**Abstract**
Stock Code: 000519
Securities Abbreviation: Jiangnan Red Arrow
Announcement No.: 2013-54
Hunan Jiangnan Red Arrow Co., Ltd. announces the capital increase of its wholly-owned subsidiary. The company and all members of the Board of Directors guarantee the truthfulness, accuracy, and completeness of the announcement. There are no false records, misleading statements, or material omissions.
**Overview of the Capital Increase of Wholly-Owned Subsidiaries**
(1) Basic Information
In light of the share issuance by Hunan Red Arrow Red Arrow Co., Ltd. (hereinafter referred to as "the company"), Zhongnan Diamond Co., Ltd. (formerly known as a limited liability company and renamed to "Zhongnan Diamond Co., Ltd.") has completed the acquisition of 100% equity in a major asset restructuring ("this restructuring"). All matching funds have been fully allocated. To ensure the smooth progress of key fundraising projects, including the "Nanyang Large-Particle Diamond Product Line Construction Project," the high-grade polycrystalline cubic boron nitride composite sheet (PCBN) and polycrystalline diamond composite sheet (PCD) series tool materials industrialization projects, 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.
After the capital increase, the registered capital of Zhongnan Diamond will reach RMB 1,719,988,011, with the company still holding 100% of its equity.
(2) Board of Directors' Consideration
The company held its 19th meeting of the 8th Board of Directors on December 13, 2013. All directors voted in favor of the capital increase and agreed to submit the matter for approval at the 2013 Third Extraordinary General Meeting of Shareholders. The capital increase is yet to be approved at the shareholders’ meeting scheduled for December 31, 2013.
(3) Related Party Transaction
This capital increase does not constitute a related party transaction.
**Basic Information about the Capital Increase Enterprise**
The target company for the capital increase is Zhongnan Diamond, a wholly-owned subsidiary of the company. Relevant details are as follows:
1. Major Investors and Funding Methods
On July 29, 2013, the China Securities Regulatory Commission approved the company’s public offering of 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, resulting in the company acquiring 100% ownership of Zhongnan Diamond. Currently, the company is the sole shareholder of Zhongnan Diamond.
2. Basic Situation of Zhongnan Diamond
Zhongnan Diamond is primarily engaged in the research, development, production, and sales of super-hard materials and their tools, as well as high-performance abrasives and related products. Prior to and after the capital increase, the company holds 100% of the shares.
The main financial indicators of Zhongnan Diamond based on the most recent audited consolidated statement are as follows (in ten thousand yuan):
[Image: Financial data table]
**Purpose of the Capital Increase, Existing Risks, and Impact on the Company**
1. Purpose of the Capital Increase
The capital increase aims to support the construction of the Nanyang Large-Particle Diamond Product Line, the high-grade PCBN and PCD series tool materials industrialization projects, and other five fundraising initiatives. The RMB 1,269,988,011 capital injection into Zhongnan Diamond will be used for the development and construction of these projects.
2. Risks
As of the announcement date, there is no indication that the projects funded by this capital increase may face changes or termination. The company currently maintains a sound internal control system for fund management. In the event of any future project changes or suspensions, the company will conduct thorough feasibility studies and follow legal procedures to adjust the use of raised funds accordingly.
3. Impact on the Company
This capital increase will facilitate the smooth implementation of the company’s restructuring and investment projects, supporting the rapid development of its core business and enhancing its competitive advantage.
**Special Announcement**
Hunan Jiangnan Red Arrow Co., Ltd.
Board of Directors
December 16, 2013
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