SMM News: this is a sad defeat for investors. Chengfei Integration, which was highly respected by the market for its profitable lithium battery assets, did not expect that today, with the great development of new energy vehicles, the company has been reduced to * ST integration. To this end, the company recently launched the core for the stripping of lithium battery business assets move, directed at 2019 turnaround shell.
Why is it that the main business of lithium batteries, which was once placed in high hopes and spent a lot of money, has now become an "abandoned son" and cannot bear to face it directly? Between success and failure, * ST integration wasted several years of valuable growth, while private enterprises lithium battery leader Ningde era has grown rapidly. Although this is only a decadent case, it has gone against the trend and failed like this. After the failure, the "ostrich" assets have been moved. The lessons and the problems behind them are worthy of in-depth study by the regulatory authorities.
Closer examination found that * ST integration is planning a major asset sale, in fact, is a series of extremely complex equity moves, in the context of not changing the essence of the operation, intentionally through subtle financial techniques to protect the shell.
Throughout the transaction, * ST Integration transfers control of its lithium battery business-related assets to state-owned assets in Jintan District, Changzhou City; After the reorganization, * ST Integration actually still holds a stake in the assets related to the lithium battery business, explicitly turning the holding into a stake.
* ST Integration claims that through the restructuring, it can spin off the lossmaking lithium battery business, reduce the operating burden and improve the quality of assets. In essence, however, the company did not recover any cash from the transaction. Counterparties to the deal have not injected new funds into the lithium battery business, the relevant assets are still in, how to sell, how to improve?
Further study of the restructuring plan, doubts increased sharply. What is the strength of state capital in Jintan District, Changzhou City, China? Why have you previously received financial assistance of up to $1 billion from * ST integration? * what is the "zero consideration" for the transfer of control of lithium battery business by ST integration? Is the reorganization the implementation of the business strategy or the product of capital operation? How will lithium battery business assets come back from the dead in the future?
But relax the field of vision, behind this reorganization, is * ST integration dismal business situation and severe "shell" pressure.
Following the disclosure of the restructuring plan, * ST Integration immediately announced an accounting policy change that will adjust the accounting treatment of non-tradable equity instrument investments from January 2019. This is one of the ways to understand the restructuring-through a series of equity moves, * ST integration will miraculously "move" the lithium business out of the profit statement, in an effort to make a profit in 2019 to protect the shell.
According to the latest reply, restructuring and accounting policy adjustments will have a significant impact on * ST's integrated profit statement, with net profit attributable to parent shareholders jumping from a loss of 28.97 million yuan to 105 million yuan in the first quarter of 2019.
The "fancy transfer" of control
It is quite paradoxical to examine the details of the company's major asset transaction. Nominally, the sale of lithium battery assets is actually a "fancy" transfer of control of assets related to the lithium battery business. The company has not really and thoroughly divested the lithium battery business.
According to the major asset sale report disclosed by * ST Integration, the company intends to reorganize its existing lithium battery business assets (including, but not limited to, Li Dian Luoyang, Li Dian Technology and Li Dian Research Institute) on the platform of Li Dian Technology. And transfer the control right of the above-mentioned assets to the state-owned assets of Jintan District of Changzhou City.
At present, * ST Integration directly owns 63.98% of the shares of AVIC Lithium Power (Luoyang) Co., Ltd. (hereinafter referred to as "Lithium Luoyang"). And indirectly hold a 30% stake in AVIC Lithium Technology Co., Ltd. (hereinafter referred to as "Lithium Technology") through Li Dian Luoyang. The articles of Association of Li Electric Technology stipulate that Li Dian Luoyang shall enjoy 51% of the voting rights of Li Dian Technology, thereby, * ST integration not only controls lithium Luoyang, but also indirectly controls lithium technology; In addition, * ST Integration directly holds a 35 per cent stake in Li Power Research Institute.
In the first step of the deal, Li Dian Luoyang, which is controlled by * ST Integration, plans to transfer its 30 per cent stake in Li Dian Technology to * ST Integration, a deal worth about 1.094 billion yuan. At the same time, the parties concerned agreed that * ST integration to replace lithium Luoyang to gain control of lithium technology.
In other words, lithium technology from * ST integrated Sun into a subsidiary, and lithium Luoyang level, and become an integrated platform.
In the second step of the deal, * ST integrated and transferred its 45 per cent stake in lithium Luoyang to lithium technology. Disclosure shows that * ST integrated transfer of 45 per cent stake in lithium power Luoyang to lithium power technology is also priced at about 1.094 billion yuan.
How do I pay the price? In the first step of the transaction, * ST integrated to pay Li Dian Luoyang equity transfer of about 1.094 billion yuan, in the second step of the transaction, Li Dian Technology payable * ST integrated equity transfer of about 1.094 billion yuan, the three parties signed the "debt transfer and set-off Agreement." Agreed that lithium technology to pay * ST integrated equity transfer and * ST integrated payment of lithium Luoyang equity transfer at the same time, directly by lithium technology to pay lithium Luoyang 1.094 billion yuan.
After the completion of the above equity transfer, Li Dian Technology intends to amend the articles of Association and re-elect the board of directors. * ST integration will no longer control Li Dian Technology (and Li Dian Luoyang, which it controls). Jinsha investment will control lithium power technology (and its control of lithium power Luoyang), Changzhou Jintan district government through Sands investment, Huake investment to hold a combined 70% stake in lithium power technology, becoming the actual controller of lithium power technology.
Last step, * ST integrated its remaining 18.98 per cent stake in Li Dian Luoyang and 35 per cent stake in Li Dian Research Institute, Sands Investment will hold 9.38 per cent stake in Li Dian Luoyang, Huake invested 65% of its stake in lithium power research institute to increase the capital of lithium power technology.
As a result, * ST Integration unified the original lithium battery assets and businesses under Li Electric Technology, while * ST Integration increased its stake in Li Power Technology to 35.84%, but control of Li Power Technology was transferred to others.
From this point of view, lithium battery assets are still under the command of * ST Integration, the key difference is that the company is no longer controlled by the company. This is the core of * ST's integration with this story.
Recombination of paranoid sinus tufts
There are a lot of doubts behind the reorganization of the company, which has also aroused the attention and key inquiries of the regulatory authorities. One of the big questions is why Changzhou Jintan District State Capital took over the "hot potato", and how can confidence be better than the central enterprise platform to do a better lithium battery business?
Throughout the * ST integration of this reorganization, there are many questions to be solved.
The first big question is, why does the Changzhou Jintan District state capital take over the "hot potato", and how can the confidence do the lithium battery business better than the central enterprise platform?
Let's start with a financial aid deal. In early 2018, the * ST Integration announcement said, China Aviation Lithium Power (Jiangsu) Co., Ltd., a holding subsidiary, intends to provide financial assistance of up to 1 billion yuan to Changzhou Sands Capital Management Co., Ltd. (hereinafter referred to as "Sands Capital Management") with its own balance of funds. The time limit is not more than one year. The financial assistance is guaranteed by the joint and several liability guarantee provided by Jintan Investment.
In the past two years, * ST integration situation is difficult, China Aviation Lithium Power (Jiangsu) Co., Ltd. also had a hard time, its owner's equity at the end of 2017 is only about 2.77 billion yuan, 2017 loss of nearly 100 million yuan. Under such circumstances, however, AVIC Lithium Power (Jiangsu) Co., Ltd. also provides financial assistance to platforms owned by the Jintan District Government in Changzhou City.
* is the loan transaction and "friendly" relationship between ST integration and state assets in Jintan District of Changzhou City related to this reorganization?
On the other hand, the development of lithium battery business requires a huge amount of sustained capital investment. Relying on previous years of capital investment, * ST integrated lithium battery business is still difficult to achieve success, and now the local state capital is stretched. How to do a good job in lithium battery business is quite worth watching.
The second major question about restructuring is more directly related to such issues as transaction compliance and behind-the-scenes arrangements. This is also the focus of regulatory inquiries.
The Shenzhen Stock Exchange focused on the question of the termination of control without consideration. The report disclosed that the "Agreement on the change of Control of Lithium Power Technology" signed by * ST Integration and Li Dian Luoyang, Sands Investment and Huake Investment stipulated that Li Dian Luoyang would transfer control of Li Dian technology to * ST integration. At the same time * ST integration will remove control of lithium power technology, and the reorganisation report does not specify the consideration for the removal of control.
In this regard, the Shenzhen Stock Exchange asked * ST to integrate with Li Dian Luoyang to only hold a 30% stake in Li Dian Technology but still control Li Dian Technology, indicating whether the arrangement of the agreement on the removal of control without consideration is fair and reasonable. Whether there is a situation that harms the interests of listed companies.
Puzzling is, before, lithium Luoyang only 30 per cent stake in lithium technology was determined to control lithium technology, why now * ST integrated holding 30 per cent of lithium technology can not maintain a controlling stake? Control or not seems to eventually become a capital operation arrangement for the company. * ST Integration failed to fully address this issue in the latest response.
The report also shows that * ST integrated controlling shareholder and actual controller AVIC will transfer its 9.38 per cent stake in Li Dian Luoyang to Huake Investment, which is owned by the Jintan District Government of Changzhou City. Generally speaking, there are few free transfer transactions between state-owned assets at the level of central enterprises and state-owned assets in local regions.
In view of this transaction, the Shenzhen Stock Exchange asked the relevant parties to explain the essence of the transaction of AVIC's transfer of lithium power to Luoyang, the reasons and rationality of the above arrangements, and whether there are other agreement arrangements. Whether the listed company, AVIC and the counterparty to the transaction have made other agreements on the 9.38% stake in Li Dian Luoyang. The actual controller of the listed company participated in the reorganization as a party and transferred the assets free of charge, and the Shenzhen Stock Exchange asked the relevant parties to explain whether the reorganization constitutes a related party transaction.
* in its latest reply, ST insisted that the free transfer was a strategic arrangement made by AVIC to implement the "lean health, improve quality and efficiency" deployment, focus on the main aviation industry, divest loss-making assets, and promote the reorganization of this major assets. It is conducive to the rapid progress of this major asset restructuring, reasonable, there is no other agreement arrangements.
"shell preservation" financial technology can not hide the decline of the business
It is not difficult to see that the company's series of actions are directed at "turning around losses and protecting the shell." "there are no actual asset transactions, but formal asset sales can recognize a profit, and from holding to shareholding, you can implement a non-consolidated statement to spin off the 'loss' from the financial report."
Called sale and transfer, in fact, * ST integration of this "ostrich" restructuring has not really implemented the divestiture of the relevant assets. In the future, if the lithium battery business continues to lose money, * ST integration will actually still bear huge operational risks.
However, it has another approach to the financial statements.
According to the latest reply, * ST Integration disclosed the accounting treatment of the transaction and its impact on the first quarter financial statements. Before the transaction, the total assets of the company was about 8.986 billion yuan, and after the transaction, the total assets of the company fell to about 4.3 billion yuan.
The impact on the profit statement is more immediate. * ST Integration confirmed and unveiled the "ultimate veil" of this financial technology shell in its reply to the reorganization inquiry letter. Originally, * ST Integration had a revenue of 480 million yuan and a net profit loss of 28.97 million yuan in the first quarter of this year. As the new accounting policy will be implemented from 2019, if under the equity move and the new accounting policy, * ST integrated results for the first quarter of this year will change, without changing revenue and operating essence. It will change from a loss of 28.97 million yuan to a profit of 105 million yuan.
Why does it have such an impact?
Shortly after the disclosure of the restructuring plan, the * ST integration announcement said it would make an accounting policy change from January this year. One of the key items is to adjust the accounting treatment of the investment of non-tradable equity instruments, so as to allow enterprises to designate the investments of non-tradable equity instruments as financial assets measured at fair value and whose changes are included in other comprehensive income. However, the designation is irrevocable and the cumulative fair value changes originally included in other comprehensive income shall not be carried forward into the profits and losses of the current period at the time of disposal. This is the key to understanding the restructuring.
After carefully reading the reply, we can see that * the return on the sale of assets by ST is included in the return on investment, and the relevant assets are no longer consolidated due to the removal of control over lithium power technology. The equity investment of lithium power science and technology is changed from cost accounting to equity accounting, and the retroactive adjustment is carried out, and the equity of lithium power science and technology is measured by fair value.
"in fact, there is no asset transaction, but the formal sale of assets can confirm a profit, and from holding to shareholding, it can also implement a non-consolidated statement to separate the 'loss' from the financial report; In the future, measured at fair value, it means that even if the market continues to lose money, as long as the market valuation is high, it can still be regarded as a profitable asset, with huge room for artificial adjustment. " Senior financial personage told Shanghai Securities News reporter.
There is nothing wrong with the change in accounting policy. However, it is not difficult to see that this set of asset transactions, accounting policy changes are ultimately directed to "turn around losses to protect the shell."
Eight years, more than 2 billion yuan was invested and lost.
It is roughly estimated that over the past eight years, * ST integration and partners have invested more than 2 billion yuan in lithium battery business, but now the decline is worth studying.
In retrospect, * ST integration was once a favorite listing platform for state-owned enterprises in the A-share market. It is roughly estimated that over the past eight years, * ST integration and partners have invested more than 2 billion yuan in lithium battery business, but now it has declined to this point. The underlying causes are worth studying.
According to the announcement, * ST Integration has invested and integrated at least five times in the lithium battery sector since 2011. Among them, in 2011, * ST integrated through the non-public offering of shares to raise funds, the implementation of 1.02 billion yuan increase in capital for lithium power Luoyang, and the construction of lithium-ion power battery project; In 2015, Li Dian Luoyang contributed a total of 1.2 billion yuan with intangible assets and cash, together with Sands Investment and Huake Investment to set up lithium power science and technology. In 2018, * ST integrated and then increased its capital to Luoyang by about 394 million yuan, becoming the controlling shareholder of 63.98% of the shares held by Li Dian Luoyang.
The 2011 project feasibility report shows that the total investment in the construction of lithium-ion power batteries in Luoyang is 1.7 billion yuan, of which 1.5 billion yuan is invested in construction, 200 million yuan in working capital, and 1.02 billion yuan in funds to be raised. According to the report, the construction cycle of the project is 38 months, and upon completion of the project, the production capacity of 680 million AH large-capacity lithium-ion power batteries will be formed. After the completion and commissioning of the project, the estimated average annual net profit is 374 million yuan, the financial internal rate of return on project investment (before income tax) is 23.10%, and the payback period of project investment (before income tax) is 7.8 years.
Around 2017, * ST integration has clearly felt the chill. However, in 2016 and 2017, * ST integrated and launched the third phase of the lithium-ion Luoyang industrial park construction project, with the intention of further increasing the proportion of lithium-ion battery business in the company's main business structure.
The results are embarrassing. Disclosure shows that the benefit of * ST Integration "2011 non-public offering capital increase lithium-ion power battery construction project in Luoyang," will be-236 million yuan in 2018. "Lithium Power (Luoyang) Industrial Park Construction Project Phase III Project" 2018 to achieve a benefit of about-334 million yuan, have not reached the expected benefits.