Tencent Holdings Limited - Proxy Solicitation & Information Statement 2011

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 a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Zenith Chemical Group Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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.

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

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

A letter from the board of directors of the Company is set out on pages 5 to 14 of this circular. A letter from the Independent Board Committee (as defined herein) to the Independent Shareholders is set out on pages 15 to 16 of this circular. A letter from Veda Capital (as defined herein), containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders of the Company, is set out on pages 17 to 26 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong, on Monday, 5 December 2011 at 4:30 p.m. is set out on pages 35 to 36 of this circular. Whether or not you intend to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and lodge the same with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event 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 in person at the meeting or any adjournment thereof should you so wish.

18 November 2011

CONTENT

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . .	15
LETTER FROM	VEDA CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
APPENDIX I	– VALUATION REPORT ON THE PROPERTY . . . . . . . . . . .	27
APPENDIX II	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	31
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		35

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms have the corresponding definitions listed below:

“Acquisition”
the transaction contemplated under the Share Purchase Agreement, including without limitation, the acquisition of the Sale Shares and the purchase of the Sale Shareholder’s Loan;
“Announcement”
the announcement of the Company dated 8 September 2011 in relation to the Acquisition;
“Articles”
the articles of association of the Company;
“associate(s)”
has the meaning ascribed thereto under the Listing Rules;
“Board” the board of Directors;
“Business Day”
a day (other than a Saturday, Sunday or public holiday in Hong Kong) on which banks are open for ordinary face-to-face banking business in Hong Kong;
“BVI”
the British Virgin Islands;
“Company”
China Zenith Chemical Group Limited 中國天化工集團有限公司, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the main board of the Stock Exchange;
“Completion” completion of the Transaction;
“Completion Date”
the day that is the third Business Bay after the day on which the last of the conditions of the Share Purchase Agreement have been satisfied or waived or such other day as the Purchaser may agree;
“connected person(s)”
has the meaning as ascribed to it in the Listing Rules;
“Consideration”
the consideration for the transaction contemplated under the Share Purchase Agreement;
“Director(s)”
director(s) of the Company;

– 1 –

DEFINITIONS

“EGM” the extraordinary general meeting of the Company to be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong on Monday, 5 December 2011 at 4:30 p.m. to approve the Acquisition, notice of which is set out on pages 35 to 36 of this circular;

“Group” the Company and its subsidiaries;
“HK$” Hong Kong dollars, the lawful currency of Hong Kong;
“HKFRS” Hong Kong Financial Reporting Standards;
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;
“Independent Board a committee of the Board established for the purpose Committee” of considering the Acquisition set out in this circular, comprising the independent non-executive Directors who are independent in respect of the relevant transaction;
“Independent Financial Advisor” or “Veda Capital”
Veda Capital Limited, a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders;
“Independent Shareholders”
any shareholder of the Company that is not required to abstain from voting at the extraordinary general meeting to approve the Acquisition;
“Independent Third Party(ies)”
a party(ies) who is/are independent of and is/are not connected with any of the directors, chief executives or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates;
“Latest Practicable Date”
15 November 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;
“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange;

– 2 –

DEFINITIONS

“PRC”
“Property”
“Purchaser”
“Racing Dragon”
“RMB”
“Sale Shares”
“Sale Shareholder’s Loan”
“SFO”
“Share Purchase Agreement”
“Shareholders”
“Stock Exchange”
the People’s Republic of China, excluding for the purpose of this circular only, Hong Kong, the Macau Special Administrative Region and Taiwan;
the land located at 黑龍江省黑河邊境經濟合作區西南工業區 (the south-western industrial zone of Heilongjiang Province Heihe Border Economic Cooperation Zone) which is for industrial purpose with a size of approximately 1,000,000 square metres. The piece of land is approximately in L-shape, from north to south ranging from approximately 325.0 metres to approximately 851.2 metres and from east to west ranging from approximately 399.7 metres to approximately 1,763.4 metres;
Dragon Boom Investments Limited (龍盛投資有限公司), a company incorporated in the BVI with limited liability and is a wholly-owned subsidiary of the Company;
Racing Dragon Group Limited (爭龍集團有限公司), a company incorporated under the laws of the BVI with limited liability;
Renminbi yuan, the lawful currency of the PRC;
12 shares with a par value of US$1 each in the share capital of the Racing Dragon, representing 12% of the issued share capital of the Racing Dragon;
indebtedness in the amount of HK$22,670,000 owing by Racing Dragon to the Vendor as of the date of the Share Purchase Agreement;
the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong;
the share purchase agreement dated 8 September 2011 entered into between the Vendor and the Purchaser in relation to the sale and purchase of the Sale Shares, and the sale and purchase of the Sale Shareholder’s Loan;
shareholders of the Company;
The Stock Exchange of Hong Kong Limited;

– 3 –

DEFINITIONS

“US$” US dollars, the lawful currency of the United States of America; “Valuation Date” 30 September 2011, being the assessment date adopted by the Valuer in the valuation report;

“Valuer” Castores Magi (Hong Kong) Limited; “Vendor” Hope High Holdings Limited, a company incorporated in the BVI with limited liability;
“WFOE” 黑河龍江化工有限公司 (Heihe Longjiang Chemical Co. Ltd.), a wholly foreign-owned enterprise established by Racing Dragon in the PRC; and
“%” per cent.

– 4 –

LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

Executive Directors: Chan Yuen Tung (Chairman) Chan Yuk Foebe Chiau Che Kong Peng Zhanrong Wu Jianwei

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

Independent non-executive Directors: Ma Wing Yun Bryan Tam Ching Ho Wong Sin Just Wong Sin Lai

Principal Place of Business: Unit 1101–12 Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong

18 November 2011

To the shareholders of the Company

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

A. INTRODUCTION

Reference is made to the Announcement in relation to the Acquisition. On 8 September 2011, the Purchaser, a wholly-owned subsidiary of the Company, entered into the Share Purchase Agreement with the Vendor, pursuant to which the Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Shares and the Sale Shareholder’s Loan. Racing Dragon is the legal and beneficial owner of the entire equity interest in the WFOE.

Upon Completion and assuming that the resolutions in relation to the Acquisition has passed, the Purchaser will own 67% of the issued share capital of Racing Dragon.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further details of the Acquisition; (ii) the letter from the Independent Board Committee with its recommendation to the Independent Shareholders; (iii) a letter from Veda Capital containing its advice to the Independent Board Committee and the Independent Shareholders; and (iv) the notice of the EGM.

B. THE SHARE PURCHASE AGREEMENT

Background

The chart below illustrates the shareholding structure of the WFOE immediately prior to the Acquisition:

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

The Company
100%
Other
Vendor Purchaser
Shareholder
10% 35% 55%
Racing Dragon
100%
WFOE
----- End of picture text -----

The chart below illustrates the shareholding structure of the WFOE upon the Acquisition and assuming that the shareholder’s resolutions in relation to the Acquisition has passed:

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

The Company
100%
Other
Vendor Purchaser
Shareholder
10% 23% 67%
Racing Dragon
100%
WFOE
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– 6 –

LETTER FROM THE BOARD

Principal Terms of the Share Purchase Agreement

1. Date:

8 September 2011

2. Parties:

Vendor: Hope High Holdings Limited, a connected person of the Company.

Purchaser: Dragon Boom Investments Limited, a wholly-owned subsidiary of the Company.

3. Sale and Purchase of the Sale Shares and the Sale Shareholder’s Loan

The Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Shares and the Sale Shareholder’s Loan. Racing Dragon is the legal and beneficial owner of the entire equity interest in the WFOE.

4. Consideration

The total consideration for the Acquisition is HK$62 million, being HK$39,330,000 for the Sale Shares and HK$22,670,000 for the Sale Shareholder’s Loan. The total consideration has been arrived at between the parties after arm’s length negotiations taken into account the unaudited net asset value of the WFOE as at 31 July 2011 and the potential benefits that may be obtained by the Company as a result of the Acquisition. Based on the information provided by Time Boost Holdings Limited to the Company, the original purchase cost of the 35% equity interests in Racing Dragon Group Limited and the shareholder’s loan in the sum of HK$5,540,500 by the Vendor from Time Boost Holdings Limited was approximately HK$48,000,000.

As at 30 September 2011, the unaudited net asset value of the WFOE prepared under the HKFRS is approximately HK$553.2 million (after taking into account the current valuation of the Property).

A refundable deposit of 10% of the total consideration has been paid by the Purchaser within 30 business days from the date of the Sale Purchase Agreement. The total consideration will be satisfied by cash and is payable within 90 days from the Completion Date.

The Group will satisfy the consideration through its internal resources. Save as to the consideration for the Acquisition payable by the Purchaser as stated above, the Company and/or the Purchaser have not made any commitment (capital or otherwise) to any of Racing Dragon and the WFOE.

– 7 –

LETTER FROM THE BOARD

5. Conditions Precedent

Completion of the Share Purchase Agreement is subject to, among other things, the following:

(1) completion of satisfactory legal, financial and business due diligence on Racing Dragon and the WFOE by the Purchaser;
(2) the obtaining of consents which are necessary or desirable for the implementation of the transaction contemplated by the Vendor and the Purchaser under the Share Purchase Agreement;
(3) the issuance of a BVI legal opinion by the Vendor’s BVI legal counsel in a form satisfactory to the Purchaser in relation to, among other things, the due incorporation of Racing Dragon and the Vendor;
(4) there shall not be in effect on the Completion Date any law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transaction contemplated by the Share Purchase Agreement or which may have a material adverse effect on Racing Dragon or the WFOE;
(5) all consents, in form and substance reasonably satisfactory to the Purchaser, to the performance by the Vendor of its obligations under the Share Purchase Agreement as are required under any law or arrangement (contractual or otherwise) having been obtained and remaining in full force and effect; and
(6) none of the warranties in the Share Purchase Agreement being found to be, or no event occurring or matter arising which may render any of the warranties, untrue or inaccurate or misleading on and as at the Completion Date.

If the conditions have not been satisfied or waived on or before 31 December 2011 or such other date as the parties may agree in writing, the Share Purchase Agreement shall lapse and no party shall make any claim against the other in respect thereof, save for any antecedent breach.

As at the Last Practicable Date, except conditions (3) and (4), all of the above conditions precedent has been satisfied.

– 8 –

LETTER FROM THE BOARD

C. INFORMATION OF THE COMPANY, THE PURCHASER, THE VENDOR, RACING DRAGON AND THE WFOE

(i) Information relating to the Company

The Company is principally engaged in the manufacture and sale of coal-related chemical products, bio-chemical products and generation and supply of power and steam. Coal-related chemical products comprise vinyl acetate products and polyvinyl-chloride products. Biochemical products include glucose and starch.

(ii) Information relating to the Purchaser

The Purchaser is incorporated in the BVI with limited liability and is an investment holding company.

(iii) Information relating to the Vendor

The Vendor is incorporated in the BVI with limited liability and is an investment holding company.

(iv) Information relating to Racing Dragon

Racing Dragon is incorporated in the BVI with limited liability. Racing Dragon is not currently engaged in any business activities or operations.

Since Racing Dragon is not currently engaged in any business activities or operations, no net profit was incurred by Racing Dragon for the period from its date of incorporation (30 January 2008) to 30 June 2008, and for the years ended 30 June 2009, 30 June 2010 and 30 June 2011.

As at 30 September 2011, the unaudited net liabilities value of Racing Dragon based on HKFRS is in the sum of approximately HK$0.1 million. The sole asset of Racing Dragon is the entire equity interest in the WFOE, which is the owner of the Property.

(v) Information relating to the WFOE

The WFOE is a wholly foreign-owned enterprise established by Racing Dragon in the PRC with limited liability. It is wholly owned by Racing Dragon. Save as its holding of the Property and the construction of a factory situated on the Property, the WFOE is not currently engaged in any business activities or operations.

– 9 –

LETTER FROM THE BOARD

metres and from east to west ranging from approximately 399.7 metres to approximately 1,763.4 metres. It is for industrial purpose with a size of approximately 1,000,000 square metres.

Since the WFOE was incorporated on 6 June 2008, no net profit was recorded by the WFOE for the period from the date of incorporation to 30 June 2008, and for the year ended 30 June 2009 and 30 June 2010. The following is a summary of the audited financial results of the WFOE, prepared based on HKFRS:

	For the year	For the year
	ended 30 June	ended 30 June
	2009	2010
	(HK$)	(HK$)
Net loss before taxation and
extraordinary items	HK$1.1 million	HK$7 million
Net loss after taxation and
extraordinary items	HK$1.1 million	HK$7 million

The nature of loss incurred by the WFOE in 2009 and 2010 mainly represented general administrative expenses.

As at 30 September 2011, the unaudited net asset value of the WFOE prepared under HKFRS is approximately HK$553.2 million (after taking into account the current valuation of the Property). As at 30 September 2011, the WFOE had liabilities of approximately HK$884.8 million.

D. REASONS FOR AND THE BENEFITS OF THE ACQUISITION

The Group has formulated its expansion plans to further increase its investments in the coal-related chemical products business. The long-term development plans include constructing a new production plant to produce products within the product chain from calcium carbide to vinyl acetate and to further develop the Group’s downstream chemical products chain.

Having considered that the Acquisition would have synergy effects on the development of coal-related chemical products of the Company in Heihe City, Heilongjiang province, the PRC upon commencement of the operation of the production plant of the WFOE and the optimistic prospects of the coal-related chemical products in the PRC, the proposed increase of 12% of the equity interest in the WFOE through the Acquisition would further consolidate the Company’s interest and capital in the WFOE.

– 10 –

LETTER FROM THE BOARD

Note must be taken on the full picture, as opposed to isolated facts, of the Company’s acquisition of 55% of the equity interest in Racing Dragon through its wholly-owned subsidiary, Dragon Boom, in 2009 (“the 2009 Acquisition”) and the Company’s acquisition of a further 12% equity interest in Racing Dragon through Dragon Boom in 2011 in analysing why the consideration for the 2011 Acquisition is considered fair and reasonable.

The following are some key factors taken into account by the Board in analyzing why the consideration for the 2011 Acquisition is considered fair and reasonable:

(i) Valuation of the land owned by the WFOE in 2009 vs. valuation of the land owned by the WFOE in 2011

The Board considers that the consideration of the 2009 Acquisition was arrived at based on the market value of the land owned by the WFOE, namely approximately RMB168 million (or approximately HK$190.5 million). When considering whether the consideration of the Acquisition in the instant case represents a significant premium to the original purchase costs of the assets to the connected person, the Board is of the view contends that regard must be made to the fact that the estimated asset value of the WFOE was appraised at approximately HK$404.5 million by the independent Valuer as at 30 September 2011.

The significant inflation of the value of the land owned by the WOFE from approximately HK$190.5 million in 2009 to approximately HK$404.5 million as at 30 September 2011 is based on the professional valuation performed by the independent Valuer by aggregating all charges incurred in the acquisition and development of the land, plus a certain extent of profit, interests, tax payable taking into consideration the remaining term of the land use right.

(ii) Consideration for the acquisition of 55% of the equity interest in Racing Dragon in 2009 vs. consideration for the acquisition of 12% of the equity interest in Racing Dragon in 2011

When considering whether the consideration of the Acquisition in the instant case represents a significant premium to the original purchase cost of the assets to the connected person (approximately HK$48 million), the Board considers that note must be taken that the consideration of the 2009 Acquisition was approximately HK$75 million. Based on the average acquisition cost of HK$1.36 million for every one per cent of the equity interest in Racing Dragon at the material time, if 12%, as opposed to 55%, of the equity interest in Racing Dragon were to be acquired at the material time, it would have cost the Company approximately HK$16 million at the material time.

Taking into account the valuation of the land owned by the WFOE has increased from approximately HK$190.5 million in 2009 to approximately HK$404.5 million as at 30 September 2011, it would mean the consideration for the acquisition of 12% equity interest in Racing Dragon would have cost the Company

– 11 –

LETTER FROM THE BOARD

approximately HK$34 million (HK$16 million times 2.123) if the acquisition were conducted when the estimated asset value had increased to approximately HK$404.5 million.

In the instant case, the total consideration for the Acquisition is HK$62 million, being HK$39,330,000 for the Sale Shares and HK$22,670,000 for the Sale Shareholder’s Loan. The consideration of HK$39,330,000 for the Sale Shares alone, as opposed to the estimated cost of approximately HK$34 million if the 2011 Acquisition were to be conducted at the average cost in the 2009 Acquisition, can hardly be considered to be representing a significant premium to the original purchase costs of the assets to the connected person.

In light of the above, the Directors (including the independent non-executive Directors) consider that the Share Purchase Agreement are on normal commercial terms, and with reference to the latest audited financial information for both Racing Dragon and the WFOE as at 30 June 2010, and the terms of the Acquisition including the consideration are fair and reasonable and in the interests of the shareholders as a whole.

E. LISTING RULE IMPLICATIONS

As certain applicable percentage ratios as set out in Rule 14.08 of the Listing Rules are more than 5% but less than 25%, the transaction contemplated under the Share Purchase Agreement constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules and are therefore subject to the notification and announcement requirements but is exempted from the independent shareholder’s approval requirement under Chapter 14 of the Listing Rules.

As the Vendor is a substantial shareholder of Racing Dragon, the Vendor is a connected person of the Company, and therefore the transaction contemplated under the Share Purchase Agreement (a) constitutes a connected transaction for the Company under Rule 14A.16(5) of the Listing Rules and (b) given that the applicable percentage ratios exceeds 5% and the consideration is more than HK$10,000,000, will also be subject to the reporting, announcement and independent shareholders’ approval requirements set out in Chapter 14A of the Listing Rules.

There is no prior transaction in the 12-month period prior to the date of the Share Purchase Agreement between the Company and the Vendor and its ultimate beneficial owner(s) which would require to be aggregated with the Acquisition under Rules 14.22 of the Listing Rules.

Rule 14A.59(5) of the Listing Rules provides that any connected person with a material interest in the transaction, and any Shareholder with a material interest in the transaction and its associates will not vote. To the best knowledge, information and belief of the Directors, no Shareholder and its associates (as defined under the Listing Rules) is required to abstain from voting at the EGM for the approval of the Share Purchase Agreement.

– 12 –

LETTER FROM THE BOARD

F. DIRECTORS

As at the date hereof, the executive Directors are Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, Mr. Chiau Che Kong, Mr. Peng Zhanrong and Mr. Wu Jianwei and the independent non-executive Directors are Mr. Ma Wing Yun, Bryan, Mr. Tam Ching Ho, Dato’ Wong Sin Just and Mr. Wong Sin Lai.

None of the Directors has a material interest in the Acquisition.

G. FINANCIAL EFFECT OF THE ACQUISITION

As at the date of this circular, Racing Dragon is a subsidiary of the Company with its financial results being consolidated into the consolidated accounts of the Group. After completion of the Acquisition, Racing Dragon will continue to be a subsidiary of the Company, and the assets and liabilities and the financial results of Racing Dragon will continue to be consolidated to the consolidated accounts of the Group. The Company is of the view that the Acquisition will not have any impact on the assets and liabilities of the Group but it is expected that the Acquisition will not have material effect on the earnings of the Group immediately after the Acquisition.

H. EXTRAORDINARY GENERAL MEETING

The notice convening the EGM is set out on pages 35 to 36 of this circular. At the EGM, amongst others, an ordinary resolution will be proposed to approve the Acquisition.

A form of proxy for use at the EGM is enclosed with this document. Whether or not you intend to attend the EGM, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch share register in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, 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 at the EGM should you so wish.

Pursuant to rule 13.39(4) of the Listing Rules, any votes of the Shareholders at a general meeting must be taken by poll. Accordingly, the resolutions in relation to the Acquisition to be proposed at the EGM will be voted by way of a poll by the Shareholders.

I. RECOMMENDATION

The Independent Board Committee has been formed to consider, and to advise the Independent Shareholders on, the fairness and reasonableness of the terms of the Share Purchase Agreement and the transaction contemplated thereunder.

– 13 –

LETTER FROM THE BOARD

Veda Capital has been appointed as the independent financial adviser of the Company to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Share Purchase Agreement and the transaction contemplated thereunder. Castores Magi (Hong Kong) Limited has been appointed to prepare the valuation report.

Based on the relevant information disclosed herein, the Directors, including the independent non-executive Directors, believe that the transaction contemplated under the Share Purchase Agreement is conducted in the ordinary and usual course of business of the Group and the terms of the Share Purchase Agreement have been negotiated on an arm’s length basis and on normal commercial terms which are fair and reasonable in so far as the interests of the Company and the Shareholders as a whole are concerned.

Accordingly, the Directors (including the independent non-executive Directors) recommend the Shareholders to vote in favour of the resolutions in relation to the Acquisition to be proposed at the EGM.

J. FURTHER INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 and 16 of this circular, the letter from Veda Capital to the Independent Board Committee and Independent Shareholders set out on pages 17 to 26 of this circular.

Your attention is also drawn to the summary of the valuation report on the Property set out in Appendix I and the general information set out in Appendix II to this circular.

Yours faithfully, For and on behalf of the Board China Zenith Chemical Group Limited Chan Yuk Foebe Chief Executive Officer

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Acquisition:

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

18 November 2011

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

INTRODUCTION

We refer to the circular dated 18 November 2011 issued by the Company (the “ Circular ”), of which this letter forms part. Terms defined therein shall have the same meanings which used in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise you as to whether in our opinion, the terms of the Share Purchase Agreement and the transaction contemplated thereunder as described in pages 5 to 14 in the Letter from the Board are fair and reasonable in so far as the Independent Shareholders are concerned.

Veda Capital has been appointed as the independent financial adviser of the Company to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of Share Purchase Agreement and the transaction contemplated thereunder. Details of the advice of Veda Capital, together with the principal factors taken into consideration in arriving at such advice, are set out in its letter on pages 17 to 26 of this Circular.

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

We wish to draw your attention to the Letter from the Board as set out on pages 5 to 14 of the Circular which contains details of the Share Purchase Agreement and the transaction contemplated thereunder, the letter from Veda Capital as set out on pages 17 to 26 of the Circular which contains its advice and recommendation in respect of the transaction mentioned above to the Independent Board Committee and the Independent Shareholders, and the additional information set out in the appendices.

Having taken into account the advice and recommendation of Veda Capital and the principal factors and reasons considered by Veda Capital, we consider that the terms of the Share Purchase Agreement and the transaction contemplated thereunder have been negotiated on an arm’s length basis and on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Acquisition to be proposed at the EGM.

Yours faithfully,

Mr. Ma Wing Yun Bryan Mr. Tam Ching Ho Dato’ Wong Sin Just Mr. Wong Sin Lai Independent Board Committee

– 16 –

LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice in respect of the Acquisition from Veda Capital to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

Veda Capital Limited

Suite 3214, 32/F., COSCO Tower 183 Queen’s Road Central, Hong Kong

18 November 2011

To the Independent Board Committee and the Independent Shareholders of China Zenith Chemical Group Limited

Dear Madam/Sir,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON GROUP LIMITED

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the fairness and the reasonableness of the Acquisition, details of which are set out in the circular to the Shareholders dated 18 November 2011 (the “ Circular ”), of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context requires otherwise.

On 8 September 2011, the Purchaser and the Vendor entered into the Share Purchase Agreement. Pursuant to the Share Purchase Agreement, the Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Shares and the Sale Shareholder’s Loan at consideration of HK$62 million, being HK$39,330,000 for the Sale Shares and HK$22,670,000 for the Sale Shareholder’s Loan.

As at the Latest Practicable Date, the Purchaser, a wholly-owned subsidiary of the Company, is owned as to 55% of Racing Dragon and since the Vendor is a substantial shareholder of Racing Dragon, the Vendor is a connected person of the Company, and therefore the transaction contemplated under the Share Purchase Agreement (a) constitutes a connected transaction for the Company under Rule 14A.16(5) of the Listing Rules and (b) given that the applicable percentage ratios exceeds 5% and the consideration is more than HK$10,000,000, will also be subject to the Independent Shareholders’ approval as required under Chapter 14A of the Listing Rules at the EGM.

– 17 –

LETTER FROM VEDA CAPITAL

The Independent Board Committee, comprising all independent non-executive Directors has been established to advise the Independent Shareholders as to (i) whether the terms of the Share Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) whether the sale and purchase of the Sale Shares and the Sale Shareholder’s Loan are in the interests of the Company and the Independent Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolutions to approve the Share Purchase Agreement and the transactions contemplated thereunder at the EGM.

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied upon the accuracy of the information and representations contained in the Circular and information provided to us by the Company, the Directors and the management. We have assumed that all statements, information and representations made or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management, for which they are solely and wholly responsible, were true at the time when they were made and continue to be true as at the date of the EGM. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and were based on honestly-held opinions.

We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have not, however, conducted any independent in-depth investigation into the business affairs, financial position or future prospects of the Group, nor have we carried out any independent verification of the information provided by the Directors and management of the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the Acquisition and the transactions contemplated thereunder, we have taken into consideration the following factors and reasons:

1. Information of Racing Dragon

Racing Dragon is currently not engaged in any business activities or operations. As at the Latest Practicable Date, WFOE is a wholly foreign-owned enterprise established and wholly-owned by Racing Dragon in the PRC with limited liability. Save as the holding of the Property and the construction of a factory situated on the Property, the WFOE is currently not engaged in any business activities or operations.

– 18 –

LETTER FROM VEDA CAPITAL

The Property is a single piece of land located at 黑龍江省黑河邊境經濟合作區西南工業區 (the south-western industrial zone of Heilongjiang Province Heihe Border Economic Cooperation Zone). The piece of land is approximately in L-shape, from north to south ranging from approximately 325.0 metres to approximately 851.2 metres and from east to west ranging from approximately 399.7 metres to approximately 1,763.4 metres. It is for industrial purpose with a size of approximately 1,000,000 square metres.

As at the Latest Practicable Date, the WFOE has paid a land premium of RMB50 million in respect of the Property to the relevant land bureau in the PRC. The WFOE has obtained the land use right certificate of the Property on 20 May 2009. The Company confirmed that no further payment would be required by other governmental or regulatory institutions regarding the Property. As advised by the Company, the market value of the Property owned by the WFOE was approximately RMB168 million in 2009 and the unaudited net asset value of the WFOE prepared under the HKFRS is approximately HK$553.2 million as at 30 September 2011 (after taking into account of the current valuation of the Property) based on the valuation conducted by the Valuer on the market value of the Property, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and with compulsion”.

Since Racing Dragon is not currently engaged in any business activities or operations, no net profit was incurred by Racing Dragon for the period from its date of incorporation of 30 January 2008 to 30 June 2008, and for the years ended 30 June 2009 and 30 June 2010.

The WFOE was incorporated on 6 June 2008 and was not engaged in any business activities or operations, the WFOE therefore did not record profits or loss for the period ended 30 June 2010 since its incorporation. The following is a summary of the audited financial results of the WFOE prepared based on HKFRS:

	For the year ended	For the year ended
	30 June 2009	30 June 2010
	(HK$)	(HK$)
Net loss before taxation and
extraordinary items	HK$1.1 million	HK$7 million
Net loss after taxation and
extraordinary items	HK$1.1 million	HK$7 million

The nature of loss incurred by the WFOE during the two years ended 30 June 2009 and 2010 mainly represented general administrative expenses.

– 19 –

LETTER FROM VEDA CAPITAL

2. Background and Financial information of the Group

(i) Financial year ended 30 June 2011

As set out in the 2011 annual report of the Company (“ AR 2011 ”) for the financial year ended 30 June 2011, the Group recorded revenue of approximately HK$1,415 million, representing an increase of approximately 2.47% from that for the year ended 30 June 2010 of approximately HK$1,381 million. As set out in AR 2011, the slight increase in revenue was mainly due to the increase in sales volume of coal-related chemical products.

The Group recorded a reduced profit attributable to owners of the Company for the year of approximately 56.11% from approximately HK$218 million for the year ended 30 June 2010 to approximately HK$96 million for the year ended 30 June 2011. As advised by the Company and as set out in the AR2011, the decrease was mainly due to, (i) the increase in turnover was not in line with the increase in cost of sales; (ii) recognition of financing and promotion expenses resulting from the Company’s discontinued financing exercises including the issuance of Taiwan Depositary Receipts of the Company and the proposed spin off and separate listing of shares of China Zenith Construction Materials Limited on the main board of the Stock Exchange; (iii) recognition of share-based payment for employee benefit; (iv) loss incurred as a results of an industrial accident occurred in Mudanjiang calcium carbide production facilities on 30 May 2011; and (v) impairment loss on goodwill for bio-chemical products division.

(ii) Financial year ended 30 June 2010

As set out in the 2010 annual report (“ AR 2010 ”) for the financial year ended 30 June 2010, the Group recorded revenue of approximately HK$1,381 million, representing an increase of approximately 26.08% from that for the year ended 30 June 2009 of approximately HK$1,096 million. As advised by the Company, the increase of revenue was mainly due to the increase in the sales volume of the Group’s coal-related chemical products.

The Group recorded increase in profit attributable to owners of the Company of approximately 29.61% from approximately HK$168 million for the year ended 30 June 2009 to approximately HK$218 million for the financial year ended 30 June 2010. As advised by the Company, the increased profit was mainly attributable to the increase in sales volume of the Group’s coal-related chemical products including polyvinyl chloride and vinyl acetate.

– 20 –

LETTER FROM VEDA CAPITAL

3. Reasons for the Acquisition

As set out in the letter from the Board in this Circular (the “ Board Letter ”), the Group has formulated its expansion plans to further increase its investments in the coal-related chemical products business. The long-term development plans include constructing a new production plant (the “ New Production Plant ”) on the Property held by WFOE to produce products within the product chain from calcium carbide to vinyl acetate and to further develop the Group’s downstream chemical products chain. As advised by the Company, the construction of the first phase of the new production plant is close to completion as at the Latest Practicable Date and is expected to commence operation in the coming year.

The Directors (including the independent non-executive Directors) consider that the Share Purchase Agreement are on normal commercial terms, and with reference to the latest audited financial information for both Racing Dragon and the WFOE as at 30 June 2010, and the terms of the Acquisition are fair and reasonable and in the interests of the shareholders as a whole.

We noticed and the Company confirmed that as at the Latest Practicable Date, the Company has five subsidiaries engaging in manufacture and/or sale of coal-related chemical products (the “ Coal-related Chemical Production Subsidiaries ”). As confirmed by the Company, the New Production Plant would be supplying raw materials to the subsidiaries for the manufacture of polyrinyl-chloride and vinyl acetate. The Company has also advised that its building construction and installation work for the calcium carbide production facilities in Heihe had been completed as at the Latest Practicable Date and are expected to commence operation in coming year, which the annual production capacities of calcium carbide are expected to be 100,000 tons in the first phase. As such, the New Production Plant could accommodate the increased production of calcium carbide and the demand for raw materials from the other Coal-related Chemical Production Subsidiaries in the future. The Acquisition will also allow the Company to consolidate its interest and capital in the WFOE for further developing the Company’s coal-related chemical production business in Heihe City, Heilongjiang Province, the PRC.

Calcium carbide is raw materials for the production of polyvinyl chloride and vinyl acetate. We have searched that according to Wikipedia 維基百科 (en.wikipedia.org), polyvinyl chloride is the third most widely produced plastic which could be made as most household sewerage pipes and other pipe applications where corrosion would limit the use of metal. Roughly half of the world’s polyvinyl chloride resin manufactured annually is used for producing pipes for various municipal and industrial applications. The coal-related chemical products are widely used in construction materials. Accordingly, the demand for these coal-related chemical products is driven by construction projects including property and infrastructure development. In year 2000, the Ministry of Housing and Urban-Rural Development of the PRC 中國住房和城鄉建設部 (www.mohurd.gov.cn) has announced the “15th National Plan for Chemical Construction Materials Industry and Development Outline for year 2015” and proposed the promotion of use of polyrinyl-chloride products as construction materials.

– 21 –

LETTER FROM VEDA CAPITAL

Based on the reports published by the National Bureau of Statistics of China 中國國家統計局 (www.stats.gov.cn), the population of the PRC has risen from approximately 1.28 billion in year 2000 to approximately 1.34 billion in year 2010. The United Nations 聯合國 (www.un.org) estimates and forecasts in the “World Population Prospects: The 2010 Revision” that the population of the PRC would reach approximately 1.4 billion. Furthermore, in view of the booming economy and rising gross domestic products in the PRC, it is expected that the demand for property both for accommodation and investment purposes shall continue to rise. Infrastructure development is also expected to be in continuous demand to cope with the national property development.

Having considered, (i) the Acquisition have synergy effects on the development of coal-related chemical products of the Company upon commence operation of the New Production Plant; (ii) Acquisition will also allow the Company to consolidate its interest and capital in the WFOE; and (iii) the optimistic prospects of the coal-related chemical products in the PRC, we agree with the view of the Directors that the Acquisition is in the interests of the Company and the Independent Shareholders as a whole.

4. Consideration for the Acquisition

Purchase of the Sale Shareholder’s Loan

As advised by the Company, upon the purchase of the Sale Shareholder’s Loan by the Purchaser, the indebtedness in the amount of HK$22,670,000 will be owed by Racing Dragon to the Purchaser on a dollar-for-dollar basis. As such, we consider the purchase price of the Sale Shareholder’s Loan is fair and reasonable.

Acquisition of the Sale Share

The sole asset of Racing Dragon is the entire equity interest in the WFOE, which is the owner of the Property. As at 30 September 2011, the unaudited net liabilities value of Racing Dragon based on HKFRS is in the sum of approximately HK$0.1 million and the unaudited net asset value of the WFOE prepared under the HKFRS was approximately HK$553.2 million (after taking into account the current valuation of the Property). The combined net asset value (“ Combined NAV ”) of Racing Dragon and the WFOE would become approximately HK$553.1 million.

The Sale Shares represent 12% of the entire interest of Racing Dragon and, 12% of the Combined NAV is approximately HK$66.37 million (the “ Sale Shares NAV ”).

– 22 –

LETTER FROM VEDA CAPITAL

Based on the information provided by Time Boost Holdings Limited to the Company, the original purchase cost of the 35% equity interests in Racing Dragon and the shareholder’s loan in the sum of HK$5,540,500 by the Vendor from Time Boost Holdings Limited was approximately HK$48,000,000. However, at the time when the Vendor acquiring 35% equity interests in Racing Dragon from Time Boost Holdings Limited, the Property was yet to be obtained. As such, we do not consider the original acquisition consideration as an appropriate comparable to the acquisition price of the Sale Shares.

In order to further assess the fairness and reasonableness of the acquisition price of the Sale Shares, we have also considered price-to-book ratio and price-to-earnings ratio. Since Racing Dragon and the WFOE are not engaged in any business activities and given the optimistic prospect of Racing Dragon as described under the above section headed “3. Reasons for the Acquisition”, the loss recorded by Racing Dragon and profit recorded by the WFOE may not fully reflect the profitability of Racing Dragon and the WFOE. We therefore consider the price-to-earnings ratio based on their respective financial performance may not be appropriate for assessing the fairness and reasonableness of the acquisition price of the Sale Shares. Based on the Sale Shares NAV, the acquisition price of the Sale Shares represents a price-to-book ratio (“ PBR ”) of approximately 0.59 times and a discount of approximately 40.74% to the Sales Shares NAV.

We have identified all comparable companies (the “ Industry Comparables ”) being listed companies on the Stock Exchange (on the Growth Enterprise Market or Main Board) engaging in similar business of development of chemical production business as the reason and purpose of the Acquisition. To the best of our knowledge, we have identified four Industry Comparables by searching through published information on the Stock Exchange’s website. The PBR is based on the Industry Comparables’ respective market capitalizations as at 8 September 2011, being the date of the Share Purchase Agreement, and the equity attributable to equity holders as set out in their latest annual reports or interim reports or results announcements (whichever is the latest) which are published prior to the date of the Agreement. In view that (i) the Industry Comparables are engaged in similar business as the WFOE; and (ii) the respective PBRs of the Industry Comparables are determined with reference to the date of the Agreement, we consider the Industry Comparables are fair and representative samples.

– 23 –

LETTER FROM VEDA CAPITAL

Independent Shareholders should note that the stated PBRs of the respective companies could be sensitive to, amongst other things, each of their particular businesses, financial position and market price performance of the shares of the respective companies and therefore, the PBRs of the Industry Comparables listed below are for information and reference purposes only.

Industry Comparables		PBR
(stock code)	Principal business	(times)
Tiande Chemical	Research and development, production and sale of	2.04
Holdings Limited (609)	fine chemical products.
Ko Yo Chemical (Group)	Research and development, manufacture, marketing	1.04
Limited (827)	and distribution of chemical products, chemical
	fertilizers and bulk blending fertilizers.
EcoGreen Fine Chemicals	Research and development, production and sale of	0.88
Group Limited (2341)	fine chemicals products from natural resources for
	use in aroma chemicals and pharmaceutical
	products, and the trading of fine chemicals
	products and natural materials.
China BlueChemical	Manufacture and sale of mineral fertilisers (mainly	0.84
Limited (3983)	urea) and chemical products (mainly methanol),
	manufacture and sale of phosphate fertilisers.
Maximum		2.04
Minimum		0.84
Mean		1.20
Acquisition		0.59

Source: www.hkex.com.hk

As indicated in the above table, the Industry Comparables have PBRs ranged from approximately 0.84 times to approximately 2.04 times. The PBR of the Acquisition being 0.59 times, falls well below the range of the PBRs of the Industry Comparables.

In light of the above and the acquisition price of the Sale Shares representing a discount of approximately 40.74% to the Sales Shares NAV, we consider the acquisition price of the Sale Shares is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

– 24 –

LETTER FROM VEDA CAPITAL

5. Financial effect of the Acquisition

As mentioned in the Board Letter, as at the Latest Practicable Date, Racing Dragon is a subsidiary of the Company with its financial results being consolidated into the consolidated accounts of the Group. After completion of the Acquisition, Racing Dragon will continue to be a subsidiary of the Company, and the assets and liabilities and the financial results of Racing Dragon will continue to be consolidated to the consolidated accounts of the Group. The Company is of the view that the Acquisition will not have any impact on the assets and liabilities of the Group but it is expected that the Acquisition will not have material effect on the earnings of the Group immediately after the Acquisition.

However, the Company has advised that upon commencement of operation of the new production plant, the positive financial results of Racing Dragon is expected to bring benefits to the Company.

6. Recommendation

Having considered the above-mentioned principal factors and reasons, in particular, taking into account that:

(i) the Acquisition will increase the benefits to the Company from the long-term development plans including the construction of the New Production Plant to produce products within the product chain from calcium carbide to vinyl acetate and to further develop the Group’s downstream chemical products chain;
(ii) the optimistic prospects of the coal-related chemical production industry in the PRC;
(iii) the Acquisition will increase the profit sharing from Racing Dragon and the WFOE upon commence of operation of the New Production Plant;
(iv) the Acquisition will bring synergy effects with the Coal-related Chemical Production Subsidiaries;
(v) the acquisition price of the Sale Shares represents a discount of approximately 40.74% to the Sale Shares NAV;
(vi) the Consideration being settled in cash from internal resources of the Group does not constitute to any dilution effects on the shareholdings of the Company;
(vii) upon the purchase of the Sale Shareholder’s Loan by the Purchaser, the indebtedness in the amount of HK$22,670,000 will be owed by Racing Dragon to the Purchaser on a dollar-for-dollar basis; and

– 25 –

LETTER FROM VEDA CAPITAL

(viii) the PBR of the Acquisition falls well below the range of the PBRs of the Industry Comparables,

we consider (i) the terms of the Share Purchase Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the sale and purchase of the Sale Shares and the Sale Shareholder’s Loan are in the interests of the Company and the Independent Shareholders as a whole. We would therefore recommend the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions to approve the Acquisition to be proposed at the EGM.

Yours faithfully, For and on behalf of

Veda Capital Limited

Hans Wong Julisa Fong Chairman Managing Director

– 26 –

APPENDIX I

VALUATION REPORT ON THE PROPERTY

The following is the text of a letter and valuation certificate prepared in respect of the Acquisition by Castores Magi (Hong Kong) Limited in connection with the valuation of the Property interests held by the WFOE as at 30 September 2011:

嘉漫(香港)有限公司

==> picture [130 x 33] intentionally omitted <==

(HONG KONG) LIMITED

Suite 211

China Insurance Group Building 141 Des Voeux Road Central Hong Kong

18 November 2011

The Directors China Zenith Chemical Group Limited Unit 1101–12 Sun Hung Kai Centre No. 30 Harbour Road Hong Kong

Dear Sirs,

In accordance with your instructions to value a parcel of land situated at Daqiao Road, Southwest Industrial Zone, Heihe Shi, Heilongjiang Province, the PRC (hereinafter known as the “Property”) in which China Zenith Chemical Group Limited (the “Company”) and its subsidiaries (together the “Group”) have interests, we confirm that we have made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of the Property as at 30th September, 2011 (“date of valuation”).

Our valuation of the Property is our opinion of the Market Value which we would define as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.” Market Value is understood as the value of an asset estimate without regard to costs of sale or purchase and without offset for any associated taxes.

Our valuation of the Property has been made on the assumption that the owner sells the Property on the market in its existing state without the benefit of a deferred term contracts, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the Property.

In valuing the Property, we have adopted the basis of valuation and have made the valuation assumptions in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

– 27 –

APPENDIX I

VALUATION REPORT ON THE PROPERTY

In valuing the Property, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The current status of the Property regarding major approvals, consents or licences required in the PRC is set out as follows:

Document/Approval


Document/Approval	Status
Land Use Rights Grant Contract	Yes
State-owned Land Use Rights Certificate	Yes
Construction Works and Planning Permit	Yes
Building Works Commencement Permit	Yes

In our valuation, we have assumed that the Group will implement its development plan given to us. In addition, it is assumed that all consents, approvals and licences from the relevant government authorities for the Property have been granted or shall be granted in due course without any onerous conditions or undue time delay which might affect its value.

In undertaking our valuation of the Property, we have assumed that the Group will entirely comply with all the planning and development regulations and fulfill the requirements prescribed by various government authorities pertaining to the Property.

We have relied to a considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.

We have not carried out detailed site measurements to verify the correctness of the site area in respect of the Property but have assumed that the site area shown on the documents and official site plans handed to us are correct. Based on our valuation experience of similar properties in the PRC, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurements have been taken.

We have inspected the Property, in respect of which we have been provided with such information as we have required for the purpose of our valuation. However, no structural survey, investigation or examination have been made. We are not, however, able to report that the Property is free from rot, infestation or any other structural defects. No tests were carried out to any of the services.

No allowance has been made in our report for any charges, mortgages or amounts owing on the Property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property was free from encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

– 28 –

APPENDIX I

VALUATION REPORT ON THE PROPERTY

We have been shown copies of various documents relating to the Property. However, we have not searched the original documents to verify any amendments which may not appear on the copies handed to us. Due to restrictions of the land registration system in the PRC, we are unable to search the original documents to verify the existing title of the Property or any material encumbrances that might be attached to the Property. However, we have made reference to the opinion given by the Company’s legal advisers in the PRC in respect of the land use rights holder’s title to the Property.

The scope of valuations has been determined with reference to the property list provided by the Group. The property on the list has been included in this valuation certificate.

We have had no reason to doubt the authenticity and accuracy of the information provided to us by the Group. We have also sought and received confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts stated are in Hong Kong Dollars. The adopted exchange rate for the valuation of the Property is the prevailing rate as at the date of valuation, being HK$1 to RMB0.82 and no significant fluctuation in exchange rate has been found between that date and the date of this letter.

The conclusion of value is based on generally accepted valuation procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgment in arriving at the valuations, you are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution when interpreting this report.

We hereby certify that we have neither present nor prospective interest in the Company or the value reported.

Our valuation certificate is attached.

Yours faithfully, For and on behalf of

CASTORES MAGI (HONG KONG) LIMITED

Deret Au Chi Chung

Member of China Institute of Real Estate Appraisers and Agents Registered Business Valuer of Hong Kong Business Valuation Forum

B.Sc MRICS MHKIS RPS MCIArb AHKIArb MCIM

Director

Note: Deret Au Chi Chung is a Registered Professional Surveyor and has over 19 years of experience in valuing properties in Hong Kong and the properties of private and state-owned enterprises in over 100 towns and cities in the PRC. He also possesses over 13 years of valuation experience in the Asia-Pacific region. His name is included in the List of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers set forth by the Hong Kong Institute of Surveyors.

– 29 –

APPENDIX I

VALUATION REPORT ON THE PROPERTY

VALUATION CERTIFICATE

Property interest held and occupied by the Group under development in the PRC

			Capital value
			in existing
			state as at
Property	Description and tenure	Particulars of occupancy	30 September 2011
			HK$
A parcel of land situated	The property comprises a	The property is currently	404,544,000
at Daqiao Road,	parcel of land having a	under development.	(100% interest)
Southwest Industrial Zone,	site area of 1,000,000
Heihe Shi,	sq.m.		222,499,200 (55%
Heilongjiang Province,			attributable
The PRC	The property is held		interest to the
	under the land use rights		Group)
	for a term up to 20 May
	2059.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract – Contract No. 08032608 (國有土地使用權出讓合同 – 合同編號08032608) dated 26 March 2008 made between State Land Resources Bureau of Heihe Shi (黑河市國土資源局) and Racing Dragon Group Limited (爭龍集團有限公司), the latter party has been granted the land use rights of a parcel of land having a site area of 1,000,000 sq.m. at a land premium of RMB50,000,000 for a term of 50 years.
Pursuant to a State-owned Land Use Rights Certificate – Hei He Shi Guo Yong (2009) No.09856 (國有土地使用証 – 黑河市國用(2009)第09856號) dated 20 May 2009 issued by the People’s Government of Heihe Shi (黑河市人民政府), the land use rights of the property, having a site area of 1,000,000 sq.m., has been granted to Heihe Longjiang Chemical Co. Ltd. (黑河龍江化工有限公司) for a term up to 20 May 2059 for industrial purpose.
Pursuant to a Construction Works and Planning Permit – No. 2009-001 (建設工程規劃許可証 – 編號 2009-001) dated 23 May 2009 issued by Heihe Border Economic Co-operation Zone (黑河邊境經濟合作區), the construction works of a Calcium Carbide Manufacturing Plant having an annual production capacity of 300,000 tons was approved.
Pursuant to a Building Works Commencement Permit – No. 2009-001 (建築工程施工許可証 – 編號 2009-001) dated 25 May 2009 issued by the Construction Bureau, Heihe Border Economic Co-operation Zone (黑河邊境經濟合作區建設局), the building works were permitted to commence.
It is stated in the legal opinion given by the Company’s PRC legal advisers, inter alia, that:
(a) The total land premium for the Property was RMB50,000,000 and such land premium should be paid by Heihe Longjiang Chemical Co. Ltd. (黑河龍江化工有限公司) before 25th December, 2009;
(b) Up to 28th August, 2009, Heihe Longjiang Chemical Co. Ltd. (黑河龍江化工有限公司) had paid RMB40,000,000 and the outstanding land premium amount was RMB10,000,000;
(c) According to the 10th Director Meeting (第10次主任辦公會議) of Heihe Border Economic Co-operation Zone (黑河邊境經濟合作區), it was resolved that the land premium payable by Heihe Longjiang Chemical Co. Ltd. (黑河龍江化工有限公司) to be reduced by an amount of RMB10,000,000. This reduction was for the purpose of assisting the construction of ancillary facilities of the enterprise’s factory complex; and
(d) The above reduction in land premium shall not affect the legality and validity of the land use rights. Heihe Longjiang Chemical Co. Ltd. (黑河龍江化工有限公司) currently possesses the land use rights stipulated in the State-owned Land Use Rights Certificate.
As at the date of valuation, the total development costs (including construction costs) incurred by the Group were in the amount of RMB440,584,147 and it is expected that a further amount of approximately RMB79,415,853 would be spent upon the completion of Phase 1.
As advised by the Group, Phase 1 of the property will have a total gross floor area of approximately 44,000 sq.m. upon completion.

– 30 –

APPENDIX II

GENERAL INFORMATION

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 circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests of the Directors and chief executives of the Company in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are 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, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange, were as follows:

Interests in Shares of the Company:

			Approximate
	Capacity and	Number of	percentage of
Name of director	nature of interest	Shares	Shares in issue
Mr. Chan Yuen Tung	Beneficial Owner	191,112,543	25.63%
Ms. Chan Yuk Foebe	Beneficial Owner	13,531,000	1.81%
Mr. Chiau Che Kong	Beneficial Owner	2,212,500	0.30%
Mr. Tam Ching Ho	Beneficial Owner	300,000	0.04%

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors and chief executives of the Company and their respective associates had or was deemed to have any interests or short positions in any Shares, underlying Shares or debentures of the Company or its associated corporations (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 which they are deemed or taken to have under provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

– 31 –

APPENDIX II

GENERAL INFORMATION

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

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any asset which, since 30 June 2011, the date to which the latest published audited financial statements of the Group were made up, have been 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.

As at the Latest Practicable Date, none of the Directors was a director or employee of a company which had any interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, records of the Company’s register of interests for every person (other than a Director and chief executive of the Company) who had interest or short position in the Shares and underlying Shares of the Company required to be kept under section 336 of the Securities and Futures Ordinance showed that no such interests and short positions were recorded in the register.

So far as is known to any Director or chief executive of the Company, as at the Latest Practicable Date, the following persons or entities (other than Directors or chief executives of the Company) were 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:

		Approximate
		percentage of
Name of subsidiaries	Name of shareholders	equity interest
Mudanjiang Dongbei Chemical	Fame First Holdings	36.89%
Engineering Company Limited	Limited
Racing Dragon Group Limited	Hope High Holdings	35.00%
	Limited
Racing Dragon Group Limited	Time Boost Holdings	10.00%
	Limited

Save as disclosed herein, there is no person known to the Directors, who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares of the Company 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 other member of the Group.

– 32 –

APPENDIX II

GENERAL INFORMATION

4. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors has entered or proposed to enter into a service contract with any member of the Group which is not terminable by the employer within one year without payment of compensation (other than statutory compensation).

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 June 2011, the date to which the latest published audited financial statements of the Group were made up.

6. EXPERTS’ QUALIFICATION AND CONSENT

The following is the qualification of the experts who have given an opinion or advice contained in this circular:

Name	Qualification
Veda Capital	licensed corporation to carry out Type 6 (advising on
	corporate finance) regulated activities under the
	SFO
Castore Magi	qualified valuer

As at the Latest Practicable Date, none of the experts had any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

Each of the experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or statements and references to its name in the form and context in which they appear.

As at the Latest Practicable Date, none of experts had any interest, direct or indirect, in any assets which since 30 June 2011, the date to which the latest published audited financial statements of the Group were made up, have been 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 BUSINESS

As at the Latest Practicable Date, none of the Directors and his/her respective associates has an interest in a business apart from the Company’s business which competes or may compete, either directly or indirectly, with the Company’s business.

– 33 –

APPENDIX II

GENERAL INFORMATION

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. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of the following documents will be available for inspection during normal business hours at the Company’s office at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong for a period of 14 days (except Saturdays and public holidays) from the date of this circular:

(i) the Share Purchase Agreement;
(ii) the letter from Veda Capital; and
(iii) this circular.

10. MISCELLANEOUS

In case of any discrepancy, the English text of this circular and the form of proxy shall prevail over the Chinese text.

– 34 –

NOTICE OF EGM

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==> picture [281 x 38] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting of China Zenith Chemical Group Limited (the “ Company ”) will be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong, on Monday, 5 December 2011 at 4:30 p.m. for the following purposes:

As special business, to consider and, if though fit, pass with or without amendments, the following resolutions:

ORDINARY RESOLUTIONS

“THAT:
(a) the entering into of the share purchase agreement dated 8 September 2011 (the “ Share Purchase Agreement ”) between Hope High Holdings Limited (the “ Vendor ”) and Dragon Boom Investments Limited (the “ Purchaser ”) pursuant to which the Vendor has agreed to sell and the Purchaser has agreed to purchase 12 shares with a par value of US$1 each in the issued share capital of Racing Dragon Group Limited (“ Racing Dragon ”) and the sale shareholder’s loan in the amount of HK$22,670,000 owed by Racing Dragon to the Vendor as of the date of the Share Purchase Agreement, a copy of which has been produced to the meeting marked “A” and signed by the chairman of the EGM for the purpose of identification, and the transaction contemplated thereunder, details of which are more particularly described in the circular of the Company dated 18 November 2011, be and is hereby approved, confirmed and ratified; and

– 35 –

NOTICE OF EGM

(b) the directors of the Company (the “ Directors ”) be and are hereby authorised to execute all such documents and do all such acts and things and to sign all documents and to take any steps as they consider desirable, necessary or expedient in connection with and to give effect to the Share Purchase Agreement and the transaction contemplated thereunder. ”

By Order of the Board China Zenith Chemical Group Limited Chan Yuk Foebe Chief Executive Officer

Hong Kong, 18 November 2011

As at the date hereof, Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, Mr. Chiau Che Kong, Mr. Peng Zhanrong and Mr. Wu Jianwei are the executive Directors and Mr. Ma Wing Yun Bryan, Mr. Tam Ching Ho, Dato’ Wong Sin Just and Mr. Wong Sin Lai are the independent non-executive Directors.

Notes:

(i) Members of the Company whose names appear on the register of members maintained by the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong on Monday, 5 December 2011 shall qualify for attending and voting at the extraordinary general meeting. The register of members of the Company will be closed from Friday, 2 December 2011 to Monday, 5 December 2011 (both days inclusive), during which period no share transfer will be registered. In order to qualify to attend and vote on the proposed resolutions set out in this notice, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Thursday, 1 December 2011.
(ii) A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies (if he is a holder of more than one share) to attend and vote on his behalf. A proxy needs not be a member of the Company.
(iii) The instrument appointing a proxy and the power of attorney or other, if any, under which it is signed, or a notarially certified copy of such power of attorney or other authorisation document(s), must be lodged with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

– 36 –

AI assistant

Tencent Holdings Limited — Proxy Solicitation & Information Statement 2011

49405_rns_2011-11-17_7c7e0fae-ac52-4023-b405-3b83d4086b87.pdf

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

DEFINITIONS

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

A. INTRODUCTION

B. THE SHARE PURCHASE AGREEMENT

Background

Principal Terms of the Share Purchase Agreement

1. Date:

2. Parties:

3. Sale and Purchase of the Sale Shares and the Sale Shareholder’s Loan

4. Consideration

5. Conditions Precedent

C. INFORMATION OF THE COMPANY, THE PURCHASER, THE VENDOR, RACING DRAGON AND THE WFOE

(i) Information relating to the Company

(ii) Information relating to the Purchaser

(iii) Information relating to the Vendor

(iv) Information relating to Racing Dragon

(v) Information relating to the WFOE

D. REASONS FOR AND THE BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

E. LISTING RULE IMPLICATIONS

F. DIRECTORS

G. FINANCIAL EFFECT OF THE ACQUISITION

H. EXTRAORDINARY GENERAL MEETING

I. RECOMMENDATION

J. FURTHER INFORMATION

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON

INTRODUCTION

RECOMMENDATION

Veda Capital Limited

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF THE ACQUISITION OF RACING DRAGON GROUP LIMITED

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information of Racing Dragon

2. Background and Financial information of the Group

(i) Financial year ended 30 June 2011

(ii) Financial year ended 30 June 2010

3. Reasons for the Acquisition

4. Consideration for the Acquisition

Purchase of the Sale Shareholder’s Loan

Acquisition of the Sale Share

5. Financial effect of the Acquisition

6. Recommendation

Veda Capital Limited

嘉漫(香港)有限公司

Document/Approval

Yours faithfully, For and on behalf of

CASTORES MAGI (HONG KONG) LIMITED

Deret Au Chi Chung

VALUATION CERTIFICATE

Property interest held and occupied by the Group under development in the PRC

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

Interests in Shares of the Company:

3. SUBSTANTIAL SHAREHOLDERS

4. SERVICE AGREEMENTS

5. MATERIAL ADVERSE CHANGE

6. EXPERTS’ QUALIFICATION AND CONSENT

7. COMPETING BUSINESS

8. LITIGATION

9. DOCUMENTS AVAILABLE FOR INSPECTION

10. MISCELLANEOUS

(Stock Code: 362)

NOTICE OF EXTRAORDINARY GENERAL MEETING

ORDINARY RESOLUTIONS

By Order of the Board China Zenith Chemical Group Limited Chan Yuk Foebe Chief Executive Officer

Hong Kong, 18 November 2011

More from Tencent Holdings Limited

Tencent Holdings Limited Proxy Solicitation & Information Statement 2011