SINOPHARM : Announcements and Notices - Connected Transaction Acquisition of 100% Equity Interest in Pudong Medicines and Herbs

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(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) CONNECTED TRANSACTION ACQUISITION OF 100% EQUITY INTEREST IN PUDONG MEDICINES AND HERBS

The Board hereby announces that on 27 November 2017, the Company entered into the Equity Transfer Agreement with CNPGC in respect of the acquisition of 100% equity interest in Pudong Medicines and Herbs (including its wholly-owned subsidiary Shanghai Yanghetang) at a cash consideration of RMB217,472,758.85. Upon completion of the Acquisition, Pudong Medicines and Herbs will become a wholly-owned subsidiary of the Company.

CNPGC is the ultimate controlling shareholder of the Company and is therefore a connected person of the Company as defined under the Hong Kong Listing Rules. Accordingly, the Acquisition constitutes a connected transaction of the Company pursuant to the Hong Kong Listing Rules.

As one or more applicable percentage ratios (as defined under Rule 14A.06 of the Hong Kong Listing Rules) in respect of the Acquisition are more than 0.1% but all less than 5%, the Acquisition is subject to the reporting and announcement requirements but exempt from the independent shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

INTRODUCTION

On 27 November 2017, the Company entered into the Equity Transfer Agreement with CNPGC in respect of the acquisition of 100% equity interest in Pudong Medicines and Herbs (including its wholly-owned subsidiary Shanghai Yanghetang) at a cash consideration of RMB217,472,758.85. Upon completion of the Acquisition, Pudong Medicines and Herbs will become a wholly-owned subsidiary of the Company.

THE EQUITY TRANSFER AGREEMENT

Date:	27 November 2017
Parties:	the Company CNPGC
Effective Conditions:	The Equity Transfer Agreement shall take effect after being signed by the authorized representatives of both parties and chopped with the official chops of both parties.
Target Asset:	100% equity interest in Pudong Medicines and Herbs (including its wholly-owned subsidiary Shanghai Yanghetang).
Consideration:	RMB217,472,758.85, which was determined after arm's length negotiation between the Company and CNPGC with reference to the appraised value of the total shareholders' equity in Pudong Medicines and Herbs as at 30 June 2017, being RMB217,472,758.85. The appraisal was made by the Valuer based on assets-based approach. The consideration will be satisfied by self-raised funds of the Company.
Payment Arrangement:	The consideration shall be paid in cash by the Company to the designated account of CNPGC in a lump sum within 3 working days following the completion of registration of the share transfer with AIC by CNPGC.
Completion:	CNPGC shall transfer 100% equity interest in Pudong Medicines and Herbs to the Company and complete the registration of the share transfer with AIC within 30 working days after coming into effect of the Equity Transfer Agreement.

Other Major Terms:

The profit and loss of Pudong Medicines and Herbs (including Shanghai Yanghetang) during the period from 30 June 2017 to the completion of the registration of the share transfer with AIC shall be enjoyed or borne by CNPGC. In 2016, CNPGC acquired the 100% equity interest in Pudong Medicines and Herbs from the Previous Seller and, accordingly, CNPGC and the Previous Seller signed Previous Agreements which have been attached as the appendix to the Equity Transfer Agreement. The Previous Agreements have not yet been fully performed. CNPGC and the Company agreed that, upon completion of the Acquisition, the Company will assume all rights, obligations, warranties and legal responsibilities of CNPGC under the Previous Agreements (except for the obligations in relation to the payment of consideration of the equity transfer under the share transfer agreement attached to the Equity Transfer Agreement). CNPGC and the Company agreed that the Company shall assume (i) all obligations and legal responsibilities of the shareholder owned to Pudong Medicines and Herbs (including Shanghai Yangshengtang) during the period from 23 February 2017 (i.e. the day following the completion of the registration with AIC in relation to the change of shareholders of Pudong Medicines and Herbs from the Previous Seller to CNPGC) to the completion of the Acquisition, and (ii) losses of Pudong Medicines and Herbs (including Shanghai Yangshengtang) suffered thereunder. CNPGC entered into a maximum amount guarantee contract with Shanghai Zhangjiang Branch of Industrial and Commercial Bank of China on 9 August 2017 under which CNPGC shall provide joint and several guarantee for a loan of RMB30 million of Pudong Medicines and Herbs. CNPGC and the Company agreed that the aforesaid guarantee responsibilities will be assumed by the Company upon completion of the Acquisition.

INFORMATION OF PUDONG MEDICINES AND HERBS

Pudong Medicines and Herbs is a limited liability company incorporated in the PRC and is principally engaged in distribution and retail of medicines. Pudong Medicines and Herbs was acquired by CNPGC from the Previous Seller at a consideration of RMB206,168,953.48 in accordance with the Previous Agreements. Shanghai Yanghetang, the wholly-owned subsidiary of Pudong Medicines and Herbs, is a limited liability company incorporated in the PRC and is principally engaged in pharmaceutical retail.

The audited consolidated net assets of Pudong Medicines and Herbs as at 30 June 2017 were RMB32,565,716.24. The audited consolidated net profits (both before and after taxation) of Pudong Medicines and Herbs for the two financial years ended 31 December 2016 and the six months ended 30 June 2017 were as follows:

For the year ended 31 December 2015 (RMB)	For the year ended 31 December 2016 (RMB)	For the six months ended 30 June 2017 (RMB)
Net profits (before taxation)	12,189,540.65	9,280,951.29	5,418,645.12
Net profits (after taxation)	8,835,762.07	6,854,984.53	4,256,101.99

REASONS FOR AND BENEFIT OF ENTERING INTO THE EQUITY TRANSFER AGREEMENT

The Acquisition will help the Company to further expand the revenue scale and market share, thus further enhancing the Company's market competitiveness. As such, the Directors (including the independent non-executive Directors) are of the view that the Equity Transfer Agreement was entered into on normal commercial terms, and although the transaction thereunder is not in the ordinary and usual course of business of the Company, the terms and conditions therein are fair and reasonable and in the interests of the Company and its shareholders as a whole.

HONG KONG LISTING RULES IMPLICATIONS

CNPGC is the ultimate controlling shareholder of the Company and is therefore a connected person of the Company as defined under the Hong Kong Listing Rules. Accordingly, the Acquisition constitutes a connected transaction of the Company pursuant to the Hong Kong Listing Rules.

As one or more applicable percentage ratios (as defined under Rule 14A.06 of the Hong Kong Listing Rules) in respect of the Acquisition are more than 0.1% but all less than 5%, the Acquisition is subject to the reporting and announcement requirements but exempt from the independent shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

The following Directors, being Mr. She Lulin, Mr. Deng Jindong, Mr. Ma Ping and Mr. Lian Wanyong, are also directors or management of CNPGC. Therefore, they are deemed to have material interest in the transaction contemplated under the Equity Transfer Agreement, and thus have abstained from voting on the relevant resolution at the Board meeting. Save as mentioned above, none of the other Directors has a material interest in such transaction and is required to abstain from voting on the relevant resolution at the Board meeting.

GENERAL INFORMATION ON THE PARTIES The Company

The Company is principally engaged in the distribution of pharmaceutical and healthcare products, operation of retail pharmacies and chemical reagents manufacturing.

CNPGC