CMON Limited — Capital/Financing Update 2005

Jan 14, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shenyang Public Utility Holdings Company Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

瀋陽公用發展股份有限公司 SHENYANG PUBLIC UTILITY HOLDINGS COMPANY LIMITED

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

(Stock Code: 747)

DISCLOSEABLE TRANSACTIONS DISPOSAL OF THE ENTIRE EQUITY INTEREST IN A SUBSIDIARY AND TRANSFER OF LAND DEPOSIT AND INTEREST IN LAND

Financial adviser

Tai Fook Capital Limited

14 January 2005

CONTENTS

	Page
Definitions.....................................................................................................................................................	ii
Letter from the Board
Disposal of the entire equity interest in Shinning Festival .............................................................	1
Transfer of the Land Deposit ............................................................................................................	3
Background information of the Land Deposit .................................................................................	5
Reasons for the Transfers and use of proceeds ...............................................................................	6
Information of the Group ..................................................................................................................	7
Information of the Purchasers ...........................................................................................................	8
Information of Shinning Festival ......................................................................................................	8
General................................................................................................................................................	8
Further information ............................................................................................................................	8
Appendix I — General information of the Group.................................................................................	9

— i —

DEFINITIONS

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

“Associate”	has the meaning ascribed to it under the Listing Rules
“Beida Hi-tech”	北京北大高科技產業投資有限公司(Beijing Beida Hi-tech Industry Investment
	Company Limited), a company established in the PRC with limited liability,
	which holds 50% equity interest in SPU
“Board”	the board of Directors
“Company”	瀋陽公用發展股份有限公司(Shenyang Public Utility Holdings Company
	Limited), a joint stock limited company incorporated in the PRC and the H
	Shares of which are listed on the Stock Exchange
“Dalian Dongte”	大連東特房地產有限公司(Dalian Dongte Real Estate Development Company
	Limited), a company established in the PRC
“Dalian Zhengda”	大連正達房地產有限公司(Dalian Zhengda Real Estate Development Company
	Limited), a company established in the PRC
“Directors”	the directors of the Company
“First Share Transfer”	the transfer of 80% equity interest in Shinning Festival to Dalian Dongte by the
	Company pursuant to the First Share Transfer Agreement
“First Share Transfer	the conditional share transfer agreement dated 2 November 2004 and entered
Agreement”	into between the Company and Dalian Dongte in respect of the First Share
	Transfer
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“H Share(s)”	overseas listed foreign invested shares in the registered share capital of the
	Company with a RMB-denominated nominal value of RMB1.00 each, which are
	listed on the Stock Exchange and subscribed for and traded in HK$
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

— ii —

DEFINITIONS

• “Land”

a parcel of land with a site area of approximately 185,000 square meters located in Laoguapu, Dadong District of Shenyang in the PRC

“Land Deposit” deposit of RMB67,285,679.20 (approximately HK$63,248,538) paid by Shenyang Real Estate to the Shenyang Land Bureau for the Land

• “Land Deposit the transfer of the Land Deposit by Shenyang Real Estate to Dalian Dongte and Transfer” Dalian Zhengda pursuant to the Land Deposit Transfer Agreement

• “Land Deposit the land deposit transfer agreement dated 2 November 2004 and entered into between Transfer Agreement” the Company, Shenyang Real Estate, Dalian Dongte and Dalian Zhengda in respect of the Land Deposit Transfer

• “Latest Practicable 12 January 2005, being the latest practicable date prior to printing of this circular Date” for the purpose of ascertaining certain information contained herein

• “Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

• “PRC” the People’s Republic of China

• “Purchasers” Dalian Dongte and Dalian Zhengda

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

• “Second Share Transfer” the transfer of 10% equity interest in Shinning Festival to Dalian Zhengda by each of the Company and Shenyang Real Estate pursuant to the Second Share Transfer Agreement

• “Second Share Transfer the conditional share transfer agreement dated 2 November 2004 and entered into Agreement” between the Company, Shenyang Real Estate and Dalian Zhengda in respect of the Second Share Transfer

• “SFO” The Securities and Futures Ordinance, Chapter 571 of The Laws of Hong Kong

• “Shenyang Land Bureau” 瀋陽市規劃和國土資源局 (Planning and National Land Resources Bureau of Shenyang)

• “Shinning Festival” 瀋陽上東風華房產開發有限公司 (Shenyang Shinning Festival Real Estate Development Company Limited), a company established in the PRC and a subsidiary of the Company

— iii —

DEFINITIONS

• “Shareholders” holders of the Shares “Share(s)” State Share(s) and H Share(s) “Share Transfer” the First Share Transfer and the Second Share Transfer “Shenyang Real Estate” 瀋陽發展房產開發有限公司 (Shenyang Development Real Estate Company Limited), a company established in the PRC and is owned as to 99.86% directly by the Company

• “Shenyang State瀋陽市國有資產經營有限公司 (Shenyang State-owned Assets Management owned Assets” Company Limited), a state-owned enterprise established in the PRC with limited liability and under the administrative control of Shenyang Municipal Government

• “Shenyang Urban 瀋陽市城市基礎設施建設投資發展有限公司(Shenyang Urban Infrastructure Construction” 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

• “State Share(s) ordinary shares with a nominal value of RMB1.00 each in the capital of the Company, issued by the Company to SPU credited as fully paid

• “Stock Exchange” The Stock Exchange of Hong Kong Limited “SPU” 瀋陽公用集團有限公司 (Shenyang Public Utility Group Company Limited), a company established in the PRC with limited liability and is owned as to 42.23% by Shenyang Urban Construction, 7.77% by Shenyang State-owned Assets and 50% by Beida Hi-tech

• “Transfers” the First Share Transfer, the Second Share Transfer and the Land Deposit Transfer

Unless the context requires otherwise, translation of RMB into HK$ are made in this circular, for illustration purposes only, at the rate of RMB1.00 = HK$0.94.

No representation is made that any amounts in RMB or HK$ have been or could be converted at the above rate or at any other rates or at all.

— iv —

LETTER FROM THE BOARD

瀋陽公用發展股份有限公司 SHENYANG PUBLIC UTILITY HOLDINGS COMPANY LIMITED

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

(Stock Code: 747)

Executive Directors:

Mr. Xu Er Hui Mr. Zhang Jian Bo Mr. Zhang Ying Jian Mr. Wang Se Mr. Geng Jian Wei Mr. Chen Shu Xin

Legal Address: No.24-1 Mo Chou Hu Street Shenyang Economic and Technological Development Zone Shenyang the PRC

Non-executive Directors

Mr. Lin Wen Bin Dr. Michel P. Detay Mr. Zhang Wan Zhong Mr. Chan Kam Ling

Place of business in the PRC:

No. 14 Shisiwei Road Heping District Shenyang the PRC

Independent non-executive Directors: Mr. Cheng Wei Mr. Choy Shu Kwan, Wilson Mr. Cui Yan 14 January 2005

DISCLOSEABLE TRANSACTIONS

DISPOSAL OF THE ENTIRE EQUITY INTEREST IN A SUBSIDIARY AND

TRANSFER OF LAND DEPOSIT AND INTEREST IN LAND

DISPOSAL OF THE ENTIRE EQUITY INTEREST IN SHINNING FESTIVAL

On 2 November 2004, the Company and Shenyang Real Estate entered into the First Share Transfer Agreement and the Second Share Transfer Agreement with Dalian Dongte and Dalian Zhengda respectively, pursuant to which the Company and Shenyang Real Estate agreed to transfer the entire equity interest in Shinning Festival to Dalian Dongte and Dalian Zhengda for an aggregate consideration of RMB27,714,320.8 (approximately HK$26,051,462). The details of the two share transfer agreements are set out below.

— 1 —

LETTER FROM THE BOARD

The First Share Transfer Agreement

• Date : 2 November 2004 Vendor : the Company Purchaser : Dalian Dongte

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Dalian Dongte and its ultimate beneficial shareholders are not connected (for the purpose of the Listing Rules) with any of the promotors, directors, supervisors, chief executive or substantial shareholders of the Company and its subsidiaries or any of their respective associates.

• Assets to be : 80% equity interest in Shinning Festival transferred

• Consideration : RMB22,171,456.64 (approximately HK$20,841,169), which was arrived at after arm’s length negotiations between the Company and Dalian Dongte with reference to the current property market in Shenyang, the PRC.

Such consideration shall be fully settled in cash upon signing of the First Share Transfer Agreement.

• Condition precedent: Completion of the First Share Transfer Agreement is conditional upon, among other things, Shinning Festival having completed the procedures in relation to the change in business registrations and the business license to reflect the First Share Transfer.

• Completion : Completion of the First Share Transfer Agreement shall take place on the day on which all the conditions precedent to the First Share Transfer Agreement have been satisfied.

— 2 —

LETTER FROM THE BOARD

The Second Share Transfer Agreement

Date : 2 November 2004 Vendors : (i) the Company (ii) Shenyang Real Estate Purchaser : Dalian Zhengda

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Dalian Zhengda and its ultimate beneficial shareholders are not connected (for the purpose of the Listing Rules) with any of the promotors, directors, supervisors, chief executive or substantial shareholders of the Company and its subsidiaries or any of their respective associates.

Assets to be : 20% equity interest in Shinning Festival transferred Consideration : RMB5,542,864.16 (approximately HK$5,210,292), which was arrived at after arm’s length negotiations between the Company and Dalian Zhengda with reference to the current property market in Shenyang, the PRC.

Such consideration shall be fully settled in cash on or before 31 January 2005.

Condition precedent: Completion of the Second Share Transfer Agreement is conditional upon, among other things, Shinning Festival having completed the procedures in relation to the change in business registrations and the business license to reflect the Second Share Transfer.

Completion : Completion of the Second Share Transfer Agreement shall take place on the day on which all the conditions precedent to the Second Share Transfer Agreement have been satisfied.

TRANSFER OF THE LAND DEPOSIT

On 2 November 2004, the Company, Shenyang Real Estate, Dalian Dongte and Dalian Zhengda entered into the Land Deposit Transfer Agreement, pursuant to which Shenyang Real Estate agreed to transfer the Land Deposit to Dalian Dongte and Dalian Zhengda for a consideration of RMB67,285,679.20 (approximately HK$63,248,538). The details of the agreement are set out below:

— 3 —

LETTER FROM THE BOARD

The Land Deposit Transfer Agreement

Date : 2 November 2004 Parties : (i) the Company (ii) Shenyang Real Estate (iii) Dalian Dongte (iv) Dalian Zhengda To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Dalian Dongte and Dalian Zhengda and their respective ultimate beneficial shareholders are not connected (for the purpose of the Listing Rules) with any of the promotors, directors, supervisors, chief executive or substantial shareholders of the Company and its subsidiaries or any of their respective associates. Asset to be : Deposit of RMB67,285,679.20 (approximately HK$63,248,538) paid by Shenyang transferred Real Estate to the Shenyang Land Bureau for the Land, as the initial deposit for the acquisition of the Land with an aggregate purchase cost of approximately RMB334 million (approximately HK$314 million).

As at the Latest Practicable Date, Shenyang Real Estate has not yet obtained the land use rights of the Land. Such transfer of land use rights to Shenyang Real Estate shall take place upon fulfillment of certain conditions, including demolition of the premises currently erected on the Land by the Shenyang Land Bureau and settlement of the balance payment of the consideration for the acquisition of the land use right of the Land by Shenyang Real Estate.

• Consideration : RMB67,285,679.20 (approximately HK$63,248,538), which was based on the amount of the Land Deposit paid by Shenyang Real Estate. The consideration shall be fully settled in cash in the following manner:

• (a) RMB57,828,543.36 (approximately HK$54,358,831) upon signing of the Land Deposit Transfer Agreement; and

• (b) RMB9,457,135.84 (approximately HK$8,889,708) (the “Balance Payment”) within 5 days after the signing of the relevant agreements to be entered into between Shinning Festival and the relevant PRC government authority in relation to the development project regarding the Land.

— 4 —

LETTER FROM THE BOARD

Other term

: The Company undertakes to repay the amount due to Shinning Festival by the Company and Shenyang Real Estate amounting to RMB10 million (approximately HK$9.4 million) upon receipt of the Balance Payment.

In entering into the Land Deposit Transfer Agreement, Shenyang Real Estate agrees to assist the Purchasers to obtain approval from the Shenyang Land Bureau for the transfer of the interest in the Land to Shinning Festival.

BACKGROUND INFORMATION OF THE LAND DEPOSIT

In December 2003, Shenyang Real Estate successfully acquired the land use right of a parcel of land with a site area of approximately 203,000 square meters located in Laoguapu, Dadong District of Shenyang in the PRC at a consideration of approximately RMB366 million (approximately HK$344 million) by way of auction. A deposit of RMB100 million (approximately HK$94 million) had been paid by Shenyang Real Estate.

In July 2004, Shenyang Real Estate disposed of its interest in approximately 18,000 square meters of the aforesaid land (the “Disposed Portion”) at a consideration of approximately RMB32.7 million (approximately HK$30.7 million) to a party not connected with (i) the promoters, directors, supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them; or (ii) the Purchasers or their respective associates. The consideration for the disposal of the Disposed Portion was arrived at after arm’s length negotiation between the parties with reference to the Group’s cost of investment. As the Disposed Portion is mainly used for development of commercial properties and the Group’s strength is in developing residential and educational-related properties, the Directors considered that it would be in the Group’s interests to dispose of the Disposed Portion at cost and concentrate on the development of residential projects on the remaining portion of the Land. At the time of the disposal, Shenyang Real Estate had not yet obtained the land use right of the Disposed Portion.

After such disposal, Shenyang Real Estate’s interest in the land is reduced to approximately 185,000 square meters (i.e. the Land) and the deposit paid by it is reduced to approximately RMB67.3 million (approximately HK$63.3 million) (i.e. the Land Deposit).

The Group had not made any announcement in relation to the abovementioned acquisition and disposal since its principal activities include property development and therefore acquisition and disposal of interest in land is in its ordinary course of business. Besides, the Directors did not consider the abovementioned acquisition and disposal constituted price sensitive information.

— 5 —

LETTER FROM THE BOARD

As at the Latest Practicable Date, Shenyang Real Estate has not yet obtained the land use rights of the Land. Such transfer of land use right to Shenyang Real Estate shall take place upon fulfillment of certain conditions, including demolition of premises currently erected on the Land by the Shenyang Land Bureau and settlement of the balance payment of the consideration for the acquisition of the land use right of the Land by Shenyang Real Estate. Up to the Latest Practicable Date, the demolition of the premises currently erected on the Land has not been completed. Accordingly, the Shenyang Land Bureau has not requested Shenyang Real Estate to make further payment and there is no amount due by Shenyang Real Estate in respect of the Land.

As stated in the Company’s annual report for the year ended 31 December 2003, the Land was originally proposed to be used for commercial and residential development by Shinning Festival. However, as explained in the section headed “Reasons for the transfers and use of proceeds” below, the Directors consider that it is in the Company’s interest to realize its interest in the Land. Upon completion of the Transfers, the Group will cease to have any interest in Shinning Festival and the Land and Shenyang Real Estate will not have any further liability in respect of the Land.

REASONS FOR THE TRANSFERS AND USE OF PROCEEDS

Shinning Festival, with a registered capital of RMB10 million (approximately HK$9.4 million), was established in March 2004 by the Group to develop the Land purchased by the Group in December 2003 for commercial and residential development projects. No turnover has yet been recorded by Shinning Festival as it is still in the preliminary stage of operation. For the period up to 31 October 2004, the unaudited net loss of Shinning Festival amounted to approximately RMB353,000 (approximately HK$331,820), and the unaudited net asset value of Shinning Festival as at 31 October 2004 amounted to approximately RMB9.6 million (approximately HK$9.0 million). The Land Deposit paid by Shenyang Real Estate for the Land amounted to RMB67,285,679.2 (approximately HK$63,248,538).

As mentioned in the section headed “Background information of the Land Deposit” above, the Group acquired the Land in late 2003 with the view of developing it into a residential and commercial complex. However, in early 2004, the PRC Government implemented certain macro-economic control measures aimed at curbing excessive investment in, among other sectors, the overheated property sector. In particular, the PRC banks have tightened their lending policy to property developers and homebuyers. Such policy change has not only increased the difficulty and/or cost of obtaining bank financing to finance property development projects but also posed additional risk relating to the sale of units to the end users.

— 6 —

LETTER FROM THE BOARD

In view of the above macro-economic policy change, the Directors consider it appropriate to slow down the Group’s investment in property projects. Recently, the Purchasers made an offer to the Group to acquire its interest in the Land. Given the fact that the aggregate consideration of the Share Transfer and the Land Deposit Transfer exceeds the aggregate net asset value of Shinning Festival and the book value of the Land Deposit as at 31 October 2004, the Directors consider the Transfers provide an opportunity for the Group to realize its interest in Shinning Festival and the Land at a profit and reserve the proceeds from such transfer for other business opportunity. Accordingly, the Directors consider it would be in the interests of the Shareholders to dispose of Shinning Festival and to transfer the Land Deposit, and they further consider that the terms of the First Share Transfer Agreement, the Second Share Transfer Agreement and the Land Deposit Transfer Agreement are fair and reasonable and would be in the interests of the Shareholders as a whole.

The Directors intend to apply the aggregate proceeds from the Transfers of approximately RMB95 million (approximately HK$89.3 million) as working capital of the Group.

Upon completion of the Transfers, the Group is expected to record a gain on the Transfers, which will be calculated by reference to the carrying value of Shinning Festival and the book value of the Land Deposit at the time of completion of the Transfers. Based on the Directors’ estimate, such gain, which is subject to adjustment and review by the auditors of the Company, is expected to amount to approximately RMB18 million (approximately HK$17 million). Accordingly, as a result of the Transfers, the total consolidated assets of the Company is expected to increase by approximately RMB18 million while the total consolidated liabilities of the Company will remain unchanged.

Given the fact that (i) the period between the initial acquisition of the Land (i.e. December 2003) and the Transfers (i.e. November 2004) is less than 1 year; (ii) no work has been done on the Land; and (iii) the advice obtained from an independent property consultant that no significant appreciation of the Land is expected, the Directors do not expect that there will be a significant appreciation of the Land. Accordingly, the Directors consider that the premium of the Transfers of approximately RMB18 million (approximately HK$17 million) acceptable.

INFORMATION OF THE GROUP

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

— 7 —

LETTER FROM THE BOARD

INFORMATION OF THE PURCHASERS

Dalian Dongte is a limited company established in the PRC in February 1994. It is principally engaged in the development of real estate, property management, sale of construction decoratives, warehouses, provision of services relating to real estate and sales planning.

Dalian Zhengda is a limited company established in the PRC in April 2000. It is principally engaged in the development of real estate.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Dalian Dongte and Dalian Zhengda and their respective beneficial shareholders are not connected (for the purpose of the Listing Rules) with any of the promotors, directors, supervisors, chief executive or substantial shareholders of the Company and its subsidiaries or any of their respective associates.

INFORMATION OF SHINNING FESTIVAL

Shinning Festival is a limited company established in the PRC in March 2004. It is owned as to 90% by the Company and as to 10% by Shenyang Real Estate, a subsidiary owned as to 99.86% by the Company. Shinning Festival is principally engaged in the development of real estate in the PRC. Upon completion of the Share Transfer, the Group will cease to have any interest in Shinning Festival.

GENERAL

Given the fact that the aggregate consideration of the Transfers is over 5% but less than 25% of the Company’s market capitalisation, the Transfers constitute discloseable transactions pursuant to Rule 14.06(2) of the Listing Rules.

Shareholders and the investing public should note that completion of the First Share Transfer Agreement, the Second Share Transfer Agreement and the Land Deposit Transfer Agreement is conditional and they should exercise caution when dealing in the Shares.

FURTHER INFORMATION

Your attention is drawn to the information set out in the appendix to this circular.

Yours faithfully For and on behalf of the Board

Shenyang Public Utility Holdings Company Limited Xu Er Hui

Chairman

— 8 —

GENERAL INFORMATION OF THE GROUP

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, none of the Directors, the promoters, the supervisors or chief executive of the Company had any interests and/or short positions (as defined in Part XV of the SFO) in the Shares, underlying shares (as defined in Part XV of the SFO) and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 he/she is taken or deemed to have under such provisions of the SFO); or (ii) are required, pursuant to section 352 of the SFO, to be entered in the register referred to in the SFO; or (iii) are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to have been notified to the Company and the Stock Exchange.

• (b) As at the Latest Practicable Date, no convertible securities, options, warrants or other similar rights had been granted or issued by the Group.

• (c) To the best knowledge of the Directors, none of the Directors or their respective associates has any interests in a business, which competes or may compete with the business of the Group.

— 9 —

GENERAL INFORMATION OF THE GROUP

APPENDIX I

3. SUBSTANTIAL SHAREHOLDERS

• (a) Interests of shareholders discloseable pursuant to the SFO

As at the Latest Practicable Date, so far as is known to any Directors, Supervisors, promoters or chief executive of the Company, the following persons (other than a Director, Supervisor, promoter or chief executive of the Company) have, or are deemed or taken to have an interest or 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.

			Percentage
	Beneficial owners	Shares	of total issued
			share capital
1.	SPU	600,000,000	58.80%
		State Shares
2.	Shenyang Urban Construction (note 1)	600,000,000	58.80%
		State Shares
3.	Beida Hi-tech (note 2)	600,000,000	58.80%
		State Shares
4.	濰坊北大青鳥華光科技股份有限公司	600,000,000	58.80%
	Weifang Beida Jade Bird Huaguang	State Shares
	Technology Company Limited
	(“Jade Bird Huaguang”) (note 3)
5.	HKSCC Nominees Limited (note 4)	419,119,990	41.07%
		H Shares

Notes:

1. Shenyang Urban Construction is a limited company established in the PRC. It holds 42.23% equity interest in SPU. Pursuant to section 316 of the SFO, Shenyang Urban Construction is regarded as holding interests in the underlying shares of the Company held by SPU.

2. Beida Hi-tech is a limited company established in the PRC. It holds 50% equity interest in SPU. Pursuant to section 316 of the SFO, Beida Hi-tech is regarded as holding interests in the underlying share of the Company held by SPU.

— 10 —

GENERAL INFORMATION OF THE GROUP

APPENDIX I

1. Jade Bird Huaguang is a joint stock limited company established in the PRC. It holds 60% equity interest in Beida Hi-Tech. Through Beida Hi-Tech, it holds 50% equity interest in SPU. Pursuant to section 316 of the SFO, Jade Bird Huaguang is regarded as holding interests in the underlying shares of the Company held by SPU.

2. As notified by HKSCC Nominees Limited, as at 30 June 2004, the following participants in the central clearance system had interests amounting to 5% or more of the total issued H Shares as shown in the securities accounts in the central clearance system:

3. (1) Tai Fook Securities Company Limited as nominee holds 101,740,000 H Shares, representing approximately 24.20% of the issued H Shares, of which Sino-French Water Development (Liaoning) Company Limited beneficially owned 88,146,000 H Shares, representing approximately 20.97% of the issued H Shares.

4. (2) The Hong Kong and Shanghai Banking Corporation Limited as nominee holds 55,323,000 H Shares, representing approximately 13.16% of the issued H Shares.

5. (3) Bank of China (Hong Kong) Limited as nominee holds 24,236,000 H Shares, representing approximately 5.76% of the issued H Shares.

Save as disclosed herein, it is not known to the Directors, supervisors, promoters or chief executive of the Company that there is any person who, as at the Latest Practicable Date, has an interest or 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.

• (b) Substantial shareholder (as defined in the Listing Rules) in other members of the Group

Save as disclosed herein, none of the Directors, supervisors, promoters and the chief executive of the Company are aware that there is any person who, as at the Latest Practicable Date, is 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 other member of the Group and the amount of each of such person’s interest in such securities, together with particulars of any options in respect of such capital.

4. LITIGATION

On 6 December 2004, the Company received a writ of summons from Shenzhen Development Bank Dalian Branch (the “Plaintiff”) dated 15 November 2004 in relation to a claim of RMB200 million (approximately HK$188 million) together with interest and costs (the “Claim”) pursuant to a loan agreement made between the Company and the Plaintiff on 12 January 2004 (“Loan Agreement”).

Pursuant to the terms of the Loan Agreement, the Company should repay the loan of RMB200 million (the “Loan”) by installments and the Company did not repay the first installment of RMB50 million before the due date, being 12 November 2004, and accordingly the entire principal amount of the loan became immediately due. The non-repayment of the first installment of the Loan was due to the commercial dispute between the Company and the Plaintiff, and the relevant materials of such dispute have been submitted to the Court together with the counterclaim made by the Company on 16 December 2004 for their consideration.

— 11 —

GENERAL INFORMATION OF THE GROUP

APPENDIX I

On 6 December 2004, the Company received from The Supreme People’s Court (the “PRC Court”) of Liaoning Province, the PRC a judgment dated 16 November 2004 (the “Judgment”) in relation to the Claim which sequestrate, detain and freeze the assets of the Company and its guarantors, namely 遼寧華錦化工（集團）有限責任公司 (Liaoning Hua Jin Chemical Group Company Limited) (“Hua Jin Chemical”), an independent third party of the Company and not a connected person (as defined in the Listing Rules) of the Company, and 北京北大青鳥有限責任公司 (Beijing Beida Jade Bird Company Limited), an indirect shareholder of the Company (collectively the “Guarantors”), which amounted to RMB200 million. However, the actual assets of the Company and its guarantors which are being sequestrated, detained and frozen amounted to over RMB 600 million, which includes bank deposits of the Company and Hua Jin Chemical and shareholdings in companies held by the Guarantors respectively (which does not include the shares of the Company). The amount of cash of the Company being frozen is RMB180 million.

The Company is currently seeking legal advice and is in the course of liaising with the Plaintiff to settle the Claim. At the same time, the Company has also filed an appeal to the PRC Court for the improper sequestration of its assets and a counterclaim against the Plaintiff for the commercial dispute between the parties arising from the Claim and the improper sequestration of its assets on 16 December 2004. The counterclaim is based on the fact that a staff member of the Plaintiff armed with dangerous weapons attended the Company’s principal place of business in Shenyang around 12 November 2004, caused damage to the Company’s property, made malicious statements concerning the Company’s position and goodwill and disrupted the normal course of business of the Company, including the Company’s proposed arrangement for repayment of the first repayment of the Loan the subject to the Claim. As a result, the Company suffered economic loss and damage as well as damage to reputation and goodwill of the Company, in addition to causing the Company’s failure to repay the entire first installment of RMB50 million to the Plaintiff by the original due date on 12 November 2004.

Save as aforesaid, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and, as far as the Directors are aware, no litigation or claim of material importance is pending or threatened against the Company or any of its subsidiaries.

5. SERVICE CONTRACT

Except for Mr. Cui Yan, an independent non-executive Director, who was appointed on 15 November 2004, the Company entered into service contracts with all the existing Directors and supervisors of the Company on 11 October 2002. Each Director and supervisor of the Company shall act in accordance with his duty as required by the service contract. In the event of breach of any provision of service contract, the Company may immediately terminate the appointment of the Director or supervisor of the Company by way of written notice.

— 12 —

GENERAL INFORMATION OF THE GROUP

APPENDIX I

Except for Ms. Gao Jing Juan, a supervisor of the Company, who has earlier resigned, all service contracts for the existing Directors and supervisors of the Company will expire on 10 October 2005.

Save as disclosed herein, none of the Directors has any existing or proposed service contract with the Company or any member of the Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation other than statutory compensation).

6. MISCELLANEOUS

• (i) The registered office of the Company is at No. 24-1 Mo Chou Hu Street, Shenyang Economic and Technological Development Zone.

• (ii) The head office and principal office of the Company is at No. 14, Shisiwei Road, Heping District, Shenyang, the PRC.

• (iii) The secretary of the Company is Mr. Wang Se. Mr. Wang Se is also an executive Director. Mr. Wang Se graduated from Northeast Heavy Machinery Institute in the PRC in 1982 with a bachelor’s degree in science and also obtained a master’s degree in economics in 1992 from Liaoning University. Mr. Wang Se has extensive experience in corporate reorganisation, assets management and investment.

• (iv) Up to the date of this circular, the Company has not yet appointed a qualified accountant as required under Rule 3.24 of the Listing Rules. The Board is in the process of identifying suitable candidates through referrals by intermediaries in Hong Kong. The Board will use its best endeavour to effect the appointment of a qualified accountant as soon as practicable.

• (v) The H Share registrar of the Company in Hong Kong is Hong Kong Registrars Limited at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (vi) The English text of this circular shall prevail over the Chinese text.

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