Beijing Enterprises Water Group Limited — Proxy Solicitation & Information Statement 2004

Oct 28, 2004

IMPORTANT

If you are in doubt as to any aspect of this document, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all or any of your shares in Shang Hua Holdings Limited, you should at once hand this document and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.

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----- Start of picture text ----- SHANG HUA HOLDINGS----- End of picture text -----

SHANG HUA HOLDINGS LIMITED 上華控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

Directors: Executive Directors Ms. Zhou Liping (Chairman) Ms. Guan Mei (Deputy Chairman) Mr. Huang Flynn Xuxian

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Independent non-executive Directors: Mr. Shea Chun Lok, Quadrant Mr. Chan Yin Kwong Mr. Ngai Chi Ying

Principal office: Unit 1601, 16/F, Cosco Tower No. 183 Queen’s Road Central, Sheung Wan, Hong Kong 28th October, 2004

To the shareholders

Dear Sir or Madam,

PROPOSED GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

GENERAL MANDATE TO ISSUE SHARES

Approval is being sought from the shareholders at the annual general meeting of Shang Hua Holdings Limited (the “Company”) to be held on 10th December, 2004 (the “Annual General Meeting”)

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to grant a general mandate in order to ensure flexibility and discretion to the directors of the Company (the “Directors”) in the event it becomes desirable for the Company to issue shares of HK$0.10 each up to an aggregate of 20 per cent. of its existing issued share capital as at the date of passing the relevant resolution (the “General Mandate”).

As at 25th October, 2004, being the latest practicable date prior to the printing of this document for ascertaining such information (the “Latest Practicable Date”), the aggregate number of shares in issue was 55,523,633. Subject to the passing of the relevant ordinary resolution and on the basis that no further shares are issued or repurchased prior to the Annual General Meeting, the Company will be allowed under the General Mandate to issue a maximum of 11,104,726. The obtaining of such a mandate is in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The Directors wish to state that they have no immediate plans to issue any new shares of the Company.

REPURCHASE MANDATE

The Listing Rules permit companies with a primary listing on The Stock Exchange of Hong Kong Limited (the “Exchange”) to repurchase their own securities, subject to certain restrictions, on the Exchange. At the Annual General Meeting, an ordinary resolution will be proposed to grant to the Directors a general mandate to, inter alia, repurchase up to 10 per cent. of the shares of the Company in issue as at the date of the passing of the relevant resolution (the “Repurchase Mandate”).

The Company is required by the particular rules in the Listing Rules regulating such share repurchases to send to the shareholders an explanatory statement containing all the information reasonably necessary to enable them to make an informed decision on whether to vote for or against the Repurchase Mandate. Such information is provided below:

1. Reasons for Repurchase Mandate

The Directors believe that the Repurchase Mandate is in the best interests of the Company and its shareholders. Such repurchase may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net value of the Company’s shares and its assets and/or its earnings per share and will only be made when the Directors believe that such repurchases will benefit the Company and its shareholders. The Company does not have any present intention to exercise such Repurchase Mandate.

2. Funding of repurchases and impact on working capital or gearing position

Repurchases must be funded out of funds legally available for such purpose in accordance with the memorandum of association and bye-laws of the Company and the laws of Bermuda. It is envisaged that the Company would derive the funds from its distributable profits.

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with position disclosed in the audited accounts for the year ended 30th June, 2004), in the event that the mandate to repurchase shares is exercised in full at any time during the proposed repurchase period. However, the Directors do not propose to exercise the mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

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3. Undertaking

The Directors have undertaken to the Exchange that so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Bermuda.

4. Directors and connected persons

None of the Directors or, to the best of their knowledge, having made all reasonable enquiries, any of their associates have any present intention, if the Repurchase Mandate is approved by the shareholders at the Annual General Meeting, to sell any shares to the Company or its subsidiaries.

No connected persons of the Company or their associates (as defined in the Listing Rules) have notified the Company that they have a present intention to sell shares to the Company, or have undertaken not to do so in the event that the Company is authorised to make repurchase of shares.

5. Share capital

As at the Latest Practicable Date, the issued share capital of the Company comprised 55,523,633 share of HK$0.10 each. Subject to the passing of the relevant ordinary resolution and on the basis that no further shares are issued or repurchased prior to the Annual General Meeting, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 5,552,363 shares.

6. Takeovers Code

If as a result of the exercise of the power to repurchase shares pursuant to the Repurchase Mandate, a shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of the Hong Kong Code on Takeovers and Mergers (the “Takeovers Code”). As a result, a shareholder, or group of shareholder’s acting in concert depending on the level of increase of the shareholder’s interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 and 32 of the Takeovers Code.

As at the Latest Practicable Date, Pioneer Wealth Ltd., being the controlling shareholder of the Company, held 13,477,250 Shares representing approximately 24.27% of the issued share capital of the Company. In the event that the Directors should exercise in full the Repurchase Mandate, the attributable shareholding of Pioneer Wealth Ltd. will be increased to approximately 26.97% of the issued share capital of the Company and such an increase would not give rise to an obligation to make a mandatory offer under Rules 26 and 32 of the Takeover Code.

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7. Share prices

The highest and lowest prices at which the Company’s shares were traded on the Exchange during each of the previous twelve months were as follows:

	HighestLowestTraded PriceTraded PriceHK$HK$2003October2.2401.000November2.2801.560December1.7601.680	HighestLowestTraded PriceTraded PriceHK$HK$2003October2.2401.000November2.2801.560December1.7601.680
	2004January1.8001.600
February2.0001.460March1.9601.600April1.8001.360May1.4201.200June1.4400.480July0.7200.400August0.5500.500September0.5400.350	February2.0001.460March1.9601.600April1.8001.360May1.4201.200June1.4400.480July0.7200.400August0.5500.500September0.5400.350
8.Share repurchases made by the Company

8. Share repurchases made by the Company

The Company has not repurchased any securities (whether on the Exchange or otherwise) in the past six months preceding the Latest Practicable Date.

RECOMMENDATION

The Directors consider that the General Mandate and the Repurchase Mandate are in the best interests of the Company and its shareholders and accordingly recommend that all shareholders should vote in favour of the ordinary resolutions to be proposed at the Annual General Meeting.

PROXY FORM

A form of proxy for use at the Annual General Meeting is enclosed with the 2004 Annual Report. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the Annual General Meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so wish.

Yours faithfully, On behalf of the Board

Zhou Liping

Chairman

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