Producer: Research Institute of Listed Companies
Author: IPO Refinancing Group/Zheng Quan
Recently, Western Securities intends to acquire a controlling stake in Guorong Securities in cash, and some market participants believe that the restructuring of the two brokerages will not produce a clear trend of specialization and differentiation.
Although the investment banking business of Guorong Securities accounts for a relatively high proportion of income, most of it is debt underwriting income and financial advisory income. Although Guorong Securities continues to supervise a large number of projects on the New Third Board, the proportion of them converted into IPOs on the Beijing Stock Exchange is very low. In 2023, only 1 IPO project will be issued by Guorong Securities, and only 1 IPO equity sponsorship reserve project currently under review will be under review (subject to the acceptance of the exchange, the same below).
Guorong Securities has been questioned even in the case of fewer equity underwriting projects, and there are frequent practice quality problems in IPO projects under review or withdrawal, and the company's investment banking quality rating has dropped from Class B in 2022 to Class C in 2023. Some of Guorong Securities' investment banking projects were not only fined, but also sued by investors to the court for compensation.
There is only one equity sponsorship reserve project
According to the data, Guorong Securities, formerly known as Nissin Securities, was established in 2002 and was reorganized and established by Inner Mongolia Financial Securities Company. At the beginning of its establishment, Nissin Securities was only a brokerage brokerage. In March 2016, the company changed its name to Guorong Securities.
As of the end of 2023, the controlling shareholder of Guorong Securities is Beijing Chang'an Investment Group Co., Ltd. (hereinafter referred to as "Beijing Chang'an"), with Beijing Chang'an holding 70.6093% of the shares. The actual controller of Guorong Securities is Hou Shoufa, and its actual control ratio of Beijing Chang'an is 100%.
According to the information, Hou Shoufa has a master's degree in economics from the Chinese People's University and was once the chief staff member of the National Audit Office. In the mid-90s of the last century, Hou Shoufa resigned from the civil service and "went to the sea". In 2002, Hou Shoufa founded Beijing Chang'an to expand his territory in the capital market. At the beginning of the establishment of Guorong Securities, Beijing Chang'an was the major shareholder.
In 2016, Guorong Securities increased its capital and shares, and Beijing Chang'an, the largest shareholder, signed a VAM agreement with 5 shareholders, and if Guorong Securities did not complete the listing within 5 years, Beijing Chang'an would need to pay more than 2 billion yuan. Guorong Securities has not been listed so far, and Beijing Chang'an is under great pressure to gamble and is in urgent need of cash.
In addition, Tianyancha shows that the equity of Guorong Securities held by Beijing Chang'an was frozen and was also enforced by the court. At this time, Western Securities planned to acquire a controlling stake in Guorong Securities in cash, and Beijing Chang'an and Hou Shoufa ushered in the thirst-quenching water.
There is a market view that the restructuring of the two securities companies of Western Securities and Guorong Securities will not produce a clear trend of specialization and differentiation, one reason is that after the reorganization, the performance scale of Western Securities has not increased very much, the business structure has not changed much, and there is no characteristic business; Second, the two C-class investment banks are still C-class investment banks after the reorganization.
Although the investment banking business of Guorong Securities accounts for a relatively high proportion of income, it is more of bond underwriting income and financial advisory business income. In 2023, the net fee income of Guorong Securities' investment banking business will be 249 million yuan, of which the underwriting and sponsorship income of equity projects will be 26 million yuan (wind data), accounting for 10.44%.
Guorong Securities continues to supervise a large number of enterprises on the New Third Board, with 264 companies at the end of 2023, but the financial advisory fees charged for each project are about 100,000 yuan to 200,000 yuan per year, and the income brought by these continuous supervision projects is about 26 million yuan - 53 million yuan, which is equivalent to the underwriting sponsorship fee of a medium-sized IPO project.
Wind shows that Guorong Securities will only have one IPO project listed on the Beijing Stock Exchange in 2023, and only one equity reserve project (including IPO, equity refinancing, convertible bonds, etc.) so far.
In other words, although the number of enterprises under the continuous supervision of the new third board of Guorong Securities is large, the proportion of IPO projects transformed into the Beijing Stock Exchange is low. If these continuous supervision of the new third board enterprises cannot be converted into more IPO business income of the Beijing Stock Exchange, no matter how much the number is, it may be in vain.
In fact, the continuous supervision business of the New Third Board and the IPO sponsorship and underwriting business are investment banking businesses of different natures. The time and team required for an IPO project may occupy a lot of resources of a small investment bank such as Guorong Securities.
According to the study, IPO reserve projects are one of the main factors determining the future performance of investment banks. Guorong Securities' current equity sponsorship project reserves, it can be inferred that the income of the company's equity investment banking business will be very limited.
The quality of practice has been repeatedly questioned, and it has been downgraded from a Class B investment bank to a Class C investment bank
Although there are few reserve projects and few listed projects of Guorong Securities, there are many problems in the quality of practice.
Wind shows that Guorong Securities currently has only one IPO project under review, namely Dalian Ruike Technology Co., Ltd. (hereinafter referred to as "Ruike Technology") on the Beijing Stock Exchange. In the process of sponsoring Rick Technology, Guorong Securities had problems such as insufficient argumentation or no positive answers, omission of answers to some questions, and typos in many replies to inquiries.
The questions that are not fully argued or answered positively are mainly reflected in: "explain whether the company's operating performance is greatly affected by the cyclical nature of the downstream industry (especially BDO)", "fully disclose the cyclical fluctuation risk of the subdivided industry in which the downstream customer is located in the prospectus"; Some of the questions that were missed were reflected in the "quantitative analysis of whether the issuer bears the main risk of rising raw material prices", "whether there is a large difference in the price of similar raw materials purchased by the issuer from different suppliers", etc.
For the inquiries of the exchange, there will be a number of questions such as missing answers or not answering positively, which is not only a question of Guorong Securities' professional ability, but also reflects its professional attitude. The Beijing Stock Exchange requires Guorong Securities to comprehensively sort out the inquiry response documents, improve the relevant information disclosure content in response to the above-mentioned situation, effectively improve the quality of information disclosure, and avoid errors and omissions.
Wind shows that Guorong Securities will successfully issue 1 IPO project and withdraw 1 IPO project in 2023. The withdrawn project is Hubei Tianrui Electronics Co., Ltd. (hereinafter referred to as "Tianrui Electronics"), and there are also many data contradictions, punctuation errors and other problems in the application materials of Tianrui Electronics.
In addition, Tianrui Electronics and Guorong Securities failed to disclose the criteria for judging the material matters or materiality levels related to financial and accounting information, and failed to disclose related party transactions as required. In response to various problems arising from Guorong Securities, the Beijing Stock Exchange requires Guorong Securities to comprehensively sort out the prospectus and other application documents in accordance with the requirements of the rules, and effectively improve the quality of information disclosure and the quality of intermediary practice.
In the past two years, Guorong Securities has three IPO projects under review, two of which have been explicitly required to improve the quality of information disclosure and practice, which can be seen from the sponsorship level of Guorong Securities.
In the 2023 investment bank classification rating of the China Securities Association, the rating of Guorong Securities was downgraded from Class B in 2022 to Class C, which is the worst category. It is reported that the investment banking rating standards of the China Securities Association focus more on the quality of practice, and the quantity accounts for a certain proportion of the score.
The quality of practice is so poor that he is prosecuted
The decline in the quality rating of Guorong Securities' investment bank is also related to the fact that the company has received more fines. It is reported that the 2023 investment bank classification rating of the China Securities Association is based on the full year of 2022, and Guorong Securities will be heavily fined in 2022.
In May 2022, Guorong Securities was taken regulatory measures by the China Securities Regulatory Commission (CSRC) for failing to conduct prudent verification of the income of the underlying assets, related party transactions and external guarantees of listed companies in the process of serving as the financial adviser for the major asset restructuring of Shanghai Fukong Interactive Entertainment Co., Ltd. (hereinafter referred to as "Fukong Interactive") in the process of selling Shanghai Zhongji Pile Industry Co., Ltd.
According to the announcement, Fukong Interactive inflated its revenue and profits from 2013 to 2016. In July 2021, the listing of Fukong Interactive shares was terminated. Zuo Hongkai, Liu Yanchen and Luo Shun, the three sponsors of the Guorong Securities Fukong Interactive Financial Advisory Project, were identified as unsuitable candidates by the CSRC (3 years), which was almost a "death sentence" for Baodai.
Guorong Securities' investment banking classification rating in 2024 may also be difficult to improve, because the company will be fined again for its investment banking business in 2023. On January 5, 2023, the Inner Mongolia Securities Regulatory Bureau took corrective measures against Guorong Securities. After investigation, Guorong Securities' bond business had the following violations: First, in the corporate bond underwriting and fiduciary management business, individual projects did not conduct comprehensive due diligence on the authenticity of the issuer's mortgage filing procedures, and failed to continuously track and timely supervise the issuer to disclose major matters related to the issuer's solvency. Second, there are deficiencies in the overall risk management and control of the corporate bond business, and the supervision of the use of funds raised by the issuer for individual projects is not in place, and the implementation of the core mechanism is not in place.
Guorong Securities was also sued by investors to the court due to the poor quality of investment banking business. Recently, Jiaxing Dading Investment Management Co., Ltd. (hereinafter referred to as "Dading Investment") v. Guorong Securities and other intermediaries has made new progress in the second instance of the securities misrepresentation liability dispute. According to the first-instance judgment, Guorong Securities was sentenced to pay 10% joint and several liability. The reason for initiating the second instance was that Dading Investment hoped that Guorong Securities and other three intermediaries would jointly compensate for its bond investment losses totaling 14.3 million yuan.
Guorong Securities was involved in the above cases because it failed to be diligent in the underwriting of the "16 Ningyuangao" bonds. Wind shows that the total amount of "16 Ningyuangao" bonds issued is 530 million yuan, and the redemption date is April 12, 2021. Due to the default of other bonds issued by Ningxia Yuangao, the maturity of the "16 Ningyuangao" bonds accelerated on January 6, 2021.
On April 29, 2021, the Shanghai Stock Exchange issued a written warning to Guorong Securities. Guorong Securities, as the lead underwriter and trustee of "16 Ningyuangao", had the following violations: first, it failed to conduct comprehensive due diligence on the authenticity of the issuer's mortgage filing procedures; Second, it failed to continuously track and timely disclose material matters related to the issuer's solvency.
Regarding the issue that Guorong Securities did not conduct comprehensive due diligence on the authenticity of the Ningxia Yuangao mortgage filing procedure, the warning letter of the Shanghai Stock Exchange shows that according to the prospectus of "16 Ningyuangao", the issuer will set up mortgage guarantees for the mining rights and vehicles owned by its subsidiaries Wenxi County Liu Zhuangye Hongyuan Copper Co., Ltd. and Wenxi County Ronghua Lujiagou Garnet Mining Co., Ltd. for this bond, and has gone through the mortgage filing registration. After verification, Hongyuan Copper did not go through the mortgage of mining rights for the record. Whether there is a record or not, Guorong Securities may be able to avoid such a large loss with a little prudent verification.
Source: Tianyancha
Some investors believe that Guorong Securities is not negligent and should be intentional, because it is not difficult to verify whether the mining right mortgage has been recorded. Moreover, Ningxia Yuangao is one of the shareholders of Guorong Securities, and Tianyancha shows that the shareholding ratio is 0.3366%.
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