On 20 August 2021, SZSE made the decision of approving the relisting of Hui Lyu Ecological Technology Group Co., Ltd. (hereinafter referred to as “Hui Lyu” or the “Company”) according to the Rules Governing Share Listing (hereinafter referred to as the “Listing Rules”) the Implementation Measures on the Re-listing of Delisted Companies (hereinafter referred to as the “Implementation Measures”) and other regulations and the review opinions of the Listing Committee. SZSE Press Secretary answered the reporters’ questions about relevant work arrangements and topics of great concerns to market entities.
I. Please brief on the review of the relisting of Hui Lyu. What are the procedures involved?
A: On 19 June 2019, Hui Lyu submitted a relisting application to SZSE. Following the principle of “law-based acceptance and strict review”, SZSE launched the acceptance and review work according to the Listing Rules, the Implementation Measures and relevant working procedures.
The review of Hui Lyu’s relisting involve four stages, namely, review by business departments, cross-department preliminary review, review by the Listing Committee, and review by SZSE. In the stage of review by business departments, we transferred professionals in law, accounting and relevant industry and set up a review board. We reviewed the relisting application documents in an all-around way, issued several rounds of opinions, and requested relevant institution to conduct field inspections twice. In the stage of cross-department preliminary review, we assigned relevant business departments to develop preliminary review opinions on key items such as the capability to operate as a going concern, projects’ cash collection, seasonal characteristics of income, sustainable profitability, stability of the management, etc. In the stage of review by the Listing Committee, seven committee members had a full discussion on major concerns and listened to the opinions of the Company and its sponsors. The Listing Committee voted unanimously to approve the Company’s relisting application, and put forward matters that the Company and the intermediaries need to implement. So far, relevant matters have been put in place.
On 20 August 2021, SZSE made the decision of approving the Company’s relisting according to relevant regulations and the review opinions of the Listing Committee.
II. Please brief on the company Hui Lyu. What are the conditions the Company shall meet to get relisted and What were your focuses during the review?
A: Hui Lyu’s predecessor was Wuhan Liuduqiao Department Store. It was founded in 1990 and listed on SZSE in November 1997, under stock abbreviation “Liuduqiao” and stock code “000765”. On 30 March 2000, Liuduqiao was renamed “Wuhan Huaxin Hi-tech Co., Ltd.” and its stock abbreviation was changed to “Huaxin”. Due to loss for three years straight, the Company was suspended from listing beginning on 22 March 2004 and was delisted on 4 July 2005. In 2014, the Company went through restructuring bankruptcy, and all shareholders of Hui Lyu Landscape Construction & Development Co., Ltd. (hereinafter referred to as “Hui Lyu Landscape”) injected Hui Lyu Landscape’s 100% stake into the Company several times as restructuring related parties. In May 2016, the relevant restructuring plan was completed, and the Company’s main business was changed to landscape engineering, landscape design and tree planting.
The Company’s application materials and the opinions issued by the relisting sponsor show that Hui Lyu has met relevant conditions for applying for relisting as specified in the Listing Rules and the Implementation Measures.
First, equity structure. The Company has a share capital of CNY 700 million, and 40.98% of it is held by the public, which complies with the provision that a company’s total share capital shall be no less than CNY 50 million and the proportion of shares held by the public in the total shares shall be no less than 10%.
Second, financial indicators. The Company’s audited net profits (before or after deducting non-recurring profits or losses, whichever is lower) in 2018, 2019 and 2020 were CNY 80.9492 million, CNY 82.7554 million and CNY 86.7891 million respectively; operating income registered CNY 741.4354 million, CNY 769.0444 million, and CNY 814.2564 million respectively; net assets at the end of 2020 amounted to CNY 1,110.6695 million, meeting the financial indicator requirements for relisting.
Third, capability to operate as a going concern. After it was delisted, the Company obtained a 100% stake in Hui Lyu Landscape through restructuring, two major assets restructurings, equity division reform, etc. It saw debt size reduced and capital structure improved. Over the past three years, there has been no material changes in the Company’s main business and its operation has been stable, indicating that the Company has the capability to operate as a going concern.
Fourth, corporate governance. The Company has set up the governance mechanism with shareholders’ general meeting, the Board of Directors and the Board of Supervisors at its core. In addition, it has established a complete internal control system, and no material internal control defects be found. Over the past three years, there has been no material changes in the Company’s directors or senior management members and the de facto controller has remained unchanged, meeting relevant regulations.
Fifth, compliance requirements. All of the financial statements of the Company over the past three fiscal years have been provided with an unqualified audit report. Over the past three years, there have been no major violations of laws and regulations by the Company or its directors, supervisors or senior management members. The Company’s directors, supervisors or senior management members have qualifications for their positions, and there hasn’t been any situation that has affected their performance of duties. All those situations meet relevant regulations.
Besides, SZSE conducted a comprehensive, in-depth review of the Company’s financial accounting, compliance and information disclosure, with a focus on the authenticity of income, inventories and cash transactions, adequacy of provision for bad debts, and compliance of bidding procedures and land lease and contracting.
III. After approving Hui Lyu’s relisting application, what SZSE will do next?
A: According to relevant provisions of the Implementation Measures, if a company’s relisting application is approved by SZSE, the company shall complete all preparatory work for relisting and get listed for trading within three months from the date when SZSE makes the decision of approving. Where the company needs to extend the preparation period under special circumstances, it shall apply to SZSE and obtain SZSE’s consent. If the company’s stock fails to be listed within the foregoing specified period, SZSE’s approval document of its relisting will become invalid.
From the day when the relisting application is approved by SZSE to the day when the stock is listed for trading, the company and its sponsors as well as securities trading service providers shall promptly update relisting documents, fulfill relevant information disclosure obligations and sign the listing agreement with SZSE according to the Implementation Measures. They shall also complete reconfirmation, registration and custody of shares, etc., and communicate with and explain to investors. SZSE will ensure the business preparations and technical support for Hui Lyu’s relisting. After the foregoing work is completed, SZSE will make arrangements for the Company’s listing.
IV. What are the trading arrangements on Hui Lyu’s first day of relisting? What risks should investors pay attention to?
A: According to Hui Lyu’s relisting application documents, its controlling shareholder and de facto controller Li Xiaoming and his parties acting in concert Li Xiaowei, Jin Xiaochuan and Ningbo Huining Investment Co., Ltd. warrant that within 36 months from the date when the Company is relisted, they will not transfer or trust others to manage the Company’s shares that they hold directly or indirectly, or have the Company repurchase the Company’s shares that they hold directly or indirectly; regarding the Company’s shares indirectly held by other directors, supervisors and senior management members, they warrant the lock period is 12 months. Moreover, regarding the new shares issued by Hui Lyu during the delisting period, except those that are publicly transferred before relisting, relevant shareholders warrant that they will lessen their shares after relisting strictly following the CSRC Provisions on the Share Lessening by the Shareholders, Directors, Supervisors and Senior Management of Listed Companies (CSRC Notice [2017] No. 9) and the SZSE Implementation Rules on the Share Lessening by the Shareholders, Directors, Supervisors and Senior Management of Listed Companies and so on, and abiding by the requirements on the proportion and number of lessened shares as well as on information disclosure.
According to the Implementation Measures, in principle, the reference opening price of the company’s stock on the first day of relisting shall be its closing price at the stock trading places such as the National Equities Exchange and Quotations, and the price limit will not be imposed on the first day of relisting. If the company considers that it is necessary to adjust the foregoing reference opening price, it may submit an application to SZSE and state the reason. Upon the approval of SZSE, the company shall disclose the details to the public, and the relisting sponsors shall issue special opinions on that.
Investors should be noted that, Hui Lyu still has industry risk factors that should be paid attention to such as a high balance of accounts receivable and higher income volatility. SZSE has required the company to make full disclosure. Investors are advised to carefully read the notices disclosed by the company later such as the relisting report, the sponsor letter for relisting to have a comprehensive understanding of the company’s major risks on both macro and micro levels, participate in trading rationally and according to law, and avoid following the hype blindly.
V. What matters should other delisted companies pay attention to when applying for relisting?
A: To ensure the implementation of the new Securities Law and put in place the Implementation Plan on Improving the Delisting Mechanism of Listed Companies reviewed and adopted by the Central Committee for Deepening Overall Reform, according to the unified deployment of CSRC, SZSE released the revised editions of the Listing Rules and the Implementation Measures on 31 December 2020. Delisted companies that apply for relisting shall meet the application conditions specified in the Listing Rules and the Implementation Measures and submit application materials that meet related requirements. If the company is involved in fraudulent stock issuance that leads to mandatory delisting and its stock is delisted mandatorily, the company shall not apply for relisting; companies that are delisted mandatorily for other reasons shall comply with the application interval requirements. Meanwhile, companies shall strictly abide by the requirements on the procedures and timeframes of acceptance of application materials, review, decision-making and subsequent events and so on
During the review, we adhered to the market-oriented and rule-of-law principles, referred to the IPO review standard, and strictly followed working regulations and procedures, in a bid to strengthen the quality control of review business in an all-around way, ensure a rigorous and standard procedures, and prevent institutional arbitrage.
The relisting regulations aim to support delisted companies in returning to the A-share market after restoring the capability to operate as a going concern, improving governance structure and meeting relevant standards. Therefore, companies that apply for relisting shall focus on main business and improve fundamentals to truly develop the capability to operate as a going concern and growth potential. To companies that only meet conditions in form but actually have main business with plain performance, unsound governance or nonstandard operation, SZSE will strictly safeguard the market access and will not accept their applications or approve their relisting according to laws and regulations.
