SHUN TAK HOLDINGS LIMITED

Transcription

1 IMPORTANT If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in the Company, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee. 14A.58(3)(b) 14A.59(1) 14.58(1) 14.60(3)(a) 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 invitation or offer to acquire, purchase or subscribe for securities of the Company. App1B1 SHUN TAK HOLDINGS LIMITED (Incorporated in Hong Kong with limited liability under the Companies Ordinance) (Stock Code: 0242) Financial adviser to Shun Tak Holdings Limited DISCLOSEABLE AND CONNECTED TRANSACTION: THE ACQUISITION INVOLVING THE ISSUE OF NEW SHARES, CONTINUING CONNECTED TRANSACTION: THE FUEL ARRANGEMENT AGREEMENT WITH THE REVISED ANNUAL CAPS ON THE FUEL ARRANGEMENT FEE Independent financial adviser to the Independent Board Committee and the Independent Shareholders Commerzbank AG Hong Kong Branch A letter from the Board is set out on pages 7 to 21 of this circular. A letter from the Independent Board Committee is set out on pages 22 to 23 of this circular. A letter from Commerzbank containing its advice and recommendations to the Independent Board Committee and the Independent Shareholders is set out on pages 24 to 45 of this circular. A notice convening the EGM to be held at the Golden Restaurant, Macau Jockey Club (HK) Club House, 1st Floor, China Merchants Tower, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on 8 November 2005 at 3:00 p.m. is set out on pages 60 to 61 of this circular. Whether or not you are able to attend the EGM, please complete and return to the registered office of the Company at Penthouse, 39th Floor, West Tower, Shun Tak Centre, 200 Connaught Road Central, Hong Kong the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event by no later than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish. 21 October 2005

2 CONTENTS Page Definitions... 1 Letter from the Board... 7 Introduction... 7 The Acquisition Details of the S&P Agreement The joint venture with Hongkong Land Financial impact of the Acquisition Reasons for the Acquisition The Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee Financial impact of the Fuel Arrangement Agreement Reasons for the Fuel Arrangement Agreement Reasons for the revised annual caps on the Fuel Arrangement fee Information on the relevant parties to the Acquisition and/or the Fuel Arrangement Agreement Discloseable and connected transaction, and continuing connected transaction EGM Recommendation Additional information Letter from the Independent Board Committee Letter from Commerzbank Appendix I Property valuation Appendix II General information Notice of the EGM Accompanying document Form of proxy i

3 DEFINITIONS In this circular, the following expressions have the following meanings, unless the context requires otherwise: Acquisition Alpha Davis associate Basecity Board Built City Cash Adjustment Classic Time Commerzbank Company the acquisition of the Sale Shares by Right City from Classic Time in accordance with the terms and conditions of the S&P Agreement Alpha Davis Investments Limited, a company incorporated in the British Virgin Islands, of which 53% ultimate shareholding is controlled by Ms. Pansy Ho and her associates has the meaning ascribed to it under the Listing Rules Basecity Investments Limited, a company incorporated under the laws of the British Virgin Islands, which indirectly wholly-owns Land Sub board of Directors Built City Investments Limited, a company incorporated under the laws of the British Virgin Islands and a whollyowned subsidiary of Classic Time an adjustment (if any) to the Consideration based upon the difference between the Final Development GFA and the Land Concession Contract GFA and which adjustment shall be settled between Right City and Classic Time in cash Classic Time Development Limited, a company incorporated under the laws of the British Virgin Islands and wholly-owned by Ms. Pansy Ho, who is a Director a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) and an authorised financial institution under the SFO to conduct type 1 (dealing in securities), 4 (advising on securities), and 6 (advising on corporate finance) regulated activities as set out in Schedule 5 of the SFO, and appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee Shun Tak Holdings Limited, a company incorporated under the laws of Hong Kong, the shares of which are listed on the Stock Exchange 1

4 DEFINITIONS Completion connected person the second business day after the date on which the last of the conditions precedent set out in the S&P Agreement are satisfied or such other date as Classic Time and Right City may agree has the meaning ascribed to it under the Listing Rules Consideration the consideration for the Acquisition estimated to be approximately HK$664.6 million (and subject to an increase capped at 3% in the S&P Agreement and a reduction not expected to exceed 8%) and to be finally determined based on the Land Concession Contract GFA plus or minus the Cash Adjustment. Consideration Shares Director(s) Dr. Stanley Ho Draft Land Concession Contract the number of newly issued Shares, being no less than approximately 89.7 million Shares and no more than approximately million Shares, taking into account a potential variation of 3% upwards and 8% downwards from the Consideration and Issue Price, to be allotted and issued to Classic Time and calculated by dividing the Consideration by the Issue Price the director(s) of the Company Dr. Stanley Ho, a substantial Shareholder and the Chairman of the Company a land concession contract in draft form containing particulars and conditions of grant in respect of the Site consistent with the Proposed Development offered by DSSOPT to Land Sub DSSOPT Direcção dos Serviços de Solos, Orbras Publicas e Transportes (Land, Public Works and Transport Bureau of Macau) EGM Extraordinary general meeting to be convened by the Company for purpose of considering and (if thought fit) approving the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee for 2005, 2006 and 2007 and other matters of the Company, to rectify the exceeding of the initial annual cap set for 2005 Final Development GFA Fuel the final gross floor area constructed and completed on the Site in respect of the retail, residential, hotel and serviced apartment portions Marine industrial diesel oil 2

5 DEFINITIONS Fuel Arrangement Agreement an agreement dated 23 December 2004 and entered into by STCTS and STDM, pursuant to which STDM supplies and loads the Fuel onto STCTS Group Vessels at the Terminal and a wholly-owned subsidiary of STCTS, with the technical know-how, provides technical assistance to STDM in relation to the loading of the Fuel. Both transactions have occurred on a recurring basis since 1 January 2005 Fuel Arrangement Fee the amount paid by STCTS to STDM under the Fuel Arrangement Agreement for the supply and loading of Fuel onto STCTS Group Vessels calculated on the basis of the Fuel Price minus the Technical Assistance Fee Fuel Price Group HK$ Hong Kong Hongkong Land Independent Board Committee the cost of the Fuel calculated based on the cost charged STDM by the petroleum supplier in Macau to which is added a handling charge by STDM per liter of Fuel supplied depending on the type of vessel the Company and its subsidiaries Hong Kong dollars, the legal currency of Hong Kong the Hong Kong Special Administrative Region of the People s Republic of China Hongkong Land Holdings Limited, a company incorporated under the laws of Bermuda, the shares of which are primarily listed on the London Stock Exchange, and its subsidiaries the independent committee of the Board comprising Sir Roger Lobo, Mr. Robert Kwan and Mr. Norman Ho, being the independent non-executive Directors, who have been appointed to advise the Independent Shareholders in relation to the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee 3

6 DEFINITIONS Independent Shareholders Intended Development GFA Issue Price Jardine Matheson Group as to the Acquisition, the Shareholders other than Ms. Pansy Ho and her associates and any other connected persons (if any) with a material interest and any Shareholder with a material interest (and its associates) in the Acquisition and as to the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee, the Shareholders other than Dr. Stanley Ho, STDM and their respective associates and any other connected persons (if any) with a material interest and any Shareholder with a material interest (and its associates) in the Fuel Arrangement Agreement the gross floor area of approximately 2.6 million sq. ft. which is currently intended to be constructed and completed on the Site in respect of the retail, residential, hotel and serviced apartment portions and on the basis of which Land Sub is applying for the Land Concession Contract the price of HK$6.81 per Share at which the Consideration Shares will be allotted and issued to Classic Time Jardine Matheson Holdings Limited, its subsidiaries and associated companies Joint Venture Agreement the shareholders agreement including the property management arrangement entered into by inter alia Hongkong Land and Built City on 29 September 2005 Land Commission Land Concession Contract Land Concession Contract GFA Land Sub Latest Practicable Date the consultative organization to the Chief Executive of Macau on matters related to the concession of land a land concession contract in final form containing particulars and conditions of grant in respect of the Site consistent with the Proposed Development approved by the Land Commission and offered by DSSOPT to Land Sub the gross floor area for the intended development as specified in the Land Concession Contract Properties Sub F, Limited, a company incorporated under the laws of Macau and an indirect wholly-owned subsidiary of Basecity that has the right to acquire a land concession in respect of the Site 19 October 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein. 4

7 DEFINITIONS Listing Rules Macau Macau Gazette the Rules Governing the Listing of Securities on the Stock Exchange the Macau Special Administrative Region of the People s Republic of China the relevant official publication of the Government of Macau under Land Law No. 6/80/M and subsequent amendments Mandarin Oriental the group of companies of which Mandarin Oriental International Limited is the ultimate holding company Ms. Pansy Ho Proposed Development Right City S&P Agreement Sale Shares SFO Share(s) Shareholder(s) Site sq. ft. an Executive Director of the Company and also the sole owner of Classic Time the proposed development of a mixed use complex which on completion is intended to comprise approximately 320,000 sq. ft. for hotel, approximately 380,000 sq. ft. for retail, approximately 1.9 million sq. ft. for serviced apartments and residential premises with total aggregate developable gross floor area of approximately 2.6 million sq. ft. within parameters specified in the S&P Agreement Right City International Limited, a company incorporated under the laws of the British Virgin Islands and a whollyowned subsidiary of the Company, which is the purchaser of the Sale Shares under the S&P Agreement the sale and purchase agreement entered into by Classic Time, Ms. Pansy Ho, Right City and the Company in relation to the sale and acquisition of the Sale Shares dated 29 September 2005 the entire issued share capital of Built City the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) the share(s) of the Company which are listed on the Stock Exchange the shareholder(s) of the Company the property site, located at Lot B, District B2, Zone B, NAPE in Macau with a total site area of approximately 197,660 sq. ft. square feet 5

8 DEFINITIONS STCTS STCTS Group STCTS Group Vessels Shun Tak-China Travel Shipping Investments Limited, a company incorporated in the British Virgin Islands and a subsidiary of the Company, which is owned as to 71% by the Group and 29% by a wholly-owned subsidiary of China Travel International Investments Hong Kong Limited, a company listed on the Stock Exchange STCTS and its subsidiaries the vessels managed and operated by the STCTS Group at the Terminal STDM Sociedade de Turismo e Diversões de Macau, S.A., a connected person of the Company under the Listing Rules Stock Exchange Technical Assistance Technical Assistance Fee Terminal Valuation Report The Stock Exchange of Hong Kong Limited technical assistance provided by a wholly-owned subsidiary of STCTS to STDM in relation to Fuel supplied to STCTS Group Vessels at the Terminal the fee charged to STDM for technical assistance provided by the subsidiary of STCTS which is calculated at cost, including salaries, benefits and allowance of staff in providing such assistance the outer harbour terminal in Macau the valuation report on the Site prepared by Chesterton Petty Limited dated 22 September 2005 % per cent 6

9 LETTER FROM THE BOARD SHUN TAK HOLDINGS LIMITED (Incorporated in Hong Kong with limited liability under the Companies Ordinance) (Stock Code: 0242) Directors: Dr. Stanley Ho (Group Executive Chairman) Sir Roger Lobo** Mr. Robert Kwan** Mr. Norman Ho** Dato Dr. Cheng Yu Tung* Mrs. Mok Ho Yuen Wing, Louise* Ms. Pansy Ho (Managing Director) Ms. Daisy Ho (Deputy Managing Director) Dr. Ambrose So Mr. Patrick Huen Mr. Andrew Tse Mr. Anthony Chan Ms. Maisy Ho Mr. David Shum Registered office: Penthouse, 39th Floor, West Tower Shun Tak Centre 200 Connaught Road Central, Hong Kong 2.14 App1B36 * Non-executive Directors ** Independent non-executive Directors 21 October 2005 To the Shareholders Dear Sir or Madam, DISCLOSEABLE AND CONNECTED TRANSACTION: THE ACQUISITION INVOLVING THE ISSUE OF NEW SHARES, CONTINUING CONNECTED TRANSACTION: THE FUEL ARRANGEMENT AGREEMENT WITH THE REVISED ANNUAL CAPS ON THE FUEL ARRANGEMENT FEE 14A.59(2)(f) 14.64(4)(a) 14.63(1) 14A.58(3)(a) INTRODUCTION On 29 September 2005, Right City, a wholly-owned subsidiary of the Company, entered into the S&P Agreement with Classic Time, a company wholly-owned by Ms. Pansy Ho, in relation to the sale and purchase of the Sale Shares. Right City conditionally agreed to acquire from Classic Time the 7

10 LETTER FROM THE BOARD entire issued share capital of Built City whose principal asset at the time of Completion will be a 51% interest in Basecity, which indirectly wholly-owns Land Sub, the company which has the right to apply for a land concession in respect of the Site. The remaining 49% interest in Basecity was sold to Hongkong Land prior to the Acquisition when Built City was still a wholly-owned subsidiary of Classic Time. The Consideration for the Acquisition is estimated to be approximately HK$664.6 million which would be satisfied by the issue to Classic Time of the Consideration Shares upon publication of the Land Concession Contract in the Macau Gazette. The calculation of the estimated Consideration is based upon the Intended Development GFA. Due to factors which may arise in the course of the approval process for the Land Concession Contract as well as subsequent construction, regulatory matters etc, the Land Concession Contract GFA and/or the Final Development GFA may vary from the Intended Development GFA on the basis of which the estimated Consideration is currently calculated. Such variation (if any) is expected to be no more than 3% upwards and 8% downwards. In such circumstances, the Consideration Shares would be calculated based upon the Land Concession Contract GFA. Following the issue of the Consideration Shares to Classic Time, any variation of the Final Development GFA from the Land Concession Contract GFA would be settled by way of the Cash Adjustment between Classic Time and Right City. The Acquisition is conditional on, inter alia, the approval of Independent Shareholders at the EGM and the grant of listing of, and permission to deal in, the Consideration Shares on the Stock Exchange. Following Completion, in the event the Land Concession Contract has not been published in the Macau Gazette by 31 July 2006, Right City and Classic Time will each have the right to elect to reverse the sale and purchase of the Sale Shares whereupon Classic Time shall repay to Right City all sums paid by Right City in respect of the Acquisition. Prior to the signing of the S&P Agreement, Built City had entered into the Joint Venture Agreement with Hongkong Land in respect of the ownership and development of the Site. Pursuant to the Joint Venture Agreement, Hongkong Land acquired a 49% interest in Basecity from Built City while it was a wholly-owned subsidiary of Classic Time for cash consideration of approximately HK$638.5 million. Similar to the proposed Acquisition, this consideration had also been fixed by reference to the Intended Development GFA and may be adjusted upward or downward to the same extent by reference to the Final Development GFA. It is intended that the Site be developed as a premium mixed-use development comprising a 5-star hotel (approximately 320,000 sq. ft.), a retail mall (approximately 380,000 sq. ft.), serviced apartments and residential accommodations (approximately 1.9 million sq. ft.) with total aggregate gross floor area of approximately 2.6 million sq. ft. upon completion of the intended development. As part of the joint venture arrangements, the retail mall will be managed by Hongkong Land and the hotel will be managed by Mandarin Oriental. The serviced apartments and the residential accommodation will be managed by the Group. 8

11 LETTER FROM THE BOARD The Joint Venture Agreement with Hongkong Land is also conditional on inter alia: (i) the acceptance by Land Sub of the Land Concession Contract and its publication in the Macau Gazette; and (ii) the Completion of the Acquisition. In the event any of the conditions are not fulfilled by 31 July 2006, the Joint Venture Agreement with Hongkong Land and the associated management arrangements will terminate. In such event, Built City will repurchase the 49% shareholding interest of Hongkong Land in Basecity at the amount then paid by Hongkong Land. On 10 October 2005, the Company announced that, due to increases in fuel prices during the first half of 2005, the total Fuel Arrangement Fee paid by STCTS to STDM for the nine months up to 30 September 2005 had reached approximately HK$131 million. As a result, the estimated annual cap of HK$125 million as set out in a previous announcement dated 29 December 2004 had been surpassed. Accordingly, the Company proposes to revise the annual caps on the estimated amount of Fuel Arrangement Fee payable to STDM by STCTS under the Fuel Arrangement Agreement for the three financial years ending 31 December 2005, 2006 and 2007 to HK$220 million, HK$380 million and HK$310 million, respectively. There is no change to any term of the Fuel Arrangement Agreement as a result of the revised annual caps on the Fuel Arrangement Fee. Under the Listing Rules, the Acquisition constitutes a discloseable and connected transaction of the Company while the Fuel Arrangement Agreement constitutes a continuing connected transaction of the Company. For further details, please refer to the section headed Discloseable and connected transaction, and continuing connected transaction as set out in this letter from the Board. In accordance with the Listing Rules, the Acquisition is subject to approval by the Independent Shareholders. The Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee is also subject to approval by the Independent Shareholders. The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee, where applicable. Commerzbank has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of these matters. The purpose of this circular is to provide you with: (i) further details on the Acquisition; (ii) further details on the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee; (iii) the advice and recommendations of the Independent Board Committee to the Independent Shareholders on the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee; (iv) the advice and recommendations from Commerzbank to the Independent Board Committee and the Independent Shareholders on the Acquisition and the Fuel Arrangement Agreement with the revised annual caps on the Fuel Arrangement Fee; (v) the Valuation Report; and (vi) the notice of the EGM at which ordinary resolutions will be proposed to approve the Acquisition including the issuance of the Consideration Shares and the Fuel Arrangement Agreement with revised annual caps on the Fuel Arrangement Fee. 9

12 LETTER FROM THE BOARD THE ACQUISITION On 29 September 2005, Right City entered into the S&P Agreement with Classic Time in relation to the sale and purchase of the Sale Shares. The obligations of Right City and Classic Time under the S&P Agreement are guaranteed by the Company and Ms. Pansy Ho, respectively. DETAILS OF THE S&P AGREEMENT Date 29 September (3) 14A.59(2)(a) 14.60(1) Parties Seller : Classic Time Seller s Guarantor : Ms. Pansy Ho Buyer : Right City Buyer s Guarantor : The Company 14.58(9) 14A.59(12) Ms. Pansy Ho has agreed to guarantee to the Company and to Right City the performance by Classic Time of its obligations under the S&P Agreement. The Company has agreed to guarantee to Ms. Pansy Ho and to Classic Time the performance by Right City of its obligations under the S&P Agreement. Description of the Acquisition Right City has conditionally agreed to acquire from Classic Time the entire issued share capital of Built City whose principal asset at the time of Completion will be a 51% interest in Basecity. The other 49% interest in Basecity is held by Hongkong Land. Basecity indirectly wholly-owns Land Sub, a company which has the right to apply for a land concession in respect of the Site, which is a property located at Lot B, District B2, Zone B, NAPE in Macau with a total site area of approximately 197,660 sq. ft (2) 14A.59(2)(b) 14A.58(1) The Site is a waterfront site adjacent to the proposed MGM Grand Paradise casino/hotel complex and has unobstructed views of Nam Van Lake and Macau Tower. It is intended that the Site will be developed as a premium mixed-use development comprising a 5-star hotel (approximately 320,000 sq. ft.), a retail mall (approximately 380,000 sq. ft.), serviced apartments and residential accommodation (approximately 1.9 million sq. ft.) with total aggregate gross floor area of approximately 2.6 million sq. ft. upon full completion of the intended development, currently anticipated to be fully completed in There will be no gaming element in this development complex. As set out in the Valuation Report, the Site has been valued at HK$2,300 million as at 22 September 2005 by Chesterton Petty Limited, an independent property valuer, based on the Intended Development GFA. The Intended Development GFA was estimated based on an architectural design of a property development which suits the permissible usage and gross floor area of the Site. The Consideration represents a discount of approximately 43.34% to 51% of the valuation of the Site in 14.58(6) 10

13 LETTER FROM THE BOARD the Valuation Report which values the Site on an open market basis using the direct comparison method by reference to the sales evidence available on the market. Land Sub, which holds the right to develop the Site, was transferred to MGM Grand Paradise S.A. as part of the arrangements of the granting of the gaming subconcession. Given Ms. Pansy Ho s familiarity with the Macau property development market and her business connections in Macau, Land Sub had been transferred from the joint venture, MGM Grand Paradise S.A., to Classic Time at no consideration with a view to having Ms. Pansy Ho see to it that the Site will be developed into a premium development complex to complement the adjacent hotel and casino complex currently under development. Accordingly, no tangible base cost has been established. The estimated total development cost attributable to Built City in relation to the Site is estimated to be no more than approximately HK$2,900 million which includes the land cost. Any land premium, other costs and obligations or tax payable, and all development costs in respect of the Site will be borne by Basecity and proportionately funded by its shareholders, Hongkong Land and Built City. 14A.59(14) The Consideration for the Acquisition was determined after negotiations on an arms-length basis between Classic Time and Right City and is on the same basis as that on which Hongkong Land has agreed to acquire its 49% interest in Basecity from Built City (as described in the section headed The Joint Venture with Hongkong Land below) on 29 September 2005, but before the S&P Agreement was entered into by Classic Time and Right City. Consideration for the Acquisition The Consideration for the Acquisition, which was determined with reference to the then market value of the Site in mid 2004, is estimated at HK$664.6 million and will be satisfied by the issue of the Consideration Shares to Classic Time. The calculation of the estimated Consideration is based upon the Intended Development GFA and the value of the per square foot gross floor area ( GFA Value ) for each of the various intended uses of the land (for example, residential or retail) ( Designated Use ), as estimated using the residual method. The residual method takes into consideration the prevailing market value of the property based on its Designated Use, less the cost of development and margins. In assessing the land value at a given point in time, the market selling price ( Market Selling Price ) of a unit of the developed property for a Designated Use, expressed in present value, is first assessed. The estimated per unit development cost for the Designated Use (expressed in present value), and the expected developer s profit from the potential sale or rental of such a unit, are then deducted from the Market Selling Price to arrive at the estimated per unit of GFA Value at that point in time. The estimated GFA Value, when applied to the size of the developable gross floor area, will provide an estimate of the land value at that point in time (4) 14.58(5) Due to factors which may arise in the course of the approval process for the Land Concession Contract as well as subsequent construction, regulatory matters etc, the Land Concession Contract GFA and/or the Final Development GFA may vary from the Intended Development GFA. Such variation (if any) is expected to be no more than 3% upwards and 8% downwards. The determination of the Intended Development GFA was based on consultation and discussions with the DSSOPT and experienced developers as to the most likely outcome of the Final Development GFA. The range of the variation reflects potential deviation from the Intended Development GFA (if any) due to general regulatory adjustments, possible architectural design modifications and construction work variance allowances. In such circumstances, the Consideration Shares will be calculated based upon the Land 11

14 LETTER FROM THE BOARD Concession Contract GFA. Following the issue of the Consideration Shares to Classic Time, any variation of the Final Development GFA from the Land Concession Contract GFA will be settled by way of the Cash Adjustment between Classic Time and Right City from their respective internal financial resources. The Consideration Shares are not expected to be less than approximately 89.7 million Shares or more than approximately million Shares taking into account a possible variation (if any) of 3% upwards (HK$684.5 million) and 8% downwards (HK$611.4 million) from the estimated Consideration (HK$664.6 million) and Issue Price. The Consideration Shares will rank pari passu with the other Shares of the Company in issue at the time that they are issued. The number of Consideration Shares within the range stated above may constitute between approximately 4.3% and 4.8% of the issued share capital and between approximately 4.1% and 4.6% of the enlarged issued share capital of the Company respectively following the issue of the Consideration Shares. App1B10 As at the Latest Practicable Date Minimum adjustment Minimum adjustment and issuance of Shares for site next to Macau Tower Maximum adjustment and issuance of Maximum Shares for site next adjustment to Macau Tower Shares % Shares % Shares % Shares % Shares % Classic Time 0.0% 89,700, % 89,700, % 100,600, % 100,600, % Dr. Stanley Ho and Family 536,454, % 536,454, % 536,454, % 536,454, % 536,454, % Shun Tak Shipping Company, Ltd. 308,057, % 308,057, % 308,057, % 308,057, % 308,057, % Sociedade de Turismo e Diversões de Macau, S.A. 263,667, % 263,667, % 263,667, % 263,667, % 263,667, % Alpha Davis 0.0% 0.0% 148,883, % 0.0% 148,883, % Public 976,846, % 976,846, % 976,846, % 976,846, % 976,846, % Total 2,085,026, % 2,174,726, % 2,323,609, % 2,185,626, % 2,334,509, % The Issue Price of HK$6.81 per Share is equal to the 30-day average closing price of the Shares immediately before signing of the S&P Agreement and the suspension of trading in the Shares and represents a premium of approximately 7.6% to the 10-day average closing price of approximately HK$6.32 of the Shares immediately before signing of the S&P Agreement and the suspension of trading in the Shares on 29 September The Issue Price represents a premium of approximately 18.4% to the closing price of HK$5.75 of the Shares on the Latest Practicable Date. The Issue Price represents a premium of approximately 9.8% to the last price traded of HK$6.20 of the Shares immediately before signing of the S&P Agreement and the suspension of trading in the Shares on 29 September The Issue Price represents a premium of approximately 100.9% to the net tangible asset value per Share of approximately HK$3.39 as at 30 June 2005 as shown in the Company s interim financial statements as at that date. Application will be made to the Stock Exchange prior to completion of the Acquisition for the listing of, and permission to deal in, the Consideration Shares. The Consideration Shares are not subject to any lock-up provision (3)(b) 14.60(1) App1B9(1) 12

15 LETTER FROM THE BOARD The combined holding of the concert party group (comprising Dr. Stanley Ho and his immediate family members, Shun Tak Shipping Company, Limited and Sociedade de Turismo e Diversões de Macau, S.A.) that controls the Company is currently approximately 53.1%. Following the issue of the Consideration Shares to Classic Time under the S&P Agreement, which may fall within the range of approximately 89.7 million and million, the combined holding of the concert party group will increase to between approximately 55.1% and 55.3% respectively. Additional 148,883,374 Shares, representing 7.1% of the existing issued shares and between 6.38% and 6.41% of the enlarged share capital, may be issued to Alpha Davis of which 53% of shareholding is ultimately controlled by Ms. Pansy Ho and her associates under the agreement for the acquisition of the property site adjacent to the Macau Tower as described in the circular to Shareholders dated 17 December 2004 and approved by independent shareholders on 6 January Upon issuance of such Shares, which is expected to occur on or before 31 December 2005, the total shareholding of the concert party would increase to between approximately 58.0% and 58.2%. Conditions to the Acquisition 14.65(1) 14A.59(2)(c) Completion of the S&P Agreement is conditional on: 1. the approval of the Acquisition (including the issue of the Consideration Shares) by the Independent Shareholders at the EGM; 2. the grant of listing of, and permission to deal in, the Consideration Shares on the Stock Exchange; and 3. the obtaining of any other requisite consent, approval, authority or license from any relevant governmental or quasi-governmental or official body in Hong Kong, Macau or the British Virgin Islands in connection with this S&P Agreement or any matters contemplated by it. In the event that the conditions are not satisfied on or before 31 July 2006 (or such other date as Classic Time and Right City may agree in writing), the S&P Agreement will be terminated. 13

16 LETTER FROM THE BOARD Shareholding structure before and after the Acquisition Before After Ms. Pansy Ho Hongkong Land The Company Hongkong Land 100% 100% Classic Time Right City 100% 100% Built City Built City 51% 49% 51% 49% Basecity Basecity 100% 100% Land Sub Land Sub Completion of the Acquisition Completion of the Acquisition will take place on the second business day after the date on which the last of the conditions precedent set out in the S&P Agreement are satisfied (or such other date as Classic Time and Right City may agree). At Completion, Right City will pay to Classic Time an amount equal to the working capital funding contributed by Classic Time to the development project (expected to be approximately HK$20 million). The Company will also replace Ms. Pansy Ho as the guarantor of Built City under the Joint Venture Agreement with Hongkong Land. Following Completion, the Consideration Shares will be allotted and issued to Classic Time upon the publication of the Land Concession Contract in the Macau Gazette which is expected to be on or before 31 July In the event Completion has taken place but the Land Concession Contract has not been published in the Macau Gazette by 31 July 2006, Right City and Classic Time will each have the right to elect to reverse the sale and purchase of the Sale Shares and to terminate the S&P Agreement. In those circumstances, Right City will re-transfer the Sale Shares to Classic Time; Classic Time shall repay to Right City all sums paid by Right City in respect of the Acquisition and will repay any further sums paid by the Group in respect of the remaining 49% of Basecity s issued share capital and any amounts advanced by the Group to Built City or any of its subsidiaries. The Company s obligation to allot and issue the Consideration Shares will lapse. 14

17 LETTER FROM THE BOARD Completion of the acquisition by Hongkong Land of 49% interest in Basecity Classic Time had acted through Built City (as the direct holding company of Basecity) in connection with the establishment of the joint venture with Hongkong Land. Accordingly, in connection with the acquisition by Hongkong Land of its 49% interest in Basecity from Built City (which originally owned 100% of Basecity at the time when Hongkong Land acquired its 49%), an amount equal to the consideration to be received by Built City from Hongkong Land will be owing by Built City to Classic Time and, under the S&P Agreement, will be paid to Classic Time (without interest) on receipt by Built City. In the event that the Joint Venture Agreement with Hongkong Land is terminated (as described in the section headed The Joint Venture with Hongkong Land below) but the Company continues to own Built City, the obligation to pay that amount to Classic Time will remain in place. THE JOINT VENTURE WITH HONGKONG LAND On 29 September 2005, but prior to the signing of the S&P Agreement, Built City had entered into the Joint Venture Agreement with Hongkong Land in relation to the development of the Site. Under the Joint Venture Agreement, Hongkong Land acquired a 49% shareholding in Basecity from Built City while it was a wholly-owned subsidiary of Classic Time for consideration of approximately HK$638.5 million in cash. Similar to the Acquisition, this consideration had also been fixed by reference to the Intended Development GFA and may be adjusted upwards or downwards to the same extent by reference to the Final Development GFA. The joint venture arrangements also provide for the ongoing management and operation of the various components of the intended development. The hotel will be managed by Mandarin Oriental for a term of 25 years under a hotel management agreement entered into between Land Sub and Mandarin Oriental. The retail mall will be managed on a long-term basis by Hongkong Land. The serviced apartments will be managed by the Group. The residential units, which are intended for sale, will be managed by the Group which will also be the property manager. The Joint Venture Agreement is conditional on inter alia: (i) the acceptance by Land Sub of the Draft Land Concession Contract and publication of the Land Concession Contract in the Macau Gazette; and (ii) the Completion of the Acquisition. In the event any of the conditions are not fulfilled by 31 July 2006, the Joint Venture Agreement with Hongkong Land and any associated management arrangements would terminate. In such event, Built City will repurchase the 49% shareholding interest of Hongkong Land in Basecity at the amount then paid by Hongkong Land. If Right City, as the 100% shareholder of Built City, does not wish to acquire Hongkong Land s 49% interest in Basecity, it may elect to terminate the S&P Agreement (as described in the section headed Completion of the Acquisition above). In the event of such termination, the Company will make appropriate disclosure and comply with the relevant Listing Rules. Hongkong Land and Mandarin Oriental are independent third parties engaged in the property and hotel businesses respectively. Neither of them is a connected person of the Company. Mandarin Oriental provides hotel management services to the existing Mandarin Oriental Hotel in Macau, which is owned as to 50% each by the Group and by Mandarin Oriental. Mandarin Oriental is a subsidiary of, and Hongkong Land is an associate of, the Jardine Matheson Group. 15

18 LETTER FROM THE BOARD The joint venture, property and hotel management and other arrangements with Hongkong Land and Mandarin Oriental have been negotiated on an arms-length basis between independent parties. FINANCIAL IMPACT OF THE ACQUISITION 14A.58(2) 14.64(3) Under section 2(4)(iii) of the Companies Ordinance and Rule 1.01 of the Listing Rules, Basecity is deemed an indirect subsidiary of the Company due to its interest in more than half of the shareholding in Basecity. Upon completion of the Acquisition, the accounts of Basecity will not be consolidated into the Group s accounts and the Group will only share 51% of the results of Basecity for accounting purposes. As at 30 June 2005, the Group had a net asset value of approximately HK$8,851 million, and a balance of time deposit, cash and bank balances of approximately HK$3,848 million. Based on the assumptions adopted in the Valuation Report, the net asset value of the Group will be increased by HK$1,173 million, being 51% of the valuation of the Site. Upon completion of the Acquisition, the net asset value per Share of the Group will increase from approximately HK$4.24 as at 30 June 2005, to a range of approximately HK$4.59 to approximately HK$4.61 respectively based on the possible range of enlarged number of Shares of approximately 2,174,726,240 Shares to approximately 2,185,626,240 Shares. Based on the attributable market value of HK$1,173 million of the Site, and subject to adjustments including difference between the fair value of the Consideration Shares as at the date of Completion and the Issue Price, the Acquisition will generate a negative goodwill of approximately HK$508.5 million for the Group. Under Hong Kong Financial Reporting Standard 3, such negative goodwill will be credited to the profit and loss account upon completion of the Acquisition. REASONS FOR THE ACQUISITION The Directors believe the Acquisition will considerably strengthen the Company s property portfolio in Macau. This development project will be a premium comprehensive development and will offer upscale retail, residential and hotel accommodations to local residents and the increasing number of visitors to Macau which is destined to continue to grow in stature as a leading resort in Asia. It will be situated in a prime waterfront area in a location expected to become a central focus of casinos situated in the center of Macau. The Directors also believe that the development will complement and enhance the Group s core transportation, hospitality and property businesses in Macau. The Directors (including the independent non-executive Directors) are of the view that the Acquisition and the Joint Venture Agreement are: (i) in the ordinary and usual course of business of the Company; (ii) on normal commercial terms; (iii) on terms that are fair and reasonable; and (iv) in the interests of the Company and the Shareholders as a whole. 16

19 LETTER FROM THE BOARD THE FUEL ARRANGEMENT AGREEMENT WITH THE REVISED ANNUAL CAPS ON THE FUEL ARRANGEMENT FEE Date 23 December 2004 and has taken effect since 1 January Parties STCTS and STDM Background of the Fuel Arrangement Agreement STDM supplies and loads Fuel onto STCTS Group Vessels and maintains, manages and operates the Terminal. In consideration for the supply and loading of Fuel onto the STCTS Group Vessels, STCTS pays to STDM the Fuel Price. STCTS also procures its wholly-owned subsidiary to provide Technical Assistance to STDM in relation to the loading of the Fuel onto STCTS Group Vessels. The Technical Assistance Fee charged by STCTS is calculated on a cost basis. The Fuel Arrangement Fee is determined based on arms length negotiations, in the normal course of business, and in line with market practice. Term The Fuel Arrangement Agreement has been and will continue to be in force for an initial period of three years commencing on 1 January The parties may thereafter enter into further agreement or renew the agreement for further period of 3 years unless terminated by either party giving a specified period of notice to the other party. The Company will comply with the relevant requirements of the Listing Rules upon expiry of the term on 31 December A.58(1) 14A.59(2)(a) 14A.59(2)(f) When the Fuel Arrangement Agreement was entered into in December 2004, it was estimated that the amount of the Fuel Arrangement Fee payable to STDM by STCTS under the Fuel Arrangement Agreement during the 3 financial years ending 31 December 2005, 2006 and 2007 would not exceed HK$125 million, HK$126 million and HK$127 million, respectively. FINANCIAL IMPACT OF THE FUEL ARRANGEMENT AGREEMENT The Directors believe that payment of the Fuel Arrangement Fee to STDM is in line with the market practice for the supply and loading of Fuel. The Fuel Arrangement Agreement will not have any impact on the assets and liabilities of the Group (2) 14A.59(2)(a) REASONS FOR THE FUEL ARRANGEMENT AGREEMENT 14A.58(1) The Company is an investment holding company and its subsidiaries are principally engaged in three core businesses comprising shipping, property and hospitality. STCTS, the Group s shipping arm, is the major operator of passenger ferry services between Hong Kong, Macau and the Pearl River Delta. STDM is the exclusive operator of the Terminal under an arrangement with the government of 17

20 LETTER FROM THE BOARD Macau. The appointment of STDM under the Fuel Arrangement Agreement enables STCTS to save the costs of operating and maintaining its own Fuel supply system at the Terminal. The provision of the Technical Assistance by a wholly-owned subsidiary of STCTS to STDM ensures that the Fuel supply procedures are in compliance with STCTS requirements. REASONS FOR THE REVISED ANNUAL CAPS ON THE FUEL ARRANGEMENT FEE 14A.59(9) 14A.59(13) The most recent internal management report indicates that due to increases in fuel prices during the first half of 2005, the unaudited amount of Fuel Arrangement Fee paid by STCTS to STDM for the nine months ended 30 September 2005 was HK$131 million. This surpassed the estimated annual cap of HK$125 million set by the Company for the year ended 31 December 2005 as stated in the Fuel Arrangement Agreement announcement dated 29 December In view of: (i) anticipated Fuel prices remaining at high levels based on various recent commodity research reports issued by some US investment banks and the market consensus of industry experts; (ii) the intention to lighten on-board fuel load to conserve fuel consumption during operation of the ferries, an increased frequency in refueling at the Terminal (thereby purchasing from STDM a higher percentage of the Fuel (from approximately 30% to approximately 40%) of all refuelings); and (iii) an anticipated increase in Fuel consumption with the launch of two additional vessels in the second half of 2005 and increased sailings to cater for the anticipated increase in visitor traffic to Macau and the Pearl River Delta region as a result of their respective economic growth, the Company has revised the annual caps on the Fuel Arrangement Fee for the three financial years ending 31 December 2005, 2006 and 2007 from HK$125 million, HK$126 million and HK$127 million respectively to HK$220 million, HK$380 million and HK$310 million respectively. The annual caps on the Fuel Arrangement Fee are determined based on the projected Fuel consumption volume and the anticipated Fuel cost based on spot prices of Fuel in the market. For 2005, it is based on the first nine months of actual costs of HK$131 million plus a projection of the Fuel Arrangement Fee for October through December 2005 based on the projected volume of Fuel consumption times the estimated per barrel Fuel cost. Since oil and gas prices only escalated substantially since the second quarter of 2005, the increase in Fuel Arrangement Fee for the first nine months of 2005 does not fully capture the impact of the substantial increase in Fuel prices. The Company expects that fuel prices may decrease slightly in 2007 as market forces will likely react to bring about a correction in such high prices. There is no change to any term of the Fuel Arrangement Agreement as a result of the revised annual caps on the Fuel Arrangement Fee. The Fuel Arrangement Fee is settled between STCTS and STDM on a monthly basis. 18

21 LETTER FROM THE BOARD INFORMATION ON THE RELEVANT PARTIES TO THE ACQUISITION AND/OR THE FUEL ARRANGEMENT AGREEMENT The Company is a holding company of a number of business activities principally consisting of shipping, hospitality and property development. Hongkong Land is a holding company of a number of business activities principally consisting of investment and development of commercial and residential properties. Right City is an investment holding company which is wholly-owned by the Company. Classic Time is an investment holding company which is wholly-owned by Ms. Pansy Ho. Built City is an investment holding company which is wholly-owned by Classic Time. Basecity is an investment holding company which indirectly wholly-owns Land Sub. Land Sub is an indirect wholly-owned subsidiary of Basecity that has the right to acquire a land concession in respect of the Site. Built City, Basecity and Land Sub are special purposes companies which have not commenced any operations. As such, they have no assets, liabilities or any operating profit or loss. STDM is a company engaging in a wide range of businesses including gaming and hospitality businesses in Macau. The STCTS Group, the Group s shipping arm, is the major operator of passenger ferry services between Hong Kong, Macau and other destinations within the Pearl River Delta. DISCLOSEABLE AND CONNECTED TRANSACTION, AND CONTINUING CONNECTED TRANSACTION (i) The Acquisition 14A.59(2)(d) 14.63(2) 14.58(3) 14A.59(2)(e) Ms. Pansy Ho is an executive Director and therefore a connected person of the Company under the Listing Rules. Classic Time is a company wholly-owned by Ms. Pansy Ho and is therefore also a connected person of the Company under the Listing Rules. As such, the Acquisition constitutes a connected transaction of the Company under the Listing Rules. Since the Consideration payable by the Company for the Acquisition exceeds 5% but is less than 25% of the relevant threshold tests under Rule of the Listing Rules, the Acquisition also constitutes a discloseable transaction for the Company under the Listing Rules, the Acquisition is subject to the disclosure and Independent Shareholders approval requirements under Rule 14A.47 and 14A.48 of the Listing Rules. Details of the Acquisition are also required to be included in the next published annual report and accounts of the Company in accordance with Rule 14A.45 of the Listing Rules. 19