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Jason,
Thank you for the unfortunate explanation. We need to do everything in our power to ensure BHR doesn't get named here, and if we do get named we must place the blame fluidly and immediately onto the said LP. This has potential to be a major credibility hit with the US Embassy and SACAC which will be very unhelpful in our development if BHR is named.

Can we please schedule a Board call soonest so we can discuss and understand further the remedies and ramifications of this. I suggest your Monday morning Beijing time. Please advise.

Devon

Devon D. Archer
646 436 3745

On Mar 7, 2015, at 9:55 AM, Jason Zhu <jason.zhu@bhrpe.com<mailto:jason.zhu@bhrpe.com>> wrote:

Dear all,

In reference to the SMC Capital Increase deal, we would like to update everyone as follows:

- following the signing of all relevant subscription and investment agreements in September 12, 2014 for a total subscription amount of RMB6 billion, Sinopec finally issued its capital call notice on February 2, 2015 requesting that all funds be fully invested by February 13, 2015

- by closing of business on February 13, 2015, BHR transferred a total of RMB3.75 billion to Sinopec whereas the remaining RMB2.25 billion was not made available at the time due to the withdrawal of funds by one of our original LPs (the “Defaulting LP”). Sinopec agreed to extend BHR’s closing date to March 4, 2015

- as we continued to negotiate with the Defaulting LP, we immediately launched alternative fundraising efforts despite the intervening Chinese New Year holiday (which meant many of our contacts were either unavailable to not able procure the necessary funds in time). By the closing of March 4, 2015, we were able to raise an additional RMB0.2 billion, bringing BHR’s total investment amount to RMB3.95 billion

- as of March 6, 2015, Sinopec officially closed its subscription accounts, also terminating BHR’s rights to make any further subscriptions beyond the RMB3.95 invested

This unfortunate incident caught each of us by surprise and despite the team’s best efforts, we were not able to raise the defaulted amount given the extremely tight timing from first receiving the capital call on February 2 to being notified at the very last minute before the original Feb. 13 closing date of the Defaulting LP’s funding withdrawal and finally to the closing of the subscription window on the morning of March 6.

Sinopec issued an announcement in relation to the closing of the SMC Capital Increase last night which touched upon the failure to fund by an investor but did not name BHR. All involved parties understand and agree that BHR's failure to fund the entire amount is an isolated event which is solely attributable to liquidity difficulties with an LP and should not serve as a testament of BHR’s abilities. While we are confident that this incident will not have any adverse effect in the long run, we must deal with the possibility of short-term credibility issues once the market picks up the story (which will be soon). Our position is that we maintain our support for the SMC deal as attested by our RMB3.95 billion subscription amount but given the deal fund structure of this particular transaction, we were not able to maneuver other committed funds to cover the deficiency caused by the Defaulting LP.

For now, we must deal with the legal aftermath of the situation. On the one hand, we are, vis-à-vis Sinopec, in breach of our funding obligations in respect of the RMB2.05 billion uninvested amount, which may involve monetary damages of up to RMB63.5 million. On the other hand, we are pursuing all remedies against the Defaulting LP for its breach of relevant LP agreements, which directly caused our breach of the Sinopec agreements.

Finally, we are in close discussions with Sinopec to coordinate our efforts and to mitigate any spillover effect this incident may have on our SOE fundraising efforts or on our ability to partake in future SOE reform opportunities. We ask that all inquiries in relation to this transaction be directed to Mr. Xia Yu, who will be the house speaker on this matter on behalf of BHR.


Regards,

诸晨刚 Jason Zhu
执行董事 Executive Director

渤海华美（上海）股权投资基金管理有限公司
Bohai Harvest RST (Shanghai) Equity Investment Fund Management Co., Ltd.
北京市朝阳区建国路79号华贸中心写字楼2座31层3101室 邮编：100025
31/F, Unit 3101, Tower 2, China Central Place, 79 Jianguo Road,
Chaoyang District, Beijing 100025, China
Cellphone: 136 8169 7246
Tel: 86 10 5969 5858
Fax: 86 10 5969 6123
Email: jason.zhu@bhrpe.com<mailto:jason.zhu@bhrpe.com>