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Introduction: From Huaxi Securities to CITIC Securities, which is known as the "king of A-share investment banks", in the past two years, after stepping on sensitive shareholders and being hit by "problematic intermediaries", can Jiachi Technology's IPO get the coveted listing result as soon as possible due to the intervention of new sponsors? I am afraid there are still variables.

This article was exclusively published by Koukou Finance (ID: koukouipo)

Author: Lei Du@Beijing

Editor: Zhai Rui@Beijing

The ill-fated Chengdu Jiachi Electronic Technology Co., Ltd. (hereinafter referred to as "Jiachi Technology") has finally overcome another hurdle on its road to listing.

After the hard-earned listing registration process had to be suspended for three months due to the regulatory measures taken by the regulators to restrict the business activities of the hired sponsor, on the evening of August 12, 2024, the China Securities Regulatory Commission officially announced the resumption of the IPO issuance registration of Jiachi Technology.

As reported earlier by Kekou Finance, Jiachi Technology chose the optimal solution to complete its IPO registration as soon as possible - changing its sponsor (see the relevant report from Kekou Finance for details: "IPO sponsor broker Huaxi Securities suddenly had its sponsorship qualification suspended for 6 months! Jiachi Technology's attempt to list on the Science and Technology Innovation Board has been revived out of nowhere: it was once deeply dragged down by sensitive shareholders, and the actual controller resigned strangely at a critical moment").

Returning from the "suspended" status to the registration process, the sponsor of Jiachi Technology's IPO has been changed from West China Securities to CITIC Securities.

In the past three years of the listing journey, West China Securities has escorted Jiachi Technology's IPO all the way through guidance, declaration, approval and submission for registration with the China Securities Regulatory Commission.

The relationship between Huaxi Securities and Jiachi Technology's IPO can be traced back to early December 2021, when the two parties formally signed a listing guidance agreement, which also marked the beginning of Jiachi Technology's sprint to the A-share market.

On June 17, 2022, after nearly half a year of coaching, Jiachi Technology submitted its application for listing on the Science and Technology Innovation Board to the Shanghai Stock Exchange under the sponsorship of West China Securities and was accepted.

The initial review went as normal.

On June 19, 2023, at the 54th review meeting of the Listing Review Committee of the Shanghai Stock Exchange in 2023, Jiachi Technology successfully obtained an unconditional approval result given by the listing committee members that it "met the issuance conditions, listing conditions and information disclosure requirements."

But since then, the pace of Jiachi Technology's IPO has slowed down visibly.

It was not until March 22, 2024, 9 months after passing the review of the Shanghai Stock Exchange Listing Committee, that Jiachi Technology's IPO finally got the opportunity to submit its registration to the China Securities Regulatory Commission, taking the final step towards listing.

What Huaxi Securities and related sponsors did not expect was that when Jiachi Technology's IPO was about to succeed, a penalty approval document not only caused its investment banking business to stagnate for half a year, but also allowed CITIC Securities to successfully snatch away from them the Jiachi Technology IPO project with a financing scale of more than 1.2 billion yuan.

On the evening of April 12, 2024, West China Securities issued an announcement stating that on the previous day, it had received a prior notice of administrative supervision measures from the Jiangsu Regulatory Bureau of the China Securities Regulatory Commission. Due to a number of problems in its due diligence work during the practice of a certain private placement of stock underwriting project, it was suspected of not performing its due diligence diligently and responsibly, and it was proposed to take regulatory measures to suspend its underwriting business qualifications for 6 months.

Just over half a month later, the hammer dropped.

On May 5, 2024, West China Securities announced again that the Jiangsu Securities Regulatory Bureau decided to suspend the company's underwriting business qualifications for 6 months, from April 28 to October 27, 2024.

As another project to be listed that encountered the lack of professional qualifications of intermediary sponsors during the registration process, the direction and choice of Jiachi Technology's IPO has attracted much attention from the outside world.

"There are only two options for Jiachi Technology's IPO. One is to choose to replace a new IPO sponsor, and the other is to continue to be tied to West China Securities. If the latter is chosen, it can only wait for West China Securities to resume its sponsorship qualifications before continuing to promote listing registration." As early as April 2024, after West China Securities announced that its sponsorship qualifications would be suspended, the head of the investment banking department of a large brokerage firm in Beijing with a Chinese character in its name told Kekou Finance that the vast majority of companies planning IPOs that encounter similar situations will choose the first path, that is, to replace a new sponsor, and Jiachi Technology is also likely to choose this approach.

"After 2016, the CSRC revised the handling of administrative penalties and replacements of intermediary institutions under review for initial public offerings. On the basis of meeting certain conditions, companies under review for IPOs that change their sponsors do not need to queue up again." The head of the above-mentioned investment bank department told Kekou Finance, however, if they choose to replace the intermediary involved in the case, the replaced sponsor will be required to re-perform the entire sponsorship work procedures, review and confirm the guidance of the original sponsor, re-issue the sponsorship documents, and express a clear opinion in the sponsorship documents as to whether there are major differences between the contents of the newly issued documents and the documents issued by the original sponsor.

Although under the registration system, there are not many cases where an IPO project that has advanced to the registration stage needs to change its intermediary agency for some reason, the successful listing of Ningsi Electronics, which also applied for listing on the Science and Technology Innovation Board two years ago, provided a "sample" demonstration for Jiachi Technology.

Yongsi Electronics’ previous IPO experience is exactly the same as what Jiachi Technology is experiencing today.

On June 23, 2021, under the sponsorship of Ping An Securities, Yongsi Electronics successfully submitted its listing application for the Science and Technology Innovation Board to the Shanghai Stock Exchange. After two rounds of preliminary inquiries, Yongsi Electronics successfully passed the review of the Shanghai Stock Exchange Science and Technology Innovation Board Listing Committee on February 22, 2022, and on March 11 of the same year, it formally submitted a registration application to the China Securities Regulatory Commission.

Who would have thought that shortly after Yongsi Electronics submitted its IPO registration application, at the end of March 2022, Ping An Securities received a prior notice of administrative supervision measures from the Shenzhen Regulatory Bureau of the China Securities Regulatory Commission, stating that its sponsor qualification was suspended for three months due to its failure to perform due diligence and inadequate implementation of internal control mechanisms during the sponsorship of LeTV's IPO in 2010.

On June 24, 2022, Yongsi Electronics' registration procedures were suspended because its sponsor Ping An Securities was suspended from its sponsorship qualifications by the China Securities Regulatory Commission. According to the relevant provisions of Article 30 of the "Regulations on the Registration Administration of Initial Public Offering of Stocks on the Science and Technology Innovation Board (Trial)", its registration procedures were suspended.

But more than a month later, on August 12, 2022, Yongsi Electronics' IPO was quietly restarted, and its registration process was announced to be restored by the China Securities Regulatory Commission.

At that time, Ping An Securities' underwriting business was still stagnant.

It turned out that Yongsi Electronics had used the past month to secretly complete the replacement of its IPO intermediary agency and the re-review of its underwriting business by the new underwriter.

In the column of sponsors for the IPO of Ningbo Silicon Electronics, which has resumed the registration process, Founder Securities replaced Ping An Securities and became the new escort for Ningbo Silicon Electronics' listing.

According to Kk Finance, when Hua Xi Securities was announced to suspend its investment banking business, many other securities firms saw this good opportunity to "dig for projects" and extended olive branches to the projects under review and potential listing sponsored by Hua Xi Securities at that time. Among them, Jiachi Technology, which was only one step away from a successful listing, naturally became a hot commodity that many investment banks wanted to compete for.

Three months later, the deal was won by CITIC Securities.

From West China Securities to CITIC Securities, known as the "King of A-share Investment Banks", in the past two years or so, after stepping on sensitive shareholders and being hit by "problematic intermediaries", can Jiachi Technology's IPO achieve the coveted listing result as soon as possible with the intervention of a new sponsor?

I'm afraid there are still variables.

1) Another wave of troubled IPO road: Chief scientist resigned on the eve of registration submission

If it weren't for the series of "accidents" that came one after another, Jiachi Technology would have already realized its dream of being listed on the A-share market and becoming a listed company.

Before encountering "problematic intermediaries" during the registration process, Jiachi Technology had seriously delayed its listing process due to sensitive shareholder issues.

As mentioned above, after passing the review of the Shanghai Stock Exchange Listing Committee on June 19, 2023, Jiachi Technology's IPO was stalled for more than 9 months before it was allowed to enter the registration and declaration stage.

There were rumors that the deadlock in Jiachi Technology's IPO was related to its involvement in a corruption case involving a senior executive of the Shanghai Stock Exchange.

On April 21, 2023, the Discipline Inspection and Supervision Group of the Central Commission for Discipline Inspection and the National Supervisory Commission stationed in the China Securities Regulatory Commission and the Zhejiang Provincial Commission for Discipline Inspection officially announced that Liu Ti, former deputy general manager of the Shanghai Stock Exchange, was suspected of serious violations of duty and was under investigation by the Discipline Inspection and Supervision Group of the Central Commission for Discipline Inspection and the National Supervisory Commission stationed in the China Securities Regulatory Commission and the Taizhou Municipal Supervisory Commission of Zhejiang Province.

Shortly after Liu Ti was taken away for investigation, news about the well-known domestic PE Yida Investment being implicated by him began to spread in the industry.

According to Caixin, when Liu Ti was promoted to deputy general manager of the Shanghai Stock Exchange, he "fake divorced" his wife Gong Jia in order to avoid declaring his assets. Gong Jia had worked in two securities investment banks in Shanghai. After Liu Ti became a member of the association's management team, after a series of specific arrangements, Gong Jia entered the private equity industry and became a partner of Yida Capital.

After Liu Ti was investigated, his "ex-wife" Gong Jia, who had a "fake divorce" with him, was also taken away for investigation.

The above Caixin report also revealed that after Gong Jia was taken away, Yida Capital's IPO projects on the Shanghai Stock Exchange were indeed temporarily suspended. Those that passed the review were not registered, and those that applied were not accepted. As a result, due to the investigation of Liu Ti's case, many IPO projects under Yida Capital were in a dilemma of "difficulty in acceptance" and "difficulty in promotion".

As a result, around July 2023, the outside world saw that the IPOs of companies such as Saizhuo Electronics and Fubei Pet were suspended and terminated, and listing projects such as Feiyu Technology that had passed the exchange's review had not yet obtained registration results.

The common feature of these companies is that they are all companies that are planning to go public and have shares held by the "Yida Group".

In December 2023, the Science and Technology Innovation Board IPO application of Jiangsu Hanbang Technology Co., Ltd. (hereinafter referred to as "Hanbang Technology") was accepted by the Shanghai Stock Exchange. Two months before the application for listing, Hanbang Technology also hurriedly cleared all the equity of the "Yida Group" in it.

Jiachi Technology is also one of the companies that are planning to go public in which the "Yida Group" PE has invested.

In September 2020, an investment institution named Jiangsu Gaotou Yida Ninghai Venture Capital Fund (Limited Partnership) (hereinafter referred to as "Gaotou Yida") acquired 3% of Jiachi Technology's shares from Jiachi Technology's actual controller Deng Longjiang and his son Deng Bowen through equity transfer and other means.

After a series of capital increases and share expansions, Gaotou Yida currently holds a total of 10.8 million shares of Jiachi Technology, making it the latter's ninth largest shareholder.

Gaotou Yida is the PE under Yida Capital, and its actual controller is Nanjing Yida Equity Investment Management Enterprise (Limited Partnership).

Affected by the supervision of the "Yida Group", the progress of Jiachi Technology's IPO naturally fell behind.

Until March 22, 2024, the IPO of Jiachi Technology, which had been suspended for many days, suddenly had new developments, and its registration application was officially accepted by the China Securities Regulatory Commission.

Just as the outside world was speculating that the regulatory authorities had loosened their supervision over the "Yida Group" companies that were planning to go public or that there was a turnaround, Jiachi Technology, which had no time to catch its breath, faced a new round of tests on its road to listing as Huaxi Securities issued a prior notice of administrative supervision measures.

While facing challenges from external factors one after another, what has not attracted much attention is that at this sensitive moment of Jiachi Technology's IPO, its important internal organizational structure has quietly undergone major adjustments.

On February 4, 2024, Deng Longjiang, a natural person who is the actual controller and largest shareholder of Jiachi Technology, suddenly resigned from all positions in Jiachi Technology for personal reasons.

Public information shows that Deng Jianglong, who was born in 1966, currently directly holds 80.55 million shares of Jiachi Technology, accounting for 22.38% of the total share capital, and his son Deng Bowen directly holds 21.375 million shares of Jiachi Technology, accounting for about 5.94% of the shareholding. Deng Jianglong can control more than 70% of the equity of Jiachi Technology through concerted action arrangements.

Previously, in addition to serving as a director of Jiachi Technology and a member of the board's special committee, Deng Jianglong also had another important identity - the chief scientist of Jiachi Technology.

Deng Jianglong has been holding two important positions in Jiachi Technology, namely director and chief scientist, since at least 2020.

It should be pointed out that Deng Jianglong is currently a professor at the University of Electronic Science and Technology of China, and has served as the dean of the University of Electronic Science and Technology of China's Institute of Science and Technology Development and assistant to the president of the University of Electronic Science and Technology of China.

In the IPO application materials submitted by Jiachi Technology to the Shanghai Stock Exchange earlier, in the description of the "Competitive Advantage" column, the company's "talent advantage" was explained as follows: "The company has Academician Deng Longjiang as its chief scientist and has gathered a team of professional talents with significant influence in the domestic EMMS field."

It is still unknown why Deng Jianglong suddenly resigned from all his positions in Jiachi Technology during the critical period of IPO review.

However, in the latest IPO prospectus (registration draft) disclosed by Jiachi Technology, it insisted that Deng Longjiang’s resignation from relevant positions "will not affect Deng Longjiang’s actual control position, will not lead to major adverse changes in the issuer’s directors, and will not have a significant adverse impact on the issuer’s production and operations."

"In the review of companies that plan to be listed on the Science and Technology Innovation Board, it is crucial for the regulatory authorities to examine their technological innovation and R&D capabilities. The chief scientist of a company listed on the Science and Technology Innovation Board is obviously the company's most important core technical personnel. Changes in this position during a sensitive period will naturally affect the regulatory authorities' judgment of the company's subsequent R&D capabilities and technological innovation capabilities," a senior sponsor representative from a large brokerage firm in Shanghai who has been in the industry for more than a decade told Kekou Finance.

According to exclusive information from Kekou Finance, among the companies currently waiting to be registered on the Science and Technology Innovation Board, there is a well-known technology company that submitted its registration application more than two years ago but has not been recognized by the regulators. One of the main reasons is that the chief scientist recognized by the company had an "accident" during the IPO registration period.

"Although Deng Jianglong is still the actual controller of Jiachi Technology after his resignation, the job change on the eve of the listing has to make people question whether Deng Jianglong will no longer attach importance to the management and R&D of Jiachi Technology after Jiachi Technology goes public." The above-mentioned senior sponsor representative believes that since Deng Jianglong was hired as chief scientist after 2020, Jiachi Technology cannot deny the importance of Deng Jianglong to Jiachi Technology's technological innovation. Now, after Deng Jianglong resigned as chief scientist, it is still difficult to justify his claim that there is no impact on the company.

2) New sponsors still have concerns about their practice

Taking advantage of Huaxi Securities' crisis, CITIC Securities luckily took over Jiachi Technology's IPO project, which really made a big bargain.

If Jiachi Technology's IPO is ultimately successful, it may bring tens of millions or even hundreds of millions of yuan in underwriting income to CITIC Securities.

According to the financing plan of Jiachi Technology's IPO, as a major domestic provider of electromagnetic functional materials and structures (EMMS), it plans to issue no more than 40.01 million new shares to raise 1.244 billion yuan to invest in two major projects, namely "construction of electromagnetic functional materials and structure production and manufacturing base" and "construction of electromagnetic functional materials and structure research and development center" and to supplement working capital.

Currently, the general underwriting fee rate of securities firms is about 5% of the project financing amount, and the underwriting fee rate of CITIC Securities is often higher, with some projects exceeding 10%.

According to statistics from Kekou Finance, the average underwriting fee rate for CITIC Securities' IPO business was about 6% in 2023. Based on this calculation, if Jiachi Technology issues enough shares, CITIC Securities will receive nearly 75 million in underwriting income from the project.

In order to successfully "grab food" from West China Securities and a large group of investment banks that were eyeing this project, CITIC Securities also sent two of its experienced sponsors to be responsible for Jiachi Technology's IPO.

"The main sponsor representative of West China Securities responsible for the listing of Jiachi Technology is its most senior practitioner, which is enough to show the importance that West China Securities attaches to this project." According to information obtained by Kekou Finance from within West China Securities, previously, the sponsor representatives of Jiachi Technology's IPO were Li Hao and Peng Zhuobing of West China Securities. Among them, Li Hao is the chief business director and managing director of the investment banking headquarters of West China Securities. He has nearly 20 years of investment banking experience and is currently the sponsor representative with the largest number of sponsored projects completed in West China Securities.

After CITIC Securities successfully obtained the IPO project of Jiachi Technology, the latest people to replace Li Hao and Peng Zhuobing to continue to serve as its sponsor representatives are Chen Xiying and He Yang from CITIC Securities.

Although Chen Xiying and He Yang do not have as much professional experience as Li Hao, their professional experience is no less than that of Li Hao.

For example, Chen Xiying has successfully sponsored the IPOs of six companies and the private placements and convertible bonds of four companies since obtaining the qualification of sponsor representative in 2016.

He Yang was only registered as a sponsor representative in 2020. In just over three years, he successfully completed the IPOs of two companies and the private placements of three companies.

However, what is worrying is that although Chen Xiying and He Yang do have rich experience in underwriting, there are doubts about the quality of their business practices.

Jiachi Technology's IPO should be the second time that Chen Xiying and He Yang have jointly sponsored an initial public offering project.

Before joining hands to escort Jiachi Technology's IPO, Chen Xiying and He Yang had successfully sponsored Loongson Technology Co., Ltd. (hereinafter referred to as "Loongson Technology") to be listed on the Science and Technology Innovation Board.

Public information shows that Loongson Technology was officially listed on the Science and Technology Innovation Board on June 24, 2022. The sponsors of its IPO are Chen Xiying and He Yang. This is also the most recent successful cooperation case between the two to date.

Behind the successful listing of Loongson Technology, there was considerable controversy over the professional quality of Chen Xiying and He Yang.

Recently, Loongson Technology has been criticized by the market for its drastic change in performance after its IPO.

Founded in 2001 and headquartered in Beijing, Loongson Technology is a high-tech enterprise focusing on the research and development, production and sales of computer processors and related accessories.

When Loongson Technology started applying for an IPO on the Science and Technology Innovation Board in 2021, its performance was quite impressive.

Public data shows that from 2019 to 2021, Loongson Technology's operating income was 486 million, 1.082 billion and 1.201 billion respectively, and the corresponding non-net profit also reached 113 million, 201 million and 170 million respectively.

In 2022, the year when Loongson Technology successfully went public, its performance immediately "changed".

According to the first annual report released by Loongson Technology after its listing, namely the 2022 annual report, during the financial period, it only recorded operating income of 739 million yuan, a year-on-year decline of 38.51%, and the corresponding net profit attributable to the parent was only 51.75 million yuan, a year-on-year decline of 78.15%.

After entering 2023, the extent of Loongson Technology's performance "change" has not only not converged, but has intensified. Not only is the total revenue about to fall below 500 million, it continues to decline by 31.54% year-on-year, and the net profit attributable to the parent company in the current period has also incurred a loss of up to 329 million, a year-on-year decline of an astonishing 736.57%.

For a time, during the listing process of Loongson Technology, doubts arose as to whether the sponsor and the sponsor representative had performed their duties conscientiously and were suspected of "recommending" rather than "supporting".

The outside world's controversy over Loongson Technology's IPO is just a microcosm of the criticism that CITIC Securities' investment banking underwriting business has repeatedly received in recent years. In particular, earlier this year, a well-known financial circle big V forwarded a message saying that in mid-2023, CITIC Securities "sponsored 30 IPOs in one year, and 22 of them broke their IPO prices."

Subsequently, CITIC Securities also refuted the rumor, saying, "After verification, the number of companies sponsored by our company for IPO in 2023 that broke their issue prices was 21, and the break rate was 70%."

According to Kk Finance, in the past year, a number of CITIC Securities' IPO sponsorship projects have been subject to various controversies, which have not only aroused market doubts but also attracted the attention of regulators. Although CITIC Securities and its related sponsors have not yet been punished by regulators, some projects have clearly been viewed more cautiously by regulators.

As for Jiachi Technology's application for listing on the Science and Technology Innovation Board, the outside world may not have noticed that CITIC Securities, which once had an absolute leading advantage in the Science and Technology Innovation Board IPO sponsorship business, has not had any initial public offering projects approved by the China Securities Regulatory Commission for a long time, even though some of its sponsored projects have successfully passed the exchange's review in the past year.

On September 28, 2023, the Science and Technology Innovation Board listing application of Shanghai Hi-Tech Group Co., Ltd. was approved by the China Securities Regulatory Commission for registration and took effect. This is also the last registration approval document obtained so far for the Science and Technology Innovation Board listing project sponsored by CITIC Securities.

CITIC Securities also has reserve projects in the Science and Technology Innovation Board. Among the IPOs awaiting registration on the Science and Technology Innovation Board alone, as of August 12, 2024, among the eight companies still awaiting registration results from the China Securities Regulatory Commission, as many as six are sponsored by CITIC Securities, accounting for 75% of the total number of projects awaiting registration on the Science and Technology Innovation Board.

However, most of these projects sponsored by CITIC Securities have already passed the review of the exchange earlier, but have been slow to obtain the approval of the China Securities Regulatory Commission for listing. Among the eight companies that have entered the registration process for listing on the Science and Technology Innovation Board, six have submitted their IPO registration applications for more than one year. Among these companies facing registration difficulties, four are sponsored by CITIC Securities.

So, will Jiachi Technology, which has chosen CITIC Securities as its new sponsor, be able to quickly complete its listing with the blessing of CITIC Securities, known as the "king of investment banks" in the A-share market, or will it become a "nail house" again like most of the other projects sponsored by CITIC Securities in the waiting list for registration on the Science and Technology Innovation Board? Let's wait and see.

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