Acquisition of 33% of equity interest in Shandong Xinhua wanbo chemical industrial co., ltd

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.

This announcement appears for information purposes only and does not constitute an invitation or offer to acquire purchase or subscribe for any securities of the Company.

山東新華製藥股份有限公司

Shandong Xinhua Pharmaceutical Company Limited

(a joint stock company incorporated in the People's Republic of China with limited liability)

(Stock Code: 0719)

CONNECTED TRANSACTION

ACQUISITION OF 33% OF EQUITY INTEREST IN SHANDONG XINHUA WANBO

CHEMICAL INDUSTRIAL CO., LTD

Reference is made to the announcement of the Company dated 18 September 2019. Unless otherwise specified, capitalised terms used in this announcement shall have the same meanings as those defined in the abovementioned announcement.

The Company is pleased to announce it has been informed that the Tender in respect of the Wanbo Interests has concluded and the Company has won the Tender at the Listing Price of RMB19,441,686.

SALE AND PURCHASE AGREEMENT

Following the Company's winning of the Tender, the Company has, in respect of the Wanbo Interests, entered into a sale and purchase agreement (the "Agreement").

The principal terms of the Agreement are set out below:

Date

11 October 2019

(after the trading hours of the Stock Exchange)

Parties

1. The Company; and
2. HHGC

Subject matter

The consideration to be paid by the Company to HHGC for the Wanbo Interests is in the amount of RMB19,441,686 (the "Consideration"). The Company had paid a security deposit of RMB 2 million (the "Security Deposit") at the submission of the Bidding Application. The Security Deposit will be counted in and applied to set off part of the Consideration. The Company shall within 5 business days from the date of the Agreement make a payment of RMB17,441,686 in cash one-off to the bank

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account designated by SDPREC for the specific purpose of settlement of the transaction under the Agreement.

Wanbo Chemical Industrial is currently 60% owned by HHGC and 40% owned by the Company following the acquisition of 40% of Wanbo Chemcial Industrial by the Company in 2018. Subsequent to the completion of the transaction under the Agreement, 73% of the equity capital of Wanbo Chemical Industrial will be owned by the Company and the articles of association and corporate governance structure of Wanbo Chemical Industrial will be updated to reflect the new shareholding structure consequent to the acquisition of the Wanbo Interests accordingly.

Condition

The Agreement shall take effect upon due execution of the parties and issuance of the Documentary Proof of the Property Right Transaction by SDPREC. SDPREC will release the Consideration to HHGC upon approval of the competent authorities in respect of the supervision and administration of state-owned assets of the PRC. As at the date of this announcement, the relevant approval has been obtained.

Consideration and Basis

The Consideration was the Listing Price for the Wanbo Interests at which the Tender started. The Listing Price was set with reference to the valuation by Chung Rui Assets Appraisal Co., Ltd. (中瑞世

聯資產評估(北京)有限公司)(the "Valuer"), a qualified valuation institution in the PRC.

According to the valuation report (the "Valuation Report") dated 26 July 2019 issued by the Valuer, as at 30 April 2019 (the "Benchmark Date"):

1. the total value (the "Value") of shareholders' equity interests of Wanbo Chemical Industrial was RMB58.9142 million by adopting the income-based approach of valuation; and
2. the total value of shareholders' equity interests of Wanbo Chemical Industrial was RMB56.1162 million by adopting the asset-based approach of valuation.

The Valuer has considered the valuation results based on the abovementioned approaches and opined that (i) the asset-based approach is based on the re-acquirement of assets and reflects the costs for reacquiring the assets of the Wanbo Chemical Industrial; and (ii) the income-based approach is based on the expectation of the future profitability and reflects the comprehensive profitability of the assets of Wanbo Chemical Industrial. Considering that the Wanbo Chemical Industrial manufactures specific chemical products and has relatively more favorable operating conditions, its future proceeds can be accurately predicted. As a result, the Valuer is of the view that it is more suitable to adopt the income- based approach as it can better reflect the total shareholders' equity interests of Wanbo Chemical Industrial.

An extract of the Valuation Report containing the principal assumptions on which the valuation was based is set out as Appendix for incorporation in and appending to this announcement.

Liabilities

A party to the Agreement shall be liable to the other party for damages consequent to a breach of the Agreement committed by itself as follows:-

1. If the Company fails to make the Consideration according to the Agreement, for each day of late payment, 1‰ of the Consideration shall be paid to HHGC as liquidated damages.
2. If the Company fails to perform the above payment obligations after the reminder from HHGC,

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HHGC has the right to unilaterally terminate the contract and require the Company to pay 1% of the Consideration as liquidated damages.

1. If HHGC fails to transfer the Wanbo Interests on time, for each day of late transfer, 1‰ of the Consideration shall be paid to the Company as liquidated damages.
2. If HHGC fails to transfer the Wanbo Interests after the reminder from the Company, the Company has the right to unilaterally terminate the contract and require HHGC to pay 1% of the Consideration as liquidated damages.
3. If the assets, liabilities or any other material items of Wanbo Chemical Industrial are not disclosed or are missing, causing significant adverse effects on Wanbo Chemical Industrial, or affecting the Consideration by more than 30%, the Company has the right to terminate the Agreement and require HHGC to pay 1% of the Consideration as liquidated damages.

REASONS FOR AND BENEFITS OF THE CONSIDERATION

The Consideration is expected to carry forward, the Group's consolidation of its upstream medical intermediaries resources, its overall competitiveness and development in the industry and its result performance.

The Board and the independent non-executive Directors have considered and reviewed the terms and provisions of the Agreement and considered them fair, reasonable and the transaction contemplated thereunder was entered into on normal commercial terms and in the ordinary and usual course of business, and in the interests of the Company and its shareholders as a whole.

Mr. Zhang Daiming, Mr. Ren Fulong, Mr. Xu Lie, being the Directors, have by virtue of their respective directorships or capacities as a member of the management of a subsidiary of HHGC abstained from voting on the Agreement and the transaction contemplated thereunder. Save as disclosed above, the Company is not aware of any other Directors who has a material interest therein.

INFORMATION OF THE TARGET COMPANY AND THE PARTIES TO THE AGREEMENT

The Company is a joint stock limited company incorporated in the PRC with its H shares and A shares listed on the Stock Exchange and Shenzhen Stock Exchange respectively. The Company is principally engaged in the development, manufacture and sale of bulk pharmaceuticals, preparations and chemical products.

HHGC is a state-owned enterprise principally engaged in investment holding of various companies listed or not listed on the stock exchanges of the mainland China and Hong Kong and was transferred its Wanbo Interests from SXPGC, wholly-owned subsidiary of HHGC.

Wanbo Chemical Industrial is a company incorporated in the PRC with limited liability and its principal businesses include the production and sale of such chemical products as dimethyl sulfate, isobutylbenzene, sulfuric acid (as by-products of dimethyl sulfate), 1,8-diazabicyclo(5,4,0)undec-7-ene, tetramethylguanidine and the sale of chemical raw materials. According to the audit report of Wanbo Chemical Industrial, its audited financial figures are as follows:

(Rounded off to RMB 0,000)

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Period

LISTING RULES IMPLICATIONS

As at the date of this announcement, HHGC, being a wholly state-owned company of the PRC, is the immediate controlling shareholder of the Company.

As all the applicable percentage ratios (with the meanings ascribed thereto under the Listing Rules and assuming that the consideration ratios are calculated based on the Listing Price) are more than 0.1% and less than 5%, the acquisition of the Wanbo Interests (irrespective whether on its own or in aggregation with the previous capital contribution in Wanbo Chemical Industrial within 12 months before the date of this Announcement (details of which were disclosed in the announcement of the Company dated 30 November 2018)) will therefore constitute a connected transaction (with the meanings ascribed thereto under the Listing Rules) of the Company and is subject to the reporting and announcement requirements but exempt from the circular, independent financial advice and disinterested shareholders' approval requirements under Chapter 14A of the Listing Rules.

PROFESSIONAL PARTY AND CONSENT

As at the date hereof, the Valuer, being a PRC qualified valuer, does not have any beneficial interests in the equity capital or shareholding of the members of the Group or any right (whether legally

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enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, and has given and has not withdrawn its consents to the publication of this announcement, to the references to its names herein and to the incorporation of its statements in this announcement.

By Order of the Board

Shandong Xinhua Pharmaceutical Company Limited

Zhang Daiming

Chairman

11 October 2019, Zibo, the PRC

As at the date of this announcement, the Board comprises:

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APPENDIX1

AN EXTRACT OF THE VALUATION REPORT CONTAINING THE PRINCIPAL

ASSUMPTIONS ON WHICH THE VALUATION WAS BASED

1. General Assumptions

1. It is assumed that there are no material changes in the relevant existing laws, regulations and policies, and macroeconomic conditions of the PRC as well as in the local political, economic and social environment of such places where the parties to the transaction are operating.
2. It is assumed the company will continue to operate as a going concern as at the Benchmark Date.
3. It is assumed that the persons operating the company is accountable and stable, and the management is capable of performing their duties.
4. Unless otherwise stated, it is assumed the company has fully complied with all relevant laws and regulations.
5. There are no major adverse effects on the enterprise caused by other force majeure and unforeseeable factors.

1. Specific Assumptions

1. It is assumed that the business scope and practice of the company will remain consistent with the current directions based on the existing management practice and management level of the company.
2. It is assumed the accounting policies to be adopted by the company in the future are basically consistent with the accounting policies adopted when the report is prepared in respect of key aspects.
3. There are no substantial changes in relation to interest rate, exchange rate, tax base, tax rate and

1 Unless the context otherwise specifies, "company" and "enterprise" in this Appendix shall mean Wanbo Chemical Industrial.

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policy-based levies.

1. It is assumed the company will have a net positive cash flow for the predicted years.
2. It is assumed that the products or services of the company will maintain current market competitiveness.
3. It is assumed that the level of research and development and technological advancement of the company will be maintained at the current level.
4. It is assumed that the lease of the company is legal, valid and obligations of which are performed, and will not change or terminate without reasonable cause. There will not be any significant changes to the operating status of the leased premises.
5. The asset appraisal professional did not conduct technical tests on the technical parameters and performance of various equipment on the Benchmark Date, and it made determination upon the site survey on the premises on the assumption that the relevant technical data and operational records provided by the client were true and effective.
6. The assessment object under site survey by the asset appraisal professional is limited to the appearance and conditions of the assessment object. As such, structural defects inside the assessment object cannot be ascertained or assessed. It is assumed that the internal quality of the assessment object meets the relevant national standards and is sufficient to maintain its normal use.

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