THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your 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 (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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

(incorporated in Bermuda with limited liability)

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES AND PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

Independent financial adviser to the independent board committee of the Company

Grand Vinco Capital Limited

A notice convening a special general meeting of the Company to be held at 10:00 a.m. on 4 March 2004 at Room 1601, 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong is set out on pages 37 to 41 of this circular. Whether or not you are able to attend the special general meeting, you are requested to complete the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same at the offices of the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Rooms 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjournment thereof should you so wish.

A letter from the independent board committee of the Company containing its recommendation to the independent shareholders of the Company is set out on page 19 of this circular. A letter of advice from the independent financial adviser to the independent board committee of the Company is set out on pages 20 to 27 of this circular.

16 February 2004

* For identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Subscription Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reasons for the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Acquisition of Shares by Mr. Liu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Changes of shareholding structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
General Mandate and Repurchase Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the IFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Appendix I – Explanatory Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix II – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

DEFINITIONS

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

“Acquisition”	the acquisition of an aggregate of 250,000,000 Shares by Mr. Liu
	from Heng Fung Group pursuant to the Sale and Purchase
	Agreement
“Announcement”	the press announcement issued by the Company dated 21 January
	2004 regarding, among other matters, the Subscription
“associates”	has the meaning ascribed to this term under the Listing Rules
“Board”	the board of Directors
“Bonds”	together, Tranche 1 Bonds, Tranche 2 Bonds, Tranche 3 Bonds,
	Tranche 4 Bonds and Tranche 5 Bonds
“Bonds Subscription Agreements”	the two agreements dated 29 October 2003 and entered into
	between the Company and Merrill Lynch relating to, among other
	things, the subscription of the Bonds
“business day”	a day (other than a Saturday) on which licensed banks in Hong
	Kong are generally open for business throughout their normal
	business hours
“Company”	China Gas Holdings Limited, a company incorporated in Bermuda
	with limited liability and the issued Shares of which are listed on
	the main board of the Stock Exchange
“connected person(s)”	has the meaning ascribed to this term under Chapters 1 and 14 of
	the Listing Rules
“Directors”	directors (including the independent non-executive directors) of
	the Company
“Dragon Media”	Dragon Media Enterprises Limited, a company incorporated in
	the British Virgin Islands with limited liability and the issued
	share capital of which is owned as to 24% by Mr. Zhu Wei Wei,
	an executive Director, and as to 76% by Mr. Huang Yong, a director
	of Shenzhen Natural Gas, and the subscriber under the Dragon
	Media Subscription Agreement
“Dragon Media Guarantors”	together, Mr. Zhu Wei Wei and Mr. Huang Yong, the guarantors
	under the Dragon Media Subscription Agreement

DEFINITIONS

“Dragon Media the agreement dated 16 January 2004 and entered into between Subscription Agreement” the Company, Dragon Media and the Dragon Media Guarantors in respect of the Subscription
“General Mandate” the general mandate proposed to be granted to the Directors at the SGM to issue further new Shares not exceeding 20% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares
“Group” the Company and its subsidiaries “Heng Fung Group” Heng Fung Holdings together with Sure World Capital Limited, Rasa Sayang Limited and Heng Fung Capital Company Limited, all of which are wholly owned subsidiaries of Heng Fung Holdings
“Heng Fung Holdings” Heng Fung Holdings Limited, a substantial Shareholder holding, directly and through its wholly owned subsidiary, approximately 10.81% of the issued share capital of the Company as at the Latest Practicable Date
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“IFA” or “Vinco” Grand Vinco Capital Limited, a licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, the independent financial adviser to the Independent Board Committee
“Independent Board Committee” an independent committee of the Board, comprising Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, being all independent non-executive Directors, which has been formed to advise the Independent Shareholders as to the fairness and reasonableness of the Subscription
“Independent Shareholders” Shareholders other than the Subscribers, the Dragon Media Guarantors and their respective associates
“Latest Practicable Date”
13 February 2004, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Liu Subscription Agreement” the agreement dated 16 January 2004 and entered into between the Company and Mr. Liu in respect of the Subscription

“Merrill Lynch” Merrill Lynch International

DEFINITIONS

“Mr. Liu”	Mr. Liu Ming Hui, an executive Director, the subscriber under the
	Liu Subscription Agreement and the purchaser under the Sale and
	Purchase Agreement
“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, which for the purpose of this
	circular, excludes Hong Kong, the Macau Special Administrative
	Region of the PRC and Taiwan
“Repurchase Mandate”	the repurchase mandate proposed to be granted to the Directors at
	the SGM to repurchase up to 10% of the issued share capital of
	the Company as enlarged by the allotment and issue of the
	Subscription Shares
“Sale and Purchase Agreement”	a binding letter of offer issued by Mr. Liu and accepted by the
	Heng Fung Group on 16 January 2004 in relation to the Acquisition
“Sale Shares”	an aggregate of 250,000,000 Shares acquired by Mr. Liu pursuant
	to the Sale and Purchase Agreement
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened and
	held to consider and, if thought fit, to approve, among other things,
	the Subscription and the transactions contemplated thereunder
	including but not limited to the allotment and issue of the
	Subscription Shares, and the grant of the General Mandate and
	the Repurchase Mandate
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Share(s)
“Shenzhen Natural Gas”	中亞燃氣實業(深圳)有限公司(Central Asia Natural Gas
	(Shenzhen) Company Limited), a wholly foreign owned enterprise
	established in the PRC and a wholly owned subsidiary of the
	Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscribers”	together, Mr. Liu and Dragon Media

DEFINITIONS

“Subscription”	the subscription for the Subscription Shares by the Subscribers
	pursuant to the Subscription Agreements
“Subscription Agreements”	together, the Liu Subscription Agreement and the Dragon Media
	Subscription Agreement
“Subscription Price”	the subscription price of HK$0.65 per Subscription Share
“Subscription Shares” and	an aggregate of 180,000,000 Shares, as to 130,000,000 Shares to
each a “Subscription Share”	be subscribed by Mr. Liu pursuant to the Liu Subscription
	Agreement and as to 50,000,000 Shares to be subscribed by Dragon
	Media pursuant to the Dragon Media Subscription Agreement
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Tranche 1 Bonds”	convertible bonds with an aggregate principal amount of
	US$6,000,000 due 2008 issued by the Company to Merrill Lynch
	pursuant to the Bonds Subscription Agreements
“Tranche 2 Bonds”	convertible bonds with an aggregate principal amount of up to
	US$7,000,000 which are to be issued by the Company to Merrill
	Lynch pursuant to an option granted by the Company to Merrill
	Lynch under the Bonds Subscription Agreements
“Tranche 3 Bonds”	convertible bonds with an aggregate principal amount of up to
	US$8,000,000 which are to be issued by the Company to Merrill
	Lynch pursuant to an option granted by the Company to Merrill
	Lynch under the Bonds Subscription Agreements
“Tranche 4 Bonds”	convertible bonds with an aggregate principal amount of up to
	US$10,000,000 which are to be issued by the Company to Merrill
	Lynch pursuant to an option granted by the Company to Merrill
	Lynch under the Bonds Subscription Agreements
“Tranche 5 Bonds”	convertible bonds with an aggregate principal amount of up to
	US$10,000,000 which are to be issued by the Company to Merrill
	Lynch pursuant to an option granted by the Company to Merrill
	Lynch under the Bonds Subscription Agreements
“HK$”	Hong Kong dollars, the lawful currency for the time being of
	Hong Kong
“RMB”	Renminbi, the lawful currency for the time being of the PRC
“US$”	United States dollars, the lawful currency for the time being of
	the United States of America
“%”	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)

Executive Directors:

Mr. Li Xiaoyun (Chairman)

Mr. Xu Ying (Vice Chairman) Mr. Liu Ming Hui (Managing Director) Mr. Ma Jin Long

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

Mr. Zhu Wei Wei

Non-executive Director:

Mr. Wu Bangjie

Independent non-executive Directors:

Mr. Zhao Yu Hua

Dr. Mao Er Wan

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

No. 151 Gloucester Road Wanchai

Hong Kong

Ms. Wong Sin Yue, Cynthia

16 February 2004

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES AND

PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

INTRODUCTION

On 21 January 2004, the Directors announced that the Company entered into the Subscription Agreements with the Subscribers and the Dragon Media Guarantors. Pursuant to the Subscription Agreements, the Subscribers have conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue, an aggregate of 180,000,000 Shares in cash at a subscription price of HK$0.65 per Subscription Share.

* For identification purpose only

LETTER FROM THE BOARD

Since Mr. Liu is an executive Director and the issued share capital of Dragon Media is owned as to 24% by Mr. Zhu Wei Wei, an executive Director, and as to 76% by Mr. Huang Yong, a director of Shenzhen Natural Gas, the Subscription constitutes a connected transaction on the part of the Company under Rule 14.23 of the Listing Rules and will be subject to, among other things, the approval of the Independent Shareholders at the SGM.

The Independent Board Committee comprising Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, being all independent non-executive Directors, has been formed to advise the Independent Shareholders as to the fairness and reasonableness of the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares. The IFA has been appointed as an independent financial adviser to advise the Independent Board Committee in this regard.

The purpose of this circular is to provide you with details of the Subscription Agreements, the proposed grant of the General Mandate and the Repurchase Mandate, the letter from the Independent Board Committee to the Independent Shareholders containing its recommendation to the Independent Shareholders on the Subscription, the letter from the IFA containing its advice to the Independent Board Committee on the Subscription and the notice of the SGM.

SUBSCRIPTION AGREEMENTS

On 16 January 2004, the Company entered into the Subscription Agreements with the Subscribers and the Dragon Media Guarantors, pursuant to which the Subscribers have conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue, an aggregate of 180,000,000 Shares in cash at a subscription price of HK$0.65 per Subscription Share.

The Subscribers

(i) Pursuant to the Liu Subscription Agreement, Mr. Liu has conditionally agreed to subscribe for 130,000,000 Subscription Shares. Mr. Liu is an executive Director and was appointed to the Board on 29 April 2002.
(ii) Pursuant to the Dragon Media Subscription Agreement, Dragon Media has conditionally agreed to subscribe for 50,000,000 Subscription Shares. The issued share capital of Dragon Media is owned as to 24% by Mr. Zhu Wei Wei and as to the remaining 76% by Mr. Huang Yong. Mr. Zhu Wei Wei is an executive Director. Mr. Huang Yong is a director of Shenzhen Natural Gas.
6 -

LETTER FROM THE BOARD

The Dragon Media Guarantors

Pursuant to the Dragon Media Subscription Agreement, the Dragon Media Guarantors have unconditionally and irrevocably undertaken to procure the prompt performance by Dragon Media of all its obligations under or arising out of or in connection with the Dragon Media Subscription Agreement and have also undertaken to the Company that if and whenever Dragon Media shall be in default, the Dragon Media Guarantors shall fully indemnify the Company against all loss and damages arising in connection thereof. The liabilities of the Dragon Media Guarantors under the Dragon Media Subscription Agreement shall be joint and several.

Number of Subscription Shares

The Subscription Shares represent approximately 11.98% of the issued share capital of the Company as at the Latest Practicable Date and approximately 10.70% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares.

Subscription Price

The subscription price of HK$0.65 per Subscription Share represents:

(i) a discount of approximately 9.72% to the closing price of HK$0.72 per Share as quoted on the Stock Exchange on 16 January 2004, being the last trading day before the date of the Announcement;
(ii) a discount of approximately 13.33% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 16 January 2004;
(iii) a discount of approximately 9.72% to the closing price of HK$0.72 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a discount of approximately 13.33% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiations between the Company, the Subscribers and the Dragon Media Guarantors with reference to the closing prices as shown in (i) and (ii) above. The Board had also considered the placing prices in the recent placing exercises of several listed companies engaging in similar business with the Group when determining the Subscription Price. The discounts to the closing prices as shown in (i) and (ii) above fall within the range of discount offered by those companies in their recent placing exercises. In view of the above, the Directors consider the discounts offered under the Subscription to be justifiable and the terms of the Subscription Agreements to be fair and reasonable and in the interests of the Shareholders as a whole.

LETTER FROM THE BOARD

Rights

The Subscription Shares, when allotted and issued, will rank equally in all respects among themselves and with the Shares in issue on the date of allotment and issue of the Subscription Shares.

Mandate to issue the Subscription Shares

The SGM will be convened and held at 10:00 a.m. on 4 March 2004 at Room 1601, 16th Floor, AXA Centre, No. 151 Gloucester Road, Wanchai, Hong Kong to consider and, if thought fit, to approve, among other things, the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares to the Subscribers pursuant to the Subscription Agreements.

Conditions of the Subscription

The Subscription is conditional upon the following conditions having been fulfilled by 30 April 2004 (or such other date as may be agreed between the Company and the Subscribers):

(i) the passing of the necessary resolution by the Independent Shareholders at the SGM to approve the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares pursuant to the Subscription Agreements;
(ii) the Listing Committee of the Stock Exchange granting or agreeing to grant the listing of, and permission to deal in, the Subscription Shares; and
(iii) (if so required) the Bermuda Monetary Authority granting permission for the allotment and issue of the Subscription Shares.

In the event that the conditions of the Subscription are not fulfilled in full by the date stipulated, the Subscription Agreements shall cease and determine and neither the Company nor the Subscribers shall have any obligations and liabilities under the Subscription Agreements. As at the Latest Practicable Date, condition (iii) has been fulfilled.

Completion of the Subscription

Completion of the Subscription will take place on the third business day after all the conditions of the Subscription have been fulfilled (or such other date as may be agreed between the Company and the Subscribers). There will be no change to the composition of the Board immediately upon completion of the Subscription.

LETTER FROM THE BOARD

Application for listing

Application has been made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

REASONS FOR THE SUBSCRIPTION

The Group is principally engaged in investment in, among other things, natural gas/energy and property projects.

By entering into the Subscription Agreements, the Group can raise capital to further strengthen its financial position. The net proceeds of the Subscription of about HK$117,000,000 will be applied as the Group’s future investments in natural gas projects in the PRC and/or the Group’s general working capital.

The Company estimates that approximately HK$35,000,000, representing approximately 30% of the net proceeds of the Subscription, will be applied as the general working capital of the Group. The Company currently intends to apply the remaining balance of the net proceeds of the Subscription for the Group’s future investments in natural gas projects in the PRC. The Directors confirm that no such investment opportunities have been identified as at the Latest Practicable Date. Further announcement will be made as and when appropriate in accordance with the Listing Rules. The Company currently does not intend to apply the net proceeds of the Subscription for the repayment of loans and liabilities of the Group.

The Directors consider that the Subscription Agreements are entered into upon normal commercial terms following arm’s length negotiations between the Company, the Subscribers and the Dragon Media Guarantors and that the terms of the Subscription Agreements are fair and reasonable so far as the interests of the Shareholders as a whole are concerned.

LETTER FROM THE BOARD

The following table summaries the fund raising activities of the Group in the 12 months immediately preceding the Latest Practicable Date:

				Actual use of
				proceeds as at
Date of			Intended use	the Latest
announcement	Event	Net proceeds	of proceeds	Practicable Date
10 June 2003	Issue of	About	As investment in	The net proceeds of
	convertible note	HK$46,800,000	natural gas projects	about HK$46,800,000
	in the principal		in the PRC	has been applied as
	amount of			the Group’s
	US$6,000,000			contribution to the
				registered capital of
				Yichang China Gas &
				City Gas Company
				Limited.
				(Note 1)
9 October 2003	Placing of an	About	As general working	The net proceeds of
	aggregate of	HK$50,000,000	capital of the	about HK$6,000,000
	70,000,000 new		Group	has been applied as
	Shares			the Group’s general
				working capital and
				the remaining balance
				of about
				HK$44,000,000 has
				been applied to repay
				the Group’s short term
				liabilities.
30 October	Issue of the	Up to	(Note 2)	The Tranche 1 Bonds
2003	Bonds	US$13,000,000		were issued on 13
	(Note 2)	(Note 2)		November 2003. The
				Company will apply
				the net proceeds
				derived from the issue
				of the Tranche 1
				Bonds in accordance
				with the intended use
				as set out in the
				Company’s
				announcement dated
				30 October 2003.

10 -

LETTER FROM THE BOARD

				Actual use of
				proceeds as at
Date of			Intended use	the Latest
announcement	Event	Net proceeds	of proceeds	Practicable Date
11 November	Top-up placing	About	As to	The net proceeds of
2003	of 160,000,000	HK$130,000,000	approximately	approximately
	Shares		HK$78,000,000 for	HK$78,000,000 has
			the contribution of	been applied as the
			the enlarged	Group’s contribution
			registered capital	to the enlarged
			of Shenzhen	registered capital of
			Natural Gas and as	Shenzhen Natural Gas
			to the remaining	and approximately
			balance as the	HK$10,000,000 has
			general working	been applied to repay
			capital of the	the Group’s short term
			Group.	bank borrowings. The
				remaining balance of
				about HK$42,000,000
				remained unutilised as
				at the Latest
				Practicable Date.

Notes:

Yichang China Gas & City Gas Company Limited is a Chinese-foreign equity joint venture established in the PRC by Shenzhen Natural Gas, Wuhan China Natural Gas Investment Company Limited and Yichang City Natural Gas Company Limited. Wuhan China Natural Gas Investment Company Limited is a wholly owned subsidiary of Shenzhen Natural Gas. The registered capital of Yichang China Gas & City Gas Company Limited of RMB70,000,000 is contributed as to 49% by Shenzhen Natural Gas, as to 21% by Wuhan China Natural Gas Investment Company Limited and as to 30% by Yichang City Natural Gas Company Limited.

Yichang China Gas & City Gas Company Limited is 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 Yichang, Hubei Province, the PRC. For details of the formation of Yichang China Gas & City Gas Company Limited, please refer to the Company’s announcement dated 10 December 2002.

The net proceeds of about HK$45,000,000 derived from the issue of the Tranche 1 Bonds will be used entirely as the second stage capital contribution in the Group’s natural gas projects in Huainan and Wuhu, the PRC, through Shenzhen Natural Gas. The net proceeds derived from the Tranche 2 Bonds (if issued) will, depending on the extent that the Tranche 2 Bonds are issued, be used for capital contribution in the Group’s existing or future natural gas projects and/or for working capital purposes.

Details regarding the issue of the Bonds are set out in the Company’s announcements dated 30 October 2003, 17 December 2003 and 19 December 2003 and the Company’s circular dated 3 December 2003. Details regarding the Group’s natural gas projects in Huainan are set out in the Company’s announcement dated 10 June 2003 and the Company’s circular dated 30 June 2003. Details regarding the Group’s natural gas projects in Wuhu are set out in the Company’s announcement dated 25 June 2003 and the Company’s circular dated 14 August 2003.

11 -

LETTER FROM THE BOARD

The net proceeds of about HK$130,000,000 derived from the top-up placing of an aggregate of 160,000,000 Shares in November 2003 have been earmarked as to approximately HK$78,000,000 for the contribution of the enlarged registered capital of Shenzhen Natural Gas and as to the remaining balance as the general working capital of the Group. Although a balance of approximately HK$42,000,000 of such net proceeds remained unutilised as at the Latest Practicable Date, the Company has no intention to alter the intended use of such unutilised proceeds as general making capital of the Group.

(i) Taking into account the market conditions and the performance of the trading prices of the Shares; and (ii) in order to raise further funds for the Group’s future investments in natural gas projects in the PRC, the Directors consider the Subscription and its timing to be in the interests of the Group and the Shareholders as a whole.

ACQUISITION OF SHARES BY MR. LIU

On 16 January 2004, the Company was informed by Heng Fung Group and Mr. Liu that on the same date, Heng Fung Group had entered into the Sale and Purchase Agreement with Mr. Liu, pursuant to which Heng Fung Group had agreed to sell and Mr. Liu had agreed to acquire an aggregate of 250,000,000 Shares in cash at an aggregate consideration of HK$180,000,000.

The consideration payable by Mr. Liu of HK0.72 per Share represents:

(i) the closing price per Share as quoted on the Stock Exchange on 16 January 2004, being the date of the Sale and Purchase Agreement;
(ii) a discount of 4.00% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 16 January 2004;
(iii) the closing price per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a discount of 4.00% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Latest Practicable Date.

The Company was informed by Heng Fung Group and Mr. Liu that the consideration was arrived at after arm’s length negotiations between the parties.

12 -

LETTER FROM THE BOARD

The Sale Shares represent approximately 16.64% of the issued share capital of the Company as at the Latest Practicable Date and approximately 14.86% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. Completion of the Acquisition will take place in seven stages within a 16-month period after the date of the Sale and Purchase Agreement in accordance with the following time frame:

Consideration payable Before 5 February 2004 HK$40,500,000 11 months after the date of the Sale and Purchase Agreement HK$23,191,875 12 months after the date of the Sale and Purchase Agreement HK$23,191,875 13 months after the date of the Sale and Purchase Agreement HK$23,191,875 14 months after the date of the Sale and Purchase Agreement HK$23,191,875 15 months after the date of the Sale and Purchase Agreement HK$23,191,875 16 months after the date of the Sale and Purchase Agreement HK$23,540,625 Total HK$180,000,000	Sale Shares to be delivered 90,000,000 26,600,000 26,600,000 26,600,000 26,600,000 26,600,000 27,000,000
	250,000,000

Consideration payable
Before 5 February 2004
HK$40,500,000
11 months after the date of the Sale
and Purchase Agreement
HK$23,191,875
12 months after the date of the Sale
and Purchase Agreement
HK$23,191,875
13 months after the date of the Sale
and Purchase Agreement
HK$23,191,875
14 months after the date of the Sale
and Purchase Agreement
HK$23,191,875
15 months after the date of the Sale
and Purchase Agreement
HK$23,191,875
16 months after the date of the Sale
and Purchase Agreement
HK$23,540,625
Total
HK$180,000,000

Sale Shares
to be delivered
90,000,000
26,600,000
26,600,000
26,600,000
26,600,000
26,600,000
27,000,000

250,000,000

As at the Latest Practicable Date, the sale and purchase of 90,000,000 Sale Shares has been completed. Immediately thereafter, Mr. Liu holds 90,000,000 Shares, representing approximately 5.99% of the issued share capital of the Company as at the Latest Practicable Date, and Heng Fung Group’s shareholding in the Company has been reduced to approximately 10.81% of the issued share capital of the Company as at the Latest Practicable Date.

The issued shares of Heng Fung Holdings are listed on the main board of the Stock Exchange. According to the annual report of Heng Fung Holdings for the year ended 31 March 2003, Heng Fung Group is principally engaged in the provision of financial services and securities investments, including corporate finance, consumer finance and credit card business.

13 -

LETTER FROM THE BOARD

CHANGES OF SHAREHOLDING STRUCTURE

The changes of the shareholding structure of the Company as a result of the Subscription and the Acquisition are as follows:

	As at the date	As at the date		As at the Latest	As at the Latest
	of the Announcement			Practicable Date after first		Immediately		Immediately
	and immediately			stage	completion of	after completion of		after	completion
	before	completion		the Acquisition but		the Subscription and		of the	Subscription
	of the Subscription			before completion of		first stage completion		and the Acquisition
Shareholders	and the	Acquisition		the	Subscription	of the Acquisition			in full
		Approximate			Approximate		Approximate		Approximate
	No. of Shares	percentage		No. of Shares	percentage	No. of Shares	percentage	No. of Shares	percentage
Heng Fung Group	252,496,000	16.94%		162,496,000	10.81%	162,496,000	9.66%	2,496,000	0.15%
		(Note	1)		(Note 3)		(Note 3)
Hai Xia Finance	150,000,003	10.06%		150,000,003	9.98%	150,000,003	8.91%	150,000,003	8.91%
Holdings Limited
(Note 2)
Mr. Liu	–		–	90,000,000	5.99%	220,000,000	13.07%	380,000,000	22.58%
Dragon Media	–		–	–	–	50,000,000	2.97%	50,000,000	2.97%
Other public	1,088,361,659	73.00%		1,100,267,713	73.22%	1,100,267,713	65.39%	1,100,267,713	65.39%
Shareholders
Total	1,490,857,662	100%		1,502,763,716	100%	1,682,763,716	100%	1,682,763,716	100%

Notes:

These Shares were held as to 36,596,700 Shares by Sure World Capital Limited, as to 10,104,000 Shares by Rasa Sayang Limited and as to 859,843 Shares by Heng Fung Capital Company Limited, all of which are wholly owned subsidiaries of Heng Fung Holdings, and as to the remaining 204,935,457 Shares by Heng Fung Holdings, representing approximately 2.45%, 0.68%, 0.06% and 13.75% of the issued share capital of the Company as at the date of the Announcement respectively. Pursuant to the Sale and Purchase Agreement, Heng Fung Group has agreed to sell and Mr. Liu has agreed to acquire an aggregate of 250,000,000 Shares in cash at an aggregate consideration of HK$180,000,000.
Hai Xia Finance Holdings Limited is wholly and beneficially owned by Hai Xia Travel Agency which is principally engaged in providing tourist and investment services to Taiwanese in the PRC and helps to cultivate economic, technological and cultural exchange between the PRC and Taiwan. Hai Xia Travel Agency is wholly owned by the Taiwan Affairs Office of the State Council of the PRC.
These Shares are held as to 162,153,000 Shares by Heng Fung Holdings and as to 343,000 Shares by Sure World Capital Limited, representing approximately 10.79% and 0.02% of the issued share capital of the Company as at the Latest Practicable Date.
14 -

LETTER FROM THE BOARD

Immediately after completion of the Subscription and the Acquisition in full, Mr. Liu will become a new substantial Shareholder holding approximately 22.58% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. Mr. Liu is a director of (i) Greater China Holdings Limited, the issued shares of which are listed on the main board of the Stock Exchange; and (ii) Profit Capital Limited, a wholly owned subsidiary of Greater China Holdings Limited. Profit Capital Limited was interested in approximately 1.33% of the issued share capital of the Company as at the Latest Practicable Date and will be interested in approximately 1.19% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. Mr. Liu, Dragon Media, Mr. Zhu Wei Wei and Mr. Huang Yong are parties acting in concert (as defined in the Takeovers Code). Save as aforesaid, Dragon Media, Mr. Zhu Wei Wei, Mr. Huang Yong and Mr. Liu are not parties acting in concert (as defined in the Takeovers Code) with any other Shareholders.

Immediately after completion of the Acquisition in full, Heng Fung Group will hold 2,496,000 Shares, representing approximately 0.17% of the issued share capital of the Company as at the Latest Practicable Date and approximately 0.15% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. The Company was informed by Heng Fung Group that it may dispose of those Shares in the market if and when it deems appropriate to do so.

GENERAL MANDATE AND REPURCHASE MANDATE

At the SGM, the Directors also propose to seek the approval of the Shareholders to grant to the Directors the General Mandate and the Repurchase Mandate.

General Mandate

At the SGM, an ordinary resolution will be proposed that the Directors be given an unconditional general mandate to allot, issue and deal with unissued Shares or securities convertible into Shares, options, warrants or similar rights to subscribe for any Shares (other than by way of rights or pursuant to a share option scheme for employees or directors of the Company and/or any of its subsidiaries or pursuant to any scrip dividend scheme or similar arrangements providing for the allotment and issue of Shares in lieu of whole or part of the dividend on Shares in accordance with the bye-laws of the Company or upon the exercise of rights of subscription or conversion under the terms of any securities or bonds convertible into Shares) or make or grant offers, agreements, options and warrants which might require the exercise of such power, of an aggregate nominal amount of up to 20% of the aggregate nominal amount of the issued Shares as enlarged by the allotment and issue of the Subscription Shares.

As at the Latest Practicable Date, the Company had an aggregate of 1,502,763,716 Shares in issue. Assuming the Subscription has been completed and the Subscription Shares are allotted and issued, the Company will have an aggregate of 1,682,763,716 Shares in issue.

Subject to the passing of the resolution for the approval of the General Mandate and on the basis that no further Shares are issued or repurchased between the Latest Practicable Date and the date of the SGM and that the Subscription Shares are duly allotted and issued pursuant to the Subscription, the Company would be allowed under the General Mandate to allot, issue and deal with a maximum of 336,552,743 Shares.

15 -

LETTER FROM THE BOARD

Repurchase Mandate

At the SGM, an ordinary resolution will also be proposed that the Directors be given an unconditional general mandate to repurchase Shares on the Stock Exchange or any other stock exchange on which the Shares may be listed and recognised by the Securities and Futures Commission of Hong Kong and the Stock Exchange for such purpose, of an aggregate nominal amount of up to 10% of the aggregate nominal amount of the issued Shares as enlarged by the allotment and issue of the Subscription Shares.

The General Mandate and the Repurchase Mandate shall continue to be in force during the period from the date of passing of the resolutions for the approval of the General Mandate and the Repurchase Mandate up to (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 the bye-laws of the Company, the Companies Act 1981 of Bermuda or any applicable laws of Bermuda to be held; or (iii) the revocation or variation of the General Mandate or the Repurchase Mandate (as the case may be) by ordinary resolution of the Shareholders in general meeting, whichever occurs first.

An explanatory statement in connection with the Repurchase Mandate is set out in Appendix I to this circular. The explanatory statement contains all the requisite information required under the Listing Rules to be given to the Shareholders to enable them to make an informed decision on whether to vote for or against the resolution approving the Repurchase Mandate.

SGM

(i) the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares;
(ii) the grant of the General Mandate; and
(iii) the grant of the Repurchase Mandate.

The Subscribers, the Dragon Media Guarantors and their respective associates will abstain from voting in respect of the resolutions approving the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares.

16 -

LETTER FROM THE BOARD

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the offices of the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Rooms 1901-1905, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

RECOMMENDATIONS

The IFA has been appointed to advise the Independent Board Committee with regard to the terms of the Subscription. The IFA considers that the Subscription is in the interests of the Company and its Shareholders as a whole and the terms and conditions of the Subscription are fair and reasonable insofar as the Shareholders are concerned. The text of the letter of advice from the IFA containing its advice and the principal factors and reasons it has taken into consideration in arriving at its advice are set out on pages 20 to 27 of this circular.

The Independent Board Committee, having taken into account the advice of the IFA, considers the terms of the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares. The text of the letter from the Independent Board Committee is set out on page 19 of this circular.

The Directors consider the proposed grant of the General Mandate and the Repurchase Mandate is fair and reasonable and is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the SGM.

17 -

LETTER FROM THE BOARD

FURTHER INFORMATION

Your attention is also drawn to the letter of advice from the IFA, which contains its advice to the Independent Board Committee in connection with the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares, the letter from the Independent Board Committee which sets outs its recommendation to the Independent Shareholders in relation to the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares, and the additional information set out in the Appendices to this circular.

Yours faithfully

For and on behalf of the Board China Gas Holdings Limited Xu Ying

Vice Chairman

18 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares:

==> picture [23 x 45] intentionally omitted <==

==> picture [47 x 33] intentionally omitted <==

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

(incorporated in Bermuda with limited liability)

16 February 2004

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES

We have been appointed to advise you in respect of the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares. Details of the Subscription are set out in the letter from the Board on pages 5 to 18 of this circular (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless specified otherwise.

We wish to draw your attention to the letter from the Board as set out on pages 5 to 18 of the Circular and the letter of advice from the IFA as set out on pages 20 to 27 of the Circular.

Having taken into account the advice of the IFA, we consider the terms of the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve the Subscription and the transactions contemplated thereunder including but not limited to the allotment and issue of the Subscription Shares.

Yours faithfully Independent Board Committee Zhao Yu Hua Mao Er Wan Wong Sin Yue, Cynthia

* For identification purpose only

19 -

LETTER FROM THE IFA

The following is the text of a letter of advice to the Independent Directors from Grand Vinco Capital Limited, the independent financial adviser, dated 16 February 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

16 February 2004

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

Dear Sirs

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES

We refer to the announcement (the “ Announcement ”) issued by the Company dated 21 January 2004 in respect of the subscription of an aggregate of 180,000,000 Shares in cash by Mr. Liu and Dragon Media. Details of the terms of the Subscription are set out in the circular (the “ Circular ”) issued by the Company to the Shareholders dated 16 February 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.

The Subscription constitutes a connected transaction and will be subject to, among other things, the approval of the Independent Shareholders at the general meeting of the Company. The Independent Board Committee comprising Mr. Zhao Yu Hua, Dr. Mao Er Wan and Ms. Wong Sin Yue, Cynthia, all being independent non-executive Directors, has been established by the Company to advise the Independent Board Committee in relation to the Subscription. We, Vinco, have been appointed by the Company to advise the Independent Board Committee in relation to the Subscription. This letter contains our advice to the Independent Board Committee as to whether or not the Subscription is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

20 -

LETTER FROM THE IFA

In formulating our opinion and recommendation to the Independent Board Committee in relation to the Subscription, 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 they were made and continued to be so as at the date of despatch 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 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 opinion 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 affairs of the Company and its subsidiaries.

BACKGROUND OF THE SUBSCRIPTION

On 16 January 2004, the Company entered into the Subscription Agreements with the Subscribers and the Dragon Media Guarantors, pursuant to which the Subscribers have conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue an aggregate of 180,000,000 Shares in cash at a subscription price of HK$0.65 per Subscription Share.

Since Mr. Liu is an executive Director and the issued share capital of Dragon Media is owned as to 24% by Mr. Zhu Wei Wei, an executive Director, and as to 76% by Mr. Huang Yong, a director of Shenzhen Natural Gas, the Subscription, if proceeded with, shall also constitute connected transaction for the Company under Rule 14.23 of the Listing Rules, and will be subject to, among other things, the approval of the Independent Shareholders at the general meeting of the Company, in accordance with the requirement of Rule 14.26 of the Listing Rules.

The Subscription Shares represent approximately 11.98% of the existing issued share capital of the Company and approximately 10.70% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares.

21 -

LETTER FROM THE IFA

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee in relation to the Subscription, we have considered the principal factors and reasons set out below:

1. Reasons for and benefits of the Subscription

The Group is principally engaged in investment in, amongst other things, natural gas/energy and property projects. The Directors are of the view that by entering into the Subscription, the Group can raise capital to further strengthen its financial position. The net proceeds of the Subscription of about HK$117,000,000 will be applied as the Group’s future investments in natural gas projects in the PRC and/or the Group’s general working capital. The Company estimates that approximately HK$35,000,000, representing approximately 30% of the net proceeds of the Subscription, will be applied as the general working capital of the Group. The Company currently intends to apply the remaining balance of the net proceeds of the Subscription amounting to approximately HK$82,000,000 for the Group’s future investments in natural gas projects in the PRC.

We note that the Group’s current investments of natural gas projects cover nine cities of five provinces in the PRC. Under the Group’s current investment models, the Group is the controlling shareholder of the natural gas joint venture companies and local governments are the only one joint venture partners. Those natural gas projects operated by its natural gas joint venture companies in respective cities are operated, managed, constructed natural gas pipeline and auxiliary equipments and sales of natural gas on an exclusive basis. The Directors confirmed that the existing natural gas projects currently operated by the Group had obtained all the required government approval. From October 2003 onwards, construction of pipe gas networks and lines are undergoing substantially so as to cope with the commencement of supply of natural gas in year 2004.

As investment in gas projects are substantial and long-term, the Group needs to maintain a strong and substantial working capital to cope with the future expansion. Given the Subscription will increase the Group’s working capital by approximately HK$35,000,000, we are of the view that the Group’s working capital position will be further strengthened to cope with the expansion of the existing and potential projects. The Board had considered and explored other methods of funding other than the Subscription such as raising debts or convertible securities. The Board was of the view that the Subscription was an ideal opportunity for the Company to raise additional capital because

(i) the Subscription shows a strong and solid commitment from the current management team;
(ii) other form of financing may be costly, such as interest costs, services charges and/or underwriting costs;
(iii) the net asset value and the gearing position of the Group will be improved and the financial position of the Group will be further strengthened.

The Board also confirmed that it did not have any intention to raise additional fund after the Subscription at the Latest Practicable Date.

22 -

LETTER FROM THE IFA

Taking into account the market conditions, financial position of the Group, the financing requirement of the Group for future expansion, we are of the opinion that the Subscription is in the interests of the Group and the Shareholders as a whole.

2. Basis of the subscription price

The highest and the lowest prices of the Shares traded on the Stock Exchange for the past 12 months prior to the issue of the Announcement ranged from HK$0.67 to HK$1.22. The subscription price of HK$0.65 represents:

a discount of approximately 9.72% to the closing price of HK$0.72 per Share as quoted on the Stock Exchange on 16 January 2004, being the last trading day before the date of the Announcement;
a discount of approximately 13.33% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 16 January 2004;
a discount of approximately 9.72% to the closing price of HK$0.72 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
a discount of approximately 13.33% to the average closing price of approximately HK$0.75 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Latest Practicable Date;
a premium of approximately 209% to the unaudited consolidated net asset value per Share of approximately HK$0.21 as at 30 September 2003 (after taking into accounts for all fund raising activities before the Subscription).

As stated in the Announcement, the Subscription Price was arrived at after arm’s length negotiations between the Company, the Subscribers and the Dragon Media Guarantors with reference to the closing prices as shown above.

23 -

LETTER FROM THE IFA

In assessing the fairness and reasonableness of the Subscription price, we have identified the following share transactions which include transactions from 3 listed companies in the gas industry to compare the pricing of their shares with that of the Subscription Shares. We have made references to the discount to the closing price, discount to average 10 days (or shorter period as disclosed) closing price and premium/discount to the net asset value per share of the these companies as follows:

					Discount
Comparable	Transaction	Announcement	Transaction	Discount to	to average
companies	type	date	price (HK$)	closing price	closing price
Recent share	transactions in the	gas industry
China City	Placing of	18 December 03	0.039	4.88% (to the	7.58% (to 10 days
Gas (#603)	new shares			closing price of	average closing
				HK$0.041 on	price of
				17 December 03)	HK$0.0422 up
					to and including
					17 December 03)
Xinao Gas	Placing of	8 August 03	2.73	5.04% (to the	6.67% (to the
(#2688)	existing			closing price of	5 days average
	shares			HK$2.875 on	closing price of
				8 August 03)	HK$2.925 up to
					and including
					8 August 03)
Panva Gas	Top-up	5 December 03	4.0	17.95% (to the	16.54% (to the
(#8132)	placing			closing price of	10 days average
				HK$4.875 on	closing price of
				3 December 03)	HK$4.7925 up to
					and including
					3 December 03)

24 -

LETTER FROM THE IFA

					Discount
Comparable	Transaction	Announcement	Transaction	Discount to	to average
companies	type	date	price (HK$)	closing price	closing price
Recent share	transactions in other industries
Silver Grant	Top-up	15 January 04	2.00	7% (to the	10.7% (to the
(#171)	placing			closing price of	5 days average
				HK$2.15 on	closing price of
				13 January 04)	HK$2.24 up to
					and including
					13 January 04)
Paliburg	Top-up	15 January 04	0.128	9.86% (to the	(0.79%) (to the
(#617)	placing			closing price	10 days average
				HK$0.142 on	closing price of
				15 January 04)	HK$0.127 up to
					and including
					15 January 04)
Chaoda	Top-up	15 January 04	2.50	5.7% (to the	14.4% (to the
Agriculture	placing			closing price of	10 days average
(#682)				HK$2.65 on	closing price
				14 January 04)	of HK$2.92 up
					to and including
					14 January 04)
Asia	Top-up	15 January 04	1.56	8.24% (to the	4.88% (to the
Aluminium	placing			closing price of	10 days average
(#930)				HK$1.7 on	closing price
				14 January 04)	of HK$1.64 up
					to and including
					14 January 04)
Capital	Top-up	15 January 04	0.05	5.66% (to the	10.07% (to the
Prosper	placing			closing price of	10 days average
(#1003)				HK$0.053 on	closing price
				15 January 04)	of HK$0.0556 up
					to and including
					15 January 04)
Sinotronics	Top-up	16 January 04	1.40	7.3% (to the	4.8% (to the
(#1195)	placing			closing price of	10 days average
				HK$1.51 on	closing price of
				15 January 04)	HK$1.47 up to
					and including
					15 January 04)

25 -

LETTER FROM THE IFA

					Discount
Comparable	Transaction	Announcement	Transaction	Discount to	to average
companies	type	date	price (HK$)	closing price	closing price
The Company
China Gas	Top-up	11 November 03	0.84	22.94% (to the	12.5% (to the
(#384)	placing			closing price of	10 days average
				HK$1.09 on	closing price of
				6 November 03)	HK$0.96 up to
					and including
					6 November 03)
China Gas	Issue of	19 January 04	0.65	9.72% (to the	13.33% (to the
(#384)	new shares			closing price of	10 days average
				HK$0.72 on	closing price of
				16 January 04)	HK$0.75 up to
					and including
					16 January 04)

As demonstrated above, the 9.72% discount to the closing price and the 13.33% to the 10 days average closing price of the Company, fall within the range among these companies. In addition, the Subscription will be completed with minimal costs of approximately HK$500,000, we are of the opinion that the Subscription Price is fair and reasonable to the Shareholders as a whole.

3. Financial Impact

Net assets

The unaudited consolidated net asset value of the Company as at 30 September 2003 was approximately HK$125,809,000. Upon completion of the Subscription, the pro forma net asset per Share will be increased by approximately 19% from approximately HK$0.21 to HK$0.25.

Liquidity

Based on the unaudited consolidated financial results of the Company as at 30 September 2003, the current assets and current liabilities of the Company were approximately HK$385,815,000 and HK$294,945,000 respectively. The current ratio, being the current assets divided by current liabilities as at 30 September 2003 of the Company, would be improved from 1.31 to 1.70 after considering the cash inflow from the Subscription.

26 -

LETTER FROM THE IFA

Gearing ratio

Gearing ratio, being the Company’s total debt as at 30 September 2003 divided by shareholders’ equity as at 30 September 2003, would be improved from 419% to 217% following the cash inflow from the Subscription.

4. Shareholding dilution

Following completion of the Subscription, Mr. Liu and Dragon Media will hold approximately 10.77% in aggregate of the enlarged issued share capital of the Company. Both the existing substantial shareholders and all the Independent Shareholders will therefore be subject to a 10.77% dilution to their existing shareholdings. In view of the substantial premium of approximately 209% over the net asset value per Share of HK$0.21 as of 30 September 2003 (after taking into account all fund raising exercise before the Subscription), the Subscription will not only further strengthen the financial position of the Group but also reinforce the firm commitment of the existing management, we consider that such a dilution should be fair to the Independent Shareholders.

Conclusion

Having taken into consideration of the above principal factors and reasons, we consider that the Subscription is in the interests of the Company and its Shareholders as a whole and the terms and conditions of the Subscription are fair and reasonable so far as the Shareholders are concerned.

Yours faithfully For and on behalf of

Grand Vinco Capital Limited Mr. Kevin Miu Director

27 -

EXPLANATORY STATEMENT

APPENDIX I

This Appendix serves as an explanatory statement, as required by the Listing Rules, to provide the requisite information to you for your consideration of the Repurchase Mandate.

1. SHARE CAPITAL

As at the Latest Practicable Date, the Company had an aggregate of 1,502,763,716 Shares. Assuming the Subscription has been completed and the Subscription Shares are allotted and issued, the Company will have an aggregate of 1,682,763,716 Shares.

Subject to the passing of the resolution for the approval of the Repurchase Mandate and on the basis that no further Shares are issued or repurchased between the Latest Practicable Date and the date of the SGM and that the Subscription Shares are duly allotted and issued pursuant to the Subscription, the Company would be allowed under the Repurchase Mandate to repurchase a maximum of 168,276,371 Shares during the period from the date of passing of the resolution for the approval of the Repurchase Mandate up to (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 the bye-laws of the Company, the Companies Act 1981 of Bermuda or any other applicable laws of Bermuda to be held; or (iii) the revocation or variation of the Repurchase Mandate by ordinary resolution of the Shareholders in general meeting, whichever occurs first.

2. REASONS FOR REPURCHASES

The Directors believe that it is in the best interests of the Company and the Shareholders for the Directors to have general authority from Shareholders to enable the Company to repurchase Shares in the market. Repurchases of Shares will only be made when the Directors believe that such repurchases will benefit the Company and the Shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share.

3. FUNDING OF REPURCHASES

In repurchasing Shares, the Company may only apply funds legally available for such purpose in accordance with its memorandum of association and bye-laws, the Listing Rules and the applicable laws of Bermuda. The Company may not repurchase its own Shares on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time.

4. GENERAL

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited consolidated financial statements contained in the annual report of the Company for the year ended 31 March 2003) in the event that the Repurchase Mandate is exercised in full. However, the Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or on the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

28 -

EXPLANATORY STATEMENT

APPENDIX I

5. SHARE PRICES

The highest and lowest closing prices at which the Shares were traded on the Stock Exchange during each of the twelve months immediately preceding the date of this circular and up to the Latest Practicable Date are as follows:

Month	Highest	Lowest
	HK$	HK$
2003
January	1.18	0.91
February	1.03	0.90
March	1.00	0.80
April	0.90	0.73
May	0.81	0.70
June	0.80	0.67
July	0.81	0.67
August	0.92	0.69
September	1.05	0.72
October	0.99	0.79
November	1.22	0.70
December	0.87	0.67
2004
January	0.84	0.70
February (up to the Latest Practicable Date)	0.79	0.71

6. DIRECTORS’ UNDERTAKING

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

7. TAKEOVERS CODE CONSEQUENCE

If as a result of a repurchase of Shares, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of Rule 32 of the Takeovers Code. As a result, a Shareholder, or a group of Shareholders acting in concert (within the meaning under the Takeovers Code), depending on the level of increase in the Shareholder’s interests, could obtain or consolidate control of the Company and become(s) obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code.

29 -

EXPLANATORY STATEMENT

APPENDIX I

As at the Latest Practicable Date, Mr. Liu and parties acting in concert with him held approximately 5.99% of the existing issued share capital of the Company. Assuming the Subscription has been completed and the Subscription Shares are allotted and issued and the Acquisition has been completed in full, Mr. Liu and parties acting in concert with him will hold approximately 25.55% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. In the event that the Directors exercise in full the power to repurchase Shares in accordance with the Repurchase Mandate, the shareholding of Mr. Liu and parties acting in concert with him in the Company would be increased to approximately 28.39% of the then issued share capital of the Company.

On the basis of the current shareholding of Mr. Liu and parties acting in concert with him and on the assumption that the Subscription and the Acquisition have been completed as aforesaid, an exercise of the Repurchase Mandate in full will not result in them becoming obliged to make a mandatory offer under Rule 26 of the Takeovers Code.

Save as aforesaid, the Directors are not aware of any other consequences which may arise under the Takeovers Code if the Repurchase Mandate is exercised in full. However, the Company may not repurchase Shares which would result in the amount of Shares held by the public being reduced to less than 25%.

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their respective associates have notified the Company of any present intention, if the Repurchase Mandate is approved by the Shareholders at the SGM, to sell Shares to the Company or its subsidiaries.

No connected person of the Company has notified the Company that it has a present intention to sell Shares to the Company, or has undertaken not to do so, in the event that the Repurchase Mandate is approved by the Shareholders at the SGM.

8. SHARES REPURCHASE MADE BY THE COMPANY

No repurchases of Shares have been made by the Company (whether on the Stock Exchange or otherwise) during the six months immediately prior to the Latest Practicable Date.

30 -

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL OF THE COMPANY

The authorised and issued share capital of the Company as at the Latest Practicable Date and on completion of the Subscription were and will be as follows:

Authorised 9,000,000,000 Shares Issued and to be issued, fully paid or credited as fully paid 1,502,763,716 Shares in issue as at the Latest Practicable Date 180,000,000 Subscription Shares to be allotted and issued upon completion of the Subscription 1,682,763,716 Shares	HK$ 90,000,000

	15,027,637.16 1,800,000.00
	16,827,637.16

The Subscription Shares, when allotted and issued, will rank equally in all respects among themselves and with the Shares in issue on the date of allotment and issue of the Subscription Shares, including but not limited to the right to receive all dividends, distributions or entitlements declared, paid or made in respect of the Shares, the record date for which shall fall on or after the date of allotment and issue of the Subscription Shares.

31 -

GENERAL INFORMATION

APPENDIX II

3. 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 following Director has 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) (a) 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 he is taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) 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:

(a) Shares

		Number or	Approximate percentage
		attributable number	or attributable
	Nature	of Shares held or	percentage
Name of Director	of interest	short positions	of shareholding
			(%)
Mr. Liu	Personal	380,000,000	22.58
		(Note)

Note: Pursuant to the Liu Subscription Agreement, Mr. Liu has conditionally agreed to subscribe for 130,000,000 Subscription Shares. Pursuant to the Sale and Purchase Agreement, Mr. Liu has agreed to acquire an aggregate of 250,000,000 Shares.

32 -

GENERAL INFORMATION

APPENDIX II

(b) Options

	Number and description	Nature of	Number of
Name of Director	of equity derivatives	interest	underlying Shares
Mr. Liu	5,000,000 Options	Beneficial	5,000,000
	(Note)
Li Xiaoyun	5,000,000 Options	Beneficial	5,000,000
	(Note)
Xu Ying	5,000,000 Options	Beneficial	5,000,000
	(Note)
Zhu Wei Wei	4,000,000 Options	Beneficial	4,000,000
	(Note)
Ma Jin Long	9,240,711 Options	Beneficial	9,240,711
	(Note)
Wu Bangjie	2,000,000 Options	Beneficial	2,000,000
	(Note)
Zhao Yu Hua	1,000,000 Options	Beneficial	1,000,000
	(Note)
Mao Er Wan	1,000,000 Options	Beneficial	1,000,000
	(Note)
Wong Sin Yue, Cynthia	1,000,000 Options	Beneficial	1,000,000
	(Note)

Note: The Options were granted under the share option scheme adopted by the Company on 6 February 2003 and entitled 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.

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) (a) 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 (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) 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.

33 -

GENERAL INFORMATION

APPENDIX II

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

So far as is known to the Directors, 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 or who 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:

	Number or attributable	Number or attributable	Approximate percentage or
	number of Shares held		attributable percentage
Name of Shareholder	or short position		of shareholding
			(%)
Heng Fung Holdings		162,496,000 (L)	10.81
		(Note)
		160,000,000 (S)	10.65
Hai Xia Finance Holdings	Limited	150,000,003 (L)	9.98
		150,000,003 (S)	9.98

L: Long Position

S: Short Position

Note:

These Shares are held as to 162,153,000 Shares by Heng Fung Holdings and as to 343,000 Shares by Sure World Capital Limited, a wholly owned subsidiary of Heng Fung Holdings.

Pursuant to the Sale and Purchase Agreement, Heng Fung Group has agreed to sell and Mr. Liu 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 has been completed.

Save as disclosed above, as at the Latest Practicable Date, the Directors 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.

34 -

GENERAL INFORMATION

APPENDIX II

4. DIRECTORS’ SERVICE CONTRACTS

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 compensations (other than statutory compensation)).

5. EXPERT

The IFA is a licensed corporation under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities.

The IFA has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and the references to its name in the form and context in which it appears.

6. LITIGATION

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

7. MISCELLANEOUS

(a) As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2003, the date to which the latest published audited consolidated financial statements of the Group were made up;
(b) There is no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant to the business of the Group;
(c) As at the Latest Practicable Date, the IFA did not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group; and
(d) As at the Latest Practicable Date, none of the IFA nor any Directors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 March 2003, the date to which the latest published audited consolidated financial statements of the Group were made up.
35 -

GENERAL INFORMATION

APPENDIX II

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours at the office of Michael Li & Co. at 14th Floor, Printing House, 6 Duddell Street, Central, Hong Kong from the date of this circular up to and including 4 March 2004 and at the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the Subscription Agreements;
(c) the annual reports of the Company for the two financial years ended 31 March 2003 and the interim report of the Company for the six months ended 30 September 2003;
(d) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 19 of this circular;
(e) the letter of advice from the IFA to the Independent Board Committee, the text of which is set out on pages 20 to 27 of this circular; and
(f) the consent letter from the IFA referred to in the paragraph headed “Expert” in this Appendix.
36 -

NOTICE OF THE SGM

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==> picture [47 x 33] intentionally omitted <==

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

(incorporated in Bermuda with limited liability)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of China Gas Holdings Limited (the “ Company ”) will be held at 10:00 a.m. on 4 March 2004 (Thursday) at Room 1601, 16th Floor, AXA Centre, No.151 Gloucester Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT the conditional subscription agreement (the “ Liu Subscription Agreement ”, a copy of the Liu Subscription Agreement has been produced at the meeting marked “ A ” and signed by the chairman of the meeting for the purpose of identification) dated 16 January 2004 and entered into between the Company and Liu Ming Hui (“ Mr. Liu ”) relating to the subscription of 130,000,000 new ordinary shares (each a “ Subscription Share ”) of HK$0.01 each in the capital of the Company in cash at a subscription price of HK$0.65 per Subscription Share, and the transactions contemplated thereunder including but not limited to the allotment and issue by the Company of 130,000,000 Subscription Shares to Mr. Liu, be and are hereby approved and that the board of directors of the Company (the “ Board ”) be and is hereby authorised to take such action as may in the opinion of the Board be necessary or desirable to give effect to the Liu Subscription Agreement.”
“ THAT the conditional subscription agreement (the “ Dragon Media Subscription Agreement ”, a copy of the Dragon Media Subscription Agreement has been produced at the meeting marked “ B ” and signed by the chairman of the meeting for the purpose of identification) dated 16 January 2004 and entered into between, among others, the Company and Dragon Media Enterprises Limited (“ Dragon Media ”) relating to the subscription of 50,000,000 Subscription Shares in cash at a subscription price of HK$0.65 per Subscription Share, and the transactions contemplated thereunder including but not limited to the allotment and issue by the Company of 50,000,000 Subscription Shares to Dragon Media, be and are hereby approved and that the Board be and is hereby authorised to take such action as may in the opinion of the Board be necessary or desirable to give effect to the Dragon Media Subscription Agreement.”

* For identification purpose only

37 -

NOTICE OF THE SGM

“ THAT subject to the ordinary resolutions nos.1 and 2 above being duly passed:
(a) the general mandate granted to the directors (the “ Directors ”) of the Company to exercise the powers of the Company to allot, issue and deal with shares (each a “ Share ”) as approved by the shareholders of the Company at the special general meeting of the Company held on 19 December 2003 be and is hereby revoked (without prejudice to any valid exercise of such general mandate prior to the passing of this resolution);
(b) subject to paragraph (d) below, pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the exercise by the Directors during the Relevant Period (as defined below) of all the powers of the Company to allot, issue and deal with the unissued Shares or securities convertible into Shares, options, warrants or similar rights to subscribe for any Shares and to make or grant offers, agreements, options and warrants, which might require the exercise of such powers be and is hereby generally and unconditionally approved;
(c) the approval in paragraph (b) above shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;
(d) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to options or otherwise), issued or dealt with by the Directors pursuant to the approval in paragraph (b) above, otherwise than pursuant to (i) a Rights Issue (as defined below); or (ii) the exercise of any options granted under the share option scheme of the Company; or (iii) any scrip dividend or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the bye-laws of the Company in force from time to time; or (iv) any issue of Shares upon the exercise of rights of subscription or conversion under the terms of any warrants of the Company or any securities which are convertible into Shares; or (v) the allotment and issue of the Subscription Shares under the Liu Subscription Agreement and the Dragon Media Subscription Agreement, shall not exceed the aggregate of:
- (aa) 20% of the aggregate nominal amount of the issued Shares on the date of the passing of this resolution as enlarged by the allotment and issue of the Subscription Shares; and
- (bb) (if the Directors are so authorised by a separate ordinary resolution of the shareholders of the Company) the nominal amount of any share capital of the Company repurchased by the Company subsequent to the passing of this resolution (up to a maximum equivalent to 10% of the aggregate nominal amount of the issued Shares on the date of the passing of resolution no. 4 as enlarged by the allotment and issue of the Subscription Shares),
38 -

NOTICE OF THE SGM

and the authority pursuant to paragraph (b) of this resolution shall be limited accordingly; and

(e) for the purposes of this resolution:

“ Relevant Period ” means the period from the date of the passing of 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 the bye-laws of the Company, the Companies Act 1981 of Bermuda (the “ Companies Act ”) or any other applicable law of Bermuda to be held; or
(iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution;

“ Rights Issue ” means an offer of Shares, or offer or issue of warrants, options or other securities giving rights to subscribe for Shares open for a period fixed by the Directors to eligible holders of Shares on the register on a fixed record date in proportion to their then holdings of Shares (subject to such exclusion or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements, or having regard to any restrictions or obligations under the laws of, or the requirements of, or the expense or delay which may be involved in determining the existence or extent of any restrictions or obligations under the laws of, or the requirements of, any jurisdiction outside Hong Kong or any recognised regulatory body or any stock exchange outside Hong Kong).”

“ THAT subject to the ordinary resolutions nos. 1 and 2 above being duly passed:
(a) the general mandate granted to the Directors to exercise the powers of the Company to repurchase Shares as approved by the shareholders of the Company at the special general meting of the Company held on 19 December 2003 be and is hereby revoked (without prejudice to any valid exercise of such general mandate prior to the passing of this resolution);
(b) subject to paragraph (c) below, the exercise by the Directors during the Relevant Period (as defined below) of all powers of the Company to repurchase the Shares on The Stock Exchange of Hong Kong Limited or any other stock exchange on which the Shares may be listed and recognised by the Securities and Futures Commission of Hong Kong and The Stock Exchange of Hong Kong Limited for such purpose, and otherwise in accordance with the rules and regulations of the Securities and Futures Commission of Hong Kong, The Stock Exchange of Hong Kong Limited, the byelaws of the Company, the Companies Act and all other applicable laws in this regard, be and is hereby generally and unconditionally approved;
39 -

NOTICE OF THE SGM

(c) the aggregate nominal amount of Shares which may be repurchased by the Company pursuant to the approval in paragraph (b) during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the issued Shares as at the date of the passing of this resolution as enlarged by the allotment and issue of the Subscription Shares and the authority pursuant to paragraph (b) of this resolution shall be limited accordingly; and
(d) for the purposes of this resolution, “ Relevant Period ” means the period from the date of the passing of 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 the bye-laws of the Company, the Companies Act or any other applicable law of Bermuda to be held; or
- (iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution.”
“ THAT subject to the ordinary resolutions nos. 3 and 4 above being duly passed, the unconditional general mandate granted to the Directors to exercise the powers of the Company to allot, issue and deal with unissued Shares pursuant to resolution no. 3 above be and is hereby extended by the addition thereon of an amount representing the aggregate nominal amount of the share capital of the Company repurchased by the Company subsequent to the passing of this resolution, provided that such amount shall not exceed 10% of the aggregate nominal amount of the issued Shares on the date of the passing of resolution no. 4 as enlarged by the allotment and issue of the Subscription Shares.”

By order of the Board China Gas Holdings Limited Xu Ying Vice Chairman

Hong Kong, 16 February 2004

Registered office: Head office and principal place Clarendon House of business in Hong Kong: 2 Church Street Room 1601, 16th Floor Hamilton HM 11 AXA Centre Bermuda No. 151 Gloucester Road Wanchai Hong Kong

40 -

NOTICE OF THE SGM

Notes:

A member of the Company entitled to attend and vote at the meeting convened by the above notice 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 meeting 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 meeting 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 notarially certified copy of such power or authority, at the offices of the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Rooms 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting 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 above meeting 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 meeting, either personally or by proxy, in respect of such Shares as if he was solely entitled thereto, but if more than one of such joint holders are present at the meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.
In relation to proposed resolutions nos. 3 and 5 above, approval is being sought from the shareholders of the Company for the grant to the Directors of a general mandate to authorise the allotment and issue of Shares under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Directors have no immediate plans to allot and issue new Shares other than the Shares to be allotted and issued under the Subscription and Shares which may fall to be allotted and issued upon the exercise of the options granted under the share option schemes of the Company or any scrip dividend scheme or similar arrangement providing for the allotment and issue of Shares in lieu of whole or part of a dividend which may be approved by shareholders of the Company or upon conversion of the bonds issued to Merrill Lynch International.

In relation to proposed resolution no. 4 above, the Directors wish to state that they will exercise the powers conferred thereby to repurchase Shares in circumstances which they deem appropriate for the benefit of the shareholders of the Company. An explanatory statement containing the information necessary to enable the shareholders of the Company to make an informed decision to vote on the proposed resolution as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited is set out in Appendix I to this circular.

41 -

AI assistant

China Literature Limited — Proxy Solicitation & Information Statement 2004

49460_rns_2004-02-16_cf84b9d8-196c-4093-b101-247081afd9de.pdf

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

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES AND PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

Grand Vinco Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES AND

PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

INTRODUCTION

SUBSCRIPTION AGREEMENTS

The Subscribers

The Dragon Media Guarantors

Number of Subscription Shares

Subscription Price

Rights

Mandate to issue the Subscription Shares

Conditions of the Subscription

Completion of the Subscription

Application for listing

REASONS FOR THE SUBSCRIPTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

ACQUISITION OF SHARES BY MR. LIU

LETTER FROM THE BOARD

CHANGES OF SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

GENERAL MANDATE AND REPURCHASE MANDATE

General Mandate

Repurchase Mandate

SGM

LETTER FROM THE BOARD

RECOMMENDATIONS

FURTHER INFORMATION

For and on behalf of the Board China Gas Holdings Limited Xu Ying

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

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES

Grand Vinco Capital Limited

CONNECTED TRANSACTION:

SUBSCRIPTION OF NEW SHARES

LETTER FROM THE IFA

BACKGROUND OF THE SUBSCRIPTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Reasons for and benefits of the Subscription

2. Basis of the subscription price

LETTER FROM THE IFA

LETTER FROM THE IFA

3. Financial Impact

Net assets

Liquidity

4. Shareholding dilution

Conclusion

1. SHARE CAPITAL

2. REASONS FOR REPURCHASES

3. FUNDING OF REPURCHASES

4. GENERAL

5. SHARE PRICES

6. DIRECTORS’ UNDERTAKING

7. TAKEOVERS CODE CONSEQUENCE

8. SHARES REPURCHASE MADE BY THE COMPANY

1. RESPONSIBILITY STATEMENT

2. SHARE CAPITAL OF THE COMPANY

3. DISCLOSURE OF INTERESTS

(a) Shares

4. DIRECTORS’ SERVICE CONTRACTS

5. EXPERT

6. LITIGATION

7. MISCELLANEOUS

8. DOCUMENTS AVAILABLE FOR INSPECTION

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

NOTICE OF SPECIAL GENERAL MEETING

ORDINARY RESOLUTIONS

NOTICE OF THE SGM

China Literature Limited Proxy Solicitation & Information Statement 2004