Since the implementation of the new regulations on inquiry in September 2021, there have been more and more over raising in the A-share market.
The 21st Century Business Herald reporter sorted out the data and found that as of March 23, there were 313 enterprises with over raised funds under the registration system, with a total amount of 206 billion yuan.
With the phenomenon of IPO over raising becoming more and more common, the use of over raised funds has become a “knot” for some investors.
According to the reporter’s statistics, there were 51 listed companies on the science and innovation board with over raised funds in 2019. Three years later, only 15 enterprises have fully used the over raised funds, accounting for less than 30%; All the over raised funds of 5 enterprises are idle and used for bank financial management; Most of the listed companies that have used the over raised funds have used the funds for “permanent replenishment of working capital” (36) or “repayment of bank loans” (2).
“Most of the over raised funds have not found a suitable investment path for the time being. Lying in the bank and eating interest through financial products is a waste of market resources.” A person from a private equity institution in Shanghai pointed out in an interview.
However, based on the strict restrictions of regulators on the management and use of raised funds of listed companies, some market participants believe that there should be no excessive interference in the use of over raised funds of listed companies.
“When money enters the enterprise, it is the property of the enterprise in exchange for shares issued by the enterprise. How to use it should be decided by the enterprise itself. External interference may not have a good effect, and compulsory use is even less desirable.” Wang Jiyue, a senior investment banker and former sponsor representative, told reporters.
From the scientific innovation board and gem to the reform of the third board and the establishment of the Beijing stock exchange, the construction of multi-level capital market has made remarkable achievements. All kinds of qualified enterprises have access to the capital market. However, the coin has two sides. On the one hand, the financing path of enterprises that meet the listing conditions of the capital market is becoming more and more smooth, while on the other hand, how to use hundreds of billions of yuan of over raised funds is the best allocation of resources?
the ultimate “destination” of over raised funds: most of them are supplementary flow
From the perspective of the purpose of over raised funds of existing listed companies, cash management, permanent replenishment of working capital, repayment of bank loans, investment and construction of new projects and equity acquisition of the company are the mainstream.
On the whole, the idle proportion of over raised funds is relatively high. Among the above-mentioned 51 Sci-tech Innovation Board companies, 23 enterprises used less than 60% of the over raised funds in three years. Most of the idle over raised funds were used to buy financial products, such as Advanced Micro-Fabrication Equipment Inc.China(688012) over raised 446 million yuan and 653 million idle raised funds for cash management; Hemai shares, which raised 4.848 billion yuan in excess, used the temporarily idle raised funds of no more than 4.5 billion yuan (including this amount) for cash management.
A total of 26 enterprises invested in specific projects with over raised funds, but only 6 enterprises can cover the over raised funds. For example, in August Dbappsecurity Co.Ltd(688023) 2020, nearly 200 million yuan of over raised funds (including interest) were used for the construction of safety operation capacity center, and Brightgene Bio-Medical Technology Co.Ltd(688166) 80 million of over raised funds were used for the company’s overseas high-end preparation and drug production project in Suzhou Industrial Park Guangdong Jiayuan Technology Co.Ltd(688388) 540 million yuan of excess funds were raised for the construction of high-performance copper foil projects with an annual output of 15000 tons.
Most enterprises that can use the over raised funds within three years will match the project investment with projects such as “permanent replenishment” or “repayment of bank loans”. For example, Anji Microelectronics Technology (Shanghai) Co.Ltd(688019) , in April 2021, the over raised fund of 130 million yuan will be used to expand and upgrade the R & D center project, and then the remaining 484285 million yuan will be used to permanently supplement the working capital.
Due to the lack of suitable investment channels, in order to alleviate the situation of insufficient liquidity of enterprises and reduce the repayment pressure of banks, more enterprises use the over raised funds to repay bank loans or permanently supplement liquidity funds. More than 70% of the over raised funds of enterprises have been used for permanent replenishment or repayment of bank loans.
Typically, for example, Espressif Systems (Shanghai) Co.Ltd(688018) has used the over raised funds of 35 million yuan (no more than 30% of the total amount) for permanent replenishment for three consecutive years (August 2019, August 2020 and August 2021) Shanghai Bright Power Semiconductor Co.Ltd(688368) , Piesat Information Technology Co.Ltd(688066) also permanently replenish the over raised funds in batches within three years.
Since 2022, with the gradual increase of over raised funds, enterprises have used the over raised funds for permanent replenishment or idle funds for financial management more frequently. Among the new shares listed and over raised from January to February 2022, 14 enterprises have announced that they will permanently replenish the over raised funds or repay bank loans.
“Under the registration, the CSRC has liberalized the limit of replenishing working capital of no more than 30% of the total amount of IPO raised and invested. With the increase of over raising, it does cause some issuers to have more spare money, more bank financial management and low capital efficiency. However, from the perspective of regulators, in order to balance the regulatory pressure, it is wise to moderately relax the control of raised and invested under the registration system or let raised and invested operate according to the real registration system.” Senior securities person li Jiwen told reporters.
On the whole, the existing regulatory rules do give certain autonomy to the use of the raised funds of listed companies. For the part where the net amount of the actual raised funds exceeds the planned raised funds, that is, the over raised funds, the regulation stipulates that over raised funds can be used to permanently supplement working funds and repay bank loans, but the cumulative amount shall not exceed 30% of the total over raised funds in every 12 months
However, in order to prevent listed companies from “abusing” this rule, regulators have also introduced supporting risk control measures for the situation of “over raised funds for permanent replenishment”.
The Shanghai Shenzhen North stock exchange stipulates that issuers shall not make high-risk investment or provide financial assistance to objects other than holding subsidiaries within one year after the over raised funds are used to permanently supplement working capital
Earlier, the gem company Shenzhen Longtech Smart Control Co.Ltd(300916) , was issued a supervision letter by the Shenzhen stock exchange because it violated its commitment not to make high-risk investment after replenishment.
Four months after its listing, the enterprise Giantec Semiconductor Corporation(688123) on the science and Innovation Board also planned to use the over raised capital of 56 million yuan to permanently supplement the working capital, accounting for 29.84% of the total over raised capital. However, in June 2020, Giantec Semiconductor Corporation(688123) suddenly withdrew this arrangement.
Giantec Semiconductor Corporation(688123) said that according to the company’s latest strategic arrangement, the company is currently considering seeking equity investment opportunities through cooperative investment with private equity funds. In order to avoid the situation that the over raised funds are used in disguised form for high-risk investment and affect the interests of all shareholders, after comprehensively considering the current capital use situation of the company, the company cancelled the previous use of some over raised funds to permanently supplement working capital, and returned the above-mentioned over raised funds to the special account for special account storage and third-party supervision.
inefficient use of funds: investors and enterprises suffer
From the perspective of listed companies, although the over raised funds are unexpected, they are obtained by the normal issuance of shares by listed companies, and the issuance price is determined by investors according to their own professional judgment. Without violating the existing regulatory rules, the purpose of the over raised funds should not be subject to too much “criticism”.
But why do some market participants complain about the phenomenon of “idle financial management” or “supplementary working capital” of over raised funds?
“If the financial and business of the issuing enterprise is not solid, and the issuing price is abnormally high, the over raised scale should be properly controlled, because too much over raised funds will cause the rapid dilution of the company’s EPS and roe, and the phased or even permanent loss of market investment value.” Li Jiwen pointed out.
A senior market person analyzed and pointed out to the reporter that if the established parameter is – the institution gives the issuer 50 times of PE, the risk-free interest rate of A-Shares is 3%, the average growth rate of the overall net profit attributable to the parent company in the next five years is 15%, the overall roe of A-Shares in the next five years is 8%, and the country risk premium is 20%.
“According to the lax calculation of the established parameters, 50 times PE corresponds to a 50% growth rate of the company’s performance in the next five years, and the corresponding roe = 8% (1 + 50%) / (1 + 15%) =10.43%, taking into account the country risk premium and risk-free interest rate, the adjusted roe should be 14.5% over raised capital is a part of the net assets of the enterprise, and its return should be at least 14.5% corresponding to roe, rather than a mere 2.8-3% of financial return “the aforementioned senior market person pointed out. “This means that a large number of idle funds are actually unfavorable to investors and listed companies themselves.”
In the face of the increasingly frequent behavior of replenishing working capital and idle capital financing, how to improve the use efficiency of over raised funds has become a topic of concern in the market.
“The use efficiency of over raised funds is not high. It is a waste of so much funds lying on the account. It can not be said that this is to support the development of the real economy. In addition to the normal operation needs of enterprises and the safe capital needs of enterprises to deal with risks, a large amount of idle funds is a problem.” Wang Jiyue said frankly.
In this regard, Wang Jiyue once suggested that “the money should go back to the market, which can be used for special subscription of public funds for offline placement IPO, can be used for stock repurchase (the red line of the minimum proportion of social public shares needs to be avoided), and can return excess dividends directly to shareholders. The regulatory department should open policy channels to facilitate the return of these funds to the market, but the specific use should be decided by the enterprise itself and should not interfere.”
At the beginning of January this year, in order to optimize the self-regulation rule system of listed companies and standardize the share repurchase behavior of listed companies, the Shanghai Stock Exchange revised and issued the self-regulation guidelines for listed companies of Shanghai Stock Exchange No. 7 – share repurchase, allowing the over raised funds to be used for share repurchase.
Subsequently, Appotronics Corporation Limited(688007) , Genew Technologies Co.Ltd(688418) , Sansure Biotech Inc(688289) and other listed companies responded and became the “first” enterprise on the science and innovation board to use over raised funds for share repurchase scheme.
On March 21, Appotronics Corporation Limited(688007) issued a share repurchase plan, which plans to use the over raised funds of no more than 20 million yuan for share repurchase.
Appotronics Corporation Limited(688007) the person in charge of investor relations explained to the 21st Century Business Herald reporter that the company has been committed to its main business operation since its listing. At present, its assets are healthy and its cash flow is stable. However, due to the current complex international environment, the company has comprehensively considered that in order to actively respond to various uncertainties, ensure the healthy operation of the enterprise, and fully judge the company’s own funds and over raised funds, the company has decided to start repurchasing the company’s shares with over raised funds within the scope of compliance.
“Because the over raised funds themselves are not the funds that the company can use at will, we choose to use the over raised funds for repurchase, and our own funds maintain operation on the book.” The aforementioned investor relations person further pointed out.
However, taking into account the restrictions on the issuance of share capital, Wang Jiyue believes that there is also a problem for share repurchase, “that is, many companies are issued under pressure, and the proportion of social public shares is only 25%, so there is no room for repurchase. Such companies should be allowed to transfer shares to more than 400 million shares.”
money is too much or a burden
It is worth mentioning that, in addition to the dispute over the use efficiency of funds, in the view of some market participants, too much over raised funds is also a “double-edged sword” for enterprise development.
Reviewing the development history of the capital market for more than 30 years, the role of “cash” is not entirely positive. As the saying goes, too much is better than less. For some enterprises, too much capital will cause a burden.
\u3000\u3000 “The issuer should be an organization that continuously and stably creates value for shareholders through its main business. Since it is sustainable and stable, it should be clear, gradual and prudent for the development of its main business. Therefore, all capital needs in the next few years should and have been reflected in the raised investment projects, rather than having money before projects. under the background of very low industrial loan interest rate, this kind of crazy over raising It seems that there is no cost, but it is actually the option with the highest cost and huge potential cost “Li Jiwen said bluntly.
In Li Jiwen’s view, too much capital is easy to cause the issuer’s lax management and blind expansion, such as new projects or mergers and acquisitions. If the latter belongs to blind expansion, it is very easy to lead the enterprise to the road of irreparable destruction.
In fact, in the past market cases, the phenomenon of “over raised funds” blindly investing and bringing down enterprises is not rare.
A typical example is Dingli Corp.Ltd(300050) , which was listed on the gem in 2010. The IPO of the company raised a total of 1.173 billion yuan, of which the over raised fund was as high as 960 million yuan. According to incomplete statistics by the reporter, Dingli Corp.Ltd(300050) of the over raised funds have been acquired seven times after the listing:
In July 2010, it acquired 51% equity of Guangzhou Beixun Communication Technology Co., Ltd. and Guangzhou beiruan Electronic Technology Co., Ltd. with over raised funds of 80 million yuan and 5.6 million yuan respectively; In 2013, the board of directors approved the company to use the raised funds of RMB 990607 million to acquire the remaining 49% equity of Beixun communication;
In May 2011, Dingli Corp.Ltd(300050) again used the over raised capital of 15.3 million yuan to increase the capital of the wholly-owned subsidiary for the acquisition of amanzitelab company in Sweden. After changes, the over raised capital of 15.05 million yuan was actually used in the project;
In July 2014, Dingli Corp.Ltd(300050) the board of directors approved the company to purchase 100% of the shares of Shanghai Zhixiang Information Technology Co., Ltd. by issuing shares and paying cash, of which RMB 111 million of over raised funds was used to pay cash consideration;
In January 2017, the company acquired 55.74% of the equity of Beijing Jianuo Mingde Education Consulting Co., Ltd. by means of acquisition and capital increase with an over raised capital of 23.5 million yuan;
In July 2017, the board of directors of the company agreed to use part of the over raised funds and interest to pay part of the cash consideration for issuing shares and paying cash to purchase 100% equity of Yixin intelligent, and the actual use was 108.5 million yuan.
In September 2017, Dingli Corp.Ltd(300050) again acquired 100% equity of Shanghai Meidu Management Consulting Co., Ltd. (hereinafter referred to as “Shanghai Meidu”) at the price of 360 million yuan, which increased the company’s layout in the field of vocational education, of which 144 million yuan was over raised.
However, from the perspective of a series of successful acquisitions. Shanghai Mido failed to fulfill its performance commitment in the first year of acquisition. In January 2022, Yixin intelligence was proposed to be “sold off” by Dingli Corp.Ltd(300050) at a price of 144 million yuan ( 3 Lvjing Holding Co.Ltd(000502) 017 was bought at a price of 666 million yuan. Later, it increased its capital by 100 million yuan with its own funds in 2018, and the investment increased to 766 million yuan). However, the transaction was finally terminated because the transaction party “was not sure to effectively manage the existing core personnel of Yixin intelligence”.
In 2021, Dingli Corp.Ltd(300050) is expected to lose 1.1 billion to 1.5 billion yuan. Among them, the goodwill formed by the acquisition of Yixin intelligent, Shanghai Meidu and other companies has been preliminarily evaluated and calculated. It is estimated that the amount of goodwill impairment is about 770 million yuan in 2021.
in fact, in the view of some market participants, the regulator does not need to intervene too much in the use of over raised funds, but the issuer can pay attention to the amount of funds raised for income and take the initiative to reduce the scale of over raised funds. Investors should also remain rational and carefully quote high prices
It is worth mentioning that in recent days, with the “normalization” of the breaking of new shares, the situation of over raising may be expected to be alleviated.
“Since November last year, the issuing price of A-Shares has gradually become rational. Even if some individuals still issue at high prices, the breaking on the first day of listing has aroused market vigilance. This is a very good signal that (the problem of over raising) can be handed over to the market for adjustment.” Yin Zhongyu, head of securities investment banking business of the Federal Reserve, pointed out in an interviewcenter>
