Continental Aerospace Technologies Holding Limited — M&A Activity 2005

Jan 19, 2005

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a 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 CATIC International Holdings Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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

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CATIC INTERNATIONAL HOLDINGS LIMITED

---

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

DISCLOSEABLE TRANSACTION

* For identification purpose only

12 January 2005

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information on Millennium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Reasons for the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Financial impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Addition information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10

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DEFINITIONS

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

“Acquisitions”	the acquisitions of the WAAL Shares and the TCL Shares
	by the Purchaser pursuant to the terms and conditions of
	the WAAL Agreement and the TCL Agreement
	respectively
“Agreements”	WAAL Agreement and TCL Agreement
“Billirich” or “Purchaser”	Billirich Investment Limited, a company incorporated in
	the British Virgin Islands and a direct wholly-owned
	subsidiary of the Company
“Business Day”	any day (other than Saturday or Sunday) on which banks
	are open for business in Hong Kong throughout its
	normal business hours
“CNG”	compressed natural gas
“Company”	CATIC International Holdings Limited, a company
	incorporated in Bermuda with limited liability, the shares
	of which are listed on the Stock Exchange
“Directors”	directors of the Company
“Due Diligence Report”	a report or reports setting out the results of the due
	diligence to be performed by the Purchaser on each
	member of the Millennium Group
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Latest Practicable Date”	7 January 2005, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information herein
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“LPG”	liquefied petroleum gas

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DEFINITIONS

“Millennium”	Millennium Group Limited, a company incorporated in
	Hong Kong with limited liability, the shares of which are
	listed on the Stock Exchange
“Millennium Group”	Millennium and its subsidiaries
“Millennium Shares”	ordinary shares of HK$0.02 each in the capital of
	Millennium
“PRC”	the People’s Republic of China, which for the purpose of
	this circular, excludes Hong Kong, the Macau Special
	Administrative Region and Taiwan
“Sale Shares”	WAAL Shares and TCL Shares
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	ordinary share(s) of nominal value of HK$0.10 each in
	the capital of the Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“TCL”	Tat Cheong Limited, a company incorporated in the
	British Virgin Islands and 100% legally and beneficially
	owned by Mr. Chen Shikang
“TCL Agreement”	the sale and purchase agreement dated 17 December 2004
	entered into between the Purchaser and TCL in relation to
	the acquisition of the TCL Shares
“TCL Completion”	completion of the TCL Agreement
“TCL Shares”	405,000,000 Millennium Shares legally and beneficially
	owned by TCL
“WAAL”	Worth Achieve Assets Limited, a company incorporated
	in the British Virgin Islands and 100% legally and
	beneficially owned by Mr. Jonathan Lau

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DEFINITIONS

“WAAL	Agreement”	the sale and purchase agreement dated 17 December 2004
		entered into between the Purchaser and WAAL in relation
		to the acquisition of the WAAL Shares
“WAAL	Completion”	completion of the WAAL Agreement
“WAAL	Shares”	480,000,000 Millennium Shares legally and beneficially
		owned by WAAL
“HK$”		Hong Kong dollars, the lawful currency of Hong Kong

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LETTER FROM THE BOARD

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CATIC INTERNATIONAL HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

Executive Directors: Mr. Fu Shula (Chairman) Mr. Wang Xinkuo (Deputy Chairman) Mr. Ji Guirong (Deputy Chairman and Chief Executive Officer) Mr. Yang Chunshu Ms. Yu Li Mr. Ren Haifeng (Deputy Chief Executive Officer)

Non-executive Director: Mr. Ip Tak Chuen, Edmond

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Principal Office in Hong Kong: 21st Floor CATIC Plaza 8 Causeway Road Causeway Bay Hong Kong

Independent Non-executive Directors:

Mr. Chu Yu Lin, David Mr. Li Ka Cheung, Eric Mr. Li Zhaoxi

12 January 2005

To the Shareholders

Dear Sirs and Madams,

DISCLOSEABLE TRANSACTION

INTRODUCTION

On 22 December 2004, the Directors announced that Billirich, a direct wholly-owned subsidiary of the Company, entered into (i) the WAAL Agreement with WAAL on 17 December 2004, pursuant to which Billirich has agreed to acquire and WAAL has agreed to sell the WAAL Shares; and (ii) the TCL Agreement with TCL on 17 December 2004, pursuant to which Billirich has agreed to acquire and TCL has agreed to sell the TCL Shares. The consideration for the WAAL Shares amounts to HK$16,800,000 (being HK$0.035 per WAAL Share) and the consideration for the TCL Shares amounts to HK$14,175,000 (being HK$0.035 per TCL Share).

• For identification purpose only

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LETTER FROM THE BOARD

Under Rule 14.06 of the Listing Rules, the Acquisitions constitute a discloseable transaction of the Company. The purpose of this circular is to provide you with, amongst other things, further information of the Acquisitions.

THE AGREEMENTS

Date

17 December 2004

Parties

• (i) The WAAL Agreement

Purchaser: Billirich, a direct wholly-owned subsidiary of the Company

Vendor: WAAL, which is 100% legally and beneficially owned by Mr. Jonathan Lau

• (ii) The TCL Agreement

Purchaser: Billirich, a direct wholly-owned subsidiary of the Company

Vendor: TCL, which is 100% legally and beneficially owned by Mr. Chen Shikang

Each of WAAL, TCL, Mr. Jonathan Lau and Mr. Chen Shikang is not a connected person (as defined under the Listing Rules) of the Company.

Assets to be acquired

Pursuant to the WAAL Agreement, the Purchaser has agreed to acquire and WAAL has agreed to sell the WAAL Shares, being 480,000,000 Millennium Shares, representing approximately 14.33% of the total issued share capital of Millennium as at the Latest Practicable Date.

Pursuant to the TCL Agreement, the Purchaser has agreed to acquire and TCL has agreed to sell the TCL Shares, being 405,000,000 Millennium Shares, representing approximately 12.09% of the total issued share capital of Millennium as at the Latest Practicable Date.

Consideration

The consideration payable by the Purchaser for the WAAL Shares is HK$16,800,000 (being HK$0.035 per WAAL Share) under the WAAL Agreement and the consideration payable by the Purchaser for the TCL Shares is HK$14,175,000 (being HK$0.035 per TCL Share) under the TCL Agreement.

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LETTER FROM THE BOARD

The aggregate consideration payable by Billirich under both the Agreements amounts to HK$30,975,000, the relevant portion of which will be satisfied in cash at WAAL Completion and TCL Completion. The Company intends to fund such payment by the Group’s internal resources.

The terms of the WAAL Agreement and the TCL Agreement were arrived at after arm’s length negotiations between the relevant parties. The consideration payable under the Agreements was determined based on the share price performance and trading volume of the Millennium Shares.

The consideration of HK$0.035 per WAAL Share and TCL Share represents (i) a discount of approximately 49.3% to the closing price of HK$0.069 per Millennium Share as quoted on the Stock Exchange on 17 December 2004, the date of the Agreements; and (ii) a discount of approximately 51.1% to the average closing price of HK$0.0716 per Millennium Share for the five trading days up to and including 17 December 2004.

Completion

WAAL Completion and TCL Completion shall take place on the second Business Days following the date upon which all the respective conditions to the WAAL Agreement and the TCL Agreement are fulfilled or waived or such other day as may be agreed by the Purchaser and WAAL or TCL (as the case may be) in writing.

Conditions

Each of the WAAL Completion and the TCL Completion is conditional upon:

• (i) the Purchaser notifying WAAL or TCL (as the case may be) in writing that it is satisfied with the due diligence results in respect of the title in the WAAL Shares or the TCL Shares (as the case may be), the corporate authority of WAAL or TCL (as the case may be) to enter into the WAAL Agreement or the TCL Agreement (as the case may be) and to execute the transactions contemplated hereunder, the financial, corporate, contractual, taxation and trading positions of the Millennium Group and the title of the members of the Millennium Group to their respective assets;

• (ii) a copy of the Due Diligence Report being delivered to WAAL or TCL (as the case may be) by the Purchaser, and WAAL or TCL (as the case may be) in writing acknowledge receipt of the Due Diligence Report;

• (iii) the warranties given by WAAL or TCL (as the case may be) in the WAAL Agreement or the TCL Agreement (as the case may be) remaining true and accurate and not misleading in any material respect at WAAL Completion or TCL Completion (as the case may be) as if repeated at WAAL Completion or TCL Completion (as the case may be) and at all times between the date of the Agreements and WAAL Completion or TCL Completion (as the case may be);

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LETTER FROM THE BOARD

• (iv) all other necessary consents from third parties (including governmental or official or regulatory authorities) and all other necessary consents and approvals required pursuant to any legal or regulatory requirement being obtained;

• (v) no statute, regulation or decision which would prohibit, restrict or materially delay the sale and purchase of the Sale Shares or the operation of any member of the Millennium Group after WAAL Completion or TCL Completion (as the case may be) having been proposed, enacted or taken by any governmental or official authority; and

• (vi) the current listing of the Millennium Shares not having been withdrawn, the Millennium Shares continuing to be traded on the Stock Exchange prior to the date of WAAL Completion or TCL Completion (as the case may be) (save for any temporary suspension not exceeding 5 Business Days) and the Stock Exchange not having indicated that the listing of the Millennium Shares on the Stock Exchange will be withdrawn or objected to.

The Purchaser may, in its absolute discretion, waive all or any of the conditions applicable to it as set out above at any time by notice in writing to WAAL or TCL (as the case may be). As at the Latest Practicable Date, none of the conditions above have been fulfilled yet. The Purchaser has no intention to waive all or any of the aforesaid conditions as at the Latest Practicable Date.

In the event that any of the above conditions shall not have been fulfilled or waived prior to 31 January 2005 (or such other date as the Purchaser may agree), the Purchaser shall not be bound to proceed with the sale and purchase of the WAAL Shares or the TCL Shares (as the case may be) and the WAAL Agreement or the TCL Agreement (as the case may be) shall cease to be of any effect (in such event a press announcement will be made by the Company) and neither parties to the WAAL Agreement or the TCL Agreement (as the case may be) shall have any obligations and liabilities under the relevant Agreements save for any antecedent breaches of the terms thereof.

INFORMATION ON MILLENNIUM

Millennium is principally an investment holding company investing in diverse areas including communication, securities trading and property investment. In March 2004, Millennium acquired a majority interest in a company which is principally engaged in the investment, construction and operation of LPG and CNG stations in the PRC, marketing and sale of plant and equipment for gas stations and provision of related system integration technology, the research, manufacturing and distribution of conversion kits for motor vehicles to switch to alternative fuel of LPG/CNG, and LPG/CNG storage and distribution.

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LETTER FROM THE BOARD

According to the audited consolidated financial statements of Millennium, the Millennium Group recorded a net loss of approximately HK$20.3 million for the year ended 30 June 2003 and a net asset value of approximately HK$253.3 million as at 30 June 2003. According to the unaudited consolidated financial statements of Millennium, the Millennium Group recorded a net profit of approximately HK$2.2 million for the six months ended 31 December 2003 and a net asset value of approximately HK$255.5 million as at 31 December 2003. As stated in the announcement published by Millennium on 29 December 2004, the Millennium Group recorded an audited net loss of approximately HK$7.0 million for the year ended 30 June 2004 and an audited net asset value of approximately HK$297.5 million as at 30 June 2004.

REASONS FOR THE ACQUISITIONS

The principal activities of the Company and its subsidiaries are undertaking building facade projects, generation and sale of electricity and steam power, and investments in aero-technology based businesses including helicopter manufacturing and aero-photographic operations.

The Group is actively identifying investment opportunities with potentials. Taking into account the fast growing economy and the continuously improving standards of living in the PRC, consumption of cars is expected to grow. The Directors anticipate that the consumption of LPG and CNG will grow together with the growth of car ownership and the gross domestic product in the PRC. With the increasing concern of environmental protection, the Directors also believe that LPG and CNG, which are more environmental friendly than gasoline, would become increasingly popular as energy sources of motor vehicles in the PRC. Hence, the Directors consider that the prospect of LPG/CNG business in the PRC is promising, and the Acquisitions would enable the Group to obtain an indirect investment in the energy sector in the PRC in addition to its existing electricity and steam power business in the PRC. The Directors consider that the terms of each of the Agreements are fair and reasonable and in the interests of the Shareholders as a whole.

Upon the WAAL Completion and the TCL Completion, the Company and parties acting in concert with it will be holding 885,000,000 Millennium Shares, representing approximately 26.42% of the issued share capital of Millennium as at the Latest Practicable Date. Based on the information disclosed in the announcement of Millennium dated 22 December 2004, Millennium had a total of 3,349,516,755 issued shares and it is expected that the Company and parties acting in concert with it will be the single largest shareholder of Millennium immediately after the WAAL Completion and the TCL Completion.

As at the Latest Practicable Date, the Company has no intention to acquire any further Millennium Shares. Upon WAAL Completion and TCL Completion, the Company intends to appoint directors to the board of Millennium subject to, amongst other things, the approval of the board of Millennium.

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LETTER FROM THE BOARD

FINANCIAL IMPACTS

Upon WAAL Completion and TCL Completion, Millennium will become an associated company of the Company.

The Directors noted from the announcement published by Millennium on 29 December 2004 that the auditors of Millennium, taking into consideration an litigation in respect of a Millennium’s investment amounting to HK$137.9 million, has given a modified opinion on the financial statements of Millennium, and the effects of the litigation on Millennium’s net assets could not be quantified.

The Directors anticipated that a gain, representing the difference of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of Millennium over the cost of the Acquisitions, would arise from the Acquisitions which would be recognized immediately in profit or loss in accordance with Hong Kong Financial Reporting Standard 3. Given the uncertainty of the aforesaid litigation of Millennium, the Directors currently were not able to quantify the amount of gain so recognised.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board of CATIC International Holdings Limited Fu Shula

Chairman of the Board

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GENERAL INFORMATION

APPENDIX

RESPOBSIBILITY STATEMENT

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

DISCLOSURE OF INTERESTS

Interests in the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange were as follows:

Number of Shares held

Name	Number of Shares held
Mr. Ren Haifeng		11,282,000
Name	**Number of Shares **	under options held
Mr. Yang Chunshu		28,160,000
Mr. Ji Guirong		20,000,000
Ms. Yu Li		25,400,000

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

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GENERAL INFORMATION

APPENDIX

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following person (not being a 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 under provisions of Divisions 2 and 3 of Part XV of the SFO or, who was, directly or indirectly, interested in 5% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of the Company:

	Percentage
	of existing	Number of
Shareholders	issued capital	Shares held
Tacko International Limited (“Tacko”)	33.83%	1,265,767,000
		(Note 1)
CATIC (H.K.) Limited (“CATIC (H.K.)”)	33.83%	1,265,767,000
		(Note 1)
Speed Profit Enterprises Limited	13.59%	508,616,000
		(Note 2)
Catic International Finance Limited	13.59%	508,616,000
(“Catic Finance”)		(Note 2)
China National Aero-Technology Import &	47.42%	1,774,383,000
Export Corporation (“CATIC”)		(Notes 1, 2 & 3)
China Aviation Industries Corporation I	47.42%	1,774,383,000
(“AVIC I”)		(Notes 1, 2 & 3)
China Aviation Industries Corporation II	47.42%	1,774,383,000
(“AVIC II”)		(Notes 1, 2 & 3)

Notes:

1. Tacko is a wholly-owned subsidiary of CATIC (H.K.), which is in turn a wholly-owned subsidiary of CATIC. Under the SFO, both CATIC (H.K). and CATIC are deemed to be interested in the 1,265,767,000 Shares held by Tacko.

2. Speed Profit Enterprises Limited is a wholly-owned subsidiary of Catic Finance, which is in turn a wholly-owned subsidiary of CATIC. Under the SFO, both Catic Finance and CATIC are deemed to be interested in the 508,616,000 Shares held by Speed Profit Enterprises Limited.

3. CATIC is owned as to 50% by AVIC I and as to 50% by AVIC II. Under the SFO, each of AVIC I and AVIC II is deemed to be interested in the aggregate of the Shares stated in notes (1) and (2) above (i.e. an aggregate of 1,774,383,000 Shares held by Tacko and Speed Profit Enterprises Limited).

Saved as disclosed above, the Directors and the chief executive of the Company are not aware of any person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had any interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who was, directly or indirectly, interested in 5% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of the Company.

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GENERAL INFORMATION

APPENDIX

Save as disclosed below, as at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, no other person was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of other members of the Group or has any option in respect of such capital:

Name of Owner	Name of subsidiary	% of shares held
Asia Capital Financial	Hangzhou Sealand Electric Power	30%
Group Limited	Company Limited

LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was involved in any litigation or claim of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

GENERAL

• (i) The principal office of the Company is at 21st Floor, CATIC Plaza, 8 Causeway Road, Causeway Bay, Hong Kong.

• (ii) The secretary of the Company is Mr. Yu Yu Cheung, Anthony, AHKSA, CA.

• (iii) The transfer office of the Company is situated at the offices of its branch share registrars, Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (iv) As at the Latest Practicable Date, none of the Director has any existing or proposed service contract with any member of the Group which is not terminable by the employer within one year without payment of compensation other than statutory compensation.

• (v) The English text of this document shall prevail over the Chinese text.

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