Beijing Enterprises Water Group Limited - Proxy Solicitation & Information Statement 2019

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 your stockbroker or other registered dealer in securities, 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 and the accompanying form of proxy to the purchaser or to the 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) SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE (2) CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON AND (3) NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser to the Company in respect of the Subscription by China Yangtze Power International (Hongkong) Co., Limited

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out from pages 5 to 21 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages IBC-1 to IBC-2 of this circular. A letter of advice from First Shanghai, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out from pages IFA-1 to IFA-22 of this circular.

A notice convening the special general meeting (the “ SGM ”) of Beijing Enterprises Water Group Limited (the “ Company ”) to be held at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Thursday, 7 March 2019 at 4:30 p.m., is set out on pages SGM-1 to SGM-3 of this circular. A form of proxy for use at the SGM is enclosed with this circular. 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 SGM, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

18 February 2019

		Page
1.	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
2.	LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . .	IBC-1
4.	LETTER OF ADVICE FROM FIRST SHANGHAI . . . . . . . . . . . . . . . . . . . . . . . . .	IFA-1
5.	APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	AI-1
6.	NOTICE OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

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DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires.

“acting in concert”

has the meaning as defined in the Hong Kong Codes on Takeovers and Mergers

“associate(s)” has the meaning ascribed to it under the Listing Rules
“BEECL” Beijing Enterprises Environmental Construction Limited, being a controlling shareholder of the Company
“BEECL Long Stop Date” the date falling ninety (90) days after the date of the BEECL Subscription Agreement (or such later date as may be agreed between the parties to the BEECL Subscription Agreement)
“BEECL Specific Mandate” the specific mandate for the allotment and issue of the BEECL Subscription Shares, which is subject to approval by the Independent Shareholders voting by way of poll at the SGM
“BEECL Subscription” the subscription of the BEECL Subscription Shares by BEECL pursuant to the BEECL Subscription Agreement
“BEECL Subscription Agreement” a conditional subscription agreement entered into between BEECL and the Company dated 18 January 2019 in relation to the BEECL Subscription
“BEECL Subscription Price” HK$4.29 per BEECL Subscription Share
“BEECL Subscription Shares” 127,747,714 Shares to be subscribed for by BEECL and allotted to it pursuant to the terms of the BEECL Subscription Agreement
“BEHL” Beijing Enterprises Holdings Limited (Stock Code: 392), a company incorporated in Hong Kong with limited liability and the shares of which are listed on the main board of the Stock Exchange, and a controlling shareholder of the Company
“Board” the board of Directors
“Business Day” any day (excluding Saturday and Sunday) on which commercial banks generally are open for business in Hong Kong
“Company” Beijing Enterprises Water Group Limited (Stock Code: 371), a company incorporated in Bermuda with limited liability and the shares of which are listed on the main board of the Stock Exchange

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DEFINITIONS

“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 “CTG” China Three Gorges Corporation, a company established in the PRC with limited liability, and an indirect holding company of CYPI “CYPI” China Yangtze Power International (Hongkong) Co., Limited (中國長電國際 (香港)有限公司), a company incorporated in Hong Kong with limited liability “CYPI Long Stop Date” the date falling ninety (90) days after the date of the CYPI Subscription Agreement (or such other date as may be agreed between the parties to the CYPI Subscription Agreement) “CYPI Specific Mandate” the specific mandate for the allotment and issue of the CYPI Subscription Shares, which is subject to approval by the Shareholders voting by way of poll at the SGM “CYPI Subscription” the subscription of the CYPI Subscription Shares by CYPI pursuant to the CYPI Subscription Agreement “CYPI Subscription Agreement” a conditional subscription agreement entered into between CYPI and the Company dated 18 January 2019 in relation to the CYPI Subscription “CYPI Subscription Price” HK$4.29 per CYPI Subscription Share “CYPI Subscription Shares” 470,649,436 Shares to be subscribed for by CYPI and allotted to it pursuant to the terms of the CYPI Subscription Agreement “Director(s)” director(s) of the Company from time to time “Group” the Company and its subsidiaries “HK$” Hong Kong dollar, the lawful currency of Hong Kong “Hong Kong” Hong Kong Special Administrative Region of the PRC “Independent Board Committee” an independent board committee of the Board comprising all the independent non-executive Directors established for the purpose of advising the Independent Shareholders on the BEECL Subscription Agreement and the transactions contemplated thereunder

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DEFINITIONS

“Independent Financial Adviser” First Shanghai Capital Limited, a licensed corporation to or “First Shanghai” carry out type 6 regulated activities (advising on corporate finance) under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the BEECL Subscription Agreement and the transactions contemplated thereunder

“Independent Shareholder(s)”
Shareholders other than (1) BEECL and its associates; and (2) those who have a material interest in the BEECL Subscription or are required by the Listing Rules to abstain from voting on the resolution approving the BEECL Subscription, the allotment and issue of the BEECL Subscription Shares and other transactions contemplated under the BEECL Subscription Agreement
“Last Trading Day” 17 January 2019, being the last full trading day for the Shares immediately before the date of the Subscription Agreements
“Latest Practicable Date” 14 February 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Committee”
has the meaning ascribed to such term in the Listing Rules
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“PRC” the People’s Republic of China, excluding, for the purposes of this circular, Hong Kong, Macau and Taiwan
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM”
the special general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving the CYPI Subscription Agreement, the BEECL Subscription Agreement and the respective transactions contemplated thereunder
“Share(s)” ordinary shares of HK$0.10 each in the capital of the Company
“Share Options” share options to subscribe for Share(s) granted pursuant to the Share Option Scheme
“Share Option Scheme”

the share option scheme adopted by the Shareholders at the special general meeting of the Company held on 28 June 2011

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DEFINITIONS

“Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription Agreements” collectively, the CYPI Subscription Agreement and the BEECL Subscription Agreement “substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules “%” per cent.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

Executive Directors:

Mr. Li Yongcheng (Chairman) Mr. E Meng (Vice Chairman) Mr. Jiang Xinhao Mr. Zhou Min (Chief Executive Officer)

Mr. Li Haifeng Mr. Zhang Tiefu Ms. Qi Xiaohong Mr. Ke Jian Mr. Tung Woon Cheung Eric Mr. Li Li

Independent Non-executive Directors:

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

Head office and principal place of business: Rooms 6706-07, 67th Floor Central Plaza 18 Harbour Road Wanchai Hong Kong

Mr. Shea Chun Lok Quadrant

Mr. Zhang Gaobo

Mr. Guo Rui

Mr. Wang Kaijun

Dr. Lee Man Chun Raymond

18 February 2019

To the Shareholders

Dear Sir or Madam,

(1) SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE

(2) CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

AND

(3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to (i) the announcement of the Company dated 18 January 2019 in relation to, among other things, the CYPI Subscription; and (ii) the announcement of the Company dated 18 January 2019 in relation to, among other things, the BEECL Subscription.

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among others, (i) details of the CYPI Subscription Agreement, the BEECL Subscription Agreement and the respective transactions contemplated thereunder; (ii) a letter of advice from the Independent Board Committee to the Independent Shareholders in relation to the BEECL Subscription; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the BEECL Subscription; and (iv) a notice of the SGM.

(1) THE CYPI SUBSCRIPTION

On 18 January 2019 (after trading hours), the Company entered into the CYPI Subscription Agreement with CYPI. Pursuant to the CYPI Subscription Agreement, the Company has conditionally agreed to allot and issue, and CYPI has conditionally agreed to subscribe for, 470,649,436 new Shares. The CYPI Subscription Shares will be issued at the CYPI Subscription Price.

The CYPI Subscription Agreement

Date:	18 January 2019
Parties:
Issuer:	the Company
Subscriber:	CYPI

CYPI Subscription Shares

Pursuant to the CYPI Subscription Agreement, the Company conditionally agreed to allot and issue, and CYPI conditionally agreed to subscribe for, the CYPI Subscription Shares at the CYPI Subscription Price.

As at the date of the Subscription Agreements and the Latest Practicable Date, the Company had a total number of 9,412,988,721 Shares. The CYPI Subscription Shares represent:

(i) approximately 5.00% of the total number of issued Shares as at the date of the Subscription Agreements;
(ii) approximately 5.00% of the total number of issued Shares as at the Latest Practicable Date;
(iii) approximately 4.76% of the total number of issued Shares as enlarged by the allotment and issue of the CYPI Subscription Shares (assuming (a) the CYPI Subscription, but not the BEECL Subscription, shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the CYPI Subscription Shares); and
(iv) approximately 4.70% of the total number of issued Shares as enlarged by the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares (assuming (a) both

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LETTER FROM THE BOARD

the CYPI Subscription and the BEECL Subscription shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the respective allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares).

Based on the closing price of the Shares of HK$4.29 per Share on the date of the Subscription Agreements, the CYPI Subscription Shares had a market value of approximately HK$2,019.1 million. The aggregate nominal value of the CYPI Subscription Shares was approximately HK$47.1 million.

It is expected that CYPI will not become a substantial shareholder of the Company as a result of the CYPI Subscription.

CYPI Subscription Price

The CYPI Subscription Price of HK$4.29 per CYPI Subscription Share represents:

(i) the equivalence to the closing price of HK$4.29 per Share as quoted on the Stock Exchange on 18 January 2019, being the date on which the terms of the CYPI Subscription were fixed;
(ii) a premium of approximately 0.23% to the closing price of HK$4.28 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iii) a premium of approximately 1.27% to the average closing price of HK$4.236 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day;
(iv) a premium of approximately 3.80% to the average closing price of HK$4.133 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day; and
(v) a discount of approximately 11.00% to the closing price of HK$4.82 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The CYPI Subscription Price was arrived at after arm’s length negotiation between the Company and CYPI with reference to the recent trading performance of the Shares and the business prospects of the Group. The Board has made reference to and taken into account (i) the fluctuation of the market prices of the Shares during the 90 trading days period from 7 September 2018 and up to and including the date of the Subscription Agreements (the “ Review Period ”); (ii) the CYPI Subscription Price is close to the average closing price of the Shares of approximately HK$4.15 per Share during the Review Period; and (iii) the CYPI Subscription Price is close to the average closing price of the Shares of approximately HK$4.17 per Share for the last ten trading days up to and including the date of the Subscription Agreements.

The Directors consider that the CYPI Subscription Price and the terms of the CYPI Subscription Agreement are fair and reasonable, on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

The aggregate CYPI Subscription Price of approximately HK$2,019.1 million shall be payable by CYPI in the following manner:

(a) within ten (10) Business Days after the date of the CYPI Subscription Agreement, CYPI shall pay approximately HK$20.2 million (being 1% of the aggregate CYPI Subscription Price) in cash to the Company as a deposit (the “ Deposit ”); and
(b) on the date of completion of the CYPI Subscription, CYPI shall pay the remaining CYPI Subscription Price (the “ Remaining Consideration ”), approximately HK$1,998.9 million (being 99% of the aggregate CYPI Subscription Price) in cash to the Company.

As at the Latest Practicable Date, the Deposit has been paid by CYPI to the Company.

If the allotment, issue and subscription of the CYPI Subscription Shares is completed on the date of completion of the CYPI Subscription, the Deposit shall constitute part of the aggregate CYPI Subscription Price.

If any of the conditions precedent under the CYPI Subscription Agreement fails to be satisfied on or before the CYPI Long Stop Date other than due to the default of CYPI, the Company shall refund the Deposit to CYPI within five (5) Business Days from (i) the CYPI Long Stop Date (or the date of such termination, whichever is the earlier); or (ii) the date on which the Company receives a written notice from CYPI about the information of the bank accounts for refund of the Deposit, whichever is the latter, together with the actual amount of interest (if any) accrued on the bank account in which the Deposit shall have been deposited (the “ Deposit Refund ”).

Conditions precedent

Completion of the CYPI Subscription is conditional upon fulfilment of the following conditions:

(a) the Listing Committee having granted the approval for the listing of, and permission to deal in, the CYPI Subscription Shares;
(b) the Company having obtained all necessary consents and authorisations in relation to the CYPI Subscription Agreement and the transactions contemplated thereunder; and
(c) the Shareholders having approved at the SGM the CYPI Subscription Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the CYPI Subscription Shares.

None of the conditions precedent under the CYPI Subscription Agreement are capable of being waived by any of the parties thereto. If any of the conditions precedent under the CYPI Subscription Agreement is not fulfilled on or before the CYPI Long Stop Date, all rights and obligations of the parties under the CYPI Subscription Agreement shall cease and terminate, and save and except for (i) those provisions regarding confidentiality and other general provisions which shall remain in full force and effect; and (ii) the Deposit Refund, no party shall have any claim against the other save for claim (if any) in respect of any antecedent breach thereof.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, none of the conditions precedent under the CYPI Subscription Agreement has been fulfilled.

For avoidance of doubt, the CYPI Subscription and the BEECL Subscription are not inter-conditional on each other.

Ranking

The CYPI Subscription Shares, when fully paid and allotted and issued, will rank pari passu among themselves and with the Shares in issue on the date of allotment and issue of the CYPI Subscription Shares.

Completion of the CYPI Subscription

Completion of the CYPI Subscription shall take place on the fifth (5th) Business Day following the fulfilment of all the conditions precedent under the CYPI Subscription Agreement (or such other date as may be agreed by the Company and CYPI in writing).

On the date of completion of the CYPI Subscription, CYPI shall pay to the Company the Remaining Consideration in cash for the subscription of the CYPI Subscription Shares and the CYPI Subscription Shares shall be allotted and issued to CYPI free from all encumbrances.

Lock-up undertaking

CYPI undertakes that, during the period of six (6) months from the date of completion of the CYPI Subscription (the “ CYPI Lock-up Period ”), it shall not transfer or seek to dispose of the CYPI Subscription Shares (save for the transfer or disposal of the CYPI Subscription Shares by CYPI to its associates, who shall execute in favour of the Company a written undertaking (the form and substance of which shall have been approved by the Company in writing prior to such execution) to abide by the lock-up provisions until expiry of the CYPI Lock-up Period as though it were CYPI) or otherwise create any options, rights, interests or encumbrances in respect of, any of the CYPI Subscription Shares.

Right to nominate executive Director

Pursuant to the CYPI Subscription Agreement, if the CYPI Subscription is completed, if CYPI and its associates increase their shareholding in the Company in the secondary market which results in their shareholding in the Company reaching or exceeding 10% of the then total number of issued Shares, then CYPI (or its associate) shall have the right to nominate one candidate to act as an executive Director for the Board’s determination. For avoidance of doubt, CYPI and all its associates collectively may only nominate one such candidate.

Specific mandate to issue the CYPI Subscription Shares

The CYPI Subscription Shares will be allotted and issued under the CYPI Specific Mandate proposed to be sought from the Shareholders at the SGM.

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LETTER FROM THE BOARD

Information of the Company

The Company is an investment company and the holding company of the Group. The Group is principally engaged in construction of sewage and reclaimed water treatment and seawater desalination plants, and provision of construction services for comprehensive renovation projects in the PRC, Malaysia and Australia; provision of sewage and reclaimed water treatment services in the PRC, the Republic of Singapore, Portuguese Republic, Australia and New Zealand; distribution and sale of piped water in the PRC, Portuguese Republic and Australia; provision of technical and consultancy services and sale of machineries related to sewage treatment and construction services for comprehensive renovation projects in the PRC and Australia; and the licensing of technical know-how related to sewage treatment in the PRC.

Information of CYPI

CYPI is a company incorporated in Hong Kong with limited liability. It is a wholly-owned subsidiary of China Yangtze Power Co., Ltd. (中國長江電力股份有限公司) (“ CYPC* ”).

The business scope of CYPI is the development, investment, operation and management of overseas power and energy projects. CYPI is an overseas investment and financing platform for CTG and CYPC to expand their overseas business.

Use of proceeds of the CYPI Subscription

The gross proceeds of the CYPI Subscription will be approximately HK$2,019.1 million. The net proceeds of the CYPI Subscription, after deduction of all relevant expenses incidental to the CYPI Subscription borne by the Company amounting to approximately HK$0.5 million, are estimated to be approximately HK$2,018.6 million and the net subscription price per CYPI Subscription Share is HK$4.29. The intended use of the net proceeds from the CYPI Subscription are as follows: (i) approximately HK$1,518.6 million for the investment in traditional water projects including “Build-Operate-Transfer (BOT)”[1] and “Transfer-Operate-Transfer (TOT)”[2] projects and (ii) approximately HK$500 million for the construction of water environment comprehensive renovation projects.

1 BOT is a form of project financing, wherein a private investor receives a concession from the local government or relevant public sector agency to finance, design, construct, own, and operate a facility stated in the concession contract. This enables the project proponent to recover its investment, operating and maintenance expenses in the project.

2 TOT is a business model in which a local government or relevant public sector agency conducts a transfer of asset rights, including operation and management rights, in wastewater treatment services to a private investor. In return for this, the private investor provides a one-off payment to the public sector in order to manage, operate, and maintain the wastewater treatment facilities for a certain period of time (usually 20-30 years). During the contract period, the private investor can achieve a level of revenues in order to recoup its initial investment and to make a profit. The facilities will be transferred back to the public sector at the end of the contract period without any compensation to the private investor.

For identification purpose only

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LETTER FROM THE BOARD

Reasons for and benefits of the CYPI Subscription

Environmental protection is an important direction for the development of today’s society, and it is receiving more and more attention from the state. As the longest river and the economic hub in Asia, the great protection of the Yangtze River Basin is imperative. The participation of CTG (an indirect holding company of CYPI) in the great protection of the Yangtze River as well as playing a major role as the backbone are new missions and new tasks endowed by the state and history. As a leading company in the water industry in the PRC, the Group can play an active role with its more than 10 years of experience in water environmental protection and solid technical strength.

On 18 January 2019 (after trading hours), the Company entered into a cooperation agreement with Yangtze Ecological Environmental Protection Group Co., Ltd. (長江生態環保集團有限公司) (“ YEEPG* ”), an operating entity of CTG, in respect of the cooperation contemplated (subject to signing of formal agreements by the Company and YEEPG) under the objective of protection of the Yangtze River, in the aspects of cooperative cities, project business and research, in order to further the work in urban sewage treatment and contribute to the cleanliness of the water in the Yangtze River.

The Group positions its strategic goal on two core businesses, namely urban water services and water environment comprehensive renovation in terms of both scale and strength, and heads towards a digitalised and smart enterprise in adherence to the development strategy of setting up asset management and operational management platforms. The Group targets to provide comprehensive solutions and services at all levels for water environmental protection in the cities in which it operates. It is the Group’s strategic plan to seek opportunities in business expansion continuously through various channels in order to create synergy in exploring the market. This dual cooperation in equity and business between the Group and CTG is based on the need of the strategic development of the Group. It will also be conducive to deepening the partnership between the Group and CTG comprehensively and in depth, which has far-reaching significance for both parties.

Through this equity cooperation, both parties have become close partners. Under the circumstances that both parties complement each other’s strengths, they are committed to the environmental protection field along the Yangtze River and even the whole country. This cooperation will give full play to the rich experience and leading technology of the Group in the field of water environmental protection, and will also help to control the ecological environment of the Yangtze River Basin more scientifically and effectively. At the same time, it will strengthen the business development of the Group along the Yangtze River and even in the national market. It will not only improve the development speed of the Group, but also promote the development quality of the Group. It will also verify and strengthen the leading position of the Group in the water industry.

Based on the Board’s latest estimates, the CYPI Subscription and the BEECL Subscription by themselves cannot fully satisfy the Company’s expected funding needs in the next 12 months from the Latest Practicable Date. The primary objective for the CYPI Subscription is for the deepening of the partnership with CTG to develop water environmental protection business.

For identification purpose only

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LETTER FROM THE BOARD

After taking into account the financial resources presently available to the Group including the internally generated funds, the currently available bank facilities and the effects of the CYPI Subscription and the BEECL Subscription, and in the absence of unforeseen circumstances, the Group has sufficient working capital for its expected funding needs in the next twelve months from the Latest Practicable Date. As at the Latest Practicable Date, the Company is considering various means of debt financing including but not limited to bank facilities, bond issue, etc., subject to borrowing costs and the market opportunities. However, as at the Latest Practicable Date, the Company does not have any plan, arrangement or negotiation taken place or in-progress on any potential equity fund raising activities.

General

The CYPI Subscription Shares will be issued under the CYPI Specific Mandate, which is subject to the Shareholders’ approval at the SGM.

(2) THE BEECL SUBSCRIPTION

On 18 January 2019, the Company entered into the BEECL Subscription Agreement with BEECL. Pursuant to the BEECL Subscription Agreement, the Company has conditionally agreed to allot and issue, and BEECL has conditionally agreed to subscribe for, 127,747,714 new Shares. The BEECL Subscription Shares will be issued at the BEECL Subscription Price.

The BEECL Subscription Agreement

Date: 18 January 2019 Parties Issuer: the Company Subscriber: BEECL

BEECL Subscription Shares

Pursuant to the BEECL Subscription Agreement, the Company has conditionally agreed to allot and issue, and BEECL has conditionally agreed to subscribe for, the BEECL Subscription Shares at the BEECL Subscription Price.

As at the date of the Subscription Agreements and the Latest Practicable Date, the Company had a total number of 9,412,988,721 Shares. The total number of BEECL Subscription Shares represent:

(i) approximately 1.36% of the total number of issued Shares as at the date of BEECL Subscription Agreement;
(ii) approximately 1.36% of the total number of issued Shares as at the Latest Practicable Date;

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LETTER FROM THE BOARD

(iii) approximately 1.34% of the total number of issued Shares as enlarged by the allotment and issue of the BEECL Subscription Shares (assuming (a) the BEECL Subscription, but not the CYPI Subscription, shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the BEECL Subscription Shares); and
(iv) approximately 1.28% of the total number of issued Shares as enlarged by the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares (assuming (a) both the CYPI Subscription and the BEECL Subscription shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the respective allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares).

Based on the closing price of the Shares of HK$4.29 per Share on the date of the Subscription Agreements, the BEECL Subscription Shares had a market value of approximately HK$548.0 million. The aggregate nominal value of the BEECL Subscription Shares was approximately HK$12.8 million.

BEECL Subscription Price

The BEECL Subscription Price of HK$4.29 per Subscription Share represents:

(i) the equivalence to the closing price of HK$4.29 per Share as quoted on the Stock Exchange on 18 January 2019, being the date on which the terms of the BEECL Subscription was fixed;
(ii) a premium of approximately 0.23% over the closing price of HK$4.28 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iii) a premium of approximately 1.27% over the average closing price per Share of HK$4.236 for the last five consecutive trading days up to and including the Last Trading Day;
(iv) a premium of approximately 3.80% over the average closing price per Share of HK$4.133 for the last ten consecutive trading days up to and including the Last Trading Day; and
(v) a discount of approximately 11.00% to the closing price of HK$4.82 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The BEECL Subscription Price was arrived at after arm’s length negotiation between the Company and BEECL with reference to the recent trading performance of the Shares and the business prospects of the Group. The Board has made reference to and taken into account (i) the fluctuation of the market prices of the Shares during the 90 trading days period from 7 September 2018 and up to and including the date of the Subscription Agreements (the “ Review Period ”); (ii) the BEECL Subscription Price is close to the average closing price of the Shares of approximately HK$4.15 per Share during the Review Period; and (iii) the BEECL Subscription Price is close to the average closing price of the Shares of approximately HK$4.17 per Share for the last ten trading days up to and including the date of the Subscription Agreements.

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LETTER FROM THE BOARD

The Directors (excluding the independent non-executive Directors, who will give their view on the BEECL Subscription Agreement and the transactions contemplated thereunder after taking into account the advice of the Independent Financial Adviser) consider that the BEECL Subscription Price and the terms of the BEECL Subscription Agreement are fair and reasonable, on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Completion of the BEECL Subscription is conditional upon fulfilment of the following conditions:

(a) the passing of the resolution(s) at the SGM by the Independent Shareholders to approve the BEECL Subscription Agreement and the transactions contemplated thereunder, including the granting of the BEECL Specific Mandate to the Directors to allot and issue the BEECL Subscription Shares;
(b) the Listing Committee having granted listing of and permission to deal in all of the BEECL Subscription Shares (and such listing and permission not subsequently revoked prior to the delivery of the definite share certificate(s) representing allotment of the BEECL Subscription Shares to BEECL or its nominee(s)); and
(c) in addition to condition (b) above, the Company having obtained each necessary consent, permit, approval, registration, filing, notice, confirmation, authorisation or waiver (including but not limited to those provided by the Hong Kong Securities and Futures Commission, the Stock Exchange or any other third party (if applicable)) in relation to the BEECL Subscription Agreement and/or the transactions contemplated hereunder, and such consent, permit, approval, registration, filing, notice, confirmation, authorisation or waiver not having been revoked or withdrawn.

If any of the above conditions is not fulfilled on or before the BEECL Long Stop Date, the BEECL Subscription Agreement shall lapse and all the rights and obligations under the BEECL Subscription Agreement shall cease, save for any rights or obligations which may accrue prior to the date of such lapse.

As at the Latest Practicable Date, none of the conditions precedent under the BEECL Subscription Agreement has been fulfilled.

For avoidance of doubt, the BEECL Subscription and the CYPI Subscription are not inter-conditional on each other.

Completion of the BEECL Subscription

Completion of the BEECL Subscription shall take place on the fifth (5th) Business Day following the fulfilment of all the conditions precedent under the BEECL Subscription Agreement, or such other later date as may be agreed by the Company and BEECL in writing.

— 14 —

LETTER FROM THE BOARD

On the date of completion of the BEECL Subscription, BEECL shall pay to the Company the total consideration of approximately HK$548.0 million in cash for the subscription of the BEECL Subscription Shares and the BEECL Subscription Shares shall be allotted and issued to BEECL free from all encumbrances and ranking pari passu among themselves (and shall rank in full for dividends and other distributions declared or paid thereafter) and with the Shares then in issue.

Lock-up undertaking

BEECL undertakes to and covenants with the Company that, unless in compliance with the requirements of the Listing Rules, BEECL shall not, in the period commencing on the completion date of the BEECL Subscription and ending on the date which is 90 days following the completion date of the BEECL Subscription, dispose of, or enter into any agreement to dispose of or otherwise create any encumbrances in respect of, any of the BEECL Subscription Shares.

Specific mandate to issue the BEECL Subscription Shares

The BEECL Subscription Shares will be allotted and issued pursuant to the BEECL Specific Mandate proposed to be sought from the Independent Shareholders at the SGM.

Information of BEECL

BEECL is an investment company, a controlling shareholder of the Company and is wholly-owned by BEHL. BEHL is principally engaged in natural gas operations, brewery operations, water and environmental operations, as well as solid waste treatment operations in the PRC.

As at the Latest Practicable Date, BEECL and parties acting in concert with it were interested in 3,993,859,356 Shares, representing 42.43% of the issued capital of the Company.

Use of proceeds of the BEECL Subscription

The proceeds of the BEECL Subscription will be approximately HK$548.0 million. The net proceeds of the BEECL Subscription, after deduction of all relevant expenses incidental to the BEECL Subscription borne by the Company amounting to approximately HK$0.5 million, are estimated to be approximately HK$547.5 million and the net subscription price per BEECL Subscription Share is HK$4.29. It is proposed that the proceeds from the BEECL Subscription will be used for repayment of debts.

Reasons for and benefits of the BEECL Subscription

The BEECL Subscription reflected the confidence and support for the development of the Company by BEHL, the controlling shareholder of the Company. The BEECL Subscription will accelerate the Company’s growth by further strengthening the capital base and financial position (including liquidity and gearing positions) of the Company and laying down a more solid foundation for the future business development and expansion, including mergers and acquisitions.

— 15 —

LETTER FROM THE BOARD

Other than the BEECL Subscription, the Company has also considered the feasibility of other fund-raising methods such as debt financing and other forms of equity financing. For debt financing, the Directors considered that it will incur interest burden on the Group. Due to the increasing trend of the interest rate in the debt market, it may not be practicable for the Group to obtain additional debt financing in a cost-effective manner and would usually incur heavier interest burden on the Group. The Directors have also considered other ways of equity financing, including pre-emptive equity issue. The Directors are of the view that though both open offer and rights issue would allow shareholders of the Company to maintain their respective pro-rata shareholding in the Company and at the same time strengthening the capital base of the Company, such fund raising exercises would be relatively more time-consuming, administratively burdensome and cost-ineffective as compared with any placing and/or subscription of new Shares. Given the Group’s current liquidity and gearing positions, the Directors regard that the BEECL Subscription, as a relatively more timely sources of funding to the Group, is more preferable method of fund raising for the Group.

None of the Directors has a material interest in the BEECL Subscription Agreement and the transactions contemplated thereunder and hence no Director has abstained from voting on the relevant board resolutions of the Company.

Having (i) considered the above reasons behind for the BEECL Subscription to raise additional equity funding to strengthen its capital base and financial position; (ii) considered the BEECL Subscription could save interest costs on its borrowings, and is more cost-effective and time saving as compared with other forms of equity financing; and (iii) noted that the BEECL Subscription Price offered to BEECL which is a connected person of the Company is exactly the same as the CYPI Subscription Price offered to CYPI which is an independent third party with reference to the prevailing market price of the Shares. The Directors (excluding the independent non-executive Directors, who will give their view on the BEECL Subscription and the transactions contemplated thereunder after taking into account the advice of the Independent Financial Adviser) consider that the terms of the BEECL Subscription Agreement and the transactions contemplated thereunder, though not in the ordinary and usual course of business of the Company, are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Based on the Board’s latest estimates, the CYPI Subscription and the BEECL Subscription by themselves cannot fully satisfy the Company’s expected funding needs in the next 12 months from the Latest Practicable Date. The primary objective of BEECL Subscription is for the strengthening of the capital base and financial position (including liquidity and gearing position) of the Group.

— 16 —

LETTER FROM THE BOARD

Implications under the Listing Rules

BEECL is a controlling shareholder of the Company and therefore a connected person under Chapter 14A of the Listing Rules. Accordingly, the BEECL Subscription constitutes a connected transaction of the Company under the Listing Rules and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Company will seek approval from the Independent Shareholders at the SGM for the BEECL Subscription Agreement and the transactions contemplated thereunder. Save for BEECL and its associates, no Shareholder has a material interest in the BEECL Subscription Agreement and the transactions contemplated thereunder. As such, save for BEECL and its associates, no Shareholder is required to abstain from voting for the resolution to approve the BEECL Subscription Agreement and the transactions contemplated thereunder at the SGM.

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders on the BEECL Subscription Agreement and the transactions contemplated thereunder. The Company has appointed First Shanghai as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

APPLICATION FOR LISTING

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the CYPI Subscription Shares and the BEECL Subscription Shares on the main board of the Stock Exchange.

EFFECT ON THE SHAREHOLDING OF THE COMPANY

As at the date of the Subscription Agreements, the Company had 9,412,988,721 Shares in issue.

The following table illustrates the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately following the date of completion of the CYPI Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the allotment and issue of the CYPI Subscription Shares); (iii) immediately following the date of completion of the BEECL Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the allotment and issue of the BEECL Subscription Shares); and (iv) immediately following the completion of both the CYPI Subscription and the BEECL Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and the respective allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares):

— 17 —

LETTER FROM THE BOARD

Shareholders BEECL and parties acting in concert with it CYPI Public shareholders Total	As at the Latest Practicable Date Number of Shares Approximate % 3,993,859,356 (Note) 42.43 — — 5,419,129,365 57.57 9,412,988,721 100	Immediately following the date of completion of the CYPI Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the allotment and issue of the CYPI Subscription Shares) Number of Shares Approximate % 3,993,859,356 40.41 470,649,436 4.76 5,419,129,365 54.83 9,883,638,157 100	Immediately following the date of completion of the BEECL Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the allotment and issue of the BEECL Subscription Shares) Number of Shares Approximate % 4,121,607,070 43.20 — — 5,419,129,365 56.80 9,540,736,435 100	Immediately following the completion of both the CYPI Subscription and the BEECL Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the respective allotment and issue of the CYPI Subscription Shares and the BEECL Subscription Shares) Number of Shares Approximate % 4,121,607,070 41.17 470,649,436 4.70 5,419,129,365 54.13 10,011,385,871 100	Immediately following the completion of both the CYPI Subscription and the BEECL Subscription (assuming no change in the issued share capital of the Company since the Latest Practicable Date and up to the respective allotment and issue of the CYPI Subscription Shares and the BEECL Subscription Shares) Number of Shares Approximate % 4,121,607,070 41.17 470,649,436 4.70 5,419,129,365 54.13 10,011,385,871 100
					100

Note:

As at the Latest Practicable Date, BEECL beneficially held 3,993,859,356 Shares. Beijing Enterprises Group Company Limited (“ BEGCL ”) was deemed to be interested in 3,993,859,356 shares as a result of its indirect holding of such shares through the following entities:

Name	Long positions in Shares
BEECL	3,993,859,356
BEHL (Note i)	3,993,859,356
Modern Orient Limited (“MOL”) (Note ii)	3,993,859,356
Beijing Enterprises Investments Limited (“BEIL”) (Note ii)	3,993,859,356
Beijing Enterprises Group (BVI) Company Limited (“BE Group (BVI)”) (Note iii)	3,993,859,356
BEGCL (Note iv)	3,993,859,356

Notes:

(i) The interest disclosed comprises the Shares owned by BEECL. BEECL beneficially holds 3,993,859,356 Shares (representing approximately 42.43% in the share capital of the Company). BEECL is a wholly-owned subsidiary of BEHL. Accordingly, BEHL is deemed to be interested in the Shares owned by BEECL.
(ii) The interest disclosed comprises the Shares owned by BEHL (through BEECL). MOL and BEIL are the immediate shareholders of BEHL and collectively hold approximately 20.90% of the issued share capital of BEHL. Accordingly, each of MOL and BEIL is deemed to be interested in the Shares owned by BEHL (through BEECL).
(iii) The interest disclosed comprises the Shares owned by BEIL and MOL (through BEHL and BEECL). BEHL is held directly as to approximately 41.06% by BE Group (BVI). MOL is a wholly-owned subsidiary of BEIL, which is in turn directly held as to approximately 72.72% by BE Group (BVI). Accordingly, BE Group (BVI) is deemed to be interested in the Shares indirectly owned by BEIL and MOL (through BEHL and BEECL).

— 18 —

LETTER FROM THE BOARD

(iv) The interest disclosed comprises the Shares owned by BE Group (BVI) as detailed in note (iii) above. BE Group (BVI) is a wholly-owned subsidiary of BEGCL. Accordingly, BEGCL is deemed to be interested in the Shares indirectly owned by BE Group (BVI).
(v) The percentage represented the number of Shares over the total issued Shares as at Latest Practicable Date of 9,412,988,721 Shares.

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

The Company conducted the following equity fund raising activities during the twelve months immediately preceding the Latest Practicable Date:

Date of	Completion	Fund raising	Net proceeds	Intended use of proceeds	Intended use of proceeds	Actual	use of proceeds
announcement	date	activities	raised
			(approximately)
24 January	1 February	Placing of	HK$2,614.7	(i)	approximately HK$472.0	(i)	HK$513 million for
2018	2018	new Shares	million		million for repayment of		repayment of loans;
		under general			loans;	(ii)	HK$352 million for the
		mandate		(ii)	approximately HK$823.0		construction of water plants
					million for the construction		in the PRC under BOT
					of water plants in the PRC		projects;
					under	(iii)	HK$954 million for the
					“Build-Operate-Transfer		acquisition of concession
					(BOT)” projects;		rights of TOT water projects
				(iii)	approximately HK$250.0		in the PRC;
					million for the acquisition of	(iv)	HK$695.7 million for the
					concession rights of		construction of water
					“Transfer- Operate-Transfer		environment comprehensive
					(TOT)” water projects in the		renovation projects in the
					PRC;		PRC; and
				(iv)	approximately HK$965.0	(v)	HK$100 million for general
					million for the construction		working capital of the Group.
					of water environment
					comprehensive renovation
					projects in the PRC; and
				(v)	approximately HK$104.7
					million as general working
					capital of the Group mainly
					for the payment of interest
					expenses, administrative
					expenses and operation
					expenses, including salaries
					and office rental expenses.
24 January	4 April 2018	Subscription	HK$999.5	(i)	approximately HK$715.5	(i)	HK$743 million for
2018		of new	million		million for repayment of		repayment of loans;
		Shares under			loans;	(ii)	HK$68.5 million for the
		specific		(ii)	approximately HK$105.0		construction of water plants
		mandate			million for the construction		in the PRC under BOT
					of water plants in the PRC		projects; and
					under BOT projects; and	(iii)	HK$188 million for the
				(iii)	approximately HK$179.0		construction of water
					million for the construction		environment comprehensive
					of water environment		renovation projects in the
					comprehensive renovation		PRC.
					projects in the PRC.

— 19 —

LETTER FROM THE BOARD

(3) SGM

A notice convening the SGM to be held at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Thursday, 7 March 2019 at 4:30 p.m. is set out on pages SGM-1 to SGM-3 of this circular. Shareholders of the Company are advised to read the notice and complete and return the form of proxy for use at the SGM enclosed with this circular in accordance with the instructions printed thereon.

A form of proxy for 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 enclosed form of proxy must be completed and signed in accordance with the instructions printed thereon and return it to the Company’s Hong Kong branch share registrar, Tricor Tengis Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the SGM or any adjournment thereof should you so wish.

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.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the CYPI Subscription Agreement and the transactions contemplated thereunder. As such, no Shareholder is required to abstain from voting for the resolution to approve the CYPI Subscription Agreement and the transactions contemplated thereunder at the SGM.

As at the Latest Practicable Date, BEECL and its associates were interested in 3,993,859,356 Shares, representing 42.43% of the total issued share capital of the Company.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, save for BEECL and its associates, no other Shareholder has a material interest in the BEECL Subscription Agreement and the transactions contemplated thereunder. As such, save for BEECL and its associates, no Shareholder is required to abstain from voting for the resolution to approve the BEECL Subscription Agreement and the transactions contemplated thereunder at the SGM.

RECOMMENDATION

The Board are of the opinion that the CYPI Subscription Agreement and the transactions contemplated thereunder, although not entered into in the ordinary and usual course of business of the Group, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, and recommend the Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM.

The Board (including the members of the Independent Board Committee after taking the advice of the Independent Financial Adviser) are of the opinion that the BEECL Subscription Agreement and

— 20 —

LETTER FROM THE BOARD

the transactions contemplated thereunder, although not entered into in the ordinary and usual course of business of the Group, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, and recommend the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in Appendix I to this circular.

Yours faithfully, By Order of the Board Beijing Enterprises Water Group Limited Li Yongcheng Chairman

— 21 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [68 x 66] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 371)

18 February 2019

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

We refer to the circular of the Company (the “ Circular ”) dated 18 February 2019 which this letter forms part.

Terms defined in the Circular have the same meanings when used in this letter, unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders as to whether, the BEECL Subscription Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, on normal commercial terms and in the interests of the Company and Shareholders as a whole and to the voting action that should be taken.

We wish to draw your attention to the letter from the Board and the letter of advice from First Shanghai as set out in the Circular.

Having considered the BEECL Subscription Agreement, the transactions contemplated thereunder and the advice given by First Shanghai, we are of the opinion that the BEECL Subscription Agreement and the transactions contemplated thereunder, though not in the ordinary and usual course of business of the Company, are fair and reasonable so far as the Independent Shareholders are concerned, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

— IBC-1 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We therefore recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution(s) to be proposed at the SGM to approve the BEECL Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Independent Board Committee

Shea Chun Lok Quadrant Zhang Gaobo Guo Rui Independent non-executive Independent non-executive Independent non-executive Director Director Director

Wang Kaijun Lee Man Chun Raymond Independent non-executive Independent non-executive Director Director

— IBC-2 —

LETTER OF ADVICE FROM FIRST SHANGHAI

The following is the full text of the letter of advice from First Shanghai to the Independent Board Committee and the Independent Shareholders in respect of the terms of the BEECL Subscription pursuant to the BEECL Subscription Agreement (including the grant of BEECL Specific Mandate for the allotment and issue of the BEECL Subscription Shares) prepared for the purpose of inclusion in this circular.

==> picture [177 x 76] intentionally omitted <==

First Shanghai Capital Limited

19th Floor

Wing On House 71 Des Voeux Road Central Hong Kong

18 February 2019

To the Independent Board Committee and the Independent Shareholders

Beijing Enterprises Water Group Limited Rooms 6706-7, 67th Floor, Central Plaza 18 Harbour Road Wanchai Hong Kong

Dear Sirs,

CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the BEECL Subscription pursuant to the BEECL Subscription Agreement (including the grant of the BEECL Specific Mandate for the allotment and issue of the BEECL Subscription Shares), details of which are contained in the circular to the Shareholders dated 18 February 2019 (the “ Circular ”), of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

— IFA-1 —

LETTER OF ADVICE FROM FIRST SHANGHAI

As set out in the “Letter from the Board” contained in the Circular, on 18 January 2019, the Company entered into the BEECL Subscription Agreement with BEECL. Pursuant to the BEECL Subscription Agreement, the Company has conditionally agreed to allot and issue, and BEECL has conditionally agreed to subscribe for, 127,747,714 new Shares. The BEECL Subscription Shares will be issued at the BEECL Subscription Price.

The BEECL Subscription Shares will be allotted and issued pursuant to the BEECL Specific Mandate proposed to be sought from the Independent Shareholders at the SGM.

On 18 January 2019, the Company also entered into the CYPI Subscription Agreement with CYPI. Pursuant to the CYPI Subscription Agreement, the Company has conditionally agreed to allot and issue, and CYPI has conditionally agreed to subscribe for, 470,649,436 new Shares. The CYPI Subscription Shares will be issued at the CYPI Subscription Price. The CYPI Subscription Shares will be allotted and issued under the CYPI Specific Mandate proposed to be sought from the Shareholders at the SGM. For details of the CYPI Subscription Agreement, please refer to the “Letter from the Board” of the Circular.

The total number of BEECL Subscription Shares represent (i) approximately 1.36% of the total number of issued Shares as at the date of BEECL Subscription Agreement and the Latest Practicable Date; (ii) approximately 1.34% of the total number of issued Shares as enlarged by the allotment and issue of the BEECL Subscription Shares (assuming (a) the BEECL Subscription, but not the CYPI Subscription, shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the BEECL Subscription Shares); and (iii) approximately 1.28% of the total number of issued Shares as enlarged by the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares (assuming there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares).

The BEECL Subscription and the CYPI Subscription are not inter-conditional on each other.

IMPLICATIONS UNDER THE LISTING RULES

— IFA-2 —

LETTER OF ADVICE FROM FIRST SHANGHAI

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all of the independent non-executive Directors, namely Mr. Shea Chun Lok Quadrant, Mr. Zhang Gaobo, Mr. Guo Rui, Mr. Wang Kaijun and Dr. Lee Man Chun Raymond, has been established to advise the Independent Shareholders as to (i) whether the terms of the BEECL Subscription Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, conducted on normal commercial terms or better and in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole; and (ii) give a recommendation to the Independent Shareholders in respect of the voting on the ordinary resolution(s) to be proposed at the SGM.

INDEPENDENCE OF FIRST SHANGHAI

We are not connected with the Directors, chief executive and substantial shareholders of the Company or any of their respective subsidiaries or associates and are therefore considered suitable to give independent advice to the Independent Board Committee and the Independent Shareholders.

The Independent Shareholders should note that, within the past two years from the Latest Practicable Date, we were engaged as the independent financial adviser by the Company for one occasion (i.e. mainly in relation to the provision of independent financial advice to the then Independent Board Committee and Independent Shareholders for a similar connected transaction in respect of the previous subscription of new shares under specific mandate involving connected person) as detailed in the circular of the Company dated 6 March 2018. Given (i) our independent role in that previous engagement; (ii) none of the members of our parent group is a direct party to the BEECL Subscription Agreement; and (iii) our fees for this present engagement in addition to that previous engagement represented an insignificant percentage of revenue of our parent group, we consider that the said previous engagement in March 2018 would never affect our independence to form our opinion in respect of the entering into of the BEECL Subscription Agreement, and that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Company (the “ Management ”). We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and the Management, for which they are solely responsible for, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

The Directors collectively and individually accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due

— IFA-3 —

LETTER OF ADVICE FROM FIRST SHANGHAI

and careful consideration and there are no other facts not contained in the Circular while the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstances which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations while the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and the Management, nor have we conducted an independent investigation into the business and affairs of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation regarding the BEECL Subscription, we have taken into consideration the following principal factors:

1. Background of the Group

2. Financial information on the Group

Overview

The Group’s business operations have been growing and the Group has recorded increasing revenue, operating profit and net profit consecutively for the last five years. For the financial year ended 31 December (the “ FY ”) 2017, the Group had a record high profit attributable to shareholders of the Company of approximately HK$3,717.2 million. The net profits over the years were principally attributable to the Group’s increasing trend in revenue and operating profits from its continually growing operations. Despite the Group had profitable operating performance, the Group had a relatively low net current asset position as at 30 June 2018, and even had a net current liability position as at 31 December 2017. The Group also had relatively higher gearing positions in the recent years, mainly because of its continuous debt raising exercises through issuing corporate bonds and notes payable, so as to support its business expansion.

— IFA-4 —

LETTER OF ADVICE FROM FIRST SHANGHAI

Review of operating performance

Set out below is a summary of the consolidated financial information of the Group for the two FYs 2016 and 2017 and the six months ended 30 June 2018 as extracted from the annual report of the Company for the FY 2017 (the “ Annual Report ”) and the interim report of the Company for the six months ended 30 June 2018 (the “ Interim Report ”):

Revenue
Cost of sales
Gross profit
Gross profit margin
Profit from operating activities
Profit before tax
Profit for the year/period
Net profit margin
Profit attributable to shareholders of the Company

For the FY
For the
six months
ended 30 June
2016
2017
2018
(Audited)
(Audited)
(Unaudited)
HK$’000
HK$’000
HK$’000
17,354,833
21,192,372
10,008,753
(11,569,994)
(14,727,848)
(6,175,252)
5,784,839
6,464,524
3,833,501
33.3%
30.5%
38.3%
5,260,500
5,655,543
3,804,127
4,643,755
5,315,316
3,379,442
3,672,982
4,440,544
2,770,242
21.2%
21.0%
27.7%
3,227,013
3,717,227
2,366,116

For the FY 2017 versus FY 2016

The Group recorded revenue of approximately HK$21,192.4 million for the FY 2017, representing an increase of approximately 22.1% when compared to that of approximately HK$17,354.8 million for the FY 2016. Such increase was mainly due to the increase in revenue contribution from construction services for comprehensive renovation projects, which in turn was mainly due to the new commencement of construction work from various cities in China, such as Sichuan Luzhou, Henan Luoyang and Inner Mongolia, and increase in contribution work for Chengdu Jianyang.

The Group recorded gross profit of approximately HK$6,464.5 million for the FY 2017, representing an increase of approximately 11.7% when compared to that of approximately HK$5,784.8 million for the FY 2016, but its gross profit margin decreased from approximately 33.3% in the FY 2016 to 30.5% in the FY 2017.

The Group had a record high net profit of approximately HK$4,440.5 million for the FY 2017, representing an increase of approximately 20.9% when compared to that of approximately HK$3,673.0 million for the FY 2016, but its net profit margin had slightly decreased from approximately 21.2% in the FY 2016 to 21.0% in the FY 2017.

— IFA-5 —

LETTER OF ADVICE FROM FIRST SHANGHAI

For the six months ended 30 June 2018 versus 30 June 2017

The Group recorded revenue of approximately HK$10,008.8 million for the six months ended 30 June 2018, representing an increase of approximately 9.7% when compared to that of approximately HK$9,126.0 million for the corresponding period in the FY 2017. The increase was mainly due to the increase in revenue from water treatment services and technical services and sales of machineries for the water environmental renovation.

The Group recorded gross profit of approximately HK$3,833.5 million for the six months ended 30 June 2018, representing an increase of approximately 25.4% when compared to that of approximately HK$3,057.1 million for the corresponding period in the FY 2017, while its gross profit margin had also increased from approximately 33.5% for the six months ended 30 June 2017 to 38.3% for the corresponding period in the FY 2018.

The Group had recorded net profit of approximately HK$2,770.2 million for the six months ended 30 June 2018, representing an increase of approximately 28.6% when compared to that of approximately HK$2,153.3 million for the corresponding period in the FY 2017, while its net profit margin had also increased from approximately 23.6% for the six months ended 30 June 2017 to 27.7% for the corresponding period in the FY 2018.

Review of financial position

Set out below is the summary of the consolidated financial position of the Group as at 31 December 2016 and 2017 and 30 June 2018 as extracted from the Annual Report and the Interim Report, respectively:

Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Total equity
Equity attributable to the owners of the Company
Cash and cash equivalents

As at 31 December
As at 30 June
2016
2017
2018
(Audited)
(Audited)
(Unaudited)
HK$’000
HK$’000
HK$’000
59,072,381
76,922,164
85,145,890
21,974,889
23,538,908
30,235,295
81,047,270
100,461,072
115,381,185
(33,665,339)
(39,726,371)
(47,312,339)
(20,614,591)
(27,693,378)
(29,591,408)
(54,279,930)
(67,419,749)
(76,903,747)
26,767,340
33,041,323
38,477,438
16,501,142
20,784,723
25,768,096
10,921,037
9,938,829
12,984,771

— IFA-6 —

LETTER OF ADVICE FROM FIRST SHANGHAI

	As at 31	December	As at 30 June
	2016	2017	2018
	(Audited)	(Audited)	(Unaudited)
	HK$’000	HK$’000	HK$’000
Net current assets/(liabilities)	1,360,298	(4,154,470)	643,887
Current ratio	106.6%	85.0%	102.2%
Net gearing ratio	94.3%	102.9%	94.6%
Net cash flows used in operating activities	(2,500,323)	(6,714,432)	(1,606,466)
Net cash flows used in investing activities	(2,028,722)	(114,670)	(1,387,889)
Net cash flows from financing activities	9,468,745	3,968,397	7,549,368

As at 31 December 2017 versus 31 December 2016

As at 31 December 2017, the Group had current assets of approximately HK$23,538.9 million (2016: approximately HK$21,974.9 million), and current liabilities of approximately HK$27,693.4 million (2016: approximately HK$20,614.6 million), representing a net current liability position and current ratio of approximately HK$4,154.5 million (2016: net current assets of approximately HK$1,360.3 million) and 85.0% (2016: approximately 106.6%), respectively. The Group’s current ratio was less than 1.0 times as at 31 December 2017, indicating that the Group’s liquidity was relatively tighter. As at 31 December 2017, the Group had cash and cash equivalents of approximately HK$9,938.8 million (2016: approximately HK$10,921.0 million).

The Group’s total borrowings amounted to approximately HK$43,951.8 million as at 31 December 2017 (2016: approximately HK$36,170.9 million) comprised bank and other borrowings of approximately HK$26,132.9 million (2016: approximately HK$21,474.9 million), finance lease payables of approximately HK$498.2 million (2016: approximately HK$93.1 million), notes payable of approximately HK$3,074.9 million (2016: approximately HK$2,939.7 million) and corporate bonds of approximately HK$14,245.8 million (2016: approximately HK$11,663.2 million). All the corporate bonds and notes payable bear interest at fixed rates from 3.0% to 6.15% per annum. The Group’s bank and other borrowings bear interest rates from 1.2% to 8.0% per annum.

The Group’s net gearing ratio as at 31 December 2017 accounted for approximately 102.9% (2016: approximately 94.3%), which is calculated as the sum of bank and other borrowings, finance lease payables, notes payable and corporate bonds, net of cash and cash equivalents, and then divided by its total equity as at 31 December 2017. The increase in the net gearing ratio of the Group as at 31 December 2017 was mainly due to the decrease in cash and cash equivalent and increase in corporate bonds during the year. The corresponding funds were mainly utilised for the acquisition and construction of various water projects in the PRC.

— IFA-7 —

LETTER OF ADVICE FROM FIRST SHANGHAI

As at 30 June 2018 versus 31 December 2017

As at 30 June 2018, the Group had current assets of approximately HK$30,235.3 million (31 December 2017: approximately HK$23,538.9 million), and current liabilities of approximately HK$29,591.4 million (31 December 2017: approximately HK$27,693.4 million), representing a net current asset position and current ratio of approximately HK$643.9 million (31 December 2017: net current liabilities of approximately HK$4,154.5 million) and 102.2% (31 December 2017: approximately 85.0%), respectively. The Group’s current ratio was slightly higher 1.0 times as at 30 June 2018, which can still be regarded as healthy. As at 30 June 2018, the Group had cash and cash equivalents of approximately HK$12,984.8 million (31 December 2017: HK$9,938.8 million).

The Group’s total borrowings amounted to approximately HK$49,376.4 million as at 30 June 2018 (31 December 2017: approximately HK$43,951.8 million) comprised bank and other borrowings of approximately HK$27,903.5 million (31 December 2017: approximately HK$26,132.9 million), finance lease payables of approximately HK$441.1 million (31 December 2017: approximately HK$498.2 million), notes payable of approximately HK$3,075.8 million (31 December 2017: approximately HK$3,074.9 million) and corporate bonds of approximately HK$17,956.0 million (31 December 2017: approximately HK$14,245.8 million). All the corporate bonds and notes payable bear interest at fixed rates, and over 80% of bank and other borrowings bear interest at floating rates.

The Group’s gearing ratio as at 30 June 2018 accounted for approximately 94.6% (31 December 2017: 102.9%). The decrease in gearing ratio as at 30 June 2018 was mainly due to the increase in equity of HK$3,655 million as a result of the previous private placement and share subscription during the period.

Conclusion

Having considered that (i) the Group has been operating satisfactorily in terms of revenue, operating profit and net profit for at least five consecutive FYs, including the FY 2017 and the six months ended 30 June 2018; (ii) the Group had a relatively low net current asset position as at 30 June 2018, and even had a net current liability position as at 31 December 2017; and (iii) the Group had a relatively higher gearing positions in the recent years because of its continuous debt raising exercises through issuing corporate bonds and notes payable, we consider that it is justifiable for the Group to implement equity fund-raising exercises to improve its current liquidity and gearing positions and finance its business expansion.

3. Reasons for and benefits of the BEECL Subscription and the use of proceeds

As mentioned in the “Letter from the Board” of the Circular, the BEECL Subscription reflected the confidence and support for the development of the Company by BEHL, the controlling shareholder of the Company. The BEECL Subscription will accelerate the Company’s growth by further strengthening the capital base and financial position of the Company and laying down a more solid foundation for the future business development, mergers and acquisitions.

— IFA-8 —

LETTER OF ADVICE FROM FIRST SHANGHAI

The Directors consider that the terms of the BEECL Subscription Agreement and the transactions contemplated thereunder, though not in the ordinary and usual course of business of the Company, are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Based on our independent review of the Group’s financial and cash flow positions, we consider that it is necessary for the Company to implement appropriate fund-raising exercise(s) to improve its liquidity and gearing positions, in particular view of the current ratio and relatively higher gearing ratio of approximately 102.2% and 94.6% as at 30 June 2018, respectively. The net proceeds from the BEECL Subscription of approximately HK$547.5 million can replenish and help to certain extent in these regards.

Other than the BEECL Subscription, the Company has also considered the feasibility of other fund-raising methods such as debt financing and other forms of equity financing. For debt financing, the Directors considered that it will incur further interest burden on the Group. Due to the increasing trend of the interest rate in the debt market, it may not be practicable for the Group to obtain additional debt financing in a cost-effective manner and would usually incur heavier interest burden on the Group. According to the Interim Report, we note that the finance cost of the Group increased by approximately 19.8% from approximately HK$697.6 million for the six months ended 30 June 2017 to approximately HK$835.9 million for the six months ended 30 June 2018. Such increase was mainly attributable to the increase in total borrowings of the Group during the first half year of 2018 when compared with that in the corresponding period of 2017. Additional debt financing would burden the financial performance and further deteriorate the financial position of the Group. Therefore, we consider that the issuance of additional debt is not a preferable choice.

The Directors have also considered other ways of equity financing, including pre-emptive equity issue. The Directors are of the view that though both open offer and rights issue would allow shareholders of the Company to maintain their respective pro-rata shareholding in the Company and at the same time strengthening the capital base of the Company, such fund-raising exercises would be relatively more time-consuming, administratively burdensome and cost-ineffective as compared with any placing and/or subscription of new Shares. Given the Group’s current liquidity and gearing positions, the Directors regard that the BEECL Subscription, as a relatively more timely sources of funding to the Group, is more preferable method of fund-raising for the Group. We concur with the Directors’ view in this regard.

Having (i) considered the above reasons behind for the BEECL Subscription to raise additional equity-funding for repayment of debts; (ii) considered the BEECL Subscription could save interest costs on its borrowings, and is more cost-effective and time saving as compared with other forms of equity financing; and (iii) noted that the BEECL Subscription Price offered to BEECL which is a

— IFA-9 —

LETTER OF ADVICE FROM FIRST SHANGHAI

connected person of the Company is exactly the same as the CYPI Subscription Price offered to CYPI which is an independent third party with reference to the prevailing market price of the Shares, we are of the view that the BEECL Subscription is not conducted in the ordinary and usual course of business of the Group, as it shall be regarded as corporate financing activity instead of its usual operating activity; but the terms of the BEECL Subscription Agreement are on normal commercial terms as the either party thereto is treated fairly and equitably irrespective of whether they are independent third parties or connected person, fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole.

Based on the Board’s latest estimates, the CYPI Subscription and the BEECL Subscription by themselves cannot fully satisfy the Company’s expected funding needs in the next 12 months from the Latest Practicable Date. The primary objective of BEECL Subscription is for the strengthening of the capital base and financial position (including liquidity and gearing position) of the Group.

After taking into account the financial resources presently available to the Group including the internally generated funds, the currently available bank facilities and the effects of the CYPI Subscription and the BEECL Subscription, and in the absence of unforeseen circumstances, the Group has sufficient working capital for its expected funding needs in the next 12 months from the Latest Practicable Date. As at the Latest Practicable Date, the Company is considering various means of debt financing including but not limited to bank facilities, bond issue, etc., subject to borrowing costs and the market opportunities. However, as at the Latest Practicable Date, the Company does not have any plan, arrangement or negotiation taken place or in-progress on any potential equity fund raising activities.

4. Background of the BEECL Subscription

As at the Latest Practicable Date, BEECL and parties acting in concert with it were interested in 3,993,859,356 Shares, representing 42.43% of the issued capital of the Company.

Given BEECL is a controlling shareholder of the Company, the BEECL Subscription itself allows BEECL to top-up its existing shareholding in the Company after the completion of the CYPI Subscription. Should the BEECL Subscription not be implemented following the completion of the CYPI Subscription, BEECL’s shareholding in the Company would fall to approximately 40.41% of the enlarged issued share capital of the Company, representing a slight dilution in its existing shareholding therein by approximately 2.02%. To avoid material dilution of existing shareholding in the Company and to bring in additional proceeds, it is commercially justifiable for BEECL to subscribe a certain number of new Shares at the fair, equitable and comparable terms to CYPI which is an independent third party, without offering any privileged treatments, benefits and/or advantages to BEECL, we consider the BEECL Subscription to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

— IFA-10 —

LETTER OF ADVICE FROM FIRST SHANGHAI

5. Principal terms and conditions of the BEECL Subscription Agreement

The BEECL Subscription Agreement

BEECL Subscription Shares

As at the Latest Practicable Date, the Company had a total number of 9,412,988,721 Shares. The total number of BEECL Subscription Shares represents (i) approximately 1.36% of the total number of issued Shares as at the date of BEECL Subscription Agreement and the Latest Practicable Date; (ii) approximately 1.34% of the total number of issued Shares as enlarged by the allotment and issue of the BEECL Subscription Shares (assuming (a) the BEECL Subscription, but not the CYPI Subscription, shall have proceeded to completion; and (b) there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the BEECL Subscription Shares); and (iii) approximately 1.28% of the total number of issued Shares as enlarged by the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares (assuming there will be no change in the total number of issued Shares between the date of the Subscription Agreements and the allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares).

Based on the closing price of the Shares of HK$4.29 per Share on 18 January 2019, the BEECL Subscription Shares had a market value of approximately HK$548.0 million. The aggregate nominal value of the BEECL Subscription Shares is approximately HK$12.8 million.

Lock-up undertakings

We consider that the aforesaid lock-up undertakings could lessen the probable selling pressure in the market that might be caused by the BEECL Subscription Shares, and would better maintain the Share price level during the lock-up period, which accordingly, are in the interests of the Company and the Shareholders as a whole.

— IFA-11 —

LETTER OF ADVICE FROM FIRST SHANGHAI

Conditions to the BEECL Subscription

Completion of the BEECL Subscription is conditional upon fulfilment of the following conditions:

(a) the passing of the resolution(s) at the SGM by the Independent Shareholders to approve the BEECL Subscription Agreement and the transactions contemplated thereunder, including the granting of the BEECL Specific Mandate to the Directors to allot and issue the BEECL Subscription Shares;
(b) the Listing Committee granting listing of and permission to deal in all of the BEECL Subscription Shares (and such listing and permission not subsequently revoked prior to the delivery of the definite share certificate(s) representing allotment of the BEECL Subscription Shares to BEECL or its nominee(s)); and
(c) in addition to condition (b) above, the Company having obtained each necessary consent, permit, approval, registration, filing, notice, confirmation, authorisation or waiver (including but not limited to those provided by the Hong Kong Securities and Futures Commission, the Stock Exchange or any other third party (if applicable)) in relation to the BEECL Subscription Agreement and/or the transactions contemplated hereunder, and such consent, permit, approval, registration, filing, notice, confirmation, authorisation or waiver not having been revoked or withdrawn.

As at the Latest Practicable Date, none of the above conditions precedent to the BEECL Subscription had been fulfilled.

For avoidance of doubt, the BEECL Subscription and the CYPI Subscription are not inter-conditional on each other.

We consider that the conditions precedent to the BEECL Subscription are not unusual in all material respects.

Completion of the BEECL Subscription

— IFA-12 —

LETTER OF ADVICE FROM FIRST SHANGHAI

BEECL Specific mandate to issue the BEECL Subscription Shares

The BEECL Subscription Shares will be allotted and issued pursuant to the BEECL Specific Mandate proposed to be sought from the Independent Shareholders at the SGM.

The BEECL Subscription Price

To assess the fairness and reasonableness of the BEECL Subscription Price at HK$4.29 per BEECL Subscription Share, we set out the following analyses for illustrative purpose:

		Price/value	Premium/
		per Share	(discount) over/to
		approximately	at approximately
		HK$	%
(i)	The closing price as quoted on the Stock Exchange	4.28	0.23
	on the Last Trading Day
(ii)	The average closing price of the Shares as quoted	4.24	1.27
	on the Stock Exchange for the last five consecutive
	trading days up to and including the Last Trading
	Day
(iii)	The average closing price of the Shares as quoted	4.13	3.80
	on the Stock Exchange for the last ten consecutive
	trading days up to and including the Last Trading
	Day
(iv)	Average of the closing prices of the Shares as	4.55	(5.71)
	quoted on the Stock Exchange for the trading
	period of the Shares with 12 complete calendar
	months from 1 January 2018 up to and including
	the Last Trading Day (the “Review Period”)
(v)	The Group’s audited consolidated net asset value	2.36	81.78
	per Share attributable to the shareholders of the
	Company as at 31 December 2017 (based on the
	audited net asset value of approximately
	HK$20,784,723,000 and the then number of issued
	Shares of 8,793,817,196 as at 31 December 2017,
	being the date to which the latest audited financial
	results of the Group were made up)

— IFA-13 —

LETTER OF ADVICE FROM FIRST SHANGHAI

		Price/value	Premium/
		per Share	(discount) over/to
		approximately	at approximately
		HK$	%
(vi)	The Group’s unaudited consolidated net asset value	2.74	56.57
	per Share attributable to the shareholders of the
	Company as at 30 June 2018 (based on the
	unaudited net asset value of approximately
	HK$25,768,096,000 as at 30 June 2018 and the
	number of issued Shares of 9,412,588,721 as at the
	date of the BEECL Subscription Agreement)
(vii)	The closing price of the Shares as quoted on the	4.82	(11.00)
	Stock Exchange as at the Latest Practicable Date

The BEECL Subscription Price was arrived at after arm’s length negotiation between the Company and BEECL with reference to the recent trading performance of the Shares and the business prospects of the Group. The Board has made reference to and taken into account (i) the fluctuation of the market prices of the Shares during the 90 trading days period from 7 September 2018 and up to and including the date of the Subscription Agreements; (ii) the BEECL Subscription Price is close to the average closing price of the Shares of approximately HK$4.15 per Share during the abovementioned period; and (iii) the BEECL Subscription Price is close to the average closing price of the Shares of approximately HK$4.17 per Share for the last ten trading days up to and including the date of the Subscription Agreements. The Directors (including the independent non-executive Directors) consider that the BEECL Subscription Price and the terms of the BEECL Subscription Agreement are fair and reasonable, in normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

Historical price performance of the Shares

Solely for illustration purposes, we consider that it is relevant to compare the closing price level of the Shares traded on the Stock Exchange during the Review Period against the BEECL Subscription Price. We consider that the Review Period represents a reasonable timeframe that covers the recent trend of the Share price reflecting the Company’s fundamental financial performance and the business cycle in the corresponding period to illustrate the recent price movement of the Shares for conducting

— IFA-14 —

LETTER OF ADVICE FROM FIRST SHANGHAI

a reasonable comparison among the historical closing prices of the Shares and the BEECL Subscription Price. The historical performance of the Share price for the Review Period is as follow:

				Number of	Number of
				trading
	Highest	Lowest	Average daily	days in
	closing price	closing price	closing price	each month
	HK$	HK$	HK$
2018
January	6.26	5.63	6.03		22
February	5.64	4.83	5.18		18
March	5.28	4.38	5.11		21
April	4.60	4.15	4.39		19
May	5.00	4.45	4.62		21
June	4.83	4.18	4.54		20
July	4.44	4.06	4.30		21
August	4.28	3.70	4.01		23
September	4.28	3.85	4.08		19
October	4.14	3.81	3.97		21
November	4.55	4.14	4.33		22
December	4.68	3.88	4.26		19
2019
January (up to and including the
Last Trading Day)	4.28	3.83	4.09		12

Source: the website of the Stock Exchange (www.hkex.com.hk)

— IFA-15 —

LETTER OF ADVICE FROM FIRST SHANGHAI

During the Review Period, the lowest and highest closing price of the Shares during the Review Period were HK$3.70 per Share recorded on 20 August 2018 and HK$6.26 per Share recorded on 24 January 2018 respectively, as quoted on the Stock Exchange. The average daily closing price of the Shares during the Review Period is HK$4.55 per Share. The BEECL Subscription Price of HK$4.29 per BEECL Subscription Share represents (i) a premium of approximately 15.9% from the lowest closing price; (ii) a discount of approximately 31.5% from the highest closing price; and (iii) a discount of approximately 5.7% from the average daily closing price during the Review Period.

During the period from 1 January 2018 to 20 July 2018, the closing price of the Shares gradually decreased from HK$6.21 per Share to HK$4.06 per Share. From August 2018 to October 2018, the closing price of the Shares hovered between HK$3.70 per Share to HK$4.28 per Share. In this regard, the Shares appear to be trading at a price lower than the BEECL Subscription Price for such period of time. The closing price of the Shares then surged to HK$4.68 per Share on 3 December 2018, before dropping to HK$3.83 per Share on 3 January 2019. As at the Last Trading Day, the closing price of the Shares was HK$4.28 per Share, which was very close to the BEECL Subscription Price. Based on this observation, we consider that the general decreasing trend during the Review Period was basically in line with the prevailing and overall atmosphere in the Hong Kong stock market.

In view of the fluctuation in the Share price of the Group during the Review Period, we have enquired with the Directors regarding the possible reasons and were advised that they were not aware of any particular matters which might have impact on the Share price. In addition, based on our independent research from the Stock Exchange website, other than the Company’s respective (i) routine annual report for FY2017 and interim report for the six months ended 30 June 2018; and (ii) certain issues of bonds and medium-term notes for considerable fund-raising amounts, we are not aware of any other public announcements made by the Company that were price sensitive in nature and thus, we believe that the prevailing Share price level already mirrored the Group’s latest and actual operating performance, financial position and business prospects and outlook shall be a reliable and meaningful benchmark for the purpose of making reference in determining, and analysing the fairness and reasonableness of, the BEECL Subscription Price.

Historical trading volume of the Shares

The average daily number of Shares traded per month, the respective percentages of the Shares’ monthly trading volume during the Review Period as compared to (i) the total number of issued Shares as at the Last Trading Day; (ii) the total number of issued Shares held by the public as at the Last

— IFA-16 —

LETTER OF ADVICE FROM FIRST SHANGHAI

Trading Day; and (iii) the percentage of the average daily turnover to the total market capitalization of the listed securities (the main board and GEM of the Stock Exchange) for each month during the Review Period, are tabulated as follows:

		Average				% of average	% of average
		trading	% of average	% of	average	daily	turnover
		volume of the	daily trading	daily trading			to total
	Total monthly	Shares per	volume of the	volume of the			market
	trading	trading day	Shares to the	Shares to		capitalization		Number of
	volume of the	during the	average total	average public			of listed	trading days
	Shares	month	issued Shares	float Shares		securities		in each	month
			(Note 1)		(Note 2)
2018
January	692,741,327	31,488,242	0.33%		0.58%		0.43%		22
February	698,916,608	38,828,700	0.41%		0.72%		0.41%		18
March	562,213,664	26,772,079	0.28%		0.49%		0.38%		21
April	643,288,939	33,857,313	0.36%		0.62%		0.31%		19
May	601,565,966	28,645,998	0.30%		0.53%		0.30%		21
June	379,820,964	18,991,048	0.20%		0.35%		0.33%		20
July	443,448,635	21,116,602	0.22%		0.39%		0.27%		21
August	444,606,924	19,330,736	0.21%		0.36%		0.29%		23
September	337,579,634	17,767,349	0.19%		0.33%		0.28%		19
October	296,455,091	14,116,909	0.15%		0.26%		0.33%		21
November	349,285,570	15,876,617	0.17%		0.29%		0.29%		22
December	449,896,872	23,678,783	0.25%		0.44%		0.24%		19
2019
January (up to and
including the Last
Trading Day)	171,385,653	14,282,138	0.15%		0.26%		(Note 3)		12

Notes:

Based on the 9,412,988,721 Shares throughout the Review Period and up to the Last Trading Day.
Based on 5,419,129,365 Shares throughout the Review Period and up to the Last Trading Day, after excluding the aggregate of 3,993,859,356 Shares held by BEECL and parties acting in concert with it.
The figures of the average daily turnover and the total market capitalization of the listed securities are extracted from the HKEx monthly market highlights. For calculation of the percentage of the average daily turnover to the total market capitalization of the listed securities, only monthly turnover, number of trading days and month-end total market capitalization are available from the HKEx monthly market highlights. The relevant figures for January 2019 up to and including the Last Trading Day are not available for computation.

Source: the website of the Stock Exchange (www.hkex.com.hk)

— IFA-17 —

LETTER OF ADVICE FROM FIRST SHANGHAI

Based on our independent research and analysis, the average daily turnover of the listed securities during the Review Period was ranging from approximately 0.24% to 0.43% of the total market capitalization of the listed securities in the Stock Exchange. The percentage of average daily trading volume of the Shares per month during the Review Period was ranging from approximately 0.15% to 0.41%, while the average daily trading volume of the Shares had accounted for merely 0.25% of the total number of the issued Shares throughout the Review Period. If only those Shares held by public Shareholders, i.e. the free float, are considered in calculating the percentage of average daily trading volume of the Shares per month during the Review Period, the percentage was ranging from approximately 0.26% to 0.72%. The Directors are not aware of any particular events and/or public announcements which might materially affect the fluctuation of trading volume of the Shares during the Review Period.

We considered that both the average daily trading volume of the Shares and listed securities on the Stock Exchange per month were generally thin during the Review Period. Comparing with the trading volume between the Shares and the listed securities on the Stock Exchange, the average daily trading volume of the Shares per month was within the range of the listed securities on the Stock Exchange, while the average daily trading volume of the Shares held by public Shareholders was slightly higher than the listed securities on the Stock Exchange. Based on the above observation, we are of the view that the average daily trading volume of the Shares was basically consistent with the overall market condition/ sentiment during the Review Period.

Based on our independent review of (i) the historical price performance and trading volume of the Shares during the Review Period; (ii) the Group’s unaudited net asset value of approximately HK$2.74 per Share as at 30 June 2018; and (iii) its current relatively higher gearing level, we are of the view that the Board’s basis in determining the BEECL Subscription Price is fair and reasonable.

Comparison of recent issues of placing and/or subscription shares by other listed issuers

To further assess the fairness and reasonableness of the BEECL Subscription Price, we have conducted a comparable analysis through identifying companies listed on the Stock Exchange which announced placing and/or subscription of new shares by using specific mandate during the last three complete calendar months commencing from 1 October 2018 up to the Last Trading Day, as we consider that three complete calendar months are appropriate benchmarks to reflect the recent market sentiment and the risk appetite of the investment community and the adopted time span can cover sufficient number of comparable placements or subscriptions to reflect the prevailing market trend.

Based on the above said criteria, we have, to the best of our effort by searching through published information on the Stock Exchange’s website, identified an exhaustive list of 12 comparable transactions which involve all placing and/or subscription of new shares using specific mandate (the “ Comparable Issues ”). It should be noted that the Comparable Issues may have different principal businesses, market capitalisation, profitability and financial positions as compared to those of the Company. However, as the Comparable Issues can provide a general understanding and usual market practice of the pricing for this similar type of transaction in Hong Kong under the current market environment, we consider all of them to be relevant in assessing the fairness and reasonableness of the BEECL Subscription Price, irrespective of their respective market capitalisation and fund-raising size on the grounds that the Comparable Issues have their own business nature and prospects,

— IFA-18 —

LETTER OF ADVICE FROM FIRST SHANGHAI

profitability, financial positions, market capitalisation and funding needs/raising size etc., all of such background factors may not be closely correlated with each others; whilst different size of market capitalisation of listed issuers would not directly affect the terms of placing and/or subscription activities in the market, and selecting samples by market capitalisation and/or fund-raising size only may distort this analysis or even mislead the Independent Shareholders because such short-listed information may not be able to present a complete, comprehensive and representative picture or analysis of all the equity fund-raising exercises completed by all listed issuers on the Stock Exchange during the period for our analysis. For each of the 12 Comparable Issues identified, we have compared the premium/(discount) of its issue price/placing price/subscription price over/(to) (i) the respective closing price on the last trading day; and (ii) the average closing price for the last five consecutive trading days prior to the date of the corresponding announcement summarized in the following table:

					Premium/
					(discount) over/to
				Premium/	the average
				(discount) over/to	closing price of
				the closing price	the shares for the
				of the shares as at	last five
				the last trading	consecutive
				day prior to the	trading days prior
				date of the	to the release of
Date of	Company name	Subscription/	Subscription/	corresponding	the corresponding
announcement	(Stock Code)	placing	placing price	announcement	announcement
			HK$	%	%
11/1/2019	TUS International	Subscription	0.6084	(14.31)	(10.00)
	Limited (872)
9/1/2019	Shunfeng International	Subscription	0.214	(58.85)	(55.79)
	Clean Energy Limited
	(1165)
4/1/2019	National Investments	Placing	0.018	(14.29)	(18.18)
	Fund Limited (1227)
14/12/2018	Bank of Jinzhou Co., Ltd.	Placing	8.30	9.93	7.79
	(416)
14/12/2018	Shenwan Hongyuan	Subscription	2.068	29.30	30.40
	(H.K.) Limited (218)
9/12/2018	Alibaba Pictures Group	Subscription	1.25	1.63	1.13
	Limited (1060)
26/11/2018	Zhuguang Holdings	Subscription	1.30	(6.50)	(7.80)
	Group Company Limited
	(1176)
6/11/2018	Minshang Creative	Placing	1.10	(38.89)	(32.52)
	Technology Holdings
	Limited (1632)
2/11/2018	Landsea Green Group	Subscription	0.85	0.00	4.17
	Co., Ltd. (106)
29/10/2018	Zhejiang Chang’an	Placing	3.50	(10.26)	(3.58)
	Renheng Technology Co.,
	Ltd. (8139)

— IFA-19 —

LETTER OF ADVICE FROM FIRST SHANGHAI

					Premium/
					(discount) over/to
				Premium/	the average
				(discount) over/to	closing price of
				the closing price	the shares for the
				of the shares as at	last five
				the last trading	consecutive
				day prior to the	trading days prior
				date of the	to the release of
Date of	Company name	Subscription/	Subscription/	corresponding	the corresponding
announcement	(Stock Code)	placing	placing price	announcement	announcement
			HK$	%	%
26/10/2018	Elife Holdings Limited	Subscription	0.105	6.06	9.83
	(223)
5/10/2018	Xinyang Maojian Group	Subscription	0.315	(1.59)	(2.54)
	Limited (formerly known
	as China Zenith Chemical
	Group Limited) (362)
			Maximum	29.30	30.40
			Average	(8.15)	(6.42)
			Median	(4.05)	(3.06)
			Minimum	(58.85)	(55.79)
18/1/2019	Beijing Enterprises	Subscription	4.29	0.23	1.27
	Water Group Limited
	(371)

Source: the Stock Exchange’s website at www.hkex.com.hk

As indicated in the above table setting out the issue statistics of the Comparable Issues, we noted the following scenario:

(i) the slight premium of approximately 0.23% represented by the BEECL Subscription Price to the closing price on the Last Trading Day falls within the range of premiums/discounts represented by the 12 Comparable Issues on the relevant last trading days and above the average discount of approximately 8.15% thereof, which ranges very widely from a discount of approximately 58.85% to a premium of approximately 29.30%; and
(ii) the slight premium of approximately 1.27% represented by the BEECL Subscription Price over the 5-day average closing price for the last five trading days up to and including the last trading day falls within the range of premiums/discounts represented by 5-day average closing prices of the 12 Comparable Issues on the relevant last five trading days and also above the average discount of approximately 6.42% thereof, which also ranges very widely from a discount of approximately 55.79% to a premium of approximately 30.40%.

Having considered the above analysis and further taken into account (i) the BEECL Subscription Price of HK$4.29 per BEECL Subscription Share represents a significant premium of approximately

— IFA-20 —

LETTER OF ADVICE FROM FIRST SHANGHAI

56.57% over the unaudited net asset value per Share of approximately HK$2.74 per Share as at 30 June 2018; (ii) the BEECL Subscription Price of HK$4.29 per BEECL Subscription Share represented a slight premium of approximately 0.23% over the closing price of the Shares of HK$4.28 as at the Last Trading Day; (iii) the Group’s liquidity and gearing positions as at 30 June 2018; and (iv) the BEECL Subscription Price offered to BEECL who is a connected person of the Company to be exactly the same as the CYPI Subscription Price offered to CYPI with reference to the prevailing market price of the Shares, we consider that the basis for determination of the BEECL Subscription Price is commercially justifiable, and the terms of the BEECL Subscription Agreement are on normal commercial terms as the either party thereto is treated fairly and equitably irrespective of whether they are independent third parties or connected person, fair and reasonable so far as the Independent Shareholders are concerned, and is in the interests of the Company and the Shareholders as a whole.

6. Potential dilution effect on the shareholding of the Company

As set out in the table showing the shareholding structure and changes of the Company in the “Letter from the Board” of the Circular, the shareholding of the existing public Shareholders as at the Latest Practicable Date was approximately 57.57%. The BEECL Subscription Shares to be subscribed by BEECL represent 1.36% of the total number of issued Shares as at the Latest Practicable Date, and approximately 1.34% of the total number of issued Shares as enlarged by the allotment and issue of the BEECL Subscription Shares. On such basis, the shareholding of the existing public Shareholders will be diluted from approximately 57.57% to 56.80% upon the completion of the BEECL Subscription Agreement, we consider such dilution impact is minimal, inevitable and therefore acceptable.

7. Financial effect of the BEECL Subscription on the Group

Earnings

Save for the legal and professional fees/expenses to be incurred in relation to the BEECL Subscription, there will not be any immediate material impact on the earnings of the Group in this regard. Hence, immediately upon completion of the BEECL Subscription, there will be no immediate effect on the earnings of the Group.

Working capital

According to the Interim Report, the Group had cash and cash equivalent balances of approximately HK$12,984.8 million as at 30 June 2018. Assuming upon completion of the BEECL Subscription only, the Group’s working capital and liquidity positions will be improved as the cash and cash equivalent balances will increase by the net proceeds of approximately HK$547.5 million to be generated therefrom. Accordingly, the cash and liquidity positions, net current assets and current ratio of the Group are expected to be improved upon the completion of the BEECL Subscription.

Gearing position

Based on the Interim Report, the Group had unaudited consolidated total equity, aggregate borrowings (comprising bank and other borrowings, corporate bonds, notes payable and finance lease payables) and cash and cash equivalents of approximately HK$38,477.4 million, HK$49,376.4 million

— IFA-21 —

LETTER OF ADVICE FROM FIRST SHANGHAI

and HK$12,984.8 million, respectively, as at 30 June 2018, representing a net gearing ratio (i.e. being calculated as the aggregate borrowings, net of cash and cash equivalents, to be divided by the total equity of the Group) of approximately 94.6% thereof. The Directors have expected that, following completion of the BEECL Subscription, the Group’s capital base and net asset value would be enhanced, while its net gearing level would be improved on the basis that all of the net proceeds from the BEECL Subscription of approximately HK$547.5 million will be applied for repayment of loans.

Net asset value

According to the Interim Report, the Group had unaudited consolidated net asset value of approximately HK$25,768.1 million as at 30 June 2018, representing a net asset value per Share of approximately HK$2.74 based on the number of 9,412,588,721 issued Shares as at the date of the BEECL Subscription Agreement. Upon completion of the BEECL Subscription only, the net asset value of the Group will be enhanced by the net proceeds of approximately HK$547.5 million to be generated from the BEECL Subscription; whilst the net asset value per Share shall also increase because the BEECL Subscription Price of HK$4.29 per BEECL Subscription Share is far above the net asset value per Share of HK$2.74 as at 30 June 2018.

RECOMMENDATION

Having taken into account the above principal factors and reasons, we are of the view that the BEECL Subscription shall be regarded as corporate financing activity instead of usual operating activity of the Group, and therefore is not conducted in its ordinary and usual course of business; but the terms of the BEECL Subscription Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution(s) to be proposed at the SGM to approve (i) the BEECL Subscription pursuant to the BEECL Subscription Agreement; and (ii) the BEECL Specific Mandate for the allotment and issue of the BEECL Subscription Shares.

Yours faithfully, For and on behalf of First Shanghai Capital Limited Nicholas Cheng Director

Note:

Mr. Nicholas Cheng has been the Responsible Officer of Type 6 (advising on corporate finance) regulated activity under the SFO, and has over 16 years of experience in corporate finance industry. He has participated in the provision of independent financial advisory services for numerous connected transactions involving companies listed in Hong Kong.

— IFA-22 —

GENERAL INFORMATION

APPENDIX I

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 Company. 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. SHARE CAPITAL OF THE COMPANY

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately upon completion of the CYPI Subscription and/or the BEECL Subscription (assuming there is no change to the issued share capital of the Company on or before completion of the CYPI Subscription and/or the BEECL Subscription) were as follows:

Authorised:		HK$
15,000,000,000	Shares	1,500,000,000.00

Assuming (a) the CYPI Subscription, but not the BEECL Subscription, shall have proceeded to completion; and (b) there is no change to the issued share capital of the Company and none of the outstanding Share Options are being exercised between the date of the Subscription Agreements and the allotment and issue of the CYPI Subscription Shares:

Shares in issue and to be issued: 9,412,988,721 Shares in issue as at the Latest Practicable Date 470,649,436 CYPI Subscription Shares to be issued 9,883,638,157 Shares in issue and fully paid immediately upon completion of the CYPI Subscription	HK$ 941,298,872.10 47,064,943.60
	988,363,815.70

Assuming (a) the BEECL Subscription, but not the CYPI Subscription, shall have proceeded to completion; and (b) there is no change to the issued share capital of the Company and none of the outstanding Share Options are being exercised between the date of the Subscription Agreements and the allotment and issue of the BEECL Subscription Shares:

Shares in issue and to be issued: 9,412,988,721 Shares in issue as at the Latest Practicable Date 127,747,714 BEECL Subscription Shares to be issued 9,540,736,435 Shares in issue and fully paid immediately upon completion of the BEECL Subscription	HK$ 941,298,872.10 12,774,771.40
	954,073,643.50

— AI-1 —

GENERAL INFORMATION

APPENDIX I

Assuming (a) both the BEECL Subscription and the CYPI Subscription shall have proceeded to completion; and (b) there is no change to the issued share capital of the Company and none of the outstanding Share Options are being exercised between the date of the Subscription Agreements and the respective allotment and issue of the CYPI Subscription Shares and BEECL Subscription Shares:

Shares in issue and to be issued: 9,412,988,721 Shares in issue as at the Latest Practicable Date 470,649,436 CYPI Subscription Shares to be issued 127,747,714 BEECL Subscription Shares to be issued 10,011,385,871 Shares in issue and fully paid immediately upon completion of both the CYPI Subscription and the BEECL Subscription	HK$ 941,298,872.10 47,064,943.60 12,774,771.40
	1,001,138,587.10

Save for the Share Options, as at the Latest Practicable Date, the Company has no other derivatives, outstanding convertible securities, options or warrants in issue which confer any right to subscribe for, convert or exchange into Shares.

Save for the Share Options and other than pursuant to the Subscription Agreements, no capital of any member of the Group was under option, or agreed conditionally or unconditionally to be put under option as at the Latest Practicable Date.

As at the Latest Practicable Date, there were no arrangement under which future dividends are waived or agreed to be waived.

The CYPI Subscription Shares and the BEECL Subscription Shares to be issued will be listed on the Stock Exchange.

3. DISCLOSURE OF INTERESTS

(i) Directors

(a) Directors’ interests in the Company and associated corporations

Save as the BEECL Subscription, as at the Latest Practicable Date, the interests and short positions of the Directors in the Shares and the underlying Shares and any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required pursuant to Section 352 of the SFO to be entered in the register maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by the Directors of Listed Issuers of the Listing Rules were as follows:

— AI-2 —

GENERAL INFORMATION

APPENDIX I

(i) Long positions in the shares and/or underlying Shares of the Company

			Approximate of
		Number of	percentage of
Name of Director	Nature of interest	Shares held	shareholding
			(Note 2)
Zhou Min	Beneficial owner and interest	308,076,110	3.2729%
	of corporation controlled by	(Note 1)
	the director
Li Haifeng	Beneficial owner	80,000	0.0008%
Li Li	Beneficial owner	10,000	0.0001%

(ii) Long positions in the shares and/or underlying shares of the associated corporation of the Company

Beijing Enterprises Clean Energy Group Limited (“ BECEG ”)

			Approximate of
		Number of	percentage of
Name of Director	Nature of interest	Shares held	shareholding
			(Note 5)
Zhou Min	Interest of corporation	1,824,086,800	2.8714%
	controlled by the director	(Note 3)
Li Haifeng	Interest of corporation	1,127,175,080	1.7744%
	controlled by the director	(Note 4)

Notes:

(1) Mr. Zhou Min holds 400,000 Shares beneficially whereas 307,676,110 Shares as at Latest Practicable Date are held by Tenson Investment Limited which is wholly and beneficially owned by Mr. Zhou Min, the chief executive officer and an executive Director.
(2) The percentage represented the number of Shares over the total issued Shares as at Latest Practicable Date of 9,412,988,721 Shares.
(3) This represented the number of ordinary shares of BECEG of HK$0.001 each (“ BECEG Ordinary Shares ”) held by Tenson Investment Limited which is wholly and beneficially owned by Mr. Zhou Min, the chief executive officer and an executive Director.
(4) This represented the number of BECEG Ordinary Shares held by Maolin Investments Limited which is wholly and beneficially owned by Mr. Li Haifeng, an executive Director.
(5) The percentage represented the number of BECEG Ordinary Shares over the total issued shares of BECEG as at Latest Practicable Date of 63,525,397,057 shares.

— AI-3 —

GENERAL INFORMATION

APPENDIX I

(iii) Long position in Share Options of the Company

At the Latest Practicable Date, the following Directors had interests in the Share Options granted by the Company under the Share Option Scheme adopted by the Company on 28 June 2011:

				Number of
			Period during which	shares
		Subscription	Share Options	subject to the
	Date of	price per	outstanding are	Share Option
Name of Director	grant	share	exercisable	outstanding
		(HK$)
Zhou Min	24/4/2013	2.244	24/4/2014-23/4/2023	56,000,000
				(Note)
Li Haifeng	24/4/2013	2.244	24/4/2015-23/4/2023	22,600,000
				(Note)
Tung Woon Cheung	24/4/2013	2.244	24/4/2014-23/4/2023	9,000,000
Eric				(Note)
Li Li	24/4/2013	2.244	24/4/2015-23/4/2023	12,700,000
				(Note)
Shea Chun Lok	24/4/2013	2.244	24/4/2018-23/4/2023	400,000
Quadrant				(Note)
Zhang Gaobo	24/4/2013	2.244	24/4/2017-23/4/2023	800,000
				(Note)
Guo Rui	24/4/2013	2.244	24/4/2018-23/4/2023	400,000
				(Note)
Wang Kaijun	24/4/2013	2.244	24/4/2014-23/4/2023	2,000,000
				(Note)

Note: The vesting of these Share Options is subject to the vesting schedules as set out in their respective offer letters.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or chief executives of the Company and their associates had any interests or short positions in any Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required pursuant to Section 352 of the SFO to be entered in the register maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules.

— AI-4 —

GENERAL INFORMATION

APPENDIX I

(b) Directors’ interests in assets and contracts of the Company

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2017, being the date to which the latest published audited financial statements of the Group were made up.

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

(c) Directors’ service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group which will not expire or may not be terminated by the Company within one year without payment of compensation (other than statutory compensation).

(d) Directors’ interests in competing businesses

As at the Latest Practicable Date, none of the Directors or any of their respective close associates was interested in any business, which competes or is likely to compete, either directly or indirectly, with the business of the Group.

At the Latest Practicable Date, save as disclosed below, none of the Directors was a director or an employee of a company which had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

	Names of companies which
	had such discloseable
Name of Director	interest or short position	Position within such companies
Li Yongcheng	BEGCL	Director
	BE Group (BVI)	Director
	BEIL	Director
	MOL	Director
	BEHL	Director, Vice Chairman
E Meng	BEGCL	Vice General Manager, Chief
		Financial Officer
	BE Group (BVI)	Director
	BEIL	Director
	MOL	Director
	BEHL	Director, Executive Vice President

— AI-5 —

GENERAL INFORMATION

APPENDIX I

	Names of companies which
	had such discloseable
Name of Director	interest or short position	Position within such companies
Jiang Xinhao	BEGCL	Vice General Manager
	BE Group (BVI)	Director
	BEIL	Director
	MOL	Director
	BEHL	Director, Vice President
Ke Jian	BEHL	Vice President
Tung Woon Cheung	BEHL	Assistant President and General
Eric		Manager of Finance Department

(ii) Substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following persons (not being a Director or chief executive of the Company) had, or were deemed to have, an interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO were as follows:

			Approximate of
	Capacity in which	Number of	percentage of
Name of shareholders	Shares were held by	Shares held	shareholding
			(Note 5)
BEECL	Beneficial owner	4,121,607,070	43.79%
	Interest of controlled
BEHL (Note 1)	corporation	4,121,607,070	43.79%
	Interest of controlled
MOL (Note 2)	corporation	4,121,607,070	43.79%
	Interest of controlled
BEIL (Note 2)	corporation	4,121,607,070	43.79%
	Interest of controlled
BE Group (BVI) (Note 3)	corporation	4,121,607,070	43.79%
	Interest of controlled
BEGCL (Note 4)	corporation	4,121,607,070	43.79%

— AI-6 —

GENERAL INFORMATION

APPENDIX I

Notes:

(1) The interest disclosed comprises the Shares owned by BEECL. BEECL beneficially holds 4,121,607,070 Shares (representing approximately 43.79% in the share capital of the Company). BEECL is a wholly-owned subsidiary of BEHL. Accordingly, BEHL is deemed to be interested in the Shares owned by BEECL.
(2) The interest disclosed comprises the Shares owned by BEHL (through BEECL). MOL and BEIL are the immediate shareholders of BEHL and collectively hold approximately 20.90% of the issued share capital of BEHL. Accordingly, each of MOL and BEIL is deemed to be interested in the Shares owned by BEHL (through BEECL).
(3) The interest disclosed comprises the Shares owned by BEIL and MOL (through BEHL and BEECL). BEHL is held directly as to approximately 41.06% by BE Group (BVI). MOL is a wholly-owned subsidiary of BEIL, which is in turn directly held as to approximately 72.72% by BE Group (BVI). Accordingly, BE Group (BVI) is deemed to be interested in the Shares indirectly owned by BEIL and MOL (through BEHL and BEECL).
(4) The interest disclosed comprises the Shares owned by BE Group (BVI) as detailed in note (3) above. BE Group (BVI) is a wholly-owned subsidiary of BEGCL. Accordingly, BEGCL is deemed to be interested in the Shares indirectly owned by BE Group (BVI).
(5) The percentage represented the number of Shares over the total issued Shares as at Latest Practicable Date of 9,412,988,721 Shares.

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or the chief executive of the Company, no other persons (not being a Director or chief executive of the Company) had, or were deemed to have, an interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO.

4. LITIGATION

As at the Latest Practicable Date, no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

5. MATERIAL ADVERSE CHANGE

The Directors are of the opinion that there are no material adverse changes in the financial or trading position of the Group since the date to which the latest published audited and unaudited accounts of the Company have been made up.

— AI-7 —

GENERAL INFORMATION

APPENDIX I

6. EXPERT AND CONSENT

The following is the qualification of the expert who has been named in this circular or has given opinions, letter or advices contained in this circular:

Name Qualification

First Shanghai

a licensed corporation to carry out type 6 regulated activities (advising on corporate finance) under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the BEECL Subscription Agreement and the transactions contemplated thereunder

As at the Latest Practicable Date, First Shanghai does 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, nor did it have any direct or indirect interests in any assets which have been, since 31 December 2017 (the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

First Shanghai has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the form and context in which they are included.

The letter of advice given by First Shanghai is given as of the date of this circular for incorporation herein.

7. MISCELLANEOUS

(i) The company secretary of the Company is Mr. Tung Woon Cheung Eric, who is an executive Director and is a Hong Kong Certified Public Accountant and a U.S. licensed practice Certified Public Accountant.
(ii) The English text of this circular shall prevail over the Chinese text.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s principal place of business in Hong Kong at Rooms 6706-07, 67th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong during normal business hours on any weekday other than Saturday, Sunday and public holidays from the date of this circular, up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company;

— AI-8 —

GENERAL INFORMATION

APPENDIX I

(b) the CYPI Subscription Agreement;
(c) the BEECL Subscription Agreement;
(d) the written consent referred to in the paragraph headed “Expert and Consent” in this appendix;
(e) the letter of recommendation from the Independent Board Committee;
(f) the letter of advice from First Shanghai; and
(g) this circular.

— AI-9 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [68 x 66] intentionally omitted <==

(Incorporated in Bermuda with limited liability) (Stock Code: 371)

NOTICE IS HEREBY GIVEN THAT a special general meeting (“ Meeting ”) of Beijing Enterprises Water Group Limited (the “ Company ”) will be held at 66th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Thursday, 7 March 2019 at 4:30 p.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolutions as ordinary resolutions of the Company. Unless otherwise indicated, capitalised terms used in this notice and the following ordinary resolutions shall have the same meanings as those defined in the circular of the Company dated 18 February 2019.

ORDINARY RESOLUTIONS

1. “ THAT :

(a) the subscription agreement dated 18 January 2019 entered into between the Company as issuer and China Yangtze Power International (Hongkong) Co., Limited as subscriber (“ CYPI ”) in respect of the issue of a total of 470,649,436 new shares (the “ CYPI Subscription Shares ”) of the Company (the “ CYPI Subscription Agreement ”) (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) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) subject to fulfilment of the conditions precedent set out in the CYPI Subscription Agreement, the allotment and issue of the CYPI Subscription Shares in accordance with the terms and conditions of the CYPI Subscription Agreement be and is hereby approved;
(c) the directors of the Company (the “ Directors ”) be and are hereby granted a specific mandate (the “ CYPI Specific Mandate ”) to exercise the powers of the Company to allot and issue the CYPI Subscription Shares pursuant to the terms and conditions of the CYPI Subscription Agreement, whereby such CYPI Subscription Shares shall rank equally in all respects among themselves and with all fully paid ordinary shares of the Company in issue as at the date of allotment and issue. The CYPI Specific Mandate is in addition to, and shall not prejudice nor revoke, any general or specific mandate(s) which has/have been granted or may from time to time be granted to the Directors prior to the passing of this resolution; and

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NOTICE OF SPECIAL GENERAL MEETING

(d) any Director be and is hereby authorised to do such acts and things, to sign and execute all such further documents (in case of execution of documents under seal, to do so by any two Directors or any Director together with the secretary of the Company) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the CYPI Subscription Agreement or any transactions contemplated thereunder and all other matters incidental thereto or in connection therewith, and to agree to and make such variations, amendments or waivers of any of the matters relating thereto or in connection therewith.”
“ THAT :
(a) the subscription agreement dated 18 January 2019 entered into between the Company as issuer and Beijing Enterprises Environmental Construction Limited as subscriber (“ BEECL ”) in respect of the issue of a total of 127,747,714 new shares (the “ BEECL Subscription Shares ”) of the Company (the “ BEECL Subscription Agreement ”) (a copy of which has been produced to the Meeting and marked “B” and initialled by the chairman of the meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) subject to fulfilment of the conditions precedent set out in the BEECL Subscription Agreement, the allotment and issue of the BEECL Subscription Shares in accordance with the terms and conditions of the BEECL Subscription Agreement be and is hereby approved;
(c) the Directors be and are hereby granted a specific mandate (the “ BEECL Specific Mandate ”) to exercise the powers of the Company to allot and issue the BEECL Subscription Shares pursuant to the terms and conditions of the BEECL Subscription Agreement, whereby such BEECL Subscription Shares shall rank equally in all respects among themselves and with all fully paid ordinary shares of the Company in issue as at the date of allotment and issue. The BEECL Specific Mandate is in addition to, and shall not prejudice nor revoke, any general or specific mandate(s) which has/have been granted or may from time to time be granted to the Directors prior to the passing of this resolution; and
(d) any Director be and is hereby authorised to do such acts and things, to sign and execute all such further documents (in case of execution of documents under seal, to do so by any two Directors or any Director together with the secretary of the Company) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the BEECL Subscription

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NOTICE OF SPECIAL GENERAL MEETING

Agreement or any transactions contemplated thereunder and all other matters incidental thereto or in connection therewith, and to agree to and make such variations, amendments or waivers of any of the matters relating thereto or in connection therewith.”

By Order of the Board Beijing Enterprises Water Group Limited Li Yongcheng Chairman

Hong Kong, 18 February 2019

Notes:

The register of members will be closed from Monday, 4 March 2019 to Thursday, 7 March 2019 (both days inclusive), during which period no transfer of shares will be registered. In order to qualify for attending and voting at the Meeting to be held on Thursday, 7 March 2019, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Friday, 1 March 2019.
Any member of the Company entitled to attend and vote at the Meeting shall be entitled to appoint another person as his proxy to attend and vote instead of him/her. A member who is the holder of two or more shares entitled to attend and vote at the Meeting is entitled to appoint more than one proxy to attend and vote instead of him/her. In case of a recognised clearing house, it may authorise such person(s) as it thinks fit to act as its representative(s) and/or proxy(ies) at the Meeting and vote in its stead. A proxy need not be a member of the Company.
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 Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the Meeting or any adjournment thereof.
Completion and return of the proxy form in respect of the proposed ordinary resolutions for the Meeting will not preclude a member from attending and voting in person at the Meeting (or any adjournment thereof) should he/she so wishes and in such event, the proxy form for the Meeting will be deemed to have been revoked.
The proposed ordinary resolution no. 1 set out in this notice will be voted by shareholders of the Company and by way of a poll.
The proposed ordinary resolution no. 2 set out in this notice will be voted by independent shareholders of the Company and by way of a poll.
The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.
As at the date hereof, the board of directors of the Company comprises ten executive directors, namely Mr. Li Yongcheng (Chairman), Mr. E Meng (Vice Chairman), Mr. Jiang Xinhao, Mr. Zhou Min (Chief Executive Officer), Mr. Li Haifeng, Mr. Zhang Tiefu, Ms. Qi Xiaohong, Mr. Ke Jian, Mr. Tung Woon Cheung Eric and Mr. Li Li and five independent non-executive directors, namely Mr. Shea Chun Lok Quadrant, Mr. Zhang Gaobo, Mr. Guo Rui, Mr. Wang Kaijun and Dr. Lee Man Chun Raymond.

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AI assistant

Beijing Enterprises Water Group Limited — Proxy Solicitation & Information Statement 2019

49167_rns_2019-02-17_5956fe0b-7354-4a00-a285-38a49e9b1340.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(1) SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE (2) CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON AND (3) NOTICE OF SPECIAL GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

(Stock Code: 371)

(1) SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE

(2) CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

AND

(3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

(1) THE CYPI SUBSCRIPTION

The CYPI Subscription Agreement

CYPI Subscription Shares

LETTER FROM THE BOARD

CYPI Subscription Price

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Ranking

Completion of the CYPI Subscription

Lock-up undertaking

Right to nominate executive Director

Specific mandate to issue the CYPI Subscription Shares

LETTER FROM THE BOARD

Information of the Company

Information of CYPI

Use of proceeds of the CYPI Subscription

LETTER FROM THE BOARD

Reasons for and benefits of the CYPI Subscription

LETTER FROM THE BOARD

General

(2) THE BEECL SUBSCRIPTION

The BEECL Subscription Agreement

BEECL Subscription Shares

LETTER FROM THE BOARD

BEECL Subscription Price

LETTER FROM THE BOARD

Conditions precedent

Completion of the BEECL Subscription

LETTER FROM THE BOARD

Lock-up undertaking

Specific mandate to issue the BEECL Subscription Shares

Information of BEECL

Use of proceeds of the BEECL Subscription

Reasons for and benefits of the BEECL Subscription

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Implications under the Listing Rules

APPLICATION FOR LISTING

EFFECT ON THE SHAREHOLDING OF THE COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

LETTER FROM THE BOARD

(3) SGM

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

LETTER OF ADVICE FROM FIRST SHANGHAI

First Shanghai Capital Limited

CONNECTED TRANSACTION SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE INVOLVING CONNECTED PERSON

INTRODUCTION

LETTER OF ADVICE FROM FIRST SHANGHAI

IMPLICATIONS UNDER THE LISTING RULES

LETTER OF ADVICE FROM FIRST SHANGHAI

THE INDEPENDENT BOARD COMMITTEE

INDEPENDENCE OF FIRST SHANGHAI

BASIS OF OUR ADVICE

LETTER OF ADVICE FROM FIRST SHANGHAI

Beijing Enterprises Water Group Limited Proxy Solicitation & Information Statement 2019