Global Strategic Group Limited — Proxy Solicitation & Information Statement 2015

Jun 12, 2015

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 Global Strategic Group Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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GLOBAL STRATEGIC GROUP LIMITED 環球戰略集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8007)

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN YICHANG ZHONGYOU NATURAL GAS UTILIZATION CO., LTD.

Financial Adviser

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Bridge Partner Capital Limited

A letter from the Board is set out on pages 1 to 36 of this circular.

This circular will remain on the GEM website at http://www.hkgem.com on the “Latest Company Announcements” page for seven days from the date of its publication and on the website of the Company at http://www.globalstrategicgroup.com.hk

12 June 2015

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

– i –

CONTENTS

			Page
DEFINITIONS.	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . .	I-1
APPENDIX II	–	MANAGEMENT DISCUSSION AND ANALYSIS
		OF THE TARGET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III	–	ACCOUNTANT’S REPORT OF THE TARGET. . . . . . . . . . .	III-1
APPENDIX IV	–	INDEPENDENT REPORTING ACCOUNTANT’S
		ASSURANCE REPORT ON THE COMPILATION OF
		PRO FORMA FINANCIAL INFORMATION OF
		THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	–	VALUATION REPORT OF THE TARGET. . . . . . . . . . . . . . .	V-1
APPENDIX VI	–	LETTERS RELATING TO THE VALUATION REPORT. . .	VI-1
APPENDIX VII	–	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .	VII-1

– ii –

DEFINITIONS

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

• “Agreements”

• means (1) the Equity Transfer Agreement and (2) the JV Co-operation Agreement

• “Appraisal Value”

• the appraisal value of the Target contained in the valuation report to be issued by a professional valuer in Hong Kong at such reference date which is no later than the Effective Date

• “associates”

• has the meaning ascribed thereunder the GEM Listing Rules

• “Baiyang Concession Agreement”

• the agreement in relation to the natural gas operation at Baiyang Industrial Zone, namely 宜昌高新區白洋工 業園天然氣特許經營協議書 (Yichang New and High (Technology) District Baiyang Industrial Zone Special Operation Agreement), entered into between 宜昌高新 技術產業開發區管理委員會 (Yichang New and High Technology Development Zone Management Committee) and the Target dated 25 November 2014

• “Baiyang Development Zone”

• 枝江白洋裝備工業園 (Zhijiang Baiyang Development Industrial Zone)*

• “Baiyang Industrial Zone”

• 宜昌高新區白洋工業園 (Yichang New and High (Technology) District Baiyang Industrial Zone)*

• “Board”

• the board of Directors

• “Bridge Partners” or “Financial Adviser”

• Bridge Partners Capital Limited, a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activity under the SFO

• “Circular”

• the circular of the Company containing, among other things, details of the Transaction, and the Agreements to be despatched to the Shareholders

– 1 –

DEFINITIONS

“Company” Global Strategic Group Limited, a company incorporated in the Cayman Islands with limited liability, which is principally engaged in the investment holding and whose issued Shares are listed on GEM “Completion” completion of the Equity Transfer in accordance with the terms and conditions as set out in the Equity Transfer Agreement “connected persons” has the meanings as ascribed thereto under the GEM Listing Rules “Consideration” the total Consideration of the Equity Transfer “Director(s)” director(s) of the Company “Effective Date” the effective date of the Equity Transfer Agreement, i.e. the date which the approval in relation to the Equity Transfer Agreement being obtained from the relevant government authorities “Enlarged Group” means the Group as enlarged by the Equity Transfer “Equity Transfer” the transfer of 49% of the equity interests in the Target by the Purchaser pursuant to the terms and conditions of the Equity Transfer Agreement “Equity Transfer Agreement” the Equity Transfer Agreement entered into among the Purchaser, the Vendor and Mr. Xiong dated 23 April 2015 in relation to the Equity Transfer “First Wufeng Agreement” the agreement, namely 五峰民族工業園（枝江白洋） 天然氣特許經營協議書 (Wufeng Nation Industrial Zone (Zhijiang Baiyang) Natural Gas Special Operation Agreement), entered into by Yichang Kunlun and 五峰土 家族自治縣人民政府 (the State Government of Wufeng Tujia Autonomous County) dated 25 October 2011

– 2 –

DEFINITIONS

• “GEM”

the Growth Enterprise Market of the Stock Exchange

• “GEM Listing Rules”

the Rules Governing the Listing of Securities on the GEM

“Global Strategic Holding” means Global Strategic (Holding) Group Limited, a company incorporated in Samoa and the immediate holding company of the Company

• “Group”

the Company and its subsidiaries

• “Gujiadian Town”

顧家店鎮 (Gujiadian Town)*

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

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

• “Hubei Biaodian” or the “Vendor”

means 湖北標典天然氣有限公司 (Hubei Biaodian Natural Gas Co., Ltd.), (formerly known as 湖北天能天然氣利 用有限責任公司 (Hubei Tianneng Natural Gas Utilization Co., Ltd.)), a company incorporated in the PRC with limited liability, a party to the MOU which held 90% equity interest in the Target as at the Latest Practicable Date

• “Independent Third Party(ies)”

independent third party(ies) who is/are not connected person(s) of the Company and is/are independent of and not connected with the Company and directors, chief executive, controlling shareholders and substantial shareholders of the Company or any of its subsidiaries or their respective associates

“JV Articles”

the new constitutional document of the Target effective upon the approval by the relevant PRC government authorities and the shareholders of the Target

• “JV Co-operation Agreement”

the JV Co-operation Agreement dated 23 April 2015 entered into among the Purchaser, the Vendor and Mr. Li effective upon the approval by the relevant government authorities and the shareholders of the Target

– 3 –

DEFINITIONS

• “Latest Practicable Date” being 12 June 2015, being the latest practicable date prior printing of this circular for ascertaining certain information contained in this circular

“MOU” the non-legally binding memorandum of understanding dated 16 January 2015 entered into between the Company, the Target, Hubei Biaodian (formerly known as Hubei Tianneng) and Mr. Xiong in relation to the Acquisition

• “MOU Announcement”

the announcement of the Company dated 16 January 2015, in relation to, among other things, the entering into of the MOU

• “Mr. Xiong”

• Mr. Xiong Songgan（熊崧淦）, who is the ultimate controlling shareholder of the Vendor and the Target

• “Mr. Li”

Mr. Li Wanqing（李萬清）, an Independent Third Party, who holds 10% of the equity interest in the Target and a party to the JV Co-operation Agreement

• “Notice 177”

the explanatory statement in respect of Zhijiang Project issued by 枝江市住房和城鄉建設局 (the Housing and Urban Development Bureau of Zhijiang) dated 17 November 2014, namely 市住建局關於同意宜昌中油天 然氣利用有限公司在枝江經營管道天然氣情況說明的 函 (the explanatory statement issued by the Housing and Urban Development Bureau of Zhijiang in respect of its approval for the natural gas pipeline operation in Zhijiang by Yichang Zhongyou Natural Gas Utilization Co., Ltd.)

“Operation Rights Area”

Baiyang Industrial Zone, Baiyang Development Zone, Yaojiagang Chemical Zone, Gujiadian Town and Wufeng Industrial Zone

“Placing”

the placing of 360,000,000 Shares with net proceeds from the Placing of approximately HK$124,800,000 which was completed on 30 January 2015 pursuant to the placing agreement dated 16 January 2015, details of which are set out in the MOU Announcement and the announcement of the Company dated 30 January 2015, respectively

– 4 –

DEFINITIONS

“PRC” the People’s Republic of China which, for the purposes of this circular, excludes Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan “Purchaser” Hong Kong Global Billion Access Investments Limited, a company incorporated in Hong Kong and an indirect wholly-owned subsidiary of the Company “RMB” Renminbi, the lawful currency of the PRC “Sale Interests” the registered capital of the Target in the amount of RMB14,700,000 contributed by the Vendor, representing 49% of the entire equity interest of the Target “Second Wufeng Agreement” the tripartite agreement in relation to the change of subject of the First Wufeng Agreement, namely 有關《五峰民族工 業園（枝江白洋）天然氣特許經營協議書》主體變更的三 方協議 (the Tripartite Agreement in Relation to the Change of Subject of Wufeng National Industrial Zone (Zhijiang Baiyang) Natural Gas Special Operation Agreement)*, entered into among the Target, Yichang Kunlun and State Government of Wufeng Tujia Autonomous County in February 2014

“SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong “Share(s)” ordinary issued share(s) of HK$0.005 each in the capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Target” m e a n s 宜昌中油天然氣利用有限公司 ( Yi c h a n g Zhongyou Natural Gas Utilization Co., Ltd.)*, a company incorporated in the PRC with limited liability “Transaction” the transactions contemplated under the Agreements

– 5 –

DEFINITIONS

• “Wufeng Concession the First Wufeng Agreement and the Second Wufeng Agreements” Agreement

• “Wufeng Industrial Zone” 五峰民族工業園 (Wufeng National Industrial Zone) “Yaojiagang Chemical Zone” 枝江姚家港化工園 (Zhijiang Yaojiagang Chemical Industrial Zone)

• “Yichang Kunlun” means 宜昌中石油昆侖天然氣有限公司 (Yichang PetroChina Kunlun Natural Gas Co., Ltd.)*, the previous project owner of the Zhijiang Project and a party to the Wufeng Concession Agreement

• “Zhijiang Project” the natural gas pipeline construction project operated by the Target, details of which are set out in the paragraph headed “Information of the Target – The Zhijiang Project” of this circular

• “%” per cent.

• The English translation of Chinese names in this circular, where indicated, are included for information purpose only, and should not be regarded as the official translation of such Chinese names.

For illustration purposes only, amounts denominated in Renminbi in this circular have been translated into Hong Kong dollars at an exchange rate of RMB1 = HK$1.25

– 6 –

LETTER FROM THE BOARD

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GLOBAL STRATEGIC GROUP LIMITED 環球戰略集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8007)

Executive Directors: Registered office: WEI Yue Tong (Chairman) Cricket Square WENG Lin Lei Hutchins Drive FAN Wei Guo P.O. Box 2681 ZHENG Jian Peng Grand Cayman KY1-1111 Cayman Islands Non-executive Director: ZHENG Zhu Ping Principal place of business in Hong Kong: Suite 2105, 21st Floor, Independent Non-executive Directors: West Tower Shun Tak Centre CHIU Wai Piu 168-200 Connaught Road Central KWAN Sin Yee Sheung Wan LEUNG Oh Man, Martin Hong Kong 12 June 2015

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN YICHANG ZHONGYOU NATURAL GAS UTILIZATION CO., LTD.

INTRODUCTION

Reference is made to the announcement of the Company dated 24 April 2015 in relation to, among others, the Transaction and the Agreements.

– 7 –

LETTER FROM THE BOARD

On 23 April 2015 (after trading hours), the Purchaser, the Vendor and Mr. Xiong entered into the Equity Transfer Agreement, pursuant to which the Purchaser shall acquire from the Vendor the Sale Interests, representing 49% of the equity interest in the Target at the consideration of HK$100,000,000 subject to the terms and conditions contained therein. On the same day (after trading hours), the Purchaser, the Vendor and Mr. Li have entered into the JV Co-operation Agreement which set out the rights and obligations among the shareholders of the Target.

The purpose of this circular is to give you, among other things: (i) further details of the Equity Transfer and the JV Co-operation Agreement and the transactions contemplated under the Equity Transfer Agreement and the JV Co-operation Agreement; (ii) the financial information of the Group and the Target; (iii) the valuation report of the Target; and (iv) the unaudited pro forma financial information of the Enlarged Group.

The Equity Transfer Agreement

Date: 23 April 2015 (after trading hours)

Parties: (i) the Purchaser;

• (ii) the Vendor, an Independent Third Party. The business of the Vendor includes investment in natural gas project, provision of natural gas technology consultation services and sales of natural gas cooking appliance and accessories; and

• (iii) Mr. Xiong, an Independent Third Party, who is the ultimate controlling shareholder of the Vendor. To the best knowledge of the Directors, Mr. Xiong is currently not engaged in similar line of business as the Target (save as his interest in the Target).

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner, Mr. Xiong, and their respective associates (if applicable) is an Independent Third Party.

Assets to be acquired

The Sale Interests represent 49% of the equity interest in the Target. The Purchaser shall not be responsible for any undertakings made by the Vendor in respect of the Sale Interests or obligations or limitations imposed on the Sale Interests on or before the Effective Date.

– 8 –

LETTER FROM THE BOARD

Consideration

The Consideration of the Equity Transfer is HK$100,000,000. The initial payment, representing 50% of the Consideration, shall be payable by the Purchaser within 15 business days from the date of all of the conditions precedent to the Equity Transfer Agreement having been fulfilled (unless otherwise waived by the Purchaser in writing); the interim payment, representing 10% of the Consideration, shall be payable by the Purchaser within 6 months from the date the Target having obtained a new business license (provided that all of the conditions precedent to the Equity Transfer Agreement having been fulfilled or otherwise waived by the Purchaser in writing); and the remaining 40% of the Consideration shall be payable by the Purchaser within 12 months from the date the Target having obtained a new business license (provided that all of the conditions precedent to the Equity Transfer Agreement having been fulfilled or otherwise waived by the Purchaser in writing).

As at the Latest Practicable Date, the conditions set out in the Equity Transfer Agreement, (except for conditions Nos. 1, 2, 9 and 14 as set out in the sub-section headed “Conditions precedent” in this circular which have been fulfilled), have not yet been fulfilled and no payment of any part of the Consideration has been made by the Group.

Basis of Consideration

The Consideration has been arrived at after arm’s length negotiation between the parties to the Equity Transfer Agreement and was determined based on the (i) 49% of the expected Appraisal Value of the first phase of the Zhijiang Project (Please refer to condition No. 14 of the paragraph headed “Conditions precedent” for details) and (ii) the reasons for and benefits of the Equity Transfer which include the benefit from the long term consumption demand of natural gas in the PRC and stable income stream to be generated upon commencement of the Target’s gas supply operations by the end of July 2015 as described in the paragraph headed “Reasons for and benefits of the Transaction” of this circular.

Given the first phase of the Zhijiang Project is in the development stage and the Target has yet to commence gas supply and is in a net loss position, its principal source of funding to finance the pipelines construction was from the financial assistance given by the Vendor (as detailed in the sections headed “Information on the Target” and “Financial Information of the Target” of this circular), both the Vendor and the Directors (including the independent non-executive Directors) considered that, it would be appropriate to determine the Consideration based on the Appraisal Value of the first phase of the Zhijiang Project which has taken into account various factors, such as the future business and financial performance of Target (subject to assumptions setting out in subparagraph headed “valuation methodology and assumptions” below).

– 9 –

LETTER FROM THE BOARD

Based on the valuation report (“ Valuation Report ”) issued by BMI Appraisals Limited (“ BMI ”), an independent valuer, as contained in Appendix V to this circular, the appraisal value of the entire equity interest of the Target was RMB170,000,000 (equivalent to approximately HK$212,500,000) as at 31 March 2015 (the “ Valuation Date ’) and 49% of the corresponding appraisal value is RMB83,300,000 (equivalent to approximately HK$104,125,000).

The Directors are of the view that the Consideration is fair and reasonable and in the interest of the Company and the Shareholders as a whole. The Company intends to satisfy the initial payment of the Consideration (i.e. HK$50,000,000) by the net proceeds of the Placing. Regarding the remaining balance of the Consideration of approximately HK$50,000,000, the Company currently intends to settle it by placing of new shares or debt financing or shareholders’ loan from Global Strategic Holding.

The Company is in negotiations with certain financial institutions in respect of the possible placing of new shares or debt financing but no agreement, arrangement or understanding has been entered into by the Company as at the Latest Practicable Date. A letter of undertaking dated 8 June 2015 issued by Global Strategic Holding, pursuant to which Global Strategic Holding agreed to provide interest-free unconditional financial support to the Group from time to time, in any situation where the Group may encounter a shortfall in working capital as well as to effect the Transaction.

The Company will comply with the applicable GEM Listing Rules in respect of any future placing of new shares, debt financing and/or shareholder’s loan. Although Global Strategic Holdings has provided the said interest-free unconditional financial support to the Group, there is no assurance as to whether or not Global Strategic Holdings will withdraw its financial support to the Group under its undertaking in the future and as a result, the Group may have to seek for alternative means of additional financing.

As at the Latest Practicable Date, the Group’s cash and bank balances were approximately HK$95,200,000.

Valuation methodology and assumptions

The business valuation of the Target prepared by BMI for which the income approach has been used, constitutes a profit forecast for the purpose of Rule 19.61 of the GEM Listing Rules, and accordingly, the requirements under Rule 19.62 of the GEM Listing Rules are applicable to the Equity Transfer.

The Directors are of the view that such business valuation of the 100% equity interest of the Target has been prepared after due and careful enquiry. The Directors have reviewed the valuation report as set out in Appendix V to this circular and discussed with BMI regarding the method and assumptions in arriving at the valuation.

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LETTER FROM THE BOARD

Principal assumptions

The Valuation Report states that, in the course of conducting the valuation, the principal assumptions upon which the profit forecast for the Target has been made are as follows:

• (a) All licenses issued by any authorized entity that will materially affect the operation of the first phase of the Zhijiang Project the Target have been obtained or can be obtained upon request;

• (b) There will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdiction where the Target operates;

• (c) The market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;

• (d) The core operation of the Target will not differ materially from those of present or expected;

• (e) The information in respect of the Target have been prepared after due and careful consideration by the senior management of the Target; and

• (f) There will be no human disruptions or natural disasters that will materially affect the operation of the Target.

The Directors consider the assumptions of such Valuation Report are complete, fair and reasonable.

Profit forecast

The Directors have reviewed the profit forecast underlying the Valuation Report and are of the view that the profit forecast is fair and reasonable based on information provided by the senior management of the Target, and in accepting the profit forecast the Directors took into account (i) the demand of natural gas in the PRC market, (ii) the business prospect of the first phase of the Zhijiang Project as discussed in the paragraph headed “Reasons for and benefits of transaction” and (iii) the Equity Transfer and the Zhijiang Project presented an ideal opportunity for the Company to expand its revenue base and obtain a relatively stable income stream.

– 11 –

LETTER FROM THE BOARD

Further information in relation to the Valuation Report

Reference is made to Appendix V headed “Valuation Report” to this circular, and the Directors further reviewed and agreed the following information:

• (a) In page V-14 under the heading “The Discount Rate”, the parameters used to determine the discount rate includes: (i) cost of equity is based on the calculation result from capital asset pricing model as set out in the Valuation Report, being 15.92%; (ii) cost of debt is based on the expected lending rate of the Target and reference to the current borrowing rate of the Target, being 9.74%; and (iii) rate of income tax is based on the tax rate applicable to the enterprise appraised, being 25%. Based on the aforesaid, the discount rate is 13.95%.

• (b) In pages V-20 and V-21 under the heading “Scenario Analysis”, the key assumption for the valuation is that all licenses issued by any authorized entity that will materially affect the operation of the first phase of the Zhijiang Project of the Target have been obtained or can be obtained upon request. To engage in the natural gas supply business, the Target is required to obtain the Fuel Gas Operation License（燃氣經營許 可證）issued by Yichang City Commission of Housing and Urban-rural Development*

• （宜昌市住房和城鄉建設委員會）in relation to the first phase of the Zhijiang Project.

Pursuant to the Equity Transfer Agreement, the completion of the acquisition of the Target is subject to the Target having obtained the Fuel Gas Operation License （燃氣經營許可證）in relation to the first phase of the Zhijiang Project. Without the satisfaction of the said condition within six months from the date of the Equity Transfer Agreement, the Equity Transfer Agreement will be terminated and the Transaction will not proceed. Therefore, in the scenario that the licenses required for the first phase of the Zhijiang Project, including the Fuel Gas Operation License（燃 氣經營許可證）, cannot be obtained, the Transaction will not proceed.

– 12 –

LETTER FROM THE BOARD

Sensitivity Analysis

The sensitivity analysis has been carried out by BMI to determine the impact of changes in discount rate on the valuation result. The results of the sensitivity analysis were as follows:

			Percentage of
Absolute Change	Applied		Change in
in Discount Rate	Discount Rate	Market Value	Market Value
		(RMB)
+2%	15.95%	137,000,000	–19.4%
+1%	14.95%	153,000,000	–10.0%
0%	13.95%	170,000,000	0.0%
–1%	12.95%	190,000,000	11.8%
–2%	11.95%	213,000,000	25.3%

The discount rate is the required return for an investor, which considers relevant risk factors associated with the Target.

Development stage of Target’s natural gas operations

The Target is at the development stage and no revenue has yet been generated by the Target. There is no assurance that the Target will be successful in the natural gas supply operations or the Target may actualize the anticipated level of returns projected by the Target’s management in the profit forecast underlying the Valuation Report.

The Target’s business is subject to the political, economic and social developments in the PRC as well as the natural gas markets in the PRC

The Target’s financial condition, operating results and future growth is subject to political, economic and social developments in the PRC where its operation is located as well as the natural gas markets in the PRC, which the long term demand for natural gas as a source of fuel may be affected by the relative commercial, social and political attractiveness of alternative sources of energy which may affect the demand for natural gas and in turn the Target’s business, results of operations, financial position and prospects.

Compliance with Rule 19.62 of the GEM Listing Rules

The Company has engaged Deloitte Touche Tohmatsu, the auditors of the Company to review the arithmetical calculations of the discounted future estimated cash flows on which the business valuation in respect of the appraisal of the fair value of the entire equity interest in the Target as at

– 13 –

LETTER FROM THE BOARD

31 March 2015 is based. The Financial Adviser has discussed the profit forecast with the Company. The letter from the Deloitte Touche Tohmatsu and the letter from the Financial Adviser for the purpose of Rule 19.62 of the GEM Listing Rules are set out in Appendix VI to this circular to be despatched to the Shareholders.

The Directors consider that the valuation of the Target, as of the Valuation Date is fair and reasonable.

Conditions precedent

The Completion is subject to the satisfaction or waiver (as the case may be) of, among other things, the following conditions precedent:

• (1) the passing of the relevant shareholders’ resolutions by the shareholders of the Target approving the Equity Transfer Agreement and Mr. Li having provided a written confirmation of his unconditional and irrevocable waiver of the first right of refusal in relation to the Sales Interests granted the first right to Mr. Li to purchase the equity interest of other shareholders pursuant to the existing articles of association of the Target dated 27 October 2013 and any other rights that may affect or restrict the Equity Transfer;

• (2) the Target having obtained the written consent or approval in relation to the Equity Transfer from all the third parties (in the event if the terms of any agreements entered into between the Target and other third parties require written consent or approval from such third parties in relation to the Equity Transfer), including but not limited to any creditors, suppliers and/or clients of the Target, including the consent in respect of the Equity Transfer from the Target’s principal bank in the PRC, in such form and content to the satisfaction of the Purchaser;

• (3) the Target having completed, under its name, all examination and acceptance procedures for the first phase of the Zhijiang Project, including but not limited to matters in respect of environmental protection, safety, planning, measures for prevention of soil erosion, fire safety, etc., and having produced certification documents to the satisfaction of the Purchaser;

• (4) the Target having entered into a gas supply agreement or letter of intent, which shall set out the price and quantity for the supply of natural gas to the Target, with an upstream natural gas supply company;

– 14 –

LETTER FROM THE BOARD

• (5) the Target having obtained the Fuel Gas Operating License（燃氣經營許可證）issued by Yichang City Commission of Housing and Urban-rural Development*（宜昌市住 房和城鄉建設委員會）;

• (6) the Baiyang Concession Agreement remains legal, valid and enforceable and there being no event of default occurred and the concession rights to operate natural gas business granted thereunder not being or likely to be withdrawn, cancelled or modified;

• (7) the First Wufeng Agreement and the Second Wufeng Agreement remain legal, valid and enforceable and there being no event of default occurred and the concession rights to operate natural gas business granted thereunder not being or likely to be withdrawn, cancelled or modified;

• (8) the Notice 177 remains valid and the Target holds the rights to invest, construct and operate natural gas pipeline projects at the entire area of Zhijiang Yaojiagang Chemical Industrial Zone（枝江姚家港化工園）, Zhijiang Baiyang Development Industrial Zone（枝江白洋裝備工業園）and Gujiadian Town*（顧家店鎮）with no other operators operating in these areas;

• (9) Mr. Xiong, Mr. Li and the Target having entered into the confidentiality and noncompetition agreement in the content satisfactory to the Purchaser, under which, among other things, each of Mr. Li and Mr. Xiong shall not disclose any confidential information relating to the Target to any third party; and each of Mr. Li and Mr. Xiong has undertaken that until the second anniversary of the date that each of them ceases to have any direct or indirect interests in the Target and its subsidiaries (if any), each of Mr. Li and Mr. Xiong and their close relatives and related parties shall not (i) be employed in any position in competition with the Target; (ii) directly or indirectly participated in any business in competition with or will conflict with the interests of the Target or its associated companies; or (iii) by any means, support the Target’s competitors;

• (10) Parties to the Equity Transfer Agreement and other relevant parties having signed the agreements and relevant documents as required by the laws in relation to the execution of the Equity Transfer Agreement, including but not limited to the Equity Transfer Agreement, the JV Co-operation Agreement and the JV Articles, and having obtained the approval from the competent commerce government authorities and development and reform government authorities in Yichang City and Hubei Province in PRC attended the registration and/or filing from all competent authority in relation to the Equity Transfer and/or their relevant matters;

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LETTER FROM THE BOARD

• (11) the parties to the Equity Transfer Agreement, Mr. Li and the Target having performed and acted in accordance with its or his obligations, commitments, warranties and agreement under the Equity Transfer Agreement, the JV Co-operation Agreement and the JV Articles, and the undertakings and warranties made under the Equity Transfer Agreement remaining true and accurate without any omission and not misleading, since the date of the Equity Transfer Agreement (and as at the dates of settlement of the initial, interim and/or the final payments of the Consideration);

• (12) up to the dates of settlement of the initial, interim and/or final payments of the Consideration, there being no occurrence of events, changes, or government orders (or reasonably expected to be), of material and adverse effect;

• (13) the Vendor, Mr. Xiong and the Target not being in breach of any requirement of the PRC laws and regulations; and

• (14) the Purchaser having obtained a valuation report issued by a professional business valuer qualified in Hong Kong that the Appraisal Value of the Target is no less than RMB160 million (equivalent to approximately HK$200 million) as at such reference date which is no later than the Effective Date.

All conditions can only be waived by the Purchaser except for conditions Nos. 1, 5, 6, 7, 8, 10 and 13 which cannot be waived by either party. As at the Latest Practicable Date, condition(s) no(s). 1, 2, 9 and 14 have been fulfilled. In addition, the Target is expected to obtain the Fuel Gas Operating License（燃氣經營許可證）by the end of July 2015 as advised by the Vendor.

Termination

The Purchaser may terminate the Equity Transfer Agreement (and other relevant or ancillary documents, including but not limited to the JV Co-operation Agreement and the JV Articles), in the event that: (i) the JV Co-operation Agreement and/or the JV Articles being terminated; (ii) in the reasonable opinion of the Purchaser, the occurrence of any material adverse change to the legal or financial position, business or operations of the Target before the full settlement of the Consideration; or (iii) for whatsoever reason within six months from the date of the Equity Transfer Agreement the Target fails to obtain the approval, in respect of the Transaction from the competent government authorities (including but not limited to the competent commerce government authorities and development and reform government authorities in Yichang City and Hubei Province in PRC) and completes the registration in respect of the Transaction. Save as disclosed above, if any party to the Equity Transfer Agreement shall be in breach of its or his obligations, representations, warranties or undertakings, the non-defaulting party may terminate the Equity Transfer Agreement while the defaulting party shall be liable for the damages if the defaulting party fails to rectify it within 30 business days.

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LETTER FROM THE BOARD

Completion

The Completion shall take place on the date agreed by the parties after the satisfaction or waiver (as the case may be) of, among other things, the conditions precedent to the Equity Transfer Agreement.

The JV Co-operation Agreement

Date: 23 April 2015 (after trading hours) Parties: (i) the Purchaser; (ii) the Vendor; and (iii) Mr. Li, an Independent Third Party. Mr. Li has confirmed that he is a third party independent of and not connected with the Vendor or Mr. Xiong and is currently not engaged in similar line of business as the Target (save as his interest in the Target)

The Purchaser, the Vendor and Mr. Li entered into the JV Co-operation Agreement which sets out the rights and obligations among the said parties in respect of their interests in the Target. The Target will obtain a cooperative joint venture business license upon the approval from the PRC government authority(ies) and will have a term of business of 30 years from the date on which a cooperative joint venture business license is issued. The JV Co-operation Agreement contains, among others, the following principal terms:

(1) Registered Capital

The registered capital of the Target is RMB30,000,000 (equivalent to HK$37,500,000), which is already paid-up in full and upon Completion, will be owned as to 49%, 41% and 10% by the Purchaser, the Vendor and Mr. Li respectively.

(2) Pre-emption Right and Tag-along Right

Each party to the JV Co-operation Agreement shall be entitled to a pre-emption right in respect of the equity interests of the other parties in the Target. In the event that any party proposes to sell its/his respective equity interests in the Target to any other party (where the other equity holder(s) of the Target chooses not to exercise its/his/their pre-emption right), such equity holder may exercise its tag-along right to sell (all or part of) its equity interest in the Target to the same party on the same term and conditions as those offered by the selling equity holder(s). The Vendor and Mr. Li have undertaken to the Purchaser that, without the

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LETTER FROM THE BOARD

Purchaser’s written consent, each of them will not directly or indirectly transfer (whether by way of gift or other ways of transfer) or create any encumbrance on their respective equity interests in the Target (wholly or partially) to any other party and there will be no change to the shareholders and ultimate beneficial owner of the Vendor and no encumbrance or whatsoever shall be created over the interests in the Vendor.

(3) Non-competition Undertaking

The Vendor and Mr. Li have undertaken that each of them and their respective associates will not directly or indirectly take part, operate or involve in any business which will be the same as or similar to the Target’s business.

(4) The composition of the Board of Directors and Board of Supervisors of the Target

The board of directors of the Target shall comprise of four directors whilst the Vendor, Mr. Li and the Purchaser are entitled to nominate one, one and two directors, respectively. The chairman of the board of directors of the Target shall be nominated by the Purchaser and shall be entitled to a second or casting vote in addition to any other vote he may have in the case of an equality of votes. The board of supervisors of the Target shall comprise of three supervisors whilst the Vendor and Mr. Li are jointly entitled to nominate one supervisor, the Purchaser is entitled to nominate one supervisor and the other supervisor will be elected by the employees of the Target through the employee representative assembly on the employees’ assembly.

(5) Additional Financing

The additional financing of RMB30,000,000 (equivalent to HK$37,500,000) is the deficit between (i) the registered capital of RMB 30,000,000 (equivalent to HK$37,500,000) and (ii) the total investment amount of RMB60,000,000 (equivalent to HK$75,000,000) of the Target to be approved by the competent commerce authority in the PRC.

Such additional financing represents a flexible way for the Target to obtain onshore or offshore financing in the form of shareholder’s loan(s) between the Target and any equity holders of the Target in the future. Material terms of such loan(s) including the interest rate and term shall subject to further negotiation between the Target and such equity holders of the Target.

The shareholder’s loan(s) to be provided to the Target will have no effect on the Target’s shareholdings as the additional financing is not part of the Target’s registered capital nor the Consideration. There is no mandatory commitment from, i.e. it is not compulsory for, the Purchaser or other equity holders of Target to provide additional financing in such amount, whether partly or fully, to the Target.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Purchaser and the Company have no intention to provide additional financing to the Target but will constantly review and assess the financial position and financing needs of the Target, taking into consideration of various factors such as the financial performance of the Target upon its commencement of natural gas operations of the first phase of the Zhijiang Project, the market conditions as well as the terms of external financing from the financial institutions. The Company will comply with the GEM Listing Rules in respect of the provision of any possible financial support to the Target.

(6) Increase or decrease in registered capital

Increase or decrease in registered capital shall be unanimously approved by all members of the board of directors of the Target and shall be subject to the approval by the relevant government authorities. If the board of directors of Target shall approve an increase in the registered capital of the Target, all shareholders of the Target shall have the first right to contribute to the additional registered capital with respect to their then respective existing shareholdings in the Target on a pro-rata basis.

(7) Distribution of Profit

The profit after tax of the Target shall be distributed as to 49% to the Purchaser, 41% to the Vendor and 10% to Mr. Li.

(8) Breach of the JV Co-operation Agreement

In case if an event of default occurs, the non-defaulting party may proceed to wind up the Target while the defaulting party shall be liable for the damages if the defaulting party fails to rectify within 45 business days.

(9) Termination of the JV Co-operation Agreement

The JV Co-operation Agreement will be terminated upon receipt of the notice issued by the Purchaser in the event that (i) the Equity Transfer Agreement and JV Articles being terminated; or (ii) no agreement being reached among the parties of the JV Co-operation Agreement with regards to the material amendments to the JV Co-operation Agreement requested by the relevant government authorities.

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LETTER FROM THE BOARD

INFORMATION ON THE TARGET

As at the Latest Practicable Date, the Target is a company established under the PRC law with limited liability on 10 July 2013. It has a registered capital of RMB30,000,000 and is owned as to 90% by the Vendor and 10% by Mr. Li respectively. The business license of the Target currently has a term of 20 years from the date of issue on 10 July 2013.

Upon Completion, the Target will become a cooperative joint venture and will be owned as to 49% by the Purchaser, 41% by the Vendor and 10% by Mr. Li respectively. The Target will have a term of business of 30 years from the date on which a cooperative joint venture business license is issued upon the approval by the relevant government authorities.

Business of the Target

The Target has been granted the approval to construct and operate the first phase of the Zhijiang Project by Hubei Provincial Development and Reform Commission（湖北省發展和改革 委員會）and it is principally engaged in the investments and construction of natural gas pipelines of the Zhijiang Project and the provision of the natural gas. The business scope of the Target includes investment in natural gas project, provision of natural gas technology consultation services and sales of natural gas cooking appliance and accessories. The business scope of the Target as stated in its business license will include provision of natural gas after the Target has obtained the Fuel Gas Operation License（燃氣經營許可證）.

The Zhijiang Project

The Zhijiang Project is the natural gas pipeline construction project operated by the Target to construct the natural gas pipelines for the supply of natural gas around the Operation Rights Area in Zhijiang City, Hubei Province, the PRC, under the operation rights granted to the Target. Details of the operation rights are disclosed in the section headed “The Operation Rights” in this circular.

(A) Background of the Zhijiang Project

Pursuant to the Notice No. 285 (“ Notice 285 ”) published by Hubei Provincial Development and Reform Commission（湖北省發展和改革委員會）on 10 October 2012, Yichang Kunlun was granted the approval to operate the first phase of the Zhijiang Project. Yichang Kunlun is owned as to 51% and 49% by PetroChina Kunlun Gas Utilization Co. Ltd*（中石油昆倫天燃氣利用有限公司）and the Vendor respectively.

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LETTER FROM THE BOARD

As advised by the Vendor, Yichang Kunlun would like to focus its resources on its existing business and on 27 June 2013, it was agreed at the shareholders’ meeting of Yichang Kunlun that the project owner of the first phase of the Zhijiang Project would be changed from Yichang Kunlun to the Vendor or any of its subsidiaries and Yichang Kunlun agreed to assist the Vendor or any of its subsidiaries to obtain necessary approvals on the change of the project owner of the first phase of the Zhijiang Project. The change of project owner was prior to the commencement of the development of the Zhijiang Project and at no cost.

On 18 November 2013, Hubei Provincial Development and Reform Commission（湖 北省發展和改革委員會）published a further Notice No. 993 (“ Notice 993 ”) to supplement the Notice 285, namely 省發展改革委關於確認變更枝江市白洋工業園區天然氣利用 工程項目業主的通知 (Notice of the Provincial Development and Reform Commission on the confirmation of the change of the owner of the natural gas project of Zhijiang Baiyang Industrial Zone)*, which approved the change of the project owner of the first phase of the Zhijiang Project to the Target whilst the content of the Notice 285 remained unchanged. The Company’s PRC legal advisers have made enquiry with the competent PRC government authority, namely, Yichang Municipal Development and Reform Commission（宜昌市發展 和改革委員會）in respect of the change of project owner of the Zhijiang Project as set out in the minutes of the shareholders’ meeting of Yichang Kunlun held on 27 June 2013 and the Notice 993.

As advised by the Company’s PRC legal advisers, the minutes of the shareholders’ meeting of Yichang Kunlun held on 27 June 2013 and the Notice 993 provided to the Company are the true copies of the originals kept in Yichang Municipal Development and Reform Commission（宜昌市發展和改革委員會）and pursuant to the Notice 993, the Target, in place of, Yichang Kulun, is entitled to construct and operate the first phase of the Zhijiang Project.

The Directors confirmed the views of the PRC legal advisers that the Target is entitled to construct and operate the first phase of the Zhijiang Project.

(B) Development and current status of the Zhijiang Project

The construction of the first phase of the Zhijiang Project commenced after the change of the project owner from Yichang Kunlun to the Target in 2013.

The first phase of the Zhijiang Project includes the construction and operation of high pressure natural gas pipelines and related facilities including a natural gas station at Wufeng Industrial Zone with a capacity of 170 million cubic meters per year. The natural gas operation will supply to the industrial parks and commercial area around Wufeng Industrial Zone and Baiyang Industrial Zone within Zhijiang City, Hubei Province, the PRC. These industrial zones mainly consist of heavy industries such as chemical industry, metallurgy and electric power etc. as well as other economic activities including manufacturing and other light industries.

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LETTER FROM THE BOARD

As disclosed in the announcement of the Company dated 24 April 2015, the Target is expected to commence gas supply for the first phase of the Zhijiang Project in June 2015. As informed by the Target after its negotiation with the relevant PRC government authorities on 5 June 2015, the projected end date for the construction of the first phase of the Zhijiang Project will be postponed to mid-June 2015 as affected by the prolonged heavy rain in Yichang, Hubei Province, the PRC for the past few weeks. As advised by the Company’s PRC legal advisers, the said postponement of the completion of the first phase of Zhijiang Project does not affect the validity and legality of the Wufeng Concession Agreements, the Baiyang Concession Agreement and the Notice 177. It is anticipated by the Target that trial run of gas supply will be commenced in late June 2015 and the Target will obtain the Fuel Gas Operation License（燃氣經營許可證）and generate revenue from the first phase of the Zhijiang Project by the end of July 2015.

Other phases of the Zhijiang Project mainly include the construction and operation of intermediate and medium pressure natural gas pipelines for the supply of natural gas to the industrial and commercial area around Yaojiagang Chemical Zone, Gujiadian Town and the whole area of the Baiyang Industrial Zone. The commencement of the construction of the other phases of the Zhijiang is subject to relevant approvals to be obtained by the Target. Please refer to paragraph headed “Regulatory approvals and licences to engage in the natural gas business” in this circular for details.

As at the Latest Practicable Date, details of the Target’s development plan and current status of the Zhijiang Project is set forth in the following table:

					Expected period of
		Capital	Development	Development	commencement of
Development Plan		Requirements	Timeline	Progress	operation
		(RMB million)
Phase I
Natural gas pipe lines for the commercial and industrial area of		99	expected to	95% of the construction	Expected to commence trial
(i)	Wufeng Industrial Zone		complete before	has been completed and	run in late June 2015 and
(ii)	Baiyang Development Zone		July 2015	land use right (Note 2)	fuel gas supply before July
(iii)	Part of Baiyang Industrial Zone (Note 1)			in respect of the natural	2015 subject to relevant
	and related facilities including a natural			gas main station has	permits to be obtained
	gas main station at Wufeng Industrial Zone			been obtained on	including the Fuel Gas
	with capacity of 170 million cubic meters			20 March 2015	Operating License（燃氣經
	per year				營許可證）upon completion
					of the construction
Other phases
Natural gas pipe lines for the commercial and industrial area of		75	mid 2015 – late 2016	Anticipate to complete construction in late 2016 and will
(i)	Baiyang Industrial Zone (whole area)			commence test run in late 2015 subject to relevant permits
(ii)	Zhijiang Yaojiagang Chemical Zone and related facilities with			and approvals from the government, including approval
	expected capacity of 260 million cubic meters per year			from Yichang City Development and Reform Commission
				（宜昌市發展和改革委員會）and registration with Hubei
				Provincial Development and Reform Commission（湖北
				省發展和改革委員會）for construction and operation

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LETTER FROM THE BOARD

The Target had filed the project investment registrations with Yichang City Development and Reform Commission（宜昌市發展和改革委員會）for the investments of four (4) compressed natural gas stations (for public transportation) in Yichang district as well as a peak shaving facilities in Wufeng Industrial Zone but there is no concrete development plan in respect of the timeframe and capital requirements of these projects as at the Latest Practicable Date.

Notes:

1. Natural gas supply to part of the Baiyang Industrial Zone is expected to commence by the end of July 2015.

2. On 20 March 2015, the Target obtained the land use right in respect of a parcel of state– owned land (for public facilities use) situated at Wufeng Industrial Zone with a total area of approximately 7,916.6 square meters expiring in December 2063.

The Target currently intends to finance the capital requirement of the other phases of the Zhijiang Project though future cash flows to be generated from the natural gas business and bank borrowings. As at the Latest Practicable Date, the Purchaser and the Company have no intention to provide additional financing to the Target but will constantly review and assess the financial position and financing needs of Target, taking into consideration of various factors such as the financial performance of the Target upon commencement of natural gas operations of the first phase of the Zhijiang Project, the market conditions as well as the terms of financing from the financial institutions. The Company will comply with the GEM listing Rules in respect of the provision of any possible financial support to the Target.

As advised by the Vendor, the Target is in negotiation with certain independent third parties for upstream natural gas supply to the Target for the provision of natural gas to industrial, commercial and residential uses in the Operation Rights Area by the Target. The Target is expected to finalise the negotiation and enter into the gas supply agreement(s) by the end of July 2015.

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LETTER FROM THE BOARD

(C) Operation Rights

Under the Zhijiang Project, the Target is granted the operation rights to supply natural gas to industrial, commercial, household and other public users in (i) the Wufeng Industrial Zone and Baiyang Industrial Zone pursuant to the Wufeng Concession Agreement and Baiyang Concession Agreement entered into with Wufeng Tujia Autonomous County（五 峰土家族自治縣人民政府）and Yichang New and High Technology Development Zone Management Committee（宜昌高新科技產業開發區管理委員會）respectively and (ii) Baiyang Development Zone, Yaojiangang Chemical Zone and Gujiadian Town pursuant to the Notice 177 issued by the Housing and Urban Development Bureau of Zhijiang City*（枝江 市住房和城鄉建設局）. Details of the Wufeng Concession Agreement, Baiyang Concession Agreement and the Notice 177 are as follows:

Exclusive Operation Rights

(i) Wufeng Concession Agreements

On 25 October 2011, Yichang Kunlun entered into the First Wufeng Agreement with the State Government of Wufeng Tujia Autonomous County*（五峰土家族自 治縣人民政府）, under which Yichang Kunlun was granted the exclusive right to construct the natural gas pipelines and related facilities and operate the natural gas business for the supply of natural gas through pipelines to industrial, household, commercial and public users at the Wufeng Industrial Zone for a period of 30 years commencing from 25 October 2011 to 24 October 2041. In February 2014, the Target, Yichang Kunlun and State Government of Wufeng Tujia Autonomous County entered into the Second Wufeng Agreement, under which the Target succeeded and assumed the rights and obligations of Yichang Kunlun under the First Wufeng Agreement.

(ii) Baiyang Concession Agreement

On 25 November 2014, the Target entered into the Baiyang Concession Agreement with Yichang New and High Technology Development Zone Management Committee*（宜昌高新技術產業開發區管理委員會）, under which the Target was granted the exclusive right to construct the natural gas pipelines and related facilities and operate the natural gas business for the supply of natural gas through pipelines to industrial, household, commercial and public users in Baiyang Industrial Zone for a period of 30 years commencing from 1 November 2014 to 31 October 2044.

The commencement of natural gas supply to the above areas is subject to the actual construction progress of the Zhijiang Project.

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LETTER FROM THE BOARD

Notice 177

Pursuant to the Notice No. 177, the Target holds the right to invest, construct and operate natural gas business for Baiyang Development Zone, Yaojiagang Chemical Zone and Gujiadian Town to supply natural gas through pipelines to industrial, household, commercial and public users with no other operators operating in these areas, provided that the Target will be able and continue to fulfil the consumption demand of the above areas from time to time. No specific term of the operation right has stipulated under the Notice 177.

The PRC legal advisers of the Company have reviewed the above operating rights agreements and Notice 177. As advised by the PRC legal advisers of the Company, the Wufeng Concession Agreements and the Baiyang Concession Agreement are valid, legal and binding on the parties thereto, and the Housing and Urban Development Bureau of Zhijiang*（枝江市住房和城鄉建設局）is the competent government authority to issue the Notice 177. As advised by the PRC legal advisers of the Company, there is no legal impediment to commence operation under the above operating rights agreements and Notice 177 provided that the Target fully complies with the terms and conditions of aforesaid agreements, the Notice 177 and the relevant laws and regulations. The Directors concur with the view of the Company’s PRC legal advisers and confirm that the Company will procure the Target to comply with the terms and conditions of aforesaid agreements, the Notice 177, the Notice 285, the Notice 993, and the relevant laws and regulations after the Completion.

Based on the current development plan and construction progress, it is expected that the Target will commence gas supply to Wufeng Industrial Zone, Baiyang Development Zone as well as part of Baiyang Industrial Zone under the above agreements and the Notice 177 before the end of July 2015 and the Target has entered into letters of intent with industrial customers in these industrial zones for the supply of natural gas of approximately 2.5 million cubic meters and 58.0 million cubic meters for years 2015 and 2016 respectively. The said letters of intent are not legally binding to the parties thereto as advised by the Company’s PRC legal advisers after reviewing the same. Formal gas supply contracts is expected to be entered into between the parties after the Target completed the examination and acceptance procedures of the first phase of the Zhijiang Project by the end of July 2015. As advised by the Vendor, these is no other pipeline project with the same coverage of the Zhijiang Project for the provision of natural gas to the Operation Rights Area. Targeted residential customers are estimated at 2,400 households for the first phase of the Zhijiang Project.

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LETTER FROM THE BOARD

(D) Regulatory approvals and licences to engage in the natural gas business

The natural gas business is subject to various laws and regulations of the PRC which requires the Target to obtain and/or renew from time to time the requisite regulatory approvals, permits, certificates, consents, and/or operating or other licences to engage in the natural gas supply business. In addition, the Target may be required to renew such approvals and licenses from time to time, or may be required to obtain further regulatory approvals and/or licences subject to future changes of laws and regulations which may become applicable to the Target.

In the event that the Target is unable to obtain and/or renew such approvals, licences and/or its business registration documents, or where there is a delay in obtaining or renewing them, the operations of the Target may not be able to commence or continue and hence may be adversely affected.

Set out below are the summary of the current status of obtaining the relevant regulatory approvals by the Target:

(i) First phase of the Zhijiang Project

Pursuant to the Equity Transfer Agreement, the Completion of the Equity Transfer Agreement is subject to the Target having obtained all requisite regulatory approvals, permits, certificates, consents, licenses and authorisation for the commencement and/or operation of the natural gas supply business for the first phase of Zhijiang Project as set out under conditions nos. (3) and (5), which are disclosed in sub-section headed “Conditions precedent” in this circular. The Completion will not proceed if the said conditions are not satisfied (or being waived).

Based on the current development progress of the first phase of the Zhijiang Project as detailed in the paragraph headed “Development and Current Status of the Zhijiang Project” of this circular, it is noted that in order for the Target to satisfy the said conditions to the Equity Agreement, the Target shall have to complete the examinations and acceptance procedures of the First phase of the Zhijiang Project and shall obtain the Fuel Gas Operating License（燃氣經營許可證）and the Fuel Practitioner Professional Training Assessment Certificate（燃氣從業人員專業培訓 考核合格證書）. The Target is expected to complete the said procedures and obtain all requisite regulatory approval for gas supply by the end of July 2015. There are no foreseeable legal impediments for the Target to obtain the approvals and permits required as advised by the Company’s PRC legal advisers provided that the Target complies with the relevant laws and regulations. The Directors confirm that the Company will procure the Target to comply with the relevant laws and regulations after the Completion.

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LETTER FROM THE BOARD

(ii) Other Phases of the Zhijiang Project

As advised by the PRC legal advisers of the Company, the Target has yet to obtain the approval from Yichang City Development and Reform Commission（宜 昌市發展和改革委員會）, including but not limited to approvals to be obtained during the targeted development period between mid 2015 to late 2016 in relation to environmental protection, safety, land planning, soil conversion, and yet to register with Hubei Province Development and Reform Commission（湖北省發展和改革 委員會）for the construction and operation of intermediate and medium pressure natural gas pipelines. The Company’s PRC legal advisers do not foresee any legal impediments for the Target to obtain the approvals for the other phases of the Zhijiang Project provided that the Target complies with the relevant laws and regulations. The Directors concur with the view of the Company’s PRC legal advisers and confirm that the Company will procure the Target to comply with the relevant laws and regulations after the Completion.

Obtaining the relevant approvals and licenses in relation to the other phases of the Zhijiang Project are not conditions precedent to the Equity Transfer Agreement. As advised by the Company’s PRC legal advisers, the Target is entitled to construct and operate the first phase of the Zhijiang Project independently.

The Directors are of the view that the development of first phase of the Zhijiang Project will not be affected if the relevant approvals and licenses in relation to other phases of the Zhijiang Project are not being granted to the Target.

Biographical Details Of The Directors Of The Target

The biographical details of the directors of the Target are set out below:

Mr. Xiong, aged 45, is a director of the Target. He has been engaged in the natural gas business in Yichang, Hubei Province, the PRC since 2011 including investment in compressed natural gas station operations and project development and management of the Zhijiang Project. He is currently the controlling shareholder and the legal representative of Hubei Biaodian, a company engaged in supply of natural gas and investment in natural gas business in the PRC.

Mr. Li, aged 52, is a director of the Target. He is the chairman and the legal representative of 湖北三寧化工股份有限公司 (Hubei Sanning Chemical Company Ltd.*), a company engaged in manufacture and sales of chemical and fertilizer in Hubei Province, the PRC.

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LETTER FROM THE BOARD

The Purchaser intends to nominate Mr. Wei Yue Tong, the chairman and an executive Director and Mr. Fan Wei Guo, an executive Director, as two additional directors of the Target pursuant to the JV Co-operation Agreement. Both Mr. Wei Yue Tong and Mr. Fan Wei Guo are PRC businessmen with extensive investment and management experience in various business sectors in the PRC. Please refer to the 2014 annual report of the Company for the period from 1 July 2014 to 31 December 2014 for details of their experience.

Operation Subcontracting Agreement

The Target has engaged 中國石油天然氣管道局管道投產運行公司 (China Petroleum Pipeline Bureau Commissioning Company) (“ CPP ”), a leading pipeline and engineering company in the PRC, to support the development and construction of pipelines and related facilities for the first phase of the Zhijiang Project and the projected end date of the construction will be around mid June 2015.

Given the background and experience of CPP in pipeline construction and engineering as well as the satisfactory prior transaction experience with CPP, the Target and CPP has on 9 June 2015 entered into an operating subcontracting agreement for a term of 3 years and at a subcontracting fee of RMB2,000,000 (equivalent to HK$2,500,000) per annum for the provision of continuing operation and technical support as well as on-site training for the Target’s natural gas operations of the first phase of Zhijiang Project.

The Directors consider that, despite the natural gas business is new to the Group, the Group can leverage on (i) the strong business network and experience of Mr. Xiong in the natural gas business in Yichang City and Zhijiang City, Hubei Province, the PRC; (ii) the continuing support and practical experience from CPP under the operation subcontracting agreement and (iii) the extensive management experience of the Directors in managing and investment in various business sectors in the PRC, to ensure an efficient operation of the first phase of the Zhijiang Project as well as the ongoing development of other phases of the Zhijiang Project.

In addition, the Directors are planning to strengthen the Target’s management team by increasing the numbers of natural gas specialists in order to assist the Directors in managing the Target’s business and the development of the Zhijiang Project.

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LETTER FROM THE BOARD

FINANCIAL INFORMATION OF THE TARGET

According to the accountant’s report on the Target for the period from 10 July 2013 (date of establishment) to 31 December 2013 and for the financial year ended 31 December 2014 which was prepared in accordance with Hong Kong Financial Reporting Standards and set out in Appendix III to this circular, selected financial information is set out as below:

	For the period
	from 10 July
	2013 (date of
	establishment) to	Year ended
	31 December 2013	31 December 2014
	(audited)	(audited)
	(RMB million)	(RMB million)
Net losses before and after tax	1.49	1.45
	As at	As at
	31 December 2013	31 December 2014
	(audited)	(audited)
	(RMB million)	(RMB million)
Net assets	28.52	27.07

The Target has yet to commence gas supply operation, no revenue was reported for the period from 10 July 2012 (date of establishment) to 31 December 2013 and for the financial year ended 31 December 2014.

Pursuant to the terms of the JV Co-operation Agreement, the Target will be regarded as being controlled by the Group in accordance with the Group’s accounting policies. As a result, the Target will become a 49% indirectly-owned subsidiary of the Company and the financial results of the Target will be consolidated into the accounts of the Company upon Completion.

The accounting policies adopted by the Target in preparing the accountant’s report are consistent with the Group’s accounting policies.

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LETTER FROM THE BOARD

Financial Assistance

As at 15 April 2015 and the Latest Practicable Date, there were certain outstanding amounts due to Mr. Xiong and the Vendor from the Target as well as bank guarantees provided by the Vendor, Mr. Xiong and Mr. Li and/or their respective associates in favour of 湖北省農村信用社 (Rural Credit Cooperatives Union of Hubei)* for the bank loan granted to the Target. Details of which are as follows:

1. Advances from Mr. Xiong (the “ Advances ”)

As at 15 April 2015 and the Latest Practicable Date, the amount of approximately RMB1,059,000 (equivalent to HK$1,323,750) and RMB3,265,000 (equivalent to HK$4,081,250) respectively due from the Target to Mr. Xiong represented the outstanding advances to finance the daily operations of the Target. No interest shall accrue on such Advances and the Advances are not secured by any assets of the Target.

Such Advances are currently repayable on demand. The amount of such Advances as at the date of the Completion will be agreed upon by the Company, the Target and Mr. Xiong. The Company, the Target and Mr. Xiong agreed that such Advances shall be settled within 18 months after the date of Completion.

1. Loan of RMB65,000,000 (equivalent to HK$81,250,000) from the Vendor (the “ Loan ”)

As at both 15 April 2015 and the Latest Practicable Date, the amount of approximately RMB65,000,000 (equivalent to HK$81,250,000) due from the Target to the Vendor represented the Loan from the Vendor to finance the pipeline construction of the Target at an interest rate of 12% per annum for a term of one year up to February 2016. As agreed between the Target and the Vendor, the repayment of the loan has been extended to 31 December 2016. The Loan is not secured by any assets of the Target. The Company, the Target and the Vendor agreed that the existing terms of the Loan remain unchanged after the date of Completion.

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LETTER FROM THE BOARD

1. Bank Guarantees provided by the Vendor, Mr. Xiong, Mr. Li and/or their respective associates (“ Bank Guarantees ”)

Pursuant to the loan agreement entered into between the Target and 湖北省農村 信用社聯合社 (Rural Credit Cooperatives Union of Hubei)* dated 25 November 2014, the Target was granted with a bank loan of RMB20,000,000 (equivalent to HK$25,000,000), of which RMB2,000,000 (equivalent to HK$2,500,000) will be repayable in November 2015 and the remaining RMB3,000,000 (equivalent to HK$3,750,000) and RMB15,000,000 (equivalent to HK$18,750,000) will be repayable in November 2016 and 2017 respectively. The bank loan was secured by the following:

• (a) Personal guarantee from each of Mr. Li, Mr. Xiong and Ms. Yan Jin (the wife of Mr. Xiong) in favour of the bank the principal sum of the loan, interest and other monies whatsoever becoming due and payable in accordance with the terms and conditions of the said loan agreement;

• (b) Corporate guarantee from each of the Vendor and 宜昌市利通石油有限公司 (Yichang City Litong Petroleum Co., Limited)*, a company owned 49% by Mr. Xiong in favour of the bank the principal sum of the loan, interest and other monies whatsoever becoming due and payable in accordance with the terms and conditions of the said loan agreement; and

• (c) Certain assets owned by Mr. Xiong and Ms. Yan Jin and 宜昌市利通石油有限 公司 (Yichang City Litong Petroleum Co., Limited)*.

The provision of the Bank Guarantees by Mr. Xiong, the Vendor and Mr. Li and/or their respective associates is not secured by any assets of the Target.

Each of Mr. Xiong, the Vendor and Mr. Li and/or their respective associates agreed to continue to provide the Bank Guarantee after the date of Completion and up to the expiry of the said loan agreement.

Each of Mr. Xiong, the Vendor and Mr. Li and/or their respective associates did/ will not receive any fee or commission from the Target for the provision of the Bank Guarantees.

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LETTER FROM THE BOARD

As at both 15 April 2015 and the Latest Practicable Date, the outstanding amount due by the Target to 湖北省農村信用社聯合社 (Rural Credit Cooperatives Union of Hubei)* amounted to approximately RMB20,000,000 (equivalent to HK$25,000,000).

1. Amount due to a related party

As at 15 April 2015, the unsecured and unguaranteed amount due to a related party of the Target, which is a joint venture company jointly controlled by the Vendor and an independent third party was RMB1,231,000 (equivalent to HK$1,538,000). The amount was fully settled before the Latest Practicable Date.

The Target intends to repay the Advances, the Loan and bank borrowings by future cash flows to be generated from the natural gas business.

The Directors (including the independent non-executive Directors) consider that the Advances, the Loan and the Bank Guarantees (i) are conducted on normal commercial terms (or better for the Group) after taking into account the prevailing market interest rates and practices by the commercial banks in the PRC based on the review of the term sheets obtained by the Company’s management from the PRC commercial banks and (ii) the terms of which are beneficial to the Target in terms of working capital management and risk control given the early stage of the Target’s natural gas operation.

Upon completion of the Transaction, each of Mr. Xiong, Mr. Li, the Vendor and their respective associates will become a connected person of the Company and the Advances, the Loan and the Bank Guarantees will constitute connected transactions under Chapter 20 of the GEM Listing Rules as these amount to financial assistance received by the Group from connected persons on the date of Completion.

As the Advances, the Loan (including the applicable interest rate) as well as the Bank Guarantees (i) are not secured by any assets of the Target; (ii) are conducted on normal commercial terms (or better for the Group), the Advances, the Loan and the Bank Guarantees will be fully exempted from Shareholders’ approval, annual review and all disclosure requirements under Chapter 20 of the GEM Listing Rules pursuant to Rule 20.88 of the GEM Listing Rules.

FINANCIAL EFFECT OF THE TRANSACTION

Following completion of the Transaction, the Target will become a 49% indirectlyowned subsidiary of the Company and its financial results will be consolidated into the financial statements of the Group. The unaudited pro forma financial information of the Enlarged Group is set out in Appendix IV to this circular.

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LETTER FROM THE BOARD

Based on the unaudited pro forma financial information on of the Enlarged Group as set out in Appendix IV to this circular, upon completion of the Transaction, the consolidated total assets of Enlarged Group would increase from approximately HK$30,139,000 to HK$275,404,000 and the consolidated liabilities of the Enlarged Group would increase from HK$839,000 to approximately HK$176,659,000, the non controlling interest of the Enlarged Group will be approximately HK$74,225,000. In addition, the Transaction would give rise to a goodwill of HK$28,686,000, which represents the amount by which the Consideration exceeds the pro forma fair values of the identifiable assets and liabilities of the Target to be acquired.

For the purpose of the unaudited pro forma financial information as set out in Appendix IV to this circular, the Board has considered the goodwill associated with the Transaction in accordance with HKAS 36 “Impairment of Assets”. Based on the information available to the Directors, in particular the purchase price allocation report prepared by BMI (please refer to page IV-7 as set forth in Appendix IV to this circular), the Board considered that there is no indication of impairment of goodwill arising from the Transaction on the date of the Transaction to be assumed to be completed on 31 December 2014.

The total estimated acquisition related costs for the Transaction to be incurred and to be charged to consolidated profit or loss upon completion of the Transaction will be approximately HK$4,780,000.

Shareholders should note that since the fair value of the assets and liabilities of the Target may be different at Completion as compared to their respective values used in the preparation of the unaudited pro forma financial information of the Enlarged Group, the actual amounts of assets and liabilities and the goodwill to be recorded in the financial statements of the Group may be different from the estimated amounts shown in Appendix IV to this circular.

As the unaudited pro forma financial information of the Enlarged Group is for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the results and financial position of the Enlarged Group for any future financial periods or dates.

REASONS FOR AND BENEFITS OF THE TRANSACTION

The Group is principally engaged in the provision of internet & e-commerce enabling solutions, IT consulting & technical services, strategic investments in technologies & applications, investment in life science & health related projects, promotion & trading of cultural products as well as commodities trading.

In view of the weak business sentiments on the Group’s IT business, the Directors have been exploring different business opportunities in other sectors in order to broaden the sources of income and to boost the business performance of the Group. As disclosed in the annual report of

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LETTER FROM THE BOARD

the Company for the period from 1 July 2014 to 31 December 2014, the Company has successfully launched its commodities trading business and achieved a turnover of approximately HK$24.9 million. In addition, the Company began to venture into the natural gas supply industry and entered into the MOU for the possible acquisition of the Target.

In light of the increasing public awareness of environmental issues in the PRC and the promotion of the clean energy by the PRC government, natural gas consumption in the PRC has experienced significant growth in the past decade from approximately 33.9 billion cubic meters in 2003 to approximately 161.6 billion cubic meters in 2013 (Source: BP Statistical Review of World Energy June 2014 issued by BP Plc (http://www.bp.com)), which represents a compound annual growth rate of 16.9% over the period.

In addition, under the PRC government’s energy development strategy in the “Twelfth FiveYear” plan to adjust national energy structure and promote growth of clean energy consumption, the industry development of natural gas has enjoyed strong support by the industry policies of the PRC and the PRC government will also gradually implement the decisions approved during the Third Plenary Session to support the economic and social reforms, developing a green, low-carbon society and focusing on sustainable development of a better country.

In November 2014, the PRC government published the “Action Plan for the National Energy Development Strategy (2014-2020)” (《國家能源發展戰略行動計劃(2014-2020)》) (“ Action Plan ”). The stated goals of the Action Plan are to provide more efficient, self-sufficient, green and innovative energy production and consumption environment in the PRC and the target set for the share of natural gas in the national energy mix will be increased to 10% by 2020 (Natural gas accounted for 5.8% of China’s energy mix in 2013 based on the China Statistical Yearbook 2014). It also promotes the infrastructure development for the use of natural gas in the urban residential and public transportation sectors. The move underpins the government’s strong determination to roll out an energy strategy for a modern society and higher priority being placed on environmental goals and the deployment of cleaner energy as well as the promotion of domestic supply to meet the local demand.

Albeit that Target’s business is completely different from the existing business of the Group, the Directors believe that the Target has good business potential given such favourable business environment and the growing demand for natural gas consumption arising from the progressing urbanisation in the PRC. The Directors consider that natural gas, as one of the main sources of green energy with significant growth in consumption in the past decade and the increasing share in China’s energy mix as promoted under the Action Plan by the PRC government, will enjoy more rapid growth and extensive development in the foreseeable future.

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LETTER FROM THE BOARD

The construction of the first phase of the Zhijiang Project is at its final stage and approximately 95% of the construction has been completed as at the Latest Practicable Date. The Target is expected to commence trial run in late June 2015 and obtain the Fuel Gas Operating License（燃氣經營許可證）and generate revenue from the provision of natural gas by the end of July 2015. The Directors consider the natural gas operation of the Target will contribute a stable income stream to the Group upon Completion.

Except for the change of composition of the board of directors of the Target which additional two directors of the Target will be nominated by the Purchaser pursuant to the JV Co-operation Agreement, there will not be any material change in the key management of the Target upon the Completion, therefore the operations of the Target would not be affected in the foreseeable future.

It is the opinion of the Directors that it will be more favorable to the Company to acquire the Target at its early stage of business development and the Directors are of the view that the Transaction, if materialised, will provide an opportunity for the Company to diversify and expand its business by taking part in the natural gas supply sector in the PRC.

The Directors are of the view that the terms of the Agreements are fair and reasonable and the Transaction is in the interests of the Company and the Shareholders as a whole.

GEM LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as set out and calculated under Rule 19.07 of the GEM Listing Rules) exceed(s) 25% but is/are less than 100%, the Transaction constitutes a major transaction for the Company under Chapter 19 of the GEM Listing Rules and will be subject to the applicable announcement and shareholders’ approval requirements under Chapter 19 of the GEM Listing Rules.

Pursuant to Rule 19.44 of the GEM Listing Rules, written shareholders’ approval may be accepted in lieu of holding a general meeting of the Company to approve the Agreements and the transactions contemplated thereunder if: (a) no Shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the Agreements and the transactions contemplated thereunder; and (b) the written approval has been obtained from a Shareholder or a closely allied group of Shareholders who together hold more than 50% in nominal value of the issued shares of the Company giving right to attend and vote at a general meeting to approve the Agreements and the transactions contemplated thereunder.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder has a material interest in the Transaction which is different from other Shareholders, and therefore no Shareholder is required to abstain from voting on the relevant resolution(s) to be proposed at the general meeting in relation to the Transaction if the Company was to convene a general meeting for approving the Agreements and the Transaction.

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LETTER FROM THE BOARD

WRITTEN SHAREHOLDERS’ APPROVAL

Global Strategic Holding, the controlling shareholder of the Company holding approximately 57.97% of the issued share capital of the Company as at the date of this circular, has given its written approval on the Agreements and the Transaction, the written approval of the controlling shareholder will be accepted in lieu of holding a general meeting pursuant to Rule 19.44 of the GEM Listing Rules.

Global Strategic Holding is wholly-owned by Global Strategic Fund Holdings Limited, which in turn is owned as to 49% of its issued share capital by Hotex Holdings Limited and as to 51% of its issued share capital by Liang Tan Yi Xing International Foundation Company Limited. Hotex Holdings Limited is wholly-owned by Mr. WENG Lin Lei, an executive Director. Liang Tan Yi Xing International Foundation Company Limited is owned as to 90% by Mr. WEI Yue Tong, an executive Director and as to 10% by Mr. ZHENG Zhu Ping, a non-executive Director.

RECOMMENDATION

The Board considers that the Agreements have been entered into after arm’s length negotiation and the terms of the Agreements are fair and reasonable and in the interest of the Company and Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution if the Company was to convene a general meeting to approve the Agreements and the transactions contemplated thereunder.

As the Completion is conditional upon the fulfilment of the conditions precedent to the Equity Transfer Agreement which may or may not materialise, Shareholders and potential investors should exercise caution when dealing in the Shares of the Company.

ADDITIONAL INFORMATION

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

By the order of the Board Global Strategic Group Limited WEI Yue Tong

Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the two years ended 30 June 2013 and 30 June 2014 as well as for the period from 1 July 2014 to 31 December 2014 are disclosed in the following annual reports of the Company which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.globalstrategicgroup.com.hk):

1. annual report of the Company for the period from 1 July 2014 to 31 December 2014 dated 16 February 2015 published on 19 March 2015 (pages 42-83);

http://www.hkexnews.hk/listedco/listconews/GEM/2015/0319/GLN20150319031.pdf

1. annual report of the Company for the year ended 30 June 2014 dated 22 August 2014 published on 22 September 2014 (pages 23-50); and

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0922/GLN20140922021.pdf

1. annual report of the Company for the year ended 30 June 2013 dated 14 August 2013 published on 29 August 2013 (pages 23-50).

http://www.hkexnews.hk/listedco/listconews/GEM/2013/0829/GLN20130829023.pdf

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Upon Completion, the Enlarged Group will be principally engaged in the (i) IT business; (ii) commodity trading business and (iii) natural gas business.

IT business

Service fee derived from the Group’s enabling solutions and technical consultation on e-commerce integration and application customisation (“ IT Solution Services ”) was the principle source of income for the Group’s IT business. Given the weak business sentiments in the IT market, lower demand on the Group’s IT Solution Services was noted and segment loss of approximately HK$500,000 was reported for the period from 1 July 2014 to 31 December 2014 as disclosed in the annual report of the Company for the period from 1 July 2014 to 31 December 2014. The Group is not optimistic of the turnaround of its existing IT business. However, the Group may explore other IT business or investment opportunities which has earning potential.

The Company is currently reviewing certain projects with a view to diversify its IT business into the PRC, Shareholders should note that no agreement or understanding regarding these projects has been entered into by the Company with any parties as at the Latest Practicable Date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Commodities trading business

The Group has successfully launched its commodity trading business since December 2014 and it provides the Group with a stable revenue stream since the commencement of the business. Based on the Company’s annual report for the period from 1 July 2014 to 31 December 2014 and the first quarter report for the three months ended 31 March 2015, the Group achieved turnover of approximately HK$24,900,000 and HK$87,866,000 from the commodity trading business. Segment gross profit of approximately HK$11,000 or gross profit margin of approximately 0.5% was reported for the period from 1 July 2014 to 31 December 2014. Given the commodity trading business is new to the Group, the Group endeavours to grow the commodities trading business by expanding its network of suppliers to ensure stable supply of quality commodities, including but not limited to copper and nickel at competitive pricing as well as developing its customer base to enhance the Group’s competitiveness in price negotiation with a view to improve its profit margin, and thus achieve a sustainable long term growth in both financial and operating performance of the Group.

Natural gas business

For details of the business prospects of the Target, please refer to the section headed “Information on the Target” in the letter from the Board. Given the current challenging IT business environment, the Group is not optimistic that its existing IT business will turnaround in the coming year. In addition to the new commodity trading business, the Board spares no efforts to explore other investment opportunities in order to broaden the revenue stream of the Group. As natural gas is a cleaner source of energy as compared to traditional products such as coal and are promoted under PRC government policies, it is expected that the continual growth in demand for natural gas will continue to grow. The Board considers it is an opportune time to acquire the Target and the Target will bring recurring cash flow and returns to the Group following the commencement of the natural gas operations.

INDEBTEDNESS OF THE GROUP

As at the close of business on 15 April 2015, the Enlarged Group had outstanding (i) current-portion of bank borrowings of RMB2,000,000 (equivalent to HK$2,499,000) and non-current portion of bank borrowings of RMB18,000,000 (equivalent to HK$22,487,000) which carries fixed interest at a rate of 9.74% per annum and is secured by certain buildings personally owned by Mr. Xiong and Ms. Yan Jun, the spouse of Mr. Xiong and certain buildings held by a related company controlled by Mr. Xiong and Mr. Xiong, Ms. Yan Jun and the related company

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

also provided personal or corporate guarantees to the bank in respect such bank borrowings; (ii) amount due to immediate holding company of the Target of RMB65,000,000 (equivalent to HK$81,250,000), which is unguaranteed and unsecured, carries interest at a fixed interest rate of 12% per annum, repayable in February 2016 and is extended to December 2016 upon entering into the mutual agreement on 3 June 2016 between the Target and the immediate holding company of the Target; (iii) unsecured and unguaranteed amount due to the ultimate controlling shareholder of the Target of RMB1,059,000 (equivalent to HK$1,323,000) and (iv) unsecured and unguaranteed amount due to a related party of the Target, which is a joint venture company jointly controlled by the immediate holding company of the Target and an independent third party, of RMB1,231,000 (equivalent to HK$1,538,000).

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the ordinary course of business, the Enlarged Group did not have outstanding at the close of business on 15 April 2015 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchases or finance lease commitments, guarantees or other material contingent liabilities.

WORKING CAPITAL

As at the Latest Practicable Date, taking into account the financial resources presently available to the Enlarged Group including the internally generated funds and the unconditional financial support pursuant to a letter of undertaking (the “ Letter of Undertaking ”) dated 8 June 2015 issued by Global Strategic Holding, the immediate holding company of the Company, which is holding 2,295,429,580 shares of the Company, pursuant to which Global Strategic Holding agreed to provide interest-free unconditional financial support to the Group for the purpose of the Group’s working capital from time to time, in any situation where the Enlarged Group may encounter a shortfall in working capital, as well as the effect of the acquisition of the Target, the Directors are of opinion that the Enlarged Group has sufficient working capital for its present requirements that is for at least the next 12 months from the date of publication of this circular in the absence of unforeseen circumstances. The financial support received or to be received by the Group under the Letter of Undertaking is not secured by any assets of the Group and is based on normal or better commercial terms, as such, it is fully exempted by the virtue of Rule 20.88 of the GEM Listing Rules.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MATERIAL ADVERSE CHANGE

As disclosed in the first quarterly report of the Company for the three months ended 31 March 2015 dated 11 May 2015, the Group extended its loss for the three months ended 31 March 2015 to approximately HK$43,505,000. Such loss was mainly attributable to the increase in staff costs, marketing and advertising expenses, and the legal and professional fees incurred for the Transaction. Save as disclosed above, as at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial and trading position or prospects of the Group since 31 December 2014, being the date to which the Company’s latest published audited accounts were made up.

I – 4

MANAGEMENT AND DISCUSSION ANALYSIS OF THE TARGET

APPENDIX II

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET

Set out below is the management discussion and analysis of the operating results and business review of the Target for the period from 10 July 2013 (the date of establishment) to 31 December 2013 and for the year ended 31 December 2014 (the “ Track Record Period ”).

Business review

The Target is a company established under the PRC law with limited liability on 10 July 2013. The Target has been granted the approval to operate the first phase of the Zhijiang Project by Hubei Provincial Development and Reform Commission（湖北省發展和改革委員會）.

Please refer to the paragraph headed “Business of the Target” in the section headed “Information on the Target” in the letter from the Board for information on the construction of facilities and status of the operations of the Target.

The operation of natural gas supply has yet to commence and no revenue was reported during the Track Record Period. Loss of approximately RMB1,484,000 (equivalent to HK$1,855,000) and RMB1,451,000 (equivalent to HK$1,813,750) attributable to preliminary expenses, staff costs and depreciation as well as other administrative expenses, including PRC government fees, trip expenses, motor vehicles expenses etc. incurred for each of the period from 10 July 2013 to 31 December 2013 and the year ended 31 December 2014.

Liquidity and financial resources

As at 31 December 2013 and 31 December 2014, the Target had total assets of approximately RMB$41,320,000 (equivalent to HK$51,650,000) and RMB$74,070,000 (equivalent to HK$92,587,500) respectively, which mainly comprised the construction-in– progress for the construction of natural gas pipelines of the Zhijiang Project.

As at 31 December 2013 and 31 December 2014, the Target reported cash and cash equivalents of approximately RMB32,000 (equivalent to HK$40,000) and RMB8,000 (equivalent to HK$10,000) respectively as well as net current liabilities of RMB756,000 (equivalent to HK$945,000) and RMB40,691,000 (equivalent to HK$50,863,750) respectively.

Other payables of approximately RMB2,372,000 (equivalent to HK$2,965,000) and RMB9,775,000 (equivalent to HK$12,218,750) as at 31 December 2013 and 2014 respectively mainly represented amounts due to independent contractors for the construction of first phase of the Zhejiang Project.

II – 1

APPENDIX II

MANAGEMENT AND DISCUSSION ANALYSIS OF THE TARGET

The Target’s sources of funding for daily working capital and construction of the first phase of the Zhijiang Project mainly generated from advances from its holding companies and controlling shareholder as well as bank borrowings. As at 31 December 2014, the amounts due to ultimate controlling shareholder (i.e. Mr. Xiong), an intermediate holding company (i.e. 宜昌交運石油倉 儲有限公司 (Yichang Transportation and Petro Warehousing Co., Ltd.)) and immediate holding company (i.e. Hubei Biaodian) were amounted to approximately RMB10,510,000 (equivalent to HK$13,137,500), RMB1,232,000 (equivalent to HK$1,540,000) and RMB17,238,000 (equivalent to HK$21,547,500) respectively. As at 31 December 2013, the amount due from intermediate holding company (i.e. 宜昌交運石油倉儲有限公司 (Yichang Transportation and Petro Warehousing Co., Ltd.)) and amount due to immediate holding company (i.e. Hubei Biaodian) were RMB11,760,000 (equivalent to HK$14,700,000) and RMB10,432,000 (equivalent to HK$13,040,000) respectively. The Target did not have any bank borrowing as at 31 December 2013. A bank facility of up to RMB20,000,000 (equivalent to HK$25,000,000) was obtained by the Target in year 2014 to finance the payment of capital expenditures in relation to the construction of the first phase of the Zhijiang Project and the outstanding amount of bank borrowing as at 31 December 2014 was RMB8,250,000 (equivalent to HK$10,312,500).

Gearing ratio

The gearing ratio, represented by total liabilities as a percentage of total assets, was approximately 30.99% and 63.46% as at 31 December 2013 and 31 December 2014 respectively.

The increase in gearing ratio as of 31 December 2014 as compared with 31 December 2013 was mainly due to the increase in financing obtained by the Target for the construction of the first phase of the Zhijiang Project.

Capital and treasury policies

The registered capital of Target was RMB30,000,000 (equivalent to HK$37,500,000) as at both 31 December 2013 and 31 December 2014. There were no treasury policies for the Track Record Period.

Capital commitments

As at 31 December 2013 and 31 December 2014, capital commitments of approximately RMB20,684,000 (equivalent to HK$25,855,000) and RMB24,564,000 (equivalent to HK$30,705,000) respectively represented capital expenditures contracted for but not provided for the construction of natural gas pipelines, main station and facilities for supply of natural gas to commercial and industrial areas.

II – 2

MANAGEMENT AND DISCUSSION ANALYSIS OF THE TARGET

APPENDIX II

Significant investment, material acquisition and disposals

Save for the Zhijiang Project, the Target did not have any other significant investments and had not entered into any material acquisitions and/or disposals of any of its subsidiaries and associated companies for the Track Record Period.

Pledge of assets

There was no pledge of assets as at 31 December 2013 and 31 December 2014.

Remuneration policies and employee information

As at 31 December 2013 and 31 December 2014, the Target had 10 and 10 employees (including contract staff) respectively. Total staff costs for the period ended 31 December 2013 and for the year ended 2014 were approximately RMB87,000 (equivalent to HK$108,750) and RMB426,000 (equivalent to HK$532,500) respectively.

The Target’s employee benefits and remuneration policy are in line with prevailing market practice, as salary increments are assessed based on the performance of individual staff. The Group intends to employ all of the Target’s employees and retain their current positions after Completion.

Foreign exchange exposure

The assets, liabilities and business transactions of the Target were all in RMB. The borrowings and cash and cash equivalents were also all in RMB. There was no financial arrangement for hedging purpose in respect of the Target during the Track Record Period.

Contingent liabilities

As at 31 December 2013 and 31 December 2014, the Target did not have any contingent liabilities.

Segmental information

During the Track Record Period, the operation of natural gas supply has yet to commence. Accordingly, no analysis of business and geographical segments is presented.

II – 3

MANAGEMENT AND DISCUSSION ANALYSIS OF THE TARGET

APPENDIX II

Prospect of natural gas business

For details of the business prospects of the Target, please refer to the section headed “Information on the Target” in the letter from the Board.

Future plans

Save as disclosed in the section headed “Information on the Target” in the letter from the Board, as at the Latest Practicable Date, there are no other proposed material investments of the Target.

II – 4

APPENDIX III

ACCOUNTANT’S REPORT OF

THE TARGET

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==> picture [81 x 38] intentionally omitted <==

12 June 2015

The Directors Global Strategic Group Limited 環球戰略集團有限公司

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Yichang Zhongyou Natural Gas Utilization Co., Ltd.（宜昌中油天然氣利用有限公 司）(“Yichang Zhongyou”) (referred to as the “Target”) for the period from 10 July 2013 (date of establishment) to 31 December 2013 and the year ended 31 December 2014 (the “Relevant Periods”) for inclusion in the circular of Global Strategic Group Limited (the “Company”) dated 12 June 2015 (the “Circular”) in connection with the proposed acquisition of the 49% equity interest in the Target by the Company (the “Proposal Acquisition”) in accordance with acquisition agreement entered into on 23 April 2015, constituting a major acquisition under the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Target was established in the People’s Republic of China (the “PRC”) on 10 July 2013 and registered as a domestic company with limited liability. The registered office of The Target is No. 28, Fazhan Avenue, Dongshan Industrial Park, Yichang, Hubei Province, the PRC.

The Target has adopted 31 December as its financial year end date.

The statutory financial statements of the Target for the period from 10 July 2013 (date of incorporation) to 31 December 2013 and the year ended 31 December 2014 were prepared in accordance with the relevant accounting principles and regulations applicable to enterprises established in the PRC and were audited by Shanghai Certified Public Accountants (Special General Partnership Shenzhen Branch)（上會會計師事務所（特殊普通合夥）深圳分所）, certified public accountants registered in the PRC.

III – 1

ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

For the purpose of this report, the director of the Target has prepared the financial statements of the Target for the Relevant Periods (the “Underlying Financial Statements”) using accounting policies which are in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Target for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustment was considered necessary to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the director of the Target who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target as at 31 December 2013 and 2014, and of its results and cash flows for the Relevant Periods.

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APPENDIX III

A. FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Turnover Administrative expenses Interest income Other gains and losses Finance costs 7 Loss before tax 9 Income tax expenses 10 Total loss and other comprehensive expense for the period/year	From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000 – (1,488) 7 (3) – (1,484) – (1,484)	Year ended 31 December 2014 RMB’000 – (1,451) – – – (1,451) – (1,451)

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APPENDIX III

STATEMENTS OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 11 Deposits paid for property, plant and equipment 12 Prepaid lease payment 13 Value-added tax recoverable Current assets Other receivables Prepaid lease payment 13 Amount due from intermediate holding company 14 Cash and cash equivalents 15 Current liabilities Other payables 16 Amount due to the ultimate controlling shareholder 17 Amount due to a related party 17 Amount due to immediate holding company 17 Bank borrowings 18 Net current assets (liabilities) Total assets less current liabilities Capital and reserves Registered and paid-in capital 19 Accumulated losses Total equity Non-current liability Bank borrowings 18

At 31 December 2013 2014 RMB’000 RMB’000 24,992 62,890 1,572 5,273 1,419 1,390 1,289 4,453 29,272 74,006 227 27 29 29 11,760 – 32 8 12,048 64 2,372 9,775 – 10,510 – 1,232 10,432 17,238 – 2,000 12,804 40,755 (756) (40,691) 28,516 33,315 30,000 30,000 (1,484) (2,935) 28,516 27,065 – 6,250 28,516 33,315

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APPENDIX III

STATEMENTS OF CHANGES IN EQUITY

Paid-in capital received on 10 July 2013, the date of establishment Total loss and other comprehensive expense for the period At 31 December 2013 Total loss and other comprehensive expense for the year At 31 December 2014	Registered and paid-in capital RMB’000 30,000 – 30,000 – 30,000	Accumulated losses RMB’000 – (1,484) (1,484) (1,451) (2,935)	Total RMB’000 30,000 (1,484) 28,516 (1,451) 33,315

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APPENDIX III

STATEMENTS OF CASH FLOWS

Loss before taxation Adjustments for: Interest income Depreciation of property, plant and equipment Operating cash flows before movements in working capital (Increase) decrease in other receivables Increase in other payables Net cash used in operating activities Investing activities Interest received Payments for additions to property, plant and equipment Increase in value-added tax recoverable (Advance to) settlement from intermediate holding company Payments for additions to prepaid lease payment Net cash used in investing activities Financing activities New borrowings raised Advance from the controlling shareholder Advance from a related party Advance from the immediate holding company Repayment to a related party Proceeds from paid-in capital	From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000 (1,484) (7) 84 (1,407) (227) 131 (1,503) 7 (16,074) (1,289) (11,760) (1,450) (30,566) – – – 10,262 (8,161) 30,000	Year ended 31 December 2014 RMB’000 (1,451) – 259 (1,192) 200 574 (418) – (26,646) (3,164) 11,760 – (18,050) 8,250 2,247 1,141 6,806 – –

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APPENDIX III

ACCOUNTANT’S REPORT OF THE TARGET

Net cash from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period/year Cash and cash equivalents at end of the period/year	82,101 32 – 32 From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000	18,444 (24) 32 8 Year ended 31 December 2014 RMB’000

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APPENDIX III

NOTES TO THE FINANCIAL INFORMATION

1. General information and basis of preparation

(A) General Information

The Target is established in the PRC with limited liability. The address of its registered office and principal place of business is No 28, Fazhan Avenue, Dongshan Industrial Park, Yichang, Hubei Province, the PRC. In the opinion of the director of the Target, the immediate holding company of the Target is Hubei Biaodian Natural Gas Co., Ltd. (“Hubei Biaodian”) (formally known as Hubei Tianneng Natural Gas Utilization Co., Ltd.（湖北天能天然氣利用有限責任公司）), the intermediate holding company is Yichang Transportation and Petro Warehousing Co., Ltd.（宜昌交 運石油倉儲有限公司）(“Yichang Transportation”) and the ultimate holding company of the Target, is Yichang Tonghua Industrial and Trading Holding Co., Ltd.（宜昌東華 工貿股份有限公司）(“Yichang Tonghua”) throughout the Relevant Periods. Yichang Tonghua is controlled by Mr. Xiong Song Gan（熊崧淦）(“Mr. Xiong”), who is the ultimate controlling shareholder and also managing director of the Target.

The principal activity of Yichang Zhongyou during the Relevant Periods was investment and construction of natural gas pipelines of natural gas project. The Target has been granted with the approval to operate the first phase of the natural gas pipeline construction project to supply gas to the industrial parks and commercial area around the Wufeng Industrial Zone and Baiyang Industrial Zone in Zhijiang City, Hubei Province, the PRC (the “Zhijiang Project”). Upon completion of the construction, the Target will also be engaged in the provision of natural gas technology consultation services and sales of natural gas cooking appliance and accessories.

The Financial Information are presented in Renminbi (the “RMB”), which is the same as the functional currency of the Target.

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APPENDIX III

(B) Basis of preparation

The Target reported a net loss of RMB1,484,000 and RMB1,451,000 for the period from 10 July 2013 (date of establishment) to 31 December 2013 and the year ended 31 December 2014, respectively and the Target’s current liabilities exceeded its total current assets by RMB756,000 and RMB40,691,000 as at 31 December 2013 and 31 December 2014, respectively. The director of Target prepared the Underlying Financial Statements on a going concern basis as the Company has agreed to provide adequate funds to enable the Target to meet in full its financial obligations as they fall due for the foreseeable future after completion of the Proposal Acquisition.

The acquisition of the 49% equity interest in Target by the Company is conditional upon the satisfaction or waiver of a number of conditions precedent, one of which is the approval by the shareholders of the Company. Should the acquisition of the Target fail to be completed, Mr. Xiong, who is the ultimate controlling shareholder and the director of the Target, has agreed to provide adequate funds to enable the Target to meet in full its financial obligations as they fall due for the foreseeable future is of the view he will use his best endeavor to seek necessary funding from financial institutions, related parties and/or independent third parties to enable the Target to complete and operate the Zhijiang Project. As such, the director of the Target considers that, taking account of the measures described above, it is appropriate for the Financial Information to be prepared on a going concern basis.

2. Application of new and revised HKFRSs

For the purposes of preparing and presenting the Financial Information for the Relevant Periods, the Target has adopted all HKFRSs issued by the HKICPA which are effective for annual period beginning on 1 January 2014 consistently throughout the Relevant Periods.

At the date of this report, the HKICPA has issued the following new and revised standards and amendments that are not yet effective in the Relevant Periods. The Target has not early applied the following new and revised standards and amendments that have been issued but not yet effective.

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APPENDIX III

ACCOUNTANT’S REPORT OF THE TARGET

HKFRS 9 Financial Instruments[1] HKFRS 14 Regulatory Deferral Accounts[2] HKFRS 15 Revenue from Contracts with Customers[3] Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[5] Amendments to HKAS 1 Disclosure Initiative[5] Amendments to HKAS 16 and Clarification of Acceptable Methods of HKAS 38 Depreciation and Amortisation[5] Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions[4] Amendments to HKFRSs Annual Improvements to HKFRSs 2010-2012 Cycle[6] Amendments to HKFRSs Annual Improvements to HKFRSs 2011-2013 Cycle[4] Amendments to HKFRSs Annual Improvements to HKFRSs 2012-2014 Cycle[5] Amendments to HKAS 16 and Agriculture: Bearer Plants[5] HKAS 41 Amendments to HKAS 27 Equity Method in Separate Financial Statements[5] Amendments to HKFRS 10 and Sale or Contribution of Assets between an HKAS 28 Investor and its Associate or Joint Venture[5] Amendments to HKFRS 10, Investment Entities: Applying the Consolidation HKFRS 12 And HKAS 28 Exception[5]

• 1 Effective for annual periods beginning on or after 1 January 2018 2 Effective for first annual HKFRS financial statements beginning on or after 1 January 2016 3 Effective for annual periods beginning on or after 1 January 2017 4 Effective for annual periods beginning on or after 1 July 2014 5 Effective for annual periods beginning on or after 1 January 2016 6 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions

The director of the Target does not anticipate that the application of these new and revised HKFRSs will have a material impact on the Target.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

3. Significant accounting policies

Statement of compliance

The Financial Information has been prepared in accordance with HKFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance which for the Relevant Periods continue to be those of the predecessor Companies Ordinance (Cap. 32).

The Financial Information has been prepared on the historical cost basis as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Target takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Financial Information is determined on such a basis, except for leasing transactions that are within the scope of HKAS 17 “Leases”, and measurements that have some similarities to fair value but are not fair value, such as value in use in HKAS 36 “Impairment of Assets”.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

The principal accounting policies are set out below. These policies have been consistently applied throughout the Relevant Periods.

Property, plant and equipment

Property, plant and equipment (except for construction in progress) used in the production or supply of goods or services, or for administrative purposes, are stated in the statements of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Construction in progress for use in production, supply or administrative purposes is carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Target’s accounting policy. Such assets are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives after taking into account the residual values as follow:

Office equipment 5 years Motor vehicles 4 years

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Leasehold land

Interest in leasehold land that is accounted for as an operating lease is presented as ‘prepaid lease payments’ in the statements of financial position and is amortised over the lease term on a straight-line basis.

Impairment of tangible assets

At the end of each reporting period, the Target reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Target estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cashgenerating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Current tax

The tax currently payable is based on taxable profit for the period/year. Taxable profit differs from “loss before tax” calculated under HKFRSs because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Target’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Target expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Current and deferred tax for the period/year

Current and deferred tax are recognised in profit or loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

Other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered services entitling them to the contributions.

Financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when the Target becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

Financial assets are accounted for as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including other receivables, amount due from an intermediate holding company and cash and cash equivalents) are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as a default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by an entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Target are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Financial liabilities

Financial liabilities (including other payables and amounts due to the ultimate controlling shareholder, a related party and an immediate holding company and bank borrowings) are subsequently measured at amortised cost using the effective interest method.

Derecognition

The Target derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Target derecognises financial liabilities when, and only when, the Target’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4. Capital risk management

The Target manages its capital to ensure the Target will be able to continue as a going concern while maximising the return to the owner of the Target through the optimisation of the debt and equity balance. The Target’s overall strategy remains unchanged from the date of establishment.

The capital structure of the Target consists of net debt, which includes amount due to an immediate holding company and other related parties disclosed in note 17, net of cash and cash equivalents and equity attributable to equity holders of the Target, comprising paid-in capital and reserves.

The director of the Target reviews the capital structure on a continuous basis taking into account the cost of capital and the risks associated with each class of capital. The Target will balance its overall capital structure through new share issues as well as issue of new debts or redemption of existing debts.

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APPENDIX III

ACCOUNTANT’S REPORT OF THE TARGET

5. Financial instruments

a. Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Financial liabilities at amortised cost	At 31 December 2013 2014 12,019 35 12,804 47,005	At 31 December 2013 2014 12,019 35 12,804 47,005
		47,005

b. Financial risk management objectives and policies

The Target’s major financial instruments include other receivables, amount due from an intermediate holding company, cash and cash equivalents, other payables and amounts due to the ultimate controlling shareholder, a related party, and an immediate holding company and bank borrowing.

Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Interest rate risk

The Target’s exposure to fair value interest rate risk relates to its fixedrate bank borrowing. The Target currently does not have an interest rate risk hedging policy as the management considers the Target is not exposed to significant fair value interest rate risk. The management will continue to monitor interest rate risk exposure and consider hedging against it should the need arises.

No sensitivity analysis has been presented because the Target’s exposure to cash flow interest rate risk is not significant.

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

Credit risk

At the end of reporting period, the Target’s maximum exposure to credit risk which will cause a financial loss to the Target due to failure to discharge an obligation by the counterparties.

The credit risk of the Target is concentrated on other receivables and amount due from an intermediate holding company. In order to minimise the credit risk on other receivables, the management continuously monitor the level of exposure by frequent review of the credit evaluation of the financial condition and credit quality of its counterparties to ensure that prompt actions will be taken to lower exposure.

With respect to the amount due from an intermediate holding company, the credit risk is limited because the intermediate holding company is of strong financial position.

The management of the Target considers that the credit risk on liquid funds is low as counterparties are banks with good reputation.

Liquidity risk

In the management of the liquidity risk, the Target monitors and seeks for necessary funding from financial institutions, related parties or independent third parties in order to maintain a level of cash and cash equivalents deemed adequate by the management to finance the Target’s operations and mitigate the effects of fluctuations in cash flows.

The Target reported a net loss of RMB1,484,000 and RMB1,451,000 for the period from 10 July 2013 (date of establishment) to 31 December 2013 and the year ended 31 December 2014, respectively, and the Target’s current liabilities exceeded its total current assets by RMB756,000 and RMB40,691,000 as at 31 December 2013 and 31 December 2014 respectively. The Company after completion of the Proposed Acquisition and the ultimate controlling shareholder of the Target had undertaken to provide necessary financial support to enable the Target to continue operations as set out in note 1(B).

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ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

The following table details the Target’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Target can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from current interest rate at the end of each reporting period.

Weighted average effective interest rate % At 31 December 2013 Financial liabilities Other payables – Amount due to an immediate holding company – At 31 December 2014 Financial liabilities Other payables – Amount due to a controlling shareholder – Amount due to a related party – Amount due to immediate holding company – Borrowings – variable rate 9.74%	On demand or less than 6 months RMB’000 2,372 10,432 12,804 9,775 10,510 1,232 17,238 404 39,159	6 months to 1 year RMB’000 – – – – – – – 2,389 2,389	1 year to 2 years RMB’000 – – – – – – – 3,586 3,586	2 years to 5 years RMB’000 – – – – – – – 3,535 3,535	Total undiscounted cash flows RMB’000 2,372 10,432 12,804 9,775 10,510 1,232 17,238 9,914 48,669	Total RMB’000 2,372 10,432
						12,804
						9,775 10,510 1,232 17,238 8,250
						47,005

c. Fair value

The director considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

6. Segment information

The Target has one operating and reportable segment, being the investment in the Zhijiang Project. No segment information is presented other than entity-wide disclosures as no other discrete financial information is available for the assessment of resources of the Target’s business activities.

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APPENDIX III

The Target’s non-current assets were all located in the PRC.

7. Finance costs

Interest on bank borrowings repayable within 5 years Less: amount capitalised Total	From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000 – – – – –	Year ended 31 December 2014 RMB’000 62 62 (62) – –

Borrowing costs capitalized during the Relevant Periods were arising from bank borrowings, which represent specific borrowing and all the finance costs were incurred on the expenditure on qualifying asset.

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APPENDIX III

8. Loss before tax

Loss before tax has been arrived at after charging (crediting): Depreciation of property, plant and equipment Amortisation of prepaid lease payments Less: amounts capitalised Total amortisation and depreciation Auditor’s remuneration (note (i)) Director’s remuneration (note (i) and (ii)) Staff costs (note (ii)) Retirement benefits scheme contributions (note (ii)) Notes:	From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000 84 2 (2) 84 – – 87 8	Year ended 31 December 2014 RMB’000 259 29 (29) 259 – – 426 23

(i) Auditor’s remuneration and director’s remuneration have been borne by the immediate holding company of the Target throughout the Relevant Periods.

(ii) There were fewer than five individuals in the Target for the period from 10 July 2013 (date of establishment) to 31 December 2013. All individuals for the period from 10 July 2013 (date of establishment) to 31 December 2013 and the five individuals with the highest emoluments in the Target for the year ended 31 December 2014 had their individual emoluments less than HK$1,000,000.

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APPENDIX III

9. Income tax expense

No provision for income tax expense has been made in the Financial Information as the Target had no assessable profit throughout the Relevant Periods.

The income tax expense for the period/year can be reconciled to the loss per statements of profit or loss and other comprehensive income as follows:

Loss for the period/year Tax credit at domestic tax rate at 25% Tax loss not recognised Income tax expense	From 10 July 2013 (date of establishment) to 31 December 2013 RMB’000 (1,484) (371) 371 –	Year ended 31 December 2014 RMB’000 (1,451) (371) 371 –

There was no significant unprovided deferred taxation at the end of each Relevant Periods.

10. Loss per share

Loss per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful.

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APPENDIX III

11. Property, plant and equipment

COST On date of establishment Additions At 31 December2013 Additions At 31 December2014 ACCUMULATED DEPRECIATION On date of establishment Charge for the period At 31 December 2013 Charge for the year At 31 December 2014 CARRYING VALUES At 31 December 2013 At 31 December 2014	Office equipment RMB’000 – 32 32 36 68 – 1 1 9 10 31 58	Motor vehicles RMB’000 – 1,052 1,052 – 1,052 – 83 83 250 333 969 719	Construction in progress RMB’000 (note) – 23,992 23,992 38,121 62,113 – – – – – 23,992 62,113	Total RMB’000 – 25,076
				25,076 38,157
				63,233
				– 84
				84 259
				343
				24,992
				62,890

Note: Construction in progress over the Relevant Periods represents all directly attributable cost (including professional fee, construction cost and borrowing costs) incurred for the natural gas pipeline construction in Zhijiang City, Hubei Province, the PRC, being undertaken for the Zhijang Project.

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APPENDIX III

The items of property, plant and equipment, other than construction in progress are depreciated on a straight-line basis over the following estimated useful lives after taking into account the residual values as follow:

Office equipment Motor vehicles 12. Deposits paid Deposits paid for: Acquisition of property, plant and equipment (note) Total	Estimated useful life number of years 5 years 4 years At 31 December 2013 2014 RMB’000 RMB’000 1,572 5,273 1,572 5,273	Estimated useful life number of years 5 years 4 years At 31 December 2013 2014 RMB’000 RMB’000 1,572 5,273 1,572 5,273
		5,273

Note: The amount represents the partial payments made by the Target for the acquisition of property, plant and equipment. Such amount would be transferred to property, plant and equipment when they are delivered to the Target.

13. Prepaid lease payment

Analysed for reporting purposes: Current assets Non-current assets Total	At 31 December 2013 2014 RMB’000 RMB’000 29 29 1,419 1,390 1,448 1,419	At 31 December 2013 2014 RMB’000 RMB’000 29 29 1,419 1,390 1,448 1,419
		1,419

The amount represents the prepaid lease rentals for land use rights situated in the PRC and are amortised on a straight-line basis over the medium-term lease of 50 years. The Target is in the process of obtaining the land use right certificates.

III – 26

APPENDIX III

ACCOUNTANT’S REPORT OF THE TARGET

14. Amount due from intermediate holding company

The balance was unsecured, interest free and repayable on demand.

	Maximum amount outstanding
	for the period/year ended
	31/12/2013 31/12/2014
	RMB’000 RMB’000
Intermediate holding company	11,760 11,760

15. Cash and cash equivalents

Cash and cash equivalents comprising cash on hand and cash placed with banks in the PRC are denominated in RMB.

Bank balances carry interest at prevailing market rates of 0.35% throughout the Relevant Periods.

16. Other payables

Construction cost payables Others	At 31 December 2013 2014 RMB’000 RMB’000 2,241 9,070 131 705 2,372 9,775	At 31 December 2013 2014 RMB’000 RMB’000 2,241 9,070 131 705 2,372 9,775
		9,775

III – 27

APPENDIX III

ACCOUNTANT’S REPORT OF THE TARGET

17. Amounts due to the ultimate controlling shareholder, immediate holding company and a related party

As at 31 December 2013 and 2014, these balances were unsecured, interest free and repayable on demand.

As at 31 December 2014, the amount due to a related party represented the advance from an entity in which Mr. Xiong was a director and Shareholder who could exercise significant influence.

18. Bank borrowings

Secured bank borrowings repayable: Within one year More than one year, but not exceeding two years More than two year, but not exceeding five years Less: Amounts shown under current liabilities	At 31 December 2013 2014 RMB’000 RMB’000 – 2,000 – 3,000 – 3,250 – 8,250 – (2,000) – 6,250

As at 31 December 2014, the amount was secured, carried fixed interest rate of 9.74% per annum and was repayable according to the scheduled repayment dates set out in the loan agreements.

III – 28

ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

At 31 December 2014, the balance of bank borrowings amounting to RMB8,250,000 was withdrawn from the available bank facilities totalling RMB20,000,000 granted to the Target. The grant of such bank facilities to the Target has been secured by certain buildings personally owned by Mr. Xiong and Ms. Yan Jun, the spouse of Mr. Xiong, and certain buildings held by Yichang Litong Petro Co., Ltd (“Yichang Litong”), which is a related company controlled by Mr. Xiong.

Mr. Xiong, Ms. Yan Jun and Yichang Litong also provided personal or corporate guarantees to the bank in respect of such bank facilities.

19. Registered and paid-in capital

The amount in the statements of financial position as at 31 December 2013 and 2014 represents the registered and paid-in capital of the Target.

20. Capital commitments

	At 31 December	At 31 December
	2013	2014
	RMB’000	RMB’000
Capital expenditure in respect of
construction in progress
– contracted for but not provided in
the Financial Information	20,684	24,564

III – 29

ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

21. Related party disclosures

Save as elsewhere disclosed in the Financial Information, during the Relevant Periods, the Target has entered into the following significant transactions with related parties:

(a) Related party transaction

	From 10 July
	2013 (date of
	establishment) to	Year ended
	31 December	31 December
	2013	2014
	RMB’000	RMB’000
Payment of construction cost incurred by
the Target by
– immediate holding company	170	–
– a related party (note)	8,161	90
– the ultimate controlling shareholder	–	8,264

Note: The director of the Target considered the entity is related as it was controlled by the ultimate controlling shareholder of the Target.

(b) Compensation of key management

There was no compensation of key management personnel of the Target throughout the Relevant Periods.

22. Event subsequent to the end of the reporting period

Subsequent to the end of the reporting period in January and February 2015, the immediate holding company has advanced totalling RMB65,000,000 to the Target, which is unsecured, carries interest at a fixed interest rate of 12% per annum, repayable in February 2016 and is extended till December 2016 upon entering into an extension agreement dated 3 June 2015 between the Target and the immediate holding company of the Target.

III – 30

ACCOUNTANT’S REPORT OF THE TARGET

APPENDIX III

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target have been prepared in respect of any period subsequent to 31 December 2014.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

III – 31

APPENDIX IV INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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==> picture [81 x 38] intentionally omitted <==

TO THE DIRECTORS OF GLOBAL STRATEGIC GROUP LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of Global Strategic Group Limited. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The pro forma financial information consists of the pro forma statement of assets and liabilities as at 31 December 2014 and related notes as set out on pages IV-4 to IV-8 of the circular issued by the Company dated 12 June 2015 (the “Circular”). The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described on pages IV-4 to IV-8 of the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed acquisition of 49% equity interest in Yichang Zhongyou Natural Gas Utilization Co., Ltd.（宜昌中油天然氣利用有限公司）(“Yichang Zhongyou”) (referred to as the “Target”) pursuant to a conditional acquisition agreement entered into on 23 April 2015 (the “Acquisition Agreement”), constituting a major acquisition (the “Acquisition”) on the Group’s financial position as at 31 December 2014, as if the Acquisition had taken place at 31 December 2014. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s audited consolidated financial statements for the year ended 31 December 2014, on which an audit report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

The Directors are responsible for compiling the pro forma financial information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

IV – 1

APPENDIX IV INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. These standards require that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 7.31 of the GEM Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the events had occurred or these transactions had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the events or transactions at 31 December 2014 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

IV – 2

APPENDIX IV INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the pro forma financial information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 7.31(1) of the GEM Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

12 June 2015

IV – 3

APPENDIX IV

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. BASIS OF PREPARATION OF THE PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The pro forma financial information presented below is prepared to illustrate the financial position of the Enlarged Group as if the Acquisition had been completed on 31 December 2014.

This pro forma financial information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 December 2014 or at any future date had the Acquisition been completed on 31 December 2014.

The pro forma financial information is prepared based on the consolidated statement of financial position of the Group as at 31 December 2014 extracted from the Company’s annual report for the year ended 31 December 2014 after giving effect to the pro forma adjustments described in the accompanying notes which are directly attributable to the Acquisition and factually supportable and was prepared in accordance with Paragraph 7.31 and 19.67(6) (b) (ii) of the GEM Rules.

B. PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Pro Forma Statement of Assets and Liabilities of the Enlarged Group as at 31 December 2014

Non-current assets Property, plant and equipment Gas supply operating right Goodwill Prepaid lease payments Deposit paid for acquisition of a non-current asset Value added tax recoverable Current assets Trade receivables Prepaid lease payments – current Cash and cash equivalents Total assets	The Group As at 31 December 2014 (Note 1) HK$’000 1,519 – – – 1,199 – 2,718 1,801 – 25,620 27,421 30,139	Pro forma adjustment in respect of the Proposed Acquisition of the Target	Sub-total Pro forma adjustment on resulting professional fees and stamp duty in relation to the Proposed Acquisition HK$’000 HK$’000 79,719 148,308 28,686 1,762 6,684 5,645 270,804 34 37 (25,610) (25,539) 245,265	Total proforma adjustments (Note 5) HK$’000 79,719 148,308 28,686 1,762 6,684 5,645 270,804 34 37 (25,610) (25,539) 245,265	The Enlarged Group HK$’000 81,238 148,308 28,686 1,762 7,883 5,645
		Target as at 31 December 2014 Reclassifications Pro forma fair value adjustment on date of acquisition Payment of consideration and recognition of pro forma goodwill (Note 1) (Note 2) (Note 3) (Note 4) HK$’000 HK$’000 HK$’000 HK$’000
		79,719 – 148,308 – 28,686 1,762 6,684 5,645 93,810 34 37 10 (25,620) 81 93,891
					273,522 1,835 37 10
					1,882
					275,404

IV – 4

APPENDIX IV

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Non-current liabilities Deferred tax liability Bank borrowings Current liabilities Trade payables Other payables and accruals Amount due to the ultimate controlling shareholder Amount due to immediate holding company Amounts due to related parties Bank borrowings Bank overdraft Taxation payable Total liabilities Net assets Net current assets (liabilities) Total assets less current liabilities	The Group As at 31 December 2014 (Note 1) HK$’000 – – – (839) – – – – – – – (839) (839) 29,300 26,582 29,300	Pro forma adjustment in respect of the Proposed Acquisition of the Target	Sub-total Pro forma adjustment on resulting professional fees and stamp duty in relation to the Proposed Acquisition HK$’000 HK$’000 (37,077) (7,922) (44,999) – (12,391) – – (36,735) (2,535) (74,380) (4,780) – (126,041) (171,040) 74,225 100,502 371,306	Total proforma adjustments (Note 5) HK$’000 (37,077) (7,922) (44,999) – (12,391) – (36,735) (2,535) (79,160) – (130,821) (175,820) 69,445 100,502 376,086	The Enlarged Group HK$’000 (37,077) (7,922)
		Target as at 31 December 2014 Reclassifications Pro forma fair value adjustment on date of acquisition Payment of consideration and recognition of pro forma goodwill (Note 1) (Note 2) (Note 3) (Note 4) HK$’000 HK$’000 HK$’000 HK$’000
		– (37,077) (7,922) (7,922) – (12,391) (13,322) 13,322 (21,851) 21,851 (1,562) (35,173) (2,535) – (74,380) – (51,661) (59,583) 34,308 (51,580) 42,230
					(44,999) (839) (12,391) – (36,735) (2,535) (79,160) –
					(131,660) (176,659)
					98,745
					(127,084)
					405,386

IV – 5

APPENDIX IV INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

C. NOTES TO THE PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. The financial information of the Group is extracted from the annual report of the Company for the year ended 31 December 2014 as published on 19 March 2015. The financial information of the Target is extracted from the accountant’s report as set out in Appendix III to this Circular after making certain reclassification adjustments as explained below, to conform with the presentation of the Group’s financial information.

The financial information of the Target in Appendix III are presented in Reminbi (“RMB”), being its functional currency, which is different from the presentation currency of the Group, i.e. HK$. The assets and liabilities of the Target are translated into HK$ at the exchange rate at 31 December 2014 of RMB1 to HK$1.2676. No representation is made that any amounts in RMB can be or could have been converted to HK$ at the relevant date and period at the above rates or any other rates or at all.

1. This adjustment represents the reclassification of amounts due to the ultimate controlling shareholder and the immediate holding company to amounts due to related parties, since in the opinion of the directors of the Company, they will no longer be the ultimate controlling shareholder and immediate holding company of the Target after the completion of the Acquisition but will remain as related parties of the Enlarged Group.

2. The directors of the Company have assessed that the Group is able to control the Target upon completion of the Acquisition, and which would be accounted for as a subsidiary of the Group. In addition, pursuant to the share transfer agreement entered into on 23 April 2015, the completion of the share transfer is subject to certain conditions precedent contained therein and in the opinion of the directors of the Company, the satisfaction of those conditions precedent enables the Enlarged Group to conduct and manage the Target’s natural gas operation as a business as defined in Hong Kong Financial Reporting Standard 3 issued by the HKICPA.

For the purpose of the preparation of the pro forma statement of assets and liabilities, all the conditions precedent are assumed to be satisfied and the Acquisition is assumed to be completed on 31 December 2014.

IV – 6

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

This adjustment represents the recognition of pro forma fair value of the identifiable intangible assets represented by the gas supply operating right as at 31 December 2014, estimated with reference to a purchase price allocation (“PPA”) report prepared by BMI Appraisals Limited, an independent professional valuer (“BMI Appraisals”).

Pro forma deferred tax liability is recognised at 25% arising from the taxable temporary difference in relation to the pro forma fair value of the intangible assets of the Target on 31 December 2014.

In the opinion of the directors of the Company, the directors assessed that, with reference to the PPA report, the pro forma goodwill arising from the Acquisition did not have any indicator of impairment on the date of Acquisition which was assumed to be completed on 31 December 2014.

The amounts of the fair value adjustments and corresponding deferred tax impact are subject to change when the purchase price allocation is finalised on the date of actual completion of this Acquisition.

Since the Acquisition was assumed to be completed on 31 December 2014, there was no adjustment to the depreciation of property, plant and equipment, release of prepaid lease payments and amortisation of gas supply operating right accordingly.

1. This adjustment represents the payment of consideration of HK$100,000,000 in respect of the acquisition of 49% equity interest in the Target and the recognition of pro forma goodwill arising from the Acquisition.

The goodwill arising from the Acquisition was determined based on the proforma fair values of the identifiable assets and liabilities of the Target with reference to the PPA report prepared by BMI Appraisals. For the purpose of the pro forma statement of assets and liabilities, the pro forma goodwill of HK$28,686,000 arising from the Acquisition, which represents the amount by which the purchase consideration exceeds the pro forma fair values of the identifiable assets and liabilities of the Target to be acquired, which is computed as if the Acquisition has been completed on 31 December 2014.

The amount of goodwill is subject to change when the fair value of assets and liabilities of the Target is finalised on date of actual completion of the Acquisition.

IV – 7

APPENDIX IV

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The reconciliation of goodwill is set forth below:

Total consideration Plus: Non-controlling interests (Note (i)) Less: Pro forma fair values of net assets acquired Pro forma goodwill arising on Acquisition (Note (ii))	HK$’000 100,000 74,225 (145,539)
	28,686

Notes:

• (i) The non-controlling interests of the Target recognised at the acquisition date were measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets and amounted to HK$74,225,000.

• (ii) Goodwill arising on Acquisition because the consideration paid for the combination effectively included the benefit of revenue growth, future market development and the assembled workforce of the Target.

• This represents the recognition of the estimated professional fees of approximately HK$4,780,000 to be incurred by the Group for the Acquisition and is subject to change upon the actual completion of the Acquisition and the stamp duty of HK$50,000 which will be imposed on the Group upon the completion of the Acquisition. The stamp duty in respect of the transfer of 49% equity interest would be determined based on 0.05% of the consideration according to the relevant tax rule in the People’s Republic of China.

IV – 8

VALUATION REPORT OF THE TARGET

APPENDIX V

The following is the text of a report prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuation as at 31 March 2015 of the market value of the 100% equity interest in Yichang Zhongyou Natural Gas Utilization Co., Ltd[1] .

33[rd] Floor, Shui On Centre, Nos. 6-8 Harbour Road, Wanchai, Hong Kong

12 June 2015

The Directors

Global Strategic Group Limited

Unit 2105, 21st Floor West Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Global Strategic Group Limited (referred to as the “Company”) for us to provide our opinion on the market value of the 100% equity interest in Yichang Zhongyou Natural Gas Utilization Co., Ltd. (referred to as the “Target”) as at 31 March 2015 (referred to as the “Date of Valuation”).

This report presents the basis of valuation, the background of the Target, an industry overview, the source of information, the scope of work and the valuation assumptions. It also explains the valuation methodology utilized and presents our conclusion of value.

1 The English name in this report is the translation of Chinese name 宜昌中油天然氣利用有限公司; it is included for information purpose only, and should not be regarded as the official translation of such Chinese name.

V – 1

VALUATION REPORT OF THE TARGET

APPENDIX V

BASIS OF VALUATION

Our valuation has been carried out on the basis of market value. Market value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

BACKGROUND OF THE TARGET

The Target was founded on 10 July 2013. It is principally engaged in the investments in natural gas projects in Yichang City, Hubei Province, the People’s Republic of China (referred to as the “PRC”) and holds certain natural gas supply projects to industrial parks in Yichang City.

The Target has been granted the approval on the first phase of the natural gas pipeline construction project to supply gas to the industrial parks and commercial area around the Wufeng Industrial Zone and Baiyang Industrial Zone in Zhijiang City, Hubei Province, the PRC (referred to as the “Zhijiang Project”). 95% of the construction related to the first phase of the Zhijiang Project has been completed by latest practicable date prior printing of this circular for ascertaining certain information contained in this circular. Other phases of the Zhijiang Project mainly include the construction and operation of intermediate and medium pressure natural gas pipelines for the supply of natural gas to the industrial and commercial area around Yaojiagang Chemical Zone, Gujiadian Town and the whole area of the Baiyang Industrial Zone. The commencement of the construction of the other phases of the Zhijiang Project is subject to relevant approvals to be obtained by the Target. Only the first phase of the Zhijiang Project has been included in our valuation. As advised by the senior management of the Target, there is no other pipeline project with the same coverage of the Zhijiang Project for the provision of natural gas to the areas of the first and other phases of the Zhijiang Project.

INDUSTRY OVERVIEW

The PRC Economy

The Chinese economy is growing at a slower pace in response to policy tightening and the global financial turmoil. According to the latest data released by the National Bureau of Statistics of China, the accumulated growth rate of Gross Domestic Product (GDP) in the PRC expanded 7.4%[2] in 2014, which is lower than the official target of 7.5%[3] and is the lowest growth rate over the last 24 years. And expected growth rate has slowed down to 7%[4] in 2015. Figure 1 illustrates the trend of GDP from 2004 to 2014 in the PRC.

2 The rate was calculated based on the statistics from National Bureau of Statistics of the PRC and the reference website is http://data.stats.gov.cn/index.

3 The rate was referenced to the news on the website http://wallstreetcn.com/node/79209.

4 The rate was referenced to the news on the website http://finance.people.com.cn/n/2015/0305/c1004-26641080.html.

V – 2

VALUATION REPORT OF THE TARGET

APPENDIX V

Figure 1: Trend of Gross Domestic Product of the PRC 2004 – 2014

China Annual GDP

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

70,000 15
14
60,000
13
50,000 12
11
40,000
10
30,000
9
20,000 8
7
10,000
6
0 5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Amount (Billion RMB) Growth Rate (%)
Source: National Bureau of Statistics of the PRC (http://data.stats.gov.cn/index)
----- End of picture text -----

The Hubei Economy

Hubei’s economy ranks 9th in the country and its nominal GDP for 2014 was RMB2,736.8 billion, contributing 4.3% to the national total amount, and a per capita GDP of RMB47,124.[5] Hubei’s GDP growth rate of 2014 is 9.7%[6] , exceeding national rate by 2.3%[7] . The government of Hubei hopes to keep the GDP growth rate at 9%[8] in 2015.

Yichang is a prefecture-level city located in western Hubei Province. It is the second largest city in the province after the capital, Wuhan. The Three Gorges Dam is located within its administrative area, known as the center of dynamics.

5 The statistics were referenced to the website http://zh.wikipedia.org/wiki.

6 The rate was referenced to the Bureau Statistics of Hubei Province and the reference website is http://www.stats-hb. gov.cn/wzlm/tjgb/ndtjgb/hbs/110245.htm.

7 The rate was calculated based on the statistics from National Bureau of Statistics of the PRC and the reference website is http://data.stats.gov.cn/index.

8 The rate was referenced to the news on the website

http://www.ctaxnews.com.cn/pub/ctaxnews/xinwen/tushuo/201502/t20150213_55191.htm.

V – 3

APPENDIX V

VALUATION REPORT OF THE TARGET

The economic structure of the PRC has been transforming, as well as the Hubei Province. The contribution from secondary and tertiary industries has been increasing. In 2014, the added value of the primary industry was RMB317.6 billion, up by 4.8%, the secondary industry was RMB1,284 billion, up by 10.1% and the tertiary industry was RMB1,135 billion, up by 10.5%. The added value of the primary industry accounted for 11.6% of the GDP, the secondary industry accounted for 46.9% and the tertiary industry accounted for 41.5%[9] . Figure 2 presents the historical GDP, added value of the secondary industry and its growth rate over the last 10 years.

Figure 2: Region Accounts of Economy of Hubei 2004 – 2014

==> picture [347 x 259] intentionally omitted <==

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

Region Accounts of National Economy of Huibei
3,000.0 25.0%
23.0%
2,500.0
21.0%
19.0%
2,000.0
17.0%
1,500.0 15.0%
13.0%
1,000.0
11.0%
9.0%
500.0
7.0%
0 5.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Local GDP (Billion RMB) Value-added of the Secondary Industry
Growth Rate of Value-added of Secondary Industry
Source: National Bureau of Statistics of the PRC (http://data.stats.gov.cn/index)
Bureau Statistics of Hubei Province (http://www.stats-hb.gov.cn/wzlm/tjgb/ndtjgb/hbs/110245.htm)
----- End of picture text -----

The Natural Gas Industry

Natural gas is a clean and efficient energy. Compared to other fossil fuels, use of natural gas leads to lower emissions of greenhouse gases and local pollutants. It can help to diversify energy supply as well as improve energy security. Therefore, gas is particularly an attractive fuel for urbanizing and rapid growing country like the PRC.

9 The rate was reference to the Bureau Statistics of Huibei Province and the reference website is http://www.stats-hb.gov.cn/wzlm/tjgb/ndtjgb/hbs/110245.htm.

V – 4

VALUATION REPORT OF THE TARGET

APPENDIX V

The rapid industrialization and urbanization has spiked the demand for energy in the PRC. According to the BP Statistical Review of World Energy 2014[10] (referred to as “the Review”), the PRC has surpassed the US as the world’s biggest energy consumer. In 2013, the PRC increased its energy consumption by 4.7%, while the US only rose by 2.9%.

Figure 3 shows the top ten countries in natural gas consumption, of which the US consumed vast amount of natural gas while Russia ranked in the second place over the world. Both Iran and the PRC consumed around 4.8% of natural gas in 2013, ranking the third and fourth.[11] However, the percentage of energy consumption from natural gas in the PRC is very low compared to international levels.

Figure 3: Global Natural Gas Consumption by Region 2013

==> picture [294 x 159] intentionally omitted <==

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

2.50% [2.20%]
2.50% US
3.10% Russian Federation
22.20% Iran
3.10%
China
Japan
3.50%
Canada
Saudi Arabia
4.80%
Mexico
Germany
4.80% United Kingdom
12.30%
----- End of picture text -----

Source: BP Statistical review of world energy, 2014

However, the gas consumption occupies very little in the energy consumption of the PRC, mostly around 3%-4% over the last 10 years.[12] Figure 4 demonstrates structure of the primary energy production and consumption in the PRC. Coal is the most important energy resource in the PRC by nowadays, but its consumption percentage is slowly falling. The clearer energy like natural gas and nuclear power is gradually increasing.

10 The Review can be downloaded from http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html.

11 The statistics were referenced to BP Statistical review of world energy 2014.

12 The statistics were referenced to National Bureau of Statistics of the PRC and the reference website is http://www.stats.gov.cn/tjsj/ndsj/2014/indexch.htm

V – 5

VALUATION REPORT OF THE TARGET

APPENDIX V

Figure 4: Energy Production and Consumption Structure of the PRC 2003 – 2013

==> picture [404 x 157] intentionally omitted <==

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

Energy Production Structure Energy Consumption Structure
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Electricity from water power,nuclear power and wind power Electricity from water power,nuclear power and wind power
Natural gas Natural gas
Crude oil Oil
Raw coal Coal
----- End of picture text -----

Source: National Bureau of Statistics of the PRC (http://www.stats.gov.cn/tjsj/ndsj/2014/indexch.htm)

Figure 5 displays the Energy consumption mix of the world, showing that global level of gas consumption is 23.7% out of total energy.[13] This data implies the tremendous potential of this area in the development of the PRC’s natural gas industry.

Figure 5: Energy Consumption Mix of the World in 2013

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

6.7% [2.2%]
4.4%
32.9% Oil
Natural gas
Coal
30.1% Nuclear energy
Hydro-electricity
Renewables energy
23.7%
Source: BP Statistical review of world energy 2014
----- End of picture text -----

According to an Energy Outlook 2035 Report published by BP[14] , it predicts that primary energy consumption will increase by 37% between 2013 and 2035, with growth averaging 1.4% per annum. Virtually all (96%) of the projected growth is in the region of non-OECD (Organization for Economic Co-operation and Development), with energy consumption growing at 2.2% per annum. OECD energy consumption, by contrast, grows at just 0.1% per annum over the whole period and is actually falling from 2030. The end of the phase of rapid growth in energy demand in developing Asia, centered on China, is driven by industrialization and electrification.

13 The statistics were referenced to BP Statistical review of world energy 2014.

14 The report can be downloaded from

http://www.bp.com/en/global/corporate/about-bp/energy-economics/energy-outlook.html.

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In recent years, the Chinese government has taken various measures to promote the development and utilization of less polluting energy sources. The Chinese government also made a commitment to reduce per capita GDP carbon emission during 2010 Copenhagen conference. Natural gas is considered as a cleaner and superior substitute for conventional energy sources such as coal and crude oil. According to the Review, the PRC’s natural gas consumption rose at a compound annual growth rate (CAGR) of 15.1% from 2004 to 2013, outpacing the CAGR of the PRC’s GDP of 13.5% during the same period. Figure 6 illustrates the trend of GDP versus that of gas consumption from 2004 to 2013 in the PRC.[15]

Figure 6: Trend of Gross Domestic Product of the PRC 2004 – 2013

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

70,000 180
160
60,000
140
50,000
120
40,000 100
30,000 80
60
20,000
40
10,000
20
0 0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP Natural Gas Consumption
RMB billion
Billion cubic metres
----- End of picture text -----

Source: National Bureau of Statistics of the PRC, BP Statistical Review of World Energy 2014

The Chinese government made it clear that to assure its sustainable development, the PRC must emphasize the quality and efficiency of its economic growth during the “Twelfth FiveYear Plan” period, as opposed to its past economic activities characterized by excessive resource consumption and waste discharge. The Chinese government plans to increase the domestic natural gas supply to 176 billion cubic meters within the “Twelfth Five-Year Plan” by 2015. Based on the signed contracts, the imported natural gas will amount to 93.5 billion cubic meters by 2015. During the “Twelfth Five-Year Plan” period, 44,000 kilometer natural gas pipeline network will be formed, increasing the supply capacity by 150 billion cubic meters per year. The past scenario of the city gas industry being restricted by the undersupply of natural gas resources as well as inadequate supply capabilities of pipeline networks will come to an end. By 2015, the total natural gas customer base is planned to be 250 million, representing 18% of total population.[16]

15 The statistics were reference to BP Statistical review of world energy 2014.

16 The “Twelfth Five-Year Plan” can be downloaded from http://zfxxgk.ndrc.gov.cn/.

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VALUATION REPORT OF THE TARGET

APPENDIX V

SOURCE OF INFORMATION

We have been furnished with information provided by the senior management of the Company. The valuation required the consideration of pertinent factors, including, but not limited to, the following:

• The nature of the Target including the industry sector and geographical location;

• The information provided by the senior management of the Target; and

• Other factors that will materially affect the operation of the Target.

SCOPE OF WORK

The following processes have been conducted by us in the course of our valuation:

• Interviewed with the senior management of the Company and obtained information in respect of the Target;

• Examined the information provided by the senior management of the Target;

• Prepared the valuation based on accepted valuation procedures and practices; and

• Presented the basis of valuation, the background of the Target, an industry overview, the source of information, the scope of work, the valuation assumptions, the valuation methodology and our conclusion of value in this report.

VALUATION ASSUMPTIONS

The following assumptions have been adopted in the valuation:

• All licenses issued by any authorized entity that will materially affect the operation of the first phase of the project of the Target have been obtained or can be obtained upon request;

• There will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdiction where the Target operates;

• The market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;

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APPENDIX V

• The core operation of the Target will not differ materially from those of present or expected;

• The information in respect of the Target have been prepared after due and careful consideration by the senior management of the Target; and

• There will be no human disruptions or natural disasters that will materially affect the operation of the Target.

VALUATION METHODOLOGY

The Valuation Approaches

The following valuation approaches have been considered in the valuation:

1. The asset-based approach provides an indication of value based on the principle that the sum of each asset and liability component represents the overall value of an entity;

2. The income approach provides an indication of value based on the principle that an informed buyer would pay no more than the present value of anticipated future economic benefits generated by the subject asset;

3. The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the assets; and

4. The cost approach provides an indication of value based on the principle that an informed buyer would pay no more than the cost of producing a substitute asset with equal utility as the subject asset.

The income approach was considered to be the most appropriate valuation approach.

Under the income approach, the Discounted Cash Flow (DCF) method was adopted. This method explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits. Our valuation was developed by discounting future cash flows to the present value at a discount rate that reflects the required return on the capital investment of the Target.

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VALUATION REPORT OF THE TARGET

APPENDIX V

DCF Method

In applying the DCF method, the present value of the future cash flows was computed using the following formula:

PVFCF = FCF1 / (1 + r)[1] + FCF2 / (1 + r)[2] + … + FCFn / (1 + r)[n]

Where:

PVFCF = present value of free cash flows FCF = free cash flow r = discount rate n = number of year of projections

Although other phases of the Zhijiang Project may generate cash flows in the future upon the obtainment of relevant approvals. To take a conservative approach, only the future cash flows from the first phase of the Zhijiang Project were considered in the DCF calculation.

The discount rate is the required return for an investor, which considers relevant risk factors associated with the Target. The industry risk was captured and measured by beta, which was determined with reference to the comparable companies in the same industry. Besides the industry risk, the specific risks of the Target had also been taken into account. The relatively small size of the Target was compensated with the size premium. Considering the developing stage of the first phase of the Zhijiang Project, a company-specific risk premium was adopted.

As the Target is not listed and the ownership interest in the Target is not readily marketable, a marketability discount was applied to the value calculated from the DCF method.

The Comparable Companies

The market value of the Target was determined with reference to publicly listed companies that are considered to be comparable to the Target (referred to as the “Comparable Companies”).

The selection of the Comparable Companies was based on the comparability of the overall industry sector and geographical location.

The selection criteria of the Comparable Companies are as follows:

• The principal activities of the company is located in the PRC;

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• The company is principally engaged in the natural gas industry and the related operation;

• Shares of the company are listing in a major stock exchange and are actively trading in a reasonable period of time; and

• Detailed financial and operational information in respect of the company are available at Bloomberg Terminal or other publicly available sources.

Given the abovementioned selection criteria, 6 listed companies have been selected.

Details of the Comparable Companies are as follows:

Comparable Company 1

Name of Company: China Gas Holdings Ltd. Bloomberg Ticker: 384 HK Company Description: China Gas Holdings Ltd. invests in, operates and manages natural gas distribution pipelines. The company distributes and sells natural gas to residential, commercial and industrial users, and bottles and sells compressed natural gas. The company also constructs and operates gas stations.

Geographic Segments: The PRC (100%)

Comparable Company 2

Name of Company: Beijing Enterprises Holdings Ltd. Bloomberg Ticker: 392 HK Company Description: Beijing Enterprises Holdings Ltd. is a diversified company. The company distributes natural gas through pipelines, which accounts more than half of its total revenue. The company also brews beer, invests in, designs, constructs and operates water supply and wastewater treatment plants, operates toll roads, disposes of hazardous waste, and offers electronic payment systems.

Geographic Segments: The PRC (100%)

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VALUATION REPORT OF THE TARGET

APPENDIX V

Comparable Company 3

Name of Company: Towngas China Company Ltd.

Bloomberg Ticker: 1083 HK Company Description: Towngas China Company Ltd. distributes and markets gas. The company sells LPG (liquefied petroleum gas) in bulk and in cylinder, provides piped LPG and natural gas, constructs gas pipelines, operates city gas-pipeline networks and gas stations, and sells LPG and natural gas household appliances.

Geographic Segments: The PRC (100%)

Comparable Company 4

Name of Company: China Resources Gas Group Ltd. Bloomberg Ticker: 1193 HK Company Description: China Resources Gas Group Ltd. distributes natural gas and petroleum gas in the cities of Chengdu, Fuyang, Huaibei, Linhai, Suzhou and Wuxi in the PRC. The company also operates compressed natural gas filling stations in Chengdu, Nanjing and Wuxi. The company is also involved in bottled liquefied petroleum gas distribution in cities of Fuyang, Suzhou and Wuxi.

Geographic Segments: The PRC (100%)

Comparable Company 5

Name of Company: Tianjin Jinran Public Utilities Company Ltd. Bloomberg Ticker: 1265 HK

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Company Description: Tianjin Jinran Public Utilities Company Ltd., though its subsidiaries, operates and manages gas pipeline infrastructure, and sells and distributes piped gas in China. The company also sells gas appliances, invests in gas supply projects, and provides other services in connection with gas supply.

Geographic Segments: The PRC (100%)

Comparable Company 6

Name of Company: ENN Energy Holdings Ltd. Bloomberg Ticker: 2688 HK Company Description: ENN Energy Holdings Ltd. distributes natural gas in China. The company, through its subsidiaries, invests in, operates, and manages gas pipelines, and sells and distributes piped and bottled gas in China.

Geographic Segments: The PRC (100%)

The shares of the Comparable Companies are listing in major stock exchanges with active trading record in a reasonable period of time. The selected Comparable Companies are principally engaged in the natural gas industry and the related operation in the PRC. The Comparable Companies are also public companies with sufficient public financial and operational information available. Since public companies are regulated, the information provided by them is considered to be more reliable and transparent. Therefore, for the purpose of valuation of the Target, the Comparable Companies is considered to be fair and representative of the industry.

Although the Target was still at construction stage and had not generated revenue yet, its business operation, which will start in the second half of 2015, is expected to be affected by same factors as other companies in the natural gas industry. Being in the same industry and same geographic location, the Comparable Companies and the Target are affected by similar political, legal, fiscal, market and economic conditions. When each of the above conditions changes, it will affect the Comparable Company and the Target simultaneously.

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VALUATION REPORT OF THE TARGET

APPENDIX V

The Discount Rate

The Weighted Average Cost of Capital (WACC) was adopted as the discount rate.

The WACC was computed using the following formula:

WACC = Re (E/V) + Rd (D/V) (1 – Tc)

Where:

WACC = weighted average cost of capital Re = cost of equity Rd = cost of debt E/V = weight of equity D/V = weight of debt Tc = corporate tax rate

The Weighted Average Cost of Capital (WACC) was adopted as the discount rate. The WACC comprises two components: the cost of equity and the cost of debt. The cost of equity was determined using the Capital Asset Pricing Model (CAPM). The CAPM considers only systematic risk of a company which is captured by beta. The modified CAPM further incorporates nonsystematic risks which are specific to a company. Non-systematic risks of the Target, such as relatively small size and the early stage of the first stage of the Zhijiang Project, were considered by adding other risk premiums including size premium and company-specific risk premium.

The cost of equity under the modified CAPM was computed using the following formula:

Re = Rf + β * MRP + RPS + RPU

Where:

Re = cost of equity Rf = risk-free rate β = beta coefficient MRP = market risk premium RPS = size premium RPU = company-specific risk premium

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VALUATION REPORT OF THE TARGET

APPENDIX V

Risk-free Rate

The yield rates of bonds issued by a government or agency where the risks of default are so low as to be negligible are commonly applied as the risk-free rate. The yield rate of the 10year Central Government Bond of the PRC of 3.63% as at the date of valuation, as extracted from Bloomberg Terminal, was adopted as the risk-free rate in the valuation.

Beta Coefficient

Beta is a measure for the systematic risk. As the Target is not a listed company, its beta could not be calculated from its historical share prices. The Comparable Companies are operating in the same industry and geographic location as the Target; thus they are considered to have same systematic risk factors as the Target. In our valuation, industry average beta, calculated from the betas of the Comparable Companies, was adopted.

In our valuation, the beta for the Target was determined as the average of the betas of the Comparable Companies, with adjustment for differences in corporate tax rates and leverage compositions. The levered beta, extracted from Bloomberg Terminal, was used to calculate the unlevered beta. The unlevered beta was calculated to consider the differences in corporate tax rates and leverage compositions of the Target and the Comparable Companies.

The unlevered beta removes the effects of the use of leverage on the capital structure of a firm. Removing the debt component allows an investor to compare the base level of risk between various companies.

The unlevered beta was computed using the following formula:

β unlevered = βlevered/[1 + (1 – Tc) (D/E)]

Where:
βunlevered	=	unlevered beta
βlevered	=	levered beta
Tc	=	corporate tax rate
D	=	value of the firm’s debt
E	=	value of the firm’s equity
D/E	=	debt-to-equity ratio

The average of the unlevered betas of the Comparable Companies was then being relevered based on the specific corporate tax rate and the expected debt-to-equity ratio applied to the Target.

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VALUATION REPORT OF THE TARGET

APPENDIX V

The relevered beta was computed using the following formula:

β relevered = β unlevered * [1 + (1 – Tc) (D/E)]

Where:

β relevered = relevered beta β unlevered = unlevered beta Tc = corporate tax rate D = value of the firm’s debt E = value of the firm’s equity D/E = debt-to-equity ratio

The adjusted betas, applied corporate tax rates and the unlevered betas of the Comparable Companies are as follows:

Comparable Company Adjusted Beta Applied Corporate Tax Rate China Gas Holdings Ltd. 0.760 21.96% Beijing Enterprises Holdings Ltd. 0.454 11.05% Towngas China Company Ltd. 0.412 23.62% China Resources Gas Group Ltd. 0.587 25.50% Tianjin Jinran Public Utilities Company Ltd. 0.867 24.84% ENN Energy Holdings Ltd. 0.600 29.55% Average of Unlevered Betas:	Unlevered Beta 0.604 0.319 0.322 0.470 0.867 0.469
	0.509

Market Risk Premium

The market risk premium is the implied risk premium expected from the market which represents the additional return required by an investor as compensation for investing in equities rather than a risk-free instrument.

The equity market of the United States is more mature and stable. The market risk premium of the United States represents the required return required by a rational investor investing in a mature equity market. The PRC equity market is more risky than the United States, which requires for a higher return. Therefore, the market risk premium of the PRC of 8.72% as at the date of valuation was computed using the market risk premium of the United States and the country risk premium of the PRC.

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VALUATION REPORT OF THE TARGET

APPENDIX V

Market Risk Premium = U.S. market risk premium + PRC country risk premium

The market risk of the United States of 6.18% was determined with reference to “2014 Valuation Handbook – Guide to Cost of Capital”, published by Duff & Phelps Corp. Duff & Phelps is a listed company in the United States, providing global valuation and corporate finance services.

The country risk premium of the PRC was calculated under the combined approach, which incorporates both the country bond approach and relative equity market approach.

Under the country bond approach, the country risk premium is based upon the default spread of the bond issued by the country. The country bond spread of 0.9% was determined with reference to the “Country Default Spreads and Risk Premiums” study by Aswath Damodaran, who is wellknown as author of several widely used academic textbooks on valuation and related subjects.

Under the relative equity market approach, the country risk premium is based upon the volatility of the market in question relative to U.S market.

Country risk premium = U.S. Risk Premium* (σ Country Equity/σ US Equity –1)

In our valuation, the relative volatility of 1.68 minus one was multiplied with the market risk of the United States of 6.18% to arrive the country risk premium of 4.19%.

Under the combined approach in our valuation, the PRC country risk premium of 2.54% was calculated as the average of the risk premium calculated under the country bond approach and the relative equity market approach.

Size Premium

Size premium is the return in excess of CAPM estimation. The size premium adopted was referenced to the “2014 Valuation Handbook-Guide to Cost of Capital” published by Duff & Phelps Corp.

	Market	Market
	Capitalization	Capitalization
	of Smallest	of Largest		Unlevered
Decile	Company	Company		Beta
	(in millions)	(in millions)	Size Premium
Mid-Cap	US$2,432.888	US$9,196.480		1.11%
Low-Cap	US$636.747	US$2,431.229		1.98%
Micro-Cap	US$2.395	US$632.770		3.87%

Source: 2014 Valuation Handbook-Guide to Cost of Capital

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VALUATION REPORT OF THE TARGET

APPENDIX V

Considering the relatively small size of the Target, the size premium of 3.87% for mirco-cap companies with market capitalization ranging from USD2.395 million to USD632.770 million was adopted.

Company-specific Risk Premium

Besides the size of the Target, other company specific factors should be considered. The Target is principally engaged in the investments in natural gas projects and holds certain natural gas supply projects to industrial parks in Yichang City. As per discussion with the senior management of the Company, the first phase of the project is projected to generate revenue in the second half of 2015, but it was still in the developing stage and constructions had not been completed as at the Date of Valuation. A company still at developing stage is usually more risky than the otherwise comparable public listed companies and requires a higher discount rate to reflect this specific risk factor. This company specific risk, which has not been captured by the beta estimated from the Comparable Companies, should be considered in the modified CAPM. By considering the developing stage of the Target and its associated risk of uncertainty of future business operations, a company-specific risk premium of 3.00% was adopted to reflect the additional risk associated.

Cost of Equity

The cost of equity under the modified CAPM was computed using the following formula:

Re = Rf + β * MRP + RPS + RPU

Where:

Where:
Re	=	cost of equity
Rf	=	risk-free rate
β	=	beta coefficient
MRP	=	market risk premium
RPS	=	size premium
RPU	=	company specific risk premium

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VALUATION REPORT OF THE TARGET

APPENDIX V

In the valuation, the adopted values of the abovementioned valuation parameters are as follows:

Valuation Parameter	Valuation Parameter	Value
1.	Risk-free Rate	3.63%
2.	Beta Coefficient	0.622
3.	Market Risk Premium	8.72%
4.	Size Premium	3.87%
5.	Company-specific Risk Premium	3.00%

The cost of equity under the modified CAPM was calculated as 15.92%.

Cost of Debt

The cost of debt of 9.74% was determined by the expected lending rate of the Target, which was referenced to the current bank borrowing rate. The after-tax cost of debt of 7.31% was calculated by multiplying one minus the corporate tax rate of the PRC of 25% by the cost of debt. The tax rate represents the applicable corporate tax rate of the Target.

Weight of Debt

The weight of debt of 22.86% was determined by the average of the weights of debt of the Comparable Companies. The weights of debt of the Comparable Companies are as follows:

Comparable Company China Gas Holdings Ltd. Beijing Enterprises Holdings Ltd. Towngas China Company Ltd. China Resources Gas Group Ltd. Tianjin Jinran Public Utilities Company Ltd. ENN Energy Holdings Ltd. Average of Weight of Debt:	Weight of Debt 24.79% 32.23% 26.74% 24.99% 0.00% 28.44%
	22.86%

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APPENDIX V

VALUATION REPORT OF THE TARGET

As the first phase of the Zhijiang Project was in the developing stage and constructions had not completed, the Target had not commenced the natural gas supply business. Its current capital structure may change when the first phase construction continues, and may not be appropriate for calculating WACC. When completing the construction, the Target will commence the similar natural gas supply business as the Comparable Companies. As it moves from construction stage to a more mature operation stage, its capital structure will more like that of the other mature companies in the same industry. Therefore, the average weight of debt ratio of the Comparable Companies, was adopted as a proxy.

Weight of Equity

The weight of equity of 77.14% was calculated as one minus the weight of debt of the Target.

WACC

As a result, the WACC of the Target was calculated as 13.95%.

The Discount for the Lack of Marketability

Applying the DCF method, the present value of the future cash flows was calculated using a discount rate, which was determined with reference to the Comparable Companies. As the Target is not listed, compared to investing in the Comparable Companies, the ownership interest in the Target is not readily marketable. The concept of marketability deals with the illiquidity of an ownership interest. To account for the illiquidity, a downward adjustment was made to the value calculated from the DCF method.

With reference to “Determining Discounts for Lack of Marketability – A Companion Guide to The FMV Restricted Stock Study” published by Business Valuation Resources, LLC in 2015 (referred to as “BVR”) 15.00% was adopted as the discount for the lack of marketability for companies in natural gas industry. The FMV Restricted Stock Study is an updated research on the discount for lack of marketability (referred to as “DLOM”) database that provides the empirical support needed to determine DLOM. Relevant private placement transactions from July 1980 through September 2014 have been examined and the median discount is calculated as 15.00%.

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APPENDIX V

Sensitivity Analysis on the Discount Rate

The discount rate is an important input for a valuation under DCF method, since systematic risk as well as non-systematic risks like size premium and company specific risk premium, are all considered in the calculation of the discount rate. The sensitivity analysis has been carried out to determine the impact of changes in discount rate on the valuation result. The results of the sensitivity analysis were as follows:

			Percentage of
Absolute Change	Applied		Change in
in Discount Rate	Discount Rate	Market Value	Market Value
		(RMB)
+2%	15.95%	137,000,000	–19.4%
+1%	14.95%	153,000,000	–10.0%
0%	13.95%	170,000,000	0.0%
–1%	12.95%	190,000,000	11.8%
–2%	11.95%	213,000,000	25.3%

SCENARIO ANALYSIS

The key assumption for our valuation is that all licenses issued by any authorized entity that will materially affect the operation of the first phase of the Zhijiang Project of the Target have been obtained or can be obtained upon request. To engage in the natural gas supply business, the Target is required to obtain the Fuel Gas Operation License issued by Yichang City Commission of Housing and Urban-rural Development in relation to the first phase of the Zhijiang Project.

According to conditions precedent of the Equity Transfer Agreement included in this circular, the completion of the acquisition of the Target is subject to the Target having obtained the Fuel Gas Operation License in relation to the first phase of the Zhijiang Project. Without the satisfaction of the said condition within six months from the date of the Equity Transfer Agreement, the Equity Transfer Agreement will be terminated and the acquisition transaction will not proceed.

Therefore, in the scenario that the licenses required for the first phase of the Zhijiang Project, including the Fuel Gas Operation License, cannot be obtained, the acquisition transaction will not proceed.

REMARKS

For the purpose of our valuation, we have been furnished with information provided by the senior management of the Company. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied.

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APPENDIX V

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made or liability assumed for the accuracy of any data, opinions or estimates identified as being furnished by others, which have been used in formulating our analysis.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB).

CONCLUSION OF VALUE

Our conclusion of value is based on accepted valuation procedures and practices that rely on the use of numerous assumptions and the consideration of a lot of uncertainties, not all of which can be easily ascertained or quantified.

Further, whilst the assumptions and consideration of such matters are considered to be reasonable, they are inherently subject to uncertainties and contingencies that are beyond the control of the Company, the Target or us.

Based on our investigation and analysis outlined in this report, it is our opinion that the market value of the 100% equity interest in the Target as at 31 March 2015 was RMB170,000,000

(RENMINBI ONE HUNDRED AND SEVENTY MILLION ONLY).

We hereby certify that we have neither present nor prospective interest in the Company, the Target or the result reported.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C. H. Cheng

BSc(Bldg), MUD, MBA(Finance), MSc.(Eng), PhD(Econ), FSOE, FIPlantE, CEnv, MIPA, CPA UK, SIFM, FCIM, MCIArb, MASCE, MIET, MIEEE, MASME, MIIE

Managing Director

Note:

Dr. Tony C. H. Cheng has various engineering and accounting & finance qualifications. He is currently the Chairman of the Institute of Mechanical Engineers, China. He is also a Fellow member of the Society of Operations Engineers and the Institution of Plant Engineers, and a member of the Institute of Industrial Engineers and the American Society of Mechanical Engineers. Besides, Dr. Cheng is a member of the Institute of Public Accountants. He has extensive experience in valuing similar assets in different industries in Hong Kong and the PRC.

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LETTERS RELATING TO VALUATION REPORT

APPENDIX VI

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ACCOUNTANTS’ REPORT ON CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION OF THE ENTIRE EQUITY INTEREST OF YICHANG ZHONGYOU NATURAL GAS UTILIZATION CO., LTD. (THE “Target”)

LETTERS TO THE DIRECTORS OF GLOBAL STRATEGIC GROUP LIMITED

We have examined the calculations of the discounted future estimated cash flows on which the valuation prepared by BMI Appraisals Limited dated 12 June 2015, in respect of the entire equity interest in the Target, as at 31 March 2015 (the “ Valuation ”) is based. The Target is a company established in the People’s Republic of China (the “ PRC ”) whose principal asset is the construction in progress in respect of the first phase of the natural gas pipeline construction project to supply gas to the industrial parks and commercial area around the Wufeng Industrial Zone and Baiyang Industrial Zone in Zhijiang City, Hubei Province, the PRC. The Valuation based on the discounted future estimated cash flows is regarded as a profit forecast under Rule 19.61 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “ GEM Rules ”) and will be included in a circular dated 12 June 2015 to be issued by the Company in connection with the acquisition of 49% equity interest in the Target (the “ Circular ”).

Directors’ responsibility for the discounted future estimated cash flows

The directors of the Company are responsible for the preparation of the discounted future estimated cash flows in accordance with the bases and assumptions determined by the directors and set out in the section headed “Valuation Report” of the Announcement (the “ Assumptions ”). This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future estimated cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Reporting accountants’ responsibility

It is our responsibility to form an opinion on the arithmetical accuracy of the calculations of the discounted future estimated cash flows on which the Valuation is based and to report solely to you, as a body, as required by Rule 19.62(2) of the GEM Rules, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

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APPENDIX VI

LETTERS RELATING TO VALUATION REPORT

Our engagement was conducted in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” issued by the Hong Kong Institute of Certified Public Accountants. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future estimated cash flows, so far as the calculations are concerned, have been properly compiled in accordance with the Assumptions. Our work does not constitute any valuation of Yichang Zhongyou Natural Gas Utilization Co., Ltd.

Because the Valuation relates to discounted future estimated cash flows, no accounting policies of the Company have been adopted in its preparation. The Assumptions include hypothetical assumptions about future events and management actions which cannot be confirmed and verified in the same way as past results and these may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express any opinion whatsoever thereon.

Opinion

Based on the foregoing, in our opinion, the discounted future estimated cash flows, so far as the calculations are concerned, have been properly compiled, in all material respects, in accordance with the Assumptions.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

12 June 2015

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APPENDIX VI

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Room 3303, 33/F, West Tower, Shun Tak Centre, 200 Connaught Road Central, Hong Kong

12 June 2015

The Board of Directors

Global Strategic Group Limited

Dear Sirs,

We refer to the profit forecasts (the “ Forecasts ”) underlying the valuation report (the “ Valuation Report ”) prepared by BMI Appraisals Limited (“ BMI ”) dated 12 June 2015 in respect of the appraisal value of the entire equity interests of Yichang Zhongyou Natural Gas Utilization Co., Ltd. (the “ Target ”) as at 31 March 2015. The Valuation Report is included in the circular of Global Strategic Group Limited (the “ Company ”) dated 12 June 2015.

The Valuation Report, which has been arrived at using the income approach, is regarded as a profit forecast under Rule 19.62 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (the “ GEM Listing Rules ”).

We have been engaged to assist the directors of the Company (the “ Directors ”) for the purpose of reporting solely to you under Rule 19.62(3) of the GEM Listing Rules and for no other purpose. We are not reporting on the arithmetical calculations of the Forecasts and the adoption of accounting policies thereof, and our work does not constitute any valuation of the Target. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

We have reviewed the Forecasts upon which the Valuation Report has been made for which you as the Directors are solely responsible, and have discussed with you and BMI the information and documents provided by you which formed part of the bases and assumptions upon which the Forecasts have been prepared. We have also considered the letter from Deloitte Touche Tohmatsu to be dated 12 June 2015 addressed to yourselves regarding the arithmetical calculations upon which the Forecasts have been made. The Forecasts have been prepared using a set of assumptions that include hypothetical assumptions about future events and other assumptions that may or may not necessarily be expected to occur and, as such, the Forecasts may not be appropriate for purposes other than for deriving the Valuation Report. Even if the events anticipated under the hypothetical assumptions occur, actual results are still likely to differ from the Forecasts since such anticipated events frequently may or may not occur as expected and the variation may be material.

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APPENDIX VI

LETTERS RELATING TO VALUATION REPORT

On the basis of the foregoing and without giving any opinion on the reasonableness of the valuation methods, bases and assumptions selected by BMI, for which BMI and the Company are responsible, we are of the opinion that the Forecasts, for which you as the Directors are solely responsible, have been made by you after due and careful enquiry in accordance with the bases and assumptions determined by you and BMI as set out in the Valuation Report.

Yours faithfully, For and on behalf of Bridge Partners Capital Limited Monica Lin Managing Director

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GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM 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, there are no other matters the omission of which would make any statement herein or in this circular misleading.

2. DISCLOSURE OF INTERESTS

(i) Interests of Directors

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executives of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) 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 (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

Long positions in the Shares

The table below set out the aggregate long positions in the Shares held by the Directors and chief executives of the Company:

			Percentage of issued
			share capital as at the
Name of Director	Capacity	Number of Shares held	Latest Practicable Date
WEI Yue Tong (Note)	Interest in controlled	2,295,429,580	57.97%
	corporation
WENG Lin Lei (Note)	Interest in controlled	2,295,429,580	57.97%
	corporation

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APPENDIX VII

Long positions in the shares of associated corporations of the Company

The table below set out the aggregate long positions in Liang Tan Yi Xing International Foundation Company Limited held by the Directors and chief executives of the Company:

			Percentage of issued
			share capital as at the
Name of Director	Capacity	Number of Shares held	Latest Practicable Date
ZHENG Zhu Ping (Note)	Beneficial Owner	11,666,667	10%

Note:

The 2,295,429,580 Shares are held by Global Strategic (Holding) Group Limited, a company wholly-owned by Global Strategic Fund Holdings Limited, which in turn is owned as to 49% of its issued share capital by Hotex Holdings Limited and as to 51% of its issued share capital by Liang Tan Yi Xing International Foundation Company Limited. Hotex Holdings Limited is whollyowned by Mr. WENG Lin Lei, an executive Director. Liang Tan Yi Xing International Foundation Company Limited is owned by Mr. WEI Yue Tong, an executive Director, as to 90% of its issued share capital and by Mr. ZHENG Zhu Ping, a non-executive Director, as to 10% of its issued share capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executives of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required (a) 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 (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

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APPENDIX VII

(ii) Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as any Directors are aware, the interest or short positions owned by the following parties (other than the Directors or chief executives of the Company) in the Shares, underlying Shares or debentures of the Company which are required to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required to be recorded in the register of the Company required to be kept under section 336 of the SFO were as follows:

			Percentage of issued
			share capital as at the
Name of Shareholder	Capacity	Number of Shares	Latest Practicable Date
Global Strategic (Holding) Group Limited	Beneficial Owner	2,295,429,580	57.97%
(Note)
Global Strategic Fund Holdings Limited	Interest in controlled	2,295,429,580	57.97%
(Note)	corporation
Liang Tan Yi Xing International Foundation	Interest in controlled	2,295,429,580	57.97%
Company Limited (Note)	corporation
Hotex Holdings Limited (Note)	Interest in controlled	2,295,429,580	57.97%
	corporation

Note:

Global Strategic (Holding) Group Limited, a company incorporated in Samoa with limited liability is wholly-owned by Global Strategic Fund Holdings Limited, which in turn is owned as to 49% of its issued share capital by Hotex Holdings Limited and as at 51% of its issued share capital by Liang Tan Yi Xing International Foundation Company Limited. Hotex Holdings Limited is wholly-owned by Mr. WENG Lin Lei. Liang Tan Yi Xing International Foundation Company Limited is owned by Mr. WEI Yue Tong, as to 90% of its issued share capital and by Mr. ZHENG Zhu Ping, as to 10% of its issued share capital. Accordingly, each of Global Strategic Fund Holdings Limited, Hotex Holdings Limited and Liang Tan Yi Xing International Foundation Company Limited are deemed to be interested in the 2,295,389,580 shares of the Company under the SFO.

Saved as disclosed above, as at the Latest Practicable Date, the Directors are not aware of any interests or short positions owned by any persons (other than the Directors or chief executives of the Company) in the Shares or underlying Shares of the Company which were required to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required to be recorded in the register of the Company required to be kept under Section 336 of the SFO.

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GENERAL INFORMATION

APPENDIX VII

3. OTHER INTERSTS OF THE DIRECTORS

As at the Latest Practicable Date,

(a) Interests in service contracts

none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation));

(b) Interests in assets

none of the Directors had any interest, direct or indirect, in any asset which have been since 31 December 2014, being the date to which the latest published audited financial statements of the Group were made up, acquired by or disposed of or leased to any member of the Enlarged Group or are proposed to be acquired by or disposed of or leased to any member of the Enlarged Group; and

(c) Interests in contracts or arrangements

none of the Directors was materially interested in any contract or arrangement entered into with any member of the Enlarged Group, which contract or arrangement is subsisting as at the Latest Practicable Date and which is significant in relation to the business of the Enlarged Group taken as a whole.

4. DIRECTORS’ COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective close associates have any interest in any businesses which are considered to compete or are likely to compete, either directly or indirectly, with the businesses of the Enlarged Group other than those businesses to which the Directors and their close associates were appointed to represent the interests of the Company and/or the Enlarged Group.

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APPENDIX VII

5. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no member of the Enlarged Group is engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Enlarged Group as at the Latest Practicable Date.

6. EXPERT AND CONSENT

The following sets out the qualifications of the experts who have given their opinions or advice as contained in this circular:

Name

Qualifications

Bridge Partners a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activity under the SFO

Deloitte Touche Tohmatsu Certified Public Accountants BMI Appraisals Limited Independent Professional Valuer

As at the Latest Practicable, the above experts have given and has not withdrawn their written consent to the issue of this circular with the inclusion herein of their letters and references to their name in the form and context in which they respectively appear.

As at the Latest Practicable Date, the above experts do 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.

As at the Latest Practicable Date, the above experts do not have any direct or indirect interest in any assets which have been, since the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX VII

7. MATERIAL CONTRACTS

The following contracts were entered into by members of the Enlarged Group (not being a contract entered into in the ordinary course of business) during the period of two years immediately preceding the the date of the circular and are or may be material:

• (i) the Equity Transfer Agreement;

• (ii) the JV Co-operation Agreement;

• (iii) the MOU;

• (iv) the placing agreement dated 16 January 2015 entered into between the Company and Jin Hung Securities Limited, as the placing agent, to place 360,000,000 new shares of the Company at a placing price of HK$0.354 per share;

• (v) the placing agreement dated 28 October 2014 entered into between the Company and Jin Hung Securities Limited, as the placing agent, to place 30,000,000 new shares of the Company at a placing price of HK$1.5 per share;

• (vi) the Wufeng Concession Agreements;

• (vii) the Baiyang Concession Agreements;

• (viii) the confidential and non-competition agreement entered into between the Target and Mr. Li dated 23 April 2015; and

• (ix) the confidential and non-competition agreement entered into between the Target and Mr. Xiong dated 23 April 2015.

8. AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference based on the guidelines recommended by the Hong Kong Institute of Certified Public Accountants and the mandatory provisions in the Corporate Governance Code of the GEM Listing Rules. The primary duties of the audit committee are to review the Company’s annual reports and accounts, interim reports and quarterly reports and to provide advices and comments thereon to the Board. The audit committee is also responsible for reviewing the accounting principles and practices adopted by the Group and also the auditing, internal control and financial reporting matters.

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GENERAL INFORMATION

APPENDIX VII

The audit committee of the Company comprises the non-executive Director, namely Mr. ZHENG Zhu Ping and three independent non-executive Directors, namely Mr. LEUNG Oh Man, Martin (chairman of audit committee), Mr. CHIU Wai Piu and Ms. KWAN Sin Yee.

Non-executive Director

Mr. ZHENG Zhu Ping (“ Mr. ZHENG ”), aged 62, graduated from the Party School of the CPC Guangdong Provincial Committee, the PRC（中共廣東省委黨校）. He is currently the managing director of a PRC based property developing and hospitality company, and the vice president of Global News Times（環球新聞時訊）, a print magazine and an online media platform of global news and advertisements in the PRC. Mr. ZHENG has experience in the industry of property development and media and publication. He is the father of Mr. ZHENG Jian Peng, an executive Director. He was appointed as an executive Director on 16 October 2014.

Independent non-executive Directors

Mr. LEUNG Oh Man, Martin (“ Mr. LEUNG ”), aged 34, holds a Bachelor Degree of Commerce in Accounting and Finance from the University of Toronto in Canada. Mr. LEUNG is the deputy general manager of TL Property Consultants International Ltd. (“ TLP ”), a consultancy group principally engaged in project management and consultancy in the real estate sector. Prior to joining TLP, he had worked at a multinational accounting and auditing firm for about 8 years. Mr. LEUNG is a member of the Hong Kong Institute of Certified Public Accountants, Royal Institution of Chartered Surveyors and the Hong Kong Institute of Surveyors. He was appointed as an independent non-executive Director on 16 October 2014.

Mr. CHIU Wai Piu (“ Mr. CHIU ”), aged 68, is an experienced and reputable journalist and has over 40 years of experience in journalism. He has been a senior research officer in “One Country Two Systems Research Institute”. Mr. CHIU has been the founding treasurer and the chairman of the “Hong Kong Federation of Journalists”. In 2006, he was elected as the vice secretary – general and treasurer of the “Hong Kong Federation of Journalists”; and he was also elected as the director general in 2009. Mr. CHIU served as an independent non-executive director of Jiwa Bio-Pharm Holdings Limited (now known as U-Home Group Holdings Limited) (a company listed on the Main Board of the Stock Exchange, stock code: 2327) from September 2008 to September 2013. From September 2004 to November 2011, he served as an independent non-executive director of Xinhua News Media Holdings Limited (a company listed on the Main Board of the Stock Exchange, stock code: 309). He is currently an independent non-executive director of the Gold Tat Group International Limited (a company listed on GEM, stock code: 8266). He was appointed as an independent nonexecutive Director on 16 October 2014.

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APPENDIX VII

GENERAL INFORMATION

Ms. KWAN Sin Yee (“ Ms. KWAN ”), aged 52, is the executive wealth director of FWD Life Insurance Company (Bermuda) Limited and the director and chief executive officer of Roots Management Co. Ltd., a executive wealth management services company in Hong Kong. Ms. KWAN has experience in insurance industry in both Hong Kong and the PRC. Ms. KWAN devoted herself in charity and she is the current committee member and the vicepresident of examination committee of the Hong Kong CU Movement Charity Fund. She was appointed as an independent non-executive Director on 16 October 2014.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during 9:00 a.m. to 5:00 p.m. on any week day, except Saturday, Sundays and public holidays at the principal place of business in Hong Kong of the Company at Suite 2105, 21st Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong from the date of this circular up to 30 June 2015:

• (a) the memorandum of association and Articles of Association of the Company;

• (b) the annual report of the Company for each of (i) the period from 1 July 2014 to 31 December 2014; (ii) the financial year ended 30 June 2014 and (iii) the financial year ended 30 June 2013;

• (c) the accountant’s reports on the Target, the text of which is set out in Appendix III to this circular;

• (d) the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular;

• (e) the valuation report on the Target, the text of which is set out in Appendix V to this circular;

• (f) the letter of Deloitte Touche Tohmatsu and the letter of Bridge Partners, the text of each letter is set out in Appendix VI to this circular;

• (g) the written consents referred to in the paragraph headed “Expert and Consent” in this Appendix VII;

• (h) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix VII; and

• (i) this circular.

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APPENDIX VII

10. MISCELLANEOUS

• (a) Mr. ZHENG Jian Peng, the executive Director is the company secretary and the compliance officer of the Company. He is member of the Hong Kong Institute of Certified Public Accountants.

• (b) The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and the Company’s principal place of business in Hong Kong is located at Suite 2105, 21st Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong.

• (c) The branch share registrar of the Company in Hong Kong is Tricor Secretaries Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (d) In case of any inconsistency, the English text of this circular shall prevail over its Chinese text.

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