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Introduction: The first round of listing application was able to successfully complete two rounds of review and inquiry, and finally failed under the premise that the sponsor institution voluntarily gave up. Why did Tongfang Dingxin, which also applied for listing on the Beijing Stock Exchange for the second time, fail to complete the first round of inquiries? What was the problem that made Tongfang Dingxin, which tried to go through the Beijing Stock Exchange again, stumped in the first round of inquiries?

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

Author: He Zhuowei@Beijing

Editor: Zhai Rui@Beijing

On the evening of August 12, 2024, Tongfang Dingxin Technology Co., Ltd. (hereinafter referred to as "Tongfang Dingxin"), which is currently listed on the New Third Board, issued an announcement acknowledging that three days ago on August 9, it had received the Beijing Stock Exchange's "Decision on Terminating the Review of the Public Issuance of Shares and Listing of Tongfang Dingxin Technology Co., Ltd. on the Beijing Stock Exchange" (hereinafter referred to as the "Termination Decision"). As a result, the company's more than one-year journey to list on the Beijing Stock Exchange ended in failure.

Under the strict regulatory environment for A-share listings, the failure of a company to go public is not surprising.

Just taking the Beijing Stock Exchange where Tongfang Dingxin applied for listing as an example, in the past seven months before 2024, 59 companies that planned to go public have failed.

However, the failure of Tongfang Dingxin's attempt to enter the Beijing Stock Exchange is different from most of the companies that have previously terminated their listing due to their own initiative to withdraw their application materials.

According to the relevant "Termination Decision" issued by the Beijing Stock Exchange to Tongfang Dingxin, since Tongfang Dingxin has spent a total of more than three months responding to the Beijing Stock Exchange's review inquiries and failed to respond to the Exchange's review inquiries within the prescribed time limit, in accordance with the relevant provisions of Article 55 of the "Beijing Stock Exchange's Rules on the Review of Public Issuance of Shares to Unspecified Qualified Investors and Listing" (hereinafter referred to as the "Review Rules"), it is decided to terminate the review of Tongfang Dingxin's public issuance of shares and listing on the Beijing Stock Exchange.

Article 55 of the Audit Rules states that if an issuer applying for listing on the Beijing Stock Exchange "fails to respond to the Exchange's audit inquiries within the prescribed time limit or fails to explain, explain, supplement or amend the application documents for issuance and listing", the Beijing Stock Exchange "will terminate the audit and notify the issuer and its sponsor". At the same time, Article 40 of the Audit Rules also clearly states that "the total time for the issuer and its sponsor and securities service institution to respond to the Exchange's audit inquiries shall not exceed three months (suspension of review, consultation with the competent authority, consultation with the industry advisory committee, implementation of the opinions of the Listing Committee, suspension of review, handling of post-meeting matters, implementation of on-site inspections, implementation of on-site supervision, special inspections, and requiring the issuer to supplement or amend the application documents, etc., are not counted within the prescribed time limit)".

This is the first case in 2024 where a company seeking to be listed on the Beijing Stock Exchange had its review terminated due to failure to complete a response within the review inquiry period.

According to the statistics of Kekou Finance, before Tongfang Dingxin's listing was suspended, more than 150 companies had failed in the listing review process of the Beijing Stock Exchange since its opening. However, there were only two companies that had their listing suspended due to failure to complete the response to review inquiries within three months. These two "predecessors" who shared the same fate as Tongfang Dingxin were Kunshan Huaheng Welding Co., Ltd. (hereinafter referred to as "Kunshan Huaheng") and Kelun Plastics Group Co., Ltd. (hereinafter referred to as "Kelun Plastics").

Both Kunshan Huaheng and Kelun Plastics had their listing reviews suspended by the Beijing Stock Exchange in mid-2023 due to overdue responses to inquiry letters.

On June 15, 2023, after completing two rounds of responses to the Beijing Stock Exchange's inquiries about its listing, Kunshan Huaheng encountered a timeout when responding to the third round of inquiries.

This is also the first case of a company failing to go public on the Beijing Stock Exchange due to failure to complete a response within the review inquiry period.

In December 2023, Kelun Plastics was stuck in the second round of inquiries initiated by the Beijing Stock Exchange regarding its listing.

Unlike the above two companies that both went through multiple rounds of inquiries and took longer than the prescribed time, Tongfang Dingxin's listing this time had already exhausted the "total response time of no more than three months" before even completing the first round of inquiries from the Beijing Stock Exchange.

The surprising listing result of Tongfang Dingxin was obviously not caused by a lack of understanding of the Beijing Stock Exchange's listing review rules or the company's negligence.

Because this is the second time that Tongfang Dingxin has applied for listing on the Beijing Stock Exchange in the past two years.

As early as December 29, 2021, under the escort of Shenwan Hongyuan, Tongfang Dingxin submitted its listing application to the Beijing Stock Exchange for the first time and was accepted.

On July 14, 2022, after completing the responses to two rounds of review inquiries from the Beijing Stock Exchange, Shenwan Hongyuan, the sponsor of Tongfang Dingxin's listing, suddenly unilaterally requested the Beijing Stock Exchange to withdraw its application documents for its sponsorship of its listing and gave up its sponsorship of its listing on the Beijing Stock Exchange. Naturally, Tongfang Dingxin's first listing on the Beijing Stock Exchange ended in failure.

More than a year after the failure of its first listing, Tongfang Dingxin once again started a new round of listing on the Beijing Stock Exchange after re-selecting Founder Securities as the listing sponsor.

With the experience and lessons learned from the previous failed listing, Tongfang Dingxin should have a more thorough understanding of the listing review rules and be more adequately prepared for the review processes that may be encountered.

The result is just the opposite.

On December 21, 2023, Tongfang Dingxin's listing application was once again accepted by the Beijing Stock Exchange.

But this time, Tongfang Dingxin was hastily stopped because it failed to respond to the first round of inquiries from the Beijing Stock Exchange within the specified time.

According to the review process published on the official website of the Beijing Stock Exchange, after Tongfang Dingxin successfully completed the second application for listing on the Beijing Stock Exchange at the end of December 2023, the Beijing Stock Exchange immediately launched an intensive review inquiries.

On January 15, 2024, Tongfang Dingxin received the first round of "Audit Inquiry Letter on the Application Documents for the Public Offering of Shares and Listing of Tongfang Dingxin Technology Co., Ltd. on the Beijing Stock Exchange" (hereinafter referred to as the "Audit Inquiry Letter") issued by the Beijing Stock Exchange.

According to the requirements of the Audit Inquiry Letter, Tongfang Dingxin and the relevant sponsors must implement the inquiry opinions item by item within 20 working days, and upload the full set of electronic versions of the inquiry opinion response documents through the audit system. If it is not possible to respond on time, it is necessary to submit an application for an extension of the response through the audit system in a timely manner.

In fact, the outcome of Tongfang Dingxin's second attempt to go public on the Beijing Stock Exchange was gradually revealed in the early stages of the review.

On February 19, 2024, when the deadline for responding to the "Audit Inquiry Letter" required by the regulatory authorities within 20 working days was approaching, Tongfang Dingxin issued an announcement on the progress of its listing on the Beijing Stock Exchange on the New Third Board, stating that "because the relevant information still needs further verification and improvement, in order to ensure the quality of the response and to effectively respond to the inquiry letter, the company has submitted an application to the Beijing Stock Exchange for an extension of the response period."

That is, this application for extension had not been successfully responded to until August 9, 2024, and what followed was a decision to terminate the listing.

"During the listing review, there is usually a situation of overdue response, which basically means that the company is voluntarily giving up the listing in disguise. Tongfang Dingxin and the relevant sponsor institutions must have encountered difficult problems that are difficult to respond to, and they are difficult to solve within the limited time." A senior sponsor representative from a large brokerage firm in Shanghai told Kekou Finance.

The first round of listing application successfully completed two rounds of review and inquiry, and finally failed under the premise that the sponsor institution voluntarily gave up. Why did Tongfang Dingxin, which also applied for listing on the Beijing Stock Exchange for the second time, fail to complete the first round of inquiry? What was the problem that made Tongfang Dingxin, which tried to go through the Beijing Stock Exchange again, stumped in the first round of inquiry?

1) The violation of the "Tongfang" brand name blocked its listing

Weak performance is the key reason why a large number of companies planning to go public on the Beijing Stock Exchange have ultimately terminated their review since 2024.

But Tongfang Dingxin does not have such hidden dangers.

Although in the first round of review inquiry letter from the Beijing Stock Exchange on Tongfang Dingxin's second application for listing, it also focused on whether its performance was stable and sustainable.

As a company that provides customers with professional information technology services and digital and intelligent transformation and upgrading solutions, in the past few years, although Tongfang Dingxin's performance has not been growing rapidly, it has been sustained and stable. Compared with most companies applying for listing on the Beijing Stock Exchange, Tongfang Dingxin is not inferior in terms of performance scale or development momentum.

According to the listing application materials submitted by Tongfang Dingxin to the Beijing Stock Exchange at the end of 2023, from 2020 to mid-2022, Tongfang Dingxin recorded operating income of 586 million, 712 million and 763 million, respectively, and the corresponding non-net profit was 43.811 million, 54.593 million and 57.152 million, respectively.

Similarly, in the past year of 2023, Tongfang Dingxin continued to achieve double growth in revenue and profit. During the period, Tongfang Dingxin's operating income increased by 17.78% year-on-year to 899 million, and its non-net profit was approximately 58.427 million, a year-on-year increase of 2.223%.

With such fundamentals, it stands to reason that Tongfang Dingxin should not be able to easily list on the Beijing Stock Exchange.

After Tongfang Dingxin's IPO was halted due to a timeout in responding to inquiries, there was public opinion analysis that the main reason for its failure to pass the second attempt at the Beijing Stock Exchange might be related to the identification of its actual controller.

Because in the "Audit Inquiry Letter" issued by the Beijing Stock Exchange that led to its failure to go public, the first and foremost question was about the accuracy of its shareholder relations and the determination of actual control.

According to the application materials for Tongfang Dingxin's listing, its equity structure is relatively dispersed, and the company is determined to have no controlling shareholder or actual controller.

In the current list of Tongfang Dingxin's shareholders, its largest shareholder is Hengshi (Shenzhen) Investment Partnership (Limited Partnership) (hereinafter referred to as "Hengshi Investment"), which holds a total of 20.56% of the company's shares, followed by Tongfang Shares, a main board listed company controlled by the State-owned Assets Supervision and Administration Commission. Tongfang Shares holds approximately 19.43% of Tongfang Dingxin's shares.

In addition, other shareholders holding more than 5% of Tongfang Dingxin’s shares include Xinhe Huirong and Jiarong Investment, which hold 7.77% and 7.58% of the shares respectively. Among them, Tongfang Co., Ltd. is also a shareholder of Jiarong Investment. The former indirectly holds 50% of its shares through its wholly-owned company Tongfang Innovation Investment (Shenzhen Co., Ltd.). Jiarong Investment is a joint venture of Tongfang Co., Ltd., and Jiang Min, a general partner of Hengshi Investment, has also served as the financial officer of Jiarong Investment.

Before 2015, Tongfang Dingxin was actually the holding company of Tongfang Co., Ltd. At that time, Tongfang Co., Ltd. decided to transfer its 60% equity in Tongfang Dingxin to Jiarong Investment and other transferees on the grounds of "optimizing the equity structure of its holding subsidiary Tongfang Dingxin Information Technology Co., Ltd. and meeting its future development needs."

Hengshi Investment was born around the time when Tongfang Co., Ltd. decided to transfer the controlling stake of Tongfang Dingxin.

Tongfang Co., Ltd. issued the above-mentioned equity transfer resolution on July 29, 2015. Coincidentally, Hengshi Investment was established on July 15, 2015.

In November 2015, Hengshi Investment acquired 27% of Tongfang Dingxin's equity from Tongfang Co., Ltd. and immediately became Tongfang Dingxin's largest shareholder, a position it holds today.

After transferring part of Tongfang Dingxin’s equity, Tongfang Co., Ltd. changed from the latter’s controlling party to a shareholder.

During Tongfang Dingxin's two applications for listing on the Beijing Stock Exchange, the regulatory authorities inquired about Tongfang's motives for giving up its controlling stake in the company.

For example, in the latest "Audit Inquiry Letter" to which Tongfang Dingxin has not yet completed its response, the Beijing Stock Exchange also asked it to explain "the background reasons for Tongfang's abandonment of control of the company, and whether there is any situation of circumventing the conditions for issuance and listing and relevant regulatory requirements", and "combined with Tongfang's capital contribution and the positions and capital contributions of its background personnel in Jiarong Investment and Hengshi Investment, explain whether Tongfang can actually control or exert significant influence on Jiarong Investment and Hengshi Investment, whether the issuer is actually still controlled by Tongfang, and whether there is a concerted action relationship or special interest arrangement among the three."

"The issue of Tongfang Dingxin having no actual controller was addressed in detail by regulators when Tongfang Dingxin last applied for listing on the Beijing Stock Exchange. This is not a difficult problem for Tongfang Dingxin." On the day when Tongfang Dingxin's second listing was halted, an insider close to Tongfang Dingxin revealed to Kekou Finance that, according to him, the real problem that made it "difficult for Tongfang Dingxin to respond to the Beijing Stock Exchange" was related to Tongfang Dingxin's suspected violation of relevant new regulations on the supervision of state-owned enterprise shareholding.

As mentioned above, Tongfang Dingxin was once a wholly-owned subsidiary of Tongfang Co., Ltd. Today, the names of Tongfang Dingxin and its subsidiaries also contain the word "Tongfang", and the promotional images disclosed on Tongfang Dingxin's official website contain the words "Tongfang Dingxin".

If Tongfang Dingxin is still recognized as the controlling company of Tongfang Co., Ltd., there is nothing wrong with its use of the name "Tongfang".

When Tongfang Dingxin first applied for listing on the Beijing Stock Exchange, it also responded to the Beijing Stock Exchange's questions about "whether the use of the 'Tongfang' trade name requires authorization or consent from Tongfang Shares, whether fees need to be paid, and whether there are disputes or potential disputes." It stated that "the issuer's use of the 'Tongfang' trade name has been authorized by Tongfang Shares, and the issuer does not need to pay any fees; there are no disputes or potential disputes between the issuer and Tongfang Shares regarding the use of the 'Tongfang' trade name."

But the problem is that according to the latest relevant regulatory provisions, Tongfang Co., Ltd. does not seem to have the right to authorize the use of the "Tongfang" trade name to Tongfang Dingxin.

In other words, Tongfang Dingxin’s current use of the character “Tongfang” in its name is clearly in violation of regulations.

On June 23, 2023, the State-owned Assets Supervision and Administration Commission officially issued the "Interim Measures for the Management of Equity Participation in State-owned Enterprises" (hereinafter referred to as the "Interim Measures").

The "Interim Measures" state that "the state-owned enterprises referred to in these Measures are enterprises and their subsidiaries for which state-owned assets supervision and administration agencies at all levels perform the duties of investors, and equity participation refers to equity investment in which a state-owned enterprise holds no more than 50% of the shares in the invested enterprise and does not have actual control."

Article 21 of the Interim Measures clearly stipulates that state-owned enterprises must "strengthen the management of intangible assets, strictly regulate the use of intangible assets, and effectively safeguard corporate rights and brand value. Trade names, business qualifications and franchise rights shall not be provided to participating enterprises for use. If a registered trademark of a product needs to be authorized to a participating enterprise for use, the authorization conditions and decision-making approval procedures shall be strictly followed, and a fair market price shall be adopted."

The controlling shareholder of Tongfang Co., Ltd. is China National Nuclear Corporation Capital Holding Co., Ltd., and its actual controller is the State-owned Assets Supervision and Administration Commission.

In the 2023 interim report, Tongfang Co., Ltd. also admitted that among its associated or joint ventures, some companies used Tongfang Co., Ltd.'s business name and trademarks containing the word "Tongfang", including Tongfang Dingxin using the business name "Tongfang".

Since 2017, when Tongfang Co., Ltd. transferred its controlling stake in Tongfang Dingxin, although Tongfang Dingxin has no actual controller or controlling shareholder, according to Tongfang Dingxin's relevant statements, Tongfang Co., Ltd., which holds only 19.43% of Tongfang Dingxin's shares, "does not have actual control" over it.

Therefore, Tongfang Dingxin is only a joint-stock enterprise of Tongfang Co., Ltd. According to the "Interim Measures", Tongfang Co., Ltd. is not allowed to grant the "Tongfang" trademark to Tongfang Dingxin for use.

In the first round of "Review Inquiry Letters" issued by the Beijing Stock Exchange to Tongfang Dingxin, which applied for a second listing, while asking Tongfang Dingxin whether there were any disputes or potential disputes with Tongfang Shares over the use of the "Tongfang" name as in its first application, it also added a new question asking it to explain "whether it complies with the "Interim Measures for the Management of State-owned Enterprise Equity Participation" and other laws and regulations and relevant regulatory requirements, and whether there are any risks of name change and its impact on the company."

It was this question that became the key to Tongfang Dingxin's second attempt at the Beijing Stock Exchange but ultimately being unable to speak out.

"How should Tongfang Dingxin respond to this? If it answers 'not compliant' based on the facts, then it must make corrections. However, the rectification of the corporate name is very complicated and involves a series of daily business issues. If it does not want to change the name, it will need special approval from the state-owned assets supervision department, which is even more difficult for Tongfang Dingxin," said the above-mentioned person familiar with the matter.

2) Those companies that are planning to list on the Beijing Stock Exchange but have terminated their listing abnormally

According to Kekou Finance, Tongfang Dingxin is not the only company that has been halted from listing on the Beijing Stock Exchange recently because the use of its "trade name" did not comply with the relevant provisions of the "Interim Measures for the Management of State-owned Enterprise Equity Participation".

Coincidentally, a month ago, another company also suffered a setback in its listing on the Beijing Stock Exchange and was also suspected of illegally using the "Tongfang" trademark.

On July 2, 2024, the Beijing Stock Exchange announced its decision to review the public issuance of shares and listing on the Beijing Stock Exchange by Guangzhou Tongfang Ruifeng Energy Saving Technology Co., Ltd. (hereinafter referred to as "Tongfang Ruifeng").

Tongfang Ruifeng submitted its listing application to the Beijing Stock Exchange on June 29, 2023, and subsequently went through a year-long inquiry and review.

Public information shows that Tongfang Ruifeng’s controlling shareholder and actual controller are three natural persons: Hou Dongming, Zhou Shiqiang and Wang Sihai.

Like Tongfang Dingxin, Tongfang Co., Ltd. is a shareholder company of Tongfang Ruifeng.

In Tongfang Ruifeng, Tongfang Qinghuan currently holds 24.09% of its shares, while Tongfang Technology Innovation Co., Ltd., a wholly-owned subsidiary of Tongfang Holdings, holds 58% of Tongfang Qinghuan's shares.

Tongfang Ruifeng stated that after Tongfang Qinghuan acquired a stake in it in 2009, it began to use the "Tongfang" trademark in order to expand the company's visibility and influence in the early days of its establishment. It also stated that the use of the "Tongfang" trademark is also one of the ways in which Tongfang shares and its shareholding companies cooperate.

Regardless of whether Tongfang Shares' consent was obtained, Tongfang Ruifeng and Tongfang Dingxin, like each other, are in violation of the relevant provisions of the Interim Measures for the Management of Shareholdings in State-owned Enterprises.

Actively applying to withdraw listing materials to terminate the review and being directly rejected by the Listing Committee meeting are the two most common ways of failure in the Beijing Stock Exchange.

As mentioned above, like Tongfang Dingxin, there are only three companies whose listing was terminated due to exceeding the three-month total time limit for responding to inquiries stipulated by the Beijing Stock Exchange.

In addition, there are two equally special cases of companies that “abnormally” terminated their listing.

On July 5, 2024, the listing application of Beijing Century Oriental Intelligence Technology Co., Ltd. (hereinafter referred to as "Oriental Intelligence") on the Beijing Stock Exchange was rejected.

The reason given by the Beijing Stock Exchange was that Oriental Wisdom failed to complete the update of the latest financial data in a timely manner and the suspension of the audit was not eliminated within three months.

Oriental Wisdom applied for suspension of audit in accordance with regulations on March 29, 2024 due to the expiration of the validity period of the financial report.

According to the "Listing Review Rules", if "the financial information recorded in the issuance and listing application documents has expired and needs to be supplemented and submitted", "the issuer shall submit additional valid documents within three months after the suspension of the review or eliminate the relevant circumstances that voluntarily requested the suspension of the review", otherwise the review will be terminated by the Beijing Stock Exchange.

This is also the only company that has been directly terminated from review since the launch of the Beijing Stock Exchange due to its failure to complete the update of financial data in a timely manner.

On January 26, 2024, the Beijing Stock Exchange's listing application of Beijing Blue Star Technologies Co., Ltd. (hereinafter referred to as "Blue Star") was also suspended due to "failure to eliminate the suspension of review or submit additional valid documents within three months."

Unlike Oriental Wisdom, what caused Blue Galaxy to "suspension of audit" and could not be eliminated within three months was not the expiration of financial data.

On October 23, 2023, when Blue Star applied to the Beijing Stock Exchange to suspend its review, it issued an announcement on the Stock Transfer Center stating: "As the sponsor discovered matters that require further verification during the ongoing performance of its due diligence duties, and as the verification of relevant matters requires a certain amount of time, in order to cooperate with the sponsor to perform due diligence and improve the quality of information disclosure, the company submitted an application for suspension of review to the Beijing Stock Exchange on October 18, 2023."

Before Blue Star requested the "suspension of review", on July 27, 2023, the Beijing Stock Exchange took self-regulatory measures such as issuing warning letters to Blue Star and its chairman, chief financial officer and a number of intermediary agency personnel responsible for its listing. It was believed that there were accounting misstatements in Blue Star's listing application materials on the Beijing Stock Exchange, which did not comply with the requirements that the application documents for issuance and listing and information disclosure should be true, accurate and complete, violated relevant regulations, and constituted an information disclosure violation.

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