CHINA SANJIANG FINE CHEMICALS COMPANY LIMITED

Transcription

1 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 Sanjiang Fine Chemicals Company Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the 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 the transferee. This circular is addressed to the shareholders of the Company in connection with an extraordinary general meeting ( EGM ) of the Company to be held at 9:30 a.m. on 15 May 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. CHINA SANJIANG FINE CHEMICALS COMPANY LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2198) CONNECTED TRANSACTION PROPOSED DISPOSAL OF 51% INTEREST IN A PRC COMPANY AND NOTICE OF EGM Independent financial adviser to the Independent Board Committee and the Independent Shareholders Capitalised terms used in this cover page have the same meanings as those defined in the section headed Definitions in this circular. A letter from the Board is set out on pages 5 to 18 of this circular. A letter from the Independent Board Committee is set out on pages 19 to 20 of this circular. A letter from Goldin Financial, the independent financial adviser, containing its advice to the Independent Board Committee and the Shareholders is set out on pages 21 to 39 of this circular. A notice convening the EGM to be held at Compass Office, L20, Infinitus Plaza, 199 Des Voeux Road Central, Sheung Wan, Hong Kong at 9:30 a.m. on 15 May 2015 is set out on pages 43 to 45 of this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding 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 if you so wish. Completion and return 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. 28 April 2015

2 CONTENTS PAGE DEFINITIONS... 1 LETTER FROM THE BOARD... 5 LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM GOLDIN FINANCIAL APPENDIX GENERAL INFORMATION NOTICE OF EGM i

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meanings: Announcement associate(s) Board Business Day Capitol International Company Completion Completion Date connected person(s) Consideration Director(s) Disposal EGM Group the announcement of the Company dated 19 March 2015 has the same meaning ascribed thereto under the Listing Rules the board of Directors any day other than a Saturday or Sunday or public holiday in either Hong Kong or the PRC Capitol International Limited ( ), a company incorporated in Hong Kong with limited liability and a direct wholly-owned subsidiary of the Company China Sanjiang Fine Chemicals Company Limited, 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 of the Disposal pursuant to the terms and conditions under the SP Agreement the date which Completion takes place has the same meaning ascribed thereto under the Listing Rules consideration of the Disposal, being RMB357,000,000 the director(s) of the Company the disposal of the Sale Interest pursuant to the terms and conditions of the SP Agreement the extraordinary general meeting of the Company to be convened for considering and, if thought fit, approving the Disposal, the SP Agreement and the transactions contemplated thereunder the Company and its subsidiaries 1

4 DEFINITIONS HK$ Hong Kong IFA or Goldin Financial Independent Board Committee Independent Shareholder(s) Independent Third Party(ies) Jiahua Jiahua Energy Chemical Co or Purchaser Latest Practicable Date Listing Rules Mr. Guan Ms. Han Hong Kong dollars, the lawful currency of Hong Kong The Hong Kong Special Administrative Region of the PRC Goldin Financial Limited, the independent financial adviser appointed by the Independent Board Committee to advise the Independent Board Committee and the Shareholders in relation to, among others, the SP Agreement and the Disposal contemplated thereunder an independent committee of the Board comprising the independent non-executive Directors, namely Mr. Shen Kaijun, Mr. Mui Ho Cheung Gary and Ms. Pei Yu, to consider and advise the Shareholders with regard to the Disposal Shareholder(s) other than Jiahua, the Purchaser, Mr. Guan, Ms. Han and their respective associates third party(ies) independent of the Group and its connected persons (Zhejiang Jiahua Group Co., Ltd.*), a joint stock company established in the PRC with limited liability on 15 March 2000 (Zhejiang Jiahua Energy Chemical Co., Ltd.*) (formerly known as (Zhejiang Jiahua Industrial Park Investment and Development Co., Ltd.*)), a company established in the PRC with limited liability on 20 January 2001 and a non-wholly owned subsidiary of Jiahua and its shares are listed on the Shanghai Stock Exchange ( SH) 27 April 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular the Rules Governing the Listing of Securities on the Stock Exchange Mr. Guan Jianzhong, an executive Director Ms. Han Jianhong, an executive Director 2

5 DEFINITIONS PRC Realized Net Profit RMB Sale Interest Sanjiang Chemical SFO Share(s) Shareholders the People s Republic of China being the net profit after tax of the Target for each of the three years ending 31 December 2015, 2016 and 2017 as shown in the audited accounts prepared by the auditors of the Target in accordance with the PRC accounting standards Renminbi, the lawful currency of the PRC an aggregate of 51% equity interest in the registered capital of the Target (Sanjiang Chemical Co., Ltd.*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ordinary share(s) of HK$0.10 in the capital of the Company shareholders of the Company SP Agreement the sale and purchase agreement dated 19 March 2015 entered into between the Vendors and the Purchaser in respect of, among other things, the Disposal Stock Exchange Sure Capital Target The Stock Exchange of Hong Kong Limited Sure Capital Holdings Limited, the controlling shareholder of the Company and the entire issued ordinary shares of which were owned as to approximately 84.71% by Mr. Guan and approximately 15.29% by Ms. Han, the spouse of Mr. Guan as at the Latest Practicable Date (Zhejiang Zhapu Mei Fu Port & Storage Co. Ltd.*), a limited liability company incorporated in the PRC and is owned as to 51% by the Vendors as at the Latest Practicable Date, which is accounted for as a jointly-controlled entity of the Company * For identification purpose only 3

6 DEFINITIONS US$ United States dollars, the lawful currency of the United States of America % per cent. 4

7 LETTER FROM THE BOARD CHINA SANJIANG FINE CHEMICALS COMPANY LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2198) Executive Directors: Mr. Guan Jianzhong (Chairman) Ms. Han Jianhong Mr. Niu Yingshan Mr. Han Jianping Registered Office: Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman, KY Cayman Islands Independent Non-Executive Directors: Mr. Shen Kaijun Mr. Mui Ho Cheung, Gary Ms. Pei Yu Principal place of business in Hong Kong: Room , Infinitus Plaza 199 Des Voeux Road Central Sheung Wan, Hong Kong 28 April 2015 To the Shareholders Dear Sir or Madam, DISCLOSEABLE AND CONNECTED TRANSACTION PROPOSED DISPOSAL OF 51% INTEREST IN A PRC COMPANY INTRODUCTION On 19 March 2015, it was announced that, the Vendors (each a wholly-owned subsidiary of the Company) as vendors entered into the SP Agreement with the Purchaser, pursuant to which the Vendors have conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Interest for a Consideration of RMB357,000,000 subject to the terms and conditions of the SP Agreement. The purpose of this circular is to give you with further information regarding, among others, the SP Agreement and the Disposal, the advice of the Independent Board Committee to the Shareholders and the advice from Goldin Financial to the Independent Board Committee and the Shareholders and to give you notice of the EGM. 5

8 LETTER FROM THE BOARD THE DISPOSAL The SP Agreement Date 19 March 2015 Parties The Vendors: 1. Sanjiang Chemical (an indirect wholly-owned subsidiary of the Company) as vendor for 33.00% equity interest in the Target 2. Capitol International (a direct wholly-owned subsidiary of the Company) as vendor for 18.00% equity interest in the Target The Purchaser: Jiahua Energy Chemical Co Subject matter of the Disposal Pursuant to the SP Agreement, the assets to be disposed of would be the Sale Interest being an aggregate of 51% equity interest in the entire registered capital of the Target. Consideration The Consideration of the Sale Interest being RMB357,000,000 shall be payable by the Purchaser to the Vendors (or their respective nominee) in the following manner: (a) 50% of the Consideration, being RMB178,500,000, shall be payable within five Business Days following the Completion Date by cheque or bank transfer or in other manner as agreed between the parties to the SP Agreement; and (b) the remaining balance of the Consideration, being RMB178,500,000, shall be payable by cheque or bank transfer or in other manner as agreed between the parties to the SP Agreement in three equal portions of RMB59,500,000 each on or before 31 March 2016, 31 March 2017 and 31 March 2018, respectively. Pursuant to the SP Agreement, the Consideration is subject to a downward adjustment if the Realized Net Profit for the three years ending 31 December 2015, 2016 and 2017 shall be less than RMB65,000,000, RMB70,000,000 and RMB75,000,000, respectively, in which the Consideration shall be discounted by an amount equivalent to 51% of the shortfall multiplied by a multiple of

9 LETTER FROM THE BOARD The Consideration was determined after arm s length negotiations between the Vendors and the Purchaser taking into consideration of (i) the unaudited net asset value of the Target as at 28 February 2015 of approximately RMB207,179,000 and 51% of which amounted to RMB105,561,290; (ii) the historical financial performance (a stable and increasing trend of the profit of the Target) and prospects of the Target (there are existing long term port services contracts secured by the Target for the next three financial years); and (iii) the adjustment mechanism to the Consideration as agreed between the parties. Given the stable port services business of the Target, the Purchaser and the Vendors did not contemplate that there will be any loss position of the Target which will result in any extreme adjustment to the Consideration to the extent that the possible downward adjustment could be equal or exceed the Consideration when they negotiated the terms of the SP Agreement, and thus, no cap was being set for the adjustment mechanism to the Consideration. However, given the remote risk that in extreme circumstance the possible downward adjustment could be equal or exceed the Consideration as there is no cap for the adjustment, the Company has taken further steps to negotiate with the Purchaser and obtain additional irrevocable consent/undertaking from the Purchaser and Mr. Guan (the reason for obtaining irrevocable consent/undertaking instead of entering into supplemental agreement(s) is that it will be burdensome for the Purchaser (a company listed on Shanghai Stock Exchange) to re-convene another general meeting to approve the amendments to the SP Agreement) as follows: 1. On 17 April 2015, the Purchaser has provided a letter of irrevocable consent to the Vendors that (i) it shall procure the Target to continue to operate the same core operation (i.e. the port services businesses) as those engaged prior to the date of signing of the SP Agreement, and not to engage in any other material non-core operation or investment, during the three years ending 31 December 2017; and (ii) in the event that there is any dispute regarding the Realized Net Profit of the Target during the three years ending 31 December 2017, the Purchaser agreed that a third party independent auditor will be jointly appointed by the Purchaser and the Vendors to re-assess the Realized Net Profit during the profit guarantee period. 2. On 17 April 2015, Mr. Guan has provided an irrevocable undertaking to the Vendors that he shall irrevocably undertake that if the Purchaser is going to claim against the Vendors for any Consideration adjustment amount exceeding RMB160,650,000, he will himself pay such amount to the Purchaser directly or if the Vendors have already paid such excess amount to the Purchaser, he will compensate the Vendors for such excess. 7

10 LETTER FROM THE BOARD Mr. Guan and his associates are the ultimate controlling shareholders of both the Company (a company listed on the Stock Exchange with a market capitalization of around HK$3 billion as at the Latest Practicable Date) and the Purchaser (a company listed on the Shanghai Stock Exchange with a market capatlisation of around RMB19 billion as at the Latest Practicable Date), which the Board is unaware of any facts which will adversely affect Mr. Guan s financial ability to honour his undertakings. In the event that there will be any breach of the consent/undertaking provided by the Purchaser and Mr. Guan, the Group will take all necessary legal actions against the Purchaser and Mr. Guan as advised by its legal advisers. Taking into account the irrevocable consent and undertaking mentioned above and the stable port services business of the Target, the Company does not anticipate there will be any material adjustment to the Consideration even though there is not any cap and the Realized Net Profit will be calculated taking into account all one-off/non-core items. The irrevocable undertaking provided by Mr. Guan also indirectly help set the maximum adjustment to the Consideration at RMB160,650,000 (RMB65,000,000 + RMB70,000,000 + RMB75,000,000) x 51% x 1.5 = RMB160,650,000) only. Taking into account the above, the Directors (including the independent non-executive Directors) consider that the Consideration is fair and reasonable and on normal commercial terms and in the interest of the Shareholders as a whole. RISK FACTOR As the possible downward adjustment could be equal or exceed the Consideration and Mr. Guan may not fulfill his undertakings, the Vendors will still be bound to compensate the Purchaser of any shortfall of guaranteed Realized Net Profit of the Target under the SP Agreement. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares. Conditions precedent Completion of the SP Agreement is conditional on the satisfaction (or, where applicable, waiver by the Purchaser) of the following conditions: (a) (b) (c) the shareholders and/or Independent Shareholders, where applicable of both the Purchaser and the Company having passed respective ordinary resolutions to approve the SP Agreement, the Disposal and the transactions contemplated thereunder at their respective general meetings; the Purchaser having satisfied with the result of due diligence exercise on the Target; and all necessary approvals, consents and authorization in respect of the Disposal being obtained from the relevant PRC regulatory authorities (if applicable). 8

11 LETTER FROM THE BOARD If any of the conditions precedent set out above cannot be fulfilled or (only for items (b) and (c) above) waived on or before 31 August 2015 (or such later date as may be agreed by the parties in writing), the obligations of the parties to proceed with Completion shall cease and terminate and no party shall have any claim against or liability to the other party with respect to any matter referred to in the SP Agreement save for any antecedent breaches of the SP Agreement. The Vendors shall, within ten Business Days from 31 August 2015 (or such later date as may be agreed by the parties in writing), refund the first instalment of the Consideration paid by the Purchaser to the Purchaser. Completion shall take place on the fifth Business Day following the fulfillment (or waiver, where applicable) of the conditions precedent set out in the SP Agreement or any other date as mutually agreed by the Company and the Purchaser in writing. Upon Completion, the Group would obtain all necessary approvals, consents, authorisation, registration and filing in respect of the Disposal from the relevant PRC regulatory authorities including but not limited to the completion of filing and registration with the relevant State Administration for Industry and Commerce; and in turn cease to have any interest in the Target which would accordingly cease to be a jointly-controlled entity of the Company. INFORMATION ON THE PURCHASER The Purchaser (a company listed on the Shanghai Stock Exchange) is a limited company established in the PRC and is principally engaged in the business of production and supply of steam, chlor-alkali, Ortho-para, sulfuric acid and fatty alcohol. It is owned as to approximately 45.63% by Jiahua, which is ultimately controlled by Mr. Guan and Ms. Han, being executive Directors. The Purchaser is an associate of Mr. Guan and Ms. Han and is thus a connected person of the Company under the Listing Rules. INFORMATION ON THE TARGET The Target is a limited liability company established in the PRC on 20 March The Company, through capital injection of US$12,490,000 into the Target in July 2013, acquired 51% of the equity interests in the Target. Please refer to the circular issued by the Company dated 27 June 2013 for details of the acquisition. It is now owned as to 33.00% by Sanjiang Chemical, 18.00% by Capitol International, and as to 31.85% and 17.15% by two other shareholders (who are Independent Third Parties), respectively as at the Latest Practicable Date. The Target has a registered and paid up capital of US$24,490,000 (equivalent to approximately HK$191,022,000). It is principally engaged in the provision of loading and storage services in its own port located in the Port Area, Jiaxing City, Zhejiang Province, the PRC. The Target owns the biggest port in the Port Area, Jiaxing City, Zhejiang Province, the PRC with an annual loading capacity of approximately 5 million metric tonnes and 11 storage tanks with a total storage capacity of 80,000 metric tonnes. The Target commenced its operation in May The customers of the Target were mainly domestic companies requiring import or export of crude oil, propylene and other chemical products. 9

12 LETTER FROM THE BOARD The unaudited net asset value of the Target as shown on the unaudited management accounts of the Target as at 28 February 2015 was approximately RMB207,179,000. The unaudited net profits (both before and after taxation and extraordinary items) of the Target for the two years ended 31 December 2014 are as follows: For the financial year ended 31 December 2013 (unaudited) RMB 000 For the financial period ended 31 December 2014 (unaudited) RMB 000 Net profit (before taxation) 17,134 43,676 Net profit (after taxation) 12,680 32,262 The net loss/profit margins and total cost before corporate income tax ( CIT ) (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs), prepared under the PRC accounting standards, for the year ended 31 December 2012, 2013 and 2014 of the Target are as follows: 2012: Net loss margin of 6% (with revenue for the year amounted to RMB28,413,000 and total cost before corporate income tax (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs) amounted to RMB29,976,000) 2013: Net profit margin of 29.2% (with revenue for the year amounted to RMB45,385,000 and total cost before corporate income tax (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs) amounted to RMB27,900,000) 2014: Net profit margin of 43.5% (with revenue for the year amounted to RMB62,149,000 and total cost before corporate income tax (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs) amounted to RMB23,487,000) The Company involved in the management of the Target starting from July 2013 after it acquired 51.00% equity interest of the Target and since that time, a number of cost saving measures have been put in place, including but not limited to, assessing and simplifying the internal procedures of each functions and relocating staffs, which led to decrease in total cost over the three years ended 31 December

13 LETTER FROM THE BOARD Details of existing port services contracts secured by the Target On 10 April 2015, the Group entered into three framework port service agreements with the Target for a period of 3 years (on terms same as those with the Target Group for utilizing the port services prior to these three framework port service agreements). With these agreements in place, the Company can continue to utilize the port services provided by the Target with terms and conditions that are no less favourable than the terms offered to the Group in the past prior to the signing of the SP Agreement as well as other independent third parties with details as follows: Name of port services users Term Services (Loading/ Unloading/ Storage) Transaction amounts for the years ending 31 December 2015, 2016 and 2017 Sanjiang Chemical Co., Limited, an indirect wholly-owned subsidiary of the Group, engaging in the manufacture and sale of ethylene oxide and surfactants 3 years from 10 April 2015 Unloading of ethylene RMB13,500,000, RMB18,000,000, RMB18,000,000 Zhejiang Xingxing New Energy Technology Co., Ltd, a 75% indirectly-owned subsidiary of the Group, engaging in the manufacture and sale of ethylene and propylene 3 years from 10 April 2015 Unloading of methanol RMB16,000,000, RMB24,000,000, RMB24,000,000 Zhejiang Meifu Petrochemical Co., Ltd., a 51% indirectly-owned joint venture of the Group, engaging in the manufacture and sale of propylene and propylene derivative products 3 years from 10 April 2015 Loading of fuel oil and unloading and storage of propylene and propylene derivative products RMB28,000,000, RMB28,000,000, RMB28,000,000 11

14 LETTER FROM THE BOARD The principal terms of the above agreements are set out as follows: Pricing: The consideration for the services shall be calculated by multiplying the tonnage of goods to be unloaded at RMB50 per ton, which is in turn determined taking into account the cost of the provision of such services, including port unloading fees, storage fees, customs reporting and inspection fees, port construction charges, and land transport fees, on the basis of the prevailing market rate and after arm s length negotiation among the parties concerned. Currently, the Group has also used other port services provided by other third parties in the same region at a charge of RMB50 per ton for unloading the goods and in most of the time, the Group needs to queue up (after the arrival of the vessel) for more than 3 days to have its goods unloaded. The Group currently does not have the control over the Target (accordingly, the Target is accounted for as an associated company) which means although the Group owns 51% equity interest of the Target, it is not able to prioritise the unloading works for its own goods at this stage. The Purchaser, which is ultimately controlled by the controlling shareholder of the Group, has committed to purchase not only the 51% equity interest of the Target from the Group but also the remaining 49% equity interest of the Target that are owned by independent third parties, which means the controlling shareholder of the Group is able to obtain the control of the Target upon Completion and the goods of the Group is expected to be given certain priorities (when compared to the previous position) in terms of unloading after Completion. With these formal agreements in place, the Group is able to secure a more reliable and cost effective unloading services being offered to the Group in the next 3 years. Given that the relevant applicable percentage ratios in respect of the aggregate amount of the above transactions are more than 0.1% and less than 5%, these transactions, upon Completion will become continuing connected transactions of the Company which are subject to the reporting, announcement and annual review requirements but are exempt from the independent shareholders approval requirements under Chapter 14A of the Listing Rules. Please refer to the announcement issued by the Company on 27 April 2015 for details. 12

15 LETTER FROM THE BOARD The port services contracts which have already been secured by the Target with the independent third parties/related parties (i.e. not connected parties under the definition of Chapter 14A) of the Company are set out as follows: Name of port services users Date of contract Term Services (Loading/ Unloading/ Storage) Contract amounts Estimated revenue to be generated for the years ending 31 December 2015, 2016 and 2017 Related parties Sanjiang Lotte Chemical Co., Ltd., a 50% indirectly-owned joint operation of the Group, engaging in the manufacture and sale of EO. 10 April years Unloading of ethylene RMB5,000,000 per annum 2015: RMB5,000, : RMB5,000, : RMB5,000,000 Independent third parties A number of Independent Third Parties with business relationships with the Target Group for more than 2 years Ranging from half year to 8 years Loading, unloading and storage of chemicals Ranging from RMB500,000 per annum to RMB17,500,000 per annum 2015: RMB49,800,000* 2016: RMB49,800,000* 2017: RMB49,800,000* * the amounts are estimated based on the terms of the agreements secured for the year ending 2015, taking into account that the above Independent Third Parties are very likely to renew the short term services contracts with the Target for the remaining 6or 7-months for the year ending 2015 and also during the year ending 2016 and 2017 (and assuming on same terms without increase in services charges) Given the strong demand for the port services provided by the Target, it is the strategy of the Target that it will only enter into or renew service contracts with independent third party customers on a short term basis (i.e. say half year or not more than one year) since 2014 so that it can better serve and prioritize its capacities for its related/connected parties and procure better terms at the then prevailing market conditions. Most of the above independent third parties have been the customers of the Target for a long time (i.e. at least two or more years), and they have regular and recurring demand for services of the Target, and the Board does not consider that there will be any difficulties for the Target to renew the above service contracts on same or better terms with the said parties during the profit guarantee period, provided that they have sufficient capacities available. 13

16 LETTER FROM THE BOARD Further, based on the revenue expected to be generated from the agreements secured as set out above, the annual revenue to be generated is already up to approximately RMB78,500,000 for the year ending Taking into account that the above parties are very likely to renew the short term services contracts with the Target for the remaining 6 or 7-months for the year ending 2015 and also during the year ending 2016 and 2017 (and assuming on same terms without increase in services charges) and the secured three years contracts with the Group as disclosed in the table above, the annual revenue to be generated will be up to approximately RMB112,300,000 (being the sum of RMB13,500,000 (contract with Sanjiang Chemical Co., Limited) + RMB16,000,000 (contract with Zhejiang Xingxing New Energy Technology Co., Ltd) + RMB28,000,000 (contract with Zhejiang Meifu Petrochemical Co., Ltd) + RMB5,000,000 (contract with Sanjiang Lotte Chemical Co., Ltd) + RMB49,800,000 (contracts with a number of Independent Third Parties)), RMB124,800,000 (being the sum of RMB18,000,000 (contract with Sanjiang Chemical Co., Limited) + RMB24,000,000 (contract with Zhejiang Xingxing New Energy Technology Co., Ltd) + RMB28,000,000 (contract with Zhejiang Meifu Petrochemical Co., Ltd) + RMB5,000,000 (contract with Sanjiang Lotte Chemical Co., Ltd) + RMB49,800,000 (contracts with a number of Independent Third Parties)) and RMB124,800,000 (being the sum of RMB18,000,000 (contract with Sanjiang Chemical Co., Limited) + RMB24,000,000 (contract with Zhejiang Xingxing New Energy Technology Co., Ltd) + RMB28,000,000 (contract with Zhejiang Meifu Petrochemical Co., Ltd) + RMB5,000,000 (contract with Sanjiang Lotte Chemical Co., Ltd) + RMB49,800,000 (contracts with a number of Independent Third Parties)), respectively. Assuming a net profit margin of just 60%, the net profit of the Group to be recorded for the year ending 2015, 2016 and 2017 will be approximately RMB67,300,000, 74,880,000 and 74,880,000 respectively (assuming there is not any annual growth rate, and just based on the terms of existing contracts secured as disclosed above), while the profit guarantee for the year ending 2015, 2016 and 2017 is just RMB65,000,000, RMB70,000,000 and RMB75,000,000, respectively. As a result, the Board does not anticipate that there will be any material shortfall to the profit guarantee during the profit guarantee period. The 60% net profit margin is determined as follows: Assuming a growth rate of 5.4% per annum, respecting the high end of CPI of PRC during the period from 2010 to 2014 according to the National Bureau of Statistics of China ( the expected total cost before CIT (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs) for the year ending 31 December 2015, 2016 and 2017 will be amounted to RMB24,755,000 (i.e. the total cost before CIT (including but not limited to cost of sales, administration expense, other expenses, staff costs and finance costs) for the year ended 31 December 2013) x 1.054, RMB26,092,000 (being RMB24,755,000 x 1.054) and RMB27,501,000(being RMB26,092,000 x 1.054), respectively, the net profit margins of 60% is thus determined referencing to the following formula: 2015: (1 RMB24,755,000/RMB112,300,000)*(1 CIT of 25%) = 58.5% 2016: (1 RMB26,092,000/RMB124,800,000)*(1 CIT of 25%) = 59.3% 14

17 LETTER FROM THE BOARD 2017: (1 RMB27,501,000/RMB124,800,000)*(1 CIT of 25%) = 58.5% FINANCIAL EFFECTS OF THE DISPOSAL Upon Completion, the Target shall cease to be a jointly-controlled entity of the Company. For illustration purpose, the expected unaudited gain to be derived from the Disposal, subject to audit and assuming no downward adjustment to the Consideration, would amount to approximately RMB155,000,000, representing the difference between the amount of the Consideration and the unaudited net assets value together with the related goodwill of the Group of approximately RMB163,985,000 as at 28 February 2015 less any transaction costs directly attributable to the Disposal (including but not limited to professional and other related expenses and relevant taxes if any). The actual gain or loss as a result of the Disposal to be recorded by the Group is subject to audit and will be assessed after Completion. Upon Completion, (i) the non-current assets of the Group will be reduced by approximately RMB163,985,000 (and (ii) the current assets of the Group will be increased by approximately RMB319,000,000, subject to audit. Upon Completion, the Company will cease to have any interest in the Target which would accordingly cease to be a jointly-controlled entity of the Company. USE OF PROCEEDS It is the intention of the Company that the proceeds arising from the Disposal shall be used by the Company as general working capital of the Group. REASONS FOR AND BENEFIT OF THE DISPOSAL The Group is principally engaged in the manufacturing and supplying of ethylene oxide and surfactants and the provision of surfactants processing service. The Disposal is a restructuring implemented by the Group with a view to streamlining its businesses through the disposal of its non-core business engaging in the provision of loading and storage services at the port. The Board was informed by the Purchaser of its intention to develop its business of provision of loading and storage services at the port, and its interest in acquiring not only the Sale Interest from the Group but also the other 31.85% and 17.15% interests of the Target from two other shareholders, respectively. 15

18 LETTER FROM THE BOARD In such connection, the parties entered into the SP Agreement for the Disposal of the Sale Interest to the Purchaser. The Disposal is in line with the Group s corporate strategy to consolidate its core businesses in order to enhance Shareholders value and to refocus its efforts and resources (i.e. funding obtained from the proceeds of the Disposal) on stable growth areas such as manufacturing and supplying of ethylene oxide. As mentioned above, the proceeds arising from the Disposal shall be used by the Company as general working capital of the Group for its operation of its core businesses. Better risk control of the Group is also achieved through the disposal of the non-core business of the Group. The Board considers that the Disposal will not affect the operation of the Company, in particular, the reliability of the logistic of its production process in Zhejiang. Upon Completion and subject to the acquisition of the remaining 49% equity interests in the Target by the Purchaser, the Target will become a wholly-owned subsidiary of the Purchaser, which is a company controlled by Mr. Guan and Ms. Han (the ultimate controlling shareholder of the Company). Given the shareholding interests of Mr. Guan and Ms. Han in the Company, the reliability of the logistic of the production process of the Group is unlikely to be affected after Completion, as contrasted with a disposal to an Independent Third Party. The Directors (including the independent non-executive Directors) consider that the terms of the SP Agreement and the Disposal contemplated thereunder (including the Consideration and the adjustment mechanism) are on normal commercial terms and are fair and reasonable and in the interest of the Company and the Shareholders as a whole. IMPLICATIONS UNDER THE LISTING RULES For the purpose of Chapter 14 of the Listing Rules, as some of the applicable percentage ratios (as defined in Rule of the Listing Rules) in respect of the Disposal exceed 5% and are less than 25%, the Disposal constitutes a discloseable transaction for the Company which is subject to reporting and announcement requirements under Chapter 14 of the Listing Rules. The Purchaser is owned as to approximately 45.63% by Jiahua, which is ultimately controlled by Mr. Guan and Ms. Han, being executive Directors. The Purchaser is an associate of Mr. Guan and Ms. Han and is thus a connected person of the Company pursuant to the Rule 14A.07(4) of the Listing Rules. Accordingly, the Disposal constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules which is subject to, among other things, the Independent Shareholders approval at the EGM. Jiahua, the Purchaser, Mr. Guan, Ms. Han and their respective associate(s) are required to abstain from voting on the resolution(s) to be proposed for approving the Disposal contemplated under the SP Agreement at the EGM. Each of Mr. Guan and Ms. Han was interested in the SP Agreement and they therefore abstained from voting on board resolutions of the Company approving such transactions. Save as disclosed, none of the Directors had a material interest in the SP Agreement and none of them were therefore required to abstain from voting on board resolutions of the Company in respect of the Disposal. The Company will seek the Independent Shareholders approval for the SP Agreement and the Disposal at the EGM. 16

19 LETTER FROM THE BOARD The Company has established an independent board committee (which comprises only and all the independent non-executive Directors) to advise the Shareholders as to whether the terms of the SP Agreement and the Disposal are fair and reasonable. EGM The Company will convene the EGM at 9:30 a.m. on 15 May 2015 at Compass Office, L20, Infinitus Plaza, 199 Des Voeux Road Central, Sheung Wan, Hong Kong to consider, among other things, the SP Agreement and the Disposal contemplated thereunder. The resolutions will be put to the vote at the EGM by poll as required by the Listing Rules. A notice of the EGM is set out on pages 43 to 45 of this circular. As at the Latest Practicable Date, so far as the Directors are aware, Sure Capital, a company beneficially controlled by Mr. Guan and Ms. Han who are executive Directors, together with Mr. Guan as the beneficial owner, owned approximately 48.51% of the entire issued share capital of the Company. Sure Capital, its associates and those who are involved or interested in the SP Agreement are required to abstain from voting on the resolution(s) to approve the SP Agreement and the transactions contemplated thereunder proposed to be passed at the EGM. A form of proxy for use at the EGM is also enclosed. If you are not able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding 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 if you so wish. VOTING BY POLL Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. Therefore, all the resolutions put to the vote at the EGM will be taken by way of poll. The chairman of the EGM will explain the detailed procedures for conducting a poll at the commencement of the EGM. After the conclusion of the EGM, the poll results will be published on the respective websites of the Stock Exchange and the Company. RECOMMENDATIONS Your attention is drawn to the advice of the Independent Board Committee set out in its letter set out on pages 19 to 20 of this circular and the letter of advice from Goldin Financial to the Independent Board Committee and the Shareholders in connection with the SP Agreement and the Disposal and the principal factors and reasons considered by them in arriving at such advice set out on page 21 to page 39 in this circular. 17

20 LETTER FROM THE BOARD The Independent Board Committee, having taken into account the advice of Goldin Financial, considers that the terms of the SP Agreement and the Disposal are fair and reasonable so far as the Shareholders are concerned and recommend the Shareholders to vote in favour of the ordinary resolutions approving the SP Agreement and the Disposal at the EGM. ADDITIONAL INFORMATION Your attention is drawn to the information set out in the appendix to this circular. Yours faithfully, For and on behalf of the Board of China Sanjiang Fine Chemicals Company Limited Guan Jianzhong Chairman 18

21 LETTER FROM THE INDEPENDENT BOARD COMMITTEE The following is a full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in this circular: CHINA SANJIANG FINE CHEMICALS COMPANY LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2198) 28 April 2015 To the Independent Shareholders Dear Sir or Madam CONNECTED TRANSACTION PROPOSED DISPOSAL OF 51% INTEREST IN A PRC COMPANY We refer to the circular issued by the Company to its Shareholders and dated 28 April 2015 ( Circular ) of which this letter forms part. Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires. Under the Listing Rules, the Disposal constitute a non-exempt connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and independent shareholders approval requirements under Chapter 14A of the Listing Rules. We have been appointed by the Board to consider the terms of the SP Agreement and the Disposal and to advise the Shareholders in connection therewith and as to whether, in our opinion, such terms are fair and reasonable so far as the Shareholders are concerned. Goldin Financial has been appointed as the independent financial adviser to advise us in this respect. We wish to draw your attention to the letter from the Board and the letter from Goldin Financial as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Goldin Financial as set out in its letter of advice, we consider that the terms of SP Agreement and the Disposal are on normal commercial terms. We also consider that the terms of the SP Agreement and the Disposal are fair and 19

22 LETTER FROM THE INDEPENDENT BOARD COMMITTEE reasonable so far as the Shareholders are concerned, and the entering into of the SP Agreement is in the interest of the Company and the Shareholders as a whole. Accordingly, we recommend the Shareholders to vote in favour of the ordinary resolutions approving SP Agreement and the Disposal at the EGM. Yours faithfully, For and on behalf of Independent Board Committee SHEN Kaijun MUI Ho Cheung, Gary PEI Yu Independent non-executive Directors 20

23 LETTER FROM GOLDIN FINANCIAL The following isthe full text of the letter from Goldin Financial setting outthe advice to the Independent Board Committee and the Shareholders inrelation to the SP Agreement and the Disposal, which has been prepared for the purpose of inclusion in this circular. Goldin Financial Limited 23/F Two International Finance Centre 8 Finance Street Central Hong Kong 28 April 2015 To: The Independent Board Committee and the Shareholders of China Sanjiang Fine Chemicals Company Limited Dear Sirs or Madams, DISCLOSABLE AND CONNECTED TRANSACTION: PROPOSED DISPOSAL OF 51%INTEREST IN A PRC COMPANY INTRODUCTION We refer to our appointment as the independent financial adviser to the independent board committee (the Independent Board Committee ) and the shareholders (the Shareholders ) of China Sanjiang Fine Chemicals Company Limited (the Company ) in relation to the SP Agreement and the Disposal, details of which are set out in the letter from the Board ( Letter from the Board ) contained in the circular dated 28 April 2015 (the Circular ), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as defined in the Circular. On 19 March 2015, the Vendors (each a wholly-owned subsidiary of the Company) as vendors entered into the SP Agreement with the Purchaser, pursuant to which the Vendors have conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Interest for a Consideration of RMB357,000,000, subject to the terms and conditions of the SP Agreement. Upon Completion, the Company will cease to have any interest in the Target which would accordingly cease to be a jointly-controlled entity of the Company. For the purpose of Chapter 14 of the Listing Rules, as some of the applicable percentage ratios (as defined in Rule of the Listing Rules) in respect of the Disposal exceed 5% and are less than 25%, the Disposal constitutes a discloseable transaction for the Company which is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules. 21

24 LETTER FROM GOLDIN FINANCIAL As at the Latest Practicable Date, the Purchaser was owned as to approximately 45.63% by Jiahua, which is ultimately controlled by Mr. Guan and Ms. Han, being the executive Directors. The Purchaser is an associate of Mr. Guan and Ms. Han and hence a connected person of the Company. Accordingly, the Disposal constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules which is subject to, among other things, the Independent Shareholders approval at the EGM. Jiahua, Jiahua Energy Chemical Co., Mr. Guan, Ms. Han and their respective associate(s) are required to abstain from voting on the resolution(s) to be proposed for approving the Disposal contemplated under the SP Agreement at the EGM. THE INDEPENDENT BOARD COMMITTEE The Independent Board Committee comprising Mr. SHEN Kaijun, Mr. MUI Ho Cheung, Gary and Ms. PEI Yu, being the independent non-executive Directors, has been formed to advise the Shareholders as to whether the terms of the SP Agreement and the Disposal are fair and reasonable and in the interests of the Company and the Shareholders as a whole. We, Goldin Financial Limited, have been appointed by the Company as the IFA to advise the Independent Board Committee and the Shareholders in relation to the SP Agreement and the Disposal and to make a recommendation as to, among others, whether the terms of the SP Agreement and the Disposal are fair and reasonable so far as the Shareholders are concerned and as to voting in respect of the relevant resolutions at the EGM. Our appointment has been approved by the Independent Board Committee. BASIS OF OUR ADVICE In formulating our opinion and recommendations, we have reviewed, inter alia, the Announcement, the SP Agreement, the annual results announcement of the Company for the year ended 31 December 2014 (the AR Announcement ) and the annual report of the Company for the year ended 31 December 2013 (the Annual Report 2013 ). We have also reviewed certain information provided by the management of the Company relating to the operations, financial conditions and prospects of the Group. We have also (i) considered such other information, analyses and market data which we deemed relevant, and (ii) conducted verbal discussions with the management of the Company regarding the terms of the Disposal, the businesses and future outlook of the Group. We have assumed that such information and statements, and any representation made to us are true, accurate and complete in all material respects as of the date hereof and we relied upon them in formulating our opinion. 22

25 LETTER FROM GOLDIN FINANCIAL All Directors collectively and individually accept full responsibility for the purpose of giving information with regard to the Company in the Circular and, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other fact not contained in the Announcement and the Circular, the omission of which would make any statement in the Circular misleading. We consider that we have been provided with, and we have reviewed all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the terms of, and reasons for the Disposal to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the business or affairs or future prospects of the Group. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us as at the Latest Practicable Date. This letter is issued for the information for the Independent Board Committee and the Shareholders solely in connection with their consideration of the Disposal, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent. PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion in respect of the Disposal and our recommendation to the Independent Board Committee and the Shareholders, we have taken the following principal factors and reasons into consideration: 1. Background information of the Group The Group is principally engaged in the manufacturing and supplying of ethylene oxide ( EO ) and surfactants. The Group is also engaged in the provision of processing service for surfactants to its customers and the production and supply of other chemicals and industrial gases in the PRC. Table 1 below provides an overview of the financial information of the Group for each of the two financial years ended 31 December 2014 as extracted from the AR Announcement and the financial information of the Group for the year ended 31 December 2012 as extracted from the Annual Report