Behind Jingwei Textile's Listing Termination Announcement

It is rare for a company on a Chinese stock exchange to voluntarily apply for delisting without triggering delisting conditions in the A-share market.

Credit: Visual China

Credit: Visual China

BEIJING, Aug 30 (TMTPost) —— Jingwei Textile Machinery suddenly announced its plan to terminate its listing on Tuesday evening. After resuming trading on Wednesday, the company's stock price rose to a daily limit.

At the same time, Jingwei Textile Machinery also stated that the company had originally planned to disclose its semi-annual report on Thursday, but due to the aforementioned market changes that may have a significant impact on the company, it may not be able to release the report by the statutory deadline. If it cannot be disclosed by the deadline, the company's stock would be suspended on Friday.

The announcement shows that in order to protect the interests of investors, Hengtian Group will provide cash option rights to all A-share shareholders registered on the registration date, except for Hengtian Group and China Textile Machinery Group. The exercise price is 9.24 yuan per share, which is the daily weighted average price for the 30 trading days before the decision to terminate the listing was made the general meeting of shareholders. TMTPost noted that the company's stock price had fallen sharply before the suspension, with a cumulative decline of over 19% from August 14 to August 25.

As for the reason for Jingwei Textile Machinery's active delisting, the market generally believes that it may be related to the risk of default of Zhongrong Trust affiliated to the company. Since the beginning of this year, there have been continuous reports about the suspension of redemption by Zhongrong Trust, and10 A-share listed companies have been affected so far.

Stock price falls sharply before the suspension as the company planned to proactively terminate the listing

Jingwei Textile Machinery previously announced a suspension of trading in its stock starting from Monday, citing significant matters related to its shareholder Hengtian Group. However, the suspension turned out to be outright delisting.

The announcement shows that due to changes in the market, there are significant uncertainties faced by the company's operations , which may have a significant impact on the company. In order to protect the interests of small and medium-sized shareholders, proposed by the company's shareholders Hengtian Group and Hengtian Holdings, and approved by the company's board of directors, the company plans to proactively withdraw the listing of its A-shares on the Shenzhen Stock Exchange through a resolution of the general meeting of shareholders.

As for the post-delisting plan, Jingwei Textile Machinery stated that it will focus on its main textile machinery business, strengthen intelligent textile machinery equipment, digital technology services, overseas market expansion, and stock market transformation, in order to accelerate the transformation from a traditional manufacturing enterprise to a service manufacturing enterprise and digital technology enterprise, and continue to improve the company's profitability and operational quality.

Meanwhile, the company plans to be listed on the National Equities Exchange and Quotations (NEEQ) after delisting, but there is currently no specific timeline for relisting.

In addition, the company stated in the announcement that in order to fully protect the interests of investors, it will initiate protection mechanisms for dissenting shareholders and other shareholder. After the termination of the listing by the resolution of the shareholders' general meeting, which is approved by the shareholders' general meeting, Hengtian Group will provide cash option rights to all A-shareholders registered on the record date (tentatively set as September 13, 2023) except for Hengtian Group and China Textile Machinery Group.

According to the announcement, the exercise price of the cash option rights is 9.24 yuan/share, which is the arithmetic average of the daily weighted average prices of the 30 trading days before the resolution of the board of directors to terminate the listing by the resolution of the shareholders' general meeting. In other words, regardless of the trend of Jingwei Textile Machinery's stock price, investors can choose to exercise at a price of 9.24 yuan per share. After the opening on Wednesday, Jingwei Textile Machinery’s stock price immediately hit the limit, closing at 8.86 yuan, which was 4.29% higher than the exercise price mentioned above.

However, there are also risks. First, if the shareholders' general meeting fails to pass the resolution on the termination of the company's stock listing by the resolution of the shareholders' general meeting, dissenting shareholders and other A-shareholders will not be able to obtain cash option rights and cannot claim any compensation from the company or Hengtian Group. Second, if the company's stock price is higher than 9.24 yuan when applying for the exercise of cash option rights, shareholders may suffer losses.

Credit: Wind

Credit: Wind

Before the suspension of trading, the stock price of Jingwei Textile Machinery had experienced a sharp decline. On August 14, the stock price of the company suddenly hit the floor and subsequently fell for several days, reaching a low point of 7.98 yuan last Wednesday. From August 14 to August 25, the stock price of Jingwei Textile Machinery fell by more than 19%, and the market value shrank by more than 1 billion yuan.

Multiple companies hit by Zhongrong Trust

Jingwei Textile Machinery was established in August 1995 and listed on the A-share market in December 1996. The company is a leading global supplier of complete sets of cotton textile process equipment, with products covering spinning, weaving, twisting, chemical fiber, and special parts. Among them, intelligent spinning systems and digital twisting systems have gained global competitiveness. Its controlling subsidiary, Zhongrong International Trust Co., Ltd., is engaged in trust business.

As of the end of the first quarter of this year, the top three shareholders of Jingwei Textile Machinery were China Textile Machinery (Group) Co., Ltd. (holding 31.13%), Hengtian Holdings (holding 24.49%), and Hengtian Group (holding 2.70%). All three are state-owned enterprises, with affiliated relationships and acting in concert.

From a financial perspective,, Jingwei Textile Machinery achieved an operating income of 11.887 billion yuan in 2022, a year-on-year decrease of 4.21%. The net profit attributable to the parent company's shareholders was 454 million yuan, a year-on-year decrease of 24.42%.The company's total assets were 39.238 billion yuan as of December 31, 2022, a year-on-year decrease of 5.58%. The net assets were 9.895 billion yuan, a year-on-year increase of 5.20%, without triggering delisting conditions.

In fact, it is very rare for a company to voluntarily apply for delisting without triggering delisting conditions in the A-share market. Therefore, investors have various speculations about the reasons for Jingwei Textile Machinery's delisting.

Currently, the market generally believes that Jingwei Textile Machinery's voluntary delisting may be related to the risk of default by its subsidiary, Zhongrong Trust, and is not directly related to the company's textile main business.

Public information shows that Zhongrong Trust was established in 1987, formerly known as Harbin International Trust and Investment Company, and its trust asset management scale exceeded 100 billion yuan in 2009. Currently, Jingwei Textile Machinery holds 37.47% of the shares, making it the largest shareholder, and Zhongzhi Enterprise Group, Harbin Investment Group, and Shenyang Antaida Commerce and Trade Co., Ltd. hold 32.99%, 21.54%, and 8.01% respectively.

There have been continuous reports about Zhongrong Trust suspending redemption of its products since the beginning of this year, and several listed companies have also been affected. As of Monday, 10 A-share listed companies have announced that they have bought Zhongrong Trust's products and failed to redeem them as scheduled. According to the announcement, the cumulative amount of overdue non-redemption by Zhongrong Trust to the above-mentioned companies has exceeded 200 million yuan.

In fact, Jingwei Textile Machinery also revealed the difficulties faced by Zhongrong Trust in its 2022 annual report. The annual report shows that as of the end of last year, Zhongrong Trust had 1,633 outstanding trust plans, with entrusted assets under management of 629.3 billion yuan, a decrease in scale compared to the previous year. Due to factors such as real estate policy regulation and increased market risks and credit risks, the difficulty of expanding new business for Zhongrong Trust has increased, and its marketing business has faced unprecedented pressure. Particularly, with the successive occurrence of default by some cooperative trading parties and  some projects in the stage of delayed disposal in the management of stock projects after investment and financing, the risks and losses of stock projects have increased.

Furthermore, affected by the fluctuations in the capital market, Zhongrong Trust's capital market projects have suffered floating losses. Overall, the trust industry is facing the challenges of economic downturn, increasing investment risks, and difficulties in expanding business. Against the backdrop of the transformation of old and new driving forces in the trust industry, Zhongrong Trust's new business has significantly declined, and its performance is under great pressure.

Some insiders suggest that, it is better to proactively delist through cash repurchase instead of waiting for the stock price to decline continuously as the crisis of Zhongrong Trust's suspension of redemption continues to ferment. This approach can not only legally isolate financial risks from the capital market but also reduce information disclosure, while protecting the interests of public shareholders to a certain extent. (This article was first published on TMTPost App. Reporting by Zhai Biyue)

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