Citic Securities Company Limited(600030)
Verification opinions on the change inquiry letter of Cathay Biotech Inc(688065) some raised investment projects
Shanghai Stock Exchange:
We have received the inquiry letter on the change of Cathay Biotech Inc(688065) some raised investment projects issued by your office on January 11, 2022 (szkccgh [2022] No. 0003, hereinafter referred to as the “inquiry letter”). Citic Securities Company Limited(600030) as a recommendation institution, it has carefully implemented the problems listed in the inquiry letter with the listed company one by one. Now, the verification opinions on the contents of the inquiry letter are as follows:
Question one
Relevant announcements disclosed that the total investment of sebacic acid project is 171.102 million yuan, and the company plans to adjust the amount of raised funds from 171.102 million yuan to 501.25 million yuan. The implementation subject will be changed from Kaisai (Jinxiang) biomaterials Co., Ltd., a wholly-owned subsidiary of the company, to Kaisai (Taiyuan) Biotechnology Co., Ltd. (hereinafter referred to as Taiyuan Technology). Taiyuan technology is 50.125% owned by your company and 49.875% owned by Shanxi transformation Industrial Park Group Co., Ltd. (hereinafter referred to as Shanxi industrial group). The company and Shanxi industrial group invested 1 billion yuan in the project construction according to the shareholding ratio. The remaining deficiency is solved by the self financing of the implementation subject. Except for the above adjustment, the rest of the sebacic acid project remains unchanged. Please further explain: (1) the reason, necessity and rationality of the company’s change of the implementation subject of the raised investment project, and whether the change of the implementation subject in the early stage and the reduction of the investment amount belong to a package deal or arrangement; (2) Up to now, the actual contribution of all parties, the project capital investment and the follow-up fund-raising plan; (3) In view of the close shareholding ratio of Taiyuan Technology between your company and Shanxi industrial group, further explain how your company realizes the control of Taiyuan Technology; (4) Combined with the business decisions and income distribution arrangements of both parties of the raised investment project, analyze whether the change of the implementation subject of the raised investment project can fully protect the interests of the company and small and medium-sized investors and the measures to be taken by the company.
reply:
1、 Company reply
(I) the reason, necessity and rationality of the company’s change of the implementation subject of the raised investment project, and whether the change of the implementation subject in the early stage and the reduction of the investment amount belong to a package deal or arrangement
1. Background and rationality of the company’s investment in Shanxi synthetic biological industry ecological park
In order to accelerate the industrial transformation and upgrading of Shanxi Province and promote the high-quality development of manufacturing industry, the Shanxi provincial Party committee and provincial government decided to further improve the basic capacity of new material industry and the modernization level of industrial chain by vigorously developing biological manufacturing industry, realize green and low-carbon economy and promote energy revolution. At the same time, it is decided that the Management Committee of Shanxi transformation and comprehensive reform demonstration zone (hereinafter referred to as “Shanxi comprehensive reform demonstration zone”) will build a synthetic biomaterial Industrial Park to build a 100 billion level bio based green new material industrial cluster leading the world.
Cathay Biotech Inc(688065) (hereinafter referred to as ” Cathay Biotech Inc(688065) “, “listed company” and “company”) is a high-tech enterprise based on synthetic biology and other disciplines and using biological manufacturing technology to engage in the R & D, production and sales of new bio based materials. It is a representative enterprise using biological manufacturing to produce new materials on a large scale. In terms of strategic layout, the company continues to pay attention to the application, development and upgrading of bio based products, actively expand the types of new products of biological long-chain dicarboxylic acid series, and actively cooperate with downstream industries to develop new application fields on this basis; Relying on the unique advantages of bio based glutamine, the company will build a high-performance bio based polyamide series product platform, and will further focus on its application and development fields such as spinning and engineering materials. Based on the industrial transformation and upgrading needs and strategic layout of Shanxi Province, and the company’s above industrial and technological advantages, Shanxi Province actively introduces Cathay Biotech Inc(688065) as the core raw material supply enterprise of the synthetic biomaterial Industrial Park, relying on Cathay Biotech Inc(688065) “bio amyl diamine” Core monomers such as “long chain dicarboxylic acid” and a series of bio based polyamide materials build the whole industrial chain project of Shanxi synthetic new biomaterials, attract upstream and downstream enterprises of biomaterials and build biomaterial industrial clusters.
In October 2020, the company signed a cooperation agreement with Shanxi comprehensive reform demonstration zone to jointly invest in building “Shanxi synthetic biological industry ecological park” (hereinafter referred to as “Industrial Park”) in Shanxi comprehensive reform demonstration zone. For the industrial park construction project, the company and Shanxi comprehensive reform demonstration zone jointly invested 8 billion yuan, and the company, Shanxi comprehensive reform demonstration zone and its coordinated state-owned entities and government industrial funds jointly established one or more holding subsidiaries as the project companies of the investment project. After the completion of phase I of the industrial park, it will become the most representative synthetic biological industry base in the world. The original planned investment of the project is 25 billion yuan (Announcement No.: 2020-011). According to the signed contract and business situation under discussion, the total investment of the project is expected to be reduced by about 25%, mainly due to ① the centralized procurement of main raw materials and on-site processing by equipment suppliers to reduce the equipment cost. ② In the overall planning, design and implementation of the three projects in the synthetic biological industrial park, the company has obvious scale effect and increased its bargaining power; ③ Based on the operation experience of Wusu materials, the optimization of design, process, equipment and civil engineering further reduces the construction investment cost.
As of the date of issuance of this verification opinion, the registered capital and paid in capital of specific investment projects are as follows:
Project name implementation subject investor shareholding ratio registered capital (10000 paid in capital) (10000 yuan)
40000 tons / Kasai (gold)
Biological method (original) biological township) biological materials 50.1250% 50125.00 50125.00 sebacic acid Construction Technology Co., Ltd
49.8750% 49875.00 regiment of Shanxi industrial group
2.4 million tons / Cathay Biotech Inc(688065) 50.1250% 120300.00 120300.00 year corn shenkaisai (Taiyuan processing and 500 raw) biology
10000 ton / year production technology Co., Ltd. Shanxi industrial group 49.8750% 119700.00 119700.00 fermentation broth company
project
Annual output of 500000 Cathay Biotech Inc(688065) 50.1250% 230575.00 149569.50 tons of bio based Kaisai (Taiyuan)
Pentanediamine and protobiotics
900000 tons of raw materials Co., Ltd. Shanxi industrial group 49.8750% 229425.00 228825.00 Polymer Based Poly acyl group
Amine project
Total 800000.00 718394.50
In order to further accelerate industrial transformation and upgrading, the industrial park provides the following competitive support:
(1) The industrial park will be provided with complete, sufficient and cost competitive infrastructure by Shanxi comprehensive reform demonstration zone, including power distribution, steam, water supply, three wastes treatment, special railway and other transportation systems, bulk raw material storage and transportation system, upstream and downstream industrial chain supporting information services, etc.
(2) Shanxi comprehensive reform demonstration zone and the company simultaneously attract investment and introduce downstream supporting projects during the project construction, build a competitive upstream and downstream industrial chain, and form Shanxi synthetic biological new material industrial cluster.
(3) In order to maintain the core technology competitiveness of the industrial park for a long time and make the core technology continuously upgraded and iterated, the governments of Shanxi Province, Taiyuan city and comprehensive reform district jointly invested 1.5 billion yuan as the institutional construction fund of Shanxi Synthetic Biology Research Institute (hereinafter referred to as “Shanxi Research Institute”), a wholly-owned subsidiary of Kasai, which was specially used for the decoration of the laboratory of Shanxi Research Institute Funds for purchase, R & D and operation of scientific research equipment. At the same time, Shanxi comprehensive reform demonstration zone provides a number of preferential policies to attract all kinds of high-end R & D talents.
Based on the above advantages, with the approval of the board of directors, the company changed one of the raised investment projects “40000 t / a biological sebacic acid project of Kasai (Jinxiang) biomaterials Co., Ltd.” to “40000 t / a biological sebacic acid construction project” (hereinafter referred to as “sebacic acid project”), The implementation site was changed from “reserved space of Jinxiang Kaisai in Jining new material industrial park, Jinxiang County, Shandong Province” to “Yangqu Industrial Park in Shanxi comprehensive reform demonstration zone”, and the implementation subject was changed from Jinxiang Kaisai, a wholly-owned subsidiary of the company, to Taiyuan Technology, a holding subsidiary of Jinxiang Kaisai.. The listed company has fulfilled relevant information disclosure obligations. For details, please refer to the website of Shanghai Stock Exchange (www.sse. Com. CN.) on December 1, 2020 Announcement on changing the implementation subject and place of some raised investment projects (Announcement No.: 2020-020).
2. Reasons, necessity and rationality for the company to change the implementation subject of raised investment projects
Compared with the original raised investment plan, the changed raised investment project has more advantages in infrastructure guarantee and industrial coordination. Specifically:
(1) The infrastructure (such as steam) supply of the original implementation subject Kaisai (Jinxiang) biomaterials Co., Ltd. (hereinafter referred to as “Jinxiang Kaisai”) mainly depends on the outside, and the cost is relatively high. Considering the large investment scale and perfect infrastructure of the industrial park, which can cover the infrastructure needs of the project at low cost, the company has changed the subject and location of the project;
(2) As part of the construction of the above Industrial Park, the changed sebacic acid project is one of the important measures taken by the company to participate in the construction of the whole industrial chain project of synthetic biological new materials. While moderately expanding the production capacity of core products such as biological long-chain dicarboxylic acid, bio glutamine and bio polyamide, it is convenient for centralized overall management and close cooperation with downstream industrial chains, Produce scale effect and make the company occupy a more favorable competitive position in the industrial chain;
(3) The entry of government funds will provide solid financial support for the further layout of the biological manufacturing industry chain. At the same time, the establishment of the joint venture project company will strengthen the exchange and communication between the company and the government and obtain various support. 3. The implementation subject of the previous change and the reduction of the investment amount do not belong to a package deal or arrangement
When the implementation subject was changed in the early stage, the construction had not yet started. Considering the potential risk of price rise of raw materials for engineering construction, reserved working capital and other comprehensive factors, the company planned a total investment of 1.711 billion yuan based on the project feasibility study report in March 2019.
After the project implementation site is changed to Taiyuan, the project construction progress is fast. During the construction of the project for more than one year, the company has obvious scale effect in the overall planning, design and implementation of the three projects in the industrial park; The unified bidding and purchase policy for main construction raw materials enhances the bargaining power of the project; The optimization of long chain dicarboxylic acid production process and equipment further reduces the construction investment cost; In addition, the project is planned to be put into trial operation in the first half of 2022. The project itself can form effective working capital, self support, acceptance and quality assurance, etc., and will maintain a reasonable payment schedule.
Based on the current clear estimation of the actual investment demand, in order to improve the efficiency and rate of return of funds, the project is “planned”.
(II) up to now, the actual contribution of all parties, the project capital investment and the subsequent fund-raising plan
Sebacic acid project is one of the construction projects jointly invested by the company and Shanxi comprehensive reform demonstration zone with an amount of 8 billion yuan. As of the date of issuance of this verification opinion, the company and Shanxi industrial group have paid in the amount of 5012.5 million yuan and 49875 million yuan respectively according to the shareholding ratio, with a total of 1 billion yuan. According to the progress of contract payment, 433 million yuan has been actually invested in the project. According to the feasibility study report, the total investment of the project is RMB 1.711 billion, including reserve fund, working capital and loan interest, totaling RMB 410 million, which is caused by the change of the above procurement mode, negotiation and price negotiation, process optimization and other factors. Meanwhile, the project is planned to be put into trial operation in the first half of 2022. The project itself can form effective working capital, self support, acceptance and quality assurance, etc. will maintain a reasonable payment schedule to meet the actual needs of project operation, and the capital is expected to be lower than the total project investment in the original feasibility study. If there is a demand for project funds exceeding the registered capital, the company can ensure the follow-up funds of the project in the form of self financing by the project company.
(III) in view of the close shareholding ratio between your company and Shanxi industrial group in Taiyuan Technology, further explain how your company controls Taiyuan Technology
1. Decision control of shareholders’ meeting
According to the articles of association of Kaisai (Taiyuan) Biotechnology Co., Ltd. (hereinafter referred to as the articles of association of Taiyuan Technology Co., Ltd.), the shareholders’ meeting of Taiyuan technology is the authority of the company, and the daily operation and other matters done by the shareholders’ meeting must be approved by more than half of the voting rights held by all shareholders. The indirect shareholding ratio of the company through the wholly-owned subsidiary Jinxiang Kaisai is 50.125%, which can control the daily operation decisions of Taiyuan Technology. At the same time, in terms of the registered capital of the articles of association of Taiyuan Technology Company, it is stipulated that the capital increase proportion of Shanxi industrial group shall not exceed 40% of the total capital increase, and the equity proportion of Jinxiang Kaisai after the capital increase shall be guaranteed to exceed 50%.
To sum up, the company can control Taiyuan Technology through Jinxiang Kaisai at the level of shareholders’ meeting.
2. Decision control of the board of directors and selection control of management personnel
According to the provisions of the articles of association of Taiyuan Technology Company, Taiyuan technology has a board of directors with three members. Jinxiang Kaisai appoints two directors and Shanxi Industrial Group appoints one director. At the same time, it is stipulated that the directors shall exercise the voting right according to one person and one vote, and each resolution of the board of directors shall be approved by more than half of all directors. The number of directors of Jinxiang Kaisai accounts for 2 / 3 of the total, which can control the resolutions of the board of directors.
According to the articles of association of Taiyuan Technology Company, Taiyuan technical manager and financial director shall be appointed or dismissed by the board of directors after being nominated by Jinxiang Kaisai; Other senior managers shall be nominated by the general manager and approved by the board of directors. In conclusion, the company can control the decision-making of the board of directors and the selection and employment of the company’s management through the nomination right of the board of directors and management.
3. Profit distribution
According to the company law of the people’s Republic of China (hereinafter referred to as
