Shougang Lanza: The accusations made by Ji Yuanjun against the company lack legal basis and have no significant adverse impact on the group's business

According to the Zhitong Finance APP, Shougang Lanza (02553) announced that the company had originally planned to launch its IPO on June 30, but the global offering and listing have been delayed due to a civil lawsuit received.

It is reported that Jiyuan Junyi (which holds a 42% stake in Shoulang Jiyuan, with the remaining 58% owned by the company) has been dissatisfied with the investment returns from Shoulang Jiyuan and wishes to withdraw its investment. The company has been in communication with Jiyuan Junyi regarding this matter. However, the company's Chinese legal advisor has confirmed that, according to the investment agreement or relevant provisions of the Company Law of China, Jiyuan Junyi has no rights to demand that the company or any third party purchase its stake in Shoulang Jiyuan.

After the last feasible date, Jiyuan Junyi filed a civil lawsuit against the company at the Pinglu County People's Court on June 27, 2025, in which the company is listed as the defendant (Jiyuan Dispute). Jiyuan Junyi is wholly owned by Ningxia Jiyuan Circular Development Co., Ltd., which also wholly owns Jiyuan Metallurgy. Jiyuan Metallurgy is the industrial exhaust supplier for Shoulang Jiyuan. Shoulang Jiyuan is currently undergoing its annual maintenance, which lasts for one month (starting from July 1, 2025).

Jiyuan Junyi accuses the company of: (i) violating the shareholder rights of Jiyuan Junyi under the investment agreement established with Shoulang Jiyuan by increasing the investment amount in the production facilities of Shoulang Jiyuan by approximately RMB 159.8 million without prior notice to Jiyuan Junyi. This action is alleged to violate relevant provisions of the Company Law of China because it was made without the approval of the shareholders' meeting and deprived Jiyuan Junyi of its rights to participate in significant investment decisions; and (ii) unilaterally setting the sales price of Shoulang Jiyuan's ethanol products without the approval of the board of directors or the shareholders' meeting, which is alleged to violate the provision of "fairness of sales price" in the investment agreement.

Jiyuan Junyi has applied for injunctive relief, requesting to prohibit the company from unilaterally making significant investment and pricing decisions, and ordering the company to establish a compliant decision-making mechanism for Shoulang Jiyuan's shareholders in accordance with the investment agreement and the Company Law of China.

Based on the opinions of the company's Chinese legal advisors and the Chinese lawyers regarding the Jiyuan Dispute from Beijing Wei Heng Law Firm (appointed Chinese lawyers), and the information currently available to them, the directors believe that the Jiyuan Dispute lacks legal basis, and the likelihood of Jiyuan Junyi successfully making claims against the company is low. The company will take appropriate actions to actively defend against the claims under the Jiyuan Dispute. Shoulang Jiyuan has obtained two irrevocable exhaust supply commitments from new exhaust suppliers on June 29, 2025, under which the new exhaust suppliers have each committed to supply industrial exhaust to Shoulang Jiyuan, with a total volume sufficient to meet Shoulang Jiyuan's exhaust supply needs, and the quality consistent with that currently supplied by Jiyuan Metallurgy. It is estimated that Shoulang Jiyuan can start using the gas source from the new exhaust suppliers around October 2025 if needed.

The appointed Chinese lawyers believe that the accusations made by Jiyuan Junyi against the company are unfounded and should be dismissed.

If Jiyuan Metallurgy stops supplying industrial exhaust and the company has to turn to new exhaust suppliers for industrial exhaust supply, this may lead to a decrease in the company's projected revenue for 2025 by approximately 6.2%, a decrease in the gross profit margin for 2025 by approximately 0.9 percentage points, and an increase in the net loss for 2025 by approximately 7.2%, compared to the company's forecasts (without considering the negative impact of the Jiyuan Dispute) Specifically, the reason for the decline in gross profit margin is that, despite the worst-case scenario where ShouLangJiYuan will not generate revenue by the third quarter of 2025, it will still incur fixed costs (including maintenance and nurturing costs).

To mitigate any potential impact of the JiYuan dispute on the supply of industrial waste gas from JiYuan Metallurgy to ShouLangJiYuan, and as a strategy to diversify the sources of industrial waste gas supply for ShouLangJiYuan, ShouLangJiYuan has obtained two irrevocable waste gas supply commitments from two new waste gas suppliers on June 29, 2025.

The company believes that the JiYuan dispute will not have a significant adverse impact on the group's business. According to the independent due diligence conducted by the exclusive sponsor, no matters were found that could reasonably cause any significant doubts about the company's views on the JiYuan dispute