A ST stock with a par value delisting is set to add another member to its ranks.

On July 18th, Guanghui Automobile (600297.SH), the largest domestic passenger car dealer in terms of sales, was suspended from trading. The previous day, Guanghui Automobile's stock opened at a limit down, with a decline of 10.34%, closing at 0.78 yuan, and the stock price has been below 1 yuan for 20 consecutive trading days. According to the listing rules of the Shanghai Stock Exchange, this stock has met the conditions for termination of listing.

During the twenty trading days, Guanghui Automobile has made multiple "self-rescue" attempts, deploying several major strategies such as increasing holdings, but the downward trend of the stock price remains unchanged.

The final chapter of par value delisting was foreshadowed years ago. After going public through a reverse takeover in 2015, Guanghui Automobile has been frequently and aggressively expanding its share base while being keen on "high dividend transfers," leading to a continuous increase in its capital scale. The recent worsening performance has ignited the fuse of the delisting turmoil. Since the car price war began in March 2023, as a downstream player in the automotive industry chain, Guanghui Automobile's profits have been continuously tightening, and it has reported a significant expected loss in the first half of this year.

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In the delisting process, the heaviest losses are borne by investors. As of the end of the first quarter, Guanghui Automobile had 106,500 shareholders. Among them, several institutional investors have suffered substantial unrealized losses as the stock price has declined and moved towards delisting.

Multiple self-rescue attempts have failed.

In late May, the risk of par value delisting for Guanghui Automobile began to intensify. Starting from May 17th, the stock fell below 1.5 yuan. On June 20th, Guanghui Automobile's stock price broke through the 1 yuan/share threshold, and since then it has fluctuated downward, never returning above 1 yuan. On July 17th, the stock finally settled at 0.78 yuan/share, with a market value of 6.466 billion yuan. After going public through a reverse takeover of Melo Pharmaceutical in 2015, the stock's peak market value was nearly 100 billion yuan.

The termination of listing for Guanghui Automobile's issued Guanghui convertible bonds and other derivative products is also carried out in accordance with the relevant regulations for the termination of stock listings. Affected by this, the Guanghui convertible bonds also closed at a limit down on the 17th, with the current face value remaining at only 45.767 yuan. The Guanghui convertible bonds are about to become the first high-grade convertible bonds to touch the par value delisting standard to date.

Guanghui Automobile had previously made several "self-rescue" attempts but failed to "come back to life."

On June 3rd, Guanghui Automobile announced the share increase plan of the company's executives and Guanghui Group. The controlling shareholder, Xinjiang Guanghui Industrial Investment (Group) Co., Ltd. (hereinafter referred to as "Guanghui Group"), planned to increase its holdings by 50 to 100 million yuan within six months. Influenced by this news, the stock price of the company closed at a limit up the next day, at 1.38 yuan/share. However, it continued to head downward and officially broke through the 1 yuan "life and death line" on June 20th.The second self-rescue attempt took place on July 10th. On that day, Guanghui Automobile announced that it had received a notice from Guanghui Group regarding the planning of changes in the control rights of Guanghui Automobile, stating that Guanghui Group was currently negotiating the transfer of company equity with Xinjiang Jinzheng New Material Technology Co., Ltd. (hereinafter referred to as Jinzheng Technology), which could potentially trigger a change in the company's control rights. The controlling shareholder of Jinzheng Technology is Xinjiang Jinzheng Industrial Group Co., Ltd., which, like Guanghui Group, is a large industrial conglomerate in Xinjiang. The actual controller of Jinzheng Group, Liang Jun, is also considered to be an invisible tycoon in Xinjiang. Subsequently, the stock price rose for three consecutive days, reaching a high of 0.97 yuan per share at the close on July 15th, just a step away from escaping the "death line." However, on July 17th and 18th, the stock price hit the limit down for two consecutive days, ultimately locking in the face value delisting.

Reasons for Heading Towards Delisting

The failure of self-rescue and the path towards delisting for Guanghui Automobile had already laid the "foreshadowing" beforehand.

After going public through a reverse takeover in 2015, Guanghui Automobile, on one hand, frequently and aggressively expanded its share capital, and on the other hand, was keen on "high transfer" policies, continuously diluting the stock price, which sowed the seeds of hidden dangers for price and face value delisting.

Post-reverse takeover, Guanghui Automobile raised nearly 40 billion yuan in the A-share market through private placements and convertible bonds, with its share capital also continuously increasing. According to data from Choice statistics, from 2015 to the present, Guanghui Automobile has initiated four private placements, three of which have been implemented. On June 16, 2015, Guanghui Automobile issued an additional 3.02 billion shares at a price of 7.56 yuan, raising actual funds of 22.828 billion yuan; on June 29, 2015, Guanghui Automobile issued an additional 297 million shares at a price of 20.18 yuan, raising actual funds of 5.89 billion yuan. In 2017, Guanghui Automobile once again issued an additional 994 million shares at a price of 8.05 yuan per share, raising actual funds of 7.94 billion yuan. In the three private placements, Guanghui Automobile issued approximately 4.3 billion shares, raising a total of 36.6 billion yuan. In addition, in 2020, the company also issued 33.7 million convertible bonds, with an issuance scale of 3.37 billion yuan.

Apart from private placements, Guanghui Automobile was also keen on "high transfer" policies. According to Choice's data, from 2015 to 2018, Guanghui Automobile introduced several "high transfer" dividend plans. In the mid-2015 report, a "10 transfer 5" plan was proposed, and in 2016 and 2017, "10 transfer 3" and "10 transfer 1.5" transfers were carried out, respectively.

Under the expansion and high transfer, Guanghui Automobile's share capital also increased from 3.4 billion shares at the beginning of 2015 to 8.3 billion shares by the end of the first quarter of this year. Industry insiders told Yicai that as the scale of share capital expands, the difficulty of market value management will also increase, especially in a poor market environment, where the stock price is more likely to fall below par value, triggering delisting conditions.

Performance Pressure

The expansion of share capital sowed the seeds of hidden dangers, but what triggered the delisting crisis of Guanghui Automobile was the deteriorating performance.Guanghui Automobile was established in 1999 and is considered a "leader" among domestic automobile dealers. In May 2023, the China Automobile Dealers Association released the "2023 Top 100 Automobile Dealer Groups in China," where Guanghui Automobile ranked first in passenger car sales volume and second in revenue scale among major dealer groups.

However, over the past three years, Guanghui Automobile's performance has been quite volatile. The net profits for the years 2021 to 2023 were 1.609 billion yuan, -2.669 billion yuan, and 392 million yuan, respectively.

Recently, the performance of Guanghui Automobile is deteriorating rapidly. In the first quarter of 2024, the company's revenue fell by 11.5% year-on-year to 27.79 billion yuan, and the net profit plummeted by 86.6% year-on-year to 70.94 million yuan. The performance forecast indicates that for the first half of 2024, the company anticipates a net loss of -699 million yuan to -583 million yuan, turning from profit to loss.

In recent years, due to the ongoing price wars in the automobile market, the profit margins for large automobile dealer groups like Guanghui Automobile have been continuously squeezed.

Guanghui Automobile explained in its performance forecast that due to market consumption downgrade, intensified industry competition, and major car manufacturers engaging in price wars to seize market share, the company's new car sales volume and gross margin have both declined compared to the same period last year.

An automobile industry insider analyzed for the reporter that car manufacturers initiated a price war in March 2023 that lasted throughout the year, leading to a general decrease in automobile sales prices. Particularly, automobile dealers at the end of the automotive industry chain, like Guanghui Automobile, are forced to bear significant operational pressure. At the same time, automobile dealer groups like Guanghui Automobile, which mainly relied on revenue from joint venture brand authorized 4S stores in the past, are inevitably affected by the shrinking market share of joint venture vehicles.

Furthermore, from the financial reports, it is evident that Guanghui Automobile has not extensively laid out sales networks in the new energy sector. By the end of 2023, Guanghui Automobile had a total of 735 automobile sales outlets, including 245 for ultra-luxury and luxury brands, 422 for mid-to-high-end brands, and only 68 for new energy vehicles and self-owned brands.

In recent years, the market share of traditional fuel vehicles has been continuously eroded by new energy vehicles. According to a report from the China Association of Automobile Manufacturers, by the end of 2023, the market share of new energy vehicles had reached 31.6%, expanding by 5.9 percentage points compared to the same period of the previous year. The continuous expansion of the market share of new energy vehicles has put unprecedented operational pressure on automobile brands and dealers that are primarily focused on traditional fuel vehicles.

Institutional and retail investors suffer heavy losses.

By the end of the first quarter, the number of shareholders of Guanghui Automobile reached 106,500. The reporter noticed that there are no shortage of institutional investors among them. As Guanghui Automobile "heads towards" delisting by market value, significant paper losses have been incurred.By the end of the first quarter, the top ten circulating shareholders of Guanghui Automobile held a staggering 4.775 billion shares, accounting for 58.86% of the circulating stock. The North Xinrui Feng Fund - China Merchants Bank - Shaanxi Trust - Shaanxi Trust · Golden Jade No. 11 Securities Investment Collective Trust Plan (hereinafter referred to as "Golden Jade No. 11"), held 69.5652 million shares of Guanghui Automobile, representing 0.86% of the circulating stock; and Guohua Life Insurance's own funds held 50.8478 million shares, accounting for 0.63%.

According to the disclosure, Golden Jade No. 11 entered the ranks of the top ten circulating shareholders of Guanghui Automobile in the fourth quarter of 2021, with the number of shares held at that time being almost the same as at the end of the first quarter of this year, at 69.5652 million shares. During the holding period of this trust plan, the stock price of Guanghui Automobile plummeted rapidly, with a decline of over 80% from September 2021 to March of this year. Choice data indicates that the reference market value of Guanghui Automobile held by the Golden Jade No. 11 trust plan has dropped from 185.74 million yuan at the end of 2021 to 105.74 million yuan at the end of the first quarter of 2024, with an unrealized loss exceeding 80 million yuan.

A similar situation is observed with Guohua Life Insurance's own funds. The insurance company entered the ranks of the top ten circulating shareholders in the second quarter of 2023, with the number of shares held at that time being 50.8478 million, with a reference market value of 105.76 million yuan. By the end of the first quarter of this year, the number of shares held by the institution remained unchanged, but Choice data shows that the end-of-period reference market value has decreased to 77.29 million yuan. If calculated in this way, within less than a year, the institution has incurred an unrealized loss of more than 20 million yuan.