ST Tech-bank (002124.SZ) has been rapidly expanding in recent years. The number of pigs slaughtered has increased from 2.4394 million heads in 2019 to 7.1199 million heads in 2023, making it one of the top five listed pig companies in A-shares. However, as the company is expanding rapidly, it is facing the longest low trough in pig cycle. The debt pressure is growing rapidly. As of the end of the first quarter of 2024, ST Tech-bank's debt-to-asset ratio reached 80.74%, which casts a shadow over its survival, in view of the cases of Zhengbang Science and Technology (002157.SZ) and *ST Aonong (603363.SH).

In March of this year, ST Tech-bank suddenly announced that it was unable to repay its due debts and lacked the ability to repay them. The company had significant restructuring value, so it planned to apply for restructuring and pre-restructuring to the court. As soon as the announcement was made, it quickly attracted extensive attention from investors: Can Tech-bank survive the prolonged downturn in the pig cycle? Why did the company actively apply for restructuring? What is the current progress of the restructuring? How does the company view the pig cycle? How is the development of the company's food sector? What role does Twill play on the company's road to restructuring?

Financial Associated Press reporter conducted an exclusive interview with Zhang Banghui, Chairman of Tech-bank Food, to seek answers to the above questions.

Highlights of the Dialogue:

In the future, the pig cycle will weaken and cost will be the most important competitiveness.

Financial Associated Press: Do you think China's pork production capacity is excessive or insufficient?

Zhang Banghui: Now, we have a relatively high inventory of sows, and the number of PSY (the number of weaned piglets that can be provided per sow per year) is also increasing. In addition, pigs are also growing bigger. So, the question of whether so many pigs are needed requires serious consideration by the whole industry. Blind optimism is not allowed.

Financial Associated Press: Some people believe that the number of sows capable of breeding has been declining continuously since last year, and the price of pigs this year will be better. Others believe that although the number of sows capable of breeding has dropped, the production efficiency of sows has been increasing. How do you view this issue?

Zhang Banghui: There will no longer be sharp rises or falls in pig prices in the future. In the past, pig prices rose and fell sharply because there were many individual farmers whose risk resistance was weak. They would all come to make money, and once the price fell, they could not afford to lose and ran away together. Therefore, the pig cycle was formed. In the future, there will be no pig cycle. What will remain is who has cost competitiveness, who can survive, whose pork is good, whose market acceptance is higher, and perhaps whose price is higher.

In the future, the pig industry will have to face the management of the relationship between low cost and quality. If it is not handled properly, there may be no cost competitiveness or quality competitiveness. If it is handled well, pork may be more popular.

Affected by the epidemic and still stolen pigs? Tech-bank opens up the southward path of production capacity.

Financial Associated Press: We see that Tech-bank's breeding capacity is shifting to the southern regions. We believe that the company has fully demonstrated and calculated before the capacity shift. What kind of impact will the capacity shift have on Tech-bank?

Zhang Banghui: We put pigs in the north to breed. The chances of success should be at least 10% less than those in the Guangdong, Guangxi and Hunan mountainous areas. This is a very, very big pressure. Last year, our full cost was so high, which was closely related to some situations in Shandong. Shandong had a lot of epidemics, and the industry ecology was not good. People who sold pigs wanted to steal my pigs. Even some employees who were not rigorous enough would do things that we could not tolerate. Therefore, under the double attack of the epidemic and industry ecology, we can only go south with the pigs.

Financial Associated Press: In addition to the capacity shift, Tech-bank has also made some adjustments to its team recently. The company had previously used some external teams, but now it has returned to our original team for management. What is the main job of the adjusted team now?

Zhang Banghui: In the past, we introduced teams in order to take advantage of the opportunities presented by African swine fever, capital, and teams that had managed large enterprises, and to rapidly expand the company with our team. But unfortunately, the introduced team did not embrace our Tech-bank team and cooperate with them. Instead, they sought to suppress and even drive them out of the company, which was very bad. Now, no matter how we adjust the team, we are still one family. Unlike the New Hope team we hired before, as soon as they came, the differences between our team and theirs were stark.

Financial Associated Press: Han Shiwei, as Tech-bank's main pig farming body, reduced its cost from over 18 yuan to 16.5 yuan last year, which contributed greatly to the company's performance. How was this achieved?

Zhang Banghui: We did not do this job well last year. In fact, at the beginning of last year, northern Shandong, northern Anhui, and northern Jiangsu were all hit hard by swine fever. Even in the whole of Shandong, we did some air filtration and pig farm transformations at the end of 2022.

It is regrettable that at that time the team did not operate our air filtering field, and instead used some unmodified air fields. Therefore, in January last year, our total cost was probably more than nineteen yuan. Later, we urgently adjusted it, and after the adjustment, it is certainly an important preventative measure for non-plague.

财联社: Apart from the two mentioned in the beginning - capacity transfer and improving efficiency - is there any other measures you can adopt to increase capacity utilization?

Zhang Banghui: Under the current situation of inadequate capacity utilization, we are making every effort to eliminate operational leasing. We will retreat if we can and stop if we do not have to. And now we are making progress relatively fast.

We had around 600,000 breeding sows by the end of last year, but now we have killed around 70,000-80,000 of them. We aim to reduce it to 400,000 which will make it easier for us to maintain our supply chain production.

Secondly, we are partly family-owned and partly self-owned and leased land. Through this adjustment, we hope to reduce our production capacity from 2.7 million to 2.1 million. If we can improve our utilization rate, the distribution and depreciation of our costs will decrease significantly. Rent is expensive and many assets will become vacant, but there are still people using them. Therefore, this restructuring is about making changes for the better and removing all inefficiencies and loss-making activities.

In some sense, the cost of producing good-tasting pork is bound to be high. We don't like to talk about full cost, but because people only talk about full cost without considering any other indicators, it hurts us.

Sacrificing costs for healthy pork: Are we losing too much to this?

财联社: The food sector is also a key area for Tianbang. Can you tell us what advantages Shifen flavor has as one of Tianbang's main platforms for pork production?

When it comes to pig farming, we focus first and foremost on breeds, which must be well-bred. Secondly, we learn from and exchange ideas with our peers and we have done a lot of research on improving our pigs' comfort levels.

We were probably the first in China's pork industry to care about the hygiene indicators of pig feed. When we presented our hygiene indicators to our peers and asked them to process the feed, many of them refused to take our orders because they felt our requirements were too strict. But now, the situation has changed and many people now accept them.

To some extent, producing good-tasting pork is bound to be high cost. We really dislike talking about full cost, but because people only talk about full cost without considering any other indicators, it hurts us.

财联社: What are the main difficulties that Tianbang has encountered in the food production process and how do you deal with them?

Firstly, we must ensure our quality and secondly, we must ensure our service is good. To be honest, we have paid a high cost for producing pork, my slaughterhouse, my food business lost approximately 150 million yuan last year and one hundred million yuan the year before. We almost went bankrupt. But in the first quarter of this year, our losses have decreased to approximately 14 million yuan compared to last year when we lost 50 million yuan in the same quarter. This means it is very likely that our pork business will not lose money in the second quarter and may even make money.

A single phrase can wake us from a dream and set us on a new path of restructuring.

财联社：How did your company decide to go about restructuring?

Zhang Banghui: As of September 30 last year, our debt has reached 16.23 billion yuan and our debt ratio has exceeded 80%, reaching 87%.

Originally, we expected to complete a capital increase of 2.72 billion yuan last year. When we obtained regulatory approval on July 7, we were very excited because it meant we could survive; without it, we would be dead. We also planned to sell 49% equity in our historical records, but we encountered some obstacles and unfortunately it was not possible.

Later, some lawyers and accountants reminded me that we could use restructuring. I asked: isn't it just for bankruptcy restructuring? I'm not bankrupt yet. They replied you are at a stage that is close to bankruptcy. You're still in good shape with strong cash flow. If you're doing poorly, how much value does restructuring have?

This single phrase startled those in the dream, I said, tell me what to do then. He said, you can apply for debt restructuring. I said, let's get started. We went to Yuyao City to report to the municipal government, we reported to the Ningbo Securities Regulatory Bureau, we reported to Ningbo's financial institutions, and even reported to the Shenzhen Stock Exchange. After we obtained their authorization, we began this work.

财联社: Has the company estimated or expected how much pressure can be alleviated through the restructuring process?

Zhang Banghui: We are very emotional and responsible to all creditors. So from March 18th to April 12th this year, our debt has been reduced by about 1.2 billion yuan. Of course, this includes the cleanup of some operating lease assets and the repayment of some money, including loans from farmers. It shows that we have never wanted to evade or default on debt.

We are making all kinds of efforts, hoping that when the real restructuring comes, our debt will be reduced again. It is possible to introduce some strategic investors who can empower me. They must not increase the breeding cost, and they must not increase the sale of pork. I haven't thought about anything else for the time being, because I think that if we have these two ends, others will be more enthusiastic when we do debt-to-equity swaps. Therefore, I am looking for global partners for these two ends.

Caixin: Tongwei is the largest supplier of Tianbang and also took over part of the equity of Shiji Biology. Will there be further cooperation between Tianbang and Tongwei in this restructuring? Zhang Banghui: Tongwei is the most successful enterprise that has crossed the agricultural industry, and I personally respect Chairman Liu Hanyuan very much. In 2019, I proposed to sell my aquatic feed business to Tongwei. If it weren't for the new hope (team) that came in 2020, they said they wanted to do it themselves, it might have been sold in 19 or 20.

Of course, they didn't do it well later, and even made the feed worse. I had to go to Chairman Liu again to see if I could sell it to him.Unexpectedly, Chairman Liu abandoned previous suspicions and gave me some very valuable cash when I was in the most difficult time. After the restructuring, if Tongwei is willing, we will definitely cooperate with them on feed. We have cooperated for more than two years, and we have been in good cooperation since 2021.

Full version of the interview video:

Full version video interview: