In the inquiry letter of Shanghai Stock Exchange
Verification opinions on Relevant Issues
Shanghai Stock Exchange:
We have received from Guizhou Changzheng Tiancheng Holding Co.Ltd(600112) (hereinafter referred to as “* ST Tiancheng”, “Tiancheng Holdings” or “the company”) the inquiry letter on * ST Tiancheng’s settlement of partial fund occupation through debt restructuring (szgh [2021] No. 2977, hereinafter referred to as the “inquiry letter”) issued by your exchange.
In question 2 of the “inquiry letter”, the announcement said that Tiandi Heming, Galaxy Group and the company signed the creditor’s right and debt repayment agreement to offset part of the company’s debt to Tiandi Heming with part of the company’s creditor’s rights to Galaxy Group. The company and relevant parties are requested to make supplementary disclosure: (1) Tiandi Heming and the company’s former controlling shareholder Galaxy Group, the former actual controller Pan Qi, and the current largest shareholder Guangxi railway development investment fund (limited partnership) whether there is an association or concerted action relationship between them, whether there is an undisclosed agreement or arrangement, and Liu Keyang and Tiandi Heming’s motivation and intention to help Galaxy Group solve the occupation of some funds; (2) if there is a relevant agreement or arrangement between the above-mentioned related parties, whether it will affect the income recognition of this debt restructuring; (3) Quantitatively analyze the specific impact of this debt restructuring on the company’s finance. Please ask the accountant to express his opinions on relevant issues.
Question (1) [company reply]:
On June 5, 2020, Mr. Liu Keyang was elected as a director of Galaxy Biomedical Investment Co.Ltd(000806) (stock code 000806, hereinafter referred to as “Galaxy biology”), and on February 26, 2021, Mr. Liu Keyang was elected as a director of the company. Galaxy Group is the original controlling shareholder of the company and Galaxy biology, and Pan Qi is the actual controller of galaxy group. The signing agreement on controlling shareholders disclosed by Galaxy biology on July 28, 2021
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Suggestive announcement of (Announcement No.: 2021-082), Mr. Liu Keyang and Galaxy Group are acting in concert; Zhao Aiyin, the controlling shareholder of Tiandi Heming company, is Mr. Liu Keyang’s immediate family member, and Tiandi Heming forms a strategic partner with Galaxy Group; Mr. Liu Keyang and Tiandi Heming form an associate with Galaxy Group, the former controlling shareholder and Pan Qi, the former actual controller of the company Mr. Yang and Tiandi Heming have no relationship with Guangxi Railway Development Investment Fund (limited partnership), the company’s largest shareholder (hereinafter referred to as “Guangxi railway investment”).
Mr. Liu Keyang has obtained the entrusted voting right of Galaxy biology and become the actual controller of Galaxy biology, but has not obtained the equity of Galaxy biology yet. At present, the financial situation of Galaxy Group continues to deteriorate and the risk is high. As the concerted action person and strategic partner of Galaxy Group, Mr. Liu Keyang and Tiandi Heming respectively need the strong support of galaxy group and its actual controllers and work together to gradually resolve the risks and problems of galaxy group. Mr. Liu Keyang and Tiandi Heming will gradually obtain the equity of Galaxy biology, which is similar to Mr. Liu Keyang Tiandi Heming is closely related to its own interests. Galaxy Group’s occupation of the company’s funds and illegal guarantee is one of the major risk problems of galaxy group. This debt restructuring is an important condition for Mr. Liu Keyang and Tiandi Heming to obtain the strong support of galaxy group and its controllers.
[accountant’s reply]:
Through online public inquiry, the reply content of the company is consistent with the information disclosed by the company, and no inconsistent information has been found so far.
Question (2) [company reply]:
Except for the above matters and disclosed matters, there is no agreement or arrangement between the above parties that should be disclosed but not disclosed, which will not affect the income recognition of this debt restructuring.
[accountant’s reply]:
The company promises that there are no other agreements or arrangements other than the above and disclosed matters, and no other agreements or arrangements have been found so far.
Question (3) [company reply]:
1. Debts payable to the company due to the occupation of non operating funds of Galaxy Group
As of December 31, 2020, the balance of non operating funds occupied by Galaxy Group to Tiancheng holdings was 310695570.86 yuan. This fund occupation is regarded as the debt payable by Galaxy Group to Tiancheng holdings, and the company has fully accrued credit impairment losses.
2. Shenzhen SDIC commercial factoring Co., Ltd. (hereinafter referred to as “SDIC”) forms creditor’s rights receivable from the company:
On June 15, 2017, Beihai Yinhe switchgear Co., Ltd. (hereinafter referred to as “Yinhe switch”), a wholly-owned subsidiary of the company, signed the state-owned factoring business contract with SDIC (Contract No.: gtbl-yhkg-201706-1), the factoring financing amount is RMB 50 million and the factoring financing period is 12 months. The financing under the contract is used to supplement the enterprise’s working capital and daily production and operation activities. On the same day, SDIC signed the guarantee contract (Contract No.: gtbl-yhkg-201706-1 Bao Zi No. 2) with the company in the form of joint and several liability guarantee.
As Galaxy switch failed to repay the factoring financing funds, interest and other expenses of SDIC on schedule, SDIC filed a lawsuit against Galaxy switch and the company to the court. Shenzhen intermediate people’s Court issued civil judgments (2018) Yue 03 min Chu No. 4075 and (2019) Yue 03 min Chu No. 1971 on December 11, 2020 and October 23, 2020, respectively.
According to the state-owned factoring business contract (Contract No.: gtbl-yhkg-201706-1), the guarantee contract (Contract No.: gtbl-yhkg-201706-1 Bao Zi No. 2) and the civil judgment (2018) Yue 03 min Chu No. 4075 and (2019) Yue 03 min Chu No. 1971 made by Shenzhen intermediate people’s court, beiyashi Asset Appraisal Office (special general partnership) issued《 Guizhou Changzheng Tiancheng Holding Co.Ltd(600112) asset evaluation report on the value of debt involved in the proposed debt restructuring (North Asia review Zi [2021] No. 01-981), as of November 30, 2021, the company and Yinhe switch should return the principal of the repurchase payment of SDIC to RMB 49550000, interest of RMB 21975425, liquidated damages of RMB 6721025, case acceptance fee, preservation guarantee fee and lawyer’s fee of RMB 560946.46, and the total debt of SDIC to be borne is RMB 78807396.46, forming the debt receivable of SDIC to the company of RMB 78807396.46. 3. The creditor’s rights receivable from Tiandi Heming to the company:
According to Article 1 of the asset replacement agreement signed by Tiandi Heming and SDIC, the consideration for Tiandi Heming’s transfer of SDIC’s creditor’s rights is: “SDIC replaces all the real estate with a total area of 11328.80 square meters registered by Tiandi Heming in the name of Anshan Henglong with its creditor’s rights under (2019) Yue 03 min Chu No. 1971 and (2018) Yue 03 min Chu No. 4075 civil judgment”; According to Article 11.4 of the agreement, the effective conditions of the agreement are: “the contract shall come into force after being signed or sealed by the legal representatives, principals or authorized representatives of all parties and stamped with the official seal or special seal for contract”; According to Article 2.5 of the agreement, the termination condition is: “if Anshan Henglong fails to register the change of property rights of all properties in the name of SDIC (or its designated party) within 60 days after the signing of this agreement, the asset restructuring will be terminated, or SDIC and Tiandi Heming will negotiate a transaction plan separately”; According to the supplementary agreement signed by both parties, Party A and Party B agree to continue to perform the main agreement through negotiation; As for the arrangement of creditor’s rights delivery, after all changes of the subject property agreed in the agreement are registered in SDIC, it shall be deemed that the transfer of creditor’s rights delivery is completed, and SDIC shall notify the debtor and the guarantor while delivering the creditor’s rights certificate (one original of the judgment and one set of copies of the corresponding litigation evidence materials) to Tiandi Heming.
At present, the real estate delivery procedures agreed in the asset replacement agreement signed by Tiandi Heming and SDIC have been completed, and SDIC has obtained the real estate registration certificate of all delivered real estate.
Recently, the company received the notice on the transfer of creditor’s rights issued by SDIC, SDIC informed the company that all outstanding creditor’s rights (including but not limited to principal, interest, overdue interest, compound interest, penalty interest, liquidated damages, expenses for realizing creditor’s rights, etc.) of the company under (2019) Yue 03 min Chu No. 1971 and (2018) Yue 03 min Chu No. 4075 civil judgment shall be paid by Tiandi Heming from December 6, 2021 (new creditor) performance, Tiandi Heming has become the legal creditor of the company, thus forming the creditor’s rights receivable by Tiandi Heming to the company of 78807396.46 yuan.
4. Solve the occupation of some non operating funds of the company by Galaxy Group through debt transfer:
After deliberation at the fourth interim board meeting of the company in 2021, the board of directors adopted the debt repayment agreement signed by Tiandi Heming, Galaxy Group and the company to offset part of the company’s debt to Tiandi Heming with part of the company’s debt to Galaxy Group.
Article 3 of the credit and debt repayment agreement: the offset of credit and debt is agreed as follows:
Tiandi Heming agrees to offset the debt of galaxy group to the company of 48807396.46 yuan with its creditor’s rights of 48807396.46 yuan to the company. Galaxy group agrees to accept the company’s debt to Tiandi Heming.
After the signing of this agreement, the creditor’s rights of RMB 48807396.46 enjoyed by Tiandi Heming to the company will be eliminated, and the remaining creditor’s rights of RMB 30000000.00 enjoyed by Tiandi Heming to the company will be repaid by cash at a selected time according to its own business conditions; Part of the creditor’s rights of the company to galaxy group formed by the occupation of the company’s non operating funds by galaxy group were eliminated, and Tiandi Heming formed a creditor’s right of 48807396.46 yuan to Galaxy Group.
The offset of creditor’s rights and debts is regarded as Galaxy Group’s return of the occupation of non operating funds of the company, which will be used as the basis for financial treatment after being approved by relevant decision-making procedures.
After the non operating funds occupied by Galaxy Group are offset by debt transfer, the balance of non operating funds occupied by the company is reduced by 48807396.46 yuan and the company’s liabilities are reduced by 48807396.46 yuan; The net assets of the company increased by 48807396.46 yuan.
Of which:
Asset account:
Other receivables – Galaxy Tiancheng Group Co., Ltd. decreased by 48807396.46 yuan;
Bad debt provision – other receivables decreased by 48807396.46 yuan;
Liability account:
Short term loan – Shenzhen SDIC commercial factoring Co., Ltd. (principal) decreased by 49550000.00 yuan;
Interest payable – Shenzhen SDIC commercial factoring Co., Ltd. (interest and liquidated damages) decreased by 28696450.00 yuan; other payables – Shenzhen SDIC commercial factoring Co., Ltd. decreased by 560946.46 yuan;
Other payables – Tiandi Heming Technology Group Co., Ltd. increased by 30000000.00 yuan.
Shareholders’ equity account:
Profit distribution – undistributed profit increased by 48807396.46 yuan
[accountant’s reply]:
1、 For the rationality of accounting treatment in this debt restructuring, the audit verification procedures we implemented are as follows:
1. Obtain the agreements and supplementary agreements, asset replacement agreements and creditor’s rights and debt repayment agreements related to the debt restructuring, and understand the specific situation of the debt restructuring;
2. Query the litigation matters related to this debt restructuring through China judgment document network, and cross compare and analyze the query results with the collected civil judgments related to this debt restructuring;
3. Received and reviewed the asset appraisal report and legal opinion related to the debt restructuring;
4. Reviewed the accounting treatment, preparation of financial statements and relevant disclosures related to the debt restructuring.
2、 Verification opinions
(1) After the company offset the non operating funds occupied by the former controlling shareholder Galaxy Group by way of creditor’s rights and debts, the balance of non operating funds occupied by galaxy group decreased by 48807396.46 yuan, the company’s liabilities decreased by 48807396.46 yuan, and the company’s net assets increased by 48807396.46 yuan. Of which:
Asset account:
Other receivables – Galaxy Tiancheng Group Co., Ltd. decreased by 48807396.46 yuan;
Bad debt provision – other receivables decreased by 48807396.46 yuan;
Liability account:
Short term loan – Shenzhen SDIC commercial factoring Co., Ltd. (principal) decreased by 49550000.00 yuan;
Interest payable – Shenzhen SDIC commercial factoring Co., Ltd. (interest and liquidated damages) decreased by 28696450.00 yuan; other payables – Shenzhen SDIC commercial factoring Co., Ltd. decreased by 560946.46 yuan;
Other payables – Tiandi Heming Technology Group Co., Ltd. increased by 30000000.00 yuan.
The shareholders’ equity account (undistributed profit) increased by 48807396.46 yuan.
(2) Because China audit Hua Certified Public Accountants (special general partnership) issued an audit report (CAC Zheng Shen Zi [2021]) on the full provision for bad debts of the company’s related parties in 2020 No. 0275), we still need to implement audit procedures to further verify the matters of withdrawing bad debt reserves from the funds occupied by related parties. Therefore, we are unable to express our opinion on the specific classification amount of undistributed profits at the beginning of the company’s financial statements and profits in the current period affected by the company’s creditor’s rights and debt offset transaction involving the reversal of bad debt reserves of 48807396.46 yuan.
China Audit Asia Pacific Certified Public Accountants (special general partnership) December 23, 2021
