Dismantling *ST Setia Suspected of Letter Phi Violation Door: Looming Ningbo Dongli, Aerospace Communication Violation Case "Phantom"

The company received the CSRC's "Notice of Case Filing" on December 9, because the company was suspected of violating laws and regulations, and on November 30, 2021, the CSRC decided to file a case against the company according to law.

*The reason for ST S P Setia's involvement this time needs to be investigated and revealed. However, the reporter combed and found that Shenzhen Xingfei, a subsidiary acquired by the company's acquisition target S P Setia Group for a value-added consideration of 264.88% of 1.5 billion yuan, appeared in its main supplier and customer list as the "phantom" of the young supply chain and the wisdom of Haipai, and the two companies had previously played a huge deception role in the illegal cases of Ningbo Dongli and Aerospace Communications Xinpi.

Looming ghost of the previous case

*ST S P Setia was formerly known as S P Setia Computer (later renamed S P Setia Group) listed in 1996, in the PC industry, the company was also one of the enlighteners of the Chinese market, owning and even using P Setia computers, was the absolute trend of technology lifestyle at that time. As the first IT-listed company in A-share, S P Setia personal computer came out in September 1997, and by 1999, S P Setia computer market share had ranked among the top four domestic brands, becoming a domestic first-line computer manufacturer on a par with Lenovo.

However, the peak has also become an inflection point of fate. The factors of iterative rotation of the industry, superimposed on the company's own strategic step, the company is also in operational difficulties. In 2007, Changchun Sunac Tong, controlled by JingBaifu (a native of Hong Kong, China), became the controlling shareholder, but it did not completely reverse the predicament. From 2012 to 2014, Setia experienced a period of continuous losses, and according to the delisting regulations at that time, the net profit indicator has always been the sword of Damocles hanging over the company's head.

In order to save itself, the S P Setia Group began to operate frequently. According to the reporter's statistics, since 2015, S P Setia Group has spent billions of yuan to acquire Shenzhen Xingfei, Oriental Tuoyu, Zhongke Rongtong and other companies, mainly transformed into mobile intelligent terminals and supporting battery power business, Internet of Things perimeter security business.

The operation of 2015 is the most typical, S P Setia Group successfully divested the original business, and at the same time, through the stock cash method, acquired 100% of the equity of Shenzhen Xingfei Technology Co., Ltd. for 1.5 billion yuan, and officially entered the mobile intelligent terminal industry. The series of operations not only brought the stock price in the secondary market up 5 times in a year, but also the net assets soared from 258 million yuan at the end of 2015 to 2.539 billion yuan at the end of 2016.

The acquisition soon suffered a "black swan". Especially after being "sanctioned" by the United States in 2018, ZTE lost a huge loss of 7 billion yuan that year, and triggered a chain reaction of the entire industrial chain. As a result, *ST's performance fell into a downturn again. Judging from the current disclosure situation, the merger and acquisition operation of *ST S P Setia has also encountered the scam "ghost" of the young supply chain and the wisdom of Haipai. At present, the original responsible persons of the two companies that caused the fraud have been arrested, while the deceived Ningbo Dongli and Aerospace Communications have been seriously injured and have taken the initiative to delist.

Specifically, Nianfu supply chain can be regarded as the nightmare of Ningbo Dongli. In 2016, Ningbo Dongli planned to wholly acquire 100% of the equity of Nianfu Supply Chain by issuing shares and paying cash, for a price of 2.16 billion yuan, with an appreciation rate of 702.69%. However, since then, Ningbo Dongli announced that the legal representative and senior management team of Nianfu Supply Chain are suspected of concealing the actual operation of Nianfu Supply Chain, embezzling Ningbo Dongli funds through a number of overseas affiliates, defrauding the company's shares and cash consideration of 2.16 billion yuan, defrauding the company of 200 million yuan of capital increase, and tricking the company into guaranteeing 1.5 billion yuan for Nianfu Supply Chain. In August 2018, Ningbo Dongli received the Notice of Investigation from the China Securities Regulatory Commission (CSRC) for suspected violations of laws and regulations by the company.

Nianfu Supply Chain also has a close relationship with the S P Setia Group. The reporter found that the company's export is mainly through the buyout transaction export business that occurs in Nianfu Supply Chain Company. At the same time, in 2019, *ST Setia also clarified that Xingfei Technology will switch part of its overseas procurement business to the Hong Kong Xingfei procurement platform, and the platform switch will enable the main supplier in 2017, Shenzhen Nianfu Supply Chain Co., Ltd. (with a procurement volume of about 519 million yuan in 2017) to switch to overseas suppliers.

The delisting of aerospace communications of state-owned assets companies is to a large extent a disaster for the wisdom of the sea. In 2015, aerospace communication planning spent more than 1 billion yuan to pocket the domestic intelligent terminal ODM enterprise Wisdom Haipai, and since then, this acquisition has become a Trojan horse, which has been continuously concerned by regulators. Taking 2019 as an example, the regulatory side pointed out that the receivables of Wisdom Haipai were overdue, the capital chain was broken, and the operating rate was insufficient, and finally the financial fraud case of Wisdom Haipai, a subsidiary of Aerospace Communications, was eventually committed.

The wisdom of Haipai, which dragged aerospace communications down the mud, also affected the operation of *ST Setia. In *ST's 2020 annual report, the debt receivable to Wisdom Haipai was 1.45 million yuan, which was written off because it was confirmed that it could not be recovered. At the same time, a separate provision for bad debts was also made for Wisdom Haipai. And in 2019, the book balance of *ST S P Setia's other receivables reached 152 million yuan, including receivables from Fujian Setia Real Estate Development Co., Ltd., Wisdom Haipai Technology Co., Ltd., etc., and the cumulative amount of bad debt provisions was 135 million yuan, with accrual ratio of nearly 90%.

Indo-Hong Kong inventory "unclear"

The financial report of the more than 20 years since the spin-off of *ST S P Setia has been listed shows that the company has 10 years of net loss, and 14 years of non-net profit are negative. It has hovered on the edge of the shell several times in history and has been suspended from listing. The company's cumulative loss for three consecutive years from 2018 to 2020 was nearly 4 billion yuan, and in the first three quarters of this year, it lost another 236 million yuan, and its net assets per share at the end of the period were -2.24 yuan.

It is worth noting that *ST's 2019 and 2020 financial reports have been issued by the audit institution with qualified audit reports, all pointing to the company's overseas inventory problem. In mid-September this year, the company just deliberated and passed the "Proposal on the Correction of Accounting Errors in the Previous Period" and the "Special Explanation on the Elimination of the Impact of the Matters Involved in the Qualified Opinions on the 2020 Annual Audit Report", but zhou Yun, the independent director of the company, voted against both proposals, indicating that there were doubts about the authenticity of the relevant business in the previous years involved in the proposal, and was cautious about eliminating the impact of the non-standard matters involved in the audit in 2020.

According to the data, *ST S P Setia's 2019 annual report made a total of 1.377 billion yuan of inventory deposited in Hong Kong and India for the year to make a provision of 1.215 billion yuan for inventory decline, and the carrying amount of inventory after the impairment was 162 million yuan. Due to the impact of the epidemic and other circumstances, the 2019 annual review agency was unable to verify the authenticity and accuracy of the above inventory. In April 2020, S P Setia Group sold all of its inventory to three companies, including Hong Kong Shiyue Network, and confirmed sales revenue of 157 million yuan. Since the above three customers have not collected the payment according to the schedule, as of the date of the audit report, a total of 34 million yuan of sales have been collected, and 115 million yuan has not yet been recovered, and the 2020 review body believes that there is uncertainty about whether the money that has not been recovered can be safely recovered.

The correction of the Company's accounting errors involved a number of material retrospective adjustments in the consolidated 2017-2020 annual report and the 2021 semi-annual report and financial statements. Among them, the consolidated income statement operating income in 2017 and 2018 decreased by a total of 1.616 billion yuan, the consolidated income statement net profit in 2018 and 2019 decreased by a total of 91.1527 million yuan, the net assets on the balance sheet in 2019 and 2020 were reduced by 91.1527 million yuan, the net profit of the consolidated income statement reported in 2021 increased by 12.9426 million yuan, and the net assets of the balance sheet were reduced by 78.21 million yuan.

In fact, Zhou Yun also voted against the company's 2021 third quarter report, on the same grounds that there were doubts about its authenticity and reasonableness and the consideration of protecting the interests of minority shareholders and investors. At the beginning of July this year, Zhou Yun submitted his resignation, but in view of the fact that the number of independent directors after his resignation was less than 1/3 of the total number of boards, he temporarily continued to perform his duties in accordance with relevant regulations.

According to the reporter's combing, in just over two years, S P Setia Group has resigned from the past ten senior executives, including two presidents, three financial directors, the current chairman of the company, legal representative Jing Baifu is also the president, acting financial director, board secretary (acting) multi-position.

Investor claims begin

Dismantling regulatory disclosure information, regulation of *ST S P Setia appears every once in a while.

In December 2019, the company's controlling shareholder, Angzhan Technology (the actual controller JingBaifu), was criticized by the Shanghai Stock Exchange for passively reducing its holding of 5.5 million shares of the company (accounting for 0.88% of the company's total share capital) due to the stock pledge default.

In December 2020, due to the inaccurate and untimely correction of the performance forecast, the failure to disclose the matters involved in the litigation of the large amount of guarantee overdue, and the failure to disclose the cancellation, transfer and freezing of the fund-raising account in a timely manner, the SSE notified and criticized the timely general manager and secretary of the board of directors and the then financial director of S P Setia Group (both of which have resigned).

In April 2021, due to the inaccurate performance forecast and the failure to correct it in a timely manner, the failure to disclose the overdue amount of large guarantees and the litigation-related matters in a timely manner, the Fujian Securities Regulatory Bureau issued a warning letter to the company Jingbaifu and others.

In October 2021, Jingbaifu was issued a warning letter by the Fujian Securities Regulatory Bureau for its timely president and financial officer, because the accounting treatment of its subsidiary Shenzhen Xingfei Technology violated accounting standards, resulting in the inflated operating income and operating costs of the listed company in 2017 and 2018, and the valuation of the goodwill impairment of Xingfei Technology by S P Setia Group in 2019, resulting in the company's under-provision for asset impairment in 2019. Also in October this year, *ST's largest shareholder, Angzhan Technology, was publicly reprimanded by the Shanghai Stock Exchange.

In November, S P Setia Technology and Jingbaifu again received a warning letter from the Fujian Securities Regulatory Bureau, pointing out that S P Setia Technology voluntarily disclosed its shareholding increase plan under the circumstance that it obviously did not have financial capabilities, and did not actually increase its holdings at the end of the period, which had a significant impact on the company's stock price and investor decision-making.

A series of regulations followed, becoming a reflection of *ST's corporate governance compliance. So, is it just a coincidence that the "phantom" of the young supply chain and the wisdom of Haipai, which once appeared in the case of Ningbo Dongli and Aerospace Communications Xinpi, which played a huge role in the illegal and illegal cases of Ningbo Dongli and Aerospace Communications, appeared again in the business line of *ST Setia?

The preliminary conclusion is that from the current point of view, although it is still impossible to determine whether *ST SD's investigation is indeed related to Nianfu Supply Chain, Wisdom Haipai, etc., in the course of the company's operation, the looming "phantom" of Ningbo Dongli and Aerospace Communication Violation Case is a fact that cannot be ignored.

In addition, it can be determined that the chain reaction caused by the investigation is also in the process of fermentation.

Taking investor claims as an example, Wu Lijun, a senior stock claims lawyer at Shanghai Oriental Cambridge Law Firm, argued in an interview with a Securities Times reporter that the available information indicated that *ST Setia may have been suspected of securities misrepresentation. "Any damaged investor who still holds *ST Setia after the close of trading on December 10, 2021 can register for compensation on the Securities Network or Wu Lijun's blog to recover losses according to law." This is the circle of friends released by Lawyer Wu.

It is worth noting that *ST S P Setia has just disclosed the latest progress of the restructuring matters a few days ago: the signing of the restructuring investment agreement has introduced the restructuring investors, and the company is scheduled to hold the first creditors' meeting on the 27th of this month to consider and vote on the company's reorganization plan (draft), if the restructuring is completed, Fujian Big Data Company will become the new controlling shareholder of the listed company.

Regarding the possible impact of the case filing on the restructuring of *ST Setia, Wu Lijun introduced that if the company's reorganization plan is voted by the creditors' meeting and approved by the court, and the relevant claims are confirmed by the effective civil judgment, they will be repaid in accordance with the debt repayment plan stipulated in the reorganization plan, ensuring that the relevant investors can get proper settlement arrangements and protecting the legitimate rights of investors.