Chu Kong Shipping Enterprises : Continuing Connected Transaction - Management Agreement

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(Incorporated in Hong Kong with limited liability)

(Stock code: 00560)

Reference is made to the announcements of the Company dated 20 June 2011 and 25 June 2014 respectively. As the 2014 Management Agreement will be expired on 30 June 2017, the Company and CKSE entered into the Management Agreement on 28 June 2017 to govern the Continuing Connected Transaction between the Company and CKSE for the period from 1 July 2017 to 30 June 2020 and ensure the continual normal operations of the custodial assets.

As CKSE holds approximately 66% of the total issued shares of the Company as at the date of this announcement, CKSE is a connected person of the Company and the transaction contemplating under the Management Agreement constitutes a continuing connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios (other than the profits ratio) for the Management Agreement, on an annual basis, are higher than 0.1% but less than 5%, the transaction contemplated under the Management Agreement is only subject to the reporting and announcement requirements, but is exempt from the circular, independent financial advice and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

Reference is made to the announcements of the Company dated 20 June 2011 and 25 June 2014 respectively. As the 2014 Management Agreement will be expired on 30 June 2017, the Company and CKSE entered into the Management Agreement on 28 June 2017 to govern the Continuing Connected Transaction between the Company and CKSE for the period from 1 July 2017 to 30 June 2020 and ensure the continual normal operations of the custodial assets.

The principle terms of the Management Agreement are set out below:

28 June 2017

The period of the Management Agreement is 3 years; the 2018 Management Services Period is from 1 July 2017 to 30 June 2018, the 2019 Management Services Period is from 1 July 2018 to 30 June

2019, and the 2020 Management Services Period is from 1 July 2019 to 30 June 2020. The period could be extended upon expiry of the Management Agreement through negotiation by both parties.

1. CKSE; and

2. the Company

During the term of the Management Agreement, CKSE (among others), shall:

1. be entitled to all benefits and rights, responsible for all debts and liabilities arising from the Assets. All the gains and losses occurred in the course of the management services provided by the Company shall vest in CKSE;

2. have the right to assess the performance of the Assets;

3. have the right to allocate the Assets, including but not limited to the leasing, mortgaging, merging, disposing, auctioning or transferring, as well as entitled to retain and utilise the associated benefit arising from the aforesaid activities;

4. have the right to appoint senior managements of the Assets that are suggested or nominated by the Company, including but not limited to directors, supervisors, general managers, deputy general managers, chief financial officer and other senior managements;

5. have the right to supervise the management services carried out by the Company, and to prohibit any management services provided by the Company if such services would adversely affect the image or operations of CKSE, or would damage the legitimate rights and interests of CKSE;

6. have the right to exercise its shareholder's right on any other issues;

7. have the obligation to pay the Company the Management Fees during the term of the Management Agreement; and

8. inject the Assets to the Company when appropriate.

During the term of the Management Agreement, the Company (among others), shall:

1. have the right to receive the Management Fees during the term of the Management Agreement;

2. have the right to set the business strategies and the operation activities of the Assets, including but not limited to developing and implementing operation benchmark, daily operation managements, marketing strategies, safety operation managements and implementing strict control in cost minimization of all kind of expenses;

3. have the right to select and nominate the senior managements and appoint non-senior managements of the Assets;

4. have the right to assess the actual operating benchmarks of the Assets;

5. have the priority to acquire the Assets;

6. act in good faith and with due diligence to perform its management duties in accordance with the laws, and do not engage in any activities that will adversely affect the interest of CKSE and Assets;

7. seek the approval from CKSE for material issues that will affect matters relating to CKSE's right as a shareholder of the Assets, including but not limited to allocation of assets, changes of equity capital structure and amendments of the articles of association of the Assets;

8. not mortgage, transfer, pledge or sell the Assets;

9. be responsible to CKSE for any losses and claims arising from the default of the Company in the provision of the management services under the Management Agreement;

10. report to CKSE the progresses and results in the provision of the managing services; and

11. be responsible to procure confidential to the sensitive information in relation to the Assets.

Pursuant to the Management Agreement, CKSE shall pay to the Company the Management Fees. Each of the 2108 Management Fee, 2019 Management Fee and the 2020 Management Fee is calculated on annual basis at (i) HK$20 million per annum; or (ii) by reference to 3.25% of the 2018 Total Assets Value, the 2019 Total Assets Value and the 2020 Total Assets Value, respectively, whichever is the higher, but in any event shall not exceed HK$30 million. The Management Fees will be paid in cash by CKSE by installments to the Company as follows: (i) a fee of HK$10 million payable in each July and HK$10 million payable in each of the following January in each of the Management Services Periods; (ii) if each of the Management Fees determined is over HK$20 million after determination of each of the 2018 Total Assets Value, the 2019 Total Assets Value and the 2020 Total Assets Value, the balance is payable by CKSE to the Company within 2 months of the ending of each of the Management Services Periods. The Management Fees were determined after arm's length negotiation between CKSE and the Company with reference to the cost incurred in the provision of the management services by the Company as well as the Company's experience in operation and management of the assets similar to the Assets.

The Management Fees will be adjusted in the event that the component of the Assets decreased during the term of the Management Agreement due to the injection of the Assets to the Group. The Management Fees will then be negotiated between the Company and CKSE but in any event the Management Fees, on an annual basis, will not exceed HK$30 million.

Yuet Hing Marine Supplies Co., Ltd. is a wholly-owned subsidiary of CKSE. Yuet Hing Marine Supplies Co., Ltd. and its subsidiaries are principally engaged in building and repairing of ships and vessels in Hong Kong.

China Hong Kong Macau Duty Free Goods Ltd is a wholly-owned subsidiary of CKSE and is principally engaged in the provision of branded duty free goods for jet foil and duty free shops of ferry terminal in the Hong Kong and Macau.

Chu Kong Maritime Consultant Co., Ltd. is a wholly-owned subsidiary of CKSE and is principally engaged in provision of legal advisory services to CKSE and its associates which includes legal consulting services to vessel owners, insurance agency services and insurance claims services as well as vessel trading agency services.

Yuet Tung Shipping Co., Ltd. is a wholly-owned subsidiary of CKSE and is principally engaged in (i) the provision of agency services of water transportation, loading and unloading of cargos and port warehouse services; and (ii) the provision of agency services of passenger water transportation business between the ports in the Guangdong Province and Macau.

Shunde Container Terminal Co., Ltd. is held as to 8.3%, 16.5%, 16.5%, 28.5% and 30.2% by 中國外 運廣東有限公司 (Sinotrans Guangdong Co., Ltd.), CKSE, 廣順運輸有限公司 (Guang Shun Transportation Co., Ltd.), 廣東省公路機械材料公司 (Guangdong Provincial Highway Machinery Materials Company) and 佛山市順德區容勝口岸服務有限公司 (Foshan Shunde Rongsheng Coastal Service Co., Ltd.), respectively. Shunde Container Terminal Co., Ltd. is principally engaged in port and ferry terminal operation management services, cargo loading and storage, rental services, operation and maintenance of port machineries, equipment and facilities.

Pan Kong Cargo Transportation Co-operation Co., Ltd., is held as to 60%, 25% and 15% by 番禺口

岸實業公司 (Panyu Port Industrial Company), CKSE and 廣東省珠江航運有限公司(Guangdong Province Pearl Navigation Co.,Ltd.), respectively. Pan Kong Cargo Transportation Co-operation Co., Ltd. is principally engaged in the provision of port operation management services including cargo storage, loading and unloading services and land transportation.

Gugangzhou Nansha International Logistics Park Development Co., Ltd is held as to 50% and 50% by CKSE and 廣州南沙國際物流有限公司 (Gugangzhou Nansha International Logistics Co., Ltd.),

respectively. Gugangzhou Nansha International Logistics Park Development Co., Ltd is principally engaged in development, construction and operation management of 南沙國際物流園 (Nansha International Logistics Park).

Yueke Shipping Financial Leasing Co., Ltd. is held as to 55%, 25%, 20% by Guangdong Financial Leasing Co., Ltd (廣東粵科融資租賃有限公司), Always Profit Investment Limited (a wholly owned subsidiary of CKSE) and Guangzhou Nansha Industrial Investment Fund Management Limited (廣州 南沙產業投資基金管理有限公司) respectively. Yueke Shipping Financial Leasing Co., Ltd. is principally engaged in the financial leasing business of ships and port facilities.

The following table summarizes the historical transaction amounts of the continuing connected transaction for the three financial years ended 31 December 2016:

As stated in the annual report of the Company for the year ended 31 December 2016, the Group will continuously optimise its network topology, improve its business model, acquire important resources and implement internal innovation and external expansion, so as to pursue for new development, one of the important measures is to continue study on acquisition of quality assets of the parent company. The entering of the Management Agreement between CKSE and the Company will enable the Group to leverage on its experience and expertise in operating and management of the businesses of the Assets such as water transportation and logistic services and cargo handling, etc, so that the Group will generate income through the provision of the management services and at the same time the Assets will be operated and managed in an efficient and well-organised manner so as to facilitate the accomplishment of the injection of the Assets to the Group.

In light of the above, the Directors (including the independent non-executive Directors) consider that the terms of the Management Agreement are fair and reasonable, the transactions contemplated under the Management Agreement is on normal commercial terms and is in the interests of the Company and its shareholders as a whole.

The Group is mainly engaged in provision of management and other related services to high-speed waterway passenger transportation in Guangdong, Hong Kong and Macau; the operation and management of river trade cargo terminals in the Mainland China and Hong Kong; cargo transportation, warehousing and storage business; provision of diesel and lubricants for passenger ferries and cargo vessels in Hong Kong; and provision of operation and management of facilities maintenance services for properties and so forth in Macau.

CKSE is principally engaged in provision of navigation logistics, high-speed waterway passenger transportation between Hong Kong and the Pearl River Delta and in coastal areas and passenger ferry repair and maintenance; fuel and duty-free trading and supply, investment and management of highway and development of property business.

As CKSE holds approximately 66% of the total issued share of the Company as at the date of this announcement, CKSE is a connected person of the Company and the transaction contemplating under the Management Agreement constitutes a continuing connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios (other than the profits ratio) for the Management Agreement, on an annual basis, are higher than 0.1% but less than 5%, the transaction contemplated under the Management Agreement is only subject to the reporting and announcement requirements, but is exempt from the circular, independent financial advice and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

Each of Mr. Xiong Gebing, Mr. Zhang Lei, Mr. Zeng He and Mr. Cheng Jie is being regarded as having a material interest in the transaction contemplated under the Management Agreement and have abstained from voting on the board resolution approving the Management Agreement.

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

By Order of the Board

Chairman / Managing Director

Hong Kong, 28 June 2017

In this announcement, the English names of the PRC government authorities or entities are translations of their Chinese names and included herein for identification purpose only. In the event of any inconsistency, the Chinese names shall prevail.

As at the date of this announcement, the executive Directors are Mr. Xiong Gebing, Mr. Zeng He and Mr. Cheng Jie; the non-executive Director is Mr. Zhang Lei and independent non-executive Directors are Mr. Chan Kay-cheung, Ms. Yau Lai Man and Mr. Chow Bing Sing.