Honghua Group Limited - Proxy Solicitation & Information Statement 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular or as to the action to be taken, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Honghua Group Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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Honghua Group Limited 宏華集團有限公司

(a company incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

CONTINUING CONNECTED TRANSACTIONS

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

China Everbright Capital Limited

A letter from the Board is set out on pages 3 to 8 of this circular.

A letter from the Independent Board Committee, containing its recommendation to the Independent Shareholders, is set out on page 9 of this circular.

A letter from China Everbright, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 10 to 16 of this circular.

A notice convening an EGM of the Company to be held at the Head Office of the Company at 3rd Floor Meeting Room, Office Building, 99 East Road, Information Park, Jinniu District, Chengdu, Sichuan 610036, PRC on Thursday, 23 December 2010 at 9:30 a.m. is set out on pages 23 to 24 of this circular. A form of proxy for the EGM is enclosed with this circular. Whether or not you intend to attend such meeting, please complete the enclosed form of proxy in accordance with instructions printed thereon and return the same to the Company’s branch share registrar 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 less than 48 hours before the time appointed for holding of the EGM or any adjourned thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at such meeting or any adjourned meeting should you so wish.

8 December 2010

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from China Everbright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23

– i –

DEFINITIONS

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

‘‘Associates’’ has the meaning ascribed to it under the Listing Rules ‘‘Board’’ the board of Directors ‘‘Company’’ Honghua Group Limited, a company incorporated in the Cayman Islands with limited liability, with its shares listed on the Main Board of the Stock Exchange

‘‘Connected Person(s)’’ has the meaning ascribed to it under the Listing Rules ‘‘Continuing Connected Transactions’’ has the meaning ascribed to it under the Listing Rules ‘‘Continuing Connected Transactions the announcement of the Company dated 19 November 2010 regarding Announcement’’ the Continuing Connected Transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement ‘‘Director(s)’’ director(s) of the Company ‘‘EGM’’ an extraordinary general meeting of the Company to be held to approve terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the transactions contemplated thereunder ‘‘Existing Purchases Framework the purchases framework agreement dated 31 August 2008 and entered Agreement’’ into between the Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) ‘‘Existing Sales Framework the sales framework agreement dated 31 August 2008 and entered into Agreement’’ between the Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) ‘‘Group’’ the Company and its subsidiaries ‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong ‘‘Hong Kong’’ the Hong Kong Special Administration Region of the PRC ‘‘Independent Board Committee’’ independent committee of the board of the Company comprising all independent non-executive Directors, Mr. Chen Guoming, Mr. Tai Kwok Leung, Alexander, Mr. Liu Xiaofeng, Mr. Qi Daqing, Mr. Shi Xingquan and Mr. Wang Li, which has been formed to advise the Independent Shareholders in respect of the transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement ‘‘Independent Financial Adviser’’ or China Everbright Capital Limited, a corporation licensed to carry out ‘‘China Everbright’’ business in type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement ‘‘Independent Shareholders’’ Shareholders other than Nabors International and its Associates ‘‘Latest Practicable Date’’ 3 December 2010, being the latest practicable date prior to the printing of this circular for ascertaining information contained herein

‘‘Listing Rules’’

The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

– 1 –

DEFINITIONS

‘‘Nabors Group’’ Nabors Industries and its subsidiaries ‘‘Nabors Industries’’ Nabors Industries Ltd., an exempted company organized under the laws of Bermuda on 11 December 2001 whose shares are listed on the New York Stock Exchange, with its subsidiaries comprise the Nabors Group ‘‘Nabors International’’ Nabors Drilling International II Limited, an exempted company organized under the laws of Bermuda on 12 March 2003 ‘‘Parties’’ the Company and Nabors Industries to both the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement ‘‘PRC’’ the People’s Republic of China, but for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan ‘‘Renewal Purchases Framework The renewal purchases framework agreement entered into between the Agreement’’ Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) on 19 November 2010 for the purchases by the Group from the Nabors Group of the products and provision by the Nabors Group to the Group of after-sales services as defined therein on an ongoing basis ‘‘Renewal Sales Framework The renewal sales framework agreement entered into between the Agreement’’ Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) on 19 November 2010 for the sales to the Nabors Group by the Group of products and provision by the Group to the Nabors Group of the after-sales services and assembly of drilling rigs as defined therein on an ongoing basis ‘‘RMB’’ Renminbi, the lawful currency of the PRC ‘‘Shares’’ ordinary share(s) of nominal value of HK$0.10 each in the issued share capital of the Company ‘‘Shareholder(s)’’ Shareholder(s) of the Company ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘US$’’ United States dollars, the lawful currency of the United States

– 2 –

LETTER FROM THE BOARD

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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)

Executive Directors: Mr. Zhang Mi (Chairman) Mr. Ren Jie Mr. Liu Zhi

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

Non-executive Directors Mr. Huang Dongyang Mr. Siegfried Meissner

Independent Non-executive Directors: Mr. Qi Daqing Mr. Liu Xiaofeng Mr. Chen Guoming Mr. Wang Li Mr. Tai Kwok Leung Alexander Mr. Shi Xingquan

Head Office: 99 East Road, Information Park Jinniu District, Chengdu Sichuan 610036 PRC

Principal Place of Business in Hong Kong: Room 2508, 25/F, Harcourt House 39 Gloucester Road Wan Chai Hong Kong 8 December 2010

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the Continuing Connected Transactions Announcement in respect of the Continuing Connected Transactions in relation to the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement respectively entered into between the Company and Nabors Industries.

The purpose of this circular is to provide you with, among other things, (i) the details of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the transactions contemplated thereunder; (ii) the letter of recommendation from the Independent Board Committee; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; (iv) the EGM notice and (v) other information required by the Listing Rules.

BACKGROUND

Reference is made to the announcement of the Company dated 31 August 2008 in respect of the disclosure of the continuing connected transactions in relation to the Existing Sales Framework Agreement and the Existing Purchases Framework Agreement respectively entered into between the Company and Nabors Industries. Pursuant to the Existing Sales Framework Agreement, the Group sold to the Nabors Group certain types of drilling rigs and workover rigs from 450HP to 3,000HP and their parts and components, and similar products to be developed in line with the future market needs, and also provided to the Nabors Group the after-sales services. Pursuant to the Existing Purchases Framework Agreement, the Group purchased from the Nabors Group rig parts and components which mainly consisted of top drives whereas the Nabors Group provided to the Group the after-sales services.

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LETTER FROM THE BOARD

In view of the forthcoming expiry of the Existing Sales Framework Agreement and the Existing Purchases Framework Agreement, the Company and Nabors Industries on 19 November 2010 respectively entered into the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement for a further term of three years commencing from 1 January 2011 and expiring on 31 December 2013.

DETAILS OF THE CONTINUING CONNECTED TRANSACTIONS

The Continuing Connected Transactions comprise transactions carried out by the Group with the Nabors Group pursuant to the following agreements:

(1) the Renewal Sales Framework Agreement; and
(2) the Renewal Purchases Framework Agreement.
(1) The Renewal Sales Framework Agreement

Date: 19 November 2010

Parties: (1) the Company (for itself and on behalf of its subsidiaries); and (2) Nabors Industries (for itself and on behalf of its subsidiaries). Nabors Industries, through various operating subsidiaries, conducts oil, gas and geothermal land drilling operations in the United States, Canada, Central and South America, the Middle East, the Far East and Africa, and provides various ancillary products and services.

Subject: Sales by the Group to the Nabors Group of certain types of drilling rigs and workover rigs and their parts and components and provision by the Group to the Nabors Group of the after-sales services and assembly of drilling rigs.

Condition Precedent: The Renewal Sales Framework Agreement shall take effect upon obtaining the approval of the Independent Shareholders in compliance with the Listing Rules.

Term: Commencing from 1 January 2011 or the date when the condition precedent is satisfied, whichever is the later, and expiring on 31 December 2013 or when the Nabors Group and its Associates ceased to be Connected Persons of the Company, whichever is the earlier. Price: To be determined from time to time pursuant to the terms set out therein by the Parties after arm’s length negotiations and on normal commercial terms that are fair and reasonable and in the interest of the Company and its Shareholders as a whole.

Payment terms: Details of the payment terms shall be defined in each of the separate contracts to be entered by the Group and the Nabors Group on terms mutually agreed in accordance with the terms and conditions of the Renewal Sales Framework Agreement.

Annual Caps: The proposed annual caps under the Renewal Sales Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$300 million, US$300 million and US$300 million for each of the three years ending 31 December 2011, 31 December 2012 and 31 December 2013 respectively.

(2) The Renewal Purchases Framework Agreement

Date: 19 November 2010

Parties: (1) the Company (for itself and on behalf of its subsidiaries) ; and

– 4 –

LETTER FROM THE BOARD

(2) Nabors Industries (for itself and on behalf of its subsidiaries). Nabors Industries, through various operating subsidiaries, conducts oil, gas and geothermal land drilling operations in the United States, Canada, Central and South America, the Middle East, the Far East and Africa, and provides various ancillary products and services. Subject: Purchases by the Group from the Nabors Group rig parts and components which mainly consist of top drives and provision by the Nabors Group to the Group of the after-sales services. Condition Precedent: The Renewal Purchases Framework Agreement shall take effect upon obtaining the approval of the Independent Shareholders of the Company in compliance with the Listing Rules. Term: Commencing from 1 January 2011 or the date when the condition precedent is satisfied, whichever is the later, and expiring on 31 December 2013 or when the Nabors Group and its Associates ceased to be Connected Persons of the Company, whichever is the earlier. Price: To be determined from time to time pursuant to the terms set out therein by the Parties after arm’s length negotiations and on normal commercial terms that are fair and reasonable and in the interest of the Company and its Shareholders as a whole. Payment terms: Details of the payment terms shall be defined in each of the separate contracts to be entered by the Group and the Nabors Group on terms mutually agreed in accordance with the terms and conditions of the Renewal Purchases Framework Agreement.

Annual Caps: The proposed annual caps under the Renewal Purchases Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$40 million, US$40 million and US$40 million for each of the three years ending 31 December 2011, 31 December 2012 and 31 December 2013 respectively.

The Company confirms that the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement are not inter-conditional to each other.

ANNUAL CAPS AND DETERMINATION

The proposed annual caps set by the Company under each of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement for each of the three years ending 31 December 2011, 31 December 2012 and 31 December 2013 are determined by reference to factors, namely the demand of the Nabors Group, the historical transaction figures and such other relevant factors (including but not limited to the trend of drilling market, the oil and gas price, increase of cost of raw material and inflation and the development of new production of the Group).

(1) Of the Renewal Sales Framework Agreement

The proposed annual caps under the Renewal Sales Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$300 million, US$300 million and US$300 million for each of the three years ending 31 December 2011, 31 December 2012 and 31 December 2013 respectively.

The proposed annual caps have been determined by reference to the factors, namely the historical sales figures under the Existing Sales Framework Agreement and the demand of Nabors Group. The Company acknowledges that Nabors Industries’ demand fluctuates materially based upon a variety of factors, including without limitation oil and gas prices, demand from its customers, and the portfolio of Nabors Industries’ equipment available for projects at any particular time.

– 5 –

LETTER FROM THE BOARD

With the recovery of global economy, the oil and gas price will rise gradually, the Parties expect that the global oil and gas exploration activities will resume its long-term growth momentum over the next few years, which in return, will increase demand from Nabors’ customers. Also, Nabors Group is planning to expand business both in land and offshore drilling market, if the portfolio of equipment can not be available for new projects, more drilling rigs will be purchased. In light of these matters, the Parties decided to remain the annual caps at US$300 million.

(2) Of the Renewal Purchases Framework Agreement

The proposed annual caps under the Renewal Purchases Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$40 million, US$40 million and US$40 million for each of the three years ending 31 December 2011, 31 December 2012 and 31 December 2013 respectively.

The proposed annual caps have been determined by reference to the factors, namely the historical purchases figures under the Existing Purchases Framework Agreement and the view of the Group’s management on the market conditions for the increase in demand for and the unit price of all kinds of drilling rigs and workover rigs and their parts and components, having taken into account of the increase of cost of raw material and the inflation in the forthcoming three years.

The historical transaction figures of the sales to, and purchases from, the Nabors Group and its Associates by the Group and their respective annual caps under each of the Existing Sales Framework Agreement and the Existing Purchases Framework Agreement as compared with the proposed annual caps under each of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement are set out as follows:

Sales to the Nabors Group	2008	2009	2010
Historical sales figures (in US$)	12,054,708	20,293,235	32,666,657
	(approximately	(approximately	(approximately
	equivalent to	equivalent to	equivalent to
	RMB82,389,108)	RMB138,566,266)	RMB221,836,000)
			(as at 30 June 2010)
Annual caps under the Existing
Sales Framework Agreement
(in US$)	200,000,000	250,000,000	300,000,000
	2011	2012	2013
Proposed annual caps under the
Renewal Sales Framework
Agreement (in US$)	300,000,000	300,000,000	300,000,000
Purchases from
the Nabors Group	2008	2009	2010
Historical purchases figures	2,252,812	97,048	298,930
(in US$)	(approximately	(approximately	(approximately
	equivalent to	equivalent to	equivalent to
	RMB15,397,068)	RMB662,661)	RMB2,030,003)
			(as at 30 June 2010)
Annual caps under the Existing
Purchases Framework Agreement
(in US$)	20,000,000	40,000,000	40,000,000
	2011	2012	2013
Proposed annual caps under
the Renewal Purchases
Framework Agreement (in US$)	40,000,000	40,000,000	40,000,000

Reason For the Low Historical Sales and Purchases Figures

The economic crisis in 2008 seriously affected the drilling markets in the United States causing a significant drop in demand for drilling rigs of the Nabors Group. The sales and purchases figures of the Group under the Existing Sales Framework Agreement and the Existing Purchases Agreement in 2008, 2009 and

– 6 –

LETTER FROM THE BOARD

2010 became rather low as a consequence of the impact of the economic crisis in 2008. Thus the Board takes the view that the historical sales and purchases figures under the Existing Sales Framework Agreement and the Existing Purchases Framework Agreement are for reference only and can not be adopted in their entireties in determining the proposed annual caps for the Renewal Sales Framework Agreement and the Renewal Purchases Agreement.

REASON FOR THE CONTINUING CONNECTED TRANSACTIONS

The Group intends to expand its business opportunities in the United States, the Middle East and Africa. In light of this, the Group intends to expand the business activities with the Nabors Group. Sales to the Nabors Group will enhance expansion of the Group’s turnovers whereas purchases from the Nabors Group will provide the Group the advantage and benefit of ensuring consistency in product quality and the lower purchasing costs associated with larger scale purchases.

The Directors (excluding the independent non-executive Directors whose views will be given after taking into account the advice of an independent financial adviser) consider that the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement and the transactions contemplated thereunder are entered into in the ordinary and usual course of the business of the Group and have been negotiated on an arm’s length basis between the Parties; and the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) are on normal commercial terms, fair and reasonable and in the interest of the Company and its Shareholders as a whole.

LISTING RULES IMPLICATIONS

Nabors Industries and its subsidiaries comprise the Nabors Group. The Nabors Group is engaged primarily in the oilfield services business throughout the world. Nabors Industries, through various operating subsidiaries, conducts oil, gas and geothermal land drilling operations in the United States, Canada, Central and South America, the Middle East, the Far East and Africa, and provides various ancillary products and services.

Nabors International, a member of the Nabors Group, currently owns approximately 13.96% of the issued share capital of the Company and thus the Nabors Group and its Associates are Connected Persons of the Company. Transactions under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement therefore constitute Continuing Connected Transactions under the Listing Rules.

In respect of each of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement, as each of the applicable percentage ratios (other than the profit ratio) under Rule 14.07 of the Listing Rules is on an annual basis more than 5% and the annual consideration is more than HK$10,000,000, the Continuing Connected Transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement are subject to the requirements of reporting and announcement, independent shareholders’ approval and annual review under Rules 14A.35(3), 14A.35(4) and 14A.35(5) of the Listing Rules.

Details of the Continuing Connected Transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement will be included in each published annual report of the Company for the three years ending 31 December 2013. The Company will comply with the requirements as regards to annual review of the Continuing Connected Transactions under the Listing Rules.

Mr. Siegfried Meissner, the non-executive Director and director of Nabors International Management Limited, is therefore regarded as having a material interest in the Continuing Connected Transactions and has abstained from voting on the relevant board resolutions.

EGM

The EGM will be convened at which resolutions will be proposed to seek the approval of the Independent Shareholders by way of poll for the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the Continuing Connected Transactions contemplated thereunder. Nabors International, being a Shareholder with a material interest in the Continuing Connected Transactions under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement, and its Associates will abstain from voting at the EGM.

A notice convening the EGM to be held at the Head Office of the Company at 3rd Floor Meeting Room, Office Building, 99 East Road, Information Park, Jinniu District, Chengdu, Sichuan 610036, PRC on Thursday, 23 December 2010 at 9:30 a.m. is set out on pages 23 to 24 of this circular. At the EGM, ordinary resolutions will be proposed for the Independent Shareholders to consider, and if thought fit, to approve, among other things, the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the transactions contemplated thereunder.

– 7 –

LETTER FROM THE BOARD

A form of proxy for use at the EGM is enclosed. Whether or not the Independent Shareholders are able to attend the EGM, they are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar 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 less than 48 hours before the time appointed for the holding of the EGM or any adjourned thereof. Completion and return of the form of proxy will not preclude the Independent Shareholders from attending and voting at the EGM or any adjournment thereof should they so wish.

All votes of the Shareholders at the EGM shall be taken by poll pursuant to Rule 13.39(4) of the Listing Rules. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee of the Company was formed to advise the Independent Shareholders as to whether the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the Continuing Connected Transactions contemplated thereunder are fair and reasonable and whether they are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote after taking into account the recommendations of China Everbright. China Everbright has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee set out in this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders on the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective annual caps) and its view as to the Continuing Connected Transactions contemplated thereunder respectively; and (ii) the letter from China Everbright set out in this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective annual caps) and its view as to the Continuing Connected Transactions contemplated thereunder respectively.

The Independent Board Committee, having taken into account the advice of China Everbright, considers that the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement were entered into on normal commercial terms and in the ordinary and usual course of business of the Group, that the Continuing Connected Transactions contemplated thereunder respectively are in the interests of the Company and its Shareholders as a whole and that the terms of Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective annual caps) are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Board recommends all Independent Shareholders to attend and vote at the EGM in favour of the ordinary resolutions set out in the notice of the EGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the general information as set out in the appendix of this circular.

Yours faithfully, By order of the Board Honghua Group Limited Zhang Mi Chairman

– 8 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in connection with the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the transactions contemplated thereunder for inclusion in this circular.

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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)

8 December 2010

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to advise you in connection with the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and to express our view as to the Continuing Connected Transactions contemplated thereunder respectively, details of which are set out in the ‘‘Letter from the Board’’ in the circular issued by the Company to its Shareholders dated 8 December 2010 (the ‘‘Circular’’) of which this letter forms part. Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires.

China Everbright has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders on the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the Continuing Connected Transactions contemplated thereunder.

Your attention is drawn to the ‘‘Letter from the Board’’, the advice of the Independent Financial Adviser to the Independent Shareholders and the Independent Board Committee in respect of the Continuing Connected Transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement as set out in the ‘‘Letter from China Everbright ’’ as well as other additional information set out in other parts of the Circular.

RECOMMENDATION

Having taken into account the advice of, and the principal factors and reasons considered by the Independent Financial Adviser in relation thereto as stated in its letter, we consider the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the Continuing Connected Transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement are on normal commercial terms and in the ordinary and usual course of business of the Group and the Continuing Connected Transactions contemplated thereunder are in the interest of the Company and its Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the terms of the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (including their respective proposed annual caps) and the Continuing Connected Transactions contemplated thereunder.

Yours faithfully, Independent Board Committee of Honghua Group Limited Qi Daqing Liu Xiaofeng Independent non-executive Director Independent non-executive Director Chen Guoming Shi Xingquan Independent non-executive Director Independent non-executive Director Wang Li Tai Kwok Leung Alexander Independent non-executive Director Independent non-executive Director

– 9 –

LETTER FROM CHINA EVERBRIGHT

The following is the text of the ‘‘Letter from China Everbright’’ to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

8 December 2010

To the Independent Board Committee and the Independent Shareholders of Honghua Group Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the independent financial adviser to make recommendations to the Independent Board Committee and the Independent Shareholders in relation to the continuing connected transactions contemplated under the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (the ‘‘Continuing Connected Transactions’’).

The details of the Continuing Connected Transactions are set out in the Letter from the Board in the circular to the Shareholders dated 8 December 2010 (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Nabors International, a member of Nabors Group, currently owns approximately 13.96% of the issued share capital of the Company and thus Nabors Group and its associates are connected persons of the Company, Therefore, the Continuing Connected Transactions constitute non-exempt continuing connected transactions for the Company and are subject to the requirements of reporting and announcement, independent shareholders’ approval and annual review under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all of the six independent non-executive Directors, namely Mr. Chen Guoming, Mr. Tai Kwok Leung, Alexander, Mr. Liu Xiaofeng, Mr. Qi Daqing, Mr. Shi Xingquan and Mr. Wang Li, has been formed to consider the fairness and reasonableness of the Continuing Connected Transactions, and to make recommendations to the Independent Shareholders in respect thereof. We, China Everbright Capital Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Our role as the independent financial adviser to the Independent Board Committee and the Independent Shareholders is to give our opinion as to whether the Continuing Connected Transactions are: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby China Everbright will receive any fees and benefits from the Group, Nabors Group or any of their respective associates. China Everbright is independent from and not connected with the Group and Nabors Group or any of their respective substantial shareholders, directors or chief executive, or any of their respective associates pursuant to Rule 13.84 of the Listing Rules, and is accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders regarding the Continuing Connected Transactions.

BASIS OF OUR OPINION

In formulating our advice and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management (the ‘‘Management’’) of the Company and have assumed that such information, facts and opinions are true and accurate. We have also sought and received confirmation from the Directors that no material factors have been omitted from the information supplied and opinions expressed to us. However, we have not conducted any independent investigation into the business, operations or financial condition of the Company and Nabors Group. We have assumed that all statements and presentations made or referred to in the Circular were accurate at the time when they were made and are true at the date of the Circular.

We consider we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation.

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LETTER FROM CHINA EVERBRIGHT

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our views on the Continuing Connected Transactions, we have taken into consideration the principal factors and reasons as set out below. In reaching our conclusion, we have considered the results of the analysis in light of each other and ultimately reached our opinion based on the results of all analysis taken as a whole.

1. Background of and reasons for the Continuing Connected Transactions

The Group is engaged in the business of developing, manufacturing and selling all kinds of drilling rigs and workover rigs and their parts and components and after sales services.

As advised by the Management, Nabors Group owns and operates approximately 550 land drilling and approximately 728 land workover and well-servicing rigs in North America. Nabors Group actively marketed offshore fleet consists of 39 platform rigs, 13 jack-up units and 3 barge rigs in the United States and multiple international markets. In addition, Nabors Group participates in most of the significant oil, gas and geothermal markets in the world.

The Group has been selling products such as drilling rigs to Nabors Group since 2005 and has been purchasing, mainly parts and components for drilling rigs, from Nabors Group since 2006. As disclosed in the prospectus of the Company dated 25 February 2008, Nabors Group, through Nabors Industries, and the Group entered into the strategic cooperation agreement in November 2007 (the ‘‘Strategic Cooperation Agreement’’), which sets out the intention of the parties, pursuant to which, among other things and subject to the disclosure and approval requirements as prescribed by the Listing Rules, the Group will be a preferred supplier of drilling rigs to Nabors Group and a significant portion of Nabors Group’s future demand for drilling rigs, drilling equipment and spare parts will be fulfilled by the Group.

Pursuant to the Existing Sales Framework Agreement and Existing Purchases Framework Agreement (collectively, the ‘‘Original Agreements’’), the Company agreed to (i) sell to Nabors Group certain types of drilling rigs and workover rigs and their parts and components, and similar products to be developed in line with the future market needs, and also provide related after-sales services to the Nabors Group; and (ii) purchase rig parts and components which mainly consist of top drives and provision by Nabors Group to the Group of the after-sales services, respectively, for the three years ending 31 December 2010. The Original Agreements will expire on 31 December 2010.

In view of the forthcoming expiry of the Original Agreements, the Company and Nabors Industries entered into the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement for a further term of three years commencing from 1 January 2011 and expiring on 31 December 2013.

The Original Agreements will expire on 31 December 2010. As the Group will continue to transact with Nabors Industries after 31 December 2010, the Directors propose to seek Independent Shareholders’ approval for the Continuing Connected Transactions which will be implemented in the coming three financial years ending 31 December 2013 pursuant to the Renewal Sales Framework Agreement and the Renewal Purchases Framework Agreement (collectively, the ‘‘Renewal Agreements’’), subject to the annual caps (the ‘‘Annual Caps’’).

As stated in the ‘‘Letter from the Board’’ in the Circular, the Group intends to expand its business opportunities in the United States, the Middle East and Africa. In light of the global presence of Nabors Group in oilfield services business, the Directors consider that the transactions with Nabors Industries under the Renewal Agreements will enhance expansion of the Group’s turnovers whereas purchases from the Nabors Group will provide the Group the advantage and benefit of ensuring consistency in product quality and the lower purchasing costs associated with bulk purchases.

Therefore, the Directors consider that the entering into of the Renewal Agreements is in line with the business objective and strategy of the Group for maximising and capturing opportunities to the mutual benefit of the Group and Nabors Industries. Taking into account of the above and (i) the Continuing Connected Transactions are of the type that are entered into in the ordinary and usual course of business of the Group and are expected to be on a frequent and regular basis, if necessary; and (ii) the Renewal Agreements is a renewal of the Original Agreements with the intention to ensure continuation of the existing business transactions between the Group and Nabors Industries, we are of the view that the entering of the Renewal Agreements is in the interests of the Company and its Shareholders as a whole.

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LETTER FROM CHINA EVERBRIGHT

2. The major terms of the Renewal Agreements

On 19 November 2010, the Company and Nabors Industries entered into the Renewal Agreements for a term of three years commencing from 1 January 2011 to regulate the future business transactions between the Group and Nabors Group. We noted that, save for the Annual Caps, there are no changes to the terms of the Renewal Agreements, compared with the Original Agreements.

The Renewal Sales Framework Agreement

Pursuant to the Renewal Sales Framework Agreement, the Group will sell to Nabors Group certain types of drilling rigs and workover rigs and their parts and components and provision by the Group to Nabors Group of the after-sales services and assembly of drilling rigs. The price of the subject products and services will be determined from time to time pursuant to the terms after arm’s length negotiations and on normal commercial terms that are fair and reasonable and in the interest of the Company and its Shareholders as a whole. Details of the payment terms shall be defined in each of the separate contracts to be entered by the Group and the Nabors Group on terms mutually agreed in accordance with the terms and conditions of the Renewal Sales Framework Agreement.

The Renewal Purchases Framework Agreement

Pursuant to the Renewal Purchase Framework Agreement, the Group will purchase rig parts and components which mainly consist of top drives and provision by Nabors Group to the Group of the after-sales services. The price of the subject products and services will be determined from time to time pursuant to the terms after arm’s length negotiations and on normal commercial terms that are fair and reasonable and in the interest of the Company and its Shareholders as a whole. Details of the payment terms shall be defined in each of the separate contracts to be entered by the Group and the Nabors Group on terms mutually agreed in accordance with the terms and conditions of the Renewal Purchases Framework Agreement.

The Management has confirmed to us that the price in Renewal Purchases Framework Agreement will be determined on the same principles as the Existing Agreements:

(i) by reference to the prevailing market price of the same or substantially similar product or services, taking into account of the price of the same or substantially similar product or services with comparable order quantity and quality offered by other manufacturers, and on terms no less favourable than the general market price and terms;
(ii) if there are not sufficient comparable transactions in (i) above, on terms no less favourable to the Group than those offered to the Group by independent third parties in respect of the same or substantially similar products or services with comparable quantity; and
(iii) if both (i) and (ii) above are not applicable, by reference to the average price of similar products or services previously purchased by the Group, and on terms no less favourable to the Group than those offered to the Group by independent third parties.

To assess the reasonableness of the pricing and payment terms under the Renewal Agreements, we have reviewed four sample contracts entered into between the Group and Nabors Group under the Original Agreements, and compared with similar contracts entered into between the Group and its independent customers/suppliers. The sample contracts were selected based on two principles, namely, (i) entered into between the Group and Nabors Group under the Original Agreements; and (ii) comparable transactions with independent third parties exist. We noted that the pricing terms provided by the Group to Nabors Group are comparable to the pricing terms provided by the Group to independent third parties. Based on our reviews, we consider that the terms of the Renewal Agreements, including pricing and payment term, are fair and reasonable, and on normal commercial terms.

Shareholders should note that there is no provision in the Renewal Agreements requiring the Group to transact with Nabors Group exclusively. In other words, the Group is not obligated to transact with Nabors Group and would only do so if it is in the commercial interests of the Group, and it does not restricts the Group from transacting with any third parties. Therefore, we consider the Renewal Agreements provide commercial flexibility to the Group to transact with other potential customers or suppliers in the event that the Group might not be able to agree with any terms or pricing with Nabors Group.

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LETTER FROM CHINA EVERBRIGHT

3. The Annual Caps

As set out in the Letter from the Board, the Directors expect that (i) proposed annual caps under the Renewal Sales Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$300 million, US$300 million and US$300 million for each of the three years ending 31 December 2013 respectively; and (ii) proposed annual caps under the Renewal Purchases Framework Agreement shall not exceed US$40 million, US$40 million and US$40 million for each of the three years ending 31 December 2010 respectively.

In assessing the reasonableness of the Annual Caps, we have discussed with the Management regarding the principal assumptions and the bases adopted for the determination of the Annual Caps, and understand that the Company has taken into account the following factors:

(a) Historical transaction amounts under the Original Agreements

The table below sets out (i) the historical sales amount to Nabors Group by the Group under the Existing Sales Framework Agreement; and (ii) the respective annual caps under the Existing Sales Framework Agreement:

			For the
			six months ended
	For the year ended 31 December		30 June
	2008	2009	2010
	US$	US$	US$
Historical sales amount	12,054,708	20,293,235	32,666,657
Annual caps under the Existing Sales
Framework Agreement	200,000,000	250,000,000	300,000,000
Utilisation of the historical sales
amount to the annual caps under the
Existing Sales Framework
Agreement (%)	6.0%	8.1%	10.9%

The table below sets out (i) the historical purchases amount from Nabors Group by the Group under the Existing Purchases Framework Agreement; and (ii) the respective annual caps under the Existing Purchases Framework Agreement:

			For the
			six months ended
	For the year ended 31 December		30 June
	2008	2009	2010
	US$	US$	US$
Historical purchases amount	2,252,812	97,048	298,930
Annual caps under the Existing Sales
Framework Agreement	20,000,000	40,000,000	40,000,000
Utilisation of the historical sales
amount to the annual caps under the
Existing Sales Framework
Agreement (%)	11.3%	0.2%	0.7%

As shown above, we noted that the actual transaction amounts under the Original Agreements were substantially lower than the proposed annual caps for the Original Agreements. After discussion with the Management, we were informed that it mainly attributed to the global economic crisis in 2008 and 2009. Apart from the world-wide liquidity and credit crunch, the global financial crisis also negatively affected the demand and market prices of commodities, including oil products.

Starting from August 2008, the price of oil products has been poorly battered by the global financial crisis, deleveraging and gloomy economic outlook. West Texas Intermediate Crude Oil futures fell from a peak of US$147 per barrel in mid July 2008 to around US$46 per barrel in mid December 2008.

In light of the slowdown business growth in oil and gas industry and weakened global demand for drilling rigs amid the financial crisis started in 2008, the Group’s sales to Nabors Group and the Group’s purchases from Nabors Group was inevitably affected. For the two years ended 31 December 2009 and for the six months ended 30 June 2010, total sales made by the Group to Nabors Group were approximately US$12.1

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LETTER FROM CHINA EVERBRIGHT

million, US$20.3 million and US$32.7 million respectively. For the two years ended 31 December 2009 and for the six months ended 30 June 2010, total purchases made by the Group from Nabors Group were approximately US$2.3 million, US$97,000 and US$299,000 respectively.

Although the global economy showed signs of recovery in the first half of 2010, the pace of recovery was relatively slow, especially the U.S. and China where the economic growth rates were lower than market anticipation. Furthermore, the European debt crisis caused a decrease in demand for oil, leading to fluctuation in world crude oil prices. As a result, the steady recovery of global drilling activities and drilling rig day rates were restrained.

Nevertheless, benefited from the signs of recovery of global economy in the first half of 2010, West Texas Intermediate Crude Oil futures increased gradually to approximately US$80 per barrel at the end of September 2010. As a result of global economy recovery and the rise of oil price, the Directors expect the global oil exploration activities as well as drilling rig day rates will continue to improve over the next few years, which in turn, increase Nabors Group’s demand for drilling rigs and workover rigs and their parts and components supplied by the Group.

In light of the above, we concur with the views of the Management that the historical transaction amounts under the Original Agreements were exceptional and may not reflect the normal business activities of the Group.

(b) The prospects of global oil and drilling rig market

As advised by the Management, it is expected that the global economy gradually recovers in 2010, the demand for oil and gas will rise gradually, thus, energy consumption is expected to increase and capital expenditure on oil and gas exploration will resume its long-term growth momentum over the next few years, which in return, will increase demand from Nabors’ customers.

According to the Oil Market Report published by International Energy Agency, which is a Paris-based inter-governmental organization founded by the Organisation for Economic Co-operation and Development in 1974, the global oil demand is expected to resume its growth trend and grow at 2.2% from International Energy Agency 84.7 million barrels per day in 2009 to approximately 86.6 million barrels per day in 2010, and further increase by 1.5% to approximately 87.9 million barrels per day in 2011.

As such, the Management advised that they are confident that the global oil and gas exploration and development will resume its long-term growth momentum over the next few years, which in return, will increase the global demand for drilling rigs, especially demand for drilling rigs from Nabors Group, of the Group.

In addition, in April 2010, the largest oil spill ever in American history occurred in the Gulf of Mexico. In the short-term, the incident will undoubtedly restrain the rebound in offshore drilling activities and fleet utilization rates. From a long-term perspective, however, the incident will greatly arouse concerns about the safety standards of drilling platforms, triggering a new round of equipment replacement which favors the offshore drilling equipment industry.

(c) Potential business cooperation with Nabors Group in offshore contract drilling services

Nabors Group is the leading service contractor for land drilling. During the three years ending 31 December 2010, the Group mainly supplied land drilling rigs and related parts and components to Nabors Group.

According to BP Statistical Review of World Energy, published by BP p.l.c in June 2010, the world oil production decreased by 2.6% from approximately 81.99 million barrels daily in 2008 to approximately 79.95 million barrels daily in 2009. In light of energy shortage worldwide, it will lead to more exploration activities of crude oil and natural gas in deepwater acreage in water depth 1500 meters or above. It is estimated that the worldwide capital expenditure in offshore construction will increase by 42% from approximately US$254 billion in 2007 to approximately US$361 billion in 2012.

Pursuant to the Strategic Cooperation Agreement, Nabors Group intends to further expand its offshore contract drilling services and the Group is a preferred supplier of offshore drilling rigs to Nabors Group. Also, Nabors Group is planning to expand business in offshore drilling market, if the portfolio of equipment cannot be available for new projects, more drilling rigs will be purchased. As such, the Management expects that Nabors Group will increase its purchase of offshore drilling rigs and related parts and components from the Group over the next few years.

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LETTER FROM CHINA EVERBRIGHT

As advised by the Management, the unit price of offshore drilling rig is significantly higher than that of the land drilling rig due to complex specifications and advanced technology. For example, a set of land drilling rig costs approximately US$10 million, but a set of offshore jackup rig costs approximately US$100– 150 million.

According to the National Bureau of Statistics of the PRC, from 2000 to 2008, the PRC nominal GDP grew from RMB9.9 trillion to RMB30.1 trillion and nominal GDP per capita grew from RMB7,858 to RMB22,698, representing a compound annual growth rate of approximately 14.9% and 14.2% respectively. As advised by the Directors, the continuous growth in the PRC’s economy will continue to drive the inflation and the cost of raw materials.

As the sales figures under the Renewable Sales Framework Agreement is expected to increase during the next three years ending 31 December 2013, the purchase of rig parts and components which mainly consist of top drives and provision by Nabors Group under the Renewable Purchases Framework Agreement will increase accordingly.

Having considered the above and the increasing trend of steel and other raw materials for drilling rig construction, which will increase the production cost of drilling rigs in RMB, we are of the view that the bases adopted by the Management in determining the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. However, Shareholders should note that the Annual Caps relate to future events and they do not represent a forecast of turnover to be generated from the Continuing Connected Transactions. Consequently, we express no opinion as to how closely the actual amounts to be generated under the Continuing Connected Transactions correspond with the Annual Caps.

4. Requirements of the Listing Rules on the Continuing Connected Transactions

Pursuant to Rules 14A.37 to 14A.40 of the Listing Rules, the Continuing Connected Transactions are subject to the following annual review requirements:

(a) each year the independent non-executive Directors must review the Continuing Connected Transactions and confirm in the annual report and accounts that the Continuing Connected Transactions have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) either on normal commercial terms or, if there are not sufficient comparable continuing connected transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and
(iii) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(b) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report) confirming that the Continuing Connected Transactions:
(i) have received the approval of the Board;
(ii) are in accordance with the pricing policies of the Group;
(iii) have been entered into in accordance with the terms of the relevant agreements governing the Continuing Connected Transactions; and
(iv) have not exceeded the annual caps;
(c) the Company shall allow, and shall procure the relevant counter-parties to the Continuing Connected Transactions to allow, the Company’s auditors sufficient access to their records for the purpose of reporting on the Continuing Connected Transactions as set out in paragraph (b); and
(d) the Company shall promptly notify the Stock Exchange and publish an announcement in accordance with the Listing Rules if it knows or has reason to believe that the independent non-executive Directors and/or auditors of the Company will not be able to confirm the matters set out in paragraphs (a) and (b) respectively.

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LETTER FROM CHINA EVERBRIGHT

After reviewed the annual reports of the Company for the two financial years ended 31 December 2009, we noted that the independent non-executive Directors had reviewed the Continuing Connected Transactions for the two years ended 31 December 2009, and had confirmed to the Board that such transactions were entered into in accordance with the relevant agreement governing the Continuing Connected Transactions and the pricing policies of the Group.

In light of the reporting requirements attached to the Continuing Connected Transactions, in particular, (i) the restriction of the value of the Continuing Connected Transactions by way of the Annual Caps; (ii) the ongoing review by the independent non-executive Directors and auditors of the Company of the terms of the Continuing Connected Transactions and the Annual Caps not being exceeded, we are of the view that appropriate measures will be in place to govern the conduct of the Continuing Connected Transactions and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

Having taken into account the above principal factors and reasons, we consider that the terms of transactions contemplated under the Renewal Agreements, including the Annual Caps, are on normal commercial terms, in the ordinary and usual course of business of the Company, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Renewal Agreements, including the Annual Caps for the three years ending 31 December 2013, as detailed in the notice of EGM set out at the end of Circular.

Yours faithfully For and on behalf of China Everbright Capital Limited Alvin Kam Director

– 16 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This 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 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 circular misleading.

2. DIRECTORS’ DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Director and chief executive of the Company (if any) in the shares, underlying shares, debentures of the Company and its associated corporation (within the meaning of Part XV of the SFO), which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have taken under such provisions of the SFO); or (b) were required to be recorded in the register maintained by the Company pursuant to section 352 of the SFO; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) adopted by the Company, to be notified to the Company and the Stock Exchange, were as follows:

(a) Directors’ interests and short positions in the Shares, underlying Shares and debentures of the Company and its associated corporations

Name Long/Short position Zhang Mi Long Ren Jie Long Liu Zhi Long	Number of shares held Personal interest Corporate interest Corporate interest and settlor of a discretionary trust Interest of the Concert Group Total % of the issued share capital of the Company 900,000 NIL 1,441,527,837 131,865,200 1,574,293,037(1)(4) 48.83% 169,000 NIL 1,360,831,037 213,293,000 1,574,293,037(2)(4) 48.83% NIL NIL 1,355,477,837 218,815,200 1,574,293,037(3)(4) 48.83%

(1) Zhang Mi individually owns 900,000 Shares. Zhang Mi is a member of the Concert Group. He is the settlor of a discretionary trust, The ZYL Family Trust, whose trustee, through Wealth Afflux Limited, holds the entire issued share capital of Ally Smooth Investments Limited, which in turn is the beneficial owner of 36% of the issued share capital of Ample Chance International Limited, which in turn is the beneficial owner of the entire issued share capital of Ally Giant Limited which holds 1,337,727,837 Shares. The Trustee of The ZYL Family Trust owns 103,800,000 Shares.

Ren Jie, another member of the Concert Group and the settlor of a discretionary trust, The RJDJ Victory Trust, individually owns 169,000 Shares. The Trustee of The RJDJ Victory Trust owns 23,103,200 Shares. The Trustee of a discretionary trust, The LZWM Family Trust, whose settlor is Liu Zhi, another member of the Concert Group, owns 17,750,000 Shares. The Trustee of a discretionary trust, The FBX Family Trust, whose settlor is Fan Bing, another member of the Concert Group, owns 12,341,000 Shares. The Trustee of a discretionary trust, The ZHH Family Trust, whose settlor is Zuo Huixian, another member of the Concert Group, owns 12,244,400 Shares. The Trustee of a discretionary trust, The Hong Xu Family Trust, whose settlor is Zhang Xu, another member of the Concert Group, owns 11,796,400 Shares. The Trustee of a discretionary trust, The LXYY Family Trust, whose settlor is Liu Xuetian (deceased), another member of the Concert Group, owns 10,452,400 Shares. The other members of the Concert Group totally own 44,008,800 Shares.

(2) Ren Jie individually owns 169,000 Shares. Ren Jie is a member of the Concert Group. He is the settlor of a discretionary trust, The RJDJ Victory Trust, whose trustee, through Mowbray Worldwide Limited, holds approximately 41.34% of the issued share capital of Charm Moral International Limited, which in turn is the beneficial owner of approximately 19.09% of the issued share capital of Ample Chance International Limited, which in turn is the beneficial owner of the entire issued share capital of Ally Giant Limited which holds 1,337,727,837 Shares. The Trustee of The RJDJ Victory Trust owns 23,103,200 Shares. Zhang Mi, another member of the Concert Group and the settlor of a discretionary trust, The ZYL Family Trust, individually owns 900,000 Shares. The Trustee of The ZYL Family Trust owns 103,800,000 Shares.

The Trustee of a discretionary trust, The LZWM Family Trust, whose settlor is Liu Zhi, another member of the Concert Group, owns 17,750,000 Shares. The Trustee of a discretionary trust, The FBX Family Trust, whose settlor is Fan Bing, another member of the Concert Group, owns 12,341,000 Shares. The Trustee of a discretionary trust, The ZHH Family Trust, whose settlor is Zuo Huixian, another member of the Concert Group, owns 12,244,400 Shares. The Trustee of a discretionary trust, The Hong Xu Family Trust, whose settlor is Zhang Xu, another member of the Concert Group, owns 11,796,400 Shares. The Trustee of a discretionary trust, The LXYY Family Trust, whose settlor is Liu Xuetian (deceased), another member of the Concert Group, owns 10,452,400 Shares. The other members of the Concert Group totally own 44,008,800 Shares.

(3) Liu Zhi is a member of the Concert Group. He is the settlor of a discretionary trust, The LZWM Family Trust, whose trustee, through Ecotech Enterprises Corporation, holds approximately 29.33% of the issued share capital of Charm Moral International Limited, which in turn is the beneficial owner of approximately 19.09% of the issued share capital of Ample Chance International Limited, which in turn is the beneficial owner of the entire issued share capital of Ally Giant Limited which holds 1,337,727,837 Shares. The Trustee of The LZWM Family Trust owns 17,750,000 Shares.

– 17 –

GENERAL INFORMATION

APPENDIX

Zhang Mi and Ren Jie, the other two members of the Concert Group, collectively hold 1,069,000 Shares. The Trustees of the two discretionary trusts, whose settlors are Zhang Mi and Ren Jie respectively, collectively own 126,903,200 Shares. The Trustee of a discretionary trust, The FBX Family Trust, whose settlor is Fan Bing, another member of the Concert Group, owns 12,341,000 Shares. The Trustee of a discretionary trust, The ZHH Family Trust, whose settlor is Zuo Huixian, another member of the Concert Group, owns 12,244,400 Shares. The Trustee of a discretionary trust, The Hong Xu Family Trust, whose settlor is Zhang Xu, another member of the Concert Group, owns 11,796,400 Shares. The Trustee of a discretionary trust, The LXYY Family Trust, whose settlor is Liu Xuetian (deceased), another member of the Concert Group, owns 10,452,400 Shares. The other members of the Concert Group totally own 44,008,800 Shares.

(4) Concert Group is defined in the prospectus of the Company dated 25 February 2008.

(b) Share Options of the Company

			Number of
		Number of	option held —
	Long/Short	option held —	Interest of the
Grantee	position	Personal interest	Concert Group
Zhang Mi	Long	13,837,000	26,353,000
Ren Jie	Long	5,687,000	34,503,000
Liu Zhi	Long	5,173,000	35,017,000
Qi Daqing	Long	1,000,000	—
Liu Xiaofeng	Long	1,000,000	—
Tai Kwok Leung Alexander	Long	850,000	—
Chen Guoming	Long	750,000	—
Wang Li	Long	750,000	—
Shi Xingquan	Long	750,000	—

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company (if any) had any interests or short positions in the Shares, underlying Shares and debentures of the Company or of any of its associated corporation (within the meaning of Part XV of the SFO) which: (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have taken under such provisions of the SFO); or (b) were required to be recorded in the register maintained by the Company pursuant to section 352 of the SFO; or (c) were required, pursuant to the Model Code adopted by the Company, to be notified to the Company and the Stock Exchange.

3. INTERESTS AND SHORT POSITIONS WHICH ARE DISCLOSEABLE UNDER DIVISIONS 2 AND 3 OF PART XV OF THE SFO

As at the Latest Practicable Date, so far as is known to the Directors, the persons (other than a Director or chief executive of the Company (if any) whose interest have been disclosed above) 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 Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 5 percent. or more of the nominal value of any class of share capital carry rights to vote in all circumstances at general meeting of any other member of the Group, or in any option, in respect of such securities were as follows:

Number of shares held

Name
Long/Short
position
Ally Giant Limited
Long
Ample Chance International
Limited
Long
Wealth Afflux Limited
Long
Ally Smooth Investments
Limited
Long
Equity Trustee Limited
Long
Charm Moral International
limited
Long
Mowbray Worldwide
Limited
Long
Ecotech Enterprises
Corporation
Long

– 18 –

GENERAL INFORMATION

APPENDIX

Number of shares held

Name
Long/Short
position
Zheng Yong
Long
Beauty Clear Holdings
Limited
Long
Zuo Huixian
Long
Vast & Fast Corporation
Long
Zhang Xu
Long
Cavendish Global
Corporation
Long
Elegant Scene International
Limited
Long
Wang Jiangyang
Long
Chen Jun
Long
Believe Power International
Limited
Long
Fan Bing
Long
Brondesbury Enterprises
Limited
Long
Zhang Yanyong
Long
Ao Pei
Long
Tian Diyong
Long
Shen Dingjian
Long
Benefit Way International
Limited
Long
Liu Xuetian (deceased)
Long
Dobson Global Inc.
Long
Qu Yihong
Long
Liu Ying
Long
Zhou Bing
Long
Darius Enterprises Limited
Long
Lv Lan
Long
Tian Yu
Long
Li Hanqiang
Long
Liu Yingguo
Long
Liu Lulu
Long
China Ocean Oilfields
Services (Hong Kong)
Limited
Long
China National Offshore Oil
Corporation
Long
Nabors Drilling International
II Limited
Long
Nabors International
Management Limited
Long
Nabors Global Holdings
Limited
Long
Nabors Industries Ltd.
Long
Carlyle Offshore Partners II.
Ltd
Long
DBD Cayman, Ltd
Long
TCG Holdings Cayman II,
Long

Personal interest
Corporate
interest
Corporate
interest and
settlor of a
discretionary
trust
Interest of the
Concert Group
Total
% of the issued
share capital of
the Company
Share
Option
Shares
interest
2,085,000
11,549,000
1,337,727,837
NIL
263,121,200
1,614,483,037(7)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(8)
50.08%
1,734,000
NIL
NIL
1,349,972,237
262,776,800
1,614,483,037(9)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(9)
50.08%
1,833,000
NIL
NIL
1,349,524,237
263,125,800
1,614,483,037(10)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(10)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(11)
50.08%
941,000
4,772,600
1,337,727,837
NIL
271,041,600
1,614,483,037(11)
50.08%
872,000
2,640,400
1,337,727,837
NIL
273,242,800
1,614,483,037(12)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(13)
50.08%
1,744,000
NIL
NIL
1,350,068,837
262,670,200
1,614,483,037(14)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(14)
50.08%
1,480,000
10,479,600
1,337,727,837
NIL
264,795,600
1,614,483,037(15)
50.08%
683,000
1,968,400
1,337,727,837
NIL
274,103,800
1,614,483,037(16)
50.08%
550,000
516,400
1,337,727,837
NIL
275,688,800
1,614,483,037(17)
50.08%
262,000
798,000
1,337,727,837
NIL
275,695,200
1,614,483,037(18)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(19)
50.08%
NIL
NIL
NIL
1,348,180,237
266,302,800
1,614,483,037(20)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(20)
50.08%
NIL
NIL
1,348,180,237
NIL
266,302,800
1,614,483,037(21)
50.08%
NIL
NIL
1,348,180,237
NIL
266,302,800
1,614,483,037(21)
50.08%
1,445,000
5,689,600
NIL
1,337,727,837
269,620,600
1,614,483,037(22)
50.08%
NIL
NIL
1,337,727,837
NIL
276,755,200
1,614,483,037(22)
50.08%
519,000
1,683,800
1,337,727,837
NIL
274,552,400
1,614,483,037(23)
50.08%
515,000
1,148,000
1,337,727,837
NIL
275,092,200
1,614,483,037(24)
50.08%
345,000
600
1,337,727,837
NIL
276,409,600
1,614,483,037(25)
50.08%
242,000
448,000
1,337,727,837
NIL
276,065,200
1,614,483,037(26)
50.08%
243,000
358,400
1,337,727,837
NIL
276,153,800
1,614,483,037(27)
50.08%
NIL
174,425,609
NIL
NIL
NIL
174,425,609(28)
5.41%
NIL
NIL
174,425,609
NIL
NIL
174,425,609(28)
5.41%
NIL
450,000,000
NIL
NIL
NIL
450,000,000(29)
13.96%
NIL
NIL
450,000,000
NIL
NIL
450,000,000(29)
13.96%
NIL
NIL
450,000,000
NIL
NIL
450,000,000(29)
13.96%
NIL
NIL
450,000,000
NIL
NIL
450,000,000(29)
13.96%
NIL
NIL
166,841,887
NIL
NIL
166,841,887(30)
5.18%
NIL
NIL
166,841,887
NIL
NIL
166,841,887(30)
5.18%
NIL
NIL
166,841,887
NIL
NIL
166,841,887(30)
5.18%

L.P.

(1) Ally Giant Limited is wholly-owned by Ample Chance International Limited and holds 1,337,727,837 Shares.
(2) Ample Chance International Limited is owned 36% by Ally Smooth Investments Limited, approximately 19.09% by Charm Moral International Limited, approximately 18.51% by Beauty Clear Holdings Limited, approximately 12.71% by Believe Power International Limited, approximately 10.50% by Benefit Way International Limited and approximately 3.19% by a corporation.
(3) The entire issued share capital of Ally Smooth Investments Limited is owned by Wealth Afflux Limited, which in turn is held by Equity Trustee Limited as trustee of The ZYL Family Trust. The ZYL Family Trust is a discretionary trust established by Zhang Mi as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The ZYL Family Trust are Zhang Mi and his family members. Zhang Mi is a member of the Concert Group.
(4) Charm Moral International Limited is owned approximately 41.34% by Mowbray Worldwide Limited, approximately 29.33% by Ecotech Enterprises Corporation and approximately 29.33% by Zheng Yong.
(5) Approximately 41.34% of the issued share capital of Charm Moral International Limited is owned by Mowbray Worldwide Limited, which in turn is held by Equity Trustee Limited as trustee of The RJDJ Victory Trust. The RJDJ Victory Trust is a discretionary trust established by Ren Jie as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The RJDJ Victory Trust are Ren Jie and his family members. Ren Jie is a member of the Concert Group.

– 19 –

GENERAL INFORMATION

APPENDIX

(6) Approximately 29.33% of the issued share capital of Charm Moral International Limited is held by Ecotech Enterprises Corporation, which in turn is held by Equity Trustee Limited as trustee of The LZWM Family Trust. The LZWM Family Trust is a discretionary trust, established by Liu Zhi as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The LZWM Family Trust are Liu Zhi and his family members. Liu Zhi is a member of the Concert Group.
(7) Zheng Yong is the beneficial owner of approximately 29.33% of the issued share capital of Charm Moral International Limited, which is in turn the beneficial owner of approximately 19.09% of the issued share capital of Ample Chance International Limited. Zheng Yong is a member of the Concert Group.
(8) Beauty Clear Holdings Limited is owned approximately 23.63% by Vast & Fast Corporation, approximately 22.77% by Cavendish Global Corporation, approximately 5.76% by Elegant Scene International Limited, approximately 5.10% by Chen Jun, and a total of approximately 42.74% by 3 other shareholders.
(9) Approximately 23.63% of issued share capital of Beauty Clear Holdings Limited is owned by Vast & Fast Corporation, which in turn is held by Equity Trustee Limited as trustee of The ZHH Family Trust. The ZHH Family Trust is a discretionary trust, established by Zuo Huixian as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The ZHH Family Trust are Zuo Huixian and his family members. Zuo Huixian is a member of the Concert Group.
(10) Approximately 22.77% of the issued share capital of Beauty Clear Holdings Limited is held by Cavendish Global Corporation, which in turn is held by Equity Trustee Limited as trustee of The Hong Xu Family Trust. The Hong Xu Family Trust is a discretionary trust, established by Zhang Xu as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The Hong Xu Family Trust are Zhang Xu and his family members. Zhang Xu is a member of the Concert Group.
(11) Approximately 5.76% of the issued share capital of Beauty Clear Holdings Limited is held by Elegant Scene International Limited, which in turn wholly-owned by Wang Jiangyang. Beauty Clear Holdings Limited is the beneficial owner of approximately 18.51% of the issued share capital of Ample Chance International Limited. Wang Jiangyang is a member of the Concert Group.
(12) Chen Jun is the beneficial owner of approximately 5.10% of the issued share capital of Beauty Clear Holdings Limited, which in turn is the beneficial owner of approximately 18.51% of the issued share capital of Ample Chance International Limited. Chen Jun is a member of the Concert Group.
(13) Believe Power International Limited is owned approximately 32.72% by Brondesbury Enterprises Limited, approximately 29.16% by Zhang Yanyong, approximately 5.53% by Ao Pei, approximately 2.85% by Tian Diyong, approximately 2.24% by Shen Dingjian, and a total of approximately 27.50% by 4 other shareholders.
(14) Approximately 32.72% of the issued share capital of Believe Power International Limited is held by Brondesbury Enterprises Limited, which in turn is held by Equity Trustee Limited as trustee of The FBX Family Trust. The FBX Family Trust is a discretionary trust, established by Fan Bing as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The FBX Family Trust are Fan Bing and his family members. Fan Bing is a member of the Concert Group.
(15) Zhang Yanyong is the beneficial owner of approximately 29.16% of the issued share capital of Believe Power International Limited, which in turn is the beneficial owner of approximately 12.71% of the issued share capital of Ample Chance International Limited. Zhang Yanyong is a member of the Concert Group.
(16) Ao Pei is the beneficial owner of approximately 5.53% of the issued share capital of Believe Power International Limited, which in turn is the beneficial owner of approximately 12.71% of the issued share capital of Ample Chance International Limited. Ao Pei is a member of the Concert Group.
(17) Tian Diyong is the beneficial owner of approximately 2.85% of the issued share capital of Believe Power International Limited, which in turn is the beneficial owner of approximately 12.71% of the issued share capital of Ample Chance International Limited. Tian Diyong is a member of the Concert Group.
(18) Shen Dingjian is the beneficial owner of approximately 2.24% of the issued share capital of Believe Power International Limited, which in turn is the beneficial owner of approximately 12.71% of the issued share capital of Ample Chance International Limited. Shen Dingjian is a member of the Concert Group.
(19) Benefit Way International Limited is owned approximately 35.57% by Dobson Global Inc., approximately 19.36% by Darius Enterprises Limited, approximately 6.49% by Lv Lan, approximately 3.91% by Tian Yu, approximately 3.50% by Li Hangqiang, approximately 1.52% by Liu Yingguo, approximately 1.22% by Liu Lulu and approximately 28.43% by 6 other shareholders.
(20) Approximately 35.57% of the issued share capital of Benefit Way International Limited is held by Dobson Global Inc., which in turn is held by Equity Trustee Limited as trustee of The LXYY Family Trust. The LXYY Family Trust is a discretionary trust, established by Liu Xuetian (deceased) as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The LXYY Family Trust are Liu Xuetian (deceased) and his family members. Liu Xuetian (deceased) was a member of the Concert Group and passed away on 23 January 2008.
(21) Qu Yihong and Liu Ying, family members of Liu Xuetian (deceased), are deemed to be interested in 1,348,180,237 Shares as directors of Dobson Global Inc.
(22) Approximately 19.36% of the issued share capital of Benefit Way International Limited is held by Darius Enterprises Limited, which in turn is held by Equity Trustee Limited as trustee of The Fang Zhou Family Trust. The Fang Zhou Family Trust is a discretionary trust, established by Zhou Bing as settlor, with Equity Trustee Limited as trustee. The beneficiaries under The Fang Zhou Family Trust are Zhou Bing and his family members. Zhou Bing is a member of the Concert Group.
(23) Lv Lan is the beneficial owner of approximately 6.49% of the issued share capital of Benefit Way International Limited, which in turn is the beneficial owner of approximately 10.50% of issued share capital of Ample Chance International Limited. Lu Lan is a member of the Concert Group.

– 20 –

GENERAL INFORMATION

APPENDIX

(24)	Tian Yu is the beneficial owner of approximately 3.91% of the issued share capital of Benefit Way International Limited, which in
	turn is the beneficial owner of approximately 10.50% of issued share capital of Ample Chance International Limited. Tian Yu is a
	member of the Concert Group.
(25)	Li Hanqiang is the beneficial owner of approximately 3.50% of the issued share capital of Benefit Way International Limited, which
	in turn is the beneficial owner of approximately 10.50% of issued share capital of Ample Chance International Limited. Li Hanqiang
	is a member of the Concert Group.
(26)	Liu Yingguo is the beneficial owner of approximately 1.52% of the issued share capital of Benefit Way International Limited, which
	in turn is the beneficial owner of approximately 10.50% of issued share capital of Ample Chance International Limited. Liu Yingguo
	is a member of the Concert Group.
(27)	Liu Lulu is the beneficial owner of approximately 1.22% of the issued share capital of Benefit Way International Limited, which in
	turn is the beneficial owner of approximately 10.50% of issued share capital of Ample Chance International Limited. Liu Lulu is a
	member of the Concert Group.
(28)	China Ocean Oilfields Services (Hong Kong) Limited holds 174,425,609 Shares. The issued share capital of China Ocean Oilfields
	Services (Hong Kong) Limited was beneficially owned approximately 99.35% by China National Offshore Oil Corporation and
	approximately 0.65% by Overseas Oil & Gas Corporation Limited.
(29)	Nabors Drilling International II Limited (‘‘NDIL II’’) holds 450,000,000 shares. NDIL II is a direct, wholly owned subsidiary of
	Nabors International Management Limited (‘‘NIML’’). NIML is a direct, wholly owned subsidiary of Nabors Global Holdings Limited
	which is in turn wholly owned by Nabors Industries Ltd.

(30) Carlyle Offshore Partners II. Ltd. owns 100% of DBD Cayman Ltd., which in turn owns 100% of TCG Holdings Cayman II, L.P., which in turn is holding subsidiaries that hold 166,841,887 shares.

Saved as disclosed above, as at the Latest Practicable Date, there was no other person (other than the Directors or the chief executives of the Company (if any)) who had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, who was, directly or indirectly, interested in five percent or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or in any options in respect of such share capital.

4. DIRECTORS INTEREST IN ASSETS/CONTRACTS AND OTHER INTERESTS

None of the Directors have any interest, direct or indirect, in any asset which have since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up, up to the Latest Practicable Date, been acquired or disposed of by, or leased to, any member of the Group, or are proposed to be acquired or disposed of by, or leased to, any member of the Group.

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group.

5. DIRECTORS’ COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates were considered to have interests in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group or have any other conflicts of interest with the Group pursuant to the Listing Rules.

6. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, each of the Directors is engaged on a service contract for a term of not exceeding 3 years with the Company. The service contract may be terminated by not less than 3 months’ written notice, except for Mr. Siegfried Meissner whose service contract may be terminated by not less than 1 month’s written notice. None of the Directors has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

7. EXPERT’S QUALIFICATION AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name Qualification China Everbright A corporation licensed to carry out business in type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

– 21 –

GENERAL INFORMATION

APPENDIX

China Everbright, the Independent Financial Adviser, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included. The letter and recommendation given by China Everbright are given as of the date of this circular for incorporation herein.

8. EXPERT’S INTERESTS

As at the Latest Practicable Date, China Everbright:

(a) had no direct or indirect interest in any asset which had since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up, been acquired or disposed of by, or leased to, any member of the Group, or was proposed to be acquired or disposed of by, or leased to, any member of the Group; and
(b) was not beneficially interested in the share capital of any member of the Group nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

9. LITIGATION

Save as disclosed in note 20 to the interim financial report of the interim report 2010 of the Company, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

10. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up.

11. MISCELLANEOUS

(a) The Joint Company Secretaries of the Company are Mr. Liu Gangqiang and Ms. Corinna Leung. Mr. Liu Gangqiang is a Ph.D. in Economics of Southwest University of Finance and Economics. Ms. Corinna Leung is an associate with the Institute of Chartered Secretaries and Administrations and the Hong Kong Institute of Chartered Secretaries.
(b) The Hong Kong branch share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(c) This circular has been prepared in both English and Chinese. In the case of any discrepancy, the English text shall prevail.

12. DOCUMENTS FOR INSPECTION：

Copies of the following documents are available for inspection during the normal business hours at the principal place of business of the Company in Hong Kong at Room 2508, Harcourt 39 Gloucester Road, Wan Chai, Hong Kong for a period of 14 days from the date of this circular:

(a) the Renewal Sales Framework Agreement;
(b) the Renewal Purchases Framework Agreement;
(c) the ‘‘Letter from the Independent Board Committee’’, the text of which as set out on page 9 of this circular;
(d) the ‘‘Letter from China Everbright’’, the text of which as set out on pages 10 to 16 of this circular;
(e) the written consent of China Everbright referred to in paragraph 7 of this Appendix; and
(f) this circular.

– 22 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [75 x 69] intentionally omitted <==

Honghua Group Limited 宏華集團有限公司

(a company incorporated in the Cayman Islands with limited liability)

(Stock Code: 196)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘Meeting’’) of Honghua Group Limited (the ‘‘Company’’) will be held at its Head Office at 3rd Floor Meeting Room, Office Building, 99 East Road, Information Park, Jinniu District, Chengdu, Sichuan 610036, PRC on Thursday, 23 December 2010 at 9:30 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions (capitalized terms used herein have the same meanings as defined in the circular of the Company dated 8 December 2010 unless otherwise specified) as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

‘‘THAT:
(a) the Renewal Sales Framework Agreement dated 19 November 2010 made between the Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) (a copy of which marked ‘‘A’’ is produced to the Meeting and initialed by Mr. Zhang Mi, the Chairman of the Meeting, for the purpose of identification) for the sales to Nabors Industries and the Nabors Group by the Group of Products and Services (as defined therein) on an ongoing basis and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified;
(b) the proposed annual caps under the Renewal Sales Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$300 million, US$300 million and US$300 million for each of the three years ending 31 December 2013 respectively be and are hereby approved, confirmed and ratified;
(c) the execution of the Renewal Sales Framework Agreement by Mr. Zhang Mi, the Chairman of the Company, for and on behalf of the Company and the affixation of the common seal of the Company, if necessary, be and are hereby approved, confirmed and ratified; and
(d) any one director of the Company be and is hereby authorized to sign, seal, execute and deliver all such other documents and deeds and to do all such acts or things which in their absolute discretion consider necessary, desirable or expedient to implement and/or to give full effect to the agreement and the annual caps referred to in the Renewal Sales Framework Agreement and the transactions contemplated thereunder’’.

2. ‘‘THAT:

(a) the Renewal Purchases Framework Agreement dated 19 November 2010 made between the Company (for itself and on behalf of its subsidiaries) and Nabors Industries (for itself and on behalf of its subsidiaries) (a copy of which marked ‘‘B’’ is produced to the Meeting and initialed by Mr. Zhang Mi, the Chairman of the Meeting, for the purpose of identification) for the purchase from Nabors Industries and the Nabors Group by the Group of Products and Services (as defined therein) on an ongoing basis and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified;
(b) the proposed annual caps under the Renewal Purchases Framework Agreement of the Products and the Services (as defined therein) shall not exceed US$40 million, US$40 million and US$40 million for each of the three years ending 31 December 2013 respectively be and are hereby approved, confirmed and ratified;

– 23 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

(c) the execution of the Renewal Purchases Framework Agreement by Mr. Zhang Mi, the Chairman of the Company, for and on behalf of the Company and the affixation of the common seal of the Company, if necessary, be and are hereby approved, confirmed and ratified; and
(d) any one director of the Company be and is hereby authorized to sign, seal, execute and deliver all such other documents and deeds and to do all such acts or things which in their absolute discretion consider necessary, desirable or expedient to implement and/or to give full effect to the agreement and the annual caps referred to in the Renewal Purchases Framework Agreement and the transactions contemplated thereunder’’.

By order of the Board of Honghua Group Limited Zhang Mi Chairman

PRC, 8 December 2010

Notes:

Any shareholder of the Company entitled to attend and vote at the Meeting shall be entitled to appoint another person as his proxy to attend and vote on his behalf. A shareholder of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the Meeting. A proxy need not be a shareholder of the Company. On a poll votes may be given either personally (or, in the case of a shareholder being a corporation, by its duly authorized representative) or by proxy.
No appointment of a proxy shall be valid unless it names the person appointed and his appointor.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing, or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorized.
In order to be valid, the instrument appointing a proxy together with any power of attorney or other authority (if any) under which it is signed or a certified copy of such power of authority, must be deposited with the Company’s branch share registrar 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 not less than 48 hours before the time fixed for holding the Meeting, or adjournment thereof. Delivery of an instrument appointing a proxy shall not preclude a shareholder of the Company from attending and voting in person (or in the case of a shareholder being a corporation, its duly authorized representative) at the Meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.
Where there are joint registered holders of any share of the Company, any one of such persons may vote at the Meeting, 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 Meeting 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.
The votes to be taken at the Meeting will be by way of a poll.

As at the date of this notice, our Directors are Mr. Zhang Mi (Chairman), Mr. Ren Jie and Mr. Liu Zhi as executive Directors, Mr. Huang Dongyang and Mr. Siegfried Meissner as non-executive Directors, and Mr. Chen Guoming, Mr. Tai Kwok Leung, Alexander, Mr. Liu Xiaofeng, Mr. Qi Daqing, Mr. Shi Xingquan and Mr. Wang Li as independent non-executive Directors.

– 24 –

AI assistant

Honghua Group Limited — Proxy Solicitation & Information Statement 2010

49025_rns_2010-12-08_ddc1d2a8-5e5e-42ed-87bd-730f2d95f01a.pdf

Honghua Group Limited 宏 華 集 團 有 限 公 司

CONTINUING CONNECTED TRANSACTIONS

China Everbright Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

Honghua Group Limited 宏 華 集 團 有 限 公 司

To the Shareholders

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BACKGROUND

DETAILS OF THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

ANNUAL CAPS AND DETERMINATION

(1) Of the Renewal Sales Framework Agreement

LETTER FROM THE BOARD

(2) Of the Renewal Purchases Framework Agreement

Reason For the Low Historical Sales and Purchases Figures

REASON FOR THE CONTINUING CONNECTED TRANSACTIONS

LISTING RULES IMPLICATIONS

EGM

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

RECOMMENDATIONS

ADDITIONAL INFORMATION

Honghua Group Limited 宏 華 集 團 有 限 公 司

CONTINUING CONNECTED TRANSACTIONS

RECOMMENDATION

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for the Continuing Connected Transactions

2. The major terms of the Renewal Agreements

The Renewal Sales Framework Agreement

The Renewal Purchases Framework Agreement

3. The Annual Caps

(a) Historical transaction amounts under the Original Agreements

(b) The prospects of global oil and drilling rig market

(c) Potential business cooperation with Nabors Group in offshore contract drilling services

LETTER FROM CHINA EVERBRIGHT

4. Requirements of the Listing Rules on the Continuing Connected Transactions

LETTER FROM CHINA EVERBRIGHT

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ DISCLOSURE OF INTERESTS

(b) Share Options of the Company

3. INTERESTS AND SHORT POSITIONS WHICH ARE DISCLOSEABLE UNDER DIVISIONS 2 AND 3 OF PART XV OF THE SFO

Number of shares held

APPENDIX

4. DIRECTORS INTEREST IN ASSETS/CONTRACTS AND OTHER INTERESTS

5. DIRECTORS’ COMPETING INTERESTS

6. DIRECTORS’ SERVICE CONTRACTS

7. EXPERT’S QUALIFICATION AND CONSENT

8. EXPERT’S INTERESTS

9. LITIGATION

10. MATERIAL ADVERSE CHANGE

11. MISCELLANEOUS

12. DOCUMENTS FOR INSPECTION：

Honghua Group Limited 宏 華 集 團 有 限 公 司

(Stock Code: 196)

ORDINARY RESOLUTIONS

2. ‘‘THAT:

NOTICE OF EXTRAORDINARY GENERAL MEETING

PRC, 8 December 2010

More from Honghua Group Limited

Honghua Group Limited Proxy Solicitation & Information Statement 2010

Honghua Group Limited 宏華集團有限公司

Honghua Group Limited 宏華集團有限公司

Honghua Group Limited 宏華集團有限公司

Honghua Group Limited 宏華集團有限公司