Why Xiamen International Trade Group Plans To Buy Shares At A Premium Of 30%?

In financial crisis, Zhengtong auto is continuing to rescue itself, but now the controlling shareholder wants to sell 30% of the company's shares.

In the morning of July 31, Zhengtong automobile announced that the company was informed by the controlling shareholder joy Capital Holdings Limited (hereinafter referred to as joy capital) that it had recently entered into a letter of intent with an independent third party (potential buyer). According to the letter of intent, joy capital intends to sell, while the potential buyer intends to purchase about 29.9% of Zhengtong automobile's equity.

Xiamen International Trade Group (hereinafter referred to as the state-owned commodity trading group) is engaged in the business of Xiamen International Trade Group Limited (hereinafter referred to as the "state-owned commodity circulation group") and is engaged in the business of Xiamen International Trade Group Limited (hereinafter referred to as the "state-owned commodity circulation group"), and is engaged in the business of Xiamen International Trade Group Limited (hereinafter referred to as the state-owned commodity circulation group).

If the transaction is concluded, the controlling right of Zhengtong automobile will change. According to the data, joy capital holds 1.38 billion shares of Zhengtong automobile, accounting for 51% of the company's total share capital after the recent additional issue. Once the 29.9% equity is sold, joy capital will only hold just over 20% of the company's shares, ranking behind the new shareholder. According to the announcement, after the transaction is implemented, the international trade group will become a strategic investor of the company.

For Zhengtong automobile, which is still in crisis, the transfer of shares by the controlling shareholder will not directly improve the company's financial situation. However, with the participation of new investors, the company is expected to usher in a turnaround. Zhengtong automobile said in the announcement that it is expected that the relationship (referring to equity) will provide synergy and significant opportunities for the company to further develop and strengthen the company's auto distribution, auto financial services and other business with the scale, network and financial strength of the international trade group.

The introduction of war investment has been unanimously recognized by the capital market. On July 31, Zhengtong shares rose 39.51% to HK $1.13.

Auto distribution business integration?

From the perspective of business layout, there are rules to follow in the acquisition of Zhengtong automobile by Guomao group.

According to the official website information of Guomao group, automobile circulation trade is an important business of the company. Xinda International Trade Automobile Group (hereinafter referred to as Xinda International Trade) is the largest automobile distribution service provider in Fujian Province. Its main business is automobile 4S brand distribution, automobile finance, automobile aftermarket service, etc.

After the integration of China International Trade Group Co., Ltd. (hereinafter referred to as "China International Trade Group") and China International Trade Group Co., Ltd. (hereinafter referred to as "China International Trade Group Co., Ltd.), the two listed companies of China International Trade Group Co., Ltd. (hereinafter referred to as" Cinda ") were integrated into Xiamen International Trade Group Co., Ltd. (hereinafter referred to as" Cinda ") after the integration of the two listed companies.

Although Xinda International Trade has a large scale in Fujian Province, it has not entered the first camp nationwide. According to the list of top 100 auto dealer groups in 2020 released by China Automobile Circulation Association in June this year, Xinda International Trade Co., Ltd. only ranked 49th. Last year, its total revenue was 9.406 billion yuan, and its total sales volume was 42000 vehicles. In comparison, Zhengtong automobile ranked No.13 with a total revenue of 35.138 billion yuan and a total sales volume of 119000 vehicles.

On the afternoon of July 31, a reporter from 21st century economic news called Xiamen Xinda securities affairs department. The other party said that it was not clear about the specific situation of the strategic investment of Zhengtong automobile by the major shareholder (i.e. Guomao group) and the subsequent business collaborative planning. "We only got the news today." He said it was mainly decision-making at the level of large shareholders, and it was only the intention stage at present.

It is uncertain whether the agreement agreed in the letter of intent can be implemented.

However, the current stock price of Zhengtong automobile is at a low point, which is obvious for new investors. Although according to the agreement of intent disclosed in the announcement, the share price of the acquisition shall not be less than 30% of the share price premium per share within 120 consecutive trading days before the signing of the letter of intent. In fact, the share price of Zhengtong automobile has reached the bottom. Affected by the financial problems and its chain reaction, the share price of Zhengtong automobile once fell to HK $0.72/share on July 27 Shi Xin is low.

Financial crisis to be solved

Zhengtong automobile was listed on the Hong Kong Stock Exchange in 2010, and it is also the first luxury car dealer group listed in Hong Kong, China. It mainly distributes luxury and ultra luxury brand cars. In 2011, the company once purchased the Shenzhen Zhongqi Nanfang company with a scale of twice as much as 5.5 billion yuan.

However, the current Zhengtong automobile is suffering from financial crisis. In the near future, Moody's will downgrade its "debt rating" from "cab3" to "negative rating" of "family companies". Moody's said it still needs to solve a large number of auto debt due soon.

Prior to July 21, Zhengtong automobile was exploded and failed to repay a installment loan of about $100 million in full. It is reported that the loan was signed in January 2018, with an initial loan amount of US $380 million and then increased to US $415 million. Zhengtong automobile subsequently announced that it had paid 30% of the loan principal and accrued interest in two installments, but also admitted that it would extend the installment loan to January 2021 with the consent of the lending institutions in principle.

This is just a microcosm of Zhengtong's financial crisis. According to the financial report in 2019, the company's total assets are 44.858 billion yuan (RMB, the same below), and the total liabilities are 31.218 billion yuan, including 25.819 billion yuan of current liabilities. In terms of segmentation, short-term loans are as high as 17.028 billion yuan, notes payable are 2.447 billion yuan, and short-term debts are 19.475 billion yuan. At the same time, the unrestricted cash and cash equivalent of Zhengtong automobile is only 1.497 billion yuan.

In the new year, Zhengtong Auto's main business has been hit hard and its solvency has been further reduced. In the first quarter of 2020, the company's operating revenue was 3.131 billion yuan, a year-on-year decrease of 64.2%. The net profit was changed from 200 million yuan in the same period of last year to a loss of 54 million yuan.

Xinguan epidemic is one of the factors that affect Zhengtong automobile. Among the 135 distribution outlets of Zhengtong automobile in China, 20 are in Hubei, including 14 in Wuhan. Its offline business in Wuhan has also been completely suspended. According to the analysis of China Merchants Securities, the business in Wuhan is affected by the epidemic situation, which has affected the performance of Zhengtong automobile company by about 5% - 10%.

Whether the introduction of external shareholders can bring the company's financial situation back to life remains to be seen. According to the assumption of both sides, the integration and synergy effect will activate the main business of the company at least to a large extent, so as to solve the financial problems.

Zhengtong automobile has been making efforts in many ways, trying to maintain the company's capital chain and normal operation. At the beginning of this year, the company issued 1.73 billion US dollars of preferred notes. Recently, the company has completed an additional issue in the secondary market, issuing 245 million shares at a premium of 30%, accounting for 10% of the total equity of the company at that time. After the completion of the transaction, the net income was more than HK $263 million, which was mainly used for general working capital purposes: 90% will be used for automobile business (including the purchase of automobiles and related accessories), and 10% will be used to repay overseas operating expenses.

Obviously, solving the financial crisis for Zhengtong automobile will not be a short-term problem.

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