Lizhong Group restructures subsidiary, retains significant guarantee liabilities

Zhongyuan Securities has issued an investigation opinion regarding Lizhong Sitong Light Alloys Group Co., Ltd.'s (Lizhong Group) transfer of equity in its controlled subsidiary, Shandong Lizhong New Energy Materials Co., Ltd. (Shandong Lizhong). Following the transaction, Lizhong Group's stake in Shandong Lizhong will decrease to 45.1546%, reclassifying it as an associate and no longer consolidated into Lizhong Group's financial statements.

Despite this change, Lizhong Group will continue to provide guarantees for Shandong Lizhong, which will constitute a related party guarantee. As of October 31, 2025, Lizhong Group's existing guarantees for Shandong Lizhong total RMB 188,057,850.13 for bank loans and RMB 179,214,000 for company loans. Additionally, Lizhong Group will provide new bank credit guarantees of up to RMB 450,000,000, valid for three years.

The transaction involves Lizhong Group transferring 36.72% of Shandong Lizhong's equity to Kunlun New Material for RMB 22,769,918.08 and acquiring 16.5% of non-paid-in equity from Gong Zhiwen for zero consideration, while contributing RMB 78,094,100 to Shandong Lizhong's capital increase. Kunlun New Material will provide counter-guarantees for 55% of Shandong Lizhong's existing bank loans. The board of directors has approved the transaction, which awaits shareholder approval.