Shanghai Electric : CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTIONS

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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SHANGHAI ELECTRIC GROUP COMPANY LIMITED

上海電氣集團股份有限公司

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 02727)

CONTINUING CONNECTED TRANSACTIONS

AND

DISCLOSEABLE TRANSACTIONS

Non-Exempted Continuing Connected Transactions and Discloseable Transactions

On 29 October 2019, SE Finance, a subsidiary of the Company, entered into the Framework Financial Services Agreements (the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement) with SEC, to provide SEC Group with deposit services and loan services.

SEC is a controlling shareholder holding approximately 59.18% equity interest in the total issued share capital of the Company as at the date of this announcement. Therefore, SEC is a connected person of the Company as defined under Chapter 14A of the Listing Rules. Given the respective highest applicable percentage ratios of the transactions under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement are expected to be more than 5% as set out under Chapter 14A of the Listing Rules, these continuing connected transactions are subject to reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. The respective highest applicable percentage ratio of the transaction under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement is expected to be more than 5% and less than 25%, and therefore, such transactions fall under the discloseable transactions as defined in Chapter 14 of the Listing Rules, which are subject to reporting and announcement requirements.

Exempted Continuing Connected Transactions

On 29 October 2019, the Company entered into the SEC Framework Purchase Agreement with SEC to purchase various products, component parts and raw materials from SEC Group. On 29 October 2019, the Company entered into the SEC Framework Sales Agreement with SEC in relation to the provision of electrical engineering products and services, electrical equipment and component parts and other related services to SEC Group by the Company. On 29 October 2019, the Company entered into the SEC Framework Comprehensive Services Agreement with SEC in relation to the provision

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of informationization, professional consultation, entrusted management and other services to SEC Group by the Company.

SEC is a connected person of the Company as defined under Chapter 14A of the Listing Rules. As the respective highest applicable percentage ratios of these transactions under the SEC Framework Purchase Agreement, the SEC Framework Sales Agreement, and the SEC Framework Comprehensive Services Agreement are expected to be more than

0.1 % but less than 5% as set out under Chapter 14A of the Listing Rules, these continuing connected transactions are subject to reporting, announcement and annual review requirements as set out in Chapter 14A of the Listing Rules but exempted from Independent Shareholders' approval requirements.

General

The Independent Board Committee, comprising all of the independent non-executive Directors, will be established by the Company to advise the Independent Shareholders in respect of, among others, the continuing connected transactions contemplated under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement. The Company will appoint an independent financial adviser to advise the Independent Board Committee and Independent Shareholders on, among other things, the continuing connected transactions contemplated under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement.

Circular

A circular containing a letter from the Board setting out the details of the Non-Exempted Continuing Connected Transactions, a letter from the Independent Board Committee and a letter of advice from the independent financial adviser will be despatched to the Shareholders on or before 20 November 2019.

I. INTRODUCTION

The Company's core businesses are design, manufacture, and sales of a wide range of products and services in the new energy and environmental protection equipment, high efficiency and clean energy equipment, industrial equipment, as well as provision of modern services. Historically, the Company has always been transacting with SEC and other connected persons for products, component parts and services which complement the products and services offered by the Company. In order to continue and ensure the growth and development of the Company in the future, the Group intends to continue various continuing connected transactions with SEC.

1. NON-EXEMPTCONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTIONS

References are made to the announcement of the Company dated 14 November 2016, the circular of the Company dated 11 December 2016 and the poll voting results announcement of the Company dated 29 December 2016, in relation to, among other things, the entering into a framework deposit agreement and a framework loan agreement for the years 2017, 2018 and 2019 between the SE Finance and SEC. These agreements were approved by the

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2nd extraordinary general meeting of 2016 and have been executed continuously. As these agreements will expire on December 31, 2019, SE Finance will renew these agreements with SEC and they will be submitted to the general meeting of the Company for consideration.

Therefore, on 29 October 2019, SE Finance, a subsidiary of the Company, entered into two financial services agreements, namely the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement, with SEC to continue the provision of financial services by SE Finance to SEC Group. Based on the forecasted transaction amounts of the financial services, these transactions will comprise the Non-exempt Continuing Connected Transactions subject to reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules for the years 2020, 2021 and 2022.

1. SEC Framework Deposit Agreement

Summary

Agreement	SEC Framework Deposit Agreement
Date of agreement	29 October 2019
Parties	∙	SE Finance
	∙	SEC
Subject Matter	SE Finance will provide deposit services to SEC Group
Term	three years effective from 1 January 2020, renewable at the option
	of the Company for a term of three years by giving three months'
	notice prior to the expiry of the term

According to Rule 14A.52 of the Listing Rules, the period for the agreement must not exceed three years. The Company will re-comply with Chapter 14A of the Listing Rules, including the disclosure and Independent Shareholders' approval requirements prior to the Company's exercise of the option to renew the agreements after the three years period for another three years.

Annual caps and basis of determination

The table below sets out the historical maximum daily balance of funds (including interests) deposited by SEC Group with SE Finance for the years 2017, 2018 and six months ended 30 June 2019, and the estimated amount, as proposed annual cap, for the three years ending

31 December 2010, 2021 and 2022, under the SEC Framework Deposit Agreement:

	Historical maximum	Historical	Proposed maximum daily balance
	daily balance for	maximum daily	annual cap for the year ending 31
	deposit services for	balance for	December
		deposit services
		3

	the year ended 31	for the period
	December	ended 30 June
	2017	2018	2019	2020	2021	2022
			（RMB million）
Actual and	4,147	4,089	4,355	7,500	7,500	7,500
estimated
maximum
daily
balance of
deposit by
SEC Group

Pursuant to the relevant PRC regulations, SE Finance cannot take deposit from any party outside the Group and SEC Group. Save for the member companies of the Group and SEC Group, no other parties deposited funds with SE Finance since the Company's listing of its H shares on the Main Board of the Hong Kong Stock Exchange.

Pricing Basis

Interest rates set by SE Finance for deposits by SEC Group will be subject to the relevant guidelines and regulations of People's Bank of China set out on the website of People's Bank of China. SE Finance will set its interest rates with reference to the relevant savings rates set by People's Bank of China from time to time as well as the rates set by the commercial banks in the PRC. The current interest rates offered by SE Finance in respect of RMB deposits, which range from 0.35% to 2.73% per annum depending on amount and terms of deposits (0.35% for savings deposits, 1.54% to 1.65% for three-month term deposits, 1.75% to 1.95% for six-month term deposits, 2.1% to 2.25% for one-year term deposits, 2.31% to 2.73% for two-year term deposits and 1.15% for agreement deposits), are with reference to the prevailing interest rates set and updated by People's Bank of China as at the date of 24 October 2015 and are in line with the market rates and are subject to adjustment as per regulations and requirements of People's Bank of China on the interest rates. The annual interest rates set by SE Finance for savings deposits and agreement deposits are the same with People's Bank of China benchmark rates, the annual interest rates set by SE Finance for deposits with a term of one year or shorter represent 140% to 150% of the People's Bank of China benchmark rates and the annual interest rates set by SE Finance for two-year term deposits represent 110%-130% of the People's Bank of China benchmark rates. The interest rates currently offered by SE Finance are within the range allowed by People's Bank of China and are basically in line with the rates set by the commercial banks in the PRC for the same types of deposits. The finance department of SE Finance will check the deposit interest rates published by the commercial banks in the PRC monthly and review the rates offered by SE Finance accordingly. SE Finance will apply the above interest rates to all the customers equally. The Directors believe that such interest rates offered by the Company will be comparable to those provided by commercial banks in the market, are on normal commercial terms and are in the interests of the Shareholders and the Company as a whole. The audit committee of the Company will

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review the relevant deposit services entered into between SE Finance and SEC Group quarterly to ensure the pricing basis disclosed above is complied with. Interest for deposits (other than term deposits) is usually payable by SE Finance to SEC Group on a quarterly basis. Interest for term deposits is usually payable by SE Finance to SEC Group on the maturity date.

Reasons and benefits for entering into the SEC Framework Deposit Agreement

It is common for group companies in the PRC to set up and maintain a finance company to provide treasury services to the group as this assists group companies in reducing financing costs and investment risks. As intra-group loans are prohibited under PRC laws, an intragroup finance company is established to allow financial resources to be better distributed within the group.

SE Finance has been providing deposit services to SEC Group in order to optimize the Surplus Fund utilization, which in turn would benefit the Group as a whole. In order to provide sufficient level of financing to other companies within the Group and SEC Group, SE Finance would need to ensure that it has sufficient free cash flow to allow itself to operate freely. Therefore, taking deposits from member companies with excess free cash flow within the Group and SEC Group would allow SE Finance to achieve this goal and grow its loan portfolio. The Directors confirm that each of these deposits will be taken in the ordinary and usual course of business of the Group and on normal commercial terms.

2. SEC Framework Loan Agreement

Summary

Agreement	SEC Framework Deposit Agreement
Date of agreement	29 October 2019
Parties	∙	SE Finance
	∙	SEC
Subject matter	SE Finance will provide loan and bill discounting services to SEC
	Group
Term	three years effective from 1 January 2020, renewable at the option
	of the Company for a term of three years by giving three months'
	notice prior to the expiry of the term

According to Rule 14A.52 of the Listing Rules, the period for the agreement must not exceed three years. The Company will re-comply with Chapter 14A of the Listing Rules, including the disclosure and Independent Shareholders' approval requirements prior to the Company's exercise of the option to renew the agreements after the three years period for another three years.

Annual caps and basis of determination

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The table below sets out the historical maximum daily balance of outstanding loans (including interests) maintained by SEC Group with SE Finance for the years 2017, 2018 and six months ended 30 June 2019, and the estimated amount, as proposed annual cap, for the three years ending 31 December 2020, 2021 and 2022, under the SEC Framework Loan Agreement:

	Historical maximum	Historical	Proposed maximum daily balance
	daily balance for loan	maximum daily	annual cap for the year ending 31
	and bill discounting	balance for loan		December
	services for the year	and bill
	ended 31 December	discounting
			services for the
			period ended 30
			June
	2017	2018	2019	2020	2021	2022
			（RMB million）
Actual and	7,316	7,453	7,468	7,500	7,500	7,500
estimated
maximum
daily
balance of
loan and
bill
discounting
provided to
SEC Group

Pursuant to the relevant PRC regulations, SE Finance cannot provide loans to any parties outside the Group and SEC Group, except for customers of companies of the Group or SEC Group which will apply the entire amount so obtained as loans from SE Finance to purchase certain products of the Group or SEC Group.

Pricing Basis

Interest rates set by SE Finance for all loan services provided to SEC Group will be subject to the relevant guidelines and regulations of People's Bank of Chinaset out on the website of People's Bank of China. SE Finance will set its interest rates with reference to the relevant interest rates set by People's Bank of China from time to time. Currently, SE Finance provides RMB loans to SEC with a term within one year, the current interest rates of which range from 3.9150% to 4.5675% per annum, representing 90% to 105% of the prevailing interest rates set and updated by People's Bank of China on 24 October 2015. Such interest rates are in line with the market rates and are subject to adjustments as per regulations and requirements of People's Bank of China on the interest rates from time to time. Like the commercial banks on the market, SE Finance sets different loan interest rates for different customers after considering major factors including the People's Bank of China benchmark rates for each type of loan, the credit status of the customer and the

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amount of funds available for loans. In the meantime, SE Finance also makes reference to the loan interest rates obtained by members of SEC Group from the commercial banks in the market before determining the loan interest rate applicable to members of SEC Group. The Directors believe that such interest rates offered by SE Finance to SEC Group are comparable to those provided by the commercial banks in the market, are on normal commercial terms and are in the interests of the Shareholders and the Company as a whole. The Company adopts the following procedures to ensure that the pricing basis disclosed above is complied with: (1) the amount of the total facilities to SEC Group and the relevant terms will be reviewed and approved by the credit approval committee of SE Finance; (2) each grant of loan to SEC Group will be approved by the senior management of SE Finance and (3) the audit committee of the Company will review the loan services between SE Finance and SEC Group on a quarterly basis. Interest for loans provided to SEC Group will usually be charged by SE Finance on a quarterly basis.

Reasons and benefits for entering into the SEC Framework Loan Agreement

SE Finance has been providing loan services to SEC Group in order to optimize the Surplus Fund utilization, which in turn would benefit the Group as a whole. In order to utilise excess free cash flow and allow for more efficient allocation of financial resources, offering loans and similar financial services to companies within SEC Group would benefit the Company by reallocating the resources and providing interest income to the Group.

Due to the long history and close working relationship between the Group and SEC Group, the risk of providing loans to SEC Group is low as SE Finance has a clear understanding of the financial conditions of companies within SEC Group. There is also a low possibility of any dispute or litigation between SE Finance and SEC Group regarding repayment terms of the loans as all the companies within SEC Group are familiar with terms and practice of loans services provided by SE Finance. In order to minimize the credit risk of the transactions under the SEC Framework Loan Agreement, the Company takes the following procedures: (1) the credit approval committee of SE Finance will review the amount of the total facilities to be granted to SEC Group and the relevant terms; (2) the senior management of SE Finance will review the decisions and approvals of its internal credit approval committee before providing loan services to SEC Group; (3) the audit committee of the Company will review the loan services between SE Finance and SEC Group quarterly; (4) in order to assess the financial position and credit status of SEC Group, the corporate finance department of SE Finance requests for financial statements from SEC Group on a quarterly basis and also requests for monthly management account immediately before granting any loan to SEC Group. Therefore, the Company considers that there is sufficient risk control measures in place and the transactions under the SEC Framework Loan Agreement are in the interest of the Company and the shareholders as a whole.

III. CONTINUING CONNECTED TRANSACTION EXEMPT FROM INDEPENDENT SHAREHOLDERS' APPROVAL REQUIREMENT

On 29 October 2019, the Company entered into the SEC Framework Purchase Agreement with SEC to purchase various products, component parts and raw materials from SEC Group. On 29 October 2019, the Company entered into the SEC Framework Sales Agreement with SEC in connection with the continuing sales transactions between the

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Group and SEC Group. On 29 October 2019, the Company entered into the SEC Framework Comprehensive Services Agreement with SEC in relation to the provision of informationization, professional consultation, entrusted management and other services to SEC Group by the Company. Based on the forecasted transaction amounts, these transactions will comprise continuing connected transactions subject to reporting, announcement and annual review requirements but exempted from Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules for the years 2020, 2021 and 2022.

1. SEC Framework Purchase Agreement

Summary

Agreement	SEC Framework Purchase Agreement
Date of agreement	29 October 2019
Parties	∙	the Company
	∙	SEC
Subject matter	framework purchase agreement in relation to the purchase of
	component parts such as turbine blades, couplings, AC motors and
	emergency trip control cabinets, automatic instruments, other
	mechanical equipment and raw materials (including copper wires
	and insulation materials) from SEC Group by the Group
Term	three years effective from 1 January 2020, renewable at the option
	of the Company for a term of three years by giving three months'
	notice prior to the expiry of the term

According to Rule14A.52 of the Listing Rules, the period for the agreement must not exceed three years. The Company will re-comply with Chapter 14A of the Listing Rules, including the disclosure and Independent Shareholders' approval requirements prior to the Company's exercise of the option to renew the agreement after the three years period for another three years.

Annual caps and basis of determination

The table below sets out the historical amounts of purchases by the Group from SEC Group for the years 2017, 2018 and six months ended 30 June 2019, and the estimated amount, as proposed annual cap, for the three years ending 31 December 2020, 2021 and 2022, under the SEC Framework Purchase Agreement:

	Historical amount for	Historical	Proposed annual cap for the year ending
	the year ended 31	amount for the	31 December
	December
		8

			period ended 30
			June
	2017	2018	2019	2020	2021	2022
			（RMB million）
Actual and	112	83	21	500	500	500
estimated
purchases
from SEC
Group

The Company has purchased the abovementioned component parts from SEC Group for years, and this long-term business relationship and the familiarity of the product specifications of the Company meet its demand in a cost-effective manner. The proposed annual caps for 2020, 2021 and 2022 have been worked out by reference to the latest business development plans of the core business of the Group and SEC Group, the market conditions and the expected demand and supply of the products in various business divisions of the Group.

Pricing Basis

The consideration of each of the transactions under the SEC Framework Purchase Agreement is and will continue to be determined in accordance with the following pricing policies: (i) the pricing basis under the SEC Framework Purchase Agreement will be made with reference to market price of the products as applicable. Such market price is determined by reference to the prevailing market prices for similar or the same equipment or raw materials available on an arm's length basis from independent third parties. The marketing departments of the Company have been obtaining and will continue to obtain price quotations from suppliers in the market (including both independent suppliers and SEC) and will choose the supplier who provides the most favourable terms (especially the lowest price per unit of the same quality). The marketing department of the Company will compare the price quotations from SEC with at least two price quotations from independent suppliers before making the commercial decision; (ii) when there are no market prices, the Company will seek a reasonable price by comparing the quotations from different suppliers as well as the prices of historical transactions and nail down the agreed price on normal commercial terms with SEC Group. The senior management of the Company will review the pricing of transactions under the SEC Framework Purchase Agreement and compare the terms of agreements entered into between the Group and independent third parties with the terms of the SEC Framework Purchase Agreement in relation to the purchases of the products with similar specifications to ensure that the prices and terms offered by SEC Group is no less favourable to the Group than those offered by independent third parties. In addition, the internal control department of the relevant subsidiaries will conduct annual review to make sure the abovementioned procedure has been complied with throughout the year. The Directors believe that the prices and terms offered by SEC Group will be no less favourable to the Group than that offered by other independent parties and are in the interests of the Shareholders and the Company as a whole.

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Reasons and benefits for entering into the SEC Framework Purchase Agreement

The Group has been purchasing the above said component parts for the manufacture of the Group's products from SEC Group for many years. As a result of the Group's long-term and stable business relationship with SEC Group, SEC Group is familiar with the Group's product specifications and has been able to respond quickly and in a cost efficient manner to any new requirements that the Group may request. The SEC Framework Purchase Agreement was entered into in the ordinary course of business of the Company and on normal commercial terms.

2. SEC Framework Sales Agreement

Summary

Agreement	SEC Framework Sales Agreement
Date of agreement	29 October 2019
Parties	∙	the Company
	∙	SEC
Subject matter	framework sales agreement in relation to the provision of electrical
	engineering products and services, electrical equipment and
	component parts and other related services to SEC Group by the
	Company
Term	three years effective from 1 January 2020, renewable at the option
	of the Company for a term of three years by giving three months'
	notice prior to the expiry of the term

According to Rule14A.52 of the Listing Rules, the period for the agreement must not exceed three years. The Company will re-comply with Chapter 14A of the Listing Rules, including the disclosure and Independent Shareholders' approval requirement prior to the Company's exercise of the option to renew the agreements after the three years period for another three years.

Annual caps and basis of determination

The table below sets out the historical amounts of sales by the Group to SEC Group for the years 2017, 2018 and six months ended 30 June 2019, and the estimated amount, as proposed annual cap, for the three years ending 31 December 2020, 2021 and 2022, under the SEC Framework Sales Agreement:

	Historical amount for	Historical	Proposed annual cap for the year ending
	the year ended 31	amount for the	31 December
	December	period ended 30
		June
		10

	2017	2018	2019	2020	2021	2022
			（RMB million）
Actual and	464	368	194	700	700	700
estimated
sales to
SEC Group

The proposed annual caps for 2020, 2021 and 2022 have been worked out by reference to the latest business development plans of SEC and SEC Group, the market conditions, and the expected demand and supply of the products in various business divisions of SEC Group, in particular, the various overseas projects that SEC Group has in the pipeline. The proposed annual caps for 2020, 2021 and 2022 show a moderate upward trend as compared to the historical amounts of sales.

Pricing Basis

Prices of products and services to be provided to SEC will be determined principally by arm's length commercial negotiations with reference to the market price and the historical transaction price by taking into account the actual cost plus a reasonable profit margin. The Company will determine gross profit margin for such transactions ranging from 8% to 20% at the beginning of each year, based on which, the Company and SEC negotiate and set sales prices of the relevant products and services to be provided under SEC Framework Sales Agreement. The Group has taken sufficient internal control measures to ensure that the gross profit margin from sales of products and services to SEC Group will be no less than that from sales of similar products and services to independent third parties. The senior management of the Company will review the pricing of transactions under the SEC Framework Sales Agreement and compare the terms of agreements entered into between the Group and independent third parties with the terms of the SEC Framework Sales Agreement in relation to sales of similar products or services to ensure that the price and terms offered to SEC Group is no more favourable than those offered to independent third parties. In addition, the internal control department of the company will conduct annual review to make sure the abovementioned procedure has been complied with throughout the year. Thus the Directors believe that the prices and terms offered to SEC Group will be no more favourable than those offered to other independent parties and are in the interests of the Shareholders and the Company as a whole.

Reasons and benefits for entering into the SEC Framework Sales Agreement

The Group has been providing certain electrical engineering products and services, electrical equipment and component parts, and other related services to SEC Group for the manufacture of SEC Group's products and provision of services for many years. As a result of the Group's long-term business relationship with SEC Group, the Group is familiar with SEC Group's product requirement and is able to respond quickly and in a cost efficient manner to any new requirements that SEC Group may request. The SEC Framework Sales Agreement was entered into in the ordinary course of business of the Company and on normal commercial terms.

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3. SEC Framework Comprehensive Services Agreement

Summary

Agreement	SEC Framework Comprehensive Services Agreement
Date of agreement	29 October 2019
Parties	∙	the Company
	∙	SEC
Subject matter	The comprehensive services framework agreement in relation to
	the non-exclusive provision of informationization, professional
	consultation, entrusted management and other services to SEC
	Group by the Company
Term	three years effective from 1 January 2020, renewable at the option
	of the Company for a term of three years by giving three months'
	notice prior to the expiry of the term

According to Rule14A.52 of the Listing Rules, the period for the agreement must not exceed three years. The Company will re-comply with Chapter 14A of the Listing Rules, including the disclosure and Independent Shareholders' approval requirement prior to the Company's exercise of the option to renew the agreements after the three years period.

Annual caps and basis of determination

The table below sets out the historical amounts of comprehensive services provided by the Group to SEC Group for the years 2017, 2018 and six months ended 30 June 2019, and the estimated amount, as proposed annual cap, for the three years ending 31 December 2020,

2021 and 2022, under the SEC Framework Comprehensive Services Agreement:

	Historical amount	Historical	Proposed annual cap for the year
	for the year ended 31	amount for the		ending 31 December
	December	period ended
			30 June
	2017	2018	2019	2020		2021		2022
			（RMB million）
Actual and	10	22	30	200		200		200
estimated
comprehensive
services
provided to
SEC Group
			12

The proposed annual caps for 2020, 2021 and 2022 have been worked out by reference to the latest business development plans of SEC and SEC Group, the market conditions, and the expected demand and supply of the products in various business divisions of SEC Group. The proposed annual caps for 2020, 2021 and 2022 show a moderate upward trend as compared to the historical amounts.

Pricing Basis

The various types of services under the agreement shall be priced according to the following general principles in sequential order: where there is government (including local government) prescribed price, such price shall apply; where there is no such government prescribed price, the price shall fall within the band of government guidance price; where there is no such government guidance price, the market price shall apply; where there is no government prescribed price, government guidance price or market price available, the price as agreed among both parties shall apply. Both parties agree that if there is any material change in the market conditions which affects product cost, they shall, subject to compliance with the requirements of the pricing principles as signed between them, amend or cancel the relevant provisions of the agreement through negotiations and enter into a new agreement, and perform the necessary compliance approval process.

Reasons and benefits for entering into the SEC Framework Comprehensive Services Agreement

The Directors believe that the Group provides SEC Group with certain services including but not limited to informationization, professional consultation and entrusted management for SEC Group's production and operation, and charge reasonable fees for the provision of services that SEC Group needs. The SEC Framework Comprehensive Services Agreement was entered into in the ordinary course of business of the Company and on normal commercial terms. The prices and terms offered to SEC Group will be no more favourable than those offered to other independent parties and are in the interests of the Shareholders and the Company as a whole.

IV. LISTING RULES IMPLICATIONS

SEC is a controlling shareholder holding approximately 59.18% equity interest in the total issued share capital of the Company as at the date of this announcement. Therefore, SEC is a connected person of the Company as defined under Chapter 14A of the Listing Rules. Given the respective highest applicable percentage ratios of the transactions under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement are expected to be more than 5% as set out under Chapter 14A of the Listing Rules, these continuing connected transactions are subject to reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. The respective highest applicable percentage ratio of the transactions under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement is expected to be more than 5% and less than 25%, and therefore, such transactions fall under the discloseable transactions as defined in Chapter 14 of the Listing Rules, which are subject to reporting and announcement requirements. Given the respective highest applicable percentage ratios of the transactions under the SEC Framework Purchase Agreement, the

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SEC Framework Sales Agreement and the SEC Framework Comprehensive Services Agreement are expected to be more than 0.1 % but less than 5% as set out under Chapter 14A of the Listing Rules, these continuing connected transactions are subject to reporting, announcement and annual review requirements as set out under Chapter 14A of the Listing Rules but exempted from Independent Shareholders' approval requirements.

V. OPINIONS OF THE BOARD OF DIRECTORS

Mr. Zheng Jianhua and Mr. Zhu Bin, all being Directors, hold directorship(s) or act as senior management in SEC Group and its associates and thus have material interests in the Exempted Continuing Connected Transactions and Non-exempt Continuing Connected Transactions. They have therefore abstained from voting on the relevant board resolutions approving such matters. Other than as disclosed above, none of the other Directors has material interests in these transactions.

The Directors of the Company (including the independent non-executive directors) are of the opinion that the Continuing Connected Transactions are entered into after arm's length negotiations, are on normal commercial terms and conducted in the ordinary and usual course of business and the terms and respective annual caps of the Exempted Continuing Connected Transactions and Non-exempt Continuing Connected Transactions are fair and reasonable and are in the interests of the Company and its Shareholders as a whole.

VI. GENERAL INFORMATION

The Group is one of the largest industrial equipment manufacturing conglomerates in China engaged in the following principal activities: (i) design, manufacture and sale of nuclear power nuclear island equipment products, wind power equipment products and heavy machinery including large forging components, and provision of solution package for comprehensive utilisation of solid waste, sewage treatment, power generation environment protection and distributed energy systems; (ii) design, manufacture and sale of thermal power equipment products and auxiliary equipment, nuclear power conventional island equipment products and power transmission and distribution equipment products; (iii) design, manufacture and sale of elevators, electric motors, machine tools, marine crankshafts and other electromechanical equipment products; and (iv) provision of integrated engineering services for power station projects and other industries, financial products and services, and functional services including international trading services, financial lease and related consulting services and insurance brokerage services.

The principal business of SEC is the management of state-owned assets and investment activities. SEC is an enterprise wholly-owned by Shanghai SASAC and is one of the largest comprehensive equipment manufacturing conglomerates in China.

SE Finance is a subsidiary of the Company in which the Company holds 89% equity interest of the issued share capital as at the date of this announcement. SEC holds 9.75% equity interest in SE Finance as at the date of this announcement. SE Finance was set up in 1995 pursuant to the approval granted by People's Bank of China under "The Regulations Governing Finance Companies of Conglomerates" to provide financial services to the Group and SEC Group. SE Finance has obtained all approvals, permits and licenses necessary for its operations. Currently, the governing body for financial

14

institutions in the PRC (including SE Finance) is the China Banking Regulatory Commission. Under the relevant PRC regulations, SE Finance, as a non-bank finance company, is allowed to provide treasury services to, in addition to the Group, companies where SEC holds at least 20% shareholding or in which SEC has a control.

The Independent Board Committee, comprising all of the independent non-executive Directors, will be established by the Company to advise the Independent Shareholders in respect of, among others, the continuing connected transactions contemplated under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement. The Company will appoint an independent financial adviser to advise the Independent Board Committee and Independent Shareholders on, among other things, the continuing connected transactions contemplated under the SEC Framework Deposit Agreement and the SEC Framework Loan Agreement.

VII. CIRCULAR

A circular containing a letter from the Board setting out the details of the Non-Exempted Continuing Connected Transactions, a letter from the Independent Board Committee and a letter of advice from the Independent Financial Adviser will be despatched to the Shareholders as soon as practicable but no later than 20 November 2019.

VIII. DEFINITIONS

"associate(s)"	has the meaning ascribed thereto under the Listing
	Rules;
"Board"	the board of Directors;
"Company"	Shanghai Electric Group Company Limited (上海
	電氣集團股份有限公司 ), a joint stock limited
	company duly incorporated in the PRC with limited
	liability, the H shares of which are listed on the
	Stock Exchange of Hong Kong Limited under stock
	code 02727 and the A shares of which are listed on
	the Shanghai Stock Exchange under stock code
	601727;
"connected person(s)"	has the meaning ascribed thereto under the Listing
	Rules;
"Continuing Connected	the continuing connected transactions between the
Transaction(s)"	Group and SEC Group, further details of which are
	set out in the sections headed "II.-Non-Exempt
	Continuing Connected Transactions" and "III.-
	15

	Continuing Connected Transactions Exempt from
	Independent	Shareholders'	Approval
	Requirement"；in this announcement;
"controlling shareholder"	has the meaning ascribed to it by the Listing Rules
"directors"	the directors of the Company;
"Exempted Continuing	the continuing connected transactions between the
Connected Transactions"	Group and SEC Group, which are subject to
	reporting, announcement and annual review
	requirements but exempted from Independent
	Shareholders' approval requirements under the
	Listing Rules, further details of which are set out in
	the section headed "III. Continuing Connected
	Transaction	Exempt	from	Independent
	Shareholders'	Approval	Requirement" in this
	announcement;
"Framework Financial Services	the SEC Framework Deposit Agreement and the
Agreements"	SEC Framework Loan Agreement;
"Group"	the Company and its subsidiaries from time to time;
"Hong Kong Stock Exchange"	The Stock Exchange of Hong Kong Limited;
"Independent Board Committee"	the independent board committee comprising all the
	independent non-executive Directors, namely, Mr.
	Kan Shun Ming, Dr. Chu Junhao and Dr. Xi Juntong
	formed to consider, among others, the terms of the
	Non-exempt Continuing Connected Transactions;
"independent non-executive	the independent non-executive directors of the
Director"	Company;
"Independent Shareholders"	the Shareholders other than SEC and its associates
	(as defined in the Listing Rules);
"Listing Rules"	The Rules Governing the Listing of Securities on
	The Stock Exchange of Hong Kong Limited;

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"Non-exempt Continuing	the continuing connected transactions between the
Connected Transactions"	Group and SEC Group, which are subject to
	reporting, announcement, annual review and
	Independent Shareholders' approval requirements
	under the Listing Rules, further details of which are
	set out in the section headed "II. Non-Exempt
	Continuing Connected Transactions" in this
	announcement;
"PRC" or "China"	the People's Republic of China, but for the purposes
	of this announcement only, excludes Hong Kong
	Special Administrative Region, Macau Special
	Administrative Region and Taiwan;

"RMB"

"SEC"

Renminbi, the lawful currency of the PRC;

Shanghai Electric (Group) Corporation (上海電氣 (集團)總公司) , the controlling shareholder of the Company (as defined in the Listing Rules) holding 59.18% equity interest in the total issued share capital of the Company as at the date of this announcement;

"SE Finance"	Shanghai Electric Group Finance Co., Ltd., (上海
	電 氣 集 團 財 務 有 限 責 任 公 司 ), 89% owned
	subsidiary of the Company as at the date of this
	announcement and a limited company incorporated
	in the PRC;
"SEC Framework	the framework comprehensive services agreement
Comprehensive Services	between the Company and SEC dated 29 October
Agreement"	2019 for provision of informationization,
	professional consultation, entrusted management
	and other services to SEC Group by the Company;
"SEC Framework Deposit	the framework deposit agreement between the
Agreement"	Company and SEC dated 29 October 2019 for
	provision of deposit services by the Group to SEC
	Group;
"SEC Framework Loan	the framework loan agreement between the
Agreement"	Company and SEC dated 29 October 2019 for
	provision of loan and bill discounting services by
	the Group to SEC Group;
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"SEC Framework Purchase	the framework purchase agreement between the
Agreement"	Company and SEC dated 29 October 2019 for
	purchase of certain component parts, equipment and
	raw materials by the Group from SEC Group;
"SEC Framework Sales	the framework sales agreement between the
Agreement "	Company and SEC dated 29 October 2019 for the
	provision of electrical engineering products and
	services, electrical equipment and component parts
	and other related services to SEC Group by the
	Group;
"SEC Group"	SEC, its subsidiaries and its associates, but
	excluding the Group;
"Shareholder(s)"	the shareholder(s) of the Company, including
	holder(s) of both A share(s) and H share(s) of the
	Company;
"Surplus Fund(s)"	the temporary surplus fund of the Group comprising
	mainly of advance payments from customers to the
	Group less advance payments to suppliers by the
	Group; and
"Stock Exchange"	The Stock Exchange of Hong Kong Limited;
"subsidiary(ies)"	has the meaning ascribed thereto under the Listing
	Rules;
"%"	percent.

By order of the Board

Shanghai Electric Group Company

Limited

ZHENG Jianhua

Chairman of the Board

Shanghai, the PRC, 29 October 2019

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As at the date of this announcement, the executive Directors of the Company are Mr. ZHENG Jianhua, Mr. HUANG Ou, Mr. ZHU Zhaokai and Mr. ZHU Bin; the non-executive Directors of the Company are Ms. YAO Minfang and Ms. LI An; and the independent non- executive Directors of the Company are Mr. KAN Shun Ming, Dr. CHU Junhao and Dr. XI Juntong.

* For identification purpose only

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