New City Development Group Limited — Proxy Solicitation & Information Statement 2003

Nov 25, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Everbright International Limited , you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular.

CHINA EVERBRIGHT INTERNATIONAL LIMITED 中國光大國際有限公司

(incorporated in Hong Kong with limited liability)

DISCLOSEABLE TRANSACTION

A letter from the board of directors of China Everbright International Limited is set out on pages 5 to 15 of this circular.

25th November 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Project Company JV Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Operation Company JV Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Other contracts contemplated pursuant to the Project Company
JV Contract and the Operation Company JV Contract . . . . . . . . . . . . . . . . . . . . . . . . .	11
Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
The Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Information about Qingdao Drainage and Qingdao Municipality . . . . . . . . . . . . . . . . . .	14
Information about Veolia Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Reasons for entering into the Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16

DEFINITIONS

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

“associate(s)”	shall have the meaning ascribed thereto under the Listing
	Rules
“Board”	the board of Directors
“CE Environmental”	China Everbright Environmental Protection Investment
	Limited, a limited liability company incorporated in the
	British Virgin Islands, a wholly-owned subsidiary of the
	Company
“Company”	China Everbright International Limited, a limited liability
	company incorporated in Hong Kong, the shares of which
	are listed on the Stock Exchange
“Contracts”	the Project Company JV Contract and the Operation
	Company JV Contract
“Director(s)”	the director(s) of the Company
“EB-VW”	EB-VW HK Holding Company Limited光大威立雅水務
	香港控股有限公司(formerly known as Eagle Choice
	Investment Limited), a limited liability company
	incorporated in Hong Kong, currently wholly owned by CE
	Environmental
“Facilities”	the existing waste water treatment plants known as “Qingdao
	Haibohe” and “Qingdao Maidao” and the extension thereto
	(the “Extended Facilities”) upon completion of the relevant
	construction works and the Leased Facilities, together with
	all fixed and moveable assets necessary or incidental to the
	construction, operation and maintenance of the Facilities
	and the Extended Facilities, all being located in the
	municipality of Qingdao, Shandong Province, the PRC
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	19th November 2003, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information for inclusion in this circular

– 1 –

DEFINITIONS

“Leased Facilities” the facilities related to the two waste water treatment plants known as “Qingdao Haibohe” and “Qingdao Maidao”, particulars of which are described in the lease agreement between the Project Company and Qingdao Drainage dated 1st November 2003 (such document will become effective only from the date on which the Project Company is duly established under the laws of the PRC and the fulfillment of the conditions precedent provided therein)

“Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange “Operation Company” Qingdao Veolia Water Operating Company Limited, a Sinoforeign co-operative joint venture company to be established under the laws of the PRC, which will be 21% owned by CE Environmental, 78% owned by Veolia Water and 1% owned by Qingdao Drainage “Operation Company JV Contract” the joint venture contract dated 1st November 2003 entered into between CE Environmental, Veolia Water and Qingdao Drainage for the purpose of forming the Operation Company

“Operation and Maintenance the operation and maintenance agreement to be entered into Agreement” between the Project Company and the Operation Company pursuant to which the Project Company will sub-contract the provision of the operation and maintenance services in respect of the Facilities to the Operation Company

“PRC” the People’s Republic of China, and for the purposes of this circular, excluding Hong Kong, the Macau Special Administrative Region and Taiwan

“Project” the Project Company JV Contract and the Operation Company JV Contract as well as all the works and services in respect of the Facilities mentioned in the aforesaid two joint venture contracts

“Project Company” Qingdao EB-VW Waste Water Treatment Co. Ltd., a Sinoforeign co-operative joint venture company to be established under the laws of the PRC, which will be 60% owned by EB-VW with the remaining 40% owned by Qingdao Drainage

“Project Company JV Contract” the joint venture contract dated 1st November 2003 entered into between Qingdao Drainage and EB-VW for the purpose of forming the Project Company

– 2 –

DEFINITIONS

“Qingdao Drainage”	Qingdao Municipal Drainage Company, a State-owned
	company in the PRC
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of
	the Company
“Shareholder(s)”	registered holder(s) of Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiary”	shall have the meaning ascribed thereto under the Listing
	Rules
“Technical Assistance Agreement”	the technical assistance agreement to be entered into
	between the Project Company and Veolia Asia, pursuant to
	which Veolia Asia will provide technical services to the
	Project Company in respect of the operation and
	maintenance of the Facilities
“Undertaking”	the letter of undertaking unilaterally signed by Veolia Asia
	on 1st November 2003 in favour of CE Environmental and
	EB-VW
“Veolia Asia”	Veolia Water Asia Limited, a limited liability company
	incorporated in Hong Kong, which is a member of the Veolia
	Group
“Veolia Group”	Veolia Environnement (a French company whose shares are
	listed on the Paris Stock Exchange) and its subsidiaries,
	with headquarters in Paris, France, which are independent
	third parties not connected with the Directors, chief
	executive and substantial shareholders of the Company and
	any of its subsidiaries or their respective associates
“Veolia Water”	Veolia Water, a French company, which is a member of the
	Veolia Group

– 3 –

DEFINITIONS

“Waste Water Treatment Agreement”

the waste water treatment agreement to be entered into between the Project Company and Qingdao Drainage pursuant to which the Project Company will provide waste water treatment services and other related services to Qingdao Drainage on an exclusive basis for a term of 25 years from the commencement of provision of services thereunder subject to the payment of service fees by Qingdao Drainage

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“US$” United States dollars, the lawful currency of the United States of America “%” per cent.

For the purposes of illustration only and unless otherwise stated, the conversion of United States dollars into Hong Kong dollars and United States dollars into Renminbi in this circular are based on the agreed exchange rates of US$1.00 = HK$7.75 and US$1.00 = RMB8.28 respectively. Such conversions should not be construed as a representation that the amount in question have been, could have been or could be converted at any particular rate or at all.

– 4 –

LETTER FROM THE BOARD

CHINA EVERBRIGHT INTERNATIONAL LIMITED 中國光大國際有限公司

(incorporated in Hong Kong with limited liability)

Directors: WANG Mingquan (Chairman) LI Xueming (Vice-chairman) CHEN Xiaoping (Chief Executive Officer) FAN Yan Hok, Philip (General Manager) HUANG Chaohua WONG Kam Chung, Raymond CHEN Shuang ZHANG Weiyun Sir David AKERS-JONES * LEE Ka Sze, Carmelo * LI Kwok Sing, Aubrey *

Registered office: Room 2703, 27th Floor Far East Finance Centre 16 Harcourt Road Hong Kong

• independent non-executive Directors

25th November 2003

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

INTRODUCTION

On 4th November 2003, the Company announced that on 1st November 2003:

1. EB-VW (formerly known as “Eagle Choice Investment Limited”), currently a whollyowned subsidiary of CE Environmental, entered into the Project Company JV Contract;

2. CE Environmental, a wholly-owned subsidiary of the Company entered into the Operation Company JV Contract; and

3. Veolia Asia unilaterally signed the Undertaking in favour of CE Environmental and EB-VW.

As the value of the proposed investment in the Project exceeds 15% but less than 50% of the unaudited consolidated net tangible assets of the Company as at 30th June 2003, the entering into the Contracts constitutes a discloseable transaction for the Company under the Listing Rules.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further details of the Contracts, the Undertaking and the Project as well as other information as required by the Listing Rules.

PROJECT COMPANY JV CONTRACT

Date: 1st November 2003

Parties:

• (i) EB-VW (formerly known as Eagle Choice Investment Limited), currently a wholly-owned subsidiary of CE Environmental, which is itself a wholly-owned subsidiary of the Company; and

• (ii) Qingdao Drainage (an independent third party not connected with the Directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or their respective associates (save for the future 40% interest in the Project Company pursuant to the Project Company JV Contract)).

Subject matter:

EB-VW and Qingdao Drainage will together establish the Project Company, a Sino-foreign co-operative joint venture company, in the PRC.

Term of the joint venture:

26 years commencing from the date on which the business licence of the Project Company is issued, unless extended or terminated in accordance with the Project Company JV Contract.

Registered capital of the Project Company:

The registered capital of the Project Company will be US$15,257,380 (equivalent to approximately HK$118,244,695), of which Qingdao Drainage shall contribute RMB50,532,443 (equivalent to approximately US$6,102,952 and equivalent to approximately HK$47,297,878) (representing approximately 40% of the registered capital of the Project Company) by way of transferring to the Project Company two waste water treatment plants known as “Qingdao Haibohe” and “Qingdao Maidao”, subject to assessment by the relevant State-owned assets authorities, and EB-VW shall contribute US$9,154,428 (equivalent to approximately HK$70,946,817) in cash (representing approximately 60% of the registered capital of the Project Company). The report of assessment by the relevant State-owned assets authorities is expected to be released not later than 90 days after the date of issuance of the business licence of the Project Company.

Pursuant to the Project Company JV Contract, Qingdao Drainage shall contribute the whole of its capital contribution within 90 days of the date of issuance of the business licence of the Project Company by the relevant PRC authorities. EB-VW shall contribute US$1,373,164 (equivalent to approximately HK$10,642,021), representing 15% of its total capital contribution, within 90 days of the date of issuance of the business licence of the Project Company by the relevant PRC authorities. The remaining 85% of the capital contribution of EB-VW shall be contributed in three separate installments over a period of 3 years.

– 6 –

LETTER FROM THE BOARD

After the establishment of the Project Company, Qingdao Drainage and EB-VW will have interests of approximately 40% and 60% in the registered capital of the Project Company respectively.

Once the Project Company is established pursuant to the Project Company JV Contract, it will become a non-wholly-owned subsidiary of the Company.

As far as the Directors are aware, the establishment of the Project Company is in process and the business licence of the Project Company has not yet been issued by the relevant PRC authorities. Therefore, the Project Company is not yet established.

Total investment:

The total amount of investment of the Project Company is US$42,808,150 (equivalent to approximately HK$331,763,163). The difference between the total amount of investment of the Project Company and the registered capital of the Project Company amounts to approximately US$27,550,770 (equivalent to approximately HK$213,518,468), which shall be financed either by the profits generated by the Project Company or by bank loans.

Scope of business of the Project Company:

The Project Company is formed for the principal purposes of operating and maintaining the Facilities as well as treating and processing waste water in the municipality of Qingdao, Shandong Province, the PRC. In addition, the Project Company will be responsible for the construction of the Extended Facilities and leasing the Leased Facilities from Qingdao Drainage for the purpose of operating and maintaining the whole of the Facilities.

In respect of the operation and maintenance of the Facilities as well as treating and processing waste water, the Project Company shall have the right to sub-contract all or part of its obligations to the Operation Company.

Net profit sharing and distribution upon early termination or expiry of the Project Company JV Contract:

Subject to the provisions of the Project Company JV Contract, (i) the annual distributable net profit of the Project Company will be distributed entirely to EB-VW for the 1st financial year to the 14th financial year of the Project Company, and (ii) the annual distributable net profit of the Project Company will be distributed to EB-VW and Qingdao Drainage in the proportion of 98% to 2% as from the 15th financial year of the Project Company to the expiry of the Project Company JV Contract.

Upon early termination of the Project Company JV Contract (other than due to the expiry of the Waste Water Treatment Agreement or the Operation and Maintenance Agreement), EB-VW may request for either transfer to Qingdao Drainage of all its interest in the Project Company in accordance with the terms of the Project Company JV Contract or liquidation of the Project Company. If the Project Company is liquidated, then (i) the assets of the Project Company will be transferred to Qingdao Drainage on the condition that Qingdao Drainage will pay to the Project Company a compensation amount pursuant to the Waste Water Treatment Agreement, (ii) the

– 7 –

LETTER FROM THE BOARD

compensation amount received by the Project Company pursuant to the Waste Water Treatment Agreement (after deduction of all debts, expenses, charges, fees and costs) will be distributed to EB-VW in accordance with EB-VW’s share in the registered capital of the Project Company, and (iii) the remaining proceeds of liquidation will be shared between Qingdao Drainage and EB-VW in accordance with their respective share in the registered capital of the Project Company.

Upon expiry of the term of the Project Company JV Contract or its early termination due to the expiry of the Waste Water Treatment Agreement or the Operation and Maintenance Agreement, the Project Company will be liquidated, with its fixed assets and any remaining amount in its depreciation fund to be transferred to Qingdao Drainage and the proceeds of liquidation to be shared between Qingdao Drainage and EB-VW in accordance with their respective share in the registered capital of the Project Company.

Board of directors of the Project Company:

The board of directors of the Project Company will comprise 7 directors. Qingdao Drainage will be entitled to nominate 3 directors, whereas EB-VW will be entitled to nominate 4 directors.

The shareholding structure of the Project Company pursuant to the Project Company JV Contract is set out below:

==> picture [255 x 124] intentionally omitted <==

----- Start of picture text -----

EB-VW
(formerly known as Eagle Choice Qingdao Drainage
Investment Limited) (PRC)
(Hong Kong)
60% 40%
Project Company
(PRC)
----- End of picture text -----

OPERATION COMPANY JV CONTRACT

Date: 1st November 2003

Parties:

• (i) Qingdao Drainage (an independent third party not connected with the Directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or their respective associates (save for the future 40% interest in the Project Company pursuant to the Project Company JV Contract));

• (ii) Veolia Water (an independent third party not connected with the Directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or their respective associates); and

• (iii) CE Environmental (a wholly owned subsidiary of the Company).

– 8 –

LETTER FROM THE BOARD

Subject matter:

Qingdao Drainage, Veolia Water and CE Environmental will together establish the Operation Company, a Sino-foreign co-operative joint venture, in the PRC.

Term of the joint venture:

26 years commencing from the date on which the business licence of the Operation Company is issued, unless extended or terminated in accordance with the Operation Company JV Contract.

Registered capital of the Operation Company:

The registered capital of the Operation Company is US$350,845 (equivalent to approximately HK$2,719,049), of which Qingdao Drainage shall contribute US$3,508 (equivalent to approximately HK$27,187) in cash (representing approximately 1% of the registered capital of the Operation Company), Veolia Water shall contribute US$273,659 (equivalent to approximately HK$2,120,857) (representing approximately 78% of the registered capital of the Operation Company) in cash and CE Environmental shall contribute US$73,677 (equivalent to approximately HK$570,997) in cash (representing approximately 21% of the registered capital of the Operation Company). All the capital contributions of the 3 shareholders will be made within 90 days of the date of issuance of the business licence of the Operation Company by the relevant PRC authorities.

After the establishment of the Operation Company, CE Environmental, Veolia Water and Qingdao Drainage will have interests of approximately 21%, 78% and 1% in the registered capital of the Operation Company respectively.

As far as the Directors are aware, the establishment of the Operation Company is in process and the business licence of the Operation Company has not yet been issued by the relevant PRC authorities. Therefore, the Operation Company is not yet established.

Total investment:

The total amount of investment of the Operation Company is US$500,000 (equivalent to approximately HK$3,875,000). The difference between the total amount of investment of the Operation Company and the contributed registered capital of the Operation Company amounts to approximately US$149,155 (equivalent to approximately HK$1,155,951), which shall be financed either by the profits generated by the Operation Company or by bank loans.

Scope of business of the Operation Company:

The Operation Company is formed principally for the purpose as the contractor of the Project Company for (i) the operation and maintenance of the Facilities; (ii) treating and processing waste water in the municipality of Qingdao, Shandong Province, the PRC; and (iii) other services as provided in the Operation and Maintenance Agreement.

– 9 –

LETTER FROM THE BOARD

Net profit sharing and distribution upon early termination or expiry of the Operation Company JV Contract:

Subject to the provisions of the Operation Company JV Contract and unless otherwise agreed by the parties to increase the profit distribution proportion of CE Environmental, (i) the annual distributable net profit of the Operation Company will be distributed entirely to CE Environmental and Veolia Water (with 21.21% distributed to CE Environmental and 78.79% distributed to Veolia Water) for the 1st financial year to the 14th financial year of the Operation Company, and (ii) the annual distributable net profit of the Operation Company will be distributed to Qingdao Drainage, CE Environmental and Veolia Water in the proportion of 1%, 21% and 78% for the 15th financial year of the Operation Company to the expiry of the Operation Company JV Contract. In the meantime, the Group is still negotiating with Veolia Group for the purpose of increasing the profit distribution proportion of CE Environmental in the annual distributable net profit of the Operation Company.

Upon early termination of the Operation Company JV Contract (other than due to the expiry of the Waste Water Treatment Agreement or the Operation and Maintenance Agreement), the Operation Company will be liquidated, then (i) the assets of the Operation Company will be transferred to Qingdao Drainage on the condition that Qingdao Drainage will pay to the Operation Company a compensation amount pursuant to the provisions of the Operation and Maintenance Agreement, (ii) the compensation amount received by the Operation Company pursuant to the provisions of the Operation and Maintenance Agreement (after deduction of all debts, expenses, charges, fees and costs) will be distributed to CE Environmental and Veolia Water in accordance with their respective share in the registered capital of the Operation Company, and (iii) the remaining proceeds of liquidation will be shared between Qingdao Drainage, CE Environmental and Veolia Water in accordance with their respective share in the registered capital of the Operation Company.

Upon expiry of the term of the Operation Company JV Contract or its early termination due to the expiry of the Waste Water Treatment Agreement or the Operation and Maintenance Agreement, the Operation Company will also be liquidated, with its fixed assets and any remaining amount in its depreciation fund to be transferred to Qingdao Drainage and the proceeds of liquidation to be shared between Qingdao Drainage, CE Environmental and Veolia Water in accordance with their respective share in the registered capital of the Operation Company.

Board of directors of the Operation Company:

The board of directors of the Operation Company will comprise 7 directors. Qingdao Drainage will be entitled to nominate 1 director, Veolia Water will be entitled to nominate 4 directors and CE Environmental will be entitled to nominate 2 directors.

– 10 –

LETTER FROM THE BOARD

The shareholding structure of the Operation Company pursuant to the Operation Company JV Contract is set out below:

CE Environmental (British Virgin Islands)		Veolia Water (France)		Qingdao Drainage (PRC)
21% 1% Operation Company (PRC) 78%

OTHER CONTRACTS CONTEMPLATED PURSUANT TO THE PROJECT COMPANY JV CONTRACT AND THE OPERATION COMPANY JV CONTRACT

The following agreements are contemplated by the Project Company JV Contract and the Operation Company JV Contract to effect and implement the purposes therein:

• (1) the Waste Water Treatment Agreement;

• (2) the Operation and Maintenance Agreement;

• (3) the assets contribution agreement between the Project Company, EB-VW and Qingdao Drainage pursuant to which Qingdao Drainage will transfer the ownership of the two waste water treatment plants known as “Qingdao Haibohe” and “Qingdao Maidao” to the Project Company as its capital contribution to the Project Company;

• (4) the lease agreement between the Project Company and Qingdao Drainage dated 1st November 2003 (such document will become effective only from the date on which the Project Company is duly established under the laws of the PRC and the fulfillment of the conditions precedent provided therein), pursuant to which Qingdao Drainage will lease the Leased Facilities to the Project Company for the purpose of operating and maintaining the whole of the Facilities; and

• (5) the Technical Assistance Agreement.

After its establishment, the Project Company will become a non-wholly owned subsidiary of the Company and Qingdao Drainage will become its substantial shareholder. If Veolia Asia takes up 40% shareholding in EB-VW pursuant to the Undertaking, it will become the substantial shareholder of EB-VW. In such circumstances, the above agreements and contracts may then constitute connected transactions for the Company when they are entered into by the Project Company with Qingdao Drainage and Veolia Asia respectively or when they become effective pursuant to the relevant terms thereof. Accordingly, once the above agreements and/or contracts are entered into by the relevant parties or take effect, the Company will make further announcement and comply with the requirements of the Listing Rules.

– 11 –

LETTER FROM THE BOARD

UNDERTAKING

Date: 1st November 2003

Parties:

• (i) Veolia Asia

in favour of:

• (ii) CE Environmental and EB-VW (formerly known as Eagle Choice Investment Limited).

Principal undertakings given unilaterally by Veolia Asia:

• (1) Within 7 days following the confirmation of CE Environmental and EB-VW that they are satisfied with the due diligence work on the Project and the final terms of the Operation and Maintenance Agreement and the Technical Assistance Agreement, Veolia Asia (or its wholly-owned subsidiary) will subscribe, for shares in EB-VW to the effect that Veolia Asia (or its wholly-owned subsidiary) will become a shareholder of EB-VW and will have 40% shareholding in EB-VW. After becoming a shareholder of EB-VW, Veolia Asia (or its wholly-owned subsidiary) will commit to share 40% of the financing responsibility of EB-VW in the Project Company pursuant to the Project Company JV Contract.

• (2) Should any one of CE Environmental and EB-VW not be satisfied with either the due diligence work on the Project or the final terms of the Operation and Maintenance Agreement and/or the Technical Assistance Agreement within 20 days following 1st November 2003, Veolia Asia will immediately:

• (a) acquire from CE Environmental the entire shareholding in EB-VW at costs (i.e. the total investment costs contributed to EB-VW by CE Environmental) and will become the sole shareholder of EB-VW; and

• (b) acquire from CE Environmental its 21% interest in the Operation Company at costs (i.e. the total investment costs contributed to the Operation Company by CE Environmental) and take up all the obligations and rights of CE Environmental in the Operation Company JV Contract.

Consequence of implementation of the Undertaking:

In the case of implementation of principal undertaking (1) above:

• (i) CE Environmental and Veolia Asia (or its wholly-owned subsidiary) will respectively own 60% and 40% shareholding in EB-VW, which will then become an investment vehicle between CE Environmental and Veolia Asia in the Project Company;

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LETTER FROM THE BOARD

• (ii) it is currently intended that the board of directors of EB-VW will comprises 5 directors, of whom 3 directors will be nominated by CE Environmental and 2 directors will be nominated by Veolia Group; and

• (iii) in respect of the investment commitment by EB-VW in the Project Company pursuant to the Project Company JV Contract, it is currently intended that CE Environmental and Veolia Asia (or its wholly-owned subsidiary) will provide to EB-VW funds by capital and/or shareholders’ loans and/or otherwise as may be determined by the board of directors of EB-VW in accordance with their respective shareholding percentage in EB-VW.

In the case of implementation of principal undertaking (2) above:

• (i) Veolia Asia (or its wholly-owned subsidiary) will become the sole shareholder of EB-VW and the Group will withdraw entirely from investment in the Project Company;

• (ii) CE Environmental will withdraw entirely from investment in the Operation Company and Veolia Group will have 99% interest in the Operation Company; and

• (iii) as a result of (i) and (ii) above, the Group will withdraw entirely from investment in the Project.

As the Group is still negotiating with the Veolia Group on the final terms of the Operation and Maintenance Agreement and the Technical Assistance Agreement and the 20-day period as referred to in principal undertaking (2) above would have expired on 21st November 2003, CE Environmental, EB-VW and Veolia Asia have on 19th November 2003 agreed to extend the period for negotiations to 8th December 2003. Therefore, the investment of Veolia Asia in the Project Company through EB-VW is still pending the result of negotiation between the Group and the Veolia Group, which is expected to be known on or before 8th December 2003. In either case of implementation of principal undertaking (1) or principal undertaking (2) or otherwise as determined by the Group, the Company will make further announcement and comply with the requirements of the Listing Rules.

THE PROJECT

Pursuant to the Contracts, it is intended that the Project Company will own the main parts of the Facilities (including the two waste water treatment plants known as “Qingdao Haibohe” and “Qingdao Maidao”), operate and maintain such Facilities and provide waste water treatment services in Qingdao Municipality for approximately 26 years after its establishment. Nevertheless, the Operation Company will contract from the Project Company such work of operating and maintaining the Facilities as well as provision of waste water treatment services in Qingdao Municipality for approximately 26 years.

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LETTER FROM THE BOARD

INFORMATION ABOUT QINGDAO DRAINAGE AND QINGDAO MUNICIPALITY

Qingdao Drainage is a State-owned company duly organised and existing under the laws of the PRC and registered with Qingdao Municipal Administration Bureau of Industry and Commerce, Shandong Province, the PRC. It is engaged principally in the investment in, construction of and management of waste water treatment facilities in Qingdao Municipality, Shandong Province, the PRC.

The municipality of Qingdao is a coastal city situated in the southern part of the Shandong Peninsula, the PRC. The municipality of Qingdao has a total area of approximately 10,654 square kilometres and a total population of approximately 7.16 million, whereas the urban area has an approximate total area of 1,102 square kilometres and a population of approximately 2.41 million.

The municipality of Qingdao is an important centre for textiles, light industry and chemical manufacturing in the PRC. It also has particular strength in the manufacturing of family appliances, electronics, rubber, mechanical manufacturing as well as food processing.

INFORMATION ABOUT VEOLIA GROUP

Veolia Water and Veolia Asia are members of the Veolia Group. Veolia Group is one of the world leaders in water services, being one of the leading designers and suppliers of water treatment facilities, equipment and systems for the industrial and commercial sectors. With headquarters in Paris, France, Veolia Group operates worldwide and offers a comprehensive range of water and waste water management services, including turnkey plants and systems, refurbishment, equipment, operations, maintenance and outsourcing. Co-operation with the Veolia Group through the Project is in line with the strategy of the Group of entering into the environmental protection industry with strong business partners, and will leverage on the expertise of the Veolia Group.

REASONS FOR ENTERING INTO THE CONTRACTS

The Group is principally engaged in infrastructure investment, property investment and the environmental protection industry.

The environmental protection business is a new business that the Group has been focusing on since 2002. The Group believes that the investment in the Project will enable the Group to strengthen its business development in this field, and successful development in the environmental protection business is expected to generate steady revenue and good investment return to Shareholders. The Group intends to finance the proposed capital injections by internally generated funds and bank borrowings.

According to the analysis set out in the paragraph headed “Net profit sharing and distribution upon early termination or expiry of the Project Company JV Contract” in the section headed “Project Company JV Contract” and the paragraph headed “Net profit sharing and distribution upon early termination or expiry of the Operation Company JV Contract” in the section headed “Operation Company JV Contract” in this letter, it is expected that the earnings of the Group will benefit from the profit distributions mentioned in the said two paragraphs. On the other hand, the Group is liable for the capital contribution into the Project Company and the Operation Company as analysed in the said two sections.

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LETTER FROM THE BOARD

The Directors consider that the terms of the Undertaking and the Contracts are conducted at arm’s length and are in the interest of the Group and the Shareholders as a whole.

GENERAL

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

By order of the Board China Everbright International Limited CHEN Xiaoping Chief Executive Officer

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GENERAL INFORMATION

APPENDIX

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures 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 they were taken or deemed to have under such provisions of the SFO); or (ii) were required to be entered 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 Listed Companies as contained in the Listing Rules, were as follows:

(a) Share options in the Company

				No. of	Approximate
				underlying	percentage of
				**Shares **	the Company’s
		Exercise		pursuant to	total issued
Name of Director	Date of grant	price	Exercise period	share options	share capital
		(HK$)
WANG Mingquan	29.09.03	0.296	29.03.04-25.05.13	25,400,000	0.997%
LI Xueming	29.09.03	0.296	29.03.04-25.05.13	18,000,000	0.706%
CHEN Xiaoping	29.09.03	0.296	29.03.04-25.05.13	18,000,000	0.706%
FAN Yan Hok, Philip	29.09.03	0.296	29.03.04-25.05.13	10,000,000	0.392%
HUANG Chaohua	29.09.03	0.296	29.03.04-25.05.13	9,000,000	0.353%
WONG Kam Chung, Raymond	29.09.03	0.296	29.03.04-25.05.13	9,000,000	0.353%
CHEN Shuang	29.09.03	0.296	29.03.04-25.05.13	4,000,000	0.157%
ZHANG Weiyun	29.09.03	0.296	29.03.04-25.05.13	4,000,000	0.157%
Sir David AKERS-JONES	29.09.03	0.296	29.03.04-25.05.13	1,000,000	0.039%
LEE Ka Sze, Carmelo	29.09.03	0.296	29.03.04-25.05.13	1,000,000	0.039%
LI Kwok Sing, Aubrey	29.09.03	0.296	29.03.04-25.05.13	1,000,000	0.039%

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GENERAL INFORMATION

APPENDIX

• (b) Share options in China Everbright Limited (“CEL”), an associated corporation (within the meaning of Part XV of the SFO) of the Company:

				No. of	Approximate
				underlying	percentage
				shares of CEL	of the total
	Date of	Exercise	Exercise	pursuant to	issued share
Name of Director	grant	price	period	share options	capital of CEL
		(HK$)
WANG Mingquan	26.06.02	4.360	27.06.03-	6,000,000	0.38%
			26.12.05
	07.07.03	2.375	08.07.04-	3,000,000	0.19%
			07.01.07

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

Mr. LEE Ka Sze, Carmelo, an independent non-executive director of the Company, is a partner of Messrs. Woo, Kwan, Lee & Lo. Woo, Kwan, Lee & Lo is the legal adviser to the Company and will receive normal remuneration in respect of the professional services rendered to the Group in relation to the Project.

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons or corporations (not being Directors or chief executive of the Company), had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any options in respect of such capital, were as follows:

			Approximate
			percentage of
			the Company’s
Name of			total issued
Substantial Shareholder	Capacity	Interests in Shares	share capital
China Everbright Holdings	Beneficial owner	1,758,595,910	69.01%
Company Limited (“CEH”)

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GENERAL INFORMATION

APPENDIX

• Note: Of the 1,758,595,910 Shares, 1,758,215,910 Shares are held by Guildford Limited (“Guildford”). Guildford is owned as to 55% by Datten Investments Limited (“Datten”) and as to 45% by CEH. Datten is a whollyowned subsidiary of CEH. The remaining 380,000 Shares are held by Everbright Investment & Management Limited (“EIM”), a wholly-owned subsidiary of CEH. Accordingly, CEH is deemed to be interested in the 1,758,215,910 Shares held by Guildford and the 380,000 Shares held by EIM.

Save as disclosed above, as at the Latest Practicable Date, the Directors are not aware of any other person who, had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any options in respect of such capital.

SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to enter, into a service contract with any member of the Group which does not expire or is not determinable by the relevant member of the Group within one year without compensation, other than statutory compensation.

LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no member of the Group is engaged in any litigation or arbitration proceedings of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any member of the Group.

GENERAL

• (a) The secretary of the Company is Ms. POON Yuen Ling. Ms. POON is an associate member of The Hong Kong Institute of Company Secretaries and The Institute of Chartered Secretaries and Administrators.

• (b) The registered office of the Company is situated at Room 2703, 27th Floor, Far East Finance Centre, 16 Harcourt Road, Hong Kong.

• (c) The share registrar and transfer office of the Company is Tengis Limited of Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

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