Honghua Group Limited — Capital/Financing Update 2014

Nov 13, 2014

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

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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)

（股份代號： 196 ）

INVESTMENT IN AN ENERGY-RELATED FUND DISCLOSEABLE TRANSACTION

The Board is pleased to announce that on 13 November 2014, Sichuan Honghua Petroleum Equipment (H.K.) Limited, an indirect wholly-owned subsidiary of the Company has committed to make the Investment of US$150 million in Sino-Mex Energy Fund by way of a subscription for interests in the Fund, and will become a Limited Partner of Sino-Mex Energy Fund.

Sino-Mex Energy Fund is a special limited partnership established and registered under the laws of Luxembourg. The total capital commitments of the Fund is US$5 billion and the first phase will be US$1 billion, which will be increased as needed subject to the consent of each Partner. The Fund shall mainly invest in energy infrastructure projects and exploration and production of oil and natural gas in Mexico and other investment activities approved by the Investment Committee.

Since certain applicable percentage ratios for the Investment are more than 5% but all of the percentage ratios are less than 25%, the Investment constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules and is subject to reporting and announcement requirements under the Listing Rules.

INTRODUCTION

Reference is made to the limited partnership agreement dated 20 October 2014 (the “Limited Partnership Agreement”) entered into by the General Partner and the Limited Partners (as defined below) in order to establish SINO-MEX ENERGY FUND S.C.SP. (the “Sino-Mex Energy Fund” or “Fund” ).

The board of directors (the “Board” ) of Honghua Group Limited (the “Company” ) is pleased to announced that on 13 November 2014, Sichuan Honghua Petroleum Equipment (H.K.) Limited, an indirect wholly-owned subsidiary of the Company has committed to make an investment of US$150 million (the “Investment” ) in Sino-Mex Energy Fund by way of a subscription for interests in the Fund, and will become a limited partner of Sino-Mex Energy Fund.

PARTNERS AND THE FUND

1. Limited Partners：

(a) P.M.I. Holdings B.V. ( “PMI” ), the offshore subsidiary of Petróleos Mexicanos ( “PEMEX” ), is the overseas investment and operation platform of PEMEX. PEMEX is the only petroleum chemical engineering enterprise in Mexico as well as the state-owned enterprise that manages the industries of petroleum, natural gas and basic petroleum chemical engineering. PEMEX ranked No. 34 among Fortune 500 in 2012, and is also the second largest chemical engineering enterprise in Latin America.

(b) Xinxing Ductile Iron Pipes (Hong Kong) Limited, a limited liability company established in Hong Kong, is the wholly-owned subsidiary of Xinxing Ductile Iron Pipes Co., Ltd. (000778.sz) ( “Xinxing Ductile Iron Pipes” ). Xinxing Ductile Iron Pipes is a large-cup company that cross-regional, cross-industry and combining technology, industrial and trading(科工貿), it is principally engaged in fabrication and sales of ductile iron pipes, ductile iron fittings, steel gratings and other special steel products and is one of the 520 Leading Enterprises in China.

1. General Partner, SPF Capital Lux S.à r.l., a limited liability company established in Luxembourg. The General Partner or any affiliate thereof shall be the Fund Manager (as defined below).

2. SINO-MEX ENERGY FUND S.C.SP. ，a special limited partnership established and registered under the laws of Luxembourg.

To the best of the knowledge, information and belief of the directors of the Company (“ Directors ”) and after having made all reasonable enquiries, the Fund, the General Partner and the Limited Partners and their ultimate beneficial owners are third parties independent of the Company and its connected persons (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules” )).

TOTAL CAPITAL COMMITMENTS AND INVESTMENT SCOPE OF SINO-MEX ENERGY FUND

The total capital commitments of the Fund is US$5 billion and the first phase will be US$1 billion, which will be increased as needed subject to the consent of each Partner.

Sino-Mex Energy Fund shall mainly invest in the business activities recommended by PMI: (1) energy infrastructure projects (including but not limited to offshore and land drilling related facilities in the gulf of Mexico, oil and gas pipelines throughout the territory of Mexico and LNG liquefaction plants, etc); (2) exploration and production of oil and natural gas (including but not limited to the redevelopment of mature oil fields in Mexico, exploration and exploitation of new oil fields and shale gas, etc); and (3) other investment activities approved by the Investment Committee (as defined below).

CAPITAL COMMITMENT OF THE COMPANY

The Company has agreed to subscribe for the interest in Sino-Mex Energy Fund with

a capital commitment of US$150 million (the “Capital Commitment” ) representing 15% of the first phase capital size of US$1 billion of Sino-Mex Energy Fund.

The Capital Commitment of the Company shall be paid at least 10 business days from the date of the drawdown notice issued by the General Partner to the Company during the investment period (up to the fourth anniversary year from the date on which the first Limited Partner is admitted to the Fund).

The Company’s initial capital contribution shall not be greater than 5% of the Capital Commitment. Further capital contribution shall be made by the Company upon the approval by the Investment Committee of the investment projects and after the delivery of the drawdown notice issued by the General Partner pursuant to the relevant procedures under the Limited Partnership Agreement. Such further capital contribution of the Company shall not exceed the remaining Capital Commitment of the Company at the relevant time. All the Capital Commitment shall be paid in cash.

Sichuan branch of The Export-Import Bank of China has provided the Company with a Letter of Financing Interest for the Investment, and would like to consider providing financing support provided that the Investment is qualified.

MANAGEMENT OF SINO-MEX ENERGY FUND

The Fund will enter into a management agreement (the “Management Agreement” ) with the fund manager (the “Fund Manager” ) pursuant to which the Fund Manager takes responsibility for the provision of all day-to-day management and operating services to the Fund. The Fund Manager will (1) evaluate investment opportunities for the Fund; (2) be responsible for the monitoring and exercising of voting rights with respect to and recommending the disposition of Investments, and (3) have the right to execute and deliver relevant documents on behalf of the Fund.

INVESTMENT COMMITITE AND APPROVAL

The General Partner shall establish an investment committee (the “Investment Committee” ) that shall consist of 9 members chosen by the General Partner. The

Company has the right to appoint a member of the Investment Committee.

The Investment Committee has the authority to: (1) review and decide any investment proposal submitted by the General Partner; (2) resolve potential issues of conflicts of interest between the General Partner, Limited Partner(s) and the Fund, compliance issues and asset valuations; (3) consult with the General Partner and set the Fund’s long-term investment strategy; and (4) discuss and adopt resolution for any significant risks with relation to the Fund and investments thereof submitted by the General Partner, etc.

Investment Committee approvals shall require the affirmative vote of a simple majority of the members then serving (not including any abstaining members).

DISTRIBUTION

The distributable proceeds from any investment shall be distributed to each Limited Partner, pro rata based on its capital contributions, with respect to such investment in relation to the aggregate capital contributions to the Fund by all Partners with respect to such investment.

8% preferred return: firstly, calculating each sector specific sub-fund separately,100% to such Limited Partner until it has received cumulative distributions equal to the preferred return equal to 8% per annum rate of return on its capital contributions attributable to the relevant investment; secondly, calculating each sector specific sub-fund separately, 20% to the General Partner as a carried interest distribution and 80% to the Limited Partner.

TERM OF THE SINO-MEX ENERGY FUND

The term of the Fund shall be 25 years, starting from the date of the establishment of the Fund and subject to earlier termination of the Limited Partnership Agreement and liquidation of the Fund under certain circumstances pursuant to the Limited Partnership Agreement. The term can be extended or shortened as proposed by the General Partner and upon consent of Limited Partners representing at least 2/3 of the

aggregate capital contributions at that time.

TRANSFER OF LIMITED PARTNERSHIP INTERESTS BY LIMITED PARTNERS

With the prior written approval of the General Partner, if a Limited Partner (the “ Transferring Partner” ） transfers its portion interest in the Fund to an outside party, the Transferring Partner shall be subject to and required to comply with a right of first refusal under the Limited Partnership Agreement, and the other non-transferring Limited Partners shall have the right to purchase all of the right of first refusal interest . However, a transfer by the Transferring Partner to its any affiliate will not be subject to the right of first refusal.

REASONS FOR AND THE BENEFITS OF THE INVESTMENT

The Company and its subsidiaries (the “Group” ) is primarily engaged in the research, design and manufacture of land drilling rigs and equipment for offshore engineering and oil and gas exploration, and provision of drilling engineering services.

To enhance the overall investment return of the Group and its shareholders, the Group has always been seeking opportunities to expand its business. The gradual implementation of Mexico's energy reform will bring a wide range of investment opportunities and project opportunities. Both of the Chinese and Mexican governments have paid high attention to the Fund. The Investment of PEMEX in the Fund through its subsidiary and cooperation with Chinese companies through the Fund are the implemental results of Mexico energy reform and Sino-Mexico cooperation in the field of energy. The Investment in the Fund matches up with the enormous market brought from energy reform in Mexico, and is beneficial for the Group to obtain the procurement orders of both onshore and offshore oil and gas equipment and the related business in the Mexico. This will further promote the Group’s products to expand the layout and sales scope in the Mexican and North American markets. The Group will actively acquire the businesses of onshore and offshore equipment that PEMEX purchased through the Fund, including land drilling rigs, modular drilling rigs, drilling platforms, drilling packages and offshore

supporting vessel etc.

In light of the aforementioned, the Directors are of the view that the terms of the Investment are reached by the Company, the Sino-Mex Energy Fund, the General Partner and Limited Partners after the arm-length negotiation, fair and reasonable and are in the interests of the Group and its shareholders as a whole.

LISTING RULES IMPLICATIONS

Since certain applicable percentage ratios for the Investment are more than 5% but all of the percentage ratios are less than 25%, the Investment constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules and is subject to the relevant reporting and announcement requirements under the Listing Rules.

On behalf of the Board Honghua Group Limited Zhang Mi Chairman

PRC, 13 November 2014

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 director of the Company is Mr. Siegfried Meissner （ Mr. Popin Su as his alternate ） and the independent non-executive directors of the Company are Mr. Liu Xiaofeng, Mr. Qi Daqing, Mr. Chen Guoming, Mr. Shi Xingquan and Mr. Guo Yanjun.