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Reporter of China Business Network: Dong Tianyi Editor of China Business Network: Sun Lei

Guanghui Automobile(600287.SH) failed to create a "miracle" in the "battle to maintain its listing status".

On July 17, Guanghui Automobile,Guanghui Convertible Bonds(110072) both hit the limit in the bidding. Among them, Guanghui Auto’s closed orders exceeded 1.2 billion yuan, and Guanghui Convertible Bond’s closed orders exceeded 200 million yuan. As of the close of July 17, Guanghui Auto’s share price was 0.78 yuan/share, a drop of 10.34%, and a drop of more than 95% from the high of 15.75 yuan/share in 2015. On July 18, Guanghui Auto was suspended.

According to the relevant provisions of the Shanghai Stock Exchange Listing Rules, Guanghui Auto has been below par for 20 consecutive trading days since June 20, and is about to trigger the par delisting clause. In this context, Guanghui Auto may become the company with the highest market value in the history of A-shares locked in par delisting, and Guanghui Convertible Bond will also become the first high-rated convertible bond to be delisted because the underlying stock is below par.

"Unfortunately, Guanghui Auto has already locked in its delisting at par value on the A-share market. Due to the previous high dividend and share transfer, the share capital has reached 8.3 billion shares, and the policy does not allow share reduction. Low-priced stocks have fallen significantly recently, and the closer they are to 1 yuan, the more siphon effect there is, and the stock price falls faster. In the end, unfortunately, the delisting at par value has been locked in." A person related to Guanghui Auto told the reporter from the "Daily Economic News".

Image source: Visual China

In fact, Guanghui Auto had actively carried out "shell protection" work, including repurchasing company stocks and transferring control rights. On July 11, Guanghui Auto issued an announcement stating that the controlling shareholder intends to transfer 24.5% of the shares to Jinzheng Technology, and the control rights are expected to change. After the failure of "shell protection", whether the transfer of equity will be carried out as scheduled, the above-mentioned person told reporters, "This will have to wait for the two shareholders to discuss before a result can be obtained."

"The company will also do a good job in its own production and operation to maximize shareholder value. In the future, it will also return to shareholders by finding strategic investors and other means. The maturing bonds will also be fulfilled as scheduled. In addition, as to whether the credit rating will be affected, the company will maintain a stable rating through normal operations and timely repayment of principal and interest, and gradually digest existing risks." The above person told reporters.

Public data shows that as one of the largest domestic auto dealers, Guanghui Auto has established a national auto dealer network covering 28 provinces, autonomous regions and municipalities, operating a total of 735 business outlets. Guanghui Auto has been ranked at the top of the "Top 100 Chinese Auto Dealer Groups Ranking" issued by the China Automobile Dealers Association from 2011 to 2023.

Some people believe that if a listed company that meets certain conditions such as performance and market value is acceptable but has a large share capital base and a low price per share is delisted simply by triggering the "par value delisting" indicator, it does not conform to the spirit of "improving the delisting mechanism for listed companies" by relevant departments, nor is it conducive to protecting the rights and interests of small and medium-sized shareholders. Therefore, it is reasonable for such listed companies to deal with the risk of "par value delisting" by reducing shares and converting par value shares into no-par value shares.

However, it should be noted that due to the current transformation of the automotive industry, Guanghui Auto's profits have been declining year by year in recent years. According to financial report data, from 2018 to 2020, Guanghui Auto achieved net profits attributable to its parent company of 3.257 billion yuan, 2.601 billion yuan and 1.516 billion yuan, respectively, with net profits attributable to its parent company declining by 16.27%, 20.16% and 41.72%, respectively. In 2022, Guanghui Auto suffered a loss of 2.629 billion yuan, and the loss amount after deducting non-recurring gains and losses reached 2.963 billion yuan.

Image source: Photo by Liu Guomei of Daily Economic News (file photo)

In fact, under the influence of the increasingly fierce "price war" in the auto market, dealers are generally facing challenges in their operations. According to the "2023 National Auto Dealer Survival Status Survey Report" released by the China Automobile Dealers Association, more than 70% of dealers failed to complete their annual task targets, and the loss ratio accounted for 43.5%. According to statistics from the China Passenger Car Association, about 1,500 to 2,000 auto dealers will withdraw from the network in 2023.

According to the latest "Vehicle Inventory Alert Index Survey of Chinese Auto Dealers" (VIA) released by the China Automobile Dealers Association, in June this year, the domestic auto dealer inventory alert index reached 62.3%, up 8.3 percentage points year-on-year. The inventory alert index is above the prosperity line, and the automobile distribution industry is in a recession. It should be noted that the inventory alert index of 62.3% is close to the data in November 2022 (65.3%).

"The industry's inventory reduction characteristics became increasingly obvious in June. The current structural adjustment pressure is being transmitted from the OEMs to the channel end more quickly, and dealers lack confidence in continuing to operate." Cui Dongshu, secretary-general of the National Passenger Car Market Information Joint Conference, said.

Daily Economic News