Financial News Agency, November 30 (Reporter Yan Jun) There is nothing new about A-shares. An announcement that the actual controller has been investigated by the Securities Regulatory Commission has brought up the news that the largest shareholder's shares have been auctioned off. The latest auction information shows that the auction has already been completed. The next step is if the regulations are passed, then a case of winning over the majority shareholders through auctions will be born.

According to the online bidding confirmation, on November 17, Yi Lianzhong's 69.6 million unrestricted tradable shares were auctioned off by the Suzhou Intermediate People's Court. The winner was Zhoukou Chengfa Intelligent Technology Co., Ltd., with a transaction amount of 288 million yuan. The traded shares account for about 16% of the company's total share capital, and Zhoukou Chengfa may become the largest shareholder of Yilianzhong.

According to the bid confirmation, Zhoukou Chengfa's closing price was 4.14 yuan per share. As of November 29, Yi Lianzhong's closing price was 6.8 yuan. Zhoukou Chengfa won the largest shareholder of Yi Lianzhong at a discount of nearly 40%. This shows what is hidden behind what appears to be a “pick up omissions” auction?

“Pick up the omissions”? Originally, the actual controller of the listed company was investigated

According to the Internet, the shares traded in the successful bidding certificate were 69.6 million shares. This amount is only 0.12% different from the 69.6816 million shares of Yilianzhong held by Zhang Xi, the actual controller of Yi Lianzhong. It is also obvious that it is the ownership of the shares being auctioned off.

According to previous public information, all of Zhang Xi's 69.6816 million shares in Yi Lianzhong's company have been judicially frozen or awaiting freezing due to loan disputes and pledged securities repurchase disputes, accounting for 16.21% of the company's total share capital. Subsequently, the relevant creditors submitted a judicial ruling to the court for enforcement. In the first auction in October this year, it was rejected because no one bid was made.

This time, Zhoukouchengfa captured the vast majority of these shares, which also means that the company is about to change ownership. However, the company has yet to announce a change in equity. According to some sources, at present, Zhoukou Chengfa may not have paid the balance, and the account has not yet been transferred.

The changes in equity have yet to be announced. Zhang Xi is still the largest shareholder and actual controller, and the investigation involving the dispute has “arrived, albeit late.” On November 29, Yi Lianzhong announced that the company had received a notice from the Securities Regulatory Commission to file a case. Zhang Xi, the company's controlling shareholder, actual controller, and then chairman, was investigated by the CSRC due to alleged illegal information disclosure violations.

According to the announcement, due to matters such as illegal guarantees and illegal loans, Zhang Xi is currently facing a guarantee liability of up to 763 million yuan, and Yi Lianzhong has also been issued a letter of concern by the Shenzhen Stock Exchange. According to reports, in August of this year, Zhang Xi resigned as Chairman of Yi Lianzhong and is currently staying with Yi Lianzhong as a consultant.

The incident violated guarantees and loans, and the actual controller was mired in 760 million “messy accounts”

According to the “Notice on Illegal Guarantees, Illegal Loans, and Major Lawsuits and Arbitration Matters Involving the Company” disclosed by Yi Lianzhong on November 28, Zhang Xi had situations such as illegal guarantees, illegal loans, and illegal joint loans in the name of the company; furthermore, during the period from 2018 to 2020, Zhang Xi failed to borrow under the company's official seal in accordance with the company's “Seal Management System” on many occasions.

Up to now, Yi Lianzhong has provided guarantees of a total amount of 550 million yuan and related interest for foreign loans from Jingfa Real Estate (the former holding company of Zhang Xi) without legal approval procedures. There is still 50 million yuan in foreign loans and related interest without legal approval procedures.

This amount is suspected of violating three provisions of the “Shenzhen Stock Exchange Venture Market Stock Listing Rules (Revised in August 2023)”:

They are: Article 9.4 (5): Where the company provides capital to the controlling shareholder or its affiliates or provides external guarantees in violation of prescribed procedures, and the circumstances are serious;

Section 9.5 (1): The balance of funds provided by the listed company to the controlling shareholders or their affiliates is at least 10 million yuan, or more than 5% of the last audited net assets of the listed company;

Item (2): The balance of the listed company providing external guarantees in violation of prescribed procedures (except for subsidiaries covered by the consolidated statements of listed companies) is at least 10 million yuan, or more than 5% of the listed company's most recent audited net assets

According to relevant regulations, if Yi Lianzhong is unable to resolve the above irregularities in a timely manner within the time limit stipulated by relevant laws and regulations, the company's stock trading may be subject to other risk warnings (ST).

According to financial data, Yi Lianzhong's revenue for the first three quarters of this year was only 477 million yuan and net profit was 128 million yuan, while Zhang Xi's involvement reached 763 million yuan. Zhang Xi's illegal loans and illegal guarantee guarantee period occurred between 2018 and 2021.

In June 2018, Jingfa Real Estate signed a loan agreement with Zhang Liyun for a period of 2 months. Afterwards, Jingfa Real Estate did not repay the loan on time, and Zhang Xi signed documents in the name of the company to continue to guarantee without the company's approval. Based on Jingfa Real Estate's major breach of contract under the aforementioned loan contract, in January of this year, Zhang Liyun filed an arbitration application requesting it to settle the principal amount of the loan and liquidated damages, totaling 713 million yuan.

Regarding the incident, Yi Lianzhong said that it only recently learned the above information and obtained the relevant documents. Previously, the relevant arbitration documents were kept by Zhang Xi.

Also in 2018, Zhang Xi borrowed 60 million yuan from Suzhou Nuojin in the name of the company. Zhang Xi only repaid the loan of 30 million yuan. In March of this year, Suzhou Nuojin filed a lawsuit with the court demanding that Yi Lianzhong repay the remaining loan. Subsequently, Zhang Xi and related parties signed an equity transfer agreement with Suzhou Nuojin to resolve the debt, and this illegal loan matter was resolved.

By February 2021, Yi Lianzhong, Zhang Xi, Zhang Huafang (Zhang Xi's sister) and related parties, Gao Cai'e, had borrowed 50 million yuan for a period of 6 months. Since Zhang Huafang breached his contract and failed to repay the principal and interest of such loans on time, Gao Cai'e sued Yi Lianzhong, Zhang Xi, and Zhang Huafang to return the principal amount of the loan and related expenses. On November 27 of this year, Yi Lianzhong received relevant lawsuit notices and documents issued by the court.

Subsequently, the Shenzhen Stock Exchange quickly issued a letter of concern, requesting clarification on the specific circumstances of Zhang Xi's failure to carry out an official contract loan in accordance with regulations, and to further verify whether the company still had other illegal guarantees or use of funds, or illegal financial support. Furthermore, the Shenzhen Stock Exchange also requires that the company anticipates a resolution or rectification period for the measures it has taken and plans to take to resolve the above illegal guarantees, illegal loans, etc., and strengthen internal control.

The small market capitalization of 3 billion dollars is a guest of institutional seat

According to public information, Yi Lianzhong is a digital health insurance project solution. Its operating income consists of 99.38% of people's livelihood services, and there is also a small insurance brokerage industry. Currently, the company's total market value is only 3 billion dollars.

Despite its small market capitalization, Yi Lianzhong won the favor of institutions. As of the end of the third quarter of this year, institutions occupied 7 seats among the top ten shareholders. Ping An Asset Management, China International Finance Hong Kong Asset Management, Guoxin Securities, and GF Securities were newly added to the top ten shareholders, receiving an increase in their holdings from CITIC Securities. In terms of public offerings, the Xinao New Energy Industry managed by Feng Mingyuan is in the top ten, ranking 6th with 2.144 million shares. Furthermore, the position of Xinao Core Technology Hybrid, managed by Xu Cong, has not changed since the top ten new shareholders were added in the first quarter of this year, and is currently the fifth largest shareholder.

Some market observers pointed out that Yilianzhong's ability to gain institutional recognition indicates that the fundamentals are good. However, the actual controller's violation of regulations had a certain impact on the company. As the shares were auctioned off, Zhang Xi returned nearly 300 million yuan of capital, but compared with the 760 million yuan of illegal guarantee liability, less than half. This became a typical case of an A-share listed company where “a good hand was a good hand, a rarity”.