shenzhou international group holdings limited · a letter from the independent board committee (as...

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shenzhou International Group Holdings Limited, you shouldat once hand this circular together with the accompanying form of proxy to the purchaser or the transferee, or tothe bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to thepurchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes norepresentation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any losshowsoever arising from or in reliance upon the whole or any part of the contents of this circular.

SHENZHOU INTERNATIONAL GROUP HOLDINGS LIMITED( *)

(incorporated in the Cayman Islands with limited liability)(Stock code: 2313)

CONTINUING CONNECTED TRANSACTIONand

CONNECTED TRANSACTIONS

Independent Financial Adviser tothe Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 14 of this circular.

A letter from the Independent Board Committee (as defined in this circular) containing its advice to theIndependent Shareholders (as defined in this circular) is set out on page 15 of this circular.

A letter from UOB Asia (Hong Kong) Limited, the independent financial adviser, containing its advice to theIndependent Board Committee and the Independent Shareholders is set out on pages 16 to 23 of this circular.

A notice convening the EGM of the Company to be convened and held at 7th Floor, Office Building, No. 18Yongjiang Road, Economic Technical Development Zone, Ningbo, the PRC on 18th February, 2008 at 2:00 p.m.is set out on pages 38 to 40 of this circular. A form of proxy for use at the EGM is also enclosed with thiscircular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying formof proxy in accordance with the instructions printed thereon and deposit the same with the Company’s HongKong branch share registrar, Computershare Hong Kong Investor Services Limited, at Rooms 1806-1807, 18thFloor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event bynot later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof.Completion and return of the form of proxy shall not preclude you from attending and voting in person at theEGM or any adjourned meeting should you so wish.

14 January, 2008* For identification purposes only

CONTENTS

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. The Continuing Connected Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. The Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5. Poll Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

6. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

7. Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

8. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

LETTER FROM UOB ASIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

APPENDIX I — PROPERTY VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

APPENDIX II — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

— i —

DEFINITIONS

“Acquisitions” Acquisition of Huanghai Property, Bohai Property and Dagang Property underthe Huanghai Road Land Use Right Transfer Agreement, the Huanghai RoadIndustrial Complex Transfer Agreement, the Bohai Road Land Use RightTransfer Agreement, the Bohai Road Industrial Complex Transfer Agreement,the Dagang Land Use Right Transfer Agreement and the Dagang IndustrialComplex Transfer Agreement

“Acquisitions Agreements” the Huanghai Road Land Use Right Transfer Agreement, the Huanghai RoadIndustrial Complex Transfer Agreement, the Bohai Road Land Use RightTransfer Agreement, the Bohai Road Industrial Complex Transfer Agreement,the Dagang Land Use Right Transfer Agreement and the Dagang IndustrialComplex Transfer Agreement

“Announcement” the announcement of the Company dated 24th December, 2007

“Annual Steam ConsumptionCaps”

the proposed annual monetary caps of the amount to be paid by ShenzhouKnitting to Mingyao Electric Company for supply of steam under the SteamSupply Agreement for the three years ending 31st December, 2008, 2009 and2010

“Bohai Road IndustrialComplex TransferAgreement”

the industrial complex transfer agreement dated 21st December, 2007 enteredinto between Shenzhou Properties and Shenzhou Knitting for the acquisition ofan one-storey industrial complex situated at No. 643, Bohai Road, NingboEconomic and Technical Development Zone, Ningbo City, Zhejiang Province,the PRC

“Bohai Road Land Use RightTransfer Agreement”

the land use right transfer agreement dated 21st December, 2007 entered intobetween Shenzhou Properties and Shenzhou Knitting for the acquisition of apiece of land together with a structure erected on the land situated atNo. 643, Bohai Road, Ningbo Economic and Technical Development Zone,Ningbo City, Zhejiang Province, the PRC

“Bohai Property” the land to be acquired under the Bohai Road Land Use Right TransferAgreement and the complex to be acquired under the Bohai Road IndustrialComplex Transfer Agreement by Shenzhou Knitting from Shenzhou Properties

“Company” Shenzhou International Group Holdings Limited, a company incorporated in theCayman Islands with limited liability and the securities of which are listed onthe Stock Exchange

“controlling shareholder” has the meaning as defined in the Listing Rules

“Dagang Industrial ComplexTransfer Agreement”

the industrial complex transfer agreement dated 21st December, 2007 enteredinto between Shenzhou Properties and Shenzhou Knitting for the acquisition ofa four-storey industrial complex situated at No. C8B, Dagang Industrial District,Ningbo Economic and Technical Development Zone, Ningbo City, ZhejiangProvince, the PRC

“Dagang Land Use RightTransfer Agreement”

the land use right transfer agreement dated 21st December, 2007 entered intobetween Shenzhou Properties and Shenzhou Knitting for the acquisition of apiece of land situated at No. C8B, Dagang Industrial District, Ningbo Economicand Technical Development Zone, Ningbo City, Zhejiang Province, the PRC

— 1 —

DEFINITIONS

“Dagang Property” the land to be acquired under the Dagang Land Use Right Transfer Agreementand the complex to be acquired under the Dagang Industrial Complex TransferAgreement

“Directors” the directors of the Company

“Excelbright” Excelbright Overseas Limited, a company incorporated in the British VirginIslands with limited liability on 12th April, 2005 and a wholly-owned subsidiaryof Worldon

“EGM” an extraordinary general meeting of the Company to be convened for thepurpose of considering, and if thought fit, approving the continuing connectedtransaction contemplated under the Steam Supply Agreement and the AnnualSteam Consumption Caps, and the connected transactions contemplated underAcquisitions Agreements by the Independent Shareholders

“Group” the Company and its subsidiaries

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

“Huanghai Road IndustrialComplex TransferAgreement”

the industrial complex transfer agreement dated 21st December, 2007 enteredinto between Shenzhou Properties and Ningbo Tuteng for the acquisition ofthree three-storey industrial complex and one security booth situated atNo.67, Huanghai Road, Beilun District, Ningbo, Zhejiang Province, the PRC

“Huanghai Road Land UseRight Transfer Agreement”

the land use right transfer agreement dated 21st December, 2007 entered intobetween Shenzhou Properties and Ningbo Tuteng for the acquisition of a pieceof land situated at No.67, Huanghai Road, Beilun District, Ningbo, ZhejiangProvince, the PRC

“Huanghai Property” the land to be acquired under the Huanghai Road Land Use Right TransferAgreement and the complex to be acquired under the Huanghai Road IndustrialComplex Transfer Agreement

“Independent BoardCommittee”

an independent board committee of the Company comprising Mr. Qian Feng,Mr. Zong Pingsheng and Dr Dai Xiangbo, the independent non-executiveDirectors

“Independent Shareholders” the shareholders of the Company other than Mr. Ma Jianrong, Mr. HuangGuanlin, Mr. Ma Baoxing, Worldon, Excelbright and their associates

Latest Practicable Date 10th January, 2008 being the latest practicable date prior to the printing of thiscircular for ascertaining information contained in this circular

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

“Mingyao Electric Company” (Ningbo Mingyao Environmental Thermal PowerCo., Ltd.*), a Sino-foreign joint equity enterprise incorporated under the laws ofthe PRC on 21st August, 2003 and is owned as to 48% by Worldon and as to52% by Ningbo Minyao Investment Co., Ltd.

— 2 —

DEFINITIONS

“Ningbo Tuteng” (Tuteng Textile (Ningbo) Co.,Ltd*), a limited liabilitycompany incorporated under the laws of the PRC on 9th September, 2002 and isa wholly-owned subsidiary of the Company

“PRC” the People’s Republic of China

“RMB” Renminbi, the lawful currency of the PRC

“Rongrong Industrial” (Ningbo Rongrong Industrial Investment Co., Ltd*),a limited liability company incorporated under the laws of China on19th December, 2000 and is owned as to 90.0% by Mr. Ma Jianrong and as to10.0% by Mr. Huang Guanlin

“SFO” Securities and Futures Ordinance

“Shareholders” shareholders of the Company

“Shenzhou Knitting” (Ningbo Shenzhou Knitting Co., Ltd.*), a wholly foreign-owned enterprise incorporated under the laws of the PRC and a wholly-ownedsubsidiary of the Company

“Shenzhou Properties” (Ningbo Shenzhou Properties Co., Ltd.*), a limitedliability company incorporated under the laws of the PRC on 10th February,2004 and is owned as to 80% by Mr. Ma Jianrong, a Director, and as to 20.0%by Rongrong Industrial

“Steam Supply Agreement” a steam supply agreement entered into between Shenzhou Knitting and MingyaoElectric Company on 21st December, 2007

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“substantial shareholders” has the meaning as defined in the Listing Rules

“UOB Asia” UOB Asia (Hong Kong) Limited, a corporation licensed to conduct type 1(dealing in securities), type 4 (advising on securities), type 6 (advising oncorporate finance) and type 9 (asset management) regulated activities under theSFO, acting as the independent financial adviser to the Independent BoardCommittee and the Independent Shareholders

“Valuation Report” A valuation report prepared and issued by the Valuer dated 18th December,2007

“Valuer” RHL Appraisal Ltd.

“Worldon” Worldon (Hong Kong) Limited, a company incorporated in Hong Kong withlimited liability and the controlling shareholder of the Company. As at the dateof this circular, the entire issued share capital of Worldon is owned as to 74% byMr. Ma Jianrong, as to 13% by Mr. Huang Guanlin and as to 13% by Mr. MaBaoxing. Mr. Ma Jianrong and Mr. Huang Guanlin are executive Directors ofthe Company and Mr. Ma Baoxing is the father of Mr. Ma Jianrong.

— 3 —



(incorporated in Cayman Islands with limited liability)(Stock code: 2313)

Executive Directors: Registered office:Ma Jianrong (Chairman) Cricket Square Hutchins DriveHuang Guanlin P.O. Box 2681 Grand Cayman KY1-1111Ma Renhe Cayman IslandsChen ZhongjingZheng Miaohui Head office and principal place of

business in Hong Kong:Independent non-executive Directors: Unit 2708, 27th FloorQian Feng Billion PlazaZong Pingsheng No. 8 Cheung Yue StreetDai Xiangbo Kowloon

Hong Kong

14th January, 2008

To the Shareholders,

Dear Sir or Madam,

Continuing Connected Transactionand

Connected Transactions

1. Introduction

References are made to the Announcement.

On 21st December, 2007, Shenzhou Knitting, a wholly-owned subsidiary of the Company, entered into theSteam Supply Agreement with Mingyao Electric Company under which Mingyao Electric Company agreed tosupply steam to the Group for a term of 3 years commencing from 1st January, 2008 to 31st December, 2010.

Mingyao Electric Company is a connected person (as defined in the Listing Rules) of the Company.Accordingly, the transaction contemplated under the Steam Supply Agreement constitute continuing connectedtransaction of the Company under the Listing Rules.

Further, on 21st December, 2007,

(a) Ningbo Tuteng, a wholly-owned subsidiary of the Company, entered into the Huanghai Road LandUse Right Transfer Agreement and the Huanghai Road Industrial Complex Transfer Agreement withShenzhou Properties to acquire Huanghai Property for an aggregate consideration ofRMB113,500,000. Huanghai Property will be used by the Group as its workshops for cutting andsewing in the apparel manufacturing process; and

(b) Shenzhou Knitting, a wholly-owned subsidiary of the Company, entered into the Bohai Road LandUse Right Transfer Agreement, the Bohai Road Industrial Complex Transfer Agreement, the Dagang

— 4 —


Land Use Right Transfer Agreement and the Dagang Industrial Complex Transfer Agreement withShenzhou Properties to acquire Bohai Property and Dagang Property for an aggregate considerationof RMB39,500,000. Bohai Property will be used by the Group as a warehouse for raw materials andDagang Property will be used as a dormitory for the Group’s employees.

Shenzhou Properties is a connected person (as defined in the Listing Rules) of the Company. Accordingly,the acquisition of Huanghai Property, Bohai Property and Dagang Property under the Huanghai Road Land UseRight Transfer Agreement, the Huanghai Road Industrial Complex Transfer Agreement, the Bohai Road LandUse Right Transfer Agreement, the Bohai Road Industrial Complex Transfer Agreement, the Dagang Land UseRight Transfer Agreement and the Dagang Industrial Complex Transfer Agreement, constitute connectedtransactions of the Company under the Listing Rules.

The purpose of this circular is:

1. to provide you with the details of the continuing connected transaction under the Steam SupplyAgreement and the connected transactions under the Acquisitions Agreements referred to in thiscircular;

2. to set out the advice of UOB Asia, the independent financial adviser to the Independent BoardCommittee and the Independent Shareholders in respect of the terms of the Steam SupplyAgreement, the Annual Steam Consumption Caps and the continuing connected transactionthereunder, and the Acquisitions Agreements and the connected transactions thereunder;

3. to set out the recommendation of the Independent Board Committee in respect of item 2 above; and

4. to give you notice of the EGM at which ordinary resolutions will be proposed for the IndependentShareholders to consider, and if thought fit, to approve the Steam Supply Agreement and the AnnualSteam Consumption Caps, and the Acquisitions Agreements.

2. The Continuing Connected Transaction

A. The Steam Supply Agreement

Terms

Date: 21st December, 2007

Parties: (1) Shenzhou Knitting

(2) Mingyao Electric Company

Subject: Pursuant to the agreement, Mingyao Electric Company agreed to supply steam to theGroup

Term: Three years commencing on 1st January, 2008 and expiring on 31st December, 2010

Price: The steam price per ton charged by Mingyao Electric Company will be determined byreference to the prevailing market price of steam supplied by independent steamsuppliers located in the Ningbo Economic and Technical Development Zone, PRC, but inany event, such steam price per ton to be charged by Mingyao Electric Company will notbe higher than the prevailing market price of steam in that zone.

— 5 —


Mingyao Electric Company has undertaken to maintain a sufficient and stable supply of steam to the Groupat all times and has granted priority to the Group for its demand for steam from time to time. As MingyaoElectric Company does not have its own piping system connected to the Group, the relevant parties have agreedthat Mingyao Electric Company may first sell its steam to an independent A-share company listed on theShanghai Stock Exchange (the “A-Share Company”) which would then on-sell the steam to the Group. Thesteam price per ton to be charged by the A-Share Company to the Group payable in cash will be at the pricecharged by Mingyao Electric Company to the A-Share Company.

Pursuant to the Steam Supply Agreement, either party may terminate the Steam Supply Agreement bygiving 30 days’ written notice to the other party.

Historical figures

For the years ended 31st December, 2005, 2006 and 2007, the total amount paid by the Group to MingyaoElectric Company through the A-Share Company for the supply of steam was RMB11,642,000, RMB29,563,000,and RMB38,500,000, respectively, and the average price per ton of steam (based on the then prevailing marketprices) was RMB119, RMB104 and RMB110 respectively. The total amount of steam consumption for thoseperiods was approximately 583,927 tons, 666,027 tons and 820,000 tons, respectively.

Maximum Annual Steam Consumption Caps

The Directors estimate that Annual Steam Consumption Caps for the years ending 31st December, 2008,2009 and 2010 will be: -

Annual Steam Consumption Capsfor the year ending 31st December

2008 2009 2010RMB’ RMB’ RMB’

Total estimated amount of fees Payable by the Group to MingyaoElectric Company 56,260,000 70,725,000 88,400,000

The above Annual Steam Consumption Caps for the years ending 31st December 2008, 2009 and 2010have been determined based on: -

(a) the Group’s projected consumption of steam and the amount to be provided by Mingyao ElectricCompany for those periods as set out below:

For the year ending 31st December2008 2009 2010

(ton)

Projected total steam consumption 970,000 1,150,000 1,360,000Projected amount to be supplied by Mingyao Electric Company 485,000 575,000 680,000

(b) the upward adjustment of the average market price of RMB110 per ton for steam for the year ended31st December, 2007 by 5.8% per annum for 2008, 2009 and 2010, based on the compound annualgrowth rate of 5.8% from 2006 to 2007.

The projected consumption of steam set out in (a) above is based on the compound annual growth rate of18.5% for the past three years.

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Reason for entering into the Steam Supply Agreement

The Directors are of the view that the Steam Supply Agreement will ensure a sufficient and stable supplyof steam which is important to the operations of the Group.

B. Information on Mingyao Electric Company and Shenzhen Knitting

Mingyao Electric Company is principally engaged in the operation of a cogeneration power plant thatgenerates electricity and steam.

The Company is a vertically integrated knitwear manufacturer in the PRC and Shenzhen Knitting is theprincipal subsidiary of the Company engaged in fabric knitting and weaving dyeing and finishing, embroideryand cutting and sewing of knitwear products.

C. Listing Rules Requirement

Mingyao Electric Company is owned as to 52.0% by (Ningbo Mingyao InvestmentCo., Ltd.*), a party not connected with any of the Directors, the chief executive, the substantial shareholders ofthe Company or any of its subsidiaries, or any of their respective associates, and 48.0% by Worldon, thecontrolling shareholder of the Company. As such, Mingyao Electric Company is a connected person by virtue ofRule 14A.11(4) of the Listing Rules and the transactions contemplated under the Steam Supply Agreementconstitute continuing connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios in respect of the Steam Supply Agreement is more than 2.5% and theannual total consideration is more than HK$10,000,000, the continuing connected transaction contemplatedthereunder is subject to reporting, announcement and Independent Shareholders’ approval requirements inaccordance with Chapter 14A of the Listing Rules. Mr. Ma Jianrong, Mr. Huang Guanlin, Mr. Ma Baoxing,Worldon, Excelbright and their associates will abstain from voting at the EGM to be convened for the approvalof, inter alia, the continuing connected transaction contemplated under the Steam Supply Agreement and theAnnual Steam Consumption Caps.

The Directors, including the independent non-executive Directors, consider that the Steam Supply Agreementhas been entered into on normal commercial terms and in the ordinary course of business of the Company and itsterms are fair and reasonable and in the interests of the Shareholders as a whole.

3. The Connected Transactions

A. The Acquisitions

(1) Huanghai Property

Huanghai Road Land Use Right Transfer Agreement

Terms


Parties: (1) Shenzhou Properties

(2) Ningbo Tuteng

Consideration: RMB18,000,000

Condition: It is conditional upon the Shareholders of the Company having approved theHuanghai Land Road Use Right Transfer Agreement and the Huanghai RoadIndustrial Complex Transfer Agreement and the transactions contemplatedthereunder.

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Pursuant to the Huanghai Road Land Use Right Transfer Agreement, Ningbo Tuteng acquired fromShenzhou Properties the land use right of a piece of land situated at No. 67, Huanghai Road, Ningbo Economic &Technical Development Zone, Ningbo City, the PRC with a gross area of 39,999.79 square meters. ShenzhouProperties has obtained the Certificate for the Use of State-owned Land of the land for a term of 50 years due toexpire on 21st January, 2053 and the use of land is for industrial use.

The consideration of RMB18,000,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Huanghai Property pursuant to the Valuation Report, in whichthe aggregate value of the Huanghai Property was valued at RMB113,500,000. The consideration is payable incash by Ningbo Tuteng upon the issue of new Certificate for the Use of State-owned Land of the land in thename of Shenzhou Knitting.

Huanghai Road Industrial Complex Transfer Agreement

Terms



(2) Ningbo Tuteng


Condition: It is conditional upon the Shareholders of the Company having approved theHuanghai Road Land Use Right Transfer Agreement and the Huanghai RoadIndustrial Complex Transfer Agreement and the transactions contemplatedthereunder.

Pursuant to the Huanghai Road Industrial Complex Transfer Agreement, Ningbo Tuteng acquired fromShenzhou Properties a block of one-storey and three blocks of three-storey industrial complex situated at No.67,Huanghai Road, Beilun District, Ningbo City, Zhejiang Province, the PRC, the land which will be acquired byNingbo Tuteng pursuant to the Huanghai Road Land Use Right Transfer Agreement, with an aggregate gross floorarea of 58,210.25 square meters. Shenzhou Properties has obtained the Building Ownership Certificate for thecomplex.

The consideration of RMB95,500,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Huanghai Property pursuant to the Valuation Report, in whichthe aggregate value of Huanghai Property was valued at RMB113,500,000. The consideration is payable in cashby Ningbo Tuteng in two instalments:

(1) The first instalment in the amount of RMB47,750,000, being 50% of the total consideration under theHuanghai Road Industrial Complex Transfer Agreement, is payable within 30 days from the date onwhich the Huanghai Road Industrial Complex Transfer Agreement becomes effective; and

(2) The second instalment in the amount of RMB47,750,000, being the remaining 50% of the totalconsideration under the Huanghai Road Industrial Complex Transfer Agreement, is payable upon theissue of new Building Ownership Certificate of the complex in the name of Ningbo Tuteng.

The original purchase cost of Huanghai Property to Shenzhou Properties is RMB55,910,945.

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Reason for the acquisition

The Group has been renting from Shenzhou Properties the Huanghai Property for the past three years formanufacturing apparels. As there is a continuous increase in the price of land and factories in NingboEconomic & Technical Development Zone, the Group’s expenditure on rental costs and rental-related tax haveincreased accordingly. The annual rent paid by the Group in respect of Huanghai Property during the period from2005 to 2007 amounts to RMB4,540,380. As the business of the Group continues to grow, the Directors considerthat the acquisition of the Huanghai Property will reduce the rental expenditure of the Group and at the sametime maintain stability in production.

The Directors, including the independent non-executive Directors, consider that the Huanghai Road LandUse Right Transfer Agreement and the Huanghai Road Industrial Complex Transfer Agreement have beenentered into on normal commercial terms and in the ordinary course of business of the Company and the terms ofboth of the agreements are fair and reasonable and in the interests of the Shareholders as a whole.

(2) Bohai Property

Bohai Road Land Use Right Transfer Agreement

Terms



(2) Shenzhou Knitting


Condition: It is conditional upon the Shareholders of the Company having approved the BohaiRoad Land Use Right Transfer Agreement and the Bohai Road Industrial ComplexTransfer Agreement and the transactions contemplated thereunder.

Pursuant to the Bohai Road Land Use Right Transfer Agreement, Shenzhou Knitting acquired fromShenzhou Properties the land use right of a piece of land situated at No. 643, Bohai Road, Ningbo Economic andTechnical Development Zone, Ningbo City, Zhejiang Province, the PRC with a gross area of 16,682 squaremeters together with a structure erected on the land with a gross floor area of 4,175 square meters. ShenzhouProperties has obtained the Certificate for the Use of State-owned Land of the land for a term of 50 years due toexpire on 14 September 2053 and the use of land is for industrial use.

The consideration of RMB12,500,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Bohai Property pursuant to the Valuation Report, in which theaggregate value of Bohai Property was valued at RMB21,200,000. The consideration will be paid in cash byShenzhou Knitting upon the issue of new Certificate for the Use of State-owned land of the land in the name ofShenzhou Knitting.

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Bohai Road Industrial Complex Transfer Agreement

Terms





Condition: It is conditional upon the Shareholders of the Company having approved the BohaiRoad Land Use Right Transfer Agreement and the Bohai Road Industrial ComplexTransfer Agreement and the transactions contemplated thereunder.

Pursuant to the Bohai Road Industrial Complex Transfer Agreement, Shenzhou Knitting acquired fromShenzhou Properties an one-storey industrial complex situated at No. 643, Bohai Road, Ningbo Economic andTechnical Development Zone, Ningbo City, Zhejiang Province, the PRC, the land to be acquired by ShenzhouKnitting under the Bohai Road Land Use Right Transfer Agreement, with a gross floor area of 7,292.05 squaremeters. Shenzhou Properties has obtained the Building Ownership Certificate for the complex.

The consideration of RMB8,700,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Bohai Property pursuant to the Valuation Report, in which theaggregate value of Bohai Property was valued at RMB21,200,000 The consideration will be paid in cash byShenzhou Knitting in two instalments:

(1) The first instalment in the amount of RMB4,350,000, being 50% of the total consideration under theBohai Road Industrial Complex Transfer Agreement, is payable within 30 days from the date onwhich the Bohai Road Industrial Complex Transfer Agreement becomes effective; and

(2) The second instalment in the amount of RMB4,350,000, being the remaining 50% of the totalconsideration under the Bohai Road Industrial Complex Transfer Agreement, is payable upon theissue of new Building Ownership Certificate of the complex in the name of Shenzhou Knitting.

The original purchase cost of Bohai Property by Shenzhou Properties is RMB11,947,059.


The Group has been renting from Shenzhou Properties the Bohai Property (excluding the structure erectedon the land with a gross floor area of 4,175 square meters) for the past three years as a warehouse. As there is acontinuous increase in the price of land and factories in Ningbo Beilun Economic & Technical DevelopmentZone, the Group’s expenditure on rental costs and rental-related tax has increased accordingly. The annual rentpaid by the Group in respect of Bohai Property (excluding the structure erected on the land with a gross floorarea of 4,175 square meters) during the period from 2005 to 2007 amounts to RMB350,016. As the business ofthe Group continues to grow, the Directors consider that the acquisition of the Bohai Property will reduce therental expenditure of the Group and at the same time maintain stability in production.

The Directors, including the independent non-executive Directors, consider that the Bohai Road Land UseRight Transfer Agreement and the Bohai Road Industrial Complex Transfer Agreement have been entered intoon normal commercial terms and in the ordinary course of business of the Company and the terms of both of theagreements are fair and reasonable and in the interests of the Shareholders as a whole.

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(3) Dagang Property

Dagang Land Use Right Transfer Agreement

Terms





Condition: It is conditional upon the Shareholders of the Company having approved theDagang Land Use Right Transfer Agreement and the Dagang Industrial ComplexTransfer Agreement and the transactions contemplated thereunder.

Pursuant to the Dagang Land Use Right Transfer Agreement, Shenzhou Knitting acquired from ShenzhouProperties the land use right of a piece of land situated at No. C8B, Dagang Industrial District, Ningbo Economicand Technical Development Zone, Ningbo City, Zhejiang Province, the PRC with a gross area of 7,876.25 squaremeters. Shenzhou Properties has obtained the Certificate for the Use of State-owned Land of the land for a termof 50 years due to expire on 8 August 2050 and the use of land is for industrial use.

The consideration of RMB3,500,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Dagang Property pursuant to the Valuation Report, in whichthe aggregate value of Dagang Property was valued at RMB18,300,000. The consideration is payable in cash byShenzhou Knitting upon the issue of new Certificate for the Use of State-owned Land of the land in the name ofShenzhou Knitting.

Dagang Industrial Complex Transfer Agreements

Terms

Date: 21 December, 2007




Condition: It is conditional upon the Shareholders of the Company having approved the DagangLand Use Right Transfer Agreement and the Dagang Industrial Complex TransferAgreement and the transactions contemplated thereunder.

Pursuant to the Dagang Industrial Complex Transfer Agreement, Shenzhou Knitting acquired fromShenzhou Properties a four-storey industrial complex situated at No. C8B, Dagang Industrial District, NingboEconomic and Technical Development Zone, Ningbo City, Zhejiang Province, the PRC, the land to be acquiredby Shenzhou Knitting pursuant to the Dagang Land Use Right Transfer Agreement, with a gross floor area of10,464.41 square meters. Shenzhou Properties has obtained the Building Ownership Certificate for the complex.

— 11 —


The consideration of RMB14,800,000 has been determined after arm’s length negotiation between theparties thereto and is based on the market value of Dagang Property pursuant to the Valuation Report, in whichthe aggregate value of Dagang Property the land and the complex was valued at RMB18,300,000. Theconsideration will be paid in cash by Shenzhou Knitting in two instalments:

(1) The first instalment in the amount of RMB7,400,000, being 50% of the total consideration under theDagang Industrial Complex Transfer Agreement, is payable within 30 days from the date on whichthe Dagang Road Industrial Complex Transfer Agreement becomes effective; and

(2) The second instalment in the amount of RMB7,400,000, being the remaining 50% of the totalconsideration under the Dagang Industrial Complex Transfer Agreement, is payable upon the issue ofnew Building Ownership Certificate of the complex in the name of Shenzhou Knitting.

The original purchase cost of Dagang Property is RMB13,870,355


Dagang Property will be used as a dormitory for the Group’s employees. As the business of the Groupgrows, the number of the Group’s employees increases. The Directors consider it necessary to expand theemployees’ dormitory.

The Directors, including the independent non-executive Directors, consider that the Dagang Land UseRight Transfer Agreement and the Dagang Industrial Complex Transfer Agreement have been entered into onnormal commercial terms and in the ordinary course of business of the Company and the terms of both of theagreements are fair and reasonable and in the interests of the Shareholders as a whole.

B. Information on Shenzhen Properties and Ningbo Tuteng

Shenzhou Properties is a property developer based in Ningbo, PRC whose principal business involvesproperty development and property leasing and management.

Ningbo Tuteng a subsidiary of the Company which is principally engaged in manufacturing knitwear andaccessories.

C. Listing Rules Requirement

Shenzhou Properties is owned as to 80.0% by Mr. Ma Jianrong, a Director, and as to 20.0% by RongrongIndustrial, an associate under the Listing Rules and therefore, is a connected person of the Company by virtue ofRule 14A.11(4) of the Listing Rules. The transactions contemplated under the Acquisitions Agreementsconstitute connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios for the Acquisitions are more than 2.5% and the total consideration ismore than HK$10,000,000, pursuant to Rule 14A.32 of the Listing Rules, connected transactions under theAcquisitions are subject to the reporting, announcement and Independent Shareholders’ approval requirements inaccordance with the Listing Rules. Mr. Ma Jianrong, Mr. Huang Guanlin, Mr. Ma Baoxing, Worldon,Excelbright and their associates will abstain from voting at the EGM to be convened for the approval of, interalia, the connected transactions contemplated under the Acquisitions Agreements.

4. EGM

Set out in pages 38 to 40 of this circular is the notice dated 14th January, 2008 to convene and hold theEGM at 7th Floor, Office Building, No. 18 Yongjiang Road, Economic Technical Development Zone, Ningbo,the PRC on 18th February, 2008 at 2:00 p.m.

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It is proposed that ordinary resolutions for the approval of the continuing connected transaction under theSteam Supply Agreement and the Annual Steam Consumption Caps, and the connected transactions under theAcquisitions Agreements be put to the Independent Shareholders for their consideration and voting at the EGM.Voting will be conducted by way of poll pursuant to the Listing Rules.

Mr. Ma Jianrong, Mr. Huang Guanlin, Mr. Ma Baoxing, Worldon, Excelbright and their associates willabstain from voting at the EGM.

For the purposes of the EGM, the register of members of the Company will be closed from 14th February,2008 to 15th February, 2008 (both days inclusive), during which no transfer of shares will be registered.Accordingly, holders of Shares of the Company whose names appear on the register of members of the Companyat the close of business on 13th February, 2008 shall have the right to attend the EGM.

Each Shareholder who has the right to attend and vote at the EGM is entitled to appoint one or moreproxies, whether they are Shareholders or not, to attend and vote on his behalf at the EGM.

The proxy form for use in connection with the EGM is enclosed with this circular. Whether or not you areable to attend the meeting, please complete and return the enclosed proxy form in accordance with theinstructions printed thereon as soon as practicable and in any event not less than 24 hours before the timeappointed for holding of the meeting. Completion and return of the proxy form will not preclude you fromattending and voting in person at the meeting or any adjourned meeting should you so wish.

5. Poll Procedure

In compliance with the Listing Rules, the votes to be taken at the EGM in respect of the continuingconnected transaction under the Steam Supply Agreement and the Annual Steam Consumption Caps, and theconnected transactions under the Acquisitions Agreements will be taken by poll, the results of which will beannounced after the EGM.

Pursuant to the articles of association of the Company, a poll can be demanded:

(i) by the chairman of the meeting; or

(ii) by at least three members present in person or, in the case of a member being a corporation, by itsduly authorized representative or by proxy for the time being entitled to vote at the meeting; or

(iii) by any member or members present in person (or, in the case of a member being a corporation, by itsduly authorized representative) or by proxy and representing not less than one-tenth of the totalvoting rights of all the members having the right to vote at the meeting; or

(iv) by a member or members present in person (or, in the case of a member being a corporation, by itsduly authorized representative) or by proxy and holding shares in the Company conferring a right tovote at the meeting being shares on which an aggregate sum has been paid up equal to not less thanone-tenth of the total sum paid up on all the shares conferring that right; or

(v) if required by the rules of the Stock Exchange, by any Director or Directors who, individually orcollectively, hold proxies in respect of shares representing 5% or more of the total voting rights atsuch meeting.

The Company will procure the chairman of the EGM to demand for voting by poll and ComputershareHong Kong Investor Services Limited will serve as the scrutineer for the vote-taking.

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6. Recommendation

The Board, including the Independent Board Committee, is of the opinion that the terms of the SteamSupply Agreement (including the Annual Steam Consumption Caps) and the Acquisitions Agreements are fairand reasonable so far as the Company is concerned and are in the interests of the Company and the Shareholdersas a whole. Accordingly, the Board (including the Independent Board Committee) recommends that theIndependent Shareholders vote in favour of the resolutions set out in the notice of the EGM for the approval ofthe Steam Supply Agreement (including the Annual Steam Consumption Caps) and the AcquisitionsAgreements.

7. Independent Board Committee

The Independent Board Committee, comprising Mr. Qian Feng, Mr. Zong Pingsheng and Mr. Dai Xiangbo,the independent non-executive Directors, has been formed to advise the Independent Shareholders in respect ofthe Steam Supply Agreement (including the Annual Steam Consumption Caps) and the AcquisitionsAgreements. UOB Asia has been appointed as the independent financial adviser for the purpose of advising theIndependent Board Committee and the Independent Shareholders in respect of the Steam Supply Agreement(including the Annual Steam Consumption Caps) and the Acquisitions Agreements.

8. Additional Information

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully,Shenzhou International Group Holdings Limited

Ma JianrongChairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE



14th January, 2008

To the Independent Shareholders,

Dear Sir or Madam,

Continuing Connected Transactionand

Connected Transactions

We have been appointed as the Independent Board Committee to advise you in connection with the SteamSupply Agreement (including the Annual Steam Consumption Caps) and the Acquisitions Agreements, details ofwhich are set out in the Letter from the Board contained in the circular to the shareholders of the Company dated14th January, 2008 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have thesame meanings when used herein unless the context otherwise requires.

Having considered the Steam Supply Agreement (including the Annual Steam Consumption Caps) and theAcquisitions Agreements, and the advice and opinion of UOB Asia in relation thereto as set out on pages 16 to23 of the Circular, we are of the opinion that the terms of the Steam Supply Agreement (including the AnnualSteam Consumption Caps) and the Acquisitions Agreements are fair and reasonable and are in the interests of theCompany and the Shareholders as a whole. We therefore recommend that you vote in favour of the resolutions tobe proposed at the EGM to approve the Steam Supply Agreement (including the Annual Steam ConsumptionCaps) and the Acquisitions Agreements.

Yours faithfully,

Qian FengIndependent

non-executive Director

Zong PingshengIndependent


Dai XiangboIndependent


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LETTER FROM UOB ASIA

The following is the full text of the letter of advice to the Independent Board Committee and theIndependent Shareholders from UOB Asia prepared for the purpose of incorporation in this circular.

UOB Asia (Hong Kong) LimitedSuite 601, 6/F Aon China Building29 Queen’s Road CentralHong Kong

14th January, 2008

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONIN RELATION TO THE SUPPLY OF STEAM AND

CONNECTED TRANSACTIONS IN RELATION TO THE ACQUISITIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee andthe Independent Shareholders in respect of the steam supply arrangement pursuant to the Steam SupplyAgreement (the “Steam Supply”), the Annual Steam Consumption Caps and the Acquisitions. Details of theSteam Supply, the Annual Steam Consumption Caps and the Acquisitions are set forth in the “Letter from theBoard” contained in the circular of the Company dated 14th January, 2008 (the “Circular”), of which this letterforms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circularunless the context otherwise requires.

The Independent Board Committee, comprising all the independent non-executive Directors, namelyMr. Qian Feng, Mr. Zong Pingsheng and Mr. Dai Xiangbo, has been constituted to consider whether the SteamSupply, the Annual Steam Consumption Caps and the Acquisitions are fair and reasonable and are in the interestsof the Company and the Shareholders as a whole. We have been appointed to advise the Independent BoardCommittee in this respect.

The Steam Supply and the Annual Steam Consumption Caps

On 21st December, 2007, Shenzhou Knitting entered into the Steam Supply Agreement with MingyaoElectric Company whereby Mingyao Electric Company agreed to maintain a sufficient and stable supply ofsteam to the Group at all times and has granted priority to the Group for its demand for steam from time to timefor a period of three years commencing from 1st January, 2008 to 31st December, 2010. Consistent with theprevious steam supply agreement entered into between the same parties on 9th October, 2005, details of whichhave been set forth in the Company’s prospectus dated 15th November, 2005 (the “Prospectus”), ShenzhouKnitting and Mingyao Electric Company have agreed that Mingyao Electric Company may first sell its steam toan independent A-share company listed on the Shanghai Stock Exchange (the “A-Share Company”) whichwould then on-sell the steam to the Group. The steam price per ton to be charged by the A-Share Company to theGroup will be identical to the price charged by Mingyao Electric Company to the A-Share Company.

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Mingyao Electric Company is owned as to 52% by (Ningbo Mingyao InvestmentCo., Ltd.), a party not connected with any of the Directors, the chief executive, the substantial shareholders of theCompany or any of its subsidiaries, or any of their respective associates, and 48% by Worldon, the controllingshareholder of the Company. Accordingly, Mingyao Electric Company is a connected person by virtue of Rule14A.11(4) of the Listing Rules.

The transaction under the Steam Supply Agreement constitutes continuing connected transaction for theCompany under Chapter 14A of the Listing Rules. As the applicable percentage ratios of the Annual SteamConsumption Caps are more than 2.5% and the total consideration is more than HK$10,000,000, pursuant toRule 14A.35 of the Listing Rules, the transaction under the Steam Supply Agreement and the Annual SteamConsumption Caps are subject to the reporting, announcement and Independent Shareholders’ approvalrequirements in accordance with Chapter 14A of the Listing Rules. Mr. Ma Jianrong, Mr. Huang Guanlin,Mr. Ma Baoxing, Worldon, Excelbright and their associates will abstain from voting at the EGM to be convenedfor the approval of, inter alia, the transaction contemplated under the Steam Supply Agreement and the AnnualSteam Consumption Caps.

The Acquisitions

On 21st December, 2007, the following agreements were executed between the following parties:

Parties involved Agreements executed Purpose

Vendor:Shenzhou Properties

Purchaser:Ningbo Tuteng

• Huanghai Road Land UseRight Transfer Agreement

• Huanghai Road IndustrialComplex Transfer Agreement

To acquire the Huanghai Property

Vendor:Shenzhou Properties

Purchaser:Shenzhou Knitting

• Bohai Road Land Use RightTransfer Agreement

• Bohai Road IndustrialComplex Transfer Agreement

• Dagang Land Use RightTransfer Agreement

• Dagang Industrial ComplexTransfer Agreement

To acquire the Bohai Property andthe Dagang Property

The total consideration for the Huanghai Property, the Bohai Property and the Dagang Property (together,the “Properties”) amount to RMB153 million which will be fully settled by the Group in cash. The considerationfor the Properties has been determined after arm’s length negotiation between the parties and is based on themarket values of the Properties pursuant to the Valuation Report.

Shenzhou Properties is owned as to 80% by Mr. Ma Jianrong, a Director, and as to 20% by RongrongIndustrial, an associate of the Company as defined under the Listing Rules. Accordingly, Shenzhou Properties isa connected person by virtue of Rule 14A.11(4) of the Listing Rules.

The Acquisitions constitute connected transactions for the Company under Chapter 14A of the ListingRules. As the applicable percentage ratios of the Acquisitions are more than 2.5% and the total consideration ismore than HK$10,000,000, pursuant to Rule 14A.32 of the Listing Rules, the Acquisitions are subject to thereporting, announcement and Independent Shareholders’ approval requirements in accordance with the ListingRules. Mr. Ma Jianrong, Mr. Huang Guanlin, Mr. Ma Baoxing, Worldon, Excelbright and their associates willabstain from voting at the EGM to be convened for the approval of, inter alia, the Acquisitions.

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BASIS OF OUR OPINION

We are not associated with the Company or its substantial shareholders or any party acting, or presumed tobe acting, in concert with any of them and, accordingly, we are considered eligible to give independent advice onthe Steam Supply, the Annual Steam Consumption Caps and the Acquisitions. Apart from normal professionalfee payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees orbenefits from the Company or its substantial shareholders or any party acting, or presumed to be acting, inconcert with any of them.

We were not involved in the negotiation pertaining to the Steam Supply, the Annual Steam ConsumptionCaps and the Acquisitions. In formulating our opinion with regard to the Steam Supply, the Annual SteamConsumption Caps and the Acquisitions, we have relied on the information supplied, representations made andopinions expressed by the Directors and the senior management of the Company, and their advisers andrepresentatives, for which they are solely responsible. We have assumed that all such information andrepresentations were true, accurate and complete at the time they were made and continue to be so at the date ofthis letter. We have also assumed that all statements of belief, opinion and intention of the Directors and thesenior management of the Company, and their advisers and representatives, produced to us were reasonablymade after due and careful inquiry. We have received confirmation from the Directors that no material facts, theomission of which would make any statement or opinion contained in this letter to be misleading, have beenomitted from the information provided by the Company to us.

In addition, we have reviewed the Valuation Report and assumed that the bases and assumptions made indetermining the valuation of the Properties by the Valuer are fair and reasonable.

We consider that we have been provided with, and we have reviewed, sufficient information to enable us toreach an informed view and to justify reliance on the accuracy of the information provided to us so as to providereasonable basis for our advice. We have no reason to suspect that any material facts or information have beenomitted or withheld from the information supplied or opinions expressed to us nor to doubt the truth, accuracyand completeness of the information and representations provided, or the reasonableness of the opinionsexpressed, to us by the Directors and the senior management of the Company, and their advisers andrepresentatives. We have not, however, carried out any independent verification of the information provided to usby the Directors and the senior management of the Company, and their advisers and representatives, nor have weconducted any independent in-depth investigation into the businesses, affairs or future prospects of the Group.Accordingly, we do not warrant the accuracy or completeness of any such information.

BACKGROUND OF THE GROUP

The Company was listed on the Main Board of the Stock Exchange on 24th November, 2005. The Group isone of the leading vertically integrated knitwear manufacturers in the PRC in terms of turnover and profit beforetaxation. The Group has developed a vertically integrated business model that combines the following fourproduction processes within the same industrial zone: (1) fabric weaving and knitting; (2) dyeing and finishingservices; (3) printing and embroidery services; and (4) cutting and sewing of knitwear products. The Groupmanufactures casual wear and sports wear for major apparel brands.

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PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO THE STEAM SUPPLYAND THE ANNUAL STEAM CONSUMPTION CAPS

1. Reasons for entering into the Steam Supply Agreement

The Group manufactures casual wear and sports wear for major apparel brands. Steam is widely used in thedaily operations of the Group, such as in the process of dyeing clothes. Mingyao Electric Company is principallyengaged in the operation of a co-generation power plant that generates electricity and steam. As at the LatestPracticable Date, to the best knowledge of the Directors, the A-Share Company and Mingyao Electric Companywere the only two companies supplying steam to factories in the Ningbo Economic and Technical DevelopmentZone. The Directors are of the view that the Steam Supply Agreement will ensure a sufficient and stable steamsupply which is crucial to the operations of the Group.

Having considered:

(i) the background of the Group and Mingyao Electric Company;

(ii) the assurance of a regular and sufficient steam supply to run the operations of the Group; and

(iii) the continuous business relationship between the Group and Mingyao Electric Company in the past,

we are of the view that the transaction contemplated under the Steam Supply Agreement are in the interestsof the Company and the Shareholders as a whole.

2. Principal terms of the Steam Supply Agreement

The principal terms of the Steam Supply Agreement are:

(i) the steam price per ton charged by Mingyao Electric Company will be determined with reference tothe prevailing market price of steam supplied by independent steam suppliers located in the NingboEconomic and Technical Development Zone, but in any event, such steam price per ton to be chargedby Mingyao Electric Company will not be higher than the prevailing market price of steam in thatzone;

(ii) either party may terminate the Steam Supply Agreement by giving 30 days’ written notice to theother party; and

(iii) Mingyao Electric Company has undertaken to maintain a sufficient and stable supply of steam to theGroup at all times and has granted priority to the Group for its demand for steam from time to time.

We were provided with sample invoices and noted the following observations:

(i) the steam price per ton paid by the A-Share Company to Mingyao Electric Company is identical tothe steam price charged by the A-Share Company to the Group; and

(ii) the steam price per ton charged by Mingyao Electric Company was not higher than the prevailingmarket price of steam in the Ningbo Economic and Technical Development Zone. As at the LatestPracticable Date, to the best knowledge of the Directors, the A-Share Company and Mingyao ElectricCompany were the only two companies supplying steam to factories in the Ningbo Economic andTechnical Development Zone. The prevailing market price is therefore determined by the pricescharged by these two companies to third parties. We were provided with recent invoices charged tothe relevant parties and noted the Group was charged at prices lower than the prevailing market price.

Based on the above, we are of the view that the terms of the Steam Supply Agreement are fair andreasonable.

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3. Historical figures and the Annual Steam Consumption Caps

The table below sets forth the actual steam usage and caps (the “Previous Caps”) for the three years ended31st December, 2007 and the Annual Steam Consumption Caps:

(Figures expressed in RMB’000)

Year ended / ending 31st December,

Previous CapsAnnual Steam

Consumption Caps2005 2006 2007 2008 2009 2010

Audited Audited Unaudited

Actual steam usage from Mingyao ElectricCompany 11,642 29,563 38,500 — — —

Annual caps of the Steam Supply with MingyaoElectric Company 27,500 32,800 39,200 56,260 70,725 88,400

In assessing the reasonableness of the Annual Steam Consumption Caps, we have discussed with theDirectors the basis and assumptions used in determining the Annual Steam Consumption Caps. We were given tounderstand that:

(i) the projected increase in the Group’s total steam consumptions was based on the 18.5% cumulativeannual growth rate of the Group’s total steam consumption from 2005 to 2007. The total steamconsumptions for those periods were approximately 583,927 tons, 666,027 tons and 820,000 tons,respectively;

(ii) the potential upward adjustments of the steam prevailing market rate per annum, which was based onthe percentage increase of 5.8% in steam price per ton from 2006 to 2007. The average price per tonof steam (based on the then prevailing market prices) for those periods were RMB104 and RMB110,respectively;

(iii) the Group’s total steam consumption of 820,000 tons and the prevailing market rate of steam ofRMB110 per ton in 2007, respectively; and

(iv) the Group intends to purchase half of its total steam consumption from Mingyao Electric Companyand the balance steam consumption from the A-Share Company, in order to mitigate the risk ofrelying solely on one single steam supplier.

Based on all the factors discussed above and after taking into account:

(i) the terms under the Steam Supply Agreement will not be less favourable than the terms offered byMingyao Electric Company to its third party customers;

(ii) the Group will also be obtaining steam supply from the A-Share Company other than MingyaoElectric Company; and

(iii) the steam price per ton charged by Mingyao Electric Company is not higher than the prevailingmarket price of steam in the Ningbo Economic and Technical Development Zone,

we are of the view that the Supply Steam Agreement was entered into on normal commercial terms and inthe ordinary course of business of the Group. The terms of the Supply Steam Agreement and the Annual SteamConsumption Caps are fair and reasonable and are in the interests of the Company and the Shareholders as awhole.

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PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO THE ACQUISITIONS

1. The Properties

We set forth below some information on the Properties, details of which are set forth in the Valuation Report:

Name of Property Location Site areaGross

floor area Market value(squaremeters)

(squaremeters)

(RMB’ million)

Huanghai Property No. 67, Huanghai Road,Beilun District, Ningbo,the PRC

39,999.8 58,210.3 113.5

Bohai Property No. 643, Bohai Road,Beilun District, Ningbo,the PRC

16,682.0 11,467.1 21.2

Dagang Property No. C8B, DagangIndustrial District,Ningbo, the PRC

7,876.3 10,464.4 18.3

Total: 153.0

2. The property market in Ningbo

We note that the Properties are all located in Ningbo, which is situated in the Zhejiang Province, the PRC.According to the China Statistical Yearbook 2007 (the “Yearbook”), Zhejiang Province has a population of49.8 million whilst Ningbo has a population of 5.6 million in 2006. Zhejiang Province has also recorded anincreasing trend in gross regional product (“GRP”) from RMB1,343.8 billion in 2005 to RMB1,574.3 billion in2006, representing an increase of 17%. Out of the RMB1,574.3 billion in 2006, Ningbo contributed RMB287.4billion (equivalent to 18.3% of the total GRP in 2006). The statistics in the Yearbook showed that the transactionprice indices of land in the PRC increased by 9.1% and 5.8% in 2005 and 2006, respectively, while thetransaction price indices of land in Ningbo increased by 15.9% and 9.2% in 2005 and 2006, respectively.

Based on the above statistics, we can deduce that the property market in Ningbo is encouraging due to therising trend in the transaction price indices and the GRP.

3. Reasons for and benefits of the Acquisitions

As stated in the Prospectus, Shenzhou Properties and Shenzhou Knitting entered into certain leaseagreements (the “Lease Agreements”) whereby Shenzhou Properties leased to Shenzhou Knitting certainproperties in the Beilun Economic & Technical Development Zone in Ningbo city for a period commencing from1st June, 2005 to 31st December, 2007. Upon expiration of the term under the Lease Agreements, the Directorsconsider that it would be beneficial for the Group to acquire the Properties which Shenzhou Knitting hadpreviously leased, after taking into account the following:

(i) there has been a gradual increase in rental charges and land supply is getting scarce in the NingboEconomic Technical and Development Zone. With the Acquisitions, the Group will no longer beexposed to increasing rental pressures. The statistics in the Yearbook showed that the rental priceindices of properties (including industrial buildings) in Ningbo increased by 4.3%, 4.1% and 3.4% in2004, 2005 and 2006, respectively;

(ii) the Group will have full control over the properties which are used in the knitwear manufacturingoperations so that the knitwear production lines will not be easily disrupted by the non-availability offactory space; and

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(iii) the Group will be able to reduce the level of continuing connected transactions with ShenzhouProperties. Prior to the Acquisitions, the Group has been leasing the Properties from ShenzhouProperties for their business operations.

We concur with the Directors’ view as stated above and are of the view that the Acquisitions are in theinterests of the Company and the Shareholders as a whole.

4. Basis of consideration and other terms of the Acquisitions

The consideration of RMB153 million in respect of the Acquisitions was arrived at after arm’s lengthnegotiation and based upon the open market values of the Properties and is payable in cash.

We have reviewed the Valuation Report and have also enquired with the Valuer on the methodologiesadopted and the assumptions used in arriving at the open market values of the Properties as at 30th November,2007. We understand that the Valuer has carried out property inspections and adopted a combination ofapproaches in terms of open market (the “Open Market Value Approach”) and depreciated replacement cost(the “Depreciated Replacement Cost Approach”) in assessing the land portions of the property and thebuildings and structures standing on the land respectively. The valuation of the land portions is referenced tocomparable sales transactions as available in the subject localities as well as the relevant benchmark land prices.The valuation of the buildings and structures is referenced to the cost to reproduce or replace in new conditionthe property appraised in accordance with current construction costs for similar buildings and structures in thelocality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present,whether arising from physical, functional or economic causes.

The Valuer advised that the Open Market Value Approach is the most common methodology used and is astandard market approach to assess the value of land within the same location or other comparable locations. Itwas therefore appropriate to be used to assess the land portions of the Properties. The Depreciated ReplacementCost Approach is also another common methodology used to assess the value of buildings which generallyfurnished the most reliable indication of value for the property in the absence of a known market, based oncomparable sales.

We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptionsused by the Valuer in arriving at the valuation of the Properties. Since the Acquisitions were determined based onrecent valuation of the Properties, with reference to a fair and appropriate methodology, we are of the opinionthat the consideration for the Acquisitions is fair and reasonable so far as the Independent Shareholders areconcerned and is in the interests of the Shareholders and the Company as a whole.

We have also reviewed the other terms as stipulated in the agreements relating to the Acquisitions and arenot aware of any terms which are uncommon to normal market practice or may be detrimental to the Companyand the Shareholders.

POSSIBLE FINANCIAL EFFECTS OF THE ACQUISITIONS ON THE GROUP

The consideration of RMB153 million for the Acquisitions will be satisfied in cash, using the internalresources of the Group. The assets will thus be recorded as the Group’s property, plant and equipment.

Earnings

The Directors advised that the Acquisitions will not have a material effect on the earnings of the Groupupon completion of the Acquisitions.

Net assets

The Acquisitions will result in an increase in fixed assets and decrease in cash and bank balances. The netassets of the Group would remain substantially unchanged upon completion of the Acquisitions.

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Gearing Ratio

Immediately prior to the Acquisitions, the gearing ratio (calculated as total debt and borrowings ofapproximately RMB700.0 million divided by shareholders’ funds of approximately RMB2,280.9 million) of theGroup as at 30th June, 2007 was about 30.7%. The gearing ratio would remain substantially unchanged uponcompletion of the Acquisitions.

Working capital

The total consideration for the Acquisitions of RMB153 million shall be satisfied in cash by twoinstallments using the internal resources of the Group. The unaudited cash and cash equivalents of the Group asat 31st October, 2007 was approximately RMB164.2 million. The Directors advised that the Group shall havesufficient cash to settle the consideration for the Acquisitions from the internal resources of the Group. TheDirectors further advised that after the said outflow, the Group still has sufficient resources for the workingcapital requirement.

RECOMMENDATIONS

Having considered the above factors and reasons, we consider the Steam Supply, the Annual SteamConsumption Caps and the Acquisitions are in the interests of the Company and the Shareholders as a whole andthat the terms thereof are fair and reasonable so far as the Company and the Shareholders are concerned.Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to votein favour of the relevant resolutions to be proposed at the EGM.

Yours faithfully,For and on behalf of

UOB Asia (Hong Kong) LimitedYip Kwok Kwan

Chief Executive Officer

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APPENDIX I PROPERTY VALUATION

The following is the text of a letter, summary of values and valuation certificates, prepared for the purposeof incorporation in this circular received from RHL Appraisal Ltd., an independent valuer, in connection with itsvaluation as at 30th November 2007 of the property interests held by Ningbo Shenzhou Properties CompanyLimited.

Room 1010, Star HouseTsimshatsuiKowloonHong Kong

18th December 2007

The Board of DirectorsShenzhou International Group Holdings LimitedUnits 2707-270827th FloorBillion Plaza8 Cheung Yue StreetKowloonHong Kong

Dear Sirs,

INSTRUCTIONS

In accordance with your instructions to value the property interests held by Ningbo Shenzhou PropertiesCompany Limited ( ) (referred to as “Shenzhou Properties”) a limited liability companyincorporated under the laws of the PRC on 10 February 2004 and is owned as to 80.0% by Mr. Ma Jianrong, aDirector of Shenzhou International Group Holdings Limited (referred to as the “Company”), and as to 20.0% byNingbo Rongrong Industrial Investment Company Limited, located in the PRC, we confirm that we have carriedout property inspections, made relevant enquiries and obtained such further information as we consider necessaryfor the purpose of providing you with our opinion of the market values of the property interests as at30th November 2007 (the “date of valuation”).

This letter which forms part of our valuation report explains the basis and methodology of valuation,clarifying assumption and limiting conditions of this valuation.

BASIS OF VALUATION

Our valuation of the property interests represents the market value which we would define as intended tomean “the estimated amount for which a property should exchange on the date of valuation between a willingbuyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had eachacted knowledgeably, prudently, and without compulsion”.

METHODS OF VALUATION

In valuing the property interests which are held by Shenzhou Properties in the PRC, we have adopted acombination of the open market and depreciated replacement cost approaches in assessing the land portions ofthe property and the buildings and structures standing on the land respectively. Hence, the sum of the two resultsrepresents the market value of the property as a whole. In the valuation of the land portions, reference has beenmade to the comparable sales transactions as available in the subject localities as well as the relevant benchmarkland prices. As the nature of the buildings and structures cannot be valued on the basis of market value, they havetherefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost

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approach considers the cost to reproduce or replace in new condition the property appraised in accordance withcurrent construction costs for similar buildings and structures in the locality, with allowance for accrueddepreciation as evidenced by observed condition or obsolescence present, whether arising from physical,functional or economic causes. The depreciated replacement cost approach generally furnished the most reliableindication of value for the property in the absence of a known market based on comparable sales.

VALUATION ASSUMPTIONS

As the property interests are held under long term land use rights contracts, we have assumed thatShenzhou Properties has free and uninterrupted rights to use the property interests for the whole of the unexpiredterm of their respective land use right contracts without payment of any substantial sum of taxes or expenses.

Our valuations have been made on the assumption that Shenzhou Properties sells the property interests inthe open market in their existing states without the benefit of a deferred term contracts, leasebacks, jointventures, management agreements or any similar arrangements, which could serve to affect the values of theproperty interests.

No allowance has been made in our report for any charges, mortgages or amounts owing on the propertyinterests valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwisestated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of anonerous nature, which could affect their values.

VALUATION CONSIDERATIONS

In valuing the property interests, we have complied with all the requirements contained in Chapter 5 andPractice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong KongLimited; and the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong KongInstitute of Surveyors effective from 1st January 2005.

LIMITING CONDITIONS

We have relied to a considerable extent on information given by Shenzhou Properties, in particular, but notlimited to, tenure, planning approvals, statutory notices, easements, particulars of occupancy, floor areas and allother relevant matters.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect ofthe property interests but have assumed that the site areas shown on the documents are correct. All documentshave been used as reference only and all dimensions, measurements and areas are approximations. No on-sitemeasurement has been taken.

We have inspected the exterior and, where possible, the interior of the property interests. However, nostructural survey has been made, but in the course of our inspection, we did not note any serious defects. We arenot, however, able to report whether the property interests are free of rot, infestation or any other structuraldefects. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by ShenzhouProperties. We have also been advised by Shenzhou Properties that no material factors have been omitted fromthe information supplied. We consider that we have been provided with sufficient information to reach aninformed view, and we have no reason to suspect that any material information has been withheld.

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TITLE INVESTIGATION

We have been, in some instances, provided with extracts of title documents relating to the propertyinterests in the PRC, where possible, we have examined the original documents to verify the existing title to theproperty interests in the PRC and any material encumbrances that might be attached to the property interests orany lease amendments. We have also relied on the legal opinion prepared by the PRC Lawyer, Zhejiang WinjusLaw Firm. ( ) on Shenzhou Properties’ title to those property interests and in the nature of itsland use rights in the same properties.

All legal documents supplied by Shenzhou Properties have been used for reference only. No responsibilityregarding legal title to the property interests is assumed in this valuation report.

EXCHANGE RATE

The property has been valued in Renminbi (RMB). Wherever applicable, the conversion of Hong KongDollars (HK$) into Renminbi (RMB) is based on the factor of HK$1 to RMB0.9492 with reference to theprevailing exchange rate at the date of valuation.

Our valuations are summarised below and the valuation certificates are attached.

Yours faithfully,For and on behalf of

RHL Appraisal Ltd.

Serena S. W. Lau Ian K. F. NgFHKIS AAPI RPS(GP) MBA BSc(Est Man) BSc MHKIS MRICS RPS(GP)

Managing Director Senior Manager

Ms. Serena S. W. Lau is a Registered Professional Surveyor with over 16 years’ experience in valuation ofproperties in HKSAR, Macau SAR, mainland China and the Asia Pacific Region. Ms. Lau is an Associate ofAustralian Property Institute, a Fellow of The Hong Kong Institute of Surveyors as well as a registered realestate appraiser in the PRC.

Mr. Ian K. F. Ng, is a Registered Professional Surveyor with over 4 years’ experience in valuation ofproperties in HKSAR, Macau SAR and mainland China. Mr. Ng is a member of the Hong Kong Institute ofSurveyors as well as the Royal Institution of Chartered Surveyors.

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SUMMARY OF VALUES

Property

Market valuein existing state

as at 30th November 2007RMB

Property interests held by Shenzhou Properties for occupation in the PRC

1. Land and Buildings located at the junction of theHuangshanxi Road North and Huanghai Road East,Ningbo Economic & Technical Development Zone,Ningbo City,Zhejiang Province,The PRC 113,500,000

2. Land and Buildings located at the eastern side of Bohai RoadDagang Industrial District,Ningbo Economic & Technical Development Zone, Ningbo City,Zhejiang Province,The PRC 21,200,000

3. Land and Building located at land parcel No.C8B ofDagang Industrial District,Ningbo Economic & Technical Development Zone,Ningbo City,Zhejiang Province,The PRC 18,300,000

Grand-total: 153,000,000

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VALUATION CERTIFICATE

Property interests held by Shenzhou Properties for occupation in the PRC

Property Description and tenureParticulars ofoccupancy

Market value inexisting state as at

30th November 2007RMB

1. Land and Buildingslocated at the junction ofthe Huangshanxi RoadNorth and HuanghaiRoad EastNingbo Economic &Technical DevelopmentZoneNingbo City ZhejiangProvinceThe PRC

The property is anindustrial complexcomprising a land with asite area of approximately39,999.79 sq.m. on whichfour blocks of 1 to3-storey factory buildings(the “Buildings”) werebuilt and completed inabout 2004.

The total gross floor area(“G.F.A.”) of theBuildings isapproximately 58,210.25sq.m. with breakdowns asfollows:

The property is occupiedby Shenzhou Properties,the Company and itssubsidiaries formanufacturing purposes.

113,500,000

Block No. G.F.A. (sq.m.)

1 20,370.552 18,896.933 18,896.934 45.84Total 58,210.25

The land use rights ofthe property weregranted for a termexpiring on 21st January2053 for industrial uses.

Notes:

1 Pursuant to a State-owned Land Use Rights Transfer Contract entered into between Ningbo YongmianFashion Garment Company limited ( ) and Shenzhou Properties (a connected personof the Company as advised by Shenzhou Properties), the land use rights of a parcel of land with a site areaof approximately 39,999.79 sq.m. for a term expiring on 21st January 2053 for industrial uses have beencontracted to be transferred to Shenzhou Properties at a consideration of RMB3,000,000.

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2 Pursuant to a State-owned Land Use Rights Certificate — Lun Guo Yong (2005) Zi Di No. 05226 ((2005) 05226 ) issued by People’s Government of Ningbo City in May 2005, the land use rights ofthe property with a site area of approximately 39,999.79 sq.m. were granted to Shenzhou Properties for aterm expiring on 21st January 2053 for industrial uses.

3 Pursuant to an Agreement of Transfer of Industrial Building ( ) dated 15th April 2005entered into between Ningbo Yongmian Fashion Garment Company limited ( ) andShenzhou Properties, the Buildings with a total gross floor area of approximately 58,210.25 sq.m. havebeen contracted to be transferred to Shenzhou Properties at a consideration of RMB52,910,944.50

4 Pursuant to a Building Ownership Certificate — Yong Fang Quan Zheng Lun (Kai) Zi Di 2007802978( ( ) 2007802978 ) issued by House Administration Bureau of Ningbo City dated13th March 2007, the building ownership rights of a block of 1-storey and three blocks of 3-storeyindustrial buildings having a total gross floor area of approximately 58,210.25 sq.m. were granted toShenzhou Properties.

5 A summary of major certificates is shown as follows:

State-owned Land Use Rights Certificate YesBuilding Ownership Certificate Yes

6 We have been provided with a legal opinion regarding the property interests by Shenzhou Properties’ legaladviser, which contains, inter alia, the following:

6.1 Shenzhou Properties legally owns the land use rights and building ownership rights of the propertyand is protected by the PRC law;

6.2 Shenzhou Properties is entitled to freely transfer, lease and mortgage the land use rights and buildingownership rights of the property;

6.3 Shenzhou Properties is owned as to 80.0% by Mr. Ma Jianrong, a Director of the Company, and as to20.0% by Ningbo Rongrong Industrial Investment Company Limited, and has been issued with abusiness licence and is legally established under the PRC law as a limited company; and

6.4 up to the date of the PRC legal opinion, the property was free from any encumbrances.

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2. Land and Buildingslocated at the eastern sideof Bohai Road,Dagang IndustrialDistrict,Ningbo Economic &Technical DevelopmentZone, Ningbo City,Zhejiang Province,The PRC

The property is anindustrial complexcomprising a land with asite area of approximately16,682 sq.m. on which asingle-storey warehouseand an ancillary structurewere built and completedin about 2004

The warehouse and theancillary structure have agross floor area ofapproximately 7,292.05sq.m. and 4,175 sq.m.respectively.

The land use rights of theproperty were granted for aterm expiring on 14th

September 2053 forindustrial uses.

The property is occupiedby Shenzhou Properties,the Company and itssubsidiaries for warehousepurposes.

21,200,000

Notes:

1. Pursuant to a State-owned Land Use Rights Transfer Contract entered into between Ningbo Beilun HuahuaGarments company limited ( ) and Shenzhou Properties (a connected person ofthe Company as advised by Shenzhou Properties), the land use rights of a parcel of land with a site area ofapproximately 16,682 sq.m. for a term expiring on 14th September 2053 for industrial uses have beencontracted to be transferred to Shenzhou Properties at a consideration of RMB3,002,760.

2. Pursuant to a State-owned Land Use Rights Certificate — Lun Guo Yong (2005) Zi Di No. 05231 ((2005) 05231 ) issued by People’s Government of Ningbo City in May 2005, the land use rights ofthe property with a site area of approximately 16,682 sq.m. were granted to Shenzhou Properties for a termexpiring on 14th September 2053 for industrial uses.

3. Pursuant to two sets of the Agreement of Transfer of Industrial Building ( ) entered intobetween Ningbo Beilun Huahua Garments company limited ( ) and ShenzhouProperties, a single-storey warehouse and an ancillary structure with gross floor areas of approximately7,292.05 sq.m. and 4,175 sq.m. have been contracted to be transferred to Shenzhou Properties atconsiderations of RMB5,687,799 and RMB3,256,500 respectively.

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4. Pursuant to a Building Ownership Certificate — Yong Fang Quan Zheng Lun (Kai) Zi Di 2007803295( ( ) 2007803295 ) issued by House Administration Bureau of Ningbo City dated21st March 2007, the building ownership rights of a single-storey warehouse with a gross floor area ofapproximately 7,292.05 sq.m. were granted to Shenzhou Properties.

5. A summary of major certificates is shown as follows:


6. We have been provided with a legal opinion regarding the property interests by the Shenzhou Properties’legal adviser, which contains, inter alia, the following:



6.3 Shenzhou Properties has obtained all requisite approvals from the relevant authorities for theconstruction and the completion of the building and ancillary structure and the development is legaland valid;


6.5 up to the date of the PRC legal opinion, the property was free from any encumbrances.

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3. Land and Buildinglocated at land parcelNo.C8B of DagangIndustrial District,Ningbo Economic &Technical DevelopmentZoneNingbo City ZhejiangProvinceThe PRC

The property is an industrialcomplex comprising a landwith a site area ofapproximately 7,876.25sq.m. on which a 4-storeyfactory building was builtand completed in about2003.

The gross floor area of thebuilding is approximately10,464.41 sq.m.

The land use rights of theproperty were granted for aterm expiring on 8th August2050 for industrial uses.

The property isoccupied byShenzhou Properties,the Company and itssubsidiaries forindustrial purposes.

18,300,000

Notes:

1. Pursuant to an Agreement of Transfer of Industrial Building ( ) entered into betweenNingbo shenzhou knitting company limited ( ) and Shenzhou Properties (a connectedperson of the Company as advised by Shenzhou Properties), a parcel of land with a site area ofapproximately 7,876.25 sq.m. and a 4-storey factory building with a gross floor area of approximately10,464.41 sq.m. have been contracted to be transferred to Shenzhou Properties at a consideration ofRMB13,870,355.

2. Pursuant to a State-owned Land Use Rights Certificate — Lun Guo Yong (2005) Zi Di No.05229 ((2005) 05229 ) issued by People’s Government of Ningbo City in May 2005, the land use rights ofthe property with a site area of approximately 7,876.25 sq.m. were granted to Shenzhou Properties for aterm expiring on 8th August 2050 for industrial uses.

3. Pursuant to a Building Ownership Certificate – Yong Fang Quan Zheng Lun (Kai) Zi Di 2007802985( ( ) 2007802985 ) issued by House Administration Bureau of Ningbo City dated 14th

March 2007, the building ownership rights of a 4-storey industrial building with a gross floor area of10,464.41 sq.m. were granted to Shenzhou Properties.

4. A summary of major certificates is shown as follows:


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5. We have been provided with a legal opinion regarding the property interests by Shenzhou Properties’ legaladviser, which contains, inter alia, the following:




5.4 up to the date of the PRC legal opinion, the property was free from any encumbrances There is nomortgage and other material encumbrance affecting the value of the property.

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APPENDIX II GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of givinginformation with regard to the Company. The Directors collectively and individually accept full responsibility forthe accuracy of the information contained in this circular, having made all reasonable enquiries, that to the best oftheir knowledge and belief there are no other facts the omission of which would make any statement in thiscircular misleading.

2. DISCLOSURE OF INTERESTS

(i) Directors and Chief Executive of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive ofthe Company in the shares, underlying shares and debentures of the Company and any of its associatedcorporations (within the meaning of Part XV of the SFO), which, would have to be notified to the Company andthe Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positionswhich they were taken or deemed to have under such provisions of the SFO), or would be required, pursuant tosection 352 of the SFO, to be recorded in the register therein, or would be required to be notified to the Companyand the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of ListedCompanies contained in the Listing Rules were as follows:

Name of shareholderCapacity andnature of interest

Number ofShares interested

Percentage of theissued share capital of

the Company

Ma Jiangrong1 Corporate interests 900,000,000 72.29%Huang Guanlin2 Corporate interests 117,000,000 9.4%

Notes:

1. As at the Latest Practicable Date, such shares were beneficially owned by Excelbright which is a wholly-owned subsidiary ofWorldon, which is, in turn, owned as to 74% by Mr. Ma Jianrong, as to 13% by Mr. Huang Guanlin and as to 13% by Mr. Ma Baoxing(father of Mr. Ma Jianrong). As Mr. Ma Jianrong is entitled to exercise more than one-third of the voting power at the generalmeetings of Worldon, by virtue of the SFO, Mr. Ma Jianrong is deemed to be interested in the 900,000,000 shares held by Excelbright.

2. Mr. Huang Guanlin is indirectly interested in a 13% interest in Excelbright, which owns a 72.29% interest in the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of theCompany had or was deemed to have any interests or short positions in the shares, underlying shares ordebentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), whichwould have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV ofthe SFO (including interests and short positions which they were taken or deemed to have under such provisionsof the SFO), or would be required, pursuant to section 352 of the SFO, to be recorded in the register therein, orwould be required to be notified to the Company and the Stock Exchange pursuant to the Model Code (“ModelCode”) as set out in the Listing Rules.

(ii) Substantial Shareholders of the Company and other persons

As at the Latest Practicable Date, so far as is known to any Directors or chief executive of the Company,the following persons (other than the Directors and the chief executive of the Company) had or were deemed ortaken to have interests or short positions in the Shares or underlying Shares of the Company which would fall tobe disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of theSFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share

— 34 —


capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or hadany option in respect of such capital:

Name of shareholderCapacity and natureof interest

Number ofShares interested

Percentage of theissued share capital of

the Company

Excelbright1 Beneficial owner 900,000,000 72.29%Worldon1,2 Beneficial owner 900,000,000 72.29%Genesis Asset Managers, LLP Investment manager 62,977,000 5.06%

Notes:

1. Excelbright held a 72.29% in the issued share capital of the Company. As at the Latest Practicable Date, the entire issued share capitalof Excelbright was held by Worldon.

2. As at the Latest Practicable date, the issued share capital of Worldon was held as to 74% by Mr. Ma Jianrong, and as to 13% byMr. Huang Guanlin. Mr. Ma Jianrong is the son of Mr. Ma Baoxing. Mr. Huang Guanlin is the son-in-law of Mr. Ma Baoxing andbrother-in-law of Mr. Ma Jianrong. As the entire issued share capital of Excelbright is held by Worldon and Mr. Ma Jianrong controlsover one-third of the voting power at general meetings of Worldon, Mr. Ma Jianrong is deemed to be interested in the 900,000,000shares held by Excelbright under the SFO.

Save as disclosed above, so far as is known to the Directors or the chief executive of the Company, noother person (not being a Director or chief executive of the Company) had any interests or short positions in theShares or underlying Shares of the Company which would fall to be disclosed to the Company and the StockExchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly,interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in allcircumstances at general meetings of any other member of the Group or had any option in respect of such capital.

3. FURTHER INFORMATION CONCERNING DIRECTORS

A. Directors’ service contracts

Each of the executive Directors has a service contract with the Company for a term of three years and issubject to termination by either party giving not less than three months’ written notice.

Each of the independent non-executive Directors has a service contract with the Company for a term ofthree years and is subject to termination by the independent non-executive Director giving not less than threemonths’ written notice.

Under the service contracts, each of the executive Directors is entitled to an annual discretionarymanagement bonus as the Remuneration Committee of the Board may approve, provided that the aggregateamount of the discretionary management bonuses payable to all executive Directors in respect of any financialyear of the Group would not exceed 5% of the net profits of the Group after taxation and minority interests andless the aggregate amount of the discretionary management bonuses but before non-recurring items for therelevant financial year.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had entered or wasproposing to enter into a service contract with any member of the Group which is not determinable by the Groupwithin one year without payment of compensation, other than statutory compensation.

B. Competing interests

None of the Directors and their respective associates (as defined in the Listing Rules) has an interest in abusiness, which competes or may compete with the businesses of the Company and any other conflicts of interestwhich any such person has or may have with the Company.

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C. Directors interests in assets

None of the Directors had any direct or indirect interest in any assets which had been acquired or disposedof or leased to any member of the Company or proposed to be so acquired, disposed of or leased since31 December 2006, being the date to which the latest published audited accounts of the Company were made up,and up to the Latest Practicable Date.

D. Directors interests in contracts

Save as disclosed in the Announcement, there is no other contract or arrangement subsisting at the LatestPracticable Date in which any of the Directors is materially interested and which is significant in relation to thebusiness of the Company.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in thefinancial position or trading prospects of the Company since 31 December 2006, the date to which the latestaudited financial statements of the Company were made up.

5. QUALIFICATIONS OF EXPERT

The following is the qualifications of the experts or professional advisers who have given opinion or advicecontained in this circular:

Name Qualifications

UOB Asia licensed to carry on type 1 (dealing in securities), type 4 (advising on securities), type6 (advising on corporate finance) and type 9 (asset management) regulated activitiesunder the SFO

RHL Appraisal Ltd. independent valuer

6. CONSENTS OF EXPERT

Each of UOB Asia and RHL Appraisal Ltd. has given and has not withdrawn its written consent to theissue of this circular with the inclusion of its letter and references to its name in the form and context in which itappears.

7. INTERESTS OF EXPERT

As at the Latest Practicable Date, each of UOB Asia and RHL Appraisal Ltd.:

(a) does not have any shareholding in or any right (whether legally enforceable or not) to subscribe foror to nominate persons to subscribe for securities in the Company; and

(b) was not interested, directly or indirectly, in any assets which have been acquired or disposed of by orleased to the Company since 31 December 2006, being the date to which the latest published auditedaccounts of the Company were made up.

8. GENERAL

(a) The registered office of the Company is located at Cricket Square Hutchins Drive, P.O. Box 2681,Grand Cayman KY1-1111, Cayman Islands, and the head office and principal place of business ofthe Company in Hong Kong is located at Unit 2708, 27th Floor, Billion Plaza, No. 8 Cheung YueStreet, Kowloon, Hong Kong.

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(b) The Company’s principal share registrar and transfer office is Bank of Bermuda (Cayman) Limited,P.O. Box 513 GT, Strathvale House, North Church Street, George Town, Grand Cayman, CaymanIslands, British West Indies, and the Hong Kong branch share registrar and transfer office isComputershare Hong Kong Investor Services Limited, located at Rooms 1712-1716, 17th FloorHopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

(c) The company secretary and the qualified accountant of the Company is Mr. Yu Cheeric, James, whois a member of The American Institute of Certified Public Accountants

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at theoffices of Coudert Brothers in association with Orrick, Herrington & Sutcliffe LLP, the legal adviser of theCompany, at 39/F Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong up to and including29th January 2008:

(a) the articles of association of the Company;

(b) the annual reports of the Company for the financial year ended 31 December 2006;

(c) the Steam Supply Agreement;

(d) the Acquisition Agreements;

(e) the letter of recommendation from the Independent Board Committee, the text of which is set out onpage 15 of this circular;

(f) the letter of advice from UOB Asia, the text of which is set out on pages 16 to 23 of this circular;

(g) the written consent from UOB Asia referred in paragraph 7 of this appendix;

(h) the Valuation Report issued by RHL Appraisal Ltd.; and

(i) the written consent from RHL Appraisal Ltd. referred in paragraph 7 of this appendix.

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NOTICE OF EGM



NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting (the “EGM”) of ShenzhouInternational Group Holdings Limited (the “Company”) will be held at 7th Floor, Office Building,No. 18 Yongjiang Road, Economic Technical Development Zone, Ningbo, the PRC on 18th February, 2008 at2:00 p.m. to consider and, if thought fit, to pass, with or without modifications, the following resolutions asordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “THAT:

(a) the steam supply agreement (the “Steam Supply Agreement”) dated 21st December, 2007 enteredinto between Ningbo Shenzhou Knitting Co., Ltd. (“Shenzhou Knitting”) and Ningbo MingyaoEnvironmental Thermal Power Co., Ltd. and the continuing connected transactions (as defined in theRules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) (the“Listing Rules”) contemplated thereunder be and are hereby approved;

(b) the Annual Steam Consumption Caps of the Steam Supply Agreement (as defined in the circular ofthe Company dated 14th January, 2008 (“Circular”) for each of the three financial years ending31 December 2010 be and are hereby approved; and

(c) any one director (“Director”) of the Company be and is hereby authorised, for and on behalf of theCompany, to execute all documents, instruments and agreements and to take all steps necessary orexpedient to implement and/or give effect to the Steam Supply Agreement.”

2. “THAT:

(a) the land use right transfer agreement (the “Huanghai Road Land Use Right Transfer Agreement”)dated 21st December, 2007 entered into between (Ningbo Shenzhou PropertiesCo., Ltd.*) (“Shenzhou Properties”) and (Tuteng Textile (Ningbo) Co.,Ltd.*) (“Ningbo Tuteng”) and the connected transactions (as defined in the Listing Rules)contemplated thereunder be and are hereby approved;

(b) any Director of the Company be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Huanghai Road Land Use Right Transfer Agreement.”

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NOTICE OF EGM

3. “THAT:

(a) the industrial complex transfer agreement (the “Huanghai Road Industrial Complex TransferAgreement”) dated 21st December, 2007 entered into between Shenzhou Properties and NingboTuteng and the connected transactions (as defined in the Listing Rules) contemplated thereunder beand are hereby approved;

(b) any Director of the Company, be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Huanghai Road Industrial Complex Transfer Agreement.”

4. “THAT:

(a) the land use right transfer agreement (the “Bohai Road Land Use Right Transfer Agreement”)dated 21st December, 2007 entered into between Shenzhou Properties and(Ningbo Shenzhou Knitting Co., Ltd.*) (“Shenzhou Knitting”) and the connected transactions (asdefined in the Listing Rules) contemplated thereunder be and are hereby approved;

(b) any Director of the Company, be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Bohai Road Land Use Right Transfer Agreement.”

5. “THAT:

(a) the industrial complex transfer agreement (the “Bohai Road Industrial Complex TransferAgreement”) dated 21st December, 2007 entered into between Shenzhou Properties and ShenzhouKnitting and the connected transactions (as defined in the Listing Rules) contemplated thereunder beand are hereby approved;

(b) any Director of the Company, be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Bohai Road Industrial Complex Transfer Agreement.”

6. “THAT:

(a) the land use right transfer agreement (the “Dagang Land Use Right Transfer Agreement”) dated21st December, 2007 entered into between Shenzhou Properties and Shenzhou Knitting and theconnected transactions (as defined in the Listing Rules) contemplated thereunder be and are herebyapproved;

(b) any Director of the Company, be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Dagang Land Use Right Transfer Agreement.”

7. “THAT:

(a) the industrial complex transfer agreement (the “Dagang Industrial Complex TransferAgreement”) dated 21st December, 2007 entered into between Shenzhou Properties and ShenzhouKnitting and the connected transactions (as defined in the Listing Rules) contemplated thereunder beand are hereby approved;

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NOTICE OF EGM

(b) any Director of the Company, be and is hereby authorised, for and on behalf of the Company, toexecute all documents, instruments and agreements and to take all steps necessary or expedient toimplement and/or give effect to the Dagang Industrial Complex Transfer Agreement.”

Yours faithfully,Shenzhou International Group Holdings Limited

Ma JianrongChairman

Hong Kong, 14th January, 2008

Notes:

1. Any Shareholder entitled to attend and vote at the EGM convened by the above notice is entitled to appoint one or more than oneperson as his proxy to attend an, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy neednot be a Shareholder.

2. A form of proxy for use at the EGM is enclosed. In order to be valid, the form of proxy together with the power of attorney or otherauthority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be deposited at the offices ofthe Company’s Hong Kong branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor ServicesLimited, located at Rooms 1806-1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48hours before the time appointed for holding the EGM or any adjournment thereof.

3. Where there are joint registered holders of any Share(s), any one of such joint holders may attend and vote at the EGM, either inperson or by proxy, in respect of such Share(s) as if he/she was solely entitled thereto, but if more than one of such joint holders arepresent at the EGM or any adjourned meeting thereof (as the case may be), the most senior shall alone be entitled to vote, whether inperson or by proxy to the exclusion of the votes of other joint holders. For this purpose, seniority shall be determined by the order inwhich the names stand in the register of members of the Company in respect of the joint holding.

4. The register of members of the Company will be closed from 14th February 2008 to 15th February 2008, both days inclusive, duringwhich no transfer of share will be effected. In order to qualify for attending the EGM, all transfers of Shares, accompanied by therelevant share certificates, must be lodged with the Company’s branch share registrar in Hong Kong at the address stated in note 2above not later than 4:30pm on 13th February 2008 for registration.

5. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the EGM or anyadjournment thereof if he/she so desires. If a Shareholder attends the EGM after having deposited the form of proxy, his/her form ofproxy will be deemed to have been revoked.

6. Voting of the ordinary resolutions as set out in this notice will be by poll.

7. Unless otherwise specified in this notice, all capitalised terms stated herein shall have the same meaning as such terms are defined inthe Circular.

* For identification purposes only

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shenzhou international group holdings limited · a letter from the independent board committee (as...

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