SINOPHARM : Announcement Revision of the 2016 and 2017 Annual Caps for the Continuing Connected Transactions under the Financial Services Framework Agreement

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SINOPHARM GROUP CO. LTD.*

國藥控股股份有限公司

(A joint stock limited company incorporated in the People's Republic of China with limited liability and carrying on business in Hong Kong as 國控股份有限公司 )

(Stock Code: 01099) ANNOUNCEMENT REVISION OF THE 2016 AND 2017 ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT

Reference is made to the announcement of the Company dated 7 November 2014 in relation to Financial Services Framework Agreement entered into between the Company and Sinopharm Group Finance Co., pursuant to which, the Company and/or its subsidiaries will, from time to time, utilize certain financial services (including deposit services) available from Sinopharm Group Finance Co. as is deemed necessary. The Financial Services Framework Agreement is for a term of three years from 1 January 2015 to 31 December 2017. The existing maximum daily balance of the deposits under the Financial Services Framework Agreement for each of the three years ending 31 December 2017 is RMB2,000 million.

Taking into the account the historical transaction figures, and based on the anticipated demand of the Group, the Board expects the existing 2016 and 2017 annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group will be insufficient for the Group's requirements and resolved the same to be revised on 9 November 2016. The revised annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group for each of the two years ending 31 December 2017 is RMB3,500 million.

As CNPGC is the ultimate controlling shareholder of the Company, therefore both CNPGC and Sinopharm Group Finance Co., the subsidiary of CNPGC, are connected persons of the Company as defined under Rule 14A.16 of the Hong Kong Listing Rules, and the transactions under the Financial Services Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

As one or more of the applicable percentage ratios in respect of the revised 2016 and 2017 annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group exceed 0.1% but are all less than 5%, the aforesaid continuing connected transactions are only subject to reporting, annual review and announcement requirements, but exempt from the independent shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

BACKGROUND

Reference is made to the announcement of the Company dated 7 November 2014 in relation to Financial Services Framework Agreement entered into between the Company and Sinopharm Group Finance Co., pursuant to which, the Company and/or its subsidiaries will, from time to time, utilize certain financial services available from Sinopharm Group Finance Co. as is deemed necessary. Such financial services available from Sinopharm Group Finance Co. include (i) deposit services, (ii) loan and entrustment loan services, (iii) other financial services including bill discounting and acceptance services, finance lease services, settlement services and entrustment loan agency services, and (iv) other services as approved by the CBRC.

Under the Financial Services Framework Agreement, Sinopharm Group Finance Co. has undertaken to the Company that whenever it provides financial services to the Company and/or its subsidiaries, the conditions thereof shall neither be less favorable than those offered to other members of the CNPGC Group, nor be less favorable than those available to the Company and/or its subsidiaries from commercial banks or other financial institutions for comparable services. The Company and/or its subsidiaries will utilize the financial services of Sinopharm Group Finance Co. on a voluntary and non-compulsory basis and is not obliged to engage Sinopharm Group Finance Co. for any particular service. Sinopharm Group Finance Co. may, from time to time, enter into separate individual financial service agreement with the Company and/or its subsidiaries for the provision of specific financial services, provided that the principles as agreed in the Financial Services Framework Agreement must be followed.

The Financial Services Framework Agreement is for a term of three years from 1 January 2015 to 31 December 2017. The existing maximum daily balance of the deposits under the Financial Services Framework Agreement for each of the three years ending 31 December 2017 is RMB2,000 million.

Taking into the account the historical transaction figures, and based on the anticipated demand of the Group, the Board expects the existing 2016 and 2017 annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group will be insufficient for the Group's requirements and resolved the same to be revised on 9 November 2016. The revised annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group for each of the two years ending 31 December 2017 is RMB3,500 million.

All existing major terms and conditions under the Financial Services Framework Agreement, and the existing annual caps for the interests/service fees paid for the provision of other financial services under the Financial Services Framework Agreement for the two years ending 31 December 2017 remain unchanged.

REVISION OF THE 2016 AND 2017 ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT

Historical Transaction Amount

The historical transaction amount of the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group for the year ended 31 December 2015 and for the nine months ended 30 September 2016 are set out below:

Historical Transaction Amount	Year ended 31 December 2015 (RMB)	Nine Months ended 30 September 2016 (RMB)
Maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group	1,993,738,883	1,993,738,883

The Directors have been monitoring the daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group under the Financial Services Framework Agreement. For the year ended 31 December 2015 and as at the date of this announcement, the existing annual caps for the year ended 31 December 2015 and for the year ending 31 December 2016 have not been exceeded.

Revised Annual Caps for the Two Years Ending 31 December 2017

The revised annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group for the two years ending 31 December 2017 are set out below:

Revised Annual Caps	Year ending 31 December 2016 (RMB)	Year ending 31 December 2017 (RMB)
Maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group	3,500,000,000	3,500,000,000

Reasons for the Revision of the Annual Caps

In arriving at the above revised 2016 and 2017 annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group, in addition to the reasons for determining the existing annual caps as stated in the announcement of the Company dated 7 November 2014, the Directors have further considered the following factors:

(i). the maximum daily balance deposited by the members of the Group with Sinopharm Group Finance Co. in 2015 was approximately RMB1,994 million, representing a 99.7% utilisation rate of the annual cap for the year 2015 and an significant increase as compared with that of 2014;

(ii). with the continuing development of business operation of both of the Group and Sinopharm Group Finance Co., as well as the further deepen of cooperation between the parties, the credit limit provided by Sinopharm Group Finance Co. to the Group has been increased from RMB2,000 million to RMB3,500 million. According, the company plans to further utilise Sinopharm Group Finance Co.'s internal settlement platform to carry out bill business and accounting receivable factoring business, therefore the Group's deposit balance in Sinopharm Group Finance Co. will increase substantially, especially at the end of each quarter and at the end and beginning of each financial year;

(iii). as at 30 September 2016, the Group's deposit balance in Sinopharm Group Finance Co. was RMB911,730,041.11, representing an increase of 508.46% as compared with the deposit balance as at 30 September 2015. In addition, as mentioned above, the Group's deposit amount placed with Sinopharm Group Finance Co. is heavily influenced by seasonal effect and such deposit amount increases substantially at the end of years. In December 2015, the Group's newly increase deposit amount placed with Sinopharm Group Finance Co. was more than RMB1,800 million. Considering the Group's significantly increased demand for deposit service in the year end 2016, the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group will be insufficient, and it is urgent to increase the maximum daily balance from RMB2,000 million to RMB3,500 million;

1. the historical amount of deposits placed by members of the Group with normal commercial banks in the PRC, and the future business development plans and financial services needs of members of the Group for the two years ending 31 December 2017 and the estimated future cash flow of members of the Group; and

2. a buffer has been included for the estimated maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group under the Financial Services Framework Agreement for any unexpected increase in the aforesaid amount in 2016 and 2017.

The Directors (including the independent non-executive Directors) are of the view that the revision of the 2016 and 2017 annual caps for the continuing connected transactions under the Financial Services Framework Agreement in respect of the maximum daily balance of the deposits placed with Sinopharm Group Finance Co. by the Group is in the ordinary and usual course of business of the Group, on normal commercial terms, fair and reasonable and in the interests of the Company and its shareholders as a whole.