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.

CHINA SHENGMU ORGANIC MILK LIMITED

中 國 聖 牧 有 機 奶 業 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1432)

CONTINUING CONNECTED TRANSACTIONS

(1)Framework Agreement for Sale and Purchase of Cows

(2)Financial Assistance Framework Agreement

(3)Feed Supply Framework Agreement

THE FRAMEWORK AGREEMENTS

Reference is made to the announcement of the Company dated 22 November 2016 in relation to, among other things, (i) the framework agreement for sale and purchase of cows dated 22 November 2016 entered into between Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)), a wholly-owned subsidiary of the Company and Shengmu Pangu in relation to the sale and purchase of cows between the Group (excluding Shengmu Pangu) and Shengmu Pangu; and (ii) the financial assistance framework agreement dated 22 November 2016 entered into between Shengmu High-tech (for itself and on behalf of the Group (excluding Shengmu Pangu)) and Shengmu Pangu in relation to the provision of financial assistance (in the form of guarantees) by the Group (excluding Shengmu Pangu) to Shengmu Pangu.

The Group now seeks to renew such framework agreements on substantially the same terms and hereby announces that, on 23 April 2019, (i) Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)), entered into the new Framework Agreement for Sale and Purchase of Cows with Shengmu Pangu, in relation to the sale and purchase of cows between the Group (excluding Shengmu Pangu) and Shengmu Pangu; and (ii) Shengmu High-tech (for itself and on behalf of the Group (excluding Shengmu Pangu)), entered into the new Financial Assistance Framework Agreement with Shengmu Pangu in relation to the provision of financial assistance (in the form of guarantees) by the Group (excluding Shengmu Pangu) to Shengmu Pangu, each for a term of three years from 23 April 2019 to 31 December 2021.

The Company further announces that, on 23 April 2019, Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)) also entered into the Feed Supply Framework Agreement with Shengmu Pangu in relation to the purchase of feed by Shengmu Pangu from the Group (excluding Shengmu Pangu) for a term of three years from 23 April 2019 to 31 December 2021.

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IMPLICATIONS UNDER THE LISTING RULES

Shengmu Pangu is a 55% indirectly owned subsidiary of the Company and the remaining 45% equity interest in Shengmu Pangu is owned by Mr. Wu, an executive Director. As a result, Shengmu Pangu is a connected person of the Company as defined under the Listing Rules. Accordingly, the entering into of the Framework Agreements and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios under the Listing Rules in respect of the highest proposed annual caps under each of the Framework Agreements exceed 0.1% but all are less than 5%, the entering into of each of the Framework Agreements and the transactions contemplated thereunder are subject to the reporting and announcement requirements, but are exempt from the independent Shareholders' approval requirement under the Listing Rules.

Reference is made to the announcement of the Company dated 22 November 2016 in relation to, among other things, (i) the framework agreement for sale and purchase of cows dated 22 November 2016 entered into between Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)), a wholly-owned subsidiary of the Company and Shengmu Pangu in relation to the sale and purchase of cows between the Group (excluding Shengmu Pangu) and Shengmu Pangu; and (ii) the financial assistance framework agreement dated 22 November 2016 entered into between Shengmu High-tech (for itself and on behalf of the Group (excluding Shengmu Pangu)) and Shengmu Pangu in relation to the provision of financial assistance (in the form of guarantees) by the Group (excluding Shengmu Pangu) to Shengmu Pangu.

The Group now seeks to renew such framework agreements on substantially the same terms and hereby announces that, on 23 April 2019, (i) Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)), entered into the new Framework Agreement for Sale and Purchase of Cows with Shengmu Pangu, in relation to the sale and purchase of cows between the Group (excluding Shengmu Pangu) and Shengmu Pangu; and (ii) Shengmu High-tech (for itself and on behalf of the Group (excluding Shengmu Pangu)), entered into the new Financial Assistance Framework Agreement with Shengmu Pangu in relation to the provision of financial assistance (in the form of guarantees) by the Group (excluding Shengmu Pangu) to Shengmu Pangu, each for a term of three years from 23 April 2019 to 31 December 2021.

The Company further announces that, on 23 April 2019, Shengmu Holding (for itself and on behalf of the Group (excluding Shengmu Pangu)) also entered into the Feed Supply Framework Agreement with Shengmu Pangu in relation to the purchase of feed by Shengmu Pangu from the Group (excluding Shengmu Pangu) for a term of three years from 23 April 2019 to 31 December 2021.

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THE FRAMEWORK AGREEMENTS AND TRANSACTIONS

Framework Agreement for Sale and Purchase of Cows

Principal Terms

The principal terms of the Framework Agreement for Sale and Purchase of Cows are summarised as follows:

Date:

23 April 2019

Parties:

Shengmu Holding (for itself and on behalf of the

Group (excluding Shengmu Pangu)) and Shengmu

Pangu

Term:

From 23 April 2019 to 31 December 2021

Sale and purchase price:

The sale and purchase price shall be the same as the

cost of the cows set out in the accounts of the

selling party

Amendment and

Any amendment to or the termination of the

termination:

Framework Agreement for Sale and Purchase of

Cows shall be made in writing by the parties

Reasons for and benefits of entering into the Framework Agreement for Sale and Purchase of Cows

The Group manages the dairy farming business on a centralised basis. As a subsidiary of the Group, Shengmu Pangu is also subject to such centralised management.

Historical Transaction Amount

Set out below are the historical transaction amounts of (i) cows purchased by Shengmu Holding from Shengmu Pangu, and (ii) cows sold by Shengmu Holding to Shengmu Pangu for the three years ended 31 December 2016, 2017 and 2018, respectively:

Year ended 31 December

2016

2017

2018

RMB (million)

Purchase of cows

21.9

14.9

5.5

Sales of cows

41.8

11.5

Nil

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Proposed Annual Caps

Set out below are the proposed annual caps for the total purchase and sale amounts under the Framework Agreement for Sale and Purchase of Cows for the three years ending 31 December 2019, 2020 and 2021, respectively:

Year ended 31 December

2019

2020

2021

RMB (million)

Purchase of cows

16.0

13.6

14.2

Sales of cows

29.4

45.8

35.7

In determining such annual caps, the Directors have considered the following factors:

(a)the historical transaction amounts of cows purchased and sold between Shengmu Holding and Shengmu Pangu for the three years ended 31 December 2016, 2017 and 2018, respectively, as mentioned above;

(b)the dairy farming expansion plan for Shengmu Pangu for the three years ending 31 December 2019, 2020 and 2021, respectively. Shengmu Pangu plan to expand its herd size to not less than 8,908, 8,569 and 9,046 cows in 2019, 2020 and 2021, respectively;

(c)the historical market price of cows; and

(d)the possible future inflation in the PRC dairy industry.

Financial Assistance Framework Agreement

Principal Terms

The principal terms of the Financial Assistance Framework Agreement are summarised as follows:

Date:

23 April 2019

Parties:

Shengmu High-tech (for itself and on behalf of the

Group (excluding Shengmu Pangu)) and Shengmu

Pangu

Term:

From 23 April 2019 to 31 December 2021

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Provision of financial

The Group (excluding Shengmu Pangu) shall, based on

assistance:

the requests of Shengmu Pangu from time to time,

provide guarantees for Shengmu Pangu's commercial

loans and borrowings on normal commercial terms.

Reasons for and benefits of entering into the Financial Assistance Framework Agreement

Shengmu Pangu, as a subsidiary of the Group, has been obtaining commercial loans and borrowings with the guarantees provided by the other more established subsidiaries of the Group, such as Shengmu Holding and Shengmu High-tech. Without such guarantees, it would incur higher financial cost to obtain such commercial loans and borrowings. As such, it is commercially beneficial to the Group to continue to provide financial assistances to Shengmu Pangu, which will also lower the overall financial cost of the Group.

Historical Transaction Amount

The historical daily maximum balance of financial assistance (in the form of guarantees) provided by the Group (excluding Shengmu Pangu) to Shengmu Pangu amounted to RMB40.0 million, RMB32.0 million and nil for the three years ended 31 December 2016, 2017 and 2018.

Proposed Annual Caps

The Directors propose that the maximum daily balance of financial assistance (in the form of guarantees) to be provided by the Group (excluding Shengmu Pangu) to Shengmu Pangu under the Financial Assistance Framework Agreement shall not exceed RMB60.0 million for each of the three years ending 31 December 2019, 2020 and 2021.

In determining such annual caps, the Directors have considered the following factors:

(a)the historical maximum daily balance of financial assistance (in the form of guarantees) provided by the Group (excluding Shengmu Pangu) to Shengmu Pangu for the three years ended 31 December 2016, 2017 and 2018, respectively, as mentioned above; and

(b)the amount of commercial loans and borrowings which will be required by Shengmu Pangu to fund its operations and expansions for the three years ending 31 December 2019, 2020 and 2021 which will be financed out from additional external borrowings with third-party guarantees.

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China Shengmu Organic Milk Ltd. published this content on 23 April 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 23 April 2019 12:18:11 UTC