Pi Haizhou: Guangzhou Langqi or happy too early, the company's financial fraud has a delisting crisis

Pi Hai Chau | Cube everyone talks columnist

On the evening of November 11, Guangzhou Langqi issued the "Announcement on Receiving the Prior Notice of Administrative Penalties and Market Prohibition from the Guangdong Securities Regulatory Bureau", showing that after investigation by the Guangdong Securities Regulatory Bureau, Guangzhou Langqi had false records in the 2018 and 2019 annual reports, and its total inflated operating income in the past two years was as high as nearly 12.9 billion yuan, with a total inflated profit of 411 million yuan. Not only that, from 2018 to 2019, there were also problems such as inflating inventory and failing to disclose related party transactions as required. In this regard, the Guangdong Securities Regulatory Bureau imposed a 10-year ban on the securities market for the company's then-chairman Fu Yongguo, and imposed a total fine of 14.05 million yuan on Guangzhou Langqi and related responsible persons.

In the past two years, the inflated operating income has reached nearly 12.9 billion yuan, and the total inflated profit has reached 411 million yuan, and the Guangzhou Langqi financial fraud case is obviously a major financial fraud case. This can also be confirmed to a certain extent by the Guangdong Securities Regulatory Bureau's 10-year ban on the company's then-chairman Fu Yongguo from the securities market and the punishment imposed on Guangzhou Langqi.

Whether Guangzhou Langqi's major financial fraud will trigger delisting is undoubtedly a problem that the market is very concerned about. From the perspective of the healthy development of the capital market, guangzhou langqi's major financial fraud must be delisted. In fact, cracking down on major violations of laws and regulations such as financial fraud of listed companies has become a matter of great concern to management and even senior management in recent years. To this end, in the fourth quarter of last year, the Shanghai and Shenzhen Exchanges solicited public opinions on the revision of the delisting system, and on the last day of last year, the new delisting rules were officially issued. In the new delisting rules, the Shanghai and Shenzhen exchanges have made provisions for the delisting of listed companies for financial fraud. Because of this, whether Guangzhou Langqi will be delisted should be decided by the new delisting regulations.

According to the announcement issued by Guangzhou Langqi on the evening of November 11, Guangzhou Langqi said that according to the situation identified in the "Advance Notice of Administrative Penalties and Market Prohibition", the company preliminarily judged that the information disclosure violations involved in the "Administrative Penalties and Market Prohibition Advance Notice" received this time did not touch the situation of major illegal forced delisting stipulated in Articles 14.5.1 and 14.5.2 of the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange (Revised in 2020) and the Notice on Issuance. However, Guangzhou Langqi also said that in the end, the conclusion of the "Administrative Punishment Decision Letter" issued by the Guangdong Securities Regulatory Bureau shall prevail.

So, does Guangzhou Langqi really fail to touch the delisting situation stipulated in Articles 14.5.1 and 14.5.2 of the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange (Revised in 2020)? I think that Guangzhou Langqi is obviously too optimistic. According to Clause 14.5.2 (4) of the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange, the conditions for the compulsory delisting of financial fraud of a listed company are that, according to the facts determined by the CSRC's administrative penalty decision, the operating income disclosed by the company has been falsely recorded for two consecutive years, and the total amount of falsely recorded operating income has reached more than 500 million yuan, and it exceeds 50% of the total annual operating income disclosed in the two years. Or the net profit disclosed by the company has been falsely recorded for two consecutive years, and the total amount of the net profit disclosed by the company has reached more than 500 million yuan, and exceeds 50% of the total annual net profit disclosed in the two years; or the total profit disclosed by the company has been falsely recorded for two consecutive years, and the total amount of falsely recorded profit has reached more than 500 million yuan, and exceeds 50% of the total annual profit disclosed in the two years.

Compared with the above provisions, from the perspective of inflating the profit indicator, it is true that the delisting clause has not been touched. Because the cumulative amount of fraud in Guangzhou Langqi in 2018 and 2019 was 411 million yuan, it did not meet the delisting standard of 500 million yuan in two years, but the new delisting regulations introduced operating income indicators. The delisting criteria for financial fraud touching operating income is "the operating income disclosed by the company has been falsely recorded for two consecutive years, and the total amount of operating income falsely recorded has reached more than 500 million yuan, and it exceeds 50% of the total annual operating income disclosed in the two years".

According to the investigation of the Guangdong Securities Regulatory Bureau, Guangzhou Langqi's "2018 Annual Report" inflated operating income by 6.234 billion yuan; the "2019 Annual Report" inflated operating income by 6.651 billion yuan, totaling 12.885 billion yuan in two years, far exceeding the bottom line of 500 million yuan. At the same time, the operating income disclosed in guangzhou Langqi's "2018 Annual Report" was 13.249 billion yuan (adjusted); the operating income disclosed in the 2019 annual report was 12.398 billion yuan, and the total operating income in the two years was 25.647 billion yuan. According to this calculation, in 2018 and 2019, Guangzhou Langqi's two years of inflated operating income reached 50.24% of the total annual operating income disclosed in the two years, accounting for more than 50%. Therefore, Guangzhou Langqi touched on the mandatory delisting clause of operating income fraud, and guangzhou Langqi should be forcibly delisted according to Article 14.5.2 (IV) of the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange (Revised in 2020).

Editor-in-charge: Liu Anqi | Review: Li Zhen | Director: Wan Junwei