Tencent Holdings Limited — Proxy Solicitation & Information Statement 2007

Feb 8, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this Circular or as to the action 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 Daqing Petroleum and Chemical Group Limited, you should hand this Circular at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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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)

(Stock Code: 362)

MAJOR TRANSACTION DISPOSAL OF A SUBSIDIARY

Financial Adviser to the Company

A letter from the Board is set out on pages 4 to 13 of this Circular.

A notice convening the extraordinary general meeting of the Company to be held at 4:30 p.m. on Tuesday, 27 February 2007 at Room 1818, 18th Floor, Hutchison House, 10 Harcourt Road, Hong Kong is set out on pages 24 to 25 of this Circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event not later than 48 hours before the time for the holding of the meeting or any adjournment thereof to the Company’s branch share registrar in Hong Kong, Tengis Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjournment thereof should you so wish.

8 February 2007

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The Supplemental Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Basis of the Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Information of Earlsmead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Financial Effects of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Reasons for the Disposal and proposed use of proceeds . . . . . . . . . . . . . . . . . . . .	10
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Procedures to Demand a Poll at the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
APPENDIX I — FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
APPENDIX II — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . .	24

DEFINITIONS

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

“Agreement”	the share purchase agreement dated 11 January 2007
	entered into between the Company and the Purchaser
	in relation to the sale and purchase of the entire issued
	share capital of Earlsmead and details of which is set
	out under the section headed “The Agreement” of this
	Circular
“associate”	has the meaning ascribed to it under the Listing Rules
“Black Bird”	Daqing Black Bird Chemical Co., Ltd., a Sino-foreign
	equity joint venture established in the PRC, 90% of its
	equity interest is owned by the Company
“Board”	the board of Directors
“Business Day”	a day, other than Saturday, on which licensed banks
	in Hong Kong are open for business throughout their
	normal business hours
“Circular”	a circular to be issued by the Company in relation to
	the Disposal
“Company”	Daqing Petroleum and Chemical Group Limited, a
	company incorporated in the Cayman Islands with
	limited liability and the shares of which are listed on
	the main board of the Stock Exchange
“Completion”	the completion of the Disposal pursuant to the terms
	and conditions of the Agreement
“Completion Date”	the day that is the third Business Day immediately
	following the date of satisfaction of the Conditions
“Conditions”	the conditions precedent to Completion, as more
	particularly set out under the sub-section headed
	“Conditions to Completion” of this Circular
“Consideration”	the consideration under the Agreement as more
	particularly set out under the sub-section headed
	“Consideration” of this Circular
“Directors”	the directors of the Company
“Disposal”	the disposal of the Sale Shares by the Company
	pursuant to the terms of the Agreement and
	Supplemental Agreements

– 1 –

DEFINITIONS

“Earlsmead”	Earlsmead Enterprises Limited, a company
	incorporated in the British Virgin Islands and is a
	wholly-owned subsidiary of the Company
“Earlsmead Group”	Earlsmead and its subsidiaries
“EGM”	the extraordinary general meeting of the Company to
	be held at 4:30 p.m. on Tuesday, 27 February 2007 at
	Room 1818, 18th Floor, Hutchison House, 10 Harcourt
	Road, Hong Kong to consider, and if thought fit, to
	approve, among other matters (if any), the Disposal
	and all transactions contemplated under the
	Agreement
“Group”	the Company and its subsidiaries
“Hong Kong”	The Hong Kong Special Administrative Region of the
	PRC
“Independent Third Party(ies)”	independent third party(ies) not connected with any
	of the directors, chief executives or substantial
	shareholders of the Company or any of its subsidiaries,
	or their respective associate (as defined in the Listing
	Rules)
“Latest Practicable Date”	5 February 2007, 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
“Ombudsman”	Ombudsman Developments Limited, a company
	incorporated in the British Virgin Islands, all of its
	interests are owned by the Company
“Parties”	the parties to the Agreement being the Company and
	the Purchaser
“PRC”	The People’s Republic of China, which for the purpose
	of this Circular, excludes Hong Kong, Macau and
	Taiwan
“Purchaser”	Starthigh Group Limited, a company incorporated in
	the British Virgin Islands

– 2 –

DEFINITIONS

“Sale Shares” the entire issued share capital of Earlsmead to be sold by the Company to the Purchaser pursuant to the terms and conditions under the Agreement “SFO” The Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) “Shareholder(s)” Shareholder(s) of the Company “Shareholder’s Loan” the shareholder’s loan in the sum of HK$109,025,133 owing by Earlsmead to the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “Supplemental Agreements” the two supplemental agreements to the Agreement between the Company and the Purchaser dated 16 January 2007 and 31 January 2007 respectively, in relation to the sale and purchase of the entire issued share capital of Earlsmead, details of which are set out under the section headed “the Supplemental Agreements” of this Circular “Tsai Hong” Tsai Hong Properties Limited, a company incorporated in the British Virgin Islands, all of its interests are owned by the Company “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

– 3 –

LETTER FROM THE BOARD

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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)

(Stock Code: 362)

Executive Directors: Ms. Chan Yuk Foebe Mr. Chiau Che Kong Mr. Peng Zhanrong

Independent non-executive Directors: Mr. Ma Wing Yun Bryan Mr. Meng Fanxi Mr. Yau Chung Hong

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Principal Place of Business: Room 1818, 18th Floor Hutchison House 10 Harcourt Road Central Hong Kong

8 February 2007

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION DISPOSAL OF A SUBSIDIARY

INTRODUCTION

On 11 January 2007, the Company entered into the Agreement with the Purchaser in relation to the disposal of the Sale Shares for a cash consideration of HK$350 million. In addition, the Company entered into the Supplemental Agreements with the Purchaser dated 16 January 2007 and 31 January 2007 respectively in relation to the sale and purchase of the entire issued share capital of Earlsmead and the Supplemental Agreements forms a part of and supplement to the Agreement.

The applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) for the Disposal are more than 25%, but less than 75%. Pursuant to Rule 14.06(3) of the Listing Rules, the Disposal constitutes a major transaction for the Company and is therefore subject to the notification and announcement requirements and the approval of the Shareholders. So far as the Directors are aware, no Shareholders are required to abstain from voting at the EGM in respect of the proposed resolution to approve the Agreement and all transactions contemplated under the Agreement.

– 4 –

LETTER FROM THE BOARD

The purpose of this Circular is to provide you with further details of the Agreement and the Supplemental Agreements in relation to the Disposal. A notice convening the EGM at which an ordinary resolution, amongst other resolutions, will be proposed for the approval of the Agreement and all transactions contemplated under the Agreement is set out on pages 24 to 25 of this Circular.

THE AGREEMENT

Date:

11 January 2007

Parties involved:

• (1) Vendor: The Company

• (2) Purchaser: Starthigh Group Limited, a company incorporated in the British Virgin Islands

To the Directors’ best knowledge, information and belief, having made all reasonable enquiry, the Purchaser and its ultimate beneficial owner are Independent Third Parties and are not connected persons (as defined under the Listing Rules) of the Company.

Asset to be disposed of

The Sale Shares represent the entire issued share capital of Earlsmead.

Earlsmead is a wholly-owned subsidiary of the Company. Earlsmead is the registered owner of the 100% of all the interest in Ombudsman and Tsai Hong. Earlsmead is also the registered owner of 90% of the equity interests in Black Bird and the remaining 10% of the equity interest in Black Bird is owned by an Independent Third Party.

Following completion of the Disposal, the Company will cease to hold any interests in Earlsmead and Earlsmead will cease to be a subsidiary of the Company.

– 5 –

LETTER FROM THE BOARD

The corporate structure of the Company showing its principal subsidiaries before and immediately after the Disposal is set out below:

Before the Disposal

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

Company
100% 100% 100% 100% 100% 100%
Earlsmead CaptureGold WorldwideCozy PowerfulRise ProsperPerfect QualityGain
Investment Ltd. Group Investment Investments
Inc. Limited Ltd. Limited
100% 90% 100%
Ombudsman Black Bird Tsai Hong
----- End of picture text -----

Immediately after the Disposal

Company

						Company	Company	Company	Company	Company	Company	Company	Company
	100%			100%			100%			100%			100%
Gold Capture Investment Inc.			Cozy Worldwide Ltd.			Powerful Rise Group Limited			Perfect Prosper Investment Ltd.			Quality Gain Investments Limited

Gold Capture Investment Inc., Cozy Worldwide Ltd., Powerful Rise Group Limited, Perfect Prosper Investment Ltd. and Quality Gain Investments Limited are the other principal subsidiaries of the Company and engaged in the manufacture and sale of coal-related chemical products, bio-chemical products and generation and sale of heat and electricity.

– 6 –

LETTER FROM THE BOARD

Consideration

The Consideration for the Sale Shares of HK$350 million for the Disposal will be settled in cash by the Purchaser in the following manner:

• (i) HK$100 million is to be paid upon Completion; and

• (ii) the remaining balance of HK$250 million is to be paid within 3 months from the Completion Date.

Further details of the basis of determining the Consideration are stated under the section headed “Basis of the Consideration” below.

Conditions to Completion

Completion of the Disposal is conditional upon the fulfillment of the following conditions:

• (i) obtaining of all consents which is necessary or desirable for the implementation of the transactions contemplated by the parties under the Agreement, including without limitation, approval of the shareholders of the Vendor, if required, in relation to the Agreement and the transaction contemplated hereunder and any other approvals or notifications required pursuant to the requirements of the Listing Rules; and

• (ii) completion of legal, financial and business due diligence in respect of the Company, Black Bird, Ombudsman and Tsai Hong by the Purchaser.

In the event that the Conditions are not satisfied or waived on or before 31 March 2007 or such later date as the Vendor and the Purchaser may agree, this Agreement shall lapse and no party hereto shall make any claim against the other hereof, save for antecedent breach.

Completion

The Agreement provides that Completion will take place on the Completion Date.

– 7 –

LETTER FROM THE BOARD

THE SUPPLEMENTAL AGREEMENTS

On 16 January 2007, the Company and the Purchaser entered into a supplemental agreement in relation to the sale and purchase of Earlsmead. Pursuant to such supplemental agreement, upon Completion, the Company has agreed to waive all their rights, interest and title present and future in respect of the Shareholder’s Loan of HK$109,025,133 owing by Earlsmead to the Company.

On 31 January 2007, the Company and the Purchaser entered into another supplemental agreement to clarify some typographical errors in the Agreement and the first supplemental agreement that, inter alia , all references to “Starhigh Group Limited” or the Purchaser in the Agreement and the supplemental agreement dated 16 January 2007 shall mean “Starthigh Group Limited”. The Directors have reviewed the terms of the second supplemental agreement and consider that the second supplemental agreement serves as a clarification of typographical errors only. Hence, the Directors confirm that the second supplemental agreement does not cause any material changes to the terms of the Agreement and the supplemental agreement dated 16 January 2007.

BASIS OF THE CONSIDERATION

The Consideration for the Sale Shares of HK$350 million for the Disposal was determined after arm’s length negotiations between the Parties with reference to the unaudited net assets value of the Earlsmead Group as at 30 November 2006 and the amount of the Shareholder’s Loan. The Consideration for the Sale Shares of HK$350 million for the Disposal represents:

• (i) a discount of approximately 26.93% to the aggregate of the audited net assets value of the Earlsmead Group as at 30 June 2006 of approximately HK$370 million and the Shareholder’s Loan to be waived of approximately HK$109 million; and

• (ii) a discount of approximately 12.06% to the aggregate of the unaudited net assets value of the Earlsmead Group as at 30 November 2006 of approximately HK$289 million and the Shareholder’s Loan to be waived of approximately HK$109 million.

INFORMATION OF THE GROUP

The Group is principally engaged in the manufacture and sale of petroleum refined products, coal-related chemical products, bio-chemical products, and generation and sale of heat and electricity. Petroleum refined products of the Group includes lubricants and anti-corrosive coating products. Coal-related chemical products comprise vinyl acetate (“VA”) products and polyvinyl-chloride (“PVC”) products. Bio-chemical products include corn-based starch and glucose products.

– 8 –

LETTER FROM THE BOARD

INFORMATION OF THE PURCHASER

Starthigh Group Limited, a company incorporated in the British Virgin Islands. The principal activity of the Purchaser is investment holding. The Purchaser and its ultimate beneficial owner are Independent Third Parties and are not connected persons (as defined under the Listing Rules) of the Company.

INFORMATION OF EARLSMEAD

Earlsmead, a wholly-owned subsidiary of the Company, is a company incorporated in the British Virgin Islands and its principal activity is investment holding. The Earlsmead Group is principally engaged in the petroleum refined products business consist of lubricants and anti-corrosive coating production. The investments of Earlsmead are its 100% interests in Ombudsman and Tsai Hong respectively, and 90% of the equity interest in Black Bird.

Based on the audited financial accounts of the Group and the Earlsmead Group, which are prepared in accordance with accounting principles generally accepted in Hong Kong, the following tables show (i) the Earlsmead Group’s contribution to the Group’s turnover, net profit (before and after taxation) for the two years ended 30 June 2006; and (ii) the Earlsmead Group’s contribution to the Group’s total assets and net assets value as at 30 June 2005 and 2006. A summary of the audited consolidated income statements and consolidated balance sheet of the Earlsmead Group for the two years ended 30 June 2006 is set out in Appendix I of this Circular.

		For	the year ended 30 June	the year ended 30 June	the year ended 30 June
		2006			2005
	Earlsmead			Earlsmead
	Group	Group		Group	Group
	HK$’000	HK$’000	%	HK$’000	HK$’000	%
Turnover	297,304	767,225	38.8	610,147	694,091	87.9
Net profit before taxation	30,322	120,602	25.1	111,761	115,522	96.7
Net profit after taxation	25,981	113,294	22.9	93,718	99,788	93.9
			As at 30 June
		2006			2005
	Earlsmead			Earlsmead
	Group	Group		Group	Group
	HK$’000	HK$’000	%	HK$’000	HK$’000	%
Total assets	555,791	1,200,574	46.3	530,781	752,204	70.6
Net assets value	369,509	1,014,340	36.4	337,483	586,010	57.6

– 9 –

LETTER FROM THE BOARD

Results of the Earlsmead Group for the year ended 30 June 2006 reflects decrease in turnover and net profit (before and after tax) from that of the same period in previous year and it was attributable to the following reasons:

• intense competition has resulted in high and unstable raw material price, which could only be partially passed on to the customers; and

• some medium to large competitors continued to make use of the economies of scale and their brand names to increase their market share.

The significant decrease in the unaudited net assets value of the Earlsmead Group of approximately HK$289 million as at 30 November 2006 from the net assets value of the Earlsmead Group of approximately HK$370 million as at 30 June 2006 reflects that the Earlsmead Group has incurred an unaudited net loss of approximately HK$86 million for the 5 months ended 30 November 2006.

FINANCIAL EFFECTS OF THE DISPOSAL

Based on the unaudited management accounts of the Earlsmead Group for the 5 months ended 30 November 2006 and the Consideration, the Directors estimated that, upon Completion, the Group will record a loss on disposal of approximately HK$48.5 million, which will be reflected in the consolidated profit and loss account of the Group for the year ended 30 June 2007. The estimated loss on disposal of approximately HK$48.5 million represents the difference between the Consideration and the unaudited net assets value of the Earlsmead Group as at 30 November 2006, adjusted for the Shareholder’s Loan. Shareholders should note that the actual loss on disposal to be recorded by the Group will depend on the net assets value of the Earlsmead Group as at the Completion Date and subject to auditor’s review. Taking into account the estimated loss on disposal, the Directors anticipated that the Disposal, immediately upon Completion, will decrease both the Group’s consolidated assets and the Group’s consolidated liabilities. The Directors believe that the Disposal would have no negative impact on the business and the operations of the Group.

REASONS FOR THE DISPOSAL AND PROPOSED USE OF PROCEEDS

The Directors consider the terms of the Agreement and Supplemental Agreements, which were negotiated on an arm’s length basis between the Parties are fair and reasonable, and in the interest of the Group and its Shareholders as a whole despite the Group will incur an estimated loss on disposal of approximately HK$48.5 million after Completion. The Group’s petroleum refined division has been operating in a very high operating cost environment. The crude oil prices attained at successive record highs, this in turn caused the prices of most petrochemical downstream materials to rise. Some of these materials even encountered occasional supply shortage as most of the crude oil was refined into other petrochemical upstream materials such as gasoline. The Group’s petroleum refined products business can only pass a small portion of the cost increment to its customers and thus adversely affects the profit margin of the Earlsmead Group. Based on the audited financial accounts of the Earlsmead Group for the year ended 30 June 2006, the net profit margin of the Earlsmead Group is approximately 8.7%, representing a significant decrease of about 43.1% over the corresponding period of previous year.

– 10 –

LETTER FROM THE BOARD

Other than the fluctuations in crude oil prices and shortage in raw materials supply, intense competition in the petroleum refined industry also contributed to the deteriorated performance of the petroleum refined division of the Group in the second half of 2006. The Directors expect the petroleum refined product business of the Group will experience even tougher operation environment in the foreseeable future as the prices of lubricants and anti-corrosive coating products generally lag behind crude oil prices. Thus, the Directors consider the Disposal represents a good opportunity for the Group to dispose of the petroleum refined products business and provide additional resources to other Group’s core businesses including coal-related chemical products and bio-chemical products, which the Directors believe to have a higher growth potential.

The production and sales of coal-related chemical products, including VA and PVC, generated remarkable profits to the Group in 2006. Based on the 2006 annual report of the Group, the operating profit margin of the coal-related chemical division of the Group is approximately 23.5% for the year ended 30 June 2006, representing a significant increase of about 41.7% over the corresponding period of previous year. Furthermore, the Group has began the trial run production of starch and glucose for the bio-chemical division and the prices of starch and glucose have been increasing steadily from the end of 2004 and are still rising in the PRC. Based on the aforesaid, the Directors are optimistic on the prospects of the coal-related chemical products and bio-chemical products industries and believe it is the right direction of the Group to expand in such industries to achieve expeditive development and a sustainable growth for the future.

During the commercial negotiation stage of the Disposal between the Parties, it was a mutual understanding of the Parties that all the interests in the Earlsmead Group will be sold by the Company to the Purchaser at the Consideration of HK$350 million and the Company has all along intends to waive the Shareholder’s Loan immediately before or upon Completion. After conducting due diligence on the Earlsmead Group, the Purchaser would like to specify the mechanics for dealing with the Shareholder’s Loan to ensure that all the interests in the Earlsmead Group will be transferred upon Completion. As such, the Company and the Purchaser entered into the supplemental agreement dated 16 January 2007 to specify such mechanics that the Company will waive all its rights, interest and title in respect of the Shareholder’s Loan. Despite the Company will waive the Shareholder’s Loan upon Completion and incur an estimated loss on disposal of approximately HK$48.5 million after Completion, the Directors have considered the recent poor financial performance of the Earlsmead Group and are of view that the Disposal is fair and reasonable and in the interest of the Company and its Shareholders as a whole.

The estimated net proceeds of the Disposal is approximately HK$350 million and is intended to be used in the following manner:

• as to approximately HK$180 million will be applied to settle a final payment of the Company’s acquisition of a power plant in October 2006, details of the acquisition were disclosed in the circular of the Company dated 20 November 2006; and

– 11 –

LETTER FROM THE BOARD

• the remaining balance of approximately HK$170 million will be applied for additional working capital for the Group’s existing businesses and new PVC products.

IMPLICATIONS UNDER THE LISTING RULES

The applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) for the Disposal are more than 25%, but less than 75%. Pursuant to Rule 14.06(3) of the Listing Rules, the Disposal constitutes a major transaction for the Company and is therefore subject to the notification and announcement requirements and the approval of the Shareholders. So far as the Directors are aware, no Shareholders are required to abstain from voting at the EGM in respect of the proposed resolution to approve the Agreement and all transactions contemplated under the Agreement.

EGM

Set out on pages 24 and 25 of this Circular is a notice convening the EGM to be held at Room 1818, 18th Floor, Hutchison House, 10 Harcourt Road, Hong Kong on Tuesday, 27 February 2007 at 4:30 p.m. for the purpose of considering, and if thought fit, pass the resolution to approve the Agreement and all transactions contemplated under the Agreement.

A form of proxy is herewith enclosed for use at the EGM. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tengis Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible and, in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

PROCEDURES TO DEMAND A POLL AT THE EGM

Pursuant to Article 72 of the articles of association of the Company at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is required by the Listing Rules or (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

• (a) by the Chairman of the meeting; or

• (b) by at least three Shareholders present in person (or, in case of a Shareholder being a corporation, by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting; or

– 12 –

LETTER FROM THE BOARD

• (c) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meetings; or

• (d) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right; or

• (e) if required by the Listing Rules, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five per cent (5%) or more of the total voting rights at such meeting.

RECOMMENDATION

The Directors consider that the terms of the Disposal are fair and reasonable and in the best interests of the Company and Shareholders as a whole. The Directors recommend Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Agreement and all transactions contemplated under the Agreement.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this Circular.

Yours faithfully By order of the Board of

Daqing Petroleum and Chemical Group Limited Chan Yuk Foebe Executive Director

– 13 –

APPENDIX I

FINANCIAL INFORMATION

1. SUMMARY OF FINANCIAL INFORMATION OF THE EARLSMEAD GROUP

The following is a summary, for information only, of the audited consolidated income statement and consolidated balance sheet of the Earlsmead Group for the two years ended 30 June 2006:

Consolidated Income Statement

TURNOVER Cost of sales Gross profit Other income Gain on disposal of subsidiaries Selling and distribution costs Administrative expenses Other operating expenses OPERATING PROFIT Finance costs PROFIT BEFORE TAX Tax PROFIT FOR THE YEAR Attributable to: Equity holders of the Company Minority interests	For the year ended 30 June (Restated)(Note) 2006 2005 HK$’000 HK$’000 297,304 610,147 (250,571) (467,908) 46,733 142,239 2,878 1,673 5,359 – (5,265) (7,689) (13,448) (23,419) (5,935) (859) 30,322 111,945 – (184) 30,322 111,761 (4,341) (18,043) 25,981 93,718 23,862 83,995 2,119 9,723 25,981 93,718

– 14 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated Balance Sheet

ASSETS Non-current assets Fixed assets Land use rights Intangible assets Deposit paid for the establishment of a proposed joint venture Current assets Inventories Trade receivables Prepayments, deposits and other receivables Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Due to ultimate holding company Trade payables Other payables and accruals Tax payable TOTAL LIABILITIES EQUITY Capital and reserves attributable to equity holders of the Company Issued capital Retained profits Other reserves Minority interests TOTAL EQUITY Total equity and liabilities Net current assets Total assets less current liabilities	As at 30 2006 HK$’000 89,533 25,596 – 5,206 120,335 65,350 48,351 38,973 282,782 435,456 555,791 108,825 1,196 4,369 31,148 145,538 1 351,343 18,165 369,509 40,744 410,253 555,791 289,918 410,253	June (Restated)(Note) 2005 HK$’000 86,969 25,377 4,953 5,140 122,439 108,614 160,213 20,307 119,208 408,342 530,781 103,315 7,318 5,243 40,247 156,123 1 337,177 305 337,483 37,175 374,658 530,781 252,219 374,658

Note: During the year ended 30 June 2006, the Group adopted all the new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are relevant to its operations and effective for accounting periods beginning on or after 1 January 2005. The adoption of these new and revised HKFRSs resulted in certain changes to the Group’s accounting policies and amounts reported for the year ended 30 June 2005.

– 15 –

APPENDIX I

FINANCIAL INFORMATION

2. FINANCIAL AND TRADING PROSPECTS

The Group will continue to focus and devote more resources to the development of coal-related chemical products division and continue to strengthen its position in this area. The Group first vinyl acetate plant in Mudanjiang is the first and only plant in the PRC uses a coal based production technique of calcium carbide methodology (電石法化工 工藝方法 ) to produce vinyl acetate in superior quality (concentration greater than 99.98%). The Group vinyl acetate plant is operating far more cost efficient than other plants adopt the production technique of ethylene methodology (乙烯法化工工藝方法 ), in particular during high crude oil price period. Owing to the relatively stable coal prices and production efficiency of the calcium carbide methodology, the VA business has performed remarkably well since operation. The Group is confident of the VA business and started the second phase expansion to increase the VA production capacities by 15,000 tons in September 2006.

Following the success of the VA business, the Group continued to explore business opportunities in the coal-related chemical sector and stepped up in the PVC business. The Group has successfully acquired assets including land, plants and production facilities of the Mudanjiang PVC Factory through a tender in May 2005. Subsequently in September 2005, the Group formally took over the assets and related operations of the Mudanjiang PVC factory. The fruitful results from the operation of the PVC business so far has proven success of the Group’s direction of migrating from petroleum related chemical production methodology to coal-related chemical production methodology.

The Group has noticed the demand for PVC materials is high in developed countries and PRC is currently moving from developing country towards developed country, the expected demand for PVC materials in PRC is substantial. In view of this, the Group has started to construct a new PVC production line aiming at producing high-grade PVC materials in April 2006. It is expected that the high-grade PVC production line will be completed in early 2007. The profit margin of high-grade PVC material is greater than the existing PVC materials and the PVC business is expected to yield considerable profits for our Group in the coming years.

The Group has successfully acquired the entire share capital of Better Day BioChem Technology Limited (“Better Day Bio-Chem”) on 16 August 2006. The substance of the acquisition is the purchase of assets and equipment which include glucose and starch production facilities. The purchased corn-processing plant is the largest facilities in the Heilongjiang province in the PRC. With suitable economy scale of the production and abundant inexpensive supply of corn, the starch and glucose products will have market competitiveness. The refurbishments of the glucose and starch production facilities were completed in August 2006 and November 2006. The trial productions of glucose and starch have been launched in September 2006 and December 2006 respectively. The glucose and starch production facilities are expected to provide contributions to the Group in the near future. Furthermore, feasibilities studies have been conducted to explore other opportunities to make use of the other production facilities being purchased to produce other downstream bio-chemical products.

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APPENDIX I

FINANCIAL INFORMATION

The Group entered into an agreement to acquire Better Day Power Ltd., the steam and electricity supplier to the coal-related chemical products division and the bio-chemical products division of the Group. The acquisition of Better Day Power Ltd. was completed on 8 January 2007 and it can ensure stable source of the principal inputs and lower the cost of production for both divisions, as well as provide contribution to the Group from supplying steam to other plants and electricity to State power grid in the Mudanjiang area in the Heilongjiang Province in the PRC.

In the years ahead, coal-related chemical business and bio-chemical business will remain the strategic focus of the Group. The Group will continue to explore business opportunities to expand, acquire or merge with other coal-related chemical factories and businesses in the northeastern region of the PRC to further expand its upstream and downstream businesses and establish a high value added production chain for coal-related chemical products.

3. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 December 2006, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this Circular, the Group had total outstanding secured bank loan of approximately HK$25 million. The secured bank loan was secured by charges over certain fixed assets and land use rights of the Group with net aggregate carrying amount of approximately HK$87 million as at 31 December 2006.

Save as aforesaid and apart from intra-group liabilities and normal accounts payable in the ordinary course of business of the Group, as at the close of business on 31 December 2006, the Group did not have any material outstanding indebtedness in respect of any mortgages, charges or debentures, loan capital, bank overdrafts, loans, debt securities, liabilities under acceptances or acceptance credits or other similar indebtedness, or hire purchase commitments, finance lease commitments, guarantees or contingent liabilities.

4. WORKING CAPITAL

The Directors are of the opinion that, taking into consideration the financial resources available to the Group including the internally generated funds, the present banking and other facilities and the estimated net proceeds from the Disposal, the Group will have sufficient working capital for the next twelve months from the date of this Circular.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Company since 30 June 2006, the date to which the latest published audited financial statements of the Company were made up.

– 17 –

APPENDIX II

GENERAL INFORMATION

1. 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 jointly and severally 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, opinions expressed in this Circular have been arrived at after due and careful consideration and there are no other facts not contained in this Circular the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors’ Interests in Securities

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the Shares, underlying shares and debentures of the Company and its associated corporation (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules were as follows:

Interests in the Shares and underlying Shares

			Number of Shares held
	Name of		(long position) (% of issued		Share
Name of director	company	Type of interest	capital of the Company)		options held
Ms. Chan Yuk Foebe	The Company	Beneficial Interest	Nil	–	14,753,571
(Note 1)
Mr. Chiau Che Kong	The Company	Beneficial Interest	9,000,000 0.29%		Nil
(Note 2)

Notes:

1. Ms. Chan Yuk Foebe is a non-executive director of Heng Tai Consumables Group Limited and is a director of Master Oriental Limited, both are substantial shareholders of the Company.

2. Mr. Chiau Che Kong, is an executive director of Heng Tai Consumables Group Limited, a substantial shareholder of the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had or was deemed to have any interest or short position in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock

– 18 –

APPENDIX II

GENERAL INFORMATION

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO) which has been recorded in the register maintained by the Company pursuant to section 352 of the SFO or which has been notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

Substantial Shareholders

Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the following persons (not being a Director or chief executive of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under provisions of Divisions 2 and 3 of Part XV of the SFO or were directly or indirectly interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of the following subsidiaries of the Company:

Interests in the Shares and underlying Shares

			Extent of
Name	Address	No. of Shares	Holding
Heng Tai	Century Yard	441,060,000(L)	13.99%
Consumables	Cricket Square
Group Limited	Hutchins Drive
(Note 1)	P.O. Box 2681 GT
	George Town
	Grand Cayman
	British West Indies
Master Oriental	31/F., Guangdong	441,060,000(L)	13.99%
Limited_(Note 1)_	Finance Building
	88 Connaught Road West
	Sheung Wan
	Hong Kong
Chan Yuen Tung	N/A	441,683,573(L)	14.01%
Metage Capital Limited	10 Upper Bank Street	359,475,000(L)	11.40%
	London, E14 5JJ
	United Kingdom
Mr. Webb Richard Ian	N/A	359,475,000(L)	11.40%
Pope Asset	5100 Poplar Avenue	306,662,500(L)	9.73%
Management, LLC	Suite 512, Memphis
	TN 38137

– 19 –

APPENDIX II

GENERAL INFORMATION

			Extent of
Name	Address	No. of Shares	Holding
UBS AG	Bahnhofstrass E 45	316,800,000(L)	10.05%
	8098 Zurich	73,995,000(S)	2.35%
	Switzerland
Deutsche Bank	Taunusanlage 12	318,955,000(L)	10.12%
Aktiengesellschaft	Frankfurt, 60325
	Germany
QVT Financial GP	527 Madison Avenue	278,955,000(L)	8.85%
LLC_(Note 2)_	8th Floor, New York
	New York 10022, USA
QVT Financial LP	527 Madison Avenue	278,955,000(L)	8.85%
(Note 2)	8th Floor
	New York 10022
	USA
QVT Associates	527 Madison Avenue	245,732,406(L)	7.80%
GP LLC_(Note 3)_	8th Floor
	New York 10022
	USA
QVT Fund LP_(Note 3)_	Walkers SPV	245,732,406(L)	7.80%
	Walkers House
	P.O. Box 908 GT
	Mary Street
	George Town
	Grand Cayman
	Cayman Islands
Polygon Global	P.O. Box 309 GT	310,500,000(L)	9.85%
Opportunities	Ugland House
Master Fund	South Church Street
(Note 4)	George Town
	Grand Cayman
	Cayman Islands, BWI
Polygon Investment	10 Duke of York Square	310,500,000(L)	9.85%
Partners LLP	London
(Note 4)	United Kingdom
	SW3 4LY
Polygon Investment	615 South Dupont	310,500,000(L)	9.85%
Partners LP	Highway, Dover
(Note 4)	Kent County
	Delaware 19901

– 20 –

APPENDIX II

GENERAL INFORMATION

Notes:

1. Master Oriental Limited, a company incorporated in Hong Kong, is a wholly-owned subsidiary of Heng Tai Consumables Group Limited. In accordance with the SFO, the interests of Master Oriental Limited are deemed to be, and have therefore been included in the interests of Heng Tai Consumables Group Limited.

2. QVT Financial GP LLC is deemed to be interested in the Shares through its controlled corporation, QVT Financial LP. In accordance with the SFO, the interests of QVT Financial LP are deemed to be, and have therefore been included in the interests of QVT Financial GP LLC.

3. QVT Associates GP LLC is deemed to be interested in the Shares through its controlled corporation, QVT Fund LP. In accordance with the SFO, the interests of QVT Fund LP are deemed to be, and have therefore been included in the interests of QVT Associates GP LLC.

4. Each of Polygon Investment Partners LLP and Polygon Investment Partners LP acts as an investment manager of Polygon Global Opportunities Master Fund. In accordance with the SFO, the interests of Polygon Global Opportunities Master Fund are deemed to be, and have therefore been included in each of the interests of Polygon Investment Partners LLP and Polygon Investment Partners LP.

Save as disclosed above, none of the Directors or chief executive of the Company are aware of any person (other than the Directors or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

3. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service agreement with any member of the Group which will not expire or is not determinable within one year without payment of compensation (other than statutory compensation).

4. INTEREST IN ASSETS

The Directors confirm that none of the Directors have any interest, direct or indirect, in any assets which had been, since 30 June 2006, being the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

– 21 –

APPENDIX II

GENERAL INFORMATION

5. INTEREST IN CONTRACTS

The Directors confirm that there is no contract or arrangement subsisting at the Latest Practicable Date in which a Director was materially interested and which was significant in relation to the business of the Group.

6. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates have any competing interests in a business, which competes or may compete, either directly or indirectly with the business of the Company pursuant to the Listing Rules.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of this Circular and are or may be material:

• (a) the Agreement and the Supplemental Agreements;

• (b) the underwriting agreement dated 23 November 2006 between the Company and VC Brokerage Limited, details of which were disclosed in the Company’s announcement dated 23 November 2006;

• (c) the share purchase agreement dated 27 October 2006 between the Group and Expert Star Group Limited, details of which were disclosed in the Company’s announcement dated 3 November 2006;

• (d) the share purchase agreement dated 18 May 2006 between the Group and Better Day Group Limited, details of which were disclosed in the Company’s announcement dated 19 May 2006;

• (e) the placing agreement dated 3 May 2006 between the Company, VC Brokerage Limited and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 3 May 2006;

• (f) the top-up subscription agreement dated 3 May 2006 between the Company and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 3 May 2006;

• (g) the placing agreement dated 5 April 2006 between the Company, VC Brokerage Limited and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 6 April 2006;

• (h) the top-up subscription agreement dated 5 April 2006 between the Company and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 6 April 2006;

– 22 –

APPENDIX II

GENERAL INFORMATION

• (i) the placing agreement dated 22 June 2005 between the Company, Kim Eng Securities (Hong Kong) Limited and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 24 June 2005; and

• (j) the top-up subscription agreement dated 22 June 2005 between the Company and Master Oriental Limited, details of which were disclosed in the Company’s announcement dated 24 June 2005.

8. LITIGATION

As at the Latest Practicable Date, 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 is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

9. GENERAL

The English text of this Circular shall prevail over the Chinese text for the purpose of interpretation.

Mr. Tsang Chiu Hung, Victor is the Company secretary and the qualified accountant of the Company appointed under Rule 3.24 of the Listing Rules. He is an associate member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at Room 1818, 18th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, during 10:00 a.m. to 4:00 p.m. on any Business Day, from the date of this Circular up to and including Monday, 26 February 2007:

• (a) the memorandum and articles of association of the Company;

• (b) the annual reports of the Group for the three financial years ended 30 June 2006;

• (c) the audited report and financial statements of the Earlsmead Group for the two financial years ended 30 June 2006;

• (d) the material contracts referred to under the section headed “Material contracts” in this appendix;

• (e) this Circular;

• (f) the circular of the Company dated 7 July 2006 involving a major transaction in relation to the acquisition of Better Day Bio-chem Technology Ltd; and

• (g) the circular of the Company dated 20 November 2006 involving a discloseable transaction in relation to the acquisition of Better Day Power Ltd.

– 23 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [62 x 42] intentionally omitted <==

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)

(Stock Code: 362)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN (the “Notice”) that an EGM of Daqing Petroleum and Chemical Group Limited (the “Company”) will be held at Room 1818, 18th Floor, Hutchison House, 10 Harcourt Road, Hong Kong, on Tuesday, 27 February 2007 at 4:30 p.m. for the purpose of considering and if thought fit, passing (with or without amendments) the following ordinary resolution of the Company:

ORDINARY RESOLUTION

1. “ THAT:

the share purchase agreement dated 11 January 2007 as supplemented by two supplemental agreements dated 16 January 2007 and 31 January 2007 respectively (the “Agreement”) entered into between the Company and Starthigh Group Limited in relation to the disposal of the entire issued share capital of Earlsmead Enterprises Limited, a wholly-owned subsidiary of the Company and transactions contemplated thereunder, subject to the terms and conditions thereunder and described in the circular issued by the Company dated the same date of this notice, be hereby approved and ratified and any one director of the Company be and is hereby authorised to do such things or make such arrangements as he or she may in his or her sole discretion think fit to give effect to the completion of the Agreement.”

By order of the Board of

Daqing Petroleum and Chemical Group Limited Chan Yuk Foebe Executive Director

Hong Kong, 8 February 2007

– 24 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

• (a) The members of the Company whose names appear on the register of members held by the Company’s branch share registrar in Hong Kong, Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong at 4:00 p.m. on 23 February 2007 shall qualify for attending and voting at the extraordinary general meeting.

• (b) A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote on his behalf. A proxy need not be a member of the Company.

• (c) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or other authority, must be lodged with the Company’s branch share registrar in Hong Kong, Tengis Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Hong Kong not later than 48 hours before the time fixed for holding the meeting or at any adjournment thereof.

– 25 –