Sinopec Kantons Holdings Limited - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, or as to the action to be taken, you should consult our 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 Sinopec Kantons Holdings Limited, you should at once hand this circular together with the enclosed 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.

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.

SINOPEC KANTONS HOLDINGS LIMITED ( )*

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

Revision of caps re crude oil supply and sourcing and petroleum and petrochemical products of the Existing Ongoing Connected Transactions for the three financial years ending 31 December 2010

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Hantec Capital Limited

A letter from the Board is set out on pages 5 to 15 of this circular.

A letter from the Independent Board Committee containing its recommendation in respect of the Existing Ongoing Connected Transactions is set out on page 16 of this circular.

A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 33 of this circular.

A notice convening the SGM to be held at Boardroom 3-4, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wan Chai, Hong Kong on 18 September 2008 at 10:00 a.m. is set out on pages 38 to 39 of this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to Tricor Secretaries Limited, the Hong Kong Branch Share Registrar and Transfer Office of the Company, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or at any adjourned meeting should you so wish.

For identification purposes only

1 September 2008

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38

– i –

DEFINITIONS

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

“Company” Sinopec Kantons Holdings Limited (and for identification only ), an exempted company incorporated in Bermuda with limited liability.
“Director(s)” the director(s) of the Company, including the independent non-executive directors of the Company.
“CPIC” (China Petrochemical International Co. Ltd.), a company established under the laws of the PRC, which is a direct wholly-owned subsidiary of Sinopec Corp..
“CPIC” (China Petrochemical
“CPIC Framework Master Agreement”
the agreement dated 27 July 2007 entered into between the Company and CPIC in respect of continuing connected transactions as disclosed in paragraph (I) of the “Letter from the Board” of this circular for the three financial years ending 31 December 2010.
“Existing Ongoing Connected Transactions”
collectively the non-exempted continuing connected transactions including, the services and facilities in relation to the Huizhou Jetty, the crude oil supply and sourcing, petroleum and petrochemical products trading and the third party processing of crude oil collectively, details of which are set out in this circular with respect to the Previous SGM.
“Framework Master Agreements”
collectively the Unipec Framework Master Agreement, the Sinopec (HK) Framework Master Agreement, the CPIC Framework Master Agreement and the Sinopec/ CASOC Framework Master Agreement.
“Group” the Company and its subsidiaries.
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC.
“Independent Board Committee”
the independent board committee of the Company comprising of Mr. Wong Po Yan, Ms. Tam Wai Chu, Maria and Mr. Fong Chung, Mark, the independent non-executive Directors.

– 1 –

DEFINITIONS

“Independent Financial Adviser”
Hantec Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Revised Caps for the three financial years ending 31 December 2010.
“Independent Shareholders” holder of shares in the Company other than Sinopec Group Company, Sinopec Corp., Unipec, CPIC, SKI and their respective associates.
“Latest Practicable Date” 29 August 2008, being the latest practicable date prior to the printing of the circular for certain information in the circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange.
“member of the Sinopec Group” shall mean any one of them.
“PRC”
the People’s Republic of China, but for the purposes of this circular and for geographical reference only (unless otherwise indicated) excludes Taiwan, Macau and Hong Kong.
“Previous SGM” 21 September 2007.
“Revised Caps” the revision and increase of the caps of crude oil supply and sourcing and petroleum and petrochemical products trading of the Existing Ongoing Connected Transactions, being the crude oil supply and sourcing and petroleum and petrochemical products trading for the three financial years ending 31 December 2010, as disclosed in paragraph (I) of the “Letter from the Board” of this circular.
“SGM”
the special general meeting of the Company to be convened for the purpose of approving the Revised Caps.
“Sinopec/CAOSC”
Sinopec/CAOSC Co. Ltd., a company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.
“Sinopec/CAOSC Framework Master Agreement”
the agreement dated 27 July 2007 entered into between the Company and Sinopec/CAOSC in respect of continuing connected transactions as disclosed in paragraph (I) of the “Letter from the Board” of this circular for the three financial years ending 31 December 2010.

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DEFINITIONS

“Sinopec (HK)” Sinopec (Hong Kong) Company Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.
“Sinopec (HK) Framework Master the agreement dated 27 July 2007 entered into between Agreement” the Company and Sinopec (HK) in respect of continuing connected transactions as disclosed in paragraph (I) of the “Letter from the Board” of this circular for the three financial years ending 31 December 2010.
“Sinopec Corp.” (China Petroleum &
Chemical Corporation) (Stock Code: 386), a joint-stock limited liability company incorporated in the PRC, the shares of which are listed on the stock exchanges of Hong Kong, Shanghai, New York and London.
“Sinopec Group” Sinopec Group Company, its subsidiaries and its associated companies and affiliates, including the Group, or where the context so requires, any two or more members of such group and the words.
“Sinopec Group Company” (China Petrochemical Corporation) (formerly known as (China Petrochemical Corporation)), an enterprise established under the laws of the PRC, being the controlling shareholder of Sinopec Corp. (by virtue of its holding of approximately 75.84% in the issued share capital in Sinopec Corp.) and the ultimate controlling shareholder of the Company (by virtue of Sinopec Corp.’s holding of approximately 72.34% in the issued share capital of the Company).
“Sinopec Guangzhou Branch” (China Petroleum
& Chemical Corporation Guangzhou Branch), a branch of Sinopec Corp..
“Sinopec Guangzhou Branch Expansion”
the expansion of the crude oil refinery of Sinopec Guangzhou Branch to an annual refining capacity of 13 million tonnes grade crude oil refinery.
“SKI”
Sinopec Kantons International Limited (and for identification only ), a company established under the laws of the British Virgin Islands with limited liability and the immediate controlling shareholder of the Company.
“State”

the government of the PRC.

– 3 –

DEFINITIONS

“Stock Exchange”

The Stock Exchange of Hong Kong Limited.

“Unipec” (China International United Petroleum and Chemicals Co. Ltd.), a company established under the laws of the PRC with limited liability and a wholly owned subsidiary of Sinopec Corp..
“Unipec Framework Master the agreement dated 27 July 2007 entered into between Agreement” the Company and Unipec in respect of continuing connected transactions as disclosed in paragraph (I) of the “Letter from the Board” this circular for the three financial years ending 31 December 2010.
“Unipec Group” Unipec, its subsidiaries and its associated companies and affiliates.
“%”

per cent.

– 4 –

LETTER FROM THE BOARD

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

(Stock Code: 934)

Executive Directors: Ms. Wang Li Sheng Mr. Zhu Zeng Qing Mr. Zhu Jian Min Mr. Tan Ke Fei Mr. Zhou Feng Mr. Ye Zhi Jun (Managing Director)

Independent Non-executive Directors:

Mr. Wong Po Yan Ms. Tam Wai Chu, Maria Mr. Fong Chung, Mark

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal office: 20th Floor, Office Tower Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong 1 September 2008

To the shareholders

Dear Sir or Madam,

Revision of caps re crude oil supply and sourcing and petroleum and petrochemical products of the Existing Ongoing Connected Transactions for the three financial years ending 31 December 2010

The Existing Ongoing Connected Transactions, including the crude oil trading and sourcing, were approved by the independent shareholders in the Previous SGM. The Company conducts the Existing Ongoing Connected Transactions and will have to comply with the reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

Given the sharp increase in crude oil price and petroleum and petrochemical products price, the management of the Company would like to seek shareholders approval the Revised Caps of crude oil supply and sourcing and petroleum and petrochemical products trading under the Existing Ongoing Connected Transactions for the three financial years ending on 31 December 2010. As at the date of this circular and as at the date of the SGM, none of the caps in relation to the Existing Ongoing Connected Transactions that were approved by the shareholders of the Company in the Previous SGM has been exceeded.

* For identification purposes only

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LETTER FROM THE BOARD

(I) THE REVISED CAPS

Each of these Framework Master Agreements will cover all these trading activities with the Group, Unipec Group, Sinopec (HK), CPIC and Sinopec/CAOSC respectively commencing on 1 January 2008 for a term of three years up to 31 December 2010.

1. Crude oil supply

Nature of the transactions and connected parties

The Group has supplied and will continue to supply crude oil to Unipec Group.

Pricing basis and caps

Under the Unipec Framework Master Agreement, the Group entered/will enter into written supply agreements not exceeding 3 years with members of the Unipec Group for the supply of crude oil on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements. Under the Unipec Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

The aggregate amounts received by the Group in respect of these connected transactions for each of the two years ended 31 December 2007 were approximately HK$7,592 million and HK$11,500 million. For the period from 1 January 2008 to 30 June 2008, the aggregate amount received by the Group in respect of these connected transactions is approximately HK$9,120 million. The Directors believe that for the first six months ended 30 June 2008, the sharp increase in crude oil prices had led to higher costs for the crude oil refineries/ end-users in the PRC to source/purchase crude oil and the increase in volatility had also increased the difficulty and uncertainty in fixing prices. Thus, these factors might have affected the demand and trading volume of crude oil.

As approved in the Previous SGM, the annual caps of these connected transactions for each of the three financial years ending 31 December 2010 are HK$25,000 million, HK$30,000 million and HK$35,000 million respectively. In

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LETTER FROM THE BOARD

the SGM, the Directors will seek shareholders approval to revise the cap for these connected transactions for the financial year ending 31 December 2008 to HK$50,000 million.

For the other two financial years ending 31 December 2010, the Directors expect that these connected transactions will continue and the monetary amount will increase. The aggregate amounts received by the Group in respect of these transactions in each financial year shall not exceed HK$65,000 million and HK$85,000 million for each of the two financial years ending 31 December 2009 and 31 December 2010 respectively.

Reasons for the revised cap and the transactions

Due to foreign trade laws and regulations of the PRC, the Group cannot supply crude oil, petroleum and petrochemical products to, or enter into written agreements with its end users in the PRC directly. The Group has to supply to the users through and enter into written contracts with corporations that have crude oil, petroleum and petrochemical product import trading rights in the PRC, for example, Unipec.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. The Company expects these transactions shall further increase for the three financial years ending 31 December 2010 in light of the increase in the crude oil prices and it is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise.

With reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group is expected to increase further.

Apart from the reasons set out above, in arriving at the above caps, the following factors are also taken into account:

(a) the volatility and sharp increase in the international and increase in the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the consumption of petroleum and petrochemical products in the PRC and the increase in the demand of crude oil by the crude oil refineries in the PRC.
(c) the increase in crude oil refining capacities of Sinopec Guangzhou Branch after the Sinopec Guangzhou Branch Expansion and the expected increase in crude oil refining capacities of other crude oil refineries.

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LETTER FROM THE BOARD

(d) because of its availability and convenience to its customers, the bonded zone operated by Huade Petrochemical Company Limited, a subsidiary of the Company, is expected to be trading more crude oil and more fully utilised in the second half of 2008 and for the two financial years ending 31 December 2010.
(e) the respective historical figures of these connected transactions.

2. Crude oil sourcing

Nature of the transaction and connected parties

The Group has sourced and will continue to source crude oil from members of the Sinopec Group.

Pricing basis and caps

Under each of the Unipec Framework Master Agreement and the Sinopec (HK) Framework Master Agreement, the Group entered/will enter into separate written sourcing agreements not exceeding 3 years with members of the Unipec Group and Sinopec (HK) for the sourcing of crude oil on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

The prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

The aggregate amounts paid by the Group in respect of these connected transactions for each of the two years ended 31 December 2007 were approximately HK$5,198 million and HK$10,200 million. For the period from 1 January 2008 to 30 June 2008, the aggregate amount paid by the Group in respect of these connected transactions is approximately HK$6,750 million. Due to commercial reasons and terms of the transactions, the Company had sourced more crude oil from non connected parties for the first six months ended 30 June 2008. Such turnovers were not included for calculation of the relevant caps. It is expected that the Company may source crude oil from connected parties when it is in the commercial interest of the Company and thus these are taken into account when calculating the Revised Caps.

As approved in the Previous SGM, the annual caps of these connected transactions for each of the three financial years ended 31 December 2010 are HK$29,500 million, HK$37,000 million and HK$43,000 million respectively. In

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LETTER FROM THE BOARD

the SGM, the Directors will seek shareholders approval to revise the cap for these connected transactions for the financial year ending 31 December 2008 to HK$60,000 million.

For the other two financial years ending 31 December 2010, the Directors expect that these connected transactions will continue and the monetary amount will increase substantially for reasons set out below. The aggregate amounts paid by the Group in respect of these transactions shall not exceed HK$80,000 million and HK$100,000 million for each of the two financial years ending 31 December 2009 and 31 December 2010 respectively.

Reasons for the revised caps and the transactions

Sourcing crude oil from Sinopec Group will strengthen the collective bargaining power of Sinopec Group as and when Sinopec Group negotiates crude oil prices with international oil majors and other oil companies.

The financial cost of the Group will be reduced as Sinopec Group will be entering into the agreements with the crude oil vendors directly. Generally, the Group is not required to issue letters of credit to Sinopec Group in these transactions. Thus, the financial cost incurred by the Group is thereby reduced.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. In particular, the Company expects these transactions shall further increase for the three financial years ending 31 December 2010 in light of the increase of crude oil prices and it is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise.

Furthermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between members of the Sinopec Group and the Group are expected to increase.

Apart from the reasons set out above, in arriving at the above caps, the following factors are also taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the consumption of petroleum and petrochemical products in the PRC and the increase in the demand of crude oil by the PRC crude oil refineries.

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LETTER FROM THE BOARD

(c) the increase in crude oil refining capacities of Sinopec Guangzhou Branch after the Sinopec Guangzhou Branch Expansion and the expected increase in crude oil refining capacities of other crude oil refineries.
(d) the respective historical figures of these connected transactions.

3. Petroleum and petrochemical products trading

Nature of the transaction and connected parties

The Group has traded and will continue to trade (including sale or purchase in different transactions and different products) petroleum products with branches and subsidiaries of Sinopec Corp, including Sinopec (HK), Sinopec/CAOSC, the Unipec Group and the CPIC Group.

In addition, the Group has traded and will continue to trade petrochemical products with members of the CPIC Group.

Pricing basis and caps

Under each of the Unipec Framework Master Agreement, the CPIC Framework Master Agreement, the Sinopec (HK) Framework Master Agreement and the Sinopec/CAOSC Framework Master Agreement, the Group will enter into separate written sale and purchase agreements not exceeding 3 years with the Unipec Group, the CPIC Group, Sinopec (HK) and Sinopec/CAOSC respectively, for the trading of petroleum products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

Under each of the Unipec Framework Master Agreement, the CPIC Framework Master Agreement, the Sinopec (HK) Framework Master Agreement and the Sinopec/CAOSC Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

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LETTER FROM THE BOARD

The aggregate amounts paid by the Group for product purchases in respect of these connected transactions for each of the two years ended 31 December 2007 were approximately HK$509 million and HK$160 million. For the period from 1 January 2008 to 30 June 2008, the aggregate amount paid by the Group in respect of these connected transactions is approximately HK$1,150 million.

As approved in the Previous SGM, the annual caps of these continuing connected transactions for each of the three financial years ending 31 December 2010 are HK$ 1,500 million, HK$1,600 million and HK$ 1,700 million respectively. In the SGM, the Directors will seek shareholders approval to revise the cap for these connected transactions for the financial year ending 31 December 2008 to HK$8,000 million.

For the other two financial years ending 31 December 2010, the Directors expect that the amount paid by the Group under these connected transactions will continue to increase substantially for reasons set out below. The aggregate amounts paid by the Group in respect of these transactions shall not exceed HK$14,000 million and HK$20,000 million for each of the two financial years ending 31 December 2009 and 31 December 2010 respectively.

The aggregate amounts received by the Group for product sales in respect of these transactions for each of the two years ended 31 December 2007 were approximately HK$1,322 million and HK$1,850 million. For the period from 1 January 2008 to 30 June 2008, the aggregate amount received by the Group in respect of these connected transactions is approximately HK$2,260 million.

As approved in the Previous SGM, the annual caps of these continuing connected transactions for the three financial years ending 31 December 2010 are HK$3,300 million, HK$4,000 million and HK$4,500 million respectively. In the SGM, the Directors will seek shareholders approval to revise the cap for these connected transactions for the financial year ending 31 December 2008 to HK$9,000 million.

For the other two financial years ending 31 December 2010, the Directors expect that the amount received by the Group under these connected transactions will continue to increase substantially for reasons set out below. The aggregate amounts received by the Group in respect of these transactions shall not exceed HK$15,000 million and HK$25,000 million for each of the two financial years ending 31 December 2009 and 31 December 2010 respectively.

Reasons for the transactions and new caps

The sale of petroleum and petrochemical products to Sinopec Group for resale to the end users will strengthen the collective bargaining power of Sinopec Group when Sinopec Group negotiates the selling price of the petroleum and petrochemical products with the end users.

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LETTER FROM THE BOARD

The purchase of petroleum and petrochemical products from Sinopec Group reduces the financial cost of the Group as Sinopec Group will be entering into the agreements with the petroleum and petrochemical products vendors directly. Generally, the Group is not required to issue letters of credit to Sinopec Group in these transactions. Thus, the financial cost incurred by the Group is thereby reduced.

Given its trading nature, the amount of trading to be conducted is market and customer demand driven. In particular, the Company expects these transactions shall further increase for the three financial years ending 31 December 2010 in light of increase of petroleum and petrochemical prices and it is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise.

Furthermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group are expected to increase.

Apart from the above reasons, in arriving at the above caps, the following factors are also taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the demand and consumption of petroleum and petrochemical products in the relevant markets.
(c) the respective historical figures of these connected transactions.

(II) THE DIRECTORS’ VIEW

The Directors (including the independent non-executive Directors) are of the opinion that the Revised Caps for the three financial years ending 31 December 2010 and the Framework Master Agreements are entered into and carried out in the ordinary and usual course of business of the Group on an arm’s length basis, are fair and reasonable and in the interests of the shareholders of the Company as a whole (including the basis thereof), and either (1) where there are comparable transactions, on normal commercial terms; or (2) in accordance with State-prescribed prices or government-approved prices (as the case may be) prescribed or approved by relevant governmental or regulatory authorities; or (3) will be in accordance with the terms of the agreements governing these Existing Ongoing Connected Transactions in question; or (4) if applicable, on terms no less favourable than terms available to or from independent third parties.

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LETTER FROM THE BOARD

(III) LISTING RULES IMPLICATIONS FOR THE REVISED CAPS AND THE EXISTING CONTINUING CONNECTED TRANSACTION

Under the Listing Rules, for so long as Sinopec Group Company remains a substantial shareholder of the Company for the purposes of the Listing Rules, and Sinopec Group Company holds not less than 30% of Sinopec Corp., Unipec, and other relevant branches and members of the Sinopec Group, these Existing Ongoing Connected Transactions will constitute connected transactions. Since the value of the Revised Caps under the crude oil trading and sourcing under the Existing Ongoing Connected Transactions as disclosed under paragraph (I) will exceed 2.5% of the percentage ratios of the Group, pursuant to rule 14A.35 of the Listing Rules, these Existing Ongoing Connected Transactions will require disclosure by way of announcement, preparation and dispatch of circulars to shareholders and approval by poll by the independent shareholders.

(IV) INFORMATION ON THE COMPANY AND THE SINOPEC GROUP

The Company was incorporated in Bermuda with limited liability and its shares are listed on the Stock Exchange. The principal activities of the Group are the trade of crude oil, petroleum and petrochemical products, the operation of crude oil jetties and its ancillary facilities.

Sinopec Corp. is an integrated energy and chemical company with upstream, midstream and downstream operations and is publicly listed on the stock exchanges of Hong Kong, Shanghai, New York and London. The principal operations of Sinopec Corp. and its subsidiaries include:

(1) exploring for and developing, producing and trading crude oil and natural gas;
(2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products; and
(3) producing, distributing and trading chemical products.

Sinopec Group Company, the controlling shareholder of Sinopec Corp. and the ultimate controlling shareholder of the Company, is a State-authorised investment vehicle in oil and petrochemical business which integrates the upstream and downstream assets.

Unipec (China International United Petroleum and Chemicals Co. Ltd. ) is a company established under the laws of the PRC with limited liability. Unipec is one of the State-authorised import agents of crude oil in the PRC and is a State-owned enterprise established under PRC laws and a wholly owned subsidiary of Sinopec Corp.

CPIC is (China Petrochemical International Co. Ltd.), a company established under the laws of the PRC, which is a direct wholly-owned subsidiary of Sinopec Corp.

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LETTER FROM THE BOARD

Sinopec/CASOC Co. Ltd. is a company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.

Sinopec (HK) is a limited liability company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.

SKI (Sinopec Kantons International Limited) is a limited liability company incorporated in the British Virgin Islands, and is the immediate controlling shareholder of the Company and a wholly owned subsidiary of Sinopec Corp..

(V) GENERAL

Sinopec Group Company is the ultimate controlling shareholder of the Company and indirectly holds approximately 72.34% (750 million shares) of the entire issued share capital of the Company. Pursuant to the Listing Rules, the Existing Ongoing Connected Transactions constitute connected transactions to the Company. Sinopec Group Company, Sinopec Corp., Unipec, SKI and their associates will abstain from voting in the SGM to approve the Revised Caps.

The Company confirms that the Group does not have any prior transaction with each of the counterparties and/or its ultimate beneficial owners which would require to be aggregated with respective Existing Ongoing Connected Transactions under Listing Rule 14A.25. The Company has established the Independent Board Committee comprising of the three independent non-executive Directors of the Company, namely Mr. Wong Po Yan, Ms. Tam Wai Chu, Maria and Mr. Fong Chung, Mark, to consider the Revised Caps and to recommend to the shareholders how to vote in the SGM. All the independent non-executive directors confirm that they do not have any material interest in the Existing Ongoing Connected Transactions. Hantec Capital Limited has been appointed as the independent financial adviser for the purpose of advising the Independent Board Committee and the independent shareholders in relation to the Revised Caps.

The Directors (including the Independent Board Committee) are of the opinion that the Revised Caps for the three financial years ending 31 December 2010 are fair and reasonable so far as the Company and the independent shareholders of the Company are concerned. Accordingly, the Directors (including the Independent Board Committee) recommends that the Independent Shareholders vote in favour of the ordinary resolution set out in the notice of the SGM for the approval of the Revised Caps for the three financial years ending 31 December 2010.

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LETTER FROM THE BOARD

(VI) Additional Information

Your attention is drawn to the addition information set out in the Appendix to this circular.

Yours faithfully, For and on behalf of the Board Wang Li Sheng Chairlady

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

(Stock Code: 934)

1 September 2008

To the Independent Shareholders

Dear Sir or Madam,

We have been appointed as the Independent Board Committee to advise you in connection with the Revised Caps details of which are set out in the Letter from the Board contained in the circular to the shareholders of the Company dated 1 September 2008 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the Revised Caps, the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 17 to 33 of the Circular, we are of the opinion that the terms of the Revised Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We are of the view that the Revised Caps are in the best interest of the Company and the Shareholders as a whole.

We therefore recommend that you vote in favour of the ordinary resolution to be proposed at the SGM to approve the Revised Caps.

Yours faithfully,

Mr. Wong Po Yan Ms. Tam Wai Chu, Maria Mr. Fong Chung, Mark Independent Independent Independent Non-executive Director Non-executive Director Non-executive Director

* For identification purposes only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Revised Caps, which has been prepared for the purpose of inclusion in this circular:

==> picture [43 x 47] intentionally omitted <==

Hantec Capital Limited

45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

1 September 2008

To the Independent Board Committee and the Independent Shareholders of Sinopec Kantons Holdings Limited

Dear Sirs and Madams,

REVISION OF CAPS FOR EXISTING ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the Revised Caps, details of which are set out in the letter from the board (“ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company dated 1 September 2008 of which this letter forms part. Unless the context requires otherwise, terms used in this letter have the same meanings as defined in the Circular.

Sinopec Group Company is the ultimate controlling shareholder of the Company and indirectly holds approximately 72.34% (750 million shares) of the entire issued share capital of the Company. Under the Listing Rules, for so long as Sinopec Group Company remains a substantial shareholder of the Company for the purposes of the Listing Rules, and Sinopec Group Company holds not less than 30% of Sinopec Corp., Unipec, and other relevant branches and members of the Sinopec Group, all of the Existing Ongoing Connected Transactions will constitute connected transactions of the Company. Accordingly, Sinopec Group Company, Sinopec Corp., Unipec, SKI and their associates will abstain from voting in the SGM to approve the Revised Caps.

The Independent Board Committee, comprising of three independent non-executive Directors, namely Mr. Wong Po Yan, Ms. Tam Wai Chu, Maria and Mr. Fong Chung, Mark, has been established to advise the Independent Shareholders on the Revised Caps as to whether the Revised Caps are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

In formulating our recommendation, we have relied on the statements, information, opinions and representations contained in the Circular, and the information and representations provided to us by the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and the management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. However, we have not carried out any independent verification of the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Sinopec Group.

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

In arriving at our opinion with regard to the Revised Caps, we have considered the following principal factors and reasons:

1. Background

(a) Information on the Company

The Company was incorporated in Bermuda with limited liability and its shares are listed on the Stock Exchange. The principal activities of the Group are the trade of crude oil, petroleum, and petrochemical products, the operation of crude oil jetties and its ancillary facilities.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Information on Sinopec Group

(1) exploring for and developing, producing and trading crude oil and natural gas;
(2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products; and
(3) producing, distributing and trading chemical products.

Unipec (China International United Petroleum and Chemicals Co. Ltd. ( is a company established under the laws of the PRC with limited liability. Unipec is one of the State-authorised import agents of crude oil in the PRC and is a State-owned enterprise established under PRC laws and a wholly owned subsidiary of Sinopec Corp.

CPIC is (China Petrochemical International Co. Ltd.), a company established under the laws of the PRC, which is a direct wholly-owned subsidiary of Sinopec Corp.

Sinopec/CASOC Co. Ltd. is a company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.

Sinopec (HK) is a limited liability company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Corp.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Oil price and consumption

Crude oil price

The crude oil price has experienced a sharp increase in the past 10 years. According to the data released from Bloomberg, the monthly average of crude oil price has increased from as low as approximately US$14.2 per barrel in July 1998 to approximately US$140.0 per barrel in June 2008, representing a compound annual growth rate of approximately 23.5%. The graph below set out the trend of the crude oil price per barrel in the past 10 years:

Monthly crude oil price from July 1998 to June 2008

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

160
140
120
100
80
60
40
20
0
Source: Bloomberg
Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
----- End of picture text -----

We note that the crude oil price rose steadily throughout the period from 1998 to 2007, and since then the price has continuously rising dramatically. When focusing on the trend of world oil price in the past 12 months, we noted that the monthly crude oil price was increased significantly under a continuous upward trend from approximately US$78.2 per barrel in July 2007 to approximately US$140.0 per barrel in June 2008, representing an increase of approximately 79.0% during the period. In July 2008, the crude oil price has further reached a record high of US$147 per barrel.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Crude oil consumption in the PRC

Besides, we have reviewed the information released from National Bureau of Statistics of China (http://www.stats.gov.cn) regarding the crude oil consumption in the PRC for the last 10 years. We note that the crude oil consumption in the PRC was increased steadily from about 158.7 million tons in 1996 to approximately 322.4 million tons in 2006, represented a compound annual growth rate of approximately 7.35%. In addition, we have reviewed a research report from Sinopec Economics & Development Research Institute published on 31 March 2008, we note that the crude oil consumption in the PRC was approximately 346.0 million tons in 2007. The chart below set out the trend of the crude oil consumption in the PRC from 1996 to 2007.

PRC crude oil consumption

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400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
–
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
’000 tons
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Source: National Bureau of Statistics of China for data from year 1996 to 2006, and Sinopec Economics & Development Research Institute for year 2007

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Petroleum products consumption in the PRC

As the Group’s petroleum and petroleum products are mainly sold in the PRC market, we have reviewed the demand of petroleum products in the PRC in the past years. As advised by the Directors, the major petroleum and petroleum products supplied by the Group are gasoline, kerosene and diesel oil. According to the data released from National Bureau of Statistics of China and a research report released from Sinopec Economics & Development Research Institute on 31 March 2008, the consumption of petroleum products (such as gasoline, kerosene and diesel oil) in the PRC rose steadily throughout the period from 1996 to 2007. The chart below shows the petroleum products consumption in the PRC from 1996 to 2007:

PRC petroleum products consumption

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

140,000
120,000
Gasoline
100,000
Kerosene
80,000
Diesel Oil
60,000
40,000
20,000
–
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
'000 tons
----- End of picture text -----

Source: National Bureau of Statistics of China for data from year 1996 to 2006, Sinopec Economics & Development Research Institute for year 2007

We note that (i) gasoline consumption in the PRC rose from approximately 31.8 million tons in 1996 to approximately 56.0 million tons in 2007, representing a compound annual growth rate of approximately 5.3%, (ii) kerosene consumption in the PRC rose from approximately 5.6 million tons in 1996 to approximately 12.3 million tons in 2007, representing a compound annual growth rate of approximately 7.5%, and (iii) diesel oil consumption in the PRC rose from approximately 46.9 million tons in 1996 to approximately 124.2 million tons in 2007, representing a compound annual growth rate of approximately 9.3%. Based on the above, we consider that the consumption and demand for petroleum and petrochemical products in the PRC are increasing steadily.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As discussed in the paragraphs below, in assessing our opinion on the Revised Caps, we have taken into account (i) the upward trend of the crude oil price and (ii) the increasing consumption and demand of oil products, and we have further reviewed the basis considered by the Company in calculating the Revised Caps with reference to the current increasing trend of the crude oil price as shown above, we consider the basis is fair and reasonable for assessing the Revised Caps.

2. Background and reasons for the Revised Caps

On 27 July 2007, the Company and (i) Unipec entered into the Unipec Framework Master Agreement, (ii) Sinopec (HK) entered into the Sinopec (HK) Framework Master Agreement, (iii) CPIC entered into the CPIC Framework Master Agreement, (iv) Sinopec/CAOSC entered into the Sinopec/CAOSC Framework Master Agreement respectively. Each of these Framework Master Agreements will cover all these trading activities with the Group, Unipec Group, Sinopec (HK), CPIC and Sinopec/CAOSC respectively commencing on 1 January 2008 for a term of three years up to 31 December 2010. Details of the Framework Master Agreements, and the Existing Ongoing Connected Transactions as contemplated thereunder are set out in the Letter from the Board and the circular of the Company dated 17 August 2007.

(a) Crude oil supply

Nature of the transactions and connected parties

The Group has supplied and will continue to supply crude oil to Unipec Group under the Unipec Framework Master Agreements.

Under the Unipec Framework Master Agreement, the Group entered/ will enter into written supply agreements not exceeding three years with members of the Unipec Group for the supply of crude oil on a transaction by transaction basis.

Background and reasons for the Revised Caps

The aggregate amounts received by the Group in respect of these connected transactions for each of the two years ended 31 December 2007 were approximately HK$7,592 million and HK$11,500 million, representing a growth in sales of approximately 130.3% and 51.5% to the previous year respectively. For the six months ended 30 June 2008, the aggregate amount received by the Group in respect of these connected transactions was approximately HK$9,120 million, representing an increase in sales of approximately 27.7% to the respective period in 2007. The Directors consider that for the first six months ended 30 June 2008, the sharp increase in crude oil prices has led to higher costs for the crude oil refineries/ end-users in the PRC to source/ purchase crude oil and the increase in volatility of the crude oil prices has also increased the difficulty and uncertainty in fixing prices.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As approved in the Previous SGM, the original annual caps of these connected transactions for each of the three financial years ending 31 December 2010 are HK$25,000 million, HK$30,000 million and HK$35,000 million respectively.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. The Company expects these transactions shall further increase for the three financial years ending 31 December 2010 in light of the increase in the crude oil prices. The Directors also expect that with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group is expected to increase further.

Apart from the reasons set out above, in arriving at the Revised Caps with respect to these transactions, the Directors have taken into account the following factors:

(a) the volatility and sharp increase in the international and increase in the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the consumption of petroleum and petrochemical products in the PRC and the increase in the demand of crude oil by the crude oil refineries in the PRC.
(c) the increase in crude oil refining capacities of Sinopec Guangzhou Branch after the Sinopec Guangzhou Branch Expansion and the expected increase in crude oil refining capacities of other crude oil refineries.
(d) because of its availability and convenience to its customers, the bonded zone operated by Huade Petrochemical Company Limited, a subsidiary of the Company, is expected to be trading more crude oil and more fully utilized in the second half of 2008 and for the two financial years ending 31 December 2010.
(e) the respective historical figures of these connected transactions.

In light of the above, the Directors therefore intend to lift the caps and seek shareholders approval to revise the caps for these connected transactions for the three financial years ending 31 December 2010 to HK$50,000 million, HK$65,000 million and HK$85,000 million respectively. The Directors are of the view that the Revised Caps (i) are determined on an arm’s length basis, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, (ii) are in the interest of the Company’s future development that it can capture any increase in the volume and the quantity or other new opportunities in

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its trading businesses as they arise, and (iii) can further avoid administrative inconvenience of seeking Shareholders’ approval for connected transactions conducted in its ordinary course of business.

In order to assess the fairness and reasonableness of the Revised Caps in respect of these transactions and of the reasons as mentioned above, we have discussed with the management and was given to understand that the Revised Caps are determined based on the expected volume traded and projected market price of the crude oil and the petroleum products. In this regard, we have reviewed the (i) historical transaction amounts of these transactions; (ii) the growth in consumption of crude oil and petroleum products in the PRC as discussed under the section “Oil price and consumption” above; (iii) the upward trend of the market price of crude oil as discussed under the “Oil price and consumption” above; and (iv) the forecasts prepared by the Company in determining the Revised Caps for crude oil supply for the three years ending 31 December 2010.

As set out in the Letter from the Board and advised by the management, the aggregate amounts of the crude oil sales in respect of these connected transactions amounted to approximately HK$7,139 million and HK$9,120 million for the six months ended 30 June 2007 and 30 June 2008 respectively, and the aggregate amounts of the crude oil sales (to both connected and non-connected parties) amounted to approximately HK$7,300 million and HK$9,800 million for the six months ended 30 June 2007 and 30 June 2008 respectively. We are advised that for the seven months ended 31 July 2008, the aggregate amounts of crude oil sales (to both connected and non connected parties) has further risen to approximately HK$11,500 million, which represents an increase of approximately 17.3% in an one-month period.

Pursuant to the forecasts provided by the Company in determining the Revised Caps with respect to these transactions, the projected prices of crude oil per barrel are US$150, US$170 and US$190 per barrel for each of the three years ending 31 December 2010 respectively. The Directors have lifted the projected prices of crude oil per barrel for the estimation of the Revised Caps which are mainly attributable to the volatility and sharp increase in the international market price of crude oil, petroleum and petrochemical products, and the projected crude oil prices are determined with reference to the recent crude oil price and the historical increase in crude oil price. As discussed under the section “Oil price and consumption”, the monthly crude oil price has increased sharply from approximately US$78.2 per barrel in July 2007 to approximately US$140.0 per barrel in June 2008 (represented an increase of approximately 79.0%), and the crude oil price has reached the record high of US$147 per barrel in July 2008. Taken into account (i) the crude oil price is under an upward trend that it reached a historical high at US$147 per barrel in July 2008, (ii) the historical crude oil price recorded a compound annual growth rate of approximately 23.5% for the period from July 1998 to June 2008 as discussed under the section “Oil price and consumption” above, and (iii) the projected crude oil prices could provide buffers

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for the volatility of the unexpected crude oil price movement, we consider that such projected prices of crude oil per barrel for estimation of the Revised Caps are reasonable.

We also noted that the consumption and demand for crude oil and petroleum products in the PRC is under a steadily increasing trends, according to the information as published by National Bureau of Statistics of China as discussed under the section “Oil price and consumption” above, the consumption of crude oil has increased to approximately 322.4 million tons in 2006, representing an increase of approximately 103.2% as compared to that in 1996, and the gasoline, kerosene and diesel oil consumption in the PRC are with a compound annual growth rate of approximately 5.3%, 7.5% and 9.3% respectively during the period from the year 1996 to the year 2007.

As advised by the management, the improvement of the refinery capacity of Sinopec Guangzhou Branch after the Sinopec Guangzhou Branch Expansion has resulted in the increase of the actual crude oil refinery output to approximately 11.5 million tons in 2007, and the crude oil refinery output is expected to further increase to 13.0 million tons in 2009, the increase in crude oil refinery output would possibly raise the demand for crude oil. In addition, as advised by the management, the storage capacity of the bonded zone operated by Huade Petrochemical Company Limited has not been fully utilized. It is expected that the bonded zone can provide flexibility to the Group’s crude oil trading business which would possibly increase the Group’s crude oil trading volume.

Based on the above, we are of the view that the Revised Caps in respect of these transactions are in the interest of the Company and Shareholders as a whole, and are fair and reasonable so far as the Company and the Independent Shareholders as a whole.

(b) Crude oil sourcing

Nature of the transaction and connected parties

The Group has sourced and will continue to source crude oil from members of the Sinopec Group.

Background and reasons for the Revised Caps

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increase in purchase of approximately 115.5% and 96.2% to the previous year respectively. For the six months ended 30 June 2008, the aggregate amount paid by the Group in respect of these connected transactions was approximately HK$6,750 million. As set out in the Letter from the Board, due to commercial reasons and terms of the transactions, the Company sourced more crude oil from non-connected parties for the six months ended 30 June 2008, and the Directors also expected that the Company may source crude oil from connected parties when it is in commercial interest of the Company and this factor has been taken into account to determine the Revised Caps.

As approved in the Previous SGM, the original annual caps of these connected transactions for each of the three financial years ending 31 December 2010 were HK$29,500 million, HK$37,000 million and HK$43,000 million respectively.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. The Company expects these transactions shall further increase for the three financial years ending 31 December 2010 in light of the increase of crude oil prices. The Directors expected that with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between members of the Sinopec Group and the Group are expected to increase.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Apart from the reasons set out above, in arriving at the Revised Caps with respect to these transactions, the Directors have taken into account the following factors:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the consumption of petroleum and petrochemical products in the PRC and the increase in the demand of crude oil by the PRC crude oil refineries.
(c) the increase in crude oil refining capacities of Sinopec Guangzhou Branch after the Sinopec Guangzhou Branch Expansion and the expected increase in crude oil refining capacities of other crude oil refineries.
(d) the respective historical figures of these connected transactions.

In view of the above, the Directors will seek shareholders’ approval in the SGM to revise the caps for these connected transactions for the three financial years ending 31 December 2010 to HK$60,000 million, HK$80,000 million and HK$100,000 million respectively. The Directors are of the view that the Revised Caps (i) are determined on an arm’s length basis, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, (ii) are in the interest of the Company’s future development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise, and (iii) can further avoid administrative inconvenience of seeking Shareholders’ approval for connected transactions conducted in its ordinary course of business.

In order to assess the fairness and reasonableness of the Revised Caps in respect of these transactions and the reasons as mentioned above, we have discussed with the management and was given to understand that the Revised Caps in respect of these transactions are determined based on the expected volume traded and the projected market price of the crude oil and the petroleum products. In this regard, we have reviewed the (i) historical transaction amounts of these transactions; (ii) the growth in consumption of crude oil and petroleum products in the PRC as discussed under the section “Oil price and consumption” above; (iii) the upward trend of the market price of crude oil as discussed under the “Oil price and consumption” above; and (iv) the forecasts prepared by the Company in determining the Revised Caps for crude oil sourcing for the three years ending 31 December 2010.

Pursuant to the forecasts for the Revised Caps with respect to these transactions, the projected prices of crude oil per barrel are US$150, US$170 and US$190 per barrel for the three years ending 31 December 2010 respectively. The Directors have lifted the projected prices of crude oil per barrel for the estimation of the Revised Caps which are mainly attributable

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

to the volatility and sharp increase in the international market price of crude oil, petroleum and petrochemical products, and the projected crude oil prices are determined with reference to the recent crude oil price and the historical increase in the crude oil price. As discussed under the section “Oil price and consumption”, the monthly crude oil price has increased sharply from approximately US$78.2 per barrel in July 2007 to approximately US$140.0 per barrel in June 2008 (represented an increase of approximately 79.0%), and the crude oil price has reached the record high of US$147 per barrel in July 2008. Taken into account (i) the crude oil price is under an upward trend that it reached a historical high at US$147 per barrel in July 2008, (ii) the historical crude oil price recorded a compound annual growth rate of approximately 23.5% for the period from July 1998 to June 2008 as discussed under the section “Oil price and consumption” above, and (iii) the projected crude oil prices could provide buffers for the volatility of the unexpected crude oil price movement, we consider that such projected prices of crude oil per barrel for estimation of the Revised Caps are reasonable.

We also noted that the consumption and demand for crude oil and petroleum products in the PRC is under a steadily increasing trends, according to the information as published by National Bureau of Statistics of China as discussed under the section “Oil price and consumption” above, the consumption of crude oil has increased to approximately 322.4 million tons in 2006, representing an increase in consumption of approximately 103.2% as compared to that in 1996, and the gasoline, kerosene and diesel oil consumption in the PRC are with a compound annual growth rate of approximately 5.3%, 7.5% and 9.3% respectively during the comparison period from the year 1996 to the year 2007.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Petroleum and petrochemical products trading

Nature of the transaction and connected parties

In addition, the Group has traded and will continue to trade petrochemical products with members of the CPIC Group.

The Unipec Framework Master Agreement, the CPIC Framework Master Agreement, the Sinopec (HK) Framework Master Agreement and the Sinopec/CAOSC Framework Master Agreement will cover all these trading activities with the Unipec Group, the CPIC Group, Sinopec (HK) and Sinopec/CAOSC respectively commencing on 1 January 2008 for a term of three years up to 31 December 2010. Under each of the Unipec Framework Master Agreement, the CPIC Framework Master Agreement, the Sinopec (HK) Framework Master Agreement and the Sinopec/CAOSC Framework Master Agreement, the Group will enter into separate written sale and purchase agreements not exceeding three years with the Unipec Group, the CPIC Group, Sinopec (HK) and Sinopec/CAOSC respectively, for the trading of petroleum products on a transaction by transaction basis.

Background and reasons for the Revised Caps

As approved in the Previous SGM, the original annual caps of these continuing connected transactions for each of the three financial years ending 31 December 2010 are HK$1,500 million, HK$1,600 million and HK$1,700 million respectively. The aggregate amounts paid by the Group for product purchases in respect of these connected transaction for the six months ended 30 June 2008 of approximately HK$1,150 million has utilized approximately 76.7% of the original annual cap approved in the Previous SGM of HK$1,500 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Group in respect of these transactions shall not exceed HK$8,000 million, HK$14,000 million and HK$20,000 million for the three financial years ending 31 December 2010 respectively.

The aggregate amounts received by the Group for product sales in respect of these transactions for each of the two years ended 31 December 2007 were approximately HK$1,322 million and HK$1,850 million respectively. For the period from 1 January 2008 to 30 June 2008, the aggregate amount received by the Group in respect of these connected transactions is approximately HK$2,260 million, representing a growth of approximately 241.3% to the respective period in 2007 of approximately HK$662.1 million.

As approved in the Previous SGM, the original annual caps of these continuing connected transactions for the three financial years ending 31 December 2010 are HK$3,300 million, HK$4,000 million and HK$4,500 million respectively. The aggregate amounts received by the Group for product purchases in respect of these connected transaction for the six months ended 30 June 2008 of approximately HK$2,260 million has utilized approximately 68.5% of the annual cap approved in the Previous SGM of HK$3,300 million.

In the SGM, the Directors will seek shareholders’ approval to revise the caps for these connected transactions for the three financial years ending 31 December 2010. The Directors expect that the aggregate amounts received by the Group in respect of these transactions shall not exceed HK$9,000 million, HK$15,000 million and HK$25,000 million for the three financial years ending 31 December 2010 respectively.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. The Directors expected that with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group are expected to increase.

Apart from the above reasons, in arriving at the Revised Caps with respect to these transactions, the following factors are also taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the increase in the demand and consumption of petroleum and petrochemical products in the relevant markets.
(c) the respective historical figures of these connected transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors consider that the Revised Caps in respect of these connected transactions are in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise, and that the Revised Caps can further avoid administrative inconvenience of seeking Shareholders’ approval for connected transactions conducted in its ordinary course of business.

In order to assess the fairness and reasonableness of the Revised Caps in respect of these transactions and the reasons as mentioned above with respect to the petroleum and petrochemical products trading, we have discussed with the management and was given to understand that the Revised Caps in respect of these transactions are determined based on the expected volume traded and projected market price of the crude oil, petroleum and petrochemical products. In this regard, we have reviewed the (i) historical transaction amounts of these transactions; (ii) the growth in consumption of crude oil and petroleum products in the PRC as discussed under the section “Oil price and consumption” above; (iii) the upward trend of the market price of crude oil as discussed under the section “Oil price and consumption” above; and (iv) the forecasts in determining the Revised Caps for petroleum and petrochemical products trading prepared by the Company for the three years ending 31 December 2010.

Pursuant to the forecasts for the Revised Caps with respect to these transactions, the projected market prices of refined oil are US$190, US$210 and US$230 per barrel for the three years ending 31 December 2010 respectively. The Directors have lifted the market prices of refined oil in respect of these transactions which are mainly attributable to the volatility and sharp increase in the market price of crude oil, petroleum and petrochemical products. As discussed under the section “Oil price and consumption”, the crude oil price is considered to be under an significant upward trend with monthly crude oil price increased from approximately US$78.2 per barrel in July 2007 to approximately US$140.0 per barrel in June 2008 (an increase of approximately 79.0%), and the crude oil price has reached the record high of US$147 per barrel in July 2008.

As refined oil and petroleum products are refined from crude oil after a number of refinery processing, the prices of refined oil is therefore generally higher than crude oil price. As advised by the management of the Company, their projection of the prices of refined oil for the three years ending 31 December 2010 are estimated after taking into account the projected crude oil prices and the required refining process from crude oil to refined oil and/or petroleum. Having considered (i) the reasonableness of the Company’s projected crude oil price as discussed under the sub-sections headed “Crude oil supply” and “Crude oil sourcing” above, (ii) the price relationship between crude oil and refined oil and/or petroleum products, and (iii) the projected prices could provide buffers under the volatility of the

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unexpected crude oil price movement, we are of the view that the projected prices of refined oil of US$190, US$210 and US$230 per barrel for the three years ending 31 December 2010 respectively are reasonable.

We also noted that the consumption and demand for crude oil and petroleum products in the PRC is under a steadily increasing trends, according to the information as published by National Bureau of Statistics of China as discussed under the section “Oil price and consumption” above, the consumption of crude oil has increased to approximately 322.4 million tons in 2006, representing an increase in consumption of approximately 103.2% as compared to that in 1996. In addition, the consumption of petroleum products such as gasoline, kerosene and diesel oil in the PRC showed a compound annual growth rate of approximately 5.3%, 7.5% and 9.3% respectively during the period from the year 1996 to the year 2007.

RECOMMENDATION

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that the Revised Caps are in the ordinary and usual course of business, and are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the SGM to approve the Revised Caps.

Yours faithfully, For and on behalf of Hantec Capital Limited Kinson Li Director

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GENERAL INFORMATION

APPENDIX

1. 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.

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

As at the Latest Practicable Date, none of the Directors, nor their associates, had any interest and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance Cap.571 (the “SFO”)) which were required to be notified to the Company and the Stock Exchange which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 and the Stock Exchange under the provisions of Divisions 7 and 8 of Part XV of the SFO or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in appendix 10 of the Listing Rules to be notified to the Company and the Stock Exchange or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein.

Directors’ Interest in Any Asset Acquired, Disposed or Leased

None of the Directors has any material interest, direct or indirect, in any asset which, since 31 December 2007, being the date to which the latest audited consolidated financial statements of the Group have been made up, had been acquired or disposed of by or leased to any member of the Group or was proposed to be acquired or disposed of by or leased to any member of the Group.

Directors’ Service Contracts and Appointment Letters

None of the Directors has or is proposed to have a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one (1) year without the payment of compensation other than statutory compensation.

Directors’ Interest in Contracts

No contracts of significance to which the Company, any of its holding companies, fellow subsidiaries or subsidiaries was a party and in which a Director had a material interest and which is significant to the Group’s business, whether directly or indirectly, subsisted at the date of this circular.

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GENERAL INFORMATION

APPENDIX

Competing interest

As at the Latest Practicable Date, save as disclosed herein, none of the Directors and their respective associates had any interest, directly or indirectly, in a business which competes or may compete with the business of the Group.

3. SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, shareholders holding five (5) per cent. or more or a short position of 1% or more of the Company’s relevant share capital as recorded in the register of interests in shares and short position maintained by the Company and their reported interests pursuant to provisions of section 336 of the SFO are as follows:

	Number of	Percentage of
Name of interested party	Shares	shareholding
		(%)
Sinopec Kantons International Limited	750,000,000	72.34

Note: The entire share capital of Sinopec Kantons International Limited is held by China Petroleum & Chemical Corporation. The controlling interest in the registered capital of China Petroleum & Chemical Corporation is held by China Petrochemical Corporation.

4. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial position or trading prospects of the Group since 31 December 2007, the date to which the latest audited financial statements of the Group were made up.

5. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

6. CONSENT AND EXPERT

The following are the qualifications of the professional advisers who have given opinion or advice, which is contained in this circular:

Name Qualification

Hantec Capital Limited A licenced corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO.

– 35 –

GENERAL INFORMATION

APPENDIX

Hantec Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name in the form and context in which it appears.

As at the Latest Practicable Date, Hantec Capital Limited is not beneficially interested in the share capital of any member of the Group nor does it have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor does it have any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

7. PROCEDURES FOR DEMANDING A POLL

Set out below is the procedure by which shareholders and the chairman of any shareholders’ meeting may demand a poll pursuant to article 73 of the bye-laws of the Company:

“At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the Chairman of the meeting; or
(ii) by at least three shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) by any shareholder or shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or
(iv) by any shareholder or shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.”

A poll will be demanded by the Chairman of the SGM meeting to pass the ordinary resolution in the notice of the SGM.

8. MISCELLANEOUS

(a) The secretary of the Company is Mr. Lai Yang Chau, Eugene (practicing solicitor). The qualified accountant of the Company is Mr. Chan Kim Fai (a member of the Hong Kong Institute of Certified Public Accountants).

– 36 –

GENERAL INFORMATION

APPENDIX

(b) The principal place of business of the Company in Hong Kong is 20th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.
(c) The Hong Kong Branch Share Registrar and Transfer Office of the Company is Tricor Secretaries Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular and form of proxy shall prevail over the Chinese text.

9. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at 20th Floor, Office Tower, Convention Plaza, Harbour Road, Wanchai, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 18 September 2008:

(a) the letter from Hantec Capital Limited as the Independent Financial Adviser as set out on pages 17 to 33 in this circular;
(b) the written consent from Hantec Capital Limited referred to in paragraph 6 of this appendix;
(c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders as set out on page 16 in this circular; and
(d) the Framework Master Agreements.

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NOTICE OF SPECIAL GENERAL MEETING

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

(Stock Code: 934)

NOTICE IS HEREBY GIVEN that a special general meeting of Sinopec Kantons Holdings Limited (the “ Company ”) will be held at Boardroom 3-4, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wan Chai, Hong Kong on 18 September 2008 at 10:00 a.m. for the purposes of considering and, if thought fit, passing the following resolution as ordinary resolution:

ORDINARY RESOLUTION

“ THAT

the Revised Caps (as defined in the circular of the Company dated 1 September 2008 (the “ Circular ”)) be and are hereby approved, and that the Directors be and are hereby authorised to do all such acts and take all necessary actions in connection therewith”.

Note: This ordinary resolution will be put to a poll.

By Order of the Board Wang Li Sheng Chairlady

Hong Kong, 1 September 2008

As at the date of this notice, the Board of Directors comprises of the following:

Executive Directors:

Ms. Wang Li Sheng (Chairlady)

Mr. Zhu Zeng Qing (Vice-Chairman)

Mr. Zhu Jian Min

Mr. Tan Ke Fei

Mr. Zhou Feng

Mr. Ye Zhi Jun (Managing Director)

Independent non-executive Directors:

Mr. Wong Po Yan

Ms. Tam Wai Chu, Maria

Mr. Fong Chung, Mark

* For identification purposes only

– 38 –

NOTICE OF SPECIAL GENERAL MEETING

Principal office: 20th Floor,

Office Tower Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend, and subject to the provisions of the Bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at Tricor Secretaries Limited, the Hong Kong Branch Share Registrar and Transfer Office of the Company, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.

– 39 –

AI assistant

Sinopec Kantons Holdings Limited — Proxy Solicitation & Information Statement 2008

49576_rns_2008-08-31_c81a1f8e-6b2a-4807-a053-c015843a44c4.pdf

SINOPEC KANTONS HOLDINGS LIMITED ( )*

Revision of caps re crude oil supply and sourcing and petroleum and petrochemical products of the Existing Ongoing Connected Transactions for the three financial years ending 31 December 2010

Hantec Capital Limited

CONTENT

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

(Stock Code: 934)

Revision of caps re crude oil supply and sourcing and petroleum and petrochemical products of the Existing Ongoing Connected Transactions for the three financial years ending 31 December 2010

(I) THE REVISED CAPS

1. Crude oil supply

Reasons for the revised cap and the transactions

2. Crude oil sourcing

Pricing basis and caps

Reasons for the revised caps and the transactions

3. Petroleum and petrochemical products trading

Reasons for the transactions and new caps

(II) THE DIRECTORS’ VIEW

(III) LISTING RULES IMPLICATIONS FOR THE REVISED CAPS AND THE EXISTING CONTINUING CONNECTED TRANSACTION

(IV) INFORMATION ON THE COMPANY AND THE SINOPEC GROUP

(V) GENERAL

(VI) Additional Information

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

To the Independent Shareholders

Dear Sir or Madam,

Hantec Capital Limited

REVISION OF CAPS FOR EXISTING ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR ADVICE

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

1. Background

(a) Information on the Company

(b) Information on Sinopec Group

(c) Oil price and consumption

Monthly crude oil price from July 1998 to June 2008

Crude oil consumption in the PRC

PRC crude oil consumption

Petroleum products consumption in the PRC

PRC petroleum products consumption

2. Background and reasons for the Revised Caps

(a) Crude oil supply

Nature of the transactions and connected parties

Background and reasons for the Revised Caps

(b) Crude oil sourcing

Nature of the transaction and connected parties

Background and reasons for the Revised Caps

(c) Petroleum and petrochemical products trading

Nature of the transaction and connected parties

Background and reasons for the Revised Caps

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

Directors’ Interest in Any Asset Acquired, Disposed or Leased

Directors’ Service Contracts and Appointment Letters

Directors’ Interest in Contracts

Competing interest

3. SUBSTANTIAL SHAREHOLDERS

4. MATERIAL ADVERSE CHANGE

5. LITIGATION

6. CONSENT AND EXPERT

7. PROCEDURES FOR DEMANDING A POLL

8. MISCELLANEOUS

9. DOCUMENTS FOR INSPECTION

SINOPEC KANTONS HOLDINGS LIMITED ( )* (incorporated in Bermuda with limited liability)

ORDINARY RESOLUTION

“ THAT

NOTICE OF SPECIAL GENERAL MEETING

More from Sinopec Kantons Holdings Limited

Sinopec Kantons Holdings Limited Proxy Solicitation & Information Statement 2008