SOUND GLOBAL LTD. 桑德國際有限公司* (Incorporated in the Republic of Singapore with Limited Liability) (Company Registration Number 200515422C) (Hong Kong Stock Code: 00967)

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Sound Global Ltd., you should at once hand this circular and the accompany form of proxy to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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

SOUND GLOBAL LTD. 桑德國際有限公司* (Incorporated in the Republic of Singapore with limited liability) (Company Registration Number 200515422C) (Hong Kong Stock Code: 00967)

(1) CONNECTED TRANSACTION – PROPOSED ISSUE OF SUBSCRIPTION SHARES (2) PROPOSED TRANSFER OF SHARES (3) CONNECTED AND DISCLOSABLE TRANSACTION – PROPOSED ACQUISITION OF SHARES (4) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

SOMERLEY CAPITAL LIMITED

A letter from the Board is set out on pages 8 to 29 of this circular. A letter from the Independent Board Committee is set out on page 30 of this circular. A letter from Somerley containing advice and recommendations to the Independent Shareholders and the Independent Board Committee is set out on pages 31 to 53 of this circular.

A notice convening the EGM of the Company to be held at United Conference Centre, 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong on Tuesday, 23 December 2014 is set out on pages 97 to 98 of this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the registered office of the Company at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542 or the office of the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting or any adjournment thereof if they so wish and in such event, the proxy form shall be deemed to be revoked.

* for identification purposes only

2 December 2014 CONTENTS

Definitions ...... 3

Letter from the Board...... 8

Letter from the Independent Board Committee ...... 30

Letter from Somerley ...... 31

Appendix I — Valuation Report...... 54

Appendix II — General Information ...... 92

Notice of EGM ...... 97

–2– DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires:

“1st Sale and Purchase the sale and purchase agreement dated 14 September Agreement” 2014 between Sound Water (BVI) as vendor and the Sound Environment (HK) as purchaser, in relation to the sale of 18.05% shareholding of the Company as at the Latest Practicable Date;

“2nd Sale and Purchase the sale and purchase agreement dated 14 September Agreement” 2014 between the Company as purchaser and Sound Environmental as vendor, in relation to the transfer of entire registered capital of the Target Company;

“Announcement” the announcement dated 18 September 2014 issued by the Company in relation to, among others, the Subscription Agreement, the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder;

“ASBE” the Accounting Standards for Business Enterprises promulgated by the Ministry of Finance of the Government of the People’s Republic of China on 15 February 2006;

“associate(s)” having the meaning ascribed to such term in the Listing Rules;

“Beijing Sanghua” Beijing Sanghua Environmental Technology Development Co., Ltd.* (北京桑華環境技術開發有限公司), a company established in the PRC which is owned by Mr. Wen and his spouse, Ms. Zhang as to 22.15% and 77.85% respectively;

“Beijing Tian Yuan Kai” or Beijing Tian Yuan Kai Assets Appraisal Co. Ltd. (北京天 “the Valuer” 圓開資產評估有限公司), an independent valuer;

“BOT” build, operate and transfer, a project format in which the proprietor grants the rights to a contracted enterprise by concession agreement to undertake the financing, design, construction, operation and maintenance of water or wastewater treatment facilities, which enterprise can charge users a fee during the concession period to cover its costs of investment, operations and maintenance as well as reasonable returns, and, upon expiration of the concession period, the relevant facilities will be transferred back to the proprietor;

–3– DEFINITIONS

“Business Day(s)” any day (excluding Saturdays, Sundays and public holidays in Hong Kong) on which licensed banks generally are open for business in Hong Kong;

“BVI” the British Virgin Islands;

“Company” Sound Global Ltd., a company incorporated with limited liability as a private company under the laws of Singapore on 7 November 2005 and subsequently converted into a public company on 28 August 2006, the shares of which are listed on the Main Board of the Stock Exchange;

“CSRC” China Securities Regulatory Commission;

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

“EGM” the extraordinary general meeting of the Company to be convened for the purpose of, among other things, approving the Subscription and the 2nd Sale and Purchase Agreement, the notice of which is contained in this circular;

“Epure Share Option Scheme” the share option scheme adopted by the Company on 15 August 2007 and terminated upon listing on the Stock Exchange;

“Executive” the executive director of the Corporate Finance Division of the SFC from time to time and any delegate of such executive director;

“Government Authorities” any national, provincial, municipal or local government, administrative or regulatory body or department, court, tribunal, arbitrator or anybody that exercises the function of a regulator including the CSRC;

“Group” the Company and its subsidiaries;

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

“Independent Board Committee” an independent committee of the Board comprising all the independent non-executive Directors, established for the purpose of advising the Independent Shareholders on the Subscription and the 2nd Sale and Purchase Agreement;

–4– DEFINITIONS

“Independent Financial Adviser” Somerley Capital Limited, a corporation licensed by the or “Somerley” SFC to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, appointed by the Company to make recommendations to the Independent Board Committee and the Independent Shareholders in relation to the Subscription and the 2nd Sale and Purchase Agreement;

“Independent Shareholders” Shareholders who are not required to abstain from voting at the EGM;

“Independent Third Party(ies)” third party(ies) independent of the Company and its or “I3P” connected persons and are not connected persons (as defined in the Listing Rules) of the Company;

“Latest Practicable Date” 27 November 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular;

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

“Mr. Wen” Mr. Wen Yibo, an executive Director and Chairman of the Company;

“Ms. Zhang” Ms. Zhang Huiming, spouse of Mr. Wen;

“PE ratio” price earnings ratio;

“PRC” the People’s Republic of China which for the purpose of this circular exclude Hong Kong, Macau Special Administrative Region and Taiwan;

“Previously Disclosed the acquisition of equity interest in Tongliao Sound Acquisition” Water Co. Ltd (通遼市桑德水務有限公司) to which a member of the Group was the purchaser and an associate of Mr. Wen was the vendor as disclosed in the announcement of the Company dated 3 June 2014;

“RMB” Renminbi, the lawful currency of the PRC;

“Sale Shares” 264,797,507 Shares to be transferred by Sound Water (BVI) to Sound Environment (HK) pursuant to the 1st Sale and Purchase Agreement;

“SFC” Securities and Futures Commission;

–5– DEFINITIONS

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

“Share(s)” the ordinary share(s) in the issued and paid-up capital of the Company;

“Shareholder(s)” the holders of the Shares;

“Shareholder’s loan” the shareholder’s loan owed by the Target Company to Sound Environmental in the sum of RMB698,650,006;

“Shareholder’s Loan the agreement dated 25 September 2014 entered into Repayment Agreement” between Sound Environmental and the Target Company whereby the Target Company agreed to repay the Shareholder’s Loan upon the completion of the 2nd Sale and Purchase Agreement;

“Sound Environment (HK)” Sound Environment (Hong Kong) Limited (桑德環境(香港)有限公司), a wholly owned subsidiary of Sound Environmental;

“Sound Environmental” Sound Environmental Resources Co. Ltd. (桑德環境資源股份有限公司), a company incorporated in the PRC and listed on the Shenzhen Stock Exchange (Stock Code: SHE000826) which is owned as to 44.95% by Sound Group;

“Sound Environmental the proposed allotment and issue of shares by Sound Subscription” Environmental for the primary purpose of raising fund to satisfy the consideration under the Subscription Agreement and the 1st Sale and Purchase Agreement payable by Sound Environment (HK);

“Sound Group” Sound Group Limited* (桑德集團有限公司), a company incorporated in the PRC which is 95.00% owned by Beijing Sanghua, 4.83% owned by Mr. Wen, and 0.17% owned by an Independent Third Party;

“Sound Water (BVI)” Sound Water (BVI) Limited, a company incorporated in the BVI which is 90% and 10% owned by Mr. Wen and Ms. Zhang respectively;

“Sound Water (BVI) the acting in concert undertaking executed by Sound Undertaking” Water (BVI) in favour of Sound Environmental on 25 September 2014, details of which is contained in this circular;

“Specific Mandate” the mandate to allot and issue the Subscription Shares;

–6– DEFINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited;

“Subscription” the issue and allotment of the Subscription Shares pursuant to the Subscription Agreement;

“Subscription Agreement” the subscription agreement dated 14 September 2014 between the Company as issuer and Sound Environment (HK) as subscriber in respect of the Subscription;

“Subscription Price” HK$8.10 per Subscription Share;

“Subscription Shares” 280,373,831 new Shares to be subscribed by Sound Environment (HK) pursuant to the Subscription Agreement;

“Substantial Shareholder(s)” has the meaning ascribed thereto under the Listing Rules;

“Takeovers Code” the Code on Takeovers and Mergers;

“Target Company” Hubei Yi Hong Water Treatment Company Limited* (湖北一弘水務有限公司) which is wholly owned by Sound Environmental;

“Target Group” the Target Company and its subsidiaries; and

“Wind Information” Wind Information Co. Ltd

“%” percent.

In this circular, unless stated otherwise, RMB has been translated into HK$ at the rate close to the date of the Announcement of RMB0.79 = HK$1 for reference purpose only and no representation has been made that any amounts in RMB or HK$ can be or could have been converted at the relevant dates at the above rate or any other rates.

* for identification purposes only

–7– LETTER FROM THE BOARD

SOUND GLOBAL LTD. 桑德國際有限公司* (Incorporated in the Republic of Singapore with limited liability) (Company Registration Number 200515422C) (Hong Kong Stock Code: 00967)

Executive Directors Registered Office: Wen Yibo (Chairman) 1 Robinson Road Zhang Jingzhi (Chief Executive Officer) #17-00 AIA Tower Wang Kai (Chief Financial Officer) Singapore 048542 Luo Liyang Jiang Anping

Independent Non-Executive Directors Principal Place of Business Wong See Meng in Hong Kong (Lead Independent Non-Executive Director) Level 54, Hopewell Centre Seow Han Chiang Winston 183 Queen’s Road East Fu Tao Hong Kong

2 December 2014

To the Shareholders

Dear Sir or Madam,

INTRODUCTION

Reference is made to the Announcement.

The purpose of this circular is (i) to provide you with further information on the Subscription Agreement, the 1st Sale and Purchase Agreement, the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) to set out the recommendations of the Independent Board Committee regarding the Subscription Agreement and the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder; (iii) to set out the letter from Somerley to the Independent Board Committee and the Independent Shareholders, in respect of the reasonableness and fairness of the terms and conditions of the Subscription Agreement and the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder; and (iv) to give the Shareholders a notice of the EGM and other information in accordance with the requirements of the Listing Rules.

* for identification purposes only

–8– LETTER FROM THE BOARD

THE SUBSCRIPTION AGREEMENT

On 11 September 2014 and 14 September 2014, the Company and Sound Environment (HK) entered into a framework agreement for the Subscription and a corresponding definitive agreement, namely the Subscription Agreement whereby, among other things, the Company conditionally agreed to allot and issue and Sound Environment (HK) conditionally agreed to subscribe for a total of 280,373,831 Subscription Shares, at the Subscription Price of HK$8.10 per new share or HK$2,271,028,031.10 in aggregate. The following is a brief summary of some of the principal terms of the Subscription Agreement:

Date: 14 September 2014

Parties: Issuer: the Company

Subscriber: Sound Environment (HK)

Subscription Price

The Subscription Price of HK$8.10 per Subscription Share was arrived at after arm’s length negotiations between the Company and Sound Environment (HK) and on normal commercial terms, with reference to the average closing price per share for the 20 trading days of HK$8.1 prior to the date of the Subscription Agreement.

The reason the parties to the Subscription Agreement chose 20 trading days as the reference period to determine the Subscription Price was because Sound Environmental is listed in the PRC and therefore Sound Environmental Subscription is subject to the Measures for Administration of the Listed Company Issuing New Shares (“上市公司證券發行管理辦法”) which stipulates that the issuing price of the new shares of a listed company in the PRC shall not be less than 90% of the average closing price per share for 20 trading days prior to the date of the Announcement.

As mentioned below, one of the conditions precedent of the Subscription Agreement is Sound Environmental having obtained the required approval from the Government Authorities in respect of the Sound Environmental Subscription and the purpose for the Sound Environmental Subscription partly is to raise fund to satisfy the consideration of the Subscription. In such circumstances, the parties to the Subscription Agreement agreed to take reference to the same pricing basis (i.e. the average closing price per share for the 20 trading days before the Subscription Agreement) to determine the Subscription Price.

The total proceeds from the Subscription will amount to approximately HK$2,271,028,031.10 which will partly be used to satisfy the consideration of the 2nd Sale and Purchase Agreement with the remaining be applied for the working capital and future development of the Target Group including for the repayment of the Shareholder’s Loan in the sum of RMB698,650,006.

The Subscription Price represents:

(i) a discount of approximately 9.19% to the closing price of HK$8.92 per Share as quoted on the Stock Exchange on 10 September 2014 (being the last trading day immediately prior to the date of the Subscription Agreement);

(ii) a discount of approximately 7.32% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$8.74 for the past 5 trading days up to and including 10 September 2014;

–9– LETTER FROM THE BOARD

(iii) a discount of approximately 3.34% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$8.38 for the past 10 trading days up to and including 10 September 2014;

(iv) a premium of approximately 2.02% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.94 for the past 30 trading days up to and including 10 September 2014;

(v) a premium of approximately 3.85% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.80 for the past 60 trading days up to and including 10 September 2014; and

(vi) a premium of approximately 8.58% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.46 for the past 90 trading days up to and including 10 September 2014.

Considering the historical trading price of the Company since 1 January 2014 up to the date of the Subscription Agreement, the closing prices of Shares were in the range of approximately HK$4.4 to HK$5.0 in early January 2014 and it reached HK$8.0 on 17 January 2014. Since then, it fluctuated in the range of HK$6.97 and HK$9.10 before the publication of the announcement of the annual results of the Group for the year ended 31 December 2013 and remained stably below the Subscription Price until August 2014. The closing Share price surged significantly from HK$8.1 in the first trading day in September 2014 and reached HK$8.92 per Share on 10 September 2014, being the last full trading day immediately before the trading halt on 11 September 2014. On the whole, during the said period, the Shares closed above the Subscription Price for approximately 31 trading days out of the 171 trading days and as such, the Directors are of the view that the Subscription Price is fair and reasonable.

Subscription Shares

Pursuant to the Subscription Agreement, the Company conditionally agreed to allot 280,373,831 new Shares, representing approximately 19.11% of the existing issued share capital of the Company as at the date of the Latest Practicable Date and approximately 16.04% of the issued share capital of the Company as enlarged by the Subscription Shares.

There is no restriction on disposal of the Subscription Shares by Sound Environment (HK) under the Subscription Agreement.

The Subscription Shares, when issued and fully paid, will rank pari passu in all respects with all existing Shares in issue as at the completion.

Application has been made by the Company to the Listing Committee for granting the listing of, and permission to deal in, the Subscription Shares.

The Company will seek the Specific Mandate from the Independent Shareholders at the EGM for the allotment and issue of the Subscription Shares.

–10– LETTER FROM THE BOARD

Conditions precedent of the Subscription Agreement:

The completion of the Subscription Agreement is conditional upon:

(a) the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement having been executed;

(b) the 1st Sale and Purchase Agreement becoming unconditional (other than with respect to a condition in relation to the Subscription Agreement and the 2nd Sale and Purchase Agreement becoming unconditional), and not having been terminated pursuant to their respective terms;

(c) the 2nd Sale and Purchase Agreement becoming unconditional (other than with respect to a condition in relation to the Subscription Agreement becoming unconditional), and not having been terminated pursuant to their respective terms;

(d) the warranties provided by the Company under the Subscription Agreement remaining true and accurate in all material respects and not misleading as of the date of completion and the Company having performed all its obligations under this Agreement which are required to be performed by it at or prior to the date of completion;

(e) the Shares remaining listed and traded on the Stock Exchange at all times from the date of the Subscription Agreement to the date of completion, save for any temporary suspension not exceeding 15 consecutive trading days or for the suspension for the purpose of clearing the Announcements in relation to the Subscription Agreement and the transactions contemplated hereunder, or such longer period as Sound Environment (HK) may agree in writing, and no indication being received on or before the date of completion from the SFC and/or the Stock Exchange to the effect that the listing of the Shares on the Stock Exchange will or may be withdrawn or objected to (or conditions will or may be attached thereto) as a result of the completion or in connection with the terms of the Subscription Agreement;

(f) the Listing Committee of the Stock Exchange having granted the listing approval in respect of, and permission to deal in, the Subscription Shares (either unconditionally, or subject to conditions which are acceptable to the Sound Environment (HK) in its opinion (acting reasonably));

(g) the passing of resolutions by the Independent Shareholders at the EGM approving the Subscription Agreement, the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder;

(h) the passing of the board resolutions of the Company approving the execution and/or the performance of the Subscription Agreement, the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder; and

(i) Sound Environment (HK) and Sound Environmental having obtained and made all the necessary approval, permit, license or consent from the Government Authorities for the purpose of entering into and the performance of the Subscription Agreement, the Sound Environmental Subscription and the transactions contemplated thereunder.

–11– LETTER FROM THE BOARD

None of the conditions precedent can be waived, save for the conditions (d) and (e) which may be waived by Sound Environment (HK) unilaterally. The Subscription Agreement will be terminated automatically if the above conditions are not fulfilled or waived by 31 December 2015 (or such later date as the parties to the Subscription Agreement may agree in writing).

Completion of the Subscription Agreement

The completion of the Subscription Agreement is expected to take place on the 5th Business Day or such other day as may be agreed by the parties to the Subscription Agreement after the date on which all of the conditions precedent shall have been satisfied or waived.

Sound Environment (HK) will on completion pay the consideration to the Company by electronic funds transfer to a bank account specified by the Company or in such other manner as the parties to the Subscription Agreement may mutually agree.

THE 1ST SALE AND PURCHASE AGREEMENT

On 14 September 2014, Sound Water (BVI) and Sound Environment (HK) entered into the 1st Sale and Purchase Agreement whereby, among other things, Sound Water (BVI) conditionally agreed to sell and Sound Environment (HK) conditionally agreed to purchase the Sale Shares. The following is a brief summary of some of the principal terms of the 1st Sale and Purchase Agreement:

Date: 14 September 2014

Parties: Purchaser: Sound Environment (HK)

Vendor: Sound Water (BVI)

Assets to be acquired:

Pursuant to the 1st Sale and Purchase Agreement, Sound Water (BVI) conditionally agreed to sell a total of 264,797,507 Sale Shares, representing approximately 18.05% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 15.15% of the issued share capital of the Company as enlarged by the Subscription Shares.

Consideration:

The consideration of the Sale Shares is HK$8.10 per share or HK$2,144,859,806.70 in aggregate which was arrived at after arm’s length negotiations between Sound Water (BVI) and Sound Environment (HK) and on normal commercial terms, with reference to the average closing price per share for the 20 trading days prior to the date of the 1st Sale and Purchase Agreement.

The selling price of the Sale Shares represents:

–12– LETTER FROM THE BOARD

Sale Shares:

There is no restriction on disposal of the Sale Shares by Sound Environment (HK) under the 1st Sale and Purchase Agreement.

Conditions precedent of the 1st Sale and Purchase Agreement:

The completion of the 1st Sale and Purchase Agreement is conditional upon:

(a) the Subscription Agreement and the 2nd Sale and Purchase Agreement having been executed;

(b) the Subscription Agreement becoming unconditional (other than with respect to a condition in relation to the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement becoming unconditional), and not having been terminated pursuant to their respective terms;

(c) the 2nd Sale and Purchase Agreement becoming unconditional (other than with respect to a condition in relation to the Subscription Agreement and the 1st Sale and Purchase Agreement becoming unconditional), and not having been terminated pursuant to their respective terms;

(d) the warranties provided by Sound Water (BVI) under the 1st Sale and Purchase Agreement remaining true and accurate in all material respects and not misleading as of the date of completion and the Company having performed all its obligations under this Agreement which are required to be performed by it at or prior to the date of completion;

–13– LETTER FROM THE BOARD

(e) the Shares remaining listed and traded on the Stock Exchange at all times from the date of the 1st Sale and Purchase Agreement to the date of completion, save for any temporary suspension not exceeding 15 consecutive trading days or for the suspension for the purpose of clearing the announcements in relation to the 1st Sale and Purchase Agreement and the transactions contemplated thereunder, or such longer period as Sound Environment (HK) may agree in writing, and no indication being received on or before the date of completion from the SFC and/or the Stock Exchange to the effect that the listing of the Shares on the Stock Exchange will or may be withdrawn or objected to (or conditions will or may be attached thereto) as a result of the completion or in connection with the terms of the 1st Sale and Purchase Agreement;

(f) the passing of resolutions by the Independent Shareholders at the EGM approving the Subscription Agreement, the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder; and

(g) Sound Environment (HK) and Sound Environmental having obtained and made all the necessary approval, permit, license or consent from the Government Authorities for the purpose of entering into and the performance of the 1st Sale and Purchase Agreement, the Sound Environmental Subscription and the transactions contemplated thereunder.

None of the conditions precedent can be waived, save for the conditions (d) and (e) which may be waived by Sound Environment (HK) unilaterally. The 1st Sale and Purchase Agreement will be terminated automatically if the above conditions are not fulfilled or waived by 31 December 2015 (or such later date as the parties to the 1st Sale and Purchase Agreement may agree in writing).

Completion of the 1st Sale and Purchase Agreement

The completion of the 1st Sale and Purchase Agreement is expected to take place on the 5th Business Day or such other day as may be agreed by the parties to the 1st Sale and Purchase Agreement after the date on which all of the conditions precedent shall have been satisfied or waived.

Sound Environment (HK) will on completion pay the consideration to Sound Water (BVI) by electronic funds transfer to a bank account specified by Sound Water (BVI) or in such other manner as the parties to the 1st Sale and purchase Agreement may mutually agree.

THE 2ND SALE AND PURCHASE AGREEMENT

Date: 14 September 2014

Parties: Purchaser: the Company

Vendor: Sound Environmental

–14– LETTER FROM THE BOARD

Assets to be acquired:

The 2nd Sale and Purchase Agreement involves the transfer of the entire registered capital of the Target Company.

The Target Company is a limited liability company incorporated under the laws of the PRC on 22 May 2014 with registered capital of RMB50.0 million. After the Target Company was incorporated, further capital was injected by Sound Environmental by way of shareholder’s loan in the total sum of approximately RMB698,650,006 for the purpose of, including but not limited to, acquiring a total of 22 subsidiaries eventually forming the Target Group. The Target Group is principally engaged in the business of investment, construction and operations of wastewater treatment project and supply of water in the PRC.

The principal activities of the Target Group could be divided into 3 categories, namely (i) water supply; (ii) sewage and wastewater treatment; and (iii) recycle water treatment. As of 31 May 2014, the designed treatment capacity of the 3 aforesaid categories are approximately 535,000 m3/day, 1,221,000 m3/day and 55,000 m3/day respectively. With more projects upgraded, the total planned capacity will be up to 2,800,000 m3/day.

The Target Group is mainly engaged in the investment and operation of water projects by way of BOT where the principal assets are the intangible assets recognised in connection with the BOT projects (pursuant to the ASBE Interpretation No. 2, the actual investment amount of the projects is recognised by the Company as intangible assets upon completion of the BOT projects). Under the BOT arrangement, a concession contract is entered into between the Target Group and the local government (or its representative authority), pursuant to which, the government shall authorise the Target Group to design, build, operate and maintain the sewage treatment/water supply projects and the term of the concession contract normally ranges from 20 to 30 years. The Target Group shall charge for sewage treatment or water supply by volume and recover investment costs and receive considerable investment gains. During the term of concession, the Target Group recognises revenue based on sewage treatment fee or water tariff and the intangible assets are amortised each year. During such period, the Target Group is obliged to fulfil normal maintenance and renewal of the assets in operation. Upon expiry of the concession, the entire facilities shall be transferred to the government at nil consideration on the premise that the water projects are under normal operation. The Target Group does not have the ownership but the concession of the water project assets.

The core value of the Target Group is in essence the water concession owned by its 22 subsidiaries. According to the prevailing customs and industry practices in China, the guaranteed water volume and basic tariff of the water concession project are generally stated in the concession contract. During the concession term, sustainable and steady foreseeable income streams will be generated for the project, resulting in a relatively stable rate of return on the project.

The water, sewage and reclaimed water treatment plants of the Target Group are located in, among others, Hubei, Inner Mongolia, Zhejiang, Jiangsu and Jiangxi and mostly in the second and third tier cities in the PRC. The operation of the Target Group was largely funded by shareholder’s loan and shareholder’s equity.

–15– LETTER FROM THE BOARD

(a) Financial information of the Target Group

(i) Financial results of the Target Group

Set out below is certain key information extracted from the consolidated financial results of the Target Group for the two years ended 31 December 2012 and 31 December 2013 and five months ended 31 May 2014.

For the five months For the year ended ended 31 December 31 May 2014 2013 2012 RMB (million) RMB (million) RMB (million) (audited) (unaudited) (unaudited)

Revenue 150.9 371.5 344.3 Net profit before taxation 22.4 86.8 62.0 Net profit after taxation 19.7 72.4 50.2

Detailed analysis of the change in revenue and net profit is provided in the letter from Somerley under the paragraph headed “Information on the Target Group” in this circular.

(ii) Net asset value of the Target Group

The consolidated net asset value of the Target Group as at 31 May 2014 was approximately RMB321.7 million and net current liabilities of approximately RMB1,037.7 million. Majority of the assets of the Target Group comprised operating concessions to operate sewage and water treatment plants of approximately RMB1,305.1 million and cash balance of approximately RMB182.8 million. The term of the concession agreement entered into by the Target Group ranges from 20 to 30 years.

The Directors are of the view that the net current liability of the Target Company will be significantly reduced upon completion of the 2nd Sale and Purchase Agreement as the Shareholder’s Loan of RMB698.7 million will be repaid by the Target Company pursuant to the Shareholder’s Loan Repayment Agreement by utilising the remaining net proceeds from the Subscription. In addition, with a healthy financial performance as represented by the growing net profits of approximately RMB41.7 million, RMB50.2 million and RMB72.4 million for the financial years ended 31 December 2011, 2012 and 2013 respectively as well as the strong financial support expected of the Group upon the Target Company becoming a wholly-owned subsidiary of the Company, the Directors are confident that the Target Company will continue as a going concern after completion of the 2nd Sale and Purchase Agreement. In view of the above together with the reasons and benefits of the acquisition set out in the paragraph headed “Reasons for and benefit of the Subscription and the 2nd Sale and Purchase Agreement” in this Circular, the Directors consider that the acquisition is fair and reasonable and in the interest of the Company and its shareholders.

The Target Company is an investment holding company which does not engage in any operational business. Its principal assets are the equity interests in 22 subsidiaries. The financial data of the Target Company disclosed in this Circular are derived from the financial statements audited by Daxin Certified Public Accountants (special general partnership),

–16– LETTER FROM THE BOARD which were prepared according to the ASBE, guidelines on application of its ASBE announced subsequently, ASBE interpretations and other requirements. The carrying value of the intangible assets of the Target Company stated in the financial statements has been consolidated which is derived from the summation of the carrying values of the intangible assets of the 22 subsidiaries.

(b) Details of the subsidiaries of the Target Company

Registered Name of the Registered Capital Operation Type of subsidiaries Address Principal Business (RMB10,000) Status Company

1 Sound Yichang Three No. 77, Construction and 20,000 In operation limited liability Gorges Water Service Luluo Road, operation of Yichang company Co., Ltd. Yichang City water project (宜昌桑德三峽水務有限公司)

2 Nanchang Sound No. 158, Construction and 6,320 In operation limited liability Xianghu Water Industry West Beijin operation of company Co., Ltd. Road, Nanchang xianghu (南昌桑德象湖水務有限 Xihu District sewage treatment 公司) project

3 Jingmen Xiajiawan Banjiangshan Construction and 5,000 In operation limited liability Water Co., Ltd. Village, operation of Jingmen company (荊門桑德夏家灣水務有 Baimiao Street, sewage treatment 限公司) Jingmen City project

4 Baotou Lucheng Water Wotuhao Village, Construction and 11,000 In operation limited liability Co., Ltd. Machi Town, operation of Baotou company (包頭鹿城水務有限公司) Jiuyuan District lucheng sewage treatment project

5 Jiangsu Sound Wanhe Village, Construction and 4,000 In operation limited liability Shuyang Water Co. Shucheng Town, operation of Shuyang company Ltd. (江蘇桑德沭源自來 Shuyang County tap water project 水有限公司)

6 Zhejiang Sound Anzhong Road, Tonglu hengcun 2,600 In operation limited liability Fuchun Water Hengcun Town, water supply company Development Tonglu County business Co., Ltd. (浙江桑德富春水務開發有限公司)

7 Zhijiang Sound Zhiqing Shengli Road, Sewage treatment 2,200 In operation limited liability Water Co., Ltd. Majiadian, and comprehensive company (枝江桑德枝清水務有限 Zhijiang City application 公司)

–17– LETTER FROM THE BOARD

Registered Name of the Registered Capital Operation Type of subsidiaries Address Principal Business (RMB10,000) Status Company

8 Jingzhou Sound No. 153 Sewage treatment 5,000 In operation limited liability Jingqing Water Co., Jingli Road, and comprehensive company Ltd. Jingzhou application (荊州桑德荊清水務有限 Chengnan 公司) Economic Development Zone, Jingzhou City

9 Jiayu Sound Ganquan Dongyue Road, Production, provision 500 In operation limited liability Water Co., Ltd. Yuyue Town, and sales of drinking company (嘉魚桑德甘泉水業有限 Jiayu County water; 公司) investment, development, construction and maintenance of waterworks and ancillary facilities

10 Jiayu Jiaqing Water Xuetangtaizi, Sewage treatment 3,000 In operation limited liability Co., Ltd. Yuyue Town, and comprehensive company (嘉魚嘉清水務有限公司) Jiayu County application

11 Daye Sound Qingbo Dayehu Bridge Sewage treatment 1,900 In operation limited liability Water Co., Ltd. South National and comprehensive company (大冶桑德清波水務有限 highway 106, application 公司) Daye City

12 Xiangyang Sound Guanyinge, Construction and 5,000 In operation limited liability Hanshui Water Co., panggonglu operation of Xiangfan company Ltd. (襄陽桑德漢水水務 Office, Guanyinge sewage 有限公司) Xiangcheng Area, treatment project Xiangyang City

13 Xianning Sound Xianning Sewage treatment 1,300 In operation limited liability Xianning Ganyuan development and comprehensive company Water Co., Ltd. zone Wenquan application (咸甯桑德甘源水務有限 industrial park 公司)

14 Laohekou Sound Zhongzhai Investment, 1,845 Trial operation limited liability Qingyuan Water Village, development, company Co., Ltd. Xianrendu Town, construction, (老河口桑德清源水務有 Laohekou City operation and 限公司) maintenance of sewage treatment and ancillary facilities

–18– LETTER FROM THE BOARD

Registered Name of the Registered Capital Operation Type of subsidiaries Address Principal Business (RMB10,000) Status Company

15 Jianli Sound Jingyuan Sanlv Village, Sewage treatment 1,000 In operation limited liability Water Co., Ltd. Rongcheng Town, and comprehensive company (監利桑德荊源水務有限 Jianli County application 公司)

16 Ezhou Qinghe Taihe Town, Sewage treatment 300 In operation limited liability Environmental Liangzihu Area, and water reuse company Engineering Co., Ltd. Ezhou City (鄂州清和環境工程有限公司)

17 Yichang Baiyang Water Baiyang industrial Sewage treatment 2,000 In operation limited liability Co., Ltd. park, company (宜昌白洋水務有限公司) Yichang City

18 Ezhou Sound Eqing Eyan Road Construction and 3,400 In operation limited liability Water Co., Ltd. middle, operation of Ezhou company (鄂州桑德鄂清水務有限 Maocao Village, sewage treatment 公司) Xinmiao Town, project Echeng Area, Ezhou City

19 Chongyang Tianqing No. 36 Investment, 50 Phase One in limited liability Water Co., Ltd. Xinjianzhong development, operation; company (崇陽天清水務有限公司) Road, operation and Phase Two in Tiancheng Town, management of process Chongyang sewage treatment County project; production and sales of environmental pollution control equipment; development of environment protection projects and technology transfer, technical consultation and technical service in respect of such projects

–19– LETTER FROM THE BOARD

Registered Name of the Registered Capital Operation Type of subsidiaries Address Principal Business (RMB10,000) Status Company

20 Xianning Ganqing Xianning Investment, 50 In operation limited liability Water Co., Ltd. economic development, company (咸甯淦清水務有限公司) development operation and zone management of sewage treatment project; production and sales of environmental pollution control equipment; development of environment protection projects and technology transfer, technical consultation and technical service in respect of such projects;

21 Jiayu Sound Ganquan Dongyue Road, Installation and 20 In operation limited liability Engineering Co., Ltd. Yuyue Town, maintenance of company (嘉魚桑德甘泉工程有限 Jiayu County, waterworks 公司) Hubei Province

22 Tonglu Qinghe Pipeline Dushan Road, Installation and 20 In process limited liability Installation Co., Ltd. Hengcun Town, maintenance of company (桐廬清和管道安裝有限 Tonglu County tap-water pipe 公司) (Old Government Building)

–20– LETTER FROM THE BOARD

Shareholding Structure of the Target Group

Target Company

Sound Yichang Three Gorges Water Service Co., Ltd. 100Ħ 100Ħ Xiangyang Sound Hanshui Water Co., Ltd. ⭄㖴㟹⽟ᶱⲥ㯜⊁㚱旸℔⎠ 壬春㟹⽟㻊㯜㯜⊁㚱旸℔⎠

Nanchang Sound Xianghu Water Industry Co., Ltd. 100Ħ 100Ħ Xianning Sound Xianning Ganyuan Water Co., Ltd. ⋿㖴㟹⽟尉㷾㯜⊁㚱旸℔⎠ ①䓗㟹⽟䓀㸸㯜⊁㚱旸℔⎠

Jingmen Xiajiawan Water Co., Ltd. 100Ħ 100Ħ Laohekou Sound Qingyuan Water Co., Ltd. 勲攨㟹⽟⢷⭞䀋㯜⊁㚱旸℔⎠ 侩㱛⎋㟹⽟㶭㸸㯜⊁㚱旸℔⎠

Baotou Lucheng Water Co., Ltd. 100Ħ 100Ħ Jianli Sound Jingyuan Water Co., Ltd. ⊭柕渧❶㯜⊁㚱旸℔⎠ 䚋⇑㟹⽟勲㸸㯜⊁㚱旸℔⎠

Jiangsu Sound Shuyang Water Co. Ltd. 100Ħ 100Ħ Ezhou Qinghe Environmental Engineering Co., Ltd. 㰇喯㟹⽟㱕㸸冒Ἦ㯜㚱旸℔⎠ 悪ⶆ㶭␴䑘⠫ⶍ䦳㚱旸℔⎠

Zhijiang Sound Zhiqing Water Co., Ltd. 100Ħ 100Ħ Yichang Baiyang Water Co., Ltd. 㝅㰇㟹⽟㝅㶭㯜⊁㚱旸℔⎠ ⭄㖴䘥㲳㯜⊁㚱旸℔⎠

Jingzhou Sound Jingqing Water Co., Ltd. 100Ħ 100Ħ Ezhou Sound Eqing Water Co., Ltd. 勲ⶆ㟹⽟勲㶭㯜⊁㚱旸℔⎠ 悪ⶆ㟹⽟悪㶭㯜⊁㚱旸℔⎠

Jiayu Jiaqing Water Co., Ltd. 100Ħ 100Ħ Chongyang Tianqing Water Co., Ltd. ▱欂▱㶭㯜⊁㚱旸℔⎠ ⲯ春⣑㶭㯜⊁㚱旸℔⎠

Daye Sound Qingbo Water Co., Ltd. 100Ħ 100Ħ Xianning Ganqing Water Co., Ltd. ⣏⅞㟹⽟㶭㲊㯜⊁㚱旸℔⎠ ①䓗㶎㶭㯜⊁㚱旸℔⎠

Zhejiang Sound Fuchun Water Development Co., Ltd. 100Ħ 100Ħ Jiayu Sound Ganquan Water Co., Ltd. 㴁㰇㟹⽟⭴㗍㯜⊁攳䘤㚱旸℔⎠ ▱欂㟹⽟䓀㱱㯜㤕㚱旸℔⎠

100Ħ 100Ħ Tonglu Qinghe Pipeline Installation Co., Ltd. Jiayu Sound Ganquan Engineering Co., Ltd. 㟸⺔㶭␴䭉忻⬱墅㚱旸℔⎠ ▱欂㟹⽟䓀㱱ⶍ䦳㚱旸℔⎠

Consideration:

The consideration under the 2nd Sale and Purchase Agreement is RMB1,200,000,000 (equivalent to approximately HK$1,518,990,000). The consideration was arrived at after arm’s length negotiations between Sound Environmental and the Company with reference to valuation by considering the PE ratio of comparable companies in the market. In addition, the Company has taken into account the Shareholder’s Loan when determining the consideration of the 2nd Sale and Purchase Agreement. The Company adopted the market approach by multiplying the net profit of Target Group by the appropriate PE ratio derived from comparable companies, followed by making certain adjustments which includes deduction of the non-operating liabilities of the Target Group which includes the Shareholder’s Loan.

The Company has engaged the Valuer to proceed with the appraisal of the Target Company, the Valuer has selected seven A-share listed comparable companies as references to assess the value of the Target Company based on the similarity on business activities, profitability and growth potential, the arithmetic average PE ratio of the selected listed comparable companies is approximately 33.85 times. Based on this, the Valuer, by way of market approach, has concluded that market value of the shareholders’ entire interests (net assets) of the Target Company on the benchmark date of the appraisal is approximately RMB1,199,807.6 million. Meanwhile, the Independent Financial Advisor has issued an independent opinion on this acquisition as set out in the section headed “Letter from Somerley” in the circular. The Independent Financial Advisor has proceeded with the appraisal on the fairness and reasonableness of the consideration of this transaction with

–21– LETTER FROM THE BOARD reference to the PE ratio of listed comparable companies in Hong Kong, the average earning ratio of the selected listed comparable companies in Hong Kong is 31.8 times. The Directors are of the opinion that although the Valuer and the Independent Financial Advisor have selected comparable companies from different markets, their respective findings are consistent with each other. Therefore, the Directors consider that the price for the acquisition is fair, reasonable and in the interests of the Company and shareholders as a whole.

Conditions precedent of the 2nd Sale and Purchase Agreement

The completion of the 2nd Sale and Purchase Agreement is conditional upon:

(a) the Subscription Agreement having been executed on the same date as the 2nd Sale and Purchase Agreement;

(c) the passing of the independent shareholder’s and board resolutions of Sound Environmental approving the execution and the performance of the 2nd Sale and Purchase Agreement;

(d) the passing of the Independent Shareholder’s approval and board resolutions of the Company approving the execution and the performance of the 2nd Sale and Purchase Agreement;

(e) the parties having obtained and made all the necessary approval, permit, license or consent from the Government Authorities for the purpose of entering into, the performance and completion of the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder.

Completion of the 2nd Sale and Purchase Agreement

The date of completion is upon the registration of the transfer with the relevant industry and commerce bureau in the PRC.

The consideration for the 2nd Sale and Purchase Agreement shall be paid by the Company in two installments as follows:

(a) to pay 50% of the total consideration, equivalent to RMB600,000,000 (equivalent to approximately HK$759,495,000), within 5 Business Days before the date of completion with the exact date to be agreed by the parties;

(b) to pay the remaining balance of the total consideration within 10 Business Days after the date of completion, such date of payment for this installment could be extended for no more than 3 months upon mutual agreement by the parties.

On 25 September 2014, Sound Environmental and the Target Company entered into Shareholder’s Loan Repayment Agreement pursuant to which Target Company agreed to repay Sound Environmental a shareholder’s loan in the sum of RMB698,650,006 upon the

–22– LETTER FROM THE BOARD completion of the 2nd Sale and Purchase Agreement (or such later date as the parties to the Shareholder’s Loan Repayment Agreement may agree in writing). The payment shall be made by electronic funds transfer to a bank account specified by Sound Environmental. Should the Target Company defaults in payment on the agreed date, an interest at the daily rate of 0.01% would be accrued in respect of the defaulted amount.

Given the current financial position of and the inadequate amount of cash reserves held by the Target Group (details are set out in the section headed “Information on the Target Group” in the letter from Somerley in this circular), it is anticipated that the repayment of the Shareholder’s Loan will be financed by the Group.

ACTING IN CONCERT UNDERTAKING BY SOUND WATER (BVI) IN FAVOUR OF SOUND ENVIRONMENT (HK)

On 25 September 2014, Sound Water (BVI) executed the Sound Water (BVI) Undertaking whereby, among other things, upon the completion of the Subscription Agreement and the 1st Sale and Purchase Agreement when Sound Environment (HK) becomes a shareholder of the Company:

1) Sound Water (BVI) undertakes to act in concert with Sound Environment (HK) to the effect that Sound Water (BVI) would exercise its voting power as shareholder in accordance with the decisions or instructions of Sound Environment (HK) at shareholders’ meetings or resolutions of the Company in respect of matters including the business operation, management and appointment of directors and senior management of the Company; and

2) Sound Water (BVI) also agrees to grant a right of first refusal to Sound Environment (HK) to the effect that in the event Sound Water (BVI) wishes to sell any part of its Shares, such Shares shall first be offered to Sound Environment (HK) to purchase with the terms to be agreed between Sound Water (BVI) and Sound Environment (HK). If no agreement is reached, Sound Water (BVI) will be entitled to offer such Shares to any third party on terms which are no more favourable than those offered to Sound Environment (HK).

Mr. Wen, on 25 September 2014, also executed an undertaking in favour of Sound Environmental to procure Sound Water (BVI) to perform the Sound Water (BVI) Undertaking.

SOUND ENVIRONMENTAL SUBSCRIPTION

In order to raise fund for satisfying the consideration of the Subscription and the 1st Sale and Purchase Agreement payable by Sound Environment (HK), Sound Environmental will conduct the Sound Environmental Subscription whereby it would offer new shares for subscription. Such offering requires approval from the CSRC. As such, the Subscription Agreement, the 1st Sale and Purchase Agreement and 2nd Sale and Purchase Agreement are conditional upon Sound Environmental having obtained the required approval from the CSRC in respect of the Sound Environmental Subscription. As at the Latest Practicable Date, the Sound Environmental Subscription was approved by the board of Sound Environmental pending the approval from the shareholders of Sound Environmental and the CSRC.

FUND RAISING ACTIVITY OF THE COMPANY

The Company did not conduct any fund raising activities during the past 12 months immediately preceding the date of the Announcement.

–23– LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

Assuming there is no other change in the shareholding capital of the Company after the Latest Practicable Date, the following table sets out the shareholding structure of the Company at the Latest Practicable Date and immediately after the completion of the Subscription and the 1st Sale and Purchase Agreement:

Immediately after completion of the Subscription As at the Immediately after and the 1st Sale Latest Practicable Date completion of the Subscription and Purchase Agreement Name of Number of Approximate % Number of Approximate % Number of Approximate % Shareholder Shares of shareholding Shares of shareholding Shares of shareholding (%) (%) (%)

Mr. Wen 15,333,000 1.04 15,333,000 0.88 15,333,000 0.88 Sound Water (BVI)(1) 703,784,000 47.96 703,784,000 40.27 438,986,493 25.12 Green Capital Holdings Limited(2) 11,505,000 0.78 11,505,000 0.66 11,505,000 0.66 Sound (HK) Limited(3) 22,729,945 1.55 22,729,945 1.30 22,729,945 1.30 Sound Environment (HK) 0 0 280,373,831 16.04 545,171,338 31.19

Sub-Total (non- public Shareholders) 753,351,945 51.33 1,033,725,776 59.15 1,033,725,776 59.15 Public Shareholders 713,944,931 48.67 713,944,931 40.85 713,944,931 40.85

Total: 1,467,296,876 100% 1,747,670,707 100% 1,747,670,707 100%

Notes:

1. Sound Water (BVI) is owned as to 90% by Mr. Wen and 10% by Ms. Zhang.

2. Green Capital Holdings Limited is a company incorporated in the BVI and is owned by the in-laws of Mr. Wen, both are parties acting in concert with Mr. Wen and therefore its shareholding in the Company would not be counted toward the public float.

3. Sound (HK) Limited is a company incorporated in Hong Kong and is wholly owned by Sound Group and therefore its shareholding in the Company would not be counted toward the public float.

4. For information only, on 20 September 2011, the Company granted 28,154,545 warrants to an Independent Third Party to subscribe for 28,154,545 Shares, representing approximately 1.92% of the issued share capital of the Company as at the Latest Practicable Date. All warrants remain outstanding as at the Latest Practicable Date. The issued share capital of the Company and the relevant percentages referred to in this circular assumed such warrants were not exercised.

–24– LETTER FROM THE BOARD

Holding structure immediately as at the Latest Practicable Date

Mr. Wen Ms. Zhang1 Mr. Wen Mr. Zhang2 Ms. Tang2 Mr. Wen Mr. Wen Ms. Zhang I3P

22.15% 77.85% 90% 10% 50% 50% 4.83% Beijing Sanghua

95%

Sound Group Green Capital 3 Sound (HK) Limited 100% Sound Water (BVI) Holdings Limited

44.95% 47.96% 1. 0 40.78 1. 5 5 Sound Environmental

100% 100%

The Company Sound Environment (HK) Target Company

Holding structure immediately upon the completion of the Sound Environmental Subscription, the Subscription, the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement

Mr. Wen Ms. Zhang1 Mr. Wen Mr. Zhang2 Ms. Tang2 Mr. Wen Mr. Wen Ms. Zhang I3P

22.15% 77.85% 90% 10% 50% 50% 4.83% Beijing Sanghua

95%

Sound Group Green Capital Sound Water (BVI)3 Sound (HK) Limited 100% Holdings Limited 42.525%3 25.12% 0.880.66 1.3% Sound Environmental

Sound Environment (HK) 100% 31.19%

The Company

100%

Target Company

Notes:

1. Mr. Zhang Linmao and Ms. Tang Lianfang are the in laws of Mr. Wen.

2. Sound Water (BVI) has granted a warrant to Mighty Sky Investment Limited, an indirect wholly owned subsidiary of Construction Bank of China, which confer the right to acquire from Sound Water (BVI) 9,069,767 Shares, representing approximately 0.6% of the issued share capital of the Company as at the Latest Practicable Date.

3. Upon completion of the Sound Environmental Subscription, the shareholding of Sound Group in Sound Environmental would be reduced to 42.525%.

–25– LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

Sound Environment (HK) is the wholly owned subsidiary of Sound Environmental. Sound Environmental is 44.95% owned by Sound Group. Sound Group is 95.00% owned by Beijing Sanghua, 4.83% owned by Mr. Wen, and 0.17% owned by an Independent Third Party. Beijing Sanghua is in turn owned by Mr. Wen and his spouse, Ms. Zhang as to 22.15% and 77.85% respectively. Thus, Sound Environmental is a 30%-controlled company indirectly held by Mr. Wen and his spouse. Mr. Wen is a Director and a Substantial Shareholder of the Company and thus Sound Environment (HK) is considered as an associate of a connected person under the Listing Rules. Therefore, the Subscription and the 2nd Sale and Purchase Agreement will constitute connected transactions.

Pursuant to Rule 14A.81 of the Listing Rules, the 2nd Sale and Purchase Agreement is required to be aggregated with the Previously Disclosed Acquisition, as they were entered into by the Group with the associates of the same connected persons or with parties connected or otherwise associated with one another. The consideration of the Previously Disclosed Acquisition was RMB192,426,131 (equivalent to approximately HK$243,577,381).

Having aggregated with the Previously Disclosed Acquisition, the applicable percentage ratios as defined under the Listing Rules in respect of the 2nd Sale and Purchase Agreement are more than 5% but less than 25%, the 2nd Sale and Purchase Agreement will also constitute a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

The Subscription and the 2nd Sale and Purchase Agreement will be subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Mr. Wen, an executive Director, having material interest in the Subscription and the 2nd Sale and Purchase Agreement, has abstained from voting on the Board resolutions for considering and approving the Subscription and the 2nd Sale and Purchase Agreement.

An Independent Board Committee comprising all the independent non-executive Directors, namely, Mr. Fu Tao, Mr. Seow Han Chiang Winston and Mr. Wong See Meng, has been established to advise the Independent Shareholders in respect of the resolutions to approve the Subscription and the 2nd Sale and Purchase Agreement. Somerley Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on whether the terms of the Subscription and the 2nd Sale and Purchase Agreement are fair and reasonable, in the interests of the Company and the Shareholders as a whole, and to make recommendation to the Independent Shareholders on how to vote. The appointment of Somerley Capital Limited as the Independent Financial Adviser has been approved by the Independent Board Committee.

–26– LETTER FROM THE BOARD

TAKEOVERS CODE IMPLICATIONS

Upon completion of the Subscription and the 1st Sale and Purchase Agreement, Sound Environment (HK) will own more than 30% of the issued share capital of the Company. Under Rule 26 of the Takeovers Code, Sound Environment (HK) is obligated to make a general offer for all securities of the Company not already owned by Sound Environment (HK) (and parties acting in concert with it).

An application has been made to the Executive for a waiver pursuant to Note 6(a) to Rule 26.1 of the Takeovers Code and the waiver was granted by the Executive.

INFORMATION ON THE GROUP AND SOUND ENVIRONMENT (HK)

Sound Environment (HK) is an investment holding company and a wholly owned subsidiary of Sound Environmental. Sound Environmental’s principal activities include investment in wastewater treatment projects, operation of water supply and solid waste and sewage treatment facilities.

REASONS FOR AND BENEFIT OF THE SUBSCRIPTION AND THE 2ND SALE AND PURCHASE AGREEMENT

Part of the net proceeds from the Subscription will be used to finance the entire consideration of the 2nd Sale and Purchase Agreement and thereby be able to secure the acquisition of the Target Company and the remaining net proceeds will be applied for the general working capital and further development of the Target Group including for the repayment of the Shareholders’ Loan in the sum of RMB698,650,006.

Through the Subscription and the 1st Sale and Purchase Agreement, it allows a prominent PRC listed company to become a Substantial Shareholder of the Company and thereupon strengthening and widening the Company’s shareholders base and also increase the opportunity and ability to raise further capital from shareholders in future.

Sound Environmental and the Company are listed companies controlled by Mr. Wen Yibo. Sound Environmental is principally engaged in solid waste treatment business, and due to historical reasons, Sound Environmental is engaged in certain water investment and operation businesses in particular regions (Hubei Province; Baotou City, Inner Mongolia; Nanchang City, Jiangxi Province; Shuyang County, Jiangsu Province; Hengcun Town, Tonglu County, Zhejiang Province). Since its establishment, the Company has been engaging in water-related investment, construction and operation businesses. Through the acquisition of equity interest in Target Group by the Company, the Company would obtain the entire water-related assets of Sound Environmental and the potential peer competition between Sound Environmental and the Company will be properly resolved. At the same time, upon completion of the acquisition, the scale of water projects of the Company will be further expanded and the Company can better capitalise on the expertise and synergies in the water business to further enhance the overall competitiveness and profitability of the Company.

–27– LETTER FROM THE BOARD

The acquisition of the Target Company allows the Company to become the sole shareholder of the Target Group which owns 22 subsidiaries operating extensive business of investment, construction and operations of waste water treatment project and supply of water in the PRC. The Company will use this opportunity to strengthen and expand its influence, reputation, local presence, business network and geographical coverage in different regions in the PRC. The acquisition will also allow the Company to benefit from economies of scale by increasing its purchasing and bargaining power.

The Board (including its independent non-executive directors) is of the view that the terms of the Subscription Agreement and the 2nd Sale and Purchase Agreement are fair and reasonable and are on normal commercial terms and the Subscription and the 2nd Sale and Purchase Agreement are in the interest of the Company and in the interests of the Shareholders as a whole.

EGM

A notice convening the EGM to be held on Tuesday, 23 December 2014 at 10:00 a.m. at United Conference Centre, 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong is set out on pages 97 to 98 of this circular for the purpose of considering and, if thought fit, approve (i) the Subscription Agreement and the transactions contemplated thereunder, including the grant of the Specific Mandate for the allotment and issue of the Subscription Shares and (ii) the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the registered office of the Company at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542 or the office of the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof (as the case may be) if you so wish.

Mr. Wen and its associates, being connected persons of the Company and having material interests in the Subscription and the 2nd Sale and Purchase Agreement, will abstain from voting at the EGM on the resolutions in this regard. As at the Latest Practicable Date, Mr. Wen and its associates held and controlled the voting rights of 753,351,945 Shares, representing approximately 51.33% of the issued share capital of the Company. The results of the voting will be announced in accordance with Rule 2.07C of the Listing Rules after the EGM.

To the best knowledge, information and belief of the Directors having made all reasonable enquiries, other than Mr. Wen and their respective associates, there is no connected person of the Company, any Shareholders or their respective associates with a material interest in the relevant transactions under the Subscription Agreement and the 2nd Sale and Purchase Agreement required to abstain from voting at the EGM.

–28– LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee has been established to advise the Independent Shareholders as to whether the terms of the transactions contemplated under the Subscription Agreement and the 2nd Sale and Purchase Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Somerley Capital Limited, the Independent Financial Adviser, has been appointed to advise the Independent Board Committee and the Independent Shareholders in the same regard.

RECOMMENDATION

Based on the above, the Directors (including the independent non-executive Directors) consider that the Subscription Agreement and the 2nd Sale and Purchase Agreement are on normal commercial terms, and the entering of the Subscription Agreement and the 2nd Sale and Purchase Agreement are in the ordinary and usual course of business of the Company, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all the Independent Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the EGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular and the notice of the EGM.

Yours faithfully, By Order of the Board Sound Global Ltd. Wen Yibo Chairman

–29– LETTER FROM THE INDEPENDENT BOARD COMMITTEE

SOUND GLOBAL LTD. 桑德國際有限公司* (Incorporated in the Republic of Singapore with limited liability) (Company Registration Number 200515422C) (Hong Kong Stock Code: 00967)

2 December 2014

To the Independent Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION – PROPOSED ISSUE OF SUBSCRIPTION SHARES (2) CONNECTED AND DISCLOSABLE TRANSACTION – PROPOSED ACQUISITION OF SHARES

We have been appointed as the Independent Board Committee to advise you in connection with the Subscription Agreement and the 2nd Sale and Purchase Agreement, details of which are set out in the letter from the Board contained in the circular to the Shareholders dated 2 December 2014 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We wish to draw the attention of the Independent Shareholders to the letter from the Board and letter of advice from Somerley Capital Limited, the Independent Financial Adviser, set out on pages 8-29 and pages 31-53 of the Circular, respectively.

Having taken into account the principal factors and reasons considered by Somerley, its conclusion and advice, we concur with the view of Somerley and consider the Subscription Agreement and the 2nd Sale and Purchase Agreement are on normal commercial terms and the entering of the Subscription Agreement and the 2nd Sale and Purchase Agreement are fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Subscription Agreement and the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of the Independent Board Committee

Mr. Wong See Meng Mr. Seow Han Chiang Winston Mr.FuTao Lead Independent Independent Independent Non-executive Non-executive Non-executive Director Director Director

* for identification purposes only

–30– LETTER FROM SOMERLEY

SOMERLEY CAPITAL LIMITED 20th Floor China Building 29 Queen’s Road Central Hong Kong

2 December 2014

To: The Independent Board Committee and the Independent Shareholders of Sound Global Ltd.

Dear Sirs,

(1) CONNECTED TRANSACTION – PROPOSED ISSUE OF SUBSCRIPTION SHARES AND (2) CONNECTED AND DISCLOSEABLE TRANSACTION – PROPOSED ACQUISITION OF SHARES

INTRODUCTION

We refer to our appointment by the Company to advise the Independent Board Committee and the Independent Shareholders in connection with the Subscription and the transactions contemplated under the 2nd Sale and Purchase Agreement (the “Acquisition”, and together with the Subscription, the “Transactions”). Details of the Transactions are set out in the letter from the Board contained in the circular of the Company to the Shareholders dated 2 December 2014 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

On 11 September 2014 and 14 September 2014, the Company and Sound Environment (HK) entered into a framework agreement for the Subscription and a corresponding definitive agreement, namely the Subscription Agreement respectively whereby, among other things, the Company conditionally agreed to allot and issue and Sound Environment (HK) conditionally agreed to subscribe a total of 280,373,831 Subscription Shares, at the Subscription Price of HK$8.10 per new Share or approximately HK$2,271.0 million (equivalent to approximately RMB1,794.1 million) in aggregate.

On 14 September 2014, Sound Water (BVI) and Sound Environment (HK) entered into the 1st Sale and Purchase Agreement whereby, among other things, Sound Water (BVI) conditionally agreed to sell and Sound Environment (HK) conditionally agreed to purchase for a total of 264,797,507 Sale Shares, at the consideration of HK$8.10 per Sale Share or approximately HK$2,144.9 million in aggregate (equivalent to approximately RMB1,694.5 million).

On 14 September 2014, the Company and Sound Environmental entered into the 2nd Sale and Purchase Agreement whereby, among other things, the Company conditionally agreed to purchase and Sound Environmental conditionally agreed to sell the entire registered capital of the Target Company at the consideration of RMB1,200.0 million. The Subscription Agreement and the 2nd Sale and Purchase Agreement are inter-conditional with each other. On 25 September 2014, Sound Environmental and the Target Company

–31– LETTER FROM SOMERLEY entered into the Shareholder’s Loan Repayment Agreement pursuant to which the Target Company agreed to repay Sound Environmental the Shareholder’s Loan in the sum of approximately RMB698.7 million upon the completion of the 2nd Sale and Purchase Agreement (or such later date as the parties to the Shareholder’s Loan Repayment Agreement may agree in writing).

As stated in the letter from the Board in the Circular, Sound Environment (HK) is a wholly-owned subsidiary of Sound Environmental and Sound Environmental is owned by Sound Group as to 44.95%. Sound Group is 95.00% owned by Beijing Sanghua, 4.83% owned by Mr. Wen, and 0.17% owned by an Independent Third Party. Beijing Sanghua is in turn owned by Mr. Wen and his spouse, Ms. Zhang as to 22.15% and 77.85% respectively. Thus, Sound Environmental is a 30%-controlled company indirectly held by Mr. Wen and his spouse. Mr. Wen is a Director and a Substantial Shareholder of the Company and thus Sound Environment (HK) is considered as an associate of a connected person under the Listing Rules. Therefore, the Transactions will constitute connected transactions.

The Transactions will be subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. As Mr. Wen is a connected person of the Company having a material interest in the Transactions, Mr. Wen and his associates will be required under the Listing Rules to abstain from voting at the EGM on the relevant resolutions in relation thereto.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Fu Tao, Mr. Seow Han Chiang Winston and Mr. Wong See Meng, has been established to advise the Independent Shareholders as to whether the terms of the Transactions are fair and reasonable and whether the Transactions are in the interests of the Company and the Shareholders as a whole. We, Somerley Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in the same regard.

We are not associated with the Company, Sound Environment (HK), Sound Environmental or any of their respective close associates, associates or core connected persons (all of which as defined in the Listing Rules) and accordingly we are considered eligible to give independent advice on the terms of Transactions. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, Sound Environment (HK), Sound Environmental or their respective close associates, associates or core connected persons.

In formulating our opinion and recommendation, we have reviewed, among other things, the Subscription Agreement, the 2nd Sale and Purchase Agreement, the annual report of the Company for year ended 31 December 2013 (the “2013 Annual Report”), the interim report of the Company for the six months ended 30 June 2014 (the “2014 Interim Report”) and certain consolidated financial information of the Target Company. We have also discussed with the management of the Group and the Target Group regarding the business and future prospects of the Group as enlarged by completion of the Transactions. We have also visited selected wastewater treatment plants of the Target Group.

We have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group and have assumed that they are true, accurate and complete. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to

–32– LETTER FROM SOMERLEY us. We have no reason to believe that any material information has been withheld from us, or to doubt the truth or accuracy of the information provided. We have relied on such information and consider that the information we have received is sufficient for us to reach an informed view. We have not, however, conducted any independent investigation into the business and affairs of the Group or the Target Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion, we have taken into consideration the following principal factors and reasons:

1. Business of the Group

The Group is engaged in the environmental construction relating to water treatment, provision of technology consultancy services, sale of equipment, management and operations of wastewater treatment projects and supply of water. The operation of the Group covers more than one-third of all Chinese provinces and over 100 counties and towns. As at the end of 2013, the number of projects managed by the Company increased approximately 21% from 105 in 2012 to 127 in 2013. Total production value in 2013 was approximately RMB3.1 billion, representing an increase of approximately 18.4% from 2012.

The Group’s key operating segments are as below:

Turnkey services (including engineering, procurement and construction (“EPC”))

This segment includes the provision of turnkey/EPC services involving the entire process from planning, design, equipment procurement, production, construction and engineering, to installation and commissioning of water and wastewater treatment systems, and research and development work of water and wastewater treatment equipment and techniques. This segment usually involves the provision of turnkey/EPC services to build-operate-transfer (“BOT”) water and wastewater projects for both the Group and independent third parties. It has all along been the most established and the largest profit centre of the Group, accounting for approximately 91.8% and 84.5% of the Group’s total external revenue and total segment results, respectively, for the year ended 31 December 2013. Profit margin for the turnkey services segment was approximately 24.0% for the year ended 31 December 2013.

Operations and maintenance (“O&M”)

Being the second largest operating segment of the Group, the O&M segment involves operating of water and wastewater treatment facilities (including but not limited to the Group’s own BOT projects, projects acquired and managed by the Group and projects entrusted by independent third parties). For the year ended 31 December 2013, the O&M segment accounted for approximately 6.1% and 14.3% of the Group’s total external revenue and total segment results, respectively. Profit margin for this segment is notably the highest amongst the three operating segments, for the year ended 31 December 2013, the O&M segment achieved a profit margin of approximately 61.0%.

Equipment fabrications

This segment involves manufacturing, fabrication, sales and installation of generic or custom-manufacture specialised equipment for water and wastewater treatment systems. This segment is by far smaller than the other two segments but serves as an integral part of the Group’s involvement in the entire water and wastewater value chain.

–33– LETTER FROM SOMERLEY

2. Recent financial results of the Group

The following are summaries of the results of the Group for each of the two years ended 31 December 2013 and the six months ended 30 June 2013 and 2014:

For the six months ended For the year ended 30 June 31 December 2014 2013 2013 2012 RMB million RMB million RMB million RMB million (unaudited) (unaudited) (audited) (audited)

Revenue 1,634.7 1,474.6 3,139.5 2,652.3 Net profit for the year/period attributable to the Shareholders 239.6 173.4 423.3 427.5

Revenue of the Group increased by approximately 18.4% from RMB2,652.3 million in 2012 to RMB3,139.5 million in 2013. The increase was largely driven by the significant growth in revenue contribution by the turnkey services segment where the Group continued to be awarded EPC projects in the PRC. On the other hand, the net profit attributable to the Shareholders decreased slightly by approximately 1.0% from RMB427.5 million in 2012 to RMB423.3 million in 2013, which was mainly attributable to (i) higher interest expense recognised in the full year of 2013 for the senior notes issued in the third quarter of 2012; and (ii) higher income tax expenses.

For the six months ended 30 June 2014, revenue of the Group increased by approximately 10.9% to RMB1,634.7 million from RMB1,474.6 million for same period in last year. The increase was attributed mainly to increased contribution during the period from: (i) the O&M segment as certain BOT projects had commenced operations; and (ii) the turnkey services segment as the Group continued to be awarded and fulfilling EPC projects in the PRC. Net profit attributable to the Shareholders for the period increased by approximately RMB66.2 million or 38.2% from approximately RMB173.4 million for the same period last year, which was mainly attributable to (i) the overall higher revenue and the stable gross profit margin during the period; and (ii) the increase in the deemed interest income accrued from service concession receivables associated with the Group’s increasing investments in BOT projects.

3. Reasons for and benefits of the Transactions

As set out in the 2014 Interim Report, China’s environmental protection industry market has entered a consolidation stage of development, which provides mergers and acquisitions opportunities for the Company. As the commercialisation of the environmental service industry, which is mainly operated under the mode of entrusted operations of third-party environment facilities in municipal and industrial areas in China, further advances and becomes more mature, more water enterprises will transform into environmental service company.

Against this background, the O&M segment of the Group is well positioned to capture this opportunity and the Company stated that it would continue to increase O&M segment expansion efforts. In pursuing merger and acquisition activities with reasonable price and favourable return on investment, the Group has completed the acquisitions of three Beijing

–34– LETTER FROM SOMERLEY municipal sewage treatment projects in 2013 and two Dongguan sewage treatment projects in second quarter of 2014. The company will further increase merger and acquisition activities to enhance economies of scale and expand its market shares in the O&M segment. The Acquisition can be seen as a continuous drive by the Company to strengthen its O&M segment. The Acquisition allows the Company to become the sole shareholder of the Target Group which owns 22 subsidiaries operating extensive business of investment, construction and operations of wastewater treatment project and supply of water in the PRC. For further details of the business of the Target Group, please refer to the section headed “Information on the Target Group” below and the section headed “The 2nd Sale and Purchase Agreement” in the letter from the Board in the Circular. The Company will use this opportunity to strengthen and expand its influence, reputation, local presence, business network and geographical coverage in different regions in the PRC. The Acquisition will also allow the Company to benefit from economies of scale by increasing its purchasing and bargaining power.

To a large extent, the purpose of the Subscription is to fund the consideration for the Acquisition. As set out in the letter from the Board in the Circular, part of the net proceeds from the Subscription will be used to finance the entire consideration of the 2nd Sale and Purchase Agreement and thereby be able to secure the acquisition of the Target Company and the remaining net proceeds will be applied for the general working capital and further development of the Target Group, including the repayment of the Shareholder’s Loan.

Through the Subscription and the 1st Sale and Purchase Agreement, it allows Sound Environmental, a prominent PRC listed water and wastewater treatment projects operator, to become a Substantial Shareholder of the Company and thereupon strengthening and widening the Company’s shareholder base and also increase the opportunity and ability to raise further capital from the Shareholders in future.

Sound Environmental and the Company are listed companies controlled by Mr. Wen Yibo. Sound Environmental is principally engaged in solid waste treatment business, and due to historical reasons, Sound Environmental is engaged in certain water investment and operation businesses in particular regions (Hubei Province; Baotou City, Inner Mongolia; Nanchang City, Jiangxi Province; Shuyang County, Jiangsu Province; Hengcun Town, Tonglu County, Zhejiang Province). Since its establishment, the Company has been engaging in water-related investment, construction and operation businesses. Through the acquisition of equity interest in the Target Group, the Company would obtain the entire water-related assets of Sound Environmental and the potential peer competition between Sound Environmental and the Company will be properly resolved. At the same time, upon completion of the Acquisition, the scale of water projects of the Company will be further expanded and the Company can better capitalise on the expertise and synergies in the water business to further enhance the overall competitiveness and profitability of the Company.

The Board is of the view that the terms of the Subscription Agreement and the 2nd Sale and Purchase Agreement are fair and reasonable and are on normal commercial terms and the Subscription and the 2nd Sale and Purchase Agreement are in the interest of the Company and in the interests of the Shareholders as a whole.

We consider that the Transactions are a reasonable extension of the Group’s strategic drive to capture the market opportunities in its O&M segment.

–35– LETTER FROM SOMERLEY

4. Industry outlook

As China is the main geographical market for the Group, the social and economic fundamentals of the Chinese wastewater sector shape the future prospects of the Group.

According to China Water Risk1, a non-profit organisation established to inform investors and business about water-related risk inherent in investing and operating in China, China needs to develop its wastewater sector to tackle worsening water pollution as China has 20% of the world’s population but only 7% of the world’s fresh water. The problem with wastewater treatment in China is largely due to the lack of quantity and quality in water treatment facilities coupled with sustained economic growth and urbanisation in the recent decade. The total wastewater discharged in China had increased by approximately 65.1% from approximately 41.5 billion tonnes in 2000 to approximately 68.5 billion tonnes in 2012. It appears that the trend of further urbanisation and increasing affluence is continuing unabatedly and so is China’s problem with wastewater treatment.

The outlook for the wastewater treatment sector looks positive as the vice minister of the Ministry of Environmental Protection of the PRC (中華人民共和國環境保護部) (the “MEP”) announced in February 2014 that China would spend RMB2 trillion to tackle water pollution. Under The 12th Five-Year Plan (十二五規劃) (the “12FYP”), total investment in wastewater treatment and recycling infrastructure in urban areas is expected to reach RMB430 billion, representing an increase of about 20% from the previous five-year plan.

According to the MEP, as of 2012, there were 3,836 wastewater treatment facilities in urban areas. This was a remarkable improvement compared to only about 20 small capacity wastewater treatment facilities in China in 1980. Since then, water treatment rates had improved dramatically and had reached approximately 77.5% in the cities, 60.1% for counties and below 20% for townships in 2010. The 12FYP targets treatment rates to increase to 85% in urban areas, 70% for counties and 30% for townships by 2015.

There is tremendous space for growth of the PRC wastewater treatment industry and more wastewater treatment plants will have to be built to cope with the significant demand for these facilities and the Target Group fits well to serve such demand.

1 According to introduction at its own website, China Water Risk is a non-profit initiative designed to help investors, businesses and individuals understand and mitigate risk around water. China Water Risk is an independent, non-partisan web portal that relies on support from donors and sponsors to provide content and to commission relevant research.

China Water Risk is funded and managed by Hong Kong-based ADM Capital Foundation and in its pilot stage was developed in collaboration with its founding partners, Civic Exchange, the Association for Social and Responsible Investing in Asia, Business for Social Responsibility, the Institute of Public and Environmental Affairs and Responsible Research. China Water Risk works closely with a growing network of water and industry experts and investors from China and Hong Kong as well as with others based internationally. These partners include, among others, the United Nations Environment Programme Finance Initiative, the Woodrow Wilson Center’s China Environmental Forum, the World Resources Institute and The Hong Kong Productivity Council.

In addition, information provided by China Water Risk is also often quoted by leading businesses and news media sources such as HSBC, Reuters, South China Morning Post, Chicago Tribune and BNP on topics of Chinese water resources.

Given its background, experience and affiliations, we consider China Water Risk is a reliable source for water related issues in China.

–36– LETTER FROM SOMERLEY

5. Principal terms of the Subscription Agreement

(a) The Subscription Agreement

Date: 14 September 2014

Parties:

(i) The Company, as the issuer; and

(ii) Sound Environment (HK), as the subscriber.

(b) The Subscription Shares

Pursuant to the Subscription Agreement, the Company conditionally agreed to allot 280,373,831 new Shares, representing approximately 19.11% of the existing issued share capital of the Company as at the Latest Practicable and approximately 16.04% of the issued share capital of the Company as enlarged by the Subscription Shares. The Subscription Shares, when issued and fully paid, will rank pari passu in all respects with all existing Shares in issue as at completion.

The Subscription Price of HK$8.10 per Subscription Share was arrived at after arm’s length negotiations between the Company and Sound Environment (HK) and on normal commercial terms, with reference to the average closing price per Share for the 20 trading days prior to the date of the Subscription Agreement of HK$8.10.

As set out in the letter from the Board, the reason the parties to the Subscription Agreement chose 20 trading days as the reference period to determine the Subscription Price was because Sound Environmental is listed in the PRC and therefore Sound Environmental Subscription is subject to the Measures for Administration of the Listed Company Issuing New Shares (“上市公司證券發行管理辦法”) which stipulates that the issuing price of the new shares of a listed company in the PRC shall not be less than 90% of the average closing price per share for 20 trading days prior to the date of the Announcement. As one of the conditions precedent of the Subscription Agreement is Sound Environmental having obtained the required approval from the Government Authorities in respect of the Sound Environmental Subscription and the purpose for the Sound Environmental Subscription partly is to raise fund to satisfy the consideration of the Subscription, the parties to the Subscription Agreement agreed to take reference to the same pricing basis (i.e. the average closing price per Share for the 20 trading days before the Subscription Agreement) to determine the Subscription Price.

The comparison of the Subscription Price to the historical Share price and the net assets value per Share are set out in the paragraph headed “Subscription Price comparison” in this letter below.

The total proceeds from the Subscription will amount to approximately HK$2,271.0 million (equivalent to approximately RMB1,794.1 million), which will partly be used to satisfy the entire consideration of the 2nd Sale and Purchase Agreement of RMB1,200.0 million with the remaining be applied for working capital and future development of the Target Group, including the repayment of the Shareholder’s Loan.

–37– LETTER FROM SOMERLEY

(d) Condition precedent

Completion of the Subscription Agreement is conditional upon, among other things:

(i) the 2nd Sale and Purchase Agreement becoming unconditional (other than with respect to a condition in relation to the Subscription Agreement becoming unconditional); and

(ii) the passing of resolutions by the Independent Shareholders at the EGM approving the Subscription Agreement, the 2nd Sale and Purchase Agreement and the transactions contemplated thereunder.

Other conditions precedent to the Subscription Agreement are set out in the letter from the Board in the Circular. The Subscription Agreement will be terminated automatically if the conditions precedents are not fulfilled or waived by 31 December 2015 (or such later date as the parties to the Subscription Agreement may agree in writing).

Completion of the Subscription Agreement is expected to take place on the 5th Business Day or such other day as may be agreed by the parties to the Subscription Agreement after the date on which all of the conditions precedent shall have been satisfied or waived.

6. Principal terms of the 2nd Sale and Purchase Agreement

(a) The 2nd Sale and Purchase Agreement

Date: 14 September 2014

Parties:

(i) The Company, as the purchaser; and

(ii) Sound Environmental, as the vendor.

(b) Assets to be acquired

Pursuant to the 2nd Sale and Purchase Agreement, the Company conditionally agreed to purchase and Sound Environmental conditionally agreed to sell the entire registered capital of the Target Company.

The consideration for the Acquisition pursuant to the 2nd Sale and Purchase Agreement is RMB1,200.0 million. The consideration was arrived after arm’s length negotiations between Sound Environmental and the Company with reference to the valuation by considering the price-to-earnings multiples of comparable companies in the market. In addition, the Company has taken into account the Shareholder’s Loan when determining the consideration for the Acquisition. The Company adopted the market approach by multiplying the net profit of the Target Group by the appropriate prices to earnings multiplier derived from comparable companies, followed by making certain adjustments which include deduction of the non-operating liabilities of the Target Group which include the Shareholder’s Loan.

–38– LETTER FROM SOMERLEY

The consideration for the Acquisition shall be paid by the Company in two installments as follows:

(i) to pay 50% of the total consideration, equivalent to RMB600.0 million, within 5 Business Days before the date of completion with the exact date to be agreed by the parties; and

(ii) to pay the remaining balance of the total consideration within 10 Business Days after the date of completion, such date of payment for this installment could be extended for no more than 3 months upon mutual agreement by the parties.

The Group will fund the consideration for the Acquisition entirely from part of the net proceeds of the Subscription Agreement.

(d) Condition precedent

Completion of the 2nd Sale and Purchase Agreement is conditional upon, among other things:

(i) the Subscription Agreement becoming unconditional (other than with respect to a condition in relation to the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement becoming unconditional);

(ii) the passing of the independent shareholder’s and board resolutions of Sound Environmental approving the execution and the performance of the 2nd Sale and Purchase Agreement; and

(iii) the passing of the Independent Shareholders’ and board resolutions of the Company approving the execution and the performance of the 2nd Sale and Purchase Agreement.

Other conditions precedent to the 2nd Sale and Purchase Agreement are set out in the letter from the Board in the Circular. The 2nd Sale and Purchase Agreement will be terminated automatically upon the confirmation of the conditions precedents cannot be fulfilled.

The date of completion is upon the registration of the transfer with the relevant industry and commerce bureau in the PRC.

7. The Shareholder’s Loan Repayment Agreement

On 25 September 2014, Sound Environmental and the Target Company entered into the Shareholder’s Loan Repayment Agreement pursuant to which Target Company agreed to repay Sound Environmental the Shareholder’s Loan in the sum of approximately RMB698.7 million upon completion of the 2nd Sale and Purchase Agreement (or such later date as the parties to the Shareholder’s Loan Repayment Agreement may agree in writing).

Based on our discussion with the management of the Group, it is anticipated that the repayment of the Shareholder’s Loan will be financed by (i) primarily the proceeds from the Subscription (after deducting the entire consideration for the Acquisition of RMB1,200.0 million); and (ii) secondarily the internal resources of the Group.

–39– LETTER FROM SOMERLEY

8. Information on the Target Group

(a) Background and business of the Target Group

The Target Company is a limited liability company incorporated under the laws of the PRC on 22 May 2014 with registered capital of RMB50.0 million. After the Target Company was incorporated, further capital was injected by Sound Environmental by way of the Shareholder’s Loan in the total sum of approximately RMB698.7 for the purpose of, including but not limited to, acquiring a total of 22 subsidiaries eventually forming the Target Group. The Target Group is principally engaged in the business of investment, construction and operations of wastewater treatment project and supply of water in the PRC.

In particular, the principal activities of the Target Group can be divided into three categories, namely (i) water supply; (ii) sewage and wastewater treatment; and (iii) recycle water treatment. As of 31 May 2014, the designed treatment capacity of the three aforesaid categories were approximately 535,000 m3/day, 1,221,000 m3/day and 55,000 m3/day respectively. With more projects being upgraded, the total planned treatment capacity will be up to 2,800,000 m3/day. Majority of the sewage and wastewater treatment capacity is under 1(b) emission standard with the remaining capacity is under 1(a) emission standard.

The Target Group is mainly engaged in the investment and operation of water projects by way of BOT where the principal assets are the intangible assets recognised in connection with the BOT projects (pursuant to the ASBE Interpretation No. 2, the actual investment amount of the projects is recognised by the Company as intangible assets upon completion of the BOT projects). Under the BOT arrangement, a concession contract is entered into between the Target Group and the local government (or its representative authority), pursuant to which, the government shall authorise the Target Group to design, build, operate and maintain the sewage treatment/water supply projects and the term of the concession contract normally ranges from 20 to 30 years. The Target Group shall charge for sewage treatment or water supply by volume and recover investment costs and receive considerable investment gains. During the term of concession, the Target Group recognises revenue based on sewage treatment fee or water tariff and the intangible assets are amortised each year. During such period, the Target Group is obliged to fulfill normal maintenance and renewal of the assets in operation. Upon expiry of the concession, the entire facilities shall be transferred to the government at nil consideration on the premise that the water projects are under normal operation. The Target Group does not have the ownership but the concession of the water project assets.

The water, sewage and reclaimed water treatment plants of the Target Group are located in, among others, Hubei, Inner Mongolia, Zhejiang, Jiangsu and Jiangxi provinces and mostly in the second and third tier cities in the PRC. Further information of the 22 subsidiaries of the Target Company are set out in the letter from the Board in the Circular.

–40– LETTER FROM SOMERLEY

(b) Financial information of the Target Group

(i) Financial results of the Target Group

Set out below is certain key information extracted from the consolidated financial results of the Target for the two years ended 31 December 2012 and 31 December 2013 and five months ended 31 May 2014.

For the five months For the year ended ended 31 December 31 May 2014 2013 2012 RMB (million) RMB (million) RMB (million) (audited) (unaudited) (unaudited)

Revenue 150.9 371.5 344.3 Net profit before taxation 22.4 86.8 62.0 Net profit after taxation 19.7 72.4 50.2

The revenue of the Target Group increased by approximately 7.9% from RMB344.3 million in 2012 to RMB371.5 million in 2013. Based on our discussion with the management of the Target Group, the increase was mainly due to the increase in water treatment capacity after acquisition of certain water treatment companies during 2013. The annualised revenue of the Target Group for the five months ended 31 May 2014 decreased slightly by approximately 2.5% as compared to that for the year ended 31 December 2013. The decrease was largely due to an existing reclaimed water project in Baotou, where the local government terminated the minimum guaranteed volume because of the construction of phase two of the aforesaid project during the five-month period.

The net profit after taxation of the Target Group increased by approximately 44.2% from RMB50.2 million in 2012 to RMB72.4 million in 2013 as a result of, among other things, the increased revenue of RMB27.2 million and reversal of provision for impairment loss on accounts receivable after such accounts receivable were recovered. The annualised net profit after taxation of the Target Group for the five months ended 31 May 2014, however, has decreased from that for the year ended 31 December 2013. Based on our discussion with the management of the Group, the decrease was mainly attributable to the provision of impairment loss on accounts receivable of approximately RMB12.4 million as a result of the delay in settlement of fees payable by the Baotou government. The outstanding accounts receivable from the Baotou government was subsequently settled in July 2014. After adding back this one-off expense, the net profit after tax, on an annualised basis, would increase to approximately RMB77.0 million, which would be higher than the net profit after tax for the year ended 31 December 2013.

(ii) Net asset value of the Target Group

The consolidated net asset value of the Target Group as at 31 May 2014 was approximately RMB321.7 million, comprising total assets of approximately RMB1,966.8 million and total liabilities of approximately RMB1,645.1 million, and net current liabilities of the Target Group as at 31 May 2014 were approximately RMB1,037.3 million.

–41– LETTER FROM SOMERLEY

Majority of the assets comprised operating concessions to operate sewage and water treatment plants of approximately RMB1,302.7 million and cash balance of approximately RMB182.8 million. The operation of the Target Group was largely funded by the Shareholder’s Loan due to Sound Environmental of approximately RMB698.7 million, which was interest-free, unsecured and repayable on demand, and other borrowings of approximately RMB275.7 million as well as shareholder’s equity of approximately RMB321.7 million.

9. Analysis of the Subscription Price and the consideration for the Acquisition

(a) Share price performance

Set out below is a chart of the closing prices and trading volume of the Shares from the beginning of 2014 up to and including the Latest Practicable Date (the “Review Period”):

(F) (C) (D) (B) (E) (A) 10.00 25

9.00

8.00 20

7.00

6.00 15

5.00

4.00 10 Share price (HK$) price Share 3.00

2.00 5 Trading(million volume Shares)

1.00

0.00 0 2 January 2 February 2 March 2 April 2 May 2 June 2 July 2 August 2 September 2 October 2 November Latest Practicable Date 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (27 November 2014)

Trading volume Share price Subscription Price

Source: website of the Stock Exchange

During the Review Period, the Company has made a number significant announcements, which are summarised below:

Date of announcement Description

(A) 3 January 2014 Approval of proposed delisting of the Shares in Singapore

(B) 3 January 2014 Cash offers for the Shares and convertible bonds of the Company in relation to the proposed delisting in Singapore became unconditional

(C) 17 January 2014 Close of cash offers for the Shares and convertible bonds of the Company in relation to the proposed delisting in Singapore became unconditional

–42– LETTER FROM SOMERLEY

Date of announcement Description

(D) 25 March 2014 Announcement of the annual results of the Group for the year ended 31 December 2013

(E) 20 August 2014 Announcement of the interim results of the Group for the six months ended 30 June 2014

(F) 18 September 2014 Publication of the Announcement

The closing prices of Shares were in the range of approximately HK$4.4 to HK$5.0 in early January 2014 after the publication of announcements of the proposed delisting of the Shares in Singapore has been approved by the Shareholders and cash offers of the Shares and convertible bonds of the Company in relation to the delisting in Singapore (the “Cash Offers”) became unconditional dated 3 January 2014. The closing Share price increased and reached HK$8.0 on 17 January 2014, when the Company announced the close of the Cash Offers. Since then, the closing Share price fluctuated in the range of HK$6.97 and HK$9.10 before the publication of the announcement of the annual results of the Group for the year ended 31 December 2013 (the “2013 Annual Results”) on 25 March 2014. After the release of the 2013 Annual Results, the closing price of the Shares were remained below the Subscription Price (i.e. HK$8.10 per Share) for a significant majority of trading days until the publication of the interim results of the Group for the six months ended 30 June 2014 (the “2014 Interim Results”) on 20 August 2014. After the publication of the 2014 Interim Results, the closing price of the Shares were stayed in a narrow range of around HK$8.0 per Share during the remaining trading days in August 2014. The closing Share price surged significantly from HK$8.10 in the first trading day in September 2014 and reached HK$8.92 per Share on 10 September 2014 (the “Last Trading Date”), being the last full trading day immediately before the trading halt of the Shares at 9:03 a.m. on 11 September 2014, which represented a gain of approximately 10.1% in the seven full trading days (the “7-day Period”). We consider that the aforesaid spike in Share price has no direct relationship with the Interim Results but may be due to market speculation on the Acquisition on the basis that (i) there was an approximately 134% increase in average daily trading volume of the Shares during the 7-day Period as compared to that in August 2014 while no significant announcement has been made by the Company during the 7-day Period; (ii) there was no substantial change in the Hang Seng Index during the 7-day Period; and (iii) the average increase in the share price of the Comparable Companies (as defined below but excluding the Company) during the 7-day Period was only approximately 5.8%.

During the period from the beginning of 2014 to the Last Trading Date (the “Pre-Announcement Period”), the Shares closed above the Subscription Price for only 30 trading days out of the 171 trading days. The average closing price of the Share during the Pre-Announcement Period was approximately HK$7.47 while the Subscription Price of HK$8.10 per Subscription Share represents a premium of approximately 8.4% over the average closing price per Share for the Pre- Announcement Period.

–43– LETTER FROM SOMERLEY

(b) Subscription Price comparison

The Subscription Price represents:

(i) a discount of approximately 8.68% to the closing price per Share as quoted on the Stock Exchange of HK$8.87 as at the Latest Practicable Date;

(ii) a discount of approximately 9.19% to the closing price of HK$8.92 per Share as quoted on the Stock Exchange on 10 September 2014 (being the last trading day immediately prior to the date of the Subscription Agreement);

(iii) a discount of approximately 7.32% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$8.74 for the past 5 trading days up to and including 10 September 2014;

(iv) a discount of approximately 3.34% to the average closing price per Share as quoted on the Stock Exchange of approximately HK$8.38 for the past 10 trading days up to and including 10 September 2014;

(v) a premium of approximately 2.02% over the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.94 for the past 30 trading days up to and including 10 September 2014;

(vi) a premium of approximately 3.85% over the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.80 for the past 60 trading days up to and including 10 September 2014;

(vii) a premium of approximately 8.58% over the average closing price per Share as quoted on the Stock Exchange of approximately HK$7.46 for the past 90 trading days up to and including 10 September 2014; and

(viii) a premium of approximately 141.1% over the unaudited consolidated net assets value of approximately HK$3.36 per Share (based on the unaudited consolidated net assets value of Company attributable to the Shareholders of approximately RMB3,893.0 million as at 30 June 2014 and 1,467,296,876 Shares in issue as at the Latest Practicable Date).

We note that the Subscription Price of HK$8.10 per Subscription Share was arrived at after arm’s length negotiations between the Company and Sound Environment (HK) and on normal commercial terms, with reference to the average closing price per Share for the 20 trading days prior to the date of the Subscription Agreement of approximately HK$8.10. We also note that the Subscription Price represents discounts ranging from approximately 3.34% to 9.19% to the average closing price per Share on the Last Trading Date to the past 10 trading days up to and including the Last Trading Date.

We are of the view that the Subscription Price of HK$8.10, being approximately the average closing price per Share for the 20 trading days prior to the date of the Subscription Agreement, to be fair and reasonable after having considered (i) the surge in the Share prices in early September 2014 before the Last Trading Date might be due to market speculation on the Acquisition but not the change in the valuation of

–44– LETTER FROM SOMERLEY the Shares by the market as discussed in the sub-paragraph headed “Share price performance” above; (ii) the Share price performance during 2014 and in particular the Subscription Price represents a premium of approximately 8.4% over the average closing price per Share for the Pre-Announcement Period and the Shares closed above the Subscription Price for only 30 trading days out of the 171 trading days during the Pre-Announcement Period as discussed in the sub-paragraph headed “Share price performance” above; and (iii) the Subscription Price represents premiums over (a) the average closing price per Share for the past 30 to 90 trading days up to and including the Last Trading Date; and (b) the net asset value per Share, in this paragraph above.

The Company engaged Beijing Tian Yuan Kai Assets Appraisal Co., Ltd. to conduct a valuation of the 100% equity interest in the Target Company (the “Valuation”), the full text of the business valuation report (the “Valuation Report”) is set out in Appendix I to the Circular. The Valuation Report has been prepared in compliance with the relevant PRC regulatory requirements and professional valuation standards.

We have reviewed the Valuation Report and interviewed the relevant staff members of the Valuer with a particular attention to (i) the Valuer’s terms of engagement with the Company; (ii) the Valuer’s qualification and experience in relation to the preparation of the Valuation Report; and (iii) the steps and due diligence measures taken by the Valuer for performing the Valuation. We note from the review of the engagement letter between the Company and the Valuer, we are satisfied with the terms of engagement between the Company and the Valuer. The Valuer has also confirmed that it is independent from the Group and the Target Group and its related persons. We further understand that the Valuer is certified with the relevant PRC professional qualifications required to perform the Valuation exercise and the person in-charge of the Valuation has approximately 19 years’ industry experience in conducting business valuation exercises. We noted that the Valuer carried out site visits to the various project sites of the Target Group in August 2014.

We note that the Valuation was primarily based on market approach. We have discussed with the Valuer the methodologies, bases and assumptions adopted during the course of conducting the market approach. As discussed with the Valuer, it considers the market approach to be the most appropriate valuation approach as (i) it requires far fewer subjective bases and assumptions than the income approach; and (ii) it is more likely to reflect current market expectations in the corresponding industry as compared to the cost approach, since the price multiples of the comparable companies and transactions were arrived from industry consensus and capture the future growth potentials of the Target Company.

The market approach refers to the valuation method by comparing the Target Company and the listed comparables to arrive at the value of the Target Company. Listed company comparison refers to the analysis of operational and financial data of listed comparables to estimate the appropriate value ratio and confirm the value of the Target Company based on the comparison analysis with the Target Company. In terms of the valuation multiple used in the market approach, the Valuer opted for the price-to-earnings multiple because the profitability of each of the enterprises engaging in the utilities business – water business in the PRC varies greatly and the asset size of the enterprise does not fully reflect the value of the enterprise, therefore price-to- book or other asset-based multiple is not applicable for such valuation. The future

–45– LETTER FROM SOMERLEY growth trends and profitability of the enterprise are crucial to the long-term sustainability operation of the enterprise and are indicative of the value of the enterprise. Accordingly, price-to-earnings multiple is adopted as the value ratio for the Valuation.

According to the Valuation Report, seven A-share listed comparables were selected based on, among other things, similarities in business activities, profitability (i.e. return on total assets) and growth ability (i.e. operating profit growth rate). The Valuer multiplied the arithmetic mean of the price-to-earnings multiples of the listed comparables, after adjusted for the difference in certain financial parameters between the listed comparables and the Target Company, by the consolidated earnings of the Target Company for the year ended 31 December 2013. Further adjustments, including a liquidity discount of approximately 30% and values of non-operating assets, liabilities and surplus assets, were made to arrive the final appraised value of the Target Company. As advised by the Valuer, the aforesaid market approach (including the relevant adjustments) for the Valuation is based on generally accepted PRC valuation procedures and are in compliance with the relevant PRC valuation standards for business valuation of this kind. The Valuation estimated by the Valuer was approximately RMB1,200.0 million, which was equivalent to the consideration for the Acquisition.

Having discussed the above market approach adopted by the Valuer and reviewed with them the reason for adopting such valuation methodology and the bases and assumptions used for valuing the companies held by the Target Company, we are of the opinion that the chosen valuation methodology in establishing the Valuation is common for valuation of similar businesses.

(d) Comparable companies

While the Company has engaged the Valuer to carry out the Valuation, we have conducted and relied on our own independent assessment on, among other things, the consideration for the Acquisition, to formulate our opinion on the Transactions. We have assessed the consideration for the Acquisition against comparable listed companies in the sector. As far as we are aware, we have identified an exhaustive list of listed companies in Hong Kong which are principally engaged in water and/or wastewater treatment projects that are broadly comparable to the Target Group (the “Comparable Companies”) in the table below. Although the trading prospects and financial positions of the Comparable Companies may not be identical to that of the Target Group, we are of the view that the Comparable Companies would be valued by the market using similar valuation methodologies since they are mainly engaged in comparable businesses. We therefore consider the Comparable Companies are a fair and representative sample for assessing the fairness and reasonable of the consideration for the Acquisition.

In forming our view on the consideration for the Acquisition, we have adopted price-to-earnings multiples (the “P/E Multiples”) as the valuation methodology. We consider the use of P/E Multiples to be an appropriate relative valuation methodology for the Target Group as the P/E Multiples is (i) a common market multiple for valuation of companies in water and/or wastewater treatment industry as most of these companies usually exhibit relative stable and/or predictable income stream and high earnings visibility; and (ii) particularly suitable for valuation of the Comparable Companies and the Target Company which were profit-making on a consistent basis.

–46– LETTER FROM SOMERLEY

Details of the Comparable Companies and their P/E Multiples are set out below.

P/E Company Stock Market Multiples name code Principal activities capitalisation (times) (HK$ million) (Note 1)

Guangdong 270 Guangdong Investment Limited, 67,021 15.1 Investment through its subsidiaries, operates water Limited supply, power and electricity, and infrastructure businesses. The company also invests in and develops real estate properties, operates department stores, and provides financial services.

Beijing 371 Beijing Enterprises Water Group 47,104 43.4 Enterprises Limited, through its subsidiaries, Water develops water treatment systems. The Group group specialises in water services and Limited environmental protection businesses, with waste water treatment as its core business segment.

Tianjin 1065 Tianjin Capital Environmental 14,054 39.4 Capital Protection Group Company Limited, Environmental through its subsidiaries, processes Protection sewage water and constructs sewage Group water processing plants. The company Company also operates road and toll stations in Limited Tianjin.

The 967 The Group is engaged in the 13,015 24.3 Company environmental construction relating to water treatment, provision of technology consultancy services, sale of equipment, management and operations of wastewater treatment projects and supply of water.

CT 1363 CT Environmental Group Limited is a 11,825 52.7 Environmental wastewater and industrial water supply Group services company focusing on industrial Limited wastewater. The company’s services covers the chain of wastewater treatment, from design and planning, procurement and construction, to operations and maintenance.

–47– LETTER FROM SOMERLEY

P/E Company Stock Market Multiples name code Principal activities capitalisation (times) (HK$ million) (Note 1)

Kangda 6136 Kangda International Environmental 7,546 25.6 International Company Limited invests and operates Environmental wastewater treatment facilities in China. Company Limited (“Kangda”)

China 855 China Water Affairs Group Limited, 5,887 20.9 Water through its subsidiaries, supplies city Affairs water and sewage treatment. The Group company supplies raw water and tap Limited water, treats sewage, constructs water supply pipe networks, and installs water meters.

China 1129 China Water Industry Group Limited is a 1,998 32.5 Water water investment and operation and Industry management industry company. Group Limited

ELL 1395 ELL Environmental Holdings Ltd is a 944 29.2 Environmental wastewater treatment services provider Holdings in China. The company provides the Limited design of wastewater treatment facilities, through the procurement of suitable equipment and materials, as well as on-going operation and maintenance of the facilities.

Average 31.8 Median 29.2 Maximum 52.7 Minimum 15.1

The consideration for the Acquisition 16.6

Source: Bloomberg, latest annual reports of the Comparable Companies (except for Kangda) and the prospectus of Kangda.

Notes:

1. The P/E Multiples are calculated based on the market capitalisation divided by the consolidated net profit for the full financial year as shown in the latest annual reports of the Comparable Companies (except for Kangda) and the prospectus of Kangda.

2. EverChina International Holdings Co Limited (“Everchina”, stock code: 202), a company with substantial operations in environmental water treatment through its associate company, is not included in the above table as EverChina has made an insignificant net profit (after excluding the one-off gains) in the latest financial year and therefore its corresponding P/E Multiple is an extreme value and not meaningful for our analysis.

–48– LETTER FROM SOMERLEY

On the basis of the net profit of the Target Group for the year ended 31 December 2013 of approximately RMB72.4 million, the consideration for the Acquisition of RMB1,200.0 million represented a historical P/E Multiple of approximately 16.6 times. Such multiple is lower than both the average and the median of the P/E Multiple of the Comparable Companies of approximately 31.8 times and 29.2 times respectively and it is also close to the lower end of the range of the P/E Multiples of the Comparable Companies of 15.1 times.

As set out in the section headed “The Shareholder’s Loan Repayment Agreement” in this letter above, the Target Group will be required to repay the Shareholder’s Loan of approximately RMB698.7 million on completion of the 2nd Sale and Purchase Agreement. Since the repayment of the Shareholder’s Loan is expected to be financed by the Group and the quasi-capital nature (i.e. unsecured and interest-free) of the Shareholder’s Loan, we consider the consideration for the Acquisition, taking into account the Shareholder’s Loan, will effectively increase to approximately RMB1,898.7 million, being the sum of the consideration for the Acquisition and the Shareholder’s Loan of approximately RMB698.7 million. On this basis, the effective consideration for the Acquisition represented a historical P/E Multiple of approximately 26.2 times. Such multiple is also below both the average and the median of the P/E Multiple of the Comparable Companies.

10. Financial effects of the Transactions on the Group

(a) Earnings

Upon completion of the Transactions, the Target Company will become a wholly-owned subsidiary of the Company and the financial results of the Target Group will be consolidated into the consolidated financial statements of the Group.

The net profit of the Target Group was approximately RMB72.4 million for the year ended 31 December 2013 while the net profit of the Group attributable to the Shareholders was approximately RMB423.3 million for the year ended 31 December 2013. Taking into account the net profit of the Target Group, the net profit attributable to the Shareholders of the Group as enlarged by completion of the Transactions (the “Enlarged Group”) for the year ended 31 December 2013 would have been increased by approximately 17.1% to approximately RMB495.7 million, assuming the Transactions were completed on 1 January 2013.

On a per Share basis, the earnings per Share of the Enlarged Group for the year ended 31 December 2013 would have been decreased slightly from approximately RMB0.289 to approximately RMB0.284, assuming the Transactions were completed on 1 January 2013. The decrease in the earnings per Share was mainly attributable to the issue of additional Subscription Shares, being approximately RMB594.1 million or approximately one-third of the total Subscription Shares, to entirely fund the repayment of the Shareholder’s Loan. Should the Company limit the issue of the Subscription Shares to a level just sufficient to fund the consideration for the Acquisition, the Transactions would have a positive impact on the Enlarged Group’s earnings per Share.

(b) Equity attributable to the Shareholders

Upon completion of the Transactions, the Target Company will become a wholly-owned subsidiary of the Company and, accordingly, all assets and liabilities of the Target Group will be consolidated into that of the Group.

–49– LETTER FROM SOMERLEY

As advised by the management of the Group, since the Target Company has been under the common control by Mr. Wen before and after the Transactions, the Acquisition will be accounted for using merger accounting method. Accordingly, the net assets of the combining entities or businesses of the Target Group will be consolidated using the existing book values from the controlling party’s perspective. No amount will be recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest. Based on consolidated net asset value attributable to the shareholders of the Target Company of approximately RMB321.7 million as at 31 May 2014 and the consideration for the Acquisition of RMB1,200.0 million, a negative reserve of approximately RMB878.3 million would be recognised by the Enlarged Group. After taking into account the Subscription Shares of approximately RMB1,794.1 million to be issued, the net asset value of the Enlarged Group attributable to the Shareholders would increase by approximately RMB915.8 million. On the above basis, the net asset value attributable to the Shareholders per Share of the Enlarged Group as at 30 June 2014 would have been increased from approximately RMB2.65 to approximately RMB2.75 as a result of the Acquisition and the issue of the Subscription Shares.

The actual impact on the net asset value of the Enlarged Group will be subject to change as such amount will be calculated based on carrying values of assets and liabilities of the Target Group as of the date on which completion of the Acquisition shall take place.

As at 30 June 2014, the Group’s net cash position was approximately RMB209.6 million, representing total debt (comprising both short-term and long-term borrowings and senior note) of approximately RMB3,543.7 million less bank balances and cash of RMB3,753.3 million. After taking into account the proceeds from the Subscription of HK$2,271.0 million (equivalent to approximately RMB1,794.1 million), the cash payment of the consideration for the Acquisition of RMB1,200.0 million and the Target Group’s net debt (comprising both short-term and long-term borrowings and shareholder’s loan less cash) of approximately RMB791.5 million as at 31 May 2014, the Enlarged Group’s net cash position would decrease to approximately RMB12.2 million.

As at 30 June 2014, the Group had net current assets of approximately RMB3,906.6 million. After taking into account the proceeds from the Subscription of approximately HK$2,271.0 million (equivalent to approximately RMB1,794.1 million), and the cash payment of the consideration for the Acquisition of RMB1,200.0 million and the Target Group’s net current liabilities of approximately RMB1,037.3 million as at 31 May 2014, the Enlarged Group’s net current assets would decrease slightly to approximately RMB3,463.4 million.

Based on the above, the Enlarged Group would continue to have net cash and net current assets positions after completion of the Transactions.

–50– LETTER FROM SOMERLEY

11. Shareholding structure of the Company and dilution effect on shareholding of the existing public Shareholders

Assuming there is no other change in the shareholding capital of the Company after the Latest Practicable Date, the table below sets out the shareholding structure of the Company at the Latest Practicable Date and immediately after completion of the Transactions and the 1st Sale and Purchase Agreement.

Immediately after completion of the Subscription, As at the Latest the Transactions and the 1st Practicable Date Sale and Purchase Agreement Name of Number of Approximate % Number of Approximate % Shareholder Shares of shareholding Shares of shareholding (%) (%)

Mr. Wen 15,333,000 1.04 15,333,000 0.88

Sound Water (BVI)(1) 703,784,000 47.96 438,986,493 25.12

Green Capital Holdings Limited(2) 11,505,000 0.78 11,505,000 0.66

Sound (HK) Limited(3) 22,729,945 1.55 22,729,945 1.30

Sound Environment (HK) – – 545,171,338 31.19

Sub-total (non- public Shareholders) 753,351,945 51.33 1,033,725,776 59.15

Public Shareholders 713,944,931 48.67 713,944,931 40.85

Total: 1,467,296,876 100.00 1,747,670,707 100.00

Notes:

1. Sound Water (BVI) is owned as to 90% by Mr. Wen and 10% by Ms. Zhang.

3. Sound (HK) Limited is a company incorporated in Hong Kong and is wholly owned by Sound Group and therefore its shareholding in the Company would not be counted toward the public float.

4. For information only, on 20 September 2011, the Company granted 28,154,545 warrants to an Independent Third Party to subscribe for 28,154,545 Shares, representing approximately 1.92% of the issued share capital of the Company as at the Latest Practicable Date. All warrants remain outstanding at Latest Practicable Date. The issued share capital of the Company and the relevant percentages referred to in the shareholding table above assumed such warrants were not exercised.

–51– LETTER FROM SOMERLEY

As shown in the table above, shareholding of the existing public Shareholders will decrease from approximately 48.67% to approximately 40.85% immediately after completion of the Transactions and the 1st Sale and Purchase Agreement. Although the shareholding interest of the existing public Shareholders will be diluted, having considered, (i) the benefits of the Acquisition attributable to the Group as mentioned under the section headed “3. Reasons for and benefits of the Transactions”; (ii) the relatively attractive pricing of the Acquisition; (iii) settlement of the consideration for the Acquisition by the proceeds of the Subscription whereby the issue of the Subscription Shares involves no additional cash outlay on the part of the Company; and (iv) the remaining proceeds of the Subscription will be applied for settlement of the Shareholder’s Loan which is part and parcel of the Acquisition, we consider that the dilution effects on shareholding of the existing public Shareholders to be acceptable.

DISCUSSION AND ANALYSIS

The Group is engaged in the environmental construction relating to water treatment, provision of technology consultancy services, sale of equipment, management and operations of wastewater treatment projects and supply of water. It has been a stated strategy and commitment of the Group to expand its O&M segment through mergers and acquisitions activities as evidenced by the recent acquisitions of sewage treatment projects in Beijing and Dongguan. The Acquisition is in furtherance of the ordinary and usual course of business of the Group and represents a logical expansion of business in line with the stated strategy and plan of the Group. Completion of the Acquisition will not only enable the Company to obtain the benefit from the financial results of the Target Group but also allows the Company to benefit from economies of scale by increasing its purchasing and bargaining power.

The Target Group has delivered reasonable revenue and profits during the period reviewed. The operations of the Target Group were largely funded by the interest-free Shareholder’s Loan, other borrowings and shareholder’s equity.

The implied P/E Multiple of the Acquisition of approximately 16.6 times is lower than both the average and the median of the P/E Multiple of the Comparable Companies of approximately 31.8 times and 29.2 times respectively and it is also close to the lower end of the range of the P/E Multiple of the Comparable Companies of 15.1 times. In the event that the quasi-capital nature of the Shareholder’s Loan is taken into account, the effective implied P/E Multiple of the Acquisition will increase to approximately 26.2 times, which is still below both the average and the median of the P/E Multiple of the Comparable Companies.

Completions of the Acquisition and the Subscription are inter-conditional on each other. The Subscription can be considered as part and parcel of the Acquisition since the purpose of the Subscription is to fund the consideration for the Acquisition as well as to provide general working capital and for future development of the Target Group, including the repayment of the Shareholder’s Loan.

The Subscription Price of HK$8.10 per Subscription Share was at premia over the long-term average Share price during the Pre-Announcement Period. The Subscription Price was only below the closing Share prices in the last few trading days prior to the trading halt of the Shares for publication of the Announcement, which has surged significantly during the aforesaid period as a possible result of market speculation because of the Acquisition.

The Transactions will enhance the earnings capability and the net asset size of the Group while the gearing and liquidity levels will continue to be healthy. On a per Share basis, the Transactions are not expected to bring significant impact either on earnings or net asset value.

–52– LETTER FROM SOMERLEY

Shareholding of the existing public Shareholders will be diluted from approximately 48.67% to approximately 40.85% immediately after completion of the Transactions. Having taken into account other factors as stated in this letter above, the dilution effect is considered acceptable.

OPINION AND RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that the Transactions, though not in the ordinary and usual course of business of the Group, are on normal commercial terms, the terms of the Transactions are fair and reasonable as far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the resolutions approving the Transactions at the EGM.

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED

Kenneth Chow Danny Cheng Managing Director Director

Mr. Kenneth Chow is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Somerley to carry out Type 6 (advising on corporate finance) regulated activities under the SFO and has over 15 years of experience in corporate finance industry.

Mr. Danny Cheng is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Somerley to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO and has over 10 years of experience in corporate finance industry.

–53– APPENDIX I VALUATION REPORT

Proposed Acquisition of 100% Equity Interests in Hubei Yi Hong Water Treatment Company Limited by Sound Global Limited

Asset Valuation Report

Tian Yuan Kai Ping Bao Zi [2014] No. 1103

Beijing Tianyuankai Assets Valuation Co., Ltd.

2 December 2014

–54– APPENDIX I VALUATION REPORT

Content

Statement of Registered Asset Valuer ...... 56

Summary ...... 57

Asset Valuation Report ...... 58

I. Appointor, Evaluated Entity and Other Users of the Valuation Report ...... 58

II. Valuation Purpose...... 63

III. The Target and the Scope of Valuation ...... 63

IV. Type of Value and its Definition ...... 64

V. Date of Valuation ...... 64

VI. Basis of Valuation...... 64

VII. Valuation Approaches ...... 66

VIII. Implementation Processes and Conditions of Valuation...... 85

IX. Valuation Assumptions ...... 86

X. Valuation Conclusion ...... 87

XI. Special Instructions ...... 88

XII. The Restriction on the Use of the Valuation Report...... 88

XIII. Date of the Valuation Report ...... 89

Document Available for Inspection ...... 91

–55– APPENDIX I VALUATION REPORT

Statement of Registered Asset Valuer

I. During the course of this asset valuation business, we have complied with relevant laws and regulations and standards of asset valuation; adhered to the principles of independence, objectivity and justice. According to the information collected during the course of valuation, the statement made in this valuation report is objective and we shall be legally responsible for the reasonableness of the valuation conclusion.

II. Assets and liabilities of the valuation target are reported and confirmed with seal by the appointor and the evaluated entity. The accuracy, legality, completeness of the information provided and the proper use of the valuation report are the responsibilities of the appointor and relevant parties.

III. We have no bias against any relevant parties.

IV. We have carried out on-site investigation to the evaluated target and its assets as stated in this valuation report. We have made necessary enquiries to the legal ownership of the evaluated target and its assets and carried out investigation on the information relating to the legal ownership of the evaluated target and its assets. We have disclosed the identified issue and requested the appointor and relevant parties to complete the necessary procedures on the legal ownership in order to satisfy the requirements of this valuation report.

V. Analysis, judgment and conclusion in our valuation report is restricted by the assumptions and the limitations as stated in the valuation report. Users of valuation report shall carefully consider the assumptions, limitations, special notes as stated in the valuation report as well as their impact on the valuation conclusion.

–56– APPENDIX I VALUATION REPORT

Proposed Acquisition of 100% Equity Interests in Hubei Yi Hong Water Treatment Company Limited by Sound Global Limited

Asset Valuation Report

Summary

Beijing Tian Yuan Kai was engaged by Sound Global Ltd. (the Company) to perform an evaluation on the value of the entire equity interest held by shareholders of Hubei Yi Hong Water Treatment Company Limited (the Target Company) as at the date of valuation with respect to Proposed Acquisition of 100% Equity Interests in the Target Company by the Company.

The valuation target was the entire equity interest of shareholders of the Target Company. The scope of valuation covers all the assets and liabilities of the Target Company as at the date of valuation.

The date of valuation was 31 May 2014.

The type of value under the valuation was the market value.

On the basis of continuous use of assets and open market, we have adopted market comparison approach to evaluate the Target Company as a whole after taking into account of the actual condition of the target and various other factors.

After undertaking the valuation procedures such as desktop studies, on-site investigations, due diligence interviews, market researches and inquiries and valuation and estimation, we have arrived the market value of the entire equity interest of shareholders of the Target Company as at the date of valuation as follows:

The audited net book value of assets of the Target Company was RMB321,694,300. The asset value of the entire equity interest (net asset value) of shareholders evaluated was RMB1,199,807,600, representing a surplus of RMB878,113,300, or 272.97%, as compared to the book value.

When applying the conclusion of this valuation, users of the report are urged to pay special attention to the special notes and the subsequent major events as stated in the report.

The evaluation conclusion shall be effective for one year from the date of valuation to the date on which the economic activity is realized, that is from 31 May 2014 to 30 May 2015. However, if there is any substantial change in the market condition or asset condition during the period between the date of valuation and the date on which the economic activity is realized, the conclusion of the valuation may not fully reflect the value as at the date on which the economic activity is realized and further evaluation would be necessary.

The above contents were extracted from the text of the asset valuation report. Please read the full text of the asset valuation report carefully for details of the valuation and reasonable understanding of the conclusion.

–57– APPENDIX I VALUATION REPORT

Proposed Acquisition of 100% Equity Interests in Hubei Yi Hong Water Treatment Company Limited by Sound Global Limited

Asset Valuation Report

Tianyuankai Ping Bao Zi [2014] No. 1103

To the Company.:

Beijing Tian Yuan Kai was engaged by you to perform necessary valuation procedures pursuant to the relevant laws, regulations and provisions of asset valuation standards to evaluate value of the entire equity interest held by shareholders of the Target Company as at the date of valuation with respect to proposed Acquisition of 100% Equity Interests in the Target Company by the Company, under market approach. The asset valuation is reported as follows:

I. APPOINTOR, EVALUATED ENTITY AND OTHER USERS OF THE VALUATION REPORT

1. Overview of the appointor and the evaluated entity

In this asset valuation, the appointor is the Company and the evaluated entity is the Target Company.

(1) Overview of the appointor

Name of enterprise: 桑德國際有限公司

English name: Sound Global Ltd.

Registered address: 1 Robinson Road, #17-00 AIA Tower, Singapore 048542

Date of incorporation: 7 November 2005

Registration No.: 200515422C

Issued capital: 1,467,296,876 shares

Place of listing: The Stock Exchange of Hong Kong Limited

Stock code: 00967

Abbreviation of stock name: Sound Global

Principal businesses: Mainly engaged in the construction and operations of water and wastewater treatment projects; research and development and sales of related water, wastewater treatment technology and equipment; and provision of related technology consultancy services.

Company profile: The predecessor of the Company is a private joint stock company with limited liability incorporated in Singapore in November 2005 and is named “Sound Environment Holdings Pte. Ltd.”, which is held as to 90% and 10% by Sound Water (BVI) Limited and Green Capital Holdings Limited.

–58– APPENDIX I VALUATION REPORT

In May 2006, “Sound Environment Holdings Pte. Ltd.” was renamed as “Epure International Ptd. Ltd.” and later renamed as “Epure International Ltd.”. On 28 August 2006, it was converted into a public company. On 6 October 2006, the Company was listed on the main board of the Singapore Stock Exchange.

In March 2010, “Epure International Ltd.” was renamed as “Sound Global Ltd.” and adopted the Chinese name “桑德國際有限公司”.

In 2010, the Company was successfully listed on the main board of the Hong Kong Stock Exchange (stock code: 00967). In 2014, the Company was delisted from the main board of the Singapore Stock Exchange. The controlling shareholder of the Company is Sound Water (BVI) and the de facto controller is Mr. Wen. Currently, the shareholding structure of the Company is as follows:

Mr. Wen Ms. Zhang Ms. Zhang Mr. Wen Zhang Linmao Tang Lianfang

77.85% 22.15%

90% 10% 50% 50%

Beijing Sanghua 4.83%

95%

Sound Group Green Capital Sound Water (BVI)t 100% Holdings Limited Sound (HK) Limited

47.96% 1.55% 0.78%

1.04% The Company

Note: Mr. Wen and Ms. Zhang are husband and wife; Zhang Linmao and Tang Lianfang, the parent of Ms. Zhang, both are parties acting in concert with Mr. Wen. According to the shareholding structure above, Mr. Wen, who holds an aggregate of 51.33% shares in the Company, is a de facto controller of the Company.

(2) Overview of the evaluated entity

Name: Hubei Yi Hong Water Treatment Company Limited

Type: Company with limited liability (solely owned by a legal person)

Address: No. 77 Luluo Road, Xiling District, Yichang City (No. 1 Water Plant New Office Building)

Legal representative: Hu Xinling

Registered capital: RMB50 million

Business registration number: 420500000208870

Date of incorporation: 22 May 2014

Operating period: 22 May 2014 to 22 May 2044

Scope of business: management, construction and operation of municipal water supply and wastewater treatment projects (subject to completion of licensing procedures should the scope of operation involves any licensed activities)

–59– 1. Company profile REPORT VALUATION I APPENDIX

The Target Company was incorporated on 22 May 2014 under the registration with Yichang Administration for Industry & Commerce (the company registration number is 420500000208870) with a registered capital of RMB50 million, which was invested and established by Sound Environmental.

The external investments of the Target Company as at the date of valuation on 31 May 2014:

Table 1 External investment, shareholding percentage and business type of subsidiaries

Recycled Tap water Wastewater water Registered Shareholding treatment treatment treatment No. Name capital percentage capacity capacity capacity (RMB10,000) (10,000 (10,000 (10,000 –60– tonnes) tonnes) tonnes)

1 宜昌桑德三峽水務有限公司 20,000.00 100% 36.00 20.00 Sound Yichang Three Gorges Water Service Co., Ltd. 2 荊門桑德夏家灣水務有限公司 5,000.00 100% 10.00 Jingmen Xiajiawan Water Co., Ltd. 3 浙江桑德富春水務開發有限公司 Zhejiang Sound Fuchun Water Development 2,600.00 100% 1.50 Co., Ltd. 3-1 桐廬清和管道安裝有限公司 Tonglu Qinghe Pipeline Installation Co., Ltd. 20.00 100% (its shareholder being Zhejiang Sound Fuchun Water Development Co., Ltd.) PEDXIVLAINREPORT VALUATION I APPENDIX Recycled Tap water Wastewater water Registered Shareholding treatment treatment treatment No. Name capital percentage capacity capacity capacity (RMB10,000) (10,000 (10,000 (10,000 tonnes) tonnes) tonnes)

4 包頭鹿城水務有限公司 Baotou Lucheng Water Co., Ltd. 11,000.00 100% 20.00 5.50 5 南昌桑德象湖水務有限公司 Nanchang Sound Xianghu Water Industry Co., Ltd. 6,320.00 100% 20.00 6 江蘇桑德沭源自來水有限公司 Jiangsu Sound Shuyang Water Co. Ltd. 4,000.00 100% 10.00 7 荊州桑德荊清水務有限公司 Jingzhou Sound Jingqing Water Co., Ltd. 5,000.00 100% 8.00 8 枝江桑德枝清水務有限公司 Zhijiang Sound Zhiqing Water Co., Ltd. 2,200.00 100% 3.50 9 襄陽桑德漢水水務有限公司 Xiangyang Sound Hanshui Water Co., Ltd. 5,000.00 100% 10.00 10 大冶桑德清波水務有限公司 Daye Sound Qingbo Water Co., Ltd. 1,900.00 100% 3.00 11 嘉魚嘉清水務有限公司 Jiayu Jiaqing Water Co., Ltd. 3,000.00 100% 2.00 12 嘉魚桑德甘泉水業有限公司 Jiayu Sound Ganquan Water Co., Ltd. 500.00 100% 6.00 12-1 嘉魚桑德甘泉工程有限公司 Jiayu Sound Ganquan Engineering Co., Ltd. 20.00 100% (its shareholder being Jiayu Sound –61– Ganquan Water Co., Ltd.) 13 咸寧桑德甘源水務有限公司 Xianning Sound Xianning Ganyuan Water Co., Ltd. 1,300.00 100% 3.00 14 老河口桑德清源水務有限公司 Laohekou Sound Qingyuan Water Co., Ltd. 1,845.00 100% 1.00 15 監利桑德荊源水務有限公司 Jianli Sound Jingyuan Water Co., Ltd. 1,000.00 100% 3.00 16 鄂州桑德鄂清水務有限公司 Ezhou Sound Eqing Water Co., Ltd. 3,400.00 100% 9.00 17 鄂州清和環境工程有限公司 Ezhou Qinghe Environmental Engineering Co., Ltd. 300.00 100% 0.60 18 崇陽天清水務有限公司 Chongyang Tianqing Water Co., Ltd. 50.00 100% 1.00 19 咸寧淦清水務有限公司 Xianning Ganqing Water Co., Ltd. 50.00 100% 3.00 20 宜昌白洋水務有限公司 Yichang Baiyang Water Co., Ltd. 2,000.00 100% 5.00 Total 53.50 122.10 5.50 APPENDIX I VALUATION REPORT

2. Assets, financial and operating conditions

As at the date of valuation on 31 May 2014, the total assets of the evaluated entity (on a consolidated basis) amounted to RMB1,966,829,200; the total liabilities amounted to RMB1,645,134,900; and the net assets amounted to RMB321,694,300. For the period from January to May 2014, the operating income was RMB150,938,600; the net profit was RMB19,699,100. The following table sets out the assets and financial conditions for the latest three years (on pro forma basis) of the entity and as at the date of valuation.

Table 2 The assets, liabilities and financial conditions of the evaluated entity

Unit: in ten thousand RMB

Items 31 May 2014 31 Dec 2013 31 Dec 2012 31 Dec 2011

Total assets 196,682.92 194,280.60 184,435.29 181,075.02 Total liabilities 164,513.49 102,211.09 98,067.71 101,023.32 Net asset 32,169.43 92,069.51 86,367.58 80,051.70

For the period from Jan to May 2014 2013 2012 2011

Revenue 15,093.86 37,149.99 34,427.94 29,134.07 Total profit 2,243.00 8,680.96 6,202.03 5,051.40 Net profit 1,969.91 7,243.58 5,015.88 4,169.59 Auditor WUYIGE WUYIGE WUYIGE WUYIGE Certified Certified Certified Certified Public Public Public Public Accountants Accountants Accountants Accountants LLP LLP LLP LLP

3. The significant accounting policies and estimations adopted by the evaluated entity

The evaluated entity prepared the financial statements on the recognition and measurement basis under the “Accounting Standards for Business Enterprises-Basic Standards” (Caihui [2006] No. 3) and 38 specific accounting standards issued by the Ministry of Finance on 15 February 2006, and the application guidance, standards and interpretations and other related regulations subsequently issued.

(3) The relationship between the appointor and the evaluated entity

The appointor, Sound Global Limited proposed to acquire 100% equity interest in the evaluated entity, Hubei Yi Hong Water Treatment Company Limited, both parties are the companies controlled by Mr. Wen Yibo.

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(4) Appointor and other users of the valuation report as agreed in the letter of engagement

The users of the valuation report are Sound Global Ltd. and the relevant regulatory authorities to which the report shall be submitted for record under the requirement of the relevant laws and regulations.

Unless otherwise required by the laws and regulations of the state, any institution or individual without the acknowledgement from the valuation institution and the appointor shall not become a user of the valuation report by virtue of obtaining the evaluation report.

II. VALUATION PURPOSE

The Company proposed to acquire 100% equity interest of the Target Company.

The purpose of this valuation is to reflect the market value of entire shareholders’ equity of the Target Company as at the date of valuation and provide value reference basis for the proposed acquisition of 100% equity interest of Target Company by the Company.

III. THE TARGET AND THE SCOPE OF VALUATION

The target of valuation is the entire shareholders’ equity of the Target Company. The scope of valuation includes all the assets and related liabilities of the Target Company as at the date of valuation where the total assets, total liabilities and net assets amounted to RMB1,966,829,200, RMB1,645,134,900 and RMB321,694,300 respectively. In particular, assets included current assets of RMB378,871,600 and non-current assets of RMB1,587,957,700; and total liabilities included current liabilities of RMB1,416,165,300 and non-current liabilities of RMB228,969,700.

The above data on assets and liabilities are derived from the balance sheet of the Target Company audited by WUYIGE Certified Public Accountants LLP. The valuation is made on the basis of the audited financials of the enterprise.

The target of valuation and scope of valuation were consistent with the target of valuation and scope of valuation involved in the economic activity.

(1) Major assets subject to valuation

The major assets in the scope of valuation consist of current assets, fixed assets, construction in progress and intangible assets.

Current assets mainly consist of currency capital, account receivables, prepayments, other receivables and inventory. Account receivables mainly refer to water tariff, sewage treatment fee and recycled water usage fee. Prepayments mainly refer to the prepayments for raw materials and tariffs. Other receivables mainly refer cash advances for staff and rental deposits. Inventory mainly refers to raw materials.

Fixed assets mainly consist of office related building and structures, transportation equipment, electronic equipment and office equipment. The majority of the equipment is placed at the office of the subsidiaries of the Target Company. As at the date of valuation, the equipment is under normal conditions.

–63– APPENDIX I VALUATION REPORT

Construction in progress mainly consists of the projects under construction in phase two expansion or the new projects under construction of three companies, namely Baotou Lucheng Water Co., Ltd., Laohekou Sound Qingyuan Water Co., Ltd. and Yichang Baiyang Water Co., Ltd..

Operational assets used for sewage, tap water and recycled water treatment under intangible assets mainly consist of production related machinery and equipment and buildings and structures.

(2) Unrecognised intangible assets recorded by the enterprise

The enterprise has no unrecognised intangible assets.

(3) Type and quantity of off-balance sheet assets recorded by the enterprise

After onsite due diligence, as at the date of valuation on 31 May 2014, there were no off-balance sheet assets within the scope of valuation recorded by the Target Company.

(4) Types, quantity and carrying amount of assets in the adopted reports of other agencies

The carrying values of assets and liabilities as at the date of valuation in this valuation report has been audited by WUYIGE Certified Public Accountants LLP. Apart from that, no other agencies’ reports have been adopted.

IV. TYPE OF VALUE AND ITS DEFINITION

Based on the purpose of this valuation, the value adopted by the valuation report is the market value.

The market value is the estimated value of the target of valuation on the date of valuation on which the target of valuation is transacted on arm’s length basis by the willing buyer and the willing seller who act sensibly without being subject to any undue influence.

V. DATE OF VALUATION

The reference date for the asset valuation is 31 May 2014.

The reference date is determined by the appointor and other entities including the appraiser, auditor, securities firm and lawyer after taking into account the time of achieving the economic behaviours, asset size of the evaluated entity, level of workload and compliance factor.

VI. BASIS OF VALUATION

The valuation basis in this valuation assignment mainly include the economic activity, laws and regulations, valuation standards, ownership of assets, and the basis of pricing adopted in assessing the estimates and other references. Details are as follows:

(1) Basis of economic activity

As agreed in the Letter of engagement for assets valuation.

–64– APPENDIX I VALUATION REPORT

(2) Basis of laws and regulation

1. “Company Law of the People’s Republic of China” (amended at the 18th Session of the Standing Committee of the Tenth National People’s Congress on 27 October 2005);

2. “The Administrative Measures for Valuation of State-owned Asset” (Order of the State Council No. 91, 1991);

3. “The Interim Administrative Measures on the Valuation of the State-owned Asset of Enterprises” Order of the State-owned Asset Supervision and Administration Commission of the State Council No. 12 (25 August 2005);

4. “Circular on Strengthening the Administration of the Appraisal of State-owned Asset of Enterprises (Guoziwei Chanquan [2006] No. 274);

5. “Measures for the Administration of the Takeover of Listed Companies” (Decree No. 35 of Securities Regulatory Committee,2006);

6. Other laws, rules and regulations relevant to this valuation.

(3) Basis of valuation principles

1. “Asset Valuation Standards – Basic Standards” (Caiqi (2004) No. 20);

2. “Standards of Professional Ethics for Asset Valuation – Basic Standards” (Caiqi (2004) No. 20);

3. “Asset Valuation Standards – Valuation Report” (Zhongpingxie [2011] No. 230);

4. “Asset Valuation Standards – Valuation Procedures” (Zhongpingxie [2007] No. 189);

5. “Asset Valuation Standards – Entity Value” (Zhongpingxie [2011] No. 227);

6. “The Guiding Opinions on Types of Value in Asset Valuation” (Zhongpingxie [2007] No. 189);

7. “The Guidelines for the State-owned Asset Valuation Reports of Enterprises” (Zhongpingxie [2011] No. 230);

8. “The Guiding Opinions Relating to the Concern of Certified Public Valuers on Legal Ownership of Valuation Target” (Huixie [2003] No. 18);

9. “Accounting Standards for Business Enterprises – Basic Standards” (Order of the Ministry of Finance No. 33);

10. 38 specific standards such as “Accounting Standards for Business Enterprises No. 1 – Inventories” (Caihui [2006] No. 3);

11. “Accounting Standards for Business Enterprises – Application Guidance” (Caihui [2006] No. 18).

–65– APPENDIX I VALUATION REPORT

(4) Basis of ownership of assets

1. Contracts or certificates for the acquisition of material assets;

2. “Agreement of Franchised Operation” or “Agreement of Entrusted Operation”;

3. Other reference information.

(5) Basis for pricing

1. “Table of Loan Interest Rate of the People’s Bank of China” (effective from 6 July 2012);

2. “Regulations for the Implementation of the Income Tax Law of the People’s Republic of China”;

3. “Notice of the Ministry of Finance and the State Administration of Taxation Concerning the Policies on Integrated Use of Resources and Other Value Added Tax on Products”;

4. Other reference information.

(6) Other reference information

1. The accounting statements and audit report as at the date of valuation provided by the evaluated entity;

2. “Handbook for Common Data and Parameter in Assets Appraisal (2nd Edition)” (Beijing Science and Technology Press);

3. Wind Information;

4. Other reference information.

VII. VALUATION APPROACHES

(1) Selection of valuation approaches

In accordance with the requirements of Asset Valuation Standards, an entity can be valued under three approaches, i.e., income (present value) approach, market approach and asset-based approach. Income (present value) approach is the quantification and capitalization of the expected earning power of the overall assets of an entity, and it stresses on the overall expected profitability of an entity. Market approach refers to method of valuation in which the present fair market value of the valuation target is valued by comparing it with the references in the real market. The valuation data of this approach could be directly sourced from the market and the result of valuation could be strongly convincing. Asset-based approach refers to the method of valuation in which the value of the assets valued is recognized by reasonable valuation on the assets and liabilities of an entity.

–66– APPENDIX I VALUATION REPORT

The economic activity concerned in this valuation is equity acquisition. Despite established in 2014, the entity valued has taken over the business of water treatment of the companies that were previously the subsidiaries of Sound Environmental, its parent company, and has developed into form a platform for water treatment companies. Given that the future risk of the entity could not be reliably assessed, income (present value) approach is not used in this valuation.

The entity evaluated falls into water treatment industry, a segment of public utilities. There are currently 14 A-share water enterprises listed in A-share markets in both Shanghai and Shenzhen Stock Exchanges, which are relatively more comparable with the entity valued. As these companies could be selected as comparables, market comparison approach could be used in this valuation.

Asset-based approach refers to a method of valuation in which the entity value is determined by its input and output, which is the aggregate of the value of each asset and liability of the entity as assessed on reasonable ground. The subsidiaries of the entity valued generally operate in BOT mode. In accordance with the “Agreement of Franchised Operation” and “Agreement of Entrusted Operation” entered into between the entity valued as well as the local government in which the entity is located, the ownership of assets of the entity valued shall be transferred to the local government at nil consideration upon the expiry of the concession period and from which onwards the entity shall no longer entitle to the ownership of the operation assets and accordingly asset-based approach is not applicable in this valuation.

Therefore, market comparison approach is used in this valuation.

(2) Introduction to market comparison approach

1. Summary

Market approach for valuation of entity value refers to the method of valuation in which the value of valuation target is recognized by comparing the valuation target against comparable listed companies or comparable transactions. The two specific methods under market approach that are usually used are listed company comparison as well as transactions comparison.

Listed company comparison refers to the specific valuation in which the value of a valuation target is recognized by conducing comparison analysis on the entity valued after acquiring and analyzing the operational and financial data of the comparable listed companies and calculating the appropriate value ratio.

Transactions comparison refers to the specific valuation in which the value of valuation target is recognized by conducting comparison analysis on the entity valued after acquiring and analyzing the information of the comparable entities including their transactions, merger and acquisition undertaken and calculating the appropriate value ratio.

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When adopting market approach, only the reference entities that are screened for comparison analysis with the entity valued shall be selected so as to ensure that the selected entities are comparable with the entity valued. The reference entities and the entities valued usually fall into the same industry or are effected by the same economic factors. In general, the conditions precedent for market approach are set out as follows:

A. a fully-developed and active market;

B. three or more identical or similar references existed;

C. the factors that offset the value of the reference and valued entities are clear and quantifiable with the relevant information can be assessed.

2. Valuation consideration

Considering that the financial data of transactions are not easily available, there are difficulties in establishing a system for comparison. Accordingly, listed company comparison is adopted in this valuation.

The way of valuation of conducting listed company comparison is to recognize the market value of the entire shareholders’ interests of the entity valued as at the date of valuation by selecting comparables in the same industry, analyzing the profitability, the growth of operation, quality of assets and the capability in loan repayment of the entity valued and each of the comparable companies and adjusting the difference thereon after taking into consideration of the effect of liquidity discount and non-operational assets and liabilities as well as the surplus assets of the entity.

(3) Model of valuation

The indicators selected in the model are net profits and PE.

As the profitability of the enterprises engaging in the utilities business – water business in the PRC differs from each other, the development trend and profitability of an enterprise play essential role in determining the value of an enterprise, and the asset size of an enterprise cannot reflect its entire value, thus price to book ratio is not applicable for this valuation, while the PE method, which adopts the development trend and profitability as a basis for judgment can better reflect the value of an enterprise. Accordingly, the PE method is adopted as the value ratio for this valuation.

It is confirmed that the PE method is used to evaluate the market value of the Target Company.

Model of valuation is:

Value of the entire shareholders’ interests = net profit × PE

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(4) Process

1. Selection of Comparables

The evaluated entity is the Target Company, which is engaged in the utilities business – water business. There are 14 A-Share listed companies in the Shanghai Stock Exchange and Shenzhen Stock Exchange engaging in the water business.

The comparables are selected based on the analysis of indicators including the enterprise’s profitability (Return on Total Assets) and growth ability (Operating Profit Growth Rate) and the comparables selected share certain similarities with the evaluated entity. Excluding outliers (where PE substantially deviates from market average) and companies which had negative earnings, 7 listed companies engaging in the water business with similar conditions with the enterprise are selected as comparables.

The comparable companies list is an exhaustive one after excluding certain companies based on the given criteria. We select the A-share listed companies from “Shanghai and Shenzhen stock WIND classification of industries – public utilities-water supplies” and the reasons for choosing A-share listed companies and excluding Hong Kong listed companies are because the evaluated entity is a wholly-owned subsidiary of Sound Environmental, a company listed in Shenzhen Stock Exchange in the PRC and the business of the evaluated entity are based in the PRC. As such, A-share listed companies are regarded by us as more relevant comparable companies than Hong Kong listed company to the Company under market comparison approach. With reference to the performance appraisal system of Wind Information, a comparison between the target of valuation and the comparables is made in terms of profitability, operating capability, solvency and growth ability.

–69– (1) Reasons for the choice of comparable companies: REPORT VALUATION I APPENDIX

Excluding and choosing 7 listed companies engaging in the water business with the basic information and reasons as follow:

Table 3 Basic Information and Reasons for outlier

Rate of Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

000598.SZ Xingrong 10.4372 3.9082 Principal business constitution Its rate of return on total assets and Investment (latest annual report) operating profit (year-on-year growth rate) tap water production and sales: 50.37%; are significantly different from those of the sewage treatment serve: 31.89%; Target Company. So Xingrong Investment –70– pipe installation: 14.2%; is screened out. landfill leachate treatment: 2.07%

601158.SH Chongqing Water 10.5964 1.2322 Principal business constitution Its rate of return on total assets and (latest annual report) operating profit (year-on-year growth rate) sewage treatment serve: 58.48%; are significantly different from those of the tap water sales: 22.24%; Target Company. So Chongqing Water project construction: 5.83%; Group is screened out. others: 2.45% Rate of REPORT VALUATION I APPENDIX Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

600168.SH Wuhan Holding 8.6884 -3.6090 Principal business constitution 1. In August 2013, Wuhan Holding (latest annual report) implemented significant replacement of sewage treatment: 76.6%; assets and issuance of shares for tap water: 16.02%; purchase of assets. It exchanged its real estates: 5.7%; shareholding of the real estate company other businesses: 1.43%; for the 100% shareholding of Wuhan property service: 0.25% Urban Drainage Development Co., Ltd. So far, the main water business of Wuhan Holdings was incorporated into the listed company through this reorganization. The time for the incorporation of water business into the –71– listed company was short, which is less than one year to the base date of assessment (2014-5-31). Therefore, it is not representative.

2. Its operating profit (year-on-year growth rate) is significantly different from that of the Target Company.

Therefore, Wuhan Holdings is not suitable to be used as a comparable company.

000685.SZ Zhongshan Public 9.2548 80.4517 Principal business constitution Its rate of return on total assets is Utilities (latest annual report) significantly different from that of the Target water supply: 65.73%; Company and its scope of business market lease: 13.33%; involves many fields such as manufacturing sewage and effluent treatment: 12.34%; of environmental and energy equipment, property management: 1.78%; commercial real estate, financial others: 0.2% investment, energy business and etc. The comparability is weak. So Zhongshan Public Utilities Group is screened out. Rate of REPORT VALUATION I APPENDIX Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

601199.SH Jiangnan Water 6.2358 6.6890 Principal business constitution 1. Jiangnan Water mainly engages in (latest annual report) water supply business and engineering tap water: 76.46%; business. The sewage business only project installation: 19.66%; accounts for a very small percentage of public utilities maintenance: 1.42%; its business and the revenue from sewage treatment: 1.28% sewage business only account for 1.28% of the operating revenue in 2013. For the Target Company, it engages in a higher proportion of sewage business. The other comparable listed companies chosen should also have a certain proportion of sewage business. The –72– characteristics of sewage are quite different from those of water supply. Therefore, the similarity of Jiangnan Water is very low.

2. Its operating profit (year-on-year growth rate) is significantly different from that of the Target Company.

Therefore, Jiangnan Water is not suitable to be used as a comparable company and thus screened out. Rate of REPORT VALUATION I APPENDIX Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

000712.SZ Golden Dragon 2.4080 173.4113 Principal business constitution Its rate of return on total assets and Development (latest annual report) operating profit (year-on-year growth rate) tap water: 75.68%; are significantly different from those of the detection income: 1.82% Target Company and its PE (228.5903) The company is principally engaged in seriously deviates from the market average equity participation in investment securities level. So Golden Dragon Development is companies and tap water business. The screened out. company holds 80% equity of Qingyuan City Tap Water Co., Ltd., and also has 40% equity participation in Dongguan Securities Co., Ltd., 3% equity participation in Hualian Futures Co., Ltd and 2.69% participation in –73– Qingyuan City Rural Credit Association.

000605.SZ Bohai Water -3.8834 -318.5488 The company is principally engaged in Its rate of return on total assets and Industry water related businesses like raw water and operating profit (year-on-year growth rate) tap water supply, water environment are significantly different from those of the treatment and so on, specifically including Target Company and its PE (228.5903) raw water development and supply, regional seriously deviates from the market average water diversion, coarse water, tap water level. It’s running under deficit, So Golden production and delivery, high value-added Dragon Development is screened out. management of high-qualified underground water, direct drinking water, sea water desalination utilization, water environment treatment, river water resourcing, urban centralized water supply, new technology R&D and application of water affairs, water infrastructure investment and construction and operational management etc. In the meantime, based on current water supply business, the company expands to water integration service field like water environment treatment and BOT business.

Source: Publicly disclosed announcements and documents by relevant companies and Wind Information. Table 4 Basic Information and Reasons for the choice of comparable companies REPORT VALUATION I APPENDIX

300070.SZ Origin water 16.6167 51.4051 Structure of core business Its operating profit (year-on-year growth (based on the latest annual report): rate) is comparable with the Target Integrated solution of sewage treatment: Company and its type and scope of 62.46%; business are close to those of the Target Municipal water supply and drainage Company. Thus it is comparable and engineering: 34.85%; Water purifier: 2.6%; selected. Wind classification of industry: public utility- public utility II-water III-water –74– 600461.SH Hongcheng 5.6323 -0.4583 Structure of core business Its rate of return on total assets is quite Waterworks (based on the latest annual report): similar to that of the Target Company and Sewage: 44.61%; its type and scope of business are close to Engineering: 19.93%; those of the Target Company. Thus it is Water demand in households-residents: comparable and selected. 11.4%; Non-resident water demand for commercial use-business and infrastructure: 6.28%; Water demand in households-education: 4.5%; Non-resident water demand for life-industry: 3.71%; Non-resident water demand for life- administrative business: 3.49%; Water demand for special industries: 1.69%; Sale equipment: 1.46%; Design cost: 0.3%; Pipe inspection revenue: 0.02%; Wind classification of industry: public utility- public utility II-water III-water Rate of REPORT VALUATION I APPENDIX Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

600874.SH Capital 5.8696 4.8398 Structure of core business Its rate of return on total assets is quite Environmental (based on the latest annual report): similar to that of the Target Company and Protection Sewage treatment and construction of its type and scope of business are relatively sewage treatment factory: 71.93%; close to those of the Target Company. Thus Recycled water and pipeline connection: it is comparable and selected. 9.42%; Others: 4.77%; Energy supply business: 4.07%; Water supply business: 2.08%; Wind classification of industry: public utility- public utility II-water III-water –75– 600008.SH Beijing Capital 6.2786 22.1571 Structure of core business Its rate of return on total assets and (based on the latest annual report): operating profit (year-on-year growth rate) Sewage treatment: 32.03%; are comparable with the Target Company, Manufacturing and sales of water: 21.89%; its type and scope of business are relatively Real estate development: 17.41%; close to those of the Target Company. Thus Water industry construction: 15.23%; it is selected. Toll of Jingtong Expressway: 8.36%; Operation of restaurant: 2.37%; Garbage treatment: 0.83%; Operation of heating business: 0.37%; Wind classification of industry: public utility- public utility II-water III-water Rate of REPORT VALUATION I APPENDIX Return on Operating Total Assets Profit ROA Report (Year-on-year Period Growth Rate) 2013 unit 2013 unit Reasons for Being or Not Being an Stock Code Short Name % % Business Introduction Eligible Comparable Company

600187.SH Interchina Water 7.4485 104.5046 Structure of core business Its rate of return on total assets is quite (based on the latest annual report): similar to that of the Target Company and Sales of equipment: 34.38%; its type and scope of business are relatively Sewage treatment revenue: 34.03%; close to those of the Target Company. Thus Package contract of engineering: 13.49%; it is selected. Sales of water: 11.94%; Engineering service: 5.24%; Operation service: 0.13%; Wind classification of industry: public utility- public utility II-water III-water

600323.SH Grandblue 7.1998 18.7984 Structure of core business Its rate of return on total assets and –76– Environment (based on the latest annual report): operating profit (year-on-year growth rate) Water supply: 48.01%; are comparable with the Target Company, Solid waste treatment business: 30.22%; its type and scope of business are relatively Sewage treatment: 18.76%; close to those of the Target Company. Thus Wind classification of industry: public utility- it is selected. public utility II-water III-water

300172.SZ Cec Environmental 6.1570 27.4352 Structure of core business Its rate of return on total assets and Protection (based on the latest annual report): operating profit (year-on-year growth rate) Precision processing of condensed water: are comparable with the Target Company, 32.61%; its type and scope of business are relatively Water treatment: 26.79%; close to those of the Target Company. Thus Sewage treatment and reuse of recycled it is selected. water: 19.03%; Municipal sewage engineering: 10.34%; Water-vapor centralized monitoring and controlling and chemical injection system: 6.19%; Industrial fume treatment: 0.59%; Wind classification of industry: public utility- public utility II-water III-water

Source: Publicly disclosed announcements and documents by relevant companies and Wind Information. APPENDIX I VALUATION REPORT

(2) Similarity in business mode between the comparable companies and Hubei Yi Hong

All the comparable companies belong to Wind classification of industry: public utility – public utility II - water III, have similar type and scope of business, and have adopted the BOT mode.

2. Comparison Analysis between the Valuation Target and the Comparables

➀ Eight financial indicators including operating profit ratio, return on total assets, total asset turnover ratio, receivables turnover ratio, gearing ratio, cash to current liabilities ratio, total assets growth rate and operating profit growth rate are used as factors to assess the comparables and the valuation entity. The arithmetic mean value of comparable companies’ eight financial indicators can be acquired by the following table, and then through comparative analysis on the arithmetic mean value and the index value of comparable companies, the merits relation among different financial indexes is confirmed in order to obtain the comprehensive adjustment coefficient which is needed to calculate the comparison PE.

After the calculation, details of the financial indicators of the Target Company and each of the comparables are set out in Table 5.

–77– Table 5 Financial indicators of the Target Company and each of the comparables REPORT VALUATION I APPENDIX

PE (transaction date: 2014-05-31) (Financial data Net cash matching flow from rules: last Total operating Total Operating year’s Operating asset Receivables activities/ assets profit annual profit Return on turnover turnover Gearing Current (YoY (YoY Stock code Short name report) ratio assets ratio ratio ratio liabilities growth) growth)

300070.SZ 碧水源 35.4282 32.9823 16.6167 0.4679 3.2504 37.0083 0.2583 54.6010 51.4051 Origin Water 600461.SH 洪城水業Hongcheng 27.4751 9.5072 5.6323 0.2658 6.4265 61.1498 0.5395 7.6414 -0.4583 Water 600874.SH 創業環保 38.3768 21.7450 5.8696 0.1637 0.9599 62.6636 0.2580 7.4392 4.8398 Tianjin Capital –78– 600008.SH 首創股份 22.2830 17.8128 6.2786 0.1828 3.3648 59.5489 0.0142 10.8023 22.1571 Beijing Capital 600187.SH 國中水務 48.2273 22.7783 7.4485 0.2102 2.1311 25.0352 0.4120 72.6524 104.5046 Intercn Water 600323.SH 瀚藍環境 Grandblue 26.2776 27.5638 7.1998 0.1990 15.5430 54.2454 0.4106 17.1100 18.7984 Environment 300172.SZ 中電環保 38.8547 13.8651 6.1570 0.4746 1.8857 28.1885 0.2507 16.1095 27.4352 Nanjing CEC Arithmetic Mean Value of Comparable 33.8461 20.8935 7.8861 0.2806 4.7945 46.8342 0.3062 26.6223 32.6688 Companies The Target Company 37.9152 5.8537 0.1900 4.0117 52.6100 0.3244 5.3381 60.2954 Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient 1 2 3 4 5 6 7 8 Yihong Water/Arithmetic Average 1.8147 0.7423 0.6773 0.8367 0.8902 1.0593 0.2005 1.8457 Value of Comparable Companies

Note: Adjustment Coefficient = (Hubei Yihong) Index Values / Arithmetic Average Value of Comparable Companies’ Index Value.

Source: Publicly disclosed announcements and documents by relevant companies and Wind Information. APPENDIX I VALUATION REPORT

➁ Details of weight distribution of each financial indicator are set out in Table 6.

Table 6 Table of weight distribution of financial indicators

Indicator Weight No. classification Indicator name distribution

1 Operating profit ratio 15 Profitability Return on total assets 15 2 Operating Total asset turnover ratio 15 capability Receivables turnover ratio 15 3 Gearing ratio 15 Solvency Cash to current liabilities ratio 15 4 Total assets growth rate 5 Growth ability Operating profit growth rate 5 Total 100

Note: The weight coefficient of each index is determined as per the classification standards of China United Assets Appraisal Group Co., Ltd which is currently the largest assets appraisal company in China mainland. China United Assets Appraisal Group Co., Ltd was founded in 1994, it is China’s first appraisal group to have obtained the authorized approval of the Ministry of Finance and reviewed registration of the State Administration for Industry & Commerce. China United Assets Appraisal Group Co., Ltd is the professional institution for comprehensive appraisal and consultation service with the largest scale and influence all over the country, and has all relevant practice certificates of national franchise appraisal. According to List of 2013 Comprehensive Score Top 100 Institutions of Comprehensive Evaluation listed by China Appraisal Society, China United Assets Appraisal Group Co., Ltd ranked first. The company has accumulatively completed 8,000 appraisal and consultation projects and the accumulative appraisal amount has been over RMB60 trillion, including many famous large-scale enterprises such as SINOPEC, Yangtze Power, and ICBC and so on. Currently the annual revenue of this company is over RMB500 million and has a high market share among the domestic large enterprises. The said company has definite influence on this industry in China, its research achievements are much more adopted in the industry and the methods are also usually adopted by the domestic appraisal agencies.

No matter what industry it belongs to or whether it is a listed company or not, the overall value of an enterprise is comprehensively reflected through the index data of its profitability, operation ability, solvency ability and growth ability. In which the profitability, operation ability and solvency ability concern whether an enterprise has enough profitability and whether the assets operation efficiency and debts structure are steady, which is more important to enterprise value judgment, therefore the weight granted is accordingly larger.

Source: Publicly disclosed announcements and documents by relevant companies and Wind Information.

➂ The consolidated adjustment coefficient for the arithmetic mean of the Target Company/comparables is calculated based on the adjustment coefficients and the weight distribution of various financial indicators.

Consolidated adjustment coefficient = Adjustment coefficient1×15%+ Adjustment coefficient 2 x 15% + Adjustment coefficient 3 x 15% + Adjustment coefficient 4 x 15% + Adjustment coefficient 5 x 15% + Adjustment coefficient 6 x 15% + Adjustment coefficient7x5%+Adjustment coefficient8x5%=1.0054

–79– APPENDIX I VALUATION REPORT

3. Comparable PE

Assuming that the market value of the securities is positively correlated to the performance evaluation score, a comparison analysis is made on such basis. Accordingly, the comparable PE is arrived at by comparing the score of the target of valuation and the arithmetic mean score of the comparables.

Comparable PE = Arithmetic mean of PE of comparables x Consolidated adjustment coefficient

= 33.8461 × 1.0054

= 34.0288

4. Liquidity Discount

Table 7 shows the liquidity discount by industry under share-trading reform. Taking into account that The Target Company is a non-listed company that lacks market liquidity, a liquidity risk discount is made. The liquidity risk discount is arrived at with reference to the value of the evaluated entity derived from the transaction price of circulating shares of listed companies which was obtained from Wind Information. According to the transaction price of corporate shares in the PRC and the means of consideration for share-trading reform (this is the research result on equity allocation reform project conducted by China Appraisal Society and generally only outcome data are quoted in work by appraisal companies),the liquidity risk discounts in the PRC generally range from approximately 25%-35%. The Target Company applies to the third item in the above table which is the liquidity risk discount for power, gas and water supply industries, of which the industry liquidity risk discount is 29.93%. The liquidity risk discount used for this valuation is 29.93%.

Table 7 Liquidity discount by industry

Discount for lack of No. of liquidity No. Sample industry samples mean (%)

1 Mining 18 26.72 2 Communication and Culture 7 28.66 3 Electricity, gas and water production 52 29.93 and supply 4 Real estate 46 30.26 5 Construction 23 28.81 6 Transportation and warehousing 50 25.83 7 Finance and insurance 11 25.6 8 Agriculture, forestry, husbandry and 24 28.88 fishery 9 Wholesale and retail trading 63 29.2 10 Social services 30 27.34 11 Information technology 60 28.29 12 Manufacturing – electronics 39 28.76 13 Manufacturing – textiles, clothing and fur 45 29.82 14 Manufacturing – machinery, equipment 163 29.93 and meter

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Discount for lack of No. of liquidity No. Sample industry samples mean (%)

15 Manufacturing – metals and non-metals 92 28.77 16 Manufacturing – wood and furniture 3 22.89 17 Manufacturing – other manufacturing 13 28.13 18 Manufacturing – petroleum, chemicals, 116 31.69 plastics and plastic materials 19 Manufacturing – food and drinks 46 27.44 20 Manufacturing – pharmaceuticals and 65 27.92 biological products 21 Manufacturing – paper and printing 19 32.43 22 Comprehensive 51 29.18 23 Total 1,036 29.0

Source: Wind Information.

5. Initial Evaluated Results

Based on the valuation parameters derived in the above processes and taking into account that the PE of listed comparables are in line with the financial figures in the last annual report, as disclosed in the pro forma consolidated financial statements of the target of valuation as at 31 December 2013, the net profits of the target of valuation for 2013 amounted to RMB72,435,800. The evaluated results of the total shareholders’ equity of the enterprise are as follows:

Evaluated value = Net profits x PE x (1 - Liquidity discount)

= 72,435,800 × 34.0288 × (1 - 29.93%)

= RMB1,727,157,600

6. Non-operating Assets, Liabilities and Surplus Assets Adjustment

Regarding the requests of Assets Appraisal Standards – Enterprise Value, Article 17 thereto “certified public assets estimator conducting enterprise value appraisal using income approach and market approach shall communicate with commissioning entity and relevant concerning parties to understand the circumstance of assets allocation and usage of the enterprise, prudently recognize non-operating assets, liabilities and surplus assets and proceed with independent analysis and evaluation.”

The non-operating assets, liabilities and surplus assets as at the date of valuation are as follows:

Surplus assets: RMB185,307,300;

Surplus assets refer to assets exceeding essential scale of enterprise’s daily activities, have no direct relation with enterprise incomes and include part of non-operating assets, invalid assets and so on which are irrelevant to production and operation.

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Surplus assets = monetary capital + construction in process (small number and no further investment will be made in the future) + long-term investment (external investment with very low proportion of shareholding and has no influence) + idle fixed assets and land

= 182,818,500.00 + 398,600.00 + 1,273,600.00 + 816,500.00

= RMB185,307,300.00

Non-operating assets: RMB14,830,800;

Non-operating liabilities: RMB727,488,100.

Value of non-operating assets, liabilities and surplus assets = Surplus assets + Non-operating assets - Non-operating liabilities

= 185,307,300 + 14,830,800 - 727,488,100

= RMB-527,350,000

–82– Table 8 Table of surplus assets, non-operating assets and non-operating liabilities of REPORT The VALUATION Target Company and 22 subsidiaries I APPENDIX

Unit: RMB’10,000

Surplus assets Non-operating assets Non-operating liabilities Idle fixed Deferred Advance Bank and Construction Long-term assets Dividend Interest Account Other income Long-term Account from Interest Dividend Other Tax No. Company name cash in progress investments and land receivables receivables receivables Prepayments receivables tax assets receivables payables customers payables payables payables payables

1 Hubei Yi Hong Water 69,865.00 Treatment Company Limited 2 Sound Yichang Three Gorges 2,822.57 36.31 – 8.67 416.48 Water Service Co., Ltd. 3 Jingmen Xiajiawan Water 315.29 91.05 5.76 Co., Ltd 4 Zhejiang Sound Fuchun 337.47 8.80 17.97 0.70 20.00 1.80 Water Development Co., Ltd. 4-1 Tonglu Qinghe Pipeline Installation Co., Ltd. 5 Baotou Lucheng Water Co., 4,692.02 413.71 Ltd. 6 Nanchang Sound Xianghu 1,459.62 16.59 Water Industry Co., Ltd. 7 Jiangsu Sound Shuyang 3,273.82 181.39 24.51 Water Co. Ltd. –83– 8 Jingzhou Sound Jingqing 352.76 141.81 389.38 Water Co., Ltd. 9 Zhijiang Sound Zhiqing Water 464.41 3.10 – Co., Ltd. 10 Xiangyang Sound Hanshui 223.95 8.01 Water Co., Ltd. 11 Daye Sound Qingbo Water 237.25 0.29 310.00 768.50 Co., Ltd. PEDXIVLAINREPORT VALUATION I APPENDIX

12 Jiayu Jiaqing Water Co., Ltd. 169.72 28.88 1.71 305.66 143.81 351.08 13 Jiayu Sound Ganquan Water 369.18 63.68 565.07 102.17 Co., Ltd. 13-1 Jiayu Sound Ganquan Engineering Co., Ltd. 14 Xianning Sound Xianning 438.64 1.17 0.90 28.00 152.39 Ganyuan Water Co., Ltd. 15 Laohekou Sound Qingyuan 2,020.30 Water Co., Ltd. 16 Jianli Sound Jingyuan Water 537.64 Co., Ltd. 17 Ezhou Sound Eqing Water 65.50 4.23 Co., Ltd. 18 Ezhou Qinghe Environmental 41.72 Engineering Co., Ltd. 19 Chongyang Tianqing Water 22.84 2.18 Co., Ltd. 20 Xianning Ganqing Water Co., 125.75 Ltd. 21 Yichang Baiyang Water Co., 311.40 Ltd. Total 18,281.85 39.86 127.36 81.65 – – – – 3.17 1,090.53 389.38 903.07 20.00 440.99 1.80 71,031.87 351.08 –84– APPENDIX I VALUATION REPORT

7. Evaluated Results

Based on the initial evaluated results, the final evaluated results are derived after adjustment to the non-operating assets, liabilities and surplus assets of the Target Company.

Total shareholders’ equity (net assets) = Initial evaluated results ± Non-operating assets, liabilities and surplus assets adjustment

= 1,727,157,600 - 527,350,000

= RMB1,199,807,600

Accordingly, the total shareholders’ equity (net assets) of the Target Company is RMB1,199,807,600.

(5) Evaluated Results

Based on the above valuation process, the market value of the total shareholders’ equity (net assets) of the Target Company as at the date of valuation amounted to RMB1,199,807,600.

VIII. IMPLEMENTATION PROCESSES AND CONDITIONS OF VALUATION

The whole valuation was divided into four stages:

(1) Valuation preparation stage

1. The Company convened several meetings for reaching consensus among intermediate institutions in which each of the relevant parties agreed with the purposes, date and scope of this project of valuation.

2. Training was also organized for the preliminary preparation work. Meanwhile, panels including financial panels and operation management panels were formed for coordinating the work of evaluation in accordance with the assets of and the scope of functions in the management of the entity. The Valuer provided detail explanation in respect of the requirements on the work of asset valuation, which included the basic concept, mission and planning and arrangement of this asset valuation, the list of information to be provided by the appointor and entity valued, the requirements for inspection and verification of the assets of the entity, and guidelines for completing the breakdown table of valuation and asset inspection form. On the basis, the “breakdown table of valuation” and “asset inspection form” were completed. Information in respect of the title of ownership of the assets valued and information reflecting the quality, technological status and techno- economic indicators of the assets of the entity valued were also collected and compiled.

In the training, valuers focused on the theories of the valuation approaches for requirements for cooperation of the entity, which include the requirements for preparation in respect of the information of the entity and necessary cooperation, the revenue from the principal business, costs, expenses during the period, gain

–85– APPENDIX I VALUATION REPORT

from investment, the amortization of intangible and deferred asset, personnel composition, remuneration and welfare, and depreciation of fixed assets of the entity in light of the requirements set by regulatory institutions and the weaknesses that the entity might have and provide detailed explanation thereon.

3. Valuers worked in conjunction with the evaluated entity on the works including the inspection of assets and completion of the breakdown table of assets evaluated. Valuation team conducted on-site visits to the entity valued for an initial understanding to the assets of the entity valued, assist the entity for declaration of assets valued and collected documents required for asset valuation.

(2) On-site valuation stage

1. Listened to the introduction of the personnel responsible of the appointor and evaluated entity on the entity’s general situation and the historical and current condition of the assets to be evaluated to understand the financial system, operation, formation and technical status of main assets of the entity.

2. According to the breakdown table of assets evaluated, audited and verified the core operational assets of the entity, in light of the actual conditions and characteristics of the assets.

3. Examined the information provided by the entity especially for the titles information, such as the owners and other information stated by the title certificates.

(3) Valuation summarization stage

Analyzed and summarized the initial results of valuation of all kinds of assets and verification of liabilities, and made necessary adjustments, corrections and improvements to the valuation conclusion.

(4) Report submission stage

Drafted the asset valuation report based on the aforesaid work and exchanged opinions in respect of the assessment result with the appointor. After a comprehensive consideration of such opinions, made amendments and corrections to the report repeatedly in accordance with the internal three-level examination and verification system and procedures for asset valuation report of the valuation institution, and finally issued an official asset valuation report.

IX. VALUATION ASSUMPTIONS

In the valuation, the Valuer followed the following valuation assumptions:

(1) General assumption

1. Transaction assumption

Transaction assumption assumes that all the assets to be valued are ready for transaction. Valuers make the valuation according to the simulated market such as transaction conditions of the assets to be evaluated. Transaction assumption is the most fundamental assumption for asset valuation.

–86– APPENDIX I VALUATION REPORT

2. Open market assumption

Open market assumption assumes that both trading parties of the assets traded in the market or the assets to be traded in the market are in the same position and have opportunities and time to obtain sufficient market information so as to make reasonable judgment upon the function, usage and transaction price of assets. Open market assumption is based on the assets publicly available for transaction in the market.

3. Assumption on continuing operation of assets

Assumption on continuing operation of assets means that the asset under valuation could be used continuously based on the current purposes and methods of usage, size, frequency and environment during valuation, or the method of valuation, parameters and basis shall be determined accordingly whenever there is any change in the use of such assets.

(2) Special assumption

1. There are no material changes on the current policies of China in respect of macro economy and tax rates.

2. There are no material changes on the socio-economic environment of the entity evaluated as well as on the policies implemented relating to taxation and tax rates.

3. The future operational management of the entity evaluated discharges their duties diligently and would maintain the existing operation and management mode for continuous operation.

4. In the event that the “Agreement of Franchised Operation” or “Agreement of Entrusted Operation” entered into between the subsidiaries under the Target Company and the local government of the place where the entity is located is discharged normally and after the “Agreement of Franchised Operation” or “Agreement of Entrusted Operation” is terminated normally in accordance with the requirements of the agreement, the operating party shall transfer the tap water plant, sewage plant and recycled water plant (including their other facilities and equity) which are in normal operation to the local government of the place where the entity is located at nil consideration.

If the aforesaid conditions change, the valuation result would generally lapse.

X. VALUATION CONCLUSION

After the valuation procedure such as verification, on-site investigation, market research and queries, and valuation and estimation, market comparison approach is adopted for the assessment of the value of the total equity of the shareholders of the entity. As at the date of valuation on 31 May 2014, the net book value of the assets of the Target Company is RMB321, 694,300 while the value of the total equity capital of the shareholders after valuation (net value of assets) is RMB1,199,807,600, representing a valuation surplus of RMB878,113,300 or 272.97%.

–87– APPENDIX I VALUATION REPORT

XI. SPECIAL INSTRUCTIONS

(1) The legal responsibilities of the Valuer and its employees are to make professional judgment on the value of the assets under the valuation purpose set out herein, which does not involve any judgment made by the Valuer and its employees in respect of the economic activity of such valuation purpose. The valuation work, to a greater extent, relies on the information provided by the appointor and the entity under valuation. Therefore, the prerequisite of the valuation work is that the document relating to the economic activity, titles document and certificates, accounting record relating to the assets and legal documents provided by the appointor and the entity under valuation are authentic and legal.

(2) For the scope of the valuation, and the adopted data, statements and relevant information provided by the entity under valuation, the appointor and the entity under valuation are responsible for the authenticity and completeness of the information they provided.

(3) The titles certificates and relevant information mentioned in the valuation report are provided by the entity under valuation, and the appointor and the entity under valuation are legally responsible for their authenticity and completeness.

(4) Within the effective period after the date of valuation, if there are changes on the quantity and pricing of assets, the following principles shall apply:

1. Where there are changes on the quantity of assets, corresponding adjustments shall be made on the amount of assets in accordance with the original valuation approach;

2. Where there are changes on the pricing of assets which would have significant influence on the valuation conclusion of assets, the appointor shall timely engage qualified asset valuation institution to re-determine the evaluated value;

3. The appointor shall, when assets are actually priced, give a full consideration on the changes of the quantity and pricing of assets after the date of valuation, and make corresponding adjustments.

(5) There is no significant change in the Target Company as of the valuation base date to the valuation report issuance date.

XII. THE RESTRICTION ON THE USE OF THE VALUATION REPORT

The users of the report shall pay particular attention to the following restriction on the use of the report.

(1) The valuation report shall only be used for the valuation purpose and usage set out herein. Meanwhile, the valuation conclusion reflects the prevailing fair market price of the target of valuation under this valuation purpose in accordance with the open market principles, without taking consideration on the factors that could affect the price evaluated, such as the mortgage and guarantee that may be

–88– APPENDIX I VALUATION REPORT

borne in future and inflated price paid by the parties in any special transaction. The report also does not consider the impact caused by the changes on the macroeconomic policy of the state and by natural force and other force majeure. Where there are any changes on the aforesaid conditions and the principle of going concern taken in the valuation, the valuation conclusion would lapse. The valuation institution would not take the relevant legal liabilities caused by the lapse of the valuation conclusion due to the changes of such conditions.

The valuation report is valid if the economic activities comply with the relevant requirements of the laws and regulations of the state, and obtain the permission from the relevant department.

(2) The valuation report could only be used by the valuation report users specified herein. The right to use the valuation report belongs to the appointor and without the permission of the appointor, the valuation institution would not disclose the report to anyone at will.

(3) The valuation report shall only be used for the purposes of verifying the asset evaluation report by competent appraisal authorities and the administration department of the enterprise, and examining the work of the Valuer by the relevant regulatory authorities and for the Company’s publication purpose. It will be attached to publications made by the Company to its shareholders. Without confirmation from the Valuer and the appointor, no entity or individual may become a user of this report by virtue of their gaining access to this report.

(4) The effective period for the use of the valuation conclusion: the valuation conclusion is valid for one year from the date of valuation to the date on which the economic activity is realized, i.e. from 31 May 2014 to 30 May 2015. If within the year from the date of valuation to the date on which the economic activity is realized, there is any material change on the market condition or asset status, the conclusion of the valuation report may not reflect the value of date on which the economic activity is realized and shall be re-assessed.

XIII. DATE OF THE VALUATION REPORT

The date of the valuation report is 2 December 2014.

–89– APPENDIX I VALUATION REPORT

(No text on this page)

The Authorized Representative of the Valuation Institution:

Registered Asset Valuer:

Beijing Tianyuankai Assets Valuation Co., Ltd.

2 December 2014

–90– APPENDIX I VALUATION REPORT

Documents Available for Inspection

1. Audit report of the entity under valuation as at 31 May 2014 and simulative consolidated statement for 2011-2013;

2. Business licenses of the appointor and the evaluated entity;

3. Letter of commitment by the appointor and the evaluated entity;

4. Letter of commitment by the Valuer;

5. Qualification certificate for asset valuation of Beijing Tianyuankai Assets Valuation Co., Ltd.;

6. Qualification certificate for the valuation of securities and futures related business of Beijing Tianyuankai Assets Valuation Co., Ltd.;

7. Business license of Beijing Tianyuankai Assets Valuation Co., Ltd.;

8. Qualification certificate of the Valuer.

–91– APPENDIX II GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Director’s and chief executive’s interests in the Company

As at the Latest Practicable Date, the interests of the Directors in the shares, underlying shares and debentures of the Company and its associated corporations which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO including interests which they were taken or deemed to have under such provisions of the SFO, or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules:

(i) The Company:

Number of Shares/underlying Shares held, capacity and nature of interest Percentage to Through the issued Directly spouse or Through share capital of beneficially minor controlled the Company Name owned children corporation Total (%)

Wen Yibo 15,333,000 – 1,816,836,620(1) 1,832,169,620 (L) 124.87 Zhang Jingzhi 100,000 – – 100,000 (L) 0.01 Wang Kai 3,075,000(2) – – 3,075,000 (L) 0.23 Luo Liyang 3,057,400(2) – – 3,057,400 (L) 0.23 Jiang Anping 1,140,000(2) – – 1,140,000 (L) 0.08

(L) – Long position

Notes:

1. This includes 703,784,000 Shares held by Sound Water (BVI), 22,729,944 Shares held by Sound (HK) Limited and Sound Environment (HK)’s interest in the 280,373,831 Subscription Shares and 264,797,507 Sale Shares to be subscribed and acquired under the Subscription Agreement and the 1st Sale and Purchase Agreement (completion of which is subject to the fulfillment of the conditions set out in the paragraphs headed “Conditions precedent of the Subscription Agreement” and “Conditions precedent of the 1st Sale and Purchase Agreement”). Sound Water (BVI), Sound (HK) Limited and Sound Environment (HK) are, directly or indirectly, controlled by Mr. Wenand therefore, Mr. Wen is deemed to be interested in the Shares held by Sound Water (BVI) under Part XV of the SFO.

Sound Water (BVI) has signed the Sound Water (BVI) Undertaking in favour of Sound Environmental. For details, please refer to the paragraph headed “Acting in concert undertaking by Sound Water (BVI) in favour of Sound Environment (HK)” in the letter from the Board in this circular.

2. Share options granted under the Epure Share Option Scheme of the Company adopted by the Company on 15 August 2007.

–92– APPENDIX II GENERAL INFORMATION

(ii) Associated Company – Sound Water (BVI)

Number of Shares held, capacity and nature of interest Percentage to Through the issued Directly spouse or Through share capital of beneficially minor controlled the Company Name owned children corporation Total (%)

Wen Yibo 9 (L) 1 (L) – 10 100

(L) – Long position

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests and short positions of in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

–93– APPENDIX II GENERAL INFORMATION

(b) Substantial shareholders

As at the Latest Practicable Date, so far as was known to the Directors or the chief executive, persons having interests and short positions in 5% or more in the Shares, underlying Shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and required to be recorded in the register of interests and short positions required to be kept by the Company pursuant to section 336 of the SFO were as follows:

Approximate percentage of the Company’s issued share Number of capital Name Shares held (%)

Ms. Zhang (Note 3) 1,287,018,282 (L) 87.71 (L) Sound Water (BVI) (Note 4) 1,248,955,338 (L) 85.12 (L) Beijing Sanghua 567,901,282 (L) 38.70 (L) Sound Group Limited 567,901,282 (L) 38.70 (L) Sound Environment (Hong Kong) Limited 545,171,338 (L) 37.15 (L) Sound Environmental 545,171,338 (L) 37.15 (L) International Finance Corporation 86,301,000 (L) 5.88 (L) JP Morgan Chase & Co. 85,989,152 (L) 5.86 (L) 17,662,000 (S) 1.20 (S) 24,504,192 (P) 1.67 (P) Central Huijin Investment Ltd 167,069,767 (L) 11.39 (L) China Construction Bank Corporation 167,069,767 (L) 11.39 (L)

(L) – Long position (S) – Short position (P) – Lending Pool

Notes:

3. These Shares were held or deemed to be held by Mr. Wen. Hence, Ms. Zhang as spouse was deemed under the SFO to be interested in the Shares of the Company held by Mr. Wen.

4. Sound Water (BVI) has signed the Sound Water (BVI) Undertaking in favour of Sound Environmental. For details, please refer to the paragraph headed “Acting in concert undertaking by Sound Water (BVI) in favour of Sound Environment (HK)” in the letter from the Board in this circular.

3. DIRECTORS’ INTERESTS IN ASSETS OF THE GROUP

As at the Latest Practicable Date and save as disclosed in this circular, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2013, being the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

4. DIRECTORS’ INTERESTS IN CONTRACTS OF THE GROUP

As at the Latest Practicable Date and save as disclosed in this circular, none of the Directors was materially interested in any contract or arrangement subsisting as at the date of this circular and which is significant in relation to the business of the Group.

–94– APPENDIX II GENERAL INFORMATION

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date and save as disclosed in this circular, none of the Directors or their respective associates had any business or interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered or proposed to enter into a service contract with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

7. LITIGATION

As at the Latest Practicable Date, neither the Company nor any member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any member of the Group.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, being the date of the latest published audited financial statements of the Company.

9. EXPERT

The following are the qualifications of the expert who has given opinion or advice which are contained in this circular:

Name Qualifications

Somerley Capital Limited a corporation licensed by the SFC to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

Beijing Tian Yuan Kai Assets Appraisal an independent valuer Co. Ltd.

Each of Somerley Capital Limited and Beijing Tian Yuan Kai Assets Appraisal Co. Ltd. has given and has not withdrawn their respective written consent to the issue of this circular with the inclusion herein of its letter or its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, none of Somerley Capital Limited and Beijing Tian Yuan Kai Assets Appraisal Co. Ltd. had any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of Somerley Capital Limited and Beijing Tian Yuan Kai Assets Appraisal Co. Ltd. had any direct or indirect interests in any assets which have been, since 31 December 2013 (the date to which the latest published audited

–95– APPENDIX II GENERAL INFORMATION financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

10. MISCELLANEOUS

(a) The registered office of the Company is at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542.

(b) The branch share registrar of the Company in Hong Kong is Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

11. DOCUMENTS AVAILABLE FOR INSPECTION

The following documents or copies are available for inspection at our registered office at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542, or at the office of the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong during the normal business hours from the date of the circular up to and including the date of the EGM:

(a) The Subscription Agreement;

(b) The 1st Sale and Purchase Agreement;

(d) The letter from the Independent Board Committee, the text of which is set out under the section headed “Letter from the Independent Board Committee” of this circular;

(e) The letter from Somerley Capital Limited, the Independent Financial Adviser, the text of which is set out under the section headed “Letter from Somerley” of this circular;

(f) The consent letter from referred to in the paragraph headed “Expert” in this appendix; and

(g) This circular.

–96– NOTICE OF EGM

SOUND GLOBAL LTD. 桑德國際有限公司* (Incorporated in the Republic of Singapore with limited liability) (Company Registration Number 200515422C) (Hong Kong Stock Code: 00967)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of Sound Global Ltd. (the “Company”) will be held at United Conference Centre, 10/F, United Centre, 95 Queensway, Admiralty, Hong Kong on Tuesday, 23 December 2014 at 10:00 a.m., for the purpose of considering and, if thought fit, passing with or without modifications, the following resolutions as ordinary resolutions of the Company to be taken by way of poll:

ORDINARY RESOLUTIONS

1. “THAT

(a) the subscription agreement dated 14 September 2014 (the “Subscription Agreement”) entered into between the Company and Sound Environment (Hong Kong) Limited (“Sound Environment (HK)”) in connection with the subscription of 280,373,831 shares at a subscription price of HK$8.10 per share to be issued and allotted conditionally by the Company to Sound Environment (HK) (the “Subscription Shares”) (a copy of which has been produced at the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

(b) any one director of the Company (“Director”) be and is hereby authorized to do such acts and things, to sign and execute such other documents and to take such steps as he in his discretion considers necessary, appropriate, desirable or expedient to carry out or give effect to or otherwise in connection with or in relation to the Subscription Agreement and the transactions contemplated thereunder; and

(c) the board of Directors be and is hereby authorized to allot and issue the Subscription Shares upon and subject to the terms and conditions of the Subscription Agreement.”

* for identification purpose only

–97– NOTICE OF EGM

2. “THAT

(a) the sale and purchase agreement dated 14 September 2014 (the “Sale and Purchase Agreement”) entered into between the Company as purchaser and Sound Environmental Resources Co. Ltd. (桑德環境資源股份有限公司) as vendor in connection with the conditional sale and purchase of the entire registered capital of Hubei Yi Hong Water Treatment Company Limited (湖北一弘水務有限公司) at the consideration of RMB1,200,000,000 (equivalent to approximately HK$1,518,990,000) (a copy of which has been produced at the EGM marked “B” and signed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects; and

(b) any one Director be and is hereby authorized to do such acts and things, to sign and execute such other documents and to take such steps as he in his discretion considers necessary, appropriate, desirable or expedient to carry out or give effect to or otherwise in connection with or in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder.

By Order of the Board Sound Global Ltd. Wen Yibo Chairman

Hong Kong, 2 December 2014

Notes:

1. A member of the Company entitled to attend and vote at the EGM is entitled to appoint more than one proxy to attend and vote in his/her stead. A proxy need not be a member of the Company.

2. If the appointor is a corporation, the proxy must be executed under seal or the hand of its duly authorised officer or attorney.

3. The instrument appointing a proxy must be deposited at the registered office of the Company at 1 Robinson Road, #17-00 AIA Tower, Singapore 048542, or at the office of the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for the EGM or any adjournment thereof.

4. For determining the entitlement to attend and vote at the EGM of the Company to be held on Tuesday, 23 December 2014, the register of members of the Company will be closed from Friday, 19 December 2014 to Tuesday, 23 December 2014, both days inclusive, during which period no transfer of shares of the Company will be registered. In order to be eligible to attend and vote at the EGM, unregistered holders of shares of the Company should ensure that all transfer forms accompanied by the relevant share certificates must be lodged with the Hong Kong branch share registrar of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration no later than 4:30 p.m. on Thursday, 18 December 2014.

As of the date of this circular, the executive Directors are Wen Yibo, Zhang Jingzhi, Wang Kai, Luo Liyang and Jiang Anping; and the independent non-executive Directors are Fu Tao, Seow Han Chiang Winston and Wong See Meng.

–98–