An overseas acquisition many years ago still affects Everbright Securities Company Limited(601788) .
On January 7, Everbright Securities Company Limited(601788) announced that the company had received the warning letter issued by Shanghai Securities Regulatory Bureau. After investigation, the company has problems such as delayed disclosure of major contracts, delayed disclosure of progress of major events, inaccurate and insufficient disclosure of performance forecast information, incomplete disclosure of major transactions, and lack of diligence in the entrusted management stage of individual corporate bonds. Shanghai regulatory bureau decided to take regulatory measures to issue warning letters to the company.
Source: company announcement
Most of the Everbright Securities Company Limited(601788) related information disclosure issues pointed out by the Shanghai Securities Regulatory Bureau were related to a lawsuit jointly initiated by the company and storm group in 2016 involving MP & Silva holdings, a European sports copyright company A。 (i.e. MPS) is related to the chain reaction caused by the thunder explosion of the RMB 5.2 billion acquisition case
deposit multiple letter defects
The warning letter shows that the main problem pointed out by Shanghai Securities Regulatory Bureau is that Everbright Securities Company Limited(601788) major contracts are not disclosed in time.
Upon investigation, Everbright capital, a wholly-owned subsidiary of the company, issued the difference supplement letter to China Merchants Bank Co.Ltd(600036) and Huarui bank in April 2016. The total amount of principal and interest exposure corresponding to the difference making up obligation under the above difference making up letter is RMB 3.489 billion and RMB 498 million respectively, with a total of about RMB 3.987 billion. Everbright Securities Company Limited(601788) the above matters were not disclosed in time through the interim announcement, and the relevant difference supplement letter was not disclosed in the interim announcement for the first time until February 2, 2019.
Secondly, the progress of major events was not disclosed in time. According to the warning letter, the company disclosed on June 1, 2019 that Everbright capital was involved in litigation due to the above balance supplement letter. Everbright capital filed an appeal application to Shanghai Higher People’s Court on the first instance judgment of Huarui bank v. Everbright capital and China Merchants Bank Co.Ltd(600036) v. Everbright capital in August 2020.
Retrospective announcement: on August 7, 2020, Everbright Securities Company Limited(601788) disclosed the first instance judgment of its wholly-owned subsidiary Everbright capital on MPS case. According to the announcement, the Shanghai financial court ordered Everbright capital to pay China Merchants Bank Co.Ltd(600036) 3.116 billion yuan and interest losses from May 6, 2019 to the date of actual settlement, and bear part of litigation fees, property preservation fees and other expenses. At the same time, it also ordered to pay Huarui bank 400 million yuan of investment principal, pay the investment income from January 1, 2018 to the date of actual performance, and bear litigation fees and preservation fees.
Thereafter, the company received the final document of second instance from Shanghai Higher People’s Court on June 4 and June 16, 2021, and the court rejected the appeal and upheld the original judgment. However, the company did not timely disclose the above Everbright capital appeal and the final appeal of the second instance in the interim announcement, and did not issue the interim announcement for disclosure until July 8, 2021.
In terms of performance disclosure, Everbright Securities Company Limited(601788) has also been pointed out by regulators as flawed. The warning letter points out that the net profit in 2018 disclosed in the company’s performance forecast on January 26, 2019 is quite different from the actual performance in 2018, and there is no sufficient risk warning.
In addition, Everbright Securities Company Limited(601788) was not prudent in the risk judgment of the issuer and the protection of the rights and interests of bond investors, as pointed out by Shanghai Securities Regulatory Bureau due to its failure to exercise due diligence in the entrusted management stage of individual corporate bonds.
For the warning letter received this time, Everbright Securities Company Limited(601788) responded that the company will take seriously the problems in the supervision letter with a responsible attitude towards investors, further strengthen the awareness of compliance and responsibility, constantly improve the company’s internal control mechanism, further improve the level of corporate governance, improve the quality of information disclosure, and effectively safeguard the legitimate interests of the company and all shareholders, Promote the continuous, standardized and healthy development of the company
MPs overseas acquisition project
The lawsuit involved in the difference supplement letter mentioned in the warning letter was caused by Everbright Securities Company Limited(601788) participating in the MPS project, and the matter can be traced back to 2016.
At that time, storm group (currently delisted) and Everbright Baptist Hui, a subsidiary of Everbright Securities Company Limited(601788) Everbright capital, jointly initiated the establishment of Jinxin fund and acquired MP & Silva holdings, a European sports copyright company, by setting up SPV A。 (i.e. MPS) 65% equity.
According to Tianyan survey, Jinxin fund raised a total of 5.203 billion yuan and had 14 partners. Everbright Baptist Hui served as the executive partner of Jinxin fund. According to the investigation, the priority limited partners of Jinxin fund contributed 3.2 billion yuan, the intermediate limited partners contributed 1 billion yuan and the inferior limited partners contributed 1 billion yuan. Among the priority funds of 3.2 billion yuan, the above-mentioned China Merchants Bank Co.Ltd(600036) contributed 2.8 billion yuan, while Huarui bank contributed 400 million yuan through Aijian Trust. Everbright capital, as one of the inferior partners, invested 60 million yuan.
Just after the M & A fund jointly established by Everbright and storm became the owner, MPs failed in terms of sports copyright. Since 2017, MPs has gradually lost heavyweight resources such as Serie A and French Serie A. As the follow-up operation was in trouble and under the pressure of many parties, MPs announced bankruptcy liquidation in October 2018. At that time, the industry generally believed that MPs did not sign a non competition agreement with the original management of MPS when it was acquired by Jinxin fund, which was an important reason for the three founders of MPs to start a new business after cashing out, which had a substantial impact on the copyright resources related to MPs.
The direct impact is that Jinxin fund failed to exit as planned on the agreed investment expiration date of February 25, 2019, so many partners stepped on thunder and claimed compensation from Everbright department and Fengfeng department.
Although Everbright capital only invested 60 million yuan as the inferior partner, it Everbright Securities Company Limited(601788) disclosed in an important announcement in February 2019: “the stakeholders of the two priority partners each produce a difference supplement letter sealed by Everbright capital, which mainly includes that Everbright capital shall bear the corresponding difference supplement obligation when the priority partner cannot withdraw.”
This is the origin of the balance supplement letter mentioned by Shanghai Securities Regulatory Bureau. Therefore, Everbright has become the main repayment subject, followed by the aforementioned litigation compensation, including the stakeholder China Merchants Bank Co.Ltd(600036) of one priority partner in the aforementioned Jinxin fund and Huarui bank, the stakeholder of another priority partner.
Affected by this event, the performance of Everbright Securities Company Limited(601788) in 2018 and 2019 was dragged down. According to the annual reports of the company in 2018 and 2019, the cumulative accrued estimated liabilities for the potential risks of MPS project have exceeded 3 billion yuan, and the consolidated net profit has been reduced by nearly 2.4 billion yuan in two years. In the 2020 annual report, the company further accrued the estimated liabilities of MPS project of RMB 1.55 billion.
By the end of 2020, Everbright had undertaken a total debt of 4.552 billion yuan due to the MPS project.
As another key party to the case, Fengfeng Group was delisted by Shenzhen Stock Exchange on November 10, 2020. However, Everbright Securities Company Limited(601788) still filed a lawsuit to the court for relevant compensation.
According to the 2020 annual report, on March 13, 2019, Everbright Baptist Hui, as the executive partner of Baptist fund, and Baptist fund together as the plaintiff, filed a civil lawsuit with Beijing Higher People’s court with Fengfeng Group and its controller Feng Xin as the defendant. Because Fengfeng Group and Feng Xin failed to perform the equity repurchase obligations under the relevant agreements, which constituted a breach of contract, the plaintiff asked the defendant to compensate for the loss of 65% equity and other related costs of MPS company due to their failure to perform the repurchase obligations, totaling about 750 million yuan.
In December 2020, the judgment received by Everbright Baptist showed that the plaintiff’s claim was rejected, and the relevant case acceptance fees and property preservation fees were borne by the plaintiff. In this regard, Everbright Baptist has filed an appeal. By the end of the first half of 2021, the case has been appealed to the Supreme People’s court, which is currently hearing it.
In June 2021, Everbright Securities Company Limited(601788) disclosed that jinxinnc, the overseas project trading entity of Jinxin fund. (Cayman Baptist) filed a lawsuit for fraudulent misrepresentation and breach of tax commitment to individuals and institutions such as the former seller shareholder of MPS company in the high court of England and Wales, involving an amount of about US $661 million, about RMB 4.2 billion.
(source: China Securities Journal)
