Report on Asset Purchasing via Share Issuance and Related Party Transaction

Transcription

1 Shenzhen Development Bank Co., Ltd. Report on Asset Purchasing via Share Issuance and Related Party Transaction Listed Company Name: Shenzhen Development Bank Co., Ltd. Stock Exchange Listed with: Shenzhen Stock Exchange Abbreviated Name of Share: SDB A Stock Code: Transaction Counterparty: Ping An Insurance (Group) Company of China, Ltd. Company Address, Contact Address: Xinghe Development Center, Fuhua No.3 Road, Futian Central District, Shenzhen City, Guangdong Province Independent Financial Adviser CITIC Securities Co., Ltd. June 2011

2 Company Statements The Company and all members of the Board of Directors guarantee the authenticity, accuracy, and completeness of this report, and bear joint liability for the false documentation, misleading representation or material omission carried in this report. The Company s Chairman, the Responsible Accounting Officers, and the Head of the Accounting Institution guarantee the authenticity, accuracy and completeness of the financial statements contained in this report. Any decisions or opinions made by China Securities Regulatory Commission ( CSRC ) or other government departments shall not present any substantive judgment or guarantees of the investment value of the stock or the yield of investors therefrom. Any opposite statements are false. After the material asset reorganization has been completed, the Company will be held responsible for any changes of business operation and revenue changes; investors shall bear their own investment risks caused by this material asset purchase. If investors have any query on this report, please consult your stock brokers, lawyers, accountants or any other professional advisers. 2

3 Special Notes The Bank disclosed Report from Shenzhen Development Bank Co., Ltd. on Asset Purchasing via Share Issuance and Related Party Transaction (Draft) on September 15, 2010 (with the full text published on The Bank mainly made below additions and revisions to the said Report (Draft) incorporating inputs from Notice of Supplementation and Modification to Administrative Licensing Application Materials (No ) issued by CSRC, Notice of CSRC on Feedback of First Round Review of Administrative Licensing Application (No ) and Letter on Feedbacks to Asset Purchasing via Share Issuance and Related Party Transaction Proposal from Shenzhen Development Bank Co., Ltd. (Letter from Listing Company Department No. [2011] 141): 1. Gain/loss vesting during transition period. The loss during the transition period is to be borne by PAG. PAG presented commitment that, from the next day of evaluation cut-off date to completion of equity transfer under the name of the Bank, the gains incurred from the asset as consideration will be booked into SDB while the losses undertaken by Ping An of China. For details please refer to Reminder of material issues /VI. Gain/loss vesting during transition period, Chapter 1: summary of the Deal /IV. Briefing of the Deal/ (VII) and Chapter 5: share issuance status /I. Relevant issues on share issuance/(ix)". 2. Share lock-up commitment. PAG presented commitment that either PAG or its related institutions will not transfer all SDB shares under their names subscribed via non-public offering within 36 months from the date of the completion of this non-public offering. However, under the permission of the applicable laws, the transference between the PAG s related institutions (any direct or indirect controllers of PAG, or any direct or indirect companies controlled by PAG, or any PAG affiliated companies commonly controlled by other companies) are not subject to this limitation. After the expiration of the said duration, PAG can dispose such new issued shares in accordance with the regulations of the CSRC and the SZSE. For details please refer to Reminder of material issues /VII. Share lock-up commitment, Chapter 1: summary of the Deal/IV. Briefing of the Deal/ (VIII) and Chapter 5: share issuance status /I. Relevant issues on share issuance/(x)". 3. Addition of the reminders of the risks from evaluation of the asset to be purchased and profit forecast risks. For details please refer to Special risk reminder / II. Risks in connection of the assets to be purchased / evaluation risk and profit forecast risk and Chapter 10: Risk factors /II. Risks in connection with the asset to be purchased. 4. Addition of the reminders of goodwill impairment risk. For details please refer to Special risk 3

4 reminder / V. Goodwill impairment risks. 5. Updates of internal reviews and regulatory approvals. For details please refer to Chapter 1: summary of the Deal /III. Basics of decision-making procedures for the Deal. 6. Supplementary disclosure of SDB/PAB/PAG financial data updated from September 30, 2010 to December 31, 2010 and update of relevant financial information as contained in the report accordingly. For details, please refer to Chapter 2 /III. & V., Chapter 3 /V. (II), Chapter 4 /I. (X) & II, Chapter 5 /I. & III, and Chapters 9 & Update of the capital stock structure and top 10 shareholders of the listed company. For details, please refer to Chapter 2 /II. (III) & (IV). 8. Update of PAG shareholding structure chart and recommendation of directors and senior management for the listed company from PAG and its related parties. For details, please refer to Chapter 3 /IV. (II) & VIII. 9. Update of PAB shareholders and shareholding structure as well as historical evolution info. For details, please refer to Chapter 4 /I.(II) and Chapter 4 /I.(III). 10. Addition of the historical status of and solution to two properties without ownership certificate and a land property with use right relating to PAB. For details, please refer to Chapter 4 /I.(V) Update of PAB s external investment status. For details, please refer to Chapter 4 /I.(IX). 12. SDB can, in appropriate time, realize the integration of the two banks taking approaches, as permitted by applicable laws, including but not limited to merger. If the merger approach is taken, the legal entity qualification of PAB will be cancelled. To further make clear the implementation of the aforesaid profit compensation arrangements after the merger, SDB and PAG signed SDB Profit Recognition Plan in Connection with Ping An Bank (the Acquired Assets) for the Subsequent Three Years After the Completion of Material Assets Reorganization to clarify the difference between actual profit and profit forecast of PAB for the relevant years after the legal entity qualification of PAB is cancelled. For details, please refer to Chapter 6 /III. 13. Addition of analysis on the impact of relevant provision policy on the asset status and profitability of the listed company after reorganization. For details, please refer to Chapter 9 /(II) Addition of relevant contents of the integration progress as well as potential risk and countermeasures during the integration. For details, please refer to Chapter 10 /(III) & (IV). 15. Update of relevant contents of specific RPTs as of December 31, 2010 between PAB and PAG and enterprises controlled by the latter as per the Ernst & Young Hua Ming Audit Report [2011] No _H02. For details, please refer to Chapter Update of relevant contract status of main transactions between PAB and PAG and enterprises controlled by the latter regarding provision of service, insurance purchase, insurance agency cooperation and property leasing other than day-to-day deposits, which are still under 4

5 performance. For details, please refer to Chapter Given that the company has obtained CSRC approval on the deal (CSRC [2011] No. 1022), approval on exemption of PAG from tender offer obligations in relation to acquisition of the Bank (CSRC [2011] No. 1023) and approval on PAG MAR as a result of the deal (CSRC [2011] No. 1024), we revised the statements of yet to obtain CSRC approval into "CSRC approval is obtained, and cancelled relevant risk reminder thereof. The revised reorganization report is disclosed at which is final when investors want to access to relevant information about the deal. Notes: this Report has been amended. The updated information disclosed herein prevails if any investor reads or refers to this report. 5

6 Important Notice I. The main contents of the transaction involved in this report On September 1, 2010, the Company and PAG reached an agreement on this transaction and signed the Share Subscription Agreement with proviso clauses. On September 14, 2010, both parties signed the Supplementary Agreement to the Share Subscription Agreement. According to the said agreements, PAG plans to use its held 7,825,181,106 shares of PAB (approximately 90.75% of PAB total shares) and RMB 2,690,052,300 in cash, approximately equivalent to 9.25% PAB s assessed value, to subscribe for 1,638,336,654 shares via non-public offering by the Company. II. This transaction shall be submitted to the M&A and Reorganization Review Committee for approval The final price for the target company (100% shares of PAB) that the Company intends to purchase through issuing shares is RMB 29,080,475,600, around % of the Company s net asset as of December 31, According to the Administrative Rules for Material Asset Reorganization of Listed Companies, this transaction will constitute material asset reorganization. In addition, this transaction involves asset purchase by issuing shares, which shall be submitted to the M&A and Reorganization Review Committee for approval. The transaction shall not be implemented until it has been approved by the CSRC. III. The value of the assets as consideration of the target company According to the Audit Report (Ernst & Young Hua Ming [2010] No _B02), by June 30, 2010, the book value of PAB the target company that the Company intends to acquire by issuing shares is RMB 15,329,093,500. According to the Asset Appraisal Report (China United Asset Appraisal [2010] No.697) provided by the China United Assets Appraisal, setting June 30, 2010 as the evaluation cut-off date, the book value of PAB is RMB 15,329,093,500, its appraisal value is RMB 29,080,475,600, with the appreciation rate for asset appraisal is 89.71%. The appraisal value for the asset consideration of the target company (around 90.75% PAB total shares) is RMB 26,390,423,300. IV. Profit forecast and profit compensation commitment According to the Profit Forecast Audit Report (Ernst & Young Hua Ming [2010] No _B01), PAB has prepared its financial result forecast for the year The net profit attributable to the shareholders of PAB for 2011 is expected to be RMB 2.3 billion. 6

7 According to the Asset Appraisal Report (China United Asset Appraisal [2010] No.697) provided by the China United Assets Appraisal Co., Ltd., the net profit forecast data ( forecast profit data ) of PAB by the PRC Generally Accepted Accounting Principles are RMB 2.3 billion for 2011, RMB billion for 2012, and RMB billion for The Company has entered into the Profit Forecast Compensation Agreement on September 14, Under the agreement, the Company shall provide pro forma net profit figure ( realized profit ) attributable to PAB shareholders for the period of three years (called the compensation period ) following the asset purchase through issuing shares, within 4 months after each year ends, according to the PRC Generally Accepted Accounting Principles, and ask the accounting firm engaged by the Company to provide special audit opinion ( Special Audit Opinion ) on such realized profit and the variance between the realized profit and the corresponding forecast profit. If the Special Audit Opinion believes that the actual profit is lower than corresponding forecast profit for any year during the compensation period, PAG shall compensate 90.75% of the said variance ( compensation amount ) in cash to the Company and pay such sum in full to the designated account of the Company within 20 business days after the special audit opinion is presented. V. Issuance price and pricing method The cut-off date for the pricing of this non-public offering is the resolution announcement date of the 27 th session of the 7 th Board of the Company. The issuance price is the average price over the 20 trading days prior to the cut-off date, and it is RMB per share. Before the settlement date, if the Company carries out an equity allocation, common reserves capitalizing or rights issue, which would lead to ex-dividend and ex-rights, the issuance price will be adjusted accordingly. The average trading price of the Company s shares over the 20 trading days prior to the date of the announcement of the Board resolution = total trading amount of the Company s shares over the 20 trading days prior to the date of the announcement of the Board resolution/total trading volume of the Company s shares over the 20 trading days prior to the date of the announcement of the Board resolution. VI. Gain/loss vesting during transition From the next day of the evaluation cut-off date to the completion date of share transfer, the Company will enjoy the gains accrued from the assets subscribed for while PAG bear the loss incurred thereby. VII. Share lock-up commitment 7

8 PAG and its related organizations shall not transfer all the SDB shares held in their names within 36 months from the date of the completion of this non-public offering. However, under the permission of the applicable laws, the transfer between PAG s related organizations (any direct or indirect controllers of PAG, or any direct or indirect companies controlled by PAG, or any PAG affiliated companies commonly controlled by other companies) are not subject to this limitation. After the expiration of the said duration, PAG can dispose such newly issued shares in accordance with the regulations of the CSRC and the SZSE. VIII. Application for exemption from the obligation of tender offer Before this transaction, PAG and its affiliated company hold around 29.99% of the Company s total shares. After this transaction, PAG and its affiliated company hold around 52.38% of the Company s total shares, which triggers the obligation of tender offer. According to Article 62 of the Administrative Rules for M&As of Listed Companies and upon the shareholders approval, PAG shall apply with the CSRC for the exemption from the obligation of tender offer. This transaction needs to be approved by the CSRC for exemption from PAG s obligation of tender offer arising from this transaction. IX. Related party transaction As at the date of signing this report, PAG and its affiliated company hold 29.99% of the Company s total shares. The purchase of PAG s assets by issuing shares constitutes the related party transaction. When the Company s board meeting approved this transaction, the related directors had withdrawn from voting, and the independent directors had provided the independent opinions; when the shareholders meeting approves this transaction, the related shareholders shall withdraw from voting. Ⅹ. Decline in short-term earnings per share and ROE Pro forma consolidated statements, as audited by the Audit Report (Ernst & Young Hua Ming [2010] No _H06), predict that after this material asset reorganization completes, the Company shall experience a slight decline in the earnings per share and the return on equity in the coming two years. Ⅺ. Short-term increase in related party transaction Upon completion of this transaction, PAB will become a subsidiary of the Company. Any ongoing transactions between PAB and PAG and the latter s other controlled subsidiaries will be related 8

9 party transactions between the Company and PAG. Therefore, there will be an increase in related party transaction between the Company and PAG and its other controlled subsidiaries. 9

10 Special Risk Reminder I. Approval risk This transaction falls into material asset reorganization of listed company, which will not be implemented until various transaction conditions are satisfied, including but not limited to the following terms: the approval from China Securities Regulatory Commission on the material asset reorganization of the Company through this transaction; the approval from CSRC on the material asset reorganization of PAG through this transaction; that CSRC has no dissent to the acquisition report of PAG and agrees to exempt PAG from the obligation of tender offer as a result of subscribing for shares of the Company through the non-public offering. The transaction proposal has obtained relevant approvals or ratifications. II. Risks related to asset purchase (I) Appraisal risk According to the asset appraisal report (China United Asset Appraisal [2010] No.697) provided by the China United Assets Appraisal, setting June 30, 2010 as the evaluation cut-off date, the book value of PAB is RMB 15,329,093,500, its appraisal value is RMB 29,080,475,600, with appreciation rate for the asset appraisal being 89.71%. This appraisal is based on going concern and open market, in combination with the actual situation of PAB, and considering various factors. This appraisal evaluates the PAB s assets by income method and market method, and the final assessed value is based on the result generated by the income method. If any changes in the macroeconomic environment such as the inflation rate and the expected monetary policy occur after the cut-off date of the asset evaluation, those changes will affect the profitability of PAB. If PAB s future profitability cannot reach the forecast profits stated in the Appraisal Report, there would be an overvaluation risk of the PAB s value with this transaction. (II) Profit forecast risk For this transaction, PAB has prepared the Profit Forecast Report, the Company has prepared Pro forma Consolidated Profit Forecast Report, and Ernst & Young has presented the Profit Forecast Audit Report (Ernst & Young Hua Ming [2010] No _B01) and the Special Audit Report (Ernst & Young Hua Ming [2010] No _H08). Based on the known situation and materials as at the date of signing the Profit Forecast Report, and reasonable evaluation and cautious assumption, the profit forecast predicts the performance in the period July 2010 to December 2010, and the year Over the period from July to December 2010, the operating profit of PAB has lived up to the expected level predicted in the above report. If any changes in the macroeconomic 10

11 environment such as the inflation rate and the expected monetary policy occur after relevant profit forecast report is presented, those changes will affect the profitability of the PAB. In the event of future changes in domestic and overseas macroeconomic policies and situations, the central bank s monetary policy changes and any material adverse changes to profit forecast assumptions, this transaction would contain the risk that the future profitability of PAB may not reach the said valuation level. III. Management risk (I) Risk brought about by the integration According to requirements by some authorities, SDB and PAB shall complete the integration within a certain period of time (hereafter referred as to Two Banks Integration ). This transaction is the part of two banks integration. In order to further implement two banks integration, based on the progress of this transaction and the consultation and approval of related authority departments, SDB may realize the two banks integration at the appropriate time taking approaches permitted by applicable laws, including but not limited to, having PAB merged into it. For a period of time in the future, SDB and PAB may integrate with each other in assets, business, personnel and other aspects. Since this integration will involve many aspects for both banks, the two banks need to make full use of both banks resources, which may bring inconveniences to the Company s daily business. Upon the completion of "two banks integration", the Company will undergo an increase in its scale, which will pose a new challenge to the business management of the Company and may impact its overall business performance. (II) Risk of control by substantial shareholders After the completion of this transaction, PAG and its affiliated companies will hold 52.38% of the Company s total shares and will absolutely control the Company. PAG can exert significant influences on the Company s personnel appointment and dismissal and management decisions through the board meeting and shareholders meeting. There is a probability that the interests of other shareholders and minority shareholders may be harmed. IV. Market risk (I) Macroeconomic risk China s economic development status, the monetary policy of PBOC, and the development of financial market largely influence the future performance of the assets that this transaction will acquire. Also, with the fast integration of global economy, domestic banks are facing operational risks brought by the integration of global economy. The change of international economic situation 11

12 may affect China through various channels, and such influence will further transmit to domestic banking industry. (II) Market competition risk The commercial banking business is the main business for PAB. With increasing competitions in the banking industry, it may adversely affect PAB s business, financial position, business performance and future development, and worsen its exposure to credit, liquidity, market and management risks, thus posing certain impact on the Company. V. Goodwill impairment risk Upon the completion of this transaction, a certain sum of goodwill will form in the consolidated balance sheet of SDB. Therefore, any deteriorating business performance of SDB and PAB in the future will subject the goodwill to the risk of impairment, adversely affecting the gains/loss of SDB in the current period, to which investors should pay heed. The Company hereby reminds investors of the risks. Please read Risk Factors Financial Accounting Information, Horizontal Competition and Related party Transaction in this report. 12

13 Definitions In this report, unless the context otherwise specifies, the following abbreviations and terms shall have the meanings set out below: The Company/SDB/Listed Company Shenzhen Development Bank Co., Ltd PAG Ping An Insurance (Group) Company of China, Ltd Target Company/PAB Ping An Bank Co., Ltd The Transaction/The Issuance/The material asset reorganization The Company issues shares to PAG through non-public offering, and PAG subscribes for the Company s shares by its own funds or consideration asset, by completely complying with the agreement, and all related practices and arrangements Issuance Price/The subscription price per share The average price over the 20 trading days prior to the date of first board resolution announcement for this transaction, i.e., RMB per share Final Price/Subscription consideration PAB s overall net asset value (all shareholders equities) by the evaluation cut-off date as confirmed by both parties based on the net asset value of PAB as of the evaluation cut-off date audited by the accounting firm with securities and futures qualifications and appraised by the appraisal organization, comprehensively considering PAB s profitability and growth factors. After confirmed by both parties, the final price is decided at RMB 29,080,475,600. Subscription asset As at the date of this report, PAG holds 13

14 consideration 7,825,181,106 shares of PAB, around 90.75% of PAB total shares. Consideration asset value Final price multiplies by the percentage of PAB shares held by PAG Subscription consideration cash Equal amount RMB cash of subscription consideration minus subscription asset consideration This report/ this report on the asset reorganization Shenzhen Development Bank Co., Ltd. Report on Asset Purchasing through Share Issuance and Related Party Transaction (Draft) Share Agreement Subscription Share Subscription Agreement between Ping An Insurance (Group) Company of China, Ltd. and Shenzhen Development Bank Co., Ltd. signed by SDB and PAG on September 1, Supplementary Agreement to Share Subscription Agreement Supplementary Agreement to Share Subscription Agreement between Ping An Insurance (Group) Company of China, Ltd and Shenzhen Development Bank Co., Ltd. signed by SDB and PAG on September 14, Profit Forecast Compensation Agreement Profit Forecast Compensation Agreement between Ping An Insurance (Group) Company of China, Ltd and Shenzhen Development Bank Co., Ltd. signed by SDB and PAG on September 14, Evaluation Cut-off date June 30,

15 Evaluation Report The Asset Appraisal Report (China United Asset Appraisal [2010] No.697) presented by the China United Assets Appraisal. Settlement Date Chapter 6 in this report I. The Contents of the Share Subscription Agreement/(III). Conditions/1. Obligation conditions for each party specifies that the 7 th working day after the last condition of all conditions has been satisfied (or reasonably waived), or other earlier date confirmed by both parties (but not earlier than the date on which all conditions have been satisfied or waived. The Company Law The Company Law of the People s Republic of China The Securities Law The Securities Law of the People s Republic of China The Reorganization Rules The Administrative Rules for Material Asset Reorganization of Listed Companies The Anti-monopoly Law The Anti-monopoly Law of People s Republic of China Articles of Association Articles of Association of Shenzhen Development Bank Co., Ltd PBOC People s Bank of China MoCom Ministry of Commerce of the PRC CSRC China Securities Regulatory Commission CBRC China Banking Regulatory Commission 15

16 CIRC China Insurance Regulatory Commission SZSE Shenzhen Stock Exchange SSE Shanghai Stock Exchange SEHK The Stock Exchange of Hong Kong Ltd. Independent Financial Adviser/CITIC Securities CITIC Securities Co., Ltd. Legal Adviser Haiwen & Partners CUAA /Appraiser China United Assets Appraisal Co., Ltd. Ernst & Young Hua Ming Ernst & Young Hua Ming Accounting Firm Ping An Life Insurance Ping An Life Insurance Company of China, Ltd. Ping An Trust China Ping An Trust & Investment Co., Ltd. Ping An Property Insurance Ping An Property & Casualty Insurance Company of China Ping An Asset Management Ping An Asset Management Co., Ltd. Ping An Asset Management HK Ping An of China Asset Management (Hong Kong) Ping An Annuity Insurance Ping An Annuity Insurance Company of China, Ltd. Ping An Health Insurance Ping An Health Insurance Co., Ltd. HSBC Holding HSBC Holding Plc. HSBC Insurance HSBC Insurance Holdings Ltd. 16

17 SZCB Shenzhen Commercial Bank Co., Ltd. HSBC The Hong Kong and Shanghai Banking Corporation Limited NEWBRIDGE NEWBRIDGE ASIA AIV III, L.P. New Horse Investment Linzhi New Horse Investment Development Co., Ltd. Jingao Industrial Linzhi Jingao Industrial Development Co., Ltd. A share RMB common stock, issued in mainland China, listed on the Shanghai or Shenzhen Stock Exchange, subscribed and traded in RMB H share Foreign shares listed on foreign exchange, issued outside mainland China, listed on the Hong Kong Stock Exchange, subscribed and traded in Hong Kong dollars Yuan RMB yuan Any discrepancies between totals and sums of the amounts listed in the report are due to rounding. 17

18 Contents Contents...18 Chapter 1 Transaction Overview...21 I. The Background and Purposes of this Transaction...21 II. The Fundamental Principles of this Transaction...23 III. The Basic Information about this Transaction...23 IV. The Brief Introduction to the Transaction Proposal Contents...25 V. This transaction constitutes the material asset reorganization...27 VI. This transaction constitutes related party transaction...27 VII. The core asset evaluation and appreciation of this target company...28 Chapter 2 The Listed Company Profile...29 I. Company Profile...29 II. The History of the Company...29 III. Particulars about the changes in share capital and material asset reorganization...35 IV. Prime Business of SDB...36 V. Financial standing in the latest three years...36 VI. Major shareholders details of SDB...38 Chapter 3 Introduction of Transaction Counterparty...40 I. Basic information about counterparty...40 II. Historical development of this transaction s counterparty...41 III. Registered capital change of this transaction s counterparty in recent three years...43 IV. Asset controlling relationship with its controlling shareholders and actual controller...43 V. The major business development and financial data of recent three years...46 VI. About main subsidiaries of PAG...49 VII. About the relation between PAG and the listed company...51 VIII. About directors and senior management recommended by PAG and its related party to the listed company...51 IX. Administrative penalties, criminal penalties, or significant civil litigation or arbitration related to economic dispute in recent five years...53 X. Statements and commitments of PAG...53 Chapter 4 Object of This Transaction...54 I. Basic information about the objec...54 II. Particulars about the business development of the target company...79 III. The Evaluation of the target Company...91 IV. The Influence of Major accounting policy or accounting evaluation variance or change on PAB s profit Chapter 5 Share Issuance I. Related matters of this issuance II. Changes of share capitals before and after this transaction III. Comparison of main financial data before and after this transaction

19 Chapter 6 Main Content of Transaction-related Agreement I. Main Content of Share Subscription Agreement II. Main Content of Supplementary Agreement to Share Subscription Agreement III. Main Content of Profit Forecast Compensation Agreement Chapter 7 Compliance Analysis of the Transaction I. Compliance with Article 10 of the Restructuring Measures II. Compliance with Article 41 of the Restructuring Measures with respect to Assets Purchase via Share Issuance III. This transaction complies with relevant provisions of the Regulations on the Acquisition of Listed Companies Chapter 8 The Basis for the Transaction Pricing and Fairness, Rationalization Analysis I. The rationalization analysis of the share issuing pricing II. Fairness analysis for the final pricing of the underlying assets III. The explanation for the asset transaction evaluation by board of directors IV. The opinions of the independent directors for the asset transaction evaluation Chapter 9 Management Discussion and Analysis I. Discussion and analysis for the industry characteristics and operation status of the target company II. Discussion and analysis of the financial status and operating results of the Company before the deal.144 III. The analysis on financial situation, profitability and future tendency after completion of the transaction Chapter 10 Risk Factor I. Risk of approval II. Relative risk of asset to be purchased III. Market risk IV. Management risk Chapter 11 Financial & Accounting Information I. Financial statement of PAB II. Pro forma financial statement of SDB III. Profit forecast Chapter 12 Horizontal competition and Related-party Transactions I. Horizontal competition before this transaction II. Relevant measures to avoid horizontal competition III. Related-party transactions before this transaction IV. Related-party transactions in this transaction V. Related-party transactions after this transaction VI. Measures governing related-party transactions Chapter 13 Impact of this Transaction on Corporate Governance Structure I. Proposed measures by the Company to improve corporate governance structure after the completion of this transaction

20 II. PAG s commitment on guaranteeing the Company s independence Chapter 14 Other Significant Items I. Self-inspection on share trading II. Impact of this transaction on the Company s asset and liability III. Transaction behaviors relevant to this transaction during the past 12 months Chapter 15 Opinions of Company and Intermediary on this Transaction I. Independent Directors Opinion on Purchase of Assets through Issuing Shares and Related Party Transaction II. Independent Financial Advisor s Opinion on Purchase of Assets through Issuing Shares and Related Party Transaction III. Legal Advisor s Opinion on Purchase of Assets through Issuing Shares and Related Party Transaction Chapter 16 Related Parties to this Transaction I. Independent Financial Advisor II. Legal Counsel III. Financial Auditor IV. Asset Appraiser V. Independent Financial Counsel Chapter 17 Statements by All Directors and Agents Chapter 18 References and Methods to Access Reference Documents I. Reference Documents II. Methods to Access Reference Document

21 Chapter 1 Transaction Overview I. The Background and Purposes of this Transaction (I) The background of this transaction In May 2010, PAG issued 299,088,758 H shares to Newbridge as the consideration, and swapped 520,414,439 SDB s A shares from Newbridge. In June 2010, Ping An Life Insurance subscribed for 379,580,000 A shares from the non-public offering by SDB. As at the date of signing the Report, PAG and its controlled subsidiary (Ping An Life Insurance) totally hold 1,045,322,687 shares of the Company, around 29.99% of the latter s total shares. In addition, PAG holds 7,825,181,106 shares of PAB, around 90.75% of PAB s total shares, and is the controlling shareholder of PAB. According to the requirements of Reply of China Banking Regulatory Commission on SDB Share Transfer and Related Shareholder Qualification (CBRC Approval [2010] No.147), in order to ensure the fairness of horizontal competition, the Company shall complete the integration with PAB within one year after PAG has acquired the said SDB s shares controlled by Newbridge and Ping An Life Insurance has subscribed for the said shares issued by the Company through non-public offering. In order to meet the said requirements by the CBRC, the Company announced the Announcement on Shenzhen Development Bank Co., Ltd. Material Asset Reorganization and Continuous Trading Suspension and Shenzhen Development Bank Co., Ltd. Asset Purchasing through Share Issuance and Related Party Transaction Reorganization Draft on June 30, 2010 and September 2, 2010, respectively. According to the said announcements, the Company plans to issue shares to purchase 90.75% of PAB s shares held by PAG, and raise cash with an amount equivalent to 9.25% of PAB shares for follow-up integration matters after relevant issuance expenses are deducted, and any amount not used or any remainders will be added to the capital of the Company. (II) The purposes of this transaction 1. Meet the regulatory requirements, and settle the horizontal competition In order to avoid potential horizontal competition, and meet the requirement of regulatory document (CBRC Approval [2010] No.147) issued by CBRC, the Company and PAG will strictly comply with the relevant laws and regulations and regulations, and launch the integration with PAB as soon as possible. The Company and PAG will also fulfill the necessary internal decision-making 21

22 procedures and submit to regulatory approval, and try to complete the integration of SDB with PAB within one year. Through the transaction, the potential horizontal competition will be completely settled. 2. Give play to synergy The Company boasts the advantages in trade financing and supply chain financing, while PAB is committed to retail business and cross-selling to the customer base of PAG. Through this transaction, the two banks can complement each other s advantages and give full play to the synergy effect. Also, both parties can complement each other s advantages in customer and outlet distribution. As on December 31, 2010, the Company has branches in 21 cities and PAB in 9 cities nationwide. Two banks outlets are overlapped in four cities, including Shenzhen, Shanghai, Guangzhou and Hangzhou. PAB s current outlet distribution will further strengthen and complement the Company s outlet distribution and competitive advantages in these four cities. In addition, PAB s branches in three cities (Fuzhou, Xiamen and Quanzhou) in Fujian Province will fill the Company s outlet gap in Fujian Province. The Company s outlet distribution will thus be further optimized. Furthermore, the Company s 304 outlets are mainly distributed in the first-tier and second-tier cities nationwide where PAG s insurance business has strong presence. The regional overlaps between the banking and insurance businesses will tap more potentials and higher efficiency out of the synergy. In addition, the two banks IT systems, credit cards and ATM resources will realize integration through this transaction. 3. Improve comprehensive competitiveness After the transaction has been completed, the total assets of the Company will increase sharply, capital adequacy ratio will be further improved, and the domestic outlet distribution will be obviously expanded in terms of both in depth and in breadth. Therefore, the Company s risk-resistance capability and sustainable development capability will be significantly improved. The core contents of this transaction are that PAG injects its banking business into the Company and becomes the controlling shareholder of the Company. After this transaction is completed, the Company s banking business and outlet distribution, combined with PAG s strong customer base and capabilities in providing diversified financial products and services, will build more effective cross-selling capability for the Company. The Company s banking business market share and profitability are expected to be improved sharply. 22

23 Through the transaction, the Company will be better integrated to PAG s leading one-stop financial service platform, realize centralized business management, and consolidate its comprehensive competitiveness through continuously improving customer experience and providing wider-range financial services. II. The Fundamental Principles of this Transaction 1. Comply with relevant national laws, regulations and policies. 2. Adhere to Justice, Fairness, and Openness, and the principle of good faith and consensus. 3. Protect the interests of all shareholders of the listed company, in particular, the interests of minority shareholders. 4. Benefit Company s long-term healthy development, and improve the listed company s performance. 5. Further improve corporate governance of the listed company, insist on the independency of the listed company from its controlling shareholders in aspects of personnel, assets, finance, organization and business operations. 6. Conform to the overall development strategy and management guideline of the listed company, and maximize the benefits of the listed company. III. The Basic Information about this Transaction (I) The approval procedures for this transaction that have been fulfilled 1. The internal decision-making procedures for this transaction that the Company has completed The 27 th session of the 7 th Board of the Company reviewed and approved the material asset reorganization proposal. The independent directors presented independent opinions, and related directors had abstained from voting. The 29 th session of the 7 th Board of the Company reviewed and approved proposals related to the transaction. When reviewing the proposals, related directors withdraw from voting And the independent directors made prior recognition for the proposals and presented independent opinions. The first EGM 2010 held by the Company on September 30, 2010 scrutinized and approved the Proposal on Shenzhen Development Bank Co., Ltd. Issuing Shares and Purchasing Assets as well as other proposals related to this transaction. 2. The internal decision-making procedures for the transaction that PAG has completed 23

24 PAG convened the 8 th session of the 8 th Board. The meeting discussed and passed the proposals related to the transaction. When reviewing the proposals, related directors had withdrawn from voting And the independent directors made prior recognition for the proposals and presented independent opinions. The 10 th session of the 8 th Board of PAG reviewed and passed proposals related to the transaction. When reviewing the proposals, related directors had withdrawn from voting and the independent directors made prior recognition for the proposals and presented independent opinions. The first EGM 2010 held by PAG on November 1, 2010 scrutinized and ratified the Proposal on PAG s Material Asset Purchase, Related Party Transactions and Other Matters as well as proposals connected to this transaction. 3. The internal decision-making procedures for the transaction that PAB has completed PAB convened the 16 th session of the 5 th Board. The meeting discussed and passed the Proposal on SDB Becoming the Shareholder of PAB and Owning over 5% of PAB Total Shares, and agreed that SDB becomes PAB shareholder and owns over 5% of PAB s total shares as a result of this transaction. 4. The transaction has been approved by CBRC On January 18, 2011, the Company received the Approval of China Banking Regulatory Commission on the Material Transaction and the Related Items Between Shenzhen Development Bank and Ping An Bank (CBRC Approval [2011] No. 9) issued by CBRC, which has approved this transaction. 5. The transaction has been approved by CSRC On June 28, 2011, the Company received the Approval on Examining Shenzhen Development Bank Co., Ltd. Issuing Shares to and Purchasing Assets from Ping An Insurance (Group) Company of China, Ltd (CSRC Approval [2011] No.1022) issued by CSRC, which approves that the Company issues 1,638,336,654 shares to PAG and purchases 7,825,181,106 shares of PAB held by PAG (making up about 90.75% of total shares of PAB). And the Company raises RMB 2,690,052,300 to PAG (hereinafter referred to as this transaction ). This Approval will be in effect for 12 months as of this approval date. On June 28, 2011, PAG received the Approval on the PAG Announcement of the Acquisition Report of Shenzhen Development Bank Co., Ltd. and Exempting PAG from the Obligation of Tender Offer (CSRC Approval [2011] No. 1023), which approves to exempt PAG from the tender offer obligation involved in this transaction, and holds no difference about this acquisition report. And PAG 24

25 received the Approval on the Proposal on the Material Asset Reorganization of Ping An Insurance (Group) Company of China, Ltd (CSRC Approval [2011] No. 1024), which ratifies the matters related to the material asset reorganization as a result of this transaction. IV. The Brief Introduction to the Transaction Proposal Contents The transaction is that PAG uses its held 90.75% PAB shares and some cash to purchase the Company s shares through non-public offering. The main contents of the transaction proposal are as follows: (I) The type and par value of subscribed shares The shares issued by the Company through non-public offering is RMB ordinary share (A share), the par value is RMB 1.00 per share. (II) Method of share issuance The share issuance is non-public offering by the Company to PAG. (III) Pricing cut-off date and issuance price The pricing cut-off date for the transaction through the Company s non-public offering to PAG is the announcement date of the resolutions of the first board meeting of the Company as to this transaction. The issuance price is the average trading price of the Company s stocks over the 20 trading days prior to the pricing cut-off date, i.e., RMB per share. Before the settlement date, if the Company carries out an equity allocation, common reserves capitalizing or rights issue, which would lead to ex-dividend and ex-rights, the said issuance price will be adjusted correspondingly according to the ex-rights (dividend) reference price in Clause of Shenzhen Stock Exchange Trading Rules. Under such a circumstance, both parties should quickly sign a letter of confirmation on the revised per share price not later than the settlement date to confirm the said revised per share price. (IV) Subscription consideration The subscription consideration of PAG paid to the Company consists of two parts: (1) subscription asset consideration, i.e. the 7,825,181,106 shares of PAB held by PAG (approximately 90.75% of the total equity of PAB); and (2) cash consideration, namely cash in RMB terms equal to the amount of total subscription price minus asset consideration. 25

26 The final price of PAB confirmed by both parties RMB 29,080,475,600, of which asset consideration is RMB 26,390,423,300 and cash consideration is RMB 2,690,052,300. (V) Subscription volume According to the asset consideration, cash consideration and issuance price, PAG proposes to subscribe 1,638,336,654 shares of the Company through non-public offering. (VI) Evaluation cut-off date The evaluation cut-off date of this transaction is June 30, (VII) The vesting of gain/loss generated in the period of asset consideration Between the period from the next day of evaluation cut-off date to the date when shares transfer to the Company s account has been completed, the profit generated by the asset consideration shall be owned by the Company whereas the loss shall be borne by PAG. (VIII) Share lock-up period PAG and its affiliated companies shall not transfer all the shares of SDB held in the name of PAG and its affiliated institutions within thirty-six (36) months from the date of the completion of this non-public offering. However, under the permission of applicable laws, share transfers between PAG s affiliated institutions (i.e. any entity/ person which directly or indirectly control PAG, or entity/ person which are directly or indirectly controlled by PAG, or any entity/ person and PAG which are collectively controlled by other companies) are not subject to this limitation. After the expiration of the aforesaid duration, PAG can dispose such newly-issued shares in accordance with the regulations of the CSRC and SZSE. (IX) Investment direction of the funds raised PAG proposes to use cash to subscribe part of the shares in this non-public offering. Based on the final pricing of PAB, the Company can raise RMB 2,690,052,300 from this transaction. After deduction of relevant issuance expense, the funds raised will be used for the Company s follow-up integration with PAB. The funds, if not used for the integration matters or not used up, will be injected into the Company s capital. 26

27 (X) Disposal plan for the Company s retained and undistributed profit Report on Asset Purchasing via Share Issuance and Related Party Transaction After the completion of this transaction, all shareholders of the Company (including PAG) will share the retained and undistributed profit before this issuance on a pro rate basis based on their shareholding percentage. (XI) Profit compensation arrangement The Company shall prepare pro forma net profit annually for the 3 years following the implementation of this asset purchase deal in the 4 months after the end of the fiscal year in accordance with the PRC GAAP, and ask the accounting firm hired by the Company to provide special audit opinion on such realized profit and the variance between the realized profit and forecasted profit. If the Special Audit Opinion believes that the actual profit is lower than the forecasted profit in any year within the compensation period, PAG shall compensate SDB in cash equal to 90.75% of the variance between the actual profit and forecasted profit. PAG shall pay up the amount to the bank account designated by SDB within 20 business days after the presentation of the special audit opinion. (XII) The validity period of the resolution for this transaction The resolution of the general shareholders meeting shall remain valid for 12 months from the date of approval by the Company s shareholders meeting. V. This transaction constitutes the material asset reorganization The final price for acquiring the target company (100% shares of PAB) that the Company intends to purchase through issuing shares is RMB 29,080,475,600, around % of the Company s net asset as at December 31, According to the Reorganization Rules, this transaction will constitute material asset reorganization. In addition, this transaction involves asset purchase by issuing shares, which shall be submitted to the M&A and Reorganization Review Committee for approval. The transaction shall not be implemented until it has been approved by the CSRC. VI. This transaction constitutes related party transaction PAG and its controlled subsidiary Ping An Life Insurance totally hold 29.99% of the Company s shares. Among them, PAG directly holds 521,470,862 shares of the Company, around 14.96% of the Company s total shares, and Ping An Life Insurance holds 523,851,825 shares, around 15.03% of the Company s total shares. Therefore, PAG is the related party of the Company. This transaction 27

28 constitutes a related party transaction. VII. The core asset evaluation and appreciation of this target company According to the Asset Appraisal Report (China United Assets Appraisal [2010] No. 697) provided by the China United Assets Appraisal, setting June 30, 2010 as evaluation cut-off date, the book value of PAB is RMB 15,329,093,500, appraisal value is RMB 29,080,475,600, and appreciation rate for asset appraisal is 89.71%. 28

29 Chapter 2 The Listed Company Profile I. Company Profile Legal Name in Chinese: Legal Name in English: 深 圳 发 展 银 行 股 份 有 限 公 司 Shenzhen Development Bank Co., Ltd. Date of Establishment: December 22, 1987 Stock Exchange Listed with: Shenzhen Stock Exchange Abbreviated Name of Share: SDB A Stock Code: Legal Representative: Xiao Suining Registered Capital: RMB 3,485,013,762 Paid-up Capital: RMB 3,485,013,762 Business Number: Registration Tax Registration Numbers: National tax: Local tax: Company Address: No.5047 Shennan Road East, Luohu District, Shenzhen City Office Address: SDB Tower, No.5047 Shennan Road East, Shenzhen City, Guangdong Province Post code: Contact: Tel: (0755) Fax: (0755) Contact: Xu Jin Web: dsh@sdb.com.cn II. The History of the Company (I) Company s establishment 29