Tencent Holdings Limited — Proxy Solicitation & Information Statement 2003

Oct 27, 2003

IMPORTANT

If you are in any doubt about this circular, you should consult your stockbroker, or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold all your shares in Daqing Petroleum and Chemical Group Limited 大慶石油 化工集團有限公司 (the “ Company ”), you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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

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DAQING PETROLEUM AND CHEMICAL GROUP LIMITED 大慶石油化工集團有限公司

(Incorporated in the Cayman Islands with limited liability)

Executive Directors

Wang Dan Hui (Chairman) Wang Hailou Wu Chieho, Joseph

Independent Non-Executive Directors Feng Jianming Ma Wing Yun, Bryan Meng Fanxi

Registered Office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Principal Place of Business: Unit 2303, 23rd Floor Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong

27 October 2003

• To the shareholders and, for information only, holders of outstanding options granted

Dear Sir or Madam,

PROPOSALS FOR BONUS ISSUE OF SHARES, GENERAL MANDATES TO PURCHASE ITS OWN SHARES AND TO ISSUE NEW SHARES

INTRODUCTION

It was announced on 17 October 2003 in conjunction with the announcement of the audited consolidated results of the Company and its subsidiaries (collectively, the “ Group ”) for

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the year ended 30 June 2003 that an issue of shares of the Company of HK$0.01 each (the “ Shares ”) by way of bonus issue (the “ Bonus Issue ”) would be proposed to the shareholders of the Company (the “ Shareholders ”) at the annual general meeting of the Company to be held on 20 November 2003 (the “ AGM ”). It was also announced on that day that the directors of the Company (the “ Directors ”) recommended the final dividend (the “ Final Dividend ”) of HK0.11 cents per Share for the year ended 30 June 2003.

The purpose of this circular is to provide you with information relating to the Bonus Issue and the ordinary resolutions to be proposed at the AGM to grant the Directors a general mandate (the “ Buyback Mandate ”) to exercise the powers of the Company to undertake repurchases of fully paid up Shares representing up to a maximum of 10% of the existing issued share capital of the Company on the date of the ordinary resolution and to grant a general mandate (the “ New Issue Mandate ”) to the Directors to issue new Shares and to increase the number of Shares which the Directors may issue under their general mandate by the number of shares repurchased.

In accordance with the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”), this circular also serves as the explanatory statement, to provide you with requisite information reasonably necessary to enable you to make an informed decision on whether to vote for or against resolutions nos. 6 to 8 to be proposed at the AGM.

BONUS ISSUE OF SHARES

Introduction

The Directors propose that the Bonus Issue will be made on the basis of one new Share (the “ Bonus Share ”), credited as fully paid, for 20 existing issued Shares held by the Shareholders whose names appear on the register of members of the Company on Thursday, 20 November 2003 (the “ Record Date ”). The Bonus Shares will rank pari passu in all respects with the Shares in issue on the date of allotment of the Bonus Shares except to the extent that the holders of the Bonus Shares will not be entitled to participate in the Final Dividend.

On the assumptions that all outstanding options granted under the share option scheme adopted by the Company on 25 April 2001 (the “ Share Option Scheme ”) are exercised in full on or before the Record Date and that no further Shares will be allotted and issued prior to the Record Date and based on 888,000,000 Shares in issue and taking into account 27,000,000 Shares that may fall to be allotted and issued upon the exercise in full of all outstanding options as at 22 October 2003 (the latest practicable date prior to the printing of this circular to ascertain certain information contained herein (the “ Latest Practicable Date ”)), there will be 915,000,000 Shares in issue on the Record Date. Accordingly, the total number of Bonus Shares to be issued may amount to 45,750,000.

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Conditions of the Bonus Issue

The Bonus Issue will be conditional upon:

• (a) the passing of an ordinary resolution by the Shareholders at the AGM to approve the Bonus Issue; and

• (b) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Bonus Shares.

Reasons for the Bonus Issue

The Directors believe that the Bonus Issue will enhance the liquidity of the Shares in the market and the Bonus Issue will also provide the Shareholders with an opportunity to obtain further equity participation in the Company, thereby enlarging the Shareholders’ base.

Application for listing

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Bonus Shares. No part of the issued share capital of the Company has been or will be listed in any other exchange other than the Stock Exchange.

Fractions of Bonus Shares

The Company will not allot any fractions of Bonus Shares. Bonus Shares representing fractional entitlement will be aggregated and issued to a nominee to be nominated by the Directors. Such Bonus Shares (if any) will be sold and the net proceeds, after deducting the related expenses therefrom, will be retained by the Company for its own benefit.

Share certificates

Certificates for the Bonus Shares are expected to be despatched to the Shareholders by post on or about Monday, 15 December 2003, at their own risk. Dealings in the Bonus Shares are expected to commence on Thursday, 18 December 2003.

Overseas Shareholders

The Directors will consider to seek advice from overseas counsel on the applicable procedural requirements for extending the Bonus Issue to Shareholders with overseas registered addresses in selected countries. Countries will be selected based on (a) the relative level of shareholding held by Shareholders whose registered addresses are in those countries, and (b) the cost and time involved in seeking advice.

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Overseas Shareholders affected by either of the following will not be allotted the Bonus Shares:

• (a) if the law of jurisdiction at which their registered address is located prohibits the Company from allotting the Bonus Shares to them, or requires the Company to comply with any requirements (such as the filing of any registration statement or prospectus) which the Directors consider to be onerous; or

• (b) if the Directors consider that the costs and/or time in seeking the necessary legal advice exceed the benefit of allotting the Bonus Shares to the Shareholder concerned (such as where the cost is too high relative to the level of their holding of Shares held by Shareholders registered in a particular jurisdiction).

Overseas Shareholders affected by any of the above will not be allotted the Bonus Shares. Instead, the Bonus Shares otherwise falling to be allotted to them will be sold in the market as soon as practicable after dealings in the Bonus Shares commence and the net proceeds of sale will be paid to the Shareholders affected. Where, however, the amount of the net proceeds payable to any particular Shareholder is less than HK$50, the net proceeds will be paid to the Company instead for its own benefit and will not be paid to the Shareholder affected.

Adjustment to exercise price and/or number of outstanding options

As at the Latest Practicable Date, outstanding options for the subscription for, in aggregate, 27,000,000 Shares had been granted by the Company under the Share Option Scheme. The exercise price of these outstanding options is HK$0.2344 per Share.

In accordance with the rules of the Share Option Scheme, holders of outstanding options who have not exercised their options in full prior to the Record Date will be entitled to adjustment to, among others, the exercise price and/or the number of Shares comprised in their outstanding options, as the case may be. Option holders will be notified in due course of the adjustments (if any).

Closure of the register of members

The register of members will be closed from Monday, 17 November 2003 to Thursday, 20 November 2003, both dates inclusive, during which period no transfer of Shares will be registered. In order to qualify for the Final Dividend and the Bonus Issue, all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong for registration not later than 4:00 p.m. on Friday, 14 November 2003.

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BUYBACK MANDATE

Reasons for the Buyback Mandate

Although the Directors have no present intention of repurchasing any shares, they believe that the flexibility afforded by the Buyback Mandate would be beneficial to the Company and its Shareholders. Trading conditions on the Stock Exchange have sometimes been volatile in recent years. At any time in the future when Shares are trading at a discount to their underlying value, the ability of the Company to repurchase Shares will be beneficial to those Shareholders who retain their investment in the Company since their percentage interest in the assets of the Company would increase in proportion to the number of Shares repurchased by the Company and thereby resulting in an increase in net assets and/or earnings per Share of the Company. Such repurchases will only be made when the Directors believe that such repurchases will benefit the Company and its Shareholders.

Share capital

As at the Latest Practicable Date, the issued share capital of the Company comprised 888,000,000 Shares.

Subject to the passing of the ordinary resolution no. 7, the Company would be allowed under the Buyback Mandate to repurchase a maximum of 88,800,000 Shares on the basis that no further Shares will be issued or repurchased prior to the date of the AGM.

Funding of repurchases

In repurchasing Shares, the Company may only apply funds legally available for such purpose in accordance with the memorandum and articles of association of the Company and the Companies Law (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the “ Cayman Islands Companies Law ”). The Cayman Islands Companies Law provides that the amount of capital repaid in connection with a share repurchase may only be paid out of profits or out of the proceeds of a fresh issue of shares made for the purpose or, if so authorised by its articles of association and subject to the provisions of the Cayman Islands Companies Law, out of capital. The amount of premium payable on a repurchase may only be paid out of profits or out of the share premium account of the Company or, if so authorised by its articles of association and subject to the provisions of the Cayman Islands Companies Law, out of capital.

There might be material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited accounts contained in the annual report for the year ended 30 June 2003) in the event that the Buyback Mandate was to be carried out in full at any time during the proposed repurchase period. However, the Directors do not propose to exercise the Buyback Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company. The number of Shares to be repurchased on any occasion and the price and other terms upon which the same are purchased will be decided by the Directors at the relevant time having regard to the circumstances then pertaining.

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Market prices

The highest and lowest prices at which Shares have been traded on the Stock Exchange during each of the previous 12 months from October 2002 to September 2003 were as follows:

		Shares
	Highest		Lowest
	HK$		HK$
2002
October	0.4100		0.3550
November	0.3800		0.3250
December	0.3650		0.1400
2003
January	0.2800		0.1790
February	0.3000		0.2370
March	0.2480		0.1900
April	0.2380		0.2060
May	0.2950		0.2120
June	0.3900		0.2950
July	0.5600		0.3500
August	0.5500		0.4600
September	0.5900		0.4550
October (up to the Latest Practicable Date)	0.6300		0.5200

Share repurchase made by the Company

No purchase of Shares has been made by the Company during the last six months (whether on the Stock Exchange or otherwise.)

Disclosure of interests

The Directors have undertaken to the Stock Exchange to exercise the powers of the Company to make purchases under the Buyback Mandate in accordance with the Listing Rules and the Cayman Islands Companies Law.

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their associates presently intends to sell Shares to the Company under the Buyback Mandate in the event that the Buyback Mandate is approved by the Shareholders.

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The Company has not been notified by any connected persons of the Company that they have a present intention to sell any Shares, or that they have undertaken not to sell any Shares held by them to the Company in the event that the Buyback Mandate is approved by its Shareholders.

Hong Kong Code of Takeovers and Mergers

If on the exercise of the Buyback Mandate, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of Rule 32 of the Hong Kong Code on Takeovers and Mergers (the “ Takeovers Code ”). As a result, a Shareholder or group of Shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with rules 26 and 32 of the Takeovers Code.

As at the Latest Practicable Date, Noble Resources Investments Limited was beneficially interested in 144,200,000 Shares representing approximately 16.2% of the issued share capital of the Company. In the event that the Directors exercise in full the Buyback Mandate, the shareholding of Noble Resources Investments Limited in the Company will be increased to approximately 18% of the issued share capital of the Company.

The Directors are not aware of any consequences which may arise under the Takeovers Code as a result of any repurchases made under the proposed resolution.

PROXY ARRANGEMENT

A form of proxy for use at the AGM is enclosed with the annual report for the year ended 30 June 2003. To be valid, the form of proxy must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of authority, must be lodged with the Company’s Branch Share Registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the AGM.

RESPONSIBILITY STATEMENT

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

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RECOMMENDATION

The Directors consider that the Bonus Issue, the granting of the Buyback Mandate and the granting and extension of the New Issue Mandate are in the best interests of the Company and the Shareholders. Accordingly, the Directors recommend Shareholders to vote in favour of the relevant resolutions to be proposed at the AGM.

Yours faithfully, Wang Dan Hui Chairman and Executive Director

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