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 and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

宏华集团

HONGHUA GROUP

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

AND

MAJOR TRANSACTIONS

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the

Independent Board Committee and the Independent Shareholders

Gram Capital Limited

嘉林資本有限公司

A notice convening the EGM of Honghua Group Limited to be held at ZiJing Hall, 5th Floor, Shenzhenair International Hotel, 6035 Shennan Avenue, Futian District, Shenzhen City, Guangdong Province on Tuesday, 31 December 2024 at 9:00 a.m. is set out on pages 77 to 79 of this circular. A form of proxy for use at the EGM is enclosed. Such form of proxy is also published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk).

If you do not intend to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the meeting should they so wish.

References to time and dates in this circular are to Hong Kong time and dates.

13 December 2024

CONTENTS

Page

Definitions 1
Letter from the Board 5
Letter from the Independent Board Committee 34
Letter from Gram Capital 36
Appendix I - Financial Information of the Group 68
Appendix II - General Information 71
Notice of Extraordinary General Meeting 77

DEFINITIONS

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

“associate(s)” has the meaning ascribed to it under the Listing Rules;

“Board” the board of directors or a duly authorised committee of the board of directors of the Company;

“Company” Honghua Group Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange;

“connected person(s)” has the meaning ascribed to it under the Listing Rules;

“continuing connected transaction(s)” has the meaning ascribed to it under the Listing Rules;

“controlling shareholder(s)” has the meaning ascribed to it under the Listing Rules;

“DFEC” Dongfang Electric Co., Ltd. (東方電氣股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, whose H shares are listed on the Main Board of the Stock Exchange (stock code: 1072) and whose A shares are listed on the Shanghai Stock Exchange (stock code: 600785) and which is a subsidiary of Dongfang Electric Corporation;

“Director(s)” director(s) of the Company;

“Dongfang Electric Corporation” Dongfang Electric Corporation (中國東方電氣集團有限公司), a state-owned company incorporated in the PRC, which is one of the largest energy equipment manufacturing enterprise groups in the PRC, and also the controlling shareholder of the Company;

“Dongfang Electric Continuing Connected Transaction(s)” the transactions contemplated under the Dongfang Electric Framework Agreements (excluding the transactions in relation to the Settlement Services and Unsecured Loan Advancement Services);

“Dongfang Electric Framework Agreements” the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement and the Financial Services Framework Agreement;

DEFINITIONS

“Dongfang Electric Finance”	Dongfang Electric Finance Co., Ltd., a non-bank financial institution incorporated under the laws of the PRC with limited liability and a subsidiary of Dongfang Electric Corporation;
“DEC Investment”	DEC Investment Management Company Limited, a company incorporated in the PRC with limited liability, and a wholly-owned subsidiary of Dongfang Electric;
“Dongfang International Investment”	Dongfang Electric International Investment Co., Ltd., a company incorporated in Hong Kong, which is a wholly-owned subsidiary of Dongfang Electric Corporation;
“EGM”	the extraordinary general meeting of the Company to be held at ZiJing Hall, 5th Floor, Shenzhenair International Hotel, 6035 Shennan Avenue, Futian District, Shenzhen City, Guangdong Province on Tuesday, 31 December 2024 at 9:00 a.m. to consider and, if appropriate, to approve the resolutions contained in the notice of the meeting which are set out on pages 77 to 79 of this circular, or any adjournment thereof;
“Financial Services Framework Agreement”	the financial services framework agreement dated 10 December 2024 entered into between the Company and Dongfang Electric Finance;
“Group”	the Company and its subsidiaries (as defined under the Listing Rules);
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong;
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s Republic of China;
“Honghua Holdings”	Honghua Holdings Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company;
“Honghua Leasing”	Honghua Financial Leasing (Shanghai) Co., Ltd., a company incorporated in the PRC with limited liability, and a wholly-owned subsidiary of Dongfang Electric Corporation;

– 2 –

DEFINITIONS

"Independent Board Committee" the independent committee of the Board, comprising all the independent non-executive Directors, established to make recommendations to the Independent Shareholders in respect of the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps of the transactions contemplated thereunder;

"Independent Financial Adviser" or "Gram Capital" Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity as defined under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps;

"Independent Shareholder(s)" shareholder(s) other than Dongfang Electric Corporation and its associates;

"Independent Third Party(ies)" person(s) or company(ies) which is/are not connected (as defined under the Listing Rules) with the Company;

"Latest Practicable Date" 12 December 2024, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;

"Lease Framework Agreement" the lease framework agreement dated 10 December 2024 entered into between the Company and Honghua Leasing;

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

"Members of Honghua Leasing" Honghua Leasing and its subsidiaries;

"PBOC" the People's Bank of China;

"PRC" the People's Republic of China;

"Purchase Framework Agreement" the purchase framework agreement dated 10 December 2024 entered into between the Company and Dongfang Electric Corporation;

DEFINITIONS
“RMB”	Renminbi, the lawful currency of the PRC;
“Sales Framework Agreement”	the sales framework agreement dated 10 December 2024 entered into between the Company and Dongfang Electric Corporation;
“SFO”	the Securities and Futures Ordinance, Chapter 571 of the laws of Hong Kong;
“Share(s)”	the ordinary share(s) of HK$0.10 each in the share capital of the Company;
“Shareholder(s)”	holder(s) of ordinary share(s) of HK$0.10 each in the share capital of the Company;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“subsidiary(ies)”	has the meaning ascribed to it under the Listing Rules;
“%”	per cent.

LETTER FROM THE BOARD

宏华集团

HONGHUA GROUP

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. Wang Xu (Chairman)

Mr. Zhu Hua

Mr. Yang Qiang

Non-executive Director:

Mr. Yang Yangzhuang

Mr. Liu Xinggui

Independent Non-executive Directors:

Mr. Zhang Shiju

Ms. Li Yuedong

Mr. Wang Junren

Head Office:

99 East Road, Information Park

Jinniu District, Chengdu

Sichuan, PRC

Post code: 610036

Principal Place of Business in Hong Kong:

5/F, Manulife Place

348 Kwun Tong Road, Kowloon

Hong Kong

Registered Office:

Windward 3, Regatta Office Park

PO Box 1350, Grand Cayman

90KY1-1108, Cayman Islands

13 December 2024

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

1. INTRODUCTION

We refer to the announcement of the Company dated 10 December 2024 in relation to, among other things, (1) the entering into of the Purchase Framework Agreement; (2) the entering into of the Sales Framework Agreement; (3) the entering into of the Lease Framework Agreement; and (4) the entering into of the Financial Services Framework Agreement.

LETTER FROM THE BOARD

The purposes of this circular are, among other matters:

(a) to provide you with details of the Dongfang Electric Continuing Connected Transactions;

(b) to set out the recommendations from the Independent Board Committee in respect of the Dongfang Electric Framework Agreements and the Dongfang Electric Continuing Connected Transactions;

(c) to set out the advice from Gram Capital in respect of the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps;

(d) to provide the Shareholders with other information required under the Listing Rules; and

(e) to provide the Shareholders with the notice of the EGM.

2. PURCHASE FRAMEWORK AGREEMENT

Principal Terms

The principal terms of the Purchase Framework Agreement are summarised as follows:

Date: 10 December 2024

Parties:
1) The Company (as the purchaser and on behalf of its subsidiaries); and
2) Dongfang Electric Corporation (as the seller, for itself and on behalf of its associates)

Term: From 1 January 2025 to 31 December 2027

Subject matter: The Group shall purchase products (including but not limited to materials such as steel and paint, equipment, accessories, auxiliary materials and other related products) and services (including but not limited to processing services, technical services, inspection and testing services, transportation services, logistics services and other related services) from Dongfang Electric Corporation and its associates.

LETTER FROM THE BOARD

Pricing Principles

The relevant terms for the provision of the products and services by Dongfang Electric Corporation and its associates to the Group will be determined based on the nature of each transaction. The details of pricing will be determined on an arm's length basis after taking into account a combination of factors, such as the quality of the products and services to be provided by Dongfang Electric Corporation and its associates in accordance with the Group's request, payment terms and transportation conditions and with reference to the prevailing market prices (referring to the quotation for similar products and services offered by Independent Third Parties), and on normal commercial terms and terms no less favourable than terms of the transactions between the Group and Independent Third Parties.

Furthermore, prices payable by the Group to Dongfang Electric Corporation and its associates for the products and services shall be determined as follows:

(a) where there are market prices for the relevant products and services, the prices shall be determined with reference to the prevailing market prices, which is:

(i) the price offered by Dongfang Electric Corporation and its associates to an Independent Third-Party customer in respect of the supply or provision of the same or similar products or services on normal commercial terms in the ordinary course of business. The prices of any given products or services shall be based on the prevailing market prices for the same or comparable products or services obtained by the Group from Independent Third-Party suppliers in the ordinary course of business and on normal commercial terms. The Group will solicit quotations from at least two Independent Third-Party suppliers to ensure that the purchase price paid to Dongfang Electric Corporation under comparable conditions does not exceed the price offered by such Independent Third Parties; or

(ii) the price obtained by the Group by way of open tender or negotiated tender, provided that Independent Third Parties shall participate in the open tender or negotiated tender and the forms of the open tender or negotiated tender shall comply with the requirements of applicable laws; and

(b) where there are no market prices for the relevant products and services which meet the specific business needs of the Group, the prices shall be the cost plus an appropriate service fee. The appropriate service fee shall be determined by the parties to the transactions after arm's length negotiations with reference to the normal commercial terms. The products and services to be acquired by the Group from Dongfang Electric Corporation vary in terms of category, complexity and technical specifications. Accordingly, the service fee for these products and services will vary. Notwithstanding, the service fee shall generally not exceed $15\%$ of the cost, taking into account the

LETTER FROM THE BOARD

markup charged by Dongfang Electric Corporation and its associates to Independent Third Parties for similar products and services. To make sure that the arbitrary percentage charged by Dongfang Electric Corporation for any given product or service is fair and reasonable, the Group will seek and compare quotes for similar products or services from at least two Independent Third-Party suppliers in the market before making a purchase from Dongfang Electric Corporation. If the Group obtains more favourable prices for similar products or services from Independent Third-Party suppliers, the Group will negotiate with Dongfang Electric Corporation for a reasonable price for such products or services, and has the full discretion not to procure from Dongfang Electric Corporation. For the purpose of maximising the Group's interests, the Company will proceed with purchases from Dongfang Electric Corporation only when it is satisfied that the acquisition price of the products or services ensures a reasonable profit margin upon resale to third parties and is no less favourable than the acquisition price offered by Independent Third-Party suppliers.

The Group will obtain the prevailing market prices through various channels (if applicable), including (i) recent comparable transactions involving Independent Third-Party suppliers; and (ii) communication with Independent Third-Party suppliers regarding the prices of similar products and services by means of phone calls and e-mails.

Set out below is a brief description of the bidding process:

(i) The procurement department shall issue a bidding notification based on our procurement plan and invite a minimum of three qualified suppliers to submit bids and at least two of those suppliers shall be Independent Third Parties; (ii) following the deadline for quotation submissions, the procurement department shall establish a review penal consisting of employees from various departments, which will oversee the opening of bids, determine the successful bidder, and publish or otherwise announce the results of the bidding process; (iii) the procurement department and the selected supplier shall enter into the purchase contract.

All suppliers invited to bid shall be qualified suppliers who have successfully completed the supplier review process and have been formally registered in our procurement system. Bids will be reviewed and evaluated based on factors including compliance with bid requirements, service quality and delivery timelines, bid price, and the bidder's reputation, past performance, and overall strength.

The participation of Dongfang Electric Corporation and/or its associates in the bidding process shall not in any way affect the Group's bidding procedures. Dongfang Electric Corporation and its associates shall be treated in the same way as Independent Third Parties. The price and terms of the tenders awarded by the Group to Dongfang Electric Corporation and its associates are subject to the above systematic tendering procedures maintained by the Group, which apply to tenders submitted by both

LETTER FROM THE BOARD

connected persons and Independent Third Parties to ensure that the price and terms of the tender awarded by the Group to Dongfang Electric Corporation and its associates are no more favourable than those awarded to Independent Third Parties.

Historical Amounts

For the period from 26 October to 31 December 2022, for the year ended 31 December 2023 and the nine months ended 30 September 2024, the aggregate amounts of products and services purchased by the Group from Dongfang Electric Corporation were RMB101,836,000, RMB209,622,000 and RMB310,842,500, respectively.

Proposed Annual Caps and Basis of Determination

The respective annual caps under the Purchase Framework Agreement for each of the three years ending 31 December 2027 are RMB1,000 million, RMB1,300 million, and RMB1,600 million, respectively.

The annual caps of the Purchase Framework Agreement are determined based on the following factors:

(i) the historical transactions between the Group and Dongfang Electric Corporation and its associates;

(ii) the business plan of the Group, especially in the marine sector, and the expected procurement demand for the products based on its expected production capacity planning of offshore products and offshore modules;

(iii) the Group's orders in hand and intended collaborative projects, the progress of the projects and the expected procurement requirements for the relevant products and services. The Group expects to commence projects such as the drilling rigs and wind power projects during the term of the Purchase Framework Agreement, which are expected to give rise to a significant demand of the Group for materials such as steel if the Group was engaged to provide engineering and technical services in relation to such projects.

The previous annual caps' low utilisation rates were mainly resulting from the fact that certain key intended collaborative projects, such as those in relation to the coal-fired power plant, casing head and preventer, etc., were not implemented when the caps were set. In particular, the Company initially anticipated: (i) a coal-fired power plant project, valued at approximately RMB 500 million, which would require the Group to purchase related products from Dongfang Electric Corporation and resell them to an Independent Third-Party customer after further processing or the provision of ancillary services. However, this project did not proceed due to the customer's financial difficulties; and (ii) a wind power project, estimated to be valued at approximately RMB200 million, which would require the Company to purchase raw materials, such as steel, from Dongfang Electric Corporation. This project was also not executed due to the Company's failure to secure the contract with the customer. Consequently, the

LETTER FROM THE BOARD

Company did not engage in any business transactions with Dongfang Electric Corporation in relation to these projects. The aforementioned projects are not expected to proceed during the period from 2025 to 2027.

Notwithstanding that the historical amounts are on the lower side, the proposed annual caps of the Purchase Framework Agreement from 2025 to 2027 are determined based on the Group's expected demand in contemplation of its internal development plans during the said period.

The Company focuses on high-end oil and gas equipment, actively expands both international and domestic markets, promotes the steady improvement of the offshore equipment business, promotes the long-term development of the collaborative industries, and steadily expands the equipment + services + related diversified industries, striving to achieve continuous growth and sustainable development of the business.

The purchase quota under the Purchase Framework Agreement is primarily determined based on the estimated demand derived from the business planning of the offshore engineering segment. Currently, the offshore engineering business of the Company is primarily engaged in offshore wind power pile foundation business. The offshore wind power in China has experienced rapid growth, making it the largest offshore wind power market in the world. As the process of offshore wind power parity accelerates, provincial plannings are expected to further expand its capacity, and the offshore wind power market will continue to maintain a strong growth momentum.

As of the third quarter of 2024, the cumulative installed capacity of the offshore wind power is 39.1GW, and there is still a significant gap of approximately 21GW in combination with the "14th Five-Year Plan" for each province. Looking forward to the "15th Five-Year Plan", the planned installed capacity of all provinces in China during the "14th Five-Year Plan" period and in the future are expected to reach approximately 100GW-150GW, with an average annual new installation of about 10GW-18GW.

According to industry policies, market conditions, the jacket market share and the current and potential orders of the Company, the Company will increase investment in equipment to further enhance production capacity. It is expected that the investment scale and output value of the offshore wind power segment will achieve steady growth in the next three years and maintain the leading position in this segment.

Furthermore, in order to promote the development of the offshore industry, the Group will make full use of its existing production resources and technical capabilities to further develop related industries such as offshore engineering modules and offshore oil and gas equipment on the basis of stabilising the foundation of the offshore wind power pile foundation market. According to the above-mentioned business development plan, the volume of business in the marine segment will continue to increase, and the procurement demand for corresponding raw materials and other materials will gradually increase.

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LETTER FROM THE BOARD

In light of the above, the Board is of the view that such proposed annual caps can afford the Group flexibility to capture potential opportunities from customers.

Reasons for and Benefits of the Transactions

The purchase of the products and services by the Group from Dongfang Electric Corporation and its associates is based on consideration of the competitive edges of Dongfang Electric Corporation and its associates such as qualifications, experience, centralised procurement, payment terms and transportation capabilities, all of which are conducive to meeting the Group’s needs for product quality and delivery time. The purchase of products, equipment and services from Dongfang Electric Corporation and its associates will enable optimal allocation and integration of resources. The Group and the business divisions of Dongfang Electric Corporation can complement each other in terms of resources. Centralised procurement through Dongfang Electric Corporation can reduce costs and improve efficiency, facilitate the formation of a more stable and powerful supply chain network, and ensure the stable supply of key resources to support its activities. Therefore, the entering into of the Purchase Framework Agreement is conducive to broadening the customer base and sales channels of the Group, expanding the sales market share of the Group and increasing the sales revenue of the Group. The Group and Dongfang Electric Corporation and its associates have a well-established cooperation foundation and smooth communication, which is conducive to the implementation and furtherance of the transactions. In addition, through business cooperation in multiple projects, the Company and Dongfang Electric Corporation can make full use of the industrial foundation and advantages of both parties, and further enhance the strength of both parties.

The Company will retain the flexibility and discretion to select product and service suppliers from Dongfang Electric Corporation and its associates and/or other Independent Third Parties based on arm’s length negotiations after taking into consideration commercial terms and other factors.

Accordingly, the Directors (including independent non-executive Directors) are of the view that the Purchase Framework Agreement (including the transactions contemplated thereunder and the proposed annual caps) is entered into in the ordinary course of business of the Group, on normal commercial terms which are fair and reasonable, and is in the interest of the Company and the Shareholders as a whole.

Implications under the Listing Rules

LETTER FROM THE BOARD

Purchase Framework Agreement exceed 5%, the transactions are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

3. SALES FRAMEWORK AGREEMENT

Principal Terms

The principal terms of the Sales Framework Agreement are summarised as follows:

Date: 10 December 2024

Parties:
1) The Company (as the seller and on behalf of its subsidiaries); and
2) Dongfang Electric Corporation (as the purchaser, for itself and on behalf of its associates)

Term: From 1 January 2025 to 31 December 2027

Subject matter: The Group will sell products (including but not limited to structural parts such as weldments products for containers and steel structure products, semi-finished products, accessories, equipment, parts and components and others) and provide services (including but not limited to processing services, technical services, inspection and testing services, engineering services and other related services) to Dongfang Electric Corporation and its associates.

Pricing Principles

The relevant terms for the provision of the products and services by the Group to Dongfang Electric Corporation and its associates will be determined based on the nature of each transaction. The details of pricing will be determined on an arm's length basis after taking into account a combination of factors such as the quality of the products and services provided by the Group as requested by the Dongfang Electric Group and its associates, payment terms and transportation conditions, with reference to the prevailing market prices (including the quotation for similar products and services offered by Independent Third Parties), and on normal commercial terms and terms no less favourable than terms of the transactions between the Group and Independent Third Parties.

Furthermore, prices payable by Dongfang Electric Corporation and its associates to the Group for the products and services shall be determined as follows:

LETTER FROM THE BOARD

(a) where there are market prices for the relevant products and services, the prices shall be determined with reference to the prevailing market prices, which is:

(i) the price offered by the Group to an Independent Third-Party customer in respect of the supply or provision of the same or similar products or services on normal commercial terms in the ordinary course of business. The prices of any given products or services shall be determined by reference to the selling prices of the same or similar products or services offered by the Group (and/or its subsidiaries) to Independent Third-Party customers in the ordinary course of business and on normal commercial terms. The Group will compare the price offered to the relevant purchaser with the prices of the same or similar products or services, with comparable specifications (including, but not limited to, quantity, credit terms, and delivery methods), as provided to at least two Independent Third-Party customers, to ensure that the price offered to the relevant purchaser is not more favorable than the price offered to the Group's Independent Third-Party customers; or

(ii) the price obtained by Dongfang Electric Corporation and its associates by way of open tender or negotiated tender, provided that Independent Third Parties shall participate in the open tender or negotiated tender and the procedures of the open tender or negotiated tender shall comply with the requirements of applicable laws; and

(b) where there are no market prices for the relevant products and services which meet the specific business needs of Dongfang Electric Corporation and its associates, the prices shall be the cost plus an appropriate service fee. The appropriate service fee shall be determined by the parties to the transactions after arm's length negotiations with reference to the normal commercial terms. The service fee percentage shall generally not be less than 5%, and in no event shall it be lower than the percentage offered to the Independent Third Parties under equivalent conditions. The products or services provided by the Company vary in category, complexity, and technical requirements, and as such, the service fee percentage and profit margin may vary accordingly. For the avoidance of doubt, the 5% markup is the minimum markup to be applied by the Group for sales to Dongfang Electric Corporation, serving as the baseline to ensure profitability. This is distinct from the maximum 15% markup applied to purchases from Dongfang Electric Corporation. The profit margin for sales to Dongfang Electric Corporation will be determined based on the prices of similar products or services in the industry, taking into account factors such as product or services category, quantity, delivery and payment terms. However, the profit margin for products or services offered to Dongfang Electric Corporation shall not be less favorable than that for similar products or services provided to Independent Third-Party customers of the Group. For the purpose of maximizing the Group's return from the sales to Dongfang Electric Corporation under the Sales Framework Agreement and as a profit

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LETTER FROM THE BOARD

enhancement measure, the Group will not set a maximum service fee percentage on such products and/or services to be sold to Dongfang Electric Corporation.

The Group will obtain the prevailing market prices through various channels (if applicable), including (i) recent comparable transactions involving Independent Third-Party customers; and (ii) communication with Independent Third-Party suppliers on the prices of similar products and services by means of phone calls and e-mails.

Historical Amounts

For the period from 26 October to 31 December 2022, during the year ended 31 December 2023 and the nine months ended 30 September 2024, the aggregate amount of products and services provided by the Group to Dongfang Electric Corporation and its associates were RMB87,974,000, RMB302,717,000 and RMB111,054,800, respectively.

Proposed Annual Caps and Basis of Determination

The respective annual caps under the Sales Framework Agreement for each of the three years ending 31 December 2027 are RMB400 million, RMB550 million and RMB550 million, respectively.

The annual caps of the Sales Framework Agreement are determined based on the following factors:

(i) the historical transactions between the Group and Dongfang Electric Corporation and its associates;

(ii) the orders on hand and intentioned collaborative projects of the Group; and

(iii) the expected demand of Dongfang Electric Corporation which is estimated based on the negotiations between the Group and Dongfang Electric Corporation and the expected demand of Dongfang Electric Corporation in accordance with its internal development plans and the market conditions during the period.

The lower historical transaction volume is primarily attributable to the change of procurement demand of Dongfang Electric Corporation. Additionally, it is also attributable to the Company's decision not to proceed with a major wind power project that was expected at the time the Company set the existing annual caps. Valued at RMB 300 million, the project was not pursued after the Company's research and validation review revealed that, the investment in the relevant production lines would be substantial, and the profit margin would be extremely thin. While the Company acknowledges the significant discrepancy between historical transaction amounts and the proposed annual caps, it believes that the proposed caps, which take into account the Group's current orders on hand (including signed sales orders for exciters, control cabinets, and related accessories, as well as steel structure projects), intended

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LETTER FROM THE BOARD

collaborative projects (such as wind power projects and drilling rig sales), and the expected demand from Dongfang Electric Corporation, will provide greater flexibility to the Group and enable it to capitalize on potential business opportunities arising from Dongfang Electric Corporation.

Reasons for and Benefits of the Transactions

Due to the production needs of the projects and business development, Dongfang Electric Corporation and its associates need to purchase a large number of products and services including materials, equipment and parts and components related to the projects. The Group currently possesses relevant products and technical services, which can meet the needs of the projects of Dongfang Electric Corporation and its associates. The entering into of the Sales Framework Agreement is conducive to selling relevant products and technical services to Dongfang Electric Corporation and its associates, thus increasing the Group's revenue. In addition, the entering into of the Sales Framework Agreement is in line with the business development needs of the Group, both the Group and Dongfang Electric Corporation and its associates will benefit from the synergy in a fair and reasonable manner and realise the complementarity of resources and a win-win situation for both parties.

The Company will retain the flexibility and discretion to select product and service purchasers among Dongfang Electric Corporation and its associates and/or other Independent Third Parties based on arm's length negotiations after taking into consideration commercial terms and other factors.

Accordingly, the Directors (including independent non-executive Directors) are of the view that the Sales Framework Agreement (including the transactions contemplated thereunder and the proposed annual caps) is entered into in the ordinary course of business of the Group, on normal commercial terms which are fair and reasonable, and is in the interest of the Company and the Shareholders as a whole.

Implications under the Listing Rules

As disclosed above, Dongfang Electric Corporation is a connected person of the Company. Accordingly, the Sales Framework Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios related to the transactions under the Sales Framework Agreement exceed 5%, the transactions are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

4. LEASE FRAMEWORK AGREEMENT

Principal Terms

The principal terms of the Lease Framework Agreement are summarised as follows:

Date: 10 December 2024

Parties:
1) The Company (as the Lessee and on behalf of its subsidiaries); and
2) Honghua Leasing (as the Lessor, for itself and on behalf of its subsidiaries)

Term: From 1 January 2025 to 31 December 2027

Subject matter: The Group shall purchase drilling and energy equipment leasing services from Members of Honghua Leasing, including but not limited to direct financial leasing services and operating leasing services, and shall pay rent to the Members of Honghua Leasing for the provision of the afore-mentioned leasing services.

Pricing Principles

In terms of the direct finance leasing services, the lease consideration is made up of the purchase price of the leased equipment, the lease interest and handling fee (if any) agreed by both parties. The lease consideration will be determined after arm's length negotiations between the Group and the Members of Honghua Leasing with reference to the market price of finance leased assets of the same type.

The Members of Honghua Leasing will purchase the leased properties from suppliers according to the instructions and selection of the Group, and then lease the properties to the Group for an agreed term and receive lease payment on a periodic basis. The principal amount is the purchase price of the leased properties from the suppliers which is negotiated by the Group with the suppliers on normal commercial terms and by reference to the market price of such properties.

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LETTER FROM THE BOARD

Members of Honghua Leasing will purchase the leased properties and own the assets and then lease the same back to the Group for an agreed term and receive an agreed amount of rent on a periodic basis.

Operating leases do not result in the transfer of ownership, whereas direct financial leases do. Under a direct financial lease, ownership of the leased assets is transferred to the lessee at the end of the lease term, for a nominal consideration, typically RMB 1 or RMB 100, payable by the lessee. This nominal consideration is symbolic, as the cost of acquiring the leased assets has already been effectively covered by the rent paid over the lease term.

In determining whether the purchase price of the leased equipment procured by Members of Honghua Leasing under direct finance leasing services is fair and reasonable and in the interests of the Company, the Group will consult with at least two Independent Third-Party suppliers via email, fax, or telephone to obtain quotations and historical rental prices for similar types of leased equipment. The price will be determined by reference to local comparable market prices, either derived from these consultations or assessed by professional appraisal agencies. If no comparable market price is available, the price will be negotiated based on factors such as equipment depreciation, management fees, relevant taxes (including value-added tax and surcharges), and reasonable profits.

In determining the lease interest paid to the Members of Honghua Leasing, the Company will consider, among other things: (i) market conditions and the benchmark interest rate for term loans announced by the PBOC from time to time; (ii) terms and conditions no less favourable to the Group than those offered by similarly qualified lessors; and (iii) the incremental borrowing rate of the lessee, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

In financial leasing, handling fees generally refer to service fees charged by the lessor for providing consulting services to the lessee. These services typically cover industry-specific advice, project-related guidance, and tax-related consulting. This fee structure is common in the leasing industry and is usually determined through negotiation, based on prevailing industry standards. In connection with the execution of any individual written agreement under the Lease Framework Agreement, the lessor may charge the lessee a one-time, non-refundable handling fee. The terms of this fee shall be no less favorable to the lessee than those offered by Independent Third Parties for similar services. The rate of the handling fee shall, among other factors, reflect the rates charged by other major financial institutions for financial leases involving similar assets or, if applicable, refer to the rates published by the PBOC from time to time. The specific terms and rate of the handling fee shall be clearly stated in the individual written contracts.

Honghua Leasing was previously a subsidiary of the Company and is familiar with the equipment typically leased by the Group, the Company expects that Honghua Leasing will not be required to provide consulting services related to industry, projects,

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or taxation for the Company's routine financial leasing activities that would result in the incurrence of handling fees. In addition, Honghua Leasing is currently a subsidiary of Dongfang Electric Corporation, serving as a primary financial leasing platform and providing strong support for the business development of Dongfang Electric Corporation's subsidiaries, including the Company. As such, following negotiations between the Company and Honghua Leasing, both parties anticipate that it is unlikely any handling fees will be charged to the Group by Members of Honghua Leasing in the event the Group leases assets from them. Should handling fees be incurred, the rates will be determined with reference to, among other factors set forth in the following paragraph, the rates charged by major financial institutions for the financial leasing of similar asset types, and will be specified in the relevant written agreements. Accordingly, the Company believes that any handling fee under the Lease Framework Agreement, if incurred for unforeseen reasons, would be immaterial.

In determining the handling fee paid to the Members of Honghua Leasing, the Company will consider, among other things: (i) the applicable rates for related services as announced by the PBOC from time to time; and (ii) terms and conditions no less favourable to the Group than those obtained from similarly qualified lessors.

Historical Amounts

References are made to the announcement of the Company dated 12 December 2023 and its circular dated 5 January 2024, in relation to the disposal of the entire interest in Honghua Leasing by Honghua Holdings to DEC Investment. The disposal was completed on 24 April 2024. Since then, the Group no longer has any interest in Honghua Leasing. For the two years ended 31 December 2023, Honghua Leasing was a member of the Group. The provision of leasing services by Honghua Leasing to other members of the Group was an intra-group transaction of the Group, and did not constitute connected transactions of the Group. After 24 April 2024, the provision of leasing services by Honghua Leasing to the Group constitutes connected transactions of the Group.

The amount of financial leasing services and operating leasing services provided by Honghua Leasing to other members of the Group for the two years ended 31 December 2023 and the amount of financial leasing services and operating leasing services provided by Honghua Leasing to the Group for the nine months ended 30 September 2024 are set out below.

	For the year ended 31 December 2022 (RMB0'000)	For the year ended 31 December 2023 (RMB0'000)	For the nine months ended 30 September 2024 (RMB0'000)
Direct financial leasing services	0	0	0
Operating leasing services	0	0	0

LETTER FROM THE BOARD

Note: The amounts of the direct financial leasing services represent the right-of-use assets under the International Financial Reporting Standard ("IFRS") 16 (Leases), while the amounts of the operating financial leasing services represent the annualised amounts of repayment. For operating leasing services, since the lease term of the assets to be leased under the Lease Framework Agreement is 12 months or less, the Company will not recognize right-of-use assets and lease liabilities for such short-term leases in accordance with IFRS 16 (Leases).

Proposed Annual Caps and Basis of Determination

The Company adopted, among others, the IFRS 16 (Leases) in its consolidated statement of financial position in connection with leases and finance leases with effect from the beginning of its accounting period on 1 January 2019.

Pursuant to the IFRS 16 (Leases), the Company recognises right-of-use assets at the commencement date of the lease (i.e., the date when the underlying asset is available for use by the Group). The Company will recognise the leased asset of the relevant lease which represents the right of the Company to use the leased asset (except for short-term leases and low-value leases), subject to the specific lease terms and conditions as set out in each lease agreement. For direct financial leasing services, the Company will recognize the right-of-use asset in respect of the right to use the leased assets from the inception date of the lease, whereas for operating lease services, the Company will not recognize the right-of-use asset and lease liability for such short-term leases in accordance with IFRS 16 (Leases), as the duration of the lease term of the assets to be leased by the Group will be for a period of 12 months or less.

Pursuant to the Listing Rules, direct financial leasing services are deemed as acquisition of assets by the Group. The Company expects that the annual caps under the Lease Framework Agreement for each of the three years ending 31 December 2027 are as below:

	For the year ending 31 December 2025 (RMB0'000)	For the year ending 31 December 2026 (RMB0'000)	For the year ending 31 December 2027 (RMB0'000)
Direct financial leasing services	15,000	15,000	15,000
Operating leasing services	35,000	35,000	35,000

Note: The amounts of the annual caps of the direct financial leasing services represent the right-of-use assets under the IFRS 16 (Leases), while the amounts of the annual caps of the operating financial leasing services represent the annualised amounts of repayment. For operating leasing services, since the lease term of the assets to be leased under the Lease Framework Agreement is 12 months or less, the Company will not recognize right-of-use assets and lease liabilities for such short-term leases in accordance with IFRS 16 (Leases).

LETTER FROM THE BOARD

The annual caps of the Lease Framework Agreement are determined based on the following factors:

(i) The intended collaborative projects of the Group with the Members of Honghua Leasing during the term of the Lease Framework Agreement. After Honghua Leasing became a connected person of the Company, the Company intends to strengthen business cooperation in the operating leasing and financial leasing businesses to optimise the financing structure and reduce the capital investment. Collaborative projects include leasing projects in respect of oil drilling and new energy equipment such as electric fracturing pump equipment, gas generators and their supporting control systems and the large components required;

(ii) The prevailing market conditions (including interest rate levels) and the possibility of future adjustments by the PBOC on lending interest rates; and

(iii) the Group’s expected demand for leasing services based on its current business strategies.

Reasons for and Benefits of the Transactions

The entering into of the Lease Framework Agreement meets the business needs of the Group. The leasing of relevant equipment by the Group from Dongfang Electric Corporation and its associates is based upon consideration of the competitive edges of Dongfang Electric Corporation and its associates such as qualifications, experience, advantages in terms of equipment, payment terms and transportation capabilities, all of which are conducive to meeting the Group’s needs for the use of its products. After leasing equipment such as electric fracturing pumps and gas generators from Dongfang Electric Corporation and its associates, the Group will use such equipment to provide construction and operation services to third-party customers, for leasing or for its own use to increase the revenue from the related businesses. Therefore, the entering into of the Leasing Framework Agreement is conducive to broadening the customer base and service channels of the Group, expanding the market share of the Group and increasing the sales revenue of the Group. The Group and Dongfang Electric Corporation and its associates have a well-established cooperation foundation and smooth communication, which is conducive to the implementation and furtherance of transactions. In addition, through business cooperation in multiple projects, the Company and Dongfang Electric Corporation can make full use of the industrial foundation and advantages of both parties, and further enhance the strength of both parties.

The Company will retain the flexibility and discretion to select lessors among the Members of Honghua Leasing and/or other Independent Third Parties based on arm’s length negotiations after taking into consideration commercial terms and other factors.

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Accordingly, the Directors (including independent non-executive Directors) are of the view that the Lease Framework Agreement (including the transactions contemplated thereunder and the proposed annual caps) is entered into in the ordinary course of business of the Group, on normal commercial terms which are fair and reasonable, and is in the interest of the Company and the Shareholders as a whole.

Implications under the Listing Rules

As at the Latest Practicable Date, as Dongfang Electric Corporation directly and indirectly holds approximately 58.52% of the issued share capital of the Company, it is a controlling shareholder within the meaning of the Listing Rules and is therefore a connected person of the Company. Honghua Leasing is a wholly-owned subsidiary of Dongfang Electric Corporation, so Honghua Leasing is an associate of Dongfang Electric Corporation and therefore a connected person of the Company. Accordingly, the entering into the Lease Framework Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios related to the transactions under the Lease Framework Agreement exceed 25%, such transactions also constitute a major transaction of the Company under Chapter 14 of the Listing Rules. Therefore, the transactions are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

5. FINANCIAL SERVICES FRAMEWORK AGREEMENT

Principal Terms

The principal terms of the Financial Services Framework Agreement are summarised as follows:

Date: 10 December 2024

Parties:
1) the Company (as the service purchaser and on behalf of its subsidiaries); and
2) Dongfang Electric Finance (as the service supplier)

Term: From 1 January 2025 to 31 December 2027

LETTER FROM THE BOARD

Subject matter: Dongfang Electric Finance will provide the Group with financial services including:

1) deposit services (the "Deposit Services");
2) loan advancement services (the "Loan Advancement Services"); and
3) settlement services (the "Settlement Services")

(collectively known as the "Financial Services")

Pricing Principles

The prices of the transactions under the Financial Services Framework Agreement shall be determined in accordance with the following pricing policy:

(i) in respect of the Deposit Services: the deposit interest rate applicable to the Group's deposits at Dongfang Electric Finance shall not be lower than the interest rate offered by major state-owned commercial banks in the PRC for comparable deposits for the same periods, and shall be determined on normal commercial terms;

(ii) in respect of the Loan Advancement Services: the interest rates for the loans granted by Dongfang Electric Finance to the Group shall be in accordance with the relevant regulations of the PBOC and the relevant lending interest rate policies and regulations of Dongfang Electric Finance. At the time of entering into each loan contract, both parties shall negotiate with each other based on the then market conditions, and the interest rate shall generally not exceed the interest rate of comparable loans obtained by the Group from major commercial banks in the PRC during the same period; and

(iii) in respect of the Settlement Services: the cumulative settlement fees to be charged by Dongfang Electric Finance for the provision of the Settlement Services for the Group during the agreement period shall not exceed RMB10 million per year.

Historical Amounts

During the period from 26 October 2022 to 31 December 2022, Dongfang Electric Finance did not provide any financial services to the Group. For the year ended 31 December 2023, the Group did not place any deposit with Dongfang Electric Finance. For the nine months ended 30 September 2024, the maximum daily balance of deposits placed by the Group with Dongfang Electric Finance (including accrued interest) amounted to RMB211,469,981.39. From 2022 to 2023, the Group's financial operations involved multi-currency transactions, including RMB and USD. However, Dongfang Electric Finance was limited to offering RMB deposit services, which were insufficient to satisfy the needs of Honghua Group. Therefore, Honghua Group sought loan support

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from commercial banks. These banks, in turn, required Honghua Group to maintain a corresponding deposit balance in their accounts for internal risk management purposes. Consequently, the volume of deposits held by Honghua Group with Dongfang Electric Finance during the 2022-2023 period was relatively low.

For the year ended 31 December 2023, Dongfang Electric Finance provided loans totaling RMB1,418 million to the Group, of which, the maximum daily balance of secured loans is nil, and the maximum daily balance of unsecured loans is RMB978 million. For the nine months from 1 January 2024 to 30 September 2024, Dongfang Electric Finance provided the Group loans totaling RMB670 million, of which, the maximum daily balance of secured loans is nil, and the maximum daily balance of unsecured loans is RMB1,435 million.

Proposed Annual Caps and Basis of Determination

During the relevant periods, the proposed annual caps of the Deposit Services, Loan Advancement Services and Settlement Services under the Financial Services Framework Agreement are:

	For the year ending 31 December 2025 (RMB0'000)	For the year ending 31 December 2026 (RMB0'000)	For the year ending 31 December 2027 (RMB0'000)
Deposit Services: Maximum daily balance of deposits to be placed by the Group with Dongfang Electric Finance (including accrued interest)	200,000	200,000	200,000
Secured Loan Advancement Services: Maximum daily balance of secured loan (including accrued interest) to be advanced by Dongfang Electric Finance to the Group	50,000	50,000	50,000
Unsecured Loan Advancement Services: Maximum daily balance of unsecured loan (including accrued interest) to be advanced by Dongfang Electric Finance to the Group	200,000	230,000	250,000
Settlement Services	1,000	1,000	1,000

Note: In respect of Secured Loan Advancement Services, the principal amount of the loan and the amount of secured assets shall not exceed RMB500 million for each of the three years ending 31 December 2027.

LETTER FROM THE BOARD

In determining the proposed annual caps of the Settlement Services under the Financial Services Framework Agreement, the Company estimates that the annual caps based on the Company's expectation on domestic sales and the costs of opening and discounting domestic letters of guarantee with Dongfang Electric Finance in the future.

In determining the proposed annual caps of the Deposit Services and the Loan Advancement Services under the Financial Services Framework Agreement, the Company has considered the following factors: (i) the cash and cash equivalents of the Group of RMB601 million and RMB811.27 million as at 31 December 2022 and 31 December 2023, respectively; and (ii) the cash and cash equivalents of the Group of RMB971.83 million as at 30 September 2024.

In determining the proposed annual caps of the Loan Advancement Services to be provided by Dongfang Electric Finance to the Group under the Financial Services Framework Agreement, the Company has taken into account the following additional factors:

(i) according to the Group's business plan and budget, the Group expects to have relatively large capital needs in several drilling rig projects and offshore projects and marine engineering projects;

(ii) Dongfang Electric Finance has sufficient capital sources, relatively low capital costs and relatively stable credit policy, and can provide the Group with stable financing support; and

(iii) in comparison, the credit policy of Independent Third-Party financial institutions, which are affected by various factors such as regulatory policies, the credit scale of the head office, capital costs and other factors, is relatively uncertain.

In particular, the annual caps of each of the Deposit Services and Secured Loan Advancement Services were determined based on the following key factors:

Deposit Services

Since 2024, Dongfang Electric Corporation and Dongfang Electric Finance have continued to provide loan support to Honghua Group. At the same time, the interest rates of deposits offered by Dongfang Electric Finance Company are comparable to, or more favorable than, those of third-party commercial banks. As a result, the Group intends to increase its deposits with Dongfang Finance in the future. The annual caps of the Deposit Services were determined based on the following key factors:

(1) Current and Historical Cash Balances: The average balance of the Group's monetary funds is approximately RMB 900 million, with the highest balance in the past three years reaching RMB approximately 1.8 billion. Given Dongfang Electric Finance's ongoing support for the

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Group, it is planned to deposit RMB 800 million to RMB 1 billion with Dongfang Electric Finance at an interest rate no less favourable than those offered by other financial institutions;

(2) Future Business Growth: The Group is currently experiencing a positive development trend, supported by a sufficient volume of orders. It is anticipated that future sales revenues will steadily increase, which will in turn raise the overall deposit amount;

(3) As at Latest Practicable Date, Honghua Group has an outstanding syndicated loan of RMB1.03 billion. Given the size of the loan being substantial, the Group intends to seek financial support from Dongfang Electric Finance to refinance the loan. The fund from Dongfang Electric Finance will first reach the Group’s account with Dongfang Electric Finance immediately after withdrawal from Dongfang Electric Finance and before the repayment of the syndicated loan; and

(4) Strategic Financial Cooperation: To further strengthen the comprehensive financial cooperation with the Group, Dongfang Electric Finance offers more competitive, efficient and convenient financial services, such as deposits and loans, compared to external financial institutions. As long as the deposit conditions provided by Dongfang Electric Finance are not less favorable than those of other financial institutions, the Group intends to gradually centralize its deposits in its account maintained with Dongfang Electric Finance.

Secured Loan Advancement Services

Honghua Offshore Oil & Gas Equipment (Jiangsu) Co., Ltd. and Sichuan Honghua Electric Co., Ltd., subsidiaries of the Group, are expected to gradually expand their business operations and market presence in areas such as offshore drilling rigs starting next year. Currently, these subsidiaries are in the development stage and have relatively weak credit profiles. As a result, they are anticipated to require partial collateral to secure loans from financial institutions. For internal risk management purposes, the Company has determined that the maximum allowable collateral-backed loan for these subsidiaries will be RMB 500 million, which shall not exceed 15% of the Group’s net assets.

Given that the terms offered by Dongfang Electric Finance are no less favorable than those available from Independent Third-Party financial institutions and considering that the Group retains full discretion in selecting its financial lenders for these secured loans, the Company considers the annual caps on the Secured Loan Advancement Services to be fair and reasonable.

In view of the aforesaid backdrop, the Group needs continuous and stable financing support from Dongfang Electric Finance. However, Dongfang Electric Finance, as a lender, usually conduct a thorough assessment on its borrowers on an annual basis based on its borrowers’ financial and operating conditions in the previous

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year, to determine the ratings of the borrowers, and in turn to determine the amount of credit facilities to be granted to the borrowers in accordance with their respective rating. The Group, as a borrower, needs to put forward relevant requirements for each business line based on its own business expansion, expected sales growth, the relevant policies of the Group and the balance of the financial business with Dongfang Electric Finance.

As such, as per the credit approval requirements of Dongfang Electric Finance, asset security must be provided by the Group for certain proportion of the loans and credit facilities granted as credit enhancement measures, and the proportion of secured loans and credit facilities will be determined by reference to the Group's annual ratings and other specific conditions.

Reasons for and Benefits of the Transactions

The entering into of the Financial Services Framework Agreement between the Company and Dongfang Electric Finance is in line with the financial policies of the Group. The major reasons for and benefits of entering into the Financial Services Framework Agreement are as follows:

(i) To increase interest income and save finance costs

Subject to compliance with the relevant laws, regulations and regulatory requirements, Dongfang Electric Finance will provide the Deposit Services to the Group on normal commercial terms or more favourable terms, which will help increase the interest income of the Group. With the deposit arrangements with Dongfang Electric Finance, the Group could handle the settlement activities through its internal accounts at Dongfang Electric Finance with reduced charges, which can reduce the financial handling fees of the Group.

(ii) To raise the efficiency of fund utilisation

The Deposit Services of Dongfang Electric Finance will strengthen the Company's centralised management of the funds of its subsidiaries and shorten the time for capital transfers, which is beneficial for the Group to enhance fund management and control and to reduce the time for funds in transit, thereby accelerating cash flows.

(iii) To enhance the management and control of the Group's funds

Dongfang Electric Finance has a cutting-edge information system, through which the Group can access the latest information on its collection and payment of funds as well as the status of fund balance, thereby reducing and avoiding operational risks.

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(iv) To meet the needs for working funds

By entering into the Financial Services Framework Agreement with Dongfang Electric Finance, the Group will be able to obtain such loans that meet the needs for working funds for actual business operations, particularly, given the overall business environment of the global oil and gas sectors, and difficulties in obtaining third-party borrowings from the market at low costs in a stable manner.

In addition, in respect of the Settlement Services, as Dongfang Electric Finance is familiar with the business and transaction pattern of the Group, the Settlement Services provided by Dongfang Electric Finance tend to provide a more efficient settlement platform than those provided by commercial banks. The Settlement Services enable the Group to achieve same-day low-rate settlement at low costs. This also helps to reduce the transaction costs of the Group, such as handling fees for fund transfers and other administrative and management fees.

Accordingly, the Directors (including independent non-executive Directors) are of the view that the terms of the Financial Services Framework Agreement (including the Deposit Services, Lending Services and Settlement Services contemplated thereunder and the proposed annual caps) are on normal commercial terms which are fair and reasonable and entered into in the ordinary and usual course of business of the Group, which are in the interests of the Company and Shareholders as a whole.

Implications under the Listing Rules

As at the Latest Practicable Date, Dongfang Electric Corporation holds 5,290,494,251 shares (representing 58.52% of the total issued share capital of the Company) of the Company through its wholly-owned subsidiary Dongfang International Investment, and therefore is a controlling shareholder and connected person of the Company. DFEC holds 95% of the shares of Dongfang Electric Finance, and Dongfang Electric Corporation holds 5% of the shares of Dongfang Electric Finance, thus Dongfang Electric Finance is an associate of Dongfang Electric Corporation and in turn a connected person of the Company. Therefore, the transactions under the Financial Services Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

In respect of the Deposit Services under the Financial Services Framework Agreement, as one or more of the applicable percentage ratios of the transactions are higher than 25%, such transactions also constitute major transactions of the Company under Chapter 14 of the Listing Rules. Therefore, the transactions relating to the Deposit Services under the Financial Services Framework Agreement are subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirements under Chapters 14 and 14A of the Listing Rules.

In respect of the Unsecured Loan Advancement Services under the Financial Services Framework Agreement, the transactions constitute financial assistance provided to the Group by a connected person on normal commercial terms or better,

LETTER FROM THE BOARD

and will not be secured by the Group's assets, so Unsecured Loan Services will be fully exempted from all reporting, announcement, annual review and Independent Shareholders' approval requirements under Rule 14A.90 of the Listing Rules.

In respect of the Secured Loan Advancement Services under the Financial Services Framework Agreement, as one or more of the applicable percentage ratios of the transactions are higher than 25%, such transactions also constitute a major transaction of the Company under Chapter 14 of the Listing Rules. Therefore, the transactions relating to the Secured Loan Advancement Services under the Financial Services Framework Agreement are subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. If the principal amount of the secured loan or the amount of secured assets increases to the effect that the transactions in respect of the Secured Loan Advancement Services fall under a higher classification, the Company will re-calculate the percentage ratios and re-comply with the provisions of Chapter 14A of the Listing Rules, if applicable.

In respect of the Settlement Services under the Financial Services Framework Agreement, one or more of the applicable percentage ratios of the transactions are higher than 0.1% but less than 5%. The transactions relating to the Settlement Services under the Financial Services Framework Agreement are subject to the reporting, announcement and annual review requirements under Chapter 14A of the Listing Rules but are exempted from the Independent Shareholders' approval requirement.

6. INTERNAL CONTROL

The Company has formulated a number of measures and policies, including connected transaction administrative measures and management measures, to ensure that all connected transactions of the Company are effectively controlled and monitored. The Group will, through its internal control procedures and a series of risk management arrangements in accordance with the regulatory requirements, endeavour to maintain its independence in decision-making as well as the fairness of the prices and terms of each continuing connected transaction.

Such arrangements include:

(i) before the respective subsidiary of the Company enters into any transaction with Dongfang Electric Corporation according to the Dongfang Electric Framework Agreements, the relevant department will collect the information (including credit certificate) of the counterparty (as the case may be) for selection, arrange review of the contracts by the legal and risk control department, finance department, technical department, production department, quality department and/or other relevant departments (as the case may be) and evaluation, review and approval by the management of the respective subsidiary to ensure the fairness and reasonableness of the relevant terms and pricing;

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(ii) the transactions contemplated under the Dongfang Electric Framework Agreements shall be conducted on a non-exclusive basis, and the Group has the flexibility to enter into arrangements with Independent Third Parties;

(iii) the pricing mechanism is transparent and the implementation of such pricing mechanism in the Dongfang Electric Continuing Connected Transactions is subject to strict scrutiny by the finance department, technical department and/or the relevant business departments of the Company (as the case may be). This will ensure that the Dongfang Electric Continuing Connected Transactions are conducted in accordance with the relevant pricing policies and the quotations obtained meet the relevant requirements;

(iv) with regard to the Purchase Framework Agreement, the Group will keep and continue to update a centralised list of eligible suppliers who are shortlisted based on their procurement qualifications, capability to procure products with specific technical requirements and the Group's past experience in dealing with the respective suppliers. Prior to the entering into of the transactions by the purchaser and the seller under the Purchase Framework Agreement, the business department of the purchaser shall summit an application and the procurement department of the purchaser shall organise the selection of suppliers from the list, which shall also be subject to consideration and approval by the management of the purchaser(s) so as to ensure the fairness and reasonableness of the relevant terms and pricing;

(v) with regard to the Sales Framework Agreement, the Group strictly follows the internal sales policy to perform relevant pricing and approval procedures. For each type of sales contract, the relevant procedures set forth the functional departments that are required to participate in the contract review and due diligence, as well as detailed review standards. Depending on the consideration of the contracts, the Group will implement a tiered structure of execution authority in the contract signing phase;

(vi) with respect to the Lease Framework Agreement, the finance department is responsible for collecting and monitoring information under the Lease Framework Agreement. Before entering into individual lease contracts under the Lease Framework Agreement, the finance department will compare the major terms and financing costs associated with such arrangements with the major terms and financing costs charged by at least two independent third parties that provide finance leases of similar size and nature. The Group intends to obtain relevant quotations from independent third parties, which must at least be comparable to Honghua Leasing in terms of operating scale and financial status and pick the best option after comprehensive evaluation. The finance department and other relevant operating departments of the Group are jointly responsible for reviewing the transaction terms of the individual agreements governed by the Lease Framework Agreement, especially the fairness and reasonableness of the pricing terms therein. The finance department of the Company has established a monitoring system to

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keep track of the amount of new direct leases and operating leases to strictly control the balance to ensure that it will not exceed the relevant proposed annual caps;

(vii) with regard to the transactions in relation to the Deposit Services under the Financial Services Framework Agreement, the personnel in the finance department of the Group is responsible for comparing the interest rates offered by Dongfang Electric Finance against the deposit interest rates offered by at least two major state-owned commercial banks in the PRC, so as to confirm that the interest rates offered by Dongfang Electric Finance are not less favourable than such interest rates in respect of the Group;

(viii) with regard to the transactions in relation to the Loan Advancement Services under the Financial Services Framework Agreement, the personnel in the finance department of the Group is responsible for comparing the lending rates offered by Dongfang Electric Finance against the benchmark lending rates announced by the PBOC, and further against the lending rates offered by at least two major commercial banks in the PRC, so as to confirm that the lending rates offered by Dongfang Electric Finance are not higher than the rates applicable to the same type of loan services provided by major commercial banks in the PRC to the Group, and loan agreements shall be determined on normal commercial terms. Each of the loans of the Group at Dongfang Electric Finance will be submitted to the management of the Group for review and approval in accordance with the relevant policies;

(ix) in order to ensure that Dongfang Electric Continuing Connected Transaction will be or have been conducted in accordance with the relevant pricing policies or mechanisms and do not exceed the annual caps of the relevant continuing connected transactions, the relevant departments of the Company will monitor Dongfang Electric Continuing Connected Transactions, including (a) the Board office, in conjunction with the finance department, will regularly monitor the transaction amounts of Dongfang Electric Continuing Connected Transactions on a monthly basis; (b) the business department will review and conduct internal audits on a monthly basis to track, monitor and evaluate the transaction amount of Dongfang Electric Continuing Connected Transactions; (c) the Board office, in collaboration with the sales, purchasing and other business management departments and the audit department will monitor the pricing standards, execution and implementation of Dongfang Electric Continuing Connected Transactions and conduct random checks from time to time to ensure compliance with the pricing policies;

(x) the independent non-executive Directors shall annually review the transactions contemplated under the Dongfang Electric Framework Agreements, and confirm in the Company's annual report that Dongfang Electric Continuing Connected Transactions have been (a) conducted in the ordinary and usual course of business of the Group; (b) on normal commercial terms or more favourable terms; and (c)

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conducted in accordance with the Dongfang Electric Framework Agreements, and the terms of the Dongfang Electric Framework Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and

(xi) the Company's auditor shall be engaged to annually report on the transactions contemplated under the Dongfang Electric Framework Agreements and provide a letter to the Board that nothing has come to their attention that causes them to believe that Dongfang Electric Continuing Connected Transactions (a) have not been approved by the Board; (b) were not, in material respects, consistent with the pricing policies adopted for the Dongfang Electric Continuing Connected Transactions; (c) were not entered into, in material respects, in accordance with the Dongfang Electric Framework Agreements; and (d) exceeded the proposed annual caps of the Dongfang Electric Continuing Connected Transactions.

As the Group adopts an effective set of internal control measures to monitor its continuing connected transactions, the Directors consider that procedures are in place which will ensure that such transactions are conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders.

7. INFORMATION ON PARTIES

The Group is principally engaged in research, design, manufacture, setting and sale of land rigs and related parts and components, design and manufacture of the offshore drilling module. Meanwhile it also provides clients with technical support services and drilling engineering services.

Dongfang Electric Corporation is one of the largest energy equipment manufacturing enterprise groups in the PRC, mainly engaged in offshore wind power, electric motors, geothermal power generation and distributed energy applications. Dongfang Electric Corporation is controlled by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

Dongfang Electric Finance, a limited liability company incorporated in the PRC, is a subsidiary of Dongfang Electric Corporation (DFEC holds 95% of the shares of Dongfang Electric Finance, and Dongfang Electric Corporation holds 5% of the shares of Dongfang Electric Finance). The main business includes provision of finance and fund-raising consultancy, credit accreditation and related advisory and agency services to members units; assisting members units in receipt and payment of transaction amounts; and arrangement of entrustment loans and entrustment investment among members units.

Honghua Leasing, a company incorporated in the PRC, is a wholly-owned subsidiary of Dongfang Electric Corporation. Honghua Leasing's principal business includes finance lease (direct lease, sale and leaseback), operating lease, factoring, consulting services, etc.

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LETTER FROM THE BOARD

8. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all the independent non-executive Directors (namely Mr. Zhang Shiju, Ms. Li Yuedong and Mr. Wang Junren) has been established to advise the Independent Shareholders in respect of the Dongfang Electric Framework Agreements, Dongfang Electric Continuing Connected Transactions and the proposed annual caps thereof. Gram Capital has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

9. EGM AND PROXY ARRANGEMENT

The notice of the EGM is set out on pages 77 to 79 of this circular. At the EGM, resolutions will be proposed to approve, inter alia, the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and the proposed annual caps thereof).

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on the website of the Stock Exchange (www.hkexnews.hk). To be valid, the form of proxy must be completed and signed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority, at the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the EGM or the adjourned thereof (as the case may be). Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the EGM should they so wish.

Dongfang Electric Corporation and its associates (holding 5,290,494,251 Shares or approximately 58.52% of the Shares in the Company as at the Latest Practicable Date) who are involved in, or interested in the Dongfang Electric Framework Agreements will abstain from voting in the relevant resolutions at the EGM.

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of the Shareholders at the EGM must be taken by poll except where the chairman of the meeting, in good faith, determines that a resolution which relates solely to a procedural or administrative matter to be voted on by a show of hands. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

10. RECOMMENDATION

The Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps) were approved by all the Directors, except that Mr. Wang Xu, Mr. Zhu Hua, Mr. Yang Qiang, Mr. Yang Yangzhuang and Mr. Liu Xinggui, who are directors nominated by Dongfang Electric Corporation and its associates, are deemed to have interests in the continuing connected

LETTER FROM THE BOARD

transactions and have therefore abstained from voting. None of the other Directors is regarded as having a material interest in the Dongfang Electric Continuing Connected Transactions, and hence none of the other Directors has abstained from voting on the Board resolutions approving the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps).

The Board considers that the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps) are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and accordingly recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM for approving the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps).

The Independent Board Committee, having taken into account the advice of Gram Capital, considers that the terms of the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and accordingly recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM for approving the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps).

11. GENERAL INFORMATION

Your attention is drawn to the letter from Gram Capital set out on pages 36 to 67 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps contemplated thereunder and the letter from the Independent Board Committee set out on pages 34 to 35 of this circular which contains its recommendation to the Independent Shareholders in relation to the Dongfang Electric Framework Agreements (including the Dongfang Electric Continuing Connected Transactions and their proposed annual caps).

12. FURTHER INFORMATION

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

Yours faithfully,

Wang Xu

Chairman of the Board

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

宏华集团

HONGHUA GROUP

Honghua Group Limited

宏華集團有限公司

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

(Stock Code: 196)

13 December 2024

To the Independent Shareholders,

CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

We refer to the circular of the Company dated 13 December 2024 (the "Circular") to the Shareholders of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed as the Independent Board Committee to advise the Independent Shareholders on whether the Dongfang Electric Framework Agreements, the Dongfang Electric Continuing Connected Transactions and the proposed annual caps thereof are fair and reasonable and entered into on normal commercial terms in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

We wish to draw your attention to the letter from the Board set out on pages 5 to 33 of the Circular and the letter from Gram Capital, the Independent Financial Adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Dongfang Electric Framework Agreements, Dongfang Electric Continuing Connected Transactions and the proposed annual caps thereof, as set out on pages 36 to 67 of the Circular.

Having considered the factors and reasons considered by and the opinion of Gram Capital stated in its letter of advice contained in the Circular, we are of the view that the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement and the respective proposed annual caps contemplated thereunder are fair and reasonable and entered into on normal or better commercial terms in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Dongfang Electric Framework Agreements, the Dongfang Electric Continuing Connected Transactions and the proposed annual caps thereof.

Yours faithfully,

For and on behalf of the

Independent Board Committee

Mr. Zhang Shiju

Ms. Li Yuedong

Mr. Wang Junren

Independent non-executive Directors

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LETTER FROM GRAM CAPITAL

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

Gram Capital Limited
嘉林資本有限公司

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

13 December 2024

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

Dear Sir/ Madam,

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Purchase Framework Agreement, the Sales Framework Agreement, the Lease Framework Agreement, the Deposit Services and the Secured Loan Advancement Services under the Financial Services Framework Agreement (the "Transactions") and their respective proposed annual caps, details of which are set out in the letter from the Board (the "Board Letter") contained in the circular dated 13 December 2024 issued by the Company to the Shareholders (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 requires otherwise.

The Purchase Framework Agreement

On 10 December 2024, the Company and Dongfang Electric Corporation entered into the Purchase Framework Agreement, pursuant to which the Group shall purchase products (including but not limited to materials such as steel and paint, equipment, accessories, auxiliary materials and other related products) and services (including but not limited to processing services, technical services, inspection and testing services, transportation services, logistics services and other related services) from Dongfang Electric Corporation and its associates (the "Purchase Transactions") for a term from 1 January 2025 to 31 December 2027.

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LETTER FROM GRAM CAPITAL

The Sales Framework Agreement

On 10 December 2024, the Company and Dongfang Electric Corporation entered into the Sales Framework Agreement, pursuant to which the Group will sell products (including but not limited to structural parts such as weldments products for containers and steel structure products, semi-finished products, accessories, equipment, parts and components and others) and provide services (including but not limited to processing services, technical services, inspection and testing services, engineering services and other related services) to Dongfang Electric Corporation and its associates (the “Sales Transactions”) for a term from 1 January 2025 to 31 December 2027.

The Lease Framework Agreement

On 10 December 2024, the Company and Honghua Leasing entered into the Lease Framework Agreement, pursuant to which the Group shall purchase drilling and energy equipment leasing services from Members of Honghua Leasing, including but not limited to direct financial leasing services and operating leasing services, and shall pay rent to the Members of Honghua Leasing for such services (the “Finance Leasing Transactions”) for a term from 1 January 2025 to 31 December 2027.

The Financial Services Framework Agreement

On 10 December 2024, the Company and Dongfang Electric Finance entered into the Financial Services Framework Agreement, pursuant to which Dongfang Electric Finance will provide the Group with the Financial Services including, amongst others, the Deposit Services and the Secured Loan Advancement Services for a term from 1 January 2025 to 31 December 2027.

With reference to the Board Letter, the Transactions constitute continuing connected transactions and the Deposit Services also constitutes a major transaction of the Company. The Transactions are subject to the reporting, announcement, annual review and the Independent Shareholders’ approval requirements under Chapter 14 and Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Mr. Zhang Shiju, Ms. Li Yuedong and Mr. Wang Junren (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Transactions (including the proposed annual caps thereunder) are on normal commercial terms and are fair and reasonable; (ii) whether the Transactions are in the interests of the Company and the Shareholders as a whole and in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Transactions (including the proposed annual caps thereunder) at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

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LETTER FROM GRAM CAPITAL

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Gram Capital was engaged as the independent financial adviser to the independent board committees and the independent shareholders of the Company in relation to (i) subscription of shares; (ii) application for whitewash waiver and (iii) special deal (details of which are set out in the Company's circular dated 23 March 2023). Save for the aforesaid engagement, there was no other service provided by Gram Capital to the Company during the past two years immediately preceding the Latest Practicable Date.

Notwithstanding the aforesaid engagement, we were not aware of any relationships or interests between Gram Capital and the Company, or any other parties during the past two years immediately preceding the Latest Practicable Date that could be reasonably regarded as hindrance to Gram Capital's independence to act as the Independent Financial Adviser.

Having considered the above and that (i) none of the circumstances as set out under the Rule 13.84 of the Listing Rules existed as at the Latest Practicable Date; and (ii) the aforesaid past engagement was only independent financial adviser engagement and will not affect our independence to act as the Independent Financial Adviser, we are of the view that we are independent to act as the Independent Financial Adviser.

BASIS OF OUR OPINION

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

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the 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

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LETTER FROM GRAM CAPITAL

any statement herein or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

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

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

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

Information on the Group

With reference to the Board Letter, the Group is principally engaged in research, design, manufacture, setting and sale of land rigs and related parts and components, design and manufacture of the offshore drilling module. Meanwhile it also provides clients with technical support services and drilling engineering services.

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LETTER FROM GRAM CAPITAL

Set out below are the consolidated financial information of the Group for the two years ended 31 December 2023 and the six months ended 30 June 2024 (with comparative figures) as extracted from the Company's annual report for the year ended 31 December 2023 (the "2023 Annual Report") and the Company's interim report for the six months ended 30 June 2024 (the "2024 Interim Report"):

	For the six months ended 30 June 2024 RMB'000 (unaudited)	For the six months ended 30 June 2023 RMB'000 (unaudited)	Year-on-year change %	For the year ended 31 December 2023 RMB'000 (audited)	For the year ended 31 December 2022 RMB'000 (audited)	Year-on-year change %
Revenue	2,776,000	2,494,437	11.29	5,473,234	4,476,104	22.28
- Land drilling rigs	869,464	1,154,829	(24.71)	2,354,279	743,183	216.78
- Parts and components and others	1,425,650	881,723	61.69	2,197,894	2,254,776	(2.52)
- Drilling engineering services	173,795	227,679	(23.67)	396,254	419,292	(5.49)
- Fracturing services	307,091	230,206	33.40	524,807	1,058,853	(50.44)
Gross (loss)/profit	301,514	152,202	98.10	541,773	459,893	17.80
(Loss)/profit for the period/year attributable to owners of the Company	2,419	(154,192)	N/A	(386,597)	(634,418)	(39.06)

As illustrated in the above table, the Group's revenue increased from approximately RMB4.48 billion for the year ended 31 December 2022 ("FY2022") to approximately RMB5.47 billion for the year ended 31 December 2023 ("FY2023"), representing a year-on-year increase of approximately $22.28\%$ . According to the 2023 Annual Report, such increase was mainly due to the growth in revenue generated from land drilling rigs segment, which was the result of (i) expansion of such business segment in both domestic and overseas market; and (ii) development in the field of offshore equipment. The Group's gross profit for FY2023 also increased by approximately $17.80\%$ as compared to that for FY2022 and the Group's loss for the year attributable to owners of the Company decreased by approximately $39.06\%$ from approximately RMB634.42 million for FY2022 to approximately RMB386.60 million for FY2023. With reference to the 2023 Annual Report and as confirmed by the Management, such improvements were mainly due to (i) the aforesaid increase in the Group's revenue; and (ii) decrease in net impairment losses on financial assets and contract assets.

As illustrated in the above table, the Group's revenue increased from approximately RMB2.49 billion for the six months ended 30 June 2023 ("1H2023") to approximately RMB2.78 billion for the six months ended 30 June 2024 ("1H2024"), representing a year-on-year increase of approximately $11.29\%$ . With reference to the 2024 Interim Report and as confirmed by the Management, such increase was mainly due to (i) that the Group continued to secure orders for drilling equipment and components from high-end customers in the Middle East and domestically; (ii) the fracturing services fully entered the coalbed methane development industry; and (iii) the offshore wind power business (under the Group's parts and components and others segment) continued to consolidate its position in the offshore wind large jacket segment, with effective orders doubling from 1H2023. Moreover, the Group's gross profit for 1H2024 increased significantly by approximately $98.10\%$ as compared to that for 1H2023, and the Group recorded profit attributable to owners of the Company for 1H2024 as compared to loss for the period attributable to

LETTER FROM GRAM CAPITAL

owners of the Company for 1H2023. With reference to the 2024 Interim Report and as confirmed by the Management, such improvements were mainly due to (i) the aforesaid increase in the Group’s revenue; and (ii) decrease in net finance expenses.

With reference to the 2024 Interim Report, in terms of high-end drilling equipment, the products launched by the Group continue to advance towards high-end and intelligent direction; in terms of fracturing business, the Group’s fracturing business has taken the lead and is expected to further expand the market size of coalbed methane in the second half of 2024; and in terms of new energy, the Group will continue to rely on the advantages of the controlling shareholders in technology, industrial chain construction and business model to help the Group obtain orders for offshore wind power products and services.

Information on Dongfang Electric Corporation

With reference to the Board Letter, Dongfang Electric Corporation is one of the largest energy equipment manufacturing enterprise groups in the PRC, mainly engaged in offshore wind power, electric motors, geothermal power generation and distributed energy applications. Dongfang Electric Corporation is controlled by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. As Dongfang Electric Corporation directly and indirectly holds approximately 58.52% of the issued share capital of the Company as at the Latest Practicable Date, it is a controlling shareholder within the meaning of the Listing Rules and is therefore a connected person of the Company.

Information on Honghua Leasing

With reference to the Board Letter, Honghua Leasing, a company incorporated in the PRC, is a wholly-owned subsidiary of Dongfang Electric Corporation. Honghua Leasing is an associate of Dongfang Electric Corporation and therefore a connected person of the Company.

Information on Dongfang Electric Finance

With reference to the Board Letter, Dongfang Electric Finance is a limited liability company incorporated in the PRC. Dongfang Electric Finance’s main business includes provision of finance and fund-raising consultancy, credit accreditation and related advisory and agency services to members units; assisting members units in receipt and payment of transaction amounts; and arrangement of entrustment loans and entrustment investment among members units. DFEC (a subsidiary of Dongfang Electric Corporation) and Dongfang Electric Corporation holds 95% and 5% of the shares of Dongfang Electric Finance respectively. Dongfang Electric Finance is an associate of Dongfang Electric Corporation and therefore a connected person of the Company.

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LETTER FROM GRAM CAPITAL

A. THE PURCHASE FRAMEWORK AGREEMENT

1. Reasons for entering into the Purchase Framework Agreement

With reference to the Board Letter, the purchase of the products and services by the Group from Dongfang Electric Corporation and its associates is based on consideration of the competitive edges of Dongfang Electric Corporation and its associates such as qualifications, experience, centralised procurement, payment terms and transportation capabilities, all of which are conducive to meeting the Group’s needs for product quality and delivery time. The purchase of products, equipment and services from Dongfang Electric Corporation and its associates will enable optimal allocation and integration of resources. The Group and the business divisions of Dongfang Electric Corporation can complement each other in terms of resources. Centralised procurement through Dongfang Electric Corporation can reduce costs and improve efficiency, facilitate the formation of a more stable and powerful supply chain network, and ensure the stable supply of key resources to support its activities. Therefore, the entering into of the Purchase Framework Agreement is conducive to broadening the customer base and sales channels of the Group, expanding the sales market share of the Group and increasing the sales revenue of the Group. The Group and Dongfang Electric Corporation and its associates have a well-established cooperation foundation and smooth communication, which is conducive to the implementation and furtherance of the transactions. In addition, through business cooperation in multiple projects, the Company and Dongfang Electric Corporation can make full use of the industrial foundation and advantages of both parties, and further enhance the strength of both parties.

As advised by the Management, the Group intended to continue to deepen the co-operation in various aspects such as (a) electricity, power generation equipment, new energy and oil related equipment and ancillary materials; and (b) oil and gas related construction and services, between the Group and Dongfang Electric Corporation since it became a substantial Shareholder on 18 July 2023.

As also advised by the Management, the purchases conducted under the Purchase Transactions purchases are mainly applied for re-sale to or production of products for sale to the Group’s end-customers. Accordingly, the Purchase Transactions are part of, or in connection with, the Company’s principal business activities and are expected to grow the Company’s revenue and/or provide the Company with overall business and operational convenience as well as synergistic benefits, which are favourable for the Company to increase its business volume in the market, stabilize its customer base, enhance its overall business strategic development, and strengthen its competitiveness in the market.

Having considered the above factors, we concur with the Directors that the Purchase Transactions are conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Purchase Framework Agreement

Date

10 December 2024

LETTER FROM GRAM CAPITAL

Parties

(1) The Company (as purchaser and on behalf of its subsidiaries); and
(2) Dongfang Electric Corporation (as seller, for itself and on behalf of its associates)

Term

From 1 January 2025 to 31 December 2027

Subject matter

The Group shall purchase products (including but not limited to materials such as steel and paint, equipment, accessories, auxiliary materials and other related products) and services (including but not limited to processing services, technical services, inspection and testing services, transportation services, logistics services and other related services) from Dongfang Electric Corporation and its associates.

Pricing principles

With reference to the Board Letter, the relevant terms for the provision of the products and services by Dongfang Electric Corporation and its associates to the Group will be determined based on the nature of each transaction. The details of pricing will be determined on an arm's length basis after taking into account a combination of factors, such as the quality of the products and services to be provided by Dongfang Electric Corporation and its associates in accordance with the Group's request, payment terms and transportation conditions and with reference to the prevailing market prices (including the quotation for similar products and services offered by Independent Third Parties), and on normal commercial terms and terms no less favourable than terms of the transactions between the Group and Independent Third Parties.

Furthermore, prices payable by the Group to Dongfang Electric Corporation and its associates for the products and services shall be determined as follows:

(a) where there are market prices for the relevant products and services, the prices shall be determined with reference to the prevailing market prices, which is:

(i) The price offered by Dongfang Electric Corporation and its associates to an Independent Third-Party customer in respect of the supply or provision of the same or similar products or services on normal commercial terms in the ordinary course of business. The prices of any given products or services shall be based on the prevailing market prices for the same or comparable products or services obtained by the Group from Independent Third-Party suppliers in the ordinary course of business and on normal commercial terms. The Group will solicit quotations from at least two Independent Third-Party suppliers to

LETTER FROM GRAM CAPITAL

ensure that the purchase price paid to Dongfang Electric Group under comparable conditions does not exceed the price offered by such Independent Third Parties; or

(ii) the price obtained by the Group by way of open tender or negotiated tender, provided that Independent Third Parties shall participate in the open tender or negotiated tender and the procedures of the open tender or negotiated tender shall comply with the requirements of applicable laws; and

(b) where there are no market prices for the relevant products and services which meet the specific business needs of the Group, the prices shall be the cost plus an appropriate service fee. The appropriate service fee shall be determined by the parties to the transactions after arm's length negotiations with reference to the normal commercial terms. The products and services to be acquired by the Group from Dongfang Electric Corporation vary in terms of category, complexity, and technical specifications. Accordingly, the service fee for these products and services will vary. Notwithstanding, the service fee shall generally not exceed 15% of the cost.

The Group will obtain the prevailing market prices through various channels (if applicable), including (i) recent comparable transactions involving Independent Third-Party suppliers; and (ii) communication with Independent Third-Party suppliers on the prices of similar products and services by means of phone calls and e-mails.

For our due diligence purpose, we obtained a summary list of all individual agreements regarding the Purchase Transactions for the period from 26 October 2022 (being the effective date of the existing framework agreement) to 31 December 2022 (the "2022 Period"), FY2023 and the nine months ended 30 September 2024 ("9M2024"), and randomly selected one individual agreement for each period (three individual agreements in total) from the list ("Sampling on Purchase Transactions"). The Company provided us with the selected agreements with corresponding internal approval records demonstrating that the prices of the product/service procured were not higher than those offered by independent third parties.

With reference to the Board Letter, the Company has formulated a number of measures and policies, including connected transaction administrative measures and management measures, to ensure that all connected transactions of the Company are effectively controlled and monitored. The Group will, through its internal control procedures and a series of risk management arrangements (the "IC Procedures") in accordance with the regulatory requirements, endeavour to maintain its independence in decision-making as well as the fairness of the prices and terms of each continuing connected transaction. Details of the IC Procedures are set out under the section headed "6. INTERNAL CONTROL" of the Board Letter.

With reference to the 2023 Annual Report, the independent non-executive Directors have reviewed, among other things, the continuing connected transactions (including the Purchase Transactions) for FY2023 and confirmed that such continuing

LETTER FROM GRAM CAPITAL

connected transactions were (i) conducted in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms or on terms no less favourable to the Group than terms available to or from independent third parties; and (iii) in accordance with relevant agreements governing such continuing connected transactions on terms that are fair and reasonable and in the interests of the Shareholders as a whole (the "INEDs Confirmation").

The Company's auditors were also engaged to report on the Group's continuing connected transactions (including the Purchase Transactions) for FY2023 in accordance with Hong Kong Standard on Assurance Engagements 3000 "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information" and with reference to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute of Certified Public Accountants. Regarding the Group's continuing connected transactions (including the Purchase Transactions), the auditors of the Company confirmed to the Board that nothing has come to their attention that causes them to believe that such continuing connected transactions (i) have not been approved by the Board; (ii) were not made in accordance with the pricing policy of the Company; (iii) were not conducted, in all material respects, in accordance with the relevant agreement governing such continuing connected transactions; and (iv) have exceeded the cap disclosed in previous announcements (the "Auditor Confirmation").

Having taken into account that the IC Procedures include:

(i) collecting information of counterparty by relevant department for selection; review of contracts by legal and risk control department, finance department, technical department, production department, quality department and other relevant departments; and evaluation, review and approval by the management of respective subsidiary to ensure fairness and reasonableness of relevant terms and pricing;

(ii) implementation of pricing mechanism in the Dongfang Electric Continuing Connected Transactions is subject to strict scrutiny by finance department, technical department and relevant business departments of the Company;

(iii) the Board office, in collaboration with the sales, purchasing and other business management departments and the audit department will monitor the pricing standards, execution and implementation of Dongfang Electric Continuing Connected Transactions and conduct random checks from time to time to ensure compliance with the pricing policies;

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LETTER FROM GRAM CAPITAL

application and the procurement department of the purchaser shall organise the selection of suppliers from the list, which shall also be subject to consideration and approval by the management of the purchaser(s) so as to ensure the fairness and reasonableness of the relevant terms and pricing; and

(v) independent non-executive Directors and the Company's auditor's annual review/report,

we consider that implementation of the IC Procedures would ensure fair pricing of the Purchase Transactions.

Having considered the results of the Sampling on Purchase Transactions, the INEDs Confirmation and the Auditor Confirmation, we do not doubt the implementation of the relevant IC Procedures.

Proposed annual caps

Set out below are (i) the historical transaction amounts of the Purchase Transactions for 2022 Period, FY2023 and 9M2024, together with the existing annual caps for 2022 Period and two years ending 31 December 2024; and (ii) the proposed annual caps of the Purchase Transactions for the three years ending 31 December 2027 (the "Purchase Cap(s)") as extracted from the Board Letter:

	For the period from 26 October 2022 to 31 December 2022 RMB 'million	For the year ended 31 December 2023 RMB 'million	For the year ending 31 December 2024 ("FY2024") RMB 'million
Historical transaction amount	101.84	209.62	310.84^{(Note)}
Existing annual caps	550	1,000	1,000
Utilisation rate	18.52%	20.96%	Undetermined
	For the year ending 31 December 2025 ("FY2025") RMB 'million	For the year ending 31 December 2026 ("FY2026") RMB 'million	For the year ending 31 December 2027 ("FY2027") RMB 'million
Purchase Caps	1,000	1,300	1,600

Note: The figure was for 9M2024.

LETTER FROM GRAM CAPITAL

With reference to the Board Letter, the Purchase Caps were determined based on the factors as set out under the sub-section headed "Proposed Annual Caps and Basis of Determination" under the section headed "2. PURCHASE FRAMEWORK AGREEMENT" of the Board Letter.

In order to further assess the fairness and reasonableness of the Purchase Caps, we obtained from the Company the calculation of the Purchase Caps for the three years ending 31 December 2027 (the "Purchase Caps Calculation").

Purchase Cap for FY2025

According to the Purchase Caps Calculation, we noted that:

(i) the Purchase Cap for FY2025 was the sum of (a) estimated amount of the Purchase Transactions for FY2024 (the "2024 Estimated Purchase Amount") of approximately RMB503 million; and (b) estimated amount of additional demand for the Purchase Transactions for FY2025 (the "2025 Estimated Additional Purchase Demand") of approximately RMB497 million; and

(ii) the 2024 Estimated Purchase Amount was estimated by annualizing historical amount of the Purchase Transactions for 9M2024 based on the proportion of historical amount of the Purchase Transactions for the nine months ended 30 September 2023 and FY2023.

In respect of the 2025 Estimated Additional Purchase Demand, the Management advised us that it is expected to be mainly derived from:

(i) the estimated demand for steel of Sichuan Honghua Petroleum Equipment Co., Ltd.* (四川宏華石油設備有限公司) ("Sichuan Honghua", being a wholly-owned subsidiary of the Company) due to the sales agreement for intelligent drilling rigs entered into between Sichuan Honghua and a Middle East client (with reference to the Company's voluntary announcement dated on 17 July 2024, the Client is a global leading oil enterprise and one of the largest drilling contractors in the Middle East region. Sichuan Honghua shall provide the client with several sets of global advanced artificial island drilling rigs equipped with artificial intelligent drilling software.); and

(ii) the estimated demand for the products and services of Honghua Offshore Oil and Gas Equipment (Jiangsu) Co., Ltd. ("Honghua (Jiangsu)", being a wholly-owned subsidiary of the Company) due to several orders in hand and intended collaborative wind power projects.

The Company also provided us with executed agreements, letters of intent or project bid documents which indicate contract amounts of relevant projects/orders for the aforementioned projects/orders of Sichuan Honghua and Honghua (Jiangsu), and the estimated purchase amounts for procurement of materials/services to carry out relevant transactions.

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In light of the above, we consider that the Purchase Cap for FY2025 is fair and reasonable.

Purchase Caps for FY2026 and FY2027

As illustrated in the above table, the Purchase Cap increases by (i) RMB300 million from FY2025 to FY2026; and (ii) RMB300 million from FY2026 to FY2027. According to the Purchase Caps Calculation, we noted that such increases were mainly for catering further possible growth of the Purchase Transactions in FY2026 and FY2027. According to the Purchase Caps Calculation, we noted that the 2024 Estimated Purchase Amount represented an increase of approximately RMB294 million as compared to the historical amount of the Purchase Transactions for FY2023, which indicates further possible growth in the amount of the Purchase Transactions in future.

With reference to the Board Letter and as advised by the Management, the increasing Purchase Caps also cater for the Group's procurement demand for raw materials and other materials in respect of its offshore wind power business. The Company's offshore wind power business is primarily engaged in offshore wind power pile foundation projects and its revenue has been booked under the Group's parts and components and others segment.

As illustrated under the section headed "Information on the Group" above, revenue from the Group's parts and components and others segment increased by approximately 61.69% from 1H2023 to 1H2024. With reference to the Board Letter, given the industry policies, market conditions, the Company's market share in offshore wind power jackets, and its current and potential orders, the Company plans to increase investment in equipment to further expand production capacity. It is expected that the investment scale and output value of the Group's offshore wind power business will experience steady growth over the next three years.

We noticed that:

(i) On 29 May 2024, the State Council of the PRC issued the Energy Saving and Carbon Reduction Action Plan for 2024-2025* (《2024-2025年節能降碳行動方案》), which stated that the PRC government should increase the development efforts of non-fossil energy sources, develop offshore wind power in a reasonable and orderly manner, promote the large-scale development and utilization of marine energy, and drive the development and utilization of distributed new energy sources.

(ii) On 30 October 2024, the National Development and Reform Commission of the PRC issued the Guiding Opinions on Vigorously Implementing Actions to Replace Renewable Energy* (《關於大力實施可再生能源替代行動的指導意見》), which stated that the PRC government should comprehensively enhance the supply capacity of renewable energy, promote the cluster development of offshore wind power, carry out deep-sea floating offshore wind power, and promote the deep integration operation of solar thermal, wind, and solar photovoltaic systems.

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In light of the above, we consider that the Purchase Caps for FY2026 and FY2027 are fair and reasonable.

Shareholders should note that as the Purchase Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of cost to be incurred from the Purchase Transactions. Consequently, we express no opinion as to how closely the actual cost to be incurred from the Purchase Transactions will correspond with the Purchase Caps.

Having considered the principal terms of the Purchase Transactions as set out above, we are of the view that the terms of the Purchase Transactions (including the Purchase Caps) are on normal commercial terms and are fair and reasonable.

B. THE SALES FRAMEWORK AGREEMENT

1. Reasons for entering into the Sales Framework Agreement

With reference to the Board Letter, due to the production needs of the projects, Dongfang Electric Corporation and its associates need to purchase a large number of products and services including materials, equipment and parts and components related to the projects. The Group currently possesses relevant products and technical services, which can meet the needs of the projects of Dongfang Electric Corporation and its associates. The entering into of the Sales Framework Agreement is conducive to selling relevant products and technical services to Dongfang Electric Corporation, thus increasing the Group's revenue. In addition, the entering into of the Sales Framework Agreement is in line with the business development needs of the Group, achieving full synergic effect between the Group and Dongfang Electric Corporation and its associates in a fair and reasonable manner, and realising the complementarity of resources and win-win situation for both parties.

In addition, the Management advised us that the Sales Transactions are part of, or in connection with, the Group's principal business activities and are expected to increase the Group's revenue and provide the Group with overall business and operational convenience as well as synergistic benefits, which are favourable for the Company to increase its business volume in the market, stabilise its customer base, enhance its overall business strategic development, and strengthen its competitiveness in the market.

Having considered the above factors, we concur with the Directors that the Sales Transactions are conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Sales Framework Agreement

Date

10 December 2024

LETTER FROM GRAM CAPITAL

Parties

(1) The Company (as seller and on behalf of its subsidiaries); and
(2) Dongfang Electric Corporation (as purchaser, for itself and on behalf of its associates)

Term

From 1 January 2025 to 31 December 2027

Subject matter

The Group will sell products (including but not limited to structural parts such as weldments products for containers and steel structure products, semi-finished products, accessories, equipment, parts and components and others) and provide services (including but not limited to processing services, technical services, inspection and testing services, engineering services and other related services) to Dongfang Electric Corporation and its associates.

Pricing principles

With reference to the Board Letter, the relevant terms for the provision of the products and services by the Group to Dongfang Electric Corporation and its associates will be determined based on the nature of each transaction. The details of pricing will be determined on an arm's length basis after taking into account a combination of factors such as the quality of the products and services provided by the Group as requested by the Dongfang Electric Group and its associates, payment terms and transportation conditions, with reference to the prevailing market prices (referring to the quotation for similar products and services offered by Independent Third Parties), and on normal commercial terms and terms no less favourable than terms of the transactions between the Group and Independent Third Parties.

Furthermore, prices payable by Dongfang Electric Corporation and its associates to the Group for the products and services shall be determined as follows:

(a) where there are market prices for the relevant products and services, the prices shall be determined with reference to the prevailing market prices, which is:

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offered to the relevant purchaser with the prices of the same or similar products or services, with comparable specifications (including, but not limited to, quantity, credit terms, and delivery methods), as provided to at least two Independent Third-Party customers, to ensure that the price offered to the relevant purchaser is not more favorable than the price offered to the Group's Independent Third-Party customers; or

(ii) the price obtained by Dongfang Electric Corporation and its associates by way of open tender or negotiated tender, provided that Independent Third Parties shall participate in the open tender or negotiated tender and the forms of the open tender or negotiated tender shall comply with the requirements of applicable laws; and

The Group will obtain the prevailing market prices through various channels (if applicable), including (i) recent comparable transactions involving Independent Third-Party customers; and (ii) communication with Independent Third-Party suppliers on the prices of similar products and services by means of phone calls and e-mails.

For our due diligence purpose, we obtained a summary list of all individual agreements regarding the Sales Transactions for the period from 2022 Period, FY2023 and the 9M2024, and randomly selected one individual agreement for each period (three individual agreements in total) from the list (the "Sampling on Sales Transactions").

For the selected agreement with service which could be directly compared with an independent third party, the Company provided us the selected agreement and an agreement for the same service provided to the independent third party. We noted from the aforesaid documents that the price under the selected agreement was not less than the price charged under the agreement for the same service provided to the independent third party.

For each of the two selected agreements with product/service which could not be directly compared with independent third parties, the Company provided us (i) the selected agreement with relevant cost breakdown; and (ii) an agreement for comparable transaction (in nature) with independent third parties with relevant cost breakdown. We noted from the aforesaid documents that the mark-up rates for the prices charged under the two selected agreements were not less than the mark-up rates for the prices charged under agreements with independent third parties.

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As aforementioned, the Group will, through its IC Procedures in accordance with the regulatory requirements, endeavour to maintain its independence in decision-making as well as the fairness of the prices and terms of each continuing connected transaction. Details of the IC Procedures are set out under the section headed "6. INTERNAL CONTROL" of the Board Letter.

With reference to the 2023 Annual Report, the independent non-executive Directors reviewed relevant continuing connected transactions of the Company (including the Sales Transactions) during FY2023 and provided the INEDs Confirmation. The Company's auditor was also engaged to report on the Group's continuing connected transaction (including the Sales Transactions) and provided the Auditor Confirmation.

Having taken into account that the IC Procedures include:

(iv) with regard to the Sales Framework Agreement, the Group strictly follows the internal sales policy to perform relevant pricing and approval procedures. For each type of sales contract, the relevant procedures set forth the functional departments that are required to participate the contract review and due diligence, as well as detailed review standards. Depending on the consideration of the contracts, the Group will implement a tiered structure of execution authority in the contract signing phase; and

(v) independent non-executive Directors and the Company's auditor's annual review/report,

we consider that implementation of the IC Procedures would ensure fair pricing of the Sales Transactions.

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Having considered the results of the Sampling on Sales Transactions, the INEDs Confirmation and the Auditor Confirmation, we do not doubt the implementation of the relevant IC Procedures.

3. Proposed annual caps

Set out below are (i) the historical transaction amounts of the Sales Transactions for the 2022 Period, FY2023 and 9M2024, together with the existing annual caps for the 2022 Period and two years ending 31 December 2024; and (ii) the proposed annual caps of the Sales Transactions for the three years ending 31 December 2027 (the "Sales Cap(s)") as extracted from the Board Letter:

	For the period from 26 October 2022 to 31 December 2022 RMB ‘million	For the year ended 31 December 2023 RMB ‘million	For the year ending 31 December 2024 RMB ‘million
Historical transaction amount	87.97	302.72	111.06^{(Note)}
Existing annual caps	500	800	800
Utilisation rate	17.59%	37.84%	Undetermined
	For the year ending 31 December 2025 RMB ‘million	For the year ending 31 December 2026 RMB ‘million	For the year ending 31 December 2027 RMB ‘million
Sales Caps	400	550	550

Note: The figure was for 9M2024.

With reference to the Board Letter, the Sales Caps were determined based on the factors as set out under the sub-section headed "Proposed Annual Caps and Basis of Determination" under the section headed "3. SALES FRAMEWORK AGREEMENT" of the Board Letter.

In order to further assess the fairness and reasonableness of the Sales Caps, upon our request, we obtained from the Company the calculation of the Sales Caps for each of the three years ending 31 December 2027 (the "Sales Caps Calculation").

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Sales Cap for FY2025

According to the Sales Caps Calculation, we noted that:

(i) the Sales Cap for FY2025 was the sum of (a) estimated amount of the Sales Transactions for FY2024 (the “2024 Estimated Sales Amount”) of approximately RMB189 million; and (b) estimated additional amount of the Sales Transactions for FY2025 (the “2025 Estimated Additional Sales Amount”) of approximately RMB211 million;

(ii) the 2024 Estimated Sales Amount was estimated by annualizing historical amount of the Sales Transactions for 9M2024 based on the proportion of the historical amount of the Sales Transactions for the nine months ended 30 September 2023 and FY2023.

In respect of the 2025 Estimated Additional Sales Amount, the Management advised us that it is expected to be mainly derived from the potential demand from a member of Dongfang Electric Corporation for drilling rigs (the “Potential Drilling Rigs Sales”). The Company also provided us with the supporting documents for the Potential Drilling Rigs Sales, including internal correspondences and internal meeting records showing the estimated amount and expected time schedule for the Potential Drilling Rigs Sales. Moreover, the Management also advised us that the Potential Drilling Rigs Sales marks the first cooperation with the members of Dongfang Electric Corporation regarding the sales of drilling rigs, representing the ongoing deep collaboration in oil related equipment and ancillary materials between the Group and Dongfang Electric Corporation since it became a substantial Shareholder on 18 July 2023.

In light of the above, we consider that the Sales Cap for FY2025 is fair and reasonable.

Sales Caps for FY2026 and FY2027

As illustrated in the above table, the Sales Cap increases by RMB150 million from FY2025 to FY2026 and FY2027. According to the Sales Caps Calculation, such increases are derived from an intentioned collaborative project between Honghua (Jiangsu) and a member of Dongfang Electric Corporation which is expected to commence in 2026 and be carried out throughout 2026 and 2027 (the “2026/2027 Collaborative Project”). The Company also provided us with the supporting document for the 2026/2027 Collaborative Project which demonstrated project overview, estimated demand of RMB300 million for services and products under the Sales Transactions. Accordingly, an increase of RMB150 million is incorporated in the Sale Caps for FY2026 and FY2027.

In light of the above, we consider that the Sales Caps for FY2026 and FY2027 are fair and reasonable.

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Shareholders should note that as the Sales Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of revenue to be generated from the Sales Transactions. Consequently, we express no opinion as to how closely the actual revenue to be generated from the Sales Transactions will correspond with the Sales Caps.

Having considered the principal terms of the Sales Transactions as set out above, we are of the view that the terms of the Sales Transactions (including the Sales Caps) are on normal commercial terms and are fair and reasonable.

C. THE LEASE FRAMEWORK AGREEMENT

1. REASONS FOR ENTERING INTO THE LEASE FRAMEWORK AGREEMENT

With reference to the Board Letter, the entering into of the Lease Framework Agreement meets the business needs of the Group. The leasing of relevant equipment by the Group from Dongfang Electric Corporation and its associates is based upon consideration of the competitive edges of Dongfang Electric Corporation and its associates such as qualifications, experience, advantages in terms of equipment, payment terms and transportation capabilities, all of which are conducive to meeting the Group's needs for the use of its products. After leasing equipment such as electric fracturing pumps and gas generators from Dongfang Electric Corporation and its associates, the Group will use such equipment to provide construction and operation services to third-party customers, for leasing or for its own use to increase the revenue from the related businesses. Therefore, the entering into of the Leasing Framework Agreement is conducive to broadening the customer base and service channels of the Group, expanding the market share of the Group and increasing the sales revenue of the Group. The Group and Dongfang Electric Corporation and its associates have a well-established cooperation foundation and smooth communication, which is conducive to the implementation and furtherance of transactions. In addition, through business cooperation in multiple projects, the Company and Dongfang Electric Corporation can make full use of the industrial foundation and advantages of both parties, and further enhance the strength of both parties.

As advised by the Management, the Finance Leasing Transactions are part of, or in connection with, the Company's principal business activities and are expected to provide the Company with overall business and operational convenience as well as synergistic benefits, which are favourable for the Company to increase its business volume in the market, stabilise its customer base, enhance its overall business strategic development, and strengthen its competitiveness in the market.

Having considered the above factors, we concur with the Directors that the Finance Leasing Transactions are conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

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2. Principal terms of the Lease Framework Agreement

Date

10 December 2024

Parties

(1) The Company (as the lessee and on behalf of its subsidiaries); and
(2) Honghua Leasing (as the lessor, for itself and on behalf of its subsidiaries)

Term

From 1 November 2025 to 31 December 2027

Subject matter

The Group shall purchase drilling and energy equipment leasing services from Members of Honghua Leasing, including but not limited to direct financial leasing services and operating leasing services, and shall pay rent to the Members of Honghua Leasing for the provision of the afore-mentioned leasing services.

Pricing principles

With reference to the Board Letter, in terms of the direct finance leasing services, the lease consideration is made up of the purchase price of the leased equipment, the lease interest and handling fee (if any) agreed by both parties. The lease consideration will be determined after arm's length negotiations between the Group and the Members of Honghua Leasing with reference to the market price of finance leased assets of the same type. The Members of Honghua Leasing will purchase the leased properties from suppliers according to the instructions and selection of the Group, and then lease the properties to the Group for an agreed term and receive lease payment on a periodic basis. The principal amount is the purchase price of the leased properties from the suppliers which is negotiated by the Group with the suppliers on normal commercial terms and by reference to the market price of such properties.

In terms of the operating leasing services, the lease consideration is made up of the corresponding rent and handling fee (if any) payable during the lease term. The lease consideration will be determined after arm's length negotiations between the Group and the Members of Honghua Leasing with reference to the market price of operating leased assets of the same type. Members of Honghua Leasing will purchase the leased properties and own the assets and then lease the same back to the Group for an agreed term and receive an agreed amount of rent on a periodic basis.

In determining whether the purchase price of the leased equipment procured by Dongfang Electric Corporation under direct finance leasing services is fair and reasonable and in the interests of the Company, the Group will consult with at least

LETTER FROM GRAM CAPITAL

two Independent Third-Party suppliers via email, fax, or telephone to obtain quotations and historical rental prices for similar types of leased equipment. The price will be determined by reference to local comparable market prices, either derived from these consultations or assessed by professional appraisal agencies. If no comparable market price is available, the price will be negotiated based on factors such as equipment depreciation, management fees, relevant taxes (including value-added tax and surcharges), and reasonable profits.

With reference to the Board Letter and as advised by the Management, for FY2022, FY2023 and the period from 1 January 2024 to 24 April 2024, the provision of leasing services by Honghua Leasing to other members of the Group was intra-group transaction of the Group, and did not constitute connected transactions of the Group. After 24 April 2024, the provision of leasing services by Honghua Leasing to the Group would constitute connected transactions of the Group. Nevertheless, no such transaction was conducted during the period from 25 April 2024 to 30 September 2024.

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Having taken into account that the IC Procedures include:

(i) collecting information of counterparty by relevant department for selection; review of contracts by legal and risk control department, finance department and other relevant departments; and evaluation, review and approval by the management of respective subsidiary to ensure fairness and reasonableness of relevant terms and pricing;

(ii) implementation of pricing mechanism in the Dongfang Electric Continuing Connected Transactions is subject to strict scrutiny by finance department and relevant business departments of the Company;

(iv) with respect to the Lease Framework Agreement, the finance department is responsible for collecting and monitoring information under the Lease Framework Agreement. Before entering into individual lease contracts under the Lease Framework Agreement, the finance department will compare the major terms and financing costs associated with such arrangements with the major terms and financing costs charged by at least two independent third parties that provide finance leases of similar size and nature. The Group intends to obtain relevant quotations from independent third parties, which must at least be comparable to Honghua Leasing in terms of operating scale and financial status and pick the best option after comprehensive evaluation. The finance department and other relevant operating departments of the Group are jointly responsible for reviewing the transaction terms of the individual agreements governed by the Lease Framework Agreement, especially the fairness and reasonableness of the pricing terms therein.; and

(v) independent non-executive Directors and the Company's auditor's annual review/report,

we consider that implementation of the IC Procedures would ensure fair pricing of the Finance Leasing Transactions.

3. Proposed annual caps

Set out below are the proposed annual caps of the direct financial leasing services (the "Direct Financial Leasing Cap(s)") and the operating leasing services (the "Operating Leasing Cap(s)") under the Lease Framework Agreement for the three years ending 31 December 2027 as extracted from the Board Letter:

LETTER FROM GRAM CAPITAL

| | For the year ending
31 December 2025
RMB 'million | For the year ending
31 December 2026
RMB 'million | For the year ending
31 December 2027
RMB 'million |
| --- | --- | --- | --- |
| Direct Financial Leasing Caps | 150 | 150 | 150 |
| Operating Leasing Caps | 350 | 350 | 350 |

With reference to the Board Letter, the Direct Financial Leasing Caps and the Operating Leasing Caps were determined based on the factors as set out under the sub-section headed "Proposed Annual Caps and Basis of Determination" under the section headed "4. LEASE FRAMEWORK AGREEMENT" of the Board Letter.

Direct Financial Leasing Caps

Upon our enquiry, the Management advised us that an independent third party leased a series of oil drilling equipment to the Group for its business operation. The Group expect to lease similar equipment from Members of Honghua Leasing by way of direct financial leasing. The estimated principal amount of a series of oil drilling equipment which are expected to be purchased by the Members of Honghua Leasing and lease to the Group (by way of direct financial leasing) is based on the value of the equipment leased from the aforesaid independent third party. The Company provided us with a copy of the leasing agreement entered into between the Group and the aforesaid independent third party which set out the value of the equipment (RMB150 million in aggregate).

In addition, the Management advised us that (i) the aforesaid expected lease by way of direct financial leasing may commence during the three years ending 31 December 2027; and (ii) the Company expects the lease interest to be paid will not be materially different from the Group's existing cost of borrowings (which is usually adopted as discount rate under IFRS 16 (Leases) right-of-use assets). Accordingly, the aggregated value of the aforesaid equipment (i.e. RMB150 million) formed the base of the Direct Financial Leasing Caps.

Having considered the above, we are of the view that the Direct Financial Leasing Caps for the three years ending 31 December 2027 are fair and reasonable.

Operating Leasing Caps

In order to further assess the fairness and reasonableness of the Operating Leasing Caps, upon our request, we obtained from the Company the calculation of the Operating Leasing Caps for the three years ending 31 December 2027 (the "Operating Leasing Caps Calculation").

According to the Operating Leasing Caps Calculation, we noted that the Operating Financial Leasing Caps for the three years ending 31 December 2027 were calculated based on the estimated annual leasing expenses for a series of leasing projects in respect of oil drilling and new energy equipment such as electric fracturing pump equipment, gas

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generators and their supporting control systems and the large components required (the "Operating Leasing Projects"). As advised by the Management, such estimated annual leasing expenses were estimated based on the existing operating leasing agreements for the Operating Leasing Projects entered into between the Group and other operating leasing services providers (the "Existing Operating Leasing Agreements"). As the Company intends to strengthen business cooperation in the operating leasing with Honghua Leasing after Honghua leasing became a connected person of the Company on 24 April 2024, the Company intends to transfer the procurement of operating leasing services for Operating Leasing Projects from the aforesaid other operating leasing services providers to the Members of Honghua Leasing. For our due diligence purpose, we obtained from the Company copies of the Existing Operating Leasing Agreements and cross checked the annual leasing expenses under which with those applied in the Operating Leasing Caps Calculation.

Having considered the Operating Leasing Caps Calculation and the abovementioned factors, we are of the view that the Operating Leasing Caps for the three years ending 31 December 2027 are fair and reasonable.

Shareholders should note that as the Direct Financial Leasing Caps and the Operating Leasing Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of cost to be incurred from the Finance Leasing Transactions. Consequently, we express no opinion as to how closely the actual cost to be incurred from the Finance Leasing Transactions will correspond with the Direct Financial Leasing Caps and the Operating Leasing Caps.

Having considered the principal terms of the Finance Leasing Transactions as set out above, we are of the view that the terms of the Finance Leasing Transactions (including the Direct Financial Leasing Caps and the Operating Leasing Caps) are on normal commercial terms and are fair and reasonable.

D. THE FINANCIAL SERVICES FRAMEWORK AGREEMENT

1. Reasons for entering into the Financial Services Framework Agreement

With reference to the Board Letter, the entering into of the Financial Services Framework Agreement between the Company and Dongfang Electric Finance is in line with the financial policies of the Group. The major reasons for and benefits of entering into the Financial Services Framework Agreement are as follows:

(i) To increase interest income and save finance costs

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Electric Finance, the Group could handle the settlement activities through its internal accounts at Dongfang Electric Finance with reduced charges, which can reduce the financial handling fees of the Group.

(ii) To raise the efficiency of fund utilisation

(iii) To enhance the management and control of the Group's funds

(iv) To meet the needs for working funds

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

Principal terms of the Financial Services Framework Agreement

Date

10 December 2024

Parties

(1) The Company (as the services purchaser and on behalf of its subsidiaries); and
(2) Dongfang Electric Finance (as the services supplier)

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Term

1 January 2025 to 31 December 2027

Subject matter

Dongfang Electric Finance will provide the Group with the Financial Services including the Deposit Services, the Loan Advancement Services and the Settlement Services.

Pricing principles

With reference to the Board Letter, the prices of the transactions under the Financial Services Framework Agreement shall be determined in accordance with the following pricing policy:

(i) in respect of the Deposit Services: the deposit interest rate applicable to the Group's deposits at Dongfang Electric Finance shall not be lower than the interest rates offered by major state-owned commercial banks in the PRC for comparable deposits for the same periods, and shall be determined on normal commercial terms; and

(ii) in respect of the Loan Advancement Services: the interest rates for the loans granted by Dongfang Electric Finance to the Group shall be in accordance with the relevant regulations of the PBOC and the relevant lending interest rate policies and regulations of Dongfang Electric Finance. At the time of entering into each loan contract, both parties shall negotiate with each other based on the then market conditions, and the interest rate shall generally not exceed the interest rate of loans obtained by the Group from major commercial banks in the PRC during the same period.

With reference to the Board Letter and as confirmed by the Management, the Group did not place any deposit with Dongfang Electric Finance for the 2022 Period and FY2023. For our due diligence purpose, in respect of the Deposit Services, we obtained a list of deposit balances regarding the deposits placed by the Group with Dongfang Electric Finance (the "Deposit Balance(s)") for the 9M2024 (the "Deposit List") from the Company. We randomly selected three Deposit Balance from the Deposit List for 9M2024 (the "Sampling on Deposit Services") and the Company provided us with deposit record of each selected Deposit Balance, together with information on the published interest rates offered by two independent major commercial banks in the PRC for the corresponding period. We noted from the aforesaid documents that the interest rates offered by Dongfang Electric Finance were not less than those offered by independent major commercial banks in the PRC.

With reference to the Board Letter and as confirmed by the Management, the Group did not conduct any Secured Loan Advancement Services with Dongfang Electric Finance for the 2022 Period, FY2023 and 9M2024.

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With reference to the 2023 Annual Report, the independent non-executive Directors reviewed relevant continuing connected transactions of the Company (including the Financial Services provided by Dongfang Electric Finance) during FY2023 and provided the INEDs Confirmation. The Company's auditor was also engaged to report on the Group's continuing connected transaction (including the Financial Services provided by Dongfang Electric Finance) and provided the Auditor Confirmation.

Having taken into account that the IC Procedures include:

(i) collecting information of counterparty by relevant department for selection; review of contracts by legal and risk control department and finance department; and evaluation, review and approval by the management of respective subsidiary to ensure fairness and reasonableness of relevant terms and pricing;

(ii) implementation of pricing mechanism in the Dongfang Electric Continuing Connected Transactions is subject to strict scrutiny by finance department of the Company;

(iv) with regard to the Deposit Services, the personnel in the finance department of the Group is responsible for comparing the interest rates offered by at least two major state-owned commercial banks in the PRC, so as to confirm that the interest rates offered by Dongfang Electric Finance are not less favourable than such interest rates in respect of the Group;

(v) with regard to the Loan Advancement Services, the personnel in the finance department of the Group is responsible for comparing the lending rates offered by Dongfang Electric Finance against the benchmark lending rates announced by the PBOC, and further against the lending rates offered by at least two major commercial banks in the PRC, so as to confirm that the lending rates offered by Dongfang Electric Finance are not higher than the rates applicable to the same type of loan services provided by major commercial banks in the PRC to the Group, and loan agreements shall be

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determined on normal commercial terms. Each of the loans of the Group at Dongfang Electric Finance will be submitted to the management of the Group for review and approval in accordance with the relevant policies; and

(vi) independent non-executive Directors and the Company's auditor's annual review/report,

we consider that implementation of the IC Procedures would ensure fair determination of interest rates of the Deposit Services and the Loan Advancement Services.

Having considered the results of the Sampling on Deposit Services, the INEDs Confirmation and the Auditor Confirmation, we do not doubt the implementation of the relevant IC Procedures.

3. Proposed annual caps

Set out below are (i) the historical maximum daily balance of deposits placed by the Group with Dongfang Electric Finance (including accrued interests) for the 2022 Period, FY2023 and 9M2024, together with the existing annual caps for the Deposit Services for the 2022 Period and the two years ending 31 December 2024; (ii) the historical maximum daily balance of secured loan (including accrued interest) provided by Dongfang Electric Finance to the Group for the 2022 Period, FY2023 and 9M2024, together with the existing annual caps for the Secured Loan Advancement Services for the 2022 Period and the two years ending 31 December 2024; and (ii) the proposed annual caps of the Deposit Services (the "Deposit Cap(s)") and Secured Loan Advancement Services (the "Secured Loan Cap(s)") for the three years ending 31 December 2027 as extracted from the Board Letter:

| | For the period from 26 October 2022 to 31 December 2022
RMB 'million | For the year ended 31 December 2023
RMB 'million | For the year ending 31 December 2024
RMB 'million |
| --- | --- | --- | --- |
| Historical maximum daily balance of deposits placed by the Group with Dongfang Electric Finance (including accrued interests) | Nil | Nil | Approximately 211^{(Note)} |
| Existing annual caps for the Deposit Services | 1,200 | 1,800 | 1,800 |
| Utilisation rate | Nil | Nil | Undetermined |
| Historical maximum daily balance of secured loan (including accrued interests) provided by Dongfang Electric Finance to the Group | Nil | Nil | Nil |

LETTER FROM GRAM CAPITAL

| | For the period from 26 October 2022 to 31 December 2022
RMB 'million | For the year ended 31 December 2023
RMB 'million | For the year ending 31 December 2024
RMB 'million |
| --- | --- | --- | --- |
| Existing annual caps for the Secured Loan Advancement Services | 1,200 | 1,800 | 1,800 |
| Utilisation rate | Nil | Nil | Undetermined |
| | For the year ending 31 December 2025
RMB 'million | For the year ending 31 December 2026
RMB 'million | For the year ending 31 December 2027
RMB 'million |
| Deposit Caps | 2,000 | 2,000 | 2,000 |
| Secured Loan Caps | 500 | 500 | 500 |

Note: The figure was for 9M2024.

With reference to the Board Letter, the Deposit Caps and Secured Loan Caps were determined based on the factors as set out under the sub-section headed "Proposed Annual Caps and Basis of Determination" under the section headed "5. FINANCIAL SERVICES FRAMEWORK AGREEMENT" of the Board Letter.

Deposit Caps

In order to further assess the fairness and reasonableness of the Deposit Caps, upon our request, we obtained from the Company the calculation of the Deposit Caps for each of the three years ending 31 December 2027 (the "Deposit Caps Calculation")

According to the Deposit Caps Calculation, the Deposit Caps for the three years ending 31 December 2027 were calculated with taking into account of:

(i) The Group's cash and cash equivalents, and pledged bank deposits of approximately RMB994 million in aggregate as at 30 September 2024. With reference to the Board Letter and based on the information provided by the Company, the highest balance of the Group's cash and cash equivalents, and pledged bank deposits in aggregate for FY2022, FY2023 and 9M2024 reached approximately RMB1.8 billion.

(ii) the Group's total outstanding syndicated loan balance of approximately RMB1.03 billion as at 30 September 2024. With reference to the Board Letter, given the size of the loan being substantial, the Group intends to seek financial support from Dongfang Electric Finance to refinance the loan. The fund from Dongfang

LETTER FROM GRAM CAPITAL

Electric Finance will first reach the Group’s account with Dongfang Electric Finance immediately after withdrawal from Dongfang Electric Finance and before the repayment of the syndicated loan.

In light of the above, we consider that the Deposit Caps of RMB2 billion for the three years ending 31 December 2027 are fair and reasonable.

Secured Loan Caps

In order to further assess the fairness and reasonableness of the Secured Loan Caps for the three years ending 31 December 2027, upon our request, we obtained from the Company the calculation of the Secured Loan Caps for each of the three years ending 31 December 2027 (the “Secured Loan Caps Calculation”).

According to the Secured Loan Caps Calculation, we noted that the Secured Loan Caps for the three years ending 31 December 2027 were formulated with reference to (i) the secured loan facility of RMB350 million granted by Dongfang Electric Finance to the Group; and (ii) further potential demand for the Secured Loan Advancement Services.

The Management advised us that, although no secured loan was drawn under the aforesaid facility agreement, the Group may utilise such facility to support its business operation and development in future.

In addition, the Management advised us that as the Group will continue to expand the drilling rigs and marine engineering related business in the future. The Secured Loan Advancement Services may be required given that (i) the loans for drilling rigs and marine engineering projects usually involve collateral conditions; and (ii) the credit terms as provided by Dongfang Electric Finance are relatively more flexible and stable than those provided by other independent third-party financial institutions.

As further advised by the Management, the Group is expected to maintain the same level of the demands for the Secured Loan Advancement Services for each of the three years ending 31 December 2027. Accordingly, the Secured Loan Caps for each of the three years ending 31 December 2027 are the same.

In light of the above, we consider that the Secured Loan Caps for the three years ending 31 December 2027 are fair and reasonable.

Shareholders should note that as the Deposit Caps and the Secured Loan Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of deposits to be placed under the Deposit Services and loans to be obtained under the Secured Loan Advancement Services. Consequently, we express no opinion as to how closely the actual deposits to be placed under the Deposit Services and loans to be obtained under the Secured Loan Advancement Services will correspond with the Deposit Caps and the Secured Loan Caps.

66 -

LETTER FROM GRAM CAPITAL

Having considered the principal terms of the Deposit Services and the Secured Loan Advancement Services as set out above, we are of the view that the terms of the Deposit Services and the Secured Loan Advancement Services (including the Deposit Caps and the Secured Loan Caps) are on normal commercial terms and are fair and reasonable.

LISTING RULES IMPLICATION

The Management confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the Transactions must be restricted by their respective proposed annual caps; (ii) the terms of the Transactions (including their respective proposed annual caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the Transactions must be included in the Company's subsequent published annual reports and financial accounts. Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Transactions (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group (for the products sale and service provision); (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the proposed annual caps. In the event that the total amounts of the Transactions are anticipated to exceed their respective proposed annual caps, or that there is any proposed material amendment to the terms of the Transactions, as confirmed by the Management, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transactions.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Transactions and thus the interest of the Independent Shareholders would be safeguarded.

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Transactions are on normal commercial terms and are fair and reasonable; and (ii) the Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Transactions and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully,

For and on behalf of

Gram Capital Limited

Graham Lam

Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has around 30 years of experience in investment banking industry.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the three years ended 31 December 2021, 2022 and 2023 were disclosed in the annual reports of the Company for the years ended 31 December 2021, 2022 and 2023, respectively. These annual reports were published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http://www.hh-gltd.com):

annual report of the Company for the year ended 31 December 2021 published on 27 April 2022;
annual report of the Company for the year ended 31 December 2022 published on 28 April 2023; and
annual report of the Company for the year ended 31 December 2023 published on 25 April 2024.

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 October 2024, being the latest practicable date for the purpose of this indebtedness statement, the total indebtedness of the Group amounted to approximately RMB4,265,543,000, details of which are set out below:

	RMB'000
Secured bank loans (i)	211,317
Unsecured bank loans	2,850,366
Unsecured loan from a related party	1,203,860

4,265,543

(i) As at 31 October 2024, the secured bank loans included pledged equity interest of approximately RMB47,000,000 (for 20% equity interest of Sichuan Honghua Petroleum Equipment Co., Ltd., a subsidiary of the Group), fixed assets mortgage of approximately RMB164,317,287.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, as at the close of business on 7 October 2024, the Group did not have any outstanding loan capital, bank overdrafts, loans, or other similar borrowings, liabilities or liabilities under acceptance credit (other than normal trade bills), debentures, mortgages, charges, hire-purchase commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

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

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Company has obtained the relevant confirmation as required under Rule 14.66(12) of the Listing Rules.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

From the perspective of the economic situation, the global economy will steadily rise in 2024, the International Monetary Fund (IMF) and the United Nations will increase the global economic growth rate in 2024 to 3.2% and 2.7%, respectively, up by 0.1% and 0.3% from the forecast at the beginning of the year, and the slow recovery of the economy will underpin the growth of oil demand. The global manufacturing PMI has been above the threshold for five consecutive months, showing that the global manufacturing industry as a whole is recovering, which further drives the growth of global trade.

In addition to traditional energy sources, China has made positive progress in the construction of a new energy system. As of the end of July, the total installed capacity of wind and solar power generation in China reached 1.206 billion kilowatts, thereby surpassing the goal set at the Climate Ambition Conference to achieve a combined installed capacity of over 1.2 billion kilowatts by 2030, and doing so more than six years ahead of schedule. By the end of September, the proportion of newly installed wind and solar power generation capacity accounted for more than 80% of the total newly installed power generation capacity. The National Energy Administration is also accelerating the construction of new energy supporting power grid projects to provide strong support for new energy consumption.

Under this development scenario, the Group is confident in future business prospects. On the basis of in-depth analysis of market trends, technological developments and policy orientation, we will focus on the following businesses and directions:

In terms of high-end drilling equipment, the products launched by the Group continue to advance towards high-end and intelligent direction. The new drilling rigs are equipped with advanced intelligent drilling technology, automatic pipe and offline processing technology, zone management technology, energy storage and energy management technology, and online monitoring technology of drilling rigs. A new generation of oil and gas development model is defined with new functions such as equipment automation, operation process standardisation, intelligent drilling process, and low carbonisation of power energy.

In terms of fracturing business, with the rapid development of China's coalbed methane development and utilisation, the Group's fracturing business has taken the lead and is expected to further expand the market size of coalbed methane.

In terms of new energy, the offshore wind power market will continue to maintain a strong growth momentum, and with the advancement of large-scale wind turbines, far-reaching offshore wind power technology, floating wind power technology and other technologies, higher requirements are being placed for offshore wind power pile foundation manufacturing enterprises. The Group will continue to rely on the advantages of the controlling shareholders in technology, industrial chain construction and business model to help the Group obtain orders for offshore wind power products and services, promote the

69 -

APPENDIX I
FINANCIAL INFORMATION OF THE GROUP

technological upgrading of wind power products, and provide guarantee for the development of the Group's offshore wind power industry. At the same time, it keeps up with major new energy business opportunities, and strengthens the market promotion of new products such as mobile photovoltaic.

In conclusion, the Group will actively respond to market changes and challenges and strive to achieve sustained growth and sustainable business development.

70 -

APPENDIX II

GENERAL INFORMATION

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. DISCLOSURE OF INTERESTS

(A) Directors and chief executive of the Company

As at the Latest Practicable Date, none of the Directors and chief executive’s and their respective associates had interests or short positions in Shares, underlying Shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 or short positions which were taken or deemed to have under such provisions of the SFO), or (ii) were required to be recorded in the register maintained by the Company pursuant to Section 352 of the SFO or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of the Listed Issuers in Appendix C3 to the Listing Rules.

As at the Latest Practicable Date, Mr. Wang Xu is an employee director of Dongfang Electric Corporation which had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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

71 -

APPENDIX II

GENERAL INFORMATION

(B) Substantial Shareholders

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

Name	Number of Shares
	Long/Short Position	Personal Interest (Share Interest)	Corporate Interest	Corporate Interest and Settlor of a Discretionary Trust		% of the Issued Share Capital of the Company
Tricor Equity Trustee Limited	Long position	-	-	562,622,260(1)	562,622,260(1)	6.22%
Dongfang Electric International Investment Co., Ltd.	Long position	-	5,290,494,251(2)	-	5,290,494,251(2)	58.52%
Dongfang Electric Corporation	Long position	-	5,290,494,251(2)	-	5,290,494,251(2)	58.52%

Notes:
(1) Tricor Equity Trustee Limited, as the trustee of the 4 Family Trusts, holds 562,622,260 Shares in total.
(2) Dongfang Electric International Investment Co., Ltd. is wholly-owned by Dongfang Electric Corporation (中國東方電氣集團有限公司), and holds 5,290,494,251 Shares.

Save as disclosed above, as at the Latest Practicable Date, the Company had not been notified by any person (other than the Director or chief executive of the Company) who had interests or short position in the Shares and underlying Shares of the Company which fell to be disclosed to the Company under Part XV of the SFO or which are required to be and are recorded in the register required to be kept under Section 336 of the SFO.

3. DIRECTORS' INTERESTS

As at the Latest Practicable Date, none of the Directors had any interests, either directly or indirectly, in any assets which had been acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2023, being the date to which the latest published audited consolidated accounts of the Group were made up.

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

APPENDIX II

GENERAL INFORMATION

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2023, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. COMPETING INTERESTS

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

6. SERVICE CONTRACTS

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

7. EXPERT AND CONSENT

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

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

Gram Capital has confirmed that as at the Latest Practicable Date, it did not have any beneficial shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it have any direct or indirect interests in any assets which had been since 31 December 2023 (being the date to which the latest published audited consolidated financial statements of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

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

APPENDIX II

GENERAL INFORMATION

8. MATERIAL CONTRACTS

During the two years immediately preceding the date of this circular and up to the Latest Practicable Date, the members of the Group entered into the following significant or potentially significant contracts (which were not entered into or proposed to be entered into by the Group in the ordinary course of business):

(a) On 12 December 2023, Honghua Holdings entered into an equity transfer agreement with DEC Investment, pursuant to which Honghua Holdings agreed to sell the shares held in Honghua Leasing to DEC Investment, representing the entire registered capital of Honghua Leasing, for a total consideration of RMB199,049,669.51. Upon completion of the disposal, the Group no longer has any interest in Honghua Leasing.

(b) On 18 January 2023, the Company entered into a subscription agreement with Dongfang Electric International Investment Co., Ltd., pursuant to which the Company agreed to issue and Dongfang Electric International Investment Company Limited agreed to subscribe for 4,000,000,000 Shares at a subscription price of HK$0.2418 per share for a consideration of HK$967.2 million (the "Dongfang Subscription"). The closing of the Dongfang Subscription was completed on 18 July 2023. For further details, please refer to the announcements of the Company dated 18 January 2023, 17 April 2023, 30 June 2023 and 18 July 2023 and the circular dated 23 March 2023.

(c) On 18 January 2023, the Company entered into a subscription agreement with China Chengtong Investment Company Limited, pursuant to which the Company agreed to issue and China Chengtong Investment Company Limited agreed to subscribe for 223,000,000 Shares at a subscription price of HK$0.2418 per share for a consideration of HK$53,921,400 (the "Chengtong Subscription"). As the conditions precedent for the Chengtong Subscription were not fulfilled by 30 June 2023 and no other dates was agreed between the parties, Chengtong Subscription lapsed. For further details, please refer to the announcements of the Company dated 18 January 2023, 17 April 2023 and 30 June 2023 and the circular dated 23 March 2023.

Save as disclosed above, members of the Group have not entered into any contracts (other than those entered into by the Group in the ordinary course of its business) within the two (2) years immediately preceding the Latest practicable Date.

9. MATERIAL LITIGATION

As at the Latest Practicable Date, no the Group or member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

APPENDIX II

GENERAL INFORMATION

10. MISCELLANEOUS

(i) The registered office of the Company is situated at Windward 3, Regatta Office Park, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands.

(ii) The principal place of business of the Company in Hong Kong is situated at 5/F, Manulife Place, 348 Kwun Tong Road, Kowloon, Hong Kong.

(iii) Ms. Lee Mei Yi (a fellow member of both the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators) of Tricor Services Limited has been engaged by the Company as its joint company secretary. Her primary contact person at the Company is Mr. He Bin, another joint company secretary of the Company.

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

(v) The auditor of the Company, Deloitte Touche Tohmatsu, as Certified Public Accountants, is located at 35/F, One Pacific Place, 88 Queensway, Hong Kong.

(vi) As at the Latest Practicable Date, the Board was composed of three executive Directors, who are Mr. Wang Xu (Chairman), Mr. Zhu Hua and Mr. Yang Qiang, two non-executive Directors, who are Mr. Yang Yangzhuang and Mr. Liu Xinggui, and three independent non-executive Directors, who are Mr. Zhang Shiju, Ms. Li Yuedong and Mr. Wang Junren. The correspondence address of each of the Directors is 99 East Road, Information Park, Jinniu District, Chengdu, Sichuan, the PRC.

(vii) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS ON DISPLAY

The following documents are published on the respective websites of the Company (http://www.hh-gltd.com/) and the Stock Exchange (www.hkexnews.hk) within 14 days from the date of this circular:

(i) the Purchase Framework Agreement;

(ii) the Sales Framework Agreement;

(iii) the Lease Framework Agreement;

(iv) the Financial Services Framework Agreement;

(v) the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders;

APPENDIX II
GENERAL INFORMATION

(vi) the written consent as referred to under the section headed “EXPERT AND CONSENT” in this appendix; and

(vii) the material contracts as referred to under the section headed “MATERIAL CONTRACT” in this appendix.

76 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

宏华集团

HONGHUA GROUP

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 “EGM” or “Meeting”) of Honghua Group Limited (the “Company”) will be held at ZiJing Hall, 5th Floor, Shenhang International Hotel, 6035 Shennan Avenue, Futian District, Shenzhen City, Guangdong Province on 31 December 2024 at 9:00 a.m. for the following purposes:

ORDINARY RESOLUTIONS

“THAT:

(a) To approve the Purchase Framework Agreement and the transactions contemplated thereunder;
(b) To approve the relevant proposed annual caps under the Purchase Framework Agreement for the respective financial years ending 31 December 2025, 31 December 2026 and 31 December 2027; and
(c) To authorise any one director on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his/her discretion consider necessary or desirable for the purposes of or in connection with or to give effect to the Purchase Framework Agreement and the transactions contemplated thereunder (including the relevant proposed annual caps).
(a) To approve the Sales Framework Agreement and the transactions contemplated thereunder;
(b) To approve the relevant proposed annual caps under the Sales Framework Agreement for the respective financial years ending 31 December 2025, 31 December 2026 and 31 December 2027; and
(c) To authorise any one director on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his discretion consider necessary or desirable for the purposes of or in connection with or to give effect to the Sales Framework Agreement and the transactions contemplated thereunder (including the relevant proposed annual caps).
77 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

(a) To approve the Lease Framework Agreement and the transactions contemplated thereunder;
(b) To approve the relevant proposed annual caps under the Lease Framework Agreement for the respective financial years ending 31 December 2025, 31 December 2026 and 31 December 2027; and
(c) To authorise any one director on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his discretion consider necessary or desirable for the purposes of or in connection with or to give effect to the Lease Framework Agreement and the transactions contemplated thereunder (including the relevant proposed annual caps).
(a) To approve the Financial Services Framework Agreement and the transactions in relation to the deposit services and the secured loan advancement services contemplated thereunder;
(b) To approve the relevant proposed annual caps in relation to the deposit services and the secured loan advancement services under Financial Services Framework Agreement for the respective financial years ending 31 December 2025, 31 December 2026 and 31 December 2027; and
(c) To authorise any one director on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his discretion consider necessary or desirable for the purposes of or in connection with or to give effect to the Financial Services Framework Agreement and the transactions in relation to the deposit services and the secured loan advancement services contemplated thereunder (including the relevant proposed annual caps).

On behalf of the Board
Wang Xu
Chairman

PRC, 13 December 2024

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

A member of the Company who is entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy need not be a member of the Company but must attend in person to represent the member. A member who is the holder of two or more shares may appoint more than one proxy to represent him/her and vote on his/her behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed. Every member present in person or by proxy shall be entitled to one vote for each share held by him/her.
In order to be valid, the form of proxy together with any power of attorney or other authority under which it is signed or a certified copy of such power of attorney or authority, must be deposited with the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the above Meeting or the adjourned meeting (as the case may be). Completion and return of the form of proxy shall not preclude Shareholder from attending and voting in person at the Meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.
For determining the entitlement to attend and vote at the above Meeting, the register of members of the Company will be closed from Friday, 27 December 2024 to Tuesday, 31 December 2024, both dates inclusive, during which period no transfer of shares of the Company will be registered. In order to be eligible to attend and vote at the EGM, all transfer documents accompanied by the relevant share certificates must be lodged with the Company's branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on Tuesday, 24 December 2024.
References to time and dates in this notice are to Hong Kong time and dates.

As at the date of this notice, the executive Directors of the Company are Mr. Wang Xu (Chairman), Mr. Zhu Hua and Mr. Yang Qiang; the non-executive Directors of the Company are Mr. Yang Yangzhuang and Mr. Liu Xinggui; and the independent non-executive Directors of the Company are Mr. Zhang Shiju, Ms. Li Yuedong and Mr. Wang Junren.

79 -

AI assistant

Honghua Group Limited — Proxy Solicitation & Information Statement 2024

49025_rns_2024-12-13_a2a03415-90c9-49e6-838f-3530af42e1f5.pdf

宏华集团

Honghua Group Limited

宏華集團有限公司

CONTINUING CONNECTED TRANSACTIONS

MAJOR TRANSACTIONS

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the

Independent Board Committee and the Independent Shareholders

宏华集团

Honghua Group Limited

宏華集團有限公司

CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

1. INTRODUCTION

2. PURCHASE FRAMEWORK AGREEMENT

Principal Terms

Pricing Principles

Historical Amounts

Proposed Annual Caps and Basis of Determination

Reasons for and Benefits of the Transactions

Implications under the Listing Rules

3. SALES FRAMEWORK AGREEMENT

Principal Terms

Pricing Principles

Historical Amounts

Proposed Annual Caps and Basis of Determination

Reasons for and Benefits of the Transactions

Implications under the Listing Rules

4. LEASE FRAMEWORK AGREEMENT

Principal Terms

Pricing Principles

Historical Amounts

Proposed Annual Caps and Basis of Determination

Reasons for and Benefits of the Transactions

Implications under the Listing Rules

5. FINANCIAL SERVICES FRAMEWORK AGREEMENT

Principal Terms

Pricing Principles

Historical Amounts

Proposed Annual Caps and Basis of Determination

Deposit Services

Secured Loan Advancement Services

Reasons for and Benefits of the Transactions

(i) To increase interest income and save finance costs

(ii) To raise the efficiency of fund utilisation

(iii) To enhance the management and control of the Group's funds

6. INTERNAL CONTROL

7. INFORMATION ON PARTIES

8. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

9. EGM AND PROXY ARRANGEMENT

10. RECOMMENDATION

11. GENERAL INFORMATION

12. FURTHER INFORMATION

宏华集团

Honghua Group Limited

宏華集團有限公司

CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTION

INTRODUCTION

The Purchase Framework Agreement

The Sales Framework Agreement

The Lease Framework Agreement

The Financial Services Framework Agreement

INDEPENDENCE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

Information on the Group

Information on Dongfang Electric Corporation

Information on Honghua Leasing

Information on Dongfang Electric Finance

A. THE PURCHASE FRAMEWORK AGREEMENT

1. Reasons for entering into the Purchase Framework Agreement

2. Principal terms of the Purchase Framework Agreement

Parties

Honghua Group Limited Proxy Solicitation & Information Statement 2024