Author | Yao Yue
Edit| Fu Ying
Source | Unicorn Finance
or Huishang Bank (3698. HK) "familiar taste", before the company's important resolution, the major shareholder "Zhongjing" and "raided" to raise objections.
This time it's about the dividend plan. The shareholders' meeting of Huishang Bank is about to be held, and the shareholders of "Zhongjing" have temporarily submitted two supplementary proposals, not only proposing to increase the cash dividend rate in 2023 from 15% to 30% of the original plan; Moreover, it is also proposed to make up the difference in dividends from 2016 to 2022 according to the standard of 30%. The two proposals involved dividends totaling more than 10 billion yuan.
Source: Huishang Bank announcement
Due to the temporary proposal of the "Zhongjing Department", the shareholders' meeting of Huishang Bank, which was originally scheduled to be held on June 28, had to be postponed by one day. However, the day after the proposal was announced, Huishang Bank's shares closed up 4.26%.
By the end of 2023, the total number of ordinary shares of Huishang Bank was 13.89 billion. Among them, the major shareholders hold 83.01% of the shares, and the largest shareholder, Deposit Insurance Fund Management Co., Ltd., holds 11.22%; The second largest shareholder is "Zhongjing", whose subsidiaries hold a total of 10.59% of the shares of Huishang Bank, and the remaining major shareholders hold less than 10% of the shares.
Source: Wind Financial Terminal
After the "Zhongjing Department" became the major shareholder of the bank, there have been continuous disagreements with the management of Huishang Bank in recent years, including the issue of dividends, and the "Zhongjing Department" has proposed to increase the dividend twice, but it has not been approved; Regarding another major issue, the A-share IPO, Gao Yang, a non-executive director of Huishang Bank and the legal representative of Zhongjing Sihai, the largest shareholder at the time, also refused to sign the application materials.
In this proposal, the "Zhongjing Department" also emphasized that increasing dividends is conducive to speeding up the return of Huishang Bank to A. Can Huishang Bank realize the "Zhongjing system" proposal this time, and how far is Huishang Bank from returning to A?
1
Major shareholder "Zhongjing Department" proposed "10 billion dividends"
On June 16, Huishang Bank announced that the board of directors received a temporary proposal from shareholder Wealth Honest Limited.
Wealth Honest Limited is a subsidiary of the "Zhong Jing Group". According to the 2023 financial report of Huishang Bank, the controlling shareholder of Wealth Honest Limited is Zhongjing Xinhua Asset Management (Hong Kong) Co., Ltd. (hereinafter referred to as Zhongjing Xinhua Asset Management), and the actual controller is Shanghai Soong Ching Ling Foundation.
Wealth Honest Limited submitted a total of two interim proposals. One of the "11th Supplemental Ordinary Resolutions" proposes a dividend of $2.92 per 10 shares by the end of 2023. The plan distributes a total cash dividend of about 4.058 billion yuan (including tax), accounting for 30% of the net profit of 135.26 yuan of Huishang Bank Group headquarters in 2023.
The original dividend plan of Huishang Bank, "Item 3 Ordinary Resolution", will pay dividends of 1.46 yuan per 10 shares in 2023. As of the end of 2023, Huishang Bank has a total of 13.89 billion ordinary shares, and the total cash dividend of the plan is about 2.028 billion yuan, with a cash dividend ratio of about 15%.
In other words, Wealth Honest Limited proposes to increase the dividend ratio from the original 15% to 30% in 2023.
Not only that, another proposal of Wealth Honest Limited, "Supplementary Ordinary Resolution No. 12", also proposes to make up the difference in dividends from 2016 to 2022 according to the standard of 30%, that is, 9.02 yuan per 10 shares.
按当前总股本计算，Wealth Honest Limited两份议案涉及分红总金额超过百亿元。
Source: Canned Gallery
Due to a series of announcements related to the above-mentioned temporary proposals, which were less than 10 business days before the convening of the shareholders' meeting, in accordance with relevant regulations, the shareholders' meeting originally scheduled for June 28 of Huishang Bank was postponed to June 29.
However, the day after the proposal was announced, the stock price of Huishang Bank showed "excitement". As of the close of trading on June 17, Huishang Bank reported HK$2.45 per share, up 4.26%; On June 18, it rose as high as HK$2.51 per share in intraday trading.
Next, the voting rights of the proposal are placed in the hands of shareholders.
According to Huishang Bank's 2023 financial report, the largest shareholder of Huishang Bank is Deposit Insurance Fund Management Co., Ltd., holding 11.22% of the shares;
The second largest shareholder is "Zhongjing", whose subsidiaries hold a total of 10.59% of the equity of Huishang Bank. The specific shareholding companies are Zhongjing Xinhua Asset Management, holding 1.62%; Wealth Honest Limited, with a 4.55% stake; Golden Harbour Investments Management Limited holds 3.17%; Zhongjing Xinhua Asset Management (Hong Kong) Co., Ltd., holding 1.25%; From the perspective of equity, Wealth Honest Limited is the party with a larger weight among the shareholders of the "Zhongjing system".
The remaining major shareholders do not hold more than 10% of the shares; The public shareholding ratio of Huishang Bank is 16.08%.
Source: Huishang Bank announcement
Since the new 2023 dividend plan proposed by Wealth Honest Limited is contrary to the original dividend plan, there may be 4 voting results - if one of the two is passed, it will be carried out according to the approved plan; Both items are passed, and it cannot be carried out according to any of the plans, and the dividend plan will be notified separately; If both items are not approved, dividends will not be distributed according to both schemes.
In addition, according to the announcement, if the original dividend plan is distributed on August 22, otherwise, the dividend plan will be announced separately.
2
Should Huishang Bank increase its dividends?
Wealth Honest Limited和徽商银行董事会对于新旧分红方案各持己见。
Huishang Bank said in the announcement that the board of directors believes that the original annual profit distribution plan fully considers the interests of all shareholders and the actual needs of the bank's operation, and is in line with the overall interests of the bank and its shareholders.
Wealth Honest Limited said that the profit distribution plan for 2023 proposed in the original proposal has a dividend ratio of only 15%, which is seriously inconsistent with the performance, industry status and image of Huishang Bank, and also hits the confidence of the majority of small and medium-sized shareholders who have adhered to and supported Huishang Bank for a long time.
Source: Huishang Bank announcement
What is the level of Huishang Bank's performance and industry status?
According to Wind data, as of the end of 2023, Huishang Bank's total assets were 1.8 trillion yuan, ranking 7th among the 48 listed regional commercial banks in A-shares and H-shares, ranking 7th in total operating income of 28.452 billion yuan in 2023, ranking 6th in net profit of 14.433 billion yuan, and ranking 19th in net profit with a year-on-year increase of 9.56%, but higher than the median of 6.18%.
What is the level of the 15% dividend ratio of Huishang Bank's original plan? According to Wind data, among the regional commercial banks listed on A-shares and H-shares, there are currently 40 that have data to count, 11 have dividend ratios of more than 30%, 32 have dividend ratios of more than 20%, and 38 have more than 15%.
Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, believes that Huishang Bank's total revenue and net profit in 2023 are at the forefront of regional banks, but the cash dividend ratio is relatively low. This may indicate that Huishang Bank is doing well in terms of profitability but is relatively conservative in terms of cash returns to shareholders.
It is worth mentioning that the "New National Nine Articles" issued in April also clearly proposed that listed companies should enhance the stability, sustainability and predictability of dividends.
A person from the "Zhongjing Department" also said, "The stock price of Huishang Bank's Hong Kong stocks is in a long-term downturn, and the bank stock sector has gradually recovered and strengthened since last year, and Huishang Bank has not followed this state." The stock price does not match the fundamentals and the external environment, which we believe is related to the long-term low state of dividends. ”
According to Wind data, the share price of Huishang Bank remained above 4 yuan from 2015 to the beginning of 2018, but has gradually declined since then, and has been below 3 yuan since the second half of 2020.
Source: Wind Financial Terminal
However, on the other hand, Bai Wenxi also stressed that the level of dividends not only reflects the company's willingness to return to shareholders, but may also be related to the company's capital needs, development plans and regulatory requirements.
A listed regional commercial bank with total assets of more than one trillion yuan, when talking about this year's dividend plan, said that the bank has three major principles for dividends, in addition to paying close attention to the comprehensive evaluation of peers, paying attention to the basic demands of investors for investment returns, the most important thing is to keep enough capital to support the healthy development of follow-up business. "Only with sufficient capital can we ultimately bring more returns to investors."
According to Huishang Bank's 2023 financial report, as of the end of 2023, Huishang Bank's core Tier 1 capital adequacy ratio was 9.14%, an increase of 0.54% year-on-year; The capital adequacy ratio was 13.21%, an increase of 1.19% year-on-year.
In terms of supervision, the Measures for the Management of Capital of Commercial Banks (the "Measures"), which came into effect on 1 January 2024, do put forward higher requirements for banks' capital replenishment. The Measures specify that the minimum requirements for the capital adequacy ratio of commercial banks at all levels are 5% for core Tier 1 capital, 6% for Tier 1 capital adequacy and 8% for capital adequacy ratio.
In terms of industry level, according to the data of the State Administration of Financial Supervision and Administration, as of the end of 2023, the capital adequacy ratio, tier 1 capital adequacy ratio, and core tier 1 capital adequacy ratio of commercial banks were 15.06%, 12.12%, and 10.54%, respectively. Among them, the capital adequacy level of urban commercial banks and rural commercial banks is lower than that of large state-owned banks and joint-stock banks.
In contrast, Huishang Bank's core Tier 1 capital adequacy ratio is 9.14% and the capital adequacy ratio is 13.21%, which are significantly higher than the 5% and 8% corresponding to the supervision. It is slightly lower than the industry level of commercial banks of 10.54% and 15.06%.
Shen Meng, director of Chanson Capital, also stressed that if the management can use cash to create more value for shareholders, then dividends are not a good choice. Otherwise, if the management has low returns or high risks for cash management, then it should return the surplus capital to shareholders in the form of dividends as much as possible on the premise of ensuring the safety of operating liquidity. "The capital adequacy ratio is a regulatory requirement for bank operations, and it can be used for dividends under the condition of meeting the safety of operating liquidity. Of course, dividends are unreasonable if they affect normal operations. ”
In addition, Wealth Honest Limited also requires a 30% dividend ratio to be paid retroactively for cash dividends from 2016 to 2022. The shareholder said that from 2013 to 2015 after the listing of Huishang Bank's H-shares, Huishang Bank followed the institution's recommendations for cash dividends to account for more than 30% of its net profit. However, since 2016, Huishang Bank's dividend level has been significantly reduced, and it has been at the bottom of the listed banks for many years.
"We've always had this [higher dividend] appeal. Because as a shareholder, I also hope that the invested company can have a good return on investment. The above-mentioned "Zhongjing" person said that Huishang Bank has accumulated a lot of profits in history, but the dividends are in a backward position among the A-share and H-share listed banks.
"Zhongjing Department" has proposed to increase dividends at the shareholders' meeting twice, but neither of them has been approved.
In June 2018, in view of the total cash distribution of about 276 million yuan originally planned by Huishang Bank, "Zhongjing Department" believed that the cash dividend of the original plan was too small, which would hit investor confidence, so it proposed another 3.671 billion yuan cash dividend temporary plan to be reviewed by the general meeting of shareholders; in June 2017, the dividend plan proposed by the board of directors of Huishang Bank was to distribute a dividend of 0.061 yuan per share (tax included) to shareholders, and the dividend amount was about 10% of the net profit of the year; The "Zhongjing system" advocates maintaining the cash distribution level of about 30% of the net profit in the previous three years.
3
How far is Huishang Bank going back to A?
It is worth mentioning that in the dividend proposal, Wealth Honest Limited also emphasized that increasing the dividend is conducive to accelerating the progress of Huishang Bank's A-share IPO. Previously, the key personnel of the "Zhongjing Department" had also refused to sign the application materials for returning to A in the bank.
In response to this matter, the above-mentioned "Zhongjing Department" said, "As far as I know, the 'Zhongjing Department' has no objection to Huishang Bank's return to A." The return of Huishang Bank to A-shares is definitely beneficial to its development, and the development of the bank will definitely have better returns for shareholders. ”
In fact, located in the Yangtze River Delta, as the country's first regional joint-stock commercial bank reorganized and established by urban commercial banks and urban credit cooperatives, Huishang Bank proposed a plan to land on the A-share market as early as 2011, but finally failed to do so and could only be listed on the Hong Kong stock market in 2013. Since then, Huishang Bank has been seeking to return to A.
Source: Canned Gallery
In June 2015, Huishang Bank submitted its A-share listing prospectus for the first time, and in the same year, "Zhongjing Department" frequently increased its holdings of Huishang Bank, and as of December 31, 2015, Shanghai Soong Ching Ling Foundation became the largest shareholder of Huishang Bank with a shareholding ratio of 9.89%.
Since then, the "Zhongjing Department" has continued to increase its holdings aggressively, and it has been rumored that it has been at odds with the management.
On the one hand, as of May 31, 2018, Shanghai Soong Ching Ling Foundation indirectly held 16.12% of the shares of Huishang Bank through the "Zhongjing Department", making it the largest shareholder. At the same time, Huishang Bank's public float is only 15.66%, which is already below the regulatory red line of the Hong Kong Stock Exchange and is close to the 15% of the forced suspension of trading.
However, on the other hand, since the increase in holdings in 2015, there have been disagreements between the "Zhongjing Department" and the board of directors over whether to issue preferred shares, dividend distribution plan, A-share IPO of Huishang Bank, management reshuffle, profit distribution plan, and dilution of shareholders' shares by non-public private placement.
In 2015, Huishang Bank submitted its first A-share listing prospectus. As the major shareholder of Zhongjing Department, and Gao Yang, the actual controller, as a non-executive director of the bank, did not sign the updated draft of Huishang Bank's listing application materials.
According to a report by the Economic Observer in July 2021, Gao Yang said in response to this matter, "The bank's inability to go public is not a problem of Zhongjing", and the management itself has a bunch of problems, and a group of people who do not understand banking business are doing the management of the bank, and the results can be imagined. ”。
Huishang Bank's A-share IPO has been suspended and reviewed. However, in February 2018, Huishang Bank announced that it still needed further negotiations with individual directors and shareholders of the bank, and withdrew its application for A-share issuance. Until the end of 2018, the road to A-share IPO was restarted.
Source: Canned Gallery
Since then, the "Zhongjing Department" has the intention of retreating, and in the process of seeking the "receiver", disputes have arisen, adding uncertainty to Huishang Bank's return to A.
In August 2019, Zhongjing Xinhua Asset Management and Shanshan Holdings signed a framework agreement on the transfer of shares of Huishang Bank and Zhongjing Sihai, transferring a total of 14.32% of all the shares of Huishang Bank held by them to Shanshan Holdings at a total price of 12.15 billion yuan.
However, in 2020, the two parties suddenly defaulted on each other due to the above-mentioned transaction, and the "Zhongjing Department" believed that the "Shanshan Department" failed to pay the full amount on time, so the entire transaction defaulted; However, the "Shanshan Department" believed that they had paid the relevant amount in the early stage, but Zhongjing Xinhua Asset Management did not complete the delivery of the corresponding shares, so the two parties went to court.
At the same time as the trial of the case with the "Shanshan Department", the "Zhongjing Department" has been looking for a new receiver, and has contacted Dongjian International and Zhengwei Group. However, as of the end of 2023, there has been no new progress in the equity transfer of Huishang Bank held by the "Zhongjing Department".
The above-mentioned "Zhongjing" person said, "We have been seeking to sell, and we hope to sell our equity in Huishang Bank at a reasonable price, Huishang Bank is our main investment, and for more than ten years, we hope to find a suitable exit opportunity." There is no confirmed target yet. ”
However, according to Zhongjing Xinhua Asset Management's 2023 bond annual report, the company sued to restore a 51.65% controlling stake in Zhongjing Sihai. Although the company's claim has been upheld by the court, Shanshan Group has not yet returned its controlling stake in Zhongjing Sihai.
Source: Zhongjing Xinhua Asset Management's 2023 bond annual report
Huishang Bank replied to A, since the dispute between the "Zhongjing Department" and the "Shanshan Department", each general meeting of shareholders from 2019 to 2022 has extended the A-share issuance plan and authorization proposal for one year. The current extension period is from June 30, 2023 to June 29, 2024.
Source: Wind Financial Terminal
It is worth mentioning that since January 2022, when bank IPOs came to a standstill, the queue of banks lining up for IPOs has been shrinking. Recently, with the suspension of 6 and the termination of 1, only 3 banks remain in this team.
Do you think the dividend proposal of the "Zhongjing system" is reasonable? Feel free to leave a comment.