China Merchants China Direct Investments : POSSIBLE MAJOR TRANSACTION - MANDATE IN RELATION TO THE DISPOSAL OF SHARES IN INDUSTRIAL BANK CO., LTD. (in PDF)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(Incorporated in Hong Kong with limited liability)

Possible Disposals of IBC A Shares

As at the date of this announcement, the Company beneficially owns a total of 43,936,000 IBC A Shares, which are listed and freely tradable on the SSE, representing approximately 0.231 % interest in the issued share capital of IBC. If the Group proceeds with the Proposed IBC Disposal and on the assumption that all IBC A Shares held by the Group are to be disposed of, the Proposed IBC Disposal may constitute a major transaction of the Company under Chapter 14 of the Listing Rules, and be subject to the requirements of announcement, circular and shareholders' approval under the Listing Rules. The Board proposes to seek the approval of the Shareholders to grant a disposal mandate to the Directors to dispose of the IBC Interests during the Mandate Period on the terms set out in this announcement.

A circular, containing further details of the Proposed IBC Disposal together with the notice of the EGM for approving the IBC Disposal Mandate is expected to be despatched to the Shareholders on or about 21 February 2017.

BACKGROUND

As at the date of this announcement, the Company beneficially owns 43,936,000 IBC A Shares. It has been the known policy of the Company to dispose of the IBC Interests held by the Group in a gradual manner. During the period between August 2016 and December 2016, the Company had disposed of 23,000,000 IBC A Shares. Depending on prevailing market conditions, the Company may from time to time further dispose of some or all of the IBC A Shares to realize its investments in IBC. The Proposed IBC Disposal may constitute a major transaction of the Company under Chapter 14 of the Listing Rules that would require compliance with the announcement, circular and shareholders' approval requirements under the Listing Rules. The Board proposes to seek the approval of the Shareholders at the EGM to grant a mandate to the Board to dispose of the IBC Interests for a period of 12 months from the date of the EGM.

THE PROPOSED IBC DISPOSAL

As at the date of this announcement, the Company beneficially owns a total of 43,936,000 IBC A Shares, which are listed and freely tradable on the SSE, representing approximately 0.231% interest in the issued share capital of IBC based on publicly available information.

The Board proposes to seek the approval of the Shareholders to grant a disposal mandate to the Board to dispose of the IBC Interests during the Mandate Period. The IBC Interests, comprising the 43,936,000 IBC A Shares held by the Group as at the date of this announcement, represent the entire interest held by the Group in IBC.

As at the date of this announcement, the Group does not have any discussion with any party to dispose of the IBC Interests. Nevertheless, the Board is of the view that it would be in the best interests of the Shareholders and the Company for the Directors to have flexibility in disposing of the IBC Interests.

The Company proposes to seek the IBC Disposal Mandate for the Proposed IBC Disposal at the EGM on the following terms:-

1. the Group will dispose of the IBC Interests in the open market through the trading system of the SSE;

2. the selling price of the IBC A Shares will be the market price of the IBC A Shares at the relevant times, where market price refers to the price allowed under the trading system of the SSE, but will not be less than RMB13.77 (equivalent to approximately HK$15.39) per IBC A Share; and

3. the disposal mandate will be for a 12-month period from the date of passing of the relevant resolution(s) at the EGM.

The minimum selling price of RMB13.77 was determined with reference to the lowest price of IBC A Shares traded on the SSE in 2016. The minimum selling price reflects the lowest acceptable price to dispose of the IBC A Shares but is not the expected price at which the Company targets to dispose of the IBC A Shares. The Directors will consider various factors including general market conditions, progress of making new investments and performance of existing investments of the Company in exercising the IBC Disposal Mandate.

The minimum selling price for the IBC Disposal Mandate was also formulated by the Company with reference to the current price-to-book ratio of certain PRC listed banks. The Company has also taken into account the current price-to-book ratio of the IBC A Shares. In addition, in view of the performance of IBC A Shares, the current and future market conditions in the PRC and to ensure a more flexible financial position of the Company for new investment opportunities, the Board considers that the adoption of the lowest price of IBC A Shares traded on the SSE in 2016 as the current basis for determining the minimum selling price is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The minimum selling price per IBC A Share of RMB13.77 represents:

• a discount of approximately 19.33% to the closing price of RMB17.07 per IBC A Share as quoted on the SSE as at 26 January 2017, the trading day immediately before the date of the this announcement; and

• a premium of approximately 12.87% to the lowest closing price of RMB12.20 per IBC A Share as quoted on the SSE since 1 January 2015 and up to and including the date of this announcement.

In order to maximize efficiency for the Directors to act under the dynamic market conditions and economic situation during the Mandate Period, the Directors consider that the deviation of the minimum selling price from the trading prices of the IBC A Shares as illustrated above is of strategic advantage to the Company and is in the interests of the Company and the Shareholders as a whole.

Having considered the above factors, the Directors consider that the minimum selling price of RMB13.77 per IBC A Share will allow flexibility for the Directors to accommodate fluctuations in the market conditions and enable the Directors to effectively exercise the IBC Disposal Mandate under the volatile market conditions, and is thus fair and reasonable as far as the Company and the Shareholders are concerned.

The Proposed IBC Disposal will comply with all relevant laws and regulations, including any applicable trading regulations governing the Proposed IBC Disposal in the PRC.

Under the IBC Disposal Mandate proposed to be granted to the Directors, the Group may dispose of all or part of the IBC Interests on the SSE through its trading system. The Group will delegate all necessary power to the Investment Manager to handle all matters relating to the Proposed IBC Disposal, who will be responsible for identifying appropriate opportunities for disposing of the IBC A Shares. On the other hand, the Company will form a board committee consisting of two members of

the investment committee of the Company to monitor the process of execution of disposal orders. To ensure regular review and monitoring of the disposals made by the Investment Manager, after the sales of every 5,000,000 IBC A Shares, the Investment Manager will be obliged to report to the board committee and any further disposals of IBC A Shares proposed by the Investment Manager will be subject to the approval by the board committee. All elaborations, discussions and decisions in relation to the timing, price and amount of the Proposed IBC Disposal will be kept confidential.

The Company will publish an announcement every month to disclose the number of IBC A Shares disposed of pursuant to the IBC Disposal Mandate on an aggregated basis and the net proceeds arising therefrom. Further, the Company will also adjust the change in fair value of the IBC A Shares (i.e. change in fair value of financial assets designated at fair value through profit or loss) in the announcement of net asset value of the Company to be published every month. Apart from making monthly announcements to disclose the number of IBC A Shares disposed of pursuant to the IBC Disposal Mandate and the net proceeds arising therefrom, the Company will also disclose the same in the 2017 interim report and 2017 annual report of the Company.

According to the 2016 interim report of IBC and publicly available information, IBC has over 1,920 branches and offices throughout the PRC and has a branch in Hong Kong. As at 30 June 2016, IBC had a total share capital of RMB19,052 million.

From publicly available information, the Company understands that the main business activities of IBC include the provision of corporate and personal banking services, treasury businesses, and provision of asset management, leasing, trust, consumer finance and other financial services.

The following sets out a summary of audited financial information of IBC for the two years ended 31 December 2014 and 31 December 2015 which were prepared under the PRC accounting standards: