK$’ million
Turnover	Nil	96
Net profit before tax and extraordinary
items	Nil	43
Net profit after tax	Nil	36

The assets of SCT3 mainly comprise interests in building and container terminals, and plant and equipment for terminal operation. As SCT3 only commenced operation in July 2005, the above financial information for the year ended 31 December 2005 represents six months figures only.

Land Co.

Land Co. was incorporated in December 2005. It is expected to commence operation around mid 2007. The unaudited net asset value of Land Co. is approximately HK$16 million as at 30 November 2006 mainly representing the value of the two pieces of land after deducting a shareholder loan due to CMH.

3. Elements in the Rationalisation

(i) Rationalisation of the shareholdings in SCT1, SCT2, SCT3 and Land Co.

MTL and CMH have agreed to rationalise and consolidate their respective equity interests in SCT1, SCT2, SCT3 and Land Co. to form a new joint venture company (Mega SCT) whereby Mega SCT will act as the holding company for 100% interest in each of SCT1, SCT2, SCT3 and Land Co. To achieve this, CMH will first buy the stakes in SCT1 and SCT2 currently owned by Swire and P&O for HK$3,168 million under the terms of the Swire/P&O Disposal.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Rationalisation should be seen as, in effect, an acquisition by MTL of a further significant interest in the container terminals at Shekou. MTL now holds two approximately 10% stakes in SCT1 and SCT2 which have been valued for the purpose of the Rationalisation at HK$792 million. In addition to contributing these stakes to Mega SCT, MTL will invest a further HK$3,168 million (i.e. the same as the consideration under the Swire/P&O Disposal) to buy a further 24% (initially) in Mega SCT. MTL will also have a management influence in Mega SCT and will equity account for its interest in Mega SCT.

(ii) Four stages of completion

Completion of the Rationalisation Agreement will take place in four stages. Upon Stage 1 Completion, the new structure of Mega SCT will be in place but subject to the gradual decrease of MTL’s interest in Mega SCT from 30% to 20% as construction and development of Berths No. 7, 8 and 9 are completed by CMH.

Stage 1 Completion

MTL will transfer the MTL Equity Interests, representing 10% indirect interest in SCT1 and 9.8% indirect interest in SCT2, to Mega SCT in consideration of 6% interest in Mega SCT.

CMH will inject the following interests into Mega SCT in exchange for 94% interest in Mega SCT:

(1) the CMH Group’s existing 50% interest in SCT1 and 51% interest in SCT2;
(2) the Swire Equity Interests and the P&O Equity Interests which are to be acquired by CMH under the Share Purchase Agreement. The Share Purchase Agreement is subject to normal conditions; and
(3) the CMH Group’s 100% interests in each of SCT3 and Land Co.

The MTL Group will also purchase from the CMH Group a 24% interest in Mega SCT for a cash consideration of HK$3,168 million payable upon Stage 1 Completion. In effect, MTL could be regarded as purchasing 30% interest in Mega SCT which controls the entire interests of SCT1, SCT2, SCT3 and Land Co. in consideration of its MTL Equity Interests and HK$3,168 million cash at Stage 1 Completion. MTL currently intends to fund such consideration as to approximately HK$300 million by its internal resources and as to approximately HK$2,868 million by bank borrowings.

Immediately following Stage 1 Completion, Mega SCT will hold a 100% interest in each of SCT1, SCT2, SCT3 and Land Co., and Mega SCT itself will be owned as to 30% by the MTL Group and 70% by the CMH Group.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Remaining three stages of completion

Stage 2 Completion, Stage 3 Completion and Stage 4 Completion will take place after Berths No. 7, 8 and 9 having been completed and become commercially operational respectively. As advised by the management of MTL, Berth No. 7 is expected to be completed by December 2007. The completion of Berths No. 8 and 9 will depend on the progress of the construction work and the management of MTL currently expects that Berth No. 8 will be completed by December 2008 and the whole development will be completed by the end of December 2009.

Upon completion of each relevant stage, the MTL Group will transfer a further interest in Mega SCT to the CMH Group (as illustrated in the table below) for a nominal consideration of HK$1 and, if applicable, the payment of the Adjustment Sum by CMH. MTL will receive the Adjustment Sum if the construction of the relevant berth has been funded by debt.

Set out below is the shareholding structure of Mega SCT upon completion of different stages:

Shareholders of Mega SCT MTL CMH Total Expected completion date	Upon Stage 1 Completion % of equity interests held 30% 70% 100% March 2007	Upon Stage 2 Completion % of equity interests held 27% 73% 100% End 2007	Upon Stage 3 Completion % of equity interests held 25% 75% 100% End 2008	Upon Stage 4 Completion % of equity interests held 20% 80%
				100%

				End 2009

As illustrated above, the interests held by MTL in Mega SCT will decrease gradually from 30% to 20%. A fuller diagram of the shareholding structure on Stage 4 Completion is set out under the paragraph headed “Shareholding structure after Stage 4 Completion” in the letter from the Board in the Circular.

4. Valuation basis for the Rationalisation

The consideration for the transfer of shareholdings in SCT1, SCT2, SCT3, Land Co. and Mega SCT involved in the Rationalisation was determined and agreed between the relevant parties after arm’s length negotiations by reference to the profits of SCT1 and SCT2 for the year ended 31 December 2005 (as set out above) and the price-earnings multiples of port operating companies in the market. The consideration represents a price-earnings multiple of 12.4 times the SCT1 and SCT2 profits after tax.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Comparable companies

In order to assess whether the price-earnings multiple of 12.4 times is fair and reasonable, we have identified four companies (the “Comparable Companies”) listed on the Main Board of the Stock Exchange which are principally engaged in operating PRC ports. The table below illustrates the comparison of the price-earnings multiple represented by the Rationalisation with that of the Comparable Companies.

		Audited annual
	Market	consolidated/
	capitalisation as	combined profit	Price-
	at the Latest	attributable to	earnings
	Practicable Date	the shareholders	multiple
Company	(Note 1)	(Note 2)	(Note 3)
	HK$ million	HK$ million	times
CMH (stock code: 144)	69,828.2	2,364.0	29.5
Dalian Port (PDA) Company
Limited (stock code: 2880)	12,142.9	419.7	28.9
Tianjin Port Development
Holdings Limited (stock
code: 3382)	5,002.8	147.3	34.0
Xiamen International Port
Company Limited (stock
code: 3378)	6,406.7	243.6	26.3
Average			29.7
The Rationalisation			12.4

Notes:

Source: Bloomberg.
The figures are extracted from the latest published annual report or prospectus of the respective Comparable Companies. Figures in Renminbi are translated into HK$ at the rate of RMB1 = HK$1.
The price-earnings multiples of the Comparable Companies are calculated based on their audited annual consolidated/combined profit attributable to their respective shareholders and their closing market capitalisation as at the Latest Practicable Date.

As shown in the above table, the price-earnings multiple represented by the Rationalisation of 12.4 times is lower than those of the Comparable Companies ranging from approximately 26.3 times to 34.0 times, with a mean of approximately 29.7 times. In the context of an increase in the Company’s ports interests at this price, we consider the basis of the consideration favourable to the Company.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We are also informed that the COSCO Ports (Holdings) Limited sold 17.5% of SCT1 to CMH in March 2005 at a price which reflected approximately 11.4 times the profits after tax of SCT1 in 2004. However, since that date we consider the rating of port operating companies has increased significantly and is more accurately reflected by the current market ratings of the Comparable Companies.

On the basis of the consideration of HK$3,168 million paid by MTL to purchase the 24% interest in Mega SCT, the entire Mega SCT holding 100% of SCT1, SCT2 and SCT3 (together with Land Co. which forms an integral part of the operation of the terminals) is valued at HK$13,200 million at Stage 1 Completion. Based on the aggregate profit after tax of HK$644 million for SCT1 and SCT2 for the year ended 31 December 2005 and the price-earnings multiple represented by the Rationalisation of 12.4 times, SCT1 and SCT2 with four berths in operation are valued at approximately HK$8,000 million. Accordingly, the estimated value of SCT3 with Berths No. 5 and 6 in operation is approximately HK$5,200 million (i.e. the difference between HK$13,200 million and HK$8,000 million). On this basis, the value attached to each operating berth of SCT3 is higher than that of SCT1 and SCT2. This is partly due to the larger size of Berths No. 5 and 6. The quay length of Berths No. 1 and 2 is approximately 325 meters each, that of Berths No. 3 and 4 is approximately 350 meters each and that of Berths No. 5 and 6 is approximately 415 meters each. Vessels with larger size can be berthed in a terminal with a longer quay length. In addition, each of Berth No. 1 to 4 is now equipped with four sets of cranes while each of Berth No. 5 and 6 has the capability to accommodate more than four sets of cranes given the longer quay length, thereby increasing the handling capacity. We understand from the management of MTL that in this industry, quay length is one of the typical indications of the actual throughput handling capability of a berth, and in turn the potential value of the berth. In addition to the longer quay length, more advanced container handling facilities and equipment are installed in Berths No. 5 and 6 and SCT3 will in due course have three more new berths. Accordingly, a higher value per operating berth is accredited to SCT3. We consider this basis is reasonable.

(b) Adjustment Sum for SCT3 and Land Co.

CMH and MTL have also agreed that the interests in SCT3 and Land Co. will be injected into Mega SCT on a debt-free basis. Accordingly, CMH will pay an adjustment sum to MTL in the event that such interests are not debt free as at the respective date of completion of stages 1 to 4. We consider such adjustment mechanism protects the interests of the Company.

(c) Nominal consideration for transfer of interests in Mega SCT upon further stage completions

Upon each of Stage 2 Completion, Stage 3 Completion and Stage 4 Completion, the MTL Group will transfer a 3%, 2% and 5% interest in Mega SCT respectively to the CMH Group, in each case, for a nominal consideration of HK$1 and, if applicable, the payment of the Adjustment Sum by CMH.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The consideration for the transfer of interests in Mega SCT by the MTL Group was determined and agreed between the parties after arm’s length negotiations with reference to the sole obligations of CMH in financing the construction and development costs of Berths No. 7, 8 and 9. As mentioned above, quay length indicates the actual throughput handling capability of a berth, and in turn the potential value of the berth. The general principle underlying the transfer is that the economic benefits represented by quay length of the berths held by MTL in the terminals through Mega SCT along various stages of completion should be broadly the same.

Taking into account that considerable capital will be required to be injected for the development of Berths No. 7, 8 and 9, we consider it reasonable for the basis of valuation to take into account the economic value of Berths No. 7, 8 and 9 upon their respective completions.

5. Reasons for the Rationalisation

The Rationalisation is designed to achieve the following objectives:

(i) Enhancing operating efficiency and thus economic value to the Shareholders

At present, MTL indirectly holds 10% interest in SCT1 and 9.8% interest in SCT2, and the remaining interests in SCT1 and SCT2 are owned by CMH, Swire and P&O. SCT3 is currently wholly-owned by CMH. The Rationalisation will enable SCT1, SCT2 and SCT3 to be operated under a single holding company managed by the same management team, thereby enhancing the operating efficiency through cost effective use of terminal resources and increasing economic value to the Shareholders.

(ii) Maintaining growth strategy

The Group expects that Rationalisation will enable the MTL Group to maintain its growth strategy in the PRC and strengthen its investment portfolio in the western Shenzhen ports. Under the Rationalisation, MTL will invest a further approximately HK$3.2 billion in the Shekou container terminals and will increase its interest ultimately to 20% in Mega SCT from approximately 10% interest in SCT1 and SCT2 at present.

(iii) MTL Disposal as a fall back position

In the event that only the Swire/P&O Disposal takes place but Stage 1 Completion does not, the relative influence of MTL in SCT1 and SCT2 will be reduced as a result of the consolidation of control by CMH upon completion of Swire/P&O Disposal. The approximately 10% interests in SCT1 and SCT2 will not constitute a meaningful shareholding in the opinion of the board of directors of MTL if all the other shares are controlled by CMH. The boards of directors of each of the Company and MTL believe that the MTL Disposal will provide an acceptable fall back position to enable the MTL Group to dispose of its interests

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

in SCT1 and SCT2 on the same terms as those of the Swire/P&O Disposal. However, the conditions of the Stage 1 Completion appear to us to be normal ones and therefore we consider it likely that the Stage 1 Completion will take place.

6. Principal terms of the Shareholders Agreement

Upon Stage 1 Completion, MTL and CMH will enter into the Shareholders Agreement to regulate the management of Mega SCT and the rights of its shareholders. Set out below are the principal terms of the Shareholders Agreement:

(a) Board representation

The board of directors of each of Mega SCT and its subsidiaries shall have up to 10 directors. Each of MTL and CMH will be entitled to appoint one director for every 10% of the issued shares of Mega SCT held by it. Accordingly, the number of representatives of MTL and CMH on the board of directors of Mega SCT will be pro rata to the then respective shareholdings to be held by them. MTL will therefore be able to appoint at least two directors (initially three), one of whom shall be Vice Chairman.

(b) Transfer of shares

In addition, the Shareholders Agreement provides that the transfer of shares in Mega SCT by any shareholder to any persons (other than its group companies or qualified associates) shall be subject to the pre-emptive rights of the other shareholder.

In the event that the transferor is CMH and completion of the sale would result in CMH and its subsidiaries ceasing to hold more than 50% of Mega SCT, the transfer will be subject to a “tag along” right in favour of MTL to require the transferee to purchase all its shares in Mega SCT at a price not less than, and upon terms no less favourable than, those offered to CMH.

(c) Profit distribution

The Shareholders Agreement provides that Mega SCT and each of its members shall distribute profits within four months of the end of their respective fiscal year. It is the policy of Mega SCT and each of its members to distribute 100% of their respective distributable profit. We consider such arrangement will ensure that MTL receives a cash return equal to its attributable percentage of distributable profit on a timely basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) The Put Option

Pursuant to the Shareholders Agreement, MTL has a put option to require CMH to purchase all its shares in Mega SCT (representing 30% of the issued share capital of Mega SCT) for one calendar year from the date of Stage 1 Completion for an amount equal to HK$3,960 million.

The following are the key terms of the Put Option:

(i) Exercise price

The Put Option price of HK$3,960 million represents the aggregate of (i) the consideration of HK$3,168 million payable by MTL to CMH for the transfer of the 24% interest in Mega SCT as part of the Stage 1 Completion as described above; and (ii) the value of HK$792 million attributed to the 6% interest in Mega SCT upon Stage 1 Completion.

In other words, the exercise price is the cost to MTL in acquiring its interests in Mega SCT. We consider that such fixed put option price minimises the downside risk to the Group by providing it with an agreed mechanism to sell its minority stake in Mega SCT at cost in the event the performance of Mega SCT or the other arrangements are not in line with expectations.

(ii) Put Option exercise period

The Put Option is exercisable at any time during the one calendar year period from and including the date of Stage 1 Completion. As discussed with the management of the Company, whether or when MTL will exercise the Put Option will depend on a number of factors including the future performance and prospects of Mega SCT. We consider the one-year period provides a reasonable time frame for MTL to assess the performance of Mega SCT after the change in shareholding structure.

(iii) Dividend relating to the option shares

Upon completion of the sale and purchase of the option shares, CMH will pay to MTL a sum equal to any dividend to which MTL would have been entitled in respect of the distributable profits of Mega SCT during the period from the date of Stage 1 Completion to the date of completion of the sale and purchase of the option shares. We consider this arrangement is in the interests of the Company in that it will receive any attributable income for the period as well as recovering its cost.

Based on the above, we are of the view that the terms of the Shareholders Agreement (including the Put Option) are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Effects of the Rationalisation on the Group

(i) Effect on the Group’s interests in SCT1, SCT2, SCT3 and Land Co.

Before the Rationalisation, MTL, which is 67.94% owned by the Group, holds attributable interests of 10% in SCT1 and 9.8% in SCT2 respectively. Immediately upon the Stage 1 Completion, MTL will be interested in 30% of Mega SCT, which in turn will control all of SCT1, SCT2, SCT3 and Land Co. However, this interest will decrease to 27%, 25% and 20% upon Stage 2 Completion, Stage 3 Completion and Stage 4 Completion respectively. Following the Stage 4 Completion, MTL will hold an equity interest of 20% of Mega SCT and in turn attributable 20% interests in SCT1, SCT2, SCT3 and Land Co. respectively.

The Put Option will be granted to MTL pursuant to the Shareholders Agreement for a period of 1 year after Stage 1 Completion. If the Put Option is exercised, the Company will cease to be interested in Mega SCT.

(ii) Earnings

In accordance with the accounting policy of the Group, Mega SCT will be treated as an associated company of MTL and its results will be accounted for in the consolidated financial statements of the Group under the equity method following various stages of completion. As mentioned above, MTL’s interests in container terminal operation at Shekou will increase as a result of the Rationalisation. Taking into account the historical profitable performance of SCT1, SCT2 and SCT3, it is expected that the results of the Group will benefit as a result of the Rationalisation but not to a significant extent.

In the event of the MTL Disposal, or if the Put Option is exercised, MTL will record a one-off gain before expenses estimated to be not less than approximately HK$500 million. Taking into account the Company’s 67.94% interests in MTL Group, upon completion of the MTL Disposal, the Company is expected to record an estimated gain on the MTL Disposal before expenses of not less than approximately HK$340 million. The Company believes that completion of the MTL Disposal or exercising the Put Option will not have a significant effect on the Group’s future earnings.

(iii) Net assets

According to the interim report of the Company for the six months ended 30 June 2006, the unaudited net assets of the Group as at 30 June 2006 were approximately HK$74,485 million. The management of the Company expects that save for the above possible gain which would arise in the event the MTL Disposal happens, the Rationalisation will not have a material effect on the net asset position of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Rationalisation is expected to give rise to goodwill equal to the total consideration paid less the fair value of Mega SCT acquired. In accordance with the accounting policy of the Group, goodwill is stated at cost less accumulated impairment loss. The management of the Group have advised us that the fair value of Mega SCT will only be determined upon the various stages of completion and they are not in a position to estimate the amount of goodwill at present. As the value of container terminal operations is normally assessed by earnings rather than asset base, we consider the generation of goodwill is common and acceptable in transactions of this type.

If the MTL Disposal takes place or the Put Option is exercised, the management of the Company expects that the assets (excluding cash and cash equivalents) and the net debt of the Group will be decreased by approximately HK$220 million and HK$792 million respectively.

(iv) Analysis of gearing of the Group

As at 30 June 2006, the net debts of the Group were approximately HK$16.4 billion (representing the total debts of approximately HK$19.5 billion less approximately HK$3.1 billion in deposits and cash) and the ratio of net debts over total equity was approximately 22.1%. Taking into account the increase in net debts of approximately HK$3.2 billion, the ratio of net debts over total equity of the Group after the Rationalisation is expected to become 26.3%.

Taking into account the relatively low level of the gearing ratio of the Group, we consider that the increase in the gearing ratio of the Group is modest and acceptable in the context of the Rationalisation.

DISCUSSION AND ANALYSIS

At present, MTL, a 67.94% owned subsidiary of the Company, owns about 10% each in SCT1 and SCT2. These two companies each operate two container berths in Shekou, in the western part of Shenzhen, and are performing satisfactorily.

CMH effectively controls both SCT1 and SCT2, and wholly owns SCT3, which has two operating container berths and three more under construction or to be developed. The throughput of the Shekou berths has recently shown growth. CMH is also a substantial shareholder of MTL, which makes transactions between CMH and the Group “connected transactions” under the Listing Rules.

Under the Rationalisation, MTL will exchange its interests in SCT1 and SCT2 (valued at HK$792 million) for 6% of a new holding company, Mega SCT, controlled by CMH, which will inject the remaining interests in SCT1 and SCT2 and also SCT3 and Land Co. into Mega SCT. MTL will also buy 24% (initially) of Mega SCT from CMH for approximately HK$3.2 billion. MTL will use its own resources (cash and borrowings) to pay for this stake, without any assistance from the Company. Because CMH will solely finance the three berths under development, MTL’s interest in Mega SCT will fall to 20% on the final stage of completion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We agree with the Directors’ rationale that consolidating the operations of the berths should increase efficiency and so bring economic benefits to the Shareholders. In addition, MTL will increase its participation from 10% now to a more significant 20% (initially 30%) and continue to equity account for this holding. The valuations of the berths used to arrive at this percentage are mainly based on 2005 earnings and a price earnings multiple of 12.4 times, which we consider lower than (i.e. favourable to MTL as a net purchaser) the current market ratings of the Comparable Companies we have identified. In addition, MTL will have the right to put its interest in Mega SCT to CMH at cost for a year after the Stage 1 Completion under the terms of the Shareholders Agreement, which also contains protections for MTL on board representation, pre-emption, “tag along” and dividend payments.

Transactions of the size and type of the Rationalisation and the Shareholders Agreement would normally require approval at a meeting of the Shareholders. However, as all Shareholders would be eligible to vote at such a meeting and the Company has already obtained written consent from holders of over 50% of the issued Shares, the Stock Exchange has waived this requirement and no meeting of the Shareholders will be required. Stage 1 Completion is expected in around March 2007 but if such completion does not take place, MTL will instead sell its interests in SCT1 and SCT2 to CMH (at the same price of HK$792 million adopted as the basis for the Rationalisation) as MTL would not wish to remain in a situation where it is the only minority shareholder and CMH controls the rest of the interests in the berths. In that circumstances, MTL will record a one-off gain before expenses of not less than approximately HK$500 million.

OPINION

Based on the above principal factors and reasons, we consider that the Rationalisation Agreement and the Shareholders Agreement are on normal commercial terms which are fair and reasonable to the Independent Shareholders and that transactions contemplated under the Rationalisation Agreement and the Shareholders Agreement are in the interests of the Company and the Shareholders as a whole.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M.N. Sabine Chairman

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GENERAL INFORMATION

APPENDIX

RESPONSIBILITY STATEMENT

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

DISCLOSURE OF DIRECTORS’ INTERESTS

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

		No. of	Percentage
Name of Director	Nature of Interest	Shares	of Holdings
The Company
Mr. Gonzaga W.J. Li	Personal interest	686,549	0.0280%
Mr. Stephen T.H. Ng	Personal interest	650,057	0.0266%
Mr. T.Y. Ng	Personal interest	178,016	0.0073%
i-CABLE Communications	Limited
Mr. Gonzaga W.J. Li	Personal interest	68,654	0.0034%
Mr. Stephen T.H. Ng	Personal interest	1,065,005	0.0527%
Mr. T.Y. Ng	Personal interest	17,801	0.0009%
Modern Terminals Limited
Mr. Hans Michael Jebsen	Corporate interest	3,787	5.4%

Note: The 3,787 shares in MTL regarding “Corporate interest” in which Mr. Hans Michael Jebsen was taken to be interested as stated above was the interest held by a corporation in general meetings of which Mr. Jebsen was either entitled to exercise (or was taken under Part XV of the SFO to be able to exercise) or control the exercise of one-third or more of the voting power.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive (if any) of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such

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GENERAL INFORMATION

APPENDIX

provisions of the SFO), or pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS

Given below are the names of all parties, other than person(s) who is/are Director(s) of the Company, which were, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital of the Company, the respective relevant numbers of shares in which they were, and/or were deemed to be, interested (all being long positions) as at the Latest Practicable Date and required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register kept by the Company under section 336 of the SFO and the percentages which the shares represented to the issued share capital of the Company:

			Percentage
Name		No. of Shares	of Holdings
(i)	Lynchpin Limited	171,974,029	(7.03%)
(ii)	Star Attraction Limited	171,974,029	(7.03%)
(iii)	Wheelock Properties Limited	173,652,029	(7.09%)
(iv)	Myers Investments Limited	173,652,029	(7.09%)
(v)	Wheelock Corporate Services Limited	173,652,029	(7.09%)
(vi)	WF Investment Partners Limited	1,051,765,051	(42.97%)
(vii)	Wheelock and Company Limited	1,222,896,080	(49.96%)
(viii)	HSBC Trustee (Guernsey) Limited	1,222,896,080	(49.96%)
(ix)	JPMorgan Chase & Co.	146,448,525	(5.98%)

Notes: For the avoidance of doubt and double counting, it should be noted that duplication occurs in respect of the shareholdings stated against parties (i) to (viii) above to the extent that the shareholding stated against party (i) above was entirely duplicated or included in that against party (ii) above, with the same duplication of the shareholdings in respect of (ii) in (iii), (iii) in (iv), (iv) in (v), (v) in (vi), (vi) in (vii) and (vii) in (viii).

Save as disclosed in this circular, as at the Latest Practicable Date and so far as is known to the Directors or chief executive (if any) of the Company, no other person had, or was deemed or taken to have, any interests or short positions in shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

MATERIAL ADVERSE CHANGES

The Directors are not aware of any material adverse changes in the financial and trading position of the Group since 31 December 2005, the date of which the latest audited financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX

COMPETING INTERESTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and their respective associates has any interests in a business, which competes or may compete with the business of the Group.

Five Directors of the Company, namely, Mr. Peter K.C. Woo, who is also the chairman and a substantial shareholder of the Company’s substantial shareholder, Wheelock, and Mr. Gonzaga W.J. Li, Mr. Stephen T.H. Ng, Mr. T.Y. Ng and Ms. Doreen Y. F. Lee, who are also directors of Wheelock and/or subsidiaries of Wheelock, are considered as having an interest in Wheelock under Rule 8.10 of the Listing Rules.

Ownership of property for letting and development of properties for sale and/or investment carried on by Wheelock and subsidiaries of Wheelock (“ Wheelock Group ”) constitute competing businesses of the Group.

The ownership of commercial premises by the Wheelock Group for rental purposes is considered as competing with the commercial premises owned by the Group. Since the Group’s commercial premises are not in the vicinity of those owned by the Wheelock Group, and are targeted at different customers and would attract different tenants compared to those of the Wheelock Group, the Group considers that its interest regarding the business of owning and letting of commercial premises is adequately safeguarded.

The development of properties for sale and/or investment purposes by the Wheelock Group is also considered as a competing business of the Group. However, the Group itself has adequate experience in property development and is therefore capable of carrying on its property development business independently of the Wheelock Group.

For safeguarding the interests of the Group, the independent non-executive Directors and the audit committee of the Company would on a regular basis review the business and operational results of the Group to ensure, inter alia , that the Group’s development of properties for sale and/or investment and property leasing businesses are and continue to be run on the basis that they are independent of, and at arm’s length from, those of the Wheelock Group.

DIRECTORS’ INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2005, the date of which the latest audited financial statements of the Group were made up.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

None of the Directors is materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular and which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

LITIGATION

As far as the Directors are aware, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries as at the Latest Practicable Date.

EXPERT’S QUALIFICATIONS AND CONSENTS

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

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

Name

Qualification

Somerley Limited

A corporation licensed to carry out type 1 (dealings in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO.

EXPERT’S INTERESTS

As at the Latest Practice Date, the Independent Financial Adviser:

(a) had no direct or indirect interest in any asset which had since 31 December 2005, being the date to which the latest published audited accounts of the Company were made up, been acquired or disposed of by, or leased to, any member of the Group, or was proposed to be acquired or disposed of by, or leased to, any member of the Group; and
(b) was not beneficially interested in the share capital of any member of the Group nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX

PROCEDURE FOR DEMANDING A POLL

Pursuant to the articles of association of the Company, a poll may be demanded in relation to any resolution put to the vote at a general meeting before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll:

(a) by the Chairman of the meeting; or
(b) by at least five members present in person or by proxy for the time being entitled to vote at the meeting; or
(c) by any member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(d) by a member or members present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

GENERAL

The secretary of the Company is Mr. Wilson W. S. Chan, who is a fellow member of The Institute of Chartered Secretaries and Administrators.
The qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Ms. Daphne C. K. Wong, who is a fellow member of The Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.
The transfer office of the Company is that of the Company’s share registrars, namely, Tengis Limited, and is situate at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
The English text of this circular shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company at 16/F, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong during normal business hours for a period of 14 days from the date of this circular:

(a) the memorandum and articles of association of the Company;
(b) the Rationalisation Agreement;
(c) the agreed form of the Shareholders’ Agreement;

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GENERAL INFORMATION

APPENDIX

(d) the Share Purchase Agreement;
(e) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 21 and 22 of this circular;
(f) the letter from Somerley Limited to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 23 to 38 of this circular; and
(g) the written consents from Somerley Limited referred to in the paragraph headed “Expert’s Qualifications and Consents” in this Appendix.

– 44 –

AI assistant

The Wharf (Holdings) Limited — Proxy Solicitation & Information Statement 2007

48864_rns_2007-01-26_3ed42bc4-afb7-4581-a780-4d1f11a8d08f.pdf

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

THE WHARF (HOLDINGS) LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

THE WHARF (HOLDINGS) LIMITED

(Stock Code: 4)

To the Shareholders

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

INTRODUCTION

Background

Current Shareholding Structure

RATIONALISATION AGREEMENT

Date

Parties

Principal terms of the Rationalisation Agreement

Stage 1 Completion

LETTER FROM THE BOARD

Conditions for Stage 1 Completion

Stage 2 Completion

Stage 3 Completion

Stage 4 Completion

Progress of construction

Information in relation to each of SCT1, SCT2, SCT3 and Land Co.

LETTER FROM THE BOARD

SCT 1

SCT 3

Shareholding Structure after Stage 4 Completion

THE SHARE PURCHASE AGREEMENT

Date

Parties

Details of MTL Disposal

The Consideration

Information in relation to the MTL Equity Interests

Financial information

LETTER FROM THE BOARD

Conditions

Use of Proceeds

Other Terms

The Swire/P&O Disposal

Condition for the Swire/P&O Disposal

THE SHAREHOLDERS AGREEMENT

Put Option

LETTER FROM THE BOARD

Board Representation

INFORMATION ON THE MTL GROUP

INFORMATION ON THE PARTIES

Financial effect of the Rationalisation

Financial effect of the MTL Disposal

Financial effect of the Put Option

REASONS FOR THE RATIONALISATION AND THE MTL DISPOSAL

LETTER FROM THE BOARD

GENERAL

REGULATORY ASPECTS

INDEPENDENT SHAREHOLDERS’ APPROVAL

LETTER FROM THE BOARD

RECOMMENDATIONS

ADDITIONAL INFORMATION

THE WHARF (HOLDINGS) LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED DISPOSAL AND RESTRUCTURING OF INTERESTS IN PORT OPERATING COMPANIES IN SHEKOU

Yours faithfully, For and on behalf of Independent Board Committee

SOMERLEY LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. MTL and CMH

(ii) Business

(iii) Financial results

SCT1

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

SCT3

Land Co.

The Wharf (Holdings) Limited Proxy Solicitation & Information Statement 2007