CWT International Limited - Proxy Solicitation & Information Statement 2019

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 and the accompanying 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.

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 中化化肥控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

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

SOMERLEY CAPITAL LIMITED

A letter from the Board is set out on pages 4 to 15 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 16 to 17 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 18 to 34 of this circular.

A notice convening the SGM of Sinofert Holdings Limited to be held at Salon II, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 19 December 2019 at 10:00 a.m. is set out on pages 38 to 40 of this circular. Whether or not you are able to attend and vote at the meeting, you are requested to complete the accompanying 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, Tricor Secretaries Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours (excluding any part of a day that is a public holiday) before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy as instructed will not preclude you from subsequently attending and voting at the meeting or any adjourned meeting if you so wish.

For identification purposes only

26 November 2019

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . .	16
LETTER FROM	SOMERLEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
APPENDIX –	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
NOTICE OF SPECIAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .		38

– i –

DEFINITIONS

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

“associate(s)”
has the same meaning ascribed to it under the Listing Rules
“Board” the board of Directors of the Company
“Company”
Sinofert Holdings Limited, a company incorporated on 26 May 1994 in Bermuda with limited liability, the ordinary shares of which are listed on the Stock Exchange
“connected person”
has the same meaning ascribed to it under the Listing Rules
“continuing connected transaction(s)”
has the same meaning ascribed to it under the Listing Rules
“controlling shareholder”
has the same meaning ascribed to it under the Listing Rules
“Director(s)” the director(s) of the Company
“Dohigh Trading”
敦尚貿易有限公司 (Dohigh Trading Limited), a limited liability company incorporated in Hong Kong and an indirect wholly-owned subsidiary of the Company
“Fertilizer Co-operation Framework Agreement”
the fertilizer sales co-operation framework agreement dated 5 November 2019 entered into among Sinochem Macao, Sinochem Fertilizer and Sinochem Group
“Group”
the Company and its subsidiaries
“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong”

Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”
the independent board committee of the Company formed to consider the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps

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DEFINITIONS

“Independent Financial Adviser” Somerley Capital Limited, a corporation licensed to or “Somerley” carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps “Independent Shareholders” shareholders other than Sinochem Group and its associates

“Latest Practicable Date” 22 November 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Macao” Macao Special Administrative Region of the PRC
“PRC” the People’s Republic of China, which for the purposes of this circular only, excludes Hong Kong, Macao 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 at Salon II, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 19 December 2019 at 10:00 a.m. or any adjournment thereof, the notice of which is set out on pages 38 to 40 of this circular
“Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company
“shareholder(s)” registered holder(s) of Shares
“Sinochem Corporation” 中國中化股份有限公司 (Sinochem Corporation), a joint stock company with limited liability established under the laws of the PRC, a subsidiary of Sinochem Group and the indirect controlling shareholder of the Company

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DEFINITIONS

中化化肥有限公司 (Sinochem Fertilizer Company Limited), a limited liability company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company

“Sinochem Fertilizer” 中化化肥有限公司 (Sinochem Fertilizer Company Limited), a limited liability company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company
“Sinochem Group” 中國中化集團有限公司 (Sinochem Group Co., Ltd.), a state-owned enterprise incorporated in the PRC and the ultimate controlling shareholder of the Company
“Sinochem Macao” 中化化肥澳門離岸商業服務有限公司 (Sinochem Fertilizer Macao Commercial Offshore Limited), a company incorporated in Macao on 16 November 2004 and an indirect wholly-owned subsidiary of the Company

“Sinochem Singapore”

中化化肥新加坡有限公司 (Sinochem Fertilizer Singapore Pte. Ltd.), a company incorporated in Singapore and an indirect wholly-owned subsidiary of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary(ies)” has the same meaning ascribed to it under the Listing Rules

“Sulphur Import Framework the sulphur, fertilizer and other fertilizer raw materials Agreement” import framework agreement dated 5 November 2019 entered into among the Company, Sinochem Fertilizer and Sinochem Group

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

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LETTER FROM THE BOARD

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SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

Executive Directors: QIN Hengde (Chief Executive Officer) Harry YANG

Non-executive Director: YANG Lin

Independent Non-executive Directors: KO Ming Tung, Edward LU Xin TSE Hau Yin, Aloysius

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business: Unit 4705, 47th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

26 November 2019

To: the shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

INTRODUCTION

Reference is made to the announcement of the Company dated 5 November 2019 in relation to the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement. The transactions contemplated under the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement constitute continuing connected transactions of the Company, and are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

* For identification purpose only

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with (i) further information on the details of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps; (ii) the letter of advice from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; (iv) the notice of the SGM; and (v) other information as required under the Listing Rules.

CONTINUING CONNECTED TRANSACTIONS

(A) Fertilizer Co-operation Framework Agreement

Reference is made to the announcement of the Company dated 30 October 2018 in relation to the existing fertilizer co-operation framework agreement entered into between Sinochem Macao and Sinochem Fertilizer, two indirect wholly-owned subsidiaries of the Company, and Sinochem Group. Such agreement will expire on 31 December 2019.

On 5 November 2019, Sinochem Macao and Sinochem Fertilizer entered into the Fertilizer Co-operation Framework Agreement with Sinochem Group, pursuant to which Sinochem Group will continue to import fertilizer products sourced by Sinochem Macao and sell them to Sinochem Fertilizer during the period from 1 January 2020 to 31 December 2020 (both days inclusive).

Principal Terms of the Fertilizer Co-Operation Framework Agreement

Date

5 November 2019

Parties

(a) Sinochem Macao
(b) Sinochem Fertilizer
(c) Sinochem Group

Nature of transactions

Pursuant to the Fertilizer Co-operation Framework Agreement, fertilizer products sourced from overseas by Sinochem Macao for Sinochem Fertilizer will first be sold to Sinochem Group. Sinochem Group, as an approved importer of fertilizer products in the PRC, will import the products sourced by Sinochem Macao and sell such products to Sinochem Fertilizer. Sinochem Group will also import a small amount of fertilizer products and raw materials directly from overseas from time to time. Sinochem Group has undertaken that, except for any fertilizer products and raw materials imported by it on behalf of its

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LETTER FROM THE BOARD

other customers, it will sell all the fertilizer products and raw materials it imports to Sinochem Fertilizer exclusively. On the other hand, Sinochem Fertilizer is free to purchase fertilizer products and raw materials from any authorized importers.

Pricing

Under the Fertilizer Co-operation Framework Agreement, the pricing principles for the sale and purchase of fertilizer products between the parties are as follows:

(i) the price to be paid by Sinochem Group to Sinochem Macao for fertilizer products sold by Sinochem Macao to Sinochem Group shall be determined in accordance with the prevailing international market price;
(ii) the price to be paid by Sinochem Fertilizer to Sinochem Group for fertilizer products sourced from overseas by Sinochem Macao shall be determined in accordance with the purchasing price paid by Sinochem Group plus reasonable costs incurred by Sinochem Group in relation to the import of fertilizer products (including product inspection costs, customs clearing charges, import customs duty, bank charges and other fees payable to third parties (in aggregate representing approximately 1.2% of the import price), as well as reasonable administrative costs). Such administrative costs mainly include stamp duty representing 0.06% of the import price, labor costs, office supplies and rents, and staff travel expenses, all of which are the costs to be incurred by Sinochem Group. The administrative costs are expected to account for less than 0.2% of the total transaction value, which is immaterial. The Company considers that the charging of such administrative costs to be acceptable and reasonable; and
(iii) the price to be paid by Sinochem Fertilizer to Sinochem Group for fertilizer products and raw materials sourced by Sinochem Group directly from overseas suppliers shall be determined in accordance with the prevailing domestic wholesale price at port.

Payment

Sinochem Fertilizer and Sinochem Group shall enter into specific agreements in relation to the type, specification, quantity, packaging and price of the fertilizer products, and Sinochem Fertilizer shall make the full payment to Sinochem Group by bank draft or other means for its purchase of the fertilizer products. Upon receipt of the payment made by Sinochem Fertilizer, Sinochem Group shall enter into specific agreements with Sinochem Macao in relation to the import of the fertilizer products.

The parties shall enter into specific agreements setting out detailed terms of the transactions including the payment terms. The payment terms, subject to further negotiation between the parties, will be in line with the market practices.

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LETTER FROM THE BOARD

Term

Subject to obtaining the approval from the Independent Shareholders at the SGM, the Fertilizer Co-operation Framework Agreement will have a term from 1 January 2020 to 31 December 2020. The term of the Fertilizer Co-operation Framework Agreement can be extended with the consent of Sinochem Macao, Sinochem Fertilizer and Sinochem Group.

Where a party to the Fertilizer Co-operation Framework Agreement has breached any terms of the Fertilizer Co-operation Framework Agreement and such breach is not remedied within 60 days of the date of written notice from the other party(ies) requesting remedy of the breach, the other party(ies) may terminate the Fertilizer Co-operation Framework Agreement. In addition, during the term of the Fertilizer Co-operation Framework Agreement, Sinochem Macao and Sinochem Fertilizer are entitled to terminate the Fertilizer Co-operation Framework Agreement by giving one month’s notice to the other parties.

Annual Caps

Annual cap for continuing connected transactions between Sinochem Macao and Sinochem Group

The Company estimates that the annual cap for the year ending 31 December 2020 in respect of the continuing connected transactions between Sinochem Macao and Sinochem Group under the Fertilizer Co-operation Framework Agreement will be US$1,126,000,000. Such annual cap has been estimated based on the projected quantity of purchase by Sinochem Group for Sinochem Fertilizer through the arrangement with Sinochem Macao and the projected average price per tonne of fertilizer products (which is determined in accordance with the prevailing international market price) during the term of the Fertilizer Co-operation Framework Agreement.

The historical amounts of such continuing connected transactions for the two years ended 31 December 2018 and the nine months ended 30 September 2019 were approximately US$478,425,000, US$523,212,000 and US$621,575,000, respectively.

Annual cap for continuing connected transactions between Sinochem Fertilizer and Sinochem Group

The Company estimates that the annual cap for the year ending 31 December 2020 in respect of the continuing connected transactions between Sinochem Fertilizer and Sinochem Group under the Fertilizer Co-operation Framework Agreement will be RMB8,346,000,000. Such annual cap has been estimated based on:

(i) the projected quantity of sale of fertilizer products sourced from overseas by Sinochem Macao, and the projected average price per tonne of fertilizer products (which is determined on a cost basis) during the term of the Fertilizer Co-operation Framework Agreement; and

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LETTER FROM THE BOARD

(ii) the projected quantity of sale of fertilizer products and raw materials sourced by Sinochem Group directly from overseas suppliers to Sinochem Fertilizer and the projected average price per tonne of fertilizer products and raw materials (which is determined in accordance with the prevailing domestic wholesale price at port) during the term of the Fertilizer Co-operation Framework Agreement.

The historical amounts of such continuing connected transactions for the two years ended 31 December 2018 and the nine months ended 30 September 2019 were approximately RMB3,296,530,000, RMB3,668,276,000 and RMB4,377,487,000, respectively.

In determining the annual caps, the Company has in general made reference to the expected sales quantities of fertilizer products in 2019, on the basis of the sales volume in the first nine months of 2019, and factored in an allowance catering for the expected increase in demand of fertilizer in 2020. The Company has considered the continuous growth in the sales of fertilizer products in recent years, in particular, the transaction amounts in the first nine months of 2019 have surpassed the full year transaction amounts in 2018, which was mainly due to the continuing recovery of the PRC fertilizer industry and the strengthened procurement cooperation with international suppliers as regards high-quality fertilizer products. The Company expects that the growing trend will continue in 2020, and considers that it is in the interests of the Company and the shareholders to determine the annual caps in a way that can take into account the latest market conditions and accommodate the potential growth of the Group’s business.

(B) Sulphur Import Framework Agreement

Reference is made to the announcements of the Company dated 30 October 2018 and 15 April 2019 in relation to the existing sulphur and other fertilizer raw materials import framework agreement and its supplemental agreement entered into between Dohigh Trading, Sinochem Singapore and Sinochem Fertilizer, three indirect wholly-owned subsidiaries of the Company, and Sinochem Group. Such agreements will expire on 31 December 2019.

On 5 November 2019, the Company (for and on behalf of Dohigh Trading and Sinochem Singapore) and Sinochem Fertilizer entered into the Sulphur Import Framework Agreement with Sinochem Group, pursuant to which Sinochem Group will continue to import sulphur, fertilizer and other fertilizer raw materials sourced by the overseas subsidiaries of the Company (including Dohigh Trading and Sinochem Singapore) and sell them to Sinochem Fertilizer during the period from 1 January 2020 to 31 December 2020 (both days inclusive).

Principal Terms of the Sulphur Import Framework Agreement

Date

5 November 2019

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LETTER FROM THE BOARD

Parties

(a) The Company (for and on behalf of Dohigh Trading and Sinochem Singapore)
(b) Sinochem Fertilizer
(c) Sinochem Group

Nature of transactions

Pursuant to the Sulphur Import Framework Agreement, Sinochem Group shall import sulphur, fertilizer and other fertilizer raw materials sourced by the overseas subsidiaries of the Company only, and sell them all to Sinochem Fertilizer except for the sulphur, fertilizer and other fertilizer raw materials imported by Sinochem Group on behalf of its other customers.

Pricing

Under the Sulphur Import Framework Agreement, the pricing principles for the sale and purchase of sulphur, fertilizer and other fertilizer raw materials between the parties are as follows:

(i) the price to be paid by Sinochem Group to the overseas subsidiaries of the Company for sulphur, fertilizer and other fertilizer raw materials sold by the overseas subsidiaries of the Company to Sinochem Group shall be determined in accordance with the prevailing international market price; and
(ii) the price to be paid by Sinochem Fertilizer to Sinochem Group for sulphur, fertilizer and other fertilizer raw materials sold by Sinochem Group to Sinochem Fertilizer shall be determined in accordance with the domestic wholesale price at port.

Payment

Sinochem Fertilizer and Sinochem Group shall enter into specific agreements in relation to the type, specification, quantity, packaging and price of the sulphur, fertilizer and other fertilizer raw materials, and Sinochem Fertilizer shall make the full payment to Sinochem Group by bank draft or other means for its purchase of the sulphur, fertilizer and other fertilizer raw materials. Upon receipt of the payment made by Sinochem Fertilizer, Sinochem Group shall enter into specific agreements with the overseas subsidiaries of the Company in relation to the import of sulphur, fertilizer and other raw fertilizer materials.

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LETTER FROM THE BOARD

Term

Subject to obtaining the approval from the Independent Shareholders at the SGM, the Sulphur Import Framework Agreement will have a term from 1 January 2020 to 31 December 2020 (both days inclusive). The term of the Sulphur Import Framework Agreement can be extended with the consent of the Company, Sinochem Fertilizer and Sinochem Group.

Where a party to the Sulphur Import Framework Agreement has breached any terms of the Sulphur Import Framework Agreement and such breach is not remedied within 60 days of the date of written notice from the other party(ies) requesting remedy of the breach, the other party(ies) may terminate the Sulphur Import Framework Agreement. In addition, during the term of the Sulphur Import Framework Agreement, the Company and Sinochem Fertilizer are entitled to terminate the Sulphur Import Framework Agreement by giving one month’s notice to the other parties.

Annual Caps

Annual cap for continuing connected transactions between the overseas subsidiaries of the Company and Sinochem Group

The Company estimates that the annual cap for the year ending 31 December 2020 in respect of the purchase of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group from the overseas subsidiaries of the Company will be US$98,860,000. Such annual cap has been estimated based on the projected quantity of purchase by Sinochem Group for Sinochem Fertilizer through the arrangement with the overseas subsidiaries of the Company and the projected average price per tonne of products (which is determined in accordance with the prevailing international market price) during the term of the Sulphur Import Framework Agreement.

The historical amounts of such continuing connected transactions for the two years ended 31 December 2018 and the nine months ended 30 September 2019 were approximately US$31,301,000, US$27,982,000 and US$32,891,000, respectively.

Annual cap for continuing connected transactions between Sinochem Fertilizer and Sinochem Group

The Company estimates that the annual cap for the year ending 31 December 2020 in respect of the sale of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group to Sinochem Fertilizer will be RMB710,000,000. Such annual cap has been estimated based on the projected quantity of sale of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group to Sinochem Fertilizer and the projected average price per tonne of products (which is determined in accordance with the domestic wholesale price at port) during the term of the Sulphur Import Framework Agreement.

The historical amounts of such continuing connected transactions for the two years ended 31 December 2018 and the nine months ended 30 September 2019 were approximately RMB259,044,000, RMB181,265,000 and RMB217,333,000, respectively.

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LETTER FROM THE BOARD

In determining the annual caps, the Company has primarily considered the Group’s procurement strategy in respect of sulphur products for 2020, with reference to the quantities to be purchased under current negotiations with the international suppliers and the growing volumes of sulphur products transacted in the first nine months of 2019. In particular, the Company has considered a framework agreement entered into between Sinochem Group and a major international supplier for the purpose of facilitating the procurement of sulphur products by the overseas subsidiaries of the Company, in which the maximum quantity of sulphur products the supplier has agreed to supply in 2020 was specified. The overseas subsidiaries of the Company may purchase sulphur products from such supplier, as one of their procurement channels, within the maximum quantity specified in such framework agreement, and sell them to Sinochem Group pursuant to the Sulphur Import Framework Agreement. Taking into account the wide fluctuation of historical sulphur price (dropping from approximately US$150 per tonne in the beginning of 2019 to approximately US$70 per tonne in September 2019), the Company has made reference to the average international market price of sulphur during a wider period from January 2018 to September 2019 to estimate the price level of sulphur and fertilizer related products in 2020. As the price of sulphur fluctuated significantly, it is difficult for the Company to project future transactions with Sinochem Group with high level of accuracy, and as a result, the Company has factored in certain allowance to cater for any future price fluctuation, and the fluctuation of transaction volume which is largely driven by future market demand. On such basis, the Company considers that the annual caps, though substantially higher than the historical amounts, are fair and reasonable.

PRICING BASIS AND INTERNAL CONTROL PROCEDURES

In determining the prevailing international market price and the domestic wholesale price at port, the parties generally make reference to weekly reports published by certain independent commodity information providers such as Argus Media (http:// www.arguschina.cn) and Baiinfo （百川盈孚）(http://baiinfo.com). Argus Media, founded in 1970, is an independent media organization, which produces price assessments and analysis of international energy and other commodity markets. Baiinfo, established in 2007, is one of the largest information suppliers of bulk raw materials market in China, which provides market consulting services focusing on spot price of raw materials and finished goods, market analysis and forecast, as well as market research. The reports published by Argus Media and Baiinfo, usually updated on a weekly basis and available to the Company by subscription, provide up to date information on market trend and prevailing market prices.

In addition, the Group maintains regular contacts with domestic and overseas producers, distributors and traders, keeping abreast of the latest international bidding price and spot price and the latest domestic port price and factory price. Before placing a purchase order with Sinochem Group, the Group usually obtains reference prices from three or more suppliers. The Group also takes into account the demand of its downstream customers when determining the prices of the transactions. Such prices will be reported to the manager of the Basic Fertilizers Division and/or the Distribution Division, and then submitted to the vice president in charge of the business for approval.

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LETTER FROM THE BOARD

As the procurement and approval process involves reference to industry reports as well as up to date market prices as mentioned above, the Company considers that the methods and procedures adopted above can ensure that the transactions will be conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority shareholders.

REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

(A) Fertilizer Co-operation Framework Agreement

Under the PRC law, the Group is not allowed to import fertilizer products into the PRC (except for small amount trade in border areas（邊境小額貿易）as approved under the PRC law). The import of fertilizer products is restricted by the PRC law, and the import volume of fertilizer products is subject to the total quota set by the PRC government. The Ministry of Commerce of the PRC publishes the national import quota of fertilizer products on an annual basis, in which it also specifies the enterprises permitted to import fertilizer products. According to the Fertilizer Import Tariff Quota, Allocation Principle and Relevant Procedures for 2020 issued by the Ministry of Commerce of the PRC on 25 October 2019, Sinochem Group is one of four enterprises authorized for import of fertilizer products. As the Group needs to import fertilizer products through authorized importers, such as Sinochem Group, the Fertilizer Co-operation Framework Agreement was therefore entered into between the parties.

(B) Sulphur Import Framework Agreement

As a state-owned enterprise in the PRC, Sinochem Group enjoys domestic preferential policies issued by the PRC government from time to time. The Sulphur Import Framework Agreement was entered into for the purchase of sulphur, fertilizer and other fertilizer raw materials through Sinochem Group as importer so as to make full use of domestic preferential policies, such as import-related preferential policies.

The Directors (including the independent non-executive Directors) are of the view that the continuing connected transactions contemplated under each of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement have been conducted on normal commercial terms, were entered into in the ordinary and usual course of business of the Group, are fair and reasonable and in the interests of the Company and its shareholders as a whole, and that the annual caps for the continuing connected transactions contemplated under each of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement are fair and reasonable.

Mr. Yang Lin, being a Director of the Company and a management member of Sinochem Group, has abstained from voting on the relevant Board resolutions passed to approve the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement and the transactions contemplated thereunder.

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LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

Each of Sinochem Macao, Sinochem Fertilizer, Dohigh Trading and Sinochem Singapore is an indirect wholly-owned subsidiary of the Company. Sinochem Group is the ultimate controlling shareholder of the Company holding an effective interest of approximately 52.65% of the Company, and is therefore a connected person of the Company. Pursuant to Chapter 14A of the Listing Rules, the transactions contemplated under each of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement constitute continuing connected transactions of the Company. Given that the relevant applicable percentage ratios in respect of the annual caps for continuing connected transactions contemplated under each of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement are more than 5%, such transactions are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under the Listing Rules.

GENERAL INFORMATION

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, distribution and agricultural services of fertilizers and forms a vertically integrated business model combining upstream and downstream businesses.

Sinochem Fertilizer is engaged in the production, import, export, distribution, wholesale and retail of fertilizer raw materials and products, as well as research and development and services in the field of fertilizer-related business and products.

Sinochem Macao is principally engaged in sourcing fertilizer products and other related agricultural products for the Group from overseas.

Dohigh Trading is principally engaged in the trading of fertilizers and other agrichemical products.

Sinochem Singapore is mainly engaged in the international trade of fertilizer and fertilizer raw materials.

Sinochem Group is a key state-controlled enterprise established in 1950. Sinochem Group’s core businesses include: the businesses of energy, chemical, agriculture, real estate and finance, etc.

SGM

Ordinary resolutions approving (i) the Fertilizer Co-operation Framework Agreement, the transactions contemplated thereunder and the proposed annual caps, and (ii) the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps, shall be proposed at the SGM.

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LETTER FROM THE BOARD

In view of Sinochem Group’s interests in the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, Sinochem Group and its associates are required to abstain and shall abstain from voting on the ordinary resolutions to be proposed at the SGM to approve the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps. A notice convening the SGM to be held at Salon II, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 19 December 2019 at 10:00 a.m. is set out on pages 38 to 40 of this circular.

A form of proxy for the SGM is enclosed herewith. Whether or not shareholders are able to attend and vote at the SGM, they are requested to complete the enclosed form of proxy and return the same to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours (excluding any part of a day that is a public holiday) before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy as instructed will not prevent shareholders from subsequently attending and voting at the SGM or any adjourned meeting if they so wish.

RECOMMENDATION

The Directors (including the independent non-executive Directors) are of the view that the continuing connected transactions contemplated under the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement have been conducted on normal commercial terms, were entered into in the ordinary and usual course of business of the Group, are fair and reasonable and in the interests of the Company and the shareholders as a whole, and that the annual caps for the continuing connected transactions contemplated under the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement are fair and reasonable. The Directors therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions set out in the notice of the SGM.

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 Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, the transactions contemplated thereunder and the proposed annual caps. Somerley has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in such regard. Accordingly, your attention is drawn to the letter from the Independent Board Committee set out on pages 16 to 17 of this circular, which contains its advice to the Independent Shareholders, and the

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LETTER FROM THE BOARD

letter from Somerley set out on pages 18 to 34 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, For and on behalf of the board of Sinofert Holdings Limited Qin Hengde

Executive Director and Chief Executive Officer

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [77 x 76] intentionally omitted <==

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

To: the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

We refer to the circular of the Company dated 26 November 2019 (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 as to whether, in our opinion, the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) are entered into by the Group in its ordinary and usual course of business, on normal commercial terms, in the interests of the Company and the shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. In this connection, Somerley has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps).

We wish to draw your attention to the letter from the Board set out on pages 4 to 15 of the Circular, and the letter from Somerley to the Independent Board Committee and the Independent Shareholders set out on pages 18 to 34 of the Circular which contains its opinion in respect of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps).

* For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of the Independent Financial Adviser and its recommendation in relation thereto, we consider that the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) are entered into by the Group in its ordinary and usual course of business, on normal commercial terms, in the interests of the Company and the shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that you vote in favour of the relevant resolutions set out in the notice of the SGM.

Yours faithfully, Independent Board Committee of Sinofert Holdings Limited Tse Hau Yin, Aloysius Ko Ming Tung, Edward Lu Xin

26 November 2019

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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.

SOMERLEY CAPITAL LIMITED

20th Floor China Building 29 Queen’s Road Central Hong Kong

26 November 2019

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS UNDER THE FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND THE SULPHUR IMPORT FRAMEWORK AGREEMENT

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in relation to the import of (i) fertilizer products for Sinochem Fertilizer by Sinochem Group through the arrangement with Sinochem Macao pursuant to the terms of the Fertilizer Co-operation Framework Agreement, and (ii) sulphur, fertilizer and other fertilizer raw materials for Sinochem Fertilizer by Sinochem Group through the arrangement with the Company’s overseas subsidiaries (including Dohigh Trading and Sinochem Singapore) pursuant to the terms of the Sulphur Import Framework Agreement, for the year 2020 (the “ Continuing Connected Transactions ”), for which the Independent Shareholders’ approval is being sought, including the relevant annual caps (the “ Annual Caps ”). Details of the Continuing Connected Transactions and the Annual Caps are contained in the circular of the Company to the Shareholders dated 26 November 2019 (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.

As at the Latest Practicable Date, each of Sinochem Macao, Dohigh Trading, Sinochem Singapore and Sinochem Fertilizer is an indirectly wholly-owned subsidiary of the Company. Since Sinochem Group is the ultimate controlling shareholder of the Company holding an effective interest of approximately 52.7% of the Company, it is a connected person of the Company under the Listing Rules. Accordingly, the Continuing Connected Transactions constitute continuing connected transactions of the Company pursuant to Chapter 14A of the Listing Rules. As the relevant applicable percentage ratios in respect of the Annual Caps are more than 5%, the Continuing Connected Transactions (including the Annual Caps) are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under the Listing Rules.

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LETTER FROM SOMERLEY

In view of Sinochem Group’s interests in each of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement, Sinochem Group and its associates are required to abstain from voting on the resolutions to be proposed at the SGM to approve the Continuing Connected Transactions (including the Annual Caps).

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Tse Hau Yin, Aloysius, Mr. Ko Ming Tung, Edward and Mr. Lu Xin, has been established to advise the Independent Shareholders whether the terms of the Continuing Connected Transactions (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.

During the past two years, Somerley has acted as the independent financial adviser to the independent board committee and independent shareholders of the Company in relation to certain connected transactions of the Group, details of which were set out in the circulars of the Company dated 20 November 2017, 1 December 2017, 12 February 2018 and 20 November 2018. In addition, Somerley currently acts as the independent financial adviser to the Company in relation to (i) the sale of fertilizer products by the Group to Sinochem Agriculture Holdings Limited, as detailed in the announcement of the Company dated 12 November 2019, and (ii) the provision of deposit services by Sinochem Group Finance Co., Ltd. to the Group, as detailed in the announcement of the Company dated 18 November 2019. The above engagements were/are limited to providing independent advisory services to the independent board committee and independent shareholders of the Company pursuant to the Listing Rules, for which Somerley received or will receive normal professional fees from the Company. Notwithstanding the above engagements, as at the Latest Practicable Date, there were no relationships or interests between (a) Somerley and (b) the Group, Sinochem Group and their respective subsidiaries and associates that could reasonably be regarded as a hindrance to our independence as defined under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser.

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 they are true, accurate and complete in all material aspects and will remain so 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 to doubt the truth, accuracy or completeness 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, however, not conducted any independent investigation into the business and affairs of the Group and Sinochem Group and their respective subsidiaries and associates, nor have we carried out any independent verification of the information supplied.

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LETTER FROM SOMERLEY

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation on the terms of the Continuing Connected Transactions (including the Annual Caps), we have taken the following principal factors and reasons into consideration:

1. Information on the Group and Sinochem Group

The Group

The Group 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, distribution and agricultural services in relation to fertilizers, and forms a vertically integrated business model combining upstream and downstream businesses. As at the Latest Practicable Date, the Company had a market capitalisation of approximately HK$5.4 billion.

The Group achieved a continuous growth in both revenue and sales volume for its fertilizer products in recent years. Total revenue of the Group grew by approximately 30.3% to approximately RMB23.0 billion in 2018. For the first half of 2019, revenue further increased by approximately 8.6% when compared to the first half of 2018, to approximately RMB14.2 billion. In terms of the sales volume for its fertilizer products, the Group recorded approximately 10.2 million tons and 11.6 million tons in 2017 and 2018 respectively, and the growth continued in the first half of 2019, in which the Group achieved total sales volumes of approximately 7.0 million tons. The above growth was mainly the results of (i) the continuous improvement of fertilizer market conditions in the PRC as a result of the supply-side structural reform in the PRC’s agricultural sector, and (ii) the strategic procurement and enhanced marketing efforts made by the Group, according to the Company’s 2018 annual report and 2019 interim report.

Sinochem Macao is incorporated in Macao and is principally engaged in sourcing fertilizer products and other related agricultural products for the Group from overseas suppliers.

Dohigh Trading is incorporated in Hong Kong and is principally engaged in the trading of fertilizers and other agrichemical products.

Sinochem Singapore, incorporated in Singapore in November 2018, is mainly engaged in the international trade of fertilizer and fertilizer raw materials.

Sinochem Fertilizer is incorporated in the PRC and is engaged in the production, import, export, distribution, wholesale and retail of fertilizer raw materials and products, as well as research and development and services in the field of fertilizer-related business and products.

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LETTER FROM SOMERLEY

Sinochem Group

Sinochem Group is the controlling shareholder of the Company. It is a key state-controlled enterprise and a Global Fortune 500 Company. Its core businesses involve, among others, energy, chemical, agriculture, real estate and finance.

2. Background to and reasons for the Continuing Connected Transactions

(i) Fertilizer Co-operation Framework Agreement

Pursuant to the PRC law, only approved importers are allowed to import fertilizer products into the PRC. The Group is not allowed to do so, except for small amounts in border areas, as approved under the PRC law. As set out in the letter from the Board, Sinochem Group is one of four enterprises authorized under the Fertilizer Import Tariff Quota, Allocation Principle and Relevant Procedures for 2020 issued by the Ministry of Commerce of the PRC on 25 October 2019 for import of fertilizer products into the PRC, and the Group sees no indication that the above law is expected to change in near future.

The Group needs to import fertilizer products through authorised importers in its ordinary course of business. Since 2005, Sinochem Macao has been sourcing fertilizer products from overseas and selling them to Sinochem Group, after which Sinochem Group imports the products into the PRC and sells them (except for products imported by Sinochem Group as an agent for other customers) to Sinochem Fertilizer.

Currently, the arrangements between the three parties are governed by the existing fertilizer co-operation framework agreement dated 30 October 2018 (the “ Existing Fertilizer Co-operation Framework Agreement ”), which was approved by the then independent shareholders at a shareholders’ meeting held on 20 December 2018. The Existing Fertilizer Co-operation Framework Agreement has a term of one year and will expire on 31 December 2019.

In view of the long term business relationship between the Group and Sinochem Group, and Sinochem Group being one of the approved PRC fertilizer importers, the Fertilizer Co-operation Framework Agreement has been entered into between Sinochem Macao, Sinochem Group and Sinochem Fertilizer on 5 November 2019, to govern and continue the aforementioned import services for the year ending 31 December 2020.

(ii) Sulphur Import Framework Agreement

As a state-owned enterprise in the PRC, Sinochem Group enjoys domestic preferential policies issued by the PRC government from time to time, such as import-related preferential policies. In order to make full use of such policies that may reduce the Group’s cost of import, since 2009, Dohigh Trading has been sourcing overseas sulphur and other fertilizer raw materials and selling them to Sinochem Group, after which Sinochem Group imports the products into the PRC and sells them (except for products imported by Sinochem Group as an agent for other customers) to Sinochem Fertilizer.

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LETTER FROM SOMERLEY

Currently, the arrangements between the parties are governed by the existing sulphur import framework agreement dated 30 October 2018 (as supplemented by a supplemental agreement dated 15 April 2019 as described below, collectively the “ Existing Sulphur Import Framework Agreement ”), which was approved by the then independent shareholders at a shareholders’ meeting held on 20 December 2018. As set out in the announcement of the Company dated 15 April 2019, a supplemental agreement to the Existing Sulphur Import Framework Agreement has been entered into, such that Sinochem Group would also import sulphur, fertilizer and other fertilizer raw materials sourced by Sinochem Singapore, and sell them to Sinochem Fertilizer. This arrangement is to facilitate the development of international business of the Group and expand its international sourcing channels. Save for the involvement of Sinochem Singapore, a member of the Group, as an additional sourcing channel, other terms (including the pricing terms) and the annual cap under the Existing Sulphur Import Framework Agreement remain unchanged. The Existing Sulphur Import Framework Agreement has a term of one year and, similar to the Existing Fertilizer Co-operation Framework Agreement, will expire on 31 December 2019.

In view of the long-term business relationships between the Group and Sinochem Group, the Sulphur Import Framework Agreement has been entered into between the Company (for and on behalf of Dohigh Trading and Sinochem Singapore), Sinochem Group and Sinochem Fertilizer on 5 November 2019, to govern and continue the aforementioned import services for the year ending 31 December 2020.

3. Principal terms of the Continuing Connected Transactions

The principal terms of the Fertilizer Co-operation Framework Agreement and the Sulphur Import Framework Agreement are presented below. As regards to further details, please refer to the section headed “Continuing Connected Transactions” in the letter from the Board.

(i) Fertilizer Co-operation Framework Agreement

General

Pursuant to the Fertilizer Co-operation Framework Agreement, fertilizer products sourced from overseas by Sinochem Macao for Sinochem Fertilizer will first be sold to Sinochem Group, an approved importer of fertilizer products into the PRC, which will import the products sourced by Sinochem Macao and then sell them to Sinochem Fertilizer in the PRC. Sinochem Group will also import a small amount of fertilizer products and raw materials directly from overseas from time to time. Sinochem Group has undertaken that, except for fertilizer products and raw materials imported by it on behalf of other customers, it will sell all the fertilizer products and raw materials it imports to Sinochem Fertilizer exclusively. On the other hand, Sinochem Fertilizer is free to purchase fertilizer products and raw materials from any authorised importers.

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LETTER FROM SOMERLEY

Pricing

Pursuant to the Fertilizer Co-operation Framework Agreement, the pricing principles for the sale and purchase of fertilizer products between the three parties are as follows:

(i) for products sourced by Sinochem Macao for Sinochem Fertilizer, the price to be paid by Sinochem Group to Sinochem Macao shall be determined in accordance with the prevailing international market price;
(ii) for fertilizer products sold to Sinochem Fertilizer by Sinochem Group sourced from overseas by Sinochem Macao, Sinochem Group will charge Sinochem Fertilizer on a cost basis, that is, based on the price of the imported fertilizer products purchased from Sinochem Macao plus reasonable cost incurred by Sinochem Group (the “ Import Charges ”) in relation to the import of the fertilizers (including product inspection costs, customs clearing charges, import customs duty, bank charges and other fees payable to third parties (in aggregate representing 1.2% of the import price), as well as reasonable administrative costs; and
(iii) for fertilizer products and raw materials sold to Sinochem Fertilizer by Sinochem Group sourced directly from overseas, Sinochem Group will charge Sinochem Fertilizer in accordance with the prevailing domestic wholesale price at port.

We note that the above pricing principles are generally consistent with those adopted pursuant to the Existing Fertilizer Co-operation Framework Agreement. Further, we understand from the management of the Group that the reasonable administrative costs included in the Import Charges described above represents costs to be incurred by Sinochem Group, and are expected to account for less than 0.2% of the total transaction value, which we consider to be immaterial. On this basis, we consider the charging of such administrative costs to be acceptable.

Payment

Sinochem Fertilizer and Sinochem Group shall enter into specific agreements in relation to the fertilizer products, and Sinochem Fertilizer shall make the full payment to Sinochem Group for its purchases. Upon receipt of the payment made by Sinochem Fertilizer, Sinochem Group shall enter into specific agreements with Sinochem Macao in relation to the import of fertilizer products. Payments are usually made by telegraphic transfer within 90 days upon signing of the specific agreements.

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LETTER FROM SOMERLEY

(ii) Sulphur Import Framework Agreement

General

Pursuant to the Sulphur Import Framework Agreement, Sinochem Group will import sulphur, fertilizer and other fertilizer raw materials sourced by the Company’s overseas subsidiaries (including Dohigh Trading and Sinochem Singapore) only, and sell them all to Sinochem Fertilizer, except for any sulphur, fertilizer and other fertilizer raw materials imported by Sinochem Group on behalf of its other customers.

Pricing

Pursuant to the Sulphur Import Framework Agreement, the pricing principles for the sale and purchase of sulphur, fertilizer and other fertilizer raw materials between the parties are as follows:

(i) the price to be paid by Sinochem Group to the Company’s overseas subsidiaries (including Dohigh Trading and Sinochem Singapore) for its overseas purchases of sulphur, fertilizer and other fertilizer raw materials shall be determined in accordance with the prevailing international market price; and
(ii) the price to be paid by Sinochem Fertilizer to Sinochem Group for its domestic purchases of sulphur, fertilizer and other fertilizer raw materials shall be determined in accordance with the prevailing domestic wholesale price at port.

Payment

Sinochem Fertilizer and Sinochem Group shall enter into specific agreements in relation to the sulphur, fertilizer and other fertilizer raw materials, and Sinochem Fertilizer shall make the full payment to Sinochem Group for its purchases. Upon receipt of the payment made by Sinochem Fertilizer, Sinochem Group shall enter into specific agreements with the Company’s overseas subsidiaries (including Dohigh Trading and Sinochem Singapore) in relation to the import of sulphur, fertilizer and other fertilizer raw materials. Payments are usually made by telegraphic transfer within 90 days upon signing of the specific agreements.

(iii) Comparison of terms with independent third parties

We have discussed with the management of the Group and reviewed the lists of transactions under the Existing Fertilizer Co-operation Framework Agreement and the Existing Sulphur Import Framework Agreement covering the period from 1 January 2019 to 30 September 2019 and 11 sample contracts that were selected on a random basis from such lists (the “ Sample Contracts ”). We have also compared the Sample Contracts with (i) contracts for similar purchases selected from the lists of transactions

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LETTER FROM SOMERLEY

with independent fertilizer importers that were selected on a random basis from such lists covering the period from 1 January 2019 to 30 September 2019, in the relevant categories, and (ii) the respective international market price and domestic wholesale price at port sourced from independent commodity information providers, such as Argus Media (http://www.arguschina.cn), an independent media organisation which produces price assessments and analysis of international energy and other commodity markets and Baiinfo （百川盈孚） (http://www.baiinfo.com), one of the largest information suppliers of bulk raw materials market in China which provides a comprehensive package of latest news, prices, expert market commentary and statistics, as well as data base for commodities prices (covering, among others, sulphur and fertilizer). On the basis of our review, we note that the terms of the transactions contemplated under the Continuing Connected Transactions, in particular the pricing terms and credit terms, were in line with the transaction terms between the Group and the independent third parties and/or the international market price or domestic wholesale price at port, as reviewed by us. Given that the major products under each of the Existing Fertilizer Co-operation Framework Agreement (namely potash and compound fertilizer) and the Existing Sulphur Import Framework Agreement (namely sulphur) have been covered in the Sample Contracts and such Sample Contracts were executed at different times throughout the first nine months of 2019, we therefore consider the Sample Contracts selected to be fair and representative.

4. The Annual Caps

Set out below are the historical transaction amounts and the relevant annual caps under the Continuing Connected Transactions for the two years ended 31 December 2018 and for the nine months ended 30 September 2019, and the Annual Caps for the year 2020:

(i) Fertilizer Co-operation Framework Agreement

(a) Review of historical figures

			For the nine
	For the year	ended	months ended
	31 December		30 September
	2017	2018	2019
	Audited	Audited	Unaudited
	(’000)	(’000)	(’000)
Historical transactions
between Sinochem
Macao and
Sinochem Group	US$478,425	US$523,212	US$621,575
Relevant annual caps	US$1,010,000	US$929,000	US$1,080,000
Utilisation rates	47.4%	56.3%	76.7%
			(Note)

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LETTER FROM SOMERLEY

			For the nine
	For the year ended		months ended
	31 December		30 September
	2017	2018	2019
	Audited	Audited	Unaudited
	(’000)	(’000)	(’000)
Historical transactions
between Sinochem
Fertilizer and
Sinochem Group	RMB3,296,530	RMB3,668,276	RMB4,377,487
Relevant annual caps	RMB7,560,000	RMB6,596,000	RMB7,960,000
Utilisation rates	43.6%	55.6%	73.3%
			(Note)

Note: Based on the relevant nine months transaction amounts and pro rata annual cap amounts

In 2018, the domestic sales of fertilizer products by Sinochem Group to Sinochem Fertilizer has increased by approximately 11.3% to approximately RMB3,668.3 million, while the import of fertilizer products by Sinochem Group from Sinochem Macao has also increased to a similar extent, rising by approximately 9.4% to approximately US$523.2 million. Slightly over 50% of the relevant annual caps were utilised in 2018. As stated in the Company’s 2018 annual report, sales volume of potash and compound fertilizers, being the major products under the Existing Fertilizer Co-operation Framework Agreement, increased by approximately 7.3% and 10.2% year-on-year respectively, largely similar to the extent of growth in the above import transactions with Sinochem Group. As advised by the management of the Group, the above increase was mainly due to the modest recovery of the PRC fertilizer industry in 2018, which lead to a higher demand for high-quality fertilizers and an increase in fertilizer prices in the PRC.

The domestic sales of fertilizer products by Sinochem Group to Sinochem Fertilizer and the relevant imports by Sinochem Group from Sinochem Macao continued to increase during the first nine months ended 30 September 2019, amounting to approximately RMB4,377.5 million and US$621.6 million respectively, surpassing the full year transaction amounts in 2018. As such, the utilisation rates of the relevant annual caps (on a pro rata basis) for the first nine months in 2019 were higher compared to that of 2018. As advised by the management of the Group, this was mainly due to the continuing recovery of the PRC fertilizer industry, as mentioned above, and the strengthened procurement cooperation with international suppliers as regards high-quality fertilizer products.

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LETTER FROM SOMERLEY

(b) Assessment of the Annual Caps

Transactions between Sinochem Macao and Sinochem Group

The annual cap in respect of the transactions between Sinochem Macao and Sinochem Group under the Fertilizer Co-operation Framework Agreement for the year ending 31 December 2020 is US$1,126.0 million, representing a modest increase of approximately 4.3% compared to the annual cap for the year 2019.

In assessing the reasonableness of the annual cap, we have discussed with the management of the Group the bases and assumptions underlying the projections for the purchase of fertilizer products by Sinochem Group from Sinochem Macao. The annual cap is estimated based on (i) the projected quantities of purchase by Sinochem Group for Sinochem Fertilizer through the arrangement with Sinochem Macao; and (ii) the projected average price per tonne of fertilizer products for the year 2020.

We note that in estimating the sales quantities of fertilizer products from Sinochem Macao to Sinochem Group in the year 2020, the management of the Group has in general made reference to the expected sales quantities of fertilizer products from Sinochem Macao to Sinochem Group in 2019, on the basis of the first nine months sales volume, and factored in an allowance catering for the expected increase in demand of fertilizer in 2020. We have performed independent research and reviewed a report titled “Fertilizer Outlook 2019-2023”, published in June 2019 by the International Fertilizer Association (http://www.fertilizer.org/), a global fertilizer association with a membership of more than 450 entities in over 65 countries according to its website, which expects modest potash demand growth at approximately 6.3% between 2018 and 2023. Further, we note that the World Bank Group (https://www.worldbank.org/), a global partnership with 189 member countries and staff from more than 170 countries according to its website, published a report titled “Commodity Markets Outlook” in October 2019, stating that potash prices are projected to grow modestly by approximately 2.1% in 2020, following an expected increase of approximately 18.3% in 2019, which is mainly supported by the robust demand in, among others, the PRC. Having considered the above and the continuous growth in the sales of fertilizer products, as discussed previously, we therefore concur with the view of the management of the Group, as set out above.

According to the management of the Group, the projected average price per tonne is based on the average international market price for fertilizer products in the first nine months of 2019. In this respect, we have compared the projected prices for potash and compound fertilizers, being the major products under the Fertilizer Co-operation Framework Agreement, to the average international market price levels available from independent commodity information providers, such Argus Media during the abovementioned period, and note that they are comparable.

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LETTER FROM SOMERLEY

Transactions between Sinochem Fertilizer and Sinochem Group

The annual cap in respect of the transactions between Sinochem Fertilizer and Sinochem Group under the Fertilizer Co-operation Framework Agreement for the year ending 31 December 2020 is RMB8,346.0 million, which also represented a minimal increase of approximately 4.8% compared to the annual cap for the year 2019.

In assessing the reasonableness of the annual cap, we have discussed with the management of the Group the bases and assumptions underlying the projections for the sales of fertilizer products by Sinochem Group to Sinochem Fertilizer. The annual cap is estimated based on: (i) the projected quantities of sales of fertilizer products sourced from overseas by Sinochem Macao, and the projected average price per tonne of fertilizer products for 2020 (which is determined on a cost basis) and the estimated costs incurred by Sinochem Group for the import of such fertilizer for the year 2020; and

(ii) the projected quantities of sales of fertilizer products and raw materials sourced by Sinochem Group directly from other overseas suppliers for Sinochem Fertilizer and the projected average price per tonne of fertilizer products and raw materials (which is determined in accordance with the domestic wholesale price at port) for the year 2020.

The quantity of fertilizer products expected to be purchased by Sinochem Fertilizer from Sinochem Group under the Fertilizer Co-operation Framework Agreement is principally based on the quantity of products expected to be sold by Sinochem Macao to Sinochem Group as discussed in the sub-section above. The expected average price of products for the purpose of the annual cap is in general based on the prices of products to be sold by Sinochem Macao to Sinochem Group as estimated on the bases discussed above, plus an additional cost per tonne, determined after taking into account the Import Charges relating to the import of fertilizer products.

Having considered (i) the projected price of fertilizer products in 2020, referencing the average international market prices in the first nine months of 2019, and (ii) the Group’s estimated purchase quantities of fertilizer products after taking account into an improvement in demand for fertilizer products, we consider it reasonable for the Directors to set the annual caps of (i) US$1,126.0 million for transactions between Sinochem Macao and Sinochem Group and (ii) RMB8,346.0 million for transactions between Sinochem Fertilizer and Sinochem Group for the year ending 31 December 2020.

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LETTER FROM SOMERLEY

(ii) Sulphur Import Framework Agreement

(a) Review of historical figures

			For the nine
	For the year	ended	months ended
	31 December		30 September
	2017	2018	2019
	Audited	Audited	Unaudited
	(’000)	(’000)	(’000)
Historical transactions
between the
Company’s
overseas
subsidiaries and
Sinochem Group	US$31,301	US$27,982	US$32,891
Relevant annual caps	US$115,000	US$47,000	US$95,130
Utilisation rates	27.2%	59.5%	46.1%
			(Note)
Historical transactions
between Sinochem
Fertilizer and
Sinochem Group	RMB259,044	RMB181,265	RMB217,333
Relevant annual caps	RMB880,000	RMB315,000	RMB665,900
Utilisation rates	29.4%	57.5%	43.5%
			(Note)

Notes: Based on the relevant nine months transaction amounts and pro rata annual cap amounts

We note from the above table that the domestic sales of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group to Sinochem Fertilizer, and the overseas purchases by Sinochem Group from the Company’s overseas subsidiaries, decreased by approximately 30.0% and 10.6% respectively in 2018 as compared to that of 2017. We are advised by the management of the Group that the sulphur prices fluctuated significantly during the years of 2017 and 2018, in a range of approximately US$80 per tonne and US$180 per tonne, resulting from a general decline in demand in the PRC.

For the nine months ended 30 September 2019, the domestic sales by Sinochem Group to Sinochem Fertilizer amounted to approximately RMB217.3 million, and the relevant purchases by Sinochem Group from the Company’s overseas subsidiaries amounted to approximately US$32.9 million. Both domestic sales and overseas imports transactions experienced a substantial increase for the first nine months in 2019, with absolute transaction values more than the full year transaction amounts in 2018. Utilisation of the relevant annual caps for the first nine months in 2019, however, were below 50%, which was mainly due to the substantial drop in the price of sulphur, the key product under the Existing

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LETTER FROM SOMERLEY

Sulphur Import Framework Agreement, during the first nine months of 2019, from approximately US$150 per tonne in the beginning of 2019 to approximately US$70 per tonne in September 2019, albeit this was offset by the increase in volumes transacted.

(b) Assessment of the annual caps

Transactions between the Company’s overseas subsidiaries and Sinochem Group

The annual cap in respect of the transactions between the Company’s overseas subsidiaries and Sinochem Group under the Sulphur Import Framework Agreement for the year ending 31 December 2020 is US$98.86 million, representing a slight increase of approximately 3.9% compared to the annual cap for the year 2019.

In assessing the reasonableness of the annual cap, we have discussed with the management of the Group the bases and assumptions underlying the projections for the purchase of the sulphur, fertilizer and other fertilizer raw materials by Sinochem Group from the Company’s overseas subsidiaries. The annual cap is estimated based on (i) the projected quantities of purchase by Sinochem Group for Sinochem Fertilizer through the arrangement with the Company’s overseas subsidiaries; and (ii) the projected average price per tonne of products for the year 2020.

In estimating the purchase quantities of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group from the Company’s overseas subsidiaries in 2020, the management of the Group has primarily considered the Group’s procurement strategy in respect of sulphur products set out for the year 2020, with reference to the quantities to be purchased under current negotiations with the international suppliers and the growing volumes of sulphur products transacted in the first nine months of 2019.

In particular, the Company has considered a framework agreement entered into between Sinochem Group and a major international supplier, for the purpose of facilitating the procurement of sulphur products by the overseas subsidiaries of the Company, in which the maximum quantity of sulphur products the supplier has agreed to supply in 2020 was specified. The overseas subsidiaries of the Company may purchase sulphur products from such supplier, as one of their procurement channels, within the maximum quantity specified in such framework agreement, and sell them to Sinochem Group pursuant to the Sulphur Import Framework Agreement. We have obtained the abovementioned framework agreement and note that the maximum quantity of sulphur products to be supplied in 2020 represents a substantial portion of the quantities projected for the setting of the annual cap.

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LETTER FROM SOMERLEY

As mentioned above, there was an increasing trend in respect of sales quantities of sulphur products since 2018, and the management of the Group expects that the demand for sulphur products in 2020 will follow such rising trend in 2019. Although the utilisation of annual caps for the first nine months in 2019 were relatively low, the substantial growth in actual monetary value of the transactions during that period is, based on the above-mentioned expectation by the management of the Group, expected to continue in 2020. With the modest growth in annual cap amount of approximately 3.9%, the management of the Group expects the annual cap utilisation will improve in 2020.

In respect of the estimated price level of sulphur and fertilizer related products in 2020, given that the wide fluctuation of historical sulphur price, the management of the Group has made reference to the average international market price levels for sulphur price during the period from January 2018 to September 2019. We understand from the management of the Group that the wider period that is being referenced to forecast future price level was principally due to the substantial price fluctuation of sulphur in the past, which we consider to be reasonable. In this respect, we have compared the projected price for sulphur, being the major product under the Sulphur Import Framework Agreement, to the average international market price level available from independent commodity information providers, such Argus Media, during the abovementioned period, and note that they are comparable.

Transactions between Sinochem Fertilizer and Sinochem Group

The annual cap in respect of the transactions between Sinochem Fertilizer and Sinochem Group under the Sulphur Import Framework Agreement for the year ending 31 December 2020 is RMB710.0 million, also representing a slight increase of approximately 6.6% compared to the annual cap for the year 2019. In assessing the reasonableness of the annual cap, we have discussed with the management of the Group the bases and assumptions underlying the projections for the sales of sulphur, fertilizer and other fertilizer raw materials by Sinochem Group to Sinochem Fertilizer. The annual cap is estimated based on: (i) the projected quantities of sale of sulphur, fertilizer and other fertilizer raw materials to Sinochem Fertilizer by Sinochem Group; and

(ii) the projected average price per tonne of products (which is determined in accordance with the domestic wholesale price at port) for the year 2020.

The quantity of sulphur, fertilizer and other fertilizer raw materials expected to be sold domestically by Sinochem Group to Sinochem Fertilizer under the Sulphur Import Framework Agreement is equal to the quantity of products expected to be sourced from overseas by the Company’s overseas subsidiaries to Sinochem Group. The average price of products to be sold by Sinochem Group to

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LETTER FROM SOMERLEY

Sinochem Fertilizer for the purpose of the annual cap is based on the expected domestic wholesale price at port in 2020, which in turn is based on the international prices of sulphur and fertilizer related products as set out above.

Having considered (i) the substantial growth in actual transaction value under the Existing Sulphur Import Framework Agreement during the first nine months in 2019, (ii) the expected increase in demand for sulphur and fertilizer related products in the PRC, and (iii) the estimation of average price level of sulphur and fertilizer related products in 2020, as explained above, we consider it reasonable for the Directors to set the annual caps of (i) US$98.86 million for transactions between the Company’s overseas subsidiaries and Sinochem Group and (ii) RMB710.0 million for transactions between Sinochem Fertilizer and Sinochem Group for the year ending 31 December 2020.

(iii) General comments

Generally speaking, in our opinion, it is in the interests of the Group and the Shareholders to determine the Annual Caps in a way that can take into account the latest market conditions and accommodate the potential growth of the Group’s business. In particular, it was shown in 2019 that the prices of sulphur fluctuated significantly, with the latest price of sulphur in September 2019 almost halved, compared to the actual price of sulphur in early 2019. Such significant price fluctuation made it difficult for the management of the Group to project future transactions with Sinochem Group with high level of accuracy, and as a result, certain allowance to cater for any future price fluctuation, and the fluctuation of transaction volume which is largely driven by future market demand, is considered appropriate. Given the import transactions with Sinochem Group is of vital importance to the Group’s business operation, and provided that the Continuing Connected Transactions are subject to annual review by the independent non-executive Directors and auditors of the Company (as discussed below) as required under the Listing Rules, the Group would have desirable flexibility in conducting its businesses if the Annual Caps are tailored to future business growth. In assessing the reasonableness of the Annual Caps, we have discussed with the management of the Group the factors taken into account as stated earlier in this section. We consider it reasonable for the Company to use the above factors in determining the Annual Caps.

5. Reporting requirements and conditions of the Continuing Connected Transactions

Pursuant to Rules 14A.55 to 14A.59 of the Listing Rules, the Continuing Connected Transactions are subject to the following annual review requirements:

(a) the independent non-executive Directors must review the Continuing Connected Transactions every year and confirm in the Company’s annual report whether the Continuing Connected Transactions have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or better; and

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LETTER FROM SOMERLEY

(iii) according to the agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(b) the Company must engage its auditors to report on the Continuing Connected Transactions every year. The Company’s auditors must provide a letter to the Board (with a copy to be provided to the Stock Exchange at least ten business days before the bulk printing of the Company’s annual report) confirming whether anything has come to their attention that causes them to believe that the Continuing Connected Transactions:
(i) have not been approved by the Board;
(ii) were not, in all material respects, in accordance with the pricing policies of the Group if the Continuing Connected Transactions involve the provision of goods or services by the Group;
(iii) were not entered into, in all material respects, in accordance with the relevant agreements governing the Continuing Connected Transactions; and
(iv) have exceeded the Annual Caps;
(c) the Company must allow, and ensure that the counterparties to the Continuing Connected Transactions allow, the Company’s auditors 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 must promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or auditors of the Company cannot confirm the matters as required.

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 and the Annual Caps not being exceeded, we are of the view that appropriate measures will be in place to monitor the conduct of the transactions and assist to safeguard the interests of the Independent Shareholders.

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LETTER FROM SOMERLEY

OPINION AND RECOMMENDATION

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

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED John Wong Director

Mr. John Wong is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Somerley, which is licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. He has over ten years of experience in the corporate finance industry.

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. INTEREST IN SECURITIES

Save as disclosed below, 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 debentures 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 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.

As at the Latest Practicable Date, Directors of the Company had long position in the Shares of the Company as follows:

			Percentage of the
			issued share
		Number of	capital of the
Name of Director	Capacity	Shares held	Company
Lu Xin	Beneficial owner	2,900,000	0.041%
Tse Hau Yin, Aloysius	Beneficial owner	3,404,000	0.048%

3. DIRECTORS’ EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following Director is also an employee of a company which has an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Name of substantial Name of Director shareholder of the Company Yang Lin Sinochem Group

Sinochem Group Sinochem Corporation

Position in the substantial shareholder of the Company

General accountant Chief financial officer

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GENERAL INFORMATION

APPENDIX

4. DIRECTORS’ SERVICE CONTRACTS

On 16 February 2017, Mr. Qin Hengde, an executive Director and the Chief Executive Officer of the Company, entered into a service contract with the Company for a term of three years. On 15 May 2017, Mr. Harry Yang, an executive Director of the Company, renewed his service contract with the Company for a term of three years. Pursuant to the terms stipulated in the service contracts of Mr. Qin Hengde and Mr. Harry Yang, 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 respective service contract. Should the Company terminate the respective service contract with Mr. Qin Hengde or Mr. Harry Yang prior to its expiry, Mr. Qin Hengde or Mr. Harry Yang will be entitled to receive a cash compensation equivalent to 11 months of his annual director’s salary, save for the circumstances described in item (ii) above.

Saved 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 which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective close associates were 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.

6. OTHER ARRANGEMENTS INVOLVING DIRECTORS

(a) None of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular and which is significant in relation to the business of the Group; and
(b) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been since 31 December 2018 (the date to which the latest published audited consolidated financial statements of the Company were made up), (i) acquired or disposed of by; (ii) leased to; or (iii) were proposed to be acquired or disposed of by; or (iv) were proposed to be leased to any member of the Group.

7. MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors confirmed that there had been no material adverse change in the financial or trading position of the Company since 31 December 2018, being the date to which the latest published audited consolidated financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX

8. EXPERT

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) and Type 6 (advising on corporate finance) regulated activities 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 2018 (the date to which the latest published audited consolidated financial statements 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.

9. GENERAL

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

10. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of each of (i) the Fertilizer Co-operation Framework Agreement, (ii) the Sulphur Import Framework Agreement, and (iii) the service contracts mentioned in paragraph 4 above 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 Unit 4705, 47th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including the date of the SGM.

– 37 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [77 x 76] intentionally omitted <==

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Sinofert Holdings Limited (the “ Company ”) will be held at Salon II, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 19 December 2019 at 10:00 a.m. or any adjournment thereof, to consider and, if thought fit, pass, with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT :
(a) the Fertilizer Co-operation Framework Agreement (as defined and described in the circular to the shareholders of the Company dated 26 November 2019 (the “ 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 annual caps of the transactions contemplated under the Fertilizer Co-operation Framework Agreement as described in the Circular be and are hereby approved, ratified and confirmed; and
(c) the directors of the Company or any other person authorized by the directors of the Company be and are hereby authorized 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 Fertilizer Co-operation Framework 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 Fertilizer Co-operation Framework Agreement 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 purpose only

– 38 –

NOTICE OF SPECIAL GENERAL MEETING

“ THAT :
(a) the Sulphur Import Framework Agreement (as defined and described in the Circular, a copy of which has been produced to the meeting marked “B” 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 annual caps of the transactions contemplated under the Sulphur Import Framework Agreement as described in the Circular be and are hereby approved, ratified and confirmed; and
(c) the directors of the Company or any other person authorized by the directors of the Company be and are hereby authorized 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 Sulphur Import Framework 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 Sulphur Import Framework Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this resolution.”

For and behalf of the Board of Sinofert Holdings Limited Qin Hengde Executive Director and Chief Executive Officer

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

26 November 2019

Notes:

1 The record date for determining the entitlement of members of the Company to attend and vote at the special general meeting will be on 13 December 2019. 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 and transfer office in Hong Kong, Tricor Secretaries Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on 13 December 2019.
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 on his behalf. A proxy need not be a member of the Company.
3 To be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of that power or authority, must be deposited at the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours (excluding any part of a day that is a public holiday) before the time appointed for the holding of the meeting or any adjournment thereof.

– 39 –

NOTICE OF SPECIAL GENERAL MEETING

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 are 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 way of poll.

As at the date of this notice, the executive directors of the Company are Mr. Qin Hengde (Chief Executive Officer) and Mr. Harry Yang; the non-executive director of the Company is Mr. Yang Lin; and the independent non-executive directors of the Company are Mr. Ko Ming Tung, Edward, Mr. Lu Xin and Mr. Tse Hau Yin, Aloysius.

– 40 –

AI assistant

CWT International Limited — Proxy Solicitation & Information Statement 2019

49269_rns_2019-11-25_16d78e42-fec6-496f-9af4-65dd2faa0eec.pdf

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

SOMERLEY CAPITAL LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

INTRODUCTION

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS

(A) Fertilizer Co-operation Framework Agreement

Principal Terms of the Fertilizer Co-Operation Framework Agreement

Date

Parties

Nature of transactions

LETTER FROM THE BOARD

Pricing

Payment

LETTER FROM THE BOARD

Term

Annual Caps

Annual cap for continuing connected transactions between Sinochem Macao and Sinochem Group

Annual cap for continuing connected transactions between Sinochem Fertilizer and Sinochem Group

LETTER FROM THE BOARD

(B) Sulphur Import Framework Agreement

Principal Terms of the Sulphur Import Framework Agreement

Date

Parties

Nature of transactions

Pricing

Payment

LETTER FROM THE BOARD

Term

Annual Caps

Annual cap for continuing connected transactions between the overseas subsidiaries of the Company and Sinochem Group

Annual cap for continuing connected transactions between Sinochem Fertilizer and Sinochem Group

LETTER FROM THE BOARD

PRICING BASIS AND INTERNAL CONTROL PROCEDURES

REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

(A) Fertilizer Co-operation Framework Agreement

(B) Sulphur Import Framework Agreement

IMPLICATIONS OF THE LISTING RULES

GENERAL INFORMATION

SGM

LETTER FROM THE BOARD

RECOMMENDATION

FURTHER INFORMATION

LETTER FROM THE BOARD

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司*

To: the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS UNDER FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND SULPHUR IMPORT FRAMEWORK AGREEMENT

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

SOMERLEY CAPITAL LIMITED

CONTINUING CONNECTED TRANSACTIONS UNDER THE FERTILIZER CO-OPERATION FRAMEWORK AGREEMENT AND THE SULPHUR IMPORT FRAMEWORK AGREEMENT

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group and Sinochem Group

Sinochem Group

2. Background to and reasons for the Continuing Connected Transactions

(i) Fertilizer Co-operation Framework Agreement

(ii) Sulphur Import Framework Agreement

LETTER FROM SOMERLEY

3. Principal terms of the Continuing Connected Transactions

(i) Fertilizer Co-operation Framework Agreement

Pricing

Payment

(ii) Sulphur Import Framework Agreement

General

Pricing

Payment

(iii) Comparison of terms with independent third parties

LETTER FROM SOMERLEY

4. The Annual Caps

(i) Fertilizer Co-operation Framework Agreement

CWT International Limited Proxy Solicitation & Information Statement 2019