DT Capital Limited — M&A Activity 2012

Sep 4, 2012

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

INTERCHINA HOLDINGS COMPANY LIMITED

國中控股有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 202)

VERY SUBSTANTIAL DISPOSAL IN RELATION TO POSSIBLE DISPOSAL OF SHARES IN A SUBSIDIARY AND RESUMPTION OF TRADING

THE DISPOSAL MANDATE

As at the date of this announcement, the Company held 229,725,000 Heilongjiang Interchina Shares, representing approximately 53.77% of the issued share capital of Heilongjiang Interchina. The Company would like to seek the Shareholders' approval in relation to the Disposal Mandate which involves the possible disposal of Heilongjiang Interchina Shares held by the Company in one or more transactions which in aggregate will constitute a very substantial disposal of the Company. Details of the terms of the Disposal Mandate is set out under the paragraph headed "Terms of the Disposal Mandate" in this announcement.

The Disposal Mandate, if exercised in full, will constitute a very substantial disposal for the Company under Chapter 14 of the Listing Rules and is subject to the approval of the Shareholders. To the best of knowledge of the Company, no Shareholder has a material interest in the Disposal as at the date of this announcement, and therefore, no Shareholder is required to abstain from voting at the EGM.

A circular containing, among other things, further information on the Disposal, financial information relating to the Group, financial information relating to the Remaining Group and the notice of EGM will be despatched to the Shareholders on or before 28 September 2012.

RESUMPTION OF TRADING

Trading in the Shares on the Stock Exchange was suspended with effect from 9:00 a.m. on 28 August 2012 at the request of the Company pending the publication of this announcement. An application has been made to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange with effect from 9:00 a.m. on 5 September 2012.

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THE DISPOSAL MANDATE

As at the date of this announcement, the Company held 229,725,000 Heilongjiang Interchina Shares, representing approximately 53.77% of the issued share capital of Heilongjiang Interchina. Heilongjiang Interchina is principally engaged in sewage and water treatment operation, construction of sewage and water treatment plants, the provision of technical services that is related to sewage treatment in the PRC.

The Company would like to seek the Shareholders' approval in relation to the Disposal Mandate which involves the possible disposal of Heilongjiang Interchina Shares held by the Company in one or more transactions which in aggregate will constitute a very substantial disposal of the Company. The Board resolved and approved the proposed terms of the Disposal Mandate on 27 August 2012, 31 August 2012 and 4 September 2012.

Terms of the Disposal Mandate

The Disposal Mandate to be sought from the Shareholders will be on the following terms:

Maximum number of Heilongjiang Interchina Shares to be sold : not more than 110,000,000 Heilongjiang Interchina Shares, being approximately 25.75% of the issued share capital of Heilongjiang Interchina as at the date of this announcement

Minimum disposal price : the higher of (a) RMB8.03, being the same as the minimum placing price of the Non-public Share Issue, and representing (i) a discount of 2.3% to the average closing price of RMB8.222 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange for the last 30 consecutive trading days up to and including 27 August 2012; and (ii) a discount of approximately 18.6% to the average closing price of RMB9.862 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange for the 12 months ended on 27 August 2012; or (b) 90% of the 5-day average closing price of Heilongjiang Interchina Shares as quoted on the Shanghai Stock Exchange immediately prior to any disposal

Settlement of consideration : cash

Mandate period : the Disposal Mandate to be sought from the Shareholders is to be valid for a period of six months from the date on which the Disposal Mandate is approved by the Shareholders

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Potential buyer(s)

: the persons to whom the Heilongjiang Interchina Shares will be disposed and the ultimate beneficial owner of such persons will, to the best of the Directors' knowledge, information and belief having made all reasonable enquiries, be third parties who are independent of the Company and its connected persons

The Company intends to dispose of 110,000,000 Heilongjiang Interchina Shares via the bulk-volume trading system of the Shanghai Stock Exchange at or above the minimum disposal price. The bulk-volume trading system is a trading platform under the Shanghai Stock Exchange and was specifically designed for trading of securities of not less than 50,000 shares (in terms of share number) or RMB3,000,000 (in terms of value) on each transaction. The advantage of it is that it is cost-saving (because it incurs less commission rate) and efficient. Before the transaction is executed, a potential buyer is already identified. The final trading price is to be within the daily lowest trading price and the daily highest trading price of the shares to be processed. These are block trade transactions but not necessarily conducted under any placing agreements with specific investment banks/financial institutions as placing agent.

The minimum disposal price of RMB8.03 has been determined after taking into account the minimum placing price of the Non-public Share Issue and the price performance of Heilongjiang Interchina Shares. Such minimum disposal price of RMB8.03 represents:

(i) a premium of 5.4% over the lowest closing price of RMB7.62 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange during the last 30 consecutive trading days up to and including 27 August 2012, being the date immediately prior to the suspension of trading in the Shares pending the release of this announcement;

(ii) a discount of 11.2% to the highest closing price of RMB9.04 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange during the last 30 consecutive trading days up to and including 27 August 2012;

(iii) a discount of 2.3% to the average closing price of RMB8.222 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange for the last 30 consecutive trading days up to and including 27 August 2012;

(iv) a discount of 10.3% to the closing price of RMB8.95 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange on 27 August 2012; and

(v) a discount of approximately 18.6% to the average closing price of RMB9.862 per Heilongjiang Interchina Share as quoted on the Shanghai Stock Exchange for the 12 months ended on 27 August 2012.

Such minimum disposal price represents price-to-earning ratio of approximately 49.26, based on the net profit of Heilongjiang Interchina for the year ended 31 December 2011. The other threshold of the minimum disposal price, being 90% of the 5-day average closing price of Heilongjiang Interchina Shares as quoted on the Shanghai Stock Exchange immediately prior

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to any disposal, has been set to accommodate fluctuations in the market while exercising the Disposal Mandate, so as to maximise the return for the Company and the Shareholders as a whole. The Directors consider that the terms of the Disposal Mandate, including the minimum disposal price per Heilongjiang Interchina Share, are fair and reasonable.

INFORMATION OF HEILONGJIANG INTERCHINA

Heilongjiang Interchina is principally engaged in sewage and water treatment operation, construction of sewage and water treatment plants, the provision of technical services that is related to sewage treatment in the PRC. As at 31 March 2012, Heilongjiang Interchina operated 9 sewage treatment projects, 3 water supply projects and a construction company. The aggregate daily processing capacity of Heilongjiang Interchina reached approximately 1,237,500 tonnes.

Set out below is a summary of the unaudited consolidated financial information of Heilongjiang Interchina for the two years ended 31 March 2012, which was prepared in accordance with PRC accounting standard and adjusted in accordance with HKFRSs by the Company:

| | For the year ended
31 March 2011
HK$
(unaudited) | For the year ended
31 March 2012
HK$
(unaudited) |
| --- | --- | --- |
| Profit before taxation | 110,110,000 | 92,957,000 |
| Profit after taxation | 72,670,000 | 83,070,000 |

According to the unaudited consolidated statement of financial position of Heilongjiang Interchina as at 31 March 2011 and 2012, the net asset value of Heilongjiang Interchina were approximately HK$1,542,116,000 and HK$1,757,965,000 respectively.

Set out below is a summary of the audited consolidated financial information of Heilongjiang Interchina for the two years ended 31 December 2011, which was prepared in accordance with PRC accounting standard:

| | For the year ended
31 December 2010
RMB
(audited) | For the year ended
31 December 2011
RMB
(audited) |
| --- | --- | --- |
| Profit before taxation | 92,455,438.63 | 78,743,078.27 |
| Profit after taxation | 82,686,064.59 | 69,785,089.21 |

The audited consolidated net asset value of Heilongjiang Interchina as at 31 December 2010 and 2011 were approximately RMB678,600,047.52 and RMB1,201,855,760.54 respectively.

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FINANCIAL EFFECT AND USE OF PROCEEDS

As at the date of this announcement, the Company through Interchina Tianjin indirectly held 229,725,000 Heilongjiang Interchina Shares, being approximately 53.77% of the issued share capital of Heilongjiang Interchina.

Cessation as subsidiary

On 12 July 2012, the Company announced the Deemed Disposal, which, if completed in full, would render the reduction of the Group's interest in Heilongjiang Interchina from approximately 53.77% to approximately 39.12%. It is expected that upon exercise in full of the Disposal Mandate, together with completion in full of the Deemed Disposal, the Group's interest in Heilongjiang Interchina will be further diluted to approximately 20.39%. Assuming the Deemed Disposal did not take place but upon exercise in full of the Disposal Mandate, the Group's interest in Heilongjiang Interchina will decrease from 53.77% to 28.02%. In either case, Heilongjiang Interchina will cease to be a subsidiary of the Company but instead will become an associate of the Company. The Company considers that the Disposal would not have any material adverse effects on the total assets and total liabilities of the Group. If the Deemed Disposal is not completed but the Disposal is completed, Heilongjiang Interchina will be treated as an 28.02% associate investment of the Group. If both of the Deemed Disposal and the Disposal are completed, Heilongjiang Interchina will be also treated as an 20.39% associate investment of the Group, representing a dilution effect of 7.63% in the equity interest of Heilongjiang Interchina.

Realised profit upon Completion

Based on the average investment cost of the Heilongjiang Interchina Shares held by the Company as at 31 March 2012 of RMB2.73 per Heilongjiang Interchina Share and the minimum disposal price of RMB8.03, the expected realised profit after tax on the Disposal is approximately RMB434,600,000.

Sufficiency of operation

The Company does not consider there will be issue in meeting the requirements of Rule 14.82 of the Listing Rules upon completion of placing of 854 million Shares on 16 August 2012, the Deemed Disposal, the Disposal and the Proposed Disposal of the Property.

Upon completion of the Deemed Disposal, the Disposal and the Proposed Disposal of the Property, excluding the amount of 20.39% equity interest of Heilongjiang Interchina, the Group will still have total assets of approximately HK$4,188,602,000.

Upon completion of the Deemed Disposal, the Disposal and the Proposed Disposal of the Property, the Group will be principally engaged in property investment operation and natural resources operation. It is estimated that based on the remaining investment property on hand, it will generate annual rental income of not less than HK$20 million for the year ending 31 March 2013. It is also estimated that once the Company has completed the acquisition in relation to existing natural resources project (as set out in the announcement of the Company dated 28 June 2012) (the "Mining Acquisition"), production and trading of manganese ore will commence within 6 months.

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Use of proceeds

Based on (i) the minimum disposal price of RMB8.03; and (ii) the maximum number of 110,000,000 Heilongjiang Interchina Shares to be disposed of under the Disposal Mandate, the Disposal will raise approximately RMB734,900,000 (equivalent to approximately HK$907,284,000) for the Group. The Group intends to use the proceeds in the following manner: (i) as to approximately 60% for repayment of bank and other borrowings of the Group; and (ii) as to the remaining 40% as funding for any potential investment opportunity which can enhance the quality of assets of the Group and increase the profitability of the Group.

As at the date of this announcement, save for the Mining Acquisition, the Group has not yet identified any such investment opportunity but the Group will aim to look for any investment which can provide a stable income stream and with higher rate of return as compared to the environmental water operation. The Group has not fixed an arbitrary parameter regarding the nature of projects to be invested. The Company takes the view that as in the past, it is in the interests of the Company and Shareholders to keep an open mind when looking for investment opportunities. Afterall, the Group has a history of engaging in diversified business of different nature. Further announcement will be made as and when appropriate in relation thereto in accordance with the Listing Rules.

As at 31 July 2012, the outstanding bank and other borrowings of the Remaining Group amounted to approximately HK$1,251,300,000, of which HK$1,214,660,000 would become due within one year and most of the remaining balance was non-current nature. Out of the debts, approximately HK$1,144,938,000 was secured by the 220,940,000 Heilongjiang Interchina Shares owned by the Group. Assuming 110,000,000 Heilongjiang Interchina Shares are to be fully disposed of, the Remaining Group will have to repay approximately 50% of the HK$1,144,938,000 borrowings as secured by the Heilongjiang Interchina Shares, being HK$574,690,000. After repayment as set out above, the outstanding borrowings of the Remaining Group would be reduced to HK$676,610,000 (of which HK$639,970,000 will be due within one year). The Company will closely monitor the financial status of the Remaining Group and the financial market in order to determine whether to renew the outstanding borrowings of HK$574,690,000 as secured by the remaining 110,940,000 Heilongjiang Interchina Shares, or to repay part of the borrowings. The Remaining Group will repay the remaining HK$65,280,000 of the outstanding borrowings in accordance with their repayment schedule by its existing internal resources. The proceeds from the Disposal, however, would not be used to repay outstanding borrowings of Heilongjiang Interchina Group.

It is estimated that after completion of placing of 854 million Shares on 16 August 2012, the Deemed Disposal, the Disposal and the Proposed Disposal of the Property, the Company will have additional capital of approximately HK$1,494,300,000.

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Such amount is intended to be used as follows:

	Placing of 854 million Shares HK$'000	The Deemed Disposal HK$'000	The Disposal HK$'000	The Proposed Disposal of the Property HK$'000	Total HK$'000
Net proceeds	284,500	N/A	907,284	302,500	1,494,284
Proposed usage
Funding the Mining Acquisition and any potential investments (not identified yet)	150,000	N/A	332,684	302,500	785,184
Repayment of bank and other borrowings	134,500	N/A	574,600	—	709,100

As at the date of this announcement, save as previously announced by the Company on 28 June 2012 and 29 August 2012, the Company has no agreement, arrangement, understanding, intention or negotiation (concluded or otherwise) about (i) any acquisition of business and/or assets or investment opportunity; (ii) any fund raising activities (including equity issue); (iii) any disposal, termination, and/or scaling-down of the Company's existing businesses and major assets of the Group; or (iv) any disposal of all or any portion of the remaining Heilongjiang Interchina Shares held by the Company.

REASONS FOR THE DISPOSAL

Background

The Group is principally engaged in the investment in environmental water treatment operation, property investment operation and natural resources operation.

The Group completed the acquisition of 229,725,000 Heilongjiang Interchina Shares, (representing 70.2% of the then issued share capital of Heilongjiang Interchina) in January 2009 at an aggregate consideration of approximately RMB627,150,000. The average cost of investment in Heilongjiang Interchina Shares amounted to approximately RMB2.73 per Heilongjiang Interchina Share.

In February 2011, Heilongjiang Interchina successfully issued an aggregate of 100,000,000 Heilongjiang Interchina Shares to 7 institutional investors at RMB7.5 per Heilongjiang Interchina Share (the "First Non-public Share Issue"). Since the Group did not participate in the First Non-public Share Issue, the Group's equity interest in Heilongjiang Interchina was diluted from approximately 70.2% to 53.77%.

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The Deemed Disposal

In June 2012, Heilongjiang Interchina approved a proposal in respect of the issue of not more than 160,000,000 Heilongjiang Interchina Shares. It is expected that upon completion of the Non-public Share Issue, the Group’s interest in Heilongjiang Interchina will be diluted from 53.77% to 39.12%, constituting the Deemed Disposal.

The Board is of the view that participation in the Non-public Share Issue would increase the financial burden of the Group. As set out in the announcement of the Company dated 12 July 2012, in order to maintain the existing 53.77% interest in Heilongjiang Interchina, the Company will need to commit approximately RMB690,800,000 (equivalent to approximately HK$853,000,000). The cash on hand of the Group is not enough to satisfy such amount and the current market condition does not favour the fund raising of such amount.

However, if the 160,000,000 Heilongjiang Interchina Shares are to be issued at RMB8.03 per share, the total net asset value of Heilongjiang Interchina will be increased by approximately RMB1.285 billion (HK$1.586 billion). Even if the Group’s interest in Heilongjiang Interchina will be diluted by 14.65% due to the Deemed Disposal, the enlarged net asset value of Heilongjiang Interchina attributable to the Company upon completion of the Deemed Disposal will still be increased significantly by HK$362,969,000, as compared to that as at 31 December 2011, when the Non-public Share Issue had not yet been announced.

Based on the above, the Board considers that the Deemed Disposal is fair and reasonable, and is in the best interest of the Company and Shareholders as a whole.

Price performance of Heilongjiang Interchina Shares

Taking into the account (i) the trading price of each Heilongjiang Interchina Share has maintained at not less than RMB7.5 after the First Non-public Share Issue (representing an increase of RMB4.77 or 174.7% to the average investment cost of RMB2.73 per Heilongjiang Interchina Share), (ii) the closing price of RMB8.94 per Heilongjiang Interchina Share on 27 August 2012 as quoted on the Shanghai Stock Exchange (representing an increase of RMB6.21 or 227.5% to the average investment cost of RMB2.73 per Heilongjiang Interchina Share); and (iii) the minimum disposal price of RMB8.03 per Heilongjiang Interchina Share (representing an increase of RMB5.3 or 194.1% to the average investment cost of RMB2.73 per Heilongjiang Interchina Share) (the prices referred to in each of (i), (ii) and (iii) are hereinafter referred as “Benchmarked Prices”), the Company is of the view that the investment in Heilongjiang Interchina is a successful one.

Although the trading price of each Heilongjiang Interchina Share has been maintained at a comparatively high level, the price-to-earning ratio of Heilongjiang Interchina is also relatively high. Heilongjiang Interchina recorded a profit after tax of RMB69,785,089.21 for the year ended 31 December 2011 and based on the number of total issued Heilongjiang Interchina Shares of 427,225,000 as at the date of this announcement, the profit after tax per Heilongjiang Interchina Share is approximately RMB0.163. Based on Benchmarked Prices, Heilongjiang Interchina has a price-to-earning ratio of (a) 46.01 after the First Non-public

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Share Issue, (b) 54.85 as at 27 August 2012 based on the closing price of Heilongjiang Interchina Shares as quoted on the Shanghai Stock Exchange on that day and (c) 49.26 based on the minimum disposal price.

The Company had considered the recent trading price of Heilongjiang Interchina Shares and the relevant price-to-earning ratio of Heilongjiang Interchina and concluded that the Disposal is a good opportunity to realise part of investment in Heilongjiang Interchina.

Borrowings of the Group

As set out above, the Group still has substantial outstanding bank and other borrowings repayable within one year and the finance cost incurred as such is considerable. As at 31 July 2012, assuming completion of the Deemed Disposal and the Disposal, the outstanding bank and other borrowings of the Remaining Group amounted to approximately HK$1,251,300,000, of which HK$1,214,660,000 would become due within one year and most of the remaining balance was non-current nature. The Disposal can help reduce the Remaining Group's debt position in order to lower the finance cost.

The Mining Acquisition

As set out in the announcement of the Company dated 28 June 2012, the Group signed a memorandum of understanding in relation to the Mining Acquisition. The terms of such acquisition (including the consideration) have yet been finalised at this stage, but pursuant to the memorandum of understanding, the parties shall enter into a formal sale and purchase agreement before 30 September 2012. The Board considers that it is prudent to maintain reasonable cash level from time to time to meet the needs of commitments and to facilitate any investment potentials should they arise.

Increase in net asset value

Assuming the Company can dispose of the 110,000,000 Heilongjiang Interchina Shares at RMB8.03 per share (being the minimum disposal price), the net asset value of the Group will be increased by RMB734,900,000 (HK$907,284,000). Although at the same time, (i) the Company's interest in Heilongjiang Interchina will be decreased by 25.75% from 53.77% to 28.02% (assuming the Deemed Disposal has not completed); and (ii) the net asset value of Heilongjiang Interchina attributable to the Company will be decreased by HK$452,675,000, the Company can still record a net increase in net asset value by HK$454,609,000 upon completion of the Disposal.

The Directors consider that global economic outlook remained uncertain — which may also affect the Chinese economy. Therefore the Disposal represents a good opportunity for the Group to realise part of its investment in Heilongjiang Interchina at a fair and reasonable price. In addition, the proceeds from the Disposal will bring an immediate cash inflow to the Group, which can reduce the Group's borrowings as well as the relevant finance costs, with additional funding for expansion of the Group's business when a suitable business opportunity arises. Based on the above analysis, the Board considers that the Disposal is fair and reasonable, and is in the best interest of the Company and Shareholders as a whole.

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Upon the completion of the Disposal and Deemed Disposal, the Group's interest in Heilongjiang Interchina will be further diluted to 20.39%. Hence, Heilongjiang Interchina will cease to be a subsidiary of the Company and become an associate investment.

The Directors consider that the Disposal and the terms of the Disposal Mandate are fair and reasonable and is in the interest of the Shareholders as a whole, as the Directors can have a reasonable time to observe the price performance of the Heilongjiang Interchina Shares and realise the investment in Heilongjiang Interchina at the appropriate time. The Disposal Mandate can allow adequate flexibility for the Company during the 6-month period to act promptly, effectively and efficiently with reference to the changing market conditions and economic situation so as to protect the interests of the Company and the Shareholders.

The Directors will ensure that the Disposal to be effected pursuant to the Disposal Mandate will be conducted on normal commercial terms and will be fair and reasonable. The Disposal and the Deemed Disposal are not inter-conditional. As at the date of this announcement, the Group is not in any discussion with any party in relation to the Disposal.

LISTING RULE IMPLICATIONS

As at the date of this announcement, the Company held 229,725,000 Heilongjiang Interchina Shares, representing approximately 53.77% of the existing issued share capital of Heilongjiang Interchina. The Disposal Mandate, if exercised in full, will constitute a very substantial disposal for the Company under Chapter 14 of the Listing Rules and is subject to the approval of the Shareholders.

To the best knowledge of the Company, no Shareholder has a material interest in the Disposal as at the date of this announcement, and therefore, no Shareholder is required to abstain from voting at the extraordinary general meeting ("EGM"). In this regard, reference is made to the announcement of the Company dated 13 August 2012 in relation to the receipt of the "Update Report on the Progress of Acquisition of Heilongjiang Interchina by Rich Monitor Limited/Ms. Chu Yuet Wah" by the Board. As at the date of this announcement, the Board had not received any agenda in relation to any action plan from any Shareholders regarding the above, and the Board had never made any discussion in relation to such Rich Monitor Limited or Ms. Chu Yuet Wah. Therefore, the Deemed Disposal and the Disposal are not related to the above and certainly are not conducted to facilitate Rich Monitor Limited or Ms. Chu Yuet Wah or the avoidance of Rich Monitor Limited or Ms. Chu Yuet Wah's obligation to make a mandatory offer as regards Heilongjiang Interchina. Given (a) Rich Monitor Limited or Ms. Chu Yuet Wah had not appointed any director as its/her representative on the Board and/or the board of Heilongjiang Interchina; (b) Rich Monitor Limited or Ms. Chu Yuet Wah are not parties to the arrangements regarding the Disposal and the Deemed Disposal; and (c) the intention of the Disposal and the Deemed Disposal is not to confer Rich Monitor Limited or Ms. Chu Yuet Wah any benefit (economic or otherwise), the Board does not consider Rich Monitor Limited and/or Ms. Chu Yuet Wah have a material interest in such arrangement and should not be required to abstain from voting on the relevant resolution(s) to approve the Disposal and the Deemed Disposal.

A circular containing, among other things, further information on the Disposal, financial information relating to the Group, financial information of the Remaining Group and the notice of EGM will be despatched to the Shareholders on or before 28 September 2012.

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The Group will report on the progress of the Disposal in the relevant interim report and/or annual report of the Company and make further announcements when any significant disposal under the Disposal Mandate has been made.

RESUMPTION OF TRADING

Trading in the Shares on the Stock Exchange was suspended with effect from 9:00 a.m. on 28 August 2012 at the request of the Company pending the publication of this announcement. An application has been made to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange with effect from 9:00 a.m. on 5 September 2012.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

“Board” the board of Directors

“Company” Interchina Holdings Company Limited, a company incorporated in Hong Kong with limited liabilities, the issued Shares of which are listed on the Stock Exchange

“connected person” has the meaning ascribed to it in Rule 1.01 of the Listing Rules and as extended under Rule 14A.11 of the Listing Rules

“Deemed Disposal” the reduction of the Company’s interest in the capital of Heilongjiang Interchina from approximately 53.77% to 39.12% upon completion in full of the Non-public Share Issue, details of which are set out in the announcement of the Company dated 12 July 2012

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

“Disposal” the proposed disposal of the Heilongjiang Interchina Shares pursuant to the Disposal Mandate

“Disposal Mandate” a specific mandate proposed by the Board to seek approval from the Shareholders to allow the Board to dispose of up to 110,000,000 Heilongjiang Interchina Shares on the terms as set out under the sub-paragraph headed “Terms of the Disposal Mandate” under the paragraph headed “The Disposal Mandate” of this announcement

“Group” the Company and its subsidiaries

“Heilongjiang Interchina” 黑龍江國中水務股份有限公司 (Heilongjiang Interchina Water Treatment Company Limited), a company established in the PRC and its A shares are listed on the Shanghai Stock Exchange

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"Heilongjiang Interchina Share(s)"
the shares of RMB1.00 each in the share capital of Heilongjiang Interchina

"Interchina Tianjin"
Interchina (Tianjin) Water Treatment Company Limited, a company established in the PRC and is a wholly owned subsidiary of the Company

"Listing Rules"
the Rules Governing the Listing of Securities on the Stock Exchange

"Non-public Share Issue"
the proposed non-public issue of Heilongjiang Interchina Shares, details of which are set out in the announcement of the Company dated 12 July 2012

"Proposed Disposal of Property"
the proposed disposal of property as set in the announcement of the Company dated 29 August 2012

"PRC"
the People's Republic of China (which for the purpose of this announcement, shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan)

"Remaining Group"
the Group upon exercise in full of the Disposal Mandate

"RMB"
Renminbi, the lawful currency of the PRC

"Share(s)"
ordinary share(s) of HK$0.1 each in the capital of the Company

"Shareholder(s)"
holder(s) of the Shares

"Stock Exchange"
The Stock Exchange of Hong Kong Limited

"%"
per cent.

Conversion of RMB into HK$ is based on the exchange rate of RMB0.81 = HK$1.00.

By Order of the Board of
Interchina Holdings Company Limited
Lam Cheung Shing, Richard
Executive Director and Chief Executive Officer

Hong Kong, 4 September 2012

As at the date of this announcement, the executive Directors are Mr. Shen Angang, Mr. Lam Cheung Shing, Richard, Mr. Zhu Yongjun and Mr. Choi Fun Tai, Bosco; and the independent non-executive Directors are Mr. Ho Yiu Yue, Louis, Mr. Ko Ming Tung, Edward and Mr. Chen Yi, Ethan.