Chengdu Road and Bridge: Sichuan Investment Honge Unilaterally Terminates Contracts for Two Projects; Company Has Not Yet Signed Formal Termination Agreement

On the evening of March 18, Chengdu Road & Bridge (002628) announced that it recently received two letters from Panzhihua ChuanTou HongGe Industrial Co., Ltd. (hereinafter referred to as “ChuanTou HongGe”), namely a “Contract Termination and Performance Notice” and a “Contract Termination Construction Notice,” involving two project contracts where the company acts as the lead contractor in a joint venture.

Among them, the “LOHAS Tourism Agriculture Demonstration Park and Central Area Road Construction Project Design-Build Contract - Section One” (hereinafter referred to as “LOHAS Tourism Project Contract”) was signed in March 2022, with a contract period of 730 calendar days and a contract value of 162 million yuan. According to the letter, ChuanTou HongGe has decided to terminate the performance of this contract due to its own business reasons, and the project will no longer proceed.

The “Yanyang River River Channel Management, Sports Park Construction, West Ring Line Phase II, Southern Area Road Construction, Sun Lake Park, and other seven bundled projects survey, design, and construction general contracting contracts” (hereinafter referred to as “Seven Bundled Projects Contracts”) were signed in December 2019, with a contract period of 36 months and a tentative contract value of 2.8 billion yuan. According to the letter, four sub-projects—namely the Southern Area Road Construction, Sun Lake Park Construction, Hongge Town Environmental Management, and Yanyang River Channel Management—have completed acceptance and auditing, and will proceed with settlement as per the contract. The other three sub-projects—Sports Park Construction, Hongge Three Pagodas, and West Ring Line Phase II—due to their own business reasons, could not be implemented as scheduled, and the decision has been made to terminate construction, with no further implementation.

It is disclosed that at the time of signing these project contracts, ChuanTou HongGe had a related relationship with the listed company. The company’s original actual controller, Liu Zhihong, controlled Hongyi Industrial Group Co., Ltd., which holds a 43.9% stake in Sichuan ChuanTou HuiXin Industrial Co., Ltd. (hereinafter referred to as “ChuanTou HuiXin”), the controlling shareholder of ChuanTou HongGe. Additionally, former director Xiang Rong of the listed company served as a director of ChuanTou HuiXin. Xiang Rong has not held any position at ChuanTou HuiXin since July 2021, and as of the date of this announcement, he holds no position in the company. The company’s actual controller changed from Liu Zhihong to Liu Jiangdong in March 2023, and as of the disclosure date, Liu Zhihong has not held any position in the company.

Chengdu Road & Bridge stated that as of the date of this announcement, ChuanTou HongGe has unilaterally sent a letter to terminate the contracts, and the company has not yet signed a formal termination agreement with ChuanTou HongGe regarding the projects.

Regarding the impact of the contract termination, Chengdu Road & Bridge said that for the four sub-projects among the seven bundled projects that have completed acceptance and auditing, the company has settled the related engineering accounts as per the contract. As of this announcement, the company has recognized a total revenue of 435 million yuan, with a total amount received of 268 million yuan, and 206 million yuan in project payments still outstanding. The company will actively communicate and negotiate with ChuanTou HongGe, urge the progress of project settlement and payment, and protect its legal rights through appropriate channels. The LOHAS Tourism Project Contract and the three unimplemented sub-projects of the seven bundled projects have been terminated, and no losses have been incurred for projects that have not yet started. After this termination, the company’s uncompleted order amount will decrease.

The termination of these projects was initiated by ChuanTou HongGe due to its own objective reasons and is not due to any breach by the company. This contract termination will not have a significant impact on the company’s operating performance and financial condition in 2025; the specific impact will be subject to the final annual audit results.