China Energy Development Holdings Limited — Proxy Solicitation & Information Statement 2006

Oct 27, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in HON PO GROUP (LOBSTER KING) LIMITED, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 228)

DISCLOSEABLE TRANSACTION

27 October 2006

CONTENTS

	Pages
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
RESPONSIBILITY STATEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
APPENDIX: GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11

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DEFINITIONS

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

“Achieve Smart”	Achieve Smart Finance Limited, a company incorporated in
	the British Virgin Islands on 2 January 2002 with limited
	liability
“Acquisition”	the acquisition of 100% equity interest in Achieve Smart and
	the Shareholder’s Loan from Mr. Tong by Silverwise pursuant
	to the Agreement
“Agreement”	the agreement dated 10 October 2006 entered into between
	Silverwise and Mr. Tong in relation to the Acquisition
“associate(s)”	has the meaning ascribed thereto under the Listing Rules
“Board”	the board of Directors
“Company”	Hon Po Group (Lobster King) Limited, a company incorporated
	in the Cayman Islands, the shares of which are listed on the
	Stock Exchange
“Directors”	the directors of the Company
“Group”	the Company and its subsidiaries
“Hong Kong”	The Hong Kong Special Administrative Region of the People’s
	Republic of China
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Independent	a party/parties who is/are not a connected person (as defined
Third Party/Parties”	in the Listing Rules) of the Company and who together with
	its ultimate beneficial owner are independent of the Company
	and of connected persons (as defined in the Listing Rules) of
	the Company
“Latest Practicable Date”	25 October 2006, being latest practicable date prior to the
	printing of this circular for ascertaining certain information
	for inclusion in this circular

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DEFINITIONS

“Listing Rules”	The Rules Governing the Listing of Securities on the Stock
	Exchange
“LNG”	liquefied natural gas
“Macau”	The Macau Special Administrative Region of the People’s
	Republic of China
“MNG”	Macau Natural Gas Company Limited, a company established
	in Macau on 17 December 2001 with limited liability
“MOP”	Macau Pataca, the lawful currency of Macau
“Mr. Tong”	Mr. Tong Seak Kan, an Independent Third Party
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Silverwise”	Silverwise Limited, a company incorporated in the British
	Virgin Islands on 25 July 2006 with limited liability, which is
	wholly-owned by the Company
“Shareholder(s)”	the shareholders of the Company
“Shareholder’s Loan”	the shareholder’s loan of HK$10.4 million provided by Mr.
	Tong to Achieve Smart
“Sinopec”	China Petroleum & Chemical Corporation, a joint-stock limited
	company incorporated in the People’s Republic of China with
	limited liability, the shares of which are listed on the Stock
	Exchange
“Sinosky”	Sinosky Energy (Holdings) Company Limited, a company
	established in Macau on 20 September 2006 with limited
	liability
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“%”	per cent

Unless otherwise specified, the MOP amounts shown in this announcement have been translated into the HK$ amount at an exchange rate of MOP1.00 = HK$0.97 for reference purpose only.

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RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 228)

Executive Directors: Mrs. Cheung Lim Mai Tak, Grace Mr. She Hing Chiu Mr. Chan Shi Yung Mr. Chui Kwong Kau Mr. Chan Wai Keung

Non-Executive Director: Mr. Wang Xiang Jun

Independent Non-Executive Directors: Mr. Chang Kin Man Mr. Ip Wing Lun Mr. Zhong Yuan

Registered Office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT Grand Cayman British West Indies

Head Office and Principal Place of Business: Units E and F, G/F, Phase II Kingsway Industrial Building 173-175 Wo Yi Hop Road Kwai Chung New Territories Hong Kong

27 October 2006

To the Shareholders

Dear Sirs or Madams,

DISCLOSEABLE TRANSACTION

I. INTRODUCTION

Reference is made to the Company’s announcement dated 10 October 2006. On 10 October 2006, Silverwise entered into the Agreement with Mr. Tong under which the Group conditionally agreed to acquire 100% equity interest in Achieve Smart and the Shareholder’s Loan from Mr. Tong, at a consideration of HK$10 million. The Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules. The purpose of this circular is to give you further information regarding, among other things, the Acquisition.

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LETTER FROM THE BOARD

II. THE AGREEMENT

Date

10 October 2006

Parties

• (1) Silverwise, as the purchaser, a wholly-owned subsidiary of the Company which is principally engaged in investment holding; and

• (2) Mr. Tong, as the vendor, who, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, is an Independent Third Party.

The Acquisition

1. Assets to be acquired

• (1) 100% equity interest in Achieve Smart; and

• (2) the Shareholder’s Loan (the loan provided by Mr. Tong to Achieve Smart of HK$10.4 million)

2. Consideration

HK$10 million, which shall be paid in cash to Mr. Tong at completion of the Agreement. The consideration will be financed by the Group’s internal resources. The consideration was arrived at after arm’s length negotiation between the Company and Mr. Tong with reference to the investment previously made by Mr. Tong and the prospect of the LNG business of MNG and Sinosky.

3. Business of Achieve Smart

Achieve Smart is a limited liability company incorporated in the British Virgin Islands on 2 January 2002 and is an investment holding company without operation since incorporation and without any material assets and liabilities except for its 40% equity interest in MNG and an advance of HK$10 million to MNG. Such advance to MNG from Achieve Smart was funded by the Shareholder’s Loan.

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LETTER FROM THE BOARD

MNG is a limited liability company established in Macau on 17 December 2001 with a fully paid share capital of MOP1 million (equivalent to approximately HK$970,000). MNG is principally engaged in investment in LNG business in Macau and other neighbouring territories as determined by MNG. MNG has formed a consortium with Sinopec, an Independent Third Party, to bid for the tender plan of the concession of supplying and transmission of natural gas to Macau for a period of 15 years (the “Concession”) in November 2005. The consortium subsequently has been awarded the tender by the government of Macau in July 2006. As a result, MNG has formed a joint venture, Sinosky, with Sinopec for the purpose of carrying out relevant operations in relation to the Concession. Based on the unaudited management accounts of MNG, the unaudited net liability value of MNG as at 30 September 2006 is approximately HK$2,786,000. Based on the unaudited management accounts of MNG, the unaudited loss before and after tax for the year ended 31 December 2004 are approximately HK$849,000 and the unaudited loss before and after tax for the year ended 31 December 2005 are approximately HK$1,536,000.

Sinosky is a limited liability company recently established in Macau on 20 September 2006 with a fully paid share capital of MOP50 million (equivalent to approximately HK$48.5 million), as the joint venture company of MNG and Sinopec in relation to the Concession. Sinosky is owned by MNG as to 50% and Sinopec as to the remaining 50%. Sinosky will be principally engaged in the operation of LNG supply and transmission in relation to the Concession.

At present, Silverwise or the Group does not have any capital commitment or obligation to make further investments in respect of Achieve Smart, MNG and Sinosky. Depending on the future development of LNG business of Sinosky, additional funding, the amount of which cannot be ascertained at present, may be required and it is expected Sinosky may carry out project financing on its own for investment in its LNG business if necessary. In addition to Sinosky’s level project financing, Sinosky, and hence, MNG may or may not require additional capital contribution, in equity or debt, from their respective shareholders. Depending on the proposed financing terms, the Directors would then assess if it is reasonable and beneficial to the Group to make further investments in MNG and Sinosky. Should the Group consider the proposed financing terms as not to be in the best interest to the Group, the Group may not make further investment and the Group’s interest may be then diluted. The Group will make announcement and seek relevant shareholders’ approval in accordance with the Listing Rules as appropriate if the Group is to carry out any further investing activities in relation to MNG and Sinosky.

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LETTER FROM THE BOARD

Based on the unaudited interim report of the Company for the six months ended 30 June 2006 (the “Interim Report”), as at 30 June 2006, the Group had total assets of approximately HK$163.2 million in which cash and bank balances amounted to approximately HK$23.7 million, while the net current liability of the Group amounted to approximately HK$42.6 million. While the Group has sufficient cash to pay the consideration of HK$10 million on completion of the Acquisition, such payment would reduce the working capital of the Group. However, to improve the working capital situation, as disclosed in the Company’s Interim Report, the Group has secured the financial support of one Shareholder, Hon Po Investment Limited, so as to maintain the Group as a going concern for a foreseeable future, including not to demand the repayment for the loan of approximately HK$35.9 million due to such Shareholder which constituted a significant part of the current liabilities of the Group as at 30 June 2006, until the Group has adequate working capital to do so without significantly curtailing its Chinese restaurant operations. Discounting the shareholder’s loan of approximately HK$35.9 million, the Group had net current liabilities of approximately HK$6.7 million, which was mainly attributed to creditors arising from the Chinese restaurant operations of the Group. In respect of the Acquisition’s effect on the Group’s assets and liabilities, the Directors are of the view that the Acquisition would put pressure on the Group’s net current liabilities position. However, in view of the financial support of Hon Po Investment Limited to support the Chinese restaurant operations of the Group, the Directors considered that the Group would be able to continue its existing operations without difficulty, after taking the impact of the Acquisition into account.

Based on the unaudited management accounts of MNG, the unaudited loss after tax of MNG for the year ended 31 December 2005 was approximately HK$1,536,000, and the proportionate 40% share of the Group would be a loss of approximately HK$614,000, which is not substantial as compared to the size of the Group. Accordingly, the Directors considered that, given the small size of the Acquisition, the Acquisition will not give rise to material effect on the earnings of the Group.

Subject to confirmation by the Company’s auditors, it is expected for the Group to adopt equity method to account for the interests in MNG and Sinosky for consolidated financial statement purpose.

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LETTER FROM THE BOARD

The following diagram shows the expected ownership structure of the Group in relation to the Acquisition immediately after completion of the Agreement.

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----- Start of picture text -----

The Group
100%
Silverwise
100%
Achieve Smart
40%
MNG [] Sinopec
50% 50%
Sinosky
----- End of picture text -----*

• The remaining 60% equity interest in MNG are held by Mr. Tong as to 10% and Tenwin (Holdings) Limited, a company established in Macau with limited liability, which is an Independent Third Party, as to 50%.

4. Conditions precedent to completion of the Acquisition

Completion of the Agreement is conditional upon the following conditions being fulfilled:

• (i) the due diligence investigation on Achieve Smart, MNG and Sinosky having been completed to the satisfaction of Silverwise; and

• (ii) the issue of a Macanese legal opinion reasonably satisfactory to Silverwise on, among other things, the legality and ownership of Achieve Smart, MNG and Sinosky and the Concession.

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LETTER FROM THE BOARD

Silverwise may waive all or any of the conditions, but at present, Silverwise does not have the intention to waive any of such conditions. Mr. Tong shall use all best endeavours to ensure that the conditions precedents of the Agreement shall be fulfilled by 29 December 2006. If the conditions precedent to completion of the Agreement have not been satisfied (or otherwise waived) by Silverwise on or before 29 December 2006, the Agreement shall, subject to the liability of any party to the others in respect of any breaches of the terms of the Agreement, be null and void and of no effect, or Silverwise may at its option proceed to completion.

As at the Latest Practicable Date, such conditions have not been fulfilled or waived yet.

5. Completion

Completion of the Agreement shall take place within 7 days after the Agreement has become unconditional or at such other time as shall be mutually agreed by the parties to the Agreement.

III. REASONS FOR THE ACQUISITION

The principal activity of the Company is investment holding. The principal activities of the Group involve the operation of a chain of Chinese restaurants in Hong Kong.

The Directors are of the view that Macau’s energy consumption has experienced steady increase in recent years as driven by the development of its economy. Taking the booming economy of Macau in recent years into consideration, the Directors considered that LNG business in Macau would have a considerable growth potential and the Acquisition is an attractive investment opportunity for the Group and allows the Group to tap the growing prospect of the Macau market. In addition, having considered the inherent volatility of the Chinese restaurant market which could adversely be affected by extraneous circumstances beyond the Group’s control such as the general economic climate and consumer spending patterns in Hong Kong and the outbreak or perceived risks of spread of infectious diseases, the Directors determined that the Group should consider alternative investments with a view to boosting its income base and spread its business risks over time. The Acquisition is considered as an alternative investment for the Company to boost its income base and spread its business risks, while the Group will continue its existing business of operation of Chinese restaurants in Hong Kong. The Directors considered that the Acquisition, if completed, would represent an attractive investment which is less exposed to the risks faced by its existing restaurant business.

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LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) are of the view that the terms of the Agreement are fair and reasonable and in the interest of Shareholders as a whole.

IV. ADDITIONAL INFORMATION

Your attention is also drawn to the appendix headed “General Information” to this circular.

Yours faithfully, By order of the Board

Hon Po Group (Lobster King) Limited Chan Wai Keung

Executive Director and Chief Executive Officer

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GENERAL INFORMATION

APPENDIX

1. INTEREST OF DIRECTORS AND CHIEF EXECUTIVE OF THE COMPANY

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company and their respective associates in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), as required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or as recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

			Approximate
		Number of	% of total
Name of Director	Nature of interest	Shares held	shareholding
		(Note 1)
Mrs. Cheung Lim Mai Tak,	Corporate_(Note 2)_	76,000,000 (L)	2.98%
Grace
Mr. She Hing Chiu	Corporate_(Note 2)_	76,000,000 (L)	2.98%

Note:

• 1 (L) denotes a long position.

• 2 These Shares are beneficially owned by Hon Po Investment Limited, the issued share capital of which is or deemed by virtue of the SFO to be, beneficially owned as to 10.35% by Mrs. Cheung Lim Mai Tak, Grace; as to 17.51% by Mr. Cheung To Sang, the spouse of Mrs. Cheung Lim Mai Tak, Grace; and as to 3.07% by Mr. She Hing Chiu.

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APPENDIX

GENERAL INFORMATION

On 2 June 2006, the Company conditionally granted 25,000,000, 25,000,000 and 25,000,000 share options to each of Mr. Chan Shi Yung, Mr. Chan Wai Keung and Mr. Chui Kwong Kau respectively, all of whom are Directors. The share options give the grantees the right to subscribe for the Shares at the price of HK$1.78 each. These grantees may each exercise up to a maximum of 5,000,000 share options each year over the first 5 years subject to any carry forwards from previous years. However, any share options not so exercised during such first 5 years may be carried forward for exercise until the end of a 10 years term from date of approval by the Shareholders. Pursuant to the Company’s share option scheme, it is provided that options granted to, among other things, a Director and having an aggregate value based on the closing price of the Shares as at the date of the commencement of the share option scheme, in excess of HK$5,000,000 must be subject to the Shareholders’ approval at general meeting. Approval for the grant of these share options will be sought in the forthcoming extraordinary general meeting (“EGM”), which will be held on Thursday, 2 November 2006. A notice convening the EGM has been given to Shareholders on 16 October 2006.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest or short position in any shares, underlying shares or debenture of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under the SFO) or were recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

2. SUBSTANTIAL SHAREHOLDERS

As far as is known to any Directors or chief executive of the Company, there is no person (other than a Director or chief executive of the Company, as disclosed in this circular) known to the Directors, who, as at the Latest Practicable Date, had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of shares carrying rights to vote in all circumstances at general meetings of the Company or any other members of the Group.

3. LITIGATION

As at the Latest Practicable Date, the Company was not engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company.

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GENERAL INFORMATION

APPENDIX

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract with the Company which was not determinable by the Company within one year without payment of compensation other than statutory compensation.

5. COMPETING BUSINESS

As at the Latest Practicable Date, Mrs. Cheung Lim Mai Tak, Grace, the Chairman and an executive director of the Company, is considered to have interests in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group, as defined in the Listing Rules. Mrs. Cheung Lim Mai Tak, Grace is interested in approximately 74% of the issued share capital of Tabo Development Limited, which in turns is interested in approximately 39.13% of the issued share capital of Golden Jumbo Thai Restaurant Limited (“Golden Jumbo”). Golden Jumbo operates a Thai restaurant in Hong Kong. As (i) Golden Jumbo is principally engaged in the provision of Thai food while the Group is principally engaged in the provision of Chinese food; (ii) the Group and Golden Jumbo target different customer groups; and (iii) apart from Mrs. Cheung Lim Mai Tak, Grace, Golden Jumbo is operated by management different from that of the Group, the Group is capable of carrying out its business independently of, and at arm’s length from, the business of Golden Jumbo.

Except as disclosed above, as at the Latest Practicable Date, none of the Directors or their respective associates had any interests in a business which competes or may compete with the businesses of the Group or had any other conflict of interest with the Group.

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GENERAL INFORMATION

APPENDIX

6. GENERAL

• (a) The registered office of the Company is Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, Grand Cayman, British West Indies.

• (b) The head office and principal place of business of the Company in Hong Kong is Units E and F, Ground Floor, Phase II, Kingsway Industrial Building, 173-175 Wo Yip Hop Road, Kwai Chung, New Territories, Hong Kong.

• (c) The Hong Kong share registrar and transfer office of the Company is Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (d) The company secretary and qualified accountant of the Company is Mr. Cheung Wai Shing. Mr. Cheung Wai Shing is a fellow member of both the Hong Kong Institute of Certified Public Accountants and the Association of the Chartered Certified Accountants.

• (e) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

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