Startled the China Securities Regulatory Bureau to verify, rare in history! Evaluation of "acquisition at a premium of 25000 times" | Assets | History

The major shareholder has a company with a net asset negative of over 50 million yuan and a book value of -22400 yuan, and plans to sell it to its listed company. After evaluation, the price of the underlying assets is as high as 562 million yuan, a premium of 25000 times, and it is a cash acquisition. On July 31st, Pengdu Agriculture and Animal Husbandry announced such a rare acquisition.

The day after the announcement of the acquisition, the company received a letter of attention from the Shenzhen Stock Exchange. The Hunan Securities Regulatory Bureau, where Pengdu Agriculture and Animal Husbandry is located, attaches great importance to the related party transaction and dispatched an inspection team to Jiangsu, where the proposed acquisition project is located, from August 2 to August 5 to initiate on-site inspections. Based on the on-site inspection, on August 10th, the Hunan Securities Regulatory Bureau issued an inquiry letter to the company.

The main asset of Qidong Pengteng, the target of this acquisition, is land. The Hunan Securities Regulatory Bureau requires clarification on the basis and rationality of evaluating the "land acquisition fee" at a rate of 101000 yuan/mu, rather than the transfer fee of 22500 yuan/mu determined in the State owned Land Use Right Transfer Contract. The Hunan Securities Regulatory Bureau is also concerned about the number of high standard farmland in 5565 acres of farmland, the current actual use of Qidong Pengteng agricultural land, and whether it meets the purposes and relevant agricultural land requirements stipulated in the State owned Land Use Right Transfer Contract.

According to the acquisition announcement, Qidong Pengteng had zero revenue in 2022 and January June 2023, and as of June 30, 2023, it was in an insolvent state. Its current liabilities were higher than its total current assets by 175 million yuan, and the auditing agency also expressed doubts about its ability to continue as a going concern.

Acquiring negative asset companies with over 500 million yuan in cash

Since last year, the operating income has been 0

Pengdu Agriculture and Animal Husbandry announced on July 31st that in order to create an integrated model of planting and breeding, and form an "integrated planting and breeding" industrial cycle of feed+breeding, the company plans to sign an "Equity Transfer Agreement" with Pengxin Agricultural Investment. Pengxin Agricultural Investment plans to transfer 100% of its equity in Qidong Pengteng Agricultural Development Co., Ltd., as well as all rights and interests attached to the equity, to the company for a transfer consideration of 562 million yuan.

According to the agreement, the buyer shall pay the transfer consideration to the seller's designated bank account within ten days from the effective date of the agreement.

Pengxin Agricultural Investment is a controlling subsidiary of Yunnan Pengxin Fusheng Agricultural Development Co., Ltd., a wholly-owned subsidiary of Pengxin Group, a controlling shareholder of Pengdu Agriculture and Animal Husbandry. This means that Pengdu Agriculture and Animal Husbandry acquired assets from the controlling shareholder. According to the relevant provisions of the Shenzhen Stock Exchange Listing Rules, this transaction constitutes a related party transaction. However, this transaction does not constitute a significant asset restructuring, therefore it does not require approval from relevant departments.

What kind of company is Qidong Pengteng?

According to the announcement, Qidong Pengteng itself has no physical assets and its assets are mainly formed through long-term equity investments. The main assets of its invested subsidiary are land use rights located in Xianhe Village, Qilong Township, Qidong City, Jiangsu Province, including 41 agricultural land and 3 commercial land. Among them, the total area of agricultural land is 3.7099 million square meters, and the total area of commercial and service land is 10000 square meters.

The disclosed operating status of Qidong Pengteng in the announcement shows that its operating income was 0 in 2022 and January June 2023, with net profits of -4380000 yuan and -2.2 million yuan respectively; As of June 30, 2023, its net assets were -54.12 million yuan, and its current liabilities were higher than the total current assets by 175 million yuan. Therefore, the auditing firm also issued an opinion that the above matters or circumstances indicate significant uncertainty that may lead to significant doubts about Pengteng Agriculture's ability to continue operating.

However, according to the evaluation, the 100% equity of Qidong Pengteng is valued at as high as 562 million yuan. The specific results show that its net asset book value is 22400 yuan, the assessed value is 561576945.21 yuan, the value-added amount is 561599326.2 yuan, and the value-added rate is 2509269.37%.

Hunan Securities Regulatory Bureau went to the scene for verification

Land acquisition evaluation of 22500 yuan/mu, with a value of 101000 yuan/mu

The Hunan Securities Regulatory Bureau, under the jurisdiction of Pengdu Agriculture and Animal Husbandry, attaches great importance to the above-mentioned related party transactions. From August 2nd to August 5th, a verification team was dispatched to the location of the proposed acquisition project for on-site verification. Based on the on-site verification, on August 10th, the Hunan Securities Regulatory Bureau inquired about relevant matters.

According to the "Explanation on the Asset Evaluation of the Total Equity Value of Qidong Pengteng Agricultural Development Co., Ltd. Shareholders Involved in the Proposed Equity Acquisition of Pengdu Agriculture and Animal Husbandry Co., Ltd.", the agricultural land is evaluated using the cost approximation method, mainly based on the sum of various expenses incurred in obtaining the development land, plus a certain amount of profit, interest, and taxes to be paid to determine the land evaluation price. That is, "land price=land acquisition fee+land development fee+investment interest+investment profit+land appreciation income".

Among them, the assessment determined that the "land acquisition fee" is 101000 yuan/mu. According to the State owned Land Use Rights Transfer Contract signed between Qidong Pengteng and the local Land and Resources Bureau, the transfer fee for land use rights obtained by Qidong Pengteng is 33.75 yuan/square meter, which is 22500 yuan/mu.

The Hunan Securities Regulatory Bureau first requires the evaluation agency to explain the basis and rationality of evaluating the "land acquisition fee" at a rate of 101000 yuan/mu, rather than the transfer fee of 22500 yuan/mu determined in the State owned Land Use Right Transfer Contract; In addition, explain whether the evaluation of "land acquisition fees" meets the relevant requirements of asset evaluation standards, whether it constitutes an evaluation error, and if it constitutes an evaluation error, further calculate the impact of the error on the evaluation value.

In addition, according to the feasibility report of the Pengdu Agriculture and Animal Husbandry Qidong Planting Base Construction Project, the subsequent construction plan for the acquisition of assets by related parties is mainly to produce alfalfa hay. The Hunan Political Supervision Bureau requires the company to:

1. Explain the current actual use of Qidong Pengteng agricultural land and whether it meets the purposes and relevant agricultural land requirements stipulated in the State owned Land Use Right Transfer Contract.

2. Explain the number of high standard farmland in 5565 acres of farmland. Does planting alfalfa on 5565 acres of farmland, especially on high standard farmland, comply with the requirements of the Central Committee of the Communist Party of China and the State Council's Key Work on Promoting Rural Revitalization in 2022, which states that "all high standard farmland should be used for grain production in principle".

3. Explain whether the local soil, rainfall, temperature, humidity, and other natural conditions are suitable for planting alfalfa and producing alfalfa hay. If applicable, estimate the yield and output value of alfalfa hay per acre, the total annual yield, output value, and profit of alfalfa hay, and provide an estimation process.

4. Explain the location of the alfalfa hay supporting breeding plant and whether there can be a synergistic effect between the breeding farm and the Qidong planting base. Compare the cost difference between self-produced and externally harvested alfalfa hay to demonstrate whether this related party transaction can achieve the expected goal of "improving overall revenue".

5. Explain the land use and income situation of Qidong Pengteng over the years. Is there a lease agreement on the land as of now; If there is a lease agreement, please provide additional information on the lease price, lease term, and whether there are any lease terms that pose obstacles to the use of land by the listed company after the acquisition.

6. Explain whether this related party transaction complies with the relevant policies on the transfer of agricultural land use rights and the terms of the Agreement on the Transfer of State owned Land Use Rights.

High proportion pledge by controlling shareholders

Pengdu Agriculture and Animal Husbandry themselves are not well-off either

From the disclosure of the first quarter report in 2023, it can be seen that the equity held by Pengxin Group, the controlling shareholder of Pengdu Agriculture and Animal Husbandry, as well as Pengxin Agricultural Investment and Lhasa Houkang, who are unanimously executed, has a high proportion of pledge financing, and even some equity has been frozen by the judiciary. Among them, Pengxin Group holds 696 million shares of the company, pledges 418 million shares, and freezes 184 million shares; Pengxin Agricultural Investment holds 1.181 billion shares and pledges 692 million shares; Lhasa Houkang holds 784 million shares and pledges 733 million shares.

In addition to pledging equity financing, Pengxin Group is also continuously reducing its holdings in Pengdu Agriculture and Animal Husbandry for cash out. In 2022, Pengxin Agricultural Investment reduced its holdings by 495 million shares, while Lhasa Houkang reduced its holdings by 169 million shares, with a total cash out amount of at least 1.5 billion or more. In 2023, Pengxin Group is continuing to reduce its holdings.

Although the controlling shareholders have a relatively high demand for funds, the listed company Pengdu Agriculture and Animal Husbandry itself is not well-off.

As of the end of the first quarter of 2023, Pengdu Agriculture and Animal Husbandry had a cash book of 1.236 billion yuan, but its short-term debt was nearly 2.5 billion yuan, which is twice the amount of cash. The short-term loan amount is 1.636 billion yuan, and the non current liabilities due within one year are 830 million yuan. In this situation, it is difficult to understand that Pengdu Agriculture and Animal Husbandry still needs to spend more than 500 million cash to acquire an asset that is insolvent and has questionable ability to continue operating.

Pengdu Agriculture and Animal Husbandry's current stock price performance is also average, having halved since the beginning of last year. As of the closing market value on August 11th, it was 12.4 billion yuan, with a stock price of 1.95 yuan per share. As of the end of the first quarter of this year, the company has 103400 shareholders.

According to the official website, Pengxin Group is an "international diversified industry group" founded in 1988. It started with real estate development in Shanghai and has now formed three core business segments: "big agriculture, big resources, and big health and wellness". Pengxin Group currently owns four listed companies, namely A-share Pengdu Agriculture and Animal Husbandry, Guozhong Water, and Pengxin Resources, and Hong Kong share Runzhong International Holdings.

Pengxin Group took over Pengdu Agriculture and Animal Husbandry in 2014. At that time, Pengdu Agriculture and Animal Husbandry Securities, abbreviated as "Dakang Animal Husbandry", mainly engaged in the sales of nutritious pigs and feed. In 2012, it was affected by the pig cycle and continued to suffer losses. The Pengxin series aimed for opportunities and successfully acquired Pengdu Agriculture and Animal Husbandry through a private placement of 5 billion yuan in 2014. After the acquisition of the Pengxin series, the company's main business gradually expanded to agricultural inputs and grain trade, beef cattle, mutton and dairy industry, and began to frequently carry out capital operations.