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Economic Observer reporter Niu Yu Just after 5pm on August 7, He Shuyang was already driving home. Looking back at the summer of 2019, when he entered the investment banking business of securities companies, he never dared to expect that he could enjoy a regular "9 to 5" life. Now, as the investment banking projects he is responsible for have encountered setbacks one after another, the busy work pace has obviously slowed down.

As a staff member of the investment banking department of a "neck" securities firm in the north, his main business includes underwriting for the Beijing Stock Exchange (hereinafter referred to as "BSE") and recommendation for listing on the National Equities Exchange and Quotations (hereinafter referred to as "NEEQ"), and he provides continuous supervision services to enterprises.

As the review cycle for sponsorship and listing projects lengthened, in the first half of 2024, a company listed on the New Third Board that He Shuyang was responsible for supervising was unilaterally terminated by his brokerage firm on the grounds that it had defaulted on supervision fees for many years. He was not surprised by this result. All announcements of the company had to be confirmed by him, and he was well aware of the financial risks exposed in the announcements.

This is not an isolated case. According to incomplete statistics from Wind Information data, 53 NEEQ-listed companies have been repeatedly “demanded” by securities firms since 2024. The continuous supervision fees payable by these companies have been in arrears for two to seven years, and nearly 30% of listed companies have been in arrears for more than three years.

Unlike A-share listed companies, which have a continuous supervision period of one to three years, companies listed on the New Third Board need to receive continuous supervision for life. In other words, continuous supervision by the sponsoring securities firm is a "necessity" for every company listed on the New Third Board. According to regulations, companies that lose their sponsoring securities firm for more than three months will be delisted (i.e., "delisted"). The New Third Board, with its low threshold, is the main battlefield for small and medium-sized enterprises to raise funds in the capital market. Delisting of a company means losing an important financing channel, and the initial investment will also go down the drain. With such serious consequences, there are more and more cases of New Third Board companies being "collected for debts" by securities firms.

Many interviewees told the Economic Observer that the liquidity of the New Third Board market is low, and it is difficult and costly for companies to raise funds. Some small and medium-sized enterprises with uneven financial conditions are unable to withstand market risks and face operational difficulties. The annual fixed continuous supervision fees and other costs are just the "last straw" that forces these companies to retreat.

Securities firms are determined to collect debts and even "clear out" these New Third Board clients regardless of personal feelings. On the one hand, the relevant fees have been overdue for many years and have become "bad debts"; on the other hand, these companies with operating risks have lost the value of new business opportunities such as transferring to the main board, mergers and acquisitions, etc.

Intensive "debt collection"

On August 7, another three companies listed on the New Third Board issued risk warning announcements that their sponsoring underwriters intended to unilaterally terminate the continuous supervision agreements.

The three companies are Xi'an Haokan Film and Television Culture Media Co., Ltd. (hereinafter referred to as "Haokan Media"), Zhejiang Qingshi Culture Communication Co., Ltd. (hereinafter referred to as "Qingshi Culture"), and Beijing Tianchengyuantong Technology Co., Ltd. (hereinafter referred to as "Tianchengyuantong"). Their lead underwriters areZhongtai Securities、Caitong Securities、Northeast Securities。

Among them, Haokan Media and Qingshi Culture were notified in writing by the securities firm for the second time, and Tianchengyuantong was notified in writing for the first time.

According to the announcement, on April 27, 2017, Northeast Securities and Tiancheng Yuantong signed the "Recommendation Listing and Continuous Supervision Agreement", which clearly stipulated the amount and payment time of the supervision fee. As of now, Tiancheng Yuantong has not paid the continuous supervision fee to Northeast Securities as agreed in the agreement for five years.

From the current perspective, among the 53 listed companies that were "demanded for debts", only four companies were able to make up the debts after being reminded many times, namely Zhonghuilv Smart Scenic Area Management Co., Ltd. (hereinafter referred to as "Zhonghuilv"), Qinhuangdao Yideli Technology Co., Ltd. (hereinafter referred to as "ST Yideli"), Hezhou Sufeng Wood Industry Co., Ltd., and Shanghai Tuyou Biotechnology Co., Ltd.

Among them, China Huilv had worked withEverbright SecuritiesSigned a continuous supervision agreement. As of May 16, 2024, Zhonghui Travel had only paid 100,000 yuan, and owed 500,000 yuan in continuous supervision fees. It had not paid in full as agreed for three years, so it was reminded in writing by Everbright Securities three times. On July 22, Zhonghui Travel disclosed that it had settled the continuous supervision fees for 2022 and 2023.

ST Yideli disclosed on April 25 that under the sponsoring securities firmGuosen SecuritiesAfter three written reminders, one year's supervision fee has been paid. According to previous announcements, ST Yideli owed Guosen Securities two years of supervision fees and still owed one year's supervision fees, the specific amount of which has not been disclosed. The brokerage firm, which failed to "collect debts", has unilaterally terminated the relevant continuous supervision agreement with the listed company. According to the "Guidelines for Continuous Supervision of Sponsoring Brokers" (hereinafter referred to as the "Guidelines"), if a listed company has not paid the supervision fees as agreed in the agreement for a total of two years, and has been reminded in writing three times, and it has been three months since the first reminder, the sponsoring brokerage firm can unilaterally terminate the continuous supervision agreement.

The Economic Observer roughly calculated based on the announcement that more than 10 companies listed on the New Third Board have had their contracts unilaterally terminated by brokerage firms this year. Even if the agreement is terminated, the brokerage firm's continuous supervision fees may become non-performing debts.

It is understood that most securities firms collect debts within the prescribed two-year period, but many small and medium-sized securities firms have a relatively high tolerance for overdue periods, such asHuaxi SecuritiesSichuan Juta Technology Co., Ltd. (hereinafter referred to as "Juta Technology"), the lead underwriter, has been in arrears of ongoing supervision fees for seven years.

An investment banker from Huaxi Securities told the Economic Observer that Juta Technology was recommended for listing by Huaxi Securities. Since then, Huaxi Securities has provided continuous supervision services for many years. The company's financial department has urged Juta Technology to pay back the money every year, but has never recovered the debt. As a local securities company and state-owned enterprise in Sichuan, Huaxi Securities has the responsibility and obligation to support the development of local enterprises. In recent years, it has also supported enterprises with operating difficulties such as Juta Technology.

He Shuyang told the Economic Observer that the project he was involved in continuously supervising had been in arrears for more than three years. After the agreement was terminated, the arrears have not been recovered. The listed company is about to be delisted, and the company will then seek legal means to recover the arrears.

Behind the Delinquency of Supervision Fees

A few companies that were "demanded for debt" by securities firms responded in relevant announcements why they had not paid the ongoing supervision fees for many years, with "inability to pay" being the core factor.

For example, Zhongyu Construction Development (Beijing) Co., Ltd. stated that due to the failure to collect project accounts receivable in a timely manner and the impact of the epidemic, the company's operations faced difficulties, funds were tight, and it was unable to pay relevant amounts in a timely manner.

Beijing Times Technology Co., Ltd. stated that the company is currently facing operational difficulties and is extremely short of funds. It is currently unable to pay the ongoing supervision fees and is unable to fulfill its payment obligations on time.

How much are the fees that these small and medium-sized enterprises cannot afford? According to information disclosed by several NEEQ companies, the standards for securities firms to charge continuous supervision fees vary, but are generally between 100,000 and 150,000 yuan per year.

Several investment bankers who have served as supervisors for NEEQ companies told the Economic Observer that the continuous supervision of NEEQ is no easier than that of the A-share main board, which costs at least 500,000 yuan per year. All announcements of listed companies need to be reviewed in advance by the sponsoring securities firm, and supervisors need to go to the site regularly and be ready for irregular on-site inspections at any time.

Since August, a total of eight listed companies have announced that they have not paid the continuous supervision fees to the sponsoring underwriters as agreed. These companies are in different industries, have different arrears and sponsoring underwriters, but they all face the common dilemma of operating pressure.

Wind data shows that Haokan Media's revenue from 2015 to 2019 was over 100 million yuan, and its revenue in 2023 was only 251,300 yuan, but its net loss in the same year exceeded 6 million yuan. In 2023, Tiancheng Yuantong's revenue was 1.4676 million yuan and its net profit was 12,900 yuan; Qingshi Culture's revenue was 784,200 yuan and its net profit was 12,500 yuan; the performance of the other five companies was all in a loss state, among which Quanzhou Xinxin Culture Media Co., Ltd. (hereinafter referred to as "Xinxin Culture") had a revenue of 17.3289 million yuan and a net loss of 13.7861 million yuan.

Regarding questions such as whether they can repay the loans and the risk of delisting, the Economic Observer called the publicly disclosed contact information of the above eight companies several times on August 6 and 7, but was unable to get through.

According to the Guidelines, if a listed company whose continuous supervision agreement has been unilaterally terminated by a securities firm cannot find a new sponsoring securities firm within three months, its stock listing will be terminated. Currently, many listed companies whose continuous supervision agreements have been terminated are in a suspended state, and those that have not found a new sponsoring securities firm for three months have entered the delisting consolidation period.

"I have never heard of finding a brokerage firm willing to take over after the continuous supervision agreement is terminated." He Shuyang said that considering the operating conditions of these companies, it is impossible for other brokerage firms to contact them.

On December 11, 2020, the Guidelines added the content of securities firms unilaterally terminating the continuous supervision agreement.Oriental FortuneAccording to Choice data, as of August 7, 2024, a total of 76 NEEQ companies were delisted because they "terminated the continuous supervision agreement with the sponsoring underwriter and failed to sign a continuous supervision agreement with other sponsoring underwriters within three months."

If the nearly 50 companies that have been "demanded for debts" by securities firms this year fail to pay their debts and find new sponsoring securities firms, more than 120 companies will be "crushed" by the continuous supervision fees.

The above-mentioned listed companies that were "demanded debts" by securities companies all belong to the "basic layer" enterprises. According to the tiered management method of the New Third Board, only "basic layer" companies that meet the requirements of two consecutive years of profitability, continuous growth in operating income, and issuance of stocks for financing can be adjusted to the "Innovation Layer". Listed companies that do not meet the maintenance conditions of the "Innovation Layer" will be adjusted to a lower level. The "Selected Layer" has higher requirements than the "Innovation Layer". In September 2021, the Beijing Stock Exchange (hereinafter referred to as "BSE") was officially established, and the "Selected Layer" of the New Third Board was transferred to the BSE.

A person from a leading securities investment bank told the Economic Observer that in recent years, the Science and Technology Innovation Board and the Beijing Stock Exchange have been established and the registration system has been fully implemented. The high-quality New Third Board companies have been delisted to apply for IPOs. Companies that can currently maintain their "innovation layer" are regarded as the "reserve force" of the Beijing Stock Exchange, while small and medium-sized enterprises that have long been left in the "basic layer" are considered to be of "poor quality."

Voluntary delisting

Since 2024, some companies listed on the New Third Board are choosing to delist voluntarily.

According to Oriental Wealth Choice data, as of July 31, 2024, 219 NEEQ companies have been delisted, of which only 11 were delisted due to "termination of the continuous supervision agreement with the sponsoring securities firm and failure to sign a continuous supervision agreement with other sponsoring securities firms within three months", and 182 were "companies applying for delisting", accounting for as high as 83.11%.

An insider of a small and medium-sized enterprise that just completed delisting in June told the Economic Observer that the company took the initiative to terminate its listing based on strategic adjustments. The company’s announcement disclosed that the reason for the voluntary termination of listing was to "focus on the company's business management, reduce the company's operating costs, and improve the efficiency of business decision-making." As for the "operating costs", the insider said it was inconvenient to disclose.

It is worth noting that a few listed companies have previously announced that they were unable to hire auditing agencies, resulting in the inability to disclose annual reports on schedule, thus facing the risk of delisting and administrative penalties for "inability to disclose annual reports on schedule."

On April 19, Zhejiang HaoTeng Electronic Technology Co., Ltd. (hereinafter referred to as "Haoteng Technology") disclosed that due to operational difficulties, it was unable to pay the audit fees and was unable to hire an accounting firm to conduct an audit, resulting in the company's inability to disclose its annual report as scheduled. On August 7, HaoTeng Technology received an administrative penalty decision from the Zhejiang Regulatory Bureau of the China Securities Regulatory Commission. Due to information disclosure violations, the Zhejiang Regulatory Bureau warned it, ordered it to correct its violations, and fined it 600,000 yuan.

An investment banker from a leading securities firm in East China told the Economic Observer that when recommending small and medium-sized companies to be listed on the New Third Board, his securities firm will charge a fee of 700,000 to 800,000 yuan, and will become the first sponsoring securities firm for the companies listed on the New Third Board; according to relevant requirements, the continuous supervision fee is an additional fixed fee charged by the securities firm, which is approximately 100,000 to 300,000 yuan per year.

The source said that in addition to the supervision fees, the operating expenses that small and medium-sized enterprises have to face during the listing period include annual audit fees, listing fees paid to the National Small and Medium Enterprise Equity Transfer System Co., Ltd., and other hidden costs of standardized operations. In addition, many local associations charge annual membership fees. After the company terminates its listing, it can save a lot of operating expenses.

It is understood that the audit fees for companies listed on the New Third Board range from 100,000 yuan to 350,000 yuan, and the annual listing fees of stock transfer companies are calculated separately for common shares and preferred shares, with the annual fees for common shares ranging from 20,000 yuan to 50,000 yuan. Based on the publicly disclosed fees alone, the fixed operating costs incurred by small and medium-sized enterprises due to listing range from 220,000 yuan to 700,000 yuan per year.

"Some private enterprise bosses feel that there are no practical benefits from listing on the New Third Board, and they also have to meet various compliance requirements. When disclosing information, in addition to the high fees, it will also involve information such as business secrets that they are unwilling to disclose." He Shuyang believes that the active delisting is also because some private entrepreneurs want to reduce trouble and concentrate on business in the current environment. From the perspective of the development of the New Third Board, the number of listed companies has decreased and the activity has decreased in the past two years. Wind data shows that as of August 8, 2024, there were 6,148 companies listed on the New Third Board, of which 3,974 were basic-layer companies. In 2017, when the New Third Board market was booming, the total number of listed companies was 11,630, of which as many as 10,277 were basic-layer companies. Data disclosed on the official website of the New Third Board show that in 2023, important indexes such as the Three Board Index, the Three Board Market Making Index, the Innovation Index, and the Three Board Leader Index fell for two consecutive years. In 2023, the issuance of stocks on the New Third Board hit the lowest value since 2015, with a total of 573 issuances and an issuance amount of 18.019 billion yuan; 17.427 billion shares were traded throughout the year, with a transaction amount of 61.274 billion yuan; there were only 13 major asset reorganizations and 20 acquisitions.

Huang Lichong, president of Huisheng International Capital, believes that the liquidity of stocks on the New Third Board is low, and most of the companies on the market are small and medium-sized enterprises with unstable business conditions and uneven financial conditions. At a time when investors' confidence in the capital market is generally weakening, they are more cautious about the high-risk New Third Board market. These small and medium-sized enterprises find it difficult to obtain financing support when bank loans are tightened and risk capital is reduced, and face the risk of operating difficulties or even bankruptcy, which in turn leads to a decrease in high-quality targets that can attract investors in the market.

How much damage did the brokerage firm suffer?

For listed companies that are under pressure in terms of operation, this debt may be the "last straw" that overwhelms them. However, for securities companies, especially leading securities companies, the revenue that the continuous supervision business of the New Third Board can contribute is limited, which is really a "mosquito meat". Even if the debt is difficult to recover, it will have little impact on the financial level.

"The growth space for projects on the New Third Board is limited and the fees are low, so we don't like to do it." An investment banker from a top three brokerage firm in an industry told the Economic Observer that unlike the relatively fixed fees for New Third Board projects, the fees for A-share equity financing projects are determined as a percentage of the financing amount, and the fees for specific business are distinguished when signing an agreement with the client. For example, the underwriting and sponsorship fee is 29 million yuan, and the subsequent continuous supervision for two years totals 1 million yuan, or at least 500,000 yuan per year.

According to the data from Oriental Fortune Choice, as of August 7, Kaiyuan Securities has continuously supervised 724 NEEQ-listed companies, leading the NEEQ market by a wide margin; Shenwan Hongyuan Securities serves as the lead underwriter for 558 listed companies;Soochow Securities, GuoRong Securities, Zhongtai Securities, and Changjiang Underwriting and Sponsoring all have more than 200 clients who continuously supervise their business; and the leading securities firmsCITIC Securities、Guotai Junan, Everbright Securities, CITIC Construction Investment, etc., there are only dozens of such clients.

For Kaiyuan Securities, the revenue from the New Third Board business accounts for a relatively small proportion. According to the prospectus disclosed by Kaiyuan Securities at the end of June, in 2023, the brokerage firm's fees and net income from all businesses on the New Third Board will be 154 million yuan, accounting for 17.42% of its total investment banking business revenue that year and 5% of its total revenue.

If the 724 NEEQ-listed companies that Kaiyuan Securities is responsible for are considered as a whole, and each company pays 100,000 yuan in continuous supervision fees each year, the total income of Kaiyuan Securities from continuous supervision fees on the NEEQ is about 70 million yuan. This figure may be only a fraction of the net income of an IPO project.

On December 16, 2023, Kaiyuan Securities generated net income of RMB 66.0912 million from sponsoring a GEM IPO as a joint lead underwriter.

However, with the current trend of slowing IPOs, the revenues of investment banking businesses of small and medium-sized securities firms that lack high-quality equity financing projects have generally shrunk significantly, and the revenues that the New Third Board business can bring are also very important.

In addition to the public "debt collection" projects, it is not known whether many listed companies have voluntarily delisted due to operational issues and whether there is any arrears in continuous supervision fees behind this.

From August 5 to August 7, the Economic Observer contacted Kaiyuan Securities, Guoxin Securities, Caitong Securities, Zhongtai Securities and other brokerage firms for interviews on the progress and impact of "debt collection" from New Third Board companies, but no response was received as of press time.

(At the request of the interviewee, He Shuyang is a pseudonym in this article)