30 June 2006 The following is the text of a press release issued today by HSI Services Ltd. ***** HANG SENG INDEX COMPILATION METHODOLOGY Further to its announcement of 12 May 2006, HSI Services Limited ( HSI Services ) has discussed possible changes to the Hang Seng Index ( HSI ) compilation methodology with a wide range of market participants. After considering their opinions and consulting the HSI Advisory Committee, HSI Services today announced details of the changes that will be made. Compilation Methodology The compilation of the HSI will be switched from a full market capitalisation weighted formula to a freefloat-adjusted market capitalisation weighted formula with a cap on individual stock weightings. Details are as follows: News Release a) Freefloat adjustment: A Freefloat-Adjusted Factor ( FAF ) will be assigned to each constituent in index calculation. The freefloat definition has been revised to exclude shareholdings with a lock-up arrangement (see Appendix 1). b) Cap: A 15% cap on individual stock weightings will be applied. c) Re-capping frequency: A re-capping exercise will be conducted semi-annually in Q1 and Q3 to coincide with the regular update of the FAF. Additional re-capping will be performed should there be constituent changes. The above changes will be phased in over a period of 12 months from September 2006 to September 2007 to ensure a smooth transition and to minimise any impact on the market. The timetable and adjustments are as follows: After Market Close on Freefloat Adjustment Capping Level Phase 1: Nil 25% 8 Sep 2006 (Fri) Phase 2: 9 Mar 2007 (Fri) Applying 2/3 Freefloat Adjustment (FAF 1 ), 20% Phase 3: 7 Sep 2007 (Fri) Where: 2 FAF1 = 100% ( 100% FAF 2) 3 Rounded up to the nearest 5% Applying full Freefloat Adjustment (FAF 2 ) 15% For new constituents entering the HSI, the FAF will be applied in full at the time of entry. more This news release is issued by HSBC Holdings plc Registered Office and Group Head Office: 8 Canada Square, London E14 5HQ, United Kingdom Web: www.hsbc.com Incorporated in England with limited liability. Registered number 617987
Hang Seng Index Compilation Methodology / 2 Inclusion of H-share Companies in the HSI As decided in February 2006, Mainland enterprises that have an H-share listing in Hong Kong will be eligible for inclusion in the HSI when they meet any one of the following conditions: 1. The H-share company has 100% of its ordinary share capital in the form of H- shares which are listed on the Stock Exchange of Hong Kong; 2. The H-share company has completed the process of Share Reform, with the result that there is no unlisted share capital in the company; or 3. For new H-share IPOs, the company has no unlisted share capital. Eligible H-share companies will enter the stock universe for the regular HSI review in August 2006. For any H-share companies included in the HSI, only the H-share portion of the share capital of the company will be used for index calculation, subject to freefloat adjustment. Number of Constituents with Inclusion of H-share Companies In order to ensure that the HSI will remain broad-based enough to represent the Hong Kong equity market following the inclusion of eligible H-share companies, it has been decided that the number of constituents will be gradually increased. As an interim measure, any H-share company joining the HSI will result in a net increase in the number of HSI constituents. The number of non-h-share constituents will be maintained at 33. HSI Services will further announce the way ahead with regard to the number of index constituents once the fifth H-share company joins the HSI bringing the index to 38 constituents. Note to editors: Information on HSI Services Limited The Hang Seng Family of Indexes is managed and compiled by HSI Services Limited, which is a whollyowned subsidiary of Hang Seng Bank. The members of the index family include the Hang Seng Index, Hang Seng Composite Index Series, Hang Seng Freefloat Index Series and Hang Seng Total Return Index Series. For further information on the Hang Seng Family of Indexes, please visit the company's website at www.hsi.com.hk. more
Hang Seng Index Compilation Methodology / 3 Information on HSI Advisory Committee HSI Services Limited has appointed an independent advisory committee which includes specialists drawn from the Hong Kong SAR Government, universities, the legal and accounting professions, institutional investors and investment consultants. The Committee meets regularly to discuss matters pertaining to the indexes, including changes of constituents and the launch of new indexes. Information on Index Review The Hang Seng Index is reviewed quarterly. The Hang Seng China Enterprises Index and Indexes in the Hang Seng Composite Index Series and the Hang Seng Freefloat Index Series are reviewed on a semiannual basis. The review will normally be completed within six weeks after the end of each calendar quarter. ***** ends/all more
Appendix 1 Definition of Freefloat-Adjusted Factor A Freefloat-Adjusted Factor ( FAF ) will be devised to represent the portion of freefloat shares after excluding the following four groups of shareholdings: (a) Strategic holdings Shares held by strategic shareholder(s) who individually or collectively control more than 30% of the shareholdings; (b) Directors holdings Shares held by director(s) who individually control more than 5% of the shareholdings; (c) Cross-holdings Shares held by a Hong Kong-listed company which controls more than 5% of the shareholdings as investments; and (d) Lock-up shares Shares held by shareholder(s) who individually or collectively represent more than 5% of the shareholdings in the company and with a publicly disclosed lock-up arrangement. The FAF will be rounded up to the nearest 5% for index calculation. Impact on Hang Seng China Enterprises Index ( H-shares Index ): The revised freefloat definition will also be applied to the H-shares Index starting from the August 2006 review. All other things being equal, China Construction Bank (939) will be the only constituent affected by the revision, and the revised FAF will be 15%, compared with the existing 30%.
Appendix 2 Indicative FAFs in Different Phases for the Existing HSI Constituents FAF(%) Code Company Name Phase 1 FAF 1 at Phase 2 FAF 2 at Phase 3 (8 Sep 2006) (9 Mar 2007) (7 Sep 2007) 1 Cheung Kong 100 80 65 2 CLP Holdings 100 85 75 3 HK & China Gas 100 80 65 4 Wharf (Holdings) 100 70 55 5 HSBC Holdings 100 100 100 6 HK Electric 100 80 65 8 PCCW 100 85 75 11 Hang Seng Bank 100 60 40 12 Henderson Land 100 60 40 13 Hutchison 100 70 50 16 SHK Properties 100 70 55 17 New World Development 100 80 65 19 Swire Pacific 'A' 100 100 100 23 Bank of East Asia 100 100 100 66 MTR Corporation 100 50 25 83 Sino Land 100 65 45 101 Hang Lung Properties 100 65 45 144 China Merchants Holdings 100 70 50 179 Johnson Electric 100 65 45 267 CITIC Pacific 100 70 55 291 China Resources 100 70 50 293 Cathay Pacific Air 100 55 30 330 Esprit Holdings 100 90 80 494 Li & Fung 100 80 65 551 Yue Yuen Industrial 100 70 50 762 China Unicom 100 50 25 883 CNOOC 100 55 30 906 China Netcom 100 50 25 941 China Mobile 100 50 25 992 Lenovo Group 100 70 55 1038 CKI Holdings 100 50 20 1199 COSCO Pacific 100 70 50 2388 BOC Hong Kong 100 60 35 Note: 1. Actual FAF 1 to be used will be announced in February 2007. 2. Actual FAF 2 to be used will be announced in August 2007.
Appendix 3 Indicative Weightings of Existing HSI Constituents (Based on Closing Price on 27 June 2006) Existing (Full MV Weighted) Weighting (%) Freefloat-adjusted with a Cap Phase 2 (9 Mar 2007) Phase 1 (8 Sep 2006) Phase 3 (7 Sep 2007) Code Company Name Finance 37.76 33.24 28.90 24.60 5 HSBC Holdings 30.08 25.00 20.00 15.00 11 Hang Seng Bank 3.66 3.92 3.91 4.02 2388 BOC Hong Kong 3.07 3.30 3.29 2.96 23 Bank of East Asia 0.95 1.02 1.70 2.62 Utilities 5.40 5.80 7.91 10.25 2 CLP Holdings 2.13 2.28 3.23 4.39 3 HK & China Gas 1.82 1.96 2.60 3.26 6 HK Electric 1.45 1.56 2.08 2.60 Properties 10.77 11.55 13.68 16.21 16 SHK Properties 3.76 4.03 4.70 5.69 1 Cheung Kong 3.69 3.96 5.26 6.60 12 Henderson Land 1.38 1.48 1.47 1.52 101 Hang Lung Properties 0.98 1.05 1.13 1.21 83 Sino Land 0.96 1.03 1.12 1.19 Commerce & Industry 46.07 49.41 49.51 48.94 941 China Mobile 16.60 17.82 14.81 11.43 13 Hutchison 5.82 6.24 7.28 8.01 883 CNOOC 4.98 5.34 4.88 4.11 66 MTR Corporation 1.96 2.10 1.75 1.35 762 China Unicom 1.69 1.82 1.51 1.16 906 China Netcom 1.69 1.81 1.50 1.16 19 Swire Pacific 'A' 1.43 1.54 2.55 3.94 330 Esprit Holdings 1.43 1.53 2.29 3.14 4 Wharf (Holdings) 1.27 1.36 1.59 1.92 1038 CKI Holdings 0.99 1.06 0.88 0.54 144 China Merchants Holdings 0.98 1.05 1.22 1.34 494 Li & Fung 0.96 1.03 1.37 1.72 267 CITIC Pacific 0.95 1.02 1.19 1.44 293 Cathay Pacific Air 0.87 0.94 0.86 0.72 17 New World Development 0.84 0.90 1.20 1.51 8 PCCW 0.73 0.78 1.10 1.50 1199 COSCO Pacific 0.71 0.76 0.88 0.97 291 China Resources 0.67 0.71 0.83 0.92 551 Yue Yuen Industrial 0.66 0.70 0.82 0.90 992 Lenovo Group 0.44 0.47 0.54 0.66 179 Johnson Electric 0.40 0.43 0.46 0.50 Total 100.00 100.00 100.00 100.00