Red Four-directional Related Party Asset Sales to Reduce Synthetic Ammonia Comprehensive Energy Consumption and Costs

On the evening of March 16, Hong Sifang (603395) announced that the company plans to sell part of its industrial land located east of Longxing Avenue and north of Hongtu Avenue in Hefei Circular Economy Demonstration Park, covering an area of 12,800 square meters, along with the land use rights and the above-ground buildings (structures). According to the relevant appraisal results, the transaction price is 10.5264 million yuan. The asset transfer price is based on the appraisal value filed with the relevant authorities.

Public information shows that Hong Sifang is affiliated with China Salt Group and specializes in the research, production, sales, and service of compound fertilizers and nitrogen fertilizers. It is the operating entity of China Salt Group’s agricultural fertilizer division. The company has established a comprehensive system of research, production, sales, and agricultural chemical services centered on compound fertilizers, with products including conventional compound fertilizers, crop-specific formula fertilizers, new types of specialty fertilizers, nitrogen fertilizers, and hundreds of varieties and specifications. Its production and sales of compound fertilizers rank among the top in China.

Hong Sifang stated that Hong Sifang Holdings plans to implement a phased energy-saving and carbon-reduction upgrade project for a gasification furnace to reduce the overall energy consumption and costs of synthetic ammonia. The company intends to purchase the land use rights and ownership of the buildings (structures) from the company. As synthetic ammonia is one of the main raw materials for urea, the company purchases synthetic ammonia from Hong Sifang Holdings on a cost-plus basis. This upgrade project will not only help reduce Hong Sifang Holdings’ synthetic ammonia energy consumption and costs but also lower the company’s procurement costs for synthetic ammonia, thereby enhancing profitability.

Hong Sifang Holdings is the controlling shareholder of the listed company. According to relevant regulations, Hong Sifang Holdings is an affiliated party of the company, and this transaction constitutes an associated transaction.

Hong Sifang stated that the assets were acquired in 2021; the buildings were constructed from January 2014 to December 2022, and the structures from October 2010 to June 2023. All assets are in normal use and have been depreciated or amortized according to accounting standards.

This related-party transaction aligns with the company’s operational development needs. After the transfer of land use rights, it will facilitate Hong Sifang Holdings’ phased energy-saving and carbon-reduction upgrade project for the gasification furnace, reducing the overall energy consumption and costs of synthetic ammonia, which will lower the company’s procurement costs for synthetic ammonia and benefit the long-term interests of the company and shareholders. The company has already made arrangements for related matters concerning the warehouses involved in the buildings (structures) and will not adversely affect the company’s production and operations.

The transaction price is based on an appraisal value, ensuring fairness. It follows principles of openness, fairness, and justice, will not affect the company’s independence, and will not harm the interests of the company and its shareholders, especially minority shareholders. The transaction amount accounts for 0.76% of the company’s most recent audited net assets attributable to shareholders and will not cause significant adverse effects on the company’s financial condition or operating results.