CHINA AUTO CORPORATION LTD. (Company Registration No.: E) (Incorporated in the Republic of Singapore)

Transcription

1 CIRCULAR DATED 18 DECEMBER 2009 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or any other professional adviser immediately. If you have sold or transferred all your shares in the capital of China Auto Corporation Ltd. (the Company ), please forward this Circular with the Notice of Extraordinary General Meeting and the attached Proxy Forms immediately to the purchaser or the transferee or to the bank, stockbroker or agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited (the SGX-ST ) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. Approval in-principle granted by the SGX-ST to the Company for the listing and quotation of the QSP Consideration Shares (as defined herein) is not to be taken as an indication of the merits of the Proposed QSP Acquisition (as defined herein), the QSP Consideration Shares, the Company and/or its subsidiaries. CHINA AUTO CORPORATION LTD. (Company Registration No.: E) (Incorporated in the Republic of Singapore) CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED ALLOTMENT AND ISSUE OF AN AGGREGATE OF 48,945,044 NEW ORDINARY SHARES IN THE CAPITAL OF THE COMPANY TO MR QUEK SIM PIN, EXECUTIVE CHAIRMAN AND DIRECTOR OF THE COMPANY AS CONSIDERATION FOR THE PROPOSED QSP ACQUISITION (AS DEFINED HEREIN) IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Forms Date and time of Extraordinary General Meeting : 3 January 2010 at 9.00 a.m. : 5 January 2010 at 9.00 a.m. Place of Extraordinary General Meeting : 17 Jurong Port Road, Singapore

2 TABLE OF CONTENTS Page DEFINITIONS INTRODUCTION INFORMATION ON NEFTECH THE PROPOSED QSP ACQUISITION RATIONALE FOR THE PROPOSED QSP ACQUISITION INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS FINANCIAL EFFECTS DIRECTORS RECOMMENDATION ABSTENTION FROM VOTING EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS RESPONSIBILITY STATEMENT DOCUMENTS FOR INSPECTION APPENDIX NOTICE OF EXTRAORDINARY GENERAL MEETING PROXY FORM 2

3 DEFINITIONS For the purpose of this Circular, the following definitions apply throughout unless the context otherwise requires or otherwise stated: Act APL Board Business Enterprise CAC Shares Calculated Value Call Options CDP : The Companies Act, Chapter 50 of Singapore, as amended or modified from time to time : APL Ltd : The board of Directors of the Company : Has the meaning ascribed to it in paragraph 2.9 of this Circular : Ordinary shares in the issued and paid-up capital of the Company : Has the meaning ascribed to it in paragraph 2.9 of this Circular : Has the meaning ascribed to it in paragraph 3.3 of this Circular : The Central Depository (Pte) Limited Circular : This circular dated 18 December 2009 Company Completion controlling shareholder Directors EGM Group Group Call Options Group Sellers Group Sellers Agreement : China Auto Corporation Ltd. : Completion of the Proposed QSP Acquisition : Has the meaning ascribed to it in the Listing Manual : The directors of the Company, as at the Latest Practicable Date : The extraordinary general meeting of Shareholders, notice of which is set out on page 18 of this Circular : The Company and its subsidiaries : Has the meaning ascribed to it in paragraph 3.3 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular Independent Valuation Report : Has the meaning ascribed to it in paragraph 2.9 of this Circular Issue Price Latest Practicable Date Listing Manual Neftech : Has the meaning ascribed to it in paragraph 3.1 of this Circular : 9 December 2009, being the latest practicable date prior to the printing of this Circular : The listing manual of the SGX-ST : Neftech Pte. Ltd. (Company Registration No C), incorporated in Singapore 3

4 DEFINITIONS Neftech Shares NTA Ordinary Resolution Original Call Option Price Proposed Acquisitions Proposed Group Acquisition Proposed QSP Acquisition Proposed QSP Allotment QSP QSP Agreement QSP Call Option QSP Call Option Price QSP Consideration QSP Consideration Shares QSP Option Shares QSP Sale Shares Revised Call Option Price Securities Account SGX-ST SSC : Ordinary shares in the issued and paid-up capital of Neftech : Net tangible assets : The ordinary resolution as set out in the notice of EGM as set out on page 18 of this Circular : Has the meaning ascribed to it in paragraph 3.3 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Quek Sim Pin : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 3.3 of this Circular : Price per CAC Share for the purpose of determining the number of QSP Consideration Shares to be issued to QSP upon exercise of the QSP Call Option which shall be at a discount of 25 per cent. from the average of the volume weighted average price of the CAC Shares for the 10 consecutive trading days immediately prior to the date of the exercise of the QSP Call Option, provided that the price per CAC Share shall be not less than S$0.09 : Has the meaning ascribed to it in paragraph 3.1 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 3.3 of this Circular : Has the meaning ascribed to it in paragraph 1.1 of this Circular : Has the meaning ascribed to it in paragraph 3.3 of this Circular : A securities account maintained by a depositor with CDP but does not include a securities sub-account : Singapore Exchange Securities Trading Limited : Singapore Shipping Corporation Ltd 4

5 DEFINITIONS Shareholders Substantial Shareholder Warrants S$ or cents : Registered holders of CAC Shares in the Register of Members of the Company, except that where the registered holder is CDP, the term Shareholders shall, where the context admits, mean the persons named as depositors in the Depository Register maintained by CDP and into whose Securities Accounts those CAC Shares are credited : A Shareholder who has an interest in 5 per cent. or more of the voting shares of the Company : 809,001,675 outstanding warrants of the Company issued pursuant to a renounceable non-underwritten rights issue proposed on 28 April 2008, each warrant carrying the right to subscribe for one (1) new CAC Share at an exercise price of S$0.07 for each warrant : Singapore dollar, and cents respectively, unless otherwise stated % or per cent. : Per centum or percentage The terms depositor and Depository Register shall have the same meanings ascribed to them respectively in Section 130A of the Act. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter gender and vice versa. References to persons shall, where applicable, include corporations. Any reference in this Circular to any enactment is a reference to that statute or enactment for the time being amended or re-enacted. Any term defined under the Act or the Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the Act or the Listing Manual or any statutory modification thereof, as the case may be, unless otherwise provided. Any discrepancies in tables included herein between the amounts in the columns of the tables and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. 5

6 LETTER TO SHAREHOLDERS CHINA AUTO CORPORATION LTD. (Company Registration No.: E) (Incorporated in the Republic of Singapore) Directors Quek Sim Pin (Executive Chairman) Lee Choong Onn (Lead Independent Director) Low Seow Chye (Independent Director) Raymond Tong Wei Min (Non-Executive Director) Robert Low Mui Kiat (Independent Director) Registered Office 17 Jurong Port Road Singapore December 2009 To: The Shareholders of China Auto Corporation Ltd. Dear Sir/Madam INTRODUCTION The Proposed QSP Acquisition On 5 October 2009, the Board announced that the Company had entered into a sale and purchase agreement (the QSP Agreement ) with QSP to purchase 4,200 Neftech Shares (the QSP Sale Shares ) representing 2.0% of the issued and paid-up share capital of Neftech from QSP (the Proposed QSP Acquisition ). At the same time, the Board also announced that the Company had entered into a sale and purchase agreement (the Group Sellers Agreement ) with Allingham Ltd, Victor Levin, Chee Hang Joon, Lim Ho Kee, Lim How Teck, Yeo Cheow Tong and Goh Geok Khim (collectively, the Group Sellers ) and QSP to purchase 36,560 Neftech Shares from the Group Sellers representing 17.0% of the issued and paid-up share capital of Neftech (the Proposed Group Acquisition and collectively with the Proposed QSP Acquisition, the Proposed Acquisitions ). As at the Latest Practicable Date, the Proposed Group Acquisition has not been completed. The consideration for the Proposed QSP Acquisition will be satisfied by the issue and allotment of 48,945,044 CAC Shares (the QSP Consideration Shares ) to QSP (the Proposed QSP Allotment ). 1.2 Shareholders Approval for the Proposed QSP Allotment (a) (b) (c) Pursuant to Rule 804 of the Listing Manual, other than an issue made on a pro-rata basis or a share option scheme or a share scheme, no directors of an issuer, or associate of the director, may participate directly or indirectly in an issue of equity securities or convertible securities unless the shareholders in a general meeting have approved the specific allotment. Accordingly, as QSP is the Executive Chairman and Director of the Company, the Proposed QSP Allotment is subject to the approval of Shareholders in a general meeting. Application has been made to the SGX-ST for the QSP Consideration Shares to be admitted to the Official List of the SGX-ST and be listed for quotation on the Main Board of the SGX- ST. As announced on 30 November 2009, the Company has received the in-principle approval for the additional listing application to the SGX-ST for the QSP Consideration Shares to be admitted to the Official List of the SGX-ST and be listed for quotation on the Main Board of the SGX-ST. SGX-ST s in-principle approval is not to be taken as an indication of the merits of the Proposed QSP Acquisition, the QSP Consideration Shares, the Company and/or its subsidiaries. 6

7 LETTER TO SHAREHOLDERS 1.3 Extraordinary General Meeting The Directors are convening an EGM to be held on 5 January 2010 at 9.00 a.m. to seek the approval of the Shareholders for the Ordinary Resolution set out in the notice of EGM on page 18 of this Circular. The purpose of this Circular is to provide Shareholders with the relevant information relating to the Ordinary Resolution. The SGX-ST assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular Information on neftech Neftech is a private limited company incorporated in Singapore on 2 October 2007 (Company Registration No C). As at the Latest Practicable Date, the issued and paid-up share capital of Neftech was S$1,800,000 comprising of 214,525 Neftech Shares and the shareholders of Neftech and their respective shareholdings in Neftech were: As at the Latest Practicable Date Number Of Neftech Shares % (a) the Company 10, (b) Allingham Investments Limited 88, (c) Victor Levin 45, (d) Goh Geok Khim 2, (e) Lim How Teck 4, (f) Quek Sim Pin 43, (g) Lim Ho Kee 5, (h) Chee Hang Joon 15, (i) Yeo Cheow Tong 2, As at the Latest Practicable Date, the directors of Neftech are Chee Hang Joon and Victor Levin. Neftech is primarily engaged in the development and commercialization of its proprietary cavitation technology solutions aimed at achieving fuel savings for marine vessels. Neftech s technology solution involves basically: (a) (b) (c) the addition of water to fuel in measured proportions to create a water-fuel emulsion; the cavitation of a water-fuel emulsion using Neftech s proprietary equipment; and the use of the water-fuel emulsion as a substitute for fuel. Cavitation is the formation of vapour bubbles of a flowing liquid in a region where the pressure of the liquid falls below its vapor pressure. Cavitation is usually divided into two classes of behaviour - inertial cavitation and non-inertial cavitation. Inertial cavitation is the process where a void or bubble in a liquid is generated and then rapidly collapses, producing a shock wave. This process occurs in an extremely small interval of time and under such conditions, physiochemical changes will occur in the liquid. Cavitation of the water-fuel emulsion using Neftech s proprietary equipment results in a highly stable combustible water-fuel emulsion which can be used as a substitute for fuel. The usage of water in the water-fuel emulsion results in a lower net requirement for fuel. As the cost of water is nominal relative to the cost of fuel, considerable savings may be achieved through the use of the cavitated water-fuel emulsion. 7

8 LETTER TO SHAREHOLDERS On 16 September 2009, Neftech had entered into an agreement with APL, a subsidiary of Neptune Orient Lines Limited, for the introduction of its technology solutions on 20 vessels. Under the agreement, Neftech will bear the cost of equipment to be installed on the vessels in return for a share of fuel savings and carbon credits. On 30 September 2009, Neftech entered into a collaboration agreement with SSC, a company listed on the Mainboard of the SGX-ST, whereby SSC was given exclusive marketing rights for 10 selected shipping lines. On 8 October 2009, Neftech entered into a collaboration agreement with M-Line Investments Pte Ltd as exclusive marketing agent for its proprietary cavitation technology solutions to all Indonesian shipping lines headquartered in Indonesia (with the exception of two shipping lines which have been excluded). Based on the unaudited financial results of Neftech for the nine-month period ended 30 September 2009, Neftech incurred a loss of approximately S$0.49 million and had NTA of approximately S$1.19 million. The unaudited financial results of Neftech for the nine-month period ended 30 September 2009, and the audited financial results of Neftech for the financial year ended 31 December 2008 are attached in the Appendix of this Circular. Based on a professional valuation of Neftech dated 16 September 2009 done by American Appraisal China Limited which was commissioned by the Company (the Independent Valuation Report ), the Calculated Value (as defined below) of the Business Enterprise (as defined below) of Neftech is between US$172.2 million and US$222.0 million (or S$242.8 million and S$313.0 million respectively, based on an exchange rate of S$1.41/US$1.00). Based on the Independent Valuation Report, the valuation of Neftech was based on the Calculated Value using assumptions provided by the management of Neftech and in accordance with the Statement on Standards for Valuation Services No. 1 and Uniform Standards of Professional Appraisal Practice. The principal factors considered for the valuation were, inter alia, the nature of Neftech from inception, the global economic outlook in general and the specific economic and competitive elements affecting Neftech s business, its industry and its market, the nature and prospects of the subject industry, the market derived instrument returns of entities engaged in a similar line of business and returns from other types of projects, the stage of development of Neftech and the business risks of Neftech. The primary approach used in the methodology of calculation for the valuation was the Discounted Cash Flow method of the income approach. The income approach is the conversion of expected periodic benefits of ownership into an indication of value. It is based on the principle that an informed buyer will pay no more for a property than an amount equal to the present worth of anticipated future benefits from the same or equivalent property with similar risk. For the purpose of estimating the expected periodic benefits of ownership, consideration was given to the secured contracts with APL as well as the potential contracts with APL and other shipping lines. The Discounted Cash Flow method of the income approach explicitly recognises that the current value of an investment is premised upon the expected receipt of future economic benefits. Indication of value is developed by discounting future net cash flow to the present value at a rate that reflects both the current return requirements of the market and the risks inherent in the specific investment. On the basis of this valuation, the pro-rated Calculated Value of the QSP Sale Shares is between S$4.8 million and S$6.1 million. Calculated Value is defined under the Statement on Standards for Valuation Services No.1 issued by the American Institute of Certified Public Accountants as an estimate as to the value of a business, business ownership, security, or intangible assets, arrived at by applying valuation procedures agreed upon with the client and using professional judgment as to the value or range of values based on those procedures. Business Enterprise is defined as the combination of all tangible assets, long term investment, net working capital and intangible assets of a continuing business. Alternatively a Business Enterprise is equivalent to the invested capital of the business, that is, in the combination of the value of shareholders equity, shareholders loans and interest bearing debt. 8

9 LETTER TO SHAREHOLDERS 3. the proposed QSP acquisition 3.1 Consideration The consideration for the acquisition of the QSP Sale Shares is S$4,405,054 (the QSP Consideration ), which shall be satisfied by the allotment and issue by the Company to QSP of 48,945,044 QSP Consideration Shares at an issue price of S$0.09 per QSP Consideration Share ( Issue Price ), representing an approximately 5.2% discount to the average of the volume weighted average price of the CAC Shares for the last two (2) trading days immediately preceding the time of the QSP Agreement of S$0.0949, free from all encumbrances and such QSP Consideration Shares shall rank pari passu in all respects with and carry all rights similar to the existing issued CAC Shares. The aggregate number of QSP Consideration Shares to be issued to QSP represents approximately 2.0% of the issued and paid-up share capital of the Company. The QSP Consideration was arrived at on a willing buyer, willing seller basis. Factors considered by the Company in arriving at the QSP Consideration included: (a) (b) (c) (d) (e) the growth prospects of Neftech having regard to its proprietary technology; the conclusion of its recent commercial agreement with a leading shipping line, APL; the collaboration agreement with SSC; the call option to be given by QSP in respect of the Neftech Shares representing approximately 9.6% of Neftech s current issued share capital; and the Proposed QSP Acquisition is on a non-cash share issue consideration basis and accordingly will not have a material impact on the cash flow of the Company. The Issue Price of S$0.09, which is the same price at which CAC Shares are to be issued as consideration in respect of the Proposed Group Acquisition, was arrived at on a willing buyer, willing seller basis, taking into account the following: (i) the Company took into consideration that such Issue Price was at a less than a 10% discount to the weighted average price of the CAC Shares for 1 October 2009 and 2 October 2009, being the last two (2) trading days immediately preceding the announcement of the Proposed QSP Acquisition and the Proposed Group Acquisition of S$0.0949; and (ii) pursuant to negotiations between the Company, the Group Sellers and QSP, the Issue Price would be at a 100% premium to the net asset backing of each CAC Share of S$ based on the unaudited consolidated accounts of the Company for the half-year ended 30 June Conditions Completion of the Proposed QSP Acquisition is conditional upon, inter alia: (a) (b) (c) the completion of a due diligence exercise over the business, affairs, operations, assets, financial condition, prospects and records of Neftech within two (2) weeks of the QSP Agreement and the results of such due diligence being satisfactory to the Company in its sole and absolute discretion. As at the Latest Practicable Date, such due diligence has been duly completed, with the results of the same being satisfactory to the Company; the Company obtaining such approval(s) in connection with the Proposed QSP Acquisition from the Board and/or Shareholders in a general meeting, as may be necessary for the transactions contemplated therein including the Proposed QSP Allotment, and such approval not having been withdrawn or revoked as at the date of Completion; the Company obtaining the approval of the SGX-ST (if required) and clearance of SGX-ST for the issue of this Circular to Shareholders relating to the Proposed QSP Allotment; and 9

10 LETTER TO SHAREHOLDERS (d) approval in-principle being obtained from the SGX-ST for the admission to, listing, dealing and quotation of the QSP Consideration Shares on the Official List of the SGX-ST Mainboard and not having been revoked or amended and, where such approval is subject to conditions, to the extent that any conditions for the admission to, listing, dealing and quotation of the QSP Consideration Shares on the Official List of the SGX-ST Mainboard are required to be fulfilled on or before the date of Completion, they are so fulfilled. 3.3 Call Option As announced by the Company on 5 October 2009, under the QSP Agreement, QSP shall enter into a call option agreement with the Company on Completion whereby QSP shall give the Company an option (the QSP Call Option ) to purchase from him up to 20,500 Neftech Shares ( QSP Option Shares ) at the price of S$2, per Neftech Share. The QSP Call Option is similar to the call options that will also be given to the Company by each of the Group Sellers pursuant to the Group Sellers Agreement upon completion of the Proposed Group Acquisition (the Group Call Options, and collectively with the QSP Call Option, the Call Options ). The consideration for the purchase by the Company of Neftech Shares pursuant to the exercise of the Group Call Options are, in accordance with the Group Call Options, to be satisfied by the allotment and issue to each of the Group Sellers of CAC Shares, which the Company had originally agreed with the Group Sellers would be issued at S$0.09 per CAC Share (the Original Call Option Price ). The Company and the Group Sellers had agreed that the Original Call Option Price was to be the same as the issue price per CAC Share issued as consideration for the Proposed Acquisitions. However, as announced by the Company on 30 November 2009, pursuant to Rule 1019(2) of the Listing Manual, if the Call Options are exercisable at the discretion of the Company and the exercise terms of the Call Options are fixed at the time of grant, approval of Shareholders for the Call Options would be required at the time the Call Options are granted to the Company. Pursuant to Rule 1019(3) of the Listing Manual, if an option is exercisable at the discretion of the issuer and the exercise terms are not fixed, but are based on factors existing at the time of exercise, the issuer must obtain shareholder approval at the time of exercise of the option. For reasons of expediency and cost-savings, the Company, QSP and the Group Sellers have renegotiated the Original Call Option Price subsequent to the announcement of the Proposed Acquisitions on 5 October 2009 so that approval from Shareholders need not be obtained at the time of the grant of the Call Options under Rule 1019(2) of the Listing Manual, it being the intention of the Company that, if and when the Company exercises the Call Options, it will seek Shareholders approval (in accordance with the requirement of Rule 1019(3) and other applicable rules of the Listing Manual) before proceeding to complete the purchase of the Neftech Shares pursuant to the exercise of the Call Options. As a result of such renegotiations, it has been agreed by the Company, QSP and the Group Sellers that the consideration for the purchase by the Company of Neftech Shares pursuant to the exercise of the Group Call Options shall be satisfied by the allotment and issue to each of the Group Sellers of CAC Shares at an issue price to be determined at a discount of 25 per cent. on the average of the volume weighted average price of the CAC Shares for the 10 consecutive trading days immediately prior to the date of the exercise of each respective Group Call Option, subject to a minimum price of S$0.09 ( Revised Call Option Price ). The Revised Call Option Price was arrived at on a willing buyer willing seller basis and takes into account the following: (a) (b) the minimum price of S$0.09 of the Revised Call Option Price is based on the weighted average price of the CAC Shares for 1 October 2009 and 2 October 2009, being the last two (2) trading days immediately preceding the announcement of the Proposed Group Acquisition. Therefore, depending on the average of the volume weighted average price of the CAC Shares for the 10 consecutive trading days immediately prior to the date of the exercise of each respective Call Option, the Revised Call Option Price may be higher (but not lower) than the Original Call Option Price, and is therefore more advantageous to the Company; and the discount of 25 per cent. from the average of the volume weighted average price of the CAC Shares for the 10 consecutive trading days immediately prior to the date of the exercise of the Call Options was reached subsequent to negotiations between the Group Sellers and the Company. 10

11 LETTER TO SHAREHOLDERS The consideration for the purchase by the Company of the QSP Option Shares pursuant to the exercise of the QSP Call Option is similarly to be satisfied by the allotment and issue to QSP of CAC Shares, which are to be issued at a price to be determined in the same manner as the Revised Call Option Price ( QSP Call Option Price ). Accordingly, the QSP Call Option Price will also be at a discount of 25 per cent. from the average of the volume weighted average price of the CAC Shares for the 10 consecutive trading days immediately prior to the date of the exercise of the QSP Call Option and subject to a minimum price of S$0.09. If and when the Company exercises the QSP Call Option, it shall similarly seek the approval of Shareholders in compliance with Rule 1019(3) and other applicable rules of the Listing Manual before proceeding to complete the purchase of the QSP Option Shares. The exercise of the QSP Call Option and the Group Call Options is conditional on, amongst other matters, the approval from the SGX-ST for the admission to, listing, dealing and quotation of such CAC Shares to be allotted and issued to QSP and/or the Group Sellers being obtained. In addition, the exercise of any of the QSP Call Option and the Group Call Options is conditional upon each of QSP and/or the Group Sellers (as the case may be) taking all reasonable steps to obtain a waiver from the Securities Industry Council from any obligation to make a general offer for the CAC Shares (if applicable) which may arise from the allotment and issue to each of QSP and/or the Group Sellers (as the case may be) of CAC Shares pursuant to the exercise of the QSP Call Option or the Group Call Options (as the case may be). Assuming the Proposed Acquisitions are completed and the QSP Call Option and the Group Call Options are fully exercised by the Company, the enlarged issued share capital of the Company would amount to 4,179,538,445 CAC Shares, based on the issued share capital of the Company as at the Latest Practicable Date. In such event, the Proposed Acquisitions aggregated with the exercise of the QSP Call Option and the Group Call Options will, based on the existing issued share capital of the Company, amount to a major transaction under Rule 1014 of the Listing Manual and may or may not amount to a reverse takeover under Rule 1015 of the Listing Manual. Accordingly, in addition to seeking the approval of the SGX-ST for the admission to, listing, dealing and quotation of the CAC Shares to be allotted and issued pursuant to the exercise of the QSP Call Option and the Group Call Options and the approval of Shareholders under Rule 1019(3) of the Listing Manual, the Company will also have to comply with other requirements of the Listing Manual including, without limitation, Rule 1014 and, in the event the Proposed Acquisitions aggregated with the exercise of the QSP Call Option and the Group Call Options amount to a reverse takeover under Rule 1015 of the Listing Manual, Rule In particular, the Company may be required to, inter alia, convene a meeting of Shareholders to approve the exercise of the QSP Call Option and the Group Call Options by the Company. In the event that it is proposed that the QSP Call Option or the Group Call Options be exercised, (a) any Director who is deemed an interested person pursuant to Rule 904(4) of the Listing Manual shall abstain from participating and voting on any Board resolutions, or making any recommendations to Shareholders, to approve the exercise of the QSP Call Option or the Group Call Options and (b) any Shareholder who is deemed an interested person pursuant to Rule 904(4) of the Listing Manual will abstain from voting on the resolution in respect of the exercise of the QSP Call Option. 3.4 Representations and Warranties QSP has provided customary representations and warranties under the QSP Agreement. 3.5 Information on the Interested Person Transaction As announced on 5 October 2009, QSP is the Executive Chairman of the Company and is therefore deemed an interested person pursuant to Rule 904(4) of the Listing Manual. As such, the entry by QSP into the QSP Agreement with the Company will be considered to be an interested person transaction under Chapter 9 of the Listing Manual. None of the Group Sellers are deemed to be associates of any of QSP, the Substantial Shareholders, the Directors or the controlling shareholders of the Company. QSP has not entered into any other transactions with the Company during the current financial year. 11

12 LETTER TO SHAREHOLDERS The value of the QSP Consideration Shares based on: (a) (b) (c) the weighted average price of the CAC Shares for 1 October 2009 and 2 October 2009, being the last two (2) trading days immediately preceding the announcement of the Proposed QSP Acquisition of S$ is S$4,644,885 and represents approximately 4.1% of the latest audited NTA of the Group of S$113.1 million as at 31 December 2008; the net asset value of CAC Shares as at 31 December 2008 (based on the latest audited consolidated accounts of the Company for financial year ended 31 December 2008 of S$0.046), is S$2,251,472 and represents approximately 2.0% of the latest audited NTA of the Group of S$113.1 million as at 31 December 2008; and the aggregate issue price of the QSP Consideration Shares pursuant to the QSP Agreement is S$4,405,054 and represents approximately 3.9% of the latest audited NTA of the Group of S$113.1 million as at 31 December Pursuant to Rule 906(1) of the Listing Manual, based on the above, as the aggregate value of the QSP Consideration Shares does not exceed 5% of the Group s latest audited NTA, Shareholders approval will not be required under Rule 906 of the Listing Manual for the above interested person transaction. There are currently no agreements in which the Company or any of the other shareholders of Neftech are required to provide any funding, contributions or capital commitments to Neftech in future. Accordingly, in the absence of such agreement, the risks and rewards in respect of the Proposed Acquisitions are in proportion to the equity of each shareholder of Neftech. The Audit Committee of the Company having reviewed, inter alia, the terms, rationale and benefit of the Proposed QSP Acquisition, is of the view that the Proposed QSP Acquisition is on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. 4. rationale for the proposed QSP acquisition The Company had in February 2009 subscribed for new Neftech Shares which represents 4.9% of the current issued share capital of Neftech. With the Proposed Acquisitions, the Company will increase its shareholding interest in Neftech to 23.9% of the current issued share capital of Neftech. Following completion of the Proposed Group Acquisition and Proposed QSP Acquisition, Neftech will become an associated company of the Company. Based on an estimated annual usage of 369 million tonnes of fuel and the average fuel cost of US$450 per tonne, the shipping industry spends over US$160 billion a year on fuel. The Company is of the view that there is significant potential for Neftech to profit from the commercialization of its proprietary cavitation technology. As described above, the Company shall have the option (but not the obligation) to acquire additional Neftech Shares up to an additional 25% of the current issued share capital of Neftech pursuant to the QSP Call Option and the Group Call Options. The Directors are of the view that the QSP Call Option and the Group Call Options are beneficial to the Company as the Company would be able during the term of the Call Options, to increase substantially its shareholding interest in Neftech (and thereby increase its participation in its profits as a shareholder) at a pre-determined price after determining and considering Neftech s performance and business prospects developed during the term of the Call Options INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS The interests of the Directors and the Substantial Shareholders in the share capital of the Company as at the Latest Practicable Date and the effects of Proposed QSP Allotment on the shareholding structure of the Company are set out below: 12

13 LETTER TO SHAREHOLDERS As at the Latest Practicable Date After the Proposed QSP Allotment Direct Interest Deemed Interest Direct Interest Deemed Interest Number Of CAC Number Of CAC Number Of CAC % Number Of CAC % Shares % Shares % Shares Shares Directors Quek Sim Pin 67,299, ,793,749 (1) ,244, ,793,749 (1) 5.6 Low Seow Chye 1,000, ,000, Raymond Tong Wei Min 5,000, ,000, Lee Choong Onn 1,524, ,524, Robert Low Mui Kiat ,000 (2) ,000 (2) 0.01 Substantial Shareholders Doris Chung Gim Lian 934,234, ,234, S.P. Quek Investments Pte Ltd 139,633, ,633, Quek Sim Pin 67,299, ,793,749 (1) ,244, ,793,749 (1) 5.6 United Overseas Bank Ltd 170,826, ,826, Malayan Banking Berhad 210,989, ,989, Total number of issued CAC Shares 2,479,540,857 2,528,485,901 Notes: (1) QSP is deemed to be interested in an aggregate of 141,793,749 CAC Shares registered in the name of S.P. Quek Investments Pte Ltd and Meili Investments Pte Ltd. (2) As of 11 December 2009, being the date of appointment as a Director, Robert Low Mui Kiat is deemed to be interested in an aggregate of 145,000 CAC shares held by his wife. 5.2 The number of outstanding, exercisable Warrants that are held by the Directors and the Substantial Shareholders as at the Latest Practicable Date are set out below: Number of Warrants As at the Latest Practicable Date (%) After the Proposed QSP Allotment (%) Name Direct Deemed Direct Deemed Direct Deemed Directors Quek Sim Pin 31,549,812 70,896,874 (1) Raymond Tong Wei Min 7,500, Lee Choong Onn 762, Substantial Warrantholders Doris Chung Gim Lian 467,117, S.P. Quek Investments Pte Ltd 69,816, Quek Sim Pin 31,549,812 70,896,874 (1) Notes: (1) QSP is deemed to be interested in an aggregate of 70,896,874 Warrants registered in the name of S.P. Quek Investments Pte Ltd and Meili Investments Pte Ltd. 5.3 Save as disclosed above, none of the Directors or Substantial Shareholders has any interest, direct or indirect, in the Proposed QSP Allotment. 6. FINANCIAL EFFECTS The financial effects of the Proposed QSP Allotment are for illustrative purposes only. The proforma financial effects are based on the audited financial statements of the Group for the financial year ended 31 December 2008 and on the assumptions set out below. The financial effects of the Proposed Acquisitions, on the same basis and assumptions, are also illustrated below for reference only. 6.1 Share Capital The effects on the issued and paid-up share capital of the Company resulting from the Proposed QSP Allotment and the Proposed Acquisitions are as follows: 13

14 LETTER TO SHAREHOLDERS Number of CAC Shares ( 000) Share capital before the Proposed Acquisitions (as at the Latest Practicable Date) 2,479,541 Add: QSP Consideration Shares 48,945 Issued share capital after the Proposed QSP Allotment 2,528,486 Issued share capital after the Proposed Acquisitions 2,954, Net Tangible Assets The pro forma financial effects of the Proposed QSP Allotment and the Proposed Acquisitions on the NTA of the Group, on the assumption that the Proposed QSP Allotment and the Proposed Acquisitions were completed on 31 December 2008, are as follows: Before the Proposed QSP Allotment After the Proposed Acquisitions After the Proposed (S$ 000) QSP Allotment NTA of the Group at 31 December , , ,067 Add: Consideration Shares - 4,405 42,750 Total 113, , ,817 Number of issued CAC Shares ( 000) 2,479,541 2,528,486 2,954,541 NTA per CAC Share (cents) Gearing The pro forma financial effects of the Proposed QSP Allotment and the Proposed Acquisitions on the gearing of the Group, on the assumption that the Proposed QSP Allotment and the Proposed Acquisitions were completed on 31 December 2008, are as follows: Before the Proposed QSP Allotment After the Proposed QSP Allotment After the Proposed Acquisitions (S$ 000) Total borrowings 6,321 6,321 6,321 Shareholders funds 113, , ,817 Gearing (times) Note: Total borrowings of the Group before the Proposed QSP Allotment comprise short term bank borrowings. 6.4 Earnings per Share The pro forma financial effects of the Proposed QSP Allotment and the Proposed Acquisitions on the EPS of the Group, on the assumption that the Proposed QSP Allotment and the Proposed Acquisitions were completed on 1 January 2008, are as follows: Before the Proposed QSP Allotment After the Proposed QSP Allotment After the Proposed Acquisitions (S$ 000) Net (Loss) of the Group (15,196) (15,204) (15,224) Number of issued CAC Shares ( 000) 2,479,541 2,528,486 2,954,541 EPS (cents): Loss (0.6) (0.6) (0.5) 7. DIRECTORS RECOMMENDATION As the QSP Consideration shall be satisfied by the Proposed QSP Allotment, QSP and his associates abstain from making any recommendations to Shareholders to vote in favour of the Ordinary Resolution, as set out in the notice of EGM on page 18 of this Circular, in respect of the Proposed QSP Allotment. Having considered the rationale for the Proposed QSP Acquisition as set out in paragraph 4 of this Circular, the Directors (other than QSP) are of the opinion that the Proposed QSP Allotment is in the best interests of the Company, and accordingly, they recommend that Shareholders vote 14

15 LETTER TO SHAREHOLDERS in favour of the Ordinary Resolution in relation to the Proposed QSP Allotment as set out in the notice of EGM on page 18 of this Circular. 8. ABSTENTION FROM VOTING QSP and his associates will abstain from voting on the Ordinary Resolution in relation to the Proposed QSP Allotment, set out in the notice of EGM on page 18 of this Circular, in respect of his shareholding in the Company. QSP will also not accept nominations to act as proxy, corporate representative or attorney to vote in respect of the said resolution. 9. EXTRAORDINARY GENERAL MEETING The EGM, notice of which is set out on page 18 of this Circular, will be held at 17 Jurong Port Road, Singapore on 5 January 2010 at 9.00 a.m. for the purpose of considering and, if thought fit, passing with or without any modifications, the Ordinary Resolution set out in the notice of EGM on page 18 of this Circular. 10. ACTION TO BE TAKEN BY SHAREHOLDERS If a Shareholder is unable to attend the EGM and wishes to appoint a proxy to attend and vote on his behalf, he should complete, sign and return the attached proxy form in accordance with the instructions printed thereon as soon as possible and, in any event, so as to arrive at the registered office of the Company at 17 Jurong Port Road, Singapore , not less than 48 hours before the time fixed for the EGM. The completion and return of a proxy form by a Shareholder does not preclude him from attending and voting in person at the EGM if he wishes to do so. A depositor shall not be regarded as a member entitled to attend, speak and vote at the EGM unless his name appears in the Depository Register 48 hours before the time appointed for holding the EGM. 11. DIRECTORS RESPONSIBILITY STATEMENT This Circular has been seen and approved by all the Directors (including those who have delegated detailed supervision of this Circular) and they collectively and individually accept full responsibility for the accuracy of the information contained in this Circular and confirm that, after having made all reasonable enquiries and to the best of their knowledge and belief, the facts stated and opinions expressed in this Circular are fair and accurate in all material respects and that there are no other material facts the omission of which would make any statement herein misleading. 12. DOCUMENTS FOR INSPECTION Copies of the following documents are available for inspection at the registered office of the Company at 17 Jurong Port Road, Singapore , during normal business hours from the date hereof up to and including the date of the EGM: (a) (b) (c) the Memorandum and Articles of Association of the Company; the QSP Agreement; and the Independent Valuation Report. Yours faithfully For and on behalf of the Board of Directors of China Auto Corporation Ltd. Lee Choong Onn Lead Independent Director 15

16 APPENDIX NEFTECH PTE LTD Unaudited Income Statement for the 9 Months Financial Period Ended 30 September 2009 January to September 2009 S$ Revenue - Cost of sales Purchases (33,277) (33,277) Gross Loss (33,277) Items of expense Laboratory fees (20,988) Other expenses (433,844) Total items of expense (454,832) Loss before taxation (488,109) Taxation - Loss after taxation (488,109) NEFTECH PTE LTD Unaudited Balance Sheet as at 30 September 2009 At 30 September 2009 S$ Fixed Assets 241,339 Current Assets Banks - MBB 885,420 Petty Cash 197 Stock 71,584 Prepayments & Deposits 600 Total Assets 1,199,140 Shareholder s Equity Share Capital * 1,800,000 Accumulated losses (117,081) Loss for the period (488,109) Shareholders Equity 1,194,810 Current Liabilities Accruals 4,330 4,330 Total Liability & Shareholders Equity 1,199,140 * Number of shares issued - 214,525 16

17 APPENDIX Neftech Pte. Ltd. Audited Income Statement for the Financial Year Ended 31 December S$ Revenue - Items of expenses Laboratory fees (19,190) Research & development expenses (18,066) Other expenses (79,825) Total items of expense (117,081) Loss before taxation (117,081) Taxation - Loss after taxation (117,081) Neftech Pte. Ltd. Audited Balance Sheet as at 31 December S$ Plant and equipment 87,429 Current assets 1 Cash and bank balances 1 Current liabilities Accruals 2,800 Amount due to director 201, ,510 Net current liabilities (204,509) (117,080) Share capital and accumulated loss Share capital 1 Accumulated loss (117,081) (117,080) 17

18 NOTICE OF EXTRAORDINARY GENERAL MEETING CHINA AUTO CORPORATION LTD. (Company Registration No.: E) (Incorporated in the Republic of Singapore) NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting ( EGM ) of China Auto Corporation Ltd. (the Company ) will be held at 17 Jurong Port Road, Singapore on 5 January 2010 at 9.00 a.m. for the purpose of considering, and if thought fit, passing, with or without modifications: ORDINARY RESOLUTION THE PROPOSED QSP ALLOTMENT THAT approval be and is hereby given for the Directors or any of them to: (a) (b) allot and issue 48,945,044 ordinary shares in the capital of the Company (the QSP Consideration Shares ) to Quek Sim Pin ( QSP ) at an issue price of S$0.09 per QSP Consideration Share, credited as fully paid up, free from all encumbrances and such QSP Consideration Shares shall rank pari passu in all respects with all other existing issued shares in the share capital of the Company, as consideration for the acquisition by the Company of 4,200 ordinary shares in the issued and paid-up capital of Neftech Pte. Ltd. (the Proposed QSP Allotment ) in accordance with the sale and purchase agreement dated 5 October 2009 between QSP and the Company; and complete and do all such acts and things, including without limitation, to execute all such documents and to approve any amendments, alteration or modification to any documents as they may consider necessary, desirable or expedient to give full effect to the Proposed QSP Allotment and this Resolution. BY ORDER OF THE BOARD Lee Choong Onn Lead Independent Director Singapore 18 December 2009 Notes: QSP, being the Executive Chairman and Director of the Company, will abstain from exercising any voting rights on this Resolution. A member entitled to attend and vote at the EGM is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company. The instrument appointing a proxy must be deposited at the registered office of the Company at 17 Jurong Port Road, Singapore not less than 48 hours before the time appointed for holding the EGM. 18

19 PROXY FORM CHINA AUTO CORPORATION LTD. (Company Registration No.: E) (Incorporated in the Republic of Singapore) (Please see notes overleaf before completing this Form) IMPORTANT: 1. For investors who have used their CPF monies to buy China Auto Corporation Ltd. s shares, this Circular is forwarded to them at the request of their CPF Approved Nominees and is sent solely FOR INFORMATION ONLY. 2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them. 3. CPF investors who wish to attend the EGM as an observer must submit their requests through their CPF Approved Nominees within the time frame specified. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specified to enable them to vote on their behalf. I/We* being a member/members* of China Auto Corporation Ltd. (the Company ) hereby appoint (Name) of (Address) Name Address NRIC/ Passport Number Percentage of shareholdings No. of CAC Shares % and/or (delete as appropriate) Name Address NRIC/ Passport Number Percentage of shareholdings No. of CAC Shares % or failing him/her, the Chairman of the Meeting (as defined below) as my/our proxy/proxies to vote for me/ us on my/our behalf at the Extraordinary General Meeting (the Meeting ) of the Company to be held at 17 Jurong Port Road, Singapore on 5 January 2010 at 9.00 a.m. and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Ordinary Resolution proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll. Ordinary Resolution Proposed allotment and issue of 48,945,044 QSP Consideration Shares to Quek Sim Pin pursuant to the Proposed QSP Acquisition For* To be used on a show of hands Against* To be used in the event of a poll Number of Votes For** Number of Votes Against** * Please indicate your vote For or Against with a tick ( ) within the box provided. ** If you wish to exercise all your votes For or Against, please tick ( ) within the box provided. Otherwise, please indicate the number of votes as appropriate. Dated this day of Signature(s) of Shareholder(s) or, Common Seal of Corporate Shareholder CAC Shares in: (a) Depository Register (b) Register of Members Total No. of CAC Shares IMPORTANT: PLEASE READ NOTES ON THE REVERSE CAREFULLY BEFORE COMPLETING THIS FORM

20 PROXY FORM NOTES TO PROXY FORM: Please insert the number of CAC Shares held by you and registered in your name in the Register of Members and in the Depository Register of The Central Depository (Pte) Limited. If no number is inserted, the instrument of proxy will be deemed to relate to all the CAC Shares held by you. A member of the Company entitled to attend and vote at the meeting of the Company is entitled to appoint not more than two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company. However, please note that as Mr. Quek Sim Pin is abstaining from voting on the Ordinary Resolution (as set out above), he will not accept nominations as proxies or otherwise for voting on the Ordinary Resolution. Where a member appoints two proxies, the second named proxy shall be an alternate to the first named or at the Company s option to treat the instrument of proxy as invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy. The instrument appointing a proxy or proxies must be deposited at the registered office (the Registered Office ) of the Company at 17 Jurong Port Road, Singapore not less than 48 hours before the time appointed for the Meeting. 5. (i) (ii) (iii) The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy is signed on behalf of the appointor by an attorney, the letter or the power of attorney or other authority, if any, or a duly certified true copy thereof shall (failing previous registration with the Company) if required by law, be duly stamped and be deposited at the Registered Office, not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. 6. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore. General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of CAC Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have CAC Shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.