The theory of “180 million patients with mental illness” once put Wenzhou Corning hospital Co., Ltd. (hereinafter referred to as Corning hospital) on the cusp of the storm and attracted much attention to the company’s every move. Earlier, the company’s first A-share IPO was rejected by the development and Examination Committee of the CSRC in 2018; In September 2020, the company began to accept the guidance of Guotai Junan Securities Co.Ltd(601211) and launched another sprint to a shares. But the company’s A-share IPO is doomed to be uneven.
Corning hospital recently disclosed that PwC Zhongtian Certified Public Accountants (special general partnership) (hereinafter referred to as PWC) resigned as the company’s auditor. PwC’s reason for resignation revealed interesting information. It said that three anomalies were found after checking the capital flow of Corning hospital and relevant personnel, but the explanation given by relevant parties was not enough.
PwC resigned halfway
Corning hospital announced on the Hong Kong stock exchange of China on January 30 that PwC had resigned as the company’s auditor, and the resignation took effect from January 30.
In the resignation letter, PricewaterhouseCoopers said that Corning hospital planned to make an IPO in a shares. According to the requirements of the CSRC, it checked the capital flow in the personal bank accounts of the company, the actual controller of the company, key management personnel and key financial personnel. In the above verification process, PwC noted a number of large capital flow matters. First, a former individual minority shareholder of the Corning hospital subsidiary and an individual contributor of the existing minority shareholders of several subsidiaries, as well as two decoration project suppliers of Corning hospital, remitted the funds to the personal bank account of the financial personnel of Corning hospital through an employee of the Social Work Department of Corning hospital and relevant financial personnel. These financial personnel deposit the funds into the bank account of Corning hospital through cash deposit after withdrawal, and the accounting of Corning hospital takes these funds as the collection of arrears of patients’ medical expenses for accounting treatment. In 2019 and 2020, the above funds totaled about 14.43 million yuan.
PwC said that Corning hospital provided it with explanations and some materials, but it still had doubts about the rationality of these capital flows and asked the company to provide further explanations and materials.
Second, an employee of the Social Work Department of Corning hospital received a large capital transfer of about 9.79 million yuan from five Decoration Engineering suppliers in 2020 and the first half of 2021. The employee explained to PwC that the fund was entrusted by these engineering suppliers to purchase some materials required for the decoration of the company and provided some materials. However, in PwC’s view, the employee and Corning hospital management still need to further provide information to prove the commercial rationality of these funds and arrange relevant interviews.
Third, a decoration engineer, an original individual minority shareholder of a subsidiary of Corning hospital and an individual contributor of existing minority shareholders of several subsidiaries have large capital transactions with an executive of Corning hospital. From January 1, 2018 to June 30, 2021, the net inflow of the above transfer was about 9.5 million yuan. The executive explained that the funds were borrowed for his personal reasons. PwC believes that relevant parties need to further provide materials to prove the commercial rationality of such funds and arrange relevant interviews.
PwC also said that it suggested that the board of directors of Corning hospital establish an independent investigation committee, and then the independent investigation committee hire a qualified independent third-party investigation agency to assist in the investigation on the above matters, but Corning hospital has not communicated with it on the selection and employment of the third-party investigation agency. PwC believes that it is unable to obtain sufficient and reasonable explanations and evidence for its doubts about the above matters, so as to determine the scope of follow-up audit work to be performed and reasonably estimate the time required to complete the follow-up audit work in 2021. In this case, the audit committee of Corning hospital recommended PwC to resign, and PwC also agreed to resign.
The reporter of the daily economic news noted that Corning hospital appointed PwC as the auditor of the company in 2017 on June 14, 2017, and has not changed the auditor in the following years. In 2017, Corning hospital paid 4.05 million yuan for audit services and 68000 yuan for non audit services; From 2018 to 2020, Corning hospital paid 3 million yuan, 2.6 million yuan and 80000 yuan for audit services respectively, and 70100 yuan, 26500 yuan and 24500 yuan for non audit services respectively.
The reporter noted that PwC has issued unqualified audit reports on the annual financial reports of Corning hospital from 2017 to 2020. PwC said that the verification of Corning hospital was carried out in accordance with the specific requirements of the CSRC, and the scope and requirements of the verification exceeded the audit procedures and scope of the annual audit of listed companies. “Similar verification methods have not been implemented in the annual review of H shares in previous years.” PwC explained.
After PwC resigned, Corning hospital immediately announced the appointment of Lixin Certified Public Accountants (special general partnership) as the company’s auditor. “The company has set up an independent investigation committee according to the proposal of PWC, and the independent investigation committee is investigating.” Corning hospital also said.
Positive second sprint A-share IPO
PwC resigned and revealed the abnormal flow of the company’s capital, which is undoubtedly not conducive to the A-share IPO process of Corning hospital.
Corning hospital’s main business is to provide a full range of specialized medical services for patients with mental and psychological diseases. According to the official website of Corning hospital, founded in 1997, it is the only non-public class III class a psychiatric hospital in China. On November 20, 2015, Corning hospital was listed on the main board of Hong Kong stock exchange, becoming the first listed company of psychiatric hospital in China.
It is worth mentioning that according to the prospectus disclosed by Corning hospital when the Hong Kong shares were listed in 2015, according to Frost & a market research consulting company; Sullivan reports that 180 million people in China are suffering from mental illness. According to the total population of 1.4 billion, the proportion of people with mental diseases in China is 13%, that is, one in eight people has mental diseases. The remark made Corning hospital the “first psychiatric unit” widely known.
On May 27, 2016, Corning hospital publicly announced that it was considering public offering of domestic A shares and listing. In December 2016, Corning hospital’s IPO on the Shanghai main board was accepted by the CSRC. The sponsor of the company’s A-share IPO is China Securities Co.Ltd(601066) securities, the law firm is Hairun law firm, and the accounting firm is PricewaterhouseCoopers. The IPO plans to raise 193 million yuan for the relocation and expansion of Cangnan Corning hospital, the new construction of Pingyang Corning hospital and the construction of Wenzhou Corning hospital training center.
In the prospectus submitted to the CSRC (draft submitted in December 2017), Corning hospital did not quote the data of the above report, but said that “according to the data of the national health and Family Planning Commission, by the end of 2016, there had been 5.4 million registered patients with severe mental disorders in China.”
In March and July 2017, Corning hospital suspended the audit twice due to the replacement of legal counsel and the resignation of signing lawyer. Corning hospital did not restart the A-share IPO until December of the same year.
However, Corning hospital’s A-share IPO application was rejected by the development and Examination Committee of the CSRC in January 2018. According to the inquiry of the development and Examination Commission, Corning hospital has doubts in terms of horizontal competition, compliance with the provisions of accounting standards, related party and related party transactions, conversion of industrial property to medical use, real estate investment and so on.
In September 2020, Corning hospital launched another sprint to a shares. At the end of September 2020, the official website of Zhejiang Securities Regulatory Bureau disclosed the counseling filing documents of Corning hospital. The document shows that the company’s counseling organization is Guotai Junan Securities Co.Ltd(601211) , the accounting firm is PwC, and the law firm is Beijing Jiayuan law firm. By July 22, 2021, Corning hospital has completed the fourth phase of IPO counseling. On September 16, 2021, Corning hospital announced on the stock exchange of Hong Kong, China that the general meeting of shareholders of the company considered and approved the proposal on the initial public offering of A-Shares and listing on the gem.
The proposal shows that Corning hospital plans to publicly issue no more than 8288922 A shares, and the issue price is not lower than the latest audited net asset value per share before the issuance of A-Shares (the net asset per share of the company at the end of 2020 is 17.62 yuan). The company plans to raise a total of 302 million yuan and plans to invest in three major projects, including the construction project of Wenzhou Corning Taizhou central hospital.
According to the information table of enterprises in Zhejiang jurisdiction during the counseling period and under review period (October 2021) issued by Zhejiang Securities Regulatory Bureau on November 5, 2021, Corning hospital is still an enterprise in the counseling period.
