MITTAL STEEL HOLDINGS AG - China Oriental Group€¦ · MITTAL STEEL HOLDINGS AG (Incorporated in Switzerland with limited liability) TO ACQUIRE ALL THE OUTSTANDING SHARES IN THE

If you are in any doubt as to any aspect of this Composite Document or the Offer contained herein, you should consult a licensed securitiesdealer, or other registered institution in securities, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Oriental Group Company Limited, you should at once hand this Composite Documentand the accompanying form of acceptance and transfer for the Disinterested Shares to the purchaser(s) or transferee(s) or to the bank, thelicensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmissionto the purchaser(s) or transferee(s).

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this Composite Document, makes no representationas to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance uponthe whole or any part of the contents of this Composite Document.

(incorporated in Bermuda with limited liability)

(Stock Code 581)

COMPOSITE OFFER AND RESPONSE DOCUMENTRELATING TO

AN UNCONDITIONAL MANDATORY CASH OFFERBY ING BANK N.V. ON BEHALF OF

MITTAL STEEL HOLDINGS AG(Incorporated in Switzerland with limited liability)

TO ACQUIRE ALL THE OUTSTANDING SHARES IN THE ISSUED SHARE CAPITAL ANDCANCEL ALL SHARE OPTIONS OF

CHINA ORIENTAL GROUP COMPANY LIMITED(OTHER THAN THOSE ALREADY OWNED BY MITTAL STEEL HOLDINGS AG AND

PARTIES ACTING IN CONCERT WITH IT)

Financial Adviser toMittal Steel Holdings AG

ING Bank N.V.

Financial Adviser toChina Oriental Group Company Limited

UBS Investment Bank

Independent Financial Adviserto the Independent Board Committee, Independent Shareholders and Optionholders

of China Oriental Group Company Limited

A letter from ING containing, among other things, details of the terms of the Offer is set out on pages 9 to 27 of this Composite Document.

A letter from the Board is set out on pages 28 to 34 of this Composite Document.

A letter from the Independent Board Committee to the Independent Shareholders and Optionholders is set out on pages 35 to 37 of thisComposite Document. A letter of advice from Evolution Watterson containing its opinion and advice to the Independent Board Committee,the Independent Shareholders and Optionholders is set out on pages 38 to 61 of this Composite Document.

The procedure for acceptance and settlement of the Offer is set out in Appendix I to this Composite Document and in the accompanying formof acceptance and transfer for the Disinterested Shares and the form of acceptance and cancellation for the Share Options. Acceptances of theShare Offer in respect of the Disinterested Shares must be received by Tricor Investor Services Ltd. at 26/F, Tesbury Centre, 28 Queen’s RoadEast, Wanchai, Hong Kong by 4:00 p.m. on 4 February 2008, or such later time as the Offeror may determine and announce in accordancewith the Takeovers Code. Acceptances of the Option Offer in respect of the Share Options must be received by the Company at Suites 901-2& 10, 9/F Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong by 4:00 p.m. on 4 February 2008 or such later time as the Offeror maydetermine and announce in accordance with the Takeovers Code.

* For identification purpose only

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

14 January 2008

Page

Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

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

Letter from ING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Letter from Evolution Watterson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

The Shareholders’ Agreement and the Business Cooperation Agreement . . . . . . . 62

Appendix I – Further Terms of the Offer . . . . . . . . . . . . . . . . . . . . . . . . 68

Appendix II – Financial Information regarding the Group . . . . . . . . . . . . 77

Appendix III – Valuation of the Put Option . . . . . . . . . . . . . . . . . . . . . . . . 143

Appendix IV – Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Appendix V – Statutory and General Information . . . . . . . . . . . . . . . . . . 168

CONTENTS

– i –

Opening date of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 14 January 2008

Latest time and date for acceptance of the Offer (Note 1) . . . . . . . . .4:00 p.m. on Monday,

4 February 2008

Closing date of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 4 February 2008

Announcement in respect of the closing of the Offer and

acceptances under the Offer through the Stock Exchange’s

website and the Company’s website . . . . . . . . . . . . . . . . . . . . . . . .7:00 p.m. on Monday,

4 February 2008

Latest date for posting of remittances for the amounts

due under the Offer in respect of valid acceptances

– First Payment (Notes 2, 3) . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 14 February 2008

– Second Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(Notes 2, 4)

Notes:

1. The Offer, which is unconditional in all respects, will close on Monday, 4 February 2008, unless the Offerorrevises or extends the Offer in accordance with the Takeovers Code. If the Offeror decides to extend the Offer,an announcement will be made stating either the next closing date of the Offer or that the Offer will remainopen until further notice, in which case at least 14 days’ notice in writing will be given before the Offer isclosed to those Shareholders and Optionholders who are capable of accepting, but who have not accepted, theOffer.

2. As set out in the “Letter from ING – Consideration of the Offer – The Share Offer”, accepting Shareholderscan choose any one of the following three alternatives of the consideration in respect of the Share Offer. Theconsideration for each Share held, which consists of two elements, is as follows:

Alternative 1 Alternative 2 Alternative 3

First Payment HK$6.12 HK$6.12 HK$6.12Second Payment HK$0.235 HK$0.471 HK$0.706Total HK$6.355 HK$6.591 HK$6.826

As set out in the “Letter from ING – Consideration of the Offer – The Option Offer”, accepting Optionholderscan choose any one of the following three alternatives of the consideration in respect of the Option Offer. Theconsideration for each Share Option held (with an exercise price of HK$5.24), which comprises two elements,is as follows:



3. Remittances in respect of the First Payment payable for the Disinterested Shares and the Share Optionstendered under the Offer will be posted to the relevant Shareholders and Optionholders as soon as practicable,but in any event within ten days after the receipt by the Registrar or the Company (as the case may be) of thevalid requisite documents from the accepting Shareholders or Optionholders (as the case may be).

EXPECTED TIMETABLE

– ii –

4. Under Alternative 1, the Second Payment will be made at the same time as the First Payment to those acceptingShareholders and Optionholders who have validly chosen this alternative. Under Alternative 2, the SecondPayment will be made within ten days of the Shareholders’ Agreement becoming unconditional to thoseaccepting Shareholders and Optionholders who have validly chosen this alternative. If the Shareholders’Agreement does not become unconditional, the Second Payment will not be made to those acceptingShareholders and Optionholders who have validly chosen this alternative. Under Alternative 3, the SecondPayment will be made within ten days of the completion of the sale and purchase of the First Call OptionShares to those accepting Shareholders and Optionholders who have validly chosen this alternative. If (a) theShareholder’s Agreement does not become unconditional or (b) the sale and purchase of the First CallOption Shares is not completed, the Second Payment will not be made to those accepting Shareholdersand Optionholders who have validly chosen this alternative.

5. Acceptance of the Offer shall be irrevocable and not capable of being withdrawn, except in the circumstancesset out in Rule 19.2 of the Takeovers Code (which is to the effect that if the Offeror is unable to comply withany of the requirements for making announcements under Rule 19 of the Takeovers Code relating to the Offer,the Executive may require that acceptors be granted a right of withdrawal, on terms acceptable to theExecutive). A further announcement will be made by the Offeror if any such right of withdrawal (as describedin this note) is available to the Shareholders and Optionholders who have accepted the Offer.

All time references contained in this Composite Document refer to Hong Kong time.

EXPECTED TIMETABLE

– iii –

In this Composite Document, the following expressions have the meanings set out below

unless the context requires otherwise.

“acting in concert” shall have the meaning set out in the Takeovers Code

“Alternative 1”, “Alternative 2”,

“Alternative 3”

the respective alternative among the three consideration

alternatives available under the Share Offer and the

Option Offer, details of which are set out in the

paragraphs headed “Letter from ING – Consideration of

the Offer – The Share Offer” and “Letter from ING –

Consideration of the Offer – The Option Offer”

“Announcement” the announcement dated 13 December 2007, jointly made

by the Offeror and China Oriental in connection with the

entering into of the Shareholders’ Agreement and the

making of the Offer

“Anti-trust Condition” ArcelorMittal having filed the anti-trust application with

the relevant departments within the Ministry of

Commerce and the State Administration for Industry and

Commerce of the PRC in charge of anti-trust review in

respect of each of the First Call Option, the Put Option

and the Second Call Option, and that no written objection

prohibiting the aforesaid has been received by

ArcelorMittal from the aforesaid departments within the

applicable anti-trust review period under the relevant

PRC anti-trust laws and guidelines as set out in the

sub-section headed “The Shareholders’ Agreement and

the Business Cooperation Agreement – PRC Approvals”

“ArcelorMittal” ArcelorMittal, a company incorporated in Luxembourg

with limited liability

“Board” the board of Directors

“Business Cooperation

Agreement”

the business cooperation agreement dated 9 November

2007 between ArcelorMittal and the Company which

governs the cooperation between the parties in respect of

certain aspects of operation of the Company, the key

terms of which will take effect upon the Shareholders’

Agreement becoming unconditional

“CCASS” the Central Clearing and Settlement System established

and operated by HKSCC

DEFINITIONS

– 1 –

“China Oriental” or the

“Company”

China Oriental Group Company Limited, a company

incorporated in Bermuda with limited liability, the shares

of which are listed on the Main Board of the Stock

Exchange with stock code 581

“Chingford” Chingford Holdings Limited, a company incorporated

under the laws of the British Virgin Islands, which holds

61,653,725 Shares, representing approximately 2.10% of

the issued share capital of the Company as at the Latest

Practicable Date. Chingford is wholly-owned by Mr. Han

“Companies Act” the Companies Act 1981 of Bermuda as in force from

time to time

“Composite Document” this composite offer and response document dated 14

January 2008

“Concert Parties” persons acting in concert with the Offeror (within the

meaning of the Takeovers Code)

“Controlling Shareholders” Mr. Han, Wellbeing and Chingford, who hold

1,320,302,849 Shares in aggregate, representing

approximately 45.07% of the issued share capital of the

Company as at the Latest Practicable Date

“Director(s)” director(s) of the Company

“Disinterested Shares” all the issued Shares and Shares that may be issued under

the Share Option Scheme other than those which are

owned by the Offeror or its Concert Parties

“EBITDA” total audited consolidated earnings before (a) interest

income and expense, (b) tax expense, (c) depreciation,

(d) amortisation, (e) extraordinary items, (f) significant

items of a non-cash nature (such as employee stock

option expenses) and (g) unrealised foreign exchange

gains or losses

“EUR” Euro, the lawful currency among participating countries

of the European Union

DEFINITIONS

– 2 –

“Evolution Watterson” Evolution Watterson Securities Limited, the independentfinancial adviser to the Independent Board Committee,the Independent Shareholders and Optionholders inrespect of the Offer and a licensed corporation under theSFO to carry on Type 1 (dealing in securities), Type 4(advising on securities) and Type 6 (advising oncorporate finance) regulated activities

“Executive” the Executive Director of the Corporate Finance Divisionof the SFC or any delegate of the Executive Director

“First Call Option” the option granted by the Controlling Shareholders toArcelorMittal to purchase the First Call Option Shares

“First Call Option Shares” such number of Shares which will result in ArcelorMittalholding in aggregate, directly or indirectly, 50.1% of thetotal number of Shares then in issue (assuming theexercise in full of all the then outstanding share optionsgranted under schemes for the issue of new Shares orother new securities of the Company)

“First Payment” first payment under Alternative 1, Alternative 2 andAlternative 3

“Form of Acceptance” the accompanying WHITE form of acceptance andtransfer in respect of the Disinterested Shares and theaccompanying YELLOW form of acceptance andcancellation for the Share Options

“GCAL” Greater China Appraisal Limited, an independent assetappraisal firm of professional valuers with registeredoffice at Room 2703, Shui On Centre, 6-8 Harbour Road,Wanchai, Hong Kong

“Group” the Company and its subsidiaries

“Hebei Jinxi” Hebei Jinxi Iron and Steel Company Limited( ), a joint stock limitedcompany incorporated in the PRC on 24 December 1999and the principal operating subsidiary of the Company.As at the Latest Practicable Date, the Company heldapproximately 97.6% equity interest in Hebei Jinxi andthe remaining approximately 2.4% equity interest washeld as to 2.2% by Tangshan City Jinxi Iron and SteelGroup Co., Ltd. ( ) and asto 0.2% by Tangshan City Qianxi Valves Factory( )

DEFINITIONS

– 3 –

“HK$” or “Hong Kong dollar” the lawful currency of Hong Kong

“HKSCC” Hong Kong Securities Clearing Company Limited

“Hong Kong” the Hong Kong Special Administrative Region of the

PRC

“Independent Board Committee” the independent board committee of China Oriental,

comprising all the non-executive Directors, being

Messrs. Yu Tung Ho, Gao Qingju and Wong Man Chung,

Francis, established to advise the Independent

Shareholders and Optionholders in respect of the Offer

“Independent Shareholders” the shareholders of the Company other than the Offeror

and its Concert Parties

“ING” ING Bank N.V., a registered institution under the SFO to

conduct Type 1 (dealing in securities), Type 4 (advising

on securities) and Type 6 (advising on corporate finance)

regulated activities

“Last Trading Day” 6 November 2007, the last full trading day for Shares

prior to the suspension of the Shares pending the release

of the Announcement

“Latest Practicable Date” 11 January 2008, being the latest practicable date prior to

the printing of this Composite Document for ascertaining

certain information referred to in this Composite

Document

“Listing Rules” the Rules Governing the Listing of Securities on The

Stock Exchange of Hong Kong Limited

“Mr. Han” Mr. Han Jingyuan, the Chairman and Chief Executive

Officer of the Company and the legal and beneficial

holder of 2,800,000 Shares, representing approximately

0.10% of the issued share capital of the Company as at

the Latest Practicable Date

“Offer” the Share Offer and the Option Offer

DEFINITIONS

– 4 –

“Offer Period” the period from 6 December 2007, being the date of the

joint announcement issued by the Offeror and the

Company, to the date when the Offer closes for

acceptances

“Offeror” Mittal Steel Holdings AG, a company incorporated under

the laws of Switzerland, which is a holder of 820,119,151

Shares, representing approximately 28.00% of the issued

share capital of the Company as at the Latest Practicable

Date

“Option Offer” the unconditional mandatory cash offer made by ING, on

behalf of the Offeror, to cancel all Share Options which

are then outstanding

“Option Offer Price” the price per Share Option payable in cash by the Offeror

on the terms of the Option Offer, details of which are set

out in the paragraph headed “Letter from ING –

Consideration of the Offer – The Option Offer” in this

Composite Document

“Optionholders” holders of the Share Options

“PRC” the People’s Republic of China, but excluding, for the

purpose of this Composite Document, Hong Kong,

Macau and Taiwan

“Put Option” the option granted by ArcelorMittal to the Controlling

Shareholders to sell the Put Option Shares which is

exercisable only after the completion of the sale and

purchase of the First Call Option Shares takes place

“Put Option Shares” the difference between: (1) the 1,320,302,849 Shares in

aggregate held by the Controlling Shareholders (as

adjusted to include any Shares representing or deriving

from those Shares as a result of an increase in,

reorganisation or reconstruction of capital and any Shares

which are issued to the Controlling Shareholders,

credited as fully-paid, in their capacity as holders of such

Shares by way of capitalisation of profits or reserves);

and (2) the total number of Shares acquired by

ArcelorMittal pursuant to the First Call Option

DEFINITIONS

– 5 –

“Registrar” Tricor Investor Services Ltd. at 26/F, Tesbury Centre, 28

Queen’s Road East, Wanchai, Hong Kong, being the

share registrar of China Oriental in Hong Kong for

receiving and processing acceptances of the Offer in

respect of the Disinterested Shares

“Relevant Period” the period commencing on the date falling six months

prior to the commencement date of the Offer Period and

ending on the Latest Practicable Date

“RMB” Renminbi, the lawful currency of the PRC

“Second Call Option” the option granted by the Controlling Shareholders to

ArcelorMittal to purchase the Second Call Option Shares

“Second Call Option Shares” the difference between: (1) the 1,320,302,849 Shares in

aggregate held by the Controlling Shareholders (as

adjusted to include any Shares representing or deriving

from those Shares as a result of an increase in,

reorganisation or reconstruction of capital and any Shares

which are issued to the Controlling Shareholders,

credited as fully-paid, in their capacity as holders of such

Shares by way of capitalisation of profits or reserves);

and (2) the total number of Shares acquired by

ArcelorMittal pursuant to the First Call Option and the

Put Option

“Second Payment” second payment under Alternative 1, and if conditions are

fulfilled, under Alternative 2 and Alternative 3. Further

details are set out in the paragraphs headed “Letter from

ING – Consideration of the Offer – The Share Offer” and

“Letter from ING – Consideration of the Offer – The

Option Offer” in this Composite Document

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance (Chapter 571 of the

Laws of Hong Kong)

“Share Offer” the unconditional mandatory cash offer made by ING, on

behalf of the Offeror, to acquire all the issued Shares,

other than those Shares which are owned by the Offeror

and its Concert Parties

DEFINITIONS

– 6 –

“Share Offer Price” the price per Share payable in cash by the Offeror on the

terms of the Share Offer, details of which are set out in

the paragraph headed “Letter from ING – Consideration

of the Offer – The Share Offer” in this Composite

Document

“Share Option Scheme” the share option scheme adopted by the Company on 23

June 2006 pursuant to a shareholders’ resolution passed

on 17 May 2006

“Share Options” the outstanding options granted pursuant to the Share

Option Scheme which were not yet exercised as at the

Latest Practicable Date

“Shareholders” holders of the Shares

“Shareholders’ Agreement” the shareholders’ agreement dated 9 November 2007

between the Controlling Shareholders and ArcelorMittal,

as amended by a supplemental agreement dated 12

December 2007 entered into between the Controlling

Shareholders and ArcelorMittal

“Shares” the existing issued shares of HK$0.10 each in the

Company

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Takeovers Code” the Hong Kong Code on Takeovers and Mergers as in

force from time to time

“trading day” a day on which the Stock Exchange is open for the

business of dealings in securities

“UBS” UBS AG, acting through its business group UBS

Investment Bank, a registered institution under the SFO

to conduct Type 1 (dealing in securities), Type 4

(advising on securities), Type 6 (advising on corporate

finance), Type 7 (providing automated trading services)

and Type 9 (asset management) regulated activities

“US$”, “US dollar” or “United

States dollar”

the lawful currency of the United States of America

DEFINITIONS

– 7 –

“Valin” Hunan Valin Steel Tube and Wire Company Ltd

( )

“Wellbeing” Wellbeing Holdings Limited, a company incorporated

under the laws of the British Virgin Islands with limited

liability with Registered Number 550903, which holds

1,255,849,124 Shares. Wellbeing is beneficially owned as

to approximately 60.69% by Mr. Han, who also holds

16.09% of the issued share capital of Wellbeing on trust

for the benefit of approximately 1,800 employees of

Hebei Jinxi

“%” per cent.

DEFINITIONS

– 8 –

39/F., One International Finance Centre1 Harbour View Street

Central, Hong Kong

14 January 2008

To the Shareholders and Optionholders

Dear Sir or Madam,

UNCONDITIONAL MANDATORY CASH OFFERBY ING BANK N.V. ON BEHALF OF

MITTAL STEEL HOLDINGS AGTO ACQUIRE ALL THE OUTSTANDING SHARES IN

THE ISSUED SHARE CAPITAL AND CANCEL ALL SHARE OPTIONS OFCHINA ORIENTAL GROUP COMPANY LIMITED(OTHER THAN THOSE ALREADY OWNED BY

MITTAL STEEL HOLDINGS AGAND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

On 13 December 2007, the Offeror and the Company jointly announced that on 9

November 2007, the Controlling Shareholders and ArcelorMittal entered into the Shareholders’

Agreement in relation to their shareholdings in and the management of the Group. Pursuant to

the Shareholders’ Agreement, the Controlling Shareholders agreed to grant to ArcelorMittal

certain rights to acquire Shares which the Controlling Shareholders currently own within a

specified period of time and ArcelorMittal agreed to grant to the Controlling Shareholders

certain rights to sell to ArcelorMittal such Shares. The key terms of the Shareholders’

Agreement are conditional upon satisfaction of the Anti-trust Condition.

As at the Latest Practicable Date, the Offeror held 820,119,151 Shares, representing

approximately 28.00% of the issued Shares while the Controlling Shareholders held

1,320,302,849 Shares, representing approximately 45.07% of the issued Shares. Accordingly,

the Offeror and the Controlling Shareholders together were interested in an aggregate of

2,140,422,000 Shares, representing approximately 73.07% of the issued share capital of the

Company as at the Latest Practicable Date.

Pursuant to a decision of the Takeovers and Mergers Panel and with reference to the joint

announcements issued by the Offeror and the Company on 6 December 2007 and 13 December

2007, the Takeovers and Mergers Panel ruled that ArcelorMittal and the Controlling

Shareholders were parties acting in concert at the time when the acquisition of approximately

28.00% of the equity interest in the Company by the Offeror was completed and accordingly,

an unconditional mandatory general offer has been triggered under Rule 26.1 of the Takeovers

Code.

LETTER FROM ING

– 9 –

As stated in the Announcement, the Offeror has a firm intention to make and extend and

shall make and extend the Offer, which shall be on the basis set out in Rule 26 of the Takeovers

Code, to acquire all the Disinterested Shares and will also make and extend to Optionholders

a comparable offer for cancellation of all Share Options which are outstanding.

This letter sets out the detailed terms of the Offer, together with the information on the

Offeror and the intentions of the Offeror regarding the Company. Further details of the Offer

are also set out in Appendix I to this Composite Document and in the accompanying form of

acceptance and transfer for the Disinterested Shares and the form of acceptance and

cancellation for the Share Options. Your attention is also drawn to the letter from the Board,

the letter from the Independent Board Committee and the letter from Evolution Watterson

contained in this Composite Document.

CONSIDERATION OF THE OFFER

The Put Option

As described in the section headed “The Shareholders’ Agreement and the Business

Cooperation Agreement” of this Composite Document, ArcelorMittal has granted to the

Controlling Shareholders an option to sell to ArcelorMittal all or part of the Put Option Shares

which is exercisable only once by the Controlling Shareholders within a 36-month period from

the completion of the sale and purchase of the First Call Option Shares. The Put Option is only

activated after the Shareholders’ Agreement becomes unconditional and the completion of the

sale and purchase of the First Call Option Shares (collectively the “Triggering Events”).

The Takeovers and Mergers Panel has determined that the Put Option constitutes a special

deal under Rule 25 of the Takeovers Code. Accordingly, the Offeror has arranged for the Put

Option to be valued by GCAL, using the Binomial option pricing model. The fair values of the

Put Option have been determined by GCAL and reported on by ING in accordance with Rule

11.1 (b) of the Takeovers Code. Full details of the Put Option valuation including the valuation

report prepared by GCAL and ING’s report on the fair values of the Put Option are set out in

Appendix III to this Composite Document.

The assumptions used by GCAL in the Binomial option pricing model before applying

any subjective probabilities of the Triggering Events include:

Date of valuation (the “Valuation

Date”)

6 December 2007

Date of the Shareholders’ Agreement

becoming unconditional (the

“Completion Date”)

3 months from the Valuation Date

LETTER FROM ING

– 10 –

Exercise period of the First Call

Option

12-month period commencing after 18 months

from the Completion Date

Date of the exercise and completion

of the First Call Option (the

“Activation Date”)

Mid-point of the exercise period of the First

Call Option (or 27 months from the Valuation

Date)

Exercise period of the Put Option At any time during the 36-month period from

the Activation Date

Share price volatility over the past 3

years

37.49%

Exercise price per Put Option Share The exercise price has been derived with

reference to the projected financial

performance and condition of the Group

contained in third party research report

Average yield of the 3-year HK$

Exchange Fund Notes over the past

3 years

3.736%

Average dividend yield over the past 3

years

2.226%

Last transacted Share price HK$6.12

Based on the above, the value of the Put Option before applying any subjective

probabilities of the Triggering Events, as computed by GCAL, is HK$0.706 per Share.

LETTER FROM ING

– 11 –

As the Put Option is only activated by the Triggering Events, various fair values of the

Put Option are derived by assigning different subjective probabilities to the Triggering Events,

as computed by GCAL, as follows:

Probabilityof the

Shareholders’Agreement

becomingunconditional

Probabilityof the

completionof the sale

andpurchase of

the FirstCall Option

Shares

Fair valueof the Put

Option perShare

Upon the completion of the Offer 50%

(note 1)

66.67%

(note 2)

HK$0.235

Upon the Shareholders’ Agreement

becoming unconditional

100% 66.67%

(note 2)

HK$0.471

Upon the Shareholders’ Agreement

becoming unconditional and the

completion of the sale and purchase

of the First Call Option Shares

100% 100% HK$0.706

Notes:

1. A subjective probability of 50% is assigned to the Shareholders’ Agreement becoming unconditional toreflect the potential uncertainties of the anti-trust clearance process such as the application of theevaluation criteria and other factors which may be considered by the regulatory authorities.

2. A subjective probability of 66.67% is assigned to the completion of the sale and purchase of the FirstCall Option Shares to reflect the risks of ArcelorMittal not exercising the First Call Option as a resultof adverse developments in the steel sector, the global economy, the capital markets and the Group.

The Share Offer

Accepting Shareholders can choose any one of the following three alternatives of the

consideration in respect of the Share Offer. The consideration for each Share held, which

consists of two elements, is as follows:



LETTER FROM ING

– 12 –

Payment for the Share Offer

First Payment

In all three alternatives, the First Payment will be made within ten days after the receiptby the Offeror of the duly completed valid acceptances from the accepting Shareholders.

Second Payment

Under Alternative 1, the Second Payment will be made at the same time as the FirstPayment to those accepting Shareholders who have validly chosen this alternative.

Under Alternative 2, the Second Payment will be made within ten days of theShareholders’ Agreement becoming unconditional to those accepting Shareholders who havevalidly chosen this alternative. If the Shareholders’ Agreement does not becomeunconditional, the Second Payment will not be made to those accepting Shareholders whohave validly chosen this alternative.

Under Alternative 3, the Second Payment will be made within ten days of the completionof the sale and purchase of the First Call Option Shares to those accepting Shareholders whohave validly chosen this alternative. If (a) the Shareholders’ Agreement does not becomeunconditional or (b) the sale and purchase of the First Call Option Shares is notcompleted, the Second Payment will not be made to those accepting Shareholders whohave validly chosen this alternative.

In view of the fact that the Share Offer Price includes the fair value of the Put Option,the Executive considers that General Principle 1 of The Codes on Takeovers and Mergers andShare Repurchases, being all shareholders are to be treated even-handedly, is satisfied, andaccordingly, has confirmed that the Put Option will no longer constitute a special deal underRule 25 of the Takeovers Code.

Comparisons of Value

The Share Offer Price of HK$6.355 represents:

(a) a premium of approximately 17.7% over the closing price of HK$5.400 per Share asquoted on the Stock Exchange on the Last Trading Day;

(b) a premium of approximately 15.0% over the average volume weighted averageclosing price of HK$5.525 per Share based on the daily volume weighted averageclosing prices quoted on the Stock Exchange for the 5 trading days immediatelyprior to and including the Last Trading Day;

(c) a premium of approximately 16.6% over the average volume weighted averageclosing price of HK$5.449 per Share based on the daily volume weighted averageclosing prices quoted on the Stock Exchange for the 10 trading days immediatelyprior to and including the Last Trading Day;

LETTER FROM ING

– 13 –

(d) a premium of approximately 28.6% over the average volume weighted average

closing price of HK$4.943 per Share based on the daily volume weighted average

closing prices quoted on the Stock Exchange for the 30 trading days immediately

prior to and including the Last Trading Day; and

(e) a discount of approximately 0.9% to the closing price of HK$6.410 per Share as

quoted on the Stock Exchange on the Latest Practicable Date.


(a) a premium of approximately 22.1% over the closing price of HK$5.400 per Share as

quoted on the Stock Exchange on the Last Trading Day;

(b) a premium of approximately 19.3% over the average volume weighted average



prior to and including the Last Trading Day;

(c) a premium of approximately 21.0% over the average volume weighted average




(d) a premium of approximately 33.3% over the average volume weighted average



prior to and including the Last Trading Day; and

(e) a premium of approximately 2.8% over the closing price of HK$6.410 per Share as

quoted on the Stock Exchange on the Latest Practicable Date.


(a) a premium of approximately 26.4% over the closing price of HK$5.400 per Share as

quoted on the Stock Exchange on the Last Trading Day;

(b) a premium of approximately 23.5% over the average volume weighted average




(c) a premium of approximately 25.3% over the average volume weighted average




LETTER FROM ING

– 14 –

(d) a premium of approximately 38.1% over the average volume weighted averageclosing price of HK$4.943 per Share based on the daily volume weighted averageclosing prices quoted on the Stock Exchange for the 30 trading days immediatelyprior to and including the Last Trading Day; and

(e) a premium of approximately 6.5% over the closing price of HK$6.410 per Share asquoted on the Stock Exchange on the Latest Practicable Date.

Highest and Lowest Prices

During the Relevant Period, the highest closing price of the Shares was HK$6.45 perShare as quoted on the Stock Exchange on 4 and 8 January 2008, and the lowest closing priceof the Shares was HK$2.95 per Share as quoted on the Stock Exchange on 6 July 2007.

The Option Offer

As at the Latest Practicable Date, the Company had 89,700,000 Share Options with anexercise price of HK$5.24 which were then outstanding. Share options granted pursuant to theShare Option Scheme with an exercise price of HK$1.76 have all been exercised subsequentto the issue of the Announcement and hence no offer will be made for such share options withexercise price of HK$1.76.

An unconditional cash offer is made to all Optionholders in accordance with therequirements under the Takeovers Code.

Accepting Optionholders can choose any one of the following three alternatives of theconsideration in respect of the Option Offer. The consideration for each Share Option held,which comprises two elements, is as follows:



Payment for the Option Offer

First Payment

In all three alternatives, the First Payment will be made within ten days after the receiptby the Offeror of the duly completed valid acceptances from the accepting Optionholders.

Second Payment

Under Alternative 1, the Second Payment will be made at the same time as the FirstPayment to those accepting Optionholders who have validly chosen this alternative.

LETTER FROM ING

– 15 –

Under Alternative 2, the Second Payment will be made within ten days of the

Shareholders’ Agreement becoming unconditional to those accepting Optionholders who have

validly chosen this alternative. If the Shareholders’ Agreement does not become

unconditional, the Second Payment will not be made to those accepting Optionholders

who have validly chosen this alternative.

Under Alternative 3, the Second Payment will be made within ten days of the completion

of the sale and purchase of the First Call Option Shares to those accepting Optionholders who

have validly chosen this alternative. If (a) the Shareholders’ Agreement does not become

unconditional or (b) the sale and purchase of the First Call Option Shares is not

completed, the Second Payment will not be made to those accepting Optionholders who

have validly chosen this alternative.

By accepting the Option Offer in respect of their Share Options, the Optionholders will

agree to cancel their Share Options for the consideration set out above.

As at the Latest Practicable Date, there were 89,700,000 Share Options with an exercise

price of HK$5.24 per Share. The Option Offer Prices above represent the “see-through” price

of the Share Option, being the amount by which the consideration in respect of the Share Offer

exceeds the exercise price of that Share Option.

Total Consideration

As at the Latest Practicable Date, there were 2,929,200,000 Shares in issue and Share

Options over 89,700,000 Shares granted by the Company pursuant to the Share Option Scheme.

Save for the Share Options, there are no outstanding options, warrants, derivatives or

other securities issued by the Company that carry a right to subscribe for or which are

convertible into Shares.

Assuming none of the Share Options is exercised in accordance with the terms of the

Share Option Scheme and full acceptance of the Option Offer under Alternative 3, the Option

Offer is valued at a maximum of approximately HK$142 million. Assuming all Share Options

are exercised in full by the Optionholders, no consideration will be payable under the Option

Offer.

Assuming none of the Share Options is exercised and full acceptance of the Share Offer

and the Option Offer under Alternative 3, the total maximum cash consideration payable by the

Offeror for the Share Offer and the Option Offer would be approximately HK$5,526 million.

Assuming all of the Share Options were exercised in full and full acceptance of the Share Offer

under Alternative 3, the total maximum cash consideration payable would be approximately

HK$5,996 million.

LETTER FROM ING

– 16 –

FINANCIAL RESOURCES AVAILABLE FOR THE OFFER

The Offeror intends to finance the Offer by drawing on inter-company facilities with itsshareholder or other entities associated with it. ING, as financial adviser to the Offeror, issatisfied that sufficient financial resources are available to the Offeror to satisfy full acceptanceof the Offer. The payment of interest on, repayment of or security for any liability (contingentor otherwise) will not depend to any significant extent on the business of the Group.

UNCONDITIONALITY OF THE OFFER

The Offer is unconditional in all respects.

ISSUED SHARES AND SHARE OPTIONS OF THE COMPANY

The table below sets out the shareholding structure of the Company as at the LatestPracticable Date and after completion of the Offer:

As at theLatest Practicable Date

After completionof the Offer(1)


ShareholderNumber of

Shares% of issued

share capitalNumber of

Shares% of issued


Shares% of issued

share capital

The Offeror 820,119,151 28.00 864,597,151 29.52 925,872,151 30.67Persons acting in concert

with the Offeror 1,320,302,849 45.07 1,320,302,849 45.07 1,320,302,849 43.73

Sub-total 2,140,422,000 73.07 2,184,900,000 74.59 2,246,175,000 74.40

Directors of the Company andits subsidiary other thanMr. Han(3) 12,000,000 0.41 12,000,000 0.41 18,000,000 0.60

Public Shareholders 776,778,000 26.52 732,300,000 25.00 754,725,000 25.00

Total 2,929,200,000 100.00 2,929,200,000 100.00 3,018,900,000 100.00

Notes:

(1) Assuming (i) all the Optionholders accept the Option Offer, (ii) directors of the Company and itssubsidiaries do not accept the Share Offer, and (iii) not more than 75% of the Shares are held by theOfferor and its Concert Parties after close of the Offer and the 25% public float is maintained by theOfferor taking appropriate steps including the selling down of its shareholding interest in the Companyafter close of the Offer.

(2) Assuming (i) all the Share Options are exercised, (ii) directors of the Company and its subsidiaries donot accept the Share Offer, and (iii) not more than 75% of the Shares are held by the Offeror and itsConcert Parties after close of the Offer and the 25% public float is maintained by the Offeror takingappropriate steps including the selling down of its shareholding interest in the Company after close ofthe Offer.

(3) Such directors are Mr. Zhu Jun, Mr. Liu Lei, Mr. Shen Xiaoling, Mr. Yu Jianshui, Mr. Gao Qingju andMr. Wong Man Chung, Francis, and two directors of a subsidiary of the Company. Other than Mr. YuJianshui (who held 2,400,000 Share Options), none of the Directors held any Share Options as at theLatest Practicable Date. In addition, 3,600,000 Share Options were held by two directors of a subsidiaryof the Company.

LETTER FROM ING

– 17 –

The table below sets out details of the Share Options as at the Latest Practicable Date:

Number ofShare Options

Date of grant ofShare Options

Exerciseprice

Exerciseperiod

89,700,000(1) 26 October 2007 HK$5.24 30 October 2007 to

25 October 2017

Note:

(1) 83,700,000 Share Options are held by employees of the Group who are not connected persons of theCompany. 6,000,000 Share Options are held by connected persons of the Company, of which 2,400,000Share Options are held by Mr. Yu Jianshui, who is an executive Director of the Company, 2,000,000Share Options are held by Mr. Feng Aimin, a director of Hebei Jinxi and 1,600,000 Share Options areheld by Mr. Pang Baoyin, a director of Hebei Jinxi. The Share Options were granted in the ordinarycourse of business of the Company.

As at the Latest Practicable Date, no other options, warrants, derivatives or other

securities have been issued by the Company that carry a right to subscribe for or which are

convertible into Shares (other than the Share Options).

FURTHER TERMS OF THE OFFER

The Shares

Acceptance of the Share Offer by any Shareholder will be deemed to constitute a warranty

by such person that all the Shares to be sold by such person under the Share Offer will be free

from all liens, charges, options, claims, equities, adverse interests, rights of pre-emption and

any other third party rights or encumbrances of any nature whatsoever and together with all

rights accruing or attaching thereto, including, without limitation, the right to receive

dividends and distribution declared, made or paid on or after 13 December 2007, being the date

of the Announcement. By accepting the Option Offer, the Optionholders will surrender and

give up the subscription rights attached to the Share Options.

Availability of the Offer

As the availability of the Offer to persons not resident in Hong Kong may be affected by

the laws of the relevant jurisdiction in which they are resident, persons who are citizens or

residents or nationals of a jurisdiction outside Hong Kong should inform themselves about and

observe any applicable legal or regulatory requirements and, where necessary, seek legal

advice. It is the responsibility of Shareholders and Optionholders whose addresses (as shown

on the Company’s register of members or register of holders of Share Options, as the case may

be) are outside of Hong Kong and who wish to accept the Offer to satisfy themselves as to the

full observance of the laws of the relevant jurisdiction in connection therewith (including the

obtaining of any governmental, exchange control or other consent which may be required or

the compliance with other necessary formalities and the payment of any transfer or other taxes

due in respect of such jurisdiction).

LETTER FROM ING

– 18 –

COMPULSORY ACQUISITION

The parties to the Shareholders’ Agreement have agreed that if the Offeror acquires

Shares under the Offer which will result in ArcelorMittal and any persons acting in concert

with ArcelorMittal holding more than 90% of the voting rights of the Company, none of them

will exercise any rights of compulsory acquisition under any applicable laws and regulations,

including the Companies Act and the Takeovers Code.

Accordingly, neither ArcelorMittal nor the Offeror intends to exercise the right to

compulsorily acquire any Shares outstanding after completion of the Offer.

MAINTAINING THE COMPANY’S LISTING STATUS

It is the intention of the Offeror to maintain the listing of the Company on the Main Board

of the Stock Exchange after the close of the Offer.

The Stock Exchange has stated that if, at the close of the Offer, less than 25% of the

issued Shares are held by the public, or if the Stock Exchange believes that:

(a) a false market exists or may exist in the trading of the Shares; or

(b) there are insufficient Shares in public hands to maintain an orderly market,

then it will consider exercising its discretion to suspend trading in the Shares until a level of

sufficient public float is attained. In this connection, it should be noted that upon completion

of the Offer, there may be an insufficient public float of the Shares and, therefore, trading in

the Shares may be suspended until a sufficient level of public float is attained. The parties to

the Shareholders’ Agreement have agreed that in the event that, as a result of the Offer, the

Company no longer complies with the minimum public float requirement under Rule 8.08 of

the Listing Rules, ArcelorMittal will restore the required minimum public float, if necessary,

by selling down (or procuring the Offeror to sell down) a sufficient number of Shares acquired

under the Offer. ArcelorMittal may also discuss with the Company at the relevant time whether

or not the Company would like to issue new Shares for its own capital requirements. The

provisions relating to the maintenance of public float of the Company took immediate effect

upon signing of the Shareholders’ Agreement, and are therefore not subject to the Anti-trust

Condition being satisfied.

The Offeror has undertaken to the Stock Exchange that after the closing of the Offer,

appropriate steps will be taken to ensure that sufficient public float exists in the Shares, which

may include the sell down of its shareholding interest in the Company.

LETTER FROM ING

– 19 –

INFORMATION ON THE OFFEROR AND ARCELORMITTAL

The Offeror is a company incorporated in Switzerland and is a wholly-owned subsidiaryof ArcelorMittal. The Offeror is a holding company, holding interests in companies which areengaged in the steel business.

ArcelorMittal is the world’s number one steel company, with a total crude steelproduction of 118 million tonnes, which represented approximately 10% of the world’s steeloutput in 2006.

ArcelorMittal has led the consolidation of the world’s steel industry and currentlyemploys 320,000 employees in more than 60 countries. It is today a global steelmaker with anindustrial presence in 27 countries in Europe, Asia, Africa and America, which gives the groupexposure to all the key steel markets, from emerging to mature ones.

ArcelorMittal is a leader in all major global segments, including automotive,construction, household appliances and packaging. The group engages extensively in researchand development and technology, holds sizeable captive supplies of raw materials, and operatesextensive distribution networks.

For the year ended 31 December 2006, the ArcelorMittal group reported proformaconsolidated revenue of approximately US$88.6 billion and net income of approximatelyUS$7,973 million based on financial statements prepared in accordance with the InternationalFinancial Reporting Standards.

ArcelorMittal is currently listed under the legal entity ArcelorMittal on the stockexchanges of New York, Amsterdam, Paris, Brussels and Luxembourg, and on the Spanishstock exchanges of Barcelona, Bilbao, Madrid and Valencia. As at 10 January 2008, its marketcapitalisation amounted to approximately EUR65,646 million (or equivalent to approximatelyUS$96,354 million at the exchange rate of EUR0.6813 = US$1.0).

INTENTIONS OF THE OFFEROR REGARDING THE COMPANY

Strengthening its position in the fast growing PRC market is one of the key elements inArcelorMittal’s strategy. On 8 November 2007, the Offeror purchased 820,119,151 Shares fora total consideration of HK$5,019,129,204.12, which amounted to HK$6.12 per Share.

Save as disclosed in the section headed “Issued Shares and Share Options of theCompany” of this letter, none of the Offeror and its Concert Parties owned any other Sharesas at Latest Practicable Date.

The acquisition of approximately 28.00% stake in the Company constitutes an importantstep. With this 28.00% acquisition and the Shareholders’ Agreement with the ControllingShareholders, ArcelorMittal will be better positioned to participate in the attractive growth ofthe PRC construction and infrastructure sectors in the country and develop the Company intoa leading steel manufacturer in China, in particular, as a leading producer of heavy sections,focusing on profitability, quality and sustainability.

LETTER FROM ING

– 20 –

Part of ArcelorMittal’s growth over the years has been through acquisitions and

subsequently creating value through active management of the companies acquired.

ArcelorMittal believes that it will be able to add value to the Company in areas including the

provision of technology and technical know-how, training, financial management, mergers and

acquisitions, supply chain management and marketing as well as sustainable and resource

efficient production. ArcelorMittal’s existing investments in the PRC include, among others, a

33.02% equity interest in Valin, a 12% equity interest in the Baosteel-

NipponSteel/ArcelorMittal Automotive Sheet Joint Venture and a 90% interest in Rongcheng

Chengshan Steelcord.

After the Shareholders’ Agreement becomes unconditional, the Offeror expects that

changes will be made to the composition of the Board, which will be in compliance with the

Takeovers Code and the Listing Rules. Please refer to the paragraph headed “The Shareholders’

Agreement and the Business Cooperation Agreement – The Shareholders’ Agreement –

Management of the Company” for more details.

It is the intention of the Offeror to maintain the existing business of the Group upon the

completion of the Offer. The Offeror does not intend to introduce any major changes to the

existing operating and management structure of the Group (including any redeployment of

fixed assets of the Group) or the employees of the Group as a result of the Offer.

ACCEPTANCE AND SETTLEMENT

Procedures for Acceptance

The Share Offer

For Shareholders, to accept the Share Offer in respect of your Shares, you should

complete the accompanying WHITE form of acceptance and transfer for the Disinterested

Shares in accordance with the instructions printed thereon, which instructions form part of the

terms and conditions of the Share Offer in respect of the Disinterested Shares. The completed

WHITE form of acceptance and transfer for the Disinterested Shares should then be

forwarded, together with the relevant Disinterested Share certificate(s) and/or transfer

receipt(s) and/or any document(s) of title (and/or any satisfactory indemnity or indemnities

required in respect thereof) for not less than the number of Disinterested Shares in respect of

which you intend to accept the Share Offer, by post or by hand, to the Registrar at 26/F, Tesbury

Centre, 28 Queen’s Road East, Wanchai, Hong Kong in an envelope marked “China Oriental

Share Offer” as soon as possible but in any event not later than 4:00 p.m. on Monday, 4

February 2008, or such later time as the Offeror may determine and announce in accordance

with the Takeovers Code. No acknowledgement of receipt of any form of acceptance and

transfer, share certificate(s), transfer receipt(s) or other document(s) of title (and/or any

satisfactory indemnity or indemnities required in respect thereof) will be given.

LETTER FROM ING

– 21 –

The Option Offer

For Optionholders, to accept the Option Offer in respect of your Share Options, you

should complete the accompanying YELLOW form of acceptance and cancellation for the

Share Options in accordance with the instructions printed thereon, which instructions form part

of the terms and conditions of the Option Offer in respect of the Share Options. The completed

YELLOW form of acceptance and cancellation for the Share Options should then be

forwarded, together with the relevant letter or other document evidencing the grant of the

relevant Share Options to you and/or any document(s) of title or entitlement (and/or any

satisfactory indemnity or indemnities required in respect thereof) for not less than the number

of Share Options in respect of which you intend to accept the Option Offer, by post or by hand,

to China Oriental at Suites 901-2 & 10, 9/F, Great Eagle Centre, 23 Harbour Road, Wanchai,

Hong Kong in an envelope marked “China Oriental Option Offer” as soon as possible but in

any event not later than 4:00 p.m. on Monday, 4 February 2008, or such later time as the

Offeror may determine and announce in accordance with the Takeovers Code. No

acknowledgement of receipt of any form of acceptance and cancellation, grant letter or other

document granting the Share Options or other document(s) of title or entitlement (and/or any

satisfactory indemnity or indemnities required in respect thereof) will be given.

General

Your attention is drawn to the section headed “Further procedures for acceptance” as set

out in Appendix I to this Composite Document and in the accompanying WHITE or YELLOW

form.

Overseas Shareholders and Optionholders

Shareholders and Optionholders with registered addresses outside Hong Kong should pay

attention to the section headed “General” in Appendix I to this Composite Document.

Hong Kong Stamp Duty

Shareholder’s Hong Kong ad valorem stamp duty arising in connection with acceptance

of the Share Offer will be payable by each Shareholder at a rate of HK$1.00 for every

HK$1,000 (or part thereof) of: (i) the market value of the shares; or (ii) the consideration

payable to such person in respect of the relevant acceptance by such Shareholder, whichever

is the higher.

The Inland Revenue Department would normally accept the last closing price of the

shares on the Stock Exchange on the day of transfer as the market value of the shares

transferred for the purpose of calculating stamp duty.

LETTER FROM ING

– 22 –

The consideration payable would be the maximum amount payable under each alternative.

For a Shareholder who has chosen Alternative 1, the consideration payable for the purpose of

calculating stamp duty is HK$6.355. For a Shareholder who has chosen Alternative 2, the

consideration payable for the purpose of calculating stamp duty is HK$6.591. For a

Shareholder who has chosen Alternative 3, the consideration payable for the purpose of

calculating stamp duty is HK$6.826.

The amount of stamp duty payable will be deducted from the consideration in respect of

the First Payment due to such person on acceptance of the Share Offer. Such amounts will be

paid by the Offeror to the Hong Kong Stamp Duty Office in accordance with the Stamp Duty

Ordinance (Chapter 117 of the Laws of Hong Kong).

Shareholder should inform themselves about and observe any applicable tax requirements

and, where necessary, seek professional tax advice.

Settlement

The Share Offer

As set out in the “Letter from ING – Consideration of the Offer – The Share Offer”,

accepting Shareholders can choose any one of the three alternatives of the consideration in

respect of the Share Offer, i.e., Alternative 1, Alternative 2 or Alternative 3 as set out on page

12 of this Composite Document.

Provided that the relevant WHITE form of acceptance and transfer for the Disinterested

Shares and Disinterested Share certificate(s) and/or transfer receipt(s) and/or other

document(s) of title (and/or any satisfactory indemnity or indemnities required in respect

thereof) are valid and complete and have been received by the Registrar by no later than 4:00

p.m. on Monday, 4 February 2008 (or such later time as the Offeror may determine and

announce in accordance with the Takeovers Code), a cheque for the amount due to each of the

accepting Shareholders in respect of the First Payment (for Shareholders who choose any of the

three consideration alternatives) and the Second Payment (for Shareholders who choose

Alternative 1) of the relevant Disinterested Shares tendered by them under the Share Offer, less

seller’s ad valorem stamp duty payable by them, will be despatched to the relevant

Shareholders by ordinary post at their own risk within ten days following the date on which all

the relevant documents are received by the Registrar to render such acceptance complete and

valid.

For Shareholders who choose Alternative 2, the Second Payment will be made within ten

days of the Shareholders’ Agreement becoming unconditional to those accepting Shareholders

who have validly chosen this alternative. If the Shareholders’ Agreement does not become

unconditional, the Second Payment will not be made to those accepting Shareholders who

have validly chosen this alternative.

LETTER FROM ING

– 23 –

For Shareholders who choose Alternative 3, the Second Payment will be made within ten

days of the completion of the sale and purchase of the First Call Option Shares to those

accepting Shareholders who have validly chosen this alternative. If (a) the Shareholders’

Agreement does not become unconditional or (b) the sale and purchase of the First Call

Option Shares is not completed, the Second Payment will not be made to those accepting

Shareholders who have validly chosen this alternative.

The Option Offer

As set out in the “Letter from ING – Consideration of the Offer – The Option Offer”,

accepting Optionholders can choose any one of the three alternatives of the consideration in

respect of the Option Offer, i.e., Alternative 1, Alternative 2 or Alternative 3 as set out on page

15 of this Composite Document.

Provided that the relevant YELLOW form of acceptance and cancellation for the Share

Options and the relevant letter or other document evidencing the grant of the relevant Share

Options to the accepting Optionholder and/or other document(s) of title or entitlement (and/or

any satisfactory indemnity or indemnities required in respect thereof) are valid and complete

and have been received by China Oriental by no later than 4:00 p.m. on Monday, 4 February

2008 (or such later time as the Offeror may determine and announce in accordance with the

Takeovers Code), a cheque for the amount due to each of the accepting Optionholders in

respect of the First Payment (for Optionholders who choose any of the three consideration

alternatives) and the Second Payment (for Optionholders who choose Alternative 1) of the

relevant Share Options tendered by them under the Option Offer and agreed to be cancelled

will be despatched to the relevant Optionholders by ordinary post at their own risk within ten

days following the date on which all the relevant documents are received by China Oriental to

render such acceptance complete and valid.

For Optionholders who choose Alternative 2, the Second Payment will be made within ten

days of the Shareholders’ Agreement becoming unconditional to those accepting Optionholders

who have validly chosen this alternative. If the Shareholders’ Agreement does not become

unconditional, the Second Payment will not be made to those accepting Optionholders

who have validly chosen this alternative.

For Optionholders who choose Alternative 3, the Second Payment will be made within ten

days of the completion of the sale and purchase of the First Call Option Shares to those

accepting Optionholders who have validly chosen this alternative. If (a) the Shareholders’

Agreement does not become unconditional or (b) the sale and purchase of the First Call

Option Shares is not completed, the Second Payment will not be made to those accepting

Optionholders who have validly chosen this alternative.

LETTER FROM ING

– 24 –

Nominee registration

To ensure equality of treatment of all Shareholders, those registered Shareholders who

hold Shares as nominee for more than one beneficial owner should, as far as practicable, treat

the holding of each beneficial owner separately. In order for the beneficial owners of Shares,

whose investments are registered in nominee names, to accept the Share Offer, it is essential

that they provide instructions to their nominees of their intentions with regard to the Share

Offer.

Despatch of payment

All documents and remittances will be sent to the Shareholders and the Optionholders

through ordinary post at their own risk. These documents and remittances will be sent to them

at their respective addresses as they appear in the register of members (or the register of

holders of Share Options as the case may be), or, in the case of joint Shareholders, to the

Shareholder whose name appears first in the said register of members, unless otherwise

specified in the relevant WHITE forms of acceptance and transfer for the Disinterested Shares

completed and returned by the accepting Shareholders (or YELLOW forms of acceptance and

cancellation for the Share Options as the case may be). None of the Offeror, its Concert Parties,

ING, China Oriental, UBS, the Registrar or any of their respective directors, officers, or

associates or any other person involved in the Offer will be responsible for any loss or delay

in transmission of such documents and remittances or any other liabilities that may arise as a

result thereof.

In respect of any payment to any accepting Shareholder or Optionholder under the Offer,

each cheque representing any amount due to any such holder will be made payable to the order

of the person to whom the envelope containing the cheque is addressed, and the encashment

of the cheque shall be a good discharge to the Offeror for the monies represented by the cheque.

All cheques will be posted at the risk of the addressees and other persons entitled to the monies

represented by the cheques. On or after the day falling six months after the posting of any

cheque, the Offeror will have the right to cancel or countermand payment of such cheque which

has not been encashed or has been returned uncashed, and will place the monies represented

thereby in a deposit account (the “Deposit Account”) in the Company’s name with a licensed

bank in Hong Kong to be selected by the Company and approved by the Offeror. The Company

will hold those monies until the end of a six-year period (the “Holding Period”) commencing

from the date when the Second Payment is made, as evidenced by the posting of the relevant

cheques, to accepting Shareholders and Optionholders choosing Alternative 1, Alternative 2 or

Alternative 3, whichever is the latest. During the Holding Period, the Company will make

payments out of the sum deposited with the Deposit Account to any person who has satisfied

the Company that he is entitled to payment under the Offer and that the cheque(s) previously

sent to him has not been encashed. No payment so made by the Company will include any

interest accrued on the sum to which such person is entitled. Any payment so made by the

Company shall be a good discharge to the Offeror for the monies represented by such payment.

The Company will exercise its absolute discretion in determining whether or not it is satisfied

that any person is entitled to payment out of the Deposit Account, and a certificate issued by

LETTER FROM ING

– 25 –

the Company to the effect that a person is so entitled or not so entitled will be conclusive and

binding upon all persons claiming an interest in the monies deposited in the Deposit Account.

Upon the expiration of the Holding Period, the Offeror will be released from any further

obligation to make any payment under the Offer, and the Company will accordingly transfer

to the Offeror the balance of the sums deposited with the Deposit Account together with

accrued interest, subject, if applicable, to the deduction of any interest or withholding or other

tax and any other deduction required by law as well as all costs and expenses incurred in the

transfer. The above arrangements will take effect in accordance with, and subject to, all

prohibitions and conditions, if any, imposed by law.

For accepting Shareholders and Optionholders who choose Alternative 2 or Alternative 3

among the three consideration alternatives in respect of the Share Offer and the Option Offer,

respectively, the Second Payment will not be made immediately after the completion of the

Offer. As described above, for Shareholders and Optionholders who choose Alternative 2, the

Second Payment will be made within ten days of the Shareholders’ Agreement becoming

unconditional. For Shareholders and Optionholders who choose Alternative 3, the Second

Payment will be made within ten days of the completion of the sale and purchase of the First

Call Option Shares. By accepting the Offer in respect of their Shares or Share Options as the

case may be, the accepting Shareholders and Optionholders are reminded, and specifically

agree, to immediately notify in writing the Company and the registrar of the Company from

time to time upon any changes in their addresses.

TAXATION

Shareholders and Optionholders are recommended to consult their own professional

advisers if they are in any doubt as to the taxation implications of accepting the Offer in respect

of their Shares or Share Options (as the case may be). It is emphasised that none of the Offeror,

its Concert Parties, ING, China Oriental, UBS, the Registrar or any of their respective

directors, officers or associates or any other person involved in the Offer accepts responsibility

for any taxation effects on, or liabilities of, any persons as a result of their acceptance of the

Offer.

THE SHAREHOLDERS’ AGREEMENT AND THE BUSINESS COOPERATION

AGREEMENT

The terms of the Shareholders’ Agreement and the Business Cooperation Agreement are

summarised in the section headed “The Shareholders’ Agreement and the Business Cooperation

Agreement” of this Composite Document. As described in more detail in that section, the key

terms of the Shareholders’ Agreement are conditional upon satisfaction of the Anti-trust

Condition. The key terms of the Business Cooperation Agreement will also take effect only

upon the Shareholders’ Agreement becoming unconditional.

LETTER FROM ING

– 26 –

GENERAL

Shareholders and Optionholders are advised to read carefully the letter from the

Independent Board Committee to the Independent Shareholders and the Optionholders and the

letter from Evolution Watterson to the Independent Board Committee, Independent

Shareholders and Optionholders as contained in this Composite Document before deciding

whether or not to accept the Offer.

Your attention is also drawn to the further terms of the Offer and the additional

information set out in the appendices to this Composite Document.

Yours faithfully,

On behalf of

ING Bank N.V.Malcolm E.O. Brown

Managing Director

LETTER FROM ING

– 27 –

(incorporated in Bermuda with limited liability)(Stock Code: 581)

Executive Directors:

Mr. Han Jingyuan

(Chairman and Chief Executive Officer)

Mr. Zhu Jun

Mr. Liu Lei

Mr. Shen Xiaoling

Mr. Yu Jianshui

Mr. Zhu Hao

Independent Non-executive Directors:

Mr. Gao Qingju

Mr. Yu Tung Ho

Mr. Wong Man Chung, Francis

Registered office:

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Principal office and place of

business in Hong Kong:

Suites 901-2 & 10

9th Floor, Great Eagle Centre

23 Harbour Road

Wanchai

Hong Kong

14 January 2008

To the Independent Shareholders and Optionholders

Dear Sir or Madam,




MITTAL STEEL HOLDINGS AG ANDPARTIES ACTING IN CONCERT WITH IT)

1. INTRODUCTION

Reference is made to the Announcement in which the Offeror and the Company jointlyannounced that on 8 November 2007, the Offeror completed its acquisition of approximately28.00% of the issued Shares from Ms. Chen Ningning.


LETTER FROM THE BOARD

– 28 –

On 5 December 2007, the Takeovers and Mergers Panel came to a decision that prior to

and at the time of the Offeror’s acquisition of Ms. Chen Ningning’s approximately 28.00%

stake in the Company, ArcelorMittal and the Controlling Shareholders were parties acting in

concert and immediately following the completion of the Offeror’s acquisition of Ms. Chen

Ningning’s issued Shares, the Offeror and person acting in concert with it held an aggregate

of 2,140,422,000 Shares, representing approximately 73.07% of the issued share capital of the

Company as at the date of this Composite Document. Accordingly, the Offeror is required,

pursuant to Rule 26.1 of the Takeovers Code, to make an unconditional mandatory cash offer

to acquire all the Disinterested Shares.

The purpose of this Composite Document, of which this letter forms a part, is to provide

you with, amongst others, information relating to the Group, the Controlling Shareholders, the

Offeror and the Offer as well as setting out the letter from the Independent Board Committee

containing its recommendation and advice to the Independent Shareholders and Optionholders

in respect of the Offer and the letter from Evolution Watterson containing its advice to the

Independent Board Committee, the Independent Shareholders and the Optionholders in respect

of the Offer.

Unless the context otherwise requires, terms defined in this Composite Document shall

have the same meanings when used in this letter.

2. INDEPENDENT BOARD COMMITTEE

In accordance with Rule 2.1 and Rule 2.8 of the Takeovers Code, the Independent Board

Committee comprising all the independent non-executive Directors of the Company, namely

Mr. Yu Tung Ho, Mr. Gao Qingju and Mr. Wong Man Chung, Francis, was established to advise

the Independent Shareholders and Optionholders in respect of the Offer.

The independent non-executive Directors are independent of and have no direct or

indirect interest in the Offer other than, in the case of Mr. Gao Qingju and Mr. Wong Man

Chung, Francis, as holders of the Shares which are subject to the Share Offer. The Company,

with the approval of the Independent Board Committee, has appointed Evolution Watterson as

its independent financial adviser to advise the Independent Board Committee, the Independent

Shareholders and the Optionholders on whether the Offer is fair and reasonable so far as the

Independent Shareholders and the Optionholders are concerned and as to the actions to be

taken by them.

The full text of the letter of advice from Evolution Watterson addressed to the

Independent Board Committee, the Independent Shareholders and the Optionholders is set out

in this Composite Document. Shareholders and Optionholders are advised to read the letter of

advice from Evolution Watterson and the additional information contained in the appendices to

this Composite Document carefully before taking any action in respect of the Offer.


– 29 –

3. THE OFFER

ING is making the Offer, on behalf of the Offeror, on the terms and conditions set out in

this Composite Document (including, without limitation, the terms set out in Appendix I to this

Composite Document) and in the Form of Acceptance, to acquire all the Disinterested Shares

and Share Options on the following basis:

The consideration in respect of the Share Offer is as follows:



The consideration in respect of the Option Offer is as follows:

For each Share Option held (with an exercise price of HK$5.24)



Further details of the Offer are set out in the Letter from ING in this Composite

Document.

4. INFORMATION ON THE COMPANY

The Company is incorporated under the laws of Bermuda with limited liability. The Group

is principally engaged in the production and sale of iron and steel products in the PRC.

Wellbeing is the beneficial owner of 1,255,849,124 Shares, which represent

approximately 42.87% of the entire issued share capital in the Company. Wellbeing is

beneficially owned as to approximately 60.69% by Mr. Han and Mr. Han also holds 16.09% of

the issued share capital of Wellbeing on trust for the benefit of approximately 1,800 employees

of Hebei Jinxi, the principal subsidiary of the Company. The remainder of the issued share

capital of Wellbeing is owned by ten other individuals, all of whom are involved or were

previously involved in the operations of Hebei Jinxi. Chingford is the beneficial owner of

61,653,725 Shares, which represent approximately 2.10% of the entire issued share capital in

the Company. Chingford is wholly-owned by Mr. Han. Mr. Han is the beneficial owner of

2,800,000 Shares, which represent approximately 0.096% of the entire issued share capital in

the Company. Mr. Han and persons acting in concert with him (other than the Offeror) hold an

aggregate of 45.07% of the entire issued share capital in the Company.


– 30 –

For the year ended 31 December 2006, profit attributable to the equity holders of the

Company was approximately RMB1,033 million (or equivalent to HK$1,029 million at the

exchange rate of RMB1.0034 = HK$1.0 as at 1 January 2007). The audited net asset value

(excluding minority interest) of the Group as at 31 December 2006 was approximately

RMB5,479 million (or equivalent to HK$5,460 million at the exchange rate of RMB1.0034 =

HK$1.0 as at 1 January 2007). As at the date of this Composite Document, there are no

intentions for the Group to dispose of any of its existing businesses. The Group’s existing

businesses will continue to be and its activities will remain the same. As at the date of this

Composite Document, save for the future business development pursuant to the Business

Cooperation Agreement, further details of which are set out on page 66 of this Composite

Document, no new business is contemplated to be carried out by the Group as a result of the

Offer.

Other than the Shares and the Share Options, the Company does not have any other

outstanding equity securities (including equity related exchangeable securities, or warrants,

options (including non-transferable options) or subscription rights or derivatives in respect of

any equity share capital of the Company).

Interests in Shares and Share Options

The table below sets out the shareholding structure of the Company as at the Latest

Practicable Date and after completion of the Offer:

As at theLatest Practicable Date



ShareholderNumber of

Shares% of issued


Shares% of issued


Shares% of issued

share capital

The Offeror 820,119,151 28.00 864,597,151 29.52 925,872,151 30.67Persons acting in concert

with the Offeror 1,320,302,849 45.07 1,320,302,849 45.07 1,320,302,849 43.73

Sub-total 2,140,422,000 73.07 2,184,900,000 74.59 2,246,175,000 74.40

Directors of the Company and

its subsidiary other than

Mr. Han(3) 12,000,000 0.41 12,000,000 0.41 18,000,000 0.60Public Shareholders 776,778,000 26.52 732,300,000 25.00 754,725,000 25.00

Total 2,929,200,000 100.00 2,929,200,000 100.00 3,018,900,000 100.00


– 31 –

Notes:

(1) Assuming (i) all the Optionholders accept the Option Offer, (ii) directors of the Company and itssubsidiaries do not accept the Share Offer, and (iii) not more than 75% of the Shares are held by theOfferor and its Concert Parties after close of the Offer and the 25% public float is maintained by theOfferor taking appropriate steps including the selling down of its shareholding interest in the Companyafter close of the Offer.

(2) Assuming (i) all the Share Options are exercised, (ii) directors of the Company and its subsidiaries donot accept the Share Offer, and (iii) not more than 75% of the Shares are held by the Offeror and itsConcert Parties after close of the Offer and the 25% public float is maintained by the Offeror takingappropriate steps including the selling down of its shareholding interest in the Company after close ofthe Offer.

(3) Such Directors are Mr. Zhu Jun, Mr. Liu Lei, Mr. Shen Xiaoling, Mr. Yu Jianshui, Mr. Gao Qingju andMr. Wong Man Chung, Francis, and two directors of a subsidiary of the Company. Other than Mr. YuJianshui (who held 2,400,000 Share Options), none of the Directors held any Share Options as at theLatest Practicable Date. In addition, 3,600,000 Share Options were held by two directors of a subsidiaryof the Company.

The table below sets out details of the Share Options as at the Latest Practicable Date:

Number ofShare Options

Date of grant ofShare Options

Exerciseprice Exercise period

89,700,000(1) 26 October 2007 HK$5.24 30 October 2007 to

25 October 2017

Note:

(1) 83,700,000 Share Options are held by employees of the Group who are not connected persons of theCompany. 6,000,000 Share Options are held by connected persons of the Company, of which 2,400,000Share Options are held by Mr. Yu Jianshui, who is an executive Director of the Company, 2,000,000Share Options are held by Mr. Feng Aimin, a director of Hebei Jinxi and 1,600,000 Share Options areheld by Mr. Pang Baoyin, a director of Hebei Jinxi. The Share Options were granted in the ordinarycourse of business of the Company.

As at the Latest Practicable Date, no other options, warrants, derivatives or othersecurities have been issued by the Company that carry a right to subscribe for or which areconvertible into Shares (other than the Share Options).

5. INTENTIONS OF THE OFFEROR

Your attention is drawn to the paragraph headed “Intentions of the Offeror regarding theCompany” in the Letter from ING in this Composite Document.

In particular, it is the intention of the Offeror to participate in the attractive growth of thePRC construction steel market and develop the Company into a leading producer of heavysections, focusing on profitability, quality and sustainability. The Offeror believes that it willbe able to add value to the Company in areas including the provision of technology andtechnical know-how, training, financial management, mergers and acquisitions, supply chainmanagement and marketing as well as sustainable and resource efficient production. After theShareholders’ Agreement becomes unconditional, the Offeror expects that changes will bemade to the composition of the Board, which will be in compliance with the Takeovers Codeand the Listing Rules.


– 32 –

The Board consents to the intention of the Offeror in respect of the Company.

6. MAINTENANCE OF THE COMPANY’S LISTING STATUS

It is the intention of the Offeror to maintain the listing of the Company on the Main Board

of the Stock Exchange after the close of the Offer.

The Stock Exchange has stated that if, at the close of the Offer, less than 25% of the

issued Shares are held by the public, or if the Stock Exchange believes that:

(a) a false market exists or may exist in the trading of the Shares; or

(b) there are insufficient Shares in public hands to maintain an orderly market,

then it will consider exercising its discretion to suspend trading in the Shares until a level of

sufficient public float is attained. In this connection, it should be noted that upon completion

of the Offer, there may be an insufficient public float of the Shares and, therefore, trading in

the Shares may be suspended until a sufficient level of public float is attained. The parties to

the Shareholders’ Agreement have agreed that in the event that, as a result of the Offer, the

Company no longer complies with the minimum public float requirement under Rule 8.08 of

the Listing Rules, ArcelorMittal will restore the required minimum public float, if necessary,

by selling down (or procuring the Offeror to sell down) a sufficient number of Shares acquired

under the Offer. ArcelorMittal may also discuss with the Company at the relevant time whether

or not the Company would like to issue new Shares for its own capital requirements. The

provisions relating to the maintenance of public float of the Company took immediate effect

upon signing of the Shareholders’ Agreement, and are therefore not subject to the Anti-trust

Condition.

The Offeror has undertaken to the Stock Exchange that after the closing of the Offer,

appropriate steps will be taken to ensure that sufficient public float exists in the Shares, which

may include the sell down of its shareholding interest in the Company.

7. FURTHER INFORMATION

Please refer to the Letter from ING set out in this Composite Document and Appendix I

to this Composite Document for information relating to the Offer, the acceptance and

settlement procedures of the Offer, the making of the Offer to Shareholders and Optionholders

outside Hong Kong and taxation.


– 33 –

8. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out in this

Composite Document, which contains its recommendation to the Independent Shareholders and

Optionholders in respect of the Offer, and the letter from Evolution Watterson, which contains

its advice to the Independent Board Committee, the Independent Shareholders and the

Optionholders in respect of the fairness and reasonableness of the Offer and the principal

factors and reasons it has considered before arriving at its advice to the Independent Board

Committee, the Independent Shareholders and the Optionholders. You are also advised to read

this Composite Document and the Form of Acceptance in respect of the acceptance and

settlement procedures of the Offer.

Yours faithfully,

By Order of the Board of

China Oriental Group Company LimitedMr. Han Jingyuan

Chairman and Chief Executive Officer


– 34 –

(incorporated in Bermuda with limited liability)

(Stock Code: 581)

14 January 2008

To the Independent Shareholders and Optionholders

Dear Sir or Madam,




MITTAL STEEL HOLDINGS AGAND PARTIES ACTING IN CONCERT WITH IT)

We refer to the composite offer and response document issued jointly by the Offeror and

the Company to the Shareholders and Optionholders dated 14 January 2008 (the “Composite

Document”) of which this letter forms a part. Unless the context otherwise requires, terms

defined in this Composite Document shall have the same meanings when used in this letter. We

have been appointed by the Board to form the Independent Board Committee to consider and

to advise the Independent Shareholders and Optionholders as to whether or not the terms of the

Offer are fair and reasonable and to make a recommendation as to acceptance.

Evolution Watterson has been appointed as the independent financial adviser to advise us

in respect of the above.

We draw your attention to the letter from the Board and the letter from Evolution

Watterson as set out in this Composite Document.


LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 35 –

Having considered the principal factors and reasons considered by, and the advice of

Evolution Watterson as set out in its letter, we concur with the view of Evolution Watterson and

consider that:

(a) In respect of the Share Offer:

• Independent Shareholders who do not wish to be subjected to the risk of (1) not

obtaining the PRC government approval for the Shareholders’ Agreement, (2)

uncertainty of the prolonged payment timing or (3) general investment risk for

holding the Shares in the long term should accept the alternatives or sell their

Shares in the open market.

• the terms of the Share Offer are not sufficient to compensate for potential long

term future growth as the Company is operating in a fast growing environment,

with the possibility that the Group’s prospects is likely to be even better if the

Company becomes a subsidiary of ArcelorMittal.

Accordingly, we would advise Independent Shareholders to reject the Share Offer if

they intend to hold the Shares in the long term. We would also like to advise Shareholders

not accepting the Share Offer that they should be aware of the risk of the Shareholders’

Agreement failing to become unconditional, which may result in a lower Share price

compared to the Share Offer.

(b) In respect of the Option Offer:

• We concur with Evolution Watterson’s view that Optionholders should exercise

their Share Options and convert all their Share Options into Shares to ensure

there is no potential loss when their Share Option expires. We also note

Evolution Watterson’s observation that Optionholders lacking the financial

ability to exercise their Share Options would only have the alternative to

realise their Share Options value by accepting the Option Offer.

• We also concur with Evolution Watterson’s advice that Optionholders who do

not intend to hold the Shares in the long term should consider selling their

Shares in the open market as it presents a premium over the Option Offer.

• We further concur with Evolution Watterson’s advice that Optionholders who

want to participate in the potential future growth of the Company to consider

holding the Shares as all Share Options will cease to exist and accordingly, to

reject the Option Offer.

You are advised to read the letter from Evolution Watterson and the additional

information contained in the appendices to this Composite Document carefully before taking

any action in respect of the Offer.


– 36 –

Notwithstanding our views and recommendation in respect of the terms of the Offer,

Shareholders and Optionholders are advised that their decision to realise or to hold their

investment in the Company depends on their own individual circumstances and investment

objectives.

Yours faithfully,

THE INDEPENDENT BOARD COMMITTEEGao Qingju

Independent non-executive

Director

Yu Tung HoIndependent non-executive

Director

Wong Man Chung, FrancisIndependent non-executive

Director


– 37 –

14 January 2008

The Independent Board Committee,the Independent Shareholders and Optionholders

China Oriental Group Company LimitedSuites 901-2 & 109th Floor, Great Eagle Centre23 Harbour RoadWanchaiHong Kong

Dear Sirs,

Unconditional mandatory cash offer by ING Bank N.V.on behalf of Mittal Steel Holdings AG to acquire all the outstanding shares

in the issued share capital and cancel all share options ofChina Oriental Group Company Limited

(other than those already owned by Mittal Steel Holdings AGand parties acting in concert with it)

INTRODUCTION

We refer to our appointment as independent financial adviser to the Independent Board

Committee, the Independent Shareholders and Optionholders in relation to the unconditional

mandatory cash offer by ING on behalf of Mittal Steel Holdings AG to acquire all the

outstanding shares in the issued share capital and cancel all share options of the Company.

Details of the Share Offer and the Option Offer (the “Offer”) are set out in the composite

document of the Company dated 14 January 2008 to the Shareholders and Optionholders (the

“Composite Document”), of which this letter forms part. In accordance with Rule 8.4 of the

Takeovers Code, China Oriental is providing the Shareholders and Optionholders with relevant

information in the Composite Document with a view to enable them to reach a properly

informed decision on the Offer. Capitalized terms in this letter have the same meanings as those

defined in the Composite Document unless the context otherwise requires.

On 9 November 2007, the Controlling Shareholders and ArcelorMittal entered into the

Shareholders’ Agreement, in relation to their shareholdings in and the management of the

Group. Pursuant to the Shareholders’ Agreement, the Controlling Shareholders agreed to grant

to ArcelorMittal certain rights to acquire Shares which the Controlling Shareholders currently

own within a specified period of time and ArcelorMittal agreed to grant to the Controlling

Shareholders certain rights to sell to ArcelorMittal such Shares. Subsequently, on 6 December

2007, the Takeover and Merger Panel has come to a decision that ArcelorMittal and the

Controlling Shareholders are parties acting in concert at the time when the acquisition of

LETTER FROM EVOLUTION WATTERSON

– 38 –

approximately 28.00% of the equity interest in the Company by the Offeror was completed,

thus an unconditional mandatory general offer has been triggered under Rule 26.1 of the

Takeovers Code.

Accordingly, on 13 December 2007, the Offeror and the Company jointly announced that,

ING will, on behalf of the Offeror, make the unconditional mandatory cash offer to acquire all

Disinterested Shares and to cancel all Share Options which are outstanding.

An Independent Board Committee comprising all the independent non-executive

Directors, being Mr. Yu Tung Ho, Mr. Gao Qingju and Mr. Wong Man Chung, Francis, has been

established to advise and to give recommendations to the Company’s independent Shareholders

and Optionholders in respect of the Offer.

In formulating our recommendation, we have relied on the accuracy of the information

and facts supplied to us by the Company, its Directors and management. We have considered,

amongst other things, (i) the audited consolidated financial statements of the Group for the

years ended 31 December 2004, 2005 and 2006 and the unaudited interim report of the Group

for the six months ended 30 June 2007; (ii) the financial information of the Group contained

in Appendix II to the Composite Document; (iii) the valuation report of the Put Option in

Appendix III; (iv) the valuation report of the property interest of the Group contained in

Appendix IV; and (v) the Letter from ING. We have discussed with the Offeror and the

Directors on their expectations and views of the Company, its future and opportunities with

ArcelorMittal as a strategic shareholder.

We have also reviewed the past performance of the Shares on the Stock Exchange over

the past year and the performance of other listed companies engaged in structural steel

manufacturing business similar to China Oriental (detail information are set out in section IV,

subsection 1 and 2 below) and the stock market generally.

We have also discussed with the management of Offeror its intention to acquire the

Group, future plans and expansion strategy for the Group and its overall strategy in respect of

the steel industry in China. Other information on the Offeror has been obtained from the Offer

Announcement and publicly available information.

In arriving at our recommendation, we have relied on statements, information, opinions

and representations contained in the Composite Document and the information and

representations provided to us by the Directors and management of the Company as well as the

Offeror. We have assumed that all information, representations and opinions contained or

referred to in the Composite Document and all information, representations and opinions which

have been provided by the Directors and management of the Company and the Offeror for

which they are solely responsible, are true and accurate at the time they were made and will

continue to be accurate at the date of the despatch of the Composite Document. The Directors

jointly and severally accept full responsibility for the accuracy of the information contained in

the Composite Document and confirm, having made all reasonable enquiries, that to the best

of their knowledge and belief, opinions expressed in the Composite Document have been


– 39 –

arrived at after due and careful consideration and there are no other facts not contained in the

Composite Document the omission of which would make any such statement contained in the

Composite Document misleading. We consider that we have been provided with sufficient

information on which to form a reasonable basis for our opinion. We have no reason to suspect

that any relevant information has been withheld, nor are we aware of any fact or circumstance

which would render the information provided and representations and opinions made to us

untrue, inaccurate or misleading. We have not, however, for the purpose of this exercise,

carried out any independent verification of the information provided by the Directors and

management of the Company and the Offeror, nor have we conducted an independent

investigation into the business and affairs of the Company and the Offeror.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion on the Offer, we have taken into consideration the following

factors and reasons:

I. TERMS OF THE SHARE OFFER

There are three alternatives that Shareholders can choose from if they choose to accept

the Share Offer:

Offer Price Alternative 1 Alternative 2 Alternative 3

First Payment HK$6.12 HK$6.12 HK$6.12Second Payment HK$0.235 HK$0.471 HK$0.706

Total Payment HK$6.355 HK$6.591 HK$6.826{ {

Second Payment differential

between the alternatives HK$0.236 HK$0.235

Payment Terms Alternative 1 Alternative 2 Alternative 3

First Payment Payment will be made within ten days after the receipt of

completed acceptances from the accepting Shareholders

Second Payment Payment will be

made at the same

time as First

Payment

Will ONLY be

made within ten

days if the

Shareholders’

Agreement

becomes

unconditional

Will ONLY be

made within ten

days upon the

completion of the

sale and purchase

of First Call

Option Shares


– 40 –

Differences between the Alternative 1 and 2 means that those choosing Alternative 2

would have to wait for the approval of the PRC government and other factors that would turn

the Shareholders’ Agreement unconditional before receiving any of the Second Payment.

Therefore, Alternative 2 will provide an additional return of HK$0.236 for those who wish to

assume the risk of (i) the PRC government not granting the approval, and (ii) waiting period

before the PRC government approval is obtained for the Shareholders’ Agreement to become

unconditional.

Similarly, those choosing Alternative 3 will assume all the risks listed out in Alternative

2, as well as the risk of the First Call Option not being exercised and completed. Alternative

3 compensates the risk of having to wait for (i) the completion of First Call Option and (ii) an

unspecified time frame from the Shareholders’ Agreement becoming unconditional to the

completion of First Call Option, with an additional payment of HK$0.235 compared to

Alternative 2. Therefore, total Second Payment for assuming all such risks under Alternative

3 is HK$0.706.

II. TERMS OF THE OPTION OFFER

There are three alternatives that Optionholders can choose from if they choose to accept

the Option Offer:

Offer Price Alternative 1 Alternative 2 Alternative 3

First Payment HK$0.88 HK$0.88 HK$0.88Second Payment HK$0.235 HK$0.471 HK$0.706

Total Payment HK$1.115 HK$1.351 HK$1.586{ {

Second Payment differentialbetween the alternatives HK$0.236 HK$0.235

Payment Terms Alternative 1 Alternative 2 Alternative 3

First Payment Payment will be made within ten days after the receipt ofcompleted acceptances from the accepting Optionholders

Second Payment Payment will bemade the sametime as FirstPayment

Will ONLY bemade within tendays if theShareholders’Agreementbecomesunconditional

Will ONLY bemade within tendays upon thecompletion of thesale and purchaseof First CallOption Shares


– 41 –

III. SHARE OFFER CONSIDERATION

Based on the three alternatives of the Share Offer, the total value of each alternative is

HK$6.355, HK$6.591 and HK$6.826. In assessing the consideration, we have compared,

Alternative 1, Alternative 2 and Alternative 3 against the average closing price of the Shares

during various periods for the different scenarios.

The Share Offer consideration represents:

Average closing price ofShares during:

Alternative 1Share Offer’stotal value ofHK$6.355 is at



(i) HK$5.40 for the LastTrading Date, being the lastfull trading day prior to thedate of announcement of theOffer

Premium of17.7%

Premium of22.1%

Premium of26.4%

(ii) HK$5.50 for the last 5consecutive trading days upto and including the LastTrading Date

Premium of15.5%

Premium of19.8%

Premium of24.1%

(iii) HK$5.43 for the last 10consecutive trading days upto and including the LastTrading Date

Premium of17.0%

Premium of21.4%

Premium of25.7%

(iv) HK$5.05 for the last 30consecutive trading days upto and including the LastTrading Date

Premium of25.8%

Premium of30.5%

Premium of35.2%

(v) HK$4.00 for the last 90consecutive trading days upto and including the LastTrading Date

Premium of58.9%

Premium of64.8%

Premium of70.7%


– 42 –

Average closing price ofShares during:




(vi) HK$6.39 for the 5consecutive trading daysfrom and including 13December 2007 (the “OfferDay”), being the firsttrading day immediatelyafter the announcement ofthe Offer

Discount of0.5%

Premium of3.1%

Premium of6.8%

(vii) HK$6.39 from the Offer Dayto up to and including theLatest Practicable Date (the“Subsequent Period”)

Discount of0.5%

Premium of3.1%

Premium of6.8%

(viii) HK$6.41 for the LatestPracticable Date

Discount of0.9%

Premium of2.8%

Premium of6.5%

(ix) The audited consolidated netasset value per issued Shareof RMB1.89, orapproximately HK$2.02, asat 31 December 2006, basedon China Oriental’s auditedannual report for the yearended 31 December 2006and 2,905,000,000 Shares inissue as at 31 December2006

Premium of214.6%

Premium of226.3%

Premium of237.9%

(x) The unaudited consolidatednet asset value per issuedShare of RMB2.15, orapproximately HK$2.30, asat 30 June 2007, based onChina Oriental’s unauditedinterim results for the sixmonths ended 30 June 2007and 2,907,982,000 Shares inissue as at 30 June 2007

Premium of176.3%

Premium of186.6%

Premium of196.8%


– 43 –

The following chart shows the closing price trend of the Shares during the 12 months

preceding the Offer Day and the Subsequent Period (together, the “Review Period”):

As illustrated in the above chart, the closing price of the Shares has increased about 200%

from about HK$1.80 in January 2007 to HK$5.40 as at the Last Trading Day. In 2007, Ms.

Chen Ningning, a then Director and substantial Shareholder, initiated an unsolicited takeover

offer, which was subsequently revised to a higher offer. However, the takeover attempt was not

successful but it managed to attract significant attention to the Shares. As a result, prices of the

Shares moved steadily up over the Review Period. Within this period, Mr. Han also acquired

a total number of 24,510,000 Shares, which might have contributed directly or indirectly to the

Share price movement.

We note that from 16 October 2007 to the Last Trading Day, the Share price had traded

as high as HK$5.98 on 5 November 2007 and the highest closing price was HK$5.64 on 30

October 2007. Subsequently, after the announcement of the Offer, the Share price managed to

achieve HK$7.10 on the Offer Day but subsequently the Share price retreated and has been

trading at the HK$6.34 to HK$6.50 range until the Latest Practicable Date.

Based on the chart above, the Shares have been trading below the Share Offer

consideration since 14 December 2006 (being 12 months preceding the Offer Day). We are of

the view that the difference between historical Share price and Offer consideration reflects the

market perception of the Offer and ArcelorMittal’s potential participation as a substantial and

strategic shareholder of the Company. After the announcement of the Offer, the Shares moved

to an all time high since trading started on the Stock Exchange in March 2004.


– 44 –

The following chart shows the trading volume of the Shares during the Review Period:

The analysis of the trading volume of the Shares during the Review Period is summarizedin the table below:

Month/PeriodTotal trading

volume

Approximatepercentage of

trading volume tothe total numberof issued Shares

as of LatestPracticable Date

(Shares)

2006Dec 15,171,000 0.5%

2007Jan 96,615,842 3.3%Feb 154,885,011 5.3%Mar 36,148,689 1.2%Apr 36,094,000 1.2%May 66,468,610 2.3%Jun 67,497,905 2.3%Jul 89,085,000 3.0%Aug 53,026,000 1.8%Sep 95,730,793 3.3%Oct 103,374,508 3.5%Nov 7,877,219 0.3%Dec 153,443,250 5.2%

20081 Jan to the Latest Practicable Date 47,262,746 1.6%


– 45 –

Trading volume during the Review Period shows that volume traded ranged from 7.9

million Shares per month to 154.9 million Shares per month. However, for the month of

November 2007, there were only 4 trading days before the Shares were suspended from

trading, thus resulting the unusually low trading volume.

We noted that during the Review Period, there was a tussle for control of the Company

between the majority Shareholders resulting in an increased in trading volume. However,

trading volume remained high after the revised conditional general offer by Smart Triumph

Corporation lapsed on 2 October 2007 as Mr. Han contributed to the high trading volume by

continuing to accumulate shares under HK$5.00 subsequent to 2 October 2007. Within the

month of October 2007, Mr. Han managed to acquire up to 8,252,000 Shares or about 8% of

the total volume of Shares traded in the month of October 2007. The hostile takeover attempt

on the Company has attracted attention of investors and analyst from several investment banks

who have commented on the valuation of the Shares. The market reassessment of China

Oriental’s value has, in our view, led to the rise of its Share price and trading volume.

Since the Offer Day, trading volume of the Shares has remained high, signifying market

interest in the Shares. Renewed interest from news and research reports from investment banks

show that the ArcelorMittal acquisition has been taken positively by the market.

IV. COMPARABLE COMPANIES

In order to better assess the Share Offer, we have considered historical price-earnings

multiples (“PER”), price-to-book multiples (“PBR”), return on equity (“ROE”) and return on

asset (“ROA”), based on the available audited figures for financial year ended 31 December

2006, when comparing China Oriental to its industry peers.

1. Comparison between Hong Kong and PRC listed steel companies

For selecting comparable Hong Kong and PRC listed companies, we have used the

following criteria: (i) principally engaged in structural steel manufacturing business in the

PRC; (ii) having a market capitalization of at least HK$10,000 million; and (iii) listed on the

Stock Exchange (the “HK Comparable Companies”) or Shanghai Stock Exchange or

Shenzhen Stock Exchange (collectively, the “PRC Comparable Companies”, and together

with HK Comparable Companies collectively known as the “Local Comparable

Companies”). We believe that companies with market capitalization below HK$10,000 million

(about 50% of China Oriental’s market capitalization size) would be too small, thus having a


– 46 –

different kind of profile and pricing consideration amongst investors. Below is an exhaustive

list of companies based on the criteria laid out above:

Company name

MarketCapitalisation

as ofLatest

PracticableDate

Based on audited results for the financialyear ended 31 December 2006

(HK$ million) PER (x) PBR (x) ROE (%) ROA (%)

Stock ExchangeAngang Steel Co Ltd 226,571 18.06 4.27 34.4 19.4Maanshan Iron & Steel Co Ltd 70,022 13.35 1.56 12.3 5.1Chongqing Iron & Steel Co Ltd 13,464 19.63 1.28 6.5 3.0

Shanghai Stock ExchangeBaoshan Iron & Steel Co Ltd 362,390 26.14 4.13 16.6 8.9Wuhan Iron & Steel Co Ltd 188,281 44.90 8.07 18.5 10.2Maanshan Iron & Steel Co Ltd 70,022 30.35 3.55 12.3 5.1Inner Mongolian Baotou Steel Co Ltd 60,069 43.70 3.79 9.2 5.0Jinan Iron & Steel Co Ltd 33,587 33.13 6.99 20.5 5.8Handan Iron & Steel Co Ltd 30,498 29.76 2.57 9.1 4.2Gansu Jiu Steel Group 28,379 59.53 6.38 11.2 6.0Liuzhou Iron & Steel Co Ltd 28,656 31.88 7.38 26.3 9.1Anyang Iron & Steel co Ltd 28,506 47.14 4.18 9.0 4.3Nanjing Iron & Steel Co Ltd 23,506 55.88 6.29 11.1 4.4Laiwu Steel Corporation 23,822 29.80 4.07 14.7 5.2Xinjiang Ba Yi Iron & Steel Co Ltd 14,604 85.74 5.63 6.6 2.4Chongqing Iron & Steel Co Ltd 13,464 48.15 3.14 6.5 3.0

Shenzhen Stock ExchangeAngang Steel Co Ltd 226,571 28.77 6.80 34.4 19.4Tangshan Iron & Steel Co Ltd 65,473 42.86 6.75 16.3 5.4Bengang Steel Plates Co Ltd 51,251 21.55 3.14 16.1 10.0Beijing Shougang Co Ltd 27,647 41.48 3.47 8.2 3.0SGIS Songshan Co Ltd 22,544 40.71 3.18 8.1 3.4

China Oriental 18,761 16.57 3.16 20.5 12.6

Average of HK ComparableCompanies (excluding ChinaOriental) 17.01 2.37 17.7 9.2

Average of PRC ComparableCompanies (excluding ChinaOriental) 41.19 4.97 14.2 6.4

Average of Local ComparableCompanies (excluding ChinaOriental) 37.74 4.60 14.7 6.8

Average of Local ComparableCompanies (including ChinaOriental) 36.78 4.54 14.9 7.0

The Share Offer(Alternative 1 of HK$6.355) 18,615 16.05 3.14



Source: Bloomberg


– 47 –

Notes:

– Conversion of RMB to HK$ is based on the exchange rate of RMB1.00 to HK$1.07.

– Based on the latest audited financial statements of all Local Comparable Companies and China Orientaland the closing price of the respective companies as at the Latest Practicable Date.

– Market Capitalisations are calculated based on the total number of issued shares including H shares, Ashares and unlisted domestic shares for the respective Local Comparable Companies, A shares prices areapplied for market capitalization of A shares and unlisted domestic shares of the respective LocalComparable Companies as at the Latest Practicable Date.

As shown in the table above, PER of China Oriental is slightly below the averagemultiples of HK Comparable Companies and significantly below the average multiples of thePRC Comparable Companies, indicating that China Oriental’s current market valuation isslightly below HK Comparable Companies and significantly lower than the PRC ComparableCompanies. PBR of the PRC Comparable Companies is significantly higher than ChinaOriental’s PBR but the PBR of HK Comparable Companies is lower than the Company’s PBR.However, China Oriental’s ROE and ROA are above the average of those of Local ComparableCompanies, suggesting that China Oriental is still undervalued even though it is capable ofbetter utilizing its financial resources.

PER of the Local Comparable Companies ranges from 13.35 to 85.74 based on earningsfor financial year ended 31 December 2006. However, China Oriental is still at the low end ofthis range at 16.57, even after the news of ArcelorMittal acquiring substantial stake in theCompany, signifying that the Shares are still undervalued. On an average basis, China Orientalis still substantially lower than the industry average, excluding China Oriental, of 37.74.

As for PBR of China Oriental, it is in the lower end of the spectrum of 1.28 and 8.07 at3.16. Besides Maanshan Iron & Steel Co Ltd, Chongqing Iron & Steel Co Ltd and Handan Iron& Steel Co Ltd, which has a lower PBR, the rest are in line or have much higher PBR than theCompany.

ROE and ROA of China Oriental at 20.5% and 12.6% respectively are also higher thanmost Local Comparable Companies, and it is also higher than the average when compared toits peers. Therefore, China Oriental is a better company as its higher ROE and ROA suggestthat China Oriental has a better ability to utilize its equity and asset to generate a higher returnthan the average of the Local Comparable Companies, but valued at much lower price in termsof PER and PBR. However, the Share Offer of Alternative 1, 2 and 3 is also not offering muchpremium to the market rate at PER of 16.05, 16.65 and 17.24 respectively, and PBR of 3.14,3.26 and 3.38 respectively, we are of the opinion that this does not represent an attractive offerto the Independent Shareholders.

2. Comparison among top 10 international steel companies

With ArcelorMittal contributing to the future development of the Company if theShareholders’ Agreement becomes unconditional, we believe China Oriental should also be

compared to the same group as ArcelorMittal as its operations will eventually be similar to its

competitors.


– 48 –

Therefore we have selected (i) the top 10 international steel companies based on 2006production figures as listed by International Iron and Steel Institute, and (ii) only those listedon an international stock exchange (the “International Comparable Companies”).

Company nameStockExchange

Marketcapitalisation

as of LatestPracticable

DateBased on audited results for the financial

year ended 31 December 2006(US$ million) PER (x) PBR (x) ROE (%) ROA (%)

ArcelorMittal Netherlands 97,435 12.77 2.22 20.0 7.3Nippon Steel Japan 41,384 17.26* 2.88* 17.4* 7.0*POSCO Korea 49,724 13.08 1.90 15.2 12.7JFE Japan 30,764 10.93* 2.90* 28.4* 17.3*Tata Steel Ltd* India 15,900 13.09* 3.98* 35.4* 17.1*Baosteel Group China 46,738 26.14 4.13 16.6 8.9US Steel Corp. US 12,589 8.97 2.89 36.6 13.4Nucor Corporation US 16,226 9.41 3.36 38.6 23.4Tangshan Iron & Steel China 8,444 42.86 6.75 16.3 5.4Riva Group* Not Listed

China Oriental 2,401 16.57 3.16 20.5 12.6

Average of InternationalComparable Companies(excluding China Oriental) 17.17 3.45 24.9 12.5

Average of InternationalComparable Companies(including China Oriental) 17.11 3.42 24.5 12.5

The Share Offer (Alternative1 of HK$6.355) 2,383 16.05 3.14



Source: Bloomberg

Notes:

– Conversion of currency to US$ are based on the following rates:

1 EUR = US$1.48100 Japanese Yen = US$0.9171000 South Korean Won = US$1.07100 Indian Rupees = US$2.551 RMB = US$0.1381 HKD = US$0.128

– Based on the latest audited financial statements of all International Comparable Companies and ChinaOriental and the closing price of the respective companies as at the Latest Practicable Date.

− Market capitalisations are based on market share prices of the respective companies as at LatestPracticable Date.

– Financial year ended for Nippon Steel, JFE and Tata Steel Ltd is 31 March 2007 and the remainingInternational Comparable Companies have financial year ended 31 December 2006.

– Tata Steel Ltd acquired Corus Group during 2006 resulting in Tata Steel Ltd being ranked as one of thetop 10 largest producer.

– Riva Group is a privately held group of companies thus it has been dropped as an InternationalComparable Companies.


– 49 –

Based on the table above, PER of China Oriental of 16.57 is slightly below the average

multiples of the International Comparable Companies, indicating that China Oriental’s market

valuation is still slightly lower than the average consist of its international peers. Similarly,

PBR at 3.16 is lower than the industry average of 3.45.

We also noted that China Oriental’s historical ROE is below that of the International

Comparable Companies at 20.5% while the ROA is in line with the International Comparable

Companies ROA at 12.5%. We believe that with the possibility of ArcelorMittal’s involvement

in the Company, the ROE could improve as ArcelorMittal undertakes to implement various

strategy, including among others, to penetrate the PRC market, to provide technology and

technical know-how, financial and supply chain management, sustainable and resource

efficient production and to improve the Group’s product mix.

PER offered under the Share Offer’s Alternative 1 and 2 are lower than the average PER

of International Comparable Companies of 17.17 at 16.05 and 16.65 respectively, while

Alternative 3 PER of 17.24 is slightly higher than the average PER of International Comparable

Companies. The PBR of all three Alternatives are also lower than the average of International

Comparable Companies at 3.45. We believe that the Offer is almost in line with or slightly

below the standard for leading international steel manufacturers, thus we believe that the Offer

is not very attractive to Shareholders.

In conclusion, based on the PER, PBR, ROE and ROA analysis of Local Comparable

Companies and International Comparable Companies, we believe that the Share Offer is

inadequate even though the PER, PBR, ROE and ROA analysis suggest the Share Offer is

almost in line with the market valuation especially for HK Comparable Companies and

International Comparable Companies. Furthermore, we believe that China Oriental deserves an

even higher PER than the current Share Offer given that it operates in a higher growth

environment in the PRC.


– 50 –

V. OPTION OFFER CONSIDERATION

As at the Latest Practicable Date, there are 89,700,000 outstanding Share Options, detailsof which are as follows:

Number of Share OptionsDate of grant ofShare Options

Date ofexpiration ofShare Options Exercise price

89,700,000(1) 26 October 2007 25 October 2017 HK$5.24

Note:

(1) 83,700,000 Share Options are held by employees of the Group who are not connected persons of theCompany. 6,000,000 Share Options are held by connected persons of the Company, in which 2,400,000Share Options are held by Mr. Yu Jianshui, who is an executive Director of the Company, 2,000,000Share Options are held by Mr. Feng Aimin, a director of Hebei Jinxi and 1,600,000 Share Options areheld by Mr. Pang Baoyin, a director of Hebei Jinxi. The Share Options were granted in the ordinarycourse of business of the Company.

Under the terms of the existing Share Option Scheme, if an unconditional general offerby way of takeover is made to all Shareholders, the Company shall give notice to theOptionholders to exercise the Share Options either to its full extent or to the extent notified bythe Company. If the Company gives such notice, the balance of the Share Options not exercisedshall lapse.

In view of the above term, the time value of the Share Options becomes irrelevant as anotice would be served by the Company within this takeover period. As such, the intrinsicvalue of the Share Option should be calculated based on its face value against the Share priceas of the Latest Practicable Date.

ParameterShare Option granted on

26 October 2007

Share price HK$6.41(1)

Exercise Price HK$5.24Intrinsic Share Option Value HK$1.17

Note:

(1) Based on the closing price as at the Latest Practicable Date.

Based on the current Share price, the intrinsic Share Option value is HK$1.17, which isHK$0.055 higher than the Alternative 1 of the Option Offer of HK$1.115. Therefore, there ismore value for Optionholders if they exercise their Options immediately to take advantage ofthe current favorable market price rather than accepting the Option Offer.

Having considered the above factors, we recommend the Optionholders exercising alltheir outstanding Share Options to avoid their Share Options from expiring without anyremaining value. However, Optionholders lacking the financial ability to exercise their Optionswould only have one alternative to realize their Share Options value, which is by accepting theOption Offer.


– 51 –

VI. INFORMATION ON CHINA ORIENTAL

1. Products and production

The Group is a steel manufacturer in the PRC principally engaged in the manufacturing

and sale of metal billets and strips, and H-section steel products, which are semi-finished steel

products, used in a wide variety of manufacturing and construction businesses. Strips

manufactured by the Group are currently sold to downstream steel manufacturers who further

process the strips into downstream steel products such as steel sheets and pipes that meet the

engineering and end-product specifications of their customers. As at the end of 2006, China

Oriental’s total annual production capacity amounted to 4.0 million tonnes.

As set out in the Group’s 2005 and 2006 annual reports, the Group aims to diversify its

product base and improve product mix by introducing higher-margin, higher value-added steel

products, such as H-section steel. In 2006, China Oriental has moved up the steel industry

value chain by constructing a production line of H-section steel products with an expected

annual capacity of 1.0 million tonnes. According to the Company’s 2006 annual report and as

set out in the Letter from the Board, China Oriental plans to add one more H-section steel mill

with a planned annual production capacity of 1.2 million tonnes. Upon completion of this new

production line, China Oriental’s annual production capacity for H-section steel would reach

2.2 million tonnes, making it one of the major H-section steel producers in the PRC.

2. Historical financial performance of the Group

Set out below are the audited consolidated results of the Group for the last three years:

Year ended 31 December2006 2005 2004

RMB’000 RMB’000 RMB’000

(Restated)

Revenue 9,782,116 9,182,693 9,118,875

Profit before income tax 1,233,236 1,004,196 1,175,832Income tax expense (210,886) (157,081) 33,686

Profit for the year 1,022,350 847,115 1,209,518

Attributable to:Equity holders of the Company 1,032,754 846,585 1,181,006Minority interest (10,404) 530 28,512

1,022,350 847,115 1,209,518


– 52 –


RMB’000 RMB’000 RMB’000

(Restated)

Earnings per share for profitattributable to equityholders of the Companyduring the year(expressed in RMB per share)

– basic RMB0.36 RMB0.29 RMB0.43

– diluted RMB0.36 Not applicable Not applicable

Dividends per share RMB5.57 cents RMB4.68 cents RMB8.09 cents

Comparison of financial year ended 31 December 2006 and 31 December 2005

Based on the audited consolidated account, revenue of the Group grew by 6.5% in

2006 to RMB9,782 million, while net profit grew by 22.0% to RMB1,033 million over the

same period of time. The increase of net profit by a higher percentage was attributable to

improved gross margin to 14.6% due to the strong demand and better prices of steel

products over the financial year 2006. The Company was confident in its growth path as

it expands the production facility of their H-section steel as well as improving efficiency

of their manufacturing facility.

Comparison of financial year ended 31 December 2005 and 31 December 2004

There is only a small increase in the revenue of 2005 relative to 2004 of about 0.7%.

Although the Company managed to maintain their revenue level, they did not manage to

maintain their margins as it decline 28.3% to a net profit level of RMB847 million. This

decline in margin was mainly due to the decrease in average selling price of billets and

increase in average cost of sale of strips and strip-related products. Simultaneously, the

PRC government implemented new regulations to control the overheated real estate

industry by abolishing export tax rebates on billet thus reducing profitability even further.


– 53 –

3. Financial position of the Group

Set out below is the unaudited consolidated interim results of the Group for the six

months ended 30 June 2006 and 2007:

UnauditedSix months ended 30 June

2007 2006 Percentage

of increaseRMB’000 RMB’000

Revenue 6,648,045 4,773,687 39.3%

Profit before income tax 936,684 700,281 33.8%

Income tax expense (148,482) (110,759)

Profit for the period 788,212 589,522 33.7%

Attributable to:Equity holders of the Company 768,881 584,665 31.5%

Minority interest 19,331 4,857

788,212 589,522

Earnings per share for profitattributable to equity holders of theCompany during the period(expressed in RMB per share)

– basic RMB0.26 RMB0.20 30.0%

– diluted RMB0.26 RMB0.20 30.0%


– 54 –

First half of 2007 compared to first half of 2006

The unaudited consolidated revenue of the Group for the first half of 2007 wasRMB6,648 million, representing an increase of 39.3% as compared to the first half of2006, while the unaudited profit attributable to Shareholders for the first half of 2007 wasRMB769 million, representing an increase of 31.5% from that of 2006. For the first halfof 2007, sales of new H-section steel beam were RMB2,103 million, representingapproximately 31.6% of the Group’s total turnover of RMB6,648 million. During thesame period, gross profit of billets, strips and strip-related products (which are theGroup’s traditional products) and H-section steel beam were RMB300 per tonne,RMB430 per tonne and RMB724 per tonne respectively. As a result of the sales ofH-section steel beam with a higher gross profit margin and the increase in the overallsales volume during the period, the Group’s after-tax profit increased by 33.7% toRMB788.2 million. Currently, H-section steel beam is trading at the range of RMB5,050to RMB5,600 per tonne.

The Board has indicated that, as property and infrastructural projects continue toincrease in the PRC, demand for H-section steel products in China is expected to continueto be strong and that with contributions from the Group’s 1.0 million tonne per yearH-section steel production line and the additional 1.2 million tonnes per annum H-sectionsteel rolling line, we are of the view that the Group is in a good position to capitalize onsuch growth prospects in China.

Set out below is the unaudited consolidated financial position of the Group as at 30June 2007 with the comparative audited figures as at 31 December 2006:

Unaudited30 June

2007

Audited31 December

2006 Percentageof increaseRMB’000 RMB’000

ASSETSNon-current assets 5,232,598 4,800,014 9.0%Current assets 4,073,609 3,421,353 19.1%

Total assets 9,306,207 8,221,367

EQUITY AND LIABILITIESTotal equity 6,259,008 5,601,449 11.7%Non-current liabilities 680,733 416,589 63.4%Current liabilities 2,366,466 2,203,329 7.4%

Total equity and liabilities 9,306,207 8,221,367

Net current assets 1,707,143 1,218,024 40.2%

Net assets value per share(expressed in RMB per share) RMB2.10 RMB1.89 11.6%

Total liabilities to total assets 32.7% 31.9%


– 55 –

Net asset value per Share

The net asset value per Share, calculated by dividing the capital and reserve

attributable to the Shareholders by total number of Shares in issue as at 30 June 2007,

improved by about 11.6%, as compared to 31 December 2006.

Total liabilities to total assets

As at 30 June 2007, the total liabilities to total assets of the Group ratio was 32.7%,

which was slightly higher than 31.9% as at 31 December 2006. Such increase was

primarily due to the increase of accruals, advances from customers and other liabilities

including non-current borrowings. As at 30 July 2007, non-current liabilities increased by

63.4% to HK$681 million compared to 31 December 2006. This increase was primarily

due to the increase in the Group’s long-term bank borrowings which increased from

HK$361 million on 31 December 2006 to HK$625 million as at 30 June 2007. We

understand from the Company that such long-term bank borrowings were for the Group’s

operational needs. In our view, this is fair and reasonable as the Company’s business

continues to grow.

VII. INFORMATION ON ARCELORMITTAL

ArcelorMittal is the world’s largest steel company, with 320,000 employees in more than

60 countries. It has steel-making operations in 27 countries in Europe, Asia, Africa and

America, which give the group exposure to all the key steel markets. Besides operating steel

mill, the group also maintains their own iron ore and coal mining facility to supply their own

steel mills.

ArcelorMittal produces a wide range of steel products in various segments such as

automotive, construction, household appliances and packaging. Products manufactured under

these segments range from finished and semi-finished carbon steel sheet, plate, bars, rods and

structural shapes.

In PRC, ArcelorMittal has been actively participating in various steel manufacturing

ventures over the past few years. As of to date, ArcelorMittal has (i) an investment in Hunan

Valin Steel Tube and Wire, a manufacturer of steel tubes listed on the Shenzhen Stock

Exchange; (ii) acquired a 90% stake in Rongcheng Chengshan Steelcord, a steelcord wire

drawing company manufacturing wires used in tyres; (iii) a joint venture in Baosteel-

NSC/Arcelor Automotive Steel Sheet Co., which makes steel sheets for automotive; and (iv)

a US$100 million roll-steel and galvanizing plant in Yingkou, Liaoning. ArcelorMittal has been

actively trying to expand into PRC in order to capitalize on the growth of the PRC market.

For the year ended 2006, ArcelorMittal produced a total of 118 million tonnes of steel,

representing approximately 10% of the world’s steel output for the year. In the same financial

year, ArcelorMittal group reported a proforma consolidated revenue of approximately US$88.6

billion and net income of approximately US$7.97 billion.


– 56 –

VIII. OTHER FACTORS

1. Improved performance with ArcelorMittal support if the Shareholders’ Agreement

and the Business Cooperation Agreement becomes unconditional. (The benefits set

out below may not materialize if the Shareholders’ Agreement and the Business

Cooperation Agreement fails to become unconditional)

Based on our discussion with the management of ArcelorMittal, we understand that

subject to the Shareholders’ Agreement becoming unconditional, ArcelorMittal intends to

actively turn China Oriental into a leading steel manufacturer in China in order to capitalize

on growth in the construction and infrastructure sectors within the country. However, if the

Shareholders’ Agreement does not become unconditional, the support from ArcelorMittal listed

below may not materialize. The general strategy intended for the Company would include the

following:

Technical know-how assistance

Subject to a satisfactory feasibility study described under the Business Cooperation

Agreement, ArcelorMittal plans to transfer to the Company its in-house technology in the

manufacturing of heavy section products such as large H-beams, which are for use in

building construction, This technology, which was developed by ArcelorMittal over the

years, will allow the Company to manufacture more precise and larger sized H-beams.

These higher quality products are expected to allow the Company to command better

pricing and market position in the PRC.

Cheaper raw materials

Being a world class conglomerate, ArcelorMittal is capable of having significant

buying power which can exert influence on the raw materials supplier which China

Oriental cannot achieve on its own. As such, we expect profit margins of China Oriental

to improve when ArcelorMittal assists the Company in raw material sourcing.

Steady supply of raw materials to cope with expansion needs

Subject to attainment of the requisite PRC Government and regulatory approvals,

the Group plans to increase its steel production capacity from 6 million tonnes per annum

up to 10 million tonnes per annum. Under the Business Cooperation Agreement,

ArcelorMittal has committed to the Group to (i) provide assistance in the sourcing of

coking coal; (ii) source a fixed minimum quantity of iron ore per annum to be sold to the

Group at par or benchmark prices and (iii) contribute to the Group’s capital requirements.

Currently, the world demand for iron ore and coke has been high due to the sudden surge

in demand in the PRC; as such, ensuring a steady supply of raw materials is crucial for

the Group’s business expansion needs.


– 57 –

Improved efficiency and quality

Although ArcelorMittal believes that the Group’s plant is already quite efficient,

they believe minor improvements can be made. However, ArcelorMittal will instead be

focusing on improving quality of the products manufactured and ensuring that future

products will meet international standards.

Better marketing and distribution networks

Under ArcelorMittal, products manufactured by the Group are expected to have

improved marketability and reputation in the industry. As such, we expect this to be

translated into higher sales and improved margins for China Oriental.

Management support

It is our understanding that ArcelorMittal will provide an experienced team for the

Company as soon as practicable following the dispatch of the offer document. From their

pool of experienced employees, ArcelorMittal expects to put in place experienced

technical employees initially and when the Shareholder’s Agreement becomes

unconditional, senior executives in both finance and technical functions will be appointed

to the Company.

Increase capacity

ArcelorMittal has indicated that they will support the Group’s current expansion

plan to increase its manufacturing capacity to 6 million tonnes per annum and, if situation

warrants, will continue to support the Group’s original plans to increase its production

capacity to 10 million tonnes per annum.

With all the above support, we expect China Oriental will perform better and grow

at a faster rate in the future. Better margins and higher organic growth should be reflected

in its share price in terms of higher PER.

2. Foreign control of PRC steel manufacturing entities

Over the recent years, foreign steel producers were unable to seek approval from PRC

Government from holding controlling stakes in domestic steel companies. According to

China’s steel industry policy, published in July 2005, PRC Government plans to create two

steel giants, each with annual output exceeding 30 million tons, by 2010 through mergers and

acquisitions between domestic steel makers.

An example of this would be the acquisition of 38.41% of Laiwu Steel Group by Arcelor

in February 2006. The agreement to the acquisition is expected to expire on 31 December 2007

with Laiwu Steel Group not planning to extend the acquisition agreement as it failed to obtain

PRC government’s approval.


– 58 –

Given such a background, foreign steel makers are trying various means to tap into thePRC market via joint venture and technology transfers. Other alternatives to gaining control ofthe PRC steel manufacturers would be to control their parent company listed outside of PRC,to minimize PRC government intervention.

With limited numbers of PRC steel manufacturers that has a non-PRC parent company, webelieve that PRC steel companies with foreign ownership structure should demand a controlpremium over Chinese owned companies.

3. Risk of Shareholder’s Agreement not becoming unconditional

In accordance to the PRC legal opinion, ArcelorMittal would be required to apply toMOFCOM and SAIC for antitrust clearance under the Article 53 of the Regulations for theAcquisition of Domestic Enterprises by Foreign Investors of the PRC. The review period is 30days from the date on which an antitrust filing has been formally accepted by MOFCOM andSAIC, unless an extension notice is issued to extend it to 90 days for them to conduct furtherreview. Besides the approval by MOFCOM and SAIC, the PRC legal opinion states that thereare no other approvals needed from any other PRC authorities.

In the event that ArcelorMittal fails to obtain approval from the PRC government toacquire remaining shares from Mr. Han and his associates, ArcelorMittal will only be holdingthe 28.00% of Shares that it currently owns and it may not become a controlling shareholderof the Group. Consequently, based on the Business Cooperation Agreement, ArcelorMittal isnot obligated to perform any of the technology transfer, feasibility study of the sheet pile mill,or to provide business assistance as listed out in the Business Cooperation Agreement if theShareholders’ Agreement fails to become unconditional.

4. Platform for PRC expansion

If ArcelorMittal succeed in securing a majority shareholding in the Company, they intendto maintain the listing status of China Oriental for the flexibility and there remains a potentialopportunity to use it as a platform for its PRC expansion plans.

The PRC government has encouraged steel producers to merge as the current PRC steelindustry is highly fragmented. If ArcelorMittal continues its current trend of acquisition, it hasthe option to use China Oriental as a holding company for its acquisition of other PRC steelmanufacturers in the future. The potential of becoming one of Asia’s leading steelmanufacturers under ArcelorMittal means that Shareholders might be rewarded with more byholding on to the Shares than accepting the Share Offer.

5. First Call Option and Put Option Price

Under the Shareholder’s Agreement, ArcelorMittal has the option of exercising the FirstCall Option within 12 months, commencing 18 months after the date on which theShareholders’ Agreement becomes unconditional, while the Controlling Shareholders have theoption of exercising the Put Option within 36 months commencing from the completion of thesale and purchase of the First Call Option Shares.


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The exercise price of the First Call Option and the Put Option are based on the higher of

HK$6.12 and a price obtained using a formula, which relies on EBITDA as part of its

calculation. Based on the formula, the EBITDA is multiplied by a fixed multiplier of 7 times,

the value obtained is then factored with volume weighted average closing prices of the Shares.

Therefore, if the EBITDA is much higher than the current levels, the price that the Controlling

Shareholders can sell to ArcelorMittal may be more than HK$6.12 per Share.

As such, we believe that it will be in the Controlling Shareholders’ interest to ensure that

China Oriental continues to perform well over the next few years in order for them to maximize

the return on their Shares to be sold to ArcelorMittal under the Shareholder’s Agreement.

6. Minimum Public Float Requirement

Currently ArcelorMittal holds an approximately 28.00% of all outstanding Shares of the

Company while Mr. Han and persons acting in concert with him (other than the Offeror) is

controlling another 45.07%. Collectively, these two parties are holding approximately 73.07%

of the entire issued share capital in the Company. In the event that the Offer result in

ArcelorMittal acquiring more than 1.93% or approximately 56,478,000 of Shares (assuming

there is no additional Options that are exercised as of the Latest Practicable Date),

ArcelorMittal would be required by the Stock Exchange to sell down some of its shares to

maintain 25% public float.

In light of such an event, the Company may face the risk of suspension of dealing in its

Shares until such public float is restored. Furthermore, the attempt to restore such public float

may adversely affect the price of the Shares.

RECOMMENDATION

In respect of the Share Offer

• The Share price is now at about all time high since trading of the Shares on the Stock

Exchange started in March 2004. There is a potential risk of ArcelorMittal not being able

to obtain the necessary approvals for the Shareholders’ Agreement (resulting in both the

Shareholders’ Agreement and the Business Cooperation Agreement not becoming

unconditional), possibly resulting in ArcelorMittal reducing its involvement in or

contribution to the Company, and the Share price may be negatively affected as a result.

Consequently, we are of the view that Independent Shareholders who do not wish to be

subjected to the risk of (1) not obtaining the PRC government approval for the

Shareholders’ Agreement, (2) uncertainty of the prolonged payment timing or (3) general

investment risk for holding the Shares in the long term, should accept the alternatives or

sell their Shares in the open market.


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• Although the Shares have been trading approximately on par with Alternative 1 of theShare Offer and at a discount to Alternative 2 and 3 of the Offer during the SubsequentPeriod, we believe that it has yet to reflect the ability of the Company, which is evidentin their 39.3% revenue growth over the first six month period this year against the sameperiod last year, in the absence of leadership and support from ArcelorMittal. Particularly,the Share Offer, in terms of PER and PBR, are lower than the average multiples of theLocal Comparable Companies. As such, we are of the view that the terms of the ShareOffer are not sufficient to compensate for potential long term future growth as theCompany is operating in a fast growing environment, with the possibility that the Group’sprospects is likely to be even better if China Oriental becomes a subsidiary ofArcelorMittal. Accordingly, we would advise the Independent Board Committee and theIndependent Shareholders to reject the Share Offer. Shareholders not accepting the ShareOffer should be aware of the risk of the Shareholders’ Agreement failing to becomeunconditional, which may result in a lower Share price compared to the Share Offer.

In respect of the Option Offer

• We are of the view that the terms of the Share Option Scheme have removed all time valueinherent in the Share Options, rendering them to be valued at face value only. As such,we recommend Optionholders exercising their Share Options and convert all their ShareOptions into Shares to ensure there is no potential loss when their Share Option expires.However, Optionholders lacking the financial ability to exercise their Share Optionswould only have the alternative to realize their Share Options value by accepting theOption Offer.

• Optionholders who do not intend to hold the Shares in the long term should then considerselling their Shares in the open market as it presents a premium over the Option Offer.

• However, for Optionholders who want to participate in the potential future growth of theCompany, they should consider holding the Shares as all Share Options will cease toexist. Accordingly, we would advise the Optionholders to reject the Option Offer.

Nevertheless, Independent Shareholders and Optionholders are advised that the decisionto realize or to hold their investments in the China Oriental is subject to individualcircumstances and investment objectives. For those Independent Shareholders orOptionholders who wish to realize whole or part of their Shares or Share Options, they shouldclosely monitor the market price and the liquidity of the Shares during the Offer Period and todispose their Shares in the open market or exercise their Share Options to do the same, at aprice above the Offer in order to receive higher proceeds.

Yours faithfully,For and on behalf of

Evolution Watterson Securities LimitedDavid Tsang

Managing Director


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THE SHAREHOLDERS’ AGREEMENT

On 9 November 2007, the Controlling Shareholders and ArcelorMittal entered into a

Shareholders’ Agreement in relation to their shareholdings in and the management of the

Group. Some of the key terms of the Shareholders’ Agreement are highlighted below.

Condition

The key terms of the Shareholders’ Agreement are conditional upon satisfaction of the

Anti-trust Condition. This condition cannot be waived. If the Shareholders’ Agreement fails to

become unconditional by the date six months after the date of the Shareholders’ Agreement, the

Shareholders’ Agreement shall cease to be of any effect and terminate (save for claims arising

out of antecedent breach of the Shareholders’ Agreement).

The First Call Option

The Controlling Shareholders have granted to ArcelorMittal an option to purchase all (but

not part) of the First Call Option Shares from the Controlling Shareholders which is exercisable

only once by ArcelorMittal within a 12-month period commencing 18 months after the date on

which the Shareholders’ Agreement becomes unconditional. The purchase price per First Call

Option Share shall be calculated by reference to: (i) the equity value per Share based on the

latest reported EBITDA for the last 12 months (as multiplied by a 7 times multiple), and net

cash or debt position of the Group, prior to the exercise of the First Call Option; (ii) the volume

weighted average closing price of the Shares traded on the Stock Exchange over an agreed

period prior to the exercise of the First Call Option; and (iii) a 15% premium, provided that

the said purchase price shall not be less than HK$6.12 (as adjusted).

If and when ArcelorMittal exercises this call option, it will comply with any resulting

obligations it may have under the Takeovers Code.

The Put Option and the Second Call Option

ArcelorMittal has granted to the Controlling Shareholders an option to sell to

ArcelorMittal all or part of the Put Option Shares which is exercisable only once by the

Controlling Shareholders within a 36-month period from the completion of the sale and

purchase of the First Call Option Shares.

The Controlling Shareholders have granted to ArcelorMittal an option to purchase the

Second Call Option Shares from the Controlling Shareholders which is exercisable by

ArcelorMittal within a 12-month period after the expiry of the Put Option.

THE SHAREHOLDERS’ AGREEMENT AND THE BUSINESS COOPERATION AGREEMENT

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The exercise price per Put Option Share or Second Call Option Share (as the case maybe) is calculated as follows:

(a) If the Shares are no longer listed on the Main Board of the Stock Exchange at thetime of the exercise of the Put Option or the Second Call Option (as the case maybe), the price payable by ArcelorMittal to the Controlling Shareholders in respect ofeach Put Option Share or the Second Call Option Share (as the case may be) shallbe calculated by reference to: (i) the equity value per Share based on the latestreported EBITDA for the last 12 months (as multiplied by a 7 times multiple), andnet cash or debt position of the Group, prior to the exercise of the Put Option or theSecond Call Option (as the case may be); and (ii) the simple average of the ratio ofthe 3-month volume weighted average closing trading price divided by the reportedearnings per share for the last 12 months prior to the exercise of the Put Option orthe Second Call Option (as the case may be) of all comparable companies then listedon the Main Board of the Stock Exchange, the primary business of which is themanufacture and sales of carbon steel products and excluding, for this purpose,companies the primary business of which is the further downstream processing ofsteel products times the latest reported earnings per Share of the Group for the last12 months prior to the exercise of the Put Option or the Second Call Option (as thecase maybe); or

(b) If the Shares are listed on the Main Board of the Stock Exchange at the time of theexercise of the Put Option or the Second Call Option (as the case may be), the pricepayable by ArcelorMittal to the Controlling Shareholders in respect of each PutOption Shares or the Second Call Option Share (as the case may be) shall becalculated by reference (i) the equity value per Share based on the latest reportedEBITDA of the Group for the last 12 months (as multiplied by a 7 times multiple),and net cash or debt position of the Group, prior to the exercise of the Put Optionor the Second Call Option (as the case may be); and (ii) the volume weightedaverage closing trading price of the Shares over an agreed period before the exercise

of the Put Option or the Second Call Option (as the case may be).

The exercise price of the Put Option Shares or the Second Call Option Shares (as the case

may be) shall not be less than the actual purchase price paid by ArcelorMittal for the First Call

Option Shares (as adjusted).

Escrow and Share Mortgage

Within 10 days after the Shareholders’ Agreement becoming unconditional (as described

above) the Controlling Shareholders will:

(a) transfer, in consideration of HK$1.5 billion, all of the First Call Option Shares into

an escrow account to be opened by ArcelorMittal and the Controlling Shareholders.

During this period of time while the First Call Option Shares are held in escrow, the

Controlling Shareholders will continue to hold the voting rights attaching to and

receive dividends in respect of such Shares; and


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(b) execute a share mortgage over the Shares held in the said escrow account in favour

of ArcelorMittal.

Restrictions on Dealings

Each of the Controlling Shareholders has undertaken to ArcelorMittal that, so long as it

or he is (or is considered to be) a party acting in concert with ArcelorMittal, each of them will

not (and will procure that parties acting in concert (or deemed to be acting in concert) with

them, other than ArcelorMittal, will not), without the prior written consent of ArcelorMittal,

acquire any Shares during the term of the Shareholders’ Agreement that could result in

ArcelorMittal (or its wholly-owned subsidiary which is making the Offer) having to pay an

offer price per share under the Offer that is higher than HK$6.355 or ArcelorMittal (or its

wholly-owned subsidiary) having to pay a higher offer price under an offer which

ArcelorMittal may be required to make pursuant to the Takeovers Code as a result of any

transactions contemplated under the Shareholders’ Agreement which is higher than the price

per Share under the First Call Option, the Put Option or the Second Call Option (as the case

may be).

Prohibition on Sale

Mr. Han has undertaken to ArcelorMittal that from the date of the Shareholders’

Agreement and during the term of the Shareholders’ Agreement he will, unless ArcelorMittal

agrees in writing:

(a) not assign, deal with or dispose of all or any part of the 2,800,000 shares in the

Company of which he is the registered holder and beneficial owner or in which he

is interested as at 9 November 2007;

(b) not grant or agree to grant in favour of any other person any interest in or any option

or other rights in respect of any part of the 2,800,000 shares in Company of which

he is the registered holder and beneficial owner or in which he is interested as at 9

November 2007; and

(c) at all times remain the registered holder and beneficial owner of the 2,800,000

shares in Company of which he is the registered holder and beneficial owner as at

9 November 2007.

Management of the Company

Parties to the Shareholders’ Agreement have agreed that Mr. Han (or his representative)

may remain as the Chairman of the Company for a 36-month period after ArcelorMittal

becomes interested in more than 50% of the Shares then in issue. Thereafter, ArcelorMittal will

have the right to nominate the Chairman of the Company.


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The Controlling Shareholders (as one part) and ArcelorMittal (as one part) will have the

right to nominate such number of executive Directors that is proportionate to their respective

shareholding interests in the Company at the relevant time.

The Company currently has six executive Directors. They will not resign following

completion of the Offer. Assuming the current shareholding of approximately 45.07% held by

the Controlling Shareholders and approximately 28.00% held by the Offeror, ArcelorMittal will

have the right to appoint four executive Directors upon the Shareholders’ Agreement becoming

unconditional. In compliance with Rule 26.4 of the Takeovers Code, no nominee of the Offeror

or persons acting in concert with it will be appointed to the Board prior to this Composite

Document being posted. None of the four executive Directors, if and when appointed by

ArcelorMittal, will act as the Chairman of the Company at the time of their appointment.

Parties to the Shareholders’ Agreement will consult each other before exercising (or

refraining from exercising) any voting rights in respect of a resolution at a Shareholders’

meeting.

Parties to the Shareholders’ Agreement will exercise (or refrain from exercising) all

voting rights in relation to the Company to procure that no member of the Group will take a

specified list of actions without the prior written approval of a party to the agreement who is

interested in more than or equal to 25% of the issued Shares (or in respect of the Controlling

Shareholders after completion of acquisition by ArcelorMittal of the First Call Option Shares,

such number of Shares which they will hold in the Company immediately thereafter).

Please also refer to the sub-sections headed “Letter from ING – Compulsory Acquisition”

and “Letter from ING – Maintaining the Company’s Listing Status” above.

No Hostile Takeovers

At any time when the Company remains listed on the Main Board of the Stock Exchange,

ArcelorMittal undertakes to the Company (under the Business Cooperation Agreement) and

each of the Controlling Shareholders (under the Shareholders’ Agreement) that, save for any

mandatory general offers which ArcelorMittal may be required to be made by the SFC as a

result of any transactions contemplated in the Shareholders’ Agreement:

(a) it will not launch or allow itself to be obliged to launch an unsolicited general offer

for the issued share capital of the Company without the recommendation of the

board of directors of the Company; and

(b) it will not accept any unsolicited general offer or act in concert with any party who

is making an unsolicited general offer for the issued share capital of the Company

which has not been recommended by the board of directors of the Company.


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THE BUSINESS COOPERATION AGREEMENT

On 9 November 2007, ArcelorMittal entered into the Business Cooperation Agreementwith the Company which sets out certain terms of cooperation between them and, in particular,the terms of ArcelorMittal’s participation in relation to the operation of the Group. The keyterms of the Business Cooperation Agreement will take effect upon the Shareholders’Agreement becoming unconditional.

In accordance with the terms of the Business Cooperation Agreement, for so long asArcelorMittal is interested in 25% or more of the issued Shares, it shall, among others thingsand subject to various conditions, provide certain technology, technical expertise andknow-how to the Company for its future development and source (or procure the sourcing of)a fixed minimum quantity of iron ore to the Group and assist in the sourcing of a fixedminimum quantity of iron ore to the Group.

The details of the Business Cooperation Agreement are more specifically set out in thejoint announcement separately issued by the Offeror and the Company on 6 December 2007.

Other than the Shareholders’ Agreement (the details of which are disclosed in the sectionheaded “The Shareholders’ Agreement” above), the Offeror confirms that: (a) there are no otherarrangements to which it is a party (whether by way of option, indemnity or otherwise) inrelation to the Shares or the shares of the Offeror and which might be material to the Offer;(b) the Offeror has not entered into any arrangement, agreement or understanding, formal orinformal, of whatever nature, relating to the Shares which may be an inducement to deal orrefrain from dealing; (c) there are no agreements or arrangements to which it is a party whichrelate to the circumstances in which it may or may not invoke or seek to invoke a conditionto the Offer; and (d) there are no outstanding derivatives in respect of the Shares entered intoby the Offeror or its Concert Parties.

PRC APPROVALS

The key terms of the Shareholders’ Agreement will only take effect upon satisfaction ofthe Anti-trust Condition. A PRC legal opinion has been obtained from King & Wood, PRCLawyers to the following effect:

1. Under the Regulations for the Acquisition of Domestic Enterprises by ForeignInvestors of the PRC (the “Foreign M&A Regulations”), a PRC antitrust filing isrequired to be made by a foreign acquiring party engaging in an offshore acquisitionif any of the applicable thresholds is reached. In the case of ArcelorMittal and ChinaOriental in relation to the Shareholders’ Agreement, the following thresholds arereached:

(i) the assets in China owned by any of the parties to the acquisition exceedRMB3 billion;

(ii) the business turnover of any of the parties to the acquisition in the PRC marketin the current year exceeds RMB1.5 billion; and


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(iii) as a result of the acquisition, any of the parties to the acquisition involved will

directly or indirectly hold equity in more than 15 foreign-invested enterprises

in related industries in the PRC.

2. If any of the First Call Option, the Put Option and the Second Call Option is

exercised, the acquisition of shares in China Oriental resulting from such an exercise

will constitute an offshore acquisition under the Foreign M&A Regulations, and

given that at least one of the filing thresholds mentioned above has been reached, an

antitrust filing is required to be made to the Ministry of Commerce (“MOFCOM”)

and the State Administration for Industry and Commerce (“SAIC”) of the PRC.

3. Under the relevant guidelines for the Foreign M&A Regulations, an anti-trust

clearance is deemed to be given if the party making a filing has not, before the

expiration of the applicable review period, received any notification for further

review from MOFCOM or SAIC. The applicable review period is 30 working days

from the date on which an antitrust filing has been formally accepted by MOFCOM

and SAIC (i.e., when all required information has been received and no request for

further information has been made by MOFCOM or SAIC), unless MOFCOM or

SAIC issues an extension notice to extend the period to 90 working days to conduct

further investigations.

4. Other than (i) MOFCOM’s and SAIC’s antitrust clearance in respect of the First Call

Option, the Put Option and the Second Call Option as mentioned above and (ii)

certain procedural formalities, examinations and/or registrations which are

administrative in nature, no approval by any other PRC authority is required for the

entering into of the Shareholders’ Agreement and the transactions or cooperation

arrangements thereunder as described in the sub-section headed “The Shareholders’

Agreement” above.

An anti-trust filing with MOFCOM and SAIC was made by ArcelorMittal on 12

December 2007, but has not yet been formally accepted by MOFCOM and SAIC.

The key terms of the Shareholders’ Agreement are conditional upon satisfaction of

the Anti-trust Condition. The key terms of the Business Cooperation Agreement will also

take effect only upon the Shareholders’ Agreement becoming unconditional.

Shareholders, Optionholders and potential investors in the Company should be aware

that the Anti-trust Condition may or may not be satisfied. Accordingly, the key terms of

the Shareholders’ Agreement and the Business Cooperation Agreement may or may not

become effective, and the transactions and matters contemplated thereunder may or may

not take place, which may affect the Company’s operations and future share prices.

Shareholders, Optionholders and potential investors in the Company are therefore

advised to exercise caution when dealing in the Shares or the Share Options.


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FURTHER PROCEDURES FOR ACCEPTANCE

The Share Offer

(a) If your Shares or the Share certificate(s) and/or transfer receipt(s) and/or any other

document(s) of title in respect of your Share(s) is/are in your name, and you wish to

accept the Share Offer in respect of your Shares, you must send the duly completed

WHITE form of acceptance and transfer together with the relevant Share certificate(s)

and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory

indemnity or indemnities required in respect thereof) to the Registrar by no later than

4:00 p.m. on Monday, 4 February 2008, or such later time as the Offeror may determine

and announce in accordance with the Takeovers Code.

(b) If your Shares or the Share certificate(s) and/or transfer receipt(s) and/or any other

document(s) of title in respect of your Shares is/are registered in the name of a nominee

company or some name other than your own, and you wish to accept the Offer, you must:

(i) Lodge your Share certificate(s) and/or transfer receipts and/or any other

document(s) of title (and/or any satisfactory indemnity or indemnities required in

respect thereof) (if any) with the nominee company, or other nominee, with

instructions authorising it to accept the Offer in respect of your Shares on your

behalf and requesting it to deliver the WHITE form of acceptance and transfer duly

completed together with the relevant Share certificate(s) and/or transfer receipt(s)

and/or any other document(s) of title (and/or any satisfactory indemnity or

indemnities required in respect thereof) to the Registrar by no later than 4:00 p.m.

on Monday, 4 February 2008, or such later time as the Offeror may determine and

announce in accordance with the Takeovers Code; or

(ii) Arrange for the Shares to be registered in your name by the Company through the

Registrar, and send the WHITE form of acceptance and transfer duly completed

together with the relevant Share certificate(s) and/or transfer receipt(s) and/or any

other document(s) of title (and/or any satisfactory indemnity or indemnities required

in respect thereof) to the Registrar by no later than 4:00 p.m. on Monday, 4 February

2008, or such later time as the Offeror may determine and announce in accordance

with the Takeovers Code; or

(iii) If your Shares have been lodged with your broker/custodian bank through CCASS,

instruct your broker/custodian bank to authorise HKSCC Nominees Limited to

accept the Offer in respect of your Shares on your behalf on or before the deadline

set by HKSCC Nominees Limited. In order to meet the deadline set by HKSCC

Nominees Limited, you should check with your broker/custodian bank for the exact

timing on processing of your instructions and submit your instructions to your

broker/custodian bank as required by them; or

APPENDIX I FURTHER TERMS OF THE OFFER

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(iv) If your Shares have been lodged with your Investor Participant Account with

CCASS, authorise your instructions via the CCASS Phone System or CCASS

Internet System on or before the deadline set by HKSCC Nominees Limited. In

order to meet the deadline set by HKSCC Nominees Limited, you should check with

HKSCC Nominees Limited for the exact timing on processing your instructions via

the CCASS Phone System or CCASS Internet System.

(c) If you have lodged (a) transfer(s) of any of your Shares for registration in your name and

have not yet received your certificate(s), and you wish to accept the Share Offer in respect

of your Shares, you should nevertheless complete the WHITE form of acceptance and

transfer and deliver it to the Registrar together with the transfer receipt(s) duly signed by

yourself. Such action will be deemed to be an authority to ING and/or the Offeror or their

respective agent(s) to collect from China Oriental or the Registrar on your behalf the

Share certificate(s) when issued and to deliver such certificate(s) to the Registrar as if it

was/they were delivered to the Registrar with the WHITE form of acceptance and

transfer.

(d) If your Share certificate(s) and/or transfer receipts and/or other document(s) of title in

respect of your Shares is/are not readily available and/or is/are lost and you wish to accept

the Share Offer in respect of your Shares, the WHITE form of acceptance and transfer

should nevertheless be completed and delivered to the Registrar together with a letter

stating that you have lost one or more of your Share certificate(s) and/or transfer receipts

and/or other document(s) of title or that it/they is/are not readily available. If you find

such document(s) or if it/they become(s) available, the relevant Share certificate(s) and/or

transfer receipt(s) and/or any other document(s) of title should be forwarded to the

Registrar as soon as possible thereafter. If you have lost your Share certificate(s), you

should also write to the Registrar for the form of a letter of indemnity which, when

completed in accordance with the instructions given, should be returned to the Registrar.

(e) Acceptances will be subject to validation and stamping (as the case may be) before the

consideration payable in respect thereof will be despatched to the persons entitled to it

provided that the consideration in respect of the First Payment shall be despatched no

later than the tenth day after the date on which all the relevant documents are received

by the Registrar to render acceptance of the Share Offer complete and valid.

(f) Subject to the terms of the Takeovers Code, acceptance(s) of the Share Offer may, at the

discretion of the Offeror, be treated as valid even if not accompanied by the relevant

Share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or a

satisfactory indemnity or indemnities in respect thereof), but, in such cases, the cheque(s)

for any consideration due will not be despatched until the Share certificate(s) and/or

transfer receipt(s) and/or other document(s) of title (and/or a satisfactory indemnity or

indemnities in respect thereof) has/have been received by the Registrar or the company

secretary of China Oriental as the case may be.


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(g) No acknowledgement of receipt of any form(s) of acceptance and transfer, Share

certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or a

satisfactory indemnity or indemnities in respect thereof) will be given.

(h) The address of the Registrar is 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai,

Hong Kong.

The Option Offer

(i) Any Optionholder who wishes to accept the Option Offer for Share Options should sign

and return the YELLOW form of acceptance and cancellation accompanying this

Composite Document sent to you together with the relevant letter or other document

evidencing the grant of the relevant Share Options to him or her and/or other document(s)

of title or entitlement (and/or any satisfactory indemnity or indemnities required in

respect thereof) relating to the relevant Share Options to China Oriental at Suites 901-2

& 10, 9/F, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong by no later than

4:00 p.m. on Monday, 4 February 2008 (or such later time as the Offeror may decide and

announce in accordance with the Takeovers Code).

(j) The provisions of paragraphs (e), (f) and (g) above shall also apply to acceptances of the

Option Offer in respect of Share Options, as if references in those paragraphs to the

Registrar were references to the Company and as if references to share certificate(s)

and/or transfer receipts were references to the relevant letter or other document

evidencing the grant of the relevant Share Options to the accepting Optionholder.

(k) If the letter or other document evidencing the grant of your Share Options and/or other

document(s) of title in respect of your Share Options is/are not readily available and/or

is/are lost and you wish to accept the Option Offer in respect of your Share Options, the

YELLOW form of acceptance and cancellation should nevertheless be completed and

delivered to the Company together with a letter stating that you have lost one or more of

the letters or other documents evidencing the grant of your Share Options and/or other

document(s) of title or that it/they is/are not readily available. If you find such

document(s) or if it/they become(s) available, the relevant letter or other document

evidencing the grant of your Share Options and/or any other document(s) of title should

be forwarded to the Company as soon as possible thereafter. If you have lost the letter or

other document evidencing the grant of your Share Options, you should also write to the

Company for the form of a letter of indemnity which, when completed in accordance with

the instructions given, should be returned to the Company.

ACCEPTANCE PERIOD, REVISIONS AND EXTENSIONS

The Offer, which is unconditional in all respects, is made on Monday, 14 January 2008

(being the date of posting of this Composite Document) and is capable of acceptance on and

from that date until 4:00 p.m. on Monday, 4 February 2008, unless the Offeror revises or

extends the Offer in accordance with the Takeovers Code.


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ANNOUNCEMENTS

(a) As required under Rule 19 of the Takeovers Code, by 6:00 p.m. on the day of the closeof the Offer (or such later time and/or date as the Executive may in exceptionalcircumstances agree), the Offeror must inform the Executive and the Stock Exchange ofits decision in relation to the revision, extension or expiry of the Offer. Further, theOfferor must publish an announcement on the Stock Exchange’s website by 7:00 p.m. onthe same day stating whether the Offer has been closed, revised or extended. Anannouncement to that effect must be republished in accordance with Rule 12.2 of theTakeovers Code on the next business day. Such announcement will specify the totalnumber of Shares and rights over Shares:

(i) for which acceptances of the Offer have been received;

(ii) held, controlled or directed by the Offeror or persons acting in concert with it beforethe Offer Period; and

(iii) acquired or agreed to be acquired during the Offer Period by the Offeror or anypersons acting in concert with it.

The announcement will also specify the percentages of the relevant classes of sharecapital, and the percentages of voting rights, represented by these numbers.

(b) As required under the Takeovers Code, all announcements in relation to the Offer inrespect of which the Executive has confirmed it has no further comments, will be madein accordance with the requirements of the Listing Rules.

(c) If the Offer is extended or revised, the announcement of such extension or revision willeither state the next closing date or state that the Offer will remain open until furthernotice, in which case at least 14 days’ notice will be given before the Offer is closed tothose Shareholders and Optionholders who have not accepted the Offer. If the Offer isextended or revised, it will remain open for acceptance for a period of not less than 14days following the date of the announcement of the extension or the date on which therevised offer document is posted (as the case may be) and, unless previously extended orrevised, shall be closed at 4:00 p.m. on the subsequent closing date. In any case where theOffer is revised, the benefit of any revision of the Offer in respect of the DisinterestedShares will be available to any Shareholder who has previously accepted the Share Offerin respect of the Disinterested Shares and the benefit of any revision of the Option Offerin respect of the Share Options will be available to any Optionholder who has previouslyaccepted the Option Offer in respect of the Share Options. The execution by or on behalfof any Shareholder who has previously accepted the Share Offer in respect of theDisinterested Share of any WHITE form of acceptance and transfer shall be deemed toconstitute acceptance of the revised Share Offer in respect of the Disinterested Shares.The execution by or on behalf of any Optionholder who has previously accepted theOption Offer in respect of the Share Options of any YELLOW form of acceptance andcancellation shall be deemed to constitute acceptance of the revised Option Offer inrespect of the Share Options.


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RIGHT OF WITHDRAWAL

As the Offer is unconditional, acceptances by the Shareholders and Optionholders under

the Offer shall be irrevocable and shall not be capable of being withdrawn, except in the

circumstances set out in Rule 19.2 of the Takeovers Code (which is to the effect that if the

Offeror is unable to comply with any of the requirements for making announcements under

Rule 19 of the Takeovers Code relating to the Offer, the Executive may require that acceptors

be granted a right of withdrawal, on terms acceptable to the Executive). A further

announcement will be made by the Offeror if any such right of withdrawal (as described in this

paragraph) is available to the Shareholders and Optionholders who have accepted the Offer.

GENERAL

(a) All communications, notices, Forms of Acceptance, Share certificates, transfer receipts,

other documents of title or entitlement (or indemnities) or remittances to be delivered by

or sent to or from Shareholders or Optionholders will be delivered by or sent to or from

them, or their designated agents, at their own risk, and none of the Offeror, ArcelorMittal,

ING, China Oriental, UBS, the Registrar or any of their respective directors, officers,

associates, agents or any other person involved in the Offer accepts any liability for any

loss in postage or any other liabilities that may arise as a result.

(b) The provisions set out in the accompanying WHITE form of acceptance and transfer and

the YELLOW form of acceptance and cancellation form part of the Offer.

(c) The accidental omission to despatch this Composite Document and/or the WHITE

form(s) of acceptance and transfer in respect of the Disinterested Shares or the YELLOW

form of acceptance and cancellation in respect of the Share Options or any of them to any

person to whom the Offer is made will not invalidate the Offer in any way. The deliberate

omission, if any, to despatch this Composite Document and/or the WHITE form of

acceptance and transfer in respect of the Disinterested Shares or the YELLOW form of

acceptance and cancellation in respect of the Share Options to any Overseas Holders (as

defined below) as referred to in paragraph (m) below in this section will not invalidate

the Offer in any way.

(d) The Offer and all acceptances thereof will be governed by and construed in accordance

with the laws of Hong Kong. Execution of a WHITE form of acceptance and transfer in

respect of the Disinterested Shares or the YELLOW form of acceptance and cancellation

in respect of the Share Options by or on behalf of a Shareholder or Optionholder,

respectively, will constitute such Shareholder’s or Optionholder’s (as the case may be)

agreement that the courts of Hong Kong shall have exclusive jurisdiction to settle any

dispute which may arise in connection with the Offer.


– 72 –

(e) Due execution of the WHITE form of acceptance and transfer in respect of the

Disinterested Shares or the YELLOW form of acceptance and cancellation in respect of

the Share Options will constitute an authority to any of the directors of the Offeror or such

person or persons as the Offeror may direct to complete and execute any document on

behalf of the person accepting the Offer and to do any other act that may be necessary or

expedient for the purposes of vesting in the Offeror or such person or persons as it may

direct the Disinterested Shares or canceling the Share Options (as the case may be), in

respect of which such person has accepted the Offer.

(f) Acceptance of the Offer for Disinterested Shares by any person(s) will be deemed to

constitute a warranty by such person(s) to the Offeror that the Disinterested Shares

acquired under the Offer are sold by any such person(s) free from all third party rights,

liens, claims, charges, equities and encumbrances and together with all rights attaching

thereto including the rights to receive all dividends or other distributions, if any, declared,

paid or made on the Disinterested Shares on or after 13 December 2007, being the date

of the Announcement.

(g) Acceptance of the Option Offer with respect to any Share Options by any persons will be

deemed to constitute a warranty by such persons that they have the absolute right and

power to surrender such Share Options and such Share Options are free from all liens,

charges, claims, equities, encumbrances and third party rights of whatsoever nature (other

than those restrictions imposed by China Oriental thereon at the time of grant thereof).

(h) Each Shareholder by whom, or on whose behalf, a WHITE form of acceptance and

transfer in respect of the Disinterested Shares is executed irrevocably undertakes,

represents, warrants and agrees to and with the Offeror and ING (so as to bind him, his

personal representatives, heirs, successors and assigns) to the following effect that (i) the

Offeror shall be entitled to direct the exercise of any votes and any and all other rights

and privileges (including the right to requisition of the convening of a general meeting of

China Oriental) attaching to any Shares (“Acceptance Shares”), (ii) China Oriental will

be authorised by the holder of Acceptance Shares to send any notice which may be

required to be sent to him as a Shareholder to the Offeror at the address of the Registrar,

and (iii) the Offeror will be authorised by such Shareholder to sign any consent to short

notice of general meetings and separate class meetings on his behalf and/or to execute a

form of proxy in respect of such Acceptance Shares appointing any person determined by

the Offeror to attend general meetings and separate class meetings of China Oriental (and

any adjournments thereof) and to exercise the votes attaching to such Acceptance Shares

on his behalf, and the execution of the WHITE form of acceptance and transfer will also

(subject as aforesaid) constitute the agreement of such Shareholder not to exercise any of

such rights without the consent of the Offeror and the irrevocable undertaking of such

Shareholder not to appoint a proxy for or to attend general meetings or separate class

meetings and, subject as aforesaid, to the extent such Shareholder has previously

appointed a proxy, other than the Offeror or its nominee or appointee, for or to attend

general meetings or separate class meetings, such Shareholder expressly revokes such

appointment from the date of execution of the form of acceptance and transfer.


– 73 –

(i) Payment of the consideration under the Offer will be implemented in full in accordance

with the Takeovers Code and the terms of the Offer without regard to any lien, right of

set-off, counterclaim or other analogous right to which the Offeror may otherwise be, or

claim to be, entitled against the accepting Shareholder or Optionholder.

Please refer to “Letter from ING – Acceptance and Settlement – Settlement” for details

of the payment mechanism for the consideration in respect of the Share Offer and the

Option Offer. In respect of any payment to any accepting Shareholder or Optionholder

under the Offer, each cheque representing any amount due to any such holder will be

made payable to the order of the person to whom the envelope containing the cheque is

addressed, and the encashment of the cheque shall be a good discharge to the Offeror for

the monies represented by the cheque. All cheques will be posted at the risk of the

addressees and other persons entitled to the monies represented by the cheques. On or

after the day falling six months after the posting of any cheque, the Offeror will have the

right to cancel or countermand payment of such cheque which has not been encashed or

has been returned uncashed, and will place the monies represented thereby in a deposit

account (the “Deposit Account”) in the Company’s name with a licensed bank in Hong

Kong to be selected by the Company and approved by the Offeror. The Company will hold

those monies until the end of a six-year period (the “Holding Period”) commencing from

the date when the Second Payment is made, as evidenced by the posting of the relevant

cheques, to accepting Shareholders and Optionholders choosing Alternative 1, Alternative

2 or Alternative 3, whichever is the latest. During the Holding Period, the Company will

make payments out of the sum deposited with the Deposit Account to any person who has

satisfied the Company that he is entitled to payment under the Offer and that the

cheque(s) previously sent to him has not been encashed. No payment so made by the

Company will include any interest accrued on the sum to which he is entitled. Any

payment so made by the Company shall be a good discharge to the Offeror for the monies

represented by such payment. The Company will exercise its absolute discretion in

determining whether or not it is satisfied that any person is entitled to payment out of the

Deposit Account, and a certificate issued by the Company to the effect that a person is so

entitled or not so entitled will be conclusive and binding upon all persons claiming an

interest in the monies deposited in the Deposit Account. Upon the expiration of the

Holding Period, the Offeror will be released from any further obligation to make any

payment under the Offer, and the Company will accordingly transfer to the Offeror the

balance of the sums deposited with the Deposit Account together with accrued interest,

subject, if applicable, to the deduction of any interest or withholding or other tax and any

other deduction required by law as well as all costs and expenses incurred in the transfer.

The above arrangements will take effect in accordance with, and subject to, all

prohibitions and conditions, if any, imposed by law. For accepting Shareholders andOptionholders who choose Alternative 2 or Alternative 3 among the threeconsideration alternatives in respect of the Share Offer and the Option Offer,respectively, the Second Payment will not be made immediately after the completionof the Offer. Specifically, as more particularly described in the “Letter from ING”section of this Composite Document, for Shareholders and Optionholders whochoose Alternative 2, the Second Payment will be made within ten days of the


– 74 –

Shareholders’ Agreement becoming unconditional. For Shareholders andOptionholders who choose Alternative 3, the Second Payment will be made withinten days of the completion of the sale and purchase of the First Call Option Shares.By accepting the Offer in respect of their Shares or Share Options as the case maybe, the accepting Shareholders and Optionholders are reminded, and specificallyagree, to immediately notify in writing the Company and the Registrar from time totime upon any changes in their addresses.

(j) Shareholder’s Hong Kong ad valorem stamp duty arising in connection with acceptance

of the Share Offer will be payable by each Shareholder at a rate of HK$1.00 for every

HK$1,000 (or part thereof) of: (i) the market value of the shares; or (ii) the consideration

payable to such person in respect of the relevant acceptance by such Shareholder,

whichever is the higher.

The Inland Revenue Department would normally accept the last closing price of the

Shares on the Stock Exchange on the day of transfer as the market value of the Shares

transferred for the purpose of calculating stamp duty.

The consideration payable would be the maximum amount payable under each alternative.

For a Shareholder who has chosen Alternative 1, the consideration payable for the

purpose of calculating stamp duty is HK$6.355. For a Shareholder who has chosen

Alternative 2, the consideration payable for the purpose of calculating stamp duty is

HK$6.591. For a Shareholder who has chosen Alternative 3, the consideration payable for

the purpose of calculating stamp duty is HK$6.826.

The Offeror will pay such amount of stamp duty on behalf of the accepting Shareholders

and such amount of stamp duty payable by each Shareholder will be deducted from the

consideration in respect of the First Payment due to such person on acceptance of the

Share Offer.

Shareholder should inform themselves about and observe any applicable tax requirements

and, where necessary, seek professional tax advice.

(k) Neither ArcelorMittal nor the Offeror intends to exercise the right to compulsorily acquire

any Shares outstanding after completion of the Offer.

(l) References to the Offer in this Composite Document and in the WHITE forms of

acceptance and transfer in respect of the Disinterested Shares and the YELLOW forms

of acceptance and cancellation in respect of the Share Options shall include any extension

and revision thereof. If any closing date of the Offer is extended, any reference in this

Composite Document, the WHITE forms of acceptance and transfer in respect of the

Disinterested Shares or the YELLOW forms of acceptance and cancellation in respect of

the Share Options to the closing date shall, except where the context otherwise requires,

be deemed to refer to the closing date as so extended.


– 75 –

(m) As the availability of the Offer to persons not resident in Hong Kong may be affected by

the laws of the relevant jurisdiction in which they are resident, persons who are citizens

or residents or nationals of a jurisdiction outside Hong Kong should inform themselves

about and observe any applicable legal or regulatory requirements and, where necessary,

seek legal advice. It is the responsibility of Shareholders and Optionholders whose

addresses (as shown on the Company’s register of members or register of holders of Share

Options as the case may be) are outside of Hong Kong (the “Overseas Holders”) and who

wish to accept the Offer to satisfy themselves as to the full observance of the laws of the

relevant jurisdiction in connection therewith (including the obtaining of any

governmental, exchange control or other consent which may be required or the

compliance with other necessary formalities and the payment of any transfer or other

taxes due in respect of such jurisdiction).

(n) The attention of Overseas Holders and any person (including, without limitation any

nominee, custodian or trustee) who may have an obligation to forward this Composite

Document outside Hong Kong is drawn to paragraph (m) above in this section and to the

relevant provisions in the WHITE form of acceptance and transfer in respect of the

Disinterested Shares and the YELLOW form of acceptance and cancellation in respect of

the Share Options. The availability of the Offer to any such person may be affected by the

laws of the relevant jurisdiction.

(o) Subject to the Takeovers Code, the provisions of paragraph (m) above in this section

and/or any other terms of the Offer relating to Overseas Holders may be waived, varied

or modified as regards specific Shareholder(s) or Optionholder(s) or on a general basis by

the Offeror in its absolute discretion.

(p) In making their decision, Shareholders and Optionholders must rely on their own

examination of the Offeror and China Oriental and the terms of the Offer, including the

merits and risks involved. The contents of this Composite Document, including any

general advice or recommendations contained therein, and the WHITE form of

acceptance and transfer in respect of the Disinterested Shares and the YELLOW form of

acceptance and cancellation in respect of the Share Options are not to be construed as

legal or business advice. Shareholders and Optionholders should consult with their own

professional advisers for professional advice.

(q) The Offer and this Composite Document are made in accordance with the Takeovers

Code.

(r) The English text of this Composite Document and of the Forms of Acceptance shall

prevail over the Chinese text for the purpose of interpretation.


– 76 –

1. SUMMARY OF CONSOLIDATED ACCOUNTS FOR THE LAST THREE

FINANCIAL YEARS

The following is a summary of the audited consolidated balance sheet and the audited

consolidated income statement of the Group as at and for the year ended 31 December 2006

as extracted from the annual report of the Group for the year ended 31 December 2006, and

the audited consolidated balance sheets and the audited income statements of the Group as at

and for the years ended 31 December 2005 and 2004 as extracted from the annual report of the

Group for the year ended 31 December 2005.

There were no qualifications in the auditors’ report on the consolidated financial

statements for each of the three financial years ended 31 December 2006, 2005 and 2004 as

contained in the annual reports for these respective years.

APPENDIX II FINANCIAL INFORMATION REGARDING THE GROUP

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CONSOLIDATED INCOME STATEMENT

For the three years ended 31 December 2006, 2005 and 2004

(All amounts in RMB thousands unless otherwise stated)


Restated

(Note 1)

Revenue 9,782,116 9,182,693 9,118,875Profit before income tax 1,233,236 1,004,196 1,175,832Income tax expense (210,886) (157,081) 33,686

Profit for the year 1,022,350 847,115 1,209,518

Attributable to:Equity holders of the Company 1,032,754 846,585 1,181,006Minority interest (10,404) 530 28,512

1,022,350 847,115 1,209,518

Dividends 161,879 136,044 625,381

Earnings per share for profitattributable to equity holders ofthe Company during the year(expressed in RMB per share)

– basic RMB0.36 RMB0.29 RMB0.43

– diluted (Note 3) RMB0.36 Not applicable Not applicable

Dividends per share RMB5.57 cents RMB4.68 cents RMB8.09 cents

Notes:

1. In 2005, the Group has adopted the then new/revised standards and interpretations of Hong Kong FinancialReporting Standards. The comparative of 2004 have already been restated in the annual report for 2005 of theCompany as required, in accordance with the relevant requirement.

2. There were no extraordinary items and exceptional items for the three years ended 31 December 2006.

3. Diluted earnings per share are not presented, as the Company has no dilutive potential ordinary shares as at31 December 2005 and 2004.


– 78 –

CONSOLIDATED BALANCE SHEET

As at 31 December 2006, 2005 and 2004

(All amounts in RMB thousands unless otherwise stated)

As at 31 December2006 2005 2004

Restated

(Note 1)

ASSETSNon-current assets 4,800,014 4,357,306 2,416,781Current assets 3,421,353 3,795,556 5,065,111

Total assets 8,221,367 8,152,862 7,481,892

EQUITYCapital and reserves attributable to

the Company’s equity holders 5,479,127 4,593,452 3,885,340Minority interest 122,322 138,643 115,524

Total equity 5,601,449 4,732,095 4,000,864

LIABILITIESNon-current liabilities 416,589 309,230 484,230Current liabilities 2,203,329 3,111,537 2,996,798

Total liabilities 2,619,918 3,420,767 3,481,028

Total equity and liabilities 8,221,367 8,152,862 7,481,892

Net current assets 1,218,024 684,019 2,068,313

Total assets less current liabilities 6,018,038 5,041,325 4,485,094

Note:

1. In 2005, the Group has adopted the then new/revised standards and interpretations of Hong Kong FinancialReporting Standards. The comparative of 2004 have already been restated in the annual report for 2005 of theCompany as required, in accordance with the relevant requirement.


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2. AUDITED ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2006

Set out below are the consolidated balance sheet of the Group and the balance sheet ofthe Company as at 31 December 2006, the consolidated income statement, the consolidatedstatement of changes in equity and the consolidated cash flow statement for the year ended 31December 2006 together with the relevant notes extracted from the annual report for 2006 ofthe Group.

CONSOLIDATED BALANCE SHEETAs at 31 December 2006(All amounts in RMB thousands unless otherwise stated)

As at 31 DecemberNotes 2006 2005

ASSETSNon-current assetsProperty, plant and equipment 7 4,675,308 4,236,071Leasehold land and land use rights 6 78,092 79,569Investment properties 8 20,428 20,911Intangible assets 9 18,289 9,547Investments in an associate 11 7,897 8,881Deferred income tax assets 22 – 2,327

4,800,014 4,357,306

Current assetsInventories 12 1,407,898 1,103,374Trade receivables 13 998,828 714,184Other current assets 2,591 2,524Prepayments, deposits and other receivables 15 481,734 185,555Financial assets at fair value through profit or loss 14 135 64,633Restricted bank balances 16 95,262 1,015,416Bank and cash balances 16 434,905 709,870

3,421,353 3,795,556

Total assets 8,221,367 8,152,862

EQUITYCapital and reserves attributable to the

Company’s equity holdersOrdinary shares 17 309,340 309,340Share premium 17 2,151,035 2,151,035Other reserves 18 984,296 735,325Retained earnings 2,034,456 1,397,752

5,479,127 4,593,452

Minority interest 122,322 138,643

Total equity 5,601,449 4,732,095


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LIABILITIESNon-current liabilitiesBorrowings 21 360,770 294,230Long-term advances from customers – 15,000Deferred income tax liabilities 22 290 –Amounts due to related parties 35(c) 55,529 –

416,589 309,230

Current liabilitiesTrade payables 19 516,368 632,439Accruals, advances from customers and other

current liabilities 20 998,236 1,014,908Amounts due to related parties 35(c) 56,674 64,400Current income tax liabilities 58,225 53,862Current portion of long-term advances from

customers – 10,000Borrowings 21 573,230 1,335,900Dividends payable 596 28

2,203,329 3,111,537

Total liabilities 2,619,918 3,420,767


Net current assets 1,218,024 684,019

Total assets less current liabilities 6,018,038 5,041,325


– 81 –

COMPANY BALANCE SHEET(All amounts in RMB thousands unless otherwise stated)


ASSETSNon-current assetsProperty, plant and equipment 7 13,501 15,458Investment properties 8 20,428 20,911Investments in subsidiaries 10(a) 224,017 224,017Loans to subsidiaries 10(b) 2,050,529 1,181,917

2,308,475 1,442,303

Current assetsPrepayments, deposits and other receivables 15 1,637 5,140Financial assets at fair value through profit or loss 14 135 64,633Amounts due from related parties 7,809 –Restricted bank balances 16 47,962 887,722Bank and cash balances 16 73,666 53,724

131,209 1,011,219

Total assets 2,439,684 2,453,522


Company’s equity holdersShare capital 17 2,460,375 2,460,375Other reserves 16,745 –Accumulated losses (39,643) (8,319)

Total equity 2,437,477 2,452,056

LIABILITIESCurrent liabilitiesAccruals and other current liabilities 1,810 1,438Amounts due to related parties 345 –Dividends payable 52 28

Total liabilities 2,207 1,466


Net current assets 129,002 1,009,753



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CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2006(All amounts in RMB thousands unless otherwise stated)

Year ended 31 DecemberNotes 2006 2005

Revenue 5 9,782,116 9,182,693Cost of sales 25 (8,357,880) (7,958,870)

Gross profit 1,424,236 1,223,823

Other income 24 4,149 4,286Distribution costs 25 (13,084) (6,954)Administrative expenses 25 (170,443) (152,036)Other expenses 25 (10,620) (3,262)Other gains/(losses) – net 23 31,439 (47,749)

Operating profit 1,265,677 1,018,108

Finance income 27 18,930 62,596Finance costs 27 (50,387) (74,189)

Finance costs – net (31,457) (11,593)Share of loss of an associate 11 (984) (2,319)

Profit before income tax 1,233,236 1,004,196Income tax expense 28 (210,886) (157,081)

Profit for the year 1,022,350 847,115

Attributable to:Equity holders of the Company 1,032,754 846,585Minority interest (10,404) 530

1,022,350 847,115

Earnings per share for profit attributableto equity holders of the Companyduring the year(expressed in RMB per share)– basic 30 RMB0.36 RMB0.29

– diluted 30 RMB0.36 Not applicable

Dividends 31 161,879 136,044


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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2006(All amounts in RMB thousands unless otherwise stated)

Attributable to equity holdersof the Company

NotesShare

CapitalOther

ReservesRetainedEarnings Total

MinorityInterest

TotalEquity

Balance at 1 January 2005 2,460,375 559,183 865,782 3,885,340 115,524 4,000,864

Profit for the year – – 846,585 846,585 530 847,115Profit appropriation to statutory

reserves 18 – 172,084 (172,084) – – –Cash flow hedges:

– Fair value loss in the year 18 – (3,370) – (3,370) – (3,370)– Transfer to property, plant

and equipment 18 – 3,370 – 3,370 – 3,370Dividends relating to 2004 – – (142,531) (142,531) (3,534) (146,065)Minority shareholder’s injection – – – – 25,478 25,478Liquidation of a subsidiary – – – – (500) (500)Others 18 – 4,058 – 4,058 1,145 5,203

– 176,142 531,970 708,112 23,119 731,231

Balance at 31 December 2005 2,460,375 735,325 1,397,752 4,593,452 138,643 4,732,095

Balance at 1 January 2006 2,460,375 735,325 1,397,752 4,593,452 138,643 4,732,095

Profit for the year – – 1,032,754 1,032,754 (10,404) 1,022,350Profit appropriation to statutory

reserves 18 – 230,276 (230,276) – – –Employee share options scheme:Value of employee services 18 – 16,745 – 16,745 – 16,745Dividends relating to 2005 – – (136,044) (136,044) (3,581) (139,625)Dividends relating to 2006 – – (29,730) (29,730) (2,353) (32,083)Acquisition from a minority

shareholder – – – – (40) (40)Others 18 – 1,950 – 1,950 57 2,007

– 248,971 636,704 885,675 (16,321) 869,354

Balance at 31 December 2006 2,460,375 984,296 2,034,456 5,479,127 122,322 5,601,449


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CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2006(All amounts in RMB thousands unless otherwise stated)

Year ended 31 DecemberNotes 2006 2005

Cash flows from operating activitiesCash generated from operations 32 480,570 624,480Interest received 16,515 60,299Dividends received from financial assets at

fair value through profit or loss 1,061 3,728Interest paid (54,585) (119,085)Income tax paid (203,906) (243,799)

Net cash generated from operating activities 239,655 325,623

Cash flows from investing activitiesPurchase of property, plant and equipment 32 (586,511) (853,939)Proceeds from disposal of property, plant

and equipment 32 8,069 4,013Decrease in loan receivables – 50,000Purchase of investment properties – (21,356)Dividends received – 3,522Increase in investment in an associate – (2,800)Acquisition of minority interest (40) –

Net cash used in investing activities (578,482) (820,560)

Net cash used before financing activities (338,827) (494,937)

Cash flows from financing activitiesProceeds from current borrowings 779,090 1,651,718Proceeds from borrowings from related parties 31,000 13,000Repayment of current borrowings (1,515,990) (1,900,818)Repayment of borrowings from related parties – (20,704)Proceeds from non-current borrowings 215,770 –Repayment of non-current borrowings (165,000) (38,000)Dividends paid (165,751) (146,266)Capital injection by a minority shareholder – 1,900Liquidation of a subsidiary – (500)Decrease in restricted bank balances pledged as

security for current bank borrowings 887,722 471,279

Net cash generated from financing activities 66,841 31,609

Net decrease in cash and cash equivalents (271,986) (463,328)Effect of foreign exchange rate changes (2,979) (44,858)Cash and cash equivalents, beginning of the year 709,870 1,218,056

Cash and cash equivalents, end of the year 16 434,905 709,870


– 85 –

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2006(All amounts in RMB thousands unless otherwise stated)

1. GENERAL INFORMATION

The Company was incorporated in Bermuda on 3 November 2003 as an exempted company with limitedliability under the Companies Act 1981 of Bermuda as a result of a group reorganisation (the “Reorganisation”).

The address of the Company’s registered office is Clarendon House, 2 Church Street, Hamilton HM 11,Bermuda.

Following the completion of the global offering, the Company’s shares were listed on the main board of theStock Exchange on 2 March 2004.

The Group is mainly engaged in the manufacture and sales of iron and steel products. The Group hasmanufacturing plants in Hebei Province and Guangdong Province in the PRC and sells mainly to customers locatedin the PRC.

These consolidated financial statements are presented in thousands of units of RMB, unless otherwise stated.These consolidated financial statements have been approved for issue by the Board on 3 April 2007.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are setout below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with Hong KongFinancial Reporting Standards (the “HKFRS”). The consolidated financial statements have been prepared under thehistorical cost convention, as modified by the revaluation of financial assets (including derivative instruments) at fairvalue through profit or loss.

The preparation of financial statements in conformity with HKFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applying the Group’saccounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions andestimates are significant to the consolidated financial statements, are disclosed in Note 4.

(a) Standards, amendments and interpretations to standards effective in 2006

• HKFRS 6, “Exploration for and evaluation of mineral resources”, is mandatory for the Group’saccounting periods beginning on or after 1 January 2006. HKFRS 1 Amendment – First-time Adoptionof Hong Kong Financial Reporting Standards and HKFRS 6 (Amendment), Exploration for andEvaluation of Mineral Resources, is mandatory for the Group’s accounting periods beginning on or after1 January 2006.

HKFRS 6 permits an entity to develop an accounting policy for exploration and evaluation assetswithout specific consideration of certain requirements of HKAS 8. Amendments to HKFRS 1 exempt therequirement to present comparative information for HKFRS 6. The Group has reviewed relatedoperation and identified no material exploration and evaluation assets.

• HKAS 39 and HKFRS 4 (Amendment), Financial Guarantee Contracts, is mandatory for the Group’saccounting periods beginning on or after 1 January 2006.

This amendment requires issued financial guarantees, other than those previously asserted by the entityto be insurance contracts, to be initially recognised at their fair value, and subsequently measured at thehigher of (a) the unamortised balance of the related fees received and deferred, and (b) the expenditurerequired to settle the commitment at the balance sheet date.


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The Group has concluded that the amendment was relevant to the Group’s operation. The impact ofadopting the amendment is described in Note 2.27.

• Amendment to HKAS 21, Amendment “Net investment in a foreign operation”, is mandatory for theGroup’s accounting periods beginning on or after 1 January 2006.

The amendment relates to intragroup loans that fund foreign operations, addressing concerns raised byconstituents that the definition of a net investment was too restrictive and unclear in the previous versionof the standards.

The Group has reviewed the amendment and concluded that the amendment was relevant to the Group’soperation. The impact of adopting the amendment is described in Note 2.4.

• HK(IFRIC)-Int 4, “Determining whether an arrangement contains a lease”, is mandatory for the Group’saccounting periods beginning on or after 1 January 2006.

The Group has reviewed its contracts and believed that the Group did not have relevant arrangementsthat might be affected by this interpretation.

(b) Standards and interpretations to existing standards that are not yet effective and have not been earlyadopted by the Group

The following standards and interpretations to existing standards have been published that are mandatory forthe Group’s accounting periods beginning on or after 1 May 2006 or later periods that the Group has not earlyadopted:

• HKFRS 7, “Financial instruments: Disclosures”, effective for annual periods beginning on or after 1January 2007. HKAS 1, “Amendments to capital disclosures”, effective for annual periods beginning onor after 1 January 2007. The Group assessed the impact of HKFRS 7 and the amendment to HKAS 1and concluded that the main additional disclosures will be the sensitivity analysis to market risk andcapital disclosures required by the amendment of HKAS 1. The Group will apply HKFRS 7 and theamendment to HKAS 1 from annual periods beginning 1 January 2007;

• HKFRS 8, “Operating segments”, effective for annual periods beginning on or after 1 January 2009.This standard supersedes HKAS 14 Segment Reporting, under which segments were identified andreported on risk and return analysis. Items were reported on the accounting policies used for externalreporting. Under HKFRS 8, segments are components of an entity regularly reviewed by an entity’schief operating decision-maker. Items are reported based on the internal reporting. Management iscurrently assessing the impact of HKFRS 8 on the Group’s operations. The Group will apply HKFRS8 with effect from 1 January 2009;

• HK(IFRIC)-Int 8, Scope of HKFRS 2 (effective for annual periods beginning on or after 1 May 2006).HK(IFRIC)-Int 8 requires consideration of transactions involving the issuance of equity instruments –where the identifiable consideration received is less than the fair value of the equity instruments issued– to establish whether or not they fall within the scope of HKFRS 2. The Group will applyHK(IFRIC)-Int 8 from 1 January 2007, but it is not expected to have any impact on the Group’sconsolidated financial statements;

• HK(IFRIC)-Int 9, Reassessment of embedded derivatives (effective for annual periods beginning on orafter 1 June 2006). HK(IFRIC)-Int 9 requires an entity to assess whether an embedded derivative isrequired to be separated from the host contract and accounted for as a derivative when the entity firstbecomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in theterms of the contract that significantly modifies the cash flows that otherwise would be required underthe contract, in which case reassessment if required. Management believes that this interpretation shouldnot have a significant impact on the reassessment of embedded derivatives as the Group has alreadyassessed whether embedded derivative should be separated using the principles that are consistent withHK(IFRIC)-Int 9;

• HK(IFRIC)-Int 10, Interim Financial Reporting and Impairment (effective for annual periods beginningon or after 1 November 2006). HK(IFRIC)-Int 10 prohibits the impairment losses recognised in aninterim period on goodwill, investments in equity instruments and investments in financial assets carriedat cost to be reversed at a subsequent balance sheet date. The Group will apply HK(IFRIC)-Int 10 from1 January 2007; and


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• HK(IFRIC)-Int 11, HKFRS 2-Group and Treasury Share Transactions (effective for annual periodsbeginning on or after 1 March 2007). It clarifies the application of share-based payment to certainshare-based payment arrangements involving the entity’s own equity instruments and to arrangementsinvolving equity instruments of the entity’s parent. The Group will apply HK(IFRIC)-Int 11 from 1January 2008.

(c) Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations

The following interpretations to existing standards have been published that are mandatory for the Group’saccounting periods beginning on or after 1 May 2006 or later periods but are not relevant for the Group’s operations:

• HK(IFRIC)-Int 7, Applying the Restatement Approach under HKAS 29, Financial Reporting inHyperinflationary Economies (effective from 1 March 2006); and

• HK(IFRIC)-Int 12, Service Concession Arrangements (effective for annual periods beginning on or after1 January 2008).

(d) Amendments and interpretations to standards effective in 2006 but not relevant for the Group’s operations

The following amendments and interpretations are mandatory for accounting periods beginning on or after 1January 2006 but are not relevant to the Group’s operations:

• HKAS 19 Amendment – Employee Benefits;

• HKAS 39 Amendment – Cash Flow Hedge Accounting of Forecast Intragroup Transactions;

• HKAS 39 Amendment – The Fair Value Option;

• HK(IFRIC)-Int 5, Rights to Interests arising from Decommissioning, Restoration and EnvironmentalRehabilitation Funds; and

• HK(IFRIC)-Int 6, Liabilities arising from Participating in a Specific Market – Waste Electrical andElectronic Equipment.

2.2 Consolidation

The consolidated financial statements include the financial statements of the Company and all its subsidiariesmade up to 31 December.

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to governthe financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.The existence and effect of potential voting rights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity.

Except for those companies composing the Group upon the Reorganisation, which have been accounted for onthe merger basis, the results of subsidiaries acquired or disposed of during the year are included in the consolidatedincome statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group exceptfor those subsidiaries composing the Group upon the Reorganisation. The cost of an acquisition is measured as thefair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange,plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilitiesassumed in a business combination are measured initially at their fair values at the acquisition date, irrespective ofthe extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share ofthe identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of thenet assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies areeliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of theasset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency withthe policies adopted by the Group.


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In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairmentlosses (Note 2.9). The results of subsidiaries are accounted by the Company on the basis of dividends received andreceivable.

(b) Transactions with minority interest

The Group applies a policy of treating transactions with minority interest as transactions with parties externalto the Group. Disposals to minority interest result in gains and losses for the Group that are recorded in theconsolidated income statement. Purchases from minority interest result in goodwill, being the difference between anyconsideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

(c) Associates

Associates are all entities over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accountedfor using the equity method of accounting and are initially recognised at cost. The Group’s investment in associatesincludes goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement,and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisitionmovements are adjusted against the carrying amount of the investment. When the Group’s share of losses in anassociate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group doesnot recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of theGroup’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence ofan impairment of the asset transferred. Accounting policies of associates have been changed where necessary toensure consistency with the policies adopted by the Group.

2.3 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that aresubject to risks and returns that are different from those of other business segments. A geographical segment isengaged in providing products or services within a particular economic environment that is subject to risks andreturns that are different from those of segments operating in other economic environments.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency ofthe primary economic environment in which the entity operates (the “functional currency”). The consolidatedfinancial statements are presented in Renminbi, which is the functional and presentation currency of the Companyand its subsidiaries.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailingat the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactionsand from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges orqualifying net investment hedges.

(c) Net investment in foreign operation

The Company and some subsidiaries have some monetary item that is receivable for or payable to a foreignoperation within the Group. An item for which settlement is neither planned nor likely to occur in the foreseeablefuture is, in substance, a part of the entity’s net investment in that foreign operation. Such monetary items includelong-term receivables or loans, which do not include trade receivables and trade payables.


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Exchange differences arising on a monetary item that forms a part of the Group’s net investment in a foreignoperation is recognised in profit or loss in the separate financial statements of the reporting entity or the individualfinancial statements of the foreign operation, as appropriate. In the financial statements that include the foreignoperation and the reporting entity (consolidated financial statements when the foreign operation is a subsidiary), suchexchange differences, if appropriate, is recognised initially in a separate component of equity and recognised in profitor loss on disposal of the net investment.

2.5 Property, plant and equipment

Property plant and equipment, comprising buildings, machinery, furniture and fixtures, leaseholdimprovements and vehicles are stated at cost less accumulated depreciation and accumulated impairment losses.Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also includetransfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property,plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs andmaintenance are charged in the income statement during the financial period in which they are incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate theircosts or revalued amounts to their residual values over their estimated useful lives (Note 4.1), as follows:

Estimated useful life

Buildings 10-20 yearsMachinery 5-10 yearsFurniture and fixtures 5-10 yearsVehicles 5-10 yearsLeasehold improvements 2-5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheetdate.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carryingamount is greater than its estimated recoverable amount (Note 2.9).

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and arerecognised within other gains/(losses) – net, in the income statement.

Construction-in-progress (“CIP”) represents buildings, plant and machinery under construction or pendinginstallation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of constructionand acquisition. No provision for depreciation is made on CIP until such time as the relevant assets are completedand available for intended use. When the assets concerned are ready for their intended use, the costs are transferredto property, plant and equipment and depreciated in accordance with the policy as stated above.

2.6 Leasehold land and land use rights

All land in the PRC is state-owned or collectively-owned and no individual land ownership right exists. TheGroup acquired the right to use certain land. The premiums paid for such right are treated as prepayment for operatinglease and recorded as leasehold land and land use rights, which are amortised over the lease periods using thestraight-line method.

2.7 Investment properties

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupiedby the companies in the consolidated Group, is classified as investment property.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at depreciated cost less accumulated impairment.


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Fair value is determined and disclosed based on active market prices, adjusted, if necessary, for any differencein the nature, location or condition of the specific asset. If this information is not available, the Group uses alternativevaluation methods such as recent prices on less active markets or discounted cash flow projections. These valuationsare reviewed annually by the directors. Changes in fair values are not recognised in the income statement.

Depreciation of investment properties is calculated using the straight-line method to allocate cost to theirresidual value over their estimated useful lives of 20 years.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economicbenefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All otherrepairs and maintenance costs are expensed in the income statement during the financial period in which they areincurred.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and itscarrying amount at the date of reclassification becomes its cost for accounting purposes. Property that is beingconstructed or developed for future use as investment property is classified as property, plant and equipment andstated at cost until construction or development is complete, at which time it is reclassified and subsequentlyaccounted for as investment property.

If an item of property, plant and equipment becomes an investment property because its use has changed, thetransfer does not change the carrying amount of the property transferred, nor does it change the cost of that propertyfor measurement or disclosure purposes.

2.8 Intangible assets

Intangible assets mainly comprised iron ore mining licenses purchased, which are carried at cost lessaccumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of licencesover their estimated useful lives (3-5 years).

Intangible assets should be derecognised on disposal or when no future economic benefits are expected fromits use or disposal.

The gain or loss arising from the derecognition of an intangible asset should be determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the asset. It should be recognised in profit orloss when the asset is derecognised.

2.9 Impairment of investments in subsidiaries, associates and non-financial assets

Assets that have an indefinite useful life or have not yet available for use are not subject to amortisation, andare tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss isrecognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverableamount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows(cash-generating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal ofthe impairment at each reporting date.

2.10 Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profitor loss, loans and receivables, held-to-maturity financial assets, and available-for-sale financial assets. Theclassification depends on the purpose for which the financial assets were acquired. Management determine theclassification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset isclassified in this category if acquired principally for the purpose of selling in the short term. Derivatives are alsoclassified as held for trading unless they are designated as hedges. Assets in this category are classified as currentassets.


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(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are notquoted in an active market. They are included in current assets, except for maturities greater than 12 months afterthe balance sheet date. These are classified as non-current assets.

(c) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments andfixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Groupwere to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would betainted and reclassified as available-for-sale. Held to maturity financial assets are included in non-current assets,except for those with maturities less than 12 months from the balance sheet date; these are classified as current assets.

(d) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or notclassified in any of the other categories. They are included in non-current assets unless management intends todispose of the investment within 12 months of the balance sheet date.

During the years ended 31 December 2006 and 2005, the Group has no financial assets categorised asheld-to-maturity or available-for-sale financial assets.

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Groupcommits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for allfinancial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profitor loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financialassets are derecognised when the rights to receive cash flows from the investments have expired or have beentransferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets andfinancial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables arecarried at amortised cost using the effective interest method.

Gains and losses arising from changes in the fair value of the financial assets at fair value through profit orloss category are presented in the income statement within other (losses)/gains – net, in the period in which they arise.Dividend income from financial assets at fair value through profit or loss is recognised in the income statement aspart of other income when the Group’s right to receive payment is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is notactive (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include theuse of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cashflow analysis and option pricing models, making maximum use of market inputs and relying as little as possible onentity-specific inputs.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or agroup of financial assets is impaired. Impairment testing of trade receivables is described in Note 2.13.

2.11 Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and aresubsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whetherthe derivative is designed as a hedging instrument, and if so, the nature of the item being hedged. The Groupdesignates certain derivatives as either:

(1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge);

(2) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecasttransaction (cash flow hedges); or

(3) hedges of net investments in foreign operations (net investment hedge).

A hedge of the foreign currency risk of a firm commitment is accounted for either as a cash flow hedge or asa fair value hedge.


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The Group documents, at the inception of the transaction, the relationship between hedging instruments andhedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. TheGroup also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivativesthat are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedgeditems.

Except for the cash flow hedge disclosed in Note 18, the Group has no other hedging activities during the yearsended 31 December 2006 and 2005. The full fair value of a hedging derivative is classified as a non-current assetor liability when the remaining maturity of the hedge item is more than 12 months, and as a current asset or liability,if the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a currentasset or liability.

(a) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flowhedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in theincome statement within other gains/(losses) – net.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged itemaffects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to theeffective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement withinfinance costs. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging exportsales is recognised in the income statement within sales. The gain or loss relating to the ineffective portion isrecognised in the income statement within other gains/(losses) – net. However, when the forecast transaction that ishedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and lossespreviously deferred in equity are transferred from equity and included in the initial measurement of the cost of theasset. The deferred amounts are ultimately recognised in cost of goods sold in case of inventory, or in depreciationin case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedgeaccounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when theforecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longerexpected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the incomestatement within other gains/(losses) – net.

(b) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value throughprofit or loss. Changes in the fair value of these derivative instruments that do not qualify for hedge accounting arerecognised immediately in the income statement within other gains/(losses) – net.

2.12 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weightedaverage method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour,other direct costs and related production overheads (based on normal operating capacity). It excludes borrowingcosts. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variableselling expenses.

2.13 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised costusing the effective interest method, less provision for impairment. A provision for impairment of trade and otherreceivables is established when there is objective evidence that the Group will not be able to collect all amounts dueaccording to the original terms of the receivables. Significant financial difficulties of the debtor, probability that thedebtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are consideredindicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’scarrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the lossis recognised in the income statement within selling and marketing costs. When a trade receivable is uncollectible,it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previouslywritten off are credited against selling and marketing costs in the income statement.


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2.14 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquidinvestments with original maturities of three months or less, and bank overdrafts.

2.15 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares oroptions are shown in equity as a deduction, net of tax, from the proceeds.

2.16 Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised costusing the effective interest method.

2.17 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings aresubsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and theredemption value is recognised in the income statement over the period of the borrowings using the effective interestmethod.

Borrowings at nil or low interest rates from government are regarded as government assistant and recognisedinitially at the cost of consideration received.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlementof the liability for at least 12 months after the balance sheet date.

2.18 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transactionother than a business combination that at the time of the transaction affects neither accounting nor taxable profit orloss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enactedby the balance sheet date and are expected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will beavailable against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates,except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable thatthe temporary difference will not reverse in the foreseeable future.

2.19 Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of any qualifyingasset that necessarily takes a substantial period of time to get ready for its intended use or sales are capitalised aspart of the cost of that asset.

All other borrowing costs are charged to the income statement in the period in which they are incurred.


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2.20 Employee benefits

(a) Pension obligations

The Group has arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (the“MPF Scheme”). Under the MPF Scheme, the Group and its Hong Kong employees make monthly contributions tothe scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation, subject toa cap of Hong Kong dollar 1,000 per person per month and any excess contributions are voluntary.

In accordance with the rules and regulations in the PRC, the Group has arranged for its PRC employees to joina defined contribution retirement benefit plan organised by PRC government. The PRC government undertakes toassume the retirement benefit obligations of all existing and future retired employees payable under the plan as setout in Note 26. The assets of this plan are held separately from those of the Group in an independent fund managedby the PRC government.

The Group’s contributions to the defined contribution retirement benefit plan are charged to the incomestatement as incurred.

(b) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee servicesreceived in exchange for the grant of the options is recognised as an expense. The total amount to be expensed overthe vesting period is determined by reference to the fair value of the options granted, excluding the impact of anynon-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditionsare included in assumptions about the number of options that are expected to vest. At each balance sheet date, theentity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revisionof original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominalvalue) and share premium when the options are exercised.

2.21 Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Grouphas a present legal or constructive obligation as a result of past events; it is probable that an outflow of resourceswill be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisionscomprise lease termination penalties and employee termination payments. Provisions are not recognised for futureoperating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlementis determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood ofan outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligationusing a pre-tax that reflects current market assessments of the time value of money and the risks specific to theobligation. The increase in the provision due to passage of time is recognised as interest expense.

2.22 Government grants

A government grant in the form of subsidy or financial refund is recognised when there is a reasonableassurance that the Group will comply with the conditions attached to the grant and that the grant will be received.

Grants relating to income are deferred and recognised in the income statement over the period necessary tomatch them with the costs they are intended to compensate.

Grants relating to the purchase of property, plant and equipment are included in non-current liabilities andrecognised in the income statement over the life of a depreciable asset by way of a reduced depreciation charge.


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2.23 Revenue recognition

(a) Sales of goods produced

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and servicesin the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates anddiscounts and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that futureeconomic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities asdescribed below. The amount of revenue is not considered to be reliably measurable until all contingencies relatingto the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the typeof customer, the type of transaction and the specifics of each arrangement.

(b) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivableis impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flowdiscounted at original effective interest rate of the instrument, and continues unwinding the discount as interestincome. Interest income on impaired loans is recognised using the original effective interest rate.

(c) Dividend income

Dividend income is recognised when the right to receive payment is established.

(d) Rental income

Rental income is recognised on an accruals basis in accordance with the substance of the relevant agreements.

2.24 Operating leases as a lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor areclassified as operating leases. Payments made under operating leases (net of any incentives received from the lessor)are charged in the income statement on a straight-line basis over the period of the lease.

2.25 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only beconfirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the controlof the Group. It can also be a present obligation arising from past events that is not recognised because it is notprobable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.A contingent liability is not recognised but is disclosed in the notes to the consolidated accounts. When a change inthe probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed onlyby the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.Contingent assets are not recognised but are disclosed in the notes to the consolidated accounts when an inflow ofeconomic benefits is probable. When inflow is virtually certain, an asset is recognised.

2.26 Dividends distribution

Dividends distribution to the Company’s shareholders is recognised as a liability in the Group’s financialstatements in the period in which the dividends are approved by the Company’s shareholders.


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2.27 Financial guarantee liabilities

Financial guarantee liabilities are recognised in respect of the financial guarantee contract issued by the Groupto the contract holder for a loss it incurs because a specified debtor fails to make payment when due in accordancewith the original or modified terms of a debt instrument.

Financial guarantee liabilities are recognised initially at fair value plus transaction costs that are directlyattributable to the issue of the financial guarantee contract. After initial recognition, such contracts are measured atthe higher of the present value of the best estimate of the expenditure required to settle the present obligation andthe amount initially recognised less cumulative amortisation.

3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: interest rate risk, credit risk, liquidity risk andforeign exchange risk. The Group’s overall risk management program focuses on the unpredictability of financialmarket and seeks to minimise potential adverse effects on the Group’s financial performance. The Group usesderivative financial instruments to hedge certain foreign exchange risk.

(a) Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest ratesas the Group has no significant interest-bearing assets. The Group’s exposure to changes in interest rates is mainlyattributable to its non-current borrowings. Non-current borrowings at variable rates expose the Group to cash flowinterest-rate risk. Details of the Group’s borrowings have been disclosed in Note 21.

The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

(b) Credit risk

The Group has no significant concentrations of credit risk. The carrying amounts of bank and cash balances,trade receivables, and other receivables represent the Group’s maximum exposure to credit risk in relation to financialassets. The Group’s credit policy for the sales of products is mainly delivery either on cash or upon receipt of bankacceptance notes with maturity dates within six months.

(c) Liquidity risk

The liquidity risk of the Group is controlled by maintaining sufficient cash and cash equivalents, together withadequate banking facilities.

(d) Foreign exchange risk

The Group mainly operates in the PRC with most of the transactions denominated and settled in RMB.However, the Group has certain bank deposits and financial assets that are denominated in foreign currencies, mainlyUnited States Dollars (the “US$”), Euros and Hong Kong Dollars, which are exposed to foreign currency translationrisk. Details of the Group’s bank and cash balances are disclosed in Note 16.

Payables for certain equipment imported by the Group were denominated in Euro. During the year ended 31December 2006 the Group has not used any foreign exchange rate swaps to hedge its exposure to foreign exchangerisk.

3.2 Fair value estimation

The fair value of financial instruments traded in active markets is based on quoted market prices at the balancesheet date.

The fair value of financial instruments that are not traded in an active market is determined by using valuationtechniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existingat each balance sheet date.

The nominal value less impairment provision of trade and other receivables and payables approximates theirfair values.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractualcash flows at the current market interest rate available to the Group for similar financial instruments.


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4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experiences and other factors,including expectations of future events that are believed to be reasonable under the circumstances.

4.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant riskof causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year arediscussed below.

(a) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, lessestimated costs of completion and selling expenses. These estimates are based on the current market condition as atthe balance sheet date and the historical experience of manufacturing and selling products of similar nature.

(b) Impairment of property, plant and equipment

The Group reviews property, plant and equipment for impairment whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable, in accordance with the accounting policy stated in Note2.9. The recoverable amount of cash-generating unit has been determined based on higher of value-in-use and fairvalue less costs to sell.

The Group determined that there was an impairment indication relating to a production line of a subsidiarywhich manufactures galvanised and cold rolled sheets. This production line was identified as a cash-generating unit.

The Group measured the value in use and fair value less costs to sell by discounting the future estimated cashflow deriving from the production line. These calculations required the Group to estimate the expected future cashflows from the cash-generating unit and also to apply a suitable discount rate in order to calculate the present valueof those cash flows.

As at 31 December 2006, the value in use and fair value less costs of sell approximated to RMB245.3 millionand RMB240.4 million respectively. The Group considered that the recoverable amount was the higher of value inuse and fair value less costs of sell. The recoverable amount of the production line was lower than its carrying amountby RMB41.9 million approximately (Note 7).

If the estimated gross margin in all forecast years had been 10% lower or higher than the management’sestimates at 31 December 2006 (for example, 18% or 22% instead of 20%), the Group would have recognised theimpairment as follows:

200610% Lower 10% Higher

Impairment of property, plant and equipment 75,956 –

If the estimated pre-tax discount rate applied to the discounted cash flows had been 10% (for example, 9% or11% instead of 10%) lower or higher than management’s estimates, the Group would have recognised the impairmentas follows:

200610% Lower 10% Higher

Impairment of property, plant and equipment 10,065 59,097


– 98 –

(c) Useful life of the property, plant and equipment

Useful life is the period over which an asset is expected to be available for use by an entity. The depreciableamount of an asset is allocated on a systematic basis over its useful life (Note 2.5).

The following factors are considered in determining the useful life of an asset:

(i) Expected usage of the asset

(ii) Expected physical wear and tear

(iii) Technical or commercial obsolescence arising from changes or improvements in production, or from achange in the market demand for the product or service output of the asset

(iv) Legal or similar limits on the use of the asset.

The useful life of an asset is reviewed at each financial year-end and, if expectations differ from previousestimates, the change will be accounted for as a change in an accounting estimate in accordance with HKAS 8Accounting Policies, Changes in Accounting Estimates and Errors.

4.2 Critical judgements in applying the entity’s accounting policies

(a) Borrowing costs eligible for capitalisation

The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifyingasset are those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not beenmade. It may be difficult to identify a direct relationship between particular borrowings and a qualifying asset andto determine the borrowings that could otherwise have been avoided. Such a difficulty occurs, for example, when thefinancing activity of an entity is co-ordinated centrally. As a result, the determination of the amount of borrowingcosts that are directly attributable to the acquisition of a qualifying asset is difficult and the exercise of judgementis required.

Borrowing costs capitalised into property, plant and equipment are shown in Note 7.

(b) Distinction between investment properties and owner-occupied properties

The Group determines whether a property qualifies as investment property. In making its judgement, the Groupconsiders whether the property generates cash flows largely independently of the other assets held by the Group.Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets usedin the production or supply process.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portionthat is held for administrative purposes. If these portions can be sold separately, the Group accounts for the portionsseparately. If the portions cannot be sold separately, the property is accounted for as investment property only if aninsignificant portion is held for administrative purposes. Judgement is applied in determining whether ancillaryservices are so significant that a property does not qualify as investment property. The Group considers each propertyseparately in making its judgement.


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5. SALES AND SEGMENT INFORMATION – GROUP

(a) Sales

The Group is principally engaged in the manufacture and sales of iron and steel products. Sales recognised forthe years ended 31 December 2006 and 2005 were as follows:

2006 2005

Sales:Gross sales, less discounts and returns

– billets 2,752,589 3,631,593– strips and strip products 5,723,391 5,389,347– H-section steel products 728,933 –– galvanized sheets 381,209 –– cold rolled sheets 160,332 117,159– others 35,662 44,594

9,782,116 9,182,693

(b) Segment information

No business segment information is presented as over 90% of the Group’s sales and operating profit are earnedfrom the sales of iron and steel products.

No geographical segment information is presented as over 90% of the Group’s sales and operating profit areearned within the PRC and over 90% operating assets of the Group are located in the PRC, which is considered asone geographic location with similar risks and returns.

6. LEASEHOLD LAND AND LAND USE RIGHTS – GROUP

The Group’s interests in leasehold land and land use rights represent the prepaid operating lease payments andtheir net book value are analysed as follows:

2006 2005

Opening 79,569 55,239Additions – 25,644Amortisation of prepaid operating lease payment

(Notes 25, 32) (1,477) (1,314)

78,092 79,569

As at 31 December 2006, the net book value of leasehold land and land use rights pledged as security for theGroup’s borrowings amounted to approximately RMB65 million (2005: RMB67 million) (Note 21).

The Group’s leasehold land and land use rights are located in the PRC and the remaining lease period isbetween 46 years to 49 years.


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7. PROPERTY, PLANT AND EQUIPMENT

The Group

Buildings Machinery

Furnitureand

fixtures Vehicles

Leaseholdimprove-

ments CIP Total

At 1 January 2005Cost 749,256 1,555,561 13,702 35,506 577 402,711 2,757,313Accumulated depreciation (91,280) (300,807) (4,759) (11,138) (261) – (408,245)

Net book amount 657,976 1,254,754 8,943 24,368 316 402,711 2,349,068

Year ended31 December 2005

Opening net book amount 657,976 1,254,754 8,943 24,368 316 402,711 2,349,068Additions 51,414 17,578 10,504 10,612 760 2,044,372 2,135,240Transfers 166,513 688,162 8,354 302 – (863,331) –Transfer to CIP for

repairment (7,710) (2,159) – – – 9,869 –Disposals (Note 32) (17,155) (18,602) (4,537) (209) – – (40,503)Depreciation

(Notes 25, 32) (37,250) (158,698) (4,962) (6,473) (351) – (207,734)

Closing net book amount 813,788 1,781,035 18,302 28,600 725 1,593,621 4,236,071

At 31 December 2005Cost 929,675 2,194,045 22,945 43,460 1,337 1,593,621 4,785,083Accumulated depreciation (115,887) (413,010) (4,643) (14,860) (612) – (549,012)

Net book amount 813,788 1,781,035 18,302 28,600 725 1,593,621 4,236,071

Year ended31 December 2006

Opening net book amount 813,788 1,781,035 18,302 28,600 725 1,593,621 4,236,071Additions 9,543 15,995 2,952 7,308 – 787,387 823,185Transfers 411,025 1,733,268 2,413 25 – (2,146,731) –Disposals (Note 32) (2,688) (12,415) (209) (86) – – (15,398)Depreciation

(Notes 25, 32) (49,772) (265,923) (3,157) (7,668) (171) – (326,691)Impairment

(Notes 25, 32) (9,060) (32,150) (450) (199) – – (41,859)

Closing net book amount 1,172,836 3,219,810 19,851 27,980 554 234,277 4,675,308

At 31 December 2006Cost 1,346,713 3,924,966 28,063 50,121 1,337 234,277 5,585,477Accumulated depreciation

and impairment (173,877) (705,156) (8,212) (22,141) (783) – (910,169)

Net book amount 1,172,836 3,219,810 19,851 27,980 554 234,277 4,675,308


– 101 –

Depreciation expenses have been charged to the consolidated income statements as follows:

2006 2005

Cost of sales 318,204 199,647Administrative expenses 8,487 8,087

326,691 207,734

(a) As at 31 December 2006, the net book value of buildings and machinery pledged as security for theGroup’s current and non-current borrowings amounted to approximately RMB1,088 million (2005:RMB568 million) (Note 21).

During the year ended 31 December 2006, borrowing costs amounting to approximately RMB6 millionwere capitalised into the cost of property, plant and equipment (2005: approximately RMB25 million)at an average capitalisation rate of 5% approximately.

(b) As at 31 December 2006, the Directors considered that certain production line in relation to productionof galvanised and cold rolled sheets belonging to a subsidiary was carried at more than its recoverableamount (Note 4.1).


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Impairment of the Group’s property, plant and equipment has been charged to the consolidated incomestatement as follows:

2006 2005

Cost of sales 41,859 –

The Company

BuildingsFurniture

and fixtures VehiclesLeasehold

improvements Total

At 1 January 2005Cost – 374 1,468 577 2,419Accumulated depreciation – (65) (245) (261) (571)

Net book amount – 309 1,223 316 1,848

Year ended 31 December2005

Opening net book amount – 309 1,223 316 1,848Additions 12,399 303 1,189 760 14,651Disposals – – – – –Depreciation (258) (91) (341) (351) (1,041)

Closing net book amount 12,141 521 2,071 725 15,458

At 31 December 2005Cost 12,399 677 2,657 1,337 17,070Accumulated depreciation (258) (156) (586) (612) (1,612)

Net book amount 12,141 521 2,071 725 15,458

Year ended 31 December2006

Opening net book amount 12,141 521 2,071 725 15,458Additions 365 2 46 – 413Disposals – – (1,082) – (1,082)Depreciation (646) (130) (341) (171) (1,288)

Closing net book amount 11,860 393 694 554 13,501

At 31 December 2006Cost 12,764 679 1,513 1,337 16,293Accumulated depreciation (904) (286) (819) (783) (2,792)

Net book amount 11,860 393 694 554 13,501


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8. INVESTMENT PROPERTIES – GROUP AND COMPANY

The investment properties are located in the PRC and their net book value are analysed as follows:

At 1 January 2005Cost –Accumulated depreciation –

Net book amount –

Year ended 31 December 2005Opening net book amount –Additions 21,356Depreciation (Notes 25, 32) (445)

Closing net book amount 20,911

At 31 December 2005Cost 21,356Accumulated depreciation (445)

Net book amount 20,911

Year ended 31 December 2006Opening net book amount 20,911Additions 629Depreciation (Notes 25, 32) (1,112)


At 31 December 2006Cost 21,985Accumulated depreciation (1,557)


During the year ended 31 December 2006, the rental income arising from investment properties approximatelyamounted to RMB1.26 million (2005: RMB0.14 million) (Note 24).

As at 31 December 2006, the Directors assessed the fair value of the investment properties to be approximatelyRMB25.8 million based on the prices in an active market (2005: RMB22.5 million).


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9. INTANGIBLE ASSETS – GROUP

Iron oremining

licenses

At 1 January 2005Cost –Accumulated amortisation –

Net book amount –

Year ended 31 December 2005Opening net book amount –Additions 10,229Amortisation charge (Notes 25, 32) (682)


At 31 December 2005Cost 10,229Accumulated amortisation (682)


Year ended 31 December 2006Opening net book amount 9,547Additions 36,822Deduction (24,498)Amortisation charge (Note 25, 32) (3,582)


At 31 December 2006Cost 22,418Accumulated amortisation (4,129)



– 105 –

10. INVESTMENTS IN AND LOANS TO SUBSIDIARIES – COMPANY

(a) Investments in subsidiaries

2006 2005

Unlisted investments, at cost 224,017 224,017

The particular subsidiaries at 31 December 2006 and 2005 were as follows:

NamePlace and date ofincorporation Legal status

Percentageof equity

interestattributable

to the GroupIssued and fully

paid capitalAuthorised

capitalPrincipalactivities

Gold GenesisDevelopment Limited(“Gold Genesis”)

British VirginIsland (“BVI”)

21 February 2003

Limited liabilitycompany

100%(Directly held)

US$1 US$50,000 Investmentholding

Good Lucky EnterprisesLimited (“GoodLucky”)

BVI21 February 2003


100%(Directly held)


First Glory ServicesLimited (“First Glory”)

BVI16 October 2003


100%(Directly held)


Accordpower InvestmentsLimited(“Accordpower”)

BVI30 November 2004


100%(Directly held)


Fullhero InvestmentsLimited

BVI3 May 2005


100%(Directly held)


Hebei Jinxi Iron and SteelCompany Limited(“Hebei Jinxi”)

PRC24 December 1999

Joint stockcompany withlimitedliability

97.6%(Indirectly

held)

RMB228,635,573 RMB228,635,573 Manufactureand sales ofiron and steelproducts

Foshan Jin Xi Jin LanCold Rolled SheetCompany Limited(“Foshan Jinxi”)

PRC26 December 2003


60%(Indirectly

held)

US$29,800,000 US$29,800,000 Manufactureand sales ofsteel products

Jinxing ChargingCompany Limited(“Jinxing Charging”)

PRC2 August 2005


62%(Indirectly

held)

RMB5,000,000 RMB5,000,000 Manufactureand sales oflime products

Oriental Fullhero Leasing(Shenzhen) Co., Ltd(“Shenzhen Leasing”)

PRC23 September 2005


100%(Indirectly

held)

US$ 65,000,000 US$ 65,000,000 Leasing andfinancialleasing

Tangshan Jinxi MiningCompany Limited(“Jinxi Mining”) (i)

PRC20 December 2004


100%(Indirectly

held)

RMB2,000,000 RMB2,000,000 Managementservice formining rights

(i) Hebei Jinxi entered into an equity acquisition agreement with Mr. Wang Shujun on 5 September 2006to acquire 2% equity shares of Jinxi Mining held by Mr. Wang Shujun. The total consideration isRMB0.04 million in the form of cash. With completion of the transaction, Jinxi Mining has been awholly owned subsidiary of Hebei Jinxi.


– 106 –

(b) Loans to subsidiaries

Loans to subsidiaries forms a part of the Company’s net investment in foreign subsidiaries.

The loans to Hebei Jinxi amounting to approximately US$106.7 million (RMB833.2 million equivalent), areunsecured, interest-free and with a repayment term of 20 years.

Except for the loans to Hebei Jinxi as disclosed above, the loans to subsidiaries are unsecured, interest-freeand have no fixed terms of repayment.

11. INVESTMENTS IN AN ASSOCIATE – GROUP

2006 2005

Beginning of the year 8,881 12,474Share of loss (Note 32) (984) (2,319)Dividends – (4,074)Capital injection to the associate – 2,800

End of the year 7,897 8,881

The information of the unlisted associated company is as follows:

Name

Place anddate ofincorporation

Percentageof equity

interestattributable

to theGroup Assets Liabilities Revenues Net loss

Qianxi CountyZhongxing IronMine Co., Ltd.(“Zhongxing IronMine”)

PRC21 May 2002

35%(indirectly

held)

36,083 13,885 64,272 (2,810)

12. INVENTORIES – GROUP

2006 2005

Raw materials and materials in-transit 1,048,220 894,832Work-in-progress 193,053 122,459Finished goods 166,625 86,083

1,407,898 1,103,374

As at 31 December 2006, the net book value of inventories pledged as security for the Group’s notes payableand current borrowings amounted to approximately RMB69 million (Notes 19 and 21).

As at 31 December 2005, the net book value of inventories pledged as security for the Group’s notes payableamounted to approximately RMB32 million (Note 19).

The cost of inventories recognised as expense and included in cost of sales and administrative expensesamounted to RMB7,312 million and 6 million respectively (2005: RMB7,069 million and 7 million respectively)(Note 25).


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13. TRADE RECEIVABLES – GROUP

2006 2005

Accounts receivable 34,795 23,369Notes receivable (a) 964,033 690,815

998,828 714,184

(a) As at 31 December 2006 and 2005, notes receivable were all bank acceptance notes, approximatelyof which:

(i) RMB10 million was pledged as security for issuing notes payable (2005: RMB67 million) (Note19);

(ii) RMB51 million was pledged as security in favour of a third party for issuing letters of credit(2005: RMB248 million) (Note 33);

(iii) RMB29 million was pledged as security for the Group’s current borrowings (2005: nil) (Note 21);

(iv) RMB135 million was pledged as security for issuing letters of credit (2005: nil).

As at 31 December 2006 and 2005, the carrying amount of the Group’s trade receivablesapproximated their fair value.

As at 31 December 2006 and 2005, the ageing analysis of trade receivables was as follows:

2006 2005

Within 3 months 998,828 714,184

The credit policy usually adopted by the Group for the sales of products to customers is to delivergoods either upon receipt in cash or upon receipt of bank acceptance notes with maturity dateswithin six months.

14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS – GROUP AND COMPANY

2006 2005

Liquid Reserve Fund – Euro, quoted 130 52,479Liquid Reserve Fund – US dollars, quoted 5 12,154

135 64,633

The above financial assets were acquired principally for the purpose of selling in the short term.


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15. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The Group

2006 2005

Prepayments 441,044 107,899Deposits and other receivables 40,690 77,656

481,734 185,555

The Company

2006 2005

Prepayments 310 801Deposits and other receivables 1,327 4,339

1,637 5,140

16. BANK AND CASH BALANCES AND RESTRICTED BANK BALANCES

The Group

2006 2005

Bank and cash balances 434,905 709,870Restricted bank balances 95,262 1,015,416

530,167 1,725,286

As at 31 December 2006, the restricted bank balances were composed of the following items:

(a) The restricted bank balances amounting to approximately RMB41 million were pledged as security forissuing notes payable of the Group (2005: RMB128 million) (Note 19).

(b) The restricted bank balances of a subsidiary amounting to approximately RMB6 million were pledgedas security for issuing notes payable to a fellow subsidiary (2005: nil).

(c) The restricted bank balances amounting to approximately US$6 million (RMB48 million equivalent)were pledged as security for issuing letters of credit (2005: nil).

As at 31 December 2005, restricted bank balances, amounting to approximately US$110 million (RMB888million equivalent) were pledged as security for current borrowings of the Group (Note 21).


– 109 –

The carrying amounts of the bank and cash balances and restricted bank balances are denominated in thefollowing currencies:

2006 2005

RMB 402,482 499,004US dollar 125,778 1,224,787Hong Kong dollar 1,900 1,493Euro 7 2

530,167 1,725,286

The Company

2006 2005

Bank and cash balances 73,666 53,724Restricted bank balances 47,962 887,722

121,628 941,446

As at 31 December 2006, restricted bank balances amounting to approximately US$6 million (RMB48 millionequivalent) (2005: nil) were pledged as security for issuing letters of credit.

As at 31 December 2005, restricted bank balances amounting to approximately US$110 million (RMB888million equivalent) were pledged as security for current borrowings of the Group (Note 21).

The carrying amounts of the bank and cash balances and restricted bank balances are denominated in thefollowing currencies:

2006 2005

US dollar 118,975 935,129Hong Kong dollar 1,881 1,474RMB 768 4,843Euro 4 –

121,628 941,446

17. SHARE CAPITAL – GROUP AND COMPANY

AmountNumber of

SharesOrdinary

SharesShare

Premium Total(thousands)

At 1 January 2005 2,905,000 309,340 2,151,035 2,460,375At 31 December 2005 2,905,000 309,340 2,151,035 2,460,375At 31 December 2006 2,905,000 309,340 2,151,035 2,460,375

As at 31 December 2006 and 2005, the total number of authorised ordinary shares is 5,000,000,000 shares witha par value of HK$0.10 per share.

As at 31 December 2006 and 2005, the number of issued and fully paid ordinary shares is 2,905,000,000shares.


– 110 –

18. OTHER RESERVES – GROUP

MergerReserve

CapitalSurplus

StatutoryReserve

HedgingReserve Options Total

(a) (b) (c) (d)

Balance at 1 January 2005 (599) 13,136 546,646 – – 559,183Cash flow hedges:

– Fair value loss in theyear – – – (3,370) – (3,370)

– Transfer to property,plant and equipment – – – 3,370 – 3,370

Profit appropriation – – 172,084 – – 172,084Others – 4,058 – – – 4,058

Balance at 31 December2005 (599) 17,194 718,730 – – 735,325

Employee share optionsscheme:– Value of employee

services (Note 32) – – – – 16,745 16,745Profit appropriation – – 230,276 – – 230,276Others – 1,950 – – – 1,950

Balance at 31 December2006 (599) 19,144 949,006 – 16,745 984,296

(a) Merger reserve

The merger reserve of the Group represents the difference between the nominal value of the shares of thesubsidiaries that had been acquired and the nominal value of the Company’s shares issued in exchangetherefore pursuant to the Reorganisation.

(b) Statutory reserve

(i) Statutory surplus reserves

In accordance with the PRC regulations and the Articles of the Association of the subsidiaries registered inPRC (“PRC subsidiaries”), before distributing the net profit of each year, the PRC subsidiaries are required to setaside 10% of their statutory net profit for the year after offsetting any prior year’s losses as determined under the PRCaccounting regulations to the statutory surplus reserve fund. When the balance of such reserve reaches 50% of theshare capital, any further appropriation is optional. The statutory surplus reserve fund can be utilised to offset prioryears’ losses or to issue bonus shares. However, such statutory surplus reserve fund must be maintained at a minimumof 25% of the entity’s share capital after such issuance.

(ii) Discretionary reserves

The appropriation of discretionary reserve fund is proposed by board of directors of the PRC subsidiaries, andapproved by the shareholder’s meeting. The discretionary reserve fund can be utilised to offset prior years’ losses orincrease share capital.

(iii) Statutory public welfare

During the year ended 31 December 2005, the PRC subsidiaries are required to set aside 5% to 10% of theirstatutory net profit for the year to the statutory public welfare fund. The statutory public welfare fund is to be utilisedto build or acquire capital items for the entity’s employees and cannot be used to pay off staff welfare expense. Thesecapital items belong to the PRC subsidiaries.

Pursuant to the relevant regulation issued by the Ministry of Finance of the PRC in the year 2006, the PRCsubsidiaries do not set aside their statutory net profit to the statutory public welfare fund from 1 January 2006onwards. The balance of such fund as at 31 December 2005 has been transferred to and used as statutory surplusreserve fund accordingly.


– 111 –

(c) Hedging reserve

The hedging reserve represents the gain or loss of the hedging instrument that are determined to be effectivehedge.

The hedging reserve was removed from equity and included in the initial cost or other carrying amount of theasset or liability which was designated as hedged items when the hedge of a firm commitment subsequently resultedin the recognition of a non-financial asset or a non-financial liability.

(d) Employee share option scheme

As approved by the Board and Shareholders’ meeting, the share options were granted to the Directors and anemployee on 30 June 2006 (“Date of Grant”), in an aggregate to 24,200,000 shares. The options are exercisable atany time during the period no later than ten years from the Date of Grant with the exercise price of HK$1.76 pershare. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options outstanding and their related weighted average exercise prices areas follows:

31 December 2006Average exercise

price Optionsin HK$ per share (thousands)

At 1 January – –Granted 1.76 24,200

At 31 December 1.76 24,200

Share options outstanding at 31 December 2006 will expire on 30 June 2016.

The fair value of options granted during the period, determined by using the Binomial valuation model, wasHK$16.267 million (approximately to RMB16.745 million). The significant inputs into the model were share priceof HK$1.76, at the grant date, exercise price shown above, volatility of 43.0%, expected dividends paid out rate of3.68% and annual risk-free interest rate of 4.84%. The volatility measured at the standard deviation of expected shareprice returns is based on statistical analysis of daily share prices of the Company and other comparable companiesover the last five years.

19. TRADE PAYABLES – GROUP

2006 2005

Accounts payable 425,268 430,159Notes payable (a) 91,100 202,280

516,368 632,439

(a) As at 31 December 2006, the notes payable represented bank acceptance notes, RMB32.1 million ofwhich were secured by certain notes receivable (Note 13), certain restricted bank balances (Note 16),and bank acceptance notes issued by a subsidiary amounting to RMB8 million approximately, andRMB59 million of which were secured by certain inventories (Note 12), certain restricted bank balances(Note 16) and guaranteed by Hebei Jinxi.

As at 31 December 2005, the notes payable represented bank acceptance notes secured by certain inventories(Note 12), certain notes receivable (Note 13) and certain restricted bank balances (Note 16).


– 112 –

As at 31 December 2006 and 2005, the ageing analysis of the trade payables was as follows:

2006 2005

Within 3 months 478,916 546,6844-6 months 30,703 82,6237-9 months 2,795 64010-12 months 219 815Above 1 year 3,735 1,677

516,368 632,439

20. ACCRUALS, ADVANCES FROM CUSTOMERS AND OTHER CURRENT LIABILITIES – GROUP

2006 2005

Accruals 9,356 10,108Advances from customers 387,518 275,835Value-added tax payable 58,431 55,838Other taxes payables 2,553 1,883Other payables (a) 540,378 671,244

998,236 1,014,908

(a) The breakdown of other payables as at 31 December 2006 and 2005 were as follows:

2006 2005

Pension payables and other social welfare payables 104,424 99,431Payables for purchase of property, plant and equipment 278,549 418,555Customer deposits 91,671 76,920Employee deposits 15,716 15,308Salary payables 19,972 15,513Others 30,046 45,517

540,378 671,244


– 113 –

21. BORROWINGS – GROUP

2006 2005

Non-currentBank borrowings, secured (i) 215,770 149,230Other borrowings, unsecured (iii) 145,000 145,000

360,770 294,230

CurrentBank borrowings

Secured (i) 573,230 1,205,900Guaranteed (ii) – 130,000

573,230 1,335,900

Total borrowings 934,000 1,630,130

(i) As at 31 December 2006, secured borrowings amounting to RMB630 million, out of total securedborrowings amounting to RMB789 million, were secured by certain bank acceptance notes issued bythird parties (Note 13), certain property, plant and equipment (Note 7), certain leasehold land and landuse rights (Note 6) of the Group and certain bank acceptance notes issued by a subsidiary, amountingto approximately RMB7 million.

As at 31 December 2006, secured borrowings amounting to RMB9 million were secured by certaininventories (Note 12) and guaranteed by Hebei Jinxi.

As at 31 December 2006, except for the secured borrowings disclosed above, current securedborrowings amounting to RMB150 million were secured by certain property, plant and equipment (Note7), certain leasehold land and land use rights (Note 6) and guaranteed by the Company and Foshan JinLan Aluminum Company Limited (“Foshan Jin Lan”) (a shareholder of Foshan Jinxi) collectivelypursuant to the below agreement.

In January 2006, the Company and Foshan Jin Lan granted a guarantee in favour of Foshan Jinxi forbank borrowing facilities amounting to RMB150 million. In accordance with the guarantee contract, theCompany and Foshan Jin Lan shall bear 60% and 40% of the guarantee obligation respectively.

As at 31 December 2005, secured borrowings were secured by certain restricted bank balances (Note 16)certain property, plant and equipment (Note 7) and certain leasehold land and land use rights (Note 6)of the Group.

(ii) As at 31 December 2005, the guaranteed current borrowings were guaranteed by two third partiesamounting to RMB30 million and RMB100 million respectively.

(iii) Other unsecured borrowing represented a borrowing from the local county government amounting toRMB145 million which will be repaid from 1 January 2008 onwards at an amount of RMB20 millionper annum. Interest is charged at the RMB bank deposit rate for 1 year fixed deposit.


– 114 –

As at 31 December 2006 and 2005, the Group’s borrowings were repayable as follows:

Bank borrowings Other borrowings2006 2005 2006 2005

Within 1 year 573,230 1,335,900 – –Between 1 and 2 years – 149,230 20,000 –Between 2 and 5 years 215,770 – 60,000 60,000Over 5 years – – 65,000 85,000

789,000 1,485,130 145,000 145,000

The effective interest rates at the balance sheet date were as follows:

2006 2005

Bank borrowings 5.58%-7.15% 5.02%-7.15%Other borrowings 2.52% 2.25%

The carrying amounts and fair value of the non-current borrowings are as follows:

Carrying amounts Fair value2006 2005 2006 2005

Bank borrowings 215,770 149,230 215,770 149,230Other borrowings 145,000 145,000 123,476 119,309

360,770 294,230 339,246 268,539

The carrying amounts of short-term borrowings approximated their fair value.

The carrying amounts of the borrowings are all denominated in RMB.

Interest rates of the bank borrowings denominated in RMB are rest periodically according to the primary rateannounced by the People’s Bank of China. The exposure of the Group’s bank borrowings to interest-rate changes andthe contractual repricing dates are as follows:

2006 2005

6 months or less 393,230 1,152,1306-12 months 395,770 333,000

789,000 1,485,130


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22. DEFERRED INCOME TAX – GROUP

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset currenttax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. Theoffset amounts are as follows:

2006 2005Deferred tax assets:

– Deferred tax asset to be recovered within 12 months – 2,327

Deferred tax liabilities– Deferred tax liabilities to be settled within 12 months (290) –

(290) 2,327

The gross movement on the deferred income tax account is as follows:

2006 2005

Beginning balance of the year 2,327 –(Charged)/credited to consolidated income statement (Note 28(a)) (2,617) 2,327

Ending balance of the year (290) 2,327

Deferred taxation is calculated on temporary differences under the liability method using the tax rate and thetax base that are consistent with the expected manner of recovery or settlement for the year ended 31 December 2006.

The movement in deferred tax assets and liabilities during the year, without taking into consideration theoffsetting of balances within the same tax jurisdiction is as follows:

Deferred tax liabilities:

Unrealised losseson inventories

At 1 January 2005 –

At 31 December 2005 –Charged to consolidated income statement (290)

At 31 December 2006 (290)


– 116 –

Deferred tax assets:

Losses ondisposal of

property, plantand equipment Others Total

At 1 January 2005 – – –Credited to consolidated income statement 1,877 450 2,327

At 31 December 2005 1,877 450 2,327Charged to consolidated income statement (1,877) (450) (2,327)

At 31 December 2006 – – –

The amount of unused tax losses for which no deferred tax asset recognised in the balance sheet approximatelyamounted to RMB95.2 million (2005: RMB53.3 million). In accordance with the relevant tax laws and regulationsin the PRC, the loss can be carried forward for 5 years since the year the loss was generated.

23. OTHER GAINS/(LOSSES) – NET – GROUP

2006 2005

Other gains/(losses) – net:Sales of raw materials and by-products 37,423 27,267Gain on disposal of intangible assets (Note 32) 85 –Loss on disposal of property, plant and equipment (Note 32) (7,329) (36,490)Foreign exchange loss, net (Note 32) (2,979) (44,858)Others 4,239 6,332

Total 31,439 (47,749)

24. OTHER INCOME – GROUP

2006 2005

Subsidy income – 345Dividend income on financial assets at fair value through

profit and loss (Note 32) 1,061 3,728Rental income arising from investment properties (Note 8) 1,261 141Others 1,827 72

Total 4,149 4,286


– 117 –

25. EXPENSES BY NATURE – GROUP

2006 2005

Employee benefit expense (Note 26) 243,483 168,608Costs of inventories (Note 12) 7,318,352 7,076,396Amortisation of leasehold land and land use rights (Notes 6, 32) 1,477 1,314Depreciation of property, plant and equipment (Notes 7, 32) 326,691 207,734Amortisation of intangible assets (Notes 9, 32) 3,582 682Impairment of property, plant and equipment (Notes 7, 32) 41,859 –Depreciation of investment properties (Notes 8, 32) 1,112 445Operating lease rental in respect of land use rights 4,503 3,368Reversal of impairment provision for receivables (Notes 7, 32) (600) –(Reversal of)/provision for write-down of inventories (Note 32) (10,754) 12,632Auditors’ remuneration 3,300 3,000

26. EMPLOYEE BENEFIT EXPENSE – GROUP

2006 2005Staff costs (including directors’ emoluments)

– Salaries and welfare 203,184 144,062– Pension costs – defined contribution plans (a) 23,554 24,546– Share options granted to directors and an employee 16,745 –

243,483 168,608

(a) Pensions – defined contribution plans

The employees of the subsidiaries of the Group that are incorporated in the PRC participate in a definedcontribution retirement benefit plan organised by the relevant provincial government. For the year ended 31December 2006 and 2005, the Group is required to make monthly defined contributions to these plans at rates from20.5% to 28%, with the base of their total salary subject to a certain ceiling.

The Group has no other obligations for the payment of retirement and other post-retirement benefits ofemployees or retirees other than the payments disclosed in the above note.


– 118 –

(b) Directors’ and senior management’s emoluments

The emoluments of every director for the year ended 31 December 2006 and 2005, on a named basis, are setout as below:

Name of Director Fees

Salariesand

allowances Bonus

Fair valueof

employeeshare

optionsgranted

Pensioncosts –

definedcontribution

plans Total

2006Mr. Han Jingyuan 638 3,948 – 1,936 12 6,534Mr. Zhu Jun 306 520 480 1,661 20 2,987Mr. Liu Lei 376 596 – 1,661 12 2,645Mr. Shen Xiaoling 306 322 278 1,661 20 2,587Ms. Chen Ningning 256 – – 1,799 12 2,067Mr. Yu Tung Ho 307 – – 1,661 – 1,968Mr. Tang Chi Fai 256 – – 1,661 12 1,929Mr. Wong Man

Chung, Francis 256 – – 1,661 – 1,917Mr. Gao Qingju 256 – – 1,661 – 1,917

2,957 5,386 758 15,362 88 24,551

Name of Director Fees

Salariesand

allowances Bonus

Fair valueof

employeeshare

optionsgranted

Pensioncosts –

definedcontribution

plans Total

2005Mr. Han Jingyuan 246 1,393 105 – 5 1,749Mr. Zhu Jun 164 1,050 – – 15 1,229Mr. Shen Xiaoling 105 650 – – 10 765Mr. Liu Lei 167 436 58 – 5 666Mr. Yu Tung Ho 263 – – – – 263Ms. Chen Ningning 244 – – – 7 251Mr. Tang Chi Fai 214 – – – 7 221Mr. Wong Man

Chung, Francis 210 – – – – 210Mr. Gao Qingju 164 – – – – 164

1,777 3,529 163 – 49 5,518

None of the directors waived or agreed to waive any remuneration during the years 2006 and 2005. Theemoluments of the independent non-executive directors during the year are RMB5.8 million approximately (2005:RMB0.64 million).


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(c) Five highest paid individuals

The five highest paid individuals consisted of:

2006 2005

Number of directors 4 4Number of employees 1 1

5 5

The five individuals whose emoluments were the highest in the Group for the year include four (2005: four)directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remainingone (2005: one) individuals during the year are as follows:

2006 2005

Salaries and allowances 716 737Bonuses – 58Fair value of employee share options granted 1,383 –Pension costs-defined contribution plans 12 13

2,111 808

During the years ended 31 December 2006 and 2005, no emoluments were paid by the Group to any of thedirectors or the five highest paid individuals as inducement to join or upon joining the Company or as compensationfor loss of office.

The remuneration of the five highest paid individuals during the years ended 31 December 2006 and 2005 fellwithin the following bands:

Number of individuals2006 2005

Nil to RMB1,000,000 (approximately to HK$1,000,000) – 3RMB1,000,001 to RMB2,000,000

(approximately HK$1,000,001 to HK$2,000,000) – 2RMB2,000,001 to RMB3,000,000

(approximately HK$2,000,001 to HK$3,000,000) 4 –RMB6,000,001 to RMB7,000,000

(approximately HK$6,000,001 to HK$7,000,000) 1 –

27. FINANCE INCOME AND COSTS – GROUP

2006 2005

Interest expenses– borrowings (48,615) (70,071)– amount due to related parties (Note 35 (b)(ii)) (1,633) (2,764)– discount of notes receivable (139) (1,354)

Finance costs (Note 32) (50,387) (74,189)Finance income – interest income on bank deposits (Note 32) 18,930 62,596

Finance costs, net (31,457) (11,593)


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28. TAXATION – GROUP

(a) Taxation represents:

2006 2005

Current income tax– PRC enterprise income tax (the “EIT”) 208,269 159,408

Deferred income tax (Note 22) 2,617 (2,327)

210,886 157,081

The Company was incorporated in Bermuda as an exempted company with limited liability under theCompanies Act 1981 of Bermuda and, accordingly, is exempted from payment of Bermuda income tax.

The subsidiaries directly held by the Company were incorporated in BVI with limited liability under theInternational Business Companies Act Chapter 291 and, accordingly, are exempted from payment of BVI income tax.

Hong Kong profits tax has not been provided as there is no estimated assessable profit for the year ended 31December 2006 (2005: nil).

The PRC EIT is calculated based on the statutory profit of subsidiaries incorporated in the PRC in accordancewith the PRC tax laws and regulations, after adjustments on certain income and expense items, which are notassessable or deductible for income tax purposes.

The PRC state enterprise income tax rate of the indirect subsidiary of the Company, Hebei Jinxi, is 30% andthe local income tax rate is 3%. Therefore, an aggregate tax rate of 33% was applicable for income tax filing purpose.

Effective from 25 December 2002, Hebei Jinxi was approved to be a foreign-invested joint stock company. Inaccordance with the relevant tax laws and regulations in the PRC and a local tax authority approval dated 20 January2003, effective from 1 January 2003, Hebei Jinxi was entitled to a two-year full exemption followed by a three-year50% tax deduction from the PRC state EIT.

Approved by local tax authority at 22 July 2004, Hebei Jinxi was entitled to a five-year full exemptionfollowed by a five-year 50% tax deduction from the local income tax started from 1 January 2003. Accordingly, theeffective tax rate of Hebei Jinxi was 15% for the year ended 31 December 2006 (2005: 15%).

Foshan Jinxi qualified as a foreign investment production enterprise and was established in a coastal economicdevelopment zone. Accordingly, the applicable enterprise income tax rate is 24% and the local tax rate is 3%,resulting in an aggregate tax rate of 27%. As at 31 December 2006, Foshan Jinxi was in a cumulative tax loss position.Accordingly, the effective tax rate is nil (2005: nil).

(b) The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise usingthe weight average tax rate of 35.29% (2005: 33%) to profits of the consolidated entities for the years ended31 December 2006 and 2005 as follows:

2006 2005

Profit before taxation 1,233,236 1,004,196

Taxation calculated at statutory tax rate 435,181 331,385Effect of tax exemption of Hebei Jinxi (251,861) (196,590)Tax losses for which no deferred income tax asset was recognized 25,977 21,015Effect of other non-taxable income (9) (988)Effect of non-deductible expenses 1,598 2,259

210,886 157,081


– 121 –

29. PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY

The profit attributable to the equity holders of the Company is dealt with in the accounts of the Company tothe extent of approximately RMB134.45 million (2005: RMB124.79 million).

30. EARNINGS PER SHARE

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company bythe weighted average number of ordinary shares in issue during the year.

2006 2005

Profit attributable to equity holders of the Company 1,032,754 846,585

Weighted average number of ordinary shares in issue (thousands) 2,905,000 2,905,000

Basic earnings per share (RMB per share) 0.36 0.29

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary sharesoutstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutivepotential ordinary shares: share options. For the share options, a calculation is done to determine the number of sharesthat could have been acquired at fair value (determined as the average annual market share price of the Company’sshares) during the period based on the monetary value of the subscription rights attached to outstanding share options.The number of shares calculated as above is compared with the number of shares that would have been issuedassuming the exercise of the share options.

The average market price of ordinary shares during the year ended 31 December 2006 did not exceed theexercise price, HK$1.76 per share. The share options are antidilutive and are ignored in the calculation of the dilutedearnings per share.

31. DIVIDENDS

2006 2005

Interim, paid (a) 29,730 –Final, proposed (b, c) 132,149 136,044

161,879 136,044

(a) At a meeting held on 30 August 2006, the directors declared an interim dividends of HK$29.05 million(approximately RMB29.73 million), representing HK$0.01 per share, for the year ended 31 December2006.

(b) At a meeting held on 30 March 2006, the directors proposed a final dividend in respect of the year ended31 December 2005 of HK$130.73 million (approximately RMB136.04 million), representing HK$0.045per ordinary share. The Annual General Meeting held on 17 May 2006 approved the directors’ dividendsproposal.

(c) At a meeting held on 3 April 2007, the directors proposed a final dividend in respect of the year ended31 December 2006 of HK$133.63 million (approximately RMB132.15 million), representing HK$0.046per ordinary share. This proposed dividend is not reflected as a dividends payable in these financialstatements, but will be reflected as an appropriation of retained earnings for the year ending 31December 2007.


– 122 –

32. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(i) Reconciliation of profit before taxation to cash generated from operations is as follows:

2006 2005

Profit before income tax 1,233,236 1,004,196Reversal of impairment provision for receivables (Note 25) (600) –Depreciation of property, plant and equipment (Note 7, 25) 326,691 207,734Depreciation of investment properties (Note 8, 25) 1,112 445Amortisation of leasehold land and land use rights (Note 6, 25) 1,477 1,314Amortisation of intangible assets (Note 9, 25) 3,582 682(Reversal of)/write-down inventories to their net realisable value (Note 25) (10,754) 12,632Impairment provision for property, plant and equipment (Note 7, 25) 41,859 –Share of losses of an associate company (Note 11) 984 2,319Loss on disposal of property, plant and equipment, net (Note 23) 7,329 36,490Gain on disposal of intangible assets, net (Note 23) (85) –Exchange loss (Note 23) 2,979 44,858Interest income (Note 27) (18,930) (62,596)Dividend income on financial assets at fair value through profit or loss

(Note 24) (1,061) (3,728)Interest expenses (Note 27) 50,387 74,189Employee share option scheme (Note 18) 16,745 –

Operating profit before working capital changes 1,654,951 1,318,535Decrease/(Increase) in financial assets at fair value through profit or loss 64,498 (64,633)Increase in inventories (293,770) (215,799)Decrease in restricted bank balances 32,432 221,254Increase in trade receivables, prepayments, deposits and other receivables

and other current assets (940,355) (574,438)Decrease in long-term advances to suppliers – 50,000(Decrease)/Increase in trade payables, current income tax liabilities,

accruals, advances from customers and other current liabilities (11,965) 90,466Decrease in long-term advances from customers (25,000) –Decrease in amount due to related parties (221) (200,905)

Cash generated from operations 480,570 624,480

(ii) Major non-cash transactions:

During the year ended 31 December 2006, the Group endorsed bank acceptance notes to the supplier forpurchase of property, plant and equipment amounting to approximately RMB324 million (2005: approximatelyRMB801 million).

(iii) In the cash flow statement, proceeds from sales of property, plant and equipment comprise:

2006 2005

Net book amount (Note 7) 15,398 40,503Loss on disposals of property, plant and equipment (Note 23) (7,329) (36,490)

Proceeds from disposal of property, plant and equipment 8,069 4,013


– 123 –

33. CONTINGENT EVENTS

The Group

Guarantee for third parties

2006 2005

Guarantee for bank borrowings of third parties (i) 18,900 28,986Guarantee for letter of credit issued by a third party (ii) 50,520 248,429

69,420 277,415

(i) As at 31 December 2006, Hebei Jinxi provided guarantee for bank borrowings in favour of third partiesamounting to approximately RMB18.9 million (2005: approximately RMB28.99 million).

(ii) During the year ended 31 December 2006, a third party acted as an agent and issued letter of credit toimport property, plant and equipment for Hebei Jinxi. Accordingly, Hebei Jinxi pledged notes receivableamounting to RMB51 million (Note 13) as collaterals (2005: approximately RMB248 million).

The Directors believe that to settle the obligation will not probably cause an outflow of resourcesembodying economic benefits.

The Company

2006 2005

Guarantee for bank borrowings of subsidiaries 90,000 872,900

In January 2006, the Company and Foshan Jin Lan collectively granted a guarantee in favour of Foshan Jinxifor current bank facilities amounting to RMB150 million. In accordance with the guarantee contract, the Companyand Foshan Jin Lan shall bear 60% and 40% of the guarantee obligation respectively.

As at 31 December 2006, pursuant to the aforementioned agreement, current secured borrowings of FoshanJinxi amounting to RMB150 million were guaranteed by the Company and Foshan Jin Lan collectively.

As at 31 December 2005, the Company pledged bank deposits amounting to US$110 million (equivalent toapproximately RMB888 million) as collaterals to secure current borrowings of Hebei Jinxi and Foshan Jinxi.

The Directors believe that to settle the obligation will not probably cause an outflow of resources embodyingeconomic benefits.


– 124 –

34. COMMITMENTS – GROUP

(a) Capital commitments

Capital expenditure at the balance sheet date but not yet incurred is as follows:

2006 2005

To acquire the minority interest in Jinxing Charging 8,900 –To acquire interests in certain mining enterprises 83,421 –

92,321 –

Purchase of property, plant and equipment– Contracted but not provided for 6,599 256,266– Authorised but not contracted for 1,971,348 –

1,977,947 256,266

(b) Operating lease commitments

The future aggregate minimum lease rental expenses in respect of land use rights and building undernon-cancellable operating leases are payable as follows:

2006 2005

Not later than one year 5,723 4,629Later than one year and not later than five years 17,086 13,404Later than five years 93,571 65,969

116,380 84,002


– 125 –

35. RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other partyor exercise significant influence over the other party in making financial and operating decisions. Parties are alsoconsidered to be related if they are subject to common control.

(a) During the year 2006 and 2005, the Directors are of the view that the following companies and personsare related parties of the Group:

Name Relationship with the Group

Wellbeing Substantial shareholder of the CompanySmart Triumph Corporation Substantial shareholder of the CompanyQianxi County Heli Industry and

Trade Co., Ltd.(“Qianxi Heli”) (i)

The controlling shareholder is Mr. Han, a director of theCompany

Tangshan Qianxi County FuqinIndustrial and Trade Co., Ltd.(“Qianxi Fuqin”)

The controlling shareholder is Mr. Han, a director of theCompany

Pioneer Metals Co., Ltd.(“PMC”)

The controlling shareholder is Ms. Chen, a director of theCompany

Tangshan City Jinxi Iron andSteel Group Co., Ltd.(“Tangshan Jinxi Group”)

Shareholder of Hebei Jinxi and its legal representative is Mr.Han, a director of the Company

Beijing PMC New CenturyTechnology Co., Ltd.(“Beijing PMC”)

Subsidiary of PMC

Foshan Jin Lan Substantial shareholder of Foshan JinxiZhongxing Iron Mine Hebei Jinxi associated companyBeijing Wanlihe Trading Co.,

Ltd. (“Beijing Wanlihe”)Its controlling shareholder is Mr. Han, a director of the

CompanyMr. Han Chairman and Chief Executive Officer of the CompanyMr. Zhou Weijie Director of Foshan JinxiMs. Fu Ruiyun The shareholder of Jinxing Charging

(i) Qianxi Heli was deregistered in March 2005 and ceased to be the Group’s related party from thenon.

(b) Save as disclosed elsewhere in these consolidated financial statements, during the year 2006 and 2005,the directors were of the view that the following significant related party transactions were carried outin the normal course of business of the Group:

(i) Purchases

2006 2005

Purchase of property, plant and equipment – Foshan Jin Lan – 25,785Purchases of inventories – Zhongxing Iron Mine – 28,383

(ii) Loan received

Tangshan Jinxi Group provided a loan to Foshan Jinxi, amounting to RMB30 million. The loanare unsecured, bore interest at a rate of 5.58% per annum and repayable within one year. For the yearended 31 December 2006, interest expense of approximately RMB1.2 million was incurred.


– 126 –

Foshan Jin Lan entered into an agreement with Foshan Jinxi and Accordpower in January 2006.Pursuant to the agreement:

(1) Foshan Jin Lan provided a loan amounting to RMB11.86 million, approximated to US$1.5million, to Foshan Jinxi in the form of (a) lending of RMB1 million in cash, (b) repaymentthe borrowings to a third party on behalf of Foshan Jinxi of RMB10 million, (c)postponement of interest collection by RMB0.86 million approximately, on condition thatAccordpower provided a loan to Foshan Jinxi of US$2.25 million.

(2) Foshan Jin Lan designated the existing receivable from Foshan Jinxi amounting toRMB44.67 million as interest-free, on the condition that Accordpower additionallyprovided another loan to Foshan Jinxi of US$9.03 million. Interest expense ofapproximately RMB0.44 million was incurred before Accordpower provided the loan toFoshan Jinxi (Note 21).

During the year 2006, Foshan Jinxi has paid certain expenses on behalf of Foshan Jin Lanamounting to approximately RMB0.99 million, which was deducted from the loans provided by FoshanJin Lan.

All the above loans granted by Foshan Jin Lan in accordance with the agreement are unsecured,interest-free and repayable only after five years.

Tangshan Jinxi Group provided a loan, amounting to RMB70 million to Jinxi Limited, which wasfully repaid to Tangshan Jinxi Group during the year ended 31 December 2005. The loan was unsecured,interest free and had no fixed term of repayment.

(iii) Contribution

Pursuant to the “New Joint Venture Agreement” as announced in the Company’s circulars dated18 January 2005, Foshan Jin Lan contributed a building to Foshan Jinxi in February 2005, with a fairvalue of approximately RMB2.8 million.

(iv) Repayment of the amount due to PMC and Qianxi Heli

Subject to certain agreements entered into December 2003, the payables amounting to PMC andQianxi Heli, amounting to RMB100 million and RMB116 million respectively, were due after 30 June2005. In the year 2005, Jinxi Limited repaid RMB100 million to Beijing PMC according to the writteninstruction of PMC, and repaid RMB114 million to Beijing Wanlihe and RMB2 million to Qianxi Fuqinaccording to the written instruction of Qianxi Heli.


– 127 –

(c) As at 31 December 2006 and 2005, the directors were of the view that the following related partybalances were attributed to the aforementioned related party transactions, amounts paid on behalf of theGroup, dividends appropriation during the years.

2006 2005

Borrowings from related parties:Non-current

– Foshan Jin Lan (Note 35 (b)(ii)) 55,529 –

Current– Tangshan Jinxi Group (Note 35 (b)(ii)) 31,194 –– Foshan Jin Lan (Note 35 (b)(ii)) – 45,082– Ms. Fu Ruiyun 16,783 16,783

103,506 61,865

Dividends payable due to– Tangshan Jinxi Group 5,391 –– Zhongxing Iron Mine 2,535 2,535

7,926 2,535

Others:– Mr. Han 771 –

112,203 64,400

Except for the loan provided by Foshan Jin Lan and Tangshan Jinxi Group as disclosed in Note 35 (b)(ii), therelated party balances were all unsecured, interest free and had no fixed term of repayment.

36. SUBSEQUENT EVENTS

Saved as disclosed elsewhere in this announcement, the significant subsequent events of the Group were asfollows:

(i) Hebei Jinxi entered into an agreement with Ms. Fu Ruiyun on 23 December 2006 to acquire 38% equityinterests of Jinxing Charging held by Ms. Fu Ruiyun. The total consideration was RMB8.9 million inthe form of cash. All of the cash consideration was paid in January 2007. Consequently, in accordancewith the aforementioned agreement, Jinxing Charging become a wholly owned subsidiary of HebeiJinxi.

(ii) On 30 March 2007, the directors of Hebei Jinxi proposed a final dividend of RMB181 million in respectof the year ended 31 December 2006.

(iii) Change of mainland China enterprise income tax law

On 16 March 2007, the Enterprise Income Tax Law (the “new EIT law”) was passed at the Fifth Sessionof the Tenth National People’s Congress of the People’s Republic of China. The new EIT law will beeffective as at 1 January 2008, and the “Income Tax Law of the People’s Republic of China forEnterprises with Foreign Investment and Foreign Enterprises” and “Provisional Regulations of thePeople’s Republic of China on Enterprise Income Tax” both of which the Group was originally subjectedto will be abrogated simultaneously. The Group has already commenced an assessment of the impact ofthe new EIT but is not yet in a position to state the accurate impact on the Group’s results of operationsand financial position in the future.


– 128 –

3. INTERIM RESULTS OF CHINA ORIENTAL FOR THE SIX MONTHS ENDED30 JUNE 2007

The following is the unaudited consolidated interim results of the Group extracted fromthe interim report of the Group for the six months ended 30 June 2007.

CONSOLIDATED CONDENSED INTERIM STATEMENT OF INCOME(All amounts in RMB thousands unless otherwise stated)

UnauditedSix months ended 30 June

Note 2007 2006

Revenue 3 6,648,045 4,773,687Cost of sales (5,558,614) (3,976,717)

Gross profit 1,089,431 796,970Other income 1,040 1,219Distribution costs (27,890) (5,208)Administrative expenses (85,727) (87,840)Other expenses (3,401) (3,089)Other (losses)/gains – net (10,773) 10,999

Operating profit 4 962,680 713,051

Finance income 5,293 12,767Finance costs (30,664) (23,169)

Finance costs – net (25,371) (10,402)Share of loss of an associate (625) (2,368)

Profit before income tax 936,684 700,281Income tax expense 5 (148,472) (110,759)

Profit for the period 788,212 589,522

Attributable to:Equity holders of the Company 768,881 584,665Minority interest 19,331 4,857

788,212 589,522

Earnings per share for profit attributable toequity holders of the Company during theperiod (expressed in RMB per share)– basic 6 0.26 0.20

– diluted 6 0.26 0.20

Dividends 7 154,864 29,730


– 129 –

CONSOLIDATED CONDENSED INTERIM BALANCE SHEET(All amounts in RMB thousands unless otherwise stated)

Note

Unaudited30 June

2007

Audited31 December

2006

ASSETSNon-current assetsProperty, plant and equipment 8 5,111,492 4,675,308Leasehold land and land use rights 8 77,266 78,092Investment properties 8 19,878 20,428Intangible assets 8 16,047 18,289Investments in an associate 7,272 7,897Deferred income tax assets 643 –

5,232,598 4,800,014

Current assetsInventories 1,011,191 1,407,898Trade receivables 9 2,371,943 998,828Other current assets 11,305 2,591Prepayments, deposits and other receivables 228,924 481,734Amounts due from a related party 1,160 –Financial assets at fair value through profit or loss 138 135Restricted bank balances 79,127 95,262Cash and cash equivalents 369,821 434,905

4,073,609 3,421,353

Total assets 9,306,207 8,221,367


Company’s equity holdersOrdinary shares 309,630 309,340Share premium 2,155,859 2,151,035Other reserves 984,296 984,296Retained earnings 2,671,188 2,034,456

6,120,973 5,479,127Minority interest 138,035 122,322

Total equity 6,259,008 5,601,449


– 130 –

Note

Unaudited30 June

2007

Audited31 December

2006

LIABILITIESNon-current liabilitiesBorrowings 625,000 360,770Deferred income tax liabilities – 290Amounts due to a related party 55,733 55,529

680,733 416,589

Current liabilitiesTrade payables 10 423,042 516,368Accruals, advances from customers and other

current liabilities 1,218,379 998,236Amounts due to related parties 17,698 56,674Current income tax liabilities 106,293 58,225Borrowings 600,000 573,230Dividends payable 1,054 596

2,366,466 2,203,329

Total liabilities 3,047,199 2,619,918


Net current assets 1,707,143 1,218,024



– 131 –

SELECTED NOTES TO THE CONSOLIDATED CONDENSED INTERIMFINANCIAL INFORMATION(All amounts in RMB thousands unless otherwise stated)

1. General information

China Oriental Group Company Limited (the “Company”) was incorporated in Bermuda on 3 November 2003as an exempted company with limited liability under the Companies Act 1981 of Bermuda as a result of a groupreorganisation (the “Reorganisation”).

The address of the Company’s registered office is Clarendon House, 2 Church Street, Hamilton HM 11,Bermuda.

Following the completion of the global offering, the Company’s shares were listed on The Stock Exchange ofHong Kong Limited on 2 March 2004.

The Company together with its subsidiaries are hereinafter collectively referred to as the Group. The Groupis mainly engaged in the manufacture and sales of iron and steel products. The Group has manufacturing plants inHebei Province and Guangdong Province of the People’s Republic of China (the “PRC”) and sells mainly tocustomers located in the PRC.

This consolidated condensed interim financial information was approved for issue on 30 August 2007.

2. Basis of preparation and accounting policies

2.1 Basis of preparation

This consolidated condensed interim financial information for the six months ended 30 June 2007 has beenprepared in accordance with HKAS 34, ‘Interim financial reporting’. This consolidated condensed interim financialinformation should be read in conjunction with the annual financial statements for the year ended 31 December 2006.

2.2 Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended31 December 2006, as described in the annual financial statements for the year ended 31 December 2006, which hasbeen approved by the Board on 3 April 2007.

The following new standards, amendments to standards and interpretations are mandatory for financial yearending 31 December 2007.

• HKFRS 7, “Financial instruments: Disclosure”, effective for annual periods beginning on or after 1January 2007. HKAS 1, “Amendments to capital disclosures”, effective for annual periods beginning onor after 1 January 2007.

HKFRS 7 and the amendment to HKAS 1 introduce new disclosures relating to financial instruments.The Group assessed the impact of HKFRS 7 and the amendment to HKAS 1 and concluded that the mainadditional disclosures is the sensitivity analysis to market risk and capital disclosures required by theamendment of HKAS 1. The full disclosures as required by HKFRS 7 and the amendment to HKAS 1will be disclosed in the annual financial statement for the year ending 31 December 2007.

• HK(IFRIC)-Int 7, “Applying the Restatement Approach under HKAS 29, Financial Reporting inHyperinflationary Economies”, effective for annual periods beginning on or after 1 March 2006. Thisinterpretation is not relevant to the Group.

• HK(IFRIC)-Int 8, “Scope of HKFRS 2, Share-base payment”, effective for annual periods beginning onor after 1 May 2006.

HK(IFRIC)-Int 8 requires consideration of transactions involving the issuance of equity instruments –where the identifiable consideration received is less than the fair value of the equity instruments issued– to establish whether or not they fall within the scope of HKFRS 2. This interpretation has nosignificant impact on the Group’s consolidated condensed interim financial information.


– 132 –

• HK(IFRIC)-Int 9, “Reassessment of embedded derivatives”, effective for annual periods beginning onor after 1 June 2006.

HK(IFRIC)-Int 9 requires an entity to assess whether an embedded derivative is required to be separatedfrom the host contract and accounted for as a derivative when the entity first becomes a party to thecontract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract thatsignificantly modifies the cash flows that otherwise would be required under the contract, in which casereassessment if required. This interpretation does not have any significant impact on the reassessmentof embedded derivatives as the Group has already assessed whether embedded derivative should beseparated using the principles that are consistent with HK(IFRIC)-Int 9.

• HK(IFRIC)-Int 10, “Interim Financial Reporting and Impairment”, effective for annual periodsbeginning on or after 1 November 2006.

HK(IFRIC)-Int 10 prohibits the impairment losses recognised in an interim period on goodwill,investments in equity instruments and investments in financial assets carried at cost to be reversed ata subsequent balance sheet date. This interpretation does not have any significant impact on the Group’sconsolidated condensed interim financial information.

The following new standards and interpretations have been issued but are not effective for 2007 and have notbeen early adopted:

• HKFRS 8, “Operating segments”, effective for annual periods beginning on or after 1 January 2009.This standard supersedes HKAS 14 Segment Reporting, under which segments were identified andreported on risk and return analysis. Items were reported on the accounting policies used for externalreporting. Under HKFRS 8, segments are components of an entity regularly reviewed by an entity’schief operating decision-maker. Items are reported based on the internal reporting. Management iscurrently assessing the impact of HKFRS 8 on the Group’s operations. The Group will apply HKFRS8 with effect from 1 January 2009;

• HK(IFRIC)-Int 11, “HKFRS 2 – Group and Treasury Share Transactions”, effective for annual periodsbeginning on or after 1 March 2007. It clarifies the application of share-based payment to certainshare-based payment arrangements involving the entity’s own equity instruments and to arrangementsinvolving equity instruments of the entity’s parent. The Group will apply HK(IFRIC)-Int 11 from 1January 2008.

• HK(IFRIC)-Int 12, “Service Concession Arrangements”, effective for annual periods beginning on orafter 1 January 2008. This interpretation is not relevant to the Group.

• HKAS 23 (Revised), “Borrowing Cost”, effective for annual periods beginning on or after 1 January2009. The revised HKAS 23 removes the option of immediately recognising the borrowing costs as anexpense, and requires an entity to capitalise borrowing costs directly attributable to the acquisition,construction or production of a qualifying asset as part of the cost of that assets. The revised HKAS 23only applies to qualifying assets measured at cost and excludes inventories that are routinelymanufactured, or otherwise produced in large quantities on a repetitive basis. Management is currentlyassessing the impact of the revised HKAS 23 on the Group’s operations. The Group will apply therevised HKAS 23 from 1 January 2009.


– 133 –

3. Sales and segment information

(a) Sales

The Group is principally engaged in the manufacture and sales of iron and steel products. Sales recognised forthe six months ended 30 June 2007 and 2006 were as follows:

UnauditedFor the six months ended

30 June2007 2006

Sales:Gross sales, less discounts and returns

– billets 284,141 1,987,305– strips and strip products 3,878,161 2,577,932– H section steel products 2,103,336 –– cold rolled sheets 28,650 132,610– galvanised sheets 341,708 64,047– others 12,049 11,793

6,648,045 4,773,687

(b) Segment information

No business segment information is presented as over 90% of the Group’s sales and operating profits arederived from the sales of iron and steel products, which is considered as one business segment with similar risks andreturns.

No geographical segment information is presented as over 90% of the Group’s sales and operating profits arederived within the PRC and over 90% operating assets of the Group are located in the PRC, which is considered asone geographic location with similar risks and returns.

4. Operating profit

The following items have been credited/ (charged) to the operating profit during the six months ended 30 June2007 and 2006:


30 June2007 2006

Share options granted to directors and an employee – (16,745)Loss on disposal of property, plant and equipment (4,273) (8,023)Gain on disposal of intangible assets – 500Amortisation of leasehold land and land use rights (Note 8) (826) (695)Depreciation of property, plant and equipment (Note 8) (216,428) (133,695)Amortisation of intangible assets (Note 8) (2,242) (1,548)Depreciation of investment properties (Note 8) (550) (563)Foreign exchange loss, net (7,408) (2,188)Impairment provision for receivables – (990)


– 134 –

5. Income tax expense


30 June2007 2006

Current income tax – PRC enterprise income tax 149,404 114,165Deferred income tax (932) (3,406)

148,472 110,759

On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’sRepublic of China (the “new CIT Law”). The new CIT Law reduces (increases) the corporate income tax rate forforeign invested enterprises from the current applicable tax rate to 25% with effect from 1 January 2008. Thedirectors consider that no material impact of deferred tax assets will arise from the change of tax rate since most ofthe deferred tax assets will be recovered within the year ending 31 December 2007.

The new CIT Law provides that further detailed measures and regulations on the determination of taxableprofit, tax incentives and grandfathering provisions will be issued by the State Council in due course. As and whenthe State Council announces the additional regulations, the Company will assess their impact, if any, and this changein accounting estimate will be accounted for prospectively.

6. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company bythe weighted average number of ordinary shares in issue during the period.


30 June2007 2006

Profit attributable to equity holders of the Company 768,881 584,665

Weighted average number of ordinary shares in issue (thousands) 2,905,566 2,905,000

Basic earnings per share (RMB per share) 0.26 0.20


– 135 –

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary sharesoutstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutivepotential ordinary shares: share options. For the share options, a calculation is done to determine the number of sharesthat could have been acquired at fair value (determined as the average annual market share price of the Company’sshares) during the period based on the monetary value of the subscription rights attached to outstanding share options.The number of shares calculated as above is compared with the number of shares that would have been issuedassuming the exercise of the share options.


30 June2007 2006

Profit attributable to equity holders of the Company 768,881 584,665

Weighted average number of ordinary shares in issue (thousands) 2,905,566 2,905,000Adjustments for – share options (thousands) 6,904 –

Weighted average number of ordinary shares fordiluted earnings per share (thousands) 2,912,470 2,905,000

Diluted earnings per share (RMB per share) 0.26 0.20

7. Dividends

(a) At a meeting held on 30 August 2006, the Board proposed an interim dividend of HK$29.05 million(approximately RMB29.73 million), representing HK$0.01 per ordinary share.

(b) At a meeting held on 3 April 2007, the Board proposed a final dividend in respect of the year ended 31December 2006 of HK$133.65 million (approximately RMB132.15 million), representing HK$0.046 perordinary share. The Annual General Meeting held on 22 May 2007 approved the Board’s dividendsproposal. Such final dividend was paid during the six months ended 30 June 2007.

(c) At a meeting held on 30 August 2007, the Board has resolved, among others, to impose a condition onthe resolution regarding the declaration of the interim dividend, which is subject to obtaining a rulingfrom the Executive of the Securities and Futures Commission (the “Executive”) that the interimdividend will not constitute a frustrating action under Rule 4 of the Takeovers Code, the directors(excluding Ms. Chen Ningning) of the Company has resolved to declare an interim dividend ofHK$159.94 million (approximately RMB154.86 million), representing HK$0.055 per ordinary share.

This proposed dividend is not reflected as a dividend payable in this consolidated condensed interimfinancial information, but will be reflected as an appropriation of the retained earnings for the yearending 31 December 2007. The directors (excluding Ms. Chen Ningning) of the Company advise thatthe interim dividend will be paid on 26 October 2007. The Company is seeking a ruling from theExecutive in relation to the proposed interim dividend under Rule 4 of the Takeovers Code and will assoon as practicable issue an announcement to notify shareholders about the proposed interim dividendupon obtaining a ruling from the Executive.


– 136 –

8. Capital expenditure

Property,plant and

equipment (a)

Leaseholdland andland use

rightsInvestmentproperties

Intangibleassets – Iron

ore mininglicenses

Unaudited

Six months ended 30 June 2006Opening carrying amount as at

1 January 2006 4,236,071 79,569 20,911 9,547Additions 536,800 – 629 33,163Disposals (16,265) – – (8,498)Depreciation and amortisation

(Note 4) (133,695) (695) (563) (1,548)

Closing carrying amount as at30 June 2006 4,622,911 78,874 20,977 32,664

Six months ended 30 June 2007Opening carrying amount as at

1 January 2007 4,675,308 78,092 20,428 18,289Additions 656,955 – – –Disposals (4,343) – – –Depreciation and amortisation

(Note 4) (216,428) (826) (550) (2,242)

Closing carrying amount as at30 June 2007 5,111,492 77,266 19,878 16,047

(a) During the six months ended 30 June 2007, the Group started to construct an H-section steel rollingproduction line with an annual production capacity of 1.2 million tonnes of H-section steel. Details ofthe H-section steel rolling line were set out in the Company’s announcement dated 7 May 2007 andcircular dated 29 May 2007.

As at 30 June 2007, capital expenditure amounting to approximately RMB564 million for this H-sectionproduction line was accounted for as property, plant and equipment of the Group.

As at 30 June 2007, the application process for the final approval by the relevant state governmentauthorities was still in progress. The management of the Company are of the view that the applicationprocess for the final approval is expected to be successfully completed before the formal commencementof operation of this H-section steel rolling production line.

9. Trade receivables

Unaudited30 June

2007

Audited31 December

2006

Accounts receivable 174,660 34,795Notes receivable (a) 2,197,283 964,033

2,371,943 998,828

(a) As at 30 June 2007, notes receivable were all bank acceptance notes, of which approximately RMB41million was pledged as security for issuing letters of credit.


– 137 –

As at 31 December 2006, notes receivable amounting to approximately RMB135 million, RMB10million, RMB29 million and RMB51 million were pledged as security for issuing letters of credit,issuing notes payable (Note 10), the Group’s current borrowings and in favour of a third party forissuing letters of credit (Note 12) respectively.

As at 30 June 2007, accounts receivable pledged by letters of credit issued by third parties amountedto approximately RMB155 million (31 December 2006: approximately RMB28 million).

As at 30 June 2007 and 31 December 2006, the carrying amount of the Group’s trade receivablesapproximated their fair value.

As at 30 June 2007 and 31 December 2006, the ageing analysis of trade receivables was as follows:

Unaudited30 June

2007

Audited31 December

2006

Within 3 months 1,871,007 998,8284 – 6 months 500,936 –

2,371,943 998,828

The credit policy usually adopted by the Group for the sales of products to customers is to deliver goodseither upon receipt in cash or upon receipt of bank acceptance notes with maturity dates within sixmonths.

10. Trade payables

Unaudited30 June

2007

Audited31 December

2006

Accounts payable 380,042 425,268Notes payable (a) 43,000 91,100

423,042 516,368

(a) As at 30 June 2007, the notes payable represented bank acceptance notes issued to third parties. Theupfront notes payable together with notes payable issued to a fellow subsidiary with the amount ofRMB40 million were secured by inventories and restricted bank balances, amounting to RMB71 millionand RMB30 million respectively. Notes payable of approximately RMB23 million were additionallyguaranteed by Jinxi Limited.

As at 31 December 2006, the notes payable represented bank acceptance notes, RMB32.1 million ofwhich were secured by notes receivable (Note 9), restricted bank balances, and bank acceptance notesissued by a subsidiary amounting to approximately RMB10 million, RMB20 million and RMB8 millionrespectively, and RMB59 million of which were secured by certain inventories, restricted bank balancesamounting to approximately RMB21 million and guaranteed by Jinxi Limited.


– 138 –

As at 30 June 2007 and 31 December 2006, the ageing analysis of the trade payables was as follows:

Unaudited30 June

2007

Audited31 December

2006

Within 3 months 388,187 478,9164 – 6 months 27,273 30,7037 – 9 months 2,177 2,79510 – 12 months 2,022 219Above 1 year 3,383 3,735

423,042 516,368

11. Capital commitments

Capital expenditure committed at the balance sheet date but not yet incurred was as follows:

Unaudited30 June

2007

Audited31 December

2006

To acquire the minority interest in Jinxing Charging – 8,900To acquire interests in certain mining enterprises – 83,421

– 92,321

Purchase of property, plant and equipmentContracted but not provided for 1,244,616 6,599Authorised but not contracted for 274,369 1,971,348

1,518,985 1,977,947

12. Contingent events

As at 30 June 2007, Jinxi Limited provided guarantee for certain bank borrowings in favour of third partiesamounting to approximately RMB34.9 million (31 December 2006: approximately RMB18.9 million).

During the year ended 31 December 2006, a third party acted as an agent and issued letter of credit to importproperty, plant and equipment for Jinxi Limited. Accordingly, Jinxi Limited pledged notes receivable amounting toRMB51 million (Note 9) as collaterals. Such collaterals were released during the six months ended 30 June 2007.

The directors of the Company are of the view that to settle the obligation will not probably cause an outflowof resources embodying economic benefits.

13. Subsequent events

At a meeting held on 30 August 2007, the Board has resolved, among others, to impose a condition on theresolution regarding the declaration of the interim dividend, which is subject to obtaining a ruling from the Executivethat the interim dividend will not constitute a frustrating action under Rule 4 of the Takeovers Code, the directors(excluding Ms. Chen Ningning) of the Company has resolved to declare an interim dividend of HK$159.94 million(approximately RMB154.86 million), representing HK$0.055 per ordinary share. This proposed dividend is notreflected as a dividend payable in this consolidated condensed interim financial information, but will be reflected asan appropriation of the retained earnings for the year ending 31 December 2007. The directors (excluding Ms. ChenNingning) of the Company advise that the interim dividend will be paid on 26 October 2007. The Company is seekinga ruling from the Executive in relation to the proposed interim dividend under Rule 4 of the Takeovers Code and willas soon as practicable issue an announcement to notify shareholders about the proposed interim dividend uponobtaining a ruling from the Executive.


– 139 –

4. UPDATE ON THE INTERIM DIVIDENDS FOR 2007

On 19 September 2007, the Company obtained a ruling from the Executive that theinterim dividend of the Company for 2007 does not constitute a frustrating action under Rule4 of the Takeovers Code.

5. RECONCILIATION OF THE PROPERTY INTEREST OF THE GROUP

Particulars of the property interests of the Group are set out in Appendix IV to thisComposite Document. The property valuer has valued the property interests of the Group as at30 November 2007. A summary of values and valuation certificates issued by the propertyvaluer are included in Appendix IV to this Composite Document.

The table below sets forth (i) the reconciliation of the net book value of the Group’sproperty interests as at 31 December 2006 with such interests as at 30 November 2007; and (ii)the reconciliation of the net book value of the Group’s property interests and the valuation ofsuch property interests as at 30 November 2007:

(RMB million)(unaudited)

Net book value of property interests of the Groupas at 31 December 2006– Buildings 1,173– Construction in process 36– Investment properties 20– Land use rights 78

1,307

Movements for the eleven months ended 30 November 2007– Additions 276– Disposals (3)– Depreciation/Amortization (76)

Net book value as at 30 November 2007 1,504Valuation surplus as at 30 November 2007 (Note 1) 163

Valuation as at 30 November 2007 (Note 2) 1,667

Note 1: The valuation surplus attributed to the Group is RMB115 million after deducting valuation surplusattributed to the minority interest.

Note 2: The valuation as at 30 November 2007 consists of RMB993 million of the capital value in existingstate of Group I and Group II as at 30 November 2007 as disclosed in the summary of valuation inAppendix IV and the valuation of RMB674 million as disclosed in note 2 of property 1 under GroupI of valuation certificate in Appendix IV.


– 140 –

6. INDEBTEDNESS STATEMENT

Borrowings

As at 30 November 2007, being the latest practicable date for the purpose of preparing

this indebtedness statement prior to the printing of this Composite Document, the Group had

outstanding borrowings of approximately RMB1,280,733,000 as set forth below:

Secured Unsecured TotalRMB’000 RMB’000 RMB’000

Non-current bank borrowings 540,000 – 540,000Current bank borrowings 440,000 100,000 540,000Non-current other borrowings – 125,000 125,000Current other borrowings – 20,000 20,000Non-current borrowings from

related parties – 55,733 55,733

980,000 300,733 1,280,733

Securities and guarantees

As at 30 November 2007, secured non-current bank borrowings of RMB540,000,000 and

secured current bank borrowings of RMB440,000,000 were secured by certain property, plant

and equipment, certain leasehold land and land use rights of the Group. Out of the secured

current bank borrowings of RMB440,000,000, borrowings of RMB150,000,000 were

additionally secured by corporate guarantees granted by the Company and Foshan Jin Lan

Aluminum Company Limited (“Foshan Jin Lan”, a shareholder of Foshan Jin Xi Jin Lan Cold

Rolled Sheet Company Limited (“Foshan Jinxi”), which is held as to 60% by the Company) in

the proportion of 60% and 40% of the guarantee obligation respectively.

Pledged assets

As at 30 November 2007, certain restricted bank balances, inventories, building and

machinery, leasehold land and land use rights and notes receivable of the Group were pledged

as security for borrowings, issuing notes payable and letters of credit.


– 141 –

Contingent liabilities

As at 30 November 2007, Hebei Jinxi provided guarantee for bank borrowings in favour

of third parties for commercial and operational reasons amounting to approximately RMB30.9

million.

In January 2006, the Company and Foshan Jin Lan collectively granted a guarantee in

favour of Foshan Jinxi for secured current bank facilities amounting to RMB150 million. In

accordance with the guarantee contract, the Company and Foshan Jin Lan shall bear 60% and

40% of the guarantee obligation respectively.

Save as disclosed above, and apart from intra-group liabilities, at the close of business on

30 November 2007, the Group did not have any bank overdrafts or loans, or other similar

indebtedness, mortgages, charges, or material guarantees or other material contingent

liabilities.

7. MATERIAL CHANGES SINCE 31 DECEMBER 2006

The Board confirms that there are no material changes in the financial or trading position

or outlook of the Group since 31 December 2006, being the date the latest audited consolidated

financial statements of the Group to which was made up.


– 142 –

A. LETTER FROM ING

The following is the text of a letter prepared for the purpose of incorporation in this

Composite Document received from ING, financial adviser to the Offeror in connection with

the valuation of the Put Option.

39/F., One International Finance Centre

1 Harbour View Street

Central, Hong Kong

13 December 2007

Dear Sirs,

Pursuant to the Shareholders’ Agreement dated 9 November 2007 entered into between

ArcelorMittal and the Controlling Shareholders, ArcelorMittal has granted the Controlling

Shareholders the Put Option to sell the Put Option Shares to ArcelorMittal during the exercise

period.

The Takeovers and Mergers Panel has ruled that the grant of the Put Option constitutes

a special deal under Rule 25 of the Takeovers Code on the basis that the Put Option is not

granted to Shareholders other than the Controlling Shareholders. In this regard, as part of the

Offer, the Offeror will pay the fair value per Put Option Share to Shareholders other than the

Controlling Shareholder as full and final consideration for the grant of the Put Option.

Greater China Appraisal Limited (“GCAL”), an independent asset appraisal firm of

professional valuers with registered office at Room 2703, Shui On Centre, 6-8 Harbour Road,

Wanchai, Hong Kong, was appointed by the Offeror to determine the fair value per Put Option

Share. GCAL has prepared a valuation report dated 11 December 2007 in this connection (the

“Valuation Report”).

Pursuant to the requirements of Rule 11.1(b) of the Takeovers Code, ING Bank N.V. is

required to report on the fair value of the Put Option.

Capitalised terms shall, unless otherwise defined herein or the context otherwise requires,

have the same meanings in this letter as given to them in the Shareholders’ Agreement.

Methodology

The fair value of the Put Option was determined by GCAL using the Binomial option

pricing model. The model takes into account, inter alia, parameters such as the volatility of the

price of the underlying Share, risk free rate, dividend policy, last transacted Share price,

exercise price and the probabilities of the Completion and exercise of the First Call Option to

determine the fair value of the Put Option.

APPENDIX III VALUATION OF THE PUT OPTION

– 143 –

The assumptions used by GCAL in calculating the fair value per Put Option Share are as

follows:

Date of valuation (the “Valuation Date”) 6 December 2007

Date of the Shareholders’ Agreement

becoming unconditional

(the “Completion Date”)

3 months from the Valuation Date

Exercise period of the First Call Option 12-month period commencing after

18 months from the Completion Date

Date of the exercise and completion

of the First Call Option

(the “Activation Date”)

Mid-point of the exercise period of the

First Call Option (or 27 months from

the Valuation Date)

Exercise period of the Put Option At any time during the 36 months from

the Activation Date

Share price volatility over the past 3 years 37.49%

Exercise price per Put Option Share The exercise price has been derived with

reference to the projected financial

performance and condition of the

Group contained in third party

research report

Average yield of the 3-year HK$

Exchange Fund Notes over the

past 3 years

3.736%

Average dividend yield over the

past 3 years

2.226%

Last transacted Share price HK$6.12

Fair Value per Put Option Share

The Put Option is only triggered upon the Shareholders’ Agreement becoming

unconditional and the completion of the sale and purchase of the First Call Option Shares (the

“Triggering Events”).

Based on the above, the value of the Put Option before applying any subjective

probabilities of the Triggering Events, as computed by GCAL, is HK$0.706 per Share.


– 144 –

As the Put Option is only activated by the Triggering Events, various fair values of the

Put Option are derived by assigning different subjective probabilities to the Triggering Events,

as computed by GCAL, as follows:

Probabilityof the

Shareholders’Agreement

becomingunconditional

Probability ofthe completionof the sale and

purchase ofthe First Call

Option Shares

Fair value ofthe Put

Option perShare

Upon Completion of the Offer 50%

(note 1)

66.67%

(note 2)

HK$0.235

Upon the Shareholders’

Agreement becoming

unconditional

100% 66.67%

(note 2)

HK$0.471

Upon the Shareholders’

Agreement becoming

unconditional and the

completion of the sale and

purchase of the First Call

Option Shares

100% 100% HK$0.706

Note 1: A subjective probability of 50% is assigned to the Shareholders’ Agreement becoming unconditionalto reflect the uncertainties of the anti-trust approval process such as the application of the evaluationcriteria and other factors which may be considered by the regulatory authorities.

Note 2: A subjective probability of 66.67% is assigned to the completion of the sale and purchase of the FirstCall Option Shares to reflect the risks of ArcelorMittal not exercising the First Call Option as a resultof, inter alia, adverse developments in the steel sector, the global economy, the capital markets andthe Group.

ING’s Review

Taking into account of what is set out in the Corporate Finance Adviser Code of Conduct,

we have reviewed and assessed the relevant experience and expertise of GCAL, and are

satisfied that reliance could fairly be placed on their work.

We have also reviewed and discussed with the Offeror and GCAL the qualifications, bases

and assumptions adopted by GCAL in the course of their work, and are satisfied that the

qualifications, bases and assumptions have been made with due care and objectivity, and are

on a reasonable basis.

We have not independently verified the computations leading to the determination of the

fair value per Put Option Share, and our review, assessment and discussion described above are

necessarily based on financial, economic, market and other conditions in effect, and the

information made available to us as at the Valuation Date.


– 145 –

The valuation of non-publicly traded securities is inherently imprecise and subject to the

underlying assumptions, which are in turn subject to uncertainties and affected by market

conditions. As such, the fair value per Put Option Share may differ from that derived by other

pricing models using different assumptions. In addition, our view of the qualifications, bases

and assumptions underlying the fair value per Put Option Share will change with changes in

prevailing market conditions, the financial conditions and prospects of the Company and other

factors which generally affect the value of companies and securities.

General

ING is acting as financial adviser solely to the Offeror in connection with the Offer and

will receive a fee for such advice. ING will not be responsible to anyone other the Offeror for

providing advice in connection with the Offer, nor will ING owe any responsibility to anyone

other than the Offeror.

ING is not the independent appraiser of the fair value of the Put Option. The fair value

per Put Option Share was determined by GCAL, and our work is limited to those services set

out in the section “ING’s Review” above.

In providing this letter ING expresses no opinion or recommendation to any person as to

whether they should accept the Offer or as to the fairness of the financial terms of the Offer.

Shareholders and Optionholders are recommended to seek their own independent financial

advice.

Yours faithfully,

For and on behalf of

ING Bank N.V.Malcolm E. O. Brown

Managing Director


– 146 –

B. LETTER FROM GREATER CHINA APPRAISAL LIMITED

The following is the text of a letter prepared for the purpose of incorporation in this

Composite Document received from Greater China Appraisal Limited, an independent valuer,

in connection with the valuation of the Put Option.

11 December 2007

Dear Sirs,

In accordance with your instructions, we have completed a valuation of the fair value of

the financial instrument, the Put Option granted by ArcelorMittal to the Controlling

Shareholders, as at 6 December 2007 (the “Valuation Date”).

This letter identifies the financial instrument valued, describes the basis of valuation,

investigation and analysis, assumptions, limiting conditions and presents our opinion of value.

We understand that this valuation is prepared in connection with an unconditional mandatory

general offer by ArcelorMittal for the China Oriental Shares.

Introduction

ArcelorMittal is principally engaged in the production and sales of the steel.

The following information provided by the management of ArcelorMittal describes the

characteristics of the Put Option:

Expected Grant Date Valuation Date

ExpectedExercisablePeriod*

Expected ExpiryDate

6 March 2010 6 December 2007 6 March 2010 –

5 March 2013

5 March 2013

* The Put Option shall be exercisable at any time upon the First Call Option exercised by the shareholdersof China Oriental (the exercisable period of the First Call Option is one year. It is expected that the FirstCall Option will be exercised in the mid-point of the exercisable period) (the “First Call Option ExercisedDate”).


– 147 –

Fair Value of Financial Instrument

We have valued the financial instrument on the basis of fair value. Fair value should bebased on market prices, where available. Many shares and most share options are not tradedon an active market, in which case valuation techniques could be adopted to derive an estimateof the price of the financial instrument at the relevant measurement date. A share option is oftenvalued using Black-Scholes model, the Binomial option pricing model or the Monte Carlomodel.

Valuation Methodology

The fair value of the financial instrument has been developed through the application ofBinomial option pricing model. Binomial is a variable, intuitive and popular option pricingmodel. It is based on the generalisation that over a single period of a very short duration, theunderlying asset can only move from its initial price to an upper and lower level with definedprobability. By increasing the number of periods, a binomial lattice/tree can be developed. Thisbinomial tree exemplifies the possible paths that the future price of the underlying asset cantake within the periods. The model reduces possibilities of price changes, removes thepossibility for arbitrage, assumes a perfectly efficient market, and shortens the duration of theoption. Under these simplifications, it is able to provide a valuation of the option at each pointin time specified.

To solve the binomial lattice equations, the first step is to calculate the up step size, downstep size, and risk-neutral probability. The calculations proceed as follows:

Figure 1 illustrates the first lattice which calculates the stock price movement in thebinomial approach. The lattice divides the time between now and the expiration date of theoption into discrete intervals, marked by nodes, and so operates, with distinct time units. Ineach interval, or at each node, the stock price can go either up or down, each with a probabilityp. The probability distribution of the future value of the stock price is determined by the sizeof up and downward movements at each discrete step in time. The size of these movementsreflects the volatility of the stock price in the past. Depending on the number of steps, theoption cone evolves that gives the anticipated value at each node. In this illustration, startingat time zero today, as shown below, which is node 0, those upward and download steps overtime create a lattice, of the future stock price. From node 0, the value can go either up or down,hitting node 1 or 2. If it moves to node 2, it can then move to node 4 or 5, but not node 3. Thisis the Markov property: Each step is path-independent. As time goes on and more steps aretaken, the variance or volatility increases and the option cone becomes broader and broader.After the first step, the variance is the difference between node 1 and 2. After four steps; thevariance is between node 10 and node 14. Each of those nodes is a possible outcome whenstarting from node 0.


– 148 –

Figure 1: Lattice Evolution of the stock price

Figure 2 shows the calculation of the option valuation lattice. In this option valuationlattice, the valuation lattice is calculated in two steps, starting with the terminal node and thenthe intermediate nodes, through a process called backward induction. The terminal nodes iscalculated through the maximization between exercising the option and letting the optionexpire worthless if the exercise price exceeds the stock price. The second step is the calculationof intermediate nodes using a risk-neutral probability analysis. Using this backward inductioncalculation, as shown as the follows:

[(p) up + (1- p) down] exp [(-riskfree)(ðt)]

all the way back to the starting period, the option value at time zero is calculated.

Figure 2: Option Valuation Lattice


– 149 –

The Binomial option pricing model delivers a clear illustration of the no-arbitrageargument used to price the option at the risk-free rate. Instead of investing an option on a stock,the investor may also create a synthetic call by acquiring a mixture of some of the stock andborrow or lend money at the risk-free rate. This portfolio of stock and bonds is designed in sucha way that it exactly replicates the future payoffs that investor would obtain from holding theoption, given the volatility of the stock price. If that is the case, then the price of the optiontoday must be the same as today’s price of the replicating portfolio in accordance with theno-arbitrage argument.

The Put Option will only be activated with the exercise of the First Call Option which weassume to be 27 months from the Valuation Date (3 months for the Shareholders’ Agreementto become unconditional plus the 18-month period thereafter before the commencement of theFirst Call Option exercise period plus the exercise of the First Call Option 6 months later). Wealso take the probability of the successful rate 50% of the Shareholders’ Agreement becomingunconditional and the probability of the First Call Option exercisable 66.67% in the model tovalue the Put Option value.

Assumptions

– Share price

the Share price of China Oriental applied in the Binomial option pricing model was basedon the output of the simulation model of the stock price of China Oriental;

– Exercise price

the exercise price of the Put Option applied in the Binomial option pricing model wasbased on the exercise price formula provided by ArcelorMittal and derived with thereference to the projected financial performance and condition of China Orientalcontained in third party research reports;

– Time to maturity

time to maturity applied in the Binomial option pricing model was the full life of the PutOption provided by ArcelorMittal;

– Risk-free rate

risk-free interest rate used in the valuation was the average of the historical yields ofHong Kong Government Exchange Fund Bills and Notes as at the Valuation Date;

– Volatility

the volatility of China Oriental’s Share price was the average annualised standarddeviations of the continuously compounded rates of return on the Share prices of ChinaOriental as quoted by Bloomberg;


– 150 –

– Others

there will be no material changes in interest rate and tax rate in China; and

there will be no material changes in the China Oriental’s business operation in an on

going basis.

Limiting Conditions

We have made no investigation of and assumed no responsibility for the title to or any

liabilities against ArcelorMittal and the financial instrument valued.

The opinion expressed in this report has been based on the information supplied to us by

ArcelorMittal and its staff, as well as from various institutes and government bureaus. We have

exercised all due care in reviewing the supplied information. Although we have compared key

supplied data with expected value, the accuracy of the result and conclusions from the review

is reliant on the accuracy of the supplied data. We have relied on this information and have no

reason to believe that any material facts have been withheld, or that a more detailed analysis

may reveal additional information. We do not accept responsibility for any errors or omissions

in the supplied information and do not accept any consequential liability arising from

commercial decision or actions resulting from them.

This valuation reflects facts and conditions existing at the Valuation Date. Subsequent

events have not been considered, and we have no obligation to update our report for such

events and conditions.

Opinion of Value

Based on the investigation and analysis stated above and on the valuation method

employed, in our opinion, the fair value of the Put Option, as at the Valuation Date, is

reasonably stated as follows:

Valuation Date Exercisable period Fair value(HK$)

6 December 2007 3-year 0.235

The opinion of value was based on generally accepted valuation procedures and practices

that rely extensively on the use of numerous assumptions and consideration of many

uncertainties, not all of which can be easily quantified or ascertained.


– 151 –

We hereby certify that we have neither present nor prospective interests in ArcelorMittal

and have neither personal interest nor bias with respect to the parties involved.

This valuation report is issued subject to our general service conditions.

Yours faithfully,

For and on behalf of

GREATER CHINA APPRAISAL LIMITED

Samuel Y.C. ChanMBA, AVA, CM&AA

Vice President

Head of Business and

Intangible Asset Valuation

Lisa ChengMSc

Financial Engineer

Financial Risk Management

Note: Mr. Samuel Y.C. Chan, MBA, Accredited Valuation Analyst of The National Association of CertifiedValuation Analysts and Certified Merger & Acquisition Adviser, has been conducting businessenterprise and intellectual property valuations for various purposes since 2004. He also spends asignificant portion of his time in valuation of financial instruments including convertible bonds,preference shares, swaps, corporate guarantees and employee share options for private and publiccompanies in China, Hong Kong, Taiwan, Japan, Singapore and the United States.

Ms. Lisa Cheng, MSc, is the Financial Engineer of the Financial Risk Management Department. MsCheng holds a Master degree from The Chinese University of Hong Kong and a Bachelor Degree inFinancial Engineering from City University of Hong Kong. She has wide experience in performingvaluation of financial instruments for companies.


– 152 –

The following is the text of a letter, summary of valuations and valuation certificates

prepared for the purpose of incorporation in this Composite Document received from DTZ

Debenham Tie Leung Limited, an independent property valuer, in connection with their opinion

of values of the property interests of the Company as at 30 November 2007.

10th Floor

Jardine House

1 Connaught Place

Central

Hong Kong

14 January 2008

The DirectorsChina Oriental Group Company Limited

Suites 901-2 & 10

9th Floor, Great Eagle Centre

23 Harbour Road

Wanchai, Hong Kong

Dear Sirs,

Instructions, Purpose and Date of Valuation

In accordance with your instructions for us to value the property interests of China

Oriental Group Company Limited (the “Company”) and its subsidiaries (hereinafter together

referred to as the “Group”) in Hong Kong and the People’s Republic of China (the “PRC”), we

confirm that we have inspected the properties, made relevant enquiries and obtained such

further information as we consider necessary for the purpose of providing you with our opinion

of the values of these properties as at 30 November 2007.

Definition of Market Value

Our valuation of each of the properties represents its market value which in accordance

with The HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong

Kong Institute of Surveyors is defined as the estimated amount for which a property should

exchange on the date of valuation between a willing buyer and a willing seller in an

arm’s-length transaction after proper marketing wherein the parties had each acted

knowledgeably, prudently and without compulsion.

Valuation Basis and Assumption

Our valuations exclude an estimated price inflated or deflated by special terms or

circumstances such as atypical financing, sale and leaseback arrangement, special

considerations or concessions granted by anyone associated with the sale, or any element of

special value.

APPENDIX IV PROPERTY VALUATION

– 153 –

In the course of our valuation of the properties which are all situated in the PRC, we have

assumed that transferable land use rights in respect of the properties for respective specific

terms at nominal annual land use fees have been granted and that any land grant premium

payable has already been fully paid. We have relied on the information and advice given by the

Group and its legal adviser on PRC law, King & Wood, regarding the titles to the properties

and the interests of the Group in the properties. In valuing the properties, we have assumed that

the Group has enforceable titles to the properties and has free and uninterrupted right to use,

occupy or assign the properties for the whole of the respective unexpired terms as granted.

The status of titles and grant of major certificates, approvals and licences in respect of the

properties are in accordance with the information provided by the Group and the advice

provided by its legal adviser on PRC law are set out in the notes in the respective valuation

certificate.

The tax liabilities for disposal of property interests in the PRC mainly comprises of

business tax, stamp duty, land appreciation tax and enterprise income tax (if any). The Group

advises that in respect of the properties held and occupied by the Group in the PRC under

Group I and properties held by the Group for investment in the PRC under Group II of the

Summary of Valuation, the potential tax liabilities are estimated to be approximately

RMB236.8 million and RMB6.1 million respectively would arise if such properties were to be

sold at the amount of the valuations. In the assessment of the land appreciation tax in the PRC,

it is assumed that the depreciated building values of the properties held and occupied by the

Group in the PRC under Group I, which are assessed in this Appendix IV, are the same as the

depreciated building values derived as prescribed under the PRC tax law and approved by the

PRC tax bureau. Depending on the then sales status, there is less likelihood of such tax liability

referred to above for properties under Group I being crystallized, as the Group has no plan yet

for the disposal of such property interests. There is likelihood of such tax liability referred to

above for properties under Group II being crystallized as they are held for investment purposes.

The above amounts are for indicative purposes and are calculated based on prevailing rules and

information available as at the Latest Practicable Date.

No allowance has been made in our valuations of the properties for any charges,

mortgages or amounts owing on the properties nor for any expenses or taxation which may be

incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free

from encumbrances, restrictions and outgoings of any onerous nature which could affect their

value.

Valuation Methodology

In valuing property Nos. 1 and 2 in Group I, which are held and occupied by the Group

in the PRC, we have valued them by the Depreciated Replacement Cost (“DRC”) Approach.

The DRC Approach requires a valuation of the market value of the land in its existing use and

an estimate of the new replacement cost of the buildings and structures from which deductions

are then made to allow for the age, condition and functional obsolescence. The DRC is subject

to adequate potential profitability of the business.


– 154 –

In valuing property No. 3 in Group I, which is held by the Group for owner-occupation

in the PRC, we have valued it by Direct Comparison Approach by making reference to

comparable sales evidence as available in the relevant market.

In valuing property No. 4 in Group II, which is held by the Group for investment the PRC,

we have adopted Investment Approach by capitalizing the current rent passing derived from the

existing tenancies with due provision for any reversionary income potential of the property or

where appropriate by Direct Comparison Approach by making reference to comparable sales

evidence as available in the relevant market.

For properties in Groups III and IV, which are leased by the Group in the PRC and Hong

Kong respectively, they are considered to have no commercial value due mainly to the

prohibition against assignment and subletting or otherwise to the lack of substantial profit

rents.

In valuing the properties, we have complied with the requirements set out in Chapter 5

and Practice Note 12 of the Rules Governing the Listing of Securities on the Stock Exchange

of Hong Kong Limited and The HKIS Valuation Standards on Properties (First Edition 2005)

published by The Hong Kong Institute of Surveyors.

Source of Information

We have been provided with copies of extract of documents in relation to the title to the

owned properties and copies of tenancy agreements in relation to the leased properties.

However, we have not inspected the original documents to ascertain any amendments which

may not appear on the copies handed to us.

In the course of our valuation, we have relied to a considerable extent on the information

given by the Group in respect of the properties in the PRC and have accepted advice given to

us on such matters as planning approvals or statutory notices, easements, tenure, completion

date of buildings, identification of land and buildings, number of car parking spaces,

particulars of occupancy, development schemes, construction costs, site and floor areas and all

other relevant matters.

Dimensions, measurements and areas included in the valuation certificates are based on

the information provided to us and are therefore only approximations. We have had no reason

to doubt the truth and accuracy of the information provided to us by the Group which is

material to the valuations. We were also advised by the Group that no material facts have been

omitted from the information provided.


– 155 –

Site Inspection

We have inspected the exterior and, wherever possible, the interior of each of the

properties. However, we have not carried out investigations on site to determine the suitability

of the ground conditions and the services etc. for any future development. Our valuations are

prepared on the assumption that these aspects are satisfactory and that no extraordinary costs

or delays will be incurred during the construction period. Moreover, no structural survey has

been made, but in the course of our inspection, we did not note any serious defects. We are not,

however, able to report whether the properties are free of rot, infestation or any other structural

defects. No tests were carried out to any of the services. Unless otherwise stated, we have not

been able to carry out detailed on-site measurements to verify the site and gross floor areas of

the properties and we have assumed that the areas shown on the documents handed to us are

correct.

No allowance has been made in our valuations for any charges, mortgages or amounts

owing on the properties nor for any expenses or taxation which may be incurred in effecting

a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances,

restrictions and outgoings of any onerous nature which could affect their values.

Currency

Unless otherwise stated, all sums stated in our valuations are in Renminbi, the official

currency of the PRC.

We enclose herewith a summary of our valuations and our valuation certificates.

Yours faithfully,

for and on behalf of

DTZ Debenham Tie Leung LimitedAndrew K. F. Chan

Registered Professional Surveyor (GP)

China Real Estate AppraiserMSc., M.H.K.I.S., M.R.I.C.S

Director

Note: Mr. Andrew K.F. Chan is a Registered Professional Surveyor who has over 19 years’ of experience inthe valuation of properties in Hong Kong and in the PRC.


– 156 –

SUMMARY OF VALUATIONS

Property

Capital value inexisting state asat 30 November

2007

Attributableinterest

to the Group

Capital valuein existing state

attributable tothe Group as at

30 November 2007RMB % RMB

Group I − Properties held and occupied by the Group in the PRC

1. An industrial complexsituated at the east ofSantunying Town,Qianxi County,Tangshan,Hebei Province,the PRC

730,000,000 97.6 712,480,000

2. An industrial complexlocated in DuichuanIndustrial Zone,Renhe Town,Gaoming District,Foshan,Guangdong Province,the PRC

220,000,000 60.0 132,000,000

3. Unit Nos. 2901-2903,Full Tower,No. 9 DongsanhuanMiddle Road,Chaoyang District,Beijing,the PRC

16,000,000 100.0 16,000,000

Sub-total: 860,480,000

Group II − Property held by the Group for investment in the PRC

4. Unit Nos. 2904-2910,Full Tower,No. 9 DongsanhuanMiddle Road,Chaoyang District,Beijing,the PRC

27,000,000 100.0 27,000,000

Sub-total: 27,000,000


– 157 –

Group III – Properties leased by the Group in the PRC

Property

Capital value inexisting state as at30 November 2007

5. Units 2911-12,

International Chamber of Commerce Tower,

Northeast to the junction of

Fuhua Third Road and Yitian Road,

Futian District,

Shenzhen,

Guangdong Province,

the PRC

No Commercial Value

6. An industrial complex situated at

the east of Santunying Town,

Qianxi county,

Tangshan,

Heibei Province,

the PRC

No Commercial Value

7. An industrial complex situated at

the south of Jingziyu Village,

Santunying Town,

Qianxi county,

Tangshan,

Heibei Province,

the PRC

No Commercial Value

Group IV – Property leased by the Group in Hong Kong

8. Suites 901-2 & 10,

9th Floor,

Great Eagle Centre,

23 Harbour Road,

Wanchai,

Hong Kong

No Commercial Value

Grand-total: 887,480,000


– 158 –

VALUATION CERTIFICATE

Group I – Properties held and occupied by the Group in the PRC

Property Description and tenureParticulars ofoccupancy


1. An industrialcomplex situatedat the east ofSantunying Town,Qianxi County,Tangshan,Heibei Province,the PRC

The property comprises anindustrial complex erected upon3 parcels of contiguous land witha total site area of approximately1,753,333.33 sq.m. (the “subjectsite”).

The property iscurrently occupied bythe Group forindustrial productionand ancillary officeuses.

RMB730,000,000(97.6% interest

attributableto the Group:

RMB712,480,000)

Certificate for the Use of State-owned Land has been granted fora parcel of land with a site areaof approximately 766,666.67sq.m..

Certificate for the Use of State-owned Land has not been grantedfor the other two parcels of landwith a total site area ofapproximately 986,666.67 sq.m..

There are a number of buildingsand various ancillary structuresand facilities erected on thesubject land, which wereconstructed during the periodbetween 1998 and 2007.

In addition, there is a factorybuilding being built on thesubject site.

Building Ownership Certificateshave been granted for 101buildings with a total gross floorarea of approximately 153,366.09sq.m..

Building Ownership Certificateshave not been granted for 180buildings with a total gross floorarea of approximately 290,213.28sq.m..

The land use rights of theproperty have been granted for aterm due to expire on 31 July2053 for industrial use.


– 159 –

Notes:

(1) According to the Certificate for the Use of State-owned Land No. (2003) 573 dated 11 August 2003issued by Qianxi Land Resource Bureau, the land use rights of the property, comprising a total site areaof 1,150 mu (766,666.67 sq.m.) have been granted to the Hebei Jinxi Iron & Steel Co. Ltd, a97.6%-owned subsidiary of the Group.

As advised by the Group, the land grant fee of RMB13,000,000 has been paid by the Group for theparcel of land with site area of about 500 mu (333,333.33 sq.m.). The site has been used by Hebei JinxiIron & Steel Co. Ltd. as H-section steel production site. Certificate for the Use of State-owned Land hasnot been granted for this land but is in the course of application.

As advised by the Group, a parcel of land with site area of about 980 mu (653,333.33 sq.m.) has beenoccupied by Hebei Jinxi Iron & Steel Co. Ltd. for the use of small H-section steel production site in thefuture. Certificate for the Use of State-owned Land has not been granted for this land.

In the course of our valuation, we have ascribed no commercial value to these two parcels of land asCertificate for the Use of State-owned Land has not been granted.

For reference purpose, had the Group obtained the valid Certificates for the Use of State-owned Land,the capital value of these lands in their existing state as at 30 November 2007 would be RMB82,000,000.

A factory building was being built on the above mentioned land with site area of about 980 mu(653,333.33 sq.m.). Upon completion, the factory building will have a total gross floor area ofapproximately 103,145 sq.m. As advised by the Group, the construction cost incurred as at 30 November2007 was approximately RMB53,718,354. In the course of our valuation, we have ascribed nocommercial value to this factory building as the Certificate for the Use of State-owned Land has notbeen granted for this land.

(2) According to 29 Building Ownership Certificates Nos. 00529-02, 00529-03, Nos. 721-2 to 721-10,721-13, 721-15 to 721-21, 721-24 to 721-32 and 00001486, the building ownership rights of 101buildings, comprising a total gross floor area of approximately 153,366.09 sq.m., are vested in HebeiJinxi Iron & Steel Co. Ltd.

As advised by the Group, Building Ownership Certificate has not been granted for the remainingbuildings erected on the industrial complex with a total gross floor area of 290,213.28 sq.m. We haveassigned no commercial value to these buildings. For reference purpose, had the Group obtained thevalid Building Ownership Certificates, the capital value of these buildings in their existing state as at30 November 2007 would be RMB674,000,000.

(3) According to Business Licence No. 13000010078 dated 28 June 2007, Hebei Jinxi Iron & Steel Co. Ltd.was established on 13 December 2002 with a registered capital of RMB228,635,573.

(4) We have been provided with the Legal Opinions prepared by the Group’s PRC legal adviser, whichcontains, inter alia, the following information:

(i) The land use rights of portion of the property, comprising a site area of 1,150 mu, have beengranted to Hebei Jinxi Iron & Steel Co. Ltd;

(ii) The building ownership of portion of the property has been vested in Hebei Jinxi Iron & Steel Co.Ltd; and

(iii) Hebei Jinxi Iron & Steel Co. Ltd. is entitled to transfer, lease, mortgage or dispose of the landuse rights and building ownership of the portion of the property.

(5) In accordance with the PRC legal opinion and the information provide by the Group, the status of titleand grant of major approvals and licenses are as follows:

Certificate for the Use of State-owned Land Yes (Part)Building Ownership Certificates Yes (Part)Business Licence Yes


– 160 –





2. An industrialcomplex located inDuichuanIndustrial Zone,Renhe Town,Gaoming District,Foshan,GuangdongProvince,the PRC

The property comprises anindustrial complex erected upontwo parcels of land with a totalsite area of approximately284,923 sq.m..

The industrial complex comprisesan office building, an aircompressor house, a boilerhouse, an ammonia decomposehouse, six workshop buildings,two warehouses, and twodormitory buildings completed inthe period between 2004 and2005.

The property has a total grossfloor area of 95,134.34 sq.m..

The land use rights of theproperty have been granted for aterm due to expire on 20 January2055 for industrial use.

The property iscurrently occupied bythe Group forindustrial use.

RMB220,000,000(60.0% interest


RMB132,000,000)

Notes:

(1) According to two Certificates for the Use of State-owned Land No. (2005) 222 and (2005) 219 issuedby Foshan People’s Government, the land use rights of the property, comprising a total site area of284,923 sq.m., have been granted to Foshan Jinxi Jinlan Cold Rolled Sheet Co., Ltd., a 60%-ownedsubsidiary of the Company, for a term of 50 years due to expire on 20 January 2055 for industrial use.

(2) According to fourteen Real Estate Title Certificates issued in the period between 24 January 2005 and25 December 2005, the building ownership rights of the property, comprising a total gross floor area of95,134.34 sq.m., are vested in Foshan Jinxi Jinlan Cold Rolled Sheets Co., Ltd., a 60%-ownedsubsidiary of the Company.


– 161 –

Details of the aforesaid certificates are summarized as follows:

Certificate No. Building No. of Storey Gross Floor Areasq.m.

C3135026 Office Building 3 3,522.74C3135080 Air Compressor House 1 102.9C3135029 Boiler House 1 301.3C3135075 Ammonia Decompose House 1 282.9C3135053 Workshop 1 6,954.9C3135028 Workshop 1 25,898.9C3135027 Raw Material Warehouse 1 4,030.8C3936867 Dormitory Building 1 6 6,237.16C3936869 Dormitory Building 2 6 5,466.74C3936859 Warehouse 1 13,824C3936857 Workshop 1 6,912C3936868 Workshop 1 6,912C3936864 Workshop 1 7,776C3936856 Workshop 1 6,912

Total 95,134.34

(3) According to Business Licence No. 13000010078 dated 28 June 2007, Foshan Jinxi Jinlan Cold RolledSheets Co., Ltd. was established on 26 December 2003 with a registered capital of US$29,800,000.


(i) The land use rights of the property, comprising a total site area of 284,923 sq.m., have beengranted to Foshan Jinxi Jinlan Cold Rolled Sheet Co., Ltd.;

(ii) The building ownership of the property, comprising a total gross floor area of 95,134.34 sq.m.,has been vested in Foshan Jinxi Jinlan Cold Rolled Sheet Co., Ltd.; and

(iii) Foshan Jinxi Jinlan Cold Rolled Sheet Co., Ltd. is entitled to transfer, lease, mortgage or disposeof the land use rights and building ownership of the property.


Certificates for the Use of State-owned Land YesReal Estate Title Certificates YesBusiness Licence Yes


– 162 –





3. Unit Nos.2901-2903,Full Tower,No. 9DongsanhuanMiddle Road,Chaoyang District,Beijing,the PRC

The property comprises 3 unitson Level 25 of a 29-storey officetower plus 3 levels of basementcompleted in 2005.

The property has a total grossfloor area of approximately637.68 sq.m..

The land use rights of theproperty have been granted for aterm due to expire on 4 August2052 for composite uses.

The property iscurrently occupied bythe Group for officeuse.

RMB16,000,000(100.0% interest


RMB16,000,000)

Notes:

(1) According to Certificates for the Use of State-owned Land Nos. (2006) 6003842, (2006) 6003843 and(2006) 6003844, the land use rights of the property has been granted to China Oriental Group CompanyLimited for a term due to expire on 4 August 2052 for composite uses.

(2) According to three Building Ownership Certificates, the building ownership rights of the property,comprising a total gross floor area of 637.68 sq.m. are vested in China Oriental Group Company Limited( ).

The details of the said certificates are listed as follows:

Certificate No. Unit No. GFA(sq.m.)

4060117 2901 336.054060118 2902 204.514060119 2903 97.12

Total 637.68

(3) According to three Beijing Commodity Housing Pre-sale Contracts Nos. Y35806, Y35868 and Y35871all entered into between Beijing Meidiya Property Co., Ltd. (Party A) and China Oriental GroupCompany Limited (Party B), Party B agreed to purchase Units Nos. 2901 to 2903 on Level 25 of FullTower, comprising a total gross floor area of 637.68 sq.m., for a total consideration of RMB12,370,992.


(i) The land use rights of the property have been granted to China Oriental Group Company Limited;

(ii) The building ownership of the property, comprising a total gross floor area of 637.68 sq.m., hasbeen vested in China Oriental Group Company Limited; and

(iii) China Oriental Group Company Limited is entitled to transfer, lease, mortgage or dispose of theland use rights and building ownership of the property.


Certificates for the Use of State-owned Land YesBuilding Ownership Certificates YesCommodity Housing Pre-sale Contracts Yes


– 163 –


Group II – Properties held by the Group for investment in the PRC



4. Unit Nos.2904-2910,Full Tower,No. 9DongsanhuanMiddle Road,Chaoyang District,Beijing,the PRC

The property comprises 7 unitson Level 25 of a 29-storey officetower plus 3 levels of basementcompleted in 2005.

The property has a total grossfloor area of approximately1,098.33 sq.m..

The land use rights of theproperty have been granted for aterm due to expire on 4 August2052 for composite uses.

The property iscurrently leased undervarious tenancyagreements forvarious terms with thelatest expiry on 31July 2009 at a totalmonthly rent ofapproximatelyRMB151,557.78.

RMB27,000,000(100.0% interest


RMB27,000,000)

Notes:

(1) According to Certificates for the Use of State-owned Land Nos. (2006) 6003845, (2006) 6003846,(2006) 6003847, (2006) 6003848, (2006) 6003849, (2006) 6003850 and (2006) 6003851, the land userights of the property has been granted to China Oriental Group Company Limited for a term due toexpire on 4 August 2052 for composite uses.

(2) According to seven Building Ownership Certificates, the building ownership rights of the property,comprising a total gross floor area of 1,098.33 sq.m. are vested in China Oriental Group CompanyLimited.

The details of the said certificates are listed as follows:

Certificate No. Unit No. GFA(sq.m.)

4060120 2904 112.824060121 2905 246.754060122 2906 137.834060123 2907 84.204060124 2908 115.984060125 2909 100.354060126 2910 300.40

Total 1,098.33

(3) According to Beijing Commodity Housing Pre-sale Contracts Nos. Y35872 to Y35878 all entered intobetween Beijing Meidiya Property Co., Ltd. (Party A) and China Oriental Group Company Limited(Party B), Party B agreed to purchase Units Nos. 2904-2910 on Level 25 of Full Tower, comprising atotal gross floor area of 1,098.33 sq.m., for a total consideration of RMB21,307,602.


– 164 –


(i) The land use rights of the property have been granted to China Oriental Group Company Limited;

(ii) The building ownership of the property, comprising a total gross floor area of 1,098.33 sq.m., hasbeen vested in China Oriental Group Company Limited; and

(iii) China Oriental Group Company Limited is entitled to transfer, lease, mortgage or dispose of theland use rights and building ownership of the property.


Certificates for the Use of State-owned Land YesBuilding Ownership Certificates YesCommodity Housing Pre-sale Contracts Yes


– 165 –


Group III − Properties leased by the Group in the PRC

Property Description and tenure


5. Units 2911-12,InternationalChamber ofCommerce Tower,Northeast to thejunction of FuhuaThird Road andYitian Road,Futian District,Shenzhen,GuangdongProvince,the PRC

The property comprises 2 office units on Level 29 of a58-storey office building which was completed in 2005.

The property has a total gross floor area of approximately215.73 sq.m. and is currently occupied by the Group asoffice.

The property is currently leased by the Group for a termof 2 years commencing from 1 March 2006 and expiringon 1 March 2008 at a monthly rent of RMB20,710,exclusive of management fees & utilities charges.

No Commercial Value

6. An industrialcomplex situatedon the east ofSantunying Town,Qianxi County,Tangshan,Heibei Province,the PRC

The property comprises various buildings and structureserected on a parcel of land with a total site area ofapproximately 1,728,717 sq.m..

The property has a total gross floor area of approximately22,922.80 sq.m. and is currently occupied by the Groupfor industrial use.

The property is currently leased by the Group for variousterms with the latest term expiring on 6 May 2037 and theannual rental of approximately RMB3,623,785.1.

No Commercial Value

7. An industrialcomplex situatedon the south ofJingziyu Village,Santunying Town,Qianxi County,Tangshan,Heibei Province,the PRC

The property comprises various buildings and structureserected on a parcel of land with a total site area ofapproximately 62,016 sq.m..

The property has a total gross floor area of approximately7,364.32 sq.m. and is currently occupied by the Group forindustrial use.

The property is currently leased by the Group for a termof 30 years commencing from 15 August 2003 andexpiring on 15 August 2033 at an annual rent ofapproximately RMB46,510.

No Commercial Value


– 166 –


Group IV – Property leased by the Group in Hong Kong

Property Description and tenure


8. Suites 901-2 & 10,9th Floor,Great Eagle Centre,23 Harbour Road,Wanchai,Hong Kong

The property comprises 3 office units in a 38-storey officetower erected over a basement. Completed in 1983, theground to 3rd Floor of the building are devoted toretail/commercial purposes while the 4th to 7th Floor aredevoted to car parking purposes.

The property has a total lettable area of approximately287.44 sq.m. and is currently occupied by the Group asoffice.

The property is currently leased by the Group for a termof 2 years commencing from 8 January 2008 and expiringon 7 January 2010 at a monthly rent of HK$142,324,exclusive of management fees & utilities charges.

No Commercial Value


– 167 –

1. RESPONSIBILITY STATEMENT

This Composite Document includes particulars given in compliance with the Listing

Rules and the Takeovers Code for the purpose of giving information with regard to the

Company.

The members of the board of directors of the Offeror jointly and severally accept full

responsibility for the accuracy of the information contained in this Composite Document (other

than information relating to the Group) and confirm, having made all reasonable enquiries, that

to the best of their knowledge, the opinions expressed in this Composite Document (other than

opinions relating to the Group) have been arrived at after due and careful consideration and

there are no other facts (other than those relating to the Group) not contained in this Composite

Document, the omission of which would make any statement in this Composite Document

(other than those relating to the Group) misleading.

The Directors jointly and severally accept full responsibility for the accuracy of the

information contained in this Composite Document (other than those relating to the Offeror and

ArcelorMittal) and confirm, having made all reasonable enquiries, that to the best of their

knowledge, the opinions expressed in this Composite Document (other than those relating to

the Offeror and ArcelorMittal) have been arrived at after due and careful consideration and

there are no other facts not contained in this Composite Document (other than those relating

to the Offeror and ArcelorMittal) the omission of which would make any statements in this

Composite Document (other than those relating to the Offeror and ArcelorMittal) misleading.

2. SHARE CAPITAL OF THE COMPANY

Authorised and issued share capital of the Company as at the Latest Practicable Date

The Shares are listed and traded on the Main Board of the Stock Exchange. No part of the

Shares are listed, or dealt in, on any other stock exchange, nor is any listing of or permission

to deal in the Shares being, or proposed to be sought, on any other stock exchange.

Authorised HK$

5,000,000,000 500,000,000

Issued HK$

2,929,200,000 292,920,000

All of the Shares currently in issue are ranked pari passu in all respects with each other,

including the rights in respect of capital, dividends and voting.

There are no warrants and conversion rights affecting the Shares.

APPENDIX V STATUTORY AND GENERAL INFORMATION

– 168 –

The number of shares issued since the end of the last financial year of China Oriental

24,200,000 Shares have been issued by the Company since 31 December 2006, being the

end of its last financial year, and up to the Latest Practicable Date.

3. MARKET PRICES

The table below shows the closing market prices of the Shares as quoted on the Stock

Exchange on (a) the Latest Practicable Date, (b) the Last Trading Day and (c) at the end of each

of the calendar months during the Relevant Period:

DateClosing Price

per Share(HK$)

29 June 2007 3.2331 July 2007 3.7630 August 2007 3.9328 September 2007 4.4531 October 2007 5.556 November 2007, being the Last Trading Day 5.4030 November 2007 (Note 1) 5.4031 December 2007 6.3711 January 2008, being the Latest Practicable Date 6.41

Note 1: This is the closing price from the Last Trading Day. The Shares were suspended from trading fromthe Last Trading Day and resumed trading from 2:30 p.m. on 13 December 2007.

During the Relevant Period, the highest closing price of the Shares was HK$6.45 per

Share as quoted on the Stock Exchange on 4 and 8 January 2008 and the lowest closing price

of the Shares was HK$2.95 per Share as quoted on the Stock Exchange on 6 July 2007.

4. SHARE OPTION SCHEME

The Company has a Share Option Scheme for all Directors and any employees of any

company in the Group or any entity in which any member of the Group holds an equity interest.

The purpose of the Share Option Scheme is to provide the above persons with the opportunity

to acquire proprietary interests in the Company and to encourage the above persons to work

towards enhancing the value of the Company and its Shares for the benefit of the Company and

its Shareholders as a whole.

The option period is to be determined and notified by the Board to each grantee at the

time of making a share option offer which shall not expire later than ten years from the date

of grant. There are no minimum periods for which an option granted must be held and/or

minimum performance targets that must be reached before the option can be exercised in whole

or in part, unless the Board otherwise determines.


– 169 –

The total number of Shares issued and to be issued upon exercise of the options granted

and to be granted to each of the above persons in any 12-month period must not exceed 1% of

the Shares in issue without Shareholders’ approval.

Where any grant of options to a substantial shareholder or an independent non-executive

Director of the Company, or any of their respective associates, would result in the Shares

issued and to be issued upon exercise of all options already granted and to be granted to such

person in the 12-month period up to and including the date of such grant:

(i) representing in aggregate over 0.1% of the Shares in issue;

(ii) having an aggregate value, based on the closing price of the Shares on the date of

grant, in excess of HK$5 million;

(iii) such grant of options shall be approved by Shareholders; and

(iv) upon acceptance of the share option offer, HK$1 should be paid by the grantee to the

Company as consideration for the options granted.

The subscription price shall be such price as determined by the Directors at their absolute

discretion and shall be no less than the highest of: (a) the closing price of the Shares; (b) the

average closing price of the Shares for the five business days immediately preceding the date

of grant; and (c) the nominal value of a Share on the date of grant. The Share Option Scheme

shall be valid and effective for a period of 10 years commencing on 23 June 2006 and ending

on 22 June 2016 (both days inclusive).

As at 31 December 2006 and the Latest Practicable Date, the number of Shares to be

issued upon exercise of the options which had been granted and remained outstanding under

the Share Option Scheme was 24,200,000 and 89,700,000, respectively, representing 0.8% and

3.1%, respectively, of the issued share capital at those dates.

As at 31 December 2006 and the Latest Practicable Date, the number of Shares available

for issue under the Share Option Scheme (excluding the above options which had been granted

and remained outstanding) was 266,300,000 and 176,600,000, respectively, representing 9.2%

and 6.0%, respectively, of the issued share capital at those dates.


– 170 –

Details of the share options outstanding are as follows:

No. ofoptions

outstandingat

1 January2007

No. ofoptionsgranted

during theperiod from

1 January2007 to the

LatestPracticable

DateDate ofgrant

Exercisableperiod

No. ofoptions

exercised/cancelled/

lapsed duringthe period

from1 January

2007 to theLatest

PracticableDate

No. ofoptions

outstandingas at the

LatestPracticable

Date

Exerciseprice

pershare

Closing priceper share

immediatelybefore the

date of grant(Note 1) (Note 2) (HK$) (HK$)

Mr. HanJingyuan

2,800,000 – 30 June2006

30 June2006 to

29 June2016

2,800,000 – 1.76 1.74

Ms. ChenNingning(Note 3)

2,600,000 – 30 June2006

30 June2006 to

29 June2016

2,600,000 – 1.76 1.74

Mr. Zhu Jun 2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Tang Chi Fai(Note 3)

2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Liu Lei 2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. ShenXiaoling

2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Yu Tung Ho 2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Gao Qingju 2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Wong ManChung,Francis

2,400,000 – 30 June2006

30 June2006 to

29 June2016

2,400,000 – 1.76 1.74

Mr. Yu Jianshui – 2,400,000 26 October2007

30 October2007 to

25 October2017

– 2,400,000 5.24 5.22


– 171 –

No. ofoptions

outstandingat

1 January2007

No. ofoptionsgranted

during theperiod from

1 January2007 to the

LatestPracticable

DateDate ofgrant

Exercisableperiod

No. ofoptions

exercised/cancelled/

lapsed duringthe period

from1 January

2007 to theLatest

PracticableDate

No. ofoptions

outstandingas at the

LatestPracticable

Date

Exerciseprice

pershare

Closing priceper share

immediatelybefore the

date of grant(Note 1) (Note 2) (HK$) (HK$)

Directors ofsubsidiaryof theCompany

– 3,600,000 26 October2007

30 October2007 to

25 October2017

– 3,600,000 5.24 5.22

Employees – 83,700,000 26 October2007

30 October2007 to

25 October2017

– 83,700,000 5.24 5.22

Employee 2,000,000 – 30 June2006

30 June2006 to

29 June2016

2,000,000 – 1.76 1.74

Total 24,200,000 89,700,000 24,200,000 89,700,000

Notes:

1. All the Directors’ interests in share options are personal and are long position.

2. All of the above share options granted on 30 June 2006 can be exercised immediately upon acceptance of theshare option offer by the grantee and there were no vesting conditions/period. All of the above share optionsgranted on 26 October 2007 can be exercised from 30 October 2007 to 25 October 2017 upon acceptance ofthe share option offer by the grantee and there were no vesting conditions/period.

3. Ms. Chen Ningning and Mr. Tang Chi Fai are former executive Directors.

Save as set out above, as at the Latest Practicable Date, there are no other options,

warrants, convertible securities or other derivatives outstanding in respect of the share capital

of the Company.


– 172 –

5. DISCLOSURE OF INTERESTS IN THE COMPANY

(a) As at the Latest Practicable Date, the interests of the Directors and their associates

in the securities of the Company were as follows:

Name of Director Capacity

Number ofissued

Shares heldLong/ShortPosition

Percentageof the

Company’sissued share

capital

Mr. Han Jingyuan Corporate (Note 1) 1,317,502,849 Long 44.98%Beneficial owner 2,800,000 Long 0.10%Corporate (Note 1) 1,317,502,849 Short 44.98%Beneficial owner 2,800,000 Short 0.10%

Mr. Zhu Jun Beneficial owner 2,400,000 Long 0.08%Mr. Liu Lei Beneficial owner 2,400,000 Long 0.08%Mr. Shen Xiaoling Beneficial owner 2,400,000 Long 0.08%Mr. Gao Qingju Beneficial owner 2,400,000 Long 0.08%Mr. Wong Man

Chung, Francis Beneficial owner 2,400,000 Long 0.08%

Note 1: As at the Latest Practicable Date, Mr. Han beneficially owned 60.69% of the issued sharecapital of Wellbeing and held approximately 16.09% of the issued share capital of Wellbeingon trust for the benefit of certain employees of Hebei Jinxi. As at the Latest Practicable Date,Wellbeing beneficially owned 1,255,849,124 Shares or 42.87% of the issued shares of ChinaOriental. Mr. Han is also the beneficial owner of 100% of the issued share capital of Chingfordwhich beneficially owned 61,653,725 Shares or 2.10% of the issued shares capital of theCompany as at the Latest Practicable Date.

In light of the advice and recommendation from Evolution Watterson and the

Independent Board Committee and having regard to their own individual

circumstances and investment objectives, the intention of the Directors, in respect of

their shareholdings, to reject or accept the Offer is set out as follows:

Mr. Han Jingyuan Not applicableNote 1

Mr. Zhu Jun RejectMr. Liu Lei RejectMr. Shen Xiaoling RejectMr. Yu Jianshui AcceptNote 2

Mr. Zhu Hao Not applicableNote 3

Mr. Gao Qingju RejectMr. Yu Tung Ho Not applicableNote 3

Mr. Wong Man Chung, Francis Reject

In respect of the Directors who intend to reject the Offer, they would like to inform

Shareholders that they would continue to monitor the movement of the Share price

and the risk of the Shareholders’ Agreement failing to become unconditional.


– 173 –

Accordingly, notwithstanding their intentions to reject the Offer as at the date of this

Composite Document, in the event that the Share price rises above the Share Offer

Price, they may choose to sell their Shares in the open market and in the event that

the Share price falls below the Share Offer Price, they may choose to accept the

Offer or sell their Shares in the open market.

In particular, Mr. Wong Man Chung, Francis, who has indicated that he intends to

reject the Offer, has indicated that he intends to dispose of, in whole or in part, his

shareholdings in the Company in the open market (and not accept the Offer) whether

or not the Share price is above or below the Share Offer Price.

Notes:

(1) The Offer is not extended to Mr. Han as he is a Concert Party.

(2) Mr. Yu Jianshui has decided to accept the Offer in respect of his Share Options on the basis thathe lacks the financial ability to fully exercise his Share Options as recommended by EvolutionWatterson. Accordingly, having considered his own investment objectives, he is of the view thatto avoid any potential losses when his Share Options expire, his only alternative is to realise hisShare Options by accepting the Option Offer in respect of his Share Options.

(3) Neither Mr. Zhu Hao nor Mr. Yu Tung Ho holds any Shares or Share Options.

(b) As at the Latest Practicable Date, the Offeror owned 820,119,151 Shares,

representing approximately 28.00% of the issued share capital of the Company, and

the Controlling Shareholders held 1,320,302,849 Shares, representing

approximately 45.07% of the issued share capital of the Company. Save as disclosed

in this sub-paragraph (b) and paragraph 4 (Share Option Scheme) in this Appendix

V, and save for the First Call Option, the Put Option and the Second Call Option,

details of which are set out in the section headed “The Shareholders’ Agreement and

the Business Cooperation Agreement” of this Composite Document, as at the Latest

Practicable Date, neither the Offeror, the members of the board of directors of the

Offeror nor any of the persons acting in concert with any of them owned or

controlled any Shares or any convertible securities, warrants, options or derivatives

in respect of any Shares.

(c) As at the Latest Practicable Date, no person who owned or controlled any Shares or

any convertible securities, warrants, options or derivatives in respect of any Shares

had, prior to the posting of this Composite Document, irrevocably committed

themselves to accept or reject the Offer.

(d) As at the Latest Practicable Date, save for the 1,320,302,849 Shares held by the

Controlling Shareholders, no person who had any arrangements of the kind referred

to in Note 8 to Rule 22 of the Takeovers Code with the Offeror or any of the persons

acting in concert with it owned or controlled any Shares or any convertible

securities, warrants, options or derivatives in respect of any Shares.


– 174 –

Save as disclosed in paragraph 4 (Share Option Scheme) above and as disclosed in the

table above, none of the Directors and their associates had any interest and short positions in

the Shares, underlying Shares and debentures of the Company or any associated corporation

(within the meaning of Part XV of SFO) as recorded in the register required to be kept under

Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange

pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

6. DISCLOSURE OF INTERESTS AND DEALINGS OF SHARES OF THE

OFFEROR AND ARCELORMITTAL

As at the Latest Practicable Date, none of the Directors and their associates had any

interest or short positions in any shares of the Offeror or ArcelorMittal or any warrants,

options, convertible securities or derivatives of the Offeror or ArcelorMittal or any debentures

of the Offeror or ArcelorMittal.

As at the Latest Practicable Date, the Company does not have any interest or short

positions in any share of the Offeror or ArcelorMittal or any warrants, options, convertible

securities or derivatives in the Offeror or ArcelorMittal or any debentures of the Offeror or

ArcelorMittal.

Details of ArcelorMittal’s interests in the Offeror are set out in this Composite Document.

Neither the Company nor any Directors of the Company (including their respective

spouses, children under age 18, related trusts and companies controlled by any of them) has

dealt for value in any shares of the Offeror or ArcelorMittal or any options, warrants,

derivatives or any securities or any securities convertible into shares of the Offeror or

ArcelorMittal during the period beginning six months prior to 6 December 2007 (the date the

Offeror and the Company jointly issued an announcement pursuant to Rules 3.1 and 3.2 of the

Takeovers Code) and ending on the Latest Practicable Date.


– 175 –

7. DEALINGS IN SHARES AND SHARE OPTIONS OF THE COMPANY

(a) Save as disclosed below and other than in respect of the First Call Option, the Put

Option and the Second Call Option details of which are set out in the section headed

“The Shareholders’ Agreement and the Business Cooperation Agreement” of this

Composite Document, none of the Directors had dealt for value in any Shares,

convertible securities, warrants, options, or derivatives in respect of any Shares

during the period beginning six months prior to 6 December 2007 (the date the

Offeror and the Company jointly issued an announcement) pursuant to Rule 3.1 and

3.2 of the Takeovers Code) and ending on the Latest Practicable Date:

Name of Director DateType oftransaction

Numberof Shares

Price perShare

(Note 1) (HK$)

Mr. Han 23 Oct 2007 Long 556,000 5.00Mr. Han 16 Oct 2007 Long 10,000 4.95Mr. Han 16 Oct 2007 Long 4,000 4.96Mr. Han 16 Oct 2007 Long 10,000 4.97Mr. Han 16 Oct 2007 Long 26,000 4.98Mr. Han 16 Oct 2007 Long 38,000 4.99Mr. Han 16 Oct 2007 Long 2,918,000 5.00Mr. Han 15 Oct 2007 Long 38,000 4.76Mr. Han 15 Oct 2007 Long 130,000 4.77Mr. Han 15 Oct 2007 Long 40,000 4.78Mr. Han 15 Oct 2007 Long 552,000 4.79Mr. Han 15 Oct 2007 Long 20,000 4.80Mr. Han 15 Oct 2007 Long 20,000 4.81Mr. Han 15 Oct 2007 Long 32,000 4.84Mr. Han 15 Oct 2007 Long 126,000 4.85Mr. Han 15 Oct 2007 Long 2,000 4.88Mr. Han 15 Oct 2007 Long 12,000 4.89Mr. Han 15 Oct 2007 Long 90,000 4.90Mr. Han 15 Oct 2007 Long 4,000 4.91Mr. Han 15 Oct 2007 Long 10,000 4.92Mr. Han 15 Oct 2007 Long 8,000 4.93Mr. Han 15 Oct 2007 Long 36,000 4.94Mr. Han 15 Oct 2007 Long 52,000 4.95Mr. Han 15 Oct 2007 Long 50,000 4.96Mr. Han 15 Oct 2007 Long 36,000 4.97Mr. Han 15 Oct 2007 Long 200,000 4.98Mr. Han 15 Oct 2007 Long 254,000 4.99Mr. Han 15 Oct 2007 Long 94,000 5.00Mr. Han 12 Oct 2007 Long 12,000 4.80Mr. Han 12 Oct 2007 Long 12,000 4.81


– 176 –


Numberof Shares

Price perShare

(Note 1) (HK$)

Mr. Han 12 Oct 2007 Long 2,000 4.82Mr. Han 12 Oct 2007 Long 32,000 4.83Mr. Han 12 Oct 2007 Long 26,000 4.84Mr. Han 12 Oct 2007 Long 20,000 4.85Mr. Han 12 Oct 2007 Long 60,000 4.86Mr. Han 12 Oct 2007 Long 62,000 4.87Mr. Han 12 Oct 2007 Long 50,000 4.88Mr. Han 12 Oct 2007 Long 66,000 4.89Mr. Han 12 Oct 2007 Long 34,000 4.90Mr. Han 12 Oct 2007 Long 24,000 4.92Mr. Han 11 Oct 2007 Long 2,000 4.91Mr. Han 11 Oct 2007 Long 60,000 4.92Mr. Han 11 Oct 2007 Long 102,000 4.93Mr. Han 11 Oct 2007 Long 18,000 4.94Mr. Han 11 Oct 2007 Long 38,000 4.95Mr. Han 11 Oct 2007 Long 98,000 4.96Mr. Han 11 Oct 2007 Long 22,000 4.97Mr. Han 11 Oct 2007 Long 12,000 4.98Mr. Han 11 Oct 2007 Long 36,000 4.99Mr. Han 11 Oct 2007 Long 12,000 5.00Mr. Han 10 Oct 2007 Long 972,000 5.00Mr. Han 09 Oct 2007 Long 20,000 4.98Mr. Han 09 Oct 2007 Long 240,000 5.00Mr. Han 08 Oct 2007 Long 510,000 4.77Mr. Han 08 Oct 2007 Long 28,000 4.78Mr. Han 08 Oct 2007 Long 306,000 4.79Mr. Han 08 Oct 2007 Long 72,000 4.84Mr. Han 08 Oct 2007 Long 12,000 4.87Mr. Han 08 Oct 2007 Long 64,000 4.89Mr. Han 08 Oct 2007 Long 318,000 4.90Mr. Han 08 Oct 2007 Long 344,000 4.94Mr. Han 08 Oct 2007 Long 144,000 4.95Mr. Han 08 Oct 2007 Long 178,000 4.96Mr. Han 08 Oct 2007 Long 12,000 4.97Mr. Han 08 Oct 2007 Long 538,000 4.98Mr. Han 08 Oct 2007 Long 208,000 4.99Mr. Han 08 Oct 2007 Long 564,000 5.00Mr. Han 05 Oct 2007 Long 200,000 4.99Mr. Han 05 Oct 2007 Long 2,124,000 5.00Mr. Han 04 Oct 2007 Long 1,038,000 4.76Mr. Han 04 Oct 2007 Long 104,000 4.77


– 177 –


Numberof Shares

Price perShare

(Note 1) (HK$)

Mr. Han 04 Oct 2007 Long 44,000 4.78Mr. Han 04 Oct 2007 Long 212,000 4.80Mr. Han 11 July 2007 Long 2,000 3.15Mr. Han 11 July 2007 Long 30,000 3.20Mr. Han 11 July 2007 Long 52,000 3.21Mr. Han 11 July 2007 Long 128,000 3.22Mr. Han 11 July 2007 Long 292,000 3.23Mr. Han 11 July 2007 Long 6,000 3.24Mr. Han 11 July 2007 Long 168,000 3.25Mr. Han 10 July 2007 Long 12,000 3.06Mr. Han 10 July 2007 Long 10,000 3.08Mr. Han 10 July 2007 Long 120,000 3.11Mr. Han 10 July 2007 Long 46,000 3.12Mr. Han 10 July 2007 Long 220,000 3.13Mr. Han 10 July 2007 Long 336,000 3.14Mr. Han 10 July 2007 Long 120,000 3.15Mr. Han 10 July 2007 Long 30,000 3.16Mr. Han 10 July 2007 Long 40,000 3.17Mr. Han 10 July 2007 Long 142,000 3.18Mr. Han 10 July 2007 Long 100,000 3.19Mr. Han 10 July 2007 Long 148,000 3.20Mr. Han 10 July 2007 Long 118,000 3.21Mr. Han 10 July 2007 Long 298,000 3.22Mr. Han 10 July 2007 Long 14,000 3.23Mr. Han 9 July 2007 Long 12,000 2.97Mr. Han 9 July 2007 Long 2,000 2.98Mr. Han 9 July 2007 Long 30,000 3.01Mr. Han 9 July 2007 Long 24,000 3.02Mr. Han 9 July 2007 Long 42,000 3.03Mr. Han 9 July 2007 Long 2,000 3.04Mr. Han 9 July 2007 Long 164,000 3.05Mr. Han 9 July 2007 Long 132,000 3.07Mr. Han 9 July 2007 Long 64,000 3.08Mr. Han 9 July 2007 Long 30,000 3.09Mr. Han 9 July 2007 Long 160,000 3.10Mr. Han 9 July 2007 Long 2,000 3.11Mr. Han 9 July 2007 Long 112,000 3.12Mr. Han 9 July 2007 Long 28,000 3.13Mr. Han 9 July 2007 Long 86,000 3.14Mr. Han 9 July 2007 Long 10,000 3.15Mr. Han 9 July 2007 Long 30,000 3.16


– 178 –


Numberof Shares

Price perShare

(Note 1) (HK$)

Mr. Han 9 July 2007 Long 70,000 3.17Mr. Han 6 July 2007 Long 12,000 3.00Mr. Han 6 July 2007 Long 12,000 3.05Mr. Han 6 July 2007 Long 12,000 3.09Mr. Han 6 July 2007 Long 12,000 3.10Mr. Han 6 July 2007 Long 24,000 3.12Mr. Han 6 July 2007 Long 14,000 3.13Mr. Han 6 July 2007 Long 40,000 3.14Mr. Han 6 July 2007 Long 70,000 3.15Mr. Han 6 July 2007 Long 24,000 3.16Mr. Han 6 July 2007 Long 76,000 3.17Mr. Han 6 July 2007 Long 90,000 3.18Mr. Han 6 July 2007 Long 62,000 3.19Mr. Han 6 July 2007 Long 126,000 3.20Mr. Han 6 July 2007 Long 60,000 3.21Mr. Han 6 July 2007 Long 170,000 3.22Mr. Han 6 July 2007 Long 96,000 3.23Mr. Han 5 July 2007 Long 26,000 3.19Mr. Han 5 July 2007 Long 402,000 3.20Mr. Han 5 July 2007 Long 98,000 3.21Mr. Han 5 July 2007 Long 54,000 3.22Mr. Han 5 July 2007 Long 106,000 3.23Mr. Han 5 July 2007 Long 94,000 3.24Mr. Han 5 July 2007 Long 120,000 3.25Mr. Han 4 July 2007 Long 12,000 3.20Mr. Han 4 July 2007 Long 12,000 3.21Mr. Han 4 July 2007 Long 42,000 3.22Mr. Han 4 July 2007 Long 50,000 3.23Mr. Han 4 July 2007 Long 66,000 3.24Mr. Han 4 July 2007 Long 618,000 3.25Mr. Han 22 June 2007 Long 6,000 3.15Mr. Han 22 June 2007 Long 24,000 3.16Mr. Han 22 June 2007 Long 6,000 3.21Mr. Han 22 June 2007 Long 6,000 3.22Mr. Han 22 June 2007 Long 28,000 3.23Mr. Han 22 June 2007 Long 30,000 3.24Mr. Han 22 June 2007 Long 410,000 3.25Mr. Han 21 June 2007 Long 12,000 3.22Mr. Han 21 June 2007 Long 52,000 3.23Mr. Han 21 June 2007 Long 110,000 3.24Mr. Han 21 June 2007 Long 626,000 3.25


– 179 –


Numberof Shares

Price perShare

(Note 1) (HK$)

Mr. Han 20 June 2007 Long 6,000 3.18Mr. Han 20 June 2007 Long 60,000 3.19Mr. Han 20 June 2007 Long 168,000 3.20Mr. Han 20 June 2007 Long 144,000 3.21Mr. Han 20 June 2007 Long 148,000 3.22Mr. Han 20 June 2007 Long 80,000 3.23Mr. Han 20 June 2007 Long 42,000 3.24Mr. Han 20 June 2007 Long 152,000 3.25Mr. Han 11 June 2007 Long 12,000 2.99Mr. Han 11 June 2007 Long 166,000 3.00Mr. Han 8 June 2007 Long 6,000 2.94Mr. Han 8 June 2007 Long 198,000 2.95Mr. Han 8 June 2007 Long 92,000 2.96Mr. Han 8 June 2007 Long 32,000 2.97Mr. Han 8 June 2007 Long 68,000 2.98Mr. Han 8 June 2007 Long 40,000 2.99Mr. Han 8 June 2007 Long 314,000 3.00Mr. Han 7 June 2007 Long 6,000 3.00Mr. Han 7 June 2007 Long 214,000 3.03Mr. Han 7 June 2007 Long 100,000 3.04Mr. Han 7 June 2007 Long 100,000 3.07Mr. Han 7 June 2007 Long 200,000 3.08Mr. Han 7 June 2007 Long 200,000 3.09Mr. Han 7 June 2007 Long 200,000 3.10

TOTAL 24,510,000

Note 1: In respect of each trade by Mr. Han, shares were purchased by Wellbeing and/or Chingford.


– 180 –

All of the above trades entered into by Mr. Han for the period from 7 June 2007 to

11 July 2007, which was a previous offer period of the Company have been disclosed in

accordance with Rule 22 of the Takeovers Code.


Numberof Shares

Exerciseprice per

Share(HK$)

Mr. Han 16 October 2007 Exercise of

Share

Options

2,800,000 1.76

Mr. Zhu Jun 16 October 2007 Exercise of

Share

Options

2,400,000 1.76

Mr. Liu Lei 16 October 2007 Exercise of

Share

Options

2,400,000 1.76

Mr. Shen Xiaoling 16 October 2007 Exercise of

Share

Options

2,400,000 1.76

Mr. Gao Qingju 16 October 2007 Exercise of

Share

Options

2,400,000 1.76

Mr. Wong Man Chung,

Francis

18 October 2007 Exercise of

Share

Options

1,080,000 1.76

Mr. Wong Man Chung,

Francis

11 October 2007 Exercise of

Share

Options

1,320,000 1.76

(b) Save for dealings on an agency or non-discretionary basis, none of ING or members

of its group has dealt for value in the Shares, Share Options or any convertible

securities, warrants, options or derivatives in respect of any Shares.


– 181 –

(c) Save as disclosed in sub-paragraphs (a) and (b) above and the table below and save

for the First Call Option, the Put Option and the Second Call Option, details of

which are set out in the section headed “The Shareholders’ Agreement and the

Business Cooperation Agreement” of this Composite Document, during the Relevant

Period, neither the Offeror, the members of the board of directors of the Offeror nor

any of the persons acting in concert with any of them had dealt for value in the

Shares, Share Options or any other convertible securities, warrants, options or

derivatives in respect of any Shares:

Name of Party DateType oftransaction

Numberof Shares

Price perShare(HK$)

The Offeror 8 November

2007

Acquisition

of Shares

pursuant to

sale and

purchase

agreements

820,119,151 6.12

(d) Save as disclosed in sub-paragraph (a) above, during the Relevant Period, no person

who had any arrangements of the kind referred to in Note 8 to Rule 22 of the

Takeovers Code with the Offeror or any of the persons acting in concert with it had

dealt for value in the Shares, Share Options or any convertible securities, warrants,

options or derivatives in respect of any Shares.

8. OTHER DISCLOSURES

As at the Latest Practicable Date, save as disclosed in paragraph 5 (Disclosure of Interests

in the Company), paragraph 6 (Disclosure of Interests and Dealings of Shares of the Offeror

and ArcelorMittal) and paragraph 7 (Dealings in Shares and Share Options of the Company)

above and save for the First Call Option, the Put Option and the Second Call Option, details

of which are set out in the section headed “The Shareholders’ Agreement and the Business

Cooperation Agreement” of this Composite Document:

(a) neither the Company nor any of the Directors had dealt for value, owned or

controlled any Shares, warrants, options, convertible securities and derivatives of

the Company or any shares of the Offeror or ArcelorMittal or any warrants, options,

convertible securities and derivatives of the Offeror or ArcelorMittal during the

period beginning six months prior to 6 December 2007 (the date the Offeror and the

Company first issued an announcement pursuant to Rules 3.1 and 3.2 of the

Takeovers Code) and ending on the Latest Practicable Date;


– 182 –

(b) none of the subsidiaries of the Company or, any pension funds of the Group nor any

adviser to the Company as specified in class (2) of the definition of “associate”

under the Takeovers Code dealt for value in, owned or controlled any (i) Shares, (ii)

shares in the Offeror or ArcelorMittal or (iii) convertible securities, warrants,

options, derivatives in respect of any Shares, shares in the Offeror or ArcelorMittal

during the period beginning 6 December 2007 (the date the Offeror and the

Company first issue an announcement pursuant to Rules 3.1 and 3.2 of the Takeovers

Code) and ending on the Latest Practicable Date;

(c) neither the Company nor any person who is an associate of the Company by virtue

of classes (1), (2), (3) or (4) of the definition of “associate” under the Takeovers

Code had any arrangement with any other person of the kind referred to in the third

paragraph of Note 8 to Rule 22 of the Takeovers Code;

(d) no persons who had any arrangement of the kind referred to in Note 8 to Rule 22 of

the Takeovers Code with the Company or any person who is an associate of the

Company by virtue of classes (1), (2), (3) or (4) of the definition of “associate”

under the Takeovers Code owned or controlled any Shares, shares in the Offeror or

ArcelorMittal or any convertible securities, warrants, options or derivatives in

respect of any Shares or shares in the Offeror or ArcelorMittal during the period

beginning on 6 December 2007 (the date the Offeror and the Company first issue an

announcement pursuant to Rules 3.1 and 3.2 of the Takeovers Code) and ending on

the Latest Practicable Date;

(e) no Shares, shares in the Offeror or ArcelorMittal or any convertible securities,

warrants, options or derivatives in respect of any Shares or shares in the Offeror or

ArcelorMittal were managed on a discretionary basis by fund managers (other than

exempt fund managers) connected with the Company during the period beginning on

6 December 2007 (the date the Offeror and the Company first issue an

announcement pursuant to Rules 3.1 and 3.2 of the Takeovers Code) and ending on

the Latest Practicable Date; and

(f) and save for the Shareholders’ Agreement, neither the Offeror, the members of the

board of directors of the Offeror nor any of the persons acting in concert with any

of them had any arrangements with any other person of the kind referred to in the

third paragraph of Note 8 to Rule 22 of the Takeovers Code; and save for the

Shareholders’ Agreement, the directors of the Offeror were not aware of any such

arrangements between any other associate of the Offeror and any other person.


– 183 –

9. SERVICE CONTRACTS

Save as disclosed below, none of the Directors has entered into any service contract with

the Company or any of its subsidiaries or associated companies (i) which are continuous with

a notice period of 12 months or more; (ii) which are of fixed term with more than 12 months

to run irrespective of the notice period; or (iii) which (including both continuous and fixed term

contracts) have been entered into or amended within six months before 6 December 2007 (the

date the Offeror and the Company first issued an announcement pursuant to Rules 3.1 and 3.2

of the Takeovers Code).

DirectorExpiry dateof contract

Amount offixed

remuneration(excluding

arrangementfor pensions

payments)

Amount ofvariable

remunerationincludingdetails of

calculatingsuch

remuneration

Mr. Han Jingyuan– current contract 12 November 2009 HK$400,000

per annum

Nil

– previous contract 12 November 2006 HK$400,000

per annum

Nil

Mr. Zhu Jun– executive deputy general

manager of the Company’s

contract

Continuous contract HK$1,800,000

per annum

Nil

– current contract 22 December 2009 HK$300,000

per annum

Nil

– previous contract 22 December 2006 HK$300,000

per annum

Nil

Mr. Liu Lei– current contract 28 September 2008 HK$300,000

per annum

Nil

– previous contract 28 September 2006 HK$300,000

per annum

Nil

Mr. Shen Xiaoling– current contract 30 June 2009 HK$300,000

per annum

Nil

– previous contract 30 June 2007 HK$300,000

per annum

Nil


– 184 –

DirectorExpiry dateof contract

Amount offixed

remuneration(excluding

arrangementfor pensions

payments)

Amount ofvariable

remunerationincludingdetails of

calculatingsuch

remuneration

Mr. Yu Jianshui– current contract 13 April 2009 HK$300,000

per annum

Nil

– previous contract Nil Nil Nil

Mr. Zhu Hao– current contract 20 November 2009 HK$300,000

per annum

Nil

– previous contract Nil Nil Nil

Mr. Gao Qingju– current contract 22 December 2008 HK$300,000

per annum

Nil


per annum

Nil

Mr. Yu Tung Ho– current contract 22 December 2008 HK$350,000

per annum

Nil


per annum

Nil

Mr. Wong Man Chung, Francis– current contract 24 August 2008 HK$300,000

per annum

Nil

– previous contract 24 August 2007 HK$300,000

per annum

Nil

Note: The above Director’s service contracts do not contain any provisions for bonuses.


– 185 –

10. LITIGATION

The Group and certain of the Directors are currently engaged in the following litigations:

(a) On 20 August 2007, the Company and Hebei Jinxi filed a Writ of Summons and a

statement of claim against Ms. Chen Ningning (“Ms. Chen”), Pioneer Metals

Company Limited (“PMC (HK)”) (a company incorporated in Hong Kong which is

owned as to 70.4% by Ms. Chen, and Ms. Chen is a director of PMC (HK)) and

Pioneer Metals Holdings Co. Ltd. (“PMC (BVI)”) (a company incorporated in the

British Virgin Islands and at all material times, it was and is beneficially owned by

Ms. Chen) in the High Court of Hong Kong. Pursuant to the statement of claim, the

following claims were made by the Company and Hebei Jinxi.

Breach of contract

(i) In or around 2004, PMC (HK) and PMC (BVI), either by themselves or through

Ms. Chen, represented to a Brazilian iron ore supplier that they were procuring

iron ore as Hebei Jinxi’s agent and not for themselves. When the Brazilian iron

ore supplier sought evidence from PMC (HK) and PMC (BVI) to support such

representation in late 2004, certain draft documents were prepared by Ms.

Chen, PMC (HK) and PMC (BVI) and presented to Mr. Han for his signature,

including an undated collaboration agreement and an undated power of

attorney. Under the collaboration agreement, Hebei Jinxi agreed to appoint

PMC (BVI) as its exclusive agent to negotiate the supply of iron ore on the

basis that PMC (BVI) would then sell a certain quantity of such iron ore to

Hebei Jinxi at par price. Mr. Han signed these documents, but he left them

undated on the express understanding and promise made by or on behalf of Ms.

Chen that the actual date of execution of each documents would be typed onto

these documents. Hebei Jinxi and PMC (HK) further entered into a

memorandum dated 30 November 2004 which sets out the details of the

collaboration between Hebei Jinxi and PMC (HK) in respect of the supply of

the Brazilian iron ore. Pursuant to the statement of claim, the Company and

Hebei Jinxi claimed that:

(A) PMC (BVI) and PMC (HK) were in breach of both the collaboration

agreement and the memorandum, by failing and/or refusing to supply any

Brazilian iron ore they had obtained from the Brazilian iron ore supplier

as Hebei Jinxi’s agent in 2004 and 2005; and

(B) Ms. Chen acted in breach of her duties as a director of the Company and

a director of Hebei Jinxi as she had caused PMC (HK) and PMC (BVI)

to sell the bulk of iron ore obtained from the Brazilian iron ore supplier

to third parties rather than Hebei Jinxi and thereby she gained a

substantial profit.


– 186 –

Non-disclosure of interests in Long King and breach of fiduciary duties

(ii) In or around March 2004, Ms. Chen introduced Long King International

Limited (“Long King”) to the Company and Hebei Jinxi as a potential supplier

of Brazilian ore. Between March 2004 and January 2005, as a result of the

introduction, Hebei Jinxi entered into three contracts with Long King for the

supply of Brazilian ore which were dated 1 March 2004, 13 December 2004

and 26 January 2005, respectively (the “Long King Contracts”). The prices

paid by Hebei Jinxi under these contracts were substantially in excess of the

par price at the relevant time. In order to ensure compliance with the relevant

provisions of the Listing Rules, on or around 2 November 2004, the Company

asked Ms. Chen and two other individuals to confirm that Long King was not

connected to him/her or his/her associated companies and in response, on 2

November 2004, Ms. Chen and those two other individuals provided written

confirmations (“Written Confirmations”) to the Company which confirmed

that:

(A) since Long King’s incorporation, it had not been Ms. Chen or those two

other individuals’ associate, any associate of his/her connected person,

nor any connected person; and

(B) Ms. Chen and those two other individuals undertook to inform the Board

and the company secretary of the Company immediately should Long

King become his/her associate or connected person in future.

The Company subsequently discovered from the offer document dated 3

August 2007 issued by Macquarie (Hong Kong) Limited on behalf of Smart

Triumph Corporation in connection with the unsolicited voluntary conditional

offer to acquire Shares not already owned by Smart Triumph Corporation and

the conditional offer for cancellation of the Share Options (the “First Offer

Document”) that on 1 April 2004, Pioneer acquired 100% of the issued share

capital of Long King and that Ms. Chen owns 100% of Pioneer. Ms. Chen was

also as at 31 March 2004 and 31 March 2005, a director of Pioneer. In light of

this discovery, a letter was sent to Ms. Chen on 12 August 2007 requesting an

explanation of her relationship with Long King. Ms. Chen has not responded

to this letter. If the information provided in the First Offer Document in respect

of Ms. Chen’s relationship with Long King is true, then the Written

Confirmations that she provided to the Company would be false.

Unfortunately, in reliance on the Written Confirmations, the Company caused

and allowed Hebei Jinxi to enter into certain contracts with Long King in

December 2004 and January 2005, which, according to the Listing Rules,

would constitute connected transactions of the Company that would require

disclosure and the approval of the Company’s independent shareholders. In

reliance on the Written Confirmations, the Company did not make any

disclosures or sought independent shareholders’ approval in respect of these


– 187 –

contracts. This noncompliance with the Listing Rules could lead to an

investigation by the Stock Exchange which could impose penalties and

sanctions on the Company. In view of the above, the Company has pursuant to

the statement of claim, sued Ms. Chen for breach of her fiduciary duties as a

director of the Company for provision of the Written Confirmations knowing

that they were false and further failed to honour her undertaking contained in

it and further, for failing to disclose her beneficial interest in Long King at any

time prior to the Company entering into the Long King Contracts.

The Defence of Ms. Chen, PMC (HK) and PMC (BVI) was filed and served on

18 October 2007.

The reply of the Company and Hebei Jinxi was filed and served on 9 November

2007. The parties are currently negotiating to agree a timetable for the

disclosure of documents, exchange of witness statements and exchange of

expert reports, leading up to a trial in 2008.

(b) On 30 August 2007, Smart Triumph Corporation served a notice of requisition on the

Company, requiring the Company to convene a special general meeting (“SGM”) to

consider, among other things, a motion to remove all the Directors, pursuant to the

relevant requirements under Bermuda law. Following Smart Triumph Corporation’s

requisition, the Board proposed that, in addition to the motions which are to be

tabled to remove all Directors, the Company also proposed to its Shareholders a

resolution to be considered at the same meeting to remove Ms. Chen from the board

of directors of the Company on the basis that Ms. Chen had potentially acted in

breach of her fiduciary duties as a Director and that the Board no longer had

confidence in a working relationship with Ms. Chen as a director of the Company.

At a meeting of the board of directors of the Company that took place on 12

September 2007, the Board resolved to convene a SGM on 30 September 2007. The

intention was to: (i) despatch a SGM circular to Shareholders containing Smart

Triumph Corporation’s requisition and the Company’s proposal to remove Ms. Chen

from the Board; and (ii) to deal with the two matters together at the same SGM on

30 September 2007. On 13 September 2007, Ms. Chen, through Smart Triumph

Corporation, filed a claim against the Company and five executive Directors,

namely Mr. Han Jingyuan, Mr. Zhu Jun, Mr. Liu Lei, Mr. Shen Xiaoling and Mr. Yu

Jianshui (the “Defendant Directors”) alleging that the Defendant Directors did not

act in the best interests of the Company. She also sought and obtained an interim

injunction, following an ex parte application in the Court of First Instance of Hong

Kong, to restrain the Company from proposing the removal of her as a Director at

any SGM convened for 30 September 2007 by way of a notice for the SGM to the

Shareholders or otherwise (the “Injunction”). On 14 September 2007, upon hearing

the counsel representing the Defendant Directors and Smart Triumph Corporation,

the Court of First Instance has granted an order to discharge the interim injunction

on condition that both Smart Triumph Corporation and the Defendant Directors

respectively undertake not to put any resolutions concerning changes to the


– 188 –

composition of the Board to the SGM which is to be convened pursuant to Smart

Triumph Corporation’s requisition notice dated 30 August 2007 (the

“Undertakings”). The relevant SGM circular was then amended to remove all

references regarding the composition of the Board and contains only a resolution to

revoke the general mandate of the Company which Smart Triumph Corporation had

also requisitioned. The SGM circular was despatched on 20 September 2007. On 19

September 2007, Smart Triumph Corporation took out a summons to seek a release

from those Undertakings, a request that, if granted, will in effect place Smart

Triumph Corporation, the Defendant Directors and the Company in the same

position as they were before Smart Triumph Corporation obtained the Injunction.

The Court of First Instance subsequently granted an order to release all the relevant

parties from the Undertakings. On 29 October 2007, an SGM was held, during which

the Shareholders voted, among other things, for the removal of Ms. Chen as a

Director of the Company with immediate effect, and against the removal of the

Defendant Directors as Directors of the Company. On 6 November 2007,

ArcelorMittal informed Mr. Han that one of its wholly-owned subsidiaries, Mittal

Steel Holdings AG, entered into agreements on 6 November 2007 for the acquisition

of 820,119,151 Shares in the Company, representing approximately 28.00% of the

equity interest in the Company, from Smart Triumph Corporation and Ms. Chen. The

Acquisitions were completed on 8 November 2007, upon which Ms. Chen ceased to

be a Shareholder of the Company.

The Defendant Directors and the Company filed and served their Defences on 11

October 2007.

Smart Triumph Corporation filed and served its Reply on 25 October 2007.

On 20 December 2007, Michael Li & Co, the solicitors for the Director Defendants,

wrote to Lovells, the solicitors for Smart Triumph Corporation, requesting Smart

Triumph Corporation to discontinue its claim as it is no longer interested in any

shares in the Company. If Smart Triumph Corporation does not agree to do so, the

Director Defendants intend to apply to strike out the claim. Smart Triumph

Corporation has failed to respond to the Director Defendants’ demand.

As at the Latest Practicable Date, other than as stated above, neither the Company

nor the Group was engaged in any litigation or arbitration of material importance

and no litigation or claim of material importance was known to be pending or

threatened by or against the Company or any member of the Group.


– 189 –

11. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of

business, have been entered into by members of the Group after the date two years before 6

December 2007 (the date the Offeror and the Company first issued an announcement pursuant

to Rules 3.1 and 3.2 of the Takeovers Code) up to and including the Latest Practicable Date:

(a) The Company has provided a guarantee dated 19 January 2006 to a PRC financial

institution to secure the loan obligation of Foshan Jin Xi Jin Lan Cold Rolled Sheet

Co., Ltd. (“Foshan Jin Xi”) ( ), its non-wholly owned

subsidiary, on a several basis and in proportion to the Group’s equity interest (i.e.,

60%) in Foshan Jin Xi. The maximum liability under the guarantee will be RMB90

million and the related outstanding interest and expenses (if any). The guarantee will

expire when the loan obligation and other relevant interest and expenses under the

loan contract are repaid fully. The loan facility of RMB150 million is for a period

of three years from 14 September 2005. As at the Latest Practicable Date, the total

amount outstanding amounted to RMB150 million.

(b) Accordpower Investments Limited, the Company’s wholly-owned subsidiary, has

entered into agreement dated 19 January 2006 to provide shareholder’s advances of

US$18.5 million to Foshan Jin Xi with a duration of five years. Shareholder’s

advances of approximately US$11.3 million will be non-interest bearing and

approximately US$7.2 million will be interest bearing at a rate equivalent to 90% of

the standard RMB loan interest rate of five years issued by the People’s Bank of

China. At the Latest Practicable Date, the interest rate is 6.97% per annum.

(c) Hebei Jinxi, a subsidiary of the Company which was as to 97.6% owned by the

Company as at the Latest Practicable Date, has entered into a guarantee in April

2006 in favour of a PRC bank to secure the master bank facility of RMB150 million

granted to Foshan Jin Xi. The maximum liability under the guarantee is RMB150

million plus the related outstanding interest and expenses (if any). A guarantee fee

of RMB900,000 for the year ended 30 May 2007 (plus any accrued interest), which

is equivalent to 0.6% of the amount under the guarantee was paid by Foshan Jin Xi

to Hebei Jinxi. The master banking facility is for a period of one year from 30 May

2006 to 30 May 2007. The obligations of Hebei Jinxi under the guarantee in respect

of each individual facility granted under the master bank facility, will expire two

years after the expiry date of each individual facility granted under the master bank

facility. As at the Latest Practicable Date, all outstanding borrowings of such master

bank facility have been repaid to the PRC bank of Foshan Junxi. As all the

outstanding borrowings have already been repaid, the obligations of Hebei Jinxi

under the guarantee is in effect zero.


– 190 –

12. CONSENTS

ING has given and has not withdrawn its written consent to the issue of this Composite

Document with the inclusion of the text of its letters and references to its name in the form and

context in which they are included.

UBS has given and has not withdrawn its written consent to the issue of this Composite

Document with the inclusion of references to its name in the form and context in which they

are included.

Evolution Watterson has given and has not withdrawn its written consent to the issue of

this Composite Document with the inclusion of the text of its letter and references to its name

in the form and context in which they are included. Evolution Watterson is licensed to conduct

Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on

corporate finance) regulated activities under the SFO.

Greater China Appraisal Limited, independent valuer, has given and has not withdrawn its

written consent to the issue of this Composite Document with the inclusion of the text of its

letter and references to its name in the form and context in which they are included.

DTZ Debenham Tie Leung Limited, independent professional property valuer, has given

and has not withdrawn its written consent to the issue of this Composite Document with the

inclusion of the text of its letter and references to its name in the form and context in which

they are included.

King & Wood, PRC Lawyers, PRC legal adviser, has given and has not withdrawn its

written consent to the issue of this Composite Document with the inclusion of its opinion and

references to its name in the form and context in which they are included.

13. MISCELLANEOUS

(a) The principal members of the Offeror’s concert group include (i) the Offeror, (ii)

ArcelorMittal and (iii) the Controlling Shareholders.

(b) As at the Latest Practicable Date, no benefit (other than statutory compensation)

would be given to any Directors as compensation for loss of office or otherwise in

connection with the Offer. As at the Latest Practicable Date, the Company would not

give to the Offeror or its Concert Parties as compensation for loss of office or

otherwise any benefit (other than statutory compensation of any) in connection with

the Offer.

(c) As at the Latest Practicable Date, and save as disclosed in this Composite

Document, no agreement or arrangement exists between any Directors and any other

persons which is conditional on or dependent upon the outcome of the Offer or is

otherwise connected with the Offer.


– 191 –

(d) As at the Latest Practicable Date, other than as disclosed in this Composite

Document, the Directors were not aware of any material contract entered into by the

Offeror in which any Directors has a material personal interest.

(e) Save for the Shareholders’ Agreement and the Business Cooperation Agreement,

there is no agreement, arrangement or understanding (including any compensation

arrangement) between the Offeror or any of the persons acting in concert with it, on

the one hand, and any Directors, recent Directors, Shareholders or recent

Shareholders, on the other hand, having any connection with or dependence upon the

Offer.

(f) The Shares acquired in the Offer will not be charged or pledged to any other persons;

and unless otherwise required by the Listing Rules with regard to the public float

requirements, the Offeror has no intention to transfer any such Shares acquired in

the Offer.

(g) The registered address of the Offeror is Alpenstrasse 15, 6304 Zug, Switzerland.

(h) The address of the principal executive office of ArcelorMittal is 19, Avenue de la

Liberte, L-2930 Luxembourg, Grand-Duchy of Luxembourg.

(i) The addresses of the Controlling Shareholders, namely, Mr. Han, Wellbeing and

Chingford, are Dormitory of Hebei Jinxi Iron and Steel Company Limited, Cheng

Guan Jing Zhong Xi Jie, Qianxi County, Hebei Province, PRC, Offshore

Incorporation Limited, P.O. Box 957, Offshore Incorporations Centre, Road town,

Tortola, British Virgins Islands and Offshore Incorporation Limited, P.O. Box 957,

Offshore Incorporations Centre, Road town, Tortola, British Virgins Islands,

respectively. All of their Hong Kong correspondence address is c/o Suites 901-2 &

10, 9th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.

(j) The sole director of Wellbeing is Mr. Han and the sole director of Chingford is Mr.

Han.

(k) The principal business address of ING Bank N.V. is 39th Floor, One International

Finance Centre, 1 Harbour View Street, Central, Hong Kong.

(l) The Offer is unconditional in all respects; and, as such, there is no agreement or

arrangement to which the Offeror is party which relates to the circumstances in

which it may or may not invoke or seek to invoke a condition to the Offer.


– 192 –

(m) The directors of ArcelorMittal are as follows:

Joseph Kinsch (Chairman of the Board of Directors)

Lakshmi N. Mittal (President and Chief Executive Officer)

Vanisha Mittal Bhatia (Member of the Board of Directors)

Narayanan Vaghul (Member of the Board of Directors)

Wilbur L. Ross (Member of the Board of Directors, Independent)

Lewis B. Kaden (Member of the Board of Directors, Independent)

Francois H. Pinault (Member of the Board of Directors, Independent)

Jose Ramon Alvarez Rendueles (Member of the Board of Directors, Independent)

Sergio Silva de Freitas (Member of the Board of Directors, Independent)

Georges Schmit (Member of Board of the Directors, Shareholder representative)

Edmond Pachura (Member of Board of the Directors, Independent)

Michel Angel Marti (Member of Board of the Directors, Employee representative,

Independent)

Manuel Fernandez Lopez (Member of the Board of Directors, Employee

representative, Independent)

Jean-Pierre Hansen (Member of the Board of Directors, Independent)

John O. Castegnaro (Member of the Board of Directors, Employee representative,

Independent)

Antoine Spillmann (Member of the Board of Directors, Shareholder representative)

H.R.H. Prince Guillaume de Luxembourg (Member of the Board of Directors,

Independent)

Romain Zaleski (Member of Board of the Directors, Shareholder representative)

(n) The directors of the Offeror are as follows:

Sudhir Maheshwari (Chairman of the Board)

Eldert Sjoerd de Vries (Vice-Chairman of the Board)

Narendra Chaudhary (Member of Board of Directors)

Max Meienberg (Member of Board of Directors)

Beat Werder (Member of Board of Directors)

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of the

Company at Suites 901-2 & 10, 9th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai,

Hong Kong from the date of this Composite Document up to the close of the Offer (except

Saturdays, Sundays and gazetted public holidays in Hong Kong):

(a) the articles of association of the Offeror;

(b) the memorandum of association and bye-laws of the Company;

(c) the interim report of the Company for the six months ended 30 June 2007;


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(d) the annual reports of the Company for the two years ended 31 December 2006;

(e) the letter from ING dated 14 January 2008, the text of which is set out on pages 9

to 27 of this Composite Document;

(f) the letter from the Board dated 14 January 2008 to the Independent Shareholders and

the Optionholders, the text of which is set out on pages 28 to 34 of this Composite

Document;

(g) the letter from the Independent Board Committee dated 14 January 2008 to the

Independent Shareholders and Optionholders, the text of which is set out on pages

35 to 37 of this Composite Document;

(h) the letter from Evolution Watterson dated 14 January 2008, the text of which is set

out on pages 38 to 61 of this Composite Document;

(i) the material contracts set out under paragraph 11 of this Appendix V;

(j) each of the service contracts referred to in paragraph 9 of this Appendix V;

(k) the written consents referred to in paragraph 12 of this Appendix V;

(l) the property valuation report from the property valuer, the text of which is set out

in Appendix IV to this Composite Document;

(m) the letter from ING dated 13 December 2007 and the letter from Greater China

Appraisal Limited dated 11 December 2007 in respect of the Put Option, the text of

which is set out in Appendix III to this Composite Document;

(n) the PRC legal opinion dated 10 January 2008 issued by King & Wood, PRC

Lawyers, the text of which is summarized under “The Shareholders’ Agreement and

the Business Cooperation Agreement – PRC Approvals” on pages 66 to 67 of this

Composite Document;

(o) the Business Cooperation Agreement dated 9 November 2007 between ArcelorMittal

and the Company; and

(p) the Shareholders’ Agreement dated 9 November 2007 between the Controlling

Shareholders and ArcelorMittal, as amended by a supplemental agreement dated 12

December 2007 between the Controlling Shareholders and ArcelorMittal.

The above documents can be viewed on: (i) the website of the Securities and Futures

Commission at www.sfc.hk and (ii) the website of the Company at

www.chinaorientalgroup.com as from the date of this Composite Document until the closing

date of the Offer.


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Documents

MITTAL STEEL HOLDINGS AG - China Oriental Group€¦ · MITTAL STEEL HOLDINGS AG (Incorporated in Switzerland with limited liability) TO ACQUIRE ALL THE OUTSTANDING SHARES IN THE