China Fund News reporter Milo Zhao Xinyi
The bankruptcy reorganization, which was once avoided, has become a powerful tool for capital operation in the past 2023.
Recently, the Federal Reserve Securities released a report entitled "The New Deal on M&A and Restructuring is Expected to Lead the Capital Market to a New Level" (hereinafter referred to as the "Report").
The report found that bankruptcy reorganization is a tool that will be revitalized in 2023.
According to statistics, in 2023, a total of 27 A-share companies will apply to the court or be applied for reorganization, a record high.
Behind the explosion of numbers, there are hidden secrets.
"There are all kinds of indications that bankruptcy reorganization has 'turned sour', which not only violates the statutory principle of giving priority to the interests of creditors, but also serves as a 'legal umbrella' for junk companies to avoid delisting. So says the report.
The number of applications reached a record high
With the acceleration of the survival of the fittest of A-share listed companies, bankruptcy reorganization, as a key opportunity for the rebirth of distressed listed companies, has emerged in recent years.
According to the report, a total of 27 listed companies will apply to the court for reorganization or be applied for reorganization in 2023 and issue relevant announcements, the highest number since the promulgation of the Enterprise Bankruptcy Law and the introduction of the bankruptcy reorganization system in mainland China in 2007.
In 2023, a total of 16 listed companies' reorganization applications were accepted by the court, both in terms of number and nearly 60% of the acceptance rate, which is higher than the level in 2022. So far, 15 have completed implementation.
In the report, the Federal Reserve Securities conducted an in-depth analysis of the 15 completed reorganization cases, and found that 14 listed companies were subject to delisting risk warning because their insolvency touched the financial delisting indicators, and the scale and profitability of their main business have shrunk sharply, which is the last "life-saving straw" for bankruptcy reorganization as a shell.
There are also "strange" time nodes.
The reorganization applications of the 15 listed companies were all accepted by the court between June and November 2023, and the final execution time was concentrated from December 20 to 30.
The Federal Reserve Securities pointed out that the purpose of the implementation of this "stuck point" is to improve the financial statements of 2023, so as to get rid of the delisting crisis and achieve shell protection.
The imbalance of interests is obvious
Why are bankruptcy restructurings, which rarely occurred in the past, intensively appearing in 2023?
At present, the conversion of capital reserve into share capital is a common operation in the bankruptcy reorganization of listed companies, in which some of the new shares are introduced to the industrial party and financial investors (collectively referred to as "reorganization investors"), and the other part of the new shares are distributed to creditors to redeem debts with shares.
The Reserve Bank Securities believes that the "scale" of interests in bankruptcy reorganization is tilting sharply in favor of reorganization investors and old shareholders, and the interests of creditors are not properly protected, which is contrary to the legislative purpose of bankruptcy reorganization.
What is the main embodiment of the "imbalance of multi-party interests"? The Federal Reserve Securities has made a calculation.
First of all, there is a huge difference in the transfer price of the new shares.
According to the statistics of the report, in 2023, among the 15 listed companies that have been accepted by the court and have completed the execution, the lowest price for industrial investors to transfer shares from listed companies is only about 1 yuan per share, with an average premium rate of -62.50%, and the average premium rate of financial investors is -53.84%.
The creditors paid the highest price for the debt, with an average premium of 210.23% compared with the closing price on the date of signing the reorganization agreement. It can be seen that the difference in pricing between the reorganization investors and the creditors is very large.
Second, the returns vary dramatically.
The cost of shareholding as low as 4% off, as well as the lack of strict ex-rights mechanism in the bankruptcy reorganization of listed companies, have made the reorganization investors have always had a lot of returns.
As of the last trading day of 2023, among the 15 listed companies that have been accepted by the court and have completed the execution in 2023, the average rate of return of industrial investors is as high as 165.67%, and the average rate of return of financial investors is 124.03%.
In contrast, the actual repayment rate of claims is not high.
The Federal Reserve Securities tracked and analyzed the 24 listed companies that completed the implementation of the reorganization plan from 2021 to 2022 and whose debt repayment methods included the exchange of shares for debts, and found that the average actual repayment rate of the corresponding claims was only 45.55%, and only 1 company had an actual repayment rate of more than 70% by comparing the creditors' repayment price and the average transaction price between the completion of the reorganization and the end of 2023.
Thirdly, the original controlling shareholder became the biggest beneficiary.
The Reserve Bank Securities found that although the bankruptcy reorganization led to the dilution of the equity ratio of the original controlling shareholder of the listed company, the number of shares held by it did not change, and the stock price even rose, so its shareholding interests were fully protected.
"The bankruptcy reorganization has also written off the joint and several guarantee liability of the original controlling shareholder for creditor's rights, the occupation of funds of the listed company and the illegal guarantee, etc., and protected the interests of the original controlling shareholder. Fed Securities said.
It is worth mentioning that among the listed companies that have completed the implementation of the reorganization in 2023, *ST Toyo and other companies have different degrees of non-operating capital occupation by the original controlling shareholder and the problem of illegal guarantees by the listed company, and the "holes" dug by the original controlling shareholder have been successfully filled through the exemption of creditors in bankruptcy reorganization and the cash replenishment of reorganization investors.
Speculation began in the secondary market
For companies that are bankrupt and reorganized, there are already professional players in the secondary market to participate.
Through the analysis of the stock price changes of 15 listed companies that have been accepted by the court and have been executed by the court in 2023, Fed Securities found that the average stock price of listed companies increased by 16.2% from the first reorganization announcement to the date of acceptance of the court's ruling, with an average amplitude of up to 70%, and the average number of days in the range was 15 days.
Bankruptcy reorganization should be the darkest moment for listed companies, but it can be seen from the above data that these listed companies facing the risk of delisting have been enthusiastically sought after in the secondary market.
By comparing the market capitalization levels of the 15 listed companies that have been accepted by the court for reorganization and have been executed in 2023 before and after the bankruptcy reorganization (i.e., at the beginning and end of 2023), Fed Securities also found that the market value of listed companies after the reorganization has doubled, with an average growth rate of 141.52%.
In November 2022, the China Securities Regulatory Commission (CSRC) issued the Three-Year Action Plan for Promoting the Quality of Listed Companies (2022-2025). The plan proposes to "optimize the bankruptcy reorganization system of listed companies, and support distressed companies that meet the conditions and have rescue value to achieve rebirth through bankruptcy reorganization".
As for the problems existing in bankruptcy and reorganization cases, the Federal Reserve Securities believes that in recent years, the practice of bankruptcy reorganization of listed companies has been far from the original intention of the securities regulatory authorities, and the main goal of bankruptcy reorganization of listed companies is to assist major shareholders to protect their shells and allow listed companies to escape the punishment of forced delisting, while many listed companies that implement bankruptcy reorganization lack obvious industrial value.
Editor: Xiao Mo
Review: Chen Siyang