China Literature Limited - Proxy Solicitation & Information Statement 2016

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 or registered institution in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in China Gas Holdings Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities nor is it calculated to invite any such offer.

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 384)

DISCLOSEABLE AND CONNECTED TRANSACTION

AMENDED AND RESTATED SHARE PURCHASE AGREEMENT RELATING TO THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF BEIJING GAS DEVELOPMENT LIMITED

AND

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

Independent financial adviser to

the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out on pages 9 to 26 of this circular. A letter from the Independent Board Committee is set out on page 27 to 28 of this circular. A letter from the Independent Financial Adviser containing their advice to the Independent Board Committee and the Independent Shareholders is set out on pages 29 to 51 of this circular.

A notice convening the SGM to be held at Renaissance Harbour View Hotel Hong Kong, Boardroom 3–4, Mezzanine Floor, 1 Harbour Road, Wanchai, Hong Kong at 11:30 a.m. on Tuesday, 16 August 2016 (or immediately after the conclusion of the annual general meeting to be held on the same day) is set out on pages 58 to 60 of this Circular. If there is a black rainstorm warning signal or a tropical cyclone warning signal number 8 or above in force at or after 7:00 a.m. on 16 August 2016 or if the Hong Kong Observatory has announced at or before 7:00 a.m. on 16 August 2016 that either of the above mentioned warnings is to be issued within the next two hours, the chairman of the SGM may propose for the SGM to be adjourned to a date which falls within 13 days from 16 August 2016 if (i) a quorum is present and the adjournment is consented to by the shareholders present; or (ii) a quorum is not present. If the meeting is so adjourned, the Company will make announcement regarding the adjourned meeting. Whether or not you wish to attend the SGM in person, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, as soon as practicable but in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not prevent you from attending and voting in person at the SGM should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

For identification purposes only

20 July 2016

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . .	27
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . .	29
APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58

– i –

DEFINITIONS

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

‘‘2014 Net Asset Value’’ has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular
‘‘Adjusted Consideration Shares’’ has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular, individually an ‘‘Adjusted Consideration Share’’
‘‘AMB’’ Anti-Monopoly Bureau of the Ministry of Commerce of the PRC
‘‘Amended and Restated Share the amended and restated share purchase agreement dated 28 Purchase Agreement’’ June 2016 entered into among the Purchaser, the Company, the Seller and the Guarantor in relation to the Proposed Acquisition
‘‘AML’’ Anti-Monopoly Law of the PRC
‘‘AML Filings’’ means all filings required to made by the Purchaser (with the assistance provided by the Seller) to the AMB in relation to the Proposed Acquisition pursuant to the AML
‘‘Announcement’’ the announcement of the Company dated 28 June 2016 in relation to, among other things, the Proposed Acquisition
‘‘associates’’ has the meaning ascribed to it under the Listing Rules
‘‘BEHL’’ or ‘‘Guarantor’’ Beijing Enterprises Holdings Limited (北京控股有限公司), a company incorporated under the laws of Hong Kong with limited liability and the issued shares of which are listed on the main board of the Stock Exchange (stock code: 392)
‘‘Benchmark Share Price’’ has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular
‘‘Board’’ the board of Directors

– 1 –

DEFINITIONS

‘‘Bulletin 7’’
‘‘Business Days’’
‘‘China Taxable Property’’
‘‘close associate(s)’’
‘‘CNG’’
‘‘Company’’
‘‘Completion’’
‘‘Completion Date’’
‘‘Conditions’’
‘‘connected person(s)’’

the tax notice issued by the PRC State Administration of Taxation titled the ‘‘State Administration of Taxation’s Bulletin on Several Issues of Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Nonresident Enterprises’’ (State Administration of Taxation Bulletin [2015] No. 7), as may be amended or supplemented from time to time, including any similar or replacement law on the tax treatment of the offshore indirect transfer of any China Taxable Property and including any applicable laws in the PRC against the avoidance of PRC tax

a day (other than a Saturday, Sunday or public holiday) on which banks are open for business in the PRC and Hong Kong
means the property of an ‘‘establishment or place’’ situated in the PRC, real estates situated in the PRC, equity interests in PRC resident enterprises and any other property directly held by a non-resident enterprise and whose transfer results in enterprise income tax liability for the non-resident enterprise in accordance with the provisions of the Enterprise Income Tax Law of the PRC
has the meaning ascribed to it under the Listing Rules
compressed natural gas
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 (stock code: 384)
the completion of the Proposed Acquisition in accordance to the terms of the Amended and Restated Share Purchase Agreement
the date of Completion
the Conditions of the Completion, which are set out in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Conditions to the Completion of the Amended and Restated Share Purchase Agreement’’ of this circular
has the meaning ascribed to it under the Listing Rules

– 2 –

DEFINITIONS

‘‘Consideration’’
has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular
‘‘Consideration Shares’’ has the meaning as ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular, individually a ‘‘Consideration Share’’
‘‘Directors’’ the directors of the Company
‘‘Enlarged Group’’ the Group immediately upon Completion
‘‘Excluded Target Group has the meaning ascribed to it in the section headed ‘‘Letter Companies’’ from the Board — Introduction’’ of this circular
‘‘Group’’ the Company and its subsidiaries
‘‘Hegang Entity’’ Hegang Juyuan Coalbed Methane Corporation Ltd.* (鶴崗聚源煤層氣有限責任公司), a company established under the laws of the PRC
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong
‘‘HKFRS’’ Hong Kong Financial Reporting Standards
‘‘Hong Kong’’ The Hong Kong Special Administrative Region of the People’s Republic of China
‘‘Independent Board Committee’’

the independent board committee comprising Mr. Zhao Yuhua, Dr. Mao Erwan, Ms. Wong Sin Yue, Cynthia, Mr. Ho Yeung and Ms. Chen Yanyan, being all the independent nonexecutive directors of the Company, established to advise the Independent Shareholders in respect of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate

– 3 –

DEFINITIONS

‘‘Independent Financial Adviser’’
‘‘Independent Shareholders’’
‘‘Jinzhou Announcement’’
‘‘Jinzhou Equity Transfer Agreement’’
‘‘Jinzhou Gas’’
‘‘June Audited Accounts’’
‘‘Latest Practicable Date’’
‘‘Listing Committee’’
‘‘Listing Rules’’
‘‘LNG’’
‘‘LPG’’
Central China International Capital Limited, a licensed corporation under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Acquisition and the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate
Shareholders other than BEHL, Hong Mao Developments Limited and their respective associates
has the meaning ascribed to it in the section headed ‘‘Letter from the Board — Introduction’’ of this circular
the equity transfer agreement dated 23 June 2016 entered into between Shenzhen City Zhongran Gas Company Limited* (深圳市中燃燃氣有限公司), an indirect wholly-owned subsidiary of the Company, as purchaser, and Beijing Gas Group Limited (北京燃氣集團有限公司), as vendor in relation to the acquisition of 51% equity interest in Jinzhou Gas
PetroChina Beijing Gas (Jinzhou) Gas Co., Ltd* (中石油北燃(錦州)燃氣有限公司), a Sino-Foreign joint venture established under the laws of the PRC
(i) the combined audited pro forma statement of financial position of the Target Group as at 30 June 2014 and (ii) the combined audited pro forma statement of profit or loss for the six months ended 30 June 2014 of the Target Group to be prepared by the Purchaser’s Auditor
15 July 2016, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the listing sub-committee of the board of the Stock Exchange
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

liquefied natural gas

liquefied petroleum gas

– 4 –

DEFINITIONS

‘‘Material Adverse Change’’
‘‘Mr. LIU’’
‘‘Original Completion’’
‘‘Original Conditions’’
‘‘Original Reorganisation’’
‘‘Original Share Purchase Agreement’’
‘‘P/B Multiple’’

‘‘PRC’’

‘‘Previous Announcements and Circular’’
‘‘Proposed Acquisition’’
any change, event, circumstance or other matter that has, or would reasonably be expected to have, either individually or in the aggregate, a material adverse change on: (a) the ability of the Seller to perform its obligations under the Transaction Documents; or (b) the business, assets and liabilities, condition (financial or otherwise), results of operations or near prospects of the Target Group as a whole
Mr. LIU Ming Hui, the Executive Chairman, Managing Director and President of the Company
the completion of the proposed acquisition of the Sale Share by the Purchaser from the Seller as contemplated under the Original Share Purchase Agreement
the conditions to the Original Completion as set out in the Original Share Purchase Agreement
the transfer by three affiliates of the Seller to the Target Company or its wholly-owned subsidiary of the legal and/or beneficial interest in certain target group companies as contemplated under the Original Share Purchase Agreement
the share purchase agreement dated 26 November 2014 entered into among the Purchaser, the Company, the Seller and the Guarantor in relation to the proposed acquisition of the Sale Share (as amended by certain side agreements), which is replaced and superseded in its entirety by the Amended and Restated Share Purchase Agreement
has the meaning ascribed to it in the section headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular

The People’s Republic of China

has the meaning ascribed to it in the section headed ‘‘Letter from the Board — Introduction’’ of this circular

the proposed acquisition of the Sale Share by the Purchaser from the Seller as contemplated under the Amended and Restated Share Purchase Agreement

– 5 –

DEFINITIONS

‘‘Purchaser’’
‘‘Purchaser Group’’
‘‘Purchaser’s Auditor’’
‘‘Remaining Reorganisation’’
‘‘Reorganisation’’
‘‘RMB’’
‘‘Sale Share’’
‘‘Seller’’
‘‘Seller Group’’
Fresh Goal Limited, a company incorporated and registered under the laws of the British Virgin Islands and a whollyowned subsidiary of the Company
the group of companies comprising the Purchaser and its affiliates (including, following Completion, the Target Group Companies)
has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular
has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Conditions to the Completion of the Amended and Restated Share Purchase Agreement’’ of this circular
the acquisition by the Target Company or its wholly-owned subsidiary of (a) the equity interest held by Beijing City Gas Corporation Limited Liability Co. in Jinzhou Beiran Vehicle Use Natural Gas Corporation, Ltd., Yingkou Bohai Gas Development Co., Ltd., Beijing Anhua Hengtai Investment Co., Ltd., Beijing Gas Group Hainan Co., Ltd., Beijing Gas Group Shandong Co., Ltd., Beijing Gas Group Qingan Co., Ltd., and Shandong Province Natural Gas Utilization Co., Ltd.; (b) the equity interests held by Beijing Dingxin New Technology Co., Ltd., in Shandong Province Natural Gas Pipeline Network Investment Co., Ltd.; and (c) the equity interests held by Beijing Gas Corporation Co., Ltd. in each of Beijing Gas Jinzhou Dayou Gas Co., Ltd., and Petro China Beiran Jinzhou Gas Co., Ltd.
Renminbi, the lawful currency of the PRC
the entire issued share capital of Target Company
Beijing Gas Group (BVI) Co., Ltd., a company incorporated in the British Virgin Islands with limited liability and a whollyowned subsidiary of BEHL
the group of companies comprising the Seller and its affiliates (excluding the Target Group Companies)

– 6 –

DEFINITIONS

‘‘Seller’s Auditor’’
has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of the Amended and Restated Share Purchase Agreement — Consideration and Consideration Shares’’ of this circular
‘‘SFO’’ Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
‘‘SGM’’ a special general meeting to be convened by the Company to consider and approve the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate
‘‘Shareholders’’ holders of Shares
‘‘Shareholders Loans’’
the outstanding loans owed by the Target Group Companies to the Seller Group, the total amount of which was RMB304,017,436 (equivalent to approximately HK$357,667,572) as at the date of the Amended and Restated Share Purchase Agreement
‘‘Shares’’ the ordinary shares of the Company with par value of HK$0.01 each, and each a ‘‘Share’’
‘‘Specific Mandate’’ the specific mandate proposed to be granted to the Directors by the Independent Shareholders at the SGM to allot and issue the Consideration Shares
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Takeovers Code’’
the Hong Kong Code on Takeovers and Mergers
‘‘Tangshan Acquisition’’
has the meaning ascribed to it in the paragraphs headed ‘‘Letter from the Board — Details of Amended and Restated Share Purchase Agreement — Post-Completion acquisition of Tangshan Entity’’ of this circular
‘‘Tangshan Entity’’ Tangshan Gas Group Co., Ltd.* (唐山市燃氣集團有限公司), a company established under the laws of the PRC
‘‘Target Company’’ Beijing Gas Development Limited, a company incorporated in the British Virgin Islands with limited liability and a whollyowned subsidiary of the Seller as at the Latest Practicable Date

– 7 –

DEFINITIONS

‘‘Target Group’’
the Target Company and 10 companies established in the PRC principally engaged in the holding, management and operations of PRC projects and business relating to natural gas, details of which are set out in the section headed ‘‘Letter from the Board — Information of the Group, the Purchaser, the Seller, the Guarantor and the Target Group — The Target Group’’ in this circular and ‘‘Target Group Companies’’ shall be construed accordingly
‘‘Transaction Documents’’
collectively, the Amended and Restated Share Purchase Agreement, the disclosure letter dated the date of the Amended and Restated Share Purchase Agreement provided by the Seller to the Purchaser and any other document entered into pursuant to the Amended and Restated Share Purchase Agreement
‘‘%’’

per cent

Save for the amount of the Consideration, for which conversion of RMB into HK$ is calculated at the exchange rate of HK$1 = RMB0.79114 (being the median exchange rate between the buying rate and the selling rate of HK$ to RMB or RMB to HK$ (as the case may be) as announced by the People’s Bank of China at the date of the Original Share Purchase Agreement), for the purpose of this circular, unless otherwise indicated, conversion of RMB into HK$ is calculated at the exchange rate of RMB1 to HK$0.85. This exchange rate is for illustration purposes only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at this or any other rate at all.

For identification purposes only

– 8 –

LETTER FROM THE BOARD

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 384)

Executive Directors:

Mr. ZHOU Si (Chairman)

Mr. LIU Ming Hui (Executive Chairman, Managing Director and President)

Mr. HUANG Yong

Mr. ZHU Weiwei

Mr. MA Jinlong Ms. LI Ching

Registered Office:

Clarendon House, 2 Church Street Hamilton HM 11, Bermuda

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

Non-executive Directors:

Mr. YU Jeong Joon (Vice Chairman)

Mr. KIM Yong Joong (alternate to Mr. YU Jeong Joon)

Mr. LIU Mingxing

Mr. Arun Kumar MANCHANDA
Mr. JIANG Xinhao

Independent Non-executive Directors:

Mr. ZHAO Yuhua

Dr. MAO Erwan

Ms. WONG Sin Yue, Cynthia

Mr. HO Yeung

Ms. CHEN Yanyan

20 July 2016

To the Shareholders

Dear Sir/Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

AMENDED AND RESTATED SHARE PURCHASE AGREEMENT RELATING TO THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF BEIJING GAS DEVELOPMENT LIMITED AND

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

For identification purposes only

– 9 –

LETTER FROM THE BOARD

INTRODUCTION

Reference is made to: (i) the announcement of the Company dated 26 November 2014, the circular of the Company dated 27 February 2015, the announcement of the Company dated 24 June 2015, the announcement of the Company dated 30 October 2015 and the announcement of the Company dated 31 March 2016 in relation to, among other things, the proposed acquisition of the entire issued share capital of Beijing Gas Development Limited (collectively, the ‘‘Previous Announcements and Circular’’); (ii) the announcement of the Company dated 23 June 2016 in relation to the proposed acquisition of 51% equity interests in Jinzhou Gas (the ‘‘Jinzhou Announcement’’); and (iii) the Announcement in relation to, among other things, the Proposed Acquisition which constitutes a discloseable and connected transaction of the Company under the Listing Rules.

As disclosed in the Previous Announcements and Circular, on 26 November 2014, the Company, the Purchaser (being a wholly-owned subsidiary of the Company), the Seller and the Guarantor entered into the Original Share Purchase Agreement, pursuant to which the Purchaser agreed to acquire from the Seller the Sale Share (being the entire issued share capital of the Target Company) subject to the fulfilment of certain conditions, including but not limited to the completion of the Original Reorganisation. The parties to the Original Share Purchase Agreement subsequently entered into side agreements to extend the date by which the Original Conditions shall be fulfilled or waived. As at the date of the Announcement, the Seller and the Target Company had not been able to complete the Original Reorganisation (being one of the Original Conditions) due to difficulties in obtaining local PRC governmental approvals for the transfer of the legal and/or beneficial interest in the Hegang Entity and the Tangshan Entity (which were target group companies under the Original Share Purchase Agreement) (the ‘‘Excluded Target Group Companies’’) to the Target Company, accordingly the Original Completion had not taken place.

As such, to facilitate completion of the Proposed Acquisition, on 28 June 2016 (after trading hours of the Stock Exchange), the Company, the Purchaser, the Seller and the Guarantor entered into the Amended and Restated Share Purchase Agreement, pursuant to which the parties thereto agreed to amend and restate certain terms of the Original Share Purchase Agreement, in particular, to amend the composition of the Target Group to exclude the Excluded Target Group Companies and to amend the scope of the Reorganisation to exclude the transfer of the legal and/or beneficial interest in the Excluded Target Group Companies to the Target Company. The Amended and Restated Share Purchase Agreement replaces and supersedes the Original Share Purchase Agreement in its entirety and all amendments thereto prior to the date of the Amended and Restated Share Purchase Agreement.

The purpose of this circular is to provide you with: (i) further details of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific

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LETTER FROM THE BOARD

Mandate; (iii) a letter of advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Acquisition; (iv) certain information as required by the Listing Rules; and (v) notice of the SGM.

DETAILS OF THE AMENDED AND RESTATED SHARE PURCHASE AGREEMENT

Date : 28 June 2016 Parties The Seller : Beijing Gas Group (BVI) Co., Ltd., being a wholly-owned subsidiary of the Guarantor The Guarantor : Beijing Enterprises Holdings Limited The Purchaser : Fresh Goal Limited, being a wholly-owned subsidiary of the Company The Company : China Gas Holdings Limited

Subject matter of Proposed Acquisition

The Purchaser has agreed to purchase, and the Seller has agreed to sell, the Sale Share in accordance with the terms and conditions of the Amended and Restated Share Purchase Agreement.

As at the Latest Practicable Date, the Target Group principally engages in the distribution of city gas, natural gas for vehicle use and the construction of long-distance natural gas pipelines in the PRC. Further details of the Target Group are set out in the section headed ‘‘Information of the Group, the Purchaser, the Seller, the Guarantor and the Target Group’’ in this circular.

Consideration and Consideration Shares

Under the Original Share Purchase Agreement, the consideration was RMB1,632,795,828 (equivalent to approximately HK$2,063,851,945), subject to adjustments based on the net asset value of the Target Group (including the Excluded Target Group Companies) attributable to the Seller, and the number of Shares to be issued to the Seller (or a wholly-owned subsidiary of the Guarantor) as consideration was 149,122,250 Shares at a benchmark Share price of HK$13.84 per Share, which represented a premium of approximately 3.10% over the average closing price per Share for the last five consecutive trading days as quoted on the Stock Exchange up to and including the day immediately prior to the date of the Original Share Purchase Agreement.

Under the Amended and Restated Share Purchase Agreement, the consideration (the ‘‘Consideration’’) for the Proposed Acquisition of the Sale Share is RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480), subject to adjustments based on the net asset value of the Target Group attributable to the Seller.

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LETTER FROM THE BOARD

The Consideration shall be satisfied by the Company allotting and issuing 110,823,011 new Shares of the Company (the ‘‘Consideration Shares’’) at the Benchmark Share Price to the Seller (or a wholly-owned subsidiary of the Guarantor) at Completion, subject to adjustments. The issue price per Consideration Share is HK$13.84 (the ‘‘Benchmark Share Price’’), which represents a premium of approximately 22.35% over the average closing price per Share for the last five consecutive trading days as quoted on the Stock Exchange up to and including the day immediately prior to the date of the Amended and Restated Share Purchase Agreement.

The Consideration is subject to the following adjustments based on the net asset value of the Target Group attributable to the Seller as at 30 June 2014 as set out in the June Audited Accounts (the ‘‘2014 Net Asset Value’’) multiplied by 1.4 (the ‘‘P/B Multiple’’):

(a) if the 2014 Net Asset Value multiplied by the P/B Multiple of 1.4 is more than RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480), there shall be added to the Consideration an amount equal to such excess amount, and the Purchaser shall pay such amount in cash to the Seller at Completion; and
(b) if the 2014 Net Asset Value multiplied by the P/B Multiple of 1.4 is less than RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480), there shall be deducted to the Consideration an amount equal to such shortfall amount, and the Seller shall receive, instead of the Consideration Shares, such adjusted number of new Shares (the ‘‘Adjusted Consideration Shares’’) which shall be calculated as follows:

Adjusted Consideration Shares = Consideration Shares – Reduced Shares

where:

Reduced Shares = (RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480) – 2014 Net Asset Value × 1.4)/Benchmark Share Price.

For the avoidance of doubt, the number of Reduced Shares shall be rounded to the nearest integer.

The Adjusted Consideration Shares (if applicable) shall be allotted and issued by the Company to the Seller (or a wholly-owned subsidiary of the Guarantor) at Completion.

The June Audited Accounts shall be prepared in accordance with the HKFRS by the auditors appointed by the Purchaser (the ‘‘Purchaser’s Auditor’’). In the event that the independent auditor appointed by the Seller (the ‘‘Seller’s Auditor’’) raises any objections to the June Audited Accounts, the Seller and the Purchaser and their respective auditors shall seek to resolve any differences thereafter, and the result so agreed between the Seller and the Purchaser shall be final and binding on the parties. For the purposes of the above, each of the Seller’s Auditor and the Purchaser’s Auditor shall act as an expert and not an arbitrator.

– 12 –

LETTER FROM THE BOARD

Basis of Determination of Consideration

The Consideration for the Proposed Acquisition is equal to the 2014 Net Asset Value (being RMB866,745,000) multiplied by the P/B Multiple of 1.4. The Consideration for the Proposed Acquisition was agreed between the Purchaser and the Seller after arm’s length negotiations with reference to the 2014 Net Asset Value, and having considered the future prospects of the Target Group and the potential business growth that the Target Group can bring to the Group by leveraging on the Target Group’s operations secured under various concession agreements and government permission for exclusive operation through joint venture cooperation. The Board considers that the P/B Multiple of 1.4 times of the 2014 Net Asset Value is fair and reasonable, taking into account the financial information of the Target Group and the fact that some of the city gas projects/assets are at initial development stage where the full potential is yet to be realised, as well as some comparable market cases[(1)] where the relevant companies are primarily engaged in similar gas project business as the Target Group Companies.

The Proposed Acquisition under the Amended and Restated Share Purchase Agreement is essentially the same transaction as that under the Original Share Purchase Agreement, save for the removal of the Excluded Target Group Companies from the Target Group, which were removed in order to facilitate the completion of the Proposed Acquisition. As such, the Seller and the Purchaser mutually agreed that the changes to the terms of the Original Share Purchase Agreement should be kept at a minimum and should primarily be consequential amendments to the change in composition of the Target Group, and that the basis for determination of the Consideration and adjustments thereto should not deviate from that as set out in the Original Share Purchase Agreement.

Further, based on the financial information of the Target Group as at 30 April 2016 (without taking into account the financials of the Excluded Target Group Companies), the difference between the net asset value of the Target Group attributable to the Seller as at 30 June 2014 and that as at 30 April 2016 (taking into account the increase in the amount of the Shareholders Loans in respect of the Target Group (without the Excluded Target Group Companies) of RMB129,255,686) is approximately RMB8,355,314. The Purchaser considers that such difference is not material compared to the total amount of the Consideration.

The Board (including the independent non-executive Directors, after taking into consideration the advice and recommendation of the Independent Financial Adviser) considers that the Consideration for the Proposed Acquisition and the basis of determination thereof (including the basis of determination of the P/B Multiple of 1.4) is fair and reasonable.

Note:

(1) The comparable market cases include 24 transactions in relation to the city gas project acquisitions in the PRC from 2006 to 2015 based on market intelligence.

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LETTER FROM THE BOARD

The Specific Mandate

Pursuant to the Amended and Restated Share Purchase Agreement, 110,823,011 Consideration Shares (or the Adjusted Consideration Shares, as the case may be) will be allotted and issued at Completion by the Company to the Seller (or a wholly-owned subsidiary of the Guarantor) under the Specific Mandate to be approved by the Independent Shareholders at the SGM.

The Consideration Shares (or the Adjusted Consideration Shares, as the case may be) will, upon issue and credited as fully paid, rank pari passu in all respects with all the existing Shares then in issue. An application will be made by the Company to the Stock Exchange for the approval for the listing of, and permission to deal in, the Consideration Shares (or the Adjusted Consideration Shares, as the case may be).

Effect of the issue of the Consideration Shares on the shareholding structure of the Company

For illustrative purposes only, assuming that there is no change to the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date to the Completion Date, being the day on which the Consideration Shares will be issued to the Seller (or a wholly-owned subsidiary of the Guarantor), to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the shareholding structure of the Company: (a) as at the Latest Practicable Date was; and (b) immediately after the issue of the Consideration Shares (assuming that no adjustment will be made to the Consideration) will be, as follows:

Name of Shareholders The Seller and its close associates(1) Other Substantial Shareholders China Gas Group Limited (‘‘CGGL’’) and its close associates(2) SK E&S Co., Ltd and its close associates(3) Directors Mr. LIU Mr. HUANG Yong(4) Mr. ZHU Weiwei Mr. MA Jinlong Mr. ZHAO Yuhua Dr. MAO Erwan Ms. WONG Sin Yue, Cynthia Public Shareholders Total	As at the Latest Practicable Date Number of Shares Approximate %(5) 1,126,840,132 22.95 754,908,000 15.37 778,042,500 15.84 287,798,000 5.86 117,278,000 2.39 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 37.29 4,910,384,561 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares Approximate %(6)(7) 1,237,663,143 24.65 754,908,000 15.03 778,042,500 15.50 287,798,000 5.73 117,278,000 2.34 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 36.47 5,021,207,572 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares Approximate %(6)(7) 1,237,663,143 24.65 754,908,000 15.03 778,042,500 15.50 287,798,000 5.73 117,278,000 2.34 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 36.47 5,021,207,572 100.00
			100.00

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LETTER FROM THE BOARD

Notes:

The Seller is a wholly-owned subsidiary of BEHL. Each of Beijing Enterprises Group Company Limited (‘‘BE Group’’), Beijing Enterprises Group (BVI) Company Limited (‘‘BE Group BVI’’) and BEHL is deemed to be interested in 1,126,840,132 Shares, 72,752,000 of which are directly and beneficially owned by BEHL, and 1,054,088,132 of which are directly and beneficially owned by Hong Mao Developments Limited (‘‘Hong Mao’’). Hong Mao is wholly-owned by BEHL which is deemed to be owned as to 61.96% by BE Group BVI. BE Group BVI is in turn wholly-owned by BE Group.
The Shares are directly and beneficially owned by CGGL. CGGL is owned as to 50% by Joint Coast Alliance Market Development (‘‘Joint Coast’’) which, in turn, is wholly-owned by Mr. LIU. Mr. LIU is deemed to be interested in the 754,908,000 Shares held by CGGL. The other 50% interest in CGGL is owned by Fortune Oil PRC Holdings Limited.
Among the 778,042,500 Shares, 705,034,500 Shares are beneficially owned by SK E&S Co., Ltd. and 73,008,000 Shares are owned by Pusan City Gas Co., Ltd., which is in turn owned as to 74.05% by SK E&S Co., Ltd..
The Shares include 770,000 Shares held by Ms. ZHAO Xiaoyu, the spouse of Mr. HUANG Yong.
The percentage was calculated on the basis of 4,910,384,561 Shares in issue as at the Latest Practicable Date and is rounded to the nearest 2 decimal places.
The percentage was calculated on the enlarged issued share capital of the Company as a result of the issue of the Consideration Shares comprising a total of 5,021,207,572 Shares and is rounded to the nearest 2 decimal places.

Conditions to the Completion of the Amended and Restated Share Purchase Agreement

Completion of the Proposed Acquisition is conditional upon:

completion of the due diligence in respect of the Target Group by the Purchaser;
the passing by the Independent Shareholders of a resolution to approve the Amended and Restated Share Purchase Agreement and the transactions contemplated thereunder and the allotment and issuance of the Consideration Shares at the SGM;
completion of the Reorganisation;
no obligation for a general offer in respect of the Shares (other than those held by or to be issued to the Seller (or a wholly-owned subsidiary of the Guarantor) pursuant to the Amended and Restated Share Purchase Agreement and any party acting in concert with it) shall arise for the Seller or any party acting in concert with it pursuant to Rule 26 of the Takeovers Code as a result of the Completion;
the Seller shall (to the extent required or applicable to it): (a) at its own expense, as soon as possible and in any event no later than 30 days after the date of the Amended and Restated Share Purchase Agreement, truly, accurately and completely report all relevant information on the Proposed Acquisition to the relevant PRC tax authority in accordance with Article 9 of Bulletin 7, and provide the Purchaser with a copy of its written

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LETTER FROM THE BOARD

submission to the relevant PRC tax authority evidencing the submission, as soon as practicable after the relevant submission has been made; and (b) fully and promptly discharge all PRC tax liabilities assessed on it, or levied, charged or required to be withheld by the Purchaser or any Target Group Company in relation to or otherwise arising from the sale of the Sale Share by it provided that nothing in this paragraph shall preclude the Seller from filing appeals or objections to any assessment levy or charge in accordance with applicable laws and rules;

all permits, consents, approvals, filings and clearances (including AML Filings) that are required for the Seller, the Seller Group, the Purchaser, the Purchaser Group or any of the Target Group Companies in connection with the execution, delivery and performance of the Transaction Documents and the consummation of the Proposed Acquisition having been obtained in accordance with the applicable laws or from any third parties, and such permits, consents, approvals, filings and clearances (including AML Filings) not having been withdrawn;
the Listing Committee having granted the approval for the listing of, and permission to deal in, the Consideration Shares or, if any adjustment is applied in the manner set out in the section headed ‘‘Consideration and Consideration Shares’’ above, the Adjusted Consideration Shares;
since the date of the Amended and Restated Share Purchase Agreement, there not having been a Material Adverse Change;
any of the Seller’s warranties under the Amended and Restated Share Purchase Agreement, to the extent that a breach would or would reasonably likely to result in a Material Adverse Change, remain true and accurate and not misleading at Completion by reference to the facts and circumstances existing at the relevant time; and
the Seller having materially complied with the pre-Completion obligations set out in the Amended and Restated Share Purchase Agreement and otherwise performed in all material respects all of the covenants and agreements required to be performed by it under the Amended and Restated Share Purchase Agreement.

The Purchaser may at its sole discretion waive, either in whole or in part, all or any of the Conditions above (except for the Conditions set out in paragraphs 2, 3, 4, 5, 6 and 7) at any time by notice in writing to the Seller. In the event that any of the Conditions shall not have been fulfilled or waived on or before 30 September 2016 (or such later date as the Purchaser and the Seller may agree in writing), then neither the Purchaser nor the Seller shall be bound to proceed with the purchase and sale of the Sale Share and the Amended and Restated Share Purchase Agreement shall terminate immediately upon written notice by either the Purchaser or the Seller to the other parties, save for certain clauses which shall survive such termination and save in respect of claims arising out of any breach prior to the termination of the Amended and Restated Share Purchase Agreement.

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LETTER FROM THE BOARD

In respect of the Condition set out in paragraph 3 above, as at the Latest Practicable Date, the acquisitions of the equity interests held by Beijing City Gas Corporation Limited Liability Co., in each of Jinzhou Beiran Vehicle Use Natural Gas Corporation, Ltd., Yingkou Bohai Gas Development Co., Ltd., Beijing Gas Group Shandong Co., Ltd., Beijing Gas Group Qingan Co., Ltd., Beijing Gas Group Hainan Co., Ltd. and Shandong Province Natural Gas Utilization Co., Ltd. respectively, and the acquisition of the equity interests held by Beijing Dingxin New Technology Co., Ltd. in Shandong Province Natural Gas Pipeline Network Investment Co., Ltd., have been completed. As at the Latest Practicable Date, the acquisitions of the equity interests held by Beijing City Gas Corporation Limited Liability Co., in each of Beijing Anhua Hengtai Investment Co., Ltd., and Beijing Gas Jinzhou Dayou Gas Co., Ltd respectively, and the acquisition of the equity interests held by Beijing Gas Corporation Ltd., Co., in Petro China Beiran Jinzhou Gas Co., Ltd. (collectively, the ‘‘Remaining Reorganisation’’) respectively are in progress and are expected to be completed on or before 30 September 2016. The Company understands from the Seller that, in the absence of any unforeseen circumstances, there are no factors existing as at the Latest Practicable Date which would constitute or give rise to any legal impediment to the completion of the Remaining Reorganisation.

Guarantee

Pursuant to the Amended and Restated Share Purchase Agreement, the Guarantor has irrevocably and unconditionally:

(a) guaranteed to the Purchaser punctual performance by the Seller of all its obligations under the Transaction Documents to which it is a party; and
(b) undertaken with the Purchaser that whenever the Seller does not pay any amount when due under or in connection with the Transaction Documents, the Guarantor shall immediately on demand and without deduction or withholding pay that amount as if it was the principal obligor.

Completion

Completion will take place within 10 Business Days after all of the Conditions have been satisfied or waived (or such later date as the Seller and the Purchaser may agree in writing). Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company.

Within three months after the date of Completion, the Purchaser shall procure the repayment of the Shareholders Loans owed by the Target Group Companies to the Seller Group, the total amount of which is RMB304,017,436 (equivalent to approximately HK$357,667,572) as at the date of the Amended and Restated Share Purchase Agreement.

Post-Completion acquisition of the Tangshan Entity

Pursuant to the Amended and Restated Share Purchase Agreement, subject to Completion taking place, the Seller is willing to transfer 49% equity interest in the Tangshan Entity to the Purchaser at a consideration which may be determined principally in line with the pricing principles

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LETTER FROM THE BOARD

set out in the Original Share Purchase Agreement to be settled in cash or other means to be agreed by the Seller and the Purchaser (the ‘‘Tangshan Acquisition’’). Pursuant to the Amended and Restated Share Purchase Agreement, subject to the Seller providing evidence to the reasonable satisfaction of the Purchaser that the Seller has obtained all permits, consents, approvals, filings and clearances (including AML Filings) that are required such that, subject to the execution of a separate sale and purchase agreement for the Tangshan Acquisition, the Seller is ready, willing and able to transfer or procure the transfer of 49% equity interest in Tangshan Entity to the Purchaser, the Purchaser may in its sole and absolute discretion elect to notify the Seller in writing within 30 days after its receipt of the abovementioned evidence that the Purchaser shall purchase 49% equity interest in the Tangshan Entity. The completion of the Tangshan Acquisition will be conditional upon the fulfilment of certain conditions, including but not limited to all permits, consents, approvals, filings and clearances (including AML Filings) that are required for Tangshan Acquisition having been obtained in accordance with the applicable laws or from any third parties, and such permits, consents, approvals, filings and clearances (including AML Filings) not having been withdrawn. The detailed terms of the Tangshan Acquisition will be set out in a sale and purchase agreement for the Tangshan Acquisition to be separately negotiated by the parties in accordance with the principles the Amended and Restated Share Purchase Agreement.

The Tangshan Entity is a company established under the laws of the PRC on 18 August 1993 with a registered capital of RMB540,816,300. It is primarily engaged in city gas business.

For the avoidance of doubt, notwithstanding the above provisions regarding the Tangshan Acquisition and the Purchaser’s right to elect to proceed therewith are legally binding terms of the Amended and Restated Share Purchase Agreement, the Purchaser has the sole and absolute discretion, but is not obliged, to elect to proceed with the Tangshan Acquisition. In the event that the Purchaser elects to proceed with the Tangshan Acquisition, the Seller and the Purchaser shall negotiate in good faith, but are not obliged to enter into, a separate sale and purchase agreement in respect of the Tangshan Acquisition. If agreement on the terms of the sale and purchase agreement cannot be reached between the Seller and the Purchaser, neither party is obliged to enter into such sale and purchase agreement nor to proceed with the Tangshan Acquisition.

The Company will comply with the requirements of the applicable Listing Rules (including but not limited to the requirements in respect of the exercise of options under Rule 14A.79 of the Listing Rules and the aggregation requirements under Rule 14A.81 of the Listing Rules) and make further announcement(s) in this respect as and when appropriate.

Post-completion undertakings

Each of the Seller and the Guarantor has undertaken that, following Completion, it will procure the repayment in the ordinary and usual course of business by the Seller Group of all sums owing between any member of the Target Group on the one hand and any member of the Seller Group on the other hand as at Completion.

The Purchaser has undertaken that, within three months following Completion, it will ensure the repayment of the Shareholders Loans by each of the relevant members of the Target Group to the Seller Group.

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LETTER FROM THE BOARD

Non-competition

Each of the Seller and the Guarantor has undertaken with the Purchaser that, for a period of 3 years from the date of Completion, it will not (and will procure that its affiliated companies will not), without prior written consent of the Purchaser, directly or indirectly, among other things: (i) carry on or be engaged, concerned or interested in, whether as shareholder, director, partner, agent or otherwise, any business which competes with the Target Group in the geographical areas where any Target Group Company has business operations as at the date of Completion; (ii) canvass, solicit or accept any business similar to that of the Target Group from any client or customer, potential client or customer, representative or agent of the Target Group; (iii) interfere with the continuance of supply of goods or services to the Target Group; or (iv) solicit or entice away or offer employment to (other than as a result any individual taking initiative to apply for employment without any interference by or on behalf of any member of the Seller Group) any employee in a managerial, supervisory, technical or sales capacity by, or engaged as a consultant to, the Target Group in the manner set out in the Amended and Restated Share Purchase Agreement.

FINANCIAL INFORMATION OF TARGET GROUP

A summary of the annual combined financial information of the Target Group prepared in accordance with the PRC Generally Accepted Accounting Principles as provided by the Seller is set out below:

	For the	For the	For the
	4 months ended	year ended	year ended
	30 April	31 December	31 December
	2016	2015	2014
	RMB’000	RMB’000	RMB’000
	Unaudited	Unaudited	Unaudited
Net profit before taxation	17,631	40,595	32,774
Net profit after taxation	14,247	26,884	33,412
Net profit attributable to the Seller	13,902	25,651	32,791
Combined net asset value	1,964,601	1,940,393	1,818,842
Combined total asset value	4,043,628	3,777,760	3,521,156

The net asset value of the Target Group attributable to the Seller as at 30 June 2014, 31 December 2015 and 30 April 2016 were RMB866,745,000 and RMB988,391,000 and RMB1,004,356,000 respectively.

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LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS OF THE PROPOSED ACQUISITION FOR THE COMPANY

As at the Latest Practicable Date, BEHL directly and indirectly owns 1,126,840,132 Shares, representing approximately 22.95% of the total issued Shares of the Company. As such, BEHL is a connected person of the Company. The Seller is a wholly-owned subsidiary of BEHL. Therefore, the Seller is a connected person of the Company.

The amendments contemplated under the Amended and Restated Share Purchase Agreement constitute material variations to the terms of a discloseable and connected transaction of the Company under Rule 14.36 and Rule 14A.35 of the Listing Rules.

Pursuant to Rule 14.22 and Rule 14A.81 of the Listing Rules, the Proposed Acquisition will be aggregated with the transaction contemplated under the Jinzhou Equity Transfer Agreement. As the highest of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the Proposed Acquisition (whether on a standalone basis or aggregated with the transaction contemplated under the Jinzhou Equity Transfer Agreement) is more than 5% but less than 25%, the Proposed Acquisition will be required to comply with the reporting, announcement and independent shareholders’ approval requirements for a discloseable and connected transaction under Chapter 14 and Chapter 14A of the Listing Rules.

REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION

The Directors consider that the Proposed Acquisition is in line with the business strategies and the expansion plan of the Group.

The business of the Target Group in the PRC focuses on the distribution of city gas, natural gas for vehicle use and the construction of long-distance natural gas pipelines and the Target Group has 10 city gas projects, three CNG and one LNG gas stations for vehicles as well as one longdistance natural gas pipeline. The coverage of the Target Group principally includes Liaoning, Heilongjiang, Shandong and Anhui. The Group also runs various projects in these areas. Jinzhou of Liaoning has long been known as an industrial city in the PRC. As a result, the area has a considerable number of industrial users which presents great market potential. The business of the Target Group is expected to complement and generate synergy with the Group’s existing business. Given that the Target Group has completed the connection of most of its long distance natural gas pipelines, together with the increasing demand for winter heating supply and the growing prevalence of the ‘‘coal-to-gas’’ policy, it is believed that the Proposed Acquisition will greatly enhance the Group’s performance and offer a better roadmap for the Group’s future business

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LETTER FROM THE BOARD

development. In addition, the Target Group’s operations which are secured under various concession agreements and government permission for exclusive operation through joint venture cooperation will provide new impetus to business growth of the Group.

The Directors believe that Proposed Acquisition will expand the urban population coverage of the Group’s projects, increase the number of gas users and boost the natural gas sales, therefore generating new momentum for the continuing growth of the Group’s business.

The Directors (including the independent non-executive Directors, after taking into consideration the advice and recommendation of the Independent Financial Adviser) consider that the terms of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate are on normal commercial terms, fair and reasonable and in the interests of the Company and Shareholders as a whole.

INFORMATION OF THE GROUP, THE PURCHASER, THE SELLER, THE GUARANTOR AND THE TARGET GROUP

The Group

The Group is a gas operator and service provider principally engaged in the investment, construction and operation of city gas pipeline infrastructure facilities, gas terminals, storage and transportation facilities, gas logistics systems, transmission of natural gas and LPG to residential, industrial and commercial users, construction and operation of compressed natural gas/liquefied natural gas refilling stations as well as development and application of technologies relating to natural gas and LPG in China.

The Purchaser

The Purchaser is a wholly-owned subsidiary of the Company. Its principal activity is investment holding.

The Seller

The Seller is a wholly-owned subsidiary of BEHL and is an investment holding company which holds the entire issued share capital of the Target Company.

The Guarantor

The Guarantor is a company incorporated under the laws of Hong Kong with limited liability and the issued shares of which are listed on the main board of the Stock Exchange (stock code: 392). The Guarantor and its subsidiaries principally engage in the distribution and sale of piped natural gas, the provision of natural gas transmission, gas technology consultation and development services, surveying and plotting of underground construction projects, the construction and installation of gas pipelines and related equipment and the provision of repair and maintenance services in Beijing, the PRC, the production, distribution and sale of beer in Beijing and other provinces in the PRC, the construction of sewage and water treatment plants and other

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LETTER FROM THE BOARD

infrastructural facilities and the provision of construction services for comprehensive renovation projects in the PRC and Malaysia, sewage treatment, water treatment and distribution in the PRC and the Portuguese Republic, and the provision of consultancy services and the licensing of technical know-how that are related to sewage treatment in the PRC.

The Target Group

Under the Original Share Purchase Agreement, the Target Company was a special purpose vehicle for holding interests in 12 PRC project companies (which included the Excluded Target Group Companies) subject to completion of the Original Reorganisation.

As the Original Reorganisation could not be completed, under the Amended and Restated Share Purchase Agreement, the Target Company is a special purpose vehicle for holding interests in 10 PRC project companies (which do not include the Excluded Target Group Companies) subject to completion of Reorganisation. The principal businesses of these project companies are holding, managing and operating gas projects in various provinces in the PRC, including Liaoning, Heilongjiang, Shandong and Anhui provinces involving the distribution of city gas, natural gas for vehicle use and the construction of long-distance natural gas pipelines. As at the Latest Practicable Date, there were 10 such gas projects held, managed and operated by the 10 gas project companies. The 10 project companies were established in the PRC. The Seller Group holds majority interest in seven of the 10 project companies and minority interest in three of them as at the Latest Practicable Date.

The following chart sets out the holding structure of the Target Group after the Reorganisation and prior to Completion for illustration purpose. Apart from removing the Excluded Target Group Companies from the Target Group, there are no other material changes to the composition of the Target Group contemplated under the Original Share Purchase Agreement nor to the Original Reorganisation.

==> picture [61 x 41] intentionally omitted <==

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==> picture [423 x 73] intentionally omitted <==

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LETTER FROM THE BOARD

Further information of the 10 project companies, as provided by the Seller, is set out in the table below.

							Asset value as at	Asset value as at
							30 April 2016
							(rounded to nearest RMB ’000)
				Long
				distance				Net	assets
		City gas	Gas vehicle	pipeline	Commencement	Location of		attributable to
Name of project company		business	business	business	of operations	operations	Total assets	the	Seller
							RMB’000
1.	北京燃氣集團山東有限公司	✓			Since late 1990s	Shandong Province	816,101	404,985
	Beijing Gas Group Shandong
	Co., Ltd.*
2.	山東省天然氣管網投資有限			✓	Since 2011	Shandong Province	2,092,967	206,941
	公司
	Shandong Province Natural
	Gas Pipeline Network
	Investment Co., Ltd.*
3.	Jinzhou Gas	✓			Since 2010	Liaoning Province	521,074	113,734
4.	北京安華恒泰投資有限公司	✓			Since 2009	Beijing	69,542		58,292
	Beijing Anhua Hengtai
	Investment Co., Ltd.*
5.	山東省天然氣利用有限公司	✓	✓		Operation yet to	Shandong Province	221,229		26,058
	Shandong Province Natural				be commenced
	Gas Utilization Co., Ltd.*
6.	錦州北燃公交車用天然氣		✓		Since 2013	Liaoning Province	40,340		28,822
	有限責任公司
	Jinzhou Beiran Vehicle Use
	Natural Gas Corporation,
	Ltd.*
7.	北京燃氣集團海南有限公司	✓			Operation yet to	Hainan Province	19,535		19,534
	Beijing Gas Group Hainan				be commenced
	Co., Ltd.*
8.	北京燃氣錦州大有燃氣有限	✓			Since 2013	Liaoning Province	247,069	134,012
	公司Beijing Gas Jinzhou
	Dayou Gas Co., Ltd*
9.	北京市燃氣集團慶安有限	✓			Operation yet to	Heilongjiang	8,132	8,081,613
	公司Beijing Gas Group				be commenced	Province
	Qingan Co., Ltd.*
10.	營口渤海燃氣發展有限公司	✓			Operation yet to	Liaoning Province	7,640		3,896
	Yingkou Bohai Gas				be commenced
	Development Co., Ltd.*

As shown above, the principal businesses of the 10 project companies are holding, managing and operating gas projects in various provinces in the PRC, including Liaoning, Heilongjiang, Shandong and Anhui provinces involving (1) operation of piped city gas, (2) operation of compressed natural gas and liquefied natural gas stations and (3) investment and construction of long-distance natural gas pipeline. As at 31 May 2016, the connectable urban population covered by the Target Group’s gas projects was 10,348,000 (approximately 2,900,000 households).

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LETTER FROM THE BOARD

1. City Gas

As at 31 May 2016, the Target Group has accumulated a total of 810,429 installed users, including 800,173 residential users, 10,173 commercial users and 83 industrial users. The Target Group has also accumulated 644,419 connected gas users.

For the years of 2014 and 2015, the Target Group has reported natural gas sales of 173 million cubic metres and 155 million cubic metres respectively. For the period from January to May 2016, the aggregated natural gas sales amount to 72,000,000 cubic metres.

2. Gas for Vehicles

The three CNG gas stations in downtown Jinzhou operated by the Target Group provides refueling services for city public services vehicle. The Target Company indirectly invests in a company which has built a LNG gas station in Jinan.

3. Long-distance Pipeline

The Target Group, through the minority interest in Shandong Province Natural Gas Pipeline Network Investment Co. Ltd., invests in the construction and operation of city- and county-level pipeline network branches along the Taian-Qingdao-Weihai main pipeline. Based on the information provided by the Seller, the total length of the pipeline amounts to approximately 873 kilometers, and the construction has been fully completed.

The Target Group has established a sound management and operating system for its gas business, with full licences for its gas operations, as well as reasonable management and human resources allocation, and has attained strong economics of scale.

As disclosed in the Jinzhou Announcement, an indirect wholly-owned subsidiary of the Company entered into an equity transfer agreement to conditionally acquire 51% equity interest in Jinzhou Gas (the ‘‘Jinzhou Acquisition’’). The Jinzhou Acquisition is conditional upon, among others, (a) all consents, approvals, filings and registrations having been obtained and completed; and (b) the amended joint venture contract and amended articles of association of Jinzhou Gas having been signed, approved and adopted. As at the Latest Practicable Date, the Jinzhou Acquisition has not been completed. Upon completion of the Jinzhou Acquisition, Jinzhou Gas would become a 51%-owned subsidiary of the Company. Accordingly, in the event that completion of the Jinzhou Acquisition takes place before Completion of the Proposed Acquisition, Jinzhou Gas would become an indirect 99%-owned subsidiary of the Company upon Completion of the Proposed Acquisition.

In the event that completion of the Jinzhou Acquisition does not take place before Completion of the Proposed Acquisition, the equity interests in Jinzhou Gas would remain owned as to 48% by the Target Company upon Completion. Accordingly, upon Completion, Jinzhou Gas would become indirectly owned as to 48% by the Company and would not be accounted for as an indirect subsidiary of the Company.

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LETTER FROM THE BOARD

GENERAL INFORMATION

As of Mr. Zhou Si, the Chairman and an executive Director of the Company, is also the vice chairman, executive director and chief executive officer of BEHL, and Mr. Jiang Xinhao, a nonexecutive Director of the Company, is also an executive director and vice president of BEHL, both of them were deemed to be interested in the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate. As such, each of them abstained from voting on the Board resolutions approving the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate.

RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on page 27 of this circular in connection with the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate. Your attention is also drawn to the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate as well as the principal factors and reasons considered by it in arriving at such advice set out on pages 29 to 51 of this circular.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate are on normal commercial terms after arm’s length negotiations between the parties, fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions for approving the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate at the SGM.

SPECIAL GENERAL MEETING

A notice of the SGM is set out on pages 58 to 60 of this circular.

A form of proxy for use at the SGM is enclosed herewith. To be valid, the form of proxy must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

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LETTER FROM THE BOARD

BEHL (which holds 72,752,000 Shares representing 1.48% of the total issued Shares as at the Latest Practicable Date) and Hong Mao Developments Limited (which holds 1,054,088,132 Shares representing 21.47% of the total issued Shares as at the Latest Practicable Date) and their respective associates, and other persons that have a material interest in the Proposed Acquisition are required to abstain from voting on the resolutions in respect of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate at the SGM.

CLOSURE OF REGISTER OF MEMBERS

For the purpose of determining the identity of the Shareholders who are entitled to attend and vote at the SGM, the register of members of the Company will be closed from 12 August 2016 (Friday) to 16 August 2016 (Tuesday) (both days inclusive), during which period no transfer of Shares will be registered. In order to qualify for attending and voting at the SGM to be held on 16 August 2016 (Tuesday), all transfers of Shares accompanied by the relevant share certificates and transfer forms, must be lodged with the Company’s branch share registrar and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 11 August 2016 (Thursday).

VOTING BY WAY OF POLL

Pursuant to Rule 13.39(4) of the Listing Rules, at any general meeting of the Company, a resolution put to the vote of the meeting shall be taken by poll, other than resolution which relates purely to a procedural or administrative matter which may be decided by the chairman in good faith to be voted by a show of hands.

GENERAL

If any of the Conditions is not fulfilled or waived pursuant to the Amended and Restated Share Purchase Agreement, the Proposed Acquisition will not proceed. Shareholders and potential investors of the Company should exercise caution when dealing in the Shares or any other securities of the Company.

Yours faithfully, For and on behalf of China Gas Holdings Limited ZHOU Si

Chairman of the Board

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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CHINA GAS HOLDINGS LIMITED

中國燃氣控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 384)

20 July 2016

To the Independent Shareholders

Dear Sir/Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION AMENDED AND RESTATED SHARE PURCHASE AGREEMENT RELATING TO THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF BEIJING GAS DEVELOPMENT LIMITED AND

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

We refer to the circular issued by the Company to its shareholders dated 20 July 2016 (the ‘‘Circular’’) of which this letter forms part. Capitalised terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to advise the Independent Shareholders on whether the terms of the Proposed Acquisition, the transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate are on normal commercial terms after arm’s length negotiations between the parties, fair and reasonable so far as the Independent Shareholders are concerned and whether they are in the interest of the Company and the Shareholders taken as a whole.

Central China International Capital Limited has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the (i) letter from the Board and (ii) the letter from the Independent Financial Adviser set out in the Circular. Having considered the principal factors and reasons considered by, and the opinion and advice of, the Independent Financial Adviser as set out in its letter of advice contained in the Circular, we consider that the Proposed Acquisition, transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate are on normal commercial terms after arm’s length negotiations between the parties, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Proposed Acquisition, transactions contemplated under the Amended and Restated Share Purchase Agreement and the Specific Mandate at the SGM.

Yours faithfully,

For and on behalf of the

Independent Board Committee Mr. ZHAO Yuhua Dr. MAO Erwan

Ms. WONG Sin Yue, Cynthia Mr. HO Yeung Ms. CHEN Yanyan

Independent Non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Discloseable and Connected Transaction which has been prepared for the purpose of incorporation in this circular.

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Unit 1504, 15/F, The Center 99 Queen’s Road Central Central Hong Kong

20 July 2016

To the Independent Board Committee and the Independent Shareholders of China Gas Holdings Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Proposed Acquisition, details of which are set out in the letter from the Board (the ‘‘Letter from the Board’’) contained in the circular dated 20 July 2016 issued by the Company to the Shareholders (the ‘‘Circular’’), 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 background of the current disclosable and connected transaction is summarised in the Letter from the Board on page 10 of the Circular for your reference. Insofar as the current transaction is concerned, it is understood that on 28 June 2016, the Company, the Purchaser, the Seller and the Guarantor entered into the Amended and Restated Share Purchase Agreement, pursuant to which the parties involved agreed to amend and restate certain terms of the Original Share Purchase Agreement, in particular, to amend (i) the composition of the Target Group to exclude the Excluded Target Group Companies; and (ii) the scope of the Reorganisation to exclude the transfer of the legal and/or beneficial interest in the Excluded Target Group Companies to the Target Company. The Amended and Restated Share Purchase Agreement replaces and supersedes the Original Share Purchase Agreement in its entirety and all amendments thereto prior to the date of the Amended and Restated Share Purchase Agreement.

Pursuant to the Amended and Restated Share Purchase Agreement, the Purchaser has conditionally agreed to acquire from the Seller the Sale Share (being the entire issued share capital of the Target Company) for a Consideration of RMB1,213,443,000 (equivalent to approximately

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

HK$1,533,790,480) subject to adjustments. The Consideration shall be satisfied by the Company allotting and issuing 110,823,011 Consideration Shares to the Seller (or a wholly-owned subsidiary of the Guarantor) under the Specific Mandate.

As at the Latest Practicable Date, BEHL directly and indirectly owns 1,126,840,132 Shares, representing approximately 22.95% of the issued Shares of the Company. As such, BEHL is a connected person of the Company pursuant to Chapter 14A of the Listing Rules. The Seller is a wholly-owned subsidiary of BEHL; thus, it is also a connected person of the Company under Chapter 14 of the Listing Rules.

Pursuant to Rule 14.22 and Rule 14A.81 of the Listing Rules, the Proposed Acquisition will be aggregated with the transaction contemplated under the Jinzhou Equity Transfer Agreement. As the highest of the applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the Proposed Acquisition (whether on a standalone basis or aggregated with the transaction contemplated under the Jinzhou Equity Transfer Agreement) is more than 5% but less than 25% and the Proposed Acquisition involves issue of new Shares to a connected person of the Company, the Proposed Acquisition will be required to comply with the reporting, announcement and independent shareholder’ approval requirements for a discloseable and connected transaction under Chapter 14 and Chapter 14A of the Listing Rules.

BEHL and its wholly-owned subsidiary, Hong Mao Developments Limited (which together collectively hold an aggregate 22.95% interest in the Company as at the Latest Practicable Date) shall be regarded as having a material interest in the Proposed Acquisition, and therefore BEHL, Hong Mao Developments Limited and their respective associates will abstain from voting on the resolution at the SGM to approve the Proposed Acquisition. Save as disclosed above, none of the Directors had any material interest in the Proposed Acquisition and no Director was required to abstain from voting on the board resolutions for approving the Proposed Acquisition.

The Independent Board Committee, comprising all the independent non-executive Directors, namely, Mr. ZHAO Yuhua, Dr. MAO Erwan, Ms. WONG Sin Yue, Cynthia, Mr. HO Yeung and Ms. CHEN Yanyan has been established to advise the Independent Shareholders on (i) whether or not the terms of the Proposed Acquisition, the Amended and Restated Share Purchase Agreement and the transactions contemplated thereunder as well as the Specific Mandate (collectively the ‘‘Transactions’’) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole; and (ii) how the Independent Shareholders should vote at the SGM in respect of the resolutions to approve the Transactions. As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have not acted as the independent financial adviser to the independent board committee and the independent shareholders of the Company for any transaction in the past two years. Neither did we have any relationship with or interest in the Company or any other parties that could reasonably be regarded as relevant to our independence as at the Latest Practicable Date. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist under which we have received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS OF OUR OPINION AND RECOMMENDATION

In forming our opinion and recommendation, we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, management of the Company and its subsidiaries. We have assumed that all information, facts, opinions and representations made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true, accurate and complete as at the date of the Circular and that all expectations and intentions of the Directors, management of the Company and its subsidiaries, will be met or carried out as the case may be.

We have no reason to doubt the truth, accuracy and completeness of the information, facts, opinions and representations provided to us by the Directors, management of the Company and its subsidiaries. The Directors have confirmed to us that no material facts have been omitted from the information supplied and opinions expressed. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Directors, management of the Company and its subsidiaries.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We have relied on such information and opinions and have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or its future prospect.

Our assumption on the information referred to in the Circular continued to be true, accurate and complete as at the date of the SGM, and the Shareholders will be informed of any material change of information.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the foregoing, we confirm that we have taken all reasonable steps, which are applicable to the Proposed Acquisition, as referred to in Rule 13.80 of the Listing Rules (including the notes thereto).

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Proposed Acquisition and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Transactions, we have taken into consideration the following principal factors and reasons:

1. Background information

(a) The Group’s business activities

(b) The Group’s recent financial performance

The following table sets out the financial information of the Group extracted from the annual report of the Company for the year ended 31 March 2016 (the ‘‘AR 2016’’) and the interim report for the six months ended 30 September 2015 (the ‘‘IR 2015/16’’).

Consolidated Statement of Profit or Loss and Other Comprehensive Income

	For the year ended	For the year ended	For the year ended	For the six months	For the six months	For the six months
	31 March			ended 30	September
	2016		2015	2015		2014
	HK$’000		HK$’000	HK$’000		HK$’000
	(Audited)		(Restated)	(Unaudited)		(Unaudited)
Revenue	29,138,527	31,666,111		14,150,224		15,576,557
Profit for the year	2,733,292		3,869,686	1,543,727		1,956,924
Profit attributable to Owners of
the Company	2,273,121		3,371,053	1,304,132		1,680,120

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Consolidated Statement of Financial Position

	For the year ended	For the year ended	For the six months	For the six months	For the six months
	31 March		ended 30	September
	2016	2015	2015		2014
	HK$’000	HK$’000	HK$’000		HK$’000
	(Audited)	(Restated)	(Unaudited)		(Unaudited)
Total assets	53,532,891	50,624,436	51,953,556		48,452,198
Total liabilities	32,568,771	29,188,936	30,691,452		28,683,192
Net asset value attributable to
owners of the Company	17,852,562	18,396,317	18,191,568		16,972,642

(i) For the year ended 31 March 2016

During the period under review, despite the impact of domestic economic slowdown and continuous low levels of oil prices, the financial and operational performance of the Group’s two major business segments, natural gas and LPG, recorded encouraging improvement. Specifically, the core net profit for LPG business recorded a significant surge of 78.5%; however, LPG unit selling price and sales revenue declined significantly due to the drastic drop of international oil prices, pushing the Group’s total consolidated revenue down by 8.0% year-on-year to HK$29,138,527,000.

During the period, the Group’s consolidated gross profit was HK$7,033,290,000, representing a year-on-year increase of 8.9%; the profit attributable to owners of the Company was HK$2,273,121,000, representing a year-on-year decrease of 32.6%; and basic earnings per share was HK45.79 cents, representing a year-on-year decrease of 32.0%.

The decrease in profit attributable to owners of the Company and basic earnings per Share was mainly due to the combined effect of one-off or non-operational factors with a total amount of HK$1,443,217,000 including but not limited to the exchange loss of the Group brought by the depreciation of RMB against US dollars in the amount of HK$513,170,000; share of exchange loss attributable to Zhongyu Gas, an associate company, and the provision for its assets of HK$95,553,000; increase in one-off front end fee of HK$119,679,000 due to the replacement of US dollar loans; the provision attributable to a share option litigation of HK$287,310,000. However, if all these factors were excluded, core profit attributable to owners of the Company during the period was HK$3,716,338,000 (31 March 2015: HK$3,320,151,000), representing a year-on-year increase of 11.9%; and basic core profit per share was HK74.86 cents, representing a year-on-year increase of 12.9%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) For the six months ended 30 September 2015

With the slowdown in China’s economic growth and the continuous declining trends of competitive energies and alternative energies, the gas industry in China experienced a rare decline in growth rate during the period under review. However, the financial and operational performance of the Group’s two major business operations, namely, natural gas and LPG recorded encouraging growth. The core net profit for LPG surged 81.6%; however, LPG revenue declined due to the significant drop of the international oil price, which also caused the total revenue of the Group to decrease by 9.2% to HK$14,150,224,000.

During the review period, gross profit grew year-on-year by 12.5% to HK$3,539,637,000. Profit attributable to owners of the Company declined 22.4% to HK$1,304,132,000. Basic earnings per share fell 22.1% to HK26.15 cents. If the impact from the one-off or non-operational items was excluded (mainly due to the nonoperational exchange loss caused by the depreciation of RMB against US dollars and the provision loss generated from the share option litigation), the core profit attributable to owners of the Company would have significantly increased by 27.3% to HK$1,971,204,000, and basic core profit per share would be HK39.52 cents, a substantial increase of 27.8%.

(c) The Group’s further development

It was reported in the AR 2016 that through stringent management, proactive reform and innovation, flexible adjustment to the Group’s marketing strategies, the Group succeeded in maintaining the robust development of traditional businesses such as city gas, LPG and gas for vehicles and vessels. Besides, the Group was dedicated to establishing a ‘‘4G’’ (namely piped natural gas (‘‘PNG’’), compressed natural gas (‘‘CNG’’), liquefied natural gas (‘‘LNG’’) and liquefied petroleum gas (‘‘LPG’’) network for the gas industry and to developing projects such as ‘‘natural gas in towns’’ and ‘‘point-to-point gas supply’’. With the timely and orderly launch of various innovative strategic developments, such as LNG trading, value-added business, distributed energy, gas appliances under Gasbo (中燃寶) brand and e-commerce business under Zhongran Smart Living E-commerce Company Limited (中燃慧生活), the Group was given strong impetus for further development.

(d) Information on the Target Group

Details of the Target Group and its business activities are set out in the Letter from the Board on pages 22 to 24 of the Circular. The following is a brief summary of those details.

The Target Company is a special purpose vehicle for holding interest in 10 PRC project companies (which do not include the Excluded Target Group Companies) subject to completion of the Reorganisation. The 10 project companies were established in the PRC, of which the Seller Group holds majority interest in seven of them and minority interest in three of them as at the Latest Practicable Date, to hold, manage and operate gas projects in various

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

provinces in the PRC (including Liaoning, Heilongjiang, Shandong, Anhui and Hainan), which involve (i) the operation of piped city gas; (ii) the operation of compressed natural gas and liquefied natural gas stations; and (iii) the investment and construction of long-distance natural gas pipeline.

2. Reasons for and benefits of the Proposed Acquisition

The Group is the largest domestic and cross-regional gas company in China. As reported in the AR 2016, the Group secured a total of 305 piped gas projects with exclusive concession rights, 13 long distance natural gas transmission pipeline projects, 571 CNG/LNG refilling stations for vehicles, one coal bed methane development projects and 98 LPG distribution projects in 25 provinces, municipalities and autonomous regions in China as of 31 March 2016.

The business activities of the Target Group in the PRC, as mentioned before, focus on the distribution of city gas, natural gas for vehicle use and the construction of long-distance natural gas pipelines and the Target Group has 10 city gas projects, three CNG and one LNG gas stations for vehicles as well as one long-distance natural gas pipeline.

The Target Group conducts its business activities principally in the Chinese provinces of Liaoning, Shandong and Anhui, and the Group also runs various projects in these locations, which have a considerable number of industrial users presenting good business prospects. Jinzhou of Liaoning, for example, has long been known as an industrial city. In light of similar business operations and geographical exposure between the Group and the Target Group, the Proposed Acquisition, if approved by the Independent Shareholders at the SGM, is expected to result in the Target Group’s business activities complementing and generating synergy with the Group’s existing businesses.

Furthermore, given that the Target Group has completed the connection of most of its long distance natural gas pipelines, together with the increasing demand for winter heating supply and the growing prevalence of the ‘‘coal-to-gas’’ policy, it is believed that the Proposed Acquisition will greatly enhance the Group’s performance and offer a better roadmap for the Group’s future business development. In addition, the Target Group’s operations which are secured under various concession agreements and government permission for exclusive operation through joint venture cooperation will provide new impetus to business growth of the Group.

The Directors are further of the view that the Proposed Acquisition will expand the urban population coverage of the Group’s projects, increase the number of gas users and boost the natural gas sales, therefore generating new momentum for the continuing growth of the Group’s business.

For the above reasons, the Directors regard the Proposed Acquisition as being in line with the Group’s business strategies and expansion plan and consider the terms of the Proposed Acquisition to be on normal commercial terms, fair and reasonable and in the interests of the Company and Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We understand that on 14 October 2012, the National Development and Reform Commission of the PRC (the ‘‘NDRC’’) promulgated the Natural Gas Utilisation Policy, which came into effect from 1 December 2012. Taking into consideration the social, environment and economic benefits of natural gas utilisation and gas consumption characteristics of different users, the NDRC categorised natural gas users as ‘‘prioritised’’, ‘‘allowed’’, ‘‘restricted’’ and ‘‘prohibited’’ to strategically optimise the consumption structure and enhance the utilisation efficiency of natural gas. Urban development as well as vehicles and inland river, lake and coastal shipping vessels were among the prioritised fields for the utilisation of natural gas. As mentioned in the Company’s 2014/2015 interim report, in March 2014, the NDRC, the National Energy Administration and the Ministry of Environmental Protection of the PRC jointly issued the Working Scheme on Strengthening Prevention and Control of Air Pollution in Energy Industry (能源行業加強大氣污染防治工作方案), which set out the goals for proportion of natural gas (excluding coal gas) to primary energy consumption at 7% for 2015 and over 9% for 2017. According to BP Statistical Review of World Energy June 2014, the consumption of natural gas in China for 2013 was 161.6 billion cubic meters. In November 2014, Plan to Cope with Climate Changes (2014–2020) (國家應對氣候變化規劃(2014–2020年)) was issued by the NDRC. The plan looks to increase consumption of domestic natural gas to 360 billion cubic meters by 2020, representing a compounded annual growth rate of 12.1% from 2013.

In addition, we reviewed a recent report on China’s natural gas issued by the US Congress (https://www.fas.org/sgp/crs/row/R44483.pdf). It was quoted in this report that natural gas consumption in China by 2025 will reach almost 400 billion cubic meters (‘‘BCM’’), more than double China’s estimated 2015 natural gas consumption of 191 BCM. This view on China’s rising natural gas demand is also supported in general by a recent article in a reputable business publication (http://www.forbes.com/sites/judeclemente/2016/04/24/chinas-rising-natural-gas-demandpipelines-and-lng/#799543c06a38). We also reviewed operational and financial information on the Target Group (which was requested from and provided by the Company) which included but not limited to: (i) a schedule containing the number of connectable households covered by the Target Group’s gas projects (as at 31 May 2016, the connectable urban population covered by the Target Group’s gas projects was 10,348,000 — approximately 2.9 million households); (ii) a breakdown of the unaudited turnover and net profits of the Target Group as at 31 December 2015 (approximately RMB469 million and RMB42.8 million, respectively); and (iii) a breakdown of nets assets of the Target Group attributable to the Seller as at 31 December 2015 and 30 April 2016 (approximately RMB988.4 million and RMB1,004 million, respectively).

Based on the above, we concur with the Directors’ view that the entering into the Proposed Acquisition is, on balance, fair and reasonable and is in the interests of the Company and Shareholders as (i) the positive future business prospects arising from the acquisition of the Target Group, which has shown steady profitability in recent years, is likely to maximise the profit attributable to the Shareholders; (ii) the acquisition of the Target Group is in line with and complements the Group’s current business strategies; and (iii) the operational and financial information on the Target Group Companies reviewed by us generally supports the Company’s optimism on entering into the Proposed Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Principal terms of the Amended and Restated Share Purchase Agreement

On 28 June 2016 (after trading hours of the Stock Exchange), Fresh Goal Limited, which is the Purchaser, entered into the Amended and Restated Share Purchase Agreement with the Seller, with BEHL acting as the Guarantor. The principal terms of the Amended and Restated Share Purchase Agreement are summarised as follows:

(a) The contracting parties and the Guarantor

The Purchaser is a wholly-owned subsidiary of the Company and its principal activity is investment holding. The Seller, on the other hand, is a wholly-owned subsidiary of BEHL and is an investment holding company which holds the entire issued share capital of the Target Company. The Guarantor, which is a listed company in Hong Kong, together with its subsidiaries are principally engaged in, among others, the distribution and sale of piped natural gas, the provision of natural gas transmission, gas technology consultation and development services, surveying and plotting of underground construction projects, the construction and installation of gas pipelines and related equipment.

(b) Assets to be acquired

The Purchaser has agreed to purchase, and the Seller has agreed to sell, the Sale Share in accordance with the terms and conditions of the Amended and Restated Share Purchase Agreement.

(c) Consideration

The Consideration for the Proposed Acquisition is RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480), subject to adjustments based on the net asset value of the Target Group attributable to the Seller.

The Consideration shall be settled by the Company allotting and issuing 110,823,011 Consideration Shares to the Seller (or a wholly-owned subsidiary of the Guarantor) at the Benchmark Share Price of HK$13.84, which represents a premium of approximately 22.35% over the average closing price per Share for the last five consecutive trading days as quoted on the Stock Exchange up to and including the day immediately before the date of the Amended and Restated Share Purchase Agreement.

(a) if the 2014 Net Asset Value multiplied by the P/B Multiple of 1.4 is more than RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480), there shall be added to the Consideration an amount equal to such excess amount, and the Purchaser shall pay such amount in cash to the Seller at Completion; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) if the 2014 Net Asset Value multiplied by the P/B Multiple of 1.4 is less than RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480, there shall be deducted to the Consideration an amount equal to such shortfall amount, and the Seller shall receive, instead of the Consideration Shares, such adjusted number of new Shares (the ‘‘Adjusted Consideration Shares’’) which shall be calculated as follows:

Adjusted Consideration Shares = Consideration Shares – Reduced Shares

where:

Reduced Shares = (RMB1,213,443,000 (equivalent to approximately HK$1,533,790,480) – 2014 Net Asset Value x 1.4)/Benchmark Share Price.

For the avoidance of doubt, the number of Reduced Shares shall be rounded to the nearest integer.

The Adjusted Consideration Shares (if applicable) shall be allotted and issued by the Company to the Seller (or a wholly-owned subsidiary of the Guarantor) at Completion.

The June Audited Accounts shall be prepared in accordance with the HKFRS by the auditors appointed by the Purchaser (the ‘‘Purchaser’s Auditor’’). If the independent auditor appointed by the Seller (the ‘‘Seller’s Auditor’’) objects to the June Audited Accounts, the Seller and the Purchaser and their respective auditors shall seek to resolve any differences, and the agreed result between the Seller and the Purchaser shall be final and binding on the parties. For the purposes of the above, each of the Seller’s Auditor and the Purchaser’s Auditor shall act as an expert and not an arbitrator.

Pursuant to the Amended and Restated Share Purchase Agreement, 110,823,011 Consideration Shares will be allotted and issued by the Company to the Seller (or a whollyowned subsidiary of the Guarantor) under the Specific Mandate to be approved by the Shareholders at the SGM. Upon issue, the Consideration Shares will be credited as fully paid, rank pari passu in all respect with all the existing Shares then in issue. The Company will apply to the Stock Exchange for the approval for the listing of, and permission to deal in, the Consideration Shares (or the Adjusted Consideration Shares, as the case may be).

(d) Conditions precedent

Completion of the Proposed Acquisition is subject to 10 Conditions, which are set out in full on pages 15 to 16 of the Circular. Of the 10 Conditions, four of them can be waived by the Purchaser in writing to the Seller, and the rest is non-waivable.

The six non-waivable Conditions are summarised below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(i) the passing by the Independent Shareholders at the SGM of a resolution to approve the Amended and Restated Share Purchase Agreement and the transactions contemplated thereunder and the allotment and issue of the Consideration Shares;
(ii) completion of the Reorganisation;
(iii) no obligation for a general offer in respect of the Shares pursuant to the Amended and Restated Share Purchase Agreement shall arise for the Seller under Rule 26 of the Takeovers Code as a result of the Completion;
(iv) the Seller shall, no later than 30 days after the date of the Amended and Restated Share Purchase Agreement, (a) truly, accurately and completely report all relevant information on the transaction to the relevant PRC tax authority, and provide the Purchaser with a copy of its written submission; and (b) fully and promptly discharge all PRC Tax liabilities assessed on it, in relation to or otherwise arising from the sale of the Sale Shares;
(v) all permits, consents, approvals, filings and clearances that are required for the Seller, the Seller Group, the Purchaser, the Purchaser Group or any of the Target Group Companies in connection with the execution, delivery and performance of the Transaction Documents and the consummation of the Proposed Acquisition in accordance with law; and
(vi) the Listing Committee having granted the approval for the listing of, and permission to deal in, the Consideration Shares or, if any adjustment occurs as per the above sub-section headed ‘‘3(c) Consideration’’, the Adjusted Consideration Shares.

For an update on the progress of above (ii) completion of the Reorganisation, please refer to page 17 of the Circular for details.

(e) Guarantee

Pursuant to the Amended and Restated Share Purchase Agreement, the Guarantor has irrevocably and unconditionally:

(a) guaranteed to the Purchaser punctual performance by the Seller of all its obligations; and
(b) undertaken with the Purchaser that whenever the Seller does not pay any amount when due, the Guarantor shall immediately on demand pay that amount as if it was the principal obligor.

(f) Completion

Completion will take place within 10 Business Days after all of the Conditions have been satisfied or waived. Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

It is understood that within three months after the date of Completion, the Purchaser shall procure the repayment of the shareholders loans owed by the Target Group Companies to the Seller Group, the total amount of which is RMB304,017,436 (equivalent to approximately HK$357,667,572) as at the date of the Amended and Restated Share Purchase Agreement.

(g) Post-completion acquisition of Tangshan Entity

It is also understood that upon Completion, the Seller is willing to transfer 49% equity interest in the Tangshan Entity to the Purchaser at a consideration based on the pricing principles set out in the Original Share Purchase Agreement. For further details of the Tangshan Acquisition, please refer to pages 17 to 18 of the Circular.

In the following sub-section 4, we set out our view, which is based on the independent work we undertook, on whether and how the entering into the Amended and Restated Share and Purchase Agreement including the carve-out of the Excluded Companies, is fair and reasonable and in the interest of the Company and Shareholders as a whole.

4. Assessment of the principal terms of the Amended and Restated Share Purchase Agreement

(a) Review of the basis of the Consideration

The Consideration for the Proposed Acquisition is equal to the 2014 Net Asset Value (being RMB866,745,000) multiplied by the P/B Multiple of 1.4, and was agreed between the Purchaser and the Seller after arm’s length negotiations with reference to the 2014 Net Asset Value as at 30 June 2014, and having considered the future prospects of the Target Group and the potential business growth that the Target Group can bring to the Group by leveraging on the Target Group’s operations secured under various concession agreements and government permission for exclusive operation through joint venture cooperation. The Board considers that the P/B Multiple of 1.4 times of the 2014 Net Asset Value to be fair and reasonable, taking into account the financial information of the Target Group and the fact that some of the city gas projects/assets are at initial development stage where the full potential is yet to be realised, as well as some comparable market cases, including 24 transactions in relation to the city gas project acquisitions in the PRC from 2006 to 2015 based on market intelligence, where the relevant companies are primarily engaged in similar gas project business as the Target Group Companies. The Board (including the independent non-executive Directors) further considers that the Consideration for the Proposed Acquisition and the basis of determination thereof (including the basis of determination of the P/B Multiple of 1.4) to be fair and reasonable.

Noting that the basis for the determination of the Consideration is very similar to that set out under the Original Share Purchase Agreement i.e. the 2014 Net Asset Value x the P/B Multiple of 1.4, we inquired with the Directors for the reasons why a more recent figure like the asset value of the Target Group as at 31 December 2015 was not used as the basis for the determination of the Consideration. The Directors were of the view that since the commercial

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

terms of the transaction, including the Adjustments and the Benchmark Share Price, had already been agreed between the Seller and the Purchaser in 2014 under the Original Share Purchase Agreement, the Proposed Acquisition is therefore essentially the same transaction as that under the Original Share Purchase Agreement, save for the removal of the Excluded Target Companies from the Target Group to facilitate the completion of the Proposed Acquisition. As such, the Seller and the Purchaser mutually agreed that the changes to the terms of the Original Share Purchase Agreement should be kept at a minimum and should primarily be consequential amendments to the change in composition of the Target Group, and that the basis for determination of the Consideration and Adjustments should not deviate from that as set out in the Original Share Purchase Agreement.

Further, based on the financial information of the Target Group as at 30 April 2016 (without taking into account the financials of the Excluded Target Group Companies), the difference between the net asset value of the Target Group attributable to the Seller as at 30 June 2014 and that as at 30 April 2016 (taking into account the increase in the amount of the Shareholders Loans in respect of the Target Group (without the Excluded Target Companies) of RMB129,255,686) is approximately RMB8,355,314. The Purchaser considers that the difference in respect of the total amount of the Consideration under the Amended and Restated Share Purchase Agreement is approximately 0.69% (i.e., RMB8,355,314/RMB1,213,443,000), and therefore immaterial.

We are of the view that there is good reason, as stated above, that the basis for determining the Consideration and Adjustments should not deviate from that set out in the Original Share Purchase Agreement, and that the approximately 0.69%, being difference of approximately RMB8,355,314 in the context of a Consideration of RMB1,213,443,000, is immaterial.

As part of our assessment of the fairness and reasonableness of the Consideration, we reviewed the financial and operation information on the Target Companies (as of 31 December 2015) provided by the Company to us. We also selected from our desk-top research and to our best endeavour nine comparable companies (the ‘‘Comparables’’), which is exhaustive, for our comparison analysis based on the selection criteria that the companies were primarily engaged in (i) city gas sales and distribution; (ii) sales of vehicular gas; and/or (iii) construction of pipelines in the PRC. While the Comparables have principal operations in different parts of China, we consider them to be operating in similar business environment because the PRC adopts a similar and consistent natural gas policy throughout the country.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The methodology and rationale of the comparison analysis by using the price-to-book ratio (the ‘‘P/B ratio’’) and price-to-earnings (the ‘‘P/E ratio’’) in relation to a number of comparable companies in a specific period of time is a commonly used method in the financial services industry to assess the basis of consideration of transaction similar to the current one. The selection criteria of the Comparables were based on the above-mentioned three conditions on page 41 of the Circular. The valuation multiples of the Comparables, namely, the P/E ratio and the P/B ratio were based on (i) their respective share prices as at 27 June 2016, which was the last trading day before the signing of the Amended and Restated Share Purchase Agreement (the ‘‘LTD’’); and (ii) their respective audited financial information for the 12month period ended 31 December 2015 and, for the Group, 31 March 2016. The Target Group’s valuation multiples were compared with that of the Comparables as well as the Company as at 31 December 2015 and as at 30 June 2014, respectively. The results are shown in below Table 1.

Table 1: Comparison with Comparables

				2014	P/B ratio as	P/B ratio
		Market	2015	annualised	at 30 June	as at
Stock		capitalisation	P/E ratio	P/E ratio	2014	31 December
code	Name of Company	(note 1)	(note 2)	(note 3)	(note 4)	2015
		(HK$)
392	Beijing Enterprises Holdings Limited	50,549,238,383	8.92	8.98	0.91	0.87
2886	Binhai Investment Company Limited	2,630,541,648	13.23	15.89	2.85	2.29
603	China Oil and Gas Group Limited	3,495,410,300	N/A	8.32	0.94	1.26
1193	China Resources Gas Group Limited	48,372,279,944	17.05	19.33	3.25	2.84
1600	China Tian Lun Gas Holdings	5,855,764,726	17.51	22.44	4.50	2.12
	Limited
2688	ENN Energy Holdings Limited	38,368,506,224	16.02	12.50	2.93	2.42
135	Kunlun Energy Company Limited	49,968,095,976	364.73	7.88	0.99	1.02
1083	Towngas China Company Limited	10,953,407,492	13.57	11.70	0.87	0.81
3633	Zhongyu Gas Holdings Limited	4,469,263,601	47.86	17.53	2.55	2.23
384	China Gas Holdings Limited	52,737,530,185	23.20	15.69	3.11	2.95
				(note 5)	(note 6)
Min			8.92	7.88	0.87	0.81
Max			47.86	22.44	4.50	2.95
Average			19.67	14.03	2.29	1.84
Median			16.53	14.10	2.70	2.10
The Target	Group		46.46	60.27	1.40	1.23

Notes:

Market capitalisation of the Comparable and the Group are based on the closing share prices as at the LTD.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

P/E multiples are calculated based on the market capitalisation (using the respective share prices as at the LTD in the case of the Comparables), divided by the respective consolidated profit attributable to shareholders for the 12-month period ended 31 December 2015 except the Company’s P/E multiple which is calculated based on the market capitalisation divided by the respective consolidated profit attributable to shareholders for the 12-month ended 31 March 2016.
P/E multiples are calculated based on the market capitalisation (using the respective share prices as at the LTD in the case of the Comparables), divided by the respective annualised (derived by multiplying consolidated profit attributable to shareholders for the six-month period ended 30 June 2014 by two) consolidated profit attributable to shareholders for the six-month period ended 30 June 2014, unless noted otherwise.
P/B multiples are calculated based on market capitalisation (using the respective share prices as at the LTD in the case of the Comparables), divided by the respective shareholders’ equity as at 30 June 2014 unless noted otherwise.
P/E multiple is calculated based on the market capitalisation, divided by the respective annualized (derived by multiplying consolidated profit attributable to shareholders for the six-month period ended 30 September 2014 by two) consolidated profit attributable to shareholders for the six-month period ended 30 September 2014.
P/B multiple is calculated based on shareholders’ equity as at 30 September 2014.

(i) P/B ratio

It is noted that the Consideration is determined based on a P/B approach using a multiple of 1.4 times the 2014 Net Asset Value. Since net asset value is the value of an entity’s assets minus the value of its liabilities, which is equal to shareholders’ equity, the P/B ratio, in turn based on equity attributable to shareholders, is therefore, in our view, a more fair and reasonable measurement approach as compared to the P/E ratio in this case. To ensure that our approach in calculating the valuation multiples is accurate and not misleading, we included in our calculation the valuation multiples based on the most recently audited financial information of the Comparables as at 31 December 2015 and, for the Company, as at 31 March 2016, in addition to the P/B ratios and P/E ratios relating to their financial information as at 30 June 2014.

From the 7th column of Table 1, we can observe that the P/B ratios of the Comparables ranged from approximately 0.81 times to 2.95 times (the ‘‘Comparable P/B Range’’) as at 31 December 2015, with an average and a median of 1.84 times and 2.1 times, respectively (except for the Company, which is as at 31 March 2016).

The P/B ratio of the Target Group implied by the Consideration, being 1.23 times, falls within the Comparable P/B Range and is lower than the Company’s P/B ratio of 2.95 times. This implies that the Consideration is priced within an acceptable range of the market for both the Comparables in similar business as the Company as well as the Company in the open market as at 31 December 2015.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Using the P/B ratio of the Comparables as at 30 June 2014 as the basis of the valuation (please see the 6th column of Table 1), the result would still be the same as the P/B multiple of the Target Group implied by the Consideration, being 1.4 times, would still be (i) within the Comparable P/B Range (i.e. between 0.87 times and 4.5 times), (ii) lower than the average of 2.29 times and the median of 2.7 times, and (iii) lower than the P/B ratio of the Company of 3.11 times. Accordingly, as at 30 June 2014, the Consideration was also priced within an acceptable range of the market for both the Comparables in similar business as the Company as well as the Company in the open market.

(ii) P/E ratio

It is worth noting that China Oil and Gas Group Limited (‘‘China Oil and Gas’’) (stock code 603) suffered a loss of approximately HK$183.8 million for the year ended 31 December 2015, and the P/E ratio of Kunlun Energy Company Limited (‘‘Kunlun’’) (stock code 135), namely, 364.73 times, was an abnormally high P/E ratio, which should be regarded as an outlier. As a result, China Oil and Gas and the P/E ratio of Kunlun were excluded from our calculation.

As can be seen from the 4th column of Table 1, the Consideration was approximately 46.46 times the net profit after tax for the year ended 31 December 2015 attributable to the Seller Group, which was approximately 60.27 times on an annualised basis for the six-month period ended 30 June 2014.

For the year ended 31 December 2015, the P/E ratio of the Comparables ranged from 8.92 times to 47.86 times (the ‘‘Comparable P/E Range’’), with an average and a median of 19.67 times and 16.53 times, respectively (please see the 4th column of Table 1). The P/E multiple of the Target Group implied by the Consideration, being 46.46 times, is therefore higher than (i) the Company’s P/E ratio of 23.2 times; (ii) both the average and median P/E multiples of the Comparables; but (iii) still within the Comparable P/E Range. This implies that while the Consideration is priced higher than the Company in the open market, it is still priced within an acceptable range of the market for the Comparables which are in the same lines of business as the Company.

On the other hand, the P/E ratio of the Comparables, on an annualised basis for the six-month period ended 30 June 2014 (i.e. the 5th column of Table 1), ranged from 7.88 times to 22.44 times, with an average and a median of 14.03 times and 14.1 times, respectively (except for the Company, which is for the six-month period ended 30 September 2014). The P/E multiple of the Target Group implied by the Consideration, being 60.27 times, is (i) higher than the Company’s P/E ratio of 15.69 times; (ii) higher than both the average and median P/E multiples of the Comparables; and (iii) outside the Comparable P/E Range.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having taken into account that (i) the P/B ratio of the Target Company implied by the Consideration falls within the Comparable P/B Range and is lower than the Company’s P/B ratio; and (ii) the P/E Ratio of the Target Company implied by the Consideration falls within the Comparable P/E Range as at 31 December 2015, even though it is higher than the Company’s P/E ratio, we consider that the Consideration, on balance, to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

(b) Evaluation of the Benchmark Share Price

(i) Comparison of the Benchmark Share Price with Shares’ closing prices

As noted from the Letter from the Board in the Circular, the Benchmark Share Price of HK$13.84 represents a premium approximately 22.35% over the average closing price per Share for the last five consecutive trading days as quoted on the Stock Exchange up to and including the day immediately prior to the date of the Amended and Restated Share Purchase Agreement.

In order to assess the fairness and reasonableness of the Benchmark Share Price, we compared the closing prices of the Shares to the Benchmark Share Price of HK$13.84 per Share during a 12-month period from 27 June 2015 to 27 June 2016, which was the last trading day immediately before the date of the Amended and Restated Share Purchase Agreement (the ‘‘Review Period’’). The results are set out in Chart 1 below.

==> picture [359 x 184] intentionally omitted <==

Source: SEHK website

During the Review Period, the highest closing price and the lowest closing price of the Shares were HK$13.98 (on 7 August 2015) and HK$9.44 (on 12 February 2016), respectively, with an average closing price of approximately HK$11.29. The Benchmark Share Price of HK$13.84 therefore represents a premium of approximately 46.6% over the lowest closing price per Share and a discount of approximately 1% to the highest closing price per Share. Of the approximately 247 trading days of the Shares in the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Review Period, only on 3 trading days could we find the closing prices of the Shares to be higher than the Benchmark Share Price (i.e. HK$13.94 on 4 August 2015; HK$13.98 on 7 August 2015 and HK$13.88 on 10 August 2015).

(ii) Comparison with other comparable companies

To further evaluate the fairness and reasonableness of the Benchmark Share Price, we also reviewed, based on the information available from the Stock Exchange’s website, all the issue of consideration shares for acquisitions announced by the companies listed on the Main Board of the Stock Exchange, (the ‘‘Comparable Companies’’) during the four-month period from 27 March 2016 to 27 June 2016 (the ‘‘Comparison Period’’) for comparison purposes.

The Comparable Companies were chosen, regardless of, among others, their size and identity of vendor, to provide a general reference to (i) the structure of transactions involving the issue of shares as consideration for acquisitions in the Hong Kong stock market recently; and (ii) the prevailing market conditions and sentiments in the Hong Kong stock market for such issue.

Shareholders should, however, note that the comparison with the Comparable Companies is for illustrative purpose only as the principal activities, market capitalisation, profitability and financial position of the Comparable Companies are different from those of the Company. All these factors may affect the issue price of the consideration shares of the Comparable Companies.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Details of the trading statistics of the Comparable Companies are summarised in the following table:

Table 2: Comparison of Comparable Companies

			Premium/
			(discount) of
			Benchmark
			Share Price
			over/(to) the
			closing price on
			the date of the
			agreement/last
			trading day
	Stock		prior to the date
Announcement date	code	Name of Company	of agreement
			(%)
31 March 2016	885	Rentian Technology Holdings Limited	(10.50)
6 April 2016	2327	U-Home Group Holdings Limited	(13.90)
17 April 2016	1269	China First Capital Group Limited	(10.00)
22 April 2016	777	NetDragon Websoft Holdings Limited	(12.30)
22 April 2016	1069	China Agroforestry Low-Carbon Holdings	(22.40)
		Limited
27 April 2016	607	Fullshare Holdings Limited	(19.80)
3 May 2016	1178	Vitop Group Limited	15.40
9 May 2016	2211	Universal Health International Group Holding	6.60
		Limited
10 May 2016	472	New Silkroad Culturaltainment Limited	(0.30)
11 May 2016	1421	Kingbo Strike Limited	4.80
12 May 2016	633	China All Access (Holdings) Limited	2.00
13 May 2016	1450	Century Sage Scientific Holdings Limited	42.90
13 May 2016	1239	Jin Bao Bao Holdings Limited	34.50
23 May 2016	979	Green Energy Group Limited	(5.10)
25 May 2016	860	O Luxe Holdings Limited	0.00
1 June 2016	861	Digital China Holdings Limited	(20.60)
3 June 2016	3823	Tech Pro Technology Development Limited	0.40
13 June 2016	7	Hoifu Energy Group Limited	(3.85)
16 June 2016	1117	China Modern Dairy Holdings Limited	9.80
16 June 2016	1395	ELL Environmental Holdings Limited	9.90
		Minimum	(22.40)
		Maximum	15.40
		Average	(3.88)
		Median	(2.08)
28 June 2016	384	The Company	29.00

Source: SEHK website

Since the premiums attributable to Century Sage Scientific Holdings Limited (i.e. 42.9%) and Jin Bao Bao Holdings Limited (i.e. 34.5%) were so much higher than that of the other Comparable Companies, they were regarded as outliers and excluded from our calculation. As illustrated in above Table 2, the issue prices of the Comparable

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Companies ranged from a discount of approximately 22.4% to a premium of approximately 15.4%, with an average discount of approximately 3.88% and median discount of 2.08%, to their respective closing prices as quoted on the date of the agreement or the last trading day immediately prior to the date of the agreement.

The premium of approximately 29% of the Benchmark Share Price to the closing price of the Shares on the LTD is higher than the maximum premium of 15.4% and thus falls outside the range of the discount/premium of the Comparable Companies and is much higher than the average premium of 3.88%.

Having taken into account that (i) the Benchmark Share Price, which remains a commercial decision of the Purchaser and Seller and was determined under the Original Share Purchase Agreement, was above the closing prices of the Shares during the Review Period (except for three trading days); (ii) the Benchmark Share Price represents a premium of approximately 22.6% over the average closing price of the Shares during the Review Period; and (iii) the premium of the Benchmark Share Price of 29% to the closing price of the Shares on the LTD, we are of the view that the Benchmark Share Price is, on balance, on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned.

(c) Other major terms

In addition to reviewing the basis of the Consideration and assessing the Benchmark Share Price, we also reviewed other major terms of the Amended and Restated Share Purchase Agreement such as the Conditions, the Guarantee and the Completion, we are satisfied that they are on normal commercial terms and are in the interest of the Company and Shareholders as a whole.

For the above reasons, we are of the opinion that the terms of the Amended and Restated Share Purchase Agreement, and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Possible dilution effect of the issue of the Consideration Shares

For illustrative purpose only, assuming that there is no change to the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date and up to the Completion Date, being the day on which the Consideration Shares will be issued to the Seller (or a whollyowned subsidiary of the Guarantor), the shareholding structure of the Company, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry: (i) as at the Latest Practicable Date; and (ii) immediately after the issue of the Consideration Shares will be as follows:

Name of Shareholders The Seller and its close associates Other Substantial Shareholders China Gas Group Limited and its close associates SK E&S Co., Ltd. and its close associates Directors Mr. LIU Mr. HUANG Yong Mr. ZHU Weiwei Mr. MA Jinlong Mr. ZHAO Yuhua Dr. MAO Erwan Ms. WONG Sin Yue, Cynthia Public Shareholders Total	As at the Latest Practicable Date Number of Shares Approximate % 1,126,840,132 22.95 754,908,000 15.37 778,042,500 15.84 287,798,000 5.86 117,278,000 2.39 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 37.29 4,910,384,561 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares Approximate % 1,237,663,143 24.65 754,908,000 15.03 778,042,500 15.50 287,798,000 5.73 117,278,000 2.34 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 36.47 5,021,207,572 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares Approximate % 1,237,663,143 24.65 754,908,000 15.03 778,042,500 15.50 287,798,000 5.73 117,278,000 2.34 7,000,000 0.14 1,216,000 0.02 1,400,000 0.03 1,800,000 0.04 2,806,000 0.06 1,831,295,929 36.47 5,021,207,572 100.00
			100.00

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As can be seen from the above table, shareholding of public shareholders will decrease by approximately 0.82% immediately after the issue of the Consideration Shares. We are of the view that the drop in public shareholders’ interests in the Company after the issue of the Consideration Shares (i.e. the dilution effect) must not be viewed in isolation and, to avoid any suggestion of being biased against the Proposed Acquisition, should be balanced by (a) the perceived benefits of the Proposed Acquisition attributable to the Group, which are mentioned previously under the section headed ‘‘2. Reasons for and benefits of the Proposed Acquisition; and (b) the reasonableness of the Consideration such as (i) the Consideration represents a lower P/B ratio than the Comparable P/B Range (please refer to sub-section 4(a)(i) above); and (ii) the Consideration is within the range of the Comparable P/E Range (please refer to sub-section 4(a)(ii) above). In addition, the Company confirmed, upon our inquiry, that apart from issuing the Consideration Shares, it had not considered other methods of financing the Proposed Acquisition on the ground that the use of other financing methods would be at variance with what was stated in the Original Share Purchase Agreement. Based on the above, we consider the dilution effect on shareholding of the existing public shareholders to be, on balance, acceptable.

6. Possible financial effects of the Proposed Acquisition

Earnings

Upon Completion, the Target Group will become a wholly-owned subsidiary of the Company. The financial results of the Target Group will be consolidated into the financial statements of the Group. According to the Letter from the Board on page 19 of the Circular, the net profit after tax of the Target Group for the year ended 31 December 2015 and for the four months ended 30 April 2016 were RMB26,884,000 and RMB14,247,000, respectively. Taking into account the expected positive development for the Group after acquiring the Target Group (please refer to above section headed ‘‘2. Reasons for and benefits of the Proposed Acquisition’’ for details) and upon reviewing the operational and financial information of the Target Group provided by the Company to us, the Proposed Acquisition would likely to have a positive impact on the future earnings potential of the Group.

Net asset value

As a result of the Proposed Acquisition, the consolidated net asset value of the Group will be increased by the market value of the Consideration Shares as at Completion. Based on the closing Share price of HK$10.74 on the LTD, which is higher than the unaudited consolidated net asset value of the Group per Share attributable to the Shareholders of approximately HK$3.64, the net asset value per Share immediately upon Completion is expected to increase accordingly. Independent Shareholders should however note that the actual effect of the issue of the Consideration Shares on the net asset value per Share will depend on the market price of the Shares as at Completion and cannot be ascertained at the moment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Working capital

As Consideration will be settled by way of issue of the Consideration Shares, we are of the view that there will not be any material adverse impact on the working capital position of the Group as a result of the Proposed Acquisition.

It should, however, be noted that the above-mentioned estimate is based on the information currently available to us, and may not, due to unforeseen turn of events, necessarily and accurately reflect the financial position of the Group upon Completion.

RECOMMENDATION

Having taken into account the above factors and reasons, we are of the view that the terms of the Transactions, i.e. the Proposed Acquisition, the Amended and Restated Share Purchase Agreement and the Specific Mandate, while not in the ordinary course of the Group’s business, are on normal commercial terms and are fair and reasonable as far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders and the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM in relation to the Transactions.

Yours faithfully, For and on behalf of

Central China International Capital Limited Billy C. W. Cheung General Manager

Notes:

Mr. Cheung is licensed by the SFC as a Responsible Officer and a Principal licence holder of Central China International Capital Limited. He has over 20 years’ experience in the financial services industry in Hong Kong.

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GENERAL INFORMATION

APPENDIX I

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

All the Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

1. INTERESTS AND SHORT POSITIONS OF DIRECTORS AND CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS

(a) Interest of Directors and Chief Executives of the Company

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or are required to be entered in the register maintained in accordance with Section 352 of the SFO, or are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules.

Number of Shares and Nature of Interest

			Number of		Approximate
	Personal	Corporate	Share	Aggregate	percentage
Name of Directors	Interest	Interest	options(3)	interest	(%)(1)
Mr. ZHOU Si	—	—	4,000,000	4,000,000	0.08
Mr. LIU(2)	287,798,000	754,908,000	50,000,000	1,092,706,000	22.25
Mr. HUANG Yong	117,278,000	—	50,000,000	167,278,000	3.41
Mr. ZHU Weiwei	7,000,000	—	2,000,000	9,000,000	0.18
Mr. MA Jinlong	1,216,000	—	2,000,000	2,000,000	0.04
Ms. LI Ching	—	—	2,000,000	2,000,000	0.04
Mr. YU Jeong Joon	—	—	4,000,000	4,000,000	0.08
Mr. KIM Yong Joong
(alternate to Mr. YU
Jeong Joon)	—	—	2,000,000	2,000,000	0.04
Mr. LIU Mingxing	—	—	800,000	800,000	0.02

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GENERAL INFORMATION

APPENDIX I

Number of Shares and Nature of Interest

			Number of		Approximate
	Personal	Corporate	Share	Aggregate	percentage
Name of Directors	Interest	Interest	options(3)	interest	(%)(1)
Mr. Arun Kumar
MANCHANDA	—	—	800,000	800,000	0.02
Mr. JIANG Xinhao	—	—	800,000	800,000	0.02
Mr. ZHAO Yuhua	1,400,000	—	1,000,000	2,400,000	0.05
Dr. MAO Erwan	1,800,000	—	1,000,000	2,800,000	0.06
Ms. WONG Sin Yue,
Cynthia	2,806,000	—	1,000,000	3,806,000	0.08
Mr. HO Yeung	—	—	1,000,000	1,000,000	0.02
Ms. CHEN Yanyan	—	—	1,000,000	1,000,000	0.02

Notes:

The percentage was calculated on the basis of 4,910,384,561 Shares in issue as at the Latest Practicable Date and is rounded to nearest 2 decimal places.
Mr. LIU was deemed to be interested in a total of 1,092,706,000 Shares, comprising:
a. 287,798,000 Shares beneficially owned by him;
b. 50,000,000 underlying Shares beneficially owned buy way of share option; and
c. 754,908,000 Shares beneficially owned by China Gas Group Limited (‘‘CGGL’’). CGGL was owned as to 50% by Joint Coast Alliance Market Development (‘‘Joint Coast’’) which, in turn, is wholly owned by Mr. LIU.
Those share options were granted by the Company on 16 April 2014 and 25 June 2015 respectively pursuant to the share option scheme adopted by the Company on 20 August 2013.

– 53 –

GENERAL INFORMATION

APPENDIX I

(b) Interest of substantial Shareholders and other persons

Save as disclosed below, as at the Latest Practicable Date, the Directors were not aware of any person (other than the Directors or Chief Executives of the Company) who had any interest or short position in the shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who 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.

		Number of	Approximate
		Shares held/	percentage
Name	Nature of Interest	interested	(%)(1)
Beijing Enterprises Group Company	Controlled Corporation	1,275,962,382	25.98
Limited(2)
Beijing Enterprises Group (BVI)	Controlled Corporation	1,275,962,382	25.98
Company Limited(2)
BEHL(2)	Beneficial and Controlled	1,275,962,382	25.98
	Corporation
Hong Mao Developments Limited(2)	Beneficial	1,054,088,132	21.47
Mr. LIU(3) and (4)	Beneficial and Controlled	1,092,706,000	22.25
	Corporation
Joint Coast Alliance Market Development	Controlled Corporation	754,908,000	15.37
Limited(3) and (4)
China Gas Group Limited(3) and (4)	Beneficial	754,908,000	15.37
Mr. CHIU Tat Jung, Daniel(5)	Controlled Corporation	953,279,463	19.41
First Level Holdings Limited(5)	Controlled Corporation	953,279,463	19.41
Fortune Dynasty Holdings Limited(5)	Controlled Corporation	952,279,463	19.39
Fortune Oil Limited(5)	Controlled Corporation	952,279,463	19.39
Fortune Oil PRC Holdings Limited(5)	Beneficial and Controlled	911,409,544	18.56
	Corporation
CHEY Taewon(6)	Controlled Corporation	778,042,500	15.84
SK Holdings Co., Ltd.(6)	Controlled Corporation	778,042,500	15.84
SK E&S Co., Ltd.(6)	Beneficial and Controlled	778,042,500	15.84
	Corporation

Notes:

The percentage was calculated on the basis of 4,910,384,561 Shares in issue as at the Latest Practicable Date and is rounded to nearest 2 decimal places.
The Seller is a wholly-owned subsidiary of BEHL. BE Group, BE Group BVI and BEHL, each of which is deemed to be interested in 1,275,962,382 Shares, 72,752,000 of which were directly and beneficially owned by BEHL, 149,122,250 consideration shares were deemed to be beneficially owned by Beijing Gas Group (BVI) Co., Ltd. (‘‘Beijing Gas Group BVI’’) pursuant to the Original Shares Purchase Agreement and 1,054,088,132 of which were directly and beneficially owned by Hong Mao. Both Beijing Gas Group BVI and Hong Mao were wholly-owned by BEHL which was deemed to be owned as to 61.96% by BE Group BVI. BE Group BVI was wholly-owned by BE Group.

– 54 –

GENERAL INFORMATION

APPENDIX I

Mr. Liu was deemed to be interested in a total of 1,092,706,000 Shares, comprising:
a. 287,798,000 Shares beneficially owned by him;
b. 50,000,000 underlying Shares beneficially owned by way of share options; and
c. 754,908,000 Shares beneficially owned by CGGL. CGGL was owned as to 50% by Joint Coast which, in turn, is wholly owned by Mr. Liu.
Joint Coast was deemed to be interested in 754,908,000 Shares beneficially owned by CGGL. CGGL is owned as to 50% by Joint Coast which, in turn, is wholly owned by Mr. LIU.
Each of Mr. CHIU Tat Jung Daniel (‘‘Mr. Chiu’’) and First Level Holdings Limited (‘‘First Level’’), was deemed to be interested in 953,279,463 Shares, comprising:
a. 754,908,000 Shares beneficially owned by CGGL. CGGL was owned as to 50% by Fortune Oil PRC Holdings Limited (‘‘Fortune Oil PRC’’);
b. 156,501,544 Shares beneficially owned by Fortune Oil PRC which is a wholly-owned subsidiary of Fortune Oil Limited, which in turn is a wholly-owned subsidiary of Fortune Dynasty. Fortune Dynasty is owned as to 70% by First Level;
c. 1,000,000 Shares beneficially owned by First Level which, in turn, is owned as to 99% by Mr. CHIU;
d. 27,617,919 Shares beneficially owned by First Marvel Investment Limited which is a whollyowned subsidiary of Fortune Oil Limited; and
e. 13,252,000 Shares beneficially owned by Fortune Oil Holdings Limited which is a wholly-owned subsidiary of Fortune Oil Limited.
Each of Mr. CHEY Taewon (‘‘Mr. Chey’’), SK Holdings Co., Ltd. (‘‘SK Holdings’’) and SK E&S Co., Ltd. (‘‘SK E&S’’) was deemed to be interested in a total of 778,042,500 Shares, comprising:
a. 705,034,500 Shares beneficially owned by SK E&S. SK E&S is a wholly-owned subsidiary of SK Holdings which, in turn, is owned as to 23.40% by Mr. Chey; and
b. 73,008,000 Shares beneficially owned by Pusan City Gas Co., Ltd., which is in turn owned as to 74.05% by SK E&S.

As at the Latest Practicable Date, (i) Mr. ZHOU Si was a director of each of BE Group and BE Group BVI, and the vice chairman, executive director and chief executive officer of BEHL; (ii) Mr. JIANG Xinhao was a director and vice president of BEHL; (iii) Mr. LIU Ming Hui was a director of Joint Coast and CGGL; (iv) Ms. LI Ching was a director of Fortune Oil PRC and Fortune Oil Holdings; (v) Mr. YU Jeong Joon was the representative director of SK E&S; and (vi) Mr. KIM Yong Joong was the vice president, China Business Unit of SK E&S. Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest of short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– 55 –

GENERAL INFORMATION

APPENDIX I

2. SERVICE CONTRACTS

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

3. MATERIAL ADVERSE CHANGE

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 2016, being the date to which the latest published audited financial statements of the Group have been made up.

4. INTEREST IN ASSETS

As at the Latest Practicable Date, save as disclosed in the announcements of the Company, none of the Directors had any interest, direct or indirect, in any material assets which had been since 31 March 2016, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

5. MATERIAL INTEREST IN CONTRACTS

As at the Latest Practicable Date, save as disclosed in the announcements of the Company, none of the Directors was materially interested in any contracts or arrangement subsisting as at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group.

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates had any interest in any business apart from the Company’s business which competes or is likely to compete, either directly or indirectly, with the Company’s business.

7. EXPERT

(a) The following are the qualifications of the expert who has given an opinion or advice which is contained in this circular:

Name Qualification

Central China International Licensed corporation under the SFO licensed to carry Capital Limited out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

– 56 –

GENERAL INFORMATION

APPENDIX I

(b) As at the Latest Practicable Date, the above expert has no 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 securities in any member of the Group nor does it have any interest, either directly or indirectly, in any assets which have been, since 31 March 2016 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.
(c) On the Latest Practicable Date, the above expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of their reports and reference to their names in the form and context in which they appear.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business, Room 1601, 16th Floor, AXA Centre, 151 Gloucester Road, Wanchai, Hong Kong during normal business hours (public holidays excepted) from the date of this circular up to and including the date of the SGM:

(a) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 27 to 28 of this circular;
(b) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 29 to 51 of this circular;
(c) the Original Share Purchase Agreement;
(d) the Amended and Restated Share Purchase Agreement;
(e) the annual reports of the Company for the three years ended 31 March 2016;
(f) the memorandum of association and bye-laws of the Company;
(g) the written consent referred to in the paragraph headed ‘‘EXPERT’’ in this appendix; and
(h) this circular.

9. GENERAL

The English text of this circular shall prevail over the Chinese text in case of inconsistency.

– 57 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [25 x 49] intentionally omitted <==

==> picture [52 x 37] intentionally omitted <==

CHINA GAS HOLDINGS LIMITED

中國燃氣控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 384)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the ‘‘SGM’’) of China Gas Holdings Limited (the ‘‘Company’’) will be held at Renaissance Harbour View Hotel Hong Kong, Boardroom 3–4, Mezzanine Floor, 1 Harbour Road, Wanchai, Hong Kong on Tuesday, 16 August 2016 at 11:30 a.m. (or immediately after the conclusion of the annual general meeting to be held on the same day) for the purposes of considering and, if thought fit, passing the following resolutions as ordinary resolutions. Unless otherwise indicated, capitalized terms used in this notice and the following resolutions shall have the same meanings as those defined in the circular of the Company dated 20 July 2016 (the ‘‘Circular’’):

ORDINARY RESOLUTIONS

‘‘THAT:
(a) the Proposed Acquisition and the transactions contemplated under the Amended and Restated Share Purchase Agreement (a copy of which has been produced to the SGM marked ‘‘A’’ and signed by the chairman of the SGM for the purpose of identification), be and hereby approved, confirmed and ratified; and
(b) any one of the directors of the Company be and hereby authorized to do all such acts and things and to sign all documents and to take any steps which in their absolute discretion considered to be necessary, desirable or expedient for the purpose of implementing and/or giving effect to the Proposed Acquisition and the transactions contemplated under the Amended and Restated Share Purchase Agreement.’’
‘‘THAT:

subject to Completion of the Proposed Acquisition as contemplated under the Amended and Restated Share Purchase Agreement, to the fulfilment of the conditions relating to the allotment and issue of the Consideration Shares and conditional upon the Listing Committee of the Stock Exchange granting the listing of, and the permission to deal in, the Consideration Shares, the Directors be and are hereby specifically authorised to allot

For identification purposes only

– 58 –

NOTICE OF SPECIAL GENERAL MEETING

and issue the Consideration Shares, credited as fully paid, to the Seller (or a whollyowned subsidiary of the Guarantor) in accordance with the terms and conditions of the Amended and Restated Share Purchase Agreement.’’

By order of the Board China Gas Holdings Limited ZHOU Si Chairman

Hong Kong, 20 July 2016

Head office and principal Place of Business in Hong Kong:

Room 1601

16th Floor AXA Centre 151 Gloucester Road Wanchai Hong Kong

Registered office:

Clarendon House 2 Church Street Hamilton HM11 Bermuda

Notes:

Any member entitled to attend and vote at the SGM is entitled to appoint one or, if he is a holder of more than one Share, more proxies to attend and vote instead of him. A proxy need not be a member of the Company.
A form of proxy for use in connection with the SGM is enclosed with the Circular. To be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority must be deposited at the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited, Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting.
For the purpose of determining the identity of the shareholders entitled to attend and vote at the SGM, the register of members of the Company will be closed from 12 August 2016 (Friday) to 16 August 2016 (Tuesday) (both days inclusive), during which period no transfer of shares in the Company will be registered. In order to qualify for attending and voting at the SGM to be held on 16 August 2016 (Tuesday), all transfers of shares accompanied by the relevant share certificates and transfer forms, must be lodged with the Company’s branch share registrar and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 11 August 2016 (Thursday).
Where there are joint holders of any Shares, any one of such joint holders may vote at the meeting personally or by proxy in respect of such shares as if he was solely entitled thereto provided that if more than one of such joint holders be present at the meeting personally or by proxy, the person whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.

– 59 –

NOTICE OF SPECIAL GENERAL MEETING

If there is a black rainstorm warning signal or a tropical cyclone warning signal number 8 or above in force at or after 7:00 a.m. on 16 August 2016 or if the Hong Kong Observatory has announced at or before 7:00 a.m. on 16 August 2016 that either of the above mentioned warnings is to be issued within the next two hours, the chairman of the SGM may propose for the SGM to be adjourned to a date which falls within 13 days from 16 August 2016 if (i) a quorum is present and the adjournment is consented to by the shareholders present; or (ii) a quorum is not present. If the meeting is so adjourned, the Company will make announcement regarding the adjourned meeting.
As at the date of this notice, Mr. ZHOU Si, Mr. LIU Ming Hui, Mr. HUANG Yong, Mr. ZHU Weiwei, Mr. MA Jinlong and Ms. LI Ching are the executive Directors; Mr. YU Jeong Joon (his alternate being Mr. KIM Yong Joong), Mr. LIU Mingxing, Mr. Arun Kumar MANCHANDA and Mr. JIANG Xinhao are the non-executive Directors; and Mr. ZHAO Yuhua, Dr. MAO Erwan, Ms. WONG Sin Yue, Cynthia, Mr. HO Yeung and Ms. CHEN Yanyan are the independent non-executive Directors.

– 60 –

AI assistant

China Literature Limited — Proxy Solicitation & Information Statement 2016

49460_rns_2016-07-19_f22c7b23-ae1d-4cc1-9c74-c943dc89c608.pdf

CHINA GAS HOLDINGS LIMITED 中 國 燃 氣 控 股 有 限 公 司[*]

DISCLOSEABLE AND CONNECTED TRANSACTION

AMENDED AND RESTATED SHARE PURCHASE AGREEMENT RELATING TO THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF BEIJING GAS DEVELOPMENT LIMITED

AND

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

CHINA GAS HOLDINGS LIMITED 中 國 燃 氣 控 股 有 限 公 司[*]

To the Shareholders

DISCLOSEABLE AND CONNECTED TRANSACTION

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

INTRODUCTION

LETTER FROM THE BOARD

DETAILS OF THE AMENDED AND RESTATED SHARE PURCHASE AGREEMENT

Subject matter of Proposed Acquisition

Consideration and Consideration Shares

Basis of Determination of Consideration

The Specific Mandate

Effect of the issue of the Consideration Shares on the shareholding structure of the Company

Conditions to the Completion of the Amended and Restated Share Purchase Agreement

LETTER FROM THE BOARD

Guarantee

Completion

Post-Completion acquisition of the Tangshan Entity

LETTER FROM THE BOARD

Post-completion undertakings

Non-competition

FINANCIAL INFORMATION OF TARGET GROUP

LISTING RULES IMPLICATIONS OF THE PROPOSED ACQUISITION FOR THE COMPANY

REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION

INFORMATION OF THE GROUP, THE PURCHASER, THE SELLER, THE GUARANTOR AND THE TARGET GROUP

The Group

The Purchaser

The Seller

The Guarantor

LETTER FROM THE BOARD

The Target Group

LETTER FROM THE BOARD

1. City Gas

2. Gas for Vehicles

3. Long-distance Pipeline

GENERAL INFORMATION

RECOMMENDATIONS

SPECIAL GENERAL MEETING

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

VOTING BY WAY OF POLL

GENERAL

CHINA GAS HOLDINGS LIMITED

中 國 燃 氣 控 股 有 限 公 司[*]

DISCLOSEABLE AND CONNECTED TRANSACTION AMENDED AND RESTATED SHARE PURCHASE AGREEMENT RELATING TO THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF BEIJING GAS DEVELOPMENT LIMITED AND

ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

BASIS OF OUR OPINION AND RECOMMENDATION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information

(a) The Group’s business activities

(b) The Group’s recent financial performance

Consolidated Statement of Profit or Loss and Other Comprehensive Income

(ii) For the six months ended 30 September 2015

(c) The Group’s further development

(d) Information on the Target Group

2. Reasons for and benefits of the Proposed Acquisition

3. Principal terms of the Amended and Restated Share Purchase Agreement

(a) The contracting parties and the Guarantor

(b) Assets to be acquired

(c) Consideration

(d) Conditions precedent

(e) Guarantee

(f) Completion

China Literature Limited Proxy Solicitation & Information Statement 2016

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

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

中國燃氣控股有限公司[*]

中國燃氣控股有限公司[*]