CWT International Limited — Proxy Solicitation & Information Statement 2010

Jan 11, 2010

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 a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Sinofert Holdings Limited, you should at once hand this circular 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.

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

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SINOFERT HOLDINGS LIMITED

*

(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 Board is set out on pages 4 to 9 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 10 of this circular. A letter from Somerley, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 11 to 18 of this circular.

A notice for convening the SGM to approve the continuing connected transactions, together with the proxy form for such purpose, will be dispatched separately to the Shareholders as soon as practicable.

* For identification purposes only

12 January 2010

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
SPM MOU with PCS Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
MP MOU with PCS Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reasons for the Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Proposed Annual Caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from Somerley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

– i –

DEFINITIONS

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

• “associate(s)” has the meaning ascribed to it in the Listing Rules

• “Board” the board of Directors of the Company

• “Bond”

• the HK$1,300,000,000 listed zero coupon convertible bonds due 2011 issued by the Company on 7 August 2006

• “Company” Sinofert Holdings Limited, a company incorporated in Bermuda with limited liability, the ordinary shares of which are listed on the Stock Exchange

• “connected person(s)” has the meaning ascribed to it in the Listing Rules

• “Director(s)” the director(s) of the Company

• “Former MOU”

• a legally binding memorandum of understanding entered into on 10 January 2007 by and on behalf of Sinochem Macao and PCS Sales under which the parties agreed to enter into transactions for the supply by PCS Sales of sulfate of potash magnesia for a maximum term of three years ended 31 December 2009

• “Group” the Company and its subsidiaries

• “HK$” Hong Kong dollars, the lawful currency in Hong Kong

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee” the independent board committee of the Company formed to consider the terms of the SPM MOU and the MP MOU (together with the respective transactions contemplated thereunder)

• “Independent Shareholders” Shareholders other than Potash and its associates

• “Latest Practicable Date”

• 5 January 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

– 1 –

DEFINITIONS

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

• “Macao” the Macao Special Administrative Region of the PRC “MOUs” the SPM MOU and the MP MOU

• “MP MOU” a legally binding memorandum of understanding entered into on 21 December 2009 by and on behalf of Sinochem Macao and PCS Sales under which the parties agreed to enter into transactions for the supply by PCS Sales of muriate of potash for a maximum term of three years ending 31 December 2012

• “PCS Sales” PCS Sales (USA), Inc., an associate of Potash under the Listing Rules by virtue of it being a wholly-owned subsidiary of Potash

• “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 and for the purpose of this circular excluding Taiwan, Hong Kong and Macao

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

• “SFO”

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

• “SGM” a special general meeting of the Company to be held to approve the MOUs and the transactions contemplated thereunder, the notice of which is to be dispatched separately to the Shareholders as soon as practicable

• “Share(s)” ordinary share(s) of HK$0.10 each in the capital of the Company

• “Shareholder(s)” registered holder(s) of Share(s) “Sinochem Group” (Sinochem Group), a state-owned enterprise established in the PRC

– 2 –

DEFINITIONS

• “Sinochem Fertilizer”

• (Sinochem Fertilizer Company

• Limited), a wholly foreign owned enterprise established in the PRC and an indirect wholly-owned subsidiary of the Company

• “Sinochem Macao”

• Sinochem Fertilizer Macao Commercial Offshore Limited, a company incorporated in Macao, an indirect wholly-owned subsidiary of the Company

• “Somerley” or “Independent Financial Adviser”

• 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 SFO, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the MOUs and the transactions contemplated thereunder (including the annual caps)

• “SPM MOU”

• a legally binding memorandum of understanding entered into on 21 December 2009 by and on behalf of Sinochem Macao and PCS Sales under which the parties agreed to enter into transactions for the supply by PCS Sales of sulfate of potash magnesia for a maximum term of three years ending 31 December 2012

• “Stock Exchange”

• The Stock Exchange of Hong Kong Limited

• “subsidiary(ies)”

• “substantial shareholder”

• has the same meaning ascribed to it in the Listing Rules has the same meaning ascribed to it in the Listing Rules

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

For the purposes of illustration only, US$ is translated into HK$ at the rate of US$1.00 = HK$7.7555. No representation is made that any amount in US$ has been or could be converted at the above rate or at any other rates or at all.

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LETTER FROM THE BOARD

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SINOFERT HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

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

Non-executive Directors: LIU De Shu (Chairman) CHEN Guo Gang Stephen Francis DOWDLE Wade FETZER III

Independent non-executive Directors: KO Ming Tung, Edward TANG Tin Sek TSE Hau Yin, Aloysius

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

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

12 January 2010

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

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to (i) the announcement of the Company dated 11 January 2007 in relation to, among others, the Former MOU which expired on 31 December 2009 and (ii) the announcement of the Company dated 22 December 2009 in relation to the MOUs and the transactions contemplated thereunder, which are subject to the reporting, announcement and independent shareholders’ approval requirements as set out in Rule 14A.35 of the Listing Rules.

On 21 December 2009, Sinochem Macao and PCS Sales entered into the SPM MOU, under which PCS Sales will supply sulfate of potash magnesia to Sinochem Macao for a

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LETTER FROM THE BOARD

maximum of three years from 1 January 2010 to 31 December 2012. In addition, on 21 December 2009, Sinochem Macao and PCS Sales entered into the MP MOU, under which PCS Sales will supply muriate of potash to Sinochem Macao for a maximum of three years from 1 January 2010 to 31 December 2012.

PCS Sales is a wholly-owned subsidiary of Potash. As Potash is a substantial shareholder of the Company, PCS Sales is a connected person of the Company by virtue of being an associate of Potash. Accordingly, the continuing transactions between Sinochem Macao and PCS Sales represent continuing connected transactions for the Company under the Listing Rules.

The purpose of this circular is to provide you with (i) further information on the details of the MOUs and the transactions contemplated thereunder; (ii) the letter of recommendation from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders; and (iv) other information as required under the Listing Rules.

SPM MOU WITH PCS SALES

Date: 21 December 2009 Parties: (i) PCS Sales (a wholly-owned subsidiary of Potash), which is principally engaged in the sales and marketing of products produced by Potash. Potash is the largest potash producer in the world; and (ii) Sinochem Macao, which is principally engaged in sourcing fertilizer products and other related agricultural products for the Group from overseas suppliers.

Nature of transaction

Under the SPM MOU, PCS Sales agreed to supply, and Sinochem Macao agreed to purchase, sulfate of potash magnesia.

Pricing and payment

During the effective period under the SPM MOU, prices for the sulfate of potash magnesia to be supplied will be determined through arm’s length negotiations between the parties with reference to prevailing market conditions. The Directors, other than the independent non-executive Directors who express their opinion in a separate letter included in the circular, consider that the pricing reflects normal commercial terms and is on terms no less favourable than those available from other independent third parties.

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LETTER FROM THE BOARD

Effective period

The term of the SPM MOU shall be from 1 January 2010 through 31 December 2010 (the “Initial Term”). If it has not been terminated at the end of the Initial Term as provided for below, the SPM MOU will be automatically renewed for periods of one year thereafter (each such period a “Renewal Term(s)”) but in any event shall NOT exceed 31 December 2012.

During the Initial Term, either party may terminate the SPM MOU by giving the other written notice of termination on or before 1 October 2010. Thereafter, for any Renewal Term, either party may terminate the SPM MOU by giving notice on or before 1 October for termination at the end of that calendar year. For example, to terminate the SPM MOU effective from 1 January 2011, a party would be required to give notice of termination on or before 1 October 2010.

MP MOU WITH PCS SALES

Date: 21 December 2009

• Parties: (i) PCS Sales (a wholly-owned subsidiary of Potash), which is principally engaged in the sales and marketing of products produced by Potash. Potash is the largest potash producer in the world; and

• (ii) Sinochem Macao, which is principally engaged in sourcing fertilizer products and other related agricultural products for the Group from overseas suppliers.

Nature of transaction

Under the MP MOU, PCS Sales agreed to supply, and Sinochem Macao agreed to purchase, muriate of potash.

Pricing and payment

During the effective period under the MP MOU, prices for the muriate of potash to be supplied will be determined through arm’s length negotiations between the parties with reference to prevailing market conditions. The Directors, other than the independent non-executive Directors who express their opinion in a separate letter included in the circular, consider that the pricing reflects normal commercial terms and is on terms no less favourable than those available from other independent third parties.

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LETTER FROM THE BOARD

Effective period

The term of the MP MOU shall be from 1 January 2010 through 31 December 2010 (the “Initial Term”). If it has not been terminated at the end of the Initial Term as provided for below, the MP MOU will be automatically renewed for periods of one year thereafter (each such period a “Renewal Term(s)”) but in any event shall NOT exceed 31 December 2012.

During the Initial Term, either party may terminate the MP MOU by giving the other written notice of termination on or before 1 October 2010. Thereafter, for any Renewal Term, either party may terminate the MP MOU by giving notice on or before 1 October for termination at the end of that calendar year. For example, to terminate the MP MOU effective from 1 January 2011, a party would be required to give notice of termination on or before 1 October 2010.

REASONS FOR THE TRANSACTIONS

With the rising demand for potash in the PRC, by entering into the MOUs, the Group would further enrich the operational resources of Sinochem Fertilizer and ensure a stable supply of the relatively rare mineral fertilizer of potash. The production of potash in the PRC falls short of domestic demand. Each year the PRC needs to import large quantities of potash to meet the rising demand of potash for agricultural production. The import of potash products from PCS Sales under the MOUs will help enrich the operational resources of the Group. The Directors consider that the supply arrangements between PCS Sales 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 enter into such arrangements upon the principal terms under the MOUs.

PROPOSED ANNUAL CAPS

The proposed annual caps for the transactions under the MOUs are US$222 million (approximately HK$1.72 billion), US$228 million (approximately HK$1.77 billion) and US$234 million (approximately HK$1.81 billion) for the three years ending 31 December 2012 respectively. Such annual caps are calculated based on the estimated volume and prices of purchase pursuant to the terms of the MOUs, the projected quantities of sales and projected average price per metric ton of sulfate of potash magnesia and muriate of potash, and with reference to the possible increasing demand for sulfate of potash magnesia and muriate of potash imports into the PRC, for the relevant years. The annual caps for the Former MOU were US$4.84 million, US$8.8 million and US$11 million for the three years ended 31 December 2009 respectively. The proposed annual caps for the MOUs are greater than the annual caps for the Former MOU as the expected transaction values for the MP MOU, which are expected to be substantial, have now been included. For reference purposes, the actual transaction amounts under the Former MOU for the three years ended 31 December 2009 are US$0, US$8.66 million and US$0, respectively. These were within the respective annual caps for the Former MOU.

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LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

The transactions between Sinochem Macao and PCS Sales are carried out on a continuing or recurring basis in the ordinary and usual course of business of the Group. PCS Sales is a wholly-owned subsidiary of Potash. As Potash is a substantial shareholder of the Company, PCS Sales is a connected person of the Company by virtue of being an associate of Potash. Accordingly, the continuing transactions between Sinochem Macao and PCS Sales represent continuing connected transactions for the Company under the Listing Rules. As the applicable percentage ratios for the transactions contemplated under the MOUs are, on an annual basis, more than 2.5% and the total consideration for the MOUs is more than HK$10 million, the MOUs and the transactions contemplated thereunder are subject to the reporting, announcement and independent shareholders’ approval requirements as set out in Rule 14A.35 of the Listing Rules.

INFORMATION ON THE COMPANY

The Company is principally engaged in the production, procurement and sale of fertilizers and related products in the PRC. The main business comprises research and development, production, procurement and distribution of fertilizers and forms a vertically integrated business model combining upstream and downstream businesses. The Company aims to serve the agricultural industry in the PRC by introducing quality resources from overseas and to ensure food safety in the PRC.

SGM

In view of Potash’s interests in the MOUs, Potash, which is interested in 22.06% of the total issued share capital of the Company as at the Latest Practicable Date, and the other associates of Potash are required to abstain and shall abstain from voting on the resolutions to be proposed at the SGM to approve the MOUs and the transactions contemplated thereunder.

A notice of SGM together with a proxy form will be dispatched to the Shareholders as soon as practicable. At the SGM, resolutions will be proposed to the Independent Shareholders to consider and, if thought fit, approve, among other things, the MOUs and the transactions contemplated thereunder.

RECOMMENDATION

The Directors consider that the transactions between Sinochem Macao and PCS Sales 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 Independent Shareholders of the Company are concerned and are in the interests of the Company and its Shareholders as a whole. The Directors therefore recommend all Shareholders to vote in favour of all the resolutions to be proposed at the SGM to approve the MOUs and the transactions contemplated thereunder.

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LETTER FROM THE BOARD

FURTHER INFORMATION

The Independent Board Committee comprising all three independent non-executive Directors has been appointed to advise the Independent Shareholders in respect of the transactions between Sinochem Macao and PCS Sales. Somerley has been appointed to advise the Independent Board Committee and the Independent Shareholders in such regard. Accordingly, your attention is drawn to the letter of advice from the Independent Board Committee set out on page 10 of this circular, which contains its recommendation to the Independent Shareholders and the letter from Somerley set out on pages 11 to 18 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

Yours faithfully, For and on behalf of the Board of Sinofert Holdings Limited Du Ke Ping

Executive Director and Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SINOFERT HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

12 January 2010

To: the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 12 January 2010 (the “Circular”) to the Shareholders, of which this letter forms part. Terms defined in the Circular have the same meanings in this letter unless the context otherwise requires.

In compliance with the Listing Rules, we have been appointed to advise the Independent Shareholders in relation to the entering into of the MOUs and the transactions contemplated thereunder which constitute continuing connected transactions of the Company under the Listing Rules. In this connection, Somerley has been appointed as an independent financial adviser to advise on whether the terms and conditions under the MOUs and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned, and whether the MOUs and the transactions contemplated thereunder is in the interests of the Company and the Shareholders as a whole. Details of, and the reasons for, the entering into of the MOUs and the transactions contemplated thereunder are contained in the letter from the Board set out on pages 4 to 9 of the Circular.

Having considered the terms of the MOUs and the transactions contemplated thereunder, and the advice of Somerley, the independent financial adviser to us and the Independent Shareholders, set out on pages 11 to 18 of the Circular, we consider that the MOUs and the transactions contemplated thereunder are on normal commercial terms and are fair and reasonable so far as the Company and the Independent Shareholders are concerned, and the entering into of the MOUs and the transactions contemplated thereunder is in the interests of the Company and the Shareholders as a whole.

Yours faithfully, Independent Board Committee of Sinofert Holdings Limited Tse Hau Yin, Aloysius Ko Ming Tung, Edward Tang Tin Sek

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LETTER FROM SOMERLEY

The following is the text of 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.

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SOMERLEY LIMITED

10th Floor

The Hong Kong Club Building 3A Chater Road Central Hong Kong

12 January 2010

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with the purchases of two fertilizers being potash magnesia and muriet of potash from PCS Sales. Details of the transactions contemplated under the MOUs (including the annual caps) are contained in the circular to Shareholders dated 12 January 2010 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, terms used in this letter shall have the same meanings as defined in the Circular.

Potash was interested in 22.06% of the entire issued share capital of the Company as at the Latest Practicable Date and is a substantial Shareholder. Potash and its wholly-owned subsidiary, PCS Sales, are therefore connected persons of the Company as defined under the Listing Rules. Accordingly, the transactions contemplated under the MOUs constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. Since the Company anticipates that the applicable percentage ratios for the transactions contemplated under the MOUs are, on an annual basis, more than 2.5% and the total consideration for the MOUs is more than HK$10,000,000, the MOUs and the transactions contemplated thereunder (including the annual caps) are subject to the reporting, announcement and Independent Shareholders’ approval requirements pursuant to Rules 14A.45 to 14A.48 and 14A.52 to 14A.54 of the Listing Rules. Potash and its associates will abstain from voting in relation to the ordinary resolutions to be put forward at the SGM for the purpose of approving the MOUs and the transactions contemplated thereunder (including the annual caps).

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LETTER FROM SOMERLEY

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Tse Hau Yin, Aloysius, Mr. Ko Ming Tung, Edward and Dr. Tang Tin Sek, has been established to advise the Independent Shareholders whether the terms of the MOUs (including the 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.

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 Company and have assumed that such information, facts and opinions are true, accurate and complete and will remain so up to the date 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 consider that the information we have received is sufficient for us to reach an informed view and have no reason to believe that any material information has been withheld, or to doubt the truth, accuracy or completeness of the information provided. We have not however, conducted any independent investigation into the business and affairs of the Group nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinions, we have taken into consideration the following principal factors and reasons:

1. Background to and reasons for the MOUs

PCS Sales is a wholly-owned subsidiary of Potash and is principally engaged in the sales and marketing of products produced by Potash, the largest potash producer in the world.

The Company is principally engaged in the production, procurement and sale of fertilizers and related products in the PRC. Its main business comprises research and development, production, procurement and distribution of fertilizers and forms a vertically integrated business model combining upstream and downstream businesses. Sinochem Macao is the Group’s international procurement arm which sources fertilizer products and other related agricultural products for the Group from overseas suppliers. The Group continued to strengthen its strategic cooperation with major international fertilizer suppliers, and consolidated its market position as the largest fertilizer importer in the PRC, with potash imported by the Group accounting for more than half of the national total import in 2008.

The Company mentioned that market demand of fertilizers withered following the outbreak of financial crisis in September 2008. In the first half of 2009, there was considerable increase in domestic potash production together with huge amount of imported potash led to an oversupply which caused a plunge in potash price. The

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LETTER FROM SOMERLEY

Company believes that domestic fertilizer consumption will realize recovery growth in the next couple of years as the global economy extricates from the downturn. It has been the Group’s strategy to centre on marketing and distribution and integrate production for synergistic development.

As the Former MOU and its relevant annual caps for a term of three years have expired on 31 December 2009, Sinochem Macao entered into the SPM MOU and renew the annual caps for the purchase of sulfate of potash magnesia from PCS Sales in the coming three years ending 31 December 2012. On the other hand, the Group has been sourcing from other independent suppliers muriet of potash which has been widely used in the agricultural industry in the PRC as it can be applied directly to vegetables and plants and be used as raw material for producing compound fertilizers. The Directors are of the view that domestic demand for muriet of potash is promising and the entering into of the MOUs will help enrich the operational resources of the Company.

2. Principal terms of the MOUs

Pursuant to the MOUs, Sinochem Macao agreed to purchase and PCS Sales agreed to supply sulfate of potash magnesia and muriet of potash respectively for an initial term of one year up to 31 December 2010 (the “Initial Term”). If it has not been terminated at the end of the Initial Term, the MOUs will be automatically renewed for one year thereafter but in any event shall not exceed 31 December 2012. Either PCS Sales or Sinochem Macao may terminate any of the MOUs by giving the other written notice of termination on or before 1 October for termination at the end of the respective calendar year. For example, to terminate the MOUs effective from 1 January 2011, a party would be required to give notice of termination on or before 1 October 2010.

Prices for potash fertilizer products under the MOUs will be determined through arm’s length negotiations between PCS Sales and Sincochem Macao with reference to prevailing market conditions. Given the commodity nature of potash fertilizer products, we consider that the basis for determining the prices for the fertilizer products under the MOUs which are set with reference to prevailing market conditions, are fair and reasonable.

3. Comparison with terms with independent third parties

To the best knowledge of the Directors, PCS Sales has not sold any of its sulfate of potash magnesia and muriet of potash to any third party in the PRC. We have discussed with the Directors and reviewed sample contracts for the purchases of imported fertilizer products by Sinochem Macao from PCS Sales and compared against contracts for similar purchase from independent third party suppliers. We noted that the terms for transactions contemplated under the Former MOU are no less favourable to Sinochem Macao than the terms for similar transactions between Sinochem Macao and independent third parties.

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LETTER FROM SOMERLEY

The entering into of MOUs gives Sinochem Macao a right but not an obligation to purchase sulfate of potash magnesia and muriet of potash, which are the two relatively rare mineral fertilizers, from PCS Sales on normal commercial terms and no less favourable to Sinochem Macao than the terms available from independent third parties.

4. Annual caps

(a) Review of historical figures

There was no purchase of muriet of potash by the Group from PCS Sales in the past years. The table below sets out the transaction amount of purchases of sulfate of potash magnesia from PCS Sales under the Former MOU for each of the three years ended 31 December 2009:

	**Year **	ended 31 December
	2007	2008	2009
	US$’000	US$’000	US$’000
Purchase of sulfate of potash
magnesia from PCS Sales	–	8,656	–

We are advised by the Directors that, the Group was unable to commence importing of sulfate of potash magnesia in 2007 immediately after the entering into of the Former MOU with PCS Sales on 10 January 2007. Since sulfate of potash magnesia was a new farmland fertilizer in the PRC in 2007, it had to undergo the process of product testing and examination and to register with Chinese Institutes of Agricultural Sciences in accordance with the PRC laws and regulations. Eventually, such testing procedure took the Group nearly a year to finish. We are confirmed by the Directors that there will be no such testing requirement for muriet of potash and sulfate of potash magnesia under the MOUs, as such fertilizers have been applying on the farmland in the PRC.

The Group imported sulfate of potash magnesia in an aggregate amount of approximately US$8.7 million in early 2008 to satisfy the increasing domestic needs. In the second half of 2008, demand for potash fertilizer products began to be hit by global financial crisis and its selling price dropped drastically by 39.1% from RMB4,600 per ton to RMB2,800 per ton in the first half of 2009. The global fertilizer market contracted further as demand weakening, prices falling and competition intensified which caused the Group stopped importing sulfate of potash magnesia in 2009.

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LETTER FROM SOMERLEY

(b) Assessment of the annual caps

Set out below are the proposed annual caps under the MOUs for each of the three years ending 31 December 2012:

	**Year **	ending 31 December
	2010	2011	2012
	US$’000	US$’000	US$’000
Purchases of sulfate of potash
magnesia and muriet of
potash from PCS Sales	222,000	228,000	234,000

In assessing the reasonableness of the annual caps, we have discussed with the Directors the basis and assumptions underlying the projections of the annual caps. The annual caps are calculated based on the estimated volume and prices of purchase pursuant to the terms of the MOUs, the projected quantities of sales and projected average price per metric ton of sulfate of potash magnesia and muriet of potash for each of the relevant years, having considered the rising demand for potash in the PRC and production of potash in the PRC falls short of domestic demand. The PRC needs to import large quantities of potash to meet the rising demand of potash for agricultural products.

Consumption of fertilizers relates to population size and the demand for agricultural products. According to the China Statistical Yearbook 2008, population of the PRC rose by 6.9% to approximately 1.32 billion at the year end of 2007 when compared to 1997. Consumption of potash fertilizer increased by a much larger extent of 65.7% to approximately 5.3 million tons in the aforesaid ten years. The PRC government has been promoting the uitlization of fertilizer to increase agricultural output for improving the living standard.

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Potash fertilizer(millions tons) Consumption of potash fertilizer in the PRC
6
5
4
3
2
1
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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Source: China Statistical Yearbook 2008

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LETTER FROM SOMERLEY

The Directors expected that demand for fertilizer products, including potash fertilizer in the PRC, will resume after the slow market momentum following the outbreak of the global financial meltdown in the second half of 2008 when the economy recovers. It was announced at the 11th annual session of the National People’s Congress held on 5 March 2009 that the PRC government would invest RMB716.1 billion in the agricultural sector in 2009, of which RMB123 billion would be subsidies to farmers, representing a rise of about 20% over 2008. In addition, the PRC government launched its “50-Billion-Kg Grain Production Capacity Expansion Program during 2009-2020”, a program which targets to enhance the nationwide production capacity for grain by 50 billion kg to above 550 billion kg by year 2020 through improving irrigation, farming methods and technologies, selection of quality seeds, promotion of training on farming technologies, etc. It is expected that all these supportive PRC government policies will stimulate the development of the farming industry in the PRC in the coming years.

We noted from the official website of General Administration of Customs of People’s Republic of China that the PRC has been relying on import to satisfy its demand of potash fertilizer given its insufficient resources. In order to cope with the increasing domestic demand for potash fertilizer products as a result of favourable government policies towards agricultural industry and lack of potash resources in the PRC, the Group sees the need to import large quantity of potash fertilizer in the coming years to enrich its operational resources and facilitate its distribution business. Domestic demand of PRC for potassium chloride in 2009 was around 5.5 million tons and PRC has an inventory level of no less than 3 million tons according to an official website of the PRC government on fertilizer industry (www.natesc.gov.cn). The annual caps for each year also build in a reasonable buffer for the possible increase in selling price and volume of potash fertilizer products. Having considered the basis for determining the proposed annual caps for the transactions contemplated under the MOUs as described above, we are of the view that the proposed annual caps are fair and reasonable. The transactions are subject to the annual review by the independent non-executive Directors and the Company’s auditors, detail requirements are set out in the below paragraph headed “Reporting requirements and conditions of the continuing connected transactions”.

5. Reporting requirements and conditions of the continuing connected transactions

Pursuant to Rules 14A.37 to 14A.40, the continuing connected transactions are subject to the following annual review requirements:

• (a) each year the independent non-executive Directors must review the continuing connected 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;

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LETTER FROM SOMERLEY

• (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;

• (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 continuing connected 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 annual caps;

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

• (d) the Company shall promptly notify the Stock Exchange and publish an announcement in accordance with the Listing Rules 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 (b) respectively.

In light of the reporting requirements attached to the continuing connected transactions, in particular, (i) the restriction of the value of the continuing connected 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 continuing connected 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 continuing connected transactions and assist in safeguarding the interests of the Independent Shareholders.

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LETTER FROM SOMERLEY

RECOMMENDATION

Having taken into account the above principal factors and reasons, we consider that the MOUs and the transactions contemplated thereunder are on normal commercial terms and in the ordinary and usual course of business of the Group. We further consider that the terms of the MOUs and the transactions contemplated thereunder (including the annual caps), are fair and reasonable to the Independent Shareholders and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, that the Independent Shareholders vote in favour of the ordinary resolutions to be proposed at the SGM to approve the MOUs and the transactions contemplated thereunder (including the annual caps).

Yours faithfully, for and on behalf of SOMERLEY LIMITED Maggie Chan Director

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

2. INTEREST IN SECURITIES

As at the Latest Practicable Date, the Directors and chief executives of the Company had the following interests and short positions in the Shares, underlying Shares and debt securities of the Company and its associated corporations (within the meaning of Part XV of the SFO), and the details of any right to subscribe for Shares in the Company, 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 Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

(a) Ordinary shares of HK$0.1 each of the Company

As at the Latest Practicable Date, a director of the Company had long positions in the shares of the Company as follows:

				Percentage of
				the issued
			Number of	share capital
			issued	of the
**Name **	of Director	Capacity	Shares held	Company
Harry	Yang	Beneficial owner	600	0.000009%

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GENERAL INFORMATION

APPENDIX

(b) Share options of the Company

As at the Latest Practicable Date, certain directors of the Company had interest in the share options granted under the Company’s share option schemes as follows:

			Number of
		Number of	underlying
		share options	Shares of the
Name of Director	Capacity	held	Company
Liu De Shu	Beneficial owner	1,029,900	1,029,900
Du Ke Ping	Beneficial owner	4,209,900	4,209,900
Chen Guo Gang	Beneficial owner	730,600	730,600
Harry Yang	Beneficial owner	894,600	894,600
Wade Fetzer III	Beneficial owner	256,000	256,000

(c) Derivative interests in the Shares of the Company

As at the Latest Practicable Date, Mr. Du Ke Ping and Mr. Harry Yang have derivative interests in respect of 362,526 Shares and 253,711 Shares, respectively, in the Company within the meaning of Part XV of the SFO. These derivative interests represent Mr. Du’s and Mr. Yang’s respective entitlement to receive an equivalent value in cash of 362,526 Shares and 253,711 Shares in the Company, subject to, among other things, satisfaction of certain performance targets.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interest or short position in the Shares, underlying Shares and debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) nor had any interest in the right to subscribe for Shares in the Company 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 the Director and the chief executive 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 Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

3. DIRECTORS’ SERVICE CONTRACTS

During the year 2008, Mr. Du Ke Ping, executive Director and Chief Executive Officer of the Company, and Mr. Harry Yang, executive Director and Deputy General Manager of the Company, renewed their respective service contracts with the Company for a term of another three years, up to 27 July 2011. Pursuant to the terms stipulated in their service contracts, the respective service contract with the Company may be (i) terminated prior to its expiry if either party serves two months’ prior notice to the other in writing; or (ii) terminated by the Company in case of bankruptcy, diseases and any other significant faults of a director as described in the

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GENERAL INFORMATION

APPENDIX

respective service contract. Should the Company terminate the respective service contract with Mr. Du Ke Ping or Mr. Harry Yang prior to its expiry, Mr. Du or Mr. Yang will be entitled to receive a cash compensation equivalent to 11 months of his annual director’s salary, save for circumstances described in item (ii) above.

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. Harry Yang, an executive Director and Deputy General Manager of the Company, is also a director of US Agri-Chemicals Corporation, which is a wholly-owned subsidiary of Sinochem Group. Although US Agri-Chemicals Corporation ceased its operation in November 2005, as at the Latest Practicable Date, it still maintained its company registration with the relevant authorities in the United States. As at the same date, other than Mr. Yang, none of the directors of US Agri-Chemicals Corporation held any positions or assumed any role in the Group.

Save as disclosed above, 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.

5. OTHER ARRANGEMENTS INVOLVING DIRECTORS

As at the Latest Practicable Date:

• (a) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date and which was 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 2008 (the date to which the latest published audited accounts of the Company were made up), (i) acquired or disposed of by; (ii) leased to; or (iii) are proposed to be acquired or disposed of by; or (iv) are proposed to be leased to any member of the Group.

6. MATERIAL ADVERSE CHANGES

Save as disclosed in the Company’s announcement dated 16 July 2009 and the Company’s interim report 2009 dated 18 August 2009, as at the Latest Practicable Date, the Directors were not aware of any material adverse changes in the financial or trading position of the Company since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX

7. EXPERTS

The following is the qualification of the expert who has given its opinions or advice, which are contained or referred to in this circular:

Name

Qualification

Somerley

a corporation licensed 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 as defined under the SFO

As at the Latest Practicable Date, Somerley:

• (a) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name, in the form and context in which it appears;

• (b) did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and

• (c) did not have any direct or indirect interest in any assets which had been since 31 December 2008 (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 or disposed of by, or leased to any member of the Group.

8. GENERAL

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

9. DOCUMENT AVAILABLE FOR INSPECTION

A copy of each of the Former MOU, the SPM MOU and the MP MOU is available for inspection during normal business hours on any weekday (excluding Saturdays, Sundays and public holidays) 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 up to and including the date of the SGM.

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