**Abstract**
Stock Code: 000519
Securities Abbreviation: Jiangnan Red Arrow
Announcement No.: 2013-54
**Announcement by Hunan Jiangnan Hongjian Co., Ltd. on the Capital Increase of Its Wholly-Owned Subsidiary**
The company and all members of the Board of Directors guarantee that the contents of this announcement are true, accurate, and complete, with no false records, misleading statements, or material omissions.
**I. Overview of the Capital Increase of the Wholly-Owned Subsidiary**
(1) **Basic Situation**
In light of the share issuance by Hunan Red Arrow Red Arrow Co., Ltd. (hereinafter referred to as “the Companyâ€), Zhongnan Diamond Co., Ltd. (formerly a joint-stock company, now reorganized as a limited liability company and renamed “Zhongnan Diamond Co., Ltd.â€) has completed the acquisition of 100% equity in the major asset restructuring (hereinafter referred to as “this restructuringâ€). All matching funds have been fully secured. To ensure the smooth progress of the Nanyang large-grain diamond product line construction project, as well as other five fundraising projects including high-grade polycrystalline cubic boron nitride composite sheet (PCBN), polycrystalline diamond composite sheet (PCD) series tool materials industrialization, the Company plans to increase the capital of its wholly-owned subsidiary, Zhongnan Diamond, by RMB 1,269,988,011. The funding will come from the matching funds raised through this restructuring.
Upon completion of the capital increase, the registered capital of Zhongnan Diamond will reach 1,719,988,011 yuan, with the Company retaining 100% ownership.
(2) **Board of Directors’ Consideration**
On December 13, 2013, the Company held its 19th meeting of the 8th Board of Directors. All directors voted in favor of the capital increase, and the matter was approved for submission to the 2013 Third Extraordinary General Meeting of Shareholders for final approval.
As of December 31, 2013, the capital increase is still pending approval at the 2013 Third Extraordinary General Meeting of Shareholders.
(3) **Whether It Constitutes a Related Party Transaction**
This capital increase does not constitute a related party transaction.
**II. Basic Information about the Target Enterprise**
The target company for the capital increase is Zhongnan Diamond, a wholly-owned subsidiary of the Company. Relevant information is as follows:
1. **Major Investors and Funding Methods**
On July 29, 2013, the China Securities Regulatory Commission issued an approval (Zheng Jian Li [2013] No. 1012) authorizing the Company to issue shares to China Ordnance Industry Group Co., Ltd., Yuxi Industrial Group Co., Ltd., Shanghai Xunbang Investment Co., Ltd., Beijing Jinwanzhong Technology Development Co., Ltd., Wang Siqing, Yu Guobing, Zhang Kui, Zhang Xiangfa, and Liang Haofei, who collectively hold 100% equity in Zhongnan Diamond. Currently, the Company is the sole shareholder of Zhongnan Diamond.
2. **Basic Information on Zhongnan Diamond**
Zhongnan Diamond primarily engages in the research and development, production, and sales of super-hard materials, their tools, high-performance abrasives, and related products. The Company maintains 100% ownership before and after the capital increase.
The key financial indicators of Zhongnan Diamond from its most recent audited consolidated financial statements are as follows (in 10,000 RMB):
[Image: Financial data table]
**III. Purpose, Risks, and Impact of the Capital Increase**
1. **Purpose of the Capital Increase**
The purpose of the capital increase is to support the smooth implementation of the Nanyang large-grain diamond product line construction project, as well as the industrialization projects of high-grade PCBN and PCD series tool materials. The RMB 1,269,988,011 capital injection into Zhongnan Diamond will be used for the construction of these projects.
2. **Risks Involved**
As of the date of this announcement, there is no indication that the projects funded by this capital increase may face changes or termination. There are no foreseeable major events that could lead to such outcomes. The Company currently has a sound internal control system for fund management. If any project undergoes a change or is terminated in the future, the Company will conduct a thorough feasibility analysis and follow relevant laws and regulations, including the "Administrative Measures for Raised Funds of Hunan Jiangnan Red Arrow Co., Ltd.," to ensure proper use of the funds.
3. **Impact on the Company**
This capital increase will facilitate the smooth progress of the Company’s restructuring and investment projects, contributing to the rapid development of its core business and enhancing its competitive advantage in the market.
**Special Announcement**
Hunan Jiangnan Red Arrow Co., Ltd.
Board of Directors
December 16, 2013
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