Daxing State-owned Assets and Huaneng Trust jointly "stood on the platform", and the share price of Oriental Fashion returned to 1 yuan

Blue Whale News, July 2 (Reporter Xu Xiaochun) After the stock price of Oriental Fashion fell below the "warning line" of 1 yuan for four consecutive trading days, Daxing Investment took action to promote the company's risk mitigation work, and the next day the directors sent by the state-owned shareholders raised objections to all the proposals put forward by the board of directors controlled by the actual controller Xu Xiongfang.

In September last year, Xu Xiong, the actual controller of Oriental Fashion, was arrested on suspicion of market manipulation, and a series of illegal operations such as concealing related party transactions and embezzling assets through related parties gradually surfaced. Since being ST on April 30, the share price of Oriental Fashion has fallen by 7%. Daxing state-owned assets that had entered the game at a high level of 20 yuan / share shot at a critical moment, and on July 2, Oriental Fashion stocks and convertible bonds responded to the daily limit, and the company's stock price returned to more than 1 yuan.

Daxing state-owned assets came to the stage and "shot" to promote risk resolution

On June 25, the share price of Oriental Fashion, which was mired in the quagmire, closed at 0.99 yuan per share, and the company's stock price was below 1 yuan for four consecutive trading days. At the end of June, Oriental Fashion, which was on the verge of delisting, came to state-owned assets to promote the company's risk mitigation work. After two consecutive days of daily limit, on July 2, Oriental Fashion's share price closed at 1.01 yuan per share, rubbing back to the one-yuan line.

On the evening of June 30, Beijing Daxing Investment Group Co., Ltd. (hereinafter referred to as "Daxing Investment") announced that it had formed a concerted action relationship with Huaneng Guicheng Trust Co., Ltd. (on behalf of "Huaneng Trust Yuanhe No. 1 Collective Capital Trust Plan", hereinafter referred to as "Huaneng Trust"). Among them, Daxing Investment occupies a dominant position, and when there is a difference of opinion between the two parties, the opinion of Daxing Investment shall prevail.

As of the date of the signing of the concerted action agreement, Daxing Investment held 4.89% of the shares of Oriental Fashion and Huaneng Trust held 7.13% of the shares, and after the signing of the agreement, Daxing Investment controlled a total of 12.02% of the voting rights of Oriental Fashion.

Back in July 2020, Huaneng Trust took the lead in entering the shareholder Fang Fashion, and Xu Xiong first transferred 7.28% of the equity of the listed company held by Oriental Fashion Investment to Huaneng Trust. At that time, Oriental Fashion, which entered the flight training from the driver training industry, was still a "sweet and sweet", and Huaneng Trust subscribed for the above 7.28% of the shares at a price of 18.23 yuan per share at 95% of the closing price of the trading day before the signing date of the agreement, and paid a total consideration of about 780 million yuan.

With the addition of the concept and the successive entry of state-owned enterprise capital, the share price of Oriental Fashion continued to rise, and the share price of Oriental Fashion rose by more than 42% in just two months. In September 2020, Xu Xiong introduced Daxing Investment to become a shareholder of Oriental Fashion by way of agreement to transfer shares.

At that time, the price of Daxing Investment's shares had been raised to 20.47 yuan per share. Daxing Investment acquired a 5% stake in Oriental Fashion from Xu Xiong, becoming the fifth largest shareholder of the listed company, with a total cost of about 602 million yuan. In December of the same year, Yang Xiaoteng, director of the investment department of Daxing Investment, was appointed as a director of Oriental Fashion.

Before Huaneng Trust and Daxing Investment entered the market, in December 2019, BAIC Group, another state-owned asset in Beijing, acquired 10.36% of the equity of Oriental Fashion from Xu Xiong at a price of 16.41 yuan per share through the private equity fund Xinyu Runfang Investment Management Center (Limited Partnership) controlled by it, paying a total consideration of about 1 billion yuan, becoming the second largest shareholder of Oriental Fashion.

Subsequently, BAIC Group sent Wei Ran, investment director of BAIC Industrial Investment, to serve as a director of Oriental Fashion. In the recent board of directors deliberations of a series of proposals of Oriental Fashion, Wei Ran and Yang Xiaoteng maintained a high degree of the same frequency, and abstained from voting on proposals such as the postponement of fundraising projects and the retrospective recognition of related party transactions.

At present, the board of directors of Oriental Fashion consists of 11 people, including 4 independent directors, and among the remaining 7 non-independent directors, only Yang Xiaoteng and Wei Ran are appointed directors by external shareholders, and the controlling shareholders controlled by Xu Xiong still occupy the vast majority of board seats.

This time, the cooperation between Daxing Investment and Huaneng Trust has not led to a change of control of Oriental Fashion for the time being. According to the latest disclosure, Oriental Fashion Investment, controlled by Xu Xiong, holds 19.44% of the shares of the listed company and is still the controlling shareholder of the company, and Xu Xiong directly and indirectly controls 26.34% of the shares of Oriental Fashion and is the actual controller.

However, in September last year, Xu Xiong was arrested on suspicion of market manipulation, and his brother Xu Jinsong, who is himself an American citizen, took over as chairman. Since then, Xu Xiong's controlled shares have been continuously reduced through judicial auctions and forced liquidation, and as of June 14, all the shares of Xu Xiong and Oriental Fashion Investment have been frozen and judicially marked.

The Blue Whale News reporter noticed that when Huaneng Trust became a shareholder, Xu Xiong reached an agreement with it to make up the difference and share the difference profits. In January 2021, Oriental Fashion's share price fell all the way to about 12 yuan, far lower than the 18.23 yuan share price of Huaneng Trust. Therefore, in January 2021, Oriental Fashion Investment pledged 2.78% of the equity of the listed company to Huaneng Trust on the grounds of "making up the difference", replaced the previous pledge with 1.37% of the shares held by it in July of the same year, and supplemented the pledge with 1.37% of the shares in September.

If Xu Xiong's controlling stake continues to decrease, there may be a risk of passivity leading to a change in control.

The eight-year IPO fundraising project was postponed again, and the directors of Daxing Investment abstained from voting

In the driving school education and training industry, Oriental Fashion is still considered to be the largest driving school in the world. In February 2016, Oriental Fashion was listed on the A-share market with the halo of "the first share of driving school".

In 2016, the operating income of Oriental Fashion was about 1.155 billion yuan, and the net profit attributable to the parent company was about 246 million yuan, which was basically the highest value after listing. In 2023, Oriental Fashion's revenue will still hover around 1 billion yuan, but the net profit attributable to the parent company will reach 362 million yuan, and Oriental Fashion will be issued a qualified audit report and a negative internal control report.

How did Oriental Fashion fall to the point where it needed Daxing investment to promote risk resolution?

In the early days, Oriental Fashion still focused on driver training services, and sparring services, auto repair, insurance agency and other businesses accounted for less than 1%. In 2016, Oriental Fashion raised 824 million yuan through IPO for driver training service facilities, Shijiazhuang driver training and Hubei driver training base construction.

At the end of 2017, Oriental Fashion changed the IPO's driver training service supporting facilities fundraising project to the driver training base project in Zibo, Shandong and Chongqing. However, this has buried a big hole, and the overall progress of the Chongqing driver training base project, which was expected to be completed in 1.5 years, has only been 88.36% so far. On June 28, the board of directors of Oriental Fashion once again reviewed the postponement of the Chongqing project, and Wei Ran, a director sent by BAIC Group, and Yang Xiaoteng, a director sent by Daxing Investment, both abstained from voting, both of whom believed that in view of the company's current financial constraints, it was impossible to determine that the project could be completed as scheduled.

Eight years after listing, Oriental Fashion has only completed one convertible bond financing through the A-share market, and the company first proposed a convertible bond issuance plan in 2018 and officially completed the issuance in April 2020. During the period, the planned fundraising amount shrank from 710 million yuan to 428 million yuan, and only the planned fundraising for the new energy vehicle purchase project remained stable at 300 million yuan, which eventually became another big hole dug by Oriental Fashion.

At that time, Oriental Fashion held the purpose of energy conservation and environmental protection, and planned to purchase new energy vehicles to gradually replace the training vehicles that had reached the end of their service life. From 2020 to 2021, Oriental Fashion purchased a total of 3,898 new energy vehicles from Beijing Tonglong Automobile Sales Co., Ltd. (hereinafter referred to as "Tonglong Automobile"), of which 1,310 new energy vehicles need to be installed with a set of AI intelligent driver training systems worth 54,000 yuan each.

The legal representative of Tonglong Automobile is Rong Wei, Rong Wei and Rong Xuefeng are sisters and brothers, and Rong Xuefeng and Xu Xiong have an affiliated relationship, but they have denied the related relationship and related party transactions in Oriental Fashion's previous disclosures. It was not until June 22 this year that Oriental Fashion began to posthumously recognize Tonglong Automobile as a related party of the company, and posthumously recognized the above transaction as a related party transaction, confirming that the amount of related party transactions was 609 million yuan.

When the board of directors deliberated on the proposal to retroactively recognize the above-mentioned related relationship, Yang Xiaoteng agreed to posthumously recognize Tonglong Automobile as a related party, but because the contract was not fully performed, it was impossible to judge the fairness of the real transaction price, so he could not express a definitive opinion on the compliance and fairness of the matter. In the end, Yang Xiaoteng abstained from voting on the posthumous recognition motion.

In fact, behind the concealment of the affiliation, Tonglong Automobile has also become a channel for the controlling shareholder to embezzle the funds of the listed company. According to the contract, Tonglong Automobile should deliver a total of 1,294 vehicles equipped with AI intelligent driver training systems. However, in January this year, accountants conducted an annual inventory and found that only 350 of the delivered vehicles were equipped with AI intelligent driver training systems, and the remaining 944 were not installed. In this regard, Oriental Fashion directly "threw the pot" to the negligence of the personnel who handled the storage of vehicles.

In view of the identification of the new related relationship, Oriental Fashion believes that Tonglong Automobile's failure to deliver the AI equipment on time constitutes the occupation of related party funds. At present, due to the inability to obtain the bank statements of Xu Xiong and Tonglong Automobile, the specific amount occupied cannot be confirmed. However, according to some of the bank statements that have been obtained from Oriental Fashion Investment, there is clearly a large amount of capital exchanges between Oriental Fashion Investment and Tonglong Automobile.

On July 1, Oriental Fashion retrospectively recognized another related transaction with Rong Xuefeng. From 2016 to 2026, Rong Xuefeng will lease 227.86 square meters of real estate to Oriental Fashion as a comprehensive office service place for learning to drive, simulated driving learning, and market development. The annual rent of the property is 1.1 million yuan, with an increase of 5% from the third year onwards, and 5% increments from the base of the previous rent every two years. In other words, by 2024, Oriental Fashion has paid it 10.58 million yuan in rent.

When recognizing the rent lease contract, Wei Ran believed that it was impossible to determine the fairness of the pricing of the related party transaction, and Yang Xiaoteng also said that he could not determine the background of the real estate purchase, the source of funds and other information, and finally the two abstained again.

Overt or covert related-party transactions become the controlling shareholder's encroachment on the capital channel

Coincidentally, the biggest concept thrown out by Oriental Fashion after its listing is "VR learning car", but this is also because related party transactions have become a channel for controlling shareholders to embezzle funds.

Oriental Fashion, which was newly listed, was ambitious, and on the one hand, it quickly set up driver training centers in Hebei, Yunnan, Hubei and other places to achieve "chain operation", and on the other hand, it acquired a number of driver training companies at a premium. Only one year after listing, Oriental Fashion increased its goodwill by 118 million yuan.

At the same time, Oriental Fashion, which has money in its pocket, put forward a number of plans to set up industrial M&A funds around 2017 to reserve a pool of M&A projects for the company, including the driver training industry, education and training industry, civil aviation training and other fields.

However, the asset-heavy multi-place driving school project layout requires a lot of funds, and the debt ratio of Oriental Fashion has increased from 28% to 49% in just two years after its listing. At the end of 2018, Oriental Fashion only had about 359 million yuan of monetary funds on its books, but there were more than 600 million yuan of short-term borrowings and other types of interest-bearing liabilities, and the company's short-term current assets could no longer cover the current liabilities. As a result, in the first half of 2019, only one of the billions of industrial M&A funds proposed by Oriental Fashion was established, but all of them died without actual contribution.

Since then, Oriental Fashion has plunged into the concept of asset-light "VR learning to drive".

In May 2019, Oriental Fashion had its first VR equipment and service transaction with Phantom Technology, the controlling shareholder of Oriental Fashion Investment Holdings, and the listed company paid a one-time consideration of 180 million yuan, and Phantom Technology provided 1,000 VR car driving simulators and lifelong software services. However, related-party transactions are a breeding ground for crises.

In 2022, Oriental Fashion purchased another 3,179 VR car intelligent driving training simulators from Phantom Technology, and all of them had been delivered by the time the annual report was disclosed that year. In that year, Oriental Fashion purchased VR equipment from Phantom Technology and formed a related party transaction amount of 321 million yuan.

The turning point came in 2023, as with the delivery of Tonglong Automobile, at the end of 2023, when the accountants took inventory, they found that the above-mentioned 3,179 VR devices were not fully delivered, and 2,809 of them lacked components such as the main engine, display screen, automotive simulation parts and electrical equipment, that is, the delivered products were completely unusable.

In the reply letter, Oriental Fashion admitted that the controlling shareholder's funds were occupied. Oriental Fashion mentioned that after receiving the payment from the company, part of the funds were used for production, and the other funds were mainly used to repay the debts of the controlling shareholder, so there is a situation where the controlling shareholder's funds are occupied, and the specific amount has yet to be confirmed. To this end, in 2023, Oriental Fashion will confirm other receivables of 298 million yuan to Phantom Technology.

As early as 2022, when Oriental Fashion increased the purchase amount of VR equipment from Phantom Technology, Wei Ran abstained from voting, believing that "the commercial background of changing the procurement plan to increase the purchase amount of VR equipment is unclear and the necessity is insufficient".

In 2023, Xu Xiong will be arrested, and Oriental Fashion will be investigated by the China Securities Regulatory Commission for suspected information disclosure violations, which will trigger a chain effect. Due to the above-mentioned series of possible related parties occupying funds and other issues, Oriental Fashion's 2023 annual report was issued a "non-standard" audit report. On April 30, Oriental Fashion was put on other risk warnings, and the company's abbreviation was changed to ST Dongshi, and the company's stock price has fallen by nearly 70% so far. On June 27, United Credit downgraded the long-term credit rating of Oriental Fashion from AA- to A+, and downgraded the credit rating of "Dongshi Convertible Bonds" to A+, with a negative outlook.

Subsequently, Daxing State-owned Assets announced that it would take action to promote the risk resolution of oriental fashion. At present, the board of directors of Oriental Fashion is still controlled by Xu Xiong, and in the first board of directors after the official announcement, Yang Xiaoteng and Wei Ran abstained from voting on the company's personnel changes. According to the proposal, Wang Hongyu and Li Yan no longer serve as deputy general managers of the company, but Wang Hongyu still serves as the company's director and chief financial officer, and Li Yan still serves as the secretary of the company's party committee.

At present, the executive general manager of Oriental Fashion is Wen Zijian, who was the deputy editor-in-chief of Beijing Daily and entered Oriental Fashion at the end of 2020. After Wang and Li no longer serve as deputy general managers, there are still 4 deputy general managers of Oriental Fashion, and 3 of them have been in Oriental Fashion for more than ten years. Wei Ran's concern about the adjustment of senior management positions is that he believes that the adjustment plan may lead to the concentration of power in the general manager, and the impact on the company's operation is difficult to assess. Yang Xiaoteng also abstained from voting on this proposal because he could not judge the reasons for the adjustment and the impact on the company's operation and management.