Dongshi Environment's IPO fundraising, which is not bad for money, intends to use all the funds raised to repay bank loans, causing controversy
"China Science and Technology Investment" Li Xiaona, He Ziyan
Recently, the official website of the Beijing Stock Exchange disclosed the prospectus (application draft) of Guangdong Dongshi Environment Co., Ltd. (hereinafter referred to as "Dongshi Environment"), and the IPO application of Dongshi Environment was officially accepted. According to public information, Dongshi Environment's main business is municipal solid waste comprehensive services, industrial solid waste comprehensive services, and urban environment comprehensive services, providing overall solutions for the harmless treatment and resource utilization of various types of waste for government departments, enterprises and institutions, and selling the treated resource products to power grid companies and other customers.
According to the prospectus, Dongshi Environment intends to issue no more than 125 million ordinary shares to the public, and the 240 million yuan raised will be used to repay bank loans. In fact, at the end of 2023, the company has more than 300 million monetary funds, mainly bank deposits. The asset-liability ratio of Dongshi Environment is at a high level, and the performance income is greatly affected by investment income, local finance and subsidiaries.
The 240 million yuan raised was used to repay debts
According to the prospectus, Dongshi Environment plans to issue no more than 125 million ordinary shares, and the raised funds of 240 million yuan will be used to repay bank loans. The 240 million yuan raised by Dongshi Environment's IPO will repay a total of 312 million yuan of long-term loans due in July 2025, May 2027 and August 2031 respectively. Under normal circumstances, when an enterprise intends to raise funds through an IPO, it is mostly used to expand production and invest in project research and development, and the remaining part will also be used to supplement liquidity. It is relatively rare for the fundraising purpose of Dongshi Environment not to be invested in physical projects, but all of them are used to repay bank loans, which has also attracted the attention of the market.
At present, there are no special regulations on the proportion of IPO funds to be used to supplement liquidity or repay debts, but most enterprises will refer to the restrictions on refinancing when designing the proportion of funds raised in the IPO stage. According to the Q&A on Issuance Supervision - Regulatory Requirements for Guiding and Regulating the Financing Behavior of Listed Companies (Revised Edition) issued by the China Securities Regulatory Commission, if the funds are raised through allotment, issuance of preferred shares or non-public issuance of shares determined by the board of directors, 100% of the raised funds can be used to supplement liquidity and repay debts; If funds are raised through other means, the proportion used to supplement liquidity and repay debts shall not exceed 30% of the total amount of funds raised.
For the necessity of raising funds to repay bank loans, Dongshi Environment mentioned in the prospectus that for a long time, in order to solve the problem of capital demand in the process of the company's development, the company has raised funds through bank loans and other means, and the financial expenses are larger, and the financial expenses have greatly diluted the company's operating efficiency, and the company needs to use the raised funds to repay bank loans, reduce the company's dependence on bank loans in the process of business development, reduce financial costs, improve profitability, and improve the company's ability to resist risks. In other words, the company's high debt affects its profits, so it needs investors' money to reduce the company's financial risk.
From 2021 to 2023, Dongshi Environment's total liabilities will be 4.126 billion yuan, 3.798 billion yuan, and 3.878 billion yuan respectively, and the asset-liability ratios will be 88.16%, 80.16%, and 77.88% respectively. Despite the high debt, in the absence of other large-scale entity project investment, Dongshi Environment's current financial position does not have much pressure to repay bank loans. As of the end of 2023, Dongshi Environment has a fund balance of 304 million yuan, of which about 166 million yuan of non-current liabilities due within one year, about 312 million yuan of short- and medium-term borrowings, and 1.897 billion yuan of long-term borrowings. From 2021 to 2023, the balance of Dongshi Environment's monetary funds will be 234 million yuan, 176 million yuan, and 304 million yuan respectively, accounting for 42.87%, 25.85%, and 33.77% of current assets, respectively. Secondly, Dongshi Environment still has large accounts receivable. From 2021 to 2023, the book balance of accounts receivable of Dongshi Environment will be about 144 million yuan, 311 million yuan and 409 million yuan respectively, accounting for 28.03%, 38.22% and 41.66% of the current operating income respectively. If more than 400 million yuan of accounts receivable are recovered in 2023, Dongshi Environment's funds will be more abundant.
In Xueqiu's related columns, some investors believe that Dongshi Environment's fund-raising is all used to repay bank loans, which is suspected of making money, Dongshi Environment has no substantive entity fund-raising projects, and the practice of raising funds for loan repayment is tantamount to using the stock market as its own ATM, if every company is like Dongshi Environment, to raise funds in the stock market to repay loans, the stock market can not become a public ranch, and the stock market will be destroyed by these companies.
*The picture shows a question from a snowball investor
Performance is affected by investment income, tax incentives, etc
According to the prospectus, from 2021 to 2023, Dongshi Environment's operating income will be 515 million yuan, 813 million yuan, and 983 million yuan respectively; The net profit attributable to the parent company was 43.17 million yuan, 84.6082 million yuan and 74.4946 million yuan respectively. In 2023, the company's net profit fell 12% year-on-year.
The net profit income of Dongshi Environment is deeply affected by investment income, and investment income accounts for more than 60% of net profit income. From 2021 to 2023, the investment income of Dongshi Environment will be 29.3006 million yuan, 51.2171 million yuan and 51.6087 million yuan respectively, accounting for 67.87%, 60.53% and 69.28% of the net profit attributable to the parent company in each period respectively. In response to the problem of a relatively high proportion of investment income, Dongshi Environment said that the relevant investment income mainly comes from joint ventures such as Xindongyue, and if the performance of the associated enterprises invested by the company declines in the future, it will have an adverse impact on the company's sustainable profitability.
Secondly, Dongshi Environment mentioned the risk of the impact of the amount of tax incentives and the loss of subsidiaries on its financial income. From 2021 to 2023, the tax incentives enjoyed by Dongshi Environment will be 40.2285 million yuan, 50.7901 million yuan and 61 million yuan respectively, accounting for 53.33%, 33.25% and 38.44% of the company's total profits. Among them, the amount of tax incentives in 2023 accounts for about 82% of the net profit for the current period. In addition, the subsidiary, Dongguan Xindongxin Environmental Protection Investment Co., Ltd. (hereinafter referred to as "Xindongxin"), started production in August 2021, and has not yet made a profit due to the early stage of business development and the impact of intensified competition in the industry, and as of the end of the reporting period, the undistributed profit of Xindongxin's consolidated statements was -314 million yuan.
It is worth mentioning that Xindongxin, a subsidiary of Dongshi Environment, has been involved in a number of judicial lawsuits, and has construction and service contract disputes with Guangdong Jinyi Green Energy Housing Technology Co., Ltd., Beijing Kairui Lianchuang Pipeline Technology Co., Ltd., and Guangdong Xinping Urban Comprehensive Management Service Co., Ltd.
The reporter also noted that Dongshi Environment has the risk of peer competition and early termination of franchise projects. According to the prospectus, Dongshi Environment's landfill treatment and site remediation business competes with Guangdong Dongshi Kaineng Energy Co., Ltd. (hereinafter referred to as "Dongshi Kaineng"), which is controlled by the controlling shareholder Dongshi Group. The disposal and resource utilization of food waste and Dongguan Liyuan Organic Resources Recycling Co., Ltd. (hereinafter referred to as "Liyuan Organic"), which is controlled by the State-owned Assets Supervision and Administration Commission of Dongguan City, the actual controller, constitute a competition with the industry. If the competition between Dongshi Environment, Dongshi Kaineng and Liyuan Organic cannot be properly resolved, it will have an adverse impact on its business development to a certain extent. In addition, local governments generally plan treatment plants of appropriate size according to the amount of local waste generated, and grant concessions to operators, while Dongshi Environment has two concession projects with operation periods until 2045 and 2046. If the future planning of the city where the project is located is adjusted, it will bring greater uncertainty to the concession of Dongshi Environment, and will also affect the operating conditions and profitability of the project, which will have a greater adverse impact on it.
The reporter sent a letter to Dongshi Environment on the reasonableness of fundraising, related risks, company performance and other issues, but so far, no reply has been received.