CMON Limited — Capital/Financing Update 2004

Jan 7, 2004

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

������������ Shenyang Public Utility Holdings Company Limited

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

Discloseable Transaction Acquisition of 95% equity interest in Jingmei Financial adviser to Shenyang Public Utility Holdings Company Limited

Tai Fook Capital Limited

The Board announces that on 31 December 2003, the Company entered into the Agreement with the Vendor, pursuant to which the Vendor agreed to sell, and the Company agreed to acquire 95% equity interest in Jingmei held by the Vendor at a cash consideration of RMB570 million (equivalent to approximately HK$532.7 million).

Jingmei is principally engaged in investment in and development of property-related projects in the PRC and its principal asset as at 31 October 2003 is the 70% equity interest in Xili Muyuan. Xili Muyuan is a private company approved by Guangdong Provincial Department of Civil Affairs (������) to engage in the provision and sale of burial places to the public in the Shenzhen Special Economic Zone for profit purpose.

The consideration for the Acquisition, which was arrived at after arm’s length negotiations between the parties involved, was principally determined with reference to the International Valuation of RMB863 million and the PRC Valuation of approximately RMB860.7 million. Based on the International Valuation and the PRC Valuation, the value of 95% equity interest in Jingmei, whose principal asset is the 70% equity interest in Xili Muyuan, is approximately RMB573.9 million and RMB572.4 million respectively.

The Acquisition constitutes a discloseable transaction for the Company under the Listing Rules. A circular containing further information in relation to the Acquisition will be despatched to the shareholders of the Company as soon as practicable.

THE ACQUISITION

The Agreement dated 31 December 2003

Parties:

Vendor: ������������� (Beijing Hengyu Real Estate Development Company Limited) The Vendor and its ultimate beneficial owners (who are three natural persons) and their respective associates are Independent Third Parties prior to the completion of the Share Transfer.

Purchaser: the Company

Equity interest to be acquired:

Pursuant to the Agreement, the Company agreed to acquire 95% equity interest in Jingmei from the Vendor.

Consideration:

The consideration for the Acquisition is RMB570 million (equivalent to approximately HK$532.7 million). Pursuant to the Agreement, the consideration for the Acquisition shall be fully satisfied in the following manner:

1. first payment of RMB405,000,000 (equivalent to approximately HK$378,504,670) in cash was deposited by the Company on 31 December 2003 into an escrow account in a PRC bank and such amount shall be transferred to the Vendor within 3 days from the date of Completion;

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1. second payment of RMB70,500,000 (equivalent to approximately HK$65,887,850) shall be satisfied by the transfer of 30% equity interest in Shenyang Education to the Vendor by the Company, which transfer shall be completed within 90 days from the date of Completion. Pursuant to the Agreement, if the Share Transfer cannot be completed by 30 June 2004, the Company has the option to settle the second payment in cash; and

2. final payment of RMB94,500,000 (equivalent to approximately HK$88,317,760) shall be paid by the Company in cash within 30 days after the first anniversary of the date of Completion.

Pursuant to the Agreement, the Company has the right to appoint an auditor to perform an audit on the assets and liabilities of Jingmei as at 31 October 2003, which audit shall be completed within 180 days from the date of Completion. If such audited net tangible assets figure is less than the unaudited consolidated net tangible assets of Jingmei as per its management accounts (which were prepared based on PRC GAAP) as at 31 October 2003 of approximately RMB2.0 million, the consideration for the Acquisition will be reduced by the amount of such shortfall and such shortfall will be deducted from the final payment of the consideration for the Acquisition.

The first payment of the consideration for the Acquisition of RMB405 million (equivalent to approximately HK$378.5 million) was funded by the Company’s internal resources. It is currently intended that the final payment of the consideration for the Acquisition of RMB94.5 million (equivalent to approximately HK$88.3 million) will be funded by either the Company’s internal resources or bank borrowings.

The consideration for the Acquisition, which was arrived at after arm’s length negotiations between the parties involved, was principally determined with reference to the International Valuation of RMB863 million and the PRC Valuation of approximately RMB860.7 million. Each of the International Valuation and the PRC Valuation is a business valuation, which appraises the value of Xili Muyuan based on its future earning ability (please refer to the paragraphs headed “International Valuation” and “PRC Valuation” below for further information). Based on the International Valuation and the PRC Valuation, the value of 95% equity interest in Jingmei, whose principal asset is the 70% equity interest in Xili Muyuan, is approximately RMB573.9 million and RMB572.4 million respectively.

International Valuation

As stated in the valuation report prepared by Vigers Appraisal & Consulting Limited (“Vigers”), the valuer of the International Valuation, the valuation was prepared in accordance with internationally recognised generally accepted appraisal procedures and practices and carried out based on a fair market value basis. The value was developed through the application of income approach (“Income Approach”) with the technique known as the discounted cash flow method to discount the future economic benefits of Xili Muyuan into a present market value. For the purpose of the valuation, Vigers made certain assumptions and the major ones are set out as follows:

• A discount rate of 9%;

• A valuation period from the end of year 2003 to the end of year 2030 , a total of approximately 27 years;

• The major investment costs will be incurred in the period from year 2003 to year 2009; and

• There will be a total of around 43,000 burial type tomb sets (the most significant source of future revenue of Xili Muyuan) to be developed and sold by Xili Muyuan.

PRC Valuation

As advised by Zhongshui Assets Appraisal Co., Ltd. (“Zhongshui”), the valuer of the PRC Valuation, the PRC Valuation was prepared based on generally accepted practices in the PRC’s valuation and appraisal industry and the value of Xili Muyuan was developed through the application of Income Approach. For the purpose of the valuation, Zhongshui made certain assumptions and the major ones are set out as follows:

• A discount rate of 9%;

• A valuation period from the end of year 2003 to the end of year 2030, a total of approximately 27 years;

• There will be a total of around 43,000 burial type tomb sets (the most significant source of future revenue of Xili Muyuan) to be developed and sold by Xili Muyuan.

The Directors consider that the above assumptions made by Vigers and Zhongshui in respect of the International Valuation and the PRC Valuation respectively are fair and reasonable.

Conditions precedent to Completion:

Completion is conditional upon the following:

1. approval of the disposal of 95% equity interest in Jingmei by the shareholders of the Vendor;

2. approval of the transfer of 95% equity interest in Jingmei to the Company by the shareholders of Jingmei;

3. waiver of the pre-emptive rights to acquire 95% equity interest in Jingmei by the Minority Shareholder;

4. signing of the amended articles of association of Jingmei to reflect the change in the shareholders by the Company and the Minority Shareholder;

5. approval being obtained by Jingmei from relevant PRC authorities in relation to the Acquisition and the corresponding amendments to the articles of association and business licence of Jingmei to reflect the change in the shareholders of Jingmei;

6. approval of the Acquisition by the Directors;

7. approval of the Acquisition by the independent shareholders of the Company (if necessary);

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1. approval of the Acquisition by the Stock Exchange (if necessary); and

2. execution of the agreement under which the Vendor will transfer out from Jingmei liabilities and assets not related to those of Xili Muyuan’s.

Since the Acquisition is a discloseable transaction of the Company under the Listing Rules and is not subject to the approval of the shareholders of the Company, the condition no. 7 above is not applicable. Also, given the Acquisition is not subject to the approval by the Stock Exchange, the condition no. 8 above is not applicable.

Pursuant to the Agreement, Completion shall take place on or before 28 February 2004 or such later date as agreed between by the parties.

INFORMATION ON JINGMEI AND XILI MUYUAN

Jingmei is a limited liability company incorporated in the PRC on 30 August 1994 with a fully paid up registered capital of RMB10 million. Jingmei is currently owned as to 95% by the Vendor and 5% by the Minority Shareholder. Jingmei is principally engaged in investment in and development of property-related projects in the PRC. As at 31 October 2003, the principal asset of Jingmei is the 70% equity interest in Xili Muyuan. Jingmei’s accounts have not been audited since its establishment as it is not required under the PRC regulations to conduct audit of Jingmei’s accounts. According to its unaudited management accounts for the two years ended 31 December 2002 and the 10-month period ended 31 October 2003 (which were prepared based on PRC GAAP and consolidated the accounts of Xili Muyuan in the corresponding periods), Jingmei recorded (i) loss before tax of approximately RMB7.5 million and RMB1.2 million for the year ended 31 December 2001 and 2002 respectively; and (ii) profit before tax and profit attributable to shareholders for the 10-month period ended 31 October 2003 of approximately RMB54.6 million and RMB34.7 million respectively. The significant improvement in the operating performance of Jingmei in 2003 was due to fact that Jingmei commenced commercial operations in January 2003 and recorded sales revenue generated from the sale of burial type tomb sets (to be described below). Jingmei has unaudited consolidated net tangible assets of approximately RMB2.0 million as at 31 October 2003.

Xili Muyuan is a limited liability company incorporated in the PRC on 29 April 2001 by Jingmei and���� ����� (Shenzhen Municipal Funeral Services Company) (to be described below) with a fully paid up registered capital of RMB5 million. Xili Muyuan is currently owned as to 70% by Jingmei and 30% by��� ������ (Shenzhen Municipal Funeral Services Company), a state owned enterprise under the supervision of Shenzhen Municipal Bureau of Civil Affairs (������). Each of��������� (Shenzhen Municipal Funeral Services Company) and Shenzhen Municipal Bureau of Civil Affairs (������) is an Independent Third Party.

Xili Muyuan is a private company approved by Guangdong Provincial Department of Civil Affairs (����� �) to engage in the provision and sale of burial places to the public in the Shenzhen Special Economic Zone for profit purpose. At present, Xili Muyuan is principally engaged in the construction, development and sales of tomb sets and name-plates for the deceased as well as the provision of burial and storage services for the bone ashes for the deceased in the Shenzhen Special Economic Zone.

In 1998, Jingmei acquired a piece of land (the “Cemetery”) having a site area of over 270,000 sq. m. located within the Shenzhen Special Economic Zone. In April 2001, Xili Muyuan reimbursed Jingmei the full cost for the acquisition of the Cemetery. The ownership of the Cemetery has passed to Xili Muyuan, however the procedure requirement to file the transfer of the land title from Jingmei to Xili Muyuan with the relevant PRC authority remains outstanding (the “Filing”). It is intended that the Filing will be made as soon as practicable after Completion. Pursuant to the development plan of Xili Muyuan, it is intended that the Cemetery will be developed to comprise approximately 48,000 burial type tomb sets �������, 95 family towers �������, 10,000 mirror plates ������� and 940 indoor memorial booths ����������. Up to 31 October 2003, Xili Muyuan has completed the construction of approximately 10,400 burial type tomb sets, of which approximately 5,300 tomb sets have already been sold. Most of these tomb sets were sold at a selling price ranging from RMB30,000 to RMB50,000 per set.

Based on the Directors’ estimation, it will take approximately 6 more years to complete the development of the Cemetery and a further investment cost of approximately RMB70 million will be required, which is expected to be financed by internal funds to be generated from the business operations of Xili Muyuan and bank borrowings if necessary. Most of the further investment will be incurred in the next 3 years.

INFORMATION ON SHENYANG EDUCATION

Shenyang Education, an approximately 100% indirectly owned subsidiary of the Company, is a limited liability company incorporated by the Company and Shenyang Real Estate, a 99.86% subsidiary of the Company, in the PRC on 9 September 2002 with a registered capital of RMB50 million. Shenyang Education is principally engaged in the development and sale of properties and investment management of education projects in the PRC.

According to its audited accounts for the period from 9 September 2002 to 31 December 2002, Shenyang Education incurred net losses of approximately RMB2,782,000. Shenyang Education has unaudited net assets of approximately RMB47.2 million as at 30 November 2003.

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Pursuant to the Agreement and subject to Completion, the Company will effect the Share Transfer (i.e. transfer 30% of the equity interest in Shenyang Education to the Vendor (or its nominee)) to settle part of the consideration for the Acquisition in the amount of RMB70,500,000, which amount was determined between the parties after arm’s length negotiation with reference solely to the valuation of Shenyang Education’s assets and liabilities as at 30 November 2003. Such valuation was prepared by ���������������� (Beijing Long Yuan Zhi Bo Asset Appraisal Company Limited), which valued Shenyang Education at a value of approximately RMB236 million as at 30 November 2003. The valuation was prepared to assess the market value of the net assets of Shenyang Education as at 30 November 2003 and such value was determined based on generally accepted practices in the PRC’s valuation and appraisal industry.

After the Share Transfer, Shenyang Education will become an approximately 70% indirect non-wholly owned subsidiary of the Company. The Directors do not foresee any change to the business activity or management of Shenyang Education as a result of the Share Transfer.

The Directors consider that the disposal of 30% equity interest in Shenyang Education can release part of the cash payment burden of the Company in relation to the Acquisition and it will not affect the Company’s influence in Shenyang Education in terms of control and future development.

REASON FOR THE ACQUISITION

The Group is principally engaged in the development and sale of properties and investment and management of education projects.

The Directors consider that Xili Muyuan, being an approved private company to operate a cemetery and burial service project in the Shenzhen Special Economic Zone, has promising business potential. As such, the Directors are confident that the Acquisition will bring long-term stable income to the Group.

The Directors are of the view that the Acquisition will enable the Company to participate in a property project with focus in the development and sale of property for use as burial type tomb sets. Before the Acquisition, the Company has been engaging in the business in development and sale of property for residential use and for use in education purpose and the Directors do not consider the Acquisition constitutes a change in or a diversification of the principal business activities of the Group.

Given the fact that the Directors has no present intention to make any major change in the management of Xili Muyuan and certain of the existing employees of the Company possess experience in the business of cemetery, the Directors are of the view that the Company has relevant experience in running the business operations of Xili Muyuan. The Company intends to involve in the management of Xili Muyuan in particular in the areas of formulating overall business direction and strategic planning.

GENERAL

As the consideration for the Acquisition of RMB570 million represents approximately 31% of both the audited consolidated net tangible assets of the Company as at 31 December 2002 and the unaudited consolidated net tangible assets of the Company as at 30 June 2003 (based on the Company’s management accounts for the 6 months ended 30 June 2003), the Acquisition constitutes a discloseable transaction for the Company under the Listing Rules. A circular containing further information in relation to the Acquisition will be despatched to the shareholders of the Company as soon as practicable.

DEFINITIONS

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

otherwise:-
“Acquisition”	the acquisition of 95% equity interest in Jingmei by the Company from the Vendor
	pursuant to the Agreement
“Agreement”	the share transfer agreement dated 31 December 2003 entered into between the
	Company and the Vendor in respect of the Acquisition
“associates”	has the meaning ascribed to it in the Listing Rules
“Beida Hi-tech”	���������������(Beijing Beida Hi-tech Industry Investment
	Company Limited), a company established in the PRC with limited liability and is
	beneficially held as to 50% by����������������(Beijing
	Tianqiao Beida Jade Bird Sci-Tech Company Limited), an A share listed company in
	the PRC, and as to 50% by������������(Beijing Beida Jade Bird
	Company Limited), a company beneficially controlled by Peking University
“Board”	the board of Directors
“Company”	������������(Shenyang Public Utility Holdings Company Limited),
	a joint stock limited company established in the PRC with limited liability, the H
	Shares of which are listed on the Stock Exchange, the controlling shareholder of
	which is Shenyang Public Utility Group
“Completion”	the completion of the Agreement
“Directors”	the directors of the Company

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“Group”	the Company and its subsidiaries
“Hong Kong”	The Hong Kong Special Administrative Region of the PRC
“Independent Third	a party/parties which is/are independent of and not connected with the
Party/Parties”	directors, the promotors, the supervisors, chief executive or substantial shareholder
	of the Company or any of its subsidiaries or an associate of any of them
“International	the business valuation of Xili Muyuan as at 31 October 2003 as
Valuation”	prepared by Vigers Appraisal & Consulting Limited, a professional valuer in Hong
	Kong which is an Independent Third Party
“Jingmei”	�������������(Shenzhen Jingmei Industrial Development Company
	Limited), a company established in the PRC which is currently owned as to 95% by
	the Vendor and 5% by the Minority Shareholder
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock Exchange
“Minority	the minority shareholder of Jingmei having a 5% equity interest in
Shareholder”	Jingmei, who is a natural person, and an Independent Third Party
“PRC”	The People’s Republic of China which for the purpose of this announcement, excludes
	Hong Kong, Macau Special Administrative Region and Taiwan
“PRC GAAP”	PRC generally accepted accounting principles
“PRC Valuation”	the business valuation of Xili Muyuan as at 31 October 2003 as prepared by���
	�������(Zhongshui Assets Appraisal Co., Ltd.), a professional valuer in
	the PRC with the securities industry valuation qualification approved by����
	�������(China Securities Regulatory Commission) and an Independent Third
	Party
“Share Transfer”	the transfer of 30% interest in Shenyang Education by the Group to the Vendor (or its
	nominee) to partially settle an amount of RMB70,500,000 of the consideration of the
	Acquisition pursuant to the Agreement
“Shenyang	���������������(Shenyang Development Beida
Education”	Education Science Park Company Limited), a company established in the PRC on 9
	September 2002 and an approximately 100% indirectly owned subsidiary of the
	Company
“Shenyang Municipal	�������(Shenyang Municipal People’s Government)
Government”
“Shenyang Public	����������(Shenyang Public Utility Group Company
Utility Group”	Limited), a company established in the PRC with limited liability and is owned as to
	42.23% by Shenyang Urban Infrastructure , 7.77% by Shenyang State-owned Asset
	and 50% by Beida Hi-tech
“Shenyang Real	������������( S h e ny a n g D ev e l o p m e n t R e a l E s t a t e
Estate”	Company Limited), a 99.86% owned subsidiary of the Company with the remaining
	0.14% equity interest owned by����������(Shenyang Hot-Electricity
	Development Company Limited), an Independent Third Party
“Shenyang State-	�������������( S h e n y a n g S t a t e - o w n e d A s s e t
owned Asset”	Management Company Limited), a state-owned enterprise established in the PRC
	with limited liability and under the administrative control of Shenyang Municipal
	Government
“Shenyang Urban	�������������������( S h e n y a n g U r b a n
Infrastructure”	Infrastructure Facility Construction Investment Development Company Limited), a
	state-owned enterprise established in the PRC with limited liability and under the
	administrative control of Shenyang Municipal Government

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Vendor” ������������� (Beijing Hengyu Real Estate Development Company Limited), a company established in the PRC. Each of its ultimate beneficial owners (who are three natural persons) and the Vendor is an Independent Third Party prior to the completion of the Share Transfer

• “Xili Muyuan” ��������������� (Shenzhen Xili Baoen Fu Di Cemetery Company Limited), a company established in the PRC and is currently owned as to 70% by Jingmei and 30% by ��������� (Shenzhen Municipal Funeral Services Company), which is under the supervision of������(Shenzhen Municipal Bureau of Civil Affairs)

• “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “RMB” Renminbi, the lawful currency of the PRC

5

“sq. m.” “%”

square meter per cent

By Order of the Board of Shenyang Public Utility Holdings Company Limited Xu Er Hui Chairman

Shenyang, the PRC, 6 January 2004

For the purpose of illustration in this announcement, conversion of RMB into HK$ is calculated at the approximate exchange rate of HK$0.9346 to RMB1.00. The use of such rate of exchange is not a representation that the RMB or HK$ could have been or could be exchanged at this rate or at any other rates at all.

Please also refer to the published version of this announcement in The Standard / Hong Kong Economic Times.

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