China Literature Limited — Proxy Solicitation & Information Statement 2004

Nov 12, 2004

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 shares 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 was effected from 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 on the whole or any part of the contents of this circular.

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

(incorporated in Bermuda with limited liability)

(Stock Code: 384)

DISCLOSEABLE TRANSACTION FORMATION OF A JOINT VENTURE COMPANY

A letter from the board of directors of China Gas Holdings Limited is set out on pages 3 to 6 of this circular.

8 November 2004

* For identification purpose only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7

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DEFINITIONS

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

“Agreement”	the cooperative agreement dated 24 October 2004 entered into
	between China City Natural Gas and Cangzhou Municipal
	Government in relation to the establishment of Cangzhou JV and
	the operation of the Natural Gas Project contemplated thereunder
“Board”	board of Directors
“Business Licence Date”	the date on which the business licence of Cangzhou JV is issued
“BVI”	the British Virgin Islands
“Cangzhou JV”	Cangzhou Zhongran City Gas Development Company Limited, a
	Chinese-foreign equity joint venture company in the PRC to be
	established by China City Natural Gas and Cangzhou Municipal
	Government pursuant to the Agreement
“Cangzhou Municipal	an independent third party which is independent of and not
Government”	connected with the Company and its connected persons (as defined
	in the Listing Rules) and is not a connected person (as defined in
	the Listing Rules) of the Company
“China City Natural Gas”	China City Natural Gas Holdings Limited, a company incorporated
	in BVI and is a wholly owned subsidiary of the Company
“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
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Latest Practicable Date”	5 November 2004, being the latest practicable date prior to printing
	of this circular for ascertaining certain information of this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange

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DEFINITIONS

“Natural Gas Project”	a series of projects to be carried out by Cangzhou JV in Cangzhou,
	Hebei Province, the PRC, in relation to 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
“Option(s)”	option(s) which have been granted under the Company’s share
	option scheme adopted on 6 February 2003, entitling the holder(s)
	thereof to subscribe for new Share(s)
“PRC”	the People’s Republic of China
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	Securities and Futures Ordinance (Chapters 571 of the Laws of
	Hong Kong)
“Share(s)”	share(s) of HK$0.01 each in the share capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

For the purposes of the Company’s announcement dated 25 October 2004 and in this circular, unless stated otherwise, conversions of Renmibi into Hong Kong dollars are based on the approximate exchange rate of RMB1.05 to HK$1.00.

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LETTER FROM THE BOARD

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

(incorporated in Bermuda with limited liability)

(Stock Code: 384)

Executive 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 Ms. Wong Sin Yue, Cynthia

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business in Hong Kong:

16th Floor AXA Centre No. 151 Gloucester Road Wanchai Hong Kong

8 November 2004

To the Shareholders,

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION RELATING TO THE FORMATION OF A JOINT VENTURE COMPANY

I. INTRODUCTION

By an announcement dated 25 October 2004, the Company announced that China City Natural Gas, a wholly owned subsidiary of the Company, entered into the Agreement with Cangzhou Municipal Government on 24 October 2004, pursuant to which China City Natural Gas and Cangzhou Municipal Government have agreed to establish Cangzhou JV which will be principally engaged in the design, construction and operation of natural gas pipeline network and ancillary facilities as well as provision of piped natural gas in Cangzhou, Hebei Province, the PRC. Cangzhou JV will be owned as to 70% by China City Natural Gas and as to the balance of 30% by Cangzhou Municipal Government. Upon establishment, Cangzhou JV will be a non-wholly owned subsidiary of the Company.

The investment under the Agreement constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules. The purpose of this circular is to give you further details of the investment under the Agreement and other information prescribed by the Listing Rules.

* For identification purpose only

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LETTER FROM THE BOARD

II. THE AGREEMENT

Date of the Agreement: 24 October 2004

Parties

China City Natural Gas and Cangzhou Municipal Government

The parties to the Agreement agreed to set up Cangzhou JV which will be principally engaged in the Natural Gas Project.

Information on Cangzhou JV

Cangzhou JV, a Chinese-foreign equity joint venture to be established in the PRC, will be owned as to 70% by China City Natural Gas and as to the balance of 30% by Cangzhou Municipal Government. Cangzhou Municipal Government is independent of and not connected with the Company and its connected persons (as defined in the Listing Rules) and is not a connected person (as defined in the Listing Rules) to the Company.

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

The registered capital of Cangzhou JV will be RMB50,000,000 (equivalent to approximately HK$47,619,048) which has yet to be paid up by China City Natural Gas and Cangzhou Municipal Government in proportion to their respective shareholdings in Cangzhou JV (i.e., as to RMB35,000,000 (equivalent to approximately HK$33,333,333) to be contributed by China City Natural Gas in cash, which shall be financed by the internal resources of the Group, and the remaining RMB15,000,000 (equivalent to approximately HK$14,285,714) to be contributed by Cangzhou Municipal Government in assets, which include the natural gas pipe networks, land, buildings or facilities etc, in accordance with the relevant laws and regulations).

Cangzhou JV will have a tenure of 30 years. Cangzhou JV will make a total investment in the sum of RMB150,000,000 (equivalent to approximately HK$142,857,143) in the Natural Gas Project (the “ Total Cangzhou JV Investment Amount ”). Pursuant to the Agreement, China City Natural Gas and Cangzhou Municipal Government have agreed that the difference (the “ Difference ”) between the Total Cangzhou JV Investment Amount and the registered capital of Cangzhou JV will be paid up in proportion to with their respective shareholdings in Cangzhou JV. There is no specific timing for the payment of the Difference and China City Natural Gas has yet to decide how to finance its portion for the Difference. 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 Cangzhou JV.

Pursuant to the Agreement, it has been agreed among all the parties that within three months from the Business Licence Date, China City Natural Gas will contribute RMB35,000,000 (equivalent to approximately HK$33,333,333) as registered capital of Cangzhou JV in cash. It has also been agreed that within two weeks from the Business Licence Date, Cangzhou Municipal Government will inject the assets to Cangzhou JV as registered capital after valuation.

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LETTER FROM THE BOARD

Cangzhou city is located in the south-east of Hebei Province, the PRC, comprising two direct governance districts and ten counties. Cangzhou City had a population of approximately 6,770,000.

According to the feasibility studies of Cangzhou JV prepared by the government of Cangzhou City, it is estimated that in the Cangzhou City district, the number of subscribers for the natural gas will increase up to 200,000 within the next five years. In addition, according to the said feasibility studies, it is anticipated that the volume of the consumption size of the natural gas at Cangzhou City district will reach 300,000,000 cubic meters in the next 10 years.

The board of directors of Cangzhou JV will be constituted in proportion to with the respective shareholdings of China City Natural Gas and Cangzhou Municipal Government in Cangzhou JV. The number of the directors of Cangzhou JV to be appointed by the respective parties has yet been determined and will be further confirmed.

According to the Agreement, the profits generated by Cangzhou JV will be shared by China City Natural Gas and Cangzhou Municipal Government in proportion to their respective shareholdings in Cangzhou JV.

Since the Agreement was signed on 24 October 2004, the establishment of Cangzhou JV is still in progress.

The investment under the Agreement

Pursuant to the terms of the Agreement, China City Natural Gas will contribute a total of RMB35,000,000 (equivalent to approximately HK$33,333,333) in cash to the registered capital of Cangzhou JV and the remaining RMB15,000,000 (equivalent to approximately HK$14,285,714) will be contributed by Cangzhou Municipal Government in assets.

Reasons for the investment under the Agreement

The Group is principally engaged in investment in, among others, natural gas/energy and property projects. The Directors consider that the investment under the Agreement represents a good opportunity for the Company to further invest in the natural gas business in the PRC which is in line with the Group’s strategy to expand into natural gas industries in the PRC whereupon Cangzhou JV will be treated as a subsidiary of the Company upon establishment.

The Directors take the view given that the Natural Gas Project will be operated, managed and developed by Cangzhou JV on an exclusive basis and that natural gas is a household necessity, profits generated by the Natural Gas Project will be secured and sufficient to cover the investment contribution of the Group.

The Directors, including the independent non-executive Directors, consider all the terms and conditions of the Agreement, in particular the terms of the investment under the Agreement, and the Difference are fair and reasonable, taking into account the prospects of development in the Natural Gas Project in Cangzhou, Hebei Province, the PRC.

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LETTER FROM THE BOARD

III. GENERAL

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Cangzhou Municipal Government is an independent third party which is independent of and not connected with the Company and its connected persons (as defined in the Listing Rules) and is not a connected person (as defined in the Listing Rules) of the Company.

The investment contemplated under the Agreement constitutes a discloseable transaction on the part of the Company under the Listing Rules.

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

By Order of the Board 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 in this circular misleading.

(2) DISCLOSURE OF INTERESTS

(a) Director’s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) 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 or short positions which they were taken or deemed to have under such provision of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, were as follows:

(A) Shares

			Approximate
	Number or		percentage or
	attributable number		attributable
	of Shares held		percentage of
Name	or short positions	Nature of interest	shareholding
Liu Ming Hui	385,000,000 (L)	Personal	21.76%
L: Long Position

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GENERAL INFORMATION

APPENDIX

(B) Options

				Approximate
				percentage
	Number and		Number of	of the issued
	description of	Nature of	underlying	share capital of
Name	equity derivatives	interests	Shares	the Company
Liu Ming Hui	5,000,000 Options	Personal	5,000,000	0.28%
	(Note 1)
	130,000,000 Options	Personal	130,000,000	7.35%
	(Note 2)
Li Xiaoyun	5,000,000 Options	Personal	5,000,000	0.28%
	(Note 1)
Xu Ying	5,000,000 Options	Personal	5,000,000	0.28%
	(Note 1)
	90,000,000 Options	Personal	90,000,000	5.09%
	(Note 2)
Ma Jin Long	9,240,711 Options	Personal	9,240,711	0.52%
	(Note 1)
Zhu Wei Wei	4,000,000 Options	Personal	4,000,000	0.23%
	(Note 1)
	6,000,000 Options	Personal	6,000,000	0.34%
	(Note 2)
Wu Bangjie	2,000,000 Options	Personal	2,000,000	0.11%
	(Note 1)
	1,000,000 Options	Personal	1,000,000	0.06%
	(Note 2)
Mao Er Wan	1,000,000 Options	Personal	1,000,000	0.06%
	(Note 1)
	700,000 Options	Personal	700,000	0.04%
	(Note 3)
Wong Sin Yue,	1,000,000 Options	Personal	1,000,000	0.06%
Cynthia	(Note 1)
	700,000 Options	Personal	700,000	0.04%
	(Note 3)
Zhao Yu Hua	1,000,000 Options	Personal	1,000,000	0.06%
	(Note 1)
	700,000 Options	Personal	700,000	0.04%
	(Note 3)

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GENERAL INFORMATION

APPENDIX

Note 1: The Options were granted under the share option scheme adopted by the Company on 6 February 2003 and entitle the holders thereof to subscribe for Shares at an exercise price of HK$0.80 per Share during the period from 1 September 2004 to 8 January 2014. Note 2: The Options were granted under the share option scheme adopted by the Company on 6 February 2003 and entitle the holders thereof to subscribe for Shares at an exercise price of HK$0.71 per Share during the period from 1 July 2005 to 5 October 2014.

The Options granted to Mr. Liu Ming Hui of Mr. Xu Ying will be subject to the approval of the independent shareholders of the Company. For further details, please refer to the announcement of the Company dated 8 October 2004.

Note 3: The Options were granted under the share option scheme adopted by the Company on 6 February 2003 and entitle the holders thereof to subscribe for Shares at an exercise price of HK$0.71 per Share during the period from 1 January 2005 to 5 October 2014.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) 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 or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

		Approximate percentage
	Number or attributable	or attributable
	number of Shares	percentage of
Name of Shareholder	held or short position	shareholding
Xu Xau Lan	520,000,000 (L)	29.39%
	(Note 1)
Heng Fung Holdings Limited	160,002,000 (L)	9.04%
	160,000,000 (S)	9.04%
	(Note 2)
Hai Xia Finance Holdings Limited	150,000,003 (L)	8.48%
	150,000,003 (S)	8.48%
Kan Che Kin Billy Albert	190,000,000 (L)	10.74%
	(Note 3)
Kan Kung Chuen Lai	190,000,000 (L)	10.74%
	(Note 4)

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GENERAL INFORMATION

APPENDIX

Approximate percentage Number or attributable or attributable number of Shares percentage of Name of Shareholder held or short position shareholding Liu Zhi He 108,264,000 (L) 6.12% (Note 5) Chen Li Hua 108,264,000 (L) 6.12% (Note 6)

L: Long Position S: Short Position

Notes:

1. These 520,000,000 Shares represent the 385,000,000 Shares beneficially owned by, or agreed to be acquired by, Mr. Liu Ming Hui, an executive Director, and the 135,000,000 Shares which fall to be allotted and issued upon exercise of the Options granted to Mr. Liu Ming Hui under the share option scheme adopted by the Company on 6 February 2003. Ms. Xu Xau Lan is the spouse of Mr. Liu Ming Hui.

2. These Shares were held as to 159,759,000 Shares by Heng Fung Holdings Limited and as to 243,000 Shares by Sure World Capital Limited, a wholly owned subsidiary of Heng Fung Holdings Limited.

Pursuant to a sale and purchase agreement dated 16 January 2004 and entered into between Heng Fung Holdings Limited and its subsidiaries (together the “Heng Fung Group”) as vendor and Mr. Liu Ming Hui as purchaser, Heng Fung Group has agreed to sell and Mr. Liu Ming Hui has agreed to acquire an aggregate of 250,000,000 Shares in cash at an aggregate consideration of HK$180,000,000. As at the Latest Practicable Date, the sale and purchase of 90,000,000 Shares had been completed.

1. These 190,000,000 Shares represent the 10,000,000 Shares beneficially owned by Mr. Kan Chi Kin Billy Albert and 180,000,000 warrants to be issued by the Company to him at HK$0.01 per warrant, each entitles the holder thereof to subscribe for one new Share at the exercise price of HK$0.66 per new Share pursuant to a warrant placing agreement entered into between the Company and Mr. Kan Chi Kin Billy Albert dated 28 September 2004.

3. Ms. Kung Chuen Lai is the spouse of Mr. Kan Chi Kin Billy Albert.

4. These 108,264,000 Shares represent the 28,264,000 Shares beneficially owned by Mr. Liu Zhi He and 80,000,000 warrants to be issued by the Company to him at HK$0.01 per warrant, each entitles the holder thereof to subscribe for one new Share at the exercise price of HK$0.66 per new Share pursuant to a warrant placing agreement entered into between the Company and Mr. Liu Zhi He dated 28 September 2004.

5. Ms. Chen Li Hua is the spouse of Mr. Liu Zhi He.

6. 10 -

GENERAL INFORMATION

APPENDIX

(c) Substantial shareholders of other members of the Group

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) were 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:

		Percentage of
Name of subsidiary	Name of shareholder	shareholding
		(%)
Yichang China Gas &	Yichang City Natural Gas	30
City Gas Company Limited	Company Limited
Wuhu City Natural Gas	Anhui Province Wuhu City	10
Development Company Limited	Natural Gas Head Company
Yiyang Central Gas & City Gas	Yiyang City Construction,	20
Development Company Limited	Investments and Development
	Company Limited
Xiaogan Zhenrong Gas Co. Ltd.	Beijing Yu Long Cang	45
	Technology Co. Ltd.
Beijing Xiangke Jiahua Oil &	北京中燃偉業投資有限公司	40
Gas Technology Company	(Beijing Central Gas Wei Yip
Limited	Investment Co. Ltd.)

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any other person (other than the Directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the Shares or underlying Shares (including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was 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.

As at the Latest Practicable Date, none of the Directors was a director or employee of a company which had, or was deemed to have, an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

(3) SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

(4) COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

(5) LITIGATION

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

(6) MISCELLANEOUS

• (a) The company secretary of the Company is Ms. Yang Yan Tung Doris, ACS, ACIS ;

• (b) The qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Mr. Li Wai Hung, FCCA ;

• (c) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda; and

• (d) The head office and principal place of business of the Company in Hong Kong is at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong.

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