Milkground faces significant loss from M&A fund investment

Shanghai Milkground Food Tech Co., Ltd. (Milkground) has reported significant developments regarding its investment in the Shanghai Xiangmin Equity Investment Partnership (Limited Partnership) (the "M&A Fund"), in which it invested 100,000,000 yuan. The M&A Fund's underlying asset, Jilin Yaohe Economic and Trade Co., Ltd., has defaulted on a 700,000,000 yuan loan from Inner Mongolia Mengniu Dairy (Group) Co., Ltd. (Mengniu), Milkground’s controlling shareholder.

This default has triggered arbitration, with a recent ruling by the Beijing Arbitration Commission granting Mengniu priority in receiving proceeds from the auction or sale of the M&A Fund’s holdings in Changchun Lianxin Investment Consulting Co., Ltd. and Jilin Zhiran Dairy Technology Co., Ltd. As a result, the M&A Fund and its underlying assets are collateralized, preventing liquidation and distribution. Milkground has been unable to fully and timely recover its capital contribution and associated returns from the M&A Fund, which reached an unaudited book value of 128,724,300 yuan as of June 30, 2025.

This situation also triggered a compensation promise from Ms. Chai Xiu, the former controlling shareholder, to Milkground for any direct or indirect losses. Ms. Chai Xiu has not yet fulfilled her compensation commitment, and Milkground anticipates initiating arbitration or litigation to recover its investment and associated earnings. The company warns that if Ms. Chai Xiu fails to honor her commitment, Milkground's investment in the M&A Fund and its underlying entities faces a risk of substantial loss, potentially impacting the company’s net profit for relevant periods.