China Literature Limited - Proxy Solicitation & Information Statement 2004

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 licensed securities dealer, 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 and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer 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.

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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)

GRANT OF OPTIONS TO TWO DIRECTORS

AND

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

Independent financial adviser to the Independent Board Committee

Grand Vinco Capital Limited

A letter from the Independent Board Committee is set out on page 14 of this circular. A letter from the Independent Financial Adviser to the Independent Board Committee is set out on pages 15 to 26 of this circular.

A notice convening a special general meeting of China Gas Holdings Limited to be held at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong on Monday, 22 November 2004 at 10:00 a.m. is set out on pages 28 to 31 of this circular. A form of proxy for use at the special general meeting is also enclosed with this circular.

Whether or not you are able to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s head office and principal place of business in Hong Kong at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjourned meeting. Completion and delivery of the form of proxy will not preclude you from attending and voting at the special general meeting if you so wish.

6 November 2004

* For identification purpose only

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . .	14
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . . . . .	15
APPENDIX – PROCEDURES BY WHICH SHAREHOLDERS
MAY DEMAND A POLL AT THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
NOTICE OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28

DEFINITIONS

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

the annual general meeting of the Company held on 12 August 2004 for the Shareholders to approve, inter alia, the Current General Mandate;

“AGM” the annual general meeting of the Company held on 12 August 2004 for the Shareholders to approve, inter alia, the Current General Mandate; “Announcement” the Company’s announcement in relation to a private placing of unlisted warrants and placing of Shares under the Current General Mandate dated 5 October 2004; “associates”

has the same meaning as ascribed in the Listing Rules;

“Board” the board of Directors; “Company” China Gas Holdings Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Stock Exchange; “connected persons” has the meaning ascribed to this term under the Listing Rules; “Current General Mandate” the general mandate approved at the AGM to grant to the Directors to allot and issue Shares of up to 20% of the issued share capital of the Company as at the date of passing the relevant ordinary resolution; “Director(s)” director(s) of the Company;

“Existing Options” the options which have been granted to Mr. Liu and Mr. Xu under the Share Option Scheme as at the Latest Practicable Date;

“Group” the Company and its subsidiaries; “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China; “Independent Board Committee” an independent committee of the Board comprising Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, all being the independent non-executive Directors, to advise the Independent Shareholders as to the fairness and reasonableness of the grant of the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu; “Independent Financial Adviser” Grand Vinco Capital Limited;

DEFINITIONS

“Independent Shareholder(s)”	(i) in the case of the grant of the New General Mandate, the
	Shareholder(s) other than Mr. Liu, Mr. Xu, the other Directors
	(excluding independent non-executive Directors) and the chief
	executive of the Company and their respective associates; (ii) in
	the case of the grant of Options to Mr. Liu, the Shareholders
	other than the connected persons (as defined in the Listing Rules)
	of the Company which includes Mr. Liu and his associates and
	(iii) in the case of the grant of Options to Mr. Xu, the Shareholders
	other than Mr. Xu and his associates;
“Latest Practicable Date”	5 November 2004, 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;
“Mr. Liu”	Mr. Liu Ming Hui, the managing Director and a substantial
	Shareholder;
“Mr. Xu”	Mr. Xu Ying, the vice-chairman of the Company and an executive
	Director;
“New General Mandate”	the general mandate proposed to be granted to the Directors at the
	SGM to allot, issue and otherwise deal with additional Shares not
	exceeding 20% of the issued share capital of the Company as at
	the date of the SGM;
“Options”	the 130,000,000 options proposed to be granted to Mr. Liu and
	the 90,000,000 options proposed to be granted to Mr. Xu under
	the Share Option Scheme;
“SGM”	the special general meeting of the Company to held at 16th Floor,
	AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong on
	Monday, 22 November 2004 at 10:00 a.m. to consider and, if
	appropriate, to approve the resolutions contained in the notice of
	the meeting which is set out on pages 28 to 31 of this circular;
“Share(s)”	ordinary share(s) of HK$0.01 each in the capital of the Company;
“Shareholder(s)”	holder(s) of Share(s);
“Share Option Scheme”	the share option scheme of the Company approved and adopted
	by an ordinary resolution of the Shareholders at the special general
	meeting of the Company held on 6 February 2003;

DEFINITIONS

“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Subscription Price”	the price per Share at which a grantee of the Share Option Scheme
	may subscribe for Shares on the exercise of an option granted
	under the Share Option Scheme;
“HK$”	Hong Kong dollars, the lawfully currency of Hong Kong; and
“%”	per cent.

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

6 November 2004

To the Shareholders,

Dear Sir or Madam,

GRANT OF OPTIONS TO TWO DIRECTORS

AND

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

INTRODUCTION

The purpose of this circular is to provide with you the information relating to (i) the proposed grant of the New General Mandate; (ii) the proposed grant of Options to two Directors; (iii) the recommendation from the Independent Board Committee to the Independent Shareholders on the proposed grant of the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu; (iv) the recommendation from the Independent Financial Adviser to the Independent Board Committee on the proposed grant of the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu; and (v) the notice of SGM.

* For identification purpose only

LETTER FROM THE BOARD

CURRENT GENERAL MANDATE

At the AGM, the Shareholders approved, among other things, an ordinary resolution to grant to the Directors the Current General Mandate to issue not more than 350,830,353 Shares, being 20% of the aggregate nominal amount of the issued share capital of the Company of 1,754,151,765 Shares as at the date of passing of the resolution. During the period from the grant of the Current General Mandate to the Latest Practicable Date, the Current General Mandate had been utilised as to 350,000,000 Shares, being approximately 19.95% of the aggregate nominal amount of the issued share capital of the Company as at the date of passing of the resolution, leaving a maximum of 830,353 Shares, being approximately 0.05% of the aggregate nominal amount of the issued share capital of the Company as at the date of passing of the resolution, to be allotted and issued pursuant thereto. Reference is made to the Announcement. Further details as to the Company’s fund raising activities since the AGM are set out in the paragraph headed “Reasons for the New General Mandate” below.

PROPOSED GRANT OF NEW GENERAL MANDATE

The Company will convene the SGM at which ordinary resolutions will be proposed to the Independent Shareholders that:

(i) the Directors be granted the New General Mandate to allot and issue Shares not exceeding 20% of the issued share capital of the Company as at the date of passing the relevant ordinary resolution; and
(ii) the New General Mandate be extended to Shares repurchased by the Company pursuant to the general mandate granted to the Directors at the AGM.

As at the Latest Practicable Date, the Company had an aggregate of 1,769,432,338 Shares in issue. Subject to the passing of the ordinary resolution for the approval of the New General Mandate and on the basis that no further Shares are issued and/or repurchased by the Company between the Latest Practicable Date and the date of the SGM, the Company would be allowed under the New General Mandate to allot and issue up to 353,886,467 Shares, being 20% of the 1,769,432,338 Shares in issue as at the Latest Practicable Date.

Should the subscription by Apollo Elite International Limited of 90,000,000 Shares be completed or the unlisted warrants in respect of 260,000,000 Shares and the outstanding options granted under the Share Option Scheme in respect of 296,140,711 Shares be exercised and issued prior to the SGM, the number of Shares in issue as at the date of the SGM and therefore the number of Shares to fall under the New General Mandate may increase to 483,114,609 Shares. Such calculation does not take into account the placing of Shares to Sinopec Corp. the details of which have been set out in the Company’s announcement dated 1 November 2004. Further details of the said subscription and warrants and the possible changes to the shareholding structure of the Company are set out in the Announcement.

REASONS FOR THE NEW GENERAL MANDATE

The Group is principally engaged in investment in, among other things, natural gas and energy projects in the People’s Republic of China.

LETTER FROM THE BOARD

As explained in the paragraph headed “Current General Mandate” above, the Current General Mandate had been utilised as to 350,000,000 Shares, being approximately 99.76% of the Current General Mandate. The remaining 830,353 Shares under the Current General Mandate represent approximately 0.24% of the Current General Mandate, and approximately 0.047% of the issued share capital of the Company as at the Latest Practicable Date.

The Board believes that grant of the New General Mandate is in the best interests of the Company and the Shareholders as a whole by maintaining the financial flexibility necessary for the Group’s future business development. The Board considers equity financing to be an important avenue of resources to the Group since it does not create any interest paying obligations on the Group. In appropriate circumstances, the Group will also consider other financing methods such as debt financing or internal cash resources to fund its future business development. While the Board considers that there is no immediate funding need for the Group’s current operations and that there is currently no concrete proposal presented by potential investors for investment in the Shares, the Board is now proposing to seek the approval of Independent Shareholders at the SGM of the New General Mandate such that should future funding needs arise or attractive terms for investment in the Shares become available from potential investors, the Board will be able to respond to the market promptly.

The following table summarises the fund raising activities of the Group since the AGM:

				Actual use of
				proceeds as
Date of			Intended use	at the Latest
announcement	Event	Net proceeds	of proceeds	Practicable Date
1 November	Placing of 210,000,000	Approximately	As general working	Pending
2004	new Shares to Sinopec	HK$128,000,000	capital of the	completion
	Corp.		Group
5 October	Placing of 90,000,000	Approximately	As general working	Pending
2004	new Shares to Apollo	HK$46,700,000	capital of the	completion
	Elite International		Group
	Limited
5 October	Private placing of	Approximately	As general working	Pending
2004	260,000,000 unlisted	HK$2,500,000	capital of the	completion
	warrants to Mr. Kan		Group
	Che Kin, Billy Albert
	and Mr. Liu Zhi He
	(as to 180,000,000
	warrants and 80,000,000
	warrants respectively)
	convertible into an
	aggregate of 260,000,000
	Shares

LETTER FROM THE BOARD

THE SHARE OPTION SCHEME

At the special general meeting of the Company held on 6 February 2003, the Shareholders approved and adopted by an ordinary resolution the Share Option Scheme whereby the Directors were authorised to grant options to full-time and part-time employees (including all Directors) of the Group or any other specified participants who, in the absolute opinion of the Board, have contributed to the Group. On 12 August 2004, the limit of the Share Option Scheme was refreshed by way an ordinary resolution of the Shareholders at the AGM pursuant to which the Directors were allowed to grant further options under the Share Option Scheme and other share option schemes carrying the right to subscribe for a maximum of 175,415,176 Shares.

The Options

As referred to in the announcement of the Company dated 8 October 2004, on 6 October 2004, the Board resolved to grant the Options to two Directors, one of them is also a substantial Shareholder, under the Share Option Scheme as follows:

Name of Grantee Mr. Liu Mr. Xu Total	Approximate percentage to the total issued share capital of the Company Number of as at the Latest Options Practicable Date 130,000,000 7.35% 90,000,000 5.09% 220,000,000 12.44%	Approximate percentage to the total issued share capital of the Company Number of as at the Latest Options Practicable Date 130,000,000 7.35% 90,000,000 5.09% 220,000,000 12.44%
		12.44%

Pursuant to Rule 17.04(1) of the Listing Rules, the grant of the Options has been approved by the independent non-executive Directors on 6 October 2004. However, the grant of Options is still subject to the Shareholders’ approval to be obtained by the Company in accordance with the Listing Rules and details of which are set out in the paragraph headed “Implication under the Listing Rules” below.

The Grantees

Mr. Xu , aged 42, is a Director and is appointed as vice-chairman of the Company since August 2001. Mr. Xu graduated from Shanghai Jiao Tong University of Agriculture and Biology. Mr. Xu is the deputy President of Strait Travel Agency.

Mr. Liu , aged 41, is a Director since April 2002 and is appointed as managing Director of the Company since July 2002. Mr. Liu received his Bachelor of Science Degree in Mathematics from Hebei Normal University in 1984. He had worked in various local government authorities and Chinese enterprises.

LETTER FROM THE BOARD

Terms of the Options

Subject to the Independent Shareholders’ approval to be obtained by the Company in accordance with the Listing Rules, the Options will be granted in accordance with the terms of the Share Option Scheme and summary of the principal terms of the Options are set out below:

(a) Duration and the condition

The Options have a life of ten years from the date of the grant of the Options in accordance with the Share Option Scheme.

Pursuant to the Share Option Scheme, the Board may at its absolute discretion specify such conditions as it may think fit when granting the options under the Share Option Scheme. With respect to the Options, the exercise of the Options will be subject to the condition that the net asset value of the Group which shall be certified by the auditors appointed by the Company as at the date of the exercise of the Options being not less than HK$1 billion. Save for the aforesaid, there is no specific performance target before the exercise of the Options.

There is no minimum period for which the Options must be held before the Options can be exercised.

(b) Subscription Price and the rights attached to the Shares to be issued under the Options

The Options are exercisable at a Subscription Price of HK$0.71 per Share which was determined on the basis of the closing price of the Shares as quoted on the Stock Exchange on the date of grant of the Options. The Subscription Price represents the closing price of the Shares of HK$0.71 as quoted on the Stock Exchange on 6 October 2004, being the date of the grant of the Options and represents a premium of approximately 13.8% over the average closing price of the Shares of HK$0.612 as quoted on the Stock Exchange for the five business days immediately preceding 6 October 2004, being the date of the grant of the Options.

Shares to be allotted upon the exercise of the Options will be subject to all the provisions of the bye-laws of the Company for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue as at the date on which the names of the grantees are registered in the register of members of the Company as the holders of such Shares.

(c) Reasons and consideration for the grant of the Options

Mr. Liu and Mr. Xu are the executive Directors and the Options are proposed to be granted to them in recognition of their contribution to the growth of the Group in the past and as an incentive for their continuing commitment and contribution to the Group in the future. The consideration payable on acceptance of the Options is HK$10.00 for each of Mr. Liu and Mr. Xu.

LETTER FROM THE BOARD

INFORMATION ON OPTIONS GRANTED UNDER THE SHARE OPTION SCHEME

As at the Latest Practicable Date, the Company had granted 296,640,711 options under the Share Option Scheme, representing approximately 16.76% of the total issued share capital of the Company as at the Latest Practicable Date, of which 175,400,000 options were granted pursuant to the refreshment of the limit of the Share Option Scheme, representing approximately 9.91% of the total issued share capital of the Company as at the Latest Practicable Date.

Assuming the grant of the Options are approved by the Independent Shareholders at the SGM and that no options granted under the Share Option Scheme are exercised from the Latest Practicable Date to the date of the SGM, the Company will have 516,140,711 options outstanding immediately after the SGM, representing approximately 29.17% of the total issued share capital of the Company as at the Latest Practicable Date. The particulars of the Existing Options granted to Mr. Liu, Mr. Xu and other participants under the Share Option Scheme are set out below:

Mr. Liu Mr. Xu Others Total	Number of options granted 5,000,000 5,000,000 286,640,711 296,640,711	Approximate percentage to the issued share capital of the Company as at the Latest Practicable Date 0.28% 0.28% 16.20% 16.76%	Number of options exercised – – 500,000 500,000	Approximate percentage to the issued share capital of the Company as at the Latest Practicable Date – – 0.03% 0.03%	Number of options lapsed/ cancelled – – –	Approximate percentage to the issued share capital of the Company as at the Latest Practicable Date – – –	Number of options outstanding as at the Latest Practicable Date 5,000,000 5,000,000 286,140,711 296,140,711	Approximate percentage to the issued share capital of the Company as at the Latest Practicable Date 0.28% 0.28% 16.17%
								16.73%

LETTER FROM THE BOARD

As at the Latest Practicable Date, Mr. Liu was beneficially interested in approximately 385,000,000 Shares, representing approximately 21.76% of the total issued share capital of the Company and Mr. Xu did not hold any Shares. The following table illustrates the changes in the shareholdings of Mr. Liu and Mr. Xu and their respective associates in the issued share capital of the Company upon the exercise in full of the Existing Options and the Options:

								Approximate
								percentage
								shareholding
							Approximate	upon
				Approximate			percentage	exercise
				percentage			of	in full of
				of Shares		Approximate	Shares to be	the Existing
				to be		percentage	issued upon	Options and
				issued upon		of Shares to	exercise	the Options
				exercise		be issued	in full of	to the
		Approximate		in full of		upon exercise	the Existing	enlarged
		percentage		the Existing		in full of the	Options and	issued share
		of Shares	Number of	Options		Options to	the Options	capital of the
		held to the	Shares to	to the	Number of	the issued	to the issued	Company as
	Number of	issued share	be issued	issued share	Shares to	share capital	share capital	enlarged by
	Shares held	capital of the	upon	capital of the	be issued	of the	of the	the exercise
	as at the	Company as	exercise in	Company as	upon	Company as	Company as	in full of
	Latest	at the Latest	full of the	at the Latest	exercise in	at the Latest	at the Latest	the Existing
	Practicable	Practicable	Existing	Practicable	full of the	Practicable	Practicable	Options and
	Date	Date	Options	Date	Options	Date	Date	the Options
			(note 2)
Mr. Liu	385,000,000	21.76%	5,000,000	0.28%	130,000,000	7.35%	7.63%	26.01%
	(note 1)
Mr. Xu	0	0	5,000,000	0.28%	90,000,000	5.09%	5.37%	4.75%
Public	1,384,432,338	78.24%	–	–	–	–	–	69.24%

Note 1:

These 385,000,000 Shares represent the Shares beneficially owned by and agreed to be acquired by Mr. Liu.

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 as purchaser, Heng Fung Group has agreed to sell and Mr. Liu has agreed to acquire an aggregate of 250,000,000 Shares. As at the date of the announcement, the sale and purchase of 90,000,000 Shares had been completed. Mr. Liu was beneficially interested in 225,000,000 Shares as at the Latest Practicable Date.

Note 2:

The Existing Options were granted to Mr. Liu and Mr. Xu on 8 January 2004.

10 -

LETTER FROM THE BOARD

IMPLICATION UNDER THE LISTING RULES

The 220,000,000 Shares to be issued upon exercise of the Options represent approximately 12.43% of the total issued share capital of the Company as at the Latest Practicable Date. As the Shares to be issued upon exercise of the Options will be in excess of the 10% scheme mandate limit under the Share Option Scheme, according to Rule 17.03(3) of the Listing Rules, the Company must seek separate approval from the Shareholders in a general meeting for the grant of the Options.

Both Mr. Liu and Mr. Xu currently hold 5,000,000 options under the Share Option Scheme, each representing 0.28% of the total issued share capital of the Company as at the Latest Practicable Date. After the grant of the Options, Mr. Liu and Mr. Xu will be interested in the options which would result in the grant of the Shares representing approximately 7.63% and 5.37% respectively of the total issued shares capital of the Company as at the Latest Practicable Date.

According to the note to Rule 17.03(4) of the Listing Rules, the total number of securities issued and to be issued upon exercise of the options granted to each participant (including both exercised and outstanding options) in any 12-month period must not exceed 1% of the relevant class of securities of the listed issuer (or the subsidiary in issue) unless it is separately approved by shareholders of the listed issuer in general meeting with such participant and his associates abstaining from voting.

In addition, Rule 17.04(1) of the Listing Rules provides that where any grant of options to a substantial shareholder or an independent non-executive director of the listed issuer, or any of their respective associates, would result in the securities issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant:

(a) representing in aggregate over 0.1% of the relevant class of securities in issue; and
(b) having an aggregate value, based on the closing price of the securities at the date of each grant, in excess of HK$5 million;

such further grant of options must be approved by the shareholders of the listed issuer with all connected persons of the listed issuer abstaining from voting in favour of at such general meeting.

In view of the provisions of the Listing Rules set out above, in respect of the grant of Options to Mr. Liu, who is a Director and a substantial Shareholder, as the grant of the Options to Mr. Liu would result in (i) the Shares to be issued upon exercise of all options granted and to be granted to him in the 12-month period up to and including the date of such grant representing in aggregate over 1% of the total issued share capital of the Company and (ii), the Shares issued and to be issued upon exercise of all options already granted and to be granted to him in the 12-month period up to and including the date of such grant representing in aggregate over 0.1% of the issued share capital of the Company and having an aggregate value in excess of HK$5 million (based on the options granted to Mr. Liu in 12-month period and the closing prices at the dates of each grant), according to Rules 17.03(4) and 17.04(1) of the Listing Rules, the grant of the Options to Mr. Liu must be approved by the Independent Shareholders at the SGM with all connected persons of the Company abstaining from voting in favour at the SGM, and Mr. Liu and his associates abstaining from voting at the SGM.

11 -

LETTER FROM THE BOARD

In respect of the grant of Options to Mr. Xu, as the grant of the Options to Mr. Xu would result in the Shares to be issued upon exercise of all options granted and to be granted to Mr. Xu in the 12-month period up to and including the date of such grant representing in aggregate over 1% of the total issued share capital of the Company, according to Rule 17.03(4), the grant of Options to Mr. Xu must be approved by the Independent Shareholders at the SGM with Mr. Xu and his associates abstaining from voting.

SPECIAL GENERAL MEETING

The notice convening the SGM is set out on pages 28 to 31 of this circular. At the SGM, ordinary resolutions will be proposed to approve the proposed grant of the New General Mandate and the grant of the Options to Mr. Liu and Mr. Xu.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, the New General Mandate requires the approval of the Independent Shareholders at the SGM at which any of the controlling Shareholders and their associates or, where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting. As at the Latest Practicable Date, Mr. Liu held approximately 21.76% of the issued Shares and there was no controlling Shareholder. As a result, Mr. Liu, Mr. Xu, the other Directors (excluding the independent non-executive Directors) and their respective associates will abstain from voting of the SGM. Among these persons, as at the Latest Practicable Date, only Mr. Liu was a shareholder who had 385,000,000 Shares, the details of which are set out in Note 1 on page 10 of this circular. Further, pursuant to Rule 13.39(4)(b) of the Listing Rules, any vote of the Independent Shareholders at the SGM will be taken by poll.

Pursuant to note to Rule 17.03(4) of the Listing Rules, the grant of the Options to Mr. Xu must be approved by the Independent Shareholders in general meeting with Mr. Xu and his associates abstaining from voting. However, as at the Latest Practicable Date, none of Mr. Xu nor his associates had any Shares. The vote for the grant of Options to Mr. Xu shall be taken by poll.

With respect to the grant of Options to Mr. Liu, according to Rules 17.03 and 17.04(1)-(2) of the Listing Rules, the grant of Options to Mr. Liu must be approved by the Independent Shareholders at the SGM by vote to be taken by poll with all connected persons of the Company abstaining from voting in favour at the SGM and Mr. Liu and his associates abstaining from voting. Among the persons who have to abstain from voting for the grant of Options to Mr. Liu, as at the Latest Practicable Date, only Mr. Liu was a Shareholder who had 385,000,000 Shares, the details of which are set out in Note 1 on page 10 of this circular.

A form of proxy for use at the SGM is enclosed with this circular. 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 at the Company’s head office and principal place of business in Hong Kong at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the SGM or any adjourned meeting. Completion and delivery of the form of proxy will not preclude your from attending and voting at the SGM if you so wish.

12 -

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprises Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, all being the independent non-executive Directors. It has been established to advise the Independent Shareholders on (i) the grant of the New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu.

Grand Vinco Capital Limited has been appointed as an independent financial adviser to advise the Independent Board Committee in respect of the grant of the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu.

The Independent Board Committee and the Directors, having taken into account the advice of the Independent Financial Adviser, considers that (i) the granting of the New General Mandate and (ii) the grant of the Options to Mr. Liu and Mr. Xu are fair and reasonable so far as the Independent Shareholders are concerned and accordingly recommends the Independent Shareholders to vote in favour of the ordinary resolutions which will be proposed at the SGM for approving (i) the grant of the New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu.

The text of the letter from the Independent Board Committee is set out on page 14 of this circular and the text of the letter from the Independent Financial Adviser containing its advice is set out on pages 15 to 26 of this circular.

GENERAL INFORMATION

Your attention is drawn to the letter of advice from Grand Vinco Capital Limited which contains its advice to the Independent Board Committee in connection with the grant of the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu, the letter from the Independent Board Committee which sets out its recommendation to the Independent Shareholders in relation to (i) the grant of the New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu and also the additional information set out in the Appendix – Procedures by which shareholders may demand a poll at the SGM, to this circular.

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.

Yours faithfully

For and on behalf of the Board

China Gas Holdings Limited Liu Ming Hui

Managing Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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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)

6 November 2004

To the Independent Shareholders

Dear Sir or Madam,

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND GRANT OF OPTIONS TO MR. LIU AND MR. XU

We refer to the circular of the Company dated 6 November 2004 (the “ Circular ”) of which this letter forms part. Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as defined in the Circular.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of (i) the proposed grant of the New General Mandate and (ii) the proposed grant of the Options to Mr. Liu and Mr. Xu are fair and reasonable so far as the Independent Shareholders are concerned. Grand Vinco Capital Limited has been appointed as the independent financial adviser to advise us in this respect.

Having considered the principal reasons and factors considered by, and the advice of, Grand Vinco Capital Limited as set out in its letter of advice to us on pages 15 to 26 of the Circular, we are of the opinion that the grant of the New General Mandate and grant of Options to Mr. Liu and Mr. Xu is in the interests of the Company and the Shareholders as a whole and the terms of which are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve (i) the grant of the New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu.

Independent Board Committee

Mr. Zhao Yu Hua Dr. Mao Er Wan Ms. Wong Sin Yue, Cynthia Independent non-executive Directors

* For identification purpose only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Grand Vinco, the independent financial adviser, dated 6 November 2004 prepared for the purpose of incorporation in this circular:

Grand Vinco Capital Limited

Room 902, Far East Finance Centre 16 Harcourt Road, Hong Kong

6 November 2004

The Independent Board Committee and the Independent Shareholders China Gas Holdings Limited Room 1601, 16th Floor AXA Centre 151 Gloucester Road Wanchai Hong Kong

Dear Sirs

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND GRANT OF OPTIONS TO TWO DIRECTORS

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and Independent Shareholders in connection with (i) the grant of New General Mandate and (ii) the grant of Options to two Directors (Mr. Liu and Mr. Xu), details of which are set out in the “Letter from the Board” in the circular (the “Circular”) issued by the Company to the Shareholders dated 6 November 2004 of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

In accordance with Rule 13.36(4)(a) of the Listing Rules, the New General Mandate requires the approval of the Independent Shareholders at which the controlling Shareholder and his associates shall abstain from voting at the SGM. As at the Latest Practicable Date, Mr. Liu, being the single largest shareholder of the Company, held approximately 21.76% of the issued Shares and there were no controlling Shareholder. As a result, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour. As at the Latest Practicable Date, only Mr. Liu was interested in the Shares of the Company, therefore, Mr. Liu and his respective associates will abstain from voting of the SGM in relation to the New General Mandate. Voting of the Independent Shareholders at the SGM shall be taken by poll according to Rule 13.39(4)(b) of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 6 October 2004, the Board resolved to grant the Options to two Directors – Mr. Liu and Mr. Xu. Each of them was granted 130,000,000 and 90,000,000 Options respectively (Shares issued upon exercise of these options represents approximately 7.35% and 5.09% respectively of the total issued shares capital of the Company as at the Latest Practicable Date. Both Mr. Liu and Mr. Xu currently hold 5,000,000 options which were granted on 8 January 2004 under the Share Option Scheme, the Shares issue upon exercise of these options each representing approximately 0.28% of the total issued share capital of the Company as at the Latest Practicable Date.

After the grant of the Options, Mr. Xu will be interested in the options which would result in the grant of the Shares representing approximately 5.37% of the total issued shares capital of the Company as at the Latest Practicable Date. In accordance with the note to Rule 17.03(4) of the Listing Rules, as the grant of the Options to Mr. Xu would result in the Shares to be issued upon exercise of all options granted and to be granted to Mr. Xu in the 12-month period up to and including the date of such grant representing in aggregate over 1% of the total issued share capital of the Company, the grant of the Options to Mr. Xu must be approved by the Shareholders at the SGM with Mr. Xu and his respective associates abstaining from voting.

After grant of the Options, Mr. Liu will be interested in the options which would result in the grant of the Shares representing approximately 7.63% of the total issued shares capital of the Company as at the Latest Practicable Date. Apart from the note to Rule 17.03(4) described above, grant of the Options to Mr. Liu is subject to Rule 17.04(1), as Mr. Liu is also a substantial Shareholder and the grant of the Options would result in the Shares issued and to be issued upon exercise of all options already granted and to be granted to him in the 12-month period up to and including the date of such grant representing in aggregate over 0.1% of the issued share capital of the Company and having an aggregate value in excess of HK$5 million (based on the closing price of Shares at the date of grant and the 130,000,000 options granted to Mr. Liu in the preceding 12 months). Therefore, such grant of Options to Mr. Liu must be approved by the Shareholders in general meeting by poll with all connected persons of the Company (as defined in the Listing Rules) including Mr. Liu and his respective associates, abstaining from voting in favour at the SGM.

The Independent Board Committee, comprising Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, all being the independent non-executive Directors, has been formed to advise the Independent Shareholders as to whether (i) the grant of New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu are fair and reasonable so far as the Independent Shareholders are concerned and whether (i) the grant of New General Mandate and (ii) the grant of Options to Mr. Liu and Mr. Xu are in the interests of the Company and the Independent Shareholders as a whole.

In formulating our view and recommendation to the Independent Board Committee and Independent Shareholders in relation to (i) the grant of New General Mandate and (ii) the grant of Options to two Directors, we have relied on the accuracy of the information and representations contained in the Circular which have been provided to us by the Directors and which the Directors consider to be complete and relevant. We are not aware that any statements, information and representations made or referred to in the Circular, for which the Directors are solely responsible, were untrue and incorrect in all respects at the time when they were made and continued to be so as at the date of the Circular. We are also not aware that any statements of belief, opinion and intention made by the Directors in the Circular were not

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

reasonably made after due and careful enquiry and are not based on honestly-held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and we have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular.

We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our view and recommendation. We have no reason to suspect that any material information has been withheld by the Company or by the Directors. We have not, however, carried out any independent in-depth investigation into the business and affairs of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and Independent Shareholders in relation to the New General Mandate and the grant of Options to two Directors, we have considered the principal factors and reasons set out below:

New General Mandate

Background

The Group is principally engaged in investment in, among other things, natural gas and energy projects in the People’s Republic of China. The grant to the Directors of the Current General Mandate was approved at the AGM on 12th August, 2004 pursuant to Rule 13.36(2)(b) of the Listing Rules and as at the date of approval, there were 1,754,151,765 Shares in issue and 20% of which, being 350,830,353 Shares (the “Current Mandated Shares”) were granted to the Directors to allot and issue under the Current General Mandate. During the period from the grant of the Current General Mandate to the Latest Practicable Date, the Current General Mandate had been utilised as to 350,000,000 Shares and leaving a maximum of 830,353 Shares, being approximately 19.95% and 0.05% respectively of the issued share capital of the Company as at the date of passing of the resolution, to be allotted and issued pursuant thereto. Except that there has been no history of refreshment of general mandate other than the New General Mandate as at the Latest Practicable Date.

Should the subscription by Apollo Elite International Limited of 90,000,000 Shares be completed or the unlisted warrants in respect of 260,000,000 Shares and the outstanding options granted under the Share Option Scheme in respect of 296,140,711 Shares be exercised and issued prior to approval of the New General Mandate at the SGM, the number of Shares in issue as at the date of the SGM and therefore the number of Shares to fall under the New General Mandate may increase to 2,415,573,049 Shares and 483,114,609 Shares respectively. Such calculation does not take into account the placing to Sinopec Corp., the details of which have been set out in the Company’s announcement dated 1 November 2004. Further details of the said subscription and warrants and the possible changes to the shareholding structure of the Company are set out in the Announcement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Board proposed to pass an ordinary resolution at the SGM to approve the New General Mandate in accordance with Rule 13.36(4)(a) of the Listing Rules to allow flexibility to issue any additional new Shares so that the Directors would be granted to allot and issue not exceeding 20% of the issued share capital of the Company. The New General Mandate will be in force when it is approved by the Independent Shareholders at the SGM.

The Board believes that grant of the New General Mandate is in the best interests of the Company and the Shareholders as a whole by maintaining the financial flexibility necessary for the Group’s future business development. The Board considers equity financing to be an important avenue of resources to the Group since it does not create any interest paying obligations on the Group. In appropriate circumstances, the Group will also consider other financing methods such as debt financing or internal cash resources to fund its future business development. There is currently no concrete proposal presented by potential investors for investment in the Shares, the Board is now proposing to seek the approval of Independent Shareholders at the SGM of the New General Mandate such that should future funding needs arise or attractive terms for investment in the Shares become available from potential investors, the Board will be able to respond to the market promptly.

Improvement in the financial performance

Previously, the Group has experienced losses for the four consecutive years ended 31 March 2003. The Group turnarounded into a net profit of approximately HK$80 million for the year ended 31 March 2004, which contrasted with the net loss of approximately HK$70 million for the year ended 31 March 2003.

According to the annual report of 2004, the improvement was achieved through the continuation of its expansion strategy as demonstrated by substantial cooperation with various local governments and/or state-owned gas companies for setting up natural gas joint venture companies in respective cities and districts, all with exclusive operating rights. As part of the expansion strategy the Group acquired interests of natural gas companies from existing natural gas investors. The Group’s earning ability was strengthened, market share was increased and asset bases were broadened and improved.

According to the annual report of 2004, turnover of the Group for the year ended 31 March 2004 of approximately HK$376 million represented an improvement of approximately 340% from the previous year. Furthermore, the net assets of the Group increased from approximately HK$145 million for the year ended 31 March 2003 to HK$503 million for the year ended 31 March 2004, represented a surge of approximately 2.5 times.

However, these were achieved not without cost. The non-current liabilities grew from approximately HK$87 million for the year ended 31 March 2003 to approximately HK$396 million for the year ended 31 March 2004, which represented 3.527 times increased. The finance costs also increased from approximately HK$6.2 million to HK$24.6 million for the same periods. In other words, the gearing of the Group increased and so did its financial risk.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Therefore, we are of the view that further equity financing exercise, through issue of shares or derivatives of shares, are suitable method to reduce the gearing and will certainly reduce the financial risk of the Group, which should be beneficial to the Shareholders of the Group as a whole. Through the refreshment of the general mandate, the Group is allowed to select the most appropriate method of financing for the Group’s future expansion.

Financial flexibility

The Directors of the Company confirmed that the Group has sufficient working capital and has no immediate funding needs for the current operations of the Group. Based on the annual report of the Company, as at 31 March 2004, the Group had cash and bank balances and net current assets of approximately HK$471,823,000 and HK$581,361,000 respectively. Having taken into account the cash outflow from the subsequent acquisitions in May 2004 and August 2004 with considerations of approximately HK$20 million and HK$95 million, the repurchase of convertible loans of approximately US$3,850,000 and the future contribution of HK$33,333,333 to the registered capital of the recent formation of a joint venture company in the PRC, we concur that the Group still has sufficient working capital for its current operation.

As stated in the “Letter from the Board”, there is no concrete investment plan formulated as at the Latest Practicable Date. However, the Group would not rule out any future chances to expand through acquisitions. The Directors confirmed that if the potential investors offer attractive terms for investment in the Shares and subject to the then market condition, they will consider and may conduct an equity fund raising exercise by issuing new Shares, which may or may not result in the exercise of the New General Mandate for further development of the Group.

Save and except for the subscription agreement and the cooperative strategic agreement entered by the Group with Sinopec Corp. on 31 October 2004 and 1 November 2004 respectively, as at the Latest Practicable Date, there is no concrete proposal presented by the potential investors currently for investment in the Shares. We noted that the Directors cannot perceive whether or not there will be any issue of Shares as at the Latest Practicable Date and the amount thereof and the application of such proceeds. Having said that, as discussed in the paragraph headed “Improvement in the financial performance” above, the operating results of the Group had improved significantly for the year ended 31 March 2004. In addition, it was mentioned in the annual report of the Group for the year ended 31 March 2004 that the Group will continue to further expand its current businesses. We consider that it is logical for the Directors’ intention to further expand and invest in its current businesses to strike for a higher return for the Shareholders.

Pursuant to the Current General Mandate, 830,353 Shares could be allotted and issued. If the New General Mandate is approved and assuming that no further Shares are issued/repurchased from the Latest Practicable Date up to and including the date of the SGM, an additional 353,056,114 Shares or a total of 353,886,467 Shares, representing 20% of the existing 1,769,432,338 issued Shares as at the Latest Practicable Date, could be allotted and issued by the Directors under the New General Mandate. We consider that the granting of the New General Mandate could enhance the financing flexibility of the Company to raise capital, if and when required, through placing of Shares for further development of the Group. In addition, the Directors consider that if investment opportunities arise, investment decisions may have to be made within a short period of time.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The New General Mandate would provide the Group with the maximum flexibility as allowed under the Listing Rules to allot and issue new Shares to raise capital through placing of new Shares as consideration for funding such potential acquisitions in the future as and when such opportunities arise. The increased amount of capital which may be raised under the New General Mandate provides more options of financing to the Group when assessing and negotiating potential acquisitions in a timely manner. In this respect, we are of the view that the New General Mandate is fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole.

Other financing alternatives

Other than raising fund by way of issuing equity capital, the Directors will consider other financing methods such as debt financing and funding through internal resources in order to meet its financing requirements arising from future development of the Group, depending on the then market condition. As advised by the Directors, the New General Mandate provides another alternative to the Directors to finance the Group’s businesses and the Directors will use the method which serves the best interest of the Group. We consider that it is a sensible consideration to make reference to the then financial position of the Group in order to decide on a financing method for the future development of the Group.

Potential impact to shareholding of the existing shareholders

We set out below a table depicting the shareholding structures (with Substantial Shareholder) of the Company at the Latest Practicable Date (not taken into account the exercise of the outstanding share options at the Latest Practicable Date and the Shares to be issued to Sinopec Corp.).

Mr Liu_(Note 1) Shares issued under the Current General Mandate (Note 2)_ Shares issued under the New General Mandate Other (Public) Total	Number of issued Shares as at the Latest Practicable Date 385,000,000 21.76% – – – – 1,384,432,338 78.24% 1,769,432,338 100.00%	Number of Shares after issue of Shares Number of under the Current Shares after issue General Mandate of Shares under and upon full the Current utilization of the General Mandate New General Mandate 385,000,000 18.17% 385,000,000 15.57% 350,000,000 16.51% 350,000,000 14.15% – – 353,886,467 14.31% 1,384,432,338 65.32% 1,384,432,338 55.97% 2,119,432,338 100.00% 2,473,318,805 100.00%	Number of Shares after issue of Shares Number of under the Current Shares after issue General Mandate of Shares under and upon full the Current utilization of the General Mandate New General Mandate 385,000,000 18.17% 385,000,000 15.57% 350,000,000 16.51% 350,000,000 14.15% – – 353,886,467 14.31% 1,384,432,338 65.32% 1,384,432,338 55.97% 2,119,432,338 100.00% 2,473,318,805 100.00%
			100.00%

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

These 385,000,000 Shares represent the Shares beneficially owned by and agreed to be acquired by Mr. Liu.
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 as purchaser, Heng Fung Group has agreed to sell and Mr. Liu has agreed to acquire an aggregate of 250,000,000 Shares. As at the date of the announcement, the sale and purchase of 90,000,000 Shares had been completed. Mr. Liu was beneficially interested in 225,000,000 Shares as at the Latest Practicable Date.
350,000,000 shares included the 90,000,000 Shares to be allotted to Apollo Elite International Limited and the unlisted warrants in respect of 260,000,000 Shares be issued and exercised prior to the SGM.

Shareholders should note that the Current General Mandate will be revoked upon approval at the SGM of the New General Mandate which will be and continue to be in force until the earliest of (i) the conclusion of the Company’s next annual general meeting; (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Company’s memorandum and articles of association or any applicable law to be held; and (iii) the revocation or variation of the authority given under the relevant resolution to be proposed at the SGM by ordinary resolution of the Shareholders in general meeting. Such duration is in compliance with Rule 13.36(3) of the Listing Rules.

Upon full utilization of the New General Mandate, 353,886,467 Shares will be issued, representing 20% and approximately 14.31% of the existing issued share capital and the enlarged issued share capital of the Company respectively.

The aggregate shareholding of the existing public Shareholders will decrease from approximately 78.24% to approximately 65.32% after Shares to be issued under the Current General Mandate and to approximately 55.97% after Shares to be issued under the Current General Mandate and upon full utilization of the New General Mandate. The existing public Shareholders will have a potential maximum dilution of approximately 22.27% after Shares to be issued under the Current General Mandate and upon full utilization of the New General Mandate. Taking into account that the New General Mandate will increase the amount of capital which may be raised under the New General Mandate and provides more options of financing to the Group for further development of its business as well as in other potential future acquisitions as and when such opportunities arise and the fact that the shareholding of all the Shareholders will be diluted to the same extent upon any utilization of the New General Mandate, we consider such dilution or potential dilution to shareholding of the Independent Shareholders acceptable.

Terms of the New General Mandate

Pursuant to the Listing Rules, the Company will be required to seek prior consent of Shareholders for any allotment, issue or grant of Shares or securities convertible into Shares or other rights to subscribe for Shares or such convertible securities, unless such allotment, issue or grant falls under the circumstances provided under Rule 13.36(2) of the Listing Rules, including certain rights issue and open offer (subject to other Listing Rules requirements on the offering size and structure). Pursuant to Rule 13.36(2)(b) of the Listing Rules, an ordinary resolution will be proposed at the SGM to obtain approval from the Shareholders to refresh the Current General Mandate so that the Directors will be entitled to exercise the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

powers of the Company to allot and issue Shares not exceeding 20% of the aggregate nominal amount of the issued share capital of the Company as at the date of the SGM. The approval of the New General Mandate by the Shareholders is unconditional.

Having taken into consideration of the above principal factors and reasons, in particular:

(i) background of the New General Mandate;
(ii) improvement in financial performance of the Group;
(iii) enhancement of financial flexibility to the Group; and
(iv) acceptable potential dilution to shareholdings of the Independent Shareholders,

we are of the view that the New General Mandate is fair and reasonable, so far as the Independent Shareholders are concerned and that the New General Mandate is in the interests of the Company and the Independent Shareholders as a whole.

Grant of Options to two Directors

Background

At the special general meeting of the Company held on 6 February 2003, the Shareholders approved and adopted by an ordinary resolution the Share Option Scheme whereby the Directors were authorised to grant options to full-time and part-time employees (including all Directors) of the Group or any other specified participants who, in the absolute opinion of the Board, have contributed to the Group. On 12 August 2004, the limit of the Share Option Scheme was refreshed by way an ordinary resolution of the Shareholders at the AGM pursuant to which the Directors were allowed to grant further options under the Share Option Scheme and other share options schemes carrying the right to subscribe for a maximum of 175,415,176 Shares.

On 6 October 2004, the Board resolved to grant the Options to two Directors – Mr. Liu and Mr. Xu. Each of them was granted 130,000,000 and 90,000,000 Options respectively. Both Mr. Liu and Mr. Xu currently hold 5,000,000 options which were granted on 8 January 2004 under the Share Option Scheme, each representing approximately 0.28% of the total issued share capital of the Company as at the Latest Practicable Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Terms of the Options

The principal terms of the Options are set out below:

(a) Duration and the condition

The Options have a life of ten years from the date of grant of the Options in accordance with the Share Option Scheme.

Pursuant to the Share Option Scheme, the exercise of the Options will be subject to the condition that the net asset value of the Group which shall be certified by the auditors appointed by the Company as at the date of the exercise of the Options being not less than HK$1 billion. Save as the aforesaid, there is no specific performance target before the exercise of the Options.

There is no minimum period for which the Options must be held before the Options can be exercised.

(b) Subscription Price

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Rationale for awarding Options to two Directors

As stated in the Share Option Scheme, the purpose of it is to advance the interests of the Company and its Shareholders by enabling the Company to grant options to attract, retain and reward the Eligible Persons, to provide to the Eligible Persons a performance incentive for continued and improved services with the Company and its subsidiaries, and to enhance such persons’ contribution to increase the profits by encouraging capital accumulation and share ownership.

The Directors confirm Mr. Liu and Mr. Xu are executive Directors who actively involve in the day to day management of the Group as well as in setting the strategic direction of the Group. They are the key driver of the Group’s performance and success. Therefore, granting options to reward him upon further success of the Group is within the ambit of the purpose of the Share Option Scheme. In this regard, we are of the view that it is reasonable for the Company to grant Options to Mr. Liu and Mr. Xu.

Subscription Price

Under the Share Option Scheme, the Subscription Price is required to tie to the share value at and around the date of grant to avoid substantial discount provided to the grantee. Furthermore, upon exercise of the Options, it will generate a maximum of about HK$156 million to the Company. Therefore, the Subscription Price was set to benefit both the grantee and the Company. In this regard, we are of the view that the Subscription Price is fair and reasonable to the Shareholders as a whole.

Additional condition of grant

The Share Option Scheme, in itself, ties the grantees’ reward with the Company’s performance in term of market value of the Company. However, the market value of the Company depends on a number of market factors which may be out of the control of both the Company and the grantee. The exercise of the Options granted was made conditional on that the net asset value of the Group must reach HK$1 billion. This condition provides a quantitative and objective assessment on the grantees’ performance which reduces the chance that the grantee would be rewarded by uncontrollable factors or pure luck. As at 31 March 2004, the audited net asset of the Group was approximately HK$502 million. This means that within the ten years’ time, the grantee would have to increase the Group’s net assets by one fold. This should benefit the Shareholders as a whole in terms of better net assets per share.

Furthermore, we draw your attention that the net assets should be certified by auditors appointed by the Group. This further safeguard that the grantee to generate net assets by change in accounting policies or worse than that by manipulation. The auditors would also check independently on the net assets figure to ensure its integrity. Therefore, we are of the view that the additional condition of grant is fair and reasonable to the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Potential impact to shareholding of the Independent Shareholders

We set out below a table depicting the changes in the shareholdings of Mr. Liu and Mr. Xu and their respective associates in the issued share capital of the Company upon the exercise in full of the Existing Options and the Options (without taken into account the Current General Mandate and the New General Mandate):

Mr Liu Mr Xu Public Total	Number of Shares held as at the Latest Practicable Date 385,000,000 (Note) – 1,384,432,338 1,769,432,338	Approximate percentage of Shares held to the issued share capital of the Company as at the Latest Practicable Date 21.76% – 78.24% 100.00%	Number of Shares to be issued upon exercise in full of the Existing Options 5,000,000 5,000,000 – 10,000,000	Approximate percentage of Shares to be issued upon exercise in full of the Existing Options to the issued share capital of the Company as at the Latest Practicable Date 0.28% 0.28% – 0.56%	Number of Shares to be issued upon exercise in full of the Options 130,000,000 90,000,000 – 220,000,000	Approximate percentage of Shares to be issued upon exercise in full of the Options to the issued share capital of the Company as at the Latest Practicable Date 7.35% 5.09% – 12.44%	Approximate percentage of Shares to be issued upon exercise in full of the Existing Options and the Options to the issued share capital of the Company as at the Latest Practicable Date 7.63% 5.37% – 13.00%	Approximate percentage shareholding upon exercise in full of the Existing Options and the Options to the enlarged issued share capital of the Company as enlarged by the exercise in full of the Existing Options and the Options 26.01% 4.75% 69.24%
								100.00%

Note:

These 385,000,000 Shares represent the Shares beneficially owned by and agreed to be acquired by Mr. Liu.

We note that the public would be diluted from 78.24% to 69.24% upon full exercise of the Options. However, we are of the view that this dilution should be acceptable to the public should the net assets of the Group increased by one fold.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

CONCLUSION

Having taken into consideration of the above principal factors and reasons, we are of the view that the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu are fair and reasonable, so far as the Independent Shareholders are concerned and that the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee and the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the New General Mandate and the grant of Options to Mr. Liu and Mr. Xu.

Yours faithfully For and on behalf of Grand Vinco Capital Limited Alister Chung Managing Director

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PROCEDURES BY WHICH SHAREHOLDERS MAY DEMAND A POLL AT THE SGM

APPENDIX

The following sets out the procedures by which the Shareholders may demand a poll at the SGM.

According to bye-law 66 of the bye-laws of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

(i) the chairman of such meeting; or
(ii) at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(iv) any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

27 -

NOTICE OF SPECIAL GENERAL MEETING

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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)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that an special general meeting of the shareholders of China Gas Holdings Limited (the “ Company ”) will be held at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong, on Monday, 22 November 2004 at 10:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions (which shall be taken by poll) as ordinary resolutions of the Company:

“ THAT , to the extent not already exercised, the mandate to allot and issue shares of the Company given to the directors of the Company at the annual general meeting of the Company held on 12 August 2004 be and is hereby revoked and replaced by the mandate THAT :
(a) subject to paragraph (b) below, the exercise by the directors of the Company during the Relevant Period (as defined below) of all the powers of the Company to allot, issue and deal with additional shares in the share capital of the Company and to make or grant offers, agreements and options which would or might require the exercise of such powers during or after the end of the Relevant Period, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by the directors of the Company pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue (as defined below); (ii) an issue of shares upon the exercise of subscription rights or conversion rights under any warrants of the Company or any securities of the Company which are convertible into shares of the Company; (iii) an issue of shares as scrip dividends pursuant to the Bye-laws of the Company from time to time; or (iv) an issue of shares under any option scheme or similar arrangement for the time being adopted for the grant or issue to employees or directors of the Company and/or any of its subsidiaries of shares in the capital of the Company or rights, to acquire shares in the capital of the Company shall not exceed aggregate of (i) 20 per cent. of the nominal amount of the share capital of the Company in issue as at the date of this Resolution; plus (ii) subject to the passing of Resolution No. 2 below, all those number of shares which may from time to time be purchased by the Company pursuant to the general mandate granted to the directors of the Company at the annual general meeting of the Company held on 12 August 2004, and the said approval shall be limited accordingly; and

* For identification purpose only

28 -

NOTICE OF SPECIAL GENERAL MEETING

“Relevant Period” means the period from the time of passing this Resolution until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company;
(ii) the expiration of the period within which the next annual general meeting of the Company is required by laws to be held; and
(iii) the revocation or variation of this Resolution by an ordinary resolution of the shareholders of the Company in general meeting.

“Rights Issue” means the allotment, issue or grant of shares pursuant to an offer open for a period fixed by the directors of the Company to holders of shares or any class thereof on the register of members of the Company on a fixed record date pro rata to their then holdings of such shares or class thereof (subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong).”

“ THAT conditional upon the passing of Resolution No. 1 above set out in the notice of meeting of which this Resolution forms part, the mandate to extend the general mandate to allot and issue shares of the Company granted to the directors of the Company at the annual general meeting of the Company held on 12 August 2004 be and is hereby revoked and replaced by the mandate THAT the aggregate nominal amount of the shares which are repurchased by the Company pursuant to and in accordance with the general mandate to repurchase shares of the Company granted to the directors of the Company at the annual general meeting of the Company held on 12 August 2004 shall be added to the aggregate nominal amount of shares which may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to and in accordance with Resolution No. 1 above, provided that such additional amount shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of passing this Resolution.”
“ THAT subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting listing of, and permission to deal in, the shares of HK$0.01 each in the share capital of the Company to be issued pursuant to the exercise of options which may be granted under Resolutions Nos. 4 and 5 below, the grant of options (the “ Grant ”) in excess of the 10% scheme mandate limit under the share option scheme of the Company approved and adopted by an ordinary resolution of the Shareholders at the special general meeting of the Company held on 6 February 2003, be and is hereby approved and any director of the Company be and is hereby authorised to do such act and execute such document to effect such Grant;”
29 -

NOTICE OF SPECIAL GENERAL MEETING

(i) “ THAT subject to the passing of the Resolution No. 3 above, the directors of the Company be and are hereby authorised to grant to Mr. Liu Ming Hui (“ Mr. Liu ”) options (the “ Liu Share Options ”) to subscribe for 130,000,000 ordinary shares of HK0.01 each in the capital of the Company at the subscription price of HK$0.71 per share; and
(ii) the directors of the Company or a duly authorised committee thereof be and are hereby authorised to do any act or thing to sign, seal, execute and/or deliver any documents for and on behalf of the Company as may be necessary, desirable or expedient in connection with the grant of the Liu Share Options to Mr. Liu.”
(i) “ THAT , subject to the passing of Resolution No. 3 above, the directors of the Company be and are hereby authorised to grant to Mr. Xu Ying (“ Mr. Xu ”) options (the “ Xu Share Options ”) to subscribe for 90,000,000 ordinary shares of HK0.01 each in the capital of the Company at the subscription price of HK$0.71 per share; and
(ii) the directors of the Company or a duly authorised committee thereof be and are hereby authorised to do any act or thing to sign, seal, execute and/or deliver any documents for and on behalf of the Company as may be necessary, desirable or expedient in connection with the grant of the Xu Share Options to Mr. Xu.”

By order of the Board China Gas Holdings Limited Liu Ming Hui Managing Director

Hong Kong, 6 November 2004

30 -

NOTICE OF SPECIAL GENERAL MEETING

Registered office: Head office and principal place of Clarendon House business in Hong Kong: 2 Church Street 16th Floor Hamilton HM 11 AXA Center Bermuda No. 151 Gloucester Road Wanchai Hong Kong

Notes:

A member entitled to attend and vote at the SGM is entitled to appoint one or more proxy to attend and, subject to the provisions of the bye-laws of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the SGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
A form of proxy for use at the SGM is enclosed. In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority, at the head office and principal place of business of the Company in Hong Kong at 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the SGM or any adjournment thereof, should he so wish.
In the case of joint holders of shares, any one of such holders may vote at the SGM, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holder are present at the SGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.
31 -

AI assistant

China Literature Limited — Proxy Solicitation & Information Statement 2004

49460_rns_2004-11-09_5348e290-3d85-4749-a3ad-58c351bc8fc9.pdf

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

GRANT OF OPTIONS TO TWO DIRECTORS

AND

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

Independent financial adviser to the Independent Board Committee

Grand Vinco Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

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

GRANT OF OPTIONS TO TWO DIRECTORS

AND

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

INTRODUCTION

CURRENT GENERAL MANDATE

PROPOSED GRANT OF NEW GENERAL MANDATE

REASONS FOR THE NEW GENERAL MANDATE

THE SHARE OPTION SCHEME

The Options

The Grantees

Terms of the Options

(a) Duration and the condition

(c) Reasons and consideration for the grant of the Options

INFORMATION ON OPTIONS GRANTED UNDER THE SHARE OPTION SCHEME

IMPLICATION UNDER THE LISTING RULES

LETTER FROM THE BOARD

SPECIAL GENERAL MEETING

INDEPENDENT BOARD COMMITTEE

GENERAL INFORMATION

RESPONSIBILITY STATEMENT

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

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND GRANT OF OPTIONS TO MR. LIU AND MR. XU

Grand Vinco Capital Limited

REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND GRANT OF OPTIONS TO TWO DIRECTORS

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

New General Mandate

Background

Improvement in the financial performance

Financial flexibility

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Other financing alternatives

Potential impact to shareholding of the existing shareholders

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Terms of the New General Mandate

Grant of Options to two Directors

Background

Terms of the Options

(b) Subscription Price

Rationale for awarding Options to two Directors

Subscription Price

Additional condition of grant

CONCLUSION

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

NOTICE OF SPECIAL GENERAL MEETING

More from China Literature Limited

China Literature Limited Proxy Solicitation & Information Statement 2004

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

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

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

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