Hongda Xingye's 337 million convertible bonds will default, and the controlling shareholder has been ruled bankrupt

Small bonds are on the market

2024-05-24 15:42Posted in Beijing Finance and Economics Creators

The inability to repay the resold bonds has led to significant uncertainty in Hongda Xingye's ability to continue operations.

01

Sell-back default risk

Recently, the sponsoring brokerage First Capital Securities announced that Hongda Xingye Co., Ltd. (hereinafter referred to as "Hongda Xingye") has a default risk of reselling convertible corporate bonds "Hongda Convertible Bonds".

Sell-back default risk warning announcement

According to the announcement, if the "Hongda convertible bonds" issued by Hongda Xingye trigger the conditional resale clause, and the bondholders put forward a resale request, the company will be unable to pay the face value of the resold bonds and the accrued interest for the current period due to financial constraints, which will lead to the risk of default on the resale of convertible corporate bonds.

According to the agreement, in the last two interest-bearing years of the "Hongda Convertible Bonds", if the closing price of the company's shares is lower than 70% of the current conversion price for any 30 consecutive trading days, the holder of the convertible bonds has the right to sell back all or part of the convertible bonds held by the company at the price of the face value of the bonds plus the accrued interest for the current period.

On March 18, 2024, Hongda Xingye shares were delisted by the Shenzhen Stock Exchange, and the closing price of the company's shares before the delisting had been lower than 70% of the current transfer price for 23 consecutive trading days.

After the delisting of the Shenzhen Stock Exchange, Hongda Xingye shares were suspended from the cumulative calculation of "30 consecutive trading days" in the above-mentioned resale clause, and there is uncertainty about the subsequent triggering of the above-mentioned resale clause.

According to public information, the "Hongda Convertible Bonds" were issued on December 16, 2019, with a total issuance amount of 2.427 billion yuan and a term of 6 years, and as of March 18, 2024, the remaining convertible bond amount of "Hongda Convertible Bonds" is 337 million yuan.

In recent years, affected by the credit default of the controlling shareholder, the company's financing channels have been limited, the capital chain has been broken, and a large number of loans have been overdue.

At present, a number of subsidiaries of Hongda Xingye are in bankruptcy reorganization procedures, with difficulties in production and operation, and serious loss of personnel in key positions, so the company cannot disclose the "2023 Annual Report".

In addition, Hongda Xingye's subsidiaries Inner Mongolia Wuhai Chemical Co., Ltd., Inner Mongolia Zhonggu Mining Co., Ltd., and Western Environmental Protection Co., Ltd. have all been ruled by the court to enter bankruptcy reorganization procedures.

In April this year, Hongda Xingye's parent company, Hongda Xingye Group Co., Ltd. (hereinafter referred to as "Hongda Xingye Group"), declared bankruptcy.

In fact, the crisis of Hongda Xingye Group should start from the end of 2020.

In December 2020, "20 Hongda Xingye SCP001" defaulted, which opened the prelude to the debt crisis of Hongda Xingye Group, and at present, all 5 bonds of the company have defaulted, with a default amount of 4.465 billion yuan.

In addition, Hongda Xingye Group also has a number of overdue loans from financial institutions, the company's financing channels are seriously blocked, and the liquidity risk is extremely high.

02

In deep crisis

According to the official website, Hongda Xingye Group was founded in 1991, headquartered in Guangzhou, with seven industrial systems of "resources and energy, salt lake development, chemical industry, environmental protection, new materials, exchange and equity investment", and is a large-scale comprehensive industrial group of resources and energy in China.

In 2004, Hongda Xingye was listed on the Shenzhen Stock Exchange and is a leader in China's "hydrogen energy, new materials, environmental protection and exchange" industries.

The official website of Hongda Xingye Group

From the perspective of equity structure, Hongda Xingye Group directly holds 7.17% of the shares of Hongda Xingye, Guangzhou Chengxi Economic Development Co., Ltd., the person acting in concert, holds 0.013% of the company's shares, and Zhou Yifeng is the actual controller.

Shareholding structure chart

As a leading group in the chemical industry, PVC has accounted for more than 70% of the revenue of Hongda Xingye Group.

In recent years, as the state tightens its control over the real estate industry, PVC, as a supporting industry in the real estate industry, has also shrunk, and the operating rate of the industry has fallen from 78% in 2021 to 74% in 2022.

From the performance point of view, due to the sharp increase in financial expenses caused by debt default, and the provision of large asset and credit impairment losses, Hongda Xingye Group continued to lose money.

From 2020 to the first half of 2023, Hongda Xingye Group lost 1.681 billion, 3.954 billion, 15.643 billion and 587 million yuan respectively, with huge losses and swallowed up all the previous profits.

Net profit attributable to the parent company

As of the end of June 2023, Hongda Xingye Group has total assets of 5.298 billion yuan, total liabilities of 20.464 billion yuan, net assets of -15.166 billion yuan, and an asset-liability ratio of 386.29%.

The analysis of the debt structure of "Small Debt Market" found that Hongda Xingye Group is mainly based on current liabilities, and the current liabilities account for 79% of the total liabilities.

As of the same reporting period, Hongda Xingye Group had current liabilities of 16.11 billion yuan, mainly non-current liabilities due within one year, and its total short-term liabilities were 13.119 billion yuan.

However, compared with short-term liabilities, Hongda Xingye Group's liquidity has gradually dried up, and its monetary funds on its books are only 21.6186 million yuan, and the company has a huge short-term debt repayment risk.

In terms of bank credit, as of the end of 2020, the total bank credit of Hongda Industrial Group was 15.967 billion yuan, and the unused credit line was 2.951 billion yuan, and the data disclosure date was relatively long.

Bank credit

In terms of liabilities, Hongda Xingye Group also has non-current liabilities of 4.353 billion yuan, all of which are expected non-current liabilities.

On the whole, Hongda Xingye Group's rigid debt is mainly short-term interest-bearing debt, with an interest-bearing debt ratio of 64%.

In terms of financing channels, Hongda Xingye Group has diversified channels, and it relies heavily on short-term borrowings, in addition to borrowing and issuing bonds, it also raises funds through leasing financing, equity financing, equity pledge and trust.

However, since the debt default, Hongda Xingye Group's financing channels have been interrupted, and the company's net financing cash flow has continued to net outflow, and the refinancing pressure is very high.

Financing cash flow

In terms of equity pledge, Hongda Xingye Group and persons acting in concert pledged a total of 353 million shares of Hongda Xingye, accounting for 91.88% of the company's shares held by it; Its equity pledge rate to Zhongtai Chemical is 99.98%, and it is in a state of judicial freezing.

Equity pledge statistics

In addition, the scale of restricted assets of Hongda Xingye Group is also relatively large, as of mid-2022, the indicator is as high as 8.14 billion yuan, mainly restricted fixed assets and intangible assets, the company's asset liquidity is weak, and the space for capital maneuver is very limited.

In terms of asset quality, Hongda Xingye Group's accounts receivable and inventory are large, and the turnover efficiency continues to decline, which not only occupies a large proportion of funds, but also has a certain risk of price decline and recovery.

It is worth noting that Hongda Xingye Group's external guarantee enterprises have also defaulted on their debts and are facing a greater risk of subrogation. As of the end of June 2023, the company and its affiliates have guaranteed a total of 3.113 billion yuan.

In general, Hongda Xingye Group has heavy debts, with large debt defaults and assets frozen; Facing a large number of legal proceedings and arbitrations; Financing channels are basically broken, and it is facing extremely serious financial pressure and liquidity pressure.

03

Tens of billions of Chaoshan billionaires

In 1991, Zhou Yifeng, who was exposed to the ears and eyes of his family since childhood, founded Guangzhou Chengxi, the predecessor of Hongda Xingye Group, to produce plastic raw materials and other chemical products.

After ten years of intensive cultivation and extraordinary business insight, Guangzhou Chengxi has also developed vigorously.

However, this industry was seriously affected by the economy, and in the 2001 economic crisis, most of the domestic counterparts chose to reduce production capacity or even stop production, but Chengxi still continued to produce under pressure and risk.

Fortunately, the economic crisis did not last long, in 2002 the market had a warming trend, with the increase in demand for plastic raw materials at home and abroad, the price of plastic raw materials recovered.

Affected by the economic crisis, the reserves and production capacity of domestic plastic raw material enterprises are very low, and there is a situation where supply exceeds demand, and Zhou Yifeng, who survived, seized this opportunity and began to develop rapidly.

Zhou Yifeng, chairman of Hongda Xingye Group

In 2004, Chow Yifeng once again encountered a milestone event in his life - the acquisition of Wuhai Chemical Plant in Inner Mongolia.

In July 2003, founded in 1952, the old state-owned enterprise Wuhai Chemical Plant went bankrupt due to poor management, Zhou Yifeng acquired the company, and carried out a series of upgrading and reform, and now Wuhai Chemical has become a large-scale plastic chemical raw material manufacturing enterprise with an annual production capacity of more than 2 million tons.

In 2005, Chow Yifeng founded the country's first plastics exchange, the Guangdong Plastics Exchange, and the domestic plastics trading has entered the electronic era, with an annual trading volume of more than 10 million tons and 300,000 domestic and foreign customers.

The growth history of Hongda Xingye Group

Since then, Chow has embarked on an ambitious path of acquisition and expansion.

At the end of 2011, Hongda Xingye Group acquired Jiangsu Qionghua (002002. SZ) became a major shareholder, changed its name to Hongda Xingye in June 2013, and established a wholly-owned subsidiary, Jiangsu Jincai Technology, and began to enter PVC products.

While the business landscape continues to expand, so does Chow's personal wealth.

In the 2014 Hurun China rankings, Yifeng Chow ranked 547th, with a net worth of only 4.1 billion yuan, and three years later, his personal wealth has soared to 10.5 billion yuan.

In recent years, Chow Yifeng has encountered another economic downturn and a downturn in the chemical industry, coupled with the sequelae of his aggressive expansion in recent years, and the debt crisis is imminent.

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