Suspected of violating the rules of Jinlingtong's private placement, Huaxi Securities may be suspended from sponsoring business qualifications

On April 13, Huaxi Securities (002926. SZ) announced that on April 11, it received the "Prior Notice on Suspending the Regulatory Measures for the Qualification of Sponsor Business of Huaxi Securities Co., Ltd." (hereinafter referred to as the "Notice"), due to the fact that Jin Tongling (300091. SZ) in 2019, there were a number of violations in the practice of non-public issuance of stock sponsorship projects, and Huaxi Securities' sponsorship business qualification may be suspended by the Jiangsu Securities Regulatory Bureau for 6 months.

According to the Notice, the above-mentioned violations include: due diligence work is suspected of not being diligent and conscientious, and there are false records in the sponsorship letter for the issuance of shares to specific targets (i.e., "Jin Tongling"), the relevant reports issued during the continuous supervision stage are suspected of being falsely recorded, and the continuous supervision and on-site inspection work is suspected of not being implemented properly.

Huaxi Securities has the right to state and defend the above-mentioned penalties, and must send a receipt within 10 working days after receiving the notice. In other words, if the above-mentioned penalties are pleaded before April 26, Huaxi Securities' sponsorship business qualification may still be retained.

In the context of "strict investigation and strict management" by the regulators, some changes are taking place. The recent sponsor representative training revealed that there are updated regulatory requirements for sponsors and companies to be listed.

Affects geometry

In recent years, Huaxi Securities has made many moves in the differentiated development of investment banking business, but in the fierce market competition, the income of its investment banking business has declined.

According to the annual report data, in 2021, Huaxi Securities' investment banking business income will be 457 million yuan, accounting for 8.92% of the overall revenue, and in 2022, Huaxi Securities will achieve investment banking business income of 218 million yuan, contributing 6.47% to the year's revenue.

Huaxi Securities said in the announcement on April 12 that according to preliminary statistics, the company's business income related to the sponsorship business qualification in 2023 will be about 35 million yuan, and the accurate data is subject to the company's annual report announced in the follow-up. There is uncertainty about the impact of this event on the Company's operations in 2024 and subsequent years.

A sponsor representative in East China said that in the current state of IPO (initial public offering) tightening, if the brokerage's IPO sponsorship project reserve is insufficient, then the suspension of sponsor business qualifications will have little impact. However, the existing projects of the penalized brokerage may be transferred to other brokerages due to the sponsor representative of the project team jumping ship.

According to data from Oriental Wealth Choice, as of now, Huaxi Securities has 3 IPO sponsorship projects in the normal review process. Among them, Liuchun Technology and Zhongbang Co., Ltd. are GEM IPO projects, and their updated status is "suspended" on March 31, pending the update of the latest annual financial data, while Jiachi Technology is an IPO project on the Science and Technology Innovation Board, and the latest status is that it has been submitted for registration.

If Huaxi Securities is suspended from sponsoring business, how will the above three projects be promoted? The Economic Observer called Huaxi Securities and sent an interview outline, but did not receive a response as of press time.

According to the information of securities practitioners published by the Securities Association of China, as of April 17, Huaxi Securities had a total of 42 sponsor representatives, and the sponsor representatives of the above three IPO sponsor projects are still on the list.

According to a research report released by Orient Securities in July last year, in terms of investment banking business, Huaxi Securities adheres to the strategy of "base area", and signs comprehensive strategic cooperation agreements with local governments, local key units and leading enterprises to deepen the investment banking business in the local market.

According to data from Oriental Wealth Choice, from the beginning of 2023 to April 17, 2024, the number of underwriting and sponsorship (including joint sponsorship) businesses of Huaxi Securities will be 218, ranking 33rd in the industry. These businesses are mainly bond issuances in Jiangxi Province and Guizhou Province, as well as bond issuances by state-owned assets platforms in a number of provinces and cities. During the same period, Huaxi Securities completed only 3 IPO and private placement projects.

How will the underwriting and sponsorship business of securities firms that have been penalized in the past be affected?

Judging from the past situation, from April 12 to October 11, 2023, Guodu Securities was suspended from sponsorship business and corporate bond underwriting business. According to data from Oriental Wealth Choice, in 2022, Guodu Securities will still have 21 underwriting businesses, and in the first quarter of 2023, the brokerage will have 2 corporate bond businesses and 1 additional issuance business.

Jin Lingtong has been committing financial fraud for many years

Jin Tongling, the main body of the fixed increase who was "named" by Huaxi Securities, was punished by the Jiangsu Securities Regulatory Bureau for large-scale financial fraud for many years earlier this year.

Specifically, in 2017, 2018, 2021, and 2022, Jin Tongling inflated its operating income by 501 million yuan, 550 million yuan, 69 million yuan, and 15 million yuan respectively, and its total inflated profits were 146 million yuan, 148 million yuan, 74 million yuan, and 43 million yuan respectively. In addition, Jin Tongling reduced its operating income by 197 million yuan and 50 million yuan in 2019 and 2020 respectively.

The Jiangsu Securities Regulatory Bureau pointed out that Jin Tongling and its wholly-owned subsidiaries, Shanghai Yuneng Energy Technology Co., Ltd. and Jiangsu Yuneng Energy Technology Co., Ltd., adjusted the completion progress (performance progress) of the EPC general contracting project by falsifying the project image progress confirmation form and invoice, etc., and inflated or reduced the total operating income and profit of 12 companies, including Daming County Grassroots New Energy Thermal Power Co., Ltd. and Cathay (Taiyuan) Biomaterials Co., Ltd.

In addition, Jin Tongling and its holding subsidiary, Taizhou Fengling Special Power Station Equipment Co., Ltd., inflated their operating income and total profit by recognizing revenue in advance without delivery and returning sales without deducting income.

Recently, there has been market news that Dahua Certified Public Accountants involved in the financial fraud incident of Jin Tongling may be suspended from securities qualifications or be subject to substantial prohibition measures by the securities regulatory authorities. The Economic Observer interviewed Dahua Certified Public Accountants on this, but did not receive a reply as of press time.

On April 10, the number of electric science and technology (600850. SH) responded to the above rumors about Dahua Certified Public Accountants on the investor interactive platform, saying that after verification, as of now, Dahua Certified Public Accountants has not affected its provision of audit services for the company.

The Economic Observer has learned from the industry that the recent sponsor representative training has spread the regulatory trend: the bottom line is that sponsor institutions cannot collude with issuers to commit fraud. If the project is judged to be risky, the sponsor should not undertake the business. However, if the verification is limited, the sponsor should objectively assess and articulate the specific impact, and the auditor will understand.

The Economic Observer interviewed a number of sponsor representatives and learned that recently, the securities regulatory bureaus in many places have required enterprises that have completed the listing guidance and filing to supplement the "Letter of Commitment to Improve the Declaration Quality of Enterprises to be Listed", emphasizing that enterprises have the first responsibility for the truthfulness, accuracy and completeness of information disclosure in the application documents, especially in terms of operation and finance.