What is the intention of a company that pays a dividend of nearly 200 million yuan before listing and raises 395 million yuan in IPO?
Sichuan Hengbang Energy Co., Ltd. (hereinafter referred to as "Hengbang Energy") originally planned to raise 395 million yuan through IPO, which was intended to be used for the natural gas utilization project in Emeishan City, the natural gas utilization project in Qianwei County and the repayment of bank loans, of which 76 million yuan was planned to be used to repay the loan.
It is interesting to note that the short-term and long-term borrowings of Hengbang Energy have been 0. The reporter of "Public Securities Journal" found that at the end of each period of 2022 and the first half of 2023, the balance of short-term borrowings and non-current liabilities due within one year has been 0. Hengbang Energy claims to have a high asset-liability ratio, and has also paid large dividends for many years, with a total of 194 million yuan in large dividends for three consecutive years from 2018 to 2020. In addition, the 99.27%-owned subsidiary of Hengbang Energy will pay a total of 110 million yuan in dividends in 2020. According to this estimate, Hengbang Energy and its subsidiaries have accumulated dividends of about 300 million yuan, accounting for about 77% of the 395 million yuan fundraising, and the necessity and rationality of the company's fund-raising projects are eye-catching.
It is planned to raise 76 million yuan to repay bank loans
The repayment of bank loans is one of the IPO projects of Hengbang Energy. The company plans to use the raised funds of 76 million yuan to repay bank loans, and Hengbang Energy said that "the raised funds will be used to repay bank loans to improve the company's capital structure, reduce financial risks, reduce interest expenses and improve the company's profitability".
Regarding the impact of using the raised funds of 76 million yuan to repay bank loans on the company's financial situation and operating results, Hengbang Energy said in the prospectus that there are three main aspects: "(1) Reduce the asset-liability ratio and improve the capital structure. At present, the company's existing financing channels are relatively single, mainly relying on bank loans to supplement working capital to meet the daily production and operation capital needs. Compared with comparable listed companies in the same industry, the company's debt-to-asset ratio is higher...... The company uses the raised funds to repay bank loans, reduce the proportion of bank loans, and reduce the company's asset-liability ratio, which can effectively improve the company's capital structure, enhance the company's financial strength, reduce the company's repayment pressure, reduce the company's financial risk, provide a strong financial guarantee for the subsequent development of the company, and contribute to the long-term healthy development of the company.
"(2) Reduce interest expenses and improve the company's profitability. During the reporting period, interest expense as a percentage of EBITDA decreased to 1.98% as the company repaid part of its bank borrowings. The funds raised this time to repay part of the bank loans can reduce the scale of the company's liabilities, reduce interest expenses, and improve the company's profitability.
"(3) Reducing the asset-liability ratio is conducive to enhancing the company's development potential. With the continuous expansion of the company's business, bank borrowing is still one of the company's main funding channels in the future, and the excessively high asset-liability ratio will limit the company's ability to borrow from banks in the future and weaken the company's room for further borrowing. By repaying part of the bank borrowings, the company will improve its future borrowing capacity and further enhance the company's development potential. Therefore, the company uses the raised funds to repay part of the bank loans, on the one hand, to improve the company's financial situation, reduce the debt ratio, and improve the ability to repay debts; On the other hand, it reduces financial costs, improves corporate efficiency, and maximizes shareholder interests. ”
Short-term and long-term borrowings are zero
There is even a net interest income
However, as of the end of the first half of 2023, the balance of short-term borrowings and non-current liabilities due within one year has been 0, and the balance of long-term borrowings is also 0.
According to the prospectus data, at the end of each period from 2020 to 2022 and the first half of 2023, the total balance of Hengbang Energy's "short-term borrowings and non-current liabilities due within one year was 46.731 million yuan, 59.1026 million yuan, 0 yuan and 0 yuan respectively, the current ratios were 0.95 times, 0.74 times, 1.92 times and 2.70 times, the quick ratios were 0.90 times, 0.71 times, 1.85 times and 2.62 times, and the asset-liability ratio of the parent company was 61.92%, 55.03%, 50.39% and 48.82%. ”
Not only is the short-term borrowing 0, but the long-term borrowing at the end of each period from 2021 to the first half of 2023 is also 0 (see Figure 1), and only the long-term borrowing at the end of 2020 is 100 million yuan during the reporting period.
Figure 1: Screenshot of Hengbang Energy's consolidated balance sheet
Hengbang Energy clearly reminded the debt repayment risk and liquidity risk in the prospectus, saying that "from 2020 to 2021, the company mainly financed through bank borrowings, with a high amount of bank borrowings, a current ratio and a quick ratio lower than the average of comparable companies in the same industry, and an asset-liability ratio higher than the average of comparable companies in the same industry." If the customer extends the payment term, or is limited by financing channels and cannot obtain financing in a timely manner, the company will face certain debt repayment risk and liquidity risk. ”
From the specific content of the loan, Hengbang Energy borrowed 138 million yuan and 90 million yuan from the Qianwei Branch of the Industrial and Commercial Bank of China and the Emeishan Branch of the Industrial and Commercial Bank of China respectively, both of which were M&A loans, with a balance of 28.5 million yuan and 22.5 million yuan; Borrowed 50 million yuan from Leshan Branch of Bank of Chengdu Co., Ltd., with a balance of 25 million yuan, for the purpose of supplementing working capital.
However, according to the prospectus, the financial expenses of Hengbang Energy during the reporting period from 2020 to the first half of 2023 were 7.4471 million yuan, 5.1458 million yuan, 1.4615 million yuan and -256,000 yuan respectively, and the basic interest expenses from 2020 to 2022 were basically interest expenses, while the reason for the negative financial expenses in the first half of 2023 was that the interest income was more than 450,000 yuan, which exceeded the interest expenses of less than 160,000 yuan in the same period, resulting in the financial expenses that are usually expenditure items becoming income items (see Figure 2).
Figure 2: Screenshot of the financial expenses of Hengbang Energy's prospectus
It can be seen that the financial expenses of interest-based companies have been declining, and they will even begin to enjoy net interest income in the first half of 2023. In fact, the company also explained the significant decrease in financial expenses since 2021, mainly due to the decrease in interest expenses on bank borrowings due to the repayment of bank loans.
Moreover, the company's net operating cash flow of about 100 million yuan per year from 2022 (more than 50 million yuan in the first half of 2023, about 100 million yuan after simple annualization), and the balance of ending cash and cash equivalents of more than 64 million yuan and 110 million yuan in 2022 and the first half of 2023 respectively, is enough to easily cover the interest expenses of several million yuan per year, not to mention that the company also enjoys a net interest income of nearly 300,000 yuan in the first half of 2023.
Before the IPO, there were large dividends for many years
Despite its self-proclaimed "high asset-liability ratio", Hengbang Energy has continued to pay large dividends for many years. From 2018 to 2020, the company's cash dividends were 47 million yuan, 47 million yuan, and 100 million yuan respectively. From the perspective of shareholding ratio, the Peng Benping family holds a total of nearly 80% of the shares of Hengbang Energy, becoming the largest beneficiary of dividends.
Combined with the net profit, most of the net profit in the above three years was distributed to the Peng Benping family. From 2018 to 2022, Hengbang Energy's revenue will be about 260 million yuan, 284 million yuan, 284 million yuan, 310 million yuan, and 337 million yuan respectively; The net profit was about 47.4061 million yuan, 68.6384 million yuan, 68.2608 million yuan, 72.1684 million yuan and 70.378 million yuan respectively.
In addition, during the reporting period, Emeishan Gas Co., Ltd. (hereinafter referred to as "Emei Gas"), a subsidiary of Hengbang Energy, also paid large dividends, and implemented two dividends in 2020 alone. On February 26, 2020, Emei Gas held a shareholders' meeting and made a resolution to distribute cash dividends of 100 million yuan according to the proportion of shares held by the company's shareholders; In April 2020, the shareholders' meeting made a resolution to distribute cash dividends of 10 million yuan according to the proportion of shares held by the company's shareholders.
For the subsidiary's dividends in 2020, Hengbang Energy was not disclosed in the 2021 prospectus, and it was not disclosed until the updated prospectus in June 2023. It should be pointed out that Hengbang Energy holds 99.64% of the shares of Emei Gas, combined with the Peng Benping family holding nearly 80% of the shares of Hengbang Energy, the Peng Benping family is still the biggest beneficiary of Emei Gas's dividends.
It is worth mentioning that Peng Benping and Peng Bengang, the major shareholders of Hengbang Energy, control a number of real estate companies. There are more than 30 other enterprises controlled by Peng Benping, the actual controller, of which a large number of enterprises are engaged in real estate business, such as Sichuan Hengbang Real Estate Development Co., Ltd. and Sichuan Hengbang Tianfu Real Estate Co., Ltd. (see Figures 3 and 4); There are more than 80 related parties of Hengbang Energy, most of which are controlled by Peng Bengang and a large number of them are engaged in real estate business.
Figure 3: Sichuan Hengbang Real Estate Development Co., Ltd. checks the basic information
Figure 4: Sichuan Hengbang Tianfu Real Estate Co., Ltd. checks the basic information
In addition, during the reporting period, Hengbang Energy also had the problem of borrowing funds from related parties. In 2019, Hengbang Energy lent 50.5 million yuan to Sichuan Hengbang Shuanglin Industrial Group Co., Ltd., a related party, mainly due to the latter's liquidity needs, and the company calculated a total of 2.7583 million yuan of interest on a daily basis at an interest rate of 8% on the principal it occupied.
In 2019, Hengbang Energy also lent 17.5 million yuan to Sichuan Hengbang Tianfu Real Estate Co., Ltd., a related party, mainly for the latter's liquidity needs, and the company calculated a total of 1.3428 million yuan of interest on a daily basis at an interest rate of 8% on the principal it occupied.
In 2019, the company also lent 33 million yuan to Sichuan Hengbang Real Estate Development Co., Ltd., a related party, and another 20 million yuan in 2020, totaling 53 million yuan.
So, is the use of borrowed funds by Hengbang Energy Bank compliant? Combined with Peng Benping and Peng Bengang's control of a number of real estate enterprises, is it possible for the actual controller and persons acting in concert including Peng Bengang to use the funds obtained from the transfer and pledge of the issuer's shares to invest in the real estate business, whether the raised funds of Hengbang Energy may flow to the real estate business, whether there are other possibilities to use Hengbang Energy and its shares to obtain funds and invest in the real estate business, and whether Hengbang Energy and its shareholders have corresponding prevention and control measures?
Judging from the performance of the reporting period, Hengbang Energy's profitability is better, and reducing the payment of cash dividends to shareholders will naturally help reduce the asset-liability ratio, so on the one hand, the company has paid large dividends to shareholders for many years, and on the other hand, what is the reason why the IPO intends to use the raised funds to repay the loans, and whether the two are contradictory? What is the reason for the large dividends of IPO companies before listing? Will the dividend funds eventually flow to the real estate business of the actual controller?
Hengbang Energy said in the prospectus that "the asset-liability ratio is higher than the average of comparable companies in the same industry", but as of the end of the first half of 2023, the company's liabilities are basically operating liabilities, and the interest-bearing liabilities are actually 0 (combined with short-term and long-term borrowings and financial expenses), while comparable companies in the same industry basically do not have interest-bearing liabilities of 0. Does the company deliberately increase its debt ratio by increasing its operating debt? Since the interest-bearing liabilities are actually zero, why does the company plan to raise funds to repay borrowings to "reduce interest expenses", "reduce the asset-liability ratio" and "improve capital structure", and what is the necessity and rationality of using the raised funds to repay borrowings in the IPO?
In response to the above questions, the "Public Securities Journal" previously sent a letter to Hengbang Energy by email, but did not receive a relevant reply as of press time. After that, Hengbang Energy voluntarily withdrew the application materials and terminated the IPO. Reporter He Yuxiao