According to the administrative penalty decision recently released on the official website of the China Securities Regulatory Commission, due to violations of laws and regulations such as the transfer of China Nuclear Titanium Dioxide (002145 SZ) in 2023 non-public issuance of shares and illegal information disclosure, Wang Zelong, the actual controller of China Nuclear Titanium Dioxide, and his friend Hong Haowei, Han Yuchen, the former secretary of the board of directors of China Nuclear Titanium Dioxide, CITIC Securities, Haitong Securities and CITIC CSI, were fined a total of 235 million yuan, of which Wang Zelong was fined 133 million yuan.
The actual controller is only 28 years old
Formerly known as the Titanium Dioxide Branch of China National Nuclear Corporation No. 404 Plant, China Nuclear Titanium Dioxide was listed on the Shenzhen Stock Exchange in 2007, mainly engaged in the research and development, production and sales of titanium dioxide (i.e., titanium dioxide) of chemical products, with an annual output of 550,000 tons, ranking second in China and fifth in the world.
Wang Zelong, the actual controller of China Nuclear Titanium Dioxide, was born in July 1996 and is only 28 years old. As of March 31, 2024, Wang Zelong held nearly 1.295 billion shares of CNNC Titanium Dioxide, accounting for 33.45%, and was the company's largest shareholder and actual controller. According to the closing price of 4.30 on April 1, 2024, Wang Zelong's total shareholding amount is nearly 5.6 billion yuan.
In addition, Wang Zelong invested in another titanium dioxide company, Longbai Group (002601. SZ) titanium dioxide production ranks first in the country, according to the annual report, its annual output of titanium dioxide can reach 1.5 million tons, and its net profit attributable to the parent company also fell by nearly half to 46% in the 23-year semi-annual report.
In an exclusive interview with Wang Zelong by Forbes China, he revealed that as early as 2015, he participated in the merger and reorganization project of Baililian's Lomon Titanium Industry (i.e., Longbai Group) under the instruction of his father, and became one of the major shareholders of the listed company through private placement.
Implement fixed increase arbitrage and carry out over-the-counter derivatives trading
In July 2022, CNNC's application for non-public issuance of A-shares was approved by the Issuance Examination Committee of the China Securities Regulatory Commission. From July to August 2022, CITIC CSI recommended a long-short plan to Wang Zelong, the actual controller of CNNC Titanium Dioxide. According to the plan, "customers can directly realize fixed and short arbitrage through the OTC derivatives trading desk, settle the income in advance, and do not need to wait for a six-month lock-up period, and usually take more than a month to withdraw funds and income".
In September 2022, Wang Zelong decided to implement fixed increase arbitrage, lending securities through the employee stock ownership plan of CNNC Titanium Dioxide, and carrying out over-the-counter derivatives trading with CITIC CSI in the name of an investment development company (hereinafter referred to as an investment company). Han Yuchen specifically implements the arbitrage plan and is responsible for connecting with CITIC CSI and CITIC Securities.
From September 2022 to February 2023, Wang Zelong and Han Yuchen negotiated with CITIC CSI and CITIC Securities to increase the arbitrage business of securities lending, agreeing that the employee stock ownership plan of CNNC Titanium Dioxide would refinance and lend 88 million shares of "CNNC Titanium Dioxide", CITIC CSI would designate four private equity fund product accounts to carry out hedging transactions of "CNNC Titanium Dioxide" stocks, and CITIC Securities would formulate a securities lending plan.
In November 2022, CITIC CSI conducted preliminary communication with Haitong Securities on the income swap business linked to the non-public issuance of shares of "China Nuclear Titanium Dioxide".
In December 2022, the compliance department and the risk management committee of CITIC CSI reviewed and approved the application for over-the-counter derivatives trading linked to the non-public offering of approximately 88 million shares of "CNNC Titanium Dioxide". In the same month, it submitted the "Request for Instructions on the Notional Principal of 600 Million Yuan of OTC Options Linked to China Nuclear Titanium Dioxide Restricted Shares between an Investment Company and China Securities Capital" to the Risk Management Department and the Risk Management Committee of CITIC Securities for deliberation and approval.
In February 2023, due to the insufficient subscription funds of an investment company, in order to use up the quota of securities lending, Wang Zelong suggested that his friend Hong Haowei join the arbitrage transaction of CNNC titanium dioxide, and Hong Haowei participated in and carried out over-the-counter derivatives transactions with CITIC CSI in the name of a No. 1 private securities investment fund (hereinafter referred to as No. 1 fund).
From February 8 to February 10, 2023, the Derivatives and Trading Department of Haitong Securities included the "CNNC Titanium Dioxide" stock in the derivatives business alternative database and fulfilled the approval process of the company's seal for the non-public issuance subscription documents of CNNC Titanium Dioxide. On February 10, 2023, Haitong Securities participated in the first round of quotation for the non-public offering of CNNC titanium dioxide in accordance with the CITIC CSI order price and subscription amount, and the issue price was determined to be RMB 5.92 per share on the same day.
Cashed out 671 million yuan in 9 days
On February 16, 2023, Haitong Securities signed a share subscription agreement for the non-public issuance of shares of CNNC Titanium Dioxide, and entered into a long-term income swap with CITIC CSI linked to the underlying "CNNC Titanium Dioxide" stock, with a nominal principal of RMB 532 million and the corresponding number of shares of 89,864,900 shares, which will be fully margined by CITIC CSI. On the same day, an investment company reached a vanilla option portfolio contract with CITIC CSI, which linked to the underlying "China Nuclear Titanium Dioxide" stock, with a nominal principal of 426 million yuan and a corresponding number of shares of 71,959,500 shares; Fund No. 1 reached a vanilla option portfolio contract with CITIC CSI, linked to the underlying "China Nuclear Titanium Dioxide" stock, with a nominal principal of 89.0398 million yuan and a corresponding number of shares of 15.0405 million shares.
From February 6 to February 20, 2023, an investment company and CITIC CSI reached a short income swap linked to the underlying "China Nuclear Titanium Dioxide" stock, with a total of 71,959,500 shares and a corresponding notional principal of 548 million yuan.
From February 10 to February 20, 2023, Fund 1 and CITIC CSI reached a number of short income swaps, with a total of 15.0405 million shares and a corresponding notional principal of 114 million yuan.
From February 6 to February 14, 2023, the 88 million shares of "CNNC Titanium Dioxide" held by the CNNC Titanium Dioxide Employee Stock Ownership Plan were allocated to four private equity fund product accounts in accordance with the path designated by CITIC CSI, and the loan period was extended and renewed until September 2023.
From February 13 to February 21, 2023, four private equity fund product accounts sold 88 million shares of "China Nuclear Titanium Dioxide" at an average price of about 7.63 yuan per share, with a turnover of about 671 million yuan.
The listed company was not informed of the trading arrangements
Wang Zelong did not inform the listed company of the information that he actually participated in the non-public offering through the above-mentioned transaction arrangement. On February 24 and March 3, 2023, China Nuclear Titanium Dioxide announced a report on the issuance of A-shares related to the non-public issuance, stating that there was no situation in which the actual controller of the issuer participated in the subscription of the issuance through direct or indirect means.
On March 9, 2023, CNNC Titanium Dioxide announced the listing of this non-public offering of shares, and the stock restriction period is from March 9 to September 8, 2023. From March 17 to April 6, 2023, an investment company and Fund 1 applied to CITIC CSI for early termination of all long vanilla option contracts and short income swap contracts, and CITIC CSI closed the corresponding positions and settled them.
In the end, Wang Zelong made an actual profit of 58,161,993.37 yuan through an investment company, Hong Haowei and Wang Zelong made an actual profit of 14,193,879.43 yuan and 2475961 yuan respectively through Fund No. 1, and CITIC CSI did not make an actual profit, with the income of CITIC Securities securities lending business being 1,910,680.83 yuan and the income of Haitong Securities income swap business being 789,445.21 yuan.
A total of 235 million yuan was confiscated
After investigation, the CSRC believes that Wang Zelong and Hong Haowei's above-mentioned behavior, through derivatives trading arrangements, actually participated in the non-public offering, and sold securities at the market price, locking in the price difference between the discount price of the non-public offering of shares in advance, and circumventing the restriction period in disguise. Violation of the Securities Law and other provisions constitutes an illegal circumstance under the Securities Law.
CITIC CSI formulated arbitrage plans, built trading structures, and provided leveraged financial support for Wang Zelong and Hong Haowei's transfer of shares in violation of restrictive regulations; CITIC Securities understands that the purpose of securities lending is to provide securities lending services to customers with fixed increase arbitrage. Haitong Securities subscribed for the non-public issuance of shares of CNNC Titanium Dioxide in its own name in accordance with the quotation instructions of CITIC CSI, which objectively helped CITIC CSI and its customers to obtain stock returns, so that the arbitrage behavior of private placement could be realized; Han Yuchen came forward for Wang Zelong and others to implement the fixed increase arbitrage plan. The above-mentioned acts of CITIC CSI, CITIC Securities, Haitong Securities and Han Yuchen, together with Wang Zelong and Hong Haowei, constitute illegal circumstances under the Securities Law.
Wang Zelong in the process of Hong Haowei's transfer of shares in violation of restrictive provisions. Participated in the negotiation of the arbitrage plan for increasing and borrowing securities, contacted and suggested that Hong Haowei join the arbitrage, and together with Hong Haowei, constituted an illegal situation under the Securities Law.
Wang Zelong, as the actual controller of CNNC Titanium Dioxide, concealed his actual participation in the non-public offering through a series of trading arrangements during the non-public issuance of shares by CNNC Titanium Dioxide in 2023, resulting in false records in the report on the issuance of A-shares related to CNNC Titanium Dioxide's non-public issuance, which violated the Securities Law and the Administrative Measures for Information Disclosure of Listed Companies, and constituted an illegal situation under the Securities Law.
In addition, in accordance with the provisions of the Securities Law, Wang Zelong was fined 2 million yuan for information disclosure violations.
In the end, the total amount of fines and confiscations was 235 million yuan, of which Wang Zelong was fined a total of 133 million yuan.
CNNC declares that it has no affiliation or equity relationship with CNNC Titanium Dioxide
It is worth mentioning that China National Nuclear Corporation issued a message through the WeChat public account on April 14, noting that China Nuclear Titanium Dioxide was placed on file for investigation, and the statement stated that China Nuclear Titanium Dioxide and China Nuclear Group have no affiliation or equity relationship, nor do they have any investment, cooperation, business and other relationships, and all its actions have nothing to do with China Nuclear Group, and China Nuclear Group does not assume any obligations and responsibilities for any of its actions in accordance with the law.
[Source: Shangguan News First Financial Information]