prospectus dated 23 february 2005 - SIIC Environment ...

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Our clients are largely from the power generation and municipalwastewater treatment industries in the PRC. We also supply our servicesto the petrochemical and metallurgical industries.

• Established Wuhan Hanxi in 2004 to engage in a BOT wastewater project to construct and operate a municipal wastewater treatment plantin the west of Han Kou within the Hubei Province (the “Hanxi Project”).

• Expected to:-i) serve an area of 54.67 square kilometers;ii) serve an estimated population of 600,000; andiii) treat up to 400,000 tonnes of water daily.

• Wuhan Hanxi is licensed to operate this wastewater treatment plant for an aggregate of 25 years, of which:-

o First two years will be devoted to the construction of the planto During the remaining 23 years that Wuhan Hanxi will operate

the wastewater treatment plant, the Wuhan City Government hasguaranteed a capacity usage of 80% in the first two years of operation and 100% for the remaining 21 years

o After 25 years, the operation of the plant will be transferred overto the Wuhan City Government

• The Hanxi Project, approved by the Hubei Provincial Government, is a critical environmental project as it is expected to enable Wuhan Cityto self-contain its wastewater treatment capacity at a threshold of 60% by the end of 2005

• The future income stream of the Hanxi Project will be derived from thecollection of water tariffs

WASTEWATERTREATMENTProcurement, installationand commissioning ofstandard equipment relatingto industrial and municipalwastewater treatmentsystems

SYSTEM AUTOMATION &OTHERSDesign and implementation ofa wide range of automatedcontrol systems mainly forpower plants and wastewatertreatment plants. Also engagedin other miscellaneous projects such as coal conveyingcontrol system projects, flue gas desulphurisation controlsystem projects and ash pipe chemical cleaning projects

WATER PURIFICATIONTREATMENTProcurement of equipment,design, installation andcommissioning of waterpurification treatment systemsas well as technologydevelopment of such waterpurification treatment systems

This document is important. If you are in any doubt as to the action you should take, you shouldconsult your stockbroker, bank manager, solicitor, accountant, or other professional adviser.

We have made an application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for permissionto deal in and for quotation of the ordinary shares of S$0.06 each (the “Shares”) in the capital of Asia Water

Technology Ltd. (the “Company”) already issued, the new Shares which are the subject of this Invitation (the“New Shares”) and the Shares which may be issued upon the exercise of the options to be granted under

the Asia Water Share Option Scheme (the “Option Shares”). Such permission will be granted when we havebeen admitted to the Official List of the SGX-ST Dealing and Automated Quotation System (“SGX-SESDAQ”).

The dealing in and quotation of the Shares will be in Singapore dollars.

Acceptance of applications will be conditional upon permission being granted to deal in, and for quotation of, allof the issued Shares, the New Shares and the Option Shares. If the completion of the Invitation does not occur

because the SGX-ST’s permission is not granted or for any other reasons, moneys paid in respect of any applicationaccepted will be returned to you at your own risk, without interest or any share of revenue or other benefit arising

therefrom and you will not have any claims whatsoever against us or the Manager, the Underwriter or the PlacementAgent.

The SGX-ST assumes no responsibility for the correctness of any of the statements or opinions made or reports containedin this Prospectus. Admission to the Official List of the SGX-SESDAQ is not to be taken as an indication of the merits of

the Invitation, our Company, our subsidiary, our Shares, the New Shares or the Option Shares.

A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the ‘‘Authority’’).The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority

does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements,have been complied with. The Authority has not, in any way, considered the merits of the shares or units of shares, as the

case may be, being offered or in respect of which an invitation is made, for investment.

Investing in our Shares involves risks which are described in the section entitled “RISK FACTORS” of this Prospectus.No Shares will be allotted on the basis of this Prospectus later than six months after the date of registration of this

Prospectus.

In the event that the Placement Agent does not receive subscriptions and payments for 80% of the Placement Shares by6.00 p.m. on 28 February 2005 (or such other date as may be decided by the Manager), the Underwriter may terminate the

Management and Underwriting Agreement and the Placement Agent shall be entitled to terminate the Placement Agreement.In that event, our Company reserves the right, in our absolute discretion, to cancel the Invitation, upon which all application

moneys will be returned to you at your own risk, without interest of any share of revenue or other benefit arising therefromand you will not have any claims whatsoever against us or the Manager. Please refer to pages 19, 20 and 115 of this Prospectusfor more details.

PROSPECTUS DATED 23 FEBRUARY 2005(Registered by the Monetary Authority of Singapore on 23 February 2005)

16 Collyer Quay,#26-03, Hitachi Tower,

Singapore 049318Tel: (65) 6538 2598Fax: (65) 6538 2896

www.asiawatertech.com

ASIA WATER TECHNOLOGY LTD.

Manager

Placement Agent and Underwriter

Westcomb Securities Pte Ltd

Westcomb Capital Pte Ltd

ASIA WATER TECHNOLOGY LTD.(Incorporated in Singapore on 19 November 2002)

(Company Registration Number : 200210042R)

Invitation in respect of 33,000,000 New Shares of S$0.06 each comprising:-(i) 1,000,000 Offer Shares at $0.275 for each Offer Share by way of public offer; and(ii) 32,000,000 Placement Shares by way of placement, comprising:-

(a) 31,400,000 Placement Shares at S$0.275 for each Placement Share by way of Placement Shares Application Forms; and

(b) 600,000 Internet Placement Shares at S$0.275 for each Internet Placement Share reserved forapplications made through the IPO website www.ePublicOffer.com

payable in full on application.

(1) Experienced management team and strong technical expertise• Qualified and experienced management team and staff who

possess strong technical capabilities• Specialise in project management, project design and research

and development in relation to the water purification and wastewater treatment industry

• Most possess degrees or senior technical qualifications• Have prior experience in managing large corporations

(2) Good track record and goodwill• Certified as a preferred supplier in relation to the provision of

water treatment systems for power plants with capacity of200 MW, 300 MW and 600 MW respectively, thus strengtheningour ability to tender for projects by state-owned enterprises

• Secured over 120 water treatment system projects for powerplants projects, commanding an aggregate contract value ofapproximately RMB495 million for the past 3 financial yearsended 31 December 2003

(3) Provision of comprehensive and integrated systems• Our customers are mainly in the power generation industry

and usually require both water purification treatment systemsas well as automated control systems

• We believe that our customers would usually give preferenceto a company such as ours, which is able to provide integrated systems, when awarding projects

(4) Experience in large-scale projects• Involved in several large-scale projects, such as the provision

of water purification treatment systems for power plants:-i) Design and installation of boiler make-up water treatment

systems (using membrane technology) and condensate water treatment systems for Shanghai Waigaoqiao Power Plant Project, which involved a power plant with a generating capacity of 900MW.

ii) Provide condensate water treatment system for the Huaneng Yuhuan 4 x 1000MW Power Plant Project, whichwas at the Latest Practicable Date, the largest capacity power plant in the PRC

(5) Extensive sales and marketing coverage• Our sales and marketing coverage extends to seven major

regions in the PRC, namely Huabei, Dongbei, Huadong, Xinan,Huazhong, Huanan and Xibei regions covering most of the provinces and major cities in the PRC

(6) Good relationship with foreign technology partners• Good working relationship with our foreign technology partners

such as Christ-Kennicott Water Technology Ltd, General Electric(Shanghai) Co., Ltd, and Seghers Keppel TechnologyGroup NV

• Our good relationship with our foreign technology partners isa mark of our ability to meet international standards in the provision of our services

• Secured over 120 water treatment systems projects for the past 3 financial years ended 31 December 2003, commanding an aggregate contractvalue of approximately RMB495 million

• As of the Latest Practicable Date, we have secured contracts with total value of RMB363.1 million

RM

B ’m

il

140

80

60

40

120

100

20

FY2001 FY20020

Revenue

47.03

FY2003

160

80.83

159.96

CAGR 84.42%

RM

B ’m

il

35

20

15

10

30

25

5

FY2001 FY20020

Gross Profit

7.29

FY2003

40

12.07

42.28

CAGR 140.83%

45

RM

B ’m

il

15

10

5

20

0

FY2001 FY2002-5

Profit After Tax

-1.73

FY2003

1.76

18.78180

(1) Increase in demand for wastewater treatment plants• Many of the PRC cities are facing acute water shortages and

severe inadequacy of water treatment faci l i t ies• Based on the PRC’s 10th Five-Year Plan, government spending

on environmental protection is projected to reach RMB700 billion (US$85 billion) or 1.2% of GDP, in particular RMB250billion (US$30 billion) will be allocated for water pollution control, of which:-

i) RMB100 billion to build sewage treatment plants; and

ii) RMB150 billion to control industrial point-source pollution

(2) Increase in demand for power stations• Rapidly increasing power consumption in industries and

residences in the PRC due to the growth of the national economy

• Based on this trend, and given that water treatment systemsare essential to the operation of power generators, our Directorsbelieve that the demand for water treatment systems is expected to increase

Wastewater treatment business segment(1) Expand our range of technologies

• Continue to explore the expansion of our range of technologiesby either:-

i) entering into additional cooperative agreements withstrategic technology partners; or

ii) developing additional technologies of our own

• Cooperate closely with our international partners in the areaof research and development

(2) Expand into the municipal wastewater treatment industry through BOT-type projects

• Focus and grow this business segment by tendering for moremunicipal wastewater treatment projects

• Explore and invest capital in additional BOT projects for wastewater treatment plants

• The BOT projects will enhance our profitability as they generatea steady and recurring source of income for our Group over a sustained period of time

(3) Management of industrial wastewater and sewage discharge facilities• Growing trend towards the outsourcing of the management of

water treatment plants to third party professionals such as ourselves• Obtained the Certificate for Operation of Environmental Facilities

issued by the PRC State Environmental Protection Administration and are therefore well positioned to offer our management services to industrial wastewater and sewage discharge facilities

• Management of such facilities will provide us with a steady revenue stream as our management fees are subject to a minimum pre-determined fixed charge and are based on thetonnage of treated water from such facilities

Water purification treatment business segment(1) Expand our existing market share in the power generation industry

• Consolidate and expand our existing market share in the industry• Build on our existing networks to gain market information on

upcoming projects and continue to provide quality water purification treatment systems and solutions

(2) Diversify the application of existing technologies to expand into other industries

• Explore diversifying the application of our existing technologies,such as electrodeionization, reverse osmosis and ultrafiltrationinto other industries, such as the seawater desalination industry

(3) Scalability of our capabilities• Our existing technologies are scalable and can be applied in

a diverse number of industries, such as the seawater desalination industry

• We believe that the increasing demand for potable water, especially in the coastal cities of the PRC, creates an increasedand sustainable demand for seawater desalination plants

Xinjiang

Gansu

QinghaiGansu

Sichuan

YunanGuangxi Guangdong

Guizhou

Hunan

Shaanxi

Mingxia Shanxi

Henan

Hubei

Jiangxi

Fujian

Zhejian

Anhuil

Jiangsu

Shandong

Hebei

Shanghai

Inner Mongolia Jilin

Heilongjiang

Liaoming

Tibet

Chongqing

CHINA

Taiwan

Hong Kong

Macau

HainanOur Presence

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Our clients are largely from the power generation and municipalwastewater treatment industries in the PRC. We also supply our servicesto the petrochemical and metallurgical industries.

• Established Wuhan Hanxi in 2004 to engage in a BOT wastewater project to construct and operate a municipal wastewater treatment plantin the west of Han Kou within the Hubei Province (the “Hanxi Project”).

• Expected to:-i) serve an area of 54.67 square kilometers;ii) serve an estimated population of 600,000; andiii) treat up to 400,000 tonnes of water daily.

• Wuhan Hanxi is licensed to operate this wastewater treatment plant for an aggregate of 25 years, of which:-

o First two years will be devoted to the construction of the planto During the remaining 23 years that Wuhan Hanxi will operate

the wastewater treatment plant, the Wuhan City Government hasguaranteed a capacity usage of 80% in the first two years of operation and 100% for the remaining 21 years

o After 25 years, the operation of the plant will be transferred overto the Wuhan City Government

• The Hanxi Project, approved by the Hubei Provincial Government, is a critical environmental project as it is expected to enable Wuhan Cityto self-contain its wastewater treatment capacity at a threshold of 60% by the end of 2005

• The future income stream of the Hanxi Project will be derived from thecollection of water tariffs

WASTEWATERTREATMENTProcurement, installationand commissioning ofstandard equipment relatingto industrial and municipalwastewater treatmentsystems

SYSTEM AUTOMATION &OTHERSDesign and implementation ofa wide range of automatedcontrol systems mainly forpower plants and wastewatertreatment plants. Also engagedin other miscellaneous projects such as coal conveyingcontrol system projects, flue gas desulphurisation controlsystem projects and ash pipe chemical cleaning projects

WATER PURIFICATIONTREATMENTProcurement of equipment,design, installation andcommissioning of waterpurification treatment systemsas well as technologydevelopment of such waterpurification treatment systems

This document is important. If you are in any doubt as to the action you should take, you shouldconsult your stockbroker, bank manager, solicitor, accountant, or other professional adviser.

We have made an application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for permissionto deal in and for quotation of the ordinary shares of S$0.06 each (the “Shares”) in the capital of Asia Water

Technology Ltd. (the “Company”) already issued, the new Shares which are the subject of this Invitation (the“New Shares”) and the Shares which may be issued upon the exercise of the options to be granted under

the Asia Water Share Option Scheme (the “Option Shares”). Such permission will be granted when we havebeen admitted to the Official List of the SGX-ST Dealing and Automated Quotation System (“SGX-SESDAQ”).

The dealing in and quotation of the Shares will be in Singapore dollars.

Acceptance of applications will be conditional upon permission being granted to deal in, and for quotation of, allof the issued Shares, the New Shares and the Option Shares. If the completion of the Invitation does not occur

because the SGX-ST’s permission is not granted or for any other reasons, moneys paid in respect of any applicationaccepted will be returned to you at your own risk, without interest or any share of revenue or other benefit arising

therefrom and you will not have any claims whatsoever against us or the Manager, the Underwriter or the PlacementAgent.

The SGX-ST assumes no responsibility for the correctness of any of the statements or opinions made or reports containedin this Prospectus. Admission to the Official List of the SGX-SESDAQ is not to be taken as an indication of the merits of

the Invitation, our Company, our subsidiary, our Shares, the New Shares or the Option Shares.

A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the ‘‘Authority’’).The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority

does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements,have been complied with. The Authority has not, in any way, considered the merits of the shares or units of shares, as the

case may be, being offered or in respect of which an invitation is made, for investment.

Investing in our Shares involves risks which are described in the section entitled “RISK FACTORS” of this Prospectus.No Shares will be allotted on the basis of this Prospectus later than six months after the date of registration of this

Prospectus.

In the event that the Placement Agent does not receive subscriptions and payments for 80% of the Placement Shares by6.00 p.m. on 28 February 2005 (or such other date as may be decided by the Manager), the Underwriter may terminate the

Management and Underwriting Agreement and the Placement Agent shall be entitled to terminate the Placement Agreement.In that event, our Company reserves the right, in our absolute discretion, to cancel the Invitation, upon which all application

moneys will be returned to you at your own risk, without interest of any share of revenue or other benefit arising therefromand you will not have any claims whatsoever against us or the Manager. Please refer to pages 19, 20 and 115 of this Prospectusfor more details.

PROSPECTUS DATED 23 FEBRUARY 2005(Registered by the Monetary Authority of Singapore on 23 February 2005)

16 Collyer Quay,#26-03, Hitachi Tower,

Singapore 049318Tel: (65) 6538 2598Fax: (65) 6538 2896

www.asiawatertech.com

ASIA WATER TECHNOLOGY LTD.

Manager

Placement Agent and Underwriter

Westcomb Securities Pte Ltd

Westcomb Capital Pte Ltd

ASIA WATER TECHNOLOGY LTD.(Incorporated in Singapore on 19 November 2002)

(Company Registration Number : 200210042R)

Invitation in respect of 33,000,000 New Shares of S$0.06 each comprising:-(i) 1,000,000 Offer Shares at $0.275 for each Offer Share by way of public offer; and(ii) 32,000,000 Placement Shares by way of placement, comprising:-

(a) 31,400,000 Placement Shares at S$0.275 for each Placement Share by way of Placement Shares Application Forms; and

(b) 600,000 Internet Placement Shares at S$0.275 for each Internet Placement Share reserved forapplications made through the IPO website www.ePublicOffer.com

payable in full on application.

TABLE OF CONTENTS

Page

CORPORATE INFORMATION...................................................................................................... 4

DEFINITIONS................................................................................................................................ 5

GLOSSARY OF TECHNICAL TERMS.......................................................................................... 10

EXCHANGE RATES .................................................................................................................... 12

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS .............................. 13

SELLING RESTRICTIONS .......................................................................................................... 15

DETAILS OF THE INVITATION .................................................................................................... 16

LISTING ON THE SGX-SESDAQ ............................................................................................ 16

INDICATIVE TIMETABLE FOR LISTING ................................................................................ 18

PLAN OF DISTRIBUTION ............................................................................................................ 19

PROSPECTUS SUMMARY .......................................................................................................... 22

THE INVITATION .......................................................................................................................... 26

RISK FACTORS ............................................................................................................................ 27

ISSUE STATISTICS ...................................................................................................................... 34

USE OF PROCEEDS.................................................................................................................... 36

DIVIDEND POLICY ...................................................................................................................... 37

DILUTION...................................................................................................................................... 38

CAPITALISATION AND INDEBTEDNESS .................................................................................. 39

SELECTED PROFORMA CONSOLIDATED FINANCIAL INFORMATION ................................ 40

OPERATING RESULTS OF OUR PROFORMA GROUP ...................................................... 40

FINANCIAL POSITIONS OF OUR PROFORMA GROUP .................................................... 41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITIONS AND RESULTS OF OPERATIONS ...................................................................................................... 42

OVERVIEW .............................................................................................................................. 42

REVENUE ................................................................................................................................ 42

SEASONALITY ........................................................................................................................ 43

REVIEW OF PAST OPERATING PERFORMANCE .............................................................. 46

REVIEW OF PAST FINANCIAL POSITION ............................................................................ 52

LIQUIDITY AND CAPITAL RESOURCES .............................................................................. 54

FOREIGN EXCHANGE MANAGEMENT ................................................................................ 56

CAPITAL EXPENDITURE, DIVESTMENT AND COMMITMENT............................................ 57

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Page

GENERAL INFORMATION ON OUR GROUP ............................................................................ 59

SHARE CAPITAL .................................................................................................................... 59

SHAREHOLDERS .................................................................................................................. 61

MORATORIUM ........................................................................................................................ 62

GROUP STRUCTURE ............................................................................................................ 63

HISTORY AND BUSINESS .......................................................................................................... 67

HISTORY.................................................................................................................................. 67

BUSINESS OVERVIEW .......................................................................................................... 69

OUR PROJECT MANAGEMENT PROCESS.......................................................................... 78

QUALITY CONTROL .............................................................................................................. 80

CUSTOMERS .......................................................................................................................... 81

SUPPLIERS ............................................................................................................................ 82

SALES AND MARKETING...................................................................................................... 82

INVENTORY MANAGEMENT.................................................................................................. 83

CREDIT POLICY...................................................................................................................... 83

INTELLECTUAL PROPERTY.................................................................................................. 85

RESEARCH AND DEVELOPMENT ........................................................................................ 86

COMPETITION ........................................................................................................................ 86

COMPETITIVE STRENGTHS.................................................................................................. 87

PROPERTIES .......................................................................................................................... 89

GOVERNMENT REGULATIONS ............................................................................................ 89

PROSPECTS AND FUTURE PLANS .................................................................................... 90

DIRECTORS, MANAGEMENT AND STAFF ................................................................................ 94

OUR MANAGEMENT STRUCTURE ...................................................................................... 94

DIRECTORS ............................................................................................................................ 95

MANAGEMENT ...................................................................................................................... 98

REMUNERATION .................................................................................................................... 101

EMPLOYEES .......................................................................................................................... 101

SERVICE AGREEMENTS ...................................................................................................... 102

CORPORATE GOVERNANCE ................................................................................................ 103

ASIA WATER SHARE OPTION SCHEME .............................................................................. 106

INTERESTED PERSON TRANSACTIONS ............................................................................ 111

REVIEW BY AUDIT COMMITTEE .......................................................................................... 112

POTENTIAL CONFLICTS OF INTEREST .............................................................................. 112

GENERAL AND STATUTORY INFORMATION............................................................................ 113

APPENDIX A – PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR FY2001, FY2002, FY2003 AND 6 MONTHS ENDED 30 JUNE 2004 .......... A-1

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Page

APPENDIX B – REPORT ON EXAMINATION OF PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR FY2001, FY2002, FY2003 AND 6 MONTHS ENDED 30 JUNE 2004.............................................................. B-1

APPENDIX C – AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS OF ASIA WATER TECHNOLOGY PRIVATE LIMITED AND SUBSIDIARIES FOR THE FINANCIAL PERIOD FROM THE DATE OF INCORPORATION,19 NOVEMBER 2002 TO 31 DECEMBER 2003 .......................................... C-1

APPENDIX D – AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS OF ASIA WATER TECHNOLOGY PRIVATE LIMITED AND SUBSIDIARY FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2004 TO 30 JUNE 2004 .... D-1

APPENDIX E – AUDITORS’ REPORT AND RE-STATED FINANCIAL STATEMENTS OF WUHAN KAIDI WATER SERVICES CO., LTD. (FORMERLY KNOWN AS WUHAN KAIDI POWER CHEMISTRY CO., LTD.) FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 .................. E-1

APPENDIX F – THE ENGLISH TRANSLATION OF THE AUDITORS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI WATER SERVICES CO., LTD. (FORMERLY KNOWN AS WUHAN KAIDI POWER CHEMISTRY CO., LTD.) FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 .................................................................. F-1

APPENDIX G – AUDITORS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI WATER SERVICES CO., LTD (FORMERLY KNOWN AS WUHAN KAIDI POWER CHEMISTRY CO.,LTD.) FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 ...................................................................................................... G-1

APPENDIX H – AUDITORS’ REPORT AND RE-STATED FINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL ENGINEERING CO., LTD FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 .. H-1

APPENDIX I – THE ENGLISH TRANSLATION OF THE AUDITORS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL ENGINEERING CO., LTD. FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 .................. I-1

APPENDIX J – AUDITORS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL ENGINEERING CO., LTD. FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002 .................................................................. J-1

APPENDIX K – SUMMARY OF THE CONSTITUTION OF THE COMPANY ........................ K-1

APPENDIX L – SUMMARY OF RELEVANT PRC LAWS AND REGULATIONS .................. L-1

APPENDIX M – EXCHANGE CONTROLS ............................................................................ M-1

APPENDIX N – TAXATION .................................................................................................... N-1

APPENDIX O – RULES OF THE ASIA WATER SHARE OPTION SCHEME ........................ O-1

APPENDIX P – TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION .... P-1

3

CORPORATE INFORMATION

BOARD OF DIRECTORS : Addyson Xue (Non-Executive Chairman)Huang Hanguang (Chief Executive Officer and ExecutiveDirector)Sha Guangwen (Executive Director)Wang Yaoyu (Executive Director)Ng Fook Ai Victor (Independent Director)Tan Tew Han (Independent Director)

COMPANY SECRETARY : Tay Lee Chye Lester (CPA)

REGISTERED OFFICE : 16 Collyer Quay #26-03Hitachi TowerSingapore 049318

SHARE REGISTRAR AND : Lim Associates (Pte) LtdSHARE TRANSFER OFFICE 10 Collyer Quay #19-08

Ocean BuildingSingapore 049315

MANAGER : Westcomb Capital Pte Ltd5 Shenton WayUIC Building #09-07Singapore 068808

PLACEMENT AGENT AND : Westcomb Securities Pte LtdUNDERWRITER 5 Shenton Way

UIC Building #09-08Singapore 068808

SOLICITORS TO THE INVITATION : Wong Partnership80 Raffles Place #58-01UOB Plaza 1Singapore 048624

AUDITORS AND REPORTING : Ernst & YoungACCOUNTANTS Certified Public Accountants

10 Collyer Quay #21-01Ocean BuildingSingapore 049315

LEGAL ADVISERS TO THE : Jingtian & GongchengCOMPANY ON PRC LAW Floor 15 The Union Plaza

20 Chaoyangmenwai DajieBeijing 100020PRC

PRINCIPAL BANKER : China Merchants Bank Wuhan BranchNo. 14 Zhongnan RoadDevelopment BuildingWuchang, WuhanPRC

RECEIVING BANKER : The Bank of East Asia, Limited137 Market StreetBank of East Asia BuildingSingapore 048943

4

DEFINITIONS

In this Prospectus and the accompanying Application Forms, the following definitions apply where thecontext so admits:-

General

“Application Forms” : The printed application forms to be used for the purpose of theInvitation and which form part of this Prospectus

“Application List” : The list of applications for subscription of the Invitation Shares

“Associate(s)” : (a) In relation to a corporation, means:

(i) a director or Controlling Shareholder;

(ii) a subsidiary or associated company; or

(iii) a subsidiary or associated company of the ControllingShareholder,

of the corporation;

(b) in relation to any director, chief executive officer, SubstantialShareholder or Controlling Shareholder of a corporation who isan individual, means:

(i) his immediate family;

(ii) a trust, acting in his capacity as such trustees, of anytrust of which the individual or his immediate family is abeneficiary or, in the case of a discretionary trust, is adiscretionary object; and

(iii) any corporation in which he and his immediate familytogether (directly or indirectly) have an interest of not lessthan 30% of the aggregate of the nominal amount of allthe voting shares; and

(c) in relation to a Substantial Shareholder, or ControllingShareholder, which is a corporation, means notwithstandingparagraph (a), any corporation which is its related corporation orassociated company

“Associated company” : In relation to a corporation, means:

(a) any corporation in which the corporation or its subsidiary has, orthe corporation and its subsidiary together have, a direct interestof not less than 20% but not more than 50% of the aggregate ofthe nominal amount of all the voting shares; or

(b) any corporation, other than a subsidiary of the corporation or acorporation which is an associated company by virtue ofparagraph (a), the policies of which the corporation or itssubsidiary, or the corporation together with its subsidiary, is ableto control or influence materially

5

“ATM” : Automated teller machines of a Participating Bank

“ATM Application” : An application for the Offer Shares made through an ATM of one ofthe Participating Banks, in accordance with the terms and conditionsof this Prospectus

“Audit Committee” : The audit committee of our Company

“Authority” : The Monetary Authority of Singapore

“Board” : Board of Directors of our Company

“CDP” : The Central Depository (Pte) Limited

“Companies Act” : The Companies Act (Chapter 50) of Singapore

“Controlling Shareholder” : A person who holds, directly or indirectly, 15% or more of the nominalamount of all voting shares in the Company (whereby the SGX-STmay determine that a person who satisfies this definition is not aControlling Shareholder) or a person who in fact exercises control overthe company

“CPF” : The Central Provident Fund

“Directors” : The Directors of our Company as at the Latest Practicable Date

“Electronic Applications” : Applications for the Offer Shares made through an ATM or one of theParticipating Banks or the IB website of one of the relevantParticipating Banks in accordance with the terms and conditions of thisProspectus

“EPS” : Earnings per Share

“ESOS” : The Asia Water Share Option Scheme of our Company as set out onpages 106 to 111 of this Prospectus, and approved by ourShareholders

“Executive Directors” : The executive Directors of our Group as at the Latest Practicable Date

“Executive Officers” : The executive officers of our Group as at the Latest Practicable Date

“FY” : Financial year ended or, as the case may be, ending 31 December

“HY” : Six months financial period ended 30 June

“IB” : Internet Banking

“IB Application” : An application for the Offer Shares made through an IB website of oneof the relevant Participating Banks, subject to and on the terms andconditions of this Prospectus

“Independent Directors” : The independent Directors of our Company as at the LatestPracticable Date

“Internet Placement : An application by a Qualifying User for the Internet Placement SharesApplication” through the IPO Website in accordance with the terms and conditions

of this Prospectus

6

“Internet Placement Shares” : The 600,000 Placement Shares available for application through theIPO Website, upon the terms of and subject to the conditions in thisProspectus

“Internet Placement : An application by a Qualifying User for the Internet Placement SharesApplication” through the IPO website in accordance with the terms and conditions

of this Prospectus

“Invitation” : The invitation by our Company to the public to subscribe for the NewShares upon the terms and subject to the conditions set out in thisProspectus

“Invitation Shares” : The New Shares which are the subject of this Invitation

“IPO website” : The Internet website at www.ePublicOffer.com of the IPO WebsiteOperator

“IPO Website Operator” : Westcomb Securities Pte Ltd

“Issue Price” : In the case of the offer, the Offer Price and in the case of thePlacement, the Placement Price

“Latest Practicable Date” : 17 January 2005, being the latest practicable date prior to the printingof this Prospectus

“Manager” : Westcomb Capital Pte Ltd

“Market Day” : A day on which the SGX-ST is open for trading in securities

“MNC” : Multi-national corporation

“New Shares” : The 33,000,000 new Shares for which we invite applications tosubscribe for pursuant to the Invitation, subject to and on the termsand conditions of this Prospectus

“NTA” : Net Tangible Assets

“Offer” : The offer by our Company of the Offer Shares to the public inSingapore for subscription at the Issue Price subject to and on theterms and conditions of this Prospectus

“Offer Price” : S$0.275 for each Offer Share

“Offer Shares” : 1,000,000 of the New Shares which are the subject of the Offer

“Option(s)” : The options granted or which may be granted pursuant to the ESOS

“Option Shares” : The new Shares (not exceeding 15% of the issued share capital of ourCompany on the date preceding the grant of an Option) which may beallotted and issued upon the exercise of options granted under theESOS

“PER” : Price earnings ratio

“Participating Banks” : United Overseas Bank Limited (“UOB”) and its subsidiary, Far EasternBank Limited (the “UOB Group”); DBS Bank Ltd (including POSB)(“DBS”) and Oversea-Chinese Banking Corporation Limited (“OCBC”)

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“Placement” : The placement of the Placement Shares by the placement agent(s) onbehalf of our Company for subscription at the Issue Price subject toand on the terms and conditions of this Prospectus

“Placement Agent” : Westcomb Securities Pte Ltd

“Placement Price” : S$0.275 for each Placement Share

“Placement Shares” : 32,000,000 of the New Shares, which are the subject of the Placement

“PRC” or “China” : People’s Republic of China, excluding Taiwan, Macau and Hong KongSpecial Administrative Region for the purposes of this Prospectus andfor geographical reference only

“Qualifying Internet Applicant” : Any member of the public (being an individual) in Singapore who hasor “Qualifying Users” registered for and holds a valid membership account with the IPO

website, subject to the terms and conditions for the membership anduse of the IPO website

“Restructuring Exercise” : The corporate restructuring exercise undertaken in connection with theInvitation as described on pages 63 and 64 of this Prospectus

“SCCS” : Securities Clearing & Computer Services (Pte) Ltd

“Securities Account” : The securities account maintained by a Depositor with CDP

“Securities and Futures Act” : Securities and Futures Act (Chapter 289) of Singapore

“Service Agreement” : The service agreements entered into between our Company and ourExecutive Directors, as described on pages 102 and 103 of thisProspectus

“SGX-SESDAQ” : SGX-ST Dealing and Automated Quotation System

“SGX-ST” or “The Exchange” : Singapore Exchange Securities Trading Limited

“Shares” : Ordinary shares of S$0.06 each in the capital of our Company

“Shareholders” : Registered holders of Shares, except where the registered holder isCDP, the term “Shareholders” shall, in relation to such Shares, meanthe Depositors whose Securities Accounts are credited with Shares

“Substantial Shareholder” : A person who holds directly or indirectly 5% or more of the total issuedshare capital in our Company

“Underwriter” : Westcomb Securities Pte Ltd

“$” or “S$” and “cents” : Singapore dollars and cents respectively

“RMB” or “RMB cents” : PRC Renminbi and Renminbi cents respectively

“USA” or “United States” : United States of America

“US$” and “US cents” : United States dollars and cents respectively

“%” or “per cent.” : Per centum

8

Group Companies

“Company” or “Asia Water” : Asia Water Technology Ltd. The terms “we”, “our”, “our Company” or“us” have correlative meanings

“Wuhan Hanxi” : Wuhan Hanxi Waste Water Treatment Co., Ltd.

“Wuhan Kaidi Water” : Wuhan Kaidi Water Services Co., Ltd. ,previously known as Wuhan Kaidi Power Chemistry Co., Ltd.

“Group” or “Proforma Group” : Our Company, our subsidiary and our associated company, treated forthe purpose of this Prospectus as if the group structure had been inexistence since 1 January 2001

Other Companies

“Wuhan Electric” : Wuhan Kaidi Electric Power Co., Ltd.

“Wuhan Electric Group” : Wuhan Kaidi Electric Power Co., Ltd and its subsidiaries

“Wuhan Equipment” : Wuhan Kaidi Equipment Co., Ltd

“Wuhan Gelin” : Wuhan Gelin Tiandi Environment Group Co., Ltd.

“Wuhan Huantai” : Wuhan Huantai Investment Co., Ltd

“Wuhan Kaidi Measure : Wuhan Kaidi Measure & Control Engineering Co., Ltd.

& Control”

“Wuhan Urban Waste Water” : Wuhan Urban Waste Water Discharge Development Co., Ltd.

The expressions “Depositor”, “Depository Agent” and “Depository Register” shall have the meaningsascribed to them respectively in Section 130A of the Companies Act.

Words importing the singular shall, where applicable, include the plural and vice versa and wordsimporting the masculine gender shall, where applicable, include the feminine and neuter genders andvice versa. References to persons shall include corporations.

Any reference in this Prospectus and the Application Forms to any enactment is a reference to thatenactment as for the time being amended or re-enacted. Any word defined under the Companies Act orany statutory modification thereof and used in this Prospectus and the Application Forms shall, whereapplicable, have the meaning assigned to it under the Companies Act, the Securities and Futures Act orsuch statutory modification, as the case may be.

Any reference in this Prospectus and the Application Forms to Shares being allotted to an applicantincludes allotment to CDP for the account of that Applicant.

Any reference to a time of day in this Prospectus shall be a reference to Singapore time unless otherwisestated.

References in this Prospectus to “the Group”, “Proforma Group”, “we”, “our”, and “us” refer to Asia WaterTechnology Ltd. and its subsidiary.

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9

GLOSSARY OF TECHNICAL TERMS

To facilitate a better understanding of the business of our Group, the following glossary provides adescription of some of the technical terms and abbreviations commonly found in our industry:-

“aeration” : A process by which oxygen is introduced into water through mechanicalmeans

“BOT” : Build-operate-transfer, a project construction method

“coagulation” : A process of agglomeration of minute charged particles into largerparticles, which can then be removed by settling and/or filtration.Coagulation is the process by which colloidal particles are destabilized,and is achieved mainly by neutralizing their electric charge by addingchemicals (or coagulants)

“condensate” : The water that is formed from steam during the process of power-generation by turbine in power plant

“Conesep “S” : A process that is used to separate the anion resin and cation resinseparation method”

“DCS” : Distribution Control System, which is similar to the PLC

“EDI” : Electrodeionization, a process which thoroughly removes ions from thewater electronically

“filter” : A filter that is used to remove the suspended matter in the watertreatment system

“flue gas desulphurisation” : A technology that employs an absorbent, usually lime or limestone, toremove sulphur dioxide from the gases produced by burning fossil fuels.This technology is applied to major sulphur dioxide emitters such aspower plants. The concentration of sulphur dioxide in the gas emissionsare reduced to an acceptable level required by the relevantenvironmental law

“ion exchange” : A process by which certain ions of a given charge may be absorbedfrom a solution and replaced in the solution by different ions of a similarcharge from the resin

“ion exchanger bed” : An installation that contains ion exchange resin to remove the ions fromwater

“make-up water treatment” : A physical and chemical treatment for water resources such as surfacewater, underground water or tap water

“membrane” : A medium through which liquid is passed and filtered partially

“microfiltration” : A method of filtration which uses a membrane to separate and removeparticles in the 0.1 to 10 micron range and is commonly used to removebacteria and microbes with an efficiency of 99.9%

“mixed ion exchanger bed” : An installation that contains cation/anion exchange resin to remove thecation/anion from water

“MW” : Megawatt. One million watts

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“organic pollutant” : Carbohydrates in sewage and wastewater that consume oxygen in waterduring natural decomposition, which change the colour of water andemits a foul odour

“PLC” : Programmable Logic Controller. A programmable device used in processautomation via software control

“pure water” : Clean water from which certain dissolved minerals and gases have beenremoved and free of suspended solids

“regeneration” : Renewal of ion exchange resins by way of chemical processes such thatthe resins can be re-used

“resin” : Manufactured organic polymer beads used in softening and ionexchange processes to remove dissolved mineral from tap water

“resin storage bed” : An installation that stores resin

“reverse osmosis” : A method of filtration in which a solution under pressure is forcedthrough a semi-permeable membrane, removing particles in the 0.0001to 0.001 micron range

“sedimentation” : Settling of suspended solids in a fluid through the natural process ofgravity

“sludge” : Solids that are produced from human excreta or from the treatment ofwastewater

“tonnes” : Metric tonnes

“treatment of condensate : A process that removes all particulates and ions except water moleculewater” from condensate water through physical and chemical methods

“treatment of wastewater” : The use of physical, chemical and biological processes to removepollutants from industrial wastewater (resulting from industrial use) andmunicipal wastewater (resulting from municipal use)

“ultrafiltration” : A method of filtration which uses a membrane to separate and removeparticles in the 0.001 to 0.1 micron range

“ultrapure water” : Water with resistivity measurement of 18.2 Mega-Ohm at 25%, whileother ionic and non-ionic contaminants must approach non-detectablelimits

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EXCHANGE RATES

The table below sets forth the high and low exchange rates for the PRC Renminbi and the Singaporedollar for each month for the six months prior to the Latest Practicable Date. The table indicates howmany PRC Renminbi it would take to buy one Singapore dollar.

RMB/S$ RateHigh Low

July 2004 4.881 4.788August 2004 4.845 4.802September 2004 4.917 4.851 October 2004 4.976 4.894November 2004 5.060 4.964December 2004 5.073 5.003

The following table sets forth, for financial years/periods indicated, how many PRC Renminbi it wouldtake to buy one Singapore dollar, based on the average of the exchange rates on the last day of eachmonth during each financial year/period. Where applicable, the exchange rates in this table are used forthe translation of our Group’s financial accounts disclosed elsewhere in this Prospectus.

RMB/S$ RateAverage Closing

FY2001 4.6166 4.4850FY2002 4.6338 4.7710FY2003 4.7493 4.8740HY2003 4.7255 4.7020HY2004 4.8734 4.8080

The above rates should not be construed as representations that the PRC Renminbi amounts actuallyrepresent such Singapore dollar amounts or could be converted into Singapore dollars at the rateindicated or at any other rate.

As at the Latest Practicable Date, the exchange rate between the RMB and the S$ is RMB5.068 toS$1.00.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in this Prospectus, statements made in press releases and oral statements thatmay be made by us or our Directors, officers or employees acting on our behalf, that are not statementsof historical fact, constitute “forward-looking statements”. Some of these statements can be identified byforward-looking terms such as “anticipate”, “believe”, “can”, “could”, “estimate”, “expect”, “intend”, “may”,“plan”, “shall”, “should”, “will” and “would” or other similar words. However, these words are not theexclusive means of identifying forward-looking statements. All statements regarding our expectedfinancial results and position, business strategy, plan and prospects and the future prospects of ourindustry are forward-looking statements. These forward-looking statements, including statements as to:-

(a) our revenue and profitability;

(b) expected growth in demand;

(c) expected industry trends;

(d) prospects, future plans; and

(e) other matters discussed in this Prospectus regarding matters that are not historical facts,

are only predictions. These forward-looking statements involve known and unknown risks, uncertaintiesand other factors that may cause our actual future results, performance or achievements to be materiallydifferent from any future results, performance or achievements expected, expressed or implied by suchforward-looking statements. These risks, uncertainties and other factors include, amongst others,

(a) changes in social, political and economic conditions and the regulatory environment in thecountries in which we conduct business;

(b) changes in currency exchange rates;

(c) our anticipated growth strategies and expected internal growth;

(d) changes in the availability and prices of equipment we need to operate our business;

(e) changes in consumer preferences;

(f) changes in technology;

(g) changes in competitive conditions and our ability to compete under these conditions;

(h) changes in our future capital needs and the availability of financing and capital to fund theseneeds; and

(i) other factors beyond our control.

These factors are discussed in greater detail in this Prospectus, in particular, but not limited to, thediscussions under “Risk Factors”. Given the risks and uncertainties that may cause our actual or futureresults, performance or achievements to be materially different from that expected, expressed or impliedby the forward-looking statements in this Prospectus, we advise you not to place undue reliance on thosestatements which apply only as at the date of this Prospectus. Neither the Company, the Manager, thePlacement Agent and the Underwriter nor any other person represents or warrants that our actual futureresults, performance or achievements will be as discussed in those statements.

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Our actual future results may differ materially from those anticipated in these forward-looking statementsas a result of risks faced by us. We, the Manager, the Placement Agent and the Underwriter disclaimany responsibility to update any of those forward-looking statements or publicly announce any revisionsto those forward-looking statements to reflect future developments, events or circumstances. We are,however, subject to the provisions of the Securities and Futures Act and upon our admission to theOfficial List of the SGX-ST, the provisions of the Listing Manual of the SGX-ST regarding corporatedisclosure. In particular, pursuant to Section 241 of the Securities and Futures Act, if after theProspectus is registered but before the close of the Invitation, we become aware of (a) a false ormisleading statement or matter in the Prospectus; (b) an omission from the Prospectus of anyinformation that should have been included in it under Section 243 or 244 of the Securities and FuturesAct; or (c) a new circumstance that has arisen since the Prospectus was lodged with the Authority andwould have been required by Sections 243 or 244 of the Securities and Futures Act to be included in theProspectus, if it had arisen before the Prospectus was lodged and that is materially adverse from thepoint of view of an investor, we may lodge a supplementary or replacement prospectus with the Authority.

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SELLING RESTRICTIONS

This Prospectus does not constitute an offer, solicitation or invitation to subscribe for the InvitationShares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or toany person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or willbe taken under the requirements of the legislation or regulations of, or of the legal regulatoryrequirements of any jurisdiction, except for the filing and/or registration of this Prospectus in Singapore inorder to permit a public offering of the New Shares and the public distribution of this Prospectus inSingapore. The distribution of this Prospectus and the offering of the New Shares in certain jurisdictionsmay be restricted by the relevant laws in such jurisdictions. Persons who may come into possession ofthis Prospectus are required by the Company, the Manager and the Placement Agent and theUnderwriter to inform themselves about, and to observe and comply with, any such restrictions.

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DETAILS OF THE INVITATION

LISTING ON THE SGX-SESDAQ

We have applied to the SGX-ST for permission to deal in and for quotation of, all our Shares alreadyissued, the New Shares and the Option Shares. Such permission will be granted when our Companyhas been admitted to the Official List of the SGX-SESDAQ. Acceptance of applications will be conditionalupon permission being granted to deal in and for quotation of, all our existing issued Shares, the NewShares and the Option Shares. Moneys paid in respect of any application accepted will be returned toyou, without interest or any share of revenue or other benefit arising therefrom and at your own risk, ifthe said permission is not granted and you will not have any claims whatsoever against us, the Manager,the Underwriter or the Placement Agent.

The SGX-ST assumes no responsibility for the correctness of any statements or opinions made orreports contained in this Prospectus. Admission to the Official List of the SGX-SESDAQ is not to betaken as an indication of the merits of the Invitation, our Company, our subsidiary, or our Shares.

A copy of this Prospectus has been lodged with and registered by the Authority. The Authority assumesno responsibility for the contents of the Prospectus. Registration of the Prospectus by the Authority doesnot imply that the Securities and Futures Act, or any other legal or regulatory requirements, have beencomplied with. The Authority has not, in any way, considered the merits of the shares or units of shares,as the case may be, being offered or in respect of which an invitation is made, for investment.

Where the Authority issues a stop order pursuant to Section 242 of the Securities and Futures Act, and

(a) in the case where the New Shares have not been issued to the applicants, the applications of theNew Shares pursuant to the Invitation shall be deemed to have been withdrawn and cancelled andour Company shall, within 14 days from the date of the stop order, pay to the applicants all moniesthe applicants have paid on account of their applications for the New Shares; or

(b) in the case where the New Shares have been issued to the applicants, the issue of the NewShares pursuant to the Invitation shall be deemed to be void and our Company shall, within 14days from the date of the stop order, pay to the applicants all monies paid by them for the NewShares.

This Prospectus has been seen and approved by our Directors and they individually and collectivelyaccept full responsibility for the accuracy of the information given in this Prospectus and confirm, havingmade all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and theopinions expressed in this Prospectus are fair and accurate in all material respects as at the LatestPracticable Date and that there are no material facts the omission of which would make any statementsin the Prospectus misleading.

No person has been or is authorised to give any information or to make any representation not containedin this Prospectus in connection with the Invitation and, if given or made, such information orrepresentation must not be relied upon as having been authorised by us, or the Manager. Neither thedelivery of this Prospectus and the Application Forms nor the Invitation shall, under any circumstances,constitute a continuing representation or create any suggestion or implication that there has been nochange in our affairs or in the statements of fact or information contained in this Prospectus since theLatest Practicable Date. Where such changes occur, we may make an announcement of the same to theSGX-ST and/or the Authority and will comply with the requirements of the Securities and Futures Actand/or any other requirements of the Authority. All applicants should take note of any suchannouncements and, upon the release of such an announcement, shall be deemed to have notice ofsuch changes. Save as expressly stated in this Prospectus, nothing herein is, or may be relied upon as,a promise or representation as to our future performance or policies.

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This Prospectus has been prepared solely for the purpose of the Invitation and may not be relied uponby any other persons other than the applicants in connection with their application for the InvitationShares or for any other purpose.

This Prospectus does not constitute an offer, solicitation or invitation to subscribe for theInvitation Shares in any jurisdiction in which such offer, or solicitation or invitation is unlawful orunauthorised nor does it constitute an offer, solicitation or invitation to any person to whom it isunlawful to make such offer, solicitation or invitation.

Copies of this Prospectus and the Application Forms may be obtained on request, subject to availability,from:-

Westcomb Securities Pte Ltd5 Shenton Way

#09-08 UIC BuildingSingapore 068808

and members of the Association of Banks in Singapore, members of the SGX-ST and merchant banks inSingapore. A copy of this Prospectus is also available on the SGX-ST website: http//www.sgx.com andthe Authority’s website at http://www.mas.gov.sg.

The Application List will open at 10.00 a.m. on 2 March 2005 and will remain open until noon onthe same day or for such further period or periods as our Directors may, in consultation with theManager, in their absolute discretion decide, subject to any limitation under all applicable laws. Inthe event a supplementary prospectus or replacement prospectus is lodged, the Application Listwill remain open for at least 14 days after the lodgement of the supplementary or replacementprospectus.

Where applications have been made for the New Shares prior to the lodgement of the supplementary orreplacement prospectus, we shall, within seven days from the date of lodgement of the supplementary orreplacement prospectus, either:-

(a) provide the applicants with a copy of the supplementary or replacement prospectus and providethe applicants with an option to withdraw their applications, or

(b) treat the applications as withdrawn and cancelled and return all monies paid, without interest orany share of revenue or other benefit arising therefrom, in respect of any application acceptedwithin seven days from the date of lodgement of the supplementary or replacement prospectus.

Any applicant who wishes to exercise his option to withdraw his application shall, within 14 days from thedate of lodgement of the supplementary or replacement prospectus, notify us whereupon we shall, withinseven days from the receipt of such notification, return the application monies without interest or anyshare of revenue or other benefit arising therefrom and at the applicant’s risk.

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INDICATIVE TIMETABLE FOR LISTING

In accordance with the SGX-ST’s News Release of May 28, 1993 on the trading of initial public offeringshares on a “when issued” basis, an indicative timetable is set out for reference of applicants:-

Indicative time/date Event

12.00 noon on 2 March 2005 Close of Application List

3 March 2005 Balloting of applications, if necessary (in the event of over-subscription for the Offer Shares)

9.00 a.m. on 4 March 2005 Commence trading on a “when issued” basis

15 March 2005 Last day of trading on a “when issued” basis

9.00 a.m. on 16 March 2005 Commence trading on a “ready” basis

18 March 2005 Settlement date for all trades done on a “when issued” basis andfor trades done on a “ready” basis on 16 March 2005

The above timetable is only indicative as it assumes that the date of closing of the Application List is 2March 2005, the date of admission of our Company to the Official List of the SGX-SESDAQ is 4 March2005, the shareholding spread requirement will be complied with and the Invitation Shares will be issuedand fully paid-up prior to 4 March 2005. The actual date on which our Shares will commence trading ona “when issued” basis will be announced when it is confirmed by the SGX-ST.

The Invitation will be opened from 24 February 2005 (9.00 a.m.) to 2 March 2005 (12.00 noon).

The above timetable and procedures may be subject to such modification as the SGX-ST may, in itsabsolute discretion, decide, including the decision to permit trading on a “when issued” basis and thecommencement date of such trading. All persons trading in our Shares on a “when issued” basis do soat their own risk. In particular, persons trading in our Shares before their Securities Accounts withCDP are credited with the relevant number of Shares do so at the risk of selling Shares whichneither they nor their nominees, as the case may be, have been allotted with or are otherwisebeneficially entitled to. Such persons are also exposed to the risk of having to cover their net sellpositions earlier if “when issued” trading ends sooner than the indicative date shown above.Persons who have a net sell position traded on a “when issued” basis should close their positionon or before the first day of “ready” basis trading.

In the event of any changes in the closure of the Application List or the time period during which theInvitation is open, we will publicly announce the same:-

(i) through a SGXNET announcement to be posted on the internet at the SGX-ST websitehttp://www.sgx.com; and

(ii) in a local English newspaper.

Investors should consult the SGX-ST’s announcement on “ready” trading date on the Internet (atSGX-ST website http://www.sgx.com), INTV or the newspapers or check with their brokers on thedate on which trading on a “ready” basis will commence.

We will provide details of the results of the Invitation through the channels in (i) and (ii) above.

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PLAN OF DISTRIBUTION

The Issue Price is determined by us, in consultation with the Manager, the Placement Agent and theUnderwriter, based on the market conditions and estimated market demand for our Shares determinedthrough a book-building process. The Issue Price is the same for all Invitation Shares and is payable infull on application.

This section should be read in conjunction with, and is qualified in its entirety by reference to, the sectionentitled “Appendix P – Terms and Conditions And Procedures For Application” on pages P-1 to P-16 ofthis Prospectus.

Investors may apply to subscribe for any number of Invitation Shares in integral multiples of 1,000Shares. In order to ensure a reasonable spread of shareholders, we have the absolute discretion toprescribe a limit to the number of Invitation Shares to be allotted to any single applicant and/or to allotInvitation Shares above or under such prescribed limit as we shall deem fit.

Application for the Invitation Shares may be made by one of the following methods:

Public Offer

Pursuant to the terms and conditions contained in the Management and Underwriting Agreement signedbetween our Company, the Manager and the Underwriter dated 23 February 2005, the Underwriter hasagreed to underwrite our Offer Shares.

In the event of an under-subscription for the Offer Shares as at the close of the Application List, thatnumber of Offer Shares not subscribed for shall be made available to satisfy excess applications for thePlacement Shares to the extent there is an over-subscription for the Placement Shares as at the close ofthe Application List.

In the event of an over-subscription for the Offer Shares as at the close of the Application List and/or thePlacement Shares are fully subscribed as at the close of the Application List, the successful applicationsfor the Offer Shares will be determined by ballot or otherwise as determined by our Directors andapproved by the SGX-ST.

In the event that the Placement Agent does not receive subscriptions and payments for 80% of thePlacement Shares by 6.00 p.m. on 28 February 2005 (or such other date as may be decided by theManager), the Underwriter may terminate the Management and Underwriting Agreement.

Offer Shares

The Offer Shares are made available to members of the public in Singapore for subscription at the IssuePrice. Investors may apply for New Shares pursuant to the Offer by way of printed Application Forms orIB websites or ATMs belonging to the Participating Banks.

An applicant (other than an approved nominee company) who has made an application for OfferShares in his own name may not submit another separate application for Offer Shares whether byway of an Application Form or by way of an IB/ATM Application, for any other person. Suchseparate applications shall be deemed to be multiple applications and shall be rejected.

An applicant who has made an application for Offer Shares by way of an Offer Shares ApplicationForm may not make another separate application for Offer Shares by way of an IB/ATMApplication and vice versa. Such separate applications shall be deemed to be multipleapplications and shall be rejected.

An applicant who has made an application for Offer Shares either by way of an Offer SharesApplication Form or by way of an IB/ATM Application shall not make any separate application forPlacement Shares by way of a Placement Shares Application Form or by way of applicationthrough the IPO website. Such separate applications shall be deemed to be multiple applicationsand shall be rejected.

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Additional terms and conditions of and the procedures for the application for Offer Shares by way ofApplication Forms and IB/ATM Applications are set out in Appendix P of this Prospectus.

Placement

Pursuant to the terms and conditions in the Placement Agreement signed between our Company, theManager and Placement Agent dated 23 February 2005, the Placement Agent agreed to subscribe forand/or procure subscriptions for the Placement Shares at the Issue Price.

In the event of an under-subscription for the Placement Shares as at the close of the Application List,that number of Placement Shares not subscribed for shall be made available to satisfy excessapplications for the Offer Shares to the extent that there is an over-subscription for the Offer Shares as atthe close of the Application List.

In the event of an under-subscription for the Internet Placement Shares to be applied for through the IPOwebsite as at the close of the Application List, that number of Internet Placement Shares not subscribedfor shall be made available to satisfy excess applications for the Placement Shares by way of PlacementShares Application Forms to the extent there is an over-subscription for the Placement Shares as at theclose of the Application List or to satisfy excess applications for the Offer Shares, to the extent there isan over-subscription for the Offer Shares as at the close of the Application List.

In the event that the Placement Agent does not receive subscriptions and payments for 80% of thePlacement Shares by 6.00 p.m. on 28 February 2005 (or such other date as may be decided by theManager), the Placement Agent shall be entitled to terminate the Placement Agreement.

Placement Shares (other than Internet Placement Shares)

The Placement Shares (other than Internet Placement Shares) are reserved for placement to membersof the public and institutional investors in Singapore at the Issue Price.

Application for the Placement Shares (other than Internet Placement Shares) pursuant to the Placementmay only be made by way of Application Forms.

An applicant who applies for the Placement Shares must complete a Placement SharesApplication Form, and shall not make any separate application for the Placement Shares usinganother Placement Shares Application Form or for the Offer Shares (either using an Offer ShareApplication Form or by way of an IB/ATM Application). Such separate applications will be deemedto be multiple applications and shall be rejected.

Additional terms and conditions of and the procedures for the application for Placement Shares are setout in Appendix P of this Prospectus.

Internet Placement Shares

The Internet Placement Shares are reserved for placement to Qualifying Internet Applicants. QualifyingInternet Applicants may apply for the Internet Placement Shares through the IPO website.

The placement of the Internet Placement Shares through the IPO website will be on a first-come-first-served basis, and is subject to availability at the time of application.

A Qualifying Internet Applicant who has made an application for Internet Placement Sharesthrough the IPO website shall not make any separate application for Placement Shares by way ofa Placement Shares Application Form or by way of another application through the IPO Website,or for the Offer Shares (either using an Offer Share Application Form or by way of an IB/ATMApplication). Such separate applications will be deemed to be multiple applications and shall berejected.

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A Qualifying Internet Applicant whose application for Internet Placement Shares is rejectedbecause of multiple applications will be levied an administrative fee amounting to 20% of theQualifying Internet Applicant’s application subscription money (subject to Singapore goods andservices tax).

Additional terms and conditions of and the procedures for the application of Internet Placement Sharesthrough the IPO website are set out in Appendix P of this Prospectus.

None of the members of our Company’s management or employees intend to subscribe for Shares in theInvitation amounting to more than 5% of the Invitation Shares.

Subscribers of Placement Shares may be required to pay a brokerage of up to 1% of the Issue Price tothe Placement Agent.

We are not aware of any person who intends to subscribe for Shares in the Invitation amounting to morethan 5% of the Invitation Shares. However, through a book-building process to assess market demand forour Shares, there may be person(s) who may indicate an interest to subscribe for Shares amounting tomore than 5% of the Invitation Shares.

Further, no Shares shall be allotted on the basis of this Prospectus later than six months after the date ofregistration of this Prospectus.

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PROSPECTUS SUMMARY

The following summary highlights certain information found in greater detail elsewhere in this Prospectus.In addition to this summary, we urge you to read the entire Prospectus carefully, especially the section on“Risk Factors”, before deciding to invest in our Shares. References in this Prospectus to “the Group”,“Proforma Group”, “we”, “our”, and “us” refer to Asia Water Technology Ltd., its subsidiary and itsassociated company.

OVERVIEW OF OUR GROUP

Our Group

Our Company was incorporated in Singapore on 19 November 2002 under the Companies Act as aprivate limited company and was subsequently converted to a public limited company. Pursuant to theRestructuring Exercise as described on pages 63 and 64 of this Prospectus, our Company became theholding company of our Group following the acquisition of its subsidiary, Wuhan Kaidi Water. In June2004, we also established our associated company, Wuhan Hanxi together with Wuhan Electric, WuhanUrban Waste Water and Wuhan Gelin.

Our Business

Our business comprises the following three business segments: -

(i) Water purification treatment

We are engaged in the procurement of equipment, design, installation and commissioning of waterpurification treatment systems as well as technology development of such water purificationtreatment systems.

(ii) Wastewater treatment

Another main segment of our business is wastewater treatment. Under this business segment, weare principally engaged in the procurement, installation and commissioning of standard equipmentrelating to industrial and municipal wastewater treatment systems.

(iii) Other miscellaneous projects

We also engage in other miscellaneous projects such as coal conveying control system projects,flue gas desulphurisation control system projects and ash pipe chemical cleaning projects. Thesemiscellaneous projects typically comprise peripheral sub-projects awarded to us in addition to themain water treatment projects in power plants undertaken by our Group.

Our Company may also, from time to time, procure equipment for sale to our subsidiary and otherunrelated third party customers. Our clients are largely from the power generation and municipalwastewater treatment industries in the PRC. We also supply our services to the petrochemical andmetallurgical industries.

For FY2003, our water purification treatment business segment and wastewater treatment businesssegment accounted for approximately 94.3% and 4.1% of our Group’s total revenue respectively, whileour other miscellaneous projects segment accounted for approximately 1.6% of our Group’s total revenuefor FY2003. For HY2004, our water purification treatment business segment and wastewater treatmentbusiness segment accounted for approximately 92.2% and 4.7% of our Group’s total revenuerespectively, while our other miscellaneous projects segment accounted for approximately 3.1% of ourGroup’s total revenue for HY2004.

For more details, please see pages 67 to 77 of this Prospectus for further details.

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Our Competitive Strengths

We believe our competitive strengths are as follows:-

(1) Experienced Management Team and Strong Technical Expertise

We have a qualified and experienced management team and staff who possess strong technicalcapabilities. Most of our senior management possess degrees or senior technical qualificationsand have prior experience in managing large corporations. Most of our staff have strong technicalexpertise and are professionally trained.

(2) Good track record and goodwill

Due to our strong track record, we have obtained certificates for being a preferred supplier inrelation to the provision of water treatment systems for power plants with capacity of 200 MW, 300MW and 600 MW respectively. These certificates strengthen our ability to tender for projects bystate-owned enterprises relating to the construction of power plants with such respective capacity.For FY2001, FY2002 and FY2003, we have secured over 120 water treatment system projects forpower plants with a capacity of 300 MW and above, commanding an aggregate contract value ofapproximately RMB495 million.

(3) Provision of comprehensive and integrated systems

As our customers are mainly in the power generation industry and usually require both waterpurification treatment systems as well as automated control systems, our ability to provide anintegrated system for water treatment and control systems is one of our main competitivestrengths. We are able to procure equipment, design, install and commission water purificationtreatment systems, as well as procure, install and commission standard equipment for wastewatertreatment systems. We are also able to design and implement automated control systems.

(4) Experience in large-scale projects

We have been involved in several large-scale projects, such as the provision of water purificationtreatment systems for power plants. For instance, we had undertaken projects for ShanghaiWaigaoqiao Power Plant Project , which involved a power plant witha generating capacity of 900MW. In October 2004, we were awarded a contract to providecondensate water treatment system for the Huaneng Yuhuan Power Plant Project

, which was at the time of the Latest Practicable Date, the powerplant with the largest capacity in the PRC. Such expertise and experience give us a track recordwhich smaller players are not able to build up and therefore give us a competitive edge over themwhen tendering for larger projects.

(5) Extensive sales and marketing coverage

As at the Latest Practicable Date, we have a team of 27 sales and marketing personnel providingus with extensive sales and marketing coverage. This enables us to raise our corporate profile andincrease awareness of our products and services among potential customers. Our sales andmarketing coverage extends to seven major regions in the PRC, namely Huabei, Dongbei,Huadong, Xinan, Huazhong, Huanan and Xibei region.

(6) Good relationship with foreign technology partners

Our Directors and senior management have enjoyed a close working relationship with our foreigntechnology partners for many years. We believe that such good relations with our foreign partners,such as Christ-Kennicott Water Technology Ltd, General Electric (Shanghai) Co., Ltd, and SeghersKeppel Technology Group NV give us a competitive edge as we are kept informed of the newtechnologies available in foreign markets and is also a mark of our ability to meet internationalstandards in the provision of our services.

For more details, please refer to pages 87 to 88 for further details on our competitive strengths.

( 4 X 1,000 MW)

( 2 X 900 MW)

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Our Prospects

Our Directors believe that with the growth of the PRC’s economy, the PRC faces increasing pressurefrom the need to protect its environment. Such pressure will boost the demand for the type of serviceswe currently provide. Our Directors believe that our prospects are positive based on the following:-

(1) Increase in demand for wastewater treatment plants

The Ministry of Water Resources in the PRC revealed that many of the PRC cities are facing acutewater shortages(1). As such, it is important to tap treated wastewater as a source of water. Thewater shortage problem is exacerbated by the severe inadequacy of water treatment facilities.Hence, there is a large and expanding market for wastewater treatment in the PRC. With the abovefactors, our Directors believe that the wastewater treatment industry presents a huge market andtherefore good opportunities for us.

Note:

(1) Source: Report titled “Water and Wastewater Treatment” by the Market & Industry Research Division of IE Singaporedated April 2002. It is stated in the above report that:

(a) “The information and materials presented in this report are provided solely for the purposes of generalcirculation and information. This report is not intended to provide advice and the opinions, views and otherinformation expressed here are not necessarily the views of IE Singapore. Neither IE Singapore nor any officeror employee of IE Singapore accepts any liability whatsoever for any direct or consequential loss arising fromthe use of this report”;

(b) “This report is based on information obtained from sources believed to be reliable. Whilst reasonable care istaken to ensure that the information contained herein is not untrue or misleading at the time of publication, norepresentation is made as to its accuracy, completely or correctness. It is not to be taken in substitution of theexercise of your judgement and separate professional advice should be sought”; and

(c) “Please note that this report was done based on information available up to 31 March 2002. Developmentsafter 31 March 2002 are not reflected herein”.

IE Singapore has not consented to the inclusion of the above statement and is thereby not liable for the abovestatement under sections 253 and 254 of the Securities and Futures Act.

The Company has included the above statement in its proper form and context in this Prospectus and has notverified the accuracy of the contents of the above statement.

(2) Increase in demand for power stations

Power consumption in industries and residences in the PRC has increased rapidly due to thegrowth of the national economy. The Directors are confident that electricity consumption rate in thePRC will continue to increase rapidly in tandem with the growth of the economy. Based on thistrend, and given that water treatment systems are essential to the operation of power generators,our Directors believe that the demand for water treatment systems is expected to increase.

(3) Scalability of our capabilities

Our existing technologies are scalable such that they can be applied in a diverse number ofindustries, such as the seawater desalination industry. We believe that the increasing demand forpotable water, especially in the coastal cities of the PRC, creates an increased and sustainabledemand for seawater desalination plants.

For more details, please refer to “Prospects” on pages 90 and 91 of this Prospectus.

Our Future Plans

Our future plans are:-

1) For our wastewater treatment business segment

Expand our range of technologies

We will continue to explore the expansion of our range of technologies by either entering intoadditional cooperative agreements with strategic technology partners or developing additionaltechnologies of our own, in order to incorporate leading wastewater treatment technologies in ourprojects.

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Expand into the municipal wastewater treatment industry through BOT-type projects

Based on the PRC’s 10th Five-Year Plan, we believe that the PRC government will allocate morefunds for the purpose of water pollution control in order to raise the national wastewater treatmentrate to above 60% in all cities by 2010. We believe that the plan also indicates that the PRCgovernment plans to build water treatment facilities in all cities and treat 45% of sewage water by2005(1). As our Directors believe that there is good potential in this industry, we intend to focus onand grow this business segment by tendering for more municipal wastewater treatment projects.

In addition to our first foray into the Wuhan Hanxi Municipal Wastewater Treatment Project, weintend to explore and invest capital in additional BOT projects for wastewater treatment plants.Under the BOT business model, we will run the operations of the facilities for a period of between20 and 30 years, during which we are entitled to the fees paid by the PRC government. As such,we believe that BOT projects will enhance our profitability as they generate a steady and recurringsource of income for our Group over a sustained period of time.

Note:

(1) Source: Report titled “Water and Wastewater Treatment” by the Market & Industry Research Division of IE Singaporedated April 2002. It is stated in the above report that:






Management of industrial wastewater and sewage discharge facilities

We believe that there will be a trend towards the outsourcing of the management of watertreatment plants to third party professionals such as ourselves. We are well-positioned to offer ourmanagement services having obtained the relevant certificates. We believe that the managementof such facilities will provide us with a steady revenue stream as our management fees are subjectto a minimum pre-determined fixed charge and are based on the tonnage of treated water fromsuch facilities.

2) For our water purification treatment business segment

Expand our existing market share in the power generation industry

We intend to leverage on our existing good track record in the power generation industry toconsolidate and expand our existing market share in the industry. We believe that we can do so bybuilding on our existing networks to gain market information on upcoming projects and continuingto provide quality water purification treatment systems and solutions.

Diversify the application of existing technologies to expand into other industries

We may explore diversifying the application of our existing technologies, such aselectrodeionization, reverse osmosis and ultrafiltration to expand into other industries, such as theseawater desalination industry, as and when opportunities arise.

For more details, please refer to “Future Plans” on pages 92 to 93 of this Prospectus.

Where you can find us

We currently have operations in the PRC. Our registered office is located at 16 Collyer Quay, #26-03Hitachi Tower, Singapore 049318. Our telephone number is (65) 6538-2598 and our fax number is (65)6538-2896. Our subsidiary’s office is at 1, Kaidi Building, Jiangxia Road, Miaoshan District, Wuhan EastLake Hi-tech Development Zone, Wuhan, PRC. Our subsidiary’s telephone number is (86) 27-6786-9001and our subsidiary’s facsimile number is (86) 27-6786-9158. Our internet address ishttp://www.asiawatertech.com. Information contained on our website does not constitute part of thisProspectus.

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THE INVITATION

Issue Size : 33,000,000 New Shares comprising 1,000,000 Offer Shares and32,000,000 Placement Shares. The New Shares will, upon issue andallotment, rank pari passu in all respects with the existing issuedShares.

Offer Price : S$0.275 for each Offer Share

The Offer : The Offer comprises an invitation by our Company to the public inSingapore to subscribe for or acquire the 1,000,000 Offer Shares at theOffer Price, subject to and on the terms and conditions of thisProspectus.

The Placement : The Placement comprises a placement of 32,000,000 PlacementShares (including 600,000 Internet Placement Shares) at thePlacement Price.

Purpose of the Invitation : Our Directors consider that the listing of our Company and thequotation of our Shares on the SGX-SESDAQ will enhance our publicimage locally and overseas and enable us to tap the capital markets forthe expansion of our operations. The Invitation will also providemembers of the public, our management, employees, and businessassociates as well as those who have contributed to our success withan opportunity to participate in the equity of our Company.

Listing status : Our Shares will be quoted on the SGX-SESDAQ, subject to admissionof our Company to the Official List of the SGX-SESDAQ andpermission for dealing in and for quotation of our Shares being grantedby the SGX-ST.

Risk factors : Investing in our Shares involves risks which are described in thesection titled “Risk Factors” on pages 27 to 33 of this Prospectus.

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RISK FACTORS

Investors should consider carefully the following risk factors and all other information contained in thisProspectus, before deciding to invest in our Shares. You should also note that certain of the statementsset forth below constitute “forward-looking statements” that involve risks and uncertainties.

If any of the following risk factors and uncertainties develops into actual events, our business, financialconditions or results of operations or cash flows may be adversely affected. In such circumstances, thetrading price of our Shares could decline and investors may lose all or part of their investment. To thebest of our Directors’ belief and knowledge, all the risk factors that are material to investors in making aninformed judgement on our Group have been set out below.

RISKS RELATING TO OUR BUSINESS

We are dependent on the state of the PRC’s economy as all our business is conducted in the PRC

All our business operations are conducted in the PRC and most of our customers are also located in thePRC. Accordingly, any significant slowdown in the PRC economy may cause the power generationindustry to reduce expenditure or put off the building of new power plants. This may in turn lead to adecline in the demand for our products and services. This will have an effect on our business, financialcondition and results of operations. Please refer to “Prospects and Future Plans” on pages 90 to 93 ofthis Prospectus for further details.

We are dependent on the Wuhan Electric Group, one of our major customers

One of our major customers is the Wuhan Electric Group, which subcontracted many water treatmentprojects to Wuhan Kaidi Water and accounted for 85.3%, 61.4%, 39.5% and 27.4% of our total revenuein FY2001, FY2002, FY2003 and HY2004 respectively. Wuhan Electric holds 9.6% of the equity interestof our subsidiary, Wuhan Kaidi Water. The heavy reliance on the Wuhan Electric Group is historical asWuhan Kaidi Water, which was previously Wuhan Electric’s subsidiary up until February 2003, wasappointed as subcontractors for most of Wuhan Electric Group’s projects. As Wuhan Kaidi Water is nolonger a subsidiary of Wuhan Electric, there is a gradual decrease in reliance on the Wuhan ElectricGroup and our Directors intend for such a trend to continue. However, due to subcontracts which wereentered into with the Wuhan Electric Group in the past, we foresee that there will still be some relianceon the Wuhan Electric Group in the near future. As such, any disruption to or sudden termination of ourexisting business arrangements with the Wuhan Electric Group will have an impact on our financialresults. From 1 January 2004 to the Latest Practicable Date, we have entered into new contractsamounting to RMB27.8 million with the Wuhan Electric Group, constituting only approximately 6.4% ofour Company’s total contract value secured during this period. There is no assurance that the WuhanElectric Group will continue to grant us subcontracts.

We may not be able to secure new customers

Our business is project-based, and many of our major customers (those accounting for 5% or more ofour total revenue) are non-recurring customers. (Please refer to “Customers” on pages 81 and 82 of thisProspectus for further details). With the exception of the Wuhan Electric Group, our other majorcustomers accounted for 14.0% and 21.2% of our revenue in FY2003 and HY2004 respectively and wedo not expect them to continue to be our major customers because of the nature of the industry. If we failto secure projects from new customers, our revenues will decline and our business, prospects, financialcondition and results of operations could be materially and adversely affected.

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Our business could be affected by costs overruns and/or delays of projects and/or incorrectestimation of project costs

As our business is project-based, it is important that we manage our projects efficiently in terms of time,procurement of materials and allocation of resources. If our initial cost estimates are incorrect or delaysoccur in a project resulting in cost overruns, the profitability of that project will be adversely affected.Currently, we offer some of our customers a warranty period of up to 12 months after the commissioningof the water treatment projects, during which we are obliged to provide free rectification work against anymanufacturing defects. Cost overruns due to additional rectification work and delays in the completion ofthe projects will adversely affect our profitability. We may also face potential liability from legal suitsbrought against us by our customers for causing loss due to any delay in completing the project.Mismanagement of or mistakes made during our projects will adversely affect our profitability as well asour reputation among our customers. We may also face potential liability from legal suits brought againstus by our customers who have suffered loss due to such mismanagement or mistakes. This will alsoaffect our profitability and financial position.

Our business could be affected if we were unable to attract and retain sufficient numbers ofskilled employees and professionals

We may face difficulties in recruiting skilled personnel in our industry due to its specialised nature. Ourcontinued success depends largely on our ability to attract and retain highly skilled executive, managerialand technical employees. If we are unable to attract and retain a sufficient number of suitably skilled andqualified personnel, our business would be materially and adversely affected. We may also have to paysubstantial wages to attract sufficient numbers of skilled employees and professionals. This may alsoadversely affect our operating margins.

Failure to retain services of key personnel will affect our operations and results

Our success to date has been largely due to the contributions of our Executive Directors. The continuedsuccess of our business is very much dependent on the goodwill that they have developed in the industryover the past years.

Although our Chief Executive Officer and our Executive Director, Mr Huang Hanguang and our ExecutiveDirectors, Mr Wang Yaoyu and Mr Sha Guangwen, have each entered into Service Agreements with ourCompany for an initial term of three years, they may terminate their services with six months’ notice.Please see the section titled “Service Agreements” on pages 102 and 103 of this Prospectus.

Our continued success is dependent, to a large extent, on our ability to retain the services of ourExecutive Directors. The loss of our Executive Directors’ services without suitable replacement or theinability to attract and retain qualified personnel will adversely affect our operations and hence, ourrevenue and profits.

We are subject to risks associated with technological changes

We are an advanced water purification and wastewater treatment company, and in order to maintain ourcustomer-base and market share, we must ensure that we are able to continually provide relevantsolutions to our customers that meet their needs. However, there are rapid technological changes andimprovements in water purification and wastewater treatment technology and equipment. In the event thatwe are unable to source for new and improved third-party water purification and wastewater treatmentsystems to keep up with such technological changes and to meet the developing needs of ourcustomers, we may not be able to maintain our competitive edge or our market share, and our profits willbe adversely affected.

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We may not be able to protect our processes, technologies and systems against claims by otherparties

Although we have purchased from Wuhan Electric two registered patents in respect of the processes,technologies and systems we use frequently in our systems, we have not purchased or applied for anypatents other than these as we are of the view that it may not be cost-effective to do so. For such otherprocesses, technologies and systems for which we have not applied for or purchased patents, we mayhave no legal recourse to protecting our rights in the event that they are replicated by other parties. If ourcompetitors are able to replicate our processes, technologies and systems at lower costs, we may loseour competitive edge and our profitability will be adversely affected.

We may face claims for infringement of third-party intellectual property rights

We may face claims from third parties in respect of the infringement of any intellectual property rightsowned by such third parties. There is no assurance that third parties will not assert claims to ourprocesses, technologies and systems. In such an event, we may need to acquire licences to, or tocontest the validity of, issued or pending patents or claims of third parties. There can be no assurancethat any licence acquired under such patents would be made available to us on acceptable terms, if atall, or that we would prevail in any such contest. In addition, we would incur substantial costs and spendsubstantial amounts of time in defending ourselves in or contesting suits brought against us for allegedinfringement of another party’s patent rights. As such, our operations and business may be adverselyaffected by such civil actions.

We rely on trade secrets, technology and know-how, which we seek to protect, in part, by confidentialityprovisions in contracts with our customers and our employees. There can be no assurance that theseagreements will not be breached, or that we will have adequate remedies for any breach, or that otherparties may not obtain knowledge of our trade secrets and processes, technology and systems. Shouldthese events occur, our business and hence, our profitability, will be adversely affected.

We may require additional funding for our future growth

Although we have identified our future growth plans set out on pages 92 and 93 of this Prospectus as theavenues to pursue growth in our business, the proceeds from the Invitation may not be sufficient to fullycover the estimated costs of implementing all these plans. We may also find opportunities to growthrough acquisitions which cannot be predicted at this juncture. Under such circumstances, secondaryissue(s) of securities after the Invitation may be necessary to raise the required capital to develop thesegrowth opportunities. If new Shares placed to new and/or existing shareholders are issued after theInvitation, they may be priced at a discount to the then prevailing market price of our Shares trading onthe SGX-SESDAQ, in which case, existing shareholders’ equity interest may be diluted if the issue pricefor such Shares is below the net asset value per Share. If we fail to utilise the new equity to generate acommensurate increase in earnings, our EPS will be diluted, and this could lead to a decline in our shareprice. Any additional debt financing may, apart from increasing interest expense and gearing, containrestrictive covenants with respect to dividends, future fund raising exercises and other financial andoperational matters.

Our customers may make claims against us and/or terminate our services in whole or in partprematurely should we fail to implement projects which fully satisfy their requirements andexpectations

Failure to implement projects which fully satisfy the requirements and expectations of our customers,defective system structure or products as a result of design or workmanship or due to acts of nature maylead to claims against us and/or termination of our services in whole or in part prematurely. This mayarise from unsatisfactory design, staff turnover, human errors, misinterpretation of and failure to adhereto regulations and procedures. This may adversely affect our profits and reputation.

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We are exposed to credit risks of our customers. Defaults in payment by our customers will affectour financial position and our profitability

As at 30 June 2004, trade receivables of RMB54.5 million accounted for approximately 22.5% of ourcurrent assets. Therefore, our financial position and profitability are dependent on the credit worthiness ofour customers. Generally, our credit terms vary from 90 days to 180 days. Trade receivables’ turnover forFY2003 was 80 days. Defaults in payment by our customers will adversely affect our profitability andcashflow. Our net provisions for doubtful trade debts expenses for FY2001, FY2003 and HY2004amounted to RMB28,000, RMB398,000 and RMB655,000 respectively. We are unable to assure you thatrisks of default by our customers would not increase in the future, or that we will not experience cashflowproblems as a result of such defaults. Should these develop into actual events, our operations andprofitability will be adversely affected. (Please refer to “Credit Policy” on pages 83 to 84 of thisProspectus for further details.)

We are reliant on a few major suppliers

We are dependent on the Wuhan Electric Group, including Wuhan Equipment (a subsidiary of WuhanElectric), for the timely delivery of materials and equipment that we require for the equipment andsystems we install. Wuhan Equipment accounted for 35.8%, 34.5%, 23.4% and 36.2% of our totalpurchases in FY2001, FY2002, FY2003 and HY2004 respectively. (Please refer to “Suppliers” on page 82of this Prospectus for further details). Should our major suppliers fail to deliver the materials andequipment on time, and if we are unable to source these materials and equipment from alternativesuppliers on a timely basis, our project timeline will be delayed, thereby affecting delivery to ourcustomers. This in turn would adversely affect our reputation if our customers lose confidence in ourservices and as a result, our revenue and profitability would be adversely affected.

We are subject to risks relating to BOT projects in which we have started to invest

We have begun to invest capital in BOT projects which require high capital expenditure. For instance, wehave established our associated company, Wuhan Hanxi, to undertake the construction and operation ofa municipal wastewater treatment plant in the west of Han Kou within the Hubei Province. Our returnsfrom BOT projects are derived from fees paid by the PRC government and such BOT projects are able togenerate a steady and recurring source of income for our Group over a sustained period of time between20 and 30 years. However, our BOT projects are exposed to risks such as the occurrence of naturaldisasters or the imposition of more stringent government regulations, which may result in the disruptionto our BOT projects. Our investment returns from these BOT projects may thus be materially affectedshould any of such risks materialise.

We rely on subcontractors for our projects

As we may from time to time subcontract some parts of our projects, such as engineering, assembly andintegration works, to subcontractors, we face the risk of unreliability of work performed by oursubcontractors. Should our subcontractors default on their contractual obligations and workspecifications, our ability to deliver the end product or service to our customers in accordance withquality and/or timing specifications may, in turn, be compromised. Furthermore, if we are unable tosecure competitive rates from our subcontractors, our financial performance may be adversely affected.

The registered capital of our PRC subsidiary, Wuhan Kaidi Water may, in some cases, limit thesize of the projects we bid for

We tender for projects in the normal course of business. There are instances where companies requiretendering companies to have a minimum registered share capital equivalent to the worth of the project.Therefore, the size of the projects that we are able to successfully tender for may sometimes bedependent on the registered capital of Wuhan Kaidi Water, being RMB25,040,000. Although somecustomers may take into account other factors like our listed status and our track record, we are unableto assure you that we would be able to secure projects which are worth more than our registered capital.Consequently, our revenue, business and financial results may be adversely and materially affected.

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We are subject to foreign exchange risks

Our dominant transactional currency for FY2001, FY2002, FY2003 and HY2004 was RMB, including thecost of materials which are imported by our suppliers. With the natural hedging of the revenue and costsmainly denominated in RMB, our Group’s transactional foreign exchange exposure for the past three anda half years was insignificant. However, as our suppliers take into account the fluctuations in foreignexchange rates when they price the imported materials which we procure from them, such fluctuations inforeign exchange rates may result in changes in the purchase price of imported materials. Any futuresignificant fluctuations in foreign exchange rates may have a material impact on our financialperformance in the event that we are unable to transfer the increased costs to our customers. Pleaserefer to page 56 of this Prospectus under the section “Foreign Exchange Management” for more detailsof our foreign exchange management policies.

We may be adversely affected by slow downs in the economy owing to unforeseencircumstances, such as an outbreak of infectious disease

Our business is dependent on the number of contracts we are able to secure from our customers.Unforeseen circumstances such as an outbreak of infectious disease may lead to a decline in global andregional businesses, which may in turn lead to a decline in demand for our services.

Furthermore, should such unforeseen circumstances cause disruptions to our customers’ operations,they may undertake cost-cutting measures such as cutting capital expenditure and deferring projectssuch as installation of water treatment systems. This would adversely affect the demand for our business.

Our subsidiary, operations and significant assets are located in the PRC. Shareholders may find itdifficult to enforce a Singapore judgment against the assets of our Company, our Directors andExecutive Officers

Our subsidiary’s operations and significant assets are located in the PRC. In addition, most of ourExecutive Officers and our Directors are non-residents of Singapore, and substantially all the assets ofthese persons are located outside Singapore. As a result, it could be difficult for investors to effectservice of process in Singapore, or to enforce a judgment obtained in Singapore against us or any ofthese persons.

RISKS RELATING TO THE PRC

Our operations could be adversely affected by changes in the political and economic conditionsin the PRC

The PRC is our main market and accounted for all of our revenue for FY2001, FY2002, FY2003 andHY2004. Therefore, we face risks of conducting business in the PRC. Changes in the social, economicand political conditions of the PRC may adversely affect our business. Unfavourable changes ingovernment policies, political unrest and economic developments may also have a negative impact onour operations.

Since the adoption of the “open door policy” in 1978 and the “socialist market economy” in 1993, thePRC government has been reforming and is expected to continue to reform its economic and politicalsystems. Any changes in the political and economic policy of the PRC government may lead to changesin the laws and regulations or the interpretation of the same, as well as changes in the foreign exchangeregulations, taxation and import and export restrictions, which may in turn adversely affect our financialperformance. While the current policy of the PRC government seems to be one of imposing economicreform policies to encourage foreign investments and greater economic decentralisation, there is noassurance that such a policy will continue to prevail in the future.

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Introduction of new laws or changes to existing laws by the PRC government may adverselyaffect our business

The PRC legal system is a codified legal system made up of written laws, regulations, circulars,administrative directives and internal guidelines. Unlike common law jurisdictions like the United Kingdomand Singapore, decided cases (which may be taken as reference) do not form part of the legal structureof the PRC and thus have no binding effect. Furthermore, in line with its transformation from a centrallyplanned economy to a more free market-oriented economy, the PRC government is still in the process ofdeveloping a comprehensive set of laws and regulations. As the legal system in the PRC is still evolving,laws and regulations or the interpretation of the same may be subject to further changes. As the PRCeconomy is developing at a faster pace than its legal system, some degree of uncertainty exists in howexisting PRC laws and regulations will apply to certain events or circumstances. As such, theadministration of certain PRC laws and regulations may be subject to a certain degree of discretion bythe authorities. This has resulted in the outcome of dispute resolutions not having the level of consistencyor predictability as in other countries with more developed legal systems.

We may be subjected to foreign exchange controls in certain countries and territories in whichwe operate

Our PRC subsidiary, Wuhan Kaidi Water and our associated company, Wuhan Hanxi, are subject to thePRC rules and regulations on currency conversion. In the PRC, the State Administration for ForeignExchange (“SAFE”) regulates the conversion of the RMB into foreign currencies. Currently, foreigninvestment enterprises (“FIEs”) are required to apply to SAFE for “Foreign Exchange RegistrationCertificate for FIEs”. Wuhan Kaidi Water is an FIE. With such registration certifications (which need to berenewed annually), FIEs are allowed to open foreign currency accounts including the “recurrent account”and the “capital account”. Currently, conversion within the scope of the “recurrent account” can beeffected without requiring the approval of SAFE. However, conversion of currency in the “capital account”(e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval ofSAFE. Please also see Appendix M titled “Exchange Controls” on pages M-1 and M-2 of this Prospectus.

Cessation of income tax exemption and/or reduction for Wuhan Kaidi Water will have an adverseimpact on our net profit

In accordance with the “Income Tax Law of the PRC for Enterprises with Foreign Investment and ForeignEnterprises”, Wuhan Kaidi Water (as a foreign-owned enterprise) is entitled to full exemption fromEnterprise Income Tax (“EIT”) for the first 2 years and a 50% reduction in EIT for the next 3 years,commencing from the first profitable year. The first profit-making year for Wuhan Kaidi Water was inFY2003. As Wuhan Kaidi Water is recognised as a high-technology enterprise, it pays EIT at a reducedrate of 15%.

There have been reports that the PRC government may abolish preferential tax treatment accorded toforeign-owned enterprises and bring these enterprises under the same taxation regime currently appliedto domestic enterprises. The details of any such plans are not currently known. We are uncertain whetherthe new measures, when introduced, will seek to cancel all or any unexpired tax incentives, or whetherthe PRC government will only cease granting tax incentives to newly established foreign-ownedenterprises.

There is therefore no assurance that the current exemptions and reductions will continue in the future.Any expiry, removal, loss, suspension or reduction of such tax benefits in the future will increase the taxexposure of our Group and reduce our Group’s cash flow and net profit after taxation.

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RISKS RELATING TO OWNERSHIP OF OUR SHARES

Singapore law contains provisions that could discourage a takeover of our Company

The Singapore Code on Takeovers and Mergers contains certain provisions that may delay, deter orprevent a future takeover or change in control of our Company. Any person acquiring an interest, eitheron his own or together with parties acting in concert with him, in 30% or more of our voting Shares maybe required to extend a takeover offer for our remaining voting Shares in accordance with the SingaporeCode on Takeovers and Mergers. A takeover offer is also required to be made if a person holdingbetween 30% and 50% (both inclusive) of our voting Shares (either on his own or together with partiesacting in concert with him) acquires an additional 1% of our voting Shares in any six-month period. Theseprovisions may discourage or prevent certain types of transactions involving an actual or threatenedchange of control of our Company. Some of our Shareholders may therefore be disadvantaged as atransaction of that kind might have allowed the Sale of Shares at a price above the prevailing marketprice.

Our controlling shareholder, Asset Ahead Investments Limited, will hold 30.54%, of the post-Invitationshare capital. Accordingly, if it sells a stake of 30% or more in the Company to a single person, either onhis own or together with parties acting in concert with him, the latter may be required to extend atakeover offer for our remaining voting Shares in accordance with the Code. This may result in thevolatility of our Shares and/or a change of control of our Company.

Any future sales of our Shares by our substantial shareholders could affect our Share price

Any future sale or availability of our Shares can have a downward pressure on our Share price. The saleof a significant amount of our Shares in the public market after the Invitation, or the perception that suchsales may occur, could materially affect the market price of our Shares. These factors also affect ourability to sell additional equity securities. Except as otherwise described in “Moratorium” on page 62 ofthis Prospectus, there will be no restriction on the ability of the substantial Shareholders to sell theirShares either on the SGX-ST or otherwise.

Our share price may fluctuate following the Invitation

The market price of our Shares may fluctuate significantly and rapidly as a result of, among others, thefollowing factors, some of which are beyond our control:

� variations of our operating results;

� changes in securities analysts’ estimates of our financial performance;

� announcements by us of significant acquisitions, strategic alliances or joint ventures;

� additions or departures of key personnel;

� fluctuations in stock market prices and volume;

� involvement in litigation; and

� general economic and stock market conditions.

There has been no prior market for our Shares and this offering may not result in an active orliquid market and there is a possibility that our Share price may be volatile

Prior to the Invitation, there has been no public market for our Shares. Although we have made anapplication to the SGX-ST to list our Shares on the SGX-SESDAQ, there is no assurance that an activetrading market for our Shares will develop, or if it develops, be sustained. There is also no assurance thatthe market price for our Shares will not decline below the Issue Price. The market price of our Sharescould be subject to significant fluctuations due to various external factors and events including theliquidity of our Shares in the market, difference between our actual financial or operating results andthose expected by investors and analysts, the general market conditions and broad market fluctuations.

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ISSUE STATISTICS(1)

Issue Price for each New Share

Net Tangible Assets (“NTA”)

The NTA (total tangible assets less total liabilities, net of minority interests) perShare based on the Group balance sheet as at 30 June 2004, after adjustingfor the proceeds from the issue of 299,996 ordinary shares of S$1.00 each atS$1.20 per share to the shareholders of the Company (“Adjusted NTA”):

(a) before adjusting for the estimated net proceeds of the Invitation andbased on the pre-Invitation share capital of 99,988,700 Shares

(b) after adjusting for the estimated net proceeds of the Invitation andbased on the post-Invitation enlarged share capital of 132,988,700Shares

Premium of Issue Price over the NTA per Share:

(a) before adjusting for the estimated net proceeds of the Invitation andbased on the pre-Invitation share capital of 99,988,700 Shares

(b) after adjusting for the estimated net proceeds of the Invitation andbased on the post-Invitation enlarged share capital of 132,988,700Shares

Earnings

Historical net EPS of the Group for FY2003 based on the pre-Invitation sharecapital of 99,988,700 Shares

Historical net EPS of the Group for FY2003 based on the pre-Invitation sharecapital of 99,988,700 Shares, assuming that the Service Agreements hadbeen in place in FY2003

Price Earnings Ratio

Historical net PER of the Group for FY2003 based on the pre-Invitation sharecapital of 99,988,700 Shares

Historical net PER of the Group for FY2003 based on the pre-Invitation sharecapital of 99,988,700 Shares, assuming that the Service Agreements hadbeen in place in FY2003

Net Operating Cash Flow(2)

Historical net operating cash flow per Share of the Group for FY2003 basedon the pre-Invitation share capital of 99,988,700 Shares

Historical net operating cash flow per Share of the Group for FY2003 had theService Agreements been in place in FY2003 and based on the pre-Invitationshare capital of 99,988,700 Shares

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27.5 cents

7.39 cents

10.84 cents

272.12%

153.69%

3.91 cents

3.69 cents

7.03 times

7.45 times

4.00 cents

3.79 cents

Price to Cash Flow Ratio

Historical price to net operating cash flow based on the historical netoperating cash flow per Share for FY2003

Historical price to net operating cash flow based on the adjusted historical netoperating cash flow per Share for FY2003 had the Service Agreements beenin place in FY2003

Market Capitalisation

Our market capitalisation based on the post-Invitation share capital of132,988,700 Shares and the Issue Price

Notes:

(1) Calculated based on the exchange rate of RMB4.8080 to S$1.00 as at 30 June 2004.

(2) Net operating cashflow is defined as net profit after tax attributable to Shareholders after adding back depreciation of fixedassets and amortisation of goodwill on consolidation.

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6.88 times

7.26 times

$36.57 million

USE OF PROCEEDS

The net proceeds from the issue of the New Shares (after deducting estimated issue expenses) isapproximately S$7.02 million, which we intend to use in the following manner:

(a) approximately S$6.8 million for the investment in the Wuhan Hanxi Municipal WastewaterTreatment Project. For further details, please refer to pages 92 to 93 under the section “FuturePlans” of this Prospectus; and

(b) the balance for our general and working capital requirements.

Pending the deployment of the net proceeds from the issue of New Shares as aforesaid, the funds will beplaced in short-term deposits with banks and financial institutions or invested in money marketinstruments as our Directors deem fit in their absolute discretion.

In the opinion of our Directors, no minimum amount must be raised by the Invitation.

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DIVIDEND POLICY

Our Company declared and paid a tax-exempt dividend of S$1,971,297 in FY2003. We may declareannual dividends with the approval of the shareholders in a general meeting, but the amount of suchdividends shall not exceed the amount recommended by the Directors. The Directors may also declarean interim dividend.

Net dividends declared by Wuhan Kaidi Water for FY2001, FY2002, FY2003 and HY2004 are as follows:-

RMB’000 FY2001 FY2002 FY2003 HY2004

Wuhan Kaidi Water – 4,349 16,000 9,000

In relation to the dividends declared by Wuhan Kaidi Water for FY2003, RMB4.0 million out of theRMB16.0 million declared was re-invested as registered capital of Wuhan Kaidi Water.

Future dividends will be paid by us as and when approved by our shareholders and Directors. Currently,we do not have any dividend policy. Any such dividend payments will be subject to the level of our futureearnings, cash flow, financial condition, projected levels of capital expenditures and investment plans,including such legal or contractual restrictions as may apply from time to time.

For information relating to taxes payable on dividends, see “Appendix N - Taxation” on pages N-1 to N-3of this Prospectus.

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DILUTION

Dilution is the amount by which the Issue Price paid by subscribers of our Shares in this Invitationexceeds our Adjusted NTA per Share after the Invitation. The Adjusted NTA of our Group as of 30 June2004 was 7.39 cents per Share. Adjusted NTA per Share, is determined by dividing our Adjusted NTA asof 30 June 2004, after adjusting for the proceeds from the issuance of 299,996 ordinary shares ofS$1.00 each at S$1.20 per share to the shareholders of the Company, by 99,988,700 Shares prior to theInvitation.

Based on the issue of New Shares at an Issue Price of 27.5 cents per Share pursuant to the Invitationand after deducting estimated issue expenses, the Adjusted NTA of our Group as at 30 June 2004 wouldhave been 10.84 cents per Share. This represents an immediate increase in Adjusted NTA of 3.45 centsper Share to our existing shareholders and an immediate dilution in Adjusted NTA of 16.66 cents perShare to our new investors. The following table illustrates this per Share dilution:

Cents

Issue Price per Share 27.5

Adjusted NTA per Share as of 30 June 2004, before adjusting for the Invitation 7.39

Increase in Adjusted NTA per Share attributable to the Invitation 3.45

Adjusted NTA per Share after the Invitation 10.84

Dilution in Adjusted NTA per Share to new investor 16.66

Dilution in Adjusted NTA per Share to new investors as a percentage of Issue Price (%) 60.58

The following table summarises the total number of Shares acquired by the Company’s ExecutiveDirectors and Substantial Shareholders (adjusted for Sub-Division) during the period of three years priorto the date of lodgment of this Prospectus, the total consideration paid by them and the average effectivecash cost per Share to the Company’s Executive Directors and Substantial Shareholders, and to theCompany’s new investors pursuant to the Invitation.

Number of Shares AverageAcquired Consideration Price Per Share

($) (cents)

Executive Directors(1) 4,999,600 359,971 7.20

Substantial Shareholders(2) 82,347,500 4,940,852 6.00

New investors 33,000,000 9,075,000 27.50

Notes:

(1) Executive Directors comprise Mr Huang Hanguang, Mr Sha Guangwen and Mr Wang Yaoyu.

(2) Substantial Shareholders comprise Asset Ahead Investments Limited, Regal Capital Finance Limited and Maxgain Pte. Ltd.Asset Ahead Investments Limited is an investment holding company incorporated in the British Virgin Islands, in which MsGao Xiang and Mr Zhang Daqing own 25.0% and 75.0% of the issued and paid-up share capital of this companyrespectively. Regal Capital Finance Limited is an investment holding company incorporated in the British Virgin Islands whichis wholly-owned by Ms Tang Gehong. Maxgain Pte. Ltd. is an investment holding company incorporated in Singapore, inwhich our Non-Executive Director, Mr Addyson Xue, and his wife, Ms Bella, are shareholders each owning 50.0% of theissued and paid-up capital of this company.

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CAPITALISATION AND INDEBTEDNESS

The following table shows on an actual basis our cash and cash equivalents and capitalization as at 30November 2004:-

(i) as adjusted to reflect the Consolidation, the Sub-division and the Restructuring Exercise; and

(ii) as adjusted to give effect to the issue of 33,000,000 New Shares pursuant to the Invitation and theapplication of the net proceeds.

You should read this table in conjunction with the Proforma Consolidated Financial information forFY2001, FY2002, FY2003 and 6 months ended 30 June 2004 and the Report on Examination ofProforma Consolidated Financial Information for FY2001, FY2002, FY2003 and 6 months ended 30 June2004 set out in Appendix A and Appendix B in this Prospectus and the related notes under the section inthis Prospectus entitled “Management’s Discussion and Analysis of Financial Positions and Results ofOperations”.

As adjusted for the issue of the33,000,000 New Shares pursuantto the Invitation

As at and application of RMB’000 30 November 2004 the net proceeds

Cash and bank balances 47,292 82,885

Short-term debt:

Bills payable to bank (secured) 14,879 14,879

Shareholders’ equity 61,682 97,275

Total capitalisation and indebtedness 76,561 112,154

As at 30 November 2004, taking into account bank deposits amounting to approximately RMB8.9 millionwhich may not be readily convertible to cash as they are fully pledged to banks as security for bankers'guarantees provided to customers for the performance of contracts and a letter of credit facility granted,we had cash and cash equivalents of S$38.4 million.

As at 30 November 2004, we had total banking facilities of RMB160.0 million, of which RMB66.2 millionhas been utilised.

As at 30 November 2004, we have RMB14.9 million of bills payable to bank. Bills payable to banks areinterest-free and secured by certain bank deposits pledged with the issuing bank.

Contingent Liabilities

As at 30 November 2004, our Group had contingent liabilities in respect of bankers’ guarantees and letterof credits issued in the normal course of the business in favour of third parties amounting toapproximately RMB59.9 million and USD307,000 respectively for the performance of contracts. Thebankers’ guarantees are secured by the bank deposits of Wuhan Kaidi Water pledged to the issuingbanks.

Save as disclosed above, there were no material changes in our capitalisation or indebtedness as at theLatest Practicable Date, except for changes to our retained profits arising from the day-to-day operationsin the ordinary course of our business.

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SELECTED PROFORMA CONSOLIDATED FINANCIAL INFORMATION

The following selected financial information should be read in conjunction with the full text of thisProspectus, including the Proforma Consolidated Financial Information for FY2001, FY2002, FY2003 andHY2004 as set out as Appendix A of this Prospectus.

OPERATING RESULTS OF OUR PROFORMA GROUP (1)

Financial Period for Financial Year Ended the 6 months ended

31 December 30 June

(RMB’000) 2001 2002 2003 2003 (4) 2004

Revenue 47,033 80,830 159,960 76,235 86,445

Cost of sales (39,740) (68,763) (117,677) (55,991) (68,395)

Gross profit 7,293 12,067 42,283 20,244 18,050

Other operating income 131 1,162 – – –

7,424 13,229 42,283 20,244 18,050

Selling and distribution expenses (3,782) (5,184) (10,106) (3,641) (3,953)

Administrative expenses (3,787) (3,617) (9,899) (3,901) (8,182)

(Loss) profit from operations (145) 4,428 22,278 12,702 5,915

Financial income 43 71 107 81 125

Financial expenses (1,312) (27) (115) (29) (235)

(Loss) profit before tax (3) (1,414) 4,472 22,270 12,754 5,805

Tax (482) (2,088) (1,441) (824) (363)

(Loss) profit after tax (1,896) 2,384 20,829 11,930 5,442

Minority interests 167 (624) (2,054) (1,194) (655)

Net (loss) profit attributable to shareholders (3) (1,729) 1,760 18,775 10,736 4,787

EPS (RMB cents) (2) (1.73) 1.76 18.78 10.74 4.79

Notes:-

(1) The proforma consolidated financial results of our Proforma Group for the years/periods under review have been preparedbased on the re-stated/audited financial statements of our Company and our subsidiaries.

(2) For comparative purposes, EPS for the years/periods under review have been computed based on the net (loss)/profit for theyears/periods and the Pre-Invitation share capital of 99,988,700 Shares.

(3) Had the Service Agreements as described on pages 102 and 103 of this Prospectus been in effect in FY2003, our profitbefore tax and net profit attributable to shareholders for FY2003 would have been approximately RMB21.3 million andRMB17.8 million instead of RMB22.3 million and RMB18.8 million respectively.

(4) These comparative figures have not been reviewed or audited.

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FINANCIAL POSITIONS OF OUR PROFORMA GROUP (1)

As at As at(RMB’000) 31 December 2003 30 June 2004

Non-current assets

Fixed assets 2,110 2,647Goodwill on consolidation 6,425 5,705

Current assets

Inventories (material and components) less provision for 2,583 3,020stock obsolescence of RMB Nil

Work-in-progress in excess of progress billings 76,900 101,094Trade receivables 30,049 54,498Bills receivables 300 1,026Other receivables, deposits and prepayments 9,973 27,065Due from related parties (trade) (3) 11,340 30,850Due from related parties (non-trade) (3) 5,827 868Cash and bank balances 43,724 24,131

180,696 242,552

Current liabilities

Trade payables 19,732 20,485Other payables and accruals 33,510 53,085Progress billings in excess of work-in-progress 5,495 11,333Due to related parties (trade) (3) 55,755 90,418Due to related parties (non-trade) (3) 3,945 5,270Loan from a related party (4) 5,796 413Bills payable to banks (secured) 21,144 17,331Short-term bank loans 5,000 10,000Provision for income tax 973 339

151,350 208,674

Net current assets 29,346 33,878

Net assets 37,881 42,230

Proforma shareholders’ equity 34,929 39,512Minority interests 2,952 2,718

37,881 42,230

NTA per Share (RMB cents) (2) 28.51 33.81

Notes:-

(1) The financial positions of our Proforma Group as at 31 December 2003 and 30 June 2004 have been prepared on the basisthat the group structure at the date of lodgment of this Prospectus was in place on those dates.

(2) For comparative purposes, NTA per Share as of 31 December 2003 and 30 June 2004 have been computed based on thePre-invitation share capital of 99,988,700 Shares.

(3) Related parties refer to Wuhan Electric Group due to Wuhan Electric’s 9.6% shareholding in our subsidiary, Wuhan KaidiWater.

(4) Please refer to the section “Interested Person Transactions” of this Prospectus for more details.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITIONS ANDRESULTS OF OPERATIONS

The following discussion has been prepared by our Company’s management and should be read inconjunction with our Proforma Consolidated Financial Information for FY2001, FY2002, FY2003 andHY2004 as set out in Appendix A of this Prospectus.

OVERVIEW

Our Group is principally engaged in the procurement of equipment, design, installation andcommissioning of water purification treatment systems as well as the procurement, installation andcommissioning of standard equipment relating to industrial and municipal wastewater treatment systems.In addition, we are also engaged in the design and implementation of a wide range of automated controlsystems mainly for power plants in the PRC.

The majority of our clients are from the power generation industry. In addition, we provide similarservices to the petrochemical and metallurgical industries and also have the capability to engage inmunicipal wastewater treatment projects.

REVENUE

Our revenue is primarily derived from our three business segments, being “Water purification treatment”,“Wastewater treatment” and other miscellaneous projects (“Others”). Our water purification treatmentsegment covers the procurement of equipment, design, installation and commissioning of waterpurification treatment systems, largely for the power generation industry. Our wastewater treatmentsegment covers the procurement, installation and commissioning of standard equipment relating toindustrial and municipal wastewater treatment systems. In FY2003, these two main business segments,namely, water purification treatment and wastewater treatment accounted for approximately 94.3% and4.1% of our revenue respectively. In HY2004, the contribution from these two main business segmentsremains constant at approximately 92.2% and 4.7% of our revenue respectively.

Other miscellaneous projects such as coal conveying control systems, flue gas desulphurization controlsystems and ash pipe chemical cleaning projects accounted for the remaining 1.6% and 3.1% of ourrevenue for FY2003 and HY2004 respectively. In the building of a power plant, besides the waterpurification treatment systems, there are other sub-projects forming the entire power generating system.Of these peripheral sub-projects, we may be awarded contracts to automate the coal transportationsystem, which is responsible for supplying coal to the furnace. In addition, we may also be awardedcontracts to clean and unclog the ash piping system used in disposal of burnt ashes.

Our revenue is recognised based on the percentage-of-completion method. Under the percentage-of-completion method, the contract revenue and costs associated with the engagement contract arerecognised as revenue and expenses, respectively, by reference to the stage of completion of thecontract activity at the balance sheet date, when the outcome of a contract can be estimated reliably. Thestage of completion of a contract is measured by the proportion of the costs incurred to-date to theestimated costs of the contract. The duration of our projects from commencement to installation andcommissioning averages between 6 and 18 months.

The key factors that affect our revenue are as follows:

a) Our ability to secure the various types of projects from customers such as major power generationplants, municipal governments and other private enterprises. Generally, we secure projects throughopen tenders or invitation to tender. Our ability to secure projects depends on our competitivenessin terms of price, design, technology, track record, market reputation and ability to meet customer’sneeds;

b) Our revenue is dependent on the number and size of the projects secured and stage of completionof such projects at the end of each financial year/period;

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c) The speed at which we complete our projects also affects our revenue. Any delay in a project maydelay the recognition of the revenue associated with the project. Our ability to deliver projects asscheduled will also affect our ability to commence or plan for new projects;

d) The state of the PRC’s economy which affects the expenditure and rate at which new power plantsare built. Any significant slowdown in the PRC economy may cause the power plant industry toreduce expenditure or delay the building of new power plants. This would affect demand for ourwater purification treatment systems and wastewater treatment systems;

e) Changes to the environmental laws and regulations in the PRC will affect our customers’ demandfor our services. Power plants are required to meet these laws and regulations and therefore ourcustomers may seek our services in order to comply with the regulatory requirements. If ourcustomers fail to meet or keep up with changes in regulatory requirements, they will face penalties.Such regulatory changes may result in the increase in demand for newer and better wastewatertreatment systems; and

f) Based on the PRC’s 10th Five-Year Plan (the “Plan”), we believe that the PRC government willraise the national wastewater treatment rate to above 60% in all cities by 2010. We believe that thePRC government plans to build water treatment facilities in all cities and treat at least 45% ofsewage water by 2005(1). As such, demand for water treatment systems is likely to increase.

Note:

(1) Source: Report titled "Water and Wastewater Treatment" by the Market & Industry Research Division of IE Singaporedated April 2002. It is stated in the above report that:






SEASONALITY

Our business is project-based and is generally not subject to any seasonal fluctuation. However,business activities are generally slower during January to March each year due mainly to winter and thefestive seasons.

Our relationship with Wuhan Electric Group

Our Group’s operating subsidiary, Wuhan Kaidi Water was a subsidiary of Wuhan Electric up untilFebruary 2003. Before February 2003, Wuhan Kaidi Water and Wuhan Kaidi Measure & Control weremajor sub-contractors to Wuhan Electric Group for its water treatment related projects.

The contract values for these projects were largely determined by Wuhan Electric Group and this directlyaffected revenues and gross margins from these projects recorded by our Group. From FY2001 toFebruary 2003, Wuhan Electric managed Wuhan Kaidi Water and Wuhan Kaidi Measure & Control as itsoperating divisions and as such certain corporate expenses were borne by Wuhan Electric as a wholeand not allocated to its operating divisions, including Wuhan Kaidi Water and Wuhan Kaidi Measure &Control.

After the change of ownership of Wuhan Kaidi Water in February 2003, we increasingly tendered forwater treatment projects on our own. This resulted in a decreasing reliance on Wuhan Electric Group as85.3%, 61.4%, 39.5% and 27.4% of our Group’s revenue for FY2001, FY2002, FY2003 and HY2004respectively were derived from projects sub-contracted from Wuhan Electric Group.

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Cost of Sales (“COS”)

Our COS comprises cost of materials, direct labour and other direct overheads. COS as a percentage ofrevenue was 84.5%, 85.1%, 73.6% and 79.1% for FY2001, FY2002, FY2003 and HY2004 respectively.COS amounted to RMB39.7 million, RMB68.8 million, RMB117.7 million and RMB68.4 million forFY2001, FY2002, FY2003 and HY2004 respectively.

Cost of materials accounts for more than 90% of our COS. The remaining COS comprises direct labourcost and other direct overheads.

Cost of materials consists mainly of purchases of chemicals, filters, anion and cation exchanger beds,membrane systems, condensers, pumps, valves and other equipment and components required for theconstruction of the water purification treatment systems, wastewater treatment systems and automatedcontrol systems.

Our direct labour cost comprises mainly salaries and bonuses paid to our employees, mainly engineersin the PRC, who are involved in the procurement, assembly & installation, testing, commissioning andhandover, fine-tuning and on-site service as well as after sale service of the water purification treatmentand wastewater treatment systems. Other direct overheads comprise mainly transport costs.

The key factors that affect our COS are as follows:

(a) Our ability to obtain bulk discounts from suppliers. Discounts are granted by some suppliers whenour order quantity exceeds certain quota. On some occasions, discounts are granted by suppliersbased on terms stated in pre-negotiated purchase agreement, usually covering the duration of oneyear. If we are unable to obtain such discounts, the unit costs of our materials will increase,thereby increasing our COS;

(b) Our ability to carry out internal costing and prepare budgetary estimates accurately. Inaccurateestimation may lead to cost overruns and consequently increase our COS. Wastage, damage tomaterials, or changes in and replacement of components required to meet our customer’sspecifications will also increase our COS; and

(c) Any unanticipated increase in salaries and price of materials and components will affect our COS.

Gross Profit Margins

Our gross profit margins for FY2001, FY2002, FY2003 and HY2004 were 15.5%, 14.9%, 26.4% and20.9% respectively. The fluctuations of our gross profit margins were due to the project nature of thebusiness. In general, gross profit margin for each individual project is dependent on some of the followingfactors:-

(a) The presence of competition is likely to decrease our gross profit margin as we may lower ourtender bids in order to secure a project;

(b) Predominantly before FY2003, most of our projects were subcontracted to us by Wuhan ElectricGroup. These projects usually command a lower margin than if we had tendered for the projectdirectly, as the contract values of these projects sub-contracted to us were largely determined byWuhan Electric Group and this directly affects revenues and gross margins from these projectsrecorded by our Group; and

(c) The market demand for water treatment systems will determine the type of gross profit margins ofour projects.

Going forward, we expect to experience increased competitive pressure on our water purificationtreatment business. In addition, we have ventured into BOT wastewater treatment projects. Such BOT-type projects, although larger in contract sums, are characterised by lower gross profit margins incomparison to water purification treatment projects. These factors may result in the Group achievinglower gross profit margins for the forthcoming financial years.

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Other Operating Income

Other operating income amounted to approximately RMB131,000 and RMB1.2 million for FY2001 andFY2002 respectively. The increase in FY2002 was due mainly to a waiver of interest expense on loangranted by Wuhan Electric, which amounted to RMB1.1 million. There were no other operating incomefor FY2003 and HY2004.

Selling and Distribution Expenses

Our selling and distribution expenses amounted to RMB3.8 million, RMB5.2 million, RMB10.1 million andRMB4.0 million for FY2001, FY2002, FY2003 and HY2004, respectively and as a percentage of revenuewere approximately 8.0%, 6.4%, 6.3% and 4.6% for FY2001, FY2002, FY2003 and HY2004, respectively.

Selling and distribution expenses comprise mainly tender related costs, sales staff costs, entertainmentand travelling expenses incurred by our sales personnel. These formed the major components of ourselling and distribution expenses and collectively accounted for 91.2%, 94.0%, 88.6% and 90.0% of ourtotal selling and distribution expenses for FY2001, FY2002, FY2003 and HY2004, respectively.

Tender related costs include consultancy fees paid for project feasibility studies and backgroundinformation solicitation, as well as tender administrative charges. Tender related costs contributed 38.7%,46.7%, 54.5% and 58.4% of our total selling and distribution expenses for FY2001, FY2002, FY2003 andHY2004, respectively. Sales staff costs accounted for 18.1%, 16.6%, 19.8% and 12.1% of our totalselling and distribution expenses for FY2001, FY2002, FY2003 and HY2004, respectively. The remainingentertainment and travelling expenses accounted for 34.4%, 30.7%, 14.3% and 19.5% of our total sellingand distribution expenses for FY2001, FY2002, FY2003 and HY2004, respectively.

Administrative Expenses

Our administrative expenses as a percentage of our total revenue were approximately 8.1%, 4.5%, 6.2%and 9.5% of our total revenue for FY2001, FY2002, FY2003 and HY2004, respectively. Administrativeexpenses comprise mainly depreciation and amortisation expenses, insurance expenses, staff costs(including Directors’ remuneration), travelling expenses incurred by management staff, rental expenses,office expenses and provision for doubtful trade and non-trade debts. These components collectivelyaccounted for approximately 82.7%, 79.7%, 89.7% and 83.1% of our total administrative expenses forFY2001, FY2002 and FY2003 and HY2004, respectively.

Total administrative expenses for FY2001, FY2002, FY2003 and HY2004 were RMB3.8 million, RMB3.6million, RMB9.9 million and RMB8.2 million respectively. The sharp increase between FY2002 andFY2003 of RMB6.3 million was attributed to the additional administrative expenses incurred as a result ofthe setup of our Company. Our Company was incorporated in November 2002 and its administrativeexpenses incurred for FY2003 amounted to RMB2.7 million or 27.3% of our total administrative expensesfor FY2003. The remaining increase of RMB3.6 million was largely due to the provision for welfareexpenses for our subsidiary of RMB1.7 million, increase in provision for doubtful trade and non-tradedebts of RMB558,000, rental expense of RMB312,000 and staff costs of RMB653,000. These increaseswere mainly due to an increase in the scale of our operation, which included salaries paid to attract andretain our staff.

Financial expenses, net

Financial expenses relate to interest expenses on bank loans and loans from the previous holdingcompany of our PRC subsidiary, being Wuhan Electric and financial income relates to interest incomederived from bank deposits. Net financial expenses amounted to RMB1.3 million, RMB8,000 andRMB110,000 for FY2001, FY2003 and HY2004 respectively. In FY2002, there was a net finance incomeof RMB44,000.

Tax

Wuhan Kaidi Water and our previous subsidiary, Wuhan Kaidi Measure & Control, were entitled to taxconcession in the form of a reduced tax rate of 15% (as compared to the statutory tax rate of 30%) forthe financial years/periods under review as they were categorised as enterprises operating in a high-techindustry.

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During the financial year ended 31 December 2003, Wuhan Kaidi Water became a sino-foreign jointventure company and was entitled to full exemption from taxation for the first two years and a 50% relieffrom the reduced tax rate of 15% for the next three profitable years, thereafter, commencing from the firstprofitable year after offsetting all tax losses carried forward from the previous five years. As at 1 January2003, no unutilised tax losses from the previous five years were carried forward. The subsidiary was in itsfirst profit-making year during financial year ended 31 December 2003.

REVIEW OF PAST OPERATING PERFORMANCE

Our segmental results by activities are classified into our three business segments, namely, “Waterpurification treatment”, “Wastewater treatment” and “Others”. No geographical segment information hasbeen prepared as all of our revenue in the past three financial years and half-year ended 30 June 2004were derived from our customers in the PRC.

Revenue by Business Segments

FY2001 FY2002 FY2003 HY2003 HY2004

RMB RMB RMB RMB RMB’000 % ’000 % ’000 % ’000 % ’000 %

Water purification 44,657 94.9 67,994 84.1 150,823 94.3 72,688 95.3 79,663 92.2treatment

Wastewater 46 0.1 9,559 11.8 6,510 4.1 3,084 4.1 4,078 4.7treatment

Others 2,330 5.0 3,277 4.1 2,627 1.6 463 0.6 2,704 3.1

Total 47,033 100.0 80,830 100.0 159,960 100.0 76,235 100.0 86,445 100.0

Gross Profit by Business Segments

FY2001 FY2002 FY2003 HY2003 HY2004

RMB RMB RMB RMB RMB’000 % ’000 % ’000 % ’000 % ’000 %

Water purification 5,871 80.5 9,592 79.5 39,856 94.3 19,252 95.1 15,465 85.6treatment

Wastewater 18 0.2 1,814 15.0 1,209 2.8 767 3.8 1,291 7.2treatment

Others 1,404 19.3 661 5.5 1,218 2.9 225 1.1 1,294 7.2

Total 7,293 100.0 12,067 100.0 42,283 100.0 20,244 100.0 18,050 100.0

Gross Profit Margin by Business Segments

FY2001 FY2002 FY2003 HY2003 HY2004% % % % %

Water purification 13.1 14.1 26.4 26.5 19.4treatment

Wastewater 39.1 19.0 18.6 24.9 31.7treatment

Others 60.3 20.2 46.4 48.6 47.9

Total 15.5 14.9 26.4 26.6 20.9

46

REVIEW OF PAST OPERATING PERFORMANCE

FY2002 vs FY2001

Revenue

Our Group’s revenue increased by approximately RMB33.8 million or 71.9%, from RMB47.0 million inFY2001 to RMB80.8 million in FY2002. The increase in revenue was mainly contributed by growth in allour three business segments, in particular, the water purification treatment segment.

Revenue from our water purification treatment segment increased by approximately RMB23.3 million or52.1%, from RMB44.7 million in FY2001 to RMB68.0 million in FY2002. This was due mainly to therevenue contribution from four water purification treatment projects secured in FY2001 and FY2002 andsubstantially recognised in FY2002. These projects were the Na Yong Condensate Water TreatmentProject secured in May 2001, the Shanghai Wai Gao Qiao Condensate WaterTreatment Project secured in May 2002, the Tai Shan Condensate WaterTreatment Project secured in May 2002 and Li Yu Jiang Condensate Water TreatmentProject secured in September 2001 and had a total contract value of approximatelyRMB41.2 million, of which RMB94,000 and RMB28.5 million were recognised as revenue in FY2001 andFY2002 respectively.

Revenue from our wastewater treatment segment increased by RMB9.5 million or 208.70 times, fromRMB46,000 in FY2001 to RMB9.6 million in FY2002. This was due mainly to revenue contribution fromtwo industrial wastewater treatment projects, namely, the Inner Mongolia Tuo Ke Tuo WastewaterTreatment Project secured in December 2001 and the Ding Zhou WastewaterTreatment Project secured in May 2002. These projects had a total contract value ofRMB13.5 million, and the revenue recognised in FY2001 and FY2002 were RMB12,000 and RMB8.0million respectively.

Revenue from our “Others” segment increased by RMB1.0 million or 43.5%, from RMB2.3 million inFY2001 to RMB3.3 million in FY2002. This growth in revenue was mainly due to the substantialcompletion of the Shi Zui Shan coal conveying control system secured in August2001 and the Guangdong Heng Yun flue gas desulphurization control systemsecured in April 2002 which collectively contributed a total of RMB2.0 million in revenue in FY2002.

Gross Profit

Our Group’s gross profit increased by approximately RMB4.8 million or 65.8%, from RMB7.3 million inFY2001 to RMB12.1 million in FY2002. The increase in our gross profit was mainly contributed by strongperformance in both our major business segments of water purification treatment and wastewatertreatment. However, our gross profit margin declined by approximately 0.6 percentage point from 15.5%in FY2001 to 14.9% in FY2002 due mainly to a decrease in gross profit margin for our wastewatertreatment segment and “Others” segment, offset by a marginal improvement in gross profit margin for ourwater purification treatment segment.

The gross profit margin for our water purification treatment segment had improved marginally byapproximately 1.0 percentage point from 13.1% in FY2001 to 14.1% in FY2002. The improvement ingross profit margin was mainly because of three projects commanding margins of between 15.0% and24.0% which were substantially recognised in FY2002. These projects were the Tai Shan CondensateWater Treatment Project , the Na Yong Condensate Water Treatment Project

and the Li Yu Jiang Condensate Water Treatment Project .

The gross profit margin for our wastewater treatment segment had declined by approximately 20.1percentage points from 39.1% in FY2001 to 19.0% in FY2002. The decline in gross profit margin for ourwastewater treatment segment in FY2002 was due to our pricing strategy to position ourselves inexpanding into the wastewater treatment segment. As a result, the two industrial wastewater treatmentprojects in FY2002, namely, the Inner Mongolia Tuo Ke Tuo Industrial Wastewater Treatment Project

and the Ding Zhou Industrial Wastewater Treatment Project hadrelatively lower profit margins of 9.6% and 33.7%, respectively as compared to the Qin Lin IndustrialWastewater Treatment Project , with a high gross margin of 52.2% which weresubstantially recognised in FY2001.

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The gross profit margin for our “Others” segment has also declined by approximately 40.1 percentagepoints from 60.3% in FY2001 to 20.2% in FY2002. In FY2001, we undertook a large proportion ofchemical cleaning projects. As chemical cleaning projects are labour intensive, no equipment orcomponents are required. Hence, these projects were able to command higher margins and resulted ina higher gross profit margin for FY2001. In FY2002, we took on more coal conveying control systemprojects with relatively lower gross profit margin as compared to chemical cleaning projects. Thisresulted in the decline in our gross profit margin to 20.2% in FY2002.

Other operating income

Other operating income increased by approximately RMB1.0 million in FY2002 due mainly to a waiver ofinterest expense on loan granted by Wuhan Electric which amounted to RMB1.1 million.

Operating expenses

Our selling and distribution expenses increased by approximately RMB 1.4 million or 36.8%, fromRMB3.8 million in FY2001 to RMB5.2 million in FY2002. The increase in selling and distributionexpenses was due mainly to increases in tender related cost of RMB1.0 million, traveling expensesincurred by sales personnel of RMB254,000 and staff costs of RMB177,000 in FY2002. This was mainlyattributed to the increased marketing efforts made by our Group to secure more business with largercontract values.

Our administrative expenses remained relatively constant between FY2001 and FY2002, with only amarginal decrease of RMB170,000 or 4.5%, from RMB3.8 million in FY2001 to RMB3.6 million inFY2002.

Financial expenses decreased by RMB1.3 million in FY2002 due to the absence of interest expenses ofRMB1.2 million incurred in FY2001, arising from the interest bearing advances granted by WuhanElectric, as well as a decrease in bank interests of RMB68,000 due to settlement of bank loan obtainedin FY2001.

Profit before Tax (“PBT”)

Our Group’s PBT increased to RMB4.5 million in FY2002, as opposed to a loss before tax of RMB1.4million in FY2001. The increase in PBT in FY2002 was mainly due to an increase in our gross profit ofRMB4.8 million. As a result, we achieved an overall PBT margin of 5.5% in FY2002, compared to a lossbefore tax margin of 3.0% in FY2001.

Tax

Tax expenses increased from RMB482,000 in FY2001 to RMB2.1 million in FY2002 mainly due to higherprofits derived from operations, tax on unrealised profit of RMB572,000 and expenses not deductible fortax purposes and other items amounting to RMB847,000.

FY2003 vs FY2002

Revenue

Our Group’s revenue increased by approximately RMB79.2 million or 98.0%, from RMB80.8 million inFY2002 to RMB160.0 million in FY2003. The increase in revenue was largely contributed by the increasein revenue from our water purification treatment segment of approximately RMB82.8 million, offset by adecrease of approximately RMB3.0 million in revenue from our wastewater treatment segment as well asa decrease of approximately RMB650,000 in revenue from our “Others” segment. In FY2002, our Groupmanaged to secure projects worth RMB184.9 million, a significant increase over FY2001 of RMB108.0million. Of the RMB184.9 million of contract value, RMB173.1 million were from the water purificationtreatment segment. In FY2002, the PRC government began to award more contracts for the constructionof new power plants due to the severe shortage of power in the PRC. Correspondingly, the significantincrease in revenue in FY2003 was due mainly to the revenue recognised from those projects secured inFY2002.

48

Revenue from our water purification treatment segment increased by approximately RMB82.8 million or121.8%, from RMB68.0 million in FY2002 to RMB150.8 million in FY2003. The significant increase inrevenue was due mainly to the increase in projects secured in FY2002 driven by the increase in demandfor water purification treatment systems in the power generation industry. In FY2002, our Group secured26 water purification treatment projects with a total contract value of RMB173.1 million. This representedan increase in contract value of RMB75.2 million secured as compared to a total contract value ofRMB97.9 million secured in FY2001 over 38 projects. With the average project duration of 6 to 18months, the projects secured in FY2002 contributed to the increase in revenue for FY2003. Of theRMB173.1 million of contracts secured in FY2002, RMB22.2 million and RMB76.4 million wererecognised in FY2002 and FY2003 respectively.

Revenue from our wastewater treatment segment decreased by RMB3.1 million or 32.3%, from RMB9.6million in FY2002 to RMB6.5 million in FY2003 due mainly to lesser revenue recognised from the twoindustrial wastewater treatment projects, namely, the Inner Mongolia Tuo Ke Tuo Industrial WastewaterProject and the Ding Zhou Industrial Wastewater Project inFY2003 of RMB3.6 million as compared to FY2002 of RMB8.0 million. In FY2003, three more newwastewater treatment projects, namely, the Hua Neng Shan Tou Industrial Wastewater Treatment Project

, the Hua Neng Shan Tou Municipal Wastewater Treatment Projectand the Zhang Shan Municipal Wastewater Treatment Project

were secured with a total contract value of RMB5.4 million. However, the revenue contribution fromthese three projects in FY2003 was RMB2.2 million. Consequently, the revenue for our wastewatertreatment segment in FY2003 declined.

Revenue from our “Others” segment decreased by RMB650,000 or 19.7%, from RMB3.3 million inFY2002 to RMB2.6 million in FY2003 due mainly to the Shi Zui Shan coal conveying control system

project which contributed RMB1.5 million for FY2002, as compared to RMB26,000for FY2003. This was offset by revenue from additional projects recognised in FY2003.

Gross Profit

Our Group’s gross profit increased by approximately RMB30.2 million or 249.6%, from RMB12.1 millionin FY2002 to RMB42.3 million in FY2003. The increase in gross profit was mainly contributed by strongerperformance in our water purification treatment segment as a result of the many projects secured inFY2002. Our gross profit margin also increased by approximately 11.5 percentage points from 14.9% inFY2002 to 26.4% in FY2003 due mainly to increases in gross profit margin for our water purificationtreatment segment and our “Others” segment, offset by a marginal decrease in gross profit margin for thewastewater treatment segment.

The gross profit margin for our water purification treatment segment increased by approximately 12.3percentage points from 14.1% in FY2002 to 26.4% in FY2003. The increase was due mainly to bettergross profit margins obtained from projects worked on in FY2003. We were able to secure higher grossprofit margins for such projects resulting from the increase in demand for water treatment systems in thepower generation industry during the second half of FY2002.

The gross profit margin for our wastewater treatment segment remained marginally the same at 18.6% inFY2003 as compared to 19.0% in FY2002.

The gross profit margin for our “Others” segment had increased by approximately 26.2 percentage pointsfrom 20.2% in FY2002 to 46.4% in FY2003. The significant increase in gross profit margin was duemainly to the high margin flue gas desulphurisation projects.

Since the second half of FY2002, we focused on taking on more flue gas desulphurisation system controlprojects as these projects command higher gross profits margins due to lesser competition. This wasbecause such systems were relatively more complicated to design and implement, as compared to coalconveying control systems. Hence, with reduced competition, we were able to command a higher grossprofit margin from these projects.

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Operating expenses

Our selling and distribution expenses increased by approximately RMB4.9 million or 94.2%, from RMB5.2million in FY2002 to RMB10.1 million in FY2003. The increase was mainly due to increases in tender related cost, staff costs and travelling expenses of approximately RMB3.1 million, RMB1.1 millionand RMB407,000 respectively. The increase in our selling and distribution expenses was in line with ourincrease in sales activities. In FY2003, our Group secured 65 projects worth approximately RMB262.9million as compared to 39 projects secured in FY2002 worth RMB184.9 million. Consequently, relativelymore marketing expenses which relate to tendering costs were incurred in order to secure theseadditional projects. The increase in staff costs was due to the employment of 12 additional sales andmarketing staff, which brought the total strength of the sales and marketing team at the end of FY2003 to28. The increase in travelling expenses was mainly due to the increase in the frequency and distance oftravel made by our sales and marketing staff as our customer base expanded to span across the PRC.

Our administrative expenses increased by approximately RMB6.3 million or 175.0%, from RMB3.6 millionin FY2002 to RMB9.9 million in FY2003. The sharp increase between FY2002 and FY2003 of RMB6.3million was mainly attributable to the additional administrative expenses incurred as a result of the setupof our Company. Our Company was incorporated in November 2002 and its administrative expensesincurred for FY2003 amounted to RMB2.7 million or 27.3% of our total administrative expenses forFY2003. The remaining increase of RMB3.6 million was largely due to the provision for welfare expensesfor our subsidiary of RMB1.7 million, increase in provision for doubtful trade and non-trade debts ofRMB558,000, rental expense of RMB312,000 and staff costs of RMB653,000. These increases weredue mainly to an increase in the scale of our operation, which included salaries paid to attract and retainour staff.

Financial expenses increased by RMB88,000 in FY2003 due mainly to our short-term bank loans ofRMB10.0 million secured in FY2003.

Profit before taxation (“PBT”)

Our Group’s PBT increased by approximately RMB17.8 million or 395.6%, from RMB4.5 million inFY2002 to RMB22.3 million in FY2003. The increase in PBT was mainly due to an increase in our grossprofit of RMB30.2 million in FY2003, which was partially offset by increases in selling and distribution andadministrative expenses of RMB4.9 million and RMB6.3 million respectively. As a result, our overall PBTmargin improved by approximately 8.4 percentage points, from 5.5% in FY2002 to 13.9% in FY2003.

Tax

Tax expenses decreased by approximately RMB700,000 or 33.3%, from RMB2.1 million in FY2002 toRMB1.4 million in FY2003. Against an increase in profit before tax of RMB17.8 million, the decrease intax expenses was mainly due to our subsidiary, Wuhan Kaidi Water, which has been designated as asino-foreign joint venture under the “Implementing Rules of the Income Tax Law of the PRC on ForeignInvestment Enterprises and Foreign Enterprises” inFY2003. It will be exempted from income tax for the first and second years from the first profit-makingyear and a 50% reduction in the income tax payable for the next three years. Accordingly, the profitsgenerated by the subsidiary amounting to RMB16.9 million was exempted from income tax for FY2003,thereby resulting in a decrease in tax expense in FY2003, despite an increase in profit before tax. Forfurther details, please refer to page A-27 of this Prospectus.

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50

HY2004 vs HY2003

Revenue

Our Group’s revenue increased by approximately RMB10.2 million or 13.4%, from RMB76.2 million inHY2003 to RMB86.4 million in HY2004. The increase in revenue was mainly contributed by our growth inall our three business segments.

Revenue from our water purification treatment segment increased by approximately RMB7.0 million or9.6%, from RMB72.7 million in HY2003 to RMB79.7 million in HY2004. This was due mainly to morewater purification treatment projects being undertaken in HY2004, such as the Heng Shui CondensateWater Treatment Project secured in March 2003, the Tai Shan Condensate WaterTreatment project secured in May 2003, the Han Cheng Chemical Treatment Project

secured in June 2003 and the Inner Mongolia Dai Hai CondensateWater Treatment Project secured in July 2003.

Revenue from our wastewater treatment segment increased by approximately RMB1.0 million or 32.3%,from RMB3.1 million in HY2003 to RMB4.1 million in HY2004. The slight increase was due mainly to fiveprojects worked on in HY2004 as compared to two projects in HY2003. These five projects were the HuaNeng Shan Tou Industrial Wastewater Treatment Project secured in October2003, the Hua Neng Shan Tou Municipal Wastewater Treatment Projectsecured in October 2003, the He Shan Power Plant Wastewater Treatment Project

secured in October 2003, the Wuhan New Economic Development ZoneWastewater Treatment Project secured in April 2004 and the Ding ZhouIndustrial Wastewater Treatment Project secured in May 2002. These five projectscontributed a total RMB4.1 million in revenue in HY2004.

Revenue from our “Others” segment increased by approximately RMB2.2 million or 483.2%, fromRMB463,000 in HY2003 to RMB2.7 million in HY2004. This growth in revenue was due mainly to thecompletion of two coal conveying control systems and nine desulphurisation controlsystem , as compared to only six such projects from this segment in HY2003.

Gross Profit

Our Group’s gross profit decreased by approximately RMB2.1 million or 10.4%, from RMB20.2 millionHY2003 to RMB18.1 million in HY2004. The decrease in our gross profit was due mainly to increasedcompetition in the water purification treatment segment in FY2003. Hence, water purification treatmentprojects secured in FY2003 but commenced in HY2004 suffered a slight reduction in gross profit margin,thereby causing a decline in our gross profit. Consequently, our overall gross profit margin declined byapproximately 5.7 percentage points from 26.6% in HY2003 to 20.9% in HY2004.

The gross profit margin for our water purification treatment segment had declined by approximately 7.1percentage points from 26.5% in HY2003 to 19.4% in HY2004, which primarily contributed to the declinein the overall gross profit margin of our Group. The decline was due mainly to projects with relativelylower gross profit margins recognised in HY2004. These projects were secured under toughercompetitions and in order to secure these projects, we adjusted our pricing strategy to tender at arelatively lower, but profitable bid. These projects were the Ya Xi Condensate Water Treatment Project

, the Heng Shui Condensate Water Treatment Project , the InnerMongolia Dai Hai Condensate Water Treatment Project , the Jiang Su Xin HaiReverse Osmosis Water Treatment Project and the Han Cheng ChemicalTreatment Project . The gross profit margins for these projects rangefrom 7.4% to 16.6%, and hence accounted for lower gross profit margins as compared to HY2003.

The gross profit margin for our wastewater treatment segment improved by approximately 6.8 percentagepoints from 24.9% in HY2003 to 31.7% in HY2004. The increase in gross profit margin for the wastewatertreatment segment in HY2004 was due mainly to high gross profit margin derived from the Ding ZhouWastewater Treatment Project and the He Shan Power Plant Wastewater TreatmentProject which commanded gross profit margins of 34.0% and 30.0%respectively.

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The gross profit margin for our “Others” segments remained relatively constant as we continued the trendin FY2003 to focus on flue gas desulphurisation projects.

Operating expenses

Our selling and distribution expenses remained constant at approximately RMB4.0 million in HY2003 andHY2004.

Our administrative expenses increased significantly by approximately RMB4.3 million or 110.3%, fromRMB3.9 million in HY2003 to RMB8.2 million in HY2004. The increase in HY2004 was due mainly to theadditional expenses incurred by our Company, which commenced its operation in March 2003. Thisaccounted for RMB1.1 million of the total increase in administrative expense for HY2004, as compared toHY2003. The remaining significant increases were due mainly to entertainment expenses ofRMB206,000, office and office rental expenses of RMB520,000, amortisation of goodwill of RMB770,000and provision for trade and non-trade doubtful debts of RMB721,000.

Our net financial expense was RMB110,000 in HY2004, as opposed to a net financial income ofRMB52,000 in HY2003. This was due mainly to an increase in interest expense on bank loans and adecrease in our bank balances, which resulted in lower interest income.

Profit before Taxation (“PBT”)

Our Group’s PBT decreased by approximately RMB7.0 million or 54.7%, from RMB12.8 million inHY2003 to RMB5.8 million in HY2004. The decline in PBT was mainly due to a decrease in our grossprofit of RMB2.2 million and an increase in our administrative expenses of approximately RMB4.3 millionin HY2004. As a result, our overall PBT margin declined by approximately 10.0 percentage points from16.7% in HY2003 to 6.7% in HY2004.

Tax

Tax expense decreased by RMB461,000, from RMB824,000 in HY2003 to RMB363,000 in HY2004, as aresult of the corresponding lower profit before tax in HY2004.

REVIEW OF PAST FINANCIAL POSITION

The following analysis is based on the balance sheets as at 31 December 2003 and 30 June 2004 as setout in the Proforma Consolidated Financial Information for FY2001, FY2002, FY2003 and HY2004 setout as Appendix A of this Prospectus.

Non-Current Assets

Our non-current assets amounted to approximately RMB8.5 million as at 31 December 2003, constitutingapproximately 4.5% of total assets. The net book value of our fixed assets was approximately RMB2.1million as at 31 December 2003. Fixed assets comprised furniture and fittings, office equipment, motorvehicles and computer software and electronic equipment. The remaining portion of non-current assetspertained to goodwill on consolidation due to the acquisition of our subsidiary and amounted to RMB6.4million.

Our non-current assets as at 30 June 2004 remained constant at RMB8.4 million. The net book value offixed assets increased by RMB537,000, as a result of the acquisition of fixed assets of RMB819,000comprising mainly motor vehicles and office equipment offset by depreciation expense of RMB282,000.In addition, goodwill on consolidation decreased by approximately RMB720,000 due mainly toamortisation of RMB770,000 during the period.

Current Assets

Our current assets amounted to approximately RMB180.7 million as at 31 December 2003, constitutingapproximately 95.5% of total assets. Current assets comprised mainly of inventories, work-in-progress inexcess of progress billings which represents cumulative costs and net attributable profits recognised to-date net of billings made to customers, trade and other receivables and cash and bank balances.

52

Our inventories comprised mainly materials and components, amounting to approximately RMB2.6million and this constituted approximately 1.4% of current assets. Work-in-progress in excess of progressbillings amounted to approximately RMB76.9 million or 42.6% of current assets. Our trade and otherreceivables amounted to approximately RMB57.5 million or 31.8% of current assets and consist mainly oftrade receivables, bill receivables, other receivables, deposits and prepayments, and amount due fromrelated parties (trade and non-trade). Trade and bills receivables amounted to approximately RMB30.3million. Trade receivables generally have 90 to 180 day credit terms and are recognised and carried atoriginal invoice amount less an allowance for any uncollectible amount. Please refer to the section“Credit Policy” on pages 83 to 84 of this Prospectus for further details. Other receivables, deposits andprepayments of approximately RMB10.0 million comprised mainly of prepayments to suppliers formaterials and components purchased, advances to employees and tender deposits. Amounts due fromrelated parties (trade) of approximately RMB11.3 million pertained to trade receivables from the WuhanElectric Group. Non-trade debts due from a related company of RMB5.8 million pertained to placement ofcertain refundable tender deposits with Wuhan Electric who was bidding for projects on our Group’sbehalf. Our cash and bank balance of RMB43.7 million constituted the remaining 24.2% of currentassets.

Our current assets as at 30 June 2004 increased by approximately RMB61.9 million to RMB242.6 milliondue mainly to increase in work-in-progress in excess of progress billings of approximately RMB24.2million and trade and other receivables of approximately RMB56.8 million. These increases were offsetby a decrease in cash and bank balances of approximately RMB19.6 million.

The increase in work-in-progress in excess of progress billings was in line with more projects beingundertaken by our Group. The increase in trade and other receivables was due mainly to an increase intrade and bill receivables of RMB25.2 million, an increase in other receivables, deposits and prepaymentof RMB17.1 million which include a prepayment to a supplier in relation to our Hanxi project ofapproximately RMB12.0 million, as well as an increase in trade amounts due from Wuhan Electric Groupof RMB19.5 million.

Current Liabilities

Our current liabilities, which amounted to approximately RMB151.4 million as at 31 December 2003,comprised mainly trade and other payables, progress billings in excess of work-in-progress whichrepresents progress billings rendered in excess of cumulative cost incurred to-date and net attributableprofit recognised to-date, short-term bank loan and provision for income tax.

Our trade and other payables of approximately RMB139.9 million, which constituted approximately 92.4%of current liabilities, consist mainly of trade and bills payables, other payables and accruals, and amountdue to related parties (loan, trade and non-trade). Trade and bills payables of approximately RMB40.9million were amounts owing to suppliers and sub-contractors for direct materials purchased and servicesrendered by them. Other payables and accruals of approximately RMB33.5 million comprised mainly ofadvance payments from customers. Amount due to related parties (loan, trade and non-trade) ofapproximately RMB65.5 million arose from purchases of equipment and materials from Wuhan ElectricGroup of RMB55.8 million, a loan from a related company for working capital purpose which amounted toRMB5.8 million and a non-trade amount due to Wuhan Electric of RMB3.9 million for dividends payable.The remaining 7.6% of our current liabilities consisted of progress billings in excess of work-in-progressof RMB5.5 million, short-term bank loan of RMB5.0 million and provision for income tax of RMB973,000.

Our current liabilities as at 30 June 2004 increased by approximately RMB57.3 million to RMB208.7million due mainly to increase in trade payable of RMB753,000, increase in amount due to related party(trade and non-trade) of RMB36.0 million, increase in other payables and accruals of RMB19.6 million,increase in bank loan of RMB5.0 million and an increase in progress billings in excess of work-in-progress of RMB5.8 million. This was offset by a decrease in bills payable to banks of RMB3.8 millionand the repayment of loan to a related party amounting to RMB5.4 million and decrease in provision forincome tax of RMB634,000.

53

Proforma Shareholders’ Equity

Shareholders’ equity comprised issued share capital, reserves and accumulated profits. Shareholders’equity amounted to approximately RMB34.9 million and RMB39.5 million as at 31 December 2003 and30 June 2004 respectively.

Our shareholders’ equity as at 30 June 2004 increased by approximately RMB4.6 million to RMB39.5million due mainly to profits generated in HY2004 of RMB4.8 million.

LIQUIDITY AND CAPITAL RESOURCES

Our sources of cash comprise cash generated from operations, capital injection provided by ourshareholders and loans and financing from financial institutions. As at 30 June 2004, we have positivecash and bank balances of RMB24.1 million, of which an amount of RMB8.2 million has been pledged tobanks as security for bankers’ guarantees provided to customers for the performance of contracts and aletter of credit facility granted. As at the Latest Practicable Date, our cash and cash equivalents(excluding balances pledged) amounted to RMB60.6 million. Together with unutilised banking facilities ofRMB91.2 million, our Directors are of the opinion that, as at the Latest Practicable Date, we haveadequate working capital to meet our present requirements.

Year ended 6 months ended31 December 2003 30 June 2004

RMB’000 RMB’000

Cash flows from operating activitiesProfit before tax 22,270 5,805

Amortisation of goodwill on consolidation – 770Depreciation of fixed assets 476 282Inventories written off 95 – Provision for doubtful trade debts 398 655Provision for doubtful non-trade debts (related parties) 14 – Provision for doubtful non-trade debts 212 66Interest expense 115 235Interest income (107) (125)Translation difference (554) (122)

Operating profit before working capital changes 22,919 7,566Decrease (increase) in:

Inventories 1,695 (437)Work-in-progress, net (57,226) (18,356)Trade receivables (20,432) (25,104)Bills receivables 700 (726)Other receivables, deposits and prepayments (6,602) (17,158)Due from related parties (trade) 41,996 (19,510)Due from related parties (non-trade) 20,158 4,959

Increase (decrease) in:Trade payables (730) 753Other payables and accruals 2,923 19,417Due to related parties (trade) 25,246 34,663Due to related parties (non-trade) 3,944 1,325

Cash generated from (used in) operations 34,591 (12,608)Interest expense paid (115) (235)Income tax paid (2,123) (996)Interest income received 107 125

Net cash generated from (used in) operating activities 32,460 (13,714)

Cash flows from investing activitiesPurchase of fixed assets (1,649) (819)Proceeds from disposal of fixed assets 100 – Proceeds from disposal of investments and fixed assets to the previous holding company 30,406 –

Net cash generated from (used in) investing activities 28,857 (819)

54

Year ended 6 months ended31 December 2003 30 June 2004

RMB’000 RMB’000

Cash flows from financing activitiesDividends paid (20,814) (864)Capital contribution from minority shareholder of a subsidiary 384 – Proceeds from short-term bank loan 5,000 5,000Repayment of loan from a related party, net (62,149) (5,383)Proceeds from issuance of new shares 27,270 – (Increase) decrease in deposits pledged to banks (5,084) 5,389Proceeds from (repayment of) bills payable to banks 18,469 (3,813)

Net cash (used in) generated from financing activities (36,924) 329

Net increase (decrease) in cash and cash equivalents 24,393 (14,204)Cash and cash equivalents at beginning of year/ period 5,672 30,065

Cash and cash equivalents at end of year/ period 30,065 15,861

Net cash generated from (used in) operating activities

Our net cash generated from operating activities was approximately RMB32.5 million in FY2003. Cashgenerated from operating activities before changes in working capital items amounted to RMB22.9 milliondue mainly to profit before tax of RMB22.3 million. Our working capital increased by RMB11.7 million,due mainly to increase in cash from related parties’ balances, which amounted to RMB91.3 million, andincrease in trade and other payables of RMB2.2 million, offset by cash tied up in work-in-progress andtrade receivables of RMB77.7 million. Income tax paid amounted to RMB2.1 million.

For HY2004, our net cash used in operating activities was approximately RMB13.7 million. Our cashgenerated from operating activities before changes in working capital items remained positive, with acash inflow of approximately RMB7.6 million. This was due mainly to profit before tax of RMB5.8 million,and non-cash adjustments relating to amortisation of goodwill of RMB770,000, depreciation expense ofRMB282,000 and provisions for doubtful trade and non-trade debts of RMB721,000.

The negative net cash flow from operating activities for HY2004 was mainly due to two non-recurringitems. Wuhan Electric, the previous parent company of Wuhan Kaidi Water, subcontracted several watertreatment projects to Wuhan Kaidi Water. Payment of these subcontract fees due to Wuhan Kaidi Water iscontingent on settlement by the ultimate customers. The subcontracting fees payable by the WuhanElectric Group between April to June 2004 were not paid to the Group. This was due to the fact thatWuhan Kaidi Water was no longer a subsidiary of Wuhan Electric after the sale of Wuhan Kaidi Water toour Company, which had to set up a new protocol to monitor the payment of such monies. This amountdue amounted to RMB10.0 million and was paid in full subsequent to 30 June 2004. With the decreasingreliance on Wuhan Electric Group for subcontracts projects and with a new collection protocol in place,we do not foresee this to be a recurring issue.

In addition, a deposit of RMB12.0 million was paid to a subcontractor for construction relating to the useand acquisition of the UNITANK technology for the Wuhan Hanxi Municipal Wastewater Treatment Plantduring HY2004. As explained under the “Intellectual Property” section on pages 85 and 86 of thisprospectus, the UNITANK technology will only be transferred to the Group upon successful collaborationwith Seghers Keppel Technology Group NV on two wastewater treatment projects. Our contract toprocure standard equipment to the wastewater treatment plant in the Wuhan New EconomicDevelopment Zone represents our first use of the UNITANK technology. In order to procure the secondproject to fulfil the transfer criteria, we had intended for Wuhan Hanxi Municipal Wastewater TreatmentProject to utilise the UNITANK technology. At the time of facilitating such an arrangement, we had to fulfillthe pre-requisite of identifying a subcontractor for the construction of the UNITANK pool. As Wuhan Hanxiwas not set up at the time of negotiation, and having considered the benefits of obtaining the transfer ofthe UNITANK technology for our subsidiary, we have, as the major shareholder of Wuhan Hanxi, paid onbehalf of Wuhan Hanxi (prior to its incorporation), the deposit amounting to RMB12.0 million in April2004.

55

Subsequent to 30 June 2004, in place of the proposed UNITANK technology, another technology hasbeen selected for the Wuhan Hanxi Municipal Wastewater Treatment Project. Accordingly, in September2004, the full repayment of RMB12.0 million was recovered from the subcontractor.

Our management has fully considered the benefits of the UNITANK technology before approving theprepayment made to the subcontractor. The Group has ending cash and cash equivalents balance ofRMB15.9 million as at 30 June 2004. We have since recovered both the payment of the subcontractingfee and the refund of the deposit totalling RMB22.0 million. Hence excluding the above two non-recurringitems, the Group’s net cash flow from operating activities as at 30 June 2004 would have been a positiveRMB8.3 million.

Net cash generated from (used in) investing activities

Our net cash generated from investing activities was approximately RMB28.9 million in FY2003, duemainly to the proceeds from the disposal of investments and fixed assets to Wuhan Electric pursuant toour restructuring exercise in FY2002 of RMB30.4 million received in FY2003, offset by purchases of fixedassets of approximately RMB1.6 million. The disposed investments comprised long term investments inPRC companies and while the disposedfixed assets comprised office equipment and leasehold buildings. Please refer to page A-25 and page 57of this Prospectus for more details on the disposed investments and fixed assets.

For HY2004, we utilized cash of approximately RMB819,000 for the purchases of fixed assets.

Net cash generated from (used in) financing activities

Our net cash used in financing activities was approximately RMB36.9 million in FY2003, due mainly todividends paid of approximately RMB20.8 million, repayment of loan from Wuhan Electric ofapproximately RMB62.1 million and an increase in fixed deposits pledged of approximately RMB5.1million. These were offset by proceeds from an issuance of new shares of approximately RMB27.3million, proceeds from a bank loan of approximately RMB5.0 million and financing from bills payables ofapproximately RMB18.5 million.

For HY2004, net cash of RMB329,000 was generated from our financing activities. This was due mainlyto proceeds from a bank loan of approximately RMB5.0 million and a decrease of deposits pledged tothe banks of approximately RMB5.4 million, which were offset by the repayment of a related party loan ofapproximately RMB5.4 million, the payment of net dividends of approximately RMB864,000 and thesettlement of bills payable to banks of approximately RMB3.8 million.

Our Directors believe that the negative cash flow from operating activities for HY2004 was mainly due tothe two non-recurring activities as highlighted above. Despite the negative cash flow from operatingactivities, our cash and bank balances, together with our unutilised banking facilities of RMB100.1 millionwill be sufficient to meet our working capital requirements. In addition, as at the Latest Practicable Date,we have collected back the full amounts relating to the two non-recurring events, amounting to RMB22.0million.

FOREIGN EXCHANGE MANAGEMENT

At present, our PRC subsidiaries’ revenue and purchases are denominated in RMB even though some ofthe equipment that we purchase from our suppliers are imported. Due to these imported equipment, weare indirectly exposed to fluctuations in foreign exchange rates which may result in changes in the pricesof imported equipment, which we purchase from our suppliers. Currently we do not actively managesuch indirect foreign exchange exposure as we are able to transfer such costs to our customers. We willonly purchase such imported equipment upon confirmation of orders by our customers.

Our dominant transactional currency for FY2001, FY2002, FY2003 and HY2004 was RMB. With thenatural hedging of the revenue and costs mainly denominated in RMB, our Group’s transactional foreignexchange exposure for the past three and a half years was insignificant.

Currently, we do not have a formal currency hedging policy with respect to our foreign exchangeexposure. We have not used any financial hedging instruments to manage our foreign exchange risks.

56

Foreign exchange exposure

The reporting currency of our Group is RMB. Our Group operates in the PRC and our transactions arepredominantly denominated in RMB.

Transactions in foreign currencies are measured in the respective measurement currencies and recordedat exchange rates approximating those ruling at the transaction dates. Foreign currency monetary assetsand liabilities are measured using the exchange rates ruling at balance sheet date. Non-monetaryassets and liabilities are measured using the exchange rates ruling at the transaction dates. All resultantexchange differences are recognised in the profit and loss account.

There were no exchange gains or losses recognised in the profit and loss account for the past threefinancial years ended 31 December 2003 and six months ended 30 June 2004, except for a gain ofRMB375,000 and RMB74,000 relating to currency revaluations of a USD denominated bank balancerecorded as at 31 December 2003 and 30 June 2004 respectively.

CAPITAL EXPENDITURE, DIVESTMENT AND COMMITMENT

Operating Lease Commitments

As at the Latest Practicable Date, we have the following operating lease commitments:

RMB’000

Within 1 year 1,048Within 2 to 5 years 543

1,591

The operating leases relate to the rental of our office premises and staff accommodation.

Material Capital Expenditure and Divestment

Save as disclosed below, there were no material capital expenditure and divestment for the past threefinancial years and up to the Latest Practicable Date:

1 January 2004to the Latest

FY2001 FY2002 FY2003 Practicable DateRMB’000 RMB’000 RMB’000 RMB’000

Expenditure (1)

Furniture and fittings – – 46 103Motor vehicles – 130 1,099 999Office equipment 283 248 419 541Computer software and electronic equipment – – 85 136

283 378 1,649 1,779

Divestment (2)

Motor vehicles – – 100 – Office equipment – 259 – –Leasehold buildings – 7,462 – –

– 7,721 100 –

Notes:-

(1) This relates to the cost of fixed assets acquired during the respective financial years/period.(2) This relates to the net book value of fixed assets disposed of during the respective financial years/period.

57

We obtained a business licence in July 2004 to build and operate a municipal wastewater treatment plantin the west of Han Kou within the Hubei Province (the “Wuhan Hanxi Wastewater Treatment Project”).The construction of this wastewater treatment plant is expected to be completed within two years,subsequent to which it will serve an area of 54.67 square kilometres and an estimated population of600,000, as well as treat and supply up to 400,000 tonnes of water daily to the Wuhan city government.The aggregate proposed investment value is approximately RMB463 million, and the registered capital isRMB100 million, of which we will invest approximately RMB43 million. As at the Latest Practicable Date,we had paid RMB8.6 million from our working capital as part of our investment commitment. We intend tofund our remaining investment commitment of the Wuhan Hanxi Wastewater Treatment Project from ourproceeds from the issue of New Shares. Please see “Use of Proceeds” on page 36 of this Prospectusand “Future Plans – Expand into the municipal wastewater treatment industry through BOT-type projects”on page 92 to 93 of this Prospectus for more details.

58

59

GENERAL INFORMATION ON OUR GROUP

SHARE CAPITAL

Our Company was incorporated in Singapore on 19 November 2002 under the Act as a private limitedcompany under the name of Primehub Pte. Ltd. Our Company’s name was changed to Asia WaterServices Pte Ltd on 6 February 2003 and subsequently changed to Asia Water Technology PrivateLimited on 1 December 2003. Our Company was converted to a public limited company on 31 January2005 and our Company’s name was accordingly changed to Asia Water Technology Ltd. As at the date ofthis Prospectus, our authorised share capital is S$10,000,000 comprising 10,000,000 ordinary shares ofS$1.00 each and our issued and paid-up capital is S$5,999,322 comprising 5,999,322 ordinary shares ofS$1.00 each.

At an extraordinary meeting held on 24 January 2005, our shareholders approved, inter alia, thefollowing:-

(a) the increase of our authorised share capital from S$10,000,000 divided into 10,000,000 ordinaryshares of S$1.00 each to S$30,000,000 divided into 30,000,000 ordinary shares of S$1.00 each;

(b) the consolidation of every 6 ordinary shares of S$1.00 each in the authorised and issued sharecapital of our Company into 1 ordinary share of S$6.00 each (the “Consolidation”);

(c) the sub-division of each ordinary share of S$6.00 each in our authorised and issued share capitalinto 100 ordinary shares of S$0.06 each (the “Sub-division”);

(d) the conversion of our Company into a public limited company and the consequential change ofname to Asia Water Technology Ltd.;

(e) the adoption of the ESOS;

(f) the adoption of a new set of Articles of Association;

(g) that authority be given pursuant to Section 161 of the Act to our Directors to issue New Shareswhich are the subject of the Invitation on the basis that the New Shares, when allotted, issued andfully-paid, will rank pari passu in all respects with the existing Shares;

(h) that authority be given pursuant to Section 161 of the Act to our Directors to (i) allot and issueshares in our Company; and (ii) issue convertible securities and any shares in the Companypursuant to the convertible securities, (whether by way of rights, bonus or otherwise) at any timeand upon such terms and conditions and for such purposes and to such persons as our Directorsshall in their absolute discretion deem fit, provided that the aggregate number of shares andconvertible securities to be issued pursuant to such authority shall not exceed 50 per cent. of thepost-Invitation issued share capital of our Company and that the aggregate number of shares andconvertible securities to be issued other than on a pro-rata basis to the then existing shareholdersof our Company shall not exceed 20 per cent. of the post-Invitation issued share capital of ourCompany. Unless revoked or varied by our Company in general meeting, such authority shallcontinue in full force until the conclusion of the next Annual General Meeting of our Company orthe date by which the next Annual General Meeting is required by law or by our Articles to be held,whichever is earlier, except that our Directors shall be authorised to allot and issue new sharespursuant to the convertible securities notwithstanding that such authority has ceased.

For the purposes of this resolution and pursuant to Rules 806(3) and 806(4) of the SGX-ST ListingManual, “post-Invitation issued share capital” shall mean the enlarged issued and paid-up sharecapital of our Company after the Invitation, and where applicable, after adjusting for (i) new sharesarising from the conversion or exercise of convertible securities, (ii) new shares arising fromexercising share options or vesting of share awards outstanding or subsisting at the time of thepassing of this resolution, provided the options or awards were granted in compliance with Part VIIof Chapter 8 of the SGX-ST Listing Manual and (iii) any subsequent consolidation or sub-divisionof shares.

As at the Latest Practicable Date, there is only one class of shares in the capital of our Company. Asummary of the Articles of Association of our Company relating to the voting rights of shareholders is setout in Appendix K on page K-2 under “Voting Rights”. There are no founder, management, deferred orunissued Shares reserved for issuance for any purpose.

Save for the ESOS, no person has been, or is entitled to be, given an option to subscribe for or purchaseany securities of the Company or our subsidiary. As at the Latest Practicable Date, no option tosubscribe for our Shares has been granted to, or was exercised by any of our Directors.

As at the date of lodgement of this Prospectus, the issued and paid-up capital of our Company isS$5,999,322 comprising 99,988,700 Shares. Upon the allotment of the New Shares, the resultant issuedand paid-up share capital of our Company will be increased to S$7,979,332 comprising 132,988,700Shares.

Details of changes in the issued and paid-up capital of our Company since incorporation andimmediately after the Invitation are as follows:

Resultant Resultant issued Issue Price Consideration Number of Number of Share capital

Purpose of Issue ($) ($) Shares Shares (S$)

Issue of ordinary shares 1.00 2 2 2 2 of S$1.00 each upon incorporation

Issue of ordinary shares 1.00 5,699,324 5,699,324 5,699,326 5,699,326 of S$1.00 each to Asset Ahead Investments Limited, Regal Capital Finance Limited, Maxgain Pte. Ltd., Zheng Xuecheng, and George Wang on 8 January 2003

Issue of ordinary shares 1.20 359,957 299,964 5,999,290 5,999,290 of S$1.00 each to Huang Hanguang, Sha Guangwen and Wang Yaoyu on 10 September 2004(1)

Issue of ordinary shares 1.20 38.40 32 5,999,322 5,999,322 of S$1.00 each to the Shareholders of the Company on 24 January 2005

Consolidation 6.00 – – 999,887 5,999,322

Sub-division 0.06 – – 99,988,700 5,999,322

New Shares to be issued 0.06 1,980,000 33,000,000 132,988,700 7,979,322pursuant to the Invitation

Issued and paid-up share 0.06 132,988,700 7,979,322 capital after the Invitation

Note :

(1) On 10 September 2004, our Company allotted and issued 145,930, 64,855 and 89,179 ordinary shares of S$1.00 each inthe Company to our Executive Directors, Mr Huang Hanguang, Mr Sha Guangwen and Mr Wang Yaoyu respectively atS$1.20 per share, taking into account the audited NTA of our Company as at 31 December 2003.

60

SHAREHOLDERS

The shareholders of our Company and their respective shareholdings immediately before the Invitation(as at the Latest Practicable Date) and immediately after the Invitation are set out as follows:-

Before the Invitation After the Invitation

Direct Interest Deemed Interest Direct Interest Deemed InterestNumber of Number of Number of Number of

Shares % Shares % Shares % Shares %

Directors

Addyson Xue(1) – – 16,920,800 16.92 – – 16,920,800 12.72Huang Hanguang 2,432,200 2.43 – – 2,432,200 1.83 – –Wang Yaoyu 1,486,400 1.49 – – 1,486,400 1.12 – –Sha Guangwen 1,081,000 1.08 – – 1,081,000 0.81 – –Ng Fook Ai Victor – – – – – –Tan Tew Han – – – – – – – –

Substantial Shareholders

Asset Ahead 40,609,700 40.61 – – 40,609,700 30.54 – – Investments Limited(2)

Regal Capital 24,817,000 24.82 – – 24,817,000 18.66 – – Finance Limited(3)

Maxgain Pte. Ltd.(4) 16,920,800 16.92 – – 16,920,800 12.72 – –Bella(1) 16,920,800 16.92 16,920,800 12.72Gao Xiang(6) 40,609,700 40.61 40,609,700 30.54Zhang Daqing(6) 40,609,700 40.61 40,609,700 30.54Tang Gehong(7) 24,817,000 24.82 24,817,000 18.66

Others

Zheng Xuecheng 5,076,200 5.08 – – 5,076,200 3.82 – –Shek Hung 5,076,200 5.08 – – 5,076,200 3.82 – –BWT Aktiengesell- 2,489,200 2.49 – – 2,489,200 1.87 – –Schaft(5)

Public – – – – 33,000,000 24.81 – –

TOTAL 99,988,700 100.00 132,988,700 100.00 – –

Notes:-

(1) Each of Mr Addyson Xue’s and Ms Bella’s deemed interest in the Shares owned by Maxgain Pte. Ltd. arises as each of MrAddyson Xue and Ms Bella owns more than 20.0% of the issued and paid-up capital of Maxgain Pte. Ltd.

(2) Asset Ahead Investments Limited is an investment holding company incorporated in the British Virgin Islands, in which MsGao Xiang and Mr Zhang Daqing own 25.0% and 75.0% of the issued and paid-up share capital of this companyrespectively.

(3) Regal Capital Finance Limited is an investment holding company incorporated in the British Virgin Islands which is wholly-owned by Ms Tang Gehong.

(4) Maxgain Pte. Ltd. is an investment holding company incorporated in Singapore, in which our Non-Executive Director, MrAddyson Xue, and his wife, Ms Bella, are shareholders each owning 50.0% of the issued and paid-up capital of thiscompany.

(5) BWT Aktiengesellschaft is the parent company of a water treatment technology group listed on the Vienna Stock Exchange.Its major shareholders are YSRO (as to 31.6%) and BWT Trust (as to 18.9%). The remaining shareholding interest (as to49.5%) constitutes the free float on the Vienna Stock Exchange.

(6) Each of Ms Gao Xiang and Mr Zhang Daqing’s deemed interest in the Shares owned by Asset Ahead Investments Limitedarises as each of Ms Gao Xiang and Mr Zhang Daqing owns more than 20.0% of the issued and paid-up capital of AssetAhead Investments Limited.

(7) Ms Tang Gehong’s deemed interest in the Shares owned by Regal Capital Finance Limited arises as Ms Tang Gehong ownsmore than 20.0% of the issued and paid-up capital of Regal Capital Finance Limited.

61

The Shares held by our Directors and Substantial Shareholders do not carry different voting rights fromthe New Shares which are the subject of the Invitation.

The significant changes in the percentage of ownership of our Company held by our Directors andSubstantial Shareholders since the date of incorporation are as follows:

As as the Latest PracticableAs at the Date after the Restructuringdate of Exercise, the Consolidation

incorporation and the Sub-division

Number of Number of ordinary shares ordinary shares

Name of S$1.00 each % of S$0.06 each %

Directors

Addyson Xue – – – –Huang Hanguang – – 2,432,200 2.43Wang Yaoyu – – 1,486,400 1.49Sha Guangwen – – 1,081,000 1.08Ng Fook Ai Victor – – – –Tan Tew Han – – – –

Substantial Shareholders

Asset Ahead Investments Limited – – 40,609,700 40.61Regal Capital Finance Limited – – 24,817,000 24.82Maxgain Pte. Ltd. – – 16,920,800 16.92

Save as disclosed above, there have been no further changes in the percentage of ownership of ourCompany held by our Directors and the Substantial Shareholders.

Our Directors are not aware of any arrangement, the operation of which may, at a subsequent date,result in a change in control of our Company.

MORATORIUM

To demonstrate their commitment to our Group, our Company’s shareholders, Mr Huang Hanguang, MrWang Yaoyu, Mr Sha Guangwen, Asset Ahead Investments Limited, Regal Capital Finance Limited andMaxgain Pte. Ltd., who will in aggregate hold 87,347,100 Shares in our Company, representingapproximately 65.68% of our Company’s enlarged issued and paid-up capital after the Invitation, haveundertaken not to dispose of or transfer any part of their direct and indirect interests in our Company fora period of six months from the date of our Company’s admission to the Official List of SGX-SESDAQ,and for a further period of six months thereafter, they will each retain at least 50% of our Company’sissued and paid-up capital.

Mr Addyson Xue and Ms Bella, who each own 50.0% of Maxgain Pte. Ltd., have each undertaken not todispose of or transfer or realise any part of their respective shareholdings in Maxgain Pte. Ltd. for aperiod of twelve months from the date of our Company’s admission to the Official List of SGX-SESDAQ.

Ms Gao Xiang and Mr Zhang Daqing, who own 25.0% and 75.0% of Asset Ahead Investments Limitedrespectively, have each undertaken not to dispose of or transfer or realise any part of their respectiveshareholdings in Asset Ahead Investments Limited for a period of twelve months from the date of ourCompany’s admission to the Official List of SGX-SESDAQ.

Ms Tang Gehong, who owns 100.0% of Regal Capital Finance Limited, has undertaken not to dispose ofor transfer or realise any part of her shareholding in Regal Capital Finance Limited for a period of twelvemonths from the date of our Company’s admission to the Official List of SGX-SESDAQ.

62

GROUP STRUCTURE

Restructuring Exercise

The following steps were undertaken in a restructuring exercise (the “Restructuring Exercise”) torationalise the corporate structure of our Group: -

(a) By a sale and purchase agreement dated 18 February 2003 between Wuhan Huantai and ourCompany, we acquired a 90.0% equity interest in Wuhan Kaidi Water, for a total cash considerationof RMB 19,800,000, based on the net asset value of Wuhan Kaidi Water as at 31 December 2002.

(b) On 10 September 2003, our Company increased its equity interest in Wuhan Kaidi Water from90.0% to 90.4% through the injection of RMB1.1 million into Wuhan Kaidi Water and theconversion of undistributed profits of Wuhan Kaidi Water amounting to RMB3.6 million into theregistered capital of Wuhan Kaidi Water.

(c) On 29 December 2003, BWT Aktiengesellschaft purchased an aggregate of 149,350 ordinaryshares of S$1.00 each at US$2.678 per share from our existing shareholders, Asset AheadInvestments Limited, Regal Capital Finance Limited, Maxgain Pte. Ltd., Mr Zheng Xuecheng andMr George Wang.

(d) By an acquisition and merger agreement dated 31 March 2004 between Wuhan Kaidi Measure &Control and Wuhan Kaidi Water, Wuhan Kaidi Measure & Control transferred all its assets andliabilities to Wuhan Kaidi Water. The effective date of the transfer of such assets and liabilities was28 May 2004 and Wuhan Kaidi Measure & Control was subsequently dissolved on 11 June 2004.Following the aforesaid acquisition and merger, Wuhan Huantai acquired an equity interest of0.16% in Wuhan Kaidi Water and the equity interests in Wuhan Kaidi Water held by our Companyand Wuhan Electric were correspondingly reduced to 90.26% and 9.58% respectively.

(e) By a share transfer agreement dated 18 May 2004 between Wuhan Huantai, our Company, andWuhan Electric, the 0.16% equity interest of Wuhan Huantai in Wuhan Kaidi Water was transferredto each of our Company and Wuhan Electric in the same proportion as the equity interest of ourCompany and Wuhan Electric in Wuhan Kaidi Water prior to the acquisition and merger set outabove. In consideration of the aforesaid equity transfers, our Company and Wuhan Electric paid acash consideration of RMB158,480.16 and RMB16,829.75 respectively to Wuhan Huantai. Theconsideration was calculated based on the shareholders’ equity interests as reflected in the PRCaudited financial statements as at 31 December 2003 of Wuhan Kaidi Measure & Control.

(f) On 10 September 2004, our Company allotted and issued 145,930, 64,855 and 89,179 ordinaryshares of S$1.00 each in the Company for cash to our Executive Directors, Mr Huang Hanguang,Mr Sha Guangwen and Mr Wang Yaoyu respectively at S$1.20 per share, taking into account theaudited NTA of our Company as at 31 December 2003.

(g) On 23 September 2004, Ms Shek Hung purchased from Mr George Wang his entire shareholdingof 304,569 ordinary shares of S$1.00 each in the Company for an aggregate cash consideration of$304,569.

63

(h) On 24 January 2005, an aggregate of 32 new ordinary shares of S$1.00 each in our Companywere allotted and issued to the following Shareholders respectively at S$1.20 per share, based onthe audited NTA of our Company as at 30 June 2004, in such number as set out against theirrespective names: -

Name Number of new ordinary shares of S$1.00 each

Huang Hanguang 2Wang Yaoyu 5Sha Guangwen 5Asset Ahead Investments Limited 4Regal Capital Finance Limited 4Maxgain Pte. Ltd. 4Zheng Xuecheng 3Shek Hung 3BWT Aktiengesellschaft 2

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Our Group structure after the Restructuring Exercise and immediately after the Invitation is as follows:

Notes:

(1) Asset Ahead Investments Limited is an investment holding company incorporated in the British Virgin Islands, in which MsGao Xiang and Mr Zhang Daqing own 25% and 75% of the issued and paid-up share capital of this company respectively.

(2) Regal Capital Finance Limited is an investment holding company incorporated in the British Virgin Islands which is wholly-owned by Ms Tang Gehong.

(3) Maxgain Pte. Ltd. is an investment holding company incorporated in Singapore, in which our Non-Executive Chairman, MrAddyson Xue, and his wife, Ms Bella, are shareholders with each owning 50.0% of the issued and paid-up capital of thiscompany.

(4) Mr Huang Hanguang, Mr Wang Yaoyu and Mr Sha Guangwen, who are Executive Directors, hold 1.83%, 1.12% and 0.81%of the issued and paid-up share capital of our Company respectively. Please refer to “Restructuring Exercise” on pages 63and 64 of the Prospectus.

(5) BWT Aktiengesellschaft became a shareholder when it acquired 149,350 shares in aggregate from Maxgain Pte. Ltd., MrZheng Xuecheng, Asset Ahead Investments Limited, Regal Capital Finance Limited and Mr George Wang at S$2.678 pershare. BWT Aktiengesellschaft is the parent company of a water technology group listed on the Vienna Stock Exchange. Itsmajor shareholders are YSRO (as to 31.6%) and BWT Trust (as to 18.9%). The remaining shareholding interest (as to 49.5%)constitutes the free float on the Vienna Stock Exchange.

(6) Wuhan Hanxi is an associated company established by our Company, Wuhan Electric, Wuhan Gelin (a subsidiary of WuhanElectric), and Wuhan Urban Waste Water, which hold shareholding interests of 43%, 22%, 15% and 20% respectively. WuhanElectric is deemed to be interested in the shareholding interest of Wuhan Hanxi held by Wuhan Gelin, as Wuhan Electricowns more than 20% of the shareholding interest of Wuhan Gelin.

65

Asset Ahead Investments

Limited(1)

30.54%

90.4%

Asia Water Technology Ltd.

Wuhan Hanxi Waste Water Treatment Co. Ltd. (6)

43.0%

MaxgainPte.

Ltd.(3)

ExecutiveDirectors(4)

ZhengXuecheng

Shek HungBWT

AktiengeselI-schaft (5)

RegalCapitalFinanceLimited(2)

Wuhan Kaidi Water Services

Co., Ltd.

Public

18.66% 12.72% 3.76% 3.82% 3.82% 1.87% 24.81%

The details of our subsidiary and associated company as at the Latest Practicable Date are as follows:

Date and Principalplace of place of Percentage

Name incorporation Principal business business owned

Wuhan Kaidi Water 18 April 1996, Procurement, installation and PRC 90.4% Services Co., Ltd Wuhan, PRC commissioning of standard

(1) equipment relating towastewater treatment systems

Procurement of equipment, installation and commissioning of water purification treatment systems

Design and implementation of automated control systems

Wuhan Hanxi Waste 21 June 2004, Wastewater treatment PRC 43.0% (3)

Water Treatment Co. Wuhan, PRC Ltd.

(2)

Notes:-

(1) Our subsidiary, Wuhan Kaidi Water, is licensed to operate from 20 March 2003 to 20 March 2023. We may apply for anextension of this operation period at least 6 months before the expiry of the operation period of our subsidiary.

(2) Our associated company, Wuhan Hanxi, is licensed to operate from 21 June 2004 to 21 June 2029. We may apply for anextension of this operation period at least 6 months before the expiry of the operation period of our associated company.

(3) Wuhan Hanxi is an associated company established by our Company, Wuhan Electric, Wuhan Gelin (a subsidiary of WuhanElectric), and Wuhan Urban Waste Water, which hold shareholding interests of 43%, 22%, 15% and 20% respectively. WuhanElectric is deemed to be interested in the shareholding interest of Wuhan Hanxi held by Wuhan Gelin, as Wuhan Electricowns more than 20% of the shareholding interest of Wuhan Gelin.

)

(

66

HISTORY AND BUSINESS

HISTORY

Our Company was incorporated in Singapore on 19 November 2002 under the name of Primehub Pte.Ltd. We changed our name to Asia Water Services Pte. Ltd. on 6 February 2003 and subsequentlychanged our name to Asia Water Technology Private Limited on 1 December 2003. On 31 January 2005,our Company was converted into a public limited company and we assumed our present name, AsiaWater Technology Ltd.

Wuhan Kaidi Water is our subsidiary through which we carry out our businesses relating to waterpurification treatment, wastewater treatment, automated control systems and other miscellaneousprojects.

Wuhan Kaidi Water was incorporated on 18 April 1996 in the PRC under the name “Wuhan Kaidi PowerEngineering Co., Ltd” (“Wuhan Kaidi Power Engineering”). Wuhan KaidiWater became a subsidiary of Wuhan Electric, (a company which has been listed on the Shenzhen StockExchange since 1999), in December 1996 when Wuhan Electric acquired a 66% shareholding interest init. In December 1997, Wuhan Kaidi Water underwent a change of name from Wuhan Kaidi PowerEngineering to Wuhan Kaidi Power Chemistry Co., Ltd. before adopting itspresent name in April 2003.

Wuhan Electric’s shareholding in Wuhan Kaidi Water subsequently underwent a series of changes andWuhan Electric had a shareholding interest of 98.5% in Wuhan Kaidi Water by March 2000. In February2003, Wuhan Electric divested its water treatment business by selling 88.5% of its shareholding interestin Wuhan Kaidi Water to Wuhan Huantai. In March 2003, our Company acquired a 90% stake in WuhanKaidi Water from Wuhan Huantai. We subsequently increased our shareholding in Wuhan Kaidi Water to90.4% in September 2003 by an additional investment of RMB1.1 million and the conversion ofundistributed profits of Wuhan Kaidi Water amounting to RMB3.6 million into the registered capital ofWuhan Kaidi Water.

Our Group has achieved several corporate milestones in the course of our operating history.

In April 1996, Wuhan Electric made a successful bid in an international tender for a contract for the boilermake-up water treatment for the Zhejiang Beilun 3 X 600 MW Power Plant Project and subsequentlysubcontracted the work to Wuhan Kaidi Water. This marked Wuhan Kaidi Water’s first foray into theprovision of such boiler make-up water treatment systems.

Wuhan Kaidi Water’s first foray into the provision of condensate water treatment systems was a sub-contract to install a condensate water treatment system for Phase 2 of the Jiangxi Fengcheng 4 X 300MW Power Plant Project from Wuhan Electric, which had been awarded the contract in August 1997.

In 1998, Kennicott Water Systems Limited became our supplier of the CONESEP “S” technology, a special technique applied to water condensate treatment systems which was developed

by Christ-Kennicott Water Treatment Company. This technique was successfully applied by Wuhan KaidiWater in the Jiangsu Taicang 2 X 300 MW Power Plant Project.

In April 1999, Wuhan Electric was awarded a contract with the Shanxi Datong Coal Power Plant andsubsequently sub-contracted the supply of a reverse osmosis system to Wuhan Kaidi Water, whichsignified our entry into the supply of such systems.

Wuhan Kaidi Water was also awarded a sub-contract from Wuhan Electric in April 1999 in relation to theShanxi Qinling Power Plant Project. This contract is in relation to a pioneer project in the PRC involvingthe treatment and recycling of industrial wastewater for power plants that are able to generate one millionkilowatts of energy. Our entry into this project marked our first foray into projects involving the treatmentand recycling of industrial wastewater with zero discharge. In the same year, Wuhan Kaidi Waterachieved ISO9000 certification in recognition of the high standards that we have imposed on our qualitymanagement systems in the course of running our business operations.

( )

( )

( )

67

In May 2001, seeing the potential in the provision of automated control systems, Wuhan Kaidi Waterstarted providing automated control systems through our previous subsidiary, Wuhan Kaidi Measure &Control, which secured a sub-contract from Wuhan Electric in relation to the Hunan Xiangtan 2 X 300MW Power Plant Project to operate an ash removal control system.

In August 2001, Wuhan Kaidi Water was awarded a contract to provide condensate water treatmentsystem for the Shanghai Waigaoqiao 2 X 900 MW Power Plant Project, which at the time of contract hadthe largest capacity in the PRC.

In the same month, our previous subsidiary, Wuhan Kaidi Measure & Control entered into a contract toprovide a coal conveying control system for the Ningxia Shizuishan 4 X 300 MW Power Plant Project.This contract signified our official entry into business operations relating to such control systems.

In April 2002, our previous subsidiary, Wuhan Kaidi Measure & Control was awarded a sub-contract fromWuhan Electric to operate the control system for flue gas desulphurization for the Guangzhou HengyunPower Plant Project. It was during this project that we upgraded our control systems from the PLC modelto the DCS model.

In September 2002, Wuhan Kaidi Water introduced the EDI water purifying technology by GeneralElectric (Shanghai) Co., Ltd. and applied such technology to the Henan Languang Power Plant Project inthe course of providing treatment services for boiler make-up water. This signified the first time wesupplied membrane technology for an entire project.

In April 2003, Wuhan Kaidi Water was appointed by Christ-Kennicott Water Technology Ltd as theexclusive distributor of the CONESEP ”S” technology in the PRC on a long-term basis until12 December 2011.

In October 2003, we ventured into the municipal wastewater treatment industry by entering into acontract with Huaneng International Power Co., Ltd to procure and install standard equipment for amunicipal wastewater treatment system. We also obtained certificates for being a preferred supplier inrelation to the provision of water treatment systems for power plants with capacity of 200 MW, 300 MWand 600 MW respectively. These certificates are awarded jointly by China Power ConstructionConsultancy Co., Ltd and China Power Equipment Co., Ltd, the consulting agencies which regulate theconstruction of power plants by state-owned enterprises. We believe that these certificates will strengthenour ability to tender for projects by state-owned enterprises relating to the construction of power plantswith capacity of 200 MW, 300 MW and 600 MW respectively.

In March 2004, Wuhan Kaidi Water secured, through a tender, a contract from Wuhan New City WasteWater Treatment Co., Ltd. (a subsidiary of Wuhan Electric) to procure standard equipment to thewastewater treatment plant in the Wuhan New Economic Development Zone. Wuhan Kaidi Water hadcontracted with Seghers Keppel Technology Group NV to procure essential standard equipment for thewastewater treatment plant and to licence to us the UNITANK technology that was used to design suchequipment. Wuhan Kaidi Water is currently negotiating with Seghers Keppel Technology Group NV forSeghers Keppel Technology Group NV to grant us a licence for the use of their UNITANK technology. Weare keen to obtain a licence for the UNITANK technology as it enables us to develop new applications inthe field of wastewater treatment.

In order to streamline our operations, our previous subsidiary, Wuhan Kaidi Measure & Control wasdissolved on 11 June 2004 and its assets (including its automated control systems business) andliabilities were amalgamated with Wuhan Kaidi Water.

( )

68

In July 2004, our associated company, Wuhan Hanxi, obtained a business licence to build and operate amunicipal wastewater treatment plant in Wuhan City. The aggregate proposed investment value isapproximately RMB463 million and its registered capital is RMB100 million, of which we will investRMB43 million. The shareholders of Wuhan Hanxi are our Company, Wuhan Electric, Wuhan Gelin (asubsidiary of Wuhan Electric) and an unrelated party, Wuhan Urban Waste Water, which holdshareholding interests of 43%, 22%, 15% and 20% respectively.

In October 2004, Wuhan Kaidi Water was awarded a contract to provide condensate water treatmentsystem services for the Huaneng Yuhuan 4 X 1,000 MW Power Plant Project, which was at the LatestPracticable Date, the power plant with the largest capacity in the PRC.

In December 2004, Wuhan Kaidi Water was awarded a ISO9001:2000 Certificate of Quality ManagementSystem, a Certificate of Occupation Health & Safety Management System and a ISO14001:1996Certificate of Environmental Management System by the Quality Assurance Centre of China Associationfor Quality (“QAC”). These certificates were awarded in respect of Wuhan Kaidi Water’s engineeringdesign and technical services in relation to the treatment of municipal and industrial wastewater as wellas the electronic and petrochemical industries.

BUSINESS OVERVIEW

Our Company is principally engaged in the procurement of equipment, design, installation andcommissioning of water purification treatment systems. In addition, we are engaged in the procurement,installation and commissioning of standard equipment relating to industrial and municipal wastewatertreatment systems. We are also engaged in the design and implementation of a wide range of automatedcontrol systems mainly for power plants in the PRC. Our Company may also, from time to time, procureequipment for sale to our subsidiary and other unrelated third party customers.

Our business comprises the following three business segments: -

(i) Water purification treatment;(ii) Wastewater treatment; and(iii) Other miscellaneous projects.

Our clients are largely from the power generation and municipal wastewater treatment industries in thePRC. We also supply our services to the petrochemical and metallurgical industries.

We are one of the high technology enterprises in the PRC. We utilise core technologies and know-howcomprising two patents registered in the PRC and utilise licences granted by several international watertreatment companies, such as Christ-Kennicott Water Technology Ltd. based in the UK, to use their watertreatment technologies.

For FY2003, our water purification treatment business segment and wastewater treatment businesssegment accounted for approximately 94.3% and 4.1% of our Group’s total revenue respectively, whileour other miscellaneous projects segment accounted for approximately 1.6% of our Group’s total revenuefor FY2003. For HY2004, our water purification treatment business segment and wastewater treatmentbusiness segment accounted for approximately 92.2% and 4.7% of our Group’s total revenuerespectively, while our other miscellaneous projects segment accounted for approximately 3.1% of ourGroup’s total revenue for HY2004.

69

(1) Water Purification Treatment

We are engaged in the procurement of equipment, design, installation and commissioning of waterpurification treatment systems as well as technology development of such water purificationtreatment systems. Most of our water purification treatment systems are used in the powergeneration industry.

As illustrated above, water purification may be required at two stages of the entire powergeneration process. The first stage involves the treatment of water obtained from outside sourcessuch as rivers (the “Boiler Make-Up Water Treatment Stage”) and the second stage involves thetreatment of water condensates collected from the condensation chambers (the “CondensateWater Treatment Stage”).

(a) Boiler Make-Up Water Treatment

To generate electricity, the generator requires steam, which is produced by the heated waterin the boiler. The water fed into the boiler must be pure water without any impurities;otherwise the tube wall of the boiler will scale and corrode. With scaling and corrosion, thetube wall will crack easily resulting in accidents or a decline in efficiency.

Since 1996, Wuhan Kaidi Water has undertaken several boiler make-up water treatmentsystems projects in the power generation, petrochemical and metallurgical industries in thePRC. We have, while operating as a subsidiary of Wuhan Electric, undertaken projects suchas the Jiangxi Jinggangshan Power Plant Project , the AnhuiAnqing Power Plant Project and the Hubei Wuhan Steel Plant Project

. We have also independently undertaken boiler make-up watertreatment projects such as the Jiangsu Taicanggang Power Plant Project

, the Pan Nan Power Plant Project , the

Zhangshan Power Plant Project and the Aoliyou Power Plant Project

.

Boiler make-up water treatment systems are required to remove visible suspended solids aswell as invisible ions. We utilise one or a combination of membrane technology anddeionisation technology depending on customers’ requirements, water sources andrequirements for effluent.

( 2 X 600 MW)

( 2 X 300 MW)

( 4 X 600 MW)( 2 X 300 MW)

2 X 300 MW)

70

Group’s Business

Deionisation Technology

Deionisation technology involves the installation of an ion exchange system. Typically, an ionexchange system consists of a filter, cation exchanger, anion exchanger and mixed ionexchanger. A typical deionisation process is illustrated as follows:

(i) Coagulation: The result of the joining of minute particles by physical and chemicalprocesses. Most of these small particles are negatively charged, which cause them tomutually repel each other and remain in suspension. Coagulation is usually followedby flocculation.

(ii) Flocculation: A slow mixing technique to promote the aggregation of the coagulatedparticles. Once the particles have collided and gained enough weight, the particlessink to the bottom of settling basins, forming sludge, which is collected and discarded.

(iii) Sedimentation: The process of causing the suspended particles in the water to settlethrough natural forces of gravity and form sediments which will then be removed fromthe water.

(iv) Filtration: The process of passing water through a filter to remove suspendedparticles.

(v) Removal of cations: The process of passing the water through cation exchangeresins to remove cations.

(vi) Removal of anions: The process of passing the water through anion exchange resinsto remove anions.

(vii) Mixed bed deionisation: The process of passing the water through ion-exchangeresins to remove cations and anions.

After the processes above, the water will become ultrapure.

Membrane Technology

Membrane technology is a form of water treatment which does not require the addition ofvarious chemicals to the water. By reducing the amount of chemicals, it will correspondinglyreduce pollution to the environment. Membrane technology is therefore becoming morerelevant in the increasingly environmentally-conscious society.

We have established long-term cooperative arrangements with several internationalmembrane manufacturers such as General Electric (Shanghai) Co., Ltd and X-Flow B.V.,and have introduced the E-cell membrane treatment unit from General Electric (Shanghai)Co., Ltd. We have, while operating as a subsidiary of Wuhan Electric, undertaken the designand installation of approximately 20 water treatment systems using membrane technology,including the boiler make-up water treatment systems for Shanghai Waigaoqiao Power PlantProject ; the Hebei Guohua Dingzhou Power Plant Project

, the Zhejiang Jiaxing Power Plant Project, the Shaanxi Hancheng Power Plant Projectand the Henan Yexian Languang Project

. We have also independently undertaken the design and installation of water135 MW)

2 X2 X 600 MW)

X 600 MW)

X 600 MW

X 900 MW

71

Water

Source

Addition of

Chemicals Coagulation Sedimentation Sand Filter

Activated Carbon

Filter

Mixed Bed

AnionExchange

Bed Decarbonator

Cation Exchange

BedSterilisationWater

treatment systems using membrane technology. These projects include the ShenzhenYueliangwan (Zhangyang) Power Plant Project , theHuizhou Power Plant Project and the Jiangsu Xinhai PowerPlant Project .

A membrane system usually consists of microfiltration (“MF”), ultrafiltration (“UF”), reverseosmosis (“RO”) and EDI. Currently, most of the systems we design, employ a combination ofMF and RO. A typical membrane process to produce ultrapure water is illustrated below:

(i) Microfiltration: The process of removing particles measuring 0.1 to 10 microns.

(ii) Ultrafiltration: The process of removing particles measuring 0.001 to 0.1 microns.

(iii) Reverse Osmosis: This process is able to remove particles measuring 0.0001 to0.001 microns.

(iv) EDI: This process thoroughly removes ions from the water electronically.

After the processes above, the water will become ultra pure.

As the purity of treated water differs according to the purpose for which the water is used,the membrane technology used also differs. Please see following table:

( 2 X 330 MW( 3 X 390 MW

( 2 X 180 MW)

72

Water

Source

Micro

Filtration

Ultra

Filtration

Further Ultra

Filtration

Reverse

Osmosis

Electro-

Deionisation

um

A

Type of Particle to be filtered

Particle Size

0.001

10

0.01

100

0.1

1000

1.0

10 4

10

10 5

100 1000

10 6 10 7

100 200 5,000 20,000 100,000 500,00

Salt particles

Metal ions

Cane Sugar

Method of Filtration

Virus

Silicon

Protein

Bacteria

Carbon Dyes

Microbes

Flour

Sand

Pollen

RReevveerrssee OOssmmoossiiss

UUllttrraaffiillttrraattiioonn

MMiiccrrooffiillttrraattiioonn

FFiillttrraattiioonn

Group's range of capabilities which require higher precision and technology to remove finer particles

(b) Condensate Water Treatment Stage

In the power generation process, the steam generated is condensed and re-introduced intothe boilers. During the condensation process, such water could become contaminated withrust in the pipes and other particles. Therefore, the condensated water will have to undergotreatment before being re-introduced into the boilers. Our condensate water treatmentsystems are designed for the above purpose and are largely used in power plants withcapacity of 200 MW and above.

We currently use the CONESEP “S” technology from Christ-Kennicott Water Technology Ltd.of the Christ Water Technology Group exclusively. The CONESEP “S” technology is anadvanced technology which is mainly used in power plants.

While operating as a subsidiary of Wuhan Electric, we have undertaken several condensatewater treatment projects since 1996, including the Shanghai Waigaoqiao Power PlantProject , the Guangdong Guohua Taishan Power Plant Project

and the Yunnan Xuanwei Power Plant Project. We have also independently undertaken condensate water

treatment systems such as the Huaneng Yuhuan Power Plant Project, the Shenmu Power Plant Project , the

Shaanxi Guohua Power Plant , the Yunnan Diandong PowerPlant Project , the Zhanjiang Aoliyou Power Plant Project

and the Guangdong Zhuhai Power Plant Project (First Phase)

.

Currently, our condensate water treatment systems consist of prefiltration, mixed bed ionexchange, anion regeneration and separation, cation regeneration and separation, andstorage. The main processes are as follows:

2 X 600 MW

2 X 600MW4 X 600MW

( 4 X 600 MW)( 4 X 600 MW)( 4 X 1,000 MW)

X 300 MW( 3 X 600 MW)

( X 900 MW)

73

BoilerBoiler

Pre -

filteration

Pre -

filtrationMixed bed

ionexchanger

Anion

regeneration

and

separation

Anion

regeneration

and

separation

Cation

regeneration

and

separation

Pre -

filteration

Resin

Storage Bed

Resin

Pure

WaterWater

(i) Prefiltration: The process of passing the condensate water through the condensatewater pumps and a prefilter to remove impurities and rust in the water.

(ii) Mixed bed ion exchange: The process of passing the condensate water throughresins to remove the impurities in the water more thoroughly.

(iii) Cation/anion separation: The ability of the resins to exchange ions may decreasewith time and eventually, the resins may no longer be able to exchange ions. Theresins are then required to be regenerated by the addition of chemicals. Before theregeneration, the resins undergo a process to separate the cation resins from theanion resins.

(iv) Cation/anion regeneration: The process of adding chemicals to the separated cationand anion resins to restore their ion exchange ability. The cation and anion resins aresubsequently mixed and sent back to the mixed bed ion exchanger to continue the ionexchange treatment of condensate water.

(c) Automated Control Systems

Besides the design and installation of water purification treatment systems, we are alsocapable of designing and implementing automated control systems for power plant watertreatment systems (relating to boiler make-up water treatment, condensate water treatmentand the reverse osmosis process). Where necessary, we may customise part of theequipment to cater to our customers’ requirements. This ability to provide a total solution toour customers has enabled us to widen our range of services and enhance our competitiveadvantage.

Our automated control systems comprise field instruments, local control equipments, PLC orDCS, computers, communication network equipments, and application software speciallydeveloped by our engineers for different manufacturing processes. Our automated controlsystems allow manufacturing equipment to run automatically in accordance with pre-setprocedures and to transmit real-time visual images and parameters of the process to remotecontrol stations, which in turn enables the operator of the remote control station to monitorand control the process without being required to visit the work site, thereby significantlyreducing workload and the need for manning.

(2) Wastewater Treatment

Another main segment of our business is wastewater treatment. Under this business segment, weare principally engaged in the procurement, installation and commissioning of standard equipmentrelating to industrial and municipal wastewater treatment systems.

After treatment in a city water purification plant, raw water from rivers and lakes become cleanwater that can be used for industrial and municipal use. After such uses, the clean water becomeseither municipal wastewater or industrial wastewater which contain pollutants. If such wastewater isdischarged before treatment, there will be pollution of natural habitats. Therefore, municipalwastewater and industrial wastewater must be treated before discharge. The typical watercirculation diagram as follows:

74

Water

Source

Ultra

Filtration

Reverse

Osmosis

Electro-

Deionisation

raw

water

clean

water

sewage

water

There are different types of quantities of pollutants in water due to the environment, conditions andpurpose which water was used for. During daily city life, the clean water usually satisfies a person’sliving and food needs, and the pollutant in the water is the organic matters mainly related withnitrogen and phosphorus. The composition of such municipal wastewater is relatively stable. Incontrast, there are big differences between pollutants in water discharged from different industries.These pollutants include organic pollutant, inorganic matters, metal ions and salt ion. We adoptvarious treatment processes for different industrial wastewater.

(a) Industrial wastewater treatment

The industrial wastewater qualities are different due to the different industrial products andmanufacturing processes.

Our employees have industrial wastewater treatment expertise as they were previously fromthe Wastewater Treatment Division of Wuhan Electric. These employees were transferred toWuhan Kaidi Water after the divestment by Wuhan Electric of its water treatment business inFebruary 2003.

Wuhan Kaidi Water has completed several industrial wastewater treatment plant projects,including the Industrial Wastewater Treatment for First Phase Project of Hebei GuohuaDingzhou 2X600MW Power Plant and the IndustrialWastewater Treatment for Tuo Ke Tuo 2X600MW Power Plant .Wuhan Kaidi Water has also completed two subcontracts from Wuhan Electric in respect ofthe Jiangsu Zhejiang Gas Desulphurization Project and theGuangxi Heshan Gas Desulphurization Project . In addition,Wuhan Kaidi Water has undertaken the Huaneng Shantou Industrial Wastewater TreatmentProject , and the Zhangshan Industrial and Municipal WastewaterTreatment Project .

In order to improve the effectiveness of the treatment of industrial wastewater, thewastewater undergoes the aeration process pursuant to which the pollutants will bedecomposed under anaerobic condition and aerobic high-effective flowing separation. Atypical process is as follows:

Before we procure standard equipment to be used in an industrial wastewater treatmentsystem, we analyze the class, concentration, allowable discharge standard (there aredifferent standards for different industries) of pollutants in the wastewater. For example, if thewastewater contains a large amount of oil, we would procure standard equipment which isable to separate the oil from water by chemical dosing and removal of the oil by blowing oilbeads on the surface. For wastewater containing acids and alkalis, we would usually procurestandard equipment which is able to neutralise the water. For wastewater containing organicmatters generated from industrial processes such as paper making, printing and dyeing,etc., we procure standard equipment which is able to remove the fine particles such aspaper scrap, and improve the water quality to ensure that the waste particles may be brokendown and settled through aeration.

75

Secondary

sedimentation

Transport of

sewage water to

treatment plant

Filtration of

coarse particles

(coarse screen)

PumpingFiltration of

fine particles

(thin screen)

Discharged legally

or reused after

further treatmentAeration

Primary

sedimentation

In regions where there is shortage of natural water, the treated water may be recycled.There may be a requirement to further subject the treated municipal wastewater or industrialwastewater to further processes so that the water may be recycled according to properwater standards for industry use.

(b) Municipal wastewater treatment

We procure standard equipment used in municipal wastewater treatment systems. Weintend to focus on developing our municipal wastewater treatment business in the future.

In October 2003, Wuhan Kaidi Water entered into a contract with Huaneng InternationalPower Co., Ltd to supply standard equipment to be used in a municipal wastewatertreatment system.

In March 2004, Wuhan Kaidi Water was awarded a contract to procure standard equipmentto the wastewater treatment plant in the Wuhan New Economic Development Zone. WuhanKaidi Water had contracted with Seghers Keppel Technology Group NV to procure essentialstandard equipment for the wastewater treatment plant and to licence to us the UNITANKtechnology that was used to design such equipment. Seghers Keppel Technology Group NVhad also agreed to commence negotiations to grant us a licence for the use of theirUNITANK technology by the end of 2004. We are keen to obtain a licence for the UNITANKtechnology as it enables us to develop new applications in the field of wastewater treatment.

In July 2004, our associated company, Wuhan Hanxi, obtained a business licence to buildand operate a municipal wastewater treatment plant in Wuhan city. The aggregate proposedinvestment value is approximately RMB463 million, and the registered capital is RMB100million, of which we will invest approximately RMB43 million. The shareholders of WuhanHanxi are our Company, Wuhan Electric, Wuhan Gelin (a subsidiary of Wuhan Electric) andan unrelated party, Wuhan Urban Waste Water, which hold shareholding interests of 43%,22%, 15% and 20% respectively in Wuhan Hanxi. Upon its completion, this wastewatertreatment plant is expected to treat 400,000 tonnes of wastewater daily. After 25 years, thegovernment will assume ownership of the plant.

Municipal wastewater treatment process

During the municipal wastewater treatment process, the wastewater in a city is first collectedby a pipeline network system and then transported to the treatment plant, where the coarseparticles are first removed from the wastewater. The wastewater is then pumped through thinscreens to remove the fine particles in the wastewater. The next stage of the processinvolves primary sedimentation, a process through which the non-soluble particles areseparated from the wastewater. The wastewater then enters the aeration stage to breakdown organic materials before being passed through the secondary sedimentation tank. Inthe secondary sedimentation tank, all solid particles are removed from the wastewater.

After the treatment process, the treated water should be able to satisfy the standard ofsewage discharge stipulated by the PRC government and can be discharged to the grounddirectly.

76

If the treated water is to be recycled for use, the water would be required to go throughadditional treatment processes such as coagulation and filtration. The municipal wastewatertreatment process is as follows:

During above-mentioned sedimentation, the sludge that contains much water will becomestable and contain little water after thickening, digestion and dehydration. The dried sludge isthen buried. The typical treatment of sludge is as follows:

(c) Automated Control Systems

We are also engaged in the design and implementation of automated control systems forwastewater treatment in power plants and municipal sewage treatment. For further details ofour automated control systems, please refer to page 74 of this Prospectus.

(3) Other miscellaneous projects

We also engage in other miscellaneous projects such as coal conveying control system projects,flue gas desulphurisation control system projects and ash pipe chemical cleaning projects. Thesemiscellaneous projects typically comprise peripheral sub-projects awarded to us in addition to themain water treatment projects in power plants undertaken by our Group.

77

Secondary

sedimentation

Transport of

sewage water to

treatment plant

Filtration of

coarse particles

(coarse screen)

PumpingFiltration of

fine particles

(thin screen)

Discharged legally

or reused after

further treatmentAeration

Primary

sedimentation

Sludge from

redimentation

tankThickening Digesting Dehydrating

Bury

Underground

OUR PROJECT MANAGEMENT PROCESS

The following is an illustration of our project management process:

Market Intelligence

The starting point for all our projects is market intelligence so that our management is able to decidewhich projects they wish to secure for the benefit of our Company. Our sales personnel are in charge ofmarket information on potential projects on a regular and ad-hoc basis. Our management is able toidentify and decide on projects which we may potentially bid for.

Project Tracking

Based on the information gathered through market intelligence and the subsequent comprehensiveanalysis conducted on such information, our management will decide on which projects to pursue. Wewill then embark on project tracking to determine what the tender rules and conditions are and the capitalrequirements and technologies used for the project. Project tracking allows us to plan ahead and makethe necessary cost planning.

Tender Process

Almost all our contracts are obtained through open tenders. Generally, the project sponsor will send us abid letter. Alternatively, we will obtain the bid letter through public sources such as internet websites.Once we decide to proceed to tender for a particular project, we will form a tender committee comprisingsales personnel and technical personnel, who will be responsible for compiling the tender documents tobe submitted for tender within the stipulated deadline. The tender committee will compile internal costingand budgetary estimates of labour and material costs based on quotations from the relevant suppliersand factor in a suitable profit margin in determining our tender pricing.

Execution of Contract

If we are successful in our tender, we will review and negotiate the terms of the contract before weproceed to execute the contract with our customers. Upon execution of the contract, our customers willpay us the a deposit amounting to 10% of the total contract value.

78

Market Intelligence

Project

Tracking

Tender

ProcessExecution of

Contract

Design &

DevelopmentProcurementAssembly and

InstallationTesting

Commissioning/

Handover

Fine tuning and

on-site service

After-Sales

Service

Design and Development

After signing of the contract, we will appoint a project team to be responsible for the execution of theproject, including an ad-hoc research and development team to handle the design and development ofthat particular project. The research and development team will follow our Group’s overall guidelines toanalyse, assess and determine the design and specifications of a system which will ensure that all of ourcustomers’ requirements are met. In addition to our own design and development capabilities, we havealso entered into collaboration arrangements with other parties to test our equipment to ensure itssuitability and effectiveness. For more information, please refer to page 86 of this Prospectus under“Research and Development”.

Procurement

After the necessary design and analysis, the specifications of the system are confirmed, and ourprocurement department will proceed to purchase all the materials and equipment required or appointappropriate sub-contractors to carry out certain parts of the project.

Assembly and Installation

After purchasing all the requisite materials and equipment and upon completion of certain parts of theproject by our sub-contractors, we will carry out the assembly and installation of the entire equipmentand/or system at our customers’ premises.

Testing

After the equipment and/or system has been assembled and installed, we will test the system inaccordance with industrial and national rules and regulations formulated by the relevant PRC authorities.

Commissioning/ Handover

Should the system pass all tests, we will proceed to hand over the system to our customers. Upon suchhandover, 100% of the total contract value will be billed to our customers, of which 10% will be offsetagainst the deposit paid upon the execution of the contract and 10% will be treated as retention moniesduring the warranty period of up to 12 months.

Fine-tuning and on-site service

Our technical personnel will carry out fine-tuning and on-site services. After successful commissioning ofthe entire system, the retention monies will be paid by our customers to us after the warranty period ofup to 12 months.

After-Sales Service

After successful commissioning, we offer some of our customers a warranty period of up to 12 monthsafter the commissioning of the water treatment projects, during which we are obliged to provide freerectification work against any manufacturing defects. We will also visit our customers after the warrantyperiod to obtain feedback on the system so that we can improve on our services.

79

QUALITY CONTROL

Our quality control department is headed by Hai Jiaxiong, who has more than 17 years of relevantexperience. Mr Hai has been an engineer and a general manager at several companies, including WuhanElectric, and he is familiar with resource allocation, quality control and environmental facility managementcontrol.

To ensure the quality of our products and services, we carry out stringent quality control checks at everystage of execution of project.

Quality control during design, research and development

The design of every project is carried out strictly in accordance with ISO9000 quality assurance system.We have also established a three-tier examination and verification system to ensure that the rate ofmeeting the standards of such quality assurance system is 100%. A strict examination and approvalsystem is also adopted in respect of any design changes.

Quality control during procurement

To ensure the quality of equipment and materials procured, we maintain a list of suppliers and sub-contractors whose goods and services meet our quality control standards. We purchase our materialsand equipment only from these suppliers, and such materials and equipment are subject to furtherinspections and checks by our quality control staff upon arrival at our production facilities. Goods whichdo not meet our quality control standards are rejected.

Quality control during assembly and integration

As a general policy, our sub-contractors selected and appointed by us to carry out engineering, assemblyand integration works should have established a quality control system which is in accordance withISO9000.

Quality control during delivery and installation

To ensure that our qualified sub-contractors comply with our quality control standards during delivery andinstallation, we will also task our engineers with formulating a quality control and progress plan, and toidentify the key quality control points of the delivery and installation procedure. Such engineers willsupervise our sub-contractors during delivery and installation.

Quality control during commissioning

We will supervise the commissioning of the systems in accordance with the national and industrial rulesand regulations and in compliance with our internal quality control standards.

In December 2004, we were awarded the ISO9001:2000 Certificate of Quality Management System bythe Quality Assurance Centre of China Association for Quality for our compliance with the qualitymanagement standards prescribed under the ISO9001 standards.

We also comply with industrial and national standards formulated and implemented by the relevant PRCauthorities. As at the Latest Practicable Date, we had 20 staff in our quality control department who areexperienced in quality control procedure.

Due to our strong emphasis on quality control, our systems and services have been able to meet ourcustomers’ expectation. During the last three financial years, none of our systems were rejected orreturned by our customers. We also endeavour to obtain regular feedback from our customers to ensurethat we are kept abreast of their needs and expectations.

80

CUSTOMERS

The following table sets forth our customers who account for 5% or more of our Group’s total revenue forthe last three financial years ended 31 December 2003 and the half year ended 30 June 2004:

Types of Products Supplied Major Customers to Customers As a percentage of our total revenue (%)

FY2001 FY2002 FY2003 HY2004

Wuhan Electric Water purification and 74.3 61.0 38.4 27.4 wastewater treatment systems

Hebei Guohua Dingzhou Water purification and 6.5 9.6 8.7 0.5 Power Co., Ltd wastewater treatment systems

Guangzhou Kaidi Electric Water purification treatment 8.5 0.3 1.1 – Power Engineering Co., systems Ltd

Shanghai Waigaoqiao Water purification treatment – 6.6 0.1 – Power Plant Co., Ltd systems

Inner Mongolia Datang Wastewater treatment – 5.7 0.7 – Tuo Ke Tuo Power Plant systems Co., Ltd

Yunnan Qujing Power Water purification treatment – 5.5 – – Plant Co., Ltd systems

Guangdong Guohua Water purification treatment – – 0.4 9.9 Yuedian Tai Shan Power systems Plant Co., Ltd.

Jiangsu Xinhai Power Water purification treatment – – – 5.6Plant Co., Ltd. systems

China Huaneng Group Water purification treatment – – 4.1 5.2 Qingbei Construction systems

Co., Ltd.

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Wuhan Electric was the parent company of our subsidiary, Wuhan Kaidi Water, for FY2001, FY2002 andpart of FY2003 before it divested most of its shareholding in Wuhan Kaidi Water in February 2003.Guangzhou Kaidi Electric Power Engineering Co., Ltd is a subsidiary of Wuhan Electric. As a subsidiaryof Wuhan Electric, Wuhan Kaidi Water was awarded many subcontracts from the Wuhan Electric Group.The substantial decrease in the contribution of Wuhan Electric to our total revenue in the last threefinancial years ended 31 December 2003 and the half year ended 30 June 2004 was due to ourincreasing independence leading up to the divestment by Wuhan Electric. The decrease in thepercentage of our total revenue attributable to Guangzhou Kaidi Electric Power Engineering Co., Ltd wasdue to the substantial completion of projects entered into with Guangzhou Kaidi Electric PowerEngineering Co., Ltd in FY2001.

As the nature of our projects are project-based and tends to be on a one-off basis, we may not beengaged in similar projects in terms of size and scope with the same customer in subsequent years.Although there are instances where potential customers require tendering companies to have a minimumregistered capital equivalent to the worth of the project, as at the date of this Prospectus, the registeredcapital of Wuhan Kaidi Water has not limited the size of projects we have tendered for.

Our Chief Executive Officer and Executive Director, Mr Huang Hanguang, has been a non-executivedirector in Wuhan Electric and has retired from the board in October 2004. Save as disclosed above,none of our Directors or substantial shareholders is related to or has any interest in any of our majorcustomers set out above.

SUPPLIERS

The following table sets forth our suppliers accounting for 5% or more of our Group’s total purchases forthe last three financial years ended 31 December 2003 and the half year ended 30 June 2004:

Materials / EquipmentMajor Suppliers supplied As a percentage of our total purchases (%)

FY2001 FY2002 FY2003 HY2003 HY2004

Wuhan Equipment Ion exchanger bed 35.8% 34.5% 23.4% 42.7% 36.2%

Wuhan Electric Conesep “S” equipment – 1.5% 13.7% 3.0% 9.3%

We purchased a substantial amount of equipment from Wuhan Equipment as it is a major supplier of ourwater purification treatment business. The amount of equipment we purchase from our suppliers,including Wuhan Equipment, at any one time is dependent on our project schedules. In HY2003 andHY2004, our purchases from Wuhan Equipment amounted to approximately RMB18.4 million andapproximately RMB21.4 million respectively. In HY2003, our purchases from Wuhan Equipment as apercentage of our total purchases was higher as compared to HY2004 as there were more projectsrequiring Wuhan Equipment’s materials and equipment to complete the installation. The decrease inpurchases from Wuhan Equipment as a percentage of our total purchases from HY2003 to HY2004 wasprimarily due to our project schedules in HY2004, which required more materials and equipment fromour other suppliers. In FY2003 and HY2004, we imported Conesep “S” equipment through WuhanElectric as it had a licence to import equipment. From September 2003, we started to import suchequipment on our own.

Prior to FY2003, most of our projects were subcontracted to us by the Wuhan Electric Group and most ofthe required equipment for such projects were purchased by Wuhan Electric Group. Hence, in FY2001and FY2002, purchases from Wuhan Electric were insignificant.

Wuhan Equipment is a subsidiary of Wuhan Electric. Our Chief Executive Officer and Executive Director,Mr Huang Hanguang, has been a non-executive director in Wuhan Electric and has retired from theboard in October 2004. Save as disclosed above, none of our Directors or substantial shareholders isrelated to or has any interest in any of our major suppliers set out above.

We have not experienced any instances in the past 3 years where our major suppliers have failed tomake timely delivery of materials and equipment, thereby causing us to suffer material losses.

SALES AND MARKETING

As at the Latest Practicable Date, our sales and marketing team comprises 27 staff led by our deputygeneral manager in charge of sales and marketing. Our sales and marketing personnel are classified assales engineers, regional managers, sales and marketing department manager and deputy generalmanager responsible for sales and marketing. There is a sales and marketing department in our

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subsidiary at Wuhan, Hubei Province, the PRC. Our sales and marketing team markets ourcomprehensive solutions directly to our existing and potential customers. Our sales and marketing staffalso keep track of and collate information about the requirements of the potential customers in industrieswhere we seek to widen our customer base, such as the power generation and environmental protectionindustries, as well as municipal administrations. Besides our sale and marketing activities, we also seekto raise our corporate profile by taking part in various technical meetings and seminars.

INVENTORY MANAGEMENT

Our inventory comprises mainly materials and components such as membranes, resins, valves, pumps,meters and other parts for use in our projects. Our material procurement and warehouse departmentsare responsible for inventory management. Our material procurement and warehouse departments will,according to the timetable required by the supply contract and in accordance with the progress of theproject, procure these materials and components as required. Upon the receipt of these materials andcomponents, we would carry out quality control checks and pre-tests. These procedures would typicallytake two to three weeks.

Our inventory is measured using the lower of cost and net realisable value. Provisions are made for slow-moving, obsolete and defective inventory. During FY2001, FY2002 and FY2003, our Group wrote offinventory amounting to approximately RMB68,000, RMB21,000 and RMB95,000 respectively, being thedifferences between inventory recorded in our accounts and the actual physical inventory on hand. Therehas been no inventory written-off in respect of HY2004.

The value of inventory on hand will depend on the contracts on hand as well as the stage of completionof these contracts at any point in time. Our inventory turnover days for the last three financial yearsended 31 December 2003 and the half year ended 30 June 2004 are as follows:

FY2001 FY2002 FY2003 HY2004

Inventory Turnover (Days) 18 23 8 8

Our inventory turnover days are correlated to the progress of our projects. Between FY2002 andFY2003, there was a significant decrease of our inventory turnover from 23 days to 8 days. This was dueto the critical shortage of electricity in China resulting in the rapid expansion of power plants.Consequently, we were required by our customers to complete the power plant projects on an urgentbasis. Our inventory level for HY2004 remained constant due to the same reason.

CREDIT POLICY

In respect of our water treatment projects, our Group normally requires our customers to make advancedeposits that account for about 10 per cent. of the total contract value, before commencing anyinstallation work. Full billings will take place when the required equipment and accessories are deliveredto our customers’ work site. Our customers usually retain approximately 10 per cent. of the total contactvalue as quality retention monies which are generally held for a warranty period of up to 12 months aftercompletion of the installation work before being released to our Group. In the past three financial yearsended 31 December 2003 and six months ended June 2004, none of our customers has defaulted on thepayment of retention monies after the warranty period.

In respect of sales of our water purification and wastewater treatment systems, our Group normallyrequires our customers to settle the payment within a credit periods ranging from 90 days to 180 days,depending on the magnitude of each project. The credit terms offered to our customers are based on ourGroup’s assessment of the creditworthiness of the relevant customers by reference to their commercialreputation, and previous payment history as well as the size of each transaction.

Our provision for doubtful debts and trade receivables’ turnover days from FY2001 to FY2003 andHY2004 are as follows:

FY2001 FY2002 FY2003 HY2004

Provision for / (write-back of) doubtful debts 28 (153) 398 655 (RMB’000)

Trade receivables’ turnover (days) 192 261 80 155

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In the past three financial years ended 31 December 2003 and six months ended June 2004, ourGroup’s receivables’ turnover days were about 192 days, 261 days, 80 days and 155 days respectively.Trade receivables’ turnovers have been computed by excluding the retention monies, which are subjectedto a warranty period of up to 12 months.

Our customers are either main contractors or project owners of power plants. Along with othersubcontractors, we are engaged to perform the water treatment aspects of the entire power plant setup.Usually, payments are made only after the entire power plant has been completed. As we bill ourcustomers upon delivery of equipment and accessories, there is a time lag between the actual billing andthe physical completion of the project.

On average, after delivery of our required equipment and accessories to our customers, we take another1 to 2 months to install and commission the water treatment equipment and/or systems. Our watertreatment systems form a subset of the entire power plant project. On average, customers require oursystem to be commissioned 3 to 6 months prior to the earmarked completion date of the entire powerplant. Once a power plant worked on by several subcontractors has been completed, it is subject to a168 hours test-run. Accordingly, our trade receivables’ collection process takes an average of 180 days.

Prior to FY2003, Wuhan Kaidi Water and Wuhan Kaidi Measure & Control were entities within the WuhanElectric Group and intra-group balances were not settled in accordance with a fixed credit policy. Thetrade receivables’ turnover increased from 192 days in FY2001 to 261 days in FY2002 due mainly totrade balances due from Wuhan Electric Group increasing from RMB19.6 million as of 31 December2001 to RMB53.4 million as of 31 December 2002.

The trade receivables’ turnover for FY2003 decreased by approximately 181 days. As a result of thecritical shortage of electricity in China, there was a rapid expansion of power plants. Consequently, wewere required by our customers to complete our projects on an urgent basis. This shortened the testingand commissioning duration, leading to a faster repayment term. In addition, Wuhan Electric sold downtheir controlling stake in Wuhan Kaidi Water in FY2003. Due to the divestment of its subsidiary, WuhanElectric settled its trade balances with Wuhan Kaidi Water. These factors caused a drop in the total tradereceivables at the end of FY2003, thereby reducing the trade receivables’ turnover for FY2003. InHY2004, our trade receivable’s turnover returned to a level of 155 days, which is shorter than thoseobserved in FY2001 and FY2002. This was due to the increased pressure for customers to completeprojects on an urgent basis.

Our long trade receivables’ turnover days are a result of our early billing in accordance with normalcontractual terms. In line with corporate policy and on grounds of prudence, we made a general doubtfuldebt provision based on aged debts, as follows:-

Age of Debts (years) 0.5 to 1 1 to 2 2 to 3 Above 3

Provision for Doubtful Debts 5% 6% 10% 20%

For the past three financial years ended 31 December 2003 and six months ended June 2004, ourGroup has not written off any bad debts.

For power plant projects, we normally require our customers to first deposit 10% of the total contract sumin advance. As our water treatment systems form a subset of the entire power plant, our customers willtypically make full payment upon completion of the entire power plant project. For BOT wastewatertreatment projects, which are larger in contract sums as compared to water purification treatmentprojects, we expect to bill and be paid in accordance with the progress of the completion of our project.This would help to shorten our trade receivables’ turnover days.

As at 30 June 2004, the gross trade receivables amounted to approximately RMB55.8 million and thedoubtful debt provision amounted to approximately RMB1.3 million, resulting in net trade receivables ofapproximately RMB54.5 million. As at the Latest Practicable Date, the remaining gross trade receivablesamounted to RMB25.3 million and the doubtful debt provision amounted to approximately RMB1.0million, resulting in net trade receivables of approximately RMB24.3 million.

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INTELLECTUAL PROPERTY

Wuhan Kaidi Water has entered into two patent transfer agreements with Wuhan Electric on 8 October2003 pursuant to which Wuhan Electric agreed to transfer the following patents to Wuhan Kaidi Water.

Consideration Place of Application Patent Registration Patent Description (RMB) Application Number Period

Stepped resin separation 17,030 PRC ZL98113563.3 20 years from system 20 May 1998

Non-metal integrated air-liquid 15,804 PRC ZL01251699.6 10 years from separation facility 27 August 2001

As at the Latest Practicable Date and pursuant to a Trademark Licence Agreement dated 16 September2003 between Wuhan Kaidi Water and Wuhan Electric, we have been granted royalty-free licences byWuhan Electric, the registered owner, to use the following trademarks:-

Place of Application Trademark Application Class Number Licence period

PRC 1(1) 1644160 From 16 September 2003 to6 October 2011

PRC 2(2) 1632861 From 16 September 2003 to 13 September 2011

PRC 5(3) 1636424 From 16 September 2003 to 20 September 2011

PRC 6(4) 1661631 From 16 September 2003 to 6 November 2011

PRC 6(5) 1657640 From 16 September 2003 to 27 October 2011

PRC 9(6) 1658170 From 16 September 2003 to 27 October 2011

Notes:

(1) Class 1 includes welding chemicals, saccharine, leather surface processing chemicals, paper pulp, alkaline-earth metals,salts (chemical preparation), industrial cleaning lotion, pesticide chemical additives, chemical reagent (non-medical and non-veterinary), photo printing paper, plastic enhancing lotion, fertilizer, fire-prevention preparation and quenching preparation.

(2) Class 2 includes dyestuff, pigment, foodstuff pigment, printing ink, metal anti-rust lotion, natural colophony, lumber colourant,tanning ink, anti-rust oil and resin.

(3) Class 5 includes purificant, deodorizer for non-human use, veterinary medical stuff, veterinary washing lotion, sanitary towel,medical cotton, adhesive plaster, medical health care kit, tooth filing preparation, dentistry smoothing preparation.

(4) Class 6 includes hardware containers and equipments, steel wire, wire-tightening nip, nail, padlock, metal commemoratingmedals, common metal artwork, metal locksmith table and metal welding rod.

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(5) Class 6 includes metal packaging container, metal symbol, metal welding rod, metal protector for plants, bronze ware(artwork), metal ore, steel rod, railway metal materials, steel wire, wire-tightening nip, nail, metal furniture parts, hardware,padlock, strongbox, and metal freight tray.

(6) Class 9 includes automatic distribution machine, optics articles, electrical wire, power plant automation device, platingequipment and industrial radiation equipment.

As at the Latest Practicable Date, we have entered into cooperative agreements with the following partiesto use their corresponding technology:

System and Technology Used Technology Partner Period of Licence Nature of Licence

Condensate water resin Christ-Kennicott Water Valid till 12 December 2011 Exclusive separation technology Technology Ltd.(CONESEP “S”)

Powder resin filter technology Christ-Kennicott Water No specified period Non-exclusive Technology Ltd.

EDI water purifying technology General Electrics Valid till 9 December 2009 Non-exclusive (Shanghai) Co., Ltd.

We had also contracted with Seghers Keppel Technology Group NV to procure essential standardequipment for the Wuhan Development Zone Wastewater Treatment Project and to licence to us theUNITANK technology used to design such equipment for the duration of the Wuhan Development ZoneWastewater Treatment Project. We expect to complete the Wuhan Development Zone WastewaterTreatment Project by December 2005. We intend to continue with our licensing arrangements withSeghers Keppel Technology Group NV in relation to the UNITANK technology for another futurewastewater treatment project. Subsequent to the collaboration with Seghers Keppel Technology GroupNV relating to the aforesaid 2 wastewater treatment projects, we are currently negotiating with SeghersKeppel Technology Group NV to enter into an agreement for the transfer of the UNITANK technology toWuhan Kaidi Water so that we may have exclusive use of this technology in Hubei province, as well asthe right to have exclusive use of this technology in designated coastal cities of the PRC in the event thatwe decide to undertake projects in such cities.

RESEARCH AND DEVELOPMENT

In order to keep abreast of technological advancement and our customers’ requirements, we viewresearch and development as an integral part of our work. For a given project, we assemble an ad-hocresearch and development team, consisting of 2 to 3 members who are engineers holding degrees orpost-graduation qualifications. This research and development team caters to the design, developmentand improvement of a specific project and will disband after 3 to 6 months upon completion of theirresearch and development activities. The costs of such research and development are not recorded asresearch expenses but are instead accounted for in the costs of each respective project.

We also conduct research and development to address technical faults arising from our projects afterobtaining feedback from our teams working on each respective project. An ad-hoc research anddevelopment team, comprising 5 to 7 engineers, will be formed to work on specific research anddevelopment projects. We have also previously entered into collaborative arrangements with WuhanUniversity and Wuhan Zhongwei Electric Power and Technology Co., Ltd.

to carry out tests on our resin separation and regeneration equipmentto assess its suitability and effectiveness. The research costs incurred by our

Group for the past three financial years ended 31 December 2003 were not significant.

COMPETITION

Our Directors believe that there are currently no companies that compete with us in terms of range ofservices and systems that we provide in the PRC. There are, however, companies that provide disparatewastewater treatment and water purification treatment systems, and may be considered our competitorsin each of these two main business segments.

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To the best of our Directors’ knowledge and belief, our major competitors that compete with us in projectsin each of the two main business segments are as follows:

Water purification treatment

Huadian Environmental Engineering Company

Wuxi Huaguang Water Treatment Company

Peninsula Water Treatment Co. Ltd

Wastewater treatment

Tianjin Enterprise Environment Co Ltd

Beijing Sangde Environment Enterprise Group

Our Directors also foresee that our Company may face competition from foreign competitors in tendersfor wastewater treatment projects.

COMPETITIVE STRENGTHS

Our Directors are of the view that our competitive strengths are as follows:-

Experienced Management Team and Strong Technical Expertise

We have a qualified and experienced management team and staff who possess strong technicalcapabilities and who specialise in project management, project design and research and development inrelation to the water purification and wastewater treatment industry. Among our senior management,most possess degrees or senior technical qualifications. Our senior management also have priorexperience in managing large corporations and is familiar with all levels of staff. Most of our staff havestrong technical expertise and are professionally trained.

We place great emphasis on technical research and development, and would typically set up researchand development teams for specific projects to handle the design, development and improvement of suchprojects.

We also keep track of the latest developments in water treatment technology and have established long-term cooperation with a few internationally famous water treatment companies and have imported suchnew water treatment technologies as ultrafiltration, CONESEP “S”, UNITANK, and EDI.

Our Directors believe that our management experience and our strong technical capability provide uswith a competitive edge over our competitors.

Good track record and goodwill

We believe that our good track record and goodwill that we have built up in the provision of watertreatment systems for the power generation industry give us an edge over our competitors. Due to ourstrong track record, we have applied for and obtained certificates for being a preferred supplier in relationto the provision of water treatment systems for power plants with capacity of 200 MW, 300 MW and 600MW respectively. These certificates are awarded jointly by China Power Construction Consultancy Co Ltdand China Power Equipment Co Ltd, the consulting agencies which regulate the construction of powerplants by state-owned enterprises. These certificates typically strengthen our ability to tender for projectsby state-owned enterprises relating to the construction of power plants with capacity of 200 MW, 300 MWand 600 MW respectively. The certificates are valid until October 2005. We may apply to renew thevalidity period of such certificates for a further two years from October 2005. As at the date of thisProspectus and barring any unforeseen circumstances, our Directors are not aware of any difficulties inrenewing such certificates.

For the past three financial years ended 31 December 2003, we have secured over 120 water treatmentsystems projects for power plants with a capacity of 300 MW and above. These projects command anaggregate contract value of approximately RMB495 million.

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Provision of comprehensive and integrated systems

We believe that our ability to provide an integrated system for water treatment and control systems is oneof our main competitive strengths. As our customers are mainly in the power generation industry, theyusually require both water purification treatment systems as well as automated control systems. We alsohave the ability to procure equipment, design, install and commission water purification treatmentsystems as well as procure, install and commission standard equipment for wastewater treatmentsystems. In addition, we are able to design and implement automated control systems. As such, webelieve that our customers would usually give preference to a company such as ours, which is able toprovide integrated systems, when awarding projects.

Experience in large-scale projects

Our experience in managing large-scale projects is one of our competitive strengths. We have beeninvolved in several large-scale projects, such as the provision of water purification treatment systems forpower plants. For instance, we had, as a subsidiary of Wuhan Electric, undertaken the design andinstallation of boiler make-up water treatment systems (using membrane technology) and condensatewater treatment projects for Shanghai Waigaoqiao Power Plant Project ,which involved a power plant with a generating capacity of 900MW. In October 2004, we were awarded acontract to provide condensate water treatment system for the Huaneng Yuhuan Power Plant Project

, which was at the Latest Practicable Date, the largest capacity power plantin the PRC. We have a specialised team of engineers, technicians and management personnel who areable to manage such large-scale projects. Such expertise and experience give us a track record whichsmaller players are not able to build up and therefore give us a competitive edge over them whentendering for larger projects.

Extensive sales and marketing coverage

As at the Latest Practicable Date, we have a team of 27 sales and marketing personnel providing us withextensive sales and marketing coverage. Our sales and marketing coverage extends to seven majorregions in the PRC, namely Huabei, Dongbei, Huadong, Xinan, Huazhong, Huanan and Xibei regionscovering most of the provinces and major cities in the PRC. Our extensive sales and marketing networkhas contributed to our wide customer base. With an extensive sales and marketing network, we are ableto raise our corporate profile and increase awareness of our products and services among potentialcustomers.

Good relationship with foreign technology partners

Our Directors and senior management have worked closely with our foreign technology partners formany years and have always had a good working relationship with them. We believe that such goodrelations with our foreign partners, such as Christ-Kennicott Water Technology Ltd, General Electric(Shanghai) Co., Ltd, and Seghers Keppel Technology Group NV give us a competitive edge as we arekept informed of the new products and technologies available in the foreign markets. We also believe thatour good relationship with our foreign technology partners is a mark of our ability to meet internationalstandards in the provision of our services.

( 4 X 1,000 MW)

X 900 )

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PROPERTIES

As at the Latest Practicable Date, the following are the leased premises used for our operations:

Area Annual Location Use (m2) Term (years) rental Lessor

16 Collyer Quay Office 147 2 years S$85,448.16 Savu Investments #26-03 Hitachi Tower commencing Ltd Singapore 049318 26 May 2004

No. 1, Kaidi Building, Office 3504.7 3 years RMB504,677 Wuhan Electric Jiangxia Road, commencing Miaoshan District, 1 August 2003Wuhan East Lake Hi-tech Development Zone, Wuhan, PRC

10 Newton Road, Directors’ 105 2 years S$27,600 Individual(1)

#04-04 Gloucester accommodation commencing Mansion, 5 August 2003Singapore 307947

Notes:

(1) The lessor is an individual who is not related to the Company or the Directors of the Company.

(2) As at the Latest Practicable Date, we own a property at located at 586, Jiangtian Building, 11th storey, Wuluo Road, WuchangDistrict, Wuhan, PRC of an area of 1396.57 m2 for use as an office. Pursuant to the property transfer agreement dated 30December 2002 between Wuhan Kaidi Water and Wuhan Electric, Wuhan Kaidi Water agreed to transfer this property toWuhan Electric for an aggregate cash consideration of RMB5,961,621.47 based on the net book value as at 31 December2002. As at the Latest Practicable Date, Wuhan Kaidi Water is in the process of completing the registration of this propertytransfer.

GOVERNMENT REGULATIONS

Save as disclosed below, as at the Latest Practicable Date, our business operations in the PRC are notsubject to any special legislation or regulatory controls which have a material impact on our businessesand operations, other than those generally applicable to companies and businesses operating in the PRCset out under “Appendix L – Summary of relevant PRC Laws and Regulations”. We believe we havecomplied with all applicable laws and regulations of the PRC.

Compliance Government Issuing Expiry andCertification Regulations Department Description Renewal Terms

Certificate for Chemical Rules for Chemical State Electric Power Qualification Valid from 20 March Cleansing of Power Cleansing of Boilers Company Committee certificate permitting 2003 to 30 May Facilities in the Electric for Supervision and enterprises to 2005, subject to Industry (Grade B) Administration of conduct chemical annual inspection

Safety for Boiler cleansing of boilers. and renewable Rules for Supervision Pressure Containers upon application.and Administration Grade B certificationof Boiler Water permits enterprisesTreatment to chemically

cleanse steamboilers whosespecified workingpressure is 3.8MPa or lower.

)

(

)

() (B

(

( )

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Compliance Government Issuing Expiry andCertification Regulations Department Description Renewal Terms

Certificate for Operation The Operation State Environmental Certificate permitting Valid until 30 June of Environmental Quality Recognition Protection the operations for 2007 for municipal Facilities Administration Administration environmental wastewater

Measure (Trial) protection treatment and 30 for Environmental facilities (industrial June 2005 forProtection Facilities wastewater industrial

and sewage wastewaterdischarge) treatment,

renewable uponapplication.

Note:

Although we do not currently undertake the design for wastewater treatment projects or the design and/or provision of any non-standard equipments, we had applied for and obtained the Certificate for Project Design (Grade A) (the“Certificate”) awarded by the Ministry of Construction of the PRC. This Certificate is valid for one year commencing 25 June 2004,subject to a condition that 25% of Wuhan Kaidi Water’s equity interests shall belong to a PRC entity. As we do not intend to adjustthe present shareholding structure of Wuhan Kaidi Water, we would not be able to renew the Certificate upon its expiry. As we donot rely on this Certificate for our business, the revocation of this Certificate, if it occurs, will not affect our business operations.Notwithstanding the above, we do not intend to undertake any design for our wastewater treatment projects and or the designand/or provision of any non-standard equipments, the revocation of this Certificate will not affect our business operations.

As at the date of this Prospectus, our Directors are not aware of any prescribed requirements under PRClaws and regulations for the renewal of the Certificate for Chemical Cleaning of Power Facilities in theElectric Industry (Grade B) and the Certificate for Operation of Environmental Facilities. As at the date ofthis Prospectus and barring any unforeseen circumstances, our Directors are not aware of any difficultiesin renewing the above certificates.

PROSPECTS AND FUTURE PLANS

PROSPECTS

Our Directors believe that with the growth of the PRC’s economy, the PRC faces increasing pressurefrom the need to protect its environment. Such pressure will boost the demand for the type of serviceswe currently provide. Our Directors believe that the prospects for the growth and expansion of ourbusiness in the foreseeable future are positive based on the following:-

Increase in demand for wastewater treatment plants(1)

The Ministry of Water Resources in the PRC revealed that many of the PRC cities are facing acute watershortages. As a result of severe water shortages, the overall PRC industrial sector is estimated to suffera large amount of lost production annually. In view of the water shortage situation, it is becomingincreasingly important to tap treated wastewater as a source of water.

The water shortage problem is exacerbated by the severe inadequacy of water treatment facilities. Webelieve that in respect of wastewater generated annually, only approximately one-quarter of the totalwastewater generated by industrial and urban users is treated before being discharged. Hence, there is alarge and expanding market for wastewater treatment in the PRC.

Based on the PRC’s 10th Five-Year Plan (the “Plan”), we believe that the PRC government has allocatedmore funds for the purpose of water pollution control in order to raise the national wastewater treatmentrate to above 60% in all cities by 2010. We believe that the Plan also indicates that the PRC governmentplans to build water treatment facilities in all cities and treat 45% of sewage water by 2005. Based on thePlan, we believe that government spending on environmental protection is projected to reach RMB700billion (US$85 billion) or 1.2% of GDP. In particular, RMB250 billion (US$30 billion) will be allocated forwater pollution control during the period from 2001 to 2005 - RMB100 billion to build sewage treatmentplants and RMB150 billion to control industrial point-source pollution.

With the above factors, our Directors believe that the wastewater treatment industry presents a hugemarket and therefore good opportunities for us.

( )

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Note:

(1) Source: Report titled “Water and Wastewater Treatment” by the Market & Industry Research Division of IE Singapore datedApril 2002. It is stated in the above report that:

(a) “The information and materials presented in this report are provided solely for the purposes of general circulation andinformation. This report is not intended to provide advice and the opinions, views and other information expressed hereare not necessarily the views of IE Singapore. Neither IE Singapore nor any officer or employee of IE Singaporeaccepts any liability whatsoever for any direct or consequential loss arising from the use of this report”;

(b) “This report is based on information obtained from sources believed to be reliable. Whilst reasonable care is taken toensure that the information contained herein is not untrue or misleading at the time of publication, no representation ismade as to its accuracy, completely or correctness. It is not to be taken in substitution of the exercise of yourjudgement and separate professional advice should be sought”; and

(c) “Please note that this report was done based on information available up to 31 March 2002. Developments after 31March 2002 are not reflected herein”.


The Company has included the above statement in its proper form and context in this Prospectus and has not verifiedthe accuracy of the contents of the above statement.

Increase in demand for power stations

Power consumption in industries and residences in the PRC has increased rapidly due to the growth ofthe national economy. Our Directors are confident that electricity consumption rate in the PRC willcontinue to increase rapidly in tandem with the growth of the economy. Based on this expected trend,and given that water treatment systems are essential to the operation of power generators, our Directorsbelieve that the demand for water treatment systems is expected to increase.

Scalability of our capabilities

Our existing technologies are scalable such that they can be applied in a diverse number of industries,such as the seawater desalination industry.

We believe that the increasing demand for potable water, especially in the coastal cities of the PRC,creates an increased and sustainable demand for seawater desalination plants. Such increase in demandwill present good prospects for our Group.

Trend Information

Our Directors expect the revenue contribution from the wastewater treatment segment and the waterpurification treatment segment to increase. The rate of increase in the revenue contribution from thewastewater treatment segment will be higher as compared to that of the revenue from water purificationtreatment business. We intend to devote more attention to develop the wastewater treatment business inview of the growing market (and in particular, with respect to the municipal wastewater treatmentbusiness). We expect that tenders for projects will remain competitive for the rest of this current financialyear. We believe that the cost of purchases and inventory levels would generally remain at the same leveland the inventory level may increase in tandem with the increase in the projects undertaken.

As at the Latest Practicable Date, we had secured contracts with total contract value of RMB363.1 millionwhich remained to be completed within the next 18 months. We usually require between 6 to 18 monthsto complete our projects. Based on the contractual milestones of these secured contracts (which timingof completion may be affected by delay or disruptions), we expect to recognise approximately RMB256.1million or 70.5% of total secured contract value as revenue in FY2005. The remaining RMB107.0 millionwill be recognised in FY2006. Our Directors are of the view that with these contracts secured, the trendsoutlined above and barring any unforeseen circumstances, our performance will be favourable for thecurrent financial year.

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FUTURE PLANS

We intend to implement the following key plans to grow and expand our business:

1) For our wastewater treatment business segment

Expand our range of technologies

Our success depends on our ability to offer innovative solutions to our customers. As such, wewould continue to explore the expansion of our range of technologies by either entering intoadditional cooperative agreements with strategic technology partners or developing additionaltechnologies of our own.

We believe in expanding on our range of technologies in order to incorporate leading wastewatertreatment technologies in our projects. We will also cooperate closely with our internationalpartners in the area of research and development.

Expand into the municipal wastewater treatment industry through BOT-type projects

Based on the PRC’s 10th Five-Year Plan, we believe that the PRC government has indicated thatits objective is to raise the national wastewater treatment rate to above 60% in all cities by 2010and plans to build water treatment facilities in all cities and treat 45% of sewage water by 2005. Asour Directors believe that there is good potential in this industry, we intend to focus on and growthis segment of our business by tendering for more municipal wastewater treatment projects.

We have established our associated company, Wuhan Hanxi, with three other parties, namelyWuhan Electric, Wuhan Gelin (a subsidiary of Wuhan Electric) and an unrelated party, WuhanUrban Waste Water, with equity interests of 43%, 22%, 15% and 20% respectively. Wuhan Hanxiwas set up to engage in a BOT wastewater project which will involve the construction andoperation of a municipal wastewater treatment plant in the west of Han Kou within Hubei Province(the “Hanxi Project”). We commenced construction of the municipal wastewater treatment plant in2004. We expect to complete the construction of the municipal wastewater treatment plant byDecember 2005 and commence operations in 2006. This wastewater treatment plant is expectedto serve an area of 54.67 square kilometres and an estimated population of 600,000, as well astreat up to 400,000 tonnes of water daily to the city government.

Wuhan Hanxi is licensed to operate this wastewater treatment plant for an aggregate of 25 years,of which the first two years will be devoted to the construction of the plant. During the remaining 23years that Wuhan Hanxi will operate the wastewater treatment plant, the Wuhan City Governmenthas guaranteed a capacity usage of 80% in the first two years of operation and 100% for theremaining 21 years. After 25 years, the operation of the plant will be transferred over to the WuhanCity Government. The Hanxi Project has been approved by the Hubei Provincial Government andis a critical environmental project as it is expected to enable Wuhan City to self-contain itswastewater treatment capacity at a threshold of 60% by the end of 2005. The future income streamof the Hanxi Project will be derived from the collection of water tariffs, which is determined by themunicipal government based on the costs of constructing the wastewater treatment plant and theexpected operational costs. The municipal government also has the discretion to adjust such watertariffs in the event of increasing operating expenses. Upon due consideration of the governmentalsupport behind the Hanxi Project, the tariff payments to be received by Wuhan Hanxi following thecapacity usage guarantee provided by the Wuhan City Government and after conducting a detailedinternal feasibility study, we have proceeded with our investment in the Hanxi Project.

In addition to our first foray into the Hanxi project, we intend to explore and invest capital inadditional BOT projects for wastewater treatment plants. Where certain large-scale BOT projectsrequire substantial capital investment, we may either undertake such projects on our own orcollaborate with suitable business partners.

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Under the BOT business model, we will run the operations of the facilities for a period of between20 and 30 years, during which we are entitled to the fees paid by the PRC government, which areobtained from levies imposed on residents. At the end of our operating period of such facilities, thefacilities are transferred to the PRC government without any additional costs and liabilities incurredby us. As such, we believe that BOT projects will enhance our profitability as they generate asteady and recurring source of income for our Group over a sustained period of time.

Management of industrial wastewater and sewage discharge facilities

We believe that there will be a trend towards the outsourcing of the management of watertreatment plants to third party professionals such as ourselves. In this regard, we have obtainedthe Certificate for Operation of Environmental Facilities issued by the

PRC State Environmental Protection Administration and are therefore well-positioned to offer our management services to industrial wastewater and sewage dischargefacilities. We believe that the management of such facilities will provide us with a steady revenuestream as our management fees are subject to a minimum pre-determined fixed charge and arebased on the tonnage of treated water from such facilities.

2) For our water purification business segment

The following sets out our general plans to expand our water purification treatment business:

Expand our existing market share in the power generation industry

We intend to leverage on our existing good track record in the power generation industry toconsolidate and expand our existing market share in the industry. We believe that we can do so bybuilding on our existing networks to gain market information on upcoming projects and continuingto provide quality water purification treatment systems and solutions.

Diversify the application of existing technologies to expand into other industries

We may explore diversifying the application of our existing technologies, such aselectrodeionization, reverse osmosis and ultrafiltration to expand into other industries, such as theseawater desalination industry, as and when opportunities arise.

We believe that the increasing demand for potable water, especially in the PRC coastal cities,creates a corresponding increase in demand for seawater desalination plants. This presents agood potential market for us to tap into.

(

( )

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DIRECTORS, MANAGEMENT AND STAFF

OUR MANAGEMENT STRUCTURE

The chart below sets out our management structure:

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Board of Directors

Executive Director /General Manager

Wang Yaoyu

Deputy General

Manager,Sales and Marketing

ChengShaoyan

Deputy General

Manager,Procurement

andEngineering

Han Jianli

Deputy General

Manager,Design and Technology

Wei Shaoping

ChiefFinancial

Officer

Chen Chuan

Chief Executive OfficerHuang Hanguang

Executive DirectorSha Guangwen

Financial Controller

Tay Lee Chye Lester

DIRECTORS

Our Board of Directors is entrusted with the responsibility for the overall management of our Group. OurDirectors’ particulars are listed below:

Name Age Address Occupation

Addyson Xue 48 62, Bayshore Road, #24-05, Non-Executive ChairmanSingapore 469983

Huang Hanguang 42 1, Luoshi South Road, Chief Executive Officer and Executive Lidao Garden, Peach Garden, DirectorBlock F #501Hongshan District,Wuhan, Hubei, PRC

Sha Guangwen 41 7, Simei St 3, Executive Director Eastpoint Green Condominium#05-01, Singapore 529893

Wang Yaoyu 47 1, Luoshi South Road, Executive Director and General Lidao Garden, Maple Garden, ManagerBlock A #702,Hongshan District,Wuhan, Hubei, PRC

Ng Fook Ai Victor 57 21A Fernhill Road Executive Director, London Asia Singapore 259154 Capital PLC

Tan Tew Han 56 Blk 8, Faber Garden, Independent Director#05-01 Angklong Lane,Singapore 579981

Information on the business and working experience of our Directors is set out below:

Addyson Xue is our Non-Executive Chairman and was appointed to our Board on 26 November 2002.Mr Xue has approximately 30 years of experience in the power industry in the PRC. From 1976 to 1982,Mr Xue was employed in Beian Electrical Industry Power Bureau, PRC. In 1986, he joined Harbin No. 3Power Plant as its Deputy General Manager. From 1993 to 1995, he was appointed as theChairman/President of Heilongjiang Electric Power Share Holding Co. and the Heilongjiang Long DianGroup. In 1996, he was appointed as Chairman/President of Huafu Power Investment Co Ltd andHeilongjiang Electrical Enterprise Group Ltd and as Deputy General Manager of Heilongjiang ElectricPower Corporation Ltd. From 1997 to 1998, he was the Chairman/President of Tianhe Taifu ElectricalInvestment & Development Co., Ltd. In 1998, Mr Xue was appointed an executive officer in Asia PowerInvestments Pte Ltd and he is currently the executive vice-chairman of Asia Power Corporation Limited.In 2000, he was appointed as Director of Vastland Investments Pte Ltd. Mr Xue obtained a Post GraduateEducation Certificate (Economic Management) from the Academy of Social Science, Heilongjiang in1993.

Huang Hanguang is our Chief Executive Officer and Executive Director and was appointed to our Boardon 24 February 2003. He is responsible for overseeing all aspects, including operations, finance andhuman resource of our Group. Mr Huang has over 20 years of experience in the water treatment industry.From 1984 to 1989, Mr Huang was employed in the Ministry of Water Resources and Electric Power ofthe People’s Republic of China as a specialist engineer in chemistry and environmental protection. Hesubsequently joined the China Electricity Council as a specialist engineer in chemistry and environmentalprotection from 1990 to 1992. In 1993, Mr Huang joined Wuhan Electric as Vice-Chairman. He steppeddown from this position in October 2004. For the period between 1993 and 2002, Mr Huang was alsoappointed as director or general manager in several other companies in the power generation industry.He was appointed as the Managing Director of Wuhan Kaidi Water Services Co., Ltd in 2003. Mr Huanggraduated from Wuhan University with a Bachelor’s degree in power plant chemistry engineering in 1984.

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Sha Guangwen is one of our Executive Directors and was appointed to our Board on 26 November2002. He is responsible for the fund-raising and investment activities of our Company. Mr Sha was aninvestment and risk management consultant. He is also a non-executive Director of Devotion Eco-Thermal Limited, a company listed on the SGX-ST. In the course of his investment and consultationwork, Mr Sha was appointed by various companies to oversee their operations namely as generalmanager with Hainan Aisino Investment Co., Ltd, general manager with Heilongjiang LongdianInvestment Co., Ltd, deputy general manager and subsequently general manager of Yangpu Tianhe TaifuInvestment Co., Ltd. and chief executive officer of Hainan Bingang Real Estate Investment Co., Ltd. Asat the Latest Practicable Date, Mr Sha no longer holds any executive roles in these companies. Mr Shaholds degrees in Economics from Heilongjiang University of Commerce and in Literature from HarbinNormal University in 1995 and 1991 respectively.

Wang Yaoyu is one of our Executive Directors and was appointed to our Board on 1 September 2004.He is also our General Manager, responsible for overseeing the operations of our Group. Mr Wang hasover 20 years of experience in the power generation industry. From 1982 to 1998, Mr Wang wasemployed in the Anqing Thermoelectric Plant where his last-held position was that of Assistant FactoryDirector. In 1998, Mr Wang was appointed as the Deputy Director of the engineering department of theAnqing Petrochemical Plant. Mr Wang joined Wuhan Kaidi Water Services Co., Ltd as General Managerin 2003. Mr Wang graduated from Hefei University of Technology with a degree in power plant andelectric power system in 1982.

Ng Fook Ai Victor is one of our Independent Directors and was appointed to our Board on 24 January2005. Mr Ng is currently an Executive Director of London-listed London Asia Capital PLC and ChinaFinancial Services Ltd. and is also on the board of directors of several companies. Mr Ng spent a shortstint with the Singapore Administrative Service before joining Intraco Ltd in 1980. He then joined KPMGSingapore overseeing its Specialist Services (Management Consultancy) department. He subsequentlybecame a Principal as well as a Director of KPMG Peat Marwick Management Consultants Pte Ltd from1985 to 1988. In 1988, Mr Ng ventured into the securities industry where he was General Manager(Sales) with JM Sassoon Co. Pte Ltd. Mr Ng, who holds a Certificate-in-Education (Spore), B.Sc(Econs)(Hons)(London) and M.Sc.(Econs)(London), was awarded the University of London (ConvocationBook Prize) (First) and the Lord Hailsham Scholarship. For his services to the community, Mr Ng wasawarded the PBM (Community Services) by the President of the Republic of Singapore in 1992. In 2004,Mr Ng was also invited to serve on the Board of Trustees of Majulah Connection (a non-governmentalorganization).

Tan Tew Han is one of our Independent Directors and was appointed to our Board on 24 January 2005.Mr Tan started his banking career 23 years ago and has since held a number of senior posts in variousforeign banks. Before his career in the banking industry, he was with the Administrative Service of theSingapore Civil Service. He joined the Overseas Union Bank (“OUB”) in 1987 and was seconded toInternational Bank of Singapore Limited (a then wholly-owned subsidiary of OUB) as Head of CorporateBanking and the Overseas Department. He was subsequently appointed as Senior Vice President ofInvestment Banking and Corporate Finance Division in 1992. In 1999, Mr Tan was promoted to theposition of Executive Vice President, in charge of overseeing Fund Management, CorporateFinance/Syndications and Trustee & Custodian Services. Mr Tan retired from OUB in 2001. Mr Tanobtained his Bachelor of Science (Honours) degree from University of Singapore in 1971 and his Masterof Business Administration degree from University of British Columbia, Canada in 1979.

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The list of present and past directorships of each Director over the last 5 years excluding those held inthe Company, is set out below:

Name Present Directorships Past Directorships

Addyson Xue Group Companies Group Companies

Nil Nil

Other Companies Other Companies

Maxgain Pte. Ltd. Vastland Investment Pte Ltd (struck off)Asia Power Corporation Limited

Huang Hanguang Group Companies Group Companies

Wuhan Kaidi Water Nil


Beijing Baohui Electric Power Technology Co.Ltd

Beijing Zhonglian Power Technology Co. LtdJiangsu Jiangyin Jiangnan Resin FactoryNanjing Zhonglian Power Engineering Co., Ltd

Wuhan Electric

Sha Guangwen Group Companies Group Companies



Devotion Eco-Thermal Limited Capitalink Pte. Ltd.Tianhe Taifu Investment Co. LtdHai Nan Bingang Real Estate Investment Co.Ltd

Guangzhou Devotion Thermal & Technology Co., Ltd

Shanghai He Rui Investment Co., Ltd

Wang Yaoyu Group Companies Group Companies

Wuhan Kaidi Water Wuhan Kaidi Measure & Control (dissolved)Wuhan Hanxi


Nil Nil

Ng Fook Ai Victor Group Companies Group Companies

Nil Nil


AEC. Edu Group Pte Ltd Beijing Myweb Networks Co., LtdAsia Cable TV Pte Ltd Easy2bid Pte Ltd (voluntarily wound up)Asia Power Corporation Limited IBR (S) Pte. Ltd.Beijing Biaoqi Advertisement Co., Ltd Marine21.com Pte Ltd (voluntarily wound up)Beijing Biaoqi Environment Monitoring Metro-City Development Corporation Pte Ltd Co., Ltd Mywebinc.com Ltd

Beijing Biaoqi Publishing and Myweb Asia Pte Ltd (voluntarily wound up)Communications Co., Ltd Vastland Investment Pte Ltd (struck off)

Beijing Success Science and Technology Co., Ltd

China Financial Services Ltd.Devotion Eco-Thermal LimitedEurope Asia Education Co. Ltd

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London Asia Capital PLCLondon Asia Capital (s) Pte.Ltd.Mercur Business Control Asia Pte LtdOfex Asia Pte. Ltd.Orient Capital Holding Pte. Ltd.Savant Infocomm Pte LtdSHC Investments Ltd.Technical Training Institute, AustraliaTemima China Investment Co Ltd

Tan Tew Han Group Companies Group Companies

Nil Nil


Full Apex (Holdings) Limited IBS Nominees (Pte.) Ltd.Sun Business Network Ltd. (previously Manulife (Singapore) Pte. Ltd.known as Panpac Media Group Limited) OUB Asset Management Ltd

Sembcorp Marine Ltd OUB Bullion & Futures LtdST Asset Management Ltd. OUB Investments Pte Ltd

OUB Securities Pte LtdOUB Trustee LtdOUB.com Pte LtdOverseas Union Bank Nominees (Private) Limited

Overseas Union Facilities (Pte.) LimitedOverseas Union Securities LtdOverseas Union Securities Trading Pte LtdSecurities Investments Pte LtdSingapore – Bintan Resort Holdings Pte LtdVertex Asia Limited

MANAGEMENT

The day-to-day operations are entrusted to our Executive Officers. An experienced and qualified team ofExecutive Officers is responsible for the different functions of our Group. The particulars of our ExecutiveOfficers are set out below:

Name Age Address Position

Wei Shaoping 42 19-1, 2nd Floor, Unit 1, Deputy General Manager, Design and Wansong Sub-district, TechnologyJianghan District,Wuhan, Hubei, PRC

Han Jianli 43 T9, Luoshi South Road, Deputy General Manager, Nanhu Garden, Procurement and EngineeringBlock 6-2-602,Hongshan District,Wuhan, Hubei, PRC

Cheng Shaoyan 39 85-6-2-5, Zhongbei Road, Deputy General Manager, Sales and Wuchang District, MarketingWuhan, Hubei, PRC

Chen Chuan 35 668-48, 4th Floor, Unit 7, Chief Financial OfficerMinzhu Road,Wuchang District,Wuhan, Hubei, PRC

Tay Lee Chye Lester 30 Blk 133 Lorong Ah Soo, Financial Controller#05-436 Singapore 530133

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Information on the business and working experience of our Executive Officers is set out below:

Wei Shaoping is our Deputy General Manager, Design and Technology, and is responsible foroverseeing all design and technology development aspects of Wuhan Kaidi Water Services Co., Ltd. MrWei has close to 20 years of experience in the power generation industry. From 1984 to 2003, Mr Weiwas employed in the Hubei Province Electric Power Design Institute, where he first started out as anassistant engineer and subsequently became the Associate Director and Chief Engineer and theInstitute’s Deputy Head through a series of promotions. Mr Wei joined Wuhan Kaidi Water Services Co.,Ltd as Deputy General Manager of Design and Technology in 2003. Mr Wei graduated from Hua ZhongUniversity of Science and Technology with a degree in engineering in 1984.

Han Jianli is our Deputy General Manager, Procurement and Engineering, and is responsible forengineering projects management and procurement management. Mr Han is a first class registeredengineer. Mr Han was employed in Qinghai University as an assistance lecturer from 1983 to 1987.Subsequently, Mr Han was employed as an engineer in Northwest Electric Power Design Institute ofChina’s State Power Corporation from 1987 to 2001. In 2000, Mr Han passed the first class registeredstructural engineering examination and obtained a registered certificate. Mr Han was employed byWuhan Kaidi Electric Power Co., Ltd as Project Manager from 2001 to 2003. In April 2003, Mr Han waspromoted as Assistant Chief Engineer cum Head of the Procurement Department. Mr Han was alsoappointed Deputy General Manger, Procurement and Engineering, in November 2003. Mr Han obtaineda degree in Industrial and Civil Architecture from Northwestern Institute of Architecture and Engineeringin 1983.

Cheng Shaoyan is our Deputy General Manager, Sales and Marketing, and is responsible for chartingall the marketing and sales strategies of Wuhan Kaidi Water Services Co., Ltd. Ms Cheng has close to 15years of experience in the power generation industry. In 1988 to 2000, Ms Cheng was employed in theCentral Southern China Electric Power Design Institute and her last-held position was that of DeputyManager. In 2000, she joined Wuhan Kaidi Electric Power Co., Ltd as its Marketing Division DeputyManager. Ms Cheng joined Wuhan Kaidi Water Services Co., Ltd as Deputy General Manager, Marketingand Sales, in 2001. Ms Cheng graduated from Wuhan University in 1988 with a degree in engineering.

Chen Chuan is our Chief Financial Officer and is responsible for overseeing all financial aspects ofWuhan Kaidi Water Services Co., Ltd. From 1990 to 1995, Mr Chen was employed in the Wuhan ElectricPower Equipment Plant as an accountant and was subsequently promoted to the position of Head ofAccounts Department. From 1995 to 2000, Mr Chen was employed in Dongfeng Peugeot CitroenAutomobile Company Ltd as the Finance Department Manager. In 2000 , he joined Wuhan Kaidi ElectricPower Co., Ltd as its Finance Department’s Deputy Manager. From 2001 to 2003, Mr Chen wasappointed as the Chief Accountant of Nanjing Central Power Engineering Co., Ltd. He joined WuhanKaidi Water Services Co., Ltd as Chief Financial Officer in 2003. Mr Chen graduated from ZhongnanUniversity of Economics and Law with a degree in finance and accounting in 1990.

Tay Lee Chye Lester joined our Group in May 2004 as our Financial Controller. He oversees ourGroup’s financial, accounting and tax matters with respect to the Singapore laws and regulations and therequirement of SGX Listing Rules. Mr Tay started his career with Arthur Andersen, Singapore as anAudit Assistant in 1998 and spent 4 years with the firm, including a secondment program with ArthurAndersen Sydney, Australia as an Audit Senior in 2001. Following the merger of Arthur Andersen withErnst and Young in July 2002, he was part of the Business Advisory Unit of Ernst and Young, working asthe lead finance consultant in a corporatisation project. Immediately prior to his appointment with ourGroup, he was with Deloitte and Touche, Singapore as an Audit Supervisor from August 2003 to May2004. Mr Tay holds a Bachelor of Accountancy degree from the Nanyang Technological University and iscurrently a member of the Institute of Certified Public Accountants of Singapore.

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The list of present and past directorships of each Executive Officer over the last 5 years is set out below:


Wei Shaoping Group Companies Group Companies

Nil Wuhan Kaidi Measure & Control (dissolved)


Nil Nil

Han Jianli Group Companies Group Companies

Wuhan Hanxi Nil


Nil Nil

Cheng Shaoyan Group Companies Group Companies

Nil Nil


Nil Nil

Chen Chuan Group Companies Group Companies



Nanjing Zhongdianlian Electric Power Engineering Co., Ltd

Tay Lee Chye Lester Group Companies Group Companies

Nil Nil


Nil Nil

Maxgain Pte. Ltd. nominated Addyson Xue to represent it on our Board of Directors. Save as disclosedherein, as at the Latest Practicable Date, there is no arrangement or understanding with a SubstantialShareholder, or customer of our Company, pursuant to which any of our Directors or Executive Officerswas selected as a director or executive officer of our Company. Save as disclosed under the section“Shareholders” on pages 61 and 62 of this Prospectus, none of our Directors and Executive Officers arerelated to each other or to any of our Substantial Shareholders.

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REMUNERATION

The compensation paid during FY2003 and FY2004 and the estimated compensation to be paid forFY2005 to our Directors and our Executive Officers for services rendered to us and our subsidiary on anindividual basis and in remuneration bands are as follows:-

Estimated amount forNames FY2003 FY2004 current FY2005

Directors

Addyson Xue Band A Band A Band AHuang Hanguang Band A Band A Band BSha Guangwen Band A Band A Band AWang Yaoyu Band A Band A Band ANg Fook Ai Victor – – Band ATan Tew Han – – Band A

Executive Officers

Wei Shaoping Band A Band A Band AHan Jianli Band A Band A Band ACheng Shaoyan Band A Band A Band AChen Chuan Band A Band A Band ATay Lee Chye Lester – Band A Band A

Notes:-

(i) Band A means between S$0 and S$249,999.(ii) Band B means between S$250,000 and S$499,999.(iii) For the purposes of this estimation, no account is taken for the bonus that our Executive Directors are entitled to under their

respective service agreements, the details of which are set out under “Service Agreements” on pages 102 and 103 of thisProspectus.

Except for the contributions which are mandated by the laws of the PRC and Singapore in which ouremployees are employed, we have not set aside or accrued any amounts for our employees to providefor pension, retirement or similar benefits.

EMPLOYEES

As at the Latest Practicable Date, we had a workforce of 193 full-time employees. Our employees are notunionised. The relationship and cooperation between the management and staff have been good and areexpected to continue in the future. There has not been any incidence of work stoppages or labourdisputes which have affected our operations.

The functional distribution of our full-time employees as at 31 December 2002, 2003 and 2004 and as atthe Latest Practicable Date were as follows:

As at 31 As at 31 As at 31 As at the Latest December 2002 December 2003 December 2004 Practicable Date

Function

Management 6 9 7 7

Administration and Finance 7 14 21 21

Marketing and Sales 16 28 27 27

Technical 49 112 138 138

Total 78 163 193 193

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The geographical breakdown of our full-time employees as at as at 31 December 2002, 2003 and 2004and as at the Latest Practicable Date were as follows:

As at 31 As at 31 As at 31 As at the Latest December 2002 December 2003 December 2004 Practicable Date

PRC 78 157 189 189

Singapore 0 6 4 4

Total 78 163 193 193

There was an increase in the number of employees from 31 December 2002 to 31 December 2003 dueto the transfer of staff from Wuhan Electric to Wuhan Kaidi Water following the divestment of Wuhan KaidiWater as well as the employment of additional staff by Wuhan Kaidi Water. There was subsequently anincrease in employed staff which accounted for the large increase in the number of technical staff from31 December 2003 to the Latest Practicable Date.

SERVICE AGREEMENTS

Save as disclosed below, none of our Directors or Executive Officers has entered into serviceagreements with us.

Our Company has entered into separate service agreements (the “Service Agreements”) with ourExecutive Directors, namely, Mr Huang Hanguang, Mr Sha Guangwen, and Mr Wang Yaoyu, for a fixedperiod of 3 years with effect from 1 January 2005 (the “Term”) (unless otherwise terminated by eitherparty giving not less than 6 months’ notice to the other). During the Term, we may terminate theirrespective Service Agreements if any of these Executive Directors is guilty of dishonesty or serious orpersistent misconduct, becomes bankrupt or otherwise acts to the prejudice of our Company. Upon theexpiry of the Term, each Service Agreement is renewable annually (unless otherwise agreed in writingbetween the Company and each respective Executive Director or terminated in accordance with theterms of each Service Agreement). None of these Executive Directors will be entitled to any benefitsupon termination of their respective Service Agreements. The Service Agreements cover the terms ofemployment, specifically salaries and bonuses.

Mr Huang Hanguang, Mr Sha Guangwen, and Mr Wang Yaoyu are entitled to a monthly salary payable inboth Singapore dollars and RMB in the following approximate proportions: -

S$ RMB

Huang Hanguang 15,000 8,300Sha Guangwen 11,000 4,200Wang Yaoyu 1,700 42,000

As a performance incentive, each of our Executive Directors is entitled to a bonus equivalent of apercentage of our Group’s audited consolidated profit before taxation, before minority interests andbefore profit sharing in a financial year, excluding exceptional items and extraordinary items.

Consolidated Profit Percentage of Consolidated Profit Before Tax that each Executive Director Before Tax (“PBT”) is entitled to as Bonus

Huang Hanguang Sha Guangwen Wang YaoyuOn amounts more than 3.0% of PBT in excess 1.0% of PBT in excess 1.5% of PBT in excessRMB25 million but less than of RMB25 million of RMB25 million of RMB25 million RMB35 million

On amounts more than 3.0% of RMB10 million 1.0% of RMB10 million 1.5% of RMB10 million RMB35 million and 5.0% of PBT in and 1.5% of PBT in and 2.5% of PBT in

excess of RMB35 million excess of RMB35 million excess of RMB35 million

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All travelling and travel-related expenses, entertainment expenses and other out-of-pocket expensesreasonably incurred by the Executive Directors in the process of discharging their duties on behalf of theGroup will be borne by our Company. In addition, the Company shall provide a car for use by theExecutive Directors in connection with the discharge of their duties on behalf of the Group.

Had the Service Agreements been in existence for FY2003, the aggregate remuneration paid to theExecutive Directors would have been approximately RMB2.1 million instead of RMB1.1 million and ourprofit before tax for the Group and the profit attributable to the Shareholders would have been RMB21.3million (instead of RMB22.3 million) and RMB17.8 million (instead of RMB18.8 million) respectively.

Directors’ fees do not form part of the terms of the Service Agreements as these require the approval ofshareholders in our Company’s annual general meeting.

CORPORATE GOVERNANCE

Our Articles provide that our board of Directors will consist of not less than two Directors. Save asdisclosed under “Service Agreements” above, none of our Directors are appointed for any fixed terms,but one-third of our Directors, save for the managing director of our Company, is required to retire atevery annual general meeting of our Company. Hence, the maximum term for each Director is threeyears. Directors who retire are eligible to stand for re-election.

Our Directors recognise the importance of corporate governance and the offering of high standards ofaccountability to the Shareholders of our Company.

Nominating Committee

Our Nominating Committee comprises Mr Ng Fook Ai Victor, Mr Tan Tew Han and Mr Huang Hanguang.The Chairman of the Nominating Committee is Mr Ng Fook Ai Victor. Our Nominating Committee will beresponsible for (i) re-nomination of our Directors having regard to the Director’s contribution andperformance, (ii) determining annually whether or not a Director is independent and (iii) deciding whetheror not a Director is able to and has been adequately carrying out his duties as a director. TheNominating Committee will decide how the Board’s performance is to be evaluated and propose objectiveperformance criteria, subject to the approval of the Board, which address how the Board has enhancedlong term Shareholders’ value. The Board will also implement a process to be carried out by theNominating Committee for assessing the effectiveness of the Board as a whole and for assessing thecontribution by each individual Director to the effectiveness of the Board. Each member of theNominating Committee shall abstain from voting on any resolutions in respect of the assessment of hisperformance or re-nomination as director.

Remuneration Committee

Our Remuneration Committee comprises Mr Ng Fook Ai Victor, Mr Tan Tew Han and Mr Addyson Xue.The Chairman of the Remuneration Committee is Mr Ng Fook Ai Victor. Our Remuneration Committeewill recommend to our Board a framework of remuneration for our Directors and key executives, anddetermine specific remuneration packages for each Executive Director. The recommendations of ourRemuneration Committee should be submitted for endorsement by the entire Board. All aspects ofremuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, Options issuedunder our ESOS and benefits in kind shall be covered by our Remuneration Committee. Each member ofthe Remuneration Committee shall abstain from voting on any resolutions in respect of his remunerationpackage.

Audit Committee

Our Audit Committee comprises Mr Tan Tew Han, Mr Ng Fook Ai Victor and Mr Addyson Xue. TheChairman of the Audit Committee is Mr Tan Tew Han. Our Directors recognise the importance ofcorporate governance and the offering of high standards of accountability to the Shareholders of ourCompany. Our Audit Committee shall meet periodically to perform the following functions:-

(a) review the audit plans of our Company’s external and internal auditors;

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(b) review the external and internal auditors’ reports, including their findings on their evaluation of theinternal control system;

(c) review the scope and results of the internal audit procedures;

(d) review the co-operation given by our Company’s officers to the Audit Committee, external auditorsand internal auditors, where applicable;

(e) review the financial statements of our Company and the Group with the assistance of ourCompany’s external and internal auditors, before their submission to the Board;

(f) nominate external auditors for re-appointment; and

(g) review interested person transactions, if any.

Review of our Group’s financial statements

Our Audit Committee, with the assistance of our internal and external auditors, will review our financialstatements prior to its announcements at the end of every reporting period. As part of our review of theGroup’s financial statements for each period, our Group’s internal auditors will specifically test, inter alia,the following:-

(i) project budgeting process;

(ii) records of project costs; and

(iii) computation of revenue recognised based on the percentage of completion method as prescribedunder “Financial Reporting Standard FRS 11 – Construction Contracts” by the Council onCorporate Disclosure and Governance.

Our Company will establish and implement our internal audit function within three months of ouradmission to the Official List of the SGX-SESDAQ. Our Audit Committee will liaise with both our internaland external auditors to continually review and ensure proper accounting of the Group’s budgetingprocess, proper authorisation and recording of project costs in order to ensure accuracy in thecomputation and recognition of revenue.

In addition, our Audit Committee will liaise with both our internal and external auditors to continuallyreview and ensure proper accounting of the Group’s budgeting process, proper authorisation andrecording of project costs in order to ensure accuracy in the computation and recognition of revenue. OurAudit Committee will also provide a confirmation in the announcement of our financial results at the endof every reporting period that the above steps have been carried out.

Our Audit Committee will review all future interested person transactions on at least a half-yearly basis toensure that they are carried out on normal commercial terms and are not prejudicial to the interests ofour shareholders. Our Audit Committee will also review all interested person transactions to ensure thatthe then prevailing rules and regulations of SGX-ST (in particular Chapter 9 of the Listing Manual of theSGX-ST) are complied with. We will also endeavour to comply with the principles of and best practicesset out in the “Best Practices Guide” of the Listing Manual of the SGX-ST.

Apart from the duties listed above, our Audit Committee shall commission and review the findings ofinternal investigations into matters where there is any suspected fraud or irregularity, or failure of internalcontrols or infringement of any Singapore law, rule or regulation which has or is likely to have a materialimpact on the Group’s operating results and/or financial position. Each member of the Audit Committeeshall abstain from voting on any resolutions in respect of matters in which he is interested.

In addition to the above, our Audit Committee will review all transactions entered into between anycompany within our Group and the Wuhan Electric Group on a half-yearly basis.

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Although such transactions are not interested person transactions within the definition of the ListingManual, we have voluntarily decided to subject such transactions to the review of our Audit Committee toensure that such sub-contracting arrangements are at arm’s length and on commercial bases for goodcorporate governance. The review procedures shall be as follow:

(a) when obtaining sub-contracts for water purification and wastewater treatment systems andautomated control systems from the Wuhan Electric Group, the terms of two other sub-contractsobtained by Wuhan Kaidi Water from other unrelated third parties shall be used as comparisonwherever possible. The Audit Committee will review the comparables, taking into account including,but not limited to:-

(i) whether the pricing is in accordance with our usual business practice and policies;

(ii) past dealings; and

(iii) whether the terms are no more favourable to the Wuhan Electric Group than those extendedto unrelated third parties,

(b) we would obtain quotes for materials or services which we may require from at least two unrelatedthird parties in connection with the purchase of materials or services from the Wuhan ElectricGroup, such quotes shall be obtained on a regular basis be used as comparison whereverpossible. Our Audit Committee will review these comparables, taking into account pertinentfactors, including but not limited to:-

(i) whether the pricing is in accordance with our usual business practice and policies;

(ii) quality of the products and services offered;

(iii) delivery time;

(iv) track record; and

(v) whether the terms are no more favourable to the Wuhan Electric Group than those extendedby unrelated third parties; and

(c) in cases where it is not possible to obtain comparables from other unrelated third parties, ourCompany may enter into the transaction with the Wuhan Electric Group provided that the price andterms received from the interested person are no less favourable than those extended by theinterested person to unrelated third parties, taking into account all pertinent factors including, butnot limited to business practices, industry norms, volume, quality, delivery time and track record.

Our Audit Committee believes that the above guidelines and procedures are sufficient to ensure that thesub-contracting arrangements and other transactions with the Wuhan Electric Group will be at arm’slength, on normal commercial terms and not prejudicial to our Shareholders.

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ASIA WATER SHARE OPTION SCHEME

On 24 January 2005, our shareholders approved a share option scheme known as the Asia Water ShareOption Scheme (the “ESOS”), the rules of which are set out in Appendix O of this Prospectus. The ESOScomplies with the relevant rules as set out in Chapter 8 of the Listing Manual. The ESOS will provideeligible participants with an opportunity to participate in the equity of our Company and to motivate themtowards better performance through increased dedication and loyalty. The ESOS, which forms an integraland important component of a compensation plan, is designed to primarily reward and retain executivedirectors, non-executive directors and employees whose services are vital to our well being and success.

As at the Latest Practicable Date, no options have been granted under the ESOS.

Objectives of the ESOS

The objectives of ESOS are as follows:-

(a) to motivate participants to optimise their performance standards and efficiency and to maintain ahigh level of contribution to our Group;

(b) to retain key employees and Directors whose contributions are essential to the long-term growthand profitability of our Group;

(c) to instill loyalty to, and a stronger identification by participants with the long-term prosperity of, ourGroup;

(d) to attract potential employees with relevant skills to contribute to our Group and to create value forthe shareholders of our Company; and

(e) to align the interest of participants with the interests of the shareholders of our Company.

Summary of ESOS

A summary of the rules of ESOS is set out as follows:-

(1) Participants

Under the rules of ESOS, executive and non-executive directors (including our IndependentDirectors) and employees of our Group and our associated companies, are eligible to participate inESOS. For this purpose, a company is our “associated company” if we and/or our subsidiary holdat least 20 per cent. but not more than 50 per cent. of the issued shares in that company andprovided our Company has control over the associated company.

Currently, Wuhan Hanxi is our associated company. Our Company may also acquire otherassociated companies in future and accordingly, we have provided for the ESOS to be extended todirectors and key employees of our associated companies so that we have the flexibility to grantthe Options to such person at the appropriate times.

Our Controlling Shareholders and their associates will also be eligible to participate in the ESOS.

(2) Scheme administration

The ESOS shall be administered by the Remuneration Committee (Please refer to the section“Corporate Governance” on page 103 of this Prospectus) with powers to determine, inter alia, thefollowing:-

(a) persons to be granted options;

(b) number of options to be granted; and

(c) recommendations for modifications to the ESOS.

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As at the date of this Prospectus, our Remuneration Committee comprises Messrs Ng Fook AiVictor, Tan Tew Han and Addyson Xue. The Remuneration Committee will consist of Directors(including Directors or persons who may be participants of ESOS). A member of the RemunerationCommittee who is also a participant of ESOS must not be involved in its deliberation in respect ofoptions granted or to be granted to him.

(3) Size of the ESOS

The aggregate number of shares over which the Remuneration Committee may grant options onany date, when added to the nominal amount of Shares issued and issuable in respect of alloptions granted under the ESOS shall not exceed fifteen per cent (15%) of the issued sharecapital of our Company on the day immediately preceding the date of the relevant grant.

Our Company believes that this fifteen per cent (15%) limit set by the SGX-ST gives our Companysufficient flexibility to decide the number of Option Shares to offer to its existing and newemployees. Fifteen per cent (15%) of the post-Invitation share capital of our Company constitutes19,948,305 Shares. As at the Latest Practicable Date, there are about 110 eligible participants ofthe ESOS. As it is intended that the Scheme shall last for ten (10) years, assuming that there isno change in the total issued share capital of our Company, the number of Options that may begranted in a year will average approximately 1,994,831. The number of eligible participants isexpected to grow over the years. Our Company, in line with its goals of ensuring sustainablegrowth, is constantly reviewing its position and considering the expansion of its talent pool whichmay involve employing new employees. The employee base, and thus the number of eligibleparticipants will increase as a result. If the number of Options available under the ESOS is limited,our Company may only be able to grant a small number of Options to each eligible participantwhich may not be a sufficiently attractive incentive. Our Company is of the opinion that it shouldhave sufficient number of Options to offer to new employees as well as to existing ones. Thenumber of Options offered must also be significant enough to serve as a meaningful reward forcontributions to our Group. However, it does not necessarily mean that the RemunerationCommittee will definitely issue Option Shares up to the prescribed limit. The RemunerationCommittee shall exercise its discretion in deciding the number of Option Shares to be granted toeach employee which will depend on the performance and value of the employee to our Group.

(4) Maximum entitlements

The aggregate number of Shares comprised in any options to be offered to a participant in ESOSshall be determined at the absolute discretion of the Remuneration Committee, who shall take intoaccount (where applicable) criteria such as rank, past performance, years of service, potential forfuture development of that participant.

(5) Options, exercise period and exercise price

The options that are granted under the ESOS may have exercise prices that are, at theRemuneration Committee’s discretion, set at a price (the “Market Price”) equal to the average ofthe last dealt prices for the Shares on the Official List of the SGX-ST for the five consecutivemarket days immediately preceding the relevant date of grant of the relevant option of a Share; orat a discount to the Market Price (subject to a maximum discount of 20%). Option which are fixedat the Market Price (“Market Price Option”) may be exercised after the 1st anniversary of the dateof grant of that option while options exercisable at a discount to the Market Price may be exercisedafter the 2nd anniversary from the date of grant of the option (“Incentive Option”). Options grantedunder the ESOS will have a life span of 10 years. In no circumstances shall the exercise price beless than the nominal value of a Share.

(6) Grant of options

Under the rules of the ESOS, there are no fixed periods for the grant of options. As such, offers ofthe grant of options may be made at any time from time to time at the discretion of theRemuneration Committee. However, no option shall be granted during the period of 30 daysimmediately preceding the date of announcement of our Company’s interim or final results (as thecase may be).

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In addition, in the event that an announcement on any matter of an exceptional nature involvingunpublished price sensitive information is imminent, offers may only be made after the secondmarket day from the date on which the aforesaid announcement is made.

(7) Termination of options

Special provisions in the rules of the ESOS deal with the lapse or earlier exercise of options incircumstances which include the termination of the participant’s employment in our Group, thebankruptcy of the participant, the death of the participant, a take-over of our Company; and thewinding-up of our Company.

(8) Acceptance of options

The grant of options shall be accepted within 30 days from the date of the offer. Offers of optionsmade to grantees, if not accepted before the closing date, will lapse. Upon acceptance of the offer,the grantee must pay our Company a consideration of S$1.00.

(9) Rights of shares arising

Shares arising from the exercise of options are subject to the provisions of the Memorandum ofAssociation and Articles of our Company. The Shares so allotted will upon issue rank pari passu inall respects with the then existing issued Shares, save for any dividend, rights, allotments ordistributions, the record date (“Record Date”) for which is prior to the relevant exercise date of theoption. “Record Date” means the date as at the close of business on which the shareholders mustbe registered in order to participate in any dividends rights, allotments or other distributions (as thecase may be).

(10) Duration of the ESOS

The ESOS shall continue in operation for a maximum duration of 10 years and may be continuedfor any further period thereafter with the approval of our shareholders by ordinary resolution ingeneral meeting and of any relevant authorities which may then be required.

(11) Abstention from voting

Shareholders who are eligible to participate in the ESOS are to abstain from voting on anyshareholders’ resolution relating to the ESOS.

Grant of options with a discounted exercise price

The ability to offer options to participants of the ESOS with exercise prices set at a discount to theprevailing market prices of the Shares will operate as a means to recognise the performance ofparticipants as well as to motivate them to continue to excel while encouraging them to focus more onimproving the profitability and return of our Group above a certain level which will benefit all shareholderswhen these are eventually reflected through share price appreciation. The ESOS will also serve to recruitnew group employees whose contributions are important to the long-term growth and profitability of ourGroup. Discounted Options would be perceived in a more positive light by the participants, inspiring themto work hard and produce results in order to be offered Options at a discount as only employees whohave made outstanding contributions to the success and development of our Group would be grantedOptions at a discount.

The flexibility to grant options with discounted prices is also intended to cater to situations where thestock market performance has overrun the general market conditions. In such events, the RemunerationCommittee will have absolute discretion to:-

(i) grant options set at a discount to Market Price of a share (subject to a maximum limit of 20%); and

(ii) determine the participants to whom, and the options to which, such reduction in exercise priceswill apply.

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In determining whether to give a discount and the quantum of the discount, the Remuneration Committeeshall be at liberty to take into consideration factors including the performance of our Company, ourGroup, the performance of the participant concerned, the contribution of the participant to the successand development of our Group and the prevailing market conditions.

At present, our Company foresees that options may be granted with a discount principally in the followingcircumstances:-

(a) Firstly, where it is considered more effective to reward and retain talented employees by way of adiscounted price option rather than a market price option. This is to reward the outstandingperformers who have contributed significantly to our Group’s performance and the discounted priceoption serves as additional incentives to such Group employees. Options granted by our Companyon the basis of market price may not be attractive and realistic in the event of an overly buoyantmarket and inflated share prices. Hence during such period the ability to offer such options at adiscount would allow our Company to grant options on a more realistic and economically feasiblebasis. Furthermore, options granted at a discount will give an opportunity to Group employees torealise some tangible benefits even if external events cause the share price to remain largelystatic.

(b) Secondly, where it is more meaningful and attractive to acknowledge a participant’s achievementsthrough a discounted price option rather than paying him a cash bonus. For example, optionsgranted at a discount may be used to compensate employees and to motivate them duringeconomic downturns when wages (including cash bonuses and annual wage supplements) arefrozen or cut, or they could be used to supplement cash rewards in lieu of larger cash bonuses orannual wage supplements. Accordingly, it is possible that merit-based cash bonuses or rewardsmay be combined with grants of market price options or discounted price options, as part ofeligible employees’ compensation packages. The ESOS will provide Group employees with anincentive to focus more on improving the profitability of our Group thereby enhancing shareholdervalue when these are eventually reflected through the price appreciation of the Shares after thevesting period.

(c) Thirdly, where due to speculative forces and having regard to the historical performance of theShare price, the market price of the Shares at the time of the grant of the options may not bereflective of financial performance indicators such as return on equity and/or earnings growth.

The Remuneration Committee will have the absolute discretion to grant options where the exercise priceis discounted, to determine the level of discount (subject to a maximum discount of twenty (20) per cent.of the Market Price) and the grantees to whom, and the options to which, such discount in the exerciseprice will apply provided that our Company’s shareholders in general meeting shall have authorised, in aseparate resolution, the making of offers and grants of options under the Scheme at a discount notexceeding the maximum discount as aforesaid.

In deciding whether to give a discount and the quantum of such discount (subject to the aforesaid limit),the Remuneration Committee will have regard to the financial and other performance of our Companyand our Group, the years of service and individual performance of the grantee, the contribution of thegrantee to the success and development of our Group and the prevailing market conditions.

Our Company may also grant options without any discount to the market price. Additionally, our Companymay, if it deems fit, impose conditions on the exercise of the options (whether such options are granted atthe market price or at a discount to the market price), such as restricting the number of shares for whichthe option may be exercised during the initial years following its vesting.

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Rationale for participation of executive and non-executive directors (including our IndependentDirectors) and employees of our Group and associated companies in the ESOS

The extension of the ESOS to executive and non-executive directors (including our Independent Directorsbut excluding controlling shareholders or their associates) and employees of our Group and associatedcompanies allows our Group to have a fair and equitable system to reward directors and employees whohave made and who continue to make significant contributions to the long-term growth of our Group.

We believe that the ESOS will also enable us to attract, retain and provide incentives to its participants toachieve higher standards of performance as well as encourage greater dedication and loyalty by enablingour Company to give recognition to past contributions and services as well as motivating participantsgenerally to contribute towards the long-term growth of our Group.

Rationale for participation of controlling shareholders and associates of controlling shareholdersin the ESOS

The purpose for the participation is to provide an opportunity for eligible directors and employees whoare controlling shareholders or associates of controlling shareholders who have contributed significantlyto the growth and performance of our Group to participate in the equity of our Company.

We acknowledge that the services and contributions of the eligible directors and employees who arecontrolling shareholders or associates of controlling shareholders are important to the development andsuccess of our Group. The extension of the ESOS to the eligible directors and employees who arecontrolling shareholders and/or their associates allows our Company to have a fair and equitable systemto reward the eligible directors and employees who have made and continue to make importantcontributions to the long-term growth of our Group notwithstanding that they are controlling shareholdersor their associates.

Although the controlling shareholders and/or their associates may already have shareholding interests inour Company, the extension of the ESOS to encompass them ensures that they are equally entitled, withthe other eligible directors and employees of our Group who are not controlling shareholders or theirassociates, to take part and benefit from this system of remuneration. We are of the view that a personwho would otherwise be eligible should not be excluded from participating in the ESOS solely for thereason that he/she is a controlling shareholder or an associate of a controlling shareholder.

Specific approval of the independent shareholders is required for the grant of options to such persons aswell as the actual number of and terms of such options. When it is proposed that options may be grantedunder the ESOS to eligible directors and employees who are controlling shareholders or associates ofcontrolling shareholders, in accordance with the Rules and the requirements under the Listing Manual ofthe SGX-ST, each such grant of options is subject to the approval of independent shareholders. Inseeking such independent shareholders’ approval, clear justification as to their participation, number ofScheme Shares and terms (including the subscription price) of options to be granted to the controllingshareholders and/or their associates shall be provided. Accordingly, we are of the view that there aresufficient safeguards against any abuse of the ESOS resulting from the participation of controllingshareholders and their associates.

Cost of Options granted under the ESOS to our Company

A new accounting standard, effective for financial periods beginning on or after 1 January 2005, requiresthe recognition of an expense in respect of Options granted under the ESOS. The expense will be basedon the fair value of the Options at the date of grant (as determined by an option-pricing model) and willbe recognised over the vesting period. But no expense will ultimately be recognised for any Optionsgranted that do not eventually vest (for example, through forfeiture). The requirement to recognise anexpense in respect of options granted to employees is set out in International Financial ReportingStandard (IFRS) No. 2, Share-based Payment, issued by the International Accounting Standards Boardin February 2004. The adoption of IFRS 2 in Singapore as FRS 102 was announced on 9 July 2004.

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The exercise price of the options will be determined at the time the options are granted. As and whenthe Options are exercised, the cash inflow will add to the net tangible assets of our Company and ourshare capital will grow. The impact of the issue and allotment of new Shares upon the exercise ofOptions on our net tangible asset per Share will be accretive if the Exercise Price is above the nettangible asset per Share, but dilutive otherwise. This impact however will materialise only if and when therelevant Options are actually exercised.

Measured against the cost of granting the Options as described above is the desirable effect of theScheme in attracting, recruiting, retaining and motivating directors and employees which could in the longterm yield greater returns for our Company and our Shareholders.

Details of the number of Options granted pursuant to the ESOS, the number of Options exercised andthe exercise price (as well as any applicable discounts) will be disclosed in our annual report.

We have made an application to the SGX-ST for permission to deal in and for quotation of the Shareswhich may be issued upon the exercise price of the Options to be granted under the ESOS. Theapproval of the SGX-ST is not to be taken as indication of the merits of our Company, our subsidiary, ourexisting issued Shares, the New Shares or the Option Shares.

Any Shareholder entitled to participate in the ESOS should abstain from voting at all general meetings inrespect of any ordinary resolutions relating to the ESOS and should not accept nominations as proxies orotherwise for voting at such general meetings in respect of the said ordinary resolutions.

INTERESTED PERSON TRANSACTIONS

In general, transactions between our Group and any of its interested persons (namely, the Directors, ourChief Executive Officer or Controlling Shareholders of our Company or the Associates of such Directors,Chief Executive Officer or Controlling Shareholders) are known as interested person transactions. Thefollowing discussion on material interested person transactions for the last three financial years and up tothe Latest Practicable Date, is based on the proforma Group and interested persons are construedaccordingly.

Past Interested Person Transaction

Loan by Blue Sky Environment Pte. Ltd. to our Group

Ms Bella (the wife of our Non-Executive Chairman, Mr Addyson Xue) owns 50% of the issued sharecapital of Alliance Capital Asia Pte. Ltd. (“ACA”). ACA, in turn, owns 75% of the issued share capital ofBlue Sky Environment Pte. Ltd. (“Blue Sky”). Both ACA and Blue Sky are companies incorporated inSingapore. Accordingly, transactions between our Group and Blue Sky are deemed to be interestedperson transactions.

Blue Sky extended an unsecured loan of US$700,000 in FY2003 (the “Loan”) to our Group to be used forgeneral working capital requirements. This loan was extended to our Group based on a willing buyer andwilling seller basis, was unsecured, is repayable on demand and bears an interest rate of 2% per annum.

From FY2003 up to the Latest Practicable Date, the largest amount outstanding under the Loan wasUS$700,000. As at 31 December 2004, the Loan has been fully repaid.

Save as disclosed under the section “Restructuring Exercise” on pages 63 and 64 of this Prospectus, wehave not entered into any interested person transactions in the last three financial years ended 31December 2003 and up to the Latest Practicable Date.

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REVIEW BY AUDIT COMMITTEE

All future interested person transactions will be properly documented and submitted to our AuditCommittee for periodic review to ensure that they are carried out at arm’s length basis, on normalcommercial terms which will not be prejudicial to the interests of our Shareholders.

Our Audit Committee will review all future interested person transactions, if any, on at least a half-yearlybasis to ensure that they are carried out at arm’s length and on normal commercial terms. The reviewprocedures shall be similar to those set out under “Corporate Governance - Audit Committee” on page105 of this Prospectus. In the event that a member of our Audit Committee is interested in any interestedperson transaction, he will abstain from reviewing that particular transaction. Furthermore, if during theseperiodic reviews, our Audit Committee believes that the guidelines and procedures as stated above arenot sufficient to ensure that interests of minority shareholders are not prejudiced, we will adopt newguidelines and procedures.

Our Audit Committee will also review all interested person transactions to ensure that the then prevailingrules and regulations of the SGX-ST (in particular Chapter 9 of the Listing Manual of the SGX-ST) arecomplied with. We will also endeavour to comply with the principles of and best practices set out in the“Best Practices Guide” of the Listing Manual of the SGX-ST and the Code of Corporate Governance.

POTENTIAL CONFLICTS OF INTEREST

Wuhan Electric was the controlling shareholder of Wuhan Kaidi Water prior to its divestment in February2003. Wuhan Electric had, on 28 September 2004, executed a Deed of Undertaking, under which itundertook that for as long as it is a shareholder of Wuhan Kaidi Water, the Wuhan Electric Group shallnot engage in any business which competes with to the businesses of Wuhan Kaidi Water and itssubsidiary in any area. Pursuant to the terms of the Deed of Undertaking, Wuhan Electric may, from timeto time, jointly undertake water treatment projects or enter into sub-contracting arrangements with WuhanKaidi Water.

Save as disclosed above: -

(a) None of our Directors, Executive Officers, substantial shareholders or any of their associates hashad any material interest, direct or indirect, in any transactions to which our Company was or is tobe a party;

(b) None of our Directors, Executive Officers, substantial shareholders or any of their associates hasany material interest, direct or indirect, in any company carrying on the same business or a similartrade which competes materially and directly with the existing business of our Group; and

(c) None of our Directors, Executive Officers, substantial shareholders or any of their associates hasany material interest, direct or indirect, in any company that is our customer or supplier of goodsand services.

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GENERAL AND STATUTORY INFORMATION

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS

1. None of our Directors, Executive Officers or Controlling Shareholders is or was involved in any ofthe following events:-

(i) during the last 10 years, a petition under any bankruptcy laws of any jurisdiction filed againsthim or against a partnership of which he was a partner;

(ii) during the last 10 years, a petition under any law of any jurisdiction filed against acorporation of which he was a director or key executive for the winding up of that corporationon the ground of insolvency;

(iiii) any unsatisfied judgements against him;

(iv) a conviction of any offence, in Singapore or elsewhere, involving fraud or dishonesty whichis punishable with imprisonment for three months or more, or any criminal proceedings(including any pending criminal proceedings which he is aware of) for such purpose;

(v) a conviction of any offence, in Singapore or elsewhere, involving a breach of any law orregulatory requirement that relates to the securities or futures industry in Singapore orelsewhere, or any criminal proceedings (including pending criminal proceedings which he isaware of) for such breach;

(vi) during the last ten years, judgement entered against him in any civil proceeding inSingapore or elsewhere involving a breach of any law or regulatory requirement that relatesto the securities or futures industry in Singapore or elsewhere, or a finding of fraud,misrepresentation or dishonesty on his part, or any civil proceedings (including any pendingcivil proceedings which he is aware of) involving an allegation of fraud, misrepresentation ordishonesty on his part;

(vii) a conviction in Singapore or elsewhere of any offence in connection with the formation ormanagement of any corporation;

(viii) disqualification from acting as a director of any corporation, or from taking part directly orindirectly in the management of any corporation;

(ix) the subject of any order, judgement or ruling of any court, tribunal or governmental bodypermanently or temporarily enjoining him from engaging in any type of business practice oractivity; and

(x) to his knowledge, been concerned with the management or conduct, in Singapore orelsewhere, of affairs of:

(a) any corporation which has been investigated for a breach of any law or regulatoryrequirement governing corporations in Singapore or elsewhere; or

(b) any corporation or partnership which has been investigated for a breach of any law orregulatory requirement that relates to the securities or futures industry in Singapore orelsewhere,

in connection with any matter occurring or arising during the period when he was soconcerned with the corporation or partnership.

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SHARE CAPITAL

2. Save as set out under the section “Share Capital” on pages 59 and 60 of this Prospectus andbelow, there were no changes in the issued and paid-up or registered capital of our Company, oursubsidiary and our associated company within the three years preceding the date of lodgement ofthis Prospectus.

The Company

Date of Number of Par Resultant issued issue shares issued value Consideration Purpose share capital

19 November 2000 2 S$1.00 S$2.00 Subscriber shares S$2

8 January 2003 5,699,324 S$1.00 S$5,699,324 Working capital S$5,699,326

10 September 2004 299,964 S$1.00 S$359,956.80 Allotment and S$5,999,290issue of shares to

Executive Directors

24 January 2005 32 S$1.00 S$38.40 Allotment and S$5,999,322 issue of shares to

ShareholdersWuhan Kaidi Water

Registered capital Resultant Date Purpose contributed registered capital

(RMB) (RMB)

14 November 2003 Registered capital contribution 5,000,000 25,000,000

9 June 2004 Registered capital contribution 40,000 25,040,000

Wuhan Hanxi

Registered capital Resultant Date Purpose contributed registered capital

(RMB) (RMB)

18 July 2004 Registered capital contribution 20,000,000 20,000,000

LITIGATION

3. Our Company is not engaged in any legal or arbitration proceedings in the last 12 months beforethe date of the lodgement, as plaintiff or defendant in respect of any claims or amounts which arematerial in the context of the Invitation and our Directors have no knowledge of any proceedingspending or threatened against our Company or any facts likely to give rise to any litigation, claimsor proceedings which might materially affect the financial position or the business of our Company.

MANAGEMENT AND UNDERWRITING AND PLACEMENT ARRANGEMENTS

4. (a) Pursuant to the management and underwriting agreement (“Management and UnderwritingAgreement”) dated 23 February 2005, our Company appointed the Manager to manage theInvitation, and Westcomb Securities Pte Ltd as the Underwriter to underwrite the OfferShares. The Manager will receive a management fee from our Company for its servicesrendered in connection with the Invitation.

(b) Pursuant to the Management and Underwriting Agreement, the Underwriter agreed tounderwrite the Offer Shares for a commission of 2.75% of the Issue Price for each OfferShare, payable by our Company for subscribing or for procuring subscriptions for any OfferShares not subscribed for pursuant to the Invitation and will pay or procure payment to ourCompany for such Shares.

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(c) Pursuant to the placement agreement (“Placement Agreement”) dated 23 February 2005,the Placement Agent agreed to subscribe and/or procure subscriptions for the PlacementShares for a placement commission of 3.0% of the Issue Price for each Placement Share,payable by our Company.

Subscribers of Placement Shares may be required to pay brokerage of up to 1.0% of theIssue Price to the Placement.

(d) Brokerage will be paid by our Company to members of the Exchange, merchant banks andmembers of the Association of Banks in Singapore in respect of accepted applications madeon Application Forms bearing their respective stamps, or to Participating Banks in respect ofsuccessful applications made through Electronic Applications at the rate of 0.25% of theIssue Price for each Offer Share.

(e) Subscribers of Placement Shares may be required to pay a placement commission of up to1.0 per cent. of the Issue Price for each Placement Share to the Placement Agent.

(f) Save as aforesaid, no commission, discount or brokerage, has been paid or other specialterms granted within the two years preceding the Latest Practicable Date or is payable toany Director, promoter, expert, proposed Director or any other person for subscribing oragreeing to subscribe or procuring or agreeing to subscribe or procure subscriptions for anyshares or debentures in our Company.

(g) The Management and Underwriting Agreement may be terminated by the Manager at anytime before the close of the Application List on the occurrence of certain events including,inter alia:-

(i) any change or any development involving a prospective change or any crisis in local,national or international, financial (including the stock market, foreign exchangemarket, inter-bank market or interest rates or money market, political, industrial,economic, legal or monetary conditions, taxation or exchange controls); or

(ii) the issue of a stop order by the Authority in accordance with Section 242 of theSingapore Securities and Futures Act; or

(iii) which event or events shall in the opinion of the Manager (exercised in good faith) (1)result or be likely to result in a material adverse fluctuation or adverse conditions inthe stock market in Singapore or elsewhere or (2) be likely to prejudice the success ofthe offer, subscription or sale of the Invitation Shares (whether in the primary marketor in respect of dealings in the secondary market) or (3) make it impracticable,inadvisable, inexpedient or uncommercial to proceed with any of the transactionscontemplated in this Agreement or (4) be likely to have an adverse effect on thebusiness, trading position, operations or prospects of the Company or of the Group asa whole or (5) be such that no reasonable underwriter would have entered into thisAgreement or (6) make it uncommercial or otherwise contrary to or outside the usualcommercial practices of underwriting in Singapore for the Underwriter to observe orperform or be obliged to observe or perform the terms of the Management andUnderwriting Agreement.

In the event that the Placement Agent does not receive subscriptions and payments for 80%of the Placement Shares by 6.00 p.m. on 28 February 2005 (or such other date as may bedecided by the Manager), the Underwriter may terminate the Management and UnderwritingAgreement.

(h) The Placement Agreement is conditional upon the Management and UnderwritingAgreement not having been terminated or rescinded pursuant to the provisions of theManagement and Underwriting Agreement and may be terminated on the occurrence ofcertain events, including those specified in paragraph 4 (g) above. In the event that thePlacement Agent does not receive subscriptions and payments for 80% of the PlacementShares by 6.00 p.m. on 28 February 2005 (or such other date as may be decided by theManager), the Placement Agent shall be entitled to terminate the Placement Agreement.

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5. Our Public Relations Consultant for the Invitation, Quattro Media Pte Ltd, is a subsidiary ofWestcomb Financial Group Limited. Westcomb Capital Pte Ltd (our Manager) and WestcombSecurities Pte Ltd (our Placement Agent and Underwriter) are also subsidiaries of WestcombFinancial Group Limited.

6. Save as disclosed above, we do not have any material relationship with any of the Manager,Underwriter or Placement Agent.

EXPENSES

7. The estimated amount of expenses of the Invitation and of the application for listing, includingmanagement fee, professional fees to independent auditors and solicitors to the Invitation and allother incidental expenses in relation to this Invitation is approximately S$2.05 million, which will beborne by us. The underwriting and placement commission and brokerage fees will be borne by us.A breakdown of these estimated expenses is as follows:-

S$’000

Listing fees 10

Professional fees 1,580

Underwriting commission, placement commission and brokerage 272

Miscellaneous expenses 190

Total estimated expenses of the Invitation 2,052

MATERIAL CONTRACTS

8. The following contracts not being contracts entered into in the ordinary course of business havebeen entered into by our Company and our subsidiary within the two years preceding the date oflodgement of this Prospectus and are or may be material:-

(i) Sale and purchase agreement dated 18 February 2003 between Wuhan Huantai and ourCompany, pursuant to which our Company acquired a 90% shareholding interest in WuhanKaidi Water, for a total cash consideration of RMB 19,800,000, based on the registeredcapital of Wuhan Kaidi Water as at 18 February 2003;

(ii) Patent Transfer Agreements dated 8 October 2003 between Wuhan Kaidi Water and WuhanElectric, further details of which are set out under the section “Intellectual Property” on page85 of this Prospectus;

(iii) Trademark Licence Agreement dated 16 September 2003 between Wuhan Kaidi Water andWuhan Electric, further details of which are set out under the section “Intellectual Property”on pages 85 and 86 of this Prospectus;

(iv) Acquisition and Merger Agreement dated 31 March 2004 between Wuhan Kaidi Water andWuhan Kaidi Measure & Control, further details of which are set out under the section“Restructuring Exercise” on page 63 of this Prospectus;

(v) Share transfer agreement dated 18 May 2004 between our Company, Wuhan Huantai andWuhan Electric, further details of which are set out under the section “RestructuringExercise” on page 63 of this Prospectus;

(vi) Joint venture agreement dated 28 April 2004 between our Company, Wuhan Electric, WuhanUrban Waste Water and Wuhan Gelin, pursuant to which Wuhan Hanxi was established forthe investment, construction, operation, maintenance and management of the Hanxi Project,further details of which are set out under the section “Future Plans” on pages 92 to 93 ofthis Prospectus; and

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(vii) Deed of Undertaking dated 28 September 2004 executed by Wuhan Electric, further detailsof which are set out under the section “Potential Conflicts of Interest” on page 112 of thisProspectus.

MISCELLANEOUS

9. No expert is employed on a contingent basis by our Group, has a material interest, whether director indirect, in the Shares of our Group, or has a material economic interest, whether direct orindirect, in the Company, including an interest in the success of the Invitation.

10. There was no public take-over offer, by a third party in respect of the Company’s Shares or by theCompany in respect of the shares of another corporation, during FY2003 and up to the LatestPracticable Date.

11. The Directors are not aware of any event which has occurred since 30 June 2004, which may havea material effect on the proforma consolidated financial information set out in Appendix A of theProspectus.

CONSENTS

12. The Auditors and Reporting Accountants have given and have not withdrawn their written consentto the issue of this Prospectus with the inclusion herein of the Report on Examination of ProformaConsolidated Financial Information for FY2001, FY2002, FY2003 and 6 months ended 30 June2004 (as set out in Appendix B of this Prospectus), the Auditors’ Report on the Audited FinancialStatements of Asia Water Technology Private Limited and Subsidiaries for the Financial Periodfrom the Date of Incorporation, 19 November 2002 to 31 December 2003 (as set out in AppendixC of this Prospectus), the Auditors’ Report on the Audited Financial Statements of Asia WaterTechnology Private Limited and Subsidiary for the Financial Period From 1 January 2004 to 30June 2004 (as set out in Appendix D of this Prospectus), the Auditors’ Report on the Re-statedFinancial Statements of Wuhan Kaidi Water Services Co., Ltd. (formerly known as Wuhan KaidiPower Chemistry Co., Ltd.) for the Financial Years Ended 31 December 2001 and 2002 (as set outin Appendix E of this Prospectus), the Auditors’ Report on the Re-stated Financial Statements ofWuhan Kaidi Measure & Control Engineering Co., Ltd. for the Financial Years Ended 31 December2001 and 2002 (as set out in Appendix H of this Prospectus) and their name and referencesthereto, in the form and context in which they appear in this Prospectus and to act in such capacityin relation to this Prospectus.

13. Zhong Huan Certified Public Accountants has given and hasnot withdrawn its written consent to the issue of this Prospectus with the inclusion herein of theAuditors’ Report on the Audited Financial Statements of Wuhan Kaidi Water Services Co., Ltd.(formerly known as Wuhan Kaidi Power Chemistry Co., Ltd.) for the Financial Years Ended 31December 2001 and 2002 (as set out in Appendix G of this Prospectus), the Auditors’ Report onthe Audited Financial Statements of Wuhan Kaidi Measure & Control Engineering Co., Ltd. for theFinancial Years Ended 31 December 2001 and 2002 (as set out in Appendix J of this Prospectus)and its name and references thereto, in the form and context in which they appear in theProspectus.

14. Each of the Manager, the Placement Agent and the Underwriter, the Solicitors to the Invitation, theLegal Advisers to our Company as to PRC Law, the Share Registrar and the Receiving Banker donot make, or purport to make, any statement in this Prospectus or any statement upon which astatement in this Prospectus is based and, to the maximum extent permitted by law, expresslydisclaim and take no responsibility for any liability to any person which is based on, or arises outof, the statements, information or opinions in this Prospectus.

( )

117

DOCUMENTS AVAILABLE FOR INSPECTION

15. Copies of the following documents may be inspected at the office of 16 Collyer Quay #26-03Hitachi Tower Singapore 049318 during normal business hours for a period of six months from thedate of registration of this Prospectus:-

(i) the Memorandum and Articles of Association of our Company;

(ii) the Proforma Consolidated Financial Information for FY2001, FY2002, FY2003 and 6Months Ended 30 June 2004 as set out in Appendix A of this Prospectus;

(iii) the Report on Examination of Proforma Consolidated Financial Information for FY2001,FY2002, FY2003 and 6 Months Ended 30 June 2004 as set out in Appendix B of thisProspectus;

(iv) the Auditors’ Report and Audited Financial Statements of Asia Water Technology PrivateLimited and Subsidiaries for the Financial Period from the Date of Incorporation, 19November 2002 to 31 December 2003 as set out in Appendix C of this Prospectus;

(v) the Auditors’ Report and Audited Financial Statements of Asia Water Technology PrivateLimited and Subsidiary for the Financial Period From 1 January 2004 to 30 June 2004 (asset out in Appendix D of this Prospectus);

(vi) the Auditors’ Report and Re-stated Financial Statements of Wuhan Kaidi Water ServicesCo., Ltd. (formerly known as Wuhan Kaidi Power Chemistry Co., Ltd.) for the Financial YearsEnded 31 December 2001 and 2002, as set out in Appendix E of this Prospectus;

(vii) the English translation of the Auditors’ Report on the Audited Financial Statements of WuhanKaidi Water Services Co., Ltd. (formerly known as Wuhan Kaidi Power Chemistry Co., Ltd.)for the Financial Years Ended 31 December 2001 and 2002, as set out in Appendix F of thisProspectus;

(viii) the Auditors’ Report on the Audited Financial Statements of Wuhan Kaidi Water ServicesCo., Ltd. (formerly known as Wuhan Kaidi Power Chemistry Co., Ltd.) for the Financial YearsEnded 31 December 2001 and 2002, as set out in Appendix G of this Prospectus;

(ix) the Auditors’ Report and Re-stated Financial Statements of Wuhan Kaidi Measure & ControlEngineering Co., Ltd. for the Financial Years Ended 31 December 2001 and 2002, as set outin Appendix H of this Prospectus;

(x) the English translation of the Auditors’ Report on the Audited Financial Statements of WuhanKaidi Measure & Control Engineering Co., Ltd. for the Financial Years Ended 31 December2001 and 2002, as set out in Appendix I of this Prospectus;

(xi) the Auditors’ Report on the Audited Financial Statements of Wuhan Kaidi Measure & ControlEngineering Co., Ltd. for the Financial Years Ended 31 December 2001 and 2002, as set outin Appendix J of this Prospectus;

(xii) the material contracts referred to on pages 116 and 117 of this Prospectus;

(xiii) the letters of consent referred to in on page 117 of this Prospectus; and

(xiv) the Service Agreements referred to on pages 102 and 103 of this Prospectus.

118

STATEMENT BY OUR DIRECTORS

16. This Prospectus has been seen and approved by our Directors and they collectively andindividually accept the full responsibility for the accuracy of the information given in this Prospectusand confirm, having made all reasonable enquires, that to the best of their knowledge and belief,that the facts stated and the opinions expressed herein are fair and accurate in all materialrespects as of the date hereof and there are no other facts the omission of which would make anystatements herein misleading, and that this Prospectus constitutes full and true disclosure of allmaterial facts about the Invitation and our Group.

STATEMENT BY THE MANAGER

17. The Manager acknowledges that, having made due and careful enquiry and to the best of itsknowledge and belief, based on information furnished to it by our Group, this Prospectusconstitutes full and true disclosures of all the material facts about the Invitation, our Company, oursubsidiary and our associated company and it is not aware of any other facts, the omission ofwhich would make any statements herein misleading.

119

APPENDIX A

PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR FY2001,FY2002, FY2003 AND 6 MONTHS ENDED 30 JUNE 2004

A.1 THE PROFORMA GROUP

The Company was incorporated in the Republic of Singapore on 19 November 2002 as a privatelimited company under the name of Primehub Pte Ltd. On 6 February 2003, the Companychanged its name to Asia Water Services Pte. Ltd. and subsequently on 1 December 2003 to AsiaWater Technology Private Limited. On 31 January 2005, the Company was converted into a publiclimited company and changed its name to Asia Water Technology Ltd..

The principal activity of the Company is that of investment holding. During the financial year ended31 December 2004, the Company has commenced the trading of equipment for wastewatertreatment and water purification treatment systems with a subsidiary as well as third parties.

At the date of this report, the Proforma Group comprises the Company and the followingsubsidiary and associated company:

Effectiveequity

interestPlace and Registered/ held by the

date of paid-in Proforma Name of company incorporation capital Group Principal activities

RMB’000 %Subsidiary

Wuhan Kaidi Water People’s 25,040 90.4 – Procurement, installation and Services Co., Ltd. Republic commissioning of standard(“Wuhan Kaidi Water”) of China equipment for industrial and

18 April 1996 municipal wastewater treatment systems

– Procurement of equipment, installation and commissioning of water purification systems

– Design and implementation of automated control systems

Associated company

Wuhan Hanxi Waste People’s 20,000 43.0 Wastewater treatment Water Treatment Co., Republic Ltd. (“Wuhan Hanxi”) of China

20 July 2004

As at the date of this report, Wuhan Hanxi has not commenced operations and no auditedfinancial statements have been prepared since its date of incorporation.

No audited financial statements of the Company and its subsidiary, Wuhan Kaidi Water have beenprepared for any period subsequent to 30 June 2004.

A-1

A.2 BASIS OF PRESENTATION OF PROFORMA CONSOLIDATED FINANCIAL INFORMATION

The financial information set out in this report has been prepared for illustrative purposes only. Ithas been prepared based on certain assumptions and after making certain adjustments to showwhat the financial results, changes in equity and cash flows of the Group would have been had theProforma Group structure been in place throughout the financial years and periods covered by thisreport and what the financial positions of the Group as at 31 December 2003 and 30 June 2004would have been if the Group structure at the date of lodgement of the Prospectus had been inplace on those date.

The proforma consolidated financial information of the Group for the financial years/period underreview comprises the financial statements of the Company and the following subsidiaries:

EffectiveRegistered/ interest

Place and paid-in held by the Principal activities during thedate of capital as of Proforma financial years/period under

Name of company incorporation 30 June 2004 Group reviewRMB’000 %

Subsidiary

Wuhan Kaidi Water People’s 25,040 90.4 – Procurement, installation andServices Co., Ltd. Republic commissioning of standard(“Wuhan Kaidi Water”) of China equipment for industrial and

18 April 1996 municipal wastewater treatment systems

– Procurement of equipment, installation and commissioningof water purification systems

Held by subsidiary

Wuhan Kaidi Measure People’s Not 90.4 Design and implementation of& Control Engineering Republic applicable automated control systems Co., Ltd. of China (See (“Wuhan Kaidi Measure 13 June 1997 Note A) & Control”) (amalgamated

with Wuhan Kaidi Water )

Note A: During the financial period ended 30 June 2004, Wuhan Kaidi Water acquired the remaining 2% interest in WuhanKaidi Measure & Control. The purchase consideration was based on the paid-in capital of RMB 2 millionaccording to the PRC audited financial statements of Wuhan Kaidi Measure & Control as at 31 December 2003.The purchase consideration of RMB 40,000 was satisfied via an increase in paid-in capital of Wuhan Kaidi Waterof the same amount. Wuhan Kaidi Measure & Control was then dissolved and its assets and liabilities (includingits automated control systems business) were amalgamated with Wuhan Kaidi Water. The RMB 40,000 paid-incapital was then transferred back to the Company and the minority shareholder of Wuhan Kaidi Water based ontheir original shareholding percentage in Wuhan Kaidi Water for a total cash consideration of RMB 176,000. Forthe purposes of the preparation of the proforma consolidated financial information, the Proforma Group’s interestin Wuhan Kaidi Measure & Control is assumed to be 90.4% since 1 January 2001.

The audited financial statements of the Company and its subsidiaries for the financial period fromthe date of incorporation, 19 November 2002 to 31 December 2003 and the period from 1January 2004 to 30 June 2004, were prepared in accordance with Singapore Financial ReportingStandards and were audited by Ernst & Young, Certified Public Accountants of Singapore,registered under the Accountants Act.

A-2

A.2 BASIS OF PRESENTATION OF PROFORMA CONSOLIDATED FINANCIAL INFORMATION(cont’d)

The statutory financial statements of the subsidiaries incorporated in the People’s Republic ofChina (“PRC”) were prepared under applicable accounting regulations in the PRC for PRCreporting purposes and were audited by Wuhan Zhong Huan Certified Public Accounting Firm Co.,Ltd for the financial years ended 31 December 2001 and 2002 and Beijing Jing Du Certified PublicAccountants Co., Ltd for the financial year ended 31 December 2003 respectively. Wuhan ZhongHuan and Beijing Jing Du are Certified Public Accountants in the PRC.

The auditors’ reports on the audited financial statements of the companies in the Proforma Groupfor the financial years/period covered by this report were not qualified.

The unaudited proforma consolidated financial information for the period from 1 January 2004 toJune 2004 has been prepared based on the audited financial statements of the Company and itssubsidiary, prepared in accordance with Singapore Financial Reporting Standards and audited byErnst & Young, Singapore. The proforma figures for the financial period ended 30 June 2003 arebased on the management accounts of the Company and the subsidiaries in the Proforma Groupand they have not been reviewed or audited and are presented for comparative purposes only.

In arriving at the Proforma Group financial information, adjustments have been made asconsidered necessary and the financial statements of the PRC subsidiaries have been re-statedand re-presented in order to present the financial information on a consistent and comparablebasis in accordance with Singapore Financial Reporting Standards (“FRS”).

The proforma consolidated financial information has been prepared in accordance with theaccounting policies of the Proforma Group set out in section A.8 and in accordance with FRS.

In arriving at the proforma consolidated financial information, adjustments have been made asconsidered necessary in order to present the financial information on a consistent and comparablebasis, including adjustments to reflect the investment of the Company in its subsidiaries as if thetransfers of assets and liabilities to Wuhan Kaidi Electric Power Co., Ltd as detailed in A.8.8 havebeen effected and accordingly, that the Proforma Group at the date of lodgement of theProspectus had been in place since 1 January 2001.

The proforma financial information is prepared for illustrative purposes only. The objective is toshow what the historical financial information might have been had the Proforma Group existed atan earlier date. However, the financial information of the Proforma Group, by its nature may notgive a true picture of the Group’s actual financial position and results and is not necessarilyindicative of the results of the operations or the related effects on the financial position that wouldhave been attained had the abovementioned Proforma Group existed earlier.

A-3

A.3 PROFORMA GROUP STATEMENTS OF PROFIT AND LOSS

The financial results of the Proforma Group after making such adjustments as consideredappropriate are set out below:

6 months endedYear ended 31 December 30 June

Note 2001 2002 2003 2003 2004RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue A.8.3 47,033 80,830 159,960 76,235 86,445

Cost of sales (39,740) (68,763) (117,677) (55,991) (68,395)

Gross profit 7,293 12,067 42,283 20,244 18,050

Other operating income A.8.4 131 1,162 – – –Selling and distribution expenses (3,782) (5,184) (10,106) (3,641) (3,953)

Administrative expenses (3,787) (3,617) (9,899) (3,901) (8,182)

(Loss) profit from operations A.8.5 (145) 4,428 22,278 12,702 5,915

Financial income A.8.7 43 71 107 81 125Financial expenses A.8.7 (1,312) (27) (115) (29) (235)

(Loss) profit before tax (1,414) 4,472 22,270 12,754 5,805Tax A.8.9 (482) (2,088) (1,441) (824) (363)

(Loss) profit after tax (1,896) 2,384 20,829 11,930 5,442Minority interests 167 (624) (2,054) (1,194) (655)

Net (loss) profit attributable toshareholders (1,729) 1,760 18,775 10,736 4,787

(Loss) earnings per share * (cents) (1.73) 1.76 18.78 10.74 4.79

* (Loss) earnings per share has been computed based on net (loss) profit for the year/period and the pre-Invitation sharecapital of 99,988,700 shares.

The accounting policies and explanatory notes form an integral part of the financial information.

A-4

A.4 PROFORMA GROUP BALANCE SHEETS

The balance sheets of the Proforma Group as at 31 December 2003 and 30 June 2004 as set outbelow have been prepared on the basis that the Proforma Group structure at the date oflodgement of the Prospectus had been in place on those dates.

As at31 December As at 30 June

Note 2003 2004RMB’000 RMB’000

Non-current assets

Fixed assets A.8.10 2,110 2,647Goodwill on consolidation A.8.11 6,425 5,705

Current assets

Inventories (material and components) less provision for stock obsolescence of RMB Nil 2,583 3,020

Work-in-progress in excess of progress billings A.8.12 76,900 101,094Trade receivables A.8.13 30,049 54,498Bills receivables A.8.14 300 1,026Other receivables, deposits and prepayments A.8.15 9,973 27,065Due from related parties (trade) 11,340 30,850Due from related parties (non-trade) A.8.16 5,827 868Cash and bank balances A.8.17 43,724 24,131

180,696 242,552

Current liabilities

Trade payables 19,732 20,485Other payables and accruals A.8.18 33,510 53,085Progress billings in excess of work-in-progress A.8.19 5,495 11,333Due to related parties (trade) 55,755 90,418Due to related parties (non-trade) A.8.20 3,945 5,270Loan from a related party A.8.21 5,796 413Bills payable to banks (secured) A.8.17 21,144 17,331Short-term bank loans A.8.22 5,000 10,000Provision for income tax 973 339

151,350 208,674

Net current assets 29,346 33,878

Net assets 37,881 42,230

Proforma shareholders’ equity 34,929 39,512Minority interests 2,952 2,718

37,881 42,230


A-5

A.5 CONSOLIDATED STATEMENTS OF CHANGES IN PROFORMA SHAREHOLDERS’ EQUITY

The movements in proforma shareholders’ equity of the Group for the years ended 31 December2001, 2002 and 2003 are as follows:

Total(2)

RMB’000

Balance at 1 January 2001 –Net loss for the year (1,729)

Balance at 31 December 2001 (1,729)Net profit for the year 1,760Dividends, net (A.8.26) (8,802)

Balance as at 31 December 2002 (8,771)Issue of shares for cash during the year 27,270 (1)

Net profit for the year 18,775Dividends, net (Note A.8.26) (9,385)Foreign currency translation adjustment (557)Adjustment against reserves 7,597 (3)

Balance at 31 December 2003 34,929

The movements in proforma shareholders’ equity of the Group for the 6 months ended 30 June2003 and 2004 are as follows:

Total(2)

RMB’000

Balance as at 1 January 2003 (8,771)Issue of shares for cash during the period 27,270 (1)

Net profit for the period 10,736Foreign currency translation adjustment (574)

Balance at 30 June 2003 28,661

Balance as at 1 January 2004 34,929Net profit for the period 4,787Adjustment against reserves (82) (3)

Foreign currency translation adjustment (122)

Balance at 30 June 2004 39,512

A-6

A.5 CONSOLIDATED STATEMENTS OF CHANGES IN PROFORMA SHAREHOLDERS’ EQUITY(cont’d)

(1) The Company was incorporated on 19 November 2002 with an authorised share capital of S$500,000 consisting of500,000 ordinary shares of S$1 each. Upon incorporation, 2 initial subscriber shares were issued at par. During thefinancial period ended 31 December 2003, the Company increased its authorised share capital to S$10,000,000comprising 10,000,000 shares of S$1 each. The Company subsequently issued 5,699,324 ordinary shares of S$1each at par for cash (resultant issued share capital is equivalent to RMB 27,270,000), to provide additional workingcapital and to fund the acquisition of the subsidiaries pursuant to the restructuring exercise. These shares rank paripassu in all respects with the 2 initial subscriber shares of the Company. The holders of ordinary shares are entitledto receive dividends as and when declared by the Company. All ordinary shares carry one vote per share withoutrestriction.

(2) Included in proforma shareholders’ equity are general reserves. In accordance with the relevant laws and regulationsof the People’s Republic of China (“PRC”), companies in the PRC are required to set up a general reserve fund byway of appropriation from its statutory net profit at a rate of 10% for each year. The fund may be used to offsetaccumulated losses or increase the registered capital of the subsidiaries, subject to approval from the PRCauthorities. The appropriation is required until the statutory reserve reaches 50% of the registered capital. Thisstatutory reserve is not available for dividend appropriation to the shareholders.

(3) This relates to adjustment made to accumulated profits arising from (a) the difference between the net tangibleassets of the subsidiaries acquired by the Company on 18 February 2003, the effective date that control of thesubsidiaries passed to the Company, and that as of 1 January 2001, the date on which the Proforma Group isassumed to be in place for the purposes of the preparation of the proforma consolidated financial information; and (b)differences in net tangible assets of the subsidiaries acquired as a result of adjustments made to re-state thefinancial statements to Singapore Financial Reporting Standards whereas purchase consideration was based on thePRC audited financial statements of the subsidiaries.


A-7

A.6 STATEMENTS OF ADJUSTMENTS

The following adjustments have been made to the restated/audited/unaudited accounts of thecompanies in the Proforma Group for the respective financial years/ periods covered by this reportin arriving at the Proforma Consolidated Financial Information:

Proforma Group Statements of Profit and Loss

Summationof restatedfinancial

statements ofWuhan Kaidi Proforma

Water and GroupWuhan Kaidi statementMeasure & of profit

Year ended 31 December 2001 Control Adjustments and lossRMB’000 RMB’000 RMB’000

Revenue 52,772 (5,739) (1) 47,033

Cost of sales (45,321) 5,581 (1) (39,740)

Gross profit 7,451 7,293

Other operating income 131 131Selling and distribution expenses (3,782) (3,782)Administrative expenses (3,787) (3,787)

Profit (loss) from operations 13 (145)Financial income 43 43Financial expenses (1,312) (1,312)

Loss before tax (1,256) (1,414)Tax (482) (482)

Loss after tax (1,738) (1,896)Minority interests – 167 (2) 167

Net loss attributable to shareholders (1,738) (1,729)

A-8

A.6 STATEMENTS OF ADJUSTMENTS (cont’d)


Summationof restatedfinancial

statements ofWuhan Kaidi Proforma

Water and GroupWuhan Kaidi statementMeasure & of profit

Year ended 31 December 2002 Control Adjustments and lossRMB’000 RMB’000 RMB’000

Revenue 92,060 (11,230) (1) 80,830

Cost of sales (77,348) 8,585 (1) (68,763)


Other operating income 2,629 (1,467) (1) 1,162Selling and distribution expenses (5,184) (5,184)Administrative expenses (3,617) (3,617)Other operating expenses (299) 299 (6) –

Profit from operations 8,241 4,428Financial income 71 71Financial expenses (27) (27)

Profit before tax 8,285 4,472Tax (2,088) (2,088)

Profit after tax 6,197 2,384Minority interests – (624) (2) (624)

Net profit attributable to shareholders 6,197 1,760

A-9



Auditedconsolidated

financialstatements Proforma

of Asia Water GroupTechnology statement

Private Limited of profitYear ended 31 December 2003 and Subsidiaries Adjustments and loss

RMB’000 RMB’000 RMB’000

Revenue 153,018 6,942 (3) 159,960

Cost of sales (112,587) (5,090) (3) (117,677)


Selling and distribution expenses (8,950) (1,156) (3) (10,106)Administrative expenses (10,443) (735) (3) (9,899)

1,279 (4)

Profit from operations 21,038 22,278Financial income 100 7 (3) 107Financial expenses (109) (6) (3) (115)

Profit before tax 21,029 22,270Tax (1,441) (1,441)

Profit after tax 19,588 20,829Minority interests (2,139) 85 (5) (2,054)


A-10



Unauditedconsolidated



Private Limited of profitSix months ended 30 June 2003 and Subsidiaries Adjustments and loss

RMB’000 RMB’000 RMB’000

Revenue 69,293 6,942 (3) 76,235

Cost of sales (50,901) (5,090) (3) (55,991)


Selling and distribution expenses (2,485) (1,156) (3) (3,641)Administrative expenses (3,674) (735) (3) (3,901)

508 (4)

Profit from operations 12,233 12,702Financial income 74 7 (3) 81Financial expenses (23) (6) (3) (29)

Profit before tax 12,284 12,754Tax (824) (824)

Profit after tax 11,460 11,930Minority interests (1,240) 46 (5) (1,194)


A-11



Auditedconsolidated



Private Limited of profitSix months ended 30 June 2004 and Subsidiary Adjustments and loss

RMB’000 RMB’000 RMB’000

Revenue 86,445 86,445

Cost of sales (68,395) (68,395)


Selling and distribution expenses (3,953) (3,953)Administrative expenses (8,182) (8,182)

Profit from operations 5,915 5,915Financial income 125 125Financial expenses (235) (235)

Profit before tax 5,805 5,805Tax (363) (363)

Profit after tax 5,442 5,442Minority interests (649) (6)(5) (655)


A-12


Details of the adjustments made to the audited and unaudited financial statements of thecompanies in the Proforma Group for the respective financial years and periods in arriving at theProforma Group statements of profit and loss are as follows:

6 months endedFY2001 FY2002 FY2003 Jun 2003 Jun 2004

Note Description Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr)RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(1) Elimination of intercompany transactions– revenue 5,739 11,230 – – –– cost of sales (5,581) (8,585) – – –– other operating income – 1,467 – – –

(2) Minority interests’ share of subsidiaries’ results (167) 624 – – –

(3) Adjustment to the pre-acquisition results of subsidiaries as reflected in the statutory financial statements on the basis that the Proforma Group is in place as of 1 January 2001– revenue – – (6,942) (6,942) –– cost of sales – – 5,090 5,090 –– selling and distribution

expenses – – 1,156 1,156 –– administrative expenses – – 735 735 –– financial income – – (7) (7) –– financial expenses – – 6 6 –

(4) Adjustment to the amortisation of goodwill on consolidation on the basis that the Proforma Group is in place as of 1 January 2001 – – (1,279) (508) –

(5) Adjustment to the minority interests’ share of subsidiaries’results on the basis that the Proforma Group is in place as of 1 January 2001 – – (85) (46) 6

(6) Reversal of loss on disposal ofinvestment in unquoted investee companies on the basis that the Proforma Group is in place as of 1 January 2001 – (299) – – –

A-13


Proforma Group Balance Sheet as of 31 December 2003

Auditedconsolidated

financialstatements

of Asia Water ProformaTechnology Group

Private Limited balanceAs at 31 December 2003 and Subsidiaries Adjustments sheet

RMB’000 RMB’000 RMB’000

Shareholders’ equity 34,844 85 (1) 34,929

Minority interests 3,037 (85) (1) 2,952

37,881 37,881

31 December2003

Note Description Dr/(Cr)RMB’000

(1) Adjustment to proforma shareholders’ equity arising from the Proforma Group’s interest in Wuhan Kaidi Measure & Control being assumed at 90.4% since 1 January 2001 (85)

As the Proforma Group was in place as of 30 June 2004, there is no difference between theProforma Group’s balance sheet and the audited consolidated balance sheet of Asia WaterTechnology Private Limited and its subsidiary. Accordingly, no reconciliation of the ProformaGroup’s balance sheet to the audited consolidated balance sheet of Asia Water Technology PrivateLimited and its subsidiary as at 30 June 2004 is required.


A-14

A.7 PROFORMA CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended31

December 6 months ended2003 June 2003 June 2004

RMB’000 RMB’000 RMB’000

Cash flows from operating activitiesProfit before tax 22,270 12,754 5,805Adjustments:Amortisation of goodwill on consolidation – – 770Depreciation of fixed assets 476 216 282Inventories written off 95 16 – Provision for doubtful trade debts 398 – 655Provision for doubtful non-trade debts (related parties) 14 – –

Provision for doubtful non-trade debts 212 – 66Interest expense 115 29 235Interest income (107) (81) (125)Translation difference (554) (574) (122)

Operating profit before working capital changes 22,919 12,360 7,566Decrease (increase) in:Inventories 1,695 (3,389) (437)Work-in-progress, net (57,226) (25,219) (18,356)Trade receivables (20,432) (14,379) (25,104)Bills receivables 700 367 (726)Other receivables, deposits and prepayments (6,602) (3,183) (17,158)Due from related parties (trade) 41,996 42,847 (19,510)Due from related parties (non-trade) 20,158 21,543 4,959

Increase (decrease) in:Trade payables (730) 4,976 753Other payables and accruals 2,923 (19,345) 19,417Due to related parties (trade) 25,246 13,671 34,663Due to related parties (non-trade) 3,944 2,912 1,325

Cash generated from (used in) operations 34,591 33,161 (12,608)Interest expense paid (115) (29) (235)Income tax paid (2,123) (1,845) (996)Interest income received 107 81 125

Net cash generated from (used in) operating activities 32,460 31,368 (13,714)

Cash flows from investing activitiesPurchase of fixed assets (1,649) (551) (819)Proceeds from disposal of fixed assets 100 – –Proceeds from disposal of investments and fixed assets to the previous holding company (Note A.8.8) 30,406 30,406 –

Net cash generated from (used in) investing activities 28,857 29,855 (819)

A-15

A.7 PROFORMA CONSOLIDATED STATEMENTS OF CASH FLOWS (cont’d)

Year ended31

December 6 months ended2003 June 2003 June 2004

RMB’000 RMB’000 RMB’000

Cash flows from financing activitiesDividends paid (20,814) (9,893) (864)Capital contribution from minority shareholder of a subsidiary 384 – –

Proceeds from short-term bank loans, net 5,000 5,000 5,000Repayment of loan from a related party, net (62,149) (67,945) (5,383)Proceeds from issuance of new shares 27,270 27,270 –(Increase) decrease in deposits pledged to banks (5,084) (5,065) 5,389

Proceeds from (repayment of) bills payable to banks 18,469 11,111 (3,813)

Net cash (used in) generated from financing activities (36,924) (39,522) 329

Net increase (decrease) in cash and cash equivalents 24,393 21,701 (14,204)

Cash and cash equivalents at beginning of year/ periods 5,672 5,672 30,065

Cash and cash equivalents at end of year/ periods (Note A) 30,065 27,373 15,861

Note to the Proforma Consolidated Statements of Cash Flows

A. Cash and cash equivalents

Cash and cash equivalents consist of unpledged bank deposits and cash and bank balances. Certainbank deposits are excluded from cash and cash equivalents because they may not be readilyconvertible to cash as they are fully pledged to banks as security for bankers’ guarantees provided tocustomers for the performance of contracts and letter of credit facility.

Cash and cash equivalents included in the consolidated statements of cash flows comprise thefollowing balance sheet amounts:

31 December 30 June 30 June2003 2003 2004

RMB’000 RMB’000 RMB’000

Cash and bank balances 43,724 41,014 24,131Less: Bank deposits pledged (13,659) (13,641) (8,270)

Cash and cash equivalents 30,065 27,373 15,861

Cash and bank balances have an effective interest rate of 0.24%, 0.20% and 0.50% in the financialyear ended 31 December 2003 and the six months ended 30 June 2003 and 2004 respectively.

The accounting policies and explanatory notes form an integral part of the financial statements.

A-16

A.8 NOTES TO THE PROFORMA CONSOLIDATED FINANCIAL INFORMATION

These notes are an integral part of and should be read in conjunction with the accompanyingproforma consolidated financial information.

1. General

The Company was incorporated as a private limited company domiciled in the Republic ofSingapore with its registered office located at 16 Collyer Quay, #26-03 Hitachi Tower,Singapore 049318.

The principal place of business of the Group is at No. 1, Kaidi Building, Jiangxia Road,Miaoshan District, Wuhan East Lake Hi-tech Development Zone, Wuhan, People’s Republicof China.

The principal activity of the Company is that of investment holding. During the financial yearended 31 December 2004, the Company has commenced the trading of equipment forwastewater treatment and water purification treatment systems with a subsidiary as well asthird parties. The principal activities of the subsidiary and associated company are as shownin section A.1.

2. Significant Accounting Policies

(a) Basis of preparation

The proforma consolidated financial information has been prepared on a historicalcost basis in accordance with Singapore Financial Reporting Standards (“FRS”). Theaccounting policies have been consistently applied by the Group in the preparation ofthe consolidated proforma financial information for the financial years/periods underreview.

The Group’s principal operations are conducted in the People’s Republic of China andthus the proforma consolidated financial information is prepared in Renminbi (RMB),being the measurement currency of the Proforma Group.

(b) Principles of consolidation

The proforma consolidated financial information comprises the financial statements ofthe Company and its subsidiaries after the elimination of all material intercompanybalances, transactions and resulting unrealised profits on the basis that the ProformaGroup structure has been in place since 1 January 2001.

The consolidated financial information is prepared using uniform accounting policiesfor like transactions and other events in similar circumstances.

Consolidation of the subsidiaries in the People’s Republic of China (“PRC”) is basedon the subsidiaries’ financial statements re-stated and re-presented in accordancewith FRS. Profits reflected in the financial statements prepared in accordance withFRS differ from those reflected in the audited statutory PRC financial statements ofthe subsidiaries, prepared for PRC reporting purposes. In accordance with therelevant laws and regulations, profits available for distribution by the PRC subsidiariesare based on the amounts stated in the statutory financial statements.

(c) Goodwill on consolidation

Goodwill represents the excess of the cost of acquisition over the fair value ofidentifiable net assets of subsidiaries at the date of acquisition. Goodwill is amortisedusing the straight-line basis over a period of 5 years that benefits are expected to bereceived. Goodwill is stated at cost less accumulated amortisation and anyimpairment losses.

A-17

A.8 NOTES TO THE PROFORMA CONSOLIDATED FINANCIAL INFORMATION (cont’d)

2. Significant Accounting Policies (cont’d)

(d) Related parties

A related party is defined as a company, not being a subsidiary or an associatedcompany, in which the Company’s directors have an equity interest or exercisesignificant control over its financial and operating policy decisions.

Related party transactions are transactions/balances with Wuhan Kaidi Electric PowerCo., Ltd. (“Wuhan Electric”) Group, comprising Wuhan Electric and its subsidiarieswhich were not acquired by the Proforma Group. Wuhan Electric was the previousholding company of the PRC subsidiaries in the Proforma Group.

Receivables from related parties are recognised and carried at cost less an allowancefor losses on any uncollectible amounts.

Payables to related parties are carried at cost.

(e) Fixed assets

Fixed assets are stated at cost, less accumulated depreciation and any impairment invalue. All items of fixed assets are initially recorded at cost.

The initial cost of fixed asset comprises its purchase price, including import duties andnon-refundable purchase taxes and any directly attributable costs of bringing theasset to its working condition and location for its intended use. Any trade discountsand rebates are deducted in arriving at the purchase price. Expenditure incurred afterthe fixed assets have been put into operation, such as repairs and maintenance andoverhaul costs, is normally charged to the profit and loss account in the period inwhich the costs are incurred. In situations where it can be clearly demonstrated thatthe expenditure has resulted in an increase in the future economic benefits expectedto be obtained from the use of an item of fixed asset beyond its originally assessedstandard of performance, the expenditure is capitalised as an additional cost of thefixed asset.

Fixed assets are depreciated using the straight-line method to write off the cost offixed assets (less estimated residual value of 5% in respect of fixed assets of PRCsubsidiaries) over their estimated useful lives. The estimated useful lives have beentaken as follows:

Years

Furniture and fittings 5Office equipment 5Motor vehicles 5Computer software and electronic equipment 5

The useful life and depreciation method are reviewed annually to ensure that themethod and period of depreciation are consistent with the expected pattern ofeconomic benefits from fixed assets. An assessment of the carrying value of fixedassets is made when there are indications that the assets have been impaired or theimpairment losses recognised in prior years no longer exist.

A-18



(f) Impairment of assets

Financial assets

An assessment is made at each balance sheet date to determine whether there isobjective evidence that a financial asset or group of financial assets may be impaired.If such evidence exists, the estimated recoverable amount of that asset is determinedand any difference between the recoverable amount and the carrying amount isrecognised as impairment loss as follows:

For financial assets at amortised cost – the carrying amount of the asset is reducedto its estimated recoverable amount through the use of an allowance account and theamount of the loss is included in the profit and loss account for the period. Reversalof impairment losses previously recognised is recorded when the decrease inimpairment loss can be objectively related to an event occurring after the write-down.Such reversal is recorded in the profit and loss account. However, the increasedcarrying amount is only recognised to the extent it does not exceed what theamortised cost would have been had the impairment loss not been recognised.

For financial assets at fair value – where a loss has been recognised directly in equityas a result of the write-down of the asset to recoverable amount, the cumulative gainor loss previously recognised in equity is transferred to the profit and loss account forthe period. Reversal of impairment losses previously recognised is recorded whenthe decrease in impairment loss can be objectively related to an event occurring afterthe write-down. Such reversal is recorded in the profit and loss account.

Other assets

Fixed assets and other assets are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount may not be recoverable.Whenever the carrying amount of an asset exceeds its recoverable amount, animpairment loss is recognised in the profit and loss account or treated as arevaluation decrease for assets carried at revalued amount to the extent that theimpairment loss does not exceed the amount held in the revaluation surplus for thatsame asset.

Reversal of impairment losses recognised in prior years is recorded when there is anindication that the impairment losses recognised for the asset no longer exist or havedecreased. The reversal is recorded as income or as a revaluation increase.However, the increased carrying amount of an asset due to a reversal of animpairment loss is recognised to the extent it does not exceed the carrying amountthat would have been determined (net of amortisation or depreciation) had noimpairment loss been recognised for that asset in prior years.

(g) Foreign currency translation

The accounting records of the companies in the Group are maintained in theirrespective measurement currencies.

Transactions in foreign currencies are recorded at exchange rates approximatingthose ruling at transaction dates. Foreign currency monetary assets and liabilities aretranslated at exchange rates ruling at balance sheet date. Non-monetary assets andliabilities are measured using the exchange rates ruling at the transaction dates. Allresultant exchange differences are recognised in the profit and loss account.

A-19



(g) Foreign currency translation (cont’d)

Assets and liabilities of the Company are translated into RMB equivalents atexchange rates ruling at balance sheet date while share capital and reserves aretranslated at historical rates of exchange. Revenues and expenses are translated ataverage exchange rates for the years/periods, which approximate the exchange ratesat the dates of transactions. All resultant exchange differences are taken directly toequity as translation reserve.

(h) Cash and cash equivalents

Cash and cash equivalents comprise unpledged bank deposits and cash and bankbalances. Cash equivalents are short-term, highly liquid investments that are readilyconvertible to known amounts of cash and are subject to an insignificant risk ofchange in value.

(i) Trade and other receivables

Trade receivables, which generally have 90 – 180 days terms, are recognised andcarried at original invoiced amount less an allowance for any uncollectible amounts.

Bills receivables, which generally have 1 – 12 month terms, are interest free andbacked by the creditability of banks or commercial organisations. Bills receivables arecarried at cost, being the fair value of the consideration given.

(j) Trade and other payables

Liabilities for trade and other amounts payable, which are normally settled on 30 – 90day terms, are carried at cost which is the fair value of the consideration to be paid inthe future for goods and services received, whether or not billed to the Group.

(k) Inventories

Inventories are valued at the lower of cost and net realisable value.

Inventories comprise materials and components which are accounted for usingpurchase cost on a specific identification basis. Net realisable value is the estimatedselling price in the ordinary course of business, less estimated costs of completionand costs necessary to make the sale.

(l) Work-in-progress

Work-in-progress is recorded at cost plus attributable profit less recognised losses,net of progress billings and allowance for foreseeable losses, and is presented in thebalance sheet as a current asset under “work-in-progress in excess of progressbillings” or as a current liability under “progress billings in excess of work-in-progress”,as applicable.

Costs include all direct materials, labour costs and those indirect costs incurred inconnection with the projects.

Provision for foreseeable loss on a contract is provided for in the year/period in whichsuch losses are determined.

(m) Borrowing costs

Borrowing costs are expensed as incurred.

A-20



(n) Provisions

Provisions are recognised when the Group has a present obligation (legal orconstructive) where as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation and areliable estimate can be made of the amount of the obligation. Provisions arereviewed at each balance sheet date and adjusted to reflect the current best estimate.

(o) Operating leases

Leases where the lessor effectively retains substantially all the risks and rewards ofownership of the leased item are classified as operating leases. Operating leasepayments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term.

The aggregate benefit of incentives provided by the lessor is recognised as areduction of rental expense over the lease term on a straight-line basis.

(p) Revenue recognition

(i) Contract revenue and contract costs are recognised as revenue and expenses,respectively, by reference to the stage of completion of the contract activity atthe balance sheet date, when the outcome of a contract can be estimatedreliably. The stage of completion of a contract is measured by the proportionthat the costs incurred to date bear to the estimated total costs of the contract.An expected loss on the contract is recognised as an expense immediatelywhen it is probable that total contract costs will exceed contract revenue.

When the outcome of a contract cannot be estimated reliably, revenue isrecognised only to the extent of contract costs incurred that is probablyrecoverable.

Retention monies are recognised in the profit and loss account as and whenrevenue is recognised for work done based on the stage of completion.

Prior to the financial year ended 31 December 2003, contract revenuerecognised was based on the actual amount billed and approved by customers.During the financial year ended 31 December 2003, the Group adopted FRS11, Construction Contracts. The Group’s accounting policy on recognition ofrevenue and cost from long-term contracts is thus changed to the percentage ofcompletion method. This change in accounting policy has been adjustedretrospectively in the proforma consolidated financial information for thefinancial years/periods under review. The impact of the change in accountingpolicy is to decrease the revenue and profit before tax of the Group for thefinancial years/periods under review as follows:


2001 2002 2003 2003 2004RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue 8,500 18,004 12,730 12,297 –

Profit before tax 4,624 3,839 2,030 1,051 –

(ii) Interest income is recognised on a time proportion basis (taking into accountthe effective yield on the asset) unless collectibility is in doubt.

A-21



(q) Employee benefits

(i) Pensions and other post employment benefits

The Group participates in the national pension schemes as defined by the lawsof the countries in which it has operations.

Singapore

The Company makes contribution to the Central Provident Fund (CPF) Schemein Singapore, a defined contribution pension scheme.

PRC

The subsidiaries incorporated and operating in the PRC are required to providecertain staff pension benefits to their employees under existing PRCregulations. Pension contributions are provided at rates stipulated by PRCregulations and are contributed to a pension fund managed by governmentagencies, which are responsible for administering these amounts for thesubsidiaries’ employees.

Contributions to national pension schemes are recognised as an expense in theperiod in which the related services are performed.

(ii) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue toemployees. A provision is made for the estimated liability for leave as a result ofservices rendered by employees up to balance sheet date.

(r) Income taxes

Deferred income tax is provided, using the liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets and liabilitiesand their carrying amounts for financial reporting purposes. Deferred tax assets andliabilities are measured using the tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered or settledbased on tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax liabilities are recognised for all taxable temporary differences associatedwith investments in subsidiaries, except where the timing of the reversal of thetemporary difference can be controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax losses and unabsorbed capital allowances, to the extent that itis probable that taxable profit will be available against which the deductible temporarydifferences, carry-forward of unused tax losses and unused tax credits can be utilised.

A-22



(r) Income taxes (cont’d)

At each balance sheet date, the Group re-assesses unrecognised deferred tax assetsand the carrying amount of deferred tax assets. The Group recognises a previouslyunrecognised deferred tax asset to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be recovered. The Group converselyreduces the carrying amount of a deferred tax asset to the extent that it is no longerprobable that sufficient taxable profit will be available to allow the benefit of part or allof the deferred tax asset to be utilised.

Deferred tax is charged or credited directly to equity if the tax relates to items that arecredited or charged, in the same or a different period, directly to equity.

(s) Research costs

Expenditure on research activities, undertaken with the prospect of gaining newscientific or technical knowledge and understanding, is expensed as incurred.

3. Revenue



Water purification treatment 44,657 67,994 150,823 72,688 79,663Wastewater treatment 46 9,559 6,510 3,084 4,078Others 2,330 3,277 2,627 463 2,704

47,033 80,830 159,960 76,235 86,445

4. Other operating income



Waiver of interest expenseon loan from the previous holding company – 1,130 – – –

Write-back of amount owing to a related party 103 – – – –

Sundry income 28 32 – – –

131 1,162 – – –

A-23


5. (Loss) profit from operations

This is determined after charging (crediting) items in Note A.8.4 and the following:



Amortisation of goodwill on consolidation – – – – 770

Depreciation of fixed assets 529 592 476 216 282Research expenses 160 36 6 6 202Directors’ remuneration– directors of the Company – – 1,935 805 988– directors of subsidiaries 53 60 305 48 273Foreign exchange gain, net – – (375) (488) (74)Inventories written off 68 21 95 16 –Operating lease expenses – – 697 121 454Personnel expenses (Note A.8.6)# 3,382 3,953 10,792 4,589 5,183

Provision for doubtful trade debts 95 43 398 – 655

Write-back of provision for doubtful trade debts (67) (196) – – –

Provision for doubtful non-trade debts 14 23 212 – 66

Provision for doubtful non-trade debts (related parties) 82 – 14 – –

Write-back of provision for doubtful non-trade debts (related parties) – (18) – – –

# Includes amounts shown as directors’ remuneration

6. Personnel expenses



Wages, salaries, and bonuses 2,866 3,138 7,608 3,238 3,903Pension contribution – 358 433 152 222Other personnel expenses 516 457 2,751 1,199 1,058

3,382 3,953 10,792 4,589 5,183

Number of employees 79 78 163 134 184

A-24


7. Financial income (expenses)



Interest income from bank deposits 43 71 107 81 125

Interest expense– short-term bank loans (95) (27) (115) (29) (176)– loan from the previous holding

company of subsidiaries (1,217) – – – –– loan from a related party – – – – (59)

(1,312) (27) (115) (29) (235)

8. Related party transactions

Prior to the restructuring exercise as disclosed in the Prospectus, certain assets andliabilities of the subsidiaries were transferred to Wuhan Kaidi Electric Power Co., Ltd.(“Wuhan Electric”), the previous holding company of the subsidiaries, during the financialyear ended 31 December 2002, as follows:

Name of subsidiaries Description Assets (liabilities)RMB ‘000

Wuhan Kaidi Water Long term investments Services Co., Ltd. – 19,900

– 744– 92– 1,950 Fixed assets 6,566 Trade receivables 5,530 Prepayments 2,681 Other receivables 18,141 Due from related parties 133 Trade payables (62)Customer advances (2,501)

53,174

Wuhan Kaidi Measure Fixed assets 1,154& Control Engineering Trade receivables 233 Co., Ltd. Prepayments 127

Other payables (35)

1,479

54,653

A-25


8. Related party transactions (cont’d)

In addition, during the financial years/periods under review, the Proforma Group had thefollowing significant transactions with its related parties, on terms agreed by the respectiveparties.



Income

Sub-contract project revenue from related parties 40,125 49,591 63,207 36,400 23,665

Waiver of interest expense on loan from the previous holding company – 1,130 – – –

Write-back of amount owing to a related party 103 – – – –

Expenses

Sub-contract of fabrication and installation works toand purchase of materials from related parties (14,294) (23,864) (44,688) (27,869) (28,883)

Interest expense on loan from the previous holding company (1,217) – – – (59)

Rental charge from arelated party – – (210) – (252)

Others

Proceeds from (repayment of) loan from the previous holding company/related party, net 17,029 41,133 (62,149) (67,945) (5,383)

Directors’ remuneration– directors of the Company – – (1,935) (805) (988)– directors of subsidiaries (53) (60) (305) (48) (273)Executive officers’remuneration (38) (52) (163) (24) (462)

85.3%, 61.4%, 39.5% and 27.4% of the Proforma Group’s revenue for FY2001, FY2002,FY2003 and the six months ended 30 June 2004 respectively were derived from projectssub-contracted from Wuhan Electric and its subsidiaries (“Wuhan Electric Group”). Thecontract values for these projects were largely determined by Wuhan Electric Group and thisdirectly affects revenues and gross margins from these projects recorded by the ProformaGroup. During FY2001, FY2002 and FY2003, Wuhan Electric managed Wuhan Kaidi Waterand Wuhan Kaidi Measure & Control as its operating divisions and as such, certaincorporate expenses were borne by Wuhan Electric as a whole and not allocated to itsoperating divisions, including Wuhan Kaidi Water and Wuhan Kaidi Measure & Control.

A-26


9. Tax

Major components of income tax expense are as follows:



Current tax– current year 1,075 2,600 1,166 549 221– under provision in respect

of prior years – – – – 142

Deferred tax– current year (593) (512) 275 275 –

Tax expense 482 2,088 1,441 824 363

A reconciliation between tax expense and the product of accounting profit multiplied by theapplicable tax rates for the years ended 31 December 2001 to 2003 and 6 months ended 30June 2003 and 2004 is as follows:



(Loss) profit before tax (1,414) 4,472 22,270 12,754 5,805

Tax at the domestic rates applicable to profits in the countries concerned * (212) 671 2,842 1,875 987

Adjustments:Tax effect of expenses not deductible for tax purposes 585 1,207 513 472 170

Income exempted from tax – – (2,535) (1,523) (936)Deferred tax assets not recognised – – 512 – –

Under provision in respect of prior years – – – – 142

Others 109 210 109 – –

Tax expense 482 2,088 1,441 824 363

* The reconciliation is prepared by aggregating separate reconciliation for each national jurisdiction.

The subsidiaries in the PRC, Wuhan Kaidi Water and Wuhan Kaidi Measure & Control, wereentitled to tax concession in the form of a reduced tax rate of 15% (as compared to thestatutory tax rate of 30%) for the financial years/periods under review as they werecategorised as enterprises operating in a high-tech industry.

Wuhan Kaidi Water became a sino-foreign joint venture company and was entitled to fullexemption from taxation for the first two years and a 50% relief from the reduced tax rate of15% for the next three profitable years thereafter, commencing from the first profitable yearafter offsetting all tax losses carried forward from the previous five years. The subsidiarywas in its first profit-making year for the financial year ended 31 December 2003.

A-27


10. Fixed assets

Computersoftware

Furniture andand Office Motor electronic

fittings equipment vehicles equipment TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost

At 1 January 2003 525 1,269 349 – 2,143Additions 46 419 1,099 85 1,649Disposals – – (130) – (130)

At 31 December 2003 571 1,688 1,318 85 3,662

Accumulated depreciation

At 1 January 2003 256 699 151 – 1,106Charge for the year 93 229 148 6 476Disposals – – (30) – (30)

At 31 December 2003 349 928 269 6 1,552

Net book value

At 31 December 2003 222 760 1,049 79 2,110

Computersoftware

Furniture andand Office Motor electronic

fittings equipment vehicles equipment TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost

At 1 January 2004 571 1,688 1,318 85 3,662Additions 103 379 337 – 819

At 30 June 2004 674 2,067 1,655 85 4,481

Accumulated depreciation

At 1 January 2004 349 928 269 6 1,552Charge for the period 50 118 104 10 282

At 30 June 2004 399 1,046 373 16 1,834

Net book value

At 30 June 2004 275 1,021 1,282 69 2,647

A-28


11. Goodwill on consolidation

31 December 30 June2003 2004

RMB’000 RMB’000

Cost

At beginning of year/period – 7,704Proforma adjustment to align goodwill on consolidation to that as recorded in the statutory consolidated financial statements of the Group 7,704 –

Goodwill arising on acquisition of interests of minority shareholder on amalgamation of Wuhan Kaidi Measure & Control with Wuhan Kaidi Water – 50

7,704 7,754

Accumulated amortisation

Proforma adjustment to align goodwill on consolidation to that as recorded in the statutory consolidated financial statements of the Group (1,279) (1,279)

Less: amortisation for the year/period – (770)

(1,279) (2,049)

6,425 5,705

As of 30 June 2004, the remaining amortisation period is approximately 3.7 years.

12. Work-in-progress in excess of progress billings


RMB’000 RMB’000

Contract costs incurred to date 108,817 139,479Attributable profits less recognised losses to date 32,135 38,882

140,952 178,361Less: progress billings (64,052) (77,267)

76,900 101,094

A-29


13. Trade receivables


RMB’000 RMB’000

Trade receivables 24,386 44,254Retention monies 6,284 11,520

30,670 55,774Less: provision for doubtful debts (621) (1,276)

30,049 54,498

Movements in provision for doubtful debts are as follows:

At beginning of year/period 223 621Provision for the year/period 398 655

At end of year/period 621 1,276

14. Bills receivables

Bills receivables (from banks) have an average maturity period of 3 to 6 months and areinterest-free.

15. Other receivables, deposits and prepayments


RMB’000 RMB’000

Other receivables 1,900 133Advances: (a)

– employees 2,803 4,092– directors of subsidiaries 255 697

Housing loans: (b)

– employees 251 407– directors of a subsidiary 198 159

Deposits 49 1,951Prepayments 4,765 7,892Deposit to a subcontractor for construction of a wastewater treatment plant for the associated company – 12,048

10,221 27,379Less: provision for doubtful debts (248) (314)

9,973 27,065

Movement in provision for doubtful debts is as follows:

At beginning of year/period 36 248Provision for the year/period 212 66

At end of year/period 248 314

(a) These mainly relate to advances given to employees and directors of subsidiaries for use in the ordinaryconduct of the Group’s business. These advances are unsecured, interest-free and repayable on demand.

(b) These are unsecured, interest-free and have a repayment period of 3 years.

A-30


16. Due from related parties (non-trade)


RMB’000 RMB’000

Due from related parties 5,904 945Less: Provision for doubtful debts (77) (77)

5,827 868

Movement in provision for doubtful debts is as follows:

At beginning of year/period 63 77Provision for the year/period 14 –

At end of year/period 77 77

These amounts are unsecured, interest-free and are repayable on demand.

17. Cash and bank balances/bills payable to banks (secured)

Bills payable to banks are interest-free and secured by certain bank deposits placed with theissuing bank. As at 31 December 2003 and 30 June 2004, included in cash and bankbalances are bank deposits of subsidiaries amounting to approximately RMB 13,659,000and RMB 8,270,000 respectively which are pledged to the banks as security for bankers’guarantees provided to customers for the performance of contracts and a letter of creditfacility granted.

18. Other payables and accruals


RMB’000 RMB’000

Customer advances 26,173 45,346Other creditors 2,250 3,945Accrued operating expenses 872 1,479Provision for personnel expenses 4,215 2,315

33,510 53,085

19. Progress billings in excess of work-in-progress


RMB’000 RMB’000

Contract costs incurred to date 46,877 70,015Attributable profits less recognised losses to date 14,254 20,223

61,131 90,238Less: progress billings (66,626) (101,571)

(5,495) (11,333)

A-31


20. Due to related parties (non-trade)

These balances are unsecured, interest free and repayable on demand.

21. Loan from a related party

The loan from a related party is unsecured, bears interest at 2% per annum and is payableon demand.

22. Short-term bank loans

These loans bear interest at 4.536% to 4.788% per annum (31 December 2003: 4.538%)and have a maturity period of 6 months. As at 31 December 2003, the loans are secured bya corporate guarantee from a related party. As at 30 June 2004, the loans are unsecured.

23. Segment information

The Group’s operating businesses are organised and managed separately according to thenature of products and services provided, with each segment representing a strategiccustomer market which the Group offers products/ services. For management purposes, theGroup is organised into three business segments, namely Water purification treatment,Wastewater treatment and Others.

There are no inter-segment sales.

Water purification treatment: Design, assembly, installation, and commissioning of waterpurification treatment systems as well as technology development of such water purificationtreatment systems.

Wastewater treatment: Procurement, installation and commissioning of standard equipmentto be used in industrial and municipal wastewater treatment systems.

Others: Miscellaneous peripheral contracts which include coal conveying control system andchemical cleaning.

Segment revenue/ expenses/ assets/ liabilities and capital expenditure

Revenue and cost of sales are directly attributable to the individual segments. Operatingexpenses/income are allocated to the segments on a reasonable basis.

Segment assets and liabilities include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Unallocated items mainly comprisecorporate assets and liabilities.

Capital expenditure cannot be directly attributable to individual business segments and it isimpracticable to allocate it to the individual segments.

A-32


23. Segment information (cont’d)

(a) Business segments

Waterpurification Wastewatertreatment treatment Others GroupRMB’000 RMB ’000 RMB’000 RMB’000

Year ended 31 December 2003

Revenue 150,823 6,510 2,627 159,960

Segment result 23,533 504 935 24,972Unallocated expenses (2,694)Financial income 107Financial expenses (115)Tax (1,441)Minority interests (2,054)

Net profit attributable to shareholders 18,775

Segment depreciation 443 19 8 470Unallocated depreciation 6

Total depreciation 476

Segment non-cash expenses 678 29 12 719

As at 31 December 2003

Segment assets 114,009 7,015 3,207 124,231Unallocated assets 65,000

Total assets 189,231

Segment liabilities 120,323 3,549 1,675 125,547Unallocated liabilities 25,803

Total liabilities 151,350

A-33



(a) Business segments (cont’d)



Revenue 67,994 9,559 3,277 80,830

Segment result 3,166 911 351 4,428Financial income 71Financial expenses (27)Tax (2,088)Minority interests (624)


Segment depreciation 498 70 24 592



Revenue 44,657 46 2,330 47,033

Segment result (1,290) 11 1,134 (145)Financial income 43Financial expenses (1,312)Tax (482)Minority interests 167

Net loss attributable to shareholders (1,729)

Segment depreciation 503 1 25 529


A-34





6 months ended 30 June 2003

Revenue 72,688 3,084 463 76,235

Segment result 12,609 485 183 13,277Unallocated expenses (575)Financial income 81Financial expenses (29)Tax (824)Minority interests (1,194)





6 months ended 30 June 2004

Revenue 79,663 4,078 2,704 86,445

Segment result 6,492 836 992 8,320Unallocated expenses (2,405)Financial income 125Financial expenses (235)Tax (363)Minority interests (655)




Segment non-cash expenses 1,375 70 46 1,491

A-35





As at 30 June 2004

Assets 172,099 23,053 3,025 198,177Unallocated assets 52,727

Total assets 250,904

Liabilities 165,739 12,659 2,016 180,414Unallocated liabilities 28,260

Total liabilities 208,674

(b) Geographical segments

The Group’s revenue for the years/periods under review is solely derived from thePeople’s Republic of China. Accordingly, there is no presentation of revenue bygeographical segments.

Assets and capital expenditure are based on the location of those assets.


RMB’000 RMB’000

Assets

Singapore 17,280 18,848People’s Republic of China 171,951 232,056

189,231 250,904



Capital expenditure

Singapore – – 85 33 103People’s Republic of China 283 378 1,564 518 716

283 378 1,649 551 819

A-36


24. Commitments and contingencies

(a) Performance guarantees

As at 31 December 2003 and 30 June 2004, the Group has bankers’ guaranteesissued in the normal course of the business in favour of third parties amounting toapproximately RMB 27,586,000 and RMB 39,852,000 respectively for theperformance of contracts. These bankers’ guarantees are secured by the bankdeposits of the subsidiaries pledged to the issuing banks.

(b) Non-cancellable operating lease commitments

As at 31 December 2003 and 30 June 2004, the Group has operating leaseagreements for the rental of office premises and staff accommodation. These non-cancellable leases have remaining non-cancellable lease terms of between 3-20months. Most leases contain renewable options.

Future minimum lease payments under non-cancellable leases are as follows:


RMB’000 RMB’000

Within 1 year 707 1,048Within 2 to 5 years 877 934

1,584 1,982

Lease terms do not contain restrictions on the Group’s activities concerningdividends, additional debt or further leasing.

A-37


25. Financial instruments

Financial risk management objectives and policies

The main risks arising from the Group’s financial instruments are credit risk, interest rate riskand liquidity risk. The directors review and agree policies for managing these risks and theyare summarised below.

The Group does not hold or issue derivative financial instruments for trading purposes.

Credit risk

Credit risk arising from the inability of a customer to meet the terms of the Group’s financialinstrument contracts is generally limited to the amounts, if any, by which the customer’sobligations exceed the obligations of the Group. The Group has a diversity of creditworthycustomers so as to reduce concentration of credit risk. Receivables are continuallymonitored and therefore, the Group does not expect to incur material credit losses.

As at 31 December 2003 and 30 June 2004, there was no significant concentration of creditrisk.

Interest rate risk

The Group obtains additional financing through bank borrowings. The Group’s policy is toobtain the most favourable interest rates available without increasing its foreign currencyexposure.

Surplus funds are placed with reputable banks.

Information relating to the Group’s interest rate exposure is also disclosed in the respectivenotes to the financial statements where applicable.

Liquidity risk

In the management of liquidity risk, the Group monitors and maintains a level of cash andcash equivalents deemed adequate by the directors to finance the Group’s operations andmitigate the effects of fluctuations in cash flows.

Fair values

Fair value is defined as the amount at which the financial instrument could be exchanged ina current transaction between knowledgeable willing parties in an arm’s length transaction,other than in a forced or liquidation sale. Fair values are obtained from quoted marketprices, discounted cash flow models and option pricing models where practicable.

The following methods and assumptions are used to estimate the fair value of each class offinancial instruments:

Current assets and liabilities

The carrying amounts approximate fair values due to their short-term nature.

A-38


26. Dividends, net

Dividends declared by the Company and its subsidiaries for the years/period under revieware as follows:

6 months Year ended 31 December ended 30

2001 2002 2003 June 2004RMB’000 RMB’000 RMB’000 RMB’000

The Company

One-tier tax exempt dividend of RMB 1.635 per ordinary share – – 9,321 –

Subsidiaries

Wuhan Kaidi Water– 1.5% to Wuhan Kaidi Measure & Control – 65 – – – 90% and 90.6% to the Company

for FY2003 and 6 months ended 30 June 2004 respectively – – 14,400 8,136

– 9.6% to minority interests of Proforma Group – 418 1,536 864

– To other then existing shareholders – 3,866 64 –

– 4,349 16,000 9,000

Wuhan Kaidi Measure & Control– 20% to Wuhan Kaidi Water – 1,402 – –– 9.6% to minority interests of

Proforma Group – 673 – –– To other then existing shareholders – 4,936 – –

– 7,011 – –

27. Subsequent events

Subsequent to 30 June 2004:

(1) Pursuant to the Restructuring Exercise, the Company issued 299,964 ordinary sharesof S$1.00 each at a premium of S$0.20 per share for cash to its executive directors,Mr Huang Hanguang, Mr Sha Guangwen and Mr Wang Yaoyu.

(2) On 24 January 2005, the Company issued 32 new ordinary shares of S$1.00 each ata premium of S$0.20 per share for cash to the shareholders of the Company.

(3) The Company established an associated company, Wuhan Hanxi Waste WaterTreatment Co. Ltd. whose registered capital is RMB 100 million. The Company willinvest a total of RMB 43 million representing a 43% equity interest in the associatedcompany. To-date, the Company has invested RMB 8.6 million in the associatedcompany.

A-39


27. Subsequent events (cont’d)

(4) At an extraordinary meeting held on 24 January 2005, the shareholders approved,inter alia, the following:-

(a) the increase of the authorised share capital from S$10,000,000 divided into10,000,000 ordinary shares of S$1.00 each to S$30,000,000 divided into30,000,000 ordinary shares of S$1.00 each;

(b) the consolidation of every 6 ordinary shares of S$1.00 each in the authorisedand issued share capital of the Company into 1 ordinary share of S$6.00 each(the “Consolidation”);

(c) the sub-division of each ordinary share of S$6.00 each in the authorised andissued share capital into 100 ordinary shares of S$0.06 each (the“Subdivision”);

(d) the conversion of the Company into a public limited company and theconsequential change of name to Asia Water Technology Ltd.;

(e) the adoption of the Employee Share Option Scheme (“ESOS”);

(f) the adoption of a new set of Articles of Association;

(g) that authority be given pursuant to Section 161 of the Act to the Directors toissue New Shares which are the subject of the Invitation on the basis that theNew Shares, when allotted, issued and fully-paid, will rank pari passu in allrespects with the existing Shares;

(h) that authority be given pursuant to Section 161 of the Act to the Directors to (i)allot and issue shares in the Company; and (ii) issue convertible securities andany shares in the Company pursuant to the convertible securities, (whether byway of rights, bonus or otherwise) at any time and upon such terms andconditions and for such purposes and to such persons as the Directors shall intheir absolute discretion deem fit, provided that the aggregate number of sharesand convertible securities to be issued pursuant to such authority shall notexceed 50 per cent. of the post-Invitation issued share capital of the Companyand that the aggregate number of shares and convertible securities to beissued other than on a pro-rata basis to the then existing shareholders of theCompany shall not exceed 20 per cent. of the post-Invitation issued sharecapital of the Company. Unless revoked or varied by the Company in generalmeeting, such authority shall continue in full force until the conclusion of thenext Annual General Meeting of the Company or the date by which the nextAnnual General Meeting is required by law or by the Articles to be held,whichever is earlier, except that the Directors shall be authorised to allot andissue new shares pursuant to the convertible securities notwithstanding thatsuch authority has ceased.

For the purposes of this resolution and pursuant to Rules 806(3) and 806(4) ofthe SGX-ST Listing Manual, “post-Invitation issued share capital” shall meanthe enlarged issued and paid-up share capital of the Company after theInvitation, and where applicable, after adjusting for (i) new shares arising fromthe conversion or exercise of convertible securities, (ii) new shares arising fromexercising share options or vesting of share awards outstanding or subsisting atthe time of the passing of this resolution, provided the options or awards weregranted in compliance with Part VII of Chapter 8 of the SGX-ST Listing Manualand (iii) any subsequent consolidation or sub-division of shares.

A-40

B-1

APPENDIX B

REPORT ON EXAMINATION OF PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR FY2001, FY2002, FY2003 AND

6 MONTHS ENDED 30 JUNE 2004

23 February 2005

The Board of DirectorsAsia Water Technology Ltd.16 Collyer Quay#26-03 Hitachi Tower Singapore 049318

Dear Sirs:

We report on the pro forma consolidated financial information set out on pages A-1 to A-40 of theProspectus dated 23 February 2005, which has been prepared, for illustrative purposes only and basedon certain assumptions and after making certain adjustments to show what:

(i) the financial results of the Group and changes in equity of the Group for the years/period ended 31December 2001 to 2003 and 30 June 2004, and cash flows of the Group for the year/period ended31 December 2003 and 30 June 2004 would have been if the Group structure as of the date of thelodgement of the Prospectus had been in place since 1 January 2001; and

(ii) the financial positions of the Group as of the date of the balance sheets as at 31 December 2003and 30 June 2004 would have been if the Group structure as of the date of lodgement of theProspectus had been in place on those dates.

The pro forma consolidated financial information, because of its nature, may not give a true picture of theGroup’s actual financial position, results or cash flows.

The pro forma consolidated financial information is the responsibility of the directors of the Company. Ourresponsibility is to express an opinion on the pro forma consolidated financial statements based on ourwork.

We carried out procedures in accordance with Singapore Statement of Auditing Practice: SAP 24:“Auditors and Public Offering Documents”. Our work, which involved no independent examination of theunderlying financial statements, consisted primarily of comparing the pro forma consolidated financialinformation to the financial statements of the Company and its subsidiaries, considering the evidencesupporting the adjustments and discussing the pro forma consolidated financial information with thedirectors of the Company.

REPORT ON EXAMINATION OF PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR FY2001, FY2002, FY2003 AND

6 MONTHS ENDED 30 JUNE 2004 (CONT’D)

In our opinion,

(a) the pro forma consolidated financial information has been properly prepared:

(i) from the relevant financial statements making up the Proforma Group which were preparedin accordance with Singapore Financial Reporting Standards;

(ii) in a manner consistent with the format of the consolidated financial statements and theaccounting policies of the Group, which are in accordance with Singapore FinancialReporting Standards, and

(iii) on the basis stated in Note A.2; and

(b) each material adjustment made to the information used in the preparation of the pro formaconsolidated financial information is appropriate for the purpose of preparing such consolidatedfinancial information.

This report has been prepared for inclusion in the Prospectus in connection with the Invitation in respectof the issue of 33,000,000 new ordinary shares of S$0.06 each in the share capital of the Company.

Yours faithfully,

ERNST & YOUNGCertified Public Accountants

Singapore

Partner-in-charge: Max Loh Khum Whai

B-2

C-1

APPENDIX C

AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS OF ASIA WATER TECHNOLOGY PRIVATE LIMITED AND SUBSIDIARIES

FOR THE FINANCIAL PERIOD FROM THE DATE OF INCORPORATION,19 NOVEMBER 2002 TO 31 DECEMBER 2003

D-1

APPENDIX D

AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS OF ASIA WATERTECHNOLOGY PRIVATE LIMITED AND SUBSIDIARY FOR THE FINANCIAL

PERIOD FROM 1 JANUARY 2004 TO 30 JUNE 2004

E-1

APPENDIX E

AUDITORS’ REPORT AND RE-STATED FINANCIAL STATEMENTS OF WUHANKAIDI WATER SERVICES CO., LTD. (FORMERLY KNOWN AS WUHAN KAIDI

POWER CHEMISTRY CO., LTD.) FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002

APPENDIX F

THE ENGLISH TRANSLATION OF THE AUDITORS’ REPORT ON THE AUDITEDFINANCIAL STATEMENTS OF WUHAN KAIDI WATER SERVICES CO., LTD.(FORMERLY KNOWN AS WUHAN KAIDI POWER CHEMISTRY CO., LTD.)

FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002

The auditors’ reports on the audited financial statements of Wuhan Kaidi Water Services Co., Ltd.(formerly known as Wuhan Kaidi Power Chemistry Co., Ltd.) for the financial years ended 31 December2001 and 2002, which were prepared in the Chinese language (the “Original Wuhan Kaidi WaterReports”), were issued by Zhong Huan Certified Public Accountants ,a member of The Chinese Institute of Certified Public Accountants in the PRC. For reference only, anEnglish translation (the “Translated Wuhan Kaidi Water Reports”) of the Original Wuhan Kaidi WaterReports is set out in this Appendix and accordingly, the Original Wuhan Kaidi Water Reports shall prevailover the Translated Wuhan Kaidi Water Reports. A copy of the Original Wuhan Kaidi Water Reports willbe made available for inspection for a period of six months from the date of registration of thisProspectus.

��

F-1

Auditors’ ReportTo Board of Directors of Wuhan Kaidi Power & Chemistry Co., Ltd. (“Company”)

We have been appointed to audit the balance sheet of the Company as at 31 December 2001, and theprofit and loss accounts and statements of changes in equity of the Company for the year ended 31December 2001 (“financial statements”). The financial statements are the responsibility of theCompany’s directors. Our responsibility is to express an opinion on these financial statements based onour audit. We conducted our audit in accordance with PRC Certified Public Accountants’Independent Auditing Standards. During the course of our audit, we obtained an understanding of theCompany before carrying out our examination on the financial statements of the Company on a samplingbasis.

In our opinion, the financial statements of the Company are properly drawn up in accordance with theprovisions of the Accounting Standards for Business Enterprises and the Accounting Regulationsfor Industrial Enterprises, and present fairly, in all material aspects, the financial position of theCompany as at 31 December 2001 and the financial results of the Company for the year ended 31December 2001. Accounting methods have also been consistently adopted and applied by theCompany.

Zhong Huan Certified Public Accountants (Seal)CERTIFIED PUBLIC ACCOUNTANTS (SEAL)3 April 2002

F-2

Auditors’ ReportTo Board of Directors of Wuhan Kaidi Power & Chemistry Co., Ltd. (“Company”)

We have been appointed to audit the balance sheet of the Company as at 31 December 2002, and theprofit and loss accounts, statements of changes in equity and statements of cash flows of the Companyfor the year ended 31 December 2002 (“financial statements”). The financial statements are theresponsibility of the Company’s directors. Our responsibility is to express an opinion on these financialstatements based on our audit. We conducted our audit in accordance with PRC Certified PublicAccountants’ Independent Auditing Standards. During the course of our audit, we obtained anunderstanding of the Company before carrying out our examination on the financial statements of theCompany on a sampling basis.

In our opinion, the financial statements of the Company are properly drawn up in accordance with theprovisions of the Accounting Standards for Business Enterprises and the Accounting Regulationsfor Industrial Enterprises, and present fairly, in all material aspects, the financial position of theCompany as at 31 December 2002 and the financial results and cash flows of the Company for the yearended 31 December 2002. Accounting methods have also been consistently adopted and applied by theCompany.

Zhong Huan Certified Public Accountants (Seal)CERTIFIED PUBLIC ACCOUNTANTS (SEAL)13 January 2003

F-3

APPENDIX G

AUDITORS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI WATER SERVICES CO., LTD. (FORMERLY KNOWN AS WUHANKAIDI POWER CHEMISTRY CO., LTD.) FOR THE FINANCIAL YEARS ENDED

31 DECEMBER 2001 AND 2002

G-1

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H-1

APPENDIX H

AUDITORS’ REPORT AND RE-STATED FINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL ENGINEERING CO., LTD. FOR

THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002

APPENDIX I

THE ENGLISH TRANSLATION OF THE AUDITORS’ REPORT ON THE AUDITEDFINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL

ENGINEERING CO., LTD. FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002

The auditors’ reports on the audited financial statements of Wuhan Kaidi Measure & Control EngineeringCo., Ltd. for the financial years ended 31 December 2001 and 2002, which were prepared in the Chineselanguage (the “Original Wuhan Kaidi Measure & Control Reports”), were issued by Zhong Huan CertifiedPublic Accountants , a member of The Chinese Institute of CertifiedPublic Accountants in the PRC. For reference only, an English translation (the “Translated Wuhan KaidiMeasure & Control Reports”) of the Original Wuhan Kaidi Measure & Control Reports is set out in thisAppendix and accordingly, the Original Wuhan Kaidi Measure & Control Reports shall prevail over theTranslated Wuhan Kaidi Measure & Control Reports. A copy of the Original Wuhan Kaidi Measure &Control Reports will be made available for inspection for a period of six months from the date ofregistration of this Prospectus.

��

I-1

Auditors’ ReportTo Board of Directors of Wuhan Kaidi Measure & Control Engineering Co., Ltd. (“Company”)

We have been appointed to audit the balance sheet of the Company as at 31 December 2001, and theprofit and loss accounts and statements of changes in equity of the Company for the year ended 31December 2001 (“financial statements”). The financial statements are the responsibility of theCompany’s directors. Our responsibility is to express an opinion on these financial statements based onour audit. We conducted our audit in accordance with PRC Certified Public Accountants’Independent Auditing Standards. During the course of our audit, we obtained an understanding of theCompany before carrying out our examination on the financial statements of the Company on a samplingbasis.

In our opinion, the financial statements of the Company are properly drawn up in accordance with theprovisions of the Accounting Standards for Business Enterprises and the Accounting Regulationsfor Industrial Enterprises, and present fairly, in all material aspects, the financial position of theCompany as at 31 December 2001 and the financial results of the Company for the year ended 31December 2001. Accounting methods have also been consistently adopted and applied by theCompany.

Zhong Huan Certified Public Accountants (Seal)CERTIFIED PUBLIC ACCOUNTANTS (SEAL)3 April 2002

I-2

Auditors’ ReportTo Board of Directors of Wuhan Kaidi Measure & Control Engineering Co., Ltd. (“Company”)

We have been appointed to audit the balance sheet of the Company as at 31 December 2002, and theprofit and loss accounts, statements of changes in equity and statements of cash flows of the Companyfor the year ended 31 December 2002 (“financial statements”). The financial statements are theresponsibility of the Company’s directors. Our responsibility is to express an opinion on these financialstatements based on our audit. We conducted our audit in accordance with PRC Certified PublicAccountants’ Independent Auditing Standards. During the course of our audit, we obtained anunderstanding of the Company before carrying out our examination on the financial statements of theCompany on a sampling basis.

In our opinion, the financial statements of the Company are properly drawn up in accordance with theprovisions of the Accounting Standards for Business Enterprises and the Accounting Regulationsfor Industrial Enterprises, and present fairly, in all material aspects, the financial position of theCompany as at 31 December 2002 and the financial results and cash flows of the Company for the yearended 31 December 2002. Accounting methods have also been consistently adopted and applied by theCompany.

Zhong Huan Certified Public Accountants (Seal)CERTIFIED PUBLIC ACCOUNTANTS (SEAL)13 January 2003

I-3

APPENDIX J

AUDITORS' REPORT ON THE AUDITED FINANCIAL STATEMENTS OF WUHAN KAIDI MEASURE & CONTROL ENGINEERING CO., LTD.

FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2001 AND 2002

J-1

2002 146

2001 12 31 2001

2001 12 31

2001

B 16 2002 4 3

J-2

(2003)026

2002 12 31 2002

2002

2002 12 31 2002

K-1

APPENDIX K

SUMMARY OF THE CONSTITUTION OF THE COMPANY

The discussion below provides information about certain provisions of our Memorandum and Articles ofAssociation and the laws of Singapore. This description is only a summary and is qualified by referenceto Singapore law and our Memorandum and Articles of Association.

The instruments that constitute and define the Company are the Memorandum and Articles ofAssociation of the Company.

1. Memorandum of Association and Registration Number

The registration number with which the Company was incorporated is 200210042R. OurMemorandum of Association states that the liability of shareholders of our Company is limited tothe amount, if any, for the time being unpaid on the shares respectively held by them and that ourCompany is an exempted company as defined in the Companies Act. Our Memorandum ofAssociation also sets out the objects for which our Company was formed, including acting as aholding and investment company, and the powers of our Company, including the powers set out inthe First Schedule to the Companies Act.

2. Directors

(a) Ability of interested directors to vote

Subject to the Companies Act and any further disclosure required thereby, if a generalnotice to our Board of Directors is given by a Director or officer declaring that he is adirector or officer or has an interest in a person and is to be regarded as interested in anytransaction or arrangement made with that person, it shall be a sufficient declaration ofinterest in relation to any transaction or arrangement so made. Our Directors shall not votein respect of any contract proposed contract or arrangement in which he has a personalmaterial interest, although he may be counted in the quorum present at the meeting.

(b) Remuneration

Fees payable to non-executive Directors shall be a fixed sum (not being a commission on ora percentage of profits or turnover of the Company) as shall from time to time bedetermined by the Company in general meeting. Fees payable to Directors shall not beincreased except at a general meeting convened by a notice specifying the intention topropose such increase.

Any Director who holds any executive office, or who serves on any committee of theDirectors, or who performs services outside the ordinary duties of a Director, may be paidextra remuneration by way of salary, commission or otherwise, as the Directors maydetermine.

The remuneration of a Managing Director shall be fixed by the Directors and may be by wayof salary or commission or participation in profits or by any or all of these modes, but shallnot be by a commission on or a percentage of turnover.

The Directors shall have power to pay pensions or other retirement, superannuation, deathor disability benefits to (or to any person in respect of) any Director for the time beingholding any executive office and for the purpose of providing any such pensions or otherbenefits to contribute to any scheme or fund or to pay premiums.

(c) Borrowing

Our Directors may exercise all the powers of our Company to raise or borrow money, tomortgage or charge its undertaking, property and uncalled capital and to secure any debt,liability or obligation of our Company.

(d) Retirement Age Limit

There is no retirement age limit for Directors under our Articles of Association. Section153(1) of the Companies Act however, provides that no person of or over the age of 70years shall be appointed a director of a public company.

(e) Shareholding Qualification

There is no shareholding qualification for Directors in the memorandum and Articles ofAssociation of the Company.

3. Share rights and restrictions

Our Company currently has one class of shares, namely, ordinary shares. Only persons who areregistered on our register of shareholders and in cases in which the person so registered is CDP,the persons named as the depositors in the depository register maintained by CDP for the ordinaryshares, are recognised as our shareholders.

(a) Dividends and distribution

We may, by ordinary resolution of our shareholders, declare dividends at a general meeting,but we may not pay dividends in excess of the amount recommended by our Board ofDirectors. We must pay all dividends out of our profits. However, we may capitalise our sharepremium account and apply it to pay dividends, if such dividends are satisfied by the issueof shares to our shareholders. All dividends are paid pro-rata amongst our shareholders inproportion to the amount paid up on each shareholder’s ordinary shares, unless the rightsattaching to an issue of any ordinary share provide otherwise. Unless otherwise directed,dividends are paid by cheque or warrant sent through the post to each shareholder at hisregistered address. Notwithstanding the foregoing, the payment by us to CDP of anydividend payable to a shareholder whose name is entered in the depository register shall, tothe extent of payment made to CDP, discharge us from any liability to that shareholder inrespect of that payment.

The payment by the Directors of any unclaimed dividends or other moneys payable on or inrespect of a share into a separate account shall not constitute the Company a trustee inrespect thereof. All dividends unclaimed after being declared may be invested or otherwisemade use of by the Directors for the benefit of the Company. Any dividend unclaimed aftera period of six (6) years after having been declared may be forfeited and shall revert to theCompany but the Directors may thereafter at their discretion annul any such forfeiture andpay the dividend so forfeited to the person entitled thereto prior to the forfeiture.

The Directors may retain any dividend or other moneys payable on or in respect of a shareon which our Company has a lien and may apply the same in or towards satisfaction of thedebts, liabilities or engagements in respect of which the lien exists.

(b) Voting rights

A holder of our ordinary shares is entitled to attend, speak and vote at any general meeting,in person or by proxy. Proxies need not be a shareholder. A person who holds ordinaryshares through the SGX-ST book-entry settlement system will only be entitled to vote at ageneral meeting as a shareholder if his name appears on the depository register maintainedby CDP 48 hours before the general meeting. Except as otherwise provided in our Articles,two or more shareholders must be present in person or by proxy to constitute a quorum atany general meeting. Under our Articles, on a show of hands, every shareholder present inperson and by proxy shall have one vote (provided that in the case of a shareholder who is

K-2

represented by two proxies, only one of the two proxies as determined by that shareholderor, failing such determination, by the Chairman of the meeting in his sole discretion shall beentitled to vote on a show of hands), and on a poll, every shareholder present in person orby proxy shall have one vote for each ordinary share which he holds or represents. A pollmay be demanded in certain circumstances, including by the Chairman of the meeting or byany shareholder present in person or by proxy and representing not less than 10 per cent. ofthe total voting rights of all shareholders having the right to attend and vote at the meetingor by any two shareholders present in person or by proxy and entitled to vote. In the case ofa tie vote, whether on a show of hands or a poll, the Chairman of the meeting shall beentitled to a casting vote.

4. Change in capital

Changes in the capital structure of our Company (for example, an increase, consolidation,cancellation, sub-division or conversion of our share capital) require shareholders to pass anordinary resolution. Ordinary resolutions generally require at least 14 days’ notice in writing. Thenotice must be given to each of our shareholders who have supplied us with an address inSingapore for the giving of notices and must set forth the place, the day and the hour of themeeting. However, we are required to obtain our shareholders’ approval by way of a specialresolution for any reduction of our share capital, redemption reserve, fund or any share premiumaccount or other undistributable reserve, subject to the conditions prescribed by law.

5. Variation of rights of existing shares or classes of shares

Subject to the Companies Act, whenever the share capital of the Company is divided into differentclasses of shares, the special rights attached to any class may be varied or abrogated either withthe consent in writing of the holders of three-quarters in nominal value of the issued shares of theclass or with the sanction of a special resolution passed at a separate general meeting of theholders of the shares of the class. To every such separate general meeting, all the provisions ofthese presents relating to general meetings of the Company and to the proceedings thereat shallmutatis mutandis apply, except that the necessary quorum shall be two persons at least holding orrepresenting by proxy at least one-third in nominal value of the issued shares of the class and thatany holder of shares of the class present in person or by proxy may demand a poll and that everysuch holder shall on a poll have one vote for every share of the class held by him, Provided alwaysthat where the necessary majority for such a special resolution is not obtained at such GeneralMeeting, consent in writing if obtained from the holders of three-quarters in nominal value of theissued shares of the class concerned within two months of such General Meeting shall be as validand effectual as a Special Resolution carried at such General Meeting. These provisions shallapply to the variation or abrogation of the special rights attached to some only of the shares of anyclass as if each group of shares of the class differently treated formed a separate class the specialrights whereof are to be varied.

The relevant Article does not impose more significant conditions than the Companies Act in thisregard.

6. Limitations on shareholders regarded as non-residents of Singapore

There are no limitations imposed by Singapore law or by our Articles of Association on the rightsof our shareholders who are regarded as non-residents of Singapore to hold or vote their shares.

K-3

L-1

APPENDIX L

SUMMARY OF RELEVANT PRC LAWS AND REGULATIONS

1. PRC legal system

The PRC legal system is based on the PRC Constitution and is made up of written laws,regulations and directives. Decided court cases do not constitute binding precedents.

The National People’s Congress of the PRC (“NPC”) and the Standing Committee of the NPC areempowered by the PRC Constitution to exercise the legislative power of the state. The NPC hasthe power to amend the PRC Constitution and to enact and amend primary laws governing thestate organs, civil and criminal matters. The Standing Committee of the NPC is empowered tointerpret, enact and amend laws other than those required to be enacted by the NPC.

The State Council of the PRC is the highest organ of state administration and has the power toenact administrative rules and regulations. Ministries and commissions under the State Council ofthe PRC are also vested with the power to issue orders, directives and regulations within thejurisdiction of their respective departments. Administrative rules, regulations, directives and orderspromulgated by the State Council and its ministries and commissions must not be in conflict withthe PRC Constitution or the national laws and, in the event that any conflict arises, the StandingCommittee of the NPC has the power to annul such administrative rules, regulations, directivesand orders.

At the regional level, the people’s congresses of provinces and municipalities and their standingcommittees may enact local rules and regulations and the people’s government may promulgateadministrative rules and directives applicable to their own administrative area. These local lawsand regulations may not be in conflict with the PRC Constitution, any national laws or anyadministrative rules and regulations promulgated by the State Council.

Rules, regulations or directives may be enacted or issued at the provincial or municipal level or bythe State Council of the PRC or its ministries and commissions in the first instance forexperimental purposes. After sufficient experience has been gained, the State Council may submitlegislative proposals to be considered by the NPC or the Standing Committee of the NPC forenactment at the national level.

The power to interpret laws is vested by the PRC Constitution in the Standing Committee of theNPC. According to the Decision of the Standing Committee of the NPC Regarding theStrengthening of Interpretation of Lawspassed on 10th June, 1981, the Supreme People’s Court has the power to give generalinterpretation on application of laws in judicial proceedings apart from its power to issue specificinterpretation in specific cases. The State Council and its ministries and commissions are alsovested with the power to give interpretation of the rules and regulations which they promulgated.At the regional level, the power to give interpretation of regional laws is vested in the regionallegislative and administration organs which promulgate such laws. All such interpretations carrylegal effect.

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2. Judicial system

The People’s Courts are the judicial organs of the PRC. Under the PRC Constitutionand the Law of Organisation of the People’s Courts of the People’s Republic

of China , the People’s Courts comprise the Supreme People’sCourt, the local people’s courts, military courts and other special people’s courts. The localpeople’s courts are divided into three levels, namely, the basic people’s courts, intermediatepeople’s courts and higher people’s courts. The basic people’s courts are divided into civil,criminal, administrative and economic divisions. The intermediate people’s courts have divisionssimilar to those of the basic people’s courts and, where the circumstances so warrant, may haveother special divisions (such as intellectual property divisions). The judicial functions of people’scourts at lower levels are subject to supervision of people’s courts at higher levels. The people’sprocuratorates also have the right to exercise legal supervision over the proceedings of people’scourts of the same and lower levels. The Supreme People’s Court is the highest judicial organ ofthe PRC. It supervises the administration of justice by the people’s courts of all levels.

The people’s courts adopt a two-tier final appeal system. A party may before the taking effect of ajudgment or order appeal against the judgment or order of the first instance of a local people’scourt to the people’s court at the next higher level. Judgments or orders of the second instance ofthe same level and at the next higher level are final and binding. Judgments or orders of the firstinstance of the Supreme People’s Court are also final and binding. If, however, the SupremePeople’s Court or a people’s court at a higher level finds an error in a final and binding judgmentwhich has taken effect in any people’s court at a lower level, or the presiding judge of a people’scourt finds an error in a final and binding judgment which has taken effect in the court over whichhe presides, a retrial of the case may be conducted according to the judicial supervisionprocedures.

The PRC civil procedures are governed by the Civil Procedure Law of the People’s Republic ofChina (the “Civil Procedure Law”) adopted on 9th April, 1991. TheCivil Procedure Law contains regulations on the institution of a civil action, the jurisdiction of thepeople’s courts, the procedures in conducting a civil action, trial procedures and procedures for theenforcement of a civil judgment or order. All parties to a civil action conducted within the territoryof the PRC must comply with the Civil Procedure Law. A civil case is generally heard by a courtlocated in the defendant’s place of domicile. The jurisdiction may also be selected by expressagreement by the parties to a contract provided that the jurisdiction of the people’s court selectedhas some actual connection with the dispute, that is to say, the plaintiff or the defendant is locatedor domiciled, or the contract was executed or implemented in the jurisdiction selected, or thesubject-matter of the proceedings is located in the jurisdiction selected. A foreign national orforeign enterprise is accorded the same litigation rights and obligations as a citizen or legal personof the PRC. If any party to a civil action refuses to comply with a judgment or order made by apeople’s court or an award made by an arbitration body in the PRC, the aggrieved party may applyto the people’s court to enforce the judgment, order or award. There are time limits on the right toapply for such enforcement. Where at least one of the parties to the dispute is an individual, thetime limit is one year. If both parties to the dispute are legal persons or other entities, the time limitis six months.

A party seeking to enforce a judgment or order of a people’s court against a party who or whoseproperty is not within the PRC may apply to a foreign court with jurisdiction over the case forrecognition and enforcement of such judgment or order. A foreign judgment or ruling may also berecognised and enforced according to PRC enforcement procedures by the people’s courts inaccordance with the principle of reciprocity or if there exists an international or bilateral treaty withor acceded to by the foreign country that provides for such recognition and enforcement, unlessthe people’s court considers that the recognition or enforcement of the judgment or ruling willviolate fundamental legal principles of the PRC or its sovereignty, security or social or publicinterest.

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3. Arbitration and enforcement of arbitral awards

The Arbitration Law of the PRC (the “Arbitration Law”) was promulgatedby the Standing Committee of the NPC on 31st August, 1994 and came into effect on 1stSeptember, 1995. It is applicable to, among other matters, trade disputes involving foreign partieswhere the parties have entered into a written agreement to refer the matter to arbitration before anarbitration committee constituted in accordance with the Arbitration Law. Under the ArbitrationLaw, an arbitration committee may, before the promulgation by the PRC Arbitration Association ofarbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Lawand the PRC Civil Procedure Law. Where the parties have by an agreement provided arbitrationas a method for dispute resolution, the parties are not permitted to institute legal proceedings in apeople’s court.

Under the Arbitration Law, an arbitral award is final and binding on the parties and if a party fails tocomply with an award, the other party to the award may apply to the people’s court forenforcement. A people’s court may refuse to enforce an arbitral award made by an arbitrationcommittee if there were mistakes, an absence of material evidence or irregularities over thearbitration proceedings, or the jurisdiction or constitution of the arbitration committee.

A party seeking to enforce an arbitral award of a foreign affairs arbitration body of the PRC againsta party who or whose property is not within the PRC may apply to a foreign court with jurisdictionover the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body maybe recognised and enforced by the PRC courts in accordance with the principles of reciprocity orany international treaty concluded or acceded to by the PRC.

In respect of contractual and non-contractual commercial-law-related disputes which arerecognised as such for the purposes of PRC law, the PRC has acceded to the Convention on theRecognition and Enforcement of Foreign Arbitral Award (“New York Convention”) adopted on 10thJune, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on 2ndDecember, 1986. The New York Convention provides that all arbitral awards made by a statewhich is a party to the New York Convention shall be recognised and enforced by other parties tothe New York Convention subject to their right to refuse enforcement under certain circumstancesincluding where the enforcement of the arbitral award is against the public policy of the state towhich the application for enforcement is made. It was declared by the Standing Committee of theNPC at the time of the accession of the PRC that (1) the PRC would only recognise and enforceforeign arbitral awards on the principle of reciprocity and (2) the PRC would only apply the NewYork Convention in disputes considered under PRC laws to be arising from contractual and non-contractual mercantile legal relations.

4. Foreign exchange control

Major reforms have been introduced on the foreign exchange control system of the PRC since1993.

The People’s Bank of China, with the authorisation of the State Council, issued on 28th December,1993 the Notice on the Further Reform of the Foreign Exchange Control System

and on26th March, 1994 the Provisional Regulations on the Settlement, Sale and Payment of ForeignExchange which came into effect on 1st April, 1994 respectively.On 29th January, 1996, the State Council promulgated the PRC Foreign Exchange AdministrationRegulations which took effect on 1st April, 1996. On 20th June,1996, the PBOC issued the Administration Regulations on the Settlement, Sale and Payment ofForeign Exchange , which took effect on 1st July, 1996. On 25thOctober, 1998, the People’s Bank of China and the State Administration for Foreign Exchangeissued a Joint Announcement on Abolishment of Foreign Exchange Swap Business which statedthat from 1st December, 1998, all foreign exchange transactions for FIEs may only be conductedthrough authorised banks.

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These regulations contain detailed provisions regulating the holding, sale and purchase of foreignexchange by individuals, enterprises, economic bodies and social organisations in the PRC.

Under the new regulations, the previous dual exchange rate system for Renminbi was abolishedand a unified floating exchange rate system based largely on supply and demand was introduced.The People’s Bank of China, having regard to the trading prices between Renminbi and majorforeign currencies on the inter-bank foreign exchange market, publishes on each bank businessday the Renminbi exchange rates against major foreign currencies.

In general, all organisations and individuals within the PRC, including foreign investmententerprises, are required to remit their foreign exchange earnings to the PRC. In relation to PRCenterprises, their recurrent foreign exchange earnings are generally required to be sold todesignated banks unless specifically approved otherwise. Foreign investment enterprises(including sino-foreign equity joint ventures, sino-foreign co-operative joint ventures and whollyforeign owned enterprises), on the other hand, are permitted to retain certain percentage of theirrecurrent foreign exchange earnings and the sums retained may be deposited into foreignexchange bank accounts maintained with designated banks. Capital foreign exchange earningsmust be deposited into foreign exchange bank accounts maintained with designated banks andcan generally be retained in such accounts.

At present, control on the purchase of foreign exchange is being relaxed. Enterprises whichrequire foreign exchange for their current activities such as trading activities and payment of staffremuneration may purchase foreign exchange from designated banks, subject to the production ofrelevant supporting documents without the need for any prior approvals of the State Administrationof Foreign Exchange.

In addition, where an enterprise requires any foreign exchange for the payment of dividends thatare payable in foreign currencies under applicable regulations, such as the distribution of profits bya foreign investment enterprise to its foreign investment party, then, subject to the due payment oftax on such dividends the amount required may be withdrawn from funds in foreign exchangeaccounts maintained with designated banks, and where the amount of the funds in foreignexchange is insufficient, the enterprise may purchase additional foreign exchange from designatedbanks upon the presentation of the resolutions of the board of directors on the profit distributionplan of that enterprise.

Despite the relaxation of foreign exchange control over recurrent account transaction, the approvalof the foreign exchange administration authority is still required before a PRC enterprise mayborrow a loan in foreign currency or provide any foreign exchange guarantee or make anyinvestment outside of the PRC or to enter into any other capital account transaction involving thepurchase of foreign exchange.

When conducting actual foreign exchange transactions, the designated banks may, based on theexchange rate published by the People’s Bank of China and subject to certain limits, freelydetermine the applicable exchange rate.

The China Foreign Exchange Trading Centre (“CFETC”) was formally established and came intooperation on 1st January, 1994. CFETC has set up a computerised network with sub-centres inseveral major cities, thereby forming an interbank market in which designated PRC banks cantrade in foreign exchange and settle their foreign currency obligations. Prior to 1st December,1998, enterprises with foreign investment may at their own choice enter into exchange transactionsthrough Swap Centre or through designated PRC banks. From 1st December, 1998 onwards,exchange transactions will have to be conducted through designated banks. Swap Centresbecame restricted to conducting foreign exchange transactions between authorised banks andinter-bank lending between PRC banks.

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5. Taxation

The applicable income tax laws, regulations, notices and decisions (collectively referred to as“Applicable Foreign Enterprises Tax Law”) related to foreign investment enterprises and theirinvestors include the follows:

(1) Income Tax Law of the PRC on Foreign Investment Enterprises and Foreign Enterprisesadopted by the NPC on 9th April, 1991

(2) Implementing Rules of the Income Tax Law of the PRC on Foreign Investment Enterprisesand Foreign Enterprises promulgated by the State Council, which came into effect on 1st July, 1991

(3) Notice Relating to taxes Applicable to Foreign Investment Enterprises / Foreign Enterprisesand Foreign Nationals in Relation to Dividends and Gains obtained from Holding andTransferring of Shares

promulgated by State Tax Bureau on 21 July1993

(4) Amendments to the Income Tax Law Applicable to Individuals of the PRCpromulgated by Standing Committee of NPC on

31 October 1993

(5) Notice on Relevant Policies Concerning Individual Income Tax issued by Ministry of Finance and the State Tax Bureau on 13 May 1994

(a) Income tax on foreign investment enterprises

According to the Applicable Foreign Enterprises Tax Law, foreign investmententerprises (including sino-foreign equity joint ventures, sino-foreign co-operative jointventures and wholly foreign owned enterprises established in the territory of the PRC)are required to pay a national income tax at a rate of 30% of their taxable income anda local income tax at a rate of three per cent. of their taxable income.

A foreign investment enterprise engaged in production having a period of operation ofnot less than ten years shall be exempted from income tax for the first two profit-making years and a 50% reduction in the income tax payable for the next three years.The income tax concession for foreign investment enterprises engaged in theexploitation of resources such as petroleum, natural gas, rare metals and preciousmetals are regulated separately by the State Council.

Foreign investment enterprises established in special economic zones, foreignenterprises having an establishment in special economic zones engaged inproduction or business operations and foreign investment enterprises engaged inproduction in economic and technological zones may pay income tax at a reducedrate of 15%. Foreign investment enterprises engaged in production established incoastal economic open zones or in the old urban districts of cities where the specialeconomic zones or the economic and technological development zones are locatedmay pay income taxes at a reduced rate of 24%. A reduced income tax rate of 15 percent. may apply to an enterprise located in such regions which is engaged in energy,communication, harbour, wharf or other projects encouraged by the State.

Losses incurred in a tax year may be carried forward for not more than five years.

The people’s governments of provinces, autonomous regions and municipalitiesdirectly under the central government may grant exemptions from or reduced localincome tax for a foreign investment enterprise engaged in an industry or a projectencouraged by the State.

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(b) Value added tax

The Provisional Regulations of the People’s Republic of China Concerning ValueAdded Tax promulgated by the State Council cameinto effect on 1st January, 1994. Under these regulations and the Implementing Rulesof the Provisional Regulations of the People’s Republic of China Concerning ValueAdded Tax , value added tax is imposed ongoods sold in or imported into the PRC and on processing, repair and replacementservices provided within the PRC.

Value added tax payable in the PRC is charged on an aggregated basis at a rate of13 or 17% (depending on the type of goods involved) on the full price collected for thegoods sold or, in the case of taxable services provided, at a rate of 17% on thecharges for the taxable services provided but excluding, in respect of both goods andservices, any amount paid in respect of value added tax included in the price orcharges, and less any deductible value added tax already paid by the taxpayer onpurchases of goods and services in the same financial year.

(c) Business tax

With effect from 1st January, 1994, businesses that provide services (exceptentertainment business), assign intangible assets or sell immovable property becameliable to business tax at a rate ranging from three to five per cent. of the charges ofthe services provided, intangible assets assigned or immovable property sold, as thecase may be.

(d) Tax on dividends from PRC enterprise with foreign investment

According to the Applicable Foreign Enterprises Tax Law, income such as dividendsand profits distribution from the PRC derived from a foreign enterprise which has noestablishment in the PRC is subject to a 20% withholding tax, subject to reduction asprovided by any applicable double taxation treaty, unless the relevant income isspecifically exempted from tax under the Applicable Foreign Enterprises Tax Law. Theprofit derived by a foreign investor from a PRC enterprise with foreign investment isexempted from PRC tax according to the Applicable Foreign Enterprises Tax Law.

6. Sino-foreign equity joint venture

Sino-foreign equities joint venture are governed by the Law of the People’s Republic of ChinaConcerning Sino-foreign Equities Joint Venture, which was promulgated on 8th July, 1979 (and

subsequently amended on 15th March 2001) and its Implementation Regulations promulgated on

20th September, 1983 (and subsequently amended on 22nd July 2001) (together the “Sino-foreignEquity Law”).

(a) Procedures for establishment of a Sino-foreign equity joint venture

The establishment of a Sino-foreign equity joint venture will have to be approved by theMinistry of Commerce of the People’s Republic of China (“MOFCOM”) (or its delegatedauthorities). A Sino-foreign equity joint venture must also obtain a business licence from theState Administration for Industry and Commerce (“SAIC”) (or its delegated authorities)before it can commence business.

(b) Nature

A Sino-foreign equity joint venture is a limited liability company under the Sino-foreign EquityLaw. It is a legal person which may independently assume civil obligations, enjoy civil rightsand has the right to own, use and dispose of property. It is required to have a registeredcapital contributed by the Chinese and foreign investors. The liability of the Chinese andforeign investors are limited to the amount of registered capital contributed. Chinese and

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foreign investors may make their contributions by instalments and the registered capital mustbe contributed within the period as stated in the Sino-foreign Equity Joint Venture Contract,which is approved by the MOFCOM (or its delegated authorities) in accordance with therelevant regulations.

(c) Profit distribution

The Sino-foreign Equity Law provides that after payment of taxes, a Sino-foreign equity jointventure must make contributions to a reserve fund, an employee bonus and welfare fund,and an enterprise development fund (“Three Funds”). The allocation ratio for the ThreeFunds may be determined by the board of directors of the enterprise. The enterprise isprohibited from distributing dividends unless the losses (if any) of previous years have beenmade up.

7. Environmental Protection Regulations

In accordance with Environmental Protection Law of the PRC adopted by the Standing Committeeof the NPC on 26 December 1989, the Administration Supervisory Department of EnvironmentalProtection of the State Council sets the national guidelines for the discharge of pollutants. Theprovincial and municipal governments of provinces, autonomous regions and municipalities mayalso set their own guidelines for the discharge of pollutants within their own provinces or districts inthe event that the national guidelines are inadequate.

A company or enterprise, which causes environmental pollution and discharges other pollutingmaterials, which endanger the public, should implement environmental protection methods andprocedures into their business operations. This may be achieved by setting up a system ofaccountability within the company’s business structure for environmental protection; adoptingeffective procedures to prevent environmental hazards such as waste gases, water and residues,dust powder, radioactive materials and noise arising from production, construction and otheractivities from polluting and endangering the environment. The environmental protection systemand procedures should be implemented simultaneously with the commencement of and during theoperation of construction, production and other activities undertaken by the company. Anycompany or enterprise which discharges environmental pollutants should report and register suchdischarge with the Administration Supervisory Department of Environmental Protection and payany fines imposed for the discharge. A fee may also be imposed on the company for the cost ofany work required to restore the environment to its original state. Companies that have causesevere pollution to the environment are required to restore the environment or remedy the effectsof the pollution within a prescribed time limit.

If a company fails to report and/or register the environmental pollution caused by it, it will receive awarning or be penalized. Companies which fail to restore the environment or remedy the effects ofthe pollution within the prescribed time will be penalized or have their business licencesterminated. Companies or enterprises which have polluted and endangered the environment mustbear the responsibility for remedying the danger and effects of the pollution, as well as tocompensate any losses or damages suffered as a result of such environmental pollution.

8. Other Government Regulations

1. The Administrative Measure of Design Certificate for Environment Projects (“DesignCertificate Measure”)

The Design Certificate Measure was promulgated by State Environment ProtectionAdministration (EPA) on 6 February 1995 and became effective on 1 August 1995. TheDesign Certificate Measure is to enhance the administration of designs for environmentpollution control projects (“Environment Projects”), increase the return rate of environmentprotection investment and improve environment quality.

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The Design Certificate Measure is applicable to the following environment projects design:

(a) The techniques design, non-standard equipment design and related constructiondesign for environment pollution control projects including wastewater, waste gas,solid waste, noise, electromagnetism, radioactivity;

(b) The design for waste resource projects;

(c) The design for environment ecology project.

Under the Design Certificate Measure, an entity which engages in the design ofenvironment projects in the PRC must be issued a Design Certificate for EnvironmentProjects (“Design Certificate”).

The Design Certificate is classified into 3 levels as A, B and C. A-level holders may carry ondesign of environment projects nationwide in accordance with the scope prescribed by theDesign Certificate. B level holders may carry on corresponding design of environmentproject nationwide in accordance with the scope and project quota prescribed by the DesignCertificate. C level holders may carry on the design of environment projects within theprovince, autonomous region or the municipality directly under the jurisdiction of centralgovernment where the C level certificate holders are located in accordance with the scopeand project quota prescribed by the Design Certificate. The design entity is not allowed toimplement an environment design project unless it has been dully authorized with acorresponding certificate. Any entity which is in breach of the Design Certificate Measurewill be subject to fine, public criticism, suspension order or withdrawing of Design Certificate.

2. Water Pollution Control Law (“WPC Law”) and its Implementation Rule ofWPC Law (“Implementation Rule”)

The WPC Law was first promulgated in 1984 and was revised in 1996 with some majoramendments being made. It regulates various aspects of prevention and control of waterpollution in the PRC. The Implementation Rule was promulgated in March 2000 by StateCouncil of PRC according to PRC WPC Law.

Under the WPC Law, it is broadly provided that water resources should be used in a well-planned and prudent manner. Industrial enterprises in different localities should undertaketechnological innovation so as to ensure proper use of water resources and to reduce thevolume of wastewater and other pollutants emitted. It also generally provides for theestablishment of protection zone for potable water and stringent measures to prohibit anyactivities which may pollute potable water.

Under the WPC Law, local governments are charged with the functions of proper allocationof water resources, proper industrial development planning and town planning with waterpollution prevention and control being taken into account. The local EPAs are in charge ofimplementing unified supervision and administration of water pollution prevention andcontrol.

Other local administration departments (such as port authority, health department and landand mineral resources department) will assist the local EPA to implement water pollutionprevention and control measures under the coordination of the local EPA. The state EPA isresponsible for prescribing the national quality standard of water environment and, havingregard to the economic and technological conditions of the country, the national pollutantemission standard. Local EPAs may, having regard to the local conditions, make formulateUnder the WPC Law, for any enterprises which plan to implement construction works ormodify existing construction structures that may discharge water pollutants, anenvironmental impact assessment report is required to be prepared setting out the proposedmeasures for water pollution prevention and control. The report is subject to the review and

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approval of the relevant EPA. In addition, the design, construction and application of thefacilities for preventing and controlling water pollution in the construction project should bedone concurrently with design, construction and operation of the main construction works,respectively. The WPC Law also provides that the relevant bodies of the State Council andlocal people’s governments shall, among other responsibilities, take account of urban waterresource protection and urban sewage prevention and control in town planning, installcentral treatment facilities for urban sewage in a pre-planned manner, and strengthen thecoordinated management of urban water environment.

Under the Implementation Rule, a Licence of allowing discharging of wastewater will beissued to the entities which are under the stated discharging index whereas an order to takeremedial measures within a prescribed period will be given to the entities which are abovethe stated discharging index. The discharging standards of urban collective wastewatertreatment facilities shall be in compliance with the pollutants discharging standards stated bythe State or local EPAs. The operation entities which are responsible for the projects ofurban collective wastewater treatment shall be liable to the discharging standards of relateddischarging facilities. Any entities in breach of the WPC Law and/or the ImplementationRule will be subject to fines not more than RMB 1,000,000, withdrawal of licence,suspension orders or even closure of production premises. If a violation of the WPC Lawcauses a serious environmental pollution accident, leading to the grave consequences ofheavy losses of public or private property or human injuries or deaths of persons, thepersons responsible for such an accident may be investigated for criminal liability inreference to the provisions of the Criminal Law.

3. The Operation Quality Recognition Administration Measure (Trial) for EnvironmentalProtection Facilities (“Recognition Measure”)

The Recognition measure was promulgated in March 1999 by State EPA. Under theRecognition Measure, the operation quality recognition is the examination and recognitionprocedures taken by the State EPA to service providers’ operating ability, fund strength,management capacity and staff quality. Any service provider engaging in operation ofenvironmental protection facilities may apply for the Operation Certificate which is classifiedinto 6 classes.

4. Administrative Measures for Environmental Protection and Supervision of WastewaterTreatment Facilities (“WTF Measures”)

The WTF Measures was promulgated by the State EPA in 1988. The WTF Measures isapplicable to the wastewater treatment facilities of all enterprises (including foreign investedenterprises). The wastewater treatment facilities concerned include treatment facilities forindustrial wastewater, facilities for integrated application and recycled use and closed circuitcirculation system of water, treatment facilities for urban sewage, medical wastewater andhotel and guesthouse wastewater.

Under the WTF Measures, a wastewater treatment facility is required to ensure that thewastewater after being processed will attain the relevant discharge standard or indicator aspromulgated by the national or local authority, the volume of wastewater which it mayprocess shall not be smaller than that discharged by the relevant production system, the rawsludge will be processed or disposed of in a proper manner, and the wastewatermanagement system will be properly integrated into the overall management system of therelevant entity.

Local EPAs are authorised to inspect and approve the operating and application conditionsof wastewater management system.

If the wastewater treatment facility of any entity ceases operation, the relevant entity shalltake immediate measures to stop the discharge of the wastewater and report the incident tothe local EPA.

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APPENDIX M

EXCHANGE CONTROLS

The following is a description of the exchange controls that exist in the jurisdictions which our Groupoperates in.

PRC

Prior to 31 December 1993, enterprises in the PRC requiring foreign currency were required to obtainapproval from the State Planning Committee and the Ministry of Foreign Trade and EconomicCooperation before it could convert Renminbi into foreign currency, and such conversion had to beeffected at the official rate prescribed by the State Administration for Foreign Exchange (“SAFE”).Renminbi reserved by foreign investment enterprises could also be converted into foreign currency atswap centres with the prior examination and verification by SAFE. The exchange rates used by swapcentres were largely determined by the supply of and demand for foreign currencies and Renminbi.

On 28 December 1993, the People’s Bank of China announced that the dual exchange rate system forRenminbi against foreign currencies would be abolished with effect from 1 January 1994 and be replacedby the unified exchange rate system. Under the new system, the People’s Bank of China publishes theRenminbi exchange rate against the United States dollar daily. The daily exchange rate is set byreference to the Renminbi/United States dollar trading price on the previous day on the “inter-bankforeign exchange market”.

On 1 April 1996, the Foreign Exchange Control Regulations of China (as amended on 14 January 1997)came into effect. On 20 June 1996, the People’s Bank of China issued the Announcement on theImplementation of Sale and Purchase of Foreign Exchange for the Foreign Investment Enterprises whichallows foreign investment enterprises to settle their foreign exchange related transactions at designatedbanks or at swap centres from 1 July 1996. On 20 June 1996, the Regulations on Sale and Purchase ofand Payment in Foreign Exchange were promulgated by the People’s Bank of China and came into effecton 1 July 1996.

On 25 October 1998, the People’s Bank of China and SAFE issued a Joint Announcement onAbolishment of Foreign Exchange Swap Business which stated that from 1 December 1998, foreignexchange transactions for foreign investment enterprises may only be conducted at designated banks. Inaddition, some of the swap centres would be abolished, while the others which are already linked up withthe China Foreign Exchange Trading Centre (the “CFETC”) by the computerised network will be mergedwith the CFETC and subcentres to the CFETC.

In summary, the present position under the PRC law relating to foreign exchange control, taking intoaccount the promulgation of the recent new regulations and the extent the existing provisions stipulatedin previous regulations do not contradict these new regulations, are as follows:-

1. The previous dual exchange rate system for Renminbi was abolished and a unified floatingexchange rate system based largely on supply and demand was introduced. The People’s Bank ofChina, having regard to the trading prices between Renminbi and major foreign currencies on theinter-bank foreign exchange market, publishes on each bank business day the exchange ratesagainst major foreign currencies.

2. The PRC enterprises had been generally required to sell their foreign exchange earnings todesignated banks unless specifically approved otherwise and purchase foreign exchange atdesignated banks for current account transactions. However, after the Implementing Rules forAdministration of Recurrent Transaction Foreign Exchange Accounts of Domestic Entities

was promulgated by the SAFE on 9 September 2002,PRC enterprises with foreign exchange accounts are entitled to reserve their foreign exchangeearnings in their foreign exchange accounts and pay for recurrent transactions with the foreignexchanges in such accounts to the extent that its foreign exchanges earnings in the accounts donot exceed the maximum limit as approved by the relevant foreign exchange control authorities.

3. Foreign investment enterprises may have their own foreign currency account and are permitted toretain a certain percentage of their recurrent exchange earnings.

4. Foreign investment enterprises which require foreign exchange for their ordinary trading activitiessuch as trade services and payment of interest on foreign debts may purchase foreign exchangefrom designated foreign exchange banks if the application is supported by proper payment noticesor supporting documents.

5. Foreign investment enterprises may require foreign exchange for the payment of dividends that arepayable in foreign currencies under applicable regulations, such as distributing profits to theirforeign investors. They can withdraw funds in their foreign exchange bank accounts kept withdesignated foreign exchange banks, subject to the due payment of tax on such dividends. Wherethe amount of the funds in foreign exchange is insufficient, the enterprise may, upon thepresentation of the resolutions of the Directors on the profit distribution plan of the particularenterprise, purchase foreign exchange from designated foreign exchange banks.

6. Foreign investment enterprises may apply to the Bank of China or other designated foreignexchange banks to remit the profits out of the PRC to the foreign parties to equity or cooperativejoint ventures or the foreign investors in wholly foreign-owned enterprises if the requirementsprovided by the PRC laws, rules and regulations are met.

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APPENDIX N

TAXATION

TAXATION –

The following is a discussion of certain tax matters arising under the current tax laws in Singapore and isnot intended to be and does not constitute legal or tax advice. While this discussion is considered to bea correct interpretation of existing laws in force, no assurance can be given that courts or fiscalauthorities responsible for the administration of such laws will agree with this interpretation or thatchanges in such laws will not occur. The discussion is limited to a general description of certain taxconsequences in Singapore with respect to ownership of our Shares by Singapore investors, and doesnot purport to be a comprehensive nor exhaustive description of all of the tax considerations that may berelevant to a decision to purchase our Shares. Prospective investors should consult their tax advisorsregarding Singapore tax and other tax consequences of owning and disposing our Shares. It isemphasised that neither our Company, our Directors nor any other persons involved in the Invitationaccepts responsibility for any tax effects or liabilities resulting from the subscription for, purchase, holdingor disposal of our Shares.

SINGAPORE INCOME TAX

General

Singapore tax residents are subject to Singapore income tax on income that is accrued in or derivedfrom Singapore and on foreign income received in Singapore, subject to certain exceptions.

Non-resident corporate taxpayers are subject to income tax on income that is accrued in or derived fromSingapore, and on foreign income received in Singapore, subject to certain exceptions. All individualsresident and non-resident, subject to certain exceptions, are subject to income tax on the incomeaccrued in or derived from Singapore. With effect from year of assessment 2005 (i.e. for financial/calendar year ending in 2004), all foreign-source income received in Singapore by all individuals will beexempt from Singapore tax. The latter exemption will not apply to such income received from apartnership in Singapore.

A company is tax resident in Singapore if the control and management of its business is exercised inSingapore. An individual is tax resident in Singapore in a year of assessment if, in the preceding year,he was physically present in Singapore or exercised an employment in Singapore (other than as adirector of a company) for 183 days or more, or if he resides in Singapore.

The corporate tax rate in Singapore is 20% with effect from the year of assessment 2005 i.e. the financialyear ending in 2004. In addition, three-quarters of up to the first $10,000 of a company’s chargeableincome, and one-half of up to the next $90,000 will be exempt from corporate tax. The remainingchargeable income (after the tax exemption) will be taxed at 20%. The above tax exemption will notapply to Singapore dividends received by companies.

For a Singapore tax resident individual, the rate of tax will vary according to the individual’scircumstances but is subject to a maximum rate of 22% with effect from the year of assessment 2003 i.e.calendar year 2002. It is proposed in the 2005 Budget that the maximum tax rate be reduced to 21%with effect from the year of assessment 2006 i.e. calender year 2005 and then further reduced to 20% inthe year of assessment 2007 i.e. calender year 2006.

Dividend Distributions

Singapore moved to the one-tier corporate tax system with effect from 1 January 2003. Under thissystem, the tax collected from corporate profits is final and all Singapore dividends paid by Singapore taxresident companies to their shareholders are exempt from tax (referred hereinafter as “one-tier taxexempt dividends”.)

We are in the one-tier corporate tax system. Under this system, when we distribute dividends, we willpay one-tier tax exempt dividends to our shareholders. One-tier tax exempt dividends on our Shares aretax exempt in the hands of our shareholders.

Gains on Disposal of our Shares

Singapore does not impose tax on capital gains. However, there are no specific laws or regulationswhich deal with the characterisation of capital gains, and hence, gains may be construed to be of anincome nature and subject to tax especially if they arise from activities which the Inland RevenueAuthority of Singapore regards as the carrying on of a trade in Singapore.

Any profits from the disposal of our Shares are not taxable in Singapore unless the seller is regarded ashaving derived gains of an income nature, in which case, the disposal profit would be taxable.

Stamp Duty

There is no stamp duty payable on the subscription of our Shares.

Stamp duty is payable on the instrument of transfer of our Shares at the rate of $2.00 for every $1,000market value of our Shares registered in Singapore.

The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty ispayable if no instrument of transfer is executed or the instrument of transfer is executed outsideSingapore. However, stamp duty may be payable if the instrument of transfer which is executed outsideSingapore is received in Singapore.

The above stamp duty is not applicable to electronic transfers of our shares through the CDP.

Estate Duty

Singapore estate duty is imposed on the value of immovable property situated in Singapore owned byindividuals who are not domiciled in Singapore, subject to specific exemption limits. Movable assets ofnon-domiciles will be exempt from estate duty with respect to deaths occurring on or after 1 January2002. Singapore estate duty is imposed on the value of most immovable property situated in Singaporeand on most movable property, wherever it may be, owned by individuals who are domiciled inSingapore, subject to specific exemption limits. Our Shares are considered to be movable propertysituated in Singapore as we are a company incorporated in Singapore.

Accordingly, our Shares held by an individual domiciled in Singapore are subject to Singapore estateduty upon such individual’s death. Singapore estate duty is payable to the extent that the value of ourShares aggregated with any other assets subject to Singapore estate duty exceeds $600,000. Unlessother exemptions apply to the other assets, for example, the separate exemption limit for residentialproperties, any excess beyond $600,000 will be taxed at 5% of the first $12,000,000 of the individual’sSingapore chargeable assets and thereafter at 10%. It is also proposed in the 2005 Budget that fordeath from 1 January 2006, the government will allow the estate duty paid on the earlier death to bededucted from the estate duty payable on the same assets assessed in the beneficiaries’ subsequentdeaths. The relief will start at 100% if the deaths occur within 6 months of each other, graduating to thefull estate duty payable if the deaths are more than 2 years apart. Individuals should consult their owntax advisors regarding the Singapore estate duty consequences of their ownership of our Shares.

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Goods and Services Tax (“GST”)

The sale of our Shares by an investor belonging in Singapore to another person belonging in Singaporeis an exempt supply not subject to GST. Any GST directly or indirectly incurred by the investor in respectof this exempt supply is a cost to the investor.

Where our Shares are sold by a GST-registered investor to a person belonging outside Singapore, thesale is a taxable sale subject to GST at zero-rate. Any GST incurred by the investor in the making of thissale, if the same is a supply in the course of furtherance of a business, is claimable as a refund from theComptroller of GST.

Services such as brokerage, handling and clearing services rendered by a GST-registered person to aninvestor belonging in Singapore in connection with the investor’s purchase, sale or holding of our Shareswill be subject to GST at the current rate of 5%. Similar services rendered to an investor belongingoutside Singapore are subject to GST at zero-rate.

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APPENDIX O

RULES OF THE ASIA WATER SHARE OPTION SCHEME

1. NAME OF THE SCHEME

The Scheme shall be called the “Asia Water Share Option Scheme”.

2. DEFINITIONS

2.1 In the Scheme, unless the context otherwise requires, the following words and expressions shallhave the following meanings:-

“Act” The Companies Act, Chapter 50 of Singapore as amended,modified or supplemented from time to time.

“Associated Company” A company in which at least 20% but not more than 50% of itsshares are held by the Company or the Group and over which theCompany has control.

“Associated Company Any confirmed employee (including directors) of an Associated Employees” Company selected by the Remuneration Committee to participate

in the Scheme.

“Auditors” The auditors of the Company for the time being.

“Board” The board of directors of the Company.

“CDP” The Central Depository (Pte) Limited.

“CPF” Central Provident Fund.

“Committee” A committee of Directors who are duly authorized and appointedby the Board to administer the Scheme for the time being andwhere the Company has established a Remuneration Committeepursuant to the Code of Corporate Governance, theRemuneration Committee shall administer the Scheme.

“Company” Asia Water Technology Ltd., a company incorporated inSingapore with limited liability

“control” The capacity to dominate decision-making, directly or indirectly, inrelation to the financial and operating policies of the Company.

“Controlling Shareholder” A shareholder exercising control over the Company and unlessrebutted, a person who controls directly or indirectly ashareholding of fifteen (15) per cent. or more of the Company’sissued share capital shall be presumed to be a ControllingShareholder of the Company.

“Date of Grant” In relation to an Option, the date on which the Option is grantedto a Participant pursuant to Rule 7.

“Director” A person holding office as a director for the time being of theCompany, its subsidiary or Associated Company, as the casemay be.

“Group Employee” Any confirmed employee of the Group (including any ExecutiveDirector) and its Associated Companies selected by theCommittee to participate in the Scheme in accordance with Rule4.

“Executive Director” A director of the Company, its subsidiaries and/or its AssociatedCompanies, as the case may be, who performs an executivefunction within the Company, the relevant subsidiary orAssociated Company, as the case may be.

“Exercise Price” The price at which a Participant shall subscribe for each Shareupon the exercise of an Option which shall be the price asdetermined in accordance with Rule 9, as adjusted in accordancewith Rule 10.

“Financial Year” Each period of twelve (12) months or more or less than twelve(12) months, at the end of which the balance of accounts of theCompany are prepared and audited, for the purpose of laying thesame before an annual general meeting of the Company.

“Grantee” A person to whom an offer of an Option is made.

“Group” The Company, its subsidiaries and its Associated Companies.

“Market Day” A day on which the SGX-ST is open for trading in securities.

“Market Price” A price equal to the average of the last dealt prices for theShares on the SGX-ST over the five consecutive Trading Daysimmediately preceding the Date of Grant of that Option, asdetermined by the Committee by reference to the daily official listor any other publication published by the SGX-ST, rounded to thenearest whole cent in the event of fractional prices.

“Market Price Option” An Option granted with the Exercise Price set at the MarketPrice.

“Non-Executive Director” A director of the Company, its subsidiaries and/or its associatedcompanies, as the case may be, other than an Executive Directorbut including the independent Directors of the Company.

“Offer Date” The date on which an offer to grant an Option is made pursuantto the Scheme.

“Offeree” The person to whom an offer of an Option is made.

“Option” The right to subscribe for Shares granted or to be granted to aGroup Employee pursuant to the Scheme and for the time beingsubsisting.

“Participant” The holder of an Option.

“Record Date” The date as at the close of business on which the Shareholdersmust be registered in order to participate in any dividends, rights,allotments or other distributions.

“Rules” Rules of the Asia Water Share Option Scheme.

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“Scheme” The Asia Water Share Option Scheme, as the same may bemodified or altered from time to time.

“Securities Account” The securities account maintained by a Depositor with CDP.

“Scheme Share” The new Shares to be issued by the Company upon the exerciseof the Options

“Shareholders” The registered holders for the time being of the Shares (otherthan the CDP) or in the case of Depositors, Depositors who haveShares entered against their names in the Depository Register.

“Shares” Ordinary shares of par value $0.06 each in the capital of theCompany.

“Subsidiary” A company which is for the time being a subsidiary of theCompany as defined by Section 5 of the Act.

“SGX-ST” Singapore Exchange Securities Trading Limited.

“Trading Day” A day on which the Shares are traded on the SGX-ST.

“S$” Singapore dollar.

2.2 The term “Depositor”, “Depository Register” and “Depository Agent” shall have the meaningsascribed to it by Section 130A of the Act and the term “associate” shall have the meaningascribed to it by the SGX-ST Listing Manual or any other publication prescribing rules orregulations for corporations admitted to the Official List of the SGX-ST (as modified,supplemented or amended from time to time).

2.3 Words importing the singular number shall, where applicable, include the plural number and viceversa. Words importing the masculine gender shall, where applicable, include the feminine andneuter gender.

2.4 Any reference to a time of a day in the Scheme is a reference to Singapore time.

2.5 Any reference in the Scheme to any enactment is a reference to that enactment as for the timebeing amended or re-enacted. Any word defined under the Act or any statutory modificationthereof and used in the Scheme shall have the meaning assigned to it under the Act.

3. OBJECTIVES OF THE SCHEME

The Scheme will provide an opportunity for Group Employees who have contributed significantlyto the growth and performance of the Group (including Executive and Non-Executive Directors)and who satisfy the eligibility criteria as set out in Rule 4 of the Scheme, to participate in theequity of the Company.

The Scheme is primarily a share incentive scheme. It recognizes the fact that the services of suchGroup Employees and Directors are important to the success and continued well-being of theGroup. Implementation of the Scheme will enable the Company to give recognition to thecontributions made by such Group Employees. At the same time, it will give such GroupEmployees an opportunity to have a direct interest in the Company at no direct cost to itsprofitability and will also help to achieve the following positive objectives:-

(a) the motivation of each Participant to optimise his performance standards and efficiency andto maintain a high level of contribution to the Group;

(b) the retention of key employees and Executive Directors of the Group whose contributionsare essential to the long-term growth and profitability of the Group;

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(c) to instil loyalty to, and a stronger identification by the Participants with the long-termprosperity of, our Company;

(d) to attract potential employees with relevant skills to contribute to the Group and to createvalue for the Shareholders of the Company; and

(e) to align the interests of the Participants with the interests of the Shareholders of theCompany.

4. ELIGIBILITY

4.1 Confirmed Group Employees (including Executive and Non-Executive Directors) who haveattained the age of twenty-one (21) years on or prior to the relevant Offer Date and are notundischarged bankrupts and have not entered into a composition with their respective creditors,shall be eligible to participate in the Scheme at the absolute discretion of the Committee.

4.2 Persons who are Controlling Shareholders or their associates shall, if each such person meets theeligibility criteria in Rule 4.1, be eligible to participate in the Scheme Provided That:-

(i) their participation in the Scheme is specifically approved by independent Shareholders in aseparate resolution for each such person;

(ii) the aggregate number of Scheme Shares available to Controlling Shareholders and theirassociates shall not exceed 25% of the total number of Scheme Shares available under theScheme; and

(iii) the number of Scheme Shares available to any one Controlling Shareholder or hisassociate shall not exceed 10% of the total number of Scheme Shares available under theScheme.

No Option shall be granted to such Controlling Shareholders or their associates unless the actualnumber and terms of Options to be granted shall be approved by independent Shareholders in aseparate resolution for each such person. A circular, letter or notice to Shareholders proposingsuch a resolution shall include a clear rationale for the proposed participation by such ControllingShareholders or their associates. Such circular, letter or notice to Shareholders shall also includea clear rationale for the number and terms (including Exercise Price) of the Options to be granted.

4.3 There will be no restriction on the eligibility of any Participant to participate in any other shareoption or share incentive schemes implemented by any other companies within the Group.

4.4 Subject to the Act and any requirement of the SGX-ST, the terms of eligibility for participation inthe Scheme may be amended from time to time at the absolute discretion of the Committee,which would be exercised judiciously.

5. MAXIMUM ENTITLEMENT

Subject to Rule 4 and Rule 10, the aggregate number of Shares in respect of which Options maybe offered to a Grantee for subscription in accordance with the Scheme shall be determined atthe discretion of the Committee who shall take into account criteria such as rank, pastperformance, years of service and potential development of the participant.

6. LIMITATION ON SIZE OF THE SCHEME

The aggregate nominal amount of Shares over which the Committee may grant Options on anydate, when added to the nominal amount of Shares issued and issuable in respect of all Optionsgranted under the Scheme shall not exceed fifteen (15) per cent. of the issued share capital of theCompany on the day immediately preceding the Offer Date of the Option.

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7. OFFER DATE

7.1 The Committee may, save as provided in Rule 4, Rule 5 and Rule 6, offer to grant Options to suchGrantees as it may select in its absolute discretion at any time during the period when theScheme is in force, except that no Option shall be granted during the period of thirty (30) daysimmediately preceding the date of announcement of the Company’s interim and/or final results(whichever the case may be). In addition, in the event that an announcement on any matter of anexceptional nature involving unpublished price sensitive information is made, offers to grantOptions may only be made on or after the second Market Day on which such announcement isreleased.

7.2 An offer to grant the Option to a Grantee shall be made by way of a letter (the “Letter of Offer”) inthe form or substantially in the form set out in Schedule A, subject to such amendments as theCommittee may determine from time to time.

8. ACCEPTANCE OF OFFER

8.1 An Option offered to a Grantee pursuant to Rule 7 may only be accepted by the Grantee withinthirty (30) days after the relevant Offer Date and not later than 5.00 p.m. on the thirtieth (30th) dayfrom such Offer Date (a) by completing, signing and returning to the Company the AcceptanceForm in or substantially in the form set out in Schedule B, subject to such modification as theCommittee may from time to time determine, accompanied by payment of S$1.00 asconsideration and (b) if, at the date on which the Company receives from the Grantee theAcceptance Form in respect of the Option as aforesaid, he remains eligible to participate in theScheme in accordance with these Rules.

8.2 If a grant of an Option is not accepted strictly in the manner as provided in this Rule 8, such offershall, upon the expiry of the thirty (30) day period, automatically lapse and shall forthwith bedeemed to be null and void and be of no effect.

8.3 The Company shall be entitled to reject any purported acceptance of a grant of an Option madepursuant to this Rule 8 or Exercise Notice given pursuant to Rule 12 which does not strictlycomply with the terms of the Scheme.

8.4 Options are personal to the Grantees to whom they are granted and shall not be sold, mortgaged,transferred, charged, assigned, pledged or otherwise disposed of or encumbered in whole or inpart or in any way whatsoever without the Committee’s prior written approval, but may beexercised by the Grantee’s duly appointed personal representative as provided in Rule 11.6 in theevent of the death of such Grantee.

8.5 The Grantee may accept or refuse the whole or part of the offer. If only part of the offer isaccepted, the Grantee shall accept the offer in multiples of 1,000 Shares.

8.6 In the event that a grant of an Option results in a contravention of any applicable law or regulation,such grant shall be null and void and be of no effect and the relevant Participant shall have noclaim whatsoever against the Company.

8.7 Unless the Committee determines otherwise, an Option shall automatically lapse and becomenull, void and of no effect and shall not be capable of acceptance if:-

(a) it is not accepted in the manner as provided in Rule 8.1 within the thirty (30) day period; or

(b) the Participant dies prior to his acceptance of the Option; or

(c) the Participant is adjudicated a bankrupt or enters into composition with his creditors priorto his acceptance of the Option; or

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(d) the Grantee being a Group Employee ceases to be in the employment of the Group or(being a Director) ceases to be a Director of the Company, in each case, for any reasonwhatsoever prior to his acceptance of the Option; or

(e) the Company is liquidated or wound-up prior to the Grantee’s acceptance of the Option.

9. EXERCISE PRICE

9.1 Subject to any adjustment pursuant to Rule 10, the Exercise Price for each Share in respect ofwhich an Option is exercisable shall be determined by the Committee, in its absolute discretion,on the Date of Grant, at:-

(a) a price equal to the Market Price; or

(b) a price which is set at a discount to the Market Price, provided that:-

(i) the maximum discount shall not exceed twenty (20) per cent. of the Market Price (orsuch other percentage or amount as may be determined by the Committee andpermitted by the SGX-ST); and

(ii) the Company’s shareholders in general meeting shall have authorised, in a separateresolution, the making of offers and grants of Options under the Scheme at adiscount not exceeding the maximum discount as aforesaid.

9.2 In making any determination under Rule 9.1(b) on whether to give a discount and the quantum ofsuch discount, the Committee shall be at liberty to take into consideration such criteria as theCommittee may, at its absolute discretion, deem appropriate, including but not limited to:-

(a) the performance of the Company, its Subsidiaries and Associated Companies, as the casemay be;

(b) the years of service and individual performance of the eligible Group Employee;

(c) the contribution of the eligible Group Employee to the success and development of theCompany and/or the Group; and

(d) the prevailing market conditions.

9.3 The Exercise Price shall in no event be less than the nominal value of a Share. Where theExercise Price as determined above is less than the nominal value of the Share, the ExercisePrice shall be the nominal value.

10. ALTERATION OF CAPITAL

10.1 If a variation in the issued share capital of the Company (whether by way of a capitalisation ofprofits or reserves or rights issue or reduction (including any reduction arising by reason of theCompany purchasing or acquiring its issued Shares), sub-division, consolidation or distribution, orotherwise howsoever) should take place, then:-

(a) the Exercise Price in respect of the Shares and nominal value, class and/or number ofShares comprised in the Options to the extent unexercised and the rights attached thereto;and/or

(b) the nominal value, class and/or number of Shares in respect of which additional Optionsmay be granted to Participants,

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may, be adjusted in such manner as the Committee may determine to be appropriate includingretrospective adjustments where such variation occurs after the date of exercise of an Option butthe Record Date relating to such variation precedes such date of exercise and, except in relationto a capitalisation issue, upon the written confirmation of the Auditors (acting only as experts andnot as arbitrators), that in their opinion, such adjustment is fair and reasonable.

10.2 Notwithstanding the provisions of Rule 10.1 above, no such adjustment shall be made (a) whichwould result in the Shares to be issued upon the exercise of an Option being issued at a discountto the nominal value and if such an adjustment would but for this sub-Clause have so resulted, theExercise Price payable shall be the nominal value of a Share, (b) if as a result, the Participantreceives a benefit that a Shareholder does not receive; and (c) unless the Committee afterconsidering all relevant circumstances considers it equitable to do so.

10.3 The issue of securities as consideration for an acquisition of any assets by the Company will notbe regarded as a circumstance requiring adjustment under the provisions of this Rule 10.

10.4 The restriction on the number of Shares to be offered to any Grantee under Rule 5 above, shallnot apply to the number of additional Shares or Options over additional Shares issued by virtue ofany adjustment to the number of Shares and/or Options pursuant to this Rule 10.

10.5 Upon any adjustment required to be made, the Company shall notify each Participant (or his dulyappointed personal representative(s)) in writing and deliver to him (or, where applicable, his dulyappointed personal representative(s)) a statement setting forth the new Exercise Price thereafterin effect and the nominal value, class and/or number of Shares thereafter comprised in the Optionso far as unexercised. Any adjustment shall take effect upon such written notification being given.

11. OPTION PERIOD

11.1 Options granted with the Exercise Price set at Market Price shall only be exercisable, in whole orin part (provided that an Option may be exercised in part only in respect of 1,000 Shares or anymultiple thereof), at any time, by a Participant after the first anniversary of the Offer Date of thatOption, Provided always that the Options (other than Options granted to Non-Executive Directorsand/or Associated Company Employees) shall be exercised before the tenth anniversary of therelevant Offer Date and Options granted to Non-Executive Directors and/or Associated CompanyEmployees shall be exercised before the fifth anniversary of the relevant Offer Date, or suchearlier date as may be determined by the Committee, failing which all unexercised Options shallimmediately lapse and become null and void and a Participant shall have no claim against theCompany.

11.2 Options granted with the Exercise Price set at a discount to Market Price shall only beexercisable, in whole or in part (provided that an Option may be exercised in part only in respectof 1,000 Shares or any multiple thereof), at any time, by a Participant after the second anniversaryfrom the Offer Date of that Option, Provided always that the Options (other than Options grantedto Non-Executive Directors and/or Associated Company Employees) shall be exercised before thetenth anniversary of the relevant Offer Date and Options granted to Non-Executive Directorsand/or Associated Company Employees shall be exercised before the fifth anniversary of therelevant Offer Date, or such earlier date as may be determined by the Committee, failing which allunexercised Options shall immediately lapse and become null and void and a Participant shallhave no claim against the Company.

11.3 An Option shall, to the extent unexercised, immediately lapse and become null and void and aParticipant shall have no claim against the Company:-

(a) subject to Rules 11.4, 11.5 and 11.6 and 11.7, upon the Participant ceasing to be in theemployment of the Company or any of the companies within the Group for any reasonwhatsoever; or

(b) upon the bankruptcy of the Participant or the happening of any other event which result inhis being deprived of the legal or beneficial ownership of such Option; or

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(c) in the event of misconduct on the part of the Participant, as determined by the Committeein its absolute discretion.

For the purpose of Rule 11.3(a), a Participant shall be deemed to have ceased to be so employedas of the date the notice of termination of employment is tendered by or is given to him, unlesssuch notice shall be withdrawn prior to its effective date.

11.4 If a Participant ceases to be employed by the Group by reason of his:-

(a) ill health, injury or disability, in each case, as certified by a medical practitioner approved bythe Committee;

(b) redundancy;

(c) retirement at or after a normal retirement age; or

(d) retirement before that age with the consent of the Committee,

or for any other reason approved in writing by the Committee, he may, at the absolute discretionof the Committee exercise any unexercised Option within the relevant Option Period and upon theexpiry of such period, the Option shall immediately lapse and become null and void.

11.5 If a Participant ceases to be employed by a Subsidiary:-

(a) by reason of the Subsidiary, by which he is principally employed ceasing to be a companywithin the Group or the undertaking or part of the undertaking of such Subsidiary, beingtransferred otherwise than to another company within the Group; or

(b) for any other reason, provided the Committee gives its consent in writing,

he may, at the absolute discretion of the Committee, exercise any unexercised Options within therelevant Option Period and upon the expiry of such period, the Option shall immediately lapse andbecome null and void.

11.6 If a Participant dies and at the date of his death holds any unexercised Option, such Option may,at the absolute discretion of the Committee, be exercised by the duly appointed legal personalrepresentatives of the Participant within the relevant Option Period and upon the expiry of suchperiod, the Option shall immediately lapse and become null and void.

11.7 If a Participant, who is also an Executive Director, ceases to be a Director for any reasonwhatsoever, he may, at the absolute discretion of the Committee, exercise any unexercised Optionwithin the relevant Option Period and upon the expiry of such period, the Option shall immediatelylapse and become null and void.

12. EXERCISE OF OPTIONS, ALLOTMENT AND LISTING OF SHARES

12.1 An Option may be exercised, in whole or in part (provided that an Option may be exercised in partonly in respect of 1,000 Shares or any multiple thereof), by a Participant giving notice in writing tothe Company in or substantially in the form set out in Schedule C (the “Exercise Notice”), subjectto such amendments as the Committee may from time to time determine. Every Exercise Noticemust be accompanied by a remittance for the full amount of the aggregate Exercise Price inrespect of the Shares which have been exercised under the Option, the relevant CDP charges (ifany) and any other documentation the Committee may require. All payments shall be made bycheque, cashier’s order, bank draft or postal order made out in favour of the Company. An Optionshall be deemed to be exercised upon the receipt by the Company of the said notice dulycompleted and the receipt by the Company of the full amount of the aggregate Exercise Price inrespect of the Shares which have been exercised under the Option.

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12.2 Subject to:-

(a) such consents or other actions required by any competent authority under any regulationsor enactments for the time being in force as may be necessary (including any approvalsrequired from the SGX-ST); and

(b) compliance with the Rules of the Scheme, the Memorandum of Association and Articles ofthe Company,

the Company shall, as soon as practicable after the exercise of an Option by a Participant but inany event within ten (10) Market Days after the date of the exercise of the Option in accordancewith Rule 12.1, allot and issue the Shares in respect of which such Option has been exercised bythe Participant and deliver the relevant share certificates to CDP for the credit of the securitiesaccount of that Participant by ordinary post or such other mode of delivery as the Committee maydeem fit.

12.3 The Company shall, if necessary, as soon as practicable after the exercise of an Option, apply tothe SGX-ST or any other stock exchange on which the Shares are quoted or listed for permissionto deal in and for quotation of the Shares which may be issued upon exercise of the Option andthe Shares (if any) which may be issued to the Participant pursuant to any adjustments made inaccordance with Rule 10.

12.4 Shares which are all allotted on the exercise of an Option by a Participant shall be issued, as theParticipant may elect, in the name of CDP to the credit of the securities account of the Participantmaintained with CDP or the Participant’s securities subaccount with a CDP Depository Agent.

12.5 Shares allotted and issued upon the exercise of an Option shall be subject to all provisions of theMemorandum of Association and Articles of the Company and shall rank pari passu in all respectswith the then existing issued Shares in the capital of the Company except for any dividends,rights, allotments or other distributions, the Record Date for which is prior to the date such Optionis exercised.

12.6 Except as set out in Rule 12.2 and subject to Rule 10, an Option does not confer on a Participantany right to participate in any new issue of Shares.

12.7 The Company shall keep available sufficient unissued Shares to satisfy the full exercise of allOptions for the time being remaining capable of being exercised.

13. MODIFICATIONS TO THE SCHEME

13.1 Any or all the provisions of the Scheme may be modified and/or altered at any time and from timeto time by resolution of the Committee, except that:-

(a) any modification or alteration which shall alter adversely the rights attaching to any Optiongranted prior to such modification or alteration and which in the opinion of the Committee,materially alters the rights attaching to any Option granted prior to such modification oralteration may only be made with the consent in writing of such number of Participants who,if they exercised their Options in full, would thereby become entitled to not less than three-quarters (3/4) in nominal amount of all the Shares which would fall to be allotted uponexercise in full of all outstanding Options;

(b) any modification or alteration which would be to the advantage of Participants under theScheme shall be subject to the prior approval of the Company’s Shareholders in generalmeeting; and

(c) no modification or alteration shall be made without the prior approval of the SGX-ST or (ifrequired) any other stock exchange on which the Shares are quoted and listed, and suchother regulatory authorities as may be necessary.

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For the purposes of Rule 13.1(a), the opinion of the Committee as to whether any modification oralteration would alter adversely the rights attaching to any Option shall be final and conclusive.

13.2 Notwithstanding anything to the contrary contained in Rule 13.1, the Committee may at any timeby resolution (and without other formality, save for the prior approval of the SGX-ST) amend oralter the Scheme in any way to the extent necessary to cause the Scheme to comply with anystatutory provision or the provision or the regulations of any regulatory or other relevant authorityor body (including the SGX-ST).

13.3 Written notice of any modification or alteration made in accordance with this Rule 13 shall begiven to all Participants.

14. DURATION OF THE SCHEME

14.1 The Scheme shall continue to be in force at the discretion of the Committee, subject to amaximum period of ten (10) years, commencing on the date on which the Scheme is adopted byShareholders. Subject to compliance with any applicable laws and regulations in Singapore, theScheme may be continued beyond the above stipulated period with the approval of theShareholders by ordinary resolution at a general meeting and of any relevant authorities whichmay then be required.

14.2 The Scheme may be terminated at any time by the Committee or by resolution of theShareholders at a general meeting subject to all other relevant approvals which may be requiredand if the Scheme is so terminated, no further Options shall be offered by the Companyhereunder.

14.3 The termination, discontinuance or expiry of the Scheme shall be without prejudice to the rightsaccrued to Options which have been granted and accepted as provided in Rule 8, whether suchOptions have been exercised (whether fully or partially) or not.

15. TAKE-OVER AND WINDING UP OF THE COMPANY

15.1 In the event of a take-over offer being made for the Company, Participants (including Participantsholding Options which are then not exercisable pursuant to the provisions of Rule 11.1 and 11.2)holding Options as yet unexercised shall, notwithstanding Rule 11 and Rule 12 but subject to Rule15.5, be entitled to exercise such Options in full or in part in the period commencing on the dateon which such offer is made or, if such offer is conditional, the date on which the offer becomes oris declared unconditional, as the case may be, and ending on the earlier of:-

(a) the expiry of six (6) months thereafter, unless prior to the expiry of such six (6) monthperiod, at the recommendation of the offeror and with the approvals of the Committee andthe SGX-ST, such expiry date is extended to a later date (being a date falling not later thanthe date of expiry of the Option Period relating thereto); or

(b) the date of the expiry of the Option Period relating thereto,

whereupon any Option then remaining unexercised shall immediately lapse and become null andvoid.

Provided always that if during such period the offeror becomes entitled or bound to exercise therights of compulsory acquisition of the Shares under the provisions of the Act and, being entitledto do so, gives notice to the Participants that it intends to exercise such rights on a specified date,the Option shall remain exercisable by the Participants until such specified date or the expiry ofthe Option Period relating thereto, whichever is earlier. Any Option not so exercised by the saidspecified date shall lapse and become null and void Provided that the rights of acquisition orobligation to acquire stated in the notice shall have been exercised or performed, as the case maybe. If such rights of acquisition or obligations have not been exercised or performed, all Optionsshall, subject to Rule 11.3, remain exercisable until the expiry of the Option Period.

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15.2 If, under any applicable laws, the court sanctions a compromise or arrangement proposed for thepurposes of, or in connection with, a scheme for the reconstruction of the Company or itsamalgamation with another company or companies, Participants (including Participants holdingOptions which are then not exercisable pursuant to the provisions of Rule 11.1 and 11.2) shallnotwithstanding Rule 11 and Rule 12 but subject to Rule 15.5, be entitled to exercise any Optionthen held by them during the period commencing on the date upon which the compromise orarrangement is sanctioned by the court and ending either on the expiry of sixty (60) daysthereafter or the date upon which the compromise or arrangement becomes effective, whicheveris later (but not after the expiry of the Option Period relating thereto), whereupon any unexercisedOption shall lapse and become null and void, Provided always that the date of exercise of anyOption shall be before the tenth anniversary of the Offer Date.

15.3 If an order or an effective resolution is passed for the winding up of the Company on the basis ofits insolvency, all Options, to the extent unexercised, shall lapse and become null and void.

15.4 In the event a notice is given by the Company to its members to convene a general meeting forthe purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up theCompany, the Company shall on the same date or soon after it despatches such notice to eachmember of the Company give notice thereof to all Participants (together with a notice of theexistence of the provisions of this Rule 15.4) and thereupon, each Participant (or his or her legalpersonal representative(s)) shall be entitled to exercise all or any of his Options at any time notlater than two (2) business days prior to the proposed general meeting of the Company by givingnotice in writing to the Company, accompanied by a remittance for the full amount of theaggregate Exercise Price for the Shares in respect of which the notice is given whereupon theCompany shall as soon as possible and, in any event, no later than the business day immediatelyprior to the date of the proposed general meeting referred to above, allot and issue the relevantShares to the Participant credited as fully paid.

15.5 If in connection with the making of a general offer referred to in Rule 15.1 above or the schemereferred to in Rule 15.2 above or the winding up referred to in Rule 15.4 above, arrangements aremade (which are confirmed in writing by the Auditors, acting only as experts and not asarbitrators, to be fair and reasonable) for the compensation of Participants, whether by thecontinuation of their Options or the payment of cash or the grant of other options or otherwise, aParticipant holding an Option, which is not then exercisable, may not, at the discretion of theCommittee, be permitted to exercise that Option as provided for in this Rule 15.

15.6 To the extent that an Option is not exercised within the periods referred to in this Rule 15, it shalllapse and become null and void.

16. ADMINISTRATION OF THE SCHEME

16.1 The Scheme shall be administered by the Committee in its absolute discretion with such powersand duties as are conferred on it by the Board.

16.2 The Committee shall have the power, from time to time, to make or vary such regulations (notbeing inconsistent with the Scheme) for the implementation and administration of the Scheme asit thinks fit.

16.3 Any decision of the Committee, made pursuant to any provision of the Scheme (other than amatter to be certified by the Auditors), shall be final and binding (including any decisionspertaining to disputes as to the interpretation of the Scheme or any rule, regulation, or procedurethereunder or as to any rights under the Scheme).

16.4 A Director who is a member of the Committee shall not be involved in its deliberation in respect ofOptions to be granted to him.

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17. NOTICES

17.1 Any notice given by a Participant to the Company shall be sent by post or delivered to theregistered office of the Company or such other address as may be notified by the Company to theParticipant in writing.

17.2 Any notice or documents given by the Company to a Participant shall be sent to the Participant byhand or sent to him at his home address stated in the records of the Company or the last knownaddress of the Participant, and if sent by post shall be deemed to have been given on the dayimmediately following the date of posting.

18. TERMS OF EMPLOYMENT UNAFFECTED

18.1 The Scheme or any Option shall not form part of any contract of employment between theCompany, any Subsidiary or Associated Company (as the case may be) and any Participant andthe rights and obligations of any individual under the terms of the office or employment with suchcompany within the Group shall not be affected by his participation in the Scheme or any rightwhich he may have to participate in it or any Option which he may hold and the Scheme or anyOption shall afford such an individual no additional rights to compensation or damages inconsequence of the termination of such office or employment for any reason whatsoever.

18.2 The Scheme shall not confer on any person any legal or equitable rights (other than thoseconstituting the Options themselves) against the Company, any Subsidiary and/or AssociatedCompany directly or indirectly or give rise to any cause of action at law or in equity against theCompany, any Subsidiary or Associated Company.

19. TAXES

All taxes (including income tax) arising from the exercise of any Option granted to any Participantunder the Scheme shall be borne by that Participant.

20. COSTS AND EXPENSES OF THE SCHEME

20.1 Each Participant shall be responsible for all fees of CDP relating to or in connection with the issueand allotment of any Shares pursuant to the exercise of any Option in CDP’s name, the deposit ofshare certificate(s) with CDP, the Participant’s securities account with CDP, or the Participant’ssecurities sub-account with a Depository Agent or CPF investment account with a CPF agentbank and all taxes referred to in Rule 19 which shall be payable by the relevant Participant.

20.2 Save for such costs and expenses expressly provided in the Scheme to be payable by theParticipants, all fees, costs and expenses incurred by the Company in relation to the Schemeincluding but not limited to the fees, costs and expenses relating to the allotment and issue ofShares pursuant to the exercise of any Option shall be borne by the Company.

21. CONDITION OF OPTION

Every Option shall be subject to the condition that no Shares shall be issued pursuant to theexercise of an Option if such issue would be contrary to any law or enactment, or any rules orregulations of any legislative or non-legislative governing body for the time being in force inSingapore or any other relevant country.

22. DISCLAIMER OF LIABILITY

Notwithstanding any provisions herein contained and subject to the Act, the Board, the Committeeand the Company shall not under any circumstances be held liable for any costs, losses,expenses and damages whatsoever and howsoever arising in respect of any matter under or inconnection with the Scheme, including but not limited to the Company’s delay in allotting andissuing the Shares or in applying for or procuring the listing of the Shares on the SGX-ST.

23. DISCLOSURE IN ANNUAL REPORT

The Company shall make the following disclosure in its annual report:-

(a) The names of the members of the Committee;

(b) The information required in the table below for the following Participants (which for theavoidance of doubt, shall include Participants who have exercised all their Options in anyparticular Financial Year):-

(i) Participants who are Directors of the Company; and

(ii) Participants who are Controlling Shareholders of the Company and their Associates;and

(iii) Participants, other than those in (i) and (ii) above who receive five (5) per. cent. ormore of the total number of Options available under the Scheme.

Name of Options Aggregate Aggregate AggregateParticipant granted during Options granted Options Options

financial year since exercised since outstanding asunder review commencement commencement at end of

(including of the Scheme to of the Scheme to financial yearterms) end of financial end of financial under review

year under year under review review

(c) The number and proportion of Options granted at the following discounts to average marketvalue of the Shares in the financial year under review:-

(i) options granted at up to 10 per cent. discount; and

(ii) options granted at between 10 per cent. but not more than 20 per cent. discount.

24. ABSTENTION FROM VOTING

Grantees who are Shareholders who are eligible to participate in the scheme are to abstain fromvoting on any Shareholders’ resolution relating to the Scheme (other than a resolution relating tothe participation of, grant of options to, directors and employees of the issuer’s parent companyand its subsidiaries).

25. DISPUTES

Any disputes or differences of any nature arising hereunder shall be referred to the Committeeand its decision shall be final and binding in all respects.

26. GOVERNING LAW

The Scheme shall be governed by, and construed in accordance with, the laws of the Republic ofSingapore. The Participants, by accepting Options in accordance with the Scheme, and theCompany submit to the exclusive jurisdiction of the courts of the Republic of Singapore.

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Schedule A


LETTER OF OFFER

Serial No: Date:

To: [Name][Designation][Address]

Private and Confidential

Dear Sir/Madam,

1. We have the pleasure of informing you that, pursuant to the Asia Water Share Option Scheme(“ESOS”), you have been nominated to participate in the ESOS by the Committee (the“Committee”) appointed by the Board of Directors of Asia Water Technology Ltd. (the “Company”)to administer the ESOS. Terms as defined in the ESOS shall have the same meaning when usedin this letter.

2. Accordingly, in consideration of the payment of a sum of S$1.00, an offer is hereby made to grantyou an option (the “Option”), to subscribe for and be allotted Shares at the priceof S$ for each Share.

3. The Option is personal to you and shall not be transferred, charged, pledged, assigned orotherwise disposed of by you, in whole or in part, except with the prior approval of the Committee.

4. The Option shall be subject to the terms of the Scheme, a copy of which is available for inspectionat the business address of the Company.

5. If you wish to accept the offer of the Option on the terms of this letter, please sign and return theenclosed Acceptance Form with a sum of S$1.00 not later than 5.00 p.m. on ,failing which this offer will lapse.

Yours faithfully,For and on behalf ofAsia Water Technology Ltd.

Name:Designation:

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Schedule B


ACCEPTANCE FORM

Serial No: Date:

To: The Committee,Asia Water Share Option Scheme,[Address]

Closing Date for Acceptance of Offer :

Number of Shares Offered :

Exercise Price for each Share : S$

Total Amount Payable : S$

I have read your Letter of Offer dated and agree to be bound by the terms ofthe Letter of Offer and ESOS referred to therein. Terms defined in your Letter of Offer shall have thesame meanings when used in this Acceptance Form.

I hereby accept the Option to subscribe for Shares at S$ for eachShare. I enclose cash for S$1.00 in payment for the purchase of the Option/I authorise my employer todeduct the sum of S$1.00 from my salary in payment for the purchase of the Option.

I understand that I am not obliged to exercise the Option.

I confirm that my acceptance of the Option will not result in the contravention of any applicable law orregulation in relation to the ownership of shares in the Company or options to subscribe for such shares.

I agree to keep all information pertaining to the grant of the Option to me confidential.

I further acknowledge that you have not made any representation to induce me to accept the offer andthat the terms of the Letter of Offer and this Acceptance Form constitute the entire agreement betweenus relating to the offer.

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Please print in block letters

Name in full :

Designation :

Address :

Nationality :

*NRIC/Passport No. :

Signature :

Date :

Note:-

* Delete accordingly

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Schedule C


FORM OF EXERCISE OF OPTION

Total number of ordinary shares of S$0.06 each (the “Shares”) offered at S$ for each Share (the “Exercise Price”) under the Scheme on (Date of Grant) :

Number of Shares previously allotted thereunder :

Outstanding balance of Shares to be allotted thereunder :

Number of Shares now to be subscribed :

To: The Committee,Asia Water Share Option Scheme,[Address]

1. Pursuant to your Letter of Offer dated and my acceptance thereof, Ihereby exercise the Option to subscribe for Shares in Asia Water TechnologyLtd. (the “Company”) at S$ for each Share.

2. I enclose a *cheque/cashier’s order/banker’s draft/postal order no. forS$ by way of subscription for the total number of the said Shares.

3. I agree to subscribe for the said Shares subject to the terms of the Letter of Offer, the Asia WaterShare Option Scheme and the Memorandum of Association and the Articles of the Company.

4. I declare that I am subscribing for the said Shares for myself and not as a nominee for any otherperson.

5. I request the Company to allot and issue the Shares in the name of The Central Depository (Pte)Limited (“CDP”) for credit of my *Securities Account with CDP/Sub-Account with the DepositoryAgent/CPF investment account with my Agent Bank specified below and I hereby agree to bearsuch fees or other charges as may be imposed by CDP in respect thereof.

Please print in block letters

Name in full :

Designation :

Address :

Nationality :

*NRIC/Passport No. :

*Direct Securities Account No. :

OR

*Sub-Account No. :

Name of Depository Agent :

OR

*CPF Investment Account No. :

Name of Agent Bank :

Signature :

Date :

Note:-

* Delete accordingly

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APPENDIX P

TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION

You are invited to apply and subscribe for the 33,000,000 New Shares at the Issue Price for each NewShare subject to the following terms and conditions:-

1. YOUR APPLICATION MUST BE MADE IN LOTS OF 1,000 NEW SHARES AND HIGHERINTEGRAL MULTIPLES THEREOF. YOUR APPLICATION FOR ANY OTHER NUMBER OFNEW SHARES WILL BE REJECTED.

2. Your application for Offer Shares may be made by way of printed Offer Shares Application Formsor by way of Electronic Applications through ATMs of the Participating Banks (“ATM ElectronicApplications”) or through the Internet Banking (“IB”) websites of the relevant Participating Banks(“IB Applications”).

Your application for Internet Placement Shares (“Internet Placement Application”) may only bemade by way of an application through the IPO website at “ www.ePublicOffer.com ” if you have avalid membership account with the IPO Website Operator. IB Applications and Internet PlacementApplications (collectively, the “Internet Electronic Applications”), together with ATM ElectronicsApplications, shall be referred to as “Electronic Applications”.

Your application for the Placement Shares may only be made by way of Placement SharesApplication Forms. YOU MAY NOT USE CPF FUNDS TO APPLY FOR THE NEW SHARES.

3. You (being other than an approved nominee company) are allowed to submit ONLY oneapplication in your own name for:-

(a) the Offer Shares by any one of the following:

(i) Offer Shares Application Form;

(ii) ATM Electronic Application;

(iii) IB Application,

(b) the Placement Shares by any one of the following:-

(i) Placement Shares Application Form; or

(ii) Internet Placement Application.

If more than one application is submitted for either the Offer Shares or the PlacementShares, such separate applications shall be deemed to be multiple applications and shall berejected.

If you have made an application for Placement Shares, you should not make any applicationfor Offer Shares and vice versa. Such separate applications shall be deemed to be multipleapplications and shall be rejected.

A Qualifying Internet Applicant whose application for Internet Placement Shares is rejectedbecause of multiple applications will be levied an administrative fee amounting to 20% ofthe Qualifying Internet Applicant’s application subscription money (subject to Singaporegoods and services tax).

JOINT OR MULTIPLE APPLICATIONS SHALL BE REJECTED. If you submit or procuresubmissions of multiple share applications for Offer Shares, Placement Shares or bothOffer Shares and Placement Shares, you may be deemed to have committed an offenceunder the Penal Code, Chapter 224 of Singapore and the Securities and Futures Act,Chapter 289 of Singapore, and your applications may be referred to the relevant authoritiesfor investigation. Multiple applications or those appearing to be or suspected of beingmultiple applications will be liable to be rejected at the discretion of our Company.

4. We will not accept applications from any person under the age of 21 years, undischargedbankrupts, sole-proprietorships, partnerships, chops or non-corporate bodies, joint SecuritiesAccount holders of CDP and from applicants whose addresses (furnished in their ApplicationForms or, in the case of Electronic Applications, contained in the records of the relevantParticipating Banks or the IPO website Operator, as the case may be) bear post office boxnumbers.

In addition, applicants who wish to subscribe for the Placement Shares through the IPO website(a) must not be corporations, sole proprietorships, partnerships or any other business entities; (b)must be over the age of 21 years; (c) must not be undischarged bankrupts; (d) must apply for thePlacement Shares in Singapore; (e) must have a mailing address in Singapore; and (f) must becustomers who maintain valid membership accounts with the IPO Website Operator.

5. We will not recognise the existence of a trust. Any application by a trustee or trustees must bemade in his/their own name(s) and without qualification or, where the application is made by wayof an Application Form, in the name(s) of an approved nominee company or approved nomineecompanies after complying with paragraph 6 below.

6. WE WILL NOT ACCEPT APPLICATIONS FROM NOMINEES EXCEPT THOSE MADE BYAPPROVED NOMINEE COMPANIES ONLY. Approved nominee companies are defined as banks,merchant banks, finance companies, insurance companies, licensed securities dealers inSingapore and nominee companies controlled by them. Applications made by persons acting asnominees other than approved nominee companies shall be rejected.

7. IF YOU ARE NOT AN APPROVED NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIESACCOUNT WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you donot have an existing Securities Account with CDP in your own name at the time of yourapplication, your application will be rejected (if you apply by way of an Application form), or you willnot be able to complete your Electronic Application (if you apply by way of an ElectronicApplication). If you have an existing Securities Account but fail to provide your Securities Accountnumber or provide an incorrect Securities Account number in Section B of the Application Form orin your Electronic Application, as the case may be, your application is liable to be rejected.Subject to paragraph 8 below, your application shall be rejected if your particulars, such as name,NRIC/passport number, nationality and permanent residence status provided in your ApplicationForm or in the records of the relevant Participating Bank or the IPO Website Operator at the timeof your Electronic Application, as the case may be, differ from those particulars in your SecuritiesAccount as maintained with CDP. If you possess more than one individual direct SecuritiesAccount with CDP, your application shall be rejected.

8. If your address as stated in the Application Form or, in the case of an ElectronicApplication, contained in the records of the relevant Participating Bank or the IPO websiteOperator, as the case may be, is different from the address registered with CDP, you mustinform CDP of your updated address promptly, failing which the notification letter onsuccessful allotment will be sent to your address last registered with CDP.

9. Our Company reserves the right to reject any application which does not conform strictly tothe instructions set out in the Application Form or the instruction for ElectronicApplications and in this Prospectus or with the terms and conditions of this Prospectus,which is illegible, incomplete, incorrectly completed or which is accompanied by animproperly drawn up or improper form of remittance. Our Company further reserves theright to treat as valid any applications not completed or submitted or effected in allrespects in accordance with the instructions set out in the Application Forms or the

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instructions for Electronic Applications or the terms and conditions of this Prospectus, andalso to present for payment or other processes all remittances at any time after receipt andto have full access to all information relating to, or deriving from, such remittances or theprocessing thereof.

10. Our Company reserves the right to reject or to accept, in whole or in part, or to scale down or toballot any application, without assigning any reason therefor, and we will not entertain any enquiryand/or correspondence on our decision. This right applies to applications made by way ofApplication Forms and by way of Electronic Applications. In deciding the basis of allotment, ourCompany will give due consideration to the desirability of allotting the New Shares to a reasonablenumber of applicants with a view to establishing an adequate market for the Shares.

11. Share certificates will be registered in the name of CDP and will be forwarded only to CDP. It isexpected that CDP will send to you, at your own risk, within 15 Market Days after the close of theApplication List, a statement of account stating that your Securities Account has been credited withthe number of New Shares allotted to you. This will be the only acknowledgement of applicationmonies received and is not an acknowledgement by our Company. You irrevocably authorise CDPto complete and sign on your behalf as transferee or renouncee any instrument of transfer and/orother documents required for the issue or transfer of the New Shares allotted to you. Thisauthorisation applies to applications made by way of Application Forms and by way of ElectronicApplications.

12. In the event of an under-subscription for the Offer Shares as at the close of the Application List, wewill make available that number of Offer Shares not subscribed for to satisfy excess applicationsfor Placement Shares to the extent that there is an over-subscription for Placement Shares as atthe close of the Application List.

In the event of an under-subscription for the Placement Shares as at the close of the ApplicationList, we will make available that number of Placement Shares not subscribed for to satisfy excessapplications for Offer Shares to the extent that there is an over-subscription for Offer Shares as atthe close of the Application List.

In the event of an under-subscription for the Internet Placement Shares to be applied for throughthe IPO website as at the close of the Application List, we will make available that number ofInternet Placement Shares not subscribed for to satisfy excess applications for Placement Sharesby way of Placement Shares Application Forms to the extent that there is an over-subscription forsuch Placement Shares as at the close of the Application List or to satisfy excess applications forthe Offer Shares, to the extent that there is an over-subscription for the Offer Shares as at theclose of the Application List.

In the event of an over-subscription for Offer Shares and/or Placement Shares (including theInternet Placement Shares) as at the close of the Application List, the successful applications forOffer Shares will be determined by ballot or otherwise as determined by our Directors andapproved by the SGX-ST.

In all of the above instances, the basis of allotment of the New Shares as may be decided upon byour Company in ensuring a reasonable spread of shareholders of our Company, shall be madepublic, as soon as is practicable, via an announcement through the SGX-ST and through a paidadvertisement in a local newspaper.

13. You irrevocably authorise CDP to disclose the outcome of your application, including the number ofNew Shares allotted to you pursuant to your application, to our Company, the Manager, theUnderwriter, the Placement Agent and any other parties so authorised as the foregoing persons.

14. Any reference to the “you” in this section shall include an individual, a corporation, an approvednominee and trustee applying for the Offer Shares by way of an Offer Share Application Form, anATM Electronic Application or an IB Application; an individual, a corporation, an approved nomineeand trustee applying for the Placement Shares through the Placement Agent by way of aPlacement Shares Application Form or the Internet Placement Shares by way of an InternetPlacement Application through the IPO website.

15. By completing and delivering an Application Form or by making and completing an ElectronicApplication by (in the case of an ATM Electronic Application) pressing the “Enter” or “OK” or“Confirm” or “Yes” key on the ATM (as the case may be) or by (in the case of an Internet ElectronicApplication) clicking “Submit” or “Continue” or “Yes” or “Confirm” on the IB website screen or IPOWebsite screen (as the case may be) in accordance with the provisions of this Prospectus, you:-

(a) irrevocably offer to subscribe for the number of New Shares specified in your application (orsuch smaller number for which the application is accepted) at the Issue Price and agree thatyou will accept such New Shares as may be allotted to you, in each case on the terms ofthis Prospectus and on the terms of the conditions set out in, this Prospectus and theMemorandum and Articles of our Company; and

(b) agree that in the event of any inconsistency between the terms and conditions forapplication set out in this Prospectus and those set out in the IPO website, or the IBwebsites or ATMs of the Participating Banks, the terms and conditions set out in thisProspectus shall prevail;

(c) agree that the aggregate Issue Price for the New Shares applied for is due and payable toour Company forthwith;

(d) warrant the truth and accuracy of the information contained, and representations anddeclarations made, provided in your application, and acknowledge and agree that suchinformation, representations and declarations will be relied on by our Company indetermining whether to accept your application and/or whether to allot any New Shares toyou; and

(e) agree and warrant that if the laws of any jurisdictions outside Singapore are applicable toyour application, you have complied with all such laws and none of our Company, theManager, the Underwriter and/or the Placement Agent will infringe any such laws as a resultof the acceptance of your application.

16. Our acceptance of applications will be conditional upon, inter alia, our Company being satisfiedthat:-

(a) permission has been granted by the SGX-ST to deal in and for quotation for all our existingShares and the New Shares on a “when issued” basis on the SGX-ST;

(b) the Management and Underwriting Agreement and the Placement Agreement referred to onpages 114 and 115 of this Prospectus have become unconditional and have not beenterminated or cancelled prior to such date as our Company may determine; and

(c) the Authority has not served a stop order which directs that no further shares to which thisProspectus relates be allotted.

17. Our Company will not hold any applications in reserve.

18. Our Company will not allot Shares on the basis of this Prospectus later than six months after thedate of registration of this Prospectus.

19. Additional terms and conditions for applications by way of printed Application Forms are set out onpages P-5 to P-7 of Appendix P of this Prospectus.

20. Additional terms and conditions for applications by way of Electronic Applications are set out onpages P-8 to P-16 of Appendix P of this Prospectus.

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ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATIONFORMS

You shall make an application by way of Application Forms made on and subject to the terms andconditions of this Prospectus including but not limited to the terms and conditions appearing below aswell as those set out under the section on “TERMS AND CONDITIONS AND PROCEDURES FORAPPLICATION” on pages P-1 to P-4 of Appendix P of this Prospectus, as well as the Memorandum ofAssociation and Articles of our Company.

1. Your application must be made using the WHITE Application Forms for Offer Shares and theBLUE Application Forms for Placement Shares accompanying and forming part of this Prospectus.We draw your attention to the detailed instructions contained in the respective Application Formsand this Prospectus for the completion of the Application Forms which must be carefully followed.Our Company reserves the right to reject applications which do not conform strictly to theinstructions set out in the Application Forms and this Prospectus or to the terms andconditions of this Prospectus or which are illegible, incomplete, incorrectly completed orwhich are accompanied by improperly drawn remittances or improper form of remittances.

2. Your Application Forms must be completed in English. Please type or write clearly in ink usingBLOCK LETTERS.

3. All spaces in the Application Forms except those under the heading “FOR OFFICIAL USE ONLY”must be completed and the words “NOT APPLICABLE” or “N.A.” should be written in any spacethat is not applicable.

4. Individuals, corporations, approved nominee companies and trustees must give their names in full.You must make your application, in the case of individuals, in your full names appearing in youridentity cards (if applicants have such identification documents) or in your passports and, in thecase of corporations, in your full names as registered with a competent authority. If you are a non-individual completing the Application Form under the hand of an official, you must state the nameand capacity in which that official signs. If you are a corporation completing the Application Form,you are required to affix your Common Seal (if any) in accordance with your Memorandum ofAssociation and Articles or equivalent constitutive documents. If you are a corporate applicant andyour application is successful, a copy of your Memorandum of Association and Articles orequivalent constitutive documents must be lodged with the Share Registrar and Share Transferoffice. Our Company reserves the right to require you to produce documentary proof ofidentification for verification purposes.

5. (a) You must complete Sections A and B and sign page 1 of the Application Form.

(b) You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Form.Where paragraph 7(a) is deleted, you must also complete Section C of the Application Formwith particulars of the beneficial owner(s).

(c) If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, onpage 1 of the Application Form, your application is liable to be rejected.

6. You (whether you are an individual and corporate applicant, whether incorporated orunincorporated and wherever incorporated or constituted), will be required to declare whether youare a citizen or permanent resident of Singapore or a corporation in which citizens or permanentresidents of Singapore or any body corporate constituted under any statute of Singapore have aninterest in the aggregate of more than 50 per cent. of the issued share capital of or interests insuch corporations. If you are an approved nominee company, you are required to declare whetherthe beneficial owner of the New Shares is a citizen or permanent resident of Singapore or acorporation, whether incorporated or unincorporated and wherever incorporated or constituted, inwhich citizens or permanent residents of Singapore or any body corporate whether incorporated orunincorporated and wherever incorporated or constituted under any statute of Singapore have aninterest in the aggregate of more than 50 per cent. of the issued share capital of or interests insuch corporation.

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7. Your application must be accompanied by a remittance in Singapore currency for the full amountpayable, in respect of the number of New Shares applied for, in the form of a BANKER’S DRAFTor CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “ASIA WATERSHARE ISSUE ACCOUNT” crossed “A/C PAYEE ONLY’”, with your name and address writtenclearly on the reverse side. We will not accept applications accompanied by ANY OTHERFORM OF PAYMENT. We will reject remittances bearing “NOT TRANSFERABLE” or “NONTRANSFERABLE” crossings. No acknowledgement or receipt will be issued by our Companyor the Manager for applications and application monies received.

8. Unsuccessful applications are expected to be returned (without interest or any share of revenue orother benefit arising therefrom) to you by ordinary post within 24 hours of the balloting after theclose of the Application List at your own risk. Where your application is accepted in part only, thebalance of the application monies will be refunded (without interest or any share of revenue orother benefit arising therefrom) to you by ordinary post at your own risk in the shortest possibletime.

9. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear themeanings assigned to them in this Prospectus.

10. By completing and delivering the Application Form in accordance with the provisions of thisProspectus, you agree that:-

(a) in consideration of our Company having distributed the Application Form to you andagreeing to close the Application List at 12.00 noon on 2 March 2005 or such other timeor date as our Company may, in consultation with the Manager, decide and bycompleting and delivering the Application Form, you agree that:-

(i) your application is irrevocable; and

(ii) your remittance will be honoured on first presentation and that any monies returnablemay be held pending clearance of your payment without interest or any share ofrevenue or other benefit arising therefrom;

(b) all applications, acceptances and contracts resulting therefrom under the Invitation shall begoverned by and construed in accordance with the laws of Singapore and that youirrevocably submit to the non-exclusive jurisdiction of the Singapore courts;

(c) in respect of the New Shares for which your application has been received and not rejected,acceptance of your application shall be constituted by written notification and not otherwise,notwithstanding any remittance being presented for payment by or on behalf of ourCompany;

(d) you will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of your application; and

(e) in making your application, reliance is placed solely on the information contained in thisProspectus and none of our Company, the Manager, the Underwriter, the Placement Agentor any other person involved in the Invitation shall have any liability for any information notso contained.

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Applications for Offer Shares

1. Your applications for Offer Shares MUST be made using the WHITE Offer Shares ApplicationForms and WHITE official envelopes “A” and “B”. ONLY ONE APPLICATION should be enclosedin each envelope.

2. You must:-

(a) enclose the WHITE Offer Shares Application Form, duly completed and signed, togetherwith your remittance in the WHITE envelope “A” provided;

(b) in the appropriate spaces on WHITE envelope “A”:-

(i) write your name and address;

(ii) state the number of Offer Shares applied for; and

(iii) affix adequate Singapore postage;

(c) seal WHITE envelope “A”; and

(d) write, in the appropriate box provided on the larger WHITE envelope “B” addressed to LIMASSOCIATES (PTE) LTD, 10 COLLYER QUAY, #19-08, OCEAN BUILDING, SINGAPORE049315, the number of Offer Shares you have applied for; and insert WHITE envelope “A”into WHITE envelope “B”, seal WHITE envelope “B” and thereafter DESPATCH BYORDINARY POST OR DELIVER BY HAND at your own risk to LIM ASSOCIATES (PTE)LTD, 10 COLLYER QUAY, #19-08, OCEAN BUILDING, SINGAPORE 049315, so as toarrive by 12.00 noon on 2 March 2005 or such other time as our Company may, inconsultation with the Manager, decide. Local Urgent Mail or Registered Post mustNOT be used. No acknowledgement of receipt will be issued for any application orremittance received.

3. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperlydrawn remittances are liable to be rejected.

Applications for Placement Shares (other than Internet Placement Shares)

1. Your application for Placement Shares MUST be made using the BLUE Placement SharesApplication Forms. ONLY ONE APPLICATION should be enclosed in each envelope.

2. The completed and signed BLUE Placement Shares Application Form and your remittance, inaccordance with the terms and conditions of this Prospectus, for the full amount payable in respectof the number of Placement Shares applied for, with your name and address written clearly on thereverse side, must be enclosed and sealed in an envelope to be provided by you. You must affixadequate Singapore postage on the envelope (if despatching by ordinary post) and thereafter thesealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND atyour own risk to LIM ASSOCIATES (PTE) LTD, 10 COLLYER QUAY, #19-08, OCEAN BUILDING,SINGAPORE 049315, to arrive by 12.00 noon on 2 March 2005 or such other time as we may,in consultation with the Manager, decide. Local Urgent Mail or Registered Post must NOTbe used. No acknowledgement of receipt will be issued for any application or remittance received.

3. Alternatively, you may remit your application monies by electronic transfer to the account of Bankof East Asia, Limited (Singapore Branch), account number 90088556, in favour of “ASIA WATERSHARE ISSUE ACCOUNT” for the number of Placement Shares applied for by 12.00 noon on 2March 2005 or such other time as our Company may, in consultation with the Manager,decide. If you remit your application monies via electronic transfer, you should fax and send acopy of the remittance advice to Westcomb Capital Pte Ltd at fax number 6227 3936 to arrive by12.00 noon on 2 March 2005 or such other time as we may, in consultation with theManager, decide.

ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS

The procedures for Electronic Applications at ATMs are set out on the ATM screens (in the case of ATMApplications), the IB website screens (in the case of IB Applications) of the relevant Participating Banksand the IPO Website (in the case of Internet Placement Applications).

Currently, DBS and the UOB group are the only Participating Banks through which an IB Application canbe made on the respective IB websites of DBS and the UOB group.

Internet Placement Applications may be made through the IPO Website.

For illustration purposes, the procedures for Electronic Applications through ATMs, the IB website of DBSand the IPO website are set out respectively in the “Steps for Electronic Applications for Offer Sharesthrough ATMs of DBS Bank, “Steps for an IB Application through the IB website of DBS Bank” and the“Steps for an Internet Placement Application through the IPO website (the “Steps”) appearing on pagesP-13 to P-16 of this Prospectus.

The Steps set out the actions that you must take at an ATM, the IB website of DBS or the IPO website tocomplete an Electronic Application. Please read carefully the terms of this Prospectus, the Steps and theterms and conditions for Electronic Applications set out below before making an Electronic Application.

Any reference to “you” in the additional terms and conditions for Electronic Applications and the Stepsshall refer to you making an application for:

(a) Offer Shares (excluding Internet Placement Shares) through an ATM or the IB website of arelevant Participating Bank; and

(b) Internet Placement Shares through the IPO website.

To make an ATM Application:

(a) You must have an existing bank account with and be an ATM cardholder of one of the ParticipatingBanks before you can make an Electronic Application at the ATMs. An ATM card issued by oneParticipating Bank cannot be used to apply for Offer Shares at an ATM belonging to otherParticipating Banks. Upon the completion of your ATM Electronic Application transaction, you willreceive an ATM transaction slip (“Transaction Record”), confirming the details of your ATMElectronic Application. The Transaction Record is for your retention and should not be submittedwith any Application Form.

(b) You must ensure that you enter your own Securities Account number when using the ATM cardissued to you in your own name. If you operate a joint bank account with any of the ParticipatingBanks, you must ensure that you enter your own Securities Account number when using the ATMcard issued to you in your own name. Using your own Securities Account number with an ATMcard which is not issued to you in your own name will render your Electronic Application liable tobe rejected.

To make an IB Application, you must have an existing bank account with and an IB User Identification(“User ID”) and a Personal Identification Number/Password given by the relevant Participating Bank.Upon completion of your IB Application, there will be an on-screen confirmation (“Confirmation Screen”)of the application which you can print out for your record. This printed record of the Confirmation Screenis for your retention and should not be submitted with any Application Form.

To make an Internet Placement Application, you must be registered as a user of the IPO website andhave a User Name (“User Name”) and a Password given by the IPO website. Upon completion of yourInternet Placement Application, there will be an on-screen confirmation of the application (“Submission ofApplication for IPO Shares”) and you will receive an electronic mail (email) confirmation to advise you ofthe status of your application. The email confirmation that your application has been successful is toaccompany your payment for the Internet Placement Shares, and should not be submitted with anyApplication Form.

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Further, you must ensure, when making an IB Application or Internet Placement Application that :

(a) you are currently in Singapore at the time of making of such application;

(b) your mailing address for IB with the relevant Participating Bank and the IPO website is inSingapore;

(c) you are not a US person(1) (as such term is defined in Regulation S under the United StatesSecurities Act of 1933, as amended from time to time),

and you will be asked to declare the above accordingly. Otherwise, your application is liable to berejected.

Note:-

(1) For details, please refer to definition of “US person” on the IB Websites or the IPO Website

Your Electronic Application shall be made on the terms and subject to the conditions of this Prospectusincluding but not limited to the terms and conditions appearing below and those set out under the sectionon “TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION” on pages P-1 to P-16 of thisProspectus as well as the Memorandum of Association and Articles of our Company.

1. In connection with your Electronic Application for New Shares, you may be required to confirmstatements to the following effect in the course of activating the Electronic Application: -

(a) that you have received a copy of this Prospectus and has read, understood andagreed to all the terms and conditions of application for New Shares and thisProspectus prior to effecting the Electronic Application and agrees to be bound bythe same;

(b) that you consent to the disclosure of your name, NRIC/passport number, address,nationality, permanent resident status, CDP Securities Account number, and shareapplication amount (the “Relevant Particulars”) from your account with thatParticipating Bank to the Share Registrar, CDP, SCCS, our Company and the Manager,the Placement Agent and the Underwriter (the “Relevant Parties”); and

(c) that this is your only application and it is made in your own name and at your ownrisk.

Your application will not be successfully completed and cannot be recorded as a completedtransaction in the ATM unless you press the “Enter” or “OK” or “Confirm” or “Yes” key. By doing so,you shall be treated as signifying your confirmation of each of the above three statements. Inrespect of statement 1(b) above, your confirmation, by pressing the “Enter” or “OK” or “Confirm” or“Yes” key, shall signify and shall be treated as your written permission, given in accordance withthe relevant laws of Singapore including Section 47(2) of the Banking Act (Chapter 19) ofSingapore to the disclosure by that Participating Bank or IPO Website Operator of your RelevantParticulars to the Relevant Parties.

2. BY MAKING AN ELECTRONIC APPLICATION, YOU CONFIRM THAT YOU ARE NOT APPLYINGFOR NEW SHARES AS NOMINEE OF ANY OTHER PERSON AND THAT ANY ELECTRONICAPPLICATION THAT YOU MAKE IS THE ONLY APPLICATION MADE BY YOU AS BENEFICIALOWNER.

YOU SHOULD MAKE ONLY ONE ELECTRONIC APPLICATION FOR NEW SHARES ANDSHOULD NOT MAKE ANY OTHER APPLICATION FOR OFFER SHARES OR PLACEMENTSHARES, WHETHER AT THE ATMS OR THE IB WEBSITES OR ON THE APPLICATION FORMSOR THROUGH THE IPO WEBSITE. IF YOU HAVE MADE AN APPLICATION FOR NEWSHARES ON AN APPLICATION FORM, YOU SHOULD NOT MAKE AN ELECTRONICAPPLICATION FOR NEW SHARES AND VICE VERSA.

3. For an ATM Application or IB Application, you must have sufficient funds in your bank account withyour Participating Bank at the time you make your ATM Application or IB Application, failing whichyour ATM Application or IB Application will not be completed. Any ATM Application or IBApplication which does not conform strictly to the instructions set out on the screens ofthe ATM or IB website through which your ATM Application or IB Application is being madeshall be rejected.

An applicant who makes an application for New Shares through the IPO website will be advisedthrough the IPO website on the amount payable and the method(s) of payment.

4. You irrevocably agree and undertake to subscribe for and to accept the number of New Sharesapplied for as stated on the Transaction Record or Confirmation Screen. You also irrevocablyagree and undertake to subscribe for and to accept any lesser number of New Shares that may beallotted to you in respect of your Electronic Application. In the event that our Company decides toallot any lesser number of such New Shares or not to allot any New Shares to you, you agree toaccept such decision as final.

If your Electronic Application is successful, your confirmation (by your action of pressing the“Enter” or “OK” or “Confirm” or “Yes” key on the ATM, clicking “Confirm” or “OK” on the IB websitescreen or “Confirm” on the IPO Website screen) of the number of New Shares applied for shallsignify and shall be treated as your acceptance of the number of New Shares that may be allottedto you and your agreement to be bound by the Memorandum of Association and Articles of ourCompany.

5. Our Company will not keep any applications in reserve. Where your Electronic Application isunsuccessful, the full amount of the application moneys will be refunded (without interest or anyshare of revenue or other benefit arising therefrom) to you by being automatically credited to youraccount with your Participating Bank within twenty-four hours after the close of the Application List.Trading on a “WHEN ISSUED” basis, if applicable, is expected to commence after suchrefund has been made.

Where your Electronic Application is rejected or accepted in part only, the full amount or thebalance of the application moneys, as the case may be, will be refunded (without interest or anyshare of revenue or other benefit arising therefrom) to you by being automatically credited to youraccount with your Participating Bank or if you have applied for the Internet Placement Sharesthrough the IPO website, by ordinary post or such other means as the IPO Website Operator mayagree with you, at your own risk, within 14 Market Days after the close of the Application Listprovided that the remittance in respect of such application which has been presented for paymentor other processes has been honoured and the application monies received in the designatedshare issue account.

Responsibility for timely refund of application moneys arising from unsuccessful or partiallysuccessful Electronic Applications lies solely with the respective Participating Banks or the IPOWebsite Operator. Therefore, you are strongly advised to consult your Participating Bank or theIPO Website Operator as to the status of your Electronic Application and/or the refund of anymoneys to you from unsuccessful or partially successful Electronic Application, to determine theexact number of New Shares allotted to you before trading the New Shares on the SGX-ST.Neither the SGX-ST, the CDP, the SCCS, the Participating Banks, the IPO Website Operator, ourCompany or the Manager assume any responsibility for any loss that may be incurred as a resultof you having to cover any net sell positions or from buy-in procedures activated by the SGX-ST.

6. If your Electronic Application is made through the ATMs of DBS (including POSBank), OCBC, orthe UOB Group, and is unsuccessful, no notification will be sent by such Participating Bank.

If your IB Application made through the IB website of DBS or UOB Group is unsuccessful, nonotification will be sent by such Participating Bank.

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Any Internet Placement Application made through the IPO website is on a first-come-first-servedbasis, and is subject to availability at the point of application. If your Internet Placement Applicationis unsuccessful, an email notification will be sent to the applicant’s registered address with the IPOwebsite.

If you make ATM Electronic Applications through the ATMs of the following banks, you may checkthe results of your ATM Electronic Applications as follows: -

Bank Telephone Available at Operating Hours Service expected from

DBS 1800 339 6666 Internet Banking or 24 hours Evening of the balloting dayBank (for POSB account Internet Kiosk

holders)www.dbs.com

1800 111 1111(for DBS account holders)

6327 4767

OCBC 1800 363 3333 ATM ATM / Phone Evening of the balloting day Banking24 hours

UOB 1800 533 5533 ATM (Other ATM** / Phone Evening of the balloting day Group Transactions – Banking

1800 222 2121 “IPO Enquiry”) 24 hours

http://www.uobgroup. Internet Banking Evening of the balloting daycom * 24 hours(for UOB/ICB/FEB)

* If you make your IB Applications through the IB website of DBS or the UOB Group, you may check the result throughthe same channels listed in the table above in relation to ATM Electronic Applications made at ATMs of DBS or theUOB Group.

** If you make your Electronic Application through the ATMs or IB website of the UOB Group, you may check the resultsof your application through UOB Personal InternetBanking, UOB Group ATMs or UOB PhoneBanking Services.

If you make your Electronic Application through the IPO website, you can check the result of your application through theIPO website. If your application is successful, you will be notified of the results of your application via an email sent to theemail address registered with the IPO website.

7. Electronic Applications shall close at 12.00 noon on 2 March 2005 or such other time as ourCompany may, in consultation with the Manager, decide.

8. You are deemed to have requested and authorised us to:-

(a) register the Offer Shares or Placement Shares allotted to you in the name of CDP fordeposit into your Securities Account;

(b) send the relevant Share certificate(s) to CDP;

(c) (for ATM Electronic Applications or IB Applications) return or refund (without interest or anyshare of revenue earned or other benefit arising therefrom) the application moneys, shouldyour ATM Electronic Applications or IB Applications be rejected, by automatically creditingyour bank account with your Participating Bank with the relevant amount within twenty-fourhours after the close of the Application List;

(d) (for ATM Electronic Applications or IB Applications) return or refund (without interest or anyshare of revenue or other benefit arising therefrom) the balance of the application moneys,should your ATM Electronic Applications or IB Applications be accepted in part only, byautomatically crediting your bank account with your Participating Bank with the relevantamount within the shortest possible time after the close of the Application List; and

(e) (for Internet Placement Applications) return or refund (without interest or any share ofrevenue earned or other benefit arising therefrom) of the full application moneys, shouldyour Internet Placement Application be rejected, is expected to be effected to you byordinary post at your own risk within 14 days after the close of the Application List).

9. You irrevocably agree and acknowledge that your Electronic Application is subject to risks ofelectrical, electronic, technical and computer-related faults and breakdowns, fires, acts of God andother events beyond the control of the Participating Banks or the IPO Website Operator and if, inany such event, our Company, the Manager, the Placement Agent, the Underwriter and/or therelevant Participating Bank or the IPO Website Operator do not receive your Electronic Application,or data relating to your Electronic Application is lost, corrupted or not otherwise accessible,whether wholly or partially for whatever reason, you shall be deemed not to have made anElectronic Application and you shall have no claim whatsoever against our Company, the Manager,the Placement Agent, the Underwriter and/or the relevant Participating Bank or the IPO WebsiteOperator for New Shares applied for or for any compensation, loss or damage.

10. Our Company does not recognise the existence of a trust. Any Electronic Application by a trusteemust be made in your own name and without qualification. Our Company will reject any applicationby any person acting as nominee.

11. All your particulars in the records of your Participating Bank or the IPO Website Operator at thetime you make your Electronic Application shall be deemed to be true and correct and yourParticipating Bank or the IPO Website Operator and the Relevant Parties shall be entitled to relyon the accuracy thereof. If there has been any change in your particulars after making yourElectronic Application, you shall promptly notify your Participating Bank or the IPO WebsiteOperator.

12. You should ensure that your personal particulars as recorded by both CDP, the relevantParticipating Bank or the IPO Website Operator are correct and identical, otherwise, yourElectronic Application is liable to be rejected. You should promptly inform CDP of any changein address, failing which the notification letter on successful allotment will be sent to your addresslast registered with CDP.

13. By making and completing an Electronic Application, you are deemed to have agreed that:-

(a) in consideration of our Company making available the Electronic Application facility, throughthe Participating Banks or the IPO Website Operator acting as agents of our Company, atthe ATMs, the IB websites and the IPO website:-

(i) your Electronic Application is irrevocable; and

(ii) your Electronic Application, the acceptance of our Company and the contract resultingtherefrom under the Invitation shall be governed by and construed in accordance withthe laws of Singapore and you irrevocably submit to the non-exclusive jurisdiction ofthe Singapore courts;

(b) none of our Company, the Manager, the Placement Agent, the Underwriter, the ParticipatingBanks or the IPO Website Operator shall be liable for any delays, failures or inaccuracies inthe recording, storage or in the transmission or delivery of data relating to your ElectronicApplication to us or CDP due to breakdowns or failure of transmission, delivery orcommunication facilities or any risks referred to in paragraph 9 above or to any causebeyond their respective controls;

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(c) in respect of Offer Shares for which your Electronic Application has been successfullycompleted and not rejected, acceptance of your Electronic Application shall be constitutedby written notification by or on behalf of our Company and not otherwise, notwithstandingany payment received by or on behalf of our Company;

(d) you will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of your application; and

(e) reliance is placed solely on information contained in this Prospectus and that none of ourCompany, the Manager, the Placement Agent and Underwriter nor any other personinvolved in the Invitation shall have any liability for any information not so contained.

STEPS FOR ATM ELECTRONIC APPLICATIONS FOR OFFER SHARES THROUGH ATMS OF DBSBANK (INCLUDING POSB)

Instructions for ATM Electronic Applications will appear on the ATM screens of the Participating Bank. Forillustration purposes, the steps for making an ATM Electronic Application through a DBS Bank or POSBATM are shown below. Certain words appearing on the screen are in abbreviated form (“A/c”, “amt”,“appln”, “&”, “I/C”, “SGX”, “No.” and “Max” refer to “Account”, “amount”, “application”, “and”, “NRIC”, “SGX-ST”, “Number” and “Maximum”, respectively. Instructions for ATM Electronic Applications on the ATMscreens of Participating Banks (other than DBS Bank (including POSB)) may differ slightly from thoserepresented below.

Step 1 : Insert your personal DBS Bank or POSB ATM Card.

2 : Enter your Personal Identification Number.

3 : Select “CASHCARD & MORE SERVICES”.

4 : Select “ESA-IPO SHARE/INVESTMENTS”.

5 : Select “ELECTRONIC SECURITY APPLN (IPOS/BONDS/ST-NOTES)” to “AWATER”.

6 : Read and understand the following statements which will appear on the screen:

THE OFFER OF SECURITIES (OR UNITS OF SECURITIES) WILL BE MADE IN, ORACCOMPANIED BY, A COPY OF THE PROSPECTUS/DOCUMENT OR PROFILESTATEMENT (AND IF APPLICABLE, A COPY OF THE REPLACEMENT ORSUPPLEMENTARY PROSPECTUS/DOCUMENT OR PROFILE STATEMENT) WHICHCAN BE OBTAINED FROM ANY DBS/POSB BRANCH IN SINGAPORE AND, WHEREAPPLICABLE, THE VARIOUS PARTICIPATING BANKS DURING BANKING HOURS,SUBJECT TO AVAILABILITY.

ANYONE WISHING TO ACQUIRE THESE SECURITIES (OR UNITS OF SECURITIES)SHOULD READ THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (ASSUPPLEMENTED OR REPLACED, IF APPLICABLE) BEFORE SUBMITTING HISAPPLICATION WHICH WILL NEED TO BE MADE IN THE MANNER SET OUT IN THEPROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AS SUPPLEMENTED ORREPLACED, IF APPLICABLE). A COPY OF THE PROSPECTUS/DOCUMENT ORPROFILE STATEMENT, AND IF APPLICABLE. A COPY OF THE REPLACEMENT ORSUPPLEMENTARY PROSPECTUS/DOCUMENT OR PROFILE STATEMENT HASBEEN LODGED WITH AND REGISTERED BY THE MONETARY AUTHORITY OFSINGAPORE WHO ASSUMES NO RESPONSIBILITY FOR ITS OR THEIR CONTENTS.

Press the “Enter” key to confirm that you have read and understood.

7 : Press the “ENTER” key to acknowledge:-

You have read, understood and agreed to all terms of the application andProspectus/Document or Profile Statement, and if applicable, the Replacement orSupplementary Prospectus/Document or Profile Statement.

You consent to disclose your name, NRIC/Passport No., address, nationality, CDPSecurities A/c No., CPF Investment A/c No. and securities application amount fromyour Bank Account(s) to share registrars, SGX, SCCS, CDP, CPF and the issuer.

For FIXED and MAX price security application, this is your only application and itis made in your own name and at your own risk.

The maximum price for each Share is payable in full on application and subject torefund if the final price is lower.

For TENDER securities applications, this is your only application at the selectedtender price and it is made in your own name and at your own risk.

You are not a US Person as referred to in the Prospectus/Document or Profile Statement and if applicable, the Replacement or SupplementaryProspectus/Document or Profile Statement.

8 : Select your nationality.

9 : Select the DBS Bank account (Autosave/Current/Savings/Savings Plus) or the POSBaccount (current/savings) from which to debit your application moneys.

10 : Enter the number of securities you wish to apply for using cash.

11 : Enter your own 12-digit CDP Securities Account number. (Note: This step will be omittedautomatically if your CDP Securities Account number has already been stored in DBSBank’s records).

12 : Check the details of your securities application, your NRIC or passport number and CDPSecurities Account number and number of securities on the screen and press the“ENTER” key to confirm your application.

13 : Remove the Transaction Record for your reference and retention only.

STEPS FOR AN IB APPLICATION THROUGH THE IB WEBSITE OF DBS BANK

For illustrative purposes, the steps for making an Internet Electronic Application through the DBS BankIB website are shown below. Certain words appearing on the screen are in abbreviated form (“A/C”,“amt”, “&”, “I/C”, “SGX” and “No.” refer to “Account”, “Amount”, “and”, “NRIC”, “SGX-ST”, and “Number”respectively).

Step 1 : Click on to DBS Bank website (www.dbs.com).

2 : Login to Internet Banking.

3 : Enter your User ID and PIN.

4 : Select “Electronic Security Application (ESA)”.

5 : Click “Yes” to proceed and to warrant that you have observed and complied with allapplicable laws and regulations.

6 : Select your country of residence.

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7 : Click on “AWATER” and click the “Submit” button.

8 : Click “Confirm” to confirm:-

(a) You have read, understood and agreed to all terms of application and theProspectus or Profile Statement and if applicable, the Supplementary orReplacement Prospectus/Document or Profile Statement.

(b) You consent to disclose your name, I/C or Passport No., address, nationality,CDP Securities Account number, CPF Investment Account number (ifapplicable) and securities application amount from your DBS/POSBankAccount(s) to registrars of securities, SGX, SCCS, CDP, CPF Board andissuer.

(c) You are not a US Person (as such term is defined in Regulation S under theUnited States Securities Act of 1993, as amended).

(d) This application is made in your name and at your own risk.

(e) For FIXED/MAX price securities application, this is your only application. ForTENDER price securities application, this is your only application at theselected tender price.

9 : Fill in details for share application and click “Submit”.

10 : Check the details of your share application, your NRIC or passport number and click“OK” to confirm your application.

11 : Print Confirmation Screen (optional) for your reference & retention only.

STEPS FOR AN INTERNET PLACEMENT APPLICATION THROUGH THE IPO WEBSITE

For illustrative purposes, the steps for making an Internet Placement Application through the IPO websiteis shown below. Certain words appearing on the screen are in abbreviated form (“A/C”, “&”, “I/C” and“No.” refer to “Account”, “NRIC” and “Number” respectively).

Step 1 : Click on to the IPO website ( www.ePublicOffer.com )

2 : Login to the IPO website by entering your User Name and Password

3 : Select the counter AWATER from the list of current counters offered by clicking “APPLYNOW”.

4 : Click “I Agree” to proceed and to warrant that you have observed and complied with allapplicable laws and regulations and agree to the terms and conditions stated on the IPOwebsite

5 : View and/or download a copy of the Prospectus

6 : Click the check box provided next to the following statements to confirm yourdeclaration:-

(1) I have read, understood & agreed to these terms and conditions, and theProspectus/Document or Profile Statement and if applicable, theReplacement or Supplementary Prospectus/Document or Profile Statementin relation to the New Shares;

(2) I consent to the disclosure of my name, I/C or passport number, address,nationality, CDP Securities Account number, and securities applicationamount to share registrars of the securities, the SGX-ST, SCCS, CDP, theissuer of the IPO Shares;

(3) I am currently resident in Singapore;

(4) I am not a US person (as such term is defined in Regulation S under theUnited States Securities Act of 1933, as amended) and not currently residentin the United States;

(5) I understand that the IPO Shares have not been and will not be registeredunder the United Stated securities laws and, subject to certain exceptions,may not be offered or sold within the United States, that there will be nopublic offer of the IPO Shares in the United States, and any failure to complywith this restriction may constitute a violation of United States securitieslaws;

(6) This application for the IPO Shares is made in my own name and at my ownrisk; and

(7) I am not an associate (as defined in the Listing Manual of the SGX-ST) or adirector or substantial shareholder (as defined in the Companies Act(Chapter 50) of Singapore) of the Issuer.

7 : Press “Confirm” when you have completed the above steps.

8 : Check details of your application, (including information on your name, your CDPnumber, your NRIC number, your email address and the amount payable) on the screenand click “CONFIRM” to confirm your application.

9 : Print email confirmation and proceed to make payment as described in the emailconfirmation.

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prospectus dated 23 february 2005 - SIIC Environment ...

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