Sunshine New (00509) announced that, as the land of the Shandong Hongri plant area has been included by the Luozhuang District Government in the "Relocate Factories into Parks" project as land requiring a change in land use nature, the Luozhuang District Government and Shandong Hongri have signed the "Agreement on the 'Relocate Factories into Parks' Project for Shandong Hongri Chemical Co., Ltd." (the "Agreement"). This Agreement clearly stipulates the primary obligation of the Luozhuang District Government, which is to be responsible for "advancing land reserve acquisition, planning adjustments, land use approval, and public land transfer, with Shandong Hongri providing full cooperation for the related work." Shandong Hongri has completed tasks such as machinery and equipment relocation, factory building demolition, land leveling of the plant area, and employee resettlement in a timely manner. However, the Luozhuang District Government has failed to fulfill its subsequent responsibilities under the Agreement, causing the "Relocate Factories into Parks" work to see no substantial progress for a long time. Consequently, Shandong Hongri filed an administrative reconsideration with the Linyi Municipal Government of Shandong Province, requesting that the Luozhuang District Government be compelled to perform the relevant responsibilities and obligations related to the "Relocate Factories into Parks" project. Subsequently, an administrative appeal was also submitted to the Shandong Provincial High Court. The Shandong High Court later issued an administrative judgment, affirming that the Agreement is legal and valid, and further ruled, based on the defense reasons put forward by the Luozhuang District Government, that soil remediation is a precondition for fulfilling the Agreement, but did not specify the specific processes and requirements. To earnestly implement the effective administrative judgment and ensure the smooth progress of the "Relocate Factories into Parks" project, Shandong Hongri has submitted a written application to the Luozhuang District Government, requesting clarification on the specific processes, execution standards, implementation requirements, and related supporting treatment plans for soil remediation during the land reserve acquisition process. It also requested that the Luozhuang District Government provide a written response upon receiving the application. Shandong Hongri stated it would execute, organize, and carry out soil remediation work according to the governance requirements proposed by the Luozhuang District Government, actively promoting the land reserve acquisition process to ensure the "Relocate Factories into Parks" project achieves substantive progress at an early date. However, as of the date of this announcement, the government has not provided a clear written reply regarding the soil remediation treatment plan.
The company has learned that Shandong Hongri recently received a notice from the Luozhuang District Government regarding the termination of the "Agreement on the 'Relocate Factories into Parks' Project for Shandong Hongri Chemical Co., Ltd." (the "Termination Notice"). Prior to issuing this Termination Notice, the Luozhuang District Government did not provide any form of response to Shandong Hongri, nor did it clarify the specific legal pathway for executing soil pollution control. Instead, it unilaterally terminated the agreement on the grounds that Shandong Hongri "failed to fulfill its obligations for soil pollution investigation and remediation." This administrative action completely violates the principles of procedural propriety and good faith, constituting a serious procedural illegality. Therefore, Shandong Hongri has submitted an application for administrative reconsideration to the Linyi Municipal Government of Shandong Province, demanding (1) the revocation of the Termination Notice, (2) confirmation that the Luozhuang District Government's unilateral and forced termination is an illegal administrative act, (3) an order compelling the Luozhuang District Government to continue fulfilling its responsibilities and obligations under the Agreement, and (4) a hearing for a thorough investigation of this case. Furthermore, despite the Shandong High Court's administrative judgment regarding the precondition, Shandong Hongri maintains the position that the government should play a leading role in the land reserve acquisition process. Shandong Hongri has also sought legal advice and will apply to the Supreme People's Court of the People's Republic of China for a retrial of the Shandong High Court's administrative judgment, and will take any necessary actions to protect the legitimate rights and interests of Shandong Hongri, the company's shareholders, and offshore creditors.
In February 2025, China Cinda Asset Management Co., Ltd. Shandong Branch, a creditor of Shandong Hongri, applied to the Linyi Luozhuang District People's Court for an enforcement ruling to auction the land use rights mortgage interest of Shandong Hongri. The creditor applied for this enforcement ruling because the Luozhuang District Government failed to fulfill its subsequent work responsibilities under the "Relocate Factories into Parks" agreement with Shandong Hongri, resulting in prolonged delays in advancing and completing the reserve acquisition work. At that time, Shandong Hongri had appointed lawyers to file an objection to the enforcement ruling with the Luozhuang District Court, requesting the revocation of the enforcement ruling and a halt to the auction process for the Shandong Hongri land. The company recently learned that the Luozhuang District Court has scheduled an online judicial auction of the Shandong Hongri land for February 16, 2026. According to an assessment report obtained by Shandong Hongri from the Luozhuang District Court, the overall assessed value is RMB 182.6 million, with the starting auction price for the Shandong Hongri land set at RMB 127.8 million. Based on the opinion of Shandong Hongri's lawyers, the assessment report contains significant flaws in its evaluation procedures, methods, and conclusions. The lawyers also argue that the Shandong Hongri land is a key project under the "Relocate Factories into Parks" policy. According to the Linyi Luozhuang District Territorial Space Planning Map (2021-2035), the planned use for the Shandong Hongri land is clearly designated as "urban residential land" and it is included in the Luozhuang District Government's land reserve acquisition scope. Therefore, the value of the Shandong Hongri land should be assessed based on this planned use nature. The current assessment opinion in the report evaluates the land as "industrial land," failing to consider the value-added effect generated by the "Relocate Factories into Parks" policy, contravening basic facts and not following the "highest and best use" principle. This approach leads to a significant devaluation of the land, severely deviating from its market value. The conditions for an auction are currently not ripe, and a hasty proceeding risks causing serious asset value impairment, imbalanced enforcement outcomes, and potentially significant impacts on the fulfillment of the Agreement.
To protect the legitimate rights and interests of Shandong Hongri, it has applied to the Luozhuang District Court for a suspension of the auction. As of the date of this announcement, Shandong Hongri has not received a response from the Luozhuang District Court regarding its application to suspend the auction. Throughout the fulfillment process of the "Relocate Factories into Parks" agreement, the Linyi Luozhuang District Government not only failed to complete its statutory duties such as land reserve acquisition as agreed but also, after the Intermediate Court of Linyi City and the Shandong Provincial High Court both confirmed the legality and validity of the Agreement, still intends to unilaterally and forcibly breach and terminate the contract. This action is涉嫌 (suspected of): abusing administrative power, engaging in "substantive breach of contract" under the guise of "procedural legality," seriously infringing upon corporate property rights and interests, and potentially causing irreparable damage to the local business environment and government credibility. The company will continue to seek legal advice and take all feasible measures to safeguard the legitimate rights and interests of Shandong Hongri, the company's shareholders, and offshore creditors.
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