Securities Daily: Excavator assets "feed" listed companies Sany Heavy Industry related party transactions slimmed

Source: Securities Daily Reporter: Li Jianjun

　　
"Excavator assets are in and out, not only is it not a transfer of benefits to major shareholders, but a return of major shareholders to the interests of shareholders of listed companies." On October 8, Duan Dawei, vice president of Sany Heavy Industry (600031, stock bar), explained to reporters the beginning and end of Sany Heavy Machinery's injection into listed companies.
In 2003, Sany Heavy Industry sold its excavator assets to Sany Group, a major shareholder, and injected it into Sany Heavy Industry in 2010 by way of private placement. Due to the huge price difference between the excavator assets in the listed company, it has aroused suspicion in the market about "Sany Heavy Industry to the interests of major shareholders".
 

■Excavator "Incubation and Feedback"

Duan Dawei revealed that in 2001, Sany Heavy Industry started the excavator project, and only 5 were produced that year, and 7 were produced in 2002, but most of these excavators were returned by customers because of poor technology.
Duan Dawei said: "At that time, foreign excavator brands have monopolized more than 95% of the domestic market share, the immaturity of technology, coupled with the strength of foreign brands, it is difficult for Sany Heavy Industry to see the development prospects and future of the excavator industry." ”
The major shareholders believe that the excavator business is too risky and should not be incubated in a listed company, so as not to affect the brand of Sany Heavy Industry. In August 2003, Sany Heavy Industry sold its excavator assets to Sany New Materials (later renamed Sany Heavy Machinery) at a price of 17.82 million yuan.
"In order to make the excavator bigger, we tore down the original system and rebuilt it, and at the same time invited relevant users from Japan to redesign the system and reengineer the design process, which took three years." Duan Dawei sighed at the pain of transformation.
After several years of incubation in the group, by 2007, the excavator business gradually improved. According to the financial report, Sany Heavy Machinery sold 1,406 excavators in 2007, accounting for 2.25% of the domestic market, and the sales growth rate and market share growth rate ranked second among domestic brands.
Duan Dawei bluntly said that at that time, the major shareholders had a variety of options, which could be listed on a separate IPO of Sany Heavy Machinery, or they could continue to be placed in Sany Group as a "golden mountain" for major shareholders.
However, in order to fulfill the promise made at the time of the share reform, Sany Group made an unexpected decision. In 2008, Sany Group decided to sell the mature excavator assets to Sany Heavy Industry at a price of 1.98 billion yuan by way of private placement, and the consideration was that Sany Heavy Industry would issue 118 million shares of Sany Heavy Industry to 10 natural persons including Liang Wengen, the actual controller of Sany Group.
"At that time, Sany Heavy Machinery has passed the development period, and the funds are also sufficient, but considering that the national macro-control in 2008 made the construction machinery market depressed, in order to boost confidence, but also to fulfill the commitment of share reform, and give back to small and medium-sized investors, Sany major shareholders decided to inject the excavator into Sany Heavy Industry." Duan Dawei elaborated on the motivation behind the additional issuance.
At the same time of the private placement, Liang Wengen and other 10 people promised that if the asset injection is completed, from 2009 to 2013, the average annual net profit of Sany Heavy Machinery will be less than 380 million yuan, and the insufficient part will be fully compensated by Sany Heavy Industry in cash.
In July 2009, Liang Wengen and 10 others made an additional profit compensation commitment for the acquisition of Sany Heavy Machinery: if the average net profit of Sany Heavy Machinery from 2009 to 2013 was less than 466 million yuan, and the cash of 10 people was insufficient to compensate, it was agreed that Sany Heavy Industry would repurchase 118 million shares of Sany Heavy Industry held by 10 people at a total price of 1 yuan. In fact, Sany Heavy Machinery's profit is far greater than promised, only in 2010 to achieve a net profit of 1.026 billion yuan, and in the first half of 2011 to achieve a net profit of 1.294 billion yuan.
 

■Related-party transactions are decreasing

In 2005, Sany Heavy Industry became a 5,656 share of China's equity division reform, and Sany Group promised to inject the group's construction machinery-related assets into Sany Heavy Industry one after another, so as to realize the overall listing of the group's construction machinery assets.
Previously, some media questioned that a large part of Sany Heavy Industry's revenue relied on related party transactions, but in fact, with the gradual injection of Sany Group's construction machinery assets into listed companies, Sany Heavy Industry's related party transactions have become increasingly "slimmed".
"Some media say that Sany Heavy Industry amplifies its performance through related party transactions, which is completely lacking in common sense. If according to this logic, with the annual growth of Sany Heavy Industry's sales revenue, the company's related party transaction ratio should be increasing year by year, but in fact, this data* has been decreasing year by year in recent years. Duan Dawei clarified the outside world's doubts about Sany Heavy Industry's related transactions.
"Before 2009, there were indeed many related transactions of Sany Heavy Industry, because at that time excavators and other assets had not been fully injected, and related purchases and sales based on equipment matching were inevitable, but this situation has now been greatly reduced." Duan Dawei explained.
According to the announcement, from January to June 2009, 2010 and 2011, the proportion of related transactions of Sany Heavy Industry in the same period was 39.19%, 11.75% and 15.2% respectively, with a significant downward trend.
The successive injection of construction machinery assets such as excavators will gradually eliminate the related party transactions of Sany Heavy Industry, and the related party transactions between listed companies and Sany Group and its other subsidiaries will be further reduced.
Duan Dawei gave an example of Sany Heavy IndustryPiling machineryPart of the chassis was previously purchased from Sany Heavy Machinery, which was a related party transaction, but with the injection of the excavator, this kind of procurement became an internal transaction of the listed company in the future, which is equivalent to eliminating part of the related party transaction.
"Last year, our related-party transaction revenue accounted for a little more than 10%, and this year, with the completion of the integration of related assets, this proportion will drop to less than 10%." Duan is a conservative estimate.
As for the outside world's doubts about Sany Heavy Industry's financial fraud, Duan Dawei bluntly said that some media lack financial knowledge.
In September, some media reported that Sany Heavy Industry's 2011 semi-annual report was financially fraudulent, saying that "according to the company's 2011 semi-annual report, the cash from the sale of goods was 7673.7324 million yuan, the main business income was 29657.2336 million yuan, and the earnings per share were 0.78 yuan, but the net operating cash was only 250.7997 million yuan, the monetary funds were 11.2657331 million yuan, and the short-term borrowings were 118800436 million yuan." Judging from monetary funds, after deducting short-term loans, Sany Heavy Industry not only has no penny, but also has a debt of more than 200 million. ”
"The company's main business income in the first half of 2011 was 30.363 billion yuan, and the cash from the sale of goods was 27.673 billion yuan, instead of the 29.657 billion yuan and 7.673 billion yuan as stated in the report. Duan Dawei pointed out the inaccuracies in the report.
"Moreover, the calculation of more than 200 million liabilities of Sany Heavy Industry by subtracting short-term liabilities from monetary funds is also biased, and it is obviously a conscious confusion to use this as a standard for measuring the solvency of listed companies." Duan Dawei said that the real indicators that can measure the solvency of listed companies should be the asset-liability ratio, current ratio and quick ratio, "and these data of Sany Heavy Industry are very good in the same industry." ”
According to the financial report, from January to June 2009, 2010 and 2011, the current ratio of Sany Heavy Industry was 1.94, 1.17 and 1.28, and the quick ratio was 1.41, 0.84 and 1 respectively, all of which were near the balance line of 1.5 and 1 recognized by the industry, which proved that the company's solvency was strong.