YiChang HEC ChangJiang Pharmaceutical : CONNECTED TRANSACTION ENTERING INTO CAPITAL CONTRIBUTION AGREEMENT

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YiChang HEC ChangJiang Pharmaceutical Co., Ltd.

宜 昌 東 陽 光 長 江 藥 業 股 份 有 限 公 司

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

(Stock Code: 01558)

CONNECTED TRANSACTION

ENTERING INTO CAPITAL CONTRIBUTION AGREEMENT

INTRODUCTION

The Board is pleased to announce that on 12 December 2019, the Company entered into the Capital Contribution Agreement with Yidu HEC Industrial in respect of YiChang HEC Bio-technology. The total registered capital of YiChang HEC Bio-technology shall be RMB30 million. According to the Capital Contribution Agreement, the Company agreed to contribute RMB27.0 million in cash, representing 90% of the total registered capital of YiChang HEC Bio-technology. Since 90% equity interest of YiChang HEC Bio-technology is owned by the Company, it becomes a subsidiary of the Company.

The Company plans to, through YiChang HEC Bio-technology, promote a Yidu base pharmaceutical intermediate project.

LISTING RULES IMPLICATION

As at the date of this announcement, the Parent Company directly holds approximately 50.40% of the equity interests in the Company and is therefore a controlling shareholder of the Company. Shenzhen HEC Industrial directly and indirectly holds approximately 53.32% of the equity interests in the Parent Company, with approximately 27.97% of such equity interests being directly held, and Yidu HEC Industrial is a direct non-wholly owned subsidiary of Shenzhen HEC Industrial. Therefore, Yidu HEC Industrial is a connected person of the Company by virtue of being an associate of the Parent Company. Accordingly, Capital Contribution Agreement and the transaction contemplated thereunder also constitute a connected transaction of the Company.

As the highest applicable percentage ratio in respect of the transaction contemplated under the Capital Contribution Agreement is higher than 0.1% but less than 5%, the transaction under the Capital Contribution Agreement is subject to the reporting and announcement requirements but exempted from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

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By virtue of his capacity as a director and general manager of Shenzhen HEC Industrial, the controlling shareholder of the Parent Company, Mr. TANG Xinfa, a non-executive Director, is regarded to have a material interest in the Capital Contribution Agreement and the transaction contemplated thereunder, and has abstained from voting on the Board resolutions to approve the Capital Contribution Agreement and the transaction contemplated thereunder.

INTRODUCTION

The Board is pleased to announce that on 12 December 2019, the Company entered into the Capital Contribution Agreement with Yidu HEC Industrial in respect of YiChang HEC Bio- technology. The total registered capital of YiChang HEC Bio-technology shall be RMB30 million. According to the Capital Contribution Agreement, the Company agreed to contribute RMB27 million in cash, representing 90% of the total registered capital of YiChang HEC Bio-technology. Since 90% equity interest of YiChang HEC Bio-technology is owned by the Company, it becomes a subsidiary of the Company.

The Company plans to, through YiChang HEC Bio-technology, promote Yidu base pharmaceutical intermediate project.

CAPITAL CONTRIBUTION AGREEMENT

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

1. Date
   12 December 2019
2. Parties
3. 1. the Company; and
   2. Yidu HEC Industrial

(each a "Party", and both "Parties")

3. Scope of Business

The business scope of YiChang HEC Bio-technology includes research and development, production and sales of pharmaceutical intermediates and fine chemicals (excluding hazardous chemicals, precursor chemicals), and related technology development, consulting and marketing services; import and export of goods and technologies (no business activities of these items subject to the approval of relevant authorities can be performed until obtaining such approvals from relevant departments).

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4. Registered Capital and Capital Contribution Arrangement

YiChang HEC Bio-technology with a total registered capital of RMB30 million, of which, the Company agreed to contribute RMB27 million in cash, representing 90% of the total registered capital of YiChang HEC Bio-technology, and YiChang HEC Industrial agreed to contribute RMB3 million in cash, representing 10% of the total registered capital of YiChang HEC Bio-technology. Such amount of capital contribution was determined after arm's length negotiations between both Parties with reference to the capital requirement of YiChang HEC Bio-technology in carrying out its main business of researching & developing pharmaceutial products and marketing services for pharmaceutial products. The Company will fund its investment in YiChang HEC Bio- technology through its internal resources.

Both Parties agreed that, their respective capital contributions shall be fully paid up by 31 December 2029.

The Capital Contribution Agreement shall take effect upon being signed and chopped by both Parties.

The distributable profit of YiChang HEC Bio-technology shall be distributed to the Parties in accordance with their respective shareholding percentages in YiChang HEC Bio-technology.

R E A S O N S F O R A N D B E N E F I T S O F E N T E R I N G I N T O T H E C A P I T A L CONTRIBUTION AGREEMENT

The Company considers that entering into the Capital Contribution Agreement and establishing YiChang HEC Bio-technology with Yidu HEC Industrial for independent production and supply of pharmaceutical intermediates will improve the security of supply chain, quality and safety of drugs, as well as the comprehensive competitiveness of APIs and formulations.

1. Active Pharmaceutical Ingredients ("APIs") is the active ingredient of the drugs, and pharmaceutical intermediates are the upstream products and raw materials of APIs. With the State's increasing emphasis on safety and environmental protection, a large number of chemical enterprises experienced suspension or restricted production, the safety and stability of the supply of the pharmaceutical intermediates and key raw materials that required in the production of APIs were affected materially. Independent production and supply of pharmaceutical intermediates will improve the security of supply chain.
2. The stability in quality of pharmaceutical intermediates also severely affects the quality and safety of active pharmaceutical ingredients and even formulations. Regulatory legislation on drug registration also has strict requirements for the starting materials of active pharmaceutical ingredients. Therefore, changing starting materials is time- consuming and expensive to suppliers. Self-reliance on intermediates and starting materials will better ensure the quality and safety of active pharmaceutical ingredients and formulations.
3. Construction of pharmaceutical intermediate and key raw materials production bases, which serve as the Company's supporting plants for raw materials of new drugs and generic drug projects, will be conducive to the Company's rapid development of new drugs and generic drugs, reduction of research and development costs, and improvement of comprehensive competitiveness in the long term. Separation of pharmaceutical intermediate production from GMP APIs factories can also effectively reduce the load of cGMP API factories with higher system costs, reduce GMP compliance risks, improve GMP factory efficiency, and thus enhance API supply capacity and competitiveness, etc.

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The Directors (including the independent non-executive Directors) are of the view that the terms under the Capital Contribution Agreement are fair and reasonable and the transaction contemplated thereunder are on normal commercial terms or better to the Company, and the entering into the Capital Contribution Agreement is in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATION

As at the date of this announcement, the Parent Company directly holds approximately 50.40% of the equity interests in the Company and is therefore a controlling shareholder of the Company. Shenzhen HEC Industrial directly and indirectly holds approximately 53.32% of the equity interests in the Parent Company, with approximately 27.97% of such equity interests being directly held, and Yidu HEC Industrial is a direct non-wholly owned subsidiary of Shenzhen HEC Industrial. Therefore, Yidu HEC Industrial is a connected person of the Company by virtue of being an associate of the Parent Company. Accordingly, Capital Contribution Agreement and the transaction contemplated thereunder also constitute a connected transaction of the Company.

As the highest applicable percentage ratio in respect of the transaction contemplated under the Capital Contribution Agreement is higher than 0.1% but less than 5%, the transaction under the Capital Contribution Agreement is subject to the reporting and announcement requirements but exempted from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

By virtue of his capacity as a director and general manager of Shenzhen HEC Industrial, the controlling shareholder of the Parent Company, Mr. TANG Xinfa, a non-executive Director, is regarded to have a material interest in the Capital Contribution Agreement and the transaction contemplated thereunder, and has abstained from voting on the board resolutions to approve the Capital Contribution Agreement and the transaction contemplated thereunder.

INFORMATION OF THE PARTIES

The Company

The Company is a pharmaceutical manufacturing company focusing on the development, manufacturing and sale of pharmaceutical products in the therapeutic areas of anti-virus, endocrine and metabolic diseases as well as cardiovascular diseases.

Yidu HEC industrial

Yidu HEC Industrial is a company established in the PRC, mainly engaged in investment and development of electronic materials, pharmaceuticals and active pharmaceutical ingredients, high-purity aluminum and other related projects, as well as supply and sales of related products and materials (excluding franchised commercial products and restricted items), and electricity billing agency business.

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DEFINITIONS

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

"Board"	the board of Directors of the Company
"Capital Contribution	the agreement entered into between the Company and Yidu
Agreement"	HEC industrial on 12 December 2019 in relation to, among
	other, the establishment of YiChang HEC Bio-technology
"Company"	YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (宜昌東陽
	光長江藥業股份有限公司), a company established in the PRC
	on 11 May 2015 as a joint stock company
"Director(s)"	the director(s) of the Company
"Group"	the Company and its subsidiaries
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange
"Parent Company"	Guangdong HEC Technology Holding Co., Ltd. (廣東東陽光科
	技控股股份有限公司), a company incorporated in the PRC and
	the immediate controlling shareholder of the Company holding
	approximately 50.40% of the equity interests in the Company as
	at the date of this announcement
"PRC" or "China"	the People's Republic of China and for the purpose of this
	announcement, excluding the Hong Kong Special Administrative
	Region of the PRC, the Macau Special Administrative Region of
	the PRC and Taiwan
"RMB"	Renminbi, the lawful currency of the PRC
"Shareholder(s)"	the holder(s) of the ordinary share(s) of the Company
"Shenzhen HEC Industrial"	Shenzhen HEC Industrial Development Co., Ltd. (深圳市東
	陽光實業發展有限公司), a company incorporated in the PRC
	and holding directly and indirectly approximately 53.32% of
	the equity interests in the Parent Company, with approximately
	27.97% of such equity interests being directly held as at the
	date of this announcement
"Stock Exchange"	The Stock Exchange of Hong Kong Limited

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"YiChang HEC	YiChang HEC Bio-technology Co., Ltd. (宜昌東陽光生物
Bio-technology"	科技有限公司), a joint venture company under the Capital
	Contribution Agreement
"Yidu HEC Industrial"	Yidu HEC Industrial Co., Ltd.* (宜都市東陽光實業發展有限
	公司) a company established in the PRC, a direct non-wholly
	owned subsidiary of Shenzhen HEC Industrial

In this announcement, unless the context otherwise requires, the terms "associate(s)","connected person(s)", "connected transaction(s)" and "subsidiary(ies)" shall have the meanings given to such terms in the Listing Rules, as modified by the Stock Exchange from time to time.

On behalf of the Board

YiChang HEC ChangJiang Pharmaceutical Co., Ltd.

TANG Xinfa

Chairman

Hubei, the PRC

12 December 2019

As of the date of this announcement, the Board of the Company consists of Mr. JIANG Juncai, Mr. WANG Danjin, Mr. CHEN Yangui and Mr. LI Shuang as executive Directors; Mr. TANG Xinfa and Mr. Eddy HUANG as non-executive Directors; and Mr. TANG Jianxin, Mr. FU Hailiang and Mr. ZHAO Dayao as independent non-executive Directors.

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