Sinopec Kantons Holdings Limited - Proxy Solicitation & Information Statement 2011

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 your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

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

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

SINOPEC KANTONS HOLDINGS LIMITED (中石化冠德控股有限公司) *

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

MAJOR TRANSACTION

regarding

ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION

A letter from the Board is set out on pages 6 to 14 of this circular.

* For identification only

30 June 2011

CONTENT

			Page
Definitions . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
Appendix I	–	Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix II	–	Accountant’s report of Zhan Jiang Port
		Petrochemical Jetty Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix III	–	Unaudited pro forma financial information of
		the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Appendix IV	–	Management discussion and analysis on
		Zhan Jiang Port Petrochemical Jetty Co . . . . . . . . . . . . . . . . .	51
Appendix V	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61

– i –

DEFINITIONS

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

“Acquisition” or “Zhan Jiang Port the acquisition of 50% of the registered capital of Zhan Petrochemical Jetty Co. Jiang Port Petrochemical Jetty Co. by Sinomart Acquisition” Development pursuant to the Acquisition Agreement;
“Acquisition Agreement” or ”Zhan Jiang Port Petrochemical Jetty Co. Acquisition Agreement”
the conditional transfer agreement dated 27 May 2011 entered into between Zhan Jiang Port Group as vendor and Sinomart Development as purchaser in connection with the transfer of 50% of equity interests in Zhan Jiang Port Petrochemical Jetty Co;
“Articles of Association” the articles of association dated 27 May 2011 entered into between Sinomart Development and Zhan Jiang Port Group regarding the operation and management of Zhan Jiang Port Petrochemical Jetty Co. incidental to the Acquisition;
“Business Day”
any day on which banks in the PRC and Hong Kong are generally open for business other than (i) a Saturday; (ii) a Sunday; or (iii) a public holiday;
“Board” the board of Directors;
“Century Bright” Sinopec Century Bright Capital Investment Limited (中石化盛駿國際投資有限公司) is a limited liability company incorporated in Hong Kong and a wholly owned subsidiary of Sinopec Group Company;
“Company” Sinopec Kantons Holdings Limited, a limited liability company incorporated in Bermuda, the shares of which are listed on the Stock Exchange;
“Directors” directors of the Company;
“Enlarged Group” the Group after the completion of the Acquisition;
“Financial Memorandum” the financial memorandum dated 27 May 2011 and entered into between Sinomart Development and Zhan Jiang Port Group and supplemental to the Acquisition Agreement;
“Guangdong Province” the areas in Guangdong Province, the PRC; “Group” the Company and its subsidiaries; “HKFRS” Hong Kong Financial Reporting Standards;

– 1 –

DEFINITIONS

“HK$”

Hong Kong Dollars, the currency of Hong Kong;

“Hong Kong”
the Hong Kong Special Administrative Region of the PRC;
“Huade”
Hua De Petrochemical Co., Ltd. (惠州市大亞灣華德石化有限公司) is established under the laws of the PRC with limited liability. Huade is a wholly owned subsidiary of Kantons International;
“Joint Venture Agreement” the joint venture agreement dated 27 May 2011 entered into between Sinomart Development and Zhan Jiang Port Group regarding the operation and management of Zhan Jiang Port Petrochemical Jetty Co. incidental to the Acquisition;
“Kantons Investment”
Kantons International Investment Limited, a company incorporated under the laws of the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company;
“Latest Practicable Date”
27 June 2011, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular;
“Listing Rules”
the Rules Governing the Listing of Securities on The Stock Exchange;
“New Century Bright Financial Services Framework Master Agreement”
the financial services agreement entered into between the Company and Century Bright on 15 November 2010 in respect of continuing connected transactions as disclosed in paragraph III under the heading “Letter from the Board” of the Previous Circular for the three financial years ending 31 December 2013;
“New Sinopec Guangzhou Branch Framework Master Agreement”
the agreement dated 15 November 2010 entered into between the Company and Sinopec Guangzhou Branch in respect of the continuing connected transactions as disclosed in paragraph I under the heading “Letter from the Board” of the Previous Circular for the three financial years ending 31 December 2013;

– 2 –

DEFINITIONS

“New Unipec Framework Master	the agreement dated 15 November 2010 entered into
Agreement”	between the Company and Unipec in respect of
	continuing connected transactions as disclosed in
	paragraph I under the heading “Letter from the Board”
	of the Previous Circular for the three financial years
	ending 31 December 2013;
“PRC”	the People’s Republic of China, but for the purposes of
	this circular and for geographical reference only (unless
	otherwise indicated) excludes Taiwan region, Macau
	Special Administrative Region and Hong Kong;
“PRC GAAP”	PRC Generally Accepted Accounting Principles;
“Previous Circular”	the circular of the Company dated 18 November 2010;
“RMB”	Renminbi, the currency of the PRC;
“Shareholders”	Shareholders of the Company;
“Sinopec Corp.”	中國石油化工股份有限公司(China Petroleum & Chemical
	Corporation), 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 Finance” Sinopec Finance Company Limited, a limited liability company organised in the PRC in July 1988;
“Sinopec Finance Financial the financial services agreement entered into between Services Framework Master Sinopec Finance and Huade on 15 November 2010 in Agreement” respect of the continuing connected transactions as disclosed in paragraph II under the heading “Letter from the Board” of the Previous Circular for the three financial years ending 31 December 2013;
“Sinopec Group” Sinopec Group Company and its subsidiaries;
“Sinopec Group Company” 中國石油化工集團公司 (China Petrochemical Corporation), a state-owned enterprise established under the laws of the PRC;
“Sinopec Guangzhou Branch”
中國石油化工股份有限公司廣州分公司 (China Petroleum & Chemical Corporation Guangzhou Branch), a branch of Sinopec Corp.;

– 3 –

DEFINITIONS

“Sinomart Development”
“SKI”
“Stock Exchange”
“Unipec”
“Unipec Vessel Charter Framework Master Agreement”
“Zhan Jiang Port Group”

Sinomart KTS Development Limited, a limited liability company incorporated in the Hong Kong and a wholly owned subsidiary of the Company;

Sinopec Kantons International Limited, a limited liability company incorporated in the British Virgin Islands and is the immediate controlling Shareholder of the Company;

The Stock Exchange of Hong Kong Limited;

中國國際石油化工聯合有限公司 (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.;

the agreement dated 15 November 2010 entered into between the Company and Unipec in respect of the continuing connected transactions as disclosed in paragraph IV under the heading “Letter from the Board” of the Previous Circular for the three financial years ending 31 December 2013;

湛江港（集團）股份有限公司 (Zhanjiang Port (Group) Co., Ltd.), a sino-foreign joint stock limited company established under the laws of the PRC. It principal businesses include loading and unloading of cargos, packaging of bulk goods, stacking and transhipment, cargo transportation agency, tally, passenger, cargo vessel transportation, import and export, shipping agency, towing, ship repairing, development of land and infrastructure facilities and property management. It is based in Zhanjiang, the PRC and with the following shareholders as on the date of Acquisition Agreement:

(i) 湛江市人民政府國有資產監督管理委員會 (State-owned Assets Supervision and Administration Commission of Zhanjiang Municipal People’s Government), holding 50%;

– 4 –

DEFINITIONS

(ii) 招商局國際碼頭（湛江）有限公司 China Merchants International Terminals (Zhanjiang) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of China Merchants Holdings (International) Company Limited (stock code: 144), a company incorporated in Hong Kong with limited liability and whose ordinary shares are listed on the main board of the Stock Exchange, holding 40.2916%;
(iii) 上海寶鋼集團 Shanghai Baoshan Iron and Steel Group, holding 8%;
(iv) 深圳市鹽田港股份有限公司 Shenzhen Yantian Port Co. Limited, holding 1.3201%;
(v) 中國湛江外輪代理有限公司 Zhanjiang Ocean Shipping Agency Co. Ltd, holding 0.1553%;
(vi) 廣東恒興集團有限公司 Guangdong Hengxing Group Co. Limited, holding 0.1553%; and
(vii) 深圳市鹽田港同運實業股份有限公司 Shenzhen Yantian Port Tong Yun Industrial Company Limited, holding 0.0777%;
“Zhan Jiang Port Petrochemical Zhan Jiang Port Petrochemical Jetty Co. Limited（湛江 Jetty Co.” 港石化碼頭有限責任公司）, a limited liability company incorporated in the PRC, and Zhan Jiang Port Group directly holds 100% of its shareholding.

In this circular, amounts in Renminbi have been converted into Hong Kong dollars at the rate of HK$1 = RMB0.8295.

– 5 –

LETTER FROM THE BOARD

**SINOPEC KANTONS HOLDINGS LIMITED (中石化冠德控股有限公司) ***

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

Executive Directors: Mr. Dai Zhao Ming (Chairman) Mr. Zhu Zeng Qing (Deputy 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

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Place of business in Hong Kong: 20th Floor, Office Tower Convention Plaza 1 Harbour Road, Wanchai Hong Kong

30 June 2011

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION regarding ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION

By an announcement issued by the Company dated 27 May 2011, among other matters, Zhan Jiang Port Petrochemical Jetty Co. Acquisition was announced by the Company.

ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION AGREEMENT DATED 27 MAY 2011

Parties

(1) Zhan Jiang Port Group as vendor
(2) Sinomart Development as purchaser

* For identification only

– 6 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief after making reasonable enquiries, the Vendor and its ultimate beneficial owners are third parties independent of and not connected with the Company and its connected persons.

Assets to be transferred

50% of equity interest in Zhan Jiang Port Petrochemical Jetty Co. Upon completion, Zhan Jiang Port Petrochemical Jetty Co. will become an associate of the Company (within the meaning of HKFRS).

Consideration

The consideration for the Acquisition is approximately RMB331.99 million (approximately HK$400.23 million).

In accordance with Zhan Jiang Port Petrochemical Jetty Co. Acquisition Agreement and the Financial Memorandum, 30% of the consideration is to be payable by Sinomart Development in RMB to Zhan Jiang Port Group within 5 Business Days after the Acquisition Agreement becomes effective and the remaining 70% of the consideration will be paid in RMB to Zhan Jiang Port Group before 1 February 2012. The Group will fund the consideration by internal resources.

Basis of determination of the consideration

The amount of the consideration was determined following commercial negotiations between the parties at arm’s length basis and by reference to (1) the valuation on net assets (by replacement cost method) of Zhan Jiang Port Petrochemical Jetty Co. as at 31 December 2010 being approximately RMB961.67 million (approximately HK$1,159.34 million) as set out in the valuation report issued by a valuation firm in the PRC which was designated by the PRC government to conduct valuation for state-owned asset for the preparation of such valuation report; (2) audited financial information of Zhan Jiang Port Petrochemical Jetty Co. prepared in accordance with PRC GAAP for the three financial years ended 31 December 2010; and (3) the agreement and arrangements in the Financial Memorandum set out below.

The Directors are of the view that the consideration is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Zhan Jiang Port Petrochemical Jetty Co. Acquisition Agreement is conditional upon, among others,

(1) the Shareholders approving the resolution(s) in relation to the Zhan Jiang Port Petrochemical Jetty Co. Acquisition Agreement and the transactions contemplated thereunder; and
(2) the Acquisition has obtained approval from the approval authorities.

– 7 –

LETTER FROM THE BOARD

Completion

The completion of the Acquisition Agreement will take place on the date when the new enterprise business licence of Zhan Jiang Port Petrochemical Jetty Co. is issued.

PRINCIPAL TERMS OF JOINT VENTURE AGREEMENT AND ARTICLES OF ASSOCIATION

The parties to the Acquisition Agreement agreed on the Joint Venture Agreement and Articles of Association, which are ancillary and incidental to the Acquisition Agreement.

Parties

(1) Zhan Jiang Port Group
(2) Sinomart Development

Scope of business of Zhan Jiang Port Petrochemical Jetty Co.

Upon the Acquisition, Zhan Jiang Port Group and Sinomart Development will apply to convert Zhan Jiang Port Petrochemical Jetty Co. into a sino-foreign equity joint venture enterprise (the “joint venture”). Zhan Jiang Port Petrochemical Jetty Co., provides logistic services including the storage, logistic, jetty services and the distribution of oil, petroleum and petrochemical products and international logistic agency services. The scope of business shall be subject to the approval by the relevant PRC authorities.

Establishment and capital

The joint venture with the registered share capital of RMB180 million (approximately HK$217 million) is to be established in the PRC with limited liability. Zhan Jiang Port Group and Sinomart Development will respectively hold 50% and 50% of the equity interest of the joint venture. The joint venture will become an associate of the Company (within the meaning of HKFRS).

Composition of the board of directors

According to the Joint Venture Agreement, the board of directors of the joint venture shall consist of six directors, of which three shall be appointed by Zhan Jiang Port Group and three shall be appointed by Sinomart Development.

Term of joint venture

The term of the joint venture will last for 30 years commencing from the date of the issuance of its enterprise business licence.

– 8 –

LETTER FROM THE BOARD

Profit sharing

Subject to the Financial Memorandum, the profit and loss of the joint venture shall be shared among Zhan Jiang Port Group and Sinomart Development in accordance with their respective equity interest in the joint venture.

FINANCIAL MEMORANDUM

The parties to the Acquisition Agreement further agreed in the Financial Memorandum the following matters, which memorandum is supplemental to and forms part of the Acquisition Agreement.

(1) Profit distribution:
As of the asset valuation date, the assessed net asset value of the Zhan Jiang Port Petrochemical Jetty Co. is approximately RMB961.67 million (approximately HK$1,159.34 million) which includes all of the retained earnings of approximately RMB297.69 million (approximately HK$358.88 million). The parties agreed that the said retained earnings of Zhan Jiang Port Petrochemical Jetty Co will all be distributed to Zhan Jiang Port Group and will not form part of the consideration in the equity interest transfer in the Acquisition.

The assessed net asset value after deducting the retained earnings of approximately RMB297.69 million (approximately HK$358.88 million) is approximately RMB663.98 million (approximately HK$800.46 million), therefore the consideration of the share transfer is determined to be approximately RMB331.99 million (approximately HK$400.23 million).

Sinomart Development agreed that after acquiring the shares of Zhan Jiang Port Petrochemical Jetty Co, it will not be entitled to receive the profit distributable to its shareholders during the period from 1 January to 31 December 2011 as all such profit will be distributed to Zhan Jiang Port Group.
Both parties to the Acquisition Agreement should make every effort to assist the joint venture to distribute, before 31 December 2012, to Zhan Jiang Port Group all the undistributed profits (as of 31 December 2010) of Zhan Jiang Port Petrochemical Jetty Co. and all profits distributable to its shareholders for the period from 1 January to 31 December 2011.
From 1 January 2012 onwards, the profit and loss incurred by Zhan Jiang Port Petrochemical Jetty Co. shall be borne by its shareholders in accordance with their respective equity interest in the joint venture.

Given the completion of the Acquisition is subject to approval by the approval authorities in the PRC, the completion date of the Acquisition is expected to be around September or October of 2011. Meanwhile the Company will only pay 30% of the consideration within 5 Business Days after the Acquisition Agreement becomes

– 9 –

LETTER FROM THE BOARD

effective. Furthermore, the Group will only, according to the Financial Memorandum, pay the balance being 70% of the consideration for the Acquisition before 1 February 2012, the Directors confirm that this term is fair and reasonable.

(2) Management: both parties agree, except for maintaining matters relating to shareholders’ rights in accordance with the law, Zhan Jiang Port Group has the power to govern the production, operation and the financial policies of the joint venture. The production and operation to be conducted and the financial policies to be adopted shall be in accordance with and strictly abide by the relevant PRC laws and regulations, and shall be beneficial to the joint venture’s long term stable development.
(3) Deferred Payment: Sinomart Development agrees that the deferred payments of 70% of the consideration of the equity interest transfer shall be paid to Zhan Jiang Port Group before 1 February 2012.

REASONS AND BENEFITS FOR THE ACQUISITION

According to the development plan of Sinopec Group, the Company will strive to develop itself into a first-class international oil, petroleum, petrochemical, storage and logistics listed company.

The Zhanjiang Port is one of 25 main ports along the coast of the PRC. This port is a major hub in the southern China region for the transportation of crude oil and its derived products in the region.

In cooperating with other investment projects of Sinopec Corp., such as the reconstructions of Maoming and Dongxing refineries, the Beihai Refinery reconstruction and the crude oil reserve base at Lianjiang, the Company strategically invests through Sinomart Development into Zhan Jiang Port Petrochemical Jetty Co. and cooperates with Zhan Jiang Port Group by using its existing storage and transportation facilities to ensure Sinopec Group’s stable supply of crude oil in the south China region and, to facilitate the development of its refined oil business.

The joint venture will operate as a public jetty company. Upon the completion of the Acquisition, Zhan Jiang Port Petrochemical Jetty Co. will be a 50%:50% joint venture co-owned by Sinomart Development and Zhan Jiang Port Group. This transaction will further strengthen the position of the Group in the industry of port and storage business internationally and within the PRC.

Driven by the continuing domestic economic growth, together with the increasing energy consumption in the PRC, it is expected that the demand for crude oil, petroleum and petrochemical logistics services and respective storage facilities will continue to grow, leading to a favourable operating environment and operating results of Zhan Jiang Port Petrochemical Jetty Co.. It is further anticipated that profits generated from Zhan Jiang Port Petrochemical Jetty Co. will be one of the major components of the profit of the Group in the future.

– 10 –

LETTER FROM THE BOARD

The Directors consider that the Acquisition is a valuable investment opportunity to the Group and believe that such investment opportunity will further enhance Shareholders’ return.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP AND THE ENLARGED GROUP

As disclosed in the annual report of the Company for the year ended 31 December 2010, the Group recorded a profit of approximately HK$195.69 million. After the Acquisition, the Enlarged Group will continue its business focusing on the trading of crude oil, petroleum, and petrochemical products, the operation of crude oil jetties and its ancillary facilities. The Directors believe that the Acquisition would widen the income and customer base of the Group and hence would be able to (i) provide synergy effects to the existing principal business activities of the Group; and (ii) impose positive effect on the profit of the Group in the future. The Directors are optimistic about the future prospects of the Group and the Enlarged Group.

POSSIBLE FINANCIAL EFFECT OF THE ACQUISITION

Financial effect

Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III of this circular, assuming that the Acquisition completed on 31 December 2010, the Group would pay approximately RMB331.99 million (approximately HK$400.23 million) to acquire 50% equity interest in Zhan Jiang Port Petrochemical Jetty Co.. There will be no fundamental change in total assets of the Enlarged Group. There will only be an adjustment of approximately HK$400.23 million between net current assets and non-current assets. Upon the completion of the Acquisition, a consideration payable of RMB232.39 million (approximately HK$280.16 million), representing the deferred payment of 70% of the total consideration will be recorded .

As referred to in the paragraph headed “Financial Information of Zhan Jiang Port Petrochemical Jetty Co.” above, Zhan Jiang Port Petrochemical Jetty Co. has recorded a net profit of RMB186.19 million (approximately HK$224.46 million) for the year ended 31 December 2010. On this basis, it is expected that the Acquisition would have a positive impact on the Group’s profits upon completion of the Acquisition and when profits are distributed according to the Financial Memorandum.

INFORMATION ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

Zhan Jiang Port Petrochemical Jetty Co. is currently a domestic limited liability company (to be converted to a sino-foreign equity joint venture) established in 2000 in the PRC. Its registered capital is RMB180 million (approximately HK$217 million). Zhan Jiang Port Petrochemical Jetty Co. is currently wholly owned by Zhan Jiang Port Group. The principal business activities of Zhan Jiang Port Petrochemical Jetty Co. are the provision of logistic services including the storage, logistic, jetty services and the distribution of oil and oil products and the international logistic agency services.

– 11 –

LETTER FROM THE BOARD

The Zhan Jiang jetty complex is owned and operated by Zhan Jiang Port Petrochemical Jetty Co.. It includes oil tanker handling, crude oil, petroleum, and petrochemical products unloading, storage and pipeline transmission facilities. It is located in Zhan Jiang, Guangdong Province, the PRC.

Zhan Jiang jetty complex has 12 petrochemical berths, including 1 crude oil berth that is capable of docking a 300,000-tonnage ship, 1 liquid chemical berth that is currently capable of docking a 80,000-tonnage ship (under trial operation), 1 berth that is capable of docking a 50,000-tonnage ship, 1 berth that is capable of docking a 25,000-tonnage ship, 3 berths that are capable of docking 5,000-tonnage ships (under construction), 3 berths that are capable of docking 3,000-tonnage ships, 1 berth that is capable of docking a 1,000-tonnage ship and 1 berth that is capable of docking a 500-tonnage ship. These berths can simultaneously perform loading and unloading of different kinds of oil and oil products such as crude oil, light diesel oil, gasoline, fuel oil and base oil as well as other chemical solvents such as benzene, alcohol and ketone.

Zhan Jiang jetty complex’s storage facilities contain 52 oil tanks, 3 gas tanks, 2 purge tanks and 2 sewage buffer tanks. The oil tanks are mainly located in the new storage area and the old storage area. The new storage area has 12 oil tanks with total capacity of approximately 240,000 m[3] . The old storage area has 40 oil tanks with total capacity of approximately 266,100 m[3] . Thus, the total storage capacity is approximately 506,100 m[3] .

According to the audited financial information of Zhan Jiang Port Petrochemical Jetty Co. prepared in accordance with PRC GAAP, the net profit of Zhan Jiang Port Petrochemical Jetty Co. for the year ended 31 December 2010 before and after taxation were approximately RMB248.31 million (approximately HK$299.34 million) and RMB186.19 million (approximately HK$224.46 million), respectively. The net profit of Zhan Jiang Port Petrochemical Jetty Co. for the year ended 31 December 2009 before and after taxation were approximately RMB192.19 million (approximately HK$231.69 million) and RMB153.03 million (approximately HK$184.48 million), respectively. As at 31 December 2010, the shareholders’ equity of Zhan Jiang Port Petrochemical Jetty Co. amounted to RMB756.80 million (approximately HK$912.36 million).

– 12 –

LETTER FROM THE BOARD

The accounting policies adopted for the preparation of the financial information of Zhan Jiang Port Petrochemical Jetty Co. (as attached in Appendix II) are materially consistent with those of the Company. The revenue, profit before and after taxation and the net asset value of Zhan Jiang Port Petrochemical Jetty Co. for the years ended 31 December 2008, 2009 and 2010 in accordance with HKFRS are set out in the table below:

Revenue Profit before taxation Net profit after taxation Net asset value	31 December
	2010 2009 2008 Expressed in RMB’000 (HK’000) 359,010 (approximately 432,803) 292,300 (approximately 352,381) 304,160 (approximately 366,679) 248,306 (approximately 299,344) 192,190 (approximately 231,694) 109,935 (approximately 132,532) 186,190 (approximately 224,461) 153,032 (approximately 184,487) 83,516 (approximately 100,682) 756,804 (approximately 912,362) 525,815 (approximately 633,894) 372,783 (approximately 449,406)

Revenue
Profit before taxation
Net profit after taxation
Net asset value

31 December

2010
2009
2008
Expressed in RMB’000 (HK’000)
359,010
(approximately
432,803)
292,300
(approximately
352,381)
304,160
(approximately
366,679)
248,306
(approximately
299,344)
192,190
(approximately
231,694)
109,935
(approximately
132,532)
186,190
(approximately
224,461)
153,032
(approximately
184,487)
83,516
(approximately
100,682)
756,804
(approximately
912,362)
525,815
(approximately
633,894)
372,783
(approximately
449,406)

INFORMATION OF SINOPEC GROUP COMPANY, SINOPEC CORP. AND THE COMPANY

Sinopec Group Company is an enterprise established under the laws of the PRC. Sinopec Group Company, the controlling shareholder of Sinopec Corp. and the ultimate controlling shareholder of the Company, is a state-authorised company in oil and petrochemical business that integrates the upstream and downstream operations. The business scope of the Sinopec Group Company covers: industrial investments and investment management; exploration and development, storage and transportation (including pipeline transportation), sale and integrated application of petroleum and natural gas; petroleum refining; wholesale of gasoline, kerosene and diesel; production, sales, storage and transportation of petrochemical and other chemical products; design, and construction of petroleum and petrochemical installations; maintenance and repair of petroleum and petrochemical installations, research, development, application and related consulting services of technology, IT and alternative energy products; and import and export of self-produced products and third parties’ products and technologies (other than those operated by companies designated by the state and prohibited to be imported and exported).

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 of crude oil and natural gas;

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LETTER FROM THE BOARD

(2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing of refined oil products; and
(3) producing, distributing and trading of chemical products.

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

SKI is a limited liability company incorporated in the British Virgin Islands, and is the immediate controlling shareholder of the Company.

IMPLICATION UNDER THE LISTING RULES

Given that the applicable percentage ratios (as defined under the Listing Rules) in respect of the Acquisition are more than 25% but below 100%, the Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement, circular and shareholders’ approval requirements under the Listing Rules. As no Shareholder would have a material interest in the Acquisition and is hence required to abstain from voting for the resolution to approve the Acquisition, SKI which, the controlling Shareholder, holds 750,000,000 shares, representing approximately 72.34% of the issued share capital of the Company as at the Latest Practicable Date, has approved the Acquisition by written Shareholder’s approval in accordance with Rule 14.44 of the Listing Rules. The written Shareholder’s approval has been accepted in lieu of holding a special general meeting to approve the Acquisition Agreement and the transactions contemplated thereunder pursuant to Rule 14.44 of the Listing Rules.

RECOMMENDATION

The Board considers that the terms of the Acquisition Agreement and the transactions contemplated thereunder are on normal commercial terms and are fair and reasonable and in the interests of the Company and its Shareholders as a whole. Accordingly, if a general meeting of the Company were convened for passing the resolution to approve the Acquisition Agreement and the transactions contemplated thereunder, the Directors would recommend the Shareholders to vote in favour of such resolution.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board Dai Zhao Ming Chairman

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three years ended 31 December 2008, 2009 and 2010 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.sinopec.com.hk):

annual report of the Company for the year ended 31 December 2010 dated 22 March 2011 published on 31 March 2011 (pages 23-86);
annual report of the Company for the year ended 31 December 2009 dated 19 March 2010 published on 7 April 2010 (pages 21-85); and
annual report of the Company for the year ended 31 December 2008 dated 20 March 2009 published on 2 April 2009 (pages 21-77).

2. INDEBTEDNESS

As at the close of business on 31 May 2011, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding unguaranteed and unsecured borrowings of approximately HK$184,695,510.

As at 31 May 2011, unguaranteed and unsecured loan facilities amounting to approximately USD518,960,000 (approximately HK$4,047,888,000) was provided by a fellow subsidiary.

Save as aforesaid above, at the close of business on 31 May 2011, the Group did not have any outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptances or acceptances credits or hire purchase commitments, or any guarantees or any contingent liabilities.

The Directors have confirmed that, save as disclosed above, there has not been any material change in the indebtedness and contingent liabilities of the Group since 31 December 2010.

3. WORKING CAPITAL

The Directors are of the opinion that taking into account cash balances of the Group and in the absence of unforeseen circumstances, the Group has sufficient working capital for its present requirements (for at least the next twelve months from the date of this circular).

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. MATERIAL ADVERSE CHANGE

Save as disclosed in the annual report of the Company for the year ended 31 December 2010, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2010 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

– 16 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The following is the text of an accountants’ report of the Target received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, for inclusion in this circular.

30 June 2011

The Directors

Sinopec Kantons Holdings Limited

We set out below our report on the financial information (“Financial Information”) regarding 湛江港石化碼頭有限責任公司 Zhan Jiang Port Petrochemical Jetty Co. (English name for identification only) (the “Company”) for each of the three years ended 31 December 2010 (the “Relevant Periods”) for inclusion in the circular dated 30 June 2011 (the “Circular”) issued by Sinopec Kantons Holdings Limited (“Sinopec Kantons”) in connection with the proposed acquisition of 50% interest in the Company.

The Company was established in the People’s Republic of China (the “PRC”) with limited liability on 6 September 2000. It is principally engaged in provision of port services.

The Company adopts 31 December as its financial year end date. The statutory financial statements of the Company were prepared in accordance with relevant accounting principles and financial regulations applicable to companies established in the PRC (“PRC GAAP”), and were audited by the following certified public accountants registered in the PRC.

Financial year ended	Name of auditors
31 December 2008	Ascenda CPA Ltd
31 December 2009	Deloitte Touche Tohmatsu CPA Ltd.
31 December 2010	Deloitte Touche Tohmatsu CPA Ltd.

For the purpose of this report, the sole director of the Company has prepared the financial statements (the “Underlying Financial Statements”) of the Company for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (the “HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have undertaken our independent audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA. The Financial Information set out in this report has been prepared from the Underlying Financial Statements. No adjustments have been made to the Underlying Financial Statements in the preparation of our report for inclusion in the Circular.

– 17 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The preparation of the Underlying Financial Statements is the responsibility of the sole director of the Company. The directors of Sinopec Kantons are responsible for the contents of the Circular in which this report is included. It is our responsibilities to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Company as at 31 December 2008, 2009, 2010 and of its results and cash flows for each of the three years ended 31 December 2010.

– 18 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

(A) FINANCIAL INFORMATION

STATEMENTS OF COMPREHENSIVE INCOME

Notes Revenue 6 Cost of sales Gross profit Other income 7 Other gains and losses 8 Administrative expenses Finance costs 9 Profit before tax Income tax expenses 10 Profit and total comprehensive income for the year attributable to owner(s) of the Company 11	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 304,160 292,300 359,010 (147,575) (65,981) (80,362) 156,585 226,319 278,648 8,597 6,305 7,221 (718) (134) 32 (39,740) (32,599) (34,546) (14,789) (7,701) (3,049) 109,935 192,190 248,306 (26,419) (39,158) (62,116) 83,516 153,032 186,190

– 19 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 13 Prepaid lease payments-non-current portion 14 Deferred tax assets 22 Current assets Inventories 15 Trade receivables 16 Other receivables and prepayments 17 Prepaid lease payments-current portion 14 Cash and bank balances Current liabilities Trade payables 18 Bills payable 19 Other payables and accruals 20 Borrowings 21 Income tax liabilities Dividends payable 12 Net current liabilities Total assets less current liabilities Capital and reserves Registered capital 23 Reserves Total equity attributable to owner(s) of the Company Non-current liability Borrowings 21	At 2008 RMB’000 614,738 1,729 8,746 625,213 1,933 14,769 71,519 39 51,202 139,462 1,708 342 112,246 112,500 11,135 18,836 256,767 (117,305) 507,908 99,932 272,851 372,783 135,125 507,908	31 December 2009 2010 RMB’000 RMB’000 659,798 825,936 1,690 217,498 5,591 4,178 667,079 1,047,612 2,225 2,830 66,633 53,487 9,818 63,564 39 5,360 31,254 38,618 109,969 163,859 3,926 7,883 1,869 5,549 85,379 109,720 69,100 42,100 9,534 28,901 – 186,798 169,808 380,951 (59,839) (217,092) 607,240 830,520 99,932 180,000 425,883 576,804 525,815 756,804 81,425 73,716 607,240 830,520

– 20 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

At 1 January 2008 Profit and total comprehensive income for the year Transfer to statutory reserve Dividends recognised as distribution At 31 December 2008 Profit and total comprehensive income for the year Transfer to statutory reserve At 31 December 2009 Profit and total comprehensive income for the year Addition during the year (note 23) Transfer to statutory reserve Dividends recognised as distribution At 31 December 2010	Registered capital RMB’000 99,932 – – – 99,932 – – 99,932 – 80,068 – – 180,000	Capital reserve (note i) RMB’000 38,434 – – – 38,434 – – 38,434 – 151,529 – – 189,963	Statutory reserve (note ii) RMB’000 42,572 – 8,052 – 50,624 – 15,619 66,243 – – 18,619 – 84,862	Retained profits RMB’000 127,165 83,516 (8,052) (18,836) 183,793 153,032 (15,619) 321,206 186,190 – (18,619) (186,798) 301,979	Total equity RMB’000 308,103 83,516 – (18,836) 372,783 153,032 – 525,815 186,190 231,597 – (186,798) 756,804

(i) The capital reserve of the Company represents the contributed amounts in excess of paid-up registered capital.

(ii) In accordance with the PRC Company Law and the articles of association of the Company, it is required to appropriate 10% of the profit after tax (determined in accordance with PRC GAAP and after offsetting any prior years’ losses) to the statutory surplus reserve (except where the reserve balance has reached 50% of the company’s registered capital). The statutory surplus reserve and the discretionary surplus reserve fund can be utilised to offset prior years’ losses or to increase capital. However, the balance of the statutory surplus reserve must be maintained at a minimum of 25% of the company’s registered capital after such usages. This reserve cannot be used for purposes other than those for which they are appropriated and are not distributable as cash dividends.

– 21 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Finance costs
Loss on disposal of items of property, plant and
equipment
Depreciation of property, plant and equipment
Release of prepaid lease payments
Interest income
(Reversal of impairment loss) impairment loss on
receivables, net
Operating cash flows before movements in
working capital
Decrease (increase) in inventories
Decrease (increase) in trade receivables
Decrease in bills receivable
Decrease in other receivables
(Decrease) increase in trade payables
(Decrease) increase in bills payable
(Decrease) increase in other payables and accruals
Cash generated from operations
Income taxes paid
NET CASH FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchases of items of property, plant and
equipment and construction in progress
Proceeds from disposal of items of property, plant
and equipment
Interest received
Decrease (increase) of amount due from parent
company
NET CASH USED IN INVESTING ACTIVITIES

Year ended 31 December
2008
2009
2010
RMB’000
RMB’000
RMB’000
109,935
192,190
248,306
14,789
7,701
3,049
2,348
12
213
33,749
27,755
29,443
44
39
482
(363)
(325)
(517)
(62)
524
(133)
160,440
227,896
280,843
1,927
(292)
(605)
6,142
(52,388)
13,279
14,505
–
–
5,853
8,751
324
(9,670)
2,218
3,957
(8,437)
1,527
3,680
7,300
(28,808)
(27,464)
178,060
158,904
274,014
(28,375)
(37,604)
(41,336)
149,685
121,300
232,678
(130,425)
(67,020)
(129,846)
185
51,391
–
363
325
517
(1,427)
1,992
(54,070)
(131,304)
(13,312)
(183,399)

– 22 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

FINANCING ACTIVITIES Dividends paid to owners of the Company Repayment of borrowings Interest paid Proceeds from borrowings NET CASH USED IN FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR REPRESENTED BY BANK AND CASH	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 – (18,836) – (145,375) (147,100) (79,100) (16,618) (12,000) (7,206) 156,000 50,000 44,391 (5,993) (127,936) (41,915) 12,388 (19,948) 7,364 38,814 51,202 31,254 51,202 31,254 38,618

– 23 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Company is a limited company established in the PRC. The parent company of the Company is 湛江港（集團）股份有限公司 (Zhanjiang Port (Group) Co., Ltd.). As at 31 December 2010, its paid-in capital is RMB180,000,000. The registered office of the Company is located at No. 1 Youyi Road, Zhanjiang, Guangdong Province, the PRC in the Relevant Periods.

The Financial Information is presented in Renminbi, which is also the functional currency of the Company.

During the Relevant Periods, the Company was principally engaged in provision of port services.

2. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

Going concern

In preparing the Underlying Financial Statements, the sole director of the Company has given careful consideration of the Company in light of its net current liabilities of approximately RMB217 million as at 31 December 2010. Having considered the secured credit facilities of approximately RMB214 million which remains unutilised at the date of this report and undertaking from the parent company of the Company which has agreed to provide financial support in the foreseeable future, the sole director of the Company is satisfied that the Company will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the Underlying Financial Statements have been prepared on a going concern basis.

Adoption of new and revised Hong Kong financial reporting standards (“HKFRS”)

The Company has adopted all of the new and revised standards and interpretations issued by the HKICPA that are effective for accounting periods beginning on 1 January 2010 in the preparation of its Underlying Financial Statements throughout the Relevant Periods.

The Company has not early applied the following new and revised Standards and Interpretations that have been issued but are not yet effective:

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] HKFRS 1 (Amendments) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters[2] HKFRS 1 (Admendments) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters[3] HKFRS 7 (Amendments) Disclosure – Transfers of financial assets[3] HKFRS 9 Financial Instruments[4] HKAS 12 (Amendments) Deferred tax: Recovery of underlying assets[5] HKAS 24 (as revised in 2009) Related Party Disclosures[6] HKAS 32 (Amendments) Classification of Rights Issues[7] HK (IFRIC) – Int 14 Prepayments of a Minimum Funding Requirement[6] (Amendments) HK (IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments[2]

1 Effective for annual periods beginning on or after 1 July 2010 or 1 January 2011, as appropriate.
2 Effective for annual periods beginning on or after 1 July 2010.
3 Effective for annual periods beginning on or after 1 July 2011.
4 Effective for annual periods beginning on or after 1 January 2013.
5 Effective for annual periods beginning on or after 1 January 2012.
6 Effective for annual periods beginning on or after 1 January 2011.
7 Effective for annual periods beginning on or after 1 February 2010.

– 24 –

APPENDIX II ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

HKFRS 9 Financial Instruments (as issued in November 2009) introduces new requirements for the classification and measurement of financial assets. HKFRS 9 Financial Instruments (as revised in November 2010) adds requirements for financial liabilities and for derecognition.

Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.
In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.
HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

The sole director of the Company anticipates that HKFRS 9 that will be adopted for the annual period beginning 1 January 2013 and that the application of the new Standard may have a significant impact on amounts reported in respect of the Company’s financial assets but not on the financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

The amendments to HKFRS 7 titled Disclosures – Transfers of Financial Assets increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.

The sole director of the Company does not anticipate that these amendments to HKFRS 7 will have a significant effect on the Company disclosures regarding transfers of trade receivables. However, if the Company enters into other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected.

HKAS 24 Related Party Disclosures (as revised in 2009) modifies the definition of a related party and simplifies disclosures for government-related entities. The revised standard will affect the Company’s disclosure on related party transactions because the Company is a government-related entity.

The amendments to HKAS 32 titled Classification of Rights Issues address the classification of certain rights issues denominated in a foreign currency as either an equity instrument or as a financial liability. To date, the Company has not entered into any arrangements that would fall within the scope of the amendments. However, if the Company does enter into any rights issues within the scope of the amendments in future accounting periods, the amendments to HKAS 32 will have an impact on the classification of those rights issues.

HK (IFRIC)-Int 19 provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. To date, the Company has not entered into transactions of this nature. However, if the Company does enter into any such transactions in the future, HK (IFRIC)-Int 19

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ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

will affect the required accounting. In particular, under HK (IFRIC)-Int 19, equity instruments issued under such arrangements will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued will be recognised in profit or loss.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The Financial Information has been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance. The principal accounting policies adopted are as follows:

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales related taxes.

Income from provision of port services and logistic services are recognised when the respective services are rendered.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

The Company’s accounting policy for recognition of revenue from operating leases is described in the accounting policy below.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Company as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

– 26 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Government grants

Government grants are not recognised until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Company recognises as expenses the related costs for which the grants are intended to compensate.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognised in profit or loss in the period in which they become receivable.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.

Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Company’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current or deferred tax for the year is recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax is also recognised in other comprehensive income or directly in equity respectively.

– 27 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below), are stated in the statement of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Company’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of assets (other than properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment of tangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest Company of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In accessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Inventories

Inventories are carried at the lower of cost and net realisable value.

Financial instruments

Financial assets and financial liabilities are recognised when a Company entity becomes a party to the contractual provisions of the instrument.

– 28 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Company’s financial assets mainly are loans and receivables.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In each reporting period subsequent to initial recognition, loans and receivables (including trade receivables, other receivables, cash and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses.

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of the reporting period. Loans and receivables are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been impacted. Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of loans and receivables, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, and observable changes in national or local economic conditions that correlate with default on receivables.

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the loans and receivables is reduced by the impairment loss directly with the exception of trade and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When the trade and other receivables are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

– 29 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

If in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liability

Financial liabilities (including borrowings, trade, bills, dividends and other payables) are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Company has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, which are described in note 3, the sole director of the Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

– 30 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Useful lives of property, plant and equipment and construction in progress

The Company’s sole director determines the estimated useful lives of its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The Company’s sole director will increase the depreciation charge in the year where the useful lives are less than the previously estimated lives and will write off technically obsolete or non-strategic assets that have been abandoned or sold.

Deferred tax assets

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary difference and unused tax credit can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likelihood of timing and level of future taxable profits together with tax planning strategies. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which will be recognised in profit or loss for the period in which such a reversal takes place. Further details are contained in note 22.

5. SEGMENT INFORMATION

The chief operating decision-maker has been identified as the Company’s sole director. The Company’s operating activities are attributable to a single reportable segment focusing on provision of port services and logistic services in Guangdong province of the PRC. This reportable segment has been identified on the basis of internal reports prepared in accordance with the accounting policies which conform to HKFRSs.

For the purpose of performance assessment, information reported to Company’s sole director is more specifically focused on the gross profit of the Company as a whole, which is the same as the gross profit of the Company as shown in the statements of comprehensive income on page 2 of this report. Accordingly, no analysis of this single reportable segment is prepared.

– 31 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Information about major customers

Revenue from customers of the corresponding years contributing over 10% of the total revenue of the Company are as follows:

	Year	ended 31 December
	2008	2009	2010
	RMB’000	RMB’000	RMB’000
中國石化湛江東興石油化工有限公司	71,657	86,251	96,735
中國石油化工股份有限公司茂名分公司	54,813	55,368	71,164
Customer A (Note)	N/A	34,666	42,673
中國石化銷售有限公司華南分公司_(Note)_	N/A	33,133	N/A

Note: The corresponding revenue did not contribute over 10% of the total revenue of the Company for the relevant year.

All revenue of the Company are derived from the PRC.

All non-current assets of the Company are located in PRC, its country of domicile.

6. REVENUE

An analysis of revenue is as follows:

Port services Logistic service Others Less: Sales-related tax	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 308,877 299,752 361,740 3,229 3,310 10,581 3,661 121 157 (11,607) (10,883) (13,468) 304,160 292,300 359,010	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 308,877 299,752 361,740 3,229 3,310 10,581 3,661 121 157 (11,607) (10,883) (13,468) 304,160 292,300 359,010
		359,010

7. OTHER INCOME

Bank interest income Government grants	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 363 325 517 8,234 5,980 6,704 8,597 6,305 7,221	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 363 325 517 8,234 5,980 6,704 8,597 6,305 7,221
		7,221

Government grants have been received by the Company as immediate financial support. There are no unfulfilled conditions relating to these grants.

– 32 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

8. OTHER GAINS AND LOSSES

Loss on disposal of property, plant and equipment Insurance compensation Others	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 (2,348) (12) (213) 1,841 – – (211) (122) 245 (718) (134) 32	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 (2,348) (12) (213) 1,841 – – (211) (122) 245 (718) (134) 32
		32

9. FINANCE COSTS

Interest on: Bank and other borrowings – wholly repayable within five years – not wholly repayable within five years Total borrowing costs Less: amounts capitalised in the cost of qualifying assets	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 15,292 12,000 6,172 1,326 – 1,034 16,618 12,000 7,206 (1,829) (4,299) (4,157) 14,789 7,701 3,049	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 15,292 12,000 6,172 1,326 – 1,034 16,618 12,000 7,206 (1,829) (4,299) (4,157) 14,789 7,701 3,049
		7,206 (4,157)
		3,049

The weighted average capitalisation rate on funds borrowed generally is 6.31%, 5.88% and 5.66% per annum for the years ended 31 December 2008, 2009 and 2010 respectively.

10. INCOME TAX EXPENSES

An analysis of the major components of income tax expenses of the Company is as follows:

PRC Enterprise Income Tax – Current tax – (Over) under-provision in prior year Deferred tax (note 22): Current year	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 30,314 35,626 60,703 (911) 377 – 29,403 36,003 60,703 (2,984) 3,155 1,413 26,419 39,158 62,116	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 30,314 35,626 60,703 (911) 377 – 29,403 36,003 60,703 (2,984) 3,155 1,413 26,419 39,158 62,116
		60,703 1,413
		62,116

Under the Law of People’s Republic of China on Enterprise Income Tax (the “EIT” Law) and Implementation Regulation of the EIT Law, the tax rate of the Company is 25% from 1 January 2008 onwards.

– 33 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The tax charge for the years can be reconciled to the profit per statements of comprehensive income as follows:

Profit before tax Tax at PRC enterprise income tax rate of 25% Tax effect of expenses not deductible for tax purposes Effect of tax incentives on purchase of domestic produced equipment (Over) under-provision in prior year Tax charges for the year	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 109,935 192,190 248,306 27,484 48,047 62,076 201 31 40 (355) (9,297) – (911) 377 – 26,419 39,158 62,116	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 109,935 192,190 248,306 27,484 48,047 62,076 201 31 40 (355) (9,297) – (911) 377 – 26,419 39,158 62,116

		62,076 40 – –
		62,116

11. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging (crediting):

Auditors’ remuneration Depreciation of property, plant and equipment Director’s emoluments Salaries and other benefits Release of prepaid lease payments Minimum lease payments paid under operating leases (Reversal of) impairment loss of receivables, net Staff costs (including director’s emoluments): – Salaries and allowances – Retirement benefit costs DIVIDENDS Dividends recognised as distribution during the year:	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 439 – 15 33,749 27,755 29,443 1,241 810 850 44 39 482 28,463 3,498 4,379 (62) 524 (133) 65,784 32,224 39,636 10,881 7,320 7,898 At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 18,836 – 186,798	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 439 – 15 33,749 27,755 29,443 1,241 810 850 44 39 482 28,463 3,498 4,379 (62) 524 (133) 65,784 32,224 39,636 10,881 7,320 7,898 At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 18,836 – 186,798

		39,636 7,898

		2010 RMB’000 186,798

12. DIVIDENDS

On 30 December 2008, the Company declared a total dividend of approximately RMB18,836,000 and subsequently paid in 2009.

No dividend was proposed during 2009.

On 10 December 2010, the Company declared a total dividend of approximately RMB186,798,000.

– 34 –

APPENDIX II

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

13. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2008 Additions Transfer Disposals At 31 December 2008 Additions Transfer Disposals At 31 December 2009 Additions Contributed by parent company (Note 23) Transfer Disposals At 31 December 2010 ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2008 Depreciation provided during the year Disposals At 31 December 2008 Depreciation provided during the year Disposals At 31 December 2009 Depreciation provided during the year Disposals At 31 December 2010 CARRYING VALUES At 31 December 2008 At 31 December 2009 At 31 December 2010	Buildings RMB’000 45,234 – 135 (2,591) 42,778 – – (1,205) 41,573 – 315 2,079 – 43,967 11,130 1,542 (1,142) 11,530 1,448 (948) 12,030 1,423 – 13,453 31,248 29,543 30,514	Motor vehicles RMB’000 5,804 – – – 5,804 – – – 5,804 – – – – 5,804 1,415 460 – 1,875 460 – 2,335 460 – 2,795 3,929 3,469 3,009	Loading machinery RMB’000 253,343 150 5,265 (77,298) 181,460 2,318 – (1,194) 182,584 1,325 2,941 39,622 (400) 226,072 102,216 17,551 (42,366) 77,401 12,213 (1,158) 88,456 12,692 (232) 100,916 104,059 94,128 125,156	Port equipment RMB’000 234,909 – – (17,342) 217,567 – – (380) 217,187 1,070 73 174,684 – 393,014 42,489 4,442 (4,045) 42,886 4,120 (288) 46,718 4,689 – 51,407 174,681 170,469 341,607	Storage equipment Com RMB’000 151,827 – 1,222 (8,026) 145,023 – – – 145,023 – 6,635 – – 151,658 29,385 4,154 (5,715) 27,824 3,912 – 31,736 3,912 – 35,648 117,199 113,287 116,010	munication equipment RMB’000 5,271 118 1,128 (59) 6,458 6 – (7) 6,457 64 – 1,588 (32) 8,077 1,002 420 (14) 1,408 501 (1) 1,908 536 (24) 2,420 5,050 4,549 5,657	Machinery RMB’000 60,205 40 1,141 (1,847) 59,539 17 287 (1,315) 58,528 190 22 42,389 (598) 100,531 16,720 4,570 (987) 20,303 4,596 (1,274) 23,625 5,137 (568) 28,194 39,236 34,903 72,337	Electronic devices and others C RMB’000 5,586 597 2,073 (1,343) 6,913 177 – (267) 6,823 355 – 960 (95) 8,043 2,300 610 (746) 2,164 505 (254) 2,415 594 (88) 2,921 4,749 4,408 5,122	onstruction in progress RMB’000 27,840 117,711 (10,964) – 134,587 70,742 (287) – 205,042 182,804 – (261,322) – 126,524 – – – – – – – – – – 134,587 205,042 126,524	Total RMB’000 790,019 118,616 – (108,506)
										800,129 73,260 – (4,368)
										869,021 185,808 9,986 – (1,125)
										1,063,690
										206,657 33,749 (55,015)
										185,391 27,755 (3,923)
										209,223 29,443 (912)
										237,754
										614,738

										659,798

										825,936

– 35 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The above items of property, plant and equipment other than construction in progress are depreciated on a straight-line basis at the following estimated useful lives:

Buildings	26 to 30 years
Motor vehicles	10 to 12 years
Loading machinery	8 to 12 years
Port equipment	16 to 50 years
Storage equipment	12 to 30 years
Communication equipment	7 to 12 years
Machinery	12 years
Electronic devices and others	5 to 8 years

The buildings are situated on land in the PRC under a medium term lease.

14. PREPAID LEASE PAYMENTS

Carrying amount at 1 January Contributed by parent company (Note 23) Released during the year Carrying amount at 31 December Analysed for reporting purpose as: Current asset Non-current assets	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 1,812 1,768 1,729 – – 221,611 (44) (39) (482) 1,768 1,729 222,858 39 39 5,360 1,729 1,690 217,498	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 1,812 1,768 1,729 – – 221,611 (44) (39) (482) 1,768 1,729 222,858 39 39 5,360 1,729 1,690 217,498
		222,858

		5,360 217,498

The Company’s leasehold interest in land is situated in the PRC and is held under a medium term lease.

15. INVENTORIES

Spare parts and consumables	At 31 December 2008 2009 RMB’000 RMB’000 1,933 2,225	2010 RMB’000 2,830

16. TRADE RECEIVABLES

Trade receivables Less: allowance for doubtful debts	At 31 December 2008 2009 RMB’000 RMB’000 15,697 68,085 (928) (1,452) 14,769 66,633	2010 RMB’000 54,806 (1,319)
		53,487

The Company normally receives payments or bills in advance for the port services provided. For long-standing customers with good repayment history, the Company may allow a credit period of not more than 90 days. The Company closely monitors overdue balances and the impairment of trade receivables are made when it is considered that amounts due may not be recovered. Trade receivables are non-interest-bearing.

– 36 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The following is an analysis of trade receivables by age, presented based on the invoice date, net of allowance for doubtful debts at the end of the reporting period date:

Within 90 days 91-180 days 181-270 days	At 31 December 2008 2009 RMB’000 RMB’000 13,804 56,854 965 3,219 – 6,560 14,769 66,633	2010 RMB’000 53,054 433 –
		53,487

Trade receivables disclosed above include amounts (see below for aged analysis) which are past due at the end of the reporting period for which the Company has not recognised an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts (which include interest accrued) are still considered recoverable. The Company does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Company to the counterparty.

Age of receivables that are past due but not impaired

91-180 days 181-270 days Total	At 31 December 2008 2009 RMB’000 RMB’000 965 3,219 – 6,560 965 9,779	2010 RMB’000 433 –
		433

Movement in the allowance for doubtful debts

At 1 January Impairment losses recognised on receivables Impairment losses reversed At 31 December	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 990 928 1,452 – 524 362 (62) – (495) 928 1,452 1,319	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 990 928 1,452 – 524 362 (62) – (495) 928 1,452 1,319
		1,319

17. OTHER RECEIVABLES AND PREPAYMENTS

Amount due from parent company Others	At 31 December 2008 2009 RMB’000 RMB’000 62,063 9,113 9,456 705 71,519 9,818	2010 RMB’000 63,184 380
		63,564

The amount receivable from the parent company of the Company is non-trade nature, unsecured, non-interest-bearing and repayable within one year. As 31 December 2008, the balance included consideration receivable of RMB50,958,000 relating to disposal of properties, plant and equipment to the parent company in 2008, which settled in 2009.

– 37 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

18. TRADE PAYABLES

An aged analysis of the trade payables of the Company, as at the end of the reporting period, based on the invoice date, is as follows:

Within 90 days 91-180 days 181-270 days 271-365 days Over 365 days	At 31 December 2008 2009 RMB’000 RMB’000 1,708 1,007 – 2,323 – 37 – 14 – 545 1,708 3,926	2010 RMB’000 5,931 857 400 111 584
		7,883

The trade payables, except for payable to related parties as detailed below, are non-interest-bearing and are normally settled on 90-day terms.

The amounts due to related parties included in the above are as follows:

Parent company Fellow subsidiaries – Zhanjiang Sibo Technology Co., Ltd.	At 31 December 2008 2009 RMB’000 RMB’000 – 7 28 363 28 370	2010 RMB’000 1,106 683
		1,789

The balances with related parties are unsecured, non-interest-bearing and are repayable on demand.

19. BILLS PAYABLE

An aged analysis of the bills payable of the Company, as at the end of the reporting period, is as follows:

1 to 3 months	At 31 December 2008 2009 RMB’000 RMB’000 342 1,869	2010 RMB’000 5,549

– 38 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

20. OTHER PAYABLES AND ACCRUALS

Advances from customers Accruals Payables for purchase of property, plant and equipment Salary and welfare payable Other tax payable Other payables	At 31 December 2008 2009 RMB’000 RMB’000 2,304 224 466 240 7,555 9,496 27,636 19,403 55,794 44,055 18,491 11,961 112,246 85,379	2010 RMB’000 1,049 192 61,301 13,654 27,157 6,367
		109,720

21. BORROWINGS

Unsecured bank loans Carrying amount repayable: Within one year More than one year but not exceeding two years More than two year but not more than five years More than five years Less: Amounts shown under current liabilities Borrowings comprised of Fixed rate loans Floating rate loans	At 31 December 2008 2009 RMB’000 RMB’000 247,625 150,525 112,500 69,100 7,000 800 48,125 80,625 80,000 – 247,625 150,525 (112,500) (69,100) 135,125 81,425 40,000 30,000 207,625 120,525	2010 RMB’000 115,816

		42,100 13,125 36,200 24,391
		115,816 (42,100)
		73,716

		– 115,816

Interest rate of floating rate loans is linked to benchmark interest rate of People’s Bank of China, with interest rates ranging from 5.346% to 6.465% per annum, and fixed rate loans carry interests raging from 4.779% to 7.047% per annum.

The amounts due are based on scheduled repayment dates set out in the loan agreements.

– 39 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

22. DEFERRED TAX ASSETS

The following are the major deferred tax assets recognised and movements therein during the Relevant Periods.

At 1 January 2008 Credit (charge) to profit or loss during the year (note 10) At 31 December 2008 (Charge) credit to profit or loss during the year (note 10) At 31 December 2009 (Charge) credit to profit or loss during the year (note 10) At 31 December 2010	Liabilities for accrued expenses that are deductible for tax purpose only when paid RMB’000 7,140 1,799 8,939 (3,798) 5,141 (1,438) 3,703	Impairment of receivables RMB’000 265 (11) 254 111 365 (34) 331	Others RMB’000 (1,643) 1,196 (447) 532 85 59 144	Total RMB’000 5,762 2,984
				8,746 (3,155)
				5,591 (1,413)
				4,178

23. REGISTERED CAPITAL

At 1 January Additions At 31 December	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 99,932 99,932 99,932 – – 80,068 99,932 99,932 180,000	Year ended 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 99,932 99,932 99,932 – – 80,068 99,932 99,932 180,000
		180,000

In December 2010, the parent company of the Company, 湛江港（集團）股份有限公司 (Zhanjiang Port (Group) Co., Ltd.) has contributed prepaid lease payment and properties, plant and equipment as capital injection with total value of approximately RMB231,597,000, which were determined with reference to the valuation report (Zhong Lian Ping Bao Zi [2010] No.596) issued by China United Assets Appraisal Co., Ltd.. According to the capital verification report (Lv De Yan Zi [2010] No.53) issued by Zhanjiang Lvde CPA Ltd., the contribution has been recognised as contribution from parent company as paid-in capital of RMB80,068,000 and capital reserve of approximately RMB151,529,000.

– 40 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

24. COMMITMENTS

Capital commitments

		At 31 December
	2008	2009	2010
	RMB’000	RMB’000	RMB’000
Capital expenditure in respect of the acquisition of
property, plant and equipment contracted for but not
provided in the Financial Information	51,291	67,619	74,565

Operating lease commitments

The Company as lessee

At the end of each reporting period, the Company had commitments for future minimum lease payments in respect of rented storage facilities, which fall due as follows:

Within one year In the second to fifth year inclusive Operating leases relate to storage facilities with lease terms of:	At 31 December 2008 2009 RMB’000 RMB’000 – 264 – 506 – 770 N/A 1 to 3 years	2010 RMB’000 264 242
		506

		1 to 2 years

In the event the Company decided to renew the lease contracts, the fixed rental and the lease terms will be further reviewed at renewal.

The Company as lessor

Rental income earned during the year was approximately RMB3,661,000, RMB121,000 and RMB157,000 for the year ended 31 December 2008, 2009 and 2010 respectively.

Rental income is mainly arising from the lease of equipment and some floor areas within the own-use premises of the Company. Rental income are fixed and subject to unexpired lease term for 1 year.

– 41 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

25. RELATED PARTY TRANSACTIONS

Except for the related party transactions disclosed in notes 17, 18 and 23, the Company has also entered into the following material transactions with related parties during the Relevant Periods:

a. The Company provided services and sold assets to related parties:

		Year	ended 31 December	ended 31 December
Name of related parties	Nature of transaction	2008	2009	2010
		RMB’000	RMB’000	RMB’000
Parent company
Zhanjiang Port (Group) Co., Ltd.	Rendering of services
湛江港（集團）股份有限公司		3,530	4	4
Zhanjiang Port (Group) Co., Ltd.	Disposal of assets
湛江港（集團）股份有限公司		50,958	–	–
Fellow subsidiaries
Zhanjiang Port Petroleum	Rendering of services
Management Co., Ltd.
（湛江港石油經營部有限公司）		–	9	9
Zhanjiang Jinyuan warehouse	Rendering of services
Co., Ltd.
（湛江金源保稅倉有限公司）		11	–	–

b. The Company received services incurred, rental expenses and purchased assets from related parties:

		Year	ended 31 December	ended 31 December
Name of related parties	Nature of transaction	2008	2009	2010
		RMB’000	RMB’000	RMB’000
Parent company
Zhanjiang Port (Group) Co., Ltd.	Rendering of services
（湛江港（集團）股份有限公司）		9,168	3,626	7,211
Zhanjiang Port (Group) Co., Ltd.	Rental expenses
（湛江港（集團）股份有限公司）		21,128	640	626
Zhanjiang Port (Group) Co., Ltd.	Assets purchase
（湛江港（集團）股份有限公司）		–	–	2,705
Fellow subsidiaries
Zhanjiang Sibo Technology	Rendering of services
Co., Ltd.
（湛江市思博科技有限公司）		1,268	997	472
Zhanjiang Port Customs Broker	Rendering of services
Co., Ltd.
（湛江港報關行有限公司）		–	10	–
Zhanjiang Sibo Technology	Rental expenses
Co., Ltd.
（湛江市思博科技有限公司）		36	102	138
Zhanjiang Jinyuan warehouse	Rental expenses
Co., Ltd.
（湛江金源保稅倉有限公司）		250	–	–
Zhanjiang Sibo Technology	Assets purchase
Co., Ltd.
（湛江市思博科技有限公司）		–	–	298

These transactions were conducted in accordance with the terms of the relevant agreements.

– 42 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

c. Compensation of key management personnel:

The short-term benefits paid or payable by the Company to the key management personnel during the Relevant Periods are as disclosed in Note 11.

26. CAPITAL RISK MANAGEMENT

The Company manages its capital to ensure that Company will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance. The Company’s overall strategy remains unchanged throughout the Relevant Periods.

The capital structure of the Company consists of net debt and equity attributable to its owners, comprising paid-up capital and reserves.

The sole director of the Company reviews the capital structure on an annual basis. As part of this review, the sole director considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the sole director, the Company will balance its overall capital structure through the payment of dividends, raising its registered capital as well as the issue of new debts or the redemption of existing debts.

The Company monitors capital using a gearing ratio, which is net debt divided by the capital plus net debt. Net debt includes borrowings, trade, bills, income tax, dividends and other payables, accruals less cash and bank-balances. Capital includes equity attributable to owners of the Company.

The gearing ratios as at the end of each reporting periods were as follows:

Borrowings Trade payables Bills payable Other payables and accruals Income tax liabilities Dividends payable Less: Cash and bank balances Net debt Equity attributable to owners of the Company Capital and net debt Gearing ratio	At 31 December 2008 2009 RMB’000 RMB’000 247,625 150,525 1,708 3,926 342 1,869 112,246 85,379 11,135 9,534 18,836 – (51,202) (31,254) 340,690 219,979 372,783 525,815 713,473 745,794 48% 29%	2010 RMB’000 115,816 7,883 5,549 109,720 28,901 186,798 (38,618)
		416,049
		756,804
		1,172,853
		35%

27. FINANCIAL INTRUMENTS

a. Categories of financial instruments

Financial assets

				31 December
			2008	2009	2010
			RMB’000	RMB’000	RMB’000
Loans	and	receivables	137,490	107,705	155,669

– 43 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Financial liabilities

						31 December
					2008	2009	2010
					RMB’000	RMB’000	RMB’000
Financial	liabilities	at	amortised	cost	378,453	241,475	424,717

b. Financial risk management objectives and policies

The Company’s major financial instruments include cash and bank balances, trade and other receivables and trade, bills payable, dividends payable, other payables and borrowings. Details of the financial instruments are disclosed in respective notes.

The main risks arising from the Company’s financial instruments are credit risk, liquidity risk and interest rate risk. The sole director reviews and agrees policies for managing each of these risks and they are summarised below.

Credit risk

The Company trades only with recognised and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Company’s exposure to bad debts is not significant.

As at 31 December 2008, 2009 and 2010, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the statements of financial position.

Since the Company trades only with recognised and creditworthy third parties, there is no requirement for collateral. At the end of each reporting periods, the Company has certain concentrations of credit risk as 28.35% (2008), 25.92% (2009) and 53.36% (2010) of the Company’s trade receivables were due from the Company’s largest customer, 73.84% (2008), 72.75% (2009) and 90.58% (2010) were due from the five largest customers, respectively. Other trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.

Other than concentration of credit risk on trade receivables due from the Company’s five largest customers and amount due from parent company, the Company does not have any other significant concentration of credit risk. The credit risk on balances of cash and cash equivalents is low as these balances are placed with reputable financial institutions. The credit risk on amount due from parent company is low in view of past repayment history.

Liquidity risk

In the management of the liquidity risk, the Company monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. The Company relies on cash generated from operating activities as a significant source of liquidity. For the years ended 31 December 2008, 2009 and 2010, the Company have cash generated from operating activities of approximately RMB149,685,000, RMB121,300,000 and RMB232,678,000. Trade receivable can be received within six months based on the earliest date on which the Company can require payments and bank balances can be drawn on demand. With the secured credit facilities and financial support from the parent company, the director believes that the company will be able to meet its financial obligations in the foreseeable future.

– 44 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

The table below details the Company’s remaining contractual maturity for its financial liabilities as at the end of each reporting period has been drawn up, based on the contractual undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.

The table included both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of each of the reporting periods.

The amounts included below for floating rate borrowings are subject to change if changes in variable interest rates different to those estimates of interest rates determined at the end of the reporting periods.

Weighted average interest rate % 2008 Non-derivative financial liabilities Trade payables – Bills payable – Borrowings 6.465 Other payables and accruals – Dividends payable – Total 2009 Non-derivative financial liabilities Trade payables – Bills payable – Borrowings 6.458 Other payables and accruals – Total 2010 Non-derivative financial liabilities Trade payables – Bills payable – Borrowings 5.346 Other payables and accruals – Dividends payable – Total	On demand or less than 6 months RMB’000 1,708 342 80,494 109,008 18,836 210,388 3,926 1,869 56,519 77,284 139,598 7,883 5,549 3,096 102,763 186,798 306,089	6 to less than 12 months RMB’000 – – 60,574 934 – 61,508 – – 27,994 7,871 35,865 – – 45,196 4,559 – 49,755	Over 1 year Total undiscounted cash flows RMB’000 RMB’000 – 1,708 – 342 155,557 296,625 – 109,942 – 18,836 155,557 427,453 – 3,926 – 1,869 93,624 178,137 – 85,155 93,624 269,087 – 7,883 – 5,549 95,288 143,580 1,349 108,671 – 186,798 96,637 452,481	Carrying amount at 31 December RMB’000 1,708 342 247,625 109,942 18,836
				378,453

				3,926 1,869 150,525 85,155
				241,475

				7,883 5,549 115,816 108,671 186,798
				424,717

– 45 –

ACCOUNTANT’S REPORT OF ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX II

Interest rate risk

The Company is exposed to interest rate risk in relation to bank balances and borrowings carried at variable rate. Bank balances carry interest at market rates at 0.36% to 0.72%, 0.36% and 0.36% per annum as at 31 December 2008, 2009 and 2010 respectively. The sole director of the Company considers that the interest rate fluctuation on prevailing market rate for bank balances is minimal and thus no sensitivity analysis is prepared.

The Company’s cash flow interest rate risk is mainly concentrated on the fluctuation of benchmark interest rate of People’s Bank of China arising from the certain of Company’s borrowings.

The sensitivity analysis below has been determined based on the exposure to floating rate borrowings. 0.27% increase or decrease in interest rate is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 0.27% higher/lower and all other variables were held constant, the Company’s post-tax profit for the year ended 31 December 2010 would decrease/increase by approximately RMB235,000 for the year ended 31 December 2010, RMB244,000 for the year ended 31 December 2009 and RMB420,000 for the year ended 31 December 2008. This is mainly attributable to the Company’s exposure to floating rate borrowings.

(B) SUBSEQUENT EVENTS

No significant events took place subsequent to 31 December 2010.

(C) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial information of the Company has been prepared in respect of any period subsequent to 31 December 2010.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 46 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. INTRODUCTION TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following unaudited pro forma statement of assets and liabilities of the Enlarged Group as at 31 December 2010 (the “Statement”) are prepared based on the audited consolidated balance sheet of the Group as at 31 December 2010, extracted from the Group’s annual report for the year ended 31 December 2010, and the balance sheet of Zhan Jiang Port Petrochemcial Jetty Co. as at 31 December 2010, as extracted from the accountants’ report set out in Appendix II to this circular.

The Statement has been prepared to illustrate the effect of the Transactions as if the Acquisition had taken place on 31 December 2010.

The Statement is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group that would have been attained had the Transactions been completed on 31 December 2010. Furthermore, the Statement does not purport to predict the Enlarged Group’s future financial position.

The Statement should be read in conjunction with the historical financial information of the Group as set out in the annual report of the Company for the year ended 31 December 2010, the financial information of Zhan Jiang Port Petrochemical Jetty Co. as set out in Appendix II of the circular and other financial information included elsewhere in the circular.

2. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP AS AT 31 DECEMBER 2010

Non-current assets Fixed assets – Investment properties −Other property, plant and equipment −Interests in leasehold land held for own use under operating leases Interest in associate	The Group HK$’000 33,397 1,801,816 79,548 − 1,914,761	Pro forma adjustment HK$’000 – – – 400,230 400,230	The Enlarged Group HK$’000 33,397 1,801,816 79,548 400,230
			2,314,991

– 47 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Current assets Inventories Trade and other receivables Tax recoverable Cash and cash equivalents Current liabilities Trade and other payables Interest-bearing borrowings Tax payable Net current assets Net assets	The Group HK$’000 4,370 188,176 2,072 724,711 919,329 --------------- 125,122 156,034 9,338 290,494 --------------- 628,835 2,543,596	Pro forma adjustment HK$’000 (120,069) (120,069) --------------- 280,161 280,161 --------------- (400,230)	The Enlarged Group HK$’000 4,370 188,176 2,072 324,481
			519,099 --------------- 405,283 156,034 9,338
			570,655 --------------- 228,605

			2,543,596

Notes:

After the completion of the Acquisition, Zhan Jiang Port Petrochemical Jetty Co. will become an associate of the Group.
Pursuant to the Acquisition Agreement dated 27 May 2011 entered into between Sinomart Development and Zhan Jiang Port Group, the consideration payable for the Acquisition will be approximately RMB331.99 million (approximately HK$400.23 million), of which RMB99.60 million (approximately HK$120.07 million), representing 30% of the consideration will be satisfied in cash within 5 Business Days after the Acquisition Agreement becomes effective, and RMB232.39 million (approximately HK$280.16 million), representing the remaining 70% of the consideration will be settled in cash before 1 February 2012. The interest in associate represents the total consideration for the Acquisition in the amount of RMB331.99 million (approximately HK$400.23 million). The directors have not taken the transaction cost of the Acquisition into account as they consider those amount is insignificant.

– 48 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

3. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

The following is the text of a letter dated 30 June 2011, prepared for the sole purpose of inclusion in this circular, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

The Directors Sinopec Kantons Holdings Limited

30 June 2011

Dear Sirs,

Sinopec Kantons Holdings Limited (“the Company”)

We report on the unaudited pro forma statement of assets and liabilities (“the Pro Forma Financial Information”) of the Company and its subsidiaries (“the Group”) set out on pages 47 to 48 in Appendix III of the circular dated 30 June 2011 (“the Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of 50% equity interest in Zhan Jiang Port Petrochemical Jetty Co. might have affected the financial information presented. The basis of preparation of the unaudited Pro Forma Financial Information is set out on page 47 of the Circular.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited Pro Forma Financial Information in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 4.29(7) of the Listing Rules, on the unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 49 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited Pro Forma Financial Information with the directors of the Company. The engagement did not involve independent examination of any of the underlying financial information. Our work did not constitute an audit or review performed in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2010 or any future date.

Opinion

In our opinion:

a) the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Company; and
c) the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

Yours faithfully KPMG

Certified Public Accountants Hong Kong

– 50 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

Set out below are the management discussion and analysis on Zhan Jiang Port Petrochemical Jetty Co.:

For the year ended 31 December 2010

Business Review

In 2010, while the global economy was gradually recovering from the financial tsunami that happened in 2008 and 2009, cargo throughput of Zhan Jiang Port Petrochemical Jetty Co. increased moderately in the first half of the year and this growth further accelerated in the second half of the same year. During this period, Zhan Jiang Port Petrochemical Jetty Co. actively increased its cargo throughput in order to maximize utilizing the jetty’s throughtput capacity. It also made efforts in organizing its production as well as utilizing its berths efficiently which eased pressure on the demand for its berths. For the financial year that ended 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co. grew significantly and posted a revenue of approximately RMB359,010,000 (approximately HK$432,803,000) while its profit attributable to shareholders was approximately RMB186,190,000 (approximately HK$224,461,000), which represents an increase of 22.82% and 21.67% respectively when compared to the same period of last year. Thus, it is expected that the future prospect of Zhan Jiang Port Petrochemical Jetty Co. is good and that the operating result will continue to grow.

Total cargo throughput handled by Zhan Jiang Port Petrochemical Jetty Co. during the year was approximately 23.89 million tonnes, an increase of approximately 3.69 million tonnes or 18.3% year-on-year, of which the total crude oil throughput handled was 14.6496 million tonnes, representing a year-on-year growth of approximately 4.20 million tonnes or approximately 40.2%. This increase was mainly due to the commencement of operation of Sinopec Beihai Refinery (中石化北海煉油廠) which generated additional crude oil throughput. As the operation of Sinopec Beihai Refinery has been running smoothly, crude oil throughput will further increase. While maintaining its throughput capacity for crude oil, Zhan Jiang Port Petrochemical Jetty Co. expanded its logistics facilities. Investments made during 2010 mainly focused on the liquid chemical berth (under trial operation), the 3 berths that are capable of docking 5,000-tonnage ships (under construction) and phase I of the old storage area reconstruction project. The investment planned for the liquid chemical berth (under trial operation) and the 3 berths that are capable of docking 5,000-tonnage ships (under construction) is approximately RMB330 million (approximately HK$398 million). The investment budgeted for phase I of the old storage area reconstruction project is approximately RMB220 million (approximately HK$265 million). In addition, construction of tank foundation and manufacturing and installation of individual tank bodies have been completed, the percentage of completion of phase I of the reconstruction project is approximately 30%. This project is expected to be completed by the end of 2011.

Capital structure

As of 31 December 2010, the share capital of Zhan Jiang Port Petrochemical Jetty Co. remained the same. The source of capital of Zhan Jiang Port Petrochemical Jetty Co. mainly came from its operating income. Expenditures were mainly used on purchases of fixed assets

– 51 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

in respect of the reconstruction of the old storage area, salary payments to the employees and distributing dividends to the shareholders. As at 31 December 2010, no loan was made with fixed interest rate and the only loans were floating interest rate loans which amounted to approximately RMB115,816,000 (approximately HK$139,621,000). The floating interest rate was linked to the benchmark interest rate of People’s Bank of China which was between 5.346% and 6.465%.

Financial Review

Turnover

For the year ended 31 December 2010, revenue of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB359,010,000 (approximately HK$432,803,000) (2009: approximately RMB292,300,000 (approximately HK$352,381,000)). The increase in revenue was mainly due to the additional crude oil loading business arising from the commencement of operation of Sinopec Beihai Refinery.

Liquidity and financial resources

As at 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co. had cash and bank balances totalling approximately RMB38,618,000 (approximately HK$46,556,000) (2009: approximately RMB31,254,000 (approximately HK$37,678,000)) and total bank borrowings of approximately RMB115,816,000 (approximately HK$139,621,000) (2009: approximately RMB150,525,000 (approximately HK$181,465,000)).

Gearing ratio

As at 31 December 2010, the current ratio of Zhan Jiang Port Petrochemical Jetty Co. (current assets to current liabilities) was 0.43 (31 December 2009: 0.65) and gearing ratio (total liabilities to total assets) was 38% (31 December 2009: 32%).

Capital expenditures

Capital expenditures for the year amounted to approximately RMB185,808,000 (approximately HK$224,000,000) and it mainly comprised the building of the new petroleum and oil terminal that incurred approximately RMB137,145,000 (approximately HK$165,335,000) and the first phase of the reconstruction project in the old tank area that incurred approximately RMB41,111,000 (approximately HK$49,561,000).

Major investments and substantial acquisition and disposal

During the year ended 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co. has not entered into any substantial investments, acquisition or substantial disposal.

– 52 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

Contingent liabilities and pledged assets

As at 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co., did not have any contingent liabilities or pledged assets.

Trade and other receivables and prepayments

As at 31 December 2010, the trade and other receivables and prepayments of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB117,051,000 (approximately HK$141,110,000) (31 December 2009: approximately RMB76,451,000 (approximately HK$92,165,000)), the increase in the balance was mainly due to extended settlement of an amount due from Zhan Jiang Port Group in 2010.

Inventories

As at 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co. had inventories of approximately RMB2,830,000 (approximately HK$3,412,000) (31 December 2009: approximately RMB2,225,000 (approximately HK$2,682,000)), which was mainly due to the increase in accumulation of spare parts since the beginning of the year.

Exchange rate risks

Zhan Jiang Port Petrochemical Jetty Co.’s business is mainly conducted in the PRC, where all the assets and liabilities are denominated in RMB. Thus the Directors believe that the business of Zhan Jiang Port Petrochemical Jetty Co. is not exposed to any significant foreign exchange risks.

Employees and emolument policies

As at 31 December 2010, Zhan Jiang Port Petrochemical Jetty Co. had a total of 744 employees. Remuneration packages include basic salaries, bonuses and benefits-in-kind. In accordance with PRC legal requirements, Zhan Jiang Port Petrochemical Jetty Co. participates in employee social security systems operated by the government, which include basic pension insurance, medical insurance, housing fund and other social security system. Related expenses are accounted as the cost of relevant assets or charged to current profit and loss when incurred.

Save for compensation given to employees relating to termination of employment, remuneration payables are recognised as liabilities in the accounting period during which the services are rendered by the employees.

– 53 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

For the year ended 31 December 2009

Business Review

After a sharp decline of cargo throughput in the second half of 2008, cargo throughput of Zhan Jiang Port Petrochemical Jetty Co. in 2009 went through a period where macro control policies were implemented by the PRC government while Zhan Jiang Port Petrochemical Jetty Co. focused its efforts in cooperating with relevant corporations in the construction of a petroleum and oil terminal at the Zhanjiang port. This fully demonstrates the superiority and efficiency of the logistic system at the petrochemical jetty. In addition, Zhan Jiang Port Petrochemical Jetty Co. organized a series of initiatives such as engaging in Total Normalized Productive Management (TnPM) activities, equipment inspection and visualisation management; strengthening the recording system and file management for equipment maintenance. As a result, production and operation of Zhan Jiang Port Petrochemical Jetty Co. gradually improved. In addition, cargo throughput of Zhan Jiang Port Petrochemical Jetty Co. was also trending upwards. For the financial year ended 31 December 2009, turnover of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB292,300,000 (approximately HK$352,381,000) or a decrease of 3.90% as compared to the same period of the previous year while profits attributable to shareholders was approximately RMB153,032,000 (approximately HK$184,487,000) or an increase of 83.23% compared to the same period of the previous year.

Total cargo throughput handled by Zhan Jiang Port Petrochemical Jetty Co. during the year was approximately 20.20 million tonnes, an increase of approximately 0.85 million tonnes or 4.4%, of which the total crude oil throughput handled was approximately 14.64 million tonnes, representing an increase of approximately 0.49 million tonnes or 3.46% year-on-year. This was mainly due to an increase of cargo throughput in crude oil as a single point mooring at Shuidong Port, Guangdong Province was under repair and a new source arising from the transit of crude oil for the Guangxi Beihei refinery. In 2009, cumulative cargo throughput was approximately 5,112,600 tonnes which represents an increase of approximately 586,500 tonnes or 12.96%. Moreover, Zhan Jiang Port Petrochemical Jetty Co. also developed business relationships with three new customers of refined oil who were in the diesel and gasoline transit business in Zhanjiang, thus pushing refined oil cargo throughput upward when compared to the same period of the previous year. In 2009, the cumulative cargo throughput of liquid chemicals handled was approximately 358,600 tonnes which surpassed the annual target of approximately 58,600 tonnes and it increased by approximately 66,200 tonnes or 22.64% when compared to the same period of the previous year. The increase mainly came from the supply of ammonia which increased by approximately 31,000 tonnes as compared to the same period of the previous year.

Capital structure

As of 31 December 2009, the share capital of Zhan Jiang Port Petrochemical Jetty Co. remained the same. The source of capital of Zhan Jiang Port Petrochemical Jetty Co. mainly came from its operating income. Expenditures were mainly used on the purchases of fixed assets for the reconstruction of the old storage area, salary payments to the employees and distributing dividends to the shareholders. As at 31 December 2009, fixed interest rate loans

– 54 –

MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

APPENDIX IV

amounted to RMB30,000,000 (approximately HK$36,166,000) (RMB40,000,000 (approximately HK$48,222,000) in 2008) and floating interest rate loans amounted to RMB120,525,000 (approximately HK$145,298,000). The floating interest rate was linked to the benchmark interest rate of People’s Bank of China which was between 5.346% and 6.465% while the fixed interest rate was between 4.779% and 7.047%.

Financial Review

Turnover

As at 31 December 2009, turnover of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB292,300,000 (approximately HK$352,381,000) (as compared to approximately RMB304,160,000 (approximately HK$366,679,000) in 2008). The decrease was mainly due to cargo throughput of petrochemical products a slightly decreased compared to the same period of the previous year after the bulk cargo department of Zhan Jiang Port Petrochemical Jetty Co. was moved to other companies. Liquidity and financial resources As at 31 December 2009, Zhan Jiang Port Petrochemical Jetty Co. held a total of approximately RMB31,254,000 (approximately HK$37,678,000) in cash and bank deposits (compared to approximately RMB51,202,000 (approximately HK$61,726,000) in 2008) whereas total bank borrowings was approximately RMB150,525,000 (approximately HK$181,464,000) (compared to approximately RMB247,625,000 (approximately HK$298,523,000) in 2008).

Gearing ratio

As at 31 December 2009, current ratio of Zhan Jiang Port Petrochemical Jetty Co. (current assets to current liabilities) was 0.65 (31 December 2008: 0.54). In addition, gearing ratio (total liabilities to total assets) was approximately 32% (31 December 2008: 51%).

Capital expenditures

Capital expenditures of the year was approximately RMB73,260,000 (approximately HK$88,318,000). The capital expenditure of the main projects involved were as follows: the building of the new refined petroleum and oil terminal amounted to approximately RMB61,470,000 (approximately HK$74,105,000), the building of the new liquid chemical terminal amounted to approximately RMB1,047,000 (approximately HK$1,262,000), the reconstruction project of the supporting storage system for the petrochemical terminal amounted to approximately RMB1,027,000 (approximately HK$1,238,000) and the reconstruction of the old tank area amounted to approximately RMB6,034,000 (approximately HK$7,274,000).

– 55 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

Major investments and substantial acquisition and disposal

During the year ended 31 December 2009, Zhan Jiang Port Petrochemical Jetty Co. has not entered into any substantial acquisition, investments or substantial disposal.

Contingent liabilities and pledged assets

As at 31 December 2009, Zhan Jiang Port Petrochemical Jetty Co., did not have any contingent liabilities or pledged assets.

Trade and other receivables and prepayments

As at 31 December 2009, trade and other receivables and prepayments of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB76,451,000 (approximately HK$92,165,000) (compared to approximately RMB86,288,000 (approximately HK$104,024,000) as at 31 December 2008).

Inventories

As at 31 December 2009, Zhan Jiang Port Petrochemical Jetty Co. had inventories of approximately RMB2,225,000 (approximately HK$2,682,000) (compared to approximately RMB1,933,000 (approximately HK$2,330,000) as at 31 December 2008) which mainly comprised spare parts and materials.

Profit for the year

Profit attributable to shareholders was approximately RMB153,032,000 (approximately HK$184,487,000) or an increase of 83% compared to the same period of the previous year.

Exchange rate risks

Employee and emolument policy

As at 31 December 2009, Zhan Jiang Port Petrochemical Jetty Co. had a total of 748 employees. Remuneration packages include basic salaries, bonuses and benefits-in-kind. In accordance with PRC legal requirements, Zhan Jiang Port Petrochemical Jetty Co. participated in employee social security systems operated by the government, which include basic pension insurance, medical insurance, housing fund and other social security system. Related expenses were recorded in the relevant categories such as cost of assets or profit and loss of the period when they were incurred. Save for the compensation given to

– 56 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

employees due to the termination of their employment, remuneration payable to the employees were recognised as liabilities in the accounting period during which these services were rendered by the employees.

For the year ended 31 December 2008

Business Review

In 2008, as a result of the group restructuring that was carried out in accordance with the resolution as resolved in the annual general meeting of 2007, Zhan Jiang Port Petrochemical Jetty Co. became a wholly owned subsidiary of Zhan Jiang Port Group. After the restructuring, Zhan Jiang Port Petrochemical Jetty Co. principally engaged in operating the jetty, handling cargo, stockpiling, transferring, warehousing, freight transporting as well as performing ancillary services relevant to the jetty. Moreover, the operating period of Zhan Jiang Port Petrochemical Jetty Co. was set as long term. Due to the restructuring, transfer of business, and the global financial crisis at that time, cargo throughput of Zhan Jiang Port Petrochemical Jetty Co. slightly decreased when compared to the same period of the previous year. For the year ended 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co. recorded a turnover of approximately RMB304,160,000 (approximately HK$366,679,000) or a decrease of approximately 10.81% compared to the same period of the previous year, and profit attributable to shareholders was approximately RMB83,516,000 (approximately HK$100,682,000) or an increase of approximately 24.67% compared to the same period of the previous year.

Total cargo throughput handled by Zhan Jiang Port Petrochemical Jetty Co. during the year was approximately 19.35 million tonnes, a decrease of approximately 1.13 million tonnes or 5.5%, of which the total crude oil throughput handled was approximately 14.16 million tonnes, representing an increase of approximately 1.1 million tonnes or 8.4% year-on-year.

In order to maintain a sustainable growth in the business of Zhan Jiang Port Petrochemical Jetty Co., investments made in 2008 mainly focused on the engineering projects in connection with a 240,000 m[3] tank and a waste water treatment project which started in the previous year. Investments in the building of the new petroleum and oil jetty and the relevant engineering projects for the construction of supporting facilities during the year amounted to approximately RMB104 million (approximately HK$125.4 million) whereas cumulative investment amounted to approximately RMB120 million (approximately HK$144.7 million), in which 71.5% of the harbour basin deepening project was completed and 80% of the water engineering and construction project was completed.

Capital structure

As of 31 December 2008, the share capital of Zhan Jiang Port Petrochemical Jetty Co. remained the same. The source of capital of Zhan Jiang Port Petrochemical Jetty Co. mainly came from its operating income. As at 31 December 2008, fixed interest rate loans amounted to RMB40,000,000 (approximately HK$48,222,000) and floating interest rate loans

– 57 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

amounted to RMB207,625,000 (approximately HK$250,301,000). The floating interest rate was linked to the benchmark interest rate of People’s Bank of China which was between 5.346% and 6.465% while the fixed interest rate was between 4.779% and 7.047%.

Financial Review

Turnover

As at 31 December 2008, turnover of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB304,160,000 (approximately HK$366,679,000) (as compared to approximately RMB346,300,000 (approximately HK$417,480,000) in 2007). The decrease was mainly due to a decline in cargo throughput of higher fee rate cargos such as bulk chemicals and woodchips whereas cargo throughput of lower fee rate cargos such as petrochemical products basically remained at the same level compared to the same period of the previous year after the bulk cargo department of Zhan Jiang Port Petrochemical Jetty Co. was moved to other companies.

Although prices of crude oil, refined oil, and bulk chemicals increased in 2008, the average price per tonne of Zhan Jiang Port Petrochemical Jetty Co. decreased by approximately RMB1.22 (approximately HK$1.47) or 8.53% compared to the same period of the previous year as cargo composition changed during this period and there was a decrease in the amount of higher fee rate cargos.

Liquidity and financial resources

As at 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co. held a total of approximately RMB51,202,000 (approximately HK$61,726,000) in cash and bank deposits (compared to approximately RMB48,390,000 (approximately HK$58,336,000) in 2007) whereas total bank borrowings was approximately RMB247,625,000 (approximately HK$298,523,000) (compared to approximately RMB237,000,000 (approximately HK$285,714,000) in 2007).

Gearing ratio

As at 31 December 2008, current ratio of Zhan Jiang Port Petrochemical Jetty Co. (current assets to current liabilities) was 0.54 (31 December 2007: 0.64). In addition, gearing ratio (total liabilities to total assets) was 51% (whereas it was 31 December 2007: 51%).

Capital expenditures

Capital expenditures of the year was RMB118,616,000 (approximately HK$142,997,000). The capital expenditure of the main projects involved were as follows: the building of the new refined oil terminal and its relevant supporting facilities amounted to RMB104,330,000 (approximately HK$125,775,000), the building of the new liquid chemical terminal, the reconstruction project of the supporting storage system for the petrochemical terminal, and the reconstruction of the old tank area amounted to RMB15,222,000 (approximately HK$18,351,000).

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

Major investments and substantial acquisition and disposal

During the year ended 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co. has not entered into any substantial investments, acquisition or substantial disposal.

Contingent liabilities and pledged assets

As at 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co., did not have any contingent liabilities or pledged assets.

Trade and other receivables and prepayments

As at 31 December 2008, trade and other receivables and prepayments of Zhan Jiang Port Petrochemical Jetty Co. was approximately RMB86,288,000 (approximately HK$104,024,000) (compared to approximately RMB28,260,000 (approximately HK$34,069,000) as at 31 December 2007), which mainly consists of a receivable of approximately RMB50,960,000 (approximately HK$61,435,000) in respect of the sale of properties, factories and equipments to the parent company in 2008.

Inventories

As at 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co. had inventories of approximately RMB1,933,000 (approximately HK$2,330,000) (compared to approximately RMB3,860,000 (approximately HK$4,653,000) as at 31 December 2007) which mainly comprised spare parts and materials.

Profit for the year

Profit attributable to shareholders was approximately RMB83,516,000 (approximately HK$100,682,000) or an increase of 24.67% compared to the same period of the previous year.

Exchange rate risks

Employee and emolument policy

As at 31 December 2008, Zhan Jiang Port Petrochemical Jetty Co. had a total of 706 employees. Remuneration packages include basic salaries, bonuses and benefits-in-kind. In accordance with PRC legal requirements, Zhan Jiang Port Petrochemical Jetty Co. participated in employee social security systems operated by the government, which include basic pension insurance, medical insurance, housing fund and other social security system. Related expenses were recorded in the relevant categories such as cost of assets or profit

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

and loss of the period when they were incurred. Save for the compensation given to employees due to the termination of their employment, remuneration payable to the employees were recognised as liabilities in the accounting period during which these services were rendered by the employees.

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GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document 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 pursuant to section 341 of the SFO (including interests which they are deemed or taken to have under section 344 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. As at the Latest Practicable Date, Mr. Dai Zhao Ming, Mr. Zhu Zeng Qing, Mr. Zhu Jian Min, Mr. Tan Ke Fei, Mr. Zhou Feng and Mr. Ye Zhi Jun, being the executive Directors, are also directors of SKI.

Directors’ Interest in Any Asset Acquired, Disposed or Leased

None of the Directors has any material interest, directly or indirectly, in any asset which, since 31 December 2010, 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

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 and Arrangements

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Group.

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GENERAL INFORMATION

APPENDIX V

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:

		Percentage of
Name of interested party	Number of Shares	shareholding
		(%)
SKI (Note 1)	750,000,000	72.34

Note 1: The entire share capital of SKI is held by Unipec. Unipec is a wholly owned subsidiary of China Petroleum & Chemical Corporation which is a subsidiary of 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 2010, 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. EXPERT AND CONSENT

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

Name			Qualification
KPMG			Certified public accountants
Deloitte	Touche	Tohmatsu	Certified public accountants

Each of these professional advisers has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its reports or letters and references to its name, in the form and context in which it appears.

As at the Latest Practicable Date, none of these professional advisers had any direct or indirect interest 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

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GENERAL INFORMATION

APPENDIX V

statements of the Group 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. 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.

8. MATERIAL CONTRACTS

Save as disclosed below, there are no material contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within 2 years preceding the Latest Practicable Date:

(a) Acquisition Agreement;
(b) Joint Venture Agreement;
(c) Articles of Association;
(d) Financial Memorandum;
(e) New Sinopec Guangzhou Branch Framework Master Agreement;
(f) New Unipec Framework Master Agreement;
(g) Sinopec Finance Financial Services Framework Master Agreement;
(h) New Century Bright Financial Services Framework Master Agreement; and
(i) Unipec Vessel Charter Framework Master Agreement.

9. MISCELLANEOUS

(a) The joint secretaries of the Company are Mr. Li Wen Ping and Mr. Lai Yang Chau, Eugene (practicing solicitor).
(b) 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.
(c) The English text of this circular prevails over its Chinese translation in the case of discrepancy.

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GENERAL INFORMATION

APPENDIX V

10. DOCUMENTS FOR INSPECTION

Copies of the following documents of the Company will be available for inspection at the principal place of business of the Company at 20th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong during normal business hours from the date of this circular up to and including 22 July 2011:

(a) material contracts as referred to in the paragraph headed “Material contracts” in this Appendix;
(b) bye-laws of the Company;
(c) Company’s annual reports for the three years ended 31 December 2010;
(d) accountant’s report on the financial information on Zhan Jiang Port Petrochemical Jetty Co. as set out in Appendix II to this circular;
(e) report on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular;
(f) letters of consent from KPMG and Deloitte Touche Tohmatsu referred to under “Expert and consent” in this Appendix; and
(g) this circular.

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AI assistant

Sinopec Kantons Holdings Limited — Proxy Solicitation & Information Statement 2011

49576_rns_2011-06-30_48c8375a-17fc-4831-bd77-8de4ea885d19.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

**SINOPEC KANTONS HOLDINGS LIMITED (中石化冠德控股有限公司) ***

MAJOR TRANSACTION

regarding

ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION

CONTENT

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR TRANSACTION regarding ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION

ZHAN JIANG PORT PETROCHEMICAL JETTY CO. ACQUISITION AGREEMENT DATED 27 MAY 2011

Parties

LETTER FROM THE BOARD

Assets to be transferred

Consideration

Basis of determination of the consideration

Conditions precedent

Completion

PRINCIPAL TERMS OF JOINT VENTURE AGREEMENT AND ARTICLES OF ASSOCIATION

Parties

Scope of business of Zhan Jiang Port Petrochemical Jetty Co.

Establishment and capital

Composition of the board of directors

Term of joint venture

Profit sharing

FINANCIAL MEMORANDUM

REASONS AND BENEFITS FOR THE ACQUISITION

LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS OF THE GROUP AND THE ENLARGED GROUP

POSSIBLE FINANCIAL EFFECT OF THE ACQUISITION

Financial effect

INFORMATION ON ZHAN JIANG PORT PETROCHEMICAL JETTY CO.

INFORMATION OF SINOPEC GROUP COMPANY, SINOPEC CORP. AND THE COMPANY

IMPLICATION UNDER THE LISTING RULES

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS

3. WORKING CAPITAL

4. MATERIAL ADVERSE CHANGE

APPENDIX II

(A) FINANCIAL INFORMATION

STATEMENTS OF COMPREHENSIVE INCOME

STATEMENTS OF FINANCIAL POSITION

STATEMENTS OF CHANGES IN EQUITY

STATEMENTS OF CASH FLOWS

APPENDIX II

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

Going concern

Adoption of new and revised Hong Kong financial reporting standards (“HKFRS”)

3. SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Leasing

The Company as lessor

The Company as lessee

Borrowing costs

Government grants

Retirement benefit costs

Taxation

Property, plant and equipment

Impairment of tangible assets

Inventories

Financial instruments

Financial assets

Effective interest method

Loans and receivables

Impairment of loans and receivables

Financial liabilities and equity

Effective interest method

Financial liability

Equity instruments

Derecognition

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

Sinopec Kantons Holdings Limited Proxy Solicitation & Information Statement 2011

SINOPEC KANTONS HOLDINGS LIMITED (中石化冠德控股有限公司) *