09:58 ANHUI CONCH<00914> - Announcement (2) of Shuangfeng Conch and is higher than the net asset value of Shuangfeng Conch by around RMB843,147. The Board (including the independent non-executive directors of the Company) considers that the Consideration is fair and reasonable so far as to the Company and the shareholders of the Company as a whole are concerned. 2. Reasons for entering into the Equity Transfer Agreement The Company is a holding company and its subsidiaries are principally engaged in the production and sale of cement and clinker in the PRC. Development & Investment Company is a limited company established in the PRC and is principally engaged in asset investment and investment consulting services. Under the Company Law of the PRC, a limited liability company shall have at least two shareholders. To comply with the Company Law of the PRC, the Board considers it appropriate to acquire the 10% interest by one of the Company's wholly owned subsidiaries, Huaining Conch, so that the Company will hold 90% while Huaining Conch will hold 10% of the equity interest of Shuangfeng Conch after the Connected Transaction. The Board (including the independent non-executive directors of the Company) considers that the purchase of Shuangfeng Conch's equity interests can increase the Group's equity interests in Shuangfeng Conch and enable the Group to increase its sales and enlarge the Group's market share in Hunan and its neighbouring areas by expansion and consolidation of the cement markets in these regions. The Board (including the independent non-executive directors of the Company) considers that the Equity Transfer Agreement was conducted on normal commercial terms, which are fair and reasonable, and are in the best interest of the Company and its shareholders as a whole. 3. Connected Transaction Development & Investment Company is a Controlling Shareholder of Shuangfeng Conch, a non-wholly owned subsidiary of the Company, and is therefore a connected person of the Company under the Listing Rules. Therefore, the transaction made pursuant to the terms of the Equity Transfer Agreement constitutes to a connected transaction of the Company under the Listing Rules. As the size test ratios (as prescribed under Chapter 14 of the Listing Rules) obtained by comparing the relevant items of Shuangfeng Conch with the relevant items of the Group as disclosed in the Group's audited financial statements for the financial year ended 31 December 2003 do not exceed 2.5%. Accordingly, the Connected Transaction is only subject to the reporting and announcement requirements under Rules 14A.45 and 14A.47 of the Listing Rules and no independent shareholders' approval is required. Details of the Equity Transfer Agreement will be disclosed in the Company's annual report and financial statements for the year ending 31 December 2004. 4. Information of Shuangfeng Conch Shuangfeng Conch is a limited liability company established in the PRC on 16 April 2004 by the Company and Development & Investment Company. Shuangfeng Conch is principally engaged in the production and sale of cement and clinker, and mining (exploration of raw mine for cement). The principal assets of Shuangfeng Conch include the production line and production plant for manufacturing of cement and clinker and the land use rights. The registered address of Shuangfeng Conch is Santangpu Town, Shuangfeng County, Hunan Province, the PRC. The registered capital of Shuangfeng Conch from the date of its establishment until the date of the signing of the Equity Transfer Agreement was RMB268,000,000. At the time when Shuangfeng Conch was established, 51% of its registered capital was owned by the Company, 24.5% of its registered capital was owned by Ning Bo City Jingang Trust Investment Limited Company (*) and 24.5% of its registered capital was owned by Shanghai Aijian Trust Investment Limited Company (*), all of which had already invested at Shuangfeng Conch's establishment their share in Shuangfeng Conch's registered capital by cash in full. In around July 2004, Ning Bo City Jingang Trust Investment Limited Company (*) and Shanghai Aijian Trust Investment Limited Company (*) sold their respective equity interest in Shuangfeng Conch to Development & Investment Company at an aggregate consideration of RMB131,320,000. Shuangfeng Conch possesses a modern dry-process cement production line with daily production capacity of 5,000 tonnes and a cement grinding system with annual capacity of 1,100,000 tonnes. The project has commenced production at the end of October 2004 and is now in the stage of test production. Based on the Unaudited Accounts, Shuangfeng Conch did not have any profit for such period. Based on the Unaudited Accounts, the net loss of Shuangfeng Conch as at 30 November 2004 was approximately RMB1,929,308 (equivalent to approximately HK$1,820,102).