The company is facing delisting, with the controlling shareholder's non-operational occupation of funds exceeding 9.5 billion yuan, yet the repayment plan is still being formulated. Such a situation has occurred with ST Xu Dian.

According to recent disclosures by ST Xu Dian, the non-operational occupation of funds exceeding 9.5 billion yuan comes from several related parties of the controlling shareholder, Dongxu Group Co., Ltd. (hereinafter referred to as "Dongxu Group"), but some of the occupying parties were previously listed as non-related suppliers in the advance payment accounts or advance payment for engineering equipment, only recently restoring their "true identity" as related parties.

After the issue of the controlling shareholder's fund occupation was exposed, ST Xu Dian also put on the "tightly bound" headband of face value delisting. As of the close on August 14, the company's A and B share prices have been below 1 yuan for twenty consecutive trading days, facing the risk of delisting due to face value.

The controlling shareholder's occupation of nearly ten billion yuan

Even after the regulatory authorities issued an ultimatum, there has been no significant progress in the issue of the controlling shareholder's fund occupation at ST Xu Dian.

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In July of this year, ST Xu Dian received a decision from the Hebei Securities Regulatory Bureau ordering corrective measures. The decision showed that as of December 31, 2023, Dongxu Group and its related parties had occupied a balance of 9.595 billion yuan of ST Xu Dian's funds, accounting for 45.64% of ST Xu Dian's audited net assets for the period. According to the "Securities Law" and other relevant regulations, the Hebei Securities Regulatory Bureau requires the occupied funds to be returned within six months and a written report to be submitted after the rectification is completed.

According to the latest announcement by ST Xu Dian, as of August 13, Dongxu Group still has a non-operational occupation of the company's funds amounting to 9.595 billion yuan, with no signs of resolution. The company stated in its latest announcement that it has sent a letter demanding that the controlling shareholder and related parties repay the occupied funds as soon as possible to completely resolve the issue of fund occupation.

According to public information, ST Xu Dian is one of the largest manufacturers of liquid crystal glass substrate equipment, technology research and development, and production and sales in China, and is an upstream enterprise for panel manufacturers such as BOE. For many years, ST Xu Dian has been questioned about the issue of controlling shareholders occupying funds.

In November 2019, when ST Xu Dian still had 18.2 billion yuan in monetary funds on its books for the third quarter, it defaulted on 1.8 billion yuan in medium-term notes, leading industry insiders to question the authenticity of the company's monetary funds on the books, which may have been occupied by the controlling shareholder.

The company's financial characteristics at that time were also suspicious. On the one hand, ST Xu Dian had the financial characteristic of "large deposits and large loans." According to financial report data, at the end of 2017 and 2018, ST Xu Dian's monetary funds were 27.371 billion yuan and 19.807 billion yuan, respectively. At the same time, the company had a high amount of interest-bearing debt (only counting short-term borrowings, non-current liabilities due within one year, and long-term borrowings), totaling 15.5 billion yuan and 14.8 billion yuan, respectively.On the other hand, ST Xudian's prepayments and other non-current assets have remained at a high level for many years. As of December 31, 2021, the book balance of ST Xudian's prepayments and other non-current assets totaled 15.648 billion yuan.

Hidden Related-Party Transactions

Several recent announcements by ST Xudian have also outlined the trajectory of capital occupation by the major shareholders of ST Xudian, with multiple hidden related-party transactions coming to light.

A special statement recently disclosed by the company shows that, according to statistics from Zhongxing Caiguanghua Certified Public Accountants, non-operational occupations of 9.594 billion yuan from 2018 to 2023 came from 11 controlling shareholder-related parties, including Beijing Manichi Technology Development Co., Ltd. (hereinafter referred to as "Manichi Technology"), Beijing Zhong'an Hongfu Technology Co., Ltd., and Beijing Aerospace Yuntong Technology Co., Ltd. The reasons for the formation were all fund transfers, with accounting subjects including prepayments and other non-current assets.

First Financial noticed that some of the occupied funds were previously listed in the published materials as prepayments to non-related suppliers or prepayments for engineering equipment, and only recently were they listed as non-operational occupation funds of the controlling shareholders.

Taking Manichi Technology, which has the largest occupation amount, as an example, according to ST Xudian's previous reply to the inquiry letter, as early as 2021, ST Xudian's prepayment balance to this company reached 3.457 billion yuan, with an account age of 2 to 3 years. Based on this calculation, this fund was generated as early as 2017. ST Xudian stated in the announcement at that time that this fund was for the company's subsidiary to entrust Manichi Technology to purchase components and equipment on its behalf. The total contract amount was about 6.2 billion yuan, with a prepayment of 3.457 billion yuan.

Manichi Technology was not previously listed as a controlling shareholder-related party and appeared to have no direct connection with Dongxu Group. Public information shows that Manichi Technology was established in July 2011, with a registered capital of 900 million yuan, held 80% by natural person Guo Jianqing and 20% by Zhao Yufen.

However, there are clues that Manichi Technology has some connection with Dongxu Group.

Data from Qichacha shows that the contact phone number disclosed by Manichi Technology is the same as that of several companies under Dongxu Group, such as Beijing Dongxu Investment Management Co., Ltd. (hereinafter referred to as "Dongxu Investment"), Dongxu Technology Group Co., Ltd., Dongxu Zhuding Investment Development Group Co., Ltd., and Dongxu Photoelectric Investment Co., Ltd. Among them, Dongxu Investment is held 90% by Dongxu Group founder Li Zhaoting and 10% by Li Wenting.

The recent special statement announcement by ST Xudian further confirms the connection between the two. The announcement shows that Manichi Technology is a related party of ST Xudian's controlling shareholder, and as of the end of 2023, there is still 3.457 billion yuan of non-operational occupation funds.Coincidentally, by the end of 2023, Hunan Heshun Da New Energy Technology Development Co., Ltd. (hereinafter referred to as "Hunan Heshun Da"), which occupied 304 million yuan of ST Xudian, also changed from a non-affiliated party to a controlling shareholder's affiliated party.

In the reply to the inquiry letter in May 2022, ST Xudian disclosed that the company purchased project equipment from the non-affiliated party Hunan Heshun Da in 2020, thus forming a prepayment for equipment of 304 million yuan. In the recently disclosed special explanation, the company has also been listed as a controlling shareholder's affiliated party, and the aforementioned 304 million yuan constitutes non-operational occupation.

This purchase took place in 2020, but according to Qichacha, Hunan Heshun Da was already listed as abnormal in business in July 2020 for not disclosing the annual report within the time limit stipulated by the "Interim Regulations on the Disclosure of Enterprise Information". On July 25, 2023, for being listed in the abnormal business directory for three years and still not fulfilling the relevant obligations, Hunan Heshun Da has been included in the list of seriously illegal and dishonest enterprises by the Hunan Provincial Market Supervision Administration.

Approaching Delisting

As the details of the long-term shareholder's occupation of funds emerge, ST Xudian begins to face the risk of delisting for non-compliance.

Due to the failure to disclose the annual report on time, the China Securities Regulatory Commission (CSRC) initiated an investigation into ST Xudian on May 8, 2024. On July 5, the Hebei Securities Regulatory Bureau issued administrative regulatory measures ordering rectification to ST Xudian. According to the listing rules of the Shenzhen Stock Exchange, if the balance of funds occupied non-operationally by the controlling shareholder or the controlling shareholder's affiliated person reaches more than 200 million yuan, or accounts for more than 30% of the absolute value of the company's most recent audited net assets, and the company is ordered by the CSRC to rectify but fails to complete the rectification within six months, the Shenzhen Stock Exchange may suspend the trading of the listed company's shares. If the rectification is still not completed within two months after the suspension, the Shenzhen Stock Exchange will implement a risk warning for delisting. If the rectification is still not completed within the following two months, the Shenzhen Stock Exchange will decide to terminate the trading of the company's shares.

The deadline for non-compliance delisting has not yet arrived, but ST Xudian has already locked in the final chapter of delisting at par value. Since July, the stock price of ST Xudian has continued to fall, and it hit the daily limit down on the day of resumption on July 9, closing at 1.36 yuan per share. Subsequently, for more than twenty trading days, the stock continued to hit the daily limit down. As of the close on August 14, the stock was only 0.37 yuan per share, and it has been below 1 yuan for 20 consecutive trading days, triggering delisting at par value. In addition, ST Dongxu B (200413.SZ) closed at 0.16 Hong Kong dollars per share on the same day, also below 1 yuan for 20 consecutive trading days.

According to the listing rules of the Shenzhen Stock Exchange, for listed companies that issue both A and B shares, if the closing price for 20 consecutive trading days is below 1 yuan for both, the Shenzhen Stock Exchange will terminate the trading of its shares. Shares that are terminated due to mandatory delisting for trading reasons do not enter the delisting adjustment period. This also means that ST Xudian may become the first listed company to delist both A and B shares this year.

Behind the continuous decline in stock price and the rapid approach to delisting, in addition to the disclosed factors of the aforementioned controlling shareholder's occupation of funds, the company's poor operating performance is also an important reason. According to the performance forecast released in July, ST Xudian was still in a loss-making state in the first half of this year, with a net profit loss of 180 million to 270 million yuan. Looking at the long term, ST Xudian has had significant losses for five consecutive years, with a cumulative net profit loss of over ten billion yuan from 2019 to 2023.