Hanwei completes Deta acquisition

Hanwei Energy Services Corp. announced that it has completed its previously announced acquisition of a 99 percent equity interest in Daqing Deta Electric Co. Ltd. (“Deta”). Hanwei is in receipt of all necessary documentation from Deta as well as all the required regulatory approvals and the amended business license.

“The acquisition of Deta provides Hanwei with an anchor customer including an agreement to provide 1,200 MW of wind power agreement over a five year period and licenses for 1.5 MW turbine and blade manufacturing technology. We have used this technology to produce turbines and blades that have been installed and are now undergoing field testing and calibration, with positive initial results,” stated Fulai Lang, President and CEO of Hanwei. “During the last year we have built up our engineering, manufacturing and supply chain management capabilities, as well as establishing supplier relationships with key China based component and systems manufacturers. We have established a solid platform to deliver on the current contracts, and attract new customers in China’s growing wind power market.”

Hanwei Wind Power Equipment (Daqing) Co., Ltd. (“Hanwei Wind”), a wholly owned subsidiary of Hanwei, has acquired 99% of Deta, for RMB 591 million ($107 million), of which RMB 431 million ($78 million) will be paid under an earn out provision from 2008 to 2012 based on the performance of Deta and RMB 160 million ($29 million) in initial cash payments. The earn out provision will be paid with RMB 300 million ($54 million) in Hanwei common shares (8,051,746 Hanwei common shares valued at $5.30 per share, based on the Bank of Canada exchange rate of 7.03 as of January 18, 2008) and RMB 131 million ($24 million) in cash.

Hanwei Wind will have an option, to acquire the remaining 1% of Deta for RMB 6 million ($1.1 million) at any time, and the shareholders of Deta will have an option to require Hanwei Wind to purchase the remaining 1% of Deta for RMB 6 million ($1.1 million), 12 months after the close of the acquisition, subject to the approval of the Chinese government. Currently, Chinese law requires that wind power technology developed in China be partly owned by Chinese citizens.

As required under the acquisition agreements, Deta has entered into a contract (the “Wind Power Equipment Contract”) with Heilongjiang Ruihao Energy Technology Co., Ltd. (“Ruihao”) for exclusive manufacturing rights for a total of 1,200 megawatts (“MW”) of turbines, blades, and towers (“Wind Power Equipment”) and a 200 MW manufacturing contract to provide Wind Power Equipment in 2008 and 2009. Under the acquisition agreements Deta will negotiate an annual manufacturing contract for 250 MW of Wind Power Equipment during the period of 2009 to 2012 for a total of 1,200 MW with total value of approximately RMB 8.4 billion ($1.5 billion). For the first 200 MW manufacturing contract the purchase price is set at RMB 6.2 million ($1.1 million) per MW including value added tax for turbines and blades. The purchase price for towers will be set separately with each purchase order, estimated at RMB 0.8 million ($0.14 million) per MW based on the price that Hanwei Wind was paid in 2007. For future annual manufacturing contracts contemplated to be signed from 2009 through 2012, the purchase price will be negotiated based on the market price of the same type of products.

Pursuant to the acquisition, 8,051,746 shares at $5.30 per share will be issued and placed in escrow, to be released together with the cash payments, based on the successful achievement of the performance targets, under the following schedule:

1. Initial payment of RMB 100 million ($18 million) in cash no later than March 31, 2009.
2. A payment of RMB 60 million ($11 million) in cash within 30 days after Ruihao transfers title to the land and building used for the wind power equipment manufacturing to Deta.
3. A payment of 1,610,350 Hanwei shares to be paid at the end of 2008 if the combined company after the acquisition can enter into wind power equipment sales contracts of 200 MW and achieve a net after tax profit margin of 15% on the contract.
4. Four payments of 1,610,349 Hanwei shares to be paid annually at the end of each year of 2009 through 2012 if the combined company after the acquisition can enter into Wind Power Equipment sales contracts of 250 MW in each year and achieve a net after tax profit margin of 15% on the contract.
5. Three payments of RMB 32.5 million ($5.9 million) and one payment of RMB 33.5 ($6.1 million) million in cash to be paid annually from 2009 through 2012 if the combined company after the acquisition can enter into Wind Power Equipment sales contracts of
250 MW in each year. This payment is to be made 30 days after the annual sales contracts are signed and Deta receives 5% prepayment on the contracts from Ruihao.

In connection with the completion of the acquisition, the Company will prepare and file a business acquisition report containing customary financial disclosure. Hanwei has arranged debt facilities to fund the acquisition and support the working capital requirements of the wind power business.

In addition to the 200 MW agreement between Deta and Ruihao, Hanwei is working on the completion of a RMB 200 million ($27.9 million) wind power equipment manufacturing contract between Hanwei and Deta.

As at September 30, 2008, the Company had delivered 12 turbines, 3 sets of blades, 30 towers and various wind power equipment accessories. Further, Hanwei expects to complete and deliver a total of 40 turbines and 40 blades (13 and 1/3 sets) for all of 2008.