Continental Aerospace Technologies Holding 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 you should take, 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 AVIC International Holding (HK) Limited , you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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VERY SUBSTANTIAL DISPOSAL AND

CONNECTED TRANSACTIONS

Financial adviser to the Company

Independent financial adviser to the Independent Board Committee and Independent Shareholders

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A notice convening a special general meeting of AVIC International Holding (HK) Limited to be held at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong, on Friday, 23 December 2011 at 10:00 a.m. is set out on pages SGM-1 to SGM-3 of this circular. Whether or not you propose to attend the meeting, you are requested to read the notice and to complete the proxy form in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar and transfer office, Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding of the meeting or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending and voting at the meeting should you so wish.

7 December 2011

CONTENTS

			Page
DEFINITIONS. . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .			20
LETTER FROM GOLDIN FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			22
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	I-1
APPENDIX II	–	FINANCIAL INFORMATION OF THE TARGET
		GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III	–	FINANCIAL INFORMATION OF THE OPERATING
		COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE REMAINING GROUP . . . . .	IV-1
APPENDIX V	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	V-1
NOTICE OF SGM .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITIONS

In this circular, the following terms have the meanings set out below unless the context otherwise requires.

“Acquisition”
the proposed acquisition of 51% equity interest in 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited*) pursuant to the terms and conditions of a sale and purchase agreement dated 21 September 2011, details of which are disclosed in the announcement of the Company dated 21 September 2011 and the circular of the Company dated 17 November 2011
“Agreement”
the sale and purchase agreement dated 1 November 2011 entered into between the Purchaser and the Company in relation to the Target Company Disposal
“Agreement Completion First Anniversary”
the date 12 months after the Completion Date or, if such date is not a Business Day then the immediately preceding Business Day
“Asia Capital”
Asia Capital Financial Group Limited, a wholly-owned subsidiary of the Purchaser incorporated in the BVI with limited liability
“Asia Capital Shares”
shares in Asia Capital representing all of its issued and paid up share capital as at Completion Date
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Board”
the board of Directors
“Business Day”
a day (other than Saturday or Sunday and days on which a tropical cyclone warning No. 8 or above or a “black rainstorm warning signal” is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which licensed banks in Hong Kong are open for general banking business
“BVI”
the British Virgin Islands
“CATIC Helicopter (HK)”

CATIC Helicopter (H.K.) Limited, a wholly-owned subsidiary of the Company incorporated in the BVI with limited liability

For identification purpose only

– 1 –

DEFINITIONS

“Company”
“Completion”
“Completion Date”
“connected person(s)”
“Consideration”
“Deferred Consideration”
“Deferred Payment Date”
“Deposit”
“Director(s)”
“Disposals”
“Enlarged Group”
“Goldin Financial”
AVIC International Holding (HK) Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the main board of the Stock Exchange (stock code: 232)
the completion of the sale and purchase of the Sale Share and the Sale Loan in the manner specified in the Agreement
the first Business Day next following the date on which all the conditions other than the condition (3) have been satisfied or waived in accordance with the Agreement or such other time and/or Business Day as the parties to the Agreement may agree in writing
has the meaning ascribed to it under the Listing Rules
the total consideration payable by the Purchaser to the Company for the purchase of the Sale Share and the Sale Loan pursuant to the Agreement
that portion of the Consideration, in the amount of HK$184,000,000, which is to be received by the Company on Deferred Payment Date
the Business Day notified by the Purchaser to the Company pursuant to the Agreement, being a date falling after Completion and which is not later than the earlier of (i) the Agreement Completion First Anniversary; or (ii) 31 December 2012
an amount of HK$20,000,000 paid by the Purchaser to the Company on 4 November 2011 pursuant to the Agreement
the director(s) of the Company
collectively, the Target Company Disposal and the disposal of the Hangzhou Sale Shares and the Hangzhou Sale Loan pursuant to the Hangzhou Agreement

the Group as enlarged by the Acquisition

Goldin Financial Limited, being the independent financial adviser to the Independent Shareholders in respect of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder

– 2 –

DEFINITIONS

“Group”
the Company and its subsidiaries
“Hangzhou Agreement”
the sale and purchase agreement dated 1 November 2011 entered into among the Hangzhou Purchaser and the Vendor in relation to the disposal of the Hangzhou Sale Shares and the Hangzhou Sale Loan
“Hangzhou Completion” the completion of the sale and purchase of the Hangzhou Sale Shares and the Hangzhou Sale Loan in the manner specified in the Hangzhou Agreement
“Hangzhou Consideration”
the total consideration payable by the Hangzhou Purchaser to the Vendor for the purchase of the Hangzhou Sale Shares and the Hangzhou Sale Loan pursuant to the Hangzhou Agreement
“Hangzhou Purchaser”
杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.*), a company established in the PRC with limited liability
“Hangzhou Sale Loan” the indebtedness in the amount of RMB1,496,707.88 (equivalent to approximately HK$1.8 million) as at the date of the Hangzhou Agreement owed by the Operating Company to the Vendor
“Hangzhou Sale Shares”
2,100,000 ordinary shares in the Operating Company, representing 3% of the entire equity interest in the Operating Company
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the committee of the Board comprising all the independent non-executive Directors established for the purpose of giving recommendation to the Independent Shareholders on the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder
“Independent Shareholders”
Shareholders other than those who are involved or interests in the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder
For identification purpose only

– 3 –

DEFINITIONS

“Independent Third Party(ies)”
third party(ies) independent of the Company and its connected persons
“Latest Practicable Date”
6 December 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
30 April 2012, being the long stop date of the Agreement
“Operating Company”
浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-Holding Co.), a company duly established under the PRC law and a non wholly-owned subsidiary of the Company
“PRC”
the People’s Republic of China, for the purpose of this circular, excludes Hong Kong, Macau Special Administrative Region of the PRC and Taiwan
“PRC Business Day”
a day (other than a Saturday, Sunday and PRC statutory public holiday) on which banks in the PRC are open for business and provide normal banking services
“Purchaser”
Hong Kong Yuanhe International Trade Group Limited, a company incorporated in Hong Kong with limited liability
“Remaining Group” the Group immediately after the Disposals
“RMB”
Renminbi, the lawful currency of the PRC
“Sale Loan”
the indebtedness in the amount of HK$164,958,535.82 as at the date of the Agreement and as at Deferred Payment Date owed by the Target Company to the Company, representing the accumulated advances extended by the Company to the Target Company from time to time prior to the date of the Agreement
“Sale Share”
the one issued and fully paid share of US$1.00 nominal value in the share capital of the Target Company representing all of its issued and paid up share capital as at the date of the Agreement and as at Completion
“SFO”

Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

– 4 –

DEFINITIONS

“SGM”

the special general meeting(s) of the Company to be convened to consider and approve, among other things, the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder

“Share(s)”
ordinary share(s) of HK$0.1 each in the share capital of the Company
“Share Charge”
the first priority legal charge over (a) the Sale Share and all accretions thereto; and (b) the Asia Capital Shares and all accretions thereto, as granted by the Purchaser to the Company, for the purpose of securing (1) the liability of the Purchaser to the Company thereunder to pay the Deferred Consideration on Deferred Payment Date; and (2) by way of guarantee, the liability of the Target Company to the Company under the Sale Loan, and pursuant to which there will be restrictions with regard to dealings by the Target Company or Asia Capital with their respective equity interests in the Operating Company, and with regard to dealings by the Operating Company with its assets and properties, to be executed in the form attached to the Agreement
“Share Charge Release” the release with effect from Deferred Payment Date of the security granted under the Share Charge as executed in the form attached to the Agreement
“Shareholder(s)” holder(s) of the Shares
“Sino Gas”
Sino Gas Group Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the main board of the Stock Exchange
“Sino Gas Transactions” the proposed disposal of the interest in a company to a subsidiary of Sino Gas and the subscription of open offer shares in the proposed open offer of Sino Gas, details of which are disclosed in a separate announcement of the Company dated 9 November 2011
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Target Company”
Polyson Investment Limited, a wholly-owned subsidiary of the Company incorporated in the BVI with limited liability

“Target Company Disposal” the disposal of the Sale Share and the Sale Loan by the Company to the Purchaser pursuant to the Agreement

– 5 –

DEFINITIONS

“Target Group”

the Target Company and its subsidiary

“Vendor”
中航技直升機技術服務(深圳)有限公司 (CATIC Helicopter Development (Shenzhen) Limited), an indirect whollyowned subsidiary of the Company established in the PRC with limited liability
“Warranties”
the representations, warranties and undertakings by the Company to the Purchaser pursuant to the Agreement
“Zhejiang Agreement” the sale and purchase agreement dated 11 August 2011 entered into among the Zhejiang Purchaser and the Vendor in relation to the disposal of the Zhejiang Sale Shares and the Zhejiang Sale Loan
“Zhejiang Completion” the completion of the sale and purchase of the Zhejiang Sale Shares and Zhejiang Sale Loan in the manner specified in the Zhejiang Agreement
“Zhejiang Consideration” the total consideration payable by the Zhejiang Purchaser to the Vendor for the purchase of the Zhejiang Sale Shares and the Zhejiang Sale Loan pursuant to the Zhejiang Agreement
“Zhejiang Purchaser” 浙江中強化纖有限公司 (Zhejiang Zhongqiang Chemical Fiber Co., Ltd.*), a company established in the PRC with limited liability
“Zhejiang Sale Loan”
the indebtedness in the amount of RMB1,995,610.51 (equivalent to approximately HK$2.4 million) as at the date of the Zhejiang Agreement owed by the Operating Company to the Vendor
“Zhejiang Sale Shares”
2,800,000 ordinary shares in the Operating Company, representing 4% of the entire equity interest in the Operating Company
“%” per cent

For illustration purposes, figures in RMB in this circular have been translated into HK$ at the exchange rate of RMB1 = HK$1.222. Such conversion shall not be construed as a representation that amounts in RMB were or may have been converted into HK$ using such exchange rate or any other exchange rate or at all.

For identification purpose only

– 6 –

LETTER FROM THE BOARD

Executive Directors:

Mr. Wu Guangquan (Chairman) Mr. Jiang Wei (Deputy Chairman) Mr. Ji Guirong (Deputy Chairman and Chief Executive Officer) Mr. Liu Rongchun Mr. Pan Linwu Mr. Zhang Chuanjun

Non-executive Director:

Mr. Ip Tak Chuen, Edmond

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

Head Office and Principal Place of Business: Unit B, 15th Floor United Centre 95 Queensway Hong Kong

Independent Non-executive Directors:

Mr. Chu Yu Lin, David Mr. Li Ka Fai, David Mr. Li Zhaoxi

7 December 2011

To the Shareholders

Dear Sir/Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

INTRODUCTION

On 11 August 2011, the Vendor entered into the Zhejiang Agreement with the Zhejiang Purchaser to sell 4% of the equity interest in the Operating Company. On 1 November 2011, the Vendor and the Hangzhou Purchaser entered into the Hangzhou Agreement, whereby, the Vendor conditionally agreed to sell and the Hangzhou Purchaser conditionally agreed to purchase 3% of the equity interest in the Operating Company. On 1 November 2011, the

– 7 –

LETTER FROM THE BOARD

Company and the Purchaser entered into the Agreement, pursuant to which the Company conditionally agreed to sell and the Purchaser conditionally agreed to purchase the total issued and paid up share capital in the Target Company.

The purpose of this circular is to provide you with, among other things, (i) further information on the Disposals; (ii) financial information of the Group; (iii) financial information of the Target Group and the Operating Company; (iv) unaudited pro forma financial information of the Remaining Group; and (v) the notice of SGM.

THE ZHEJIANG AGREEMENT DATED 11 AUGUST 2011

Parties:

(i) the Vendor : 中航技直升機技術服務 (深圳)有限公司 (CATIC Helicopter Development (Shenzhen) Limited), an indirect whollyowned subsidiary of the Company
(ii) the Zhejiang : 浙江中強化纖有限公司 (Zhejiang Zhongqiang Chemical Fiber Purchaser Co., Ltd.*)

The Vendor is principally engaged in the provision of technical advisory services on aero-technology related products and parts, the research and development of aero-technology related products, and the provision of repair and maintenance services on aero-technology related precision instruments and equipments.

The Zhejiang Purchaser is a company duly established and validly existing under the PRC law and is principally engaged in the production and sale of synthetic filaments.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Zhejiang Purchaser and its ultimate beneficial owners are Independent Third Parties.

Assets to be disposed of

(i) the Zhejiang Sale Shares, representing 4% of the entire equity interest in the Operating Company; and
(ii) the Zhejiang Sale Loan, representing the indebtedness in the amount of RMB1,995,610.51 (equivalent to approximately HK$2.4 million) as at the date of the Zhejiang Agreement owed by the Operating Company to the Vendor.
For identification purpose only

– 8 –

LETTER FROM THE BOARD

Consideration

The Zhejiang Consideration shall be an aggregate purchase price of RMB16,395,610.51 (equivalent to approximately HK$20.0 million) for the purchase of the Zhejiang Sale Shares and the Zhejiang Sale Loan, which shall be satisfied in cash within five PRC Business Days after the obtaining of all relevant documents in relation to the change in shareholding register of the Operating Company in respect of the sale and purchase of the Zhejiang Sale Shares by the Zhejiang Purchaser.

The Zhejiang Consideration has been arrived at after arm’s length negotiations between the Vendor and the Zhejiang Purchaser and was determined with reference to, including but not limited to, (i) the historical performance of the Operating Company with profitable track record in the preceding two financial years; (ii) the attributable unaudited net asset value of the Zhejiang Sale Shares of approximately RMB4.7 million (equivalent to approximately HK$5.8 million) based on the unaudited net asset value of the Operating Company of approximately RMB118.0 million (equivalent to approximately HK$144.2 million) as at 30 June 2011 according to the PRC management accounts of the Operating Company for the six months ended 30 June 2011; and (iii) the amount of the Zhejiang Sale Loan. The amount of the Zhejiang Sale Loan of RMB1,995,610.51 (equivalent to approximately HK$2.4 million) was included in the Zhejiang Consideration for assignment on a dollar for dollar basis.

The Zhejiang Consideration was settled by the Zhejiang Purchaser to the Vendor in cash on 25 August 2011.

Conditions Precedent

The Zhejiang Completion was conditional upon the following conditions precedent being satisfied:

(1) the due execution of the Zhejiang Agreement by the Vendor and the Zhejiang Purchaser; and
(2) all necessary approvals and consents required to be obtained from any government authority in respect of the Zhejiang Agreement and/or the transactions contemplated hereunder being obtained unconditionally and irrevocably.

Completion

The Zhejiang Completion took place on 30 September 2011.

– 9 –

LETTER FROM THE BOARD

THE HANGZHOU AGREEMENT DATED 1 NOVEMBER 2011

Parties:

(i) the Vendor : 中航技直升機技術服務 (深圳)有限公司 (CATIC Helicopter Development (Shenzhen) Limited), an indirect whollyowned subsidiary of the Company
(ii) the Hangzhou : 杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.*) Purchaser

The Hangzhou Purchaser is a company duly established and validly existing under the PRC law and is principally engaged in the wholesaling and retailing of coal. The Hangzhou Purchaser is a connected person of the Company under Chapter 14A of the Listing Rules by virtue of its shareholding of more than 10% in the Operating Company. As the Hangzhou Purchaser is owned as to 80% by its ultimate beneficial owner who is an individual, such individual is also a connected person of the Company.

Assets to be disposed of

(i) the Hangzhou Sale Shares, representing 3% of the entire equity interest in the Operating Company; and
(ii) the Hangzhou Sale Loan, representing the indebtedness in the amount of RMB1,496,707.88 (equivalent to approximately HK$1.8 million) as at the date of the Hangzhou Agreement owed by the Operating Company to the Vendor.

Consideration

The Hangzhou Consideration shall be an aggregate purchase price of RMB12,296,707.88 (equivalent to approximately HK$15.0 million) for the purchase of the Hangzhou Sale Shares and the Hangzhou Sale Loan, which shall be satisfied in cash within five PRC Business Days after the obtaining of all relevant documents in relation to the change in shareholding register of the Operating Company in respect of the sale and purchase of the Hangzhou Sale Shares by the Hangzhou Purchaser.

The Hangzhou Consideration has been arrived at after arm’s length negotiations between the Vendor and the Hangzhou Purchaser and was determined with reference to, including but not limited to, (i) the historical performance of the Operating Company with profitable track

For identification purpose only

– 10 –

LETTER FROM THE BOARD

record in the preceding two financial years, which was represented by a trailing price-toearning ratio of more than 20 times; (ii) the attributable unaudited net asset value of the Hangzhou Sale Shares of approximately RMB3.5 million (equivalent to approximately HK$4.3 million) based on the unaudited net asset value of the Operating Company of approximately RMB118.0 million (equivalent to approximately HK$144.2 million) as at 30 June 2011 according to the PRC management accounts of the Operating Company for the six months ended 30 June 2011; and (iii) the amount of the Hangzhou Sale Loan. The amount of the Hangzhou Sale Loan of RMB1,496,707.88 (equivalent to approximately HK$1.8 million) was included in the Hangzhou Consideration for assignment on a dollar for dollar basis.

Conditions Precedent

The Hangzhou Completion is conditional upon the following conditions precedent being satisfied:

(1) the due execution of the Hangzhou Agreement by the Vendor and the Hangzhou Purchaser;
(2) the entering into the disposal of the Hangzhou Sale Shares and Hangzhou Sale Loan by the Vendor being approved by the Shareholders in general meeting of the Company; and
(3) all necessary approvals and consents required to be obtained from any government authority in respect of the Hangzhou Agreement and/or the transactions contemplated thereunder being obtained unconditionally and irrevocably.

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

Completion

Subject to the terms and provisions of the Hangzhou Agreement and the fulfillment of the conditions precedent, Hangzhou Completion shall take place upon the transfer of the Hangzhou Sales Shares.

THE AGREEMENT DATED 1 NOVEMBER 2011

Parties:

(i) Vendor : the Company (ii) Purchaser : Hong Kong Yuanhe International Trade Group Limited

The Purchaser is incorporated in Hong Kong with limited liability. Based on the information available to the Company, the Purchaser and its subsidiary, Asia Capital, are principally engaged in investment holding. The Purchaser is a connected person of the

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LETTER FROM THE BOARD

Company under Chapter 14A of the Listing Rules by virtue of its shareholding of more than 10% in the Operating Company. As the Purchaser is owned as to 100% by its ultimate beneficial owner who is an individual, such individual is also a connected person of the Company.

The Purchaser is an existing shareholder of the Operating Company through its interest in Asia Capital. The Company commenced the negotiation for the Disposals with the Purchaser and the Hangzhou Purchaser on 21 October 2011 when the Company was formally approached by the Purchaser regarding its interest to increase its stake in the Operating Company. The Disposals were negotiated separately and independently with the Acquisition announced on 21 September 2011.

Assets to be disposed of

(i) the Sale Share, representing the total issued and paid up share capital in the Target Company; and
(ii) the Sale Loan, representing the indebtedness in the amount of HK$164,958,535.82 as at the date of the Agreement and as at the Deferred Payment Date owed by the Target Company to the Company.

Consideration

The Consideration shall be an aggregate purchase price of HK$338,993,455.38 for the purchase of the Sale Share and the Sale Loan.

The Consideration has been arrived at after arm’s length negotiations between the Company and the Purchaser and was determined with reference to, including but not limited to, (i) the historical performance of the Operating Company with profitable track record in the preceding two financial years, which was represented by a trailing price-to-earning ratio of more than 20 times; (ii) the attributable unaudited net asset value of the Sale Share of approximately RMB57.8 million (equivalent to approximately HK$70.7 million) based on the unaudited net asset value of the Operating Company of approximately RMB118.0 million (equivalent to approximately HK$144.2 million) as at 30 June 2011 according to the PRC management accounts of the Operating Company for the six months ended 30 June 2011; and (iii) the amount of the Sale Loan. The amount of the Sale Loan of HK$164,958,535.82 was included in the Consideration for assignment on a dollar for dollar basis.

The Purchaser paid to the Company the Deposit on 4 November 2011. In the event of successful Completion, the Deposit shall be offset against the Consideration and only the balance of the Consideration shall be payable by the Purchaser. Apart from such offset or the return of the Deposit provided for pursuant to the Agreement, the Deposit shall otherwise be non-refundable, and the Company shall not be required under any circumstances to account to the Purchaser for any interest in respect thereof.

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LETTER FROM THE BOARD

At Completion, the Purchaser shall, against compliance in full by the Company of its obligations set out in the Agreement, deliver to the Company the evidence of remittance to the Company’s account of immediately available funds denominated in Hong Kong dollars in the net amount after deduction of all remittance and other bank charges equal to the Consideration less the Deposit and the Deferred Consideration.

After Completion, the Purchaser shall give notice in writing to the Company of the proposed Deferred Payment Date which notice shall be received by the Company not later than the fifth Business Day prior to such Deferred Payment Date. If by the fifth Business Day prior to the earlier of (i) the Agreement Completion First Anniversary; or (ii) 31 December 2012 no such notice has been received by the Company, then the Purchaser shall be deemed to have elected that the earlier of (i) the Agreement Completion First Anniversary; or (ii) 31 December 2012 to be the Deferred Payment Date.

Set out below is the summarised settlement schedule of the Consideration pursuant to the Agreement:

	Amount	Settlement date
Deposit	HK$ 20,000,000.00	No later than 4 November 2011
Payment at Completion	HK$134,993,455.38	At Completion
Deferred Consideration	HK$184,000,000.00	Deferred Payment Date
Consideration	HK$338,993,455.38

The Deposit has been settled by the Purchaser in cash on 4 November 2011.

Share Charge

Conditions Precedent

Completion is conditional upon the following conditions precedent being satisfied or waived, in the case of the conditions other than condition (3), not later than Long Stop Date, and in the case of condition (3) as at Completion Date:

(1) the entering into the Target Company Disposal by the Company being approved by the Shareholders in general meeting;

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LETTER FROM THE BOARD

(2) all necessary approvals and consents required to be obtained by any of the Target Company, the Operating Company and/or the Company and/or the Purchaser from any government authority or other third party in respect of the Agreement and/or the transactions contemplated thereunder being obtained unconditionally and irrevocably, or where such approval or consent is given subject to conditions, on such conditions as are acceptable to the Company acting reasonably; and
(3) the Warranties remaining true and accurate in all material respects and not misleading in any respect as of the Completion Date by reference to the facts and circumstances subsisting as at the Completion Date.

The Purchaser may, in its absolute discretion, waive condition (3) above at any time by specific notice in writing to such effect to the Company.

Save as otherwise expressly provided herein, if the conditions other than condition (3) shall not have been fulfilled or waived by the Purchaser by the Long Stop Date, or condition (3) shall not have been fulfilled or waived by the Purchaser as at Completion Date, then the Agreement and everything therein contained shall become null and void and of no effect pursuant to the Agreement. As at the Latest Practicable Date, none of the conditions precedent has been fulfilled. The Company has no intention to waive any of the above conditions precedent as at the Latest Practicable Date.

Completion

Subject to the terms and provisions of the Agreement and the fulfillment or waiver (as the case may be) of the conditions, Completion shall take place on the Completion Date, or on such other Business Day as the parties to the Agreement may agree in writing.

INFORMATION ON THE TARGET COMPANY AND THE OPERATING COMPANY

The Target Company

The Target Company is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by the Company. As at the Latest Practicable Date, the Target Company owns 49% of the equity interest in the Operating Company.

The Operating Company

The Operating Company is a company duly established and validly existing under the PRC law and a non wholly-owned subsidiary of the Company, and is principally engaged in the generation and sale of electric and steam power in the Linping industrial region of Hangzhou in the PRC.

– 14 –

LETTER FROM THE BOARD

CORPORATE STRUCTURE OF THE TARGET COMPANY AND THE OPERATING COMPANY

Set out below is the shareholding structure of the Target Company and the Operating Company as at the Latest Practicable Date:

==> picture [398 x 198] intentionally omitted <==

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

The An
Company individual
100% 100%
CATIC The
Helicopter (HK) Purchaser
100% 100% 80% 100%
Other
Target The Zhejiang Hangzhou Asia shareholders
Company Vendor Purchaser Purchaser Capital (Note)
49% 3% 4% 18.7% 21% 4.3%
Operating
Company
----- End of picture text -----

Set out below is the shareholding structure of the Target Company and the Operating Company after the Hangzhou Completion and the Completion:

==> picture [332 x 196] intentionally omitted <==

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

An
individual
100%
The
Purchaser
80% 100% 100%
Other
Zhejiang Hangzhou Target Asia shareholders
Purchaser Purchaser Company Capital (Note)
4% 21.7% 49% 21% 4.3%
Operating
Company
----- End of picture text -----

Note: Other shareholders of the Operating Company include 杭州天晟房地產開發有限公司 (Hangzhou Tiancheng Property Development Company Limited), 杭州國恒電力燃料有限公司 (Hangzhou Guoheng Electricity & Fuel Company Limited), 杭州金聯自動化工程技術有限公司 (Hangzhou Jinlian Automation Engineering Technology Co., Ltd.) and_ 浙江中燃電力能源有限公司 _(Zhejiang Zhongran Electric Power Company Limited), which own 1.5%, 1.5%, 0.3% and 1.0% of the total equity interest in the Operating Company respectively as at the Latest Practicable Date and are Independent Third Parties.

For identification purpose only

– 15 –

LETTER FROM THE BOARD

The financial information of the Target Group for each of the two years ended 31 December 2010 as extracted from the financial information of the Target Group as set out in Appendix II to this circular was as follows:

	For the	For the
	year ended	year ended
	31 December	31 December
	2009	2010
	unaudited	unaudited
	HK$’000	HK$’000
Revenue	227,041	273,732
Profit before tax	9,507	28,285
Profit for the year	5,440	18,555

As at 30 June 2011, the unaudited net asset value of the Target Group amounted to approximately HK$135.8 million.

The financial information of the Operating Company for each of the two years ended 31 December 2010 as extracted from the financial information of the Operating Company as set out in Appendix III to this circular was as follows:

	For the	For the
	year ended	year ended
	31 December	31 December
	2009	2010
	unaudited	unaudited
	HK$’000	HK$’000
Revenue	227,041	273,732
Profit before tax	6,255	24,345
Profit for the year	2,188	17,315

As at 30 June 2011, the unaudited net asset value of the Operating Company amounted to approximately HK$153.3 million.

FINANCIAL EFFECTS OF THE DISPOSALS

Upon completion of the Hangzhou Agreement and the Agreement, the Group shall not have any equity interest in the Target Company and the Operating Company. The Target Company and the Operating Company shall cease to be subsidiaries of the Company and their respective results, assets and liabilities will not be consolidated in the accounts of the Company upon completion of the Disposals.

– 16 –

LETTER FROM THE BOARD

Based on the unaudited pro forma financial information of the Remaining Group as at 30 June 2011 as set out in Appendix IV to this circular, it is expected that a gain before tax of approximately HK$154.6 million, being the estimated net cash proceeds of approximately HK$185.8 million for the Sale Share and the Hangzhou Sale Shares (after payment of professional fees and other related expenses) and the fair value of the remaining 4% equity interest in the Operating Company of approximately HK$17.6 million, net of the net asset value of the Target Company and the Operating Company attributable to the Group in aggregate of approximately HK$72.2 million as at 30 June 2011, together with the release of the exchange fluctuation reserve of the Group relating to the Target Company and the Operating Company of approximately HK$23.4 million as at 30 June 2011, would have been recognized in the consolidated financial statements of the Company had the Disposals been completed on 30 June 2011.

The net proceeds from the Disposals (after payment of professional fees and other related expenses) are estimated to be of approximately HK$352.6 million. The Company intends to apply the net proceeds from the Disposals as to (i) 30% for the business development and expansion for the new business segment originated from the completion of the Acquisition; (ii) as to 30% for general working capital of the Group; and (iii) as to 40% for future acquisition opportunities that are in the interests of the Company and its Shareholders as a whole. As at the Latest Practicable Date, no such opportunity has been identified.

The abovementioned financial effects are shown for illustrative purpose only and the actual gain eventually to be recognized in the consolidated financial statements of the Company depends on the net asset value of the Target Company as at the Completion Date and the net asset value of the Operating Company as at the date of Hangzhou Completion.

REASONS FOR THE DISPOSALS

The Company is an investment holding company and its subsidiaries are principally engaged in the generation and sale of electric and steam power, and the aero-technology related business, including the share of profit from the development, manufacture and distribution of helicopters. The Company also plans to develop in the textile business upon completion of the Acquisition, details of which are disclosed in the announcement and the circular of the Company dated 21 September 2011 and 17 November 2011 respectively. The Acquisition constitutes a major transaction and possible connected transaction of the Company and was approved by the Shareholders at the special general meeting held by the Company on 5 December 2011. As at the Latest Practicable Date, the Acquisition is yet to be completed pending the fulfillment of certain conditions precedent.

The Group has been exploring investment opportunities across various businesses and industries. The Directors consider that the Disposals represent a good opportunity for the Group to realise its investments in the business of generation and sale of electric and steam power and to invest in businesses in other industries, including but not limited to, the consumer goods industry to which the Acquisition is related or projects in the aviation and aero-related industry with better growth prospects, with an aim to restructure its business portfolio and to increase Shareholders’ value.

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LETTER FROM THE BOARD

In view of the above, the Directors consider that the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and the Disposals are in the interests of the Company and its Shareholders as a whole.

The counterparties of the Disposals, the Acquisition and the Sino Gas Transactions are not related to each other. The negotiations of the Acquisition, the Disposals and the Sino Gas Transactions took place separately, and were independent of and not inter-conditional on each other. The short time frame between the entering into the Acquisition, the Disposals and the Sino Gas Transactions was merely because such opportunities arose at a close proximity of time.

LISTING RULES IMPLICATION

The transactions contemplated under the Agreement, on a standalone basis and when aggregated with the transactions contemplated under the Zhejiang Agreement and the Hangzhou Agreement pursuant to Rule 14.22 of the Listing Rules constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules as one of the applicable percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Disposals exceeds 75%.

To the best of the Directors’ knowledge and information, the Hangzhou Purchaser and the Purchaser are connected persons of the Company under Chapter 14A of the Listing Rules by virtue of their respective shareholdings of more than 10% in the Operating Company. As such, the transactions contemplated under the Hangzhou Agreement and the Agreement shall also constitute connected transactions for the Company under Chapter 14A of the Listing Rules. Accordingly, the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder are subject to the Independent Shareholders’ approval, by way of poll, at the SGM. The Directors confirm that they have no material interest in the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shares are held by the Hangzhou Purchaser, the Purchaser, and their respective associates, and no Shareholders has any material interest in the Disposals which is different from other Shareholders as at the Latest Practicable Date. As such, no Shareholders are required to abstain from voting on the ordinary resolutions approving the Disposals at the SGM. The Independent Board Committee has been formed to advise the Independent Shareholders on the Disposals and Goldin Financial has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Disposals.

RECOMMENDATION

The Directors consider that the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and the Disposals are in the interests of the Company and the Shareholders as a whole and therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at SGM to approve the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder.

– 18 –

LETTER FROM THE BOARD

Your attention is drawn to the letters from the Independent Board Committee and Goldin Financial which set out their recommendations in respect of the Disposals and the principal factors considered by them in arriving at their recommendations.

GENERAL INFORMATION

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

Yours faithfully, By Order of the Board

AVIC International Holding (HK) Limited Wu Guangquan Chairman

– 19 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

7 December 2011

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 7 December 2011 (the “Circular”), in which this letter forms a part. The terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

As independent non-executive Directors who are independent of the parties to the Hangzhou Agreement and the Agreement, we have been appointed to form the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Hangzhou Agreement, Agreement, and the transactions contemplated thereunder are fair and reasonable so far as the Company and Shareholders as a whole are concerned.

Goldin Financial has been appointed as the independent financial adviser to advise this Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder. Details of its advices, together with the principal factors taken into consideration in arriving at such advices, are set out on pages 22 to 37 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 7 to 19 of the Circular and the additional information set out in the appendices of the Circular. Having considered the advice rendered by Goldin Financial and the principal factors and reasons taken into consideration by it in arriving at its advice, we are of the opinion that the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and the terms of the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder are fair and

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder.

Yours faithfully,

Chu Yu Lin, David

Independent non-executive Director

Independent Board Committee Li Ka Fai, David Independent non-executive Director

Li Zhaoxi Independent non-executive Director

– 21 –

LETTER FROM GOLDIN FINANCIAL

The following is the letter of advice from Goldin Financial Limited to the Independent Board Committee and the Independent Shareholders in relation to the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder for the purpose of inclusion in this circular.

Goldin Financial Limited

==> picture [43 x 37] intentionally omitted <==

23rd Floor Two International Finance Centre 8 Finance Street Central, Hong Kong

7 December 2011

To: the Independent Board Committee and the Independent Shareholders of AVIC International Holding (HK) Limited

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the independent board committee (the “Independent Board Committee”) and the independent shareholders (the “Independent Shareholders”) of AVIC International Holding (HK) Limited (the “Company”) in relation to (i) the disposal of the entire share capital of Polyson Investment Limited (the “Target Company”) and the indebtedness owed by the Target Company to the Company; and (ii) the disposal of 2,100,000 ordinary shares in Zhejiang Sealand Thermoelectric ShareHolding Co. (the “Operating Company”) and the indebtedness owed by the Operating Company to CATIC Helicopter Development (Shenzhen) Limited (the “Vendor”), an indirect wholly-owned subsidiary of the Company, details of which are set out in the Letter from the Board contained in the circular dated 7 December 2011 issued by the Company (the “Circular”), of which this letter forms part. Capitalized terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 1 November 2011, the Vendor and the Hangzhou Purchaser entered into the Hangzhou Agreement, whereby, the Vendor conditionally agreed to sell and the Hangzhou Purchaser conditionally agreed to purchase 3% of the equity interest in the Operating Company. On 1 November 2011, the Company and the Purchaser entered into the Agreement, pursuant to which the Company conditionally agreed to sell and the Purchaser conditionally agreed to purchase the total issued and paid up share capital in the Target Company.

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LETTER FROM GOLDIN FINANCIAL

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising Mr. Chu Yu Lin, David, Mr. Li Ka Fai, David and Mr. Li Zhaoxi, being the independent non-executive Directors, has been formed to advise the Independent Shareholders in relation to the Disposals.

We, Goldin Financial, have been appointed by the Company as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Disposals and to make a recommendation as to, among others, whether the terms of the Agreement and the Hangzhou Agreement are fair and reasonable so far as the Independent Shareholders are concerned and as to voting in respect of the relevant resolutions at the SGM. Our appointment has been approved by the Independent Board Committee.

BASIS OF OUR ADVICE

In formulating our opinion and recommendations, we have reviewed, inter alia, the Announcement, the Agreement and the Hangzhou Agreement. We have also reviewed certain information provided by the management of the Company relating to the operations, financial condition and prospects of the Group. We have also (i) considered such other information, analyses and market data which we deemed relevant; and (ii) conducted verbal discussions with the management of the Company regarding the terms of the Agreement and the Hangzhou Agreement, the businesses and future outlook of the Group. We have assumed that such information and statements, and any representation made to us, are true, accurate and complete in all material respects as of the date hereof and we have relied upon them in formulating our opinion.

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LETTER FROM GOLDIN FINANCIAL

All Directors collectively and individually accept full responsibility for the purpose of giving information with regard to the Company in the Circular and, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other facts not contained in the Announcement and the Circular, the omission of which would make any statement in the Circular misleading. We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the terms of, and reasons for entering into, the Agreement and the Hangzhou Agreement to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the business or affairs or future prospects of the Group. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us, at the Latest Practicable Date.

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Disposals, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendation on the Disposals to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors and reasons:

1. Background information of the Group

Table 1: Financial highlights of the Group

	For the year	ended	For the six months	For the six months	For the six months
	31 December		ended	30 June
	2010	2009	2011		2010
			(unaudited)		(unaudited)
	HK$’000	HK$’000	HK$’000		HK$’000
Turnover	274,386	228,759	143,648		128,934

Profit before tax	53,780	37,086	19,058		2,213

Profit/(loss)
attributable to
equity holders of
the parent for
the period/year	36,062	23,772	14,569		(3,182)

– 24 –

LETTER FROM GOLDIN FINANCIAL

	As at 31	December	As at 30 June
	2009	2010	2011
	HK$’000	HK$’000	HK$’000
Non-current assets	620,970	3,490,891	2,615,628
Current assets	577,641	580,674	566,892
Current (liabilities)	(171,074)	(166,217)	(172,845)
Net current assets	406,567	414,457	394,047
Net assets	1,020,884	3,433,724	2,694,898

For the year ended 31 December 2010, the Group recorded a turnover of approximately HK$274.4 million, representing an increase of approximately 19.9% compared to approximately HK$228.8 million recorded for the previous year. The increase is mainly attributable to the increase in the revenue from electric and steam power supply segment due to the increase in the sales volume and average selling price of steam power. The profit attributable to equity holders of the parent also increased from approximately HK$23.8 million in 2009 to approximately HK$36.1 million in 2010, representing an increase of approximately 51.7%. Such increase is mainly due to the improved contribution from the electric and steam power supply segment and the gain on partial disposal of investment in a jointly-controlled entity.

As at 31 December 2010, the audited net current assets and net assets of the Group amounted to approximately HK$414.5 million and approximately HK$3,433.7 million, respectively, increasing by approximately 1.9% and approximately 236.3% from approximately HK$406.6 million and approximately HK$1,020.9 million as at 31 December 2009 respectively. The increase in net current assets of the Group were mainly resulted from the decrease in trade and bills payables during the same year while increase in the net assets of the Group were mainly due to the increase in the investment in a jointly-controlled entity and available-for-sale investments. In April 2010, Billirich Investment Limited, a wholly-owned subsidiary of the Company, entered into the subscription agreement with Sino Gas Group Limited (“Sino Gas”) for the subscription of 80,000,000 shares of Sino Gas at HK$0.377 each, allowing the Group to further invest in and maintain percentage shareholding interest of the Company in Sino Gas.

For the six months ended 30 June 2011, the Group recorded a turnover of approximately HK$143.6 million, representing an increase of approximately 11.4% compared to approximately HK$128.9 million recorded for the previous respective period. The increase is mainly attributable to the increase in the revenue from electric and steam power supply segment due to the increase in the average selling price of steam power. The overall financial performance also improved from a net loss of approximately HK$3.2 million for the six months ended 30 June 2010 to a net profit of approximately HK$14.6 million for the six months ended 30 June 2011. Such improvement is mainly due to the increase in share of profit of a jointly-controlled entity.

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LETTER FROM GOLDIN FINANCIAL

As at 30 June 2011, the unaudited net current assets and net assets of the Group amounted to approximately HK$394.0 million and approximately HK$2,694.9 million, respectively, decreasing by approximately 4.9% and approximately 21.5% from approximately HK$414.5 million and from approximately HK$3,433.7 million as at 31 December 2010 respectively. The decrease in net current assets of the Group were mainly resulted from the decrease in cash and cash equivalents while decrease in the net assets of the Group were mainly due to the decrease in the investment in a jointly-controlled entity and available-for-sale investments.

2. Information on the Target Group and the Operating Company

The Target Group

The Target Company is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by the Company. As at the Latest Practicable Date, the Target Company owned 49% of the equity interest in the Operating Company.

Set out below is the unaudited financial results of the Target Group for each of the two years ended 31 December 2010 and for the six months ended 30 June 2011:

Table 2: Financial highlights of the Target Group

	For the year	ended	For the six months ended	For the six months ended
	31 December		30 June
	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	227,041	273,732	128,365	143,648
Profit before
taxation	9,507	28,285	10,350	9,556
Profit for the
period/year	5,440	18,555	7,620	7,153

As set out in Table 2 above, the turnover of the Target Group increased from approximately HK$227.0 million to approximately HK$273.7 million in 2010, representing an increase of approximately 20.6% as compared to the previous year. For the six months ended 30 June 2011, the turnover of the Target Group increased from approximately HK$128.4 million to approximately HK$143.6 million, representing an increase of approximately 11.8% as compared to the previous respective period. Such increases were mainly attributable to the contributions from the Operating Company. For the year ended 31 December 2010, the profit after taxation of the Target Group increased from approximately HK$5.4 million to approximately HK$18.6 million, representing an increase of approximately 244.4%. As discussed with the management of the Company, the improvement of the Target Group was mainly attributable to a higher dividend income received and the improvement in the gross profit margin of the Operating Company during the year. For the six months ended 30 June 2011, the profit after taxation decreased

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LETTER FROM GOLDIN FINANCIAL

from approximately HK$7.6 million to approximately HK$7.2 million, representing a decrease of approximately 5.3% as compared to the previous respective period. As advised by the Company, such decrease was mainly due to the increase in finance costs. As at 30 June 2011, the unaudited net assets of the Target Group amounted to approximately HK$135.8 million.

The Operating Company

Set out below is the unaudited financial results of the Operating Company for each of the two years ended 31 December 2010 and for the six months ended 30 June 2011:

Table 3: Financial highlights of the Operating Company

	For the year	ended	For the six months ended	For the six months ended
	31 December		30 June
	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	227,041	273,732	128,365	143,648
Profit before
taxation	6,255	24,345	8,417	7,170
Profit for the
period/year	2,188	17,315	5,687	4,525

As set out in Table 3 above, for the year ended 31 December 2010, the turnover of the Operating Company increased from approximately HK$227.0 million to approximately HK$273.7 million, representing an increase of approximately 20.6%. Such increase was mainly due to the increase of sales volume and average selling price of steam power. The profit after taxation of the Operating Company increased from approximately HK$2.2 million to approximately HK$17.3 million, representing an increase of approximately 686.4%. As discussed with the management of the Company, the increase in the profit after taxation of the Operating Company was mainly attributable to the improved gross profit rate from 7% to 13%. For the six months ended 30 June 2011, the turnover of the Operating Company increased from approximately HK$128.4 million to approximately HK$143.6 million, representing an increase of approximately 11.8% as compared to the previous respective period. The profit after taxation decreased from approximately HK$5.7 million to approximately HK$4.5 million, representing a decrease of approximately 21.1% as compared to the previous respective period. As advised by the Company, the increase in turnover was mainly due to the increase in the average selling price of steam power while the decrease in profit after taxation was mainly due to the increase in finance costs. As at 30 June 2011, the unaudited net assets of the Operating Company amounted to approximately HK$153.3 million.

– 27 –

LETTER FROM GOLDIN FINANCIAL

3. Reasons for the Disposals

As stated in the paragraphs under the section headed “Information on the Target Group and the Operating Company” above, the Operating Company, being the subject of the Disposals, is principally engaged in the generation and sale of electric and steam power in the Linping industrial region of Hangzhou in the PRC, with its revenue all generated from customers in the PRC. Despite the profitable track record of the Operating Company for the two years ended 31 December 2010, the growth of the Operating Company has slowed down, recording a decline in the earnings for the six months ended 30 June 2011 as compared to the previous corresponding period. According to information released by the U.S. Energy Information Administration, the total conventional thermal electricity net generation of the PRC, of which conventional thermal electricity is generated by an electric power plant using coal, petroleum or gas as its source of energy, has been increasing at a slower pace as shown in the following table:

Table 4: Total conventional thermal electricity net generation in the PRC from 2005 to 2009

	2005	2006	2007	2008	2009
Total conventional
thermal electricity net
generation (billion
kilowatthours)	1,922.1	2,225.1	2,539.2	2,618.6	2,802.5
Change in percentage
(%)	–	15.8	14.1	3.1	7.0

Source: U.S. Energy Information Administration (www.eia.gov)

As discussed with the management of the Group, it is noted that the performance of the generation and sale of electric and steam power business of the Operating Company with power plants fuelled by coal is highly dependent on, among others, the coal price, which has been increasing rapidly due to the growing demand of coal in the recent years. In addition, according to the white paper “中國應對氣候變化的政策與行動” (PRC’s policies and actions on climate change*) issued by the Central People’s Government of the People’s Republic of China in November 2011, the PRC government has been aiming to slow down the climate change through various policies including, but not limited to, the promotion and the development of the usage of low-carbon energy such as nuclear energy and hydro-electric power to replace the high-carbon energy such as coal-fired power, since its Eleventh Five-Year Plan and such policies will continue in its Twelfth Five-Year Plan. In view of the various uncertainties encountered by the coal-fired electric and steam power industry in the PRC, and after taking into account that a gain before tax of approximately HK$154.6 million is expected to be recognized assuming the Disposals had been completed on 30 June 2011, we consider that the Disposals allow the Group to capture the gain of its investment in generation and sale of electric and steam power business, while at the same time to release its management resources

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LETTER FROM GOLDIN FINANCIAL

from the Target Company and Operating Company for better allocation on other business which would bring higher return to the Shareholders.

The net proceeds from the Disposals (after payment of professional fees and other related expenses) are estimated to be of approximately HK$352.6 million and are intended to be applied as to (i) 30% for the business development and expansion for the new business segment originated from completion of the Acquisition; (ii) as to 30% for general working capital of the Group; and (iii) as to 40% for future acquisition opportunities that are in the interests of the Company and its Shareholders as a whole. The Deposit of HK$20 million has been settled by the Purchaser in cash on 4 November 2011 and further payment of approximately HK$135.0 million will be settled at Completion. With such immediate realization of cash, the Disposals will enable the Company to strengthen its cash flow and liquidity position and increase the general working capital for other business of the Company. As noted from the Letter from the Board, the Group has been exploring investment opportunities across various businesses and industries, including but not limited to, the consumer goods industry to which the Acquisition is related or projects in the aviation and aero-related industry in the PRC. Given the company under the Acquisition is principally engaged in the production and distribution of knitting and textile products, knitted fabrics and clothing in the PRC, we have conducted researches from public domains on the consumer goods industry relating to the textile business and the aviation and aero-related industry in the PRC:

Consumer goods industry relating to the textile business

According to the Statistical Communique of the People’s Republic of China on the 2010 National Economic and Social Development issued on 28 February 2011, the growth of value added of the industrial enterprises above designated size for textile industry in 2010 was 11.6%, which is higher than that for the production and supply of electric power and heat power of 11.0%. Furthermore, the coal-fired electric and steam power industry in the PRC, which the Target Group is principally engaged in, has been growing at a slower pace as discussed above. Based on the China Statistical Yearbook 2011 issued by National Bureau of Statistics of China in October 2011, the per annual consumption expenditure on clothing has been increasing from RMB1,165.9 in 2008 to RMB1,284.2 in 2009 and to RMB1,444.3 in 2010, representing approximately an increase of approximately 10.1% in 2009 and approximately 12.5% in 2010 and the composition of per capita annual consumption on clothing also increased from 10.37% in 2008 to 10.47% in 2009 and to 10.72% in 2010, both showing an increasing trend of the consumption on clothing in the PRC. It is expected that population in the PRC are more willing to spend on clothing, leading to a growing demand of the consumer goods relating to textile and clothing business. With the extensive industrial experience and established customer base of the acquisition target, we are of the view that the prospect of the knitting and textile business in relation to the Acquisition is optimistic.

Aviation and aero-related industry

According to the report released by the Civil Aviation Administration of China regarding the Twelfth Five-Year Plan for the period of 2011-2015 on the PRC civil

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LETTER FROM GOLDIN FINANCIAL

aviation industry, the total air traffic increased to 53.8 billion ton-kilometers in 2010, representing a compounded annual growth rate of approximately 15.6% since 2005. It is estimated that the total air traffic would increase to approximately 99.0 billion ton-kilometers in 2015. In addition to the growing consumption of the air traffic, in March 2011, the PRC government announced that it would promote the development of the general aviation industry in its Twelfth Five-Year Plan for the period of 2011-2015. Being highlighted as one of the strategic emerging industries to be developed, we are of the view that the prospect of the aviation and aero-related industry in the PRC is expected to be optimistic, as compared to the coal-fired electric and steam power industry in the PRC which is rather uncertain as analysed above.

Having considered (i) the Disposals allow the Group to capture the gain of its investment in generation and sale of electric and steam power business; (ii) the Disposals allow the Group to release its management resources from the Target Company and Operating Company for better allocation on other business which would bring higher return to the Shareholders; (iii) the Disposals will enable the Company to strength its cash flow and liquidity position and increase the general working capital for other business of the Company; (iv) the prospects of both consumer goods industry relating to textile business and the aviation and aero-related industry in the PRC are expected to be optimistic; and (v) the various uncertainties encountered by the coal-fired electric and steam power industry in the PRC, we are of the view that the Disposals represent a good opportunity for the Group to realize its investments in the business of generation and sale of electric and steam power and to invest in businesses in other industries, including but not limited to, the consumer goods industry to which the Acquisition is related or projects in the aviation and aero-related industry with better growth prospects, with an aim to restructure its business portfolio and to increase Shareholders’ value. Based on the abovementioned, we consider that the Disposals are in the interests of the Company and its Shareholders as a whole.

4. Terms of the Hangzhou Agreement and the Agreement

Basis of the Hangzhou Consideration and the Consideration

The Hangzhou Consideration shall be an aggregate purchase price of RMB12,296,707.88 (equivalent to approximately HK$15.0 million) for the purchase of the Hangzhou Sale Shares and the Hangzhou Sale Loan, which has been arrived at after arm’s length negotiations between the Vendor and the Hangzhou Purchaser and was determined with reference to, including but not limited to, (i) the historical performance of the Operating Company with profitable track record in the preceding two financial years; (ii) the attributable unaudited net asset value of the Hangzhou Sale Shares of approximately RMB3.5 million (equivalent to approximately HK$4.3 million) based on the unaudited net asset value of the Operating Company of approximately RMB118.0 million (equivalent to approximately HK$144.2 million) as at 30 June 2011 as per the management accounts of the Operating Company for the six months ended 30 June 2011; and (iii) the amount of the Hangzhou Sale Loan.

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LETTER FROM GOLDIN FINANCIAL

The Consideration shall be an aggregate purchase price of HK$338,993,455.38 for the purchase of the Sale Share and the Sale Loan, which has been arrived at after arm’s length negotiations between the Company and the Purchaser and was determined with reference to, including but not limited to, (i) the historical performance of the Operating Company with profitable track record in the preceding two financial years; (ii) the attributable unaudited net asset value of the Sale Share of approximately RMB57.8 million (equivalent to approximately HK$70.7 million) based on the unaudited net asset value of the Operating Company of approximately RMB118.0 million (equivalent to approximately HK$144.2 million) as at 30 June 2011 as per the management accounts of the Operating Company for the six months ended 30 June 2011; and (iii) the amount of the Sale Loan.

In order to assess the fairness and reasonableness of the Hangzhou Consideration and the Consideration, we have performed a price-to-earning multiple (the “P/E Ratio”), which is one of the most widely used and accepted trading method for valuing a business with recurrent income. In addition to P/E Ratio, we also assess the Hangzhou Consideration and the Consideration by reference to the net asset value which is also one of the commonly adopted trading multiple analyses. While we realize that the size of the net asset value may not have direct linkage to the earnings potential, we consider the price-to-book multiple (“P/B Ratio”) analysis adds to the depth of the scope of our analysis. Given both the involved parties and the ultimate subject to be disposed of are the same under the Hangzhou Agreement and the Agreement, we consider to aggregate the Hangzhou Consideration and the Consideration when deriving the implied P/E Ratio and P/B Ratio.

As noted from the Letter from the Board, the aggregate of Hangzhou Consideration of RMB12,296,707.88 (equivalent to approximately HK$15.0 million) and the Consideration of approximately HK$339.0 million is approximately HK$354.0 million. Given the amount of the Hangzhou Sale Loan of RMB1,496,707.88 (equivalent to approximately HK$1.8 million) was included in the Hangzhou Consideration and the Sale Loan of approximately HK$165.0 million was included in the Consideration for assignment on a dollar for dollar basis, the aggregate consideration for the Hangzhou Sale Shares and the Sale Shares is equivalent to approximately HK$187.2 million, being the aggregate of Hangzhou Consideration and the Consideration of approximately HK$354.0 million net the face value of the Hangzhou Sale Loan of approximately HK$1.8 million and the Sale Loan of approximately HK$165.0 million. The aggregate consideration for the Hangzhou Sale Shares and the Sale Shares therefore implies a P/E Ratio of approximately 20.8 times (calculated as to approximately HK$360.0 million (which is the implied value of the Operating Company based on the consideration of approximately HK$187.2 million for an aggregate 52% interest) divided by net profit after taxation of the Operating Company of approximately HK$17.3 million based on the financial statements of the Operating Company for the year ended 31 December 2010 as set out in Appendix III to the Circular).

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LETTER FROM GOLDIN FINANCIAL

The aggregate consideration for the Hangzhou Sale Shares and the Sale Shares also implied a P/B Ratio of approximately 2.3 times (calculated as to approximately HK$360.0 million divided by the unaudited net assets of the Operating Company of approximately HK$153.3 million as at 30 June 2011).

To the best of our knowledge, effort and endeavour and based on the information available from the website of the Stock Exchange, we have identified seven companies (the “Comparable Companies”) which (i) are listed on the Stock Exchange; (ii) are principally engaged in the conventional coal-fired or gas-fired power generation and sale of electric and steam power; (iii) derived a majority (over 80%) of their revenues from the generation and sale of electric and steam power for their respective latest financial year as stated in their latest annual reports; and (iv) their power plants operation are in the PRC or Hong Kong. We note that the market capitalizations of the Comparable Companies cover a wide range and are higher than that of the Operating Company. Under the current selection criteria, only seven companies have been selected for our analysis. If those companies with substantially higher market capitalisation are to be excluded from our analysis, a much smaller sample size would be generated which would not produce a meaningful comparison. Based on the aforesaid selection criteria, we consider the Comparable Companies are relevant and could provide a general reference when assessing the fairness of the considerations for the Hangzhou Sale Shares and the Sale Shares. The list of the Comparable Companies and their respective P/E Ratios and P/B Ratios, which is exhaustive, are set out below:

Table 5: Analysis of Comparable Companies

			Profit	Total equity
			attributable to	attributable to
			equity owners	equity owners
		Market	of the	of the
Company name	Principal business	capitalisation	company	company	P/E ratio	P/B ratio
(stock code)		(1)	(2)	(3)	(4)=(1)/(2)	(5)=(1)/(3)
		approximate	approximate	approximate
		(HK$’ million)	(HK$’ million)	(HK$’ million)	(times)	(times)
		(Note 1)	(Note 2)	(Note 2)
Amber Energy	Development, operation	365.20	50.14	616.78	7.28	0.59
Limited (90)	and management of power		(Note 4)	(Note 4)
	plants fuelled by natural
	gas in the PRC
China Power	Development, construction,	9,192.71	817.15	16,017.11	11.25	0.57
International	ownership, operation and		(Note 4)	(Note 4)
Development	management of large
Limited (2380)	power plants mainly
	fuelled by coal in the PRC
	and engaged in investment
	holdings
China Resources	Investment, development,	66,789.61	4,903.65	44,561.13	13.62	1.50
Power Holdings	operation and management
Company Limited	of power plants mainly
(836)	fuelled by coal in the PRC
	and coal mine projects

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LETTER FROM GOLDIN FINANCIAL

			Profit	Total equity
			attributable to	attributable to
			equity owners	equity owners
		Market	of the	of the
Company name	Principal business	capitalisation	company	company	P/E ratio	P/B ratio
(stock code)		(1)	(2)	(3)	(4)=(1)/(2)	(5)=(1)/(3)
		approximate	approximate	approximate
		(HK$’ million)	(HK$’ million)	(HK$’ million)	(times)	(times)
		(Note 1)	(Note 2)	(Note 2)
Datang International	Development and operation	33,807.50	3,148.72	47,057.69	10.74	0.72
Power Generation	of power plants mainly	(Note 3)	(Note 4)	(Note 4)
Co., Ltd. (991)	fuelled by coal, the sale of
	electricity and thermal
	power in the PRC, the
	repair and testing of power
	equipment, and power
	related technical services,
	the sale and development
	of coal, the production and
	sale of chemical products
Huadian Power	Generation and sale of	9,682.65	208.18	19,949.82	46.51	0.49
International	electricity mainly fuelled	(Note 3)	(Note 4)	(Note 4)
Corporation	by coal and heat in
Limited (1071)	the PRC
Huaneng Power	Investment, construction,	54,675.44	4,102.33	63,838.70	13.33	0.86
International, Inc.	operation and management	(Note 3)	(Note 4)	(Note 4)
(902)	of power plants mainly
	fuelled by coal in the PRC
Power Assets	Generation and supply of	121,119.35	7,194.00	57,242.00	16.84	2.12
Holdings Limited	electricity mainly fuelled
(6)	by coal in Hong Kong and
	investment in power and
	utility related businesses
Maximum					46.51	2.12
Minimum					7.28	0.49
Mean					17.08	0.98
Median					13.33	0.72
The Disposals					20.81	2.35

Source: The website of the Stock Exchange (www.hkex.com.hk)

Notes:

(1) Based on the closing price on the Latest Practicable Date.
(2) Based on the latest financial data as published in the respective annual/interim reports available as at the Latest Practicable Date.
(3) Based on their respective total number of A shares and H shares.
(4) Converted from RMB using the exchange rate of RMB1.00 to HK$1.23, being the exchange rate on the Latest Practicable Date (source: www.oanda.com).

As illustrated in the table above, based on the relevant latest published annual report of the Comparable Companies as at the Latest Practicable Date, the Comparable Companies are trading at P/E Ratios ranging from approximately 7.3 times to approximately 46.5 times, with a mean and median of approximately 17.1 times and approximately 13.3 times respectively and are trading at P/B Ratios ranging from approximately 0.5 times to approximately 2.1 times, with a mean and median of approximately 1.0 times and approximately 0.7 times respectively.

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LETTER FROM GOLDIN FINANCIAL

The P/E Ratio of approximately 20.8 times implied by the aggregate consideration for the Hangzhou Sale Shares and the Sale Shares falls within the range of the P/E Ratios of the Comparable Companies and is above the mean and median of the P/E Ratios of the Comparable Companies. The P/B Ratio of approximately 2.3 times implied by the consideration for the Hangzhou Sale Shares and the Sale Shares is above the mean and median of the P/B Ratios of the Comparable Companies.

Given the nature of the entering into the Hangzhou Agreement and the Agreement are disposals to the Company, we consider such higher P/B Ratio represents a more favorable term to the Company and are of the view that the consideration for the Hangzhou Sale Shares and the Sale Shares are fair and reasonable to the Company.

Based on the above P/E Ratio analysis and P/B Ratio analysis, we are of the view that the Hangzhou Consideration and the Consideration are fair and reasonable.

Share Charge

Pursuant to the Agreement, the Purchaser (as chargor) and the Company (as chargee) will execute the Share Charge at Completion. Upon receipt of the Deferred Consideration, the Company shall deliver to the Purchaser the Share Charge Release duly executed by the Company, to effect the release of the security under the Share Charge with effect from such Deferred Payment Date. The Share Charge is the first priority legal charge over (a) the Sale Share and all accretions thereto; and (b) the Asia Capital Shares and all accretions thereto, as granted by the Purchaser to the Company for the purpose of securing (1) the liability of the Purchaser to the Company thereunder to pay the Deferred Consideration on Deferred Payment Date; and (2) by way of guarantee, the liability of the Target Company to the Company under the Sale Loan.

We are of the opinion that such warranties from the Purchaser serves as an additional protection to the Company in the event that the Deferred Consideration is not settled by the Purchaser according to the Agreement, the Company could exercise the Share Charge and obtain the Sale Share and the Asia Capital Shares, representing an aggregate effective interest of 70% in the Operating Company. As such, we are of the view that the Share Charge lowers the credit risk and repayment risk of the Deferred Consideration, which is in the interest in the Company and the Shareholders.

We have reviewed the Share Charge and are not aware of any terms and conditions that are unusual from what is commonly seen in similar transactions.

Based on the above analysis, we are of the view that the terms of the Disposals are fair and reasonable and the Disposals are in the interests of the Company and its Shareholders as a whole.

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LETTER FROM GOLDIN FINANCIAL

5. The business of the Remaining Group

Upon Completion, the Remaining Group will continue to engage in the aero-technology related business, including the share of profit from the development, manufacture and distribution of helicopters. Based on the interim report of the Company for the six months ended 30 June 2011 and the discussion with the management of the Company, we note that apart from Project EC120 as presented in the Group’s consolidated financial statements, the Group has been sharing the operating results of its jointly-controlled entity and various associates under the equity method in its consolidated statements.

The Group’s investment in a jointly-controlled entity as at 30 June 2011 represented 69.4% of the equity interest in 四維航空遙感有限公司 (CATIC Siwei Co., Ltd.*) (“CATIC Siwei”) which, through its associates, is principally engaged in (i) the manufacturing of location-based navigation products and the provision of related services with GIS and GPS technologies, the provision of data processing services; (ii) the research and development and distribution of software and information products; (iii) the sale of satellite image data; (iv) the provision of geographic information system software and development and related technical services; (v) the provision of aero-survey operations, aero-photographic and data processing services; and (vi) the manufacturing of UAV unmanned aerial photography equipment and photography services. For the year ended 31 December 2010, CATIC Siwei generated audited revenue of approximately RMB14.5 million (equivalent to approximately HK$17.7 million) and had unaudited net asset value of approximately RMB83.3 million (equivalent to approximately HK$101.8 million) as at 30 June 2011.

The Group’s investment in associates as at 30 June 2011 included (i) 28.23% of the equity interest in Sino Gas Group Limited (“Sino Gas”); (ii) 40% of equity interest in 北京伊格萊特航空技術發展有限公司 (Eaglet Aero-Technology Inc.) (“Eaglet”); (iii) 45% of the equity interest in 北京華信泰科技有限公司 (Beijing Huaxintai Science and Technologies Co., Ltd.) (“Beijing Huaxintai”); and (iv) 47.91% of the equity interest in Fidelity Finance Leasing Limited (“Fidelity Finance”). Sino Gas is principally engaged in the trading of conversion parts and gas station equipment and operation of gas stations. For the year ended 31 December 2010, Sino Gas generated audited revenue of approximately HK$943.4 million and had unaudited net asset value (net of non-controlling interests) of HK$676.7 million as at 30 June 2011. Eaglet is principally engaged in the trading of aviation products, including general-purpose aircrafts and trainers, mechanical and electrical equipment and aircraft component. For the year ended 31 December 2010, Eaglet generated audited revenue of approximately RMB13.6 million (equivalent to approximately HK$16.6 million) and had unaudited net asset value of approximately RMB7.6 million (equivalent to approximately HK$9.3 million) as at 30 June 2011. Beijing Huaxintai is principally engaged in the research and development of engineering technology and electronics communication technology, and the provision of technological consultation and services. For the year ended 31 December 2010, Beijing Huaxintai generated audited revenue of approximately RMB1.4 million (equivalent to approximately HK$1.7 million) and had unaudited net asset value of approximately RMB2.8 million (equivalent to approximately HK$3.4 million) as at 30 June 2011. On 2 November 2011, the Company has entered into an agreement to dispose of its interest in Fidelity Finance to a company owned by Sino Gas.

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LETTER FROM GOLDIN FINANCIAL

6. Financial effects of the Disposals on the Remaining Group

Net assets

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix IV to the Circular, the unaudited net assets of the Remaining Group would increase by approximately 1.9% from approximately HK$2,700.1 million as at 30 June 2011 to approximately HK$2,750.8 million, assuming the Acquisition has been completed and the Disposals took place on 30 June 2011.

Liquidity

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix IV to the Circular, the cash and cash equivalents of the Remaining Group would increase by approximately 50.1%, from approximately HK$285.9 million as at 30 June 2011 to approximately HK$429.1 million, assuming the Acquisition has been completed and the Disposals took place on 30 June 2011.

Earnings

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix IV to the Circular, the unaudited profit after tax of the Remaining Group would increase by approximately 328.4% from approximately HK$43.7 million for the year ended 31 December 2010 to approximately HK$187.2 million, assuming the Disposals took place on 1 January 2010.

Gearing ratio

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix IV to the Circular, the gearing ratio (calculated based on the total debt net cash and cash equivalent over total equity) will decrease from 0.11 times to 0.0002 times, assuming the Acquisition has been completed and the Disposals took place on 30 June 2011.

Having considered the Disposals would improve the net assets, liquidity, earnings and gearing ratio of the Remaining Group, we are of the view that the Disposals are in the interest of the Company and the Shareholders as a whole.

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LETTER FROM GOLDIN FINANCIAL

RECOMMENDATIONS

Having considered the abovementioned principal factors and reasons, we consider the Disposals are in the ordinary and usual course of business and that the terms of the Hangzhou Agreement and the Agreement are normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Hangzhou Agreement, the Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Goldin Financial Limited Billy Tang Director

for identification purpose only

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group for the six months ended 30 June 2011 and the three years ended 31 December 2010 has been published in the annual reports and interim report per below:

(i) the financial information of the Group for the six months ended 30 June 2011 is disclosed in the interim report of the Company for the six months ended 30 June 2011 published on 12 September 2011, from pages 13 to 32;
(ii) the financial information of the Group for the year ended 31 December 2010 is disclosed in the annual report of the Company for the year ended 31 December 2010 published on 29 March 2011, from pages 38 to 178;
(iii) the financial information of the Group for the year ended 31 December 2009 is disclosed in the annual report of the Company for the year ended 31 December 2009 published on 30 March 2010, from pages 38 to 190; and
(iv) the financial information of the Group for the year ended 31 December 2008 is disclosed in the annual report of the Company for the year ended 31 December 2008 published on 28 April 2009, from pages 40 to 198.

All of which have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.avic.com.hk).

2. WORKING CAPITAL

After taking into account the effect of the Disposals, the present internal financial resources available to the Enlarged Group, including cash and bank balance as well as the available banking facilities, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirements and for at least the next 12 months from the date of this circular.

3. INDEBTEDNESS

Borrowings

At the close of business on 31 October 2011, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding secured bank borrowings of approximately HK$130,723,000.

Contingent liabilities

At the close of business on 31 October 2011, the Enlarged Group issued guarantees of approximately HK$81,205,000 for credit lines granted to major suppliers and companies controlled by acquaintances of a non-controlling shareholder of a subsidiary.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Disclaimers

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities and normal accounts payable and bills payables in the ordinary course of business, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital and overdrafts or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptance of acceptance credits or any guarantees of other material contingent liabilities as at the close of business on 31 October 2011.

Subsequent change of indebtedness

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

4. MATERIAL ADVERSE CHANGE

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

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

The following is the management discussion and analysis of the performance of the Remaining Group for each of the three years ended 31 December 2008, 31 December 2009 and 31 December 2010, and for the six months ended 30 June 2011.

For the year ended 31 December 2008

Business review

The Remaining Group was principally engaged in the share of profit from the development, manufacture and distribution of helicopters.

Capital structure, liquidity and financial resources

The Remaining Group has funded its operations mainly with internally generated cashflows, and has consistently maintained sufficient working capital. As at 31 December 2008, the Remaining Group had cash and bank balances and time deposits in an aggregate of approximately HK$321.5 million and had no bank borrowings.

Gearing ratio was not applicable to the Remaining Group as the Remaining Group had no borrowings as at 31 December 2008.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

As at 31 December 2008, the Remaining Group had no contingent liabilities.

Capital commitments

On 4 January 2006, Sino-Aviation Investments Limited (“Sino-Aviation Investments”), a wholly-owned subsidiary of the Company, entered into a joint venture agreement (the “JV Agreement”) with AVIC International Holding Corporation (“AVIC International”), a substantial shareholder of the Company, and Chengdu Aircraft Industry (Group) Corporation Ltd. (“Chengdu Aircraft”), a subsidiary of Aviation Industry Corporation of China (“AVIC”) and an associate of the substantial shareholder of the Company, for the establishment of a joint venture to engage in the research and development, design and manufacture of parts and components for commercial aircraft, and provision of related technical services. According to the JV Agreement, the total registered capital of the joint venture would be RMB100 million (equivalent to approximately HK$113 million), of which 40%, 15% and 45% respectively, would be contributed by Sino-Aviation Investments, AVIC International and Chengdu Aircraft. The JV Agreement was conditional upon (i) the internal approval obtained by each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 31 December 2008, the JV agreement had not become effective as the conditions stated above had not been fulfilled.

Significant investments held and their performance

For the year ended 31 December 2008, the Remaining Group recorded deficit on revaluation of an investment property of approximately HK$5.9 million, share of profits of jointly-controlled entity and associates of approximately HK$8.6 million, and fair value loss on equity investments at fair value through profit or loss and derivative financial instruments of approximately HK$12.2 million.

Material acquisitions and disposals

The Remaining Group had no material acquisitions or disposals during the year ended 31 December 2008.

Analysis of segmental information

The Remaining Group had only one reportable segment during the year ended 31 December 2008, which was the share of profit from the development, manufacture and distribution of helicopters. All of its revenue, with reference to locations of external customers, was generated from the PRC. During the year ended 31 December 2008, the Remaining Group had not engaged in any new business.

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currency risk and interest rate risk

The Remaining Group’s foreign currency exposures primarily arise from certain sales or purchases by operating units in currencies other than the units’ functional currency. In view of the fact that the Remaining Group tries to match its assets and liabilities with the same currency, the Remaining Group’s exposure to foreign currency risk is minimal. Accordingly, no financial instrument for hedging of foreign currency risk was used by the Remaining Group during the year ended 31 December 2008.

Staff and remuneration policies

As at 31 December 2008, there were 15 employees in the Remaining Group. Staff remuneration packages have been determined in consideration of market conditions and the performance of the individuals concerned, and are subject to review from time to time. The Remaining Group also provides other staff benefits including medical and life insurance, and grants discretionary incentive bonuses and share options to eligible staff based on their performance and contributions to the Remaining Group.

Charges on assets

As at 31 December 2008, there were no charges on the Remaining Group’s assets.

Future plans for material investments or capital assets

As at 31 December 2008, the Remaining Group had no significant investment and future plans for material investments or capital assets.

For the year ended 31 December 2009

Business review

The Remaining Group was principally engaged in the share of profit from the development, manufacture and distribution of helicopters.

Capital structure, liquidity and financial resources

The Remaining Group has funded its operations mainly with internally generated cashflows, and has consistently maintained sufficient working capital. As at 31 December 2009, the Remaining Group had cash and bank balances and time deposits in an aggregate of approximately HK$305.6 million and had no bank borrowings.

Gearing ratio was not applicable to the Remaining Group as the Remaining Group had no borrowings as at 31 December 2009.

Contingent liabilities

As at 31 December 2009, the Remaining Group had no contingent liabilities.

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital commitments

On 4 January 2006, Sino-Aviation Investments, a wholly-owned subsidiary of the Company, entered into the JV Agreement with AVIC International, a substantial shareholder of the Company, and Chengdu Aircraft, a subsidiary of AVIC and an associate of the substantial shareholder of the Company, for the establishment of a joint venture to engage in the research and development, design and manufacture of parts and components for commercial aircraft, and provision of related technical services. According to the JV Agreement, the total registered capital of the joint venture would be RMB100 million (equivalent to approximately HK$114 million), of which 40%, 15% and 45% respectively, would be contributed by Sino-Aviation Investments, AVIC International and Chengdu Aircraft. The JV Agreement was conditional upon (i) the internal approval obtained by each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 31 December 2009, the JV agreement had not become effective as the conditions stated above had not been fulfilled.

Significant investments held and their performance

For the year ended 31 December 2009, the Remaining Group recorded gain on disposal of available-for-sale investments of approximately HK$32.1 million, fair value gain on equity investments at fair value through profit or loss and derivative financial instruments of approximately HK$11.4 million, dividend income from available-for-sale investments of approximately HK$6.9 million, deficit on revaluation of an investment property of approximately HK$0.7 million, and unallocated share of losses of jointlycontrolled entities and associates of approximately HK$4.2 million.

Material acquisitions and disposals

The Remaining Group had no material acquisitions or disposals during the year ended 31 December 2009.

Analysis of segmental information

The Remaining Group had only one reportable segment during the year ended 31 December 2009, which was the share of profit from the development, manufacture and distribution of helicopters. All of its revenue, with reference to locations of external customers, was generated from the PRC. During the year ended 31 December 2009, the Remaining Group had not engaged in any new business.

Foreign currency risk and interest rate risk

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Staff and remuneration policies

As at 31 December 2009, there were 15 employees in the Remaining Group. Staff remuneration packages have been determined in consideration of market conditions and the performance of the individuals concerned, and are subject to review from time to time. The Remaining Group also provides other staff benefits including medical and life insurance, and grants discretionary incentive bonuses and share options to eligible staff based on their performance and contributions to the Remaining Group.

Charges on assets

As at 31 December 2009, there were no charges on the Remaining Group’s assets.

Future plans for material investments or capital assets

As at 31 December 2009, the Remaining Group had no significant investment and future plans for material investments or capital assets.

For the year ended 31 December 2010

Business review

The Remaining Group was principally engaged in the share of profit from the development, manufacture and distribution of helicopters.

Capital structure, liquidity and financial resources

The Remaining Group has funded its operations mainly with internally generated cashflows, and has consistently maintained sufficient working capital. As at 31 December 2010, the Remaining Group had cash and bank balances and time deposits in an aggregate of approximately HK$317.9 million and had no bank borrowings.

Gearing ratio was not applicable to the Remaining Group as the Remaining Group had no borrowings as at 31 December 2010.

Contingent liabilities

As at 31 December 2010, the Remaining Group had no contingent liabilities.

Capital commitments

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

engage in the research and development, design and manufacture of parts and components for commercial aircraft, and provision of related technical services. According to the JV Agreement, the total registered capital of the joint venture would be RMB100 million (equivalent to approximately HK$118 million), of which 40%, 15% and 45% respectively, would be contributed by Sino-Aviation Investments, AVIC International and Chengdu Aircraft. The JV Agreement was conditional upon (i) the internal approval obtained by each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 31 December 2010, the JV agreement had not become effective as the conditions stated above had not been fulfilled.

Significant investments held and their performance

On 23 December 2010, the Remaining Group disposed of part of its investment in a jointly-controlled entity to an independent third party at a consideration of approximately HK$58.5 million and a gain on partial disposal of investment in a jointly-controlled entity of approximately HK$55.0 million was recorded.

For the year ended 31 December 2010, the Remaining Group recorded share of losses of associates of approximately HK$9.1 million. In addition, the Remaining Group also recorded fair value loss on derivative financial instrument of approximately HK$5.9 million.

Certain of the Remaining Group’s investments have been publicly listed in 2010 which caused a change in the measurement of these investments by the Remaining Group and thus resulted in a huge increase in their values. As at 31 December 2010, an increase in the values of these investments (net of tax) of approximately HK$2,344.5 million was recorded by the Remaining Group. Such increase had no impact on the consolidated income statement.

Material acquisitions and disposals

The Remaining Group had no material acquisitions or disposals during the year ended 31 December 2010.

Analysis of segmental information

The Remaining Group had only one reportable segment during the year ended 31 December 2010, which was the share of profit from the development, manufacture and distribution of helicopters. All of its revenue, with reference to locations of external customers, was generated from the PRC. During the year ended 31 December 2010, the Remaining Group had not engaged in any new business.

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currency risk and interest rate risk

Staff and remuneration policies

As at 31 December 2010, there were 17 employees in the Remaining Group. Staff remuneration packages have been determined in consideration of market conditions and the performance of the individuals concerned, and are subject to review from time to time. The Remaining Group also provides other staff benefits including medical and life insurance, and grants discretionary incentive bonuses and share options to eligible staff based on their performance and contributions to the Remaining Group.

Charges on assets

As at 31 December 2010, there were no charges on the Remaining Group’s assets.

Future plans for material investments or capital assets

As at 31 December 2010, the Remaining Group had no significant investment and future plans for material investments or capital assets.

For the six months ended 30 June 2011

Business review

The Remaining Group was principally engaged in the share of profit from the development, manufacture and distribution of helicopters.

Capital structure, liquidity and financial resources

The Remaining Group has funded its operations mainly with internally generated cashflows, and has consistently maintained sufficient working capital. As at 30 June 2011, the Remaining Group had cash and bank balances and time deposits in an aggregate of approximately HK$263.9 million and had no bank borrowings.

Gearing ratio was not applicable to the Remaining Group as the Remaining Group had no borrowings as at 30 June 2011.

Contingent liabilities

As at 30 June 2011, the Remaining Group had no contingent liabilities.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital commitments

On 4 January 2006, Sino-Aviation Investments, a wholly-owned subsidiary of the Company, entered into the JV Agreement with AVIC International, a substantial shareholder of the Company, and Chengdu Aircraft, a subsidiary of AVIC and an associate of the substantial shareholder of the Company, for the establishment of a joint venture to engage in the research and development, design and manufacture of parts and components for commercial aircraft, and provision of related technical services. According to the JV Agreement, the total registered capital of the joint venture would be RMB100 million (equivalent to approximately HK$120 million), of which 40%, 15% and 45% respectively, would be contributed by Sino-Aviation Investments, AVIC International and Chengdu Aircraft. The JV Agreement was conditional upon (i) the internal approval obtained by each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 30 June 2011, the JV agreement had not become effective as the conditions stated above had not been fulfilled.

Significant investments held and their performance

During the six months ended 30 June 2011, the convertible bonds held by the Remaining Group and issued by Sino Gas became mature and were converted into 137,500,000 ordinary shares of Sino Gas at an exercise price of HK$0.2 per share. As a result, the Remaining Group recorded a loss on derecognition of derivative financial instrument of approximately HK$3.9 million and at the same time a gain on bargain purchase of approximately HK$6.1 million representing an excess of the Remaining Group’s additional interest arisen from the aforesaid conversion in the fair value of Sino Gas’ net assets over the cost of acquisition. In addition, the Remaining Group recorded share of profits of jointly-controlled entity and associates of approximately HK$13.7 million and dividend income from an available-for-sale listed investment of approximately HK$5.2 million for the period.

Material acquisitions and disposals

The Remaining Group had no material acquisitions or disposals during the period.

Analysis of segmental information

The Remaining Group had only one reportable segment during the six months ended 30 June 2011, which was the share of profit from the development, manufacture and distribution of helicopters. All of its revenue, with reference to locations of external customers, was generated from the PRC. During the six months ended 30 June 2011, the Remaining Group had not engaged in any new business.

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currency risk and interest rate risk

Staff and remuneration policies

As at 30 June 2011, there were 17 employees in the Remaining Group. Staff remuneration packages have been determined in consideration of market conditions and the performance of the individuals concerned, and are subject to review from time to time. The Remaining Group also provides other staff benefits including medical and life insurance, and grants discretionary incentive bonuses and share options to eligible staff based on their performance and contributions to the Remaining Group.

Charges on assets

As at 30 June 2011, there were no charges on the Remaining Group’s assets.

Future plans for material investments or capital assets

As at 30 June 2011, the Remaining Group had no significant investment and future plans for material investments or capital assets.

6. FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

The Remaining Group’s aero-technology related business is expected to remain stable for the current financial year. The Directors are also optimistic about the prospects of the knitting and textile business in relation to the Acquisition in light of (i) the continuing economic development in the PRC; (ii) the increasing per capita disposable income in the PRC; and (iii) the extensive industrial experience and established customer base of the acquisition target. Following completion of the Acquisition, which is pending the fulfillment of certain conditions precedent, the financial position and performance of the Remaining Group is expected to benefit from the revenue base of the acquisition target.

At the same time, the Directors will keep reviewing the Remaining Group’s business portfolio from time to time, and will continue to identify possible acquisition opportunities in businesses in other industries, including but not limited to, the consumer goods industry to which the Acquisition is related or projects in the aviation and aero-related industry with better growth prospects, with an aim to optimise its business portfolio and to increase Shareholders’ value. As at the Latest Practicable Date, no such opportunity has been identified.

– I-10 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Set out below are certain financial information of Polyson Investment Limited (the “Target Company”) and its subsidiary, 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-holding Co. or the “Operating Company”) (hereinafter collectively referred to as the “Target Group”) for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, which have been reviewed by the Group’s auditor, Ernst & Young, Certified Public Accountants, in accordance with the Hong Kong Standard on Review Engagements 2410 Review on Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. Based on their review, nothing has come to their attention that causes them to believe that the unaudited financial information is not prepared, in all material respects, in accordance with the basis of preparation as set out in Note 2 to the financial information of the Target Group as set out below.

CONSOLIDATED INCOME STATEMENTS

				Six months	ended
	Year ended 31 December			30 June
	2008	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
REVENUE	256,071	227,041	273,732	128,365	143,648
Cost of sales	(238,475)	(210,415)	(237,264)	(114,339)	(126,806)
Gross profit	17,596	16,626	36,468	14,026	16,842
Other income	25,103	10,191	9,686	6,094	4,496
Administrative expenses	(12,084)	(15,793)	(12,632)	(7,758)	(7,921)
Other operating
income/(expenses), net	157	(762)	260	–	–
Finance costs	(6,043)	(1,570)	(3,971)	(2,012)	(3,861)
Surplus/(deficit) on
revaluation of items of
property, plant and
equipment	3,701	1,007	(1,526)	–	–
Loss on partial disposal of
equity interest in
a subsidiary	(12,878)	–	–	–	–
Share of loss of
an associate	(154)	–	–	–	–
Loss on disposal of
an associate	–	(192)	–	–	–
PROFIT BEFORE TAX	15,398	9,507	28,285	10,350	9,556
Income tax expense	(7,767)	(4,067)	(9,730)	(2,730)	(2,403)
PROFIT FOR
THE YEAR/PERIOD	7,631	5,440	18,555	7,620	7,153


Attributable to:
Equity holders of
the parent	(2,117)	4,324	9,724	4,720	4,845
Non-controlling interests	9,748	1,116	8,831	2,900	2,308
	7,631	5,440	18,555	7,620	7,153

– II-1 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

				Six months ended	Six months ended
	Year ended 31 December			30 June
	2008	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
PROFIT FOR
THE YEAR/PERIOD	7,631	5,440	18,555	7,620	7,153


OTHER
COMPREHENSIVE
INCOME
Surplus on property, plant
and equipment
revaluation, net of tax	3,111	4,971	10,490	–	–
Reclassification adjustment
for gain included in
the consolidated
income statement
– Loss on partial
disposal	19,676	–	–	–	–
Exchange differences on
translation of foreign
operations	9,053	1,107	6,693	2,911	6,690
OTHER
COMPREHENSIVE
INCOME FOR
THE YEAR/PERIOD,
NET OF TAX	31,840	6,078	17,183	2,911	6,690

TOTAL
COMPREHENSIVE
INCOME FOR
THE YEAR/PERIOD	39,471	11,518	35,738	10,531	13,843


Attributable to:
Equity holders of
the parent	124	7,302	18,100	6,147	8,061
Non-controlling interests	39,347	4,216	17,638	4,384	5,782
	39,471	11,518	35,738	10,531	13,843

– II-2 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	211,551	251,179	274,479	279,563
Prepaid land lease payments	29,099	28,507	28,794	29,126
Goodwill	26,682	26,682	26,682	26,682
Investments in an associate	1,339	–	–	–

Total non-current assets	268,671	306,368	329,955	335,371

CURRENT ASSETS
Inventories	31,359	13,945	21,872	31,680
Trade and bills receivables	42,431	30,770	39,699	35,765
Tax recoverable	–	1,062	793	5,722
Prepayments, deposits and
other receivables	7,042	18,696	17,506	23,883
Due from a non-controlling
shareholder of a subsidiary	10,857	9,479	2,759	–
Pledged time deposits	53,672	45,051	34,445	21,687
Cash and cash equivalents	29,267	24,886	22,095	25,445
Total current assets	174,628	143,889	139,169	144,182

CURRENT LIABILITIES
Trade and bills payables	117,624	112,698	75,376	37,378
Due to the immediate
holding company	180,934	177,239	171,844	164,959
Due to non-controlling
shareholders of a subsidiary	7,219	8,999	9,251	4,494
Tax payable	1,101	–	–	–
Other payables and accruals	4,344	19,304	22,943	39,615
Interest-bearing bank borrowings	29,412	28,409	55,882	84,940
Total current liabilities	340,634	346,649	335,296	331,386

NET CURRENT LIABILITIES	(166,006)	(202,760)	(196,127)	(187,204)
TOTAL ASSETS LESS
CURRENT LIABILITIES	102,665	103,608	133,828	148,167
NON-CURRENT LIABILITIES
Deferred tax liabilities	(6,798)	(6,654)	(11,858)	(12,354)
Net assets	95,867	96,954	121,970	135,813

– II-3 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
EQUITY
Equity attributable to equity
holders of the parent
Issued capital	0.008	0.008	0.008	0.008
Reserves	25,265	32,567	50,667	58,728

	25,265	32,567	50,667	58,728
Non-controlling interests	70,602	64,387	71,303	77,085
Total equity	95,867	96,954	121,970	135,813

– II-4 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to owner	Attributable to owner	Attributable to owner	of the Target Group	of the Target Group
		Property,
		plant
		and
		equipment			Exchange				Non-
	Issued	revaluation	Reserve	fluctuation		Retained		controlling		Total
	capital	reserve	fund		reserve	profits	Total		interests	equity
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
At 1 January 2008	0.008	3,435	6,927		11,908	2,871	25,141		39,621	64,762
Profit/(loss) for the year	–	–	–		–	(2,117)	(2,117)		9,748	7,631
Other comprehensive income
for the year:
Surplus on property, plant
and equipment revaluation,
net of tax	–	1,525	–		–	–	1,525		1,586	3,111
Partial disposal of equity
interest in a subsidiary	–	(1,031)	(2,078)		(3,572)	3,109	(3,572)		23,248	19,676
Exchange differences on
translation of foreign
operation	–	–	–		4,288	–	4,288		4,765	9,053

Total comprehensive income
for the year	–	494	(2,078)		716	992	124		39,347	39,471
Transfer to reserve fund	–	–	775		–	(775)	–		–	–
Dividend paid to non-
controlling shareholders	–	–	–		–	–	–		(8,366)	(8,366)

At 31 December 2008 and
1 January 2009	0.008	3,929*	5,624*		12,624*	3,088*	25,265		70,602	95,867
Profit for the year	–	–	–		–	4,324	4,324		1,116	5,440
Other comprehensive income
for the year:
Surplus on property, plant
and equipment revaluation,
net of tax	–	2,436	–		–	–	2,436		2,535	4,971
Exchange differences on
translation of foreign
operation	–	–	–		542	–	542		565	1,107

Total comprehensive income
for the year	–	2,436	–		542	4,324	7,302		4,216	11,518
Transfer to reserve fund	–	–	51		–	(51)	–		–	–
Dividend paid to non-
controlling shareholders	–	–	–		–	–	–		(10,431)	(10,431)

At 31 December 2009 and
1 January 2010	0.008	6,365*	5,675*		13,166*	7,361*	32,567		64,387	96,954
Profit for the year	–	–	–		–	9,724	9,724		8,831	18,555
Other comprehensive income
for the year:
Surplus on property, plant
and equipment revaluation,
net of tax	–	5,140	–		–	–	5,140		5,350	10,490
Exchange differences on
translation of foreign
operation	–	–	–		3,236	–	3,236		3,457	6,693

Total comprehensive income
for the year	–	5,140	–		3,236	9,724	18,100		17,638	35,738
Transfer to reserve fund	–	–	898		–	(898)	–		–	–
Dividend paid to non-
controlling shareholders	–	–	–		–	–	–		(10,722)	(10,722)

– II-5 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

			Attributable to owner	Attributable to owner	Attributable to owner	of the Target Group	of the Target Group
			Property,
			plant
			and
		equipment				Exchange				Non-
	Issued	revaluation		Reserve	fluctuation		Retained		controlling		Total
	capital		reserve	fund		reserve	profits	Total		interests	equity
	HK$’000		HK$’000	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
At 31 December 2010 and
1 January 2011	0.008		11,505*	6,573*		16,402*	16,187*	50,667		71,303	121,970
Profit for the period	–		–	–		–	4,845	4,845		2,308	7,153
Other comprehensive income
for the period:
Exchange differences on
translation of foreign
operation	–		–	–		3,216	–	3,216		3,474	6,690

Total comprehensive income
for the period	–		–	–		3,216	4,845	8,061		5,782	13,843
Transfer to reserve fund	–		–	258		–	(258)	–		–	–

At 30 June 2011	0.008		11,505*	6,831*		19,618*	20,774*	58,728		77,085	135,813


At 1 January 2010	0.008		6,365	5,675		13,166	7,361	32,567		64,387	96,954
Profit for the period	–		–	–		–	4,720	4,720		2,900	7,620
Other comprehensive income
for the period:
Exchange differences on
translation of foreign
operation	–		–	–		1,427	–	1,427		1,484	2,911

Total comprehensive income
for the period	–		–	–		1,427	4,720	6,147		4,384	10,531
Transfer to reserve fund	–		–	295		–	(295)	–		–	–

At 30 June 2010	0.008		6,365	5,970		14,593	11,786	38,714		68,771	107,485

These reserve accounts comprise the reserves of HK$25,265,000, HK$32,567,000, HK$50,667,000 and HK$58,728,000 in the consolidated statements of financial position as at 31 December 2008, 2009 and 2010, and 30 June 2011, respectively.

– II-6 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six months	ended	ended
	Year ended 31 December			30 June
	2008	2009	2010	2010		2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax	15,398	9,507	28,285	10,350		9,556
Adjustments for:
Finance costs	6,043	1,570	3,971	2,012		3,861
Bank interest income	(1,104)	(1,687)	(759)	(356)		(420)
Share of loss of an associate	154	–	–	–		–
Loss on disposal of an associate	–	192	–	–		–
Loss on partial disposal of equity
interest in a subsidiary	12,878	–	–	–		–
Loss on disposal of items of property,
plant and equipment	1,399	4	–	–		116
Deficit/(surplus) on revaluation of items
of property, plant and equipment	(3,701)	(1,007)	1,526	–		–
Depreciation	15,838	16,263	17,205	8,618		11,158
Recognition of prepaid land
lease payments	778	729	737	368		382
Provision for impairment of trade
and bills receivables, net	923	428	156	–		–
Write-off/(recovery) of other receivables	75	50	(255)	–		–
Provision/(write-back of provision) for
financial guarantee contracts	(1,155)	284	(161)	–		–
	47,526	26,333	50,705	20,992		24,653
Decrease/(increase) in inventories	(13,959)	17,414	(7,435)	(4,604)		(9,131)
Decrease/(increase) in trade and
bills receivables	(23,609)	11,333	(8,861)	(1,235)		4,497
Decrease/(increase) in prepayments,
deposits and other receivables	13,312	(11,684)	1,607	(20,689)		(6,111)
Increase/(decrease) in trade and
bills payables	36,867	(4,927)	(41,168)	(29,110)		(39,300)
Increase/(decrease) in other payables
and accruals	(9,644)	14,646	2,578	(1,426)		15,891
Cash generated from/(used in)
operations	50,493	53,115	(2,574)	(36,072)		(9,501)
Interest paid	(6,043)	(1,570)	(3,971)	(2,012)		(3,861)
Overseas tax paid	(5,306)	(6,381)	(7,278)	(4,096)		(6,824)
Net cash flows from/(used in)
operating activities	39,144	45,164	(13,823)	(42,180)		(20,186)

– II-7 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

					Six months ended	Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010			2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of items of property, plant and
equipment	(21,920)		(48,955)	(20,053)	(11,643)			(9,931)
Proceeds from disposal of items of
property, plant
and equipment	540		–	–	–				53
Proceeds from disposal of
an associate	–		1,147	–	–				–
Proceeds from partial disposal
of a subsidiary	13,137		–	–	–				–
Bank interest received	1,104		1,687	759	356			420
Decrease/(increase) in pledged time
deposits	(17,344)		8,621	12,196	7,321			13,823
Net cash flows from/(used in)
investing activities	(24,483)		(37,500)	(7,098)	(3,966)			4,365
CASH FLOWS FROM FINANCING
ACTIVITIES
New bank loans	29,412		45,455	55,882	54,598			72,892
Repayment of bank loans	(76,017)		(46,591)	(29,412)	(5,747)			(45,181)
Dividend to non-controlling shareholders
of a subsidiary	(5,740)		(7,218)	(9,000)	(8,688)			(8,963)
Advances to a non-controlling shareholder
of a subsidiary	(931)		(129)	–	–				–
Repayment from a non-controlling
shareholder of a subsidiary	–		–	5,176	5,334			6,777
Increase/(decrease) in amount due to
the immediate holding company	56,398		(3,695)	(5,395)	(5,395)			(6,885)
Net cash flows from/(used in)
financing activities	3,122		(12,178)	17,251	40,102			18,640
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS	17,783		(4,514)	(3,670)	(6,044)			2,819
Cash and cash equivalents at
beginning of year	10,873		29,267	24,886	24,886			22,095
Effect of foreign exchange rate
changes, net	611		133	879	285			531
CASH AND CASH EQUIVALENTS
AT END OF YEAR	29,267		24,886	22,095	19,127			25,445


ANALYSIS OF BALANCE OF CASH
AND CASH EQUIVALENTS
Cash and bank balances	29,267		24,886	22,095	19,127			25,445

– II-8 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

The unaudited financial information of the Target Group is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

2. BASIS OF PREPARATION

The unaudited financial information of the Target Group has been prepared in accordance with paragraph 68(2)(a)(i) of Chapter 14 of the Listing Rules, and solely for the purpose of inclusion in the circular to be issued by the Company in connection with the Target Company Disposal.

The unaudited financial information of the Target Group has been prepared on the historical cost basis, except for certain property, plant and equipment which are measured at fair value. The unaudited financial information of the Target Group for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 has been prepared using the same accounting policies as those adopted by the Group in the preparation of the consolidated financial statements of the Group for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.

The unaudited financial information of the Target Group does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) Presentation of Financial Statements issued by the Hong Kong Institute of Certified Public Accountants or a set of condensed financial statements as defined in Hong Kong Accounting Standard 34 Interim Financial Reporting .

The unaudited consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Target Group for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 include the results and cash flows of the Target Group for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.

The unaudited statements of financial position of the Target Group as at 31 December 2008, 2009 and 2010 and 30 June 2011 include the assets and liabilities of the Target Group as at those reporting period end dates.

– II-9 –

FINANCIAL INFORMATION OF THE OPERATING COMPANY

APPENDIX III

Set out below are certain financial information of 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-holding Co. or the “Operating Company”) for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, which have been reviewed by the Group’s auditor, Ernst & Young, Certified Public Accountants, in accordance with the Hong Kong Standard on Review Engagements 2410 Review on Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. Based on their review, nothing has come to their attention that causes them to believe that the unaudited financial information is not prepared, in all material respects, in accordance with the basis of preparation as set out in Note 2 to the financial information of the Operating Company as set out below.

INCOME STATEMENTS

				Six months	ended
	Year ended 31 December			30 June
	2008	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
REVENUE	256,071	227,041	273,732	128,365	143,648
Cost of sales	(238,475)	(210,415)	(237,264)	(114,339)	(126,806)
Gross profit	17,596	16,626	36,468	14,026	16,842
Other income	25,103	10,191	9,686	6,094	4,476
Administrative expenses	(13,479)	(15,192)	(12,848)	(7,816)	(8,001)
Other operating
income/(expenses), net	157	(762)	260	–	–
Finance costs	(8,712)	(5,423)	(7,695)	(3,887)	(6,147)
Surplus/(deficit) on
revaluation of items of
property, plant and
equipment	3,701	1,007	(1,526)	–	–
Share of loss of
an associate	(154)	–	–	–	–
Loss on disposal of
an associate	–	(192)	–	–	–
PROFIT BEFORE TAX	24,212	6,255	24,345	8,417	7,170
Income tax expense	(7,767)	(4,067)	(7,030)	(2,730)	(2,645)
PROFIT FOR
THE YEAR/PERIOD	16,445	2,188	17,315	5,687	4,525

– III-1 –

APPENDIX III FINANCIAL INFORMATION OF THE OPERATING COMPANY

STATEMENTS OF COMPREHENSIVE INCOME

				Six months ended	Six months ended	Six months ended
	Year ended 31 December			30	June
	2008	2009	2010	2010		2011
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
PROFIT FOR THE
YEAR/PERIOD	16,445	2,188	17,315	5,687		4,525


OTHER COMPREHENSIVE
INCOME
Surplus on property, plant and
equipment revaluation,
net of tax	3,111	4,971	10,490	–		–
Exchange differences on
translation of foreign
operations	8,507	1,116	5,594	2,630		5,410
OTHER COMPREHENSIVE
INCOME FOR
THE YEAR/PERIOD,
NET OF TAX	11,618	6,087	16,084	2,630		5,410

TOTAL COMPREHENSIVE
INCOME FOR
THE YEAR/PERIOD	28,063	8,275	33,399	8,317		9,935

– III-2 –

APPENDIX III FINANCIAL INFORMATION OF THE OPERATING COMPANY

STATEMENTS OF FINANCIAL POSITION

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	211,551	251,179	274,479	279,563
Prepaid land lease payments	29,099	28,507	28,794	29,126
Investment in an associate	1,339	–	–	–

Total non-current assets	241,989	279,686	303,273	308,689

CURRENT ASSETS
Inventories	31,359	13,945	21,872	31,680
Trade and bills receivables	42,431	30,770	39,699	35,765
Tax recoverable	–	1,062	793	5,722
Prepayments, deposits and other
receivables	7,042	18,696	17,506	23,883
Pledged time deposits	53,672	45,051	34,445	21,687
Cash and cash equivalents	29,208	24,875	22,087	25,445
Total current assets	163,712	134,399	136,402	144,182

CURRENT LIABILITIES
Trade and bills payables	117,624	112,698	75,376	37,378
Due to the immediate holding
company	2,745	2,221	6,023	8,481
Tax payable	1,101	–	–	–
Other payables and accruals	4,344	19,304	22,943	39,615
Dividend payable	30,555	43,856	56,974	49,307
Loan from the immediate holding
company	70,000	70,000	70,000	70,000
Interest-bearing bank borrowings	29,412	28,409	55,882	84,940
Total current liabilities	255,781	276,488	287,198	289,721

NET CURRENT LIABILITIES	(92,069)	(142,089)	(150,796)	(145,539)
TOTAL ASSETS LESS CURRENT
LIABILITIES	149,920	137,597	152,477	163,150
NON-CURRENT LIABILITIES
Deferred tax liabilities	(6,798)	(6,654)	(9,158)	(9,896)
Net assets	143,122	130,943	143,319	153,254


EQUITY
Issued capital	63,710	63,710	63,710	63,710
Reserves	79,412	67,233	79,609	89,544

Total equity	143,122	130,943	143,319	153,254

– III-3 –

APPENDIX III FINANCIAL INFORMATION OF THE OPERATING COMPANY

STATEMENT OF CHANGES IN EQUITY

		Attributable to owners of	Attributable to owners of	the Operating	Company
		Property,
		plant and
		equipment		Exchange
	Issued	revaluation	Reserve	fluctuation	Retained
	capital	reserve	fund	reserve	profits	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2008	63,710	4,908	9,896	16,809	36,140	131,463
Profit for the year	–	–	–	–	16,445	16,445
Other comprehensive income
for the year:
Surplus on property, plant
and equipment
revaluation, net of tax	–	3,111	–	–	–	3,111
Exchange differences on
translation of foreign
operation	–	–	–	8,507	–	8,507
Total comprehensive income
for the year	–	3,111	–	8,507	16,445	28,063
Transfer to reserve fund	–	–	1,582	–	(1,582)	–
Final 2008 dividend	–	–	–	–	(16,404)	(16,404)
At 31 December 2008 and
1 January 2009	63,710	8,019*	11,478*	25,316*	34,599*	143,122
Profit for the year	–	–	–	–	2,188	2,188
Other comprehensive income
for the year:
Surplus on property, plant
and equipment
revaluation, net of tax	–	4,971	–	–	–	4,971
Exchange differences on
translation of foreign
operation	–	–	–	1,116	–	1,116
Total comprehensive income
for the year	–	4,971	–	1,116	2,188	8,275
Transfer to reserve fund	–	–	104	–	(104)	–
Final 2009 dividend	–	–	–	–	(20,454)	(20,454)

– III-4 –

FINANCIAL INFORMATION OF THE OPERATING COMPANY

APPENDIX III

STATEMENT OF CHANGES IN EQUITY (continued)

Attributable to owners of the Operating Company

		Property,
		plant and
		equipment		Exchange
	Issued	revaluation	Reserve	fluctuation	Retained
	capital	reserve	fund	reserve	profits	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 31 December 2009 and
1 January 2010	63,710	12,990*	11,582*	26,432*	16,229*	130,943
Profit for the year	–	–	–	–	17,315	17,315
Other comprehensive income
for the year:
Surplus on property, plant
and equipment
revaluation, net of tax	–	10,490	–	–	–	10,490
Exchange differences on
translation of foreign
operation	–	–	–	5,594	–	5,594
Total comprehensive income
for the year	–	10,490	–	5,594	17,315	33,399
Transfer to reserve fund	–	–	1,832	–	(1,832)	–
Final 2010 dividend	–	–	–	–	(21,023)	(21,023)
At 31 December 2010 and
1 January 2011	63,710	23,480*	13,414*	32,026*	10,689*	143,319
Profit for the period	–	–	–	–	4,525	4,525
Other comprehensive income
for the period:
Exchange differences on
translation of foreign
operation	–	–	–	5,410	–	5,410
Total comprehensive income
for the period	–	–	–	5,410	4,525	9,935
Transfer to reserve fund	–	–	526	–	(526)	–
At 30 June 2011	63,710	23,480*	13,940*	37,436*	14,688*	153,254

– III-5 –

FINANCIAL INFORMATION OF THE OPERATING COMPANY

APPENDIX III

STATEMENT OF CHANGES IN EQUITY (continued)

		Attributable to owners of	Attributable to owners of	the Operating	Company
		Property,
		plant and
		equipment		Exchange
	Issued	revaluation	Reserve	fluctuation	Retained
	capital	reserve	fund	reserve	profits	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2010	63,710	12,990	11,582	26,432	16,229	130,943
Profit for the period	–	–	–	–	5,687	5,687
Other comprehensive income
for the period:
Exchange differences on
translation of foreign
operation	–	–	–	2,630	–	2,630
Total comprehensive income
for the period	–	–	–	2,630	5,687	8,317
Transfer to reserve fund	–	–	602	–	(602)	–
At 30 June 2010	63,710	12,990	12,184	29,062	21,314	139,260

These reserve accounts comprise the reserves of HK$79,412,000, HK$67,233,000, HK$79,609,000 and HK$89,544,000 in the statements of financial position as at 31 December 2008, 2009 and 2010, and 30 June 2011, respectively.

– III-6 –

FINANCIAL INFORMATION OF THE OPERATING COMPANY

APPENDIX III

STATEMENTS OF CASH FLOWS

				Six months	ended
	Year ended 31 December			30 June
	2008	2009	2010	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before tax	24,212	6,255	24,345	8,417	7,170
Adjustments for:
Finance costs	8,712	5,423	7,695	3,887	6,147
Bank interest income	(1,104)	(1,687)	(759)	(356)	(420)
Share of loss of an associate	154	–	–	–	–
Loss on disposal of
an associate	–	192	–	–	–
Loss on disposal of items of
property, plant and
equipment	1,399	4	–	–	116
Deficit/(surplus) on
revaluation of items of
property, plant and
equipment	(3,701)	(1,007)	1,526	–	–
Depreciation	15,838	16,263	17,205	8,618	11,158
Recognition of prepaid land
lease payments	778	729	737	368	382
Provision for impairment of
trade and bills receivables,
net	923	428	156	–	–
Write-off/(recovery) of other
receivables	75	50	(255)	–	–
Provision/(write-back of
provision) for financial
guarantee contracts	(1,155)	284	(161)	–	–
	46,131	26,934	50,489	20,934	24,553
Decrease/(increase) in
inventories	(13,959)	17,414	(7,435)	(4,604)	(9,131)
Decrease/(increase) in trade
and bills receivables	(23,609)	11,333	(8,861)	(1,235)	4,497
Decrease/(increase) in
prepayments, deposits and
other receivables	13,312	(11,684)	1,607	(20,689)	(6,111)
Increase/(decrease) in trade and
bills payables	36,867	(4,927)	(41,168)	(29,110)	(39,300)
Increase/(decrease) in other
payables and accruals	(9,644)	14,646	2,578	(1,426)	15,891
Cash generated from/
(used in) operations	49,098	53,716	(2,790)	(36,130)	(9,601)
Interest paid	(6,043)	(5,947)	(3,971)	(2,012)	(3,861)
Overseas tax paid	(5,306)	(6,381)	(7,278)	(4,096)	(6,824)
Net cash flows from/
(used in) operating activities	37,749	41,388	(14,039)	(42,238)	(20,286)

– III-7 –

APPENDIX III FINANCIAL INFORMATION OF THE OPERATING COMPANY

STATEMENTS OF CASH FLOWS (continued)

					Six months ended	Six months ended	Six months ended
	Year ended 31 December				30	June
	2008	2009	2010		2010		2011
	HK$’000	HK$’000	HK$’000		HK$’000		HK$’000
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of items of property,
plant and equipment	(21,920)	(48,955)	(20,053)		(11,643)		(9,931)
Proceeds from disposal of
items of property, plant and
equipment	540	–		–	–		53
Proceeds from disposal of
an associate	–	1,147		–	–		–
Bank interest received	1,104	1,687		759	356		420
Decrease/(increase) in pledged
time deposits	(17,344)	8,621	12,196		7,321		13,823
Net cash flows from/
(used in) investing activities	(37,620)	(37,500)	(7,098)		(3,966)		4,365
CASH FLOWS FROM
FINANCING ACTIVITIES
New bank loans	29,412	45,455	55,882		54,598		72,892
Repayment of bank loans	(76,017)	(46,591)	(29,412)		(5,747)		(45,181)
Dividend to non-controlling
shareholders of a subsidiary	(5,740)	(7,218)	(9,000)		(8,688)		(8,963)
Loan from the immediate
holding company	70,000	–		–	–		–
Net cash flows from/(used in)
financing activities	17,655	(8,354)	17,470		40,163		18,748
NET INCREASE/(DECREASE)
IN CASH AND CASH
EQUIVALENTS	17,784	(4,466)	(3,667)		(6,041)		2,827
Cash and cash equivalents at
beginning of year	10,813	29,208	24,875		24,875		22,087
Effect of foreign exchange rate
changes, net	611	133		879	285		531
CASH AND CASH
EQUIVALENTS AT END OF
YEAR	29,208	24,875	22,087		19,119		25,445


ANALYSIS OF BALANCE OF
CASH AND CASH
EQUIVALENTS
Cash and bank balances	29,208	24,875	22,087		19,119		25,445

– III-8 –

APPENDIX III FINANCIAL INFORMATION OF THE OPERATING COMPANY

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

On 1 November 2011, AVIC International Holding (HK) Limited (the “Company”) and its subsidiaries (collectively the “Group”) has entered into a conditional sale and purchase agreement for the disposal of its 100% equity interest in Polyson Investment Limited, which directly holds 49% equity interest in the Operating Company, to Hong Kong Yuanhe International Trade Group Limited, a company incorporated in Hong Kong, and entered into another conditional sale and purchase agreement for the disposal of its 3% equity interest in the Operating Company to 杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.*), a company incorporated in the People’s Republic of China (the “Disposals”).

The unaudited financial information of the Operating Company is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

2. BASIS OF PREPARATION

The unaudited financial information of the Operating Company has been prepared in accordance with paragraph 68(2)(a)(i) of Chapter 14 of the Listing Rules, and solely for the purpose of inclusion in the circular to be issued by the Company in connection with the Disposals.

The unaudited financial information of the Operating Company has been prepared on the historical cost basis, except for certain property, plant and equipment which are measured at fair value. The unaudited financial information of the Operating Company for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 has been prepared using the same accounting policies as those adopted by the Group in the preparation of the consolidated financial statements of the Group for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.

The unaudited financial information of the Operating Company does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) Presentation of Financial Statements issued by the Hong Kong Institute of Certified Public Accountants or a set of condensed financial statements as defined in Hong Kong Accounting Standard 34 Interim Financial Reporting .

The unaudited statements of comprehensive income, statements of changes in equity and statements of cash flows of the Operating Company for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 include the results and cash flows of the Operating Company for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.

The unaudited statements of financial position of the Operating Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 include the assets and liabilities of the Operating Company as at those reporting period end dates.

* English translation name for identification purpose only

– III-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

I. THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

On 1 November 2011, AVIC International Holding (HK) Limited (the “Company”) and its subsidiaries (collectively the “Group”) entered into a conditional sale and purchase agreement for the disposal of its 100% equity interest in Polyson Investment Limited (the “Target Company”), which directly holds 49% equity interest in 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-holding Co. or the “Operating Company”) (hereinafter collectively referred to as the “Target Group”), to Hong Kong Yuanhe International Trade Group Limited (the “Purchaser”), a company incorporated in Hong Kong (the “Target Company Disposal”).

On the same date, the Group also entered into another conditional sale and purchase agreement to dispose of its 3% equity interest in the Operating Company to 杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.*), a company incorporated in the People’s Republic of China (the “PRC”) (the “Hangzhou Disposal”).

The unaudited pro forma financial information of the remaining group, which are set out below in Sections I(A), I(B) and I(C), have been prepared to illustrate (i) the effect of the completion of the Target Company Disposal only; (ii) the effect of the completion of the Hangzhou Disposal only; and (iii) the aggregate effect of the completion of the Target Company Disposal and the Hangzhou Disposal, respectively.

The unaudited pro forma financial information have been prepared for the purposes of illustrating (a) the financial position of the remaining group as at 30 June 2011 as if the respective disposals had been completed on 30 June 2011; and (b) the results and cash flows of the remaining group for the year ended 31 December 2010 as if the respective disposals had been completed on 1 January 2010. The unaudited pro forma financial information have been prepared for illustrative purposes only and because of their hypothetical nature, they may not purport to represent the true picture of the financial position of the remaining group as at 30 June 2011 or at any future date had the respective disposals been completed on 30 June 2011 or the results and cash flows of the remaining group for the year ended 31 December 2010 or for any future period had the respective disposals been completed on 1 January 2010.

The unaudited pro forma financial information should be read in conjunction with the financial information of the Group as set out in Appendix I, the financial information of the Target Group as set out in Appendix II, the financial information of the Operating Company as set out in Appendix III and other financial information as set out elsewhere in this circular.

For the avoidance of doubt, the unaudited pro forma consolidated income statements, the unaudited pro forma consolidated statements of comprehensive income and the unaudited pro forma consolidated statements of cash flows have not reflected the effect of the major transaction and possible connected transaction as included in the published circular of the Group dated 17 November 2011. The unaudited pro forma financial information has not reflected the effect of the disposal of the Group’s 4% equity interest in the Operating Company in relation to a conditional sale and purchase agreement entered into between the Group and 浙江中強化纖有限公司 (Zhejiang Zhongqiang Chemical Fiber Co., Ltd.*) dated 11 August 2011 as included in the Company’s announcement dated 9 November 2011.

* English translation name for identification purpose only

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

Upon completion of the Target Company Disposal, the Operating Company will cease to be consolidated as a subsidiary in the Group’s consolidated financial statements and the remaining 7% interest will be recognised as available-for-sale investment. Upon completion of the Hangzhou Disposal, the Operating Company will continue to be consolidated as a subsidiary in the Group’s consolidated financial statements as to 53% of the Group’s equity interest in the Operating Company. Upon completion of the Target Company Disposal and Hangzhou Disposal, the Operating Company will cease to be consolidated as a subsidiary in the Group’s consolidated financial statements and the remaining 4% interest will be recognised as available-for-sale investment.

I(A) Unaudited Pro Forma Financial Information of the remaining group as a result of the completion of the Target Company Disposal

(i) Unaudited Pro Forma Consolidated Statement of Financial Position as at 30 June 2011

NON-CURRENT ASSETS Property, plant and equipment Prepaid land lease payments Goodwill Intangible asset Investment in a jointly- controlled entity Investments in associates Available-for-sale investments Total non-current assets CURRENT ASSETS Inventories Trade and bills receivables Prepayments, deposits and other receivables Loans to a jointly-controlled entity Loans to associates Loans to related parties Pledged time deposits Cash and cash equivalents Total current assets	The Enlarged Group Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) 331,317 (279,563) 33,844 (29,126) 32,012 (26,682) (3,811) 2,554 755,823 245,996 1,246,090 30,820 2,647,636 38,635 (31,680) 55,479 (35,765) 140,149 (23,883) 188,207 36,145 37,072 18,072 26,452 (21,687) 285,922 (25,445) 153,593 637,926	Unaudited pro forma information of the remaining group HK$’000 51,754 4,718 1,519 2,554 755,823 245,996 1,276,910 2,339,274 6,955 19,714 304,473 36,145 37,072 18,072 4,765 414,070 841,266

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

				Unaudited
				pro forma
				information
	The			of the
	Enlarged	Pro forma	Pro forma	remaining
	Group	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)
CURRENT LIABILITIES
Trade and bills payables	62,753	(37,378)		25,375
Other payables and accruals	67,746	(39,615)		28,131
Due to the immediate holding
company	–	(164,959)	164,959	–
Due to non-controlling
shareholders of subsidiaries	791	(4,494)	4,207	504
Tax payable	5,459	5,722	6,745	17,926
Interest-bearing bank borrowings	131,411	(84,940)		46,471
Total current liabilities	268,160			118,407

NET CURRENT ASSETS	369,766			722,859

TOTAL ASSETS LESS
CURRENT LIABILITIES	3,017,402			3,062,133

NON-CURRENT LIABILITIES
Deferred tax liabilities	317,332	(12,354)	6,306	311,284

Net assets	2,700,070			2,750,849

EQUITY
Equity attributable to equity
holders of the parent
Issued capital	475,440			475,440
Reserves	2,150,602	(58,728)	176,891	2,268,765

	2,626,042			2,744,205
Non-controlling interests	74,028	(77,085)	9,701	6,644
Total equity	2,700,070			2,750,849

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(ii) Unaudited Pro Forma Consolidated Income Statement for the year ended 31 December 2010

						Unaudited
						pro forma
					information
						of the
			Pro forma	Pro forma		remaining
	The Group	adjustment		adjustment		group
	HK$’000		HK$’000	HK$’000		HK$’000
	(Note 4)		(Note 5)	(Note 6)
REVENUE	274,386		(273,732)			654
Cost of sales	(237,264)		237,264			–
Gross profit	37,122					654
Other income and gains	14,273		(9,686)			4,587
Administrative expenses	(33,948)		12,632			(21,316)
Other operating income	260		(260)			–
Finance costs	(3,971)		3,971			–
Deficit on revaluation of
items of property, plant
and equipment	(1,526)		1,526			–
Gain on partial disposal of
investment in a jointly-
controlled entity	54,996					54,996
Gain on deemed disposal
of an associate	1,600					1,600
Share of profits and
losses of:
Jointly-controlled entity	3,494					3,494
Associates	(9,142)					(9,142)
Gain on disposal of
subsidiaries	–			175,106		175,106
Impairment of a financial
asset under Project
EC120	(3,459)					(3,459)
Fair value loss on
derivative financial
instrument	(5,919)					(5,919)
PROFIT BEFORE TAX	53,780					200,601
Income tax expense	(10,100)		9,730	(13,051)		(13,421)
PROFIT FOR THE YEAR	43,680					187,180

Attributable to:
Equity holders of
the parent	36,062		(10,937)	162,055		187,180
Non-controlling interests	7,618		(7,618)	–		–
	43,680					187,180

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iii) Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the year ended 31 December 2010

PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Surplus on property, plant and equipment revaluation Income tax effect Available-for-sale investments: Change in fair value Income tax effect Share of other comprehensive income of a jointly-controlled entity Reclassification adjustment for gain included in the consolidated income statement – Gain on partial disposal	The Group Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 (Note 4) (Note 5) (Note 6) 43,680 (18,555) 162,055 13,518 (13,518) (3,028) 3,028 10,490 1,842,900 (459,767) 1,383,133 1,041,418 (76,231) 965,187	Unaudited pro forma information of the remaining group HK$’000 187,180 – – – 1,842,900 (459,767) 1,383,133 1,041,418 (76,231) 965,187

– IV-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
			Pro forma	Pro forma	remaining
	The Group	adjustment		adjustment	group
	HK$’000		HK$’000	HK$’000	HK$’000
	(Note 4)		(Note 5)	(Note 6)
Share of other
comprehensive income
of an associate	9,500				9,500
Reversal of foreign
exchange reserve upon
disposal of
a subsidiary included
in the consolidated
income statement
– Gain on disposal	–			(14,802)	(14,802)
Exchange differences on
translation of foreign
operations	9,850		(6,693)		3,157
OTHER
COMPREHENSIVE
INCOME FOR
THE YEAR, NET
OF TAX	2,378,160				2,346,175

TOTAL
COMPREHENSIVE
INCOME FOR
THE YEAR	2,421,840		(35,738)	147,253	2,533,355

Attributable to:
Equity holders of
the parent	2,406,623		(20,521)	147,253	2,533,355
Non-controlling
interests	15,217		(15,217)	–	–
	2,421,840				2,533,355

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iv) Unaudited Pro Forma Consolidated Statement of Cash Flows for the year ended 31 December 2010

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
CASH FLOWS FROM
OPERATING
ACTIVITIES
Profit before tax	53,780	(28,285)	175,106		200,601
Adjustments for:
Finance costs	3,971	(3,971)			–
Share of profits and
losses of jointly-
controlled entity
and associates	5,647				5,647
Bank interest income	(2,972)	759			(2,213)
Interest income on
convertible bonds
issued by an associate	(550)				(550)
Interest income on loans
to associates	(1,133)				(1,133)
Interest income on other
receivable	(756)				(756)
Gain on partial disposal
of investment in
a jointly-controlled
entity	(54,996)				(54,996)
Gain on deemed
disposal of
an associate	(1,600)				(1,600)
Gain on disposal of
subsidiaries	–		(175,106)		(175,106)
Deficit on revaluation of
items of property,
plant and equipment	1,526	(1,526)			–
Depreciation	18,645	(17,205)			1,440
Recognition of prepaid
land lease payments	737	(737)			–
Provision for
impairment of trade
and bills receivables,
net	156	(156)			–
Recovery of other
receivables	(255)	255			–
Write-back of provision
for financial guarantee
contracts	(161)	161			–

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
Impairment of a
financial instrument
under Project EC120	3,459				3,459
Fair value loss on
derivative financial
instrument	5,919				5,919

	31,417				(19,288)
Increase in inventories	(7,435)	7,435			–
Decrease/(increase) in
trade and bills
receivables	(6,890)	8,861			1,971
Decrease in
prepayments, deposits
and other receivables	30,461	(1,607)	5,395		34,249
Decrease in trade and
bills payables	(41,168)	41,168			–
Increase in other
payables and accruals	3,478	(2,578)			900
Cash generated from
operations	9,863				17,832
Interest paid	(3,971)	3,971			–
Overseas tax paid	(7,241)	7,278			37
Net cash flows
from/(used in)
operating activities	(1,349)				17,869
CASH FLOWS FROM
INVESTING
ACTIVITIES
Purchases of items of
property, plant and
equipment	(20,053)	20,053			–
Purchases of additional
equity investment in
an associate	(38,784)				(38,784)
Proceed from disposal
of subsidiaries	–			153,593	153,593
Advance of a loan to
a jointly-controlled
entity	(23,529)				(23,529)
Advance of loans to
associates	(6,132)				(6,132)

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
Repayment of a loan
from an associate	19,091				19,091
Advance of a loan to
a related company	(17,647)				(17,647)
Proceeds from partial
disposal of investment
in a jointly-controlled
entity	58,510				58,510
Bank interest received	2,972	(759)			2,213
Interest received on
convertible bonds
issued by an associate	550				550
Interest received on
loans to associates	2,480				2,480
Interest received on
other receivable	1,688				1,688
Decrease in pledged
time deposits	12,196	(12,196)			–
Net cash flows
from/(used in)
investing activities	(8,658)				152,033
CASH FLOWS FROM
FINANCING
ACTIVITIES
New bank loans	55,882	(55,882)			–
Repayment of bank
loans	(29,412)	29,412			–
Increase in an amount
due to the immediate
holding company	–	5,395	(5,395)		–
Dividend to non-
controlling
shareholders of
a subsidiary	(9,000)	9,000			–
Repayment from a non-
controlling
shareholder of
a subsidiary	–	(5,176)			(5,176)
Net cash flows
from/(used in)
financing activities	17,470				(5,176)

– IV-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
NET INCREASE IN
CASH AND CASH
EQUIVALENTS	7,463				164,726
Cash and cash
equivalents at
beginning of year	330,479	(24,886)			305,593
Effect of foreign
exchange rate
changes, net	2,061	(879)			1,182
CASH AND CASH
EQUIVALENTS AT
END OF YEAR	340,003				471,501

ANALYSIS OF
BALANCES OF
CASH AND CASH
EQUIVALENTS
Cash and bank balances	144,092	(22,095)		153,593	275,590
Non-pledged time
deposits with original
maturity of less than
three months when
acquired	195,911				195,911
	340,003				471,501

– IV-10 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(v) Notes to the Unaudited Pro Forma Financial Information

Extracted from the unaudited pro forma statement of assets and liabilities of the Enlarged Group (including the Group and 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited*)) as at 30 June 2011 included in the published circular of the Group relating to the major transaction and possible connected transaction dated 17 November 2011.
The adjustment reflects the exclusion of the assets and liabilities of the Target Group as at 30 June 2011, as if the Target Company Disposal had been completed on 30 June 2011.
The adjustment reflects the effects arising from the Target Company Disposal. On the basis that the Target Company Disposal had been completed on 30 June 2011, the Group only retained 7% equity interest in the Operating Company.

	HK$’000
Consideration	338,993**
Add/(less):
Net assets of the Target Group as of 30 June 2011	(135,813)
The Group’s loan to the Target Company	(164,959)
Derecognition of the Group’s non-controlling interest in the Operating
Company	67,384
Derecognition of the Group’s goodwill arising from acquisition of the
Operating Company not attributable to the Target Group	(3,811)
Reversal of related foreign exchange reserve	23,424
Fair value of the remaining 7% equity interest in the Operating Company	30,820
Gain from the Target Company Disposal before transaction costs and related
taxes	156,038
Less:
Estimated transaction costs	(1,400)
Estimated current and deferred taxes	(13,051)

Net gain from the Target Company Disposal	141,587

** The consideration of HK$338,993,000 is to be settled to the extent of HK$154,993,000 upon completion while the remaining deferred consideration of HK$184,000,000 is to be settled by the Purchaser not later than the earlier of (i) the first anniversary of the completion date; or (ii) 31 December 2012.
Extracted from the audited consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows of the Group as set out in the published annual report of the Group for the year ended 31 December 2010.
The adjustment reflects the exclusion of the operating result and cash flows of the Target Group for the period from 1 January 2010 to 31 December 2010 as if the Target Company Disposal had been completed on 1 January 2010.

* English translation name for identification purpose only

– IV-11 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

The adjustment reflects the effects arising from the Target Company Disposal. On the basis that the Target Company Disposal had been completed on 1 January 2010, the Group only retained 7% equity interest in the Operating Company.

	HK$’000
Consideration	338,993
Add/(less):
Net assets of the Target Group as of 1 January 2010	(96,954)
The Group’s loan to the Target Company	(164,959)
De-recognition of the Group’s non-controlling interest in the Operating
Company	57,615
De-recognition of the Group’s goodwill arising from acquisition of the
Operating Company not attributable to the Target Group	(3,811)
Reversal of related foreign exchange reserve	14,802
Fair value of the remaining 7% equity interest in the Operating Company	30,820
Gain from the Target Company Disposal before transaction costs and related
taxes	176,506
Less:
Estimated transaction costs	(1,400)
Estimated current and deferred taxes	(13,051)

Net gain from the Target Company Disposal	162,055

– IV-12 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

I(B) Unaudited Pro Forma Financial Information of the remaining group as a result of the completion of the Hangzhou Disposal
(i) Unaudited Pro Forma Consolidated Statement of Financial Position as at 30 June 2011

			Unaudited
			pro forma
			information
	The		of the
	Enlarged	Pro forma	remaining
	Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)
NON-CURRENT ASSETS
Property, plant and equipment	331,317		331,317
Prepaid land lease payments	33,844		33,844
Goodwill	32,012		32,012
Intangible asset	2,554		2,554
Investment in a jointly-controlled
entity	755,823		755,823
Investments in associates	245,996		245,996
Available-for-sale investments	1,246,090		1,246,090

Total non-current assets	2,647,636		2,647,636

CURRENT ASSETS
Inventories	38,635		38,635
Trade and bills receivables	55,479		55,479
Prepayments, deposits and other
receivables	140,149		140,149
Loans to a jointly-controlled entity	36,145		36,145
Loans to associates	37,072		37,072
Loans to related parties	18,072		18,072
Pledged time deposits	26,452		26,452
Cash and cash equivalents	285,922	13,627	299,549
Total current assets	637,926		651,553

– IV-13 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

			Unaudited
			pro forma
			information
	The		of the
	Enlarged	Pro forma	remaining
	Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)
CURRENT LIABILITIES
Trade and bills payables	62,753		62,753
Other payables and accruals	67,746		67,746
Due to non-controlling
shareholders of subsidiaries	791		791
Tax payable	5,459	2,676	8,135
Interest-bearing bank borrowings	131,411		131,411
Total current liabilities	268,160		270,836

NET CURRENT ASSETS	369,766		380,717

TOTAL ASSETS LESS CURRENT
LIABILITIES	3,017,402		3,028,353

NON-CURRENT LIABILITIES
Deferred tax liabilities	317,332		317,332

Net assets	2,700,070		2,711,021

EQUITY
Equity attributable to equity
holders of the parent
Issued capital	475,440		475,440
Reserves	2,150,602	6,353	2,156,955

	2,626,042		2,632,395
Non-controlling interests	74,028	4,598	78,626
Total equity	2,700,070		2,711,021

– IV-14 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(ii) Unaudited Pro Forma Consolidated Income Statement for the year ended 31 December 2010

			Unaudited
			pro forma
			information
			of the
		Pro forma	remaining
	The Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 3)	(Note 2)
REVENUE	274,386		274,386
Cost of sales	(237,264)		(237,264)
Gross profit	37,122		37,122
Other income and gains	14,273		14,273
Administrative expenses	(33,948)	(1,400)	(35,348)
Other operating income	260		260
Finance costs	(3,971)		(3,971)
Deficit on revaluation of items of
property, plant and equipment	(1,526)		(1,526)
Gain on partial disposal of
investment in a jointly-
controlled entity	54,996		54,996
Gain on deemed disposal of
an associate	1,600		1,600
Share of profits and losses of:
Jointly-controlled entity	3,494		3,494
Associates	(9,142)		(9,142)
Impairment of a financial asset
under Project EC120	(3,459)		(3,459)
Fair value loss on derivative
financial instrument	(5,919)		(5,919)
PROFIT BEFORE TAX	53,780		52,380
Income tax expense	(10,100)	(2,676)	(12,776)
PROFIT FOR THE YEAR	43,680		39,604

Attributable to:
Equity holders of the parent	36,062	(4,076)	31,986
Non-controlling interests	7,618	–	7,618
	43,680		39,604

– IV-15 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iii) Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the year ended 31 December 2010

			Unaudited
			pro forma
			information
			of the
		Pro forma	remaining
	The Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 3)	(Note 2)
PROFIT FOR THE YEAR	43,680	(4,076)	39,604

OTHER COMPREHENSIVE
INCOME
Surplus on property, plant and
equipment revaluation	13,518		13,518
Income tax effect	(3,028)		(3,028)
	10,490		10,490

Available-for-sale investments:
Change in fair value	1,842,900		1,842,900
Income tax effect	(459,767)		(459,767)
	1,383,133		1,383,133

Share of other comprehensive
income of a jointly-controlled
entity	1,041,418		1,041,418
Reclassification adjustment for
gain included in the
consolidated income statement
– Gain on partial disposal	(76,231)		(76,231)
	965,187		965,187

Share of other comprehensive
income of an associate	9,500		9,500
Exchange differences on
translation of foreign operations	9,850		9,850
OTHER COMPREHENSIVE
INCOME FOR THE YEAR,
NET OF TAX	2,378,160		2,378,160

TOTAL COMPREHENSIVE
INCOME FOR THE YEAR	2,421,840	(4,076)	2,417,764

Attributable to:
Equity holders of the parent	2,406,623	(4,076)	2,402,547
Non-controlling interests	15,217	–	15,217
	2,421,840		2,417,764

– IV-16 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iv) Unaudited Pro Forma Consolidated Statement of Cash Flows for the year ended 31 December 2010

			Unaudited
			pro forma
			information
			of the
		Pro forma	remaining
	The Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 3)	(Note 2)
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before tax	53,780		53,780
Adjustments for:
Finance costs	3,971		3,971
Share of profits and losses of
jointly-controlled entity and
associates	5,647		5,647
Bank interest income	(2,972)		(2,972)
Interest income on convertible
bonds issued by an associate	(550)		(550)
Interest income on loans to
associates	(1,133)		(1,133)
Interest income on other
receivable	(756)		(756)
Gain on partial disposal of
investment in a jointly-
controlled entity	(54,996)		(54,996)
Gain on deemed disposal of
an associate	(1,600)		(1,600)
Deficit on revaluation of items of
property, plant and equipment	1,526		1,526
Depreciation	18,645		18,645
Recognition of prepaid land lease
payments	737		737
Provision for impairment of trade
and bills receivables, net	156		156
Recovery of other receivables	(255)		(255)
Write-back of provision for
financial guarantee contracts	(161)		(161)
Impairment of a financial
instrument under Project EC120	3,459		3,459
Fair value loss on derivative
financial instrument	5,919		5,919

	31,417		31,417
Increase in inventories	(7,435)		(7,435)
Increase in trade and bills
receivables	(6,890)		(6,890)

– IV-17 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

			Unaudited
			pro forma
			information
			of the
		Pro forma	remaining
	The Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 3)	(Note 2)
Decrease in prepayments, deposits
and other receivables	30,461		30,461
Decrease in trade and bills
payables	(41,168)		(41,168)
Increase in other payables
and accruals	3,478		3,478

Cash generated from operations	9,863		9,863
Interest paid	(3,971)		(3,971)
Overseas tax paid	(7,241)		(7,24)
Net cash flows used in
operating activities	(1,349)		(1,349)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of items of property,
plant and equipment	(20,053)		(20,053)
Purchases of additional equity
investment in an associate	(38,784)		(38,784)
Proceed from partial disposal of
equity interest in a subsidiary	–	13,627	13,627
Advance of a loan to a jointly-
controlled entity	(23,529)		(23,529)
Advance of loans to associates	(6,132)		(6,132)
Repayment of a loan from
an associate	19,091		19,091
Advance of a loan to a related
company	(17,647)		(17,647)
Proceeds from partial disposal of
investment in a jointly-
controlled entity	58,510		58,510
Bank interest received	2,972		2,972
Interest received on convertible
bonds issued by an associate	550		550
Interest received on loans to
associates	2,480		2,480
Interest received on other
receivable	1,688		1,688
Decrease in pledged time deposits	12,196		12,196

– IV-18 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

			Unaudited
			pro forma
			information
			of the
		Pro forma	remaining
	The Group	adjustment	group
	HK$’000	HK$’000	HK$’000
	(Note 3)	(Note 2)
Net cash flows from/(used in)
investing activities	(8,658)		4,969
CASH FLOWS FROM
FINANCING ACTIVITIES
New bank loans	55,882		55,882
Repayment of bank loans	(29,412)		(29,412)
Dividend to non-controlling
shareholders of a subsidiary	(9,000)		(9,000)
Net cash flows from
financing activities	17,470		17,470
NET INCREASE IN CASH AND
CASH EQUIVALENTS	7,463		21,090
Cash and cash equivalents at
beginning of year	330,479		330,479
Effect of foreign exchange rate
changes, net	2,061		2,061
CASH AND CASH
EQUIVALENTS AT END OF
YEAR	340,003		353,630

ANALYSIS OF BALANCES OF
CASH AND CASH
EQUIVALENTS
Cash and bank balances	144,092	13,627	157,719
Non-pledged time deposits with
original maturity of less than
three months when acquired	195,911		195,911
	340,003		353,630

– IV-19 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(v) Notes to Unaudited Pro Forma Financial Information

Extracted from the unaudited pro forma statement of assets and liabilities of the Enlarged Group (including the Group and 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited*)) as at 30 June 2011 included in the published circular of the Group relating to the major transaction and possible connected transaction dated 17 November 2011.
The adjustment reflects the effects of the Hangzhou Disposal comprising consideration of approximately HK$15,027,000, less estimated transaction costs (professional fees and other related expenses) of approximately HK$1,400,000, and related taxes of HK$2,676,000. As the Hangzhou Disposal has not resulted in the change in control of the Group over the Operating Company, the effects of the Hangzhou Disposal were reflected as movements in equity while the related transaction costs and taxes are dealt with in the consolidated income statement. The consideration is to be fully settled upon completion.
Extracted from the audited consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows of the Group as set out in the published annual report of the Group for the year ended 31 December 2010.

* English translation name for identification purpose only

– IV-20 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

I(C) Unaudited Pro Forma Financial Information of the remaining group as a result of the completion of the Target Company Disposal and the Hangzhou Disposal
(i) Unaudited Pro Forma Consolidated Statement of Financial Position as at 30 June 2011

					Unaudited
					pro forma
				information
	The				of the
	Enlarged	Pro forma	Pro forma		remaining
	Group	adjustment	adjustment		group
	HK$’000	HK$’000	HK$’000		HK$’000
	(Note 1)	(Note 2)	(Note 3)
NON-CURRENT ASSETS
Property, plant and equipment	331,317	(279,563)			51,754
Prepaid land lease payments	33,844	(29,126)			4,718
Goodwill	32,012	(26,682)	(3,811)		1,519
Intangible asset	2,554				2,554
Investment in a jointly-
controlled entity	755,823				755,823
Investments in associates	245,996				245,996
Available-for-sale investments	1,246,090		17,596		1,263,686

Total non-current assets	2,647,636				2,326,050

CURRENT ASSETS
Inventories	38,635	(31,680)			6,955
Trade and bills receivables	55,479	(35,765)			19,714
Prepayments, deposits and other
receivables	140,149	(23,883)	186,404		302,670
Loans to a jointly-controlled
entity	36,145				36,145
Loans to associates	37,072				37,072
Loans to related parties	18,072				18,072
Pledged time deposits	26,452	(21,687)			4,765
Cash and cash equivalents	285,922	(25,445)	168,620		429,097
Total current assets	637,926				854,490

– IV-21 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

				Unaudited
				pro forma
				information
	The			of the
	Enlarged	Pro forma	Pro forma	remaining
	Group	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)
CURRENT LIABILITIES
Trade and bills payables	62,753	(37,378)		25,375
Other payables and accruals	67,746	(39,615)		28,131
Due to the immediate holding
company	–	(164,959)	164,959	–
Due to non-controlling
shareholders of subsidiaries	791	(4,494)	4,207	504
Tax payable	5,459	5,722	13,051	24,232
Interest-bearing bank borrowings	131,411	(84,940)		46,471
Total current liabilities	268,160			124,713

NET CURRENT ASSETS	369,766			729,777

TOTAL ASSETS LESS
CURRENT LIABILITIES	3,017,402			3,055,827

NON-CURRENT LIABILITIES
Deferred tax liabilities	317,332	(12,354)		304,978

Net assets	2,700,070			2,750,849

EQUITY
Equity attributable to equity
holders of
the parent
Issued capital	475,440			475,440
Reserves	2,150,602	(58,728)	176,891	2,268,765

	2,626,042			2,744,205
Non-controlling interests	74,028	(77,085)	9,701	6,644
Total equity	2,700,070			2,750,849

– IV-22 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(ii) Unaudited Pro Forma Consolidated Income Statement for the year ended 31 December 2010

						Unaudited
						pro forma
					information
						of the
			Pro forma	Pro forma		remaining
	The Group	adjustment		adjustment		group
	HK$’000		HK$’000	HK$’000		HK$’000
	(Note 4)		(Note 5)	(Note 6)
REVENUE	274,386		(273,732)			654
Cost of sales	(237,264)		237,264			–
Gross profit	37,122					654
Other income and gains	14,273		(9,686)			4,587
Administrative expenses	(33,948)		12,632			(21,316)
Other operating income	260		(260)			–
Finance costs	(3,971)		3,971			–
Deficit on revaluation of
items of property, plant
and equipment	(1,526)		1,526			–
Gain on partial disposal of
investment in a jointly-
controlled entity	54,996					54,996
Gain on deemed disposal
of an associate	1,600					1,600
Share of profits and
losses of:
Jointly-controlled entity	3,494					3,494
Associates	(9,142)					(9,142)
Gain on disposal of
subsidiaries	–			175,106		175,106
Impairment of a financial
asset under Project
EC120	(3,459)					(3,459)
Fair value loss on
derivative financial
instrument	(5,919)					(5,919)
PROFIT BEFORE TAX	53,780					200,601
Income tax expense	(10,100)		9,730	(13,051)		(13,421)
PROFIT FOR THE YEAR	43,680					187,180

Attributable to:
Equity holders of
the parent	36,062		(10,937)	162,055		187,180
Non-controlling interests	7,618		(7,618)	–		–
	43,680					187,180

– IV-23 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iii) Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the year ended 31 December 2010

						Unaudited
						pro forma
					information
						of the
			Pro forma	Pro forma		remaining
	The Group	adjustment		adjustment		group
	HK$’000		HK$’000	HK$’000		HK$’000
	(Note 4)		(Note 5)	(Note 6)
PROFIT FOR THE YEAR	43,680		(18,555)	162,055		187,180

OTHER
COMPREHENSIVE
INCOME
Surplus on property, plant
and equipment
revaluation	13,518		(13,518)			–
Income tax effect	(3,028)		3,028			–
	10,490					–

Available-for-sale
investments:
Change in fair value	1,842,900					1,842,900
Income tax effect	(459,767)					(459,767)
	1,383,133					1,383,133

Share of other
comprehensive income
of a jointly-controlled
entity	1,041,418					1,041,418
Reclassification adjustment
for gain included in the
consolidated income
statement
– Gain on partial
disposal	(76,231)					(76,231)
	965,187					965,187

– IV-24 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
			Pro forma	Pro forma	remaining
	The Group	adjustment		adjustment	group
	HK$’000		HK$’000	HK$’000	HK$’000
	(Note 4)		(Note 5)	(Note 6)
Share of other
comprehensive income
of an associate	9,500				9,500
Reversal of foreign
exchange reserve upon
disposal of a subsidiary
included in the
consolidated income
statement
– Gain on disposal	–			(14,802)	(14,802)
Exchange differences on
translation of foreign
operations	9,850		(6,693)		3,157
OTHER
COMPREHENSIVE
INCOME FOR THE
YEAR, NET OF TAX	2,378,160				2,346,175

TOTAL
COMPREHENSIVE
INCOME FOR
THE YEAR	2,421,840		(35,738)	147,253	2,533,355

Attributable to:
Equity holders of
the parent	2,406,623		(20,521)	147,253	2,533,355
Non-controlling interests	15,217		(15,217)	–	–
	2,421,840				2,533,355

– IV-25 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(iv) Unaudited Pro Forma Consolidated Statement of Cash Flows for the year ended 31 December 2010

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax	53,780	(28,285)	175,106		200,601
Adjustments for:
Finance costs	3,971	(3,971)			–
Share of profits and losses of
jointly-controlled entity and
associates	5,647				5,647
Bank interest income	(2,972)	759			(2,213)
Interest income on convertible bonds
issued by an associate	(550)				(550)
Interest income on loans to
associates	(1,133)				(1,133)
Interest income on other receivable	(756)				(756)
Gain on partial disposal of
investment in a jointly-controlled
entity	(54,996)				(54,996)
Gain on deemed disposal of
an associate	(1,600)				(1,600)
Gain on disposal of subsidiaries	–		(175,106)		(175,106)
Deficit on revaluation of items of
property, plant and equipment	1,526	(1,526)			–
Depreciation	18,645	(17,205)			1,440
Recognition of prepaid land lease
payments	737	(737)			–
Provision for impairment of trade
and bills receivables, net	156	(156)			–
Recovery of other receivables	(255)	255			–
Write-back of provision for financial
guarantee contracts	(161)	161			–
Impairment of a financial instrument
under Project EC120	3,459				3,459
Fair value loss on derivative
financial instrument	5,919				5,919

	31,417				(19,288)
Increase in inventories	(7,435)	7,435			–
Decrease/(increase) in trade and bills
receivables	(6,890)	8,861			1,971
Decrease in prepayments, deposits
and other receivables	30,461	(1,607)	5,395		34,249
Decrease in trade and bills payables	(41,168)	41,168			–
Increase in other payables and
accruals	3,478	(2,578)			900

– IV-26 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
Cash generated from operations	9,863				17,832
Interest paid	(3,971)	3,971			–
Overseas tax paid	(7,241)	7,278			37
Net cash flows from/(used in)
operating activities	(1,349)				17,869
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of items of property, plant
and equipment	(20,053)	20,053			–
Purchases of additional equity
investment in an associate	(38,784)				(38,784)
Proceeds from disposal of
subsidiaries	–			168,620	168,620
Advance of a loan to a jointly-
controlled entity	(23,529)				(23,529)
Advance of loans to associates	(6,132)				(6,132)
Repayment of a loan from
an associate	19,091				19,091
Advance of a loan to a related
company	(17,647)				(17,647)
Proceeds from partial disposal of
investment in a jointly-controlled
entity	58,510				58,510
Bank interest received	2,972	(759)			2,213
Interest received on convertible
bonds issued by an associate	550				550
Interest received on loans to
associates	2,480				2,480
Interest received on other receivable	1,688				1,688
Decrease in pledged time deposits	12,196	(12,196)			–
Net cash flows from/(used in)
investing activities	(8,658)				167,060

– IV-27 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

					Unaudited
					pro forma
					information
					of the
		Pro forma	Pro forma	Pro forma	remaining
	The Group	adjustment	adjustment	adjustment	group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 4)	(Note 5)	(Note 6)	(Note 3)
CASH FLOWS FROM FINANCING
ACTIVITIES
New bank loans	55,882	(55,882)			–
Repayment of bank loans	(29,412)	29,412			–
Increase in an amount due to
the immediate holding company	–	5,395	(5,395)		–
Dividend to non-controlling
shareholders of a subsidiary	(9,000)	9,000			–
Repayment from a non-controlling
shareholder of a subsidiary	–	(5,176)			(5,176)
Net cash flows from/(used in)
financing activities	17,470				(5,176)
NET INCREASE IN CASH AND
CASH EQUIVALENTS	7,463				179,753
Cash and cash equivalents at
beginning of year	330,479	(24,886)			305,593
Effect of foreign exchange rate
changes, net	2,061	(879)			1,182
CASH AND CASH EQUIVALENTS
AT END OF YEAR	340,003				486,528

ANALYSIS OF BALANCES OF
CASH AND CASH
EQUIVALENTS
Cash and bank balances	144,092	(22,095)		168,620	290,617
Non-pledged time deposits with
original maturity of less than three
months when acquired	195,911				195,911
	340,003				486,528

– IV-28 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(v) Notes to the Unaudited Pro Forma Financial Information

Extracted from the unaudited pro forma statement of assets and liabilities of the Enlarged Group (including the Group and 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited*)) as at 30 June 2011 included in the published circular of the Group relating to the major transaction and possible connected transaction dated 17 November 2011.
The adjustment reflects the exclusion of the assets and liabilities of the Target Group as at 30 June 2011, as if the Target Company Disposal and the Hangzhou Disposal had been completed on 30 June 2011.
The adjustment reflects the effects arising from the Target Company Disposal and the Hangzhou Disposal. On the basis that the Target Company Disposal and the Hangzhou Disposal had been completed on 30 June 2011, the Group only retained 4% equity interest in the Operating Company.

	HK$’000
Aggregate consideration	354,020**
Add/(less):
Net assets of the Target Group as of 30 June 2011	(135,813)
The Group’s loan of approximately HK$164,959,000 to
the Target Company and loan of approximately HK$1,803,000 to
the Operating Company	(166,762)
De-recognition of the Group’s non-controlling interest in the Operating
Company	67,384
De-recognition of the Group’s goodwill arising from acquisition of
the Operating Company not attributable to the Target Group	(3,811)
Reversal of related foreign exchange reserve	23,424
Fair value of the remaining 4% equity interest in the Operating
Company	17,596
Gain from the Target Company Disposal and the Hangzhou Disposal
before transaction costs and related taxes	156,038
Less:
Estimated transaction costs	(1,400)
Estimated current and deferred taxes	(13,051)

Net gain from the Target Company Disposal and the Hangzhou
Disposal	141,587

** The consideration of HK$354,020,000 is to be settled to the extent of HK$170,020,000 upon completion while the remaining deferred consideration of HK$184,000,000 is to be settled by the Purchaser not later than the earlier of (i) the first anniversary of the completion date; or (ii) 31 December 2012.
Extracted from the audited consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows of the Group as set out in the published annual report of the Group for the year ended 31 December 2010.
The adjustment reflects the exclusion of the operating result and cash flows of the Target Group for the period from 1 January 2010 to 31 December 2010 as if the Target Company Disposal and the Hangzhou Disposal had been completed on 1 January 2010.

* English translation name for identification purpose only

– IV-29 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

The adjustment reflects the effects arising from the Target Company Disposal and the Hangzhou Disposal. On the basis that the Target Company Disposal and the Hangzhou Disposal had been completed on 1 January 2010, the Group only retained 4% equity interest in the Operating Company.

	HK$’000
Aggregate consideration	354,020
Add/(less):
Net assets of the Target Group as of 1 January 2010	(96,954)
The Group’s loan of approximately HK$164,959,000 to the Target
Company and loan of approximately HK$1,803,000 to the Operating
Company	(166,762)
De-recognition of the Group’s non-controlling interest in the Operating
Company	57,615
De-recognition of the Group’s goodwill arising from acquisition of
the Operating Company not attributable to the Target Group	(3,811)
Reversal of related foreign exchange reserve	14,802
Fair value of the remaining 4% equity interest in the Operating
Company	17,596
Gain from the Target Company Disposal and the Hangzhou Disposal
before transaction costs and related taxes	176,506
Less:
Estimated transaction costs	(1,400)
Estimated current and deferred taxes	(13,051)

Net gain from the Target Company Disposal and the Hangzhou
Disposal	162,055

– IV-30 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

II. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is the text of a report received from the reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong in respect of the unaudited pro forma financial information of the remaining group as set out in Section I of Appendix IV to this circular.

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The Board of Directors

AVIC International Holding (HK) Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of AVIC International Holding (HK) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how (i) the disposal of the Group’s 100% equity interest in Polyson Investment Limited together with its 49% equity interest in 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-holding Co. or the “Operating Company”) (the “Target Company Disposal”); (ii) the disposal of the Group’s 3% equity interest in the Operating Company (the “Hangzhou Disposal”); and (iii) the Target Company Disposal and the Hangzhou Disposal in aggregate; might have respectively affected the financial information presented, for inclusion in Appendix IV to the circular of the Company dated 7 December 2011 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Section I of Appendix IV to the Circular.

Respective responsibilities of the directors of the Company and reporting accountants

It is the responsibility solely of the Directors to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 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 (the “HKICPA”).

– IV-31 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

It is our responsibility to form an opinion, as required by paragraph 4.29(7) 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 Form Financial Information in Investment Circulars issued by the HKICPA. 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.

Our work did not constitute an audit or a review made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

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 Pro Forma Financial Information has been properly compiled by the Directors on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of (i) the financial position of the Group as at 30 June 2011 or any future dates; or (ii) the results and cash flows of the Group for the year ended 31 December 2010 or any future periods.

– IV-32 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

7 December 2011

– IV-33 –

GENERAL INFORMATION

APPENDIX V

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 Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the shares and underlying shares of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were 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 were required to be entered in the register kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, were as follows:

Long positions in share options of associated corporation of the Company:

						Approximate
						percentage
						of the
						associated
						corporation’s
						issued share
						capital as at
		Name of	Relationship	Number of	Capacity	the Latest
		associated	with the	share	and nature	Practicable
Name of director	Notes	corporation	Company	options held	of interest	Date
Ji Guirong	(a)	Sino Gas	Associate	34,900,000	Directly	1.43
					beneficially
					owned
Zhang Chuanjun	(b)	Sino Gas	Associate	30,000,000	Directly	1.23
					beneficially
					owned

Notes:

(a) (i) On 23 August 2007, Mr. Ji was granted options to subscribe for an aggregate of 14,900,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.35 per share.
(ii) On 31 August 2010, Mr. Ji was granted options to subscribe for an aggregate of 20,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.341 per share.

– V-1 –

GENERAL INFORMATION

APPENDIX V

The exercise periods of the options are as follows:

Number of share options

Exercise period

4,966,667 4,966,667 4,966,666 20,000,000 34,900,000

1/10/2007 to 31/1/2015 1/1/2008 to 31/1/2015 1/7/2008 to 31/1/2015 31/8/2010 to 30/8/2020

No options have been exercised, cancelled or lapsed. All the above options are remaining outstanding as at the Latest Practicable Date.

(b) (i) On 3 January 2006, Mr. Zhang was granted options to subscribe for an aggregate of 10,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.20 per share.
(ii) On 31 August 2010, Mr. Zhang was granted options to subscribe for an aggregate of 20,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.341 per share.

The exercise periods of the options are as follows:

Number of share options 5,000,000 5,000,000 20,000,000 30,000,000

Exercise period

1/7/2006 to 31/1/2015 1/1/2007 to 31/1/2015 31/8/2010 to 30/8/2020

No options have been exercised, cancelled or lapsed. All the above options are remaining outstanding as at the Latest Practicable Date.

Certain Directors have non-beneficial personal equity interests in certain subsidiaries held for the benefit of the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had registered an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) that was 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 were required to be recorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

– V-2 –

GENERAL INFORMATION

APPENDIX V

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as the Directors and chief executive of the Company were aware, the following persons (other than a director or chief executive of the Company) who had an interest or short position in the Shares and underlying Shares 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 were, 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 other members of the Group or has any option in respect of such capital were as follows:

Long positions in the Shares and underlying Shares:

				Approximate
				percentage
				of the
				Company’s
				issued share
				capital as at
			Number of	the Latest
		Capacity and	ordinary shares	Practicable
Name of shareholders	Notes	nature of interest	held	Date
Speed Profit Enterprises Limited	(a)	Beneficial owner	508,616,000	10.83
(“Speed Profit”)
Tacko International Limited	(a)	Beneficial owner	1,386,943,000	29.52
(“Tacko”)		Through a controlled	508,616,000	10.83
		corporation
AVIC International (HK) Group	(a)	Through a controlled	1,895,559,000	40.35
Limited (“AVIC International		corporation
(HK) Group”)
AVIC International Holding	(a)	Through a controlled	1,895,559,000	40.35
Corporation (“AVIC		corporation
International”)
Aviation Industry Corporation of	(a)	Through a controlled	1,895,559,000	40.35
China (“AVIC”)		corporation
Atlantis Capital Holdings Limited	(b)	Through a controlled	400,000,000	8.52
(“Atlantis Capital”)		corporation
Liu Yang	(b)	Through a controlled	400,000,000	8.52
		corporation

Notes:

(a) Speed Profit is a wholly-owned subsidiary of Tacko, which is in turn a wholly-owned subsidiary of AVIC International (HK) Group. AVIC International (HK) Group is a wholly-owned subsidiary of AVIC International, which is in turn a non wholly-owned subsidiary of AVIC. Accordingly, Tacko is deemed to be interested in the shares held by Speed Profit; and each of AVIC International (HK) Group, AVIC International and AVIC is deemed to be interested in the aggregate Shares directly held by Speed Profit and Tacko.
(b) Pursuant to the disclosure of interests notices filed by Atlantis Capital and Ms. Liu Yang on 9 September 2011 and 12 September 2011 respectively, Atlantis Investment Management (Hong Kong) Limited (“Atlantis Investment”) was disclosed as having direct interest in 400,000,000 Shares and was wholly-owned by Atlantis Capital, which in turn was wholly-owned by Ms. Liu Yang. Therefore, Atlantis Capital and Ms. Liu Yang are deemed to be interested in the Shares held by Atlantis Investment. Nonetheless, the Company noted an inconsistency whereby pursuant to the disclosure of interests notice filed by Atlantis Investment on even date, Atlantis Investment was disclosed to cease to have interest in the 400,000,000 Shares.

– V-3 –

GENERAL INFORMATION

APPENDIX V

Interests in other members of the Group:

		% of
Name of Owner	Name of subsidiary	shares held
杭州源和燃料有限公司	Zhejiang Sealand	18.7
(Hangzhou Yuan He Fuel Co., Ltd.*)	Thermoelectric
	Share-Holding Co.
Asia Capital Financial Group Limited	Zhejiang Sealand	21
	Thermoelectric
	Share-Holding Co.

Save as disclosed above, the Directors and chief executive of the Company were not aware of any other persons who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares 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 were, 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 other members of the Group or has any option in respect of such capital.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no Directors had any existing or proposed service contracts with the Company or any member of the Enlarged Group which is not determinable within one year without payment of compensation other than statutory compensation.

5. MATERIAL CONTRACTS

The following contract has been entered into by the Enlarged Group (not being contracts entered into in the ordinary course of business) within the two years preceding the date of this circular and is or may be material:

(a) an agreement dated 14 December 2009 entered into between the Company and Hentak Investment Limited (now known as AVIC International Investment Limited, “AVIC Int’l Inv”), a subsidiary of a substantial shareholder of the Company, in relation to the sale and purchase of 100% equity interests in Loyalty Resources Limited;
(b) an agreement dated 14 December 2009 entered into between the Company and AVIC Int’l Inv in relation to the sale and purchase of certain equity interests and shareholders’ loan in each of Honwin Investment Limited and Teampro Resources Limited;
For identification purpose only

– V-4 –

GENERAL INFORMATION

APPENDIX V

(c) a placing agreement dated 12 April 2010 entered into between Billirich Investment Limited (“Billirich”), a wholly-owned subsidiary of the Company, Sino Gas, an associate of the Company, and Kingsway Financial Services Group Limited in relation to certain shares of Sino Gas;
(d) a subscription agreement dated 12 April 2010 entered into between Billirich and Sino Gas in relation to certain shares of Sino Gas;
(e) a conditional subscription agreement dated 12 April 2010 entered into between Billirich and Sino Gas in relation to certain shares of Sino Gas;
(f) a sale and purchase agreement dated 21 September 2011 entered into between 上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited*), an indirect wholly-owned subsidiary of the Company and Mr. Wu Xiaogang, in relation to the Acquisition;
(g) the Zhejiang Agreement;
(h) the Hangzhou Agreement;
(i) the Agreement;
(j) a sale and purchase agreement dated 2 November 2011 entered into between Smartcon Investment Limited, a wholly-owned subsidiary of the Company, Dong Yuen Investment Limited and Sino Gas Finance Limited (“Sino Gas Finance”) in relation to the proposed disposal of interest in Fidelity Finance Leasing Limited, an associate of the Company, to Sino Gas Finance, a subsidiary of Sino Gas; and
(k) an irrevocable undertaking dated 2 November 2011 given by the Company in favour of Sino Gas in relation to the subscription of open offer shares in the proposed open offer of Sino Gas, details of which are disclosed in an announcement of the Company dated 9 November 2011 in relation to discloseable transactions.

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was 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 Enlarged Group.

7. COMPETING INTERESTS

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors or their respective associates had any interest in any business which competed or was likely to compete with the business of the Group.

– V-5 –

GENERAL INFORMATION

APPENDIX V

8. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors had any interest, either direct or indirect, in any assets which had been since 31 December 2010 (being the date to which the latest published audited accounts were made up) acquired or disposed of by or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the date of hereof which was significant in relation to the business of the Enlarged Group.

9. EXPERTS AND CONSENTS

The following is the qualification of the experts who had given opinion contained in this circular:

Name	Qualification
Ernst & Young	Certified public accountants
Goldin Financial	A licensed corporation to carry out type 6
	(advising on corporate finance) regulated
	activity under the SFO

As at the Latest Practicable Date, each of Ernst & Young and Goldin Financial did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor any interest, either direct or indirect, in any assets which had been since the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

Each of Ernst & Young and Goldin Financial has given and has not withdrawn its written consents to the issue of this circular with the respective reports, letters and references to its names in the form and context in which it is included.

10. GENERAL

(a) The Secretary of the Company is Ms. Leung Yuen Chee, Sara, associate member of The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators.
(b) The registered office of the Company is Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

– V-6 –

GENERAL INFORMATION

APPENDIX V

(c) The share registrar and transfer office of the Company in Bermuda is Butterfield Fulcrum Group (Bermuda) Limited at Rosebank Centre, 11 Bermudiana Road, Pembroke HM 08, Bermuda.
(d) The share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(e) In the event of inconsistency, the English text shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong up to and including 21 December 2011:

(a) this circular;
(b) the circular of the Company dated 17 November 2011 in relation to the Acquisition;
(c) the memorandum of association and Bye-laws of the Company;
(d) the consolidated unaudited financial statements of the Group for the six months ended 30 June 2011;
(e) the consolidated audited financial statements of the Group for each of the two years ended 31 December 2010;
(f) the financial information on the Target Group, the text of which is set out in Appendix II to this circular;
(g) the financial information on the Operating Company, the text of which is set out in Appendix III to this circular;
(h) the letter from Ernst & Young on the unaudited pro forma financial information of the Remaining Group, the text of which is set out in Appendix IV to this circular;
(i) the material contracts referred to under the section headed “Material Contracts” in this appendix; and
(j) the letters of consents referred to under the section headed “Experts and Consents” in this appendix.

– V-7 –

NOTICE OF SGM

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of AVIC International Holding (HK) Limited (the “ Company ”) will be held at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong on Friday, 23 December 2011 at 10:00 a.m. (the “ SGM ”) for the purpose of considering and, if thought fit, passing with or without modification, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

(1) “ THAT :

(a) the sale and purchase agreement dated 1 November 2011 (the “ Hangzhou Agreement ”), entered into by 杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.) (the “ Hangzhou Purchaser ”) and 中航技直升機技術服務(深圳)有限公司 (CATIC Helicopter Development (Shenzhen) Limited) (the “ Vendor ”), an indirect wholly-owned subsidiary of the Company, pursuant to which the Hangzhou Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell, 3% of the entire equity interest in 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-Holding Co.) (the “ Operating Company ”) and the indebtedness owed by the Operating Company to the Vendor at a total consideration of RMB12,296,707.88 (equivalent to approximately HK$15.0 million), details of the Hangzhou Agreement are set out in the circular of the Company dated 7 December 2011 (the “ Circular ”) (a copy of the Hangzhou Agreement and the Circular having been produced to the meeting marked “ A ” and “ B* ” respectively and initialed for the purposes of identification by the chairman of the meeting) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

For identification purpose only

– SGM-1 –

NOTICE OF SGM

(b) any one director of the Company be and is hereby generally and unconditionally authorized to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company and to take all steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the transactions under the Hangzhou Agreement.”

(2) “ THAT :

(a) the sale and purchase agreement dated 1 November 2011 (the “ Agreement ”), entered into by Hong Kong Yuanhe International Trade Group Limited (the “ Purchaser ”) and the Company, pursuant to which the Purchaser has conditionally agreed to acquire and the Company has conditionally agreed to sell the one issued and fully paid share of US$1.00 nominal value in the share capital of the Polyson Investment Limited (the “ Target Company ”), a wholly-owned subsidiary of the Company, representing all of its issued and paid up share capital and the indebtedness owed by the Target Company to the Company at a total consideration of HK$338,993,455.38, details of the Agreement are set out in the Circular (a copy of the Agreement having been produced to the meeting marked “ C ” and initialed for the purpose of identification by the chairman of the meeting) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one director of the Company be and is hereby generally and unconditionally authorized to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company and to take all steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the transactions under the Agreement.”

By Order of the Board AVIC International Holding (HK) Limited Wu Guangquan Chairman

Hong Kong, 7 December 2011

– SGM-2 –

NOTICE OF SGM

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head Office and Principal Place of Business in Hong Kong: Unit B, 15th Floor United Centre 95 Queensway Hong Kong

Notes:

(1) A member entitled to attend and vote at the SGM is entitled to appoint one or more proxies (if a member who is the holder of two or more shares of the Company) to attend and vote in his stead. A proxy need not be a member of the Company.
(2) To be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be deposited at the Company’s Hong Kong branch share registrar and transfer office, Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM (or any adjournment thereof). Completion and delivery of the form of proxy will not preclude a member from attending and voting at the SGM if the member so desires.
(3) Where there are joint registered holders of any share, any one of such persons may vote at the SGM, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the SGM personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.
(4) The voting on the above resolutions at the SGM will be conducted by way of a poll.

– SGM-3 –

AI assistant

Continental Aerospace Technologies Holding Limited — Proxy Solicitation & Information Statement 2011

49054_rns_2011-12-06_17650580-cab4-4bd4-bf13-a27ac1633e4b.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

VERY SUBSTANTIAL DISPOSAL AND

CONNECTED TRANSACTIONS

Independent financial adviser to the Independent Board Committee and Independent Shareholders

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

INTRODUCTION

THE ZHEJIANG AGREEMENT DATED 11 AUGUST 2011

Parties:

Assets to be disposed of

Consideration

Conditions Precedent

Completion

THE HANGZHOU AGREEMENT DATED 1 NOVEMBER 2011

Parties:

Assets to be disposed of

Consideration

LETTER FROM THE BOARD

Conditions Precedent

Completion

THE AGREEMENT DATED 1 NOVEMBER 2011

Parties:

Assets to be disposed of

Consideration

LETTER FROM THE BOARD

Share Charge

Conditions Precedent

Completion

INFORMATION ON THE TARGET COMPANY AND THE OPERATING COMPANY

The Target Company

The Operating Company

CORPORATE STRUCTURE OF THE TARGET COMPANY AND THE OPERATING COMPANY

FINANCIAL EFFECTS OF THE DISPOSALS

LETTER FROM THE BOARD

REASONS FOR THE DISPOSALS

LISTING RULES IMPLICATION

RECOMMENDATION

GENERAL INFORMATION

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

Chu Yu Lin, David

Goldin Financial Limited

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM GOLDIN FINANCIAL

THE INDEPENDENT BOARD COMMITTEE

BASIS OF OUR ADVICE

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information of the Group

Table 1: Financial highlights of the Group

2. Information on the Target Group and the Operating Company

The Target Group

Table 2: Financial highlights of the Target Group

The Operating Company

Table 3: Financial highlights of the Operating Company

3. Reasons for the Disposals

Consumer goods industry relating to the textile business

Aviation and aero-related industry

LETTER FROM GOLDIN FINANCIAL

4. Terms of the Hangzhou Agreement and the Agreement

Basis of the Hangzhou Consideration and the Consideration

LETTER FROM GOLDIN FINANCIAL

LETTER FROM GOLDIN FINANCIAL

LETTER FROM GOLDIN FINANCIAL

Share Charge

5. The business of the Remaining Group

6. Financial effects of the Disposals on the Remaining Group

Net assets

Liquidity

Earnings

Gearing ratio

RECOMMENDATIONS

1. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

2. WORKING CAPITAL

Continental Aerospace Technologies Holding Limited Proxy Solicitation & Information Statement 2011