A Shares Conjoined Baby Company &Nbsp; Rongsheng Petrochemical And *ST Guanghua Cross Shareholding

In the past two months,

So what exactly is the reason why *ST Guanghua's share price is skyrocketing? What kind of logic is behind it? The reason for it is also a reorganization plan announced by *ST Guanghua in February this year.

According to the company's previous disclosure

According to the report issued by the SW Research Institute in October 8th, "according to the current polyester polyester price and price difference level, we estimate that Hengyi Petrochemical's actual performance is 2 yuan."

This means that the price of 31.35 yuan corresponds to the dynamic price earnings ratio of *ST brilliance in 2010, which is only about 15.7 times. Of course, the premise is that the reorganization plan of the listed company is approved by the regulatory authorities.

It is worth mentioning that in August 20th of this year, the Rongsheng Formosa Petrochemical Co (the "Rongsheng petrochemical") successfully crossed the small and medium-sized board, and it also became a catalyst for the price rise of *ST Guanghua, which originated from the prosperous profits of Rongsheng Petrochemical Company and the Hengyi Petrochemical Company, which is to be injected into *ST Guanghua. Most of the net profit comes from Zhejiang Yisheng Petrochemical Co., Ltd. (hereinafter referred to as "Yisheng Petrochemical Co., Ltd.").

Because of this, the relationship between Rongsheng Petrochemical Company and Hengyi Petrochemical Company is interdependent and interdependent. If Rongsheng Petrochemical has been listed on the small and medium-sized board, it will have a comparative effect if it is injected into *ST.

According to the disclosure prospectus issued by Rongsheng petrochemical, the company's net profit in 2009 was about 782 million 600 thousand yuan. After the issuance of the 556 million shares, its earnings per share were about 1.4 yuan. Even if the price earnings ratio was 40 times, the issuance price of Rongsheng petrochemical company would reach 56 yuan, which would raise the stock price of *ST Guanghua two market at the other end of the stilt seesaw.

Cross shareholding strange figure survey

"For Rongsheng petrochemical, its controlling stake in Dalian's Yisheng is only 51% of its main contribution to profits, and Zhejiang Yisheng holding 49% of Hengyi Petrochemical Holdings has formed a competitive relationship with it. Obviously, it will raise doubts about such a shareholding structure," an analysis of a brokerage investment bank in Shanghai said. "After adjustment, Rongsheng Petrochemical increased its shareholding ratio to Dalian Yisheng to 70%, which means that there is no possibility of easy change of control rights."

According to the report of *ST Guanghua's major asset sale and issue of shares to buy assets and related pactions published in April 30th, Heng Yi Petrochemical realized a net profit of about 612 million 800 thousand yuan in 2009, which is almost the same as that of the two companies of Yisheng, Zhejiang, which owns 51% of the company, and 49% of Dalian's Yisheng shares. The profit of the company's contribution to the shareholding ratio is equivalent to that of the company. On the other hand, according to the financial data provided by Rongsheng petrochemical, in 2009, Yisheng of Dalian, holding 51% of its shares and 49% of Zhejiang's shares, contributed about 604 million 600 thousand yuan net profit, accounting for 77% of the company's net profit sum of 783 million yuan in 2009.

From this point of view, Zhejiang Yisheng and Dalian Yisheng both contributed nearly 87% of the net profit of Hengyi petrochemical and Rongsheng petrochemical in 2009.

Reporters learned that Li Shuirong and Qiu Jianlin, who were also born in Xiaoshan, Hangzhou, in early 2003, tried to cooperate in the production and sale of PTA in Ningbo; so in March, Qiu Jianlin, the Hengyi group controlled by Qiu Jianlin, Rongsheng chemical fiber company under the control of Li Shuirong and the Hong Kong investment made by foreign investors, jointly invested in Zhejiang Yisheng, including Hengyi group and Rongsheng chemical fiber invested 11 million 48 thousand and 200 yuan, accounting for 37% of the registered capital respectively, and the remaining 26% of the investment came from Hong Kong investment.

In April 2006, Yisheng, Zhejiang, merged with Hengsheng catalyst company in Zhejiang. After absorbing the capital contribution of Hengsheng catalyst and Hengsheng three waste shareholders, Zhejiang Yisheng registered capital increased from 29 million 860 thousand US dollars to 89 million 580 thousand US dollars. The shareholding ratio of Hengyi group, Rongsheng chemical fiber and Hong Kong Investment was diluted to 29%, 29% and 28.67% respectively, while Hengsheng chemical company, representing Hengsheng shareholders, held 13.33% equity interest.

In May of that year, Hengsheng Chemical Co. pferred 50% of 13.3% of Zhejiang Yisheng share to Hengyi group and Rongsheng chemical fiber company. After 1 months, Zhejiang Yisheng once again merged the original shareholder Hengsheng chemical industry. After completing the industrial and commercial registration in November of that year, Zhejiang Yisheng and Rongsheng chemical fiber group each held 36.07% of the shares, and the foreign invested port invested HK $31 million 910 thousand to get 27.86% of the shares.

With the rapid development of Yisheng in Zhejiang, Li and Qiu decided to expand PTA business in the second half of 2005. This time we chose Dalian Dahua Group as the partner of the two businesses.

So Rongsheng petrochemical and Hengyi group registered in Dalian, Dalian Yisheng, Li and Qiu, respectively, two people controlled by Rongsheng petrochemical and Hengyi Group invested 100 million yuan respectively.

After the completion of the investment platform, Dalian Yisheng and Dahua Group jointly invested 595 million 680 thousand in April 2006 to set up yishenghua Petrochemical Co., Ltd. (hereinafter referred to as "yishenghua") to engage in PTA business, of which Dalian Yisheng invested 75%, and the remaining 25% was invested by Dahua Group.

Statistics show that, at the beginning of Yisheng, Dalian Yisheng and Dahua Group only paid 70% of their registered capital, then gradually made up in the first half of 2008. In the second half of the year, two shareholders also agreed to increase capital to yishanda. The registered capital was changed to 1 billion 200 million yuan, of which 604 million 320 thousand yuan was newly registered capital invested by Dalian Yisheng and Dahua Group.

After the completion of capital increase in December of that year, Dalian Yisheng's controlling power rose from 75% to 80%.

It should be noted that in March 2008, Yisheng, Dalian also made a capital increase, but this new 700 million yuan registered capital, Hengyi Petrochemical (shares in December 2007 handed over from the Hengyi group) invested 341 million yuan, while Rongsheng Petrochemical invested 359 million yuan, which allowed the Rongsheng Petrochemical to hold Dalian's Yisheng holdings with a 51% stake.

On the other side, Yisheng, Zhejiang, first invested $61 million in undistributed profits in February 2007 to increase its capital. In June of that year, the Hong Kong investment as a foreign investment background opted out, the 100% of which was controlled by Hengyi Petrochemical Company (by the wholly owned subsidiary of Hongkong Tianyi 100% controlling stock) and Hongkong Shenghui, a wholly owned subsidiary of Rongsheng Petrochemical Company, which invested 13.93% of its investment. At the same time, Hengyi petrochemical and Rongsheng Petrochemical also took over the holdings of the original Hengyi group and Rongsheng Chemical Fiber Co., respectively, and their respective actual shareholding ratios still accounted for 50% each.

However, in the second half of 2008, Dalian Yisheng increased its capital and ultimately controlled by Rongsheng petrochemical. Rongsheng Petrochemical pferred its stake in Zhejiang Yisheng 1% to 14 million 910 thousand yuan to Hengyi Petrochemical Company, so that the latter held 51% of the shareholding ratio (including 13.93% of Jia's International Holdings) successfully holding Zhejiang Yisheng.

At this point, at the beginning of the cooperation between Li Shuirong and Qiu Jianlin, whether Zhejiang Yisheng or Dalian Yisheng split the right to speak, the situation changed. Finally Li chose to hold Dalian Yisheng, while Qiu chose the controlling power of Yisheng, Zhejiang.

As of February this year, the shareholding structure of Hengyi petrochemical company did not change when it launched the reorganization plan for *ST Guanghua, but the listing plan of Rongsheng Petrochemical changed the structure.

In June 8th of this year, Rongsheng Petrochemical was granted a 19% stake in Yisheng, which was held by Hengyi Petrochemical Company, so that its shareholding ratio of Dalian Yisheng increased to 70%. At the same time, Rongsheng Petrochemical pferred its 19% stake in Yisheng, which was held by Zhejiang, to Hengyi Petrochemical Company, which rose to 70% of Zhejiang's Yisheng stake in Dalian.

The difference is that Dalian's Yisheng 19% stake is priced at 221 million yuan, while Zhejiang Yisheng's 19% stake is worth 325 million yuan.

"For Rongsheng petrochemical, its controlling stake in Dalian's Yisheng is only 51% of its main contribution to profits, and Zhejiang Yisheng holding 49% of Hengyi Petrochemical Holdings has formed a competitive relationship with it. Obviously, there will be doubts about such a shareholding structure," an analysis of a brokerage firm in Shanghai said. "After adjustment, Rongsheng Petrochemical increased its shareholding ratio to Dalian Yisheng to 70%, which means that there is no possibility of easy change of control rights."

Profit cake is re segmented

In the draft of *ST Guanghua's reorganization, Hengyi group's earnings commitments were 795 million yuan in 2010, 881 million 150 thousand yuan in 2011 and 890 million 270 thousand yuan in 2012. If the total sum of three years' earnings did not reach 2 billion 566 million 420 thousand yuan, then *ST Guanghua would be sent to Hengyi group and other two shareholders for the first time and the CDH Yuan Bo three party repurchase shares, so as to realize the performance compensation of listed companies.

Because Rongsheng petrochemical and Hengyi Petrochemical (*ST Guanghua) in Zhejiang draft prospectus and draft reorganization of the Yisheng Yisheng and Yisheng in Dalian, recent three years (2007-2009 years) related earnings data have been disclosed, the reporter found that through comparison, including Dalian Yisheng data, but the two companies for Dalian Yisheng disclosure data slightly different.

According to Rongsheng petrochemical, Zhejiang Yisheng recorded a net profit of 75 million 63 thousand and 900 yuan in 2007, while the data disclosed by *ST Guanghua in February and April end showed that the company's net profit in 2007 reached 104 million 325 thousand and 300 yuan and 106 million 112 thousand and 300 yuan; however, the earnings data of Zhejiang Yisheng 2008 and 2009 respectively disclosed by the two companies were basically the same.

In terms of dividends, Zhejiang Yisheng's profits in 2006 were directly converted into capital stock to increase capital. In December 2008 and January this year, the total dividends were 730 million yuan, and Dalian Yisheng paid 254 million yuan in April this year.

Although the complete accounting data of Yisheng Yisheng and Yisheng, Zhejiang have not been disclosed from the publicly available data, they can be seen from the last three years' data.

Zhejiang Yisheng, first established in 2007, recorded a net profit of 75 million 63 thousand and 900 yuan, 160 million 668 thousand and 500 yuan and 744 million 360 thousand and 300 yuan respectively in -2009 in 2007. In the first half of this year, the company recorded a net profit of 527 million 383 thousand and 900 yuan. Compared to 2006, Dalian Yisheng, who was involved in the PTA business through the holding subsidiary's Yanda Shanda, only recorded a net profit of 7 million 552 thousand and 600 yuan in 2007. It even suffered a loss of 11 million 779 thousand and 700 yuan in 2008, and realized 470 million 365 thousand and 200 yuan and 451 million 804 thousand and 700 yuan net profit in 2009 and the first half of this year respectively.

{page_break}

Profitability, at least so far, Zhejiang Yisheng is still stronger than Dalian Yisheng, because its 19% equity pfer in June this year, Zhejiang Yisheng, the price of 325 million yuan is significantly higher than the 19% of Dalian Yi Sheng 19% equity 221 million yuan pricing, so Hengyi Petrochemical will also need to Rongsheng Petrochemical cash to make up the difference of about 104 million yuan.

In August 3rd, *ST Guanghua issued a special report on the impact of the above equity adjustment on the 2010 earnings forecast of the company: after adjusting the profit forecast for Hengyi petrochemical, the combined net profit in 2010 was about 1 billion 132 million 882 thousand and 200 yuan, less than 72 million 246 thousand and 200 yuan before the adjustment, or about 5.99% less.

From the point of view of capacity, Zhejiang Yisheng has two large PTA production installations and 106 tons of production capacity. Yisheng has the largest single PTA production facility with a design capacity of 1 million 200 thousand yuan, but Dalian Yisheng owns only 80% of yishanda 80%, so it is estimated that the design capacity of Dalian Yisheng owns about 960 thousand tons.

From the profit forecast released by *ST Guanghua in the April 30th reorganization bill, although the net profit of Yisheng Hua will exceed Zhejiang's Yisheng after 2011, the profit of Dalian's Yisheng 80% is still 10% lower than that of Zhejiang's Yisheng. This means that although the profits of Hengyi Petrochemical Company are lower than expected after paying 1 billion 40 million yuan in cash this year, the difference will be gradually obtained in the following years. From this point of view, the equity adjustment will basically balance the interests of both sides.

According to *ST Guanghua's profit forecast in August, Hengyi Petrochemical Company will record net profit of 1 billion 132 million 882 thousand and 200 yuan this year, while *ST Guanghua issued no more than 450 million shares to all shareholders of Hengyi Petrochemical Company on the basis of the original 143 million 900 thousand shares, and the total share capital will not exceed 593 million 900 thousand shares, which means that earnings per share will reach at least 1.91 yuan.

However, in the draft of *ST Guanghua's reorganization, Hengyi group's earnings commitments were 795 million yuan in 2010, 881 million 150 thousand yuan in 2011 and 890 million 270 thousand yuan in 2012. If the total sum of three years' earnings did not reach 2 billion 566 million 420 thousand yuan, then *ST Guanghua would be awarded to Hengyi group and other two shareholders in the first phase of CDH and the three party repurchase shares of CDH Yuan Bo, in order to achieve the performance compensation of listed companies.

According to the report issued by SW Research Institute in October 8th, as the commitment of Hengyi Petrochemical Company is three years gross profit, it is not necessary for *ST Guanghua to retain profits in 2010. On the other hand, as the first year of Rongsheng petrochemical, its release performance is relatively strong this year. At the same time, Shen Wan also judged Hengyi Petrochemical's actual performance to reach 2 yuan this year according to the current polyester polyester price and price difference level. According to this, it has raised the earnings per share of *ST Guanghua from 1.7 yuan to 2 yuan this year, and given a target price of 40 yuan.

Heng Yi PETROCHEMICAL HOLDINGS LIMITED Hengyi polymer (60%), Shanghai Heng Yi (100%) and Hengyi high tech (77.15%) are engaged in polyester polyester related business. The company has polyester polyester spinning and spinning plus 300 thousand tons of capacity. In 2009, three subsidiaries achieved 152 million yuan, 7 million 591 thousand and 800 yuan and 2 million 689 thousand yuan net profit respectively.

Similarly, for the Rongsheng petrochemical company that has already gone through, it has an indirect 56% Yisheng (Dalian Yisheng holding 80%), which is also an important source of profits for the company. It is disclosed that last year and the first half of this year, Yanda Shanda achieved 589 million yuan and 565 million yuan net profit respectively, and the profit of 40.8% (51% x 80%) contributed to 240 million yuan and 230 million yuan for Rongsheng petrochemical. In addition, Zhejiang Yisheng also contributed 330 million yuan and 255 million yuan respectively. The contribution of the two companies respectively accounted for about 589 million yuan of the net profit of Rongsheng Petrochemical Company in 2009 and the net profit of the first half of this year.

For Rongsheng petrochemical, its performance is in addition to the above two one controlling enterprises. Its holdings of Rongxiang chemical fiber is engaged in differential chemical fiber, chemical fiber cloth and polyester chip business. Last year and the first half of this year, it realized net profit of 121 million yuan and 66 million 600 thousand yuan respectively; in addition, Hongkong Shenghui, a wholly owned subsidiary of the company, realized a net profit of 66 million 267 thousand and 200 yuan in the first half of this year.

With Rongsheng Petrochemical's total share capital estimated after the issuance of 556 million shares, Rongsheng Petrochemical Company's earnings per share in 2009 were about 1.4 yuan, corresponding to the current 40-50 times small and medium board issuance price earnings ratio, and its listing price will be around 56-70 yuan.

All roads lead to the same market.

In August 20th, the securities and Futures Commission approved the application of the small and medium board listing of Rongsheng petrochemical, which is understood by many market participants as the regulatory authority acquiescence the shareholding mode of the "Siamese baby" style. After that, *ST Guanghua shares began to soar all the way; and with the time that Rongsheng Petrochemical got approval for issuing approval, the price of *ST Guanghua shares was higher.

Perhaps, when CO investing in PTA business in 2003, Li Shuirong and Qiu Jianlin did not expect that after seven or eight years, two people would share the same venture together to separate their respective businesses.

At the beginning of 2007, with the rising oil prices, the supply of PX (para xylene) of PTA raw materials was tight, and the polyester industry in the lower reaches began to enter the peak season. The domestic PTA market began to go up smoothly, and the market reached its peak before the May 1 holiday. However, oil prices continued to surge all the way in the second half of the year, but the PTA market fell against the trend at the end of the year and fell to the lowest price of 7000 yuan / ton in the whole year.

Nevertheless, Zhejiang Yisheng and Yisheng, who were co operated by Li and Qiu, still made a lot of profits in 2006 and 2007. Li Jun's Rongsheng petrochemical and Qiu controlled Hengyi Petrochemical made more than 200 million yuan net profit in 2007, and entered the second half of 2008. The two sides began to consider "cake". The original 50% share structure was deliberately adjusted to "one reference and one control" in each of the 50%.

Although in the first half of 2008, PTA was out of a round of rising prices due to frequent overhaul of industries and the demand brought by the Wenchuan earthquake. However, the shrinkage of terminal demand began in July, resulting in the loss of the whole industry.

This year, Zhejiang Yisheng recorded a net profit of 160 million yuan, which has just been put into operation for more than two years, but has suffered a loss of about 10000000 yuan.

In the same year, Rongsheng Petrochemical achieved a total profit of 91 million 156 thousand yuan, while Hengyi petrochemical company suffered a loss of 88 million 117 thousand and 100 yuan as a result of its subsidiary Shanghai Heng Yi, Fujian Heng Yi and the loss of the company's headquarters. Although it has realized a profit of up to 613 million yuan in the following 2009, it has been unable to meet the IPO's three consecutive profit requirements.

Perhaps for this reason, Qiu Jianlin controlled Hengyi Petrochemical announced the restructuring plan of *ST Guanghua in February 2009.

According to the restructuring plan announced by *ST Guanghua, on the one hand, Sinorama, the controlling shareholder of *ST Guanghua, purchased all the assets and liabilities of the listed company with cash in the amount of about 195 million yuan. At the same time, Hui Cheng pferred 12 million 237 thousand and 50 shares of its 32 million 237 thousand and 50 shares of *ST Guanghua to the Hengyi group at no more than 296 million yuan in cash. On the other hand, *ST Guanghua issued 9.78 shares to the 5 parties including Hengyi group, CDH phase I, CDH Yuan Bo, Qiu Jianlin and Fang Xianshui and so on.

For the restructured side Hengyi group, when the private placement is granted the control power of the listed company, it also needs to take out 100 million yuan of real gold and silver (296 million yuan to acquire shares while the listed company withdraws 195 million yuan by selling assets).

According to the current stock price estimation of *ST Guanghua about 32 yuan, if the company's market capitalization is about 19 billion yuan after the reorganization is completed, Qiu Jianlin, as the actual controller, will hold about 216 million shares directly and indirectly, and the market value will be 6 billion 900 million yuan.

Unlike Qiu Jianlin, because Rongsheng Petrochemical has met the profit requirement of three consecutive years from 2007-2009 years, and its net profit far exceeds the requirements of the small and medium-sized boards or even the motherboard, Li Shuirong finally chose to direct IPO to the small and medium-sized board.

According to the previously announced prospectus issued by Rongsheng Petrochemical Company, the company plans to have 500 million shares of original stock and plans to issue 56 million shares.

In accordance with the plan for raising funds, Rongsheng Petrochemical Co., Ltd. raised 459 million yuan in total funds of 949 million yuan, which is planned to be used for Yanda Shenghua annual output of 1 million 200 thousand tons PTA project. The remaining 490 million yuan fund is used for Shengyuan chemical fiber annual production of 100 thousand tons of environmental health and multifunctional fiber technology pformation project.

However, the material disclosed by the company shows that the first investment and investment project is 1 million 200 thousand yuan PTA annual output. The item company has completed the investment of 459 million yuan, which means that Yanda is not short of money itself. Besides, in February this year, Yanda Shanda shareholders' meeting also decided to pay 40 thousand yuan in 2009.

This means that when Rongsheng Petrochemical successfully raised funds in the small and medium sized board, the company would use the fund-raising funds to replace the 490 million yuan capital invested first. This is also a common practice for some listed companies that are "not bad money".

With the diluted share capital of 556 million shares issued, Rongsheng Petrochemical's earnings per share in 2009 were about 1.4 yuan, corresponding to the current issue price earnings ratio of 40-50 times the small and medium board, and the company's offering price is expected to be between 56-70 yuan.

However, some investment bankers said that the PTA and the downstream polyester which were engaged in Rongsheng Petrochemical belong to the typical cyclical industry, so the general price earnings ratio will be given a discount.

Even so, from the recent year, the issuance price of Rongsheng Petrochemical will be at least around 50 yuan, which means that the market value of Rongsheng Petrochemical Company will reach 27 billion 800 million yuan, much higher than the 19 billion yuan market value of Hengyi petrochemical company.

Similarly, Li Shuirong, as the real controller of Rongsheng Petrochemical Company, directly owns 47 million 650 thousand shares of the company, and indirectly holds 270 million shares through Rongsheng holdings. If the price of 50 yuan is issued, the market value of Li Shuirong will reach 15 billion 800 million yuan after the listing of Rongsheng Petrochemical Company, which will be more than two times the market value of Qiu Jianlin. More importantly, Li Shuirong controlled Rongsheng Petrochemical can also raise about 2 billion 800 million yuan of cash through IPO, which will raise over 1 billion 800 million yuan of real gold and silver compared with the company's fund-raising plan.

In August 20th, the securities and Futures Commission approved the application of the small and medium board listing of Rongsheng petrochemical, which is understood by many market participants as the regulatory authority acquiescence the shareholding mode of the "Siamese baby" style. After that, *ST Guanghua shares began to soar all the way; and with the time that Rongsheng Petrochemical got approval for issuing approval, the price of *ST Guanghua shares was higher.

After all, Rongsheng petrochemical, which is issued at a price earnings ratio of 40-50 times, is the reference object. If we calculate according to the previously disclosed restructuring plan, the price of *ST Guanghua is about 32 yuan, corresponding to the company's price earnings ratio of 2009 only about 17 times.