2024-07-27
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From the son of a shoemaker to a businessman, Sun Guangxin, the actual controller of Xinjiang Guanghui Industrial Investment (Group) Co., Ltd. (referred to as "Guanghui Group"), took advantage of the dividends of the times and with his ruthlessness, he accumulated a fortune of 35.5 billion yuan in just over 30 years.
Over the years, the titles of "Godfather of Western Business" and "Tiger Sun of the Northwest" have all belonged to Sun Guangxin alone. Even in the entire Northwest region, the Guanghui Group he heads is one of the strongest private enterprises in the region.
During his heyday, Sun Guangxin dominated the business world with five listed companies: Guanghui Energy (Shanghai, Shenzhen and Beijing stocks), Guanghui Logistics (Shanghai, Shenzhen and Beijing stocks), Guanghui Automobile (Shanghai, Shenzhen and Beijing stocks), Guanghui Baoxin (Hong Kong stocks), and Alloy Investment (Shanghai, Shenzhen and Beijing stocks). According to the 2023 financial report, the total assets of these listed companies totaled 225.7 billion yuan.
The accident came unexpectedly. From June 20 to July 17, 2024, Sun Guangxin bet on Guanghui Automotive Service Group Co., Ltd. (hereinafter referred to as "Guanghui Auto"), an important weight in the automotive industry, and the closing price of its stock was less than 1 yuan for 20 consecutive trading days, reaching the trading delisting indicator.
"It has basically been decided that the company will be delisted, and suspension of trading is one of the procedures for delisting." In the view of financial professionals familiar with Guanghui Auto, everything depends on whether the company will default on its debts in August. "If it defaults, it will not be able to repay other debts later. When the debts accumulate to a certain level, it will most likely go through the bankruptcy process."
In 2015, when the bull market hit, Guanghui Auto's market value soared to 100 billion yuan, but it was only 6.466 billion yuan before it was suspended.
In fact, the morale of China's largest auto dealer has been much lower since it suffered its first loss since its listing in 2022. The financial report shows that as of March 31, 2024, Guanghui Auto's cash and cash equivalents balance was 2.513 billion yuan, and the company's short-term loans reached 30.463 billion yuan.
On July 12, Guanghui Auto announced its performance for the first half of 2024. The company expects a loss of 583 million to 699 million yuan. The net profit attributable to the parent company in the same period last year was 601 million yuan, turning from profit to loss year-on-year.
Talking about the performance change, the company believes that it is affected by the downgrade of market consumption and the price war among car companies. However, in the eyes of industry insiders, this is not the last "snowflake" that will overwhelm Guanghui Auto. Even if the market environment is good, it will be lucky to survive for another two or three years at most.
Now, Guanghui Auto employees are in a state of wage arrears, and everyone is worried; car owners who bought cars at Guanghui 4S stores are unable to pick up their cars and are in a state of panic. The fate of automobile manufacturers, banks, shareholders, investors, etc. who have business ties with Guanghui Auto are also entangled.
Perhaps, all the foreshadowing had been laid as early as when Guanghui Auto first entered the capital market.
Li Fan was very anxious because he had paid the down payment, bought the insurance, and was about to start paying the car loan in early August, but the car was in the 4S store and he couldn't take it away.
In April this year, Li Fan took a fancy to aBMW i5The long-wheelbase version of the M Sport package. Because this car needs optional equipment and there is no stock, he went to all the cities in his city to findBMWAmong the stores, only three can place orders, and the waiting time given is about two months.
Considering that the price offered by Guanghui Auto's 4S store was nearly 30,000 yuan less than that of the other two stores, he paid the deposit directly after the test drive at the end of April. At that time, he didn't know that his decision would bring troubles.
After more than two months of production and transportation, Li Fan's car finally arrived at the store on July 15. The salesperson notified him to pay the down payment and also told him the truth: because the vehicle certificate of this BMW i5 (referred to as "certificate of conformity", equivalent to the "identity card" of the vehicle, without it, the vehicle cannot be registered and licensed) is still mortgaged by a financial company under BMW, "Guanghui Auto is short of funds and has no money to redeem it for the time being, so it cannot deliver the car now."
The salesperson offered Li Fan two options: one was to return the 30,000 yuan deposit; the other was to promise to deliver the car before July 30 and give him a BMW original driving recorder as compensation.
At that time, Li Fan had seen some news about Guanghui Auto's financial difficulties on the Internet, but he had waited so long, and the car was now in the store, so there was no problem with the inspection. Besides, BMW's price had increased in July, and he could not buy the same model at the original price, so Li Fan decided to take a gamble.
For him, the worst case scenario is that he cannot pick up the car on July 30, and he is ready to burn his boats. "The worst that can happen is that the car will be towed away directly."
"I have seen a similar case online where a car owner sued a bank and demanded the return of the certificate of conformity. The basis for the case was that the mortgage of the certificate of conformity had no legal effect, and in the end the car owner won the case," said Li Fan.
Holding the car purchase contract, Li Fan was very confident. It stated that the car would be delivered on July 30, and the 4S store would need to return the purchase price and double the deposit if it failed to do so. If he sued the 4S store, he would have a good chance of winning. "I don't want to take legal action because the time cost is too high. And even if I win, what good will it do? I won't get my money back."
Now, with only a few days left, Li Fan chose to wait patiently, but he could also see through the camera of the BMW i5 that the cars next to him were replaced one after another. He optimistically guessed that the car owners had picked it up, "Maybe it will be my turn in two days."
Although the certificate of conformity pledge is not legally binding, Guanghui Auto employee Zhou Hui told Shijie that it is a common financing method in the dealer model. "Stores need to pay the manufacturer in full when purchasing new cars. Some stores are short of funds, so they will pledge the certificate of conformity to banks or financial service companies under the manufacturer to raise funds."
According to him, Guanghui Auto has a funding department, but this department does not directly connect with manufacturers. Instead, each store applies for funds, including payments to manufacturers and employee salaries. If the company allocates funds in a timely manner and the store funds operate normally, the certificate of conformity can be redeemed before the user picks up the car, ensuring normal delivery of the vehicle.
But now, Guanghui Auto is in financial trouble, and no one can escape unscathed, including car owners, employees, manufacturers, banks, shareholders, investors, etc.
Zhou Hui has not received his salary for May and June this year. Every time he asked the human resources department, the reply he got was "No news yet, wait a little longer."
He has worked at Guanghui Auto for 6 years, but this is the first time he has encountered a situation where the company has defaulted on his salary. "Even during the epidemic, when business was so difficult, the company has never defaulted on his salary."
Zhou Hui learned from employees in other regions that basically no one had received any salary for the past two months, but the five social insurances and one housing fund were still being paid normally.
Zhou Hui and his colleagues noticed the company's abnormal behavior last year.
In March 2023, Guanghui Auto issued a "travel management system" notice without warning. Prior to this, the maximum reimbursement for taxi fares for local managers and below on business trips was 100 yuan per day. After the notice was issued, employees at this level will no longer be reimbursed for taxi fares on business trips, but only for public transportation such as buses and subways.
After that, wages were no longer paid on time. In previous years, Guanghui Auto's payday was on the 15th of each month, but Zhou Hui remembered that around the middle of last year, the payday was constantly pushed back. In November of the same year, he did not receive his salary until the end of the month.
“At first, the delay was a few days and no one took it seriously. When it got to the end of the month, people were inevitably nervous and dissatisfied, but at that time no one thought that there was a problem with the company’s funds,” said Zhou Hui.
After all, the actual controller of the company, Sun Guangxin, also owns four listed companies, and the boss himself is fond of investment and collection. According to Bao Mingshan, Sun Guangxin's authorized agent for collection, in the more than ten years to 2012, Sun collected more than 500 fine paintings and calligraphy by modern and contemporary masters.
In particular, in 2011, Sun Guangxin bought "Nine Provinces Enjoying Farming" for 266.8 million yuan, setting a record for the highest auction price for Xu Beihong's paintings.
How could such a powerful boss allow Guanghui Auto’s capital chain to have problems?
It was not until last month that Zhou Hui realized the seriousness of the problem. "The salary for April was not paid until the end of June, and it was paid in batches to first-tier and second-tier cities."
In Guanghui Auto's 4S stores, first-line employees refer to employees who have direct contact with customers, such as sales consultants, after-sales service consultants, maintenance technicians, etc.; second-line employees refer to employees who do not have direct contact with customers, such as human resources, finance, administration and other back-end support personnel.
Zhou Hui learned that many 4S stores under Guanghui Auto are currently owing money to manufacturers for new cars and parts. "Some store employees also reported that they have stopped purchasing parts because they owe money to manufacturers and they won't ship the parts."
Usually, different car manufacturers have different requirements for dealers, but generally, dealers have to pay the full price for new cars purchased from manufacturers. The requirements for accessories are more relaxed. If the two parties have had a good cooperation in the past, some manufacturers will give 4S stores a certain credit limit. "For example, if the credit limit is 1 million, the store can first place an order for accessories within 1 million. After the manufacturer ships the goods and the store confirms receipt, the manufacturer will issue an invoice, and the dealer will pay in the middle of the next month." Zhou Hui said.
However, since the beginning of this year, automobile brands that have cooperated with Guanghui Auto for many years have successively stated that they will no longer accept the "ship first, pay later" form, and the full payment must be made first.
Not only that, "many stores, including ours, no longer receive loans from banks they previously worked with." Zhou Hui believes that in the eyes of manufacturers and banks, Guanghui Auto is no longer an excellent partner, but a high-risk target that could explode at any time.
If manufacturers and banks can still choose to distance themselves, then ordinary employees like Zhou Hui are in a dilemma.
"For those of us with long service, if we are laid off, we can still get some compensation, but if we voluntarily resign, we will lose everything. We will not get the unpaid wages immediately after resigning. If we do not resign, and the company continues to owe us wages in the future, won't we lose one more day if we work one more day?" Like Zhou Hui, many employees stay in their jobs and repeat their previous work with this anxiety and dilemma.
How did the once largest passenger car distribution and service group in the country fall to this point?
Since the beginning of the year, many auto dealers have been caught up in rumors of "explosion", from Guangzhou Yongao Group to Yancheng Senfeng Group to Guanghui Auto, almost all of which have been tied up by the capital chain. In the context of the current price war in the auto market, dealers are caught in a vicious cycle of plummeting sales, high inventory and declining profits.
The latest "China Automobile Dealer Inventory Warning Index Survey" VIA released by the China Automobile Dealers Association shows that in June this year, China's automobile dealer inventory warning index was 62.3%, an increase of 8.3 percentage points year-on-year and 4.1 percentage points month-on-month.
The inventory warning index is above the boom-bust line, indicating that market demand is insufficient and dealers are facing greater inventory pressure and operating risks.
From the financial reports of several leading domestic distributors, it can be seen that while the company's revenue has generally not changed much, everyone's net profit has been falling. For example, in 2023, Zhongsheng Holdings' net profit fell by more than 20% year-on-year, and Yongda Group's net profit fell by more than 60% year-on-year.
Is it the market environment that has brought Guanghui Auto to this point today?
"Half is the market, and half is ourselves." Fu Lei, an industry insider who has been observing the automobile market for many years, told "Shijie" that excluding the macro-environment factors, the asset quality of Guanghui Auto itself is not good, which is also the fuse for the company's current series of problems such as delisting and wage arrears.
Changes in the market only accelerated the arrival of disaster.
Guanghui Auto was formerly known as Dalian Merro Pharmaceutical Co., Ltd. ("Merro Pharmaceutical" for short). Before 2015, the stock code "600297" belonged to Merro Pharmaceutical.
In June 2015, Guanghui Automobile went public through a backdoor listing, and the securities abbreviation corresponding to "600297" was changed from "Meiluo Pharmaceutical" to "Guanghui Automobile". Since then, it has become increasingly active in the A-share market.
But in 2020, Guanghui Auto received an inquiry letter from the Shanghai Stock Exchange regarding its 2019 financial report.
The 2019 financial report shows that the company's book balance of prepaid payments at the end of the period was 25.492 billion yuan, a year-on-year increase of 26.37%, accounting for 17.94% of total assets at the end of the period, mainly unsettled supplier rebates and prepaid payments for complete vehicles and parts.
The Shanghai Stock Exchange requires Guanghui Auto to explain its rebate policy and the rationality of including it in prepaid expenses, and asks the annual auditor to express his opinion.
In the automobile dealer industry, advance payment refers to the payment made by the buyer (dealer) to the seller (automaker) in advance, which is usually not beneficial to the buyer because the advance payment will occupy a large amount of funds and is not conducive to turnover.
Fu Lei told Shijie.com, "Auto dealers have a special way of keeping accounts. About 80% of prepayments actually come from accounts receivable, which are rebates from manufacturers. The advantage of recording accounts receivable as prepayments is that there is no need to make provisions for impairment even if the accounts are overdue."
According to financial experts, not making provisions for impairment will be reflected in the company's operating results: on the one hand, pre-tax profits will increase significantly on the income statement (falsely increased); on the other hand, assets on the balance sheet will also increase accordingly (falsely increased).
According to the inquiry letter, Shijie looked through the company's financial reports from 2015 to 2019 and found that Guanghui Auto's prepayments in 2015 were only 5.469 billion yuan, which increased 3.7 times in just four years. In the same four years, the company's new car sales only increased by 41.7%.
It is no wonder that the Shanghai Stock Exchange is full of questions. In response to the inquiry, Guanghui Auto gave a detailed explanation, and its annual audit accountant also stated that no inconsistency was found between Guanghui Auto's response to the prepayment and the audit evidence.
But Shijie noticed a detail: Guanghui mentioned in its reply: By the end of 2019, the company's unsettled supplier rebates amounted to 21.651 billion yuan, accounting for 85% of the advance payments. Among them, the advance payment to BMW was 5.946 billion yuan.
According to Fu Lei, in 2019, Guanghui Auto and Yongda Auto were both large BMW dealers in China, and the BMW stores of the two companies were of similar size and location. In the same year, Yongda Auto's rebate from BMW was only about 1 billion yuan.
BMW has the same policy for domestic dealers, so why is Guanghui's rebate several times that of Yongda Auto? It was also from that time that Fu Lei began to have difficulty understanding Guanghui.
A small episode is that, like Evergrande Group, Guanghui Auto also hired PricewaterhouseCoopers Zhongtian Accounting Firm in 2019. And the firm has been involved in Guanghui Auto's audit work since 2015.
Because accounts receivable have been recorded as prepaid expenses for many years, by 2022, Guanghui Auto's prepaid accounts turnover days reached 71.9 days, which is twice that of its peer Yongda Auto, three times that of Zhongsheng Holdings, and five times that of Meida Auto.
You should know that the prepaid accounts turnover days is used to reflect the speed of cashing out the accounts receivable and the efficiency of the company's collection. The higher the prepaid accounts turnover days, the slower the company pays its accounts, which affects the company's cash flow and debt repayment ability. And vice versa.
In order to strengthen its ability to repay bank loans, in August 2021, Guanghui Auto issued approximately US$232 million of senior bonds with an interest rate of 9.125% through its wholly-owned subsidiary Guanghui Automotive Service Co., Ltd.
"Rebates receivable are equivalent to the money dealers deposit with manufacturers. In other words, Guanghui Auto would rather issue US dollar bonds with an annual interest rate of 9.125% than take money out of the manufacturer. Is this reasonable?" Fu Lei was puzzled.
In addition to the incomprehensible prepayments, many industry analysts also don't understand why Guanghui Auto wants to increase its goodwill through a large number of mergers and acquisitions. This is too risky financially.
Guanghui Auto is known in the industry as a "merger madman". Since its listing, it has regarded "seeking acquisition opportunities and endogenous development and expansion" as its corporate development strategy. From the end of 2015 to the end of 2019, the number of Guanghui Auto's 4S stores expanded from 498 to 782.
Such a large-scale acquisition has enabled Guanghui Auto to continuously increase its market share and also increased the company's goodwill.
"Goodwill actually comes from the premium of the acquisition and, like intangible assets, is to a certain extent an invalid asset of the company," said Fu Lei.
The financial report shows that by the end of 2015, Guanghui Auto's goodwill was 7.568 billion yuan, and its intangible assets were 4.824 billion yuan, accounting for 16.3% of total assets. By the end of 2019, Guanghui Auto's goodwill was 18.882 billion yuan, and its intangible assets were 9.766 billion yuan, accounting for 20.2% of total assets.
In contrast, Zhongsheng Holdings, which has a similar revenue volume, had goodwill of only 4.64 billion yuan in 2019, and intangible assets of 6.218 billion yuan, accounting for 17.2% of total assets. By the end of 2023, the book value of Guanghui Auto's goodwill will still be as high as 18.749 billion yuan.
In Fu Lei's opinion, dealers are different from car companies. They have no R&D investment and only the long-term agency agreements signed with joint venture brands are valuable. But how much money can a store make each year?
Now, Fu Lei is worried that if Guanghui Auto is delisted, it will be equivalent to losing an important financing channel. Currently, financial institutions are strictly controlling risks and tightening credit. "Even if the interest rate is 9% this year, no institution will lend to Guanghui."
In such a financing environment, it is even more difficult for Guanghui to turn around. According to the relevant follow-up rating report of United Credit Rating Co., Ltd., the "Guanghui Convertible Bond" will enter the repurchase period on August 18, 2024, and the unconverted balance of "Guanghui Convertible Bond" is still 3.013 billion yuan.
Guanghui Auto is delisted and the unconverted balance of Guanghui Convertible Bonds cannot be converted into shares, so it is natural to redeem it from investors. Whether the company will default on its debts is still unknown.
In order to save himself by "protecting his listing", Sun Guangxin had previously carried out a series of capital operations in an attempt to save the situation.
In early June, Guanghui Auto disclosed a plan for the controlling shareholder and some senior executives to increase their holdings, but it did not help boost the stock price. Then in July, Sun Guangxin, at the cost of giving up control, found Jinzheng New Materials Technology Co., Ltd. (Jinzheng Technology), another company from Xinjiang, and expressed his willingness to transfer Guanghui Group's 24.5% stake in Guanghui Auto to the other party.
According to the relevant announcement, the final price of the equity transfer will be determined by negotiation between the two parties, and Guanghui Group has received a conversion intention payment of 100 million yuan from Jinzheng Technology.
It should be pointed out that the equity transaction intention money is not a deposit or liquidated damages in the legal sense, but rather expresses a willingness to invest or trade, which can be refunded under certain conditions. Before the two parties reach a formal agreement on the transaction, the intention money is not binding.
Looking at the entire Guanghui Group, except for the automobile business which has fallen behind, the performance of other sectors is still quite good.
Sun Guangxin was born in a multi-ethnic compound in Urumqi in 1962. When he was young, he dreamed of becoming a general. But in 1989, at the age of 27, he chose to start a company with his friends and start his own battle in the business world.
There is a story about how Sun Guangxin got his first pot of gold. At that time, in order to sell bulldozers, he traveled more than 100,000 kilometers in 10 months, carrying naan and pickles, riding in horse and donkey carts. In the end, he sold 103 bulldozers, which was equivalent to the total sales of the manufacturer in Xinjiang in the past ten years.
This amazed the other party, and they not only raised the original 1% commission to 2%, but also let Sun Guangxin serve as their general agent in Xinjiang and gave him 2 million yuan in working capital.
After completing the initial capital accumulation, Sun Guangxin began to think about new businesses. He bought a restaurant that was about to go bankrupt, opened Xinjiang's first seafood restaurant, and later opened Xinjiang's first karaoke hall, swimming pool, bowling alley...
When he opened the restaurant, he also had his eye on the customers. He wanted to know what those people who were willing to spend thousands of yuan to eat did. At that time, a large oil field had just been discovered in the Tarim Basin, and domestic and foreign merchants were very interested. Sun Guangxin smelled business opportunities and gradually expanded his business to the energy industry - he started oil trading. The matchmakers were the customers who had consumed in his restaurant.
In 1993, at the age of 31, Sun Guangxin expanded his business scope to real estate. At that time, the real estate industry was in its prime, and he made a fortune by taking advantage of the industry. At its peak, 3 out of every 5 commercial houses in Urumqi were developed by him, and 50% of his wealth also came from real estate.
In 2000, Sun Guangxin extended his tentacles to the automobile industry. At that time, the Chinese auto market entered a period of rapid growth. Through restructuring and mergers and acquisitions, he expanded rapidly. By 2011, his car sales business had surpassed Pangda Automobile and became the number one passenger car dealer in the country. In 2015, the name of "Guanghui Automobile" was strongly promoted in the capital market.
According to the "Top 100 Chinese Automobile Dealer Groups in 2023" released by the China Automobile Dealers Association, Guanghui Auto leads its peers in total sales and its revenue is second only to China Auto Logistics Holdings.
How big was Guanghui Auto when it was in its heyday? How extensive was Sun Guangxin's network of contacts? These can be seen from his past interactions with Evergrande Group.
In September 2018, Evergrande Group and Guanghui Group signed a strategic cooperation agreement, planning to increase capital in Guanghui Group by RMB 7.81 billion. After the capital increase, Evergrande Group invested a total of RMB 14.49 billion, holding 40.964% of Guanghui Group's shares, becoming its second largest shareholder.
However, with the collapse of Evergrande Group, Shengjing Bank, which had provided 32.595 billion yuan in funds to Evergrande Group between 2020 and 2021, chose to go to court with Evergrande.
Evergrande Group pledged its 30.99% stake in Guanghui Group as collateral. Eventually, this portion of the shares was auctioned off by the court. Shijie has not found the auction results yet, but Tianyancha App shows that Shengjing Bank currently holds about 30.99% of Guanghui Group's shares, making it the second largest shareholder.
Sources revealed that Sun Guangxin and Xu Jiayin have a good relationship in private, and both love sports. If it is said that the two former real estate tycoons Xu Jiayin and Wang Jianlin have dominated the Chinese football world, then in the Chinese basketball world, Sun Guangxin has his own world.
In 1999, Sun Guangxin and Xinjiang Sports Bureau jointly founded Xinjiang Guanghui. According to statistics, his investment in the Xinjiang team has exceeded 2.4 billion yuan in the past 25 years since its establishment.
In 2014, Sun Guangxin invited basketball player Zhou Qi from the Liaoning team. In the same year, he signed former NBA player Andray Blatche for US$2.5 million, and later recruited championship forward Li Gen.
After three years of running-in, the Xinjiang team finally won its first CBA championship trophy in 2017. After winning the championship, he gave each player and coach a luxury car worth millions.LincolnLeader.
After decades of hard work in the business world, judging from the choices and decisions Sun Guangxin made at every stage, this businessman, now in his sixties, has actually never woken up from his "general dream" from his youth.
"My biggest strength is my competitiveness, and this is also my biggest weakness," Sun Guangxin once said. Now, facing all kinds of doubts from the outside world, can his strength still save Guanghui Auto?
(All interviewees in this article are pseudonyms)
Author |Liu Dongxue
Editor |Tian Yanlin
Operations |Zhang Xiran
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