Source: Visual China
Six months after being investigated by the China Securities Regulatory Commission, Xingyuan Environment (300266. SZ) financial fraud seven years ago surfaced and ended with a fine of 2.8 million yuan.
According to the "Administrative Penalty Decision" disclosed by Xingyuan Environment in the recent announcement, it was found that Xingyuan Environment inflated the income and cost of two PPP (public-private partnership) projects of its wholly-owned subsidiaries in 2016 and 2017, resulting in a total inflated operating income of 358 million yuan, involving a total inflated profit of 58.38 million yuan.
In the past 7 years, Xingyuan Environment has changed hands twice, and all relevant personnel who have served in the years of financial fraud have resigned, and the statute of limitations for administrative penalties has passed, the Zhejiang Securities Regulatory Bureau only warned and fined the financial director of Xingyuan Environment and Xingyuan Environment.
If we trace the motives of Xingyuan Environment for financial fraud in 2016 and 2017, we can get a glimpse of Xingyuan Environment's practical lessons from a company mainly engaged in filter presses to blind expansion, chasing PPP feasts and falling into a black hole of funds.
The penalty was overtime, and the current financial director received a fine of 800,000 yuan
According to the "Administrative Penalty Decision" recently issued by the Zhejiang Securities Regulatory Bureau, Hangzhou Zhongyi Ecological Environment Engineering Co., Ltd. (hereinafter referred to as "Hangzhou Zhongyi"), a wholly-owned subsidiary of Xingyuan Environment, inflated project income and costs in 2016 and 2017 in the PPP project of Changxing County's beautiful town (bid section 1 and bid 2) and the PPP project of the marine ecological corridor renovation and restoration project on the island in Dongtou District, Wenzhou.
This led to false records in the financial data and related disclosures of Xingyuan Environment's annual reports from 2016 to 2022, among which, the 2016 annual report inflated the operating income by 90.6309 million yuan and the total profit by 22.0207 million yuan, and the 2017 annual report inflated the operating income by 268 million yuan and the total profit by 36.3686 million yuan, and at the same time affected the amount of relevant assets and liabilities in the annual report from 2016 to 2022, and the amount of assets and liabilities in the annual report was falsely recorded.
Compared with the performance before the correction in 2016 and 2017, the proportion of inflated profits in the total profits of these two years was 13% and 11% respectively.
Source: Announcement
Since the directors, supervisors, senior managers and other relevant personnel of Xingyuan Environment in 2016 and 2017 have all resigned and exceeded the statute of limitations for administrative penalties, the Zhejiang Securities Regulatory Bureau only gave warnings to Sun Ying, the current financial director of Xingyuan Environment, and Xingyuan Environment, and issued fines of 800,000 yuan and 2 million yuan respectively.
According to public information, Sun Ying has served as the financial director of Xingyuan Environment since October 2020, and during his tenure, the actual controller of Xingyuan Environment was changed from Liu Yonghao of New Hope Investment Group to the Finance Bureau of Fenghua District, Ningbo City.
However, on October 30, 2023, the Zhejiang Securities Regulatory Bureau issued the "Decision on Administrative Supervision Measures" against Xingyuan Environment, and 13 relevant personnel, including Xingyuan Environment and the original actual controller Zhou Liwu, were punished by issuing warning letters and being included in the integrity file of the securities and futures market.
The sluggish main business was dragged down by more than 10 billion PPP projects
Before its listing in 2011, Xingyuan Environment became the largest filter press manufacturer in the south at that time by virtue of its filter press business.
In the early days of listing, with the sluggish growth of the main business of filter presses, Xingyuan Environment's revenue hovered around 300 million yuan, and once fell into negative growth. Based on this, Xingyuan Environment has embarked on an ambitious expansion plan to rapidly roll out the business at a rate of at least one major asset restructuring per year on average.
Titanium media APP combed and found that the company involved, Hangzhou Zhongyi, was a first-class enterprise of urban landscaping at that time, and was acquired and reorganized by Xingyuan Environment in 2016, with a transaction price of 1.24 billion yuan. With the inclusion of Hangzhou Zhongyi, Xingyuan Environment announced that it has built a complete industrial chain through three major asset restructurings, covering the front section of water conservancy dredging, sewage treatment and back-end sludge treatment, ecological reconstruction, and landscape construction, and the company has also entered the large-scale undertaking period of PPP projects.
According to the annual report, Xingyuan Environment has signed PPP projects with a scale of more than 10 billion yuan in 2015. In view of the characteristics of PPP projects with a large amount of upfront investment, a large amount of funds and a long payment cycle, through the rapid acquisition of assets to improve the Xingyuan environment of the industrial chain, at that time not only faced the test of management difficulty upgrading after the short-term integration of assets, but also faced greater financial pressure.
According to the annual report, in 2016, the cash outflow from Xingyuan Environment's operating activities doubled sharply to 1.54 billion yuan, and the net cash flow from operating activities was -44.18 million yuan. By 2017, this set of data climbed sharply, becoming 2.74 billion yuan and -900 million yuan respectively. This also explains the background of Xingyuan Environment's financial fraud in these two years.
To add insult to injury, with the clean-up and rectification of PPP projects under strict supervision launched at the end of 2017, in 2018, Xingyuan's environmental operating conditions deteriorated significantly, and the goodwill impairment was 890 million yuan that year, and the net profit was -1.27 billion yuan. This situation also laid the groundwork for Liu Yonghao of Xingyuan Environment to change hands in 2019 and New Hope Investment Group.
Source: Wind
However, with New Hope Investment Group's transfer of control of Xingyuan Environment to the Finance Bureau of Fenghua District, Ningbo in 2023, it also hints that it is still difficult to help Xingyuan Environment, which has accumulated shortcomings for a long time, out of the predicament. After borrowing 500 million yuan from the Finance Bureau of Fenghua District, Ningbo City in early 2023 to improve liquidity, in November last year, Xingyuan Environment applied to New Hope Investment Group for an extension of a loan of 1.451 billion yuan until May 31, 2024. (This article was first published in Titanium Media APP, author|Zhang Sun Mingshuo)