Honghua Group Limited — Capital/Financing Update 2012

Mar 12, 2012

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HONGHUA GROUP LIMITED

宏華集團有限公司

(a company incorporated in the Cayman Islands with limited liability) (Stock Code: 196)

CONNECTED TRANSACTIONS ACQUISTION OF 20% EQUITY INTEREST IN AN INDIRECT NON WHOLLY-OWNED SUBSIDIARY

Reference is made to the announcement of Honghua Group Limited （ the “ Company ”） dated 8 March 2012 in relation to the acquisition of 20% equity interest in an indirect non wholly-owned subsidiary(the “ Announcement ”).This announcement is made supplemental to the Announcement. Capitalized terms used herein have the same meanings as defined in the Announcement unless otherwise specified.

As disclosed in the Announcement, on 8 March 2012, Sichuan Honghua Petroleum Equipment Co., Ltd (“ Sichuan Honghua ”), an indirect wholly-owned subsidiary of the Company, entered into the Equity Transfer Agreements with nine individual shareholders of Sichuan Honghua Youxin Petroleum Machinery Co., Ltd (“ Youxin Company ”) respectively, a direct 80%-owned subsidiary of Sichuan Honghua. Pursuant to the Equity Transfer Agreement, Sichuan Honghua will acquire 20% equity interest in Youxin Company held by nine individual shareholders at the consideration of RMB28, 961,700. And among which, Sichuan Honghua will acquire 4.799% equity interest in Youxin Company held by Mr. Zhao Ping and acquire

4.000% equity interest in Youxin Company held by Mr. Zhang Changlun at the consideration of about RMB 6,949,360 and RMB5,792,340.

As further disclosed in the Announcement, Mr. Zhao Ping is a director of both Sichuan Honghua and Youxin Company, and Mr. Zhang Changlun is a director of Youxin Company and are thus connected persons of the Company under the Listing Rules. The transactions of equity acquisition by Sichuan Honghua from Mr. Zhao Ping and Mr. Zhang Changlun constitute connected transactions.

The board of the Company (the “ Board” ) declares that none of the directors of the company（the “ Director ” ） has a material interest in the transactions contemplated under the Equity Transfer Agreements; therefore no Director was abstained from voting on the relevant board resolution approving the transaction.

Information on Youxin Company

Based on the audited financial statement of Youxin Company prepared in accordance with the China Acounting Standards for business Enterprises, the audited net profits before tax and after tax for the two years ended 31 December 2010 and 31 December 2011 respectively were as follows:

Unit：RMB

For the Year For the Year

ended ended

31 December 2010 31 December 2011

Audited net profit（before tax

and extraordinary） 13,051,680 13,761,824 Audited net profit（after tax and

extraordinary） 11,147,200 11,636,400

By order of the Board of HONGHUA GROUP LIMITED Zhang Mi Chairman

The PRC, 12 March 2012

As at the date of this announcement, the executive directors of the Company are Mr. Zhang Mi (Chairman), Mr. Ren Jie and Mr. Liu Zhi; the non-executive directors of the Company are Mr. Huang Dongyang and Mr. Siegfried Meissner; and the independent non-executive directors of the Company are Mr. Liu Xiaofeng, Mr. Qi Daqing, Mr. Tai Kwok Leung Alexander, Mr. Chen Guoming, Mr. Shi Xingquan and Mr. Guo Yanjun.