China Literature Limited — Proxy Solicitation & Information Statement 2003

Jul 30, 2003

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 your have sold all your shares in China Gas Holdings Limited, you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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.

CHINA GAS HOLDINGS LIMITED 中國燃氣控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(the “Company”)

Executive Directors: Li Xiaoyun (Chairman) Xu Ying (Vice-Chairman) Liu Ming Hui (Managing Director) Zhu Wei Wei Ma Jin Long

Principal Place of Business: 16th Floor AXA Centre 151 Gloucester Road Wan Chai Hong Kong

Non-executive Director: Wu Bang Jie

Independent Non-executive Directors: Zhao Yuhua Mao Er-wan

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

29th July, 2003

To the Shareholders and, for information only,

to the holder of the preference shares

Dear Sir or Madam,

PROPOSED GENERAL MANDATE TO REPURCHASE SHARES AND ISSUE NEW SHARES

INTRODUCTION

The purpose of this circular is to give you information about the ordinary resolutions that will be proposed at the forthcoming annual general meeting of the Company (the “Annual General Meeting” ) to be held on 27th August, 2003. The ordinary resolutions are to enable the directors of the Company (the

* For identification purposes only

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“Directors” ) to exercise the powers of the Company to undertake repurchases of the Company’s fully paid up shares representing up to a maximum of 10% of the existing issued share capital at the date of the ordinary resolution, to grant a general mandate to the Directors to issue new shares and to increase the number of shares which the Directors may issue under their general mandate by the number of shares repurchased.

This document contains the explanatory statement in compliance with the Rules Governing the Listing of Securities (the “Listing Rules” ) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange” ) and to provide you with information of the proposed grant of authority to the Directors for the repurchase of the Company’s shares (the “Repurchase Mandate” ) and to issue shares of the Company.

GENERAL MANDATE TO REPURCHASE AND TO ISSUE SHARES

An ordinary resolution will be proposed at the Annual General Meeting that the Directors be given a general mandate to exercise all powers of the Company to issue, allot and deal with new shares not exceeding 20% of the issued and fully paid shares of the Company at the date of passing the resolution. In addition, an ordinary resolution will also be proposed to extend such general mandate so granted to the Directors by adding to the aggregate number of shares of the Company which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate such number of shares that will be repurchased under the Repurchase Mandate, if granted.

Furthermore, an ordinary resolution will be proposed at the Annual General Meeting that the Directors be given a Repurchase Mandate. The shares of the Company which may be repurchased pursuant to the Repurchase Mandate is limited to a maximum of 10% of the entire issued share capital of the Company at the date of the passing of the resolution approving the Repurchase Mandate.

The Listing Rules permit companies whose primary listing is on the Stock Exchange to repurchase their shares on the Stock Exchange subject to certain restrictions. As at 25th July, 2003, being the latest practicable date prior to the printing of this document (the “Latest Practicable Date” ), there were in issue an aggregate of 1,212,407,116 shares of HK$0.01 each in the Company. Subject to the passing of the resolution for the grant of the Repurchase Mandate as set out in the notice convening the Annual General Meeting, and on the basis that no share is issued or repurchased by the Company prior to the Annual General Meeting, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 121,240,711 shares of the Company.

The Directors have no present intention to repurchase any shares of the Company but consider that the Repurchase Mandate will provide the Company the flexibility to make such repurchase when appropriate. An exercise of the Repurchase Mandate may, depending on market conditions and funding arrangement at the time, lead to an enhancement of the net asset per share and/or earnings per share of the Company and will only be made when the Directors believe that such a purchase will benefit the Company and its shareholders.

The Company is empowered by its memorandum of association and Bye-laws to repurchase its own shares. Repurchase must be funded entirely from the Company’s available cash flow or working capital facilities, which will be funds legally available for the purpose and in accordance with the memorandum of association and Bye-laws of the Company and the Companies Act 1981 of Bermuda (the “Companies Act” ). Under the Companies Act, a company may only repurchase its shares out of capital paid up on the shares to be repurchased or out of the funds of the Company which would otherwise be available for dividend or distribution or out of the proceeds of a fresh issue of shares made for the purpose.

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An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and gearing position of the Company compared with that as at 31st March, 2002, being the date of its latest audited accounts. The Directors do not, however, intend to make any repurchase in circumstances that would have a material adverse impact on the working capital or gearing of the Company.

SHARE PRICES

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

		Shares
	Highest		Lowest
	HK$		HK$
July 2002	1.49		1.16
August 2002	1.25		1.00
September 2002	1.07		0.91
October 2002	1.04		0.87
November 2002	1.12		0.97
December 2002	1.05		0.87
January 2003	1.18		0.91
February 2003	1.03		0.90
March 2003	1.00		0.80
April 2003	0.90		0.73
May 2003	0.81		0.70
June 2003	0.80		0.67

GENERAL

None of the Directors nor, to the best of the knowledge and belief of the Directors having made all reasonable enquiries, any of the associates of the Directors has any present intention, in the event that the proposal is approved by shareholders, to sell shares of the Company.

No connected person of the Company has notified the Company that he/she has a present intention to sell any shares held by him/her to the Company nor has any such connected person undertaken not to sell any of the shares held by him/her to the Company in the event that the Repurchase Mandate is granted.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the powers of the Company to make repurchases pursuant to the Repurchase Mandate in accordance with the Listing Rules and all applicable laws of Bermuda and in accordance with the regulations set out in the memorandum of association and bye-laws of the Company.

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EFFECT OF THE TAKEOVERS CODE

A repurchase of shares by the Company may result in an increase in the proportionate interests of substantial shareholder of the Company in the voting rights of the Company, which may give rise to an obligation to make a mandatory offer in accordance with Rule 26 of the Hong Kong Code on Takeovers and Mergers (the “Takeovers Code” ). As at the Latest Practicable Date prior to printing of this document, to the best of the knowledge and belief of the Company, Heng Fung Holdings Limited and its associates who held approximately 26.41% of the issued share capital of the Company, was the only one substantial shareholder holding more than 10% of the issued share capital of the Company. In the event that the Directors should exercise the proposed Repurchase Mandate in full, the shareholding of Heng Fung Holdings Limited and its associates would increase to approximately 29.34% of the issued share capital of the Company and such increase would not give rise to an obligation to make a mandatory offer under Rule 26 of the Takeovers Code.

SHARES REPURCHASE MADE BY THE COMPANY

For six months prior to the Latest Practicable Date, no share has been purchased by the Company.

RECOMMENDATION

A form of proxy for use at the Annual General Meeting is enclosed with the 2003 Annual Report. To be valid, the form of proxy must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority at the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, Rooms 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the Annual General Meeting. Completion and delivery of the form of proxy will not preclude you from attending and voting at the Annual General Meeting.

The Directors consider that the Repurchase Mandate and the granting and the extension of general mandate to issue new shares are in the best interests of the Company and its shareholders and accordingly recommend that all shareholders should vote in favour of the ordinary resolutions nos. 4 to 6 to be proposed at the Annual General Meeting.

Yours faithfully, By Order of the Board Liu Ming Hui Managing Director

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