VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND INCREASE IN AUTHORISED SHARE CAPITAL

Transcription

1 Jinmao Tower CIRCULAR DATED 30 JUNE 2008 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect about this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your Shares in FRANSHION PROPERTIES (CHINA) LIMITED (the Company ), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This circular is for information purposes only and does not constitute an intention or offer to acquire, purchase or subscribe for any securities. JW Marriott Shenzhen VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND INCREASE IN AUTHORISED SHARE CAPITAL Financial Adviser to the Company Westin Beijing, Chaoyang Independent financial adviser to the Independent Board Committee and the Independent Shareholders Hilton Sanya Resort & Spa IMPORTANT DATES AND TIMES FOR SHAREHOLDERS Record date for the EGM: 15 July 2008 Latest date and time for lodging transfer: 15 July :30 p.m. Latest date and time for lodging proxy forms for EGM: 16 July :00 a.m. Date and time of EGM: 18 July :00 a.m. Venue of EGM: M/F, Salon 2-3, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong The Ritz-Carlton, Sanya Grand Hyatt, Shanghai Li Jiang Yulong Snow Mountain Project

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3 Summary The following summary is qualified in its entirety by, and should be read in conjunction with, the full text of this circular. Words and expressions not defined herein shall have the same meanings as in the main body of this circular unless otherwise stated. Please refer to the Definitions section of this circular for the capitalised terms in this section. Acquisition overview Target Consideration Timeline 100% interest in Wise Pine which in turn owns 100% interest in Jin Mao through its wholly-owned subsidiary Most Giant The aggregate consideration: RMB11 billion (equivalent to approximately HK$12.4 billion) approximately 40% of the consideration (equivalent to approximately HK$4.97 billion) to be paid in cash approximately 60% of the consideration (equivalent to approximately HK$7.40 billion) to be paid by issuing Consideration Shares at the Issue Price of HK$3.43 per Consideration Share with 6 months lock-up period from Completion Representing approximately 35.3% discount to the appraised value of Jin Mao Group s property interests as at 31 March 2008 and approximately 16.6% discount to the adjusted net asset value of Jin Mao Group The Independent Board Committee resolved to exercise the Option to acquire % interest in Jin Mao from Sinochem Corporation on 22 April 2008 Acquisition Agreements signed and Announcement published on 5 June 2008 Expected closing by the end of 2008 Shareholding structure After Final Asset Injection but before Completion After Final Asset Injection and Completion Sinochem Corporation 100% Sinochem Hong Kong Other Shareholders 100% Sinochem Corporation Sinochem Hong Kong Other Shareholders** Public 63.47%* 13.71%* 22.82%* 67.16% Company % % Wise Pine 100% Most Giant 100% Jin Mao Company 100% Wise Pine 100% Most Giant 100% Jin Mao Note: * The figures assume that other than the Consideration Shares, no Shares will be issued (including issue of Shares pursuant to the exercise of the options under the Share Option Scheme) or purchased by the Company on or after the Latest Practicable Date up to the Completion Date. ** Other Shareholders will be counted as public shareholders. 1

4 Competitive strengths of Jin mao Group 1 Strategic geographic location and landmark project development 2 Excellent brand recognition and reputation in the PRC 3 Co-operation and partnership through strategic alliances and other arrangements with world famous international hotel management companies 4 Well positioned to identify and develop future projects 5 Experienced and professional management team Snapshot of Jin mao Group assets Jinmao Tower office section (100% interest) Situated in the Pudong New District of Shanghai, the tower was completed in 1999 and is a landmark in the city The tower is approximately 420 metres tall and comprises a GFA of approximately 290,000 sq.m. The tower has 88 floors in total: the third to 50th floors are offices, the 53rd to 87th floors house Grand Hyatt Shanghai and the 88th floor is an indoor observation deck The office floors are made up of Grade A offices, which have a total GFA of approximately 128,033 sq.m. The office floors accommodate more than 30 Fortune 500 companies or Forbes 2000 companies with an occupancy rate (excluding self-occupied office space) of 98.1% as at 31 December

5 Five-star luxury hotel in Yalong Bay in Sanya, Hainan province, a national AAAA level scenic spot in the PRC Officially opened on 31 March 2006 Total GFA of approximately 75,095 sq.m. with approximately 501 guest rooms (including villas). The average guest occupancy rate in 2007 was approximately 72% and the average daily room rate was approximately RMB1,354 Jin Mao Group owns 60% equity interest and the total investment in the project was approximately RMB780 million Hotels in operation Grand Hyatt Shanghai (100% interest) Hilton Sanya Resort & Spa (60% interest) Taking up 53rd to 87th floors of Jinmao Tower, the hotel was named in the 2000 edition of the Guiness World Records as the tallest hotel in the world Officially opened in 1999, the hotel has a total GFA of approximately 80,410 sq.m. The hotel has approximately 555 guest rooms, a number of conference rooms, restaurants and corresponding auxiliary facilities The average occupancy rate in 2007 was approximately 72% and the average daily room rate was approximately RMB2,500 The Ritz-Carlton, Sanya (100% interest) Five-star luxury hotel in Yalong Bay of Sanya, Hainan province Officially opened in April 2008 Total GFA of approximately 79,776 sq.m. with approximately 451 guest rooms, including 33 villa suites The average daily room rate since its opening is approximately RMB1,806 Total investment in the project was approximately RMB1,150 million 3

6 Five-star luxury hotel of 34 storeys located in Chaoyang District, Beijing, where the Olympics Park of the 2008 Olympics Games is located Scheduled to commence operations by the end of June 2008 The hotel will consist of 566 rooms and suites, with a planned GFA of approximately 75,446 sq.m. Total investment in the project is forecast to be approximately RMB2,247 million Hotel projects under development Westin Beijing, Chaoyang (100% interest) JW Marriott Shenzhen (100% interest) To be developed into a five-star luxury hotel situated in Futian District, Shenzhen s main commercial and shopping district Scheduled to commence operations by the end of 2008 A planned GFA of approximately 51,739 sq.m. with more than 400 rooms Total investment in the project is forecast to be approximately RMB870 million Newly acquired landbanks ( Lijiang Projects ) Jin Mao World Heritage Park Redevelopment Project (100% interest) Jin Mao Group purchased certain assets of the former site of Lijiang World Heritage Park in the Ancient Town of Lijiang (named as the World Cultural Heritage by UNESCO in 1997) for a consideration of approximately RMB263 million Assets include, among others, land use rights for an area of approximately 332,880 sq.m., together with all buildings, building materials, attached facilities, micro-landscaping, greenery, and trees thereon, inclusive of houses that constitute a total area of 6,096 sq.m. The project is set to be an integrated development, which consists of at least one 5-star resort hotel with an estimate total GFA of approximately 100,000 sq.m. The design and construction of the project is planned to commence in the first half of 2009, and the hotel section is expected to commence its operations in the first half of

7 Jin mao yulong Snow mountain Golf Club Villa Project (100% interest) Situated in Ganhaizi of Lijiang Yulong Snow Mountain of Yunnan province, a national AAAAA level scenic spot in the PRC, the project will be developed into a five-star luxury hotel with approximately 80 luxurious rooms, targeting highend tourists The project will occupy a total site area of 54,240 sq.m. and has an estimate total GFA of approximately 25,000 sq.m. The total consideration of the project is approximately RMB83 million and the total investment is forecast to be approximately RMB350 million Construction will start in the second half of 2008 and the hotel will commence operations in the first half of 2010 reasons for and benefits of the acquisition The businesses of Jin Mao Group are consistent with the Company s development strategies and business plans which focus on acquiring and developing upscale office and hotel properties The Acquisition will significantly elevate the asset scale and quality of the Company s office and hotel portfolio The Acquisition provides the Company with the opportunity to strengthen its presence and leadership in tier-1 cities, and expand into new cities and overall enhance market share The Acquisition will provide a highly attractive and unique opportunity for the Company to be well-positioned to take advantage of the fast growing luxury hotel sector The Acquisition will also lead to the effective integration of the Company s real estate development, property management and hotel operations, and deliver considerable synergy Through the Acquisition, the Company will also solidify its position as the flagship real estate arm of Sinochem Corporation, significantly mitigate competing business within Sinochem Corporation and focus support from Sinochem Corporation group The Acquisition will provide the Company with growth potential, and will significantly boost its business operations and financial performance 5

8 Positive Impact on Portfolio and Financials Enlarged portfolio The Acquisition will significantly elevate the property scale of the Group by adding a total gross floor area of around 586,630.6 sq.m. The total GFA will increase from 790,079.8 sq.m. to 1,376,710.3 sq.m., up by 74.2%; The total assets of the Enlarged Group will reach HK$27,469.7 million, 55.9% higher than the current size of the Group, on a pro forma basis as at December 31, 2007; Attributable valuation of the Group s real estate portfolio will increase by 135.6%, reaching RMB29,530.3 million according to the valuation report of the Enlarged Group as at March 31, 2008 in this circular (sqm) (HK$ m) 1,500,000 1,000, , ,000 25,000 20,000 15,000 10,000 5, ,630.6 Total GFA 74.2% 790, ,376,710.3 Jin Mao Group Group Enlarged Group 14,825.2 Total assets 55.9% 17, ,469.7 Jin Mao Group Group Enlarged Group Attributable valuation (RMB m) Note: 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, , % 12, ,530.3 Jin Mao Group Group Enlarged Group 1) Total GFA (assuming 100% interest) and attributable valuation as at March 31, 2008, based on valuation report of the Enlarged Group in this circular, excluding properties without commercial value 2) Total assets as at end of 2007, from information of the Group and Jin Mao Group and pro forma financials in this circular 3) Assuming RMB:HKD= Diversification and greater exposure to hotel operations The Acquisition will enlarge the scale and quality of the Group s hotel and office portfolio, reduce its reliance on property development and provide substantially more exposure to the booming hotel sector The acquired hotel portfolio are located in tier-1 cities or scenic sports, which stand to benefit from economic growth as well as strong momentum in both tourism industry and business activities in China The Acquisition enables the Group to achieve a more balanced revenue profile while keeping an active development programme. The diversification would be achieved from the following key aspects: a) Segment diversification. Total GFA of hotel segment will increase from 5% to 29% of total GFA. In terms of revenue, revenue from hotel operations will reach 41% of total revenue after the Acquisition compared to 9% before the Acquisition b) Location diversification. Apart from tier-1 cities where the Group s portfolio are currently located, the newly added properties also cover strategic areas such as key scenic spots Note: Total GFA (assuming 100% interest) as at March 31, 2008, based on valuation report of the Enlarged Group in this circular, excluding properties without commercial value. Hotel segment of the Group is Wangfujing Grand Hotel which includes the retail area. 6

9 Revenue breakdown Others 16% Property investment and management 19% Hotel operations 65% Jin Mao Group + Property investment and management 13% Hotel operations 9% Group Property development 78% = Hotel operations 41% Others 9% Property development 33% Property investment and management 17% Enlarged Group Note: 1) Total revenue in 2007, from information of the Group and Jin Mao Group and pro forma financials in this circular. 2) Assuming RMB: HKD = Positive financial impact Due to solid financial performance of Jin Mao Group, the Acquisition will result in stronger revenue and profit profiles for the Enlarged Group. In 2007, for example, revenue would be more than doubled and profit would increase by more than one third on a pro forma basis Benefiting from future integration of the businesses, the Enlarged Group would expect synergies from the Acquisition coming from resource sharing, cost control, etc., which help to further improve the Group s financial performance Revenue for the year ended 31 December 2007 (HK$ m) 3,500 3,000 2,500 2,000 1,500 1, , , % 2,962.2 Jin Mao Group Group Enlarged Group Profit for the year ended 31 December 2007 (HK$ m) 3,500 3,000 2,500 2,000 1,500 1, , % 2,898.9 Jin Mao Group Group Enlarged Group Note: 1) Total revenue and profit for the year in 2007, from information of the Group and Jin Mao Group and pro forma financials in this circular. 2) Assuming RMB: HKD = As the Acquisition is subject to the conditions precedent set out in the Acquisition Agreements being satisfied or waived, as applicable, and the Acquisition may or may not proceed, Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares. 7

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11 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect about this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your Shares in FRANSHION PROPERTIES (CHINA) LIMITED (the Company ), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This circular is for information purposes only and does not constitute an intention or offer to acquire, purchase or subscribe for any securities. FRANSHION PROPERTIES (CHINA) LIMITED (Incorporated in Hong Kong with limited liability) (Stock Code: 00817) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND INCREASE IN AUTHORISED SHARE CAPITAL Financial Adviser to the Company Deutsche Bank Independent financial adviser to the Independent Board Committee and the Independent Shareholders SOMERLEY LIMITED A letter from the Board is set out on pages 9 to 45 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 46 of this circular. A letter from Somerley Limited, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 47 to 77 of this circular. A notice convening the EGM to be held at M/F, Salon 2-3, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong on 18 July 2008 at 10 a.m. is set out on pages 316 to 318 of this circular. A form of proxy for use thereat is also enclosed. Whether or not you are able to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited, at Rooms , 18th Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish. 30 June 2008

12 CONTENTS Page DEFINITIONS... 1 LETTER FROM THE BOARD... 9 INTRODUCTION... 9 BACKGROUND THE SINOCHEM HONG KONG ACQUISITION AGREEMENT THE OTHER SHAREHOLDERS ACQUISITION AGREEMENTS BASIS OF CONSIDERATION CONSIDERATION SHARES CHANGES IN SHAREHOLDING STRUCTURE INFORMATION ON WISE PINE AND FINAL ASSET INJECTION INFORMATION ON CHINA HOTEL AND OFFICE PROPERTY MARKET INFORMATION ON JIN MAO GROUP INFORMATION REGARDING THE GROUP REASONS FOR AND BENEFITS OF THE ACQUISITION FINANCIAL EFFECTS OF THE ACQUISITION FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP INFORMATION REGARDING THE SELLERS LISTING RULES IMPLICATIONS INCREASE IN AUTHORISED SHARE CAPITAL EGM PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS RECOMMENDATION ADDITIONAL INFORMATION LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM SOMERLEY APPENDIX I FINANCIAL INFORMATION OF THE GROUP APPENDIX II FINANCIAL INFORMATION OF JIN MAO GROUP APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS APPENDIX V VALUATION REPORT OF THE ENLARGED GROUP APPENDIX VI GENERAL INFORMATION NOTICE OF EGM i

13 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the meanings respectively set opposite to them: Acquisition the acquisition of the entire issued share capital of Wise Pine pursuant to the terms and conditions of the Sinochem Hong Kong Acquisition Agreement and the Other Shareholders Acquisition Agreements Acquisition Agreements the Sinochem Hong Kong Acquisition Agreement and the Other Shareholders Acquisition Agreements ADR average daily rate Announcement the announcement of the Company dated 5 June 2008 in relation to the very substantial acquisition and connected transaction associate has the meaning given to it under the Listing Rules Business Day a day on which banks in Hong Kong are open for normal banking business (excluding Saturdays and Sundays) CAGR compound annual growth rate Chemsunny (Beijing Chemsunny Property Company Limited), a company established under the laws of the PRC on 24 September 2002 and which is a wholly-owned subsidiary of the Company Chemsunny Property Management (Beijing Century Chemsunny Property Management Co., Ltd.), a company established under the laws of the PRC on 16 January 2007 and which is an indirect wholly-owned subsidiary of the Company Company Franshion Properties (China) Limited ( ), a company incorporated in Hong Kong on 2 June 2004 with limited liability, which shares are listed on the Stock Exchange Completion completion of the Acquisition pursuant to the terms and conditions of the Sinochem Hong Kong Acquisition Agreement and the Other Shareholders Acquisition Agreements 1

14 DEFINITIONS Completion Date connected person Consideration Shares CSRC Deutsche Bank AG Directors EGM Enlarged Group Exchange Rate the fifth Business Day after the date on which the Company has given notice in writing to Sinochem Hong Kong and each Other Shareholder, as the case may be, regarding the satisfaction or waiver of all the relevant conditions precedent, and shall fall on a date no later than 60 days after the date on which all the conditions precedent are satisfied (or waived, if applicable) has the meaning given to it under the Listing Rules an aggregate of 2,158,028,268 new Shares, credited as fully paid, to be allotted and issued by the Company at the Issue Price to Sinochem Hong Kong and Other Shareholders, as the case may be China Securities Regulatory Commission Deutsche Bank AG, Hong Kong branch the directors of the Company the extraordinary general meeting of the Company to be convened to consider and, if thought fit, approve, among other things, the Acquisition and issue of the Consideration Shares the Group as enlarged by the Acquisition the mean exchange rate of converting RMB into HKD or converting RMB into USD as quoted by China Foreign Exchange Trading Centre on the date of the Sinochem Hong Kong Acquisition Agreement or the Other Shareholders Acquisition Agreement, as the case may be Final Asset Injection Sinochem Hong Kong Asset Injection and Other Shareholders Asset Injection Franshion Zhuhai ( ) (Sinochem Franshion Real Estate (Zhuhai) Co., Ltd.), a company established under the laws of the PRC on 17 September 2001 and which is a wholly-owned subsidiary of the Company GDP gross domestic product 2

15 DEFINITIONS GFA Group Hong Kong Huigang Real Estate HK$ or HKD gross floor area the Company and its subsidiaries Hong Kong Special Administrative Region of the PRC (Shanghai Huigang Real Estate Development Co., Ltd), a company established under the laws of the PRC on 9 January 2007, owned as to 50% by the Company and 50% by Shanghai Port and which is a non wholly-owned subsidiary of the Company Hong Kong dollars, the lawful currency of Hong Kong Independent Board Committee the independent board committee of the Company comprising all independent non-executive Directors, namely, Mr. Lau Hon Chuen, Ambrose, Professor Su Xijia, Professor Liu Hongyu, Mr. Ngai Wai Fung and Dr. Gao Shibin Independent Shareholders Issue Price in respect of the Sinochem Hong Kong Acquisition, Shareholders other than Sinochem Hong Kong and its associates; and in respect of the Other Shareholders Acquisition, the Shareholders HK$3.43 per Consideration Share, being the average of the closing market prices of the Shares as quoted on the Stock Exchange over the 20 consecutive trading days before but excluding the date of the Sinochem Hong Kong Acquisition Agreement or the Other Shareholders Acquisition Agreement, as the case may be Jin Mao ( ) (China Jin Mao (Group) Company Limited), a company limited by shares and established under the laws of the PRC Jin Mao Group Jin Mao Shareholders Jin Mao and its subsidiaries the shareholders of Jin Mao before the Final Asset Injection 3

16 DEFINITIONS Jin Mao World Heritage Park Redevelopment Project Jin Mao Yulong Snow Mountain Golf Club Villa Project the redevelopment project undergoing by Jin Mao Group at the former site of Lijiang World Heritage Park ( ) in the ancient town of Lijiang, Yunnan Province, PRC the redevelopment project undergoing by Jin Mao Group at Ganhaizi in Yulong County, Lijiang, Yunnan Province, PRC (up on Yulong mountain and next to the Yulong Golf Course) ( ) Ke Yi Consultancy (Shanghai Ke Yi Franshion Business Consultancy Company Limited), a company established under the laws of the PRC on 29 November 2004, owned as to 50% by the Company and 50% by Shanghai Real Estate and which is a non wholly-owned subsidiary of the Company Ke Yi Real Estate Latest Practicable Date (Shanghai Ke Yi Real Estate Development Co., Ltd.), a company established under the laws of the PRC on 26 April 2001, owned as to 90% by Shanghai Pudong Jinxin and 10% by Ke Yi Consultancy 19 June 2008, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular Lijiang Sanduo (Lijiang Sanduo Garden Tourism Development Company Limited), a company established under the laws of the PRC Lijiang Xue Shan Listing Rules Macau (Lijiang Xue Shan Real Estate Development Company Limited), a company established under the laws of the PRC the Rules Governing the Listing of Securities on the Stock Exchange Macau Special Administration Region of the PRC Most Giant Most Giant Limited ( ), a company incorporated in Hong Kong, a wholly-owned subsidiary of Wise Pine 4

17 DEFINITIONS Non-Competition Undertaking the non-competition undertaking dated 26 July 2007 granted by Sinochem Corporation in favour of the Company Other Shareholders Other Shareholders Acquisition Other Shareholders Acquisition Agreement Other Shareholders Asset Injection shareholders of Wise Pine (other than Sinochem Hong Kong) following the Final Asset Injection, being Charm Glory Holdings Limited, China Minmetals H.K. (Holdings) Limited, Tri-Union (International) Development Limited, Grand Neway Limited, Precious Luck Holdings Limited, Chinatex (H.K.) Holding Limited and Artluck (China) Limited (each an Other Shareholder ) the acquisition of Other Shareholders entire interests in Wise Pine, representing an aggregate % attributable interest in Jin Mao immediately before Completion each separate acquisition agreement entered into between the Company, each Other Shareholder and their respective holding companies in respect of the Other Shareholders Acquisition (collectively, the Other Shareholders Acquisition Agreements ) the injection of an aggregate % equity interest in Jin Mao from Jin Mao Shareholders (other than Sinochem Hong Kong) to Other Shareholders, and then from each Other Shareholder to Wise Pine, which shall further inject the same to Most Giant Other Shareholders Completion completion of the Other Shareholders Acquisition pursuant to the terms and conditions of the Other Shareholders Acquisition Agreements PBOC PRC the People s Bank of China the People s Republic of China, which for the purposes of this circular excludes Hong Kong, Macau and Taiwan Prospectus the prospectus of the Company dated 6 August 2007 RevPAR RMB revenue per available room Renminbi, the lawful currency of the PRC 5

18 DEFINITIONS SASAC State-owned Assets Supervision and Administration Commission of the State Council of the PRC SFO Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) Shanghai Port ( ) (Shanghai International Port (Group) Co., Ltd.), an affiliated entity of the Shanghai Municipal Government Shanghai Pudong Jinxin (Shanghai Pudong Jinxin Real Estate Development Co., Ltd.), a company established under the laws of the PRC on 27 December 1995, owned as to 50% by the Company and 50% by Shanghai Real Estate and which is a non wholly-owned subsidiary of the Company Shanghai Real Estate ( ) (Shanghai Real Estate (Group) Co., Ltd.), a company established under the laws of the PRC in 1983, owned as to 90% by (China Enterprise Company Limited) and 10% by ( ) (Shanghai Real Estate Group Company), and which holds a 50% interest in Shanghai Pudong Jinxin and a 50% interest in Ke Yi Consultancy Shanghai Terminal Co. (Shanghai Port International Cruise Terminal Development Co., Ltd.), a company established under the laws of the PRC on 18 January 2002 owned as to 80.39% by Shanghai Pudong Jinxin and as to 19.61% by Shanghai Port and which is a non wholly-owned subsidiary of the Company Shanghai Yin Hui (Shanghai Yin Hui Property Development Company Limited), a company established under the laws of the PRC and in which Sinochem Hong Kong owns a 50% interest Shares Share Option Scheme the ordinary shares of HK$1.00 each in the share capital of the Company (each a Share ) the share option scheme of the Company adopted at an extraordinary general meeting held on 22 November

19 DEFINITIONS Shareholders the shareholders of the Company Sinochem Corporation (Sinochem Corporation), a stateowned enterprise established in the PRC formerly known as China National Chemicals Import & Export Corporation Sinochem Hong Kong Sinochem Hong Kong Acquisition Sinochem Hong Kong Acquisition Agreement Sinochem Hong Kong Asset Injection Sinochem Hong Kong Completion Sinochem Property Management Sinochem Hong Kong (Group) Company Limited, a company incorporated in Hong Kong with limited liability which is wholly-owned by Sinochem Corporation the acquisition of Sinochem Hong Kong s entire interest in Wise Pine representing a % attributable interest in Jin Mao immediately before Completion the acquisition agreement entered into between the Company, Sinochem Hong Kong and Sinochem Corporation in respect of the Sinochem Hong Kong Acquisition the injection of a % equity interest in Jin Mao from Sinochem Corporation to Sinochem Hong Kong and then from Sinochem Hong Kong to Wise Pine, which shall further inject the same to Most Giant completion of the Sinochem Hong Kong Acquisition pursuant to the terms and conditions of the Sinochem Hong Kong Acquisition Agreement (Sinochem International Property & Hotels Management Co., Ltd.), a company established under the laws of the PRC on 15 October 1993 and which is a wholly-owned subsidiary of the Company SOL (Sino-Ocean Land Limited), a company established under the laws of the PRC in which Sinochem Corporation indirectly owns a 14.22% interest 7

20 DEFINITIONS Somerley Somerley Limited, a corporation licensed to carry out business on Type 1 (dealing in securities), Type 4 (advising on Securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Acquisition Agreements and the transactions contemplated thereunder sq.m. square metre Stock Exchange The Stock Exchange of Hong Kong Limited USD US dollars, the lawful currency of the United States of America Wangfujing Hotel Management (Wangfujing Hotel Management Company Limited), a company established under the laws of the PRC on 30 May 2003 and which is a wholly-owned subsidiary of the Company Wang Pong International ( ) (Wang Pong International (Macau) Company Limited), a company established on 26 April 2001 under the laws of Macau Wise Pine Wise Pine Limited ( ), a company incorporated in the British Virgin Islands WTO World Trade Organization Zhuhai Huajia (Zhuhai Huajia Lianda Metals and Minerals Company Limited), a company established on 2 August 2000 under the laws of the PRC Unless otherwise specified in this circular and for the purpose of illustration only, RMB is translated to HK$ at the rates of HK$1.00 = RMB No representation is made that any amounts in RMB have been sold or could be converted at the above rate or at any other rates or at all. 8

21 LETTER FROM THE BOARD FRANSHION PROPERTIES (CHINA) LIMITED (Incorporated in Hong Kong with limited liability) (Stock Code: 00817) Non-executive Directors Mr. PAN Zhengyi (Chairman) Ms. LI Lun (Vice Chairman) Mr. WANG Hongjun Executive Directors Ms. LI Xuehua (Chief Executive Officer) Mr. HE Binwu (Vice President) Mr. JIANG Nan (Chief Financial Officer) Registered Office Rooms , 47th Floor Office Tower Convention Plaza No. 1 Harbour Road Wanchai Hong Kong Independent Non-executive Directors Mr. LAU Hon Chuen, Ambrose Professor SU Xijia Professor LIU Hongyu Mr. NGAI Wai Fung Dr. GAO Shibin 30 June 2008 To the Shareholders, and for information only, the holders of the share options Dear Sir or Madam, VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND INCREASE IN AUTHORISED SHARE CAPITAL INTRODUCTION Reference is made to the Announcement in relation to the Company s acquisition of 100% of the issued share capital of Wise Pine from Sinochem Hong Kong and seven Other Shareholders for a total consideration of RMB11,000,000,000 (equivalent to approximately HK$12,376,655,378) which constitutes a very substantial acquisition and connected 9

22 LETTER FROM THE BOARD transaction of the Company under the Listing Rules. The principal asset of Wise Pine is its wholly-owned subsidiary, Most Giant, which will hold before Completion the entire equity interest in Jin Mao. Jin Mao is principally engaged in the ownership, development and management of luxury hotels and upscale commercial properties in the PRC. As at 31 December 2007, Jin Mao owns the entire equity interests of Jinmao Tower (which houses Grand Hyatt Shanghai), JW Marriott Shenzhen, the Ritz-Carlton Sanya and Westin Beijing, Chaoyang, and 60% of the equity interests of Hilton Sanya Resort & Spa. In addition, Jin Mao purchased Jin Mao Yulong Snow Mountain Golf Club Villa Project and Jin Mao World Heritage Park Redevelopment Project in March Both projects are currently undergoing redevelopment planning, and are expected to be redeveloped into five-star luxury hotel and resort areas. Through a series of outstanding development projects and successful management, Jin Mao has become a well-known brand for high-end hotel and commercial property development and management in the PRC. The purpose of this circular is to provide you with (i) further information on the details of the Acquisition Agreements; (ii) the letter of recommendation from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders; (iv) the accountants report on Jin Mao Group; (v) the valuation report on the properties of the Enlarged Group; (vi) the notice of the EGM and (vii) other information as required under the Listing Rules. The Independent Board Committee, comprising all independent non-executive Directors, namely, Mr. Lau Hon Chuen, Ambrose, Professor Su Xijia, Professor Liu Hongyu, Mr. Ngai Wai Fung and Dr. Gao Shibin, has been established to advise the Independent Shareholders as to whether the terms under the Acquisition Agreements are fair and reasonable and whether such transactions are in the interests of the Company and the Shareholders as a whole. Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect. BACKGROUND As disclosed in the Prospectus, pursuant to the Non-competition Undertaking, Sinochem Corporation has granted to the Company, amongst other things, the option to acquire Sinochem Corporation s % equity interest in Jin Mao at a fair market value (the Option ). As disclosed in the Company s announcement dated 22 April 2008, the Independent Board Committee, without any of the executive Directors in attendance, held a meeting on the same day and unanimously resolved, amongst other things, to exercise the Option. On 5 June 2008, the Company entered into the Sinochem Hong Kong Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, and Sinochem Hong Kong conditionally agreed to sell, its entire interest in Wise Pine, which represents a % attributable interest in Jin Mao immediately before Completion. Further and on the same day, the Company entered into seven separate Other Shareholders Acquisition Agreements with each Other Shareholder and their respective holding companies, pursuant to which the Company conditionally agreed to acquire, and each Other Shareholder conditionally agreed to sell, its entire interest in Wise Pine, which in aggregate represents a % attributable interest in Jin Mao immediately before Completion. The respective 10

23 LETTER FROM THE BOARD attributable shareholdings of each Other Shareholder in Jin Mao are set out in the section headed The Other Shareholders Acquisition Agreements below. Each Other Shareholders Acquisition Agreement and the Sinochem Hong Kong Acquisition Agreement contain similar terms in general, save for terms relating to the amounts of the consideration. Upon Completion, the Company will hold 100% of the issued share capital of Wise Pine, the principal asset of which will consist of the entire equity interest in Jin Mao, which it will hold indirectly through its wholly-owned subsidiary, Most Giant. At the same time, the Company is in preliminary discussions with Sinochem Corporation on the possible acquisition of Sinochem Corporation s interests in Shanghai Yin Hui. However no agreement has been reached as at the Latest Practicable Date. The Company will comply with applicable Listing Rules requirements, as and when appropriate. THE SINOCHEM HONG KONG ACQUISITION AGREEMENT Date of the Sinochem Hong Kong Acquisition Agreement Parties 5 June 2008 Purchaser: Seller: the Company Sinochem Hong Kong Sinochem Corporation, which owns 100% of the issued share capital of Sinochem Hong Kong, has agreed to provide warranties in favour of the Company. Interest to be acquired The sale shares, representing Sinochem Hong Kong s entire interest in Wise Pine, which represents a % attributable interest in Jin Mao immediately before Completion. Consideration The consideration for the Sinochem Hong Kong Acquisition shall be the aggregate of: (a) (b) the sum of RMB2,414,319,600 (equivalent to approximately HK$2,716,472,878), payable in cash in the equivalent sum of HKD or USD, which will be converted at the Exchange Rate, by the Company to Sinochem Hong Kong on the Completion Date by transfer of funds for same day value to such account as shall have been notified to the Company by Sinochem Hong Kong in writing at least 3 Business Days before the date of transfer; and the sum of RMB3,621,479,400 (equivalent to approximately HK$4,074,709,317), in the equivalent sum of HKD, which will be converted at the Exchange Rate and shall be satisfied by the allotment and issuance of the Consideration Shares to Sinochem Hong Kong at the Issue Price on the Completion Date. In the event that this amount 11

24 LETTER FROM THE BOARD is not wholly divisible by the Issue Price, the Company shall, in lieu of allotting and issuing any fractional Consideration Share, pay cash equal to the amount of such fractional Consideration Share multiplied by the Issue Price to Sinochem Hong Kong. On Completion, a total of 1,187,961,900 Consideration Shares will be issued to Sinochem Hong Kong. Particulars of the Consideration Shares are set out in the section headed Consideration Shares below. Conditions precedent The Sinochem Hong Kong Acquisition is conditional upon, amongst other things, the following conditions precedent having been fulfilled (or waived): (a) (b) (c) (d) the passing of the necessary resolution(s) by the Independent Shareholders at a duly convened EGM to approve, implement and effect the Sinochem Hong Kong Acquisition (including, without limitation, the entering into of the Sinochem Hong Kong Acquisition Agreement and the allotment and issuance of the Consideration Shares to Sinochem Hong Kong) and any ancillary matters thereto as may be required under the Listing Rules; the obtaining of all licences, consents, approvals, authorisations, permissions, waivers, orders or exemptions from government or regulatory authorities (including relevant PRC authorities), including without limitation, approvals from each of SASAC and the Ministry of Commerce of the PRC for the Sinochem Hong Kong Asset Injection and consent from the CSRC for the Sinochem Hong Kong Acquisition (if such consent is required in CSRC s determination); or other third parties which are necessary in connection with the execution and performance of the Sinochem Hong Kong Acquisition Agreement and any transaction contemplated therein; the Listing Committee of the Stock Exchange granting or agreeing to grant approval for the listing of and permission to deal in the Consideration Shares in respect of the Sinochem Hong Kong Acquisition (subject only to allotment and matters ancillary thereto); the Company being satisfied that there has been no material adverse findings upon inspection and investigation as to: (i) (ii) the respective financial, legal and operational positions of each member of the Wise Pine group (including Jin Mao Group); and the title of the Wise Pine group companies to their respective assets and properties; (e) a legal opinion in form and substance reasonably satisfactory to the Company having been issued to the Company in respect of Jin Mao Group; 12

25 LETTER FROM THE BOARD (f) (g) the warranties remaining true and accurate and not misleading at Sinochem Hong Kong Completion as if repeated at Sinochem Hong Kong Completion and at all times between the date of the Sinochem Hong Kong Acquisition Agreement and Sinochem Hong Kong Completion; and the Sinochem Hong Kong Asset Injection having been completed. The Company and Sinochem Hong Kong shall each use its best endeavours to procure that the conditions precedent are satisfied on or before a date no later than 31 December 2008 (or such later date as Sinochem Hong Kong and the Company may agree in writing). If any of the conditions precedent are not fulfilled or otherwise waived on or before 31 December 2008, or on such later date mutually agreed by both parties, the rights and obligations of the parties under the Sinochem Hong Kong Acquisition Agreement shall lapse and cease to have effect except for certain specified clauses and the accrued rights or liabilities of the parties. As at the Latest Practicable Date, the conditions precedent in relation to the Sinochem Hong Kong Acquisition Agreement have not been fulfilled or waived. Completion The Sinochem Hong Kong Completion shall take place on the Completion Date or at such other time and on such other date as the parties to the Sinochem Hong Kong Acquisition Agreement shall agree in writing, provided that all the conditions precedent referred to under the paragraph headed Conditions precedent above are satisfied or if applicable, waived. THE OTHER SHAREHOLDERS ACQUISITION AGREEMENTS Date of the Other Shareholders Acquisition Agreements 5 June 2008 Parties Purchaser: Seller: the Company each Other Shareholder The Company entered into seven separate Other Shareholders Acquisition Agreements with each of the following sellers: Charm Glory Holdings Limited Grand Neway Limited China Minmetals H.K. (Holdings) Limited Tri-Union (International) Development Limited Precious Luck Holdings Limited Chinatex (H.K.) Holding Limited Artluck (China) Limited 13

26 LETTER FROM THE BOARD The respective holding companies of each Other Shareholder have agreed to provide warranties in favour of the Company. The Other Shareholders Acquisition Agreements are not inter-conditional upon each other. Further, the Other Shareholders Acquisition Agreements and the Sinochem Hong Kong Acquisition Agreement are not inter-conditional. Interests to be acquired The sale shares, representing each Other Shareholder s entire interest in Wise Pine, which in aggregate represents a % attributable interest in Jin Mao immediately before Completion. Pursuant to the Other Shareholders Acquisition Agreements, the Company conditionally agreed to acquire the following interests from the Other Shareholders: Other Shareholders Respective attributable interest in Jin Mao Consideration (RMB) Charm Glory Holdings Limited % 1,845,162,000 (equivalent to approximately HK$2,076,084,926) Grand Neway Limited % 354,838,000 (equivalent to approximately HK$399,246,149) China Minmetals H.K. (Holdings) Limited % 1,170,972,000 (equivalent to approximately HK$1,317,519,718) Tri-Union (International) Development Limited % 532,257,000 (equivalent to approximately HK$598,869,224) Precious Luck Holdings Limited % 745,162,000 (equivalent to approximately HK$838,419,389) Chinatex (H.K.) Holding Limited % 280,324,000 (equivalent to approximately HK$315,406,686) Artluck (China) Limited % 35,486,000 (equivalent to approximately HK$39,927,090) 14

27 LETTER FROM THE BOARD Consideration The consideration payable to Artluck (China) Limited on the Completion Date will be in cash in the equivalent sum of HKD or USD, which will be converted at the Exchange Rate. The consideration for the acquisition of the remaining % interest in Wise Pine from Other Shareholders (i.e. other than Artluck (China) Limited) shall be satisfied by the Company in accordance with the following: (a) approximately 40% of the aggregate consideration to be paid in cash in the equivalent sum of HKD or USD, which will be converted at the Exchange Rate, by the Company to the respective Other Shareholder on the Completion Date by transfer of funds for same day value to an account previously notified to the Company in writing at least 3 Business Days before the transfer; and (b) approximately 60% to be satisfied by the allotment and issuance of the Consideration Shares to the respective Other Shareholders on the Completion Date. In the event that such respective amounts are not wholly divisible by the Issue Price, the Company shall, in lieu of allotting and issuing any fractional Consideration Share, pay cash equal to the amount of such fractional Consideration Share multiplied by the Issue Price to the relevant Other Shareholder. On Completion, a total of 970,066,368 Consideration Shares will be issued to Other Shareholders. Particulars of the Consideration Shares are set out in the section headed Consideration Shares below. Conditions precedent Each Other Shareholders Acquisition (not being conditional upon each other or upon the Sinochem Hong Kong Acquisition) is conditional upon similar conditions precedent as set out above under the paragraph of the same heading in the section headed The Sinochem Hong Kong Acquisition Agreement having been fulfilled (or waived), except that references to Sinochem Hong Kong, Sinochem Hong Kong Acquisition, Sinochem Hong Kong Acquisition Agreement, Sinochem Hong Kong Asset Injection and Sinochem Hong Kong Completion shall be replaced by each Other Shareholder, Other Shareholders Acquisition, Other Shareholders Acquisition Agreement, Other Shareholders Asset Injection and Other Shareholders Completion, respectively. The Company and each Other Shareholder shall use their best endeavours to procure that the conditions precedent are satisfied on or before a date no later than 31 December 2008 (or such later date as each Other Shareholder and the Company may agree in writing). If any of the conditions precedent are not fulfilled or otherwise waived on or before 31 December 2008, or on such later date mutually agreed by both parties, the rights and obligations of the parties under the separate Other Shareholders Acquisition Agreements shall lapse and cease to have effect except for certain specified clauses and the accrued rights or liabilities of the parties. As at the Latest Practicable Date, the conditions precedent in relation to each Other Shareholders Acquisition Agreement have not been fulfilled or waived. 15

28 LETTER FROM THE BOARD Completion Other Shareholders Completion shall take place on the Completion Date or at such other time and on such other date as the parties to the respective Other Shareholders Acquisition Agreement shall agree in writing, provided that all the conditions precedent referred to under the paragraph headed Conditions precedent under the section headed The Other Shareholders Acquisition Agreements above are satisfied or if applicable, waived. BASIS OF CONSIDERATION The aggregate consideration of RMB11,000,000,000 (equivalent to approximately HK$12,376,655,378) in respect of the Acquisition was determined following commercial negotiations between the parties on an arm s length basis with reference to various factors, including but not limited to the adjusted net asset value of Jin Mao Group, calculated on the basis of the appraised value of Jin Mao Group s property interests as at 31 March 2008, as well as the financial results and future prospects of Jin Mao Group. As at 31 March 2008, the appraised value of Jin Mao Group s properties was approximately RMB16,994 million (equivalent to approximately HK$19,121 million). The adjusted net asset value was approximately RMB13,187 million (equivalent to approximately HK$14,837 million), which was calculated on the basis of the appraised value of Jin Mao Group s properties as at 31 March 2008, less the interest-bearing bank and other borrowings of Jin Mao Group as at 31 December 2007, plus the aggregate value of the cash and cash equivalents, the pledged deposits, and the restricted bank balances as at 31 December The consideration thus represents an approximately 35.3% discount to the appraised value of Jin Mao Group s property interests as at 31 March 2008, and an approximately 16.6% discount to the adjusted net asset value of Jin Mao Group. The Directors (including the independent non-executive Directors) consider that the consideration payable to Sinochem Hong Kong and each Other Shareholder is fair and reasonable. The Company is considering a number of options for financing the cash portion of the Acquisition, including using internal cash resources, equity or debt financing. The Company has not yet determined the detailed breakdown of the source of funding of the Acquisition, and no decision has been reached at this stage. The Company will comply with applicable Listing Rules requirements (if any) as and when a financing option has been agreed. CONSIDERATION SHARES The Consideration Shares will be issued at the Issue Price of HK$3.43 per Consideration Share. The Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the Shares in issue on the date of allotment and issue of the Consideration Shares, except that the Consideration Shares will not rank for any dividend or other distribution declared, paid or made in respect of the financial year ended on 31 December 2007 or before, or by reference to a record date before, the date of allotment. 16