CHINA MERCHANTS BANK CO., LTD. (a joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 3968)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action to be taken, you shall 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 China Merchants Bank Co., Ltd., you shall at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. CHINA MERCHANTS BANK CO., LTD. (a joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 3968) PROPOSED BONUS SHARES ISSUE AND DIVIDENDS A letter from the Board is set out on pages 4 to 9 of this circular. The Company will convene the AGM at 9:00 a.m. on Friday, 19 June 2009 at the Conference Room, 5/F., China Merchants Bank Tower, No Shennan Boulevard, Shenzhen, PRC, at which, among other things, the proposed profit appropriation plan for the year ended 31 December 2008 with respect to the Bonus Shares Issue and Dividends will be considered. A notice for convening the AGM has been issued to Shareholders of the Company separately. Whether or not you are able to attend, you should complete and return the proxy form in accordance with the instructions printed thereon and return it to the Company s H Share Registrar, Computershare Hong Kong Investor Services Limited, at Rooms , 18/F., Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, as soon as possible and in any event by not later than 24 hours before the time appointed for holding such meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the AGM should you so wish. The Company is incorporated, and its businesses are principally located, in the PRC. Potential investors in the Company should be aware of the differences in the legal, economic, and financial systems between the mainland of the PRC and Hong Kong and that there are different risk factors relating to making an investment in PRC-incorporated companies. Potential investors should also be aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of the Shares of the Company. Such differences and risk factors are set out in the sections entitled Appendix II Risk Factors and Appendix III Miscellaneous. H Shareholders should note existing H Shares are expected to be dealt in on an ex-exitlement basis from Monday, 18 May The Bonus Shares Issue is conditional upon the fulfillment of the conditions set out under the paragraph headed Conditions of the Proposed bonus Shares Issue in this circular. If the conditions of the Bonus shares Issue are not fulfilled, the Bonus Shares Issue will not be proceeded. If in any doubt, investors are recommended to consult their professional advisers. 6 May 2009

2 CONTENTS Page DEFINITIONS EXPECTED TIMETABLE LETTER FROM THE BOARD BACKGROUND A. PROPOSED BONUS SHARES ISSUE AND DIVIDENDS B. AGM C. RECOMMENDATION D. GENERAL INFORMATION APPENDIX I GENERAL INFORMATION APPENDIX II RISK FACTORS APPENDIX III MISCELLANEOUS i

3 DEFINITIONS In this circular, unless the context requires otherwise, the following terms and expressions shall have the following meanings: A Share(s) ordinary share(s) of par value RMB1.00 each in the registered capital of the Company, which are listed and traded on the Shanghai Stock Exchange A Shareholder(s) holder(s) of the A Share(s) AGM Articles of Association Board Bonus Shares Issue Bonus Share(s) Bonus H Share(s) CCASS Company, Our Company, we, us or our Company Law or PRC Company Law the 2008 Annual General Meeting of the Company to be held at the Conference Room, 5/F., China Merchants Bank Tower, No 7088 Shennan Boulevard, Shenzhen, PRC, on Friday, 19 June 2009 at 9:00 a.m. the Articles of Association of the Company, as amended, modified or supplemented from time to time the Board of Directors of the Company proposed issue of Bonus Shares to the Shareholders whose names appear on the register of members of the Company at the close of business on the respective record date for the A Shareholders and the H Shareholders on the basis of three Bonus Shares for every 10 existing Shares held by them on such record date new Share(s) to be issued pursuant to the Bonus Shares Issue new H Share(s) to be issued pursuant to the Bonus Shares Issue the Central Clearing and Settlement System established and operated by HKSCC China Merchants Bank Co., Ltd., a joint stock company incorporated in the PRC with limited liability and the Shares of which are listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange the Company Law of the PRC Director(s) the director(s) of the Company 1

4 DEFINITIONS Dividends proposed final dividend of RMB1.00 per Share (including tax) for every 10 existing Shares held by the Shareholders whose names appear on the register of members of the Company at the close of business on the respective record date for the A Shareholders and the H Shareholders, payable in RMB for A Shareholders and in HKD to H Shareholders H Share(s) ordinary share(s) of par value of RMB1.00 each in the registered capital of the Company, which are listed and traded on the Hong Kong Stock Exchange H Share Record Date 19 June 2009, the time determined by the Board for determining the H Shareholders entitlements to the Bonus Shares Issue and the Dividends H Shareholder(s) holder(s) of the H Shares HKD HKSCC Hong Kong Hong Kong Listing Rules Hong Kong Stock Exchange Latest Practicable Date PRC RMB Share(s) Shareholder(s) Shanghai Stock Exchange Hong Kong Dollars, the lawful currency of Hong Kong Hong Kong Securities Clearing Company Limited The Hong Kong Special Administrative Region of the People s Republic of China the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange The Stock Exchange of Hong Kong Limited 29 April 2009, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion herein The People s Republic of China Renminbi, the lawful currency of the PRC A Share(s) and H Share(s) of the Company holder(s) of the Share(s) The Shanghai Stock Exchange 2

5 EXPECTED TIMETABLE 2009 Last day of dealings in the H Shares cum-entitlements to the Bonus H Shares and the Dividends Friday, 15 May First day of dealings in the H Shares ex-entitlements to the Bonus H Shares and the Dividends Monday, 18 May Latest time for lodging transfers of the H Shares to qualify for entitlements to the Bonus H Shares and the Dividends :30 p.m., Tuesday, 19 May H Share Record Date Friday, 19 June H Shareholders register closed From Wednesday, 20 May to Friday, 19 June (both days inclusive) Latest date for lodging reply slips for the AGM Friday, 29 May Latest time for lodging forms of proxy for the AGM :00 a.m., Thursday, 18 June AGM :00 a.m., Friday, 19 June H Shareholders register re-opens Monday, 22 June Note: The Company will issue a separate announcement regarding the date of dispatch of the certificates for the Bonus H Shares and the date of the commencement of dealings in the Bonus H Shares. 3

6 LETTER FROM THE BOARD CHINA MERCHANTS BANK CO., LTD. (a joint stock company incorporated in the People s Republic of China with limited liability) (Stock Code: 3968) Executive Directors: Ma Weihua Zhang Guanghua Li Hao Non-executive Directors: Qin Xiao Wei Jiafu Fu Yuning Li Yinquan Hong Xiaoyuan Ding An Hua Edward Sun Yueying Wang Daxiong Fu Junyuan Registered address: China Merchants Bank Tower No Shennan Boulevard Shenzhen PRC Principal place of business in Hong Kong: 21st Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong Independent Non-executive Directors: Wu Jiesi Yan Lan Yi Xiqun Chow Kwong Fai, Edward Liu Yongzhang Liu Hongxia 6 May 2009 To the Shareholders Dear Sir or Madam, PROPOSED BONUS SHARES ISSUE AND DIVIDENDS BACKGROUND It was announced on 24 April 2009 in conjunction with the announcement of the Company s results for the year ended 31 December 2008 that, in addition to the recommendation of the Dividends, a Bonus Shares Issue would be proposed to the 4

7 LETTER FROM THE BOARD Shareholders whose names appear on the register of members of the Company on the respective record date for the A Shareholders and the H Shareholders. The aforesaid proposals are subject to the conditions set out in this circular. The purpose of this circular is to provide you with further details of the special resolution regarding the profit appropriations plan (including the proposed Bonus Shares Issue and distribution of Dividends) for the year ended 31 December 2008 and to seek your approval at the AGM in respect of such matters. A. PROPOSED BONUS SHARES ISSUE AND DIVIDENDS 10% of the profit after tax of RMB billion as stated in the audited financial statements (prepared in accordance with the PRC accounting principles), amounting to RMB2.041 billion, was appropriated to statutory surplus reserve. Regulatory general reserve was RMB1.40 billion. Profits distributable to shareholders for the year 2008 was RMB billion. A special resolution will be proposed at the AGM to consider and, if thought fit, approve the proposed profit appropriation plan for the year ended 31 December 2008 with respect to (i) subject to the conditions set out in the section headed Enterprise Income Tax payable by Non-resident Enterprise Shareholders below, the declaration and payment of the Dividends, and (ii) subject to fulfillment of conditions set out in the section headed Conditions of the Proposed Bonus Shares Issue below, the Bonus Shares Issue will be made on the basis of three Bonus Shares (through capitalization of retained profits of the Company), credited as fully paid, for every 10 existing Shares held by the Shareholders whose names appear on the register of members of the Company at the close of business on the respective record date for the A Shareholders and H Shareholders. As the Convertible Bonds ( CMB Convertible Bonds ) issued by the Company have not been fully converted into share capital of A Shares and capital reserve of the Company, the exact total number of Bonus Shares and the total amount of Dividends will not be capable of determination until after the close of business of the record date for the A Shareholders. Based on a total of 14,707,194,077 Shares (comprising a total of 2,662,000,000 H Shares and a total of 12,045,194,077 A Shares) in issue as at Latest Practicable Date and on the assumption that no new Shares will be allotted or issued prior to the H Share Record Date, (i) subject to the conditions set out in the section headed Enterprise Income Tax payable by Non-resident Enterprise Shareholders below, the Dividends in the total amount of RMB266,200,000 (the actual amount in HKD will be calculated based on the average of the People s Bank of China s RMB/HKD benchmark rate for the week before the date of the AGM (inclusive of the day of the AGM)) will be paid to, and (ii) subject to the fulfillment of the conditions set out in the section headed Conditions of the Proposed Bonus Shares Issue below, a total of 798,600,000 Bonus H Shares will be issued to, the H Shareholders whose names appear on the H Shareholders register at the close of business on the H Share Record Date. Pursuant to the results of Bonus Shares Issue and subject to the passing of the special resolutions regarding, among other things, the amendments to the Articles of Association at the AGM, the Board will in accordance with the authorization comprised in such special resolution make corresponding amendments to the Articles of Association. Details of the special resolutions regarding, among other things, the amendments to the Articles of Association to be passed at the AGM are set out in the Company s announcement dated 24 April 2009 and the circular dated 30 April

8 LETTER FROM THE BOARD Enterprise Income Tax payable by Non-resident Enterprise Shareholders In accordance with the Enterprise Income Tax Law of the PRC and its implementation regulations which are applicable for the period commencing from 1 January 2008, the Company shall be obliged to withhold and pay enterprise income tax on behalf of non-resident enterprise shareholders with a tax rate of 10% when the Company distributes Dividends to non-resident enterprise shareholders whose names appear on the register of members for H share of the Company. As such, any H Shares of the Company registered other than in the name(s) of individual(s), including HKSCC Nominees Limited, other nominees, trustees, or other organizations or groups, shall be deemed to be shares held by non-resident enterprise shareholder(s) and enterprise income tax shall be withheld from any dividends payable thereon. The Company shall comply with the relevant rules and regulations to withhold and pay enterprise income tax on behalf of the relevant H Shareholders who are listed in the register of members of H Shares of the Company as of the H Share Record Date. Conditions of the Proposed Bonus Shares Issue The proposed Bonus Shares Issue is conditional, among the other things, upon: (i) (ii) the passing of the special resolution to approve the special resolution regarding the profit appropriations plan (including the Bonus Shares Issue and distribution of Dividends) for the year ended 31 December 2008 by the Shareholders at the AGM; the Listing Committee of the Hong Kong Stock Exchange granting listing of, and permission to deal in, the Bonus H Shares; and (iii) compliance with the relevant legal procedures and requirements under the Company Law to effect the Bonus Shares Issue. Warning of Risks of Dealing in the H Shares H Shareholders should note that the existing H Shares are expected to be dealt in on an ex-entitlement basis from Monday, 18 May If the conditions of the Bonus Shares Issue (as set out above under the paragraph headed Conditions of the Proposed Bonus Shares Issue ) are not fulfilled, the Bonus Shares Issue will not be proceeded. If in any doubts, investors are recommended to consult their professional advisers. Reasons for the Proposed Bonus Shares Issue The Board believes that the proposed Bonus Shares Issue will allow the Shareholders to participate in the growth of the Company by way of capitalisation of retained profits. In addition, it will provide the Company with a wider capital base and therefore increase the marketability of the Shares. 6

9 LETTER FROM THE BOARD Ranking of the Bonus Shares and Fractional Entitlements The Bonus Shares will, subject to the Articles of Association, when issued, rank pari passu in all respects with the Shares then in issue. Holders of Bonus Shares will be entitled to receive all future dividends and distributions (if any) which are declared and paid after the date on which the Bonus Shares are allotted and issued, but will not be entitled to the Dividends. No fractional Shares will be issued and distributed pursuant to the Bonus Shares Issue. Effect of the shareholding after the Bonus Shares Issue Set out below are the shareholding structure of the Company as at the Latest Practicable Date and immediately upon completion of the Bonus Shares Issue (assuming that no new Shares will be allotted or issued or converted from CMB Convertible Bonds prior to the respective H Share Record Date and the record date for A Share, and that the conditions set out in the paragraph headed Conditions of the Proposed Bonus Shares Issue above will be satisfied): As at the Latest Practicable Date Number of Shares % Immediately after completion of the Bonus Shares Issue Number of Shares % A Shares 12,045,194, ,658,752, H Shares 2,662,000, ,460,600, ,707,194, ,119,352, Listing and Dealings The H Shares are listed on the Hong Kong Stock Exchange whereas the A Shares and CMB Convertible Bonds are listed on the Shanghai Stock Exchange. Application will be made to the Listing Committee of the Hong Kong Stock Exchange for listing of, and permission to deal in, the Bonus H Shares. Subject to the satisfaction of the conditions as set out in this circular (including but not limited to the granting of the aforesaid approval by the Hong Kong Stock Exchange), the Bonus H Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS. All necessary arrangements will be made for the Bonus H Shares to be admitted into CCASS. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. The Bonus Shares to be allotted and issued to the A Shareholders pursuant to the Bonus Shares Issue will be listed on the Shanghai Stock Exchange. 7

10 LETTER FROM THE BOARD Subject to the proposed Bonus Shares Issue becoming unconditional, the certificates for the Bonus H Shares and the cheques for the Dividends will dispatched by ordinary post to the H Shareholders who are entitled thereto at their own risk. In case of joint shareholding, the certificates of the Bonus H Shares will posted to the first named person on the H Shareholder s register in respect of such joint shareholding. The Company will issue a separate announcement regarding the date of dispatch of the certificates for the Bonus H Shares and the date of the commencement of dealings in the Bonus H Shares. Adjustments to CMB Convertible Bonds Implementation of the Bonus Shares Issue will lead to adjustment to the conversion price and/or number of Shares to be issued upon conversion of CMB Convertible Bonds. The Company will notify the holders of CMB Convertible Bonds regarding the adjustments to be made pursuant to the terms and conditions of CMB Convertible Bonds and notify the Shareholders by way of announcement. Save for the CMB Convertible Bonds, the Company has no outstanding options, warrants or convertible securities to subscribe for any Shares. Expected Timetable The expected timetable for the Bonus Shares Issue is set out on page 3 of this circular. Dates or deadlines specified in this circular are indicative only and may be varied by the Company. Any consequential changes to the expected timetable will be published or notified to the Shareholders as and when appropriate. Responsibility Statement This circular includes particulars given in compliance with the Hong Kong 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 document 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. B. AGM Notice, Proxy Form and Reply Slip The AGM will be held at the Conference Room, 5/F., China Merchants Bank Tower, No Shennan Boulevard, Shenzhen, PRC on Friday, 19 June 2009 at 9:00 a.m., at which, among other things, the proposed profit appropriation plan for the year ended 31 December 2008 with respect to the Bonus Shares Issue and Dividends will be considered. A notice for convening the AGM has been issued to Shareholders of the Company separately. 8

11 LETTER FROM THE BOARD Whether or not you are able to attend, you should complete and return the proxy form in accordance with the instructions printed thereon and return it to the Company s H Share Registrar, Computershare Hong Kong Investor Services Limited, at Rooms , 18/F., Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, as soon as possible and in any event by not later than 24 hours before the time appointed for holding such meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the AGM should you so wish. The notice of AGM, reply slip, form of proxy for use at the AGM are also published on the websites of the Hong Kong Stock Exchange ( and the Company ( Closure of Share Registers According to the Articles of the Association, the Company will close its share register for H Shares from Wednesday, 20 May 2009 to Friday, 19 June 2009 (both days inclusive). H Shareholders should note that during such period no share transfer will be registered. All the H Shareholders registered on the Company s share register maintained by the Company s H Share Registrar, Computershare Hong Kong Investor Services Limited, at 4:30 p.m. on Tuesday, 19 May 2009 will be entitled to (i) attend the AGM; (ii) be allotted and issued the Bonus H Shares and (iii) receive the Dividends. H Shareholders who wish to attend the AGM and be entitled to the Bonus Shares Issue and the Dividends must lodge the transfers of the H Shares with the said Computershare Hong Kong Investor Services Limited at Rooms , 17/F., Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong; and in each case, no later than 4:30 p.m. on Tuesday, 19 May C. RECOMMENDATION The Board considers that the proposed Bonus Shares Issue and the declaration of the Dividends are in the interests of the Company and the Shareholders as a whole and accordingly recommended the Shareholders vote in favour of the relevant resolution(s) which will be proposed at the AGM. D. GENERAL INFORMATION Your attention in drawn to the information set out in the appendices to this circular. Yours faithfully By order of the Board China Merchants Bank Co., Ltd. Qin Xiao Chairman 9

12 APPENDIX I GENERAL INFORMATION FOREIGN EXCHANGE LIABILITIES The Board considers that the Company will have sufficient foreign exchange to pay forecasted or planned dividends on H Shares and to meet its foreign exchange liabilities as they become due, with the Company s existing internal resources. STATEMENTS TO BE MADE ON ACQUISITION OF SHARES The Company shall ensure that all its listing documents and share certificates include the statements stipulated below and shall instruct and cause its share registrars not to register the subscription, purchase or transfer of any of its Shares in the name of any particular holder unless and until such holder delivers to such share registrar a signed form in respect of such Shares bearing statements to the following effect: (i) the acquirer of Shares agrees with the Company and each of its shareholder, and the Company agrees with each shareholder, to observe and comply with the Company Law, the Special Regulations of the State Council of the PRC on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies and its Articles of Association; (ii) the acquirer of Shares agrees with the Company, each of its shareholders, directors, supervisors, presidents and officers and itself (acting for the Company and for each director, supervisor, presidents and officer) agrees with each shareholder, to refer all differences and claims arising from its Articles of Association or any rights or obligations conferred or imposed by the Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with its Articles of Association. Any reference to arbitration will be deemed to authorize the arbitration tribunal to conduct hearing in open session and to publish its award. Such arbitration will be final and conclusive; (iii) the acquirer of Shares agrees with the Company and each shareholders that H Shares in the Company are freely transferable by the holder of such Shares; and (iv) the acquirer of Shares authorizes the Company to enter into a contract on his behalf with each director and officer whereby such directors and officers undertake to observe and comply with their obligations to shareholders stipulated in its Articles of Association. SERVICE CONTRACTS As at the Latest Practicable Date, none of the Directors or supervisors had entered into, or proposed to enter into, a service contract with the Company or its subsidiaries which does not expire or is not terminable by the Company and its subsidiaries within one year without payment of compensation, other than statutory compensation. 10

13 APPENDIX I GENERAL INFORMATION DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents are available for inspection during normal business hours at the office of Herbert Smith at 23/F., Gloucester Tower, 15 Queen s Road Central, Hong Kong during normal business hours on any weekday (public holidays excepted) from the date of this circular up to and including the 14th day from the date of this circular. (i) (ii) the articles of association of the Company; a summary of the principal legal and regulatory provisions; (iii) the annual reports of the Company for the two years ended 31 December 2007 and 2008; (iv) (v) (vi) the share transfer agreement dated 5 May 2008 entered into between Shenzhen Municipal Dingzun Investment Advisory Company Ltd. and the Company in relation to the acquisition of 50% equity interests in CIGNA & CMC Life Insurance Company Limited; the conditional sale and purchase agreement entered into between Wu Jieh Yee Company Limited and the Company and the conditional sale and purchase agreement entered into between Wu Yee Sun Company Limited and the Company, in each case, both dated 30 May 2008, in relation to the acquisition of an aggregate of 123,336,170 shares in Wing Lung Bank Limited; copies of the following PRC laws, together with unofficial English translations thereof: (a) (b) (c) (d) (e) (f) the PRC Banking Supervision and Regulation Law, the PRC Company Law, the PRC Commercial Banking Law and the PRC People s Bank of China Law; the Mandatory Provisions for Articles of Association of Companies to be listed Overseas ( Mandatory Provisions ); the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies ( Special Provisions ); the Provisional Regulations Concerning the Issuance and Trading of Shares promulgated by the State Council on 22 April 1993; the Regulations of the State Council concerning Domestic Listed Foreign Shares of Joint Stock Limited Liability Companies promulgated on 25 December 1995; the PRC Securities Law; 11

14 APPENDIX I GENERAL INFORMATION (g) the Provisional Measures Prohibiting Fraudulent Conduct Relating to Securities promulgated by the Securities Committee on 2 September 1993; (h) the Arbitration Law; and (i) the Civil Procedure Law of the PRC enacted by the Seventh National People s Congress on 9 April 1991 and effective on the same date. (vii) this circular. 12

15 APPENDIX II RISK FACTORS You should carefully consider all of the information in this circular including the risks and uncertainties described below before making an investment in our H Shares. You should pay particular attention to the fact that we are a company incorporated in China and are governed by a legal and regulatory environment which in some respects may differ from that which prevails in other jurisdictions. Our business, financial condition or results of operations could be materially adversely affected if any of these risks materializes. The trading price of our H Shares could decline if any of these risks materializes, and you may lose all or part of your investment. China s economic, political and social conditions, as well as government policies, could affect our business. Substantially all of our businesses, assets and operations are located in China. Accordingly, our financial condition, results of operations and business prospects are, to a significant degree, subject to the economic, political and legal developments in China. China s economy differs from the economies of most developed countries in many respects, including, among other things, government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC government has the power to implement macroeconomic control measures affecting China s economy. The government has implemented various policies and measures to improve growth in economy. Certain macroeconomic measures may materially affect our asset quality, financial condition and results of operations. The PRC legal system could limit the legal protections available to you. We are organized under the laws of the PRC. The PRC legal system is based on written statutes. Since the late 1970s, the PRC government has promulgated laws and regulations dealing with such economic matters as the issuance and trading of securities, shareholder rights, foreign investment, corporate organization and governance, commerce, taxation and trade. However, many of these laws and regulations are relatively new and will continue to evolve, are subject to different interpretations and may be inconsistently enforced. Our articles of association provide that disputes between holders of our H Shares and our company, or our directors, supervisors, officers, or the holders of our A Shares, arising out of our articles of association or the PRC Company Law and related regulations, concerning the affairs of our bank, are to be resolved through arbitration by either the China International Ecomonic and Trade Arbitration Commission (the CIETAC ) or the Hong Kong International Arbitration Centre (the HKIAC ), rather than by a court of law. Awards made by Chinese arbitral authorities recognized under the Hong Kong Arbitration Ordinance, including the CIETAC, can be enforced in Hong Kong. Hong Kong arbitral awards are also enforceable in China, subject to the satisfaction of certain PRC legal requirements. You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management. The legal framework to which our Company is subject is materially different from the Companies Ordinance or corporate law in the United States and other jurisdictions with respect 13

16 APPENDIX II RISK FACTORS to certain areas, including the protection of minority shareholders. In addition, the mechanisms for enforcement of rights under the corporate governance framework to which our Company is subject are also relatively undeveloped and untested. However, according to the PRC Company Law that became effective on 1 January 2006, shareholders may commence a derivative action against the directors, supervisors, officers or any third party on behalf of a company under certain circumstances. However, as far as we are aware, the courts in China have not published any case report of a shareholders derivative action under the newly amended PRC Company Law. Although we are also subject to the Hong Kong Listing Rules and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases, the holders of H Shares will not be able to bring actions on the basis of violations of the Hong Kong Listing Rules and must rely on the Hong Kong Stock Exchange to enforce its rules. The Hong Kong Listing Rules and Hong Kong Codes on Takeovers and Mergers and Share Repurchases do not have the force of law in Hong Kong. We are subject to PRC government controls on currency conversion and future movements in exchange rates. Under China s existing foreign exchange regulations, we will be able to pay dividends in foreign currencies with prior approval from the PRC State Administration of Foreign Exchange. However, in the future, the PRC government may, at its discretion, take measures to restrict access to foreign currencies for current account transactions under certain circumstances. In this case, we may not be able to pay dividends in foreign currencies to holders of our H Shares. Specific risk factors related to our business. There are certain specific risks and considerations relating to an investment in our H Shares. These risk factors include: If we are unable to effectively maintain the quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected. We may have to increase our allowance for impairment losses to cover future actual losses to our loan portfolio. Our loan classification and provisioning policies may be different in certain respects from those applicable to banks in certain other countries or regions. Future amendments to International Accounting Standard 39 and interpretive guidance on its application may require us to change our loan provisioning practice. The collateral or guarantees securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral or guarantees. We may face competition from direct corporate financing, such as issuance of domestic commercial paper, which may adversely affect the stability of our interest income. 14

17 APPENDIX II RISK FACTORS We have a concentration of loans to certain industries and regions, and if these industries or the economies of these regions significantly deteriorate, our financial condition and results of operations may be materially and adversely affected. We may not be able to maintain the growth rate of our retail banking business. The growth rate of our loan portfolio may slow, and we may not be successful in implementing our strategies to grow our business. Our expanding range of products and services exposes us to new risks. If we are not effective in implementing enhanced risk management and internal control policies and procedures and introducing certain information technology systems to assist us with our risk management and internal controls, our business and prospects may be materially and adversely affected. We may not be able to detect and prevent fraud or other misconduct committed by our employees or third parties. If we fail to maintain our growth rate in customer deposits or if there is a significant decrease in our customer deposits, our business operations and our liquidity may be adversely affected. We are subject to credit risk in respect of certain commitments and guarantees. We are subject to counterparty risks in our derivative transactions. Our business is highly dependent on the proper functioning and improvement of our information technology systems. Our largest shareholder is able to exercise significant influence over us. We may be unable to meet regulatory requirements relating to capital adequacy. We are subject to various PRC and overseas regulatory requirements, and our failure to fully comply with such requirements, if any, could materially and adversely affect our business, financial condition, results of operations and our reputation. Certain PRC regulations limit our ability to diversify our investments, and as a result, a decrease in the value of a particular type of investment may have a material adverse effect on our financial condition and results of operations. We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to additional liability and harm our business or reputation. Certain of our customers and the countries in which they are located are subject to U.S. sanctions. Characteristics of the A Share and H Share markets may differ. Our A Shares are traded on the Shanghai Stock Exchange whereas our H Shares are traded on the Hong Kong Stock Exchange. Without approval from the relevant regulatory authorities, our A Shares and H Shares are neither interchangeable nor fungible, and there is no trading or settlement between the A share and the H share markets. The A share and H share markets have different trading characteristics (including trading volume and liquidity) and investor bases, including different levels of retail and institutional participation. As a result of these differences, the trading price of our A Shares and H Shares may not be the same. Moreover, fluctuations in our A Share price may affect our H Share price, and vice versa. Because of the different characteristics of the A share and H share markets, the historical prices of our A Shares may not be indicative of our H Share performance. You should therefore not place undue reliance on the prior trading history of our A Shares when evaluating an investment in our H Shares. 15

18 APPENDIX III MISCELLANEOUS Set out below is a description of the applicable company law matters relevant to the Company. Such description is, however, not intended to be exhaustive. (a) Company Law (i) Corporate existence Under Hong Kong company law, a company having share capital is incorporated by the Registrar of Companies in Hong Kong issuing a certificate of incorporation and upon its incorporation, a company will acquire an independent corporate existence. A company may be incorporated as a public company or a private company. The articles of association of a private company incorporated in Hong Kong is required by the Companies Ordinance to contain certain pre-emptive rights provisions. A public company does not contain such pre-emptive rights provisions in its articles of association. Under the PRC Company Law, a joint stock limited company may be incorporated by either the promotion method or the subscription method. A company must have a minimum registered capital of RMB5 million, or higher as may otherwise be required by the laws and regulations. Hong Kong law does not prescribe any minimum capital requirements for a Hong Kong company. Under the PRC Company Law, the monetary contributions by all the shareholders must not be less than 30% of the registered capital. There is no such restriction on a Hong Kong company under Hong Kong law. (ii) Share capital Under Hong Kong law, the authorized share capital of a Hong Kong company is the amount of share capital which the company is authorized to issue. A company is not bound to issue the entire amount of its authorized share capital. The authorized share capital of a Hong Kong company may be larger than its issued share capital. Hence, the directors of a Hong Kong company may, with the prior approval of the shareholders, if required, cause the company to issue new shares. The PRC Company Law does not provide for authorized share capital. The registered capital of a joint stock limited company established by promoters is the amount of the total share capital subscribed by all promoters registered with the authority of company registration. The registered capital of a joint stock limited company established by fund-raising is the amount of the total paid-in capital registered with the authority of company registration. Any increase in the registered capital must be approved by the shareholders in a general meeting and by the relevant PRC governmental and regulatory authorities. Under the PRC Company Law and the PRC Securities Law, a company which is authorized by the relevant securities administration authority to list its shares on a stock exchange must have a registered capital of not less than RMB30 million. Hong Kong law does not prescribe any minimum capital requirements for companies incorporated in Hong Kong. 16

19 APPENDIX III MISCELLANEOUS Under the PRC Company Law, the shares may be subscribed for in the form of money or non-monetary assets (other than assets not entitled to be used as capital contributions under relevant laws and administrative regulations). For non-monetary assets to be used as capital contributions, appraisals and verification must be carried out to ensure no overvaluation or under-valuation of the assets. The monetary contribution shall not be less than 30% of a joint stock limited company s registered capital. There is no such restriction on a Hong Kong company under Hong Kong law. (iii) Restrictions on shareholding and transfer of shares Under PRC law, the domestic shares ( domestic shares ) in the share capital of a joint stock limited company which are denominated and subscribed for in Renminbi may only be subscribed or traded by the State, PRC legal or natural persons, Qualified Foreign Institutional Investors and Qualified Foreign Strategic Investors. The overseas listed foreign shares ( H shares ) issued by a joint stock limited company which are denominated in Renminbi and subscribed for in a currency other than Renminbi, may only be subscribed for, and traded by, Qualified Domestic Institutional Investors of China, as well as investors from Hong Kong, Macau, Taiwan or any country and territory outside the PRC. Under the PRC Company Law, shares in a joint stock limited company held by its promoters cannot be transferred within one year after the date of establishment of the company. Shares in issue prior to the company s public offering cannot be transferred within one year from the listing date of the shares on the Hong Kong Stock Exchange. Shares in a joint stock limited company held by its directors, supervisors and senior managers and transferred each year during their term of office shall not exceed 25% of the total shares they hold in the company. Moreover, the shares they hold in the company cannot be transferred within one year from the listing date of the shares, and within six months after the said personnel has left office. The company s articles of association may set other restrictive requirements on shareholdings and transfer of the company s shares held by its directors, supervisors and officers. There are no such restrictions on shareholdings and transfer of shares under Hong Kong company law. (iv) Financial assistance for acquisition of shares Although the PRC Company Law does not contain any provision prohibiting or restricting a joint stock limited company or its subsidiaries from providing financial assistance for the purpose of an acquisition of its own or its holding company s shares, the Mandatory Provisions provide for certain restrictions, similar to those under Hong Kong company law, on a company and its subsidiaries providing such financial assistance. 17

20 APPENDIX III MISCELLANEOUS (v) Variation of class rights The PRC Company Law makes no specific provision relating to variation of class rights. However, the PRC Company Law states that the State Council can promulgate regulations relating to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the circumstances which are deemed to be variations of class rights and the approval procedures required to be followed regarding variations of class rights. Under the Companies Ordinance, no rights attached to any class of shares can be varied except (i) with the approval of a special resolution of the holders of the relevant class at a separate meeting, (ii) with the consent in writing of the holders of three-fourths in nominal value of the issued shares of the class in question, (iii) by agreement of all the members of the company or (iv) if there are provisions in the articles of association relating to the variation of those rights, then in accordance with those provisions. The Company (as required by the Hong Kong Listing Rules and the Mandatory Provisions) has adopted in the Articles of Association provisions protecting class rights in a similar manner to those found in Hong Kong law. Holders of overseas listed foreign invested shares and domestic invested shares are defined in the Articles of Association as different classes, except where (i) the Company issues and allots, in any 12-month period, pursuant to a shareholders special resolution, not more than 20% of each of the issued overseas listed foreign invested shares and the issued domestic invested shares existing as of the date of the shareholders special resolution; and (ii) the plan for the issue of domestic listed shares and overseas listed shares upon its establishment is implemented within 15 months following the date of approval by the CSRC. The Mandatory Provisions contain detailed provisions relating to circumstances which are deemed to constitute a variation of class rights. (vi) Directors The PRC Company Law, unlike Hong Kong company law, does not contain any requirements relating to the declaration of directors interests in material contracts, restrictions on interested directors being counted towards the quorum of, and voting at, a meeting of the board of directors at which a transaction in which a director is interested is being considered, restrictions on directors authority in making major dispositions, restrictions on companies providing certain benefits, such as loans, to directors and guarantees in respect of directors liability or prohibitions against compensation for loss of office without shareholders approval. The Mandatory Provisions, however, contain requirements and restrictions on major dispositions and specify the circumstances under which a director may receive compensation for loss of office. (vii) Supervisory committee Under the PRC Company Law, the board of directors and managers of a joint stock limited company is subject to the supervision of a supervisory committee. However, there is no mandatory requirement for the establishment of a supervisory committee for a 18

21 APPENDIX III MISCELLANEOUS company incorporated in Hong Kong. The Mandatory Provisions provide that each supervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what he considers to be in the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise under comparable circumstances. (viii) Derivative action by minority shareholders Hong Kong law permits minority shareholders to start a derivative action on behalf of a company against directors who have committed a breach of their fiduciary duties to the company, if such directors control a majority of votes at a general meeting, thereby effectively preventing a company from suing the directors in breach of their duties in its own name. The PRC Company Law stipulates that if directors and senior officers incur losses for the company due to violation of laws, administrative regulations or the articles of association, shareholders holding 1% or more shares of the company individually or collectively for a consecutive of 180 days or more may initiate proceedings in the people s court by giving a written request to the supervisory committee. If supervisors incur losses for the company due to violation of laws, administrative regulations or the articles of association in their office, the aforesaid shareholders may initiate proceedings in the people s court by giving a written request to the board of directors. If the supervisory committee, board of directors or the executive directors refuse the written request of proceedings from the shareholders, or do not initiate proceedings within 30 days upon receipt of request, or in case of emergency that will incur irrecoverable losses for the company if no actions are taken, the aforesaid shareholders are entitled to initiate proceedings in the people s court directly in their own names for the interest of the company. The Mandatory Provisions further provide remedies to the company against directors, supervisors and officers who breach their duties to the company. In addition, as a condition for the listing of H Shares on the Hong Kong Stock Exchange and in accordance with the Mandatory Provisions, every director and supervisor of a joint stock limited company applying for a listing of its foreign shares on the Hong Kong Stock Exchange is required to give an undertaking in favor of the company acting as agent for each of the shareholders. This allows minority shareholders to litigate against the directors and supervisors in default. (ix) Protection of minorities Under Hong Kong law, a shareholder who complains that the affairs of a company incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may petition to court to either wind up the company or make an appropriate order regulating the affairs of the company. In addition, on the application of a specified number of shareholders, the Financial Secretary of the Hong Kong Government may appoint inspectors who are given extensive statutory powers to investigate the affairs of a company incorporated in Hong Kong. The PRC law does not give similar safeguards. The Mandatory Provisions, however, contain provisions to the effect that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of 19

22 APPENDIX III MISCELLANEOUS the shareholders generally or of some part of the shareholders of a company to relieve a director or supervisor of his duty to act honestly in the best interests of the company or to approve the expropriation by a director or supervisor of the company s assets or the individual rights of other shareholders. (x) Notice of shareholders meetings Under the PRC Company Law, notice of a shareholders general meeting must be given not less than 20 days before the meeting, or, in the case of a company having bearer shares, a public announcement of a shareholders general meeting must be made 30 days prior to it being held. Under the Special Regulations and the Mandatory Provisions, 45 days written notice must be given to all shareholders and shareholders who wish to attend the meeting must reply in writing 20 days before the date of the meeting. For a company incorporated in Hong Kong, the minimum notice periods of a general meeting convened for passing an ordinary resolution and a special resolution are 14 days and 21 days, respectively. The notice period for an annual general meeting is 21 days. (xi) Quorum for shareholders meetings Under Hong Kong law, the quorum for a general meeting is no less than two members unless the articles of association of the company otherwise provide. For one-member companies, one member will be a quorum. The PRC Company Law does not specify any quorum requirement for a shareholders general meeting, but the Special Regulations and the Mandatory Provisions provide that a company s general meeting can be convened when replies to the notice of that meeting have been received from shareholders whose shares represent 50% of the voting rights in the company at least 20 days before the proposed date of the meeting. If that 50% level is not achieved, the company shall within five days notify its shareholders by way of a public announcement, and the shareholders general meeting may be held thereafter. (xii) Voting Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast by members present in person or by proxy at a general meeting and a special resolution is passed by a majority of not less than three quarters of votes cast by members present in person or by proxy at a general meeting. Under the PRC Company Law, the passing of any resolution requires more than one half of the votes cast by shareholders present in person or by proxy at a shareholders general meeting, except in cases of proposed amendments to the articles of association, increase or reduction of share capital, merger, division or dissolution of a joint stock limited company or changes to the company status, which each requires two-thirds or more of votes cast by shareholders present at a shareholders general meeting. 20