As a leading enterprise in the brokerage industry, CITIC Securities was launched on-site supervision measures this time, which also sounded the alarm for the industry in the follow-up sponsorship business.
Chu Xiaoqiang丨Text
10 days ago, the China Securities Regulatory Commission (CSRC) issued four policy documents, involving strict access to issuance and listing from the source, strengthening the supervision of listed companies, strengthening the supervision of securities companies and public funds, and comprehensively strengthening the construction of the CSRC system, aiming to promote the high-quality development of the capital market with strong supervision and risk prevention as the starting point.
On the same day, a number of leaders of the China Securities Regulatory Commission attended the press conference to give a detailed interpretation of the policy content. Among them, the press conference emphasized that it is necessary to strictly control the quality of the declaration of enterprises to be listed, and it is strictly forbidden to blindly seek listing for the purpose of collecting money, and institutions involved in financial fraud and false statements will be seriously held accountable. As the "gatekeepers" of the capital market, intermediaries are highlighted to consolidate their responsibilities and establish a normalized rolling on-site supervision mechanism for them.
Shortly after the press conference, the brokerage "first brother" CITIC Securities exposed heavy news. At 11 o'clock in the evening on March 22, the Shenzhen Stock Exchange issued an announcement on the WeChat public account, because CITIC Securities was not clear enough in the reply to the inquiry of the initial listing of Liangang Optoelectronics, and the issues involved were not fully explained, so the Shenzhen Stock Exchange launched on-site supervision.
This is the first brokerage firm to be publicly announced by the exchange to start on-site supervision after the China Securities Regulatory Commission issued four new policies. The Shenzhen Stock Exchange said in the announcement that this move is to further consolidate the "gatekeeper" responsibility of the sponsor and control the quality of the listing entrance from the source.
Bai Wenxi, Chief Economist of IPG China, said, "The on-site supervision of CITIC Securities by the Shenzhen Stock Exchange has not only had an impact on CITIC Securities itself, but may also have a profound impact on the regulatory environment, business practices and market confidence of the entire brokerage industry. ”
01
The replies to inquiries in the sponsorship business are not clear
According to the announcement of the Shenzhen Stock Exchange, Liangang Optoelectronics, sponsored by CITIC Securities, has been accepted for the third round of review and inquiry after the initial listing application has been accepted. The Shenzhen Stock Exchange requires Liangang Optoelectronics and intermediaries to verify and explain the effectiveness of corporate governance, the standardization of financial internal control, and the truthfulness, accuracy and completeness of information disclosure.
However, in the replies to inquiries submitted, there were problems such as lack of clarity in the responses and insufficient explanation of the issues involved. As a result, the Shenzhen Stock Exchange launched on-site supervision of CITIC Securities, as the sponsor of Liangang Optoelectronics.
"Under normal circumstances, the brokerage company will have a regulatory department every year or every six months to carry out some on-site supervision work on a regular basis, mainly to inquire and standardize some sponsorship business processes, etc., but the on-site supervision of CITIC Securities is officially issued by the exchange, which may be relatively stricter in terms of specifications and larger in scale. This also shows that the exchange has some doubts about its sponsorship business of Liangang Optoelectronics. A person in the brokerage industry said to Shanhai New Finance.
According to the prospectus, Liangang Optoelectronics is an enterprise with photoelectric signal transmission technology as the core, mainly engaged in the research and development, production and sales of signal transmission connection products, electroacoustic products and 3C supporting products. The actual controllers of the company, Xu Yaoli and Xu Yaozhi, control 91.34% of the voting rights, plus the 6.66% shares held by their spouses, and the actual controller family controls 98% of the shares of Liangang Optoelectronics.
The IPO of Liangang Optoelectronics intends to publicly issue no more than 38,720,408 new shares, accounting for no less than 25% of the company's total share capital after the issuance, and the original shareholders will not publicly sell old shares. Even so, after the IPO is completed, the actual controller family will still control a total of 72.70% of the shares.
It is worth mentioning that in the risk warning of Liangang Optoelectronics' prospectus, it only reminded the risk of improper control that may arise from the high shareholding ratio of the two actual controllers, and did not mention that the spouses of the two also held shares of the issuer. In this regard, the Shenzhen Stock Exchange requires Liangang Optoelectronics to explain whether the company's internal control system is sound and can play a necessary role, whether the corporate governance structure is perfect, and how to protect the rights and interests of small and medium-sized investors in combination with the high shareholding ratio of the actual controller's family. At the same time, it is required to add in the risk warning of the prospectus that the control ratio of the actual controller's family is 98% and related risks.
On January 16 this year, Liangang Optoelectronics replied to this question in the second round of inquiries, and listed 8 listed companies - Dinglong Technology, Zhenbang Intelligence, Fengmao Shares, Huarong Chemical, Meishuo Technology, Weili Transmission, Galaxy Microelectronics, and Hao Oubo. The common denominator of these listed companies is that the shareholding ratio of the actual controller family before listing is higher than 90%, of which Zhenbang Intelligent is as high as 99.5%, and Dinglong Technology was once 100%.
As the sponsor, CITIC Securities issued a verification opinion consistent with the content of Liangang Optoelectronics' reply, and stated that the issuer had revised the prospectus to the shareholding ratio of the actual controller's family of 98% and related risks. As a result, this reply quickly sparked heated discussions in the outside world, and even called it Liangang Optoelectronics, CITIC Securities's "forced palace" Shenzhen Stock Exchange, and "hard" supervision.
However, the person in charge of the relevant business of CITIC Securities Investment Bank responded on March 23 that the company attaches great importance to it and will actively cooperate with the Shenzhen Stock Exchange to supervise the on-site supervision of the Liangang optoelectronic project and submit all kinds of relevant materials in a timely manner. A CITIC Securities insider also said that now is a period of strong supervision, and the internal is also emphasizing the responsibility of "gatekeeper".
02
After the "New Deal", the "first brother of the brokerage" bore the brunt
As the "first brother" in the brokerage industry, CITIC Securities ranks among the top in the industry in terms of business scale and performance indicators.
As of the end of September 2023, CITIC Securities' total assets reached 1.41 trillion yuan, making it the only trillion-level brokerage in the A-share market. In the first nine months, although the operating income (45.81 billion yuan) and net profit (16.41 billion yuan) both declined year-on-year, they were still "far ahead" among the A-share listed brokerages.
"This on-site supervision may have an important impact on both Liangang Optoelectronics and CITIC Securities. For CITIC Securities, as a sponsor, it needs to ensure that the information disclosure of Liangang Optoelectronics is true, accurate and complete. The incident could affect CITIC Securities' image in the minds of investors, especially as its investment banking business has suffered multiple setbacks recently. On the other hand, for Liangang Optoelectronics, this supervision may affect its IPO process and reputation, especially when the shareholding ratio of its actual controller family is extremely high. Overall, this on-site supervision reflects the determination of the regulatory authorities to protect the rights and interests of investors and maintain market order, and also reminds the relevant institutions of their responsibilities and risks in the sponsorship process. Bai Wenxi, chief economist of IPG China, said.
On March 15, the China Securities Regulatory Commission (CSRC) issued four policy documents, including the "Opinions on Strictly Controlling the Access to Issuance and Listing and Improving the Quality of Listed Companies from the Source (Trial)", emphasizing that the main line of strengthening supervision, preventing risks and promoting high-quality development should be firmly grasped, and the requirements of supervision should be "long teeth and thorns" and angular and angular requirements, highlighting "strong capital and strong foundation" and "strict supervision and strict management".
On the same day, a number of leaders of the China Securities Regulatory Commission attended the press conference to give a detailed interpretation of the policy content. Li Chao, vice chairman of the China Securities Regulatory Commission, said in his interpretation of the policy that the quality of the declaration of enterprises to be listed is strictly controlled, it is strictly forbidden to blindly seek listing and excessive financing for the purpose of collecting money, and to seriously pursue responsibility for financial fraud, false statements, whitewashing and packaging in a timely manner in accordance with the law. Consolidate the responsibilities of intermediary institutions as "gatekeepers", and establish a normalized rolling on-site supervision mechanism.
Less than a week after the release of the four policies, CITIC Securities bore the brunt of the sponsorship project of Liangang Optoelectronics, and became the first brokerage firm to be publicly announced by the exchange for on-site supervision after the "New Deal".
In addition to the twists and turns in the project of Liangang Optoelectronics, in fact, CITIC Securities has faced many setbacks and challenges in the IPO sponsorship business this year. As of March 23, CITIC Securities had a total of 32 IPO sponsorship projects during the year, of which 7 projects were voluntarily withdrawn, including adopting a cow, Han's Sealing and Testing, Hantong Integration, AVIC Petroleum, Ark Baifa, Bona Precision, and Huimang Electronics, with a withdrawal rate of nearly 22%. In comparison, its rejection rates in the same period in 2023 and 2022 will be 3.9% and 7.14% respectively. Obviously, the rejection rate in 2024 has increased significantly.
In addition, on January 12 this year, the China Securities Regulatory Commission (CSRC) investigated and found that the convertible bond project of Hengyi Petrochemical Co., Ltd. (the issuer) sponsored by CITIC Securities suffered losses in the year of the issuer's securities issuance and listing, and the operating profit fell by more than 50% compared with the previous year. As a result, CITIC Securities was also subject to administrative supervision and management measures such as issuing a warning letter.
Judging from the statements of many leaders of the China Securities Regulatory Commission at the previous press conference, intermediaries such as brokerages will continue to face a "strong supervision" situation in the future. Yan Bojin, chief risk officer of the China Securities Regulatory Commission and director of the Department of Issuance Supervision, said that intermediaries should perform their duties as "gatekeepers" and make full use of capital flow verification and other methods to ensure financial authenticity.
In the process of business development, once the intermediary is found to have violated laws and regulations, it will also be severely punished. Guo Ruiming, director of the Department of Supervision of Listed Companies of the China Securities Regulatory Commission, pointed out that "for intermediaries that lose their professional ethics and collude in fraud, we will resolutely impose heavy penalties and resolutely apply hard measures such as business prohibition and fines...... The aim is to leave counterfeiters with nowhere to hide. ”
As a leading enterprise in the brokerage industry, CITIC Securities was launched on-site supervision measures this time, which also sounded the alarm for the industry in the follow-up sponsorship business.
"CITIC Securities' on-site supervision by the Shenzhen Stock Exchange will have a significant impact on the entire industry. First, it shows that the supervision and review of intermediaries by regulators is becoming more stringent. Such a move to tighten regulations is likely to prompt the industry as a whole to improve its business standards and practice quality, particularly in the area of IPO sponsorship and other securities services. Second, CITIC Securities is a leading enterprise in the industry, and the regulatory attention it receives may have a demonstration effect on other brokerages. This is likely to cause the industry as a whole to invest more resources in risk management, internal controls, and compliance to ensure compliance with regulatory requirements. Bai Wenxi, chief economist of IPG China, said.