THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in 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 Dalian Port (PDA) Company Limited*, you should at once hand this circular, together with the accompanying proxy form to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser(s) or transferee(s).

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.

Dalian Port (PDA) Company Limited*

大連港股 份有限公司

(a sino-foreign joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 2880)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE MERGER OF YINGKOU PORT LIABILITY CO., LTD.;

AND

SPECIFIC MANDATE IN RELATION TO ISSUANCE OF

NEW A SHARES

Financial Adviser to the Company

Independent Financial Adviser to the

Independent Board Committee and the Independent Shareholders

Capitalised terms used in this cover shall have the same meaning as those defined in the section headed "Definitions" in this circular.

A letter from the Board is set out on pages 9 to 58 of this circular. A letter from the Independent Board Committee to the Independent Shareholders in relation to the terms of the Possible Merger, A Share Specific Mandate and related transactions is set out on pages 59 to 60 of this circular. A letter from the Independent Financial Adviser is set out on pages 61 to 90 of this circular.

  • The Company is registered as Non-Hong Kong company under Part XI of the previous Hong Kong Companies Ordinance (equivalent to Part 16 of the Hong Kong Companies Ordinance with effect from 3 March 2014) under the English name "Dalian Port (PDA) Company Limited".
  • For identification purposes only

10 September 2020

CONTENTS

Page

Definitions . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .

59

Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . .

61

Appendix I

Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . .

I-1

Appendix II

Financial Information of the Target Group . . . . . . . . . . . . . . . .

II-1

Appendix III

Unaudited Pro Forma Financial Information of

the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

III-1

Appendix IV

Management Discussion and Analysis of the Group . . . . . . . . .

IV-1

Appendix V

Management Discussion and Analysis of the Target Group . . . .

V-1

Appendix VI

Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VI-1

Appendix VII

General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VII-1

Appendix VIII

Reply to Letter of Inquiry from Shanghai Stock Exchange . . . .

VIII-1

- i -

DEFINITIONS

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

"A Share(s)"

A Share(s) of RMB1.00 each in the capital of the

Company which is/are listed and traded on the Shanghai

Stock Exchange;

"A Share Specific Mandate"

the grant of which to the Board to issue not more than

3,868,360,799 new A Shares to not more than 35 specific

investors with a value of not more than

RMB2,100,000,000;

"A Shareholders Class Meeting"

means the Shareholders' meeting to be convened for the

holders of A Shares on 25 September 2020, or any

adjournment thereof, to consider, and if thought fit,

approve the Possible Merger, the A Share Specific

Mandate and related transactions;

"Announcement"

means the announcement dated 7 July 2020 of the

Company in relation to the Possible Merger;

"Articles of Association"

means the articles of association of the Company;

"associates"

has the meaning ascribed thereto under the Listing Rules;

"average trading price"

means the average price which is calculated by dividing

(i) the aggregated daily turnover of the shares on the

relevant trading day(s) by (ii) the aggregated daily

trading volume of the shares on the relevant trading

day(s);

"Board"

means the board of directors of the Company;

"Broadford"

means Broadford Global Limited, a company

incorporated in Hong Kong with limited liability and is

directly wholly owned by China Merchants Holdings

(HK) and ultimately wholly-owned by CMG;

"Buy-back Alternative"

means the right of the Dalian Port Dissenting Shareholder

to require the Buyback Alternative Provider to buy-back

its Shares as required by the applicable PRC laws and

regulations and the Articles of Association;

"Buy-back Alternative

means the period to be determined and announced by the

Declaring Period"

Company in which Dalian Port Dissenting Shareholder

may declare their election of the Buy-back Alternative;

- 1 -

DEFINITIONS

"Buy-back Alternative

means the day to be determined and announced by the

Exercise Day"

Company on which the Buy-back Alternative Provider

shall pay, and the Dalian Port Dissenting Shareholder

shall receive, cash in exchange for the Shares held by the

Dalian Port Dissenting Shareholders pursuant to the

Possible Merger;

"Buy-back Alternative Provider"

means Dalian Group, who shall, on the Buy-back

Alternative Exercise Day, pay the Dalian Port Dissenting

Shareholders in cash in exchange for the whole or part of

the A Shares held by such Dalian Port Dissenting

Shareholders pursuant to the Possible Merger and

Broadford, who shall, on the Buy-back Alternative

Exercise Day, pay the Dalian Port Dissenting

Shareholders in cash in exchange for the whole or part of

the H Shares held by such Dalian Port Dissenting

Shareholders pursuant to the Possible Merger. The Buy-

back Alternative Provider will not receive any fee from

the Company and its connected person for providing such

service;

"Cash Alternative"

means the right of the TC Dissenting Shareholder to elect

to receive cash from the Cash Alternative Provider

pursuant to the Possible Merger as required by the

applicable PRC laws and regulations;

"Cash Alternative Declaring

means the period to be determined and announced by the

Period"

Company and Target Company in which the TC

Dissenting Shareholder may declare its election of the

Cash Alternative;

"Cash Alternative Exercise Day"

means the day to be determined and announced by the

Company and Target Company on which the Cash

Alternative Provider shall pay, and the TC Dissenting

Shareholder shall receive, such cash in exchange for the

TC Shares held by the TC Dissenting Shareholders

pursuant to the Possible Merger;

"Cash Alternative Provider"

means Dalian Group, who shall, at the Cash Alternative

Exercise Day, pay the TC Dissenting Shareholder in cash

in exchange for the whole or part of TC Shares held by

such TC Dissenting Shareholders pursuant to the Possible

Merger. The Cash Alternative Provider will not receive

any fee from the Company and its connected person for

providing such service;

- 2 -

DEFINITIONS

"China Merchants

means China Merchants Holdings (Hong Kong) Company

Holdings (HK)"

Limited, a company incorporated in Hong Kong with

limited liability and is ultimately wholly-owned by CMG;

"China Merchants Liaoning"

means China Merchants (Liaoning) Port Development

Company Limited (招商局(遼寧)港口發展有限公司), a

limited liability company established in the PRC and is

indirectly wholly-owned by Broadford and ultimately

wholly owned by CMG;

"China Merchants Port Group"

means China Merchants Port Group Co. Ltd. (招商局港口

集團股份有限公司), a joint stock limited company

established in the PRC whose A shares and B shares are

listed on the Shenzhen Stock Exchange (stock code:

001872/201872) and an indirectly owned subsidiary of

CMG;

"China Merchants Port Holdings"

means China Merchants Port Holdings Company Limited

(招商局港口控股有限公司), a limited liability company

incorporated in Hong Kong whose shares are listed on the

Main Board of the Stock Exchange (stock code: 144) and

is a consolidated subsidiary of China Merchants Port

Group and is therefore an indirectly owned subsidiary of

CMG;

"CMG"

means China Merchants Group Limited (招商局集團有限

公司), a state wholly-owned enterprise established under

the laws of the PRC under the direct control of the

SASAC;

"Company"

means Dalian Port (PDA) Company Limited (大連港股份

有限公司), a joint stock limited company established in

the PRC whose H Shares and A Shares are listed on the

Main Board of the Stock Exchange (stock code: 2880)

and the Shanghai Stock Exchange (stock code: 601880)

respectively;

"connected person"

has the meaning ascribed thereto under the Listing Rules;

"controlling shareholder"

has the meaning ascribed thereto under the Listing Rules;

"CSRC"

means the China Securities Regulatory Commission;

"daily average trading price"

means the average price which is calculated by dividing

(i) the daily turnover of the shares on the relevant trading

day by (ii) the daily trading volume of the shares on the

relevant trading day;

- 3 -

DEFINITIONS

"Dalian Group"

means Dalian Port Corporation Limited (大連港集團有限

公司), a controlling shareholder of the Company and a

limited liability company established in the PRC and

directly wholly-owned by Liaoning Port Group;

"Dalian Port Dissenting

means any Shareholder who:

Shareholder"

(i)

has made effective dissenting votes at the

Shareholders' general meetings or respective class

meetings of the Company convened for the purpose

of approving the Possible Merger;

(ii)

continuously holds the Shares representing the

above-mentioned effective dissenting votes until the

Buy-back Alternative Exercise Day; and

(iii)

has, within the Buy-back Alternative Declaring

Period, duly declared the above-mentioned effective

dissenting votes that enable it to exercise the

Buyback Alternative;

and excluding:

(i)

any Shares with restrictions on rights, e.g. any

Shares subject to pledge or third parties' rights or

any Shares that are frozen as a result of judicial

proceedings;

(ii)

any Shareholder who has committed in writing to

the Company that it will not elect to receive the

Buy-back Alternative; and

(iii)

any Shares that

are not permitted to elect the

Buy-back Alternative pursuant to applicable laws

and regulations;

"Dalian SASAC"

State-owned Assets

Supervision and Administration

Commission of the People's Government of Dalian;

"Directors"

means the directors of the Company;

- 4 -

DEFINITIONS

"EGM"

means the extraordinary general meeting of the Company

to be convened on 25 September 2020, or any

adjournment thereof, to consider, and if thought fit,

approve the Possible Merger, the A Share Specific

Mandate and related transactions;

"Enlarged Group"

means the Group after the completion of the Possible

Merger;

"EV/EBITDA"

means the ratio of enterprise value to earnings before

interest, taxes, depreciation and amortisation;

"Exchange Ratio"

means the ratio at which 1.5146 A Shares will be issued

by the Company in exchange for every TC Share under

the Possible Merger (subject to adjustment);

"Executive"

the Executive Director of the Corporate Finance Division

of the SFC or any of his delegates;

"Group"

the Company and its subsidiaries;

"H Share(s)"

H Share(s) of RMB1.00 each in the capital of the

Company which is/are listed and traded on the Stock

Exchange;

"H Shareholders Class Meeting"

means the Shareholders' meeting to be convened for the

holders of H Shares on 25 September 2020, or any

adjournment thereof, to consider, and if thought fit,

approve the Possible Merger, A Share Specific Mandate

and related transactions;

"HK$"

means Hong Kong dollars, the lawful currency of Hong

Kong;

"Hong Kong"

means the Hong Kong Special Administrative Region of

the PRC;

"Independent Board Committee"

the independent board committee of the Board

established pursuant to the Listing Rules to give

recommendation to the Independent Shareholders in

relation to the terms of the Merger Agreement;

"Independent Financial Adviser"

means First Shanghai Capital Limited, a licensed

corporation under the SFO to carry out type 6 (advising

on corporate finance) regulated activities;

"Independent Shareholders"

means the shareholders of the Company, other than CMG

and its associates;

- 5 -

DEFINITIONS

"Latest Practicable Date"

means 4 September 2020, being the latest practicable date

prior to the despatch of this circular for ascertaining

certain information contained in this circular;

"Liaoning Gangwan"

means Liaoning Gangwan Financial Holding Group Co.,

Ltd. (遼寧港灣金融控股集團有限公司), a limited

liability company established in the PRC and directly

wholly owned by YKP as to approximately 99.76%,

which is in turn owned by Liaoning Port Group as to

approximately 45.93%;

"Liaoning Port Group"

means Liaoning Port Group Limited (遼寧港口集團有限

公司), formerly known as Liaoning North East Asia Gang

Hang Development Co., Ltd. (遼寧東北亞港航發展有限

公司), a limited liability company established in the PRC;

"Liaoning SASAC"

State-owned Assets Supervision and Administration

Commission of Liaoning Provincial Government;

"Listing Rules"

means the Rules Governing the Listing of Securities on

the Stock Exchange;

"Merger Agreement"

means the agreement entered into between the Company

and the Target Company on 7 July 2020 in relation to the

Possible Merger (as supplemented by a supplemental

agreement between the same parties dated 4 September

2020);

"P/E ratio"

means the ratio of a company's share price to earnings

per share attributable to ordinary shareholders

"P/B ratio"

the ratio of a company's share price to the net assets per

share attributable to ordinary shareholders

"Possible Merger"

means the proposed absorption of the Target Company by

the Company pursuant to the Merger Agreement through

the proposed issue of A Shares by the Company at the

Exchange Ratio to exchange for TC Shares or the Cash

Alternative;

"PRC" or "China"

means the People's Republic of China;

"Price Adjustment Period"

means the period from the announcement date of

Shareholders' general meeting where the resolution

regarding the Possible Merger is passed to approval of

the Possible Merger by CSRC;

"Price Base Day"

means the date on which the announcement of the first

Board meeting reviewing the Possible Merger is

published;

- 6 -

DEFINITIONS

"price-to-sales ratio"

the ratio of a company's share price to sales revenue per

share

"Price Fixing Period"

means the 20 trading days ending on and including 19

June 2020;

"RMB"

means Renminbi, the lawful currency of the PRC;

"SASAC"

State-owned Assets Supervision and Administration

Commission of the State Council of the PRC;

"SFC"

the Securities and Futures Commission of Hong Kong;

"Shareholders"

means the shareholders of the Company;

"Shares"

means A Shares and H Shares;

"Stock Exchange"

means The Stock Exchange of Hong Kong Limited;

"substantial shareholder"

has the meaning ascribed thereto under the Listing Rules;

"Takeovers Code"

the Code on Takeovers and Mergers;

"Target Company"

means Yingkou Port Liability Co., Ltd. (營口港務股份有

限公司), a limited liability company incorporated in the

PRC whose A shares are listed on the Shanghai Stock

Exchange (stock code: 600317);

"Target Group"

means the Target Company and its subsidiaries;

"TC Dissenting Shareholder"

means any TC Shareholder who:

(i) has made the effective dissenting votes at the

shareholders' meeting of Target Company convened

for the purpose of approving the Possible Merger;

(ii) continuously holds the TC Shares representing the

effective dissenting votes until the Cash Alternative

Exercise Day; and

(iii) has, within the Cash Alternative Declaring Period,

duly declared the above-mentioned effective

dissenting votes that enable it to exercise the Cash

Alternative;

- 7 -

DEFINITIONS

and excluding:

(i) any TC Shares with restrictions on rights, e.g. any

TC Shares subject to pledge or third parties' rights

or any TC Shares that are frozen as a result of

judicial proceedings;

(ii) any TC Shareholder who has committed in writing

to the Target Company that it will not elect to

receive the Cash Alternative; and

(iii) any TC Shares that are not permitted to elect the

Cash Alternative pursuant to applicable laws and

regulations;

the above-mentioned TC Shares not entitled to Cash

Alternative will be converted into the new A Shares

issued by the Company in accordance with the Exchange

Ratio;

"TC Shareholders"

means the shareholders of the Target Company;

"TC Shares"

means the A shares of the Target Company issued and

listed on Shanghai Stock Exchange;

"Team Able"

means Team Able International Limited, a company

incorporated in Hong Kong with limited liability, a

wholly-owned subsidiary of China Merchants Port

Holdings;

"trading day"

with respect to A shares, means a day on which the

Shanghai Stock Exchange is open for dealing or trading

in securities; and with respect to H shares, means a day

on which the Stock Exchange is open for dealing or

trading in securities;

"Yingkou SASAC"

State-owned Assets Supervision and Administration

Commission of the People's Government of Yingkou;

"YKP"

means Ying Kou Port Group Corporation Limited (營口

港務集團有限公司), a limited liability company

established in the PRC and is recognised as a subsidiary

in the consolidated financial statements of Liaoning Port

Group; and

"%"

per cent.

- 8 -

LETTER FROM THE BOARD

Dalian Port (PDA) Company Limited*

大連港股 份有限公司

(a sino-foreign joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 2880)

Directors:

Registered Office:

Executive Directors:

Xingang Commercial Building

WEI Minghui

Dayao Bay

SUN Dequan

Dalian Free Trade Zone

PRC

Non-executive Directors:

CAO Dong

Place of Business in the PRC:

QI Yue

Xingang Commercial Building

YUAN Yi

Jingang Road

NA Danhong

Dalian International Logistic Park Zone

Liaoning Province

Independent Non-executive Directors:

PRC

LI Zhiwei

LIU Chunyan

10 September 2020

LAW Man Tat

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED

TRANSACTION IN RELATION TO THE MERGER OF

YINGKOU PORT LIABILITY CO., LTD.;

SPECIFIC MANDATE IN RELATION TO ISSUANCE OF

NEW A SHARES;

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference is made to the announcement of the Company dated 7 July 2020 (the

"Announcement") in relation to, among other things, the Possible Merger, A Share Specific

Mandate and related transactions.

  • For identification purposes only

- 9 -

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, inter alia, (i) further information on the Possible Merger, A Share Specific Mandate and related transactions; (ii) a letter from the Independent Board Committee; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the terms of the Merger Agreement; (iv) financial information of the Group; (v) financial information of the Target Group; (vi) unaudited pro forma financial information of the Enlarged Group upon completion of the Possible Merger; (vii) the property valuation report of the Target Company; (viii) the notice of EGM and the H Shareholders Class Meeting to consider and, if thought fit, to approve resolutions in relation to, among other things, the Possible Merger; and (ix) other information as required under the Listing Rules.

2. VERY SUBSTANTIAL ACQUISITION - MERGER OF TARGET COMPANY

2.1 Background

On 7 July 2020, the Company entered into the Merger Agreement with the Target Company in relation to the Possible Merger. The Possible Merger, if fully implemented, will involve (among other things) the issue of 9,803,980,057 A Shares by the Company to the TC Shareholders on a record date to be determined, in exchange for all the existing issued shares of the Target Company. The Company also plans to raise funds by issuing A Shares with a value of not more than RMB2,100,000,000, by way of non-public offering, to not more than 35 specific investors.

2.2 The Possible Merger

The Exchange Ratio

The Company will exchange in aggregate 6,472,983,003 TC Shares in the issued share capital of the Target Company by an issue of 9,803,980,057 A Shares, meaning that for every TC Share, 1.5146 A Shares will be issued. The Exchange Ratio has been determined on the following basis:

  1. the price per TC Share was determined at RMB2.59 based on:
    1. RMB2.16, which is the average trading price of TC Shares for a period of 20 trading days up to and including 19 June 2020, being the last trading day immediately before the suspension of trading of TC Shares on the Shanghai Stock Exchange pending release of an announcement of the Target Company in relation to the proposed negotiation on the terms of the Possible Merger (the "Last Target Trading Date"), and
    2. a premium of approximately 20%; and

- 10 -

LETTER FROM THE BOARD

  1. the price per A Share was determined at RMB1.71 based on the average trading price per A Share for a period of 20 trading days up to and including 19 June 2020, being the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange pending release of an announcement of the Company in relation to the proposed negotiation on the terms of the Possible Merger (the "Last Company Trading Date").

For the avoidance of doubt, the above 20% premium is only available to TC Shareholders who elect to exchange their TC Shares for A Shares.

In determining the level of the premium and the Exchange Ratio, the Company has taken into consideration factors including the respective valuation of the Company and the Target Company, and the need to put a premium on the TC Shares given (i) the substantial difference in the respective valuation of the Company and the Target Company and (ii) the significant dilution to the earnings per share for TC Shareholders as compared to the enhanced earnings per share for the Shareholders. The inclusion of a premium accords with market practice for similar transactions, and the premium level for the Possible Merger is generally in line with market precedents. Based on the level of premium for the Possible Merger, the Shareholders will still be able to benefit from a substantial increase in earnings per Share after the Possible Merger.

In case of any ex-right or ex-dividend issues such as cash dividends, stock dividends, capital reserve converted into share capital, allotment of shares, etc. occurred from the Price Base Day to the aforementioned record date of the Possible Merger, the Exchange Ratio shall be adjusted accordingly.

On 29 June 2020, the annual general meeting of the Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.21 (tax included) per ten Shares for the year ended 31 December 2019 based on the total 12,894,535,999 Shares. On 22 June 2020, the annual general meeting of the Target Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.48 (tax included) per ten TC Shares for the year ended 31 December 2019 based on the total 6,472,983,003 TC Shares. As of the Latest Practicable Date, aforementioned dividend distribution plans have been implemented and the Exchange Ratio was adjusted correspondingly. The price per A Share was adjusted to RMB1.69 and price per TC Share was adjusted to RMB2.54. For illustration purpose only, under the Exchange Ratio as adjusted by the above dividend payment by the Company and the Target Company respectively, for every TC Share, 1.5030 A Shares will be issued.

Based on the price per TC Share as determined at RMB2.54, the value of the consideration for each TC Share in the Possible Merger represents: (a) a premium of approximately 14.93% over the closing price of each TC Share of RMB2.21 on the Shanghai Stock Exchange on the Last Target Trading Date; (b) a premium of 17.59% over the average

- 11 -

LETTER FROM THE BOARD

trading price of TC Shares for a period of 20 trading days up to and including the Last Target Trading Date; and (c) a premium of approximately 14.93% over the average trading price of TC Shares for a period of 90 trading days up to and including the Last Target Trading Date.

Based on the price per A Share as determined at RMB1.69, each A Share represents a premium of approximately 16.10% to the net asset value per A Share as at 31 December 2019. Based on the price per TC Share as determined at RMB2.54, the value of the consideration for each TC Share in the Possible Merger represents a premium of approximately 33.18% to the net asset value per TC Share as at 31 December 2019.

Rationality of Exchange Ratio

1. Analysis on the rationality of determining the basis of the Exchange Ratio based on the average price of the 20 trading days before 19 June 2020

  1. The pricing is based on the average price of Shares for the 20 trading days before 19 June 2020, which meets the requirements of the Administrative Measures for Restructuring and best reflects the latest market transactions.

According to the Administrative Measures for Restructuring, the price at which a listed company issues shares shall not be lower than 90% of the market reference price. The market reference price is one of the average trading prices of the company's shares on the 20 trading days, 60 trading days or 120 trading days before the announcement of the board resolution for the issuance of shares to purchase assets. If merger by absorption through share swap involves a listed company, the pricing and issuance of the shares of the listed company shall be implemented in accordance with the foregoing regulations.

The available market reference prices for the Company and the Target Company are as follows:

the Target

Pricing basis

the Company

Company

(RMB/share)

(RMB/share)

Average price of 20 trading days up to and

including 19

June 2020

1.71

2.16

Average price of 60 trading days up to and

including 19

June 2020

1.73

2.16

Average price of 120 trading days up to and

including 19

June 2020

1.81

2.25

The three market reference prices above are not much different. The average price of shares on the 20 trading days up to and including 19 June 2020 best reflects the latest condition of the Share price, so it can better reflect and maintain the interests of Shareholders and TC Shareholders.

- 12 -

LETTER FROM THE BOARD

  1. The pricing is based on the average price of Shares for the 20 trading days up to and including 19 June 2020 with reference to recent transactions.

The market reference prices adopted in comparable transactions since 2014 are as follows:

Type of transaction

Name of transaction

Pricing benchmark

Date

Merger by absorption

Merger by absorption between

Average price of

2018-10-23

between A-share listed

Midea Group Co., Ltd. and

the first 20 days

company and A-share

Wuxi Little Swan Company

listed company

Limited (A share)

Merger by absorption

Merger by absorption between

Average price of

2014-11-21

between A-share listed

Bestv Network Television

the first 20 days

company and A-share

Technology Development

listed company

Co., Ltd. and Oriental Pearl

Group Co., Ltd.

Merger by absorption

Merger by absorption between

Average price of

2014-12-30

between A-share listed

CSR Corporation Limited

the first 20 days

company and A-share

and China CNR

listed company

Corporation Limited

Merger by absorption

Merger by absorption between

Average price of

2016-02-23

between A-share listed

China GreatWall

the first 120 days

company and A-share

Technology Group Co., Ltd.

listed company

and GreatWall Information

Industry Co., Ltd.

Merger by absorption

Merger by absorption between

Average price of

2016-09-22

between A-share listed

Baoshan Iron & Steel

the first 20 days

company and A-share

Co., Ltd. and Wuhan Iron

listed company

and Steel Company Limited

Note: As the Administrative Measures for Major Assets Restructuring of Listed Companies (2014 Revision) revised the market reference price, which was adjusted from 20 trading days before the announcement of the first board resolution to one of the average prices of the company's shares for 20 trading days, 60 trading days or 120 trading days before the announcement of the first board resolution, hence, only the comparable cases from 2014 and after are included in the above.

According to the statistics of comparable transactions mentioned above, most of the transactions in which A-share listed companies merge A-share listed companies after the introduction of the Administrative Measures for the Major Assets Restructuring of Listed Companies (2014 Revision) have adopted the 20-day average price as a market reference price.

In summary, the pricing based on the average price of the 20 trading days up to and including 19 June 2020 for the Exchange Ratio reasonably reflects the fair value of the Company and the Target Company and complies with regulatory requirements and comparable trading practices, which the Company considers to be reasonable.

- 13 -

LETTER FROM THE BOARD

2. Main considerations for giving TC Shareholders a 20% premium

  1. Reference to the valuation of comparable companies
  1. Selection criteria for comparable companies

In order to fully ensure the applicability of comparable companies, the transaction

selects comparable companies to Target Company from the A-share listed companies

based on the following criteria: 1) operation in the industry and are affected by the same

economic factors; 2) exclude companies with abnormal value of 2019 P/E ratio, i.e.

excluding A-share listed companies with negative P/E ratios and obvious abnormal P/E

ratios.

  1. Selection of valuation ratio

Valuation indicators commonly used in comparable companies mainly include P/E

ratio, P/B ratio, price-to-sales ratio, and enterprise value ratio (EV/EBITDA). The

applicability of the above valuation indicators to the parties to the Possible Merger is

analyzed as follows:

Valuation indicators

Applicability analysis

P/E ratio

Applicable. The Company and the Target Company

operate stably for a long time and make profits during

the reporting period. The P/E ratio indicators have

reference value.

P/B ratio

Applicable. As both parties belong to the port

industry, most of their assets are physical assets, and

the book value of net assets can more accurately

reflect the actual assets, therefore, the P/B ratio

multiple based on the book value has reference value.

Price-to-sales ratio

Not applicable. Port companies engaged in loading

and unloading and trading businesses have large

differences in gross profit margins, while price-to-

sales ratios can not reflect the impact of differences

in gross profit margins of each company on corporate

value; meanwhile, in 2017, 2018, and 2019, the

proportions of income from investment in associates

and joint ventures to the Company's total profits are

49.52%, 28.60% and 26.64%, while such indicators

of the Target Company are only 12.83%, 5.98% and

7.48%. The price-to-sales ratio can not reflect the

impact of investment in associates and joint ventures

on corporate value.

- 14 -

LETTER FROM THE BOARD

Valuation indicators

Applicability analysis

Enterprise value ratio

Applicable. The enterprise value ratio index is

(EV/EBITDA)

helpful for evaluating companies with heavy assets

and high depreciation, and can eliminate the leverage

difference of different comparable companies, which

has reference value

Based on the analysis in the table above, among the commonly used valuation

indicators, P/E ratio, P/B ratio and EV/EBITDA are suitable valuation indicators for the

Company and the Target Company.

  1. Analysis of valuation results

Comparable companies' P/E ratio, P/B ratio, and enterprise value ratio

(EV/EBITDA) are as follows:

EV/

P/E ratio

P/B ratio

EBITDA

Stock code

Stock abbreviation

in 2019

in 2019

in 2019

(times)

(times)

(times)

600018.SH

Shanghai International

10.87

1.20

7.90

Port Group

601018.SH

Ningbo Port

13.47

1.13

8.58

601298.SH

Qingdao Port

10.09

1.26

6.08

001872.SZ

China Merchants Port

9.45

0.76

7.92

601228.SH

Guangzhou Port

23.31

1.50

9.90

000582.SZ

Beibu Gulf Port

17.74

1.84

10.13

601326.SH

QHD Port

15.84

1.01

7.36

601000.SH

Tangshan Port

7.50

0.78

3.92

600717.SH

Tianjin Port

18.15

0.67

7.77

000088.SZ

Yantian Port

30.85

1.56

22.15

600017.SH

Rizhao Port

12.33

0.66

8.52

600190.SH

Jinzhou Port

35.71

0.95

11.30

600279.SH

Chongqing Gangjiu

27.51

0.81

16.04

000507.SZ

Zhuhai Port

22.26

0.95

11.36

000905.SZ

Xiamen Port

46.95

1.18

9.57

002040.SZ

Nanjing Port

23.54

1.14

10.60

Maximum

46.95

1.84

22.15

The third quartile

24.53

1.22

10.77

Average

20.35

1.09

9.94

Median

17.94

1.07

9.07

The first quartile

11.96

0.80

7.87

Minimum

7.50

0.66

3.92

Note 1: P/E ratio in 2019 = Closing price as at 19 June 2020/earnings per share attributable to shareholders of the parent company in 2019

- 15 -

LETTER FROM THE BOARD

Note 2: P/B ratio in 2019 = Closing price as at 19 June 2020/net assets per share attributable to shareholders of the parent company in 2019

Note 3: EV/EBITDA in 2019 = (Closing price as at 19 June 2020* total share capital of the listed company as of 19 June 2020 + interest-bearing liabilities at the end of 2019 + preferred shares at the end of 2019 + minority shareholders' equity at the end of 2019 - monetary funds at the end of 2019)/(total profit in 2019 + interest expenses included in finance cost in 2019 + fixed assets in 2019 + amortization of intangible assets in 2019 + Amortization of long-term deferred expenses in 2019)

Source: 2019 annual report of the listed company and Wind Information

In the Possible Merger, the Exchange Ratio of the Target Company was RMB2.59 per TC Share, corresponding to the 2019 P/E ratio of the Target Company of 16.57 times, which was lower than the average and median of comparable companies, and within the range of the first quartile and third quartile of comparable companies; corresponding to 2019 P/B ratio of the Target Company of 1.36 times, higher than the average and median of comparable companies, and within the valuation range of comparable companies; corresponding to enterprise value ratio of the Target Company in 2019 of 7.34 times, which is lower than the average and median of comparable companies and within the valuation range of comparable companies.

  1. Reference to comparable transactions

As the Target Company is an A-share listed company, the comparable transaction only selects the counterparties which are A-share listed companies for reference analysis. In this type of transaction, the premium rate of the share swap price of the counterparty to the average price of shares for the 20 trading days before the pricing benchmark date ranges from -33.56% to 68.71%. The details are as follows:

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

6.50

7.85

20.79%

2008-05-15

between A-share

through share swap

listed company and

between Panzhihua

A-share listed

Steel Group Panzhihua

company

Steel Vanadium

Co., Ltd. and Jicheng

Future Co., Ltd.

- 16 -

LETTER FROM THE BOARD

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

14.14

17.08

20.79%

2008-05-15

between A-share

through share swap

listed company and

between Panzhihua

A-share listed

Steel Group Panzhihua

company

Steel Vanadium

Co., Ltd. and

Chongqing Titanium

Industry Co., Ltd of

Pangang Group

Merger by absorption

Merger by absorption

10.63

10.63

0.00%

2014-11-21

between A-share

through share swap

listed company and

between Bestv

A-share listed

Network Television

company

Technology

Development Co., Ltd.

and Oriental Pearl

Group Co., Ltd

Merger by absorption

Merger by absorption

5.50

6.88

25.00%

2009-07-10

between A-share

through share swap

listed company and

between China Eastern

A-share listed

Airlines Corporation

company

Limited and Shanghai

Airlines Co., Ltd.

Merger by absorption

Merger by absorption

7.18

8.35

16.27%

2011-04-11

between A-share

through share swap

listed company and

between Jinan Iron &

A-share listed

Steel and Laiwu Steel

company

Corporation

Merger by absorption

Merger by absorption

5.92

6.19

4.56%

2014-12-30

between A-share

between CSR

listed company and

Corporation Limited

A-share listed

and China CNR

company

Corporation Limited

Merger by absorption

Merger by absorption

6.39

6.39

0.00%

2012-05-04

between A-share

between China

listed company and

Meheco Group

A-share listed

Co., Ltd. and Henan

company

Topfound

Pharmaceutical

Co., Ltd.

- 17 -

LETTER FROM THE BOARD

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

36.26

24.09

-33.56%

2016-02-23

between A-share

between China

listed company and

GreatWall Technology

A-share listed

Group Co., Ltd. and

company

GreatWall Information

Industry Co., Ltd.

Merger by absorption

Merger by absorption

2.86

2.58

-10.00%

2016-09-22

between A-share

between Baoshan Iron

listed company and

& Steel Co., Ltd. and

A-share listed

Wuhan Iron and Steel

company

Company Limited

Merger by absorption

Merger by absorption

7.11

7.11

0.00%

2008-12-17

between A-share

between Xinhu

listed company and

Zhongbao Co., Ltd.

A-share listed

and Zhejiang Xinhu

company

Venture Investment

Co., Ltd.

Merger by absorption

Merger by absorption

11.55

11.55

0.00%

2012-02-29

between A-share

between Guangzhou

listed company and

Baiyunshan

A-share listed

Pharmaceutical

company

Holdings Company

Limited and Guanzhou

Baiyunshan

Pharmaceutical

Co., Ltd.

Merger by absorption

Merger by absorption

46.28

50.91

10.00%

2018-10-23

between A-share

between Midea Group

listed company and

Co., Ltd. and Wuxi

A-share listed

Little Swan Company

company

Limited (A share)

Merger by absorption

Merger by absorption

13.53

13.53

0.00%

2010-11-02

between A-share

between Shanghai

listed company and

Friendship Group

A-share listed

Incorporated Company

company

and Shanghai Bailian

Group Co., Ltd.

Merger by absorption

Merger by absorption

25.46

25.46

0.00%

2009-07-24

between A-share

between Qinghai Salt

listed company and

Lake Industry Co.,

A-share listed

Ltd. and Qinghai Salt

company

Lake Industry Group

Co., Ltd.

- 18 -

LETTER FROM THE BOARD

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

4.10

4.10

0.00%

2008-12-28

between A-share

between HBIS

listed company and

Company Limited and

A-share listed

Handan Iron and Steel

company

Co., Ltd.

Merger by absorption

Merger by absorption

5.76

5.76

0.00%

2008-12-28

between A-share

between HBIS

listed company and

Company Limited and

A-share listed

Chengde Xinxin

company

Vanadium and

Titanium Co., Ltd.

Merger by absorption

Merger by absorption

11.36

11.36

0.00%

2009-10-15

between A-share

between Shanghai

listed company and

Pharmaceuticals

A-share listed

Holdings Co., Ltd.

company

and Shanghai Zhongxi

Pharmaceutical

Co., Ltd.

Merger by absorption

Merger by absorption

19.07

19.07

0.00%

2009-10-15

between A-share

between Shanghai

listed company and

Pharmaceuticals

A-share listed

Holdings Co., Ltd.

company

and Shanghai

Industrial

Pharmaceutical

Investment Co., Ltd.

Merger by absorption

Merger by absorption

10.09

10.80

7.04%

2010-07-26

between H-share

between BBMG

listed company and

Corporation and Hebei

A-share listed

Taihang Cement

company

Co., Ltd.

Merger by absorption

Merger by absorption

12.65

14.55

15.00%

2011-03-22,

between H-share

between Guangzhou

supplemental

listed company and

Automobile Group

agreement on

A-share listed

Co., Ltd. and GAC

2011-06-10

company

Changfeng Motor

Co., Ltd.

Merger by absorption

Merger by absorption

16.91

20.63

22.00%

2018-02-28

between H-share

between Sinotrans

listed company and

Limited and Sinotrans

A-share listed

Air Transportation

company

Development Co., Ltd.

- 19 -

LETTER FROM THE BOARD

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

26.65

35.00

31.33%

2007-10-22

between H-share

between Shanghai

listed company and

Electric Group

A-share listed

Company Limited and

company

Shanghai Power

Transmission &

Distribution Co., Ltd.

Merger by absorption

Merger by absorption

15.84

20.81

31.38%

2006-12-28

between H-share

between Aluminum

listed company and

Corporation of China

A-share listed

Limited and Shandong

company

Aluminum Industry

Co., Ltd.

Merger by absorption

Merger by absorption

9.26

11.88

28.29%

2006-12-28

between H-share

between Aluminum

listed company and

Corporation of China

A-share listed

Limited and Lanzhou

company

Alumnium Co., Ltd.

Merger by absorption

Merger by absorption

4.88

5.80

18.85%

2006-11-12

between H-share

between Weichai

listed company and

Power Co., Ltd. and

A-share listed

Zhuzhou Torch Spark

company

Plug Co., Ltd.

Merger by absorption

Merger by absorption

11.81

14.53

23.03%

2010-12-30

between non-listed

between China

company and

Communications

A-share listed

Construction Company

company

Limited and CRBC

International Road &

Bridge International

Co., Ltd.

Merger by absorption

Merger by absorption

9.46

15.96

68.71%

2013-03-28

between non-listed

between Midea Group

company and

Co., Ltd. and GD

A-share listed

Midea Holding

company

Co., Ltd.

Merger by absorption

Merger by absorption

8.30

9.96

20.00%

2014-07-25

between non-listed

between Shenyin &

company and

Wanguo Futures

A-share listed

Co., Ltd. and Shenwan

company

Hongyuan Securities

- 20 -

LETTER FROM THE BOARD

The average

trading price

20 days before

the suspension

Share swap

Market reference

Share swap

premium

price of the

price of the

rate of the

Type of transaction

Name of transaction

counterparty

counterparty

counterparty

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

8.33

13.33

60.00%

2015-04-23

between non-listed

between Wens

company and

Foodstruff Group

A-share listed

Co., Ltd. and

company

Guangdong

DaHuaNong Animal

Health Products

Co., Ltd.

Merger by absorption

Merger by absorption

4.73

5.93

25.00%

2017-06-14

between non-listed

between China

company and A-share

Merchants Expressway

listed company

Network Technology

Holdings Co., Ltd. and

Huabei Expressway

Co., Ltd.

Merger by absorption

Merger by absorption

28.22

38.10

35.01%

2015-09-16

between non-listed

between China

company and A-share

Merchants Shekou

listed company

Industrial Zone

Holdings Co., Ltd. and

China Merchants

Property Development

Co., Ltd. (A shares)

Maximum share swap premium rate of the counterparty

68.71%

The third quartile of share swap premium rate of the counterparty

24.02%

Average share swap premium rate of the counterparty

14.18%

Median share swap premium rate of the counterparty

15.00%

The first quartile of share swap premium rate of the counterparty

0.00%

Minimum share swap premium rate of the counterparty

-33.56%

Note 1: The pricing benchmark in the transactions of China GreatWall Technology Group Co., Ltd. with GreatWall Information Industry Co., Ltd. and China Merchants Shekou Industrial Zone Holdings Co., Ltd. with China Merchants Property Development Co., Ltd. (A shares) is the average price of shares for the 120 days before trading suspension. In the statistics in the table above, taking into account the unity of the data, the average trading prices of shares the counterparties before the suspension of trading was recalculated, which is RMB36.26 per share for GreatWall Information Industry Co., Ltd. and RMB28.22 per share for China Merchants Property Development Co., Ltd. (A shares) for comparison and analysis.

Source: Relevant announcements of listed companies and Wind Information

In the Possible Merger, the 20% premium is between the first quartile and the third quartile of the share swap premium rate of the counterparties in comparable transactions, and in line with market practice.

- 21 -

LETTER FROM THE BOARD

Consideration

To effect the Possible Merger and to protect the interests of the minority shareholders of the Company and the Target Company, it is necessary to provide each of the Dalian Port Dissenting Shareholders and TC Dissenting Shareholders with Buy-back Alternative and Cash Alternative, respectively, in accordance with relevant rules and regulations as well as market practice. The Buy-back Alternative and Cash Alternative will be provided by Liaoning Port Group (including its subsidiaries) and/or its designated independent third party instead of the Company. In the circumstances, the consideration for the Possible Merger is RMB16.441 billion, which comprises RMB2.54 per TC Share multiplied by 6,472,983,003 TC Shares to be exchanged in the Possible Merger.

Arrangement on Odd Lots

The number of new A Shares obtained by TC Shareholders shall be an integer, otherwise one A Share shall be issued to each TC Shareholder in turn according to the sequence of the number after the decimal point until the aforementioned new A Shares obtained by TC Shareholders is consistent with the number of new A shares issued by the Company. If the number of shares with the same number after the decimal point is more than the number of remaining Shares issued by the Company, the method of random distribution by computer will be adopted.

Rights of the TC Dissenting Shareholders

Subject to the Possible Merger becoming unconditional, the TC Dissenting Shareholders may elect to exercise the Cash Alternative to receive cash at the rate of RMB2.16 per TC Share. Such rate is determined based on the average trading price of TC Shares during the Price Fixing Period. The Cash Alternative will be provided by the Cash Alternative Provider. The Cash Alternative Provider will not receive any fee from providing Cash Alternative from the Company or its connected person.

In case of ex-right or ex-dividend issues such as cash dividends, stock dividends, capital reserve converted into share capital, allotment of shares, etc. occurred from the Price Base Day to the Cash Alternative Exercise Day, the aforementioned rate shall be adjusted accordingly. On 22 June 2020, the annual general meeting of the Target Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.48 (tax included) per ten TC Shares for the year ended 31 December 2019 based on the total 6,472,983,003 TC Shares. As of the Latest Practicable Date, aforementioned dividend distribution plan has been implemented and the Cash Alternative shall be exercised at the rate of RMB2.11 per TC Share.

- 22 -

LETTER FROM THE BOARD

If the TC Dissenting Shareholders sell their TC Shares after the record date for the shareholders' general meeting of the Target Company, the number of their TC Shares entitled to the Cash Alternative will be reduced accordingly. If the TC Dissenting Shareholders acquire TC Shares after the record date, the TC Shares acquired will not be entitled to the Cash Alternative.

The TC Dissenting Shareholders shall receive the cash consideration provided by the Cash Alternative Provider for each TC Share effectively declared and transfer the corresponding TC Shares to the Cash Alternative Provider on the Cash Alternative Exercise Day. Cash Alternative Provider shall acquire all TC Shares effectively declared by the TC Dissenting Shareholders and pay cash consideration accordingly on the Cash Alternative Exercise Day.

If the Possible Merger is rejected by the shareholders' general meeting of the Company or the Target Company, the respective class meeting of the Company or relevant regulatory authorities, which results in the non-implementation of the Possible Merger, the TC Dissenting Shareholders shall not be entitled to Cash Alternative, nor any compensation from the Company or the Target Company.

It is expected that after the Possible Merger is approved by the respective shareholders' general meetings of the Company and the Target Company, it will remain subject to PRC regulatory approval process by the CSRC for a period of time, the length of which cannot be realistically estimated at this stage. After the CSRC approvals for the Possible Merger and the A Share Specific Mandate are obtained and the Possible Merger has become unconditional, the Company will proceed to approach independent third party investors and issue new A Shares pursuant to the A Share Specific Mandate and/or request Liaoning Port Group to (through its subsidiary(ies)) dispose of such number of existing shares as will be necessary to ensure that the Company will meet the public float requirement under the Listing Rules immediately upon completion of the Possible Merger. When the details of the above measures to ensure public float compliance have been formalized, the Company will issue an announcement (the "Announcement on Alternatives") to inform the Dalian Port Dissenting Shareholders and TC Dissenting Shareholders as to the period during which they may exercise the Buy-back Alternative and Cash Alternative (as applicable), the record date, how they should notify the Company of such exercise and the clearing and settlement details. It is currently expected that the Announcement on Alternatives will be made within six months after the Possible Merger has become unconditional, but the exact timing will be subject to market condition and factors not within the control of the Company. Based on market practice with reference to relevant PRC legal requirements, completion of the exercise of the Buy-back Alternative and Cash Alternative will occur no later than the completion of the Possible Merger. Relevant Dalian Port Dissenting Shareholders and TC Dissenting Shareholders will elect for the Buy-back Alternative or Cash Alternative (as applicable) before the completion of the Possible Merger, and will receive cash at the same time of or before the completion of the Possible Merger, such that the public float of the Company immediately upon completion of the Possible Merger will already reflect the effect of any exercise of the Buy-back Alternative and Cash Alternative.

- 23 -

LETTER FROM THE BOARD

Price Adjustment Mechanism for the Cash Alternative

The price adjustment mechanism for the Cash Alternative will be triggered under the following conditions:

Upward Adjustment

  1. during the Price Adjustment Period, Shanghai Stock Exchange Composite Index (000001.SH) ("SSE Index") on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the SSE Index on the last trading day immediately before the suspension of trading of TC Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of TC Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of 20 trading days before the suspension of trading; or
  2. during the Price Adjustment Period, Port Index (886031. WI) ("Port Index") on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the Port Index on the last trading day immediately before the suspension of trading of TC Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of TC Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of 20 trading days before the suspension of trading.

Downward Adjustment

  1. during the Price Adjustment Period, SSE Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the SSE Index on the last trading day immediately before the suspension of trading of TC Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of TC Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of 20 trading days before the suspension of trading; or
  2. during the Price Adjustment Period, Port Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the Port Index on the last trading day immediately before the suspension of trading of TC Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of TC Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of 20 trading days before the suspension of trading.

The Target Company shall convene a meeting of board of directors to review and decide whether to adjust the Cash Alternative within 10 trading days after the above-mentioned conditions are triggered. During the Price Adjustment Period, the Target Company shall only make one-time adjustment to the Cash Alternative. Whether or not the board of directors had decided to adjust the Cash Alternative, no further adjustment shall be made and no further board meeting is required when the above-mentioned conditions are triggered again.

- 24 -

LETTER FROM THE BOARD

The price of Cash Alternative after adjustment shall be the average trading price of the above-mentioned 20 consecutive trading days.

Rights of the Dalian Port Dissenting Shareholders

Subject to the Possible Merger becoming unconditional, the Dalian Port Dissenting Shareholders may elect to exercise the Buy-back Alternative to receive cash at the rates of RMB1.71 per A Share and HK$0.67 per H Share. Such rates are determined by reference to the average trading prices of A Shares and average trading prices of H Shares respectively during the Price Fixing Period.

In case of ex-right or ex-dividend issues such as cash dividends, stock dividends, capital reserve converted into share capital, allotment of shares, etc. occurred from the Price Base Day to the Buy-back Alternative Exercise Day, the aforementioned rates shall be adjusted accordingly. On 29 June 2020, the annual general meeting of the Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.021 (tax included, equivalent to HK$0.02299 based on the average exchange rate of RMB to HK$ for a period of 5 trading days up to 29 June 2020 published by the People's Bank of China) per Share for the year ended 31 December 2019 based on the total 12,894,535,999 Shares. As of the Latest Practicable Date, aforementioned dividend distribution plans have been implemented and the Buy-back Alternative shall be exercised at the rate of RMB1.69 per A Share and HK$0.65 per H Share.

If the Dalian Port Dissenting Shareholders sell their Shares after the record date for the general meeting and respective class meeting of the Company, the number of their Shares entitled to the Buy-back Alternative will be reduced accordingly. If the Dalian Port Dissenting Shareholders acquire Shares after the said record date, the Shares acquired will not be entitled to the Buy-back Alternative.

The Dalian Port Dissenting Shareholders shall receive the cash consideration provided by the Buy-back Alternative Provider for each Share effectively declared and transfer the corresponding Shares to the Buy-back Alternative Provider on the Buy-back Alternative Exercise Day. Buy-back Alternative Provider shall acquire all Shares effectively declared by the Dalian Dissenting Shareholders and pay cash consideration accordingly on the Buy-back Alternative Exercise Day. The Buy-back Alternative Provider will not receive any fee from providing Buy-back Alternative from the Company or its connected person.

If the Possible Merger is rejected by the shareholders' general meeting of the Company or the Target Company, the respective class meeting of the Company or relevant regulatory authorities, which results in the non-implementation of the Possible Merger, the Dalian Port Dissenting Shareholders shall not be entitled to Buy-back Alternative, nor any compensation from the Company or the Target Company.

- 25 -

LETTER FROM THE BOARD

The cash to be received by a Dalian Port Dissenting Shareholder who opts for the Buy-back Alternative is determined at a rate by reference to the average trading prices of A Shares and the average trading prices of H Shares respectively during the Price Fixing Period. The Board considers the Buy-back Alternative fair and reasonable and in the interest of the Shareholders as a whole.

The Company may issue the Announcement on Alternatives in due course, as disclosed under the heading "Rights of the TC Dissenting Shareholders". Based on relevant PRC legal requirements, completion of the exercise of the Buy-back Alternative and Cash Alternative will occur no later than the completion of the Possible Merger.

Analysis on the rationality of the Buy-back Alternative

In the Possible Merger, the Company, the transacting party, is an A-share and H-share listed company. Comparable transactions with A-share listed companies merging with another A-share listed company by absorption are selected to analyze the reasonableness of the price of the Buy-back Alternative for Dalian Dissenting Shareholders holding A Shares:

Premium of cash

option price over

The average

average trading

trading price

price of shares

20 days before

Cash option

for 20 trading

the suspension of

price of the

days before

A shares of the

transaction

suspension of

Type of transaction

Name of transaction

transaction party

party

A shares

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

9.59

9.59

0.00%

2008-05-15

between A-share

through share swap

listed company and

between Panzhihua

A-share listed

Steel Group Panzhihua

company

Steel Vanadium

Co., Ltd. and Jicheng

Future Co., Ltd.

Merger by absorption

Merger by absorption

9.59

9.59

0.00%

2008-05-15

between A-share

through share swap

listed company and

between Panzhihua

A-share listed

Steel Group Panzhihua

company

Steel Vanadium

Co., Ltd. and

Chongqing Titanium

Industry Co., Ltd of

Pangang Group

- 26 -

LETTER FROM THE BOARD

Premium of cash

option price over

The average

average trading

trading price

price of shares

20 days before

Cash option

for 20 trading

the suspension of

price of the

days before

A shares of the

transaction

suspension of

Type of transaction

Name of transaction

transaction party

party

A shares

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

32.43

32.54

0.34%

2014-11-21

between A-share

through share swap

listed company and

between Bestv

A-share listed

Network Television

company

Technology

Development Co., Ltd.

and Oriental Pearl

Group Co., Ltd.

Merger by absorption

Merger by absorption

5.28

5.28

0.00%

2009-07-10

between A-share

through share swap

listed company and

between China Eastern

A-share listed

Airlines Corporation

company

Limited and Shanghai

Airlines Co., Ltd.

Merger by absorption

Merger by absorption

3.44

3.95

14.83%

2011-04-11

between A-share

through share swap

listed company and

between Jinan Iron &

A-share listed

Steel and Laiwu Steel

company

Corporation

Merger by absorption

Merger by absorption

5.63

5.63

0.00%

2014-12-30

between A-share

between CSR

listed company and

Corporation Limited

A-share listed

and China CNR

company

Corporation Limited

Merger by absorption

Merger by absorption

20.74

20.74

0.00%

2012-05-04

between A-share

between China Meheco

listed company and

Group Co., Ltd. and

A-share listed

Henan Topfound

company

Pharmaceutical

Co., Ltd.

- 27 -

LETTER FROM THE BOARD

Premium of cash

option price over

The average

average trading

trading price

price of shares

20 days before

Cash option

for 20 trading

the suspension of

price of the

days before

A shares of the

transaction

suspension of

Type of transaction

Name of transaction

transaction party

party

A shares

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

21.09

13.04

-38.17%

2016-02-23

between A-share

between China

listed company and

GreatWall Technology

A-share listed

Group Co., Ltd. and

company

GreatWall Information

Industry Co., Ltd.

Merger by absorption

Merger by absorption

5.11

4.60

-9.98%

2016-09-22

between A-share

between Baoshan Iron

listed company and

& Steel Co., Ltd. and

A-share listed

Wuhan Iron and Steel

company

Company Limited

Merger by absorption

Merger by absorption

3.85

3.85

0.00%

2008-12-17

between A-share

between Xinhu

listed company and

Zhongbao Co., Ltd.

A-share listed

and Zhejiang Xinhu

company

Venture Investment

Co., Ltd.

Merger by absorption

Merger by absorption

12.2

12.20

0.00%

2012-02-29

between A-share

between Guangzhou

listed company and

Baiyunshan

A-share listed

Pharmaceutical

company

Holdings Company

Limited and Guanzhou

Baiyunshan

Pharmaceutical

Co., Ltd.

Merger by absorption

Merger by absorption

42.04

36.27

-13.73%

2018-10-23

between A-share

between Midea Group

listed company and

Co., Ltd. and Wuxi

A-share listed

Little Swan Company

company

Limited (A share)

- 28 -

LETTER FROM THE BOARD

Premium of cash

option price over

The average

average trading

trading price

price of shares

20 days before

Cash option

for 20 trading

the suspension of

price of the

days before

A shares of the

transaction

suspension of

Type of transaction

Name of transaction

transaction party

party

A shares

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

15.57

15.57

0.00%

2010-11-02

between A-share

between Shanghai

listed company and

Friendship Group

A-share listed

Incorporated Company

company

and Shanghai Bailian

Group Co., Ltd.

Merger by absorption

Merger by absorption

53.53

51.86

-3.12%

2009-07-24

between A-share

between Qinghai Salt

listed company and

Lake Industry

A-share listed

Co., Ltd. and Qinghai

company

Salt Lake Industry

Group Co., Ltd.

Merger by absorption

Merger by absorption

5.29

5.29

0.00%

2008-12-28

between A-share

between HBIS

listed company and

Company Limited and

A-share listed

Handan Iron and Steel

company

Co., Ltd.

Merger by absorption

Merger by absorption

5.29

5.29

0.00%

2008-12-28

between A-share

between HBIS

listed company and

Company Limited and

A-share listed

Chengde Xinxin

company

Vanadium and

Titanium Co., Ltd.

Merger by absorption

Merger by absorption

11.83

11.83

0.00%

2009-10-15

between A-share

between Shanghai

listed company and

Pharmaceuticals

A-share listed

Holdings Co., Ltd. and

company

Shanghai Zhongxi

Pharmaceutical

Co., Ltd.

- 29 -

LETTER FROM THE BOARD

Premium of cash

option price over

The average

average trading

trading price

price of shares

20 days before

Cash option

for 20 trading

the suspension of

price of the

days before

A shares of the

transaction

suspension of

Type of transaction

Name of transaction

transaction party

party

A shares

Date

(RMB/share)

(RMB/share)

Merger by absorption

Merger by absorption

11.83

11.83

0.00%

2009-10-15

between A-share

between Shanghai

listed company and

Pharmaceuticals

A-share listed

Holdings Co., Ltd. and

company

Shanghai Industrial

Pharmaceutical

Investment Co., Ltd.

Maximum premium rate over cash option of the transaction party

14.83%

The third quartile of premium rate over cash option of the transaction party

0.00%

Average premium rate over cash option of the transaction party

-2.77%

Median premium rate over cash option of the transaction party

0.00%

The first quartile of premium rate over cash option of the transaction party

0.00%

Minimum premium rate over cash option of the transaction party

-38.17%

Note 1: In the case of merger by absorption between Qinghai Salt Lake Industry Co., Ltd. and Qinghai Salt Lake Industry Group Co., Ltd., the finalized cash option price was RMB51.86/share. RMB0.40/share was deducted due to the profit distribution plan for 2019 (ie. distributing RMB4.03 in cash for every 10 shares) implemented on 28 April 2010. The cash option price for reference is RMB51.86/share.

Source of data: Relevant announcements of listed companies and Wind Information

During the Possible Merger, the price for the Buy-back Alternative is the same as the average trading price of Shares for 20 trading days before suspension of A Shares (i.e. 19 June 2020), and the premium (discount) falls between the first quartile, the median and the third quartile of the premiums of cash options of the transaction parties to the above comparable transactions over average trading price of shares for 20 trading days before suspension of A shares and differs slightly from the average. Therefore, the Company considers that the pricing is in line with the market practices and is reasonable.

- 30 -

LETTER FROM THE BOARD

Regarding the Buy-back Alternative for Dalian Dissenting Shareholders holding H Shares, comparable transactions with listed companies which issue equity securities of multiple categories (including A-share and H-share listed companies, A-share and B-share listed companies) in merger by absorption are selected to analyze the price determination method for cash option of dissenting shareholders:

Consistency

Name of the

of price

A-share and

Price determination

determination

H-share listed

Price determination

method for cash

method for cash

company

method for cash

option of dissenting

options of

in the

option of dissenting

H shareholders or

shareholders

Name of transaction

transaction

A shareholders

B shareholders

of all classes

Date

Merger by absorption

CSR Corporation

Average trading

Average trading

Yes

2014-12-30

between CSR

Limited (A+H)

price of shares for

price of shares for

Corporation Limited

the 20 trading

the 20 trading

and China CNR

days before the

days before the

Corporation Limited

pricing benchmark

pricing benchmark

date

date

Merger by absorption

China CNR

Average trading

Average trading

Yes

2014-12-30

between CSR

Corporation

price of shares for

price of shares for

Corporation Limited

Limited (A+H)

the 20 trading

the 20 trading

and China CNR

days before the

days before the

Corporation Limited

pricing benchmark

pricing benchmark

date

date

Merger by absorption

China Eastern

Average trading

Average trading

Yes

2009-07-10

through share swap

Airlines

price of shares for

price of shares for

between China Eastern

Corporation

the 20 trading

the 20 trading

Airlines Corporation

Limited (A+H)

days before the

days before the

Limited and Shanghai

pricing benchmark

pricing benchmark

Airlines Co., Ltd.

date

date

Merger by absorption

Guangzhou

Average trading

Average trading

Yes

2012-02-29

through share swap

Baiyunshan

price of shares for

price of shares for

between Guangzhou

Pharmaceutical

the 20 trading

the 20 trading

Baiyunshan

Holdings

days before the

days before the

Pharmaceutical

Company

pricing benchmark

pricing benchmark

Holdings Company

Limited (A+H)

date

date

Limited and Guanzhou

Baiyunshan

Pharmaceutical

Co., Ltd. (A share)

Merger by absorption

Wuxi Little Swan

Average trading

Average trading

Yes

2018-10-23

between Midea Group

Company

price of shares for

price of shares for

Co., Ltd. and Wuxi

Limited (A+B)

the 20 trading

the 20 trading

Little Swan Company

days before the

days before the

Limited

pricing benchmark

pricing benchmark

date

date

- 31 -

LETTER FROM THE BOARD

Consistency

Name of the

of price

A-share and

Price determination

determination

H-share listed

Price determination

method for cash

method for cash

company

method for cash

option of dissenting

options of

in the

option of dissenting

H shareholders or

shareholders

Name of transaction

transaction

A shareholders

B shareholders

of all classes

Date

Merger by absorption

China Merchants

Average trading

Average trading

Yes

2015-09-16

between China

Property

price of shares for

price of shares for

Merchants Shekou

Development

the 120 trading

the 120 trading

Industrial Zone

Co., Ltd.

days before the

days before the

Holdings Co., Ltd. and

(A+B)

pricing benchmark

pricing benchmark

China Merchants

date

date

Property Development

Co., Ltd.

Source of data: Relevant announcements of listed companies and Wind Information

In the comparable transactions above, the price determination methods for cash option prices of all classes of dissenting shareholders are consistent for fairness to shareholders across all classes of the same company, and the H-share cash option prices in all cases were determined based on the average trading price of shares for the 20 trading days before the pricing benchmark date. In the Possible Merger, the Buy-back Alternative for Dalian Dissenting Shareholders holding H Shares and A Shares are both determined based on the average trading price for the 20 trading days before the suspension of A Shares, which is in line with market practice and reflects fairness to shareholders in the two cities, and are therefore considered by the Company as reasonable.

If the Possible Merger is rejected by the shareholder's general meeting of the Company or the Target Company, the respective class meeting of the Company or relevant regulatory authorities, which results in the non-implementation of the Possible Merger, the Dalian Port Dissenting Shareholders shall not be entitled to Buy-back Alternative, nor any compensation from the Company or the Target Company.

- 32 -

LETTER FROM THE BOARD

Price Adjustment Mechanism for the Buy-back Alternative

The price adjustment mechanism for the Buy-back Alternative will be triggered under the following conditions:

A Shares

Upward Adjustment

  1. during the Price Adjustment Period, SSE Index on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the SSE Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of the A Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of A Shares on 20 A Shares trading days before the suspension of trading; or
  2. during the Price Adjustment Period, Port Index on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the Port Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of the A Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of A Shares on 20 A Shares trading days before the suspension of trading.

Downward Adjustment

  1. during the Price Adjustment Period, SSE Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the SSE Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of the A Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of A Shares on 20 A Shares trading days before the suspension of trading; or
  2. during the Price Adjustment Period, Port Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the Port Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of the A Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of A Shares on 20 A Shares trading days before the suspension of trading.

- 33 -

LETTER FROM THE BOARD

H Shares

Upward Adjustment

  1. during the Price Adjustment Period, Hang Seng Index (HIS.HI) ("HS Index") on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the HS Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of H Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of H Shares on the 20 H Share trading days before the suspension of trading of A Shares on the Shanghai Stock Exchange; or
  2. during the Price Adjustment Period, Hong Kong Transport Index (887115.WI) ("HKT Index") on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the HKT Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of H Shares on at least 10 trading days of 20 consecutive trading days are more than 20% higher than the average trading price of H Shares on the 20 H Share trading days before the suspension of trading of A Shares on the Shanghai Stock Exchange.

Downward Adjustment

  1. during the Price Adjustment Period, HS Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the HS Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of H Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of H Shares on the 20 H Shares trading days before the suspension of trading of A Shares on the Shanghai Stock Exchange; or
  2. during the Price Adjustment Period, HKT Index on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the HKT Index on the last trading day immediately before the suspension of trading of A Shares on the Shanghai Stock Exchange; and at the same time the daily average trading price of H Shares on at least 10 trading days of 20 consecutive trading days are more than 20% lower than the average trading price of H Shares on the 20 H Shares trading days before the suspension of trading of A Shares on the Shanghai Stock Exchange.

The Company will convene a Board meeting to review and decide whether to adjust the Buy-back Alternative within 10 trading days after the above-mentioned conditions are triggered. Price adjustment of A Shares and H Shares shall be reviewed and decided by the

- 34 -

LETTER FROM THE BOARD

Board separately. During the Price Adjustment Period, the Company shall only make one-time adjustment to the Buy-back Alternative. Whether or not the Board had decided to adjust the Buy-back Alternative, no further adjustment shall be made if the above-mentioned conditions are triggered again.

The price of Buy-back Alternative of A Shares and H Shares after adjustment shall be the average trading price of A Shares and H Shares respectively on the above-mentioned 20 consecutive trading days.

Port Index and HKT Index

Background

Port Index (886031.WI) is a market capitalisation-weighted index tracking 21 A-share stocks published by Wind Information in June 2006. The component stocks tracked by Port Index include all 19 listed companies with integrated port logistics as principal activities in the A-shares market as well as 2 listed companies with port-related warehousing and freight forwarding as principal activities.

HKT Index (887115.WI) is a market capitalisation-weighted index tracking 79 Hong Kong stocks published by Wind Information in June 2006. The component stocks of the HKT Index basically include all listed companies in the transportation industry listed in the Hong Kong Stock Exchange, including 17 listed companies in the integrated port logistics industry, 14 listed companies in the expressway industry, 4 listed companies in the road transportation industry, 14 listed companies in the marine transportation industry, 4 listed companies in the aviation industry, 17 listed companies in the air cargo and logistics industry, 3 listed companies in the airport industry and 2 listed companies in the railway transportation industry.

The industry distribution of the component stocks of the two indexes above belongs to the four-tier Wind Industry Classification Standard. The Wind Industry Classification Standard fully adopted the Global Industries Classification Standard (GICS). GICS is an industry classification system jointly introduced by MSCI and S&P and it has the largest user base in securities markets globally. Wind Industry Classification Standard meets international standards and is also applicable in the securities market in the PRC.

Rationality

According to the Answer to a Question Regarding the Mechanism of Adjusting the Issue Price of Shares Offered to Purchase Assets issued by the China Securities Regulatory Commission in 2018, the plan of adjusting the issue price should be based on changes in market and industry indexes. The price adjustment plan for Buy-back Alternative was made with reference to the regulatory requirements above.

- 35 -

LETTER FROM THE BOARD

In the Possible Merger, the purpose of the price adjustment plan is to prevent the failure of the Buy-back Alternative, which are based on the average trading price of Shares for the 20 trading days before 19 June 2020, to fairly reflect the value of Shares due to any material changes in the market environment date, which will harm the interest of minority Shareholders. The fluctuation in the industry index can better reflect if there is any major change in the market environment for listed companies in the industry. Making the decision on price adjustment based on changes in industry index meets the purpose of putting the price adjustment plan in place.

Among the recent cases in the industry, in the case of share issuance and cash payment by Hubei Chutian Smart Communcation Co., Ltd. (600035.SH) for purchasing assets, the Shenwan Expressway Index (801175.SI), which mainly covers listed companies in the road and railway transportation industry in the A-shares market, was selected as the basis of the price adjustment plan. Among cases of transactions of the same type, in the case of merger by absorption between Midea Group Co., Ltd. (000333.SZ), a listed company in the home appliances industry, and Wuxi Little Swan Company Limited (A share) (000418.SZ), a listed company in the washing machines industry, the Shenwan White Goods Index (801111.SI), which mainly covers listed companies in the air-conditioner, fridge, washing machine and other white goods industry, was adopted as the basis of the price adjustment plan for the Buy-back Alternative. The above transactions of the same industry and the same type adopted changes in indexes within the same industry as the basis of price adjustment plan.

Port Index (886031.WI) fully covers A share listed companies engaged in port and port-related business and is able to reflect changes in the market environment of other listed companies in the same industry as both parties of the merger. HKT Index (887115.WI) fully covers companies listed in Hong Kong in the transportation industry and the sub-segments of the transportation industry have a stronger correlation with to the share price fluctuation in the secondary market. HKT Index (887115.WI) can also better reflect changes in the market environment of other H share listed companies in the same industry as the Company.

In summary, the Company considers the adoption of Port Index (886031.WI) and HKT Index (887115.WI) as the basis of price adjustment plan to be reasonable.

Absorption of Assets and Assumption of Liabilities

Upon full implementation of the Possible Merger, all the assets, business, staff and rights of the Target Company will be absorbed into, and all the liabilities of the Target Company will be assumed by, the Company or its wholly owned subsidiary pursuant to the Possible Merger. Both the Company and the Target Company shall perform the creditor notice and announcement procedures in accordance with the requirements of the relevant laws and regulations, and as required by their respective creditors within the legal duration, to have the third parties or themselves pay off debts in advance or provide additional guarantees to their respective creditors.

- 36 -

LETTER FROM THE BOARD

The Target Company shall deliver all its assets and, with the assistance of the Company, handle all the relevant registration and filing procedures, including but not limited to the registration and filing procedures in relation to the title to real estate property, sea areas, trademarks, patents, franchise rights, construction in progress, ship vehicles, etc.

Upon full implementation of the Possible Merger, the existing branches and subsidiaries of the Target Company shall modify their commercial registrations as branches and subsidiaries of the Company.

Upon full implementation of the Possible Merger, employees of the Company will continue to work for the Company in accordance to their labour contract. Employees of the Target Company prior to the Possible Merger will be re-employed by the Company with new labor contracts. All rights and obligations enjoyed and undertaken by the Target Company as the employer will be assumed by the Company after the Possible Merger. Both the Company and the Target Company agreed that prior to the convening of the relevant shareholders' general meeting for the Possible Merger, an employee representatives' meeting or an employees' meeting shall be convened respectively to review the employee arrangements for the Possible Merger.

Approval Validity

The relevant Shareholders' approvals for the Possible Merger will be for a period of 12-month from such approvals at the general meeting and class meetings of the Company.

If the Possible Merger is not completed within 12 months from the date of such approvals, and the Company should continue to proceed with the transactions, then the Company will obtain Shareholders' approval(s) for extending the 12-month validity of the initial Shareholders' approvals.

2.3 The Merger Agreement

On 7 July 2020, the Company entered into the Merger Agreement with the Target Company in relation to the Possible Merger. In addition to the terms set out in section 2.2 above, the major terms and conditions of the Merger Agreement include:

Parties

The Company and the Target Company

Consideration

The Company will exchange in aggregate 6,472,983,003

TC Shares in the issued share capital of the Target

Company by an issue of 9,803,980,057 A Shares, meaning

that for every TC Share, 1.5146 A Shares will be issued.

- 37 -

LETTER FROM THE BOARD

Subject to the Possible Merger becoming unconditional, the TC Dissenting Shareholders may elect to exercise the Cash Alternative to receive cash at the rate of RMB2.16 per TC Share. Such rate is determined based on the average trading price of TC Shares during the Price Fixing Period. The Cash Alternative will be provided by the Cash Alternative Provider.

Subject to the Possible Merger becoming unconditional, the Dalian Port Dissenting Shareholders may elect to exercise the Buy-back Alternative to receive Cash at the rate of RMB1.71 per A Share and HK$0.67 per H Share. Such rates are determined based on the respective average trading price of A Shares and H Shares during the Price Fixing Period. The Buy-back Alternative will be provided by the Buy-back Alternative Provider.

Conditions Precedent The Merger Agreement and the transactions contemplated thereunder shall become effective upon satisfaction of the following conditions:

  1. obtaining the approvals from (i) the Board and the Shareholders at the Shareholders' meeting and the respective class meetings of the Company convened for such purpose(Note 1); and (ii) the board of the Target Company and the TC Shareholders at the shareholders' meeting of the Target Company convened for such purpose(Note 2);
  2. obtaining the requisite consents and approvals from SASAC and CSRC;
  3. obtaining the waiver from the Executive for the obligation to make a mandatory general offer for the Shares triggered on the part of YKP as a result of the Possible Merger under Rule 26.1 of the Takeovers Code; and

Note 1: approval is required by at least two-thirds of the voting rights represented by disinterested Shareholders present at the EGM, and by at least two-thirds of the voting rights represented by disinterested Shareholders present at the A Shareholders Class Meeting and H Shareholders Class Meeting respectively.

Note 2: approval is required by at least two-thirds of the voting rights represented by disinterested shareholders present at the shareholders' meeting of the Target Company.

- 38 -

LETTER FROM THE BOARD

  1. the Stock Exchange having no objection to the announcement(s) and circular(s) issued by the Company related to the Possible Merger.

Completion of the Possible Merger and the share exchange pursuant thereto shall be conditional upon the Company's compliance with the public float requirement under Rule 8.08(1)(a) of the Listing Rules immediately upon completion of the share exchange. This condition is not waivable.

As regards condition (2) above, approval has been obtained from SASAC.

As regards condition (3) above, YKP has applied to the Executive for, and the Executive has granted, a waiver pursuant to note 6 to Rule 26.1 of the Takeovers Code for the mandatory general offer for the Shares triggered on the part of YKP as a result of the Possible Merger.

As regards condition (4) above, clearance has been obtained from the Stock Exchange for the issue of the Announcement and this circular.

During the implementation of the Possible Merger, the Company and the Target Company shall proceed procedures in accordance with relevant laws and regulations and shall pay reasonable effort to obtain necessary approval and consent from relevant regulatory authorities to complete the Possible Merger.

TerminationThe Merger Agreement shall be terminated only if both the Company and the Target Company agree to terminate.

2.4 Effects of the Possible Merger

The Possible Merger will involve the issue of A Shares at the Exchange Ratio by the Company to the TC Shareholders in exchange for TC Shares held by them. Subject to the approval of the CSRC and the Shanghai Stock Exchange, the A Shares to be issued for the purpose of the Possible Merger will be listed on the Shanghai Stock Exchange.

If the Possible Merger is implemented, a total of 9,728,893,454 A Shares will be issued in exchange for TC Shares. Upon full implementation of the Possible Merger (assuming no other shares of the Company are to be issued between the Latest Practicable Date and implementation of the Possible Merger, and without taking into account the new A Shares that may be issued pursuant to the A Share Specific Mandate), the total issued share capital of the

- 39 -

LETTER FROM THE BOARD

Company will be 22,623,429,453 shares, comprising 5,158,715,999 H Shares and 17,464,713,454 A Shares, representing approximately 22.80% and 77.20%, respectively, of the total number of issued shares of the Company as enlarged by the issue of A Shares pursuant to the Possible Merger.

YKP is currently holding 78.29% interest in the Target Company. It is expected that in the Possible Merger YKP will exchange all such interest for new A Shares to be issued by the Company, which will increase YKP's direct interest in the Company from 0% at present to approximately 33.67% immediately after the Possible Merger. As such, YKP has applied for and the Executive has granted a waiver from a mandatory general offer for the Shares by YKP as a result of the Possible Merger pursuant to Note 6 to Rule 26.1 of the Takeovers Code. The Possible Merger will not result in any change in the ultimate control of the Company, and the Company will remain ultimately controlled by CMG before and after the Possible Merger.

According to the Company's audited financial statements as at and for the 6 months ended 30 June 2020, the total assets of the Company amounted to RMB34,629,520,170.47 as of 30 June 2020, with a liabilities-to-assets ratio of 37.50%. After the Possible Merger was completed, the unaudited consolidated total assets of the Company on a pro forma basis would have increased to RMB54,662,125,365.06, and the liabilities-to-assets ratio would have decreased to 31.37%. Upon completion of the Possible Merger, the scale of revenue of the Company will increase. Upon completion of the Possible Merger, the Company will become more financially secured and better shielded against risks, and its sustainable development in the future will be safeguarded.

The aggregate of the remuneration payable to and benefits in kind receivable by the Directors will not be varied as a result of the Possible Merger.

2.5 Specific Mandate in Relation to the Issuance of New A Shares

The A Share Specific Mandate

The Board expects that a further Board resolution will be passed in due course to convene a Shareholders' general meeting and class meetings of the holders of A Shares and H Shares respectively for the grant of the A Share Specific Mandate to the Board to issue new A Shares to not more than 35 specific investors. For the purpose of the A Share Specific Mandate, the investors to be identified will be independent third parties of the Company within the meaning of the Listing Rules and shall include securities investment fund management companies, securities companies, financial companies, asset management companies, insurance institutional investors, trust companies, qualified overseas institutional investors, other domestic legal and natural persons in line with the regulations of CSRC.

The A Share Specific Mandate will grant to the Board, during the Relevant Period (as defined hereafter), an unconditional specific mandate to issue not more than 3,868,360,799 new A Shares (representing not more than 30% of the number of issued shares of the Company as at the Latest Practicable Date) with a value of not more than RMB2,100,000,000, by way

- 40 -

LETTER FROM THE BOARD

of non-public offering, to not more than 35 specific investors, and to determine the exact number of new A Shares to be issued and the price of new A Shares which, subject to the results of the price sounding-out process as required by CSRC, shall not be less than 80% of the average trading price of A Shares for 20 trading days before the issuance of new A Shares. The number of new A Shares to be issued and the subscription price of new A Shares will be adjusted if there is any ex-rights or ex-dividend arrangement after the Latest Practicable Date.

In the event the number of specific investors is less than six, the Company will comply with relevant requirements under Rule 13.28(7).

For the purposes of this A Share Specific Mandate, "Relevant Period" means a period of 12-month from the approval of the A Share Specific Mandate by the general meeting and respective class meeting of the Company.

If any issue pursuant to the A Share Specific Mandate is not completed within 12 months from the date of such approvals, and the Company should continue to proceed with such issue, then the Company will obtain Shareholders' approval(s) for extending the 12-month validity of the initial Shareholders' approvals.

The issuance of new A Shares pursuant to the A Share Specific Mandate is conditional upon:

  1. obtaining the approvals for the Possible Merger, A Share Specific Mandate and related transactions from (i) the Board and the Shareholders at the Shareholders' meeting and the respective class meetings of the Company convened for such purpose; and (ii) the board of the Target Company and the TC Shareholders at the shareholders' meeting of the Target Company convened for such purpose;
  2. obtaining the requisite consents and approvals from SASAC and CSRC;
  3. obtaining the waiver from the Executive for the obligation to make a mandatory general offer for the Shares triggered on the part of YKP as a result of the Possible Merger under Rule 26.1 of the Takeovers Code;
  4. the Stock Exchange's clearance of the announcement(s) and circular(s) issued by the Company related to the transactions contemplated under the Merger Agreement; and
  5. the Possible Merger being proceeded with.

As regards condition (ii) above, approval has been obtained from SASAC.

As regards condition (iii) above, YKP has applied to the Executive for, and the Executive has granted, a waiver pursuant to note 6 to Rule 26.1 of the Takeovers Code for the mandatory general offer for the Shares triggered on the part of YKP as a result of the Possible Merger.

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LETTER FROM THE BOARD

As regards condition (iv) above, clearance has been obtained from the Stock Exchange for the issue of the Announcement and this circular.

The Merger Agreement and the Possible Merger are not conditional on, and will not be affected by, the completion or successful implementation of the A Share Specific Mandate.

Use of Proceeds

The proceeds are intended to be used to supplement the working capital, improve liquidity, repay the interest bearing debts of the Company and to settle professional fees and charges incurred in connection with the Possible Merger.

Lock Up Arrangement

The new A Shares to be subscribed for by the independent investors shall not be disposed of within six months from the date of the issuance of the respective new A Shares. Upon completion of the issuance, the subscribers shall also abide by the lock-up arrangement for the additional Shares caused by the Company. If the lock-up arrangement is inconsistent with the latest regulatory opinions of the securities regulatory authorities, it shall be adjusted accordingly.

2.6 Progress update

On 7 July 2020, the Company was notified by CMG of a reply from SASAC regarding the Possible Merger and A Share Specific Mandate 《(關於大連港股份有限公司吸收合併營口 港務股份有限公司及配套融資有關事項的批覆》) (GZCQ [2020] No. 298) where SASAC agreed in principle to the overall plan of the Possible Merger and A Share Specific Mandate.

2.7 Reasons for and benefits of the Possible Merger

Driving the intensive development of ports in Liaoning Province

According to the "Plan for National Coastal Port Layout" prepared by the Ministry of Transport and the National Development and Reform Commission, the planning of the national coastal port layout is proposed. China will form five port groups in the Bohai Rim, Yangtze River Delta, Southeast Coast, Pearl River Delta and Southwest Coast to strengthen the main role of a comprehensive and large-scale port in the country and form the layout of 8 transportation systems such as coal, oil, iron ore, containers, grain, commercial vehicles, roll-roll shipment in land and island and passenger transportation. Among them, the port clusters in the Bohai Rim region are mainly composed of coastal port clusters in Liaoning, Tianjin-Hebei and Shandong. In recent years, the overcapacity of the port industry in the Bohai Rim region, serious homogenization of services, and intensified vicious competition have seriously restricted the overall healthy development of the port industry. Through the rational integration of port resources, ports can fully utilize their respective superior resources,

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LETTER FROM THE BOARD

optimize the allocation of terminal resources, improve the comprehensive utilization of terminal resources, and avoid waste of resources and homogeneous competition. The Possible Merger is in line with the guiding direction of China's port layout planning and intensive development.

Create Synergy Effect by Integrating the Port-related Resources

The Possible Merger is one of the vital steps of port integration in Liaoning Province, which will complement the advantages of the two ports, giving full play to the policy advantages of Dalian Port's free trade zone, port and shipping financial advantages and logistics system advantages, and effectively combining the advantages of collection and distribution conditions and functions of Yingkou Port, promoting the win-win situation of Dalian and Yingkou, and realizing the transformation, upgrading and sustainable development of ports in Liaoning Province. In addition, from the basic characteristics of the industry, the port industry shows obvious characteristics of economies of scale. Due to the large investment scale and high fixed cost of the port, only when the port's throughput reaches a certain scale can the unit fixed cost and marketing cost of port production be continuously reduced. Therefore, the Possible Merger is also conducive to the integration of core resources by both parties, giving full play to the scale effect, and further enhancing profitability.

Upon the completion of the Possible Merger, the two ports will make full use of their resources to build a modern port logistics system through the in-depth integration of assets, personnel, management and other factors. Based on the existing facilities and the distribution network of the two ports, the two ports will build an international logistics center of Northeast Asia, promoting the expansion of Company's asset scale, business revenue growth, and profitability, and continuing to enhance the overall competitiveness of the Company.

Address any Competition between the Group and the Target Group

During the course of obtaining control of Liaoning Port Group, each of China Merchants Liaoning and CMG had undertaken to the Company that, in relation to any horizontal competition between Liaoning Port Group and the Company, it will use its best endeavours to facilitate resolving such competition in a steady manner (through measures such as assets restructuring, business adjustment and entrusted management) before the end of 2022 in accordance with the relevant regulations and the requirements of relevant securities supervision and management departments. The Possible Merger is consistent with the Shareholders' undertaking and would help address any possible competition between the Company and the Target Company.

Strengthen the Independence of the Target Group from the Controlling Shareholders

In November 2019, the Target Company was requested by Liaoning CSRC to rectify certain independence issues in relation to certain regulatory criticisms of the unsatisfactory conditions regarding (i) independence in business management; (ii) independence in financial management; (iii) independence in personnel management; and (iv) independence for certain

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LETTER FROM THE BOARD

management department. According to the 2019 annual report of the Target Company, all rectification had been made and completed. The Target Company has confirmed that its report on completion of rectification has been submitted to and accepted by the relevant PRC authority. The regulatory criticisms reinforce the need for future integration of port-related resources of the Group and the Target Group, as opposed to utilising the central coordination of Liaoning Port Group as controlling shareholder.

2.8 Listing Rules Implications

As one of the applicable percentage ratios in respect of the Merger Agreement exceeds 100%, the transactions contemplated under the Merger Agreement constitute a very substantial acquisition of the Company subject to the announcement and shareholder's approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, CMG is the ultimate beneficial owner of both the Company and the Target Company. Therefore, the transactions contemplated under the Merger Agreement also constitute a connected transaction of the Company subject to the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules. CMG and its associates will be required to abstain from voting at any Shareholders' meeting to approve the transactions contemplated under the Merger Agreement.

The issue of A Shares under the A Share Specific Mandate is conditional upon completion of the Possible Merger and will constitute a variation of class rights of the holders of A Shares and the holders of H Shares under the Articles of Association. Pursuant to Rule 14.06(5), Rule 19A.38 of the Listing Rules and the Articles of Association, the A Share Specific Mandate is required to be approved by the Shareholders at a general meeting and separate class meetings. CMG and its associates shall be required to abstain from voting at any Shareholder's meeting to approve the A Share Specific Mandate.

Save as disclosed above, no other Shareholder is required to abstain from voting at any Shareholder's meeting to approve the A Share Specific Mandate.

An Independent Board Committee comprising the independent non-executive Directors will be formed to advise the Independent Shareholders on the terms of the Merger Agreement. An independent financial adviser will be appointed to advise the Independent Board Committee and the Independent Shareholders on the same.

Each of Mr. Wei Minghui, Mr. Sun Dequan, Mr. Cao Dong, Mr. Qi Yue, Mr. Yuan Yi, and Ms. Na Danhong, being a Director also holding a management position or directorship with CMG or its associates (other than the Group), has abstained from voting on the board resolution approving the Merger Agreement and the transactions contemplated thereunder. Save as disclosed above, none of the Directors attending the board meeting has a material interest in or is required to abstain from voting on the Merger Agreement and the transactions contemplated thereunder.

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LETTER FROM THE BOARD

Waiver from Strict Compliance with Rule 14.06B

The Possible Merger may trigger the bright line tests in Rule 14.06B of the Listing Rules as follows: (1) The Possible Merger constitutes a very substantial acquisition ("VSA") of the Company, in which the Company will issue new A Shares as consideration shares in exchange for all the TC Shares. Upon completion of the Possible Merger, YKP, being the current 78.29% shareholder of the Target Company, is expected to exchange its TC Shares for new A Shares to be issued by the Company, thereby increasing its shareholding in the Company to over 30% thus falling within the definition of "controlling shareholder" under Rule 1.01 of the Listing Rules. (2) On May 31, 2019, Liaoning SASAC and China Merchants Liaoning entered into an equity transfer agreement, pursuant to which Liaoning SASAC agreed to transfer 1.1% equity interest in Liaoning Port Group to China Merchants Liaoning at nil consideration. Completion took place on September 30, 2019. Upon completion of the transfer, Liaoning Port Group was owned as to 51% by China Merchants Liaoning, and China Merchants Liaoning became a new controlling Shareholder of the Company. The Possible Merger will be a VSA from an associate (i.e. Liaoning Port Group) of a new controlling Shareholder (i.e. China Merchants Liaoning) within 36 months of its becoming a new controlling Shareholder. (3) On around December 20, 2017, Dalian SASAC entered into a share transfer agreement with Liaoning Port Group (formerly known as Liaoning North East Asia Gang Hang Development Co., Ltd. (遼寧東北亞 港航發展有限公司)), pursuant to which Dalian SASAC agreed to transfer 100% equity interests in Dalian Group to Liaoning Port Group at nil consideration. Completion of the relevant transfer took place in February 2018. The Possible Merger will therefore be a VSA from a new controlling Shareholder (i.e. Liaoning Port Group) within 36 months of its becoming a new controlling Shareholder.

The Company considered that the above circumstances are the results of pure technicality: (1) YKP has been a subsidiary of Liaoning Port Group since February 2018, and Liaoning Port Group remains to be a controlling shareholder of the Company before and after the Possible Merger. (2) China Merchants Liaoning has become a controlling shareholder of the Company and the Target Company in September 2019. However, the Possible Merger is an injection from Liaoning Port Group, and not from China Merchants Liaoning. (3) Liaoning Port Group has become a controlling shareholder of the Company and the Target Company in February 2018. Immediately before the relevant transfers, the ultimate controlling shareholders of the Company and the Target Company were Dalian SASAC and Yingkou SASAC, respectively. Both Dalian SASAC and Yingkou SASAC were under Liaoning SASAC, and Liaoning Port Group is wholly-owned by Liaoning SASAC at the material time. The relevant share transfers represented a change of shareholding platform between SASACs, which are regarded as PRC Governmental Bodies under the Listing Rules. At that time, each of the Executive and the CSRC has granted waiver to Liaoning Port Group from making a mandatory general offer to other shareholders of the Company for the relevant equity transfer.

With reference to the six assessment factors for the purpose of Rule 14.06B of the Listing Rules: (1) only one applicable size test ratio slightly exceeds 100%; (2) the Possible Merger does not involve any acquisition of business that is completely different from the Group's existing business as the principal businesses of the Company and Target Company are largely

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LETTER FROM THE BOARD

similar; (3) the Group holds substantial assets and carries on substantive business and its existing business will account for a major part of business after the Possible Merger; (4) the Target Company was listed on the Shanghai Stock Exchange (stock code: 600317) since 2002. It is the port operator of the Port of Yingkou, being the second largest port in Northeast China;

  1. the Possible Merger will not result in any change in control of the Company; (6) the Possible Merger does not involve any such transactions or arrangements which, together with the acquisition or series of acquisitions, form a series of transactions or arrangements to list the acquisitions targets.

The Possible Merger will also provide the Company considerable benefits, details of which are set out in the section "Reasons for and benefits of the Possible Merger" in "Letter from Board" of this circular.

Based on the above, the Company has applied to the Stock Exchange for a waiver from strict compliance with Rule 14.06B of the Listing Rules (subject to YKP's obtaining a waiver form the Executive from the mandatory general obligation as a result of YKP's voting rights in the Company crossing the 30% threshold under Rule 26.1 of the Takeovers Code due to its acquiring new A Shares to be issued by the Company in the Possible Merger), and the Stock Exchange has granted the waiver.

Waiver from Strict Compliance with Rule 14.69(4)(a)(i) of the Listing Rules

The Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with the accountants' report requirement under Rule 14.69(4)(a)(i) of the Listing Rules on the following grounds:

  1. The Target Company has been listed on the Shanghai Stock Exchange since 2002. The financial statements of the Target Group were audited by reputable accounting firms in the PRC.
  2. This circular for the Possible Merger will include (i) the audited consolidated financial statements of the Target Company for the financial year ended 31 December 2017, prepared in accordance with the Accounting Standards for Business Enterprises in PRC ("CAS") and audited by Huapu Tianjian Accounting Firm (華普 天健會計師事務所), as published by the Target Company on the Shanghai Stock Exchange website, and (ii) the audited consolidated financial statements of the Target Company for the financial year ended 31 December 2018 and 2019 and the six months ended 30 June 2020, prepared in accordance with CAS and audited by ShineWing Certified Public Accountants (信永中和會計師事務所(特殊普通合夥) (collectively, the "Target Group Historical Track Record Accounts").
  3. None of the Target Group Historical Track Record Accounts has been issued (or is expected to be issued) with any audit qualification.

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LETTER FROM THE BOARD

  1. After consultation with the Target Company and requesting for access to audit its three years' financials without success, the Company considers that it is practical and appropriate to make the proposed alternative disclosures in this circular based on the Target Group Historical Track Record Accounts under CAS. If the Company were to engage an accounting firm to re-audit the financial information of the Target Group, it would incur substantial cost and expense and would not produce any meaningful information to the Shareholders beyond the Target Group Historical Track Record Accounts.
  2. The Company considers that it has taken reasonable steps to request for information for compliance with the requirements under Rule 14.69(4)(a)(i) of the Listing Rules, and that a relaxation of such requirements, which are unduly burdensome and impractical to the Company in the circumstances, would unlikely result in undue risks to the Shareholders and potential investors.

The Company has included the following information in this circular as alternative disclosure to an accountants' report under Chapter 4 of the Listing Rules:

  1. Full text of the Target Group Historical Track Record Accounts.
  2. The management discussion and analysis of the results of operations of the Target Group for the three years ended 31 December 2017, 2018 and 2019 and the six months ended 30 June 2020 as extracted from the published documents of the Target Company.
  3. The reasons for and details of the waiver sought in respect of the requirements under Rule 14.69(4)(a)(i) of the Listing Rules.

2.9 Directors' Views

The Directors (excluding the independent non-executive Directors) are of the view that

the terms of the Merger Agreement were determined after arm's length negotiation, and the transactions contemplated thereunder are conducted in the ordinary and usual course of business of the Company and are on normal commercial terms or better, fair and reasonable and in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE BOARD

2.10 Shareholding Structure of the Company

As at the Latest Practicable Date, the shareholding structure of the Company is as

follows:

Liaoning

Provincial

CMG

Government

(through Liaoning

100%

SASAC)

Broadford

74.1%

Dalian City

Yingkou City

Government

Government

China

(through

(through

Merchants

Dalian

Yingkou

Liaoning

SASAC)

SASAC)

10%

36.34%

2.66%

51%

64.52%

China

Liaoning Port Group

Merchants

Port Holdings

Company

100%

Limited

22.965%

(consolidated

subsidiary)

Public

Dalian

YKP

Shareholders

Group

22.965%

100%

Team Able

99.76%

78.29%

International

Limited

46.78%

Liaoning

The Target

Gangwan

Company

25.00%

0.52%

6.64%

21.05%

The Company

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LETTER FROM THE BOARD

Immediately after the completion of the Possible Merger (assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming the A Share Specific Mandate will be issued to the maximum extent of RMB2,100,000,000 at the price of RMB1.69 per Share):

SASAC

Liaoning SASAC

100%

CMG

100%

Broadford

74.1%

Dalian SASAC

Yingkou SASAC

China Merchants

Liaoning

64.52%

10%

36.34%

2.66%

51%

China Merchants

Liaoning Port Group

Port Holdings

(consolidated

100%

subsidiary)

22.965%

Dalian Group

100%

22.965%

Team Able

YKP

99.76%

Public

Shareholders

25.28%

Liaoning

31.91%

11.37%

Gangwan

27.57%

0.28%

3.59%

The Company

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LETTER FROM THE BOARD

Immediately after the completion of the Possible Merger (assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming there is no issue pursuant to the A Share Specific MandateNote):

SASAC

Liaoning SASAC

100%

CMG

100%

Broadford

74.1%

Dalian SASAC

Yingkou SASAC

China Merchants

Liaoning

64.52%

10%

36.34%

2.66%

51%

China Merchants

Liaoning Port Group

Port Holdings

(consolidated

100%

subsidiary)

22.965%

Dalian Group

100%

22.965%

Team Able

YKP

99.76%

Public

Shareholders

26.66%

Liaoning

32.25%

12.00%

Gangwan

25%

0.30%

3.79%

The Company

Note: the shareholding structure assumes the disposal by Liaoning Port Group's subsidiary(ies) to be solely in the form of TC Shares. The disposal by Liaoning Port Group's subsidiary(ies) can also be in the form of A Shares or H Shares of the Company, or a combination of two or more of those three manners, with the common result of maintaining the Company's public float at not less than 25% immediately upon completion of the Possible Merger in any event.

At the completion of the Possible Merger, it is anticipated that the public float will be maintained at all times at not less than 25% by the completion of the A Share Specific Mandate or disposal of existing shares by the controlling Shareholder(s).

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LETTER FROM THE BOARD

The Company will ensure compliance with public float requirement before and after the completion of the Possible Merger. The expected number of new A Shares that may be issued pursuant to the A Share Specific Mandate is calculated based on an understanding and estimation of the prevailing market price of the Company's A Shares at present and at time of such issue, upon which the Company believes that the minimum number of new A Shares to be issued under the A Share Specific Mandate will be able to cover any public float shortfall resulting from the Possible Merger.

For illustration purpose only, the number of A Shares to be issued under the A Share Specific Mandate will be able to cover any public float shortfall:

  1. if fundraising is up to RMB2.1 billion, and the placing price is at the same price of the share exchange price (i.e. RMB1.69 for each A Share) or at up to 50% premium; or
  2. if the placing price is at the same price of the share exchange price (i.e. RMB1.69 for each A Share), and fundraising is up to RMB720 million.

Shareholding structure of above (a) scenario (i.e. A Shares fundraising of up to RMB2.1 billion with placing price up to 50% premium of the share exchange price) is as below:

Number of

Shareholding

Total Number

No.

Shareholder

Shares

Percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

22.64%

18,291,485,107

2

YKP*

7,616,325,313

32.48%

3

Liaoning

67,309,590

0.29%

Gangwan*

4

Public

4,470,823,389

19.07%

Shareholders

5

Investors#

826,771,653

3.53%

H Shares

1

Dalian Group*

722,166,000

3.08%

5,158,715,999

2

Broadford*

856,346,695

3.65%

3

Team Able*

2,714,736,000

11.58%

4

Public

865,467,304

3.69%

Shareholders

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LETTER FROM THE BOARD

Shareholding structure of above (b) scenario (i.e. A Shares fundraising of up to RMB720

million with placing price same as the share exchange price) is as below:

Number of

Shareholding

Total Number

No.

Shareholder

Shares

Percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

23.04%

17,890,748,956

2

YKP*

7,616,325,313

33.04%

3

Liaoning

67,309,590

0.29%

Gangwan*

4

Public

4,470,823,389

19.40%

Shareholders

5

Investors#

426,035,502

1.85%

H Shares

1

Dalian Group*

722,166,000

3.13%

5,158,715,999

2

Broadford*

856,346,695

3.72%

3

Team Able*

2,714,736,000

11.78%

4

Public

865,467,304

3.75%

Shareholders

  • Associates of CMG under the Listing Rules
  • The A Share Specific Mandate will be issued to investors who are independent third parties of the Company within the meaning of the Listing Rules, and their shareholding will be counted towards public float

With a view to ensuring public float compliance, the Company will continue to consult its financial and legal advisers before the completion of the Possible Merger. After the poll results are known for the Company's EGM, A Shareholders Class Meeting and H Shareholders Class Meeting and the shareholders' meeting of Target Company convened for the purpose of approving the Possible Merger, the Company can ascertain the maximum extent of public float shortfall to be addressed before the completion of the Possible Merger. Such maximum possible public float shortfall will be calculated assuming all Dalian Port Dissenting Shareholders and TC Dissenting Shareholders will elect to transfer their Shares and TC Shares to the respective Buy-back Alternative Provider and Cash Alternative Provider (both being connected persons of the Company). Subject to the Possible Merger becoming unconditional, the Company will then seek to issue new A Shares to independent third parties pursuant to the A Share Specific Mandate as soon as possible, to such extent as to pre-empt the maximum possible public float shortfall resulting from the Possible Merger. In the event such issue is not practicable due to market condition or otherwise or unable to fully pre-empt the public float shortfall, Liaoning Port Group (as a controlling shareholder of the Company) has undertaken to the Company that, upon the Company's request on the basis that all other means to fully pre-empt the maximum possible public float shortfall are not practicable, it will procure its relevant subsidiary(ies) to dispose of as soon as possible such number of existing shares as will be necessary to ensure that the Company will meet the minimum public float requirement under

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LETTER FROM THE BOARD

the Listing Rules immediately upon completion of the Possible Merger subject to compliance with applicable PRC laws and regulations. Without taking into account the Buy-back Alternative and Cash Alternative and assuming the public float shortfall will be pre-empted solely by Liaoning Port Group's subsidiary(ies) disposing of existing shares, such disposal will represent approximately 1.41% of the Company's enlarged issued share capital following completion of the Possible Merger. However, the Directors believe that the extent of exercise of the Buy-back Alternative and Cash Alternative should likely be insignificant, based on factors including (i) the favorable terms of the Possible Merger which will benefit the Company and its Shareholders (as more particularly set out in section "2.7 Reasons for and benefits of the Possible Merger" above), (ii) the historically low turnout rate in terms of independent shareholders of the Company and the Target Company voting at previous general meetings, (iii) the potentially long period for any Dalian Port Dissenting Shareholder and TC Dissenting Shareholder to maintain their shareholding in the Company and the Target Company, respectively, after voting against the Possible Merger before they may exercise the Buy-back Alternative and Cash Alternative, and (iv) the uncertainty in the Share price movement, as there should be no incentive to exercise the Buy-back Alternative and Cash Alternative if the prevailing Share price at that time is higher than the cash offered under the Buy-back Alternative and Cash Alternative. For illustration purpose only, in the extreme situation where all independent Shareholders and independent shareholders of the Target Company attend the relevant shareholders' meetings, at which exactly one-third of them vote against the relevant resolutions and all Dalian Port Dissenting Shareholders and TC Dissenting Shareholders choose to exercise the Buy-back Alternative and Cash Alternative (as applicable), and assuming the public float shortfall will be pre-empted solely by Liaoning Port Group's subsidiary(ies) disposing of existing shares, such disposal will represent approximately 9.27% of the Company's enlarged issued share capital following completion of the Possible Merger. With the above in place, the Company confirms that public float compliance will be ensured before and immediately upon completion of the Possible Merger. The Company will not proceed to complete the Possible Merger unless and until all necessary steps have been taken to the effect that, immediately upon completion of the Possible Merger, the Company will continue to comply with the public float requirement under the Listing Rules.

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LETTER FROM THE BOARD

Shareholding Tables of the Company

As of the Latest Practicable Date:

Number of

Shareholding

Total Number

No.

Shareholder

Shares

Percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

41.18%

7,735,820,000

2

Liaoning

67,309,590

0.52%

Gangwan*

3

Public

2,358,255,248

18.29%

Shareholders

H Shares

1

Dalian Group*

722,166,000

5.60%

5,158,715,999

2

Broadford*

856,346,695

6.64%

3

Team Able*

2,714,736,000

21.05%

4

Public

865,467,304

6.71%

Shareholders

Immediately after the completion of the Possible Merger (assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming the A Share Specific Mandate will be issued to the maximum extent of RMB2,100,000,000 at the price of RMB1.69 per Share):

Number of

Shareholding

Total Number of

No. Shareholder

Shares

Percentage

Shares

A Shares

1

Dalian Group*

5,310,255,162

22.25%

18,707,317,004

2

Liaoning

67,309,590

0.28%

Gangwan*

3

YKP*

7,616,325,313

31.91%

4

Public

4,470,823,389

18.73%

Shareholders

5

Investors#

1,242,603,550

5.21%

H Shares

1

Dalian Group*

722,166,000

3.03%

5,158,715,999

2

Broadford*

856,346,695

3.59%

3

Team Able*

2,714,736,000

11.37%

4

Public

865,467,304

3.63%

Shareholders

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LETTER FROM THE BOARD

Immediately after the completion of the Possible Merger (assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming there is no issue pursuant to the A Share Specific Mandate Note):

Number of

Shareholding

Total Number of

No. Shareholder

Shares

Percentage

Shares

A Shares

1

Dalian Group*

5,310,255,162

23.47%

17,464,713,454

2

Liaoning

67,309,590

0.30%

Gangwan*

3

YKP*

7,296,758,642

32.25%

4

Public

4,790,390,060

21.17%

Shareholders

H Shares

1

Dalian Group*

722,166,000

3.19%

5,158,715,999

2

Broadford*

856,346,695

3.79%

3

Team Able*

2,714,736,000

12.00%

4

Public

865,467,304

3.83%

Shareholders

Note: the table assumes the disposal by Liaoning Port Group's subsidiary(ies) to be solely in the form of TC Shares. The disposal by Liaoning Port Group's subsidiary(ies) can also be in the form of A Shares or H Shares of the Company, or a combination of two or more of those three manners, with the common result of maintaining the Company's public float at not less than 25% immediately upon completion of the Possible Merger in any event.

  • Associates of CMG under the Listing Rules
  • The A Share Specific Mandate will be issued to investors who are independent third parties of the Company within the meaning of the Listing Rules, and their shareholding will be counted towards public float

For the avoidance of doubt, if there is any discrepancy between the total number and the final number of each item, it is caused by rounding.

2.11 Attention

The Possible Merger may or may not be proceeded with or become unconditional or effective. There is no assurance that all the conditions precedents contained in the Merger Agreement can be satisfied. Investors and potential investors should exercise care, and should only rely on information published by the Company, when dealing, or contemplating dealing, in the Shares.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities in the Company.

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LETTER FROM THE BOARD

2.12 Information of the Parties

The Target Company

The Target Company is a limited liability company established in the PRC, with its A shares listed on the Shanghai Stock Exchange (stock code: 600317). On 20 December 2017, Yingkou SASAC has entered into a share transfer agreement with Liaoning Port Group (formerly known as Liaoning North East Asia Gang Hang Development Co., Ltd. (遼寧東北亞 港航發展有限公司)), pursuant to which, Yingkou SASAC has agreed to transfer 100% equity interests in YKP to Liaoning Port Group (formerly known as Liaoning North East Asia Gang Hang Development Co., Ltd. (遼寧東北亞港航發展有限公司)) at nil consideration. CMG, a state wholly-owned enterprise established under the laws of the PRC under the direct control of the SASAC, is the controlling shareholder of the Target Company. CMG mainly provides services in three sectors, including transportation and related infrastructure, financial services, as well as city and industrial park development and operations. The shareholding structure of the Target Company as at the Latest Practicable Date is as follows:

China Securities

Other Shareholders with less than

YKP

Finance Co., Ltd

1% of interest, respectively

78.29%

3.38%

18.33%

Target

Company

The Target Group is principally engaged in terminal and other port facility services, cargo stevedoring, warehousing services, ship port services, port facility equipment and port machinery rental and maintenance services, which is in the same industry as that of the Group. After the completion of the Possible Merger, the Target Company will merge into and become absorbed by the Company and will cease to exist.

Based on the audited financial information of Target Company prepared in accordance with PRC accounting regulations, the net asset value attributable to equity holders of the Target Company as at 31 December 2018 and 31 December 2019 and the net profit before tax and net profit after tax attributable to equity holders of Target Company for the two financial years ended 31 December 2018 and 31 December 2019 respectively as stated in Target Company's published annual reports are as follows:

As at 31 December 2018

As at 31 December 2019

Net asset value attributable

RMB11,639,358,734.20

RMB12,345,269,133.07

to equity holders

For the year ended

For the year ended

31 December 2018

31 December 2019

Net profit before tax

RMB1,337,192,438.73

RMB1,352,392,913.96

Net profit after tax

RMB1,000,905,501.38

RMB1,011,632,317.93

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LETTER FROM THE BOARD

The Company

As a unified operation platform of port logistics business in Dalian area, the Company is one of the largest comprehensive port operators in Northeast China, principally engaging in oil/liquefied chemical terminal and the related logistics services (Oil segment); container terminal and related logistics services (Container segment); automobile terminal and related logistics services (Automobile Terminal Segment); bulk and general cargo terminal and related logistics services (Bulk and General Cargo Segment); bulk grain terminal and related logistics services (Bulk Grain Segment); passenger and roll-on,roll-off terminal and related logistics services (Passenger and Ro-Ro Segment) and value-added and ancillary port operations (Value-added Services Segment). CMG is the ultimate beneficial owner of the Company.

3. EGM

The Company will convene the EGM and class meetings for the Shareholders to consider and, if thought fit, to approve, among other things, the Possible Merger and A Share Specific Mandate. Details of the EGM and the H Shareholders Class Meeting and resolutions to be considered in these meetings are set out in the Notice of EGM and Notice of H Shareholders Class Meeting dated 4 September 2020.

Book closure

Holders of H Shares whose names appear on the register of members of the Company at the close of business on Monday, 21 September 2020 will be entitled to attend the EGM and the H Shareholders Class Meeting upon completion of the necessary registration procedures. The H Shares register of members will be closed from Monday, 21 September 2020 to Thursday, 24 September 2020, both days inclusive, during which period no transfer of H Shares will be effected.

Where applicable, holders of the H Shares intending to attend the EGM and the H Shareholders Class Meeting are therefore required to lodge their respective instrument(s) of transfer and the relevant share certificate(s) to the Company's H share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, by 4:30 p.m. on Friday, 18 September 2020.

Proxy forms

Whether or not you intend to attend the EGM or the class meetings, you are requested to complete and return the relevant proxy form(s) in accordance with the instructions thereon. The proxy form should be returned as soon as possible and in any event not later than 24 hours before the time appointed for holding such meeting or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the relevant meetings should you so wish.

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LETTER FROM THE BOARD

4. RECOMMENDATION OF THE BOARD

The Directors believe that the Possible Merger, A Share Specific Mandate and related transactions are fair and reasonable and in the interests of the Group and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM and the relevant class meetings.

5. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the letter from the Independent Board Committee to the Independent Shareholders in respect of the Possible Merger, A Share Specific Mandate and related transactions, which has been prepared for the purpose of inclusion in this circular.

Dalian Port (PDA) Company Limited*

大連港股 份有限公司

(a sino-foreign joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 2880)

10 September 2020

To the Independent Shareholders

Dear Sir or Madam,

  1. VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE MERGER OF

YINGKOU PORT LIABILITY CO., LTD.;

AND (2) SPECIFIC MANDATE IN RELATION TO ISSUANCE OF

NEW A SHARES

INTRODUCTION

We refer to the circular of the Company dated 10 September 2020 (the "Circular"), of which this letter forms part. Capitalised terms used in this letter have the same meaning as defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders of Dalian Port (PDA) Company Limited* to consider the Possible Merger, A Share Specific Mandate and other related transactions, details of which are set out in the section headed "2. VERY SUBSTANTIAL ACQUISITION - MERGER OF TARGET COMPANY" in the "Letter from the Board" contained in the Circular.

Your attention is drawn to the "Letter from the Board", the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Possible Merger, A Share Specific Mandate and other related transactions as set out in the "Letter from the Independent Financial Adviser" as well as other additional information set out in other parts of the Circular.

  • For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Having taken into account the advice of, and the principal factors and reasons considered by the Independent Financial Adviser in relation thereto as stated in its letter, we consider that while the Possible Merger, A Share Specific Mandate and related transactions are in the ordinary and usual course of business of the Company, the terms of which are fair and reasonable, on normal commercial terms or better to the Group, and in the interests of the Company and its Shareholders as a whole. We therefore recommend that you vote in favour of the resolutions to be proposed at the EGM to approve aforementioned transactions.

Yours faithfully,

For and on behalf of

the Independent Board Committee of

Dalian Port (PDA) Company Limited*

LI Zhiwei

LIU Chunyan

LAW Man Tat

Independent Non-executive

Independent Non-executive

Independent Non-executive

Director

Director

Director

- 60 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from First Shanghai Capital Limited to the Independent Board Committee and the Independent Shareholders, for the purpose of incorporation into this circular.

First Shanghai Capital Limited

19th Floor, Wing On House

71 Des Voeux Road Central

Hong Kong

10 September 2020

To the Independent Board Committee and the Independent Shareholders of Dalian Port (PDA) Company Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED

TRANSACTION IN RELATION TO THE MERGER OF

YINGKOU PORT LIABILITY CO., LTD AND

SPECIFIC MANDATE IN RELATION TO THE ISSUANCE

OF NEW A SHARES

INTRODUCTION

We refer to our engagement as the independent financial adviser (the "Independent Financial Adviser") to advise the Independent Board Committee and the Independent Shareholders in relation to the Possible Merger and the listing of A Shares. Details of the Possible Merger are set out in the "Letter from the Board" contained in the circular of the Company dated 10 September 2020 (the "Circular") of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular, unless the context requires otherwise.

On 7 July 2020, the Company entered into the Merger Agreement with the Target Company in relation to the Possible Merger. The Possible Merger, if fully implemented, will involve (among other things) the issue of A Shares by the Company to the TC Shareholders on a record date to be determined, in exchange for all the existing issued shares of the Target Company. Subject to the approval of the CSRC and the Shanghai Stock Exchange, the A Shares to be issued for the purpose of the Possible Merger will be listed on the Shanghai Stock Exchange. The Company also plans to raise fund by issuing A Shares with a value of not more than RMB2,100,000,000, by way of non-public offering, to not more than 35 specific investors.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LISTING RULES IMPLICATION

As one of the applicable percentage ratios (as defined under the Listing Rules) in respect of the Merger Agreement exceeds 100%, the transactions contemplated under the Merger Agreement constitute a very substantial acquisition of the Company under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, CMG is the ultimate beneficial owner of both the Company and the Target Company. Therefore, the transactions contemplated under the Merger Agreement also constitute a connected transaction of the Company subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. CMG and its associates will be required to abstain from voting at any Shareholders' meeting to approve the transactions contemplated under the Merger Agreement.

In addition, pursuant to the Articles of Association, the issue of A Shares under the A Share Specific Mandate is conditional upon completion of the Possible Merger and requires to be approved by the Shareholders at a general meeting and separate class meetings. CMG and its associates shall be required to abstain from voting at any Shareholder's meeting to approve the A Share Specific Mandate. Save as disclosed above, no other Shareholder is required to abstain from voting at any Shareholder's meeting to approve the A Share Specific Mandate.

Each of Mr. Wei Minghui, Mr. Sun Dequan, Mr. Cao Dong, Mr. Qi Yue, Mr. Yuan Yi, and Ms. Na Danhong, being a Director also holding a management position or directorship with CMG or its associates (other than the Group), has abstained from voting on the board resolution approving the Merger Agreement and the transactions contemplated thereunder. Save as disclosed above, none of the Directors attending the board meeting has a material interest in or is required to abstain from voting on the Merger Agreement and the transactions contemplated thereunder.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Li Zhiwei, Mr. Liu Chunyan and Mr. Law Man Tat, has been established to consider the Merger Agreement and the transactions contemplated thereunder and to give advice and recommendation to the Independent Shareholders as to (i) whether the entering into the Merger Agreement is in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Merger Agreement are fair and reasonable, on normal commercial terms or better to the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM to approve on the transactions contemplated under the Merger Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

INDEPENDENT FINANCIAL ADVISER

As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether the entering into the Merger Agreement is in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Merger Agreement are fair and reasonable, on normal commercial terms, or better to the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM to approve on the transactions contemplated under the Merger Agreement.

We have previously acted as an independent financial adviser to the independent board committee with regards to the mandatory unconditional cash offer made by the offeror. Details of the transaction are set out in a circular of the Company dated 5 October 2019. Save for the aforesaid transaction, we have not acted as an independent financial adviser in relation to any transactions of the Company or its related parties in the last two years prior to the date of the Circular. Apart from normal professional fee paid to us in connection with this appointment in relation to the Possible Merger, no arrangements exist whereby we had received any fees or benefits from the Company or any other party related to the aforesaid transactions. Therefore, we consider we are independent of the Company and are accordingly eligible to give independent advice in respect of the Possible Merger.

BASIS OF OUR OPINION

In formulating our opinion, we have reviewed, among others, (i) the Merger Agreement;

  1. the annual reports of the Company for the years ended 31 December 2017, 2018 and 2019;
  2. the financial information of the Target Group as set out in Appendix II to the Circular; (iv) the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to the Circular; and (v) other information as set out in the Circular. We have also relied on the statements, information, opinions, and representations contained or referred to in the Circular and/or provided to us by the Company, the Directors and the management of the Group (the "Management"). We have assumed that all statements, information, opinions, and representations contained or referred to in the Circular and/or provided to us were reasonably made after due and careful enquiry and true, accurate, and complete at the time they were made and continued to be so as at the date of the Circular. The Shareholders will be informed when there are any material changes to the information contained or referred to herein or our opinion as soon as possible.

We have no reason to believe that any of the statements, information, opinions or representations on which we relied in forming our opinion are untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the statements, information, opinions or representations provided to us to be untrue, inaccurate or misleading. We consider that we have been provided with, and have reviewed, sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent investigation into the business, financial conditions and affairs or the future prospects of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors will collectively and individually accept full responsibility for such statements, information, opinions and representations, including particulars given in compliance with the Listing Rules for the purpose of giving information with regards to the Company. The Directors, having made all reasonable enquires, confirm that to the best of their knowledge and belief, information contained in the Circular are accurate and complete in all material respects and not misleading or deceptive, opinions expressed in the Circular have been arrived at after due and careful consideration, and there are no other facts the omission of which would make any statement in the Circular misleading.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have taken into account the following principal factors and reasons:

1. Business and financial performance of the Group

According to the annual report of the Company for the year ended 31 December 2019, as the consolidated operational platform for port and logistics services in Dalian port, the Group is the biggest comprehensive port operator in the three northeastern provinces (namely, Heilongjiang Province, Jilin Province and Liaoning Province) of the PRC. The Group is principally engaged in the following businesses (i) container terminal and related logistics services (the "Container Terminal Segment"); (ii) oil/liquefied chemicals terminal and related logistics services (the "Oil Terminal Segment"); (iii) bulk and general cargo terminal and related logistics services and trading services; (iv) port value-added services and ancillary port operations; (v) bulk grain terminal and related logistics and trading services; (vi) automobile terminal and related logistics services and trading services (the "Automobile Terminal Segment"); and (vii) passenger and roll-on,roll-off terminal and related logistics services, where these segments accounted for approximately 40%, 24%, 15%, 14%, 2%, 2% and 3% of the total revenue of the Group, respectively, for the year ended 31 December 2019.

  1. Historical financial performance of the Group

The following table summarises the income statement of the Group for each of the years ended 31 December 2017, 2018 and 2019 with reference to the annual reports of the Company:

For the year ended 31 December

2017

2018

2019

RMB million

RMB million

RMB million

(Audited)

(Audited)

(Audited)

Revenue

9,032

6,754

6,646

Cost of sales

(7,568)

(5,142)

(4,655)

Gross profit

1,464

1,612

1,991

Administrative expenses

(654)

(690)

(659)

Investment income

543

281

365

Financial expenses

(640)

(288)

(581)

Other items, net

(2)

(56)

20

Operating profit

711

859

1,136

Non-operating income, net

16

16

26

Total profit

727

875

1,162

Income tax expense

(153)

(193)

(267)

Profit for the period

574

682

895

Profit attributable to shareholders

of the Company

501

523

718

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Note: The auditors of the Company for the year ended 31 December 2017 was PricewaterhouseCoopers Zhong Tian LLP. The auditors of the Company for the years ended 31 December 2018 and 2019 was Ernst & Young Hua Ming LLP. Their opinions on the consolidated financial statements of the Group for each of the years ended 31 December 2018 and 2019 were unqualified and the opinion of PricewaterhouseCoopers Zhong Tian LLP for the year ended 31 December 2017 was qualified. The qualification was related to a provision of bad debt for certain accounts receivable of approximately RMB40 million and other receivables of approximately RMB158 million. For further details, please refer to the annual reports of the Company.

  1. Year ended 31 December 2018 compared with year ended 31 December 2017

Revenue declined from approximately RMB9,032 million for the year ended 31

December 2017 to approximately RMB6,754 million for the year ended 31 December

2018, representing a decline of approximately 25%, primarily due to the decrease of

revenue from both the Oil Terminal Segment and the Automobile Terminal Segment.

Nonetheless, gross profit increased from approximately RMB1,464 million for the year

ended 31 December 2017 to approximately RMB1,612 million for the year ended 31

December 2018, which was mainly attributable to the increase in gross profit margin and

gross profit recorded from the Container Terminal Segment due to factors including the

increase in economies of scale, which lowered overall costs, along with the expansion of

scale of income resulting from the consolidation of container terminals as advised by the

management of the Group. Although the investment income of the Group decreased from

approximately RMB543 million for the year ended 31 December 2017 to approximately

RMB281 million for the year ended 31 December 2018 along with the lower income

generated from equity investments, such decrease in income was offset by the decrease

in financial expenses from approximately RMB640 million for the year ended 31

December 2017 to approximately RMB288 million for the year ended 31 December 2018

primarily attributable to exchange gains. Overall, profit attributable to shareholders of the

Company increased from approximately RMB501 million for the year ended 31

December 2017 to approximately RMB523 million for the year ended 31 December 2018.

  1. Year ended 31 December 2019 compared with year ended 31 December 2018

Revenue declined from approximately RMB6,754 million for the year ended 31 December 2018 to approximately RMB6,646 million for the year ended 31 December 2019, representing a decline of approximately 2%, primarily due to the combined effect of increase in revenue from Oil Terminal Segment and decrease in revenue from both the Container Terminal Segment and the Automobile Terminal Segment. Nonetheless, gross profit increased from approximately RMB1,612 million for the year ended 31 December 2018 to approximately RMB1,991 million for the year ended 31 December 2019, which was mainly attributable to the growth of Oil Terminal Segment with high gross profit margin and the shrink of trading business with lower gross profit margin and reduction in total operating costs due to the implementation of new accounting standards on leases, as advised by the Management. Investment income of the Group increased from approximately RMB281 million for the year ended 31 December 2018 to approximately RMB365 million for the year ended 31 December 2019 along with the higher income generated from equity investments. Such increase in income was offset by the increase in financial expenses from approximately RMB288 million for the year ended 31 December 2018 to approximately RMB581 million for the year ended 31 December 2019 primarily

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

attributable to the decrease in exchange gains. Overall, profit attributable to shareholders of the Company increased from approximately RMB523 million for the year ended 31 December 2018 to approximately RMB718 million for the year ended 31 December 2019.

  1. Historical financial position of the Group

The following table summarises the balance sheet of the Group as at 31 December 2017,

2018 and 2019 and with reference to the annual reports of the Company:

As at 31 December

2017

2018

2019

RMB million

RMB million

RMB million

(Audited)

(Audited)

(Audited)

Non-current assets

26,146

25,756

28,207

Current assets

10,439

9,559

6,891

Total assets

36,585

35,315

35,098

Current liabilities

9,193

5,702

2,377

Non-current liabilities

6,772

8,753

11,317

Total liabilities

15,965

14,455

13.694

Net assets attributable to

shareholders of the Company

18,060

18,276

18,770

Non-controlling interests

2,560

2,584

2,634

Net assets

20,620

20,860

21,404

Notes: Certain amounts have been subject to rounding adjustments

As at 31 December 2019, (i) fixed assets, which amounted to approximately RMB16,633 million, was the principal non-current asset; (ii) cash at bank and in hand, which amounted to approximately RMB4,051 million, was the principal current assets; (iii) other payables, which amounted to approximately RMB911 million, was the principal current liabilities; and (iv) bond payable, which amounted to approximately RMB5,884 million, was the principal non-current liabilities of the Group. The Group recorded net assets attributable to shareholders of the Company of approximately RMB18,770 million as at 31 December 2019.

2. Background information of the Target Company

The Target Company, namely Yingkou Port Liability Co., Ltd.* (營口港務股份有限公司), is a limited liability company established in the PRC, with its A shares listed on the Shanghai Stock Exchange and is a non-wholly-owned subsidiary of CMG as at the Latest Practicable Date. CMG is an enterprise wholly-owned by the PRC Government (the State Council of the PRC) and supervised by the SASAC. The Target Company is the port operator of the Port of Yingkou, being the second largest port in the Northeast China. The businesses of the Target

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Company include provision of terminal and other port facility services, cargo stevedoring, warehousing services, ship port services, port facility equipment and port machinery rental and maintenance services, which is in the same industry as that of the Group as advised by the Management.

As stated in the "Letter from the Board", based on the audited financial information of the Target Company prepared in accordance with PRC accounting regulation, (i) the net asset value attributable to equity holders of the Target Company as at 31 December 2018 and 2019 amounted to approximately RMB11,639 million and RMB12,345 million, representing an increase of approximately 6%; and (ii) net profit after tax attributable to equity holders of the Target Company amounted to approximately RMB1,012 million for the year ended 31 December 2019, representing an increase of approximately 1% as compared to that of approximately RMB1,001 million for the year ended 31 December 2018.

3. Overview of the port industry in Liaoning Province

As stated in the "Letter from the Board", according to the "Plan for National Coastal Port Layout" prepared by the Ministry of Transport and the National Development and Reform Commission, the planning of the national coastal port layout is proposed. China will form five port groups in the Bohai Rim, Yangtze River Delta, Southeast Coast, Pearl River Delta and Southwest Coast to strengthen the main role of a comprehensive and large-scale port in the country. Among them, the port clusters in the Bohai Rim region are mainly composed of coastal port clusters in Liaoning, Tianjin-Hebei and Shandong.

We noted that Liaoning Province is the only gateway to the sea in Northeast China. Its coastal economic zone comprises coastal open cities such as Dalian, Dandong, Jinzhou, Yingkou, Panjin and Huludao. It is located in the prime area of Bohai Rim region and a crucial zone in the Northeast Asian economic circle, thus enjoying an irreplaceable geographical advantage. In the past decade, a series of policies have been promulgated to support the economic development in the Northeast part of the PRC. Such policies include: (i) "The State Council's opinions on certain key measures in the implementation of new strategies to facilitate the stabilization of economy in the Northeast region" and "13th Five-Year Plan on revitalization of the Northeast region", which set out the State's strategic initiatives to revitalize the coastal economic zone of Liaoning Province through the integration of the port management in Liaoning Province; and (ii) the State Council discussed and adopted the "Development Plan for Liaoning Coastal Economic Zone", which pointed out the need to integrate coastal port resources and comprehensively improve the service capacity and level of shipping and logistics. After years of extensive growth, the port industry in Liaoning Province has developed rapidly and become the driving force for sustained economic growth in Liaoning Province.

According to the statistics of the National Bureau of Statistics, the gross domestic product ("GDP") of Liaoning Province in 2019 was approximately RMB2.49 trillion (the GDP of Liaoning Province in 2018 was RMB2.35 trillion), representing a year-on-year growth of approximately 6.0%. Dalian Port and Yingkou Port are the two largest ports in Northeast China.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the statistic of the Ministry of Transport of the PRC, the total container throughput of Liaoning Province was approximately 16.9 million TEUs in 2019, of which, Dalian Port and Yingkou Port were approximately 8.8 million TEUs and 5.5 million TEUs, respectively, and in aggregate accounted for approximately 84.6% of the total container throughput of Liaoning Province. The total port cargo throughput of Liaoning Province was approximately 861.2 million tonnes in 2019, of which, Dalian Port and Yingkou Port were approximately 366.4 million tonnes and 238.2 million tonnes, respectively, and in aggregate accounted for approximately 70.2% of the total port cargo throughput of Liaoning Province.

4. Reason and benefit for the Possible Merger

According to the "Letter from the Board" in the Circular, China will form five port groups in the Bohai Rim, Yangtze River Delta, Southeast Coast, Pearl River Delta and Southwest Coast to strengthen the main role of a comprehensive and large-scale port in the country. Among them, the port clusters in the Bohai Rim region are mainly composed of coastal port clusters in Liaoning, Tianjin-Hebei and Shandong. In recent years, the overcapacity of the port industry in the Bohai Rim region, serious homogenization of services, and intensified competition between operations in Dalian Port and Yingkou Port have not only led to adverse impact on the profitability and development of Company, but also resulted in an increase in the total social costs, which is not conducive to the overall sound development of the regional economy. Through the rational integration of port resources of the Company and the Target Company, ports can fully utilize their respective superior resources, optimize the allocation of terminal resources, improve the comprehensive utilization of terminal resources, and avoid waste of resources and homogeneous competition. The Possible Merger is also in line with the guiding direction of China's port layout planning and intensive development.

It is notable that Dalian Port and Yingkou Port are the two largest ports in Northeast China. The geographical locations of Dalian Port and Yingkou Port are close and their principal business are overlapped, with consistent locations and overlapped economic hinterland which lead to a problem of horizontal competition. Peer competitiveness has resulted in difficulty in coordinating contradictions and conflict between Dalian Port and Yingkou Port in their strategic positioning and business operations, hindering them from independently implementing major capital operations and affecting their long-term development. Through the Possible Merger, the two ports will make full use of their resources to build a modern port logistics system through the in-depth integration of assets, personnel, management and other factors; and to build an international logistics center of Northeast Asia through utilization of the existing facilities and the distribution network of the two ports, thus, creating synergy effect, which would help to promote the resolution of overcapacity and vicious competition; promoting the expansion of Company's scale, revenue growth, and profitability; and continuing to enhance the overall competitiveness of the Company.

In terms of port cargo throughput, the Possible Merger will significantly increase the port cargo throughput capacity of the Group. In 2019, Dalian Port and Yingkou Port achieved total port cargo throughput of approximately 604.6 million tonnes. Upon completion of the transaction, the Group will include Dalian Port and Yingkou Port with a total port cargo

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

throughput of over 600 million tones. In terms of profitability, the audited net profit margin of the Company for the year ended 31 December 2019 was approximately 13%. As stated in the financial information of the Target Group as set out in Appendix II of the Circular, the accounting policies adopted in the preparation of the Target Group Historical Track Record Accounts differ in certain material respects from the accounting policies adopted by the Company and the details of which was disclosed in the Appendix II. Had they been prepared in accordance with the accounting policies adopted by the Company, as set out in "Target Group's Unaudited Adjusted Financial Information under the Company's Policies" of Appendix II of the Circular, the adjusted net profit margin of the Target Company for the year ended 31 December 2019 would be approximately 21%. After the merger, the revenue and profitability of the Enlarged Group will be increased significantly. With reference to the unaudited pro forma financial information of the Enlarged Group set out in Appendix III of the Circular, assuming completion of the Possible Merger had taken place on 1 January 2019, the Enlarged Group's revenue and net profit will be increased by approximately 72% and 95%, respectively, as compared to the former Group.

As stated in the "Letter from the Board" in the Circular, each of China Merchants Liaoning and CMG had undertaken that, in relation to the horizontal competition between Liaoning Port Group and the Company upon the completion of the Possible Merger, it will use its best endeavours to facilitate resolving such competition in a steady manner (through measures such as assets restructuring, business adjustment and entrusted management) before the end of 2022 in accordance with the relevant regulations and the requirements of relevant securities supervision and management departments. The Possible Merger is consistent with the Shareholders' undertaking and would help address any possible competition between the Company and the Target Company.

In addition, we noted that if the Company were to purchase all the TC Shares with cash at the closing price per TC Share on the Last Trading Date (i.e. RMB2.21 per TC Share), the maximum consideration payable by the Company for TC Shares would amount to approximately RMB14.3 billion. With reference to the Group's available cash and cash equivalents of approximately RMB4.0 billion and unutilized bank line of credit of approximately RMB7.3 billion as at 31 December 2019, the Group's financial resources may not be sufficient to finance the whole consideration payable. In addition, as at 31 December 2019, the Group's total liabilities amounted to approximately RMB13.7 billion, of which total outstanding borrowings amounted to approximately RMB8.2 billion. The Group's interest expenses was approximately RMB668.1 million for the year ended 31 December 2019, which represented an increase of approximately 12.1% or RMB72.0 million as compared to approximately RMB596.1 million for the year ended 31 December 2018. The Group's gearing ratios were approximately 40.9% and 39.0%, respectively as at 31 December 2018 and 2019; while the net debt-equity ratio was approximately 33.4% as at 31 December 2019 which represented an increase of approximately 11.4 percentage points as compared with approximately 22.0% as at 31 December 2018. It is considered that the issuance of debt securities and additional bank borrowings would inevitably increase the Group's costs of debt and expose the Group to higher gearing ratio and the inherent risk of higher interest rate which would further increase the interest expenses and adversely impair the profitability of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group. Given the size of the consideration, we are of the opinion that it would be more commercially practicable for the Company to settle this by issuing new A shares as compared to the settlement by its own cash resources or by loans or issuance of debt securities with the consideration of the a material impact on the liquidity, gearing position and profitability of the Group.

Taking into account the above, we are of the view that the implementation of the Possible Merger and the listing of the A Shares adhere to the Group's business strategy and is in the interests of the Company and the Shareholders as a whole.

5. The Possible Merger

5.1 The Merger Agreement

The Exchange Ratio

Pursuant to the terms of the Merger Agreement, subject to the fulfilment of the conditions precedent, the Company will exchange in aggregate 6,472,983,003 TC Shares in the issued share capital of the Target Company by an issue of 9,803,980,057 A Shares, meaning that for every TC Share, 1.5146 A Shares will be issued (subject to adjustments set out in the "Letter from the Board" of the Circular).

Such initial Exchange Ratio of 1.5146:1 was determined on the following basis:

  1. the price per TC Share was determined at RMB2.59 based on:
    1. RMB2.16, which is the average trading price of TC Shares for a period of 20 trading days up to and including 19 June 2020, being the last trading day immediately before the suspension of trading of both TC Shares and A Shares on the Shanghai Stock Exchange pending release of an announcement in relation to the proposed negotiation on the terms of the Possible Merger (the "Last Trading Date"), and
    2. a premium of approximately 20%; and
  3. the price per A Share was determined at RMB1.71 based on the average trading price of A Shares for a period of 20 trading days up to and including the Last Trading Date.

For the avoidance of doubt, the above 20% premium is only available to TC Shareholders who elect to exchange their TC Shares for A Shares.

After the Last Trading Date, on 29 June 2020, the annual general meeting of the Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.21 (tax included) per ten Shares (i.e. RMB0.021 per Share)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for the year ended 31 December 2019 based on the total 12,894,535,999 Shares. On 22 June 2020, the annual general meeting of the Target Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.48 (tax included) per ten TC Shares (i.e. RMB0.048 per TC Share) for the year ended 31 December 2019 based on the total 6,472,983,003 TC Shares.

As of the Latest Practicable Date, the aforementioned dividend distribution plans have been implemented and the Exchange Ratio was adjusted correspondingly. The price per A Share was adjusted to RMB1.69 and price per TC Share was adjusted to RMB2.54. For illustration purpose only, under the Exchange Ratio as adjusted by the above dividend payment by the Company and the Target Company respectively, for every TC Share, 1.5030 A Shares will be issued. Accordingly, the Company will exchange in aggregate 6,472,983,003 TC Shares in the issued share capital of the Target Company by an issue of 9,728,893,454 A Shares.

With reference to the "Letter from the Board", to effect the Possible Merger and to protect the interests of the minority shareholders of the Company and the Target Company, it is necessary to provide each of the Dalian Port Dissenting Shareholders and TC Dissenting Shareholders with Buy-back Alternative and Cash Alternative, respectively, in accordance with relevant rules and regulations. The Buy-back Alternative and Cash Alternative will be provided by Liaoning Port Group (including its subsidiaries) and/or its designated independent third party instead of the Company. In the circumstances, the consideration for the Possible Merger is approximately RMB16.4 billion, which comprises adjusted exchange price of RMB2.54 per TC Share multiplied by 6,472,983,003 TC Shares to be exchanged in the Possible Merger.

Rights of the TC Dissenting Shareholders

Subject to the Possible Merger becoming unconditional, the TC Dissenting Shareholders may elect to exercise the Cash Alternative to receive cash at the rate of RMB2.16 per TC Share (i.e. the average trading price of the TC Shares for a period of 20 trading days up to and including the Last Trading Date) (subject to adjustments set out in the "Letter from the Board" of the Circular).

As mentioned above, the Target Company held an annual general meeting after the Last Trading Date to review and approve the dividend distribution plan of RMB0.48 (tax included) per ten TC Shares (i.e. RMB0.048 per TC Share) for the year ended 31 December 2019 based on the total 6,472,983,003 TC Shares. As of the Latest Practicable Date, the aforementioned dividend distribution plan has been implemented and the Cash Alternative was adjusted and exercised at the rate of RMB2.11 per TC Share.

The Cash Alternative is also subject to upward/downward adjustment with reference to the fluctuation of the SSE Index or Port Index during the Price Adjustment Period. The Target Company shall convene a board meeting to review and decide whether to adjust

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Cash Alternative and the price of Cash Alternative after adjustment shall be the average trading price of the relevant 20 consecutive trading days. Details of the price adjustment mechanism for the Cash Alternative are set out in the "Letter from the Board" of the Circular.

Rights of the Dalian Port Dissenting Shareholders

Subject to the Possible Merger becoming unconditional, the Dalian Port Dissenting Shareholders may elect to exercise the Buy-back Alternative to receive cash at the rates of RMB1.71 per A Share and HK$0.67 per H Share (i.e. the average trading price of the A Shares and the H Shares for a period of 20 trading days up to and including the Last Trading Date) (subject to adjustments set out in the "Letter from the Board" of the Circular). The Dalian Port Dissenting Shareholders shall receive the cash consideration provided by the Buy-back Alternative Provider.

As mentioned above, the Company held an annual general meeting after the Last Trading Date to review and approve the dividend distribution plan of RMB0.21 (tax included) per ten Share (i.e. RMB0.021 per A Share or HK$0.02299 per H Share) for the year ended 31 December 2019 based on the total 12,894,535,999 Shares. As of the Latest Practicable Date, the aforementioned dividend distribution plans have been implemented, the Buy-back Alternative was adjusted and exercised at the rates of RMB1.69 per A Share and HK$0.65 per H Share.

The Buy-back Alternative for A Shares is also subject to upward/downward adjustment with reference to the fluctuation of the SSE Index or Port Index during the Price Adjustment Period while the Buy-back Alternative for H Shares is subject to adjustment with reference to the fluctuation of the Hang Seng Index or Hong Kong Transport Index during the Price Adjustment Period. The Company shall convene a board meeting to review and decide whether to adjust the Buy-back Alternative and the price of Buy-back Alternative of A Shares and H Shares after adjustment shall be the average trading price of the relevant 20 consecutive trading days. Details of the price adjustment mechanism for the Cash Alternative are set out in the "Letter from the Board" of the Circular.

5.2 Analyses of Exchange Ratio

We have considered the basis of determining the Exchange Ratio, which is determined on the price per TC Share divided by the price per A Share, to assess the fairness and reasonableness of the Possible Merger under the Merger Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.2.1 Share prices performance

  1. TC Shares price performance

We have reviewed the closing price performance of the TC Shares as quoted on the Shanghai Stock Exchange from 19 June 2019 (being the 12 months period prior to the Last Trading Date (the "Review Period"). We consider that the Review Period which covers a full year prior to the Last Trading Date is appropriate as it covers the period of the recent annual and interim financial result publications of the Company and the Target Company prior to the Last Trading Date and represents a reasonable period to provide a general overview of the recent trend of the share prices of both the Company and the Target Company. The following chart illustrates the closing price performances of TC Shares during the Review Period:

Target Company Share price performance

RMB

3.00

2.80

2.60

2.40

2.20

2.00

1.80

1.60

1.40

1.20

1.00

9/7/2019

8/8/2019

7/9/2019

5/1/2020

15/1/2020

4/2/2020

14/2/2020

5/3/2020

15/3/2020

25/3/2020

4/4/2020

24/4/2020

4/5/2020

24/5/2020

19/6/2019

29/6/2019

19/7/2019

29/7/2019

18/8/2019

28/8/2019

17/9/2019

27/9/2019

7/10/2019

17/10/2019

27/10/2019

6/11/2019

16/11/2019

26/11/2019

6/12/2019

16/12/2019

26/12/2019

25/1/2020

24/2/2020

14/4/2020

14/5/2020

3/6/2020

13/6/2020

Closing Price of Target Company

Exchange price per TC Share

Cash Alternative

Source: Shanghai Stock Exchange Website

During the Review Period, the TC Shares have been traded between RMB2.09 (the lowest closing price per TC Share recorded on 29 April 2020) and RMB2.86 (the highest closing price per TC Share recorded on 19 June 2019) (the "TC Shares Price Range"). The closing price of TC Shares was on a declining trend during the Review Period. We noted that the closing price of the TC Share has further dropped after the outbreak of COVID-19 during the period from January 2020 to mid- February 2020. The exchange price per TC Share is within the TC Shares Price Range during the Review Period and we consider that the TC Shares Price Range is merely a reference on recent price trend of the Target Company which also shows fluctuation of the TC share price in the past one year prior to the Last Trading Date as well as any material deviation as compared to the exchange price per TC Share and the rate under Cash Alternative.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As mentioned in the "Letter from the Board", the initial exchange price per TC Share of RMB2.59 was determined at RMB2.16 (i.e. the average trading price of TC Shares for 20 trading days up to and including the Last Trading Date) plus a premium of 20% and the TC Dissenting Shareholders may elect to exercise the Cash Alternative to receive cash at the rate of RMB2.16 per TC Share. Based on the above, we noted that the TC Share was trading close to RMB2.16 in the recent three months prior to the Last Trading Date, which indicates it is fair to apply TC Share price at RMB2.16 as reference in determining the exchange price per TC Share and the rate under Cash Alternative. We have performed further analysis to assess the fairness and reasonableness of Exchange Ratio and premium (as analysed below).

(ii) A Shares price performance

Set out below is the closing prices performance of A Share during the Review Period as quoted on the Shanghai Stock Exchange:

Company A Share price performance

2.40

2.20

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

19/6/2019

29/6/2019

9/7/2019

19/7/2019

29/7/2019

8/8/2019

18/8/2019

28/8/2019

7/9/2019

17/9/2019

27/9/2019

7/10/2019

17/10/2019

27/10/2019

6/11/2019

16/11/2019

26/11/2019

6/12/2019

16/12/2019

26/12/2019

5/1/2020

15/1/2020

25/1/2020

4/2/2020

14/2/2020

24/2/2020

5/3/2020

15/3/2020

25/3/2020

4/4/2020

14/4/2020

24/4/2020

4/5/2020

14/5/2020

24/5/2020

3/6/2020

13/6/2020

Closing price per A Share

Issue price per A Share

Source: Shanghai Stock Exchange Website

During the Review Period, the price of A Shares experienced a downward trend. The highest and lowest closing prices of the A Shares as quoted on the Shanghai Stock Exchange was RMB$2.18 per A Share on 20 June 2019 and RMB$1.69 per A Share on 29 May 2020, 15 June 2020 and 17 June 2020, respectively (the "A Shares Price Range"). We noted that the closing price of A Share has experienced a sharp drop during the period from January 2020 to mid-February 2020 after the outbreak of COVID-19. The issue price per A Share is within the A Shares Price Range and we consider that the A Shares Price Range is merely a reference on recent price trend of the Company which also shows fluctuation of the A Share price in the past one year prior to the Last Trading Date and any material deviation as compared to the issue price per A Share and the rate under Buy-back Alternative.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we also noted that the A Share was trading close to RMB1.71 in the recent three months prior to the Last Trading Date, which indicates it is fair to apply A Share price at RMB1.71 as reference in determining the issue price per A Share and the rate under Buy-back Alternative. We have performed further analysis to assess the fairness and reasonableness of Exchange Ratio (as analysed below).

5.2.2 Market comparables analysis

As stated in the Letter from the Board, the Company has taken into consideration the valuation of the Company and the Target Company to determine the level of Exchange Ratio and the premium embedded. In order to assess the fairness and reasonableness of the Exchange Ratio, we have adopted the price-to-earnings multiple (the "PE") analysis and price-to-book (the PB") analysis, which are the most widely used and accepted methods for valuing a business in the industry. We have conducted a comparable analysis through identifying listed port and logistics companies whose A shares are traded on the domestic exchanges in the PRC. With reference to the market capitalisation of the Company and the Target Company (based on total issued shares and the closing price of A Share as quoted on the Shanghai Stock Exchange on the Last Trading Date) were approximately RMB22.2 billion and RMB14.3 billion, respectively, as at the Last Trading Date and, we have identified eight comparable companies which had a market capitalisation within RMB7 billion to RMB35 billion as at the Last Trading Date in the industry ("Market Comparables"), which we considered an exhaustive list of relevant companies based on the abovementioned criteria.

The following table ("Table 1") summarises the market capitalisation, PE and PB of the Market Comparables:

Description of principal

Market

Name of company

Stock code

business

capitalisation

PE PB

(Note 1) (Note 2) (Note 3)

RMB billion

1.

深圳市鹽田港股份有限公司

000088.SZ

Principally engaged in

11.1

30.9x

1.6x

Shenzhen Yan Tian Port

investment, development and

Holdings Co., Ltd.*

operation of port business

2.

北部灣港股份有限公司

000582.SZ

Principally engaged in provision

17.5

17.7x

1.8x

Beibu Gulf Port Co., Ltd.*

of loading and unloading,

stockpiling service of

containers and bulk cargoes,

and harbour service

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Description of principal

Market

Name of company

Stock code

business

capitalisation

PE

PB

3.

招商局港口集團股份有限公司

001872.SZ

Principally engaged in the

26.6

9.2x

0.7x

China Merchants Port Group

handling, warehousing and

Co., Ltd.

transportation of containers

and bulk cargoes, as well as

the provision of other

ancillary services

4.

日照港股份有限公司

600017.SH

Principally engaged in the

7.8

12.3x

0.7x

Rizhao Port Co., Ltd.*

handling, warehousing and

transfer of bulk cargoes

services

5.

天津港股份有限公司

600717.SH

Principally engaged in the

9.1

15.1x

0.6x

Tianjin Port Co., Ltd*

handling, sales and logistics of

containers and bulk cargoes,

as well as the provision of

other port supporting services

6.

唐山港集團股份有限公司

601000.SH

Principally engaged in the

13.3

7.5x

0.8x

TangShan Port Group

handling, warehousing and

Co., Ltd.*

transportation of containers

and bulk cargoes, as well as

the provision of other port

comprehensive services

7.

廣州港股份有限公司 Guangzhou

601228.SH

Principally engaged in the

19.6

23.0x

1.5x

Port Company Limited*

handling, warehousing,

logistics, trading, financing,

tugboat service and

organization of containers and

goods, as well as the provision of other port comprehensive services

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Description of principal

Market

Name of company

Stock code

business

capitalisation

PE

PB

8.

秦皇島港股份有限公司

601326.SH

Principally engaged in provision

14.2

15.3x

1.0x

Qinhuangdao Port Co., Ltd*

of terminal facilities for

vessels and provision of port

services such as loading and

discharging, stacking,

warehousing, transportation,

container stacking and less

than container load services;

other port related services

such as tugboat service, lease

and repair of harbour

facilities, equipment and

machinery, cargo weighing,

freight forwarding, port

tallying and provision of

power and electrical

engineering services; and

import and export services of

goods

Maximum

26.6

30.9x

1.8x

Minimum

7.8

7.5x

0.6x

Median

13.8

15.2x

0.9x

Average

14.9

16.4x

1.1x

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Description of principal

Name of company

Stock code

business

PE

PB

營口港務股份有限公司

600317.SH

Provision of terminal and other

Yingkou Port Liability Co.,

port facility services, cargo

Ltd.*

stevedoring, warehousing

services, ship port services,

port facility equipment and

port machinery rental and

maintenance services.

At price per TC Share of

16.6x

1.4x

RMB2.59 and by reference to

the profit attributable to the

shareholders of the Target

Company for the year ended

31 December 2019, the net

asset value attributable to

owners of the Target Company

as at 31 December 2019 and

the numbers of shares of the

Target Company then in issue

At the adjusted price per TC

16.3x

1.3x

Share of RMB2.54 and by

reference to the profit

attributable to the shareholders

of the Target Company for the year ended 31 December 2019, the net asset value attributable to owners of the Target Company as at 31 December 2019 and the numbers of shares of the Target Company then in issue

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Description of principal

Name of company

Stock code

business

PE

PB

The Company

2880.HK and

At price per A Share of

30.7x

1.0x

601880.SH

RMB1.71 and by reference to

profit attributable to the

Shareholders of the Company

for the year ended 31

December 2019, the net asset

value attributable to owners of

the Company as at 31

December 2019 and the

numbers of shares of the

Company then in issue

At adjusted price per A Share of

30.4x

1.0x

RMB1.69 and by reference to

profit attributable to the

Shareholders of the Company for the year ended 31 December 2019, the net asset value attributable to owners of the Company as at 31 December 2019 and the numbers of shares of the Company then in issue

Source: Bloomberg and their respective financial reports

Notes:

  1. Market capitalisation of the Market Comparables is calculated on the basis of their respective closing prices of the shares as quoted on the Last Trading Date and their total number of issued shares according to their respective most recent published annual reports prior to the date of the Merger Agreement.
  2. PE of the Market Comparables are calculated based on their respective market capitalisation as at the Last Trading Date divided by the audited profits attributable to owners from the respective latest annual reports of the Market Comparables for the most recent financial year prior to the date of the Merger Agreement.
  3. PB of the Market Comparables are calculated based on the closing price of the Market Comparables as quoted on the Last Trading Day and their total number of issued shares according to their respective most recent published annual report prior to the date of the Merger Agreement divided by the net asset values. Net asset value refers to net assets as per the respective Market Comparables' most recent published annual report prior to the date of the Merger Agreement.

As shown in Table 1 above, the PE of the Market Comparables ranged from approximately 7.5 times to approximately 30.9 times, with an average of approximately

16.4 times and a median of approximately 15.2 times, and the PB of the Market Comparables ranged from approximately 0.6 times to approximately 1.8 times, with an average of approximately 1.1 times and a median of approximately 0.9 times.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the profit attributable to the shareholders of the Target Company for the year ended 31 December 2019, the net asset value attributable to owners of the Target Company as at 31 December 2019, the total number of issued shares of the Target Company and the adjusted exchange price of RMB2.54 per TC Share, the implied adjusted PE of the Target Company would be approximately 16.3 times which fall within the range of PE of the Market Comparables and below the average PE of the Market Comparables; and the implied adjusted PB of the Target Company would be approximately 1.3 times which also fall within the range of PB of the Market Comparables and comparable to the average PB of the Market Comparables.

For illustration purpose, based on the profit attributable to the shareholders of the Target Company for the year ended 31 December 2019, the net asset value attributable to owners of the Target Company as at 31 December 2019, the total number of issued shares of the Target Company and the initial exchange price of RMB2.59 per TC Share, the implied PE and PB of the Target Company would be approximately 16.6 times and 1.4 times, respectively, which both fall within the range of the Market Comparables and comparable to the average of the Market Comparables. Based on the profit attributable to the shareholders of the Company for the year ended 31 December 2019, the net asset value attributable to owners of the Company as at 31 December 2019, the total number of issued shares of the Company and the adjusted issue price of RMB1.69 per A Share, the implied adjusted PE of the Company would be approximately 30.4 times which fall within the range of PE of the Market Comparables and at the high end of the Market Comparables; and the implied adjusted PB of the Company would be approximately 1.0 times which also fall within the range of PB of the Market Comparables and comparable to the average PB of the Market Comparables.

For illustration purpose, based on the profit attributable to the shareholders of the Company for the year ended 31 December 2019, the net asset value attributable to owners of the Company as at 31 December 2019, the total number of issued shares of the Company and the initial issue price of RMB1.71 per A Share, the implied PE and PB of the Company would be approximately 30.7 times and 1.0 times, respectively, which both fall within the range of the Market Comparables.

Having considered (i) the implied PE of the Target Company based on initial and adjusted price per TC Share both fall within the range of Market Comparables and comparable to the average of Market Comparables and (ii) the implied PE of the Company based on initial and adjusted price per A Share both fall within the range of PE of Market Comparables and at the high end of Market Comparables, which is more favourable to the Group with a better valuation of the Company as compared to Market Comparables, we consider that the price per A Share and price per TC Share (with premium included) which in turn derive the Exchange Ratio are fair and reasonable.

5.2.3 Transaction comparables analysis

With regard to the proposal of the Possible Merger, we have also conducted an analysis through identifying companies with their H shares listed on the Main Board of the Stock Exchange and A shares listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange that had executed a merger of a target company listed in the PRC by similar share swap transactions by way of issuing new A shares (the "Transaction Comparables") from 2011 and up to the Last Trading Date (the "Comparable Review

Period").

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have exhaustively identified four Transaction Comparables during the Comparable Review Period, whose details are set out below ("Table 2"). Given that there are only four similar transactions during the Comparable Review Period, we consider the Comparable Review Period is appropriate to provide us with the information on market practice and transactions features for the Possible Merger.

Name of the

Stock

Name of the

Date

issuer company

code

target company

Key features of the merger proposal

Condition

precedent

include,

Premium of

among

the exchange

others, the

price of the

approval by

merger

the board

proposal to

and the

the average

holders of

trading

the shares of

price of the

Issue of

the company

A shares of

shares by

at their

the target

Seeking a

the issuer

respective

company for

listing of A

company in

extraordinary

the 20

shares to be

exchange for

Delist and

general

consecutive

issued by

the shares of

deregister

meeting and

trading days

the issuer

the target

Offer cash

the target

the class

up to last

company

company

alternative

company

meeting

trading day

1

18 April

中國外運股份有

598

Sinotrans Air

Yes

Yes

Yes

Yes

Yes

22.0%

2018

限公司

Transportation

Sinotrans

Development

Limited

Corporation

Limited*

2

4 September

Guangzhou

874

廣州白雲山製藥

Yes

Yes

Yes

Yes

Yes

0.0%

2012

Pharmaceutical

股份有限公司

Company

Guangzhou

Limited

Baiyunshan

廣州藥業股份

Pharmaceutical

有限公司

Co., Ltd*

3

11 June

廣州汽車集團股

2238

廣汽長豐汽車股

Yes

Yes

Yes

Yes

Yes

15.0%

2011

份有限公司

份有限公司

Guangzhou

GAC

Automobile

Changfeng

Group Co.,

Motor Co.,

Ltd.*

Ltd.*

4

10 March

中國交通建設股

1800

路橋集團國際建

Yes

Yes

Yes

Yes

Yes

23.0%

2011

份有限公司

設股份有限公

China

司 Road &

Communications

Bridge

Construction

International

Company

Co., Ltd.*

Limited*

The Company

2880

The Target

Yes

Yes

Yes

Yes

Yes

20.0%

Company

Source: Published circulars of the companies named above

  • For the purpose of identification only

As set out in the table above, we noted that the key features of the four Transaction Comparables are the similar with the Possible Merger. The Exchange Ratio with the payment of premium has been determined at a manner consistent with the market practice. Taking into account of the premium for obtaining control of the Target Company via the Possible Merger, we are of the view that the premium included in determining the price per TC Share is justifiable.

5.3 The Buy-back Alternative

As stated in the "Letter from the Board", in order to protect the interests of the minority shareholders of the Company, subject to the Possible Merger becoming unconditional, the Dalian Port Dissenting Shareholders may elect to exercise the Buy-back Alternative to receive

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

cash at the rates of RMB1.71 per A Share and HK$0.67 per H Share, subject to adjustments for cash dividends, stock dividends, capital reserve converted into share capital, allotment of shares, etc. occurred from the Price Base Day to the Buy-back Alternative Exercise Day. Such rates are determined by reference to the average trading prices of A Shares and average trading prices of H Shares respectively, for the 20 consecutive trading days up to and including the Last Trading Date of RMB1.71 per A Share and HK$0.67 per H Share as quoted on the Shanghai Stock Exchange and the Stock Exchange, respectively.

After the Last Trading Date, on 29 June 2020, the annual general meeting of the Company was held to review and approve the dividend plan of 2019. It was decided to distribute a dividend of RMB0.21 (tax included) per ten Shares (i.e. RMB0.021 per A Share or HK$0.02299 per H Share) for the year ended 31 December 2019 based on the total 12,894,535,999 Shares. As of the Latest Practicable Date, the aforementioned dividend distribution plans have been implemented and accordingly, the Buy-back Alternative shall be adjusted and exercised to RMB1.69 per A Share and HK$0.65 per H Share, which approximately represents the initial Buy-back Alternatives less the dividend amounts for A Share and H Share, respectively.

The Buy-back Alternative for A Shares is also subject to upward/downward adjustment with reference to the fluctuation of the SSE Index or Port Index during the Price Adjustment Period while the Buy-back Alternative for H Shares is subject to adjustment with reference to the fluctuation of the Hang Seng Index or Hong Kong Transport Index during the Price Adjustment Period. The Company shall convene a board meeting to review and decide whether to adjust the Buy-back Alternative and the price of Buy-back Alternative of A Shares and H Shares after adjustment shall be the average trading price of the relevant 20 consecutive trading days. Details of the price adjustment mechanism for the Buy-back Alternatives are set out in the "Letter from the Board" of the Circular.

The Directors consider and we concur that the SSE Index, Hang Seng Index, Port Index and Hong Kong Transport Index to be appropriate benchmarks as they reflects the latest overall and industry stock market conditions in the two stock exchanges. Based on our independent research, we noted that the Port Index is a market capitalisation-weighted index tracking 21 A-share listed companies principally engaging in port and ports-related businesses (including the Company and the Target Company) and reflect the changes in the specific market environment of these A-share listed companies; and Hong Kong Transport Index is a market capitalisation-weighted index tracking 79 Hong Kong listed companies engaging in the transportation industry (including the Company), which reflect the changes in the market environment of these Hong Kong listed companies in a similar industry as the Company. We also noted that the price adjustment mechanism for Buy-back Alternative was determined with reference with relevant PRC regulatory requirement to fairly reflect the value of shares due to any material changes in the overall and industry stock market conditions during the period from the announcement date of Shareholders' general meeting where the resolution regarding the Possible Merger is passed to approval of the Possible Merger by CSRC, which is in the interest of minority Shareholders. Hence, we consider it is fair and reasonable to have the price adjustment mechanism for Buy-back Alternative.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

After primarily taking into account that (i) the Buy-back Alternatives per A Share and H Share are same as the average closing price of A Shares and H Shares, respectively for the 20 consecutive trading days up to and including the Last Trading Date; (ii) the adjusted Buy-back Alternatives approximately represented the initial Buy-back Alternatives less dividend amounts; and (iii) the Buy-back Alternatives would provide protection to the Dalian Port Dissenting Shareholders, we consider the Buy-back Alternatives as fair and reasonable. Having considered the unpredictability and volatility of the stock market, the Buy-back Alternative provides downside protection to the Dalian Port Dissenting Shareholders. However, Independent Shareholders should take into account the then market price of A Share and H Share when considering whether to choose the Buy-back Alternative.

5.4 Cash Alternative

As stated in the "Letter from the Board", in order to protect the interest of the minority shareholders of the Target Company, subject to the Possible Merger becoming unconditional, the TC Dissenting Shareholders may elect to exercise the Cash Alternative to receive cash at the rate of RMB2.16 per TC Share, subject to adjustments for cash dividends, stock dividends, capital reserve converted into share capital, allotment of shares, etc. occurred from the Price Base Day to the Cash Alternative Exercise Day. Such rate is determined by reference to the average trading price of the TC Shares for a period of 20 trading days up to and including the Last Trading Date as quoted on the Shanghai Stock Exchange.

After the Last Trading Date, on 22 June 2020, the Target Company held an annual general meeting to review and approve the dividend distribution plan of RMB0.48 (tax included) per ten TC Shares (i.e. RMB0.048 per TC Share) for the year ended 31 December 2019 based on the total 6,472,983,003 TC Shares. As of the Latest Practicable Date, the aforementioned dividend distribution plan has been implemented and the Cash Alternative was adjusted and exercised at the rate of RMB2.11 per TC Share, which approximately represents the initial Cash Alternative less the dividend amount for each TC Share.

The Cash Alternative is also subject to upward/downward adjustment with reference to the fluctuation of the SSE Index or Port Index during the Price Adjustment Period. The Target Company shall convene a board meeting to review and decide whether to adjust the Cash Alternative and the price of Cash Alternative after adjustment shall be the average trading price of the relevant 20 consecutive trading days. Details of the price adjustment mechanism for the Cash Alternative are set out in the "Letter from the Board" of the Circular.

As mentioned above, the price adjustment mechanism was determined with reference with relevant PRC regulatory requirement and protect the interest of minority Shareholders to fairly reflect the value of shares due to any material changes in the market conditions during the period from the announcement date of Shareholders' general meeting where the resolution regarding the Possible Merger is passed to approval of the Possible Merger by CSRC. The Directors consider and we concur that the SSE Index and Port Index to be appropriate benchmarks as they reflects the latest overall and industry stock market conditions. Hence, we consider it is fair and reasonable to have the price adjustment mechanism for Cash Alternative.

Considered that (i) the Cash Alternative per TC Share is same as the average closing price of TC Share for the 20 consecutive trading days up to and including the Last Trading Date; and

  1. the adjusted Cash Alternative approximately represented the initial Cash Alternative less dividend amount, we consider the Cash Alternative as fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.5 Effect of the Possible Merger

The Possible Merger will involve the issue of A Shares at the adjusted Exchange Ratio by the Company to the TC Shareholders in exchange for TC Shares held by them. Subject to the approval of the CSRC and the Shanghai Stock Exchange, the A Shares to be issued for the purpose of the Possible Merger will be listed on the Shanghai Stock Exchange.

As stated in the "Letter from the Board", after the completion of the Possible Merger, the Target Company will merge into and become absorbed by the Company and will cease to exist. All the assets, business, staff and rights of the Target Company will be absorbed into, and all the liabilities of the Target Company will be assumed by, the Company pursuant to the Possible Merger. Both the Company and the Target Company shall perform the creditor notice and announcement procedures in accordance with the requirements of the relevant laws and regulations, and as required by their respective creditors within the legal duration, to have the third parties or themselves pay off debts in advance or provide additional guarantees to their respective creditors.

Dilution effects

As stated in the "Letter from the Board", if the Possible Merger is implemented, a

total of 9,728,893,454 A Shares will be issued in exchange for TC Shares. Upon full

implementation of the Possible Merger (assuming no other shares of the Company are to

be issued between the Latest Practicable Date and implementation of the Possible Merger,

and without taking into account the new A Shares that may be issued pursuant to the A

Share Specific Mandate), the total issued share capital of the Company will be

22,623,429,453 shares.

At the completion of the Possible Merger, it is anticipated that the public float will

be maintained at all times at not less than 25% by the completion of the A Share Specific

Mandate or disposal of existing shares by the controlling Shareholder(s). The Company

will ensure compliance with public float requirement before and after the completion of

the Possible Merger. The expected number of new A Shares that may be issued pursuant

to the A Share Specific Mandate is calculated based on an understanding and estimation

of the prevailing market price of the Company's A Shares at present and at time of such

issue, upon which the Company believes that the minimum number of new A Shares to

be issued under the A Share Specific Mandate will be able to cover any public float

shortfall resulting from the Possible Merger.

For illustration purpose only, the number of A Shares to be issued under the A Share

Specific Mandate will be able to cover any public float shortfall:

  1. if fundraising is up to RMB2.1 billion, and the placing price is at the same price of the share exchange price (i.e. RMB1.69 for each A Share) or at up to 50% premium; or

(b) if the placing price is at the same price of the share exchange price

(i.e. RMB1.69 for each A Share), and fundraising is up to RMB720 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholding structure of above (a) scenario (i.e. A Shares fundraising of up to RMB2.1 billion with placing price up to 50% premium of the share exchange price) is as below:

Number of

Shareholding

Total number

Shareholder

Shares

percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

22.64%

18,291,485,107

2

YKP*

7,616,325,313

32.48%

3

Liaoning Gangwan*

67,309,590

0.29%

4

Public Shareholders

4,470,823,389

19.07%

5

Investors#

826,771,653

3.53%

H Shares

1

Dalian Group*

722,166,000

3.08%

5,158,715,999

2

Broadford*

856,346,695

3.65%

3

Team Able*

2,714,736,000

11.58%

4

Public Shareholders

865,467,304

3.69%

Shareholding structure of above (b) scenario (i.e. A Shares fundraising of up to RMB720 million with placing price same as the share exchange price) is as below:

Number of

Shareholding

Total number

Shareholder

Shares

percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

23.04%

17,890,748,956

2

YKP*

7,616,325,313

33.04%

3

Liaoning Gangwan*

67,309,590

0.29%

4

Public Shareholders

4,470,823,389

19.40%

5

Investors#

426,035,502

1.85%

H Shares

1

Dalian Group*

722,166,000

3.13%

5,158,715,999

2

Broadford*

856,346,695

3.72%

3

Team Able*

2,714,736,000

11.78%

4

Public Shareholders

865,467,304

3.75%

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholding structure immediately after the completion of the Possible Merger, assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming the A Share Specific Mandate will be issued to the maximum extent of RMB2,100,000,000 at the price of RMB1.69 per Share is as below:

Number of

Shareholding

Total number

Shareholder

Shares

percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

22.25%

18,707,317,004

2

Liaoning Gangwan*

67,309,590

0.28%

3

YKP*

7,616,325,313

31.91%

4

Public Shareholders

4,470,823,389

18.73%

5

Investors#

1,242,603,550

5.21%

H Shares

1

Dalian Group*

722,166,000

3.03%

5,158,715,999

2

Broadford*

856,346,695

3.59%

3

Team Able*

2,714,736,000

11.37%

4

Public Shareholders

865,467,304

3.63%

  • Associates of CMG under the Listing Rules
  • The A Share Specific Mandate will be issued to investors who are independent third parties of the Company within the meaning of the Listing Rules, and their shareholding will be counted towards public float

With a view to ensuring public float compliance, the Company will continue to consult its financial and legal advisers before the completion of the Possible Merger in order to ensure the public float compliance. After the poll results are known for the Company's EGM, A Shareholders Class Meeting and H Shareholders Class Meeting and the shareholders' meeting of Target Company convened for the purpose of approving the Possible Merger, the Company can ascertain the maximum extent of public float shortfall to be addressed before the completion of the Possible Merger. Such maximum possible public float shortfall will be calculated assuming all Dalian Port Dissenting Shareholders and TC Dissenting Shareholders will elect to transfer their Shares and TC Shares to the respective Buy-back Alternative Provider and Cash Alternative Provider (both being connected persons of the Company). Subject to the Possible Merger becoming unconditional, the Company will then seek to issue new A Shares to independent third parties pursuant to the A Share Specific Mandate as soon as possible, to such extent as to pre-empt the maximum possible public float shortfall resulting from the Possible Merger. In the event such issue is not practicable due to market condition or otherwise or unable to fully pre-empt the public float shortfall, Liaoning Port Group (as a controlling shareholder of the Company) has undertaken to the Company that, upon the Company's

- 86 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

request on the basis that all other means to fully pre-empt the maximum possible public float shortfall are not practicable, it will procure its relevant subsidiary(ies) to dispose of as soon as possible such number of existing shares as will be necessary to ensure that the Company will meet the minimum public float requirement under the Listing Rules immediately upon completion of the Possible Merger subject to compliance with applicable PRC laws and regulations.

For illustration purpose only, shareholding structure immediately after the completion of the Possible Merger (assuming that no other Shares will be issued after the Latest Practicable Date until the completion of the Possible Merger, and assuming no relevant shareholder will exercise the Cash Alternative and the Buy-back Alternative, and assuming there is no issue pursuant to the A Share Specific MandateNote) is as below:

Number of

Shareholding

Total number

Shareholder

Shares

percentage

of Shares

A Shares

1

Dalian Group*

5,310,255,162

23.47%

17,464,713,454

2

YKP*

67,309,590

0.30%

3

Liaoning Gangwan*

7,296,758,642

32.25%

4

Public Shareholders

4,790,390,060

21.17%

H Shares

1

Dalian Group*

722,166,000

3.19%

5,158,715,999

2

Broadford*

856,346,695

3.79%

3

Team Able*

2,714,736,000

12.00%

4

Public Shareholders

865,467,304

3.83%

Note: The table assumes the disposal by Liaoning Port Group's subsidiary(ies) to be solely in the form of TC Shares. The disposal by Liaoning Port Group's subsidiary(ies) can also be in the form of A Shares or H Shares of the Company, or a combination of two or more of those three manners, with the common result of maintaining the Company's public float at not less than 25% immediately upon completion of the Possible Merger in any event.

  • Associates of CMG under the Listing Rules

With the above in place, the Company confirms that public float compliance will be ensured before and immediately upon completion of the Possible Merger. The Company will not proceed to complete the Possible Merger unless and until all necessary steps have been taken to the effect that, immediately upon completion of the Possible Merger, the Company will continue to comply with the public float requirement under the Listing Rules.

- 87 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial effects

Net asset value

As at 31 December 2019, the Group's audited net asset value amounted to approximately RMB21,404 million. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to the Circular, it is expected that the net asset value of the Enlarged Group would increase to approximately RMB37,035 million at the completion of the Possible Merger.

Earnings per Share

Upon completion of the Possible Merger, as the Target Group will become a wholly-owned subsidiary of the Company and the financial results of the Target Company will be consolidated into the accounts of the Company. Accordingly, the revenue and net profit attributable to owners of the Company is expected to increase. Taking into account the historical profitable track record of the Target Group, the Directors expected that the Possible Merger would potentially enhance the earnings of the Group.

As set out in the unaudited pro forma financial information, assuming the issuance of A Shares by the Company to the TC Shareholders in exchange for all the existing issued shares of the Target Company as at 1 January 2019, the unaudited pro forma consolidated profit attributable to Shareholders would be approximately RMB1,539 million. Based on the total number of issued Shares of 22,623,429,453 Shares, after the full implementation of the Possible Merger (assuming no other Shares of the Company are to be issued between the Latest Practicable Date and the implementation of the Possible Merger and not taking into account the effect of the Cash Alternative, the Buy-back Alternative and the A Share Specific Mandate or disposal of existing shares by the controlling Shareholder(s)), the earnings per Share shall be increased from approximately RMB0.0557 to approximately RMB0.0680.

Equity attributable to Shareholders per Share

The Group's audited consolidated equity attributable to Shareholders as at 31 December 2019 was approximately RMB18,770 million. Based on the total number of issued Shares of 12,894,535,999 Shares of the Company as at 31 December 2019, the Group's equity attributable to Shareholders per Share was approximately RMB1.4556. As set out in the unaudited pro forma financial information, the Enlarged Group's unaudited pro forma consolidated equity attributable to Shareholders would be approximately RMB33,803 million. Based on the total number of issued Shares of 22,623,429,453 Shares, after the full implementation the Possible Merger (assuming no other Shares of the Company are to be issued between the Latest Practicable Date and the implementation of the Possible Merger and not taking into account the effect of the Cash Alternative, the Buy-back Alternative and the A Share Specific Mandate or disposal of existing shares by the controlling Shareholder(s)), the equity attributable to Shareholders per Share shall be increased to approximately RMB1.4941.

- 88 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Although the shareholding interest of the existing Public Shareholders will be diluted upon the completion of Possible Merger, we consider that profitability is more relevant in the current assessment. The Possible Merger is expected to enhance the profitability of the Group and is accretive to the earning per Share as mentioned above.

RECOMMENDATION

Having considered the principal factors above, in particular,

  1. reasons for and benefits of the Possible Merger as mentioned under paragraph "Reason and benefit for the Possible Merger" in this letter, in particular, the revenue and profitability of the Enlarged Group will be enhanced by approximately 72% and 95%, respectively and the earnings per Share shall be increased from approximately RMB0.0557 to approximately RMB0.0680 upon the implementation of Possible Merger;
  2. based on the initial price of RMB2.59 per TC Share and by reference to the financial results of the Target Company for the year ended 31 December 2019 (being the latest available financial results of the Target Company prior to the Last Trading Date), the implied PE and PB of the Target Company would both fall within the range of the Market Comparables and comparable to the average of Market Comparables;
  3. based on the adjusted price of RMB2.54 per TC Share and by reference to the financial results of the Target Company for the year ended 31 December 2019 (being the latest available financial results of the Target Company prior to the Last Trading Date), the implied adjusted PE of the Target Company would fall also within the range of PE of the Market Comparables and below the average of that of Market Comparables; and the implied adjusted PB of the Target Company would also fall within the range of PB of the Market Comparable and comparable to the average PB of the Market Comparables;
  4. the implied PE of the Company based on initial and adjusted price per A Share both fall within the range of PE of Market Comparables and at the high end of Market Comparables, which is more favourable to the Group with a better valuation of the Company as compared to Market Comparables;
  5. the Exchange Ratio derived from the price per A Share and price per TC Share;
  6. we noted that the key features of the Transaction Comparables are similar to the Possible Merger and at a manner consistent with the market practice. We also consider that it is justifiable to apply a premium for control in light of that the Company is acquiring a substantial stake in the Target Company through the merger proposal to attain 100% equity interest of the Target Company;

- 89 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

  1. the Buy-back Alternative and the Cash Alternative together would provide protection to the Dalian Port Dissenting Shareholders and the TC Dissenting Shareholders; and
  2. the Company confirms that public float compliance will be ensured before and immediately upon completion of the Possible Merger,

we consider that profitability is more relevant in the current assessment. We also note that the Possible Merger is accretive to the earnings per Share we are of the view that the Possible Merger is in the interests of the Company and the Shareholders as a whole and the Merger Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board to advise the Independent Shareholders, to vote in favour of the relevant resolution(s) to be proposed at the EGM and the relevant class meeting to approve the Merger Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of

First Shanghai Capital Limited

Edmond Kwan

Kenneth Yam

Managing Director

Director

Corporate Finance

Mr. Edmond Kwan and Mr. Kenneth Yam are licensed persons registered with the Securities and Futures Commission of Hong Kong and the responsible officers of First Shanghai Capital Limited to carry out Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. Mr. Edmond Kwan and Mr. Kenneth Yam have more than thirteen and eight years of experience in corporate finance industry, respectively.

- 90 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 December 2017, 31 December 2018 and 31 December 2019 respectively and the unaudited consolidated financial statements of the Group for the first six months of 2020, together with the relevant notes thereto are disclosed in the following documents, which were published on both the Stock Exchange's website (http://www.hkexnews.hk) and the Company's website (http://www.dlport.cn):

•

the

annual

report

of

the

Company

for

the year

ended

31

December

2017

published

on

24

April

2018

(pages

100

to

112)

at

https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0424/ltn20180424341.pdf;

•

the

annual

report

of

the Company for the year

ended

31

December

2018 published on 24 April 2019 (pages 112 to 126) at the

https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0424/ltn20190424476.pdf;

•

the

annual

report

of

the Company for the year

ended

31

December

2019 published on 27 April 2020 (pages 103 to 118) at the

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0427/2020042700607.pdf;

and

  • the interim results announcement of the Company for the six months ended 30 June 2020 published on 27 August 2020 (pages 2 to 31) at https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0827/2020082701264.pdf.

For PRC regulatory purpose, a report has been prepared including the audited consolidated financial statements of the Group for the first six months of 2020, among other things, as published on both the Stock Exchange's website (http://www.hkexnews.hk) and the Company's website (http://www.dlport.cn):

• the PRC regulatory report (pages 46 to 218 at http://static.cninfo.com.cn/finalpage/2020-08-28/1208274640.PDF)

- I-1 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2. STATEMENT OF INDEBTEDNESS OF THE ENLARGED GROUP

As at the close of business on 31 July 2020, being the latest practicable date for the purpose of this statement of indebtedness of the Enlarged Group prior to the printing of this circular, the Enlarged Group had the following indebtedness:

Borrowings

The borrowings of the Enlarged Group as at 31 July 2020 were as follows:

At 31 July 2020

RMB'000

Bank loans

- Unsecured and unguaranteed

1,500,803

Loans from related parties

- Unsecured and unguaranteed

44,053

Bonds

- Unsecured and guaranteed

2,372,234

- Unsecured and unguaranteed

4,592,983

8,510,073

As at 31 July 2020, the Enlarged Group had outstanding bank loans and loans from related parties all unsecured and unguaranteed. Unsecured and guaranteed bonds 31 July 2020 were issued with an unconditional and irrevocable guarantee provide by the parent company of the Company, Dalian Group.

Lease liabilities

The Group has adopted CAS 21 Leases (revised in 2018) (the "New Leases Standard") using a modified retrospective approach on 1 January 2019 and uses the exemptions allowed by the New Leases Standard on short-term leases and leases of low-value assets. Short-term leases are leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. Leases of assets with cost less than RMB50,000 are considered to be of low value. The Group measures the lease liability at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate and the measures the right-of-use assets at an amount equal to the lease liability, adjusted by any prepaid or accrued lease payments. As at 31 July 2020, the Group has current and non-current lease liabilities amounted to RMB54,155,000 and RMB3,106,981,000, respectively.

- I-2 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31 July 2020, the Target Group would have current and non-current lease liabilities amounted to RMB86,918,000 and RMB1,731,562,000, respectively, had the Target Group adopted the New Leases Standard and applied the above exemptions on short-term leases and leases of low-value assets allowed by the standard on 1 January 2019.

Provision

As disclosed in the Target Group's annual report for the year ended 31 December 2019, the Target Group had made provision to potential litigation loss amounted to RMB32,760,000 as at 31 July 2020.

Save as disclosed above and apart from intra-group liabilities and normal trade and other payables, at the close of business on 31 July 2020, the Enlarged Group did not have any debt securities issued and outstanding or authorized or otherwise created but unissued, term loans, bank overdrafts, mortgages, charges or similar indebtedness, hire purchase or finance lease commitments, liabilities under acceptances or acceptance credits, guarantees or other material contingent liabilities.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business of the Enlarged Group, as at 31 July 2020, the Enlarged Group did not have any other outstanding mortgages, charges, debentures, loan capital issued or agreed to be issued, bank loans and overdrafts, debt securities issued and outstanding, and authorised or otherwise created but unissued or other similar indebtedness, finance leases or hire purchase commitments, which are either guaranteed, unguaranteed, secured or unsecured, liabilities under acceptance (other than normal trade bills) or acceptance credits, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

As at the Latest Practicable Date, after due enquiry and taking into account the effect of the Possible Merger, the internal resources of the Enlarged Group and the banking facilities available to the Enlarged Group, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirement, that is for at least the next 12 months from the date of publication of this circular in the absence of unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, there was no material adverse change in the financial or trading position of the Group since 31 December 2019, being the date to which the latest published audited financial statements of the Group were made up pursuant to the Listing Rules.

- I-3 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Trading Prospects

Dalian Port and Yingkou Port are the two most important ports in Liaoning. After the Possible Merger,the Enlarged Group shall enjoy sources of goods from the former Dalian Port and Yingkou Port, and its throughput indicators of many businesses have been significantly improved. Based on the sum of the business index data of both parties to the merger, after the Possible Merger, the Enlarged Group's steel, bulk grain, ore and other cargo throughput have been increased by 359.78%, 216.15% and 127.97%, respectively, as compared to the Company before the Possible Merger. There are also significant increases in containers, coal, etc. The transaction will greatly improve the business scale of the Enlarged Group. Moreover, the Possible Merger will further exert synergies, optimize the business structure, and strengthen the resilience of the Enlarged Group and its sustainability.

Financial Outlook

Upon completion of the Possible Merger, the Enlarged Group will see the improvement in each of profit margins. The significantly enhanced indicators such as earnings per share, net assets per share and weighted average return on net assets, and the improved profitability will be conducive to protect the interests of minority shareholders. The Enlarge Group's liquidity and solvency will improve due to the significant increase of the current ratio and the quick ratio, and the decrease of the gearing ratio upon completion of the transaction.

With the release of business synergies between the Company and the Target Company in the future, the Enlarged Group's core competitiveness will be significantly promoted, and the Company's financial indicators are expected to continue to improve.

- I-4 -

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

  1. TARGET COMPANY ACCOUNTS

The following is (i) the audited consolidated financial statements of the Target Company for the financial year ended 31 December 2017, prepared in accordance with China Accounting Standard for Business Enterprise ("CAS") and audited by Huapu Tianjian Accounting Firm (華 普天健會計師事務所), as published by the Target Company on the Shanghai Stock Exchange website, and (ii) the audited consolidated financial statements of the Target Company for the financial year ended 31 December 2018, 2019 and six months ended 30 June 2020, prepared in accordance with CAS and audited by ShineWing Certified Public Accountants (信永中和會 計師事務所(特殊普通合夥)) (collectively referred to the "Target Group Historical Track Record Accounts"), as part of a regulatory report prepared in accordance with PRC regulatory requirements and as published by the Target Company on the Shanghai Stock Exchange website.

2017 Financial Report

Section XI Financial Statements

  1. AUDITOR'S REPORT
    Applicable □ Not applicable

Kuai Shen Zi [2018] No. 0211

Auditor's Report

To all Shareholders of Yingkou Port Liability Co., Ltd.,

  1. OPINION

We have audited the accompanying financial statements of Yingkou Port Liability Co., Ltd. (hereinafter referred to as "Yingkou Port"), which comprise the consolidated and parent company balance sheets as at 31 December 2017, the consolidated and parent company income statements for the year then ended, the consolidated and parent company cash flow statements for the year then ended, the consolidated and parent company statements of changes in owners' equity for the year then ended and notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and parent company's financial position of Yingkou Port as at 31 December 2017, and their financial performance and cash flows for the year then ended in accordance with the requirements of Accounting Standards for Business Enterprises ("CASs").

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

  1. BASIS FOR OPINION

We conducted our audit in accordance with China Standards on Auditing ("CSAs"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of Yingkou Port in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants ("CICPA Code"), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

III. KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

  1. Provision for bad debts of accounts receivable
    1. Description

As stated in note III. (XI) to the financial statements and note V. (III) to the financial statements, as of 31 December 2017, the balance of accounts receivable of Yingkou Port was RMB376,636,300, and the balance of provision for bad debts was RMB19,571,600. Determination of closing amount of accounts receivable requires management to identify the items and objective evidence of impairment, evaluate expected future available cash flow and determine its value, which involves significant accounting estimates and judgments of the management. Provision for bad debts of accounts receivable is important to financial statements, we therefore identify it as a key audit matter.

2. How our audit addressed the key audit matter

Our procedures in relation to provision for bad debts of accounts receivable included:

  1. Evaluating and testing management's internal control on reviewing, assessing and identifying impairment of receivables.
  2. Reviewing the reasonableness of the accounting policies and accounting estimates in relation to provision for bad debts of accounts receivable.
  3. For individually significant accounts receivable, reviewing the basis for management's estimate and judgment of the expected future recoverable cash flows.

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

  1. For accounts receivable with provision for bad debts made on the grouping basis of credit risk characteristics, evaluating the reasonableness of provision for bad debts with reference to credit risk characteristics and aging analysis.
  2. Requesting confirmations for significant balance of accounts receivable, and reconciling the result for the returned confirmation with the company's account.
  3. Performing confirmation procedures and inspecting the accounts receivable recovered subsequent to the year end date to evaluate the reasonableness of management's provision for bad debt.
  4. Performing research on information about the debtor or its industry development status through public sources to identify whether there is any situation that affects the assessment results of provision for bad debts of accounts receivable.

Based on the above procedures performed, we believe that the judgement made by the management of Yingkou Port in assessing the provision for bad debts of accounts receivable is appropriate.

  1. Related parties and related transactions
    1. Description

As stated in note IX to the financial statements, as of 31 December 2017, Yingkou Port had large transactions with its related parties. Since the truthfulness of related transactions and the fairness of transaction prices have a significant impact on fair presentation of the financial statements, we identified related transactions as key audit matters.

2. How our audit addressed the key audit matters

Our procedures in relation to the related parties and related transactions included:

  1. Evaluating and testing the internal controls of Yingkou Port on identifying and disclosing of related party relationships and related transactions.
  2. Obtaining a list of related parties and related transactions provided by the management, and implementing the following procedures:
    • Checking the list of related parties against the information obtained from other public sources.

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

  • Inquiring and analyzing whether the main customers or suppliers are related parties through public sources such as National Enterprise Credit Information Publicity System to identify whether there are undisclosed related transactions.
  • Carrying out audit procedures such as inspection, confirmation, inventory count and inquiry to verify the truthfulness of related transactions.
  • Judging the fairness of related transaction prices by comparing sales prices of related parties with purchase prices of similar products of non-related parties or market prices of similar products.
  • Reviewing the presentation and disclosure of related transactions in the financial statements.

Based on the above procedures performed, we believe that the disclosure of related parties and related transactions by the management of Yingkou Port is appropriate.

  1. Pending litigation
    1. Description

As stated in note XI. (II) to the financial statements, Kunlun International Trading Limited (昆侖國際貿易有限公司) filed a lawsuit with Dalian Maritime Court on the rejection of its application for delivery of goods, requesting Yingkou Port to compensate for a loss of RMB285.60 million and accrued interest. In view of the fact that the possible outcome of the case and its possible impact on the financial statements involves significant judgments and estimates by the management before such case has been decided or withdrawn, we identify it as a key audit matter.

2. How our audit addressed the key audit matter

Our procedures in relation to the above pending litigation included:

  1. Obtaining the indictment and all kinds of responses and defense documents related to the above outstanding litigation.
  2. Communicating the particulars of the lawsuit with the management and legal personnel of Yingkou Port, and assessing whether the management's judgment on the possible outcome of the case is reasonable and based on sufficient evidence.
  3. Obtaining professional advice from external lawyers on such pending litigation.

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Dalian Port (PDA) Company Limited published this content on 10 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 September 2020 08:34:17 UTC