SP Chemicals Ltd's Management Replies to Online Q&A Forum Dear

SP CHEMICALS LTD. (Incorporated in the Republic of Singapore) Company Registration Number 199005499R

SP Chemicals Ltd’s Management Replies To Online Q&A Forum

Dear Investors,

Thank you very much for your questions. We hope we have clarified your queries through this online exchange.

Your questions will be reposted in Blue followed by our replies in Black.

Regards, The Management Team SP Chemicals Ltd.

Dear Ms Tan Swee Kheng, you wrote :

1. Is there any delay in VCM plant start up and what is the prospect of making good returns when the plant starts production?

The construction of the VCM plant has completed, and we started trial operations of the equipment on 22 April 2007. Our intention is to go into commercial production by the fourth quarter of FY2007.

The recent industry dynamics for the PVC and VCM sectors in the PRC have improved. The Group has been monitoring the situation closely. Please be assured that we will manage the startup of the VCM plant in a most cost efficient manner. However, VCM’s variable cost is always affected by ethylene prices, which we have no control over.

2. The Chinese government has lately kept increasing the bank loan interest rate, which will definitely affect the profit margin. On hind-sight, the Company could have borrowed more US$-based from foreign banks. What is your comment?

On the contrary, the Group is quite comfortable with borrowings from PRC banks because the Group’s main assets and source of cash flow are denominated in RMB. In addition, there will be withholding tax on interest remitted back to Singapore. Presently, the withholding tax rate is 10% and may increase to 20% next year.

3. What is the extent of your corporate tax increase? Is there any tax holiday for new projects like PP5 expansion and the VCM plant?

The Company is currently in the 15% tax bracket. This incentive will probably be extended to SP Chemicals for another 5 years (to be confirmed by the Chinese government). After which, the Company’s tax rate will be 25%. There will not be any tax holiday for Production Phase Five (“PP5”), because caustic soda is no longer an encouraged investment in China.

4. NaOH (caustic soda) is the star performer and profit from aniline is eroding and chemical price is cyclical. Is it possible for the Co to forward sell NaOH, and forward buy benzene to maximise profit?

The Company does not normally enter into forward contracts on its sales and purchases of products and raw materials.

5. What is the percentage increase in buying electricity when the 120MW plant is fully utilised when VCM plant start-up?

The designed capacity of the Co-gen Plant has been allocated for Production Phase Four (“PP4”) and the VCM plant. For the PP5 project, the Company will have to purchase all the electricity needed from the national grid.

Regards, The Management Team SP Chemicals Ltd.

Dear Lee Hai Seng, you wrote :

1. In the management Q & A 16th Aug 2006, the management stated that SP Chemicals is going to operate as the only standalone VCM plant in PRC. Is this a path for further downstream product? How big is the market for VCM and how did the management come to the conclusion that it is worthwhile to operate a standalone VCM plant?

The VCM project forms one part of the three-pronged Medium-Term Strategic Business Plan unveiled by SP Chemicals in August 2004.

2 The venture into the VCM business is in line with SP Chemicals’ ongoing strategy of moving further into downstream products that will complement our existing product range.

VCM is predominantly used as the main raw material for the manufacture of PVC (Polyvinyl Chloride), which is a versatile resin and one of the oldest established plastics. In the PRC, demand for PVC is expected to grow in industries such as construction (pipes, window and door frames, flooring tiles), packaging, consumer goods (foamed leather cloth, curtains, tarpaulins), automotive, and also for medical use (blood bags).

Presently, some manufacturers of PVC do not produce all the VCM that they need and have to rely on imports to fulfill their requirements. These are our target customers.

2. In 3 Apr 2007 announcement, SP Chemicals signed various Memorandums of Understanding ("MOUs") with the Phu Yen People's Committee of the Phu Yen Province, Vietnam for a construction of petrochemical complex. May I ask what kind of products SP Chemicals is looking at?

On 10 August 2007, the Company announced that the Vietnamese Prime Minister’s Office has given its in-principle approval for the Group’s proposed petrochemical project in Vietnam.

The petrochemical project proposal centres on the investment in and development of a modern and integrated industrial park of 1,300 hectares, to be dedicated to the petrochemical industry, in Hoa Tam, Phu Yen Province, Vietnam, as well as the investment in the construction, and operation, of a naphtha cracking complex with an estimated production capacity of 800,000 tonnes of ethylene per annum in the said industrial park.

The proposed Project forms a part of the long-term growth strategy of SP Chemicals to expand upstream, so as to ensure a reliable supply of raw materials and to cater for future expansion of its core production of chlor-alkali products and related downstream products, in the PRC.

It is important to note that the Company is very much in the exploratory stage. A project of this scale is long term and would require more than 15 years to implement. With the in-principle approval from the Vietnamese Prime Minister’s Office, the Company will now be able to take further steps to commence on a full feasibility study, so as to assess the suitability of the location and the viability of investing in the above-mentioned projects.

The investment plan and structure, as well as the actual investment amount and construction schedule, are entirely subject to the outcome of the feasibility study,

3 and would have to be approved by the Board, and the relevant authorities in Vietnam.

More information on this will be given, in due course.

3. In that same announcement, it stated that there is a possibility that SP Chemicals will invest US$1.2 billion. If it comes through, how SP Chemicals fund this expansion as US$1.2 billion is about 10X FY2006 shareholder equity and about 20X FY2006 cashflow. Beside that I believe going forward, huge Capex is required for PRC expansion as well.

Please refer to our responses for question 2, and our announcement made on 10 August 2007. We will make further announcements on the matter, where appropriate.

4. In CIMB research report title "China Conference", it said that the management is planning for upstream expansion. Care to comment on this in term of when, Capex, competition environment and market size/potential.

We are continually looking at strategic initiatives to deliver improved long-term value to shareholders. We will make the appropriate announcement(s) promptly via SGXNet, in the event of any material developments.

5. In management Q & A 16th Aug 2006, the management stated that they are fairly confident that SP Chemicals is the lowest chemical producer in Jiangsu province. May I ask how does the management quantify it and whether SP Chemicals put its sight to be the lowest chemical producer in PRC?

SP Chemicals continues to strive to be the cost leader in the production and sale of chemical raw materials in the PRC. We aim to exceed the expectations of our customers in product and service quality, yet offering the lowest cost.

Our confidence that SP Chemicals is the lowest chemical producer in Jiangsu province, stems from market information we have gathered, coupled with our general enquiry of other producers in Jiangsu province.

6. How is Anhui Huatai doing? I notice there is a RMB10 million loans to affiliate in 2Q2007.

Anhui Huatai is doing reasonably well.

4 7. Concern on export rebate. What is the percentage of Anline, Caustic Soda and Chlorine production in PRC is being export? In your management views, is it still profitable, on average for chemical producers to export their products? How does it impact on the profitability of SP Chemicals export?

We only export aniline and caustic soda.

We do not provide a percentage breakdown of export sales by products. For 2Q FY2007, export sales contributed 26% to our total turnover of RMB464.3 million.

With regards to the export rebates, it is too early to tell what impact the changes will have. We will continue to monitor the situation very closely.

8. What is the rational for distribution an interim dividend on FY2006 and not distributing one in FY2007? As far as I can see, SP Chemicals need to pour back all available cash for further expansion.

We do not have a fixed dividend policy, although we are always striving to enhance shareholders’ value. We see dividends as being an integral part of capital management which we should balance with our need to grow the Group.

9. What is the main reason for the delay of obtaining the approval for Phase II of the Co-gen Plant?

As stated in our latest “Update on the Co-Generation Plant Project” posted on SGXNet on 26 July 2007, the local and the provincial authorities are fully aware of the status of our Co-gen Plant, and are assisting SP Chemicals to obtain full approvals. We remain reasonably confident that full approvals will be obtained, in due course.

Further announcements will be made, via SGXNet, as soon as there are new updates.

10. PRC government is currently trying to clamp down investment in basic industries. How does that impact SP Chemicals?

We believe these efforts of the PRC government will have an impact on the economy in general, but not specifically to SP Chemicals. Since SP Chemicals is a cost leader among the chemical producers, we are confident that we will be able to handle the challenges that come our way during any difficult period.

5 11. As PRC is trying to reduce the amount of pollution and going hard on industries that pollute both air and water by imposing stricter regulation. How does SP Chemicals comply or even exceed the requirement? Is higher Capex required in the future? How does that affect your competitors and chemical producers in general?

Sustainable development is a cornerstone of SP Chemicals’ corporate culture and an integral part of our long-term strategic interests.

Being in the raw chemicals industry, safety, environmental protection and health standards are of utmost importance to us.

Integral to the Company is our commitment to ensure the safety and security of our operations; health and wellbeing of our employees; and protection of the environment. This drives us to adopt good safety, environmental and health practices, backed by the responsible management of chemicals, raw materials and energy.

Our manufacturing facilities adhere to and are compliant with international safety and environmental regulations. By putting in place a robust system, it not only translates to cost savings, but also achieves our aim of zero accidents and minimal harm to the environment.

For more information on our Safety, Environment and Health measures, please refer to pages 40 and 41 of our Annual Report 2006.

The stricter pollution controls imposed by the PRC government are not targeted at SP Chemicals, but rather, the smaller chemical companies which less likely to have pollution controls in place.

12. In Annual Report 2006, SP Chemicals shows that there is a pool of young employees which wants to grow together with SP Chemicals. What is the level of shareholder in SP Chemicals? Does SP Chemicals have a vision of building a company of happy employee cum shareholder? As I noticed, many great companies in US that produce significant shareholder value are also a company of happy employee/shareholders. Issuing of Stock Option is just one method they use.

There are currently no plans in the issuance of stock option.

We firmly believe in the adage - "Build people first, then they will build a company that lasts".

Since our beginnings in 1993 as a three-man team, SP Chemicals has grown to become a 1,000-strong Company with annual turnovers in excess of RMB1

6 billion. It is significant to note that the average length of service is 4+ years, with over 25% serving 5 or more years. All our senior managers have been with us almost from the beginning, except for the new managers recruited for our Co-gen plant.

Likewise, we understand the importance of keeping our shareholders happy and never forget who the true owners of the company are. We are in for the long haul and need to fuel long term commitment by our shareholders. Cultivating long term relationships with them is one good way of aligning our common interests. This is essential to ensure the well-being of the Company and to overcome the challenges along the way, in the long road that we have embarked upon.

13. Will there be any problem(tension?) going forward when the gap between top paying executive and 2nd top paying executive is of 4 to 10X(from annual report 2006)? This means the differences between highest and lowest level employees will be even bigger. I believe in paying for performance but the gap is too big to get unnoticed.

The Group has not faced any problems so far.

Thank you for the hard work and great results. Thank you for giving shareholder a chance to ask question thru Q & A. I purchased SP Chemicals shares through CPF, so this Q & A provides me a good chance to ask questions.

Regards, The Management Team SP Chemicals Ltd.

Dear Lee Kok Kong, you wrote :

Dear SP Chem Management,

Any impact to the operations by the recent floods in Jiangsu? If yes, any precaution to minimise potential future interuptions?

Thank you!

No, the recent floods have no impact to our operations in Jiangsu because the floods occurred along the upper end of the Yangtze River, which is far away from our plant.

Regards, The Management Team SP Chemicals Ltd.

Dear Mr David Tan, you wrote :

To the CEO of SP Chemicals PL

Dear Mr Chan,

Congratulations to you and the management team at SP Chemicals for delivering another strong set of quarterly results. You continue to build shareholder confidence in the future of the company.

I have a couple of questions to raise regarding the company's future performance. These questions arise because of the glaring absence of any discussion and updates on some specific issues in the latest quarterly results press release and slide presentation. The first question concerns the progress of the VCM project. In one of the press releases last year, the company had mentioned that because of the misalignment of the then prevailing price of VCM and the basic material used for its manufacture (namely ethylene) the actual start up of the VCM business had to be delayed, meaning that the company would only start producing VCM for sale if its sufficiently profitable to do so. Is the price/cost misalignment still significant? What is your best assessment of when this business can begin? And what is your assessment of the potential for this business in terms of turnover and profitability when it is running at say full capacity?

The updates for our VCM project was included in our 2Q FY2007 Results PowerPoint presentation - trial operations of equipment started on 22 April 2007, with a target to start commercial production by 4Q FY07.

The second question, and again this arises because there is no explanation, concerns the absence of an interim dividend. I think shareholders were expecting something similar to the last interim dividend and there must have been some disappointment that there was none. The absence of any explanation only

8 aggravated the matter because shareholders tend to think the worse. Some clarification will help.

Regards, The Management Team SP Chemicals Ltd.

Dear Leslie Goh, you wrote:

Dear Management,

Congratulations for the Q2 good performance. My questions are as follows:

1. Now with SPChem ranked 4th for chlor-alkali in PRC, 5th for aniline in PRC, will these increasing oversupply capacities erode further the ASPs of caustic soda and aniline products. After PP5, what will be the rankings in PRC and Jiangsu?

As an ion-membrane caustic soda producer, we will probably be ranked 3rd in the PRC, because our competitors are also expanding. As a producer of aniline, we will probably be ranked 3rd.

2. What are the plans to mitigate the lower Q3 profit because of shutdown, export rebate, tax regulation issues?

Over the years, SP Chemicals has demonstrated its ability to withstand business challenges, be it chemical downcycles or industry changes. We will continue to focus on keeping our cost base low, and manage our cash flow and debt effectively, in order to overcome the above challenges.

3. What are the future plans after PP5?

We are continually looking at strategic initiatives to deliver improved long-term value to shareholders. We will make the appropriate announcement(s) promptly via SGXNet in the event of any material developments.

Regards, The Management Team SP Chemicals Ltd.