Panzhihua Iron and Steel Co., Ltd. plans to buy 4.611 billion yuan of vanadium products in Xichang. Shenzhen Stock Exchange sends a letter of concern.

On September 15, Shenzhen Stock Exchange issued a letter of concern to Vanadium and Titanium of Panzhihua Iron and Steel Co., Ltd. in response to the announcement on the acquisition of 100% equity and related party transactions of Panzhihua Iron and Steel Group Xichang Vanadium products Technology Co., Ltd., disclosed by the company on September 8, 2021, the letter of concern requires Panzhihua

The Shenzhen Stock Exchange said that on September 8, 2021, your company disclosed the announcement on the acquisition of 100% equity interest and related party transactions in Panzhihua Iron and Steel Group Xichang Vanadium products Technology Co., Ltd. (hereinafter referred to as the "announcement"). The "announcement" shows that your company intends to purchase the 100% equity of Panzhihua Iron and Steel Group Xichang Vanadium products Technology Co., Ltd. (hereinafter referred to as "Xichang Vanadium products" or "target company") from Panzhihua Steel Group Xichang Steel Vanadium Co., Ltd. (hereinafter referred to as "Xichang Vanadium products" or "target company") for 4.611 billion yuan.

Our department is concerned about the above matters and would like to ask your company to make a supplementary explanation on the following issues:

1. According to the excess performance incentive arrangement, the target company will reward Xichang Steel Vanadium with a cumulative net profit exceeding 50% of the promised net profit, and this transaction accounts for 48.65% of your company's audited net assets in the last year.

(1) Please take into account the background of this transaction, the valuation of the underlying assets and the main financial indicators of your company, and refer to the relevant performance reward provisions of the "guidelines for the Application of Regulatory rules-listing Class No. 1". Further supplement the disclosure of the reasons, basis and rationality of setting performance awards, and state that the incentive target is the consideration of the management or core technical personnel of Xichang Steel Vanadium rather than the target company. Whether the incentive transaction counterparty can play a specific incentive effect, and whether there is a situation of benefit transfer, please explain the accounting treatment related to performance reward and its possible impact on the listed company.

(2) Please indicate whether the target company still sells its vanadium products through your company after the completion of this transaction according to the situation of the top five customers and suppliers of the target company. If so, please indicate the settlement method between the target company and your company, explain the settlement method of the target company's purchase of vanadium from Xichang Steel, and combined with the above situation, explain whether the net profit level of the target company is significantly affected by your company and Xichang Steel Vanadium. In this case, whether the performance reward of your company to Xichang Steel Vanadium transfers benefits to it, harms the interests of minority shareholders, and so on.

(3) Please indicate whether the relevant performance reward arrangements are in line with the regulations of the state-owned assets management department.

2. The announcement shows that in June 2021, Xichang Steel Vanadium invested its vanadium products-related assets to set up the underlying company with a capital value of 1.413 billion yuan, including 873 million yuan for houses and buildings, 491 million yuan for machinery and equipment, 38.032 million yuan for land use rights, and 11.0173 million yuan for projects under construction. The total equity value of the underlying company evaluated by the asset-based method is 1.613 billion yuan, the added value is 151 million yuan, and the value-added rate is 10.37%. According to the income method, the total equity value of the target company is 4.611 billion yuan, the value-added value is 3.15 billion yuan, and the value-added rate is 215.58%. According to the announcement, the big difference between the total equity value of shareholders and the value assessed by the income method is mainly due to the resource advantage of the target company which can continuously obtain crude vanadium slag, the technical advantage of self-created production line of vanadium products by calcification method, the advantage of sales channel of vanadium products after the company's integrated sales network, the advantage of cleaner production of vanadium products by calcification method, etc., these advantages lead to a substantial increase in the relevant asset portfolio of the underlying company.

(1) the target company's continuous acquisition of crude vanadium slag depends on the vanadium support of the related party Xichang Steel. The target company has been selling products through listed companies, and almost all of them are related parties of listed companies. Please make a further specific analysis on the "resource advantage", "sales channel advantage" and "technical advantage of calcified vanadium products production line" possessed by the target company in the light of the above situation. And the specific impact on the assessment of value-added.

(2) the assets owned by the target company are only workshops, equipment and other assets related to the production of vanadium products. Please explain in detail the reason and rationality of the value-added rate of the "production workshop" up to 215.58% in combination with the question (1). Whether your company transfers benefits to related parties through this transaction, and whether it harms the interests of minority shareholders.

(3) Please disclose in detail the calculation process of the evaluation results of the income method in accordance with Article 46 of the guidelines on Information Disclosure of listed companies on the Shenzhen Stock Exchange-Trading and related transactions.

(4) Please analyze the fairness of transaction pricing by combining the target market comparable transaction price, the price-to-earnings ratio and price-to-book ratio of listed companies in the same industry.

(5) Please state the source of funds for this transaction and the impact of this transaction on the company's production and operation-related indicators, financial position, operating results, cash flow and accounting methods. The evaluation agency is requested to verify the above-mentioned relevant matters and express their clear opinions.

3. The related procurement amount of the target company in 2019, 2020 and the first half of 2021 is 1.329 billion yuan, 1.122 billion yuan and 574 million yuan respectively, of which the purchase of crude vanadium slag, electric power and other products and services from Xichang Steel accounts for nearly 90% over the years. The related sales amounts are 2.768 billion yuan, 1.54 billion yuan and 963 million yuan respectively, almost all of which are sold to your company. Before the implementation of this transaction, the target company purchased crude vanadium slag, electricity and other products and services from Xichang Steel Vanadium, sold vanadium products to your company, and then sold vanadium products to related parties controlled by your actual controller. After the implementation of this program, your company purchases crude vanadium slag, power and other products and services from Xichang Steel Vanadium, and your company sells vanadium products to Xichang Steel Vanadium and its related parties. The announcement says that after the completion of this transaction, the amount of related party transactions in your company will be greatly reduced.

(1) Please explain whether there is a substantial decrease in related transactions in combination with the total amount of related transactions and specific business transactions between your company, the underlying company and related parties before and after the transaction, and if not, please indicate whether the statement on the reduction of related transactions in the announcement is accurate and whether it violates the commitment of the controlling shareholder and actual controller of the listed company to reduce related party transactions. At the same time, please fully remind us of the related risks that may arise from related transactions.

(2) Please indicate whether the underlying company has significant dependence on related parties and whether the underlying company has the ability to operate independently. Whether this transaction is conducive to keeping your company independent of the actual controller and its related parties in terms of business, assets, finance, personnel, institutions, etc.

(3) explain the necessity of a new related party transaction between your company and Xichang Steel Vanadium after the completion of this transaction, the pricing method of the related party transaction between your company, the target company and the related party, and the relevant measures to ensure its fairness.

4. The operating income of the target company in 2019, 2020 and the first half of 2021 was 2.768 billion yuan, 1.534 billion yuan and 950 million yuan respectively, and the net profit was 1.086 billion yuan, 156 million yuan and 183 million yuan respectively. The performance commitments of the target company in 2021,2022,2023 are 354 million yuan, 394 million yuan and 403 million yuan respectively.

(1) Please explain in detail the reasons for the large fluctuations in the revenue of the underlying company in the light of the situation of companies in the same industry, product price changes, production and sales.

(2) Please explain in detail the reasons for the large fluctuations in the net profit of the underlying company according to the price changes of products upstream and downstream, cost collection, gross profit margin of companies in the same industry, period expense rate, etc.

(3) Please explain the rationality and realizability of the performance commitment setting according to the company's historical performance.

5. Please fully check whether the same business still exists between your company and Xichang Steel Vanadium, your company's controlling shareholder and actual controller after the completion of this transaction, and whether the problem of inter-industry competition has been completely solved.

6. Please supplement the financial data such as the total amount of receivables of the subject company, the total amount of contingent matters (including guarantees, litigation and arbitration matters), operating profits, net cash flow from operating activities, and so on. Please indicate whether a large proportion of non-recurring profits and losses are included in the net profit of the underlying company, and if so, please elaborate.

Please make a written explanation on the above issues and submit the relevant explanatory materials to our department and disclose them to the public before September 21, 2021, and send a copy to the dispatched office at the same time. At the same time, remind your company and all directors, supervisors and senior managers to strictly abide by the Securities Law, Company Law and other laws and regulations, as well as the Stock listing rules of the Stock Exchange and other provisions, true, accurate, complete, timely and fair performance of information disclosure obligations.