The initial conversion price for the convertible notes is HK$0.258 (subject to adjustments), which represents a premium of about 35.1% over the average closing price of approximately HK$0.191 per share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including 7 March 2008.

Mr. Hu Yishi, Chairman of Kai Yuan said, “The issue of convertible notes with premium conversion price demonstrates investors’ confidence on the Company’s future. The convertible note issue will provide the Company with immediate funding for our expansion into the heat supply business. The conversion notes, once exercised, will also serve to broaden the capital base of the Company.”

The convertible notes will bear interest of 3.5% per annum. Interest will be payable yearly in arrears commencing 12 months after the date of the issue of the convertible notes.

Assuming that the conversion rights attach with the convertible notes are exercised in full at the conversion price of HK$0.258 per share, a maximum of 660,000,000 Shares will be issued, representing approximately 11.77% of the issued share capital of the Company as at the date of the announcement and approximately 10.53% of the issued share capital of the Company as enlarged by the allotment and issue of the conversion shares.

About Kai Yuan Holdings Limited (SEHK Code: 1215)

Kai Yuan Holdings Limited is principally engaged in property investment and resources investment. Kai Yuan is extending its business to the provision of municipal public utility in mainland China by acquiring Tianjin Heating Development Co., Ltd. which focuses on heat supply to residential, commercial and industrial users.

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