China Shengmu Organic Milk : Circulars - (1) Major Transaction in Relation to Disposal of A Subsidiary and (2) Issue of Unlisted Warrants under Specific Mandate and (3) Notice of Extraordinary General Meeting

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Shengmu Organic Milk Limited (the "Company"), you should at once hand this circular and the accompanying proxy form to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or registered institution in securities, or other agent through whom the sale or transfer was effected, for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

CHINA SHENGMU ORGANIC MILK LIMITED ʕ਷໋ىϞዚุ̲Ϟࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1432)

(1) MAJOR TRANSACTION IN RELATION TO

DISPOSAL OF A SUBSIDIARY

AND

(2) ISSUE OF UNLISTED WARRANTS UNDER SPECIFIC MANDATE

AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

A letter from the board of directors of the Company is set out on pages 8 to 41 of this circular.

A notice convening the EGM of the Company to be held at 19/F, No. 27 Zhong Guan Cun Street, Hai Dian District, Beijing, PRC on 24 January 2019 at 10:00 a.m. is set out on pages N-1 to N-4 of this circular.

Whether or not you are able to attend the EGM, please complete the form of proxy enclosed in accordance with the instructions printed thereon and return it to the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as practicable but in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM, or any adjournment hereof, should you so wish.

7 January 2019

CONTENTS
Page
DEFINITIONS ...........................................................	1
LETTER FROM THE BOARD ..............................................	8
APPENDIX I SUMMARY OF VALUATION REPORT ...........................	I-1
APPENDIX II VALUATION REPORT OF THE WARRANTS .....................	II-1
APPENDIX III FINANCIAL INFORMATION OF THE GROUP ....................	III-1
APPENDIX IV GENERAL INFORMATION ....................................	IV-1
NOTICE OF EGM ........................................................	N-1
−i−

In this circular, unless the context requires otherwise, the following terms have the meanings as respectively ascribed below:

"Acquisition"

the proposed acquisition of 100% equity interest in Inner Mongolia Shengmu Sand and Grass Industry Co., Ltd. (ʫႆ ໋̚ىӍণุϞࠢʮ̡) by the Company and Shengmu High-tech from the 12 individual shareholders by issue of Consideration Shares and by cash pursuant to the terms and conditions of the Equity Transfer Framework Agreement as disclosed in the announcement of the Company dated 21 December 2018

"Adjustment"

has the meaning given to it under the section headed "Letter from the Board - (2) Warrant Subscription Agreements - (iii) Principal Terms of the Warrants" of this circular

"AIC"

the administrative departments for industry and commerce of the PRC

"Board"

the board of Directors of the Company

"Business Day"

means any day (excluding a Saturday, Sunday and any other public holidays and any day on which a tropical cyclone warning no.8 or above or a "black" rainstorm warning signal is hoisted or remains hoisted in Hong Kong (or Singapore (for the Warrant Subscription Agreement B only)) at any time between 9:00 a.m. and 12:00 noon and is not lowered or discontinued at or before 12:00 noon) on which banks are generally open for business in Hong Kong (and Singapore (for the Warrant Subscription Agreement B only))

"China Mengniu"

China Mengniu Dairy Company Limited, an exempted company incorporated in the Cayman Islands with limited liability, whose shares are listed on the Stock Exchange (Stock code: 02319)

"Closing Date"

the closing date of the Share Purchase Agreement, the completion date of the AIC registration

"Company"

China Shengmu Organic Milk Limited (ʕ਷໋ىϞዚุ̲Ϟ ࠢʮ̡), an exempted company incorporated under the laws of the Cayman Islands with limited liability on 11 December 2013 and the shares of which are listed on the Stock Exchange (Stock code:01432)

"Conditions of Warrants A"

means the conditions as set out in the section headed "Letter from the Board - (2) Warrant Subscription Agreements - (i) Warrant Subscription Agreement A - Conditions for the issue of the Tranche 1 Warrants A" and "Letter from the Board - (2) Warrant Subscription Agreements - (i) Warrant Subscription Agreement A - Conditions for the issue of the Tranche 2 Warrants A" of this circular

"Conditions of Warrants B"

means the conditions as set out in the section headed "Letter from the Board - (2) Warrant Subscription Agreements - (ii) Warrant Subscription Agreement B - Conditions for the issue of the Tranche 1 Warrants B" and "Letter from the Board - (2) Warrant Subscription Agreements - (ii) Warrant Subscription Agreement B - Conditions for the issue of the Tranche 2 Warrants B" of this circular

"connected person"

"Consideration Shares"

has the meaning ascribed to it under the Listing Rules 688,705,234 new Shares to be allotted and issued by the Company as part of the consideration to the Equity Transfer Framework Agreement

"controlling shareholder"

"Director(s)"

has the meaning ascribed to it under the Listing Rules the director(s) of the Company

"Disposal"

the purchase of the Sale Shares by Inner Mongolia Mengniu contemplated under the Share Purchase Agreement

"EGM"

the extraordinary general meeting of the Company to be convened at 19/F, No. 27 Zhong Guan Cun Street, Hai Dian District, Beijing, PRC on 24 January 2019 at 10:00 a.m. to consider, and if thought fit, approving the Share Purchase Agreement, the Warrant Subscription Agreements and the grant of the Specific Mandate

"Equity Transfer Framework

Agreement"

the Equity Transfer Framework Agreement dated 21 December 2018 entered into by the Company, Shengmu High-tech, 12 individual shareholders and Inner Mongolia Shengmu Sand and Grass Industry Co., Ltd. (ʫႆ໋̚ىӍণ ุϞࠢʮ̡) in relation to the Acquisition and issue of Consideration Shares

"Group"

the Company and its subsidiaries

"HK$"

"Hong Kong"

Hong Kong dollar(s), the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the People's Republic of China

"Huhehaote Dairy"

Huhehaote Shengmu High-tech Dairy Co., Ltd. (խձखत̹ ໋ى৷߅ԪۜϞࠢʮ̡), a company established in the PRC with limited liabilities, a wholly-owned subsidiary of Shengmu High-tech as at the Latest Practicable Date

"independent third party(ies)"

third party(ies) independent of and not connected with the Company and its connected persons

"Inner Mongolia Mengniu"

Inner Mongolia Mengniu Dairy (Group) Co., Ltd. (ʫႆ̚ႆ ˬԪุ€ණྠٰ΅Ϟࠢʮ̡), a company established in the PRC with limited liabilities, 99.9997% owned by China Mengniu as at the Latest Practicable Date

"Investment Agreements"

the Share Purchase Agreement and the Shareholders' Agreement

"Irrevocable Undertakings A"

the irrevocable undertakings dated 23 December 2018 given by Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Sequoia Capital 2010 CGF Holdco, Ltd., Gao Lingfeng, Wang Fuzhu and Wu Jianye to China Mengniu, Inner Mongolia Mengniu, the Subscriber A and the Company in relation to the Disposal and the issue of Warrants A

"Irrevocable Undertakings B"

the irrevocable undertakings dated 23 December 2018 given by Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Gao Lingfeng, Wang Fuzhu and Wu Jianye and the irrevocable undertaking dated 25 December 2018 given by Sequoia Capital 2010 CGF Holdco, Ltd. to the Company in relation to the issue of Warrants B

"Irrevocable Undertakings"

the Irrevocable Undertakings BUndertakingsAandtheIrrevocable

"Latest Practicable Date"

31 December 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular

"Listing Rules"

the Rules Governing the Listing of Securities on the Stock Exchange

"Loan Facilities"

the RMB300 million Loan Facility and the RMB1 billion Loan Facility

"Long Stop Date of

Warrants A"

31 December 2019