According to Zhitong Finance App, Huabao International (00336) issued an announcement regarding matters relating to the further acquisition of 27% of the shares of Shanghai Yifang Agricultural Technology Co., Ltd. (Shanghai Yifang), a non-wholly-owned subsidiary of the company, Huabao Fragrance Co., Ltd. (Huabao Shares) (whose shares are listed on the Shenzhen Stock Exchange GEM, stock code: 300741).

According to the share transfer agreement (share transfer agreement) between Huabao Co., Ltd., Shanghai Keli Enterprise Management Consulting Co., Ltd. (Keli Enterprise), Qian Rong and Huang Jinrong (the actual controller of Keli Enterprise) and other relevant parties on March 8, 2022, it means that Huabao Shares, Qian Rong and Huang Jinrong shall fulfill their capital increase obligations according to their respective shareholding ratios in Shanghai Yifang, and that Qian Rong and Huang Jinrong have agreed to assume performance commitments and compensation obligations for Huabao Co., Ltd.

According to performance promises, Qian Rong and Huang Jinrong promised Huabao Co., Ltd. that Shanghai Yifang's performance will reach consolidated net profit of not less than RMB 41 million in 2022; consolidated net profit of not less than RMB 55 million in 2023; and consolidated net profit of not less than RMB 74 million in 2024. The performance commitment period is 3 years, from January 1, 2022 to December 31, 2024 (performance commitment period). If Shanghai Yifang does not fulfill its performance promise after the performance commitment period expires, Qian Rong and Huang Jinrong shall pay compensation to Huabao shares in cash within 15 days after the issuance of Shanghai Yifang's 2024 annual audit report.

According to Shanghai Yifang's financial data, Shanghai Yifang's actual unaudited net loss for the year ended 31 December 2023 was approximately RMB 689.258 million (2022 (audited): net loss of approximately RMB 41.94 million). The unaudited performance difference for the year ended 31 December 2023 is approximately RMB124 million (subject to auditor review) (2022 (subject to review): approximately RMB82.94 million).

The share transfer agreement did not provide any option for Huabao Co., Ltd. to sell back the shares or any part thereof in Shanghai Yifang to Qian Rong and Huang Jinrong. However, if Shanghai Yifang does not fulfill its performance promise, the cost will be adjusted according to the share transfer agreement after the performance commitment period expires. Since Qian Rong and Huang Jinrong's failure to pay the second phase of the capital increase in the previous period seriously violated the agreement in the “Share Transfer Agreement”, and considering that Shanghai Yifang continued to lose money during the performance commitment period, Huabao Co., Ltd. applied for arbitration at the Shanghai International Arbitration Center using Qian Rong and Huang Jinrong as respondents, requesting a ruling that Qian Rong and Huang Jinrong should indemnify Huabao Co., Ltd. for a total of RMB 330.3 million in damages, loss of expected benefits and legal fees. Huabao Co., Ltd. received the “Notice of Acceptance” issued by the Shanghai International Arbitration Center on August 9, 2023.