09:23 SHOUGANG INT'L<00697> - Announcement (2) REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS The Directors consider that the Continuing Connected Transactions are of the type that are entered into in the ordinary and usual course of business of Shougang Concord Steel and on a frequent and regular basis. Therefore, the Directors consider that it would be: (i) impracticable to negotiate for numerous agreements with Shougang Corporation and/or its associates for the Continuing Connected Transactions; and (ii) too costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the Independent Shareholders, as required by the Listing Rules. Hence, the Directors are of the view that the Master Agreement will be beneficial to the Shareholders and the Group as a whole. As disclosed in the 1999 annual report of the Company, the Company had disposed its Hong Kong rebar stockholding and trading business in October 1999. Under the relevant agreements for such disposal, the Company has been restricted to carry on in Hong Kong the stockholding of the steel products and the importation and sale of steel products for a period of 5 years after the completion of such disposal. Such restriction will expire in the first quarter of 2005 and the Company intends to engage in stockholding of steel products in Hong Kong commencing from the second quarter of year 2005. Further, in view of the blooming metal and steel trading business in recent years, the Company intends to actively participate in the metal and steel trading business. The Company will carry out metal and steel trading and stockholding businesses through its wholly-owned subsidiary, Shougang Concord Steel, a company incorporated in the British Virgin Islands. The cap amount for the Continuing Connected Transactions is based on the anticipated business volume of Shougang Concord Steel for the next three years which is determined with reference to the average trading volume of the Group of 400,000 tones from 1996 to 1998 (i.e. the years immediately preceding the disposal of the Hong Kong rebar stockholding and trading business by the Group in 1999) times the current market prices for the steel products concerned ranging from US$370 to US$655. Shougang Corporation is a PRC state-owned enterprise and is one of the largest steel producers in the PRC. The Directors believe the entering into of the Master Agreement with Shougang Corporation can ensure a stable supply of metal and steel products to Shougang Concord Steel. Shougang Corporation and/or its associates had previously provided steel products to the Group and such transactions were covered under a waiver from the Stock Exchange dated 23 February 1993. As Shougang Corporation is the holding company of Shougang Holding which in turn is a substantial shareholder of the Company, transactions between Shougang Concord Steel and Shougang Corporation and/or its associates will constitute connected transactions of the Company under the Listing Rules. The Continuing Connected Transactions are subject to reporting, announcement and Independent Shareholders' approval requirements pursuant to Rule 14A.35 of the Listing Rules. The Directors consider that the Continuing Connected Transactions will be entered into in the usual and ordinary course of businesses of the Group and the terms of the Continuing Connected Transactions have been negotiated and will be conducted on an arm's length basis and on normal commercial terms, between the Group and Shougang Corporation and/or its associates. The Directors are of the view that as far as the Independent Shareholders are concerned, the Master Agreement and the terms thereof are fair and reasonable and in the interests of the Group and the Independent Shareholders as a whole. The Company will therefore seek the approval by the Independent Shareholders of the Master Agreement and the cap amount in relation to the Continuing Connected Transactions for a period of three financial years ending 31 December 2007 on the following conditions: (a) The cap amount for the Continuing Connected Transactions under the Master Agreement for each of three financial years ending 31 December 2007 will not exceed HK$1,500 million each year. (b) The Continuing Connected Transactions will be in compliance with the followings: (i) the Continuing Connected Transactions will be entered into in the usual and ordinary course of businesses of the Group;