Stock Codes: 600801, 900933  Stock Abbreviations: Huaxin Cement, Huaxin B Share  Ref: Lin 2013-002
  To the best of our knowledge, the Board of Directors of the Company and its members confirm that there is no material false or misleading statement or material omission in this announcement and shall be severally and jointly liable for the truthfulness, accuracy and completeness of its content.
 
Importance Notice:
 

• Brief Content: The Company acquired 50% and 20% stake of Hubei Huaxiang Cement Co., Ltd. held by Wuhan Huayu Building Materials Group Co., Ltd. and Mr. Liao Binkui respectively with the total price of 420,100.8 k Yuan.  Meanwhile, the Company acquired 60% and 10% stake of Hubei Huaxiang Cement Ezhou Co., Ltd. held by Wuhan Huachang Silicate Products Co., Ltd. and Mr. Liao Guoshu respectively with the total price of 99,437 k Yuan.  Hubei Huaxiang Cement Co., Ltd. and Hubei Huaxiang Cement Ezhou Co., Ltd. were affiliated companies (hereinafter collectively referred to as the "Huaxiang").
• The above transactions were not related transactions.
• The above transactions were approved by the Tenth Meeting of the Seventh Board of Directors of the Company convened on January 21, 2013.
• There was no major asset restructuring involved in the above transactions.
• There were no material legal obstacles for the implementation of the above transactions.
• After the completion of the transactions, Hubei Huaxiang Cement Co., Ltd. and Hubei Huaxiang Cement Ezhou Co., Ltd. will become controlling subsidiaries of the Company.
• Risk Warning: Despite its Environmental Impact Assessment (EIA) report has been completed, Hubei Huaxiang Cement Co., Ltd. phase II production line project is yet to obtain the administrative approval from the provincial environmental protection authorities.

 
I. Summary of the Transactions

1. The Company signed "Equity Transfer Agreement", “Supplemental Agreement (I)" and "Supplemental Agreement (II)” with Wuhan Huayu Building Materials Group Co., Ltd., Mr. Liao Binkui and Mr. Liao Guoshu (guarantor) on November 23, 2012, November 30, 2012, and January 21, 2013 respectively.  The Company acquired 50% and 20% stake of Hubei Huaxiang Cement Co., Ltd. held by Wuhan Huayu Building Materials Group Co., Ltd. and Mr. Liao Binkui respectively with the total price of 420,100.8 k Yuan.  After the completion of the transaction, the rest 30% stake in Hubei Huaxiang Cement Co., Ltd. shall continue to be held by Wuhan Huayu Building Materials Group Co., Ltd.
 
The Company signed "Equity Transfer Agreement" and “Supplemental Agreement" with Wuhan Huachang Silicate Products Co., Ltd., Mr. Liao Guoshu, Wuhan Huayu Building Materials Group Co., Ltd. (guarantor) and Mr. Liao Binkui (guarantor) on November 23, 2012 and January 21, 2013 respectively.  The Company acquired 60% and 10% stake of Hubei Huaxiang Cement Ezhou Co., Ltd. held by Wuhan Huachang Silicate Products Co., Ltd. and Mr. Liao Guoshu respectively with the total price of 99,437 k Yuan.  After the completion of the transaction, the rest 30% stake in Hubei Huaxiang Cement Ezhou Co., Ltd. shall continue to be held by Wuhan Huayu Building Materials Group Co., Ltd.
 
2. These equity acquisitions were not related transactions.
 
3. On 21 January 3, 2013, the Company convened the Tenth Meeting of the Seventh Board of Directors. "Proposal on Acquiring 70% Stake in both Hubei Huaxiang Cement Limited Company and Hubei Huaxiang Cement Ezhou Limited Company” was reviewed and approved in the Meeting.  Voting results: Affirmative: 9; Negative: 0; Abstention: 0.  Before this Meeting, the Twenty Third Meeting of the Sixth Board of Directors convened on March 29, 2011 approved in principle that the Company could negotiate with Huaxiang on M&A issues within a certain range of value ??.
 
4. The transactions were within the range of decision-making authority of the Board of Directors of the Company, thus it was not necessary to submit the transactions to the Shareholders’ General Meeting for approval.
 
II. Introduction of the Trading Parties

Wuhan Huayu Building Materials Group Co., Ltd., with its main business of manufacturing aerated concrete blocks and rotary kiln high grade cement, is a large private enterprise concurrently supplying auxiliaries for the above building materials and also engaging in catering business.  It is a limited liability company established on June 24, 2002 with the legal representative Mr. Liao Binkui and the registered capital of RMB 60 million.  Business scope: manufacturing, processing and sales of fly ash blocks and building materials; cement grinding stations.  The company has a land area of ??1,000 Mu, the fixed asset investment of 1 billion Yuan and the existing staff of 1,500 people.  It had five subsidiaries: Wuhan Huachang Silicate Products Co., Ltd., Wuhan HuaYuxiang New Wall Materials Co., Ltd., Wuhan Huayutai New Wall Materials Co., Ltd., Hubei Huaxiang Cement Co., Ltd. and Huayu Hotel.
 
Wuhan Huachang silicate Products Co., Ltd. was established on July 16, 2002 as a limited liability company with the legal representative Mr. Liao Binkui and registered capital of 16 million Yuan.  Business scope: production and sales of Portland aerated concrete and lime. The company is located in Xingou Town, Dongxihu District, Wuhan City with an area of 120 Mu.  Its annual production capacity of aerated concrete block was 240,000 cubic meters.
 
Mr. Liao Guoshu, Chinese nationality, residence address: White Horse Village 1-1, Wuchang District, Wuhan City, Senior Economist.  He once served as Daye Municipal CPPCC member, deputy of Ezhou Municipal People's Congress, CPPCC member of Hongshan District, Wuhan City.  He currently was the chairman of Hubei Huaxiang Cement Co., Ltd..

Mr. Liao Binkui, Chinese nationality, residence address: White Horse Village 1-1, Wuchang District, Wuhan City.  He was the legal representative of both Wuhan Huayu Building Materials Group Co., Ltd. and Wuhan Huachang Silicate Products Co., Ltd..

The above transactions parties did not have any relation with the Company on property rights, businesses, assets, debts and personnel.

The Board of Directors of the Company had carried out the necessary due diligence on the transaction parties and their trading performance capabilities.
 
III. Basic Information of the Target Companies

(I) Target Companies
 
1. Hubei Huaxiang Cement Co., Ltd.

Ownership: limited liability company
Registered address: Huandiqiao Town, Daye City
Main office location: Huandiqiao Town, Daye City
Legal representative: Liao Guoshu
Registered capital: 327 million Yuan
Main Businesses: Production and sales of cement, clinker, lime, cement bags and cement products.
Major shareholders and actual controller: Wuhan Huayu Building Materials Group Co., Ltd. held 80% stake and Mr. Liao Binkui held 20% stake.
 
Hubei Huaxiang Cement Co., Ltd. is located in Huandiqiao Town, Daye City, Hubei Province, 3 km north to Tieshan railway station of Wuchang - Jiujiang Railway, south to Huangshi 106 National Highway (Tieshan-Huandiqiao section) and 20 km away from Daye City.

Hubei Huaxiang Cement Co., Ltd. had two new dry process clinker cement production lines. The first 2500t/d NSP line was put into operation in November 2004, the second 5000t/d NSP line was put into operation in April 2010.  The two NSP lines had a total installed capacity of 15 MW waste heat power generation.
 
Stake of Hubei Huaxiang Cement Co., Ltd. held by Wuhan Huayu Building Materials Group Co., Ltd. and Mr. Liao Binkui were not mortgaged, pledged, or involved in any other restrictions to the transfer.  There were no litigation, arbitration or seizure, freezing or other judicial measures, nor other cases that impeded the transfer of ownership.  Shareholders of Hubei Huaxiang Cement Co., Ltd. all gave up the right of first refusal.
 
Daxin Certified Public Accountants Co. Ltd. Hubei Branch conducted a special audit (Daxin E Zhuan Shen Zi [2012] No. 0279) on the financial situation of Hubei Huaxiang Cement Co., Ltd. As of December 31, 2011, Hubei Huaxiang Cement Co., Ltd. had total assets of 844,439,533.21 Yuan, total liabilities of 480,723,340.12 Yuan and owner's equity of 363,716,193.09 Yuan.  Income from major operations for 2011 was 652,886,190.44 Yuan and net profit for 2011 was 56,413,274.89 Yuan.  As of November 30, 2012, the total assets of Hubei Huaxiang Cement Co., Ltd. was 851,594,120.78 Yuan, total liabilities was 627,661,964.59 Yuan, owner's equity was 223,932,156.18 Yuan; income from major operations for Jan-Nov 2012 was 440,942,225.60 Yuan, net profit was -149,252,309.96 Yuan.
 
2. Hubei Huaxiang Cement Ezhou Co., Ltd.

Ownership: limited liability company
Registered address: Sun Peng village, Duandian Town, Huarong District, Ezhou City
Main office location: Sun Peng village, Duandian Town, Huarong District, Ezhou City
Legal representative: Liu Liyuan
Registered capital: 50 million Yuan
Main businesses: production and sales of cement; sales of slag powder.
Major shareholders and actual controller: Wuhan Huachang Silicate Products Co., Ltd. held 60% stake, Mr. Liao Guoshu held 10% stake and Mr. Liao Binkui held 30% stake.
 
Hubei Huaxiang Cement Ezhou Co., Ltd. was located in Duandian Town, Huarong District, Ezhou City, Hubei Province, 5 km away from Huarong Station of Wuchang - Jiujiang Railway, 26 km away from Miaoling Station of Wuhan – Huangshi Highway, 9 km away from Huanggang Station of the intercity railway, 20 km away from Gedian Development Zone and 3 km away from the Sanjiang pier.

Hubei Huaxiang Cement Ezhou Co., Ltd. had an annual cement grinding capacity of 2 m t/y.
 
Stake of Huaxiang Ezhou held by Wuhan Huachang Silicate Products Co., Ltd., Mr. Liao Guoshu and Mr. Liao Binkui were not mortgaged, pledged, or involved in any other restrictions to the transfer.  There were no litigation, arbitration or seizure, freezing or other judicial measures, nor other cases that impeded the transfer of ownership.  Shareholders of Hubei Huaxiang Cement Ezhou Co., Ltd. all gave up the right of first refusal.
 
Daxin Certified Public Accountants Co. Ltd. Hubei Branch conducted a special audit (Daxin E Zhuan Shen Zi [2012] No. 0280) on the financial situation of Hubei Huaxiang Cement Ezhou Co., Ltd.  As of December 31, 2011, Hubei Huaxiang Cement Co., Ltd. had total assets of 303,647,013.16 Yuan, total liabilities of 257,237,831.31 Yuan and owner's equity of 46,409,181.85 Yuan.  Income from major operations for 2011 was 517,656,267.66 Yuan and net profit for 2011 was 5,324,521.68 Yuan.  As of November 30, 2012, the total assets of Hubei Huaxiang Cement Ezhou Co., Ltd. was 305,186,482.43 Yuan, total liabilities was 255,205,108.89 Yuan, owner's equity was 49,981,373.54 Yuan; Income from major operations for Jan-Nov 2012 was 368,043,068.85 Yuan, net profit was -3,850,749.17 Yuan.
 
(II) Transfer of Claims and Debts of Equity Acquisition Transaction
 
1. Transfer of Claims and Debts of Hubei Huaxiang Cement Co., Ltd.
 
The Company will accept, audited and confirmed claims which incurred from unfulfilled sales Agreements by Hubei Huaxiang Cement Co., Ltd., in principle after confirmation.  The original shareholders shall be responsible for the collection of the 143.1874 million Yuan claims which were not accepted by the Company.   
 
All debts will be accepted in principle.  The original shareholders of Hubei Huaxiang Cement Co., Ltd. shall be responsible for the debts out of the scope of the transfer of the base date of the Audit Report.
 
2. Transfer of Claims and Debts of Hubei Huaxiang Cement Ezhou Co., Ltd.
 
The Company will accept, audited and confirmed claims which incurred from unfulfilled sales Agreements by Hubei Huaxiang Cement Ezhou Co., Ltd., in principle after confirmation.  The original shareholders shall be responsible for the collection of the 19.5009 million Yuan claims which were not accepted by the Company.
 
All debts will be accepted in principle.  The original shareholders of Hubei Huaxiang Cement Ezhou Co., Ltd. shall be responsible for the debts out of the scope of the transfer of the base date of the Audit Report.
 
(III) Analysis on Pricing and Fairness and Rationality of the Transaction Subject

The pricing of the transaction subject:
 
Formula of the total price of the target equity:  total price = (non-current assets value + current assets value + claims to be collected by the original shareholders - the amount of debts) × 70%. According to the survey and analysis conducted by the Company on the costs of M&As in cement industry in China in 2011 and 2012, acquisition cost per ton is around 400 Yuan, while the acquisition cost per ton for Huaxiang is within the range of the cement industry in China.
 
IV. Key Points of Transaction Agreement
 
(I) Acquiring 70% stake in Hubei Huaxiang Cement Co., Ltd. 
 
1. Parties to the AgreementAgreement: The Agreement is entered into and concluded by the Company (Party A), Wuhan Huayu Building Materials Group Co., Ltd.(Party B), Mr. Liao Binkui (Party C) and Mr. Liao Guoshu (Party D).
 
2. Transaction Price: The Company acquires 70% stake of Hubei Huaxiang Cement Co., Ltd. at the price of RMB 420.1008 million Yuan.
 
3. Payment Means 
 
The transaction shall be paid in cash in instalments.
 
Pursuant to the provisions of the Agreement, Party A has paid the first deposit of RMB 40 million Yuan; another 45 million Yuan was paid after signing the Supplymental Agreement on January 21; the remaining part of the price shall be paid in three instalments, first instalment shall be paid to 85% of the total transaction price, second instalment shall be paid to 88% of the total transaction price, the remaining part shall be paid within two years after the Base Date of the Equity Transaction, provided that Party B and Party C have fulfilled their respective duties and obligations under the Agreement.
 
4. Delivery or Transfer Schedule
 
The Base Date of the Equity Transaction is: December 1, 2012.  It is estimated that the transfer can be completed prior to end of February 2013. 
 
5. Conditions for Effect and Effective Period of the Agreement
 
The Agreement takes effect after it isexecuted by the legal representatives or authorized representatives of the parties, along with the “Equity Transfer Agreement” of Hubei Huaxiang Cement Ezhou Co., Ltd. signed separately by Wuhan Huachang Silicate Products Co., Ltd., Party A, Party B and Party D.  Should the aforesaid “Equity Transfer Agreement” does not take effect, or cancelled, terminated and revoked, this Agreement shall not take effect, or it shall be cancelled, terminated and revoked.
 
6. Liability for Breach of Contract
 
If Party B and Party C fail to fully and faithfully reveal the information or conceal the relevant information, Party B and Party C shall be liable for the consequent loss suffered by Hubei Huaxiang Cement Co., Ltd..
 
If the Transferor, after the Agreement is signed, regrets and refuses to fulfil the agreed obligations, he shall refund the deposit at a double rate.
 
7. Guarantee
 
Party B and Party C shall mutually bear the joint and several liabilities for the declaration, representation, warranties, undertaking and performance obligation made to Party A, Party D shall bear the joint and several liabilities for the declaration, representations, warranties, undertakings and performance obligations made by Party B and Party C in the Agreement for Party A.  The guarantee period is two years from the date when the Agreement is signed to the date when the equity is registered with the industry & commerce administration.
 
Party B agrees to set the 30% stake held at Hubei Huaxiang Cement Co., Ltd. as the pledge security for the performance by Party B and Party C of their duties and obligations under the Agreement, the pledge security period is two years from the effective date of the Agreement to the date when the equity is registered with the industry and commerce administration.  The pledge security agreement shall be otherwise signed by Party A and Party B separately. 
 
(II) Acquiring 70% Stake of Hubei Huaxiang Cement Ezhou Co., Ltd. 
 
1. Parties to the Agreement: The Agreement is jointly signed by the Company (Party A), Wuhan Huachang Silicate Products Co., Ltd. (Party B, the Transferor of the stake), Mr. Liao Guoshu (Party C, the Transferor of the stake), Wuhan Huayu Building Materials Group Co., Ltd.(Party D, the guarantor) and Mr. Liao Binkui (Party E, the guarantor).
 
2. Transaction Price: The Company acquires 70% stake of Hubei Huaxiang Cement Ezhou Co., Ltd. at the price of RMB 99.4370 million Yuan.
 
3. Payment Terms
The price of the Equity Transfer shall be paid in instalments 
 
Pursuant to the provisions of the Agreement, Party A has paid the first deposit of RMB 10 million Yuan; another 15 million Yuan was paid after signing the Supplymental Agreement on January 21; the remaining part of the price shall be paid in three instalments, first instalment shall be paid to 85% of the total transaction price, second instalment shall be paid to 88% of the total transaction price, the remaining part shall be paid within two years after the Base Date of the Equity Transaction, provided that Party B and Party C have fulfilled their respective duties and obligations under the Agreement.  
 
4. Delivery or Transfer Schedule
 
The Base Date of the Equity Transaction is: December 1, 2012.  It is estimated that the transfer can be completed prior to end of February 2013. 
 
5. Conditions for Effect and Effective Period of the Agreement
 
The Agreement takes effect after it is executed by the legal representatives or authorized representatives of the parties, along with the “Equity Transfer Agreement” of Hubei Huaxiang Cement Co., Ltd. signed separately by Party A, Party C and Party D and Mr. Liao Binkui.  Should the aforesaid “Equity Transfer Agreement” does not take effect, or cancelled, terminated and revoked, this Agreement shall not take effect, or it shall be cancelled, terminated and revoked.
 
6. Liability for Breach of Contract
 
If Party B and Party C fail to fully and faithfully reveal the information or conceal the relevant information, Party B and Party C shall be liable for the consequent loss suffered by Hubei Huaxiang Cement Co., Ltd..
 
If the Transferor, after the Agreement is signed, regrets and refuses to fulfil the agreed obligations, he shall refund the deposit at a double rate.
 
7. Guarantee
 
Party B, Party C and Party D mutually bear the joint and several liability for the declaration, representation, warranties, undertaking and performance obligation made to Party A, Party E shall bear the joint and several liability for the declaration, representations, warranties, undertakings and performance obligations made by Party B, Party C and Party D in the Agreement for Party A. The guarantee period is two years from the date when the Agreement is signed to the date when the equity is registered with the industry & commerce administration.
 
Party D agrees to set the 30% stake held at Hubei Huaxiang Ezhou Cement Co., Ltd. as the pledge security for the performance by Party B, Party C and Party D of their duties and obligations under the Agreement, the pledge security period is two years from the effective date of the Agreement to the date when the equityt is registered with the industry and commerce administration. The pledge security agreement shall be signed by Party A and Party D separately. 
 
V. Other Arrangements Relating to the Stake Acquisition
 
The stake acquisition does not relate to the staffing of the employees.  After the stake acquisition is completed, the target company after the stake change shall continue to perform its labor contracts of the whole employees by law in principle.
 
The capital for the stake acquisition comes from the capital owned by the Company.
 
VI The Purpose of the Acquisition and Its Impact on the Company

After acquiring Huaxiang, the Company will further improve its competitiveness in Hubei East through customer complementary, logistics consolidation and improvement of market concentration.
 
After the acquisition, Hubei Huaxiang Cement Co., Ltd. and Hubei Huaxiang Cement Ezhou Co., Ltd. will become subsidiaries of the Company.

Total external guarantee for Hubei Huaxiang Cement Co., Ltd. and Hubei Huaxiang Cement Ezhou Co., Ltd. is 40 million Yuan and 49 million Yuan, respectively.  According to the Agreement, the aforesaid guarantees shall be lifted by the original shareholders within one year.


VII Miscellaneous
 
Despite the EIA report of Hubei Huaxiang Cement Co., Ltd. phase II project has been completed, it is yet to get the administrative permission from the provincial environmental protection authorities.

In order to secure the benefits of the Company, it is stated in the Supplemental Agreement of Equity Transfer that, the counterparty shall be deemed as responsible for meeting the EIA requirements to obtain the acceptance of the administrative licensing and bearing the costs incurred, even legal responsibility for not being able to obtain administrative licensing before the Base Day of the equity transfer shall also be borne by the counterparty.


VIII Attachments

Daxin Certified Public Accountants Co., Ltd., Hubei Branch (Daxin Hubei Zhuan Shen Zi [2012] No. 0279) "Hubei Huaxiang Cement Co., Ltd. Special Audit Report".

Daxin Certified Public Accountants Co., Ltd., Hubei Branch (Daxin Hubei Zhuan Shen Zi [2012] No. 0280) "Hubei Huaxiang Cement Ezhou Co., Ltd. Special Audit Report".


It is herewith announced.
 
Huaxin Cement Co., Ltd.
January 23, 2013