Circular of Discloseable and Connected Transactions

ZHEJIANG EXPRESSWAY CO LD - Circular of Discloseable and Connected Transactions

PR Newswire

London, May 15

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Independent Shareholders of

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A letter from the Board is set out on pages 7 to 26 of this circular.

A letter from the Independent Board Committee is set out on page 27 of this circular.

A letter from ABCI Capital Limited, the Independent Financial Adviser, containing its recommendations to theIndependent Board Committee and the Independent Shareholders is set out on pages 28 to 42 of this circular.

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Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Letter from ABCI Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Appendix I - Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Appendix II - Traffic Study Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Appendix III - Letters Relating to Discounted Future Estimated Cash Flows . . . . . . . . . . . . . . . . . 110

Appendix IV - General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Notice of AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

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In this circular, unless the context specifies otherwise, the following expressions shall have the meaningsstated below:

the Shareholders of the Company to be

among other things, the approval by the

Acquisitions, the notice of which is set

Circular

Company of a 66.283% and a 10.267%

Company from Communications Group and

pursuant to the Acquisition Agreements

and the Yiwu Agreement

the Service Area Operation Agreement,

Services Agreement and the Road Clearance

Company "associate(s)" has the

Listing Rules "Board" the Board of

Sunday or a public holiday in the

open for business in the PRC

Group Co., Ltd., a wholly State-owned

and the controlling shareholder of

"Communications Group Acquisition" the proposed sale and purchase of a 66.283% equity interest in the

Communications Group Agreement

entered into between the Company and

which the Company conditionally

Communications Group a 66.283% equity interest

Agreements, or either of them (as the

Communications Finance provided to the Target

amount of RMB70,000,000 during the term

principal amount of up to RMB1 billion

the share capital of the Company

share, which are listed on the Main

Administrative Region of the PRC

"Independent Financial Adviser" ABCI Capital Limited, a licensed corporation licensed to conduct

type 6 (advising on corporate

under the SFO and the independent

Independent Board Committee and the

respect of the Acquisitions

within the meaning of the relevant

and, in relation to the approval of

connected with the Company, any of its

respective directors or substantial

Expressway Construction Investments Co., Ltd.,

incorporated in the PRC and the predecessor

Ningbo-Jinhua Expressway, starting from

Chengzhou City and Dongyang City and

Jindong District, Jinhua City with

69.7 km

Appraisal Advisory Limited, an

the Company

Securities on the Stock Exchange

practicable date for ascertaining certain

Circular

RMB170,000,000 each granted by

Communications Finance to the Target

Agreements, and one loan of a maximum

Zhejiang Communications Finance to

Credit Agreement

February 2013 entered into among the Target

Zhejiang Communications Finance with the

Communications Group entrusted Zhejiang

to the Target Company a loan for the

under each agreement during the term of

2012 entered into between the Target

connection with the provision of certain

Jinhua Section of the Ningbo-Jinhua

Agreement and the New Service Area Utilities

between the Target Company and Zhejiang

completion of the Communications Group

operation in the Dongyang Service Area,

other things, petrol station services,

services, vehicle repair services

between the Target Company and Zhejiang

Investment upon completion of the Communications

with the provision of utilities facilities

Service Area such as car park, washroom,

connecting Ningbo City, Shaoxing City and Jinhua

total length of 185 km

under Rule 14.04(9) of the Listing Rules

(for the purpose of this Circular, excludes

appointed by the Communications Group

the PRC Domestic Valuer and commissioned

respect of the Target Company

the PRC

2011 entered into between the Target Company

Hangjinqu Jinhua Management Office, in

certain road clearance and emergency

Section of the Ningbo-Jinhua Expressway

"Service Area Operation Agreement" the agreement dated 30 December 2010 entered into between the Target Company

Investment, in connection with the operation in

including, the provision of, among other things,

services, supermarket services, vehicle

2010 entered into between the Target Company

Investment, in connection with the provision of

in the Dongyang Service Area such as car

(Chapter 571 of the Laws of Hong Kong)

Co., Ltd., a limited liability company

as to 66.283%, 23.45% and 10.267% by

and Yiwu Development respectively

Corporate Bonds promulgated by the CSRC

forecasts report dated March 2013 prepared

traffic and toll revenue study of the

Ningbo-Jinhua Expressway

date adopted in the Valuation Report

March 2013 prepared by Jones Lang LaSalle

respect of the Target Company

"Wilbur Smith" or "consulting firm" Wilbur Smith Associates, an independent traffic consultant appointed by

a 10.267% equity interest in the Target

Agreement

entered into between the Company and

which the Company has conditionally agreed

a 10.267% equity interest in the

Co., Ltd., a limited liability company

Independent Third Party

Investments Holdings Co., Ltd., a limited liability

and the predecessor of Yiwu Operations

Co., Ltd., a limited liability company

Group Co., Ltd. Hangjinqu Branch Jinhua

Management, the Jinhua Management Office

Communications Group

Group Industrial Development Co., Ltd.

and a wholly-owned subsidiary of

Administration Commission of the People's

the PRC

Expressway Maintenance Co., Ltd., a company

indirectly-owned subsidiary of Communications

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2. DISCLOSEABLE AND CONNECTED TRANSACTIONS

The consideration for the 66.283% equity interest in the Target Company is RMB655,356,327 (equivalent

to approximately HK$809,081,885), and will be payable by the Company in cash within 5 business days

The consideration payable by the Company under the Communications Group Agreement was determined on

the assumption that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved

will be 25 years. As at the date of the Communications Group Agreement and the Latest Practicable Date,

the toll collection rights period of the Ningbo-Jinhua Expressway is pending final approval by the

relevant PRC governmental authorities. It is expected that such approval will be granted before 31 December

2013 and in the event that the toll collection rights period of the Ningbo-Jinhua Expressway as finally

approved is different from 25 years, Communications Group and the Company have agreed to enter into a

supplemental agreement to adjust downward the consideration with reference to the valuation of the Target

Company to be carried out by the PRC Domestic Valuer (please see paragraph (3) "Basis of consideration"

below) taking into account the difference of the toll collection rights period. In the event that the

consideration under the Communications Group Agreement is so adjusted, the Company will comply in due

course with such reporting, announcement and independent shareholders' approval requirements under Chapters

(i) approval of the Communications Group Agreement by the Board and the board of directors of

(ii) approval by the Company's Independent Shareholders of the Communications Group Acquisition

and

(iii) approval of the Zhejiang SASAC having been obtained in connection with the Communications

Completion of the Communications Group Agreement is not conditional upon the completion of the Yiwu

Agreement.

If any of the above conditions shall not have been fulfilled on or before 31 December 2013, either party

is entitled to terminate the Communications Group Agreement by giving written notice to the other party.

As at the Latest Practicable Date, the condition under paragraph (i) above has been satisfied and the

Company is not entitled to to waive any of above conditions under the Communications Group Agreement.

Effective date

The Communications Group Agreement will become effective upon satisfaction of all the conditions

mentioned under "Conditions precedent" above. The parties have agreed, however, that if at any

time after the Communications Group Agreement becomes effective any relevant PRC governmental

department with authority over the agreement seeks to revoke such agreement so as to render

performance of the Communications Group Agreement impossible, the parties will terminate the

Communications Group Agreement and Communications Group will be required to repay all amounts

already paid by the Company under this agreement together with interest at the prevailing bank

lending interest rate promulgated by the People's Bank of China for the same period.

The parties have agreed under the Communications Group Agreement that, within 120 days after

the completion of the Communications Group Agreement, the Company will inject additional capital into the

Target Company so that the Target Company can fully repay the Loans granted by Communications Group and

Zhejiang Communications Finance to the Target Company. The Communications Group Agreement does not

expressly stipulate the amount of capital injection but based on its own estimate, the Company plans

to make a capital injection of up to RMB1,400,000,000 into the Target Company so that the Target Company

will apply such capital to fully repay its interest-bearing loans (including, but not limited to, the

Loans under the Loan Agreements and the Credit Agreement to the Communications Group). The Company plans

The parties have agreed that, upon completion of the Communications Group Agreement, the Target Company

shall enter into the New Ancillary Agreements which shall replace and supersede the existing Ancillary

Agreements (other than the Maintenance Work Agreement which will continue and the Road Clearance and

The consideration for the 10.267% equity interest in the Target Company is RMB101,512,354 (equivalent

to approximately HK$125,323,894), and will be payable by the Company in cash within 5 business

The consideration payable by the Company under the Yiwu Agreement was determined on the assumption

that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved will be

25 years. As at the date of the Yiwu Agreement and the Latest Practicable Date, the toll collection

rights period of the Ningbo-Jinhua Expressway is pending final approval by the relevant PRC governmental

authorities. It is expected that such approval will be granted before 31 December 2013 and in the event

that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved is different

from 25 years, Yiwu Development and the Company have agreed to enter into a supplemental agreement

to adjust downward the consideration with reference to the valuation of the Target Company to be

carried out by the PRC Domestic Valuer (please see paragraph (3) "Basis of consideration" below) taking

into account the difference of the toll collection rights period. In the event that the consideration

under the Yiwu Agreement is so adjusted, the Company will comply in due course with such reporting,

announcement and independent shareholders' approval requirements under Chapters 14 and 14A of the

(i) the Communications Group Agreement becoming unconditional in accordance with its terms and its

(ii) approval of the Yiwu Agreement by both the Board and the board of directors of Yiwu Development

(iii) approval by the Company's Independent Shareholders of the Yiwu Acquisition having been obtained

Acquisition by the shareholders

(iv) approval of the Zhejiang SASAC having been obtained in connection with the Yiwu Agreement.

If any of the above conditions shall not have been fulfilled on or before 31 December 2013, either

party is entitled to terminate the Yiwu Agreement by giving written notice to the other party.

As at the Latest Practicable Date, the condition under paragraph (ii) above has been satisfied and

the Company is not entitled to waive any of above conditions under the Yiwu Agreement.

The Yiwu Agreement will become effective upon satisfaction of all the conditions mentioned under

"Conditions precedent" above. The parties have agreed, however, that if at any time after the Yiwu

Agreement becomes effective any relevant PRC governmental department with authority over the agreement

seeks to revoke such agreement so as to render performance of the Yiwu Agreement impossible, the

parties will terminate the Yiwu Agreement and Yiwu Development will be required to repay all amounts

already paid by the Company under this agreement together with interest at the prevailing bank

The consideration of RMB655,356,327 (equivalent to approximately HK$809,081,885) under the Communications

Group Agreement and RMB101,512,354 (equivalent to approximately HK$125,323,894) under the Yiwu Agreement

were determined based on arm's length negotiations between the Company and Communications Group and Yiwu

Development, respectively.

A number of factors were considered by the parties when determining the consideration of the Communications

Group Agreement and the Yiwu Agreement, including, amongst others, the Valuation Report prepared by Jones

Lang LaSalle, as well as the PRC Valuation Report prepared by the PRC Domestic Valuer and commissioned by

the Communications Group pursuant to the requirements of Zhejiang SASAC and relevant PRC laws and

regulations.

The Company relied on the Valuation Report when determining the consideration under the Acquisition

Agreements, pursuant to which the appraised value of the entire equity interest of the Target Company

as at 30 September 2012 was RMB1,026,000,000. The Communications Group relied instead on the PRC Valuation

Report when determining the consideration under the Communications Group Agreement, pursuant to which the

appraised value of the entire equity interest of the Target Company as at 30 September 2012 was

RMB988,700,000. The Company did not appoint the PRC Domestic Valuer, nor was the Company involved in the

preparation of the PRC Valuation Report. The Company and Communications Group and Yiwu Development then

agreed on the final consideration payable under the Acquisition Agreements following arm's length

negotiations.

The Acquisitions constitute a transfer of State-owned assets in the PRC and therefore require the approval

by the Zhejiang SASAC in accordance with the relevant PRC laws and regulations. As at the Latest

Practicable Date, the PRC Valuation Report commissioned by the Communications Group has been submitted to

Zhejiang SASAC for registration.

(4) Principal assumptions for the income approach adopted for the Valuation Report

The appraised value of the entire equity interest of the Target Company under the Valuation Report was

prepared using the income approach based on the discounted cash flow method. As a result, such valuation

constitutes a profit forecast under Rule 14.61 of the Listing Rules. Therefore, this Circular is

subject to the requirements under Rules 14.60A and 14.62 of the Listing Rules in relation to profit

forecast.

As required under Rule 14.62(1) of the Listing Rules, details of the key assumptions used in determining

the value of the entire equity interest in the Target Company upon which the Valuation Report was issued

are set out below:

-- The projected business of the Target Company can be achieved with the effort of the management

of the Company.

-- In order to realise the growth potential of the business of the Target Company and maintain a

competitive edge, additional manpower, equipment and facilities are necessary to be employed and

that the facilities and systems of the Target Company are sufficient for future expansion.

-- There will be no material change in the existing political, legal, technological, fiscal or economic

conditions, which might adversely affect the business of the Target Company.

-- The operational and contractual terms stipulated in the relevant contracts and agreements of the Target

Company will be honoured.

-- Copies of the operating licences and company incorporation documents provided to Jones Lang LaSalle by

the Target Company are reliable and legitimate.

-- Natural weather can have an impact on toll roads, including flooding and other types of extreme

weather, which may force toll roads to close, and that no extended closure will occur to the toll

roads managed by the Target Company.

-- The accuracy of the financial and operational information provided to Jones Lang LaSalle by the Target

Company.

-- Share capital injections and shareholder's loans will be made to the Target Company when necessary.

-- Additional working capital requirement is minimal.

-- The effective income tax rate is assumed to be 25% and the Target Company is assumed to start paying

tax from 2017.

-- Interest expenses are calculated based on the long term borrowing rate of the loan agreements of the

Target Company.

-- The following assumptions in connection with depreciation were adopted:

(i) Road and Structures: traffic volume method, depreciation period of 25 years, residual value of 0%;

(ii) Buildings and Structures: unit-of-usage method, depreciation period of 26 years, residual value

(iii) Special Equipments: unit-of-usage method, depreciation period of 10 years, residual value of 5%;

(vi) Transportation Facilities: unit-of-usage method, depreciation period of 8 years, residual value

(v) General Facilities: unit-of-usage method, depreciation period of 5 years, residual value of 5%.

-- Cost of goods sold was forecasted based on the historical average of principal business costs related

to the maintenance of road, including operating cost, road maintenance cost, system maintenance cost

and other related costs provided by Jinhua Yongjin. Each component of the cost of goods sold was

projected to be a declining percentage of Jinhua Yongjin's annual revenue based on the assumption

that Jinhua Yongjin's revenue will increase while the monetary amount of each component of the cost of

goods sold will remain relatively stable.

-- Total operating expenses include selling expenses and administrative expenses (which include

employee, administration, and depreciation and amortization fees). Based on the historical information

provided by the management of Jinhua Yongjin in relation to Jinhua Yongjin's operating expenses, the

selling expenses was forecasted to be zero, and the administrative expenses was forecasted to be 2%

of Jinhua Yongjin's annual revenue from 2012 to 2016 and 1% of Jinhua Yongjin's annual revenue from

2017 to 2030.

Deloitte, acting as the reporting accountants of the Company, has examined the calculations of the

discounted future estimated cash flows in which the Valuation Report is based, which do not involve the

adoption of accounting policies in its preparation.

The Directors confirm that the valuation of the entire equity interest of the Target Company in the Valuation

Report, which constitutes a profit forecast under Rule 14.61 of the Listing Rules, has been made after due

and careful enquiry.

Based on the opinion of Jones Lang LaSalle, the Directors consider that the assumptions used in determining

the value of the entire equity interest in the Target Company upon which the Valuation Report was issued

are fair and reasonable.

A letter from Deloitte in compliance with Rule 14.62(2) of the Listing Rules and a letter from the Board

in compliance with Rule 14.62(3) of the Listing Rules are included in Appendix III to this Circular.

To the best of the Directors' knowledge, information and belief, Deloitte is an Independent Third Party.

(5) Original cost of the 66.283% and the 10.267% equity interest in the Target Company to Communications

Group and Yiwu Development respectively

Upon establishment of Jinhua Jinyong Investments (the predecessor of the Target Company) in February

2002, its registered capital was RMB200,000,000.

In September 2002, Communications Group acquired a 58.33% equity interest in Jinhua Jinyong Investments

by contributing RMB280,000,000 to the increased registered capital of Jinhua Jinyong Investments of

RMB480,000,000. In September 2003, the name of Jinhua Jinyong Investments was changed to its present

name. In September 2004, the Target Company's registered capital was increased by RMB80,000,000 and,

not having made any further capital contribution to the Target Company, the equity interest in the

Target Company owned by Communications Group was consequently diluted to 50%. In April 2005,

the Target Company's registered capital was further increased to RMB800,000,000 and, not having made

any further capital contribution to the Target Company, the equity interest in the Target Company

owned by Communications Group was further diluted to 35%. In March 2007, the Company acquired 23.45%

equity interest in the Target Company from two former shareholders of the Target Company at a total

consideration of RMB281,400,000. In February 2009, Communications Group acquired a 30% equity

interest in the Target

Company from a former shareholder of the Target Company at a consideration of RMB240,000,000. In

June 2010, Communications Group acquired a 1.283% equity interest in the Target Company by contributing

RMB7,655,000 to the increased registered capital of the Target Company of RMB900,000,000.

Upon establishment of Jinhua Jinyong Investments (the predecessor of the Target Company) in February 2002,

Yiwu Investments (the predecessor of Yiwu Operations) acquired a 33% equity interest in Jinhua Jinyong

Investments by contributing RMB66,000,000 to its registered capital. In September 2004, Yiwu Investments

(the predecessor of Yiwu Operations) made a further capital contribution of RMB26,400,000 to the Target

Company. In April 2009, the name of Yiwu Investments was changed to its present name and in the same

year, Yiwu Operations transferred its capital contributions in the Target Company in the total amount of

RMB92,400,000 to Yiwu Development. The registered capital of the Target Company was increased as

described above and, not having made any further capital contribution to the Target Company, the

equity interest in the Target Company owned by Yiwu Development was consequently diluted to 10.267%.

3. INFORMATION ON THE TARGET COMPANY

For the year ended 31 December

5. REASONS FOR AND BENEFITS OF THE ACQUISITIONS

6. INFORMATION ON THE COMPANY, COMMUNICATIONS GROUP AND YIWU DEVELOPMENT

7. EXEMPT CONNECTED TRANSACTIONS AND NEW CONTINUING CONNECTED TRANSACTIONS

(1) New Continuing Connected Transactions

As at the Latest Practicable Date, the Target Company is a party to each of the Ancillary Agreements.

Since the terms of the existing Ancillary Agreements (other than the Maintenance Work Agreement) do not

conform with the requirements of Chapter 14A of the Listing Rules relating to continuing connected

transactions, including that they must be on normal commercial terms, it is proposed that, upon completion

of the Communications Group Agreement, the Road Clearance and Emergency Service Agreement will terminate

and the Target Company will enter into the New Ancillary Agreements (which comply with the relevant

Listing Rules requirements) to replace and supersede the existing Ancillary Agreements (other than the

Maintenance Work Agreement which will continue and the Road Clearance and Emergency Service Agreement which

will terminate). By virtue of the counterparties of each of the New Ancillary Agreements and the Maintenance

Work Agreement being subsidiaries (and hence associates) of Communications Group, the New Ancillary

Agreements and the Maintenance Work Agreement would have each constituted a continuing connected transaction

for the Company under Chapter 14A of the Listing Rules. As each of the applicable percentage ratios under

the Listing Rules for the New Ancillary Agreements and the Maintenance Work Agreement, individually or

in aggregate, is less than 0.1%, such transactions are exempt from the reporting, announcement, annual review

and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

A brief description of the Maintenance Work Agreement and each New Ancillary Agreement is set out below:

Maintenance Work Agreement

As at the Latest Practicable Date, the Target Company is a party to the Maintenance Work Agreement in

connection with the provision by Zhejiang Shunchang of certain maintenance work in respect of the Jinhua

Section of the Ningbo-Jinhua Expressway to the Target Company. The Maintenance Work Agreement has a term

of three years from 1 January 2013 to 31 December 2015 and the Target Company has agreed to pay an annual

fee of RMB5,366,206 (or RMB16,098,618 for all three years) for the maintenance work performed over this

Upon completion of the Communications Group Agreement, the Target Company and Zhejiang Communications

Investment will enter into the New Service Area Operation Agreement, in connection with the operation in the

Dongyang Service Area, including, the provision of, among other things, petrol station services, catering

services, supermarket services, vehicle repair services. The term of the New Service Area Operation Agreement

is for three years. Zhejiang Communications Investment will be entitled to 20% of the annual profits

recognised by it through managing the Dongyang Service Area if the amount of such profits is not more

than RMB3,762,479, and 80% of any additional profits which is more than RMB3,762,479 in that year. The

rest of the profits will be paid to the Target Company. The Target Company will not be required to make

any payment to Zhejiang Communications Investment under the New Service Area Operation Agreement.

New Service Area Utilities Services Agreement

Upon completion of the Communications Group Agreement, the Target Company and Zhejiang Communications

Investment will enter into the New Service Area Utilities Services Agreement, in connection with the provision

of utilities facilities and services in the Dongyang Service Area such as car park, washroom, lounge area.

The term of the New Service Area Utilities Services Agreement is for three years. The Target Company will be

required to pay an annual fee of RMB600,000 to Zhejiang Communications Investment for the services provided

As at the Latest Practicable Date, the Target Company is a party to each of the Loan Agreements and the

Credit Agreement pursuant to which (in the case of the Loan Agreements) Communications Group agreed to entrust

Zhejiang Communications Finance to provide, and (in the case of the Credit Agreement) Zhejiang Communications

Finance agreed to provide, to the Target Company the Loans in the total maximum amount of RMB410,000,000

(equivalent to approximately HK$506,172,840) at an interest rate of (in the case of the Loan Agreements)

5.24% per annum and (in the case of the Credit Agreements) 5.40% per annum respectively. The term of the

Loan Agreements is from 28 February 2013 to 10 August 2015 and they shall be repaid in full at the end of

the term. The term of the Credit Agreement is from 8 March 2013 to 7 March 2014 and it shall also be repaid

in full at the end of the term. The Target Company, with written consent of the Communications Group, may

prepay the Loan Agreements subject to the payment of applicable interests to be calculated on the basis of

the actual number of days and the amount utilised under the Loan Agreements. The Target Company may also

prepay the Credit Agreement after obtaining written consent of Zhejiang Communications Finance and subject

to the payment of applicable interests to be calculated on the basis of the actual number of days and the

amount utilised under the Credit Agreement. The Loans were granted on the credit of the Target Company and

no security was granted by the Target Company to Communications Group or Zhejiang Communications Finance to

secure the Loans.

As at the Latest Practicable Date, the Target Company has utilised the full amount of the Loans under the

Loan Agreements and the Credit Agreement.

Upon completion of the Acquisitions, the Target Company will become a wholly-owned subsidiary of the

Company and the Loan Agreements and the Credit Agreement will constitute a connected transaction for

the Company under Chapter 14A of the Listing Rules. As the Loan Agreements and the Credit Agreement

will constitute financial assistance provided by a connected person for the benefit of a wholly-owned

subsidiary of the Company on normal commercial terms where no security over the assets of the Target

Company is granted in respect of the Loan Agreements or the Credit Agreement, the transactions

thereunder are exempt from the reporting, announcement, annual review and independent shareholders'

approval requirements under Chapter 14A of the Listing Rules.

8. RELATIONSHIP BETWEEN THE PARTIES AND LISTING RULES IMPLICATIONS

9. PROPOSED ISSUE OF DOMESTIC CORPORATE BONDS IN THE PRC

Details of the terms of the proposed Domestic Corporate Bonds as approved by the Board (which are stillsubject to the approval of the Shareholders at the AGM and the approval of the CSRC) are set forth below:

(3) Aggregate principal amount: Up to RMB1 billion, which can be issued in single or

the approval of the CSRC.

authority by the Shareholders to the

issue size and tranches are intended

according to the financial

market conditions prevailing at

Corporate Bonds may be issued in

with different maturity. Subject to

the Shareholders to the Board at the

size of each tranche are intended

according to the requirements of the

prevailing at the time of issue.

issue of the Domestic Corporate Bonds

Company to improve its capital structure

capital of the Company. Subject to the

Shareholders to the Board at the AGM,

are intended to be determined by the

financial conditions of the Company.

trading of the Domestic Corporate

fulfillment of relevant listing requirements)

Stock Exchange as soon as practicable

proposed issue of the Domestic Corporate

of relevant regulatory authorities,

trading of the Domestic Corporate Bonds

exchange(s) permitted by applicable laws.

resolutions to be passed at the AGM in

of Domestic Corporate Bonds, if

months from the date of passing of the

AGM.

(1) to formulate specific plan and terms for the issue of the Domestic Corporate Bonds according to the

requirements of the relevant laws and regulations, the Shareholders' resolutions passed at the AGM and market

conditions, including but not limited to the issue size, maturity, type of bonds, interest rate and method

of determination, timing of issue (including whether to issue in tranches and their respective size and

maturity), security plan, whether to allow repurchase and redemption, use of proceeds, rating, subscription

method, term and method of repayment of principal and interests, listing and all other matters relating

to the issue and listing of the Domestic Corporate Bonds;

(2) to appoint intermediaries in connection with the listing applications of the Domestic Corporate Bonds and

the actual listing of the bonds; including but is not limited to the authorisation, execution, performance,

variation and completion of all necessary documents, contracts and agreements (including, among others,

prospectus, subscription agreement, underwriting agreement, trustee deed, listing agreement, announcements

and other legal documents) and other relevant disclosures as required by relevant laws and regulations;

(3) to appoint a trustee for the proposed issue of the Domestic Corporate Bonds, to execute relevant trust

deed and to determine rules for meetings of holders of the Domestic Corporate Bonds;

(4) subject to any matters which require Shareholders' approval, to make appropriate adjustments to the proposal

for the proposed issue and terms of the Domestic Corporate Bonds in accordance with the comments (if any)

from the relevant PRC regulatory authorities; and

(5) in the event of the Company's expected failure to repay the principal and interests of the Domestic

Corporate Bonds as scheduled or when such amounts fall due, to implement, as a minimum, the following

(b) to postpone the implementation of capital expenditure projects such as material investments,

(c) to reduce or discontinue the payment of salaries and bonuses of the Directors and senior

(6) to deal with any other matters relating to the proposed issue and listing of the Domestic Corporate Bonds;

(7) subject to the term of validity of the Shareholders' resolutions as mentioned above, the authority

granted to the Board to deal with the above matters will take effect from the date of the passing of

the relevant Shareholders' resolution at the AGM until all the authorized matters in relation to the

proposed issue of the Domestic Corporate Bonds have been completed; and

(8) at the same time as the authorities mentioned under paragraphs (1) - (6) above are granted, the Board

shall be authorised to delegate to Mr. Wu Junyi, the chief financial officer of the Company, the powers

to deal with all specific matters relating to the proposed issue and listing of the Domestic Corporate

Bonds within the limit of the authorities granted to the Board as mentioned above.

You will find on pages 118 to 123 of this Circular a notice of the AGM to be held at 12/F, Block A,Dragon Century Plaza, 1 Hangda Road, Hangzhou, Zhejiang Province, the PRC on Friday, 21 June 2013 at 3 p.m.

11. CONCLUSIONS AND RECOMMENDATIONS

A report on the valuation of the entire equity interest in the Target Company has been prepared by Jones LangLaSalle and is set out in Appendix I of this Circular.

A report on the traffic and revenue of the Jinhua Section of Ningbo-Jinhua Expressway has been prepared byWilbur Smith and is set out in Appendix II of this Circular.

faithfully, For and on behalf of

Zhejiang Expressway Co., Ltd.

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COMMITTEE

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To the Independent Shareholders

Your attention is also drawn to the letter from the Board set out on pages 7 to 26 of the Circular and theadditional information set out in the appendices to the Circular.

Independent non-executive Independent non-executive Independent non-executive

Director

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To the Independent Board Committee and the Independent Shareholders of

Zhejiang Expressway Co., Ltd.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendations regarding the Communications Group Acquisition and the YiwuAcquisition, we have considered the following principal factors and reasons:

1. Background to and reasons for entering into the Acquisition Agreements

1.1 Background of the Group

and operating high-grade roads in

as automobile servicing, operation of

well as securities related business. The

Hangzhou-Ningbo Expressway and the Shangsan

As at 31 December 2012, the total length

consolidated financial results for the years

Note: It represents revenue after deducting the sales related taxes.

business segment of the Group. For

Group's expressway operations accounted

respectively, while the profit after

approximately 82.0% and 87.6% of the Group's

nature of service area and

would account for approximately

the years ended 31 December 2011

business accounted for

tax, respectively.

1.2 Background of the Target Company and expressway assets held by the Target

established in the PRC on 8

It is principally engaged in the operation

Expressway, which commenced operation since December

Shenyang-Haikou Expressway within the State

Zhejiang Province, connecting to Hangjinqu

Ningbo-Jinhua Expressway, under the Target

Chengzhou City, Dongyang City, Yiwu

approximately 69.7 km. In 2012, Jinhua

daily traffic volume of 12,084 vehicles

toll collection rights period of the

relevant governmental authorities. In

the toll collection rights period

extracted from the Target Company's

2011 and 2012 prepared by its PRC statutory

Note: It represents revenue after deducting the sales related taxes.

revenue although still operating

Target Company achieved a revenue of

respectively, representing an increase of

Company incurred a loss of

representing a decrease of

that it is normal for an

stage of its operation due

Notwithstanding the loss of its

relatively well in terms of EBITDA.

Target Company amounted to

respectively, representing an increase of

Chinese Communist Party Central

7% annually over the 12th Five-Year-Plan

accelerated industrialization, greater demand for

market activity and circulation of labor

Transport" published by the Ministry of

necessities to facilitate national economic

this growing trend. The table below

rate of Zhejiang Province and the PRC

Real GDP growth rate - Zhejiang Province 13.9 14.7 10.1 8.9 11.9 9.0 8.0Real GDP growth rate - the PRC

48.3 50.0 51.3 NA

Note: Urbanization rate represents the percentage of urban population to total population.

Source: National Bureau of Statistics of China, Zhejiang Provincial Bureau of Statistics

Zhejiang Province", Zhejiang

level of urbanization with the rate

urban integration development in Zhejiang

Year-Plan period. Because of the

believed that the transportation in Zhejiang

infrastructure construction, traffic consolidation

Section of the Ningbo- Jinhua

December 2011 and 2012:

daily traffic volume (vehicle/day)

Jinhua Section of the Ningbo- Jinhua

growth rate for the year ended 31 December

Jinhua Section of the Ningbo-Jinhua

II in the Circular prepared by Wilbur

"Traffic Consultant"), the average daily traffic

projected to increase from 12,084 vehicles

approximately 6.38%. Upon completion of the

expressways under management by approximately

the Ningbo- Jinhua Expressway is projected

1.6 Reasons and benefits for entering into the Acquisition Agreements

of the Acquisitions, the total length

approximately 389.6 km to approximately 459.4 km.

Acquisitions which help to increase the

Province. Jinhua Section of

Ningbo-Jinhua Expressway (which is managed

owns 50% equity interest), and

Directors believe that the Acquisitions

advantages in toll operation and to

are in line with the Company's

Group's strategy to continue seeking

for the steady development of the Company.

and Waterborne Transport" published by

Ningbo-Jinhua Expressway is regarded as a "Golden link"

major expressways in Ningbo, Shaoxing and Jinhua

Shangsan Expressway and Zhuyong Expressway and to

to establish strong business presence in

similar acquisition strategy in the past

Zhejiang Province. In July 2012, the Company

Expressway Co., Ltd, which owns the toll

Expressway, located in Xinchang City and

Section of the Ningbo-Jinhua Expressway.

Company since June 2007. Upon

wholly- owned subsidiary, which enables

Expressway. The Target Company could in

operation. We concur with the Directors'

development strategy. We note that the toll

Expressway is pending final approval by

the Target Company's operations. In this

agreed to enter into supplemental agreements

reference to the revised valuation of

toll collection rights period. The Directors

mitigate the uncertainty brought by the

worth noting that the Group has strong level

Acquisitions will better utilize its cash

particular to those projects which the

strategy, the Group's management control over

traffic volume projection by the Traffic

performance of the Target Company, we consider

reasonable under the Group's present development.

after arm's length negotiations amongst the

taken into account a number of factors,

including, amongst others, the Valuation Report by Jones Lang LaSalle, as well as the PRC Valuation Report

by the PRC Domestic Valuer. As stated in the Letter from Board, the Company appointed and relied on

Jones Lang LaSalle to carry out a valuation in respect of the Target Company. As at 30 September 2012,

the appraised value of the Target Company amounted to approximately RMB1,026.0 million (the

"JLL Valuation"). Details of the Valuation Report are set out in Appendix I in this Circular.

It is noted that pursuant to the relevant PRC laws and regulations, the Acquisitions as a transfer of

State-owned asset requires approval from Zhejiang SASAC. In this connection, Communications Group also

appointed the PRC Domestic Valuer to prepare the PRC Valuation Report to meet the requirement of

Zhejiang SASAC. As at 30 September 2012, the PRC appraised value of the entire equity of the Target

Company was approximately RMB988.7 million (the "PRC Valuation"). It is noted that such PRC Valuation

Report has already been submitted to Zhejiang SASAC for registration.

and the Yiwu Acquisition (collectively the

"Considerations") amounted to approximately RMB655.4 million and RMB101.5 million, respectively, which

represent a discount of approximately 3.7% to the respective equity values under the JLL Valuation.

Notwithstanding the fact that the Considerations appears in par with the appraised equity values under

the PRC Valuation, the Directors confirm that the Company relies on the JLL Valuation instead of the

PRC Valuation in accessing the Consideration. In this aspect, the Directors confirm that Company has

no appointment relationship with the PRC Domestic Valuer. In addition, the Company did not involve in

the preparation of the PRC Valuation Report. The Directors consider that the PRC Valuation Report is

mainly for the use of Communications Group and Zhejiang SASAC.

extent, was evaluated with reference to the

Traffic Study Report. For the purpose of assessing whether the JLL Valuation could provide a benchmark

to assess the fairness and reasonableness of the Considerations, we have reviewed the Valuation Report

and the Traffic Study Report and have interviewed Jones Lang LaSalle and the Traffic Consultant

regarding the basis of preparation of their respective reports. We also note from our discussions

that Jones Lang LaSalle has the required experience in performing the valuation of the expressway

assets while the Traffic Consultant has the required experience in performing the forecast studies

generally accepted valuation approaches,

namely the market approach, cost approach and income approach in arriving at the JLL Valuation.

Jones Lang LaSalle considers that the market approach is inappropriate as they have not identified

any current market transactions which are comparable to the Acquisitions given that market transactions

on expressway assets tend to have very different transaction prices considering a number of factors

including geographical areas, toll rates and traffic, and operating stages and status of the

expressway assets. Jones Lang LaSalle also considers that the cost approach is inappropriate since

the toll road operation requires specific expertise and this approach does not directly incorporate

information about the economic benefits derived from the intangible assets of the Target Company such

as enterprise skills and management team.

discounted cash flow method ("DCF") under the

income approach to derive a present fair value from the future value of the Target Company's business.

This method eliminates the discrepancy in time value of money by using a discount rate to reflect all

business risks including intrinsic and extrinsic uncertainties in relation to the Target Company's

business. Based on the previously mentioned analysis, we concur with the views of Jones Lang LaSalle

that DCF is an appropriate method in valuing the Target Company based on the facts that (i) the

recurring nature of the toll revenue derived from the assets held by the Target Company; and (ii) DCF

is the most commonly used valuation method in valuing infrastructure project.

the Target Company, it is necessary to

determine an appropriate discount rate for the assets under review. We note that Jones Lang LaSalle

has used the Capital Assets Pricing Model (the "CAPM") to estimate the required rate of return on

equity of the Target Company. We understand from Jones Lang LaSalle that the CAPM technique is

widely accepted in the investment and financial analysis communities for the purpose of estimating

a company's required rate of return on equity. In arriving at the discount rate, Jones Lang LaSalle

has taken into account a number of factors including (i) risk free rate; (ii) market return;

(iii) company specific risk; and (iv) beta of a number of comparable companies. Such comparable

are companies listed on the Stock Exchange and engage in similar business to the Target Company.

As such, we are of the view that it is fair and reasonable to derive beta from these peer

companies. Moreover, in view of the fact that the Target Company is a private company, Jones

Lang LaSalle applied a lack of marketability discount rate to the Target Company's equity

interest based on their analysis and market average.

profile the results based on

a 5%, 10% and 15% variations from the derived discount rate of 10.79%. To ascertain the

reasonableness of the selection of the range for discount rates, we (i) discussed with

Jones Lang LaSalle and were confirmed that the range is in line with the industry practice

and consistent with their experience in other similar transactions and (ii) reviewed the

discount rates applied in other acquisition of toll roads transactions. We noted that the

range of the discount rate of other toll road transactions fell within that of the selective

range of the discount rate. Based on the works performed above, we are not aware of any

matters that will cause us to doubt the reasonableness of the selection of the range for

discount rates or the methodology of the sensitivity analysis.

Lang LaSalle to

assess the fairness and reasonableness of the discount rate and the discount for lack of

marketability and concur with view of Jones Lang LaSalle that the factors for the discount

rate used in the JLL Valuation are in line with market practice.

accounting assumptions

a considerable extent on the

traffic volume and toll revenue study for Jinhua Section of the Ningbo- Jinhua Expressway

produced in the Traffic Study Report when determining the JLL Valuation. Jones Lang LaSalle

believed that the forecast of those data are reasonable. We have interviewed Jones Lang

LaSalle and the Traffic Consultant regarding the basis of projecting the traffic volume

and toll revenue of Jinhua Section of the Ningbo-Jinhua Expressway.

by Jones Lang LaSalle and

discussed the key accounting assumptions (including cost of goods sold, operating expense and capital

expenditure) used in the Valuation Report. Based on the work performed, we are not aware of any

factors which would cause us to doubt the fairness and reasonableness of the assumptions used in

Traffic Consultant on the

methodologies, bases and assumptions underlying the estimation on traffic volume and toll revenue

of Jinhua Section of the Ningbo-Jinhua Expressway. We note that in forecasting the traffic volume,

the Traffic Consultant has (i) collected economic and historical traffic data concerning Jinhua

Section of the Ningbo-Jinhua Expressway; (ii) performed route check on Jinhua Section of the

Ningbo-Jinhua Expressway; and (iii) built up a traffic model to estimate the traffic volume

and toll revenue of Jinhua Section of the Ningbo-Jinhua Expressway.

(i) analyzed the existing travel

patterns; (ii) used historical traffic data of Jinhua Section of the Ningbo- Jinhua Expressway;

(iii) assumed that there will be no change in the toll rate; and (iv) estimated the growth rate

of traffic volume based on the GDP of the relevant area (e.g. Zhejiang Province). In addition,

we understand from the Traffic Consultant that they have also considered the potential

competition to which Jinhua Section of the Ningbo-Jinhua Expressway will be subject to.

We have discussed with the Traffic Consultant on the impact of the new expressways on the

traffic projection of Ningbo-Jinhua Expressway, and are given to understand that the model

adopted by the Traffic Consultant has already taken into account the road network change in

future years. As stated in the Traffic Study Report, the Traffic Consultant adopted the

generalised cost approach in determining users' route choice behaviors, which are affected

by travel time, trip length and costs. Accordingly, the assumption of road network change

is also considered in this model. On this basis, nothing had come to our attention that will

cause us to doubt the reasonableness of the impact of new expressways on Ningbo-Jinhua

Expressway used by the Traffic Consultant.

Consultant assumes a fixed toll rate over

the forecast period. In spite of the uncertainty in change of policies on toll rates, historical toll

rate has remained unchanged since the operational commencement of Jinhua Section of the Ningbo-Jinhua

Expressway; and therefore, we consider the above mentioned assumption reasonable. Nonetheless, it is

worth noting that the valuation of the Target Company could be affected by the possibility of toll

rate increases of Jinhua Section of the Ningbo-Jinhua Expressway in the future.

assumptions adopted in the Traffic

Study Report are normally used, and are fair and reasonable. The Traffic Consultant also advised us

that the forecast procedures performed in the Traffic Study Report are internationally recognized and

commonly used in the market. Based on our interview with the Traffic Consultant, we have not identified

any major issues that would cause us to doubt the fairness and reasonableness of the methodologies and

bases applied in the Traffic Study Report. As such, we are of the opinion that the Traffic Study Report

provides a reasonable basis for the Valuation Report.

the Communications Group Acquisition and

Yiwu Acquisition based on the JLL Valuation are higher than Considerations, we concur with the

Directors' view that the basis of determining the Considerations is reasonable.

2.4 Payment arrangements under the Acquisition Agreements

are payable by the Company by

cash within 5 business days after the effective date of the Acquisition Agreements. Taking into

consideration that the above payment arrangement requires the satisfaction of the condition precedents

such as obtaining the Zhejiang SASAC's approval and the Independent Shareholders' approval in

connection with Acquisition Agreements, we are of the view that the above payment arrangement is

of the Acquisition Agreements are

Acquisition Agreements were determined on

the assumption that the toll collection rights period of the Ningbo-Jinhua Expressway as finally

approved will be 25 years. As Jinhua Section of the Ningbo-Jinhua Expressway commenced operations

in late 2005, it is estimated that the relevant collection rights period shall expire in 2030. As

at the Latest Practicable Date, the toll collection rights period of the Ningbo-Jinhua Expressway

has yet to be approved by the relevant PRC governmental authorities. In the event that the approved

toll collection rights period of the Ningbo-Jinhua Expressway is different from 25 years, the Company,

Communications Group and Yiwu Development have agreed to enter into supplemental agreements to adjust

downward the Considerations with reference to the valuation of the Target Company to be carried out

by the PRC Domestic Valuer taking into account of the difference of the toll collection rights period.

one of the key assumptions when

evaluating the valuation of the Target Company; (ii) the valuation of the Target Company is one of

the major factors considered by the Company when determining the Considerations; and (iii) the

Company shall comply with the applicable reporting, announcement and independent shareholders'

approval requirements under Chapter 14 and 14A of the Listing Rules in the event that the

Considerations are adjusted, we are of the view that the consideration adjustment arrangement

is a commercial acceptable mechanism that will provide flexibility to the Company to obtain

the latest reference value of the Target Company and safeguard the Group's interest in the

120 days after the completion

of the Communications Group Agreement, the Company will inject additional capital into the Target

Company. The Company plans to make a capital injection of up to RMB1,400,000,000 into the Target

Company so that the Target Company will apply such capital to fully repay the Loans (which are

interests bearing) under the Loan Agreements and the Credit Agreement.

cease to be a shareholder of the

Target Company after the completion of the Communications Group Acquisition; (ii) the capital

injection will broaden the Target Company's capital base and reduce its financial leverage;

(iii) the Target Company incurred substantial finance costs in the past, which amounted to

approximately RMB87.6 million and RMB83.2 million for the years ended 31 December 2011 and

2012, respectively. The repayment of the Loans will reduce the finance costs and improve the

future financial performance of the Target Company; and (iv) the Group had maintained sufficient

financial resources with bank balances and cash of RMB4,846.1 million as at 31 December 2012,

we are of the view that the capital injection and the repayment of the Loans to Communications

Group are reasonable so far as the Company and the Independent Shareholders are concerned.

be consolidated into the financial

statements of the Group. As mentioned above, the revenue and net loss after tax of the Target

Company were approximately RMB227.6 million and RMB18.7 million, respectively for the year ended

31 December 2012. The Target Company currently adopts the units-of-usage method of

depreciation where its expressway assets are being depreciated based on the traffic

volume. Upon completion of the Acquisitions, the Target Company's depreciation method

will be changed to straight-line method to align with the Group's accounting policies.

Accordingly, the change of the Target Company's depreciation method will affect the

amount of deprecation expenses being charged to the Group's income statement.

3.2 Effect on working capital of the Company

approximately RMB756.9 million shall

be satisfied by cash. The Group will also make an additional capital in the Target Company to

fully repay the Loans of RMB410.0 million due to Communications Group. According to the

Company's audited financial statements for the year ended 31 December 2012, the Group's bank

balances and cash amounted to RMB4,846.1 million. It is expected that the Acquisitions and

repayment of the Loans would result in a reduction in the Group's bank balances and cash.

We note that the Group has sufficient cash to settle the Considerations and repayment of the Loans.

3.3 Effect on balance sheet of the Company

Group held 23.45% equity interest

in the Target Company and was accounted for as investment in associate using the equity method.

Upon completion of the Acquisition Agreements, the Target Company will become a wholly-owned

subsidiary of the Group and its assets and liabilities will be consolidated into the accounts

of the Group. However, in the event that only the Communications Group Acquisition is

completed, the Target Company will become a 89.733% owned subsidiary of the Group.

for illustrative purposes only

and does not purport to represent how the financial position of the Company will be upon the completion

risk factors that would pose

uncertainties to the Acquisitions, particularly the following principal risks:

4.1 Economic environment

expressway business is significantly

influenced by the surrounding demographical and economic conditions. Economic cycle leads to

fluctuation in levels of economic activities and in turn the demand for transportations.

Future growth in traffic volume is expected to depend on the continued economic growth and

development policies of the PRC and in particular, Zhejiang Province. Any adverse changes

in these economies may adversely affect the traffic volume and toll revenue on Jinhua

affected by the existence of other

means of transportation including airline, railways and alternative highways routes. In

addition, there is no assurance that the national or provincial government will not propose

new toll highways in Zhejiang Province, which might compete with Jinhua Section of the

change due to the introduction

of a special project by five ministries and commissions in mid-June 2011 for the rectification

of the toll road policy, coupled with the current inflationary pressure and an increase in

the prices of petroleum products. Toll standards for vehicle classes and toll calculation

methods adopted by expressways in the province are expected to be adjusted further. It is

uncertain whether or not changes in toll standards for expressways arising from such

adjustments will have an adverse impact on the Target Company's toll revenue.

4.4 Toll collection rights period

granted a final approval on its

toll collection rights period. Pursuant to the "Regulation on the Administration of Toll Roads"

and other rules and regulations of the relevant governmental authorities, the toll collection

rights period for expressways shall not exceed 25 years. The Considerations are determined

with reference to the valuations of the Target Company, which were prepared on the assumption

of 25-years toll collection rights period. If the toll collection rights period of Jinhua

Section of the Ningbo-Jinhua Expressway approved by governmental authorities were less than

25 years, the Target Company's business and operating results might be materially and adversely

affected and the Considerations would be adjusted accordingly.

RECOMMENDATIONS

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1. to consider and approve the report of the directors of the Company (the "Directors") for the year 2012;

2. to consider and approve the report of the supervisory committee of the Company for the year 2012;

3. to consider and approve the audited financial statements of the Company for the year 2012;

4. to consider and approve final dividend of Rmb24 cents per share in respect of the year ended December

31, 2012;

5. to consider and approve the final accounts of the Company for the year 2012 and the financial budget

of the Company for the year 2013;

6. to consider and approve the re-appointment of Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong as the Hong Kong auditors of the Company, and to authorize the board of directors of the

Company (the "Board") to fix their remuneration; and

7. to consider and approve the re-appointment of Pan China Certified Public Accountants as the PRC auditors of

the Company, and to authorize the Board to fix their remuneration.

8. to approve and confirm

a. the agreement dated March 20, 2013 (the "Communications Group Agreement") entered into between the

Company and Zhejiang Communications Investment Group Co., Ltd. (a copy of which is produced to the

AGM marked "1" and initialed by the chairman of the AGM for the purpose of identification), and

the terms and conditions thereof and the transactions contemplated thereunder and the

implementation thereof;

b. the agreement dated March 20, 2013 (the "Yiwu Agreement") entered into between the Company and

Yiwu Communications Development Co., Ltd. (a copy of which has been produced to the AGM marked "2"

and initialed by the chairman of the AGM for the purpose of identification), and the terms and

conditions thereof and the transactions contemplated thereunder and the implementation thereof;

and to approve, ratify and confirm the authorization to any one of the Directors, or any other person

authorized by the Board from time to time, for and on behalf of the Company, among other matters,

to sign, seal, execute, perfect, perform and deliver all such agreements, instruments, documents

and deeds, and to do all such acts, matters and things and take all such steps as he or she or

they may in his or her or their absolute discretion consider to be necessary, expedient, desirable

or appropriate to give effect to and implement the Communications Group Agreement or the Yiwu

Agreement or both of them and the transactions contemplated thereunder and all matters incidental

to, ancillary to or in connection thereto, including agreeing and making any modifications,

amendments, waivers, variations or extensions of the Communications Group Agreement or the

9. to approve and confirm the proposed issue of domestic corporate bonds by the Company with an aggregate

principal amount of up to RMB1 billion ("Domestic Corporate Bonds"), on the conditions set forth below:

can be issued in single or

subject to the approval of China

Commission (the "CSRC"). Subject

authority by the shareholders of

"Shareholders") to the Board at the

and tranches are intended

Board according to the financial

Bonds will not be offered to the

preferential basis.

Domestic Corporate Bonds may be issued

tranche(s) with different maturity.

authority by the Shareholders

the maturity and the issue size

intended to be determined by the Board

requirements of the Company and market

the time of issue.

proposed issue of the Domestic

intended to be used by the Company

structure and to supplement the

Company. Subject to the granting

Shareholders to the Board at the AGM,

proceeds are intended to be determined

the financial conditions of the

to the fulfillment of relevant

shall be made with the Shanghai

practicable following the completion

the Domestic Corporate Bonds. Subject

relevant regulatory authorities, applications

the Domestic Corporate Bonds may be

exchange(s) permitted by applicable laws.

(8) Term of validity of the resolutions: The proposed Shareholders' resolutions to be passed at the AGM

issue of Domestic Corporate Bonds,

for 30 months from the date of

resolutions at the AGM.

and to approve and confirm the granting of authority to the Board to deal with all matters relating to

the proposed issue and listing of the Domestic Corporate Bonds in the absolute discretion of the

Board in accordance with the applicable laws and regulations (including, among others, the Company

Law of the PRC, the Securities Law of the PRC and the Tentative Methods on Issue of Corporate Bonds

promulgated by the CSRC) and the articles of association of the Company, including, but not limited

to the following:

(1) to formulate specific plan and terms for the issue of the Domestic Corporate Bonds

according to the requirements of the relevant laws and regulations, the Shareholders'

resolutions passed at the AGM and market conditions, including but not limited to the

issue size, maturity, type of bonds, interest rate and method of determination, timing

of issue (including whether to issue in tranches and their respective size and maturity),

security plan, whether to allow repurchase and redemption, use of proceeds, rating,

subscription method, term and method of repayment of principal and interests, listing

and all other matters relating to the issue and listing of the Domestic Corporate Bonds;

(2) to appoint intermediaries in connection with the listing applications of the Domestic

Corporate Bonds and the actual listing of the bonds; including but is not limited to

the authorisation, execution, performance, variation and completion of all necessary

documents, contracts and agreements (including, among others, prospectus,

subscription agreement, underwriting agreement, trustee deed, listing agreement,

announcements and other legal documents) and other relevant disclosures as required

by relevant laws and regulations;

(3) to appoint a trustee for the proposed issue of the Domestic Corporate Bonds, to

execute relevant trust deed and to determine rules for meetings of holders of the

Domestic Corporate Bonds;

(4) subject to any matters which require Shareholders' approval, to make appropriate

adjustments to the proposal for the proposed issue and terms of the Domestic

Corporate Bonds in accordance with the comments (if any) from the relevant PRC

regulatory authorities; and

(5) in the event of the Company's expected failure to repay the principal and interests

of the Domestic Corporate Bonds as scheduled or when such amounts fall due, to

implement, as a minimum, the following measures:

(a) not to declare any profit distributions to the Shareholders;

(b) to postpone the implementation of capital expenditure projects such as material

(c) to reduce or discontinue the payment of salaries and bonuses of the Directors

(d) not to transfer or second away any key officers of the Company;

(6) to deal with any other matters relating to the proposed issue and listing of the

Domestic Corporate Bonds;

(7) subject to the term of validity of the Shareholders' resolutions as mentioned above,

the authority granted to the Board to deal with the above matters will take effect from

the date of the passing of the relevant Shareholders' resolution at the AGM until all

the authorized matters in relation to the proposed issue of the Domestic Corporate

Bonds have been completed; and

(8) at the same time as the authorities mentioned under paragraphs (1) - (6) above are

granted, the Board shall be authorised to delegate to Mr. Wu Junyi the powers to deal

with all specific matters relating to the proposed issue and listing of the Domestic

1. The above mentioned resolution No. 8 shall be approved by independent shareholders as required by the

Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Zhejiang Communications

Investment Group Co., Ltd. and its associates will abstain from voting in relation to such resolution.

Details regarding such resolution and the above mentioned resolution No. 9 are set out in the circular of

the Company dated May 7, 2013.

2. Registration procedures for attending the AGM

(1) Holders of H shares of the Company ("H Shares") and domestic shares of the Company ("Domestic

Shares") intending to attend the AGM should return the reply slip for attending the AGM to the

Company by post or by facsimile (address and facsimile numbers are shown in paragraph 7(2)

below) such that the same shall be received by the Company on or before May 31, 2013.

(2) A shareholder or his/her/its proxy should produce proof of identity when attending the AGM.

If a corporate shareholder appoints its legal representative to attend the meeting, such legal

representative shall produce proof of identity and a copy of the resolution of the board of

directors or other governing body of such shareholder appointing such legal representative to

attend the meeting.

3. Proxy

(1) A shareholder eligible to attend and vote at the AGM is entitled to appoint, in written form,

one or more proxies to attend and vote at the AGM on behalf of him/her/it. A proxy need not be

a shareholder of the Company.

(2) A proxy shall be appointed by a written instrument signed by the appointor or an attorney

authorised by him/her/it for such purpose. If the appointor is a corporation, the same shall be

affixed with the seal of such corporation, or signed by its director(s) or duly authorized

representative(s). If the instrument appointing a proxy is signed by a person authorized by

the appointor, the power of attorney or other authorization document(s) shall be notarized.

(3) To be valid, the power of attorney or other authorization document(s) (which have been

notarized) together with the completed form of proxy must be delivered, in the case of holders

of Domestic Shares, to the Company at the address shown in paragraph 7(2) below and, in the

case of holders of H Shares, to Computershare Hong Kong Investor Services Limited at 17M Floor,

Hopewell Center, 183 Queen's Road East, Hong Kong, at least 24 hours before the time designated

for holding of the AGM.

(4) Any vote of the shareholders of the Company present in person or by proxy at the AGM must be

For the purpose of the AGM and to determine the shareholders who qualify for the proposed final

dividend, the register of members holding H shares of the Company will be closed from May 22,

2013 to June 20, 2013 (both days inclusive), and from June 27, 2013 to July 2, 2013

(both days inclusive).

5. Last day of transfer and record date

Holders of H Shares who intend to attend the AGM and qualify for the proposed final dividend

must deliver all transfer instruments and the relevant shares certificates to Computershare

Hong Kong Investor Services Limited at Rooms 1712-1716, 17/F, Hopewell Center, 183 Queen's

Road East, Hong Kong, at or before 4:30p.m. on May 21, 2013 and on June 26, 2013 respectively.

For the purpose of the AGM and qualify for the proposed final dividend, the record date will

be May 27, 2013 and July 2, 2013 respectively.

6. Dividend Payable date

Upon relevant approval by shareholders at the AGM, the final dividend is expected to be paid

(1) The AGM will not last for more than one day. Shareholders who attend shall bear their

NOTE: To view the full set of the company's Circular of Discloseable and Connected Transactions,please vist www.zjec.com.cn