sembcorp marine ltd€¦ · letter to shareholders sembcorp marine ltd (incorporated in singapore)...

CIRCULAR DATED 7 AUGUST 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to the contents herein or as to the course of action you should take, youshould consult your stockbroker, bank manager, solicitor, accountant or other professional adviserimmediately.

If you have sold all your shares in SembCorp Marine Ltd, you should immediately forward thisCircular and the attached Proxy Form to the purchaser or transferee or to the bank, stockbroker orother agent through whom the sale was effected for onward transmission to the purchaser ortransferee.

The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness ofany of the statements made, reports contained or opinions expressed in this Circular.

SEMBCORP MARINE LTD(Incorporated in the Republic of Singapore)(Company Registration No.: 196300098Z)

CIRCULAR TO SHAREHOLDERS

in relation to

THE PROPOSED ACQUISITION OF 110,400,000 ORDINARY SHARES IN THE ISSUED SHARECAPITAL OF COSCO CORPORATION (SINGAPORE) LIMITED FOR AN AGGREGATE

CONSIDERATION OF S$120,336,000

Independent Financial Adviser to the Non-Interested Directors of SembCorp Marine Ltd

(Incorporated in the Republic of Singapore)(Company Registration No.: 200105040N)

IMPORTANT DATES AND TIMES

Last date and time for lodgment of Proxy Form : 21 August 2006 at 11.00 a.m.

Date and time of Extraordinary General Meeting : 23 August 2006 at 11.00 a.m.

Place of Extraordinary General Meeting : 29 Tanjong Kling RoadSingapore 628054

TABLE OF CONTENTS

DEFINITIONS.................................................................................................................................. 3

1. INTRODUCTION .................................................................................................................. 6

2. CHAPTER 9 OF THE LISTING MANUAL .......................................................................... 7

3. THE PROPOSED ACQUISITION ........................................................................................ 9

4. INFORMATION ON COSCO ................................................................................................ 9

5. RATIONALE FOR THE ACQUISITION ................................................................................ 12

6. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION ............................................ 12

7. OPINION OF THE INDEPENDENT FINANCIAL ADVISER ................................................ 13

8. DISCLOSURE OF SHAREHOLDINGS ................................................................................ 14

9. AUDIT COMMITTEE’S STATEMENT .................................................................................. 15

10. DIRECTORS’ RECOMMENDATION .................................................................................... 15

11. SHAREHOLDERS WHO WILL ABSTAIN FROM VOTING ................................................ 15

12. EXTRAORDINARY GENERAL MEETING .......................................................................... 16

13. ACTION TO BE TAKEN BY SHAREHOLDERS .................................................................. 16

14. LITIGATION .......................................................................................................................... 16

15. CONSENT ............................................................................................................................ 16

16. DOCUMENTS FOR INSPECTION ...................................................................................... 16

17. DIRECTORS’ RESPONSIBILITY STATEMENT .................................................................. 17

APPENDIX I .................................................................................................................................... 18

NOTICE OF EXTRAORDINARY GENERAL MEETING ................................................................ 35

PROXY FORM

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DEFINITIONS

The following definitions shall apply throughout unless otherwise stated in this Circular:-

Companies

“Cosco” : Cosco Corporation (Singapore) Limited

“Cosco Group” : Cosco and its subsidiaries

“SCI” : SembCorp Industries Ltd

“SCM” or “Company” : SembCorp Marine Ltd

“SCM Group” : SCM and its subsidiaries

“SIPL” : Seletar Investments Pte Ltd

“Stirling Coleman” : Stirling Coleman Capital Limited, being theindependent financial adviser to the Non-Interested Directors in connection with theAcquisition

“Temasek” : Temasek Holdings (Private) Limited

General

“Acquisition” : the proposed acquisition of 110,400,000 ordinaryshares, representing approximately 5%, in theissued share capital of Cosco from SIPL

“Audit Committee” : the audit committee of the Company as at thedate of this Circular, comprising Mr Tan Tew Han,Mr Ajaib Haridass and Mr Ron Foo Siang Guan.

“Business Day” : a day (other than a Saturday, Sunday or gazettedpublic holiday in Singapore) on which commercialbanks are open for business in Singapore

“CDP” : The Central Depository (Pte) Limited

“Companies Act” : Companies Act, Chapter 50 of Singapore

“Completion” : completion of the Acquisition, as defined in theSale and Purchase Agreement

“Controlling Shareholder” : a person who:

(a) holds directly or indirectly 15% or more ofthe nominal amount of all voting Shares inthe Company (unless the SGX-STdetermines that such a person is not aControlling Shareholder of the Company); or

(b) in fact exercises control over the Company

“Cosco Shares” : 110,400,000 ordinary shares in the capital ofCosco, which are the subject of the Acquisition

“Directors” : the directors of the Company as at the date of thisCircular

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DEFINITIONS

“EGM” : the extraordinary general meeting of the Companyto be convened, notice of which is given on page35 of this Circular

“FY” : financial year ended or ending 31 December, asthe case may be

“Latest Practicable Date” : 31 July 2006, being the latest practicable dateprior to the printing of this Circular

“Listing Manual” : the Listing Manual of the SGX-ST

“Minority Shareholders” : Shareholders who are not, in relation to theAcquisition, interested persons as defined underChapter 9 of the Listing Manual

“Non-Interested Directors” : the Directors who are not, whether directly orindirectly, interested in the Acquisition

“Notice of EGM” : the notice of EGM as set out on page 35 of thisCircular

“NTA” : net tangible assets

“Ordinary Resolution” : the ordinary resolution as set out in the Notice ofEGM

“Proxy Form” : proxy form in respect of the EGM as set out inthis Circular

“Purchase Consideration” : S$120,336,000, being the aggregate purchaseconsideration for the Acquisition pursuant to theSale and Purchase Agreement

“Sale and Purchase Agreement” : the conditional sale and purchase agreemententered into between the Company and SIPL forthe acquisition of SIPL’s entire shareholdinginterest in Cosco

“Securities Account” : securities account maintained by a Depositor withthe CDP but not including securities sub-accountsmaintained with a Depository Agent

“SGX-ST” : Singapore Exchange Securities Trading Limited

“Shares” : the ordinary shares in the capital of the Company

“Shareholders” : registered holders of Shares except that wherethe registered holder is the CDP, the term“Shareholders” shall, in relation to such Sharesand where the context admits, mean the personsnamed as the Depositors in the DepositoryRegister maintained by the CDP and into whoseSecurities Accounts those Shares are credited

“Threshold 2” : 5% of the latest audited consolidated NTA of theSCM Group

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DEFINITIONS

“S$” or “$” and “cents” : Singapore dollars and cents respectively, thelawful currency of the Republic of Singapore

“%” : per centum or percentage

The terms “Depositor” and “Depository Register” shall have the meanings ascribed to themrespectively by Section 130A of the Companies Act.

The term “subsidiary” shall have the meaning ascribed to it by Section 5 of the Companies Act.

Words importing the singular shall, where applicable, include the plural and vice versa and wordsimporting the masculine gender shall, where applicable, include the feminine and neuter genders andvice versa. Words importing persons shall include corporations.

Any reference in this Circular to “Rule” or “Chapter” is a reference to the relevant Rule or Chapter inthe Listing Manual as for the time being.

Any reference in this Circular to any enactment is a reference to that enactment as for the time beingamended or re-enacted. Any word defined under the Companies Act or any modification thereof andused in this Circular shall have the meaning assigned to it under the Companies Act.

Any reference to a time of day in this Circular shall be a reference to Singapore time unlessotherwise stated.

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LETTER TO SHAREHOLDERS

SEMBCORP MARINE LTD(Incorporated in Singapore)

(Company Registration No.: 196300098Z)

Directors Registered Office

Goh Geok Ling (Chairman) 29 Tanjong Kling RoadTan Kwi Kin (Group President & CEO) Singapore 628054Tan Pheng HockKiyotaka MatsuzawaTan Tew HanAjaib HaridassTang Kin FeiRon Foo Siang GuanJoseph Kwok Sin KinWong Weng Sun (Alternate Director to Tan Kwi Kin)Hirohiko Sakurai (Alternate Director to Kiyotaka Matsuzawa)

7 August 2006

To: The Shareholders of the Company

Dear Sir/Madam

1. INTRODUCTION

On 22 May 2006, the Directors of the Company announced that the Company had entered intothe Sale and Purchase Agreement with SIPL to acquire SIPL’s entire shareholding interest,comprising 110,400,000 ordinary shares and representing approximately 5% of the issuedshare capital of Cosco for a cash consideration of S$120,336,000.

The Acquisition constitutes an interested person transaction within the meaning of Chapter 9 ofthe Listing Manual. The aggregate Purchase Consideration payable for the Cosco Sharesrepresents approximately 11.3% of the latest audited consolidated NTA of the SCM Group ofapproximately S$1,061,944,000 as at 31 December 2005. In accordance with Chapter 9 ofthe Listing Manual, the Acquisition is subject to the approval of Shareholders at an EGM to beconvened.

Stirling Coleman has been appointed to advise the Non-Interested Directors on whether theterms and conditions of the Acquisition are on normal commercial terms and are not prejudicialto the interests of the Company and its Minority Shareholders. Stirling Coleman’s letter to theNon-Interested Directors is set out in Appendix I of this Circular.

The SGX-ST assumes no responsibility for the correctness of any statements made or reportscontained or opinions expressed in this Circular.

The purpose of this Circular is to provide Shareholders with the relevant information pertainingto the Acquisition, inter alia, information on Cosco, the rationale for, and the proforma financialeffects and terms and conditions of, the Acquisition, as well as to seek Shareholders’ approvalfor the Acquisition at the Company’s EGM to be held on 23 August 2006.

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2. CHAPTER 9 OF THE LISTING MANUAL

2.1 Shareholders’ Approval

Under Chapter 9 of the Listing Manual (“Chapter 9”), where a listed company or any of itssubsidiaries or associated companies that are entities at risk (as defined in Section 2.2(b)below) proposes to enter into a transaction with its interested persons, shareholders’ approvaland/or an immediate announcement is required in respect of that transaction if its value isequal to or exceeds certain financial thresholds. In particular, shareholders’ approval (inaddition to an immediate announcement) is required where:-

(a) the value of such transaction equals to or exceeds Threshold 2; or

(b) the value of such transaction with interested persons when aggregated with the valuesof other transactions previously entered into with the same interested person in thesame financial year, equals to or exceeds Threshold 2. However, a transaction whichhas been approved by shareholders, or is the subject of aggregation with anothertransaction that has been approved by shareholders, need not be included in anysubsequent aggregation.

For the purposes of aggregation, interested person transactions below S$100,000 each are tobe excluded.

2.2 Definitions under Chapter 9

(a) the term “approved exchange” means a stock exchange that has rules which safeguardthe interests of shareholders against interested person transactions according to similarprinciples to Chapter 9;

(b) the term “entity at risk” means:-

(i) the listed company;

(ii) a subsidiary of the listed company that is not listed on the SGX-ST or anapproved exchange; or

(iii) an associated company of the listed group that is not listed on the SGX-ST or anapproved exchange, provided that the listed group, or the listed group and itsinterested person(s) has control over the associated company;

(c) an “associate”:-

(i) in relation to any director, chief executive officer, or controlling shareholder (beingan individual) means (i) his immediate family; (ii) the trustees of any trust of whichhe or his immediate family is a beneficiary or, in the case of a discretionary trust,is a discretionary object; and (iii) any company in which he and his immediatefamily together (directly or indirectly) have an interest of 30% or more; and

(ii) in relation to a controlling shareholder (being a company) means any othercompany which is its subsidiary or holding company or is a subsidiary of suchholding company or one in the equity of which it and/or such other company orcompanies taken together (directly or indirectly) have an interest of 30% or more;and

(d) an “interested person” is defined as a director, chief executive officer or controllingshareholder of the listed company or an associate of any such director, chief executiveofficer or controlling shareholder.

(e) an “interested person transaction” means a transaction between an entity at risk and aninterested person.

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2.3 Information on the Interested Person Transaction and Threshold 2 Transaction Test

As at the Latest Practicable Date, SCI is a Controlling Shareholder of the Company, holding900,231,260 Shares representing 61.83% of the issued and paid-up share capital of theCompany. SCI’s holding company is Temasek, which has direct and deemed interest of50.16% in SCI. SIPL is a wholly-owned subsidiary of Temasek. By definition therefore, SCI,SIPL, and Temasek are interested persons within the meaning of Chapter 9.

Accordingly, the Acquisition constitutes an interested person transaction within the meaning ofChapter 9.

The value of the Acquisition to which the Company is considered at risk is S$120,336,000 or11.3% of the SCM Group’s latest audited consolidated NTA of S$1,061,944,000 as at 31December 2005. In accordance with Chapter 9, the Acquisition, which value is more than 5%of the latest audited consolidated NTA of the SCM Group and hence exceeds Threshold 2, issubject to the approval of Shareholders.

2.4 Other Transactions with Interested Persons during FY 2005Aggregate value of all

interested person transactionsconducted under generalshareholders’ mandatepursuant to Rule 920

(excluding transactions less($’000)

Transaction for the Sales of Goods and ServicesKeppel Corporation Ltd and its associates 39,628Neptune Orient Lines Ltd and its associates 1,543SembCorp Industries Limited and its associates 3,272PSA International Pte Ltd and its associates 2,191

Transaction for the Purchase of Goods and ServicesSembCorp Industries Limited and its associates 23,718

Management and Support ServicesSembCorp Industries Limited 250

Total Interested Person Transactions 70,602

Treasury Transactions- Placement of Funds with - as at 31 DecemberSembCorp Industries Limited and its associates 8,319

Aggregate value of allinterested person transactionsduring the financial year underreview (excluding transactions

less than $100,000 andtransactions conducted under

general shareholders’ mandatepursuant to Rule 920)

($’000)

Transaction for the Purchase of Goods and ServicesNeptune Orient Lines Ltd and its associates 1,700

Disposal of InvestmentSembCorp Logistics Ltd 2,498

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3. THE PROPOSED ACQUISITION

3.1 Sale and Purchase of the Cosco Shares

Under the Sale and Purchase Agreement, the Company agreed to buy the Cosco Sharesrepresenting approximately 5% of Cosco’s issued share capital as at the date of the Sale andPurchase Agreement, held by SIPL.

The Cosco Shares will be sold free from all and any claims, charges, liens, equities and otherencumbrances and together with all rights attached thereto as at the completion of theAcquisition.

3.2 Purchase Consideration

The Purchase Consideration for the Acquisition has been agreed by the parties to beS$120,336,000 and was determined on a willing-buyer-willing-seller basis taking into account,amongst other factors, the market price of the Cosco Shares. The closing price of the CoscoShares on 19 May 2006, being the last market day prior to the Announcement Date was $1.33per share.

The Board of Directors is of the opinion that the Purchase Consideration for the Acquisition isfair and reasonable and has been arrived at on an arms length basis.

Pursuant to the Sale and Purchase Agreement, the Purchase Consideration is to be satisfiedin cash, which will be funded through the Company’s own internal resources.

3.3 Conditions Precedent

The Acquisition is conditional upon, inter alia:

(a) the approval of Shareholders for the transaction contemplated under the Sale andPurchase Agreement being obtained at a general meeting of the Company to beconvened; and

(b) The warranties of SIPL contained in the Sale and Purchase Agreement being true in allmaterial respects on and as of the date of completion of the Acquisition with the sameforce and effect as though made on and as of the completion date.

In the event that the condition in Section 3.3(a) is not fulfilled by 31 August 2006 (or such otherdate as the Company and SIPL may agree in writing), the Company and SIPL shall not bebound to proceed with the sale and purchase of the Cosco Shares and the Sale and PurchaseAgreement shall ipso facto cease and determine, and neither party shall have any claimagainst the other for costs, damages, compensation or otherwise save as provided in the Saleand Purchase Agreement.

4. INFORMATION ON COSCO

This section is based on publicly available information on Cosco

4.1 Background

Cosco was incorporated in Singapore and is listed on the SGX-ST. As at the Latest PracticableDate, Cosco has an issued and paid-up share capital of S$238,367,376.71 divided into2,210,829,954 Cosco Shares.

Cosco has an equity market capitalization of S$2.4 billion as at 31 December 2005 and is ablue chip component stock of the Straits Times Index (since 1 March 2004), constituent of theLondon benchmark FTSE All-World Asia Pacfic (Ex-Japan) Index (since 18 March 2004) andMSCI Singapore (since 1 June 2005).

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4.2 Business Overview

Cosco is a subsidiary of China Ocean Shipping Group Companies (“COSCO China”),headquartered in Beijing. It is the largest Ship Repair & Marine Engineering and Shippinggroup in China. Headquartered in Singapore, Cosco has three main business units, namely,Ship Repair and Marine Engineering, Dry Bulk Shipping and Shipping Agency.

On 1 January 2005, Cosco acquired a 51% stake of COSCO Shipyard Group (“CSG”) whichhas five major shipyards strategically located in the most important sites along China’sseaboard in Dalian, Nantong, Zhoushan, Guangzhou and Shanghai. CSG has, amongstothers, the two largest Cape-size floating docks and four Panamax-size docks in China whichprovide ship repair, ship conversion and jumboisation, newbuilds and repair services. CSGcurrently has a total docking capacity of 1.20 million dwt. Cosco also provides onboardengineering and repairs in Singapore through its 90% owned COSCO Marine Engineering(Singapore) Pte Ltd.

CSG delivered strong maiden contributions to Cosco, accounting for 80% of Cosco’s turnoverand 60% of Cosco’s operating profit for FY2005.

4.3 Directors

As at the Latest Practicable Date, the board of directors of Cosco comprises:

(a) Captain Wei Jia Fu (Chairman and Non-Executive Director)

Capt. Wei President and CEO of Cosco, has headed the China Ocean Shipping (Group)Company (COSCO) since November 1998. Prior to that, he was in charge of COSCO’sasset operations and management as a senior executive in many COSCO subsidiariesin China and abroad. During his tenure as the President of COSCO (Singapore) Ltd, heturned it into a public listed company in 1993, marking COSCO’s entrance into theinternational capital market.

With over ten years of seafaring experience as a captain and a PhD in ship and oceanstructural design and manufacture and a master’s in shipping, Capt. Wei has a wealth ofknowledge in international shipping management and operations. Capt. Wei is also amember of the Panama Canal Authority Advisory Board, the International AdvisoryCouncil of PSA Corporation and the China Shipowners’ Association, as well as thechairman for the China Shipowners Mutual Assurance Association, the China Federationof Industrial Economics and China Group Companies Promotion Association, amongothers.

(b) Mr Ji Hai Sheng (Vice-Chairman, President and Executive Director)

Mr. Ji has been the President of both Cosco and COSCO Holdings (S) Pte Ltd sinceNovember 2000. He has been appointed as the Vice Chairman of Cosco with effect from14 February 2006. A graduate from the Sichuan Institute of Foreign Languages, Mr. Jiwas employed at China Ocean Shipping Company in 1975, specialising in ContainerOperation and Management. From 1983 to 1988, he was appointed the CompanyRepresentative in the United States. Subsequently, Mr. Ji was posted to COSCO Beijingas Director of Sino-European (Container Service) and Deputy General Manager (FreightService Department). In 1992, Mr. Ji became the Managing Director of COSCO-HITTerminals (Hong Kong) Ltd and Assistant President of COSCO (Hong Kong) GroupCompany. He proceeded to become the Deputy Managing Director of COSCOContainer Lines in Beijing four years later. From 1998 to 2000, Mr. Ji was appointedManaging Director of the Asia Pacific Regional Headquarters of COSCO ContainerLines.

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(c) Mr Min Jian Guo (Vice President and Executive Director)

Mr. Min has been Vice President of Cosco since April, 2006. He was appointed Managerat China Road Transportation Company in December, 1968 and was subsequentlyappointed as Deputy General Manager in November, 2004. Subsequently Mr. Minbecame the Deputy General Manager at COSCO International Freight Co. Ltd. Heproceeded to become Deputy General Manager at China Ocean Shipping Agency inSeptember 2000. In the past four year, i.e. since January 2002 he has been the DeputyGeneral Manager at COSCO Logistic Co. Ltd.

(d) Mr Li Jian Hong (Non-Executive Director)

Mr. Li is the Executive Vice President of COSCO China. He had been the Assistant tothe President and Chief Economist of COSCO China, General Manager of COSCOIndustry Company, General Manager of COSCO Real Estate Development Companyand the Director of Nantong Shipyard. He is also the Chairman of China InternationalMarine Containers (Group) Ltd. Mr. Li has over 20 years of experience in corporatemanagement and over 10 years of experience in shipping enterprise management. Hehas extensive experience in capital market and assets management. Mr. Li graduatedfrom the University of East London in the United Kingdom with a Master of BusinessAdministration degree and holds a Master of Economic Management degree from JilinUniversity, China. He is a senior economist.

(e) Mdm Sun Yue Ying (Non-Executive Director)

Mdm. Sun joined COSCO China in 1982, and became its Chief Financial Officer inDecember 2000 and a Party Committee Member of COSCO China in April 2004. Prior tothat, she was the Deputy Director of the Financial Department of COSCO Tianjin, theFinancial Director of COSCO Japan, the General Manager of the Finance & CapitalDivision of the COSCO China, and the Deputy Chief Financial Officer of COSCO China.A 1982 maritime accounting graduate from the Shanghai Maritime University, Mdm. Sunhas years of professional experience in corporate accounting, assets-operating andfinancing.

(f) Mr Tom Yee Lat Shing (Non-Executive and Independent Director)

Mr. Yee was appointed to the Board on 15 December 1993. He is a Non-Executive andIndependent Director and was last re-elected as Director on 24 February 2003. He isChairman of the Company’s Audit Committee and member of the Nominating andRemuneration Committees. Mr. Yee is a Certified Public Accountant and was a partnerof an international public accounting firm from 1974 to 1989. He has more than 35 yearsof experience in the field of accounting and auditing and extensive experience inhandling major audit assignments of public listed an private companies in variousindustries, including insurance, manufacturing and retailing. He is currently a consultant.Mr. Yee also sits on the boards of several listed companies, and is a fellow member ofthe Institute of Chartered Accountants in Australia, CPA (Australia), CPA (Singapore),associate member of the Institute of Chartered Secretaries and Administrators, andCouncil Member of CPA (Australia) – Singapore Division and the Institute of CertifiedPublic Accountants of Singapore.

(g) Dr Wang Kai Yuen (Non-Executive and Independent Director)

Dr Wang was appointed as an Independent Director of Cosco Corporation on 02 May2001. Dr Wang chairs the Nominating Committee and is a member of Audit andRemuneration Committee. Dr Wang has been a Member of Parliament for the BukitTimah Constituency since December 1984. He has been the Chairman of Feedback Unitsince 2002. From Nov 2005, he became the Chairman, Aids Business Alliance, aninitiative of Health Promotion Board to promote awareness of HIV/AIDS in theworkplace. He is currently the Managing Director of Xerox Singapore Software Centre.In that capacity, he has built up the software centre and assisted in the establishment ofsimilar centres in UK, India, China, Brazil and Ireland. Dr Wang also holds directorships

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at ComfortDelgro Group Ltd, Asian Micro Holdings Ltd, Nylect Technology, XpressHoldings Ltd, Hiap Hoe Ltd, Matex International, and others. He graduated from theNational University of Singapore with a degree in Bachelor of Engineering with FirstClass honours in Electrical and Electronics in 1972. Dr Wang holds a Master of Sciencein Electrical Engineering and a PhD in Engineering from Stanford University, UnitedStates of America.

(h) Mr Er Kwong Wah (Non-Executive and Independent Director)

Mr Er is an independent director of Cosco. A Colombo Plan and Bank of Tokyo Scholar,he obtained a First Class honours degree in Electrical Engineering at the University ofToronto, Canada, in 1970 and an MBA from the Manchester Business School, Universityof Manchester in 1978. He is a Board Member of the National Environment Agency, andChairman of its Audit Committee. A former Permanent Secretary in the Singapore CivilService, he had served in various ministries before his retirement. He is currently theChairman of the Toa Payoh Central Citizens Consultative Committee and a member ofthe Bishan-Toa Payoh Town Council.

(i) Mr Wang Xing Ru (Non-Executive Director)

Mr. Wang was appointed a Non-Executive Director of Cosco Corporation in February2006. He has been president of CSG since 2001. Prior to that, Mr. Wang was ExecutiveDirector of Cosco Co-Development (Tianjin) Co. Ltd & Vice President of Cosco IndustryCo. A graduate from Engineering School of Shandong University, Mr. Wang has aMaster of Engineering in 1991. He has a wealth of experience in ship-repair businessand assets management.

5. RATIONALE FOR THE ACQUISITION

Both the Company and Cosco are strategic partners with equity interests in CSG in China.The Company holds a 30% equity stake in CSG while Cosco holds 51% of CSG. Cosco alsohas a direct equity interest of 50% in Cosco Nantong and 39% in Cosco Dalian.

The investment in Cosco is in line with the Company’s strategy to grow its marine and offshorebusiness in Singapore and China. The strategic tie-up with Cosco and CSG would enable theCompany to enhance and increase its capacity to take on more offshore projects by leveragingon the facilities and strengths of its partners. This would result in a “win-win” situation for allparties.

CSG is a leading ship repair and conversion group in China. It owns five major shipyards thatare strategically located in the key coastal cities stretching from Dalian in the north, Nantong,Shanghai and Zhoushan in the centre, to Guangzhou in the south. These shipyards provideship owners with an effective network of marine engineering services across the entire lengthof China’s coast.

The Company currently owns 70,000,000 shares in Cosco. With the Acquisition, theCompany’s shareholding in Cosco will increase from 3.17% of the issued share capital ofCosco to 8.17% of the issued share capital of Cosco.

6. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION

The following financial effects are shown for illustrative purposes only and do not necessarilyreflect the actual future financial position and prospects of the SCM Group after theAcquisition.

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6.1 Share Capital

As at the Latest Practicable Date, the Company has an issued and paid-up share capital of1,456,023,265.

6.2 NTA

The financial effect of the Acquisition on the NTA per Share of the SCM Group based on theProforma Financial Information (assuming that the Acquisition had taken place on 31December 2005) is as follows:-

As at 31 December 2005Before the Acquisition After the Acquisition

NTA (S$’000) 1,061,944 1,100,805NTA per Share (cents) 73.22 75.90

6.3 Earnings per Share (“EPS”)

The financial effect of the Acquisition on the EPS of the SCM Group based on the ProformaFinancial Information (assuming that the Acquisition had taken place on 1 January 2005) is asfollows:-

For the Year Ended 31 December 2005Before the Acquisition After the Acquisition

Net profit after tax attributable to 121,398 121,680Shareholders (S$’000)Basic EPS (cents) 8.45 8.47Fully diluted EPS (cents) 8.25 8.26

6.4 Gearing

The SCM Group will be using its internal resources to fund the Acquisition, and will be in netcash position after the Acquisition.

7. OPINION OF THE INDEPENDENT FINANCIAL ADVISER

Pursuant to Chapter 9 of the Listing Manual, Stirling Coleman has been appointed as anindependent financial adviser to the Non-Interested Directors to advise them on whether theAcquisition is on normal commercial terms and whether it is prejudicial to the interests of theCompany and its Minority Shareholders. A copy of their letter of advice to the Non-InterestedDirectors is set out on page 18 of this Circular. Shareholders are advised to read StirlingColeman’s letter of advice carefully.

Taking into consideration the factors set out in its letter, Stirling Coleman is of the view that theterms of the Acquisition are on normal commercial terms and are not prejudicial to the interestsof the Company and its Minority Shareholders.

Accordingly, Stirling Coleman has advised the Non-Interested Directors to recommend thatShareholders approve the Acquisition and vote in favour of the Ordinary Resolution to beproposed at the EGM, notice of which is set out on page 35 of this Circular.

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8. DISCLOSURE OF SHAREHOLDINGS

8.1 Directors’ Interests

As at the Latest Practicable Date, the interests of the Directors in the Shares as recorded inthe Register of Directors’ Shareholdings maintained by the Company are set out below:

No. of Sharescomprised in Direct Interests Deemed Interests

Directors outstanding No. of %(1) No. of %(1)

share options/awards Shares Shares

Goh Geok Ling – – – – –

Tan Kwi Kin 3,880,000(5) 3,091,200 0.21 – –

Tan Pheng Hock 175,000 20,000 NM(2) – –

Kiyotaka Matsuzawa 365,000 – – – –

Tan Tew Han 347,000 18,000 NM(2) – –

Ajaib Haridass 197,500 32,500 NM(2) – –

Tang Kin Fei 20,000 – – – –

Ron Foo Siang Guan – – – 30,000(3) NM(2)

Joseph Kwok Sin Kin – – – 50,000(4) NM(2)

Wong Weng Sun 991,500(6) 92,500 NM(2) – –(Alternate Director to Tan Kwi Kin)

Hirohiko Sakurai – – – – – (Alternate Director to Kiyotaka Matsuzawa)

Note: -

(1) Based on the issued share capital of the Company of 1,456,023,265 Shares as at the Latest Practicable Date.

(2) Not Meaningful.

(3) Ron Foo Siang Guan is deemed to be interested in the 30,000 Shares held by his spouse and a company inwhich he has a deemed interest of 20% or more.

(4) Joseph Kwok Sin Kin is deemed to be interested in the 50,000 Shares held by Citibank Nominees SingaporePte Ltd.

(5) Of the 3,880,000 Shares:

(a) 3,200,000 Shares are comprised in options granted to Tan Kwi Kin pursuant to the SembCorp MarineShare Option Plan;

(b) 380,000 Shares are comprised in conditional awards granted to Tan Kwi Kin, subject to performancetargets set over a three (3) year period from 2004 to 2006. No Shares will be released should targetsbe achieved at below 80% of the targets set and up to twice the number of Shares will be releasedshould targets be achieved at up to 200% of the targets set; and

(c) 300,000 Shares are comprised in conditional awards granted to Tan Kwi Kin, subject to performancetargets set over a three (3) year period from 2005 to 2007. The actual number of Shares to bereleased depends on the threshold ranging from 0% to 150% of the original award.

(6) Of the 991,500 Shares:

(a) 766,500 Shares are comprised in options granted to Wong Weng Sun pursuant to the SembCorpMarine Share Option Plan; and

(b) 225,000 Shares are comprised in conditional awards granted to Wong Weng Sun, subject toperformance targets set over a three (3) year period from 2005 to 2007. The actual number of Sharesto be released depends on the threshold ranging from 0% to 150% of the original award.

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8.2 Substantial Shareholders’ Interests

As at the Latest Practicable Date, the interests of the Substantial Shareholders in the Sharesas recorded in the Register of the Substantial Shareholders maintained by the Company areset out below:

Direct Interest Deemed Interest Total Interest

Name of No. of Shares % No. of Shares % No. of Shares %SubstantialShareholder

SembCorp 900,231,260 61.83 – – 900,231,260 61.83Industries Ltd

Temasek Holdings – – 902,174,260 61.96 902,174,260 61.96(Private) Limited(1)

The Capital Group – – 74,047,000 5.09 74,047,000 5.09Companies, Inc.(2)

Note: -

(1) Temasek Holdings (Private) Limited is deemed to be interested in the 900,231,260 Shares held by SembCorpIndustries Ltd as well as the balance of 1,943,000 Shares held by its other subsidiaries.

(2) The Capital Group Companies, Inc is deemed to be interested in the 74,047,000 Shares held by RafflesNominees Pte Ltd and DBS Nominees Pte Ltd.

9. AUDIT COMMITTEE’S STATEMENT

The members of the Audit Committee, namely Mr Tan Tew Han, Mr Ajaib Haridass and Mr RonFoo Siang Guan have reviewed the terms of the Acquisition and the advice of Stirling Colemanand are of the view that the terms of the Acquisition are on normal commercial terms and arenot prejudicial to the interests of the Company and its Minority Shareholders.

10. DIRECTORS’ RECOMMENDATION

10.1 Acquisition

The Non-Interested Directors, having considered the basis of the Purchase Consideration, therationale for the Acquisition and the advice of Stirling Coleman in respect of the Acquisition,are of the view that the Purchase Consideration payable is fair and reasonable and that theAcquisition is on normal commercial terms and is not prejudicial to the interests of theCompany and its Minority Shareholders. Accordingly, the Non-Interested Directors recommendthat the Shareholders vote in favour of the Ordinary Resolution set out in the Notice of EGMon page 35 of this Circular.

The Non-Interested Directors further recommend that any individual Shareholder who mayrequire specific advice to consult his stockbroker, bank manager, accountant or otherprofessional adviser.

11. SHAREHOLDERS WHO WILL ABSTAIN FROM VOTING

Rule 919 of the Listing Manual requires that interested persons must not vote on anyshareholders’ resolution in respect of any interested person transactions. Accordingly,Temasek, SIPL and SCI, being interested persons, shall abstain, and have undertaken toensure that their respective associates will abstain, from voting at the EGM in respect of theOrdinary Resolution relating to the Acquisition.

15


Temasek, SIPL and SCI and their respective associates shall also not accept nominations asproxy unless Shareholders appointing them as proxies by giving specific instructions in therelevant proxy forms on the manner in which they wish their votes to be cast for the OrdinaryResolution relating to the Acquisition.

12. EXTRAORDINARY GENERAL MEETING

The EGM, notice of which is set out on page 35 of this Circular will be held at 29 Tanjong KlingRoad, Singapore 628054 on 23 August 2006 at 11.00 a.m. for the purpose of considering and,if thought fit, passing the Ordinary Resolution, with or without modifications, set out in theNotice of EGM.

13. ACTION TO BE TAKEN BY SHAREHOLDERS

If a Shareholder is unable to attend the EGM and wishes to appoint a proxy to attend and voteon his behalf, he should complete, sign and return the attached Proxy Form in accordance withthe instructions printed thereon as soon as possible and, in any event, so as to arrive at 30 HillStreet #05-04 Singapore 179360 not later than 11.00 a.m. on 21 August 2006.

Completion and return of the Proxy Form by a Shareholder will not prevent him from attendingand voting at the EGM if he so wishes. In such event, the relevant Proxy Form will be deemedto be revoked.

14. LITIGATION

Neither the Company, nor its subsidiaries are engaged in any ongoing litigation as plaintiff ordefendant in respect of any claims or amounts which are material in the context of the financialposition or the business of the Company or its subsidiaries and the Directors have noknowledge of any proceedings which are pending or threatened against the Company or itssubsidiaries or of any facts likely to give rise to any litigation, claims or proceedings whichmight materially affect the financial position or the business of the Company or its subsidiaries.

15. CONSENT

Stirling Coleman has all given and have not withdrawn its written consent to the issue of thisCircular with the inclusion herein of and references to its name in the form and context inwhich it appears in this Circular.

16. DOCUMENTS FOR INSPECTION

Copies of the following documents may be inspected at the Company’s registered office at 29Tanjong Kling Road, Singapore 628054 during usual business hours on any weekday from thedate of this Circular up to the date of the EGM:

(a) the Financial Statements of the Company for FY2005;

(b) the Sale and Purchase Agreement dated 19 May 2006 entered into between theCompany and SIPL; and

(c) the letter of consent referred to in section 15 above.

16


17. DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors (including those who have delegated detailed supervision of this Circular) havetaken all reasonable care to ensure that the facts stated and all opinions expressed in thisCircular (other than the ‘Information on Cosco’ in Section 4 above and the advice of StirlingColeman as set out in Appendix 1 herein) are fair and accurate and that no material facts havebeen omitted from this Circular which would make any statement in this Circular misleading inany material respect, and they collectively and individually accept full responsibility accordingly.Where any information has been extracted from published or otherwise publicly availablesources, the sole responsibility of the Directors has been to ensure through reasonableenquiries that such information is accurately extracted from such sources or, as the case maybe, reflected or reproduced in this Circular.

Yours faithfullyFor and on behalf of the Board of DirectorsSembCorp Marine Ltd

Goh Geok LingChairman

17

APPENDIX I

18

LETTER FROM STIRLING COLEMAN CAPITAL LIMITEDTO THE NON-INTERESTED DIRECTORS

STIRLING COLEMAN CAPITAL LIMITED(Company Registration No. 200105040N)

4 Shenton Way #07-03SGX Centre 2

Singapore 068807

7 August 2006

To: The Non-Interested DirectorsSembCorp Marine Ltd

Dear Sirs

THE PROPOSED ACQUISITION OF 110,400,000 ORDINARY SHARES IN THE ISSUED SHARECAPITAL OF COSCO CORPORATION (SINGAPORE) LIMITED FOR AN AGGREGATECONSIDERATION OF S$120,336,000

1. INTRODUCTION

This letter has been prepared for inclusion in a circular to Shareholders dated 7 August 2006in connection with the Acquisition. Except where the context otherwise requires, the definitionsused in the Circular shall apply throughout this letter.

On 22 May 2006 (“Announcement Date”), the Directors of the Company announced that theCompany had entered into the Sale and Purchase Agreement with SIPL to acquire SIPL’sentire shareholding interest, comprising 110,400,000 ordinary shares and representing 5% ofthe issued share capital of Cosco for a cash consideration of S$120,336,000.

The Acquisition constitutes an interested person transaction within the meaning of Chapter 9 ofthe Listing Manual. The aggregate Purchase Consideration payable for the Cosco Sharesrepresents approximately 11.3% of the latest audited consolidated NTA of the SCM Group ofapproximately S$1,061,944,000 as at 31 December 2005. In accordance with Chapter 9 of theListing Manual, the Acquisition is subject to the approval of Shareholders at an EGM to beconvened.

As at the Latest Practicable Date, SCI is a Controlling Shareholder of the Company, holding900,231,260 Shares representing 61.83% of the issued and paid-up share capital of theCompany. SCI’s holding company is Temasek, which has direct and deemed interest of 50.16%in SCI. SIPL is a wholly-owned subsidiary of Temasek. By definition therefore, SCI, SIPL andTemasek are interested persons within the meaning of Chapter 9. The value of the Acquisitionexceeds 5% of the latest audited consolidated NTA of the SCM Group as at 31 December2005. Accordingly, the Acquisition exceeds Threshold 2.

Temasek, SIPL and SCI, being interested persons, shall abstain, and have undertaken toensure that their respective associates will abstain, from voting at the EGM in respect of theOrdinary Resolution relating to the Acquisition.

APPENDIX I

2. TERMS OF REFERENCE

Stirling Coleman has been appointed to advise the Non-Interested Directors on whether thefinancial terms of the Acquisition are on normal commercial terms and are not prejudicial tothe interests of the Company and the Minority Shareholders.

We were not involved in any aspect of the negotiations pertaining to the Acquisition, nor werewe involved in the deliberations leading up to the decision by the Board of Directors to enterinto the Acquisition, and we do not, by this letter or otherwise, advise or form any judgment onthe merits of the Acquisition other than to form an opinion, as to whether the financial terms ofthe Acquisition as highlighted in the Sale and Purchase Agreement, being an interested persontransaction, are on normal commercial terms and are not prejudicial to the interests of theCompany and the Minority Shareholders. We have confined our evaluation to the financialterms of the Acquisition and our terms of reference do not require us to evaluate or commenton the risks and/or commercial merits of the Acquisition or the future prospects of theCompany or the SCM Group, including whether the Acquisition is commercially desirable orjustifiable, and we have not made such evaluation or comment. Such evaluation or comment, ifany, remains the responsibility of the Directors and the management of the Company, althoughwe may draw upon their views or make such comments in respect thereof (to the extentdeemed necessary or appropriate by us) in arriving at our opinion as set out in this letter.Accordingly, it is not within our scope to conduct a comprehensive independent review of thebusiness, operations or financial condition of the Cosco Group.

It is not within our terms of reference to compare the relative merits of the Acquisition vis-à-visany alternative transaction previously considered by the SCM Group or transactions that theSCM Group may consider in the future, and such comparison and consideration remain theresponsibility of the Directors.

We have not conducted a physical inspection of the properties or facilities of the Cosco Groupand have not made an independent evaluation or appraisal of the assets and liabilities(including without limitation, real property, machinery and equipment) of the Company or of theSCM Group or the Cosco Group and we have not been furnished with any such evaluation orappraisal.

No financial or profit forecasts, business plans or management accounts of the Cosco Grouphave been furnished to us. In formulating our opinion and recommendation, we have relied to aconsiderable extent on the information set out in the Sale and Purchase Agreement, Circular,other public information collated by us and the information, representations, opinions, facts andstatements provided to us, whether written or verbal, by the SCM Group and its otherprofessional advisers. We have relied upon and assumed the accuracy without havingindependently verified such information provided or any representation or assurance made bythem, whether written or verbal, and accordingly no representation or warranty, expressed orimplied, is made by us as to the accuracy, completeness or adequacy of such information,representation or assurance nor do we undertake or accept responsibility for any of the same.

The information which we relied on were based upon market, economic, industry, monetaryand other conditions prevailing as at the Latest Practicable Date and may change significantlyover a relatively short period of time. Accordingly, we do not express an opinion herein as tothe prices at which the Shares of the Company or the Cosco Shares may trade uponcompletion of the Acquisition or the future performance of the Company or the SCM Group.

We have also relied upon the responsibility statement of the Directors (including those whomay have delegated detailed supervision of the Circular) that they have taken all reasonablecare to ensure that the facts stated and all opinions expressed in the Circular (other than the‘Information on Cosco’ in section 4 of the Circular and this letter) are fair and accurate and thatno material facts have been omitted from the Circular which would make any statement in the

19

APPENDIX I

Circular misleading in any material respect, and they collectively and individually accept fullresponsibility accordingly. Where any information has been extracted from published orotherwise publicly available sources, the sole responsibility of the Directors has been to ensurethrough reasonable enquiries that such information is accurately extracted from such sourcesor, as the case my be, reflected or reproduced in the Circular.

In rendering our services, we have not considered the specific investment objectives, financialsituation, tax position, tax status, risk profiles or particular needs and constraints orcircumstances of any individual Shareholder. As each Shareholder would have differentinvestment objectives and profiles, we would advise you to recommend that any individualShareholder who may require specific advice in the context of his specific investmentobjectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, taxadviser or other professional adviser immediately.

The Company has been separately advised by its own advisers in the preparation of theCircular (other than this letter). We have had no role or involvement and have not provided anyadvice, financial or otherwise, whatsoever in the preparation, review and verification of theCircular (other than this letter). Accordingly, we take no responsibility for and express no views,expressed or implied, on the contents of the Circular (other than this letter).

Our recommendation in respect of the Acquisition, as set out in section 7 of theCircular, should be considered in the context of the entirety of this letter and theCircular.

3. TERMS AND CONDITIONS OF THE ACQUISITION

As set out in section 3 of the Circular and based solely upon the Circular, we note the followingprincipal terms and conditions:-

3.1 Purchase Consideration

The Purchase Consideration for the Acquisition has been agreed by the parties to beS$120,336,000 and was determined on a willing-buyer-willing-seller basis taking into account,amongst other factors, the market price of the Cosco Shares. The closing price of the CoscoShares on 19 May 2006, being the last market day prior to the Announcement Date was $1.33per share.

The Board of Directors is of the opinion that the Purchase Consideration for the Acquisition isfair and reasonable and has been arrived at on an arms length basis.

Pursuant to the Sale and Purchase Agreement, the Purchase Consideration is to be satisfiedin cash, which will be funded through the Company’s own internal resources.

We note that the Purchase Consideration implies:-

(a) a premium of approximately 373.91% over the audited book NTA per share of CoscoGroup of approximately $0.23 as at 31 December 2005, adjusted for the sub-division ofshares of S$0.20 each to shares of S$0.10 each on 17 January 2006;

(b) a PE of approximately 14.83 times, based on the audited net profit after tax of CoscoGroup as at 31 December 2005; and

(c) a discount of 18.05% to the closing price of Cosco Shares of $1.33 on 19 May 2006,being the last market day prior to the Announcement Date.

As at the Latest Practicable Date, the share price of Cosco Shares was $1.53.

20

APPENDIX I

3.2 Conditions Precedent

The Acquisition is conditional upon, inter alia:-

(a) the approval of Shareholders for the transaction contemplated under the Sale andPurchase Agreement being obtained at a general meeting of the Company to beconvened; and

(b) The warranties of SIPL contained in the Sale and Purchase Agreement being true in allmaterial respects on and as of the date of completion of the Acquisition with the sameforce and effect as though made on and as of the completion date.

In the event that the condition in Clause 3.2(a) is not fulfilled by 31 August 2006 (or such otherdate as the Company and SIPL may agree in writing), the Company and SIPL shall not bebound to proceed with the sale and purchase of the Cosco Shares and the Sale and PurchaseAgreement shall ipso facto cease and determine, and neither party shall have any claimagainst the other for costs, damages, compensation or otherwise save as provided in the Saleand Purchase Agreement.

4. INFORMATION ON COSCO

4.1 Background

Salient information on Cosco relating to, inter alia, the background, business overview andDirectors of Cosco, are set out in section 4 of the Circular. We recommend that the Non-Interested Directors advise the Shareholders to read those pages of the Circularcarefully.

4.2 Financial information

In addition, in reviewing the latest results announcement of Cosco for the second quarterperiod ended 30 June 2006, we have extracted the following information which in our view willprovide a useful indication of the financial performance of the Cosco Group in the secondquarter and the current financial year ending 31 December 2006:-

(a) Financial performance of the Cosco Group

“Overview

The Group achieved another quarter of high turnover and net profit in Q2 2006 on theback of strong growth in its core Ship Repair & Marine Engineering business.

Net profit attributable to equity holders rose 30% to $51.0m on turnover of $265.3m inQ2 2006. Compared to 1H 2005, net profit attributable to equity holders jumped 36% to$88.6m on turnover of $532.9m in 1H 2006.

Turnover

Group turnover increased 25.9% from $210.7m in Q2 2005 to $265.3m in Q2 2006fuelled by successful expansion of the Group’s Ship Repair & Marine Engineeringbusiness. Compared to 1H 2005, Group turnover jumped 42.0% to $532.9m in 1H 2006.

Ship Repair & Marine Engineering turnover expanded 30.3% to $223.8m in Q2 2006 asthe Group continued to deliver more high-value ship repair & conversion and offshoremarine engineering projects.

This was further boosted by upgrades to the Group’s shipyard facilities to meet risingdemand. In Q4 2005, the Group added a 300,000 dwt floating dock at Dalian which hadbegun contributing to Group earnings during the period. The better utilisation of thedeployment of the 80,000 dwt floating dock from Cosco Dalian Shipyard to CoscoGuangzhou Shipyard had also contributed to an improvement in earnings during theperiod.

21

APPENDIX I

Dry Bulk Shipping turnover increased 7.6% to $36.8m in Q2 2006. The improvementwas mainly due to contributions from two additional vessels which joined the fleet inFebruary and March 2006.

Profitability

Gross profit rose 20% from $71.4m in Q2 2005 to $85.4m in Q2 2006 on the back ofhigher turnover. Gross profit margins were lower at 32.2% compared to 33.9% in Q22005 owing to a change in the margin mix. The softening of charter-hire rates in bulkshipping was mitigated by higher gross margin repairs of ship repair business.

Net margin improved from 24.6% in Q2 2005 to 26.4% in Q2 2006. Higher margin wasattributed by the ship repair business through higher yield projects, skills enhancementand efficiency.

Exceptional gain comprised $6.0m from the sale of MV Cos Angel, one of the four shipsslated for disposal, which was delivered to the buyer on 3 June 2006.

Distribution and administrative costs increased in line with the rising volume of repairbusiness handled. Finance cost increased due to higher interest rates and moreborrowings by COSCO Shipyard.

The effective tax rate in Q2 2006 of 5.3% was much lower compared with 9.6% in Q22005. The lower effective rate was attributed to a tax refund by the PRC tax authorityand tax exemptions on shipping income.

Overall Group net profit attributable to equity holders of the Company rose 30.0% in Q22006 to $51.0m on robust contributions from the ship repair business, and an one-offexceptional gain of $6.0m from the sale of a ship in June 2006. Against 1H 2005, netprofit attributable to equity holders jumped 36.0% to $88.6m in 1H 2006.”

(b) Commentary by the company of the significant trends and competitive conditions of theindustry in which the Cosco Group operates and any know factors or events that mayaffect the group in the next reporting period and the next 12 months

“Leveraging on COSCO Shipyard Group’s (“CSG”) leading position in China, itssuccessful track record in delivering technically demanding specialised offshore marineengineering work, as well as the substantial shipyard capacity upgrades underway, theGroup expects to attract more complex, high-value Ship Repair & Marine Engineeringcontracts from the robust oil & gas industry going forward.

The high-yield ship repair, conversion and offshore marine engineering projects securedduring 1H 2006 amounting to $400m (US$250m) had exceeded those secured in thewhole of FY 2005, underscoring the Group’s capabilities in the highly specialisedoffshore business. Works on these projects secured in 1H 2006 are still in progress withsome of them expected to be completed in Q3 2006.

To cope with the rapidly rising demand for offshore marine engineering work, theGroup’s shipyards have been undergoing massive facility and infrastructure upgrades. InJune 2006, Zhoushan Shipyard completed its doubling of dry dock capacity from150,000 dwt to 300,000 dwt to handle two panamax vessels concurrently. This newcapacity will add to Group earnings in 2H 2006 and increase the total docking capacityof CSG by 12.5% from 1.2m dwt to the current 1.35m dwt.

22

APPENDIX I

Further upgrading work remains on track. At Zhoushan, one new 80,000 dwt dry dock isscheduled for completion by end of 2006 and another new 300,000 dwt dry dock isexpected to be ready by middle of 2007. Two new berths are being constructed inZhoushan and are expected to be ready by the time the above dry docks areoperational. At Dalian, a 23,000 sq metre warehouse and a slipway are underconstruction on a 280,000 sq metre developed land. These infrastructures are targetedfor completion by the end of 2006. By end of 2006 and middle of 2007, the Group’sshipyard docking capacity will further increase to 1.43m dwt and 1.73m dwt respectively.

These new capacities will allow the Group to further penetrate into the niche markets ofhigh-value offshore marine engineering work such as new buildings and conversion ofoil-related facilities like rigs and FPSO/FSO, special purpose ships such as pipe/cablelayers, heavy lift vessels, tugs and barges. These higher yield contracts will furtherstrengthen the Group’s order book and returns.

The ship repair business has identified a requirement of S$178 million (RMB900 million)for the above capacity expansion up to middle of 2007. The shareholders of CSG willinject RMB750 million progressively from 2H 2006 to 1H 2007, as previously announcedon 9 January 2006. The balance will be funded through bank borrowings by CSG.

The capital contribution of RMB383 million (S$76 million) by the Company will be fundedthrough internally generated funds.

Barring unforeseen circumstances, the Group is confident that FY 2006’s performancewill be better than FY 2005.”

The full announcement of Cosco can be accessed at the SGX-ST website(http://info.sgx.com/webcorannc.nsf/NewSitemap?openview). Minority Shareholders areurged to read the announcement carefully.

5. RATIONALE FOR THE ACQUISITION

The Company currently owns 70,000,000 shares in Cosco. With the Acquisition, theCompany’s shareholding in Cosco will increase from 70,000,000 (3.17% of the issued sharecapital of Cosco) to 180,400,000 (8.17% of the issued share capital of Cosco). Accordingly, theCompany will become a substantial shareholder of Cosco after the Acquisition.

Both the Company and Cosco are strategic partners with equity interests in CSG in China.The Company holds a 30% equity stake in CSG while Cosco holds 51% of CSG. Cosco alsohas a direct equity interest of 50% in Cosco Nantong and 39% in Cosco Dalian.

The Directors are of the view that the investment in Cosco is in line with the Company’sstrategy to grow its marine and offshore business in Singapore and China. The strategic tie-upwith Cosco and CSG would enable the Company to enhance and increase its capacity to takeon more offshore projects by leveraging on the facilities and strengths of its partners. Thiswould result in a “win-win” situation for all parties.

CSG is a leading ship repair and conversion group in China. It owns five major shipyards thatare strategically located in the key coastal cities stretching from Dalian in the north, Nantong,Shanghai and Zhoushan in the centre, to Guangzhou in the south. These shipyards provideship owners with an effective network of marine engineering services across the entire lengthof China’s coast.

23

APPENDIX I

In the announcement by the Company on 22 May 2006, Mr Tan Kwi Kin, SCM Group Presidentand CEO said, “Our strategic tie-up with Cosco Corporation and the Cosco Shipyard Groupwould enable us to enhance and increase our capacity to take on offshore projects. We areleveraging on the facilities and strengths of our partners.”

This strategic alliance between the Company and Cosco was also bore out by a recenttransaction between the Company and CSG. In an announcement dated 16 April 2006, Coscoannounced that “Cosco Dalian Shipyard has been awarded a US$31 million contract bySembCorp Marine’s Jurong Shipyard to construct the lower pontoons for two units of thesemisubmersible rigs. Mr. Wong Weng Sun, President and COO of SembCorp Marine said,“We have selected Cosco Dalian Shipyard as our partner in our rig building programme,leveraging on the facilities and strengths of the two groups. It will be a win-win situation for allparties.”

Although the Company sold 4,600,000 shares in Cosco in September 2005 at a price of $2.55per share, raising sale proceeds of $11.73 million, we understand from the management of theCompany that the sale proceeds were substantially reinvested into CSG as capital injection forCSG’s expansion in China.

We also noted the Company’s positive comments in its announcement of its second quarterresults for the period ended 30 June 2006 as follows:-

“Ship repair demand remains strong especially in the specialised market of LNG/LPG gastankers, container vessels and rig repairs.

Market fundamentals for Floating Production Storage Offloading (FPSO) vessels and FloatingStorage Offloading (FSO) vessels continue to strengthen, driven by high oil prices andincrease in worldwide exploration and production activities.

Fundamentals for the rig building sector remain strong attributable to high worldwide utilizationlevels, unprecedented high charter rates as well as an aging rig fleet.”

From the above, it appears that there may be further synergistic opportunities between theCompany and the Cosco Group.

6. FINANCIAL ASSESSMENT OF THE ACQUISITION

In assessing the financial terms of the Acquisition, we have taken into account the followingfactors, which we consider will have a bearing on our assessment:-

(i) Share price performance and market liquidity of Cosco;

(ii) NTA of Cosco;

(iii) Price earnings ratio (“PER”) of Cosco;

(iv) EV/EBITDA multiple of Cosco i.e. enterprise value (“EV”) to historical earnings beforenet interest, taxes, depreciation and amortisation but after share of associates’ income(“EBITDA”); and

(v) financial effects of the Acquisition.

These factors are discussed in greater detail in the ensuing paragraphs.

24

APPENDIX I

6.1 Share Price Performance and Market Liquidity of Cosco

We set out below a chart on the price movement of Cosco Shares from 23 May 2005 being thedate 12 months preceding the Announcement Date to the Latest Practicable Date:-

Source: Bloomberg

We set out below the Purchase Consideration per Cosco Share against the volume-weightedaverage prices (“VWAP”) of the Cosco Shares and analysis of the average daily trading volumeand liquidity of the Cosco Shares:-

Premium/(Discount) of Average

Purchase Daily AverageConsideration Highest Lowest Trading Daily

VWAP to the VWAP Share Share Volume EquityShare per Share Price Price (million of Turnover(S$) (%) (S$) (S$) Shares) (S$ million)

Prior to Announcement Date

12-month 1.168 (6.68) 1.450 0.815 10.52 12.289-month 1.215 (10.29) 1.450 1.050 9.37 11.386-month 1.217 (10.44) 1.450 1.060 9.60 11.693-month 1.277 (14.64) 1.450 1.180 8.93 11.402-month 1.312 (16.92) 1.450 1.200 10.25 13.451-month 1.379 (20.96) 1.450 1.240 10.89 15.01Market day prior to the

Announcement Date (1) 1.330 (18.05) 1.360 1.290 8.67 11.55

Cosco Share Price and Volume Traded falling 12 months preceding the Announcement Date to the Latest Practicable Date

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

5/23

/200

5

6/20

/200

5

7/18

/200

5

8/15

/200

5

9/12

/200

5

10/1

0/200

5

11/7

/200

5

12/5

/200

5

1/2/

2006

1/30

/200

6

2/27

/200

6

3/27

/200

6

4/24

/200

6

5/22

/200

6

6/19

/200

6

7/17

/200

6

Sh

are

Pri

ce i

n S

$

0

10000000

20000000

30000000

40000000

50000000

60000000

Vo

lum

e T

rad

ed

Cosco - Share Volume Traded Cosco - Share Price

25

APPENDIX I

Premium/(Discount) of Average

Purchase Daily AverageConsideration Highest Lowest Trading Daily

VWAP to the VWAP Share Share Volume EquityShare per Share Price Price (million of Turnover(S$) (%) (S$) (S$) Shares) (S$ million)

After the Announcement Date

Market day immediatelyafter the AnnouncementDate (2) 1.250 (12.80) 1.340 1.240 9.14 11.61

From the market dayimmediately after theAnnouncement Date up to and including the Latest Practicable Date 1.303 (16.35) 1.540 1.190 8.06 10.50

Latest Practicable Date (3) 1.530 (28.76) 1.540 1.520 13.83 21.17

Source: Bloomberg

Notes:-

(1) This is the closing price of the Cosco Shares as at 19 May 2006, being the market day prior to theAnnouncement Date.

(2) This is the closing price of the Cosco Shares as at 22 May 2006, being the market day immediately after therelease of the announcement. The announcement was made in the morning before share trading commencedon 22 May 2006.

(3) This is the closing price of the Cosco Shares as at Latest Practicable Date.

Based on the above, we note that:-

(i) For the various periods between 23 May 2005 and the Latest Practicable Date statedabove, trading in the Cosco Shares had occurred on all market days with an averagedaily equity turnover of S$10.50 million to S$21.17 million (representing 0.40% to 0.80%of the market capitalisation of Cosco) and an average daily trading volume of 8.06million Cosco Shares to 13.83 million Cosco Shares (representing 1.02% to 1.74% ofthe free float in the Cosco Shares). As such, we observed that there is generallysufficient liquidity in the Cosco Shares to regard the transacted prices of the CoscoShares on the SGX-ST to be reflective of their market value;

(ii) The Purchase Consideration of S$1.09 per Cosco Share represents a discount ofapproximately 6.68%, 10.29%, 10.44%, 14.64%, 16.92%, 20.96% to the VWAP of theCosco Shares respectively for the 12-month, 9-month, 6-month, 3-month, 2-month, and1-month periods preceding the Announcement Date;

(iii) The Purchase Consideration of S$1.09 per Cosco Share represents a discount of24.83% and a premium of 33.74% to the highest and lowest price of the Cosco Sharesrespectively for the 12-month period preceding the Announcement Date;

(iv) The Purchase Consideration of S$1.09 per Cosco Share represents a discount ofapproximately 18.05% to the closing price of the Cosco Shares on 19 May 2006 (beingthe market day prior to the Announcement Date);

(v) The Purchase Consideration of S$1.09 per Cosco Share represents a discount ofapproximately 12.80% of the Cosco Shares on 22 May 2006 (being the market dayimmediately after the release of the announcement);

26

APPENDIX I

(vi) The Purchase Consideration of S$1.09 per Cosco Share represents a discount ofapproximately 16.35% over the VWAP of the Cosco Shares for the period commencingfrom 22 May 2006, being the market day immediately after the release of theannouncement, up to the Latest Practicable Date; and

(vii) The Purchase Consideration of S$1.09 per Cosco Share represents a discount ofapproximately 28.76% over the last transacted market price of the Cosco Shares as atthe Latest Practicable Date.

We would like to highlight selected announcements relating to Cosco during the 12-monthperiod preceding the Announcement Date up to the Latest Practicable Date below:-

No. Date of Announcement Nature of announcement

1 11th July 2005 Early delivery of second vessel2 18th July 2005 Announcement of the second quarter 2005 results3 1st August 2005 Sub-contract work agreement signed by Cosco

(Nantong) Shipyard Co. Ltd4 2nd August 2005 Second quarter financial statement and dividend

announcement5 16th August 2005 Sale of M.V. Cos Hero6 Cosco Shipyard Group Co Ltd secures three conversion

contracts valued at US$14 million7 25th October 2005 300,000 DWT floating dock in operation8 7th November 2005 Third quarter financial statement and dividend

announcement9 24th November 2005 The proposed sub-division of each ordinary share of

S$0.20 each in the capital of Cosco Corporation(Singapore) Limited into two ordinary shares of S$0.10each

10 29th November 2005 Sale of properties by Harington Property Pte Ltd11 21st December 2005 Press release: Two high value contracts totaling

US$16.5 million12 9th January 2006 Increase in registered capital of principal subsidiary,

Cosco Shipyard (Group) Co., Ltd13 23rd January 2006 Press release: A good start to 2006: Cosco secures four

contracts totaling US$12.95 million14 13th February 2006 Full year financial statement and dividend

announcement15 23rd February 2006 Cosco expands bulk carrier fleet to 15 vessels16 27th February 2006 Three high value contracts totaling US$21.8 million

Sale of properties by Harington Property Pte Ltd17 28th March 2006 Sale of four motor vessels

News release: Bulk carrier fleet rationalization exercise:Sold 4 ageing ships and took delivery of new ship

18 17th April 2006 Press release: String of high value contracts totalingUS$92.4 million

19 19th April 2006 Changes in the composition of the Board20 2nd May 2006 First quarter financial statement and dividend

announcement21 8th May 2006 Sale of four motor vessels22 31st May 2006 Press release: Several high value contracts totaling

US$114.7 millionChanges to the composition of the audit committee

23 31st July 2006 Second quarter financial statements and dividendannouncementPress release: Expanding order book and capacity

27

APPENDIX I

We have also considered the relative performance of Cosco Shares as compared to theSingapore Equities index (“SGX-ST All Index”) and the Singapore Transport/Storage/CommEquity Index (“SGX-ST Tran/Stor/Com Index”), a capitalisation-weighted index of all the stockstraded on the SGX-ST’s transportation, storage, and communication sector, and have set out achart on the relative performance of the Cosco Share price against the SGX-ST All Index andthe SGX-ST Tran/Stor/Com Index during the 12 months preceding the Announcement Date.

Accordingly, the Cosco Share price has out-performed the overall applicable market asreflected by the SGX-ST All Index and SGX-ST Tran/Stor/Com Index over the 12 monthspreceding the Announcement Date. Its performance reflected Cosco’s good financialperformance in FY2005 and positive industry outlook anticipated by the directors of Cosco.

6.2 Relative Valuation Analysis

In the evaluation of the Acquisition, we have considered the range of valuation statistics ofcomparable companies listed on SGX-ST, that are engaged in shipping, shipping-related andonshore business which, in our opinion, are broadly comparable to the core business of Cosco.We have further refined and narrowed our selection to comparable companies taking intoconsideration, inter alia, other factors such as revenue and market capitalisation (“SelectedComparable Companies”).

We have had discussions with the management of the Company about the suitability andreasonableness of these Selected Comparable Companies acting as a basis for comparisonwith the core business of Cosco. Relevant information has been extracted from the annualreports and/or public announcements of these Selected Comparable Companies. Theaccounting policies with respect to the values for which the assets or the revenue and cost arerecorded may differ with each of the Selected Comparable Companies. The Non-InterestedDirectors should note that any comparisons made with respect to the Selected ComparableCompanies are only for illustration purposes. The conclusions drawn from such comparisons,therefore, may not necessarily reflect the perceived or implied market valuation of Cosco. TheNon-Interested Directors should also note that the comparisons do not take into considerationsynergies to be gained from the Acquisition.

Shareholders may wish to note that there may not be any company listed on any relevant stockexchange that is directly comparable to Cosco in terms of, inter alia, size, market capitalisation,diversity of business activities, geographical spread, track record, future prospects, operatingand financial leverage, liquidity, risk profile, quality of earnings and accounting policies, listingstatus and such other relevant criteria. We wish to highlight that it may be difficult to place

28

APPENDIX I

reliance on the comparison of valuation statistics for the Selected Comparable Companies asthe business of the Selected Comparable Companies, their respective capital structures,growth rates, operating and financial leverage, taxation and accounting policies and that ofCosco may differ. As such, any comparison made herein is necessarily limited and serves onlyas an illustrative guide to the Minority Shareholders. The list of Selected ComparableCompanies is by no means exhaustive.

Details of the Selected Comparable Companies listed on SGX-ST are set out below:-

Market capitalisationas at the Latest

Company Practicable Date Business Description(S$ million)

Neptune Orient Lines Ltd 2,592.53 Owns and operates shipping vessels,including participation in ventures relatedto these activities. Other activities includeship management, engineering andrepairs to customers.

Labroy Marine Ltd 1,244.40 Owns and charters livestock carriers,tankers, dry bulk carriers, general cargovessels, barges, and tug boats, as well asbuilds sea-going vessels, and providesship repair services.

Jaya Holdings Ltd 1,003.14 Owns, builds, repairs, manages, andcharters ships. Core activities includeoffshore marine chartering, containerisedvessel transportation, and shipbuildingand ship repair.

Keppel Corp Ltd 12,200.55 Core businesses are offshore and marine,infrastructure, property investment anddevelopment, telecommunications andtransportation, energy, and engineering.

ASL Marine Holdings Ltd 162.17 Operations include shipbuilding, shiprepair, and other marine-related services.Other marine-related services includelogistic support, general engineeringservices, and sales and repair of marineequipment.

Pan-United Marine Ltd 257.13 Provides shipping, ship repair, shipbuilding and ship conversion services.Also undertakes heavy engineeringprojects and technical services.

SembCorp Marine Ltd 4,921.31 Operates ship building, ship owning, shiprepair and conversion.

Cosco 3,316.24 Owns and operates ships, andprovides shipping agency, marineengineering, ship repair, and containerdepot services.

Source : Bloomberg

29

APPENDIX I

In our assessment of the Purchase Consideration, we have considered the price to value ratioimplied by the Purchase Consideration compared with the Selected Comparable Companies insection 6.2.2.

6.2.1 NTA Based Approach

The NTA based approach of valuing a company is based on the aggregate value of allthe assets of the company in their existing condition, after deducting the sum of allliabilities and intangible assets of the company. NTA based approach is meaningful as itshows the extent to which the value of each share is backed by tangible assets andwould be relevant in the event that the company decides to realise or convert the use ofall or most of its assets. It does not necessarily reflect the value of the company as agoing concern. The NTA based approach in valuing a company may provide an estimateof the value of a company assuming the hypothetical sale of all its assets over areasonable period of time at the aggregate value of the assets used in the computationof the NTA, the proceeds of which are used to settle the liabilities, minority interest andobligation of that company with the balance distributed to its shareholders. However,such a hypothetical scenario is assumed to be made without considering factors suchas, inter alia, time value of money, market conditions, legal fees, liquidation costs, taxes,contractual obligations and availability of potential buyers, which may otherwise lowerthe NTA value that can be realised.

Book NTA as reflected in the audited accounts of a company is based on the value of acompany’s net assets as determined by accounting procedures and does notnecessarily reflect the prevailing market value of the underlying assets. As such,comparisons of companies using their book NTA are affected by differences in theiraccounting policies, especially depreciation and asset valuation policies.

In assessing the Purchase Consideration in relation to the audited book NTA as at 31December 2005, we have reviewed the audited balance sheet of Cosco Group as at 31December 2005 to determine whether there are any assets that are of an intangiblenature. We note that there are intangible assets amounting to approximately S$9.36million recorded as at 31 December 2005. Based on the audited balance sheet ofCosco as at 31 December 2005, the audited consolidated book NTA of Cosco wasapproximately S$510.35 million.

For illustration purposes only, the Purchase Consideration per Share represents apremium of approximately 373.91% over the audited book NTA per share of Cosco as at31 December 2005.

6.2.2 Historical Price/Book Comparison

Company Price/Book(times)

Neptune Orient Lines Ltd 0.85Labroy Marine Ltd 4.53Jaya Holdings Ltd 3.43Keppel Corp Ltd 3.20ASL Marine Holdings Ltd 1.81Pan-United Marine Ltd 2.26SembCorp Marine Ltd 4.41Lowest 0.85Highest 4.53Simple Average 2.93

Cosco (Implied by the Purchase Consideration and auditedbook NTA as at 31 December 2005) 4.74

Source : Bloomberg, respective annual reports and announcements

30

APPENDIX I

From the above table, we note that the Price/Book ratio of 4.74 times implied by thePurchase Consideration and the audited book NTA as at 31 December 2005 is higherthan the simple average Price/Book ratio of 2.93 times of the Selected ComparableCompanies and the Price/Book ratio of the Selected Comparable Companies of between0.85 times and 4.53 times as at the Latest Practicable Date.

The high Price/Book ratio of Cosco may reflect the premium rating for its dominance inthe marine and offshore industry in China, good financial performance in FY2005 and itspositive industry outlook anticipated by the directors of Cosco.

6.2.3 Historical PER Comparison

The PER approach is an earnings-based relative valuation methodology that takes intoaccount the ratio of the market price per share to earnings per share.

Cosco has recorded an audited consolidated net profit after tax of S$160.49 million forthe financial year ended 31 December 2005. Thus, the Purchase Consideration ofS$1.09 per Cosco Share implies a PER of 14.83 times, based on Cosco’s earnings pershare of 7.35* cents for the financial year ended 31 December 2005.

* Based on earnings per share after the sub-division of shares of S$0.20 each to shares of S$0.10 each on 17 January 2006.

Company PER(times)


Cosco (Implied by the Purchase Consideration and audited netprofit after tax for FY2005) 14.83


From the above table, we note that the PER of 14.83 times implied by the PurchaseConsideration and the audited net profit after tax for FY2005 is lower than the simpleaverage PER of 15.96 times of the Selected Comparable Companies as at the LatestPracticable Date, and is within the PER of the Selected Comparable Companies ofbetween 2.25 times and 35.32 times as at the Latest Practicable Date.

31

APPENDIX I

6.2.4 Historical EV/EBITDA Comparison

The EV/EBITDA multiple is an earnings-based relative valuation methodology that doesnot take into account the capital structure of a company as well as its interest, taxation,depreciation and amortisation charges. Therefore, it serves as an illustrative indicator ofthe current market valuation of the business of a company relative to its pre-taxoperating cashflow and performance.

Company EV / EBITDA(times)


Cosco (Implied by the Purchase Consideration) 10.05


From the above table, we note that Cosco’s EV/EBITDA multiple of 10.05 times asimplied by the Purchase Consideration is lower than the simple average multiple of16.49 times of the Selected Comparable Companies as at the Latest Practicable Date,and is within the EV/EBITDA multiple of the Selected Comparable Companies ofbetween 1.86 times and 29.15 times as at the Latest Practicable Date.

6.2.5 Summary of Relative Valuation Analysis

From the above relative valuation analysis, we note that apart from historical Price/Bookratio, the Purchase Consideration compares favourably with those of the SelectedComparable Companies for PER and EV/EBITDA ratios.

6.3 Financial Effects of the Acquisition

The proforma financial effects of the Acquisition, as computed by the Company, are set out insection 6 of the Circular. We recommend that the Non-Interested Directors advise theShareholders to read those pages of the Circular carefully.

A summary of the proforma financial effects of the Acquisition on the share capital,consolidated NTA per Share, consolidated earnings per Share and gearing of the SCM Groupwith reference to the SCM Group’s latest audited consolidated results for the financial yearended 31 December 2005 is set out herein for illustration purposes only and do not reflect theactual future financial situation of the SCM Group after the Acquisition.

6.3.1 Share capital

The Acquisition will not have any effect on the issued and paid-up capital of theCompany since the Purchase Consideration will be settled in cash.

32

APPENDIX I

6.3.2 NTA

Based on the audited consolidated balance sheet of the SCM Group as at 31 December2005, and assuming that the Acquisition had been completed as at 31 December 2005,the proforma financial effects of the Acquisition on the consolidated NTA of the SCMGroup as at 31 December 2005 would have been as follows:-

NTA NTA per Share(S$’000) (cents)

Before Acquisition 1,061,944 73.22After Acquisition 1,100,805 75.90

Based on the above computation, the Company expects to record a gain in NTAresulting from the difference between the net carrying value of the Cosco Shares andthe Purchase Consideration. The gain is expected to result in a 1.27% increase in NTAper Share.

6.3.3 Earnings (“EPS”)

Assuming that the Acquisition had been completed on 1 January 2005, based on theaudited consolidated results of the SCM Group for the financial year ended 31December 2005, the proforma financial effects of the Acquisition on the consolidatedearnings per Share of the SCM Group for the financial year ended 31 December 2005would have been as follows:-

Earnings Earnings per Share(S$’000) (cents)

Before Acquisition 121,398 8.45 (Basic)8.25 (Fully diluted)

After Acquisition 121,680 8.47 (Basic)8.26 (Fully diluted)

Based on the above computation, the Company expects to record a marginal increase inEPS.

6.3.4 Gearing

The SCM Group will be using its internal resources to fund the Acquisition, and will be innet cash position after the Acquisition.

7. RECOMMENDATION ON THE ACQUISTION

In arriving at our recommendation in respect of the Acquisition, we have taken into accountfactors summarised below. Shareholders should read the following in conjunction with, and inthe context of, the full text of this letter.

a) Having considered the business activities of the Company and the Cosco Group, theCompany’s rationale for the Acquisition as stated by the Directors and the positiveindustry outlook anticipated by both Cosco and the Company, its strategic alliance withthe Cosco Group, there may be further synergistic opportunities between the Companyand the Cosco Group;

b) The Cosco Share price has out-performed the overall applicable market as reflected bythe SGX-ST All Index and SGX-ST Tran/Stor/Com Index over the 12 months precedingthe Announcement Date. Its performance reflected Cosco’s good financial performancein FY2005 and positive industry outlook anticipated by the directors of Cosco;

33

APPENDIX I

c) The Purchase Consideration per Cosco Share represents a significant discount of18.05% to the closing price of Cosco Shares immediately prior to the Announcement;

d) The historical Price/Book ratio of 4.74 times implied by the Purchase Consideration andthe audited book NTA as at 31 December 2005 is higher than the Price/Book ratio of theSelected Comparable Companies of between 0.85 times and 4.53 times as at the LatestPracticable Date. The high Price//Book ratio of Cosco Shares may reflect the premiumrating for its dominance in the marine and offshore industry in China, good financialperformance in FY2005 and positive industry outlook anticipated by the directors ofCosco;

e) The historical PER of 14.83 times implied by the Purchase Consideration based on theaudited net profit after tax for FY2005 is lower than the simple average PER of 15.96times of the Selected Comparable Companies as at the Latest Practicable Date, and iswithin the PER of the Selected Comparable Companies of between 2.25 times and35.32 times as at the Latest Practicable Date;

f) The EV/EBITDA multiple of 10.05 times as implied by the Purchase Consideration islower than the simple average multiple of 16.49 times of the Selected ComparableCompanies as at the Latest Practicable Date, and is within the EV / EBITDA multiple ofthe Selected Comparable Companies of between 1.86 times and 29.15 times as at theLatest Practicable Date;

g) The Acquisition is expected to have a positive impact on the consolidated NTA perShare of the SCM Group, and a marginal gain in the EPS of the SCM Group; and

h) The strong financial performance of Cosco as reported in the second quarter 2006results announcement and the positive outlook anticipated by the directors of Cosco.

Having regard to the considerations set out above in this letter, Stirling Coleman is ofthe opinion that, based on available information afore-mentioned as at the LatestPracticable Date, the financial terms of the Acquisition are on normal commercial termsand are not prejudicial to the interests of the Company and its Minority Shareholders.We therefore advise the Non-Interested Directors to recommend the MinorityShareholders to vote in favour of the ordinary resolution relating to the Acquisition.

This letter is addressed to the Non-Interested Directors for their benefit, in connection with andfor the purpose of their consideration of the Acquisition, but any recommendation to theShareholders remain the responsibility of the Non-Interested Directors.

This letter is governed by, and construed in accordance with, the laws of Singapore, and isstrictly limited to the matters stated herein and does not imply by implication to any othermatter. Nothing herein shall confer or be deemed or is intended to confer any right of benefitto any third party and the Contracts (Rights of Third Parties) Act (Chapter 53B) and any re-enactment thereof shall not apply.

Yours faithfullyFor and on behalf of

STIRLING COLEMAN CAPITAL LIMITED

ANG KAY TIONG LUCY LIMCHIEF EXECUTIVE OFFICER EXECUTIVE DIRECTOR

34

NOTICE OF EXTRAORDINARY GENERAL MEETING

SEMBCORP MARINE LTD(Incorporated in Singapore)

(Company Registration No.: 196300098Z)

NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of the Company will be held at29 Tanjong Kling Road, Singapore 628054 on 23 August 2006 at 11.00 a.m. for the purpose ofconsidering and, if thought fit, passing the following resolution, with or without amendment:

ORDINARY RESOLUTION

That:

(a) Pursuant to Chapter 9 of the SGX-ST Listing Manual, approval be and is hereby given for theacquisition by the Company of 110,400,000 ordinary shares in the issued share capital ofCosco Corporation (Singapore) Limited from Seletar Investment Pte Ltd for an aggregateconsideration of S$120,336,000; and

(b) the Directors of the Company (or any one of them) be and are hereby authorised to take suchsteps, make such arrangements, do all such acts and things and exercise such discretion inconnection with, relating to or arising from the matters contemplated herein, as they (or he)may from time to time consider necessary, desirable or expedient to give effect to such mattersand this Resolution as they (or he) may deem fit.

By Order of the Board

Kwong Sook May (Ms)Company Secretary

Singapore7 August 2006

IMPORTANT: Please read notes below.

NOTES:

1. A member entitled to attend and vote at the Extraordinary General Meeting is entitled to appoint no more than twoproxies to attend and vote on his behalf and such proxy need not be a member of the Company.

2. A member of the Company which is a corporation is entitled to appoint its authorised representative or proxy to vote onits behalf.

3. The instrument appointing a proxy or proxies must be under the hand of its attorney or a duly authorised officer.

4. An instrument of proxy must be lodged at 30 Hill Street #05-04 Singapore 179360 not later than 48 hours before thetime appointed for the Extraordinary General Meeting.

35

PROXY FORM

36

SEMBCORP MARINE LTD(Incorporated in the Republic of Singapore)Company Reg. No. 196300098Z

EXTRAORDINARY GENERAL MEETINGPROXY FORM

*I/We (Name)

of (Address)

being a member/members of SembCorp Marine Ltd (the “Company”) hereby appoint:

Name Address NRIC/ Proportion ofPassport Number Shareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, todemand a poll, at the Extraordinary General Meeting of the Company to be held at 29 Tanjong KlingRoad, Singapore 628054 on 23 August 2006 at 11.00 a.m. and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for oragainst the Resolution as set out in the Notice of Extraordinary General Meeting. In the absence ofspecific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will onany other matter arising at the Extraordinary General Meeting).

For Against

Ordinary ResolutionTo approve the proposed acquisition by the Company of 110,400,000ordinary shares in the issued share capital of Cosco Corporation(Singapore) Limited from Seletar Investment Pte Ltd for an aggregateconsideration of S$120,336,000.

Dated this day of 2006

Signature(s) of Member(s) or Common Seal

IMPORTANT: PLEASE READ NOTES TO PROXY FORM OVERLEAF.

Total number of Shares held

IMPORTANT

1. For investors who have used their CPF moneys to buy shares inthe capital of SembCorp Marine Ltd, this Circular is forwarded tothem at the request of their CPF Approved Nominees and is sentFOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by such CPF investors andshall be ineffective for all intents and purposes if used orpurported to be used by them.

NOTES TO PROXY FORM:

1. Please insert the total number of ordinary shares you hold. If you have ordinary shares entered against your name inthe Depository Register (as defined in section 130A of the Companies Act, Chapter 50 of Singapore), you shouldinsert that number of ordinary shares. If you have ordinary shares registered in your name in the Register of Members,you should insert that number of ordinary shares. If you have ordinary shares entered against your name in theDepository Register as well as ordinary shares registered in your name in the Register of Members, you should insertthe aggregate number of such ordinary shares. If you do not insert any number, this Proxy Form shall be deemed torelate to all the ordinary shares held by you.

2. A member of the Company entitled to attend and vote at a Meeting of the Company is entitled to appoint one or twoproxies to attend and vote on his behalf. Such proxy need not be a member of the Company.

3. If the Chairman of the Meeting is appointed as proxy, this Proxy Form shall be deemed to confer on him the right tonominate a person to vote on his behalf on a show of hands.

4. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of hisshareholding (expressed as a percentage of the whole) to be represented by each proxy.

5. This Proxy Form must be deposited at 30 Hill Street #05-04, Singapore 179360, not less than 48 hours before the timeset for the Extraordinary General Meeting.

6. This Proxy Form must be under the hand of the appointer or of his attorney duly authorised in writing. A corporationwhich is a member must execute this Proxy Form either under its seal or under the hand of a director or an officer orattorney duly authorised.

7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as itthinks fit to act as its representative at the Extraordinary General Meeting, in accordance with section 179 of theCompanies Act, Chapter 50 of Singapore.

8. The Company shall be entitled to reject this Proxy Form if it is incomplete, improperly completed or illegible or wherethe true intentions of the appointor are not ascertainable from the instructions of the appointor specified in this ProxyForm. In addition, in the case of a member whose shares are entered in the Depository Register, the Company mayreject this Proxy Form if the member, being the appointor, is not shown to have such shares entered against his namein the Depository Register as at 48 hours before the time set for the Extraordinary General Meeting, as certified byThe Central Depository (Pte) Limited to the Company.

9. There are no rights of appraisal or similar rights of dissenters.

10. Proxies may be revoked at any time prior to the Extraordinary General Meeting. Proxies are deemed to be revoked if aShareholder attends and votes at the Extraordinary General Meeting.

THE COMPANY SECRETARYSembCorp Marine Ltdc/o 30 Hill Street #05-04Singapore179360

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