A New "Move" In Surprise Trading: The Resurgence Of "Whitewash"

There are surprise deals every year, and the scenery is different every year. Near the end of the year, the listed companies with poor performance always try their best to whitewash their statements. Selling assets, exempting debt and taking subsidies are the common ways to make profits. There are many ways to create profits, including old routines and new ways. At the end of 2019, "donation type" surprise transactions are frequent, especially the donation behavior of "pressure whistle" and "concealment of related parties", which has become the "bottom card" of some companies for emergency shell protection. In 2020, some companies will not hesitate to challenge the bottom line of the rules and begin to tamper with information disclosure and trading procedures.

"Whitewash performance tide" again

On December 9, 2020, a letter of concern from the exchange attracted the attention of 21st century economic reporter.

The story starts with an auction message. On December 4, 2020, the equity of a small loan company controlled by a retail listed company was auctioned in Ali auction website. However, the company did not disclose half of the shares in the open letter channel. In fact, on February 29, 2020, the company announced that it planned to auction the above-mentioned equity, but later said that it withdrew the auction on March 20 of that year because of the need to handle the case.

Logically speaking, the company is "secretive" about the second auction, or only for the smooth separation of small loan companies. Previously, the small loan companies have accumulated 1.8 billion yuan of impairment reserves due to the compensation responsibility. If the auction can be successfully completed, it can obviously help the listed companies to turn around losses at one stroke. However, the latest announcement shows that the second auction of small loan companies has been withdrawn due to objections from creditors.

The above-mentioned "covert" is only the tip of the iceberg of "illegal whitewash performance tide" at the end of the year. The reporter noted that there are some companies that ignore the requirements of the rules, just to break through the barrier before the end of 2020.

For example, a listed company in the toy industry disclosed on December 15, 2020 that it intends to transfer the equity of the holding subsidiary to the enterprise controlled by the actual controller with 167 million yuan. In order to complete the transaction before the end of 2020, the company is in a hurry and will submit the proposal to the general meeting of shareholders for deliberation when the audit of the underlying assets has not been completed and the formal requirements are not complete. Shenzhen stock exchange immediately issued a letter of concern, requiring the company to submit additional audit reports. Since then, the company announced to cancel the asset disposal plan on December 25, 2020.

What's more, some companies also use accounting judgment as an excuse to repeatedly adjust the same matter and maliciously manipulate profits.

On December 2, 2020, St Dehao disclosed that it intends to reach a settlement with foreign companies, and return the estimated liabilities of 230 million yuan. As early as August and November of 2019, St. Dehao made two supplementary provisions on the estimated liabilities and asset impairment of nearly 3.4 billion yuan in 2018, so as to avoid taking large losses into account in 2019, so as to realize the shell protection. St Dehao made a loss of 165 million yuan in the first three quarters of 2020. Now it takes the accounting treatment of estimated liabilities to make profits in 2020. The estimated liabilities are so large that it can be said that it is well intentioned to withdraw and reverse the estimated liabilities.

For St Dehao's correction of accounting errors in 2019, Shenzhen Stock Exchange will publicly reprimand the company and the parties concerned on April 30, 2020. On June 22, 2020, the company was put on file for investigation because it was suspected of failing to disclose information according to the regulations, and there were false records and major omissions in the 2018 annual report.

No matter the "silent auction", "desperate" or "fickle" in the above-mentioned cases, although the tactics of listed companies are various, the "original intention" of making profits by surprise remains unchanged, and the concept of strict supervision by the regulatory authorities is also consistent. According to statistics, since November 2020, the Shenzhen Stock Exchange has issued more than 100 letters on the surprise trading of listed companies, exposing the hidden routines of the company to the public and revealing the risks to the market.

Surprise Trading

On December 31, 2020, Shenzhen and Shanghai Stock Exchange revised and issued relevant delisting rules, changed the core delisting index from single profit to the composite index of "income + profit", constructed delisting mechanism matching with the concept of registration system, optimized delisting standards and unblocked delisting channels. The improvement of this rule is a first blow to many "surprise trading" behaviors in the A-share market.

The reporter noted that before the release of the draft of the new delisting rules on December 14, 2020, the main purpose of most companies' surprise trading was to avoid losses for three consecutive years under the original rules, and were suspended from listing. After the release of the draft, the delisting standard has changed significantly compared with the past. For example, the delisting index of "the lower net profit before and after deduction is negative and the operating income is less than 100 million yuan", which means that the "zombie enterprises" with low operating income, poor profitability and loss of sustainable operation ability only rely on the disposal of assets, debt relief and accounting policy changes to create profits Fear of unable to achieve the purpose of shell, in order to avoid the new delisting index transactions may occur.

On December 22, 2020, an oil service industry company disclosed that it planned to sell 15 million yuan of products to related parties. The reporter found that the company's operating revenue in the first three quarters of 2020 is 52 million yuan, and the net profit is - 23 million yuan, which may touch the aforementioned "operating income + net profit" index. As of the disclosure date of the announcement, the amount of products sold by the company to related parties was only 800000 yuan. The surprise transaction at the end of the year was not ruled out to increase the business income, and the commercial rationality was questionable.

Return of intermediary agencies

In recent years, the regulatory authorities continue to urge the intermediary agencies to return to their positions and fulfill their duties, and build a defense line of awe of the market.

According to experience, surprise transactions have a great impact on profits and losses, and generally need to be submitted to the general meeting of shareholders for deliberation. However, according to the listing rules, intermediary institutions should issue audit or evaluation reports for transactions meeting the review criteria of the general meeting of shareholders. In the inquiry letter of the exchange, the intermediary institutions are generally required to express their opinions.

In addition, the new delisting rules emphasize the cross application of financial indicators. If a listed company is warned of delisting risk due to negative net assets or "operating income + net profit" indicators, if the audit report with reservation, negation or no opinion is issued in the financial report of the second year, the company's shares will be delisted; if the net profit of the company is negative, the accounting firm still needs to Issue special verification opinions on whether the deduction items of the company's business income conform to the regulations and the amount of business income after deduction. This means that the opinions of intermediaries are becoming more and more important.

At the end of 2020, a sudden transaction of an electrical equipment manufacturing company caused market vigilance due to the strange opinions of intermediary agencies.

Earlier, the listed company signed a package agreement with enterprise a to purchase 100% equity of enterprise B from enterprise A. after the transaction, the company offset its 790 million creditor's rights to enterprise a and 650 million debt of enterprise B to enterprise a. This transaction will enable the listed company to avoid drawing large amount of bad debt reserves for receivables and ease the delisting crisis.

However, the asset quality of enterprise B, especially whether the land-use right of its main assets exists the risk of being taken back by the transferor has aroused the concern of Shenzhen Stock Exchange. In the reply to the letter of Shenzhen Stock Exchange, the intermediary agencies have different opinions on whether there is risk in the event. The signing lawyer thinks that there is risk, but the assessor is on the contrary.

In fact, in the A-share market, it is very rare that the opinions of intermediary institutions contradict each other. The contradiction behind the contradiction means risk. Disclosure is the disclosure of risk. Different identification of the same matter can help investors to view the problem from multiple perspectives and help investors make rational judgments. Today, the company's share price hovers around 1.5 yuan, which may be the result of investors voting with their feet.

The year 2020 is the first year of the full implementation of the new income standard. The operating income of the company that uses the net amount method to confirm the income may decline sharply, adding the delisting index of "operating income + net profit". It can be predicted that for the annual report of 2020, the regulatory authorities will focus on the rationality of the confirmation of operating income and the accuracy of the amount. At the same time, transactions to meet the net asset target under the new delisting rules will also be the focus of regulatory attention, such as asset donation by major shareholders and equity transactions that can increase net assets. No matter how the situation of surprise trading is renovated, it can not escape the eye of the regulatory authorities, especially for the new trading methods under the change of rules, the regulatory authorities have already been prepared to deal with it.