Netjoy Holdings Limited - Proxy Solicitation & Information Statement 2004

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

(a Sino-foreign joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 902)

Proposals for Issue of Convertible Bonds,

Amendments to Articles of Association and

Appointment of New Directors


On 10th August 2004, the Board resolved to propose certain resolutions, including issue of Convertible Bonds, amendments to the articles of association and appointment of new directors, for shareholders' consideration and approval at the forthcoming EGM and Class Meetings expecting to be held on or about 28th September 2004. A circular containing further details of the proposed resolutions will be sent to the shareholders in due course.

On 10th August 2004, the Board resolved to propose certain resolutions, including issue of Convertible Bonds, amendments to the articles of association and appointment of new directors, for shareholders' consideration and approval at the forthcoming EGM and Class Meetings expecting to be held on or about 28th September 2004. A circular containing further details of the proposed resolutions will be sent to the shareholders in due course.

On 10th August, 2004, the Board convened a meeting at which it was resolved that according to the relevant laws and regulations, and the Articles of Association of the Company, the Company should convene an EGM and Class Meetings for its shareholders to consider and approve the following matters.

PROPOSED RESOLUTIONS TO BE CONSIDERED

PROPOSED ISSUE OF CONVERTIBLE BONDS

Information about the Convertible Bonds

The Company proposes to issue up to US$300 million in principal amount of Convertible Bonds which will be convertible into new H Shares. The Convertible Bonds are proposed to be in the form of US dollar denominated convertible bonds. Application will be made to list the Convertible Bonds on an internationally recognised stock exchange. The issue size, interest rate, conversion price, exchange rate structure and timing of the issue of Convertible Bonds will be determined by the Board after careful consideration and taking into account the prevailing market conditions and all other relevant factors at that time. Other terms and conditions of the Convertible Bonds will also be determined by the Board prior to the proposed issue of Convertible Bonds. The Convertible Bonds are expected to be offered only to professional and institutional investors, and shareholders of the Company will not be entitled to subscribe for the Convertible Bonds solely by virtue of their shareholdings in the Company. There will not be a public offering of the Convertible Bonds.

The proposed issue of Convertible Bonds will be conditional on, among other things, the following:

(a) the obtaining of the approvals by way of special resolutions at:

(1) the EGM;

(2) the H Shares Class Meeting; and

(3) the Domestic Shares Class Meeting;

(b) the obtaining of the approvals or consents from the relevant PRC regulatory authorities including:

(1) the SDPC; and

(2) the CSRC;

(c) the granting by the Hong Kong Stock Exchange of approval for the listing of and permission to deal in the new H Shares to be issued upon conversion (if any) of the Convertible Bonds; and

(d) the granting of approval for the listing of the Convertible Bonds by an internationally recognised stock exchange on which the Convertible Bonds are to be listed.

Proposed Use of Proceeds

The net proceeds of the proposed issue of Convertible Bonds are expected to be used to meet the Company's foreign exchange needs for the following:

(a) the purchase of major imported equipment for new power plants and for expanding existing power plants;

(b) acquisition of power plants in operation; and

Should the actual use of proceeds have to meet any disclosure and/or shareholders' approval requirements under the Listing Rules, the Company shall comply with the relevant provisions of the Listing Rules to make the necessary disclosure and to seek the appropriate approvals as required.

Reasons for the issue of convertible bonds

The Company has not conducted any fund raising activities in the preceding twelve months. The Board has carefully considered different financing options for the funding needs of the Company as set out above and believes the proposed issue of Convertible Bonds to be the most appropriate arrangement for the Company for the following reasons:

(a) a convertible bond issue would allow the Company to take advantage of the current favourable low interest rate environment, thereby lowering the Company's overall funding cost;

(b) a convertible bond issue would generally allow the issuer to pay a lower interest coupon payment than would be the case for a straight bond issue; and

(c) the proposed issue of Convertible Bonds would not lead to any immediate dilution on the Company's basic earnings per Share which would arise in the case of a new issue of H Shares.

Impact on Shareholders

Upon conversion of the Convertible Bonds to be issued, there would be an increase in the number of H Shares held by the public. The exact size of the increase will depend upon the final terms of the Convertible Bonds, including, among other terms, the size of the issue and the conversion price at which the Convertible Bonds will be converted into H Shares. It is currently contemplated that the initial conversion price will be determined with reference to a premium over the closing price of H Shares for a certain period of trading days immediately prior to the pricing date. The final terms of the Convertible Bonds are expected to be determined only after the completion of a roadshow (if any) and "book-building" offering process. Shareholders' equity interest in the Company will be diluted as a result of the exercise of the conversion rights attached to the Convertible Bonds. Further announcements will be made to shareholders of the Company once the terms and conditions of the Convertible Bonds are determined.

Amendments to the articles of association

At the EGM, the H Shares Class Meeting and the Domestic Shares Class Meeting, special resolutions will be proposed to authorise the Board to make amendments to the Articles of Association to reflect the increase of the registered capital of the Company to comprise the Shares in issue and the new H Shares to be issued upon conversion of the Convertible Bonds.

New H Shares

Any new H Shares to be issued upon conversion of the Convertible Bonds will rank pari passu with, and within the same class as, the H Shares in issue on the relevant conversion date in all respects, save in respect of entitlements to dividends and other distributions which will depend on the conversion date(s) for the Convertible Bonds and the date for the payment of dividends or other distribution with respect to the Shares.

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

The Company proposes to make the following amendments to its Articles of Association ("Proposed Amendments to Articles") to meet the Company's development needs:

(i) The original Article 15 which provides that:

"With the approval of the examination and approval departments authorized by the State Council, the aggregate amount of the ordinary shares to be issued by the Company initially shall equal 5 billion shares, 3.75 billion of which shall be issued to the promoters (domestic shares), constituting 75% (seventy-five percent) of the total number of ordinary shares.

1.25 billion of the ordinary shares issued after the establishment of the Company shall be overseas listed foreign shares and shall constitute 25% (twenty-five percent) of the ordinary shares.

After passed by a special resolution in a general meeting of shareholders and approved by the relevant departments of the Chinese government, the Company had completed the issuing and placing of 250 million overseas listed foreign shares and 400 million domestic shares on 4 March 1998. The stock structure after the above issuing and placing shall be as follows: 5.65 billion ordinary shares, of which 4.15 billion shares are owned by shareholders of domestic shares, accounting for around 73.45% of the total ordinary shares; and 1.5 billion overseas listed shares, accounting for around 26.55% of the total ordinary shares.

After passed by a special resolution in a general meeting of shareholders and approved by the relevant departments of the Chinese government, the Company had completed the issuing and placing of 350 million domestic shares in 2001, of which 250 million shares are domestic listed shares and 100 million shares are domestic non-listed shares.

After the above new issue and placing, the capital structure of the Company shall be: 6 billion ordinary shares, of which 250 million shares are owned by shareholders of listed domestic shares, accounting for around 4.17% of the total share capital of the Company; other shareholders of domestic shares own 4.25 billion shares, accounting for 70.83% of the total share capital of the Company; and shareholders of overseas listed shares own 1.5 billion shares, accounting for around 25% of the total share capital of the Company."

is proposed to be amended as follows:

1.25 billion of the ordinary shares issued after the establishment of the Company shall be overseas listed foreign shares and shall constitute 25% (twenty-five percent) of the ordinary shares.

After passed by a special resolution in a general meeting of shareholders and approved by the relevant departments of the Chinese government, the Company had completed the issuing and placing of 350 million domestic shares in 2001, of which 250 million shares are domestic listed shares and 100 million shares are domestic non-listed shares.

After passed by a special resolution in shareholders' general meeting, the Company had distributed profits to the shareholders by bonus shares, totalling 3,013,835,600 shares, and increase the registered share capital by conversion of additional paid-in capital by distributing 3,013,835,600 bonus shares to the shareholders.

Upon the completion of issuing new overseas listed foreign shares by the Company in manner as set out in Article 16 and the completion of bonus issue of shares by distribution of profit and conversion of additional paid-in capital, the share captial structure should be: 12,055,383,440 ordinary shares, of which 500 million shares are owned by shareholders of listed domestic shares, accounting for around 4.15% of the total share capital of the Company; other shareholders of domestic shares own 8.5 billion shares, accounting for 70.51% of the total share capital of the Company; and shareholders of overseas listed shares own 3,055,383,440 shares, accounting for around 25.34% of the total share capital of the Company."

(ii) The original Article 16 which provides that:

"As resolved in the class meeting for the Company's domestic shareholders and in the class meeting for the Company's overseas listed foreign shares and in the extraordinary general meeting of the Company by way of special resolution, and with the approval of the supervising department of the China government, the Company may issue notes overseas which are convertible to the Company's new overseas listed shares, with a maximum principal amount of US$200,000,000, together with a further over-allotment option to issue additional convertible notes up to a principal amount of US$30,000,000 (collectively known as "Convertible Notes"). The maximum number of new overseas listed foreign shares to be issued by the Company is 400,000,000 (where the exact number shall be modified in accordance with the actual number of newly issued overseas listed shares converted from the Convertible Notes)."

is proposed to be amended as follows:

"As resolved in the class meeting for the Company's domestic shareholders and in the class meeting for the Company's overseas listed foreign shares and in the extraordinary general meeting of the Company by way of special resolution, and with the approval of the supervising department of the China government, the Company may issue notes overseas which are convertible to the Company's new overseas listed shares, with a maximum principal amount of US$200,000,000, together with a further over-allotment option to issue additional convertible notes up to a principal amount of US$30,000,000 (collectively known as "Convertible Notes"). The number of newly issued overseas listed foreign shares pursuant to the Convertible Notes is 27,712,240."

(iii) The original Article 19 which provides that:

"The Company's initial registered capital shall be Rmb6 billion.

Pursuant to Article 16 of these Articles of Association, the Company shall, from time to time, after issuing new overseas listed foreign shares, increases the amount of registered capital to a maximum of Rmb6.4 billion. The exact number should be amended in accord with the final actual number of Convertible Notes converted into the Company's new overseas listed foreign shares."

is proposed to be amended as follows:

"The registered share capital of the Company is Rmb12,055,383,440."

(iv) The original Article 91 which provides that:

"The Board of Directors should be responsible to the shareholder's general meeting and shall exercise the following powers:

(1) to be responsible for convening shareholders' general meetings and reporting its work to the shareholders' general meeting;

(2) to implement the resolutions of shareholders' general meetings;

(3) to decide on the Company's business operating plans and investment proposals;

(4) to formulate the Company's proposed annual financial budget and final accounts:

(5) to formulate the Company's profit distribution plan and plan for recovery of losses;

(6) to formulate proposals for increases in or reductions of the Company's registered capital and the issuance of corporate bonds;

(7) to prepare plans for the merger, division or distribution of the Company;

(8) to decide on the establishment of the Company's internal management structure;

(9) to appoint or dismiss the Company's general management, and according to the general manager's nomination, to appoint or dismiss the deputy general manager and financial officer of the Company and to decide on their remuneration;

(10) to formulate the Company's basic management systems;

(11) to formulate the proposals for amendments of the Company's Articles of Association;

(12) to formulate the proposals for amendments of the rules for shareholders' general meetings.

(13) subject to the relevant law and the authorised power of these Articles of Association of the Company, to decide on matters regarding guarantee provided by the Company;

(14) other powers given by the Articles or authorised by the shareholders' general meetings.

Except for the matters in paragraphs (6), (7), (11) and (13) which require the consent of at least two-thirds of all the directors; the other matters may be decided upon by at least one-half of all the directors.

Where in a period, no meeting is arranged for the Board of Directors, if entrusted by the Board of Directors, the Chairman and Vice-Chairman are permitted to exercise jointly part of the powers of the Board of Directors, including:

(1) to approve the establishment or cancellation of plans for development and construction projects;

(2) to approve the general manager's plans for the appointment and transfer of department managers of the Company and assignment of agency managers;

(3) to approve plans for using a significant amount of capital; and

(4) to approve other major issues."