CWT International Limited — Proxy Solicitation & Information Statement 2006

May 25, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Sinochem Hong Kong Holdings Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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SINOCHEM HONG KONG HOLDINGS LIMITED

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(Incorporated in Bermuda with limited liability)

Stock Code: 297

CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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SOMERLEY LIMITED

A letter from the Independent Board Committee (as defined in this circular) is set out on pages 28 to 29 of this circular. A letter from Somerley Limited, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders (as defined in this circular) is set out on pages 30 to 44 of this circular.

A notice convening the SGM (as defined in this circular) to be held at 10:00 a.m. on Friday, 9 June 2006 or immediately after conclusion of the annual general meeting of the Company to be held on the same day, whichever is later, at Salon I, II & III, Mezzanine Floor, Grand Hyatt Hotel Hong Kong, 1 Harbour Road, Wanchai, Hong Kong is set out on pages 52 to 55 of this circular. Whether or not you are able to attend and vote at the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.

* For identification purposes only

25 May 2006

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
2.	MOU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
3.	Tianji Gaoping Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
4.	Tianji Coal Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
5.	Rationale for Tianji Gaoping Distribution Agreement and
	Tianji Coal Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
6.	Beijing Procurement Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
7.	New Shandong Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
8.	Corporate structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
9.	Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
10.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
11.	Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .		28
Letter from Somerley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		30
**Appendix **	– General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
**Notice of **	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52

– i –

DEFINITIONS

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

“associates” has the meaning defined under the Listing Rules “Beijing Procurement the agreement to be entered into between Beijing Agreement” Sinochem Distribution and Sinochem Fertilizer, pursuant to which Beijing Sinochem Distribution will supply fertilizers and related raw materials to Sinochem Fertilizer subject to and upon the principal terms and conditions described under the section headed “Beijing Procurement Agreement” in the letter from the Board in this circular “Beijing Sinochem Distribution” a limited liability company to be established in the PRC and to be held as to 60% by Sinochem Fertilizer and 40% by Tianji Coal and which is proposed to be named as (Beijing Sinochem Tianji Distribution Company Limited) (or such other name as the parties may determine) “Board” the board of Directors “Bye-law” the bye-laws of the Company “Canpotex” Canpotex Limited, an associate of Potash under the Listing Rules by virtue of it being equally owned by Potash and two other independent third parties “Circular” the circular of the Company dated 13 June 2005 “Company” Sinochem Hong Kong Holdings Limited, a limited liability company incorporated in Bermuda, the ordinary shares of which are listed on the Stock Exchange “Directors” directors of the Company “Fertilizer Group” China Fertilizer (Holdings) Company Limited (the entire issued share capital of which was acquired by the Company in July 2005), and its various subsidiaries and interests in companies engaging in the fertilizer business, which now form part of the Group “Group” the Company and its subsidiaries

– 1 –

DEFINITIONS

• “HK$”

• Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

the Hong Kong Special Administrative Region of the People’s Republic of China

• “Independent Board Committee” an independent committee of the Board, comprising all of the independent non-executive Directors, formed to advise the Independent Shareholders in respect of the Transactions

• “Independent Shareholders” in respect of the resolution to be proposed at the SGM regarding the MOU, means those Shareholders other than Potash and its associates and, in respect of the resolutions to be proposed at the SGM regarding the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement and the New Shandong Supply Agreement, means those Shareholders other than Sinochem HK and its associates

• “Latest Practicable Date”

• 19 May 2006, being the latest practicable date for the purpose of ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “MOU”

• a binding memorandum of understanding entered into on 10 April 2006 by and on behalf of Sinochem Macao and Canpotex under which the parties agreed to enter into transactions for the supply by Canpotex of Canadian potash during the three year period ending 31 December 2009

• “2003 MOU” a memorandum of understanding dated 7 August 2003 entered into between Sinochem Corporation and Canpotex under which the parties agreed to enter into transactions for the supply by Canpotex to Sinochem Corporation of Canadian potash during the three year period from 1 January 2004 to 31 December 2006, details of which were disclosed in the announcement of the Company dated 9 March 2006

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DEFINITIONS

“New Shandong Supply	the agreement dated 21 April 2006 entered into between
Agreement”	Sinochem Fertilizer and Sinochem Shandong, pursuant to
	which Sinochem Fertilizer will supply fertilizer related
	products and raw materials to Sinochem Shandong
“Old Shandong Supply	the agreement dated 6 June 2005 entered into between
Agreement”	Sinochem Fertilizer and Sinochem Shandong pursuant to
	which Sinochem Fertilizer is to supply potash fertilizers
	to Sinochem Shandong, details of which were disclosed
	in the Circular and the announcement of the Company
	dated 10 June 2005
“Potash”	Potash Corporation of Saskatchewan Inc., a corporation
	incorporated in Canada with shares listed on the Toronto
	Stock Exchange and the New York Stock Exchange, and
	a substantial shareholder of the Company
“PRC”	the People’s Republic of China, excluding, for the
	purposes of this circular, Hong Kong, the Macao Special
	Administrative Region and Taiwan
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be held to
	consider and approve the Transactions and related annual
	caps, notice of which is set out at the end of this circular
“Shareholders”	holders of Shares
“Shares”	ordinary shares of HK$0.10 each in the capital of the
“Sinochem Corporation”	Company (Sinochem Corporation), a state- owned enterprise established in the PRC, the holding
	company of Sinochem HK and the ultimate controlling
	shareholder of the Company
“Sinochem Fertilizer”	(Sinochem Fertilizer Company
	Limited), a wholly foreign owned enterprise established
	in the PRC and an indirect wholly-owned subsidiary of
	the Company

– 3 –

DEFINITIONS

“Sinochem HK” Sinochem Hong Kong (Group) Company Limited, a company incorporated in Hong Kong with limited liability which is wholly-owned by Sinochem Corporation, and the direct controlling shareholder of the Company holding approximately 53.53% of its issued ordinary share capital as at the Latest Practicable Date “Sinochem Macao” Sinochem Fertilizer Macao Commercial Offshore Limited, a company incorporated in Macao and an indirect wholly-owned subsidiary of the Company

• “Sinochem Shandong” (Sinochem Shandong Chemical Fertilizer Company Limited), a limited liability company established in the PRC and is held as to 51% by Sinochem Corporation, 20% by (Qinghai Salt Lake Industrial Group Co., Ltd.),

• 20% by (Guizhou Kailin Company Limited) and 9% by (Linyi Zhongpu Dongsheng Trade Co., Ltd.)

• “Somerley” Somerley Limited, a licensed corporation to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO, and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Tianji Coal” (Tianji Coal and Chemical Engineering Group Company Limited), a limited liability company established in the PRC which is held by independent third parties and which is interested in 60% of Tianji Sinochem and will be interested in 40% of Beijing Sinochem Distribution

• “Tianji Coal Distribution the agreement to be entered into between Tianji Coal and Agreement” Beijing Sinochem Distribution, pursuant to which, subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted an exclusive right to sell the fertilizer products produced by Tianji Coal and related raw materials in the Shandong and Jiangsu provinces in the PRC

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DEFINITIONS

• “Tianji Gaoping Distribution Agreement”

the agreement to be entered into between Tianji Sinochem and Beijing Sinochem Distribution, pursuant to which, subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted a right to sell the fertilizer products produced by Tianji Sinochem and related raw materials in the PRC (or such other territories as may be agreed between the parties) (Tianji Sinochem Gaoping Chemical Engineering Company Limited), a limited liability company established in the PRC and is held as to 40% by Sinochem Corporation and 60% by Tianji Coal

• “Tianji Sinochem” (Tianji Sinochem Gaoping Chemical Engineering Company Limited), a limited liability company established in the PRC and is held as to 40% by Sinochem Corporation and 60% by Tianji Coal

• “Transactions” the transactions contemplated under the MOU, the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement and the New Shandong Supply Agreement

• “US$” United States dollars, the lawful currency of the United States of America

For the purpose of this circular, unless otherwise indicated, the exchange rates of HK$1.00 = RMB$1.04 and US1.00 = HK$7.8 have been used for currency translation. Such exchange rates are for the purposes of illustration only and do not constitute a representation that any amount in RMB, US$ or HK$ have been, could have been or may be converted at such or any other rates.

– 5 –

LETTER FROM THE BOARD

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SINOCHEM HONG KONG HOLDINGS LIMITED

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(Incorporated in Bermuda with limited liability)

Stock Code: 297

Executive directors: DU Ke Ping (Chief Executive Officer) Harry YANG

Non-executive directors: LIU Deshu (Chairman) SONG Yu Qing (Deputy Chairman) CHEN Guo Gang Stephen Francis DOWDLE Wade FETZER III

Independent non-executive directors: KO Ming Tung, Edward LI Ka Cheung, Eric TANG Tin Sek

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business: Units 4601-4610, 46th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

25 May 2006

To the Shareholders and, for information only, holders of share options of the Company

Dear Sirs or Madam,

CONTINUING CONNECTED TRANSACTIONS

1. Introduction

In the announcements dated 20 April 2006 and 28 April 2006, the Company announced that Sinochem Macao and Canpotex entered into the MOU on 10 April 2006 and Sinochem Fertilizer and Sinochem Shandong entered into the New Shandong Supply Agreement on 21 April 2006. It was also announced that Sinochem Fertilizer, Tianji Sinochem and Tianji Coal intended to enter into the Beijing Procurement Agreement, Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement with Beijing Sinochem Distribution respectively. The Transactions constitute continuing connected transactions for the Company subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

• For identification purposes only

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LETTER FROM THE BOARD

The Independent Board Committee, comprising all of the independent non-executive Directors, Mr. Ko Ming Tung, Edward, Mr. Li Ka Cheung, Eric and Mr. Tang Tin Sek, has been formed to advise the Independent Shareholders in relation to the Transactions and the related proposed annual caps.

Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether the Transactions are on normal commercial terms and in the ordinary course of business of the Group and whether the terms of the Transactions and the related proposed annual caps are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

The purpose of this circular is:

• (a) to provide you with details of the Transactions and the related proposed annual caps;

• (b) to set out the recommendations of the Independent Board Committee in respect of the Transactions and the related proposed annual caps;

• (c) to set out the advice of Somerley to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Transactions and the related proposed annual caps;

• (d) to give you notice of the SGM to be held to consider and, if thought fit, approve the Transactions and the related proposed annual caps; and

• (e) to provide you with such other information as is required under the Listing Rules.

2. MOU

• A. Background

Reference is made to the announcement of the Company dated 9 March 2006 in respect of certain ongoing transactions involving the supply of Canadian potash by Canpotex to Sinochem Macao, an indirect wholly-owned subsidiary of the Company. As disclosed in that announcement, such transactions are carried out according to the supply arrangements agreed under the 2003 MOU under which Canpotex is to supply Canadian potash to Sinochem Corporation during the three year period ending 31 December 2006. In January 2005, Sinochem Macao entered into a contract with Canpotex in relation to the supply of Canadian potash and assumed the role of Sinochem Corporation as the purchaser under the 2003 MOU. It was also disclosed that, according to the term of the 2003 MOU, the supply transactions between Sinochem Macao and Canpotex are expected to continue during the current year ending 31 December 2006. As Canpotex is equally owned by Potash (a substantial shareholder of the Company) and two other independent third parties and therefore constitutes an associate of Potash and a connected person of the Company, such transactions constitute a continuing connected transaction of the Company under the Listing Rules.

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LETTER FROM THE BOARD

On 10 April 2006, Sinochem Macao and Canpotex entered into the MOU under which the parties agreed to continue such transactions during the three year period from 1 January 2007 to 31 December 2009. Particulars of the MOU are set out below.

B. Particulars of the MOU

Date: 10 April 2006

Parties:

Canpotex International Pte. Limited (an indirect wholly-owned subsidiary of Canpotex Limited) on behalf of Canpotex Limited, which is principally engaged in the marketing and distribution of potash internationally, as supplier; and

Sinochem Macao, which is principally engaged in sourcing fertilizer products and other related agricultural products from overseas suppliers, as purchaser.

Nature of transaction:

Canpotex agreed to supply and Sinochem Macao agreed to purchase an aggregate of 2.6 million, 2.8 million and 3 million metric tonnes of Canadian potash in the three years ending 31 December 2009 respectively. The aggregate quantity to be supplied in each year is subject to a 10% adjustment. Sinochem Macao will purchase Canadian potash from Canpotex on an exclusive basis and Canpotex will not sell such potash to any other Chinese buyers unless otherwise agreed to between the parties. The MOU provides for Canpotex to supply additional quantities of potash to Sinochem Macao in the event of an increase in overall demand for potash imports to the PRC.

Pricing and payment:

Prices for the potash to be supplied will be determined through arms-length negotiations between the parties with reference to prevailing market prices consistent with the longstanding procedures and practice between Canpotex and members of the Group. The Directors consider that the pricing reflects normal commercial terms and is on terms no less favourable than those available from other independent third parties. Payments for the potash supplied may be settled by way of letter of credit or such other means as may be decided upon by the parties.

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LETTER FROM THE BOARD

Proposed annual caps: HK$4,300,000,000, HK$5,300,000,000 and HK$6,300,000,000 for the three years ending 31 December 2009 respectively. Basis of annual caps: The proposed annual caps are calculated based on the

The proposed annual caps are calculated based on the estimated volume and prices of purchase pursuant to the terms of the MOU, with reference to the transaction volume of potash purchased for the previous years and taking into account possible increasing demand for potash imports into the PRC, for the relevant years.

From the year 2004 up to July 2005 (when the Company completed the acquisition of the Fertilizer Group (comprising Sinochem Macao)), the transactions for the supply of Canadian potash were carried on under the 2003 MOU between Sinochem Corporation and Canpotex. These were accordingly not transactions of the Company. As disclosed in the announcement of the Company dated 9 March 2006, Sinochem Macao subsequently assumed the role of Sinochem Corporation as the purchaser under the 2003 MOU and according to the terms of the 2003 MOU, the supply transactions between Canpotex and Sinochem Macao are expected to continue during the current year ending 31 December 2006 and such transactions represent a continuing connected transaction for the Company. During the period from 28 July 2005 to 31 December 2005 (when Sinochem Macao became part of the Group subsequent to the Company’s acquisition of the Fertilizer Group on 27 July 2005), the total purchases of potash fertilizers by the Group from Canpotex amounted to approximately US$107.8 million (equivalent to approximately HK$841 million). The corresponding amount of purchases for the current year up to date is not available as details relating to these purchases would need to be compiled and are subject to further reconciliation and verification. The annual cap for such transactions for the year ending 31 December 2006 is US$432,400,000 (equivalent to about HK$3,372,720,000).

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LETTER FROM THE BOARD

C. Reasons for the transactions

The principal businesses of the Group are the procurement, production and sale of fertilizer and related products. Canpotex has been a long standing supplier of the Fertilizer Group. In 2002 and 2003, Canpotex had entered into exclusive distribution arrangements with members of the Fertilizer Group for the distribution of its Canadian potash in the PRC. In 2003, the business cooperation between the Fertilizer Group and Canpotex was further strengthened through the entry into of the 2003 MOU between Canpotex and Sinochem Corporation in that year which provides for the ongoing supply of Canadian potash to the Group for the three years ending 31 December 2006. The MOU contemplates the continuance of such transactions throughout the next three years ending 31 December 2009. The exclusivity arrangement under the MOU would also enhance the long-term strategic relationship between the Group and Canpotex and would ensure that the Group has a stable supply of Canadian potash from one of the world’s largest potash suppliers. The sales in the PRC of Canadian potash from Canpotex are primarily carried out by the Group and, through their established business relationship and supply arrangements, the volume of Canadian potash supplied to the PRC fertilizer market has increased. The management considers that the supply arrangements between Canpotex and Sinochem Macao are necessary and conducive to its sales operations. The Directors therefore consider that it would be in the interest of the Group to continue such arrangements upon the principal terms under the MOU.

The Directors also consider that the supply transactions between Sinochem Macao and Canpotex were entered into after arm’s length negotiations and reflect normal commercial terms and that the terms of such transactions and the proposed annual caps described above are fair and reasonable so far as the Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole.

3. Tianji Gaoping Distribution Agreement

A. Background

Beijing Sinochem Distribution is in the process of being established under the laws of the PRC and, following its establishment, will become an indirect non-wholly owned subsidiary of the Company held as to 60% by Sinochem Fertilizer and 40% by Tianji Coal. It is expected that the establishment of Beijing Sinochem Distribution will be completed around the end of May 2006. Tianji Sinochem is held as to 60% by Tianji Coal and 40% by Sinochem Corporation. Tianji Sinochem is therefore an associate of Sinochem Corporation and a connected person of the Company within the meaning of the Listing Rules. In addition, Tianji Sinochem also constitutes an associate of Tianji Coal, which will become a substantial shareholder of Beijing Sinochem Distribution, and Tianji Sinochem will therefore also be a connected person of the Company within the meaning of the Listing Rules by reason of that relationship.

Shortly after the establishment of Beijing Sinochem Distribution, Beijing Sinochem Distribution and Tianji Sinochem intend to enter into the Tianji Gaoping Distribution Agreement pursuant to which, subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted a right to sell the fertilizer products produced by Tianji Sinochem and the related raw materials in the PRC (or such other territories as may be agreed between the parties).

– 10 –

LETTER FROM THE BOARD

• B. Particulars of the Tianji Gaoping Distribution Agreement

Date: On or after the date of establishment of Beijing Sinochem Distribution.

Effective period: (subject to early termination by reason of (i) the transactions contemplated under the Tianji Gaoping Distribution Agreement not complying with the applicable requirements of the Listing Rules in relation to connected transactions; or (ii) a default on the part of Tianji Sinochem; or (iii) the occurrence of force majeure events) from whichever is the later of the date on which all conditions precedent described below are fulfilled and the date of this agreement, to 31 December 2008. Beijing Sinochem Distribution may request that Tianji Sinochem enters into a new distribution agreement with it on the same terms upon expiry of this agreement.

Parties:

• (i) Beijing Sinochem Distribution, whose principal business will be the sale and distribution of fertilizer products and raw materials; and

• (ii) Tianji Sinochem, whose principal business is the production of fertilizer products.

Nature of transaction:

• Subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted a right to sell the fertilizer products produced by Tianji Sinochem and the related raw materials in the PRC (or such other territories as may be agreed between the parties). The range of fertilizer products covered under this agreement may consist of nitrogen-based fertilizers, phosphate-based fertilizers, potash fertilizers and compound fertilizers that can be applied directly to crops and the related raw materials would include sulphur and other materials such as nitrogenbased fertilizers, phosphate-based fertilizers and potash fertilizers which are used for the production of compound fertilizers. Tianji Sinochem will undertake to supply to Beijing Sinochem Distribution 80% of the fertilizer products and raw materials produced by Tianji Sinochem each year. The provisions of this agreement do not contain any restriction as to the provinces within which Beijing Sinochem Distribution is permitted to sell such fertilizer products.

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LETTER FROM THE BOARD

Payment terms:

Beijing Sinochem Distribution shall provide Tianji Sinochem with a purchase plan two months in advance of a purchase and Tianji Sinochem shall reply to Beijing Sinochem Distribution within 15 business days of each purchase order. The price of the fertilizer products and raw materials shall be their fair market price in the PRC (or the territory at which they are to be sold) at the time the purchase plan is submitted. The fair market price will be determined by reference to the prevailing domestic wholesale price for products of a similar nature. Products and raw materials purchased will be delivered after settlement of the purchase price, consistent with the usual practice in the fertilizer industry.

Conditions:

• The Tianji Gaoping Distribution Agreement will be conditional upon (i) the approval by the independent shareholders of the Company of the Tianji Gaoping Distribution Agreement and other transactions contemplated in the agreement; and (ii) if so required by the Listing Rules, the fulfilment of any other relevant conditions imposed under the Listing Rules or by the Stock Exchange or, if applicable, the Stock Exchange having granted its waiver from strict compliance with the Listing Rules.

• C. Reason for the transaction

The principal businesses of the Group are the procurement, production and sale of fertilizers and related products. Given that Tianji Sinochem is able to supply fertilizer products and raw materials to Beijing Sinochem Distribution at a fair market price, the Directors consider that it would be in the interest of the Group for Beijing Sinochem Distribution to act as the distributor of Tianji Sinochem pursuant to the terms set out in the Tianji Gaoping Distribution Agreement.

– 12 –

LETTER FROM THE BOARD

4. Tianji Coal Distribution Agreement

• A. Background

Beijing Sinochem Distribution will become an indirect non-wholly owned subsidiary of the Company held as to 60% by Sinochem Fertilizer. Tianji Coal will hold the remaining 40% interest in Beijing Sinochem Distribution. Tianji Coal will therefore become a substantial shareholder of Beijing Sinochem Distribution and a connected person of the Company within the meaning of the Listing Rules.

Shortly after the establishment of Beijing Sinochem Fertilizer, Beijing Sinochem Distribution and Tianji Coal intend to enter into the Tianji Coal Distribution Agreement pursuant to which, subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted an exclusive right to sell the fertilizer products produced by Tianji Coal and the related raw materials in the Shandong and Jiangsu provinces in the PRC.

• B. Particulars of the Tianji Coal Distribution Agreement

Date: On or after the date of establishment of Beijing Sinochem Distribution.

Effective period: (subject to early termination by reason of (i) the transactions contemplated in the Tianji Coal Distribution Agreement not complying with the applicable requirements of the Listing Rules in relation to connected transactions; or (ii) a default on the part of Tianji Coal; or (iii) the occurrence of force majeure events) from whichever is the later of the date on which all the conditions precedent described below are fulfilled and the date of this agreement, to 31 December 2008. Beijing Sinochem Distribution may request that Tianji Coal enters into a new distribution agreement with it on the same terms upon expiry of this agreement.

Parties:

• (i) Beijing Sinochem Distribution, whose principal business will be the sale and distribution of fertilizer products and related raw materials; and

• (ii) Tianji Coal, whose principal business is the production of fertilizer products.

– 13 –

LETTER FROM THE BOARD

Nature of transaction:

Subject to the terms and conditions of this agreement, Beijing Sinochem Distribution will be granted an exclusive right to sell the fertilizer products produced by Tianji Coal and the related raw materials in the Shandong and Jiangsu provinces in the PRC, which right is intended to restrict Beijing Sinochem Distribution from selling such products and raw materials in any other provinces in the PRC. In addition, Tianji Coal shall not, and shall not grant any right to any third party to, sell any of its fertilizer products and the related raw materials in the Shandong and Jiangsu provinces in the PRC during the term of the agreement. The range of fertilizer products under this agreement may consist of nitrogen-based fertilizers, phosphate-based fertilizers, potash fertilizers and compound fertilizers that can be applied directly to crops and the related raw materials would include sulphur and other materials such as nitrogenbased fertilizers, phosphate-based fertilizers and potash fertilizers which are used for the production of compound fertilizers.

Payment terms:

Beijing Sinochem Distribution shall provide Tianji Coal with a purchase plan two months in advance of a purchase and Tianji Coal shall reply to Beijing Sinochem Distribution within 15 business days of each purchase order. The price of the fertilizer products and raw materials shall be their fair market price in the PRC at the time the purchase plan is submitted. The fair market price will be determined by reference to the prevailing domestic wholesale price for products of a similar nature. Products and raw materials purchased will be delivered after settlement of the purchase price, consistent with the usual practice in the fertilizer industry.

– 14 –

LETTER FROM THE BOARD

Conditions: The Tianji Coal Distribution Agreement will be conditional upon (i) the approval by the independent shareholders of the Company of the Tianji Coal Distribution Agreement and other transactions contemplated in the agreement; and (ii) if so required by the Listing Rules, the fulfilment of any other relevant conditions imposed under the Listing Rules or by the Stock Exchange or, if applicable, the Stock Exchange having granted its waiver from strict compliance with the Listing Rules.

C. Reason for the transaction

The principal businesses of the Group are the procurement, production and sale of fertilizers and related products. Given that Tianji Coal is able to supply fertilizer products and raw materials to Beijing Sinochem Distribution at a fair market price, the Directors consider that it would be in the interest of the Group for Beijing Sinochem Distribution to act as the sole distributor of Tianji Sinochem in the Shandong and Jiangsu provinces of the PRC pursuant to the terms set out in the Tianji Coal Distribution Agreement.

5. Rationale for Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement

As previously disclosed in the Circular, in order to minimise any potential competition between those members of the Group engaging in the fertilizer business and Tianji Sinochem, a sales arrangement is to be put in place under which 80% of the products of Tianji Sinochem will be sold to a sales company (to be held as to 60% by Sinochem Fertilizer and 40% by Tianji Coal) for resale. This sales arrangement represents the transactions contemplated under the Tianji Gaoping Distribution Agreement under which Tianji Sinochem will supply fertilizer products and raw materials to Beijing Sinochem Distribution for resale. In addition, pursuant to the Tianji Coal Distribution Agreement, Tianji Coal has also agreed to supply fertilizer products and raw materials to Beijing Sinochem Distribution for resale. The supply transactions contemplated under the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement form part of a series of transactions arising from the overall joint venture arrangement involving Tianji Coal, Tianji Sinochem and Beijing Sinochem Distribution.

This joint venture arrangement contemplates the supply of products and raw materials by Tianji Coal and its joint venture company, Tianji Sinochem (in which Tianji Coal holds a 60% interest), to a sales company, Beijing Sinochem Distribution (in which Tianji Coal will hold a 40% interest), for resale, so that Tianji Coal can capture part of the commercial benefits arising from such supply and sales transactions through its interests in Tianji Sinochem and Beijing Sinochem Distribution. The Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement are accordingly entered into to reflect this arrangement. In addition, according to this arrangement, Tianji Sinochem and Tianji Coal will only grant the right to sell

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LETTER FROM THE BOARD

their products and related raw materials to Beijing Sinochem Distribution, a joint venture company of Tianji Coal, and not to Sinochem Fertilizer, a wholly-owned subsidiary of the Company. The supply of such products and raw materials will therefore only be made by Tianji Sinochem and Tianji Coal to Beijing Sinochem Distribution for onward resale. Accordingly, Sinochem Fertilizer will not be able to directly purchase these products and raw materials from Tianji Sinochem and Tianji Coal, but will instead be able to procure them from Beijing Sinochem Distribution under the Beijing Procurement Agreement (details of which are set out below).

Given that the transactions under the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement form part of a series of transactions arising from the overall joint venture arrangement described above, these transactions are aggregated and treated as if they were one transaction pursuant to Rule 14A.25 of the Listing Rules. The proposed annual caps for all such transactions combined are RMB481,000,000, RMB962,000,000 and RMB1,047,000,000 (equivalent to HK$462,500,000, HK$925,000,000 and approximately HK$1,006,731,000) for the three years ending 31 December 2008 respectively. As there were no historical comparable supply transactions between the respective parties to each such agreement, the proposed annual caps have been set based on the projected quantities of purchases and projected average price per tonne of fertilizer products and raw materials to be supplied for the relevant years. The purchases to made by Beijing Sinochem Distribution pursuant to the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement are intended to be financed by the internal resources of Beijing Sinochem Distribution. The Directors consider the proposed annual caps to be reasonable. As each of the relevant percentage ratios set out in the Listing Rules in respect of the aggregate amount of the proposed maximum annual caps for all such agreements is, on an annual basis, more than 2.5% and the proposed maximum annual cap is higher than HK$10,000,000, the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement, when aggregated pursuant to Rule 14A.25 of the Listing Rules, will be classified as continuing connected transactions of the Company under Rule 14A.16(5) of the Listing Rules and are subject to the reporting, announcement and independent shareholders’ approval requirements set out in Rules 14A.45 to 14A.54 of the Listing Rules.

The Directors also consider that each of the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement was entered into after arm’s length negotiations, reflects normal commercial terms, is on terms no less favourable to the Group than terms available from independent third parties and that the terms of each of the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement and the proposed annual caps for these two agreements combined are fair and reasonable so far as the Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE BOARD

6. Beijing Procurement Agreement

• A. Background

Tianji Sinochem is held as to 40% by Sinochem Corporation and 60% by Tianji Coal. Tianji Coal, being the holding company of Tianji Sinochem, is therefore an associate of Sinochem Corporation which is a substantial shareholder of the Company. Beijing Sinochem Distribution will become an indirect non-wholly owned subsidiary of the Company and will be held as to 40% by Tianji Coal, an associate of a substantial shareholder of the Company and therefore a connected person at the level of the Company. Beijing Sinochem Distribution will therefore become a connected person of the Company within the meaning of the Listing Rules.

Shortly after the establishment of Beijing Sinochem Distribution, Beijing Sinochem Distribution and Sinochem Fertilizer intend to enter into the Beijing Procurement Agreement pursuant to which Sinochem Fertilizer will purchase fertilizer related products and raw materials from Beijing Sinochem Distribution at a fair market price in the PRC.

• B. Particulars of the Beijing Procurement Agreement

Date:

On or after the date of establishment of Beijing Sinochem Distribution.

Effective period:

(subject to early termination by reasons of (i) the transactions contemplated in the Beijing Procurement Agreement not complying with the applicable requirements of the Listing Rules in relation to connected transactions; or (ii) a default on the part of Beijing Sinochem Distribution; or (iii) the occurrence of force majeure events) from whichever is the later of the date on which all the conditions precedent described below are fulfilled and the date of this agreement, to 31 December 2008. Beijing Sinochem Distribution may request that Sinochem Fertilizer enters into a new procurement agreement with it on the same terms upon the expiry of this agreement.

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LETTER FROM THE BOARD

Parties: (i) Beijing Sinochem Distribution, whose principal business will be the sale and distribution of fertilizer products and related raw materials; and (ii) Sinochem Fertilizer, whose principal business is investment holding, production and trading of fertilizers and related raw materials and products. Nature of transaction: According to this agreement, Beijing Sinochem Distribution will supply fertilizer related products and raw materials to Sinochem Fertilizer. It is intended that the products and raw materials to be supplied to Sinochem Fertilizer under the Beijing Procurement Agreement would be those purchased by Beijing Sinochem Distribution under the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement. The range of fertilizer products covered under this agreement may consist of nitrogen-based fertilizers, phosphate-based fertilizers, potash fertilizers and compound fertilizers that can be applied directly to crops and the related raw materials would include sulphur and other materials such as nitrogen-based fertilizers, phosphate-based fertilizers and potash fertilizers which are used for the production of compound fertilizers. The provisions of this agreement do not contain any restriction as to the provinces within which Sinochem Fertilizer is permitted to sell such fertilizer products and raw materials.

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LETTER FROM THE BOARD

Payment terms:

Conditions:

Proposed annual caps:

Sinochem Fertilizer shall provide Beijing Sinochem Distribution with a purchase plan two months in advance of a purchase and Beijing Sinochem Distribution shall reply to Sinochem Fertilizer within 15 business days of each purchase order. The price of the fertilizer products and raw materials shall be their fair market price in the PRC at the time the purchase plan is submitted. The fair market price will be determined by reference to the prevailing domestic wholesale price for products of a similar nature. Products and raw materials purchased will be delivered after settlement of the purchase price, consistent with the usual practice in the fertilizer industry. The purchases to be made by Sinochem Fertilizer pursuant to the Beijing Procurement Agreement are intended to be financed by the internal resources of Sinochem Fertilizer.

The Beijing Procurement Agreement will be conditional upon (i) the approval by the independent shareholders of the Company of the Beijing Procurement Agreement and other transactions contemplated in the agreement; and (ii) if so required by the Listing Rules, the fulfilment of any other relevant conditions imposed under the Listing Rules or by the Stock Exchange or, if applicable, the Stock Exchange having granted its waiver from strict compliance with the Listing Rules.

Maximum annual values of RMB481,000,000, RMB962,000,000 and RMB1,047,000,000 (equivalent to HK$462,500,000, HK$925,000,000 and approximately HK$1,006,731,000) for the three years ending 31 December 2008 respectively.

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LETTER FROM THE BOARD

Basis of annual caps:

The proposed annual caps have been set based on the projected quantities of purchases and projected average price per tonne of the fertilizers products and raw materials to be supplied for each of the relevant years ending 31 December 2008.

C. Reason for the transaction

The principal businesses of the Group are the procurement, production and sale of fertilizer and related products. Given that Beijing Sinochem Distribution will be able to source fertilizer products and raw materials and supply them to Sinochem Fertilizer at a fair market price, the Directors consider that it would be in the interest of the Group to procure fertilizer products and raw materials from Beijing Sinochem Distribution pursuant to the terms set out in the Beijing Procurement Agreement.

The Directors also consider that the Beijing Procurement Agreement was entered into after arm’s length negotiations, reflects normal commercial terms, is on terms no less favourable to the Group than terms available from independent third parties and that the terms of the Beijing Procurement Agreement and the relevant proposed annual caps are fair and reasonable so far as the Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole.

7. New Shandong Supply Agreement

• A. Background

Sinochem Shandong is held as to 51% by Sinochem Corporation. Sinochem Shandong is therefore an associate of Sinochem Corporation and a connected person of the Company within the meaning of the Listing Rules.

On 6 June 2005, Sinochem Fertilizer and Sinochem Shandong entered into the Old Shandong Supply Agreement pursuant to which Sinochem Fertilizer shall supply potash fertilizers to Sinochem Shandong at their fair market price in the PRC at the time the purchase order is placed. The Old Shandong Supply Agreement constituted a continuing connected transaction of the Company under Rule 14A.16(5) of the Listing Rules subject to reporting, announcement and independent shareholders’ approval requirements. These transactions and the related annual caps were disclosed in the Circular and the announcement of the Company dated 10 June 2005 and approved by the independent shareholders of the Company at its special general meeting held on 5 July 2005.

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LETTER FROM THE BOARD

It is currently anticipated that, apart from the potash fertilizers agreed to be supplied by Sinochem Fertilizer to Sinochem Shandong under the Old Shandong Supply Agreement, Sinochem Shandong will also require Sinochem Fertilizer to supply to it other fertilizer related products and raw materials due to an expansion in its business. As disclosed in the Circular and the announcement of the Company dated 10 June 2005, the maximum annual caps of the purchase price payable by Sinochem Shandong to Sinochem Fertilizer under the Old Shandong Supply Agreement for the two years ending 31 December 2007 would not exceed RMB209,520,000 and RMB383,760,000 respectively. The Company now estimates that the total annual transaction values arising from the supply of fertilizer related products and raw materials by Sinochem Fertilizer to Sinochem Shandong for the two years ending 31 December 2007 will be increased to RMB424,600,000 and RMB508,600,000 respectively. These estimated increases in transaction values take account of the expanded scope of fertilizer products and raw materials intended to be supplied by Sinochem Fertilizer to Sinochem Shandong in the ensuing years, which are greater than those originally anticipated under the Old Shandong Supply Agreement.

Accordingly, on 21 April 2006, Sinochem Fertilizer and Sinochem Shandong entered into the New Shandong Supply Agreement pursuant to which the scope of products which Sinochem Fertilizer is to supply to Sinochem Shandong will extend to other fertilizer related products and raw materials and the Old Shandong Supply Agreement will be terminated with effect from the date on which the New Shandong Supply Agreement takes effect.

• B. Particulars of the New Shandong Supply Agreement

Date: 21 April 2006

Effective period:

(subject to early termination by reasons of (i) the transactions contemplated under the New Shandong Supply Agreement not complying with the applicable requirements of the Listing Rules in relation to connected transactions; or (ii) the occurrence of force majeure event) from the date on which all the conditions precedent described below are fulfilled to 31 December 2007. Sinochem Fertilizer may request that Sinochem Shandong enters into a new supply agreement with it on the same terms upon expiry of the current agreement.

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LETTER FROM THE BOARD

• Parties: (i) Sinochem Fertilizer, whose principal business is investment holding, production and trading of fertilizers and related raw materials and products; and

• (ii) Sinochem Shandong, whose principal business is the production of fertilizers and related products.

• Nature of transaction: Sinochem Fertilizer will fertilizers and related

• Sinochem Fertilizer will supply fertilizers and related raw materials to Sinochem Shandong, the range of which may consist of nitrogen-based fertilizers, phosphate-based fertilizers, potash fertilizers and compound fertilizers that can be applied directly to crops and the related raw materials used for the production of fertilizers, including sulphur and other materials such as nitrogen-based fertilizers, phosphatebased fertilizers and potash fertilizers used to produce compound fertilizers.

It is currently anticipated that the actual types of fertilizers and related raw materials required by Sinochem Shandong under this agreement would mainly consist of potash fertilizer, with smaller quantities of monoammonium phosphate and urea. The fertilizer products and related raw materials to be purchased by Sinochem Fertilizer pursuant to the Beijing Procurement Agreement are expected to mainly comprise nitrate acid potash fertilizer and urea. The products and raw materials to be purchased by Sinochem Fertilizer from Beijing Sinochem Distribution are not intended to be re-sold to Sinochem Shandong under the New Shandong Supply Agreement. The Beijing Procurement Agreement and New Shandong Supply Agreement are therefore not related to each other and do not form part of the same series of transactions.

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LETTER FROM THE BOARD

Payment terms:

Sinochem Shandong shall provide Sinochem Fertilizer with a purchase plan two months in advance of a purchase and Sinochem Fertilizer shall reply to Sinochem Shandong within 15 business days of each purchase order. The price of the fertilizer products and raw materials shall be their fair market price in the PRC at the time of the purchase plan is submitted. The fair market price will be determined by reference to the prevailing domestic wholesale price for products of a similar nature. Products and raw materials purchased will be delivered after settlement of the purchase price, consistent with the usual practice in the fertilizer industry.

Conditions:

The New Shandong Supply Agreement is conditional upon (i) the approval by the independent shareholders of the Company of the New Shandong Supply Agreement and other transactions contemplated in the agreement; and (ii) if so required by the Listing Rules, the fulfilment of any other relevant conditions imposed under the Listing Rules or by the Stock Exchange or, if applicable, the Stock Exchange having granted its waiver from strict compliance with the Listing Rules.

Proposed annual caps:

• Maximum annual values of RMB424,600,000 and RMB508,600,000 (equivalent to approximately HK$408,269,230 and HK$489,038,461) for the two years ending 31 December 2007 respectively.

• Basis of annual caps:

The proposed annual caps have been set based on the projected quantities of sales and projected average price per tonne of the fertilizers products and raw materials to be supplied for each of the relevant years ending 31 December 2007, and with reference to the volume of potash fertilizers supplied under the Old Shandong Supply Agreement for the year ended 31 December 2005. The total sales of potash fertilizers by Sinochem Fertilizer to Sinochem Shandong amounted to approximately RMB49,148,250 (equivalent to approximately HK$47,257,933) for the year ended 31 December 2005.

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LETTER FROM THE BOARD

C. Reason for the transaction

The principal businesses of the Group are the procurement, production and sale of fertilizer and related products. As part of its principal businesses, the Group will supply fertilizer products and raw materials to Sinochem Shandong on terms no more favourable to Sinochem Shandong than terms provided to other independent third parties. The Directors consider that it would be in the interest of the Group to supply fertilizer products and raw materials to Sinochem Shandong upon the terms set out in the New Shandong Supply Agreement.

The Directors also consider that the New Shandong Supply Agreement was entered into after arm’s length negotiations, reflects normal commercial terms, is on terms no less favourable to the Group than terms available to independent third parties and that the terms of the New Shandong Supply Agreement and the relevant proposed annual caps are fair and reasonable so far as the Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole.

8. Corporate structure

For the purpose of illustration only, a simplified corporate and shareholding structure of the parties to the agreements described above is set out below.

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LETTER FROM THE BOARD

9. Implications under the Listing Rules

The principal businesses of the Group are the procurement, production and sale of fertilizer and related products. The Transactions will be carried out on a continuing or recurring basis in the ordinary and usual course of business of the Group and accordingly constitute continuing connected transactions of the Company under the Listing Rules.

As each of the relevant percentage ratios set out in the Listing Rules in respect of the proposed maximum annual cap under each of the MOU; the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement, when aggregated pursuant to Rule 14A.25 of the Listing Rules; the Beijing Procurement Agreement; and the New Shandong Supply Agreement is, on an annual basis, more than 2.5% and the proposed maximum annual cap is higher than HK$10,000,000, each of the MOU; the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement, when aggregated pursuant to Rule 14A.25 of the Listing Rules; the Beijing Procurement Agreement; and the New Shandong Supply Agreement is classified as a continuing connected transaction of the Company under Rule 14A.16(5) of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements set out in Rules 14A.45 to 14A.54 of the Listing Rules.

The Company will also comply with the requirements under Rules 14A.37 to 14A.40 of the Listing Rules in relation to the Transactions for the duration for which the respective Transactions are carried out. Details of the Transactions will be included in the Company’s published annual reports and accounts in accordance with Rules 14A.45 and 14A.46 of the Listing Rules. The Company will comply with the requirements under Rule 14A.36 of the Listing Rules if the annual caps under any of the Transactions exceed the applicable annual caps described above, or where any of the agreements relating to any of the Transactions is renewed or where there are material changes to its terms. The Company will also seek approval from the respective Independent Shareholders at the SGM for each of the Transactions and the related proposed annual caps.

10. SGM

Your attention is drawn to pages 52 to 55 of this circular where you will find a notice of the SGM to be held at 10:00 a.m. on Friday, 9 June 2006 or immediately after conclusion of the annual general meeting of the Company to be held on the same day, whichever is later, at Salon I, II & III, Mezzanine Floor, Grand Hyatt Hotel Hong Kong, 1 Harbour Road, Wanchai, Hong Kong. At the SGM, resolutions will be put forward to the Independent Shareholders to approve the Transactions and the related proposed annual caps. Voting on these resolutions will be by poll.

Potash, a substantial shareholder of the Company, and any of its associates will abstain from voting on the resolution to be proposed at the SGM to approve the MOU and the related proposed annual caps. So far as the Company was aware having made all reasonable enquiries, Potash held or otherwise controlled the voting right in respect of 20% of the Company’s issued

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LETTER FROM THE BOARD

ordinary share capital as at the Latest Practicable Date; and no voting trust or other agreement or arrangement or understanding has been entered into by or was binding upon Potash and/or any of its associates and there was no other obligation or entitlement of Potash and/or any of its associates as at the Latest Practicable Date, whereby Potash and/or any of its associates has/have or may have temporarily or permanently passed control over the exercise of the voting rights in respect of its/their Shares to a third party, either generally or on a case-by-case basis.

Sinochem HK, a wholly owned subsidiary of Sinochem Corporation and the direct controlling shareholder of the Company, together with any of its associates will abstain from voting on the resolutions to be proposed at the SGM to approve the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement, the New Shandong Supply Agreement and the related proposed annual caps. So far as the Company was aware having made all reasonable enquiries, Sinochem HK held the voting right in respect of approximately 53.53% of the Company’s issued ordinary share capital as at the Latest Practicable Date; and no voting trust or other agreement or arrangement or understanding has been entered into by or was binding upon Sinochem HK and/or any of its associates and there was no other obligation or entitlement of Sinochem HK and/or any of its associates as at the Latest Practicable Date, whereby Sinochem HK and/or any of its associates has/have or may have temporarily or permanently passed control over the exercise of the voting rights in respect of its/their Shares to a third party, either generally or on a case-by-case basis.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you intend to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible but in any event, not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

Pursuant to the Bye-laws, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless voting by way of a poll is required by the Listing Rules or (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for poll) a poll is demanded (i) by the Chairman of the meeting; or (ii) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or (iii) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or (iv) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or (v) if required by the Listing Rules, by any Director or Directors, who, individually or collectively, hold proxies in respect of shares representing five per cent. or more of the total voting rights of all Shareholders having the right to vote at such meeting.

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LETTER FROM THE BOARD

11. Further information

The Independent Board Committee has been appointed to advise the Independent Shareholders in relation to the Transactions and the related proposed annual caps. Somerley has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard. Accordingly, your attention is drawn to the letter of advice from the Independent Board Committee set out on pages 28 to 29 of this circular, which contains its recommendation to the Independent Shareholders, and the letter from Somerley set out on pages 30 to 44 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

Your attention is also drawn to the general information set out in the Appendix to this circular.

Yours faithfully,

By the order of the Board of Sinochem Hong Kong Holdings Limited Du Ke Ping

Chief Executive Officer

– 27 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [69 x 68] intentionally omitted <==

SINOCHEM HONG KONG HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

Stock Code: 297

Independent non-executive directors: KO Ming Tung, Edward LI Ka Cheung, Eric TANG Tin Sek

Principal place of business: Units 4601-4610, 46th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

25 May 2006

To the Independent Shareholders

Dear Sirs or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular to the Shareholders dated 25 May 2006 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether, in our opinion, the entering into of the Transactions are in the interests of the Company and its Shareholders as a whole and the terms of which are fair and reasonable so far as the Independent Shareholders are concerned. Somerley has been appointed to advise the Independent Board Committee and the Independent Shareholders.

* For identification purposes only

– 28 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the “Letter from Somerley” as set out on pages 30 to 44 of the Circular. We have considered the terms and conditions of each of the Transactions, the advice of Somerley and the other factors contained in the “Letter from the Board” as set out on pages 6 to 27 of the Circular.

In our opinion, the terms of each of the Transactions, including the related annual caps, are fair and reasonable so far as the Independent Shareholders are concerned and the Transactions are in the interests of the Company and the Shareholders as a whole. We also consider that the Transactions are on normal commercial terms and in the ordinary course of business of the Group. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Transactions and the related annual caps.

Yours faithfully,

The Independent Board Committee of Sinochem Hong Kong Holdings Limited KO Ming Tung, Edward LI Ka Cheung, Eric TANG Tin Sek

– 29 –

LETTER FROM SOMERLEY

The following is the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [40 x 40] intentionally omitted <==

SOMERLEY LIMITED

Suite 2201, 22nd Floor Two International Finance Centre 8 Finance Street Central Hong Kong

25 May 2006

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders on the Transactions in relation to (i) the purchase of Canadian potash by Sinochem Macao from Canpotex; and (ii) the sale and purchase of fertilisers, fertiliser products and related raw materials (as the case may be) between the Group and various subsidiaries or associates of Sinochem Corporation (altogether, the “Sinochem Group”).

On 7 August 2003, the 2003 MOU was entered into between Sinochem Corporation and Canpotex, pursuant to which Canpotex agreed to supply Canadian potash to Sinochem Corporation during the three year period from 1 January 2004 to 31 December 2006. On 21 January 2005, Sinochem Macao, the then wholly-owned subsidiary of Sinochem Corporation assumed the rights and obligations of Sinochem Corporation under the 2003 MOU. Sinochem Macao became an indirect wholly-owned subsidiary of the Company as a result of the Company’s acquisition of the Fertiliser Group from Sinochem HK in July 2005 (the “Acquisition”). Details of the Acquisition were set out in the Circular. As at the Latest Practicable Date, Sinochem Macao remained an indirect wholly-owned subsidiary of the Company and Canpotex was an associated company of Potash which is a substantial Shareholder. Accordingly, Canpotex is a connected person of the Company and the supply of Canadian potash by Canpotex to Sinochem Macao which is expected to continue in the coming three years will constitute a continuing connected transaction of the Company under the Listing Rules. In the circumstances, on 10 April 2006, Canpotex and Sinochem Macao entered into the MOU which sets out the terms of the continuing connected transactions to be conducted during the three years ending 31 December 2009.

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LETTER FROM SOMERLEY

On 6 June 2005, Sinochem Fertiliser, which has become an indirect wholly-owned subsidiary of the Company following the Acquisition, and Sinochem Shandong, a non-wholly owned subsidiary of Sinochem Corporation who is the controlling Shareholder, entered into the Old Shandong Supply Agreement pursuant to which Sinochem Fertiliser shall supply potash fertilisers to Sinochem Shandong for the period commencing from the date of the Old Shandong Supply Agreement to 31 December 2007. The Old Shandong Supply Agreement constituted a continuing connected transaction of the Company under Rule 14A.16(5) of the Listing Rules subject to reporting, announcement and independent shareholders’ approval requirements. The Old Shandong Supply Agreement including the related annual caps (the “Old Caps”) was approved by the then independent Shareholders at the special general meeting held on 5 July 2005 (“2005 SGM”). Due to expansion in Sinochem Shandong’s business, its management now expects that, apart from the potash fertilisers agreed to be supplied by Sinochem Fertiliser to Sinochem Shandong under the Old Shandong Supply Agreement, Sinochem Shandong will also source other fertiliser related products and raw materials from Sinochem Fertiliser. The Company now estimates that the total annual transaction values arising from the supply of fertiliser related products and raw materials by Sinochem Fertiliser to Sinochem Shandong for the two years ending 31 December 2007 will exceed the Old Caps and therefore on 21 April 2006, the New Shandong Supply Agreement was entered into between the parties. Pursuant to the New Shandong Supply Agreement, the scope of products which Sinochem Fertiliser will provide to Sinochem Shandong is extended to other fertiliser related products and raw materials. The Old Shandong Supply Agreement will be terminated with effect from the date on which the New Shandong Supply Agreement becomes effective.

Beijing Sinochem Distribution which will be held as to 60% by Sinochem Fertiliser and 40% by Tianji Coal is being established. It is proposed that after the establishment of Beijing Sinochem Distribution which is expected to take place by end of May 2006, both Tianji Sinochem and Tianji Coal will grant rights to Beijing Sinochem Distribution to sell and distribute the fertiliser products and related raw materials produced by them in certain agreed territories in the PRC. The purchases of goods by Beijing Sinochem Distribution from Tianji Coal and Tianji Sinochem respectively will form continuing connected transactions of the Company for the reason that both Tianji Coal and Tianji Sinochem are connected persons of the Company within the meaning of the Listing Rules. Tianji Coal is a connected person as it will become a substantial shareholder of Beijing Sinochem Distribution, which will be an indirect non-wholly owned subsidiary of the Company after its establishment. Tianji Sinochem is held as to 60% by Tianji Coal and 40% by Sinochem Corporation. Tianji Sinochem is therefore an associate of both Sinochem Corporation and Tianji Coal who are connected persons of the Company within the meaning of the Listing Rules.

Under a separate arrangement with Sinochem Fertiliser, an indirect wholly-owned subsidiary of the Company, it is also proposed that Sinochem Fertiliser will purchase from Beijing Sinochem Distribution after the latter’s establishment fertiliser products and related raw materials that Beijing Sinochem Distribution will source from Tianji Sinochem and Tianji Coal as aforesaid mentioned.

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LETTER FROM SOMERLEY

In the circumstances, agreements will be entered into between Beijing Sinochem Distribution and each of Tianji Sinochem, Tianji Coal and Sinochem Fertiliser on or after the date of establishment of Beijing Sinochem Distribution (“Establishment Date”) which will set out the terms of the sale and purchase of fertiliser products and related raw materials to be conducted between the relevant parties for the period ending on 31 December 2008.

Since the Board expects that the annual consideration for each of the five types of the Transactions will be more than HK$10,000,000, the Company must comply with the Independent Shareholders’ approval requirements described in Rule 14A.48 of the Listing Rules, in addition to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules. In this connection, the Company will seek from Independent Shareholders the approval of the Transactions and the related proposed annual caps.

Details of the Transactions and the related proposed annual caps are set out in the letter from the Board contained in the circular of the Company to the Shareholders dated 25 May 2006 (the “2006 Circular”), of which this letter forms part. Unless otherwise defined herein, capitalised terms used in this letter shall have the same meanings as those defined in the 2006 Circular.

Potash and its associates will abstain from voting on the ordinary resolution to be proposed at the SGM to approve the MOU including the related proposed annual caps. Sinochem HK and its associates will abstain from voting on the ordinary resolutions to be proposed at the SGM to approve the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement and the New Shandong Supply Agreement including the related proposed annual caps. All of the aforesaid resolutions will be taken by way of poll.

The Independent Board Committee, comprising all of the three independent nonexecutive Directors, namely Mr. Ko Ming Tung, Edward, Mr. Li Ka Cheung, Eric and Mr. Tang Tin Sek, has been established to make a recommendation to the Independent Shareholders as regards to whether the terms of the Transactions are on normal commercial terms and in the ordinary course of business of the Group, and whether the Transactions (including the related proposed annual caps) are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. We, Somerley, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard. We confirm that we are independent from the Company and its connected persons, including the parties to the Transactions. We will receive a fee from the Company for this engagement. Save for this fee which is agreed between the Company and us on normal market rate, we are not entitled to any other fees or benefits, in cash or in kind, from the Company or its connected persons.

– 32 –

LETTER FROM SOMERLEY

In formulating our opinion and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group and have assumed that the information and facts provided and opinions expressed to us are true, accurate and complete in all material aspects at the time they were made and remain true, accurate and complete up to the time of the SGM. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have no reason to believe that any material information has been withheld from us, or doubt the truth or accuracy of the information provided. We have relied on such information and consider that the information we have received is sufficient for us to reach an informed view. We have not, however, conducted any independent investigation into the business and affairs of the Group, Canpotex, Potash or the Sinochem Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation on the terms of the Transactions, we have taken the following principal factors and reasons into consideration:

1. Background of and reasons for the Transactions

(a) MOU

The principal businesses of the Group are the procurement, production and sale of fertiliser and related products. Pursuant to the PRC law, only approved importers are allowed to import fertiliser products into the PRC. At present, only Sinochem Corporation and three other importers are granted the right to import fertiliser products into and freely distribute such imported fertilisers in the PRC. Sinochem Macao is the international procurement arm of the Group and sources fertiliser products from overseas and sell them to Sinochem Corporation. Sinochem Corporation, as an approved importer of fertiliser products in the PRC, will import the products and sell them all (except for any such products imported by Sinochem Corporation as an agent for other customers) to members of the Group in the PRC.

Canpotex, an associated company of Potash, is principally engaged in the marketing and distribution of potash internationally. Potash is incorporated in Canada with its shares listed on the Toronto Stock Exchange and the New York Stock Exchange. Potash is one of the world’s largest integrated fertiliser and related industrial and feed products manufacturing companies, and the world’s largest producer of potash fertiliser by capacity.

Canpotex has been a long standing supplier of the Fertiliser Group, which has become part of the Group after the Acquisition in July 2005. In 2002 and 2003, Canpotex entered into exclusive distribution arrangements with the Fertiliser Group for the distribution of its Canadian potash in the PRC. In 2003, their business cooperation was further strengthened through the 2003 MOU which sets for the ongoing supplies and

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LETTER FROM SOMERLEY

purchases of Canadian potash between the two parties for the three years from 1 January 2004 ending 31 December 2006. During the three years ended 31 December 2004, Canpotex supplied the Fertiliser Group with potash fertilizers and was the Fertiliser Group’s largest supplier in each of the financial year ended 31 December 2003 and 2004 and the second largest supplier in the year ended 31 December 2002. Purchases from Canpotex accounted for about 15.81%, 13.66% and 14.75% of the Fertiliser Group’s total cost of sales for the year ended 31 December 2002, 2003 and 2004 respectively. In year 2005, purchases from Canpotex accounted for about 10.38% of the Fertiliser Group’s total cost of sales for that year and Canpotex remained the Fertiliser Group’s largest supplier in 2005. The sales in the PRC of Canadian potash from Canpotex are primarily carried out by the Fertiliser Group and, through their established business relationship and supply arrangements, the volume of Canadian potash supplied to the PRC fertiliser market has increased. The management considers that the supply arrangements between Canpotex and Sinochem Macao are necessary and conducive to the Group’s sales operations. The Directors therefore consider that it would be in the interest of the Group to continue such arrangements upon the principal terms under the MOU.

(b) Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement

The transactions contemplated under the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement form part of a series of transactions arising from the overall joint venture arrangement involving Tianji Coal, Tianji Sinochem and Beijing Sinochem Distribution. Tianji Sinochem and Tianji Coal were set up in 2004 and 1988 respectively and they are both engaged in the production of fertiliser products in the PRC. As disclosed in the Circular, in order to minimise any potential competition between the Fertiliser Group and Tianji Sinochem, a sales arrangement pursuant to which 80% of the products of Tianji Sinochem will be sold to a sales company (to be owned as to 60% by Sinochem Fertiliser and 40% by Tianji Coal) for resale.

To this end, Beijing Sinochem Distribution is being established as that sales company and will principally be engaged in sale and distribution of fertiliser products and related raw materials. The above sales arrangement will be implemented under the Tianji Gaoping Distribution Agreement, pursuant to which Beijing Sinochem Distribution will be granted a right to sell the fertiliser products and related raw materials produced by Tianji Sinochem in the PRC (or such other territories as may be agreed between the parties). Tianji Sinochem undertakes to supply 80% of the fertiliser products and related raw materials it produces each year to Beijing Sinochem Distribution. Pursuant to the Tianji Coal Distribution Agreement, Tianji Coal has also agreed to supply its fertiliser products and related raw materials to Beijing Sinochem Distribution for resale in the Shandong and Jiangsu provinces, the PRC.

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LETTER FROM SOMERLEY

(c) Beijing Procurement Agreement

It is proposed that Beijing Sinochem Distribution will, following its establishment, supply fertiliser related products and raw materials to Sinochem Fertiliser, an indirect wholly-owned subsidiary of the Company. The principal business of Sinochem Fertiliser is investment holding, production and trading of fertilisers and related raw materials and products.

It is intended that the products and raw materials to be supplied to Sinochem Fertiliser by Beijing Sinochem Distribution would be those sourced by the latter from Tianji Sinochem and Tianji Coal under the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement respectively. As part of the abovementioned joint venture arrangements between Tianji Sinochem, Tianji Coal, Sinochem Fertiliser and Beijing Sinochem Distribution, only Beijing Sinochem Distribution will be granted the right to sell Tianji Sinochem’s and Tianji Coal’s products, for resale purpose. As a result, Sinochem Fertiliser will not be able to make direct purchases of these products from Tianji Sinochem and Tianji Coal, but has to purchase them from Beijing Sinochem Distribution.

(d) New Shandong Supply Agreement

Sinochem Shandong, a 51% owned subsidiary of Sinochem Corporation, has, since the completion of its first stage of construction at the end of 2004, been producing and selling nitrogen compound fertilisers in the PRC. Sinochem Fertiliser has been purchasing fertiliser products from Sinochem Shandong since mid-December 2004. As disclosed in the Circular, in order to avoid any potential competition between the Fertiliser Group and Sinochem Shandong, Sinochem Shandong had entered into a fertiliser purchase agreement with Sinochem Fertiliser in June 2005 under which Sinochem Shandong has agreed to sell all its fertiliser products to Sinochem Fertiliser (the “Shandong Purchase Agreement”). On the other hand, Sinochem Fertiliser and Sinochem Shandong entered into the Old Shandong Supply Agreement in June 2005 pursuant to which Sinochem Fertiliser shall supply potash fertilisers to Sinochem Shandong for two years ending 31 December 2007, subject to the maximum annual caps of the total purchase price payable to Sinochem Fertiliser of RMB209,520,000 for year 2006 and RMB383,760,000 for year 2007. Both the Shandong Purchase Agreement and the Old Shandong Supply Agreement had been duly approved by the then independent Shareholders at the 2005 SGM.

Due to the expansion in the business of Sinochem Shandong, its management now expects that, apart from the potash fertilisers agreed to be supplied by Sinochem Fertiliser to Sinochem Shandong under the Old Shandong Supply Agreement, Sinochem Shandong will also source other fertiliser products and raw materials from Sinochem Fertiliser. The Company now estimates that the total annual purchase price receivable by Sinochem Fertiliser from the supply of fertiliser products and raw materials to Sinochem Shandong for the two years ending 31 December 2007 will exceed the aforesaid Old Caps and therefore has entered into the New Shandong Supply Agreement with larger related proposed annual caps.

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LETTER FROM SOMERLEY

We consider that the entering into of the MOU, the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement and New Shandong Supply Agreement are in the ordinary course of business of the Group and in its interest as these agreements would enable the Group to secure suppliers and customers for fertiliser products during the tenures of the relevant agreements.

2. Principal terms of the Transactions

(a) MOU

Pursuant to the MOU, Sinochem Macao has agreed to purchase and Canpotex has agreed to supply an aggregate of 2.6 million, 2.8 million and 3 million metric tonnes of Canadian potash in the year ending 31 December 2007, 2008 and 2009 respectively. The aggregate quantity to be supplied in each year is subject to a 10% adjustment and the actual product mix for three types of potash could be adjusted according to market and supply conditions but the annual total volume will not be less than the amounts stipulated in the MOU. The purchase price shall be determined through arms length negotiation with reference to prevailing market prices consistent with longstanding procedures and practice between Canpotex and members of the Group. If a price cannot be mutually agreed upon in any of the three coming years ending 31 December 2009, the MOU will be deemed null and void after an exchange of letters confirming the parties are not able to reach agreement. Payments may be made by Sinochem Macao by way of letter of credit or such other means as may be agreed between the parties. Sinochem Macao will not buy Canadian potash from any source other than Canpotex. On the other hand, Canpotex will not sell Canadian potash to other parties in the PRC unless otherwise agreed between the parties.

(b) Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement

Pursuant to the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement, Beijing Sinochem Distribution will be granted rights to sell the fertiliser products and related raw materials produced by Tianji Sinochem in the PRC (or such other territories as may be agreed between the parties) and that produced by Tianji Coal in the Shandong and Jiangsu provinces, the PRC, for the period commencing from the effective date on which the Tianji Gaoping Distribution Agreement and Tianji Coal Agreement can take effect (as more particularly described in the letter from the Board in the 2006 Circular) to 31 December 2008. Tianji Sinochem undertakes to supply 80% of the fertiliser products and raw materials it produces each year to Beijing Sinochem Distribution. The management of the Group intends that suitable measures, including the provision production reports on a regular basis by Tianji Sinochem to Beijing Sinochem Distribution, will be put in place in due course to monitor that 80% of Tianji Sinochem’s products are sold to Beijing Sinochem Distribution throughout the term of the Tianji Gaoping Distribution Agreement. The products to be supplied by Tianji Sinochem and Tianji Coal may consist of nitrogen-based fertilisers, phosphate-based fertilisers, potash fertilisers and compound fertilisers.

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LETTER FROM SOMERLEY

In the event that Tianji Sinochem or Tianji Coal allows any other party to distribute its product in the restricted area which Beijing Sinochem Distribution has been granted the distribution right, Tianji Sinochem or Tianji Coal will have to pay Beijing Sinochem Distribution a compensation amounting to 5% of the total sales to the other parties. We consider this compensation term is fair to Beijing Sinochem Distribution and serves to protect the interests of the Company and its Shareholders as a whole.

The pricing policy stipulated in the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement is that each purchase shall be at fair market price in the PRC (or the territory at which they are to be sold) which will be determined by reference to the prevailing domestic wholesale prices for products of a similar nature at the time the purchase plan is submitted by Beijing Sinochem Distribution which has to be two months in advance of the purchase. Products and raw materials ordered will be delivered after Beijing Sinochem Distribution has fully paid for the purchase price.

(c) Beijing Procurement Agreement

Pursuant to the Beijing Procurement Agreement, Sinochem Fertiliser will purchase fertiliser related products and raw materials, the range of which may consist of nitrogen-based fertilisers, phosphate-based fertilisers, potash fertilisers and compound fertilizers and related raw materials from Beijing Sinochem Distribution for the period commencing from the date on which the Beijing Procurement Agreement can take effect (as more particularly described in the letter from the Board in the 2006 Circular) to 31 December 2008. The pricing policy stipulated in the Beijing Procurement Agreement is that each purchase shall be at a fair market price in the PRC which will be determined by reference to the prevailing domestic wholesale price for products of a similar nature at the time the purchase plan is submitted by Sinochem Fertiliser two months in advance of the purchase. Products and raw materials ordered will be delivered after Sinochem Fertiliser has fully paid for the purchase price.

(d) New Shandong Supply Agreement

Pursuant to the New Shandong Supply Agreement, Sinochem Fertiliser shall supply fertiliser related products and raw materials, the range of which may consist nitrogenbased fertilisers, phosphate-based fertilisers, potash fertilisers and compound fertilizers and related raw materials to Sinochem Shandong for its production for the period commencing from the date on which the New Shandong Supply Agreement becomes unconditional to 31 December 2007. The pricing policy stipulated in the New Shandong Supply Agreement is that the price of the fertilisers shall be set at fair market price in the PRC which will be determined by reference to the prevailing domestic wholesale price for products of a similar nature at the time the purchase plan is submitted by Sinochem Shandong two months in advance of the purchase. Products and raw materials ordered will be delivered after Sinochem Shandong has settled the purchase price.

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LETTER FROM SOMERLEY

Given the commodity nature of the fertiliser products, we consider that the basis for determining the prices for the fertiliser products to be transacted under the MOU, Tianji Gaoping Distribution Agreement, Tianji Coal Distribution Agreement, Beijing Procurement Agreement and New Shandong Supply Agreement which are set with reference to prevailing market prices, are fair and reasonable.

3. Comparison with terms with independent third parties

We have reviewed two memorandum of understanding between Sinochem Macao and two independent potash fertilisers with one from Jordan and one from Israel. We note that the terms under the MOU are no less favourable to the Group than the terms offered by the two aforesaid potash suppliers.

As Beijing Sinochem Distribution is being established, there is no transaction between Beijing Sinochem Distribution and independent third parties for comparison to those transactions contemplated under each of the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement. We have however reviewed sample contracts for purchase of fertiliser products by Sinochem Fertiliser from its three largest independent suppliers and noted that the terms to be offered to Beijing Sinochem Distribution by Tianji Sinochem and Tianji Coal under the Tianji Gaoping Distribution Agreement and the Tianji Coal Distribution Agreement respectively and the terms offered by Beijing Sinochem Distribution to Sinochem Fertiliser under the Beijing Procurement Agreement are no less favourable to the Group.

We have also compared the terms, including pricing and payment terms, of samples of the past transactions under the Old Shandong Supply Agreement (“Past Transactions”) with those similar transactions between Sinochem Fertiliser and six of its independent customers. From our review, we note that payment in advance before the delivery of products is common and is not contradictory to our market knowledge of the industry practice in the PRC that advance payment is the usual practice in the fertiliser industry in PRC. Based on our review and after due enquiry with the management of the Company, we consider that the Past Transactions were no less favourable to Sinochem Fertiliser than those offered by independent third parties. As the New Shandong Supply Agreement adopts the same pricing and payment terms as the Old Shandong Supply Agreement, we consider such terms to be fair and reasonable for the Group.

4. Annual caps

The Transactions are subject to the Listing Rules requirements and conditions as more particularly discussed under the section headed “Reporting requirements and conditions of the Transactions” below. In particular, the Transactions are subject to the proposed related annual caps as discussed below.

Assessment of the annual caps

In assessing the reasonableness of the proposed annual caps, we have discussed with the Directors the basis and assumptions underlying the projections of the annual caps.

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LETTER FROM SOMERLEY

(a) MOU

Set out below are the proposed annual caps for the continuing connected transaction under the MOU for each of the three years ending 31 December 2009:

		Year ending	Year ending	Year ending
		31 December	31 December	31 December
		2007	2008	2009
		(HK$’ billion)	(HK$’ billion)	(HK$’ billion)
Annual	caps	4.3	5.3	6.3

The proposed annual cap for the MOU of HK$4.3 billion for the year ending 31 December 2007 represents an increase of approximately 26.5% when compared to the annual cap of approximately HK$3.4 billion for the year ending 31 December 2006 under the 2003 MOU. The proposed annual caps for 2008 and 2009 represent a further year-on-year growth of approximately 23.3% and 18.9% respectively. Pursuant to the MOU, Sinochem Macao has agreed to purchase and Canpotex has agreed to supply Canadian potash at an aggregate of 2.6 million, 2.8 million and 3 million metric tonnes for each of the three years ending 31 December 2009. The aggregate quantity to be supplied in each year is subject to a 10% adjustment. In estimating the projected quantities of purchase, the management of the Group has made reference to value of historical purchase of Canadian potash by the Fertiliser Group from Canpotex, the increasing demand for potash in the PRC market and the increasing recognition of Canadian potash imports into the PRC. The increase in annual caps is projected with an expected growth in quantity plus allowance for possible rise in the average price of import fertilizers due to inflation.

(b) Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement

Pursuant to the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement, Tianji Sinochem and Tianji Coal will grant to Beijing Sinochem Distribution rights to distribute their fertiliser products and raw materials. Accordingly, for the purpose of setting the proposed annual caps for the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement, the quantities of fertiliser products to be purchased from Tianji Sinochem and Tianji Coal are estimated based on the planned production capacity of Tianji Sinochem and Tianji Coal, with a uniform average unit price for the whole period from 2006 to 2008.

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LETTER FROM SOMERLEY

Based on Tianji Sinochem’s production capacity in the next three years, it is expected that the transaction amount under the Tianji Gaoping Distribution Agreement will reach 240,000 tonnes, 480,000 tonnes and 480,000 tonnes in 2006, 2007 and 2008 respectively. Based on Tianji Coal’s production capacity and the growing trend of fertiliser market in Shandong and Jiangsu provinces, the PRC, it is expected that the transaction amount under the Tianji Coal Distribution Agreement will reach 50,000 tonnes, 100,000 tonnes and 150,000 tonnes in 2006, 2007 and 2008 respectively. According to the average market prices of the relevant products in the past two years and the market trend in the next three years, the Group’s forecast annual caps for 2006 to 2008 of the above continuing connected transaction will be as follows:

	Period ending
	31 December	Year ending 31 December
	2006*	2007	2008
Tianji Gaoping
Distribution Agreement
Quantity (tonnes)	240,000	480,000	480,000
Estimated price per tonne
(RMB)	1,650	1,650	1,650
Estimated transaction value (i)
(RMB’ million)	396	792	792
Tianji Coal Distribution
Agreement
Quantity (tonnes)	50,000	100,000	150,000
Estimated price per tonne
(RMB)	1,700	1,700	1,700
Estimated transaction value (ii)
(RMB’ million)	85	170	255
Annual caps (i) + (ii)
(RMB’ million)	481	962	1,047

• It is expected that supplies under the Tianji Gaoping Distribution Agreement and Tianji Coal Distribution Agreement will commence no earlier than June 2006 pending establishment of Beijing Sinochem Distribution and fulfillment of, among others, the necessary Independent Shareholders’ approval at the SGM.

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LETTER FROM SOMERLEY

(c) Beijing Procurement Agreement

It is expected that the transaction amount between Sinochem Fertiliser and Beijing Sinochem Distribution will reach 290,000 tonnes, 580,000 tonnes and 630,000 tonnes in 2006, 2007 and 2008 respectively. According to the average market prices of the relevant products in the last two years and the market trend in the next three years, the management derived the following proposed annual caps based on the estimated average price of nitrogen fertiliser and phosphate fertiliser of RMB1,650 per tonne and RMB1,700 per tonne respectively.

		Period ending
		31 December	**Year ending **	31 December
		2006*	2007	2008
		(RMB’ million)	(RMB’ million)	(RMB’ million)
Annual	cap	481	962	1,047

• It is expected that the transactions contemplated under the Beijing Procurement Agreement will commence no earlier than June 2006 pending establishment of Beijing Sinochem Distribution and fulfillment of, among others, the necessary Independent Shareholders’ approval at the SGM.

(d) New Shandong Supply Agreement

The fertiliser products and raw materials purchased from Sinochem Fertiliser are the ingredients needed by Sinochem Shandong in its production of compound fertiliser products. The proposed annual caps are therefore estimated on the basis of the expected production capacity of Sinochem Shandong of compound fertilisers. The proposed annual caps have also provided for a rise in the unit price of potash fertiliser in view of the substantial rise in the sale price of such products by 24.6% in 2004. We consider the proposed annual caps provide reasonable buffers to cater for the possible increase in the purchase prices.

The annual output of Sinochem Shandong was 170,000 tonnes in 2005 and it is expected that the annual output will reach 400,000 tonnes in both 2006 and 2007. With the rapid growth of the business and the increasing output of Sinochem Shandong, the ongoing supply to Sinochem Shandong will expand from potash fertiliser to other fertiliser products and raw materials. We are informed by the Company that Sinochem Shandong will purchase potash fertiliser exclusively from Sinochem Fertiliser as well as more than 30% other kinds of fertiliser products and raw materials, and in 2007, such percentage will increase to about 50%.

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LETTER FROM SOMERLEY

It is expected that the transaction amount between Sinochem Fertiliser and Sinochem Shandong will reach 230,000 tonnes and 280,000 tonnes in 2006 and 2007 respectively. Based on the average market price of the relevant products in the last two years and the estimated market trend in the next three years, the management derived the following proposed annual caps based on the estimated average price of nitrogen fertiliser, magnesium fertiliser and phosphate fertiliser of RMB1,800 per tonne, RMB1,850 per tonne and RMB1,850 per tonne respectively.

		Period ending	Year ending
		31 December	31 December
		2006*	2007
		(RMB’ million)	(RMB’ million)
Annual	cap	424.6	508.6

• It is expected that the transactions contemplated under the New Shandong Supply Agreement will commence no earlier than June 2006 pending fulfillment of, among others, the necessary Independent Shareholders’ approval at the SGM.

Having considered the basis on which the related proposed annual caps for the Transactions are determined as described above, we are of the view that the related proposed annual caps for the Transactions are fair and reasonable. The Transactions are subject to annual review and confirmation of due compliances by the independent non-executive Directors and the Company’s auditors, detailed requirements are set out in the following paragraph. Such annual review shall safeguard the interests of the Independent Shareholders.

5. Reporting requirements and conditions of the Transactions

Pursuant to Rules 14A.37 to 14A.40 of the Listing Rules, the Transactions are subject to the following annual review requirements:

• (a) each year the independent non-executive Directors must review the Transactions and confirm in the annual report and accounts that the Transactions have been entered into:

• (i) in the ordinary and usual course of business of the Group;

• (ii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and

• (iii) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

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LETTER FROM SOMERLEY

• (b) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report) confirming that the Transactions:

• (i) have received the approval of the Board;

• (ii) are in accordance with the pricing policies of the Group;

• (iii) have been entered into in accordance with the relevant agreements governing the transactions; and

• (iv) have not exceeded the relevant annual caps;

• (c) the Company shall allow, and shall procure the relevant counterparties to the Transactions to allow, the Company’s auditors sufficient access to their records for the purpose of the reporting on the Transactions as set out in paragraph (b); and

• (d) the Company shall promptly notify the Stock Exchange and publish an announcement in the newspaper if it knows or has reason to believe that the independent non-executive Directors and/or auditors of the Company will not be able to confirm the matters set out in paragraphs (a) and/or (b) respectively.

In light of the reporting requirements attached to the Transactions, in particular, (i) the restriction of the value of the Transactions by way of the annual caps; and (ii) the ongoing review by the independent non-executive Directors and auditors of the Company of the terms of the Transactions and the annual caps not being exceeded, we are of the view that appropriate measures will be in place to govern the conduct of the Transactions and safeguard the interests of the Independent Shareholders.

DISCUSSION AND ANALYSIS

Demand for fertilisers will be driven largely by population growth and demand for farm products. China has approximately 7% of the world’s arable land and approximately 22% of the world population, of whom approximately 71% are engaged in agricultural industry. As such, the use of fertilisers is crucial to agricultural productivity in the PRC. Based on the China Statistical Yearbook 2004, the compound annual growth rate of nitrogen-based fertilisers, phosphate-based fertilisers, potash fertilisers and compound fertilisers from 1994 to 2003 are of 1.49%, 1.95%, 7.16% and 7.05% respectively. Sinochem Corporation is currently one of the four entities permitted under PRC law to import fertiliser products into and freely distribute such imported fertilisers in the PRC since 1992. Sinochem Corporation has a leading market position as the largest importer of fertiliser products in the PRC in terms of import volume and its established track record in the fertiliser business offering a comprehensive range of fertiliser and agricultural related products. We consider that the entering into of the MOU, the Tianji Gaoping Distribution Agreement, the Tianji Coal Distribution Agreement, the Beijing Procurement Agreement and New Shandong Supply Agreement with various members of the Sinochem Group are in the interests of the Group as these agreements would enable the Group to secure suppliers and customers for fertiliser products in the coming years.

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LETTER FROM SOMERLEY

The consumption of potash fertilisers grew faster than other types of fertilisers at a compound annual growth rate of 7.16% from 1994 to 2003. China has a high demand on imported potash fertilisers mainly due to the fact that the soil in the PRC lacks potassium due to the exclusive use of nitrogen-based fertilisers for a prolonged period. Based on (China Fertiliser Information Net) established by (China National Chemical Information Center), a PRC official research and information center on chemical industry, the volume of imported potash fertilisers in 2003 and 2004 accounted for over 50% of the total volume of fertilisers imported for the relevant year. The exclusivity arrangement under the MOU would enhance the long-term strategic relationship between the Group and Canpotex and would ensure that the Group has a stable supply of Canadian potash from one of the world’s largest potash suppliers.

We consider the prices and payment terms for the Transactions, which are to be determined by reference to prevailing market prices and market practices, to be fair and reasonable.

OPINION

Having taking into account the above principal factors and reasons, we consider that the Transactions are on normal commercial terms and in the ordinary and usual course of business of the Group, and that the Transactions (including the related proposed annual caps) are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of all the ordinary resolutions to be proposed at the SGM to approve the Transactions (including related proposed annual caps).

Yours faithfully, for and on behalf of SOMERLEY LIMITED Mei H. Leung Deputy Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. INTERESTS IN SECURITIES

(a) Interests and short positions of Directors and chief executive in shares and debentures

As at the Latest Practicable Date, the Directors and chief executive of the Company had the following interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which had 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, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

	Number of underlying
	Shares of unlisted
	physically settled	Approximate
	equity derivatives	percentage of total
Name of Director	beneficially held	issued Shares
	(Note)
Liu De Shu	2,033,000	0.04%
Song Yu Qing	1,582,000	0.03%
Du Ke Ping	5,213,000	0.09%
Chen Guo Gang	1,582,000	0.03%
Harry Yang	1,582,000	0.03%

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GENERAL INFORMATION

APPENDIX

Note: The interests of the Directors and chief executive pursuant to unlisted physically settled equity derivatives are held through unlisted share options granted to them in their personal capacities under the share option scheme adopted by the Company on 26 August 2002. Details of these options are as follows:

	Number of
	Shares in
	which		Exercise	Exercise
Name	interested*	Date of grant	price	period
Liu De Shu	2,033,000	23-1-2006	HK$1.672	23-1-2008 to
				22-1-2012
Song Yu Qing	1,582,000	23-1-2006	HK$1.672	23-1-2008 to
				22-1-2012
Du Ke Ping	5,213,000	23-1-2006	HK$1.672	23-1-2008 to
				22-1-2012
Chen Guo Gang	1,582,000	23-1-2006	HK$1.672	23-1-2008 to
				22-1-2012
Harry Yang	1,582,000	23-1-2006	HK$1.672	23-1-2008 to
				22-1-2012

* The number of options held by each person is the same as the number of underlying Shares in which that person is interested pursuant to the options.

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

(b) Notifiable interests and short positions of substantial shareholders and other persons in Shares

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following substantial shareholders of the Company within the meaning of the Listing Rules and other persons (in each case other than the Directors and chief executive of the Company) had an interest or a short position in Shares or 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:

	Interests in Shares	Interests in Shares
		Approximate
	Number of	percentage of
	Shares	total issued
Name of substantial shareholder	involved	Shares
Sinochem Corporation (Note 1)	4,270,453,301	73.53%
Potash (Note 2)	4,270,453,301	73.53%

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GENERAL INFORMATION

APPENDIX

Notes:

1. These Shares represent the corporate interest of Sinochem Corporation held through its wholly-owned subsidiary, Sinochem HK. The interests consist of (a) 3,108,863,335 Shares directly held by Sinochem HK and (b) 1,161,589,966 Shares held by Potash in which Sinochem HK is deemed to have an interest under sections 317 and 318 of the SFO.

2. These Shares represent the corporate interest of Potash held through its wholly-owned subsidiary, PCS (Barbados) Investment Company Limited. The interests consist of (a) 1,161,589,966 Shares directly held by PCS (Barbados) Investment Company Limited and (b) 3,108,863,335 Shares held by Sinochem HK in which Potash is deemed to have an interest under sections 317 and 318 of the SFO.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any substantial shareholder of the Company within the meaning of the Listing Rules or other person (in each case other than a Director or chief executive of the Company) who had, as at the Latest Practicable Date, an interest or a short position in Shares or underlying Shares which was required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO.

(c) Interests in 10% or more of shares in subsidiaries

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following are the persons who (not being a member of the Group or a Director or chief executive of the Company) 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 the subsidiaries of the Company or in any options in respect of such capital:

==> picture [378 x 244] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|Approximate|
|percentage|of|
|Number|of|the|existing|
|shares|held|or|issued|share|
|extent|of|capital|or|
|registered|registered|
|capital|in|which|capital|of|the|
|Name|of|subsidiary|Name|of|shareholder|interested|subsidiary|
|(Fujian|RMB22,000,000|46.81%|
|Sinochem|Zhisheng|Chemical|(Yongan|Zhisheng|
|Fertilizer|Company|Limited)|Chemical|Company|
|Limited)|
|(Hubei|(Hubei|RMB4,500,000|45%|
|Sinochem|Dongfang|Chemical|Dongfang|Agricultural|
|Fertilizer|Company|Limited)|Center)|
|RMB31,000,000|60%|
|(Sinochem|Chongqing|Fuling|(Chongqing|Fuling|
|Chemical|Engineering|Company|District|Finance|Bureau)|
|Limited)|
|RMB580,000|29%|
|(Sinochem|Yantai|Crop|Nutrition|(Yantai|City|Houdao|
|Co.,|Ltd)|Fertilizer|Company|
|Limited)|
|RMB400,000|20%|
|(Sinochem|Yantai|Crop|Nutrition|(Yantai|Gang|Group|
|Co.,|Ltd)|Company|Limited)|

----- End of picture text -----

– 47 –

GENERAL INFORMATION

APPENDIX

==> picture [378 x 287] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|Approximate|
|percentage|of|
|Number|of|the|existing|
|shares|held|or|issued|share|
|extent|of|capital|or|
|registered|registered|
|capital|in|which|capital|of|the|
|Name|of|subsidiary|Name|of|shareholder|interested|subsidiary|
|RMB1,200,000|40%|
|(Tianjin|Beifang|Chemical|(Tianjin|Port|No.|4|
|Fertilizer|Logistics|and|Delivery|Stevedoring|Company)|
|Company|Limited)|
|(Guizhou|200,000|40%|
|Kaiyang|Qinglongjiang|Company|(Chen|Yongliang)|
|Limited)|
|RMB4,415,268|43.16%|
|(Chongqing|Fuyin|Plastic|(Boshide|Plastic|
|Company|Limited)|Company|Limited)|
|247,500|49.5%|
|(Fengdou|Tengsheng|Agricultural|(Fengdou|Province|
|Material|Company|Limited)|Agricultural|Material|
|Supply|Station)|
|19,600,000|49%|
|(Chongqing|Fuling|(Fuling|Water|Power|
|Qilixin|Tiegongshui|Transport|Electricity|Investment|
|Company|Limited)|Group)|
|200,000|20%|
|(Chongqing|Tengsheng|(Chongqing|Fuling|
|Agricultural|Production|Xinlan|Chemical|
|Resources|Company|Limited)|Industrial|Company|
|Limited|

----- End of picture text -----

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any person (other than a member of the Group or a Director or chief executive of the Company) who was, as at the Latest Practicable Date, 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 the subsidiaries of the Company or in any options in respect of such capital.

3. DIRECTORS’ SERVICE CONTRACTS

Mr. Du Ke Ping, an executive Director and the Chief Executive Officer of the Company, has entered into a director’s service contract with the Company for a term of 3 years commencing with effect from 28 July 2005, subject to early termination (i) by either party serving a written notice of not less than two months on the other; or (ii) by the Company by reason of the Director’s bankruptcy, ill-health or other material defaults specified in the service contract. In addition, Mr. Du is subject to retirement by rotation and is eligible for re-election at annual general meetings of the Company in the manner provided under the Bye-laws. Pursuant to the contract, Mr. Du is entitled to a fixed director’s fee of HK$1,133,688 per annum and housing allowance of not more than HK$1,200,000 per annum (payable to the extent of accommodation expenses actually incurred by him), in each case as determined by, and subject to annual review of, the Remuneration Committee of the Board. As at the Latest Practicable Date, no accommodation expenses had been incurred by Mr. Du. If the Company terminates the contract prior to the expiry of its term and other than in circumstances described in (ii) above, Mr. Du will be entitled to receive a cash compensation equivalent to 11 months of the annual fixed director’s fee then payable to him. Pursuant to the contract, Mr. Du may receive end-of-year bonuses ranging from HK$566,844 to HK$1,700,532 per annum (or such other

– 48 –

GENERAL INFORMATION

APPENDIX

amount as the Company may agree to from time to time). The actual amount of the bonus payable for any year will be determined by reference to the Company’s performance for the relevant year and is subject to adjustment of not more than 20% by the Remuneration Committee of the Board.

Mr. Harry Yang, an executive Director and Deputy General Manager of the Company, has entered into a director’s service contract with the Company for a term of 3 years commencing with effect from 6 March 2006, subject to early termination (i) by either party serving a written notice of not less than two months on the other; or (ii) by the Company by reason of the Director’s bankruptcy, ill-health or other material defaults specified in the service contract. In addition, Mr. Yang is subject to retirement by rotation and is eligible for re-election at annual general meetings of the Company in the manner provided under the Bye-laws. According to the service contract, Mr. Yang is entitled to a fixed director’s fee of HK$1,050,000 per annum and housing allowance of not more than HK$720,000 per annum (payable to the extent of accommodation expenses actually incurred by him), in each case as determined by, and subject to annual review of, the Remuneration Committee of the Board. As at the Latest Practicable Date, the accommodation expenses actually incurred by Mr. Yang were HK$22,036. If the Company terminates the contract prior to the expiry of its term and other than in circumstances described in (ii) above, Mr. Yang will be entitled to receive a cash compensation equivalent to 11 months of the annual fixed director’s fee then payable to him. Pursuant to the contract, Mr. Yang may receive end-of-year bonuses ranging from HK$425,000 to HK$1,275,000 per annum (or such other amount as the Company may agree to from time to time). The actual amount of the bonus payable for any year will be determined by reference to the Company’s performance for the relevant year and is subject to adjustment of not more than 20% by the Remuneration Committee of the Board.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into any service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation).

4. COMPETING INTERESTS

As at the Latest Practicable Date, Mr. Du Ke Ping, an executive Director and the chief executive officer of the Company, was also a director of Sinochem Shandong and US Agri-Chemicals Corporation and Mr. Harry Yang, an executive Director, was a director of US Agri-Chemicals Corporation. Sinochem Shandong and US Agri-Chemicals Corporation are held as to 51% and 100% by Sinochem Corporation respectively. As described in the Circular, Sinochem Shandong and US Agri-Chemicals Corporation are members of the group comprising Sinochem Corporation and its subsidiaries (other than the Group) which continue to be engaged in the production of fertilizers. As at the Latest Practicable Date, Sinochem Shandong continued to be engaged in the production of fertilizer while US Agri-Chemicals Corporation has ceased its operation since November 2005.

Save as disclosed, as at the Latest Practicable Date, none of the Directors and their respective associates was interested in any business apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with the business of the Group.

– 49 –

GENERAL INFORMATION

APPENDIX

5. OTHER ARRANGEMENTS INVOLVING DIRECTORS

As at the Latest Practicable Date:

• (a) none of the Directors was materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group; and

• (b) none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2005 (the date to which the latest published audited accounts of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited financial statements of the Company were made up.

7. EXPERT

• (a) The following is the qualification of the expert who has given its opinions or advice which are contained in this circular:

Name

Qualification

Somerley Limited a corporation licensed under the SFO to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO

• (b) As at the Latest Practicable Date, Somerley had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) As at the Latest Practicable Date, Somerley had no direct or indirect interest in any assets which had been, since 31 December 2005 (the date to which the latest published audited accounts of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

• (d) Somerley has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter and the reference to its name included herein in the form and context in which they respectively appear.

– 50 –

GENERAL INFORMATION

APPENDIX

8. GENERAL

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company at Units 4601-4610, 46th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including 9 June 2006:

• (a) the Bye-laws;

• (b) the MOU;

• (c) the Tianji Gaoping Distribution Agreement;

• (d) the Tianji Coal Distribution Agreement;

• (e) the Beijing Procurement Agreement;

• (f) the New Shandong Supply Agreement;

• (g) the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 28 to 29 of this circular;

• (h) the letter of advice from Somerley, the text of which is set out on pages 30 to 44 of this circular;

• (i) the written consent of Somerley referred to in the section headed “Expert” in this appendix; and

• (j) the service contracts referred to in the section headed “Directors’ service contracts” in this appendix.

– 51 –

NOTICE OF SGM

==> picture [69 x 68] intentionally omitted <==

SINOCHEM HONG KONG HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

Stock Code: 297

NOTICE IS HEREBY GIVEN that a special general meeting of Sinochem Hong Kong Holdings Limited (the “ Company ”) will be held at 10:00 a.m. on Friday, 9 June 2006 or immediately after conclusion of the annual general meeting of the Company to be held on the same day, whichever is later, at Salon I, II & III, Mezzanine Floor, Grand Hyatt Hotel Hong Kong, 1 Harbour Road, Wanchai, Hong Kong for the purposes of considering and, if thought fit, passing with or without modifications the Resolutions numbered 1 to 5 below as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT :

2. (a) the MOU (as defined and described in the circular to the shareholders of the Company dated 25 May 2006 (“Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

3. (b) the proposed maximum aggregate annual values of the transactions under the MOU as described in the Circular be and are hereby approved; and

4. (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the MOU and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the MOU which in their opinion is not of a material nature and to effect or implement any other matters referred to in this Resolution.”

* For identification purposes only

– 52 –

NOTICE OF SGM

1. “ THAT :

2. (a) the Tianji Gaopoing Distribution Agreement (as defined and described in the circular to the shareholders of the Company dated 25 May 2006 (“Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved;

3. (b) the proposed maximum aggregate annual values of the transactions under the Tianji Gaoping Distribution Agreement as described in the Circular be and are hereby approved; and

4. (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver the Tianji Gaoping Distribution Agreement and all such other documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the execution or implementation of the Tianji Gaoping Distribution Agreement and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Tianji Gaoping Distribution Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this Resolution.”

3. “ THAT :

• (a) the Tianji Coal Distribution Agreement (as defined and described in the circular to the shareholders of the Company dated 25 May 2006 (“Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved;

• (b) the proposed maximum aggregate annual values of the transactions under the Tianji Coal Distribution Agreement as described in the Circular be and are hereby approved; and

• (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver the Tianji Coal Distribution Agreement and all such other documents and do all such deeds, acts, matters, and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the execution or implementation of the Tianji Coal Distribution Agreement and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Tianji Coal Distribution Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this Resolution.”

– 53 –

NOTICE OF SGM

4. “ THAT :

• (a) the Beijing Procurement Agreement (as defined and described in the circular to the shareholders of the Company dated 25 May 2006 (“Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved;

• (b) the proposed maximum aggregate annual values of the transactions under the Beijing Procurement Agreement as described in the Circular be and are hereby approved; and

• (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver the Beijing Procurement Agreement and all such other documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the execution or implementation of the Beijing Procurement Agreement and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Beijing Procurement Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this Resolution.”

• “ THAT :

• (a) the New Shandong Supply Agreement (as defined and described in the circular to the shareholders of the Company dated 25 May 2006 (“Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

• (b) the proposed maximum aggregate annual values of the transactions under the New Shandong Supply Agreement as described in the Circular be and are hereby approved; and

– 54 –

NOTICE OF SGM

• (c) the directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the New Shandong Supply Agreement and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the New Shandong Supply Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this Resolution.”

By Order of the Board of Sinochem Hong Kong Holdings Limited Navin Aggarwal Secretary

Hong Kong, 25 May 2006

Notes:

1. The register of members of the Company will be closed from 5 June 2006 to 9 June 2006, both days inclusive, during which period no transfer of shares of the Company will be registered. In order to qualify for voting at the special general meeting of the Company, all transfers of shares of the Company accompanied by the relevant share certificates must be lodged for registration with the Company’s branch share registrar in Hong Kong, Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, by not later than 4:00 p.m. on 2 June 2006.

2. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.

3. To be valid, a proxy form, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of that power or authority, must be deposited at the branch share registrar and transfer office of the Company in Hong Kong, Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for the holding of the meeting or any adjournment thereof.

4. Where there are joint holders of any ordinary share of the Company, any one of such holders may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

5. Voting of the ordinary resolutions set out in this notice will be by poll.

6. As at the date of this notice, the executive directors of the Company are Mr. Du Ke Ping (Chief Executive Officer) and Mr. Harry Yang; the non-executive directors are Mr. Liu De Shu (Chairman), Mr. Song Yu Qing (Deputy Chairman), Mr. Chen Guo Gang, Mr. Stephen Francis Dowdle and Mr. Wade Fetzer III; and the independent non-executive directors are Mr. Ko Ming Tung, Edward, Mr. Li Ka Cheung, Eric and Mr. Tang Tin Sek.

– 55 –