China Water Industry Group Limited — Proxy Solicitation & Information Statement 2012

Mar 30, 2012

THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Water Industry Group Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, a licensed securities dealer 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.

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent financial adviser to the Independent Board Committee and Independent Shareholders

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 9 of this circular. A letter from Messis Capital containing its advice to the Independent Board Committee and Independent Shareholders is set out on pages 10 to 17 of this circular.

A notice convening the extraordinary general meeting of China Water Industry Group Limited to be held at Boardroom 3-4, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Monday, 23 April 2012 at 9:30 a.m. is set out on pages 18 to 20 of this circular. Whether or not you are able to attend the extraordinary general meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it at the branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the extraordinary general meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting or any adjourned meeting (as the case may be) should you so wish.

2 April 2012

• For identification purpose only

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
PROPOSED REFRESHMENT OF GENERAL MANDATE . . . . . . . . . . . . . . . . . .	4
EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
RESPONSIBILITY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . .	9
LETTER FROM MESSIS CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . .	18

– i –

DEFINITIONS

In this circular, the following expressions have the meanings respectively set opposite them unless the context otherwise requires:

“Articles of Association”	Articles of Association of the Company as amended from
	time to time
“associates”	shall have the meaning ascribed to it under the Listing
	Rules
“Board”	the board of Directors
“Company”	China Water Industry Group Limited, a company
	incorporated in the Cayman Islands with limited liability
	and the Shares of which are listed on the main board of
	the Stock Exchange
“connected person(s)”	shall have the meaning ascribed to it under the Listing
	Rules
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to be
	held at Boardroom 3-4, Mezzanine Floor, Renaissance
	Harbour View Hotel, 1 Harbour Road, Wanchai, Hong
	Kong on Monday, 23 April 2012 at 9:30 a.m., the notice
	of which is set out pages 18-20 herein
“Existing General Mandate”	the general mandate granted at the annual general
	meeting of the Company held on 3 June 2011 to the
	Directors by the Shareholders to allot, issue and deal
	with up to 820,663,532 shares of the Company of
	HK$0.10 each
“General Mandate”	the proposed general mandate to allot and issue new
	Shares as set out in the Notice
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC

– 1 –

DEFINITIONS

“Independent Board	a committee of independent non-executive Directors,
Committee”	comprising Mr. Chang Kin Man, Mr. Wu Tak Lung
	and Mr. Gu Wen Xuan to advise the Independent
	Shareholders in relation to the refreshment of the
	General Mandate
“Independent Financial	Messis Capital Limited, a corporation licensed under the
Adviser” of “Messis Capital”	SFO to conduct type 6 (advising on corporate finance)
	regulated activity as defined under the SFO, being the
	independent financial adviser to the Independent Board
	Committee and the Independent Shareholders
“Independent Shareholders”	Shareholders other than Ms. Chu Yin Yin, Georgiana and
	their respective associates
“Latest Practicable Date”	28 March, 2012 being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Notice”	means the notice convening the EGM which is set out on
	pages 18 to 20 of this circular
“PRC”	means the People’s Republic of China
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Shares”	ordinary share(s) of par value of HK$0.5 each in the
	share capital of the Company
“Shareholder(s)”	holder of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers

– 2 –

LETTER FROM THE BOARD

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

Executive Directors:

Mr. Wang De Yin (Chairman) Mr. Yang Bin (Chief Executive Officer) Mr. Liu Feng Mr. Lin Yue Hui Mr. Tang Hui Ping Ms. Chu Yin Yin, Georgiana

Independent Non-executive Directors: Mr. Chang Kin Man Mr. Wu Tak Lung Mr. Gu Wen Xuan

Registered Office:

Cricket Square Hutchins Drive P. O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: Room 1207, 12th Floor, West Tower, Shun Tak Centre No. 168-200 Connaught Road Central, Hong Kong

2 April 2012

To the Shareholders

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The purpose of this circular is to provide you with information regarding the resolution to refresh the General Mandate to issue Shares to be proposed at the EGM to be held at Boardroom 3-4, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Monday, 23 April, 2012 at 9:30 a.m..

• For identification purpose only

– 3 –

LETTER FROM THE BOARD

An Independent Board committee, comprising all the independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the refreshment of the Existing General Mandate. Messis Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the refreshment of the Existing General Mandate.

A notice convening the EGM setting out the details of the resolution to be proposed at the EGM is set out on pages 18 to 20 of this circular.

GENERAL MANDATE TO ISSUE SHARES

At the annual general meeting of the Company held on 3 June, 2011 (the “ 2011 AGM ”), the Shareholders approved, among other things, ordinary resolutions to approve the Existing General Mandate. As at the date of passing such resolution, there were a total of 4,103,317,664 Shares in issue and thus the Directors were authorised to issue and allot 20% thereof, being 820,663,532 Shares under the Existing General Mandate.

During the period from the grant of the Existing General Mandate to the Latest Practicable Date, the Existing General Mandate had been utilized as to 800,000,000 Shares, representing approximately 97.48% of the Existing General Mandate. As disclosed in the Company’s announcement dated 18 August 2011, the Company entered into a subscription agreement with Honghu Capital Co. Ltd (“ HCC ”), under which the Company has agreed to issue, and HCC has agreed to subscribe for, zero interest convertible notes due 2012 in an aggregate principal amount of HK$80,000,000 (the “ Convertible Notes ”) to be issued by the Company. The Existing General Mandate of 800,000,000 Shares was reserved for the allotment and issue of Shares upon conversion of the Convertible Notes. The net proceeds from the issue of the Convertible Notes of approximately HK$78,000,000 was used for the settlement of short term interest bearing loan which was used for repurchase Bonds.

Assuming full conversion of the Convertible Notes, 20,663,532 new Shares representing approximately 2.52% of the Existing General Mandate may be further allotted and issued under the Existing General Mandate.

As at the Latest Practicable Date, the Company has not made any refreshment of the Existing General Mandate since the 2011 AGM.

In order to allow the financial flexibility to raise further capital to finance future investments and/or future business development, the Board proposes to seek your approval by way of ordinary resolution to be proposed at the EGM to give the Directors a fresh general mandate to allot, issue and otherwise deal with additional Shares with an aggregate nominal amount not exceeding 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of such resolution set out in the Notice during the

– 4 –

LETTER FROM THE BOARD

period from the date of the passing of such resolution up to: (a) the conclusion of the next annual general meeting of the Company; (b) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association or any applicable laws of the Cayman Islands to be held; or (c) the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying such mandate, whichever occurs first.

The Board considers that equity financing through the use of the General Mandate is an important avenue of resources to the Group, as it (i) does not create any interest paying obligations on the Group as in bank financing; (ii) is less costly and time-consuming than raising funds by way of rights issue or open offer; and (iii) provides the Company with the capability to capture any capital raising or prospective investment opportunity as and when it arises. The Board considers that such ability is crucial in a competitive and rapidly changing investment environment and in times of volatile market conditions. As at the Latest Practicable Date, the Board has no concrete plan for raising capital by issuing new Shares.

The Board keeps on seeking for appropriate business investment opportunities for the Company. As at the Latest Practicable Date, they are still in the process of discussing with the potential investors and no concrete plan has been finalized. Taking into consideration of the volatility of the market, the Company may fail to grasp investment opportunities if it needs to wait around three months until the next annual general meeting for the refreshment of the Existing General Mandate and in most circumstances vendors do not generally wish to wait for such a long period to conclude any deals.

As at the Latest Practicable Date, the Company had an aggregate of 410,331,766 Shares in issue. Subject to the passing of the ordinary resolution for the approval of the refreshment of the Existing General Mandate and on the basis that no further Shares are issued and/or repurchased by the Company up to the date of the EGM, the Company would be allowed under the Existing General Mandate to allot and issue up to 82,066,353 new Shares, being 20% of the Shares in issue as at the Latest Practicable Date.

– 5 –

LETTER FROM THE BOARD

The following table summarises the fund raising activities of the Group during the last 12 months since the Latest Practicable Date:–

• Date of Intended use Actual use of Proceeds as at Announcement Event Net Proceeds of Proceeds the Latest Practicable Date 31 March 2011 Top-Up Placing of Approximately Utilized for general Approximately HK$40 324,000,000 of at HK$40,000,000 working capital million has been utilized HK$0.128 per Share purpose and for repayment of debts and repayment of debts general working capital

• 29 April 2011 Top-Up Placing of Approximately Utilized for general Approximately HK$38.5 325,000,000 of at HK$38,500,000 working capital million has been utilized HK$0.123 per Share purpose and for repayment of debts and repayment of debts general working capital

• 18 August 2011 Issue of Convertible Approximately Utilised for the Approximately HK$78 Notes I in an aggregate HK$78,000,000 settlement of short million has been utilized principal amount of term interest bearing for repayment of short term HK$80 million loan which was used interest bearing loan to repurchase bonds as detailed in the Announcement dated 18 August 2011

EXTRAORDINARY GENERAL MEETING

Pursuant to Rule 13.36(4)(a) of the Listing Rules, refreshment of the Existing General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates, or where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executives and their respective associates shall abstain from voting in favour of the resolution approving the refreshment of the Existing General Mandate. As at the Latest Practicable Date, the Company has no controlling Shareholders. Ms. Chu Yin Yin, Georgiana, being Directors with shareholding interest, together with their respective associates were interested in 543,200 Shares, representing 0.13% of the Shares in issue and controlled the voting rights in respect of these Shares. Accordingly, Ms. Chu Yin Yin, Georgiana and her associates are required to abstain from voting in favour of the resolution approving the refreshment of the Existing General Mandate as set out in the Notice.

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LETTER FROM THE BOARD

The Board has been advised by Ms. Chu Yin Yin, Georgiana together with her respective associates that she has no intention to vote against the resolutions to approve the refreshment of the Existing General Mandate as set out in the Notice at the EGM. Other than Ms. Chu Yin Yin, Georgiana together with her respective associates, no other Directors or her respective associates had any interests in the Shares as at the Latest Practicable Date and are required to abstain from voting in favour of the resolution approving the refreshment of the Existing General Mandate as set out in the Notice at the EGM and no shareholder fall within the two categories described in Rules 13.36(4)(b)(i) and (ii) of the Listing Rules.

An Independent Board Committee has been established to make recommendations to the Independent Shareholders in respect of the refreshment of the Existing General Mandate.

Messis Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the Existing General Mandate.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit at the Company’s branch share registrar, Union Registrars Limited at 18/F., Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting (as the case may be) should you so wish.

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.

– 7 –

LETTER FROM THE BOARD

RECOMMENDATION

The Directors are of the opinion that the proposed ordinary resolution for granting to the Directors the General Mandate to issue Shares referred to in this circular is in the best interests of the Company and the Shareholders as a whole. The Directors therefore recommend you to vote in favour of such resolution at the EGM.

Your attention is drawn to the letter from the Independent Board Committee set out on page 9 of this circular and the letter from Messis Capital containing its advice and the principal factors which it has considered in arriving at its advice with regard to the refreshment of the General Mandate, as set out on pages 10 to 17 of this circular.

GENERAL INFORMATION

Messis Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they respectively appear.

By Order of the Board China Water Industry Group Limited Wang De Yin Chairman

– 8 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

2 April 2012

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE

We refer to the circular from the Company to the Shareholders dated 2 April 2012 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed to advise you in connection with the refreshment of the Existing General Mandate, details of which are set out in the “Letter from the Board” set out on pages 3 to 8 of the Circular. We wish to draw your attention to the “Letter from Messis Capital” set out on pages 10 to 17 of the Circular, which contains Messis Capital’s advice regarding the refreshment of the Existing General Mandate.

Having taken into account the advice of Messis Capital, we consider the refreshment of the Existing General Mandate to be fair and reasonable and in the interest of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM to approve the refreshment of the Existing General Mandate.

Yours faithfully,

Mr. Chang Kin Man Mr. Wu Tak Lung Mr. Gu Wen Xuan Independent Non-executive Independent Non-executive Independent Non-executive Director Director Director

• For identification purpose only

– 9 –

LETTER FROM MESSIS CAPITAL

The following is the full text of the letter from the Independent Financial Adviser which sets out its advice to the Independent Board Committee and the Independent Shareholders for inclusion in this circular.

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To: The Independent Board Committee and the Independent Shareholders of China Water Industry Group Limited

Dear Sir/Madam,

REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the Existing General Mandate, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company to the Shareholders dated 2 April 2012, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, refreshment of the Existing General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates, or where there are no controlling Shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolution regarding the refreshment of the Existing General Mandate to be proposed at the EGM. To the best of the Company’s information and belief after having made reasonable enquiries, as at the Latest Practicable Date, the Company has no controlling Shareholders. Ms. Chu Yin Yin, Georgiana, being an executive Director, together with her respective associates were interested in 543,200 Shares, representing 0.13% of the Shares in issue, respectively, and controlled the voting rights in respect of these Shares. Accordingly, Ms. Chu Yin Yin, Georgiana and her respective associates are required to abstain from voting in favour of the resolution approving the refreshment of the Existing General Mandate as set out in the Notice.

– 10 –

LETTER FROM MESSIS CAPITAL

The Independent Board Committee comprising Mr. Chang Kin Man, Mr. Wu Tak Lung and Mr. Gu Wen Xuan, all being independent non-executive Directors, has been established to advise whether the refreshment of the Existing General Mandate is in the interest of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote. We, Messis Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and the management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

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 and belief, 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 such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted any independent investigation into the business and affairs of the Group.

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LETTER FROM MESSIS CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the Existing General Mandate, we have taken the following principal factors and reasons into consideration:

1. Background and reasons for the refreshment of the Existing General Mandate

The Group is principally engaged in the provision of water supply and sewage treatment business in the PRC.

At the annual general meeting of the Company held on 3 June 2011 (the “ AGM ”), the Shareholders approved, among other things, ordinary resolutions to approve the grant of the Existing General Mandate to the Directors to allot, issue and deal with up to 820,663,532 Shares of HK$0.10 each, being 20% of the entire issued share capital of the Company of 4,103,317,664 Shares as at the date of the AGM. Since the AGM to the Latest Practicable Date, the Existing General Mandate has not been refreshed.

As disclosed in the announcement of the Company dated 18 August 2011 (the “ Announcement ”), the Company entered into a subscription agreement with the subscriber on 15 August 2011, under which the Company has agreed to issue, and the subscriber has agreed to subscribe for, the convertible notes to be issued by the Company in an aggregate principal amount of HK$80 million (the “ Convertible Notes I ”). Assuming full conversion of the Convertible Notes I at the initial conversion price of HK$0.10 per Share, a total of 800,000,000 Shares (the “ Conversion Shares ”) will be allotted and issued under the Existing General Mandate, representing approximately 97.48% of the Existing General Mandate. The Existing Issue Mandate granted to the Directors was almost fully reserved for the Conversion Shares.

In order to allow the financial flexibility to raise further capital to finance future investments and/or future business development of the Group, the Company wishes to seek approval of the Independent Shareholders at the EGM to grant the General Mandate so that the Directors will be granted the authority to issue, allot and deal with new Shares not exceeding 20% of the total issued share capital of the Company as at the date of the EGM.

– 12 –

LETTER FROM MESSIS CAPITAL

As set out in the Announcement, the Board proposed to effect the share consolidation (the “ Share Consolidation ”) pursuant to which every 10 issued and unissued Shares would be consolidated into one consolidated Share (the “ Consolidated Share ”). Immediately following the Share Consolidation, the authorized share capital will be increased by the creation of an additional 1,200,000,000 Consolidated Shares with a par value of HK$1.00 each (the “ Capital Increase ”). Subject to the Share Consolidation becoming effective, the Board proposed to effect the capital reduction pursuant to which the par value of each of the issued Consolidated Shares will be reduced from HK$1.00 to HK$0.50 each by cancelling paid-up capital to the extent of HK$0.50 per issued Consolidated Share resulting in each issued Consolidated Share of HK$1.00 each being treated as one fully paid-up new Share of HK$0.50 each in the share capital of the Company (the “ Capital Reduction ”). Immediately following the Capital Reduction becoming effective, each authorized but unissued Consolidated Share will be sub-divided into 2 new Shares with a par value of HK$0.50 each. The Share Consolidation and the Capital Reduction had become effective on 27 September 2011 and 7 March 2012, respectively.

As at the Latest Practicable Date, the Company had an aggregate of 410,331,766 Shares in issue. Assuming there is no change in the issued share capital of the Company from the Latest Practicable Date up to the date of the EGM, the granting of the General Mandate would allow the Directors to issue, allot and deal with up to 82,066,353 new Shares, representing 20% of the aforesaid total issued share capital of the Company.

As discussed with the management of the Company, the Directors consider that equity financing through the use of the General Mandate is an important avenue of resources to the Group, as it (i) does not create any interest paying obligations on the Group as in bank financing; (ii) is less costly and time-consuming than raising funds by way of rights issue or open offer; and (iii) provides the Company with the capability to capture any capital raising or prospective investment opportunity as and when it arises. The Directors consider that such ability is crucial in a competitive and rapidly changing investment environment and in times of volatile market conditions.

As the Existing General Mandate was almost fully reserved for the Conversion Shares, we are of the view that the refreshment of the Existing General Mandate (i) would provide the Company with necessary financing flexibility for any funding needs for any future investments and business developments as and when they arise; (ii) will ensure the Company having sufficient general mandate, if so required, until the general mandate is approved in the next annual general meeting; and (iii) will facilitate the Company to raise funds in a meaningful quantum if and when necessary in a timely manner, we therefore consider that the refreshment of the Existing General Mandate is in the interests of the Company and the Shareholders as a whole.

– 13 –

LETTER FROM MESSIS CAPITAL

2. Flexibility in financing

As advised by the Directors, they keep on seeking for appropriate business investment opportunities for the Company. As at the Latest Practicable Date, they are still in the process of discussing with the potential investors/vendors and no concrete plan has been finalised. Taking into consideration the volatility of the market, the Company may fail to grasp investment opportunities if it needs to wait around three months until the next annual general meeting for the refreshment of the Existing General Mandate and in most circumstances vendors do not generally wish to wait for such a long period to conclude any deals. In addition, if any potential investors offer attractive terms for investment in the Shares subject to the then market conditions, the Directors will consider and may conduct an equity fund raising exercise by issuing new Shares, the proceeds of which may be used as general working capital and/or supporting the Group’s future business development. As such, the Directors believe that (i) the refreshment of the Existing General Mandate will provide the Company with flexibility in deciding the source of financing for any acquisition opportunities that may arise in the future; and (ii) the refreshment of the Existing General Mandate will empower them to issue new Shares under the refreshed limit speedily as and when necessary, and without seeking further approval from the Shareholders.

Based on the above, we consider that (i) any share placement exercise is dependent, to a large extent, on prevailing market conditions and such opportunities for share placement exercise may not always arise; and (ii) the refreshment of the Existing General Mandate would provide the Company with the flexibility to issue and allot new Shares for equity fund raising activities, such as placing of new Shares, or as consideration for potential investments in the future as and when such opportunities arise, we therefore consider that the refreshment of the Existing General Mandate is in the interests of the Shareholders and the Company as a whole.

– 14 –

LETTER FROM MESSIS CAPITAL

3. Fund raising activities of the Company during the past twelve months

Set out below is the fund raising activity of the Company during the past twelve months immediately prior to the Latest Practicable Date:

				Actual use of
				Proceeds as
Date of			Intended use	at the Latest
Announcement	Event	Net Proceeds	of Proceeds	Practicable Date
18 August 2011	Issue of Convertible	Approximately	Utilised for the	Approximately HK$78
	Notes I in an	HK$78,000,000	settlement of short	million has been utilized
	aggregate principal		term interest bearing	for repayment of short term
	amount of HK$80		loan which was used	interest bearing loan
	million.		to repurchase bonds
			as detailed in the
			Announcement
29 April 2011	Top-Up Placing of	Approximately	Utilized for general	Approximately HK$38.5
	325,000,000 Shares	HK$38,500,000	working capital	million has been utilized
	at HK$0.123 per		purpose and	for repayment of debts and
	Share		repayment of debts	general working capital
31 March 2011	Top-Up Placing of	Approximately	Utilized for general	Approximately HK$40
	324,000,000 Shares	HK$40,000,000	working capital	million has been utilized
	at HK$0.128 per		purpose and	for repayment of debts and
	Share		repayment of debts	general working capital

Save as disclosed herein, the Company had not conducted any other equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

4. Other financing alternatives

As advised by the Company, apart from equity financing, the Group will also consider other financing alternatives such as debt financing and bank borrowings before making investment decision. However, the Group will consider the cost and other terms of the funding to decide the means of financing in order to maximum the benefit to the Shareholders. Furthermore, these alternatives may be subject to lengthy due diligence and negotiations. The Directors advised us that they would exercise due and careful consideration when choosing the best method of financing for the Group.

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LETTER FROM MESSIS CAPITAL

We consider that the refreshment of the Existing General Mandate will provide the Company with an additional financing alternative and it is reasonable for the Company to have the flexibility in deciding the financing methods for its future business development and the efficient use of its fund. Based on the above, we are of the view that the refreshment of the Existing General Mandate is in the interests of the Company and the Shareholders as a whole.

5. Potential dilution to Independent Shareholders’ shareholdings

Shareholder Chu Yin Yin, Georgiana (Note 1) Public Shareholders: – The subscriber of the Convertible Notes I – Other public Shareholders Shares to be issued under the General Mandate Total	As at the Latest Practicable Date Number of Shares Approximate % 543,200 0.13 – – 409,788,566 99.87 – – 410,331,766 100.00	Upon full utilization of the General Mandate (assuming no other Shares are issued or repurchased by the Company) Number of Shares Approximate % 543,200 0.11 – – 409,788,566 83.22 82,066,353 16.67 492,398,119 100.00	Upon full utilization of the General Mandate, assuming the Convertible Notes I are converted in full after the date of the EGM (assuming no other Shares are issued or repurchased by the Company) Number of Shares Approximate % 543,200 0.09 80,000,000 13.98 409,788,566 71.59 82,066,353 14.34 572,398,119 100.00	Upon full utilization of the General Mandate, assuming the Convertible Notes I are converted in full after the date of the EGM (assuming no other Shares are issued or repurchased by the Company) Number of Shares Approximate % 543,200 0.09 80,000,000 13.98 409,788,566 71.59 82,066,353 14.34 572,398,119 100.00
				100.00

Note:

1. Executive Director of the Company

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LETTER FROM MESSIS CAPITAL

The table above illustrates that the shareholding of the public Shareholders in the Company would (i) decrease from approximately 99.87% to approximately 83.22% upon full utilization of the General Mandate assuming no other Share(s) is/are issued or repurchased by the Company after the Latest Practicable Date up to the date of the EGM; and (ii) decrease from approximately 99.87% to approximately 71.59% upon full utilization of the General Mandate assuming the Convertible Notes I are converted in full after the date of the EGM and assuming no other Shares are issued or repurchased by the Company.

Taking into account that the refreshment of the Existing General Mandate (i) allows the Company to raise capital by allotment and issuance of new Shares before the next annual general meeting; (ii) provides more flexibility and options of financing to the Group for future business development as well as for other potential future investments and/or acquisitions as and when such opportunities arise; and (iii) the shareholding interests of all Shareholders in the Company will be diluted in proportion to their respective shareholdings upon any utilization of the General Mandate, we are of the opinion that the potential dilution to the shareholdings of the public Shareholders as just mentioned is acceptable.

RECOMMENDATIONS

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that the terms of the grant of the General Mandate are fair and reasonable so far as the Independent Shareholders are concerned and the grant of the General Mandate is in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the EGM to approve the General Mandate.

Yours faithfully,

For and on behalf of

Messis Capital Limited Robert Siu

Executive Director

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NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [76 x 64] intentionally omitted <==

(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of China Water Industry Group Limited (the “ Company ”) will be held at Boardroom 3-4, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Monday, 23 April 2012 at 9:30 a.m. to consider and, if thought fit, pass with or without amendments the following resolution as an ordinary resolution:

1. “ THAT :

2. (a) subject to paragraph (c) of this resolution, and pursuant to the Rules (the “ Listing Rules ”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Sock Exchange ”), the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the share capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers be and is hereby generally and unconditionally approved;

3. (b) the approval in paragraph (a) of this resolution shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;

4. (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to options or otherwise) by the Directors pursuant to the approval in paragraph (a) of this resolution, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) the grant or exercise of any option under the share option scheme of the Company or any other option scheme or similar arrangement for the time being adopted for the grant or issue of shares or rights to acquire shares of the Company; or (iii) any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company in accordance with the articles of association of the Company in force from time to time; or (iv) any issue of shares in the Company upon the exercise of rights of subscription or

• For identification purpose only

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NOTICE OF EXTRAORDINARY GENERAL MEETING

conversion under the terms of any existing warrants of the Company or any existing securities of the Company which carry rights to subscribe for or are convertible into shares of the Company, shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of this resolution and the authority pursuant to paragraph (a) of this resolution shall be limited accordingly; and

• (d) for the purpose of this resolution “Relevant Period” means the period from the date of the passing of this resolution until whichever is the earliest of:

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company, or any applicable law of the Cayman Islands to be held; and

• (iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution.

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

By Order of the Board

China Water Industry Group Limited

Wang De Yin

Chairman

Hong Kong, 2 April 2012

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

• (1) A member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.

• (2) In the case of joint holders of shares in the Company, the vote of the senior who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holders, seniority being determined by the order in which names stand in the register of members

• (3) Completion and return of the form of proxy will not preclude members from attending and voting in person at the extraordinary general meeting or any adjournment.

• (4) As at the date of this notice, the board of directors of the Company comprises As at the date of this announcement, the board of directors of the Company comprises Mr. Wang De Yin, Mr. Yang Bin, Mr. Liu Feng, Mr. Lin Yue Hui, Mr. Tang Hui Ping and Ms. Chu Yin Yin, Georgiana, all being executive directors, and Mr. Chang Kin Man, Mr. Wu Tak Lung and Mr. Gu Wen Xuan, all being independent non-executive directors.

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