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On September 19, Blue Whale News (Reporter Wang Xiaonan) reported that shortly after acquiring Sichuan Hongda (600331.SH), Sichuan State-owned Assets further subscribed to a 2.853 billion yuan private placement.

On September 18, Hongda shares disclosed the private placement plan. The company's controlling shareholder Shudao Group will invest 2.853 billion yuan to acquire 0.609 billion shares. After the transaction is completed, Shudao Group's shareholding in the company will increase to 43.38%. This fundraising will be used to repay debts and supplement working capital.

With Hongda shares being taken over by Sichuan State-owned Assets, the Hongda group has also calmed down in the capital markets. However, Hongda shares' debt issues still exist. As of the end of June 2024, Hongda shares have repaid profits of 0.651 billion yuan to Jinding Zinc Industry through cash and asset debt settlement. There are still principal payments of 0.423 billion yuan and delayed execution funds of 0.21 billion yuan to be paid to Jinding Zinc Industry. Due to the debt burden of the Jinding Zinc Industry contract dispute case, Hongda shares currently face a shortage of working capital, with an asset-liability ratio as high as 82.78%.

After Sichuan State-owned Assets took over, they further subscribed to a 2.853 billion private placement.

On the evening of September 18, Hongda shares disclosed a stock issuance plan for specific entities. The company plans to issue 0.609 billion shares to Shudao Group, not exceeding 30% of the total share capital before this issuance. The issuance price is 4.68 yuan per share, with a total fundraising amount of 2.853 billion yuan, intended for debt repayment and working capital supplementation.

Before this issuance, Hongda shares had a total share capital of 2.032 billion shares. Shudao Group directly holds approximately 0.486 billion shares of the company, and holds an additional 50 million shares through Hongda Industrial, totaling a shareholding ratio of 26.39%. They are the controlling shareholder of Hongda shares, with the Sichuan Provincial Government State-owned Assets Supervision and Administration Commission as the actual controlling entity of the company.

Speaking of it, sichuan state-owned assets truly took control of sichuan hongda half a month ago.

Sichuan hongda's original controlling shareholder, hongda industrial, entered bankruptcy reorganization proceedings in June 2023. In December of the same year, the court ruled that hongda group and hongda industrial were essentially merged for bankruptcy reorganization. Then in May 2024, Shudao Group was confirmed as the investor for the reorganization of hongda group and hongda industrial.

On July 19, 2024, the People's Court of Whatfang City ruled to approve the "Sichuan Hongda (Group) Co., Ltd. and Sichuan Hongda Industrial Co., Ltd. Merger Reorganization Plan (Draft)" (referred to as the "Reorganization Plan"), and terminated the reorganization proceedings of Hongda Group and Hongda Industrial. According to the Reorganization Plan, Shudao Group will take over approximately 0.536 billion shares held by Hongda Industrial, accounting for 26.39% of the total share capital of the company.

Half a month ago, on September 5th, approximately 0.486 billion shares of Hongda shares (unrestricted tradable shares) originally registered in Hongda Industrial's securities account were transferred to Shudao Group's securities account, accounting for 23.93% of the total share capital of the company. Since then, the controlling shareholder of Hongda shares changed from Hongda Industrial to Shudao Group, and the actual controller changed from Liu Canglong to the Sichuan Provincial State-owned Assets Supervision and Administration Commission.

Due to the priority property rights enjoyed by the 50 million pledged shares held by Hongda Industrial, the confirmation of the debt secured by the property guarantee has been temporarily suspended pending litigation, and the delivery cannot be made temporarily. According to the Reorganization Investment Agreement and the Reorganization Plan, within 30 working days after the elimination of the temporary suspension reasons for this debt, the administrator will assist in the delivery of the 50 million shares and register them under the name of Shudao Group.

After acquiring all 0.609 billion shares in Hongda's private placement this time, Shudao Group's shareholding in the company will increase to 43.38%, further enhancing its control over the Shudao Group.

Regarding the obligation to make a tender offer triggered by relevant regulations, Hongda shares announced that, given that Shudao Group has committed not to transfer the shares subscribed in this issuance within 36 months from the date of the issuance of shares, meeting the conditions that exempt from making a tender offer, the Board of Directors agreed to propose to the shareholders' meeting to approve the exemption for Shudao Group from making the tender offer.

However, this acquisition still needs to go through the approval procedures of state-owned asset supervision and administration, and can only be implemented after being reviewed and approved by the shareholders' meeting of the listed company, the Shanghai Stock Exchange, and registered by the China Securities Regulatory Commission.

This time, Shudao Group will subscribe to the raised amount of 2.853 billion yuan in cash, while the funds used to acquire Hongda shares previously also all come from its own funds or self-raised funds.

According to its official website, Shudao Group was established in May 2021. It is a provincial state-owned enterprise formed through the restructuring of Sichuan Provincial Transportation Investment Group Co., Ltd. and Sichuan Provincial Railway Industry Investment Group Co., Ltd. After equity transfer, Sichuan State-owned Assets Supervision and Administration Commission indirectly holds 90% of the shares, and Sichuan Provincial Finance Department holds 10% of the shares indirectly.

Currently, Shudao Group has more than 500 wholly-owned and holding subsidiaries at all levels, and its businesses cover more than 30 countries and regions. It has three listed companies, Sichuan Road & Bridge, Sichuan Chengyu, and Shudao Equipment, and seven 3A-level domestic credit rating entities. As of the end of 2023, the total assets of Shudao Group exceeded 1.34 trillion yuan, and the annual revenue exceeded 266 billion yuan.

"Hongda Group" has stopped its aggressive expansion, facing debt pressure and urgently needing funds.

As Sichuan's 'capital giant', Liu Canglong founded Sichuan Hongda Group, covering six sectors including industry, mining, finance, real estate, trade, and investment, and became the actual controller of the 'Hongda system' centered on Hongda Industry and Hongda Group, owning two listed companies of Hongda Stock and Jinlu Group.

Established in 1979, Sichuan Hongda was restructured into a joint-stock enterprise in 1994 and listed on the A-share market in 2001. Sichuan Hongda has also gradually developed into a diversified, multi-industrial economic entity dominated by nonferrous metal smelting and phosphorus chemicals, with products covering fertilizer, chlor-alkali, zinc ingots, zinc alloys, metal materials extracted from their waste residues, rare metals (molybdenum, indium, germanium), zinc oxide, and so on.

In the first half of 2024, Hongda shares achieved an operating income of 1.762 billion yuan, a year-on-year increase of 21.12%; net income attributable to the parent company was 0.058 billion yuan, an increase of 187.68% year-on-year, compared to a loss of 0.067 billion yuan in the same period of the previous year. Regarding the performance improvement, Hongda shares mentioned that in the first half of the year, there was sufficient orders for phosphorus compound fertilizer products, significant growth in orders for phosphate series products, with the company's production and operation thriving; the company's associated rare and precious metal extraction technology made significant breakthroughs, improving the recovery rate of associated rare and precious metals such as gold, silver, and copper in raw materials.

As the "Hongda Group" gradually collapses, the debt issues of Hongda shares still persist.

During the period from 2003 to 2009, Sichuan Hongda acquired 60% equity of its former controlling subsidiary Jinding Zinc Industry successively through capital increase and equity transfer. Due to contract disputes, the four shareholders of Jinding Zinc Industry, Yunnan Metallurgical Group Co., Ltd., Nujiang State-owned Assets Management Co., Ltd., Lanping Bai and Pumi Autonomous County Finance Bureau of Yunnan Province, and Yunnan Copper, as the plaintiffs, sued Sichuan Hongda and Hongda Group.

On December 24, 2018, the Supreme People's Court made a final judgment on the contract dispute case between Sichuan Hongda and Jinding Zinc Industry. According to the judgment, Sichuan Hongda's original 60% equity in Jinding Zinc Industry was invalidated. After deducting the capital increase payment of approximately 0.496 billion yuan already paid, the company must return profits of approximately 1.074 billion yuan obtained from 2003 to 2012 to Jinding Zinc Industry within fifteen days from the effective date of the judgment. At the same time, Jinding Zinc Industry is no longer included in Sichuan Hongda's consolidated financial statements from January 1, 2018.

As of the end of June 2024, Sichuan Hongda has returned profits of 0.651 billion yuan to Jinding Zinc Industry through cash and asset debt offsetting, and there are still principal repayments of 0.423 billion yuan and delayed performance funds of 0.21 billion yuan to be paid to Jinding Zinc Industry, totaling 28.76% of the company's total assets as of the end of June 2024.

In addition, the Higher People's Court of Yunnan Province, Chengdu Intermediate People's Court, and Qingyang District Court have respectively frozen and seized some of Sichuan Hongda's assets. The 10% equity of Sichuan Trust held by the company, and the equity of 7 subsidiaries held by the company have been frozen. Fixed assets such as 135 properties in Shifang City, 11 land use rights, and intangible assets under the name have been sealed. As of the end of June 2024, the book values of the fixed assets and intangible assets sealed due to the Jinding Zinc Industry contract dispute case were 42.6561 million yuan and 36.8284 million yuan respectively.

Due to the heavy debt burden caused by the Jinding Zinc Industry contract dispute case, Sichuan Hongda is currently facing a shortage of liquid funds. As of the end of June 2024, Sichuan Hongda's monetary funds amount to 0.252 billion yuan, short-term borrowings are 0.71 billion yuan, the asset-liability ratio is 82.78%, and the shortage of liquid funds has resulted in a weak ability to repay short-term debts.

Regarding this private placement, Sichuan Hongda stated that some of the funds raised are intended to be used to repay debts, including the repayment of principal and delayed performance funds of Jinding Zinc Industry, as well as short-term borrowings.