Beijing Enterprises Water Group Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker or other registered dealer in securities, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Beijing Enterprises Water Group Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

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(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

(2) PROPOSALS FOR ADOPTION OF THE 2011 SHARE OPTION SCHEME AND TERMINATION OF THE 2002 SHARE OPTION SCHEME （3）PROPOSED RE-ELECTION OF THE RETIRING DIRECTOR AND

(4) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and

the Independent Shareholders

A letter from the Board is set out from pages 6 to 15 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders in connection with the 2nd Supplemental Loan Agreement is set out on page 16 of this circular. A letter from Guangdong Securities, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the 2nd Supplemental Loan Agreement is set out from pages 17 to 27 of this circular.

A notice convening a special general meeting of Beijing Enterprises Water Group Limited to be held at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Tuesday, 28 June 2011 at 10:00 a.m. is set out from pages 46 to 47 of this circular. A form of proxy for use at the special general meeting of the Company is also enclosed. Such form of proxy is also published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk). Whether or not you are able to attend the special general meeting of the Company, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the special general meeting if they so wish.

10 June 2011

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from Guangdong Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I – Summary of the principal terms of
the 2011 Share Option Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix II – Details of Director proposed for re-election. . . . . . . . . . . . . . . . . . . . . .	39
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Notice of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

“1st Announcement”	the announcement made by the Company on 24 June 2010
	in relation to the Loan Agreement
“2002 Share Option Scheme”	the share option scheme adopted by the Company on 20
	March 2002
“2011 Share Option Scheme”	the new share option scheme (as described in this circular)
	in its present or any amended form
“2nd Announcement”	the announcement made by the Company on 14 December
	2010 in relation to the Supplemental Loan Agreement
“2nd Supplemental	the 2nd supplemental loan agreement entered into among
Loan Agreement”	the Company, Meishi and Mr. Wu, among other things, for
	the Additional Loan on 25 May 2011
“Additional Loan”	the additional loan of US$140,948,000 (equivalent to
	approximately HK$1,096,575,000) at maximum to be
	granted to Meishi pursuant to the 2nd Supplemental Loan
	Agreement
“Adoption Date”	the date on which the 2011 Share Option Scheme is
	adopted, conditionally or unconditionally by the Company
	at the SGM
“Announcement”	the announcement of the Company dated 25 May 2011 in
	relation to the 2nd Supplemental Loan Agreement regarding
	provision of the Loan
“associate(s)”	has the same meaning ascribed thereto in the Listing Rules
“Board”	the board of Directors
“BT Project”	the build transfer project for the construction of the
	sewage treatment and pipeline network and the relevant
	infrastructures for the water supply main project phase
	II for Changxing Dao, Jiao Liu Island sewage treatment
	station and ancillary pipeline projects

– 1 –

DEFINITIONS

“Business Day(s)”	has the same meaning ascribed thereto in the Listing Rules
“Bye-laws”	the bye-laws from time to time adopted by the Company
“Cause”	in relation to a Grantee, having committed any act of
	bankruptcy or having become insolvent or having made any
	arrangements or composition with his creditors generally
“Commencement Date”	in respect of any particular Option, the date on which the
	Option is granted in accordance with the terms of the 2011
	Share Option Scheme
“Company”	Beijing Enterprises Water Group Limited, a company
	incorporated in Bermuda and whose Shares are listed on the
	main board of the Stock Exchange
“connected person(s)”	has the meaning ascribed to it under the Listing Rules
“controlling shareholder(s)”	has the meaning ascribed to it under the Listing Rules
“Director(s)”	the director(s) of the Company
“Eligible Participant”	any:
	(a) Employee;
	(b) non-executive director and any independent non-
	executive director or officer of any member of the
	Group; and
	(c) consultant of any member of the Group

“Employee” any person employed by the Company or a subsidiary of the Company and any person who is an officer or director (whether executive or non-executive) of the Company or any subsidiary of the Company. A Grantee shall not cease to be an Employee in the case of (a) any leave of absence approved by the Company or the relevant subsidiary; or (b) transfers between the Company and any subsidiary or any successor

– 2 –

DEFINITIONS

“Grantee”	any Eligible Participant who accepts an offer of the grant of
	an Option in accordance with the terms of the 2011 Share
	Option Scheme or (where the context so requires) the legal
	personal representative(s) of such Eligible Participant
“Group”	the Company and its subsidiaries from time to time
“Guangdong Securities” or	Guangdong Securities Limited, a licensed corporation to
“Independent Financial	carry out type 1 (dealing in securities), type 2 (dealing
Adviser”	in futures contracts), type 4 (advising on securities),
	type 6 (advising on corporate finance) and type 9 (asset
	management) regulated activities as defined under the SFO
	and the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders in
	respect of the 2nd Supplemental Loan Agreement
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	the committee of independent non-executive Directors,
	consisting of Mr. Shea Chun Lok, Quadrant, Mr. Zhang
	Gaobo, and Mr. Guo Rui, formed to advise the Independent
	Shareholders in respect of the 2nd Supplemental Loan
	Agreement and the transactions contemplated thereunder
“Independent Shareholder(s)”	Shareholder(s) other than those who are required under the
	Listing Rules to abstain from voting on the resolution(s) to
	be proposed at the SGM to approve the 2nd Supplemental
	Loan Agreement and the transactions contemplated
	thereunder
“Joint Venture”	北科（大連）投資有限公司(Beike (Dalian) Investment
	Co., Ltd.*), the equity joint venture enterprise owned as
	to 60% and 40% by the Company and Meishi respectively
	which was set up in June 2010
“Latest Practicable Date”	7 June 2011, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	in this circular

For identification purposes only

– 3 –

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loan”	the loan granted by the Company to Meishi pursuant to
	the Loan Agreement, the Supplemental Loan Agreement
	and the 2nd Supplemental Loan Agreement in the
	sum of US$200,000,000 (equivalent to approximately
	HK$1,556,000,000)
“Loan Agreement”	the loan agreement entered into among the Company,
	Meishi and Mr. Wu on 24 June 2010
“Mandate Limit”	the Initial Mandate Limit or the Refreshed Mandate Limit
	(as the case may be as defined in Appendix I to this
	circular)
“Meishi”	Meishi International Investment Group Limited, a company
	incorporated in Hong Kong
“Misconduct”	in relation to a Grantee, his being guilty of serious
	misconduct, or having been convicted of any criminal
	offence involving his integrity or honesty
“Mr. Wu”	Mr. Wu Lizhong, the sole shareholder of Meishi
“Option”	an option to subscribe for Share(s) granted pursuant to the
	2011 Share Option Scheme
“Option Agreement”	the offer and acceptance letter between the Company
	and a Grantee evidencing the terms and conditions of an
	individual Option as referred to in the 2011 Share Option
	Scheme
“Personal Guarantee”	the personal guarantee provided by Mr. Wu to the Company
	to secure the repayment of the loans and any interests
	payable under the Loan Agreement and the Supplemental
	Loan Agreement
“PRC”	the People’s Republic of China, for the purpose of this
	circular, exclusively refer to the Mainland China

– 4 –

DEFINITIONS

“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	a special general meeting of the Company on Tuesday, 28
	June 2011 at 10:00 a.m. to consider and, if appropriate, to
	approve the resolutions contained in the notice of the SGM
	which is set out from pages 46 to 47 of this circular, or any
	adjournment thereof
“Share(s)”	ordinary share(s) of HK$0.10 each in the capital of the
	Company or if there has been a subsequent sub-division,
	consolidation, reclassification or reconstruction of the share
	capital of the Company, shares forming part of the ordinary
	equity share capital of the Company
“Shareholder(s)”	holder(s) of Share(s)
“Share Charges”	(i) a share charge executed by Mr. Wu on 24 June 2010 and
	14 December 2010 charging 10,000 shares of Meishi held
	by Mr. Wu, representing the entire issued share capital of
	Meishi; and (ii) a share charge executed by Meishi on 24
	June 2010 and 14 December 2010 charging its 40% equity
	interest in the Joint Venture in favour of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“substantial shareholder(s)”	has the meaning ascribed to it under the Listing Rules
“Supplemental Loan Agreement”	the supplemental loan agreement entered into among the
	Company, Meishi and Mr. Wu on 14 December 2010
“US$”	US dollars, the lawful currency of the United States

The figures in US$ are converted into HK$ at the rate of US$1: HK$7.78 throughout this circular for indicative purpose only.

If there is any inconsistency between the Chinese names of the PRC entities mentioned in this circular and their English translations, the Chinese names shall prevail.

– 5 –

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

Executive Directors:

Mr. Zhang Honghai (Chairman) Mr. E Meng Mr. Jiang Xinhao Mr. Hu Xiaoyong (Chief Executive Officer) Mr. Zhou Min Mr. Li Haifeng Mr. Zhang Tiefu Mr. Hou Feng Ms. Qi Xiaohong Mr. Ke Jian Mr. Ju Yadong

Independent non-executive Directors:

Mr. Shea Chun Lok, Quadrant

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business: 66th Floor Central Plaza 18 Harbour Road Wanchai Hong Kong

Mr. Zhang Gaobo Mr. Guo Rui

Ms. Hang Shijun

Mr. Wang Kaijun

10 June 2011

To the Shareholders

Dear Sir or Madam,

(1) DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

(2) PROPOSALS FOR ADOPTION OF THE 2011 SHARE OPTION SCHEME AND TERMINATION OF THE 2002 SHARE OPTION SCHEME (3) PROPOSED RE-ELECTION OF THE RETIRING DIRECTOR AND

(4) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement. In addition, the Company also proposes to adopt the 2011 Share Option Scheme and terminate the 2002 Share Option Scheme and to re-elect the retiring Director.

– 6 –

LETTER FROM THE BOARD

The purpose of this circular is to provide the Shareholders with (i) further details of the 2nd Supplemental Loan Agreement; (ii) a letter of advice from the Independent Board Committee to the Independent Shareholders in relation to the 2nd Supplemental Loan Agreement; (iii) a letter of advice from Guangdong Securities to the Independent Board Committee and the Independent Shareholders in relation to the 2nd Supplemental Loan Agreement; (iv) information in respect of the proposed adoption of the 2011 Share Option Scheme and termination of the 2002 Share Option Scheme; (v) the proposed re-election of the retiring Director; and (vi) a notice of the SGM.

(I) Provision of the additional loan

The Loan Agreement and the Supplemental Loan Agreement

In the 1st Announcement, it was announced that, amongst others, the Company (as lender) entered into the Loan Agreement with Meishi and Mr. Wu to grant the loan in the sum of US$35,200,000 (equivalent to approximately HK$273,856,000) to Meishi. In the 2nd Announcement, it was announced that the Company (as lender) entered into the Supplemental Loan Agreement with Meishi and Mr. Wu to grant an additional loan of US$23,852,000 (equivalent to approximately HK$185,569,000) to Meishi. The repayment of the aforesaid loans and interests payable pursuant to the Loan Agreement and the Supplemental Loan Agreement respectively is secured by the Personal Guarantee and the Share Charges.

As at the Latest Practicable Date, the loans totaling US$59,052,000 (equivalent to approximately HK$459,425,000) under the Loan Agreement and the Supplemental Loan Agreement had been injected into the Joint Venture for the operation and development of the BT Project as previously disclosed in the 1st Announcement and the 2nd Announcement. The interests charged were amounted to approximately US$3,480,000 (equivalent to approximately HK$27,074,000). Pursuant to the 2nd Supplemental Loan Agreement, the aforesaid loans and the interests accrued shall be repayable by Meishi to the Company on or before the third anniversary date of the 2nd Supplemental Loan Agreement.

– 7 –

LETTER FROM THE BOARD

The 2nd Supplemental Loan Agreement

To ensure the continuous sustainable development of the Joint Venture, the Company and Meishi intend to further increase the capital contribution into the Joint Venture. As such, the Company, Meishi and Mr. Wu entered into the 2nd Supplemental Loan Agreement on 25 May 2011 to grant the Additional Loan of US$140,948,000 (equivalent to approximately HK$1,096,575,000) at maximum to Meishi. The amount of such Additional Loan was determined based on the future development needs of the Joint Venture, and the Additional Loan will be used solely for financing the increase in capital contribution of the Joint Venture. As a result of the grant of the Additional Loan, the total Loan amount pursuant to the Loan Agreement, the Supplemental Loan Agreement as well as the 2nd Supplemental Loan Agreement will become US$200,000,000 (equivalent to approximately HK$1,556,000,000). The total Loan amount is subject to an interest rate which is the same as the benchmark 3-year interest rate for Renminbi loans of the People’s Bank of China. Under the 2nd Supplemental Loan Agreement, Mr. Wu will continue to provide a personal guarantee and share charges over the entire issued share capital of Meishi and 40% of the equity interest in the Joint Venture in favour of the Company to secure the repayment of the total Loan amount and the interests payable.

As at the Latest Practicable Date, there was no concrete time schedule for the further increase in capital contribution of the Joint Venture and the drawdown of the Additional Loan. Subject to the terms and conditions of the 2nd Supplemental Loan Agreement, the Additional Loan shall be made available to Meishi upon the Company receiving the relevant written drawdown request(s) from Meishi and the Board having approved such drawdown request. Meishi can only apply the amount of the Additional Loan being drawn down for financing the increase in the capital contribution of the Joint Venture in the future. The Company intends to satisfy the Additional Loan by the Group’s internal resources and/or any other fund raising activities depending on the then situation.

The total Loan amount (together with the interests accrued thereto) shall be repayable by Meishi on or before the third anniversary date of the 2nd Supplemental Loan Agreement. Nevertheless, the said repayment term may be further extended by two years, subject to the mutual agreement between the Company and Meishi.

Completion of the 2nd Supplemental Loan Agreement is subject to, amongst others, the Company having fulfilled all of the relevant requirements, including but not limited to the passing by the Independent Shareholders of the resolution(s) regarding the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder at the SGM, as stipulated under the Listing Rules.

– 8 –

LETTER FROM THE BOARD

Save for those terms modified by the 2nd Supplemental Loan Agreement as disclosed above, there is no material change in the terms of the Loan Agreement (as supplemented by the Supplemental Loan Agreement) and all other terms of the Loan Agreement (as supplemented by the Supplemental Loan Agreement) shall remain unchanged and continue in full force and effect.

Information on the parties

The Company is an investment company and the holding company of the Group. The Group is principally engaged in construction of sewage and water treatment plants, sewage treatment, water treatment and distribution, sales of sewage treatment facilities, the provision of technical services and licensing of technical know-how that are related to sewage treatment in the PRC.

Meishi is an investment company incorporated in Hong Kong and is wholly owned by Mr. Wu. Prior to the formation of the Joint Venture, Meishi and its ultimate beneficial owner(s) were third parties independent of the Company and its connected persons. As at the Latest Practicable Date, Meishi and Mr. Wu did not have any shareholding interest in the Company.

Reasons for and benefits of entering into the 2nd Supplemental Loan Agreement

As aforementioned, the Additional Loan will be used solely for financing the increase in capital contribution of the Joint Venture. The Joint Venture was established in June 2010 to engage in, amongst others, investment in such business projects as approved by the relevant government authorities, including but not limited to the BT Project. After completion of the construction for the BT Project, the works will be transferred to the Liaoning Provincial Government of the PRC. The Company expects that the Joint Venture can fully leverage on the Group’s advantage on construction and management in projects which it will be undertaking in the future, and that the business of the Joint Venture will strengthen the Group’s business development in the North East region of the PRC.

Mr. Wu possesses the relevant marketing, management and operational skills for the Joint Venture and can assist in the operation of the Joint Venture. Based on the networking and management experience of Mr. Wu, the Joint Venture would continue to procure more business projects which need to be approved by the relevant PRC government authorities. The provision of the Additional Loan (which is properly secured) shall allow Mr. Wu to further invest and involve in the future development of the Joint Venture.

– 9 –

LETTER FROM THE BOARD

The Joint Venture procured the BT Project in 2010 while more projects are under negotiation in 2011. Meishi intends to repay the Loan from the profits of the projects. Moreover, (i) Mr. Wu has executed the share charge charging the entire issued share capital of Meishi which was held by him; and (ii) Meishi has executed the share charge charging its 40% equity interest in the Joint Venture in favour of the Company. Mr. Wu has also provided the personal guarantee to the Company to secure the repayment of the Loan and any interests payable. In view of the foregoing, we consider the credit risk for the Loan to be minimal.

Despite that the entering into of the 2nd Supplemental Loan Agreement may occupy certain of the Group’s resources and tighten the future working capital and/or gearing position of the Group, given the prospect of the Joint Venture, the Directors are of the view that the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and the provision of the Additional Loan is in the interests of the Company and the Shareholders as a whole.

Listing Rules implication

The entering into of the 2nd Supplemental Loan Agreement among the Company, Meishi (being a controlling shareholder of the Joint Venture) and Mr. Wu constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As each of the applicable percentage ratios in aggregate in respect of the connected transactions contemplated under the Loan Agreement (as supplemented by the Supplemental Loan Agreement and the 2nd Supplemental Loan Agreement) is more than 5% but less than 25%, the entering into of the 2nd Supplemental Loan Agreement also constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. In light of the above, the entering into of the 2nd Supplemental Loan Agreement is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules. Accordingly, the Company will seek Independent Shareholders’ approval at the SGM for the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

None of the Directors has any material interest in the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder. Therefore, none of the Directors abstained from voting in the meeting of the Board at which the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder were approved.

– 10 –

LETTER FROM THE BOARD

General

An Independent Board Committee comprising Mr. Shea Chun Lok, Quadrant, Mr. Zhang Gaobo, and Mr. Guo Rui, all being independent non-executive Directors, has been established to advise the Independent Shareholders (i) as to whether the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the provision of the Loan is in the interests of the Company and the Shareholders as a whole; and (iii) on how to vote in respect of the relevant resolution(s) to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder after taking into account the recommendation from Guangdong Securities, the Independent Financial Adviser appointed by the Company in respect of the 2nd Supplemental Loan Agreement.

(II) Adoption of the 2011 share option scheme

The existing share option scheme of the Company (i.e. the 2002 Share Option Scheme) was adopted on 20 March 2002 and will expire on 19 March 2012. In order to enable the Company to continue to grant options to selected participants as incentives or rewards for their contributions to the Group, the Board proposes to adopt a new share option scheme (i.e. the 2011 Share Option Scheme), and terminate the 2002 Share Option Scheme once the 2011 Share Option Scheme is adopted.

Similar to the 2002 Share Option Scheme, the 2011 Share Option Scheme does not specify a minimum period for which an Option must be held nor a performance target which must be achieved before an Option can be exercised. However, the Directors may, at their discretion, fix any minimum period for which an Option must be held, any performance targets that must be achieved and/or any other conditions (including the subscription price) that must be fulfilled before an Option can be exercised. With this discretion, the Board may continue to provide incentives to the Eligible Participants to use their best endeavours in assisting the growth and the development of the Group and continue to attract human resources that are valuable to the growth and the development of the Group as a whole.

All of the share options granted under the 2002 Share Option Scheme were lapsed on 30 June 2003. At present and up to the date on which the 2011 Share Option Scheme comes into effect, the Company has no intention to grant further options under the 2002 Share Option Scheme.

– 11 –

LETTER FROM THE BOARD

At the SGM, an ordinary resolution will be proposed for the Shareholders to approve the adoption of the 2011 Share Option Scheme and the termination of the 2002 Share Option Scheme. With respect to the operation of the 2011 Share Option Scheme, the Company will, where applicable, comply with the relevant requirements under Chapter 17 of the Listing Rules.

As at the Latest Practicable Date, the issued share capital of the Company comprised of 6,850,134,694 Shares. Assuming that the issued share capital of the Company will remain unchanged from the Latest Practicable Date up to the date of passing the Shareholders’ resolution to adopt the 2011 Share Option Scheme, the maximum number of Shares which may be issued upon exercise of all options to be granted under the 2011 Share Option Scheme and any other schemes of the Company (including the 2002 Share Option Scheme) in aggregate will be 685,013,469 Shares, representing 10% of the Shares in issue as at the date of adoption of the 2011 Share Option Scheme.

The Directors consider that it is inappropriate to disclose the value of all Options that can be granted pursuant to the 2011 Share Option Scheme as if they had been granted on the Latest Practicable Date as a number of variables which are crucial for the calculation of such value have not been determined at this stage. Such variables include but are not limited to the exercise price, exercise period, lock-up period (if any). The Directors believe that any calculation based on a number of speculative assumptions would not be meaningful and would be misleading to the Shareholders.

None of the Directors is a trustee of the 2011 Share Option Scheme or has a direct or indirect interest in the trustee.

A summary of the principal terms of the 2011 Share Option Scheme which is proposed to be approved and adopted by the Company at the SGM is set out in Appendix I to this circular from pages 28 to 38. A copy of the proposed 2011 Share Option Scheme will be available for inspection at the Company’s principal place of business in Hong Kong at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong during normal business hours from the date hereof up to and including the date of the SGM.

Application will be made to the Listing Committee of the Stock Exchange for the approval of the listing of, and permission to deal in, the Shares to be issued pursuant to the exercise of the Options granted under the 2011 Share Option Scheme.

– 12 –

LETTER FROM THE BOARD

Termination of the 2002 Share Option Scheme

Under the 2002 Share Option Scheme, the Company may by ordinary resolution in general meeting at any time terminate the operation of such scheme. The Ordinary Resolution 2(b) will therefore be proposed for the approval of the Shareholders at the SGM that, subject to the Ordinary Resolution 2(a) approving and adopting the 2011 Share Option Scheme being passed, the 2002 Share Option Scheme be terminated and no further options be granted under the 2002 Share Option Scheme but the options which have been granted during the life of the 2002 Share Option Scheme shall continue to be exercisable in accordance with their terms of issue and in all other respects the provisions of the 2002 Share Option Scheme shall remain in full force and effect.

(III) Re-election of retiring director

Pursuant to Bye-law 91 of the Company, Mr. Ke Jian shall hold office until the SGM and, being eligible, offers himself for re-election. Biographical details of Mr. Ke Jian are set out in Appendix II to this circular.

THE SGM AND PROXY ARRANGEMENT

The notice of the SGM is set out from pages 46 to 47 of this circular. At the SGM, resolutions will be proposed to approve (i) the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder; (ii) the adoption of the 2011 Share Option Scheme and termination of the 2002 Share Option Scheme; and (iii) the re-election of the retiring Director .

A form of proxy for use at the SGM is enclosed with this circular and such form of proxy is also published on the website of the Stock Exchange (www.hkexnews.hk). To be valid, the form of proxy must be completed and signed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority at the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the SGM if you so wish.

– 13 –

LETTER FROM THE BOARD

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of the Shareholders at a general meeting must be taken by poll and the Company will then announce the results of the poll in the manner as prescribed under Rule 13.39(5) of the Listing Rules.

As no Shareholder has an interest in the 2nd Supplemental Loan Agreement regarding the provision of the Loan which is materially different from the other Shareholders, no Shareholder is required to abstain from voting on the relevant resolution(s) to be proposed at the SGM to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

To the best of the Director’s knowledge, information and belief, having made all reasonable enquiries, none of the Shareholders is required to abstain from voting at the SGM in respect of the resolutions for approving the adoption of the 2011 Share Option Scheme pursuant to the Listing Rules and the re-election of the retiring Director.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee as set out on page 16 of this circular which contains its recommendation to the Independent Shareholders in relation to the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder. Your attention is also drawn to the letter from Guangdong Securities as set out from pages 17 to 27 of this circular which contains its advice and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder, and the principal factors and reasons taken into account in arriving at its recommendation.

The Board considers that the terms of the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution(s) to be proposed at the SGM.

In addition, the Directors also consider that the adoption of the 2011 Share Option Scheme and the proposed re-election of Mr. Ke Jian as an executive Director are in the interests of the Company and the Shareholders. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

– 14 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendix I (Summary of the principal terms of the 2011 Share Option Scheme), Appendix II (Details of Director proposed for re-election) and Appendix III (General information) to this circular.

Yours faithfully, By Order of the Board Beijing Enterprises Water Group Limited Zhang Honghai Chairman

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

10 June 2011

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

We refer to the circular dated 10 June 2011 issued by the Company (the “ Circular ”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed to advise the Independent Shareholders in connection with the terms of the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder. Guangdong Securities has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

After taking into account the advice of Guangdong Securities, we are of the view that the terms of the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and that the provision of the Loan is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the SGM to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

Yours faithfully, for and on behalf of

Independent Board Committee

Shea Chun Lok, Quadrant Independent Non-executive Director

Zhang Gaobo Guo Rui Independent Independent Non-executive Director Non-executive Director

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LETTER FROM GUANGDONG SECURITIES

Set out below is the text of a letter received from Guangdong Securities, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the 2nd Supplemental Loan Agreement for the purpose of inclusion in this circular.

Units 2505-06, 25/F. Low Block of Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

10 June 2011

To: The independent board committee and the independent shareholders of Beijing Enterprises Water Group Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the 2nd Supplemental Loan Agreement, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 10 June 2011 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

References are made to the 1st Announcement and the 2nd Announcement. In the 1st Announcement, it was announced that, amongst others, the Company (as lender) entered into the Loan Agreement with Meishi and Mr. Wu to grant a loan in the sum of US$35,200,000 (equivalent to approximately HK$273,856,000) to Meishi. In the 2nd Announcement, it was announced that the Company (as lender) entered into the Supplemental Loan Agreement with Meishi and Mr. Wu to grant an additional loan of US$23,852,000 (equivalent to approximately HK$185,569,000) to Meishi.

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LETTER FROM GUANGDONG SECURITIES

The entering into of the 2nd Supplemental Loan Agreement among the Company, Meishi (being a 40% shareholder of the Joint Venture) and Mr. Wu (being the sole shareholder of Meishi) constitutes a discloseable and a connected transaction for the Company under Chapters 14 and 14A of the Listing Rules respectively. In light of the above, the entering into of the 2nd Supplemental Loan Agreement is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules. The Company will seek Independent Shareholders’ approval at the SGM for the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

As no Shareholder has an interest in the 2nd Supplemental Loan Agreement regarding the provision of the Loan which is materially different from the other Shareholders, no Shareholder is required to abstain from voting on the relevant resolution to be proposed at the SGM to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

An Independent Board Committee comprising Mr. Shea Chun Lok, Quadrant, Mr. Zhang Gaobo and Mr. Guo Rui (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the provision of the Loan is in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolution to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder at the SGM. We, Guangdong Securities Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

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LETTER FROM GUANGDONG SECURITIES

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Mr. Wu, Meishi, the Joint Venture or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the provision of the Loan. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Guangdong Securities is to ensure that such information has been correctly extracted from the relevant sources.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the provision of the Loan, we have taken into consideration the following principal factors and reasons:

(1) Background of the provision of the Additional Loan

Information on the Group

As referred to in the Board Letter, the Company is an investment company and the holding company of the Group. The Group is principally engaged in construction of sewage and water treatment plants, sewage treatment, water treatment and distribution, sales of sewage treatment facilities, the provision of technical services and licensing of technical know-how that are related to sewage treatment in the PRC.

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LETTER FROM GUANGDONG SECURITIES

Set out below is a summary of the audited consolidated financial information on the Group for the two years ended 31 December 2010 as extracted from the Company’s annual report for the year ended 31 December 2010 (the “ Annual Report ”):

	For the	For the
	year ended	year ended
	31 December	31 December	Year on
	2010	2009	year change
	HK$’000	HK$’000	%
Revenue	6,348,060	1,730,013	266.94
Gross profit	1,121,808	515,930	117.43
Profit for the year attributable
to Shareholders	512,512	192,711	165.95
	As at	As at
	31 December	31 December	Year on
	2010	2009	year change
	HK$’000	HK$’000	%
Cash and cash equivalents	1,961,828	876,861	123.73
Total assets	17,224,829	7,423,717	132.02
Net assets	5,067,954	3,011,816	68.27

From the above table, we noted that the Group’s revenue for the year ended 31 December 2010 had increased significantly by approximately 266.94% as compared to the prior year. According to the Annual Report, such significant increase was mainly driven by the construction revenue deriving from the build transfer projects, since six new build transfer projects, including the BT Project, had commenced during the year ended 31 December 2010. The total related construction revenue from the build transfer projects was increased from approximately HK$82.3 million for the year ended 31 December 2009 to approximately HK$4,600.0 million for the year ended 31 December 2010, leading to an increase in revenue contribution from the build transfer projects from approximately 5% for the year ended 31 December 2009 to approximately 72% for the year ended 31 December 2010. As further advised by the Directors, the revenue and profit contributed by the BT Project amounted to approximately HK$906.88 million and HK$52.71 million respectively for the year ended 31 December 2010. Going forward, the Group will continue to consolidate its advantageous resources, explore the market, expand its principal business scale, and promote high quality and rapid principal businesses development.

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LETTER FROM GUANGDONG SECURITIES

In addition, we also noted that the cash and cash equivalents of the Group increased by approximately 123.73% to approximately HK$1,961.83 million as at 31 December 2010. As at 31 May 2011, the Group had cash and cash equivalents of approximately HK$2,325.34 million.

Information on Meishi

As extracted from the Board Letter, Meishi is an investment company incorporated in Hong Kong and is wholly owned by Mr. Wu. Prior to the formation of the Joint Venture, Meishi and its ultimate beneficial owner(s) were third parties independent of the Company and its connected persons.

Information on Mr. Wu

To the best knowledge of the Directors, Mr. Wu is the sole shareholder of Meishi. He possesses the relevant marketing, management and operational skills for the Joint Venture and can assist in the operation of the Joint Venture.

Information on the Joint Venture

The Joint Venture was set up in June 2010 and is owned as to 60% and 40% by the Company and Meishi respectively. The Joint Venture is currently responsible for all construction works for the BT Project, including sewage treatment, pipeline network and relevant infrastructures. After completion of the construction, the works will be transferred to the Liaoning Provincial Government of the PRC. Based on the networking and management experience of Mr. Wu, the Joint Venture would continue to procure more business projects which need to be approved by the relevant PRC government authorities.

(2) Reasons for the provision of the Additional Loan

With reference to the Board Letter, the Additional Loan will be used solely for financing the increase in capital contribution of the Joint Venture. The Company expects that the Joint Venture can fully leverage on the Group’s advantage on construction and management in projects which it will be undertaking in the future, and that the business of the Joint Venture will strengthen the Group’s business development in the North East region of the PRC.

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LETTER FROM GUANGDONG SECURITIES

Upon our further enquiries with the Company, we were advised that the BT Project consists of water supply main project phase II for Changxing Dao, Jiao Liu Island sewage treatment station and ancillary pipeline projects. The water supply main project phase II for Changxing Dao is vital to the water supply in Changxing Dao and was listed as one of the major government projects in 2010. As further advised by the Company, the return from the BT Project comprises construction service income, technical services and interest income. Since this project is still under construction, only contribution from construction services and technical services were recognised in the financial statements of the Group for the year ended 31 December 2010; while the interest income will start to be recognised once the construction works of the BT Project are completed and certified.

In order for us to form a better understanding on the future outlook of the BT Project, we have searched and found from an article issued by the China Daily that the current “Five Points, One Line” strategy of the PRC government is aimed to boost the economy of Liaoning Province, the PRC and the “Five Points” cover seven industrial zones including the Changxing Dao Harbour Industrial Zone and Yingkou Economic and Technical Development Zone. The PRC government plans to develop an industrial cluster of a deep-sea port and coastal industrial group around the “Five Points”. The Company considers that the Changxing Dao Harbour Industrial Zone and Yingkou Economic and Technical Development Zone have been upgraded as national economic and technological development zones and both of Changxing Dao and Yingkou are in leading position in respect of the “Five Points, One Line” strategy regarding the opening up of the market of Liaoning Province.

Furthermore, as aforementioned, to the best knowledge of the Directors, Mr. Wu possesses the relevant marketing, management and operational skills for the Joint Venture and can assist in the operation of the Joint Venture. The networking and management experience of Mr. Wu has also contributed in the previous business projects secured by the Joint Venture. The Directors are of the view that the provision of the Additional Loan (which is properly secured) shall allow Mr. Wu to further invest and involve in the future development of the Joint Venture. Based on the networking and management experience of Mr. Wu, the Joint Venture would continue to procure more business projects which need to be approved by the relevant PRC government authorities.

Having considered the above reasons for the provision of the Loan, we are of the view that although the provision of the Loan is not conducted in the ordinary and usual course of business of the Company, it is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM GUANGDONG SECURITIES

(3) Principal terms of the 2nd Supplemental Loan Agreement

The Loan Agreement and the Supplemental Loan Agreement

On 24 June 2010, the Company (as lender) entered into the Loan Agreement with Meishi and Mr. Wu to grant a loan in the sum of US$35,200,000 (equivalent to approximately HK$273,856,000) to Meishi. Subsequently, the Company (as lender) entered into the Supplemental Loan Agreement with Meishi and Mr. Wu on 14 December 2010 to grant an additional loan of US$23,852,000 (equivalent to approximately HK$185,569,000) to Meishi. The repayment of the aforesaid loans and interests payable pursuant to the Loan Agreement and the Supplemental Loan Agreement respectively is secured by the Personal Guarantee and the Share Charges.

As referred to in the Board Letter, the loans totalling US$59,052,000 (equivalent to approximately HK$459,425,000) under the Loan Agreement and the Supplemental Loan Agreement had been injected into the Joint Venture for the operation and development of the BT Project as previously disclosed in the 1st Announcement and the 2nd Announcement. The interests charged were amounted to approximately US$3,480,000 (equivalent to approximately HK$27,074,000). Pursuant to the 2nd Supplemental Loan Agreement, the aforesaid loans and the interests accrued shall be repayable by Meishi to the Company on or before the third anniversary date of the 2nd Supplemental Loan Agreement.

Details of the Loan Agreement and the Supplemental Loan Agreement are outlined in the 1st Announcement and the 2nd Announcement.

The 2nd Supplemental Loan Agreement

Set out below are the major terms of the 2nd Supplemental Loan Agreement:

Date: 25 May 2011 Parties: The Company (as lender) Meishi (as borrower) Mr. Wu (as guarantor)

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LETTER FROM GUANGDONG SECURITIES

Subject:

To ensure the continuous sustainable development of the Joint Venture, the Company and Meishi intend to further increase the capital contribution into the Joint Venture. Thus, the Company agreed to grant the Additional Loan of US$140,948,000 (equivalent to approximately HK$1,096,575,000) at maximum to Meishi.

As a result of the grant of the Additional Loan, the total Loan amount pursuant to the Loan Agreement, the Supplemental Loan Agreement as well as the 2nd Supplemental Loan Agreement will become US$200,000,000 (equivalent to approximately HK$1,556,000,000).

Interest rate for The benchmark 3-year interest rate for Renminbi the Additional Loan: loans of the People’s Bank of China Security: Mr. Wu will continue to provide a personal guarantee and share charges over the entire issued share capital of Meishi and 40% of the equity interest in the Joint Venture in favour of the Company to secure the repayment of the total Loan amount and the interests payable. Repayment: The total Loan amount (together with the interests accrued thereto) shall be repayable by Meishi on or before the third anniversary date of the 2nd Supplemental Loan Agreement. Nevertheless, the said repayment term may be further extended by two years, subject to the mutual agreement between the Company and Meishi.

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LETTER FROM GUANGDONG SECURITIES

According to the Board Letter, the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and the provision of the Loan is in the interests of the Company and the Shareholders as a whole.

As confirmed by the Company, the amount of the Additional Loan was determined based on the future development needs of the Joint Venture, and such Additional Loan will be used solely for financing the increase in capital contribution of the Joint Venture. With reference to the Board Letter, there was no concrete time schedule for the further increase in capital contribution of the Joint Venture and the drawdown of the Additional Loan as at the Latest Practicable Date. The Company intends to satisfy the Additional Loan by the Group’s internal resources and/or any other debt financing activities depending on the then situation.

For our due diligence purpose, we have obtained the future business plan of the Joint Venture from the Company and discussed the potential business projects to be undertaken by the Joint Venture as well as the relevant funding need of the Joint Venture in the future with the Directors. Moreover, we have also conducted a telephone interview with Mr. Wu on 31 May 2011. During the telephone interview, we enquired into matters including but not limited to the background information and working experience of Mr. Wu, his relationship with the Company as well as his historical and expected contribution to the business of the Joint Venture.

Given that the Additional Loan is intended to be used solely for financing the possible increase in capital contribution of the Joint Venture, we noted from the terms and conditions of the 2nd Supplemental Loan Agreement that the Additional Loan shall be made available to Meishi upon (i) the Company receiving the relevant written drawdown request(s) from Meishi; and (ii) the Board having approved such drawdown request after considering the relevant proposal of increase in the capital contribution of the Joint Venture in the future. As such, we concur with the Directors that there is sufficient provision under the 2nd Supplemental Loan Agreement to safeguard that the entire amount of the Additional Loan being drawn down will be used for financing the possible increase in capital contribution of the Joint Venture.

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LETTER FROM GUANGDONG SECURITIES

We also noted that although the provision of the Additional Loan would mean that Mr. Wu is not required to make any upfront capital contribution for the future expansion of the Joint Venture, Mr. Wu is required to pay an interest being equivalent to the benchmark 3-year interest rate for Renminbi loans of the People’s Bank of China for the Additional Loan. In this regard, we found from the website of the People’s Bank of China that the benchmark 3-year interest rate for Renminbi loans, is at 6.40%. Upon our enquiries with the Directors, we noted that the Group had cash and cash equivalents of approximately HK$2,325.34 million as at 31 May 2011 and the Group receives interest ranges from 0.01% to 0.40% per annum and 0.50% to 1.49% per annum for its Hong Kong dollar and Renminbi saving accounts in banks respectively. As a result, the interest rate of the Additional Loan is above the rates of interest which the Group receives from its existing savings in banks.

Regarding the repayment of the Loan by Meishi, we understand that Meishi intends to repay the Loan together with the interests accrued thereto to the Company by its share of the future profits of the Joint Venture. In view of (i) the substantial amount of revenue and profit contributed by the BT Project for the year ended 30 December 2010 as stated under the sub-section headed “Information on the Group” of this letter; (ii) the fact that more projects are under negotiations by the Joint Venture; and (iii) that pursuant to the 2nd Supplemental Loan Agreement, Mr. Wu will continue to provide a personal guarantee and share charges over the entire issued share capital of Meishi and 40% of the equity interest in the Joint Venture in favour of the Company to secure the repayment of the total Loan amount and the interests payable, and hence the total Loan amount is secured, we concur with the Directors that the credit risk associated with the Loan would not be high.

In light of all of the foregoing, we consider that the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(4) Possible financial effects of the provision of the Additional Loan

As extracted from the Annual Report, the audited consolidated net assets of the Group were approximately HK$5,067.95 million as at 31 December 2010. The Directors expected that the Group’s net asset position would not be materially affected by the provision of the Additional Loan.

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LETTER FROM GUANGDONG SECURITIES

In addition, according to the Annual Report, the Group’s gearing level (being calculated as net debt over total equity) was approximately 1.30 as at 31 December 2010. As confirmed by the Directors, since the Additional Loan will be financed by the internal resources of the Group and/or through other debt financing activities of the Company and that the concrete plan is yet to be finalised, the Group’s future working capital and gearing position will be affected depending on the method(s) the Group uses to finance the provision of the Additional Loan.

It should be noted that the aforementioned analyses are for illustrative purposes only and does not purport to represent how the financial position of the Group will be upon completion of the 2nd Supplemental Loan Agreement.

RECOMMENDATION

Having considered the above factors and reasons, we are of the opinion that (i) the terms of the 2nd Supplemental Loan Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) although the provision of the Loan is not conducted in the ordinary and usual course of business of the Company, it is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the SGM to approve the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution in this regard.

Yours faithfully, For and on behalf of Guangdong Securities Limited Graham Lam Managing Director

– 27 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

The following is a summary of the principal terms of the 2011 Share Option Scheme which is proposed to be approved at the SGM:

1. PURPOSE

The purpose of the 2011 Share Option Scheme is to enable the Company to grant options to selected participants as incentives or rewards for their contributions to the Group.

2. WHO MAY JOIN

On and subject to the terms of the 2011 Share Option Scheme and the requirements of the Listing Rules, the Board may offer to grant an Option to any Eligible Participant as it may at its absolute discretion select.

3. ADMINISTRATION

The 2011 Share Option Scheme shall be subject to the administration of the Board which shall, in its discretion and based on such factors as it shall consider relevant:

(a) select Eligible Participants to whom Options may be granted hereunder;
(b) determine, subject to the requirements of the Listing Rules and the law, the time of the grant of Options;
(c) determine the number of Options;
(d) approve forms of option agreements setting out the terms on which particular Options are granted;
(e) determine the terms and conditions of each Option (including, but not limited to, performance, operating and financial targets and other criteria, if any, to be satisfied before the Option can be exercised);
(f) construe and interpret the terms of the 2011 Share Option Scheme and Options granted pursuant to the 2011 Share Option Scheme;

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APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

(g) prescribe, amend and rescind rules and regulations relating to the 2011 Share Option Scheme, including rules and regulations relating to sub-schemes established for the purpose of qualifying for preferred treatment under foreign laws and for benefits intended solely for any particular type of Eligible Participants provided that administration of any such sub-schemes shall follow the requirements of the Listing Rules;
(h) subject to other provisions of the 2011 Share Option Scheme, vary the terms and conditions of any Option Agreement (provided that such variation is not inconsistent with the terms of the Listing Rules and the 2011 Share Option Scheme).

4. GRANT OF OPTION

On and subject to the terms of the 2011 Share Option Scheme and the Listing Rules, the Board shall be entitled at any time within 10 years commencing on the Adoption Date to make an offer for the grant of Option to such Eligible Participants as the Board may in its absolute discretion select.

5. ACCEPTANCE OF OFFER FOR THE GRANT OF OPTIONS

An offer of the grant of an Option shall have been accepted when the duplicate letter comprising acceptance of the Option duly signed by the Grantee together with a remittance in favour of the Company of HK$1.00 by way of consideration for the grant thereof is received by the Company. Such remittance shall in no circumstances be refundable. If such remittance is not enclosed, acceptance of an offer shall create a promise by the relevant Grantee to pay to the Company HK$1.00 on demand.

6. SUBSCRIPTION PRICE

The subscription price payable on exercise of an Option shall be such price as the Board may in its absolute discretion determine at the time of its grant (and shall be stated in the letter containing the offer of the grant of the Option), and may be fixed at different prices for different periods during which the Option is to be exercised, provided that it shall not be less than whichever is the highest of (a) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant; (b) the average of the closing prices of the Shares on the Stock Exchange’s daily quotation sheets for the five (5) Business Days immediately preceding the date of grant; and (c) the nominal value of a Shares.

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SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

APPENDIX I

7. OPTION PERIOD

The period within which the Shares must be taken up under an Option shall be determined by the Board in its absolute discretion at the time of grant and may be varied by the Board in accordance with the terms of the 2011 Share Option Scheme, but shall not under any circumstances exceed 10 years from the date of grant of the relevant Option.

8. RIGHTS ARE PERSONAL TO GRANTEE

An Option shall be personal to the Grantee and shall not be assignable or transferable.

9. RANKING OF SHARES

The Shares to be allotted upon the exercise of an Option shall be subject to all the provisions of the Bye-laws and shall rank pari passu in all respects with the existing fully paid Shares in issue on the date of allotment or, if that date falls on a day when the register of members of the Company is closed, the first day of the reopening of the register of members and accordingly will entitle the holders to participate in all dividends or other distributions paid or made on or after the allotment (as applicable). No dividends will be payable and no voting rights will be exercisable in relation to an Option that has not been exercised (including those arising on a liquidation of the Company). The Shares subject to the 2011 Share Option Scheme will not rank for any rights (which include, among other things, voting rights and dividend rights) attaching to Shares by reference to a date preceding the date of allotment.

10. RIGHTS ON RETIREMENT, DEATH OR TOTAL PERMANENT PHYSICAL OR MENTAL DISABILITY

If a Grantee ceases to be an Eligible Participant by reason of his death, total permanent physical or mental disablement or (in the case of an Eligible Participant being an Employee) retirement under the normal retirement conditions then prevailing in the Company or (in the case of an Eligible Participant being a consultant of a member of the Group) the expiry of the term of the consultancy contract with the Group in accordance with the terms of such contract, he or his personal representative (as the case may be) may exercise the Option within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option

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APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF

THE 2011 SHARE OPTION SCHEME

Agreement, the Option shall remain exercisable for 12 months (or such longer period as the Board shall decide, but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) after the relevant Grantee ceases to be an Eligible Grantee as above stated. In the case of a Grantee ceasing to be an Eligible Participant by reason of death or total permanent physical or mental disability, the Option may be exercised within time specified above by the personal representatives of the Grantee.

If the Option is not so exercised within the time specified above, the Option shall lapse.

11. TERMINATION FOR MISCONDUCT OR CAUSE

If a Grantee ceases to be an Eligible Participant for Misconduct or Cause, the Option shall immediately lapse.

12. RIGHTS ON CESSATION FOR OTHER REASONS

If a Grantee ceases to be an Eligible Participant in circumstances other than those described in paragraphs 10, 11 or 13, then, unless otherwise provided in the Option Agreement, the Grantee may exercise his Option within 3 months of such cessation (or such longer period as the Board shall decide, but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) following which the Option shall lapse.

13. RIGHTS ON TERMINATION DUE TO THE SEPARATE LISTING OR SALE

If the Board considers that, due to the separate listing or sale of a member of the Group he is serving, or merger, reorganisation or consolidation of a member of the Group he is serving , a Grantee should cease to be treated as an Eligible Participant (and paragraphs 14 to 16 as specified below do not apply), the Board may at its sole discretion (a) arrange for substitute options or share purchase rights of no less than equivalent fair value, in the purchasing, surviving or newly-listed company; (b) provide cash compensation equivalent to their fair value; (c) waive any conditions as to vesting; or (d) permit the continuation of the Option according to its original terms. If the Board does not make any of the arrangements specified in (a) to (d) above, the Option shall lapse.

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APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

14. RIGHTS ON GENERAL OFFER

If a general offer by way of takeover is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or concert with the offeror), and such offer becomes or is declared unconditional, the Option will immediately vest or otherwise becomes immediately exercisable and the Grantee shall be entitled to exercise the Option (to the extent not already exercised, whether or not the Option has become exercisable or not) at any time until the earlier of the expiry of the term of the Option as set forth in the Option Agreement or 14 days after the date on which the offer becomes or is declared unconditional or such longer period as the Board may determine following which the Option shall lapse.

15. RIGHTS ON COMPROMISE OR ARRANGEMENT

If a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of the amalgamation of the Company with any other company or companies (including a takeover offer by way of a scheme of arrangement), the Company shall give notice to the Grantee on the same date as it despatches the notice to each member or creditor of the Company summoning the meeting to consider such compromise, arrangement or scheme, and thereupon the Grantee may, until the expiry of the period commencing on such date and ending on the earlier of the date two (2) calendar months thereafter or the date on which such compromise, scheme or arrangement is sanctioned by the court but in any case no later than the expiration of the term of such Option as set forth in the Option Agreement, exercise any of his Options (to the extent not already exercised whether the Options have become exercisable or not) whether in full or in part, but the exercise of an Option as aforesaid shall be conditional upon such compromise, scheme or arrangement being sanctioned by the court and becoming effective, and upon such compromise, scheme or arrangement becoming effective, all Options shall lapse except insofar as previously exercised under the 2011 Share Option Scheme. The Company may require the Grantee to transfer or otherwise deal with the Shares issued as a result of the exercise of Options in these circumstances so as to place the Grantee in the same position, as nearly as possible, as would have been the case had such Shares been subject to such compromise or arrangement. If the Option is not exercised within the time specified, the Option shall lapse.

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APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

16. RIGHTS ON VOLUNTARY WINDING-UP OF THE COMPANY

In the event a notice is given by the Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as or soon after it despatches such notice to each member of the Company give notice thereof to all Grantees (together with a notice of the existence of the provisions of this Clause) and thereupon, each Grantee shall be entitled to exercise all or any of his Options (to the extent not already exercised irrespective of whether the Options have become exercisable or not) at any time not later than two (2) Business Days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the notice is given whereupon the Company shall as soon as possible and, in any event, no later than the Business Day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the Grantee credited as fully paid. If the Option is not exercised within the time specified, the Option shall lapse.

17. LAPSE OF OPTION

Subject to the discretion of the Board to extend the period within which the Shares must be taken up as referred to in paragraphs 3, 10, 12, 13 and 21, and without prejudice to the authority of the Board to provide for additional situations where an Option shall lapse in any Option Agreement, an Option shall lapse and not be exercisable (to the extent not already exercised) on the earliest of (a) the expiry of the period within in which the Shares must be taken up; (b) the expiry of any of the periods referred to in paragraphs 10 to 16; and (c) the date on which the Board certifies that for the reason of a breach of paragraph 8, the Option should be cancelled.

18. CANCELLATION OF OPTION

Options granted but not exercised or lapsed in accordance with the terms of the 2011 Share Option Scheme may be cancelled by the Company. Where the Company cancels Options and issues new ones to the same Grantee, the issue of such new Options may only be made under the 2011 Share Option Scheme with available unissued Options (excluding the cancelled Options) within the limits set out in paragraphs 19 (a) to (d).

– 33 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

19. MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

(a) Overriding Limit

The maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2011 Share Option Scheme and any other schemes of the Company (including the 2002 Share Option Scheme) must not exceed 30% of the Shares in issue from time to time. No options may be granted under the 2011 Share Option Scheme or any other schemes of the Company if this will result in this limit being exceeded.

(b) Mandate Limit

In addition to the limit set out in paragraph 19(a) and prior to the approval of a Refreshed Mandate Limit, the total number of Shares which may be issued upon exercise of all options to be granted under the 2011 Share Option Scheme and any other schemes of the Company (excluding, for this purpose, options which have lapsed in accordance with the terms of the 2011 Share Option Scheme and any other scheme (including the 2002 Share Option Scheme) must not, in aggregate, exceed 10% of the Shares in issue as at the Adoption Date being 685,013,469 Shares (the “ Initial Mandate Limit ”).

(c) Refreshing of Mandate Limit

The Company may by ordinary resolution of the Shareholders refresh the Mandate Limit. However, the total number of Shares which may be issued upon exercise of all options to be granted under all the schemes of the Company under the limit as refreshed (the “ Refreshed Mandate Limit ”) must not exceed 10% of the Shares in issue as at the date of approval of the limit. Options previously granted under the schemes (including those outstanding, cancelled, exercised or lapsed in accordance with the scheme or exercised options) will not be counted for the purpose of calculating the limit as refreshed.

(d) Limit for each Grantee

Unless approved by the Shareholders of the Company in general meeting with the relevant Grantee and his associates abstaining from voting, the total number of Shares issued and to be issued upon exercise of Options (whether exercised or outstanding) granted to an Grantee shall not exceed in any 12-month period 1% of the Shares in issue. If the Shareholders approve in general meeting the grant of Options to an Grantee in excess of such limit, the date of the board meeting for proposing the further grant (which is made subject to such approvals set out above) shall be the Commencement Date for such further grants.

– 34 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

(e) Grant to substantial shareholder and independent non-executive director

Insofar and for so long as the Listing Rules so require, no Option may be granted to any substantial shareholder of the Company or an independent non-executive Director, or any of their respective associates or any person whose associate is a substantial shareholder of the Company or an independent non-executive Director, which would result in the Shares issued and to be issued upon exercise of all Options already granted or to be granted (including options exercised, cancelled and outstanding) to such person under the 2011 Share Option Scheme and any other scheme(s) of the Company (including the 2002 Share Option Scheme) in the 12-month period up to and including the date of the offer in respect of such further grant:

(i) representing in aggregate over 0.1% of the issued share capital of the Company in issue; and
(ii) having an aggregate value, based on the closing price of the Shares at the date of the offer (which is made subject to such approvals set out in this subparagraph) in respect of such further grant, in excess of HK$5 million,

unless such further grant is approved by the Shareholders in general meeting. At such general meeting, the grant of Options to the substantial shareholder or independent nonexecutive Director, or any of their respective associates or any person whose associate is a substantial shareholder or an independent non-executive Director shall, for so long and insofar as the Listing Rules so require, be approved by the Shareholders of the Company by way of poll with all connected persons of the Company abstaining from voting, except that any connected person may vote against such resolution provided that he has informed the Company of his intention to do so and such intention has been stated in the relevant circular to the Shareholders.

The date of the board meeting for proposing the further grant (which is made subject to such approvals set out in this sub-paragraph) should be taken as the Commencement Date for such grants.

– 35 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

In addition, for so long and insofar as the Listing Rules so require, any variation in the terms of Option granted to a Grantee who is a substantial shareholder or an independent non-executive Director, or any of their respective associates, must be approved by the Shareholders in general meeting with all connected persons of the Company interested in the relevant Option abstaining from voting.

(f) Adjustment to maximum number

The maximum number of Shares referred to in this paragraph 19 will be adjusted in such manner as the auditors or an independent financial adviser shall certify to be appropriate in the event of any alteration in the capital structure of the Company, whether by way of capitalisation of profits or reserves (other than pursuant to a scrip dividend scheme), rights issue, consolidation, sub-division or reduction of the share capital of the Company or otherwise howsoever.

20. EFFECTS OF REORGANISATION OF CAPITAL STRUCTURE

In the event of any alteration in the capital structure of the Company while any Option may become or remains exercisable, whether by way of a capitalisation of profits or reserves (other than pursuant to a scrip dividend scheme), rights issue, consolidation or subdivision, reduction or similar reorganisation of the share capital of the Company, such corresponding alterations (if any) shall be made to:

(a) the number or nominal amount of Shares subject to the Option so far as unexercised; and/or
(b) the subscription price; and/or
(c) the method of exercise of the Option; and/or
(d) the maximum number of Shares referred to in paragraph 19,

– 36 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

as the auditors or an independent financial adviser shall certify in writing to the Board either generally or as regards any particular Grantee to be in their opinion fair and reasonable (except in the case of a capitalisation issue where no such certification shall be required), provided that:

(i) any such alterations shall be made on the basis that the aggregate subscription price payable by a Grantee on the full exercise of any Option shall remain as nearly as possible the same (but shall not be greater than) it was before such event;
(ii) no such alterations shall be made the effect of which would be to enable a Share to be issued at less than its nominal value; and
(iii) no such alterations shall be made the effect of which would be to increase the proportion of the issued share capital of the Company for which any Grantee is entitled to subscribe pursuant to the Options held by him.

For the avoidance of doubt only, the issue of securities as consideration in a transaction shall not be regarded as a circumstance requiring any such alterations.

If there has been any alteration in the capital structure of the Company as referred to above, the Company shall inform each Grantee of such alteration and inform the Grantee of the adjustment (if any) to be made in accordance with the certificate of the auditors or an independent financial adviser obtained by the Company for such purpose. In giving such certificate, the auditors or the independent financial adviser shall be deemed to be acting as experts and not as arbitrators and their certification shall, in the absence of manifest error, be final and binding on the Company and the Grantee.

21. ALTERATION TO THE 2011 SHARE OPTION SCHEME

The 2011 Share Option Scheme may be altered in any respect by resolution of the Board except that the provisions of the 2011 Share Option Scheme as to (a) the definitions of “affiliate”, “Eligible Participant”, “Employee”, “Grantee”, “Option Period”; and (b) the provisions of paragraphs 4, 5, 6, 9, 17, 18, 19, 20, and this paragraph 21, shall not be altered to the advantage of Grantees or proposed Grantees except with the prior sanction of a resolution of the Company in general meeting, provided that no such alteration shall operate to affect adversely the terms of issue of any Option granted or agreed to be granted prior to such alteration except with the consent or sanction of such majority of the Grantees as would be required of the Shareholders under the Byelaws for a variation of the rights attached to the Shares.

– 37 –

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

Any alterations to the terms and conditions of the 2011 Share Option Scheme which are of a material nature, and any change to the terms of the Options granted, shall be approved by the Shareholders of the Company, except where the alterations take effect automatically under the existing terms of the 2011 Share Option Scheme.

The amended terms of the 2011 Share Option Scheme shall comply with the relevant requirements of Chapter 17 of the Listing Rules.

Any change to the authority of the Board to alter the terms of the 2011 Share Option Scheme shall be approved by the Shareholders of the Company.

Subject to the Listing Rules and the terms of the 2011 Share Option Scheme, the Board may, at any time and in its absolute discretion, remove, waive or vary the conditions, restrictions or limitations imposed in an Option Agreement on compassionate or any other grounds.

22. TERMINATION OF THE 2011 SHARE OPTION SCHEME

The Company by resolution in general meeting or the Board may at any time terminate the operation of the 2011 Share Option Scheme and in such event no further Option will be offered after the 2011 Share Option Scheme is terminated but in all other respects the provisions of the 2011 Share Option Scheme shall remain in full force and effect. All Options granted prior to such termination and not then exercised shall remain valid.

– 38 –

APPENDIX II

DETAILS OF DIRECTOR PROPOSED FOR RE-ELECTION

Mr. Ke Jian (“Mr. Ke”), aged 42, was appointed as an executive director of the Company with effect from 2 June 2011 and is the vice president of Beijing Enterprises Holding Limited (Stock code: 392). Mr. Ke is a PRC Senior Accountant, Certified Tax Agent and Senior International Finance Manager. Mr. Ke received a bachelor’s degree in economics from Beijing College of Finance and Commerce and a MBA degree from Murdoch University, Australia. Mr. Ke has extensive experience in finance and corporate administration.

Saved as disclosed herein, Mr. Ke held no other directorships in listed public companies in the last three years preceding the date of his Director’s appointment.

Saved as disclosed herein and as at the Latest Practicable Date, Mr. Ke did not have any relationship with any directors, senior management or substantial or controlling shareholders of the Company as defined in the Listing Rules.

As at the Latest Practicable Date, Mr. Ke did not hold any Shares, underlying Shares or debenture of the Company and/or its associated corporation within the meaning of Part XV of the SFO.

Mr. Ke has not entered into any service contracts in relation to his directorship with the Company; has no fixed term of service with the Company and is subject to retirement by rotation and re-election at annual general meetings of the Company in accordance with the Bye-laws of the Company. Mr. Ke is entitled to an annual director’s fee of HK$100,000 and bonus at the discretion of the Board by reference to the market conditions, the Group’s performance, his duties and performance.

The Board is not aware of any other matter in relation to the appointment of Mr. Ke that needs to be brought to the attention of the Shareholders and does not have any information which is required to be disclosed under Rules 13.51(2)(h) to (v) of the Listing Rules.

– 39 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors or the chief executive of the Company and their associates in any Shares, underlying Shares or debentures of the Company or any of its associated corporations within the meaning of Part XV of the SFO as recorded in the register maintained by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Part XV of the SFO or the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules, were as follows:

Long positions in the Shares and/or underlying Shares

			Approximate
			percentage of
		Number of Shares	the Company’s
Name of	Nature of	and/or	issued share
Directors	interest	underlying Shares	capital
			(Note 2)
Mr. Hu Xiaoyong	Interest of controlled	684,789,919	10.00%
	corporation (Note 1)
Mr. Zhou Min	Interest of controlled	684,789,919	10.00%
	corporation (Note 1)

Notes:

Messrs. Hu Xiaoyong, Zhou Min and Hou Feng, all being executive Directors, are interested in Tenson Investment Limited as to approximately 52.62%, 44.93% and 2.45%, respectively. Tenson Investment Limited holds 684,789,919 Shares.
The percentage represented the number of Shares over the total issued share capital of the Company as at the Latest Practicable Date of 6,850,134,694 Shares.

– 40 –

APPENDIX III

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had registered an interest or a short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations that was required to be recorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies or the SFO.

(b) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, so far as was known to the Directors or the chief executive of the Company, the following persons (other than the Directors or the chief executive of the Company) had an interest or short position in the Shares or underlying Shares 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, required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company:

Long position in the Shares and underlying Shares

			Approximate
			percentage of
			the Company’s
Name of	Nature of	Long position	issued share
Shareholders	interest	in the Shares	capital
Beijing Enterprises	Interests of controlled	3,047,556,993	44.49%
Group Company	corporations	(Note 1)
Limited (Note 1)
Beijing Enterprises	Interests of controlled	3,047,556,993	44.49%
Holdings Limited	corporations	(Note 1)
(“BEHL”) (Note 1)
Tenson Investment	Directly beneficially owned	684,789,919	10.00%
Limited (Note 2)

– 41 –

GENERAL INFORMATION

APPENDIX III

Notes:

Beijing Enterprises Group Company Limited is deemed to be interested in 3,047,556,993 Shares as a result of its indirect holding of such Shares through the following entities including its wholly-owned subsidiaries:–

	Long position
Name	in Shares
Beijing Enterprises Environmental Construction Limited
(“BE Environmental”)	3,047,556,993 (i)
BEHL	3,047,556,993 (i)
Beijing Enterprises Group (BVI) Company Limited	3,047,556,993 (i)
Beijing Enterprises Group Company Limited	3,047,556,993 (i)

BE Environmental beneficially holds 3,047,556,993 Shares. BE Environmental is a whollyowned subsidiary of BEHL, which is in turn held as to approximately 36.16% by Beijing Enterprises Group (BVI) Company Limited, and which is in turn held as to 100% by Beijing Enterprises Group Company Limited.

Mr. Zhang Honghai, being the executive director of the Company, is director of both BEHL and Beijing Enterprises Group Company Limited. Mr. E Meng, being the executive director of the Company, is director of both BEHL and BE Environmental. Mr. Jiang Xinhao, being the executive director of the Company, is director of BEHL.
The share capital of Tenson Investment Limited is beneficially owned as to approximately 52.62% by Mr. Hu Xiaoyong, as to approximately 44.93% by Mr. Zhou Min, and as to approximately 2.45% by Mr. Hou Feng, all being executive Directors.
There were no outstanding convertible securities, option or otherwise as at the Latest Practicable Date.
The percentage represented the number of Shares over the total issued share capital of the Company as at the Latest Practicable Date of 6,850,134,694 Shares.

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors, no other person (other than the Directors or the chief executive of the Company) had, or was deemed or taken to have an interest or short position in the Shares or/and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or as recorded in the register required to be kept under Section 336 of the SFO and/or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company.

– 42 –

GENERAL INFORMATION

APPENDIX III

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into any service contract with the Company, or any member of the Group, which is not terminable by the Group within one year without payment of compensation (other than statutory compensation).

4. DIRECTORS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or the chief executive of the Company had any direct or indirect interests in any assets which had been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2010, being the date to which the latest published audited accounts of the Group were made up.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates were considered to have any interest in a business which competes or may compete, either directly or indirectly, with the businesses of the Group, other than those business where the Directors were appointed as directors to represent the interests of the Company and/or the Group.

6. QUALIFICATION AND CONSENT OF EXPERT

The followings are the qualifications of the expert who have given opinion or advice which are contained in this circular:

Name Qualification Guangdong Securities Limited Guangdong Securities Limited, a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO

– 43 –

GENERAL INFORMATION

APPENDIX III

Guangdong Securities has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or reference to its name or opinion in the form and context in which it appears.

As at the Latest Practicable Date, Guangdong Securities did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Guangdong Securities did not have any direct or indirect interests in any assets which have been, since 31 December 2010 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

7. NO MATERIAL CHANGES

The Board confirms that there have been no material changes in the financial or trading position or outlook of the Group since 31 December 2010, being the date to which the latest audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

8. GENERAL

(a) The registered address of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.
(b) The head office and principal place of business of the Company in Hong Kong is at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.
(c) The principal share registrar and transfer office of the Company is at Butterfield Fulcrum Group (Bermuda) Limited, Rosebank Centre, 11 Bermudiana Road, Pembroke HM 08, Bermuda.
(d) The Hong Kong branch share registrar and transfer office of the Company is at Tricor Tengis Limited, 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

– 44 –

GENERAL INFORMATION

APPENDIX III

(e) The company secretary and the qualified accountant of the Company is Mr. Tung Woon Cheung Eric, a Certified Public Accountant of both the American Institute of Certified Public Accountants and the Hong Kong Institute of Certified Public Accountants.
(f) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:30 a.m. to 5:30 p.m. on any weekday (public holidays excepted) at the head office and principal place of business of the Company at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the letter from the Independent Board Committee, the text of which is set out on page 16 of this circular;
(b) the written consent from Guangdong Securities as referred to under the section headed “Qualification and Consent of Expert” in this appendix;
(c) the letter from Guangdong Securities as set out from pages 17 to 27 of this circular;
(d) all the agreements/contracts as referred to in this circular;
(e) the proposed 2011 Share Option Scheme; and
(f) this circular.

– 45 –

NOTICE OF THE SGM

==> picture [62 x 60] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Special General Meeting of the shareholders of Beijing Enterprises Water Group Limited (the “ Company ”) will be held at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Tuesday, 28 June 2011 at 10:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolutions as ordinary resolutions of the Company:–

ORDINARY RESOLUTIONS

“ THAT :

(a) the second supplemental loan agreement (the “ 2nd Supplemental Loan Agreement ”) dated 25 May 2011 by the Company to Meishi International Investment Group Limited, a copy of which has been produced to the meeting and marked “A”, and initialled by the chairman of the meeting for the purpose of identification, the terms thereof and the transactions contemplated thereunder, be and is hereby confirmed, approved and ratified; and
(b) the directors of the Company (the “ Directors ”) be and are hereby authorised to take such actions and execute such documents to effect the 2nd Supplemental Loan Agreement and transactions contemplated under the 2nd Supplemental Loan Agreement and to sign or execute such other documents or agreements or deeds on behalf of the Company and to do such other things and to take all such actions as they may consider necessary or desirable for the purposes of giving effect to the 2nd Supplemental Loan Agreement, and where required, any amendment of the terms of the 2nd Supplemental Loan Agreement and the transactions contemplated thereunder.

– 46 –

NOTICE OF THE SGM

(a) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval of the listing of and permission to deal in the Shares which may fall to be issued pursuant to the exercise of any options granted under the 2011 Share Option Scheme (a copy of which has been presented to this meeting marked “B” and initialled by the chairman of the meeting for identification purpose), the 2011 Share Option Scheme be and is hereby approved and adopted; and that the Directors be and are hereby authorised to grant options and allot, issue and deal with the Shares pursuant to the exercise of any options granted under the 2011 Share Option Scheme; and that the Directors be and are hereby authorised to do all such acts and to enter into all such transactions and arrangements as may be necessary or expedient in order to give effect to the 2011 Share Option Scheme; and
(b) conditional upon the 2011 Share Option Scheme becoming unconditional and effective, the 2002 Share Option Scheme be terminated with effect from the date on which the 2011 Share Options Scheme shall become unconditional and effective.
Mr. Ke Jian be re-elected as an executive Director and the board of Directors be authorised to fix his remuneration.”

By Order of the Board Beijing Enterprises Water Group Limited Zhang Honghai Chairman

Hong Kong, 10 June 2011

Notes:

(i) A member entitled to attend and vote at the meeting is entitled to appoint not more than two proxies to attend and vote instead of him. In the case of a recognised clearing house, it may authorise such person(s) as it thinks fit to act as its representative(s) at the meeting and vote in its stead. A proxy need not be a member of the Company.
(ii) In order to be valid, the form of proxy together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority must be deposited at the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited of 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.
(iii) As at the date of this notice of meeting, the board of directors of the Company comprises eleven executive directors, namely, Mr. Zhang Honghai (Chairman), Mr. E Meng, Mr. Jiang Xinhao, Mr. Hu Xiaoyong (Chief Executive Officer), Mr. Zhou Min, Mr. Li Haifeng, Mr. Zhang Tiefu, Mr. Hou Feng, Ms. Qi Xiaohong, Mr. Ke Jian and Mr. Ju Yadong and five independent non-executive directors, namely, Mr. Shea Chun Lok, Quadrant, Mr. Zhang Gaobo, Mr. Guo Rui, Ms. Hang Shijun and Mr. Wang Kaijun.

– 47 –

AI assistant

Beijing Enterprises Water Group Limited — Proxy Solicitation & Information Statement 2011

49167_rns_2011-06-09_c2401b68-d8fe-4fd2-97dd-60272e44d9c5.pdf

(1) DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

Independent Financial Adviser to the Independent Board Committee and

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

(Stock Code: 371)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

(4) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

(I) Provision of the additional loan

The Loan Agreement and the Supplemental Loan Agreement

LETTER FROM THE BOARD

The 2nd Supplemental Loan Agreement

LETTER FROM THE BOARD

Information on the parties

Reasons for and benefits of entering into the 2nd Supplemental Loan Agreement

LETTER FROM THE BOARD

Listing Rules implication

LETTER FROM THE BOARD

General

(II) Adoption of the 2011 share option scheme

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Termination of the 2002 Share Option Scheme

(III) Re-election of retiring director

THE SGM AND PROXY ARRANGEMENT

LETTER FROM THE BOARD

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

LETTER FROM GUANGDONG SECURITIES

DISCLOSEABLE AND CONNECTED TRANSACTION: 2ND SUPPLEMENTAL LOAN AGREEMENT REGARDING THE PROVISION OF LOAN

INTRODUCTION

LETTER FROM GUANGDONG SECURITIES

BASIS OF OUR OPINION

LETTER FROM GUANGDONG SECURITIES

PRINCIPAL FACTORS AND REASONS CONSIDERED

(1) Background of the provision of the Additional Loan

LETTER FROM GUANGDONG SECURITIES

LETTER FROM GUANGDONG SECURITIES

Information on Meishi

Information on the Joint Venture

(2) Reasons for the provision of the Additional Loan

LETTER FROM GUANGDONG SECURITIES

LETTER FROM GUANGDONG SECURITIES

(3) Principal terms of the 2nd Supplemental Loan Agreement

LETTER FROM GUANGDONG SECURITIES

LETTER FROM GUANGDONG SECURITIES

LETTER FROM GUANGDONG SECURITIES

(4) Possible financial effects of the provision of the Additional Loan

LETTER FROM GUANGDONG SECURITIES

RECOMMENDATION

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

1. PURPOSE

2. WHO MAY JOIN

3. ADMINISTRATION

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF THE 2011 SHARE OPTION SCHEME

4. GRANT OF OPTION

5. ACCEPTANCE OF OFFER FOR THE GRANT OF OPTIONS

6. SUBSCRIPTION PRICE

APPENDIX I

7. OPTION PERIOD

8. RIGHTS ARE PERSONAL TO GRANTEE

9. RANKING OF SHARES

10. RIGHTS ON RETIREMENT, DEATH OR TOTAL PERMANENT PHYSICAL OR MENTAL DISABILITY

APPENDIX I

SUMMARY OF THE PRINCIPAL TERMS OF

THE 2011 SHARE OPTION SCHEME

Beijing Enterprises Water Group Limited Proxy Solicitation & Information Statement 2011