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Report of the Directors

The Directors have pleasure in submitting their report together with the audited financial statements of the Company and its subsidiaries (collectively the “Group”) for the year ended 31 December 2016.

The principal activity of the Company is investment holding. The Company’s principal subsidiaries (set out in Note 34 to the financial statements) are engaged in the ownership and international operation of modern Handysize and Supramax dry bulk ships. In addition, the Group is engaged in the management and investment of the Group’s cash and deposits through its treasury activities.

The business review of the Group for the year ended 31 December 2016 is set out on pages 1 to 12 of this Annual Report. A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out in the “Group Financial Summary” section of this Annual Report. A brief introduction of the Group’s Corporate Social Responsibility (“CSR”) efforts for the year ended 31 December 2016 is set out in the “CSR Highlights” section of this Annual Report and a comprehensive CSR Report is available on our website.

The results of the Group for the year are set out in the consolidated income statement on page 53. In view of the Group’s reported net loss for the year ended 31 December 2016, the Board recommends not to pay out a dividend.

DISTRIBUTABLE RESERVES

Distributable reserves of the Company at 31 December 2016, calculated in accordance with the Companies Act 1981 of Bermuda, amounted to US$638.1 million.

DONATIONS/SPONSORSHIPS

Charitable and other donations and sponsorships made by the Group during the year amounted to US$55,000.

SHARE CAPITAL AND PRE-EMPTIVE RIGHTS

Movements in the share capital of the Company are set out in Note 20 to the financial statements.

On 27 May 2016, the number of ordinary shares of the Company increased by 32,400,000,000 shares to 36,000,000,000 shares as a result of capital reorganisation which comprised: (1) cancellation of paid-up capital in the amount of US$0.09 on each then issued share; and (2) subdivision of each of the then unissued shares of US$0.10 each in the authorised share capital of the Company into 10 new shares of US$0.01 each; and (3) reduction of the entire amount of approximately US$604.8 million standing to the credit of the Company’s share premium account.

During the year, a total of 2,068,490,156 ordinary shares were issued, of which 1,946,823,119 shares were issued on 24 June 2016 as a result of the Rights Issue which has raised US$143 million (net) for the Group, 41,688,000 shares were issued in August to fulfill the restricted share awards under the 2013 Share Award Scheme and 79,979,037 shares were issued to 10 shipowners or their nominees in return for a US$13 million reduction in longterm charter hire rates in 2017 and 2018.

There is no provision for pre-emptive rights under the Company’s Bye-laws and there is no restriction against such rights under Bermuda Law.

Details of the convertible bonds issued by the Group are set out in Note 19 to the financial statements.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

On 12 April 2016, the Group redeemed at par and cancelled all of the remaining 10,559 units of the Group’s US$230,000,000 1.75% p.a. coupon guaranteed convertible bonds due 2016 with a face value of US$10,000 per unit upon maturity. The redemption involved a cash outlay of US$105,590,000 of principal and accrued interest of US$923,913.

On 24 October 2016, the Group redeemed and cancelled the entire principal amount of US$123,800,000 1.875% p.a. coupon guaranteed convertible bonds due 2018 following the exercise of the put option by all holders of the bonds in September 2016. The redemption involved a cash outlay of US$123,800,000 of principal and accrued interest of US$1,160,623.

Save as disclosed above and other than for satisfying restricted share awards granted under the Company’s 2013 Share Award Scheme, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the share capital or convertible bonds of the Company during the year.

2013 SHARE AWARD SCHEME (“SAS”)

The current SAS was adopted by the Board on 28 February 2013 and has an effective term of 10 years. It is a single share award scheme under which no share options can be granted.

The SAS enables the Company to grant share awards or unit awards (“Awards”) to eligible participants, being principally executive Directors and employees, as an incentive and recognition for their contribution to the Group.

Since the adoption of the SAS, the Board has not granted, and currently has no intention to grant, any Awards to Independent Non-executive Directors as they have the responsibility to administer the scheme in accordance with the rules of the SAS.

Maximum Number of Shares

The total number of shares which may be or already have been issued by the Company or transferred to the trustee of the SAS in satisfaction of the Awards granted under the SAS must not, in aggregate, exceed 10% of the issued share capital of the Company as at the first date of each financial year during the term of the SAS (equivalent to 401,531,327 shares as at 1 January 2017). There were 67,256,000 unvested restricted awards under the SAS which represents 1.67% of the issued share capital of the Company as at 28 February 2017.

Vesting of Awards

Awards typically vest annually over a three year period. New Awards for existing awardees are considered each year by the Remuneration Committee to maintain the incentive period, in which case they vest at the end of the third year.

Limit for Each Eligible Participant

The maximum number of shares which may be subject to an Award or Awards at any one time shall not in aggregate exceed (i) 1% of the issued share capital of the Company as at the first date of the relevant financial year of the Company for any specific eligible participant; and (ii) 0.1% of the issued share capital of the Company as at the first date of the relevant financial year of the Company for any Independent Non-executive Director.

New Shares to be Issued

Apart from the Awards which are to be purchased from the market for the connected persons of the Company, the number of shares to satisfy grant of Awards (if comprising new shares) can be allotted and issued by the Board by utilising the general mandate granted to them by shareholders. The Company will apply to the Stock Exchange for permission to list and to deal in those new shares to be issued as soon as practicable after any grant of Awards.

Procedure of Granting Restricted Awards

The Board entered into a trust deed to appoint a trustee to administer Awards under the SAS and to constitute a trust to hold property transferred by the Company to the trustee (which shall include cash or shares) in order to satisfy grants of Awards. At the direction of the Board, the trustee shall either subscribe for new shares at the relevant benchmarked price as stipulated in the Listing Rules from the Company or acquire existing shares in the market in accordance with the rules of the SAS. The Remuneration Committee administers and oversees the SAS. Their review and approval is required prior to the granting of Awards to any staff members of the Group.

Awards Granted:

Details of the grant of long-term incentives and the movements of the outstanding incentives during the year ended 31 December 2016 under the SAS are as follows:

History and Movement of Restricted Awards Granted

'000 shares/units Date of
first award
Total
awarded
Vested
to date
At
31 Dec
2016
At
1 Jan
2016
Granted1
during
the year
Vested 2
or
lapsed
Vesting in July of
2017 2018 2019
Directors               
David M. Turnbull 5-Aug-085,934 (2,505) 3,429 1,413 2,906 (890) 694 1,242 1,493
Mats H. Berglund 1-Jun-1212,000 (4,338) 7,662 2,985 6,387 (1,710) 1,430 2,830 3,402
Andrew T. Broomhead 3 11-May-077,881 (3,404) 4,477 1,814 3,763 (1,100) 906 1,622 1,949
Chanakya Kocherla 4 11-May-076,324 (2,276) 4,048 1,511 3,357 (820) 666 1,536 1,846
32,139 (12,523) 19,616 7,723 16,413 (4,520) 3,696 7,230 8,690
Other Employees   47,640 18,686 43,176 (14,222) 10,784 17,256 19,600
  67,256 26,409 59,589 (18,742) 14,480 24,486 28,290

Notes:

(1) Following the Company's rights issue in June 2016, an adjustment was made pursuant to the rules of the 2013 Share Award Scheme.Hence, awards granted during the year comprised the annual grant as well as the adjustment for awards vesting in 2016, 2017 and 2018.

(2) Subsequent to the adjustment as described in note (1) above, a total of 16,522,000 shares vested during the year in accordance with the award vesting schedule. In addition, 1,321,000 shares lapsed due to the resignation of six employees and 899,000 shares vested due to the retirement and redundancy of two employees.

(3) Mr. Broomhead's personal interest of 4,477,000 shares are unvested restricted share awards, of which 906,000 shares will vest on 14 July 2017 and the balance of 3,571,000 shares are expected to lapse when he steps down by 31 December 2017.

(4) 4,048,000 unvested restricted share awards are expected to lapse upon Mr. Kocherla's resignation on 30 April 2017.

DIRECTORS

The Directors who held office up to the date of this Annual Report are set out below:

Date of appointment to:
Board Audit Committee Remuneration Committee Nomination CommitteeExecutive Committee Terms of appointment
Executive Directors           
David M. Turnbull 17 May 2006 -1 July 2008 3 years until 2017 AGM
Mats H. Berglund 1 June 2012 - - -1 June 2012 3 years until 2018 AGM
Andrew T. Broomhead 1 September 2010 - -1 January 2010 Steps down by
31 December
2017
Chanakya Kocherla 25 June 2012 - -25 June 2012 Retires at the conclusion of 2017 AGM
Independent Non-executive Directors         
Patrick B. Paul25 March 2004 18 May 2004 10 June 2004 30 November 2004- 3 years until 2018 AGM
Robert C. Nicholson 25 March 2004 18 May 2004 10 June 2004 30 November 2004- 3 years until 2019 AGM
Alasdair G. Morrison 1 January 2008 1 January 2008 1 January 2008 1 January 2008- 3 years until 2018 AGM
Daniel R. Bradshaw 7 April 2006 7 April 2006 7 April 2006 7 April 2006- 3 years until 2019 AGM
Irene Waage Basili 1 May 2014 1 May 2014 1 May 2014 1 May 2014- 3 years until 2018 AGM
Stanley H. Ryan 5 July 2016 5 July 2016 5 July 2016 5 July 2016- 3 years until 2019 AGM

Notes:

Pursuant to the Company's Bye-law 87(1), at each annual general meeting one-third of the Directors for the time shall retire from office by rotation, provided that every Director shall be subject to retirement at least once every three years.

Mr. Stanley H. Ryan, an Independent Non-executive Director appointed by the Board during the year, shall retire at the 2017 annual general meeting (“AGM”) in accordance with the Company’s Bye-law 86(2). In addition, Messrs. David M. Turnbull, Chanakya Kocherla and Irene Waage Basili shall retire at the 2017 AGM by rotation pursuant to the Company’s Bye-laws 87(1) & (2). Except for Mr. Chanakya Kocherla who does not offer himself for re-election, all retiring Directors, being eligible, offer themselves for re-election by shareholders.

DIRECTORS’ SERVICE CONTRACTS

None of the Directors who are proposed for re-election at the forthcoming 2017 AGM has a service contract with the Company which is not determinable within one year without payment of compensation, other than statutory compensation.

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTION, ARRANGEMENT AND CONTRACTS

No transactions, arrangements and contracts of significance in relation to the Group’s business to which the Company or its subsidiaries was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

DIRECTOR’S INDEMNITIES

Pursuant to the Company’s Bye-laws, every Director shall be entitled to be indemnified out of the assets and profits of the Company against all losses or liabilities (to the fullest extent permitted by the Companies Ordinance (Cap. 622)) which he/ she may sustain or incur in or about the execution of the duties of his/her office. The Company has arranged appropriate directors’ and officers’ liability insurance coverage for the Directors and officers of the Group.

BIOGRAPHICAL DETAILS OF DIRECTORS

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY ASSOCIATED CORPORATION

At 31 December 2016, the disclosable interests and short positions of each Director and the Chief Executive in shares, underlying shares and debentures of the Company and its associated corporations within the meaning of Part XV of the SFO, which: (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or (b) were required to be entered in the register maintained by the Company under Section 352 of the SFO, or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

Name of Director Personal
interest
Corporate
or Family
interests/
Trust & similar
interests
Long/
Short
position
Total Share
interests
Approximate percentage
holding of issued
share capital 2
31-Dec-16 31-Dec-15
David M. Turnbull 1 6,547,000 2,524,918 3 Long9,071,918 0.23%0.32%
Mats H. Berglund 1 12,000,000 - Long12,000,000 0.30%0.29%
Andrew T. Broomhead 1&4 4,477,000 4,181,408 Long8,658,408 0.22%0.24%
Chanakya Kocherla 1 8,825,334 5 - Long8,825,334 0.22%0.18%
Patrick B. Paul 380,000 - Long380,000 less than 0.01%less than 0.01%
Daniel R. Bradshaw - 772,834 6 Long772,834 0.02%0.02%

Notes:

(1) Restricted share awards were granted under the 2013 Share Award Scheme and have been disclosed on page 42 of this Report.

(2) Total issued share capital of the Company was 4,015,313,275 shares as at 31 December 2016 and was 1,946,823,119 shares as at 31
December 2015.

(3) 2,524,918 shares held are in the form of convertible bonds due 2021 at nominal value of US$1 million held by a Trust named Bentley
Trust (Malta) Limited, of which Mr. Turnbull is the founder.

(4) Mr. Broomhead's personal interest of 4,477,000 shares are unvested restricted share awards, of which 906,000 shares will vest on 14
July 2017 and the balance of 3,571,000 shares are expected to lapse when he steps down by 31 December 2017. 4,181,408 shares are
held via Paulatim Investments Limited which is jointly owned by Mr. Broomhead and his wife.

(5) Mr. Kocherla's personal interest includes 4,048,000 unvested restricted share awards which are expected to lapse upon his resignation on 30 April 2017.

(6) 772,834 shares are held by Cormorant Shipping Limited and Goldeneye Shipping Limited of which Mr. Bradshaw is the sole shareholder.

All the interests stated above represent long positions. No short positions and shares under equity derivatives held by Directors were recorded in the register maintained by the Company under section 352 of the SFO as at 31 December 2016.

Save as disclosed, at no time during the year was the Company, its subsidiaries, or its associated companies a party to any arrangement to enable the Directors and Chief Executive of the Company to hold any interests or short positions in the shares or underlying shares in, or debentures of, the Company or its associated corporations.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

The register of substantial shareholders maintained under Section 336 of the SFO shows that as at 31 December 2016, the Company had been notified of the following substantial shareholders’ interests and short positions, being 5% or more of the Company’s issued share capital.

NameCapacity/
Nature of interest
Long/
Short
Position
Number of
Shares
Approximate percentage
holding of issued
share capital 2
31-Dec-16 31-Dec-15
Aberdeen Asset Management Plc and
   its Associates (together the "Group")
   on behalf of accounts managed
   by the Group
Investment manager Long 633,239,000 15.77% 13.96%
Michael Hagn Interest in corporation
controlled
Long 268,842,846 6.70% 12.98%
Citigroup Inc.2 Custodian corporation &
approved lending agent/
Person having a security interest/
Interest in corporation controlled
Long 237,415,922 5.91%Not applicable

Notes:

(1) The total issued share capital of the Company was 4,015,313,275 shares as at 31 December 2016 and was 1,946,823,119 shares as at 31 December 2015.

(2) The long position in shares held by Citigroup Inc. is held in the capacities of Custodian corporation/approved lending agent (relating to 207,381,040 shares), Person having a security interest (relating to 30,010,687 shares) and Interest in corporation controlled (relating to 24,195 shares).

Save as disclosed above, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, as at 31 December 2016, no other person (other than a Director or Chief Executive of the Company) had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or recorded in the register required to be kept by the Company under section 336 of the SFO.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year.

MAJOR CUSTOMERS AND SUPPLIERS

During the year, the Group sold less than 30% of its goods and services to its five largest customers and purchased less than 30% of its goods and services from its five largest suppliers.

CONNECTED TRANSACTIONS

During the year, the Group had no connected transactions that were subject to the Listing Rules’ reporting requirements for disclosure in this Annual Report.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

Throughout the year, the Group has been fully compliant with all code provisions of the Corporate Governance Code as contained in Appendix 14 of the Listing Rules. Please also refer to the Corporate Governance Report of this Annual Report.

AUDIT AND REMUNERATION COMMITTEES

Details of the audit and remuneration committees are set out in the Corporate Governance Report of this Annual Report.

AUDITORS

The financial statements have been audited by PricewaterhouseCoopers who retire and, being eligible, offer themselves for re-appointment at the forthcoming 2017 AGM.

PUBLIC FLOAT

On the basis of information that is publicly available to the Company and within the knowledge of the Directors as at the date of this Annual Report, the Company has complied with the Listing Rules requirement to have at least 25% of the Company’s total issued share capital held by the public.

By Order of the Board



Mok Kit Ting, Kitty

Company Secretary

Hong Kong, 28 February 2017


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