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Financial Services Association, August 13 (Reporter Wu Chao) Danhua Technology (600844.SH), which has been designated as an additional target and one of its major shareholders, has taken the court to push its information disclosure issue to the forefront.

This evening, Danhua Technology announced that the company received a civil lawsuit and other documents transferred from the court. Jilin Fengchengshun Agriculture Co., Ltd. (hereinafter referred to as “Jilin Fengchengshun”) believes that the company misrepresented securities in the 2015 non-public offering of shares and demands that the company pay compensation of 0.133 billion yuan for losses.

Faced with the accusations, a relevant person from Danhua Technology's securities department told the Finance Association reporter tonight that the company itself is in compliance. “The suspected misrepresentation of securities mentioned in the announcement comes from the indictment of Fengchengshun, Jilin. The company does not believe this is true, nor (believes) there is an illegal act. The company will communicate with all parties to deal with this lawsuit.”

The Financial Services Association reporter noticed that this fixed increase capital investment project has been losing money for a long time in recent years, and the fixed increase participants at the time lost a lot after subscribing for shares. Furthermore, Danhua Technology was taken administrative supervision measures by the Shanghai Stock Exchange to issue a warning letter due to inaccurate disclosure of the 2019 annual report.

After the fixed increase, the stock price fell by more than 60%, and major shareholders filed claims

According to Danhua Technology's announcement, Jilin Fengchengshun's accusations mainly revolve around the company's non-public stock offering project launched in 2015.

The project was completed in September 2016. The total capital raised was 1.78 billion yuan, of which 0.55 billion yuan was used for the ethylene glycol energy expansion technology improvement project, and 0.65 billion yuan purchased 16.99% of Tongliao Gold Coal's shares held by Jinmei Holdings and Shanghai Yinyu.

At the time, Jilin Fengchengshun participated in the subscription for this non-public offering of shares. In August 2016, it subscribed for 29.9036 million shares at a price of 7.48 yuan/share, paid a total subscription amount of 0.224 billion yuan, and became the company's shareholder.

However, since the implementation of the fixed increase, Danhua Technology's stock price has been in a downward channel for a long time. Up to now, the closing price of Danhua Technology was only 2.48 yuan/share. Compared with the original subscription price of Fengchengshun, Jilin, it has fallen by about two-thirds (since this fixed increase, Danhua Technology has not implemented dividend transfers).

Furthermore, by the end of 2023, Jilin Fengchengshun was still the third largest shareholder of Danhua Technology. At the end of the first quarter of this year, after reducing its holdings, Jilin Fengchengshun still held 14.9033 million shares of the listed company, holding 1.47% of the shares, making it the fifth largest shareholder of the company.

In the indictment, Jilin Fengchengshun found that Danhua Technology had multiple information disclosure violations in the “2015 Non-public Stock Issuance Plan (Revision)” and related issuance documents, including:

The reasonableness of the assessed price of the asset was not explained;

“Instructions on the reasonableness of relevant parameters and prudence in predicting future benefits before evaluating hypotheses” were not disclosed;

There are false records and misleading statements about the construction period and project progress of the “Ethylene Glycol Energy Expansion Technology Improvement Project”, and project benefit estimates for the feasibility analysis of the technical improvement project;

The forecast information for “operating income,” “net profit,” and “production estimates” for the subject of the acquisition did not provide sufficient risk hints on the important factors affecting the implementation of the forecast. The assumptions based on it were clearly unreasonable, and there were significant differences from actual business conditions, etc.

However, Danhua Technology said that the company has hired a professional intermediary agency for the 2015 non-public stock offering project, which has been reviewed and approved by the China Securities Regulatory Commission. The funds raised for the project were used up before the end of 2018, and after a self-inspection, the company found that there were no false records, misleading statements or major omissions in the non-public offering of shares, and up to now, the project has not been punished or punished by the supervisory authorities.

The ethylene glycol market is sluggish, and fund-raising projects are losing money

A CFA reporter noticed that Danhua Technology's initial fund-raising project had poor operating performance in recent years.

From 2019 to 2023, Danhua Technology lost money for five consecutive years, with losses of 0.433 billion yuan, 0.367 billion yuan, 0.104 billion yuan, 0.293 billion yuan, and 0.393 billion yuan, respectively.

However, Tongliao Jincoal, which initially acquired shares, currently provides the main source of operating income for listed companies as a holding subsidiary of Danhua Technology. Along with ethylene glycol, the product that accounts for the largest share of revenue, they have all been at a loss for a long time.

According to information, in recent years, there has been an oversupply in the domestic ethylene glycol market, and the recovery in downstream demand falls short of expectations, and the industry as a whole has fallen into a weak state of operation. Ethylene glycol production has been increasing year by year in the past five years. Ethylene glycol production was about 7.2012 million tons in 2019 and 16.535 million tons in 2023, an increase of 22.62% over the previous year.

Danhua Technology proposed in recent financial reports that the overall ethylene glycol market in 2022 showed a low, high-frequency fluctuation trend, which is lower than the company's cost price; the average internal price of CCF ethylene glycol in 2023 was 4084.41 yuan/ton, down 455.4 yuan/ton from the same period in 2022. Based on the current market environment, it is difficult for the company to reverse the operating loss situation with the existing product structure in the short term.

In the first half of this year, Danhua Technology's performance declined unimproved. On July 8, Danhua Technology released a performance forecast. The net profit achieved in the first half of 2024 was still a loss, about -0.112 billion yuan.

In response, Danhua Technology said that the production and sales situation of the company's main products, ethylene glycol and oxalic acid, is basically normal, but the company continues to face difficulties in operation, mainly because product prices are still low. The company will actively seek ways to improve its business conditions.

In addition, Danhua Technology's cash flow is tight. In the first quarter of 2023 and 2024, the company's net cash flow from operating activities was -94.1695 million yuan and -48.6586 million yuan, respectively. As of the end of the first quarter of 2024, the monetary capital on Danhua Technology's account was only 86.257 million yuan.

A relevant person from the Danhua Technology Securities Department told the Financial Federation reporter that the above case has not yet officially entered trial. According to regulations, the first step is the pre-court mediation stage, but the possibility of reaching a settlement is still unclear.