Connected Transaction Regarding Entrusted Loan ...

------------------------------------------------------------------------ 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 DATANG INTERNATIONAL POWER GENERATION CO., LTD., 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 disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. ------------------------------------------------------------------------ DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) CONNECTED TRANSACTION IN RELATION TO ENTRUSTED LOAN AGREEMENT Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders Mizuho Securities Asia Limited ------------------------------------------------------------------------ A letter from the Board is set out on pages 4 to 9 of this circular. A letter from the Independent Board Committee is set out on pages 10 to 11 of this circular. A letter from Mizuho Securities containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 18 of this circular. The Company will convene the EGM at the meeting room no. 1608, head office of the Company, No. 9 Guangningbo Street, Xicheng District, Beijing, PRC on 18 December 2012 (Tuesday) at 9:00 a.m.. The notice convening the EGM has been despatched to the Shareholders on 1 November 2012. Completion and return of the proxy form shall not preclude you from attending and voting in person at the EGM or at any adjourned meetings should you so wish. 20 November 2012 ------------------------------------------------------------------------ CONTENTS ------------------------------------------------------------------------ DEFINITIONS LETTER FROM THE BOARD LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM MIZUHO SECURITIES APPENDIX �C GENERAL INFORMATION ------------------------------------------------------------------------ DEFINITIONS ------------------------------------------------------------------------ In this circular, unless the context otherwise requires, the following expressions have the following meanings: "A Share(s)" the domestic ordinary share(s) of the Company with a nominal value of RMB1.00 each and are listed on the Shanghai Stock Exchange "Board" the board of Directors of the Company "CDC" China Datang Corporation, a State-owned enterprise established under the laws of the PRC and is the controlling Shareholder of the Company pursuant to the Listing Rules which, together with its subsidiaries, own approximately 34.71% of the issued share capital of the Company as at the Latest Practicable Date "Company" Datang International Power Generation Co., Ltd., a sino-foreign joint stock limited company incorporated in the PRC on 13 December 1994, whose H Shares are listed on the Stock Exchange and the London Stock Exchange and whose A Shares are listed on the Shanghai Stock Exchange "connected person" has the meaning ascribed to it under the Listing Rules "connected transaction" has the meaning ascribed to it under the Listing Rules "Datang Finance Company" Datang Corporation Finance Limited Company, a subsidiary of CDC "Directors" the director(s) of the Company "Duolun Coal Chemical Company" Datang Inner Mongolia Duolun Coal Chemical Company Limited, which constructs and operates the Duolun Coal Chemical Project "Duolun Coal Chemical Project" the project located in Duolun County in the Inner Mongolia Autonomous Region which uses the brown coal from the East Unit 2 coal mine of Shengli Coal Mine as raw materials for the production of polypropylene chemical products by employing the pulverised coal gasification technology, the synthetic gas purification technology, large-scale methanol synthesis technology, the methanol-to-propylene technology and the propylene polymerisation technology "EGM" the 2012 third extraordinary general meeting of the Company to be held at the PRC on 18 December 2012 (Tuesday) at 9:00 a.m. "Entrusted Loan" the entrusted loan of a total principal amount of not exceeding RMB3 billion "Entrusted Loan Agreement" the entrusted loan agreement entered into on 31 October 2012 between the Company, Datang Finance Company and Duolun Coal Chemical Company in respect of the Entrusted Loan Arrangement "Entrusted Loan Arrangement" the arrangement where Datang Finance Company is entrusted by the Company to act as a lending agent to, inter alia, release the Entrusted Loan to Duolun Coal Chemical Company pursuant to the Entrusted Loan Agreement "Financial Services Agreement" the financial services agreement dated 26 October 2010 entered into between the Company and Datang Finance Company, details of which please refer to the circular of the Company dated 16 November 2010 "Group" the Company and its subsidiaries "H Share(s)" the overseas listed foreign shares of the Company with a nominal value of RMB1.00 each, which are listed on the Stock Exchange and the London Stock Exchange "Hong Kong" the Hong Kong Special Administrative Region of the PRC "Independent Board Committee" the independent board committee of the Company, comprising five independent non-executive Directors, and each of them does not have any material interest in the Entrusted Loan Agreement "Independent Shareholders" has the meaning ascribed to it under the Listing Rules "Latest Practicable Date" 16 November 2012, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular "Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange "Mizuho Securities" Mizuho Securities Asia Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Entrusted Loan Agreement, and a licensed corporation for types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities), 5 (advising on futures contracts), 6 (advising on corporate finance) and 9 (asset management) regulated activities under the SFO "PRC" the People's Republic of China "RMB" Renminbi, the lawful currency of the PRC "SFO" the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) "Shareholder(s)" the holder(s) of the Share(s) "Shares" the ordinary shares of the Company with a nominal value of RMB1.00 each, comprising domestic Shares and H Shares "Stock Exchange" The Stock Exchange of Hong Kong Limited "%" percent "2010 Revolving Entrusted the revolving entrusted loan agreement Loan Agreement" dated 12 January 2010 entered into between the Company, Datang Finance Company and Duolun Coal Chemical Company in respect of an entrusted loan arrangement ------------------------------------------------------------------------ LETTER FROM THE BOARD ------------------------------------------------------------------------ DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) Executive Directors: Office address: Mr. Cao Jingshan No.9 Guangningbo Street Mr. Zhou Gang Xicheng District Beijing, 100033 Non-executive Directors: the PRC Mr. Liu Shunda (Chairman) Principal place of business Mr. Hu Shengmu in Hong Kong: Mr. Fang Qinghai c/o Eversheds Mr. Liu Haixia 21/F, Gloucester Tower Ms. Guan Tiangang The Landmark Mr. Mi Dabin 15 Queen's Road Central Mr. Ye Yonghui Hong Kong Mr. Li Gengsheng Independent non-executive Directors: Mr. Li Yanmeng Mr. Zhao Zunlian Mr. Li Hengyuan Ms. Zhao Jie Mr. Jiang Guohua 20 November 2012 To the Shareholders Dear Sir or Madam, CONNECTED TRANSACTION IN RELATION TO ENTRUSTED LOAN AGREEMENT BACKGROUND On 25 October 2012, the 30th meeting of the seventh session of the Board considered and approved the provision of the Entrusted Loan of not exceeding RMB3 billion to Duolun Coal Chemical Company. On 31 October 2012, the Company entered into the Entrusted Loan Agreement with Datang Finance Company and Duolun Coal Chemical Company in relation to the provision of the Entrusted Loan by the Company to Duolun Coal Chemical Company through the Entrusted Loan Arrangement, in which Datang Finance Company acts as the lending agent. The purpose of this circular is: (1) to provide you with further details of the Entrusted Loan Agreement; (2) to set out the recommendation of the Independent Board Committee in respect of the Entrusted Loan Agreement; and (3) to set out the letter of advice from Mizuho Securities to the Independent Board Committee and the Independent Shareholders in respect of the Entrusted Loan Agreement. ENTRUSTED LOAN AGREEMENT Date and Subject Matter On 31 October 2012, the Company entered into the Entrusted Loan Agreement with Datang Finance Company and Duolun Coal Chemical Company in relation to the provision of the Entrusted Loan by the Company to Duolun Coal Chemical Company pursuant to the Entrusted Loan Arrangement, in which Datang Finance Company acts as a lending agent. Parties to the Agreement 1. The Company, as the lender; 2. Datang Finance Company, as the lending agent; and 3. Duolun Coal Chemical Company, as the borrower. Major Terms of the Entrusted Loan Agreement 1. Entrusted Loan Arrangement Pursuant to the Entrusted Loan Agreement, Datang Finance Company is entrusted by the Company to act as a lending agent to, inter alia, release the Entrusted Loan to Duolun Coal Chemical Company, and supervise Duolun Coal Chemical Company to use and repay the Entrusted Loan. 2. Principal amount of the Entrusted Loan Not exceeding RMB3 billion. 3. Term The term for the Entrusted Loan Agreement is 36 months commencing from 31 October 2012 and ending on 30 October 2015. 4. Interest rate At a floating interest rate, being the benchmark interest rate to be charged for the same level of loans in RMB by the People's Bank of China for the same period as announced by the People's Bank of China on the date when the Entrusted Loan is withdrawn and such interest rate is to be adjusted annually. The adjustment date is 21st December of each year. The adjusted interest rate will be the benchmark interest rate for the same level of loans in RMB for the same period announced by the People's Bank of China on the adjustment date. As at the Latest Practicable Date, the current benchmark interest rate of the People's Bank of China for the same level of loans in RMB for the same period is 6.15% per year. Such interest rate is arrived at after arm's length negotiation between the Company and Duolun Coal Chemical Company in consideration of the overall reduction in capital costs to the Group after the accounts of Duolun Coal Chemical Company (being the subsidiary of the Company) are consolidated into the accounts of the Company. 5. Repayment schedule of the principal of the Entrusted Loan One-off repayment of principal by Duolun Coal Chemical Company upon maturity under the Entrusted Loan Agreement. 6. Payment schedule of interests of the Entrusted Loan Interests shall be settled by Duolun Coal Chemical Company on a quarterly basis. The settlement date falls on the twentieth (20th) day of the last month of each quarter. 7. Handling Fee The handling fee shall be charged by Datang Finance Company on the date of grant of the Entrusted Loan and on the day corresponding to the date of grant of the Entrusted Loan in each following year. The rate of the handling fee per annum shall be 0.025% of the outstanding amount of the Entrusted Loan. 8. Effective date The Entrusted Loan Agreement shall become effective when it is duly signed by the parties and upon the approval of the internal authority of each of the parties (or the internal approval procedures of each of the parties have been implemented) including obtaining approval of the Entrusted Loan Agreement by the Independent Shareholders at the EGM. REASONS FOR AND BENEFITS OF ENTERING INTO THE ENTRUSTED LOAN AGREEMENT In view of the cooperation history between Datang Finance Company and the Company and given that the provision of entrusted loan services by Datang Finance Company is covered under the Financial Services Agreement, Datang Finance Company has better understanding of the operations of the Company which will allow more expedient and efficient services than those rendered by other PRC commercial banks. Further, the handling fees charged by Datang Finance Company will not be higher than those charged by other PRC commercial banks. In view of the above considerations, the Company appointed Datang Finance Company, rather than other PRC commercial banks, as the lending agent. Further, considering the capital risks control measures under the Financial Services Agreement as set out in the circular of the Company dated 16 November 2010 and the terms under the Entrusted Loan Agreement are normal commercial terms which confer no additional obligations nor risks on the Company when comparing with other entrusted loan agreement in the market, the Company considers that no additional risks will be involved by appointing Datang Finance Company as the lending agent under the Entrusted Loan Agreement. In order to ensure the day-to-day cash flow of Duolun Coal Chemical Company, the Company intends to provide the Entrusted Loan of not exceeding RMB3 billion to Duolun Coal Chemical Company. The Company is of the view that the Entrusted Loan is beneficial for the smooth progress of the Duolun Coal Chemical Project. The Entrusted Loan will be primarily utilized by Duolun Coal Chemical Company to repay its existing bank and other borrowings since the borrowings of the Company under the 2010 Revolving Entrusted Loan Agreement and a small portion of bank borrowings in the aggregate sum of approximately RMB3 billion will be due for repayment in January 2013. Considering the possible higher financial costs for Duolun Coal Chemical Company to obtain the current loan from other commercial banks when comparing with the financial costs incurred by the Company to obtain the funding of the Entrusted Loan, the Company considers that the overall capital costs to the Group will be reduced after the accounts of Duolun Coal Chemical Company (being the subsidiary of the Company) are consolidated into the accounts of the Company. The Directors (including the independent non-executive Directors) are of the view that the terms of the Entrusted Loan Agreement are fair and reasonable, have been entered into after arm's length negotiation between all parties thereto and determined on normal commercial terms and are in the interests of the Company and the Shareholders as a whole. INFORMATION ON THE PARTIES 1. Information relating to the Company The Company is principally engaged in the development and operation of power plants, the sale of electricity and thermal power, and the repair, testing and maintenance of power equipment as well as the provision of power-related technical services. The main service areas of the Company are in the PRC. 2. Information relating to Duolun Coal Chemical Company Duolun Coal Chemical Company was duly incorporated on 19 August 2009 with a registered capital of RMB4,050 million. Duolun Coal Chemical Company is principally responsible for the construction and operation of the coal-based olefin project with an annual output of 460,000 tonnes. The equity structure of Duolun Coal Chemical Company is as follows: Energy and Chemical Company, the Company's wholly-owned subsidiary, holds 60% equity interests, and CDC, the controlling Shareholder of the Company, holds 40% equity interests. As at the Latest Practicable Date, the aforementioned project is under trial-run production. 3. Information relating to Datang Finance Company Datang Finance Company is a non-banking financial institution duly incorporated in the PRC on 10 May 2005 with a registered capital of RMB3 billion. Its principal business includes, among others, the provision of deposit services, loan services, entrusted loan services and entrusted investment services. 4. Information relating to CDC CDC was established on 9 March 2003 with registered capital of RMB15.394 billion. It is principally engaged in the development, investment, construction, operation and management of power energy, organization of power (thermal) production and sales; manufacturing, repair and maintenance of power equipment; power technology development and consultation; power engineering, contracting and consultation of environmental power engineering; development of new energy as well as development and production of power related coal resources. CONNECTED TRANSACTION As at the Latest Practicable Date, Duolun Coal Chemical Company is owned as to 60% and 40% by Energy and Chemical Company, a wholly-owned subsidiary of the Company, and CDC, respectively. Datang Finance Company is a subsidiary of CDC which is the controlling Shareholder. CDC and its subsidiaries hold approximately 34.71% of the issued share capital of the Company as at the Latest Practicable Date. Both Duolun Coal Chemical Company and Datang Finance Company are therefore connected persons of the Company and the transaction under the Entrusted Loan Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. As one of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) for the principal amount of the Entrusted Loan under the Entrusted Loan Agreement is more than 5%, the Entrusted Loan Arrangement and the Entrusted Loan Agreement are subject to the requirements of reporting, announcement and approval by the independent Shareholders of the Company under Chapter 14A of the Listing Rules. The Company will disclose the relevant details in the next annual report and accounts of the Company in accordance with the relevant requirements as set out in Chapter 14A of the Listing Rules. BOARD'S APPROVAL None of the Director has material interest in the Entrusted Loan Agreement. Those connected Directors, including Liu Shunda, Hu Shengmu and Fang Qinghai, who are the principal management staff of CDC, have abstained from voting at the Board meeting for approval of the relevant transaction in accordance with the requirements of the listing rules of the Shanghai Stock Exchange. EGM The Company will convene the EGM to, among other things, consider and approve the Entrusted Loan Agreement. The notice convening the EGM and the relevant notice of attendance were despatched to the Shareholders on 1 November 2012. Any Shareholder with a material interest in the transaction and its associates will abstain from voting at the EGM for approving the Entrusted Loan Agreement. Therefore, CDC and its associates, which hold approximately 34.71% of the issued share capital of the Company as the Latest Practicable Date, shall abstain from voting at the EGM to approve the Entrusted Loan Agreement. RECOMMENDATION Your attention is drawn to the letter from the Independent Board Committee as set out on pages 10 to 11 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Entrusted Loan Agreement. Your attention is also drawn to the letter of advice received from Mizuho Securities, the independent financial adviser to the Independent Board Committee and the Independent Shareholders as set out on pages 12 to 18 of this circular which contains, among others, its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Entrusted Loan Agreement, the casting of votes for or against the resolution approving the Entrusted Loan Agreement by poll at the EGM as well as the principal factors and reasons considered by it in concluding its advice. The Directors consider that the terms of the Entrusted Loan Agreement are fair and reasonable and in the interest of the Shareholders and the Company as a whole and they recommend the Shareholders to vote in favour of the resolution at the EGM. Yours faithfully, By Order of the Board of Datang International Power Generation Co., Ltd. Zhou Gang Secretary to the Board ------------------------------------------------------------------------ LETTER FROM THE INDEPENDENT BOARD COMMITTEE ------------------------------------------------------------------------ DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) Office address No.9 Guangningbo Street Xicheng District Beijing, 100033 The PRC 20 November 2012 To the Independent Shareholders Dear Sir or Madam, CONNECTED TRANSACTION IN RELATION TO ENTRUSTED LOAN AGREEMENT We refer to the circular issued by the Company to the shareholders dated 20 November 2012 (the "Circular") of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires. Under the Listing Rules, the Entrusted Loan Agreement constitutes a connected transaction for the Company, and is subject to the approval of the Independent Shareholders at the EGM. We have been appointed as the Independent Board Committee to consider the terms of the Entrusted Loan Agreement and to advise the Independent Shareholders in connection with the Entrusted Loan Agreement as to whether, in our opinion, its terms are fair and reasonable and whether the Entrusted Loan Agreement is in the interests of the Company and the shareholders as a whole. Mizuho Securities 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 Mizuho Securities as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Mizuho Securities as set out in its letter of advice, we consider that the Entrusted Loan Agreement is on normal commercial terms, and that the Entrusted Loan Agreement is in the best interests of the Company and the Shareholders as a whole. We also consider that the terms of the Entrusted Loan Agreement are fair and reasonable. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Entrusted Loan Agreement at the EGM. Yours faithfully, For and on behalf of the Independent Board Committee Li Yanmeng, Zhao Zunlian, Li Hengyuan, Zhao Jie, Jiang Guohua Independent non-executive Directors Datang International Power Generation Co., Ltd. ------------------------------------------------------------------------ LETTER FROM MIZUHO SECURITIES ASIA LIMITED ------------------------------------------------------------------------ The following is the text of the letter of advice from Mizuho Securities Asia Limited, the independent financial adviser to the Independent Board Committee and Independent Shareholders, in respect of the Entrusted Loan Agreement, which has been prepared for the purpose of inclusion in this circular. Mizuho Securities Asia Limited 12th Floor, Chater House, 8 Connaught Road Central, Hong Kong Tel: 2685-2000 Fax: 2685-2410 20 November 2012 To the Independent Board Committee and the Independent Shareholders Datang International Power Generation Co., Ltd. Dear Sirs, CONNECTED TRANSACTION INTRODUCTION We refer to our engagement as the independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the Entrusted Loan Agreement. Further details of the Entrusted Loan Agreement are set out in the letter from the Board (the "Letter from the Board") in the circular of the Company to its Shareholders dated 20 November 2012 (the "Circular"), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires. On 31 October 2012, the Company entered into the Entrusted Loan Agreement with Datang Finance Company and Duolun Coal Chemical Company in relation to the provision of the Entrusted Loan by the Company to Duolun Coal Chemical Company pursuant to the Entrusted Loan Agreement, in which Datang Finance Company acts as a lending agent. As at the Latest Practicable Date, Duolun Coal Chemical Company is owned as to 60% and 40% by Energy and Chemical Company, a wholly-owned subsidiary of the Company, and CDC, respectively. Datang Finance Company is a subsidiary of CDC which is a controlling Shareholder. CDC together with its subsidiaries, hold approximately 34.71% of the issued share capital of the Company as at the Latest Practicable Date. Both Duolun Coal Chemical Company and Datang Finance Company are therefore connected persons of the Company and the transaction contemplated under the Entrusted Loan Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. As one of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) for the total principal amount of the Entrusted Loan under the Entrusted Loan Agreement is more than 5%, the Entrusted Loan Arrangement and the Entrusted Loan Agreement are subject to the requirements of reporting, announcement and approval by the Independent Shareholders of the Company under Chapter 14A of the Listing Rules. Our scope of work under this engagement is to assess whether the terms of the Entrusted Loan Agreement are fair and reasonable so far as the Shareholders are concerned, and, from that perspective, whether the Entrusted Loan Agreement is in the interests of the Company and the Shareholders as a whole. It is not within our scope of work to opine on any other aspects of the Entrusted Loan Agreement. In addition, it is not within our terms of reference to comment on the commercial merits of the Entrusted Loan Agreement which is the responsibility of the Directors. BASIS OF OUR OPINION In arriving at our opinion, we have relied on the information, opinions and facts supplied, and representations made to us, by the Directors, advisers and representatives of the Company (including those contained or referred to in the Circular). We have also assumed that the information and representations contained or referred to in the Circular were true and accurate in all respects at the time they were made and continue to be so at the date of dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and senior management of the Company. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We have been advised by the Directors and believe that no material facts have been omitted from the Circular. We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or other prospects of the Company, Duolun Coal Chemical Company, Datang Finance Company, CDC and any of their respective subsidiaries or associates. PRINCIPAL FACTORS AND REASONS CONSIDERED In forming our opinion, we have considered the following principal factors and reasons: 1. BACKGROUND Information relating to the Group The Group is principally engaged in the development and operation of power plants, the sale of electricity and thermal power, and the repair, testing and maintenance of power equipment as well as the provision of power-related technical services. The main service areas of the Group are in the PRC. Information relating to Duolun Coal Chemical Company Duolun Coal Chemical Company was duly incorporated on 19 August 2009 with a registered capital of RMB4,050 million. Duolun Coal Chemical Company is principally responsible for the construction and operation of the coal-based olefin project with an annual output of 460,000 tonnes in Inner Monglia, the PRC. The equity interest of Duolun Coal Chemical Company is held as to 60% by Energy and Chemical Company, the Company's wholly-owned subsidiary, and as to 40% by CDC, the controlling Shareholder of the Company. As advised by the Company, the coal-based olefin project is currently under trial-run production. Information relating to Datang Finance Company Datang Finance Company is a non-banking financial institution incorporated in the PRC on 10 May 2005. It is a subsidiary of CDC which is a controlling Shareholder. The registered capital of Datang Finance Company is RMB3 billion. The principal business of Datang Finance Company includes, among others, the provision of deposit services, loan services, entrusted loan services and entrusted investment services. Previous entrusted loans provided by the Company to Duolun Coal Chemical Company (i) Revolving entrusted loan agreement in January 2010 On 12 January 2010, the Company entered into a revolving entrusted loan agreement ("2010 Revolving Entrusted Loan Agreement") with Datang Finance Company and Duolun Coal Chemical Company in respect of an entrusted loan arrangement. Pursuant to the 2010 Revolving Entrusted Loan Agreement, Datang Finance Company is designated by the Company to act as a lending agent to, inter alia, release the revolving entrusted loan of a principal amount of RMB3 billion, which is funded by the Company, to Duolun Coal Chemical Company. The maximum term of the revolving entrusted loan is 36 months for each loan term from the date of the entering into the 2010 Revolving Entrusted Loan Agreement. The handling charge for the entrusted loan under the 2010 Revolving Entrusted Loan Agreement is calculated at 0.025% of the principal amount of the entrusted loan. The Company shall pay such handling charge in a one-off basis to Datang Finance Company when each of the loan under the 2010 Revolving Entrusted Loan Agreement is made. As advised by the Company, Duolun Coal Chemical Company has fully utilized the principal amount of RMB3 billion of such resolving entrusted loan under the 2010 Revolving Entrusted Loan Agreement as at the Latest Practicable Date. (ii) Framework entrusted loan agreement in October 2011 On 24 October 2011, the Company entered into a framework entrusted loan agreement ("2011 Framework Entrusted Loan Agreement") with Datang Energy and Chemical Company Limited ("Energy and Chemical Company"), a wholly-owned subsidiary of the Company, the Diao Yu Tai Branch of China Construction Bank Corporation ("CCB Diao Yu Tai Branch") and Duolun Coal Chemical Company. Pursuant to the 2011 Framework Entrusted Loan Agreement, CCB Diao Yu Tai Branch is designated to act as the lending agent to release the entrusted loan of a principal amount of RMB2 billion in various tranches to Duolun Coal Chemical Company. The term of the 2011 Framework Entrusted Loan Agreement is 36 months commencing from 12 October 2011 to 11 October 2014. The handling charge for the entrusted loan under the 2011 Framework Entrusted Loan Agreement is calculated at 0.025% of the principal amount of the entrusted loan. The Company shall pay such handling charge to CCB Diao Yu Tai Branch when the entrusted loan is released and on every year's corresponding date for the release of the loan. As advised by the Company, Duolun Coal Chemical Company has borrowed a total of approximately RMB2 billion pursuant to the 2011 Framework Entrusted Loan Agreement as at the Latest Practicable Date. (iii) Entrusted Loan Framework Agreement in July 2012 On 5 July 2012, the Company entered into an entrusted loan framework agreement ("2012 Entrusted Loan Framework Agreement") with Energy and Chemical Company, Datang Finance Company and Duolun Coal Chemical Company in respect of an entrusted loan arrangement. Pursuant to the 2012 Entrusted Loan Framework Agreement, Datang Finance Company is designated by the Company and Energy and Chemical Company to act as a lending agent to, inter alia, release the entrusted loan of a principal amount of RMB2 billion to Duolun Coal Chemical Company. The term of the 2012 Entrusted Loan Framework Agreement is 36 months commencing from 5 July 2012. The handling charge for the entrusted loan under the 2012 Entrusted Loan Framework Agreement is calculated at 0.025% of the outstanding amount of the entrusted loan each year. As advised by the Company, Duolun Coal Chemical Company has drawn down approximately RMB850 million of entrusted loans under the 2012 Entrusted Loan Framework Agreement as at the Latest Practicable Date. The Company advised that since Duolun Coal Chemical Project is under trial-run production, it is expected that additional testing and other work would need to be conducted and completed before the commencement of actual production. Furthermore, certain existing loans of Duolun Coal Chemical Company are about to fall due. The Company expected that Duolun Coal Chemical Company will further draw down the remaining amount of the entrusted loan amount under the 2012 Entrusted Loan Framework Agreement before the end of 2012. 2. REASONS FOR AND BENEFITS OF ENTERING INTO THE ENTRUSTED LOAN AGREEMENT We note that the aggregate amount of the entrusted loans pursuant to the 2010 Revolving Entrusted Loan Agreement, 2011 Framework Entrusted Loan Agreement and 2012 Entrusted Loan Framework Agreement made to Duolun Coal Chemical Company as at the Latest Practicable Date was approximately RMB6 billion. As advised by the Company, the Duolun Coal Chemical Project is currently still in trial-run production phase and requires additional working capital for funding the further fine-tuning construction and testing work. In addition, the borrowings of the Company under the 2010 Revolving Entrusted Loan Agreement and a small portion of bank borrowings in the aggregate sum of approximately RMB3 billion will be due for repayment in January 2013. Accordingly, the Company entered into the Entrusted Loan Agreement to provide funding to Duolun Coal Chemical Company primarily for repayment of such loans, so as to ensure smooth progress of production operation of the Duolun Coal Chemical Project. The Company advised that, considering the possible higher financial costs for Duolun Coal Chemical Company to obtain the required loan from other commercial banks as compared to the financial costs to be incurred by the Company to obtain the funding of the Entrusted Loan, the Company considers that the overall capital costs to the Group will be reduced given that Duolun Coal Chemical Company is a 60% subsidiary of the Company. The Company further advised that it had not obtained any loans from financial institutions specifically for the purpose of the provision of the Entrusted Loans, and the Company intends to fund the Entrusted Loans from its own financial resources. In view of the funding requirement of Duolun Coal Chemical Company as discussed above and the expected saving in the overall capital costs for the Group on a consolidated financial statements perspective as advised by the Company, we concur with the view of the Directors that the Entrusted Loan Agreement (including the amount of the Entrusted Loan considering the funding need of Duolun Coal Chemical Company) is in the ordinary and usual course of business of the Company, in the interest of the Company, and is fair and reasonable as far as the interests of the Shareholders as a whole are concerned. 3. MAJOR TERMS OF THE ENTRUSTED LOAN AGREEMENT Entrusted Loan Pursuant to the Entrusted Loan Agreement, Datang Finance Company is entrusted by the Company to act as a lending agent to, inter alia, release the Entrusted Loan to Duolun Coal Chemical Company, and supervise Duolun Coal Chemical Company to use and repay the Entrusted Loan. Principal amount The principal amount of the Entrusted Loan will not exceed RMB3 billion. Term The term for the Entrusted Loan Agreement is 36 months commencing from 31 October 2012 and ending on 30 October 2015. Interest rate At a floating interest rate, being the benchmark interest rate to be charged for the same level of loans in RMB by the People's Bank of China for the same period as announced by the People's Bank of China on the date when the Entrusted Loan is withdrawn and such interest rate is to be adjusted annually. The adjustment date is 21st December of each year. The adjusted interest rate will be the benchmark interest rate for the same level of loans in RMB for the same period announced by the People's Bank of China on the adjustment date. As at the Latest Practicable Date, the prevailing benchmark interest rate of the People's Bank of China for the same level of loans in RMB for the same period is 6.15% per annum. As advised by the Company, the average interest rate for Duolun Coal Chemical Company's existing borrowings (other than the loans provided by the Group) is approximately 6.35%. We have discussed with the Company and understand from the Company that since the Duolun Coal Chemical Project is still in trial-run production phase, it is uncertain as to whether Duolun Coal Chemical Company could obtain financing from other PRC commercial banks at the benchmark interest rate as announced by the People's Bank of China. As mentioned in the Letter from the Board, the interest rate under the Entrusted Loan Agreement is arrived at after arm's length negotiation between the Company and Duolun Coal Chemical Company in consideration of the overall reduction in borrowing costs to the Group (on a consolidated basis) after the accounts of Duolun Coal Chemical Company (being the controlled subsidiary of the Company) are consolidated into the accounts of the Company. We note that in April 2012, the Company has issued a bond with a principal amount of RMB5 billion and with a maturity of approximately 3.042 years at a coupon rate of 5.08%, which was lower than the then benchmark lending rate of 6.22% for the same period as announced by the People's Bank of China. Having considered that (i) the Company has the ability to obtain funds at borrowing cost lower than the benchmark lending rate for the same period as announced by the People's Bank of China as compared to what Duolun Coal Chemical Company might be able to do so from other PRC commercial banks, and (ii) Duolun Coal Chemical Company is a subsidiary of the Company and the accounts of Duolun Coal Chemical Company are consolidated into the accounts of the Company, we consider that the interest rate of the Entrusted Loan, which is set at the benchmark interest rate for loans of the same period as announced by the People's Bank of China, is on normal commercial terms, and fair and reasonable. Handling fees The handling fees shall be charged by Datang Finance Company on the date of grant of the Entrusted Loan and on the date corresponding to the date of grant of the Entrusted Loan in each following year. The rate of the handling fee per annum shall be 0.025% of the outstanding amount of the Entrusted Loan. We note that the Group has engaged other banks as lending agents in relation to the provision of entrusted loans to some of the Group companies and the rate of the handling fees for those entrusted loans were set at 0.025% of the principal amount of the entrusted loans. In addition, the handling fee charged by CCB Diao Yu Tai Branch under the 2011 Framework Entrusted Loan Agreement in October 2011 was set at 0.025%. Based on this, we consider that the rate of the handling fees for the Entrusted Loan under the Entrusted Loan Agreement is on normal commercial terms. As mentioned in the Letter from the Board, the Directors consider that in view of the cooperation history between Datang Finance Company and the Company and given that the provision of entrusted loan services by Datang Finance Company is covered under the Financial Services Agreement, Datang Finance Company has better understanding of the operations of the Company which will allow more expedient and efficient services than those rendered by other PRC commercial banks. Furthermore, the handling fees charged by Datang Finance Company will not be higher than those charged by other PRC commercial banks to the Group companies in previous entrusted loan cases. In view of the above considerations, the Company appointed Datang Finance Company, rather than other PRC commercial banks, as the lending agent. We understand that it may take more time and administrative efforts to obtain approval from other commercial banks to act as the lending agents. Furthermore, considering the capital risks control measures under the Financial Services Agreement as set out in the shareholders' circular of the Company dated 16 November 2010, the Company advised that the terms under the Entrusted Loan Agreement are normal commercial terms which confer no additional obligations nor risks on the Company when compared to other typical entrusted loan arrangements in the market based on the understanding of the Directors. In this connection, we consider that it is fair and reasonable and in the interest of the Company and the Shareholders as a whole for the Company to provide entrusted loans to Duolun Coal Chemical Company with Datang Finance Company as the lending agent. OPINION Having considered the principal factors and reasons described above, we are of the opinion that the terms of the Entrusted Loan Agreement are on normal commercial terms and are fair and reasonable as far as the interests of the Independent Shareholders are concerned, and, from this perspective, the Entrusted Loan Agreement is in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Entrusted Loan Agreement at the EGM. Yours faithfully, For and on behalf of MIZUHO SECURITIES ASIA LIMITED Kelvin S. K. Lau Managing Director Equity Capital Markets & Corporate Finance ------------------------------------------------------------------------ APPENDIX 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 OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY (i) As at the Latest Practicable Date, save and except Mr. Fang Qinghai, being a Director, who held 24,000 A shares of the Company, none of the Directors, supervisors and chief executive of the Company have any interests and short positions in the shares, underlying shares and/ or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which was 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 any such Director, chief executive or supervisor is taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register required to be kept by the Company under section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules. (ii) As at the Latest Practicable Date, none of the Directors, proposed Directors, supervisors or proposed supervisors of the Company has any direct or indirect interest in any assets which have since 31 December 2011 (being the date to which the latest published audited financial statements of the Company were made up) 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. 3. SERVICE AGREEMENTS As at the Latest Practicable Date, none of the Directors, proposed directors, supervisors or proposed supervisors of the Company had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation)). 4. INTEREST IN CONTRACT As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Group, and which was significant in relation to the business of the Group. 5. MATERIAL CHANGES The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited financial statements of the Group were made up. 6. COMPETING INTEREST As at the Latest Practicable Date, none of the directors of the Company and its subsidiaries, or their respective Associates has interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Company and its subsidiaries. 7. EXPERT (a) The following sets out the qualifications of the expert which has given its opinion or advice as contained in this circular: Name Qualifications Mizuho Securities A licensed corporation to engage in types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities), 5 (advising on futures contracts), 6 (advising on corporate finance) and 9 (asset management) regulated activities under the SFO (b) Mizuho Securities did not have any shareholding, direct or indirect, in any members of the Group or any rights (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any members of the Group as at the Latest Practicable Date. (c) Mizuho Securities does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any members of the Group, or which are proposed to be acquired or disposed of by or leased to any members of the Group since 31 December 2011, the date to which the latest published audited financial statements of the Company were made up. (d) Mizuho Securities has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included. 8. LITIGATION No member of the Company and its Subsidiaries is at present engaged in any litigation or arbitration of material importance to the Company and its subsidiaries and no litigation or claim of material importance to the Company and its subsidiaries is known to the Directors or the Company to be pending or threatened by or against any member of the Company and its subsidiaries. 9. MISCELLANEOUS (a) The registered office of the Company is No. 482, Guanganmennei Avenue, Xuanwu District, Beijing, the PRC and the office address of the Company is No. 9 Guangningbo Street, Xicheng District, Beijing, the PRC. (b) The place of business of the Company in Hong Kong is at c/o Eversheds, 21/F, Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong. (c) The Hong Kong share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong. (d) The secretary to the Board of the Company is Mr. Zhou Gang. Mr. Zhou graduated from East China Institute of Water Conservancy (currently known as Hehai University), and is a senior engineer. 10. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the Entrusted Loan Agreement, the consent letter and the letter of advice from Mizuho Securities are available for inspection at the principal place of business in Hong Kong of the Company at 21/F, Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong during normal business hours from the date of this circular up to and including 5 December 2012.

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