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 Risun Group Limited

中國旭陽集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1907)

DISCLOSEABLE TRANSACTION

IN RELATION TO THE INVESTMENT

IN INNER MONGOLIA ZHONGRAN

The Board is pleased to announce that on 20 August 2019 (after trading hours), Risun Chemicals, Huhehaote Zhongran, Tianjin Baisen and Inner Mongolia Zhongran entered into the Capital Increase Agreement, pursuant to which Risun Chemicals, Tianjin Baisen and Huhehaote Zhongran will subscribe for RMB68.75 million, RMB12.5 million and RMB18.75 million, respectively, to the increased registered capital of Inner Mongolia Zhongran.

In addition, Risun Chemicals and Tianjin Baisen shall provide guarantee for the payment of the Debts and the Preferential Dividend by Inner Mongolia Zhongran based on their corresponding shareholdings in Inner Mongolia Zhongran, i.e. Risun Chemicals and Tianjin Baisen shall provide guarantee for 78.57% and 21.43% of the total amount of the Debts and the Preferential Dividend respectively.

Upon completion of the Transaction, the registered capital of Inner Mongolia Zhongran will increase from RMB25 million to RMB125 million, and Risun Chemicals, Tianjin Baisen and Huhehaote Zhongran will hold 55%, 15% and 30% equity interest of Inner Mongolia Zhongran respectively. Immediately after the Completion, Inner Mongolia Zhongran will not be a subsidiary of the Company. It will become a subsidiary of the Company and its financial results, assets and liabilities will be consolidated into the Group upon fulfillment of the Consolidation Conditions.

As one or more of the applicable percentage ratio(s) exceed 5% but are less than 25%, the Transaction constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules, and is subject to the reporting and announcement requirements.

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The Board is pleased to announce that on 20 August 2019 (after trading hours), Risun Chemicals, Huhehaote Zhongran, Tianjin Baisen and Inner Mongolia Zhongran entered into the Capital Increase Agreement, pursuant to which Risun Chemicals, Tianjin Baisen and Huhehaote Zhongran will contribute RMB68.75 million, RMB12.5 million and RMB18.75 million, respectively, to the registered capital of Inner Mongolia Zhongran. Upon completion of the Transaction, the registered capital of Inner Mongolia Zhongran will increase from RMB25 million to RMB125 million, and Risun Chemicals, Tianjin Baisen and Huhehaote Zhongran will hold 55%, 15% and 30% equity interest of Inner Mongolia Zhongran respectively.

BACKGROUND

Huhehaote Zhongran is currently the sole shareholder of Inner Mongolia Zhongran. Inner Mongolia Zhongran owns the Qingshuihe Project, a coal-to-methanol production project consists of production facilities located in Qingshuihe County, Huhehaote, Inner Mongolia, PRC, with approved annual production quota of 900,000 tonnes dry coke, 100,000 tonnes methanol and 150,000 tonnes coal tar, which was transferred from Huhehaote Zhongran to Inner Mongolia Zhongran in 2018. The Qingshuihe Project commenced its constructions in 2006 and commenced operations in 2009. Since April 2015, the Qingshuihe Project has suspended operations due to previous changes in the macro-economic governmental policies in the PRC and the then operational risks arising in connection with the changes in the relevant policies. The Directors believe that coking industry in the PRC has recovered as the price of hard coking coal has begun to recover since May 2016 and the Group can benefit from new governmental policy implementation such as supply-side reform.

As part of its the operation and management services business, the Group plans to invest in Inner Mongolia Zhongran and re-commence operations of the Qingshuihe Project. As the PRC government has ceased to grant new coking production quota, the Directors are of the view that the Transaction is a valuable opportunity to acquire existing approved coking production quota to expand its production scale.

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DETAILS OF THE CAPITAL INCREASE AGREEMENT

The principal terms of the Capital Increase Agreement are summarized as follows:

Date

20 August 2019 (after trading hours)

Parties

(i)

Risun Chemicals;

(ii)

Huhehaote Zhongran;

(iii)

Tianjin Baisen; and

(iv)

Inner Mongolia Zhongran.

To the best of the Directors' knowledge, information

and belief, having made all reasonable enquiries,

Huhehaote Zhongran, Tianjin Baisen and Inner

Mongolia Zhongran and their respectively ultimate

beneficial owners are independent third parties of the

Company and its connected person as at the date of this

announcement.

Subject matter

Inner Mongolia Zhongran will increase its registered

capital from RMB25 million to RMB125 million,

and Risun Chemicals, Tianjin Baisen and Huhehaote

Zhongran will subscribe for RMB68.75 million,

RMB12.5 million and RMB18.75 million, respectively,

to the increased registered capital of Inner Mongolia

Zhongran. The shareholding structure of Inner Mongolia

Zhongran before and after the Transaction is as follows:

Registered

Registered

capital

Contribution

capital

contributed

amount

contributed

% of total

before the

in the

Form of

after the

registered

Party

Transaction

Transaction

contribution

Transaction

capital

(RMB million)

(RMB million)

(RMB million)

Risun

Chemicals

-

68.75

Cash

68.75

55%

Huhehaote

In-kind

Zhongran

25.00

12.50

contribution

37.00

30%

Tianjin Baisen

-

18.75

Cash

18.75

15%

Total

25.00

100.00

125.00

100.00

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Payment of

Within 30 days of the Capital Increase Agreement:

contribution

(i)

Huhehaote Zhongran shall complete its registered

capital contribution by way of transferring the

corresponding amount of capital reserve of Inner

Mongolia Zhongran to paid-in capital; and

(ii)

Risun Chemicals and Tianjin Baisen shall

complete their contributions by way of transfer the

corresponding amount of cash into the designated

bank account of Inner Mongolia Zhongran.

Basis of consideration

The Parties recognized, the total assets, total liabilities

and net assets of Inner Mongolia Zhongran as

approximately RMB801.37 million, RMB486 million

and RMB314.37 million, respectively, as at 31 October

2017, as appraised by an independent third party, which

were used as the basis to determine the value of the

equity interests of Inner Mongolia Zhongran, and to

further determine the shareholding of each party after

the Transaction.

The Directors also made references to the audited

financial statements of Inner Mongolia Zhongran for

the year ended 31 December 2018 and believe that the

consideration for the Transaction is fair and reasonable.

Source of fund

The Group's registered capital contribution to Inner

Mongolia Zhongran will be funded with internal

resources.

Treatment of Debts

As agreed by the Parties and with reference to the

valuation report as at 31 October 2017 prepared by

an independent third party, Inner Mongolia Zhongran

owes RMB486 million to Huhehaote Zhongran. Inner

Mongolia Zhongran shall repay the Debts according to

the schedule below:

(i)

during the 1st year after the Completion: RMB50

million;

(ii)

during the 2nd year after the Completion: RMB100

million;

(iii)

during the 3rd year after the Completion: RMB100

million;

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(iv) during the 4th year after the Completion: RMB156

million; and

(v) within six months after the full payment of the

Preferential Dividend: RMB80 million.

If the Qingshuihe Project becomes suspended by the

government due to change of applicable laws or policies

during the first four years after the Completion, the

aggregate Debts owed by Inner Mongolia Zhongran

to Huhehaote Zhongran shall be reduced to RMB361

million.

(collectively, the "Debts")

Preferential Dividend

Starting from the fifth year after the Completion, Inner

Mongolia Zhongran shall pay an aggregate amount

of approximately RMB277.87 million by way of

Preferential Dividend to Huhehaote Zhongran in four

years, amounting to approximately RMB69.47 million

per year.

If the Qingshuihe Project becomes suspended by the

government due to change of applicable laws or policies

during the first four years after the Completion, the

aggregate amount of Preferential Dividend to be paid to

Huhehaote Zhongran will be reduced to RMB50 million,

amounting to RMB12.5 million per year.

If the Qingshuihe Project becomes suspended by the

government due to change of applicable laws or policies

during the period starting from the beginning of the

fifth year after the Completion and ending the end of

the eighth year after the Completion, the amount of

Preferential Dividend to be paid to Huhehaote Zhongran

for that year shall be reduced on a pro-rata basis based

on the actual operational days of the Qingshuihe Project

during that year, provided that the accumulated amount

of Preferential Dividend paid to Huhehaote Zhongran

shall not be less than RMB50 million.

(collectively, the "Preferential Dividend")

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HKEx - Hong Kong Exchanges and Clearing Ltd. published this content on 21 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 August 2019 23:12:07 UTC