Billion Industrial Holdings Limited — Proxy Solicitation & Information Statement 2012

Mar 2, 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in 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 Billion Industrial Holdings Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

BILLION INDUSTRIAL HOLDINGS LIMITED 百宏實業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2299)

CONTINUING CONNECTED TRANSACTIONS REVISED ANNUAL CAP REVISED SALES AGREEMENTS REVISED PURCHASE AND PROCESSING AGREEMENTS I PURCHASE AND PROCESSING AGREEMENTS II

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out on pages 7 to 22 of this circular.

A letter from the Independent Board Committee (as defined in this circular) containing its advice to the Independent Shareholders (as defined in this circular) is set out on pages 23 to 24 of this circular.

A letter from CMB International Capital Limited, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 25 to 40 of this circular.

A notice convening the EGM of the Company to be convened and held at Regus Conference Centre, 35/F., Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on 10 April 2012 at 11:30 a.m. is set out on pages 46 to 47 of this circular. A form of proxy for use at the EGM is also enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event by not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so desire.

5 March 2012

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . .	23
LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED. . . . . . . . . . . . . . . . . .	25
APPENDIX – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
NOTICE OF THE EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46

– i –

DEFINITIONS

“Announcement”	the announcement of the Company dated 13 February 2012
“Baikai Elastic Weaving”	Fujian Baikai Elastic Weaving Co., Ltd.*（福建省百凱彈
	性織造有限公司）, a limited liability company established
	under the laws of the PRC on 14 April 1997 and a wholly
	owned subsidiary of Baikai H.K.
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Baikai H.K.”	Baikai (HK) Industrial Limited（百凱（香港）實業有限公
	司）, a company incorporated in Hong Kong with limited
	liability on 3 June 2008. Baikai H.K. is wholly-owned by
	Mr. Lin
“Baikai Paper”	Fujian Baikai Paper Co., Ltd.*（福建百凱紙品有限公司）,
	a limited liability company established under the laws of
	the PRC on 13 June 2001 and a wholly-owned subsidiary of
	Baikai H.K.
“Baikai Purchase and Processing	the Revised Purchase and Processing Agreements I and the
Agreements”	Purchase and Processing Agreements II
“Baikai Textile”	Fujian Baikai Textile Chemical Fiber Industry Co., Ltd.*
	（福建百凱紡織化纖實業有限公司）, a limited liability
	company established under the laws of the PRC on 18 May
	2000 and a wholly-owned subsidiary of Baikai H.K.
“Baikai Wrap Knitting”	Fujian Baikai Wrap Knitting Industry Co., Ltd.*（福建省
	百凱經編實業有限公司）, a limited liability company
	established under the laws of the PRC on 27 September
	2002 and a wholly-owned subsidiary of Baikai H.K.
“Baikai Zipper”	Fujian Baikai Zipper Dress Co., Ltd.*（福建省百凱拉鍊
	服飾有限公司）, a limited liability company established
	under the laws of the PRC on 30 January 2002 and a
	wholly-owned subsidiary of Baikai H.K.

– 1 –

DEFINITIONS

“Billion Fujian”	Fujian Billion Polymerization Fiber Technology Industrial
	Co., Ltd.*（福建百宏聚纖科技實業有限公司）, formerly
	known as Fujian Billion Polymerization Fiber Industrial
	Co., Ltd.（福建百宏聚合纖維實業有限公司）, a wholly
	foreign owned enterprise established under the laws of the
	PRC on 20 November 2003 and an indirect wholly-owned
	subsidiary of the Company
“Billion High-tech Material”	福建百宏高新材料實業有限公司(Fujian Billion High-
	tech Material Industry Co, Ltd*), a company established
	under the laws of the PRC and an indirect wholly-owned
	subsidiary of the Company
“Board”	the board of Directors
“BOPET”	Biaxially-oriented polyethylene terephthalate, a polyester
	film made from stretched PET and is used for its high
	tensile strength, chemical and dimensional stability,
	transparency, reflectivity, environmentally-friendly
	properties, gas and aroma barrier properties and electrical
	insulation
“Company”	Billion Industrial Holdings Limited（百宏實業控股有
	限公司）, a limited liability company incorporated in the
	Cayman Islands, the shares of which are listed on the Stock
	Exchange
“connected persons”	has the meaning ascribed to it under the Listing Rules
“Director(s)”	the director(s) of the Company
“DTY”	drawn textured yarn, a type of polyester filament yarn
	which has, among other qualities, good resistance to
	abrasion and elasticity. It is typically used to produce high-
	end sportswear, sport shoes and home furnishing textiles
“EGM”	an extraordinary general meeting of the Company to be
	convened to approve the Revised Sales Agreements and the
	Baikai Purchase and Processing Agreements

– 2 –

DEFINITIONS

“FDY”	fully draw yarn, a type of polyester filament yarn which
	has, among other qualities, good fabric strength. It is
	typically used to produce high-end undergarments, high-end
	sportswear and home furnishing textile
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	an independent committee of the Board composed of all
	independent non-executive Directors, namely Mr. Yeung
	Chi Tat, Ms. Zhu Meifang and Mr. Ma Yuliang
“Independent Shareholders”	has the meaning ascribed to it under Rule 14A.10(5) of the
	Listing Rules, and in relation to the Company, Shareholders
	other than Kingom Power Limited and Winwett Investments
	Limited and their respective associates
“Latest Practicable Date”	29 February 2012, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Mr. Lin”	Mr. Lin Jinjing, who is a brother-in-law of both Mr. Sze Tin
	Yau and Mr. Wu Jinbiao, both being the executive Directors
“PET”	polyethylene terephthalate, an organic compound which
	is used in producing polyester filament yarns and other
	products such as plastic containers and bottles
“POY”	partially oriented yarn, a type of polyester filament yarn
	which is typically used to produce DTY
“PRC”	the People’s Republic of China

– 3 –

DEFINITIONS

“Processing Agreement I”	the processing agreement entered into by Baikai Paper
	and Billion Fujian dated 31 March 2011, in relation to the
	provision of processing services related to paper boxes and
	rolls by Baikai Paper to Billion Fujian
“Processing Agreement II”	the processing agreement entered into by Baikai Paper
	and Billion High-tech Material dated 10 February 2012, in
	relation to the provision of processing services related to
	paper boxes and rolls by Baikai Paper to Billion High-tech
	Material
“Prospectus”	the prospectus of the Company dated 5 May 2011
“Purchase Agreement I”	the purchase agreement entered into by Baikai Paper and
	Billion Fujian dated 31 March 2011, in relation to the
	purchase of paper boxes and rolls by Billion Fujian from
	Baikai Paper
“Purchase Agreement II”	the purchase agreement entered into by Baikai Paper and
	Billion High-tech Material dated 10 February 2012, in
	relation to the purchase of paper boxes and rolls by Billion
	High-tech Material from Baikai Paper
“Purchase and Processing	the Purchase Agreement I and the Processing Agreement I
Agreements I”
“Purchase and Processing	the Purchase Agreement II and the Processing Agreement II
Agreements II”
“Revised Processing	the processing agreement entered into by Baikai Paper and
Agreement I”	Billion Fujian dated 10 February 2012, in relation to the
	provision of processing services of paper boxes, rolls and
	polyfoam boards by Baikai Paper to Billion Fujian
“Revised Purchase Agreement I”	the purchase agreement entered into by Baikai Paper and
	Billion Fujian dated 10 February 2012, in relation to the
	purchase of paper boxes, rolls and polyfoam boards by
	Billion Fujian from Baikai Paper

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DEFINITIONS

“Revised Purchase and	the Revised Purchase Agreement I and the Revised
Processing Agreements I”	Processing Agreement I
“Revised Sales Agreement I”	the sales agreement entered into by Baikai Elastic Weaving
	and Billion Fujian dated 10 February 2012, in relation to
	the sales of DTY, FDY and POY by Billion Fujian to Baikai
	Elastic Weaving
“Revised Sales Agreement II”	the sales agreement entered into by Baikai Wrap Knitting
	and Billion Fujian dated 10 February 2012, in relation to
	the sales of DTY and FDY by Billion Fujian to Baikai Wrap
	Knitting
“Revised Sales Agreement III”	the sales agreement entered into by Baikai Textile and
	Billion Fujian dated 10 February 2012, in relation to the
	sales of semi-dull PET chips, POY and spin finish oil by
	Billion Fujian to Baikai Textile
“Revised Sales Agreement IV”	the sales agreement entered into by Baikai Zipper and
	Billion Fujian dated 10 February 2012, in relation to the
	sales of DTY by Billion Fujian to Baikai Zipper
“Revised Sales Agreements”	the Revised Sales Agreement I, the Revised Sales
	Agreement II, the Revised Sales Agreement III and the
	Revised Sales Agreement IV
“RMB”	Renminbi, the lawful currency of the PRC
“Sales Agreement I”	the sales agreement entered into by Baikai Elastic Weaving
	and Billion Fujian dated 31 March 2011, in relation to the
	sales of DTY, FDY and POY by Billion Fujian to Baikai
	Elastic Weaving
“Sales Agreement II”	the sales agreement entered into by Baikai Wrap Knitting
	and Billion Fujian dated 31 March 2011, in relation to the
	sales of DTY and FDY by Billion Fujian to Baikai Wrap
	Knitting

– 5 –

	DEFINITIONS
“Sales Agreement III”	the sales agreement entered into by Baikai Textile and
	Billion Fujian dated 31 March 2011, in relation to the sales
	of semi-dull PET chips, POY and spin finish oil by Billion
	Fujian to Baikai Textile
“Sales Agreement IV”	the sales agreement entered into by Baikai Zipper and
	Billion Fujian dated 31 March 2011, in relation to the sales
	of DTY by Billion Fujian to Baikai Zipper
“Sales Agreement I 2011 Cap”	the revised annual cap of RMB79,991,000 for the
	transactions under the Sales Agreement I for the year ended
	31 December 2011
“Sales Agreements”	the Sales Agreement I, the Sales Agreement II, the Sales
	Agreement III and the Sales Agreement IV
“SFO”	Securities and Futures Ordinance, Chapter 571 of the Laws
	of Hong Kong
“Shareholder(s)”	the shareholder(s) of the Company
“Share(s)”	ordinary share(s) with nominal value of HK$0.01 each in
	the share capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“%”	per cent.

• For identification purposes only

– 6 –

LETTER FROM THE BOARD

BILLION INDUSTRIAL HOLDINGS LIMITED 百宏實業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2299)

Executive Directors: Registered office: Mr. Sze Tin Yau (Chairman) Cricket Square Mr. Wu Jinbiao Hutchins Drive Mr. Wu Jianshe P.O. Box 2681 Mr. He Wenyao Grand Cayman KY1-1111 Cayman Islands

Independent non-executive Directors:

Mr. Yeung Chi Tat Ms. Zhu Meifang Mr. Ma Yuliang

Head office and principal place of business in Hong Kong: Unit 1501 Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

5 March 2012

To the Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS REVISED ANNUAL CAP REVISED SALES AGREEMENTS REVISED PURCHASE AND PROCESSING AGREEMENTS I PURCHASE AND PROCESSING AGREEMENTS II

INTRODUCTION

References are made to the Announcement.

By way of background, Billion Fujian entered into Sales Agreement I, Sales Agreement II, Sales Agreement III and Sales Agreement IV with Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper, respectively, on 31 March 2011, pursuant to which, Billon Fujian

– 7 –

LETTER FROM THE BOARD

agreed to sell various products of the Group to the relevant parties, including DTY, FDY, POY, semi-dull PET chips and spin finish oil. Each of such agreements has set out the annual caps for the transactions thereunder for the year ended 31 December 2011 and each of the two years ending 31 December 2012 and 2013.

Billon Fujian also entered into the Purchase Agreement I and the Processing Agreement I with Baikai Paper on 31 March 2011, pursuant to which Baikai Paper agreed to provide paper boxes and rolls, and related processing services to Billion Fujian. The parties have also set out the aggregated annual caps for the transactions thereunder for the year ended 31 December 2011 and each of the two years ending 31 December 2012 and 2013 in such agreements.

According to the unaudited management accounts of the Group, the actual transaction amount under the Sales Agreement I for the year ended 31 December 2011 exceeded the annual cap of RMB77,000,000 as set out in such agreement by approximately RMB2,991,000, due to the reasons set out below, while, the respective actual transactions amounts under other Sales Agreements and the Purchase and Processing Agreements I did not exceed the respective annual caps for the year ended 31 December 2011 as set out in the respective agreements. However, for the reasons set out below, the Board expects that the transaction amounts for each of the two years ending 31 December 2012 and 2013 will exceed the respective annual caps as set out in the Sales Agreements and the Purchase and Processing Agreements I. Therefore, on 10 February 2012, Billion Fujian entered into the Revised Sales Agreements and the Revised Purchase and Processing Agreements I to increase the annual caps the each of the two years ending 31 December 2012 and 2013. To avoid unnecessary administrative costs and inconvenience in the future, the parties also set out the respective annual caps for the transactions thereunder for the year ending 31 December 2014 in such agreements.

For the reasons set out below, on 10 February 2012, Billion High-tech Material also entered into the Purchase and Processing Agreements II with Baikai Paper, pursuant to which Baikai Paper agreed to provide paper boxes and rolls, and related processing services to Billion High-tech Material. The Purchase and Processing Agreements II have also set out the aggregated annual caps for the transactions thereunder for each of the three years ending 31 December 2012, 2013 and 2014.

The purpose of this circular is to provide you with, among other things, (i) details of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements and details of the Revised Sales Agreement I 2011 Cap; (ii) a letter from the independent financial adviser of the Company to the Independent Board Committee and the Independent Shareholders containing its advice on the Revised Sales Agreements, the Baikai Purchase and Processing Agreements and the Revised Sales Agreement I 2011 Cap; (iii) the recommendation of the Independent Board Committee in respect of the Revised Sales Agreements, the Baikai Purchase and Processing Agreements and the Revised Sales Agreement I 2011 Cap; and (iv) a notice convening the EGM.

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LETTER FROM THE BOARD

THE CONTINUING CONNECTED TRANSACTIONS

1. Revised Sales Agreements

Revised Sales Agreement I

On 10 February 2012, Billion Fujian and Baikai Elastic Weaving entered into the Revised Sales Agreement I. Details of the terms of the Revised Sales Agreement I are set out below:

Subject Matter:

Pursuant to the Revised Sales Agreement I, Billion Fujian agreed to provide DTY, FDY and POY to Baikai Elastic Weaving, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products that Billion Fujian sells to other independent customers.

Annual Caps:

The annual caps of the transaction amounts under the Revised Sales Agreement I will be RMB140,500,000, RMB172,900,000 and RMB199,800,000, respectively, for each of the three years ending 31 December 2012, 2013 and 2014. The above annual caps are based on (i) the actual sales made to Baikai Elastic Weaving in the year ended 31 December 2011; (ii) the prevailing market price for the sales of similar products; (iii) the expected increase in production capacity of Billion Fujian; and (iv) the estimated growth of Baikai Elastic Weaving which requires more of the products to be sold by Billion Fujian thereunder.

Term:

• The Revised Sales Agreement I will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules.

Other Terms:

Upon the effectiveness of the Revised Sales Agreement I, the Sales Agreement I shall be terminated with retrospective effect from 1 January 2012.

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LETTER FROM THE BOARD

Revised Sales Agreement II

On 10 February 2012, Billion Fujian and Baikai Wrap Knitting entered into the Revised Sales Agreement II. Details of the terms of the Revised Sales Agreement II are set out below:

Subject Matter:

Pursuant to the Revised Sales Agreement II, Billion Fujian agreed to provide DTY and FDY to Baikai Wrap Knitting, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products that Billion Fujian sells to other independent customers.

Annual Caps:

The annual caps of the transaction amounts under the Revised Sales Agreement II will be RMB183,400,000, RMB218,700,000 and RMB255,600,000, respectively, for each of the three years ending 31 December 2012, 2013 and 2014. The above annual caps are based on (i) the actual sales made to Baikai Wrap Knitting in the year ended 31 December 2011; (ii) the prevailing market price for the sales of similar products; (iii) the expected increase in production capacity of Billion Fujian; and (iv) the estimated growth and increase in production capacity of Baikai Wrap Knitting and the anticipated increase in demand for the products of Baikai Wrap Knitting within the PRC domestic market, which require more of the products to be sold by Billion Fujian thereunder.

Term:

The Revised Sales Agreement II will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules.

Other Terms:

Upon the effectiveness of the Revised Sales Agreement II, the Sales Agreement II shall be terminated with retrospective effect from 1 January 2012.

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LETTER FROM THE BOARD

Revised Sales Agreement III

On 10 February 2012, Billion Fujian and Baikai Textile entered into the Revised Sales Agreement III. Details of the terms of the Revised Sales Agreement III are set out below:

• Subject Matter:

• Pursuant to the Revised Sales Agreement III, Billion Fujian agreed to provide semi-dull PET chips, POY and spin finish oil to Baikai Textile, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products that Billion Fujian sells to other independent customers.

Annual Caps:

• The annual caps of the transaction amounts under the Revised Sales Agreement III will be RMB194,200,000, RMB216,400,000 and RMB245,000,000, respectively, for each of the three years ending 31 December 2012, 2013 and 2014. The above annual caps are based on (i) the actual sales made to Baikai Textile in the year ended 31 December 2011; (ii) the prevailing market price for the sales of similar products; (iii) the expected increase in production capacity of Billion Fujian; and (iv) the estimated growth and increase in production capacity of Baikai Textile and the anticipated increase in demand for the products of Baikai Textile within the PRC domestic market, which require more of the products to be sold by Billion Fujian thereunder.

Term:

The Revised Sales Agreement III will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules.

• Other Terms:

Upon the effectiveness of the Revised Sales Agreement III, the Sales Agreement III shall be terminated with retrospective effect from 1 January 2012.

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LETTER FROM THE BOARD

Revised Sales Agreement IV

On 10 February 2012, Billion Fujian and Baikai Zipper entered into the Revised Sales Agreement IV. Details of the terms of the Revised Sales Agreement IV are set out below:

• Subject Matter:

• Pursuant to the Revised Sales Agreement IV, Billion Fujian agreed to provide DTY to Baikai Zipper, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products that Billion Fujian sells to other independent customers.

Annual Caps:

• The annual caps of the transaction amounts under the Revised Sales Agreement IV will be RMB9,000,000, RMB9,600,000 and RMB10,300,000, respectively, for each of the three years ending 31 December 2012, 2013 and 2014. The above annual caps are based on (i) the actual sales made to Baikai Zipper in the year ended 31 December 2011; (ii) the prevailing market price for the sales of similar products; (iii) the expected increase in production capacity of Billion Fujian; and (iv) the estimated growth and increase in production capacity of Baikai Zipper and the anticipated increase in demand for the products of Baikai Zipper within the PRC domestic market, which require more of the products to be sold by Billion Fujian thereunder.

Term:

The Revised Sales Agreement IV will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules.

• Other Terms:

Upon the effectiveness of the Revised Sales Agreement IV, the Sales Agreement IV shall be terminated with retrospective effect from 1 January 2012.

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LETTER FROM THE BOARD

Annual Caps of the Revised Sales Agreements

Historical Transaction Value and Annual Cap

The aggregated historical transaction value of the transactions contemplated under the Sales Agreements according to the unaudited management accounts of the Group and the annual cap therefor for the year ended 31 December 2011 were approximately RMB356,496,000 and RMB378,000,000, respectively.

Proposed Annual Caps

As further explained below, the transactions under each of the Revised Sales Agreements should be aggregated pursuant to Rule 14A.25 of the Listing Rules. As such, the proposed annual caps for the transactions contemplated under such agreements in aggregate for each of the three years ending 31 December 2012, 2013 and 2014 will be as follows:

	Year ending	Year ending	Year ending
31	December 2012	31 December 2013	31 December 2014
	(RMB)	(RMB)	(RMB)
	527,100,000	617,600,000	710,700,000

The basis for determining the annual caps in each of the Revised Sales Agreements has been set out above.

Reasons for Entering into the Revised Sales Agreements

The Directors note that according to the unaudited management accounts of the Group, the actual transaction amount under the Sales Agreement I for the year ended 31 December 2011 exceeded annual cap of RMB77,000,000 as set out in such agreement by approximately RMB2,991,000, due to the substantial increase in the average selling price of the relevant products and the increase in the sales volume of high-end products, such as colored filament yarn, to Baikai Elastic Weaving as compared to 2010. In anticipation of the continuing increase in selling price and sales volume of the relevant products to Baikai Elastic Weaving in the coming two years, the Board expects that the transaction amounts under the Sales Agreement I for each of the two years ending 31 December 2012 and 2013 will also exceed their respective annual caps as set out in such agreement.

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LETTER FROM THE BOARD

The Directors also note that according to the unaudited management account of the Group, the actual transaction amount under Sales Agreement II, Sales Agreement III and Sales Agreement IV for the year ended 31 December 2011 did not exceed the annual caps as set out in such agreements, however, in anticipation of the increase in selling price and sales volume of the relevant products from Billion Fujian to Baikai Wrap Knitting, and the increase in selling price of the relevant products to Baikai Textile and Baikai Zipper, in the coming two years, the Board expects that the transaction amounts for each of the two years ending 31 December 2012 and 2013 will exceed their respective annual caps as set out in such agreements.

Therefore, Billion Fujian entered into the Revised Sales Agreements to increase the annual caps for the transactions under each of the Sales Agreements for each of the two years ending 31 December 2012 and 2013. To avoid unnecessary administrative costs and inconvenience in the future, the parties also set out the respective annual caps for the transactions thereunder for the year ending 31 December 2014 in such agreements. The transactions to be conducted under the Revised Sales Agreements will increase the overall revenue of the Group; therefore, it is beneficial for the Group to enter into such agreements. The Directors (excluding independent non-executive Directors whose views are set out in the “Letter From The Independent Board Committee” on pages 23 to 24 of this circular) are of the opinion that the terms of the Revised Sales Agreements have been entered into on normal commercial terms, in the ordinary course of business of the Company and are fair and reasonable and in the interests of the Shareholders as a whole.

2. Baikai Purchase and Processing Agreements

Revised Purchase and Processing Agreements I

On 10 February 2012, Billion Fujian and Baikai Paper entered into the Revised Purchase and Processing Agreements I. Details of the terms of these agreements are set out below:

Subject Matter:

Pursuant to the Revised Purchase and Processing Agreements I, Baikai Paper agreed to provide paper boxes, rolls and polyfoam boards and related processing services to Billion Fujian, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products and services that Billion Fujian pay to other independent suppliers.

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LETTER FROM THE BOARD

Annual Caps:

The aggregated annual caps of the transaction amounts under the Revised Purchase and Processing Agreements I will be RMB287,700,000, RMB395,000,000 and RMB465,900,000, for each of the three years ending 31 December 2012, 2013 and 2014, respectively. The above annual caps are based on, among other things, (i) the actual transaction amount Billion Fujian paid to Baikai Paper in the year ended 31 December 2011; (ii) the prevailing market price for the sales of similar products and services; (iii) that the production base of Baikai Paper is in close proximity to the Group, which allows timely delivery of the relevant products and minimizes delivery costs; and (iv) the estimated growth of the sales and production capacity of Billions Fujian which will require more paper boxes, rolls and polyfoam boards and related processing services to be provided by Baikai Paper.

Term: Each of the Revised Purchase and Processing Agreements I will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules.

Other Terms:

Upon the effectiveness of the Revised Purchase and Processing Agreements I, the Purchase and Processing Agreements I shall be terminated with retrospective effect from 1 January 2012.

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LETTER FROM THE BOARD

Purchase and Processing Agreements II

On 10 February 2012, Billion High-tech Material and Baikai Paper entered into the Purchase and Processing Agreements II. Details of the terms of these agreements are set out below:

Subject Matter:

Pursuant to the Purchase and Processing Agreements II, Baikai Paper agreed to provide paper boxes and rolls and related processing services to Billion High-tech Material, at the price to be agreed between the parties from time to time after arm’s length negotiation and is comparable to market prices of similar products and services that Billion Hightech Material pay to other independent suppliers.

Annual Caps:

The aggregated annual caps of the transaction amounts under the Purchase and Processing Agreements II are RMB15,400,000, RMB26,900,000 and RMB86,200,000, for each of the three years ending 31 December 2012, 2013 and 2014, respectively. The above annual caps are based on, among other things, (i) the prevailing market price for the sales of similar products and services; (ii) that the production base of Baikai Paper is in close proximity to the Group, which allows timely delivery of the relevant products and minimizes delivery costs; and (iii) the estimated sales and production capacity of Billion Hightech Material and their estimated growth.

Term:

Each of the Purchase and Processing Agreements II will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion High-tech Material subject to compliance with applicable requirements of the Listing Rules.

– 16 –

LETTER FROM THE BOARD

Annual Caps of the Baikai Purchase and Processing Agreements

Historical Transaction Value and Annual Cap

The aggregated historical transaction value of the transactions contemplated under the Purchase and Processing Agreements I according to the unaudited management accounts of the Group and the annual cap therefor for the year ended 31 December 2011 were approximately RMB93,170,000 and RMB96,000,000, respectively.

Proposed Annual Caps

As further explained below, the transactions under the Revised Purchase and Processing Agreements I and the Purchase and Processing Agreements II should be aggregated pursuant to Rule 14A.25 of the Listing Rules. As such, the proposed annual caps for the transactions contemplated under such agreements in aggregate for each of the three years ending 31 December 2012, 2013 and 2014 are as follows:

	Year ending	Year ending	Year ending
31	December 2012	31 December 2013	31 December 2014
	(RMB)	(RMB)	(RMB)
	303,100,000	421,900,000	552,100,000

The basis for determining the aggregated annual caps for the transactions under the Baikai Purchase and Processing Agreements has been set out above.

Reasons for Entering into the Baikai Purchase and Processing Agreements

The Directors note that according to the unaudited management accounts of the Group, the actual transaction amount under the Purchase and Processing Agreements I for the year ended 31 December 2011 was within the annual cap as set out in such agreements, however, the Board expects that the transaction amounts for each of the two years ending 31 December 2012 and 2013 will exceed their respective annual caps as set out in such agreements due to the anticipated increase in the price of, and the demand for the products and services by Billion Fujian, under such agreements as well as the expansion of product type and related processing services to be provided by Baikai Paper to Billion Fujian. Therefore, Billion Fujian entered into the Revised Purchase and Processing Agreements I to increase the annual caps for the transactions under Purchase and Processing Agreements I for each of the two years ending 31 December 2012 and 2013. To avoid unnecessary administrative costs and inconvenience in the future, the parties also set out the respective annual caps for the transactions thereunder for the year ending 31 December 2014 in such agreements.

– 17 –

LETTER FROM THE BOARD

Billion High-tech Material, an indirect wholly-owned subsidiary of the Company, expects to commence commercial production of multi-functional BOPET in May 2012. Paper box and rolls, and related processing services will be needed by Billion High-tech Material after its commencement of production.

The paper boxes, rolls and polyfoam boards produced or processed by Baikai Paper are of high quality and are suitable for the use of the Group and the production base of Baikai Paper is in close proximity to the Group, which allows timely delivery of the paper boxes, rolls and polyfoam boards and minimizes delivery costs, therefore, it is in the best interest of the Group to enter into the Baikai Purchase and Processing Agreements with Baikai Paper.

The Directors (excluding independent non-executive Directors whose views are set out in the “Letter From The Independent Board Committee” on pages 23 to 24 of this circular) are of the opinion that the Baikai Purchase and Processing Agreements have been entered into on normal commercial terms, in the ordinary course of business of the Company and are fair and reasonable and in the interests of the Shareholders as a whole.

INFORMATION ON BILLION FUJIAN, BILLION HIGH-TECH MATERIAL, THE GROUP AND THE CONNECTED PERSONS

Billion Fujian is an indirectly wholly-owned subsidiary of the Company. It is primarily engaged in the business of developing, manufacturing and selling regular and differentiated polyester filament yarns in the PRC.

Billon High-tech Material is an indirect wholly-owned subsidiary of the Company established in August 2011. Billion High-tech Material will be primarily engaged in the business of manufacturing and selling of multi-functional BOPET and is expected to commence commercial production in May 2012.

The Group is one of the largest developers and manufacturers of polyester filament yarns in China, including DTY and FDY, the two main polyester filament yarns, which have a variety of end applications in consumer products, including apparel, footwear and home furnishings. The Group also produces partially oriented POY, which may be used as a raw material for the DTY or sold separately to the customers of the Group.

– 18 –

LETTER FROM THE BOARD

Baikai Elastic Weaving is primarily engaged in the business of manufacturing fabric, weave belt, knit products and high-end textile.

Baikai Wrap Knitting is primarily engaged in the business of weaving, dyeing and processing high-end knit fabric.

Baikai Textile is primarily engaged in the business of manufacturing DTY, chemical fabric, clothing and accessories of clothing.

Baikai Zipper is primarily engaged in the business of manufacturing zippers, hardware die cast products and clothing.

Baikai Paper is primarily engaged in the business of manufacturing paper boxes, rolls and polyfoam boards.

LISTING RULES IMPLICATIONS

Each of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper is a wholly foreign-owned subsidiary of Baikai H.K., which in turn is wholly-owned by Mr. Lin, who is a brother-in-law of both Mr. Sze Tin Yau and Mr. Wu Jinbiao, both being the executive Directors. Mr. Lin controls the exercise of 100% of the voting power at general meetings and is the sole director of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper. Accordingly, each of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper is an associate of Mr. Sze Tin Yau and Mr. Wu Jinbiao and therefore a connected person of the Company. Accordingly, the transactions under the Revised Sales Agreements and the Baikai Purchase and Processing Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As Mr. Sze Tin Yau and Mr. Wu Jinbiao are considered to be materially interested in such agreements, they have abstained from voting on the board resolutions for approving such agreements.

Having considered that the products to be provided by the Group under the Revised Sales Agreements to Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper are of the same nature and the relevant counter parties are controlled by the same ultimate shareholder, namely, Mr. Lin, the sales arrangements under the Revised Sales Agreements are aggregated under Rule 14A.25 of the Listing Rules. The applicable percentage ratios of the above sales arrangement in aggregate, on an annual basis, exceed 5%, and the aggregated annual caps for each of the three years ending 31 December 2012, 2013 and 2014 are more than HK$10 million.

– 19 –

LETTER FROM THE BOARD

Since the products and services to be provided to the Group under the Revised Purchase and Processing Agreements I and the Purchase and Processing Agreements II are of the same nature and the relevant counter parties to such agreements are the same, the purchase arrangements under such agreements are aggregated under Rule 14A.25 of the Listing Rules. Certain applicable percentage ratios of the transactions under such agreements in aggregate, on an annual basis, also exceed 5% and aggregated the annual caps for each of the three years ending 31 December 2012, 2013 and 2014, are more than HK$10 million.

Therefore, the transactions contemplated under the Revised Sales Agreements and the Baikai Purchase and Processing Agreements are subject to the reporting, announcement and independent shareholders’ approval requirements set out in Rules 14A.45 to 14A.48, the annual review requirements set out in Rules 14A.37 to 14A.40 and the requirements set out in Rules 14A.35(1) and 14A.35(2) of the Listing Rules.

As the actual transaction amount under the Sales Agreement I for the year ended 31 December 2011 exceeded the annual cap set out in such agreement, the Company is required by Rule 14A.36 of the Listing Rules to re-comply with the reporting, announcement and Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

An Independent Board Committee has been formed to consider and advise the Independent Shareholders as to whether the terms of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements, and the respective annual caps for the transactions thereunder for each of the three years ending 31 December 2012, 2013 and 2014 are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole, to consider and advise the Independent Shareholders as to the ratification of the revised annual cap for the year ended 31 December 2011 under the Sales Agreement I, and to advise the Independent Shareholders as to how to vote at the EGM.

The Company has appointed CMB International Capital Limited as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in these respects.

– 20 –

LETTER FROM THE BOARD

EGM

The Company will hold the EGM to approve the Revised Sales Agreements and the Baikai Purchase and Processing Agreements. In addition, although the Company did not exceed the aggregated annual cap for the transactions under the Sales Agreements for the year ended 31 December 2011 based on the unaudited management accounts of the Group, the Company exceeded the annual cap for the transactions under the Sales Agreement I for the year ended 31 December 2011, and will propose the Revised Sales Agreement I 2011 Cap to the Independent Shareholders at the EGM for approval and ratifications.

Kingom Power Limited and Winwett Investments Limited, each of which owns 37.5% of the issued shares capital of the Company, are wholly-owned by Mr. Sze Tin Yau and Mr. Wu Jinbiao, our executive Directors, respectively. Kingom Power Limited and Winwett Investments Limited and their respective associates, are required to abstain from voting in respect of the ordinary resolutions proposed for approval at the EGM. To the best knowledge of the Company after having made all reasonable enquiries, at the Latest Practicable Date, there were no other Shareholders (save as disclosed above) who were required to abstain from voting in respect of the ordinary resolution proposed to be considered and (if thought fit by the Shareholders) approved at the EGM.

A form of proxy for use at the EGM is also enclosed. Whether or not you are unable to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event no later than 48 hours before the time for EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM 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 of the Company must be taken by way of poll. Accordingly, the resolutions to be considered and, if thought fit, approved at the EGM will be voted on by way of poll by the Independent Shareholders. After conclusion of the EGM, the poll results announcement will be published on the respective websites of the Stock Exchange and the Company.

– 21 –

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 23 to 24 of this circular. Your attention is also drawn to the letter of advice from CMB International Capital Limited to the Independent Board Committee and the Independent Shareholders in respect of the same matters, which is set out on pages 25 to 40 of this circular.

The Independent Board Committee, after taking into account the advice from CMB International Capital Limited, is of the opinion that the terms of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements are fair and reasonable so far as the Company is concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends that the Independent Shareholders vote in favour of the resolutions set out in the notice of the EGM for the approval of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements, and the approval and ratification of the Revised Sales Agreement I 2011 Cap.

ADDITIONAL INFORMATION

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

Yours faithfully, Billion Industrial Holdings Limited Sze Tin Yau Chairman

– 22 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

BILLION INDUSTRIAL HOLDINGS LIMITED 百宏實業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2299)

5 March 2012

To the Independent Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS REVISED ANNUAL CAP REVISED SALES AGREEMENTS REVISED PURCHASE AND PROCESSING AGREEMENTS I PURCHASE AND PROCESSING AGREEMENTS II

We refer to the circular of the Company dated 5 March 2012 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires.

Under the Listing Rules, the transactions contemplated under the Revised Sales Agreements and the Baikai Purchase and Processing Agreements are subject to reporting, announcement and Independent Shareholders’ approval requirements; and as the actual transaction amount under the Sales Agreement I for the year ended 31 December 2011 exceeded the annual cap set out in such agreement, the Company is required to re-comply with the reporting, announcement and Independent Shareholders’ approval requirement.

We have been appointed as the Independent Board Committee by the Board to consider and advise the Independent Shareholders as to whether the terms of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements, and the Revised Sales Agreement I 2011 Cap are fair and reasonable, and in the interests of the Company and its Shareholders as a whole. CMB International Capital Limited has been appointed as the independent financial adviser to advise us and the Independent Shareholders.

– 23 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board and the letter from CMB International Capital Limited as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, CMB International Capital Limited as set out in its letter of advice, we consider that the terms of the Revised Sales Agreements and the Baikai Purchase and Processing Agreements are on normal commercial terms and in the ordinary and usual course of business of the Company and are fair and reasonable and in the interest of the Company and shareholders as a whole. We also consider that the Revised Sales Agreement I 2011 Cap is fair and reasonable.

Accordingly, we would recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Revised Sales Agreements, the Baikai Purchase and Processing Agreements and the Revised Sales Agreement I 2011 Cap.

Yours faithfully, For and on behalf of

Independent Board Committee Mr. Yeung Chi Tat Ms. Zhu Meifang Mr. Ma Yuliang Independent Independent Independent non-executive Director non-executive Director non-executive Director

– 24 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

The following is the full text of the letter of advice from CMB International to the Independent Board Committee and the Independent Shareholders for incorporation in this circular.

==> picture [105 x 34] intentionally omitted <==

Units 1803-4, 18/F, Bank of America Tower 12 Harcourt Road, Central, Hong Kong

5 March 2012

To the Independent Board Committee and the Independent Shareholders

Dear Sir,

CONTINUING CONNECTED TRANSACTIONS REVISED ANNUAL CAP REVISED SALES AGREEMENTS REVISED PURCHASE AND PROCESSING AGREEMENTS I PURCHASE AND PROCESSING AGREEMENTS II

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the terms and the proposed annual caps for the Revised Sale Agreements and Baikai Purchase and Processing Agreements (together, the “CCT”), and the ratification of the Revised Sales Agreement I 2011 Cap (the “Revised 2011 Cap”), details of which are contained in the letter from the board (the “Letter from the Board”) of the circular dated 5 March 2012 (the “Circular”) issued by the Company, of which this letter forms part. Unless otherwise stated, terms used herein shall have the same meanings as those defined in the Circular. We recommend the Independent Board Committee to advise the Independent Shareholders to read this Circular carefully before they decide to vote for or against the CCT and the Revised 2011 Cap.

– 25 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

On 10 February 2012, Billion Fujian entered into the Revised Sales Agreements with Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper respectively, pursuant to which Billion Fujian will continue to supply its products to Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper for the three years ending 31 December 2014. On the same day, Baikai Paper entered into (i) the Revised Purchase and Processing Agreements I with Billion Fujian, pursuant to which Baikai Paper will continue to provide paper boxes, rolls and polyfoam boards and related processing services to Billion Fujian for the three years ending 31 December 2014, and (ii) the Purchase and Processing Agreements II with Billion High-tech Material, pursuant to which Baikai Paper will supply paper boxes and rolls and related processing services to Billion High-tech Material for the three years ending 31 December 2014.

Each of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper is a wholly foreign-owned subsidiary of Baikai H.K., which in turn is wholly-owned by Mr. Lin, who is a brother-in-law of both Mr. Sze Tin Yau and Mr. Wu Jinbiao, both being the executive Directors. Mr. Lin controls the exercise of 100% of the voting power at general meetings and is the sole director of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper. Accordingly, each of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper is an associate of Mr. Sze Tin Yau and Mr. Wu Jinbiao and therefore a connected person of the Company. Accordingly, the transactions under the Revised Sales Agreements and the Baikai Purchase and Processing Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As Mr. Sze Tin Yau and Mr. Wu Jinbiao are considered to be materially interested in such agreements, they have abstained from voting on the board resolutions for approving such agreements.

We, CMB International Capital Limited (“CMBI”), have been appointed as the independent financial adviser by the Company to advise the Independent Board Committee, which comprises all the independent non-executive Directors, namely Mr. Yeung Chi Tat, Ms. Zhu Meifang, and Mr. Ma Yuliang, and Independent Shareholders, on the terms of the CCT and the transactions contemplated thereunder and the Revised 2011 Cap. Our opinion only applies to the terms of the CCT and the transactions contemplated thereunder and the Revised 2011 Cap. Other continuing connected transactions are not within the scope of our work.

– 26 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

BASES OF OUR OPINION

In formulating our recommendation, we have relied, without assuming any responsibility for independent verification, on the information, opinions and facts supplied and representations made to us by the Company, who have assumed full responsibility for the accuracy of the information contained in this circular and that any information and representations made to us are true, accurate and complete in all material respects as at the date hereof and that they may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company. We have discussed with the management of the Company regarding their plans and prospects of the Company. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We have studied the relevant market and other conditions and trends relevant to the pricing of transactions contemplated under the CCT. We have also assumed that statements and representations made or referred to in this circular were accurate at the time they were made and continue to be accurate up to the date of the EGM. We consider that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our advice. It is not within our terms of engagement to comment on the commercial feasibility of the CCT, which remains the responsibility of the Directors. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, we have not been involved in the negotiations in respect of the terms of the CCT.

Our opinion is necessarily based upon the financial, economic, market, regulatory, and other conditions as they exist on, and the facts, information, and opinions made available to us as of the date of this letter. We have no obligation to update this opinion to take into account events occurring after the date on which this opinion is delivered to the Independent Board Committee and the Independent Shareholders, This letter is solely for the information of the Independent Board Committee and the Independent Shareholders, in connection with their consideration of the CCT and the Revised 2011 Cap, and is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purpose, without our prior written consent.

CMBI is a licensed corporation to carry out regulated activities of dealing in securities and advising on corporate finance under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”). CMBI and its affiliates, whose ordinary business involves the trading of, dealing in and the holding of securities, may be involved in the trading of, dealing in, and the holding of the securities of the Company for client accounts.

– 27 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons we have taken into account in assessing the terms of the CCT and the transactions contemplated thereunder (including the annual caps) and the Revised 2011 Cap in giving our recommendation to the Independent Board Committee and the Independent Shareholders are set out below:

1. Background of and reasons for entering into the CCT

The Group is principally engaged in the development and manufacturing of polyester filament yarns in the PRC, including drawn textured yarn, or DTY, and fully drawn yarn, or FDY, the two main polyester filament yarns, which have a variety of end applications in consumer products, including apparel, footwear and home furnishings. It also produces partially oriented yarn, or POY, which may be used as a raw material for our DTY or sold separately to its customers.

As disclosed in the Prospectus, the Group’s sales are primarily focused in south China and was the largest manufacturer in terms of both designed capacity of DTY and designed capacity of FDY and POY in south China in 2010. Its customers include many leading Chinese fabric and textile manufacturers who provide high-quality fabrics and textiles to domestic and international branded apparel companies, including several companies listed in Hong Kong and in the PRC. Revenues of the Group were approximately RMB2.1 billion, RMB3.0 billion, and RMB4.3 billion for each of the three years ended 31 December 2008, 2009 and 2010.

According to the Prospectus, the apparel and footwear industries are expected to experience rapid growth in south China and, in particular, Fujian and Guangdong provinces are expected to grow from representing 33.3% of the PRC’s entire production volume in 2009 to representing 45.0% of the PRC’s entire production volume by 2015. The demand for polyester filament yarns in south China is expected to continually increase and a supply shortage of polyester filament yarns will continue for the coming years in south China. As advised by the Directors, they are of the view that the outlook of the expanding polyester filament yarn industry and partially oriented yarn industry looks positive, and the prices of DTY, FDY, and POY are expected to increase. Thus, the Directors expect a significant growth in the business of Group in the future.

– 28 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

As stated in the Letter from the Board, the Sales Agreements and the Purchase Agreement and Processing Agreements I were signed on 31 March 2011. As disclosed in the Prospectus, the transactions contemplated under such agreements have been in place since 2008 and were in the ordinary and usual course of business of the Group.

As the Board anticipates an increasing trend in the selling price and sales volume of the relevant products to Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper in the coming two years and expects the transaction amounts under the Sales Agreements for each of the two years ending 31 December 2012 and 2013 will exceed the respective annual caps set out in such agreements, Billion Fujian therefore entered into the Revised Sales Agreements with Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper respectively to increase the annual caps for the transactions thereunder for each of the two years ending 31 December 2012 and 2013. In order to avoid unnecessary administrative costs and inconvenience in the future, the parties also set out the annual caps for the transactions thereunder for the year ending 31 December 2014 in the Revised Sales Agreements.

As stated in the Letter from the Board, the Board also anticipates an increase in the price of, and the demand for the products and services by Billion Fujian from Baikai Paper, under the Purchase and Processing Agreements I in the future, as well as an expansion of product type and related services to be provided by Baikai Paper to Billion Fujian, which may exceed the respective annual caps set out in such agreements. Therefore, Billion Fujian entered into the Revised Purchase and Processing Agreements I with Baikai Paper to increase the annual caps for the transactions thereunder for each of the two years ending 31 December 2012 and 2013. In order to avoid unnecessary administrative costs and inconvenience in the future, the parties also set out the annual caps for the transactions thereunder for the year ending 31 December 2014 in the Revised Purchase and Processing Agreements I.

Due to the anticipated demand for paper boxes and rolls and related processing services after the commercial production of Billion High-tech Material, an indirect whollyowned subsidiary of the Company, commences in May 2012, Billion High-tech Material entered into the Purchase and Processing Agreements II with Baikai Paper on 10 February 2012, pursuant to which Baikai Paper agreed to provide paper boxes and rolls, as well as related processing services to Billion High-tech Material. As stated in the Letter from the Board, after taking into consideration the high quality and suitability of the products and services provided by Baikai Paper, and the close proximity between production base of Baikai paper and the Group, which allows timely delivery and minimizes delivery costs, the Board believes it is in the interest of the Group to enter into the Baikai Purchase and Processing Agreements with Baikai Paper.

– 29 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

The Directors considers that the supply of products to Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper, and the purchase of products and related processing services from Baikai Paper are in consistence with the business objectives of the Group, and the Group would continue the existing transactions between Billion Fujian and Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper and engage in the new continuing connected transactions between Billion High-tech Material and Baikai Paper. As noted in the Letter from the Board, the Directors consider that the CCT have been entered into on an arm’s length basis in the ordinary and usual course of business and on normal commercial terms which are no less favourable than the terms available from independent customers and suppliers, and the terms of the CCT are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Having considered the facts that (i) the transactions contemplated under the Sales Agreements and the Purchase and Processing Agreements I, which were signed on 31 March 2011, have been in place since 2008; (ii) the transactions thereunder are within the ordinary and usual course of the Group’s business; and (iii) the positive outlook of apparel and footwear industries in south China, which would directly benefit the polyester filament yarns and partially oriented yarn industry, we consider that it is commercially justifiable for the Group to continue the existing continuing connected transactions under the Sales Agreements and the Purchase and Processing Agreements I, and engage in new transactions under the Purchase and Processing Agreements II.

2. Principal terms of the CCT

(i) Revised Sales Agreements

Term and termination

Under the Revised Sales Agreements, Billion Fujian agreed to provide certain products to the respective counter parties. Pursuant to (i) the Revised Sales Agreement I, Billion Fujian agreed to provide DTY, FDY and POY to Baikai Elastic Weaving; (ii) the Revised Sales Agreement II, Billion Fujian agreed to provide DTY and FDY to Baikai Wrap Knitting; (iii) the Revised Sales Agreement III, Billion Fujian agreed to provide semi-dull PET chips, POY and spin finish oil to Baikai Textile; and (iv) the Revised Sales Agreement

– 30 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

IV, Billion Fujian agreed to provide DTY to Baikai Zipper. The transactions contemplated thereunder will be conducted on a non-exclusive basis. According to such agreements, for each subsequent sales transaction, the parties shall sign and execute a separate sale contract which shall set out terms such as the name of the products, the quantity and the selling price.

As advised by the Company, the terms of the Revised Sales Agreements are substantially the same as that of in the Sales Agreements. The Revised Sales Agreements will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian subject to compliance with applicable requirements of the Listing Rules. Upon the effectiveness of the Revised Sales Agreements, the Sales Agreements shall be terminated with retrospective effect from 1 January 2012.

Billion Fujian is entitled to terminate the Revised Sales Agreements with prior written notice subject to compliance with applicable requirements of the Listing Rules and the term of such agreements can be extended by mutual agreement. We note that the three-year term for the Revised Sales Agreements is in compliance with the requirements under the Listing Rules.

Price Determination

As noted in the Revised Sales Agreements, the prices for the sales of the relevant products are to be agreed between Billion Fujian and the respective counter parties from time to time after arm’s length negotiation and are comparable to market prices of similar products that Billion Fujian sell to other independent third parties.

– 31 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

(ii) Baikai Purchase and Processing Agreements

Term and termination

Pursuant to the Revised Purchase and Processing Agreements I and the Purchase and Processing Agreements II, Billion Fujian and Billion High-tech Material agreed to purchase paper boxes, rolls and polyfoam boards and related processing services from Baikai Paper on a non-exclusive basis. In accordance with the Baikai Purchase and Processing Agreements, for each subsequent purchase transaction, both parties shall sign and execute a separate sale contract which shall set out the terms such as, the name of the products and services, the quantity and the purchase price.

As advised by the Company, terms of the Revised Purchase and Processing Agreements I and the Purchase and Processing Agreements II are substantial the same on the basis of the terms of the Purchase and Processing Agreements I. The Baikai Purchase and Processing Agreements will become effective upon approval by the Independent Shareholders, and is for a term of three years from 1 January 2012 to 31 December 2014 and is renewable for a further term of three years at the option of Billion Fujian and Billion High-tech Material (as appropriate) subject to compliance with applicable requirements of the Listing Rules. Upon the effectiveness of the Revised Purchase and Processing Agreements I, the Purchase and Processing Agreements I shall be terminated with retrospective effect from 1 January 2012.

Billion Fujian and Billion High-tech Material are entitled to terminate the Revised Purchase and Processing Agreements I and Purchase and Processing Agreements II, respectively, with prior written notice subject to compliance with applicable requirements of the Listing Rules and the term of such agreements can be extended by mutual agreement. We note that the threeyear term for the Baikai Purchase and Processing Agreements is in compliance with the requirements under the Listing Rules.

Price Determination

As noted in the Baikai Purchase and Processing Agreements, the prices for the purchase of the relevant products and services from Baikai Paper are to be agreed between the relevant contracting parties from time to time after arm’s length negotiation and are comparable to market prices of similar products that Billion Fujian and Billion High-tech Material purchase from other independent third parties.

– 32 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

Our View

As noted from the Letter from the Board, the prices of the relevant products and services of the transactions contemplated under the CCT are agreed between Billion Fujian and the relevant parties from time to time after arm’s length negotiation and are comparable to the market prices of similar products and services Billion Fujian buy from or sell to (as the case may be) independent third parties.

In order to assess whether the prices and terms of the CCT are comparable to those between Billion Fujian and other independent third parties, we have, on a sample basis, selected and reviewed the sales contracts and invoices of (i) products provided or purchased by Billion Fujian, under the Sales Agreements, and Purchase and Processing Agreements I, and (ii) similar products provided or purchased by other independent third parties for the year ended 31 December 2011 and understand that the actual transactions under the Sales Agreements, and Purchase and Processing Agreements I, for the year ended 31 December 2011 were conducted in accordance with the pricing policies therein.

Based on the above, we concur with the Directors’ view that the terms of the CCT are on commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3. Annual Cap Amounts

The original total annual caps for the Sales Agreements and Purchase and Processing Agreements I, and the actual utilization amounts for the year ended 31 December 2011 are set as below:

		Actual
		transaction
		amount for the	Original annual
		year ended	caps for the	Utilization of
		31 December	year ended	the original
		2011	31 December	annual caps
CCT		(unaudited)	2011	2011
		(RMB)	(RMB)	(%)
Sales	Agreements	356,495,712	378,000,000	94.3
(i)	Sales Agreement I	79,990,887	77,000,000	103.9
(ii)	Sales Agreement II	117,731,223	118,000,000	99.8
(iii)	Sales Agreement III	150,774,406	175,000,000	86.2
(iv)	Sales Agreement IV	7,999,196	8,000,000	100.0
Purchase and Processing
Agreements I		93,169,576	96,000,000	97.1

– 33 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

According to the unaudited management accounts of the Group, the actual transaction amount under Sales Agreement I for the year ended 31 December 2011 exceeded the annual cap of RMB77,000,000 by approximately RMB2,991,000, and the actual transaction amounts under the other Sales Agreements and Purchase and Processing Agreements I were close to the respective original annual caps for the year ended 31 December 2011. The Directors consider that existing annual caps under the Sales Agreements and Purchase and Processing Agreements I for each of the two years ending 31 December 2012 and 2013 may not be sufficient for the Group in the future, therefore, they propose to revise such annual caps. To avoid unnecessary administrative costs and inconvenience in the future, the Directors also propose to set out the annual caps for the year ending 31 December 2014 in the CCT. The table below sets out the annual caps for the transactions under the CCT for each of the three years ending 31 December 2012, 2013 and 2014:

		Annual caps for the year ending 31 December	Annual caps for the year ending 31 December	Annual caps for the year ending 31 December
CCT		2012	2013	2014
		(RMB)	(RMB)	(RMB)
Revised Sales Agreements		527,100,000	617,600,000	710,700,000
(i)	Revised Sales Agreement I	140,500,000	172,900,000	199,800,000
(ii)	Revised Sales Agreement II	183,400,000	218,700,000	255,600,000
(iii)	Revised Sales Agreement III	194,200,000	216,400,000	245,000,000
(iv)	Revised Sales Agreement IV	9,000,000	9,600,000	10,300,000
Baikai	Purchase and
Processing Agreements		303,100,000	421,900,000	552,100,000
(i)	Revised Purchase and
	Processing Agreements I	287,700,000	395,000,000	465,900,000
(ii)	Purchase and Processing
	Agreements II	15,400,000	26,900,000	86,200,000

As noted in the Letter from the Board, the annual caps are estimated with reference to the actual transaction amounts under the Sales Agreements and the Purchase and Processing Agreements I for the year ended 31 December 2011, the estimated price trend of the Group’s products in the coming years, the estimated demand for the Groups’ products and services, the expansion plan of the Group, the historical growth trend of the business of the Group and the internal forecasts of the forthcoming demands in the three years ending 31 December 2012, 2013 and 2014.

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LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

Based on the discussion with the management of the Company, we understand that the annual caps are estimated based on:

• (i) The actual transaction amounts for the year ended 31 December 2011;

• (ii) The Directors’ view that the outlook of the expanding polyester filament yarn industry and partially oriented yarn industry is positive and the prices of DTY, FDY and POY are expected to increase. Thus, the Directors expect a significant growth in the sales for the three years ending 31 December 2012, 2013 and 2014;

• (iii) The expansion plan of the production capacity of Billion Fujian and Billion High-tech Material, the anticipated increase in the production capacities of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile and Baikai Zipper and the demands for their products, as well as the anticipated increase in demands for the relevant products and related processing services from Baikai Paper; and

• (iv) The historical growth trend of the Group’s revenue.

Our analysis

According to the National Bureau of Statistics of China（中華人民共和國 國家統計局）, the national retail amount on apparel and textile has increased from approximately RMB462.2 billion in 2009 to approximately RMB795.5 billion in 2011, which represents a compound annual growth rate of approximately 31.2%. Furthermore, the 化纖工業「十二五」發展規劃 (the twelfth five-year plan of chemical fiber industry of the PRC), issued by the Ministry of Industry and Information Technology of the PRC on 19 January 2012, stated that the apparel market will continue to expand as a result of the economic growth of the country and the growing affluence. The demand for chemical fiber, being one of the most important raw materials to the apparel industry, will continue to increase with the expanding apparel market.

In the light of the rapid expansion of the national retail amount on apparel and textile, the Directors consider there would be a strong demand for the polyester filament yarn, which is an important raw material for the apparel and textile products, and the demand would drive up the prices of the polyester filament yarn.

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LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

According to the China Plastic Packaging Website（中國塑料包裝網）, the global sales of the plastic packaging products will reach approximately 1.8 million tonnes in 2011 and approximately 2.3 million tonnes in 2016, representing a compound annual growth rate of approximately 4.1%. The demand of BOPET, a product which is environmental friendly with strong insulation properties, is expected to soar in the coming years.

As stated in the “Background of and reasons for entering into the CCT”, the Group’s priority is to enhance the sales of its products in order to benefit from the fast-expanding apparel and footwear industries in the PRC. The following table summarizes the breakdown of turnover of the Group for the three years ended 31 December 2008, 2009 and 2010.

Break down of the Group’s turnover for each of the three years ended 31 December 2008, 2009 and 2010

Sales from DTY FDY POY PET Chips and wasted filament Total	Year 2008 Year 2009 (in RMB million) 1,148.9 2,207.1 417.7 358.9 379.5 211.2 167.6 185.8 2,113.6 2,963.1	Year 2010 2,870.6 940.1 122.7 376.3
		4,309.7

The above figures illustrate that the Group’s revenue increased by approximately 40.2%, from approximately RMB2,113.6 million for the year ended 31 December 2008 to approximately RMB2,963.1 million for the year ended 31 December 2009, and further increased by approximately 45.4%, to approximately RMB4,309.7 million for the year ended 31 December 2010. We note that the revenue of the Group for the year ended 31 December 2010 was more than twice of the revenue for the year ended 31 December 2008.

As a result of the rising sales of the Group’s products, the demand for paper boxes, rolls and polyfoams boards and related processing services by Baikai Paper expanded during the same period. The purchase from Baikai Paper under the Purchase and Processing Agreements I amounted to approximately RMB28,389,000, RMB30,975,000 and RMB54,951,000 for each of the three years ended 31 December 2008, 2009 and 2010 according to the Prospectus, and the actual purchase from Baikai Paper under such agreement for the year ended 31 December 2011 increased to RMB93,169,576 according to the unaudited management accounts of the Group.

– 36 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

As disclosed in the Prospectus, the Group’s annual production capacities of FDY, POY and DTY amounted to approximately 400,000 tonnes, 661,000 tonnes, and 710,000 tonnes respectively for each of the year ended 31 December 2008, 2009 and 2010, and the estimated annual production capacities for FDY, POY and DTY will amount to approximately 1,278,000 tonnes for the year ending 31 December 2013, representing a compound annual growth rate of approximately 15.8% as compared with that of in 2010. In addition, upon the commencement of the commercial production of Billion High-tech Material in May 2012, the Board expects to have an annual production capacity for BOPET of approximately 36,500 tonnes for each of the two years ending 31 December 2012 and 2013, and annual capacity for polyester melt of approximately 255,000 tonnes for the year ending 31 December 2014, which will be used directly in (i) the production of BOPET, which has an annual production capacity of approximately 182,500 tonnes, and (ii) the production of BOPET chips, which has an annual production capacity of approximately 72,500 tonnes.

Due to the expansion plan of the production lines as set out above, the Group would demand and purchase more paper boxes and rolls, and related processing services, and as noted from the Letter from the Board, the paper boxes, rolls and polyfoam boards produced or processed by Baikai Paper are of high quality, while its production base is in close proximity to the Group, which allows timely delivery and minimizes delivery costs. Therefore, purchases under the Baikai Purchase and Processing Agreements are expected to expand.

Based on (i) the historical growth trend in the sales of the Group from 2008 to 2010; (ii) the bases for estimating the annual caps as discussed above; (iii) the actual utilization of the annual caps for the year ended 31 December 2011; (iv) the positive outlook of the apparel and textile industry; (v) the expected rising demand and price trend of the polyester filament yarn products; (vi) the positive outlook of the BOPET industry, and (vii) the Group’s future expansion plan, we concur with the Directors’ view that the basis for determining the annual caps of the CCT is fair and reasonable so far as the Company and the Shareholders are concerned. However, as the annual caps relate to future events and are based on assumptions that may or may not remain valid for the entire period up to 31 December 2014, we express no opinion as to how closely the actual transaction amount of the CCT corresponds with the annual caps.

– 37 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

Conditions

Pursuant to the Listing Rules, the Company will seek approval from the Independent Shareholders for the CCT (including the annual caps) for each of the three years ending 31 December 2012, 2013 and 2014 subject to the following conditions:

1. The transactions contemplated under the CCT will be:

2. a. entered into in the ordinary and usual course of the business of the Group;

3. b. conducted on normal commercial terms or, if there are no sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available for independent purchasers or suppliers; and

4. c. entered into in accordance with the terms of the CCT, which are fair and reasonable and in the interests of the Company and the Shareholders as a whole;

5. the aggregate amount of the sales under the Revised Sales Agreements for each of the three years ending 31 December 2012, 2013 and 2014 shall not exceed RMB527.1 million, RMB617.6 million and RMB710.7 million, respectively; and the aggregate amount of the purchase under the Baikai Purchase and Processing Agreements for each of the three years ending 31 December 2012, 2013 and 2014 shall not exceed RMB303.1 million, RMB421.9 million and RMB552.1 million, respectively; and

6. the Company will comply with all other relevant requirements under the Listing Rules.

– 38 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

Taking into account of the conditions attached to the CCT, in particular (i) the restrictions by way of setting the annual caps; and (ii) the compliance with all other requirements under the Listing Rules (which include the annual review and/or confirmation by the independent non-executive Directors and auditors of the Company on the actual execution of the CCT pursuant to the Rule 14A.37 and 14A.38 of the Listing Rules), we consider that the Company has taken appropriate measures to govern the Company in carrying out the CCT, thereby safeguarding the interests of the Shareholders thereunder. In particular, we note that the CCT are, by virtue of the requirements of Rule 14A.37 of the Listing Rules, conditional upon being carried out by the Company in the ordinary and usual course of the Company and its business, on normal commercial terms, fair and reasonable and in the interests of the Shareholders as a whole.

The Revised 2011 Cap

As stated in the Letter from the Board, immediately after discovery of the excess of the annual cap for the transactions under the Sales Agreement I for the year ended 31 December 2011, the Board has taken steps to review all the other continuing connected transactions of the Group. The Board confirms that all of the continuing connected transactions, other than those under the Sales Agreement I, have been in full compliance with the conditions of the waiver granted by the Stock Exchange as disclosed in the Prospectus. To ensure that none of the continuing connected transactions will exceed their respective annual caps in the future, the Board has also requested the relevant purchase and sales departments of the Group to monitor the amount of all the connected transactions of the Group on a monthly basis and to report the same to the chief executive officer of the Company.

Based on our discussion with the Company, we understand that the annual cap of RMB77,000,000 set out in the Sales Agreement I was estimated based on the sales to Baikai Elastic Weaving for the year ended 31 December 2010. As explained by the Directors, the demand for the relevant products, especially colored filament yarn, increased sharply in 2011 as compared to that of in 2010, which in turn drove up the average selling price and sales volume. The actual transaction amount under the Sales Agreement I for the year ended 31 December 2011 therefore exceeded the original annual cap by RMB2,991,000, which represented approximately 3.9% of the original annual cap.

– 39 –

LETTER FROM CMB INTERNATIONAL CAPITAL LIMITED

We have, on a sample basis, selected and reviewed the sales contracts and invoices of (i) products provided by Billion Fujian to Baikai Elastic Weaving, under the Sales Agreements I and (ii) similar products provided by Billion Fujian to other independent third parties for the year ended 31 December 2011 and understand that the actual transactions for the year ended 31 December 2011 under the Sales Agreement I were conducted in accordance with the pricing policies therein.

Based on above and the steps taken by the Company to improve its internal control to avoid reoccurrence of similar incidents, we concur with the Directors’ view that it is justifiable to approve the Revised 2011 Cap.

RECOMMENDATION

Having considered the above factors, we consider that the CCT are on normal commercial terms, in the ordinary and usual course of business of the Group, and the CCT and the Revised 2011 Cap are in the interest of the Company and the Shareholders as a whole and are fair and reasonable so far as the Company and the Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to approve the CCT and the Revised 2011 Cap at the EGM.

Yours faithfully, For and on behalf of

CMB International Capital Limited Anthony Ng

Director

Investment Banking Division

– 40 –

GENERAL INFORMATION

APPENDIX

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. DISCLOSURE OF INTERESTS

(a) Interests and short positions of the Directors in the share capital and associated corporations of the Company as at the Latest Practicable Date

As at the Latest Practicable Date, the interests or short positions of the Directors and the chief executive in the Shares, underlying Shares and debentures of the associated corporations of the Company, within the meaning of Part XV of the SFO which will have 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 he is taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be recorded in the register referred to therein or which will be required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, will be as follows:

Interests and short positions in the Shares, underlying Shares and debentures and associated corporations:

			Percentage of
		Number of	issued share
Name of Director/		Shares as	capital as
Chief Executive		at the Latest	at the Latest
Officer	Capacity	Practicable Date	Practicable Date
Mr. Sze Tin Yau	Interested in	862,125,000	37.5%
	controlled
	incorporation
Mr. Wu Jinbiao	Interested in	862,125,000	37.5%
	controlled
	incorporation

– 41 –

GENERAL INFORMATION

APPENDIX

• (b) Interests and short positions discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, so far as the Directors are aware, the following persons have interests or short positions in the Shares or underlying Shares which are required to be disclosed to the provisions of Divisions 2 and 3 of Part XV of the SFO or, are directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

Interests and short positions in the Shares and underlying Shares:

			Percentage of
		Number of	issued share
		Shares as	capital as
		at the Latest	at the Latest
Name of Shareholder	Capacity	Practicable Date	Practicable Date
Mr. Sze Tin Yau	Interested in the	862,125,000	37.5%
	controlled
	incorporation
Kingom Power Limited	Beneficial owner	862,125,000	37.5%
Mr. Wu Jinbiao	Interested in the	862,125,000	37.5%
	controlled
	incorporation
Winwett Investments Limited	Beneficial owner	862,125,000	37.5%

3. SERVICE AGREEMENTS

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

– 42 –

GENERAL INFORMATION

APPENDIX

4. QUALIFICATIONS AND CONSENT OF EXPERT

The following is the qualifications of the experts or professional advisers who have given opinion or advice contained in this circular:

Name Qualifications CMB International Capital Limited a licensed corporation licensed under the SFO to conduct type 1 (dealing in securities) of the regulated activities under the SFO and type 6 (advising on corporate finance)

CMB International Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

The letter and recommendation given by CMB International Capital Limited are given as of the date of this circular for incorporation herein.

As at the Latest Practicable Date, CMB International Capital Limited does not have any shareholding in or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company.

As at the Latest Practicable Date, CMB International Capital Limited did not have any interest, direct or indirect, in any assets since 31 December 2010, being the date to which the latest published audited accounts of the Company were made up, have been acquired or disposed of by or leased to the Company, or are proposed to be acquired or disposed or by or leased to the Company.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2010, being the date to which the latest published audited financial statements of the Company were made up, which was disclosed in the Prospectus.

6. COMPETING INTEREST

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

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GENERAL INFORMATION

APPENDIX

7. INTEREST OF DIRECTORS

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

As stated in this circular, each of Baikai Elastic Weaving, Baikai Wrap Knitting, Baikai Textile, Baikai Zipper and Baikai Paper, the counter parties to the Revised Sales Agreements and the Baikai Purchase and Processing Agreements, is an associate of Mr. Sze Tin Yau and Mr. Wu Jinbiao, being executive Directors of the Company. Therefore, Mr. Sze Tin Yau and Mr. Wu Jinbiao are considered to be materially interested in such agreements. Accordingly, Mr. Sze Tin Yau and Mr. Wu Jinbiao have abstained from voting on the board resolutions for approving such agreements. Save as disclosed above, no contract or arrangement in which a Director was materially interested and which was significant in relation to the business of the Group subsisted as at the Latest Practicable Date.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at Unit 1501, Office Tower Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong during normal business hours from 5 March 2012 up to and including 19 March 2012:

• (a) the Sales Agreements;

• (b) the Purchase and Processing Agreements I;

• (c) the Revised Sales Agreements;

• (d) the Revised Purchase and Processing Agreements I;

• (e) the Purchase and Processing Agreements II;

• (f) the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 23 to 24 this circular;

• (g) the letter of advice from CMB International Capital Limited, the text of which is set out on pages 25 to 40 of this circular; and

• (h) the written consent from CMB International Capital Limited referred in paragraph 4 of this appendix.

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GENERAL INFORMATION

APPENDIX

9. MISCELLANEOUS

• (a) The principal registrar of the Company is Butterfield Fulcrum Group (Cayman) Limited, Butterfield House, 68 Fort Street, P.O. Box 609, Grand Cayman KY1-1107, Cayman Islands.

• (b) The Hong Kong branch share registrar is Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (c) In case of inconsistency, the English text of this circular and the enclosed form of proxy shall prevail over its Chinese text.

– 45 –

NOTICE OF THE EGM

BILLION INDUSTRIAL HOLDINGS LIMITED 百宏實業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2299)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY given that the Extraordinary General Meeting of Billion Industrial Holdings Limited (the “Company”) will be held at Regus Conference Centre, 35/F., Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on Tuesday, 10 April 2012 at 11:30 a.m. to consider and, if thought fit, pass with or without amendments, the following resolutions as ordinary resolutions of the Company:–

ORDINARY RESOLUTIONS

1. THAT the revised annual cap of RMB79,991,000 for the year ended 31 December 2011 for the transactions under the Sales Agreement I (as defined in the circular of the Company dated 5 March 2012) be and is hereby approved, confirmed and ratified;

2. THAT the annual caps of RMB527,100,000, RMB617,600,000 and RMB710,700,000 for each of the three years ending 31 December 2012, 2013 and 2014 for the transactions under the Revised Sales Agreements (as defined in the circular of the Company dated 5 March 2012) be and are hereby approved and confirmed; and

3. THAT the annual caps of RMB303,100,000, RMB421,900,000 and RMB552,100,000 for each of the three years ending 31 December 2012, 2013 and 2014 for the transactions under the Baikai Purchase and Processing Agreements (as defined in the circular of the Company dated 5 March 2012) be and are hereby approved and confirmed.

By Order of the Board Billion Industrial Holdings Limited Sze Tin Yau Chairman

Hong Kong, 5 March 2012

– 46 –

NOTICE OF THE EGM

Principal place of business in Hong Kong:

Unit 1501

Office Tower Convention Plaza

• 1 Harbour Road

Wanchai

Hong Kong

Notes:

• (a) At the extraordinary general meeting, the chairman of the meeting will put each of the above resolutions to be voted by way of a poll pursuant to requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong.

• (b) Any member entitled to attend and vote at the extraordinary general meeting is entitled to appoint another person as his proxy to attend and vote in his stead. A proxy need not be a member of the Company. A Shareholder who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the extraordinary general meeting. A form of proxy for use in connection with the extraordinary general meeting is enclosed with the circular to shareholders dated 5 March 2012.

• (c) Where there are joint registered holders of any share in the issued share capital of the Company, any one of such persons may vote at the extraordinary general meeting, either personally or by proxy, in respect of such share as if he/she/it were solely entitled thereto; but if more than one of such joint holders be present at the extraordinary general meeting, the vote of the senior holder who tenders a vote, whether in personal or by proxy, shall be accepted to the exclusion of the notes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of such joint holding.

• (d) To be valid, the instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority must be lodged with the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time fixed for holding of the extraordinary general meeting or any adjourned meeting.

As at the date of this notice, the Board comprises Mr. Sze Tin Yau, Mr. Wu Jinbiao, Mr. Wu Jianshe and Mr. He Wenyao as executive directors, Mr. Yeung Chi Tat, Ms. Zhu Meifang and Mr. Ma Yuliang as independent non-executive directors.

– 47 –