CH MODERN D (01117.HK): Exercises Redemption Right to Buy 25.4% of Wuhe Unit for About RMB 667.5mn

NewTimeSpace News: On 21 October 2026 (after trading hours), China Modern Dairy Holdings Ltd. (the "Company") announced that China Modern Dairy, China Modern Dairy Wuhe (each an indirect non-wholly-owned subsidiary of the Company) and Zhongken Fund entered into an equity transfer agreement. Under the agreement, China Modern Dairy agreed to exercise the redemption right under the shareholders agreement and to acquire the target interest, being the entire equity interest in China Modern Dairy Wuhe held by Zhongken Fund, from Zhongken Fund at the redemption price; the target interest was subscribed for by Zhongken Fund under the Zhongken Fund capital injection agreement for a consideration of RMB 600 million. The announcement stated that, following arm's length negotiations between China Modern Dairy and Zhongken Fund, the target interest is being redeemed earlier than the original timetable stipulated under the shareholders agreement (i.e. 31 January 2027).

The announcement disclosed that the redemption price is determined under a formula in the shareholders agreement: dividends approved by the shareholders' meeting of China Modern Dairy Wuhe and declared but not yet distributed to Zhongken Fund (if any), plus 100% of the capital injection consideration paid by Zhongken Fund (i.e. RMB 600 million), plus annual compound interest at 5.5% (calculated on the number of days from the date Zhongken Fund paid the capital injection consideration to the date it receives the redemption price, inclusive of the first day but excluding the last day, divided by 360), less the cumulative cash dividends received by Zhongken Fund in respect of the target interest. The Company plans to pay the redemption price on 23 October 2026, on which basis the redemption price, calculated under the above formula, will be RMB 667,488,628.41, to be funded from China Modern Dairy's internal resources. Completion is conditional upon Zhongken Fund signing and delivering the waiver deed; subject to fulfilment of the conditions precedent, completion will take place upon full payment of the redemption price and penalty interest (if any), and will occur simultaneously with the waiver deed becoming effective and the option being waived. If China Modern Dairy fails to pay the redemption price, it shall pay penalty interest on the unpaid portion at a daily rate of 0.05%, accruing from the day following the last payment date until the date the redemption price is paid in full.

The Company stated that Zhongken Fund on the same day (after trading hours) entered into and delivered to the Company a waiver deed, irrevocably covenanting, undertaking and confirming the permanent waiver of its option to subscribe for shares of the Company under the option agreement dated 1 February 2024; Zhongken Fund has not exercised the option and holds no shares of the Company as at the date of the announcement, and the waiver will have no impact on the Company's existing shareholding structure. Upon completion, China Modern Dairy Wuhe will be owned as to 91.5% and 8.5% by China Modern Dairy and Anhui Suida respectively; on the completion date, the Zhongken Fund capital injection agreement and the shareholders agreement will terminate automatically and Zhongken Fund will cease to be a shareholder of China Modern Dairy Wuhe. China Modern Dairy Wuhe is principally engaged in dairy farming and milk production, with a herd of approximately 40,000 cows; it recorded losses before and after tax of RMB 23,995 thousand and RMB 24,448 thousand respectively for 2025 and profit before and after tax of RMB 59,939 thousand for 2024; as at 30 June 2026, its unaudited total assets and net assets were approximately RMB 3,012,883 thousand and RMB 2,505,153 thousand respectively.

The Company stated that, under the Listing Rules, the Company owns 66.1% of the entire issued share capital of China Modern Dairy Wuhe through China Modern Dairy while Zhongken Fund owns approximately 25.4%, so Zhongken Fund is a connected person of the Company at the subsidiary level; the redemption right constitutes an option under Rule 14.72 and, under Rule 14.75(2) and Rule 14A.79(3), the highest applicable percentage ratio for the transactions exceeds 5% but is less than 25%, and the transactions constitute a discloseable and connected transaction of the Company subject to the reporting and announcement requirements but exempt from the circular, independent financial advice and shareholders' approval requirements, with no director having any material interest in the transactions. The board considers that the proceeds of the Zhongken Fund capital injection implemented in 2024 have been used to lower the Group's debt level and strengthen its capital structure; following the Company's completion on 3 August 2026 of the acquisition of shares in China Shengmu Organic Milk Limited and the consolidation of its results into the Group, the Group's gearing ratio has fallen significantly and S&P Global Ratings has upgraded the Group's stand-alone credit profile (SACP) from "b" to "b+", and the Group and China Modern Dairy currently have sufficient funds to buy back the equity earlier than scheduled, which will consolidate the Group's equity interest in China Modern Dairy Wuhe and complete the originally intended deleveraging strategy under the Zhongken Fund capital injection.