SHANGHAI ELECTRIC GROUP COMPANY LIMITED 上海电气集团股份有限公司

SHANGHAI ELECTRIC GROUP COMPANY LIMITED上海電氣集團股份有限公司(A joint stock limited company incorporated in the People’s Republic of China with limited liability)(Stock code: 2727)ANNOUNCEMENTThis announcement is made pursuant to Rule 13.09 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Ltd.The board of directors (the Board) of Shanghai Electric Group Company Limited (the Company) announces that the Company is in the process of negotiating certain cooperative arrangements with Shanghai Automotive Industry Corporation (Group) (the SAIC) concerning Shanghai Diesel Engine Co., Ltd (the Shanghai Diesel), a company in which the Company has 50.32% equity interest whose A shares are listed on the Shanghai Stock Exchange.Pursuant to the above said arrangements, the Company may dispose of its entire equity interest in Shanghai Diesel to SAIC or the subsidiaries of SAIC. The consideration in respect of such intended disposal will, subject to the relevant laws and regulations, be determined based on the net assets of Shanghai Diesel, taking into account various factors such as the returns on equity and price-earnings ratio.In order to protect the interests of the investors and potential investors of Shanghai Diesel, trading in A shares and B shares of Shanghai Diesel has been suspended from 10 August 2007 and will continue to be suspended pending the release of an announcement regarding the outcome of the negotiation between the Company and SAIC. Investors and potential investors are cautioned that as at the date of this announcement, no agreement has been entered into in respect of the intended disposal and there is no assurance that the intended disposal will proceed. Investors, and potential investors, are advised to exercise caution in dealing in the H shares of the Company. Further announcement will be released immediately should there be any relevant update.By Order of the BoardShanghai Electric Group CompanyLimitedXu JianguoChairmanShanghai, the PRC, 30 August 2007As at the date of this Announcement, the executive Directors of the Company are, Mr. XU Jianguo, Mr. CHEN Longxing, Mr. HUANG Dinan, Mr. WANG Qiang, Ms. LI Manping, Mr. YU Yingui, the non-executive Directors of the Company are Mr. ZHU Kelin, Mr. YAO Qun,Mr. LIN Haitao, Mr. SHEN Maosong, and the independent non-executive Directors of the Company are Dr. YAO Fusheng, Dr. CHEUNG Wai Bun and Mr. LEI Huai Chin.Th e S tock Exch ange of Hong Kong Limited t akes no res ponsibility for t he contents of this ann ouncement, makes no rep r esentation as to its accura cy or com p leteness and expressly disclaims any l iability w hatsoever for any loss howsoever arising f r o m o r i n r eliance upon the whole or any pa rt of the c on ten t s o f t his ann ouncement.This announcement is not an offer to sell securities nor is it a solicitation of an offer to buy securities in any jurisdiction.SHANGHAI ELECTRIC GROUP COMPANY LIMITED上海電氣集團股份有限公司(A joint stock limited company incorporated in the People’s Republic of China with limited liability)(Stock code: 2727)ANNOUNCEMENT(1) PROPOSED A SHARE ISSUE AND(2) POSSIBLE DISCLOSEABLE TRANSACTION AND(3) RESUMPTION OF TRADINGPROP OSED A S HARE ISSUEThe Board is pleased to announce t hat a t a meeting of t he Board held on 30 August 2007, it was resolved that,sub ject to Shareholders’ approval, the Company will apply to the relevant regulatory authorities for the allotment and issue of 616,038,405 A Shares by way of a share exchange through an initial public offering of A Shares to implement the Merger Proposal. The Company will also apply to the Shanghai Stock Exchange for the listing of such A Shares. The A Share Issue is subject to(i) approval from Shareholders a t t he EGM as required under the PRC laws and regulations;(ii) approvals from the CSRC and other relevant approval authorities; and (iii) approval from the Shanghai Power Transmission Minority Shareholders.MERGER PROPOSALAs part of the A Share Issue and pursuant to the relevant PRC laws and regulations, the Board is pleased to announce that on 30 August 2007, the Board and the Shanghai Power Transmission Board resolved to approve, in principle, the Merger Proposal, subject to satisfaction of certain conditions including, among others, Shareholders’approval and successful completion of the A Share Issue.As the highest applicable percentage ratio in respect of the Merger Proposal exceeds 5% but falls below 25%, the Merger Proposal, if implemented, will constitute a discloseable transaction as defined under the Hong Kong Listing Rules. DESPATCH OF CIRCULARA. PROPOSED A SHARE ISSUE1.GeneralThe Board is pleased to announce that at a meeting of t he Board held on 30 August 2007,it was resolved that the Company will apply t o t he relevant regulatory au t horities for an initial public offering of A Shares for t he allotment and issue of 616,038,405 A Shares to implement the Merger Proposal by way of a share exchange.Such A Shares are proposed to be listed on the Shanghai S t ock Exchange.It is expected that the minority shareholders of Shanghai Power Transmission as at the time of the A Share Issue, being the potential investors of such A Shares,w ill not include connected persons of the Company. If any suchi nvestors include connected persons of the Company,the Company will take steps t ocomply with the relevant requirements under t he Hong Kong Listing Rules.A t present,t he H Shares of t he Company are listed on the main board of the Hong Kong Stock Exchange.2. Structure of the A Share IssueA SharesType of securities t obe issued:Number of A Shares:616,038,405 A Shares.Nominal valu e: RMB1.00eachRights attached to A Shares: The A Shares to be issued are l isted Domestic Shares and,except as otherw i se provided for i n t he relevant laws,administrative regulations,departmen tal rules and other regulatory documents and t he Articles, holders of such A Shares will be entitled to the same rights as t he existing shareholders of Domestic Shares and H Shares in all respects.Target subscribers:Shareholders of Shanghai Power Transmission, otherthan the Company; in the event that such minorityshareholders refuse to receive the A Shares, in wholeor in part, the Cash Alternative Provider.Methods of i ssue:The A Share Issue will be implemented for thepurpose of an absorption merger, details of which areset out in the paragraph headed “B. Merger Proposal”below.Basis for determining the i ssue price:Details of the basis for determining the issue price is set out in the paragraph headed “B Merger Proposal –5. Exchange Ratio”3. Shareholders’ approval and other approvalsAt the annual general meeting of the Company held on 29 June2007, the Shareholders granted, by way of a special resolution, a general mandate to the Board to separately or concurrently issue, allot and deal with additional Domestic Shares and H Shares in the Company not exceeding 20% of each of its existing Domestic Shares and H Shares of the Company in issue as at the date of the special resolution. To date, the Company has not issued any Shares under the above general mandate. The A Share Issue will be implemented by the Company pursuant to the general mandate.The A Share Issue is subject to approval by Shareholders by way of special resolutions at the EGM as stipulated by the relevant PRC laws, the rules of the CSRC and the Articles. The EGM, as required under the relevant rules of the CSRC, will be held in due course to consider and, if thought fit, the A Share Issue, including the Merger Proposal, and to authorize the Board to determine and deal with at its discretion, matters relating to the A Share Issue (including but not limited to the Merger Proposal, specific timing of the issue and other matters relating to the A Share Issue and the listing of A Shares).It should be noted that the A Share Issue, upon approval by Shareholders by way of special resolution at the EGM, is still subject to approvals by the CSRC, the Shanghai Power Transmission Minority Shareholders, and other relevant regulatory authorities, if necessary. In addition, the approval by the Shanghai Stock Exchange as to the listing of and dealings in the A Shares on the Shanghai Stock Exchange is also required. The approval in respect of the A Share Issue, if obtained from Shareholders at the EGM, shall be effective for a period of 12 months from the date on which such approval is obtained under the relevant PRC laws and regulations.4. Effect of the A Share Issue on the Company’s shareholding structureSet out below is the shareholding structure of the Company as at the date of this announcement and immediately upon completion of the A Share Issue assumingthat an aggregate of 616,038,405 A Shares will be issued under the A Share Issue and no other changes to the share capital of the Company.As at the dateof thisan nouncement Immediately aftercompletion of theA Share IssuePublic Floatafter thecompletion ofthe A ShareIssueNumber o f S hares PercentageNumber o f S haresPercentage（1）D omesticS h a res8,918,736,00075%--(2)A Shares --9,534,774,40576.23%-A Shares subjectto lock-uprestrictions (whichwill not constitutepart of the publicfloat)*--8,918,736,00071.31%- A Shares notsubject to lock-uprestrictions (whichwill constitute partof the public float)*-- 616,038,405 4.92% 4.92%(3) H Shares2,972,912,00025%2,972,912,00023.77%Public float of HShares*2,824,266,40023.75%2,824,266,40022.58%22.58%Non-public floatof H Shares*148,645,600 1.25%148,645,600 1.19%Total Numberof Shares11,891,648,000100% 12,507,686,405100%27.50% Details of the lock-up restrictions will be announced in due course once available.* assuming successful completion of the A Share Issue, including the Merger Proposal.However, investors are cautioned that the A Share Issue is subject to (i) approval from Shareholders at the EGM; (ii) approval of the Merger Proposal by the Shanghai Power Transmission Minority Shareholders; and (iii) approvals from the CSRC and other relevant approval authorities.B. MERGER PROPOSAL1. IntroductionShanghai Power Transmission Shares are listed on the Shanghai Stock Exchange under stock code 600627. The Company is the controlling shareholder of Shanghai Power Transmission, and currently owns 83.75% of the entire issued share capital of Shanghai Power Transmission. The implementation of the Merger Proposal will involve the issue of A Shares by the Company, details of which are set out above, at the Exchange Ratio to the Shanghai Power Transmission Minority Shareholders.The Exchange Ratio has been determined as 7.32A Shares for one Shanghai Power Transmission Share. The Merger Proposal will be accompanied by a Cash Alternative to the Shanghai Power Transmission Minority Shareholders who elect not to receive in whole or in part their entitled A Shares at RMB28.05per Shanghai Power Transmission Share. The Exchange Ratio and the Cash Alternative are subject to the Merger Proposal and the A Share Issue becoming unconditional.Upon successful implementation of the Merger Proposal, the Shanghai Power Transmission Shares held by Shanghai Power Transmission Minority Shareholders will be converted into A Shares of the Company, the remaining Shanghai Power Transmission Shares will be cancelled, as a result of which, Shanghai Power Transmission will cease to be a separate legal entity and the assets and liabilities of Shanghai Power Transmission will be vested in the Company.As the highest applicable ratio of the Proposed Merger exceeds 5% but falls below 25%, the Merger Proposal, if implemented, will constitute a discloseable transaction of the Company under the Hong Kong Listing Rules.2. Key Terms of the Merger ProposalParties: The Company and Shanghai Power TransmissionDate of the Merger Proposal Shanghai Power Transmission Board and the Board approved the principal terms of the Merger Proposal on 30 August 2007, subject to certain conditions including, among others, the signing of the merger agreement.Consideration 7.32 A Shares will be issued by the Company pursuant to the A Share Issue in exchange for one Shanghai Power TransmissionShare held by Shanghai Power Transmission MinorityShareholders who elect to receive in whole or in part the A Shares.Conditions Precedent The Merger Proposal is conditional upon, including but without limitation:1.approval by way of special resolution by the Shareholders atthe EGM (for the purpose of the EGM, no shareholders are required to abstain from voting to approve the resolution in respect of the Merger Proposal)2.approval by way of special resolution of Shanghai PowerTransmission Minority Shareholders attending and voting at such shareholders’ meeting of Shanghai Power Transmission3.the successful completion of A Share Issue4.the requisite consents and approvals having been obtained fromthe relevant governmental and regulatory authorities in the PRC5.the parties entering into a merger agreement to record the keyterms of the Merger Proposal3. The Cash AlternativeThe Merger Proposal is accompanied by the Cash Alternative to Shanghai Power Transmission Minority Shareholders, who elect not to receive A Shares in whole or in part, at RMB28.05 per Shanghai Power Transmission Share. The Cash Alternative will be made available by the Cash Alternative Provider. The Cash Alternative Provider is an independent third party or a group of independent third parties, who is independent of the Group and its connected persons (as defined under the Hong Kong Listing Rules), and is not itself a connected person of the Company.The Cash Alternative Provider will, subject to written arrangements between the Company and Cash Alternative Provider, pay the Cash Alternative amount to Shanghai Power Transmission Minority Shareholders who elect not to receive A Shares in whole or in part in return for the Shanghai Power Transmission Shares held by such holders. The Cash Alternative Provider will then exchange such shares for the A Shares at the Exchange Ratio.On the assumption that all Shanghai Power Transmission Minority Shareholders elect to receive the Cash Alternative, (i) a maximum of 616,038,405 A Shares, representing 4.92% of the enlarged issued share capital of the Company upon the listing of the A Shares, will be held by the Cash Alternative Provider; and (ii) the Cash Alternative Provider will commit a maximum of approximately RMB2.36 billion.4. Effect of the Merger ProposalUpon successful implementation of the Merger Proposal, the Shanghai Power Transmission Shares held by Shanghai Power Transmission Minority Shareholders will be converted into A Shares of the Company, the remaining Shanghai Power Transmission Shares will be cancelled, as a result of which, Shanghai Power Transmission will cease to be a separate legal entity and the assets and liabilities of Shanghai Power Transmission will be vested in the Company.For details of the shareholding structure of the Company upon successful implementation of the Merger Proposal, please refer to paragraph headed “A. Proposed A Share Issue - 4. Effect of the A Share Issue on the Company’s shareholding structure”.5. The Exchange RatioThe Exchange Ratio, which has been rounded down to two decimal places, is determined based on the followings.(i) The per share price of the Shanghai Power Transmission Shares isRMB28.05, which is the closing price per Shanghai Power Transmission Share as at 8 August 2007, being the last day prior to the suspension of trading of the Shanghai Power Transmission Shares on the Shanghai Stock Exchange. Taking into account the risks arising out of the share price fluctuation and the compensation made in connection with relevant risk exposure, the MergerProposal offers a 24.78% premium to the Shanghai Power Transmission Minority Shareholders who elect to receive, in whole or in part, their entitled A Shares.(ii) The issue price of the A Shares of RMB4.78 is determined based on the earnings per share of RMB 0.1723 in 2006 and the reasonable P/E ratio of A Shares Issue, representing 27.74x of the P/E ratio prior to the A Share Issue, and 29.18x of the P/E ratio of the year 2006 on a fully diluted basis upon the completion of the A Share Issue.The Exchange Ratio, the premium as well as the issuance P/E ratio, was determined based on arm’s length negotiations by the Directors, having made due and reasonable inquiries and taking into account various principal considerations and factors.C. INFORMATION ON SHANGHAI POWER TRANSMISSIONBusiness of Shanghai Power TransmissionShanghai Power Transmission was incorporated in May 1992 in the PRC and was listed on the Shanghai Stock Exchange on 8 January 1993, trading under the stock code 600627. Shanghai Power Transmission specializes in manufacturing of power transmission and distribution equipment and high voltage and low voltage electric apparatus. The unaudited net asset value of Shanghai Power Transmission as at 30 June 2007 under the PRC GAAP extracted from its interim report is RMB2,169,747,502, including the minority interests.The number of Shanghai Power Transmission Shares in issue is 517,965,452 as at the date of this announcement and the Company currently owns 433,807,200 Shanghai Power Transmission Shares, representing approximately 83.75% of the entire issued share capital in Shanghai Power Transmission as at the date of this announcement. Key financial information of Shanghai Power TransmissionA summary of the audited consolidated results and net asset value of the Shanghai Power Transmission under the PRC GAAP for each of the two years ended 31 December 2005 and 31 December 2006 is set out below:For the year ended 31 December2005 RMB’0002006 RMB’000Turnover 1,812,7482,291,594 Operating profit/(loss) (1,116)(23,807) Profit before tax 440,094553,416 Profit after tax 428,927549,325 Profit after tax attributable to Shareholders 429,323549,929 Net asset value (after deducting minorityinterests)1,499,7621,915,744Net asset value attributable to Shanghai PowerTransmission Minority Shareholders5,604 5,000 Earnings per share (RMB Yuan) 0.83 1.06 Net asset per share (RMB Yuan) 2.90 3.70The above financial information is extracted from the financial statements set out in the Shanghai Power Transmission 2006 annual report, which had been audited and prepared in accordance with the PRC GAAP.D. INFORMATION ON THE COMPANYThe Company is a company incorporated in the PRC in March 2004, whose shares were listed on the Main Board of the Hong Kong Stock Exchange on 28 April 2005 under the stock code 2727. The Company is principally engaged in the design, manufacture, sale and servicing of a wide range of products and services in the power equipment, electromechanical equipment, transportation equipment and environmental systems industries. As at the date of this announcement, Shanghai Electric (Group) Corporation, a state-owned company established under the laws of the PRC, directly and indirectly owns62.30% of the Company.E. REASONS FOR AND BENEFITS OF THE A SHARE ISSUE AND THE MERGER PROPOSALThe Company believes that the A Share Issue will establish a new financing platform for the Company over the long run and therefore the Merger Proposal, being part of the A Share Issue, is in the best interest of the Company and its Shareholders. Furthermore, the Directors, including the independent non-executive directors, are of the view that the Exchange Ratio and the Cash Alternative have been determined after due and careful inquiries and are fair and reasonable and in the interest of the Shareholders as a whole as far as the Shareholders of the Company are concerned.F. CIRCULAR AND NOTICE OF EGMA board meeting of the Company will be held to approve, inter alia, the signing of a merger agreement incorporating the principal terms as disclosed in this announcement as soon as practicable, immediately following which, a circular containing, among other things, details of the A Share Issue, including the Merger Proposal, and notice to Shareholders convening the EGM for approving, among others, the A Share Issue will be despatched to Shareholders as soon as practicable.There is no assurance that the A Share Issue will proceed. In particular, the Merger Proposal, being one of the key conditions to the A Share Issue, may or may not materialise. Investors are advised to exercise caution in dealing in the H Shares. Further details about the A Share Issue, including the Merger Proposal, will be disclosed by the Company in due course in the PRC when the A Share Issue materializes and the relevant information will be made available concurrently by the Company for public inspection in accordance with Chapter 2 of the Hong Kong Listing Rules and for viewing on the website of Hong Kong Exchanges and Clearing Limited at under "Latest Listed Companies Information" and on the website of the Company at .G. RESUMPTION OF TRADINGTrading in the H Shares was suspended with effect from 9:33 a.m. on 20 August 2007 at the request of the Company pending the release of this announcement. Application has been made to the Hong Kong Stock Exchange for resumption of trading in the H Shares with effect from 9:30 a.m. on 31 August 2007.DEFINITIONSIn this announcement, unless the context otherwise requires, the following terms shall have the following meanings:“A Shares’’t he ordinary shares subscribed for i n RMB,wh i ch areproposed t o be i ssued by the Company pursuant to the AShare Issue“A Share Issue’’t he proposed issue of 616,038,405 A Shares by theCompany by way of a share exchange through an initialpublic offering of A Shares and to be listed on theShanghai Stock Exchange“Articles’’t he articles of association of t he Company,as amendedfrom t ime t o t ime“Board’’t he board of Directors of the Company“Cash Alternative”the cash alternative under the Merger Proposal to theShanghai Power Transmission Minority Shareholders whoelect not to receive in whole or in part the A Shares whichis set at RMB 28.05per A Share, subject to certainconditions, details of which are set out in the sectionheaded “B. Merger Proposal – 3. Cash Alternative”“Cash Alternative Provider”has the meaning ascribed to it in the section headed “B. Merger Proposal – 3. Cash Alternative”in this announcement‘‘Company’’上海電氣集團股份有限公司,(Shanghai Electric GroupCompany Limited*),a joint stock limited company dulyincorporated in the PRC with limited liability and the HShares of which are listed on the main board of HongKong Stock Exchange under the stock code 2727“connected person”has the same meaning ascribed to it in the Hong KongListing Rules“CSRC”China Securities Regulatory Commission (中國證券監督管理委員會)“Directors”the directors of the Company“Domestic Shares”the ordinary shares i ssued by t he Company,with a nominalvalue of RMB1.00 each,which are subscribed for orcredited as fully paid i n RMB“EGM’’t he extraordinary general meeting of t he Company to be heldin due course to approve, inter alia, the A Share Issue “Exchange Ratio”the ratio at which the A Shares of the Company will beexchanged for the A shares of Shanghai PowerTransmission, details of which are set out in the paragraphheaded “B. Merger Proposal – 5. Exchange Ratio”“Group”the company and its subsidiaries“H Shares’’overseas l isted foreign shares of RMB1.00each in theshare capital of t he Company which are l isted on the HongKong Stock Exchange and traded in Hong Kong dollars “HK$”Hong Kong dollars, the lawful currency of the Hong KongSpecial Administrative Region“Hong Kong StockExchange”the Stock Exchange of Hong Kong Limited“Hong Kong Listing Rules”the Rules Governing t he Listing of Securities on The Stock Exchange of Hong Kong Limited“Merger Proposal”the agreed principal terms of the proposed mergeragreement to be entered into by the Company andShanghai Power Transmission, details of which are set outin the paragraph headed “B. Merger Proposal”“PRC”the People’s Republic of China, excluding, for the purposeof this announcement only, Hong Kong SpecialAdministrative Region, Macau Special AdministrativeRegion and Taiwan“RMB’’or“Renminbi”the lawful currency of t he PRC“Shanghai Power Transmission”Shanghai Power Transmission and Distribution Company Limited (上海輸配電股份有限公司), a company incorporated in the PRC whose A shares are listed on the Shanghai Stock Exchange under the stock code 600627“Shanghai PowerTransmission Board”the board of Shanghai Power Transmission“Shanghai Power Transmission Minority Shareholders”shareholders of Shanghai Power Transmission, other than the Company“Shanghai Power Transmission Shares”shares of RMB1.00 each in the share capital of Shanghai Power Transmission which are listed on the Shanghai Stock Exchange and traded in RMB“Shareholders’’holders of Domestic Shares and/or H Shares“Shares”Domestic Shares and/or H SharesFor the purpose of this announcement, conversion of RMB into Hong Kong dollars in this announcement is based on the exchange rate of RMB0.9722 to HK$1 as published by the People's Bank of China on 17 August 2007, being the reference date on which the Exchange Ratio is determined. Such conversion should not be construed as arepresentation that any amounts have been, could have been, or may be, exchanged at this or any other rate.By Order of the BoardShanghai Electric Group Company LimitedXu JianguoChairmanShanghai, the PRC, 30 August 2007As at the date of this Announcement, the executive Directors of the Company are, Mr. XU Jianguo, Mr. CHEN Longxing, Mr. HUANG Dinan, Mr. WANG Qiang, Ms. LI Manping, Mr. YU Yingui, the non-executive Directors of the Company are Mr. ZHU Kelin, Mr. YAO Qun, Mr. LIN Haitao, Mr. SHEN Maosong, and the independent non-executive Directors of the Company are Dr. YAO Fusheng, Dr. CHEUNG Wai Bun and Mr. LEI Huai Chin.*F o r identification pu r poses only。