On September 18, a person from the board secretary office of Luxshare Technology revealed that the company's investigation by regulators is likely related to the misappropriation of raised funds.
As early as two years ago, Luxshare Technology approved the proposal to use bank acceptance bills to pay for funds raised for investment projects, which left a backdoor for the controlling shareholder, Luxshare Group, to later misappropriate the raised funds.
It is unclear whether this backdoor will be closed or left open. What cannot be ignored is that once the use of bank acceptance bills to pay for raised fund investment projects is stopped, it will increase the pressure on Luxshare Technology's capital chain. To alleviate the capital pressure, on September 17, Luxshare Technology transferred the project at Yanwei Mountain to Luxshare Group for 54.34 million yuan.
On September 9, Luxshare Technology received a notice of investigation from the China Securities Regulatory Commission (CSRC) because the company was suspected of violating securities laws and regulations. According to the relevant provisions of the Securities Law of the People's Republic of China, it was decided to investigate the company.
On September 28, 2012, the board of directors of Luxshare Technology passed a resolution to invest 103 million yuan to build an industrial new technology R&D base project. The land for the project was obtained through public bidding, auction, and listing transfer using self-owned funds. On December 25 of the same year, Luxshare Technology purchased the corresponding land for supporting engineering construction. The land is located at Huandong New Village (Yanwei Mountain), Huandong Street, Zhuji City.
Luxshare Technology stated in an announcement that because the land won in the bidding for the R&D project is only for the main project, it is also necessary to handle supporting engineering construction such as ponds, mountains, graves, crops, access roads, bridges, and greening on nearby land. There are difficulties in actual construction and many irregular expenses.
To this end, the infrastructure and supervisory leaders of Luxshare Technology decided to have the controlling shareholder, Luxshare Group, implement the supporting engineering for the R&D project. The finance and infrastructure departments of Luxshare Technology transferred 30 million yuan through subsequent infrastructure projects of Zhejiang Electronic Wire and Cable Co., Ltd. to Luxshare Group for supporting the R&D project and paying engineering fees, after multiple endorsements.
Before Luxshare Group implemented the supporting engineering, Luxshare Technology had approved the proposal to use bank acceptance bills to pay for raised fund investment projects on September 28, 2012. The specific operation process is as follows:
Step 1: According to the progress of equipment procurement and infrastructure construction for the raised fund investment projects, the company transfers an equivalent amount of payable funds from the special account for raised funds and stores it as a six-month fixed deposit in the bank of the special account for raised funds; Step 2: The bank of the special account for raised funds issues an equivalent bank acceptance bill using the deposit as a guarantee, and pays it to equipment suppliers and engineering contractors; Step 3: After the fixed deposit matures, the funds are transferred back to the special account for raised funds to honor the matured bank acceptance bills.
On November 27, 2012, and December 12, 2012, the special supervision account for raised funds of Luxshare Technology's wholly-owned subsidiary, Zhejiang Luxshare Electronic Wire and Cable Co., Ltd., transferred 20.5 million yuan and 9.5 million yuan in acceptance bills, respectively, indirectly to accounts such as Luxshare Group Co., Ltd. through endorsements by construction units, totaling 30 million yuan, which was directly or indirectly used for the implementation of the company's R&D project supporting engineering.
It is worth noting that the industrial new technology R&D base project invested 103 million yuan by Luxshare Technology is not an IPO raised fund investment project, and the supporting engineering construction of this project is also not part of the IPO raised fund investment projects. During November-December 2012, Luxshare Technology did not disclose the above misappropriation of raised funds in announcements.
According to the agreement between Luxshare Technology and the sponsor institution, Dongxing Securities, when using bank acceptance bills to pay for raised fund investment projects, Luxshare Technology should promptly notify Dongxing Securities in writing in steps 1 and 3 of the above specific operation process.
However, after verification, Dongxing Securities believed that the storage and use of raised funds by Luxshare Technology in 2012 complied with relevant regulations and documents, that the raised funds were stored in special accounts and used specifically, and that there was no disguised change in the use of raised funds or harm to shareholders' interests, nor any illegal use of raised funds.
"We are cooperating with the investigation," said Jin Guobiao, the sponsor representative of Dongxing Securities. "It was two years ago; specifically, it is the project that Luxshare Technology self-inspected." That is, Luxshare Technology self-disclosed the misappropriation of 30 million yuan in raised funds two years ago. He said, "The CSRC is still investigating this matter, and the conclusion has not yet been reached."
However, the time of Luxshare Technology's "self-disclosure" was September 10, while they received the CSRC investigation notice on September 9, with the former later than the latter. A board secretary of a Shenzhen-listed company pointed out that the so-called "self-disclosure" was actually forced by the pressure of the CSRC investigation. If there had been no investigation, would Luxshare Technology have "self-disclosed"?
Luxshare Technology stated that the main reason for the above irregularities was that the company's finance and infrastructure departments had a serious lack of understanding of the supervision of raised funds and project construction for listed companies, mistakenly believing that as long as the funds were used for the listed company, the method was not important, and as long as they were not used for the controlling shareholder, it was acceptable.
Now, Luxshare Technology has written a self-inspection report on the above incident and reported it to the regulatory authorities. At the same time, it will promptly disclose information about the subsequent handling of the R&D project. It is never too late to mend the fold after the sheep are lost; the key now is to close the backdoor for misappropriating raised funds.
What cannot be ignored is that Luxshare Technology approved the proposal to use bank acceptance bills to pay for raised fund investment projects in 2012, mainly to improve the efficiency of raised fund use and reduce financial expenses.
The electromagnetic wire industry in which Luxshare Technology operates is a capital-intensive industry with the characteristics of "heavy materials, light labor." The proportion of raw materials in operating costs is very high. Due to the large scale of procurement, the demand for working capital is high. Luxshare Technology's capital chain is tightening. At the end of 2013, monetary funds were 237 million yuan, a year-on-year decrease of 23.8%.
Earlier, Luxshare Technology and Biel Crystal established a joint venture, Biel Luxshare. As of September 12, the registered capital of Biel Luxshare of 500 million yuan had been fully paid in, with Luxshare Technology contributing 200 million yuan in cash. Later, Biel Luxshare plans to invest a total of 2 billion yuan.
Undoubtedly, Luxshare Technology's capital demand has increased. Once the use of bank acceptance bills to pay for raised fund investment projects is stopped, it will increase the pressure on Luxshare Technology's capital chain.
Facing this dilemma, on September 17, Luxshare Technology signed a transfer agreement for construction in progress with Luxshare Group. The project is the industrial new technology R&D base, located at Huandong New Village (Yanwei Mountain), Huandong Street, Zhuji City. The transaction price was determined to be 54.34 million yuan.
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