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on August 8, Haiwang biology released the “2020 non public development bank stock plan” (hereinafter referred to as the “plan”), which plans to privately issue no more than 651041666 shares and raise no more than 2.5 billion yuan to Haiwang Group, the controlling shareholder of the company, to repay bank loans and supplement working capital.
Haiwang Bio said that the company’s asset liability ratio was higher than the average level of comparable listed companies in the same industry, and faced with higher financial risks. Fixed increase in fund-raising can optimize the capital structure and reduce the company’s asset liability ratio.
the company did not disclose the reasons for the high asset liability ratio. According to public information, one of the reasons for the high interest bearing liabilities of Haiwang bio is that the company has made several high premium cash acquisitions, but there are no performance commitment terms in some of the acquisition plans. Even if there are performance commitment clauses, the core contents of performance commitment amount, term and compensation terms are not disclosed. Such “capricious” disclosure is relatively rare in the A-share market and is also in violation of the existing laws.
according to the plan, there is only one target for the fixed increase of Haiwang biology, which is the company’s controlling shareholder, Haiwang Group. Founded in 1989, Haiwang Group focuses on the medical and health industry, and its main business covers the whole industry chain of medical and health products research and development, manufacturing, pharmaceutical logistics, chain pharmacies, Internet, and big health. In 2019, Haiwang Group will achieve a revenue of 53.892 billion yuan and a net profit of 592 million yuan.
for this fixed increase, Haiwang Group has to provide 2.5 billion yuan in cash for subscription, but the capital of Haiwang Group seems to be very tight. As of May 27, 2020, Haiwang Group has pledged 1214318878 shares of listed companies, accounting for 99.83% of its shares, close to full position pledge.
the plan shows that the asset liability ratio of Haiwang Group is also at a high level, and the asset liability ratio in 2019 is 77.61% (the total assets at the end of 2019 are 58.564 billion yuan, and the net assets are 13.114 billion yuan).
on the one hand, the high asset liability ratio and high proportion pledge the shares of listed companies; on the other hand, it has to invest 2.5 billion yuan in cash to subscribe for new shares. Is Haiwang Group short of money?
according to the plan, the issue price of the fixed increase is 3.84 yuan / share. As of August 12, 2020, the share price of Haiwang biological is 4.74 yuan / share. Assuming that the stock is issued today, the book profit of Haiwang Group is about 23.43%.
in this fixed increase, Haiwang bio plans to use the raised funds to supplement working capital and repay bank loans, with the amount of 1.5 billion yuan and 1 billion yuan respectively. The company said it would repay bank loans to optimize its capital structure, reduce its asset liability ratio, and replenish its working capital to meet its growing business demand for working capital.
the plan shows that the asset liability ratio of Haiwang bio in 2017-2019 is 79.05%, 82.69% and 80.93%, while the industry average value is 55.51%, 58.15% and 58.99%, which is 20% lower than that of Haiwang biological. In 2017-2019 and the first half of 2020, the interest bearing liabilities (the sum of short-term loans, non current liabilities due within one year, long-term loans and bonds payable) of Haiwang bio were 6.048 billion yuan, 13.069 billion yuan, 13.03 billion yuan and 11.871 billion yuan respectively.
directly affected the company’s profitability. From 2017 to 2019 and the first half of 2020, the interest expenses of Haiwang biological were 351 million yuan, 922 million yuan, 1 215 million yuan and 548 million yuan respectively, while the net profit attributable to parent was 636 million yuan, 415 million yuan, 241 million yuan and 128 million yuan respectively. Since 2018, the interest expenditure of the company has exceeded the net profit of the same period.
Haiwang biological did not disclose the reasons for high interest bearing liabilities and higher debt ratio than peers in the fixed increase plan. According to public information, due to frequent high premium cash acquisitions, the company outflow a large amount of cash, which is an indirect reason for the increase of interest bearing liabilities of the company.
in 2013, Haiwang biological purchased the remaining 29.42% equity of Shandong Haiwang Yinhe Pharmaceutical Co., Ltd. (hereinafter referred to as “Shandong Haiwang”) with cash of 195 million yuan, with an evaluation value-added rate of 475.38%; in 2015, Haiwang biological purchased the remaining 49% equity of Henan Dongsen Pharmaceutical Co., Ltd. (hereinafter referred to as “Henan Dongsen”) with cash of RMB 256 million, with a value-added rate of 235%; in September 2016, Haiwang biological purchased the remaining 49% equity of Shandong Haiwang Yinhe Pharmaceutical Co., Ltd. (hereinafter referred to as “Henan Dongsen”) It acquired 80% equity of Beijing Jianchang Yanghang International Trade Co., Ltd. (hereinafter referred to as “Jianchang Yanghang”) with cash of 216 million yuan, with a value-added rate of 1908%; in April 2017, Haiwang biological purchased 80% equity of Shandong Kangnuo Shengshi Pharmaceutical Co., Ltd. (hereinafter referred to as “Kangnuo Shengshi”) with cash of RMB 410 million in April 2017, with a value-added rate of 1502%; in July 2017, Haiwang biological purchased 80% equity of Shandong Kangnuo Shengshi Pharmaceutical Co., Ltd. (hereinafter referred to as “Kangnuo Shengshi”) with cash of RMB 147 million Hunan kangfulai Pharmaceutical Co., Ltd. has 70% equity, with a value-added rate of 514%; in October 2017, Haiwang biological purchased 10% equity of Shandong Haiwang Yinhe Pharmaceutical Co., Ltd. with cash of 130 million yuan, with a value-added rate of 304%.
according to the above incomplete statistics, the total amount of cash acquisition of more than 100 million yuan is about 1.35 billion yuan. In addition to the mergers and acquisitions less than 100 million yuan, Haiwang biological has made more than 1.5 billion yuan of cash acquisitions in recent years.
the cash of RMB 1.5 billion is not huge compared with the company’s overall liabilities, but it is also a large amount of capital outflow. Interestingly, marine organisms frequently acquire cash at high premium, but there is little disclosure of performance commitments.
for example, when purchasing Shandong Haiwang and Henan Dongsen, Haiwang biological did not disclose the performance commitment terms; when purchasing Jianchang foreign bank and Kangnuo Shengshi at a high premium, Haiwang biological disclosed only a few figures, such as “the target enterprise needs to complete the performance of the future year, and the uncompleted part shall be compensated according to the agreement”, etc. These vague disclosure does not involve specific figures and compensation methods and other core content, so it is impossible to judge how the huge cash acquisition will affect the company.
this “capricious” disclosure of Haiwang biology is not only different from the situation of most A-share listed companies, but also in violation of current laws and regulations. According to Article 17 of the guidelines for information disclosure of material assets reorganization of listed companies, if a listed company signs a performance commitment and other compensation agreements with relevant parties, the compensation agreement disclosed by the listed company shall include the following contents: performance commitment party, compensation method, calculation method, amount and amount of compensation, conditions for triggering compensation, implementation procedures of compensation and compensation time Time limit, safeguard measures of compensation, dispute resolution, etc. The listed company shall state whether the terms of the compensation agreement are clear and feasible, and prudently demonstrate the performance risk.