Honghua Group Limited — AGM Information 2021

May 13, 2021

THIS SUPPLEMENTAL CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Honghua Group Limited, you should at once hand this Supplemental Circular and the accompanying supplemental form of proxy to the purchaser or the 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 the transferee.

Hong Kong Exchange and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this Supplemental 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 Supplemental Circular.

Honghua Group Limited 宏華集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

SUPPLEMENTAL CIRCULAR TO ANNUAL GENERAL MEETING IN RELATION TO CONTINUING CONNECTED TRANSACTION AND MAJOR TRANSACTION – FINANCIAL COOPERATION AGREEMENT AND SUPPLEMENTAL NOTICE OF ANNUAL GENERAL MEETING

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

This Supplemental Circular should be read in conjunction with the circular of Honghua Group Limited (the “ Company ”) dated 20 April 2021, and the announcement of the Company dated 12 May 2021 in respect of postponement of the AGM.

A letter from the Board is set out on pages 4 to 13 of this Supplemental Circular. A letter from the Independent Board Committee is set out on page 14 of this Supplemental Circular. A letter from Gram Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders containing its advice in relation to the Transactions is set out on pages 15 to 26 of this Supplemental Circular.

The supplemental notice of AGM is set out on pages 35 to 36 in this Supplemental Circular. The AGM of the Company will be held as originally scheduled to be held at 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong on Tuesday, 1 June 2021 at 10:00 a.m.. If you do not propose to attend the AGM, you are requested to complete the enclosed supplemental form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the AGM or any adjournment thereof. Completion and return of the supplemental form of proxy will not preclude you from attending and voting in person at the AGM or any adjourned meeting if you so wish, and in such event, the supplemental form of proxy shall be deemed to be revoked.

13 May 2021

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from Gram Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . .	27
Appendix II – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Supplemental Notice of Annual General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . .	35

– i –

DEFINITIONS

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

• “Aerospace Science and Industry Financial Corporation”

Aerospace Science and Industry Financial Corporation, a company incorporated in the PRC with limited liability, and a non-bank financial institution established by CASIC and its subsidiaries;

• “AGM”

the annual general meeting of the Company to be held at 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong on Tuesday, 1 June 2021 at 10:00 a.m. for the purpose of, inter alia, considering and approving the Financial Cooperation Agreement;

• “associate(s)”

has the meaning ascribed to it under the Listing Rules;

• “Board”

the board of Directors;

• “business day(s)”

a day on which banks are generally open for business in Hong Kong (other than a Saturday, Sunday or public holiday or a day on which a tropical cyclone warning No. 8 or above or a “black rainstorm warning signal” is hoisted or remains hoisted in Hong Kong at any time between 9: 00 a.m. and 5: 00 p.m.);

• “CASIC”

• China Aerospace Science and Industry Corporation (中國 航天科工集團有限公司), a company incorporated in the PRC;

• “Company”

Honghua Group Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange of Hong Kong Limited;

• “connected person(s)”

has the meaning ascribed to it under the Listing Rules;

• “Director(s)”

director(s) of the Company;

• “Existing Financial Cooperation Agreement”

the financial cooperation agreement for the provision of financial services dated 1 June 2018 entered into between the Company and Aerospace Science and Industry Financial Corporation;

– 1 –

DEFINITIONS

• “Financial Cooperation Agreement”

the financial cooperation agreement for the provision of financial services dated 12 May 2021 entered into between the Company and Aerospace Science and Industry Financial Corporation;

• “Group” the Company and its subsidiaries;

• “Hong Kong”

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

• “Independent Board Committee”

• the independent committee of the Board, comprising all the independent non-executive Directors, established to make recommendations to the Independent Shareholders in respect of the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder;

• “Independent Financial Adviser” or “Gram Capital”

• Gram Capital Limited, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder;

• “Independent Shareholder(s)”

• Shareholder(s) other than CASIC and its associates;

• “Independent Third Party(ies)”

• person(s) or company(ies) which is/are not connected (within the meaning of the Listing Rules) with the Company;

• “Kehua”

• Kehua Technology Co., Limited, a limited liability company incorporated in Hong Kong and a whollyowned subsidiary of CASIC;

• “Latest Practicable Date”

• 12 May 2021, being the latest practicable date prior to the printing of this Supplemental Circular for the purpose of ascertaining certain information contained herein;

• “Listing Rules”

• the Rules Governing the Listing of Securities on the Stock Exchange;

• “Original Circular”

the circular of the Company dated 20 April 2021;

• “PBOC”

The People’s Bank of China;

– 2 –

DEFINITIONS

“PRC”	the People’s Republic of China;
“RMB”	Renminbi, the lawful currency of the PRC;
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	laws of Hong Kong);
“Share(s)”	the ordinary share(s) of HK$0.1 each in the share capital
	of the Company;
“Shareholder(s)”	holder(s) of ordinary share(s) of nominal value of
	HK$0.10 each in the share capital of the Company;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Supplemental Circular”	this supplemental circular;
“Transactions”	the deposit services and the lending	and	other
	comprehensive credit facilities services contemplated
	under the Financial Cooperation Agreement;	and
“%”	per cent.

– 3 –

LETTER FROM THE BOARD

Honghua Group Limited 宏華集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

Executive Directors: Mr. Jin Liliang (Chairman) Mr. Zhang Mi Mr. Ren Jie

Registered office: Clifton House, 75 Fort Street PO Box 1350 Grand Cayman KY1-1108 Cayman Islands

Non-executive Directors:

Mr. Han Guangrong Mr. Chen Wenle

Independent non-executive Directors:

Mr. Liu Xiaofeng Mr. Chen Guoming Ms. Su Mei Mr. Poon Chiu Kwok Mr. Chang Qing Mr. Wei Bin

Head Office: 99 East Road, Information Park Jinniu District, Chengdu, Sichuan People’s Republic of China Post code: 610036

Principal place of business in Hong Kong: Room 2508, Harcourt House 39 Gloucester Road Wan Chai, Hong Kong

13 May 2021

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION AND MAJOR TRANSACTION — FINANCIAL COOPERATION AGREEMENT

INTRODUCTION

Reference is made to the announcement of the Company dated 12 May 2021 in respect of entering into the Financial Cooperation Agreement. Reference is also made to the Original Circular and the notice of AGM of the Company dated 20 April 2021, and the announcement of the Company dated 12 May 2021 in respect of postponement of AGM and change of book closure period.

– 4 –

LETTER FROM THE BOARD

This Supplemental Circular should be read in conjunction with the Original Circular of the Company dated 20 April 2021. Unless the context otherwise requires, capitalised terms used in this Supplemental Circular shall have the same meanings as those defined in the Original Circular.

The purposes of this Supplemental Circular are to provide the Shareholders with, among others, (i) details of the Transactions; (ii) the letter of recommendation from the Independent Board Committee to the Independent Shareholders regarding the Transactions; (iii) the letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders regarding the Transactions; and (iv) the supplemental notice of AGM at which relevant resolution will be proposed to consider and approve the Transactions.

FINANCIAL COOPERATION AGREEMENT

As disclosed by the Company’s announcement dated 1 June 2018 and circular dated 5 June 2018, the Company and Aerospace Science and Industry Financial Corporation entered into the Existing Financial Cooperation Agreement on 1 June 2018, which will expire on 31 May 2021.

Upon the approval of the Board of the Company, the Company and Aerospace Science and Industry Financial Corporation entered into the Financial Cooperation Agreement on 12 May 2021. A summary of the principal terms of the Financial Cooperation Agreement is set out as follows:

Parties:

• (1) the Company; and

• (2) Aerospace Science and Industry Financial Corporation

Term:

Three years from 1 June 2021

Provision of Financial Services

According to the Financial Cooperation Agreement, Aerospace Science and Industry Financial Corporation will provide the Group with financial services including:

• (1) deposit services;

• (2) lending and other comprehensive credit facilities services; and

• (3) free settlement services.

– 5 –

LETTER FROM THE BOARD

Proposed Annual Caps of Transactions under the Financial Cooperation Agreement

				For the
				5 months
	For the	For the	For the	from
	year ending	year ending	year ending	1 January
	31 December	31 December	31 December	2024 to
	2021	2022	2023	31 May 2024
	RMB	RMB	RMB	RMB
Daily maximum balance of deposits	1,500,000,000	1,500,000,000	1,500,000,000	1,500,000,000
(including accrued interests) placed by
the Group with Aerospace Science and
Industry Financial Corporation
Cap of lending and other comprehensive	650,000,000	650,000,000	650,000,000	650,000,000
credit facilities services provided by
Aerospace Science and Industry
Financial Corporation to the Group and
secured by the Group’s assets

In determining the proposed annual caps under the Financial Cooperation Agreement, the Board has considered the following factors: (i) the historical transaction data between the Group and Aerospace Science and Industry Financial Corporation; (ii) the total cash and cash equivalents of the Group of RMB0.889 billion and RMB0.952 billion as at 31 December 2019 and 31 December 2020 respectively; and (iii) the total cash and cash equivalents of the Group of RMB1.85 billion as at 30 June 2017; and (iv) the maximum balance of the loan of the Group of RMB0.543 billion and RMB0.653 billion due to Aerospace Science and Industry Financial Corporation for the year ended 31 December 2019 and the year ended 31 December 2020 respectively.

In particular, in determining the proposed annual caps of lending and other comprehensive credit facilities services to be provided by Aerospace Science and Industry Financial Corporation to the Group under the Financial Cooperation Agreement, the Board has taken into account the following additional factors: (i) according to the Group’s business plan and budget, the Group expects to have relatively large capital needs in several drilling rig projects, offshore wind power projects, and fracturing service businesses; (ii) Aerospace Science and Industry Financial Corporation, which used to provide financial support to the Group and has historical cooperation with the Group, has sufficient capital sources, relatively low capital costs and relatively stable credit policy, and can provide the Group with stable financing support; in comparison, the credit policy of independent-third-party financial institutions, which are affected by various factors such as regulatory policies, the credit scale of the head office, the capital costs and other factors, is relatively uncertain. Therefore, the Group needs the continuous and stable financing support from Aerospace Science and Industry Financial Cooperation.

– 6 –

LETTER FROM THE BOARD

In accordance with its management requirements, Aerospace Science and Industry Financial Cooperation conducts a thorough assessment on its borrowers on annual basis based on the borrowers’ financial and operating conditions in the previous year, determines the ratings of the borrowers, and in turn determines the amount of credit facilities to be granted to the borrowers in accordance with their respective rating. Due to the impacts of COVID-19 and declined demands in the oil service market, the financial performance of the Group in the year of 2020 recorded a decline as compared with the years of 2018 and 2019, which is not expected to suffice for obtaining 100% unsecured loans and/or credit facilities from Aerospace Science and Industry Financial Corporation in the year of 2021. Furthermore, since the COVID-19 has not been fully controlled, there still exist uncertainties in the oil and gas market, thus the loan policy to be provided by Aerospace Science and Industry Financial Corporation to the Group during the future three years is likely to become increasingly stricter.

According to the credit approval requirements of Aerospace Science and Industry Financial Cooperation, asset security must be provided by the Group for certain proportion of the loans and credit facilities granted as credit enhancement measures, and the proportion of secured loans and credit facilities will be determined according to the Group’s annual ratings and other specific conditions. Therefore, there are uncertainties in respect of the amount of secured loan and/or credit facilities during the term of the Financial Cooperation Agreement. In order to facilitate flexible management, an annual cap of RMB650 million for lending and other credit facilities services secured by the Group’s assets is proposed for Independent Shareholders’ approval for each of the year during the term of the Financial Cooperation Agreement.

Historical Transaction Amounts of Transactions under the Financial Cooperation Agreement

				For the three
				months from
	For the	For the	For the	1 January
	year ended	year ended	year ended	2021 to
	31 December	31 December	31 December	31 March
	2018	2019	2020	2021
	RMB	RMB	RMB	RMB
Daily maximum balance of deposits	93,424,000	304,713,773	515,182,818	58,207,162
(including accrued interests) placed by
the Group with Aerospace Science and
Industry Financial Corporation
Maximum balance of lending and other	70,000,000	70,000,000	0	0
comprehensive credit facilities provided
by Aerospace Science and Industry
Financial Corporation to the Group and
secured by the Group assets

– 7 –

LETTER FROM THE BOARD

Annual Caps under the Existing Financial Cooperation Agreement

		For the		For the		For the	For the
		year ended		year ended		year ended	5 months
	31 December		31 December		31 December		ending
		2018		2019		2020	31 May 2021
		RMB		RMB		RMB	RMB
Daily maximum balance of deposits	1,500,000,000		1,500,000,000		1,500,000,000		1,500,000,000
(including accrued interests) placed by
the Group with Aerospace Science and
Industry Financial Corporation

The Directors monitor the transaction amounts under the Existing Financial Cooperation Agreement on an ongoing basis. As at the date of this Supplemental Circular, the transaction amounts under the Existing Financial Cooperation Agreement have not exceeded the annual cap for the 5 months ending 31 May 2021.

Pricing Policy

The price of each transaction under the Financial Cooperation Agreement shall be determined in accordance with the following pricing policy:

• (1) the applicable deposit interest rate of the Group at Aerospace Science and Industry Financial Corporation shall not be lower than the benchmark interest rate stipulated by the PBOC for such type of deposit during the same period, and shall be determined on general commercial terms;

• (2) the interest rates for the loans granted by Aerospace Science and Industry Financial Corporation to the Group shall be in accordance with the relevant regulations of the PBOC and the relevant loan interest rate policies and regulations of Aerospace Science and Industry Financial Corporation. At the time of entering into each loan contract, both parties shall negotiate with each other based on the market conditions of the time, and the interest rate shall generally not exceed the interest rate of the same kind of loans obtained by the Group from major commercial banks in the PRC during the same period;

• (3) for various financial services other than deposits and loans provided to the Group, fees charged by Aerospace Science and Industry Financial Corporation shall follow the principle of fairness and reasonableness and shall be charged at a rate no higher than the fair market price or the standard prescribed by the PRC;

• (4) the settlement expenses incurred by Aerospace Science and Industry Financial Corporation for the provision of settlement services for the Group shall be borne by Aerospace Science and Industry Financial Corporation. The Group shall not bear the relevant settlement expenses.

– 8 –

LETTER FROM THE BOARD

INTERNAL CONTROL PROCEDURES FOR THE TRANSACTIONS UNDER THE FINANCIAL COOPERATION AGREEMENT

In respect of the deposit services, the personnel in the finance department of the Group is responsible for comparing the interest rates offered by Aerospace Science and Industry Financial Corporation against the deposit interest rates announced by the PBOC, and further against the deposit interest rates offered by at least two major commercial banks in the PRC, so as to confirm that the interest rates offered by Aerospace Science and Industry Financial Corporation are not less favourable than such interest rates in respect of the Group, while all of this information together with the daily deposit amount (with the corresponding accrued interests) will be included in the report to be submitted to the Chief Financial Officer of the Group for review, verification and approval. The auditors and audit committee of the Company will also conduct annual review of the deposit services to confirm whether such services have been conducted in compliance with the pricing policies or system and whether the relevant annual caps have been exceeded. The above control procedures will make sure the interest rates and terms of the deposit services offered to the members of the Group are in compliance with the terms and conditions under the Financial Cooperation Agreement, and can monitor that the aggregate daily deposit amount (together with the corresponding accrued interests) placed by the Group with Aerospace Science and Industry Financial Corporation will not exceed the relevant proposed annual caps.

In respect of lending and other comprehensive credit facilities services, the personnel in the finance department of the Group is responsible for comparing the lending rates offered by Aerospace Science and Industry Financial Corporation against the benchmark lending rates announced by the PBOC, and further against the lending rates offered by at least two major commercial banks in the PRC, so as to confirm that the lending rates offered by Aerospace Science and Industry Financial Corporation are not higher than the rates applicable to the same type of loan services provided by major commercial banks in the PRC to the Group, and loan agreements shall be determined on normal commercial terms. Each of the loans of the Group at Aerospace Science and Industry Financial Corporation will be submitted to the management of the Group for review and approval in accordance with the relevant policies. The auditors and audit committee of the Company will also conduct annual review of the lending and other comprehensive credit facilities services to confirm whether such services have been conducted in compliance with the pricing policies or system and whether the relevant annual caps have been exceeded. The above control procedures will make sure the loans of the Group at Aerospace Science and Industry Financial Corporation are in compliance with the terms and conditions under the Financial Cooperation Agreement, and can monitor that the amount of mortgage loans secured by the Group from Aerospace Science and Industry Financial Corporation will not exceed the relevant proposed annual caps.

– 9 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF ENTERING INTO THE FINANCIAL COOPERATION AGREEMENT

The Group is principally engaged in the business for developing, manufacturing and selling drilling rigs, rig parts and components, and the provision of after-sales services.

Aerospace Science and Industry Financial Corporation is incorporated in the PRC. As a non-bank financial institution invested and established by CASIC and its affiliates, it is principally engaged in financial services for various units within CASIC, such as deposits and loans, fund settlement, bill acceptance and discounting as well as entrusted loans.

CASIC is incorporated in the PRC and is the ultimate beneficial owner of 100% equity interest in Aerospace Science and Industry Financial Corporation. Its principal business includes the investment, operation and management of state-owned assets; development and production of military, aerospace and civilian products; development and application services of information technology and network platform; construction, finance, healthcare, project contracting, and international operation, etc. The ultimate beneficial owner of CASIC is the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

Based on the previous cooperation between the Group and Aerospace Science and Industry Financial Corporation, the Group is expected to benefit from Aerospace Science and Industry Financial Corporation’s familiarity with the Group’s industry and operations. Aerospace Science and Industry Financial Corporation is relatively familiar with the Group’s capital structure, business operations, fund-raising requirements, cash flow model, cash management and the entire financial management system, which helps Aerospace Science and Industry Financial Corporation provide the Group with more suitable, effective and flexible services than those provided by independent financial institutions.

The entering into the Financial Cooperation Agreement between the Company and Aerospace Science and Industry Financial Corporation is in line with the financial policies of the Group. The major reasons for and benefits of entering into the Financial Cooperation Agreement are as follows:

(1) Increase interest income and save finance costs

Subject to compliance with the relevant laws, regulations and regulatory requirements, Aerospace Science and Industry Financial Corporation will provide deposit services to the Group on normal commercial terms or more favourable terms, which will help increase the interest income of the Group. The Group handles the settlement business through its internal accounts at Aerospace Science and Industry Financial Corporation with reduced and exempted expenses, which can reduce the Group’s financial handling expenses.

– 10 –

LETTER FROM THE BOARD

(2) Raise the efficiency of fund utilization

Aerospace Science and Industry Financial Corporation’s deposit services will strengthen the Company’s centralized management of the funds of its subsidiaries and shorten the time for capital transfers, which is beneficial for the Group to enhance fund management and control and to reduce the time for funds in transit, thereby accelerating cash flows.

(3) Enhance the management and control of the Group’s funds

Aerospace Science and Industry Financial Corporation has a cutting-edge information system, through which the Group can access the latest information on its collection and payment of funds as well as the status of fund balance at any time to enable the Group, in particular, to monitor that the daily balance of deposits placed with Aerospace Science and Industry Financial Corporation will not exceed the caps, thereby reducing and avoiding operational risks.

(4) Meet the needs for working funds

Since the establishment of the cooperation, Aerospace Science and Industry Financial Corporation has granted comprehensive credit facilities to the Group over past years to provide the Group with a relatively large credit support. By entering into the Financial Cooperation Agreement, the Group will be able to obtain such loans that meet the needs for working funds for actual business operations.

Accordingly, the Directors (excluding independent non-executive Directors who will express their views in the Letter from the Independent Board Committee) are of the view that the terms of the Financial Cooperation Agreement (including the deposit services, lending and other comprehensive credit facilities services contemplated thereunder as well as the proposed annual caps for such Transactions) are fair and reasonable and on normal commercial terms entered into in the ordinary and usual course of business of the Group, which are in the interests of the Company and Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As at the date of this Supplemental Circular, CASIC indirectly holds 29.98% of the shares in the Company through its wholly-owned subsidiary Kehua, and therefore is a substantial shareholder and connected person of the Company. CASIC and its subsidiaries together hold a 100% equity interest in Aerospace Science and Industry Financial Corporation, thus Aerospace Science and Industry Financial Corporation is an associate of CASIC and in turn a connected person of the Company. Therefore, the transactions under the Financial Cooperation Agreement constitute connected transactions of the Company under Chapter 14A of the Listing Rules.

– 11 –

LETTER FROM THE BOARD

In respect of the deposit services under the Financial Cooperation Agreement, as one or more of the applicable percentage ratios of the transaction are higher than 25% but all are less than 100%, the above transactions also constitute major transaction of the Company under Chapter 14 of the Listing Rules. In respect of the lending and other comprehensive credit facilities services under the Financial Cooperation Agreement, one or more of the applicable percentage ratios of the transactions are higher than 5%. Therefore, the deposit services under the Financial Cooperation Agreement are subject to the reporting, announcement, annual review and the Independent Shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules, and the lending and other comprehensive credit facilities services under the Financial Cooperation Agreement are subject to the reporting, announcement, annual review and the Independent Shareholders’ approval requirements under Chapters 14A of the Listing Rules.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all the independent non-executive Directors (namely Mr. Liu Xiaofeng, Mr. Chen Guoming, Ms. Su Mei, Mr. Poon Chiu Kwok, Mr. Chang Qing and Mr. Wei Bin) has been established to advise the Independent Shareholders in respect of the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder. Gram Capital has been appointed by the Company with the approval of the Board to advise the Independent Board Committee and the Independent Shareholders in this regard.

ANNUAL GENERAL MEETING

The supplemental notice of AGM is set out on pages 35 to 36 in this Supplemental Circular. The AGM of the Company will be held as originally scheduled to be held at 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong on Tuesday, 1 June 2021 at 10:00 a.m..

Please refer to the Original Circular of the Company and the notice of AGM for the details of other resolutions to be considered at the AGM, the eligibility for attending the AGM, the registration procedures, the closure of register of members, voting by poll and other relevant matters.

CASIC and its associates including Kehua (holding 1,606,000,000 Shares or approximately 29.98% of the Shares in the Company as at the Latest Practicable Date) who are involved in, or interested in the Financial Cooperation Agreement will abstain from voting in the relevant resolution at the AGM.

RECOMMENDATION

The Board considers that the Transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole and accordingly recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the AGM for approving the Transactions.

– 12 –

LETTER FROM THE BOARD

The entering into of the Financial Cooperation Agreement (including the Transactions contemplated thereunder and the relevant proposed caps) was approved by all the Directors, except for Mr. Jin Liliang, Mr. Han Guangrong and Mr. Chen Wenle, who are Directors appointed by CASIC and its associates and are deemed to have interest in the Financial Cooperation Agreement and thus had abstained from voting on the Financial Cooperation Agreement.

The Independent Board Committee, having taken into account the advice of Gram Capital, considers that the Transactions are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and accordingly recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the AGM for approving the Transactions.

GENERAL INFORMATION

Your attention is drawn to the letter of advice from Gram Capital set out in pages 15 to 26 of this Supplemental Circular which contains its advice to the Independent Board Committee and the Independent Shareholders in connection with the Financial Cooperation Agreement and the letter from the Independent Board Committee set out in page 14 of this Supplemental Circular which contains its recommendation to the Independent Shareholders in relation to the Financial Cooperation Agreement.

FURTHER INFORMATION

Your attention is also drawn to the additional information set out in the appendix to this Supplemental Circular.

Yours faithfully, By order of the Board Honghua Group Limited Jin Liliang Chairman

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Honghua Group Limited 宏華集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

13 May 2021

To the Independent Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION AND MAJOR TRANSACTION – FINANCIAL COOPERATION AGREEMENT

We refer to the Supplemental Circular of the Company dated 13 May 2021 (the “ Supplemental Circular ”) to the Shareholders of which this letter forms part. Terms defined in the Supplemental Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed as the Independent Board Committee to advise the Independent Shareholders on whether the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder are fair and reasonable and on normal commercial terms entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

We wish to draw your attention to the letter from the Board set out in pages 4 to 13 of the Supplemental Circular and the letter from Gram Capital, the Independent Financial Adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder, set out in pages 15 to 26 of the Supplemental Circular.

Having considered the factors and reasons considered by and the opinion of Gram Capital stated in its letter of advice contained in the Supplemental Circular, we are of the view that the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder are fair and reasonable and on normal or better commercial terms entered into in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the AGM to approve the Financial Cooperation Agreement and the annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder.

Yours faithfully,

For and on behalf of the

Mr. Liu Xiaofeng Mr. Poon Chiu Kwok

Independent Board Committee Mr. Chen Guoming Mr. Chang Qing

Ms. Su Mei Mr. Wei Bin

Independent non-executive Directors

– 14 –

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Deposit Services and the Loan Services for the purpose of inclusion in this supplemental circular.

==> picture [168 x 32] intentionally omitted <==

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

13 May 2021

• To: The independent board committee and the independent shareholders of Honghua Group Limited

Dear Sirs,

MAJOR AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the deposit services (the “ Deposit Services ”) and lending and other comprehensive credit facilities services (the “ Loan Services ”) provided by Aerospace Science and Industry Financial Corporation (“ ASIFC ”) to the Group under the Financial Cooperation Agreement, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the supplemental circular dated 13 May 2021 issued by the Company to the Shareholders (the “ Supplemental Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Supplemental Circular unless the context requires otherwise.

With reference to the Board Letter, the Company and ASIFC entered into the Existing Financial Cooperation Agreement on 1 June 2018, which will expire on 31 May 2021. On 12 May 2021, the Company and ASIFC entered into the Financial Cooperation Agreement, pursuant to which, ASIFC will provide the Group with the Deposit Services, the Loan Services, and settlement services, for the period from 1 June 2021 to 31 May 2024.

With reference to the Board Letter, the Deposit Services constitute major transaction and continuing connected transactions of the Company and the Loan Services constitute continuing connected transactions of the Company. The Deposit Services and the Loan Services are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Liu Xiaofeng, Mr. Chen Guoming, Ms. Su Mei, Mr. Poon Chiu Kwok, Mr. Chang Qing and Mr. Wei Bin (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Deposit Services and the Loan Services and their proposed annual caps are fair and reasonable and on normal commercial terms so far as the Independent Shareholders are concerned; and (ii) whether the Deposit Services and the Loan Services are in the interests of the Company and its Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Deposit Services and the Loan Services and their proposed annual caps at the AGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Gram Capital was engaged as the independent financial adviser to the independent board committee and independent shareholders of the Company in relation to the continuing connected transactions (details of which are set out in the Company’s supplemental circular dated 29 May 2020). Notwithstanding the aforesaid engagement, we were not aware of any relationships or interests between Gram Capital and the Company, or any other parties during the past two years immediately preceding the Latest Practicable Date that could be reasonably regarded as hindrance to Gram Capital’s independence to act as the Independent Financial Adviser.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Supplemental Circular and the information and representations as provided to us by the management of the Company (the “ Management ”). We have assumed that all information and representations that have been provided by the Management, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Supplemental Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Supplemental Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Management’s representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Deposit Services and the Loan Services. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

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LETTER FROM GRAM CAPITAL

The Supplemental Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Supplemental Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or the Supplemental Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Supplemental Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, ASIFC or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Deposit Services and the Loan Services. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Deposit Services and the Loan Services, we have taken into consideration the following principal factors and reasons:

1. Background of and reasons for the Deposit Services and the Loan Services

Business overview of the Group

With reference to the Board Letter, the Group is principally engaged in the business for developing, manufacturing and selling drilling rigs, rig parts and components, and the provision of after-sales services.

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LETTER FROM GRAM CAPITAL

Set out below are the consolidated audited financial information of the Group for the two years ended 31 December 2020 as extracted from the Company’s annual report for the year ended 31 December 2020 (the “ 2020 Annual Report ”):

	For the	For the
	year ended	year ended
	31 December	31 December	Change from
	2020	2019	2019 to 2020
	RMB’000	RMB’000	%
Revenue	3,931,492	4,425,686	(11.17)
– Land drilling rigs	621,523	1,269,356	(51.04)
– Parts and components and others	1,722,179	1,617,031	6.50
– Drilling engineering services	247,919	464,078	(46.58)
– Fracturing	1,339,871	1,075,221	24.61
Gross profit	1,180,365	1,315,834	(10.30)
Profit attributable to owners of the
Company	49,660	107,472	(53.79)

As illustrated in the above table, the Group’s revenue for the year ended 31 December 2020 (“ FY2020 ”) decreased by approximately 11.17% as compared to that for the year ended 31 December 2019 (“ FY2019 ”). With reference to the 2020 Annual Report, such decrease in revenue mainly came from the international market. Affected by the COVID-19 pandemic and oil price fluctuation, overseas drilling rig orders decreased and some projects were delayed, resulting in a decrease in the Group’s revenue.

With reference to the 2020 Annual Report, although the Group’s gross profit for FY2020 decreased by approximately 10.30% as compared to that for FY2019, the Group’s overall gross margin was 30%, representing an increase of approximately 0.29 percentage points as compared to that for FY2019. The main reasons for the aforesaid improvement in gross profit margin were (i) that the Group actively promoted new products with high added value; and (ii) the influence of positive measures such as cost reduction, cost control and cost structure optimization.

As a net effect of, amongst others, (i) decrease in gross profit; (ii) decrease in distribution costs; (iii) increase in administrative expenses and net impairment losses on financial assets and contract assets; and (iv) increase in finance income, the profit attributable to owners of the Company for FY2020 decreased by approximately 53.79% as compared to that for FY2019.

With reference to the 2020 Annual Report, at the beginning of 2021, the COVID-19 pandemic remains not yet fully under control, and there are still many uncertainties in the oil and gas market. The COVID-19 pandemic has further accelerated the process of energy transition worldwide. In the long run, low-carbon and clean energy will be the direction of future development, which will pose challenges to the traditional

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LETTER FROM GRAM CAPITAL

petrochemical industry. Nevertheless, the Group still see many positive factors emerging in short term. With the expected large-scale vaccination programs, and the oil prices in stable recovery as a result of the ongoing joint production cuts by the Organization of the Petroleum Exporting Countries, the “darkest moment” of the oil and gas industry had passed. In the domestic market, by virtue of the national energy security strategy, the reform of the energy system will bring more market opportunities. As a leading supplier of oil and gas equipment and services, the Group will safeguard the national economic security and development interests, adapt to the transition of China from a major energy consumer to a powerhouse of energy technology and equipment, and provide the industry with green, environmentally friendly, efficient and safe energy equipment and service solutions.

Information of ASIFC

With reference to the Board Letter, ASIFC is incorporated in the PRC. As a non-bank financial institution invested and established by CASIC and its affiliates, it is principally engaged in financial services for various units within CASIC, such as deposits and loans, fund settlement, bill acceptance and discounting as well as entrusted loans. ASIFC is a connected person of the Company.

Reasons for and benefits of the Deposit Services and the Loan Services

With reference to the Board Letter, based on the previous cooperation between the Group and ASIFC, the Group is expected to benefit from ASIFC’s familiarity with the Group’s industry and operations. ASIFC is relatively familiar with the Group’s capital structure, business operations, fund-raising requirements, cash flow model, cash management and the entire financial management system, which helps ASIFC provide the Group with more suitable, effective and flexible services than those provided by independent financial institutions.

The entering into the Financial Cooperation Agreement between the Company and ASIFC is in line with the financial policies of the Group. The major reasons for and benefits of entering into the Financial Cooperation Agreement include (i) increase interest income and save finance costs; (ii) raise the efficiency of fund utilization; (iii) enhance the management and control of the Group’s funds; and (iv) meet the needs for working funds, details of which are set out under the section headed “REASONS FOR AND BENEFITS OF ENTERING INTO THE FINANCIAL COOPERATION AGREEMENT” of the Board Letter.

We noticed that ASIFC has been providing the Deposit Services and the Loan Services to the Group since 2018. As advised by the Management, ASIFC is required to operate in compliance with the Administration of the Finance Companies of Enterprise Groups Procedures issued by the China Banking Regulatory Commission (now known as China Banking and Insurance Regulatory Commission) on 27 July 2004 (amendment on 28 December 2006) (the “ Procedures ”). We noted that the Procedures set out certain

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LETTER FROM GRAM CAPITAL

compliance and risk control requirements/measures in relation to the operation of group financing companies, including but not limited to maintaining certain financial ratios at all times and reporting to responsible regulator.

As also advised by the Management, ASIFC will provide financial services only to the members within the CASIC group and will therefore be exposed to a lower level of potential risk compared to other PRC commercial banks which conduct business with clients of various credit ratings.

Having considered (i) that the Deposit Services and the Loan Services are required for the Group’s business operation; and (ii) the reasons for and benefits of the Deposit Services and the Loan Services as set out above, we concur with the Management’s view that the Deposit Services and the Loan Services are in the interests of the Company and the Shareholders as a whole and are conducted under the ordinary and usual course of business of the Group.

2. Principal terms of the Deposit Services and the Loan Services under the Financial Cooperation Agreement

Deposit Services

Principal terms of the Deposit Services are set out below:

Agreement date: 12 May 2021 Parties: (i) the Company; and (ii) ASIFC. Term: 3 years from 1 June 2021 Subject matter: According to the Financial Cooperation Agreement, ASIFC will provide the Group with deposit services.

Pricing policy: With reference to the Board Letter, the applicable deposit interest rate of the Group at ASIFC shall not be lower than the benchmark interest rate stipulated by the PBOC for such type of deposit during the same period, and shall be determined on general commercial terms.

For our due diligence purpose, we obtained certain deposit interest rate records regarding (i) deposit placed by the Group with ASIFC; and (ii) deposit placed by the Group with independent third parties. We noted from the aforesaid records that the interest rates of the Group’s deposits placed with ASIFC were not lower than the interest rates of the Group’s deposits placed with independent third parties.

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LETTER FROM GRAM CAPITAL

With reference to the Board Letter, the personnel in the finance department of the Group is responsible for comparing the interest rates offered by ASIFC against the deposit interest rates announced by the PBOC, and further against the deposit interest rates offered by at least two major commercial banks in the PRC, so as to confirm that the interest rates offered by ASIFC are not less favourable than such interest rates in respect of the Group, while all of this information together with the daily deposit amount (with the corresponding accrued interests) will be included in the report to be submitted to the Chief Financial Officer of the Group for review, verification and approval. The auditors and audit committee of the Company will also conduct annual review of the Deposit Services to confirm whether the Deposit Services have been conducted in compliance with the pricing policies or system and whether the relevant annual caps have been exceeded. The above control procedures will make sure the interest rates and terms of the deposit services offered to the members of the Group are in compliance with the terms and conditions under the Financial Cooperation Agreement, and can monitor that the aggregate daily deposit amount (together with the corresponding accrued interests) placed by the Group with ASIFC will not exceed the relevant proposed annual caps.

We consider that the effective implementation of the aforesaid internal control procedures would help to ensure fair determination of the interest rates for the Deposit Services.

Annual caps of Deposit Services (the “Deposit Cap(s)”)

The historical figures and existing annual caps of the Deposit Services are set out as follows:

				For the five
	For the seven	For the	For the	months
	months ended	year ended	year ended	ending 31
	31 December	31 December	31 December	May
	2018	2019	2020	2021
	RMB	RMB	RMB	RMB
Daily maximum balance
of deposits (including
accrued interests) placed
by the Group with				58,207,162
ASIFC	93,424,000	304,713,773	515,182,818	(Note)
Existing annual caps	1,500,000,000	1,500,000,000	1,500,000,000	1,500,000,000
				Not
Utilisation rate (%)	6.23	20.31	34.35	determined yet

Note: Historical amount for the three months ended 31 March 2021.

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LETTER FROM GRAM CAPITAL

The proposed Deposit Caps are set out as follows:

			For the			For the
			seven months	For the	For the	five months
			ending	year ending	year ending	ending
			31 December	31 December	31 December	31 May
			2021	2022	2023	2024
			RMB	RMB	RMB	RMB
Proposed	Deposit	Caps	1,500,000,000	1,500,000,000	1,500,000,000	1,500,000,000

With reference to the Board Letter and as confirmed by the Management, the Deposit Caps were determined with reference to the following factors: (i) the historical transaction data between the Group and ASIFC; (ii) the total cash and cash equivalents of the Group of approximately RMB889 million and RMB952 million as at 31 December 2019 and 31 December 2020 respectively; and (iii) the total cash and cash equivalents of the Group of RMB1.85 billion as at 30 June 2017.

As depicted from the above table, the utilisation rates of the existing annual caps of the Deposit Services were low during the period from 1 June 2018 to 31 December 2020. The daily maximum balance of deposits (including accrued interests) placed by the Group with ASIFC only amounted to approximately RMB58 million for the three months ended 31 March 2021. As advised by the Management, the Group currently only place RMB deposit with ASIFC and place foreign currency deposit in other banks. The Group is also required to place deposit with other major banks to fulfil certain deposit-to-debt ratio. Accordingly, the utilisation of the existing annual caps were low.

Despite the aforesaid low utilisation of the existing annual caps, according to the 2020 Annual Report, the Group recorded (i) cash and cash equivalents of approximately RMB952 million; (ii) pledged bank deposits of approximately RMB280 million; and (iii) trade and other receivables of approximately RMB3,699 million, as at 31 December 2020. The above figures indicated the potential demand for the Deposit Services in future.

Given the above, despite the low utilisation of the existing annual caps, we consider that it is reasonable for the Company to keep the Deposit Caps at the current level (i.e. RMB1.5 billion) for the period from 1 June 2021 to 31 May 2024 in order to provide the Group with flexibility to choose institutions for deposit. Accordingly, we consider the Deposit Caps for the period from 1 June 2021 to 31 May 2024 to be fair and reasonable.

In light of the above, we consider that the terms of the Deposit Services (including the Deposit Caps) are on normal commercial terms and are fair and reasonable.

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LETTER FROM GRAM CAPITAL

Loan Services

Principal terms of the Loan Services are set out below:

Agreement date: 12 May 2021

Parties: (i) the Company; and (ii) ASIFC. Term: 3 years from 1 June 2021 Subject matter: According to the Financial Cooperation Agreement, ASIFC will provide the Group with lending and other comprehensive credit facilities services.

Pricing policy:

With reference to the Board Letter, the interest rates for the loans granted by ASIFC to the Group shall be in accordance with the relevant regulations of the PBOC and the relevant loan interest rate policies and regulations of ASIFC. At the time of entering into each loan contract, both parties shall negotiate with each other based on the market conditions of the time, and the interest rate shall generally not exceed the interest rate of the same kind of loans obtained by the Group from major commercial banks in the PRC during the same period.

For our due diligence purpose, we obtained certain loan records regarding (i) loan granted by ASIFC to the Group; and (ii) loan granted to the Group by independent third parties. We noted from the aforesaid records that the interest rates of the Group’s loan granted by ASIFC were not higher than the interest rates of the Group’s loan granted by independent third parties.

With reference to the Board Letter, the personnel in the finance department of the Group is responsible for comparing the lending rates offered by ASIFC against the benchmark lending rates announced by the PBOC, and further against the lending rates offered by at least two major commercial banks in the PRC, so as to confirm that the lending rates offered by ASIFC are not higher than the rates applicable to the same type of loan services provided by major commercial banks in the PRC to the Group, and loan agreements shall be determined on normal commercial terms. Each of the loans of the Group at ASIFC will be submitted to the management of the Group for review and approval in accordance with the relevant policies. The auditors and audit committee of the Company will also conduct annual review of the Loan Services to confirm whether such services have been conducted in compliance with the pricing policies or system and whether the relevant annual caps have been exceeded. The above control procedures will

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LETTER FROM GRAM CAPITAL

make sure the loans of the Group at ASIFC are in compliance with the terms and conditions under the Financial Cooperation Agreement, and can monitor that the amount of mortgage loans secured by the Group from ASIFC will not exceed the relevant proposed annual caps.

We consider that the effective implementation of the aforesaid internal control procedures would help to ensure fair determination of the interest rates for the Loan Services.

Annual caps of the Loan Services (the “Loan Cap(s)”)

The historical figures of the Loan Services are set out as follows:

	For the	For the	For the	For the three
	year ended	year ended	year ended	months ended
	31 December	31 December	31 December	31 March
	2018	2019	2020	2021
	RMB	RMB	RMB	RMB
Maximum balance of
lending and other
comprehensive credit
facilities provided by
ASIFC to the Group and
secured by the Group’s
assets (the “Maximum
Secured Loan Balance”	70,000,000	70,000,000	Nil	Nil

The proposed Loan Caps are set out as follows:

			For the			For the
			seven months	For the	For the	five months
			ending	year ending	year ending	ending
			31 December	31 December	31 December	31 May
			2021	2022	2023	2024
			RMB	RMB	RMB	RMB
Proposed	Loan	Caps	650,000,000	650,000,000	650,000,000	650,000,000

With reference to the Board Letter and as confirmed by the Management, the Loan Caps were determined with reference to the following factors: (i) the historical transaction data between the Group and ASIFC; and (ii) the maximum balance of the loan of the Group of approximately RMB0.543 billion and approximately RMB0.653 billion due to ASIFC during FY2019 and FY2020 respectively. Further detailed basis of the Loan Caps is set out under the section headed “Proposed Annual Caps of Transactions under the Financial Cooperation Agreement” of the Board Letter.

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LETTER FROM GRAM CAPITAL

With reference to the Board Letter, the Board has also taken into account the Group’s business plan and budget, under which the Group expects to have relatively large capital needs in several drilling rig projects, offshore wind power projects, and fracturing service businesses (the “ Plan & Budget ”). For our due diligence purpose, we obtained the Plan & Budget from the Company and noticed that the capital needs of the projects under the Plan & Budget ranged from RMB630 million to RMB800 million.

We noticed from the above table that the Maximum Secured Loan Balance during the period from 1 June 2018 to 31 March 2021 was much lower than the Loan Caps. Nevertheless, the maximum balances of the loan of the Group due to ASIFC are approximately RMB0.543 billion and approximately RMB0.653 billion during FY2019 and FY2020 respectively according to the Board Letter.

With reference to the Board Letter and as confirmed by the Management, the asset security requirements in respect of the Loan Services is subject to ASIFC’s assessment on the Group’s financial, operating and other specific conditions. We consider that it is reasonable for the Group to set the Loan Caps at a level close to the maximum balance of the loan of the Group due to ASIFC (i.e. approximately RMB0.653 billion) during FY2020 to cater for the Group’s potential demand on the Loan Services (in particular, in the event that most of the loans to be obtained require asset security). Accordingly, we consider that the Loan Caps for the period from 1 June 2021 to 31 May 2024 to be fair and reasonable.

In light of the above, we consider that the terms of the Loan Services (including the Loan Caps) are on normal commercial terms and are fair and reasonable.

Listing Rules implication

The Management confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the maximum values of the Deposit Services and the Loan Services must be restricted by the annual caps for the period concerned under the Financial Cooperation Agreement; (ii) the terms of the Financial Cooperation Agreement must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors’ annual review on the terms of the Financial Cooperation Agreement must be included in the Company’s subsequent published annual reports and financial accounts. Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Deposit Services and the Loan Services (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded the annual caps. In the event that the maximum amounts of the Deposit Services and the Loan Services are anticipated to exceed the annual caps, or that there is any

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LETTER FROM GRAM CAPITAL

proposed material amendment to the terms of the Financial Cooperation Agreement, as confirmed by the Management, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

With the stipulation of the above requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Deposit Services and the Loan Services and hence the interest of the Independent Shareholders would be safeguarded.

RECOMMENDATION

Having taken into account the above factors and reasons, we are of the opinion that (i) the Deposit Services and the Loan Services are conducted under the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole; and (ii) the terms of the Deposit Services and the Loan Services are on normal commercial terms and are fair and reasonable. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the AGM to approve the Deposit Services, the Loan Services and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 25 years of experience in investment banking industry.

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the three years ended 31 December 2018, 2019 and 2020 are disclosed in the annual reports of the Company for the years ended 31 December 2018, 2019 and 2020, respectively. These annual reports are published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http://www.hh-gltd.com):

• annual report of the Company for the year ended 31 December 2018 published on 26 April 2019;

• annual report of the Company for the year ended 31 December 2019 published on 27 April 2020; and

• annual report of the Company for the year ended 31 December 2020 published on 19 April 2021.

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 March 2021, being the latest practicable date for the purpose of this indebtedness statement, the total indebtedness of the Group amounted to approximately RMB5,066,764,000, details of which are set out below:

Secured bank loans(i) Unsecured bank loans Unsecured loan from a related party Senior notes(ii) Lease liabilities Contingent liabilities	RMB’000 640,000 2,671,620 38,000 1,322,427 78,096 316,621
	5,066,764

• (i) As at 31 March 2021, the bank loans were secured by letters of guarantee as collateral of RMB200,000,000, 20% equity interest of Sichuan Honghua Petroleum Equipment Co., Ltd., being a subsidiary of the Group, bills receivable of approximately RMB95,000,000 and accounts receivable of approximately RMB94,221,000.

• (ii) The senior notes are guaranteed by the Group’s existing subsidiaries, being Honghua Holdings Limited, Newco (H.K.) Limited, Honghua Oil & Gas Engineering Services Limited, and Honghua Golden Coast Equipment FZE.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, as at the close of business on 31 March 2021, the Group did not have any outstanding loan capital, bank overdrafts, loans, or other similar borrowings, liabilities or liabilities under acceptance credit (other than normal trade bills), debentures, mortgages, charges, hire-purchase commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

Having taken into account the financial resources available to the Group, including internally generated funds and the available banking facilities, the Directors of the Company are of the opinion that the Group has sufficient working capital for its requirement for at least 12 months from the date of this Supplemental Circular.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

At the beginning of 2021, the COVID-19 pandemic remains not yet fully under control, and there are still many uncertainties in the oil and gas market. The COVID-19 pandemic has further accelerated the process of energy transition worldwide. In the long run, low-carbon and clean energy will be the direction of future development, which will pose challenges to the traditional petrochemical industry. Nevertheless, the Group still sees many positive factors are emerging in the short term. With the expected large-scale vaccination programs, and the oil prices in stable recovery as a result of the ongoing joint production cuts by the Organization of the Petroleum Exporting Countries, the “darkest moment” of the oil and gas industry had passed. In the domestic market, by virtue of the national energy security strategy, the reform of the energy system will bring more market opportunities. As a leading supplier of oil and gas equipment and services, the Group will safeguard the national economic security and development interests, adapt to the transition of China from a major energy consumer to a powerhouse of energy technology and equipment, and provide the industry with green, environmentally friendly, efficient and safe energy equipment and service solutions.

In terms of markets, first of all, against the backdrop of the pursuit of high efficiency and environmental protection in the market, the Group’s comprehensive electric fracturing solutions conforms to the market trend of green development and meets the needs of customers for cost reduction and efficiency enhancement. The Group will further consolidate its core competitive advantages in fracturing equipment and services, accelerate the market-oriented development of complete fracturing equipment, and realize large-scale and piecemeal development of unconventional oil and gas by driving its services with equipment. Secondly, in light of the bottoming out in the overseas market, the Group will seize the strong demand arising from the recovery of the overseas market, adapt to the transformation and upgrade needs of customers, meet customer demand for customized products, further strengthen its principal business of drilling rigs, and promote the execution of major domestic and overseas orders. At the same time, leveraging the advantages of leading rig products, the Group will allocate more resources for high value-added businesses, enhance the R&D efforts in the upgrade of drilling rigs automation, and further complete the upgrade of smart drilling rigs.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Lastly, adhering to the development concepts of platform construction, ecology cultivation and resource coordination, the Group will strengthen the coordination of industry and resources in cooperation with its major shareholder CASIC. The offshore wind power industry has empowered the Group with successful experience and confidence in entering new industries. The Group will further create new growth points for the offshore wind power business and expand the offshore equipment business.

In terms of management, focusing on the two core indicators consisting of net profit and cash flows, the Group will strengthen cost control, strictly monitor the level of total liabilities, optimize supply chain management, and improve the ability to deliver on time and of high quality, so as to achieve higher quality and efficiency in operation management. An overall plan will be made to promote the integration and intensification of legal compliance and risk control. During the recovery of the oil and gas industry, the Group has to strengthen the construction of the risk control and compliance system and focus on preventing and resolving major risks. Centering on product data model integration, digital equipment network connection, digital technology improvement and other key indicators, the Group will continue to promote digital transformation, and initiate digital transformation and upgrading with “smart manufacturing” as the core. In 2021, the Group will strengthen its corporate governance and make good use of its institutional advantages as an enterprise under mixed ownership, striving to become a world-class and domestically leading supplier of integrated solutions for energy development.

– 29 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(A) Directors and chief executive of the Company

As at the Latest Practicable Date, the following Directors of the Company had interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would be 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 or 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) to be notified to the Company and the Stock Exchange pursuant to the requirements of the Model Code for Securities Transactions by Directors of Listed Issuers:

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

				% of the
				Issued Share
	Long/Short		Number of	Capital of
Name	Position	Nature of Interest	Shares Held	the Company
Mr. Zhang Mi	Long	Personal interest,	323,408,548(1)	6.03%
		corporate interest
		and settlor of a
		discretionary trust
Mr. Ren Jie	Long	Personal interest,	124,530,240(2)	2.32%
		corporate interest
		and settlor of a
		discretionary trust
Ms. Su Mei	Long	Personal interest	150,000(3)	0.002%

Notes:

• (1) Zhang Mi individually owns 3,050,000 Shares. Yi Langlin, spouse of Zhang Mi owns 2,156,000 Shares. Zhang Mi is the settlor of a discretionary trust,The ZYL Family Trust, whose trustee, through Wealth Afflux Limited, holds 318,202,548 Shares.

• (2) Ren Jie individually owns 1,549,000 Shares. He is the settlor of a discretionary trust, The RJDJ Victory Trust. The Trustee of The RJDJ Victory Trust owns 122,981,240 Shares.

• (3) Su Mei individually owns 150,000 Shares.

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GENERAL INFORMATION

APPENDIX II

(b) Share option of the Company

		Number of Options
Name	Long/Short Position	Held – Personal Interest
Mr. Zhang Mi	Long	1,190,000
Mr. Ren Jie	Long	2,885,000
Mr. Liu Xiaofeng	Long	2,450,000
Mr. Chen Guoming	Long	1,800,000

As at the Latest Practicable Date, so far as was known to the Directors, none of the Directors is a director or employee of a company which has an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(B) Substantial Shareholders

As at the Latest Practicable Date, the register of substantial shareholders maintained by the Company pursuant to Section 336 of Part XV of the SFO showed that the following shareholders had an interest of 5% or more in the issued share capital of the Company and this interest represents long positions in the ordinary shares of HK$0.1 each of the Company.

Number of Shares Held

				Corporate
				Interest and		% of the
				Settlor of a		Issued Share
	Long/Short	Personal Interest	Corporate	Discretionary		Capital of
Name	Position	(Share Interest)	Interest	Trust	Total	the Company
Wealth Afflux Limited	Long	318,202,548	–	–	318,202,548(1)	5.94%
Tricor Equity Trustee	Long	–	–	919,390,005	919,390,005(2)	17.16%
Limited
Yi Langlin	Long	2,156,000	–	–	324,598,548(3)	6.06%
		322,442,548
		(family interest)
Kehua Technology Co.,	Long	1,606,000,000	–	–	1,606,000,000(4)	29.98%
Limited
Shenzhen Aerospace	Long	–	1,606,000,000	–	1,606,000,000(4)	29.98%
Industry Technology
Research Institute
China Aerospace Science	Long	–	1,606,000,000	–	1,606,000,000(4)	29.98%
and Industry
Corporation Limited

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GENERAL INFORMATION

APPENDIX II

Notes:

• (1) Wealth Afflux Limited is held by Tricor Equity Trustee Limited (as the trustee of The ZYL Family Trust). The ZYL Family Trust is a discretionary trust established by Zhang Mi (as the settlor), with Tricor Equity Trustee Limited as the trustee. The beneficiaries under The ZYL Family Trust are Zhang Mi and his family members.

• (2) Tricor Equity Trustee Limited, as the trustee of The ZYL Family Trust and the 8 other Trusts, holds 919,390,005 Shares in total.

• (3) Yi Langlin, spouse of Zhang Mi, is deemed to be interested in 324,598,548 Shares in which Zhang Mi holds 1,190,000 share options.

• (4) Kehua Technology Co., Limited is owned 40% by Shenzhen Aerospace Industry Technology Research Institute and 60% by China Aerospace Science and Industry Corporation Limited and holds 1,606,000,000 Shares.

Save as disclosed above, there is no person or entity (other than a director or chief executive of the Company) who had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company.

3. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, none of the Directors had any interests, either directly or indirectly, in any assets which had been acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2020, being the date to which the latest published audited consolidated accounts of the Group were made up.

As at the Latest Practicable Date, there was no subsisting contracts of significance in relation to the Group’s business to which the Company or any of its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates had an interest in any business apart from the Group’s business which competes or is likely to compete, either directly or indirectly, with the Group’s business.

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GENERAL INFORMATION

APPENDIX II

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any of its subsidiaries which is not expiring nor determinable by the Company or any of its subsidiaries within one year without payment of compensation other than statutory compensation.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinions or advice contained in this Supplemental Circular:

Name			Qualification
Gram	Capital	Limited	a licensed corporation to carry out Type 6 (advising
			on corporate finance) regulated activity under the
			SFO

Gram Capital has confirmed that as at the Latest Practicable Date, it did not have any beneficial 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 nor did it have any direct or indirect interests in any assets which had been since 31 December 2020 (being the date to which the latest published audited consolidated financial statements of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

Gram Capital has given and has not withdrawn its written consent to the issue of this Supplemental Circular with the inclusion herein of its opinion prepared for the purpose of incorporation in this Supplemental Circular, and the references to its name and opinion in the form and context in which they respectively appear.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong from 9:00 a.m. to 6:00 p.m. on any business day from the date of this Supplemental Circular up to and including the closing date of the AGM:

• (i) this Supplemental Circular;

• (ii) the Existing Financial Cooperation Agreement;

• (iii) the Financial Cooperation Agreement dated on 12 May 2021;

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GENERAL INFORMATION

APPENDIX II

• (iv) the letter of recommendation from the Independent Board Committee, the full text of which is set out on page 14 of this Supplemental Circular;

• (v) the letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders, the full text of which is set out on pages 15 to 26 of this Supplemental Circular;

• (vi) the written consent as referred to under the section headed “Expert and Consent” in this appendix; and

• (vii) the Memorandum and Articles of Association, and the annual reports for the financial years of 2019 and 2020 of the Company.

9. MATERIAL CONTRACTS

No contract, not being contracts in the ordinary course of business of the Group, has been entered into by the members of the Group within the two (2) years immediately preceding the Latest Practicable Date.

10. LITIGATION

Neither the Group nor any other member of the Group has engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

11. MISCELLANEOUS

• (i) Ms. Lee Mei Yi of Tricor Services Limited has been engaged by the Company as its joint company secretary. Her primary contact person at the Company is Ms. Zhuang Wenmin, another joint company secretary of the Company.

• (ii) The registered office of the Company is situated at Clifton House, 75 Fort Street, PO Box 1350, Grand Cayman, KY1-1108, Cayman Islands and the principal place of business of the Company in Hong Kong is situated at Room 2508, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.

• (iii) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (iv) In the event of any inconsistency, the English text of this Supplemental Circular shall prevail over the Chinese text.

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SUPPLEMENTAL NOTICE OF ANNUAL GENERAL MEETING

Honghua Group Limited 宏華集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

SUPPLEMENTAL NOTICE OF ANNUAL GENERAL MEETING

Reference is made to the notice of Annual General Meeting (the “ AGM ”) of Honghua Group Limited (the “ Company ”) dated 20 April 2021 which sets out the resolutions for the Shareholders to consider at the AGM to be held at 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong, and the announcement (the “ Postponement Announcement ”) of the Company dated 12 May 2021 in respect of postponing the AGM to 10:00 a.m. on Tuesday, 1 June 2021 (the “ Postponement ”). Unless the context otherwise requires, capitalised terms used herein shall have the same meaning as those defined in the circular dated 20 April 2021 and the supplemental circular dated 13 May 2021 of the Company (the “ Supplemental Circular ”).

Supplemental notice is hereby given that the AGM will be held as scheduled in the Postponement Announcement. In addition to the resolutions set out in the Notice of AGM of the Company dated 20 April 2021, the following resolution will be considered and, if thought fit, approved:

ORDINARY RESOLUTION

“ THAT:

1. (a) the Financial Cooperation Agreement and the transactions contemplated thereunder be and are hereby approved;

2. (b) the proposed annual caps of the deposit services and lending and other comprehensive credit facilities services under the Financial Cooperation Agreement for the periods concerned under the Supplemental Circular be and are hereby approved; and

3. (c) any one director be and is hereby authorised on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his discretion consider necessary or desirable for the purposes of or in connection with or to give effect to the Financial Cooperation Agreement and the transactions contemplated thereunder (including the proposed annual caps of the deposit services and lending and other comprehensive credit facilities services thereunder).”

On behalf of the Board Honghua Group Limited Jin Liliang Chairman

PRC, 13 May 2021

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SUPPLEMENTAL NOTICE OF ANNUAL GENERAL MEETING

Registered office: Head Office: Principal place of business in Hong Kong: Clifton House 99 East Road 75 Fort Street Information Park Room 2508 PO Box 1350 Jinniu District Harcourt House Grand Cayman Chengdu Sichuan 39 Gloucester Road KY1-1108 People’s Republic of China Wan Chai, Hong Kong Cayman Islands Post code: 610036

Notes:

1. Save for the newly proposed resolution, there are no other changes to the resolutions set out in the Notice of the AGM dated 20 April 2021. For details of the other resolutions to be considered at the AGM and other relevant matters, please refer to the Notice of the AGM and the circular of the Company dated 20 April 2021.

2. The form of proxy sent by the Company together with the circular on 20 April 2021 (the “ First Form of Proxy ”) does not contain the additional resolution as set out in this supplemental notice. A supplemental proxy form (the “ Supplemental Proxy Form ”) containing the above additional resolution has been prepared and is enclosed herein. The Supplemental Proxy Form is the supplemental proxy form for the purpose of the supplemental resolution set out in this supplemental notice, and it only serves as a supplement to the First Form of Proxy. The Supplemental Proxy Form will not affect the validity of the First Form of Proxy duly completed and submitted to the Share Registrar of the Company.

3. If a shareholder has properly completed and submitted only the First Proxy Form in accordance with the instructions set out therein, the appointed proxy will vote on the resolutions set out in the First Proxy Form per the shareholder’s direction and he is also entitled to vote or abstain at his discretion on the additional resolution(s) set out in the Supplemental Proxy Form. Similarly, if a shareholder has properly completed and submitted only the Supplemental Proxy Form in accordance with the instructions set out therein, the appointed proxy will vote on the resolution(s) set out in the Supplemental Proxy Form per the shareholder’s direction and he is also entitled to vote or abstain at his discretion on the resolutions set out in the First Proxy Form. If a shareholder wishes to provide specific direction to his proxy regarding to the voting of all resolutions set out in the First Proxy Form and the Supplemental Proxy Form, he should duly complete and submit the First Proxy Form and the Supplemental Proxy Form in accordance with the instructions set out therein.

4. A member of the Company who is entitled to attend and vote at the AGM convened by the above notice is entitled to appoint a proxy to attend and vote on his behalf. A proxy need not be a member of the Company but must attend in person to represent the member. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed. Every member present in person or by proxy shall be entitled to one vote for each share held by him.

5. In order to be valid, the supplemental form of proxy together with the power of attorney or other authority under which it is signed or a certified copy of such power of attorney or authority, must be deposited at the Company’s Hong Kong branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the AGM or any adjourned meeting. Completion and return of the supplemental form of proxy will not preclude a member from attending and voting in person at the above meeting or any adjourned meeting, and in such event, the supplemental form of proxy shall be deemed to be revoked.

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

As at the date of this notice, the executive directors of the Company are Mr. Jin Liliang (Chairman), Mr. Zhang Mi and Mr. Ren Jie, the non-executive directors of the Company are Mr. Han Guangrong and Mr. Chen Wenle, and the independent non-executive directors of the Company are Mr. Liu Xiaofeng, Mr. Chen Guoming, Ms. Su Mei, Mr. Poon Chiu Kwok, Mr. Chang Qing and Mr. Wei Bin.

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