Fufeng Group Limited — Capital/Financing Update 2018

Aug 1, 2018

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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Fufeng Group Limited 阜豐集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 546)

DISCLOSEABLE TRANSACTION

DISPOSAL OF INTEREST IN TWO WHOLLY OWNED SUBSIDIARIES HOLDING PROPERTY INTERESTS IN SHAANXI PROVINCE

THE DISPOSAL AGREEMENTS

On 1 August 2018 (after trading hours), the Vendor, an indirect wholly owned subsidiary of the Company, entered into the Disposal Agreements with the Purchasers, pursuant to which the Vendor agreed to sell and the Purchaser has agreed to acquire the Target Companies for an aggregate consideration of approximately RMB1,792.3 million.

THE TARGET COMPANIES AND THE LAND

The Target Companies are investment holding companies and hold parcel of lands which are located at Gao Xin Jiu Road, East Area, Baoji High-Technology Development Zone, Baoji City, Shaanxi Province, PRC. The aggregate site area of the Land is approximately 569.654 mu (or approximately 379,769.3 square metres), and the Land is currently designated for residential use and held by the Group for investment purpose as it evaluated the Group’s business development and expansion plans in Shaanxi province.

LISTING RULES IMPLICATIONS OF THE DISPOSALS

As the relevant Percentage Ratio(s) for the Company exceeds 5% but is less than 25%, the Disposals constitute a discloseable transaction of the Company and is subject to announcement requirement but exempt from Shareholders’ approval requirement under Chapter 14 of the Listing Rules.

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THE DISPOSAL AGREEMENTS

Date: 1 August 2018 (after trading hours)

Parties

• (1) The Vendor: Hulunbeir Fufeng

• (2) The Purchasers: Baoji Jin Fengze, Baoji Jin Yuanfeng and Xian Management L.P.

• (3) Vendor Guarantor: Baoji Fufeng

• (4) Purchasers’ Guarantor: Sichuan Lan Guang

As at the date of this announcement, based on the information and confirmation provided by the Purchasers and the Purchasers’ Guarantor and to the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, the Purchasers, the Purchasers’ Guarantor and its ultimate beneficial owner(s) are Independent Third Parties of the Company and its connected persons.

Asset to be disposed

Pursuant to the First Disposal Agreement, the Vendor has agreed to sell and the Purchasers have agreed to acquire the Sale Shares A and the Shareholder’s Loan A owed by Baoji Ding Feng to the Vendor as at 30 June 2018. Baoji Ding Feng is the legal and beneficial owner of Land A.

Pursuant to the Second Disposal Agreement, the Vendor has agreed to sell and the Purchasers have agreed to acquire the Sale Shares B and the Shareholder’s Loan B owed by Baoji Bao Feng to the Vendor as at 30 June 2018. Baoji Bao Feng is the legal and beneficial owner of Land B.

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Consideration

Pursuant to the First Disposal Agreement, the consideration for the disposal of Sale Shares A and Shareholder’s Loan A is RMB1,448.6 million. Pursuant to the Second Disposal Agreement, the consideration for the disposal of Sale Shares B and Shareholder’s Loan B is RMB343.7 million. The consideration for the Disposal Agreements shall be payable by the Purchasers to the Vendor in the following manner:

Date % of equity interest of the Target Companies to be transferred to Purchasers under the Agreements Within 10 business days after signing of the Disposal Agreements and upon fulfillment of the below conditions precedent 35.0% Within 3 months upon signing of the Disposal Agreements 17.5% Within 9 months upon signing of the Disposal Agreements 46.5% Within 12 months upon signing of the Disposal Agreements 1.0% 100%	Consideration to be received by the Vendor under the First Disposal Agreement (RMB, million) 507.0 253.5 673.6 14.5 1,448.6	Consideration to be received by the Vendor under the Second Disposal Agreement (RMB, million) 120.3 60.2 159.8 3.4 343.7

The Consideration was arrived at after arm’s length negotiations between the Vendor and the Purchasers and was determined with reference to the estimated market price of the Land with the prevailing market prices of the similar property type nearby, the net asset value of the Target Companies and the factors as set out in the paragraph headed “Reasons for and Benefits of the Disposal and Use Of Proceeds” below. Based on the foregoing, the Directors are of the view that the Consideration is fair and reasonable and in the interest of the Company and its Shareholders taken as a whole.

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Conditions Precedent

Completion is subject to and conditional upon the satisfaction in full of the following conditions: (i) the Vendor shall settle RMB0.85 million and RMB0.34 million of land use tax for Land A and Land B respectively and provide proof of such tax payment to the Purchasers; and (ii) Vendor shall be responsible for any construction work already carried out on the Land prior to the date of the Agreements and the Vendor undertake that any ongoing construction work on the Land will be withdrawn and shall not affect the transfer and development of the Land.

Completion

The Disposals will be completed upon fulfillment of all the conditions precedent and the full payment of the total consideration under the Agreements. Upon Completion, the Group shall cease to hold any interest in the Target Companies and the Target Companies shall cease to be subsidiaries of the Company.

INFORMATION ABOUT THE TARGET COMPANIES

The Target Companies are investment holding companies and hold parcel of lands which are located at Gao Xin Jiu Road, East Area, Baoji High-Technology Development Zone, Baoji City, Shaanxi Province, PRC. The aggregate site area of the Land is approximately 569.654 mu (or approximately 379,769.30 square metres), and the Land is currently designated for residential use and held by the Group for investment purpose as it evaluated the Group’s business development and expansion plans in Shaanxi province.

Set out below is the unaudited financial information prepared under PRC GAAP of Baoji Bao Feng and Baoji Ding Feng for each of the two years ended 31st December, 2017:

	Year ended	Year ended
	31 December 2016	31 December 2017
	RMB million	RMB million
Baoji Ding Feng
Revenue	Nil	Nil
Net loss before taxation	26.0	25.7
Net loss after taxation	26.0	25.7
Baoji Bao Feng
Revenue	Nil	Nil
Net loss before taxation	9.9	10.3
Net loss after taxation	9.9	10.3

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The net liabilities value of Baoji Ding Feng and Baoji Bao Feng is RMB89.2 million and RMB25.8 million as at 30 June 2018 respectively.

FINANCIAL EFFECT OF THE DISPOSAL

It is estimated that, as a result of the Disposal, the Company will recognise an estimated gain on disposal of approximately RMB1 billion, having taken into account of the Consideration (including the repayment of the Shareholder’s Loan A and Shareholder’s Loan B), net asset/ (liabilities) value of the Target Companies and other costs. The proceeds generated from the Disposal will be applied as general working capital of the Group.

REASONS FOR AND BENEFITS OF THE DISPOSAL AND USE OF PROCEEDS

After assessing its strategic options, given that the Land is not required for the development and growth of the core business of the Group, the Directors consider that the Disposal would help realize cash for the reduction of net gearing and working capital of the Group, and in turn strengthen the overall balance sheet structure.

In view of the above, the Directors (including the independent non-executive Directors) considers that the terms of the Disposal are fair and reasonable and in the interests of the Company and its shareholders as a whole.

INFORMATION RELATING TO THE COMPANY, THE VENDOR AND THE PURCHASERS

(1) The Company

The Company is one of the leading vertically integrated manufacturers of glutamic acid, monosodium glutamate (MSG) and xanthan gum in the PRC and in the world and has been listed on the Main Board of the Hong Kong Stock Exchange since 8 February 2007.

(2) The Vendor

The Vendor is a company incorporated in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company. The principal business activity of the Vendor is investment holding.

(3) The Purchasers

Baoji Jin Fengze is a company incorporated in the PRC with limited liability. The principal business activity of Baoji Jin Fengze includes real estate (development, operation, sales), land consolidation (engineering, design, construction) and property management.

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Baoji Jin Yuanfeng is a company incorporated in the PRC with limited liability. The principal business activity of Baoji Jin Yuanfeng includes real estate (development, operation, sales), land consolidation (engineering, design, construction) and property management.

Xian Management L.P. is a limited partnership established and registered under the laws of PRC. The principal business activity of Xian Management L.P. includes business management consulting, business information consulting and marketing planning.

GENERAL

As the relevant Percentage Ratio(s) for the Company exceeds 5% but is less than 25%, the Disposals constitute a discloseable transaction of the Company and is subject to announcement requirement but exempt from Shareholders’ approval requirement under Chapter 14 of the Listing Rules.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following expressions have the meanings set out below:

“Baoji Bao Feng”	Baoji Bao Feng Property Investment Limited* (寶雞寶豐
	置業有限公司), a PRC incorporated company and a wholly
	owned subsidiary of the Company;
“Baoji Ding Feng”	Baoji Ding Feng Property Investment Limited* (寶雞鼎豐
	置業有限公司), a PRC incorporated company and a wholly
	owned subsidiary of the Company;
“Baoji Fufeng”	Baoji Fufeng Biotechnologies Company Limited* (寶雞阜
	豐生物科技有限公司), a PRC incorporated company and a
	wholly owned subsidiary of the Company;
“Baoji Jin Fengze”	寶雞錦灃澤置業有限公司(Baoji Jin Fengze Company
	Limited*) a company incorporated in the PRC with limited
	liability and a 100% wholly owned subsidiary of Sichuan
	Lan Guang;
“Baoji Jin Yuanfeng”	寶雞錦源灃置業有限公司(Baoji Jin Yuanfeng Company
	Limited*) a company incorporated in the PRC with limited
	liability and a 100% wholly owned subsidiary of Sichuan
	Lan Guang;
“Board”	the board of Directors;

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“Company”	Fufeng Group Limited (Stock Code: 546), a company
	incorporated in Cayman Islands with limited liability, the
	shares of which are listed on the main board of the Stock
	Exchange;
“Completion”	completion of the Disposal;
“connected person(s)”	has the meaning ascribed thereto under the Listing Rules;
“Director(s)”	the director(s) of the Company;
“Disposal”	the disposal of Sale Shares A and Sale Shares B, together
	with all the interests in the Shareholder’s Loan A and
	Shareholder’s Loan B pursuant to the Disposal Agreements;
“Disposal Agreements”	First Disposal Agreement and Second Disposal Agreement;
“First Disposal	the equity transfer agreement dated 1 August 2018 (after
Agreement”	trading hours) entered into between the Vendor and
	the Purchasers for the sale of 100% equity interest and
	outstanding shareholder loan as at 30 June 2018 of Baoji
	Ding Feng;
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China;
“Hulunbeir Fufeng”	Hulunbeir Northeast Fufeng Biotechnologies Co., Ltd.*
	(呼倫貝爾東北阜豐生物科技有限公司), a wholly-owned
	subsidiary of the Company;
“Land”	Land A and Land B, with an aggregate site area of
	approximately 569.654 mu (or approximately 379,769.3
	square metres);
“Land A”	Plots of land located at Gao Xin Jiu Road, East Area, Baoji
	High-Technology Development Zone, Baoji City, Shaanxi
	Province, PRC, with a total site area of approximately 406.92
	mu (or approximately 271,280 square metres);
“Land B”	Plots of land located at Gao Xin Jiu Road, East Area, Baoji
	High-Technology Development Zone, Baoji City, Shaanxi
	Province, PRC, with a total site area of approximately
	162.734 mu (or approximately 108,489.3 square metres);

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“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange as amended from time to time;

• “PRC” the People’s Republic of China, which for the purpose of the Disposal Agreement, excludes Hong Kong and Macau Special Administrative Regions and Taiwan;

• “Purchasers” Baoji Jin Fengze, Baoji Jin Yuanfeng and Xian Management L.P.;

• “RMB” Renminbi, the lawful currency of the PRC;

• “Sale Shares A” the entire issued share capital of Baoji Ding Feng;

• “Sale Shares B” the entire issued share capital of Baoji Bao Feng;

• “Second Disposal Agreement” the equity transfer agreement dated 1 August 2018 (after trading hours) entered into between the Vendor and the Purchasers for the sale of 100% equity interest and outstanding shareholder loan as at 30 June 2018 of Baoji Bao Feng;

• “Shareholder’s Loan A” the shareholder’s loan owing by Baoji Ding Feng to the Vendor amounting to RMB613.9 million as at 30 June 2018;

• “Shareholder’s Loan B”

• the shareholder’s loan owing by Baoji Bao Feng to the Vendor amounting to RMB235.6 million as at 30 June 2018;

• “Sichaun Lan Guang” or “Purchasers’ Guarantor”

• 四川藍光和駿實業有限公司(Sichaun Lan Guang He Jun Shi Ye Company Limited*) a company incorporated in the PRC with limited liability and is the beneficial owner of Baoji Jin Fengze and Baoji Yuanfeng;

• “Stock Exchange”

• The Stock Exchange of Hong Kong Limited;

• “Target Companies”

• Baoji Ding Feng and Baoji Bao Feng;

• “Xian Management L.P.” 西安臻琅企業管理合夥企業（有限合夥） (Xian Zhen Lang Corporate Management Partnership L.P., , a limited partnership established and registered under the laws of PRC;

• “Vendor” Hulunbeir Fufeng; and

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“%”

per cent.

By Order of the Board Fufeng Group Limited Li Xuechun Chairman

Hong Kong, 1 August 2018

As at the date of this announcement, the executive directors of the Company are Mr. Li Xuechun, Mr. Zhao Qiang, Mr. Li Deheng, Mr. Pan Yuehong and Mr. Li Guangyu and the independent non-executive directors of the Company are Mr. Xiao Jian Lin, Mr. Qi Qingzhong and Ms. Zheng Yu.

* For identification purposes only

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