Although state-owned assets have "come to the rescue" two months ago, Lingnan's debt overdue situation is still deteriorating.
On October 14, after announcing that the 156 million yuan raised was expected to be unable to be returned on time, Lingnan once again disclosed the verification opinions of the sponsor. The agency further confirmed that the company has failed to repay individual debts as scheduled, and there is uncertainty about the specific return time of the idle raised funds for this replenishment.
Since August this year, Lingnan shares have been mired in a crisis of bond redemption, and the stock price has once hovered on the edge of the red line of delisting. Although Zhongshan State-owned Assets previously acquired some defaulted bonds from Lingnan convertible bond holders, judging from the current situation, it is only a temporary solution.
In the secondary market, the share price of Lingnan shares fluctuated and fell. On October 15, Lingnan shares were reported at 1.94 yuan per share, down 3.96%, with a total market value of 3.411 billion yuan.
Default on debt swaps
According to public information, Lingnan was established in 1998 and landed on the main board of the Shenzhen Stock Exchange in 2014. The Company is mainly engaged in the construction and restoration of ecological environment, water affairs and water environment treatment and cultural tourism. Since its listing, Lingnan has successively raised more than 3.4 billion yuan directly through IPOs, corporate bonds, additional issuances and convertible bonds, of which a convertible bond issued in 2018 has made Lingnan shares a big heel.
At that time, Lingnan Co., Ltd. publicly issued convertible bonds with a total face value of 660 million yuan to the public, with a term of 6 years. It is reported that the net funds raised by the convertible bond are 648 million yuan, which are planned to be used for the construction of the "PPP project for the construction and upgrading of urban greening landscape in Rushan City" and the "PPP project for the comprehensive improvement of Yulinhe Guanmenshi to Caojiatan and its tributaries in Linshui County" (hereinafter referred to as the "Linshui Project").
However, the waterfront project, which was supposed to be completed in October 2019, has been postponed several times, and the total investment scale has been reduced in December last year, and part of the remaining proceeds of 184 million yuan will be used to permanently replenish the liquidity of Lingnan shares. As of October 11, 2024, the cumulative investment progress of the adjacent water project is only 50.23%, and the completion date seems to be far away. Lingnan shares also disclosed in the 2024 interim report that there is a large difference between the cumulative realized benefits and the promised benefits of the company's convertible bond fundraising and investment projects.
Similar to the situation of the fundraising project, there is also a possibility that this convertible bond will be "unfinished". Since August this year, Lingnan shares have repeatedly announced that Lingnan convertible bonds cannot be paid with principal and interest on schedule. As of August 14 (the maturity date of the convertible bonds), the remaining amount of the "Lingnan convertible bonds" was about 456 million yuan, and the company's existing monetary funds could not be repaid. At the same time, the share price of Lingnan shares continued to be sluggish, always hovering around 1 yuan per share.
Faced with the predicament of Lingnan shares, Zhongshan state-owned assets chose to take action. On August 17, Lingnan announced that Zhongshan Talent Innovation and Entrepreneurship Ecological Park Service Co., Ltd. intends to partially acquire bonds from Lingnan convertible bond holders. Up to now, Zhongshan Talent Innovation and Entrepreneurship Ecological Park Service Co., Ltd. has completed the relevant acquisitions, with a total acquisition amount (including tax) of 146 million yuan.
According to the Qichacha APP, Zhongshan Talent Innovation and Entrepreneurship Ecological Park Service Co., Ltd. is actually controlled by the Zhongshan State-owned Assets Supervision and Administration Commission. The actual controller of Lingnan Co., Ltd. is the Management Committee of Zhongshan Torch High-tech Industrial Development Zone (hereinafter referred to as "Zhongshan Torch Management Committee"), which also has the background of Zhongshan state-owned assets.
With the blessing of the news of state-owned aid, the share price of Lingnan shares has also risen sharply, and the risk of delisting is temporarily avoided after many days.
But the crisis continues. On the evening of October 11, Lingnan announced that the company had used 156 million yuan of idle funds raised by the public issuance of convertible corporate bonds to temporarily supplement liquidity, which will expire on October 16, 2024. At this stage, the company is facing liquidity constraints and is expected to be unable to return to the raised funds account on time.
Lingnan also said that in view of the above situation, there may be subsequent litigation by bond investors, and the overdue debt of the company may affect the confidence of other creditors in the company, thereby further weakening the company's financing ability and exacerbating the company's financial constraints.
It's hard to return
In fact, the crisis of Lingnan shares is not a "one-day cold", and 2018 is the beginning of the company's downward journey.
Before 2018, Lingnan Co., Ltd. expanded its main business from landscape to water affairs, water environment, ecological environment restoration and other fields, the company's performance continued to grow, and the net profit attributable to the parent company also reached a historical high of 779 million yuan in 2018.
However, affected by various factors such as the tightening of the financing environment and the standardization of PPP projects, the performance of Lingnan shares has taken a sharp turn. From 2019 to 2023, Lingnan Co., Ltd. will achieve operating income of 7.957 billion yuan, 6.651 billion yuan, 4.799 billion yuan, 2.569 billion yuan, and 2.13 billion yuan respectively; The net profit attributable to the parent company was 328 million yuan, -460 million yuan, 47 million yuan, -1.509 billion yuan and -1.096 billion yuan. Asia-Pacific (Group) Accounting Firm (Special General Partnership) also issued a non-standard audit opinion on its 2023 annual financial report.
Source: Juchao Information Network
In the first half of this year, Lingnan shares continued to lose money, achieving a net profit attributable to the parent company of -259 million yuan and a non-net profit of -258 million yuan. In terms of business segmentation, ecological environment construction and restoration, water affairs and water environment management, and cultural tourism business accounted for 52.9%, 44.39%, and 2.71% of the total revenue, respectively, while the gross profit margin was -1.55%, 8.44%, and 31.28%, respectively. Obviously, its pillar business is already in a state of loss, and the most profitable cultural tourism business has not yet developed and expanded, and it is difficult to fill the performance gap.
The double pressure of poor performance and the explosion of debt conversion has made the financial situation of Lingnan shares worse. As of the end of June 2024, Lingnan Co., Ltd. has only 237 million yuan of book money funds, current assets of 9.424 billion yuan, current liabilities of 12.332 billion yuan, and the asset-liability ratio has reached 86.43%, compared with 69.92% in the same period in 2018.
In addition, according to the previous announcement of Lingnan Co., Ltd., as of August 16, 2024, the company and its holding subsidiaries have added undisclosed litigation and arbitration matters for 12 consecutive months, with a total amount of about 242 million yuan, and the cumulative amount involved has reached 11.49% of the company's latest audited net assets attributable to the parent company.
Who's going to do it?
Nowadays, for Lingnan shares and investors, who will take care of it has become the biggest problem.
Previously, Lingnan shares have repeatedly stated that they are seeking various channels and solutions including collection of accounts receivable, realization of assets, and support and cooperation of shareholders or third parties to protect the interests of bondholders.
However, judging from the fundamentals and current progress of Lingnan shares, it may be difficult for the company to get out of the crisis on its own. In addition, judging from market feedback, investors are pinning their hopes on the largest shareholder and actual controller to help.
According to public information, Yin Hongwei is the founder and original actual controller of Lingnan shares, and has been responsible for many mergers and acquisitions of Lingnan shares, leading Lingnan shares to the peak of performance. In September 2022, Yin Hongwei and others suddenly decided to transfer the control of Lingnan shares to Zhongshan Huaying Industrial Investment Partnership (Limited Partnership) (hereinafter referred to as "Huaying Industrial Investment"), which is actually controlled by the Zhongshan Torch Management Committee.
It should be noted that Huaying Industrial Investment only received 5% of the equity, and Yin Hongwei entrusted the voting rights corresponding to the remaining 17.32% equity held by Huaying Industrial Investment to Huaying Industrial Investment. As of the end of June 2024, Yin Hongwei is still the largest shareholder of Lingnan Co., Ltd., with a shareholding ratio of 17.33%; Huaying Industrial Investment is the controlling shareholder of Lingnan Co., Ltd., with a holding ratio of 22.85%.
iFinD data shows that Yin Hongwei's share pledge ratio of Lingnan shares has reached 93.2%. In addition, according to the disclosure of Lingnan shares, all the shares of Lingnan shares held by Yin Hongwei have been frozen by the judiciary. From this point of view, Yin Hongwei's own situation is not optimistic.
So, will Zhongshan state-owned assets make another move? The answer is not yet known.
In May this year, Lingnan Co., Ltd. said at the performance briefing that in order to meet the working capital needs of the company's production and operation, Huaying Industrial Investment provided a total of 1 billion yuan of financial support for the company, of which 900 million yuan was originally planned to expire at the end of 2023 and 100 million yuan will expire in mid-2024. In order to further support the company's development and provide sufficient liquidity support for the company, Huaying Industrial Investment not only agreed to extend the repayment period of the two loans to the end of 2024 and mid-2025 respectively, but also provided a loan of no more than 100 million yuan to help the company repay bank loans.
On September 25, Lingnan Co., Ltd. announced again that Huaying Investment, a person acting in concert with Huaying Industrial Investment, increased its holdings of 14,738,400 shares of the company by means of centralized bidding transactions, accounting for 0.81% of the company's total share capital. On the whole, the background of state-owned assets may become a big opportunity for Lingnan shares to survive the crisis.
However, the reporter of "International Financial News" also noticed that there was also a performance commitment in the initial equity transfer agreement. Among them, three performance assessment indicators are mentioned: first, the audited net profit deducted from the non-attributable parent of the listed company in 2023 shall not be less than 100 million yuan; Second, the cumulative audited net profit deducted from 2023 to 2025 by the listed company shall not be less than 500 million yuan; Third, the net cash flow generated by audited operating activities of listed companies from 2023 to 2025 is cumulatively positive. If the listed company fails to meet the above three assessment indicators, Yin Hongwei and others should compensate accordingly in cash, and Lingnan shares will lose 1.075 billion yuan in non-net profit in 2023.
Regarding whether investors who hold Lingnan convertible bonds can make claims, Xu Yuehui, a lawyer at Guangdong Huanyu Jingmao Law Firm, told the "International Financial News" reporter that Lingnan shares have announced that they are expected to be unable to return to the raised funds account on time, which may constitute a breach of contract, and investors can communicate and coordinate with Lingnan shares according to the convertible bond contract between the two parties, and if the coordination fails, they can consider making a claim.