Yingde Gases : (7) Letter from the Independent Board Committee

The .following is the text of the letter from the Independent Committee setting out its recommendation to the Independent Sha reholders in relation to the Offers.

Yingde Gase-s -Groufipl Comi"p}any Limited

( Incorporated in the Cayman Island s with limited liability)

(Stock Code: 02168)

25 March 2017

To the Independent Sha reholde rs

Dear Sir or Madam,

VOLUNTARY CONDITIONAL CASH OFFERS BY UBS AG, HONG KONG BRANCH ON BEHALF OF PAG AC 11-2 LIMITED TO ACQUIRE ALL ISSUED SHARES OF YINGDE GASES GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY ACQUIRED OR AGREED TO BE ACQUIRED BY PAGAC 11-2 LIMITED AND PARTIES ACTING IN CONCERT WITH IT) AND FOR CANCELLATION OF ALL OUTSTANDING OPTIONS OF YINGDE GASES GROUP COMPANY LIMITED

We refer to the Response Document dated 25 March 2017 issued by the Company in response to the Off ers, of which this letter forms part. Unless the context specifies otherwise, capitalised terms used in this letter have the same meanings as defined in the Response Docu ment.

We have been appointed by the Board as members of the Independent Board Committee to consider the terms of the Offers and to advise you as to whether, i n our opinion, the terms of the Offers are fair and reasonable so far as you r interests are concerned and to make a recom mend ation as to acceptance or rejection of the Offers. Rothsch i ld (Hong Kong) Limited has been appoi nted as the Independent Financi al Adviser to advise us in this respect. Details of i ts advice and the pri ncipal factors taken into consideration i n arrivi n g at i ts recommendations are set out i n the "Letter from the Independent Financial Adviser" on pages 17 to 44 of the Response Docu ment.

You r attenti on is also drawn to the letter from the Board and the additional information set out in the appendices to the Response Docu ment.

We have considered the terms of t he Off ers and t he advice and recommendation from the Independent Fi nancial Adviser, including the principal factors taken into consideration by it in arriving at its opinion and i n particular:

1. Whilst growth was observed in the reven ues and EBITDA of the Grou p for the three years ended 31 December 2015 and the six months ended 30 June 201 6, net profits during su ch period have been negati vely affected by (among others) t he increase in net finance costs. Net d ebt increased to RMB9,077 million as at 30 Ju ne 2016 from RMB6,67 l million as at 31 December 2013. The net gearing ratio was 129.6% and the net current liabilities of the Group was RMB 1,338 million as at 30 June 2016. The ratios set out in Table 3 in the "Letter from the Independent Financial Adviser" showed increase in collection period of trade receivables and decrease in cash conversion cycles. These are signals indicating possible deterioration of liquidity situ ation due to the prevailing capital struct ure of the Company.

2. 2016 was a year wit h challenges and u ncertainties for the Company. Notable events are summarised in "1. Backgro u nd to t he Offers - Letter from the Independent Financial Ad viser".

3. The Company aims to annou nce the 2016 Ann ual Results (as defined i n "Letter from the Independent Financial Adviser") on 31 March 2017. Shareholders are advised to review and take into accou nt such financial results when they become available. As at the Latest Practicable Date, the audited consolidated financial statements of the Group for the year ended 31 December 2016, whether in draft or final form, are not yet available for the Independent Fi nancial Adviser's review.

4. The Company has disclosed in the Profit Warning and Financial Update Annou ncement (as defined in "Letter from the Independent Financial Adviser") and "Financial information of the Group -E. Material change" in Appendix I a list of events which may have a material adverse impact on the financial or tradi ng position or outlook of the Group since 31 December 2015. The Com pany has stated i n the Profit Warning and Fi nancial Update Annou ncement that "According to the Company 's preliminary assessment of i mpai rments, potential impairments and other adjustments to the unau dited consolidated management accou nts of the Company and its subsidiaries for the year ended 31 December 201 6, the Company's financial posi tion may be materially adversely impacted" and that "The Board is also i n discussion with other creditors and rating agencies of the Compan y in light of the recent developments at the Company".

5. S&P has downgraded the credit rating of the Company to "CCC-" on 23 December 201 6 and Fitch has placed the Company's Long-Term Issuer Default Rating and senior unsecured rating of "B+" on Rating Watch Negati ve on 21 March 2017. These may increase the financin g costs of the Company.

(f) Agai nst this background, the Independent Fi nanci al Adviser considers an d concu rs with the Offeror that the Offers can provide the Shareholders and Optionholders with an opportu nity to realise their investment.

1. The Share Offer Price represents 86.5% to 109.1% premia over the average closing prices per Share on the Last Unaffected Day (as defined in "Letter from the Independent Financial Adviser") and 85.5% to 100.9% premia over the average closing prices per Share on the Last Undisturbed Day (as defined in "Letter from the Independent Financial Adviser"), both significant premi a. These premi a are at the top en d of the Comparable Vol untary Cash Offers Precedents (as defi ned in "Letter from the Independent Fi nanci al Adviser"). In addition, the Share Offer Price is higher than the hi ghest closing pri ce duri ng the 12-month period prior to the Last Undist urbed Day.

2. The Offers are conditional as to acceptance only and are not subject to any regulatory approval, in particular the Ministry of Commerce of the PRC.

3. There is no assurance that the Share price or the tradi ng liqui dity of the Shares will stay at the current level i n the absence of the Offers and any competi ng offers (as defined in the Memorandum of Undertaking) or higher offer (if any) may be subject to more stringent conditions th us posti ng uncertainties over its completion or speed of completion.

(i) It is u ncertai n that the Board, or, upon successful completion of the Offers, the Offeror could achieve positi ve changes i n the new future i n the absence of detai led busi ness plan on the Grou p.

Accordi ngly, we are of the view the terms of the Offers are fair and reasonable so far as the Independent Shareholders and the Optionholders are concerned and we recommend that the Independent Shareholders and the Optionholders to accept the Share Offer and the Option Offer. Unless a Competing Offer or a higher offer is anno u nced , Shareholders shou ld accept t he Share Offer by the First Closi ng Date. If the Offers do not become u ncondi tional as to acceptances on First Closing Date, the Offeror is under no obligation to extend the Offers. In the event a Competing Offer or higher offer is announced, we will provide our further opinion and recommendation to Shareholders.

In maki ng this recommendation, we note that the Shareholders and Optionholders are at liberty to accept according to their personal preference and circu mstances and they should consult their own professional advisers for professional advice. Shareholders and Optionholders who are confident of the future prospects of the Company and/or do wish to contin ue to retain an exposu re in the Company or who are not attracted by the capital value of the consideration as compared with the historical trading performance or their respective investment costs of the Shares may wish not to accept the Offers.

We note that current trading prices of the Shares are above the Share Offer Price. There is no assurance that the t rading price of t he Share would continue to be above the Share Offer Price during the Offer Period. In considering whether or not to accept t he Offers, Shareholders and Optionholders should take into account all factors that we have set out in our letter as well as the advice and recommendation from the Independ ent Financi al Adviser as a whole. In the event that the market price

of the Shares exceeds the Share Offer Price during the period while the Share Off er is open and the sales proceeds (net of transaction costs) exceed the amou nt recei vable u nder the Share Offer, Shareholders should consider not accepti ng the Share Off er and consider seeking to sell their Shares i n the market if they so wish.

Shareholders and Optionholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting or rejecting the Offers.

You rs faithfully,

For and on behalf of the Independent Board Commi ttee of YINGDE GASES GROUP COMPANY LIMITED

Mr. Zheng Fuya	Dr. Wang Ching	Mr. Zhihe Mah ( see note 1)	Mr. Rawen Zhi Hong Huang ( see note 2 )
Independent	Independent	Independent	In dependent
non-executive	non-executive	non-executive	non-executive
Di rector	Director	Di rector	Director

Notes:

( I ) As disclosed in the Company's a n nu al report 201 5, Mr. Trevor Raymond Strut! worked i n BOC Grou p Pie., du ring which period he came to know Mr. Mah who worked in Lien Hwa Industrial Gases, a joint vemu re company of BOC Grou p Pie. Mr. Mah worked in the Compan y from 2008 to 2013.

1. According to Mr. Hu ang, in relation to Oasis Management Company Ltd. ("Oasis"):

   • Mr. Hu ang worked for Oasis from April 2012 to A ugust 2014 as an investment analyst (such relationship has been disclosed in the Company's announcemem dated 13 March 2017).

     Oasis is one of the in vestors in Petrel Capital Greater China Fund ("Petrel Fund") from November 2015 to present (which has no influence on the invest ment decision making of Petrel Fund). Mr. Huang is t he founder and portfolio manager of Petrel Capital Management Limited ("Petrel Management") which is the manager to Petrel Fu nd. Mr. Huang is also one of the i n vestors in Petrel Fu nd.

   • As disclosed in the Company's announcemen t dated 13 March 2017, Petrel Fund hol ds 580,000 shares of the Company (representing 0.03% of the issued share capital of the Company as at the date thereof). Mr. Huang is the founder, sole shareholder and manager of Petrel Management which is the manager to Petrel Fund.