CMON Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of 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 (the “Company”), you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or the 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.

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)

(Stock code: 747)

MAJOR ACQUISITION AND MAJOR DISPOSAL

Financial Adviser to the Company

Karl Thomson Financial Advisory Limited

A notice convening an extraordinary general meeting of the Company to be held at the Conference Room of Lexington Shenyang Rich Gate Hotel, Shenyang, the People’s Republic of China on 12 October 2011 (Wednesday) at 10:00 a.m., is set out on pages EGM-1 to EGM-2 of this circular. Whether or not you are able to attend such meeting, you are requested to complete the accompany form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong Registrars Limited at Rooms 1806-7, 18/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such 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 in person at the meeting or at any adjourned meeting should you so wish.

23 September 2011

CONTENTS

			Page
Definitions	. . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I	–	Financial information of the Group . . . . . . . . . . . . . . .	I-1
Appendix II	–	Financial information of the Target Company . . . . . . .	II-1
Appendix III	–	Unaudited pro forma financial information
		of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV	–	Valuation report of the Target Company . . . . . . . . . . . .	IV-1
Appendix V	–	Valuation report of the Property held by
		the Disposal Company . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of EGM . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

DEFINITIONS

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

“Acquisition”
the proposed acquisition of the Target Company by the Company pursuant to the Acquisition Agreement
“Acquisition Agreement” the acquisition agreement dated 11 May 2011 entered into between the Company and the Vendors for the Acquisition
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Acquisition Consideration” consideration for the Acquisition, being RMB310 million
“Board”
the board of Directors
“Company”
Shenyang Public Utility Holdings Company Limited, also the purchaser of the Acquisition Agreement
“connected person”
has the meaning ascribed to it in the Listing Rules
“Contractors”
Jiangsu Construction Engineering Group Company Limited (江蘇省建工集團有限公司) and Pan-China Construction Group Company Limited (Shenzhen branch) (泛華建設集團有限公司深圳分公司)
“Director(s)”
means the directors of the Company
“Disposal Consideration”
consideration of the Disposal amounted to RMB81 million
“Disposal”
the disposal of the Disposal Company by the Company to the Purchaser pursuant to the Disposal Agreement
“Disposal Agreement”
the sale and purchase agreement dated 23 May 2011 entered into between the Company and the Purchaser in relation to the Disposal
“Disposal Company”
Shenzhen Jade Bird Shenfa Guangdian Company Limited* (深圳青鳥瀋發光電有限公司)
“Disposal Group”
the Disposal Company and its subsidiaries
For identification purpose only

– 1 –

DEFINITIONS

“Effective Day”
the effective day of the Acquisition Agreement, being the day on which both of the following two conditions are fulfilled: (1) the Acquisition Agreement is signed by the Company and Vendors; and (2) the Acquisition being approved by the Board and the Shareholders at the EGM
“EGM”
an extraordinary general meeting of the Company to be convened and held to approve the Acquisition Agreement, Disposal Agreement and the transactions contemplated thereunder
“Enlarged Group”
the Group and the Target Company
“Group” the Company and its subsidiaries
“H-Share(s)”
ordinary share(s) of RMB1 each in the share capital of the Company
“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Third Party(ies)”
the independent third party(ies) who is/are, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, independent of the Company and its connected persons (as defined under the Listing Rules)
“Land”
the land with an area of 4,500 mu situated at Tie Pu Town, Chao An County, Chaozhou, Guangdong Province, the PRC (Jing Nan Fen Yuan) on which, the Project will be constructed
“Latest Practicable Date”
23 September 2011, being the latest practicable date prior to the printing of this circular for ascertaining information contained herein
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“PRC”
the People’s Republic of China
“Project”

the project being engaged by the Target Company for developing a piece of land with a total construction area of 4,500 mu located at an industrial zone, namely Jing Nan Fen Yuan in Chaozhou, the PRC

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DEFINITIONS

“Property”
“Purchaser”
“Sale Shares”
“Shareholder(s)”
“Shareholders’ Loan”
“Shenzhen Optoelectronic”
“Stock Exchange”
“Supplemental Acquisition Agreement”
“Target Company” or “ZhongFang”
“Vendors”
“Vendors’ Guarantees”
“RMB”
“%”

Beida Jade Bird Building in Shenzhen, the PRC, being the asset of Shenzhen Optoelectronic

Beijing Sihai Huaao Trading Company Limited* (北京四海華澳貿易有限公司)
100% of the issued share capital of the Target Company to be purchased by the Company and disposed by the Vendors according to the Acquisition Agreement
holder(s) of the H-Shares
the outstanding shareholders’ loan advanced by the Vendors to the Target Company as at 31 March 2011
Shenzhen Jade Bird Optoelectronic Company Limited* (深圳青鳥光電有限公司), a wholly-owned subsidiary of the Disposal Company
The Stock Exchange of Hong Kong Limited
A supplemental agreement dated 31 May 2011 entered into between the Company and the Vendors to amend and supplement the Acquisition Agreement
Zhongfang Chaozhou Investment Development Company Limited* (中房潮州投資開發有限公司)
Tianjin Zhongfang Yongyang Property Company Limited (天津中房雍陽置業有限公司) and Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (深圳市中房創展投資集團有限公司), being the vendors of the Acquisition Agreement
guarantees provided by the Vendors to the Company according to the Acquisition Agreement
Renminbi, the lawful currency of the PRC
per cent.

For identification purpose only

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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)

(Stock code: 747)

Executive Directors: Registered office: Mr. An Mu Zong (Chairman) No.1-4, 20A, Central Street, Mr. Wang Zai Xing Shenyang Economic and Mr. Chow Ka Wo Alex Technological Development Zone Mr. Wang Hui the PRC Non-executive Directors: Principal place of business in the PRC: Mr. Bao Yi Qiang 14/F., Jinmao International Apartment Da Dong District, Shenyang Independent Non-executive Directors: the PRC Mr. Cai Lian Jun Mr. Wong Kai Tat Principal place of business in Hong Kong: Mr. Chan Ming Sun Jonathan 3rd Floor Alliance Building, 130-136 Connaught Road, Central, Hong Kong 23 September 2011

To the Shareholders

Dear Sir or Madam,

MAJOR ACQUISITION AND MAJOR DISPOSAL

INTRODUCTION

Reference is made to the announcements of the Company dated 11 May 2011 and 23 May 2011 in relation to the Acquisition and Disposal respectively.

On 11 May 2011, the Company entered into the Acquisition Agreement with the Vendors, whereby the Vendors have conditionally agreed to sell and the Company has conditionally agreed to purchase the Sale Shares, representing the entire issued share capital of all the Target Company and the Shareholders’ Loan due from the Target Company to the Vendors for a consideration of RMB310 million.

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LETTER FROM THE BOARD

As certain applicable percentage ratios under Rule 14.07 of the Listing Rules in respect of the Acquisition exceed 25% but less than 75%, the Acquisition constitutes a major transaction of the Company.

On 23 May 2011, the Company entered into the Disposal Agreement with the Purchaser, whereby the Purchaser has conditionally agreed to purchase and the Company has conditionally agreed to sell the Disposal Company at the consideration of RMB81 million.

As certain applicable percentage ratios under Rule 14.07 of the Listing Rules in respect of the Disposal exceed 25% but less than 75%, the Disposal constitutes a major transaction of the Company.

The purpose of this circular is to provide you with (i) further information of the Acquisition and the Disposal; and (ii) the notice of EGM, the proxy form and other information in compliance with the requirements of the Listing Rules.

I. THE ACQUISITION

The Acquisition Agreement

Date

11 May 2011

Parties

Purchaser: the Company Vendors: (1) Tianjin Zhongfang Yongyang Property Company Limited (天津中房雍陽置業有限公司) (2) Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (深圳市中房創展投資集團有限公司)

The Vendors are limited companies incorporated in the PRC and are principally engaged in investment holding.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors and their respective ultimate beneficial owners is an Independent Third Party. There is no other prior and/or continuing businesses/transactions entered into between each of the Vendors, its ultimate beneficial owner with the Company, its connected persons and associates.

* For identification purpose only

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LETTER FROM THE BOARD

The Sale Shares

Each of the Vendors holds 50% of the issued share capital of the Target Company as at the date of the Acquisition Agreement. According to the Acquisition Agreement, the Vendors have conditionally agreed to sell and the Company has conditionally agreed to acquire the entire issued share capital of the Target Company. Upon completion of the Acquisition, the Company, who will assume the entire Shareholders’ Loan due to the Vendors, will also become the sole shareholder of the Target Company.

Acquisition Consideration

The Acquisition Consideration of RMB310 million was arrived at after arm’s length negotiations among the parties to the Acquisition Agreement and was determined after taking into account of i) the entire issued share capital of the Target Company; ii) the Shareholders’ Loan provided by the Vendors originally for the purpose of the injection of working capital to the Target Company; and iii) the fair value of Sale Share; the values of which have been confirmed by (a) an accountant’s report for the three months ended 31 March 2011 on the Target Company prepared by an independent auditor appointed by the Company; and (b) a valuation report on the Target Company as at 30 April 2011 prepared by a qualified independent valuer appointed by the Company.

In arriving at the Acquisition Consideration, the Board also considered with reference to other intrinsic factors, such as the recovery capability of capital, the Target Company’s capability to generate further future economic cash flows from the Project and the profit guarantee provided by the Vendors. As such, the Target Company has the potential to generate future profits to the Group while the downside is protected by the profit guarantee. Therefore, the Board considers that the Acquisition Consideration of RMB310 million is fair and reasonable.

Originally, the Acquisition Consideration shall be satisfied in the following manners:–

(a) a refundable deposit of RMB20 million shall be paid by the Company to each of the Vendors in seven days upon signing the Acquisition Agreement, totalling RMB40 million to be paid by the Company in cash;
(b) upon fulfilling items (i) and (iv) of the Vendors’ Guarantees, the Company shall, after deducting a retained fund amounted to RMB10 million, settle the balance of the Acquisition Consideration; and
(c) the retained fund shall be settled by the Company according to the terms of the Vendors’ Guarantees.

Vendors’ Guarantees

i. in six months upon the entering of the Acquisition Agreement, the Vendors will provide all necessary assistance to the Company to obtain the construction approval, the planning license and the construction license for the Project;

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LETTER FROM THE BOARD

ii. in six months upon the entering of the Acquisition Agreement, the Vendors will provide all necessary assistance to hand over the relocated Land to the Target Company for development and construction;
iii. the Target Company will achieve a net profit before tax of no less than RMB30 million in 2011[(note)] . The Vendors shall compensate the difference, if any, provided that the Target Company fails to achieve the aforesaid net profit. If the Target Company incurs a net loss, the compensation shall be equal to the difference between RMB30 million and the loss before tax incurred by the Target Company.
iv. in 90 days commencing from the Effective Day, the Company will obtain the registration of change of business and become the sole shareholder in the shareholders’ list;
v. a retained fund amounted to RMB10 million, as part of the Acquisition Consideration, will be retained by the Company before all the above guarantee conditions being fulfilled;
vi. the Vendors shall bear all the costs during the procedures of fulfilling items (i); (ii) and (iv) of the Vendors’ Guarantees; and
vii. other custom clauses of warranties.

The abovementioned Vendors’ Guarantees are not subject to any conditions.

Note: The net profit generated from the Project will be determined by the actual land development cost and construction cost invested by the Target Company and will be confirmed after the completed portion of Land has been handed over to the Chaozhou Jinshan Investment and Development Co., Ltd. Therefore, the actual net profit is to be determined by the audited accounts for the financial year ended 31 December 2011. Auditors appointed by the Company will be responsible for auditing the result of the Target Company. The audited net profit figure for 2011 shall be disclosed in the result announcement of the Company accordingly.

The Supplemental Acquisition Agreement

On 31 May 2011, the Company and the Vendors have entered into a Supplemental Acquisition Agreement to amend and supplement the Acquisition Agreement such that:

i. the Company shall pay a partial Acquisition Consideration (in addition to the refundable deposits of RMB40 million) of no less than RMB30 million and no more than RMB40 million to the Vendors in three months upon entering of the Supplemental Acquisition Agreement. Save for the additional arrangement on the settlement schedule of the Acquisition Consideration, other terms in relation to the consideration of the Acquisition remain unchanged.

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LETTER FROM THE BOARD

ii. the Vendors shall bear all the costs or losses, if any, arising from the delay in obtaining the construction approval, planning license and construction license for the Project.

Pursuant to the Supplemental Acquisition Agreement, the Vendors have warranted to provide all necessary assistance for the Target Company so as to speed up the progress in obtaining the relevant licenses. Furthermore, the Vendors also allow the Company to claim for any additional costs or losses should the Company fail to complete the Project as a result of the delay in obtaining the relevant licenses for the Project. In this regard, the Company agreed to revise the settlement schedule of the Acquisition Consideration with additional payment. The additional arrangements were arrived at after arm’s length negotiations between the Company and the Vendors in view of the latest status of the Project. The Directors are of the view that the additional arrangements of the Supplemental Acquisition Agreement are fair and reasonable and on normal commercial terms and that the terms and conditions of the Supplemental Acquisition Agreement and the entering into of the Supplemental Acquisition Agreement are in the interests of the Company and the Shareholders as a whole.

Completion

Completion shall take place on the day which all of the following conditions are fulfilled:

i. the Acquisition Agreement becomes effective;
ii. all the Acquisition Consideration being settled by the Company;
iii. the construction approval, the planning license and the construction license being obtained by the Company as guaranteed by the Vendors in clause (i) of the Vendors’ Guarantees; and
iv. the Company obtains the registration of change of business and becomes the sole shareholder in the shareholders’ list.

INFORMATION OF THE TARGET COMPANY

1. Background of the Target Company

The Target Company is a limited company incorporated in Chaozhou, Guangdong Province, the PRC on 29 October 2009 and is principally engaged in property development and construction. As at the Latest Practicable Date, the major project of the Target Company in progress is a land development project in Chaozhou, with a total area of 4,500 mu.

For the years ending 31 December 2009 and 2010, the Target Company recorded no turnover and the net loss as shown in its management accounts for the

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LETTER FROM THE BOARD

two years are approximately RMB562,000 and RMB2,369,000 respectively. The net asset value of the Target Company as shown in its management accounts as at 30 December 2010 amounts to approximately RMB97,069,000.

2. The Project

According to the newsletter published on 12 November 2007 by the Chaozhou Information Center, the Project is part of the development plan approved by the潮州市人民政府 (Chaozhou County People’s Government) (“ County Government ”) to build an industrial zone in Chaozhou where complete facilities, including roads, telecommunication system and water and electricity connections will be included. Site planning and use of fund of the development plan will be managed by the County Government. This industrial zone targets to attract industrial operators who need to be relocated from the already crowded and over-demanded Pearl River Delta area.

The Project was initially designated to a state-owned company in the PRC namely潮州市金山投資開發有限公司 (Chaozhou Jinshan Investment and Development Co., Ltd) (“ Chaozhou Jinshan ”) by the County Government for developing a piece of land with a total construction area of 4500 mu located at the industrial zone, namely Jing Nan Fen Yuan. On 3 November 2009, the Target Company and Chaozhou Jinshan entered into a build transfer cooperation agreement (the “ Cooperation Agreement ”), of which the Project shall be transferred to the Target Company. The principal terms of the Cooperation Agreement are set out as follows:

The Cooperation Agreement

Date 3 November 2009 Parties (i) the Target Company (ii) Chaozhou Jinshan

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of Chaozhou Jinshan and their respective ultimate beneficial owners is an Independent Third Party as defined under the Listing Rules.

Cooperation Model

Under the build transfer framework, the Project is delegated to the Target Company for construction and development. The Project is to be completed and handed over to Chaozhou Jinshan according to the construction schedule.
Chaozhou Jinshan will be responsible for works including demolition and land relocation of which the relocated land will be handed over to the Target Company for further construction and development.

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LETTER FROM THE BOARD

The Target Company is required to launch the construction within one month after the relocated Land is handed over from Chaozhou Jinshan. The Project should be completed according to the construction schedule prescribed under the Cooperation Agreement.
The completed portion of Land will be taken over by Chaozhou Jinshan provided that the completed facilities including the road network and the sewage system are properly constructed on the Land so that it could meet the conditions for the business investment and property construction.
Chaozhou Jinshan, the supervising engineer appointed by Chaozhou Jinshan and 潮州市工程質量安全監督站代表 (Authorizers from Chaozhou Engineering Quality Supervision Station) (“ Authorizers ”) will be participated in verifying and approving the Project. The acceptance criterion of the Project will be based on the standards set out in《中華人民共和國建築法》(the PRC Construction Law),《建築工程施工及驗收規範》(Building Construction and Acceptance Norms),《城市道路路基工程施工及驗收規範》 (Urban Road Embankment Construction and Acceptance Norms) and《給水排水管道工程施工及驗收規範》 (Water Supply and Drainage Pipeline Construction and Acceptance Norms).
The amount including the total land development cost and construction cost plus a premium of 18% will be paid to the Target Company by Chaozhou Jinshan within 30 days after the acceptance criterion have been met and verified by Chaozhou Jinshan and the Authorizers.
The total received amount will be re-invested into the next stage of the Project in which the outstanding land development cost and construction cost could be settled accordingly.

Terms

3 years
The duration of period shall be extended accordingly if there is any delay in construction arising from the water and electricity shortage and unpleasant weather such as rain and thunderstorm by mutual agreement.

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LETTER FROM THE BOARD

Responsibilities • Responsible for raising and financing the of the Target development cost of the Project including the land Company demolition and relocation compensation fee (involving tax) as well as the construction cost incurred in the Project.
Design and organize the building procedures and the construction procedures for the Project.
Responsible for building roads as well as the sewage system on the Land.
Construct the Project in accordance with the planning, design and construction drawings provided by廣東省城鄉規劃設計研究院 (Guangdong Province Urban and Rural Planning Design and Research Centre) and ensure the quality of the project is consistent with the national quality standards.
Ensure the construction process is in line with national and local laws, rules and regulations.
Establish independent financial accounts to record the development and construction cost incurred in the Project of which the financial statements are required to circulate to Chaozhou Jinshan regularly.
Ensure the Project is to be completed and handed over to Chaozhou Jinshan on time.
Development The Target Company is required to complete the Plan construction of Land and hand over the completed portion of Land to Chaozhou Jinshan according to the schedule as follows:

Phrase I: no less than 1000 mu of Land within 10 months after the start of construction

Phrase II: no less than 3000 mu of Land within 20 months after the start of construction

Phrase III: the remaining parts of Land within 36 months after the start of construction

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LETTER FROM THE BOARD

Failure to complete the construction of the Project and hand over the Land to Chaozhou Jinshan with the prescribe timeframe will subject to penalty. A daily fine of 0.05% on the total invested land development cost and the construction cost for the portion of Land which is yet to be transferred will be assessed to the Target Company. Such amount shall be deducted from the payment to be made by Chaozhou Jinshan to the Target Company regarding the number of days of overdue.

Construction The value of construction cost of the Project is determined Cost with reference to the Project’s construction plans designed by 廣東省城鄉規劃設計研究院 (Guangdong Province Urban and Rural Planning Design and Research Centre) and the existing valuation standards adopted by Guangdong Province. The estimated construction cost will be subject to the approval of 潮州市工程財政部 (Zhouchou Engineering Ministry of Finance).

Dispute Upon any disputes which may arise from or in connection to Resolving the Cooperation Agreement, both parties shall enter into a negotiation so as to settle the disputes. If a settlement is not reached within 40 days since the dispute arises, both parties shall have the right to file lawsuits in court of the local government.

According to the management of the Target Company, the main role of the Target Company is to finance the development and construction costs incurred in the Project while the construction and development of the Project, including road building and sewage system construction are outsourced to two contractors namely 江蘇省建工集團有限公司 (Jiangsu Construction Engineering Group Co., Ltd.) (“ Jiangsu Group ”) and 泛華建設集團有限公司深圳分公司 (Pan-China Construction Group Co., Ltd. (Shenzhen branch)) (“ Pan-China Group ”). Pursuant to the subcontract agreements signed by the Target Company, Jiangsu Group and Pan-China Group in May 2010 (“ Subcontract Agreements ”), Jiangsu Group is responsible for the construction on the eastern part of the Land and Pan-China Group is responsible for the construction on the western part of the Land. The Contractors are also responsible for funding up to a maximum of 70% of the construction cost and the amount will be paid back to Contractors upon completion of the Project. The terms and conditions of the Subcontract Agreements are determined with reference to 廣東省住房和城鄉建設廳標準施工合同(2009年版) (Guangdong Provincial Department of Housing and Urban Construction Contract (2009 Standard Edition) (“ Construction Contract ”) of which the terms under the Construction Contract have been standardized by Guangdong Provincial Government. Any conflicts or disputes between the parties arising from the construction of Project will be resolved according to the terms under the Subcontract Agreements.

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LETTER FROM THE BOARD

According to the terms set out in the Subcontract Agreements, upon any dispute which may arise out of or in connection to the Project, both parties shall enter a negotiation within 14 days. If a settlement is not reached, then within 28 days since the dispute arises, either party could seek for arbitration. Within 28 days after receiving the judgment from arbitration, either party still has the right to file lawsuits in court of the local government.

3. Major permits and certificates for the Project

According to the management of the Target Company, the permits which are vital to the construction and development of the Project including《建設用地規劃許可證》(construction approval),《建設工程規劃許可證》(planning license) and《建設工程施工許可證》(construction license) shall be obtained by the Target Company. The necessary permits have been applied form relevant governmental authorities and regulatory bodies. The construction approval has been obtained on 30 August 2011, while the other required licenses are expected to be obtained by the end of September 2011. At present, the Directors are not aware of any foreseeable obstacles in obtaining the licenses. Nevertheless, the Directors cannot assure the required construction permits can be obtained in a timely manner.

The construction of the project is subject to the regulations of 地方建設行政主管部門 (Local Construction Administration Department). Any failure to comply with the regulations resulted from the construction may subject to government measures and penalties. Since ZhongFang has started the construction before obtaining the required permissions from the respective authority for the Project, there is a risk that ZhongFang would subject to a penalty which will be determined by Local Construction Administration Department. In this regard, the penalty would be a maximum fine of RMB30,000 and cessation of Project of which the development of the Project may be adversely disrupted or even, in the worst scenario, may not be completed at all.

In view of the potential risks, the Supplemental Acquisition Agreement has been entered between the Company and the Vendors would contains provisions which could allow the Company to claim for any additional costs or losses should the Company fail to complete the Project as a result of the delay in obtaining the required construction permits for the Project.

4. Expected and actual timetable

According to the management of the Target Company, The Project was started with land relocation carried out by Chaozhou Jinshan in March 2010 in which the Land was to be acquired from the original land owners for further development. Due to the delay in progress of land relocation, Chaozhou Jinshan handed over a portion of relocated Land to the Target Company in late November 2010. The construction of the Project was started by the Target Company in December 2010. As such, no revenue was generated from the Project in the financial year ending 2010.

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LETTER FROM THE BOARD

In phrase I of the Project, Chaozhou Jinshan has handed over a part of Land with total area of 1,500 mu to the Target Company. As at the Latest Practicable Date, works including demolition, relocation and 70% of road building have been completed. Due to the effect of unpleasant weather on the construction since May 2011, the construction has also been interrupted occasionally which in turn delayed the construction of the sewage system. The construction on phrase I is targeted to be finished by November 2011. A total amount of cashflow including the prepaid land development cost and construction cost of approximately RMB350 million plus the premium of 18% is expected to be paid to the Target Company by Chaozhou Jinshan within 30 days after the hand over requirements have been met and verified by Chaozhou Jinshan and the Authorizers. The revenue generated from phrase I is expected to be recorded in financial accounts of the Target Company for the year ending 2011. Phrase II of the Project will be started upon the cashflow generated from phrase I is received by the Target Company.

According to the Cooperation Agreement, the stage of completion of the Project must be inspected and verified by Chaozhou Jinshan and the Authorizers which assigned by the County Government. As at 31 March 2011, since the project had yet to verified and approved, no revenue was recognized during the period. The Target Company would only commence to recognize revenue according to its stage of completion once the project could properly pass through the verification and authorization procedure by Chaozhou Jinshan and the designated Authorizers.

5. Costs and the financing plan

It is estimated that the total investment of the Project will be approximately RMB945 million, which involve the fee for land demolition and relocation compensation (involving tax) and the construction costs incurred during the construction stage.

Given the fact that the Project is a staged development instead of a one-off development, the entire development costs are not invested up front at the time of the initial funding. Instead, a portion is initially invested and the remaining amount is invested over time based on the construction schedule of the Project. As of 30 June 2011, the total investment to phrase I was approximately RMB320 million whereby the expected total costs for phrase I is approximately RMB350 million. The outstanding costs of approximately RMB595 million for phrase II and phrase III will be funded by the proceeds generated from each phrase of the Project and the prepayment of construction costs made by the Contractors.

Since the completed portion of Land will be handed over to Chaozhou Jinshan according to the construction schedule, ZhongFang is expected to receive regularly an amount including the prepaid land development cost and the construction cost plus premium of 18% in this regard. The total cash flow received from each stage of the Project will be re-invested into next stage of the Project in which the outstanding development costs incurred in the next stage will be settled accordingly.

In order not to pose any eminent pressure on the Group’s cash flow and capital commitment, the Target Company will also have the option to request the Contractors to fund partial construction costs for the Project. Pursuant to the Subcontract Agreements entered by the Contractors and the Target Company, the

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LETTER FROM THE BOARD

Contractors will be responsible for funding up to a maximum of 70% of the total construction costs incurred in the Project. The Contractors would be paid in accordance with the agreed payment schedule by the proceeds generated from each stage the Project. The selected Contractors are well-established with sound financial position which would probably provide extensive supports for the Target Company to construct and develop the Project.

In view of such financing arrangements, the current cash position of the Target Company shall be sufficient for the entire development of the Project. Therefore, no further significant capital requirement is needed for completion of the Project.

Risk Relating to the Project

ZhongFang’s constructions on the Land are subject to the regulations of 地方建設行政主管部門 (Local Construction Administration Department). Any failure to comply the regulations resulted from the construction may subject to government measures and penalties. Since ZhongFang has started the construction before obtaining the required permissions from the respective authority for the Project. As a result, there is a risk that ZhongFang would subject to a penalty which will be determined by Local Construction Administration Department. In this regard, the penalty would be a maximum fine of RMB30,000 and cessation of Project of which the development of the Project may be adversely disrupted or even, in the worst scenario, may not be completed at all.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

The management discussion and analysis of the Target Company is set out in Appendix II to this circular.

FINANCIAL IMPACT ON THE GROUP AS A RESULT OF ACQUISITION

Upon completion of the Acquisition, the Target Company will become a wholly-owned subsidiary of the Company and the assets, liabilities and results of the Target Company will be consolidated into the financial statements of the Company. Set out below is a summary of the unaudited pro-forma financial information of the Group before and after the Acquisition. The full-length unaudited pro forma financial of the enlarged Group is set out in Appendix III to this circular.

	Before	After
	completion of	completion of
	Acquisition	Acquisition
	RMB’000	RMB’000
Total assets	595,027	697,182
Total liabilities	94,967	197,122
Total net asset	500,060	500,060
Total profit after tax	26,677	26,189
Gearing ratio (total liabilities/total assets)	15.96%	28.27%

– 15 –

LETTER FROM THE BOARD

As set out above, upon completion of Acquisition,

i. the total assets of the Enlarged Group will increase by 17.17%, mainly attributable to the acquisition of assets from the Target Company including property, plant and equipment, inventories, trade receivables and bank balances and cash;
ii. the total liabilities of the Enlarged Group will also increase by 107.57% as a result of the Acquisition. The main components of the liabilities including borrowings and trade payable;
iii. the gearing ratio of the Enlarged Group will increase from 15.96% to 28.27% because of the increase in the total assets and the liabilities of the enlarged Group mentioned above; and
iv. the profit after tax of the Enlarged Group will slightly decrease by 1.83% because of the effect of net loss incurred by the Target Company for the year ending 2010 on the enlarged Group.

REASONS FOR THE ACQUISITION

As at the date of this circular, the Group is principally engaged in property development in the PRC.

The Target Company, being a company engaged in real estate investment and development and primary land development projects, is in line with the principal businesses of the Group. As such, the Acquisition is considered to be a new opportunity for the Company to expand its existing business. The Project, currently involved by the Target Company, is a land development project in Chaozhou being approved by the County Government. Under the Cooperation Agreement, the Target Company shall entitle to a return of 18% on the total development costs incurred in the Project. Moreover, the net profit of the Target Company is also guaranteed by the Vendors at an amount of at least RMB30 million in 2011 pursuant to the terms of Acquisition Agreement. In view of such arrangements, the Board considers the Project shall be able to secure a reasonable return for both the Company and its Shareholders even though there is a number of uncertainties and risks facing by the property market in the PRC. Since the Project is part of the development plan approved by the County Government, the County Government will be also responsible for managing and coordinating the Project. A management team will be set up by the County Government in order to provide all necessary assistance to the Target Company in completing the Project. In this regard, the Company believes the supports from the local government are important and helpful in completing the Project. Therefore, future return of the Project shall be promising. In view of such favorable terms and conditions, the Board is of the view that the Acquisition is in the benefit of the Company.

– 16 –

LETTER FROM THE BOARD

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the Acquisition is in the interest of the Group and the terms and conditions of the Acquisition Agreement are on normal commercial terms, which are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATION OF THE ACQUISITION

To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, none of the Shareholders has a material interest in the Acquisition Agreement or is required to abstain from the voting on the resolution to approve the Acquisition, Acquisition Agreement and the transactions contemplated thereunder.

II. THE DISPOSAL

The Disposal Agreement

Date

23 May 2011

Parties

Vendor: The Company Purchaser: Beijing Sihai Huaao Trading Company Limited* (北京四海華澳貿易有限公司)

The Purchaser is a limited company incorporated in the PRC and principally engaged in trading of consumer products, building materials and machineries.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Purchaser and its ultimate beneficial owner(s) are Independent Third Parties as defined under the Listing Rules.

* For identification purpose only

– 17 –

LETTER FROM THE BOARD

Disposal Consideration

Pursuant to the Disposal Agreement, the Disposal Consideration is RMB81 million. The Disposal Consideration was arrived at after arm’s length negotiations among the parties to the Disposal Agreement with reference to the audited net asset value of the Disposal Group and the fair market value of Property. According to the audited financial statements of the Disposal Group, the net asset value of the Disposal Group is amounted to RMB80,690,670 as at 31 December 2010 and the fair market value of the Property as at 30 June 2011 is of approximately RMB88,500,000 based on the valuation report issued by a qualified independent valuer.

The Disposal Consideration shall be satisfied in the following manners:-

(a) a refundable deposit of RMB30 million shall be paid by the Purchaser in seven days upon entering into the Disposal Agreement; and
(b) the balance of RMB51 million shall be paid in cash by the Purchaser to the Company in six months upon signing the Disposal Agreement.

Asset to be disposed of

Pursuant to the Disposal Agreement, the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to acquire the entire issued share capital of the Disposal Company and a shareholder’s loan due from the Disposal Company to the Company. The Disposal Company, through its wholly-owned subsidiary namely Shenzhen Optoelectronic, holds a property located in Keyuan Road East, Jingsi Road West, South Avenue of High-tech Industrial Park, Nanshan District, Shenzhen, the PRC, with a gross floor area of approximately 12,508 square meters. The Property currently generates monthly rental income to the Company through leases under various tenancies.

Conditions precedent

Completion of the Disposal Agreement is conditional upon satisfaction of all of the following conditions:

The Disposal being approved by the Board;
The Disposal being approved by the Shareholders at the EGM;
The Disposal Company completes the procedures of change of registered shareholder and the business registration certificate records the entire issued Share capital of the Disposal Company being held by the Purchaser; and
The Disposal Consideration being fully paid by the Purchaser.

As at the Latest Practicable Date, condition (1) has been fulfilled.

Completion

Completion shall take place within six months upon the fulfillment of the conditions precedent to the Disposal Agreement or such other date as the Company and Purchaser may agree in writing.

– 18 –

LETTER FROM THE BOARD

INFORMATION OF THE DISPOSAL COMPANY

The Group is principally engaged in property development and educational investment in the PRC.

Set out below summaries the consolidated financial information of the Disposal Group for the two years ended 31 December 2009 and 2010:

	For the year	ended
	31 December
	2010	2009
	(audited)	(audited)
	RMB	RMB
Revenue	9,175,142	10,108,600
Profit/(loss) before taxation and
extraordinary items	(4,042,993)	3,466,018
Profit/(loss) after taxation and
extraordinary items	(3,915,808)	2,800,946

As of 31 December 2010, the net asset value of the Disposal Group is RMB80,690,670.

FINANCIAL IMPACT ON THE GROUP AS A RESULT OF DISPOSAL

Upon the completion of Disposal, the Disposal Company will cease to be a subsidiary of the Company and its financial results will no longer be consolidated into the Group’s financial statements.

According to the annual report of the Company for the year ended 31 December 2010, the revenue of the Group was approximately RMB20,682,000. Based on the audited financial statements of the Disposal Company for the year ended 31 December 2010, the turnover of the Disposal Company was RMB9,175,142. Thus, the annual turnover of the Group is expected to decrease by approximately RMB9,000,000 after the Disposal. It is expected that the operating cash flow and earnings of the Group will also decrease accordingly as a result of Disposal. In addition, both total assets and total liabilities of the Group would decrease by approximately RMB9,964,507 and approximately RMB10,686,069 respectively after the completion of Disposal.

Based on the audited net asset value of the Disposal Group amounted to RMB80,690,670 as at 31 December 2010, there is a gain of RMB309,330 from the Disposal based on the amount of the Disposal Consideration.

USE OF PROCEED

The Group tends to utilize all the net proceeds from the Disposal for the partial settlement of the Acquisition Consideration.

– 19 –

LETTER FROM THE BOARD

REASONS FOR THE DISPOSAL

As explained in the paragraph headed “Reasons for the Acquisition” above, the Directors are of the view that the Acquisition provide an excellent investment opportunity for the Company to expand its existing business and the project engaged by the Target Company shall be able to secure a reasonable return for the Company and Shareholders. In view of such investment opportunity, the management proposed to cash in the investment in the Disposal Company such that more liquid capitals will be in hand for the development of the project as mentioned in the Acquisition and for future investment opportunities.

The Directors (including the independent non-executive Directors) are of the view that the Disposal is in the interest of the Company and the terms and conditions of the Disposal Agreement are on normal commercial terms, which are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATION OF THE DISPOSAL

As certain applicable percentage ratios under Rule 14.07 of the Listing Rules in respect of the Disposal exceed 25% but less than 75%, the Disposal constitutes a major disposal of the Company which is subject to the Shareholders’ approval by way of poll at the EGM.

To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, none of the Shareholders has a material interest in the Disposal Agreement or is required to abstain from the voting on the resolution to approve the Disposal, Disposal Agreement and the transactions contemplated thereunder.

FINANCIAL AND TRADING PROSPECT OF THE GROUP

Following the completion of the Acquisition and the Disposal, it is the intention of the Board that the Enlarged Group will continue to engage in the business of development, sales and leasing of real estate in the PRC.

In spite of the uncertainties and unforeseeable operating difficulties in the PRC property market, the Board is still optimistic about the long-term outlook for the Mainland economy and the future prospects of the property market. As such, the Company has been actively identifying potential property development projects in the PRC whereby enhancing the Group’s overall competitiveness and improving its financial performance in addition to the return for its shareholders. In this connection, the Company has entered into the Acquisition Agreement with the Vendors regarding a land development project in Chaozhou. As explained in the paragraph headed “Reasons for the Acquisition” above, the Directors are of the view that the Acquisition provide an excellent investment opportunity for the Company to expand its existing business. Taking into account not only a guaranteed return generated by the project, but also its strong supports from the local government, it is expected that the Project will be able to contribute promising income and favorable returns to the Enlarged Group.

– 20 –

LETTER FROM THE BOARD

Apart form the abovementioned, another property asset owned by the Enlarged Group is located at the prime area in Beijing. The existing tenants are banking and public utilities enterprises with strong financial background and stable income. Currently, the occupancy rate of the property is 100%. During the year ended 31 December 2010, the property helped to generate a rental income of approximately RMB8,228,000 for the Group.

The Board will continue to look for investment opportunities in relation to the property development project in PRC so as to expand the development of the Enlarged Group in the future. In this regard, investment opportunities which offer satisfactory returns to the Shareholders within the acceptable risk profile of the Enlarged Group and expected return will be considered.

EGM

A notice convening the EGM with the resolutions, among other matters, is set out in this circular. Whether or not the Shareholders are able to attend the meeting or any adjourned meeting, they are requested to complete the accompany form of proxy and return it to the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1806-7, 18/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not later than 48 hours before the time of the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude the Shareholders from attending and voting at the meeting or at any adjourned meeting should they wish to do so.

RECOMMENDATION

The Board considers that the terms of the Acquisition Agreement and the Disposal Agreement are fair and reasonable and the Acquisition and the Disposal are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the EGM.

ADDITIONAL INFORMATION

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

By order of the Board

Shenyang Public Utility Holdings Company Limited An Mu Zong Chairman

– 21 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

THREE-YEAR FINANCIAL INFORMATION

The audited consolidated financial information of the Group for each of the three years ended 31 December 2008, 2009 and 2010 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http:// www.sygyfz.com.cn):

annual report of the Company for the year ended 31 December 2010 published on 29 April 2011 (pages 29-76);
annual report of the Company for the year ended 31 December 2009 published on 30 April 2010 (pages 32-81); and
annual report of the Company for the year ended 31 December 2008 published on 24 April 2009 (pages 29-85).

STATEMENT OF INDEBTEDNESS

Provision for potential liabilities

As at the close of business on 31 August 2011, the Enlarged Group had provision of potential liabilities of approximately RMB1,041,000. The provisions were derived from the delayed delivery of apartment to customers in one of the real estate development project of Shenyang Development Real Estate Company Limited (“SDRE”). Therefore SDRE was potentially liable to pay penalty charges to the buyer for unable to discharge the sales contracts on time.

Apart from the above paragraph and the contingent liabilities of the Target Company as mentioned in the section “Management Discussion and Analysis of ZhongFang” in Appendix II to this circular and as at the Latest Practicable Date, the Directors were not aware of any material change in respect of the indebtedness or other contingent liabilities of the Enlarged Group since 31 August 2011.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, normal trade and other payables, receipt in advance as at 31 August 2011, the Enlarged Group did not have any loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities issued and outstanding, and authorized or otherwise created but unissued term loans or other borrowings, indebtedness in nature of borrowings, liabilities under acceptances (other than trade bills) or acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured, or unsecured, guarantees or other material contingent liabilities outstanding at the close of business on 31 August 2011.

The Directors confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 August 2011.

– I-1 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

WORKING CAPITAL

The Directors, are of the opinion that, taking into account its internal resources of the Group, the working capital impact on the Acquisition and upon the Group could receive the consideration from the disposal of entire interests in Shenzhen Jade Bird Shenfa Guangdian Company Limited and the disposal of 70% equity interests in Zhuhai Beida Education and Science Park Company of approximately RMB81 million and RMB231 million respectively no later than the end of October 2011, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next twelve months from the date of this Circular in the absence of unforeseen circumstances.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2010, being the date to which the latest published audited consolidated financial statements of the Group were made up.

– I-2 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

AUDIT TAX BUSINESS ADVISORY

23th September 2011

The Board of Directors Shenyang Public Utility Holdings Company Limited 14/F, Jinmao International Apartment, Da Dong District, Shenyang, The People’s Republic of China

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Zhongfang Chaozhou Investment Development Company Limited (“中房潮州投資開發有限公司”) (the “ZhongFang”) for the period from 10 October 2009 (date of establishment) to 31 December 2009, twelve months ended 31 December 2010 and three months ended 31 March 2011 (the ‘‘Relevant Periods’’) for inclusion in a circular dated 23 September 2011 (the ‘‘Circular’’) issued by Shenyang Public Utility Holdings Company Limited (the ‘‘Company’’) in connection with its proposed acquisition of the entire equity interest in ZhongFang.

ZhongFang was established in the People’s Republic of China (the “PRC”) with limited liability on 10 October 2009. It is principally engaged in real estate investment and development, civil construction engineering, construction, municipal construction, road and bridge construction and sales of building materials in the PRC.

The statutory financial statements of ZhongFang for the period from 10 October 2009 (date of establishment) to 31 December 2009 and twelve months ended 31 December 2010 were audited by Chaozhou Shengde Certified Public Accountants Company Limited (“潮州盛德會計師事務所”), Certified Public Accountants in the PRC. The statutory financial statements have been prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC.

For the purpose of this report, the directors of ZhongFang have prepared the financial statements of ZhongFang for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) (the “Underlying Financial Statements”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

The Financial Information of ZhongFang for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to adjust the Underlying Financial Statements for the Relevant Periods for the preparation of the Financial Information.

The Underlying Financial Statements are the responsibility of the directors of ZhongFang, who approved their issue. The directors of the Company are also responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

OPINION

In our opinion, the Financial Information together with the notes thereto gives, for the purpose of this report, a true and fair view of the state of affairs of ZhongFang as at 31 December 2009, 31 December 2010 and at 31 March 2011 and of the results and cash flows of ZhongFang for each of the Relevant Periods.

COMPARATIVE FINANCIAL INFORMATION

The comparative statement of comprehensive income, statement of changes in equity and statement of cash flows of ZhongFang for the three months ended 31 March 2009 together with the notes thereon have been extracted from the unaudited financial statements of ZhongFang for the same period (the ‘‘31 March 2009 Financial Information’’) which was prepared by the director of ZhongFang solely for the purpose of this report. We have reviewed 31 March 2009 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of 31 March 2009 Financial Information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on 31 March 2009 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the 31 March 2009 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information which conform with HKFRS.

– II-2 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

EMPHASIS OF MATTER

Without qualifying our opinion, we draw attention to Note 19 to the Financial Information. During the Relevant Periods, ZhongFang was solely worked for the project of Jing Nam Fen Yuan (“徑南分園”). ZhongFang has started the construction before obtaining a construction permission from the respective authority for the project of Jing Nam Fen Yuan (“徑南分園”). As a result, there is a risk that both of the developer and construction entity would subject to a penalty which will be determined by Local Construction Administration Department (“地方建設行政主管部門”). If ZhongFang is considered as a construction entity in Jing Nan Fen Yuan (“徑南分園”) project, the penalty would be cessation of Jing Nan Fen Yuan (“徑南分園”) project and a maximum fine of RMB10,000.

If ZhongFang is considered as a developer in Jing Nan Fen Yuan (“徑南分園”) project, the penalty would be cessation of Jing Nan Fen Yuan (“徑南分園”) project and a fine of 1% to 2% of construction contract amount or a maximum fine of RMB30,000.

The directors of the Company are of the opinion that, an outflow of resources embodying economic benefits to settle the obligation is remote as the Jing Nan Fen Yuan (“徑南分園”) project is worked for a government, and no provision for any liability that may result has been made in the Financial Information.

– II-3 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

A. FINANCIAL INFORMATION OF ZHONGFANG

Statements of Comprehensive Income

Notes Bank interest income Administrative expenses Other operating expenses Loss before taxation 7 Income tax expense 9 Loss for the period / year, representing total comprehensive loss for the period / year attributable to the owner of ZhongFang	Three months ended 31 March 2011 2010 RMB RMB (Unaudited) 2,101 2,354 (139,201) (490,394) – – (137,100) (488,040) – – (137,100) (488,040)	Year ended 31 December 2010 RMB 14,525 (2,284,008) (100,000) (2,369,483) – (2,369,483)	Period from 10 October 2009 to 31 December 2009 RMB 32,634 (594,182) –
			(561,548) –
			(561,548)

– II-4 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Statements of Financial Position

At 31 March 2011 RMB 464,491	At 31 December 2010 2009 RMB RMB 483,032 334,227 257,333,350 497,354 30,087,117 100,025,120 1,917,803 877,034 289,338,270 101,399,508 137,000,000 2,000,000 55,752,333 295,283 192,752,333 2,295,283 96,585,937 99,104,225 97,068,969 99,438,452 100,000,000 100,000,000 (2,931,031) (561,548) 97,068,969 99,438,452	At 31 December 2010 2009 RMB RMB 483,032 334,227 257,333,350 497,354 30,087,117 100,025,120 1,917,803 877,034 289,338,270 101,399,508 137,000,000 2,000,000 55,752,333 295,283 192,752,333 2,295,283 96,585,937 99,104,225 97,068,969 99,438,452 100,000,000 100,000,000 (2,931,031) (561,548) 97,068,969 99,438,452
312,874,157 41,090,813 1,388,412 355,353,382 149,000,000 109,886,004 258,886,004 96,467,378	257,333,350 30,087,117 1,917,803 289,338,270 137,000,000 55,752,333 192,752,333 96,585,937	497,354 100,025,120 877,034
		101,399,508
		2,000,000 295,283
		2,295,283
		99,104,225
96,931,869	97,068,969
100,000,000 (3,068,131)	100,000,000 (2,931,031)	100,000,000 (561,548
96,931,869	97,068,969

– II-5 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Statements of Changes in Equity

Share capital RMB (Note 17) 100,000,000 –	Accumulated losses RMB – (561,548)	Total RMB 100,000,000 (561,548
100,000,000 – 100,000,000 –	(561,548) (2,369,483) (2,931,031) (137,100)	99,438,452 (2,369,483
		97,068,969 (137,100
100,000,000	(3,068,131)	96,931,869

ited) 100,000,000 –	(561,548) (488,040)	99,438,452 (488,040
100,000,000	(1,049,588)	98,950,412

– II-6 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Statements of Cash Flows

Three months ended 31 March 2011 2010 RMB RMB (Unaudited) (137,100) (488,040) (2,101) (2,354) 18,541 17,461	Three months ended 31 March 2011 2010 RMB RMB (Unaudited) (137,100) (488,040) (2,101) (2,354) 18,541 17,461	Year ended 31 December 2010 RMB (2,369,483) (14,525) 91,905	Period from 10 October 2009 to 31 December 2009 RMB (561,548) (32,634) 5,232
(120,660) (55,540,807) (11,003,696) 54,133,671 (12,531,492) – 2,101 2,101 – 12,000,000 12,000,000	(472,933) – (50,000,000) 256,253 (50,216,680) (21,094) 2,354 (18,740) – 50,000,000 50,000,000	(2,292,103) (256,835,996) 69,938,003 55,457,050 (133,733,046) (240,710) 14,525 (226,185) – 135,000,000 135,000,000	(588,950) (497,354) (100,025,120) 295,283
			(100,816,141)
			(339,459) 32,634
			(306,825)
			100,000,000 2,000,000
			102,000,000

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR / PERIOD CASH AND CASH EQUIVALENTS AT THE END OF YEAR / PERIOD ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	Three months ended 31 March 2011 2010 RMB RMB (Unaudited) (529,391) (235,420) 1,917,803 877,034 1,388,412 641,614 1,388,412 641,614	Year ended 31 December 2010 RMB 1,040,769 877,034 1,917,803 1,917,803	Period from 10 October 2009 to 31 December 2009 RMB 877,034 –
			877,034

			877,034

– II-8 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

ZhongFang was established in the People’s Republic of China (the “PRC”) on 10 October 2009 with limited liability. The registered office and principal place of business of ZhongFang is the right side of entrance hall of Park Aministrative Committee Building North east of Chaozhou avenue, Chaozhou GuangDong province. It is principally engaged in real estate investment and development, civil construction engineering, construction, municipal construction, road and bridge construction and sale of building materials in the PRC.

The Financial Information is prepared in Renminbi (“RMB”), which is as same as the functional currency of ZhongFang.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

For the purpose of preparing and presenting the Financial information for the Relevant Periods, the ZhongFang has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKAS(s)”) amendments and interpretations (“INT(s)”) issued by the HKICPA that are effective for annual accounting periods which are effective for annual accounting periods throughout the Relevant Periods.

The HKICPA has issued a number of new and revised HKFRSs which are effective during the Relevant Periods. For the purpose of preparing and presenting the Financial Information, the Business has applied all these new and revised HKFRSs throughout the Relevant Periods. HKFRS 1 “First-time Adoption of Hong Kong Financial Reporting Standards” has been applied in preparing Financial Information.

ZhongFang has not early applied the following new or revised standards, amendments or interpretations that have been issued but are not yet effective:

HKFRSs (Amendments)	Improvements to HKFRSs 2010 except for the amendments
	to HKFRS3 (Revised in 2008), HKFRS7, HKAS1 and
	HKAS 281
HKFRS 1 (Amendments)	Limited Exemption from Comparative HKFRS 7
	Disclosures for First-time Adopters3
HKFRS 1 (Amendments)	Severe Hyperinflation and Removal of Fixed Dates for
	First-time Adopters5
HKFRS 7 (Amendments)	Disclosures – Transfers of Financial Assets5
HKFRS 9	Financial Instruments7
HKAS 12 (Amendments)	Deferred Tax: Recovery of Underlying Assets6
HKAS 24 (Revised)	Related Party Disclosures4
HKAS 32 (Amendments)	Classification of Rights Issues2
HK(IFRIC) – Int 14 (Amendments)	Prepayments of a Minimum Funding Requirement4
HK(IFRIC) – Int 19	Extinguishing Financial Liabilities with Equity
	Instruments3
1 Effective for annual periods	beginning on or after 1 July 2010 and 1 January 2011, as appropriate.
2 Effective for annual periods	beginning on or after 1 February 2010.
3 Effective for annual periods	beginning on or after 1 July 2010.
4 Effective for annual periods	beginning on or after 1 January 2011
5 Effective for annual periods	beginning on or after 1 July 2011.
6 Effective for annual periods	beginning on or after 1 January 2012.
7 Effective for annual periods	beginning on or after 1 January 2013.

HKFRS 9 Financial Instruments (as issued in November 2009) introduces new requirements for the classification and measurement of financial assets. HKFRS 9 Financial Instruments (as revised in November 2010) adds requirements for financial liabilities and for derecognition.

Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent

– II-9 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. The directors of the Company anticipate that HKFRS 9 that will be adopted in the Company’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of the new standard will have a significant impact on amounts reported in respect of the Company’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. The Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Financial Information have been prepared on the historical cost basis.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and related sales taxes.

Revenue from individual construction contracts is recognised under the percentage of completion method.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes are stated at cost less subsequent accumulated depreciation and any accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the period in which the item is derecognised.

– II-10 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Inventories

Inventories are stated at lower of cost and net realisable value. Cost is calculated using weighted average cost method.

Borrowings costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefit schemes, state-managed retirement benefit schemes and the Mandatory Provident Fund Scheme are charged as an expense when employees have rendered service entitling them to the contributions.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. ZhongFang’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where ZhongFang is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which ZhongFang expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

– II-11 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Construction contracts

Contract costs are recognised as an expense in the period when they are incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Variations in contract work, claims and incentive payments are included in contract revenue to the extent that may have been agreed with the customer and are capable of being reliably measured. ZhongFang uses the “percentage of completion method” to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to contract costs incurred up to the balance sheet date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.

ZhongFang presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retentions are included within trade and other receivables.

ZhongFang presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognized profits (less recognised losses).

Financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when a Company entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

ZhongFang’s financial assets are classified into loans and receivables.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At the end of reporting period subsequent to initial recognition, loans and receivables (including other receivables and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the Relevant Periods. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on effective interest basis for the debt instruments.

– II-12 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Impairment loss on financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For all other financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include ZhongFang’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. Changes in the carrying amount of the allowance account are recognised in profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a Company entity are classified in accordance to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. ZhongFang’s financial liabilities are generally classified into other financial liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

– II-13 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Other financial liabilities

Other financial liabilities including trade and other payables and amounts due to shareholders are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by ZhongFang are recorded at the proceeds received, net of direct issue costs.

Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and ZhongFang has transferred substantially all the risks and rewards of ownership of the financial assets. If ZhongFang neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, ZhongFang recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If ZhongFang retains substantially all the risks and rewards of ownership of a transferred financial asset, ZhongFang continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Provisions

Provisions are recognised when ZhongFang has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of ZhongFang’s accounting policies, which are described in Note 3, the directors of ZhongFang are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

The followings are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Depreciation of property, plant and equipment

ZhongFang depreciates the property, plant and equipment on a straight line basis ranging from 19%, after taking into account of their estimated residual values, commencing from the date the asset is placed into productive use. The estimated useful life represents the number of years which ZhongFang places the property, plant and equipment into production, reflecting the directors’ estimate of the years that ZhongFang intends to derive future economic benefits from the use of ZhongFang’s property, plant and equipment. ZhongFang assesses annually the residual value and the useful life of the property, plant and equipment. If the expectation differs from the original estimate, such a difference may impact the depreciation in the year and the estimate will be changed in the future period.

Impairment loss recognised in respect of property, plant and equipment

The impairment loss for property, plant and equipment are recognised for the amounts by which the carrying amount exceeds its recoverable amount, in accordance with ZhongFang’s accounting policy. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. ZhongFang has assessed and reviewed annually for impairment loss whenever events or changes in circumstances indicate that the carrying amount of the property, plant and equipment exceed its recoverable amount. No impairment loss was provided for Relevant Periods.

Estimated impairment of prepayments and other receivables

The directors of ZhongFang regularly review the recoverability and the aging of other receivables.

Appropriate impairment for estimated irrecoverable amounts is recognised in the consolidated income statement when there is objective evidence that the asset is impaired.

In determining whether impairment loss of prepayments and other receivables is required, ZhongFang takes into consideration the current creditworthiness, the past collection history, age status and likelihood of collection. Specific impairment is only made for receivables that are unlikely to be collected and is recognised on the difference between the estimated future cash flow expected to receive discounted using the original effective interest rate and its carrying value. If the financial conditions of customers of ZhongFang were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment may be required.

5. CAPITAL RISK MANAGEMENT

ZhongFang manages its capital to ensure that entities in ZhongFang will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. ZhongFang’s overall strategy remains unchanged from prior year.

The capital structure of ZhongFang consists of debt, which includes amounts due to shareholders disclosed in Note 15, bank balances and cash and equity attributable to owners of ZhongFang, comprising issued share capital and reserves as disclosed in Note 17 and reserves as disclosed in the statement of changes in equity. The directors of ZhongFang review the capital structure regularly. As a part of this review, the directors of ZhongFang consider the cost of capital and the risks associated with each class of capital. Based on the recommendations of the directors of ZhongFang, ZhongFang will balance its overall capital structure through the new share issues as well as the issue of new debt or the redemption of existing debt.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

ZhongFang’s major financial instruments include other receivables, bank balances and cash, amounts due to shareholders and trade and other payables. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The directors of ZhongFang manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

– II-15 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Market risk

(i) Currency risk

Currency risk refers to the risk associated with movements in foreign currency rates which will affect ZhongFang’s financial results and its cash flow. The directors of ZhongFang consider ZhongFang is not exposed to significant foreign currency risk as the majority of its operations and transactions are in the PRC with their functional currency of RMB.

In the opinion of the directors of ZhongFang, as the currency risk is minimal, no sensitivity analysis is presented.

(ii) Interest rate risk

ZhongFang is exposed to cash flow interest rate risk mainly in relation to variable-rate bank balances as detailed in Note 14 and other borrowings as detailed in Note 15. It is ZhongFang’s policy to keep its other borrowings at floating rate of interests so as to minimise the fair value interest rate risk.

ZhongFang’s exposures to interest rates on financial liabilities are detailed in the liquidity risk section of this note. ZhongFang’s cash flow interest rate risk is mainly concentrated on the fluctuation of the base rate of People’s Bank of China arising from ZhongFang’s bank balances and other borrowings.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments.

The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. A 100 basis points increase or decrease in interest rates of the Peoples’ Bank of China is used when reporting interest rate risk internally to key management personnel and represents directors’ assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher or lower and all other variables were held constant, ZhongFang’s other borrowing cost for the three months ended 31 March 2011 would increase or decrease by RMB2,136,200, RMB5,595,000 (31 December 2011), RMB260,200 (31 March 2010).

Credit risk

ZhongFang’s maximum exposure to credit risk which will cause a financial loss to ZhongFang due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets, mainly other receivables and bank balances, as stated in the statement of financial position.

In order to minimise the credit risk, the management of ZhongFang has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, ZhongFang reviews the recoverable amount of each individual trade debt at the end the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of ZhongFang consider that ZhongFang’s credit risk is significantly reduced.

ZhongFang’s concentration of credit risk by geographical locations is mainly in PRC.

The management of ZhongFang considered that at the end of the reporting period, no significant concentration of credit risk of the other receivables were due from ZhongFang Relevant Periods.

ZhongFang has concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings.

Liquidity risk

The following table details ZhongFang’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which ZhongFang can be required to pay.

– II-16 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of the reporting period.

Weighted average interest rate At 31 March 2011 Financial liabilities Amounts due to shareholders 6.1% Trade and other payables – Weighted average interest rate At 31 December 2010 Financial liabilities Amounts due to shareholders 5.8% Trade and other payables – Weighted average interest rate At 31 December 2009 Financial liabilities Amounts due to shareholders 5.8% Trade and other payables –	On demand or within one year RMB 158,089,000 109,886,004 267,975,004 On demand or within one year RMB 144,946,000 55,752,333 200,698,333 On demand or within one year RMB 2,116,000 295,283 2,411,283	Total undiscounted cash flow RMB 158,089,000 109,886,004 267,975,004 Total undiscounted cash flow RMB 144,946,000 55,752,333 200,698,333 Total undiscounted cash flow RMB 2,116,000 295,283 2,411,283	Carrying amount RMB 149,000,000 109,886,004
			258,886,004

			Carrying amount RMB 137,000,000 55,752,333
			192,752,333

			Carrying amount RMB 2,000,000 295,283
			2,295,283

Fair value

The fair value of other financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors of ZhongFang consider that the carrying amounts of other financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values due to their short-term maturities.

– II-17 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Categories of financial instruments

At 31 March At 31 December 2011 2010 2009 RMB RMB RMB 592,013 87,117 25,120 1,388,412 1,917,803 877,034 1,980,425 2,004,920 902,154 149,000,000 137,000,000 2,000,000 109,886,004 55,752,333 295,283 258,886,004 192,752,333 2,295,283 Three months ended 31 March Year ended 31 December Period from 10 October 2009 to 31 December 2011 2010 2010 2009 RMB RMB RMB RMB (Unaudited) 322,770 165,000 806,430 78,767 – – – –	At 31 March At 31 December 2011 2010 2009 RMB RMB RMB 592,013 87,117 25,120 1,388,412 1,917,803 877,034 1,980,425 2,004,920 902,154 149,000,000 137,000,000 2,000,000 109,886,004 55,752,333 295,283 258,886,004 192,752,333 2,295,283 Three months ended 31 March Year ended 31 December Period from 10 October 2009 to 31 December 2011 2010 2010 2009 RMB RMB RMB RMB (Unaudited) 322,770 165,000 806,430 78,767 – – – –	At 31 March 2011 RMB 592,013 1,388,412 1,980,425	At 31 March 2011 RMB 592,013 1,388,412 1,980,425	At 31 December 2010 2009 RMB RMB 87,117 25,120 1,917,803 877,034 2,004,920 902,154	At 31 December 2010 2009 RMB RMB 87,117 25,120 1,917,803 877,034 2,004,920 902,154
					902,154

		149,000,000 109,886,004		137,000,000 55,752,333	2,000,000 295,283
					2,295,283

					Period from 10 October 2009 to 31 December 2009 RMB 78,767 –
322,770	165,000		806,430		78,767
– 18,541	– 17,461		3,000 91,905		3,000 5,232

– II-18 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

8. DIRECTORS’ EMOLUMENTS

(a) Directors’ emoluments

Detailed of emoluments to the directors during the Relevant Periods as follows:

Three months ended 31 March 2011 Executive Directors Huang Zhenkun (“黄鎮坤”) Ma Zhonghong (“馬鐘鴻”) Chen Ruizhan (“陳瑞展”) Qiu Fujin (“邱傳津”) Min Youhui (“閆友惠”) Three months ended 31 March 2010 Executive Directors Huang Zhenkun (“黄鎮坤”) Ma Zhonghong (“馬鐘鴻”) Chen Ruizhan (“陳瑞展”) Qiu Fujin (“邱傳津”) Min Youhui (“閆友惠”) Year ended 31 December 2010 Executive Directors Huang Zhenkun (“黄鎮坤”) Ma Zhonghong (“馬鐘鴻”) Chen Ruizhan (“陳瑞展”) Qiu Fujin (“邱傳津”) Min Youhui (“閆友惠”)	Fees RMB – – – – – – Fees RMB – – – – – – Fees RMB – – – – – –	Salaries, allowance and benefits in kind RMB 24,000 – – – – 24,000 Salaries, allowance and benefits in kind RMB 24,000 – – – – 24,000 Salaries, allowance and benefits in kind RMB 96,000 – – – – 96,000	Retirement scheme contributions RMB – – – – – – Retirement scheme contributions RMB – – – – – – Retirement scheme contributions RMB – – – – – –	Total RMB 24,000 – – – –
				24,000

				Total RMB 24,000 – – – –
				24,000

				Total RMB 96,000 – – – –
				96,000

– II-19 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Year ended 31 December 2009 Executive Directors Huang Zhenkun (“黄鎮坤”) Ma Zhonghong (“馬鐘鴻”) Chen Ruizhan (“陳瑞展”) Qiu Fujin (“邱傳津”) Min Youhui (“閆友惠”)	Fees RMB – – – – – –	Salaries, allowance and benefits in kind RMB 8,000 – – – – 8,000	Retirement scheme contributions RMB – – – – – –	Total RMB 8,000 – – – –
				8,000

(b) Employees’ emoluments

Of the five individuals with the highest emoluments in ZhongFang, one (31 March 2011), one (31 March 2010), one (31 December 2010) and one (31 December 2009) were directors of ZhongFang, whose emoluments are included in the disclosures in above. The emoluments of the remaining four (31 March 2011), four (31 March 2010), four (31 December 2010) and four (31 December 2009) individual for Relevant Periods were as follows:

Salaries, allowances and benefits in kind Retirement scheme contribution (Note)	Three months ended 31 March 2011 2010 RMB RMB (Unaudited) 322,770 165,000 – – 322,770 165,000	Year ended 31 December 2010 RMB 806,430 – 806,430	Period from 10 October 2009 to 31 December 2009 RMB 78,767 –
			78,767

Their emoluments were all within nil to RMB100,000.

Note: The retirement scheme contribution was borne by another company during the Relevant Periods. As the staff has signed a confirmation agreeing for not paying contribution in ZhongFang, the directors of the Company are of the opinion that no provision for any liability that may result has been made in the Financial Information.

– II-20 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

9. INCOME TAX EXPENSE

Loss before taxation Tax at PRC Enterprise Income Tax rate 25% Under provision in respect of prior years Income tax expense for the period/year	Three months ended 31 March 2011 2010 RMB RMB (Unaudited) (137,100) (488,040) (34,275) (122,010) 34,275 122,010 – –	Year ended 31 December 2010 RMB (2,369,483) (592,371) 592,371 –	Period from 10 October 2009 to 31 December 2009 RMB (561,548)

			(140,387) 140,387
			–

No provision for PRC income tax had been made as ZhongFang did not derive any assessable profits during the Relevant Periods. At 1 March 2011, ZhongFang has a tax loses of RMB3,068,131.

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of ZhongFang is 25% from 1 January 2008 onwards.

10. DIVIDEND

No dividend was paid or proposed during the Relevant Periods, nor has any dividend been proposed since end of the reporting date.

– II-21 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

11. PROPERTY, PLANT AND EQUIPMENT

Furniture, fixtures and office equipment RMB – 84,304	Motor vehicles RMB – 255,155	Total RMB – 339,459
84,304 219,616 303,920 – 303,920 – 1,192 1,192 30,066 31,258 14,437 45,695	255,155 21,094 276,249 – 276,249 – 4,040 4,040 61,839 65,879 4,104 69,983	339,459 240,710
		580,169 –
		580,169
		– 5,232
		5,232 91,905
		97,137 18,541
		115,678
83,112 272,662 258,225	251,115 210,370 206,266	334,227

		483,032

		464,491

The above property, plant and equipment are depreciated over their estimated useful lives on a straight-line basis, after taking into account their estimated residual values, at the following rates:

Furniture, fixtures and office equipment Motor vehicles

19% 19%

– II-22 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

12. INVENTORIES

Work in progress 13. PREPAYMENTS AND OTHER RECEIVABLES Prepayments Other receivables	At 31 March 2011 RMB 312,874,157 At 31 March 2011 RMB 40,498,800 592,013 41,090,813	At 31 December 2010 2009 RMB RMB 257,333,350 497,354 At 31 December 2010 2009 RMB RMB 30,000,000 100,000,000 87,117 25,120 30,087,117 100,025,120	At 31 December 2010 2009 RMB RMB 257,333,350 497,354 At 31 December 2010 2009 RMB RMB 30,000,000 100,000,000 87,117 25,120 30,087,117 100,025,120
			100,025,120

14. BANK BALANCES AND CASH

Bank balances carried interest at 0.36% per annum during the Relevant Periods.

15. AMOUNTS DUE TO SHAREHOLDERS

At 31 March	At 31 December	At 31 December
2011	2010	2009
RMB	RMB	RMB
149,000,000	137,000,000	2,000,000

During the Relevant Periods, ZhongFang made agreement with shareholders Tian Jin Zhongfang Yongyang Property Company Limited (“天津中房雍陽置業有限公司”) and Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (“深圳市中房創展投資集團有限公司”) that borrowing balance to support the municipal construction and the Interest rate is same as the interest rate of bank borrowings.

16. TRADE AND OTHER PAYABLES

Trade payables Other payables Accrued expenses	At 31 March 2011 RMB 102,015,100 94,704 7,776,200 109,886,004	At 31 December 2010 2009 RMB RMB 50,016,900 – 95,433 – 5,640,000 295,283 55,752,333 295,283	At 31 December 2010 2009 RMB RMB 50,016,900 – 95,433 – 5,640,000 295,283 55,752,333 295,283
			295,283

– II-23 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

An aging analysis of the trade payables as at the end of the reporting period is as follows:

0 – 90 days 181 – 365 days 17. SHARE CAPITAL Paid-in capital	At 31 March 2011 RMB 51,998,200 50,016,900 102,015,100 At 31 March 2011 RMB 100,000,000	At 31 December 2010 2009 RMB RMB 50,016,900 – – – 50,016,900 – At 31 December 2010 2009 RMB RMB 100,000,000 100,000,000

18. RELATED PARTY TRANSACTIONS

During the Relevant Periods, ZhongFang has the following significant transactions with related parties:

						Period from
						10 October
		Nature of	Three months ended		Year ended	2009 to
	Relationship	transaction	31 March		31 December	31 December
			2011	2010	2010	2009
			RMB	RMB	RMB	RMB
				(Unaudited)
Shenzhen Zhongfang	Shareholder	Capitalise	1,101,930	656,250	2,625,000	–
Chuangzhan Investment		interest
Group Company Limited		expenses
(“深圳市中房創展投資集團
有限公司”)
Tianjin Zhongfang Yongyang	Shareholder	Capitalise	1,034,270	742,500	2,970,000	–
Property Company Limited		interest
(“天津中房雍陽置業有限公司”)		expenses
Shenzhen Zhongfang	Shareholder	New	12,000,000	25,000,000	67,000,000	–
Chuangzhan Investment		borrowings
Group Company Limited
(“深圳市中房創展投資集團
有限公司”)
Tianjin Zhongfang Yongyang	Shareholder	New	–	25,000,000	68,000,000	2,000,000
Property Company Limited		borrowings
(“天津中房雍陽置業有限公司”)

– II-24 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

19. CONTINGENT LIABILITIES

During the Relevant Periods, ZhongFang was solely worked for the project of Jing Nan Fen Yuan (“徑南分園”). ZhongFang has started the construction before obtaining a construction permission from the respective authority for the project of Jing Nan Fen Yuan (“徑南分園”). As a result, there is a risk that both of the developer and construction entity would subject to a penalty which will be determined by Local Construction Administration Department (“地方建設行政主管部門”). If ZhongFang is considered as a construction entity in Jing Nan Fen Yuan (“徑南分園”) project, the penalty would be cessation of Jing Nan Fen Yuan (“徑南分園”) project and a maximum fine of RMB10,000.

20. CAPITAL COMMITMENTS

As at 31 March 2011, ZhongFang had capital commitment for development cost of approximately RMB409,500,000.

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of ZhongFang have been prepared in respect of any period subsequent to 31 March 2011.

Yours faithfully,

Lo and Kwong C.P.A. Company Limited Certified Public Accountants Chan Chi Kei, Ronald

Practising Certificate Number: P04255 Suites 216-218, 2/F., Shui On Centre 6-8 Harbour Road, Wanchai Hong Kong

– II-25 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

MANAGEMENT DISCUSSION AND ANALYSIS OF ZHONGFANG

Three months ended 31 March 2011 (“Year 2011”)

Business Review

For the three months ended 31 March 2011, ZhongFang recorded no turnover. The total administrative expenses and other operating expense was RMB139,201. During the Year 2011, the net loss of ZhongFang was RMB137,100. (2010: net loss of RMB488,040)

As at 31 March 2011, demolition and relocation of the Land in phrase I has been completed whereas its construction has been started for three months. During the period, preparation works including planning and organizing of the construction procedures for roads and sewage system have been carried out.

For the year ended 31 December 2010 (“Year 2010”)

Business Review

For the years ended 31 December 2010, ZhongFang recorded no turnover and the total administrative expenses and other operating expense was RMB2,384,008. During the Year 2010, the net loss of ZhongFang was RMB2,369,483. (2009: net loss of RMB561,548)

On 28 May 2010, ZhongFang has signed a contract agreement with Pan-China Construction Group Co., Ltd. (Shenzhen Branch) and Jiangsu Construction Engineering Group Co., Ltd. in respect of the subcontraction of the infrastructures construction on the Project. On 19 November 2010, Chaozhou Jinshan handed over part of the Land with a total construction area of 1,500 mu to the Target Company. Following by the hand over, the construction of phrase I was started in December 2010. As of 31 December 2010, a development cost of RMB280 million has been invested to phrase I of the Project.

For the period from 10 October 2009 to 31 December 2009 (“Year 2009”)

Business Review

For the period from 10 October 2009 to 31 December 2009, ZhongFang recorded no turnover and the total administrative expenses was RMB594,182. During the Year 2009, the net loss of ZhongFang was RMB561,548.

ZhongFang was established on 29 October 2009 and has obtained the business license in the PRC. On 3 November 2009, the Target Company and Chaozhou Jinshan entered into a Cooperation Agreement of which the Project shall be transferred to the ZhongFang.

– II-26 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Liquidity and Financial Resources

As at 31 March 2011, cash and cash equivalents of ZhongFang was RMB1,388,412, and were RMB1,917,803 and RMB877,034 as at 31 December 2010 and 31 December 2009, respectively. As at 31 March 2011, the loan balance of ZhongFang was RMB149,000,000, and were RMB137,000,000 and RMB2,000,000, respectively in 2010 and 2009. The loans of ZhongFang were solely the amounts due to shareholders.

The expected total costs for phrase I is approximately RMB350 million of which RMB100 million is expected to be funded by the internal financial resources of ZhongFang, RMB90 million is expected to be prepaid by the contractors and the balance of RMB160 million is expected to be funded by the Shareholders’ Loan. As of 30 June 2011, the total investment to the phrase I was approximately RMB320 million.

In 2010, the total funds invested in the phrase I of the Project was RMB280 million of which RMB95.63 million was funded by the internal financial resources of ZhongFang, RMB47.37 million was prepaid by the Contractors and the balance of RMB137 million was funded by the Shareholders’ Loan.

Capital Structure

As at 31 March 2011, ZhongFang has a total assets of RMB355,817,873, including inventories of RMB312,874,157 and prepayments and other receivables of RMB41,090,813. For inventories, it is mainly consisted with land relocation compensation fee (“土地徵用及拆遷補償費”) of approximately RMB120,000,000 and construction expenses of approximately RMB182,466,000 for Jing Nan Fen Yuan (“徑南分園”). For the prepayments and other receivables, it is mainly consisted with land relocation compensation prepayment (“土地徵用及拆遷預付款”) of approximately RMB30,000,000 and prepayment for construction of approximately RMB10,499,000. As at 31 March 2011, ZhongFang has a total liabilities of RMB258,886,004, including amounts due to shareholders of RMB149,000,000 and trade and other payables of RMB109,886,004. For the trade and other payables, it is mainly consisted with construction cost payable of approximately RMB102,015,000.

As at 31 December 2010, ZhongFang has a total assets and total liabilities of RMB289,821,302 and RMB192,752,333 respectively. As at 31 December 2010, ZhongFang has amounts due to shareholders of RMB137,000,000 and trade and other payables of RMB55,752,333.

As at 31 December 2009, ZhongFang has a total assets and total liabilities of RMB101,733,735 and RMB2,295,283 respectively. As at 31 December 2009, ZhongFang has amounts due to shareholders of of RMB2,000,000 and trade and other payables of RMB295,283.

The principal financial instruments (except derivatives) of ZhongFang include other receivables, bank balances and cash, amounts due to shareholders and trade and other payables. The purpose of these financial instruments is to finance the operation of ZhongFang. The business of ZhongFang might be exposed to credit risk, currency risk and interest rate risk. The overall strategy for the risk management of ZhongFang is set out as below.

– II-27 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Credit Risk

The prepayments and other receivables of the Target Company are mainly consisted of the prepayments on land relocation compensation fee and the construction cost. The prepayments shall pay back to Target Company by Chaozhou Jinshan upon the Project is completed. Since the County Government is the ultimate owner of the Project, who wholly owns Chaozhou Jinshan, the Credit risk arising from the default of payment is relative minor.

Market risk

(i) Currency risk

(ii) Interest rate risk

ZhongFang’s cash flow interest rate risk is mainly concentrated on the fluctuation of the base rate of People’s Bank of China arising from ZhongFang’s bank balances and other borrowings. It is ZhongFang’s policy to keep its other borrowings at floating rate of interests so as to minimise the fair value interest rate risk.

Significant Investments, Acquisitions and Disposals

As at 31 March 2011, 31 December 2010 and 31 December 2009, ZhongFang has not entered into any substantial acquisition, investments or substantial disposal.

Segment Information

As at 31 March 2011, 31 December 2010 and 31 December 2009, ZhongFang had only one business segment, which was in real estate investment and development, civil engineering construction, no separate disclosure of segmental revenues and results and segment assets and liabilities would be made.

Pledge Asset

As at 31 March 2011, 31 December 2010 and 31 December 2009, ZhongFang did not have any pledged assets.

Contingent Liabilities

Since October 2009, ZhongFang was solely worked for the Project. ZhongFang has started the construction before obtaining required construction permissions from the respective authority for the Project. As a result, there is a risk that both of the developer

– II-28 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

and construction entity would subject to a penalty which will be determined by Local Construction Administration Department (“地方建設行政主管部門”). If ZhongFang is considered as a construction entity in the Project, the penalty would be cessation of Project and a maximum fine of RMB10,000.

If ZhongFang is considered as a developer in the Project, the penalty would be cessation of the Project and a fine of 1% to 2% of construction contract amount or a maximum fine of RMB30,000.

The Directors are of the opinion that, an outflow of resources embodying economic benefits to settle the obligation is remote as the Project is worked for a government, and no provision for any liability that may result has been made in the Financial Information.

Employees and Remuneration Policy

As at 31 March 2011, 31 December 2010 and 31 December 2009, the employees of ZhongFang were 28, 28 and 14 with labor cost expenditure of RMB322,770, RMB806,430 and RMB78,767 respectively. ZhongFang should participate in the central pension scheme (the “CPS”) operated by the PRC government for all of their staff. But the retirement scheme contribution was borne by another company during the relevant periods. As the staffs have signed a confirmation agreement for not paying contribution in ZhongFang, the directors of the Company are of the option that no provision for any liability. The retirement scheme contribution would be borne by Zhong Fang, wouldn’t borne by any company in the future. It would increase labor cost expenditure of around RMB20,000 per month.

Directors’ Emoluments

Since Mr. Ma Zhonghong (“馬鐘鴻”), Chen Ruizhan (“陳瑞展”), QiuFujin (“邱傳津”) and Min Youhui (“閔友慧”) did not bear a fixed directors’ remuneration, their directors’ emolument for at the year/period ended 31 March 2011, 31 December 2010 and 31 December 2009 were Nil. The directors of the Company considered that if they do not participate in the management of the daily operation of the Target Company, their directors’ remuneration would not be significant in future.

Directors of the Target Company participate in the management of the Target Company at the board level only and play roles of overall strategic planning and development of the Target Company. The daily operations of the Target Company are executed by a management team designated by the board of the Target Company. The management team includes an operating manager, a deputy manager and a financial controller. The four directors are expected to be retained by the Company within six months to one year after the Acquisition is completed in order to ensure a smooth hand over of the Target Company during the transitional period. If the four directors are retained by the Company after the transitional period, they will entitled to fix remunerations which are determined based on their duties and responsibilities with the Target Company, the prevailing market rate and the remuneration policy of the Company.

– II-29 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Future Investment Plan and Funding Arrangements

As at the Latest Practicable Date, ZhongFang does not have any future investment plan. As such, no funding arrangement is required.

Gearing Ratio

The gearing ratios (calculated as total liabilities/total assets) of ZhongFang as at 31 March 2011, 31 December 2010 and 31 December 2009 were approximately 72.85%, 66.62% and 97.74% respectively.

Review and Prospects of ZhongFang

ZhongFang is a limited company incorporated in Chaozhou, Guangdong Province, the PRC on 29 October 2009 and is principally engaged in property development and construction. Currently, the major project of the ZhongFang in progress is a land development project in Chaozhou, with a total area of 4,500 mu.

The land development project was initially approved by the Guangdong government to build an industrial zone where complete facilities are built and high standard of management are provided by the developer. The Project targets to attract industrial operators who need to be relocated from the already crowded and over-demanded Pearl River Delta area.

ZhongFang recorded no turnover and net loss from its operation during the three years ended 31 December 2010. Since the land development project undertaken by ZhongFang is still in its early stage profit from this project will only be generated once the construction is completed. Given by the strong support from the local government in Chaozhou, the Company believes the supports from the local government are important and helpful in completing the Project. It is expected that the future profitability of the ZhongFang shall be promising.

– II-30 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

23 September 2011

The Directors

Shenyang Public Utility Holdings Company Limited 14/F, Jinmao International Apartment, Da Dong District, Shenyang, the PRC

Dear Sirs,

We report on the unaudited pro forma financial information (“Unaudited Pro Forma Financial Information”) of Shenyang Public Utility Holdings Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and Zhongfang Chaozhou Investment Development Company (“ZhongFang”) (together with the Group hereinafter collectively referred to “Enlarged Group”) as set out on Appendix II to the circular dated 23 September 2011 (the “Circular”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of ZhongFang (the “Acquisition”) might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages III-3 to III-7 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Pro Forma Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

– III-1 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly complied by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Enlarged Group as at 31 December 2010 or any future date.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group so far as such policies related to the transactions; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

Lo and Kwong C.P.A. Company Limited Certified Public Accountants

Chan Chi Kei, Ronald

Practising Certificate Number: P04255 Suites 216-218, 2/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong

– III-2 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

BASIS OF PREPARATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Unaudited Pro Forma Financial Information of the Enlarged Group is prepared to illustrate the effect of the acquisition of the entire issued share capital of ZhongFang from Tianjin Zhongfang Youngyang Property Company Limited and Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (collectively known as the “Vendors”). The aggregate consideration for the Acquisition is RMB310 million in accordance with Listing Rules 4.29 for the purpose of illustrating the effect of the proposed acquisition as if the proposed acquisition took place on 31 December 2010.

The Unaudited Pro Forma Financial Information is prepared based on (i) the audited consolidated statement of financial position of the Group as at 31 December 2010 as extracted from the published annual report of the Company for the year ended 31 December 2010; (ii) the audited statement of financial position of ZhongFang as at 31 March 2011 as extracted from the accountants’ report set out in Appendix II to this circular, after making pro forma adjustments relating to the Acquisition, as if Acquisition had been completed on 31 December 2010. In accordance with the Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circular” issued by the Hong Kong Institute of Certified Public Accountants, the financial information of ZhongFang as at 31 March 2011 have been assumed to carry their fair values as at 31 December 2010.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purpose only and is based on a number of assumptions, estimates, uncertainties and currently available information. Accordingly, and because of its nature, the Unaudited Pro Forma Financial Information does not purport to predict what the financial position of the Enlarged Group will be on the completion of the Acquisition.

– III-3 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

Non-current assets Goodwill Property, plant and equipment Investment properties Available-for-sale investment Current assets Inventories Trade receivables Prepayments and other receivables Bank balances and cash	Audited consolidated statement of financial position of the Group at 31 December 2010 RMB’000 (audited) (Note 1) – 5,528 516,346 13,800	Audited statement of financial position of ZhongFang at 31 March 2011 Pro forma adjustment RMB’000 RMB’000 (audited) (unaudited) (Note 2) (Note 3) – 56,337 464 – –	Unaudited Pro Forma consolidated statement of financial position of the Enlarged Group at 31 December 2010 RMB’000 (unaudited) 56,337 5,992 516,346 13,800 592,475 312,874 287 80,845 (289,299) 104,707
	535,674 – 287 39,754 19,312	464 312,874 – 41,091 1,389 (310,000)	592,475 312,874 287 80,845 (289,299
	59,353	355,354

– III-4 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

Audited consolidated statement of financial position of the Group at 31 December 2010 RMB’000 (audited) (Note 1) – 5,742 40,097 10,715 1,041 1,036	Audited statement of financial position of ZhongFang at 31 March 2011 Pro forma adjustment RMB’000 RMB’000 (audited) (unaudited) (Note 2) (Note 3) 149,000 (149,000) 102,015 7,871 (7,731) – – –	Unaudited Pro Forma consolidated statement of financial position of the Enlarged Group at 31 December 2010 RMB’000 (unaudited) – 107,757 40,237 10,715 1,041 1,036 160,786 (56,079) 536,396 1,020,400 (560,769) 459,631 40,429 500,060 33,105 3,231 36,336 536,396
58,631 722 536,396 1,020,400 (560,769) 459,631 40,429 500,060 33,105 3,231 36,336	258,886 96,468 96,932 100,000 (100,000) (3,068) 3,068 96,932 – 96,932 – – –	160,786 (56,079
		536,396 1,020,400 (560,769
		459,631 40,429
		500,060 33,105 3,231
		36,336
536,396	96,932

– III-5 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

The financial information of the Group is extracted from the published annual report of the Company for the year ended 31 December 2010 issued on 22 March 2011.
The audited statement of financial position of ZhongFang is extracted from the accountant’s report thereon as set out in Appendix II to the Circular.
On 11 May 2011, the Company entered into an acquisition agreement with Tianjin Zhongfang Yongyang Property Company Limited and Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (collectively known as the “Vendors”) to acquire entire issued share capital of ZhongFang for a total consideration of RMB310 million.

The consideration would be satisfied by bank balances and cash.

The adjustment reflects the acquisition of 100% equity interests of ZhongFang as if such acquisition had taken place on 31 December 2010, as follows:

Fair value of the consideration on 31 December 2010 Consideration settled by cash Less: Fair value of net identifiable assets acquired Net assets of ZhongFang as at 31 March 2011 Amounts due to shareholders Accrual interests due to shareholders Goodwill	RMB’000 (96,932) (149,000) (7,731)	RMB’000 310,000 (253,663)
		56,337

The identifiable assets and liabilities of ZhongFang will be accounted for in the consolidated financial statements of the Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations” (“HKFRS 3 (Revised)”).

For the purpose of determining goodwill arising from the acquisition transactions in the Unaudited Pro Forma Financial Information, it is assumed that the carrying values of ZhongFang are recorded in the Unaudited Pro Forma Financial Information at their fair values as if the acquisition was completed on 31 December 2010.

The Directors have reviewed the pro forma fair values of the goodwill of the Enlarged Group in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets” (“HKAS 36”). The Directors estimate that the recoverable amount of the Target Company (being considered as a single cash-generating unit to which the goodwill has been allocated) is higher than the carrying amount of the unit including goodwill and hence, are of their opinion that there is no indication that the pro forma fair values of the goodwill of the Enlarged Group may be impaired at the date of preparation of this Unaudited Pro Forma Financial Information. The basis of the recoverable amounts of the above cash generating units and their major underlying assumptions are summarized below:

The recoverable amount has been determined based on discounted cash flow method. That calculation uses cash flow projections based on financial budgets approved by management covering a three year period, and discount rate of 10%. For other key assumptions, please refer to Appendix IV to this Circular.

– III-6 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

In accordance with HKAS 36, the Directors of the Company will assess at the end of each reporting period ending after the completion date to determine as to whether there is any indication that the goodwill of the Enlarged Group may be impaired. If any such indication exists, the Directors of the Company will estimate the recoverable amount of the goodwill. An impairment loss is recognised only if the carrying amount of goodwill exceeds its recoverable amount. In the absence of unforeseen circumstances, the Directors of the Company will adopt consistent accounting policies, principal assumptions and valuation methods as used in this Unaudited Pro Forma Financial Information to assess the recoverable amount of the goodwill. The auditors of the Company will examine the assessment whether there is any indication that the goodwill of the Enlarged Group may be impaired, and if such indication exists, the auditors will examine the recoverable amount of the goodwill estimated by the Company in accordance with HKAS 36 during their audit on the consolidated financial statements for any financial period ending after the completion date.

The fair value of net assets of ZhongFang acquired in the above acquisition as at 31 December 2010 is as follows as if the proposed acquisition was completed on 31 December 2010:

Property, plant and equipment Inventories Prepayments and other receivables Bank balances and cash Amounts due to shareholders Trade payables Other payables and accruals Add: Amounts due to shareholders Accrual interests due to shareholders Goodwill Total consideration	RMB’000 464 312,874 41,091 1,389 (149,000) (102,015) (7,871)
	96,932 149,000 7,731
	253,663 56,337
	310,000

The adjustment represents the recognition of goodwill arising from the acquisition of ZhongFang and the elimination of the investment cost and pre-acquisition reserves of ZhongFang.

The Financial impact of the disposal 70% equity interest in Zhuhai Beida Education and Science Park Company Limited (“Zhuhai Beida”) which has been the published dated on 23 May 2011 circular have not been considered.
The Financial impact of the disposal 100% equity interest in Shenzhen Jade Bird Shenfa Guangdian Company Limited and its subsidiaries as set out in page 19 of this circular have not been considered.
In the opinion of the directors, the transactions costs in connection of the Proposed Acquisition are insignificant and have not been taken into account.
No adjustment has been made to reflect any other transactions of the Group and the Target Group entered into subsequent to 31 December 2010.

– III-7 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

(A) BUSINESS VALUATION

The following is the text of a letter, prepared for the purpose of incorporation in this circular received from Avista Valuation Advisory Limited, an independent valuer, in connection with its valuation as at 30 April 2011 of the equity interest of Zhongfang Chaozhou Investment Development Company Limited .

==> picture [84 x 34] intentionally omitted <==

Suite 1503, 15/F Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong.

TEL: (852) 3907 0680 FAX: (852) 3914 6388 [email protected] www.avaval.com

Date: 23 September 2011

The Board of Directors

Shenyang Public Utility Holdings Company Limited

14/F., Jinmao International Apartment Da Dong District, Shenyang the PRC

Dear Sirs,

We were instructed by Shenyang Public Utility Holdings Company Limited (the “Company”) to perform a fair value valuation in connection with the potential acquisition of 100% equity interest of Zhongfang Chaozhou Investment Development Company Limited (“Zhongfang Chaozhou”) by the Company as of 30 April 2011 (the “Valuation Date”).

It is our understanding that this appraisal is used for the potential acquisition of 100% equity interest in Zhongfang Chaozhou by the Company for your transaction purpose. We are not responsible for unauthorized use of this report.

We accept no responsibility for the realisation and completeness of any estimated data, or estimates furnished by or sourced from any third parties which we have used in connection with this report. We assumed that financial and other information provided to us are accurate and complete.

This report presents the summary of the business appraised, describes the basis of valuation and assumptions, explains the valuation methodology adopted in this appraisal process to calculate the value, also the additional supporting documentation has been retained as a part of our work papers.

– IV-1 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

BASIS OF VALUATION

We have valued the 100% equity interest of Zhongfang Chaozhou on the fair value.

Fair Value

Fair value is the estimated amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

COMPANY BACKGROUND

Zhongfang Chaozhou is a limited company incorporated in Chaozhou, Guangdong Province, PRC on 29 October 2009 and is principally engaged in property development and construction.

We understand that Shenyang Public Utility propose to acquire 100 % equity interest of Zhongfang Chaozhou. We also understand that Zhongfang Chaozhou has entered into a build-transfer (“BT”) agreement with Chaozhou Jinshan Investment and Development Co., Ltd (潮州市金山投資開發有限公司) (“Jinshan”) in respect of the construction of the infrastructure of a science park. The science park is located in industrial zone, namely Jing Nan Fen Yuan, with a total estimated construction area 4,500 mu land. The estimated construction period is 3 years.

Pursuant to the BT agreement, Zhongfang Chaozhou is responsible for the financing of BT project and other related land acquisition and construction costs while the construction of infrastructure is subcontracted to subcontractors named Jiangsu Construction Engineering Group Co., Ltd (江蘇省建工集團有限公司) and Pan-China Construction Group (Shenzhen branch) (泛華建設集團有限公司深圳建設分公司). Upon the completion of BT project, the Target Company transfer BT Project to Jinshan at a premium 18% on the total of land development cost and construction costs.

SCOPE OF WORKS

Our investigation included the discussions with the management of the Company and Zhongfang Chaozhou (the “Management”) to understand the transaction background and the business operations of Zhongfang Chaozhou.

We reviewed the management accounts and financial projection (the “Projection”) of Zhongfang Chaozhou provided by the Management without further verification and assumed these data we obtained from the Management during the course of valuation are true and accurate. We also assumed that the Projection provided by the Management was prepared with due care. We do not assume any responsibility for and make no representations with respect to the accuracy or completeness of any information provided by the Management.

Excluded from the investigation are all inventories and all other tangible assets of a current nature or any intangible assets that might exist.

– IV-2 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

VALUATION METHODOLOGY

We considered that the income approach, a commonly accepted approach to value the business enterprise value of Zhongfang Chaozhou, to be appropriate for this exercise. In particular, we have adopted Discounted Cash Flow Method (“DCF”) as the primary method.

Under the DCF method, the value depends on the present value of future economic benefits to be derived from ownership of the enterprise. Thus, an indication of the equity value is calculated as the present value of the future free cash flow of Zhongfang Chaozhou less outstanding interest-bearing debt, if any. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business.

A major requirement of the discounted cash flow approach is an earnings forecast, in particular a cash flow projection, which was provided by the Management. Since the BT project was assumed to have a definite life (i.e. will cease upon completion of construction), no terminal value was calculated.

The fair value of Zhongfang Chaozhou was then calculated by adding the present values of the projected yearly free cash flow in the projection period. The present values were derived by discounting the free cash flow by a discount rate that was appropriate for the risk of investing in the project.

While the DCF method gives an indicative business enterprise value (“BEV”) as a whole, the equity value is derived from BEV after adjustment of interest bearing debt, lack of marketability discount (“LoMD”) and excess assets/liabilities.

The concept of marketability deals with the liquidity of ownership interest, that is, how quickly and easily it can be converted into cash if the owner chooses to sell. The lack of marketability discount reflects the fact that there is no ready market for shares in a closely held corporation. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company. In this appraisal, LoMD as of the Valuation Date was estimated to be 10%.

MAJOR ASSUMPTION OF BUSINESS ENTERPRISE VALUATION

Before arriving at our opinion of value, we have considered the following principal factors:

Zhongfang Chaozhou will be operated with the corporate structure and operation model as projected by the Management;
The financial and operating results of Zhongfang Chaozhou;

– IV-3 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

The economic outlook in general and the specific economic and competitive elements affecting Zhongfang Chaozhou’s businesses, its industry and its market;
The nature and prospects of the industry of Zhongfang Chaozhou is operating;
The market-derived investment returns of entities engaged in a similar line of business and returns from other similar types of business;
The stage of development of Zhongfang Chaozhou operation; and
The business risks of Zhongfang Chaozhou consist of default risk, legislation risk and economy risk, those risks are defined as follow:
(i) Default risk – the customer and sub-contractor have the possibility to default the contract. In that case, the delivery of the project or the collection of income, i.e. the forecasted cash flows, will not be fully or timely realized.
(ii) Legislation risk – the construction is operated under the law of PRC and permission of county government. If any laws or regulations ruling the real estate market changes, the operation of the Target Company might be impacted, leading to unexpected operating and financial results.
(iii) Economy risk: The future of the target company is closely related to the economic environment of PRC. If the overall economy development of PRC is materially different from Management’s expectation, the financial forecast might not be realized.

Due to the changing environment in which Zhongfang Chaozhou is operating, a number of assumptions have to be established in order to sufficiently support our valuation of the 100% equity interest. The major assumptions adopted in this appraisal are:

There will be no major changes in the existing political, legal, fiscal and economic conditions in China;
There will be no major changes in the current taxation law in China, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with;
Exchange rates and interest rates will not differ materially from those presently prevailing;
The Projection has been prepared on a reasonable basis, reflecting estimates (i.e. assumptions and parameters adopted in the financial projection, such as

– IV-4 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

land development cost, construction cost, profit margins, and related operating expense) which have been arrived at after due and careful consideration by the Management;

The availability of finance will not be a constraint on the forecast growth of Zhongfang Chaozhou’s operation in accordance with the Projection;
Zhongfang Chaozhou will retain and have competent management, key personnel, and technical staff to support its ongoing operation; and
Industry trends and market conditions for related industries will not deviate significantly from economic forecasts including but not limit to market relative factors adopted in the discount rate.

PROJECTION ASSUMPTION

We adopted income approach for valuation of equity interest of Zhongfang Chaozhou, our valuation has been performed based on a set of financial projections provided by the management of the Company. The key assumptions in the projection are summarized as below:

(a) According to the build-transfer (“BT”) agreement between the Zhongfang Chaozhou and Chaozhou Jinshan Investment and Development Co. Ltd (“Chaozhou Jinshan”), the expected development area is 4,500 mu.
(b) As per management’s experience of Zhongfang Chaozhou, the development period is estimated to be completed at July 2012.
(c) According to the BT agreement, the expected return of this BT project is 18% of total land development cost and construction cost.
(d) As per management’s experience and reference to the BT agreement, the land development cost is estimated to be RMB80,000 per mu, the construction cost is estimated to be RMB130,000 per mu.
(e) As refer to historical figure and management’s representation, the operation costs include tax expense and the administration expense, which is approximately RMB940,000 per year.

DETERMINATION OF DISCOUNT RATE

In instances where we have applied the Income Approach to value the equity interest, it is necessary to determine an appropriate discount rate at which to discount the future expected cash flows relating to the business enterprises. The starting point for establishing an appropriate discount rate for the business enterprise value is the cost of capital for the entire business. The Weighted Average Cost of Capital (“WACC”) represents the weighted average return attributable to all of the capital of the business.

– IV-5 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

The WACC represents the weighted average return attributable to all of the capital of the business. We have analyzed a group of comparable companies as set out in our report.

WACC is computed with the below formula:

WACC = Ke * (Eq/IC) + Kd * (D/IC)

Where: Ke = Cost of equity = Eq Equity IC = Invested capital (equity plus all interest bearing debt) Kd = Tax adjusted cost of debt D = Debt

We have employed the Capital Asset Pricing Model (“CAPM”) to derive a cost of equity, which includes the components of beta 0.95, market risk premium in China 7.35%, China’s risk-free rate 4.33% based on yield of China government bond and debt-to-equity ratio of comparable companies 54.1% that sourced from Bloomberg, in which the equity-to-invested capital ratio and debt-to-invested capital ratio is approximately 65% and 35% respectively. We have included a small size premium and a specific risk premium (1%) in estimating the cost of equity, due to the relative size of Zhongfang Chaozhou and its uncertainty on future profitability of business. Based on the above CAPM, the overall cost of equity is estimated to be approximately 12.3%.

Following is the CAPM formula for derivation of Ke:

CAPM – Cost of Equity

Ke = Rrf + MRP x Beta Where: Ke = cost of equity Rrf = risk-free rate MRP = market risk premium, which is the return the market portfolio is expected to generate in excess of the risk-free rate Beta = the “beta coefficient” that measures the relative risk of the asset being valued as compared to the risk of the market portfolio. It is computed by regressing returns on a comparable security on returns for the market index. It is a measure of the systematic risk of the asset.

Pre-tax cost of debt has been estimated based on the interest rate in Mainland China of 6.4% as of the Valuation Date. For determining the after-tax cost of debt, a tax rate of 25% for the assessment of the tax shield was taken into consideration. This resulted in an after-tax cost of debt of 4.8%. The required rates of return on equity and debt determined as illustrated above have been weighted according to the industry average capital structure based on our comparable company analysis. Based on the calculations above, we have estimated the post-tax nominal WACC of Zhongfang Chaozhou to be approximately 10%.

– IV-6 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

Selection of Comparable Companies

For this valuation, we have searched and selected several listed companies in China and Hong Kong as comparable companies based on the similarity of industry, business and financial characteristics. In this appraisal, the selected comparables are those who principally engaged in construction business. Based on above selection criteria, to the best of our knowledge and endeavor, we reasonably considered that the selected comparable companies (as listed below) were exhaustive in the criteria and substantially reflected the business in which Zhongfang Chaozhou is operating:

	Comparable Companies	Ticker	Business Activities
1.	China State Construction	03311.HK	Provides building construction and
	International Holdings		civil engineering works services
	Ltd.
2.	Yau Lee Holdings Ltd.	00406.HK	Contracts building construction,
			plumbing, maintenance, decoration
			projects and manufactures and
			supplies building materials as well as
			invests in properties
3.	Hanison Construction	00896.HK	Operates building construction,
	Holdings Ltd.		interior and renovation works
			business, and supplies building
			materials
4.	Wai Kee Holdings Ltd.	00610.HK	Operates businesses in construction
			of civil engineering and building
			projects
5.	Hsin Chong Construction	00404.HK	Provides building construction, civil
	Group Ltd.		engineering, renovation and
			fitting-out, building repair and
			maintenance, and construction
			management
6.	Shui On Construction and	00983.HK	Provides construction, contracting,
	Materials Ltd.		renovation, and fitting out services

CONCLUSION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, it is our opinion that the fair value of the 100% equity interest of Zhongfang Chaozhou Investment Development Company Limited as of 30 April 2011 is RENMINBI ONE HUNDRED AND SIXTY ONE MILLION ONLY (RMB161,000,000).

– IV-7 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

The conclusion of the fair value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in Shenyang Public Utility Holdings Company Limited nor the value reported.

Yours faithfully, For and on behalf of Avista Valuation Advisory Limited Vincent C B Pang CFA, HKICPA, CPA (Aus.) Director

Note: Mr. Vincent Pang is a member of Chartered Financial Analyst Institute, Hong Kong Institute of Certified Public Accountants and CPA Australia. Vincent has over 10-year experience in financial valuation and business consulting in Hong Kong and China.

– IV-8 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

(B) LETTER FROM THE FINANCIAL ADVISER

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高信融資服務有限公司 Karl Thomson Financial Advisory Limited

27/F, Fortis Tower, 77-79 Gloucester Road, Wan Chai, Hong Kong

23 September 2011

The Board of Directors

Shenyang Public Utility Holdings Company Limited

Dear Sir,

We refer to the calculations of the discounted future estimated cash flows on which the fair value valuation in respect of 100% equity interest of Zhongfang Chaozhou as at 30 April 2011 prepared by Avista Valuation Advisory Limited as set out in Appendix IV to the circular (the “ Circular ”) issued by Shenyang Public Utility Holdings Company Limited (the “ Company ”) dated 23 September 2011. The valuation, which is determined based on the discounted cash flows, is regarded as profit forecast (the “ Forecast ”) under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

We have discussed with the Company the bases and assumptions as set out in Appendix IV to the Circular upon which the Forecast has been made. On the basis of the assumptions and calculations adopted by the Company, we are of the opinion that the Forecast, for which the Company is solely responsible, has been made after due and careful enquiry.

However, in as much as the Forecast and the assumptions on which they are based relate to the future, we express no opinion on how closely the actual cash flow and profit eventually will correspond with the Forecast. Our work in connection with the Forecast has been undertaken solely for the compliance of Rule 14.62(3) of the Listing Rules and for no other purpose.

Yours faithfully For and on behalf of

Karl Thomson Financial Advisory Limited Alex Chow

Director

– IV-9 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

(C) LETTER FROM THE REPORTING ACCOUNTANT

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----- Start of picture text -----

AUDIT TAX BUSINESS ADVISORY
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23 September 2011

The Board of Directors Shenyang Public Utility Holdings Company Limited 14/F, Jinmao International Apartment, Da Dong District, Shenyang, the PRC

Dear Sirs,

INDEPENDENT ASSURANCE REPORT

We have examined the accounting policies adopted and calculations of the underlying profit forecast (the “Underlying Forecast”) to the business valuation dated 23 September 2011 prepared by Avista Valuation Advisory Limited (the “Valuer”) in respect of the valuation on Zhongfang Chaozhou Investment Development Company Limited (the “Target Company”) in connection with the proposed acquisition of 100% equity interests in the Target Company by Shenyang Public Utility Holdings company Limited (the “Company”) as of 30 April 2011 as set out in Appendix IV of the circular of the Company dated 23 September 2011 (the “Circular”).

Responsibilities

The directors of the Company and the Target Company (collectively known as the “Directors”) are solely responsible for the preparation of the Underlying Forecast including the assumptions, for the purpose of business valuation of the Target Company based on discounted cash flow method. The Underlying Forecast has been prepared using a set of assumptions (the “Assumptions”) that include hypothetical assumptions about future events and management’s actions that are not necessarily expected to occur. Even if the events anticipated occur, actual results are still likely to be different from the Underlying Forecast and the variation may be material. The Directors are responsible for the reasonableness and validity of the assumptions.

It is our responsibility to form an opinion, based on our work on the Underlying Forecast and to report our opinion solely to you, as a body, solely for the purpose of reporting under Rule 14.62 of Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and for no other purpose. We have not reviewed, considered or conducted any work on the reasonableness and the validity of the assumptions and express no opinion on the reasonableness and validity of the Assumptions on which the Underlying Forecast is based. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

– IV-10 –

APPENDIX IV VALUATION REPORT OF THE TARGET COMPANY

Summary of our work

We conducted our work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Review of Historical Financial Information” issued by the Hong Kong Institute of Certified Public Accountants and with reference to the procedures specified in Auditing Guideline 3.341 “Accountants’ Report on Profit Forecasts”. We examined the consistency of accounting policies adopted and the arithmetical accuracy of the Underlying Forecast. Our work has been undertaken solely to assist the Directors in evaluating whether the Underlying Forecast, so far as the accounting policies and calculations are concerned, has been properly compiled in accordance with the Assumptions made by the Directors. Our work does not constitute any valuation of the Target Company.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Underlying Forecast has been properly compiled in accordance with the Assumptions made by the Directors as set out in Appendix IV of the Circular and is presented on a basis consistent in all material aspects with the accounting policies currently adopted by the Company.

Yours faithfully, Lo and Kwong C.P.A. Company Limited

Certified Public Accountants

Chan Chi Kei, Ronald

Practising Certificate Number: P04255 Suites 216-218, 2/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong

– IV-11 –

APPENDIX V

VALUATION REPORT OF THE PROPERTY HELD BY THE DISPOSAL COMPANY

The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuation as at 30 June 2011 of the property held by the Disposal Company located in the PRC.

BMI Appraisals Limited 中和邦盟評估有限公司

33[rd] Floor, Shui On Centre, Nos. 6-8 Harbour Road, Wanchai, Hong Kong 香港灣仔港灣道 6-8 號瑞安中心 33 樓 Tel 電話： (852) 2802 2191 Fax 傳真： (852) 2802 0863 Email 電郵： [email protected] Website 網址： www.bmi-appraisals.com

23 September 2011

The Directors

Shenyang Public Utility Holdings Company Limited

14/F, Jin Mao International Apartment No. 1 Xiao Dong Road Dadong District, Shenyang City Liaoning Province The People’s Republic of China

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Shenyang Public Utility Holdings Company Limited (the “Company”) for us to value the property to be disposed of by the Company and/or its subsidiaries (together referred to as the “Group”) located in the People’s Republic of China (the “PRC”). We confirm that we have performed an inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property as at 30 June 2011 (the “date of valuation”).

BASIS OF VALUATION

Our valuation of the concerned property has been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– V-1 –

APPENDIX V

VALUATION REPORT OF THE PROPERTY HELD BY THE DISPOSAL COMPANY

VALUATION METHODOLOGY

In the course of our valuation, we have adopted the Investment Approach by taking into account the current passing rents of the property being held under existing tenancies and the reversionary potential of the tenancies if it has been or would be let to tenants.

TITLE INVESTIGATION

We have been provided with copies of title documents/tenancy agreements and have been advised by the Group that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. In the course of our valuation, we have relied upon the advice and information given by the Group’s PRC legal advisor – Kaiwen Law Firm (北京市凱文律師事務所) regarding the title of the property located in the PRC. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuation has been made on the assumption that the property is sold in the market in its existing state without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which might serve to affect the value of the property.

In addition, no account has been taken of any option or right of pre-emption concerning or effecting sale of the property and no forced sale situation in any manner is assumed in our valuation.

VALUATION CONSIDERATIONS

We have inspected the exterior and wherever possible, the interior of the property. During the course of our inspections, we did not note any serious defects. However, no structural surveys have been made nor have any tests been carried out on any of the services provided in the property. We are, therefore, unable to report that the property is free from rot, infestation or any other structural defects.

In the course of our valuation, we have relied to a considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site/floor areas, identification of the property and other relevant information.

We have not carried out detailed on-site measurements to verify the correctness of the site/floor areas in respect of the property but have assumed that the site/floor areas shown on the documents handed to us are correct. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Group and are therefore only approximations.

– V-2 –

APPENDIX V

VALUATION REPORT OF THE PROPERTY HELD BY THE DISPOSAL COMPANY

We have no reason to doubt the truth and accuracy of the information provided to us by the Group and we have relied on your confirmation that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowances have been made in our valuation for any charges, mortgages or amounts owing on the property or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature, which could affect its value.

Our valuation has been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuation has been prepared under the generally accepted valuation procedures and are in compliance with the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfers.

Our Summary of Value and the Valuation Certificate are attached herewith.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C. H. Cheng

BSc., MUD, MBA(Finance), MSc.(Eng), PhD(Econ), MHKIS, MCIArb, AFA, SIFM, FCIM, MASCE, MIET, MIEEE, MASME, MIIE

Joannau W. F. Chan

BSc., MSc., MRICS, MHKIS, RPS(GP)

Senior Director

Managing Director

Notes:

Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 18 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 18 years’ experience in valuations of properties in Hong Kong and over 12 years’ experience in valuations of properties in the People’s Republic of China.

– V-3 –

APPENDIX V

VALUATION REPORT OF THE PROPERTY HELD BY THE DISPOSAL COMPANY

SUMMARY OF VALUE

Property to be disposed of by the Group in the PRC

Property Beida Jade Bird Building, the east of Ke Yuan Road and the west of Jing Si Road, High & New Technology Development South Zone, Nanshan District, Shenzhen City, Guangdong Province, The PRC 中國廣東省深圳市南山區高新技術開發南區科苑路東及經四路西北大青鳥樓 Total:	Market Value in existing state as at 30 June 2011 RMB 88,500,000
	88,500,000

– V-4 –

APPENDIX V

VALUATION REPORT OF THE PROPERTY HELD BY THE DISPOSAL COMPANY

VALUATION CERTIFICATE

Property to be disposed of by the Group in the PRC

			Market Value
			in existing state
Property	Description and tenure	Particulars of occupancy	as at 30 June 2011
			RMB
Beida Jade Bird Building,	The property comprises a	Portions of the property	88,500,000
the east of Ke Yuan Road and	land parcel with a site	with a total GFA of
the west of Jing Si Road,	area of approximately	approximately 11,865.48
High & New Technology	7,116.94 sq.m. and a	sq.m. are subject to
Development South Zone,	7-storey building	various tenancies at a
Nanshan District,	completed in about 2006	total monthly rent of
Shenzhen City,	erected thereon.	approximately
Guangdong Province,		RMB738,000 exclusive of
The PRC	The gross floor area	management fee,
	(“GFA”) of the property	air-conditioning and
中國廣東省	is approximately	building maintenance
深圳市南山區	12,508.18 sq.m.	costs and water and
高新技術開發南區		electricity charges.
科苑路東及經四路西	The land use rights of the
北大青鳥樓	property have been	Portions of the property
	granted for a term of 50	with a total GFA of
	years commencing on 9	approximately 198 sq.m.
	January 2001 and	are occupied by the
	expiring on 8 January	Group for office and
	2051 for high-tech	storage uses.
	research use.

The remaining portion of the property is occupied for property management and common area uses.

Notes:

Pursuant to a Real Estate Title Certificate, Shen Fang Di Zi Di No. 4000274368, the land use rights of the property with a site area of approximately 7,116.94 sq.m. have been granted to Shenzhen Jade Bird Optoelectronic Company Limited (深圳青鳥光電有限公司) (“Shenzhen Optoelectronic”) for a term of 50 years commencing on 9 January 2001 and expiring on 8 January 2051 for high-tech research use and the building ownership rights of the property with a GFA of approximately 12,508.18 sq.m. are legally owned by Shenzhen Optoelectronic.
The opinion of the PRC legal advisor to the Group contains, inter alia, the following:
a. The land use rights of the land parcel of the property and the building ownership rights of the building of the property are legally vested in Shenzhen Optoelectronic;
b. The land premium of the property has been settled in full;
c. The building of the property is in compliance with the local land use and construction planning;
d. The property is not subject to mortgage or other material encumbrances; and
e. Shenzhen Optoelectronic has the rights to occupy, use, lease, transfer, mortgage or dispose of the property in the market.
Shenzhen Optoelectronic is a wholly-owned subsidiary of the Company.

– V-5 –

APPENDIX VI

GENERAL INFORMATION

1. 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 Group. 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.

2. DISCLOSURE OF INTERESTS

(a) Disclosure of interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors and chief executive of the Company had or was deemed to have any interests and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO), which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interests and short positions which they have taken or deemed to have taken under such provisions of the SFO); or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Company, to be notified to the Company and the Stock Exchange.

(b) Substantial Shareholders and other person’s interests and short position in the Shares, underlying Shares and securities of the Company

As at the Latest Practicable Date, so far as was known to the Directors or the chief executive of the Company, the following persons (other than Director or chief executive of the Company) had, an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstance at

– VI-1 –

APPENDIX VI

GENERAL INFORMATION

general meetings of any other member of the Company (if any) or had any options in respect of such capital:

		Number of
Name	Class of Shares	Shares
Beijing Mingde Guangye Investment	Domestic Shares	600,000,000
Consultant Company Limited
(the “Controlling Shareholder”)
Beijing Mingyude Business and Trade	Domestic Shares	600,000,000
Company Limited (Note 1)
(“Beijing Mingyude”)
Li Peng (Note 2)	Domestic Shares	600,000,000
Shen Yun Xie (Note 3)	Domestic Shares	600,000,000
HKSCC Nominees Limited (Note 4)	H-Shares	418,321,200

Note 1: Beijing Mingyude is a limited company established in the PRC which holds 90% equity interest in the Controlling Shareholder. Pursuant to SFO, Beijing Mingyude is regarded as holding interests in the shares of the Company held by the Controlling Shareholder.
Note 2: Li Peng is a PRC legal person who holds 10% equity interest in the Controlling Shareholder and 60% equity interest in Beijing Mingyude, which holds 90% equity interest in the Controlling Shareholder. Pursuant to SFO, Li Peng is deemed to be interested in the shares of the Company held by the Controlling Shareholder.
Note 3: Shen Yun Xie is a PRC legal person who holds 40% interest in Beijing Mingyude, which holds 90% equity interest in the Controlling Shareholder. Pursuant to SFO, Shen Yun Xie is deemed to be interested in the shares of the Company held by the Controlling Shareholder.
Note 4: As notified by HKSCC Nominees Limited, as at 31 August 2011, the following participants in the central clearance system have interests amounting to 5% or more of the total issued H-Shares of the Company as shown in the securities accounts in the central clearance system:
(a) Bank of China (Hong Kong) Limited as nominee holds 53,472,000 H-Shares, representing 12.71% of the issued H-Shares of the Company.
(b) Newpont Securities Limited as nominee holds 34,372,000 H-Shares, representing 8.17% of the issued H-shares of the Company.
(c) The Hong Kong and Shanghai Banking Corporation Limited as nominee holds 29,259,000 H-shares, representing 6.95% of the issued H-Shares of the Company.

Save as aforesaid, as at the Latest Practicable Date, so far as was known to the Directors, no person had any interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Company (if any) or who had any option in respect of such capital.

– VI-2 –

APPENDIX VI

GENERAL INFORMATION

3. DIRECTORS’ INTERESTS IN ASSETS, CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors or proposed Directors had any direct or indirect interests in any assets which have since 31 December 2010 (being the date to which the latest published audited accounts of the Company were made up) been acquired or disposed of by or leased to any member of the Enlarged Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated financial statements of the Company have been made up), or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated financial statements of the Company have been made up). As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which was significant in relation to the business of the Enlarged Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated financial statements of the Company have been made up).

4. SERVICE CONTRACTS

The existing service contracts between the Company and the Directors are of a term of 3 years commencing on 12 February 2009, and will be expired on the date of the 2012 annual general meeting. The existing service contracts are subject to termination in certain circumstances as stipulated in the relevant service contracts.

Fixed remuneration of the Directors as set out in their respective existing service contract with the Company are as follows:

	Annual
Director	emoluments
	(RMB)
Mr. An Mu Zong	30,000
Mr. Wang Zai Xing	30,000
Mr. Chow Ka Wo Alex	120,000
Mr. Wang Hui	30,000
Mr. Bao Yi Qiang	30,000
Mr. Cai Lian Jun	30,000
Mr. Wong Kai Tat	120,000
Mr. Chan Ming Sun Jonathan	120,000

Save as disclosed above, none of the Directors had entered or proposed to entered into other service contracts with any member of the Enlarged Group.

– VI-3 –

APPENDIX VI

GENERAL INFORMATION

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

To the best knowledge of the Directors, none of the Directors or their respective associates (within the meaning of the Listing Rules) had any interests in any business which competed or might compete with the business of the Enlarged Group as at the Latest Practicable Date.

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Company or any of its subsidiaries) had been entered into by the Enlarged Group within the two years preceding the Latest Practicable Date and are or may be material:

(i) the Acquisition Agreement;
(ii) the Supplemental Acquisition Agreement;
(iii) the Disposal Agreement;
(iv) the disposal agreement dated 26 April 2011 entered into between Shanghai Buotou Zongrenzong Environmental Science and Technology Company Limited (上海博投眾人眾環保科技有限公司) and the Company in relation to the disposal of 70% of the issued share capital of Zhuhai Beida Education and Science Park Company Limited (珠海北大教育科學園有限公司) at a consideration of RMB231,084,081;
(v) the deed of termination dated 14 May 2009 entered into between Shenyang Public Utility Group Company Limited (“ Shenyang Public Utility Group ”), Mr. Cheung Tsun Yung Thomas and the Company in relation to the termination of the restructuring agreement, the first supplemental agreement and the second supplemental agreement, and there is no consideration involved under this deed of termination [(note][1)] ;
(vi) the supplemental agreement dated 15 May 2009 entered into between Beijing Zhong Yi Chong Yi Technology Development Company (“ Zhong Yi ”), Beijing Diye Real Estate Development Company Limited (“ Beijing Diye ”) and the Company in relation to the amendment of the long stop date stipulated under the share transfer agreement dated 31 December 2008 in relation to the disposal of 80% equity interest in Beijing Diye;
(vii) the supplemental agreement dated 20 October 2009 entered into between Zhong Yi and the Company in relation to the amendment of terms of the asset transfer agreement dated 5 January 2009 in relation to the acquisition of the property located at 1st floor and 2nd floor, Huipu Building, No. 112, Jianguo Road, Chaoyang District, Beijing, the PRC;

– VI-4 –

APPENDIX VI

GENERAL INFORMATION

(viii) the supplemental agreement dated 17 December 2009 entered into between Zhong Yi, Beijing Diye and the Company in relation to the amendment of the long stop date stipulated under the share transfer agreement dated 31 December 2008 aforesaid;
(ix) A build-transfer cooperative agreement dated 3 November 2009 entered into between ZhongFang and Chaozhou Jinshan in respect of the transfer of Project; and
(x) the Subcontract Agreements entered into between ZongFang and the Contractors dated 28 May 2010.

Note:

Pursuant to the deed of termination dated 14 May 2009, the following agreements were also terminated accordingly:
(a) the restructuring agreement dated 28 August 2008 entered into between Shenyang Public Utility Group, Mr. Cheung Tsun Yung Thomas and the Company in relation to the restructuring of the Company which is intended to assist the resumption of trading in the H-Shares on the Stock Exchange;
(b) the first supplemental agreement dated 14 October 2008 entered into between Shenyang Public Utility Group, Mr. Cheung Tsun Yung Thomas and the Company in relation to the amendment of the restructuring agreement; and
(c) the second supplemental agreement dated 2 January 2009 entered into between Shenyang Public Utility Group, Mr. Cheung Tsun Yung Thomas and the Company in relation to the cancellation of the first supplemental agreement and the amendment of the restructuring agreement.

7. LITIGATION

As at the Latest Practicable Date, the Enlarged Group was not engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against the Company.

8. QUALIFICATIONS AND CONSENT OF EXPERTS

The following is the qualification of the each of the experts who has given its opinion or advice which is contained in circular:

Name	Qualifications
Avista Valuation Advisory	independent professional valuer
Limited
BMI Appraisals Limited	independent professional valuer
Beijing Kaiwen Law Firm	registered law firm in the PRC
(北京凱文律師事務所)
Lo and Kwong C.P.A.	Certified Public Accountants
Company Limited

– VI-5 –

APPENDIX VI

GENERAL INFORMATION

Each of Avista Valuation Advisory Limited, BMI Appraisals Limited, Beijing Kaiwen Law Firm (北京凱文律師事務所) and Lo and Kwong C.P.A. Company Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or references to its name in the form and context in which they appear.

As at the Latest Practicable Date, each of the above experts was not beneficially interested in the share capital of the Group nor did it has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Group nor did it have any interest, either direct or indirect, in any asset which has been, since the date to which the latest published audited consolidated financial statements of the Group were made up, acquired, disposed of by or leased to or are proposed to be acquired or disposed of by or leased to the Group.

9. CONTINGENT LIABILITIES

Save as disclosed in the paragraph headed “Statement of Indebtedness” in Appendix I and the contingent liabilities of ZhongFang as mentioned in the section “Management Discussion and Analysis of ZhongFang” in Appendix II to this circular, the Directors were not aware of any material changes in respect of the indebtedness or other contingent liabilities of the Enlarged Group since 31 August 2011.

10. MISCELLANEOUS

(i) The registered address of the Company is at No.1-4, 20A, Central Street, Shenyang Economic and Technological Development Zone, the PRC;
(ii) The principal place of business of the Company in the PRC is at 14/F., Jinmao International Apartment, No. 1 Xiao Dong Road, Da Dong District, Shenyang, the PRC;
(iii) The principal place of business of the Company in Hong Kong is at 3rd Floor Alliance Building, 130-136 Connaught Road, Central, Hong Kong;
(iv) The H-Share registrar and transfer office of the Company in Hong Kong is Hong Kong Registrars Limited at Rooms 1806-7, 18/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong;
(v) The joint company secretaries of the Company are Mr. Wang Zai Xing and Mr. Chou Cheuk Lap; and
(vi) Unless otherwise stated, in the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

– VI-6 –

APPENDIX VI

GENERAL INFORMATION

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (other than Saturdays, Sundays and public holidays) at 14/F., Jinmao International Apartment, 1 Xiao Dong Road, Da Dong District, Shenyang, the PRC or at 3rd Floor Alliance Building, 130-136 Connaught Road, Central, Hong Kong and on the Company website at www.sygyfz.com.cn during normal business hours on any business day from the date of this circular up to and including the date of EGM:

(i) the memorandum and articles of association of the Company;
(ii) the “Letter from the Board”, the text of which is set out on pages 4 to 21 of this circular;
(iii) the annual reports of the Company for the two years ended 31 December 2009 and 2010;
(iv) the interim report of the Company for the six months ended 30 June 2010;
(v) the accountant’s report on the Target Company, the text of which is set out in Appendix II to this circular;
(vi) the comfort letter and accountant’s report on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(vii) the valuation report of the Target Company prepared by Avista Valuation Advisory Limited, the text of which is set out in Appendix IV to this Circular;
(viii) the valuation report and valuation certificate in respect of the Property held by the Disposal Company prepared by BMI Appraisal Limited, the text of which is set out in Appendix V to this circular;
(ix) the letter from Karl Thomson Financial Advisory Limited regarding the discounted future estimated cash flows on the Target Company, the text of which is set out on Appendix IV to this circular;
(x) the letter from Lo and Kwong C.P.A. Company Limited regarding the discounted future estimated cash flow of the Target Company, the text of which is set out on Appendix IV to this circular;
(xi) the material contracts referred to in the section headed “Material Contracts” in this Appendix;
(xii) the service contracts referred to in the section headed “Service Contracts” in this Appendix;

– VI-7 –

APPENDIX VI

GENERAL INFORMATION

(xiii) the written consents referred to in the section headed “Qualifications and Consent of Experts” in this Appendix; and
(xiv) A circular issued by the Company on 24 June 2011 in relation to the disposal of 70% equity interests of Zhuhai Beida Education and Science Park Company Limited* (珠海北大教育科學園有限公司).
For identification purposes only

– VI-8 –

NOTICE OF EGM

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)

(Stock code: 747)

NOTICE OF THE SECOND EXTRAORDINARY GENERAL MEETING FOR 2011

NOTICE IS HEREBY GIVEN that the second extraordinary general meeting for 2011 (“EGM”) of Shenyang Public Utility Holdings Company Limited (the “Company”) will be held at the conference room of Lexington Shenyang Rich Gate Hotel, Shenyang, the People’s Republic of China on 12 October 2011 (Wednesday) at 10:00 a.m. for the following purposes:

BY WAY OF ORDINARY RESOLUTIONS:

1. THAT

(a) the acquisition agreement (“Acquisition Agreement”) dated 11 May 2011 entered into between the Company as the purchaser and Tianjin Zhongfang Yongyang Property Company Limited (天津中房雍陽置業有限公司) and Shenzhen Zhongfang Chuangzhan Investment Group Company Limited (深圳市中房創展投資集團有限公司) as the vendors in relation to the acquisition of 100% equity interests of Zhongfang Chaozhou Investment Development Company Limited* (中房潮州投資開發有限公司) (a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved and confirmed; and
(b) any one or more of the directors (“Directors”) of the Company be and is/are hereby authorized to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things, as the case may be, as they may in their discretion consider necessary desirable or expedient to carry and implement the Acquisition Agreement and all the transactions contemplated thereunder.

2. THAT

(a) the disposal agreement (“Disposal Agreement”) dated 23 May 2011 entered into between the Company as the vendor and Beijing Sihai Huaao Trading Company Limited (北京四海華澳貿易有限公司) as the purchaser in relation to the disposal of the entire equity interests of Shenzhen Jade Bird Shenfa Guangdian Company Limited (深圳青鳥瀋發光電有限公司) (a copy of which has been produced to the EGM

– EGM-1 –

NOTICE OF EGM

marked “B” and signed by the chairman of the EGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved and confirmed; and

(b) any one or more of the Directors be and is/are hereby authorized to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things, as the case may be, as they may in their discretion consider necessary desirable or expedient to carry and implement the Disposal Agreement and all the transactions contemplated thereunder.

By order of the Board Shenyang Public Utility Holdings Company Limited An Mu Zong Chairman

Shenyang, the PRC, 5 September 2011

Registered office: Principal place of business in Hong Kong: No.1-4, 20A, Central Street, 3rd Floor Alliance Building, Shenyang Economic and 130-136 Connaught Road, Technological Development Zone Central, the PRC Hong Kong

Principal place of business in the PRC: 14/F., Jinmao International Apartment Da Dong District, Shenyang the PRC

Notes:

Each shareholder entitled to attend and vote at the EGM is entitled to appoint in written form one or more proxies to attend and vote at the EGM on his/her behalf. A proxy need not be a member of the Company. Shareholders or their proxies are entitled to attend the EGM and vote.
To be valid, the proxy form together with the certified power of attorney or authority (if any) must be delivered to the Company’s H share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1806-7, 18/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong or the place of operation of the Company at 14/F, Jin Mao International Apartment, 1 Xiao Dong Road, Da Dong District, Shenyang, the People’s Republic of China not less than 24 hours before the time of the EGM.
Shareholders or their proxies shall produce their identity documents when attending the EGM.
The register of the members of the Company will be closed from 22 September 2011 to 12 October 2011 (both dates inclusive), during which period no transfers of H shares will be effected.
Shareholders whose names appear on the register of members of the Company on 22 September 2011 will be entitled to attend and vote at the EGM.
Shareholders who intend to attend the EGM should complete the reply slip for attending the EGM and return it to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1806-7, 18/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong or the place of operation of the Company at 14/F, Jin Mao International Apartment, 1 Xiao Dong Road, Da Dong District, Shenyang, the People’s Republic of China on or before 7 September 2011. The reply slip may be delivered by hand, by post or by facsimile at facsimile number (852) 28650990. Completion and return of the reply slip shall not affect the shareholder’s right to attend and vote at the EGM pursuant to note 5 above.
The EGM is expected to last for less than one day. Shareholders and their proxies attending the EGM shall be responsible for their own traveling and accommodation expenses.
For identification purpose only

– EGM-2 –

AI assistant

CMON Limited — Proxy Solicitation & Information Statement 2011

50172_rns_2011-09-25_9f9d015d-0e73-410d-815c-9ea7e4434a98.pdf

瀋陽公用發展股份有限公司 Shenyang Public Utility Holdings Company Limited

MAJOR ACQUISITION AND MAJOR DISPOSAL

Financial Adviser to the Company

Karl Thomson Financial Advisory Limited

DEFINITIONS

瀋陽公用發展股份有限公司 Shenyang Public Utility Holdings Company Limited

(Stock code: 747)

To the Shareholders

MAJOR ACQUISITION AND MAJOR DISPOSAL

INTRODUCTION

I. THE ACQUISITION

The Acquisition Agreement

Date

Parties

The Sale Shares

Acquisition Consideration

Vendors’ Guarantees

The Supplemental Acquisition Agreement

Completion

INFORMATION OF THE TARGET COMPANY

1. Background of the Target Company

2. The Project

The Cooperation Agreement

Terms

3. Major permits and certificates for the Project

4. Expected and actual timetable

5. Costs and the financing plan

Risk Relating to the Project

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

FINANCIAL IMPACT ON THE GROUP AS A RESULT OF ACQUISITION

REASONS FOR THE ACQUISITION

LISTING RULES IMPLICATION OF THE ACQUISITION

II. THE DISPOSAL

The Disposal Agreement

Date

Parties

Disposal Consideration

Asset to be disposed of

Conditions precedent

Completion

INFORMATION OF THE DISPOSAL COMPANY

FINANCIAL IMPACT ON THE GROUP AS A RESULT OF DISPOSAL

USE OF PROCEED

REASONS FOR THE DISPOSAL

LISTING RULES IMPLICATION OF THE DISPOSAL

FINANCIAL AND TRADING PROSPECT OF THE GROUP

EGM

RECOMMENDATION

ADDITIONAL INFORMATION

THREE-YEAR FINANCIAL INFORMATION

STATEMENT OF INDEBTEDNESS

Provision for potential liabilities

Disclaimer

WORKING CAPITAL

MATERIAL ADVERSE CHANGE

OPINION

COMPARATIVE FINANCIAL INFORMATION

EMPHASIS OF MATTER

A. FINANCIAL INFORMATION OF ZHONGFANG

Statements of Comprehensive Income

Statements of Financial Position

Statements of Changes in Equity

Statements of Cash Flows

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Property, plant and equipment

Inventories

Borrowings costs

Retirement benefit costs

Taxation

Construction contracts

Financial instruments

Financial assets

CMON Limited Proxy Solicitation & Information Statement 2011