7 May, 2009

Dear Sir/Madam

Proposed General Meeting to be held on 4th June 2009 (the “General Meeting”)

I would like to explain the background to the agenda for the proposed General Meeting.

Following the resignation of Mr Simon Littlewood from the Board of London Asia Capital plc (“LAC” or “the Company”) immediately prior to the June 2007 AGM and his relocation to Hong Kong, Mr George Allnutt and Mr Jack Wigglesworth, non-executive directors of LAC, were unhappy with the accuracy and completeness of the information with which they were being provided. In April 2008 Mr Allnutt was appointed Managing Director with the aim of investigating the Company’s activities. He was, however, unable to obtain the information he sought and the Company’s shares were suspended from AIM on 5 June 2008. Then, in early September 2008 Huang He Securities Limited (also known as Yellow River Securities Ltd), a company of which Mr Littlewood was a director, sought to call a general meeting to remove both directors and replace them with Mr Littlewood and two of his associates. The discovery that the shares held by Huang He Securities Limited, London Asia Limited, London Asia Capital Land Limited and China Exchange Limited were not fully paid up (dealt with later in this letter), thereby disqualifying each of them from voting at a general meeting, allowed LAC to decline the request to convene the general meeting.

In late September 2008 Mr Allnutt and Mr Wigglesworth invited me to become Chief Executive of LAC. At this time the subsidiaries, which the Company ought to have controlled by virtue of its majority shareholding, were under the de facto control of Mr Littlewood and his associate, Mr Victor Ng, a past director of the Company. The directors of LAC at that time were neither on the boards of the Company’s many direct and indirect subsidiaries (with the sole exception of London Asia Corporate Finance Ltd) nor were they signatories to the subsidiaries’ bank accounts; indeed the location and even existence of many of these bank accounts were unknown to them. In the meantime, although ample funds were held by its subsidiaries, the Company itself held no significant cash with which to fund its essential activities.

On accepting the appointment I took steps to become a controlling signatory of those bank accounts of which the Board of the Company was aware and to have LAC’s directors appointed to the boards of key subsidiaries. At the same time I sought to have the overdue accounts for the year to 31st December 2007 prepared, audited and filed in order to preserve the Company’s AIM listing. To this end Mr Toby Parker ACA was appointed Finance Director of LAC. However, it soon became apparent that it would be impossible to meet the 5th December 2008 deadline and so avoid the Company being delisted. The group’s complex corporate structure included many subsidiaries and associated companies throughout Asia about which little was known at main Board level. Furthermore, the Company held little of the important accounting information on the activities of its subsidiaries or their investments.

Another major challenge in preparing the accounts was the need to ascertain the fair value of the Company’s investments. While Mr Littlewood had provided a schedule of fair values for use in the 2007 accounts, the substantial differences between these and the values used earlier in the preparation of the 2007 interim accounts demanded independent investigation. The Company was fortunate to be able to secure the services of China IPO Group plc (“China IPO”), in particular three of its directors, The Earl of Cromer, Professor Francesco Gardin and Mr Dennis Bailey. China IPO has not only established high level contact with the LAC investee companies but has also made available to the Company its staff and infrastructure in China, specifically Beijing and Xi’an. In addition to being able to visit and report on the investee companies, China IPO has been able to provide the financial translation and analytical services necessary to value the relevant Chinese and Asian businesses. The Earl of Cromer, Professor Gardin and Mr Bailey accepted an invitation to join your Board on 18th December 2008.

The directors appointed since the start of September 2008 (“the New Directors”) have made substantial progress. We have restored control of all main subsidiaries, traced and taken control of bank accounts, established title to much of the Group’s investment portfolio, visited the main investments held and established the basis of sound corporate governance. We have also commenced steps to achieve the cancellation of the 98 million LAC shares mentioned earlier held by Huang He Securities Limited, London Asia Limited, London Asia Capital Land Limited and China Exchange Limited. The shares were used to subscribe for 40% interests in each of these four newly created companies. In each of the four companies third party investors held the remaining 60% interest. In aggregate, the other investors paid little more than twenty thousand pounds (£20,000) for their investment, which effectively gave them a 30% shareholding in LAC collectively. The effect of the share cancellation will be to reduce the number of shares in issue from 327 million to 229 million, thereby increasing the net assets attributable to remaining shareholders. Announcements issued by the Company to the Stock Exchange in June 2007 stated that these companies had made substantial acquisitions in China and were developing new trading activities. However, although no further announcements were made those acquisitions were all in fact aborted.

Following the work undertaken informally at the end of 2008, China IPO proposed an arrangement whereby it would assist in returning part of the available cash to shareholders and restoring the LAC shares to AIM. The reward to China IPO for this activity is to be success-based. Details of this proposal are attached as Annex 1 to this letter.

In summary, the proposals are for China IPO to receive a percentage fee based on cash returned or assets distributed to shareholders or the market capitalisation of the Company on AIM during the period ending five years from the date of the agreement. The fee payable will be on the basis shown in the table below and satisfied at the option of China IPO in LAC shares or cash with the exception of the first £5 million, which may only be satisfied in shares.

Cash returned or assets distributed or market capitalisation on relisting
£ million
Fee Rate To be satisfied in
The first 0 - 5 5% Shares
The excess from 5 - 10 10% on such excess over £5m Cash or shares (at the option of China IPO)
The excess from 10 – 15 15% on such excess over £10m
The excess over 15 and above 20% on such excess over £15m

As part of this arrangement shareholder approval is being sought to increase the authorised share capital of LAC and to grant the directors of LAC authority to allot shares in the Company (free of pre-emption rights) to be issued to China IPO should these conditions be fulfilled. Subject to the grant of allotment authority an option agreement will be entered into, details of which are attached as Annex 2 to this letter, whereby China IPO will be granted an option to subscribe for 10,000,000 ordinary shares in LAC at an exercise price of 5p per share exercisable at any time until 31st December 2012.

The LAC Board (the three China IPO directors having abstained from voting on this issue), believes these arrangements to be in the best interests of shareholders.

Despite excellent progress much remains to be done. The New Directors have further extensive inquires to make and as a result have yet to finalise the accounts for 2007. For example, it has come to our attention that certain group companies may have acquired shares in the Company and if so this may need to be remedied before the accounts can be produced. Nevertheless, it is the belief of your Board that the net assets per valid share of LAC are greater than the market price of 2.75p per share, which prevailed when the shares were suspended in June 2008, and a substantial sum is now held in cash. Your Board is planning to return cash to shareholders at the earliest opportunity if a satisfactory mechanism can be found. Our first priority, however, remains to file the 2007 and 2008 audited accounts, in itself a precondition for any cash distribution.

Rather than accept further delay until audited accounts can be placed before shareholders the enlarged Board of LAC has agreed that a General Meeting of shareholders in LAC should be convened. This will afford the Board the opportunity to inform shareholders of progress and allow shareholders the opportunity to question the Board and generally have their views and wishes heard. At the same time, your approval is being sought to ratify the appointment of all the New Directors. Biographical details of the New Directors are attached as Annex 3 to this letter.

The Notice convening the General Meeting is attached as Annex 4 to this letter. In the meantime any further announcements will be made on the Company’s web site, www.londonasiacapital.com.

Your Board strongly recommends that you vote in favour of all the resolutions proposed in the attached notice of General Meeting.

Your sincerely

Keith Negal

Chief Executive

Annex 1 – Summary of China IPO Agreement
Annex 2 – Summary of China IPO Share Option Agreement
Annex 3 – Biographical details of New Directors
Annex 4 – Notice Convening General Meeting
Annex 5 – Form of Proxy