China Carbon Neutral Development Group Limited Issues Supplementary Details on Zailiang New Energy Acquisition

Key Points from the Supplementary Announcement

• Acquisition of 60% Equity in Zailiang New Energy: China Carbon Neutral Development Group Limited (“the Company”) completed the acquisition of a 60% stake in Zailiang New Energy (“Zailiang”), a company with a rare and valuable waste battery recycling and reuse license issued by the Ministry of Industry and Information Technology.
• Final Consideration and Valuation Details:
  • The final agreed acquisition price was HK\$30 million, which is 56.75% of the original valuation as of December 31, 2022.
  • This price reflects a downward adjustment due to lower-than-expected growth rates, unforeseen project risks, and a discount rate (13.45%) applied using the Capital Asset Pricing Model (CAPM) to account for industry risks.
  • Asset valuation was conducted by Zhonglin Asset (Beijing) Co., Ltd., based on market conditions and the outlook for the new energy and waste battery sectors at the time.
  • As of December 31, 2022, Zailiang’s assets were valued at RMB 80.83 million, with the 60% stake equating to RMB 48.50 million. The Group consolidated Zailiang’s results from January 1, 2023, to June 30, 2024.
• Strategic Rationale and Scarcity Value:
  • The acquisition was strategically aimed at expanding sustainable operations and securing a scarce recycling license, which is considered a significant future competitive advantage as such licenses are unlikely to be reissued.
  • The Directors found the asset valuation report’s growth projections to be aggressive and hence negotiated the final price to also reflect actual 2023 performance and the intrinsic value of the license.
• Steps in Determining Consideration:
  1. Assessed industry development expectations and license scarcity.
  2. Aligned with the Company’s overall business strategy.
  3. Reviewed Zailiang’s 2023 actual sales and profit.
  4. Considered terms acceptable to both parties.
• Governance and Compliance Enhancements:
  • The Company acknowledged a breach of disclosure obligations under the Hong Kong Listing Rules due to insufficient internal communication regarding the transaction, pledging to strengthen compliance and internal controls.
  • New measures include enhanced internal controls, professional compliance training for directors and management, prompt internal communication of potential transactions, and stricter monitoring of disclosure thresholds.
• Impairment Loss of Goodwill:
  • The Company recorded an impairment loss of HK\$5 million in goodwill attributable to Zailiang for the period from January 2023 to June 2024.
  • This impairment was recognized following an independent valuation on September 30, 2024, conducted by Vincorn Consulting and Appraisal Ltd., and was triggered by operational disruptions at Zailiang due to a severe rainstorm in Henan Province in July 2024 which negatively impacted performance assumptions.

Important Information for Shareholders

• Share Price Sensitivity:
  • The acquisition of a rare recycling license positions the Company strategically in the lithium battery recycling sector, potentially enhancing future growth prospects and share value.
  • The agreed acquisition price was significantly marked down from the original valuation, reflecting prudent risk management but also acknowledging actual market and operational challenges.
  • Recognition of an HK\$5 million goodwill impairment could affect near-term financial results and may be viewed as a conservative response to adverse operational events.
  • The Company’s acknowledgment of past disclosure lapses and the implementation of stronger compliance and governance measures are critical for restoring investor confidence and ensuring future regulatory compliance.
• Ongoing Risks:
  • The lithium battery recycling industry is subject to regulatory, operational, and market risks, as evidenced by the impact of extreme weather events on Zailiang’s operations.
  • Future performance may be influenced by the actual exploitation of the acquired license and the Company’s ability to capitalize on the growing demand for battery recycling.

Conclusion

The supplementary announcement provides material updates on the Zailiang New Energy acquisition, including a significant revaluation of transaction price, the strategic importance of the waste battery recycling license, and disclosure of an impairment loss due to operational disruptions. The Company’s measures to strengthen governance and compliance are also noteworthy and could positively impact investor sentiment. All these factors are potentially price sensitive and relevant for shareholders tracking the Company’s value and future prospects.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should exercise their own judgment and consult professional advisers before making investment decisions. The article is based on the Company’s public disclosures as of April 26, 2026. All forward-looking statements are subject to risks and uncertainties.

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