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Since the official release of the new delisting regulations on December 31, 2020, the Shanghai market has achieved various types of delisting 13. Since the beginning of this year, the new delisting rules are increasingly playing an active role, in order to form a market ecology in which listed companies come in and out, and the survival of the fittest is formed. Under the background of the normalization of delisting, how should investors respond and effectively avoid related risks? Each issue of the "Delisting X-Files" series of investment teaching articles will tell a real case of a delisted company and provide a reference for investors.
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01 Company Profile
Company G was listed in 1996 and its main business was soybean deep processing, dairy manufacturing and commercial services, of which commercial services were mainly for the rental of shopping mall properties. Subsequently, due to its own poor management and changes in the industry environment, the company's operation has difficulties. In 2016, the company invested 100% of the equity of a technology company by issuing shares, and the company's main business increased the information technology business such as network security products and basic network product research and development, production and sales.
Due to the negative net assets at the end of 2018 and 2019, the listing of G Company shares has been suspended since May 29, 2020. On February 9, 2021, the Company disclosed the 2020 Annual Report, showing that the Company's net assets and net profit at the end of the period continued to be negative, and the type of audit report opinion was unable to express an opinion, and the Company's shares touched the conditions for termination of listing and were forcibly delisted.
02 Main issues
(1) What are the main reasons for Company G's delisting?
(2) What violations of laws and regulations have occurred in the controlling shareholders of Company G? What are the adverse effects on the company?
03 Case Study
In recent years, G's operating and financial conditions have continued to deteriorate, the company's main business has basically stagnated, and there are major uncertainties in its ability to continue to operate.
Since 2018, Company G has suffered huge losses for three consecutive years, the net profit before and after deduction is negative, the operating income in 2020 has fallen sharply, the net assets have been negative for three consecutive years since 2018, the operation has continued to deteriorate, the fundamentals have shown no signs of improvement, and the financial and accounting reports for 2019 and 2020 have been issued for two consecutive years without being able to express an opinion. The company's financial position in the past three years is detailed in the following table.
Table 1 Financial position of the G company in the past three years
From the operational point of view, the net profit loss in 2020 reached 2.024 billion yuan, the net assets were -5.977 billion yuan, due to the large number of lawsuits involved, the company's bank accounts were frozen, the main assets were seized, important subsidiaries were judicial auctions, and the main business such as commercial services was basically stagnant. After the suspension of the listing of the company's shares, the fundamentals showed no signs of improvement, and continued to deteriorate, and the ability to continue to operate was basically lost.
Since Company G has been suspended from listing before the new delisting rules are officially implemented, according to the relevant regulations, its delisting is subject to the old delisting rules, because the net profit, net assets, operating income or the type of audit opinion touch the criteria of items (1) to (4) of the old delisting rules 14.1.1, after the stock is suspended, the company discloses that the audited financial accounting report of the most recent fiscal year has a negative net profit before and after deducting non-recurring gains and losses, and the net assets at the end of the period are negative. One of the four circumstances, such as operating income of less than 10 million yuan or an audit report issued by an accounting firm with a qualified opinion, an opinion that cannot be expressed, or a negative opinion, will be terminated.
Company G's shares have been suspended due to the negative net assets at the end of 2018 and 2019, and according to the company's 2020 annual report, the net assets at the end of 2020 and the net profit before and after deducting non-recurring gains and losses are negative, and the audit report issued by the accounting firm cannot express an opinion, and it is finally forced to delist.
(2) What violations of laws and regulations are unfavorable to Company G by the controlling shareholder? What measures have the regulator taken in this regard?
Since 2017, through related party loans, no real purchase and sale transactions, etc., Company G has been occupied with a large amount of funds by the related party D Group of the controlling shareholder, and has provided a large number of illegal guarantees for the controlling shareholder and related parties such as the UCTA Group. As of the delisting, the balance of the company's funds occupied by related parties was 771 million yuan, and the balance of the principal amount of the illegal guarantee was 3.038 billion yuan, and the company made a large impairment provision for this.
Group D and other related parties currently have their own debt crises, and their main assets are in a state of mortgage and multiple rounds of seizure, and there is significant uncertainty about whether they can solve the problems of capital occupation and illegal guarantees in a timely manner.
In addition, in 2019, the controlling shareholder promised to inject the high-quality assets injected by a certain industrial university into the company within a certain period of time, but these commitments had not been fulfilled as of delisting, the performance method, the target assets, and the value of the assets had not yet been clarified, and there was great uncertainty about whether the subsequent asset injection commitments could be properly performed.
In response to the relevant violations of laws and regulations, the CSRC conducted a case investigation against the company in the early stage, and made an administrative penalty and market entry ban decision, ordered the company to make corrections, and adopted market prohibition measures against some of the directors and supervisors at the time, and the SSE imposed disciplinary sanctions on the company and the controlling shareholders and other responsible persons, urging the company and relevant parties to solve the problem of occupation guarantee as soon as possible, timely fulfill their commitments, and safeguard the interests of listed companies.
