*ST Middle Velvet (000982): The Reorganization Plan Has Been Approved By The Creditors Meeting To Increase 2 Billion 500 Million Shares Of The Debt.

Since entering the debt crisis, *ST middle velvet (000982, SZ) is struggling on the edge of the suspension of the listing, and now it finally has a favorable turn. The evening announcement of the company on November 13th showed that the second creditors meeting of *ST velvet passed the reorganization plan (Draft). The shareholders attending the investor group meeting also passed the "investor rights adjustment program" and made substantial progress in the reorganization of listed companies.

Due to the fact that a large number of debts failed to be paid off, the *ST middle velvet was applied for reorganization by the creditors. According to the examination of the creditor's rights, the total amount of the creditor's rights was confirmed to total 8 billion 368 million yuan, and the amount of the debt was suspended for 2 billion 427 million yuan. In accordance with the latest restructuring plan, *ST Zhong Rong will implement the capital reserve fund to convert about 2 billion 457 million shares to solve the current debt dilemma. *ST Zhong Rong said that after the implementation of the reorganization plan, the company's financial position will be improved, while reducing its debt burden, it can also enhance operational efficiency and profitability.

Debt equity price 5.87 yuan / share

Since April 2018, *ST has been prosecuted by creditors for debt disputes, and has gradually fallen into debt crisis. In November of that year, it was applied by creditors to restructure. According to the declaration of creditor's rights, as of October 29, 2019, a total of 159 creditors reported 168 claims to managers, and the total amount of claims was 11 billion yuan. However, according to the manager's review, the total amount of *ST's middle duty claims is 8 billion 368 million yuan. In addition, the amount of claim declared by the manager is uncertain, which is 2 billion 427 million yuan.

According to the assessment, the total value of *ST's gross assets, including currency funds, external receivable claims, fixed assets and so on, is 3 billion 944 million yuan, which is not enough to repay all debts. The serious debt crisis has affected the operation and financial situation of listed companies. *ST is facing a serious risk of delisting. It is necessary to restructure assets and debts through the reorganization process in 2019.

According to the reorganization plan, the *ST cashmere reorganization fund is derived from the disposal of property. If it is insufficient, it will be supplemented by the implementation of the capital reserve fund. The manager launched a public auction of disposing assets in August this year, but the five round of auction was filming. The most recent auction price was 1 billion yuan.

*ST cashmere will be converted to about 2 billion 457 million shares by capital surplus. About 981 million shares will be disposed of by the manager. The disposal of shares will give priority to the cost of restructuring and the liquidation of all kinds of debts. The remaining part will be used to improve the operating capacity of listed companies; the remaining 1 billion 476 million shares will be used to compensate debts.

The reorganization made a substantial increase in the rate of repayment of ordinary claims. The total debt of the ordinary creditor group amounted to 5 billion 895 million yuan, including 2 billion 427 million yuan of debt secured for various reasons. The adjustment plan shows that the creditor's rights of each creditor less than 500 thousand yuan will receive a full cash settlement, and more than 500 thousand yuan will be paid back to the capital reserve fund and the debt price will be 5.87 yuan per share. At this price, the maximum debt can be compensated by changing the stock by 8 billion 664 million yuan.

As a result of long-term debt crisis, the price of *ST cashmere has been declining since 2017, and its closing price before November 6th was 1.83 yuan / share, much lower than the stock price of debt. However, from the end of October this year to the beginning of November, there were 6 *ST limit ups.

The main industry of quasi return cashmere

If the reorganization plan is carried out smoothly, *ST will be free from the heavy debt burden and go into business with light weight. According to the management plan formulated by the manager, the future development of *ST will be a strategic fulcrum with the return of cashmere's main industry as a strategic fulcrum. After completing the divestiture, it will become a light asset operation listed company providing supply chain services for cashmere textile industry, controlling the supply of the original velvet, and building a high end cashmere raw material, yarn and fabric brand.

Among them, the recent business plan is to spin off inefficient assets and introduce strategic investors, mainly to control the supply of raw velvet and cashmere related products trade. The medium and long term business plan is to build high-end brands from raw materials, yarns and fabrics, so as to achieve the goal of expanding business scale and increasing operating profit.

The reporter noted that in 2007, when the *ST middle velvet backdoor was listed, the cashmere industry was a single main business. Due to the scarce resources of cashmere, there was a bottleneck in the cashmere textile industry. Therefore, the strategic transformation began in 2013, and horizontal development of wool, linen and other high-end natural fiber textile businesses was developed horizontally.

However, the transformation and development of *ST velvet has not been effective. In 2015 -2016, the net profit of *ST cashmere belonging to shareholders of listed companies was 874 million yuan and a loss of 1 billion 60 million yuan respectively. Although profit was achieved through disposal of fixed assets in 2017, the net profit was still a loss, and the main business situation did not improve. After the debt crisis broke out in 2018, the operation of the company was affected.

In fact, when the business failed, *ST Zhong Rong also planned to transform the cloud computing and integrated services business through acquiring the equity of communications equipment company, but failed to make it. The restructuring of *ST will return to the main business of cashmere, but it is still unknown whether we can overcome the scarcity and limited scale of cashmere resources.