China Literature Limited — Proxy Solicitation & Information Statement 2003

Jun 30, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, 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 securities in China Gas Holdings 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 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.

This circular is for information only and does not constitute an offer or invitation to acquire, purchase or subscribe for securities of China Gas Holdings Limited.

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

(incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION:

FORMATION OF A CHINESE-FOREIGN JOINT VENTURE COMPANY

30 June 2003

* for identification only

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The Sale and Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9

DEFINITIONS

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

“Agreement”	the cooperative agreement dated 10 June 2003 and entered
	into among Shenzhen Natural Gas, China Gas Development
	and Huainan Natural Gas in relation to the establishment
	of Huainan JV and the operation of the Natural Gas Project
	contemplated thereunder
“associates”	has the meaning ascribed to it in the Listing Rules
“Board”	board of Directors
“Business Day”	a day (other than a Saturday) on which licensed banks are
	generally open for business in Hong Kong throughout their
	normal business hours
“BVI”	the British Virgin Islands
“BVI Company” or “China Gas	China Gas Development Group Limited, a company
Development”	incorporated in the BVI with limited liability, which after
	the completion of the Sale and Purchase Agreement became
	a wholly owned subsidiary of the Company (prior to the
	completion of the Sale and Purchase Agreement, it was
	owned as to 49% by the Company and 51% by Hai Xia
	Finance)
“Company”	China Gas Holdings Limited (中國燃氣控股有限公司), a
	company incorporated in Bermuda with limited liability,
	whose issued Shares are listed on the Stock Exchange
“Directors”	directors of the Company
“Group”	the Company and its subsidiaries
“Hai Xia Finance”	Hai Xia Finance Holdings Limited, a company incorporated
	in the BVI and is interested in 101,549,457 Shares,
	representing approximately 8.37% of the issued share capital
	of the Company and 6,298,571 preference shares of the
	Company
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Huainan JV”	Huainan China Gas & City Gas Company Limited, a
	Chinese-foreign equity joint venture company to be
	established in the PRC by Shenzhen Natural Gas, China
	Gas Development and Huainan Natural Gas pursuant to the
	Agreement

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DEFINITIONS

“Huainan Natural Gas”	淮南市燃氣總公司(Huainan City Gas Company), a PRC
	company with limited liability and is independent of and
	not connected with any of the directors, chief executive or
	substantial shareholders of the Company or any of its
	subsidiaries or any of their respective associates
“Latest Practicable Date”	27 June 2003, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining
	certain information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Natural Gas Project”	has the meaning ascribed thereto in the paragraph headed
	“Introduction” in the section headed “Letter from the Board”
	in this circular
“PRC”	the People’s Republic of China, which for the purpose of
	this circular exclude Hong Kong, Taiwan and the Macau
	Special Administrative Region of the PRC
“Proposed investment”	has the meaning ascribed thereto in the paragraph headed
	“Introduction” in the section headed “Letter from the Board”
	in this circular
“Sale and Purchase Agreement”	the sale and purchase agreement dated 10 June 2003 and
	entered into between the Company and Hai Xia Finance
	pursuant to which the Company has agreed to acquire 51%
	equity interest in the BVI Company from Hai Xia Finance
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of
	the Company
“Shareholder(s)”	holder(s) of Share(s)
“Shenzhen Natural Gas”	中亞燃氣實業(深圳)有限公司(Central Asia Natural Gas
	(Shenzhen) Company Limited, a wholly foreign owned
	enterprise established in the PRC and a wholly owned
	subsidiary of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Total Huainan JV Investment	has the meaning ascribed thereto in the paragraph headed
Amount”	“The Agreement” in the section headed “Letter from the
	Board” in this circular
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

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DEFINITIONS

“RMB” Renminbi, the lawful currency of the PRC “US$” United States dollars, the lawful currency of the United States of America “%” per cent.

In this circular, the exchange rate of HK$1 to RMB1.05 and US$1.00 to HK$7.8 has been used for reference only. No representation is made that any amounts in US$, RMB or HK$ could have been or could be converted at the above rate or at any other rates or at all.

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LETTER FROM THE BOARD

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

(incorporated in Bermuda with limited liability)

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

Non-executive Director: Mr Wu Bangjie

Independent Non-executive Directors: Mr Zhao Yu Hua Dr Mao Er Wan

Head office and principal place of business in Hong Kong: Room 1601, 16th Floor AXA Centre 151 Gloucester Road Wanchai Hong Kong

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

30 June 2003

To the Shareholders and, for information only, the holders of convertible preference shares of the Company

Dear Sir and Madam,

DISCLOSEABLE TRANSACTION: FORMATION OF A CHINESE-FOREIGN JOINT VENTURE COMPANY

INTRODUCTION

The Board announced on 10 June 2003 that Shenzhen Natural Gas and China Gas Development, both of which are wholly owned subsidiaries of the Company, entered into the Agreement with Huainan Natural Gas on 10 June 2003, pursuant to which Shenzhen Natural Gas, China Gas Development and Huainan Natural Gas have agreed to establish Huainan JV to principally engage in the design, construction and operation of natural gas pipeline network and ancillary facilities as well as provision of piped natural gas in Huainan, Anhui Province, the PRC (the “ Natural Gas Project ”). Huainan JV will be owned as to 40% by Shenzhen Natural Gas, 30% by China Gas Development and 30% by Huainan Natural Gas. Upon its establishment, Huainan JV will be a non-wholly owned subsidiary of the Company.

Pursuant to the terms of the Agreement, the Group has to make a total investment of RMB49,000,000 (equivalent to approximately HK$46,666,666.67) to the registered capital of Huainan JV, of which RMB28,000,000 (equivalent to approximately HK$26,666,666.67) will be

* for identification only

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LETTER FROM THE BOARD

contributed by Shenzhen Natural Gas and RMB21,000,000 (equivalent to approximately HK$20,000,000) will be contributed by China Gas Development, to the regisstered capital of Huainan JV respectively. Such investment in the sum of RMB49,000,000 (equivalent to approximately HK$46,666,666.67) will be contributed by the Company by way of shareholders’ loans to Shenzhen Natural Gas and/or China Gas Development, respectively, which will in turn use such money to pay up their respective contributiions to the registered capital in Huainan JV (the “ Proposed Investement ”).

As at the Latest Practicable Date, the relevant application documents have been submitted to the relevant PRC government authority and Huainan JV is still in the process of being set up pursuant to the Agreement. Huainan JV will be principally engaged in the Natural Gas Project.

Reference is also made to the Company’s announcement dated 10 June 2002 in which it was announced that the Company and Hai Xia Finance would set up the BVI Company and the issued share capital of the BVI Company would be owned as to 49% by the Company and 51% by Hai Xia Finance. The Company also announced on 10 June 2003 that the Company has entered into the Sale and Purchase Agreement with Hai Xia Finance on 10 June 2003, pursuant to which Hai Xia Finance has agreed to sell and the Company has agreed to purchase the 51% equity interest in the BVI Company currently held by Hai Xia Finance for a cash consideration of US$51 (equivalent to approximately HK$400). The Sale and Purchase Agreement was completed on 10 June 2003.

The Proposed Investment constitutes a discloseable transaction on the part of the Company under the Listing Rules. The purpose of this circular is to provide you with further details of the Agreement and Huainan JV.

THE AGREEMENT

Date of the Agreement: 10 June 2003

Parties:

Shenzhen Natural Gas, China Gas Development and Huainan Natural Gas

The parties to the Agreement agreed to set up Huainan JV to principally engage in the Natural Gas Project.

INFORMATION ON HUAINAN NATURAL GAS

Huainan Natural Gas, a company with limited liability, was established in the PRC in 1986 and is wholly owned by the People’s Government of Huainan which is an independent third party not connected with the directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or any of their respective associates.

INFORMATION ON HUAINAN JV

Huainan JV, a Chinese-foreign limited company to be established in the PRC, will be owned as to 40% by Shenzhen Natural Gas, as to 30% by China Gas Development and as to 30% by Huainan Natural Gas. Huainan Natural Gas and its ultimate beneficial owners are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates.

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LETTER FROM THE BOARD

Huainan JV will become a 70% subsidiary of the Company upon its establishment pursuant to the Agreement and its results will be consolidated into the Group’s accounts. It is expected that it will be principally engaged in the Natural Gas Project.

The registered capital of Huainan JV will be RMB70,000,000 (equivalent to approximately HK$66,666,666.67) which will be paid up or satisfied by Shenzhen Natural Gas, China Gas Development and Huainan Natural Gas in proportion to their respective equity interests in Huainan JV (i.e. as to RMB28,000,000 (equivalent to approximately HK$26,666,666.67) to be contributed by Shenzhen Natural Gas in cash, RMB21,000,000 (equivalent to approximately HK$20,000,000) to be contributed by China Gas Development in cash and RMB21,000,000 (equivalent to approximately HK$20,000,000) to be contributed by Huainan Nautral Gas by transferring its assets to Huainan JV in accordance with the required laws and regulations. The assets to be contributed by Huainan Natural Gas will be appraised by recognised assets valuers in the PRC and will consists of fixed assets connected with the Natural Gas Project.

Huainan JV has a tenure of 30 years and it will make a total investment in the sum of RMB180,000,000 (equivalent to approximately HK$171,428,571.42) (the “ Total Huainan JV Investment Amount ”) in a series of projects including the Natural Gas Project to be carried out by Huainan JV in Huainan, Anhui Province, the PRC, in the design, construction and operation of natural gas pipeline network and ancillary facilities, the provision of piped natural gas, repair and maintenance of natural gas equipment and facilities as well as expansion of existing natural gas facilities.

Pursuant to the Agreement, Shenzhen Natural Gas, China Gas Development and Huainan Natural Gas have agreed that the difference between the Total Huainan JV Investment Amount and the registered capital of the Huainan JV for which Shenzhen Natural Gas and China Gas Development are responsible will be paid up with the profit generated from the Natural Gas Project. The Directors take the view that the profit generated from the Natural Gas Project will be sufficient for this purpose. None of the parties to the Huainan JV has any obligation to contribute the difference between the Total Huainan JV Investment and the registered capital of Huainan JV. It has been agreed among the parties to the Huainan JV that the injection of the registered capital will be contributed by respective parties in accordance with the applicable rules and regulations in the PRC. The Company is required to comply with all the requirements under the Listing Rules in respect of any additional financial assistance provided by the Group to Huainan JV.

Huainan City is located in the central part of Anhui Province, the PRC and has a total area of approximately 2,121 square kilometers. There are six districts and one county under the direct governance of Huainan City. Huainan City has a population of approximately 2,060,000 of which approximately 1,080,000 reside in the urban area. At present, there are approximately 66,000 household users of gas pipelines in Huainan City of which approximately 60,000 households are liquidfied gas subscribers and the remaining households are coal gas subscribers. As pollution has presented a great problem in Huainan City, according to the feasibility study conducted by Huainan Natural Gas the Natural Gas Project has received great support from the local population in Huainan City.

Base on the feasibility study, the Directors anticipate that the volume of the natural gas consumed by both industrial and domestic subscribers in Huainan City District will reach approximately 43,000,000 cubic metres in 2005 and approximately 204,000,000 cubic metres in 2010.

The board of directors of Huainan JV will comprise seven directors, two of whom will be appointed by Huainan Natural Gas, three of whom will be appointed by Shenzhen Natural Gas and two of whom will be appointed by China Gas Development. The chairman of the board of directors

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LETTER FROM THE BOARD

of Huainan JV will be nominated by Shenzhen Natural Gas. However, the persons nominated by the Group to Huainan JV will represent the majority of the board of Huainan JV. Upon establishment of Huainan JV, parties to the Huainan JV are entitled to share the profits generated from the Natural Gas Project in proportion to their equity interests in Huainan JV.

As at the Latest Practicable Date, the establishment of Huainan JV is still in progress.

THE PROPOSED INVESTMENT

Pursuant to the terms of the Agreement, the registered capital of Huainan JV is RMB70,000,000 and will be contributed as to RMB28,000,000 (equivalent to approximately HK$26,666,666.67) by Shenzhen Natural Gas, as to RMB21,000,000 (equivalent to approximately HK$20,000,000.00) by China Gas Development and as to RMB21,000,000 (equivalent to approximately HK$20,000,000.00) by Huainan Nautral Gas. The Group’s investment in Huainan JV will be funded by internal resources and bank borrowings.

Apart from paying up the registered capital of Huainan JV, the Group is not required to make further capital contribution to Huainan JV. Any difference between the Total Huainan JV Investment Amount and the registered capital of Huainan JV will be financed with funds drawn from the profits generated from the Natural Gas Project. The Company will make further announcement and will comply with all the requirements under the Listing Rules in case the financing arrangement on the difference between Total Huainan JV Investment Amount and the registered capital of Huainan JV is changed.

The Group will obtain a legal opinion from a firm of lawyers in the PRC in relation to issues including but not limited to the legal status, validity of establishment and continued existence of Huainan JV.

THE SALE AND PURCHASE AGREEMENT

Date of the Sale and Purchase Agreement: 10 June 2003 Parties: Hai Xia Finance and the Company

Reference is made to the Company’s announcement dated 10 June 2002 in which it was announced that the Company (formerly known as Hai Xia Holdings Limited) and Hai Xia Finance would set up the BVI Company and the BVI Company would be owned as to 49% by the Company and 51% by Hai Xia Finance.

On 10 June 2003, the Company and Hai Xia Finance entered into the Sale and Purchase Agreement pursuant to which Hai Xia Finance agreed to sell and the Company agreed to purchase 51% equity interests in the BVI Company currently held by Hai Xia Finance for a cash consideration of US$51 (equivalent to approximately HK$400) which was determined based on the par value of the sale shares. As at the date of the Sale and Purchase Agreement, there was no shareholders’ loan due by the BVI Company to its shareholders. The Sale and Purchase Agreement was completed on 10 June 2003 and was funded by internal resources of the Group.

The principal activity of the BVI Company will be investment holding and as at the date of the Latest practicable Date, no account has been prepared. As at the Latest Practicable Date, the BVI Company does not have any asset nor liability.

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LETTER FROM THE BOARD

CONDITIONS

The Sale and Purchase Agreement is conditional upon the satisfaction of the following:

• (i) the transaction contemplated in the Sale and Purchase Agreement be in strict compliance with the Listing Rules (where applicable);

• (ii) Hai Xia Finance shall procure the fulfillment of all necessary procedures and to produce all necessary documents in relation to the transfer of the 51% interests in the BVI Company to the Company; and

• (iii) the board of directors of Hai Xia Finance approving the disposal of the 51% interest in the BVI Company in accordance with the constitution of Hai Xia Finance.

The above conditions have been fulfilled on 10 June 2003 and the Sale and Purchase Agreement was completed on 10 June 2003.

Save as to its approximate 8.37% shareholding in the Company and the 6,298,571 preference shares of the Company beneficially owned by Hai Xia Finance, Hai Xia Finance is independent of and not connected with the directors, chief executive and substantial shareholders of the Company or any of its subsidiaries or any of their respective associates. Hai Xia Finance is not a connected person to the Company.

REASONS FOR THE PROPOSED INVESTMENT AND SALE AND PURCHASE AGREEMENT

The Group is principally engaged in investment in, among others, natural gas/energy and property projects in the PRC. The Directors consider that the Proposed Investment represents a good opportunity for the Group to further invest in the natural gas business in the PRC which is in line with the Group’s business strategy to expand into natural gas industries in the PRC whereupon Huainan JV will be treated as a subsidiary of the Company upon establishment. Furthermore, the entering into of the Sale and Purchase Agreement allows the Group to take effective control in Huainan JV from approximately 54.7% to 70% and the Directors consider that the acquisition of Hai Xia Finance’s interests in the BVI Company would be beneficial to the Group as a whole.

The Directors base their decision to invest in Huainan JV on the following grounds: (i) the Natural Gas Project will be operated, managed and developed by Huainan JV on an exclusive basis; and (ii) natural gas is a household necessity and the Directors consider that the profits generated from the Natural Gas Project will be more stable and sufficient to cover the investment contribution to be made to the registered capital in Huainan JV.

The Directors consider the terms of the Agreement and the Proposed Investment are fair and reasonable in the interest of the Shareholders as a whole, taking into account the prospects of the Natural Gas Project in Huainan City, Anhui Province, the PRC. The Directors anticipate that Huainan JV would generate a positive earnings for the Group.

GENERAL

The Proposed Investment constitutes a discloseable transaction on the part of the Company under the Listing Rules. Your attention is also drawn to the information set out in the appendix to this circular.

Yours faithfully, For and on behalf of China Gas Holdings Limited Liu Ming Hui Managing Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, none of Director and chief executive of the Company is interested in the equity or debt securities and underlying shares of the Company or any associated corporations (within the meaning of the SFO) which (a) 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 the Director is taken or deemed to have under such provisions of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following party, other than a Director or chief executive of the Company, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, 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 meeting of any other member of the Group:

		Number of	Approximate
	Name of	Shares held or	percentage of
Name of Shareholder	Group member	Short Position	shareholding
Sure World Capital Limited	the Company	101,557,700(L)	8.38%
Rasa Sayang Limited	the Company	10,104,000(L)	0.38%
Heng Fung Capital
Company Limited	the Company	3,388,000(L)	0.28%
Heng Fung Underwriter Limited	the Company	200,000(L)	0.016%
Heng Fung Holdings Limited	the Company	320,185,157(L)	26.41%
		(note 1)
Greater China Holdings Limited	the Company	62,211,582(L)	5.13%
		20,000,000(S)	1.65%
		(note 2)

L: long position S: short position

Notes:

1. These Shares are held, as to 101,577,700 Shares by Sure World Capital Limited, as to 10,104,000 Shares by Rasa Sayang Limited, as to 3,388,000 Shares by Heng Fung Capital Limited, as to 200,000 Shares by Heng Fung Underwriter Limited, all of which are wholly owned subsidiaries of Heng Fung Holdings Limited and the remaining balance of 204,935,457 Shares are held by Heng Fung Holdings Limited.

2. These Shares and short position are held by Profit Capital Limited, a wholly owned subsidiary of Greater China Holdings Limited.

– 9 –

GENERAL INFORMATION

APPENDIX

Save as disclosed paragraph 3 above, the Directors and the chief executive of the Company are not aware that there is any party who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the Divisions 2 and 3 of Part XV of the SFO, or who is, 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 meeting of any other member of the Group.

4. SERVICE CONTRACTS

There are no existing or proposed directors’ services contracts with any member of the Group, other than contracts terminable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation).

5. LITIGATION

Two former staff issued writs against the Company on 4 May 1998 and 13 May 1998, respectively, claiming for wrongful dismissal and compensation of approximately HK$1,862,000 plus interest and related costs. As at the Latest Practicable Date, no witness statements have been filed and no trial date has yet been fixed. The Directors are advised by the legal counsel of the Company that it is unlikely that the two former staff will succeed in their claims. Save as aforesaid, neither the Company nor any of its subsidiaries is engaged in litigation or arbitration of material importance and so far as the Directors are aware, no litigation or claims of material importance are pending or threatened by or against the Company or any of its subsidiaries nor could they have a material adverse effect on the Group’s financial condition or operations, taken as a whole.

6. MISCELLANEOUS

The company secretary of the Company is Ms Yang Yan Tung, Doris ACIS, ACS.

The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

The head office and principal place of business of the Company in Hong Kong is at Room 1601, 16th Floor, AXA Centre, 151 Gloucester Road, Wanchai, Hong Kong.

The principal share registrar and transfer office of the Company is Butterfield Corporate Services Limited at Rosebank Centre, 14 Bermudiana Road, Pembroke, Bermuda. The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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