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Hailiang Co., Ltd Announced to Stop th e Acquisition of Jinlong Copper Tube

On May 12, Hailiang Co., Ltd announced to stop the transaction to acquire 100% equity of Jinlong P recise Copper Tube Group Co., Ltd(“Jinlong Copper Tube”). This biggest copper tube M&A case in China formally fell through.In fact, the “Hailiang Acquisition of Jinlong”incident previously triggered widespread concern in the industry. According to relevant data, since its incepti on in 2001, Hailiang Co., Ltd is dedicated to R&D, production, sales and services of high-end copper products (copper tube, copper bar, copper tube connectors, copper conductor new material, copper processing equipm ent etc), in 2015 the company fulfilled 13.591 billion yuan of operating income, total prof it was 5 05 million yuan; whereas Jinlong Copper Tube’s dominant product are high precision s mooth copper tube, high efficiency copper rifled tube etc, covering multiple fields including air conditioner refrigeration, building water supply, solar energy, and shipbuilding etc, its precision copper tube for air conditioner and refrigeration use accounts for 30% of global total output, in 2014 it recorded over 35 bi llion yuan of sales income, making it the biggest precision copper tube m anufacturer worldwide. Judging from ranking in the industry ci rcle, currently Jinlong Copper Tube ranks top, Hailiang Co., Ltd ranks second. If the second ranking enterprise acquires the top ranking enterprise, it will create th e world’s biggest “Supe r Airc raft Carrier” of the copper tube and copper bar industry in terms of size.

It has been learned that, in m id November last year, Hailiang Co., Ltd published restructuring pre-plan, proposing to spend 3.254 billion yuan to acquire 100% equity of Jinlong Copper Tube. Against the background of widespread slowdown in the entire copper processing industry, and operating rate staying below 60%, the united r estructuring of two giants in the industry will undoubtedly trigger a reshuffling in the indu stry situatio n. Actively driven by both sides, the integration restructuring made rapid progress: On November 16, 2015, natural person shareholders and legal person shareholders of Hailiang Co., Ltd and Jinlong Co., Ltd respectively signed relevant agreements including an agreem ent for issing shares and paying cash to purchas e shares of Jinlong Co., Ltd’, profit-earning guarantee and compensation agreement, and the “Agreem ent on Consigned Processing and Other Matters”; on February 29, 2016, the Ministry of Commerce issued “Notice on Decision of Examination”, which collectively ref rained from prohibition f or operato rs o f Hailiang’s acquisition of Jinlong equity… …the M&A case seem s alm ost certain beyond doubt, but unexpectedly, yesterd ay Hailiang Co., Ltd published notice to terminate this M&A.

Hailiang gave the following reasons:

“Since Jinlong Co., Ltd has usage of non operating c apital by a ffiliated pa rty on th e previous trading base da te (May 31, 2015), till December 31, 2015, usage amount of non operating capital by affi liated party increased, which cannot be effectively solved in the short term. Meanwhile, since the previo us tradin g base date, external economic situation has undergone changes, both sides are unable to reach agreem ent over adjustment of the transaction plan with in the pre-set timeframe, this transaction can not be continued.

In view of the above-mentioned circum stances, based on relevant superv ision regulations and requirements on significant asset restructuring, in order to protec t the inter est of the listed company and all investors, upon consultation by all sides of the restructuring, it has been decided to term inate this sign ificant as set restructuring matter.”

It has been learned that, after asset restructuring is term inated, Hailiang Co., Ltd and Jinlong Copper Tube have the following subsequent arrangements:

1. Actual controllers of Jinlong Co., Ltd buy back equity of Jinlong Co., Ltd held by Hailiang Group

On June 30, 2015, Hailiang Group purchased 23333334 shares of Jinlong Co., Ltd from Zengguang Investm ent Co., Ltd, former shareholder of Jinlong Co., Ltd, at a price of 190924955.12 yuan (tax inclusive), accountingfor 5.56% of total equity of Jinlong Co., Ltd.

Hailiang Group’s purch ase of 5.56% equity of Jinlong Co., Ltd is tem porary arrangement for driving forward m ajor asset restructuring of Hailiang Co., Ltd. After this time’s transaction is terminated, actual controllers of Jinlong Co., Ltd guarantee to perform buyback responsibility for 5.56% equity of Jinlong Co., Ltd held by Hailiang Group. Actual contro llers of Jinlong Co., Ltd will fully perform buyback responsibility for Hailiang Group and pay total share buyback am ount before Septem ber 30, 2016.

2.Hailiang Co., Ltd will further deepen cooperation with Jinlong Co., Ltd

After this transac tion is te rminated, Hailian g Co., Ltd and Jinlong Co., Ltd intend to further deepen cooperation, on the basis of existing consigned processing business, both sides will continue to explore other cooperation m ethods including but not limited to expanding the scope of consigned processing, leasing operation etc.