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Yangtze Business Daily News●Huang Cong, reporter of Yangtze Business Daily

Due to continued losses, Danhua Technology was sued for suspected false statements of securities.

On the evening of August 13, Danhua Technology (600844.SH) announced that the company recently received relevant documents such as the "Civil Complaint" and "Notice of Listed Company" transferred by the Nanjing Intermediate People's Court of Jiangsu Province.

The documents show that Jilin Fengchengshun believed that Danhua Technology had made false statements of securities in its private placement of shares in 2015, and filed a lawsuit with the Nanjing Intermediate People's Court, demanding that the company compensate it for its losses of 133 million yuan.

Danhua Technology does not agree with this and claims that after the company's self-examination, there were no false records, misleading statements or major omissions in the company's private placement of shares in 2015. So far, the company has not received any discipline or penalty from the regulatory authorities for the project.

A reporter from the Yangtze Business Daily found that from 2019 to the first half of 2024, Danhua Technology's net profit continued to lose money, totaling 1.7 billion yuan.

On July 22, Danhua Technology released a plan for a private placement, stating that the total amount of funds to be raised will not exceed 565 million yuan, all of which will be used to supplement the company's working capital.

An industry insider told the reporter from the Yangtze Business Daily that Danhua Technology's private placement may fail due to false statements.

Denying the existence of false records

On the evening of August 13, Danhua Technology issued a litigation announcement showing that the company recently received relevant documents such as the "Civil Complaint" and "Notice of Listed Company" transferred by the Nanjing Intermediate People's Court of Jiangsu Province.

The document shows that Jilin Fengchengshun Agriculture Co., Ltd. ("Jilin Fengchengshun") believed that Danhua Technology had made false securities statements in its private placement of shares in 2015, and filed a lawsuit with the Nanjing Intermediate People's Court, demanding that the company compensate it for its losses of 133 million yuan. The case is currently in the pre-trial mediation stage.

In September 2016, Danhua Technology released the "Report on the Issuance of Non-public Offering of RMB Ordinary Shares (A Shares)". The company completed this non-public offering of shares and raised a total of 1.78 billion yuan, of which 550 million yuan was used for the ethylene glycol capacity expansion and technical transformation project, and 650 million yuan was used to purchase 16.99% of the equity of Tongliao Jinmei held by Jinmei Holdings and Shanghai Yinyu.

Jilin Fengchengshun participated in the subscription of this private placement of shares. In August 2016, it subscribed 29.9036 million shares at a price of 7.48 yuan per share, paid a total subscription amount of 224 million yuan, and became a shareholder of the company.

However, Jilin Fengchengshun believes that Danhua Technology made five false statements of securities in its private placement of shares.

Among them, the "2015 Private Placement Plan (Revised)" issued by Danhua Technology lacked "discussion and analysis by the board of directors on the rationality of asset pricing" for the equity pricing of the proposed acquisition of Tongliao Jinmei Chemical Co., Ltd. (hereinafter referred to as "Tongliao Jinmei"), and did not explain the rationality of the asset appraisal price, which violated the disclosure requirements of relevant regulations.

The "Feasibility Report", "Equity Acquisition Value Assessment Report" and "Issuance Plan (Revised)" released by Danhua Technology used the present value of income method to price the value of the proposed Tongliao Jinmei equity, but failed to disclose "the rationality of the assessment assumptions and relevant parameters, and the prudence of future earnings forecasts", violating the disclosure requirements of relevant regulations.

The "Issuance Plan (Revised)" released by Danhua Technology contained false records and misleading statements regarding the disclosure of information on the construction period and progress of the "ethylene glycol capacity expansion and technical transformation project", the project benefit calculation of the feasibility analysis of the technical transformation project, etc.

In its "Reply to Review Feedback", Danhua Technology made forecast information on "operating income", "net profit" and "production forecast" in the "Basis for Determining Tongliao Jinmei's Revenue in the Forecast Period", but failed to provide sufficient risk warnings for important factors that may affect the realization of the forecast. The assumptions on which the forecast was based were obviously unreasonable and significantly different from the actual operating conditions.

Danhua Technology does not agree with this.

Danhua Technology introduced that the company hired a professional intermediary agency for its 2015 private placement of stocks project. The project was approved by the China Securities Regulatory Commission, the issuance was completed in September 2016, and the funds raised were used up before the end of 2018.

Danhua Technology stated that after the company's self-examination, there were no false records, misleading statements or major omissions in the company's private placement of shares in 2015. As of now, the company has not received any discipline or punishment from the regulatory authorities for this project.

A fixed increase of 565 million yuan was made to the controlling shareholder to replenish cash flow

In fact, Danhua Technology's current performance has reached a low point.

According to the data, Danhua Technology is mainly engaged in production and operation activities by three holding subsidiaries, among which Tongliao Jinmei produces chemical products ethylene glycol and oxalic acid, Jiangsu Jinju produces special catalysts for synthesizing ethylene glycol from synthesis gas, and Jiangsu Jinzhihong is engaged in the research and development and small-batch production of biodegradable materials. The company's operating income mainly comes from Tongliao Jinmei.

From 2019 to 2023, the operating income of Danhua Technology was RMB 1.23 billion, RMB 1.075 billion, RMB 1.087 billion, RMB 934 million and RMB 861 million, respectively, with year-on-year growth of -14.21%, -12.54%, 1.12%, -14.13% and -7.79%, respectively, basically in a continuous decline; the net profit was a loss of RMB 433 million, RMB 367 million, RMB 104 million, RMB 293 million and RMB 393 million, respectively, with year-on-year growth of -21142.78%, 15.16%, 71.66%, -181.52% and -34.12%, respectively. It has been in the red for five consecutive years, with a cumulative loss of 1.59 billion yuan.

Among them, regarding the performance in 2023, Danhua Technology stated that due to factors such as continued sluggish market product prices and rising raw material prices, the company's annual average sales price of ethylene glycol and oxalic acid products decreased by approximately 14% and 16% year-on-year respectively, while the annual average purchase price of lignite, the main raw material required for production, increased by approximately 33% year-on-year. The company is still in an operating loss state.

Recently, Danhua Technology released an announcement on its 2024 semi-annual loss forecast, showing that the company expects to achieve a net profit of approximately -112 million yuan in the first half of the year and a non-net profit of approximately -113 million yuan.

Danhua Technology said that during the reporting period, the production and sales of the company's main products, ethylene glycol and oxalic acid, were basically normal, but the company continued to face difficulties in operation, mainly because product prices were still low. The company will actively seek ways to improve its operating conditions.

Overall, in the past five and a half years, Danhua Technology's net profit has accumulated a loss of approximately 1.7 billion yuan.

On July 22, Danhua Technology released a plan for a private placement, saying that the company plans to issue shares to Dongdanyang Jinrui Hongji Enterprise Management Co., Ltd. (hereinafter referred to as "Jinrui Hongji"), with the number expected to be no more than 304 million shares, the price is 1.86 yuan per share, and the total amount of funds raised will not exceed 565 million yuan. After deducting the issuance expenses, the full amount will be used to supplement the company's working capital.

Danhua Technology stated that the purpose of this private placement is to alleviate the pressure on the company's operating capital needs. The supplement of working capital will better support the development of the company's main business and meet R&D investment needs.

It is worth mentioning that Jinrui Hongji will subscribe to the shares issued by Danhua Technology in cash. Before this issuance, Jinrui Hongji directly held 153 million A shares of the company, with a shareholding ratio of 15%, and was the company's controlling shareholder. After the issuance is completed, Jinrui Hongji directly holds 456 million A shares of the company, with a shareholding ratio of 34.54%, and is still the company's controlling shareholder. This private placement constitutes a related transaction.

An industry insider told the reporter from the Yangtze Business Daily that Danhua Technology's private placement may fail due to false statements.

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