The "Loncin system" is in a dangerous situation of bankruptcy

Reporters Gao Peitong and Zhao Yi reported in Guangzhou

The "Loncin System", which was once well-known in the market, is now in a bankruptcy crisis.

The actual controller of the Loncin department is Tu Jianhua, who is currently 58 years old, who has become a commercial sea at the age of 20, and has many roles in the long-term hard work: in the early years, he became famous in the motorcycle field, and Yin Mingshan and Zuo Zongshen were known as the "Three Giants of Chongqing Mobang"; on the road of diversification, he single-handedly built the Loncin department, holding the control of 4 listed companies, becoming a capital tycoon.

What is the specific layout of the Loncin Department? During the screening of the reporter of China Business Daily, it was noted that most of it revolved around Loncin Holdings Co., Ltd. (hereinafter referred to as "Loncin Holdings"), and the core sectors included industrial manufacturing, renewable resources, metal products, and financial services, and each sector had a listed company platform. Even so, there are still hundreds of companies outside the listed companies, including automobile trading, cultural tourism, real estate, pharmaceuticals, mining and so on.

Stretching the timeline, in 2013, Tu Jianhua sorted out the development of Loncin in a 10-year cycle at the 30-year summary meeting of Loncin, including the initial exploration of 10 years since 1983, the expansion of vertical industrial chains in 10 years, the horizontal diversification from 2003 to 2013, and the future wants to move towards the "big investment bank", and announced the internationalization strategy and industry-leading strategy.

At present, Tu Jianhua's wish is facing failure. Due to its excessive dependence on external financing in the expansion, its own hematopoietic capacity is insufficient, and it has not been able to retreat when selling real estate assets, the debt crisis of Loncin Holdings has gradually erupted since 2018, and has gradually fallen out of Tu Jianhua's control.

On September 30, 2021, the Chongqing Bankruptcy Court released information that Loncin Holdings and 13 other companies applied for bankruptcy reorganization "on the grounds that they could not pay off their debts as they fell due, and they already had bankruptcy reasons but had reorganization value and the feasibility of reorganization". According to the disclosed information, it is still in the pre-restructuring investor recruitment stage.

A few days ago, did the issue of serious liquidity difficulties have a significant impact on the normal operation of Loncin Holdings? Is the company still operating normally? Who is the specific person who is said to be in arrears with the company for a long time in the debt overdue announcement? The reporter wrote to Loncin Holdings, but the other party did not respond as of press time.

Expansion "buried mines"

"My 2018 (year) was very painful, very tangled, one night and one night can not sleep, sleepless night, the most I think of the problem, is that Loncin must live, only alive, there is hope." The company's quarterly magazine hosted by Loncin Holdings records Tu Jianhua's speech at the 2019 Loncin Holdings New Year Group Meeting.

The reporter noted that 2018 was indeed a watershed for the debt crisis exposed by Loncin Holdings.

A few years ago, Tu Jianhua ushered in a harvest period in the asset market, intensively laying out and controlling the platforms of 4 listed companies. In August 2012, Loncin General Dynamics Co., Ltd. (hereinafter referred to as "Loncin GM", 603766.SH) landed in A shares, which includes the research, production and sales of motorcycles, engines and general dynamics machinery, which is also tu Jianhua's strongest and longest-working core industry.

At the end of 2012, Loncin Holdings acquired control of Shanghai Fenghua (Group) Co., Ltd. (hereinafter referred to as "Fenghua Shares", 600615.SH) through equity acquisition, and its main business is metal products; in June 2014, Hanhua Financial Holdings Co., Ltd. (hereinafter referred to as "Hanhua Financial Holdings", 3903.HK), a subsidiary of Loncin Holdings, landed in Hong Kong stocks.

In 2014, Loncin Holdings became the majority shareholder of Yushang Investment Group Co., Ltd. (hereinafter referred to as "Yushang Group", once known as the largest local private enterprise with group-style development in Chongqing) through equity acquisition, and in 2015, through Yushang Group, it acquired control of qihe environmental protection group co., LTD. (hereinafter referred to as "qihe environmental protection" (hereinafter referred to as "Qihe environmental protection"), a Hong Kong-listed company, 0976.HK).

In just 4 years, after obtaining 4 listed company platforms, Tu Jianhua's layout can be described as rapid.

However, the expansion of Loncin Holdings is not limited to the capital market, such as: Loncin Holdings began to enter the real estate industry in 2002, once impacted the listing; in September 2014, Loncin Holdings became the largest shareholder of Chongqing Jinling Automobile (Group) Co., Ltd. (hereinafter referred to as "Jinling Automobile") through equity acquisition; after 2015, Loncin Holdings entered the cultural tourism industry.

So, when Loncin Holdings made a big merger, where did the money come from? How profitable is Loncin Holdings itself?

According to the information obtained by the reporter from the Shanghai Clearing House, from 2012 to 2017, the total assets of Loncin Holdings were about 11.906 billion yuan, 15.236 billion yuan, 22.856 billion yuan, 35.196 billion yuan, 43.706 billion yuan and 45.756 billion yuan, and the net profit attributable to the mother was 255 million yuan, 271 million yuan, 108 million yuan, 169 million yuan, 602 million yuan and 280 million yuan, respectively, and the asset-liability ratio increased from 56.13% in 2012. This rose to 69.16% in 2017.

Overall, the profitability of Loncin Holdings is not enough to support the rapid expansion of its asset volume, and the amplification of its asset volume mainly comes from leveraging external funds and greatly increasing the equity of minority shareholders. From the results, in 6 years, although Loncin Holdings has doubled its asset volume and expanded, the increase in profitability is not obvious.

It is particularly noteworthy that Loncin Holdings uses a large number of interest-bearing liabilities when leveraging external funds.

In contrast, in 2012, Loncin Holdings' financial expenses for that year were 193 million yuan, and from 2013 to 2017, its financial expenses were 391 million yuan, 579 million yuan, 647 million yuan, 1.091 billion yuan and 1.350 billion yuan, respectively, with an astonishing increase, and the absolute amount was gradually significantly higher than the profit of the main business. Taking 2017 as an example, at the end of that year, Loncin Holdings' "short-term borrowings + non-current liabilities due within one year" was 11.907 billion yuan, long-term borrowings were 10.033 billion yuan, and bonds payable were 1.422 billion yuan, while the monetary funds on the account were only 4.077 billion yuan.

In other words, the profitability of Loncin Holdings in the rapid expansion is basically used to pay financing fees, and the increase in its net profit is significantly lower than the growth of financial expenses.

In fact, from the perspective of equity pledge, it can also be seen that Tu Jianhua's liquidity has been tight for a long time: in January 2014, the number of equity pledges held by Loncin Holdings in Loncin GM accounted for 10% of the number of shares held; in May 2014, this proportion rose to nearly 100%; in April 2015, Loncin Holdings' equity in Fenghua shares was also 100% pledged for financing.

Debt crisis

In 2018, when Tu Jianhua suffered "insomnia", Loncin Holdings began to have overdue debts.

According to the information obtained by the reporter from the Shanghai Clearing House, from June to September 2018, Loncin Holdings began to have debts of about 1 billion yuan overdue, and the creditor was CITIC Securities Co., Ltd. Subsequently, debt overdue has continued to increase, with Loncin Holdings' overdue liabilities of 2.489 billion yuan as of the end of 2019, and as of January 2021, overdue liabilities rose to 6.037 billion yuan. In June 2021, Loncin Holdings added another 3.112 billion yuan of overdue debt.

In the context of overdue debts, in December 2018, Hanhua Financial Holdings disclosed that Loncin Holdings sold 16.74% of the equity of the company it held, holding 9.40% of the shares after the transfer, superimposed on the termination of the relevant concerted action agreement by Loncin Holdings, and Loncin Holdings and Tu Jianhua were no longer the controlling shareholders and actual controllers of Hanhua Financial Holdings.

Loncin Holdings' shareholding in its listed companies began to be frozen: in April 2019, Loncin GM disclosed that some of the shares of the controlling shareholder were judicially frozen; in October 2019, Fenghua shares disclosed that some of the shares of the controlling shareholder were judicially frozen. Up to now, its shares in Hanhua Financial Holdings and Yunong Commercial Bank have also been frozen and are waiting to be frozen.

It is worth mentioning that when the liquidity is tight, Loncin Holdings has also taken risks. According to the regulatory information subsequently disclosed by the Shanghai Stock Exchange, in 2018, Fenghua shares were occupied by the controlling shareholder Loncin Holdings for 480 million yuan in the form of subscription trusts, constituting a non-operational occupation of the listed company's funds, and at that time, Loncin Holdings' defense reasons included "the above-mentioned violations due to capital difficulties".

Although Loncin Holdings has a long history of relying on interest-bearing liabilities for expansion, the reporter noted that its capital crisis may have external factors.

In March 2019, Tu Jianhua, the actual controller of Loncin, "asked for debts" at an important meeting. According to public reports, at that time, Tu Jianhua said that the company entered the real estate industry in 2002, and in 2014, the company sold its real estate assets to a company, "but the other party has still owed more than 6 billion yuan so far, and owed more than 4 years", saying that he "can't bear it". However, at that time, Loncin Holdings never disclosed the name of the specific debt company.

In January 2021, when Loncin Holdings issued a debt overdue announcement, it said that "due to the long-term arrears of a certain enterprise in arrears of huge amounts of money, and the impact of changes in national financial policies, it was unable to obtain new loans, and the company's capital situation was tight, resulting in some of the company's debts being overdue".

So are the two arrears of payment the same enterprise? Who is the company? If it is the same enterprise, why does it not repay for a long time under the urging? A few days ago, the reporter wrote to Loncin Holdings, and as of press time, the other party did not respond.

Under the background of the bankruptcy reorganization application, what is the current operation status of Loncin Holdings' industries?

One by one, the reporter noted that Loncin is a major company, Loncin GM in recent years, although in the performance of the downward range, but the overall performance is relatively good, in the first half of 2021 deduction of non-net profit of 243 million yuan; Fenghua shares are poor performance, weak performance, in 2020 due to the deduction of non-net profit is negative and operating income is less than 100 million yuan, triggering the new delisting rules were implemented "delisting risk warning", is still on the road of "shell protection".

In terms of Qihe Environmental Protection, after Loncin Holdings took ownership, in 2016, it promoted its acquisition of the German Schultz Group, becoming one of the world's largest listed metal waste recycling companies, with annual revenue jumping to the level of 10 billion and turning losses into profits; in 2019-2020, its performance declined significantly and returned to a state of loss; in the first half of 2021, it turned a profit into a profit, with a net profit attributable to the mother of HK$226 million.

The reporter noted that with the application of Loncin Holdings for bankruptcy reorganization, Loncin General Motors and Fenghua shares have disclosed announcements, saying that it may lead to a change in the control of the company. It is also said that the listed company has independent and complete business and independent operation ability, the production and operation activities are normal, and the pre-reorganization filing of the controlling shareholder will not affect the daily production and operation of the listed company.

It is worth mentioning that in terms of the "shell" of Fenghua shares, according to the rules for the listing of shares on the Shanghai Stock Exchange, after triggering the delisting risk warning due to "negative deduction of non-net profit and operating income of less than 100 million yuan", if the relevant rules are triggered again the following year, the listed company will be decided by the Shanghai Stock Exchange to terminate the listing. According to the 2021 semi-annual report of Fenghua Shares, its performance is not optimistic.

A few days ago, the reporter sent a letter to Fenghua Shares, asking how to increase its performance during the year to avoid delisting, whether it can complete a relatively large amount of mergers and acquisitions planning and other related issues, as of press time the other party has not responded.