(1) very substantial disposal - Investor Relations - TodayIR.com

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

13 June 2013

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in Xiwang Sugar Holdings Company Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank, the licensed securities dealer or registered institution in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or the transferee(s).

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.

*

(Incorporated in Bermuda with limited liability)(Stock Code: 2088)

(1) VERY SUBSTANTIAL DISPOSAL;(2) CONNECTED TRANSACTION;

AND (3) PROPOSED CONDITIONAL SPECIAL DIVIDEND OF HK$0.75 PER SHARE

AND CONVERTIBLE PREFERENCE SHARE

Financial adviser to the Company

SOMERLEY LIMITED

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

Shenyin Wanguo Capital (H.K.) Limited

A letter from the Board is set out on pages 6 to 49 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 50 of this circular.

A letter from Shenyin Wanguo Capital (H.K.) Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 51 to 78 of this circular. A notice convening the SGM to be held at Boardroom 3-4, Mezzanine Floor, Renaissance Hong Kong Harbour View Hotel, No. 1 Harbour Road, Wanchai, Hong Kong on Saturday, 29 June 2013 at 11:00 a.m. is set out on pages SGM–1 to SGM–3 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the meeting or any adjournment thereof (as the case may be). 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 (as the case may be) if you so wish.

* For identification purpose only

R14.63(2)(b)R14A.58(3)(b)

R14.58(1)R14A.59(1)

App1B(1)

R13.51A

CONTENTS

Pages

Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Letter from Shenyin Wanguo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I – 1

Appendix II – Accountant’s report on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II – 1

Appendix III – Management discussion and analysis on the Remaining Group . . . . . . . III – 1

Appendix IV – Unaudited pro forma financial information of the Remaining Group . . IV – 1

Appendix V – Property valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V – 1

Appendix VI – Valuation report on machinery and equipment . . . . . . . . . . . . . . . . . . . . VI – 1

Appendix VII – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII – 1

Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM – 1

DEFINITION

1

In this circular, unless the context requires otherwise, the following terms have the following

meanings:

“Agreement” the conditional sale and purchase agreement dated 21 May 2013

entered into between the Purchaser and the Company in relation to

the Disposal

“associate(s)” has the same meaning as defined in the Listing Rules

“Board” the board of the Directors

“Business Day” a day (other than a Saturday, Sunday and any day on which a

tropical cyclone warning no. 8 or above is hoisted or on which a

“black” rainstorm warning is hoisted between 9:00 a.m. and 5:00

p.m.) on which licensed banks are generally open for business in

Hong Kong throughout their normal business hours

“BVI” the British Virgin Islands

“Company” Xiwang Sugar Holdings Company Limited, a company incorporated

in Bermuda with limited liability and the issued Shares of which

are listed on the Main Board of the Stock Exchange

“Completion” completion of the Disposal

“connected person” has the same meaning as defined in the Listing Rules

“Consideration” the consideration of RMB661 million for the disposal of the

Sale Share and the consideration of RMB1,435 million for the

assignment of the Sale Loans payable by the Purchaser to the

Company pursuant to the Agreement

“CPS(s)” the convertible preference share(s) with par value of HK$0.1 each

in the issued share capital of the Company

“CPS Holder(s)” holder(s) of CPSs

“Director(s)” the director(s) of the Company

“Disposal” the proposed disposal of the entire issued share capital of the

Disposal Company, and assignment of the Sale Loans pursuant to

the terms and conditions of the Agreement

“Disposal Company” Master Team International Limited, a company incorporated in

BVI with its entire issued share capital held by the Company as at

the date of the Agreement

DEFINITION

2

“Disposal Group” the Disposal Company and its subsidiaries comprising (i) Winning

China Limited, a company incorporated in Hong Kong; (ii)山東西王糖業有限公司(Shandong Xiwang Sugar Industry Company Limited), a company incorporated in the PRC; and (iii)西王糖業

（北京）有限公司(Xiwang Sugar (Beijing) Co., Ltd.), a company incorporated in the PRC, being all of the subsidiaries of the Company that engage in the corn processing business as at the Latest Practicable Date (excluding a subsidiary of the Remaining Group which also engages in the export trading business)

“Dividend Payment Date” the date on which the Proposed Special Dividend and the Preferred Distribution will be paid to Ordinary Shareholders and CPS Holders whose names are registered on the register of members of the Company on the Record Date, and is currently expected to be on or around 23 July 2013

“Group” the Company and its subsidiaries

“HKFRS” Hong Kong Financial Reporting Standards

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Independent Board Committee” independent committee of the Board comprising Mr. Shi Wei Chen, Mr. Wong Kai Ming and Mr. Wang An, all being independent non-executive Directors

“Independent Shareholders” Ordinary Shareholders other than the Purchaser and its associates

“Independent Valuer” Grant Sherman Appraisal Limited, an independent professional valuer appointed by the Company for the Disposal

“Last Trading Day” 7 May 2013, being the last trading day of the Shares before the release of the Company’s announcement dated 21 May 2013 in relation to, among other things, the Disposal, the Proposed Special Dividend and the Preferred Distribution

“Latest Practicable Date” 7 June 2013, being the latest practicable date prior to printing of this circular for ascertaining certain information contained in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Ordinary Shareholder(s)” holder(s) of the Shares

“PRC” the People’s Republic of China and, for the purpose of this circular, excluding Hong Kong, Macao Special Administrative Region of the People’s Republic of China and Taiwan

DEFINITION

3

“Preferred Distribution” the distribution of RMB0.01 for each CPS for the financial year

ended 31 December 2012

“Previous Acquisition” the acquisition of the property development business in the PRC

as detailed in the Company’s circular dated 11 December 2012

“Promissory Note A” the promissory note in the principal amount of RMB901,734,114

to be issued by the Purchaser in favour of the Company for partial

settlement of the Consideration at Completion

“Promissory Note B” the promissory note in the principal amount being half of the

Remaining Balance to be issued by the Purchaser in favour

of the Company for partial settlement of the Consideration at

Completion

“Promissory Notes” Promissory Note A and Promissory Note B

“Proposed Special Dividend” the proposed conditional distribution of special dividend of

HK$0.75 per Share and CPS

“PwC” PricewaterhouseCoopers, Certified Public Accountants

“Record Date” the date for determining the entitlements of the Shareholders to

the Proposed Special Dividend and the Preferred Distribution

which is fixed at 10 July 2013

“Remaining Group” the Group after Completion

“Sale Loans” various unsecured and non-interest bearing loans owed by each

of the Disposal Company, Winning China Limited, a company

incorporated in Hong Kong, and 山東西王糖業有限公司(Shandong Xiwang Sugar Industry Company Limited), a company

incorporated in the PRC, in currencies of HK$ and RMB to the

Company as set out in the Agreement and the Unpaid Dividend

“Sale Share” the entire issued share capital of the Disposal Company, which

was one share with par value of US$1 as at the date of the

Agreement

“SFO” the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) as amended, supplemented or otherwise from time to time

“SGM” the special general meeting of the Company to be convened for

the purpose of considering and, if thought fit, approving the

Agreement, the transactions contemplated thereunder and the

Proposed Special Dividend

DEFINITION

4

“Share(s)” the ordinary share(s) with par value of HK$0.1 each in the issued

share capital of the Company

“Shareholders” Ordinary Shareholders and CPS Holders

“Shenyin Wanguo” Shenyin Wanguo Capital (H.K.) Limited, a licensed corporation

to carry on type 1 (dealing in securities), type 4 (advising on

securities) and type 6 (advising on corporate finance) regulated

activities under the SFO; and the independent financial adviser

appointed to advise the Independent Board Committee and the

Independent Shareholders in respect of the Agreement, the

transactions contemplated thereunder and the Proposed Special

Dividend

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Unpaid Dividend” the dividend declared but unpaid by the Disposal Group to the

Company

“Xiwang Investment” Xiwang Investment Company Limited, a company incorporated in

or “Purchaser” the BVI, a controlling shareholder of the Company and is a

wholly-owned subsidiary of Xiwang Holdings Limited. Xiwang

Holdings Limited is owned as to 64.36% by Mr. Wang Yong,

being chairman of the Board and an executive Director of the

Company

“Xiwang Special Steel” Xiwang Special Steel Company Limited (stock code: 1266), a

company incorporated in Hong Kong with limited liability and the

issued shares of which are listed on the Main Board of the Stock

Exchange

“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong

“RMB” Renminbi, the lawful currency of the PRC

“US$” United States dollar(s), the lawful currency of the United States of

America

“sq.m” square metre(s)

“%” per cent

The English translations of the Chinese names are included in this circular for identification

purpose only and should not be regarded as their official English translation. In the event of any

inconsistency, the Chinese name prevails.

For the purpose of illustration, the exchange rate between Renminbi and Hong Kong dollars

provided in this circular is RMB1 = HK$1.2512 (unless otherwise stated). The provision of such exchange

rates does not mean that Hong Kong dollars could be converted into Renminbi based on such exchange

rate.

EXPECTED TIMETABLE

5

Set out below is the expected timetable in relation to the Disposal, the Proposed Special Dividend

and the Preferred Distribution. Shareholders should note that the timetable is indicative only and subject

to change depending on, among other things, results of the SGM and date of Completion. The Company will notify the Shareholders on any change to the expected timetable as and when appropriate.

2013

Latest time for return of proxy forms for the SGM . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on 27 June

SGM to be held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on 29 June

Announcement of results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 July

Last day of dealings in Shares and CPSs on a cum-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . 3 July

First day of dealings in Shares and CPSs on an ex-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . 4 July

Latest time for lodging transfer of Shares and

CPSs for registration in order to be qualified

for the Proposed Special Dividend and/or

the Preferred Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on 5 July

Closure of the register of members of the Company

for determining the entitlements to the Proposed

Special Dividend and/or the Preferred Distribution . . . . . . . . . . 8 July to 10 July (both dates inclusive)

Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 July

Register of members of the Company re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 July

Expected date of despatch of the cheque for the

Proposed Special Dividend and/or the

Preferred Distribution to the Shareholders

(i.e. the Dividend Payment Date) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . on or around 23 July

Notes:

1. The payment of the Proposed Special Dividend is subject to the approval of the Independent Shareholders having been obtained and Completion having taken place. The payment of the Preferred Distribution is also subject to Completion having taken place.

2. Cheques for the Proposed Special Dividend and/or the Preferred Distribution will be sent to Shareholders by ordinary post at their own risk to their registered addresses.

3. All references in this circular to times and dates are references to Hong Kong times and dates.

LETTER FROM THE BOARD

6

*


Executive Directors: Registered Office:Mr. Wang Yong (Chairman) Clarendon HouseMr. Wang Di 2 Church StreetMr. Wang Fangming Hamilton HM 11Dr. Li Wei BermudaMr. Han Zhong Principal place of business Non-execuitve Director: in Hong Kong:Mr. Sun Xinhu Unit 2110, 21/F Harbour CentreIndependent non-executive Directors: 25 Harbour RoadMr. Shi Wei Chen WanchaiMr. Wong Kai Ming Hong KongMr. Wang An 13 June 2013

To the Ordinary Shareholders and, for information only, the CPS Holders

Dear Sir or Madam,




INTRODUCTION

On 21 May 2013, the Company (as the vendor) entered into the Agreement pursuant to which

Xiwang Investment (as the Purchaser) has conditionally agreed to acquire, and the Company (as the

vendor) has conditionally agreed to (1) sell the Sale Share, being the entire issued share capital of the

Disposal Company; and (2) assign to the Purchaser all interests, benefits and rights of the Sale Loans. The

consideration for the disposal of the Sale Share shall be RMB661 million and the consideration for the

assignment of the Sale Loans shall be RMB1,435 million.

R14.63(1)R14A.58(1)

R2.14

R14.60(1)



7

The Disposal Company is an investment holding company wholly and beneficially owned by the

Company as at the Latest Practicable Date. The Disposal Group is principally engaged in corn processing

business with a focus on the production of starch sugars and corn co-products in the PRC, and the

distribution and the sale of such products within and outside the PRC.

The Board proposes a special dividend of HK$0.75 per Share and per CPS to be distributed to the

Shareholders whose names are registered on the register of members of the Company on the Record Date,

subject to the approval of the Independent Shareholders having been obtained and Completion having

taken place. The Board has resolved, subject to Completion taking place, to pay the Preferred Distribution

of RMB0.01 in Hong Kong dollars at the exchange rate of RMB1.00 = HK$1.2512 to the CPS Holders on

the Dividend Payment Date.

As the relevant percentage ratios applicable to the Company exceed 75%, the Disposal constitutes

a very substantial disposal for the Company under the Listing Rules. Since the Purchaser is a connected

person of the Company, the Disposal also constitutes a connected transaction for the Company, and is

subject to reporting, announcement and the Independent Shareholders’ approval at the SGM.

The Independent Board Committee comprising all of the three independent non-executive

Directors, namely Mr. Shi Wei Chen, Mr. Wong Kai Ming and Mr. Wang An, has been constituted to

advise the Independent Shareholders as regards the terms of the Agreement, the transactions contemplated

thereunder and the Proposed Special Dividend. Shenyin Wanguo has been appointed as the independent

financial adviser to advise the Independent Board Committee and the Independent Shareholders in this

regard.

The purpose of this circular is to provide you with, among other things, (a) information on the

Disposal; (b) the letter of advice from Shenyin Wanguo to the Independent Board Committee and the

Independent Shareholders; (c) the recommendation from the Independent Board Committee to the

Independent Shareholders; (d) the financial information of the Group; (e) the accountant’s report on the

Group; (f) the unaudited pro forma financial information of the Remaining Group; (g) valuation reports

in respect of property, machinery and equipment of the Disposal Group; (h) a notice of the SGM; and (i)

other information required under the Listing Rules.

THE AGREEMENT

Date: 21 May 2013

The Vendor: The Company

The Purchaser: Xiwang Investment

The Purchaser is principally engaged in investment holding and is a controlling shareholder of each

of the Company and Xiwang Special Steel which is listed on the Main Board of the Stock Exchange. As

at the Latest Practicable Date, the Purchaser was a wholly-owned subsidiary of Xiwang Holdings Limited,

which was owned as to approximately 64.36% by Mr. Wang Yong, the chairman and an executive

Director of the Company. The Purchaser and its associates did not engage in any property development

business in the PRC as at the Latest Practicable Date. Accordingly, it is expected that Mr. Wang Yong,

R14.58(3)R14A.59(2)(a)

R14A.59(2)(d)

R14.58(2)R14A.59(2)(a),(e),(f)


8

the Purchaser and their respective associates will not have an interest in a business (other than through

holding the interest in the Company) which competes, or is likely to compete, either directly or indirectly,

with the Remaining Group after Completion.

Assets to be disposed of

Pursuant to the Agreement, the Purchaser has conditionally agreed to acquire, and the Company

has conditionally agreed to (1) sell the Sale Share, being the entire issued share capital of the Disposal

Company; and (2) assign to the Purchaser all interests, benefits and rights of the Sale Loans. The Disposal

Group is principally engaged in corn processing business with a focus on the production of starch sugars

and corn co-products in the PRC, and the distribution and the sale of such products within and outside the

PRC.

The Company has injected capital into the Disposal Group for the development of the Disposal

Group’s business by way of equity investment and loans. As at 31 March 2013, the Company advanced

loans in an aggregate amount of approximately RMB1,710.1 million to the Disposal Group. The Company

had not advanced additional loan to the Disposal Group in the period between 31 March 2013 and the

Latest Practicable Date. During the period from 31 March 2013 and up to the Latest Practicable Date, the

Disposal Group repaid an amount of approximately RMB255,000 to the Company, with the outstanding

loans amounted to approximately RMB1,709.9 million. All the loans are unsecured, non-interest bearing

with no fixed repayment term and remained outstanding as at the Latest Practicable Date. The Disposal

Company previously declared payment of dividend to the Company and such dividend remained unpaid

as at the Latest Practicable Date. As at the Latest Practicable Date, the Unpaid Dividend amounted

to approximately RMB222.0 million. Based on the above, the Sale Loans amounted to approximately

RMB1,931.9 million (being the sum of loans owed by the Disposal Group to the Company and the Unpaid

Dividend) as at the Latest Practicable Date. Based on the accountant’s report on the Group in Appendix

II to this circular, as at 31 March 2013, the Disposal Group recorded total current assets of approximately

RMB2,646.2 million (including amount due from the Remaining Group of approximately RMB366.5

million to remain outstanding upon Completion) and total current liabilities of approximately RMB4,536.8

million (including the loans advanced by the Remaining Group to the Disposal Group of approximately

RMB1,710.1 million and the Unpaid Dividend of approximately RMB222.0 million as at 31 March 2013).

Setting aside the loans owed by the Disposal Group to the Company and the Unpaid Dividend, the net

current assets of the Disposal Group were approximately RMB41.5 million as at 31 March 2013. As at

31 March 2013, the Disposal Group recorded cash and cash equivalents (excluding restricted cash) in the

amount of approximately RMB263.8 million, and its short-term external loans amounted to approximately

RMB1,725.7 million. For the three months ended 31 March 2013 and the year ended 31 December

2012, the Disposal Group incurred losses after income tax expense of approximately RMB16.3 million

and RMB21.8 million respectively. Based on the current financial position of the Disposal Group, the

Directors are of the view that it is unlikely that the Disposal Group will be able to repay the Sale Loans to

the Company in full in the near future.

Upon Completion, the Group will cease to have any interest in the Disposal Company and the

Disposal Group will cease to be subsidiaries of the Company.

R14.60(2)R14A.59(2)(b)

R14.58(6)

R14.60(6)R14.66(6)(a)R14A.59(16)


9

Consideration

The consideration for the disposal of the Sale Share shall be RMB661 million and consideration

for the assignment of the Sale Loans shall be RMB1,435 million. The total consideration was determined

after arm’s length negotiations between the Purchaser and the Company having taken into account (i)

the audited net assets value of the Disposal Group of approximately RMB1,020.8 million as at 31 March

2013; (ii) losses of the Disposal Group for the year ended 31 December 2012 and the three months ended

31 March 2013 (as detailed in the section headed “Information on the Disposal Group” below); and (iii)

the independent valuation of the property, machinery and equipment of the Disposal Group (including

indicative market value of certain properties pending registration of legal titles as set out in the property

valuation report contained in Appendix V to this circular) as at 30 April 2013.

The Consideration will be payable by the Purchaser to the Company in the following manner:

(a) offset against the amount payable to the Purchaser by the Company for early repayment of

the promissory note in the principal amount of RMB308 million issued by the Company

in favour of Xiwang Investment on 31 December 2012 to satisfy the consideration for the

Previous Acquisition, together with interests accrued up to the date of Completion (the

interests accrued amounted to approximately RMB1.9 million as at 31 March 2013);

(b) issue of Promissory Note A by the Purchaser to the Company upon Completion in the

principal amount of RMB901,734,114 (which is equivalent to the Purchaser’s aggregate

entitlements to the Proposed Special Dividend and the Preferred Distribution based on the

Shares and the CPSs held by the Purchaser as at the Latest Practicable Date and details of

Promissory Note A are set out in the section headed “Principal terms of the Promissory

Notes” below); and

(c) as to the remaining balance after deducting items (a) and (b) above (the “Remaining

Balance”):

(i) 50% of it will be payable by the Purchaser to the Company in cash upon Completion;

and

(ii) 50% of it will be settled by issue of Promissory Note B by the Purchaser to the

Company upon Completion.

For illustration purpose only, if Completion had taken place on 31 March 2013, whereupon

the Consideration had been settled by the issuance of Promissory Note A in the principal amount

of RMB901,734,114 and offsetting the amount payable to the Purchaser by the Company for

early repayment of the promissory note in the principal amount of RMB308 million issued by

the Company in favour of the Purchaser on 31 December 2012 (together with interest accrued

thereon for the period up to 31 March 2013 in the amount of approximately RMB1.9 million), the

Remaining Balance would have been RMB884,365,886.

Details of Promissory Note B are set out in the section headed “Principal terms of the

Promissory Notes” below.

R14.58(4)R14A.59(2)(c)

R14.58(5)

R14.58(6)


10

The Independent Valuer performed an independent valuation in respect of the property, machinery

and equipment of the Disposal Group. Based on (a) the market value of such property, machinery and

equipment as at 30 April 2013 as appraised by the Independent Valuer; (b) the value of such construction

in progress which did not form part of the independent valuation but recorded in financial statements of

the Disposal Group; and (c) indicative market value of certain properties pending registration of legal

titles as set out in the property valuation report contained in Appendix V to this circular, the value of

property, machinery and equipment of the Disposal Group amounted to approximately RMB2,774.7

million, which represented a deficit of approximately RMB131.2 million to the carrying amount of the

property, plant and equipment and land use rights of approximately RMB2,905.9 million as at 31 March

2013. The value of the construction in progress could not be reflected by the independent valuation

but such value, representing the costs incurred and prepayments made for construction of fixed assets

mainly for the corn warehouse, was recorded in the financial statements of the Disposal Group. As the

construction of the related fixed assets had not yet been completed and no ownership titles had been

obtained, the Independent Valuer cannot include this amount of construction in progress in the valuation

reports. Details of the valuation deficit of approximately RMB131.2 million are as follows:

RMB million RMB million

Market value of property of the Disposal Group as at 30 April 2013 1,180.1

Market value of the machinery and equipment of the Disposal Group

as at 30 April 2013 1,495.4

Indicative market value of certain properties pending registration

of legal titles 55.4

Construction in progress not included in the valuation

but recorded in financial statements of the Disposal Group 43.8 2,774.7

Net book value of the property, plant and equipment

as at 31 March 2013 2,638.9

Net book value of the land use rights as at 31 March 2013 267.0 2,905.9

Valuation deficit taken into account in determining

the Consideration (131.2)

The Directors and the Purchaser have taken into account the aforesaid valuation deficit

of approximately RMB131.2 million when determining the Consideration. Further details of the

independent valuation are set out in the property valuation report and the valuation report on machinery

and equipment, both issued by the Independent Valuer, contained in Appendix V and Appendix VI

respectively to this circular.

As (a) it is a condition precedent that the Sale Loans will be the only outstanding liability owed

by the Disposal Group to the Remaining Group; (b) the Company does not intend to make any further

advances to the Disposal Group; and (c) the Disposal Group does not intend to make any repayment to

the Company, the total aggregate of the Sale Loans of approximately RMB1,931.9 million will not be

further adjusted. Accordingly, no adjustment to the consideration for the assignment of the Sale Loans of

RMB1,435 million is anticipated. On this basis, the Directors consider that it is fair and reasonable for not

having an adjustment mechanism in relation to the consideration for the assignment of the Sale Loans.

R14.58(6)


11

Set out below are the assets and liabilities of the Disposal Group as at 31 March 2013 extracted

from the disclosure above and note 33 to the financial information in the accountant’s report on the Group

set out in Appendix II to this circular:

RMB million

Non-current assets 2,911.5

Amount due from the Remaining Group 366.5

Unrestricted cash 263.8

Other current assets 2,015.8

Amount due to the Company (1,710.1)

Unpaid Dividend (222.0)

Borrowings (1,725.7)

Other current liabilities (879.0)

Net assets 1,020.8

Based on (a) the sum of (i) the audited net asset value of the Disposal Group as at 31 March 2013

of approximately RMB1,020.8 million; (ii) the aggregate amount of loans owed by the Disposal Group

to the Company of approximately RMB1,709.9 million as at the Latest Practicable Date; (iii) the Unpaid

Dividend of approximately RMB222.0 million as at the Latest Practicable Date; and (iv) the valuation

deficit of approximately RMB131.2 million; and (b) the total Consideration of RMB2,096 million, the

historical price to book multiple (“PBR”) for the Disposal is approximately 0.743 times.

The determination of the Consideration is illustrated as below:


(A) (A) × 0.743

Audited net asset value of the Disposal Group as at 31 March 2013 1,020.8

Less: Valuation deficit (131.2)

Valuation of the Sale Share 889.6 661

Aggregate amount of loans owed by the Disposal Group

to the Company as at 31 March 2013 1,710.1

Less: Subsequent repayment by the Disposal Group (0.255)

Add: Unpaid Dividend 222.0

Valuation of the Sale Loans 1,931.9 1,435

The Consideration 2,096


12

When determining the Consideration, the Directors have made reference to, among other things,

the PBR of other Hong Kong listed companies, namely Global Sweeteners Holdings Limited (stock code:

3889) (“Global Sweeteners”) and China Starch Holdings Limited (stock code: 3838) (“China Starch”)

(the “Comparable Companies”). Global Sweeteners is principally engaged in the production and sale

of corn refined products and corn sweeteners, categorised into upstream and downstream products. The

principal activities of China Starch include, among other things, the manufacture and sale of cornstarch

and ancillary corn-refined products.

Based on the market capitalisation of Global Sweeteners of approximately HK$947.1 million as at

the Latest Practicable Date and audited net assets attributable to equity holders as at 31 December 2012

of approximately HK$2,329.7 million, the historical PBR of Global Sweeteners was approximately 0.41

times. Based on the market capitalisation of China Starch of approximately HK$1,282.5 million as at

the Latest Practicable Date and audited net assets attributable to equity holders as at 31 December 2012

of approximately RMB1,844.8 million (equivalent to approximately HK$2,308.2 million), the historical

PBR of China Starch was approximately 0.56 times. In addition, based on the market capitalisation of

approximately HK$746.3 million (equivalent to approximately RMB596.5 million) of the Company

as at the Last Trading Day and audited net assets attributable to equity holders of the Company of

approximately RMB2,776.1 million (equivalent to approximately HK$3,473.5 million) as at 31 March

2013, the historical PBR of the Company was approximately 0.21 times.

The historical PBR represented by the Consideration for the Disposal is higher than the historical

PBR of the Comparable Companies and the historical PBR of the Company of approximately 0.21 times.

The Consideration of RMB2,096 million represents about 3.5 times and 1.6 times of the market

capitalisation of the Company as at the Last Trading Day and the Latest Practicable Date respectively.

Accordingly, the Disposal provides the Company with an opportunity to unlock the value of the Disposal

Group which is considered by the Directors to be in the interests of the Company and the Shareholders as

a whole.

On this basis, together with the unlikelihood of full repayment of the Sale Loans by the Disposal

Group as set out in the sub-section headed “Assets to be disposed of” above, the Directors consider that

the Consideration is fair and reasonable.

Conditions precedent

Completion is conditional upon the following conditions being satisfied (or waived where

applicable):

(a) the Company having obtained the Independent Shareholders’ approval of (i) the Agreement

and the transactions contemplated thereunder; and (ii) the Proposed Special Dividend in

accordance with the requirements under the Listing Rules;

(b) save for the Sale Loans, all other liabilities owed by the Disposal Group to the Remaining

Group having been fully repaid; and there being no outstanding guarantee or security granted

by any member of the Remaining Group in favour of any third party to secure any liability or

obligation of any member of the Disposal Group;

R14A.58(2)

R14A.58(2)


13

(c) the Purchaser having obtained all necessary consent, approval, permission and/or waiver for

the Agreement and the transactions contemplated thereunder;

(d) the representations and warranties given by the Company being materially true and accurate;

and

(e) the representations and warranties given by the Purchaser being materially true and accurate.

The Company may in its sole discretion decide to waive any of conditions (c) and (e) above,

and the Purchaser may in its sole discretion decide to waive condition (d) above. Neither parties may

waive conditions (a) and (b) above. If any of the conditions is not fulfilled (or waived where applicable)

on or before 30 June 2013 or such later date as may be agreed by the Purchaser and the Company, the

Agreement will lapse but the rights of a party in respect of the other’s antecedent breach of the Agreement

will not be affected. As at the Latest Practicable Date, none of the conditions precedent have been fulfilled

(or waived where applicable).

Completion

Completion shall take place on the third Business Day after the fulfilment (or waiver where

applicable) of the conditions precedent set out in the Agreement, or such other date as the Company and

the Purchaser may agree in writing.

PRINCIPAL TERMS OF THE PROMISSORY NOTES

Under the Agreement, the Promissory Notes will be issued by the Purchaser to the Company for

partial settlement of the total Consideration. The principal terms of the Promissory Notes are as follows:

Promissory Note A

Principal amount: RMB901,734,114

Maturity: the Dividend Payment Date

The Promissory Note A is unsecured and non-interest bearing.

Pursuant to the Agreement, the Purchaser has agreed and irrevocably authorised the Company to

fully offset the amount of the Purchaser’s aggregate entitlement to the Proposed Special Dividend and

the Preferred Distribution against the equivalent amount payable to the Company by the Purchaser under

Promissory Note A. The Purchaser has undertaken to the Company under the Agreement that it will not

sell, transfer, dispose of or otherwise reduce its holding in, the Shares or CPSs held by it, nor will it

convert any of its CPSs into Shares for the period between the date of the Agreement and the Record Date.

Pursuant to the Agreement, the exchange rate of RMB1.00 = HK$1.2512 will be used to determine

the Purchaser’s entitlement to the Proposed Special Dividend and the Preferred Distribution to offset the

amount payable by the Purchaser to the Company under Promissory Note A.


14

Further details with respect to the Proposed Special Dividend and the Preferred Distribution are set

out in the section headed “Proposed conditional special dividend” below.

Promissory Note B

Principal amount: half of the Remaining Balance (as defined in the sub-section headed

“Consideration” under the section headed “The Agreement” above)

Interest: interest shall accrue at the interest rate of 2.5% per annum for the period between the date of issue of Promissory Note B and the maturity date, or where applicable, the date of early repayment

Maturity: six months from the date of issue or 31 December 2013 whichever is the earlier

Security: a first fixed charge over such number of shares held by the Purchaser in Xiwang Special Steel which represents 75% of the issued share capital of Xiwang Special Steel (the “Charged Shares”). As at the Latest Practicable Date, the Charged Shares constitute 1,500 million shares in Xiwang Special Steel. This security will only be given upon the issue of Promissory Note B (i.e. upon Completion).

In addition, Mr. Wang Yong, an executive Director, will issue a letter of financial support to the Company prior to Completion undertaking that he will, among other things, at the request of the Purchaser, assist the Purchaser to obtain the required funding so that the Purchaser can fulfill its repayment obligation under Promissory Note B.

For illustration purpose only, if Completion had taken place on 31 March 2013, whereupon the Consideration had been settled by the issuance of Promissory Note A in the principal amount of RMB901,734,114 and offsetting the amount payable to the Purchaser by the Company for early repayment of the promissory note in the principal amount of RMB308 million issued by the Company in favour of the Purchaser on 31 December 2012 (together with interest accrued thereon for the period up to 31 March 2013 in the amount of approximately RMB1.9 million), the principal amount of Promissory Note B would have been RMB442,182,943.

Based on the market capitalisation of the Charged Shares of HK$1,335 million (equivalent to approximately RMB1,067.0 million) as at the Latest Practicable Date, together with the abovementioned letter of financial support of Mr. Wang Yong, the Directors consider that the Company’s exposure under Promissory Note B is safeguarded.

When negotiating the Consideration and terms of the Agreement, in view of such large amount of half of the Remaining Balance, the Purchaser indicated that more time will be required to make available such funding and accordingly the arrangement of a promissory note was proposed. It is stated in the sub-section headed “(C) Benefits to the Group and the Shareholders” under the section headed “Background to, reasons for and benefits of the Disposal” below that the earliest time for the Remaining

Group to participate in the bidding mechanism to acquire the land use rights for the Yintaishan corn

cultural project and Qinghe project is estimated to be around end of 2013 or early 2014. In view of (i)

the security available under Promissory Note B; (ii) the letter of financial support to be issued by Mr. Wang Yong; (iii) the timing for funding the Yintaishan corn cultural project and Qinghe project; and

R14.58(9)R14A.59(12)


15

(iv) the Consideration for the Disposal representing a higher historical PBR as compared to that of the Comparable Companies as at the Latest Practicable Date, the Directors, balancing on all relevant factors, consider that this arrangement is in the interests of the Company and the Shareholders as a whole.

In addition, when considering the interest rate of 2.5% per annum for Promissory Note B, the Directors took into account the fact that such interest rate is the same as that under the promissory note in the principal amount of RMB308 million issued by the Company in favour of the Purchaser in the Previous Acquisition, which was unsecured. Pursuant to the terms of the Agreement, the Charged Shares will be offered as security. On this basis, together with the fact that the Consideration for the Disposal represents a higher historical PBR as compared to that of the Comparable Companies as at the Latest Practicable Date, the Directors consider that the interest rate for Promissory Note B is fair and reasonable.

INFORMATION ON THE DISPOSAL GROUP

The Disposal Company is an investment holding company wholly and was beneficially owned

by the Company as at the Latest Practicable Date. The Disposal Group is principally engaged in corn

processing business with a focus on the production of starch sugars and corn co-products in the PRC, and

the distribution and the sale of such products within and outside the PRC.

Financial information

Based on the accountant’s report on the Group in Appendix II to this circular, for the three

months ended 31 March 2013, the Disposal Group recorded audited loss before and after taxation of

approximately RMB15.2 million and RMB16.3 million respectively. Based on the accountant’s report

on the Group in Appendix II to this circular, for the year ended 31 December 2012, the Disposal Group

recorded audited loss before and after taxation of approximately RMB27.2 million and RMB21.8 million

respectively. For the year ended 31 December 2011, the Disposal Group recorded audited profit before

and after taxation of approximately RMB239.7 million and RMB206.4 million respectively. The audited

profit/loss before and after taxation of the Disposal Group for the years ended 31 December 2011 and

2012 are different from the audited segmental profit/loss before and after taxation as stated in the 2012

annual report of the Company. The difference is mainly attributable to the fact that the segmental figures

for the corn processing business as set out in the Company’s 2012 annual report are composed of three

components: (1) the Disposal Group; (2) the Company’s subsidiary for the Remaining Group’s export

trading business; and (3) expenses incurred by the Group companies outside the Disposal Group allocated

to the corn processing business segment. As at 31 March 2013, the audited net asset value of the Disposal

Group amounted to approximately RMB1,020.8 million. Save for the loans advanced by the Company

to the Disposal Group and the Unpaid Dividend, there were also other intercompany balances between

the Disposal Group and the Remaining Group. It is expected that, except for the amount payable by the

Remaining Group to the Disposal Group of approximately RMB366.5 million to remain outstanding upon

Completion, all other intercompany balances between the Disposal Group and the Remaining Group

will be settled before Completion. The amount payable by the Remaining Group to the Disposal Group

in an amount of approximately RMB366.5 million represents the advance by the Disposal Group to the

Remaining Group to settle certain borrowings of the Remaining Group. In the course of negotiation

of terms of the Disposal, the Company intended to offset such amount payable against the Sale Loans.

However, the Company’s PRC legal advisers advised the Company that relevant PRC laws and regulations

on foreign exchange restricted the offset. The Company also considered to repay the amount payable at

R14.58(7)


16

discount after Completion. However, the repayment at discount would attract PRC tax under Corporate

Income Tax Law (中華人民共和國企業所得稅法). During the negotiation of terms of the Disposal with the Purchaser, the Company bargained for a higher consideration for the Sale Share and the Sale Loans

with an implied PBR represented by the Consideration to be higher than the historical PBR of both of

the Comparable Companies and the Company as at the date of the Agreement. The Purchaser finally

accepted the Company’s bargain to pay a total Consideration of RMB2,096 million (which is considered

by the Directors to be fair and reasonable as explained in the sub-section headed “Consideration” in the

section headed “The Agreement” above). On this basis, the Company agreed to settle the amount payable

in full after Completion, and considers that this arrangement is in the interests of the Company and the

Shareholders as a whole.

It is stated in the 2012 annual report of the Company that the corn processing business (including

starch sugars segment and corn co-products segment) recorded audited segmental assets and liabilities of

approximately RMB5,157.5 million and RMB2,462.0 million respectively as at 31 December 2012, with

a segmental net assets value of approximately RMB2,695.5 million. The difference between the audited

net assets value of the Disposal Group of approximately RMB1,020.8 million as at 31 March 2013 and the

net assets value of the corn processing business of approximately RMB2,695.5 million as at 31 December

2012 was mainly due to the elimination of the loans advanced by the Company to the Disposal Group

and the Unpaid Dividend. The loans advanced by the Company to the Disposal Group and the Unpaid

Dividend were intra-group balances and were not included in the segmental net assets value of the corn

processing business for the purpose of disclosure in the 2012 annual report of the Company. As a result,

the segmental net assets value of the corn processing business was grossed up by the loans advanced to

the Disposal Group of approximately RMB1,710.1 million and the Unpaid Dividend of approximately

RMB222.0 million as at 31 March 2013. The difference was also attributable to the fact that (a) the net

liabilities of the Company’s subsidiary for the Remaining Group’s export trading business, which does not

form part of the Disposal Group, were included in the segmental net assets value of the corn processing

business of the Group; and (b) the Disposal Group recorded net loss of approximately RMB16.3 million

for the three months ended 31 March 2013.

Further details of financial information of the Disposal Group are set out in the accountant’s report

on the Group issued by PwC contained in Appendix II to this circular.

INDEPENDENT VALUATION

(1) Valuation methodology and assumptions

The Company understands from the Independent Valuer that in assessing the value of machinery

and equipment of the Disposal Group, both market approach and depreciated replacement cost approach

have been used.


17

Set out below are the summarised market values of the machinery and equipment as appraised by

the Independent Valuer.

Item

Unaudited net book

value as at 30 April 2013

Fair marketvalue as at

30 April 2013

No. of production lines Capacity Use

No. of years used by the Group Status

(RMB’000) (RMB’000)

Corn starch production line

448,550 325,293 4 Annual capacity of 1,630,000 tonnes

Production of corn starch

1 to 8 In use

Maltodextrin production line

26,761 24,478 2 Annual capacity of 120,000 tonnes

Production of maltodextrin

1 In use

Dehydration production line

7,679 6,193 1 Efficiency of 52,500 gigawatts per hour

Dehydration 1 In use

Starch sugars production line


Production of starch sugars

1 to 12 In use

Sodium gluconate production line


Production of sodium gluconate

4 In use

Others 49,872 42,714

Production equipment

1,576,488 1,422,506

Electronic equipment

4,779 4,415

Other equipment

58,746 54,369

Motor vehicles 7,650 7,783

Installation and other

6,368 6,368

Total: 1,654,031 1,495,441

The Independent Valuer has conducted physical inspection of the machinery and equipment to

assess their physical condition such as whether the assets are kept in a reasonable condition and there is

any physical obsolescence, wear or tear.


18

The Company has discussed with the Independent Valuer regarding the valuation methodologies considered in the valuation and noted the reasons for not applying the income capitalization approach as explained by the Independent Valuer, details of which are set out in the valuation report on machinery and equipment contained in Appendix VI to this circular. The Company has also made reference to the valuation report on machinery as set out in the Company’s circular dated 2 March 2012. Vigers Appraisal & Consulting Limited were appointed to value certain plant and equipment to be acquired by the Group at that time. It was disclosed in the valuation report issued by Vigers Appraisal & Consulting Limited that the income approach was not adopted as it was extremely difficult to segregate an earning and expenses stream attributable only to specific piece of asset. Based on the above, the Company considers that the basis for not applying the income capitalization approach by the Independent Valuer is not unreasonable.

Market approach is employed in the valuation of the machinery and equipment for which there is a known used market. Under the market approach, the value of the appraised machinery and equipment is estimated through analysis of recent sales of comparable items. The Independent Valuer obtains the price information of the second hand machinery and equipment from second hand equipment traders and agencies. After obtaining the second hand price information, the Independent Valuer compares the differences between the subject machinery and equipment, and the comparable machinery and equipment in terms of, among other things, (a) used life; (b) capacity; (c) maintenance/condition observed during site inspection; (d) technology of the machinery and equipment; and (e) manufacturer. The Independent Valuer then determines an adjustment rate with reference to these factors and in accordance with its professional knowledge and experiences. The Independent Valuer advises that market approach is mainly employed for valuing motor vehicles and office equipment.

Due to the nature of the machinery and equipment, and in the limited known market based on comparables sales, the market approach cannot be used by the Independent Valuer for valuing majority of machinery and equipment. Therefore, a majority of machinery and equipment have been valued using the depreciated replacement cost approach, which takes into account the current cost of replacement/reproduction of the machinery and equipment less deductions for physical deterioration and all relevant forms of obsolescence and optimisation, but without provision for overtime, bonuses for labour, or premiums for materials or equipment.

Under the depreciated replacement cost approach, the Independent Valuer searches the market information of the machinery and equipment from the first hand market. After that, transportation expenses, insurance, commissioning (testing) costs and installation costs are added.

Market information relating to the machinery and equipment is obtained by the Independent Valuer from the following sources:

(a) Manufacturers, wholesalers or dealers: the Independent Valuer directly communicates with manufacturers, wholesalers and dealers for direct and reliable information of the new machinery and equipment of similar models such as quotations and listed prices;

(b) Business-related/industry websites: the Independent Valuer obtains recommended selling price and/or benchmark price information; and

(c) Reference magazines/books.


19

Following the determination of current cost of replacement/reproduction of the machinery and

equipment, the Independent Valuer assesses the amount of deductions for physical deterioration and

all relevant forms of obsolescence and optimization. Such assessment is made based on professional

judgment of the Independent Valuer taking into account, among other things, the following matters:

(a) Manufacturers: equipment made by some well-known manufacturers are more durable than

those manufactured by small producers;

(b) Maintenance policy: enquiring the maintenance policy of the Company, such as the

frequency of maintenance and inspection checking work and the qualification of engineers

involved;

(c) Physical conditions of the machinery and equipment observed during the physical inspection

by the Independent Valuer; and

(d) The period of machinery and equipment having been used and the typical useful life of

assets similar to subject machinery and equipment. The useful lives of the machinery

and equipment are in the range of 5 to 15 years, where production equipment, electronic

equipment, other equipment and motor vehicles have a useful life of 15 years, 5 years, 5

years and 8 to 10 years respectively. The useful life of assets is comparable to the useful life

of fixed assets as set out in the Company’s 2012 annual report.

As advised by the Independent Valuer, the Independent Valuer collects market information only

from reputable sources in order to ensure the accuracy. Moreover, cross checking has been made by the

Independent Valuer against its internal database and industry knowledge.

The Company is informed by the Independent Valuer that the market approach and depreciated

replacement cost approach are commonly adopted in valuing machinery and equipment.

The Company understands that the person in charge for the machinery and equipment valuation is

an Accredited Senior Appraiser (Business Valuation) of the American Society of Appraisers who has over

25 years’ experience in the valuation of intangible assets and plant and machinery. Moreover, the other

person involved in preparation of the machinery and equipment valuation report is an associate member

of Hong Kong Institution of Engineers, a member of Society of Automobile Engineer and an associate

member of the Institution of Mechanical Engineers, and has over 19 years’ experience in the valuation of

plant and machinery.

Further details of valuation methodology, basis of assumption and qualifications of the personnel of

the Independent Valuer responsible for preparation of the machinery and equipment valuation report are

set out in the valuation report on machinery and equipment contained in Appendix VI to this circular.

Based on the above, the Directors consider that the Independent Valuer’s valuation methodology

and basis of assumption in appraising the fair market value of machinery and equipment are fair and

reasonable.


20

(2) Valuation deficits

The valuation deficits of approximately RMB131.2 million represent the difference between

(1) the carrying amount of the property, plant and equipment and land use rights of approximately

RMB2,905.9 million as at 31 March 2013; and (2) the aggregate value of approximately RMB2,774.7

million representing (a) the market value on the property, machinery and equipment of the Disposal

Group appraised by the Independent Valuer; (b) the value of construction in progress recorded in financial

statements of the Disposal Group but such value could not be reflected in the independent valuation; and

(c) indicative market value of the properties of the Disposal Group pending registration of legal titles on

which the Independent Valuer has ascribed no commercial value.

The aforesaid difference is mainly due to the differences between valuation methodology and

accounting policies of the Group. According to the accounting policies of the Group, property, plant

and equipment are stated at historical cost less depreciation and impairment loss, if any. Historical cost

includes expenditure that is directly attributable to the acquisition of the items.

The Group acquired a brand new production line of starch with an expected annual capacity of

600,000 tonnes last year. The Group has conducted trial run and testing to fine tune the production line

before commencing commercial production. Total net expenses of approximately RMB118.3 million were

incurred by the Group during the trial run and testing period. Pursuant to the accounting policies of the

Group, the amount of approximately RMB118.3 million was capitalised as fixed assets in the financial

statements of the Group. The net book value of these net expenses amounted to approximately RMB116.4

million as at 31 March 2013.

As advised by the Independent Valuer, due to the nature of the machinery and equipment, and in

the limited known market based on comparable sales, the market approach is not the most appropriate

approach in this valuation. Therefore, a majority of the machinery and equipment have been valued using

the depreciated replacement cost approach, which takes into account the current cost of replacement/

reproduction of the machinery and equipment less deductions for physical deterioration and all relevant

forms of obsolescence and optimisation, but without provision for overtime, bonuses for labour, or

premiums for materials or equipment. Market approach is adopted by the Independent Valuer for the

equipment which is comparatively easy to be disposed of in the market, such as motor vehicles and office

equipment, etc. Therefore, both cost and market approaches are adopted in the course of valuation. It is

stated in the property valuation report contained in Appendix V to this circular that as the nature of the

buildings and structures of the Disposal Group cannot be valued on the basis of market value, they have

therefore been valued on the basis of their depreciated replacement costs. The depreciated replacement

cost approach considers the current cost of replacement (reproduction) of the buildings and improvements

less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.

Under the depreciated replacement cost approach and market approach, the expenses for the trial

run and testing with a net book value of approximately RMB116.4 million as at 31 March 2013 will not be

taken into account in the course of the independent valuation.


21

(3) Comparison of target assets valuation

The assets acquired for the corn processing business as detailed in the Company’s circular dated 2

March 2012 in relation to the acquisition of certain target assets, including the aforesaid starch production

line and certain land and properties, were also included in the assets of the Disposal Group. As disclosed

in the Company’s circular dated 2 March 2012, the valuation of the target assets as at 31 December 2011

was approximately RMB852.2 million (which includes the capital value (after completion) of property

under construction (the “Property Under Construction”) and estimated cost of construction-in-progress of

machinery and equipment).

The consideration payable by the Company for the target assets was RMB825 million.

In the course of valuation, the Independent Valuer performed, among other things, the following

work:

(a) collecting the relevant information checklist of the assets to be appraised from the Company

and review the items on the checklist;

(b) conducting physical inspection of the target assets to assess their physical condition such as

whether the assets are kept in a reasonable condition and there is any physical obsolescence,

wear or tear;

(c) discussing with the Company to understand the maintenance arrangements and policies on

the target assets;

(d) obtaining evidence for the purchase cost of target assets, such as gathering information from

the suppliers and internet, etc;

(e) assessing the useful life and remaining useful life of the target assets by reference to, among

other things, (i) physical conditions of target assets observed during physical inspection; (ii)

the period of target assets having been used; and (iii) typical useful life of assets similar to

target assets; and

(f) estimating the replacement/reproduction costs for target assets by conducting extensive

research on replacement/reproduction costs for particular assets in public domain, such

as local suppliers and contractors, for fee quotation. In order to ensure the accuracy, the

Independent Valuer collects market information only from reputable sources.

Construction of target assets (including the Property Under Construction) has been completed

and target assets have been in use by the Company for corn processing. In assessing the market value at

existing state of the target assets as of 30 April 2013, the Independent Valuer has adopted the depreciated

replacement cost approach and market approach in respect of buildings, structures, machinery and

equipment.

Moreover, the machinery and equipment under the target assets include assets which are designed

for specific use so as to meet special needs of particular industry. Accordingly, the Independent Valuer

has also considered the original purchase cost (i.e. original book value) in the course of valuation.


22

The Independent Valuer has concluded that the market value (in existing state) of target assets,

which included the Property Under Construction as part of group I of property interest as set out in

Appendix V to this circular, as at 30 April 2013 was approximately RMB757.2 million, representing a

difference of approximately RMB95 million as compared to the capital value after completion of target

assets as at 31 December 2011 of approximately RMB852.2 million.

As advised by the Independent Valuer, the above difference in value of the target assets is mainly

attributable to the following reasons:

(a) Amount of amortisation and depreciation of target assets

The capital value after completion of target assets as set out in the circular of the Company

dated 2 March 2012 takes into account the amortisation and depreciation amount up to 31

December 2011 for existing assets but not for those assets under construction.

On the other hand, amortisation and depreciation amounts have to be deducted in arriving

at the market value (in existing state) of target assets as of 30 April 2013 because all target

assets have been in use by the Company. Aggregate amount of amortisation and depreciation of

approximately RMB54.0 million for the period from the respective dates of target assets recorded

as assets of the Company to 30 April 2013 have been determined by the Independent Valuer by

reference to their respective estimated remaining useful life.

(b) Purchase cost booked as original book value of target assets

The consideration paid by the Company for the target assets was RMB825 million.

According to the accounting policies of the Group, target assets were recorded at RMB825 million

as their original book value instead of the capital value (after completion) of approximately

RMB852.2 million.

As stated above, the Independent Valuer has also made reference to the original purchase

cost (i.e. original book value) of target assets in the course of valuation. This has resulted in a

variance of approximately RMB27.2 million (852.2 – 825).

(c) Change of physical conditions and others

It is stated above that the depreciated replacement cost approach takes into account the

current cost of replacement/reproduction of the machinery and equipment less deductions for

physical deterioration and all relevant forms of obsolescence and optimisation, but without

provision for overtime, bonuses for labour, or premiums for materials or equipment. Moreover,

change of physical conditions and other factors have also been considered by the Independent

Valuer in the course of valuation. All of these contribute to the difference.


23

(4) Certain assets pending registration of legal titles

As set out in the Company’s circular dated 2 March 2012, Shandong Xiwang Sugar Industry

Company Limited (formerly known as Shandong Xiwang Bio-chem Technology Co., Ltd.) acquired

certain properties from Shandong Xiwang Pharmaceutical Company Limited (presently known as Xiwang

Pharmaceutical Company Limited). As disclosed in the valuation report on land and property as contained

therein, the title documents of these properties were registered under the name of Shandong Xiwang

Pharmaceutical Company Limited who is entitled to occupy, transfer, lease and mortgage the property,

and therefore the independent valuer could assign market value to the properties. As set out in the property

valuation report of the Disposal Group contained in Appendix V to this circular, Shandong Xiwang

Pharmaceutical Company Limited (not a member of the Disposal Group) is the current registered owner

of the property. As such, the Independent Valuer has ascribed no commercial value to these properties due

to the absence of the State-owned Land Use Certificates and Building Ownership Certificates registered

under the name of Shandong Xiwang Sugar Industry Company Limited (a member of the Disposal Group).

However, for indicative purpose, such properties were valued as at the date of valuation at approximately

RMB55.4 million assuming that the relevant certificates had been registered under the name of Shandong

Xiwang Sugar Industry Company Limited. As advised by the Company’s PRC legal advisers, there are

no material legal impediments for Shandong Xiwang Sugar Industry Company Limited to complete the

transfer registrations and obtain the title documents in respect of these properties. When determining

the total consideration for the Disposal, the Company and the Purchaser have taken into account such

indicative market value. On this basis, the Directors consider that the Shareholders’ interests have

not been adversely affected by the issues on the legal title of properties of the Disposal Group in the

determination of the terms of the Disposal. As the Disposal involves the proposed disposal of the Sale

Share and the Sale Loans only and not the properties concerned, and Completion is not conditional on

the availability of the State-owned Land Use Certificates and Building Ownership Certificates registered

in the names of members of the Disposal Group, the Disposal will not be affected by the absence of title

documents for these properties.

HISTORICAL RESULTS OF THE GROUP FROM 2006 TO 2012

The Group has principally been engaging in corn processing business with a focus on the

production of starch sugars and corn co-products in the PRC, and the distribution and the sale of such

products within and outside the PRC since its listing on the Stock Exchange in December 2005. In view of

the deteriorating results of the corn processing business, the Group has been participating in the property

development business since late 2012.

R14.58(2)

R14A.59(2)(a)


24

Set out below is the revenue, gross profit, net profit, gross profit margin, net profit margin and

average corn costs (per tonne) of the Group from 2006 to 2011, and the revenue, gross profit, net loss,

gross profit margin and average corn costs (per tonne) of the corn processing business (including starch

sugars segment and corn co-products segment) for 2012:

2006 2007 2008 2009 2010 2011 2012 (audited) (audited) (audited) (audited) (audited) (audited) (audited)

Approximate Approximate Approximate Approximate Approximate Approximate Approximate

RMB million RMB million RMB million RMB million RMB million RMB million RMB million

(Note 1) (Note 1) (Note 1) (Note 1) (Note 1) (Note 1) (Note 2)

Revenue 1,385 2,062 2,544 2,481 3,257 3,633 4,155

Gross profit 365 464 220 317 472 456 252

(Note 3)

Net profit/(loss) 290 361 64 102 210 179 (36.2)

2006 2007 2008 2009 2010 2011 2012 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Approximate Approximate Approximate Approximate Approximate Approximate Approximate

Gross profit margin 26.4% 22.5% 8.6% 12.8% 14.5% 12.6% 6.1%

Net profit margin 21.0% 17.5% 2.5% 4.1% 6.4% 4.9% N/A

RMB RMB RMB RMB RMB RMB RMB

Average corn costs – per tonne (tax exclusive) 1,065 1,204 1,487 1,416 1,690 1,970 2,077

Notes:

(1) Revenue, gross profit and net profit of the Group from 2006 to 2011 are extracted from relevant annual reports of the Company.

(2) Segmental revenue, gross profit and net loss of the corn processing business segment are extracted from the 2012 annual report of the Company.

(3) The gross profit figure for 2012 was unaudited.


25

(A) Measures adopted by the Board to promote the business of the Group

The Board has been committed to promote the business of the Group so as to enhance the return to

the Shareholders. In response to this, the Board has adopted the following measures since listing:

(1) Production capacity expansion

Following listing, the Group has applied part of the net proceeds to expand the production

capacity. The Group completed its crystalline glucose production capacity expansion at the

beginning of 2007 and raised the designed annual capacity from 250,000 tonnes to 800,000 tonnes.

The designed annual capacity of starch paste also increased from 400,000 tonnes to 1,000,000

tonnes. After such expansion, the Group’s designed annual capacity of corn processing was

1,500,000 tonnes. As the production capacity of corn starch reached its limit and corn starch is

an intermediate raw material for processing into the Group’s downstream products, the Group

acquired, among other things, a new production line of starch with an annual designed capacity

of 600,000 tonnes and an existing production line of starch with an annual designed capacity of

150,000 tonnes in 2012. The production expansion allowed the Group to capture the business

opportunities in the market, and further benefit from economy of scale which can improve the

production efficiency. It also allowed the Group to produce sufficient amount of products to serve

large customers who purchase large amount of starch sugars and corn co-products from the Group.

All of these result in recognition of the Group’s brand name in the market thus increasing market

shares.

(2) Development of higher value-added product to improve product mix

The Group regards its research and development capability as one of the key elements in

fostering the Group’s market position and promoting the Group’s future development. Accordingly,

the Group continues to dedicate its resource and effort in research and development so as to

develop higher value-added product to improve product mix. Supported by the Group’s research

and development team, the Group has successfully developed crystalline fructose.

Fructose is the sweetest sugar among all the natural sugars, therefore the amount to be used

and hence the calorie value in food is largely reduced. In addition, the fruity fragrance of fructose

gives a great sensation to mouth. Fructose has the lowest Glycemic Index (which tracks the rate of

increase in blood glucose level after a meal) among all the natural sugars, which is suggested for

people with diabetes. Because of the various functions of fructose, it is widely used as an ingredient

for healthy and high-end food products, such as cereals, sports drinks, cakes and milk powder.

The flagship product of the Group is crystalline glucose which can be further processed into

crystalline fructose. The gross profit margin of crystalline fructose was approximately 14.2% for

the year ended 31 December 2012 and was approximately 6.6 percentage points higher than that of

crystalline glucose in 2012.


26

(3) Timely adjustment of product mix through in-depth study and market research

At the time of listing, lysine was sold by the Group as co-product. Glumatic acid was

subsequently launched in the market to supplement the Group’s product mix in 2006. With the

increased production volume of crystalline glucose, the Group found that the production of lysine

and glumatic acid was not sufficiently effective to absorb residual mother liquid. This affected the

production volume of the crystalline glucose, the flagship product of the Group. As a result, the

Group ceased the production of lysine and glumatic acid, and did not record any sale revenue of

lysine and glumatic acid in 2008.

In-depth study was conducted by the Group on how to resolve the issue so as to make use of

the lysine and glumatic acid factory. Market research was also carried out to assess whether there

was sufficient demand for the new product. After conducting the study and market research, the

Group modified the lysine and glumatic acid factory for production of sodium gluconate. Sodium

gluconate is mainly used to lengthen the solidification process of cement for the construction

industry. The Group began the production of sodium gluconate in 2009. The sale revenue of sodium

gluconate surged from approximately RMB185.9 million in 2009 to RMB522.8 million in 2012.

(B) Principal reasons for deterioration of results from 2009 to 2012

It is shown in the table above that annual net profit of approximately RMB290 million and

RMB361 million were achieved by the Group in 2006 and 2007 respectively. There was detection of

melamine in milk in the PRC in 2008. This dragged down the consumption of various dairy products

and other related products. The melamine scandal severely dampened the whole food chain in the PRC,

and spread also to contaminate animal feeds. Since the Group’s products are major ingredients to these

products, the business performance of the Group was significantly impaired. The global financial crisis

in 2008 had a negative effect on the export business of the Group. Therefore, poor results were recorded

in 2008. Following various policies and regulations adopted by the PRC government, the market began to

stabilise and the Group’s business recovered to certain extent. However, results of the Group (in terms of

net profit amount and net profit margin) from 2009 to 2011 remained unsatisfactory as compared to that

in 2006 and 2007. Results of the Group’s corn processing business segment deteriorated further in 2012

and resulted in a loss for the year. The unsatisfactory results for 2009 to 2012 were primarily due to the

following reasons:

(1) Continual surge of average corn costs

As set out in the table above, the average corn costs were in a rising trend from 2006 to 2012

with a surge from approximately RMB1,065 per tonne (tax exclusive) in 2006 to approximately

RMB2,077 per tonne (tax exclusive) in 2012 by approximately 95.0%. The average corn costs also

surged by approximately 46.7% from 2009 to 2012. Since the principal raw material of the corn

processing business of the Group is corn which, in the past, accounted for a significant portion of

the total cost of sales of the corn processing business of the Group (2009: 75.6%, 2010: 73.7%,

2011: 74.1% and 2012: 76.1%), the continual rise of corn costs exerted great pressure on the cost of

sales of the corn processing business of the Group.


27

(2) Fierce market competition

There had been drastic expansion of corn refineries before the melamine scandal and the global financial crisis. This resulted in fierce market competition. The spread of global financial crisis adversely affected the PRC economy which, in turn, worsened the business environment of the corn processing business of the Group. Consequently, the starch sugars and corn co-products market shifted from a seller’s market to a buyer’s market. Accordingly, the Group has been experiencing great difficulties to shift the increase in corn and other costs to its customers through upward adjustment in product price. This ended up with the squeeze of the gross profit margin of the corn processing business of the Group. The average gross profit margin for the three years from 2009 to 2011 was approximately 13.3% while the average gross profit margin for the two years of 2006 and 2007 was approximately 24.5%. Therefore, the average gross profit margin from 2009 to 2011 was almost cut by half. The gross profit margin of the corn processing business of the Group was further squeezed to approximately 6.1% in 2012.

(3) Spread of financial crisis in Europe and United States of America

The Group successfully developed crystalline fructose in 2007 and launched crystalline fructose to the market in 2009. When formulating the development strategy for crystalline fructose, the Group foresaw the opportunity of the healthy starch sugar market in the PRC, especially the consumer market. The Group intended to launch consumer-pack crystalline fructose to consumer market in the PRC under the Group’s own brand. This represented a remarkable development of the Group because it was the first time for the Group to diversify into the PRC consumer market, and this allowed the Group to enjoy higher margin as compared to the wholesale market.

Since the crystalline fructose market in Europe and United States of America was relatively well developed with secure demand of crystalline fructose and it would take time for the Group to develop the PRC market including consumer market, the Group planned to sell its crystalline fructose product in the wholesale market in Europe and United States of America so as to allow the Group to increase the utilisation rate of crystalline fructose production facilities when the Group developed the PRC fructose consumer market. However, the Group could not execute the development plan of crystalline fructose satisfactorily due to the unexpected spread of financial crisis in Europe and United States of America since 2008.

In response to this, the Group has changed its plan and focused its resources on promoting crystalline fructose in the PRC. In B2B channel, the Group has promoted to food companies to launch healthy food products using fructose. In B2C channel, the Group’s consumer-pack fructose products have been made available mainly in chain supermarkets in certain areas of the PRC under

the Group’s brand “Yoho fruit sugar (悠活果糖)”. As the Group has to develop the fructose market in the PRC from scratch, longer time is required for the Group’s fructose products to be well received by customers and the market. Due to the deteriorating results of the Group, the Group has become extremely cautious in committing further capital in developing the PRC fructose market. On the other hand, the Group has switched to produce more fructose-glucose syrup. Although the gross profit margin of fructose-glucose syrup is lower than that of crystalline fructose (in 2012, fructose-glucose syrup: 8.1% vs crystalline fructose: 14.2%), this has the effect of increasing the utilisation rate of production facilities of and generating more revenue for the Group when there is not enough demand for crystalline fructose.


28

STRATEGIC REVIEW

It was stated in the circular of the Company dated 11 December 2012 that the Board was reviewing

the operating results of the corn processing business segment of the Group, which for the six months

period ended 30 June 2012 were not in their view satisfactory. It was also stated that the Board would

conduct a more detailed review of the financial position and the operations of the Group with a view to

developing a comprehensive corporate strategy to improve the performance of the Group after completion

of acquisition of the property business. A strategic review on all of existing businesses of the Group has

been conducted.

The table below sets out the segmental results of the Group for the two years ended 31 December

2011 and 2012, and for the three months ended 31 March 2013 which are extracted from the accountant’s

report on the Group issued by PwC contained in Appendix II to this circular:

For the year ended For the three months 31 December ended 31 March 2011 2012 2013 (audited) (audited) (audited)

Approximate Approximate Approximate

RMB million RMB million RMB million

RevenueCorn processing business segment (Note) 3,632.9 4,155.1 1,459.9

Property development business segment – 173.0 –

3,632.9 4,328.1 1,459.9

Operating profitCorn processing business segment (Note) 256.0 50.6 4.6

Property development business segment – 27.0 (1.4)

256.0 77.6 3.2

Profit/(loss) for the year or the periodCorn processing business segment (Note) 179.3 (36.2) (25.5)

Property development business segment – 18.2 (11.5)

179.3 (18.0) (37.0)


29

Note:

The figures disclosed under “corn processing business segment” above include figures relating to the Remaining Group’s export trading business, which does not form part of the Disposal Group. The export trading business of the Remaining Group commenced in 2012. Based on the unaudited management accounts of the Company’s subsidiary which carries out the export trading business of the Remaining Group, for the year ended 31 December 2012 and three months ended 31 March 2013, the Remaining Group’s export trading business recorded (i) revenue of approximately RMB58.9 million and RMB50.5 million respectively; (ii) cost of sales of approximately RMB58.2 million and RMB50.3 million respectively; (iii) operating profit of approximately RMB0.6 million and RMB0.2 million respectively; and (iv) profit for the year or the period of approximately RMB0.6 million and RMB0.2 million respectively.

(A) The corn processing business segment

It is shown in the table above that although the audited segmental revenue of the corn processing

business increased by approximately 14.4% to approximately RMB4,155.1 million for the year ended 31

December 2012 as compared to that of 2011, the corn processing business suffered an audited segmental

loss of approximately RMB36.2 million for the year ended 31 December 2012 as compared to the audited

profit of approximately RMB179.3 million for the year ended 31 December 2011. The corn processing

business’s segmental financial results deteriorated substantially for the year ended 31 December 2012

primarily due to falling prices of its major products, while domestic corn price continued to rise. The

segmental gross profit margin of the corn processing business was squeezed in 2012. The operating

environment of the corn processing business remains difficult in the first quarter of 2013, resulting in a

continued decrease in gross profit margin.

The average corn cost (tax exclusive) rose by approximately 5.4% from approximately RMB1,970

per tonne in 2011 to approximately RMB2,077 per tonne in 2012 due to inflation and strong demand of

corn from the feed industry and other sectors. The average corn cost (tax exclusive) slightly dropped to

approximately RMB2,028 per tonne for the three months ended 31 March 2013. It is uncertain about the

future movement of the corn cost. Given the historical rising trend from 2006 to 2012, corn cost may

continue to rise and may not adjust downwards from the current high level.

The total sales volume of starch sugars, corn co-products and others of the corn processing business

grew from 1,147,610 tonnes in 2011 to 1,380,282 tonnes in 2012 by approximately 20.3%. Nevertheless,

the audited segmental revenue of the corn processing business increased only by approximately 14.4% to

approximately RMB4,155.1 million in 2012 as compared to that of 2011. The smaller growth of revenue

as compared to that of total sales volume was mainly due to the drop of average selling prices of products

of the corn processing business which was primarily attributable to (a) weaker market demand of the

corn processing business’ products resulted from slowdown of PRC economic development; (b) keen

competition for the corn processing business’ certain key products such as crystalline glucose; and (c) the

fall of white sugar price as white sugar is a substitute of the corn processing business’ certain key products

such as crystalline fructose-glucose and fructose-glucose syrup.

The corn processing business achieved an unaudited segmental gross profit margin of

approximately 4.8% for the first quarter of 2013, representing a drop of 1.6 percentage points as compared

to that of the corresponding period in 2012 of 6.4%. Due to the poor gross profit margin, the corn

processing business segment of the Group continued to record loss in amount of approximately RMB25.5

million for the three months ended 31 March 2013. The pace of global economic recovery remains slow.

The European Union debt crisis is yet to be resolved. The economic growth of PRC economy may slow

down. There are great difficulties for the corn processing business of the Group to pass on the entire raw


30

material cost increases to customers as explained in the section headed “Historical results of the Group

from 2006 to 2012” above. All of these will pose a risk for the corn processing business of the Group. On

this basis, it is highly uncertain whether the corn processing business of the Group can improve the profit

margin of its products in near future.

The corn processing business of the Group recorded audited operating profit of approximately

RMB50.6 million for the year ended 31 December 2012 which was entirely eroded by the audited net

finance cost (including exchange difference) of approximately RMB92.2 million. This is also the case for

the first quarter of 2013 with audited operating profit of approximately RMB4.6 million entirely offset by

the audited net finance cost (including exchange difference) of approximately RMB29.0 million for the

corn processing business of the Group. As at 31 March 2013, the Disposal Group recorded audited cash

balance (excluding restricted cash) of approximately RMB263.8 million, and audited short term external

loans (including current portion of long term liabilities) in an aggregate amount of approximately RMB1.7

billion with audited net current assets (setting aside the loans advanced to the Disposal Group by the

Company of approximately RMB1,710.1 million and the Unpaid Dividend of approximately RMB222.0

million as at 31 March 2013) of approximately RMB41.5 million. In view of the current financial position

of the Disposal Group, it is unlikely that the Disposal Group will be able to reduce its reliance on external

borrowings and its net finance costs substantially in near future.

Given the above, the Board considers that the operating environment of the corn processing

business of the Group will remain difficult and is subject to great challenges in the near future.

(B) The property development business segment

For the year ended 31 December 2012, the audited segmental revenue and profit for the year of

approximately RMB173.0 million and RMB18.2 million respectively were recorded for the property

development business. The segmental profit margin of the property development business for the year

ended 31 December 2012 was approximately 10.5%.

Property development may take many months, or sometimes years, before any pre-sale takes place

and even longer to complete. According to accounting policy of the Group for revenue recognition,

although the pre-sale of a property generates positive cash flows for the property development business

segment in the period in which it is made, no revenue is recognised in respect of the sale of a property

until its development has been completed and the property has been delivered to the purchaser. Since the

delivery of the properties varies according to construction timetable of the property development segment,

operating results of the property development segment may vary significantly from period to period. As

the properties were still under construction and had not yet been completed for delivery to purchasers, no

property sale revenue was recorded for the three months ended 31 March 2013.

As at 31 March 2013, advances from customers received from pre-sales of the Remaining Group amounted to approximately RMB215.9 million. Based on the current construction progress and the expected timing to obtain relevant governmental approval(s), it is anticipated by the Company that sales related to the aforesaid advances from customers as at 31 March 2013 of approximately RMB215.9 million is expected to be substantially recognised as revenue during the year of 2013 and 2014. Property sale in an amount of approximately RMB150.0 million is estimated to be recognised as revenue for the year ending 31 December 2013 in respect of the Lanting project and phase two of the Meijun project.


31

The Group is now developing four property projects namely, Yintaishan corn cultural project,

Lanting project, Meijun project and Qinghe project. Details of these projects are set out in the circular of

the Company dated 11 December 2012. Despite the on-going austerity measures, the Company is of the

view that the PRC property sector still has long term prospects in view of the continued PRC economic

growth, urbanisation trends, high household savings rates and increasing demand of end-users. The

Company believes that the land bank is one of critical elements of a successful property company. After

acquisition of the property development business, the Remaining Group has put efforts into identifying

and securing new property projects for further expansion. The four property projects namely, Yintaishan

corn cultural project, Lanting project, Meijun project and Qinghe project are all located in Zouping

County, Binzhou City, Shandong Province. The Remaining Group has established a good market position

in Zouping County, and plans to replicate its success in Zouping County to other high-growth areas in

the PRC. The Remaining Group is evaluating certain PRC residential, commercial and office property

development projects in area(s) other than Zouping County, and regarded them as good investment

opportunities. If the Remaining Group participates in one of these property development projects, further

bank borrowings may have to be raised by the Remaining Group to fund the new property projects. On 29

May 2013, Glorious Prosper Limited, an indirect wholly-owned subsidiary of the Company, entered into a

framework agreement with the Jimo City People’s Government (即墨市人民政府) of the PRC in relation to their proposed cooperation on the development of a multi-purpose property development project in

Jimo City, Qingdao, Shandong Province, the PRC. Further details of the framework agreement are set out

in the announcement of the Company dated 29 May 2013.

The Group recorded audited total current assets and total current liabilities of approximately

RMB2,962.3 million (including cash balance (excluding restricted cash) of approximately RMB275.2

million) and RMB2,936.9 million (including external borrowings of approximately RMB1,788.4 million)

respectively as at 31 March 2013. The net current assets of the Group amounted to approximately

RMB25.4 million as at 31 March 2013. The thin net current assets and the external borrowings of

approximately RMB1.8 billion would limit the Group’s ability to raise further borrowings to fund the new

property projects of the Group. Notwithstanding the view of the Directors that the Group has the financial

ability to meet the liabilities of the Group as they fall due, the Directors are mindful of the further risk

exposure of the Group if additional borrowings are raised for the new property projects of the Remaining

Group. Out of the borrowings of approximately RMB1.8 billion as at 31 March 2013, approximately

RMB1.73 billion was raised by and for the Disposal Group. The Board concludes that there are capital

constraints to expand the property development business if the Group continues to pursue both of the corn

processing business and the property development business at the same time.

Based on the strategic review mentioned above, the Board is of the view that the business

environment of the Disposal Group will remain full of challenges and competitive, and it is difficult

to predict any turnaround in the near future. The operation of both of the corn processing business and

the property development business by the Group poses a constraint for the Group to further expand the

property development business.

BACKGROUND TO, REASONS FOR AND BENEFITS OF THE DISPOSAL

The Group has been principally engaged in the corn processing business since its listing on the

Stock Exchange in December 2005. In view of the deteriorating results of the corn processing business,

the Group began to participate in the property development business in late 2012. One of subsidiaries of

the Remaining Group has commenced to source starch sugars, and/or corn co-products from the Disposal


32

Group for export trading since 2012. Such subsidiary shall not carry out export trading business after

Completion. Upon Completion, the Group will no longer be engaged in the corn processing business

(including export trading business), and will focus its resources on the Group’s property development

business in the PRC.

(A) Background to the Disposal

As stated in the interim results announcement of the Group for the six months ended 30 June 2012,

the Group recorded profit for the period of approximately RMB3.0 million (first half of 2011: RMB110.4

million). In view of poor results of the corn processing business of the Group, the Company sought

diversification of business into areas of high-growth potential. Opportunities in the PRC property sector

had been considered by the Company as an area with positive outlook in the long term. Accordingly, the

Company entered into the Previous Acquisition last year.

The Board was of the view that results of the corn processing business for the six months ended

30 June 2012 were unsatisfactory because the gross profit margin of the corn processing business for the

six months ended 30 June 2012 of approximately 7.5% was (a) significantly lower than the mean of gross

profit margin of approximately 13.3% for the three years from 2009 to 2011; and (b) below the gross

profit margin of approximately 8.6% in the year of melamine scandal in 2008. Since there was still a

very thin profit but not a loss for the corn processing business for the six months ended 30 June 2012, the

Board decided to closely monitor the corn processing business for a period of time by continuing the corn

processing business. The Company maintained this view at the time of entering into of the agreement for

the Previous Acquisition in last November.

Various measures as set out in the section headed “Historical results of the Group from 2006 to

2012” above had been taken by the Company to promote the corn processing business for the past few

years and for the first quarter of 2013. However, loss from the corn processing business could not be

avoided in 2012. Results of the corn processing business of the Group for the three months ended 31

March 2013 continued to be unsatisfactory, and were in the view of the Board deeply disappointing.

Efforts devoted by the Company during the three months ended 31 March 2013 to promote results of the

corn processing business were in vain mainly due to fierce market competition of the corn processing

business and great difficulties to pass on the entire raw material cost increases to customers in addition to

slow recovery of global economy and slow down of PRC economic growth. The corn processing business

achieved an unaudited segmental gross profit margin of approximately 4.8% for the first quarter of 2013,

representing a drop of 1.3 percentage points as compared to that of 2012 of 6.1%. The Disposal Group

recorded audited loss of approximately RMB16.3 million for the three months ended 31 March 2013

which represented approximately 74.8% of the loss for the year of the Disposal Group for the year ended

31 December 2012 of approximately RMB21.8 million.

The business environment of the corn processing business got worse in April 2013 with drop of average selling prices for most of major products of the corn processing business. The average selling price of most of its major products (including crystalline glucose, crystalline fructose, fructose-glucose syrup, corn gluten meal, corn gluten feed, sodium gluconate and maltodextrin) shrank by a range of between approximately 2.0% and 7.9% as compared to their respective average selling price in March 2013. The average corn cost (tax exclusive) of the Group in April 2013 remained at a high level at approximately RMB2,027 per tonne which is similar to the average corn cost (tax exclusive) of


33

approximately RMB2,028 per tonne for the three months ended 31 March 2013. The decline of average selling price of most of major products together with the average corn cost staying at a high level resulted in a further squeeze of gross profit margin of the corn processing business in April 2013.

It is stated in the section headed “Strategic review” above that the operating profit of the corn processing business was entirely eroded by the net finance cost (including exchange difference) for both of 2012 and first quarter of 2013. As at 31 March 2013, the Disposal Group recorded audited cash balance (excluding restricted cash) of approximately RMB263.8 million, and audited short term external loans in an aggregate amount of approximately RMB1.7 billion with audited net current assets (setting aside the loans owed by the Disposal Group to the Company and the Unpaid Dividend of approximately RMB1.9 billion) of approximately RMB41.5 million. In view of the current financial position of the Disposal Group, it is unlikely that the Disposal Group will be able to reduce its reliance on external borrowings and its net finance costs substantially in near future.

On this basis, it is concluded that the operating environment of the corn processing business of the Group will remain difficult and is subject to great challenges in the near future. Moreover, it is difficult to predict any turnaround in the near future.

After completion of the Previous Acquisition, the Company commenced the property development business in the PRC with four property development projects namely, Yintaishan corn cultural project, Lanting project, Meijun project and Qinghe project. Pre-sales of the Lanting project and phase two of the Meijun project have been commenced prior to the Previous Acquisition. As at 31 March 2013, advances from customers received from pre-sales of these two projects amounted to approximately RMB215.9 million.

In addition to these four property development projects, the Company also looks into different property development investment opportunities, and has certain discussions with independent third parties in this regard. These opportunities involve residential, commercial and office property development

projects in cities of Shandong Province (other than Binzhou City) including Qingdao (青島). As explained in the section headed “Strategic review” above, the operation of both of the corn processing business and the property development business by the Group poses a constraint for the Group to further expand the property development business. Accordingly, the Group may not be able to participate in certain property development investment opportunities which are regarded to be attractive.

The Board convened a meeting on 26 March 2013 to approve, among other things, the annual results of the Group for the year ended 31 December 2012. Given the poor results of the corn processing business of the Group in 2012, a non-executive Director, requested the management of the Company to closely monitor the corn processing business and explore the way how to maximise the return of the Shareholders. After the Board meeting, the management of the Company revisited the financial results and position of the corn processing business. The management of the Company has closely monitored the corn processing business for around nine months since 30 June 2012, and there is still no sign of improvement

of the performance of the corn processing business. Following the National People’s Congress in March

2013, the central government does not seem to have launched significant policies to promote the PRC

economy. In around mid April 2013, there was a press article reporting that a senior PRC auditor warned

that local government debt was “out of control” which could spark a bigger financial crisis than the

housing market crash of the United States of America. The local government debt concern may limit the

PRC government ability to devote substantial resources to strengthen the PRC economy. The slowdown


34

of PRC economy poses a risk for the corn processing business. During the nine months period from

30 June 2012 to 31 March 2013, the Company used its best endeavour to promote the corn processing

business but results of the corn processing business continued to deteriorate, and there was no sign of

improvement of the performance. On this basis, it was concluded that the Company’s top priorities are to

(a) dispose of the loss-making and gloomy corn processing business as soon as possible so as to cut the

loss to be incurred by the Group; and (b) step up the Group’s efforts to develop the profit-making property

development business. After drawing up this conclusion, a senior management member of the Company

approached Mr. Wang Yong to see whether the controlling Shareholder was interested to acquire the corn

processing business. Following Mr. Wang Yong’s indicated interest, the management of the Company had

various discussions with Mr. Wang Yong negotiating on the terms of the Disposal. On 21 May 2013, the

Agreement was entered into between the Company and the Purchaser.

(B) Reasons for the Disposal

As disclosed in the section headed “Historical results of the Group from 2006 to 2012” above,

the Group has carried out the corn processing business for over 7 years since the listing in December

2005. Annual net profit of approximately RMB290 million and RMB361 million were recorded by

the Group in 2006 and 2007 respectively. The business performance of the Group was significantly

impaired by the melamine scandal and the financial tsunami in 2008. In order to combat the unfavourable

operating environment, the Group had adopted a number of measures such as improving the product

mix by developing higher value-added product and implementing cost control measures. However, the

Group could not fully recover its performance and the Group’s annual net profit from 2009 to 2011 was

substantially lower than that of 2006 and 2007. It was the first time for the corn processing business to

record segmental loss for the year of approximately RMB36.2 million in 2012. The operating environment

of the corn processing business remained difficult for the three months ended 31 March 2013 and the corn

processing business suffered a segmental loss for the period of approximately RMB25.5 million for the

first quarter of 2013.

It is stated in the section headed “Strategic review” above that it is difficult to predict any

turnaround of the corn processing business carried out by the Disposal Group in the near future. The

Board is concerned that if the financial results of the corn processing business continue to deteriorate,

the corn processing business will become financial burden of the Group, and limit the Group’s ability to

expand the property development business and make dividend distribution. The Board intends to devote

further resources to expand the property development business of the Remaining Group. On this basis, the

Board considers appropriate to liquidate the investment in the Disposal Group and focus its resources on

property development business in the future. Subject to Completion taking place, the Board plans to apply

part of the proceeds from the Disposal for the future development of the property development business,

and for distribution of the Proposed Special Dividend for the Shareholders to share in the fruits of the

Disposal. Details of the use of proceeds are set out in the section headed “Use of proceeds” below.

The Directors are of the view that selling the Disposal Group to an independent third party will

inevitably involve comprehensive due diligence review of the Disposal Group’s business, which may

cause the potential buyer to have access to the Company’s trade secrets. Should the potential buyer decide

not to proceed with the transaction after performing the due diligence work, there is a risk that such trade

secrets and/or other confidential information of the Disposal Group may be exposed, which is detrimental

to the Company. Also, more extensive representations and warranties are likely to be requested by the

potential buyer from the Company when negotiating the terms of the agreement. On the other hand,

R14.58(8)

R14A.59(13)


35

as the Purchaser is familiar with the business of the Disposal Group, no due diligence or extensive

representations and warranties from the Company in respect of the Disposal Group is required. Moreover,

as set out in the sub-section headed “Consideration” under the section headed “The Agreement” above, the

Consideration for the Disposal represents a historical PBR of approximately 0.743 times, which is higher

than the average historical PBR of the Comparable Companies as at the Latest Practicable Date.

In view of the above, the Company considers that the entering into of the Agreement with the

Purchaser is the fastest and easiest way to dispose of the Disposal Group as compared with dealing with

an independent third party.

(C) Benefits to the Group and the Shareholders

The Directors are of the view that the Disposal offers the Group and the Shareholders the following

benefits:

• DisposingoftheDisposalGroupwhichhassuffereddeterioratingresultswithhugeamounts

of external borrowings;

• Significantly reducing the amount of external borrowings of the Group after Completion

so that the Remaining Group will be in healthy financial position with lower gearing

immediately after Completion;

• UnlockingthevalueoftheDisposalGroup;

• ReallocatingtheGroup’sresourcestothepropertydevelopmentbusinessofwhichtheBoard

considers its long term prospects to be promising;

• ThereceiptoftheProposedSpecialDividendwhichrepresents(i)approximately101.4%of

the closing price of HK$0.74 per Share as quoted on the Stock Exchange on the Last Trading

Day; (ii) approximately 107.1% of the average closing price of approximately HK$0.70 per

Share for both the last 5 and 10 full trading days up to and including the Last Trading Day;

and (iii) approximately 46.3% of the closing price of HK$1.62 per Share as quoted on the

Stock Exchange on the Latest Practicable Date; and

• The Proposed SpecialDividend provides the Shareholderswith an opportunity not only to

receive an upfront return, which is higher than the sales proceeds available from realisation

of the Shares at the share price on the Last Trading Day and to enjoy the possible upside gain

in the future due to further development of the property development business of the Group

after Completion.

Taking into account (a) the Consideration in an amount of RMB2,096 million; (b) the audited

consolidated net asset value of the Disposal Group of approximately RMB1,020.8 million as at 31 March

2013; (c) the carrying amounts of the Sale Loans as at the Latest Practicable Date; (d) the estimated direct

cost for the Disposal; and (e) the investment cost of the Company in the Disposal Company of US$1

(equivalent to approximately RMB8) (representing the paid-up share capital in the Disposal Company),

it is expected that a loss in an amount of approximately RMB861.6 million, of which RMB856.6 million

would be recognised as a reduction of reserve in the consolidated statement of financial position of

R14.58(8)R14A.58(1)R14A.59(13)

R14.60(3)(a)R14.70(2)R14A.58(2)


36

the Group and the remaining RMB5 million would be recognised in the consolidated statement of

comprehensive income of the Group, will be recognised in respect of the Disposal. The actual loss on the

Disposal to be recognised by the Group, which will be calculated by reference to the financial position

of the Disposal Group at the time of Completion, may be different from the above figure. Although the

Disposal will lead to a substantial amount of reduction of reserves, in light of the above factors, the

Directors consider that the Disposal is fair and reasonable and in the interests of the Company and the

Shareholders as a whole.

Having considered the above background, reasons and benefits, the Directors consider that the

terms of the Agreement are on normal commercial terms and are fair and reasonable.

As set out in the sub-section headed “Consideration” under the section headed “The Agreement”

above, the Consideration will be partly offset against the amount payable to the Purchaser by the

Company for early repayment of the promissory note in the principal amount of RMB308 million issued

by the Company in favour of Xiwang Investment on 31 December 2012 to satisfy the consideration for

the Previous Acquisition, together with interests accrued up to the date of Completion. As the RMB308

million promissory note is interest bearing, the offset arrangement can lower the total amount of interest

payable to the Purchaser and the level of borrowings of the Remaining Group after Completion. It is

stated in the sub-section headed “Existing property projects details” under section headed “Information

on the property development business” below that land expropriation of the project site of the Yintaishan

corn cultural project is expected to be completed by end of 2013, and relocation of affected villagers in

the project site of the Qinghe project is estimated to be completed by around end of 2013. Accordingly,

the earliest time for the Remaining Group to participate in the bidding mechanism to acquire the land use

rights for the Yintaishan corn cultural project and Qinghe project is estimated to be around end of 2013 or

early 2014. After considering this funding requirement of the Remaining Group and taking into account

the benefits of the Disposal to the Group and the Shareholders as set out herein, the Company agreed to

the arrangement for the issue of Promissory Note B.

The Proposed Special Dividend provides the Shareholders with an opportunity not only to receive

an upfront return, which is higher than the sales proceeds available from realization of the Shares at the

share price on the Last Trading Day but also to enjoy the possible upside gain in the future due to further

development of the property development business of the Group after Completion. It is the intention

of the Remaining Group to raise bank borrowings in a range of between RMB50 million and RMB100

million in 2013 to fund the land costs and initial construction costs of the Yintaishan corn cultural project.

These bank borrowings are raised in the ordinary course of business of the Remaining Group for project

financing, and the Company considers that the Remaining Group is capable of repaying the borrowings

when they fall due. On this basis, the Directors are of the view that it is not in the interests of the

Shareholders to lower the amount of the Proposed Special Dividend so as to avoid these bank borrowings.

Given that the Purchaser is an Ordinary Shareholder and a CPS Holder, the Purchaser is entitled to the

Proposed Special Dividend and the Preferred Distribution, and the Company has to treat the Purchaser

equally as all other Ordinary Shareholders and CPS Holders in this regard.

Having considered the basis discussed in the two paragraphs above, the Directors are of the view

that the settlement method under the Disposal (including the offset arrangement of the RMB308 million

promissory note and the arrangement for the issue of Promissory Note B) and the participation of the

Purchaser in the Proposed Special Dividend and the Preferred Distribution is in the interests of the

Shareholders.

R14.58(8)


37

As at the Latest Practicable Date, the Company was not in any negotiation of fund raising exercise,

and has no plan of introducing new investors or shareholders to the Company.

INFORMATION ON THE PROPERTY DEVELOPMENT BUSINESS

After Completion, the principal focus of the Remaining Group will be property development

business in the PRC. As at the Latest Practicable Date, there were four property projects under different

stages of development. These property projects include three residential projects (namely Qinghe,

Lanting and Meijun) and a comprehensive project, namely Yintaishan corn cultural project which consists

of cultural, residential and commercial portions. Except for phase one of Meijun project which was

completed in 2008, these projects are estimated to be completed by phases from 2013 to 2018 onwards.

Further details of these property development projects are set out in the Company’s circular dated 11

December 2012 and the Company’s 2012 annual report.

The Company will from time to time evaluate various property projects should opportunity arise.

As disclosed in the announcement of the Company dated 29 May 2013, Glorious Prosper Limited, an

indirect wholly-owned subsidiary of the Company, and the Jimo City People’s Government (即墨市人民政府) of the PRC entered into a framework agreement in relation to their proposed cooperation on the development of a multi-purpose property development project comprising a station square as the

principal development and the commercial, residential and office zones located at the Qing-Rong intercity

railway station in Jimo City, Qingdao, Shandong Province, the PRC with a site area of around 2.32 square

kilometers. The project is still under evaluation and review by the government authority, and the actual

investment amount, project completion schedule, and specific terms and conditions of the transfer of

land use rights will be fixed based on the final development plan approved by the government authority

and the definitive agreements to be entered into between the parties. Further details of the framework

agreement are set out in the announcement of the Company dated 29 May 2013. The Company has certain

discussions with independent third parties regarding other potential property projects. However, no

binding agreement has been entered into in this regard as at the Latest Practicable Date.

Management team

Mr. Wang Yong, the chairman and an executive Director of the Company, has been involved in

managing the property development business in the PRC. There is a management team responsible for

managing the property development business. The general manager and chief engineer of the property

development business have over 25 years of experience in real estate business in the PRC while the two

deputy general managers of the property development business, who are also senior engineers, have

over 15 years of experience in real estate business in the PRC. To cope with future development of the

property development business, the Company may recruit additional staff who are experienced in the PRC

property development business. It is the intention of the Company to reconstitute the composition of the

Board after Completion with a view to appointing new director(s) who possesses relevant qualifications

and experiences in the PRC property development business while certain Director(s) who is/are solely

responsible for the business of the Disposal Group may retire or leave the Board.


38

Existing property projects details

Since the Previous Acquisition, the Group has been actively developing its property development

business. Since the completion of the Previous Acquisition and up to the Latest Practicable Date,

the Group has been focusing on, among other things, (i) land expropriation of the project sites of the

Yintaishan corn cultural project and the Qinghe project; and (ii) construction of the Lanting project and

the Meijun project.

Lanting project and Meijun project

The Group will continue with the construction of the Lanting project and the Meijun project. Based

on current development schedule, the construction work of the Lanting project is expected to be completed

in phases by the end of 2014. Construction work of phase two of the Meijun project is expected to be

completed by end of 2013. It is anticipated that construction work of phase three of the Meijun project

will commence in 2014.

Yintaishan corn cultural project

For the Yintaishan corn cultural project, the Group has negotiated with the local government

officials regarding the land expropriation of the project site. The local government has fixed the boundary

of the project site and has been carrying out surveying work thereon. It is expected that land expropriation

of the project site will be completed by end of 2013. Following completion of the land expropriation, the

Group will comply with the bidding mechanism, i.e. by public tender, auction and listing-for-bidding, to

acquire the land use rights under the project. The feasibility study of the Yintaishan corn cultural project

is being carried out and the first phase development plan is expected to be approved by the government

authority by the end of 2013. Following the Group’s obtaining of the relevant land use rights and

government approvals for the project site, it is currently expected that construction work will commence

in 2014.

Qinghe project

For the Qinghe project, the Shandong Provincial government has approved the conversion of

agricultural land into land for construction purposes for the project site. The Group is now negotiating

with the local authorities and villagers for the land expropriation arrangement of the project site. Based on

the current development schedule, the relocation of affected villagers in the project site will be completed

around end of 2013. After completion of land expropriation of the project site, the Group will comply

with the bidding mechanism, i.e. by public tender, auction and listing-for-bidding, to acquire the land use

rights under the project afterwards. Following the Group’s obtaining of the relevant land use rights and

government approvals for the project site, it is currently expected that construction work will commence

in 2014.

Each of the Lanting, Meijun and Qinghe project is owned by 山東西王置業有限公司 (Shandong

Xiwang Property Company Limited). The Yintaishan corn cultural project is owned by 山東印台山文化發展有限公司 (Shandong Yintaishan Cultural Development Company Limited). Shandong Xiwang Property Company Limited and Shandong Yintaishan Cultural Development Company Limited are the

indirect wholly-owned subsidiaries of Keen Lofty Investments Limited, the entire issued share capital of


39

which was acquired by the Company from Xiwang Investment in the Previous Acquisition in December

2012. Prior to this, Shandong Yintaishan Cultural Development Company Limited, established on 30

October 2012, was an indirect wholly-owned subsidiary of Xiwang Investment. In November 2012,

Xiwang Investment, through Shandong Yintaishan Cultural Development Company Limited, acquired the

entire equity capital of the holding company of Shandong Xiwang Property Company Limited from 山東盛唐投資有限公司 (Shandong Shengtang Investment Company Limited), an independent third party.

Financial information

Based on the 2012 annual report of the Company, segmental revenue of the property development

business amounted to approximately RMB173.0 million for the year ended 31 December 2012. The

property development business recorded segmental profit before and after income tax of approximately

RMB26.2 million and RMB18.2 million respectively. As at 31 December 2012, the property development

business recorded segmental total assets and net assets amounted to approximately RMB1,281.8 million

and RMB117.3 million respectively.

As at 31 March 2013, advances from customers received from pre-sales in respect of the property

development business amounted to approximately RMB215.9 million.

Based on the unaudited pro forma financial information of the Remaining Group contained

in Appendix IV to this circular, it is expected that the total assets of the Remaining Group would

become approximately RMB1.5 billion assuming Completion has been taken place as at 31 March

2013. Such RMB1.5 billion represents approximately 26.8% of total assets of the Disposal Group of

approximately RMB5.6 billion as at 31 March 2013 or approximately 24.6% of total assets of the Group

of approximately RMB6.1 billion as at 31 March 2013.

As the three years ended 31 December, 2009, 2010 and 2011 fell in the investment stage of the property development business, the said business recorded loss at the relevant time. Since 2012, the property development business became a revenue stream of and began to contribute profit to the Group. For the coming two years of 2013 and 2014, portion of phase two of the Meijun Project and the Lanting project are expected to be completed for delivery to purchasers to generate revenue. Based on the current construction progress and the expected timing to obtain relevant governmental approval(s), it is anticipated by the Company that no property sale will be recorded as revenue for the six months ending 30 June 2013 and property sale in an amount of approximately RMB150 million and RMB180 million will be recorded as revenue for the year ending 31 December 2013 and 2014 respectively in this regard. The estimated revenue of approximately RMB150 million in 2013 and RMB180 million in 2014 represents approximately 86.7% and 104.0% of the property sale revenue of approximately RMB173.0 million in 2012 respectively.

The Yintaishan corn cultural project is the flagship project of the property development business which is expected to contribute to the revenue of the Remaining Group by 2015. With the development of the Yintaishan corn cultural project, it is expected that more revenue will be generated from the property development business. Based on the development plan of the Remaining Group of the Yintaishan corn cultural project, phase three of the Meijun project and the Qinghe project, the estimated sale revenue of the Remaining Group (i.e. the property development business) is as follows:


40

Estimated gross Pre-sale/ floor area sale price EstimatedYear Project under sale per sq.m. revenue (sq.m.) (RMB) (RMB’million)

2015-2016 Yintaishan corn

cultural project

– phase I – residential 400,000 3,400 1,360

Yintaishan corn

cultural project

– phase I – commercial 100,000 4,500 450

2016-2017 Yintaishan corn

cultural project

– phase II – residential 400,000 3,400 1,360

Yintaishan corn

cultural project

– phase II – commercial 100,000 4,500 450

Meijun – phase III (part A) 113,832 3,400 387

Qinghe – phase I 101,581 3,400 345

2018 Meijun – phase III (part B) 106,720 3,400 363

Qinghe – phase II 98,418 3,400 335

Total 5,050

As illustrated above, the estimated sale revenue of the Remaining Group (i.e. the property

development business) is approximately RMB5.1 billion for the four years period from 2015 to 2018 with

an average estimated annual revenue of approximately RMB1.28 billion. Such estimation is made by

assuming that (a) a total gross floor area of approximately 1.2 million sq.m. of residential properties can

be completely developed for delivery to purchasers during the four years period; (b) a total gross floor

area of 200,000 sq.m. of commercial properties can be completely developed for delivery to purchasers

during the four years period; (c) residential property can be sold at RMB3,400 per sq.m., being the current

general pre-sale price in Zouping County (such price of the residential unit is subject to the development

status of the development) provided by the Independent Valuer for the Company’s reference (which

is not a valuation opinion quoted from the valuation report issued by the Independent Valuer); and (d)

commercial property can be sold at RMB4,500 per sq.m., being the current completed property price

provided by the Independent Valuer for the Company’s reference (which is not a valuation opinion quoted

from the valuation report issued by the Independent Valuer). Such pre-sale or sale prices are provided by

the Independent Valuer who has made reference to various sources such as interviews with local estate

agencies, relevant real estate websites and internal database. As the Directors cannot accurately predict

the pre-sale or sale price over the four years period from 2015 to 2018, the current pre-sale and sale

price provided by the Independent Valuer are used by the Directors to estimate the amount of revenue


41

that the Remaining Group may achieve for the four years period from 2015 to 2018 for the Shareholders’

information only. The average estimated annual revenue of approximately RMB1.28 billion represented

approximately 30.8% of revenue of the corn processing business of approximately RMB4.16 billion in

2012 or approximately 29.6% of revenue of the Group of approximately RMB4.33 billion in 2012.

The Remaining Group has not yet obtained the land use right for the Yintaishan corn cultural

project and Qinghe project while land use right of certain project site of phase three of the Meijun

project has not yet been obtained. Pursuant to the PRC laws, the land use right has to be obtained by the

Remaining Group by bidding process. Accordingly, there is no guarantee that the Remaining Group will

be able to obtain the land use right for the development of the Yintaishan corn cultural project, phase three

of the Meijun project and the Qinghe project. After obtaining the relevant land use right, the Remaining

Group shall apply to relevant governmental authorities for determining development conditions such as

plot ratio. Actual amount of revenue to be recorded by the Remaining Group for the four years period

from 2015 to 2018 is subject to, among other things, the obtaining of relevant land use right, the planning

and development conditions approved by relevant governmental authorities, the development status of the

property projects, the amount of properties completed and developed for delivery to purchasers, and the

actual pre-sale and sale prices achieved by the Remaining Group. As a result, there is no guarantee that

the Remaining Group can record the aforesaid aggregate revenue of approximately RMB5.1 billion for

the four years period from 2015 to 2018, and actual amount of revenue to be recorded by the Remaining

Group during the four years period from 2015 to 2018 may vary substantially as compared to the

estimated aggregate amount of approximately RMB5.1 billion.

The abovementioned property pre-sale or sale price per sq.m. over the four years period from 2015 to 2018 provided by the Independent Valuer are used by the Directors to estimate the amount of revenue that the Remaining Group may achieve for such period for the Shareholders’ information only. There is no guarantee that such pre-sale or sale prices can be achieved during the four years period from 2015 to 2018 or in future.

Accordingly, the actual amount of revenue of the Remaining Group between 2015 to 2018 are subject to various factors including but not limited to the obtaining of land use rights of the Qinghe project, certain project sites of phase three of the Meijun project and Yintaishan corn cultural project, conditions to be imposed by PRC authorities and development status, and the actual pre-sale and sale prices achieved by the Remaining Group as set out in the paragraph above.

For the six years period from 2013 to 2018, it is estimated that a total development expenditures

of approximately RMB4,859.8 million will have to be incurred for development of the Yintaishan corn

cultural project, the Lanting project, phases two and three of the Meijun project, and the Qinghe project

(2013: RMB371.1 million, 2014: RMB814.9 million, 2015: RMB1,283.9 million, 2016: RMB1,651.7

million, 2017: RMB651.1 million and 2018: RMB87.1 million).

It is stated in the unaudited pro forma financial information of the Remaining Group set out

in Appendix IV to this circular that the cash and cash equivalents of the Remaining Group would be

approximately RMB192.5 million upon Completion and after the payment of the Proposed Special

Dividend and the Preferred Distribution. The Promissory Note B in the principal amount of approximately

RMB442.2 million (as estimated in the section headed “Principal terms of the Promissory Notes” above)


42

will be settled on or before 31 December 2013. Part of the proceeds will be used to repay the amount due

to the Disposal Group in an amount of approximately RMB366.5 million as set out in the section headed

“Use of proceeds” below. It is the intention of the Remaining Group to raise bank borrowings in a range

of between RMB50 million and RMB100 million in 2013 to fund the land costs and initial construction

costs of the Yintaishan corn cultural project. Upon completion of construction work and delivery of

certain properties of phase two of the Meijun project and the Lanting project to purchasers in second

half of 2013, further proceeds will be received from purchasers. It is estimated that further receipts from

customers in relation to certain properties of phase two of the Meijun project and the Lanting project

already pre-sold/sold will be approximately RMB270 million (based on estimated gross floor area of

approximately 84,000 sq.m.) in 2013. On this basis, it is reasonably expected that the Remaining Group

will be able to finance the payment of development expenditures of RMB371.1 million in 2013.

For 2014, it is estimated that pre-sale and sale proceeds will be generated from the Lanting

project, Meijun project, Yintaishan corn cultural project and Qinghe project. It is anticipated that land

expropriation of the Yintaishan corn cultural project and Qinghe project will be completed by end of 2013.

Following the Remaining Group’s obtaining of the relevant land use rights and government approvals for

the project sites in relation to the Yintaishan corn cultural project and Qinghe project, the construction

work relating to these project sites, as well as phase three of the Meijun project, is expected to commence

in the first half of 2014, and pre-sale is expected to commence in the third quarter of 2014. Based on past

experience with respect to the Lanting project and phase two of the Meijun project, approximately 50% of

the gross floor area being under construction could be successfully pre-sold. By applying this assumption,

as well as based on expected sale of completed properties of phase two of the Meijun project and Lanting

project, it is estimated that gross floor area of approximately 390,000 sq.m. would be either pre-sold or

sold, and the pre-sale and sale proceeds for 2014 are estimated to be approximately RMB840 million.

On this basis, it is reasonably expected that the Remaining Group will be able to finance the payment of

development expenditure of around RMB814.9 million in 2014.

The Company intends to manage the funding of the property development business and operation

mainly by the internally generated funds of the property development business, including the receipt of

pre-sales deposits and sales proceed from purchasers. Moreover, the Company adopts prudent working

capital policies by not commencing all the property projects on hand at the same time but by phases so as

to spread out the development expenditures over years. The Meijun project is developed in three phases. It

is currently estimated that construction work of phase three of the Meijun project will commence in 2014

(i.e. after completion of phase two of the Meijun project in 2013). Similar approach will also be adopted

to develop the Yintaishan corn cultural project in phases starting 2014 and 2015.

In order to ensure sufficient fund can be raised by pre-sales and sales of properties during the

period from 2014 to 2018, the senior management of the Company will work with the sales and marketing

personnel to determine the appropriate sales and marketing plans for the property projects. Comprehensive

market research is being carried out to formulate the pre-sales, sales and pricing strategies for the period

from 2014 to 2018. The Company plans to recruit a senior executive and a number of staff responsible for

marketing. Moreover, residential units of the Yintaishan corn cultural project are intended to be promoted

as properties offering a ‘leisure’ or ‘holiday’ lifestyle, which may attract buyers in nearby cities who are

interested in purchasing holiday homes. Therefore, the Company intends to promote the residential units

of the Yintaishan corn cultural project not only to local residents in the area, but also to buyers residing in

nearby cities such as Jinan City. In order to further boost sales, the Company may conduct other sales and


43

promotional activities such as organising sales events. The Company may also engage external property

sales agencies from time to time to provide sales and marketing services for its properties. In case there

is still any shortfall during the construction period, bank loans can be arranged by the Remaining Group

since more collateral will be available as construction work started.

On this basis, the Directors consider that the fulfilment of aforesaid development expenditures is

manageable. The Directors intends to fund such development expenditures by executing the sales plan

efficiently and generating sufficient operating cash flow from property pre-sale and sales, as well as by

obtaining external financing and borrowings.

WORKING CAPITAL

The Directors, in making the statement in relation to the Group’s working capital as disclosed in

the section headed “Working capital” contained in Appendix I to this circular, have taken into account the

material assumptions as follows:

(i) delivery of residential units to purchasers in second half of 2013 upon completion of

construction work of certain properties of phase two of the Meijun project and the Lanting

project;

(ii) land expropriation of the Yintaishan corn cultural project and Qinghe project will be

completed by end of 2013;

(iii) construction work relating to project sites of the Yintaishan corn cultural project and Qinghe

project (upon obtaining of the relevant land use rights and government approvals), as well

as phase three of the Meijun project to commence in the first half of 2014; and pre-sale to

commence in the third quarter of 2014;

(iv) approximately 50% of the gross floor area being under construction could be successfully

pre-sold;

(v) residential property can be sold at pre-sale price of RMB3,400 per sq.m. (for phase three of

the Meijun project, Lanting project, Qinghe project and Yintaishan corn cultural project);

and commercial property can be sold at completed property price of RMB4,500 per sq.m.

(for the Yintaishan corn cultural project) in 2014; and

(vi) payment of development expenditure in 2013 and 2014 will be primarily funded by (i) part

of the proceeds from the Disposal; and (ii) internal resources generated from pre-sale/sale

proceeds (except for the land costs and initial construction costs of the Yintaishan corn

cultural project which is intended to be partially funded by bank borrowings ranging from

RMB50 million to RMB100 million in 2013).

PROPOSED CONDITIONAL SPECIAL DIVIDEND

The Board proposes a special dividend of HK$0.75 per Share and per CPS to be distributed to the

Shareholders whose names are registered on the register of members of the Company on the Record Date,

subject to the approval of the Independent Shareholders having been obtained and Completion having


44

taken place. As set out in the sub-section headed “Conditions precedent” under the section headed “The

Agreement” above, Completion is conditional upon, among other things, the Company having obtained

the Independent Shareholders’ approval of the Proposed Special Dividend. Based on the 1,008,629,555

Shares in issue as at the Latest Practicable Date, the special dividend payable to the Ordinary Shareholders

amounts to approximately HK$756.5 million (equivalent to approximately RMB604.6 million), out of

which, the Purchaser is entitled to receive a special dividend in the total sum of approximately HK$438.6

million (equivalent to approximately RMB350.5 million).

Pursuant to the Company’s bye-laws, each CPS shall confer on the holder thereof the right to

receive, in addition to the preferred distribution, dividend pari passu with the Ordinary Shareholders on

the basis of the number of the Shares into which each CPS may be converted and on an as converted

basis. Accordingly, based on the 907,646,900 CPSs in issue as at the Latest Practicable Date, the

special dividend payable to the CPS Holders amounts to approximately HK$680.7 million (equivalent to

approximately RMB544.0 million), out of which, the Purchaser is entitled to receive a special dividend in

the total sum of approximately HK$678.3 million (equivalent to approximately RMB542.1 million).

Pursuant to the Company’s bye-laws, each CPS shall confer on the holder thereof the right to

receive a preferred distribution from the issue date at a rate of RMB0.01 per CPS payable in Hong Kong

dollar equivalent annually in arrears. The Board elected to defer payment of the Preferred Distribution for

the financial year ended 31 December 2012.

Pursuant to the Company’s bye-laws, the Company shall not pay any dividends, unless at the same

time it pays to the CPS Holders any deferred preferred distribution which was scheduled to be paid on a

day falling in the same financial year in respect of which payment of such dividend is made. The Board

has resolved, subject to Completion taking place, to pay the Preferred Distribution in Hong Kong dollars

at the exchange rate of RMB1.00 = HK$1.2512 to the CPS Holders on the Dividend Payment Date.

Accordingly, based on the 907,646,900 CPSs in issue as at the Latest Practicable Date, the Preferred

Distribution payable to the CPS Holders amounts to approximately RMB9.1 million, out of which, the

Purchaser is entitled to receive the Preferred Distribution of approximately RMB9.0 million.

The Proposed Special Dividend and the Preferred Distribution payable to the Shareholders (other

than the Purchaser) in the aggregate amount of HK$320.3 million (equivalent to approximately RMB256.0

million) shall be paid in cash.

The Company manages the funding of the property development business and operation mainly

by the internally generated funds of the property development business, including the receipt of pre-

sales deposits from customers. The pre-sales and sales proceed is one of major sources of funding for the

property projects. In order to promote the success of pre-sales, the sales team of the property development

business will be involved in the property project planning and design stage, and commence the internal

preparation work before the commencement of the construction work. Moreover, the Company adopts

prudent working capital policies by not commencing all the property projects on hand at the same time but

by phases so as to spread out the development expenditures over years.

In determining the amount of the Proposed Special Dividend, the Board has considered the

financial resources available to the Remaining Group (including advances from customers received from

pre-sales, and the funding and working capital requirement of property projects on hand), the future

development of the Remaining Group and the repayment of amount owed by the Remaining Group to the


45

Disposal Group. The Board concludes the amount of the Proposed Special Dividend to be appropriate, and

the Proposed Special Dividend provides an opportunity for the Shareholders to share in the fruit of the

Disposal.

Given that the Purchaser is an Ordinary Shareholder and a CPS Holder, the Purchaser is entitled to the Proposed Special Dividend and the Preferred Distribution. On this basis and taking into account the benefits of the Disposal to the Group and the Shareholders as set out in the sub-section headed “(C) Benefits to the Group and the Shareholders” under the section headed “Background to, reasons for and benefits of the Disposal” above, the Directors consider that the offset arrangement in relation to the Proposed Special Dividend and the Preferred Distribution payable to the Purchaser and Promissory Note A is in the interests of the Company and the Shareholders as a whole. Details of the offset arrangement in relation to the Proposed Special Dividend and the Preferred Distribution payable to the Purchaser in the amount of HK$1,128.2 million (equivalent to approximately RMB901.7 million) are set out in the section headed “Principal terms of the Promissory Notes” above.

In order to qualify for the Proposed Special Dividend and/or the Preferred Distribution, the names of the Shareholders must be registered on the register of members of the Company (both for the Shares and CPSs) at the close of business on the Record Date. On the basis that there is no change to the Record Date which is fixed at 10 July 2013, the register of members of the Company will be closed from Monday, 8 July 2013 to Wednesday, 10 July 2013 (both dates inclusive) for the purpose of determining the entitlements of the Shareholders to the Proposed Special Dividend and/or the Preferred Distribution, during such period no transfer of the Shares and CPSs will be effected. In order to qualify for the Proposed Special Dividend and/or the Preferred Distribution, all transfers of Shares and CPSs, accompanied by the relevant share certificates, must be lodged with the branch share registrar of the Company in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on 5 July 2013 or such other dates as the Directors may determine.

Subject to the approval of the Independent Shareholders having been obtained and Completion having taken place, the cheques in respect of the Proposed Special Dividend and/or the Preferred Distribution are expected to be despatched by the branch share registrar of the Company in Hong Kong, Tricor Investor Services Limited, to the registered addresses of the Shareholders (including the overseas Shareholders but excluding the Purchaser) by ordinary mail at their own risk on or around 23 July 2013 or such other dates as the Directors may determine.

Shareholders should note that the above times and dates are subject to change, depending on, among other things, the results of the SGM and date of Completion. Shareholders will be informed of any changes to the expected timetable as and when appropriate.

USE OF PROCEEDS

The net proceeds from the Disposal are estimated to be approximately RMB879.4 million (being the Remaining Balance as mentioned under the sub-section headed under “Consideration” under the section headed “The Agreement” above to be received from the Purchaser in cash upon Completion and repayment of Promissory Note B, after deducting the estimated direct cost for the Disposal) is intended to be used as follows:

R14.60(3)(b)R14.70(1)


46

(a) an aggregate of approximately RMB256.0 million for payment of the Proposed Special Dividend and the Preferred Distribution to the Shareholders (other than the Purchaser);

(b) approximately RMB366.5 million for the repayment of amount owed by the Remaining Group to the Disposal Group after Completion; and

(c) the remaining balance (after the net proceeds have been used in accordance with (a) and (b)

above) of approximately RMB246.9 million will be used for future business development

of the Remaining Group (i.e. for the property development business in the PRC) and

approximately RMB10.0 million will be used as general working capital.

FINANCIAL EFFECT OF THE DISPOSAL

Upon Completion, the Group will cease to have any interest in the Disposal Company and the

Disposal Group will cease to be subsidiaries of the Company. The financial results after Completion of

the Disposal Group will not be consolidated into the Company’s financial statements. The unaudited pro

forma financial information of the Remaining Group illustrating the financial impact of the Disposal on

consolidated income statement, balance sheet and cash flow statement of the Remaining Group is set out

in Appendix IV to this circular.

The Group had audited total assets value, total liabilities value and net assets value of

approximately RMB6,057.0 million, RMB3,280.9 million and RMB2,776.1 million respectively as at 31

March 2013 as set out in Appendix II to this circular. Following Completion, all the total assets value,

total liabilities value and net assets value of the Remaining Group will decrease. As shown in Appendix

IV to this circular, upon Completion and after the payment of the Proposed Special Dividend and the

Preferred Distribution, the unaudited pro forma total assets value, total liabilities value and net assets

value of the Remaining Group would be approximately RMB1,511.2 million, RMB839.1 million and

RMB672.1 million respectively. The decrease in net assets value of approximately RMB2,104.0 million

is mainly due to (i) the estimated reduction of reserves on the Disposal of approximately RMB856.6

million; (ii) the expenses associated with the Disposal of approximately RMB5 million; (iii) the loss

on extinguishment of the promissory note in the principal amount of RMB308 million issued by the

Company in favour of the Purchaser on 31 December 2012; and (iv) the payment of the Proposed Special

Dividend and the Preferred Distribution of aggregate of approximately HK$1,448.6 million (equivalent to

approximately RMB1,157.7 million).

The audited revenue and net loss after taxation of the Group amounted to approximately

RMB4,328.1 million and RMB18.0 million respectively for the year ended 31 December 2012. The Group

recorded an audited net cash inflow of approximately RMB359.2 million for the year ended 31 December

2012. After the Disposal, the Remaining Group will not engage in the corn processing business. As set

out in Appendix IV to this circular, upon Completion and after the payment of the Proposed Special

Dividend and the Preferred Distribution, the unaudited pro forma revenue and net loss after taxation of the

Remaining Group would be approximately RMB231.9 million (being the sum of revenue from property

development business of approximately RMB173.0 million and revenue of export trading business of the

Remaining Group of approximately RMB58.9 million) and RMB85.0 million respectively. The pro forma

net loss after taxation of the Remaining Group included a finance cost of approximately RMB84.6 million,

being the difference between the principal amount and fair value of the promissory note, as a result of

extinguishment of the promissory note in the principal amount of RMB308 million issued by the Company

R14.66(5)


47

in favour of the Purchaser on 31 December 2012. Also, it is shown in Appendix IV to this circular that

the Remaining Group would record an unaudited pro forma net cash inflow of approximately RMB44.8

million upon Completion and after the payment of the Proposed Special Dividend and the Preferred

Distribution.

Further details of the unaudited pro forma financial information of the Remaining Group is set out

in Appendix IV to this circular.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, approximately 57.98% of the Shares in issue which carried voting rights were held by the Purchaser. The Purchaser is a wholly-owned subsidiary of Xiwang Holdings Limited, which is owned as to approximately 64.36% by Mr. Wang Yong, the chairman of the Board and an executive Director of the Company. Therefore, the Purchaser is an associate of Mr. Wang Yong and therefore a connected person of the Company.

As the relevant percentage ratios applicable to the Company exceed 75%, the Disposal constitutes a very substantial disposal for the Company under the Listing Rules. Since the Purchaser is a connected person the Company, the Disposal also constitutes a connected transaction for the Company, and is subject to reporting, announcement and the Independent Shareholders’ approval at the SGM.

Mr. Wang Yong (the chairman of the Board and an executive Director of the Company), who have material interest in the Disposal, abstained from voting on the relevant Board resolution approving the Disposal.

SGM

The SGM will be held to consider and, if thought fit, pass, with or without modification, the ordinary resolution to approve, among other things, the Agreement, transactions contemplated thereunder and the Proposed Special Dividend by way of poll. The Purchaser, which held approximately 57.98% of the Shares in issue which carried voting rights as at the Latest Practicable Date, and its associates, are required to abstain from voting in respect of the ordinary resolution to be proposed at the SGM to approve, among other things, the Agreement, transactions contemplated thereunder and the Proposed Special Dividend. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, other than the Purchaser and its associates, no other Ordinary Shareholder had a material interest in the Agreement, transactions contemplated thereunder and the Proposed Special Dividend as at the Latest Practicable Date.

A form of proxy for use by the Independent Shareholders at the SGM is accompanied with this circular. Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) if you so wish.

R2.17(1)

R14.58(3)R14.63(3)R14A.59(2)(e), (f)

R14A.59(18)

R14.63(2)(d)R2.17(1)R14A.59(5)


48

GENERAL

At present, the Group is principally engaged in corn processing business and property development business. Upon Completion, the principal business of the Group will only consist of the property development business which was acquired by the Group in last December. Immediately after Completion, the scale of operation of the Group will drop significantly with reference to the amount of 2012 segmental revenue figures. Furthermore, the Remaining Group may be exposed to administrative, financial and operational risks immediately after Completion. Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

Completion is subject to the satisfaction and/or waiver (where applicable) of the conditions precedent in the Agreement and therefore, may or may not take place. Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

The payment of the Proposed Special Dividend is subject to the approval of the Independent Shareholders having been obtained and Completion having taken place. The payment of the Preferred Distribution is also subject to Completion having taken place. Accordingly, the payment of the Proposed Special Dividend and the Preferred Distribution may or may not materialise.

RECOMMENDATION

The Board considers that the terms of the Agreement are fair and reasonable; the Agreement,

the transactions contemplated thereunder and the Proposed Special Dividend are in the interests of the

Company and the Shareholders as a whole; and accordingly recommend the Independent Shareholders to

vote in favour of the ordinary resolution to be proposed at the SGM to approve, among other things, the

Agreement, the transactions contemplated thereunder and the Proposed Special Dividend.

Your attention is drawn to the advice of the Independent Board Committee set out in its letter

on page 50 of this circular and the letter of advice from Shenyin Wanguo to the Independent Board

Committee and the Independent Shareholders in connection with the Agreement, the transactions

contemplated thereunder and the Proposed Special Dividend, and the principal factors and reasons

considered by them in arriving at such advice set out on pages 51 to 78 in this circular.

The Independent Board Committee, having taken into account the advice of Shenyin Wanguo,

considers that the terms of the Disposal and the Proposed Special Dividend are fair and reasonable; the

Disposal and the Proposed Special Dividend are in the interests of the Company and the Shareholders as

a whole; and accordingly the Independent Board Committee recommends the Independent Shareholders to

vote in favour of the ordinary resolution to be proposed at the SGM to approve, among other things, the

Agreement, the transactions contemplated thereunder and the Proposed Special Dividend.

R14.63(2)(c)


49

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendices to this circular.

By order of the Board

Xiwang Sugar Holdings Company LimitedLam Wai Lin

Company Secretary

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

50

The following is a full text of the letter from the Independent Board Committee prepared for the

purpose of inclusion in this circular:

*


13 June 2013

To the Independent Shareholders

Dear Sir or Madam,




We have been appointed by the Board as members of the Independent Board Committee to advise

the Independent Shareholders in respect of the Agreement, the transactions contemplated thereunder and

the Proposed Special Dividend, details of which are set out in the Letter from the Board in the circular

dated 13 June 2013 to the Shareholders (the “Circular”). Unless the context otherwise requires, terms

defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the advice of Shenyin Wanguo to the Independent Board Committee and

the Independent Shareholders in respect of the Agreement, the transactions contemplated thereunder and

the Proposed Special Dividend. Having taken into account the advice of Shenyin Wanguo, we consider

that the terms of the Disposal and the Proposed Special Dividend are fair and reasonable; the Disposal and

the Proposed Special Dividend are in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary

resolution to be proposed at the SGM to approve, among other things, the Agreement, the transactions

contemplated thereunder and the Proposed Special Dividend.

Yours faithfully,

Shi Wei Chen Wong Kai Ming Wang An Independent Board Committee

R14A.58(3)(c)R14A.59(7)


LETTER FROM SHENYIN WANGUO

51

The following is the full text of the letter of independent advice from Shenyin Wanguo Capital

(H.K.) Limited for the purpose of inclusion in this circular:

Shenyin Wanguo Capital (H.K.) Limited28th Floor, Citibank Tower

Citibank Plaza

3 Garden Road

Hong Kong

13 June 2013

To The Independent Board Committee and

the Independent Shareholders of

Xiwang Sugar Holdings Company Limited

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTIONAND

PROPOSED CONDITIONAL SPECIAL DIVIDEND

INTRODUCTION

We refer to the circular of Xiwang Sugar Holdings Company Limited dated 13 June 2013 (the

“Circular”), of which this letter forms part, regarding the Disposal and the Proposed Special Dividend.

Unless the context otherwise requires, terms used in this letter shall have the same meanings as defined in

the Circular.

The Disposal constitutes a very substantial disposal for the Company under Chapter 14 of the

Listing Rules. Since the Purchaser is a connected person of the Company, the Disposal also constitutes a

connected transaction for the Company under Chapter 14A of the Listing Rules. Both the Disposal and the

Proposed Special Dividend as part and parcel of the proposal (the “Proposal”) are subject to the approval

of the Independent Shareholders at the SGM by way of poll. The Purchaser and its associates are required

to abstain from voting at the SGM on the Proposal. Details regarding the SGM are set out in the Circular.

We, Shenyin Wanguo Capital (H.K.) Limited, have been appointed as the independent financial

adviser to advise you on the Disposal and the Proposed Special Dividend, details of which are set out in

the Circular. In this letter, we will make recommendations to you as to whether the Disposal is on normal

commercial terms and in the ordinary and usual course of business of the Group, whether the terms of

the Disposal and the Proposed Special Dividend are fair and reasonable and whether the Disposal and the

Proposed Special Dividend are in the interests of the Company and the Shareholders as a whole as well as

we will advise the Independent Shareholders on how to vote at the SGM in respect of the Disposal and the

Proposed Special Dividend.


52

The Independent Board Committee, comprising all the three independent non-executive Directors,

namely Mr. SHI Wei Chen, Mr. WONG Kai Ming and Mr. WANG An, has been established to advise the

Independent Shareholders, taking into account our recommendations set out in this letter, as to whether

the terms of the Disposal and the Proposed Special Dividend are fair and reasonable and whether the

Disposal and the Proposed Special Dividend are in the interests of the Company and the Shareholders as

a whole as well as to advise the Independent Shareholders on how to vote at the SGM in respect of the

Disposal and the Proposed Special Dividend. The advice of the Independent Board Committee as regards

the Disposal and the Proposed Special Dividend is contained in its letter included in the Circular.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and statements supplied, opinions

and representations expressed by the Company and the Directors and have assumed that all such

information and statements supplied, opinions and representations expressed to us were true, accurate

and complete in all material aspects at the time they were provided and continue to be true up to the date

of the SGM. We have also sought and obtained confirmation from the Company that no material facts

have been omitted from the information and statements supplied as well as opinions and representations

expressed to us.

We consider that we have been provided with sufficient information to enable us to reach our

advice and recommendations as set out in this letter and to justify our reliance on the accuracy of such

information. We have no reason to suspect that any material facts or information (which are known to

the Company) have been omitted or withheld from the information or statements supplied, or opinions

or representations expressed to us nor to doubt the truth and accuracy of the information and statements

supplied, or the reasonableness of the opinions and representations expressed to us. We have not,

however, carried out any independent verification on the information provided to us by the Company and

the Directors, nor have we conducted an independent in-depth investigation into the business or affairs or

future prospects of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

We have taken into account the following principal factors and reasons in arriving at our

recommendations with regard to the Disposal and the Proposed Special Dividend:

Principal terms of the Disposal

On 21 May 2013, the Company as vendor and the Purchaser entered into the Agreement in respect

of the Disposal. Upon Completion, the Group’s corn processing business (the “Outgoing Business”) will

no longer be part of the Remaining Group, which will be solely engaged in the property development

business in the PRC. As part and parcel of the Proposal, the Proposed Special Dividend of HK$0.75 per

Share and per CPS will be distributed to all Shareholders whose names are registered on the register of

members of the Company on the Record Date.

The Purchaser is a wholly-owned subsidiary of Xiwang Holdings Limited, which was owned as

to approximately 64.36% by Mr. Wang Yong, the chairman of the Company and an executive Director

as at the Latest Practicable Date. The Purchaser is a controlling shareholder of each of the Company and

Xiwang Special Steel which is listed on the Main Board of the Stock Exchange.


53

Set out below are the principal terms of the Disposal:

Subject assets: (i) Sale Share, being the entire issued share capital of the Disposal

Company; and

(ii) all interests, benefits and rights in the Sale Loans.

Consideration: The Consideration of RMB2,096 million comprises:

(i) the consideration of RMB661 million for the proposed disposal of

the Sale Share; and

(ii) the consideration of RMB1,435 million for the assignment of the

Sale Loans.

The Consideration shall be payable by the Purchaser to the Company in

the following manner:

(i) offset against the amount payable to the Purchaser by the

Company for early repayment of the promissory note in the

principal amount of RMB308 million issued by the Company

in favour of the Purchaser on 31 December 2012 to satisfy

the consideration for the Previous Acquisition (the “P-Note December 2012”), together with the interest accrued up to

the date of Completion (the interest accrued amounted to

approximately RMB1.9 million as at 31 March 2013);

(ii) issue of the Promissory Note A by the Purchaser to the Company

in the principal amount of RMB901,734,114 upon Completion;

and

(iii) the Remaining Balance being settled as follows:

(a) 50% of the Remaining Balance shall be payable by the

Purchaser to the Company in cash upon Completion; and

(b) 50% of the Remaining Balance shall be settled by the issue

of the Promissory Note B by the Purchaser to the Company

upon Completion.

Conditions precedent: Completion is conditional upon the following conditions being satisfied

(or waived where applicable):

(i) the Company having obtained the Independent Shareholders’

approval of (a) the Agreement and the transactions contemplated

thereunder; and (b) the Proposed Special Dividend in accordance

with the requirements under the Listing Rules;


54

(ii) save for the Sale Loans, all other liabilities owed by the Disposal

Group to the Remaining Group having been fully repaid, and there

being no outstanding guarantee or security granted by any member

of the Remaining Group in favour of any third party to secure any

liability or obligation of any member of the Disposal Group;

(iii) the Purchaser having obtained all necessary consent, approval,

permission and/or waiver for the Agreement and the transactions

contemplated thereunder;

(iv) the representations and warranties given by the Company being

materially true and accurate; and

(v) the representations and warranties given by the Purchaser being

materially true and accurate.

The Company may in its sole discretion decide to waive any of

conditions (iii) and (v) above, and the Purchase may in its sole

discretion decide to waive condition (iv) above. Neither party may waive

conditions (i) and (ii) above. If any of the conditions is not fulfilled (or

waived where applicable) on or before 30 June 2013 or such later date as

may be agreed by the Purchaser and the Company, the Agreement will

lapse but the rights of a party in respect of the other’s antecedent breach

of the Agreement will not be affected.

Completion: Completion shall take place on the third Business Day after the

fulfillment (or wavier where applicable) of the conditions precedent

set out in the Agreement, or such other date as the Company and the

Purchaser may agree in writing.

All of the Outgoing Business is carried out by the Disposal Group together with a direct wholly-

owned subsidiary of the Company which will be retained in the Remaining Group after Completion. The

Directors have advised that no Outgoing Business will be carried out by such subsidiary after Completion.

Information on the Group

The Group is principally engaged in the Outgoing Business and the property development business

in the PRC. Its headquarters is located in Zouping County of Binzhou City in Shandong Province,

PRC. The Shares have been listed on the Main Board of the Stock Exchange since 9 December 2005

(“Listing”).


55

According to the 2012 annual report of the Company, the Group is the largest provider of

crystalline glucose, crystalline fructose and sodium gluconate in the PRC with annual production

capacities of approximately 800,000 tonnes, 50,000 tonnes and 120,000 tonnes respectively. Corn

kernel is the major raw material used by the Group for its Outgoing Business accounting for over 76%

of the Group’s cost of goods sold in 2012. The Group refines corn kernels into corn starch and other

corn co-products which include corn gluten meal, corn gluten feed and corn germ. The Group further

processes corn starch into a series of starch sugars which include crystalline glucose, crystalline fructose,

crystalline fructose-glucose and fructose-glucose syrup, and other products such as sodium gluconate and

maltodextrin.

Set out below is a brief overview of the property projects undertaken by the Group (the “Property

Projects”) as extracted from the Company’s 2012 annual report, which are all located in Zouping County

of Binzhou City in Shandong Province, PRC:

Estimated

gross

Project Land-use purpose Land area floor area Current stage

(sq. m.) (sq. m.)

Lanting Project Residential 42,031 112,689 Construction in progress

Meijun Project

– Phase I Residential 13,333 21,407 Completed in December

2008; gross floor area of

around 2,665 sq. m. unsold

as at 31 December 2012

– Phase II Residential 54,330 153,674 Launched for pre-sale; gross

floor area of around

74,486 sq. m. completed

and sold in December 2012

– Phase III Residential 159,821 489,051 To be developed

Qinghe Project Residential 131,258 200,000 To be developed

Yintaishan Corn Cultural, residential 3,200,016 1,400,000 To be developed

Cultural Project and commercial


56

Financial performance and position of the Group

Set out below is the financial information extracted from the Company’s relevant annual reports, its

operational performance announcement for the three months ended 31 March 2013 (“Q1-2013”) and the

accountant’s report (the “Accountant’s Report”) set out in Appendix II to the Circular:

(i) Consolidated income statement

Year ended 31 December 2006 2007 2008 2009 2010 2011 2012 (“FY2006”) (“FY2007”) (“FY2008”) (“FY2009”) (“FY2010”) (“FY2011”) (“FY2012”) Q1-2013 RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million

Turnover 1,385 2,062 2,544 2,481 3,257 3,633 4,328 1,460

Gross profit 365 464 220 317 472 456 280 70

Gross profit

margin (%) 26.4% 22.5% 8.6% 12.8% 14.5% 12.6% 6.5% 4.8%

Net finance

income/(costs) (21) (24) 10 (56) (77) (44) (93) (40)

Net profit/(loss) 290 361 64 102 210 179 (18) (37)

Average corn cost

RMB per tonne

(net of tax) 1,065 1,204 1,487 1,416 1,690 1,970 2,077 2,028

In the first two years following the Listing, the Group reported an increase in net profit

from approximately RMB290 million in FY2006 to RMB361 million in FY2007. However, the

Directors have advised that the drastic drop in net profit to approximately RMB64 million in

FY2008 was primarily due to (a) the melamine scandal in 2008 which severely dampened the whole

food chain in the PRC including the contaminated animal feeds, where the Group’s products are

major ingredients to these products; and (b) the global financial crisis in 2008 which adversely

affected the Group’s export business. The Group’s management have been diligently operating the

Outgoing Business and have, in response to business challenges, made a number of attempts such

as expanding the Group’s production capacity, improving the product mix by developing higher

value-added products and timely adjusting the product mix through study and market research. As a

result, the performance of the Group improved during FY2009 to FY2010 and the Group recorded

a gradual increase in net profit from approximately RMB64 million in FY2008 to RMB102 million

in FY2009 and then to RMB210 million in FY2010. However, due to the squeezed profit margin

nature of the Outgoing Business caused by a competitive business environment, the performance

of the Group has yet to recover to its post-Listing peak. The net profit of the Group decreased to

approximately RMB179 million in FY2011 and the Outgoing Business recorded for the first time a

net loss of approximately RMB36.2 million in FY2012. The operating environment of the Outgoing

Business remained difficult in Q1-2013, which suffered from a net loss of approximately RMB25.5

million for the same period.


57

Furthermore, we have noted that the Group’s gross profit margin (%) decreased from the

highest of approximately 26.4% in FY2006, the first year following the Listing, to 4.8% in Q1-

2013. The Directors have advised that the decline in the Group’s gross profit margin was primarily

resulted from the falling selling prices of the Group’s major products including starch sugars, corn

starch and sodium gluconate, and the rising cost of corn as the principal raw material to the Group

over the years since Listing.

For the period from 21 November 2012 (being the date of the acquisition of 山東西王投資控股有限公司 (Shandong Xiwang Investment Holdings Company Limited) (“Property Holdings”)

by 山東印台山文化發展有限公司 (Shandong Yintaishan Cultural Development Company Limited)) to 31 December 2012, the Group’s property development business contributed a revenue

of approximately RMB173 million (or 4.0% of the Group’s revenue in FY2012) and a gross

profit of approximately RMB27.3 million (or 9.8% of the Group’s gross profit in FY2012) from

the sale of residential units of Meijin Project – Phase II. The gross profit margin of the property

development business of approximately 15.8% has effectively lifted the Group’s gross profit

margin by about 0.4% in FY2012.

(ii) Consolidated statement of financial position

31 December 31 March 2005 2012 2013 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 626,927 2,641,718 2,640,282 Goodwill – 180,405 180,405 Land use rights 69,370 268,518 266,974 Deferred income tax assets – 6,587 7,050

696,297 3,097,228 3,094,711

Current assets Inventories 78,211 714,343 710,546 Completed properties for sale – 27,973 27,973 Properties under development – 460,656 481,537 Trade and other receivables 82,898 1,115,419 1,038,855 Prepaid income taxes – 586 29 Amounts due from related parties 28,096 144,002 256,102 Restricted cash – 287,358 172,078 Cash and cash equivalents 502,043 591,690 275,165

691,248 3,342,027 2,962,285

Total assets 1,387,545 6,439,255 6,056,996


58

(ii) Consolidated statement of financial position (continued)

31 December 31 March 2005 2012 2013 RMB’000 RMB’000 RMB’000

Non-current liabilities P-Note December 2012 payable – 217,155 223,426 Deferred tax liabilities – 119,742 120,645 Borrowings 234,680 – –

234,680 336,897 344,071

Current liabilities Trade and other payables 127,871 845,547 899,707 Customer deposits and advances on sales of properties (“Pre-sale Proceeds”) – 185,219 215,867 Amounts due to related parties 74,032 336,672 32,898 Borrowings 110,000 1,922,094 1,788,399

311,903 3,289,532 2,936,871

Total liabilities 546,583 3,626,429 3,280,942

Net current assets 379,345 52,495 25,414

Net assets 840,962 2,812,826 2,776,054

Property, plant and equipment

The balance as at 31 March 2013 comprises motor vehicles and equipment of approximately

RMB1.4 million for the Remaining Group and the production plants and facilities of almost the entire

balance for the Disposal Group.

Goodwill

Goodwill arose from the acquisition of Property Holdings on 21 November 2012. Details are set out

in note 30 to the financial information in the Accountant’s Report.

Land use rights

The balance as at 31 March 2013 represents the land use rights of the Disposal Group as regards a

total site area of close to 880,000 sq. m. where the production base of the Outgoing Business is located.


59

Completed properties for sale

The balance mainly relates to the unsold properties of Meijun Project – Phases I and II recorded at

book value.

Properties under development

The balance mainly relates to the land and construction costs incurred and recorded at book value

for Lanting Project and Meijun Project.

P-Note December 2012 payable

The balance represents the P-Note December 2012 in the principal amount of RMB308 million

accounted for on a fair value basis, no part of which has been repaid since its issue in December 2012. The

Directors have advised that an extinguishment loss of approximately RMB84.6 million (“Extinguishment Loss”) being the difference between the principal amount of RMB308 million and the fair value of

approximately RMB223.4 million as at 31 March 2013 would be recorded when part of the Consideration

is offset by the P-Note December 2012 in the principal amount of RMB308 million at Completion.

Irrespective of how the P-Note December 2012 is fair value accounted for, the principal amount payable

by the Company to the Purchaser under the P-Note December 2012 has been always RMB308 million.

Taking into account the total interest of RMB23.1 million payable under the P-Note December 2012 over

its entire term of three years, an interest of over RMB19 million will be saved if Completion is to take

place at the end of June 2013. Therefore, we are of the view that the Consideration being partly offset by

the P-Note December 2012 is in the interests of the Company and the Shareholders as a whole.

Deferred tax liabilities

The balance represents the applicable tax liabilities recognised in the course of the acquisition

of Property Holdings on 21 November 2012, which are payable in subsequent periods when relevant

completed properties for sale are sold.

Pre-sale Proceeds

The balance represents the Pre-sale Proceeds relating to Lanting Project and Meijun Project –

Phase II. When the construction and sales of the properties are completed, the Pre-sale Proceeds will be

recognised as revenue in the income statement.

Borrowings

Included in the balance as at 31 March 2013 are bank borrowings of approximately RMB1,711

million and other borrowings of approximately RMB77 million, all falling due within one year. Back to

31 December 2005, the Group had a zero gearing ratio (defined as net borrowings divided by total equity)

as it had net cash instead of net debt at that time. The Group’s gearing ratio increased from 0.47 as at 31

December 2012 to 0.55 as at 31 March 2013 primarily due to an increase in net borrowings of the Group

during Q1-2013.


60

Share price performance

Set out below is a Share price chart illustrating all closing Share prices from 9 December 2005 i.e.

the date of Listing up to and including the Latest Practicable Date:

HK$ per Share

LatestPracticable Date

(HK$1.62)

LastTrading Day(HK$0.74)

Date ofListing

1 J

an 2

00

6

1 Ju

ly 2

006

1 J

an 2

00

7

1 Ju

ly 2

007

1 J

an 2

00

8

1 Ju

ly 2

008

1 J

an 2

00

9

1 Ju

ly 2

009

1 J

an 2

01

0

1 Ju

ly 2

010

1 J

an 2

01

1

1 Ju

ly 2

011

1 J

an 2

01

2

1 Ju

ly 2

012

1 J

an 2

01

3

0

1

2

3

4

5

6

7

8

Source: Bloomberg

Over the period under review, the highest and lowest closing prices per Share were HK$6.70

recorded on 12 May 2006 and HK$0.68 recorded on 23, 29 and 30 April 2013 respectively. The Share

price surged from the offer price of HK$1.88 per Share at Listing and remained at a relatively high level

during FY2006 and FY2007 while the Group was making a net profit of around RMB300 million a year.

A drastic drop in the Share price during the second half to late 2008 has been observed. We consider that

such unsatisfactory performance of the Share price after Listing could be due to, inter alia, the melamine

scandal discovered in the PRC and the global financial crisis in 2008 which both created adverse impact

to the Group’s performance as a whole. Afterwards, the Share price appeared to have come back up

on an upward trend, which was broadly in line with the gradual increase in the net profit of the Group

from approximately RMB64 million in FY2008 to RMB102 million in FY2009 and then to RMB210

million in FY2010. From 2011 onwards, the closing Share price had gradually slid to its historical low of

HK$0.68 per Share on 23, 29 and 30 April 2013, during which the Group recorded a drop in its net profit

to approximately RMB179 million in FY2011 and for the first time a net loss of approximately RMB18

million in FY2012 followed by a net loss of approximately RMB37 million in Q1-2013.


61

Trading in the Shares was suspended on 8 May 2013 pending release of the Company’s

announcement on the Proposal on 21 May 2013 (the “Announcement”) with a previous closing price

of HK$0.74 per Share on the Last Trading Day. On the first trading day after the publication of the

Announcement, the Share price surged to close at HK$1.25 per Share and recorded the highest traded

price of HK$1.5 per Share during the day. The closing price per Share further increased to HK$1.74

on 29 May 2013 following the Company’s announcement on a framework agreement signed with the

Jimo City People’s Government of the PRC in relation to their proposed cooperation on a local property

development project (“Proposed Cooperation”). During the period from 22 May 2013 (being the first

trading day after the publication of the Announcement) up to and including the Latest Practicable Date

(the “Post-Announcement Period”), the highest and lowest closing prices per Share were HK$1.75 and

HK$1.18 respectively. The closing price per Share was HK$1.62 as at the Latest Practicable Date. The

fact that the Share price stayed at a relatively high level in the Post-Announcement Period could be due to

the positive market reaction to the Proposal and the general market expectation on the turnaround of the

Group’s business following Completion.

Share price performance versus peers and market

We have identified two Hong Kong listed companies, namely Global Sweeteners Holdings Limited

(stock code: 3889) (“Global Sweeteners”) and China Starch Holdings Limited (stock code: 3838)

(“China Starch”) as comparable companies (“Comparable Companies”) with a view to comparing their

share price performance with the Company’s against the Hang Seng Index (the “HSI”) as the market

proxy. We believe that the Comparable Companies are all the companies listed on the Stock Exchange,

which are principally engaged in a non-identical business comparable with the Outgoing Business.

According to the 2012 annual report of the Company, the Group’s revenue was made up of starch sugars,

and corn co-products and others, accounting for approximately 46% and 50% of the Group’s revenue

in FY2012 respectively. Global Sweeteners is principally engaged in a corn processing business which

involves the manufacturing and sale of corn refined products and corn based sweetener products. China

Starch is principally engaged in a corn processing business which involves the manufacturing and sale

of cornstarch, lysine, starch-based sweetener, modified starch and ancillary corn-based and corn refined

products, and sale of electricity and steam.

Set out below is a chart illustrating the performance of the closing share prices of the Comparable

Companies and the Company as well as the HSI in terms of % change against the first trading day in 2011

(base: 0%) up to and including the Latest Practicable Date, which period was selected on an unbiased

basis taking into account that the HSI was relatively less volatile during the period:


62

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Change (%)

1 Ja

n 20

11

1 A

pr 2

011

1 J

ul

20

11

1 O

ct 2

011

1 Ja

n 20

12

1 A

pr 2

012

1 Ju

l 20

12

1 O

ct 2

012

1 Ja

n 20

13

1 A

pr 2

013

The Company (2088) China Starch (3838) Global Sweeteners (3889) HSI

Source: Bloomberg

Apparently, the Share price was on a downward trend throughout the period under review indicating that the Shares were consistently in a period of underperformance. Except the relatively better share price performance of Global Sweeteners in the first half of 2011 which could be due to, inter alia, its announcement on a possible notifiable transaction on 2 March 2011, the share price performance of the Comparable Companies was consistent with that of the Shares which was also on a downward trend with % decreases in the vicinity of around 40% – 70% continued for the period from April 2012 to the Last Trading Day. Further, we have noted that the Company and the Comparable Companies underperformed the HSI as the market proxy most of the time suggesting that the Group is not alone in the industry which is likely to have been subjected to a very competitive and challenging business environment relative to other markets. This view is further illustrated based on the disclosure in the relevant annual reports of the Comparable Companies and the Company as follows:

FY2011 FY2012Year-on-year (“YOY”) revenue growth:

• GlobalSweeteners 34.0% 5.7%• ChinaStarch 20.5% 9.4%• TheGroup 11.5% 19.1%

Gross profit margin:

• GlobalSweeteners 12.7% 7.8%• ChinaStarch 14.9% 11.8%• TheGroup 12.6% 6.5%

Net profit/(loss) margin:

• GlobalSweeteners 3.4% (5.5)%• ChinaStarch 7.6% 6.7%• TheGroup 4.9% (0.4)%


63

The Comparable Companies and the Group recorded decreases in all indicators illustrated above,

except an increase in the Group’s YOY revenue growth in FY2012 primarily due to a greater extent of the

increase in its sales volume despite the falling selling prices of its major products as discussed in the sub-

section headed in “Financial performance and position of the Group – (i) Consolidated income statement”

in this letter. According to the relevant annual reports of the Comparable Companies, their financial

performance was primarily subjected to factors including, but not limited to, falling selling prices and

increasing production costs, which are consistent with the challenges faced by the Group. The increase

in production costs was basically driven by the rising prices of corn kernel as a major raw material. In

FY2012, both the Group and Global Sweeteners had a similar level of increases in their average corn cost

of 5.4% and 6.0% respectively while the average corn cost of China Starch was undisclosed in its 2012

annual report.

Update on the property market

Currently, all the Property Projects are located in Zouping County of Binzhou City in Shandong

Province, PRC. Shandong is a coastal province and is part of the East China region. Its capital city is

Jinan. Binzhou City is one of the 17 municipalities including Jinan in Shandong with a population of

around 3.7 million. Zouping County in close proximity to Jinan has an area of approximately 1,250 sq. km

and a population of over 700,000.

Set out below are the recent YOY growth rates of the property prices in Jinan in Shandong

Province:

YOY Growth Rate (%)

Jan

20

11

Feb

20

11

Mar

201

1

Apr

201

1

May

201

1

Jun

20

11

Jul

20

11

Aug

201

1

Sep

20

11

Oct

20

11

Nov

201

1

Dec

201

1

Jan

20

12

Feb

201

2

Mar

201

2

Apr

201

2

May

201

2

Jun

20

12

Jul

20

12

Aug

201

2

Sep

201

2

Oct

20

12

Nov

201

2

Dec

201

2

Jan

20

13

Feb

20

13

Mar

201

3

Apr

201

3

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Source: Bloomberg

We have noted that the property price level of Jinan has bottomed out since June 2012 and hit the

turning point of zero YOY growth in December 2012, after which the price started to record positive

growth reaching a YOY growth rate of approximately 4.7% in April 2013.


64

Rationale for the Disposal

The Directors have advised us on the rationale for the Disposal and the business plans regarding

the Disposal Group and the Remaining Group as disclosed in the letter from the Board included in the

Circular. The Directors have further advised us that there are risks associated with the Disposal including,

but not limited to, the significant downsize of the scale of operations of the Group upon Completion and

the Remaining Group being left with the property development business which is subject to the volatility

of the property market and the relevant policies in the PRC. A number of risk factors relating to the

Previous Acquisition were disclosed and discussed in the circular of the Company dated 11 December

2012. Included therein were the risks relating to the legal and regulatory approval for relevant certificates

and permits in relation to the Property Projects including the possibility that the relevant state-owned land

use right certificates may not be granted for the project site of the Yintaishan Corn Cultural Project, and

those relating to the financial condition, operations and the prospects of the Property Projects. One of the

primary objectives of the Group is to bring to the Shareholders favourable returns on their investment in

the Company. We consider that the Disposal is justified albeit the risks associated with the Disposal and

the Remaining Group’s property development business (the “Disposal Risks”) based on the following:

(i) The Group operates in a very competitive and challenging business environment as evidenced by the depressing share price performance of the Company and its peers

Although the Share price remained at a relatively high level during FY2006 and FY2007, it

dropped since the second half to late 2008 at around the time of the melamine scandal discovered

in the PRC and the global financial crisis in 2008 which both created adverse impact to the

Group’s performance as a whole. Despite signs of improvement since 2009, the Share price did not

return to the Share price level in FY2006 and FY2007. Further, we have also noted that the share

price performance of the Company as well as the Comparable Companies was most of the time

underperforming the HSI as the market proxy since the beginning of 2011 up to the Last Trading

Day suggesting that the Group is not alone in the industry which is likely to have been subjected to

a very competitive and challenging business environment relative to other markets.

(ii) The profitability has severely declined

The industry in which the Group operates has been very competitive and challenging as

the cost of corn as the principal raw material to the Group has been rising since Listing while the

Group has not been able to successfully pass such cost increment onto its customers, which has

led to a severe decline in the profitability of the Outgoing Business. To cope with the uncertain

outlook of the Outgoing Business, the Group’s management have made a number of attempts such

as expanding its production capacity, improving the product mix by developing higher value-added

products and timely adjusting the product mix through study and market research. However, the

performance of the Group has never recovered to its post-Listing peak in FY2006 and FY2007 and

the Outgoing Business recorded for the first time a net loss of approximately RMB36.2 million

in FY2012. The operating environment of the Outgoing Business remained difficult in Q1-2013,

which suffered from a net loss of approximately RMB25.5 million for the same period.


65

(iii) The Group’s past expansion was probably at the expense of a high level of debts

Over the years, the Group has successfully expanded to become the largest provider of crystalline glucose, crystalline fructose and sodium gluconate in the PRC probably at the expense of a relatively high level of debts. As at 31 March 2013, the Group was loaded with bank and other borrowings of approximately RMB1.8 billion whereby the net finance costs of approximately RMB92.2 million and RMB29.0 million completely wiped out the entire operating profits of the Outgoing Business of RMB50.6 million and RMB4.6 million in FY2012 and Q1-2013 respectively.

(iv) The Company has the benefit of option to quit the Outgoing Business entirely

Had the Group only operated one single Outgoing Business, the Disposal would not be an option for the Company. The Remaining Group running the Property Projects in a geographical area with signs of recovery provides the Company with a good opportunity to liquidate the Disposal Group entirely.

(v) Dealing with an independent buyer as an alternative will take a longer period of time with no assurance on the ultimate success of reaching an agreement

For so long as the terms of the Proposal are fair and reasonable, we concur with the Directors that it is easier, faster and more efficient for the Company to strike a deal with the Purchaser as opposed to identifying and then negotiating with an independent buyer, without assurance on the ultimate success of reaching an agreement, who will inevitably require a longer period of time performing buyer’s due diligence on the Disposal Group and agreeing on terms, representations and warranties, etc. in the end.

Evaluation of the Consideration

The Directors have advised that the Consideration was determined after arm’s length negotiations between the Company and the Purchaser having taken into account the following:

RMB million RMB million (A) (A) × 0.743

Net asset value of the Disposal Group as at 31 March 2013 1,020.8Less: Revaluation deficit on certain non-current assets (131.2)

Valuation of the Sale Share 889.6 661

Amount due to the Company by the Disposal Group as at 31 March 2013 1,710.1Less: Subsequent repayment by the Disposal Group (0.255)Add: Unpaid Dividend payable to the Company 222.0

Valuation of the Sale Loans 1,931.9 1,435

The Consideration 2,096


66

In assessing the fairness and reasonableness of the Consideration, we consider that the earnings

multiple and the discounted cash flow model are not applicable in this case since the Disposal Group was

loss making in FY2012 and Q1-2013 and the Directors can hardly time the turnaround of the Outgoing

Business. Therefore, we have selected the price to book ratio (“P/B”) and the price to sales ratio (“P/S”)

as common valuation benchmarks in assessing the fairness and reasonableness of the Consideration and

the P/B of 0.743 time implied thereby (the “Consideration P/B”). Set out below is the comparison of the

P/B and the P/S of each of the Comparable Companies and the Company against the same ratios implied

by the Consideration as at the date of the Agreement or on the Last Trading Day (as the case may be):

Net assets

attributable

Comparable Companies Market to equity

(stock code) capitalisation holders Turnover P/B P/S

(Note 1) (Note 2) (Note 2)

HK$ million HK$ million HK$ million time time

(X) (Y) (Z) (X) ÷ (Y) (X) ÷ (Z)

China Starch (3838) 1,383 2,308 4,131 0.60 0.33

Global Sweeteners (3889) 871 2,330 4,520 0.37 0.19

The Company (2088) 746 3,473 5,415 0.21 0.14

The Disposal 0.743 0.50

(Note 3)

Higher than the maximum by 23.8% 51.5%

Notes:

1. Based on the relevant closing share prices as quoted on the Stock Exchange and the relevant numbers of shares in issue as at the date of the Agreement or on the Last Trading Day (as the case may be).

2. Based on the relevant 2012 annual reports, the Accountant’s Report and the exchange rate of RMB1 = HK$1.2512.

3. Based on the Consideration of RMB2,096 million and the FY2012 turnover of the Disposal Group of approximately RMB4,154 million as disclosed in note 33 to the financial information in the Accountant’s Report.

The Comparable Companies and the Company were all trading at a discount to their book values

i.e. at P/Bs below 1 time as at the date of the Agreement or on the Last Trading Day (as the case may

be). We consider that the Consideration P/B and the P/S of 0.5 time implied by the Consideration (the

“Consideration P/S”) are fair and reasonable since each of both is above all of those represented by

the Comparable Companies and the Company, in particular, by approximately 23.8% and 51.5% on the

respective maximum P/B and P/S in the comparison.


67

(i) The Sale Loans and the Amount Payable

Set out below are the assets and liabilities of the Disposal Group as at 31 March 2013

extracted from note 33 to the financial information in the Accountant’s Report and the letter from

the Board included in the Circular:

RMB million

Non-current assets 2,911.5

Amount due from the Remaining Group (referred to as the “Amount Payable”

by the Remaining Group herein) 366.5

Unrestricted cash 263.8

Other current assets 2,015.8

Amount due to the Company (1,710.1)Unpaid Dividend (222.0)Borrowings (1,725.7)

Other current liabilities (879.0)

Net assets 1,020.8

The Sale Loans primarily comprise the amount due to the Company by certain members

of the Disposal Group, which is made up of various unsecured and non-interest bearing loans

with no fixed repayment term, and the Unpaid Dividend. These Sale Loans were fully eliminated

on consolidation when the Group’s accounts were prepared, and have been virtually seen by the

Directors as shareholder’s investments in the Disposal Group by the Company. The Directors

have advised that attempts were made by the Company and the Purchaser to negotiate on the post-

Completion terms of security, interest rate and repayment what if the Sale Loans were not part of

the subject assets under the Agreement. However, there was no agreement reached between the

parties in these regards. Instead of the Company demanding the repayment of the Sale Loans in

their full value at or after Completion, all interests, benefits and rights of the Company in the Sale

Loans were negotiated to be assigned by the Company to the Purchaser at the Consideration P/B as

part and parcel of the Proposal after due consideration was given by the Company to the rationale

for the Disposal as discussed in the sub-section headed “Rationale for the Disposal” in this letter. In

the circumstances and in view of the existing terms of the Sale Loans and the view of the Directors

on the nature of the Sale Loans, we consider that it is acceptable to apply the Consideration P/B to

value the Sale Loans in the same manner as the Sale Share is valued.

The Directors have advised that the Amount Payable represents an unsecured and non-

interest bearing advance made by the Disposal Group to a PRC member of the Remaining Group

with no fixed repayment term for the purpose of primarily repaying all of such member’s bank

loans in the ordinary and usual course of its business. The Directors and Jiantian & Gongcheng

(the Company’s PRC legal advisers) have advised that the Amount Payable continues to exist after

Completion due to the relevant PRC laws and regulations on foreign exchange which restrict the

offsetting of debts prior to Completion. The Amount Payable remains repayable in its full value

after Completion. Nevertheless, we have noted that the Amount Payable was discounted at the

Consideration P/B in valuing the Sale Share, which discount represented less than 4.5% of the


68

Consideration (i.e. RMB366.5 million × (1 – the Consideration P/B of 0.743) ÷ the Consideration

of RMB2,096 million). From the perspective that the Amount Payable as an integral part of the

assets of the Disposal Group was negotiated to be disposed of by the Company to the Purchaser as

part and parcel of the Proposal and due consideration was given by the Company to the rationale for

the Disposal as discussed in the sub-section headed “Rationale for the Disposal” in this letter, we

consider that such discount is acceptable.

(ii) Asset valuation

In determining the Consideration, the Company engaged the Independent Valuer to perform

a valuation on the properties (including the land use rights), machinery and equipment of the

Disposal Group (the “Valued Assets”) as at 30 April 2013:


Market value of property no. 1 in Appendix V to the Circular 1,180.1

Indicative market value of property no. 2 (“Property No. 2”)

in Appendix V to the Circular 55.4

Market value of the machinery and equipment in Appendix VI

to the Circular 1,495.4

Construction in progress not included in the valuation due

to the relevant ownership titles yet to be available 43.8 2,774.7

Net book value of the property, plant and equipment

as at 31 March 2013 2,638.9

Net book value of the land use rights as at 31 March 2013 267.0 2,905.9

Revaluation deficit taken into account in determining

the Consideration (131.2)

A reconciliation pursuant to Rule 5.07 of the Listing Rules is set out in Appendix I to the

Circular. The revaluation deficit of RMB131.2 million primarily comprises (i) the trial run and

testing expenses incurred for a starch production line acquired in 2012 which were capitalised

for financial reporting purposes but not taken into account by the Independent Valuer for asset

valuation purposes; and (ii) one month movements of the Valued Assets in April 2013. After all, we

have noted that the revaluation deficit of RMB131.2 million was discounted at the Consideration

P/B in valuing the Sale Share i.e. its impact on the Consideration, representing less than 4.7%

thereof (RMB131.2 million × the Consideration P/B of 0.743 ÷ the Consideration of RMB2,096

million), had been reduced accordingly.


69

Set out in Appendix V to the Circular is the valuation on the properties (including the land

use rights) of the Disposal Group as at 30 April 2013 (the “Property Valuation”). We have noted

that Property No. 2 has no commercial value assigned to it by the Independent Valuer due to the

pending registration of the transfer of its ownership title with the relevant government authorities

in the PRC. Jiantian & Gongcheng (the Company’s PRC legal advisers) have advised that there

are no material legal impediments for the relevant member of the Disposal Group to complete

the transfer registration and obtain the title documents in respect of Property No. 2. Both the

Company and the Purchaser have taken into account the indicative market value of Property No.

2 in spite of the pending registration for the purposes of the Disposal. Therefore, we concur with

the Directors that the interests of the Company and the Shareholders have not been adversely

affected as a result thereof. Nonetheless, we have noted a decrease in the market value of Property

No. 2 from RMB74.2 million as at 31 December 2011 as disclosed in the circular of the Company

dated 2 March 2012 to an indicative market value of RMB55.4 million, which we are given to

understand by the Independent Valuer is primarily due to the depreciation on buildings based

on their maintenance condition inspected by the Independent Valuer in April 2013 and various

buildings being contemplated to be redeveloped as advised by the Directors. On the basis that the

Property Valuation is in compliance with HKIS Valuation Standards (2012 Edition) published by

The Hong Kong Institute of Surveyors and Chapter 5 of and Practice Note 12 to the Listing Rules,

we consider that it is fair and reasonable for the Company and the Purchaser to take into account

the Property Valuation in determining the Consideration.

Set out in Appendix VI to the Circular is the valuation on the machinery and equipment of

the Disposal Group as at 30 April 2013. We have noted that the market and cost approaches were

used as appropriate, which we understand are common in the market. Indeed, the Independent

Valuer has advised that the majority of the machinery and equipment were valued on the cost

approach due to the relatively limited known market based on comparable sales while motor

vehicles and office equipment were primarily valued on the market approach. We concur with the

Independent Valuer’s view that the income approach was not appropriate due to the complexity

as a result of the lack of reliable and identifiable income information generated by relevant assets

including the production lines of the Disposal Group. The Directors have advised in the letter from

the Board included in the Circular that the other valuer also had the similar comment in a previous

valuation. The Independent Valuer has explained that the relevant assets themselves do not

generate income and it has to instead identify the portion of a business enterprise value contributed

by each of such assets which process is complicated and involves a number of assumptions e.g.

projected revenue, gross profit, labour costs and taxes relating to certain products and the split

ratios among different assets. In valuing the machinery and equipment of the Disposal Group, the

Independent Valuer has taken into account a number of factors including, but not limited to, the

cost of reproducing or replacing a subject asset based on the market information, its physical life-

span with reference to its functionality and technology, the relevant maintenance policy and its

physical condition. In April 2013, the Independent Valuer inspected the machinery and equipment

on-site which were found in fair condition generally, and exercised professional judgment to work

out the post depreciation factors (primarily based on the remaining useful lives of relevant subject

assets) and other adjustment factors (with reference to the maintenance condition, existing use,

capacity and obsolescence condition of relevant subject assets) in valuing the subject assets. We

have walked through a sample with the Independent Valuer to gain an understanding of how the fair

market value of assets was arrived at as follows:


70

Assumptions/Comments

Sample assets : Crystallisers Included in starch sugars production line A

in note 2 to Appendix VI to the Circular

Date of acquisition : 30 November 2012

Date of valuation : 30 April 2013 151 days since acquired

Original cost/

cost of replacement new

: RMB14,400,000 (A) Original cost equal to cost of replacement new

as only few months passed since acquired

Useful life : 15 years Industry norm for such assets comparable

with the depreciation rate as disclosed

in note 2.5 to the financial information

in the Accountant’s Report

Post depreciation factor : 0.97242 (B)= 1 –

151 days on a straight line basis

15 years × 365 days

Other adjustment factor : 96% (C) 4% discount based on industry norm and

professional judgment exercised during

on-site inspection as regards the value

in the second hand market as opposed

to the first hand market

Fair market value : RMB13,442,740

(rounded)

(A) × (B) × (C)

Based on this sample, we are satisfied that the Independent Valuer has appropriately

adopted the valuation approach taking into account the relevant post depreciation factor and other

adjustment factor as discussed in this sub-section to arrive at the fair market value of assets. On the

basis that the Independent Valuer adopts the common valuation approaches with appropriate bases

and assumptions to value the machinery and equipment of the Disposal Group, we consider that it is

fair and reasonable for the Company and the Purchaser to take into account the valuation set out in

Appendix VI to the Circular in determining the Consideration.

Taking into account the fairness and reasonableness of the Consideration P/B to value both

the Sale Share and the Sale Loans, in particular that the Consideration P/B and the Consideration P/S

are approximately 23.8% and 51.5% above the respective maximum P/B and P/S represented by the

Comparable Companies and the Company, we consider that the Consideration is fair and reasonable.

The Promissory Notes A and B

Upon Completion, the P-Note December 2012 plus the interest accrued up to the date of

Completion (the “Final P-Note Interest”) payable by the Company to the Purchaser will offset, and the

Promissory Note A and the Promissory Note B will be issued by the Purchaser to the Company to satisfy,

part of the Consideration.


71

Promissory Note A Promissory Note B P-Note December 2012

Issuer: The Purchaser The Purchaser The Company

Holder: The Company The Company The Purchaser

Principal amount: RMB901.7 million RMB442.2 million RMB308 million (no (rounded) (rounded) (Note 1) repayment made since issued)

Interest: Interest-free 2.5% per annum 2.5% per annum

Maturity: Dividend Payment Date 6 months after 3 years after issued issued or or repaid earlier 31 December 2013, whenever is earlier

Security: Unsecured Charged Shares Unsecured (Note 2)

Notes:

1. Representing 50% of the Remaining Balance and subject to the Final P-Note Interest.

2. 1,500 million shares held by the Purchaser in Xiwang Special Steel, representing 75% of the issued share capital thereof. The market capitalisation of Xiwang Special Steel (stock code: 1266) was HK$1,780 million as at the Latest Practicable Date.

At Completion, the Promissory Note A will be issued in the principal amount equivalent to the

Purchaser’s aggregate entitlements to the Proposed Special Dividend and the Preferred Distribution (the

“Purchaser’s Entitlements”). Pursuant to the Agreement, the Purchaser has agreed and irrevocably

authorised the Company to fully offset the Purchaser’s Entitlements against the Promissory Note A at

the Dividend Payment Date (“Authorisation”). Such Authorisation enables the Purchaser to honour its

obligation to satisfy the relevant part of the Consideration without actual fund flows. The Purchaser has

also undertaken to the Company under the Agreement that it will not sell, transfer, dispose of or otherwise

reduce its holding in, the Shares or CPSs held by it, nor will it convert any of its CPSs into Shares for

the period between the date of the Agreement and the Record Date (“Undertaking”). Such Undertaking

secures the minimum amount of the Purchaser’s Entitlements for the complete offset against the

Promissory Note A at the Dividend Payment Date. Given the Purchaser’s Authorisation and Undertaking,

we are satisfied with the unsecured Promissory Note A. In view of the fact that the Dividend Payment

Date has been scheduled in a timeframe that is as soon as practicable after the date of Completion, we

consider that the interest-free term of the Promissory Note A is acceptable.

To compensate for 50% of the Remaining Balance not being settled in cash at Completion but in

around six months’ time thereafter, the Promissory Note B is secured by a first fixed charge over the

Charged Shares and a letter of financial support will be provided by Mr. Wang Yong in this connection.

We consider that the Promissory Note B is unique from the perspective of who issues it and to whom it

is issued. On this basis, we consider that the interest rate of the Promissory Note B of 2.5% per annum is

fair and reasonable since the same parties i.e. the Company and the Purchaser are involved in the issues of

the Promissory Note B and the P-Note December 2012. In view of the Charged Shares as opposed to the

unsecured P-Note December 2012 and the interest rate of 2.5% per annum being the same as the P-Note

December 2012 but for a shorter maturity, we consider that the terms of the Promissory Note B are fair

and reasonable.


72

The Proposed Special Dividend

As part and parcel of the Proposal, the Proposed Special Dividend of HK$0.75 per Share and per

CPS will be distributed to all Shareholders whose names are registered on the register of members of the

Company on the Record Date. The Board has also resolved, subject to Completion taking place, to pay the

Preferred Distribution to the CPS Holders at the Dividend Payment Date.

The Other Purchaser Shareholders Total RMB million RMB million RMB million

The Proposed Special Dividend:•OrdinaryShareholders@HK$0.75perShare 350.5 254.1 604.6

•CPSHolders@HK$0.75perCPS 542.2 1.8 544.0

892.7 255.9 1,148.6

The Preferred Distribution:•CPSHolders@RMB$0.01perCPS 9.0 0.1 9.1

901.7 256.0 1,157.7

Note: For illustration purpose only, original HK$ amounts have been converted into RMB at the exchange rate of RMB1 = HK$1.2512.

Both the Proposed Special Dividend and the Preferred Distribution will use up substantial

distributable reserves of approximately RMB1,157.7 million at the Company level while the actual cash

outlay to the Group (the “Cash Distributions”) in these connections will be approximately RMB256

million. The Purchaser’s Entitlements of approximately RMB901.7 million will be fully offset against the

principal amount payable under the Promissory Note A at the Dividend Payment Date.

As part and parcel of the Proposal, the Disposal and the Proposed Special Dividend are inter-

conditional on each other. The Proposed Special Dividend will not be otherwise available without the

Disposal. Should the Proposal not proceed, the Independent Shareholders will lose the opportunity

provided by the Proposed Special Dividend to lock in their investment in the Company in a cash amount

equivalent to HK$0.75 per Share and will continue to be exposed to, inter alia, the risks associated with

the Outgoing Business such as its declined profitability caused by the competitive business environment.

Subject to the availability of distributable reserves at the Company level, the Proposed Special Dividend

of HK$0.75 per Share represents:

• approximately 101.4% of the closing price per Share of HK$0.74 as quoted on the Stock

Exchange on the Last Trading Day; and

• approximately107.1%and102.7%oftheaverageclosingpricesperSharefor(i)thelastfive

trading days of approximately HK$0.70; and (ii) the last 30 trading days of approximately

HK$0.73, up to and including the Last Trading Day, respectively.


73

As a result of an increase in the Share price in the Post-Announcement Period probably due to

the positive market reaction to the Proposal and the general market expectation on the turnaround of the

Group’s business following Completion, the Proposed Special Dividend of HK$0.75 per Share represents

approximately 46.3% of the closing price per Share of HK$1.62 as quoted on the Stock Exchange as at the

Latest Practicable Date.

We believe that since the Previous Acquisition was completed in December 2012, the Share

price has reflected the information about the Group’s latest property development business and the risks

associated therewith. Given the Independent Shareholders will be able to recoup more than their recent

investment (based on the closing Share price on the Last Trading Day) in the Company in cash on an

assured basis while there remains a possibility for upside potential from the Remaining Group in the

future, we consider that the Proposed Special Dividend as part and parcel of the Proposal represents a fair

return insofar as the Independent Shareholders are concerned.

Financial effects of the Proposal on the Group

All companies comprising the Disposal Group are wholly-owned subsidiaries of the Company.

Upon Completion, the Disposal Group will be deconsolidated from the financial statements of the Group.

The Directors anticipate that the professional fees and other expenses incurred by the Company in

connection with the Proposal are approximately RMB5 million (the “Proposal Expenses”). Set out below

is the financial information as if Completion had taken place as at 31 March 2013 extracted from the

unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) set out

in Appendix IV to the Circular and the letter from the Board included in the Circular:

Pre-Proposal Post-Proposal RMB million RMB million

Unrestricted cash – the Disposal Group 263.8 Deconsolidated

– the Remaining Group 11.4 192.5

– the Group 275.2 192.5

Promissory Note B (subject to change) – 442.2

Total assets 6,057.0 1,511.2

P-Note December 2012 payable (223.4) –

Amount Payable Eliminated on consolidation (366.5)

Borrowings (1,788.4) (62.7)

Total liabilities (3,280.9) (839.1)

Net asset value (“NAV”) 2,776.1 672.1

NAV per Share (RMB) 2.7523 0.6663


74

(i) Total assets and net asset value

Following the Proposal, the Group’s asset base would have inevitably shrunk rather

significantly. Nonetheless, the Remaining Group would contain a much higher level of liquid assets

in its NAV of approximately RMB672.1 million, primarily represented by the unrestricted cash

of approximately RMB192.5 million and the Promissory Note B of RMB442.2 million (subject to

change) which is receivable from the Purchaser in around six months’ time after Completion.

Based on the Consideration of RMB2,096 million and the book values of the Sale Share

of approximately RMB1,021 million and the Sale Loans of approximately RMB1,932 million,

a loss of approximately RMB857 million is expected to be resulted from the Disposal. We have

discussed with PwC that such loss or shortfall as referred to by PwC would be treated as a reduction

of reserves on the Group’s statement of financial position i.e. the NAV would be reduced by the

same amount which, however, has no impact on the Group’s profit or loss for the year due to the

reasons set out in note d to the Unaudited Pro Forma Financial Information. Since the Disposal

has been valued at the Consideration P/B which is less than 1 time, such reduction is inevitable.

Nevertheless, the Consideration P/B has been considered fair and reasonable to value both the

Sale Share and the Sale Loans in the sub-section headed “Evaluation of the Consideration” in this

letter. In our view, the fact that the reduction of reserves as a result of the Disposal has no negative

impact on the Group’s income statement does not influence our assessment on the fairness and

reasonableness of the Disposal.

(ii) Turnover and earnings

We have noted from the letter from the Board included in the Circular the indicative revenue

to be generated in the next few years from the Remaining Group’s property development business

which is subject to the Disposal Risks and is disclosed therein for Shareholders’ information

only. Towards the end of 2012, the Group’s property development business contributed a total

of approximately RMB173 million to the Group’s revenue in FY2012. In Q1-2013, no revenue

was recorded by the Group’s property development business and a net loss of approximately

RMB11.5 million was resulted from this business. Nevertheless, we have noted that the Pre-sale

Proceeds increased by approximately RMB30.7 million in Q1-2013 to reach RMB215.9 million

as at 31 March 2013 suggesting that such amount would turn to be recorded as revenue after the

construction and sales of relevant properties have been completed, and a profit is expected to be

recorded accordingly. On the basis of the Property Projects located in a geographical area with

signs of recovery as illustrated in the sub-section headed “Update on the property market” in this

letter, the outlook of the Remaining Group’s property development business is considered positive.

(iii) Cash flow

Following the Proposal, the Group’s unrestricted cash would decrease from approximately

RMB275.2 million to RMB192.5 million partly due to the deconsolidation of the Disposal Group’s

unrestricted cash. Nonetheless, the Remaining Group’s unrestricted cash would have increased from

approximately RMB11.4 million to RMB192.5 million following the cash receipt of approximately

RMB442.2 million (subject to change) i.e. 50% of the Remaining Balance from the Purchaser

and the payments of the Cash Distributions of approximately RMB256 million and the Proposal

Expenses of approximately RMB5 million.


75

Upon Completion, the P-Note December 2012 plus the Final P-Note Interest payable by the

Company to the Purchaser (around 15% of the Consideration) will offset, and the Promissory Note

A (around 43% of the Consideration) and the Promissory Note B (around 21% of the Consideration)

will be issued by the Purchaser to the Company to satisfy, part of the Consideration. Clearly,

we consider that it is fair and reasonable for the Purchaser to satisfy part of the Consideration

with what the Company owes the Purchaser i.e. the P-Note December 2012 plus the Final P-Note

Interest. At Completion, the Promissory Note A will be issued in the principal amount equivalent

to the Purchaser’s Entitlements. In respect of the Purchaser’s Entitlements, we consider that

the Purchaser as an Ordinary Shareholder and a CPS Holder should be treated equally with all

other Ordinary Shareholders and CPS Holders without prejudice. From the perspective that the

Promissory Note A to be offset by the Purchaser’s Entitlements is not regarded as a cash payment

out of the pocket of the Purchaser, the Purchaser is acquiring the Sale Share and Sale Loans for

RMB1,194.3 million (around 57% of the Consideration) which implies a P/B of 0.42. In view of

such P/B falling within the vicinity of the P/Bs of the Comparable Companies as at the date of the

Agreement set out in the sub-section headed “Evaluation of the Consideration” in this letter, we

consider that it is fair and reasonable for the Company to accept that the Consideration is partly

satisfied with what the Purchaser is entitled to i.e. the Purchaser’s Entitlements of approximately

RMB901.7 million. Another cash amount of approximately RMB442.2 million (subject to change)

is expected to be received from the Purchaser when it repays the Promissory Note B in around six

months’ time after Completion. The Amount Payable continues to exist after Completion due to the

reason as explained in the sub-section headed “Evaluation of the Consideration – (i) The Sale Loans

and the Amount Payable” in this letter. The Remaining Group intends to settle the Amount Payable

with such cash receipt after six months following Completion i.e. the working capital of the

Remaining Group is not expected to be adversely affected due to such arrangement and the related

opportunity cost to the Company is therefore considered low. On the basis of the fairness principle,

we consider that it is fair and reasonable for the Company to receive an interest at 2.5% per annum

from the Purchaser under the secured Promissory Note B which is the same as what the Purchaser

charges on the unsecured P-Note December 2012. The Remaining Group intends to use the

remaining proceeds from the Disposal for the development of its business. Notwithstanding that the

Company does not receive all cash from the Purchaser on the Consideration, given the Purchaser

is partly satisfying the Consideration with what the Company owes it and what it is entitled to as

an Ordinary Shareholder and a CPS Holder i.e. the Purchaser’s Entitlements, we consider that the

terms of settlement for the Consideration are fair and reasonable.

The Directors have confirmed the working capital sufficiency of the Group for at least the

next 12 months (the “Working Capital Sufficiency Statement”) in Appendix I to the Circular.

We have been advised by the Directors that the Remaining Group would adopt prudent working

capital policies and develop the Property Projects in phases so as to alleviate the working capital

pressure. On the basis that PwC has confirmed pursuant to Rule 14.66 (12) of the Listing Rules that

the Working Capital Sufficiency Statement has been made by the Directors after due and careful

enquiry, and the persons or institutions providing finance have confirmed in writing that such

facilities exist, we are satisfied with the Working Capital Sufficiency Statement.


76

(iv) Gearing

Following the Proposal, the Remaining Group would have a relative minimal level of borrowings of approximately RMB62.7 million and its gearing ratio (defined as net borrowings divided by total equity) would be reduced to zero due to its net cash position then.

From the perspective that the Remaining Group would have a more liquid balance sheet with net cash instead of net debt (resulting in zero gearing) upon Completion; cash kept coming in from the property development business of the Remaining Group in the form of the Pre-sale Proceeds in Q1-2013; the Disposal has been priced at the Consideration P/B above market peers and the Company; and the proceeds of the Disposal would increase the working capital available to the Remaining Group for the development of its business, we consider that from the financial viewpoint, the Disposal is in the interests of the Company and the Shareholders as a whole.

Project finance

We have noted from the letter from the Board included in the Circular the estimated sales and

pre-sales schedule and the estimated development expenditures of the Remaining Group from 2013 to

2018, which are all subject to the Disposal Risks and are disclosed therein for Shareholders’ information

only. We have discussed with the Directors the bases and assumptions in these connections, whereby the

Remaining Group is anticipated to have sufficient resources to finance its property development business.

We are given to understand that the Directors are satisfied with the sales and pre-sales prices per sq. m.

supplied by the Independent Valuer for their estimation of the sales and pre-sales schedule. Further, we

are given to understand that the gross floor areas of the Property Projects to be delivered are based on

the Directors’ current best estimation taking into account the land use rights already obtained and those

expected to be obtained particularly in connection with certain parts of Meijun Project – Phase III, Qinghe

Project and the Yintaishan Corn Cultural Project. As highlighted in the sub-section headed “Rationale

for the Disposal” in this letter, there are risks relating to the legal and regulatory approval for relevant

certificates and permits in relation to the Property Projects including the possibility that the relevant state-

owned land use right certificates may not be granted for the project site of the Yintaishan Corn Cultural

Project. Independent Shareholders are advised not to place undue reliance on the indicative revenue and

development expenditures which are disclosed for their information only.

Going forward, the Remaining Group is expected to have a different financing model to meet the

capital needs of its property development business. The Directors have advised that the Remaining Group

would adopt prudent working capital policies and develop the Property Projects in phases so as to alleviate

the working capital pressure. The Directors have also advised that the Property Projects are expected to

be financed primarily through internal cash flows, including proceeds from pre-sale and sale of properties,

and bank borrowings. We are given to understand that such project financing is common in the property

market. In case there is any shortfall during the construction period, bank borrowings may be arranged

by the Remaining Group since more collateral is expected to be available once the construction work

has started. In view of the common project financing model adopted by the Remaining Group and more

collateral expected to be available for bank borrowings once the construction work has started, we concur

with the Directors’ view that the fulfillment of estimated development expenditures is manageable.


77

DISCUSSION AND ANALYSIS

Over the years, the Group has successfully developed to become the largest provider of crystalline

glucose, crystalline fructose and sodium gluconate in the PRC probably at the expense of a relatively high

level of debts. As at 31 March 2013, the Group was loaded with external borrowings of approximately

RMB1.8 billion whereby the net finance costs have completely wiped out the entire operating profits of

the Outgoing Business in recent times. The poor financial performance coupled with a high level of debts

has depressed the Share price over a certain period of time in the past despite a number of attempts made

by the Group’s management from expanding its production capacity to changing the product mix with a

view to coping with the challenging business environment. After all, the Disposal represents a strategic

move for the Group to liquidate its Outgoing Business when the Remaining Group runs the Property

Projects in a geographical area showing signs of recovery. Had the Group only operated one single

Outgoing Business, the Disposal would not be an option for the Company.

The closing Share price has come down from the historical high of HK$6.70 per Share in May 2006

to the recent low of HK$0.68 in April 2013, which could be due to the unsatisfactory performance of the

Outgoing Business over the years. Following the Announcement on 21 May 2013, the closing Share price

has gone up by 69% on the first trading day following the Announcement and by further 39% following

the Company’s announcement on the Proposed Cooperation on 29 May 2013, which could be due to the

positive market reaction to the Proposal and the general market expectation on the turnaround of the

Group’s business following Completion.

Based on the Consideration of RMB2,096 million and the aggregate book value of the Sale Share

and the Sale Loans of approximately RMB2,953 million, a reduction of reserves of approximately

RMB857 million is expected to be resulted from the Disposal. Since the Disposal has been valued at

the price-to-book ratio of 0.743 time which is less than 1 time, such reduction is inevitable. Given the

Consideration was determined based on a price-to-book ratio above all of those represented by the

Comparable Companies and the Company as discussed in this letter, we consider that the Consideration is

fair and reasonable.

As part and parcel of the Proposal, the Proposed Special Dividend of HK$0.75 per Share and per

CPS will be distributed to all Shareholders, which represents approximately 101.4% of the closing price

per Share of HK$0.74 on the Last Trading Day. Given the Independent Shareholders will be able to

recoup more than their recent investment (based on the closing Share price on the Last Trading Day) in

the Company in cash on an assured basis while there remains a possibility for upside potential from the

Remaining Group in the future, we consider that the Proposed Special Dividend as part and parcel of the

Proposal represents a fair return insofar as the Independent Shareholders are concerned.

Following the Proposal, the NAV per Share would substantially decrease from approximately

RMB2.7523 (or HK$3.4437) to RMB0.6663 (or HK$0.8337) primarily due to the fact that the Ordinary

Shareholders and the CPS Holders are all entitled to the Proposed Special Dividend of HK$0.75 per Share

and per CPS respectively, the loss or shortfall as referred to by PwC on Disposal and the Extinguishment

Loss. From the perspective that the Remaining Group would have a more liquid balance sheet with

net cash instead of net debt (resulting in zero gearing) upon Completion; cash kept coming in from the


78

property development business of the Remaining Group in the form of the Pre-sale Proceeds in Q1-

2013; the Disposal has been priced at a price-to-book ratio above market peers and the Company; and the

proceeds of the Disposal would increase the working capital available to the Remaining Group for the

development of its business, we consider that from the financial viewpoint, the Disposal is in the interests

of the Company and the Shareholders as a whole.

OPINION

Having taken into account the principal factors and reasons set out above, we are of the view

that (i) the Disposal, which is not in the ordinary and usual course of business of the Group, are on

normal commercial terms; (ii) the terms of the Disposal and the Proposed Special Dividend are fair and

reasonable; and (iii) the Disposal and the Proposal Special Dividend are in the interests of the Company

and the Shareholders as a whole.

Accordingly, we recommend the Independent Board Committee to advise, and we ourselves advise,

the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to

approve the Disposal and the Proposed Special Dividend.

Yours faithfully,

for and on behalf of

Shenyin Wanguo Capital (H.K.) Limited

Felix Chan

Executive Director

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

I – 1

FINANCIAL SUMMARY OF THE GROUP

The published audited consolidated financial statements of the Group for the three years ended

31 December 2010, 2011 and 2012 are disclosed in the annual reports of the Company for the three

years ended 31 December 2010, 2011 and 2012. They can be accessed on the websites of the Company

(www.xiwang-sugar.com) and the Stock Exchange (www.hkex.com.hk or www.hkexnews.hk).

INDEBTEDNESS

As at the close of business on 30 April 2013, being the Latest Practicable Date for the purpose of

the statement of indebtedness, the Group had outstanding borrowings in the form of short-term bank loans

of approximately RMB1,578,672,000, which were denominated in RMB and US$, and current portion of

long term loans of approximately RMB226,564,000, which were denominated in RMB and US$. Among

the short-term loans, RMB100,000,000 were secured by land use rights with book value amounted to

approximately RMB71,759,000, and with amount of approximately RMB1,016,500,000 was covered by

corporate guarantee given by Xiwang Group Company Limited, and with amount of RMB400,000,000

were covered by corporate guarantee given by Xiwang Pharmaceutical Company Limited and a third

party respectively. The remaining balances were unsecured. Among the current portion of long term

loans, approximately RMB150,000,000 were guaranteed by Xiwang Group Company Limited, and

approximately RMB76,564,000 were secured by the Group’s property, plant and equipment and land use

rights with book value amounted to approximately RMB132,257,000 and approximately RMB94,955,000

respectively as at the close of business on 30 April 2013.

As at the close of business on 30 April 2013, the Group provided a guarantee in favour of a PRC

bank in respect of RMB350,000,000 loan of an independent third party PRC company named 鄒平縣國有資產投資經營有限公司 (Zouping County State-owned Assets Investment Operation Company Limited), for a term of 10 years from December 2011, with a guarantee period up to the end of two years after the

next day following repayment of the loan in full (the “PRC Company Guarantee”). The PRC Company

Guarantee was provided with a view to maintain a sound relationship with the local government.

MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, save as disclosed in the “Letter from the Board” contained in this

circular, the Directors were not aware of any material adverse change in the financial or trading position

of the Group since 31 December 2012, being the date to which the latest published audited consolidated

financial statements of the Group were made up.

WORKING CAPITAL

Taking into account the expected completion of the Disposal, the expected payment of the Proposed

Special Dividend and the Preferred Distribution, and the financial resources available to the Group,

including the internally generated funds and the available banking facilities, the Directors are of the

opinion that, in the absence of unforeseen circumstances, the Group has sufficient working capital for its

present requirements, that is for at least the next 12 months from the date of this circular.

App1B(28)

R14.68(4)App1B(32)

App1B(30)

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

I – 2

FINANCIAL AND TRADING PROSPECTS

It is stated in the “Letter from the Board” contained in this circular that the business environment of the Disposal Group will remain full of challenges and competitive, and it is difficult to predict any turnaround of the corn processing business in the near future. It is further stated in the “Letter from the Board” contained in this circular that despite the on-going austerity measures, the Company is of the view that the PRC property sector still has long term prospects in view of the continued PRC economic growth, urbanisation trends, high household savings rates and increasing demand of end-users. After Completion, the Group will reallocate the Group’s resources to the property development business of which the Board considers its long term prospects to be promising.

PROPERTY VALUATION

Grant Sherman Appraisal Limited, the Independent Valuer, has valued the property held/to be held by the Disposal Group as of 30 April 2013. Texts of its letter, summary of valuation and valuation certificates issued by the Independent Valuer are included in Appendix V to this circular.

The table below sets forth the reconciliation of the net book value of property (representing buildings and land use rights) held/to be held by the Disposal Group as of 31 March 2013, as set out in Appendix II to this circular, to the market value of the property held/to be held by the Disposal Group as at 30 April 2013, as included in the valuation report, in Appendix V to this circular.

RMB (’000)

Market value of property as of 30 April 2013, as set out in the valuation report in Appendix V to this circular 1,180,100Add: Indicative market value of certain properties pending registration of

legal titles by assuming the Group having titles 55,400

1,235,500

Net book value of property (representing buildings and land use rights) held/to be held by the Disposal Group as of 31 March 2013 (audited), as set out in Appendix II to this circular 1,190,392

Movements of property (representing buildings and land use rights) from 31 March 2013 to 30 April 2013 (unaudited) 2,696

Net book value of property (representing buildings and land use rights) as of 30 April 2013 (unaudited) 1,193,088

Difference (valuation surplus) 42,412

App1B(29)(1)(b)

APPENDIX II ACCOUNTANT’S REPORT ON THE GROUP

II – 1

The following is the text of a report received from the Company’s reporting accountant,

PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in

this circular.

13 June 2013

The Directors


Dear Sirs,

We report on the financial information of Xiwang Sugar Holdings Company Limited (the

“Company”) and its subsidiaries (together, the “Group”), which comprises the consolidated and company

statements of financial position of the Company as at 31 December 2010, 2011 and 2012 and 31 March

2013, and the consolidated statement of comprehensive income, the consolidated statements of changes

in equity and the consolidated statement of cash flows of the Company for each of the years ended 31

December 2010, 2011 and 2012 and the three months ended 31 March 2013 (the “Relevant Periods”) and a

summary of significant accounting policies and other explanatory information. This financial information

has been prepared by the directors of the Company and is set out in Sections I to III below for inclusion

in Appendix II to the circular of the Company dated 13 June 2013 (the “Circular”) in connection with the

proposed disposal of Master Team International Limited and its subsidiaries by the Company.

The Company was incorporated in Bermuda on 21 February 2005 as an exempted company with

limited liability under the Companies Act 1981 of Bermuda.

As at the date of this report, the Company has direct and indirect interests in the subsidiaries as set

out in Note 1 of Section II below.

The consolidated financial statements of the Company for each of the years ended 31 December

2010, 2011 and 2012 were audited by PricewaterhouseCoopers pursuant to separate terms of engagement

with the Company.

The directors of the Company during the Relevant Periods are responsible for the preparation of the

consolidated financial statements of the Company that give a true and fair view in accordance with Hong

Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public

Accountants (the “HKICPA”).

The financial information has been prepared based on the audited consolidated financial statements

of the Company with no adjustment made thereon.

App1B(5)(3)


II – 2

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of the Company are responsible for the preparation of the financial information that

gives a true and fair view in accordance with HKFRSs, and for such internal control as the directors

determine is necessary to enable the preparation of financial information that is free from material

misstatement, whether due to fraud or error.

REPORTING ACCOUNTANT’S RESPONSIBILITY

Our responsibility is to express an opinion on the financial information and to report our opinion to

you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and

the Reporting Accountant” issued by the HKICPA.

OPINION

In our opinion, the financial information gives, for the purpose of this report, a true and fair view

of the state of affairs of the Company and of the Group as at 31 December 2010, 2011 and 2012 and 31

March 2013 and of the Group’s results and cash flows for the Relevant Periods then ended.

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information set out in Sections I

to II below included in Appendix II to the Circular which comprises the consolidated statement of

comprehensive income, the consolidated statement of changes in equity and the consolidated statement

of cash flows of the Company for the three months ended 31 March 2012 and a summary of significant

accounting policies and other explanatory information (the “Stub Period Comparative Financial

Information”).

The directors of the Company are responsible for the preparation and presentation of the Stub

Period Comparative Financial Information in accordance with the accounting policies set out in Note 2 of

Section II below.

Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information

based on our review. We conducted our review in accordance with Hong Kong Standard on Review

Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of

the Entity” issued by the HKICPA. A review of Stub Period Comparative Financial Information consists

of making inquiries, primarily of persons responsible for financial and accounting matters, and applying

analytical and other review procedures. A review is substantially less in scope than an audit conducted

in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain

assurance that we would become aware of all significant matters that might be identified in an audit.

Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the Stub

Period Comparative Financial Information, for the purpose of this report, is not prepared, in all material

respects, in accordance with the accounting policies set out in Note 2 of Section II below.


II – 3

I FINANCIAL INFORMATION OF THE GROUP

The following is the financial information of the Group prepared by the directors of the Company

as at 31 December 2010, 2011 and 2012 and 31 March 2013 and for each of the years ended 31 December

2010, 2011 and 2012 and the three months ended 31 March 2012 and 2013 (the “Financial Information”):

Consolidated Statement of Financial Position

As at As at 31 December 31 March 2010 2011 2012 2013 Note RMB’000 RMB’000 RMB’000 RMB’000

ASSETSNon-current assets Property, plant and equipment 6 1,760,168 1,824,965 2,641,718 2,640,282 Goodwill 7 – – 180,405 180,405 Land use rights 8 239,510 234,298 268,518 266,974 Deferred income tax assets 19 5,512 5,051 6,587 7,050

2,005,190 2,064,314 3,097,228 3,094,711

Current assets Inventories 10 560,570 584,148 714,343 710,546 Completed properties for sale 11 – – 27,973 27,973 Properties under development 12 – – 460,656 481,537 Trade and other receivables 13 766,898 1,156,885 1,115,419 1,038,855 Prepaid income taxes 13,264 – 586 29 Amounts due from related parties 31(g) 86,535 101,879 144,002 256,102 Restricted cash 14 – – 287,358 172,078 Cash and cash equivalents 14 548,502 232,491 591,690 275,165

1,975,769 2,075,403 3,342,027 2,962,285

Total assets 3,980,959 4,139,717 6,439,255 6,056,996

EQUITYAttributable to equity holders of the Company Share capital 15 – Ordinary shares 101,896 102,086 102,086 102,086 – Convertible preference shares – – 73,586 73,586 Share premium 15 328,531 332,207 1,121,704 1,121,957 Other reserves 16 – Proposed final dividend 25 – 62,733 – – – Others 921,492 933,015 991,438 991,438 Retained earnings 613,586 718,611 524,012 486,987

Total equity 1,965,505 2,148,652 2,812,826 2,776,054


II – 4


LIABILITIESNon-current liabilities Promissory note payable 31(g) – – 217,155 223,426

Borrowings 18 831,549 319,447 – –

Deferred tax liabilities 19 – – 119,742 120,645

831,549 319,447 336,897 344,071

Current liabilities Trade and other payables 17 420,636 483,008 1,030,766 1,115,574

Current income tax liabilities – 8,084 – –

Amounts due to related parties 31(g) 29,910 67,731 336,672 32,898

Borrowings 18 733,359 1,112,795 1,922,094 1,788,399

1,183,905 1,671,618 3,289,532 2,936,871

Total liabilities 2,015,454 1,991,065 3,626,429 3,280,942

Total equity and liabilities 3,980,959 4,139,717 6,439,255 6,056,996

Net current assets 791,864 403,785 52,495 25,414

Total assets less current liabilities 2,797,054 2,468,099 3,149,723 3,120,125


II – 5

Statement of Financial Position


ASSETSNon-current assets Property, plant and equipment 428 576 457 427

Investments in subsidiaries 9(a) – 13 217,215 217,260

Amount due from a subsidiary 9(b),31(g) 697,169 697,169 697,169 697,169

697,597 697,758 914,841 914,856

Current assets Trade and other receivables 13 1,177 1,218 1,072 1,067

Amount due from a subsidiary 9(b),31(g) 116,299 95,823 95,841 95,457

Amounts due from other

related parties 31(g) 82,649 45,467 920,452 917,507

Dividend receivable 31(g) 202,186 222,838 222,875 221,974

Cash and cash equivalents 14 2,741 43,874 8,701 4,087

405,052 409,220 1,248,941 1,240,092

Total assets 1,102,649 1,106,978 2,163,782 2,154,948

EQUITYAttributable to equity holders of the Company Share capital 15

– Ordinary shares 101,896 102,086 102,086 102,086

– Convertible preference shares – – 73,586 73,586

Share premium 15 328,531 332,207 1,121,704 1,121,957

Other reserves 16

– Proposed final dividend 25 – 62,733 – –

– Others 623,295 560,562 560,482 560,482

Retained earnings 29,542 33,062 18,766 1,837

Total equity 1,083,264 1,090,650 1,876,624 1,859,948


II – 6


LIABILITIESNon-current liabilities Promissory note payable 31(g) – – 217,155 223,426

– – 217,155 223,426

Current liabilities Borrowings 18 – – 62,922 62,667

Amounts due to related parties 31(g) 18,750 16,266 2,136 2,127

Trade and other payables 17 635 62 4,945 6,780

19,385 16,328 70,003 71,574

Total liabilities 19,385 16,328 287,158 295,000


Net current assets 385,667 392,892 1,178,938 1,168,518



II – 7

Consolidated Statement of Comprehensive Income

Three months Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Turnover 5 3,257,459 3,632,861 4,328,144 854,248 1,459,911Cost of goods sold 20 (2,785,489) (3,176,839) (4,048,414) (798,904) (1,390,081)

Gross profit 471,970 456,022 279,730 55,344 69,830

Other income – net 21 1,315 2,614 8,447 413 2,525Selling and marketing costs 20 (120,012) (128,236) (106,597) (22,857) (39,375)Administrative expenses 20 (60,608) (74,356) (104,021) (21,823) (29,725)

Operating profit 292,665 256,044 77,559 11,077 3,255

Finance income 4,178 3,063 878 588 2,154Finance costs (81,484) (46,586) (93,905) (18,722) (41,816)

Finance costs – net 23 (77,306) (43,523) (93,027) (18,134) (39,662)

(Loss)/Profit before income tax 215,359 212,521 (15,468) (7,057) (36,407)

Income tax expense 24 (5,473) (33,240) (2,565) (115) (618)

(Loss)/Profit for the year/period 209,886 179,281 (18,033) (7,172) (37,025)Other comprehensive income for the year/period, net of tax – – – – –

Total comprehensive (loss)/ income for the year/period 209,886 179,281 (18,033) (7,172) (37,025)

Attributable to:Equity holders of the Company 209,886 179,281 (18,033) (7,172) (37,025)

(Loss)/earnings per ordinary share for (loss)/profit attributable to the ordinary shareholders of the Company (expressed in RMB per share) – basic 26(a) 0.21 0.18 (0.05) (0.01) (0.04)

– diluted 26(b) 0.21 0.18 (0.05) (0.01) (0.04)

Dividend 25 – 62,733 – – –


II – 8

Consolidated Statement of Changes in Equity

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests Equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 15) (Note 15) (Note 16)

Balance at 1 January 2010 87,953 24,036 769,916 590,422 280 1,472,607

Comprehensive incomeProfit for the year – – – 209,886 – 209,886

Transactions with ownersProceeds from issue of ordinary shares 12,500 279,080 – – – 291,580Employee share option scheme – value of services provided – 1,638 – – – 1,638Appropriation to reserves – – 151,576 (151,576) – –Proceeds from issue of shares upon exercise of options 186 2,274 – – – 2,460Dividend 1,257 21,503 – (35,146) – (12,386)Disposal of subsidiaries – – – – (280) (280)

Total transactions with owners 13,943 304,495 151,576 (186,722) (280) 283,012

Balance at 31 December 2010 101,896 328,531 921,492 613,586 – 1,965,505

Balance at 1 January 2011 101,896 328,531 921,492 613,586 – 1,965,505


Transactions with ownersEmployee share option scheme – value of services provided – 1,288 – – – 1,288Appropriation to reserves – – 231,344 (231,344) – –Proceeds from issue of shares upon exercise of options 184 2,247 – – – 2,431Proceeds from issue of shares upon exercise of warrants 6 141 – – – 147Transfer of reserves upon merger of subsidiaries – – (157,088) 157,088 – –

Total transactions with owners 190 3,676 74,256 (74,256) – 3,866

Balance at 31 December 2011 102,086 332,207 995,748 718,611 – 2,148,652


II – 9

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests Equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 15) (Note 15) (Note 16)


Comprehensive incomeLoss for the year – – – (18,033) – (18,033)

Transactions with ownersProceeds from issue of convertible preference shares 73,586 787,957 – – – 861,543Acquisition of subsidiaries (Note 30) – – (118,063) – – (118,063)Employee share option scheme – value of services provided – 1,538 – – – 1,538Dividend – – (62,813) – – (62,813)Appropriation to reserves – – 176,566 (176,566) – –Proceeds from issue of shares upon exercise of warrants – 2 – – – 2

Total transactions with owners 73,586 789,497 (4,310) (176,566) – 682,207

Balance at 31 December 2012 175,672 1,121,704 991,438 524,012 – 2,812,826

Balance at 1 January 2013 175,672 1,121,704 991,438 524,012 – 2,812,826

Comprehensive incomeLoss for the period – – – (37,025) – (37,025)

Transactions with ownersEmployee share option scheme – value of services provided – 253 – – – 253

Total transactions with owners – 253 – – – 253

Balance at 31 March 2013 175,672 1,121,957 991,438 486,987 – 2,776,054


II – 10

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests EquityUnaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000



Transactions with ownersEmployee share option scheme – value of services provided – 455 – – – 455Proceeds from issue of shares upon exercise of warrants – 2 – – – 2


Balance at 31 March 2012 102,086 332,664 995,748 711,439 – 2,141,937


II – 11

Consolidated Statement of Cash Flows

Three months Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Cash flows from operating activitiesCash (used in)/generated from operations 27 453,985 50,228 406,026 285,391 (86,994)Interest paid (103,513) (89,460) (106,759) (25,570) (38,580)Income tax paid (21,219) (11,431) (15,902) (7,591) (1,045)

Net cash (used in)/generated from operating activities 329,253 (50,663) 283,365 252,230 (126,619)

Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (Note 30) – – (217,486) – –Disposal of subsidiaries (565) – – – –Acquisition of property, plant and equipment (279,468) (151,013) (976,599) (39,078) (58,403)Acquisition of land use rights – – (40,074) – –Interest received 4,178 15,753 21,409 8,269 2,192

Net cash used in investing activities (275,855) (135,260) (1,212,750) (30,809) (56,211)

Cash flows from financing activitiesProceeds from issue of ordinary shares 294,040 2,431 – – –Proceeds from issue of convertible preference shares net of transaction costs – – 861,543 – –Proceeds from issue of shares upon exercise of warrants – 147 2 2 –Proceeds from borrowings 1,524,908 810,000 1,602,943 510,000 686,500Repayment of borrowings (2,089,122) (942,666) (1,113,091) (545,053) (820,195)Dividend paid to company’s shareholders (12,386) – (28,272) – –Dividend paid to holders of convertible preference shares – – (34,541) – –

Net cash (used in)/generated from financing activities (282,560) (130,088) 1,288,584 (35,051) (133,695)

Net (decrease)/increase in cash and cash equivalents (229,162) (316,011) 359,199 186,370 (316,525)Cash and cash equivalents at beginning of the year/period 14 777,664 548,502 232,491 232,491 591,690

Cash and cash equivalents at end of the year/period 14 548,502 232,491 591,690 418,861 275,165


II – 12

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

Xiwang Sugar Holdings Company Limited (the “Company”) and its subsidiaries (together, the “Group”) are principally engaged in the manufacture, distribution and sales of a variety of starch sugars and corn co-products within and outside the People’s Republic of China (the “PRC”). On 31 December 2012, the Group acquired the entire issued share capital of Keen Lofty Investments Limited (“Keen Lofty”) and its subsidiaries, a group engaged in the property development in the PRC. Details of the acquisition are set out in Note 30.

The Company is a limited liability company incorporated in Bermuda on 21 February 2005. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The Company has been listed on The Stock Exchange of Hong Kong Limited since 9 December 2005.

The English names of the PRC companies referred to in the Financial Information represents management’s translation of the Chinese names of these companies as these companies have not adopted formal English names.

The Financial Information is presented in Renminbi (“RMB”), unless otherwise stated.

As at 31 December 2010, 2011, 2012 and 31 March 2013, and the date of this report, the subsidiaries of the Company are set out below.

Interest held Principal Issued share activities As at the Place of Date of and fully and place 31 December 31 March date ofName incorporation incorporation paid-up capital of operations 2010 2011 2012 2013 this report

Held directly:Master Team International British Virgin 15 March 2004 US$1 Investment holding, 100% 100% 100% 100% 100% Limited (“Master Team”) Islands the BVI (the “BVI”)Keen Lofty Investments The BVI 13 August 2012 US$15,756,000 Investment N/A N/A 100% 100% 100% Limited (“Keen Lofty”) holding, the BVIHong Kong Xiwang Sugar Hong Kong 9 April 2010 HKD1,000 Trading of starch N/A N/A 100% 100% 100% Trading Company Limited sugars and corn (“HK Trading”) co-products, Hong Kong

Held indirectly:Winning China Limited Hong Kong 2 November 2007 HKD1 Investment holding, 100% 100% 100% 100% 100% (“Winning China”) Hong KongGlorious Prosper Limited Hong Kong 28 September 2012 HKD1 Investment holding, N/A N/A 100% 100% 100% (“Glorious Prosper”) Hong KongShandong Yintaishan The PRC 30 October 2012 US$15,000,000 Property N/A N/A 100% 100% 100% Cultural Development development, Company Limited the PRC (“Yintaishan Cultural”)Shandong Xiwang The PRC 9 November 2012 RMB20,000,000 Investment holding, N/A N/A 100% 100% 100% Investment Holdings the PRC Company Limited (“Property Holding”) Shandong Xiwang Property The PRC 16 October 2002 RMB200,000,000 Property development, N/A N/A 100% 100% 100% Company Limited (“Property the PRC Project Company”)


II – 13

Interest held Principal Issued share activities As at the Place of Date of and fully and place 31 December 31 March date ofName incorporation incorporation paid-up capital of operations 2010 2011 2012 2013 this report

Shandong Xiwang Sugar The PRC 14 December 2005 RMB1,300,000,000 Manufacture and 100% 100% 100% 100% 100% Industry Co., Ltd sale of starch (“Xiwang Sugar”), sugars and corn (formerly known as co-products, Shandong Xiwang the PRC Bio-Chem Technology Co., Ltd., “Xiwang Technology”) (iii)Shandong Xiwang Sugar The PRC 27 October 2004 RMB518,000,000 Manufacture and 100% N/A N/A N/A N/A Industry Co., Ltd sale of starch (“Xiwang Sugar”, sugars and corn deregistered in 2011) (ii) co-products, the PRCXiwang Sugar (Beijing) The PRC 20 August 2010 RMB10,000,000 Sale of starch 100% 100% 100% 100% 100% Co., Ltd. (“Xiwang Sugar sugars, the PRC (Beijing)”) (i)

(i) Xiwang Sugar (Beijing) was incorporated in 2010 and is a subsidiary of Xiwang Technology.

(ii) On 30 March 2011, Xiwang Technology merged with Xiwang Sugar. After all Xiwang Sugar’s assets and liabilities were transferred to Xiwang Technology, Xiwang Sugar was deregistered. As both Xiwang Technology and Xiwang Sugar are subsidiaries of the Company before and after the merger, the merger is accounted for as a business combination under common control. Accordingly, in preparing the financial information for the year ended 31 December 2011, the 2010 comparative figures were not restated.

(iii) During the year ended 31 December 2012, Xiwang Technology changed its name to Shandong Xiwang Sugar Industry Co., Ltd.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the Financial Information are set out below. These policies have been consistently applied to the Relevant Periods, unless otherwise stated.

2.1 Basis of presentation

The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), under the historical cost convention.

For the three months ended 31 March 2013, the Group incurred a net loss of approximately RMB37 million (2012: RMB18 million). In addition, the Group has breached certain borrowing covenants (Note 18). As at 31 March 2013, total borrowings of the Group amounted to approximately RMB1,788 million (31 December 2012: RMB1,922 million) of which approximately RMB1,730 million (31 December 2012: RMB1,854 million) will be due for repayment in the coming year. Furthermore, as at 31 March 2013, the Group has capital commitments of approximately RMB116 million (2012: RMB208 million) (Note 29).

The Group meets its day to day working capital requirements, capital expenditure and financing obligations through cash inflows from operating activities and credit facilities obtained from banks.


II – 14

Management maintains continuous communication with the Group’s principal banks on the renewal of existing credit facilities and grant of additional credit facilities. During April to May 2013, short-term borrowings of RMB145 million were repaid. The Group has not experienced any significant difficulties in renewing its short-term borrowings upon their maturity and there is no evidence indicating that the banks will not renew the existing short-term borrowings upon the Group’s application for renewal. Subsequent to 31 March 2013 and up to the date of approval of the financial statements, short-term borrowings of approximately RMB163 million have been renewed for a further year.

Based on the directors’ review of the Group’s cash flow projection, taking into account the anticipated cash flows from operations, the reasonably possible changes in the operational performance and the ongoing support from the banks, the Group expects to generate sufficient cash flows to fulfill its financial obligations as and when they fall due in the coming twelve months from the date of the Financial Information. Accordingly, the directors are of the opinion that it is appropriate to prepare the Financial Information on a going concern basis.

The preparation of the Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information, are disclosed in Note 4.

Changes in accounting policies and disclosures

(a) New and amended standards and interpretations mandatory for the first time for the financial year beginning 1 January 2012 applicable to the Group:

• HKFRS7(amendment),‘Financialinstruments:Disclosures’ontransferoffinancialassetsis effective for annual periods beginning on or after 1 July 2011.

• HKAS 12 (amendment), ‘Income taxes’ on recovery of underlying assets is effective forannual periods beginning on or after 1 January 2012.

The adoption of such standards and interpretations did not have any significant effect on the results or financial positions of the Group for the current year.


II – 15

(b) New and amended standards have been issued but not effective for the financial year beginning 1 January 2012 and have not been early adopted by the Group:

The Group’s assessment of the impact of these new and amended standards is set out below:

Effective for annual periods beginning on or after

HKAS 1 ‘Financial statements presentation’ regarding other comprehensive income – Amendment 1 July 2012HKFRS 1 ‘First time adoption’ on government loans – Amendment 1 January 2013HKFRS 10, 11, 12 ‘Transition guidance’ on consolidated financial statements, joint arrangements and disclosure of interests in other entities: – Amendment 1 January 2013HKFRS 10 ‘Consolidated financial statements’ 1 January 2013HKFRS 11 ‘Joint arrangements’ 1 January 2013HKFRS 12 ‘Disclosures of interests in other entities’ 1 January 2013HKFRS 13 ‘Fair value measurement’ 1 January 2013HKAS 27 ‘Separate financial statements’ – Revised 1 January 2013HKAS 28 ‘Associates and joint ventures’ – Amendment 1 January 2013HKAS 19 ‘Employee benefits’ – Amendment 1 January 2013HKFRS 7 ‘Financial instruments Disclosures’ on assets and liability offsetting 1 January 2013HK(IFRIC) – Int 20 ‘Stripping costs in the production phase of a surface mine’ 1 January 2013Annual improvements 2011 1 January 2013HKAS 32 ‘Financial instruments: Presentation’ – Amendment 1 January 2014HKFRS 7 and HKFRS 9 ‘Mandatory effective date and transition disclosures’ 1 January 2015HKFRS 9, ‘Financial instruments’ on classification and measurement 1 January 2015

The adoption of such standards is not expected to have any significant effect on the results or financial positions of the Group.

2.2.1 Consolidation (continued)

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.

De-facto control may arise from circumstances where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Intra-group transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from Intra-group transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(a) Business combinations (exclude combination under common control)

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, at the non-controlling interest’s proportionate share of the carrying amounts of acquiree’s identifiable net assets.


II – 16

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 either in profit or loss or as a charge to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of (a) the aggregate of the consideration transferred and the carrying amount of any non-controlling interest in the acquiree over (b) the net amount of the identifiable assets acquired and liabilities and contingent liabilities assumed measured at acquisition-date fair value.” If (a) is lower than (b), the difference is recognised as a gain in profit or loss.

(b) Business combination involving entities under common control

For acquisition under common control, the Group has been using the principles of merger accounting as prescribed in Hong Kong Accounting Guideline 5 ‘Merger Accounting for Common Control Combinations’ issued by the HKICPA (‘HKAG 5’).

The Financial Information incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing carrying amounts from the controlling party’s perspective. No amount is recognised in consideration for goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination.

A uniform set of accounting policies is adopted by those entities. All intra-Group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation.

Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses, etc., incurred in relation to the common control combination that is to be accounted for using merger accounting are recognised as an expense in the period in which they were incurred.


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2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

2.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the General Manager.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the Financial Information of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Financial Information is presented in RMB, which is the Company’s functional and the Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year/period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other income – net’.

(c) Group’s entities

The results and financial position of all the Group’s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

a. assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of reporting period;

b. income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

c. all resulting exchange differences are recognised in other comprehensive income.


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2.5 Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation and impairment loss, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate the costs of the assets to their residual values over their estimated useful lives as follows:

Buildings 40 yearsPlant and machinery 15 yearsFurniture, equipment and motor vehicles 3-10 years

The assets’ residual values ranged from 5% to 10% of their costs. Their residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.9).

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included within ‘other income – net’ in the statement of comprehensive income.

2.6 Construction in progress

Construction in progress (“CIP”) represents plants and properties under construction and machinery pending installation or testing. CIP is stated at cost which includes all expenditure and other direct costs, site restoration costs, prepayments and deposits attributable to the installation and borrowing costs arising from borrowings used to finance the construction during the construction period. CIP is not depreciated until such time as the assets are completed and ready for their intended use. When the assets concerned are brought into use, the costs are transferred to respective property, plant and equipment and depreciated in accordance with the policy as stated above.

2.7 Land use rights

Land use rights are up-front payments to acquire a long-term interest in land, which are regarded as operating leases. These payments are stated at cost and amortised over their respective lease terms on a straight-line basis, net of accumulated impairment charge.

2.8 Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. It represents the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest in the acquiree over the net of the amounts of the assets acquired and the liabilities and contingent liabilities assumed.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (“CGUs”), or a group of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.


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Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of the fair value less costs to sell and value in use. Any impairment is recognised immediately as an expense and is not subsequently reversed.

2.9 Impairment of non-financial assets

Assets that have an indefinite useful life, for example goodwill or intangible assets not ready to use are not subject to amortisation or depreciation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.10 Financial assets

(a) Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. Management determines the classification of its financial assets at initial recognition. The Group only holds “loans and receivables” in the statement of financial position.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ (Note 2.14), ‘amounts due from related companies’ and ‘cash and cash equivalents’ in the statement of financial position (Note 2.15).

(b) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

(c) Impairment of financial assets carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.


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For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated statement of comprehensive income. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

2.11 Inventories

Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs.

A production process may result in more than one product being produced simultaneously. When the costs of conversion of each product are not separately identifiable, they are allocated based on the relative sales value of each product.

Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.12 Property under development

Properties under development are stated at the lower of cost and net realisable value. Net realisable value is determined by reference to the sale proceeds of properties sold in the ordinary course of business, less applicable variable selling expenses and the anticipated costs to completion, or by management estimates based on prevailing marketing conditions.

Development cost of property comprises cost of land use rights, construction costs, depreciation of machinery and equipment, borrowing costs capitalised for qualifying assets and professional fees incurred during the development period. On completion, the properties are transferred to completed properties for sale.

Properties under development are classified as current assets when the construction of the relevant properties commences unless the construction of the relevant property development project is expected to complete beyond normal operating cycle.

2.13 Completed properties for sale

Completed properties remaining unsold at year/period end are stated at the lower of cost and net realisable value.

Cost comprises development costs attributable to the unsold properties.

Net realisable value is determined by reference to the sale proceeds of properties sold in the ordinary course of business, less applicable variable selling expenses, or by management estimates based on prevailing marketing conditions.


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2.14 Trade and other receivables

Trade receivables are amounts due from customers for merchandise and properties sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

2.15 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, bank overdrafts and exclude restricted cash. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

2.16 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or option are shown in equity as a deduction, net of tax, from the proceeds.

2.17 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.18 Borrowings and borrowing costs

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.


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2.19 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis difference

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Information. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.20 Employee benefits

(a) Retirement benefits scheme

The Group participates in defined contribution retirement schemes organised by the local government authorities in the PRC. Employees are entitled to an annual pension equivalent to a fixed portion of their basic salaries at their retirement dates. The Group is required to make contributions to the retirement schemes at a rate of 18% (2012: 18%, 2011: 19%, 2010: 20%) of the standard salary of those employees and have no further obligation for post-retirement benefits.


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The Group contributes to a defined contribution retirement plan in Hong Kong which is available to all employees based in Hong Kong, the assets of which are held in separate trustee-administered funds. The retirement plan is funded by payments from the employees and the Group. The contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions are not allowed to be used to reduce the Group’s contributions. The Group has no further payment obligations once the contributions have been paid.

The contributions are charged to the profit or loss of the Group as they become payable in accordance with the rules of the schemes/plan.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

2.21 Share based compensation

(a) Equity-settled share-based payment transactions

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

• includinganymarketperformanceconditions(forexample,anentity’sshareprice);

• excluding the impact of any service and non-market performance vesting conditions (forexample, profitability, sales growth targets and remaining as an employee of the entity over a specified time period); and

• including the impact of any non-vesting conditions (for example, the requirement foremployees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

(b) Share-based payment transactions among Group entities

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.


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2.22 Provisions and contingent liabilities

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the Financial Information. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of other companies to secure loans, overdrafts and other banking facilities.

Financial guarantees are initially recognised in the Financial Information at fair value on the date the guarantee was given. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms, and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial amount, less amortisation of fees recognised in accordance with HKAS 18, and the best estimate of the amount required to settle the guarantee. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by management’s judgement. The fee income earned is recognised on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the combined statement of comprehensive income statement within other operating expenses.

2.23 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below.


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(a) Sales of goods

Sales of goods are recognised when the Group’s entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured.

(b) Sales of properties

Revenue from sales of properties is recognised when the risks and rewards of properties are transferred to the purchasers, which is when the construction of relevant properties has been completed and the properties have been delivered to the purchasers and collectability of related receivables is reasonably assured. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the consolidated statement of financial position as advance proceeds received from customers under current liabilities.

(c) Interest income

Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired receivables is recognised using the original effective interest rate.

2.24 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor), including upfront payment made for acquiring land use rights, are charged to the profit or loss on a straight-line basis over the period of the lease.

2.25 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s and the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the Finance Department.


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(a) Market risk

(i) Foreign exchange risk

The Group mainly operates in the PRC with most of the transactions settled in RMB. As at 31 December 2010, 2011, 2012 and 31 March 2013, the Group had no significant assets denominated in foreign currencies other than the functional currency, while there were significant bank borrowings denominated in US dollars (“US$”). Accordingly, foreign exchange risk of the Group mainly results from these foreign currency denominated borrowings.

If RMB had weakened/strengthened by 2% against the US$ as at 31 December 2010, 2011, 2012 and 31 March 2013, with all other variables held constant, profit before tax would have been approximately RMB4,814,000, RMB3,645,000, RMB3,502,000, RMB3,298,000 lower/higher for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 respectively, arising from foreign exchange losses/gains on translation of US$ denominated borrowings.

(ii) Price risk

Corn kernels are the major raw materials of the products of the Group and they are subject to commodity price changes in the commodity market.

(iii) Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets except for cash and cash equivalents, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk mainly arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. As at 31 December 2010, 2011, 2012 and 31 March 2013, about 67%, 43%, 20% and 26% of the Group’s bank borrowings were at floating rates, while the remaining 33%, 57%, 80% and 74% were at fixed rates.

A substantial portion of the outstanding bank borrowings of the Group were obtained from domestic banks in Mainland China. If the interest rates on bank borrowings had decreased/increased by 27, 40, 40, 40 basis points as at 31 December 2010, 2011, 2012 and 31 March 2013, the usual interest adjustment scale imposed by the People’s Bank of China during the year/period with all other variables held constant, profit before tax for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 would have been approximately RMB4,881,000, RMB5,265,000, RMB5,661,000 and RMB1,913,000 higher/lower respectively mainly as a result of lower/higher interest expense on bank borrowings.


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(b) Credit risk

Credit risk of the Group is mainly arising from cash and cash equivalents, trade and other receivables and amounts due from related companies.

The Group’s bank deposits are mainly placed with banks with high credit ratings which are either listed or state-owned. The table below shows the balance of the bank deposits in the principal banks of the Group as at 31 December 2010, 2011, 2012 and 31 March 2013:

As at As at 31 December 31 March

2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000

Principal banks:State-owned or listed banks 548,155 232,432 858,278 428,233Other banks 340 12 20,671 18,820

548,495 232,444 878,949 447,053

For trade and other receivables and amounts due from related companies, the credit quality of the counterparties is assessed by taking into account their financial position, credit history and other economic factors. Individual credit limits are set based on the assessment of the credit quality. Based on the trade and credit history of the parties having receivable balances due to the Group as at 31 December 2010, 2011, 2012 and 31 March 2013, the directors are of the opinion that the risk of default by these counterparties is not significant. In addition, the Group has no significant concentration of credit risk from customers (Note 13).

In addition, the Group is exposed to credit risk arising from a financial guarantee issued (Note 28).

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining flexibility in funding by arranging banking facilities and other external financing.

The table below sets out an analysis of the Group’s financial liabilities based on their maturity as at the end of respective reporting periods. The amounts disclosed in the table are the contractual undiscounted cash flows.


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Between Between Less than 1 and 2 2 and 5 1 year years years Over 5 years RMB’000 RMB’000 RMB’000 RMB’000

Group

At 31 December 2010Borrowings 738,637 556,224 339,335 38,749Trade and other payables 420,636 – – –Amounts due to related parties 29,910 – – –

At 31 December 2011Borrowings 1,147,974 277,169 67,650 12,075Trade and other payables 483,008 – – –Amounts due to related parties 67,731 – – –

At 31 December 2012Borrowings 2,021,104 – – –Trade and other payables 770,139 – – –Amounts due to related parties 336,672 – – –Promissory note payable – – 331,100 –

At 31 March 2013Borrowings 1,858,671 – – –Trade and other payables 820,662 – – –Amounts due to related parties 32,898 – – –Promissory note payable – – 331,100 –

Between Between Less than 1 and 2 2 and 5 1 year years years Over 5 years RMB’000 RMB’000 RMB’000 RMB’000

Company

At 31 December 2010Trade and other payables 635 – – –Amounts due to related parties 18,750 – – –

At 31 December 2011Trade and other payables 62 – – –Amounts due to related parties 16,266 – – –

At 31 December 2012Borrowings 63,105 – – –Trade and other payables 4,945 – – –Amounts due to related parties 2,136 – – –Promissory note payable – – 331,100 –

At 31 March 2013Borrowings 62,680 – – –Trade and other payables 6,780 – – –Amounts due to related parties 2,127 – – –Promissory note payable – – 331,100 –


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3.2 Capital risk management

The Group’s objectives when managing capital (which comprises total equity) are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.

Consistent with other industry players, the Group monitors its capital to debt position based on its gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (including current and non-current borrowings and promissory note as shown in the consolidated statement of financial position) less cash and cash equivalents.

The Group’s strategy is maintaining a gearing ratio below 70%. The gearing ratios of the Group as at 31 December 2010, 2011 and 2012 and 31 March 2013 are as follows:

As at As at 31 December 31 March

2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000

Total borrowings (Notes 18 and 31(g)) 1,564,908 1,432,242 2,139,249 2,011,825Less: Cash and cash equivalents (Note 14) (548,502) (232,491) (591,690) (275,165)

Net debt 1,016,406 1,199,751 1,547,559 1,736,660Total equity 1,965,505 2,148,652 2,812,826 2,776,054

Gearing ratio 52% 56% 55% 63%

3.3 Fair value estimation

Financial instruments are measured in the statement of financial position at fair value, which requires disclosure of fair value measurements by level of fair value measurement hierarchy. The different levels have been defined as follows:

• Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).

• Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputsfor theassetor liability thatarenotbasedonobservablemarketdata(that is,unobservableinputs) (level 3).

As at 31 December 2010, 2011 and 2012 and 31 March 2013, the Group had no financial instrument re-measured at fair value subsequent to initial recognition.


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4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Useful lives of property, plant and equipment

The estimate of useful lives of property, plant and equipment were made by the directors with reference to the established industry practices, technical assessments made on the durability of the assets, as well as the historical magnitude and trend of repair and maintenance expenses incurred by the Group. It could change significantly as a result of technical innovations and competitor actions in responses to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

(b) Allowance for impairment of trade receivables

The Group makes allowance for impairment of trade receivables based on the assessment of the recoverability of trade receivables with reference to the extent and duration that the amount will be recovered. Allowances are applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and impairment expenses in the period in which such estimate has been changed.

(c) Income taxes and deferred tax

The Group is mainly subject to income taxes in the Mainland China. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the tax losses can be utilised. Recognition of deferred tax assets primarily involves management judgement and estimations regarding the taxable profits of the entities in which the losses arose. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.

Pursuant to the Corporate Income Tax Law and its implementation rules, effective from 1 January 2008, certain non-resident enterprises (for instance, those without an establishment or place of business in Mainland China or which have an establishment or place of business in Mainland China but whose relevant income is not effectively connected with the establishment or a place of business in the Mainland China) are subject to withholding tax at the rate of 5% or 10% on various types of passive income such as dividends derived from sources within Mainland China. Management has no intention to distribute the retained profits earned after 1 January 2008. Accordingly, no provision for withholding tax has been made in this respect as at 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013.


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(d) Estimated impairment of property, plant and equipment

At 31 March 2013, the total carrying amounts of property, plant and equipment are RMB2,640,282,000 (31 December 2012: RMB2,641,718,000), representing 44% (31 December 2012: 41%) of the total consolidated assets of the Group. Management performs review for impairment of property, plant and equipment whenever events or changes in circumstances indicate that the carrying amounts of property, plant and equipment may not be recoverable. In such case, the recoverable amounts of property, plant and equipment have been determined based on value-in-use method. For the purpose of assessing impairment, management had grouped property, plant and equipment at the lowest levels for which there are separately identifiable cash flows (CGUs). The value-in-use calculations require the use of significant estimates and assumptions on the projections of cash flows from the continuous use of property, plant and equipment. Based on management’s best estimates, there is no material impairment for property, plant and equipment at 31 March 2013.

However, as mentioned in Note 33, subsequent to 31 March 2013, the Group entered into an agreement to dispose of a major operating segment (“Disposal Group”), conditional upon the non-controlling shareholders’ approval at a general meeting to be held subsequent to the issue of this report. As the outcome of the disposal is uncertain, in assessing possible impairment of property, plant and equipment, management has continued to use their best estimates of the value-in-use without regard to the net realisable value of property, plant and equipment within the Disposal Group implied in the proposed disposal and on this basis is of the view that there is no material impairment for property, plant and equipment as at 31 March 2013. If the ultimate amount recovered through disposal is below or above the carrying amount of the net assets of the Disposal Group, such difference may impact the financial statements in the financial period in which such disposal takes place and the impact may be significant.

(e) Estimated impairment of goodwill

As mentioned in Note 30, the Group acquired a property development business in the PRC during the year ended 31 December 2012. Goodwill of RMB180,405,000 was recognised on the acquisition and represented the excess of the consideration over the fair value of the identifiable net assets of acquiree at the acquisition date. The determination of the value of the goodwill requires significant estimates and judgement.

Management has assessed impairment by comparing the carrying amount of goodwill to the recoverable amount, which is the higher of the fair value less costs to sell and value in use. The fair value was made by reference to comparable sales evidences as available in the relevant market and the management’s expectation that it is highly probable for the Group to obtain the land use rights which the acquired property development business had not obtained prior to its acquisition by the Group. If the final outcome is different from management’s expectation, there may be a need to recognise impairment for goodwill.

Based on management’s best estimates, there is no material impairment for goodwill at 31 December 2012 and 31 March 2013. Please refer to Note 7 for details.


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5. REVENUE AND SEGMENT INFORMATION

The chief operating decision-maker has been identified as the General Manager of the Company. The General Manager reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The General Manager assesses the performance of the operating segments based on a measure of operating profit. This measurement basis excludes the effects of non-recurring expenditure from the operating segments, such as restructuring costs, legal expenses and impairments when the impairment is the result of an isolated, non-recurring event. Other information provided to the General Manager is measured in a manner consistent with that in the Financial Information.

The turnover of the Group represents sales of starch sugars, corn co-products and others and completed properties.

For the year ended 31 December 2012 and for the three months ended 31 March 2013, management had identified three operating segments as shown below, including starch sugars, corn co-products and others and properties development resulted from the acquisition as set out in Note 30. For the year ended 31 December 2010 and 2011 and for the three months ended 31 March 2012, management had identified two operating segments as shown below, including starch sugars and corn co-products and others. Because the General Manager reviews the financial position of the Group as a whole, no segment information relating to assets/liabilities was disclosed as at 31 December 2010 and 2011 and 31 March 2012.

Segment assets consist of both current assets and non-current assets. Segment liabilities consist of both current liabilities and non-current liabilities.

Year ended 31 December 2010

Corn Starch co-products sugars and others Total RMB’000 RMB’000 RMB’000

Segment sales 1,854,628 2,728,594 4,583,222Inter-segment sales – (1,325,763) (1,325,763)

Sales from external customers 1,854,628 1,402,831 3,257,459

Operating profit/Segment results 250,326 42,339 292,665Finance expenses – net (77,306)

Profit before income tax 215,359Income tax expense (5,473)

Profit for the year 209,886

Capital expenditure 228,902 58,262 287,164

Depreciation 58,034 33,254 91,288

Amortisation 2,981 2,231 5,212

Impairment loss on property, plant and equipment – – 12,927


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Corn Starch co-products sugars and others Total RMB’000 RMB’000 RMB’000

Segment sales 2,129,099 2,995,695 5,124,794Inter-segment sales – (1,491,933) (1,491,933)

Sales from external customers 2,129,099 1,503,762 3,632,861

Operating profit/Segment results 254,099 1,945 256,044Finance expenses – net (43,523)

Profit before income tax 212,521Income tax expense (33,240)

Profit for the year 179,281


Depreciation 62,649 35,230 97,879

Amortisation 2,981 2,231 5,212


Corn Starch co-products Properties sugars and others Subtotal development Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment sales 2,002,809 4,436,804 6,439,613 172,999 6,612,612Inter-segment sales – (2,284,468) (2,284,468) – (2,284,468)

Sales from external customers 2,002,809 2,152,336 4,155,145 172,999 4,328,144

Operating profit/(loss) Segment results 68,310 (17,738) 50,572 26,987 77,559Finance expenses – net (92,223) (804) (93,027)

(Loss)/profit before income tax (41,651) 26,183 (15,468)Income tax credit/(expense) 5,403 (7,968) (2,565)

(Loss)/profit for the year (36,248) 18,215 (18,033)

Capital expenditure 991,420 – 991,420

Depreciation 135,635 63 135,698

Amortisation 5,854 – 5,854

Segment assets 5,157,496 1,281,759 6,439,255

Segment liabilities (2,461,978) (1,164,451) (3,626,429)


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Three months ended 31 March 2013

Corn Starch co-products Properties sugars and others Subtotal development Elimination Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment sales 521,394 1,405,895 1,927,289 – 1,927,289Inter-segment sales – (467,378) (467,378) – (467,378)

Sales from external customers 521,394 938,517 1,459,911 – 1,459,911

Operating profit/(loss) Segment results 4,636 (1,381) 3,255Finance expenses – net (29,026) (10,636) (39,662)

(Loss)/profit before income tax (24,390) (12,017) (36,407)Income tax credit/(expense) (1,148) 530 (618)

(Loss)/profit for the period (25,538) (11,487) (37,025)

Capital expenditure 42,461 – 42,461

Depreciation 43,802 95 43,897

Amortisation 1,544 – 1,544

Segment assets 5,551,154 866,807 (366,546) 6,051,415

Unallocated 5,581

Total assets 6,056,996

Segment liabilities (2,664,493) (976,215) 366,546 (3,274,162)

Unallocated (6,780)

Total liabilities (3,280,942)


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Three months ended 31 March 2012

Corn Starch co-products sugars and others Total RMB’000 RMB’000 RMB’000 (unaudited) (unaudited) (unaudited)

Segment sales 514,753 858,492 1,373,245Inter-segment sales – (518,997) (518,997)

Sales from external customers 514,753 339,495 854,248

Operating profit Segment results 11,077Finance expenses – net (18,134)

Loss before income tax (7,057)Income tax expense (115)

Loss for the period (7,172)


Depreciation 14,923 17,260 32,183

Amortisation 745 558 1,303

The Group conducts its business in both China and overseas countries. Total revenue derived from external customers in the PRC and external customers from other countries is as below:

Three months Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

China 2,817,110 3,218,086 3,901,320 743,505 1,311,143Overseas countries 440,349 414,775 426,824 110,743 148,768

3,257,459 3,632,861 4,328,144 854,248 1,459,911

Inter-segment transfers or transactions were entered into under the terms and conditions agreed by both parties.

Capital expenditure comprised additions to property, plant and equipment, land use rights and construction in progress (Notes 6 and 8).

The total of non-current assets other than financial instruments, deferred tax assets and goodwill located in the PRC for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 were RMB1,999,214,000, RMB2,058,687,000, RMB2,909,779,000 and RMB2,906,829,000, respectively. The total of such non-current assets located in other countries for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 were RMB464,000, RMB576,000, RMB457,000 and RMB427,000, respectively.

None of the revenue derived from any single external customer amounted to more than 10% of the Group’s revenue for the year ended 31 December 2010, 2011 and 2012. Revenue of RMB362,154,000 which is accounted for approximately 25% of the total revenue is derived from a single external customer Xiwang Pharmaceutical Company Limited (“Xiwang Pharmaceutical”, a related party of the Group) for the three months ended 31 March 2013.


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6. PROPERTY, PLANT AND EQUIPMENT – GROUP

Equipment Plant and and motor Construction Buildings machinery vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2010Cost 244,980 1,383,366 17,382 260,564 1,906,292Accumulated depreciation (22,151) (278,494) (2,258) – (302,903)Accumulated impairment (1,758) (24,131) – – (25,889)

Net book amount 221,071 1,080,741 15,124 260,564 1,577,500

Year ended 31 December 2010Opening net book amount 221,071 1,080,741 15,124 260,564 1,577,500Additions 1,475 20,279 2,758 262,652 287,164Transfers from construction in progress 55,370 137,973 7,213 (200,556) –Disposals – (245) – – (245)Disposals of subsidiaries – – (36) – (36)Depreciation charge (6,103) (83,371) (1,814) – (91,288)Impairment charge – (12,927) – – (12,927)

Closing net book amount 271,813 1,142,450 23,245 322,660 1,760,168

At 31 December 2010Cost 301,825 1,478,671 27,263 322,660 2,130,419Accumulated depreciation (28,254) (299,163) (4,018) – (331,435)Accumulated impairment (1,758) (37,058) – – (38,816)

Net book amount 271,813 1,142,450 23,245 322,660 1,760,168

Year ended 31 December 2011Opening net book amount 271,813 1,142,450 23,245 322,660 1,760,168Additions – 4,012 1,099 157,565 162,676Transfers from construction in progress 118,558 340,090 7,047 (465,695) –Depreciation charge (7,112) (87,218) (3,549) – (97,879)



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Equipment Plant and and motor Construction Buildings machinery vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000


Net book amount 383,259 1,399,334 27,842 14,530 1,824,965

Year ended 31 December 2012Opening net book amount 383,259 1,399,334 27,842 14,530 1,824,965Acquisition of subsidiaries (Note 30) – – 1,105 – 1,105Additions 35,815 48,502 557 866,472 951,346Transfers from construction in progress 520,892 287,214 59,772 (867,878) –Depreciation charge (11,783) (118,447) (5,468) – (135,698)



Net book amount 928,183 1,616,603 83,808 13,124 2,641,718

Three months ended 31 March 2013Opening net book amount 928,183 1,616,603 83,808 13,124 2,641,718Additions 74 48 – 42,339 42,461Transfers from construction in progress 1,027 4,293 – (5,320) –Depreciation charge (5,866) (34,049) (3,982) – (43,897)


At 31 March 2013Cost 978,191 2,162,830 97,725 50,143 3,288,889Accumulated depreciation (53,015) (538,877) (17,899) – (609,790)Accumulated impairment (1,758) (37,058) – – (38,816)

Net book amount 923,418 1,586,895 79,826 50,143 2,640,282

Borrowing costs amounted RMB20,147,000, RMB22,757,000, Nil and Nil were capitalised as part of its construction costs for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

As at 31 December 2010, 2011 and 2012 and 31 March 2013, certain buildings and machinery of the Group with an aggregate carrying amount of RMB506,115,000, RMB462,727,000, RMB415,146,000 and RMB406,450,000 respectively were pledged as security for part of the borrowings (Note 18).


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As at 31 December 2010, 2011 and 2012 and 31 March 2013, buildings with net book values of approximately RMB15,477,000, RMB56,445,000, RMB356,481,000 and RMB354,353,000, respectively, have no property title certificates. The application for certificates was in progress as at 31 March 2013.

As at 31 December 2010, 2011 and 2012 and 31 March 2013, buildings with net book values of approximately Nil, Nil, RMB29,596,000 and RMB29,371,000, respectively, were under the name of Xiwang Pharmaceutical. The change of certificates was in progress as at 31 March 2013.

Lease rentals relating to the lease of property is included in the consolidated statements of comprehensive income as below (Note 20):

Three months ended Year ended 31 December 31 March 2010 2011 2012 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Operating lease payments 1,250 1,350 934 254 171

7. GOODWILL – GROUP

2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December/three months ended 31 MarchOpening net book amount – – – 180,405Addition – – 180,405 –Impairment – – – –Disposal – – – –

Closing net book amount – – 180,405 180,405

The goodwill of RMB180,405,000 is recognised which represents the excess of consideration over the fair value of the identifiable net assets of Property Holding as at 21 November 2012 (Note 30).

Goodwill is allocated to the Group’s CGUs which are three property projects under development, as follows:

RMB’000

Meijun Phase Three project 107,875Qinghe project 56,146Lanting project 16,384

180,405

The recoverable amount of all CGUs has been determined based on the fair value less costs to sell.

The key assumptions used for the fair value assessment are as follows:

Plot ratio

Meijun Phase Three project 3.06Qinghe project 1.52Lanting project 2.07


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8. LAND USE RIGHT – GROUP

It mainly represents prepaid operating lease payments associated with parcels of land located in the PRC. The remaining unexpired lease periods range between 10 to 50 years.

2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December/three months ended 31 MarchOpening net book amount 244,722 239,510 234,298 268,518Addition – – 40,074 –Amortisation charge (5,212) (5,212) (5,854) (1,544)

Closing net book amount 239,510 234,298 268,518 266,974

At 31 December/31 MarchCost 258,177 258,177 298,251 298,251Accumulated amortisation (18,667) (23,879) (29,733) (31,277)

Net book amount 239,510 234,298 268,518 266,974

As at 31 December 2010, 2011 and 2012 and 31 March 2013, certain borrowings are secured by certain land use rights of the Group with an aggregate carrying amount of RMB156,972,000, RMB150,491,000, RMB219,856,000 and RMB218,597,000, respectively (Note 18).

As at 31 December 2010, 2011 and 2012 and 31 March 2013, land use rights with a carrying amount of approximately Nil, Nil, RMB39,432,000 and RMB39,192,000, respectively, were under the name of Xiwang Pharmaceutical. The change of certificates was in progress as at 31 March 2013.

9. INVESTMENTS IN AND AMOUNT DUE FROM SUBSIDIARIES – COMPANY

(a) Investments in subsidiaries


Investments, at cost:Unlisted shares (i) – – 217,155 217,155Capital contribution relating to share-based payment (ii) – 13 60 105

– 13 217,215 217,260

(i) This represented the Company’s equity investments in Master Team amounting to US$1 (equivalent to approximately RMB8); HK Trading amounting to HKD1,000 (equivalent to approximately RMB818); and Keen Lofty amounting to RMB217,155,000 (Note 30), respectively.

(ii) The capital contribution arose from share-based payments relating to options over 500,000 shares granted to an employee of a subsidiary in the Group. For further details of the Group’s share option scheme, please refer to Note 15(b).

Refer to Note 1 for the particulars of subsidiaries of the Company.


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(b) Amount due from a subsidiary

As at 31 December As at 31 March 2010 2011 2012 2013 Note RMB’000 RMB’000 RMB’000 RMB’000

Amount due from Master Team – quasi-equity (i) 697,169 697,169 697,169 697,169 – advances (ii) 116,299 95,823 95,841 95,457

813,468 792,992 793,010 792,626Less: non-current portion (697,169) (697,169) (697,169) (697,169)

Current portion – advances (ii) 116,299 95,823 95,841 95,457

(i) The directors of the Company have no intention to demand for repayment in the foreseeable future and consider the balance is quasi-equity in nature, the balance is unsecured, non-interest bearing and denominated in HKD.

(ii) The advance to Master Team is unsecured, non-interest bearing, repayable on demand and denominated in HKD.

10. INVENTORIES – GROUP

As at 31 December As at 31 March 2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000

Raw materials 392,365 305,216 382,632 339,851Work in progress 78,156 95,576 106,024 86,617Finished goods 90,049 183,356 225,687 284,078

560,570 584,148 714,343 710,546

The cost of inventories recognised as expenses and included in cost of goods sold for the year ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2012 and 2013 was approximately RMB2,772,562,000, RMB3,176,839,000, RMB3,889,438,000, RMB798,904,000 and RMB1,390,081,000, respectively.

An allowance for impairment of inventories made as at 31 December 2010, 2011, 2012 and 31 March 2013 was Nil, Nil, RMB13,321,000 and RMB7,618,000 respectively, and inventories amounting to Nil, Nil, RMB653,677,000 and RMB596,246,000, respectively, at net realisable value.

As at 31 December 2010, 2011 and 2012 and 31 March 2013, raw materials of the Group with an aggregate carrying amount of Nil, RMB100,000,000, Nil and Nil, respectively, were pledged as security for bank borrowings (Note 18).

11. COMPLETED PROPERTIES FOR SALE – GROUP


Completed properties for sale, at cost – – 27,973 27,973

The completed properties for sale were located in the PRC. As at 31 December 2010, 2011 and 2012 and 31 March 2013, no completed properties for sale were considered as impaired.


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12. PROPERTIES UNDER DEVELOPMENT – GROUP


Properties under development expected to be completed: – Within the normal operating cycle included under current assets – – 460,656 481,537

Amounts comprise: – Purchase cost arising from acquisition – – 451,057 451,057 – Construction costs – – 9,599 30,480

– – 460,656 481,537

The properties under development were located in Zouping County, Shandong Province, the PRC.

13. TRADE AND OTHER RECEIVABLES – GROUP AND COMPANY

Group

As at 31 December As at 31 March 2010 2011 2012 2013 Note RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables – gross (i) 66,458 117,206 140,932 199,491Bills receivables (ii) 359,642 568,426 575,723 666,936Advances to suppliers (iii) 322,069 462,873 143,438 746Prepayments for construction cost (iv) – – 227,778 140,282Prepayments for tax (v) – – 17,306 20,704Other receivables 18,729 8,380 10,242 10,696

766,898 1,156,885 1,115,419 1,038,855

Company


Other receivables 1,177 1,218 1,072 1,067

(i) Certain major customers are granted credit periods ranging from 30 to 90 days while most sales to other customers are on cash on delivery basis, or with prepayments covering the full sales amounts being made before goods delivery.

(ii) Bills receivables are received from customers under the ordinary course of business. All of them are bank acceptance bills with a maturity period within 6 months.

(iii) Advance payments to suppliers were made by the Group in order to ensure stable supplies of corn kernels at more favourable prices. The Group has entered into some agreements with an independent supplier. Please refer to Note 23(a) for details.

(iv) This represents prepayments to suppliers for which property construction activity has not commenced.


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(v) This mainly represents prepayments for tax on advance proceeds from customers regarding sale of properties.

An ageing analysis of the Group’s gross trade receivables, presented according to the invoice date, is as follows:


0 – 30 days 35,326 66,045 93,198 140,12231 – 60 days 10,602 32,885 26,348 16,21461 – 90 days 3,203 7,876 11,272 36,101Over 90 days 17,327 10,400 10,114 7,054

66,458 117,206 140,932 199,491

Trade receivables that are less than three months are generally within the credit period and hence are not considered impaired. As at 31 December 2010, 2011, 2012 and 31 March 2013, the trade receivables that were past due but not impaired were insignificant. These were mainly receivables due from a number of independent customers for whom there was no recent history of default.

The carrying amounts of the Group’s trade receivables, bill receivables and other receivables are denominated in the following currencies:

Group


RMB 742,432 1,151,254 688,362 831,683US$ 23,939 4,396 37,450 44,238HKD 527 1,235 1,085 1,202

766,898 1,156,885 726,897 877,123

Company


US$ 877 – – –HKD 300 1,218 1,072 1,067

1,177 1,218 1,072 1,067

As at 31 December 2010, 2011 and 2012 and 31 March 2013, the fair values of trade and other receivables of the Group and the Company approximated their carrying amounts. The maximum exposure to credit risk at the reporting date was the fair value of the receivable balances mentioned above. The Group did not hold any collateral as security.


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14. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH – GROUP AND COMPANY

Group


Cash at bank and on hand 448,502 132,491 276,690 275,165Short-term bank deposits 100,000 100,000 315,000 –

Total 548,502 232,491 591,690 275,165

Restricted cash (a) – – 287,358 172,078

Company


Cash at bank and on hand 2,741 43,874 8,701 4,087

(a) This mainly includes guarantee deposits of pre-sale proceeds of properties and pledged deposits of notes payable. All restricted cash can be utilised in 12 months.

In accordance with relevant requirements promulgated by the PRC State-Owned Land and Resource Bureau, the Property Project Company was required to deposit certain amounts of pre-sale proceeds of properties as guarantee deposits in designated bank accounts for the construction of the relevant properties. Such deposits could only be used for the purchases of construction materials and the payments of construction fees relating to the relevant property projects when approval from the PRC State-Owned Land and Resource Bureau was obtained. Such deposits amounted to RMB116,160,000 and RMB3,258,000 as at 31 December 2012 and 31 March 2013, respectively.

Deposits amounting to RMB150,000,000 as at 31 December 2012 and 31 March 2013 were pledged for the notes payable issued by the Group. The effective interest rate on pledged bank deposits as at 31 December 2012 and 31 March 2013 was 3.05%.

The maximum exposure to credit risk at the reporting date is the carrying amounts of cash and cash equivalents.

The effective weighted average rate of these short-term deposits as at 31 December 2010, 2011 and 2012 was 2.07%, 2.86%, 3.15% per annum.

The Group’s cash and cash equivalents denominated in RMB are deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies and the remittance of funds out of the PRC is subject to rules and regulations of foreign exchange controls promulgated by the PRC government.


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The carrying amounts of the Group’s and the Company’s cash and cash equivalents and restricted cash as at 31 December 2010, 2011 and 2012 and 31 March 2013 were denominated in the following currencies:

Group


RMB 544,506 186,051 819,008 439,918US$ 123 685 49,741 1,027HKD 3,873 45,755 10,299 6,298

548,502 232,491 879,048 447,243

Company


US$ 27 25 30 31HKD 2,714 43,849 8,671 4,056

2,741 43,874 8,701 4,087


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15. SHARE CAPITAL AND SHARE PREMIUM – GROUP AND COMPANY

Number of Number of shares convertible Convertible in issue preference Ordinary preference Share shares shares shares shares premium Total (thousands) (thousands) RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2010 847,376 – 87,953 – 24,036 111,989Employee share option scheme – value of services provided (b) – – – – 1,638 1,638Proceeds from employee share option exercised (b) 2,193 – 186 – 2,274 2,460Issuance of ordinary shares in private placements 142,296 – 12,500 – 279,080 291,580Scrip dividends 14,438 – 1,257 – 21,503 22,760

At 31 December 2010 1,006,303 – 101,896 – 328,531 430,427

Employee share option scheme – value of services provided (b) – – – – 1,288 1,288Proceeds from employee share option exercised 2,193 – 184 – 2,247 2,431Proceeds from bonus issue of warrants (d) 69 – 6 – 141 147

At 31 December 2011 1,008,565 – 102,086 – 332,207 434,293

Employee share option scheme – value of services provided (b) – – – – 1,538 1,538Proceeds from issue of convertible preference shares (c) – 907,710 – 73,586 787,957 861,543Proceeds from bonus issue of warrants (d) – – – – 2 2

At 31 December 2012 1,008,565 907,710 102,086 73,586 1,121,704 1,297,376

Employee share option scheme – value of services provided (b) – – – – 253 253

At 31 March 2013 1,008,565 907,710 102,086 73,586 1,121,957 1,297,629

(a) Authorised share capital

The total authorised number of shares and par value per share as at 31 December 2010, 2011 and 2012 and 31 March 2013 is as follows:

As at 31 December As at 31 March 2010 2011 2012 2013 (i)

Authorised number of shares – ordinary shares 2,000 million 2,000 million 4,000 million 4,000 million – CPS – – 2,000 million 2,000 millionPar value HKD0.1 HKD0.1 HKD0.1 HKD0.1


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(i) In the special general meeting of the shareholders held on 27 March 2012, the authorised share capital of the Company has been increased from HKD200,000,000 divided into 2,000 million ordinary shares to HKD600,000,000 divided into 4,000 million ordinary shares and 2,000 million convertible preference shares (“CPS”).

(b) Employee share options

A share option scheme was approved and adopted by the Company according to a written resolution of the board of directors of the Company passed on 6 November 2005 (the “Scheme”). The Scheme is made to enable the Group to grant options to selected participants as incentives or rewards for their contribution made to the Group. The total number of shares that may be issued upon exercise of all outstanding options to be granted under the Share Option Scheme and any other share option schemes of the Company must not exceed 80,000,000 shares in aggregate.

Movements in the number of shares under the options outstanding and their related weighted average exercise prices are as follows:

2010 2011 2012 2013 Average Average Average Average exercise exercise exercise exercise price price price price in HKD Shares (in in HKD Shares (in in HKD Shares (in in HKD Shares (in per share thousands) per share thousands) per share thousands) per share thousands)

At 1 January 1.32 6,579 1.32 4,386 1.50 9,693 1.50 9,693Granted – – 1.55 7,500 – – – –Exercised 1.32 (2,193) 1.32 (2,193) – – – –

At 31 December/31 March 1.32 4,386 1.50 9,693 1.50 9,693 1.50 9,693

Out of the options over 9,693,000 shares (2012: 9,693,000 options), options over 4,526,000 shares can be exercised as at 31 March 2013 (2012: 4,526,000 options). Options exercised in 2011 resulted in 2,193,000 shares (2010: 2,193,000 shares) being issued at HKD1.32 each (2010: HKD1.32 each).

The number of shares under the share options outstanding as at the end of the year/period have the following expiry date and exercise price.

Shares (in thousands) Exercise price HKD As at 31 December As at 31 MarchExpiry date per share 2010 2011 2012 2013

13 March 2017 1.55 – 500 500 5007 May 2019 1.32 4,386 2,193 2,193 2,19313 September 2021 1.55 – 7,000 7,000 7,000

4,386 9,693 9,693 9,693


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(c) Issue of convertible preference shares

On 30 June 2011, Xiwang Sugar entered into an acquisition agreement (“Acquisition Agreement”) with Xiwang Pharmaceutical for the purchase of a bundle of operating assets (“Target Assets”) for a consideration of RMB850,000,000.

On 27 January 2012, Xiwang Sugar and Xiwang Pharmaceutical entered into a supplemental agreement to the Acquisition Agreement, pursuant to which Xiwang Pharmaceutical agreed to sell and Xiwang Sugar agreed to acquire the revised Target Assets for a revised consideration of RMB825,000,000 (“Consideration”) payable by way of cash.

In order to finance the consideration, on 3 May 2012, the Company allotted and issued 907,709,900 unlisted CPSs at par value of HKD0.1 each at a subscription price of HKD1.18 per CPS. The increase in the share premium arose from the difference between the proceeds raised, net of directly related costs, and the par value of the new shares issued.

The acquisition of the revised Target Assets was completed on 30 April 2012.

According to the terms of the CPS, the CPS shall be non-redeemable, each CPS holder is entitled to a preferred distribution from 3 May 2012, the issue date of the CPS, at a rate of RMB0.01 per CPS, payable in HKD equivalent annually in arrears. Each preferred distribution is cumulative. Any arrears of preferred distribution and accrued but unpaid preferred distribution shall be extinguished upon any voluntary conversion of the CPS by a holder. The Board may, in its sole discretion, elect to defer or not make a preferred distribution.

Each CPS also confers on the holder thereof the right to receive, in addition to the preferred distribution, dividend pari passu with holders of the ordinary shares on the basis of the number of the share(s) into which CPS may be converted and on an as converted basis.

During the period of existence of the CPS, subject to some conversion restrictions, each holder of the CPS shall have the right to convert all or part of any CPSs into new shares at any time at the initial conversion price of HK$1.18 per share.

The CPSs are recognised as equity.

(d) Bonus issue of warrants scheme

On 21 January 2011, the board of the Company proposed a bonus issue of warrants on the basis of one warrant for every six shares (“bonus issue of warrants scheme”). As a result, an aggregate of 167,717,242 warrants shares were issued in February 2011. The registered holder of the warrants have the right, which may be exercised in whole or in part to subscribe for fully paid shares before 22 February 2012, at a price of HKD2.55 per share.

During the years ended 31 December 2011 and 2012, under the bonus issue of warrants scheme, warrants over 69,000 shares and 1,047 shares, respectively, were exercised at a price of HKD2.55 per share.

(e) Transfer to other reserves

According to the announcement on 11 April 2013, the Company transferred all its share premium as at 31 December 2012 to other reserves in order to increase the distributable reserves of the Company.


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16. OTHER RESERVES – GROUP AND COMPANY

Group

Capital Statutory Discretionary Contributed Merger reserve reserve reserve surplus reserve Total Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (d)

Balance at 1 January 2010 117,023 144,471 36,569 471,853 – 769,916Appropriation to statutory reserves – 23,552 – – – 23,552Appropriation to discretionary reserves (b) – – 128,024 – – 128,024

Balance at 31 December 2010 117,023 168,023 164,593 471,853 – 921,492

Balance at 1 January 2011 117,023 168,023 164,593 471,853 – 921,492Appropriation to statutory reserves (a) – 19,372 – – – 19,372Appropriation to discretionary reserves (b) – – 211,972 – – 211,972Transfer of reserves upon merger of a subsidiary (13,963) (99,929) (43,196) – – (157,088)

Balance at 31 December 2011 103,060 87,466 333,369 471,853 – 995,748

Balance at 1 January 2012 103,060 87,466 333,369 471,853 – 995,748Appropriation to statutory reserves (a) – 2,213 – – – 2,213Appropriation to discretionary reserves (b) – – 174,353 – – 174,353Acquisition of subsidiaries (c) – – – – (118,063) (118,063)Dividend payment – – – (62,813) – (62,813)

Balance at 31 December 2012 and 31 March 2013 103,060 89,679 507,722 409,040 (118,063) 991,438

Company

Capital Contributed reserve surplus Total RMB’000 RMB’000 RMB’000 (d)

Balance at 1 January 2010, 2011 and 2012 151,442 471,853 623,295Dividend payment – (62,813) (62,813)

Balance at 31 December 2012 and 31 March 2013 151,442 409,040 560,482

(a) In accordance with the relevant government regulations in the PRC and the provisions of the articles of association of Property Project Company, the PRC subsidiaries are required to appropriate at each year end 10% of their profit for the year after offsetting any accumulated losses brought forward (based on figures reported in the statutory financial statements) to a statutory surplus reserve account. Property Project Company had made appropriations at 10% to these statutory surplus reserves for the year ended 31 December 2012. These reserves are required to be retained for designated usages.

(b) In April 2010, March 2011 and March 2012, the directors of Xiwang Sugar resolved that amounts totalling RMB128,024,000, RMB211,972,000 and RMB174,353,000, respectively, be set aside from profits earned in 2009, 2010 and 2011 by Xiwang Sugar to the discretionary reserves which are designated for future expansion of operations of these subsidiaries.


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(c) It resulted from the acquisition of Keen Lofty. Please refer to Note 30 for details.

(d) According to a resolution passed at the special general meeting held on 26 June 2009, the Company transferred all its share premium as at 31 December 2008 to other reserves, thereby increasing the distributable reserves of the Company under the Companies Act 1981 of Bermuda (as amended).

17. TRADE AND OTHER PAYABLES – GROUP AND COMPANY

Group


Trade payables 124,191 190,909 186,376 266,352Note payables – – 297,000 297,000Other payables (a) 208,095 195,864 238,235 213,783Customer deposits and advances on sales of properties (b) – – 185,219 215,867Accruals 30,028 35,283 70,135 80,076Other taxes payables 4,341 24,510 5,131 15,900Other deposits and advance from customers 53,981 36,442 48,670 26,596

420,636 483,008 1,030,766 1,115,574

Company


Accruals 635 62 4,945 6,780

(a) As at 31 December 2010, 2011 and 2012 and 31 March 2013, approximately RMB164,111,000, RMB153,017,000, RMB127,764,000 and RMB111,822,000, respectively, of other payables represented payables for purchases of property, plant and equipment. Advance payments received for subscription of properties for which the Group has not obtained commodity housing pre-sale permit amounted to RMB40,472,000 as at 31 December 2012 and 31 March 2013.

(b) This represented the deposits and instalments received on properties sold prior to the date of revenue recognition.

The fair values of trade and other payables, primarily denominated in RMB, approximated their carrying amounts.

An ageing analysis of the trade payables is as follows:


0 – 30 days 32,697 48,817 150,686 153,15831 – 60 days 24,996 59,277 9,928 51,38761 – 90 days 30,638 32,827 6,734 33,944Over 90 days 35,860 49,988 19,028 27,863

124,191 190,909 186,376 266,352


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18. BORROWINGS – GROUP AND COMPANY

Group


Non-currentBank borrowings – secured (b) 279,472 25,204 – –Bank borrowings – unsecured 440,000 207,000 – –Other borrowings- secured (b),(c) 112,077 87,243 – –

831,549 319,447 – –

CurrentBank borrowings – secured:– Short term bank borrowings (b) – 100,000 100,000 100,000– Current portion of long term bank borrowings (b),(d) 52,982 50,407 25,142 25,076

Bank borrowings – unsecured:– Short term bank borrowings (a)(d) 610,000 710,000 1,502,922 1,379,167– Current portion of long term bank borrowings 50,000 233,000 207,000 207,000

Other borrowings – secured:– Current portion of long term other borrowings (b),(c),(d) 20,377 19,388 87,030 77,156

733,359 1,112,795 1,922,094 1,788,399

1,564,908 1,432,242 1,922,094 1,788,399

Company


Bank borrowings – unsecured:– Short term bank borrowings (a)(d) – – 62,922 62,667

(a) As at 31 December 2010, 2011 and 2012 and 31 March 2013, borrowings amounting to Nil, RMB200,000,000, RMB1,297,000,000 and RMB1,123,500,000, respectively, were guaranteed by Xiwang Group Company Limited (“Xiwang Group”), a related company of the Group (Note 31(d)).

(b) As at 31 December 2010, 2011 and 2012 and 31 March 2013, borrowings amounting to Nil, RMB100,000,000, Nil and Nil, respectively, were secured by the Group’s inventories with the carrying amount of Nil, RMB100,000,000, Nil and Nil, borrowings amounting to RMB464,908,000, RMB182,242,000, RMB212,172,000 and RMB202,232,000, respectively, were secured by the Group’s certain buildings, machinery and land use rights (Notes 6 and 8).

(c) Other borrowings represented a seven-year term loan facilities of US$20,000,000 from International Finance Corporation in 2010.


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(d) As at 31 December 2012 and 31 March 2013, the Group breached certain financial covenants as required by the loan agreements. Due to this breach of the covenant clauses, the lenders were contractually entitled to request early repayment of the outstanding amount of RMB343,656,000 (2012: RMB412,172,000). The bank loan of approximately RMB57,867,000 and RMB67,690,000 which was originally scheduled for repayment after 31 March 2014 and after 2013 was reclassified as current liabilities as at 31 March 2013 and 31 December 2012, respectively.

At 31 December 2010, 2011 and 2012 and 31 March 2013, the Group’s borrowings were repayable as follows:

Group

Bank borrowings Other borrowings As at As at As at 31 December 31 March As at 31 December 31 March 2010 2011 2012 2013 2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year 712,982 1,093,407 1,835,064 1,711,243 20,377 19,388 87,030 77,1561 to 2 years 485,981 232,204 – – 20,378 19,387 – –2 to 5 years 233,491 – – – 61,133 58,162 – –Over 5 years – – – – 30,566 9,694 – –

1,432,454 1,325,611 1,835,064 1,711,243 132,454 106,631 87,030 77,156


Wholly repayable within 5 years 1,432,454 1,325,611 1,835,064 1,711,243 – – 87,030 77,156Wholly repayable after 5 years – – – – 132,454 106,631 – –

1,432,454 1,325,611 1,835,064 1,711,243 132,454 106,631 87,030 77,156

Company


Within 1 year – – 62,922 62,667 – – – –


Wholly repayable within 5 years – – 62,922 62,667 – – – –


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The weighted average annual effective interest rates at the end of each reporting period were as follows:

Group Company As at As at As at 31 December 31 March As at 31 December 31 March 2010 2011 2012 2013 2010 2011 2012 2013

Bank borrowings 5.696% 6.150% 6.891% 6.565% – – 3.713% 3.631%Other borrowings 4,757% 4.682% 4.893% 4.880% – – – –

At 31 December 2010, 2011 and 2012 and 31 March 2013, the carrying amounts of current borrowings approximated their fair values. The carrying amounts of non-current borrowings also approximated their fair values since interests are levied at floating rates.

The carrying amounts of the borrowings are denominated in the following currencies:

Group Company As at As at As at 31 December 31 March As at 31 December 31 March 2010 2011 2012 2013 2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

RMB 1,300,000 1,250,000 1,747,000 1,623,500 – – – –US$ 264,908 182,242 175,094 164,899 – – 62,922 62,667

1,564,908 1,432,242 1,922,094 1,788,399 – – 62,922 62,667

19. DEFERRED INCOME TAX ASSETS AND DEFERRED TAX LIABILITIES – GROUP

Deferred income tax assets and liabilities are offset when there is legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority. No amounts were offset as at 31 December 2010, 2011 and 2012 and 31 March 2013.


Deferred tax assets:– to be recovered after more than 12 months 5,051 4,590 4,129 4,014– to be recovered within 12 months 461 461 2,458 3,036

5,512 5,051 6,587 7,050

Deferred tax liabilities:– to be recovered after more than 12 months – – (103,952) (104,855)– to be recovered within 12 months – – (15,790) (15,790)

– – (119,742) (120,645)

Deferred tax (liabilities)/assets- net 5,512 5,051 (113,155) (113,595)


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The gross movement on the deferred income tax account are as follows:


At 1 January 3,236 5,512 5,051 (113,155)Acquisition of subsidiaries (Note 30) – – (119,579) –(Charge)/credit to profit or loss 2,276 (461) 1,373 (440)

At 31 December/31 March 5,512 5,051 (113,155) (113,595)

The movement in deferred tax assets are as follows:

Impairment charge on property, Inventory plant and Tax losses provision equipment Total RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2010 – – 3,236 3,236Credit to profit or loss – – 2,276 2,276

At 31 December 2010 – – 5,512 5,512

At 1 January 2011 – – 5,512 5,512Charged to profit or loss – – (461) (461)

At 31 December 2011 – – 5,051 5,051

At 1 January 2012 – – 5,051 5,051Acquisition of subsidiaries (Note 30) 3,197 – – 3,197(Charged)/credited to profit or loss (3,197) 1,997 (461) (1,661)

At 31 December 2012 – 1,997 4,590 6,587

At 1 January 2013 – 1,997 4,590 6,587Credited/(charged) to profit or loss 1,433 (855) (115) 463

At 31 March 2013 1,433 1,142 4,475 7,050

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefits through the future taxable profits is probable. As the directors are not certain whether future taxable profit would be available, the Group did not recognise deferred income tax assets of approximately Nil, RMB2,860,000, RMB9,235,000 and RMB16,729,000 in respect of tax losses amounting to approximately Nil, RMB11,440,000, RMB49,404,000 and RMB98,982,000 as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively, that can be carried forward to offset against future taxable income. Tax losses amounting to RMB11,440,000, RMB37,964,000 and RMB49,578,000 will expire in 2016, 2017 and 2018, respectively.


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The movement in deferred tax liabilities are as follows.

Prepaid Land tax from appreciation Fair advance tax value gain proceeds from sale of arising from from sale properties acquisitions of properties Total RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2010, 2011 and 2012 – – – –Acquisition of subsidiaries (Note 30) (49,623) (73,153) – (122,776)Credited/(charged) to profit or loss 1,597 4,874 (3,437) 3,034

At 31 December 2012 (48,026) (68,279) (3,437) (119,742)

At 1 January 2013 (48,026) (68,279) (3,437) (119,742)Charged to profit or loss – – (903) (903)

At 31 March 2013 (48,026) (68,279) (4,340) (120,645)

20. EXPENSES BY NATURE


Changes in inventories of finished goods and work in progress (Note 10) (40,972) (110,727) (52,779) (39,228) (38,984)Cost of completed properties sold – – 145,655 – –Raw materials and consumables used 2,258,629 2,624,376 3,283,549 663,933 1,213,423Inventory write-down – – 13,321 – 7,618Utility expenses 351,696 447,673 430,968 117,859 129,566Depreciation and amortisation (Notes 6 and 8) 96,500 103,091 141,552 33,486 45,441Carriage outwards expense 101,158 102,357 85,299 17,274 34,525Employee benefit expenses (Note 22) 107,307 137,005 153,297 34,168 45,377Un-deductible input value-added tax charged to cost of goods sold 36,246 39,931 22,403 10,287 4,135Impairment loss on property, plant and equipment 12,927 – – – –Auditor’s remuneration 3,000 2,200 4,100 1,025 –Operating lease payments (Note 6) 1,250 1,350 934 254 171Other expenses 38,368 32,175 30,733 4,526 17,909

Total 2,966,109 3,379,431 4,259,032 843,584 1,459,181

Representing: Cost of goods sold 2,785,489 3,176,839 4,048,414 798,904 1,390,081 Selling and marketing expenses 120,012 128,236 106,597 22,857 39,375 Administrative expenses 60,608 74,356 104,021 21,823 29,725

2,966,109 3,379,431 4,259,032 843,584 1,459,181


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21. OTHER INCOME – NET


Corn futures – – 5,777 – 1,398Gains on sales of scrap materials 1,675 1,792 2,044 375 616Loss on disposal of property, plant and equipment (245) – – – –Loss on disposal of subsidiaries (473) – – – –Other gains 358 822 626 38 511

1,315 2,614 8,447 413 2,525

22. EMPLOYEE BENEFIT EXPENSES


Wages, salaries and other staff benefits 99,506 126,952 139,044 31,381 40,732Pension costs – defined contribution plans 6,163 8,765 12,715 2,331 4,392Share options granted to employees 1,638 1,288 1,538 456 253

107,307 137,005 153,297 34,168 45,377

(a) Directors’ emoluments

The remuneration of each director and the chief executive of the Company for the year ended 31 December 2010:

Employer’s Compensation contribution for loss of Discretionary Inducement Other to pension office asName of Director Fees Salary bonuses fees benefits scheme director Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Mr. Wang Yong – 173 – – – – – 173Mr. Wang Liang (i) – 125 – – – 5 – 130Mr. Wang Chengqing (i) – 104 – – – 5 – 109Mr. Song Jie (ii) – 10 – – – – – 10Mr. Han Zhong – 114 – – – – – 114Dr. Li Wei – 114 – – – 5 – 119Mr. Liu Jiqiang (i) – 85 – – – 5 – 90Mr. Sun Xinhu – 136 – – – 5 – 141Dr. Zhang Yan (ii) – 21 – – – – – 21Mr Wong Kaiming – 130 – – – – – 130Mr. Shi Weichen – 100 – – – – – 100Mr. Wang Di (ii) – 12 – – – 5 – 17Mr. Shen Chi – 100 – – – – – 100


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(i) Mr. Wang Liang, Mr. Wang Chengqing and Mr. Liu Jiqiang resigned as executive directors on 30 November 2010.

(ii) Mr. Song Jie, Dr. Zhang Yan and Mr. Wang Di were appointed on 30 November 2010.



Mr. Wang Yong – – – – – – – –Dr. Zhang Yan – – – – – – – –Mr. Wang Di – – – – – – – –Mr. Han Zhong – – – – – – – –Dr. Li Wei – 120 – – – 8 – 128Mr. Sun Xinhu – – – – – – – –Mr. Wong Kaiming – 124 – – – – – 124Mr. Shi Weichen – 100 – – – – – 100Mr. Shen Chi – 100 – – – – – 100Mr. Song Jie (i) – – – – – – – –

(i) Mr. Song Jie resigned as executive director on 31 May 2011.



Mr. Wang Yong – – – – – – – –Dr. Zhang Yan (i) – – – – – – – –Mr. Wang Di – – – – – – – –Mr. Han Zhong – – – – – – – –Dr. Li Wei – 120 – – – – – 120Mr. Sun Xinhu – – – – – – – –Mr. Wong Kaiming – 122 – – – – – 122Mr. Shi Weichen – 100 – – – – – 100Mr. Shen Chi – 100 – – – – – 100Mr. Wang Fangming – – – – – – – –

(i) Dr. Zhang Yan resigned as executive director on 5 July 2012.


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The remuneration of each director and the chief executive of the Company for the three months ended 31 March 2013:


Mr. Wang Yong – – – – – – – –Mr. Wang Di – – – – – – – –Mr. Han Zhong – – – – – – – –Dr. Li Wei – – – – – – – –Mr. Sun Xinhu – – – – – – – –Mr. Wong Kaiming – 30 – – – – – 30Mr. Shi Weichen – 25 – – – – – 25Mr. Shen Chi – 25 – – – – – 25Mr. Wang Fangming – – – – – – – –

The remuneration of each director and the chief executive of the Company for the three months ended 31 March 2012:

Employer’s Compensation contribution for loss of Discretionary Inducement Other to pension office as Fees Salary bonuses fees benefits scheme director TotalName of Director RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Mr. Wang Yong – – – – – – – –Dr. Zhang Yan – – – – – – – –Mr. Wang Di – – – – – – – –Mr. Han Zhong – – – – – – – –Dr. Li Wei – 30 – – – – – 30Mr. Sun Xinhu – – – – – – – –Mr. Wong Kaiming – 31 – – – – – 31Mr. Shi Weichen – 25 – – – – – 25Mr. Shen Chi – 25 – – – – – 25

For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2012 and 2013, Nine, Six, Six, Five and Six directors waived emoluments amounting to RMB465,000, RMB1,250,000, RMB1,250,000, RMB263,000, RMB280,000 in aggregate for the three months ended 31 March 2013, respectively.


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(b) Five highest paid individuals

During the Relevant Periods, none of the five individuals whose emoluments were the highest is director of the Group. The emoluments paid and payable to these five individuals for the Relevant Periods are as follows:

Three months ended Year ended 31 December 31 March

2010 2011 2012 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Basic salaries and benefits in kind 2,927 2,921 1,637 398 317Share options 1,638 1,288 1,538 420 196Pensions 43 47 43 10 10

4,608 4,256 3,218 828 523

The emoluments fell within the following bands:

Number of individuals Three months ended Year ended 31 December 31 March

2010 2011 2012 2012 2013 (unaudited)

Emolument bandsNil – RMB810,775 (Nil – HKD1,000,000) 4 4 4 5 5RMB810,775 – RMB1,216,163 (HKD1,000,001 – HKD1,500,000) – – – – –RMB1,216,163 – RMB1,621,550 HKD1,500,001 – HKD2,000,000) – – – – –RMB1,621,550 – RMB2,026,938 (HKD2,000,001 – HKD2,500,000) – – 1 – –RMB2,026,938 – RMB2,432,325 (HKD2,500,001 – HKD3,000,000) – – – – –RMB2,432,325 – RMB2,837,713 (HKD3,000,001 – HKD3,500,000) – 1 – – –RMB2,837,713 – RMB3,243,100 (HKD3,500,001 – HKD4,000,000) 1 – – – –

5 5 5 5 5


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23 FINANCE EXPENSES – NET


Interest expenses – borrowings 103,513 89,460 106,759 25,570 38,580Less:– interest expenses borne by suppliers (a) – (12,690) (20,531) (7,681) –– amount capitalised in construction in progress (Note 6) (20,147) (22,757) – – –– net currency translation losses/(gains) (1,882) (7,427) 7,677 833 3,274– interest income on bank balances (4,178) (3,063) (878) (588) (2,192)

Net finance expenses 77,306 43,523 93,027 18,134 39,662

(a) As stated in Note 13, the Group made advances to suppliers. The Group entered into some agreements with an independent supplier. Pursuant to the aforesaid agreements, during the year ended 31 December 2011, the supplier was obliged to bear interest on the Group’s bank loan of RMB300 million; during the year ended 31 December 2012, the supplier was obliged to bear interest on the Group’s bank loan of RMB410 million from 31 January 2012 to 20 September 2012, loan of RMB200 million from 1 January 2011 to 20 January 2012, and loan of RMB100 million from 16 December 2011 to 30 January 2012. The related interest expenses bore the same interest rate which being charged by the banks.

For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2012 and 2013, the Group’s interest expenses were analysed as follows:

Interest expenses on bank borrowings Year ended 31 December Three months ended 31 March


Borrowings wholly repayable within 5 years 99,909 83,646 101,752 24,266 37,518

Interest expenses on other borrowings Year ended 31 December Three months ended 31 March


Borrowings wholly repayable within 5 years – – 5,007 1,304 1,062Borrowings wholly repayable after 5 years 3,604 5,814 – – –

3,604 5,814 5,007 1,304 1,062


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24 INCOME TAX EXPENSE

Pursuant to the PRC Corporate Income Tax (“CIT”), all PRC enterprises are subject to a standard enterprise income tax rate of 25%, except for enterprises under specific preferential policies and provisions.

Xiwang Sugar is a production enterprises with foreign investments and is therefore eligible for certain CIT preferential treatments in accordance with the CIT Law and tax regulation (“CIT Tax Holiday”). In 2010, the applicable tax rate of Xiwang Sugar was 12.5%. In November 2010, Xiwang Sugar was recognised as an enterprise with “New and Advanced Technology” by the relevant authorities in the PRC, Xiwang Sugar is therefore eligible for relief of CIT from 25% to 15% from January 2011 onwards. Therefore, the applicable tax rate of Xiwang Sugar was 15% for the years ended 31 December 2011, 2012 and the three months ended 31 March 2013.

The applicable tax rate of Xiwang Sugar (Beijing) was 25% for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013.

The applicable tax rate of Yintaishan Cultural, Property Holding and Property Project Company was 25% for the year ended 31 December 2012 and the three months ended 31 March 2013.

Pursuant to the new CIT Law and relevant regulations, withholding tax is levied on dividends paid to foreign investors from PRC enterprises relating to profit earned after 1 January 2008. The directors of the Company consider that its subsidiaries in the PRC would not distribute its profits earned after 1 January 2008 in the foreseeable future, accordingly, no deferred tax had been recognised for the undistributed retained earnings as at 31 December 2010, 2011, 2012 and 31 March 2013.


Current tax– Current tax on profits for the year 7,749 34,235 5,570 – 177– Adjustments in respect of prior years – (1,456) (4,433) – –– Land appreciation tax – – 2,801 – –

7,749 32,779 3,938 – 177

Deferred tax– Impact of change in tax rate (595) – – – –– Reversal/(Origination) of deferred tax recognised on originating temporary differences (1,681) 461 (1,373) 115 441

(2,276) 461 (1,373) 115 441

Income tax expense 5,473 33,240 2,565 115 618


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The tax on the Group’s profit before tax differs from the theoretical amount that would arise using weighted average tax rate applicable to profits of the Group companies as follows:


(Loss)/profit before tax 215,359 212,521 (15,468) (7,057) (36,407)

Tax calculated at statutory tax rate of 25% (2012,2011,2010:25%) 53,840 53,130 (3,867) (1,764) (9,102)Tax effects of:– Effect of tax concessions from lower tax rate (22,780) (23,389) 6,459 850 4,806– Effect of tax concessions from purchase of domestically manufactured equipment (27,335) – – – –– Overprovision in respect of prior years – (1,456) (4,433) – –– Expenses not deductible for tax purpose 2,343 2,095 3,546 122 313– Research and development expenses super-deduction – – (6,721) (1,680) (2,893)– Re-measurement of deferred tax arising from change in tax rate (595) – – – –– Tax losses for which no deferred income tax asset was recognised – 2,860 6,375 2,587 7,494

5,473 33,240 1,359 115 618

Land appreciation tax – – 1,206 – –

Income tax expense 5,473 33,240 2,565 115 618

25 DIVIDEND


Proposed final dividend per ordinary share (2011: 2.8 cents) – 28,240 – – –Proposed final dividend per convertible preference share (2011: 3.8 cents) – 34,493 – – –

Total proposed final dividend – 62,733 – – –

A final dividend for the year ended 31 December 2011 of RMB2.8 cents per ordinary share for ordinary shareholders and of RMB3.8 cents per convertible preference share, both payable in cash, totalling approximately RMB63 million, was approved at the annual general meeting held on 11 May 2012 and paid in May 2012.

No dividend was proposed for the years ended 31 December 2010 and 2012 and the three months ended 31 March 2012 and 2013.


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26 (LOSS)/EARNINGS PER SHARE

(a) Basic

Basic (loss)/earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year/period.


2010 2011 2012 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

(Loss)/profit attributable to the equity holders of the Company (RMB’000) 209,886 179,281 (18,033) (7,172) (37,025)Less: Dividend paid in 2012 to holders of CPSs (RMB’000) – – (34,542) – –

(Loss)/profit attributable to ordinary shareholders of the Company (RMB’000) 209,886 179,281 (52,575) (7,172) (37,025)

Weighted average number of ordinary shares in issue (thousands) 976,615 1,007,762 1,008,566 1,008,566 1,008,566

Basic (loss)/earnings per ordinary share (RMB per share) 0.21 0.18 (0.05) (0.01) (0.04)

(b) Diluted

As at 31 December 2010 and 2011 and 31 March 2012, diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of share options. For the share options, a calculation is made to determine the number of shares that could have been issued at fair value (determined as the average annual market share price of the Company’s shares). The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the issued share options.

As at 31 December 2012 and 2013, diluted (loss)/earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive ordinary shares. The two categories of equity instruments considered in the calculation were convertible preference shares and share options. As both categories would not have a dilutive effect on the (loss)/earnings per share for the year ended 31 December 2012 and the three months ended 31 March 2013, they have not been included in the diluted (loss)/earnings per ordinary share calculation.


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(Loss)/profit attributable to the equity holders of the Company (RMB’000) 209,886 179,281 (18,033) (7,172) (37,025)Less: Dividend paid in 2012 to holders of CPSs (RMB’000) – – (34,542) – –

(Loss)/profit attributable to ordinary shareholders of the Company (RMB’000) 209,886 179,281 (52,575) (7,172) (37,025)

Weighted average number of ordinary shares in issue (thousands) 976,615 1,007,762 1,008,566 1,008,566 1,008,566Adjustments for– share options (thousands) 2,726 1,142 – – –

Weighted average number of ordinary shares for diluted (loss)/earnings per share (thousands) 979,341 1,008,904 1,008,566 1,008,566 1,008,566

Diluted (loss)/earnings per ordinary share (RMB per share) 0.21 0.18 (0.05) (0.01) (0.04)


II – 64

27 CASH GENERATED FROM OPERATIONS

Reconciliation of (Loss)/profit before income tax to cash generated from operations is as follows:


(Loss)/profit before income tax 215,359 212,521 (15,468) (7,057) (36,407)

Adjustments for:– Depreciation (Note 6) 91,288 97,879 135,698 32,183 43,897– Amortisation (Note 8) 5,212 5,212 5,854 1,303 1,544– Share-based payments (Note 22) 1,638 1,288 1,538 455 253– Impairment loss on property, plant and equipment (Note 6) 12,927 – – – –– Loss on disposal of property, plant and equipment (Note 21) 245 – – – –– Loss on disposal of subsidiaries 473 – – – –– Interest income (Note 23) (4,178) (15,753) (21,409) (8,269) (2,192)– Interest expenses (Note 23) 83,366 66,703 106,759 25,570 38,580

Changes in working capital:– Inventories (182,911) (23,578) (130,195) (274,223) 3,797– Properties under development and completed properties for sale – – 117,375 – (20,881)– Trade and other receivables 181,193 (389,987) 192,270 302,758 78,165– Amounts due from related parties (7,510) (15,344) (32,123) 41,522 (112,100)– Trade and other payables 32,367 73,466 192,684 168,128 100,573– Amounts due to related companies 25,558 37,821 137,033 3,021 (303,774)– Promissory Note payable – – – – 6,271– Restricted cash (1,042) – (283,990) – 115,280

Cash (used in)/generated from operations 453,985 50,228 406,026 285,391 (86,994)

28 FINANCIAL GUARANTEE CONTRACT

As at 31 December 2010, 2011 and 2012 and 31 March 2013, the Group had the following financial guarantee in issue:


Guarantee to a third party in respect of borrowings – – 350,000 350,000

This represented the maximum exposure of the guarantee provided by Property Project Company in favour of a PRC bank in respect of a bank loan of RMB350 million of an independent company for a term of 10 years from December 2011, with a guarantee period up to the end of two years after the next day following repayment of the bank loan in full (the “PRC Company Guarantee”). Xiwang Investment Company Limited (“Xiwang Investment”), the vendor of the Acquisition, provided an indemnity on 18 November 2012 to the Company and Property Project Company against any loss arising from any claim or demand of repayment made against the Property Project Company under the PRC Company Guarantee. This arose from the acquisition of Keen Lofty (Note 30).


II – 65

29 COMMITMENTS

Capital commitments

Capital expenditure committed at the end of the reporting period but not yet incurred is as follows:


Property, plant and equipment– Contracted but not provided for 125,877 4,844 10,137 15,523– Authorised but not contracted for 486 69,530 101,800 4,411

126,363 74,374 111,937 19,934

Property development– Contracted but not provided for – – 96,337 95,902

126,363 74,374 208,274 115,836

Operating lease commitments

The Group leases offices under non-cancellable operating lease agreements. The lease terms are between 1 and 3 years.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:


No later than 1 year 1,531 1,577 1,224 1,038Later than 1 year and no later than 5 years 600 1,139 433 289

2,131 2,716 1,657 1,327

30 BUSINESS COMBINATION

During the year ended 31 December 2012, the Group had carried out a major acquisition. As a result of the acquisition, the Group entered into the property development business in Shandong Province. The goodwill of RMB180,405,000 arising from the acquisition is attributable to the land use rights which Property Project Company has not obtained. Details of the acquisition are as below:

(a) Acquisition of Keen Lofty

On 31 December 2012, the Company acquired the entire issued share capital of Keen Lofty from Xiwang Investment. The consideration was settled by the promissory note issued by the Company to Xiwang Investment at the principal amount of RMB308,000,000 repayable in 2015 at an interest rate of 2.5% per annum. Based on the assessment made by Grant Sherman Appraisal Limited, an independent valuer, the fair value of the promissory note was approximately RMB217,155,000 (Note 31(g)).

As both the Company and Keen Lofty are subsidiaries of Xiwang Investment before and after the acquisition, the acquisition is accounted for as a business combination under common control. The following is a reconciliation of the effect arising from the common control combination on the consolidated statement of financial position as at 31 December 2012.


II – 66

Adjustments The Company Keen Lofty Note (i) Consolidated RMB’000 RMB’000 RMB’000 RMB’000

Investment in Keen Lofty 217,155 – (217,155) –Other assets/(liabilities) – net 1,659,469 117,308 – 1,776,777

Net Assets 1,876,624 117,308 (217,155) 1,776,777

Share Capital 102,086 99,092 (99,092) 102,086Capital Reserve 151,442 – – 151,442Merger Reserve – – (118,063) (118,063)Retained earnings and other reserves 1,623,096 18,216 – 1,641,312

1,876,624 117,308 (217,155) 1,776,777

(i) The above adjustment represents an adjustment to eliminate the share capital of the combining entities against the investment cost. The difference of RMB118,063,000 has been debited to the merger reserve in the consolidated statement of financial position.

No other significant adjustments were made to the net assets and net profit or loss of any entities or businesses as a result of the common control combination to achieve consistency of accounting policies.

Acquisition-related costs of RMB4,023,438 have been charged to administrative expenses in the consolidated statement of comprehensive income for the year ended 31 December 2012.

As Keen Lofty was incorporated on 13 August 2012, the Group consolidated its profit/(loss) and cash flow since 13 August 2012.

(b) Acquisition of Property Holding

On 21 November 2012, Yintaishan Cultural, a subsidiary of Keen Lofty, acquired 100% of the equity interest of Property Holding for RMB360,400,000 and obtained the control of Property Holding. At the acquisition date, the fair value of net assets of Property Holding amounted to RMB179,995,000. The goodwill of RMB180,405,000 represents the value of land use rights which Property Project Company has the opportunity to obtain.

Consideration 21 November 2012 RMB’000

Cash 300,000Due to a related party (Note 31(e)) 60,400

Total consideration 360,400


II – 67

Recognised amounts of identifiable assets acquired and liabilities assumed 21 November 2012 RMB’000

Cash and cash equivalents 142,914Restricted cash 3,368Completed properties for sale 15,304Properties under development 590,700Prepaid tax and other receivables 150,804Amounts due to a related party (221,000)Property, plant and equipment (Note 6) 1,105Deferred income tax assets (Note 19) 3,197Trade and other payables (380,327)Current income tax payable (3,294)Deferred tax liabilities (Note 19) (122,776)

Net assets acquired by Yintaishan Cultural 179,995

Goodwill (Note 7) 180,405

Total 360,400

The fair value of other receivable is RMB30,581,000. The gross contractual amount for other receivable due is RMB30,581,000. No amount is expected to be uncollectible.

The revenue included in the consolidated statement of comprehensive income since 21 November 2012 contributed by Property Holding was RMB172,999,000. Property Holding also contributed profit of RMB18,215,000 over the same period.

Had Property Holding been consolidated from 1 January 2012, the consolidated statement of comprehensive income would show revenue of RMB173,392,000 and profit of RMB16,375,000.

31 RELATED PARTY TRANSACTIONS

The Group is controlled by Xiwang Investment (incorporated in the BVI), which owns about 55%, 56%, 58% and 58% of the Company’s ordinary shares as at 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. The remaining about 45%, 44%, 42% and 42% of the shares is widely held. The ultimate holding company of the Group is Xiwang Holdings Limited, a company incorporated in the BVI (“Xiwang Holdings”). The directors consider Mr. Wang Yong to be the ultimate controlling party of the Group.

Except the related party transaction as disclosed in Note 15(c), Note 28 and Note 30, the Group had undertaken material transactions with the following related companies during the Relevant Periods:

English Name Chinese Name Relationship with the Company

Xiwang Group 西王集團有限公司 Company controlled by Mr. Wang Yong

Shandong Xiwang Food Company Limited (“Xiwang Food”) (ii) 山東西王食品有限公司 Subsidiary of Xiwang Group

Xiwang Investment 西王投資有限公司 Immediate holding company

Xiwang Hong Kong Company Limited (“Xiwang Hong Kong”) 西王香港有限公司 Subsidiary of Xiwang Group

Xiwang Pharmaceutical 西王藥業有限公司 Subsidiary of Xiwang Group

Zouping Xiwang Power Company Limited (“Xiwang Power”) 鄒平西王動力有限公司 Subsidiary of Xiwang Group

Shandong Xiwang Leavening Company Limited 山東西王酵母有限公司 Subsidiary of Xiwang Group

(“Xiwang Leavening”) (iii)

Shandong Xiwang Steel Company Limited (“Xiwang Steel”) 山東西王鋼鐵有限公司 Subsidiary of Xiwang Group


II – 68

(i) The related parties are all under the control of Mr. Wang Yong, chairman and director of the Company.

(ii) Xiwang Food is a wholly owned subsidiary of Xiwang Foodstuffs Co., Ltd (“Xiwang Foodstuffs”) since December 2010. Xiwang Foodstuffs is a company publicly listed on the Main Board of the Shenzhen Stock Exchange and is effectively held as 52.08% by Xiwang Group.

(iii) Xiwang Leavening ceased to be related party in 2010 since Xiwang Group disposed of its equity interests held in this company.

(a) Sales of goods and provision of services


Sales of crystalline glucose– Xiwang Pharmaceutical 10,017 361,148 269,191 73,686 266,630Sales of corn germs– Xiwang Food 286,666 261,488 392,168 73,372 152,135Sales of corn starch– Xiwang Pharmaceutical 38,349 5,426 248,985 109 95,524Provision of sewage services– Xiwang Group 1,491 3,064 4,420 1,049 1,672Sales of crystalline fructose– Xiwang Food 50 132 – – –Sales of pharmaceutical-grade glucose–Xiwang Pharmaceutical 222,869 – – – –Sales of glucose syrup– Xiwang Leavening 376 – – – –

559,818 631,258 914,764 148,216 515,961

The pricing of these transactions was determined based on mutual negotiation and agreement reached between the Group and the related parties on each individual transaction pursuant to the guidance laid down in the relevant framework agreements executed.

(b) Purchases of goods and services


Purchase of packing materials– Xiwang Leavening 10,310 – – – –Purchase of glucose mother liquid– Xiwang Pharmaceutical 1,377 – – – –Purchase of steel bars– Xiwang steel 3,602 – – – –

15,289 – – – –


II – 69

(c) Purchases of assets


Purchase of assets– Xiwang Pharmaceutical – – 825,000 – –

The pricing of these transactions was determined based on mutual negotiation and agreement reached between the Group and the related parties on each individual transaction pursuant to the guidance laid down in the relevant framework agreements executed.

(d) Guarantee provided by a related party

As at 31 December 2010, 2011 and 2012 and 31 March 2013, the Company’s related party, Xiwang Group, provided a guarantee to banks for Xiwang Sugar’s borrowings amounting to Nil, RMB200,000,000, RMB1,297,000,000 and RMB1,123,500,000, respectively (Note 18(a)).

(e) Loan from Xiwang Group


Loan from Xiwang Group – – 60,400 – –

The loan from Xiwang Group was interest-free, unsecured and repayable on demand. Xiwang Group has provided an undertaking to the Company, Yintaishan Cultural and Property Holding stating that, without prior consent of the Company, Xiwang Group may not demand repayment of the loan by Yintaishan Cultural or Property Holding.

(f) Key management compensation


Basic salaries and benefits in kind 3,202 2,352 1,209 363 256Pensions 48 28 19 3 3Share-based payments 1,638 1,288 1,482 420 197

4,888 3,668 2,710 786 456

The key management include directors (executive and non-executive) and senior management and there are in total 15, 12, 12, 11 and 11 key management personnel of the Group respectively for the years ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2012 and 2013.


II – 70

(g) Balances due from/to related parties

Group


Receivables– Xiwang Pharmaceutical 85,277 100,323 143,197 255,903– Xiwang Hong Kong (iii) 1,066 1,298 696 –– Xiwang Investment (iii) 192 258 109 141– Xiwang Group – – – 58

86,535 101,879 144,002 256,102

Payables:– Xiwang Group (ii) 1,726 42,642 292,094 –– Xiwang Food 24,553 25,081 30,782 19,869– Wang Yong 8 8 7 –– Xiwang steel 3,623 – – –– Xiwang Power (iii) – – 13,789 13,029

29,910 67,731 336,672 32,898

Company


Receivables– Winning China 80,348 45,443 892,992 890,159– Xiwang Holding 25 24 – –– Xiwang Sugar 2,276 – 27,460 27,348– Master Team – Advance (Note 9(b)) 813,468 792,992 793,010 792,626 – Dividend receivable 202,186 222,838 222,875 221,974

1,098,303 1,061,297 1,936,337 1,932,107


Payables:– Xiwang Group 2,240 2,135 2,136 2,127– Xiwang Sugar 16,510 14,130 – –– Xiwang Investment – 1 – –

18,750 16,266 2,136 2,127


II – 71

Group and Company


Promissory note payable:– Xiwang Investment (iv) – – 217,155 223,426

(i) Except for the advance due from Master Team as disclosed in Note 9 and (iii) below, all the current accounts maintained with related parties were aged within one year as at 31 December 2010, 2011 and 2012 and 31 March 2013. They are interest-free, unsecured and repayable on demand.

(ii) The loan from Xiwang Group amounting to RMB291,400,000 was interest-free, unsecured and repayable on demand. Xiwang Group has provided an undertaking that it will not, without the consent of the Group, demand repayment.

(iii) The amounts arose from receipts or payments on behalf of related parties.

(iv) On 31 December 2012, the Company acquired the entire issued share capital of Keen Lofty from Xiwang Investment. The consideration was settled by the promissory note issued by the Company to Xiwang Investment at the principal amount of RMB308,000,000 repayable in 2015 at an interest rate of 2.5% per annum. Based on the assessment made by Grant Sherman Appraisal Limited, an independent valuer, the fair value of the promissory note was approximately RMB217,155,000. The interests accrued amounted to approximately RMB6,271,000 for the three months ended 31 March 2013.

32 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The loss attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of RMB9,373,000, RMB3,520,000, RMB14,296,000 and RMB16,930,000 for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013.

33 SUBSEQUENT EVENT

On 21 May 2013, the Company (the “Vendor”) and Xiwang Investment (the “Purchaser”) entered into a sale and purchase agreement (the “Agreement”). Pursuant to the Agreement, the Purchaser conditionally agreed to acquire and the Vendor conditionally agreed to sell its interests in Master Team and its subsidiaries (the “Disposal Group”). The Disposal Group is engaged in manufacturing and sale of starch sugars and corn co-products. Brief financial information for the Disposal Group as at 31 December 2010, 2011, 2012 and 31 March 2013, and for the years ended 31 December 2010, 2011, 2012 and the three months ended 31 March 2013 is set out below:


II – 72

Consolidated statement of financial position of the Disposal Group

As at 31 December As at 31 March 2010 2011 2012 2013 RMB’000 RMB’000 RMB’000 RMB’000ASSETSNon-current assets Property, plant and equipment 1,759,740 1,824,389 2,640,187 2,638,876 Land use rights 239,510 234,298 268,518 266,974 Deferred income tax assets 5,512 5,050 6,587 5,616

2,004,762 2,063,737 2,915,292 2,911,466

Current assets Inventories 560,570 584,148 714,343 710,546 Trade and other receivables 765,719 1,155,666 856,753 858,392 Prepaid income taxes 13,264 – 5,243 5,243 Amounts due from related parties 87,024 101,855 203,780 639,358 Restricted cash – – 170,616 168,820 Cash and cash equivalents 545,761 188,617 495,610 263,813

1,972,338 2,030,286 2,446,345 2,646,172

Total assets 3,977,100 4,094,023 5,361,637 5,557,638

EQUITYAttributable to equity holders of the Company Share capital – Ordinary shares – – – – Share premium – 13 59 104 Other reserves – Proposed final dividend – – – – – Others 298,196 372,452 546,805 546,805 Retained earnings 584,157 686,326 490,220 473,883

Total equity 882,353 1,058,791 1,037,084 1,020,792

LIABILITIESNon-current liabilities Borrowings 831,549 319,447 – –

831,549 319,447 – –

Current liabilities Trade and other payables 420,002 482,945 786,060 848,410 Dividend payable 202,186 222,838 222,875 221,974 Current income tax liabilities – 8,084 – – Amounts due to related parties 907,651 889,123 1,756,446 1,740,731 Borrowings 733,359 1,112,795 1,559,172 1,725,731

2,263,198 2,715,785 4,324,553 4,536,846

Total liabilities 3,094,747 3,035,232 4,324,553 4,536,846


Net current liabilities (290,860) (685,499) (1,878,208) (1,890,674)



II – 73

Consolidated statement of comprehensive income of the Disposal Group



Turnover 3,257,459 3,632,861 4,154,407 854,248 1,459,669Cost of goods sold (2,785,489) (3,176,839) (3,902,759) (798,904) (1,390,081)

Gross profit 471,970 456,022 251,648 55,344 69,588

Other income – net 1,315 2,614 8,447 413 2,513Selling and marketing expenses (120,012) (128,236) (106,597) (22,858) (38,846)Administrative expenses (50,605) (65,620) (90,404) (19,477) (25,439)

Operating profit 302,668 264,780 63,094 13,422 7,816

Finance income 4,178 3,063 855 588 2,131Finance expenses (66,746) (28,178) (91,105) (17,794) (25,136)

Finance expenses – net (62,568) (25,115) (90,250) (17,206) (23,005)

(Loss)/profit before income tax 240,100 239,665 (27,156) (3,784) (15,189)

Income tax expense (5,473) (33,240) 5,403 (115) (1,148)

(Loss)/profit for the year/period 234,627 206,425 (21,753) (3,899) (16,337)Other comprehensive income for the year/period, net of tax – – – – –

Total comprehensive (loss)/income for the year/period 234,627 206,425 (21,753) (3,899) (16,337)

Attributable to:Equity holders of the Company 234,627 206,425 (21,753) (3,899) (16,337)


II – 74

Consolidated statements of changes in equity of the Disposal Group

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests Equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2010 – – 146,620 535,106 280 682,006


Transactions with ownersAppropriation to reserves – – 151,576 (151,576) – –Disposal of subsidiaries – – – – (280) (280)Dividend – – – (34,000) – (34,000)

Total transactions with owners – – 151,576 (185,576) (280) (34,280)

Balance at 31 December 2010 – – 298,196 584,157 – 882,353

Balance at 1 January 2011 – – 298,196 584,157 – 882,353


Transactions with ownersEmployee share option scheme – value of services provided – 13 – – – 13Appropriation to reserves – – 231,344 (231,344) – –Dividend – – – (30,000) – (30,000)Transfer of reserves upon merger of subsidiaries – – (157,088) 157,088 – –

Total transactions with owners – 13 74,256 (104,256) – (29,987)

Balance at 31 December 2011 – 13 372,452 686,326 – 1,058,791


II – 75

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests Equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2012 – 13 372,452 686,326 – 1,058,791

Comprehensive incomeLoss for the year – – – (21,753) – (21,753)

Transactions with ownersEmployee share option scheme – value of services provided – 46 – – – 46Appropriation to reserves – – 174,353 (174,353) – –

Total transactions with owners – 46 174,353 (174,353) – 46

Balance at 31 December 2012 – 59 546,805 490,220 – 1,037,084





Balance at 31 March 2013 – 104 546,805 473,883 – 1,020,792

Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings interests EquityUnaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000





Balance at 31 March 2012 – 25 372,452 682,427 – 1,054,904


II – 76

Consolidated statement of cash flows of the Disposal Group


Cash flows from operating activitiesCash (used in)/generated from operations 547,886 11,447 1,289,540 327,598 (312,795)Interest paid (103,513) (89,460) (104,729) (25,570) (29,113)Income tax paid (21,219) (11,430) (9,461) (7,592) (177)

Net cash (used in)/generated from operating activities 423,154 (89,443) 1,175,350 294,436 (342,085)

Cash flows from investing activitiesDisposal of subsidiaries (565) – – – –Acquisition of property, plant and equipment (252,921) (150,788) (976,599) (38,100) (58,403)Acquisition of land use rights – – (40,074) – –Interest received 4,178 15,753 21,386 8,269 2,132

Net cash used in investing activities (249,308) (135,035) (995,287) (29,831) (56,271)

Cash flows from financing activitiesProceeds from borrowings 1,524,908 810,000 1,240,000 510,000 686,500Repayment of borrowings (1,928,500) (942,666) (1,113,070) (545,053) (519,941)

Net cash generated from/(used in) financing activities (403,592) (132,666) 126,930 (35,053) 166,559

Net (decrease)/increase in cash and cash equivalents (229,746) (357,144) 306,993 229,552 (231,797)Cash and cash equivalents at beginning of the year/period 775,507 545,761 188,617 188,617 495,610

Cash and cash equivalents at end of the year/period 545,761 188,617 495,610 418,169 263,813

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of its subsidiaries in respect of any period subsequent to 31 March 2013 up to the date of this report. Save as disclosed in this report, no dividend or distribution has been declared or made by the Company or any of its subsidiaries in respect of any period subsequent to 31 March 2013.

Yours faithfully,

PricewaterhouseCoopersCertified Public AccountantsHong Kong

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISON THE REMAINING GROUP

III – 1

The following discussion should be read in conjunction with the accountant’s report on the

Group, and the notes thereto included in Appendix II to this circular and the selected historical financial

information and operating data included elsewhere in this circular. The financial statements of the Group

have been prepared in accordance with HKFRS.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE REMAINING GROUP

For the three months ended 31 March 2013

Financial and business review

For the three months ended 31 March 2013, the Remaining Group recorded turnover of

approximately RMB50.5 million which was generated from its export trading business. For the property

development business, as the properties were still under construction and had not yet been completed for

delivery to purchasers, no property sale revenue was recorded for the three months ended 31 March 2013.

As at 31 March 2013, the Remaining Group recorded advances from customers received from pre-sales

amounted to approximately RMB215.9 million. The Remaining Group recorded net loss of approximately

RMB20.0 million, mainly attributable to interest expenses, administrative expenses and exchange

difference.

Liquidity, financial position and capital structure

Total assets decreased by approximately 8.5% to approximately RMB2,792.4 million as at 31

March 2013 as compared to the total assets as at 31 December 2012, partly due to a decrease in cash and

cash equivalents, restricted cash and advances to suppliers.

As at 31 March 2013, the Remaining Group recorded total liabilities of approximately RMB1,034.8

million, representing a decrease of approximately RMB238.7 million as compared to the total liabilities

as at 31 December 2012. Such decrease was mainly attributable to a decrease in short-term borrowings

of approximately RMB300.3 million. Total liabilities included an amount of approximately RMB366.5

million due to the Disposal Group which shall remain outstanding upon Completion.

As at 31 March 2013, the Remaining Group had current ratio of approximately 3.78 times. Gearing

ratio (defined as total borrowings (comprising borrowings and promissory note payable) less cash and

cash equivalents divided by total equity) was approximately 15.6%.

As at 31 March 2013, the Remaining Group’s issued ordinary share capital amounted to

approximately RMB102.1 million. No equity financing were raised during the three months ended 31

March 2013.


III – 2

Employment and remuneration policy

As at 31 March 2013, the Remaining Group had 59 employees. For the three months ended 31

March 2013, remuneration to employees and directors amounted to approximately RMB1.2 million.

The staff remuneration polices were drawn up based on the performance, qualification, experience,

competence and responsibilities of employees.

Significant investment held and future plans for material investments or capital assets

As at 31 March 2013, save for the four property projects under development, the Remaining Group

did not have any significant investment held. As set out in the section headed “Background to, reasons

for and benefits of the Disposal” in the “Letter from the Board” of this circular, the Company looks into

different property development investment opportunities including opportunities in cities of Shandong

Province (other than Binzhou City) including Qingdao (青島). Save as disclosed in the circular, the Remaining Group had no other concrete and immediate plans for material investments or capital assets as

at 31 March 2013. As at 31 March 2013, the Remaining Group had capital commitments of approximately

RMB95.9 million and non-cancellable operating leases commitments of approximately RMB328,000.

Contingent liabilities

As at 31 March 2013, the Remaining Group had financial guarantee in issue of RMB350 million,

representing the maximum exposure of the guarantee provided under the PRC Company Guarantee. Save

for this, the Remaining Group had no material contingent liabilities as at 31 March 2013.

Charge on assets

As at 31 March 2013, there was no charge on assets of the Remaining Group. As at 31 March 2013,

the Remaining Group had restricted cash of approximately RMB3.3 million, which was mainly the pre-

sale proceeds of properties and deposits for properties.

Foreign exchange exposure

The functional currency of the Remaining Group is RMB. During the period, majority of the

Remaining Group’s assets, liabilities, incomes, payments and cash balances were denominated in RMB,

and the rest were sales from export which were denominated in US$. The Company had an outstanding

bank borrowing in the principal amount of US$10 million, representing approximately 2.2% of total assets

of the Remaining Group of approximately RMB2,792.4 million as at 31 March 2013. Therefore the risk

exposure of the Remaining Group to fluctuation of foreign exchange rate was not significant as a whole.


III – 3

Acquisition or disposal of subsidiary

During the three months ended 31 March 2013, the Remaining Group had no material acquisition or

disposal of subsidiary or associated company.

For the year ended 31 December 2012


The property development business was acquired by the Group in late 2012. As at 31 December

2012, there were four property projects under different stages of development. For the year ended 31

December 2012, turnover of the Remaining Group was approximately RMB231.9 million. The property

development business of the Remaining Group contributed approximately RMB173.0 million of revenue

which was generated from property sales of the Meijun project. As at 31 December 2012, advances

from customers received from pre-sales in respect of the property development business amounted to

approximately RMB185.2 million. The Remaining Group recorded net profit of approximately RMB4.5

million. During the year ended 31 December 2012, 366 units of phase two of the Meijun project were

sold, with an aggregate gross floor area of approximately 74,486 sq.m. and average selling price of

approximately RMB2,323 per sq.m.. In 2012 the property development business has achieved contracted

sales of approximately RMB181 million.


Total assets of the Remaining Group amounted to approximately RMB3,050.9 million as at 31

December 2012, representing an increase of approximately RMB1,943.9 million as compared to the

total assets as at 31 December 2011. Such increase was mainly contributed by an increase in amount due

from related companies of approximately RMB847.4 million, and an increase in the properties under

development and advances to suppliers of approximately RMB460.7 million and RMB227.8 million

respectively.

A promissory note with face value of RMB308 million was issued by the Company in respect

of the Previous Acquisition. As at 31 December 2012, the Remaining Group recorded total liabilities

of approximately RMB1,273.5 million, including short-term borrowings of approximately RMB362.9

million, amount due to related companies of approximately RMB324.3 million and promissory note

payable of approximately RMB217.2 million.

As at 31 December 2012, the Remaining Group had current ratio of approximately 3.06 times.

Gearing ratio (defined as total borrowings (comprising borrowings and promissory note payable) less cash

and cash equivalents divided by total equity) was approximately 27.2%.

As at 31 December 2012, the Remaining Group’s issued ordinary share capital amounted to

approximately RMB102.1 million. As at 31 December 2012, the Remaining Group has convertible

preference shares in issue of approximately RMB73.6 million. Such convertible preference shares were

issued by the Company under an open offer to partly finance the acquisition of target assets by its

subsidiary, details of which are set out in the Company’s circular dated 2 March 2012.


III – 4

Save for the issue of convertible preference shares, no equity financing was raised during the year

ended 31 December 2012.


As at 31 December 2012, the Remaining Group had 63 employees. For the year ended 31 December

2012, remuneration to employees and directors amounted to approximately RMB7.0 million. The staff

remuneration polices were drawn up based on the performance, qualification, experience, competence and

responsibilities of employees.


As at 31 December 2012, save for the four property projects under development, the Remaining

Group did not have any significant investment held and had no concrete and immediate future plans

for material investments or capital assets. As at 31 December 2012, the Remaining Group had capital

commitments of approximately RMB96.3 million and non-cancellable operating leases commitments of

approximately RMB469,000.


As at 31 December 2012, the Remaining Group had financial guarantee in issue of RMB350

million, representing the maximum exposure of the guarantee provided under the PRC Company

Guarantee. Save for this, the Remaining Group had no material contingent liabilities as at 31 December

2012.

Charge on assets

As at 31 December 2012, there was no charge on assets of the Remaining Group. As at 31

December 2012, the Remaining Group had restricted cash of approximately RMB116.7, which was mainly

the pre-sale proceeds of properties and deposits for properties.


The functional currency of the Remaining Group is RMB. During the year, majority of the

Remaining Group’s assets, liabilities, incomes, payments and cash balances were denominated in RMB,

the rest were sales from export which were denominated in US$. The Company had an outstanding bank

borrowing in the principal amount of US$10 million, representing approximately 2.1% of total assets

of the Remaining Group of approximately RMB3,050.9 million. Therefore the risk exposure of the

Remaining Group to fluctuation of foreign exchange rate was not significant as a whole.


During the year ended 31 December 2012, save for the target group acquired by the Company in

the Previous Acquisition, the Remaining Group had no material acquisition or disposal of subsidiary or

associated company.


III – 5



For the year ended 31 December 2011, turnover and net profit of the Remaining Group were nil and approximately RMB3.5 million respectively. For the year ended 31 December 2011, the Remaining Group had dividend income of approximately RMB30 million. The decrease in net profit as compared to the net profit for the year ended 31 December 2010 was mainly due to an increase in exchange loss in relation to dividend income.


Total assets of the Remaining Group amounted to approximately RMB1,107.0 million as at 31 December 2011. Included in total assets were mainly dividend receivable and amount due from related company totalling approximately RMB1,061.3 million. As at 31 December 2011, the Remaining Group recorded cash and cash equivalents of approximately RMB43.9 million.

As at 31 December 2011, the Remaining Group recorded total liabilities of approximately RMB16.3 million which comprised mainly of amount due to related company of approximately RMB16.3 million.

As at 31 December 2011, the Remaining Group had current ratio of approximately 67.8 times. The Remaining Group did not have borrowings as at 31 December 2011.

As at 31 December 2011, the Remaining Group’s issued ordinary share capital amounted to approximately RMB102.1 million. In February 2011, the Company issued an aggregate of 167,717,242 bonus warrants to qualified shareholders on the basis of one bonus warrant for every six Shares held by qualified shareholders. Each warrant entitled its holders to subscribe for one share at an initial subscription price of HK$2.55 per share.

Save for the issue of bonus warrants, no equity financing was raised during the year ended 31 December 2011.


As at 31 December 2011, the Remaining Group had 4 employees. For the year ended 31 December 2011, remuneration to employees and directors amounted to approximately RMB3.6 million. The staff remuneration polices were drawn up based on the performance, qualification, experience, competence and responsibilities of employees.


As at 31 December 2011, the Remaining Group did not have any significant investment held and had no concrete or immediate future plans for material investments or capital assets. As at 31 December 2011, the Remaining Group had non-cancellable operating leases commitments of approximately RMB2.1 million.


III – 6


In 2010, the Company has been involved in an arbitration proceedings whereby the Company was

not a party to it. On 23 September 2011, ruling of the tribunal was made and the Company was not liable

in this arbitration. As at 31 December 2011, the Remaining Group had no material contingent liabilities.

Charge on assets

As at 31 December 2011, there was no charge on assets of the Remaining Group.


For the year ended 31 December 2011, the Remaining Group recorded exchange loss of

approximately RMB17.7 million mainly resulting from foreign currency translation of dividend income.


During the year ended 31 December 2011, the Remaining Group had no material acquisition or

disposal of subsidiary or associated company.



For the year ended 31 December 2010, turnover and net profit of the Remaining Group were nil and

approximately RMB9.4 million respectively. The net profit was mainly attributable to dividend income of

approximately RMB34 million after deduction of administrative expenses, interest expenses and exchange

loss in relation to dividend income.


Total assets of the Remaining Group amounted to approximately RMB1,102.7 million as at 31

December 2010. Included in total assets were mainly dividend receivable and amount due from related

company totalling approximately RMB1,098.3 million. As at 31 December 2010, the Remaining Group

recorded cash and cash equivalents of approximately RMB2.7 million.

As at 31 December 2010, the Remaining Group recorded total liabilities of approximately RMB19.4

million which comprised mainly of amount due to related company of approximately RMB18.8 million.

As at 31 December 2010, the Remaining Group had current ratio of approximately 56.9 times. The

Remaining Group did not have borrowings as at 31 December 2010.


III – 7

As at 31 December 2010, the Remaining Group’s issued ordinary share capital amounted to

approximately RMB101.9 million. In January 2010, the Company completed a top-up placing to certain

independent third party investors. As a result, 120,000,000 new ordinary shares were allotted and issued

at a price of HK$2.51 per share. In July 2010, 22,296,000 additional new ordinary shares were allotted

and issued to International Finance Corporation at a price of HK$1.74 per share pursuant to a subscription

agreement dated 29 June 2010.

Save for the above, no equity financing was raised during the year ended 31 December 2010.


As at 31 December 2010, the Remaining Group had 4 employees. For the year ended 31 December

2010, remuneration to employees and directors amounted to approximately RMB5.4 million. The staff

remuneration polices were drawn up based on the performance, qualification, experience, competence and

responsibilities of employees.


As at 31 December 2010, the Remaining Group did not have any significant investment held and

had no concrete or immediate future plans for material investments or capital assets. As at 31 December

2010, the Remaining Group had non-cancellable operating leases commitments of approximately

RMB985,000.


As of 31 December 2010, the Company has been involved in an arbitration proceedings whereby

the Company was not a party to it. The proceedings involved a dispute arisen from two contracts for sale

and purchase of crystalline glucose signed by the claimant and Xiwang Sugar (Hong Kong) Limited (the

“Respondent”) back in September and November 2009. The Respondent used to be a subsidiary of the

Company until 19 January 2010. The Company was alleged by the claimant that it was in fact in control

of the Respondent and the Company was directly involved in all the matters in relation to the dispute.

The claimant therefore claimed that the Company should be bound by the arbitration clause and be liable

to the alleged breach of contracts by the Respondent in the amount of approximately US$4.6 million

which was the claim made by the claimant against the Respondent but not the Company. Submissions

shall be made by the Company on the issue of jurisdiction as a non-party to the proceedings. According

to the Company’s legal counsel, based on the materials available so far, there was a fair chance that the

Company would not be bound by the arbitration agreement as contained in the relevant contracts. The

Company agreed with the advice from counsel and considered that it is not probable for the Company to

be liable to the claim. Accordingly, no provision had been made in the consolidated financial statements.

Further details regarding the above are set out in the Company’s 2010 annual report.

Save for the above, the Remaining Group had no material contingent liabilities as at 31 December

2010.


III – 8

Charge on assets

As at 31 December 2010, there was no charge on assets of the Remaining Group.


For the year ended 31 December 2010, the Remaining Group recorded exchange loss of

approximately RMB13.1 million mainly resulting from foreign currency translation of dividend income.


During the year ended 31 December 2010, Xiwang Sugar (Hong Kong) Limited and its subsidiary,

Xiwang Int’l Company Korea Ltd., were disposed.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE REMAINING GROUP

IV – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is unaudited pro forma financial information of the Remaining Group prepared

for illustrative purposes (the “Unaudited Pro Forma Financial Information”), comprising the unaudited

pro forma consolidated statement of financial position, the unaudited pro forma consolidated statement

of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the

Remaining Group, which has been prepared to illustrate the effect of the Disposal and the Proposed

Special Dividend as if they had taken place on 31 March 2013 for the unaudited pro forma consolidated

statement of financial position and on 1 January 2012 for the unaudited pro forma consolidated statement

of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

The Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative

purposes only and because of its hypothetical nature, it may not give a true picture of the financial

position, results of operations and cash flows of the Remaining Group had the Disposal and Proposed

Special Dividend been completed as at 31 March 2013 or 1 January 2012 where applicable, or at any

future dates.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical

information of the Group as set out in the published annual report of for the year ended 31 December 2012

and other financial information included elsewhere in this circular.


IV – 2

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE REMAINING GROUP

Unaudited pro forma Audited consolidated consolidated balance sheet balance sheet of the of the Group Remaining as at Group as at 31 March 31 March 2013 Pro forma adjustments 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Note a Note b Note c Note d Note e Note f Note g

ASSETSNon-current assets Property, plant and

equipment 2,640,282 – (2,638,876) – – – – 1,406

Goodwill 180,405 – – – – – – 180,405

Land use rights 266,974 – (266,974) – – – – –

Deferred income tax assets 7,050 – (5,616) – – – – 1,434

3,094,711 – (2,911,466) – – – – 183,245

Current assets Inventories 710,546 – (710,546) – – – – –

Completed properties for sale 27,973 – – – – – – 27,973

Properties under development 481,537 – – – – – – 481,537

Trade and other receivables 1,038,855 – (858,392) – – – – 180,463

Prepaid current income tax 29 – (5,243) – – – 5,214 –

Amounts due from related

parties 256,102 – (639,358) – 383,256 – – –

Promissory note receivable – – – 1,343,917 – (901,734) – 442,183

Cash and cash equivalents 275,165 – (263,813) 437,183 – (256,007) – 192,528

Restricted cash 172,078 – (168,820) – – – – 3,258

2,962,285 – (2,646,172) 1,781,100 383,256 (1,157,741) 5,214 1,327,942

Total assets 6,056,996 – (5,557,638) 1,781,100 383,256 (1,157,741) 5,214 1,511,187


IV – 3

Unaudited pro forma Audited consolidated consolidated balance sheet balance sheet of the of the Group Remaining as at Group as at 31 March 31 March 2013 Pro forma adjustments 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Note a Note b Note c Note d Note e Note f Note g

EQUITYAttributable to equity holders of the Company Share capital

– Ordinary shares 102,086 – – – – – – 102,086

– Convertible preference

shares 73,586 – – – – – – 73,586

Share premium 1,121,957 – – – – (1,121,957) – –

Other reserves

– Proposed final dividend – – – – – – – –

– Others 991,438 – – (856,644) – – – 134,794

Retained earnings 486,987 (84,574) – (5,000) – (35,784) – 361,629

Attributable to owners of the parent 2,776,054 (84,574) – (861,644) – (1,157,741) – 672,095

Minority interest – – – – – – – –

Total equity 2,776,054 (84,574) – (861,644) – (1,157,741) – 672,095

LIABILITIESNon-current liabilities Promissory note payable 223,426 84,574 – (308,000) – – – –

Deferred tax liabilities 120,645 – – – – – – 120,645

344,071 84,574 – (308,000) – – – 120,645


IV – 4

Unaudited pro forma Audited consolidated consolidated balance sheet balance sheet of the of the Group Remaining as at Group as at 31 March 31 March 2013 Pro forma adjustments 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note a Note b Note c Note d Note e Note f Note g

Current liabilities Trade and other payables 1,115,574 – (848,410) (1,900) – – – 265,264 Current income tax liabilities – – – – – – 5,214 5,214 Amounts due to related parties 32,898 – (1,740,731) 1,709,878 383,256 – – 385,301 Dividend payable – – (221,974) 221,974 – – – – Borrowings 1,788,399 – (1,725,731) – – – – 62,668

2,936,871 – (4,536,846) 1,929,952 383,256 – 5,214 718,447

Total liabilities 3,280,942 84,574 (4,536,846) 1,621,952 383,256 – 5,214 839,092

Total equity and liabilities 6,056,996 – (4,536,846) 760,308 383,256 (1,157,741) 5,214 1,511,187

Net current assets/(liabilities) 25,414 – 1,890,674 (148,852) – (1,157,741) – 609,495

Total assets less current liabilities 3,120,125 – (1,020,792) (148,852) – (1,157,741) – 792,740

Note a The amounts are extracted from the audited consolidated statement of financial position of the Group as at 31 March 2013 as set out in Appendix II to this circular.

Note b The adjustment represents loss on extinguishment of the promissory note in the principal amount of RMB308,000,000 issued by the Company in favour of Xiwang Investment on 31 December 2012 to satisfy the consideration for the Previous Acquisition.

The loss on extinguishment is calculated as:

RMB’000

Principal amount of the promissory note 308,000Carrying value of the promissory note as at 31 December 2012 as disclosed in the Company’s 2012 annual report 217,155Interest expense accrued for the three months ended 31 March 2013 calculated using effective interest rate method based on the difference between the principal amount and the fair value of promissory note 6,271Carrying value of the promissory note as at 31 March 2013 as disclosed in the Accountant’s Report set out in Appendix II 223,426

Loss on extinguishment of the promissory note 84,574


IV – 5

Note c The adjustment, which is extracted from the audited consolidated statement of financial position of the Disposal Group as at 31 March 2013 as set out in Appendix II to this circular, represents the exclusion of the assets and liabilities of the Disposal Group, as if the Disposal had been completed on 31 March 2013.

Note d The adjustment represents the estimated reduction of reserves as if the Disposal had been completed on 31 March 2013.

RMB’000

Total Consideration 2,096,000

Less:Net assets of the Disposal Group as at 31 March 2013 1,020,792Assignment of sale loans 1,709,878Assignment of unpaid dividend 221,974

Reduction of reserves in connection with the transaction with the controlling shareholder (856,644)

The Consideration will be payable by the Purchaser to the Company in the following manner:

i) offset against the amount payable to the Purchaser by the Company for early repayment of the promissory note in the principal amount of RMB308,000,000 issued by the Company in favour of Xiwang Investment on 31 December 2012 to satisfy the consideration for the Previous Acquisition, together with interests accrued up to the date of Completion. The interest accrued amounted to approximately RMB1,900,000 as at 31 March 2013;

ii) issue of Promissory Note A by the Purchaser to the Company upon Completion in the principal amount of RMB 901,734,000 (which is the same amount as the sum to which the purchaser is entitled out of the Proposed Special Dividend and the Preferred Distribution based on the Shares and the CPSs held by the Purchaser as at the date of the announcement on 21 May 2013 (the “Announcement”));

iii) remaining balance (after deducting items (i) and (ii) above) (the “Remaining Balance”) shall be settled as follows:

(1) 50% of the Remaining Balance amounting to RMB442,183,000 will be payable by the Purchaser to the Company in cash upon Completion; and

(2) 50% of the Remaining Balance amounting to RMB442,183,000 will be settled by issue of Promissory Note B by the Purchaser to the Company upon Completion.

After taking into account (i) the Purchaser is the controlling shareholder of the Company which holds more than 50% of the total equity of the Company; (ii) the Purchaser agreed to offset the Consideration with the promissory note owed by the Group to the Purchaser amounting to RMB308 million and the Proposed Special Dividend payable to the Purchaser amounting to RMB902 million; (iii) the favorable terms offered by the Purchaser which enable the Group to realize the value of the Disposal Group’s business, to reduce its gearing ratio and to implement its revised business strategies within a very short period of time, where such terms may not be available from an independent third party; and (iv) other reasons for the Disposal and the benefits to the Group and the Shareholders as explained in the section headed “Background to, reasons for and benefits of the Disposal” in the Letter from the Board continued in this circular, the Disposal will be regarded as a transaction with the Company’s owner in accordance with Hong Kong Accounting Standard 1 (Revised) – “Presentation of Financial Statements” (“HKAS 1”) issued by the Hong Kong Institute of Certified Public Accountants. Paragraph IN 13 of HKAS 1 stipulates that “…all changes in equity arising from transactions with owners in their capacity as owners (i.e. owner changes in equity) have to be presented separately from non-owner changes in equity. An entity is not permitted to present components of comprehensive income (i.e. non-owner changes in equity) in the statement of changes in equity. The purpose is to provide better information by aggregating items with shared characteristics and separating items with different characteristics…”. Accordingly, the shortfall of approximately RMB856.6 million would be treated as reduction of reserves in connection with the transaction with the controlling shareholders of the Company.

The financial effect and the actual amount of reduction of reserves from the Disposal are to be determined based on the Consideration, the direct expense in relation to the Disposal and the carrying amount of the net assets of the Disposal Group as at the completion date and are therefore subject to change upon completion of the Disposal.

Note e Upon the disposal of the Disposal Group, the balances with the Disposal Group will be recorded in the Remaining Group.


IV – 6

The balance is comprised of:

RMB’000

Amount due by Property Project Company* to the Disposal Group 366,530Amount due by HK Trading* to the Disposal Group 14,584Amount due by the Company* to Xiwang Group 2,127Amount due by Keen Lofty* to the Disposal Group 11Amount due by Glorious Prosper* to the Disposal Group 4

Total 383,256

* Full name of the above companies, please refer to Appendix II Accountant’s report on the Group. All the companies are within the Remaining Group.

Note f The adjustment represents the payment of the Proposed Special Dividend upon the completion of the Disposal. According to the announcement on 11 April 2013, the Board proposed to reduce the entire amount standing to the credit of the share premium account to zero balance, giving the Company greater flexibility in dividend policy and making distributions to the shareholders in the future. Details of the Special Dividend is as below:

(1) Proposed Special Dividend to ordinary shares

No. of Shares as at the date of the Dividend Announcement Per share Equivalent to (Thousands) (HK$) HKD’000 RMB’000

The Purchaser 584,790 0.75 438,593 350,538Independent shareholders 423,839 0.75 317,879 254,060

1,008,629 756,472 604,598

(2) Proposed Special Dividend to CPSs

No. of Shares as at the date of the Dividend Announcement Per share Equivalent to (Thousands) (HK$) HKD’000 RMB’000

The Purchaser 904,454 0.75 678,341 542,151Independent shareholders 3,192 0.75 2,394 1,915

907,646 680,735 544,066

(3) Preferred Distribution to CPSs

No. of Shares as at the date of the Dividend Announcement Per share (Thousands) (RMB) RMB’000

The Purchaser 904,454 0.01 9,045Independent shareholders 3,192 0.01 32

907,646 9,077


IV – 7

Total Proposed Special Dividend and Preferred Distribution:

RMB’000

The Purchaser 901,734Independent shareholders 256,007

Note g It represents reclassification from prepaid current income tax to current income tax liabilities.

Note h Apart from the above, no other adjustment has been made to reflect any trading results or other transactions entered into by the Group subsequent to 31 March 2013.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE REMAINING GROUP

Unaudited pro forma Audited consolidated consolidated income income statement of statement the Remaining of the Group Group for the year for the year ended ended 31 December 31 December 2012 2012 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Note i Note j Note k Note l Note m

Turnover 4,328,144 (4,154,407) 58,198 – – 231,935

Cost of goods sold (4,048,414) 3,902,759 (58,198) – – (203,853)

Gross profit 279,730 (251,648) – – – 28,082

Other income – net 8,447 (8,447) – – – –

Selling and marketing costs (106,597) 106,597 – – – –

Administrative expenses (104,021) 90,404 – – (5,000) (18,617)

Operating profit 77,559 (63,094) – – (5,000) 9,465

Finance income 878 (855) – – – 23

Finance costs (93,905) 91,105 817 (84,574) – (86,557)

Finance costs – net (93,027) 90,250 817 (84,574) – (86,534)

(Loss)/Profit before income tax (15,468) 27,156 817 (84,574) (5,000) (77,069)

Income tax expense (2,565) (5,403) – – – (7,968)


IV – 8

Unaudited pro forma Audited consolidated consolidated income income statement of statement the Remaining of the Group Group for the year for the year ended ended 31 December 31 December 2012 2012 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Note i Note j Note k Note l Note m

Loss for the year (18,033) 21,753 817 (84,574) (5,000) (85,037)

Other comprehensive income

for the year, net of tax – – – – – –

Total comprehensive loss for the year (18,033) 21,753 817 (84,574) (5,000) (85,037)

Attributable to:Equity holders of the Company (18,033) 21,753 817 (84,574) (5,000) (85,037)

Note i The amounts are extracted from the audited consolidated statement of comprehensive income of the Group for the year ended 31 December 2012 as set out in the published annual report of the Company for the year ended 31 December 2012.

Note j The adjustment, which is extracted from the audited consolidated statement of comprehensive income of the Disposal Group for the year ended 31 December 2012 as set out in Appendix II to this circular, represents the exclusion of the income and expenses of the Disposal Group, assuming the Disposal had been completed on 1 January 2012.

Note k The adjustment represents Intra-Group elimination, including sales transactions and exchange difference between the Disposal Group and the Remaining Group.

Note l The adjustment represents loss on extinguishment of the promissory note in the principal amount of RMB308,000,000 issued by the Company in favour of Xiwang Investment on 31 December 2012 to satisfy the consideration for the Previous Acquisition.

Note m It represents the estimated direct expenses in relation to the Disposal.

Note n No pro forma adjustments are expected to have a continuing effect on the financial performance of the Remaining Group.

Note o Apart from the above, no other adjustment has been made to reflect any trading results or other transactions entered into by the Group subsequent to 31 December 2012.


IV – 9

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited pro forma Audited consolidated consolidated statement of statement of cash flows of cash flows of the Remaining the Group for Group for the year ended the year ended 31 December 31 December 2012 Pro forma adjustments 2012 RMB’000 RMB’000 RMB’000 RMB’000

Note p Note q Note r

Cash flows from operating activities Cash generated from operations 406,026 (1,289,540) – (883,514)

Interest paid (106,759) 104,729 – (2,030)

Income tax paid (15,902) 9,461 – (6,441)

Net cash generated from/(used in) operating activities 283,365 (1,175,350) – (891,985)

Cash flows from investing activities Acquisition of subsidiaries,

net of cash acquired (217,486) – – (217,486)

Proceeds from sale of Disposal Group – – 248,566 248,566

Acquisition of property, plant

and equipment (976,599) 976,599 – –

Acquisition of land use rights (40,074) 40,074 – –

Interest received 21,409 (21,386) – 23

Net cash (used in)/generated from investing activities (1,212,750) 995,287 248,566 31,103


IV – 10

Unaudited pro forma Audited consolidated consolidated statement of statement of cash flows of cash flows of the Remaining the Group for Group for the year ended the year ended 31 December 31 December 2012 Pro forma adjustments 2012 RMB’000 RMB’000 RMB’000 RMB’000

Note p Note q Note r

Cash flows from financing activities Proceeds from issue of CPSs, net of

transaction costs 861,543 – – 861,543

Proceeds from bonus issue of warrants 2 – – 2

Proceeds from borrowings 1,602,943 (1,240,000) – 362,943

Repayment of borrowings (1,113,091) 1,113,070 – (21)

Dividend paid to company’s shareholders (28,272) – – (28,272)

Dividend paid to ordinary shareholders – – (254,060) (254,060)

Dividend paid to holders of CPSs (34,541) – (1,947) (36,488)

Net cash generated from/(used in) financing activities 1,288,584 (126,930) (256,007) 905,647

Net increase/(decrease) in cash and cash equivalents 359,199 (306,993) (7,441) 44,765Cash and cash equivalents at beginning

of the year 232,491 (188,617) 188,617 232,491

Cash and cash equivalents at end of the year 591,690 (495,610) 181,176 277,256

Note p The amounts are extracted from the audited consolidated statement of cash flow of the Group for the year ended 31 December 2012 as set out in the published annual report of the Company for the year ended 31 December 2012.

Note q The adjustment, which is extracted from the audited statement of cash flow of the Disposal Group for the year ended 31 December 2012 as set out in Appendix II to this circular, represents the exclusion of the cash flows of the Disposal Group, assuming the Disposal had been completed on 1 January 2012.


IV – 11

Note r The adjustment represents the net cash outflow arising from the Disposal assuming the Disposal had been completed on 1 January 2012:

RMB’000

Total consideration 2,096,000Less:Early repayment of promissory note plus accrued interest 309,900Proposed dividend to the Purchaser 901,734Issuance of Promissory Note B by the Purchaser 442,183

Total cash received 442,183

Less:Estimated direct expense in relation to the Disposal (5,000)Cash and cash equivalents held by Disposal Group (188,617)

Proceeds from sale of Disposal Group 248,566

Less:Proposed dividend to ordinary share holder (254,060)Proposed dividend to CPS holder (1,947)

Net cash outflow from the Disposals (7,441)

Note s No pro forma adjustments are expected to have a continuing effect on the financial performance of the Remaining Group.

Note t Apart from the above, no other adjustment has been made to reflect any trading results or other transactions entered into by the Group subsequent to 31 December 2012.


IV – 12

2. REPORT FROM THE REPORTING ACCOUNTANT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is the text of a report received from PricewaterhouseCoopers, Certified Public

Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANT’S REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATIONTO THE DIRECTORS OF XIWANG SUGAR HOLDINGS COMPANY LIMITED

We report on the unaudited pro forma financial information set out on pages IV-1 to IV-11 under

the heading of “Unaudited Pro Forma Financial Information of the Remaining Group” (the “Unaudited

Pro Forma Financial Information”) in Appendix IV of the circular dated 13 June 2013 (the “Circular”) of

Xiwang Sugar Holdings Company Limited (the “Company”), in connection with the proposed disposal

of Master Team International Limited (the “Disposal”) and the proposed conditional special dividend of

HK$0.75 per share and convertible preference share (the “Proposed Special Dividend”) by the Company.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company,

for illustrative purposes only, to provide information about how the Disposal and the Proposed Special

Dividend might have affected the relevant financial information of the Company and its subsidiaries

(hereinafter collectively referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma

Financial Information is set out on pages IV-1 to IV-11 of the Circular.

Respective Responsibilities of Directors of the Company and the Reporting Accountant

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma

Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities

on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7

“Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the

Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on

the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any

responsibility for any reports previously given by us on any financial information used in the compilation

of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were

addressed by us at the dates of their issue.

App1B(5)(3)


IV – 13

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular

Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment

Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the

underlying financial information, consisted primarily of comparing the audited consolidated statement of

financial position of the Group as at 31 March 2013, the audited consolidated statement of comprehensive

income and the audited consolidated statement of cash flows of the Group for the year ended 31 December

2012 as set out in the “Unaudited Pro forma Financial Information of the Remaining Group” section

of this Circular with the accountant’s report as set out in Appendix II of this Circular, considering the

evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with

the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we

considered necessary in order to provide us with sufficient evidence to give reasonable assurance that

the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the

Company on the basis stated, that such basis is consistent with the accounting policies of the Group and

that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as

disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the

judgements and assumptions of the directors of the Company, and, because of its hypothetical nature,

does not provide any assurance or indication that any event will take place in the future and may not be

indicative of:

– the financial position of the Group as at 31 March 2013 or any future date, or

– the results and cash flows of the Group for the year ended 31 December 2012 or any future

periods.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors

of the Company on the basis stated;

b) such basis is consistent with the accounting policies of the Group; and

c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial

Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopersCertified Public Accountants

Hong Kong, 13 June 2013

APPENDIX V PROPERTY VALUATION REPORT

V – 1

The following is the text of letter, summary of valuation and valuation certificates, prepared

for the purpose of incorporation in this circular, received from Grant Sherman Appraisal Limited, an

independent property valuer, in connection with their valuation as at 30 April 2013 of the property

interests held and to be held by the Group in the People’s Republic of China.

Unit 1005, 10/F., AXA Centre,

151 Gloucester Road,

Wanchai,

Hong Kong

13 June 2013

The Directors


Unit 2110,

21/F Harbour Centre,

25 Harbour Road,

Wanchai,

Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests held and to be held by

Xiwang Sugar Holdings Company Limited (the “Company”) and its subsidiaries (together referred to

as the “Group”) in the People’s Republic of China (“the PRC”), we confirm that we have carried out

inspections, made relevant enquiries and obtained such further information as we consider necessary

for the purpose of providing you with our opinion of the market value of such property interests as at

the 30 April 2013 (“date of valuation”) for the purpose of incorporation into the circular issued by the

Company on the date hereof.

Our valuation is our opinion of the market value of the property interests where we would define

market value as intended to mean “the estimated amount for which a property should exchange on the

date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper

marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Market Value is understood as the value of a property estimated without regard to costs of sale or

purchase (or transaction) and without offset for any associated taxes or potential taxes.

App1B(5)(3)


V – 2

In valuing the property interests which are held and to be held by the Group for self-occupation

in the PRC, we have adopted a combination of the market and depreciated replacement cost approach

in assessing the land portion of the properties and the buildings and structures standing on the lands

respectively. Hence, the sum of the two results represents the market value of the properties as a whole.

In the valuation of the land portion, reference has been made to the standard land price in Zouping Town,

Binzhou City and the sales evidence as available to us in the locality. As the nature of the buildings and

structures cannot be valued on the basis of market value, they have therefore been valued on the basis

of their depreciated replacement costs. The depreciated replacement cost approach considers the current

cost of replacement (reproduction) of the buildings and improvements less deductions for physical

deterioration and all relevant forms of obsolescence and optimisation. The depreciated replacement cost

approach generally furnishes the most reliable indication of value for properties in the absence of a known

market based on comparables sales. The approach is subject to adequate potential profitability of the

business.

Our valuation has been made on the assumption that the owner sells the property interests on the

open market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture,

management agreement or any similar arrangement which would serve to increase the values of the

property interests. In addition, no forced sale situation in any manner is assumed in our valuation.

We have been provided with copies of extracts of title documents relating to the properties in the

PRC. However, we have not caused title searches to be made for the property interests at the relevant

government bureaus in the PRC and we have not inspected the original documents to verify the ownership,

encumbrances or the existence of any subsequent amendments which may not appear on the copies handed

to us. In undertaking our valuation for the property interests in the PRC, we have relied on the legal

opinion (“the PRC legal opinion”) provided by the Group’s PRC legal adviser, Jingtian & Gongcheng.

We have relied to a considerable extent on information provided by the Group and have accepted

advice given to us by the Group on such matters as planning approvals or statutory notices, easements,

tenure, occupancy, lettings, site and floor areas and in the identification of the properties and other

relevant matter. We have no reason to doubt the truth and accuracy of the information provided to us by

the Company which is material to the valuation. We have also been advised by the Group that no material

facts had been concealed or omitted in the information provided to us and have no reason to suspect

that any material information has been withheld. All documents have been used for reference only. We

consider that we have been provided with sufficient information to reach an informed view.

All dimensions, measurements and areas included in the valuation certificates are based on

information contained in the documents provided to us by the Group and are approximations only. No on-

site measurement has been taken.

We have inspected the exteriors, where possible, the interiors of the properties, in the course of our

inspection, we did not note any serious defects. However, we have not carried out a structural survey nor

have we inspected woodwork or other parts of the structures which are covered, unexposed or inaccessible

and we are therefore unable to report that any such parts of the properties are free from defect though in

the course of our inspections we did not note any serious defects. No tests were carried out on any of the

services.

5.06(1),(L)

PN127

5.06(1)(o)


V – 3

We have not carried out investigation to determine the suitability of the ground conditions or the

services for any property developments to be erected thereon. Our valuation is on the basis that these

aspects are satisfactory and that no extraordinary expense or delay will be incurred during the construction

period. Moreover, it is assumed that the utilization of the land and improvements will be within the

boundaries of the sites held by the owner or permitted to be occupied by the owner. In addition, we

assumed that no encroachment or trespass exits, unless noted in the valuation certificate.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on

the property interests nor for any expenses or taxation which may be incurred in effecting a sale. Unless

otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and

outgoings of an onerous nature which could affect their values.

In valuing the property interests, we have fully complied with the HKIS Valuation Standards (2012

Edition) published by The Hong Kong Institute of Surveyors (HKIS) and the requirements set out in

Chapter 5 of and Practice Note 12 to the Rule Governing the Listing of Securities issued by The Stock

Exchange of Hong Kong Limited.

Unless otherwise stated, all money amounts stated are in Renminbi (RMB). The exchange rate

adopted in valuing the property interests in the PRC as at 30 April 2013 was HK$ 1: RMB 0.8003. There

has been no significant fluctuation in the exchange rate for this currency against Hong Kong Dollars

between that date and the date of this letter.

We enclose herewith the summary of valuation together with the valuation certificates.

Respectfully submitted,

For and on behalf of

GRANT SHERMAN APPRAISAL LIMITEDLawrence Chan Ka Wah

MRICS MHKIS RPS(GP)

Director

Real Estate Group

Note:

Mr. Lawrence Chan Ka Wah is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong institute of Surveyors and Registered Professional Surveyors in the General Practice Section, who has over 9 years experience in the valuation of properties in Hong Kong, Macau, the PRC and the Asian Rim. Lawrence joined Grant Sherman Appraisal Limited in 2012.

5.05

PN1214

PN124.2


V – 4

SUMMARY OF VALUATION

Group I – Property interest held by the Group for self-occupation purpose in the PRC

Property

Market Valuein existing state as at

30 April 2013Interest attributable tothe Group

Market Valuein existing stateattributable to

the Group as at30 April 2013

1. The lands andbuildings registered in the name of Shandong Xiwang Sugar Industry Company Limitedlocated atHandian County,Zouping Town,Binzhou City,Shandong Province,the PRC

RMB 1,180,100,000(equivalent toapproximately

HK$ 1,474, 600,000)

100% RMB 1,180,100,000(equivalent to approximately

HK$ 1,474,600,000)

Group II – Property interest to be held by the Group for self-occupation purpose in the PRC

2. The lands andbuildings registered in the name of Shandong Xiwang Pharmaceutical Company Limitedlocated atHandian County,Zouping Town,Binzhou City,Shandong Province,the PRC

No commercial value 100% Nil

Grand-Total RMB 1,180,100,000(equivalent to

approximatelyHK$ 1,474,600,000)

RMB 1,180,100,000(equivalent to

approximatelyHK$ 1,474,600,000)

5.06(1)(r)(5),(c)


V – 5

VALUATION CERTIFICATE

Group I – Property interest held by the Group for self-occupation purpose in the PRC

Property Description and TenureParticulars ofoccupancy

Market Valuein existing state

as at30 April 2013

1. The lands andbuildings registered in the name of Shandong Xiwang Sugar Industry

Company Limited located atHandian County,Zouping Town,Binzhou City,Shandong Province,the PRC

The property comprises 11 parcels of land together with various single to 4-storey buildings and various structures completed in between 1996 to 2011 erected thereon.

The total site area and total gross floor area of the property are approximately 795,565.5 sq.m. and 143,795.41 sq.m. respectively.

The land use rights of the property were granted for various terms with the latest expiry date on 26 September 2059 for industrial use.

The property was occupied by the Group for industrial and ancillary uses as at the date of valuation.

Furthermore, two buildings with an estimated gross floor area of approximately 13,156 sq.m. was under construction, estimated to be completed at the end of 2013.

The external condition of the property was good as at the date of inspection.

RMB 1,180,100,000(equivalent to approximately

HK$ 1,474,600,000)

Interestattributable to

the Group

100%


to be attributable tothe Group as at

30 April 2013

RMB 1,180,100,000(equivalent toapproximately

HK$ 1,474,600,000)

Notes:

1. Pursuant to 11 State-owned Land Use Certificates, the land use rights of the property with a site area of approximately 795,565.5 sq.m. were granted to the Shandong Xiwang Sugar Industry Company Limited and Shandong Xiwang Bio-Chem Technology Company Limited for various terms with the latest expiry date on 26 September 2059 for industrial use, the particulars are summarized as below:

Lot No. Approximate Site Area Tenure expiry date State-owned Land Use Certificates (sq.m.) (Document Nos.)

10-01-04 30,155.00 1 November 2048 Zou Guo Yong (2004) No. 10010410-01-38-1 42,360.00 23 August 2054 Zou Guo Yong (2004) No. 100138-110-01-36 41,242.00 24 August 2054 Zou Guo Yong (2004) No. 10013610-01-40 120,000.00 10 May 2055 Zou Guo Yong (2005) No. 10014010-01-80 26,493.00 26 September 2059 Zou Guo Yong (2009) No. 10013010-01-81-1 85,337.53 26 September 2059 Zou Guo Yong (2009) No. 10013110-01-81-2 66,666.67 26 September 2059 Zou Guo Yong (2009) No. 10013210-01-46 143,651.30 28 September 2055 Zou Guo Yong (2006) No. 10014610-01-45 35,960.00 28 September 2055 Zou Guo Yong (2006) No. 10014510-01-50 70,366.00 28 September 2055 Zou Guo Yong (2009) No. 10015510-01-44 133,334.00 28 September 2055 Zou Guo Yong (2012) No. 1001109

Total 795,565.5

5.06(3)(c),(d),

5.10(b),(d),

(e),(g),

5.2(a)

PN12

5.1,8.2


V – 6

The land use rights of the land parcels registered under State-owned Land Use Certificates (Document Nos.: Zou Guo Yong (2004) Nos. 100104, 100138-1, 100136 and Zou Guo Yong (2005) No. 100140 were granted to Shandong Xiwang Sugar Industry Company Limited whereas the land use rights of the remaining land parcels registered under State-owned Land Use Certificates (Document Nos.: Zou Guo Yong (2009) Nos.: 100130, 100131, 100132, 100155, Zou Guo Yong (2006) Nos.: 100145 and 100146 and Zou Guo Yong (2012) No. 1001109) were granted to Shandong Xiwang Bio-Chem Technology Company Limited.

2. Pursuant to 12 Building Ownership Certificates, the ownership of the building portion of the property with a total gross floor area of approximately 143,795.41 sq.m. is vested in Shandong Xiwang Sugar Industry Company Limited, the particulars are summarized as below:

Approximate No. of Building OwnershipBuilding Name Gross Floor Area storey Certificate (sq.m.) (Document No.)

Office Building 561.88 2 Zou Ping Xian Fang Quan ZhengFinished Goods Godown 385.31 1 Han Dian Si Zi No.: HDS00011(1)Workshop 1,791.81 1Electricity Transformer Room 171.50 1Dormitory 49.47 1

Workshop 450.36 1 Zou Ping Xian Fang Quan ZhengGodown 2,041.30 1 Han Dian Si Zi No. HDS00011(2)Godown 63.50 1Workshop 120.70 1Workshop 2,717.36 3

Godown 12,653.76 1 Zou Ping Xian Fang Quan ZhengGuard Room 19.00 1 Han Dian Si Zi No. HDS00011(4)Electricity Transformer Room 404.94 1

Workshop 5,667.20 1 Zou Ping Xian Fang Quan ZhengWorkshop 43.78 1 Han Dian Si Zi No. HDS00020(1)Workshop 6,410.71 3Guard Room 22.00 1Office Building 56.00 1

Electricity Transformer Room 267.24 1 Zou Ping Xian Fang Quan ZhengWashroom 75.33 1 Han Dian Si Zi No. HDS00020(2)Godown 2,346.58 1Washroom 72.54 1

Guard Room 23.76 1 Bin Zhou Shi Fang Quan ZhengOffice Building 3,688.05 3 Zou Ping Xian Zi No. 001767Workshop 9,235.53 1Workshop 13,638.56 4Workshop 16,839.99 1

Godown 120.00 1 Bin Zhou Shi Fang Quan ZhengWashroom 64.60 1 Zou Ping Xian Zi No. 001768Godown 811.62 1East Godown 12,168.00 1Land Balance Room 23.80 1

Office Building 90.22 1 Bin Zhou Shi Fang Quan ZhengWorkshop 9,282.67 2 Zou Ping Xian Zi No. 001766Workshop 3,608.76 1Godown 3,442.84 1Godown 1,687.59 1


V – 7

Approximate No. of Building OwnershipBuilding Name Gross Floor Area storey Certificate (sq.m.) (Document No.)

Office Building 3,981.14 2 Zou Ping Xian Fang Quan ZhengCanteen 961.40 1 Han Dian Si Zi No. HDS00013(1)Workshop 2,590.37 1Washroom 52.56 1Electricity Transformer Room 723.15 1

Godown 3,101.16 1 Zou Ping Xian Fang Quan ZhengWorkshop 1,822.50 1 Han Dian Si Zi No. HDS00013(2)Guard Room 33.92 1Workshop 2,516.50 1Packaging Workshop 3,138.34 3

Workshop 4,109.70 3 Zou Ping Xian Fang Quan ZhengGuard Room 12.96 1 Han Dian Si Zi No. HDS00013(3)

Workshop 657.86 1 Zou Ping Xian Fang Quan ZhengKitchen 539.65 2 Han Dian Si Zi No. HDS00011(3)Guard Room 24.39 1Office Building 1,238.30 3Workshop 7,173.25 3

Total 143,795.41

3. According to the information provided by the Group, two corn warehouse buildings with an estimated total gross floor area of approximately 13,156 sq.m. were under construction as at the date of valuation and estimated to be completed at the end of 2013. The estimated total development cost (including construction cost) is RMB 45,594,333.68 and the development cost (including construction cost) settled as at the date of valuation is RMB 13,161,556.

The capital value of these two buildings as at the date of valuation is RMB 47,000,000 by assuming they were completed as at the date of valuation in accordance with the Group’s development proposal and the capital value of these two buildings in existing state as at the date of valuation is RMB 13,400,000.

4. The property was inspected by Mr Lawrence Chan Ka Wah (MRICS MHKIS RPS(GP)) and Mr Will Chan (BSc) on 14 April 2013, the external condition of the property was reasonable.

5. The property is situated along Xiwang Road which is on the east of Handian Town, the area where the property situated is a well-developed industrial district, various medium to large scale industrial complexes are found nearby and various low-rise village houses built in the locality. The property is about an-hour driving distance to Jinan International Airport. The property is accessible by bus and taxi.

6. As advised by the Company, Shandong Xiwang Sugar Industry Company Limited is a company incorporated in the PRC.

7. As advised by the Company, Shandong Xiwang Sugar Industry Company Limited formerly known as Shandong Xiwang Bio-Chem Technology Company Limited.

5.06(3),(e)-(g),(k)


V – 8

8. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal adviser, Jingtian & Gongcheng, which contains, inter alia, the following information:

(a) The Group is the current registered owner of the property. The property is entitled to be occupied, transferred, leased and mortgaged;

(b) 5 land parcels registered under the State-owned Land Use Certificates (Document Nos.: Zou Guo Yong (2004) Nos.: 100104, 100138-1, 100136 and 100140 and Zou Guo Yong (2006) No. 100155) together with various buildings registered under the Building Ownership Certificates (Document Nos.: Zou Ping Xian Fang Quan Zheng Han Dian Si No. HDS00011(1), HDS00011(2), HDS00011(3), HDS00011(4), HDS00013(1), HDS00013(2), HDS00013(3), HDS00020(1) and HDS00020(2) are subject to a mortgage in favour of Agricultural Bank of China Limited (Zouping Town Branch) dated 15 June 2012 vide a memorial no. 37100220120027019; and

(c) the land use rights of the land parcels registered under State-owned Land Use Certificates (Document Nos.: Zou Guo Yong (2009) Nos.: 100130, 100131 and 100132, Zou Guo Yong (2006) Nos.: 100145, 100146 and 100155 and Zou Guo Yong (2012) No. 1001109) is subject to application for the renewal of the new State-owned Land Use Certificates registered under Shandong Xiwang Sugar Industry Company Limited.

9. As advised by the Group, the Group has no plans to change the existing use of the property. The property will be used for industrial and ancillary uses.

10. As advised by the Company, portion of the structure which was acquired by the Group as disclosed in the Company’s circular dated 2 March 2012 has been completed in 2012.


V – 9

VALUATION CERTIFICATE

Group II – Property interest to be held by the Group for self-occupation purpose in the PRC

Property Description and TenureParticulars ofoccupancy


as at30 April 2013

2. The lands andbuildings registered in the name of Shandong Xiwang Pharmaceutical Company Limitedlocated atHandian County,Zouping Town,Binzhou City,Shandong Province,the PRC

The property comprises 4 parcels of land together with 25 single to 3-storey buildings and various structures completed in between 1999 to 2007 erected thereon.

The total site area and total gross floor area of the property are approximately 83,940 sq.m. and 39,558.12 sq.m. respectively.

The land use rights of the property were granted for various terms with the latest expiry date on 29 December 2056 for industrial use.

The property was occupied by the Group for industrial and ancillary uses as at the date of valuation.

The external condition of the property was good as at the date of inspection.

No commercial value

Interestattributable to

the Group

100%


to be attributable tothe Group as at

30 April 2013

Nil

Notes:

1. Pursuant to 4 State-owned Land Use Certificates, the land use rights of the property with a total site area of approximately 83,940 sq.m. were granted to Shandong Xiwang Pharmaceutical Company Limited (now known as Xiwang Pharmaceutical Company Limited) for various terms with the latest expiry date on 29 December 2056 for industrial use. The particulars are as below:

Lot No. Approximate Site Area Tenure expiry date State-owned Land Use Certificates (sq.m.) (Document Nos.)

10-01-05 30,150.00 11 March 2048 Zou Guo Yong (2010) No. 10017710-01-39 7,350.00 23 August 2054 Zou Guo Yong (2010) No. 10017610-01-34 30,300.00 23 August 2054 Zou Guo Yong (2010) No. 10017410-01-64 16,140.00 29 December 2056 Zou Guo Yong (2010) No. 100175

Total 83,940

2. Pursuant to a Building Ownership Certificate (Document No.: Bin Zhou Shi Fang Quan Zheng Zou Ping Xian Zi No. 006986), the ownership of the building portion of the property with a total gross floor area of approximately 44,240.93 sq.m. is vested in Shandong Xiwang Pharmaceutical Company Limited (now known as Xiwang Pharmaceutical Company Limited). As advised by the Group, 2 buildings with a total gross floor area of approximately 4,682.81 sq.m. were demolished. Hence, the total gross floor area of the property is approximately 39,558.12 sq.m.


V – 10

3. Pursuant to an Asset Acquisition Agreement and its supplementary agreement both entered into between Shandong Xiwang Sugar Industry Company Limited (Party A) and Shandong Xiwang Pharmaceutical Company Limited (now known as Xiwang Pharmaceutical Company Limited) (Party B) dated 30 June 2011 and 27 January 2012 respectively, the property together with various equipments was transferred from Party B to Party A at a consideration of RMB 825,000,000.

4, The property was inspected by Mr Lawrence Chan Ka Wah (MRICS MHKIS RPS(GP)) and Mr Will Chan (BSc) on 14 April 2013, the external condition of the property was reasonable.

5. The property is situated along Xiwang Road which is on the east of Handian Town, the area where the property situated is a well-developed industrial district, various medium to large scale industrial complexes are found nearby and various low-rise village houses built in the locality. The property is about an-hour driving distance to Jinan International Airport. The property is accessible by bus and taxi.

6. As advised by the Company, Shandong Xiwang Pharmaceutical Company Limited is a company incorporated in the PRC. It was renamed to Xiwang Pharmaceutical Company Limited.

7. We have ascribed no commercial value to the property due to the absence of the State-owned Land Use Certificates and Building Ownership Certificates registered under the name of Shandong Xiwang Sugar Industry Company Limited, hence Shandong Xiwang Sugar Industry Company Limited is not entitled to transfer, lease and mortgage the property in the market.

However, for indicative purpose, the market value of the property in existing state as at the date of valuation is RMB 55,400,000 (equivalent to approximately HK$69,200,000) assuming that the State-owned Land Use Certificates and Building Ownership Certificates registered under the name of Shandong Xiwang Sugar Industry Company Limited were obtained, where upon Shangdong Xiwang Sugar Industry Company Limited is entitled to transfer, lease and mortgage the property without restriction.

8. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal adviser, Jingtian & Gongcheng, which contains, inter alia, the following information:

(a) Shandong Xiwang Pharmaceutical Company Limited (now known as Xiwang Pharmaceutical Company Limited) is the current registered owner of the property. Shandong Xiwang Sugar Industry Company Limited is entitled to occupy, transfer, lease and mortgage the property once the Stated-owned Land Use Certificate and Building Ownership Certificates registered under the name of Shangdong Xiwang Sugar Industry Company Limited have been obtained. There are no material legal impediments for Shangdong Xiwang Sugar Industry Company Limited to complete the transfer registrations and obtain the title documents in respect of the property; and

(b) The property is subject to a mortgage in favour of Agricultural Bank of China Limited (Zouping Town Branch) dated 15 June 2012 vide a memorial no. 37100220120027019.

9. As advised by the Group, the Group has no plans to change the existing use of the property. The property will be used for industrial and ancillary uses.

PN1216

APPENDIX VI VALUATION REPORT ON MACHINERY AND EQUIPMENT

VI – 1

The following is the text of a valuation report, prepared for the purpose of inclusion in this circular

received from Grant Sherman Appraisal Limited, an independent valuer, in connection with its valuation

as at 30 April 2013 of the fair market value of the machinery and equipment of the Group.


Unit 2110, 21st Floor, Harbour Centre

25 Harbour Road, Wanchai

Hong Kong

13 June 2013

Dear Sirs or Madams,

In accordance with your instructions, we have made an appraisal of the Machinery and Equipment

(the “Equipment”) exhibited to us as that owned by Xiwang Sugar Holdings Company Limited (the

“Company”) and its subsidiaries (collectively referred to as the “Group”).

This letter, which forms part of our appraisal report, identifies the Equipment, the scope and

character of our investigation, the premise of the value adopted, the valuation approaches adopted, and our

conclusion of value.

We confirm that we have carried out an inspection, made relevant inquiries and obtained such

further information as we consider necessary for the purpose of providing you with our opinion of the fair

market value of the Equipment as of 30 April 2013.

It is our understanding that this appraisal will be used for financial reporting purposes.

INTRODUCTION

Xiwang Sugar Holdings Company Limited is an investment holding company listed on the Main

Board of The Hong Kong Stock Exchange of Hong Kong Limited (stock code: 2088), together with

its subsidiaries (collectively referred to as the “Group”), is principally engaged in, among others, the

manufacture, distribution, and sale of starch sugars and corn co-products. Starch sugars include crystalline

glucose, crystalline fructose, crystalline fructose-glucose, and fructose-glucose syrup from the processing

of corn starch. The Company’s corn co-products comprise corn gluten meal, corn gluten feed, corn

germ, corn starch, and sodium gluconate products that are widely applied in food and beverage, animal

feed, fermentation, pharmaceutical, chemical and construction industries. The machinery and equipment

appraised involved the evaporators, heat exchangers, horizontal crystallizers, oscillating vertical cooling

App1B(5)(3)


VI – 2

crystallizers, supercritical fluid chromatography, storage tanks, filter presses, centrifuges, electrical

system, piping systems, pumps, air compressors, transformers, air drying system, packing machines,

filters, blowers, office equipment, electrical appliances, motor vehicles and others production machinery.

The appraisal report comprises:

– this letter, identifying the Equipment, describing the nature and extent of the investigation,

and presenting the conclusion of value;

– an inventory showing the proper description and the fair market value for the Equipment;

– assumptions and limiting conditions; and

– a statement of normal service conditions.

We have only performed valuation for the Equipment, which was specifically identified by the

Company and are listed out in the inventory. Excluded from this investigation were other machinery and

equipment, other tooling and accessory, other motor vehicles, land, buildings and structures, building

improvements, tangible assets of current nature and intangible assets that might exist.

The Equipments were located in the Xiwang Industrial Area, Zouping County, Shandong Province,

the PRC.

PREMISE OF VALUE

The premise of value will be fair market value of equipment, which is defined as the following:

Fair market value is defined as the estimated amount at which a property might be expected to

exchange between a willing buyer and a willing seller, neither being under compulsion, each having

reasonable knowledge of all relevant facts.

VALUATION METHODOLOGY

Before arriving at our opinion of value, we personally inspected the Equipment and studied

the market conditions. To develop our opinion of value, we considered the three generally accepted

approaches to value: cost, market and income capitalization. The theory of these approaches is outlined as

follows:

The cost approach

The cost approach establishes value based on the cost of reproducing or replacing the

Equipment, less depreciation from physical deterioration, and functional and economic/external

obsolescence.

Cost of Reproduction New is defined as the estimated amount required to reproduce the

Equipment at one time in like kind and materials in accordance with current market prices for

materials, labor, and manufactured equipment, contractors’ overhead and profit, and fees, but

without provision for overtime, bonuses for labor, or premiums for materials or equipment.


VI – 3

Cost of Replacement New is defined as the estimated amount required to replace the entire

property at one time with a modern new unit using the most current technology and construction

materials that will duplicate the production capacity and utility of an existing unit at current market

prices for materials, labor, and manufactured equipment, contractors’ overhead and profit, and fees,

but without provision for overtime, bonuses for labor, or premiums for materials or equipment.

The formula of determining the Depreciated Replacement Cost of the Equipment is as below:

Cost of Reproduction New/Cost of Replacement New multiplied by (Physical Deterioration

plus Functional Obsolescence plus Economic/External Obsolescence) = The Depreciated

Replacement Cost of the Equipment

Physical Deterioration is the loss in value resulting from wear and tear in operation and

exposure to the elements.

Functional Obsolescence is the loss in value caused by conditions within the Equipment such

as changes in design, materials, or process that result in inadequacy, overcapacity, lack of utility, or

excess operating costs.

Economic/External Obsolescence is an incurable loss in value caused by unfavorable

conditions external to the Equipment such as the local economy, economics of the industry,

availability of financing, encroachment of objectionable enterprises, loss of material and labor

sources, lack of efficient transportation, shifting of business centers, passage of new legislation, and

changes in ordinances.

In cost approach, we start with the market information of the Equipment from the first hand

market. Then, we added the transportation expenses, insurance, commissioning (testing) costs and

installation costs as the principle of cost approach is to replace similar Equipment as at the date of

valuation.

In determining the physical life-span of each of the appraised Equipment, we estimated

a basic life-span of the Equipment according to their functions and technology based on our

professional knowledge and experiences. The following factors would also be considered during

our determination of the basic life-span of the Equipment:

(a) Manufacturers: equipment made by some well-known manufacturers are more durable

than those manufactured by small producers;

(b) Maintenance policy: During our site inspection, we obtained from the Company the

Equipment maintenance policy, such as the frequency of maintenance and inspection

checking work and the qualification of engineers involved.

(c) Product Market: the life-span of certain Equipment is much shorter due to frequent

release of new models and new technology, such as mobile phone, computers.


VI – 4

We would then determine the appropriate depreciation rates (‘‘Depreciation Rate’’) of each

of the Equipment with reference to their observed maintenance conditions during site inspection

and in accordance with our professional knowledge and experience.

Finally, the replacement cost is determined by the value of new Equipment multiplied by the

Depreciation Rate in our valuation opinion.

The cost approach generally provides a meaningful indication of the value of land

improvements, special buildings, special structures, and special machinery and equipment

associated with a viable business or justified by economic demand.

When market transactions of comparable Equipment are not available, when data cannot

be extrapolated from larger transactions, or when transactions are non-existent, under premise of

continued use, assuming adequate earnings the cost approach is the preferred valuation procedure.

The market approach

In the market approach, the value of the appraised Equipment is estimated through analysis

of recent sales of comparable items of the Equipment. It is employed in the valuation of the

Equipment for which there is a known used market. Under the premise of continued use assuming

adequate earnings, consideration is given to the cost to acquire similar items in the used-equipment

market; an allowance then is made to reflect the costs for freight and installation.

A variant of the direct market approach is the use of market relationship. Recent market

prices for Equipment in an asset classification are determined with respect to age and are compared

with a benchmark price, such as the cost of reproduction new. The ratio is applied to similar

Equipment in the classification when the secondary market for the subject equipment is too sparse

to exhibit appropriate comparables.

In market approach, we compare the differences between the subject Equipment and the

comparable equipments in terms of:

(a) used life

(b) capacity

(c) maintenance/condition observed during site inspection

(d) technology of the equipment

(e) manufacturer

We then determine an adjustment rate after considering the above factors and in accordance

with our professional knowledge and experiences. Allowance is also made to reflect the costs for

freight and installation.

Then the fair market value is derived from recent market prices for the Equipment as

adjusted by the required adjustment rate in our valuation opinion.


VI – 5

The income capitalization approach

In the income capitalization approach, value is developed on the basis of capitalization of the

net earnings that would be generated if a specific stream of income can be attributed to an asset or

a group of assets. This approach is most applicable to investment and general-use properties where

there is an established and identifiable rental market.

In any appraisal study, all three approaches to value must be considered, as one or more may

be applicable to the subject Equipment. In some situations, elements of two or three approaches may

be combined to reach a value conclusion. As the Equipment itself cannot generate income, it can only

generate income together with other assets and input such as raw materials, labour, intangible assets such

as trademarks, patent, customer relationship and distribution network, and working capital etc. These

other assets and input are all required for generating income through selling a product manufactured by

the Equipment or the production line. Accordingly, the value derived from income capitalization approach

is for a total business enterprise instead of for a piece of Equipment or production line. In order to

ascertain the value of a piece of Equipment or production line, we have to determine how much portion of

the total business enterprise value is contributed by (a) such piece of Equipment or production line; and

(b) other assets and input respectively. In doing so, we have to make a lot of assumptions which cannot

be easily and objectively verified. As a result, the income capitalization approach was not applied for this

appraisal. The cost (Depreciated Replacement Cost) and market approaches were the principal methods

adopted to arrive at our opinion of value.

INVESTIGATION AND ASSUMPTIONS

We conducted an inspection of the Equipment from 13 to 15 April 2013. During our inspection,

we noted that the Equipment in general was in fair condition. In the course of our investigation, we

accepted property records furnished by the Company as properly describing the Equipment. We visited

the locations to verify the existence of the Equipment and to gather information relating to its condition

and utility. The balance of the information provided by the Company, after adjustments based on our

observation, although not subject to a detailed verification, was accepted as reasonably representing the

facts.

Any deferred maintenance, physical wear and tear, operating malfunctions, lack of utility, or other

observable conditions distinguishing the Equipment from equipment of like kind in new condition were

noted and made part of our judgment in arriving at the value.

We did not investigate any financial data pertaining to the present or prospective earning capacity

of the operation in which the assets are used. It was assumed that prospective earnings would provide

a reasonable return on the appraised value of the assets, plus the value of any assets not included in the

valuation, and adequate net working capital.

We have not carried out a mechanical survey, nor have we inspected covered or inaccessible areas

of the equipment. Also, no investigation was conducted as to whether the operation of specific pieces of

Equipment complied with the relevant environmental standards and ordinances; we have assumed that

the equipment are and will continue complied with the current environmental standards and ordinances.

We have made no allowance in our valuation for any costs associated with the disposal or handling of

materials to comply with current or pending environmental legislation.


VI – 6

CONCLUSION OF VALUE

Based on the investigation described, it is our opinion that as of 30 April 2013, the fair market

value of the Equipment is reasonably represented by the amount of RENMINBI ONE BILLION FOUR

HUNDRED AND NINETY FIVE MILLION FOUR HUNDRED AND FORTY ONE THOUSAND

(RMB1,495,441,000) which is summarized in the following table:

Unaudited Fair Maintenance net book Market Post Condition, value as at value as at Depreciation Use, Capacity Methodology(ies) AdjustmentCategories 30 April 2013 30 April 2013 Factor & obsolescence Adopted Factors (RMB) (RMB)

(Note 1) (Note 1) (Notes 2 and 4) (Notes 2 and 5) (Note 6) (Note 5)

Production Equipment 1,576,488,000 1,422,506,000 23.3% - 97.2% 90% – 100% Cost Approach/ Maintenance Condition,

(Notes 2 and 3) Market Approach Use, Capacity,

obsolescence &

depreciation

Electronic Equipment 4,779,000 4,415,000 10%– 95.1% 95% - 100% Cost Approach/ Maintenance Condition,

Market Approach Use, Capacity,

obsolescence &

depreciation

Other Equipment 58,746,000 54,369,000 10% – 95.1% 100% Cost Approach/ Maintenance Condition,

(Note 7) Market Approach Use, Capacity,

obsolescence &

depreciation

Motor Vehicles 7,650,000 7,783,000 10% – 97% 95% - 100% Cost Approach/ Maintenance Condition,

Market Approach Use, Capacity,

obsolescence &

depreciation

Installation and other 6,368,000 6,368,000 100% 100% Cost Approach –

Total : 1,654,031,000 1,495,441,000

Notes:

1. The difference between the unaudited net book value and market value as at 30 April 2013 is mainly due to the differences between valuation methodology and accounting policies of the Group. According to the accounting policies of the Group, property, plant and equipment are stated at historical cost less depreciation and impairment loss, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The Group acquired a brand new production line of starch with an expected annual capacity of 600,000 tonnes last year, with details set out in the circular of the Company dated 2 March 2012. The Group has conducted trial run and testing to fine tune the production line before commencing commercial production. Total net expenses of approximately RMB118.3 million were incurred by the Group during the trial run and testing period. Pursuant to the accounting policies of the Group, the amount of RMB118.3 million was capitalised as fixed assets in the financial statements of the Group. The net book value of these net expenses amounted to approximately RMB115.9 million as at 30 April 2013. Under the depreciated replacement cost approach and market approach, the expenses for the trial run and testing with a net book value of approximately RMB115.9 million will not be taken into account in the course of the valuation.


VI – 7

The remaining difference after deducting the aforesaid expenses for the trail run and testing of approximately RMB115.9 million amounted to approximately RMB42.7 million, representing only approximately 2.6% of the total unaudited net book value of the Equipment as at 30 April 2013. It is stated above that the depreciated replacement cost approach takes into account the current cost of replacement/reproduction of the Equipment less deductions for physical deterioration and all relevant forms of obsolescence and optimisation, but without provision for overtime, bonuses for labour, or premiums for materials or equipment or other indirect expenses incurred. Moreover, change of physical conditions and other factors have also been considered by us in the course of valuation. All of these contribute to the difference.

2. For indicative purpose, production equipment includes, among others, the following production lines:

Production line

Unaudited net book value as at

30 April 2013

Fair marketvalue as at

30 April 2013 Capacity Use

No. of years used by the

Group Status

(RMB’000) (RMB’000)

Corn starch production line A 283,038 169,754 Annual capacity of 600,000 tonnes





1 In use

Corn starch production line B 93,346 88,450 Annual capacity of 600,000 tonnes

6 In use

Corn starch production line C 66,249 61,224 Annual capacity of 280,000 tonnes

8 In use

Corn starch production line D 5,917 5,865 Annual capacity of 150,000 tonnes

1 In use

Maltodextrin production line A 6,863 5,715 Annual capacity of 60,000 tonnes



1 In use

Maltodextrin production line B 19,898 18,763 Annual capacity of 60,000 tonnes

1 In use

Dehydration facility 7,679 6,193 Efficiency of 52,500 gigawatts per hour

Dehydration 1 In use

Starch sugars production line A 75,447 73,352 Annual capacity of 97,000 tonnes


12 In use

Starch sugars production line B 90,932 88,324 Annual capacity of 100,000 tonnes


10 In use

Starch sugars production line C 228,854 224,907 Annual capacity of 573,000 tonnes


6 In use

Starch sugars production line D 66,549 65,426 Annual capacity of 10,000 tonnes


6 In use

Starch sugars production line E 131,102 130,279 Annual capacity of 20,000 tonnes


1 In use

Starch sugars production line F 193,833 189,505 Annual capacity of 50,000 tonnes


4 In use

Sodium gluconate production line 256,909 252,035 Annual capacity of 130,000 tonnes

Production of sodium gluconate

4 In use

Others (note a) 49,872 42,714

1,576,488 1,422,506


VI – 8

Notes:

(a) Others include water treatment facilities, sewage plant, quality monitoring equipments escalators, air-conditioning system, electricity supply system, pumping system and other auxiliary facilities.

(b) Post depreciation factors have been applied in determining the market value of the production equipment. The range of post depreciation factors of approximately 23.3% to 94.8% was derived from the post depreciation factors applied to around 4,200 items in the production lines disclosed above which have been used by the Group for 1 to 12 years.

(c) Other adjustment factors, including maintenance condition, use, capacity and obsolescence, have been applied in determining the market value of the production equipment. The range of other adjustment factors of approximately 90% to 100% was applied to around 4,200 items in the production lines disclosed above which have been used by the Group for 1 to 12 years.

3. Two starch production lines with an aggregate capacity of 750,000 tonnes per annum, two production lines of maltodextrin with a total capacity of 120,000 tonnes per annum, a dehydrating plant and related facilities were acquired from 山東西王藥業有限公司 (Shandong Xiwang Pharmaceutical Company Limited) in 2012.

4. Post Depreciation Factor is the required depreciation rate that relates to the remaining useful life of the Equipment. It does not have any relationship with accounting policy.

(a) Post Depreciation Factor = Remaining useful life/estimated physical life span of the Equipment

(b) Remaining useful life = estimated physical life span – (year of appraisal – year the equipment is manufactured)

The post depreciation factor is then subject to further adjustment to reflect a production line’s functional and economic obsolescence, if any. Therefore,

Fair market value of a production line = Cost of Replacement New or Reproduction New * post depreciation factor * adjustment factor for functional and economic obsolescence

5. The Adjustment Factors determined with our professional judgment and experience is a function of the observed maintenance and obsolescence condition of the Equipment during our site inspection, the Equipment’s maintenance policy, its existing use and operating capacity.

The maintenance and obsolescence conditions will affect the fair market value of the Equipment. If the observed maintenance condition is good and there is not much obsolescence, the fair market value of the Equipment is, in general, higher.

The actual usage of the Equipment will affect its fair market value. If the Equipment is used in a way which is different from its designed usage or exceeds its designed capacity, the fair market value of the Equipment is, in general, lower as compared to the Equipment used in accordance with its designed usage and capacity.

Under the depreciated replacement cost approach, we searched the market price information of comparable equipment from the first hand market which will be deducted for physical deterioration and all relevant forms of obsolescence and optimization of the Equipment. When searching for market price in the first hand market, if the capacity of comparable equipment is greater than that of the Equipment, we would apply a discount to the market price of the comparable equipment for determination of the brand new price of the Equipment.

The life span of each of the Equipment is estimated by reference to, among other things, (a) estimated useful life made by the Company; (b) typical life span of comparable equipment in the industry; (c) life span estimated by the manufacturers, wholesalers or dealers; (d) reference trade magazines/books; (e) our internal database; and (f) our experience by reference to comparable equipment we appraised previously.


VI – 9

During our site inspection, we note that the Equipment in general is in fair condition, and used in accordance with the designed usage. Moreover, we have sample checked the Equipment to assess performance of the Equipment and whether the Equipment can function properly. Based on our professional judgment and experience, the following rates are adopted in the course of our valuation:

Categories Maintenance condition, use, capacity & obsolescence

Production equipment 90% – 100%Electronic equipment 95% – 100%Other equipment 100%Motor vehicles 95% – 100%Construction in progress and installation 100%

6. As stated in the Valuation Methodology Section above, in arriving at the fair market value using cost approach, we have determined the Cost of Reproduction New/Cost of Replacement New with reference to the current market data and then we have made adjustments subject to the maintenance condition, use, capacity, obsolescence, etc., then multiplied by the Post Depreciation Factor.

In determining the Cost of Reproduction New/Cost of Replacement New, we have made reference to the original purchase cost provided by the Company (i.e.: original book value) as well. Furthermore, As stated above, we have taken into account the Cost of Reproduction New/Cost of Replacement New less deductions for physical deterioration and all relevant forms of obsolescence and optimization, but without provision for overtime, bonuses for labour, or premiums for materials or equipment or other indirect expenses incurred by the Company. Moreover, change of physical conditions and other factors have been also considered.

7. Other equipment includes mainly fire extinguishing system, transportation system, invoicing system, air-conditioning system for research and development department, research and development facilities, laboratory equipments and facilities and other auxiliary facilities.


VI – 10

For the purpose of this appraisal, we have reviewed the acquisition records and asset listings as well

as other related technical specifications and documents supplied to us by the Company. We have relied to

a considerable extent on such records, listings, specifications and documents in arriving at our opinion of

value.

We have not investigated the title to or any liabilities against the Equipment.

We hereby certify that we have neither present nor a prospective interest in the Equipment or the

value reported.

Respectfully submitted,

For and on behalf of

GRANT SHERMAN APPRAISAL LIMITEDKeith C.C. Yan, ASA

Managing Director

Investigation and report by:

Keith C.C. Yan, ASA

Sunny Lee, MSAE, AMHKIE, AMIMechE

Keith C. C. Yan, is an Accredited Senior Appraiser(Business Valuation) of the American Society of

Appraisers(ASA), who has over 25 years’ experience in the valuation of intangible assets and plant and

machinery.

APPENDIX VII GENERAL INFORMATION

VII – 1

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

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

Approximate percentage shareholding in the class Company/Name of Number and class of securities as at theassociated corporations Name of directors Capacity of securities Latest Practicable Date

Company WANG Yong Interest of controlled 584,790,077 57.98% corporations (Note 2) ordinary shares (L) (Note 4) 904,454,180 99.64% convertible preference shares (L) (Note 4)

Promissory note N/A in the principal amount of RMB308,000,000 (Note 4)

Xiwang Holdings Limited WANG Yong Beneficial owner (Note 2) 128,722 shares (L) 64.36% (“Xiwang Holdings”) Other (Note 2) 71,278 shares (L) 35.64%

Xiwang Investment WANG Yong Interest of controlled 3 shares (L) 100% corporations (Note 2)

Xiwang Special Steel WANG Yong Interest of controlled 1,500,000,000 shares (L) 75% Company Limited corporations (Note 2) (Note 3) (“Xiwang Steel”)

Xiwang Holdings WANG Di Beneficial owner 3,546 shares (L) 1.77%

Xiwang Holdings WANG Fangming Beneficial owner 3,546 shares (L) 1.77%

App1B(2)

App1B(34)App1B(38)(1),(1A)


VII – 2

Approximate percentage shareholding in the class Company/Name of Number and class of securities as at theassociated corporations Name of directors Capacity of securities Latest Practicable Date

Xiwang Holdings HAN Zhong Beneficial owner 3,546 shares (L) 1.77%

Xiwang Holdings LI Wei Beneficial owner 1,773 shares (L) 0.89%

Xiwang Holdings SUN Xinhu Beneficial owner 1,773 shares (L) 0.89%

Notes:

(1) The letter “L” represents the director’s interests in the shares.

(2) Xiwang Investment is a wholly-owned subsidiary of Xiwang Holdings, the voting right of which is in turn controlled as to 100% by Mr. WANG Yong and the shares of which are directly and beneficially owned as to 64.36% by Mr. WANG Yong. Mr. WANG Yong is therefore deemed to be interested in the entire issued share capital in Xiwang Investment and Xiwang Holdings. Mr. WANG Yong is the sole director of Xiwang Investment.

Xiwang Holdings is directly and beneficially owned as to 64.36% by Mr. WANG Yong, 1.77% by each of Mr. WANG Di, Mr. WANG Fangming and Mr. HAN Zhong respectively and 0.89% by each of Dr. LI Wei and Mr. SUN Xinhu respectively. Mr. WANG Yong is the sole director of Xiwang Holdings.

(3) These shares are registered in the name of Xiwang Investment. Mr. WANG Yong is deemed to be interested in all the shares of Xiwang Steel held by Xiwang Investment.

(4) These shares and promissory note are beneficially owned by Xiwang Investment. Mr. WANG Yong is deemed to have interest in all shares and the promissory note of the Company held by Xiwang Investment. The promissory note was issued by the Company in favour of Xiwang Investment to settle the consideration under the Previous Acquisition.

(b) Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief

executive of the Company had any interest and short positions in the shares, underlying

shares or debentures of the Company or any associated corporations (within the meaning

of Part XV of the SFO) which were required to be notified to the Company and the Stock

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests

and short positions in which they were deemed or taken to have under such provisions of

the SFO), or which are required, pursuant to section 352 of the SFO, to be entered in the

register maintained by the Company referred to therein, or which were required, pursuant to

the Model Code for Securities Transactions by Directors of Listed Issuers contained in the

Listing Rules, to be notified to the Company and the Stock Exchange.

(c) Save as disclosed above, none of the Directors was a director or an employee of a company

which has an interest or short position in the shares and underlying shares of the Company

which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3

of Part XV of the SFO.

App1B(34)


VII – 3

3. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

(i) Interests in contracts

It was stated in the circular of the Company dated 13 December 2010 that the Company, for itself and on behalf of its subsidiaries, and 山東西王藥業有限公司 (Shandong Xiwang Pharmaceutical Company Limited) (now known as 西王藥業有限公司 (Xiwang Pharmaceutical Company Limited)) (“Xiwang Pharmaceutical”) entered into a crystalline glucose supply agreement dated 9 December 2010 for the Group to supply crystalline glucose to Xiwang Pharmaceutical.

It was announced by the Company on 1 March 2012 that the Company, for itself and on behalf of its subsidiaries, and 西王集團有限公司 (Xiwang Group Company Limited) (“Xiwang Group”), for itself and on behalf of its subsidiaries, entered into a sewage services supply agreement on 1 March 2012, pursuant to which the Group agreed to provide sewage services to Xiwang Group and its subsidiaries.

It was disclosed in the prospectus of the Company in respect an open offer of convertible preference shares (the “Open Offer”) dated 10 April 2012 that a deed was executed by Xiwang Investment as grantor on 27 January 2012, pursuant to which Xiwang Investment granted the put option to qualifying shareholders (other than Xiwang Investment) who subscribed for convertible preference shares under the assured entitlement of the Open Offer (the “Put Option Deed”).

It was further stated in the prospectus of the Company relating to the Open Offer that Xiwang Investment has provided a written undertaking dated 24 February 2012 to the Company that 30 days before the date falling on the second anniversary of the issue date of the convertible preference shares, it will deposit the relevant sum in a bank account with a licensed bank in Hong Kong to be operated by the Company for meeting the payment obligation under the Put Option Deed (“Xiwang Investment Open Offer Undertaking”). Mr. Wang Yong, the chairman and executive Director of the Company, issued a letter of financial support dated 24 February 2012 to the Company to undertake that during the term of the Put Option Deed, he would, among other things, at the request of Xiwang Investment, assist Xiwang Investment to obtain the required funding to enable Xiwang Investment to fulfill its payment obligation under the Put Option Deed (the “Put Option Letter of Financial Support”).

As disclosed in the circular of the Company dated 2 March 2012, the Company, for itself and its subsidiaries, and 山東西王食品有限公司 (Shandong Xiwang Food Company Limited) (“Xiwang Food”) entered into a corn germ supply agreement dated 1 March 2012 for the Group to supply corn germ to Xiwang Food. It was further disclosed in the circular of the Company dated 2 March 2012 that the Company, for itself and on behalf of its subsidiaries, and Xiwang Pharmaceutical entered into a corn starch supply agreement dated 1 March 2012 for the Group to supply corn starch to Xiwang Pharmaceutical.

As disclosed in the circular of the Company dated 11 December 2012, the Company and Xiwang Investment entered into the supplemental agreement on 10 December 2012 (the “Previous Acquisition Supplemental Agreement”) to amend and supplement certain terms of the sale and purchase agreement in relation to the Previous Acquisition, pursuant to which Xiwang Investment has undertaken to the Company to use its best effort, in the period ending on the expiry of 5 years after completion of the Previous Acquisition, to assist the Group to enter into the State-owned Land Use Rights Grant Contract(s) and to obtain the State-owned Land Use Certificates in respect of the

App1B(40)(2)


VII – 4

project site and the Construction Work Planning Permit(s) in respect of the Properties under the Yantaishan corn cultural project and to compensate the Company for the Group’s failure to enter into and/or obtain the aforesaid contract(s) and/or certificate(s) in accordance with the terms set out therein.

Further details of the transactions referred to above are set out in the aforesaid relevant announcement, circulars and prospectus of the Company. As at the Latest Practicable Date, Mr. WANG Yong had interest in 64.36% of the equity capital of Xiwang Group. Both Xiwang Pharmaceutical and Xiwang Food are subsidiaries of Xiwang Group.

Save for the Agreement, and the aforesaid, as at the Latest Practicable Date, there was no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant in relation to the business of the Group.

(ii) Interests in assets

Save for the Sale Share and Sale Loans, none of the Directors had, or has had, any direct or indirect interest in any assets which have been acquired, disposed of by or leased to, or which are proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2012, the date to which the latest published audited consolidated financial statements of the Group were made up.

4. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

5. SERVICE CONTRACTS

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

6. MATERIAL CONTRACTS

Set out below are the material contracts (not being contracts entered into in the ordinary course of business) entered into by members of the Group within the two years immediately preceding the Latest Practicable Date:

(a) the sale and purchase agreement dated 30 June 2011 (the “Asset Acquisition Agreement”) entered into between 山東西王糖業有限公司 (Shandong Xiwang Sugar Industry Company Limited) (“Shandong Xiwang”) and 西王藥業有限公司 (Xiwang Pharmaceutical Company Limited) (“Xiwang Pharmaceutical”) as amended and supplemented by a supplemental agreement set out in (g) below, in respect of the acquisition by Shandong Xiwang of a bundle of operating assets, including (i) two production line of starch with different production capacity; (ii) two production lines of maltodextrin; (iii) other related facilities; and (iv) related land and properties for the consideration of RMB825,000,000;

App1B(40)(1)

R14.66(8)R14A.59(11)

R14.66(7)App1B(39)

App1B(42)


VII – 5

(b) the subscription agreement dated 30 June 2011 entered into by the Company with Xiwang

Investment, which was terminated pursuant to a termination agreement as set out in (e)

below;

(c) the guarantee agreement dated 12 December 2011 entered into between 山東西王置業有限公司 (Shangdong Xiwang Property Company Limited) (“Property Project Company”) and Agricultural Development Bank of China, Zouping County Branch in respect of the loan of

RMB250 million of Xiwang Food for a term of one year from 12 December 2011;

(d) the guarantee agreement dated 28 December 2011 entered into between Property Project

Company and Agricultural Development Bank of China, Zouping County Branch in respect

of the loan of RMB350 million of 鄒平縣國有資產投資經營有限公司 (Zouping County State-owned Assets Investment Operation Company Limited) for a term of ten years from 28

December 2011;

(e) the termination agreement entered into between the Company and Xiwang Investment on 27

January 2012 pursuant to which the parties agreed to terminate the subscription agreement

dated 30 June 2011 as set out in (b) above;

(f) the underwriting agreement dated 27 January 2012 entered into between the Company and

Xiwang Investment in relation to the underwriting of not more than 468,771,547 and not less than 401,464,288 convertible preference shares of the Company under an open offer, the terms of which are set out in the prospectus of the Company relating to the Open Offer;

(g) the supplemental agreement dated 27 January 2012 entered into by Shandong Xiwang and Xiwang Pharmaceutical to amend and supplement certain terms set out the Asset Acquisition Agreement as set out in (a) above;

(h) the Put Option Deed (as defined in the section headed “Directors’ interests in contracts and assets” in this appendix above);

(i) the Xiwang Investment Open Offer Undertaking (as defined in the section headed “Directors’ interests in contracts and assets” in this appendix above);

(j) the Put Option Letter of Financial Support (as defined in the section headed “Directors’ interests in contracts and assets” in this appendix above);

(k) the equity transfer agreement dated 22 October 2012 entered into between Property Project

Company as transferor and 山東盛唐投資有限公司 (Shangdong Shengtang Investment Company) (“Shengtang Investment”) as transferee pursuant to which Property Project

Company disposed of 70% interest in the equity capital of 西王泰山置業有限公司(Xiwang Taishan Properties Company Limited), representing paid-up capital of RMB21,000,000 and unpaid registered capital of RMB14,000,000), to Shengtang Investment at RMB21,000,000;


VII – 6

(l) the equity transfer agreement dated 22 October 2012 entered into between Property Project Company as transferor and Shengtang Investment as transferee pursuant to which Property

Project Company disposed of the entire equity capital of 鄒平縣西王園林綠化有限公司(Zouping County Xiwang Garden Greening Company Limited) to Shengtang Investment at RMB3,000,000;

(m) the equity transfer agreement dated 22 October 2012 entered into between Property Project Company as transferor and Shengtang Investment as transferee pursuant to which Property

Project Company disposed of the entire equity capital of 鄒平西王物業管理有限公司(Zouping Xiwang Property Management Company Limited) to Shengtang Investment at RMB3,000,000;

(n) the framework agreement dated 6 November 2012 entered into by 山東印台山文化發展有限公司 (Shandong Yintaishan Cultural Development Company Limited) (“Yintaishan Cultural”) with 鄒平縣人民政府 (People’s Government of Zouping County) (“Zouping County Government”) which sets out the plan to nominate Yintaishan Cultural as the developer to develop and construct the Yintaishan corn cultural project within five years. If Yintaishan Cultural, through competitive auction, meets the conditions provided in the land tender, auction and listing documents of the project sites, Zouping County Government has agreed to, on the same conditions, preferentially enter into the land use right contract with respect to that project site with Yintaishan Cultural (or a connected company designated by it) to implement the Yintaishan corn cultural project and to coordinate with relevant departments to provide support to Yintaishan Cultural in fulfilling project-related formalities. Details of the latest development of the Yintaishan corn cultural project are set out in the section headed “Information on the property development business” in the Letter from the Board;

(o) the equity transfer agreement dated 12 November 2012 entered into between Shengtang

Investment as transferor and 山東西王投資控股有限公司 (Shandong Xiwang Investment Holdings Company Limited) (“Property Holding”) as transferee pursuant to which Shengtang Investment disposed of the entire equity capital of Property Project Company to Property Holding at RMB231,000,000;

(p) the loan agreement dated 17 November 2012 entered into by Property Holding with Xiwang Group pursuant to which Xiwang Group advanced an interest-free loan of RMB231 million to Property Holding;

(q) the loan agreement dated 17 November 2012 entered into by Yintaishan Cultural with Xiwang Group pursuant to which Xiwang Group advanced an interest-free loan of RMB60.4 million to Yintaishan Cultural;

(r) the sale and purchase agreement dated 17 November 2012 entered by Yintaishan Cultural with Shengtang Investment pursuant to which Yintaishan Cultural acquired the entire equity interest of Property Holding for a consideration of RMB360.4 million;


VII – 7

(s) the sale and purchase agreement dated 18 November 2012 entered into by the Company with Xiwang Investment as amended and supplemented by the Previous Acquisition Supplemental Agreement for the acquisition of the entire issued share capital of Keen Lofty Investments Limited for the consideration of RMB308 million (i.e. the Previous Acquisition);

(t) the promissory note dated 31 December 2012 issued by the Company in favour of Xiwang Investment to settle the consideration under the Previous Acquisition, pursuant to which the Company has undertaken to repay the principal amount of RMB308 million together with interest accrued thereon at the rate of 2.5% per annum within 3 years following the issuance of the same;

(u) the Agreement; and

(v) the framework agreement dated 29 May 2013 entered into by Glorious Prosper Limited

with the Jimo City People’s Government (即墨市人民政府) of the PRC in relation to their proposed cooperation on the development of a multi-purpose property development project comprising a station square as the principal development and the commercial, residential and office zones located at Qing-Rong intercity railway station in Jimo City, Qingdao, Shandong Province, the PRC with a site area of around 2.32 square kilometres.

7. LITIGATION

As at the Latest Practicable Date, there was no litigation or claim of material importance known to

the Directors to be pending or threatened against any member of the Group.

8. QUALIFICATIONS AND CONSENTS OF EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualifications

Grant Sherman Appraisal Limited Professional Valuers

PwC Certified Public Accountants

Shenyin Wanguo a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as defined under the SFO

App1B(33)

App1B(5)(1)


VII – 8

As at the Latest Practicable Date, none of the above experts had any direct or indirect shareholdings

in any member of the Group, or any right (whether legally enforceable or not) to subscribe for or to

nominate persons to subscribe for shares in any member of the Group, or any interests, directly or

indirectly, in any assets which had been acquired, disposed of or leased to or which were proposed to be

acquired, disposed of or leased to the Group or any of their respective subsidiaries, respectively, since 31

December 2012, the date to which the latest published audited consolidated financial statements of the

Group were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this

circular with the inclusion therein of its reports and references to its name in the form and context in

which they appear.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during 9:00 a.m. to 6:00 p.m.,

Monday to Friday (except public holidays) at the Company’s principal place of business in Hong Kong at

Unit 2110, 21/F, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong from the date of this circular up

to and including the date of the SGM:

(i) the memorandum of association and bye-laws of the Company;

(ii) the annual reports of the Company for each of the two financial years ended 31 December

2011 and 2012;

(iii) the letter of independent advice from Shenyin Wanguo, the text of which is set out in this

circular;

(iv) the accountant’s report on the Group issued by PwC, the text of which is set out in Appendix

II to this circular;

(v) the report from PwC in relation to the unaudited pro forma financial information of the

Remaining Group, the text of which is set out in Appendix IV to this circular;

(vi) the property valuation report of the Independent Valuer, the text of which is set out in

Appendix V to this circular;

(vii) the valuation report on machinery and equipment of the Independent Valuer, the text of

which is set out in Appendix VI to this circular;

(viii) the material contracts referred to in the section headed “Material contracts” in this appendix,

and any other contract referred to in this circular;

(ix) the written consents referred to in the section headed “Qualifications and consents of

experts” in this appendix; and

(x) a copy of this circular.

App1B(5)(2)

App1B(43)(1)

App1B(43)(5)

App1B(43)(3)

App1B(43)(3)

App1B(43)(3)

App1B(43)(3)

App1B(43)(3)

App1B(43)(2)(b),(c)

App1B(43)(3)

App1B(43)(6)


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10. GENERAL

(i) The registered office of the Company is situated at Clarendon House, 2 Church Street

Hamilton HM 11, Bermuda and its principal place of business in Hong Kong is Unit 2110,

21/F, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong.

(ii) The Company’s Hong Kong branch share registrar and transfer office is Tricor Investor

Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

(iii) The secretary of the Company is Ms. Lam Wai Lin, who is a member of the Hong Kong

Institute of Certified Public Accountants and a fellow member of the Association of

Chartered Certified Accountants.

(iv) The English texts of this circular and proxy form shall prevail over the Chinese texts.

App1B(36)

App1B(36)

App1B(35)

NOTICE OF SGM

SGM – 1

*


NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Xiwang Sugar Holdings

Company Limited (“Company”) will be held at Boardroom 3-4, Mezzanine Floor, Renaissance Hong

Kong Harbour View Hotel, No. 1 Harbour Road, Wanchai, Hong Kong on Saturday, 29 June 2013 at 11:00

a.m. for the purpose of considering and, if thought fit, passing the following resolution, with or without

amendments, as an ordinary resolution:

ORDINARY RESOLUTION

1. “THAT

(a) the sale and purchase agreement dated 21 May 2013 entered into between the

Company as the vendor and Xiwang Investment Company Limited (“Xiwang Investment”) as the purchaser (the “Agreement”) (a copy of which has been

produced to the meeting marked “A” and signed by the chairman of the meeting for

the purpose of identification) pursuant to which (i) the Company has conditionally

agreed to sell and Xiwang Investment has conditionally agreed to acquire the entire

issued share capital of Master Team International Limited (the “Disposal Company”)

for the consideration of RMB661,000,000; and (ii) the Company has conditionally

agreed to assign and Xiwang Investment has conditionally agreed to acquire the

interest in and benefits of various indebtedness owed by each of the Disposal

Company, Winning China Limited and 山東西王糖業有限公司 (Shandong Xiwang Sugar Company Limited) to the Company for the consideration of RMB1,435,000,000,

and the transactions contemplated therein (collectively, the “Transaction”), be and

are hereby approved;

(b) the Directors be and are hereby authorised, for and on behalf of the Company, to take

all steps necessary or expedient in their opinion to implement and/or give effect to the

terms of the Agreement and the Transaction;

(c) subject to completion of the Transaction, the payment of a special dividend of

HK$0.75 per ordinary share and per convertible preference share of the Company (the

“Proposed Special Dividend”) to the holders thereof whose names are registered

on the register of members of the Company on the record date as determined by the

directors of the Company (the “Record Date”), be and is hereby approved; and


NOTICE OF SGM

SGM – 2

(d) the Directors be and are hereby authorised, for and on behalf of the Company, to

execute all such other documents, instruments and agreements and to do all such

acts or things deemed by them to be incidental to, ancillary to or in connection with

the matters contemplated under this resolution, the Proposed Special Dividend, the

alteration of the Record Date, the Agreement and to agree to any amendment to the

terms of the Agreement which in the opinion of the Directors is not of a material

nature and is in the interest of the Company.”

By order of the board of the Directors

Xiwang Sugar Holdings Company LimitedLam Wai Lin

Company Secretary

Hong Kong, 13 June 2013

Registered office: Principal place of business

Clarendon House in Hong Kong:

2 Church Street Unit 2110, 21/F, Harbour Centre,

Hamilton HM 11 25 Harbour Road,

Bermuda Wanchai, Hong Kong

1. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or, if he is the holder of two or more shares, more than one proxy to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.

2. In order to qualify for the Proposed Special Dividend, the names of the shareholders must be registered on the register of members of the Company (both for the ordinary shares of the Company (“Ordinary Shares”) and convertible preference shares of the Company (“CPS”) at the close of business on the Record Date. The register of members of the Company will be closed from Monday, 8 July 2013 to Wednesday, 10 July 2013 (both dates inclusive) for the purpose of determining the entitlements of the shareholders to the Proposed Special Dividend, during such period no transfer of Ordinary Shares and CPS will be effected. In order to qualify for the Proposed Special Dividend, all transfer of Ordinary Shares and CPS, accompanied by the relevant share certificates, must be lodged with the branch registrar of the Company in Hong Kong, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration by no later than 4:30 p.m. on Friday, 5 July 2013 or such other date as the Directors may determine.

3. To be valid, the form of proxy together with a power of attorney or other authority, if any, under which it is signed or a certified copy of such power or authority must be deposited at the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 48 hours before the time appointed the above meeting or any adjourned meeting.

4. Delivery of an instrument appointing a proxy should not preclude a member from attending and voting in person at the above meeting or any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. In the case of joint holders of a share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto; but if more than one of such joint holders are present at the above meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined based on the order in which the names stand in the register of members of the Company in respect of the joint holding.

NOTICE OF SGM

SGM – 3

In the event of inconsistency, the English texts of this notice shall prevail over the Chinese texts.

As at the date hereof, the Board comprises the following Directors:

Executive Directors: Independent non-executive Directors:

Mr. WANG Yong Mr. SHI Wei Chen

Mr. WANG Di Mr. WONG Kai Ming

Mr. WANG Fangming Mr. WANG An

Dr. LI Wei

Mr. HAN Zhong

Non-executive Director:

Mr. SUN Xinhu

(1) very substantial disposal - Investor Relations - TodayIR.com

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