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Securities Times reporter Wang Junzhuoyong

Recently, the listed company Tongyi Shares issued an announcement that the company's controlling shareholder Hongdou Group intends to transfer its 110 million shares to Shanghai Jiuyi Investment Management Co., Ltd. through an agreement transfer, accounting for 6.92% of the total share capital of the listed company. The company's major shareholder's reduction of holdings is just a microcosm of the reduction of holdings achieved by A-share listed companies through agreement transfer this year. According to incomplete statistics from Securities Times reporters, as of now, the number of listed companies whose major shareholders have reduced their holdings in this way exceeds 250, and the amount of reduction in this way accounts for nearly 80%. Agreement transfer has become the mainstream way for major shareholders of listed companies to reduce their holdings this year.

In addition, many VC/PE (venture capital and private equity) institutions holding shares in listed companies have exited part of their shares through agreement transfer. Industry insiders pointed out that as a compliant way of reducing holdings, agreement transfer can maintain market stability and meet the needs of major shareholders to reduce holdings in the current sluggish market environment. The frequent entry of private equity funds has demonstrated their confidence in the market to a certain extent, but at the same time, they also need to pay attention to potential risks.

Agreement transfers set off a small climax

According to the data from iFinD of Tonghuashun, Securities Times reporter found that since the beginning of this year, as of August 7, major shareholders of more than 250 listed companies have transferred equity through agreement transfer (excluding transfers between major shareholders or transfer amounts not marked), with a total transfer amount of more than 210 billion yuan. Compared with the same period last year, the number of such companies increased by 51, and the transfer amount increased by nearly 16% year-on-year.

In terms of the transfer amount of a single company, the transfer amount agreed by the major shareholders of two listed companies, Shanghai RAIS and Changdian Technology, is more than 10 billion yuan. In June this year, Shanghai RAIS announced that the transfer of shares between its shareholder Gilford and Haier Group was completed. Gilford sold 20% of the shares of the listed company to Haier Group's wholly-owned subsidiary Haiyingkang (Qingdao) Medical Technology Co., Ltd. for a transaction price of 12.5 billion yuan. After the transaction was completed, the actual controller of Shanghai RAIS was changed to Haier Group. In addition, the transfer amount agreed by shareholders of listed companies such as Gu Jiajia Furniture, Tasly, Changjiang Securities, Huitai Medical, Macalline, and Focus Media is not low, all of which are more than 5 billion yuan.

From the perspective of the purpose of shareholders transferring equity, according to some company announcements, some are for the purpose of better realizing strategic cooperation or industrial synergy between listed companies and transferees, while some companies clearly stated that it was due to the capital needs of major shareholders. For example, in July this year, Kosen Technology announced that in order to effectively reduce the shareholder debt ratio and reduce debt risks, the company's controlling shareholder and actual controller agreed to transfer 28 million shares, with a transfer amount of approximately 140 million yuan.

In addition, there are also listed companies whose stock prices continue to be sluggish, and major shareholders have agreed to transfer equity to solve the "urgent problem" in order to solve the stock pledge problem. For example, Dongni Electronics recently announced that the company's controlling shareholder and actual controller will transfer a total of 27.8 million shares of the company's shares based on the need to repay part of the pledged financing, and the total transfer price is 478 million yuan.

Since the beginning of this year, compared with block trading, secondary market bidding transactions, inquiry transfer and other operation methods, agreement transfer has become the mainstream way for shareholders of A-share listed companies to reduce their holdings. Securities Times reporters found that this year, the proportion of the amount of reduction in listed companies through agreement transfer accounted for nearly 80%.

"As a method of reducing holdings, agreement transfer has many advantages for listed companies, markets and related market players. While achieving orderly transfer of shares, it can also maintain market stability and healthy development." Yao Xusheng, a wealth manager at Paipai.com, told reporters that this is specifically reflected in the following: on the one hand, agreement transfer can complete the transfer of shares without directly affecting market prices; on the other hand, as a compliant method of reducing holdings, shareholders of listed companies can conduct agreement transfers to reduce holdings on the premise of complying with relevant laws and regulations to avoid risks of violations.

The fact that major shareholders of listed companies have chosen to reduce their holdings through agreement transfers is also related to the current market environment. Yao Xusheng said that the new rules on reduction of holdings issued in the second half of last year strictly restricted the illegal reduction of holdings by major shareholders and directors, supervisors and senior managers, and at the same time "blocked" various roundabout reduction channels, which made it increasingly difficult for a large number of small-cap companies to meet the requirements of block trading and competitive bidding, and thus turned to the compliant channel of agreement transfers to reduce their holdings.

In addition, the peak period of lifting restrictions brought about by the peak of listings, coupled with market factors such as the continued downturn in the A-share market, have prompted major shareholders to reduce their holdings through agreement transfers, thereby avoiding a major impact on the stock prices of listed companies due to direct sales of stocks.

Private equity funds frequently “take over”

With high frequency of agreement transfers, who is the capable “taker”?

The reporter found that among the transferees of the above-mentioned listed company shareholders' agreement transfers, industrial capital accounts for the vast majority, and there are also many medium- and long-term funds such as state-owned assets, public funds, and insurance funds. It is worth noting that private equity funds also frequently appear in the list of transferees of agreement transfers.

According to the reporter's statistics, among the above-mentioned more than 250 listed companies' agreement transfer cases, the equity transferees of more than 60 companies, including General Shares, Yitian Intelligence, and Tianyu Ecology, are private equity funds. For example, Shanghai Jiuyi Investment, in addition to acquiring part of the equity of General Shares this year, also acquired more than 5% of the equity of Lian Technology and Chaoxun Communications, with a total investment of nearly 831 million yuan. In addition, well-known private equity institutions such as Queshi Private Equity, Xuanyuan Investment, Yingshui Investment, and Qihou Assets have also taken over part of the equity of many listed companies this year.

Private equity firms frequently take over the equity of major shareholders of listed companies, which to a certain extent demonstrates their confidence in the market. At the same time, the higher discounts also provide a certain "safety cushion" during market downturns. Liu Yan, chairman of Anjue Asset Management, said in an interview with a Securities Times reporter: "Private equity firms take over the equity directly from shareholders of listed companies, which allows them to trade at a more direct and flexible price, avoiding transaction costs such as handling fees and stamp duties in secondary market transactions. In addition, stock prices in the secondary market fluctuate greatly due to a variety of factors, and private equity firms can avoid these market fluctuations by acquiring equity from shareholders and obtain equity at a relatively stable price. At the same time, since the transaction is directly negotiated by both parties, private equity firms can often acquire shares at prices lower than the market price, thereby reducing investment risks and increasing their own returns."

In Liu Yan's view, in the current market environment, investor sentiment is relatively low, resulting in pressure on the stock prices of listed companies. Introducing private equity institutions as strategic investors or financial investors may give full play to their professional investment capabilities, rich market resources and flexible investment strategies, bring new development perspectives and impetus to the company, and help the company stand out in the fierce market competition.

For private equity funds, although there is a certain "discount" attraction in taking over equity from shareholders of listed companies, there are also some potential risks. Chen Xingwen, chief strategy officer of Heisaki Capital, told reporters that private equity funds need to pay attention to risks such as the opacity of corporate governance structure, uncertainty in business operations, and market expectations of the company's future development during the process of taking over. In addition, they also need to pay attention to the compliance of transactions to avoid legal risks caused by illegal operations.

"When private equity funds consider taking over the equity of listed companies, they must conduct comprehensive due diligence, assess potential risks, and develop appropriate risk management measures. Due diligence is an important step for private equity funds before taking over the equity of listed companies. It helps to discover the intrinsic value of the target company, potential fatal flaws and possible impact on the intended investment, and provides necessary information for the design of investment plans." Chen Xingwen said.

“Lock in” benefits

Venture capital exit opens up new channels

According to a Securities Times reporter, among the more than 250 listed companies that disclosed the progress of the agreement transfer, about 50 companies' equity transferors were equity investment funds, accounting for nearly 20%. Judging from the nature of the investment institutions of these equity transfer agreements, there are both market-oriented investment institutions, local state-owned assets, and national funds.

For example, according to the announcement released by the GEM company Shannon Xinchuang on March 1 this year, one of the company's controlling shareholders, Shenzhen Linghui Cornerstone Equity Investment Fund Partnership (Limited Partnership), and its joint actors Shenzhen Lingchi Cornerstone Equity Investment Fund Partnership (Limited Partnership), Wuhu Hongwei Cornerstone Investment Fund Management Partnership (Limited Partnership), etc., respectively signed share transfer agreements with Wuxi High-tech Zone New Energy Industry Development Fund (Limited Partnership), Shenzhen Xinlianpu Investment Partnership (Limited Partnership), etc., to transfer part of the equity they hold, and the transfer of these transferred equity has been completed.

Shenzhen Linghui Cornerstone Equity Investment Fund Partnership (Limited Partnership) is backed by Cornerstone Capital, a leading domestic VC institution. The reporter learned that the fund is backed by government-guided funds from multiple cities, among which Shenzhen Guidance Fund holds the largest shareholding ratio, at 25%. After the agreement to transfer part of the equity, the investors behind the fund will be able to exit smoothly.

In addition to market-oriented VC institutions, the reporter found that local state-owned assets and national funds also exited through the secondary market agreement transfer method. According to the announcement released by Changdian Technology on March 27, the company's shareholders National Integrated Circuit Industry Investment Fund Co., Ltd. (hereinafter referred to as "Big Fund") and Xinde Semiconductor (Shanghai) Co., Ltd. signed a share transfer agreement with Panshi Hong Kong Co., Ltd., transferring a total of 22.53% of the equity. After the transfer, Big Fund partially exited, and China Resources, the controlling shareholder behind Panshi Hong Kong, became the actual controller of Changdian Technology.

In fact, the continued downturn in the secondary market since last year has brought considerable challenges to the exit of many VC/PE institutions holding shares of listed companies. "We have several stocks that have passed the lock-up period, but the market price has not been ideal, so we can only wait." A person in charge of fund exit at a VC institution in South China told reporters that if the fund is not eager to liquidate and exit, it generally does not adopt the method of agreement transfer to exit, because it has to accept a certain degree of discount.

“This year, several private equity investment institutions wanted to take over the equity of a certain stock we hold, but we are still losing money now, and the price they offered was not ideal, so we decided not to consider it.” The head of a VC institution in Shenzhen told reporters that agreement transfers can indeed provide VC/PE institutions in the secondary market and the investors behind them with multiple exit options, but the most critical and difficult thing to reach a consensus on is the price.

Liu Yan believes that agreement transfer can indeed become one of the exit paths for VC/PE institutional shareholders in the secondary market. For VC/PE institutional shareholders who are in urgent need of capital recovery, they can quickly reach a deal and complete equity delivery through mutual agreement, thus shortening the exit cycle. In addition, this exit method also helps VC/PE institutions to lock in profits in a timely manner.