Taihua plc

("Taihua" or the "Company")

Open Offer & posting of a circular to Shareholders

The Company announces today the publication of a circular to Shareholders regarding a capital raising to raise approximately £715,846.55 by way of an Open Offer (the "Circular").

Introduction

The Company proposes to raise approximately £715,846.55 through the issue of New Ordinary Shares to Shareholders at an issue price of 2.63 pence per New Ordinary Share.

The Issue Price represents a premium of 133.78 per cent to the Closing Price on the Latest Practicable Date. Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that Admission will occur on 19 September 2016.

The purpose of this document is to set out the background to, and the reasons for, the Open Offer.  It explains why the Board considers the Open Offer to be in the best interests of the Company and its Shareholders as a whole and to provide you with details of, and to seek your support to the Open Offer.

The details of the Open Offer are set out below, and the steps required for Qualifying Shareholders to participate in the Open Offer are set out in Part 2 of the Circular.

Overview of the Company

The Company is a pharmaceutical company based in China that specializes in the cultivation of raw materials that are used in Traditional Chinese Medicine along with the manufacture of TCM and Homoharringtonine.

The main products of the Company are as follows:

(a)        Forsythia

The Company cultivates and distributes Forsythia. Forsythia is a raw material that is widely used in TCM as a constituent in remedies intended to clear heat and toxins from the body and to dissipate nodules. In 2011 and 2013 the Company acquired two Forsythia plantations with areas the sixe of approximately 893 hectares and 1,013 hectares respectively. 

(b)        TCM products

The Company manufactures and distributes Bian Tong Pian and other TCM products in China including Geng Nian An, Zao Ren An Shen and Du Zhong Ping Ya Pian amongst others.

(c)        Homoharringtonine

            The Company currently manufactures and distributes Homoharringtonine. It is used in treatments for cancer. 

Background to and Reasons for the Open Offer and Use of Proceeds

It had previously been suggested to the Board by Shareholders that the Company should undertake a share buyback programme in order to satisfy those Shareholders who wish to realise value in their investment. The Board now therefore considers that it is appropriate to conduct such a share buyback programme, the details of which are set out below, in order to satisfy those Shareholders.

Section 692 of the Act provides that the consideration to be paid for any share buyback must be paid either out of distributable profits or out of the proceeds of a fresh issue of shares made for the purposes of the share buyback

The Company is an investment holding company. The ultimate trading subsidiary of the Company, TNP, has profits available for distribution. It would be possible for TNP to pay such profits up to China Natural as its parent company by way of dividend and China Natural could then pay those profits up to the Company by way of dividend.

TNP is based in the PRC. The tax laws and regulations of the PRC provide that TNP is obliged to deduct 10% withholding tax on any dividend to be paid by it to China Natural and it must pay the withholding tax to the Chinese tax authority before any such dividend can be transferred to China Natural.

The Company had an accumulated loss in the amount of approximately RMB19,328,000 by 31 December 2015. Assuming the Company will require £500,000 to pay for the share buyback, this would mean that TNP would have to make a tax payment of around £273,800 in the PRC.  The Directors consider that this tax burden means that this would be an inefficient exercise and the tax costs would outweigh the benefits to Shareholders.

Given it is not financially viable to undertake the share buyback out of the distributable profits available in the Group, another option for the Company is to buy back the shares out of the proceeds of a fresh issue of shares. The Directors take the view that the Open Offer is a suitable way to raise the funds required to complete the proposed share buyback.

At the AGM held on 6 August 2015, Shareholders had granted the directors the authority to allot up to 27,218,500 Ordinary Shares on a pre-emptive basis. This authority has been renewed at the AGM held on 12 August 2016. The Board resolved to undertake the Open Offer by virtue of this authority. It represents a premium of 133.78 per cent to the Closing Price on the Latest Practicable Date. The Directors believe the Open Offer will create value and be attractive to Shareholders. The Net Asset Value of the Company as reflected in the annual report and accounts for the period ended 31 December 2015 (the "2015 Annual Report") when attributed to each Ordinary Share is equal to a Net Asset Value of around 16p per Ordinary Share. 

As explained in more detail below, the Open Offer is to be underwritten by Mr Tao Ji. When considered together with the proposed share buyback, the proposals will enable both those Shareholders who wish to subscribe for further Ordinary Shares in the Open Offer to do so and also those Shareholders who wish to dispose of some or all of their Ordinary Shares in the proposed share buyback programme to do so.  The Board hopes therefore to satisfy as many of the Shareholders as is possible.

As authorised by the resolution passed at the AGM held on 12 August 2016, the Company will make one or more market purchases of up to 8,173,733 Ordinary Shares representing approximately 10 per cent of the Company's issued share capital as at the date of this Circular. The minimum price (exclusive of expenses) which may be paid by the Company for an Ordinary Share is 1 pence per Ordinary Share. The maximum price (exclusive of expenses) which may be paid by the Company for an Ordinary Share shall not be more than 105% of the average of the close middle market quotations for an Ordinary Share as derived from the London Stock Exchange's Daily Official List for the five business days immediately preceding the date on which the Ordinary Share is contracted to be purchased or, in the case of a tender offer, the terms of the tender offer are announced.

The Directors intend to use the proceeds of the Open Offer as follows:

·      up to £500,000 will be used to undertake the share buyback; and

·      the balance will be used for general working capital.

Current trading and outlook

The Company released its 2015 Annual Report on 30 June 2016. A copy of the 2015 Annual Report is available on the Company's website www.taihplc.com. Shareholders should read those results in the 2015 Annual Report before making any application for the Open Offer Shares. Highlights of the 2015 Annual Report include:

·      total Sales for 2015 were RMB 34.23m (2014: RMB 50.95m);

·      the sales of Forsythia in 2015 were RMB26.67m (2014: RMB 41.85m);

·      the sales of TCM products were RMB4.59m (2014:RMB4.87m);

·      the sales of APIs (including Paclitaxel and Homoharringtonine) in 2015 were RMB2.97m (2014:RMB4.23m); and

·      the loss before tax was RMB30.65m (2014: a profit before tax of RMB4.50m)

In 2015, the Company concentrated efforts on the re-application for the Chinese GMP certification. As previously announced, this has been achieved. This, combined with the renewal of the Company's Drug Production Permit, means that the Directors do not believe there are any regulatory barriers to the expansion of the Company's TCM products (including Bian Tong Pian) and sales of Homoharringtonine.

The Company's strategy for 2016 is to leverage the re-certification, paying particular attention to recovering its market share in sales of Homoharringtonine and in expanding its distribution of Bian Tong Pian.

Open Offer

The Company proposes to raise £715,846.55 (before expenses) by the issue of 27,218,500 New Ordinary Shares by way of the Open Offer, each at an Issue Price of 2.63 pence per New Ordinary Share. The New Ordinary Shares will represent 24.98 per cent. of the Enlarged Issued Share Capital.

Qualifying Shareholders are being offered the right to subscribe for Open Offer Shares in accordance with the terms of the Open Offer.

The terms and conditions of the Open Offer are set out in Part 2 of the Circular.

The Directors recognise the importance of pre-emption rights to Shareholders and consequently 27,218,500 Open Offer Shares are being offered to existing Shareholders by way of the Open Offer. The Open Offer provides Qualifying Shareholders with an opportunity to participate in the Open Offer by subscribing for their respective Open Offer Entitlement.

Subject to the fulfillment of the conditions set out below and in Part 2 of the Circular, Qualifying Shareholders are being given the opportunity to subscribe for Open Offer Shares under the Open Offer at the Issue Price, payable in full on application and free of all expenses, pro rata to their existing shareholdings on the following basis:

1 Open Offer Share for every 3.00300641 Existing Ordinary Shares

held by Qualifying Shareholders and registered in their name at the Record Date.

Open Offer Entitlement under the Open Offer will be rounded down to the nearest whole number and any fractional entitlements to Open Offer Shares will not be allocated and will be disregarded. Qualifying Shareholders with holdings of Existing Ordinary Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their Open Offer Entitlement.

If you have sold or otherwise transferred all of your Existing Ordinary Shares after the ex-entitlement Date, you are not entitled to participate in the Open Offer.

The Open Offer is not a rights issue. Qualifying CREST Shareholders should note that, although the Open Offer Entitlement will be admitted to CREST and be enabled for settlement, applications in respect of entitlement under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised by Euroclear's Claims Processing Unit. Qualifying Non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded. Qualifying Shareholders should be aware that under the Open Offer, unlike in a rights issue, any New Ordinary Shares not applied for will not be sold in the market or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer.

Application has been made for the Open Offer Entitlement of Qualifying CREST Shareholders to be admitted to CREST. It is expected that such Open Offer Entitlement will be admitted to CREST on 26 August 2016. The Open Offer Entitlement will also be enabled for settlement in CREST on 26 August 2016 to satisfy bona fide market claims only. Applications through the CREST system may only be made by the Qualifying CREST Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.

Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment, are contained in Part 2 of this document and for Qualifying Non-CREST Shareholders on the accompanying Application Form. To be valid, Application Forms (duly completed) and payment in full for the Open Offer Shares applied for must be received by Capita Asset Services, Corporate Actions, the Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, by no later than 11.00 a.m. on 16 September 2016.

Qualifying Non-CREST Shareholders will have received an Application Form with this document which sets out their maximum entitlement to Open Offer Shares as shown by the number of Open Offer Entitlement allocated to them.

To enable the Company to benefit from applicable exemptions from the requirement under the Prospectus Rules to prepare a prospectus in connection with the Open Offer, a maximum of 27,128.500 Open Offer Shares, representing a total consideration of approximately £713,479.55 will be made available to Qualifying Shareholders under the Open Offer, which will be conducted on the basis of 1 Open Offer Shares for every 3.00300641 Existing Ordinary Shares held at the Record Date. The Open Offer is restricted to Qualifying Shareholders in order to enable the Company to benefit from exemptions from securities law requirements in certain jurisdictions outside the United Kingdom.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in Part 2 of the Circular. For Qualifying Non-CREST Shareholders, completed Application Forms, accompanied by full payment, should be returned by post, or by hand (during normal business hours only), to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to arrive as soon as possible and in any event so as to be received no later than 11.00 a.m. on 16 September 2016. For Qualifying CREST Shareholders the relevant CREST instructions must have been settled as explained in this document by no later than 11.00 a.m. on 16 September 2016.

Other Information relating to the Open Offer

The issue of the Open Offer Shares is conditional, inter alia, upon Admission becoming effective by no later than 8.00 a.m. on 19 September 2016 (or such later time and/or date as the Company may agree being no later than 8.00 a.m. on 31 October 2016).

The Open Offer is subject to Admission becoming effective by 8.00 a.m. on 19 September 2016 (or such later time or date not being later than 8.00 a.m. on 31 October 2016 as the Company may decide).

In the event that the Open Offer does not become unconditional by 8.00 a.m. on 19 September 2016 (or such later time and date as the Company may decide being no later than 8.00 a.m. on 31 October 2016), the Open Offer will lapse and application monies will be returned by post to the Applicant(s) at the Applicant's risk and without interest, to the address set out in the Application Form, within 14 days thereafter.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Settlement and dealings

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that such Admission will become effective and that dealings will commence at 8.00 a.m. on 19 September 2016. Further information in respect of settlement and dealings in the New Ordinary Shares is set out in paragraph 7 of Part 2 of the Circular.

Overseas Shareholders

In order to comply with the provisions of the Act, the offer of Open Offer Shares to Overseas Shareholders who are resident in a Restricted Jurisdiction will be made pursuant to section 562(3) of the Act by way of an appropriate notice in the London Gazette. The Open Offer is not being made to such Overseas Shareholders by means of sending this document or the Application Form to them, and nor will the stock accounts of such Overseas Shareholders who hold existing Ordinary Shares in CREST be credited with Open Offer Entitlement.

Information for Overseas Shareholders who have registered addresses outside the United Kingdom or who are citizens or residents of countries other than the United Kingdom appears in paragraph 6 of Part 2 of the Circular which sets out the restrictions applicable to such persons. If you are an Overseas Shareholder, it is important that you pay particular attention to that section of the Circular.

Underwriting arrangements and irrevocable undertaking

The Company has entered into an Underwriting Agreement with Mr Tao Ji on the date of the Circular.

Pursuant to the Underwriting Agreement Mr Ji has committed to subscribe for up to 20,628,582 of Open Offer Shares at the Issue Price if any Open Offer Shares are not subscribed for by Shareholders in accordance with their Open Offer Entitlements.

In addition to the Underwriting Agreement, Mr Tao Ji has irrevocably undertaken to take up his full Open Offer Entitlements which are 1,882,305 Open Offer Shares. He has also made full payment for his Open Offer Entitlements to the Company as at the date of the Circular.

In the event that Mr Ji is required to subscribe for the full maximum of 20,628,582 of Open Offer Shares in accordance with the Underwriting Agreement then, following Admission, Mr Ji will hold 28,163,461 Ordinary Shares which will represent 25.85 per cent. of the Enlarged Share Capital assuming all Open Offer Shares are issued.

Mr Tao Ji is a highly experienced manager and entrepreneur. Mr Ji graduated from Xi'an Jiaotong University and again from Ecole Centralle di Lille in Economics, Information Engineering and Communication Engineering.  Mr Ji is currently the Vice General Manager of Changzhou Shiweiya Trading Co Limited.

Directors

The Company will be in a "closed period" pursuant to the Market Abuse Regulations when it accepts the applications for Open Offer Shares from Directors as it is due to publish its interim results for the period ended 30 June 2016 before 30 September 2016. During any such closed period, the Directors are prohibited from dealing in any Ordinary Shares. Participation in the Open Offer would constitute "dealing" for these purposes and therefore the Directors are prohibited from participating in the Open Offer.

Expected Timetable Of Principal Events

                                                                                                                2016

Notes

Save for the date of publication of this document, each of the times and dates above are subject to change. Any such change, including any consequential change in the Open Offer Statistics above, will be notified to Shareholders by an announcement on a Regulatory Information Service.  All times are London times and each of the times is subject to change.

Open Offer Statistics

Notes

(1)     Closing Price on 24 August 2016, being the last practicable Business Day prior to the publication of this document.

Statistics are prepared on the basis that no Ordinary Shares will be issued following the date of this document and before the completion of the Open Offer.

(2)     Enlarged Issued Share Capital immediately following the Open Offer assumes the maximum number of New Ordinary Shares under the Open Offer are allotted.

(3)     Gross proceeds of the Open Offer assumes the maximum number of New Ordinary Shares under the Open Offer are allotted.

Additional information and availability of the Circular

Your attention is drawn to the entirety of the information set out in the Circular. The Circular will be available for a period of at least 12 months from today on the Company's website www.taihplc.com free of charge in accordance with the requirements of Rule 26 of the AIM Rules.

Capitalised terms used but not otherwise defined in this announcement bear the meanings ascribed to them in the Circular.

Enquiries:

Nicholas Lyth, Taihua plc                                                              07769 906 686

Katy Mitchell, WH Ireland Limited                                           +44 161 832 2174