Donghong Co., Ltd.'s "Zero Yuan Purchase" Related Party Transaction: 50 Million Yuan "Bride Price" Marrying a "Zero Revenue Bride"?

Capital markets once again see “zero-cost purchase” transactions.

On the evening of March 2nd, Donghong Co., Ltd. (SH603856, stock price 13.61 yuan, market value 3.839 billion yuan) announced that its wholly owned subsidiary plans to acquire 100% equity of Donghong Pipeline Intelligent Terminal (Shandong) Co., Ltd. (hereinafter referred to as “Donghong Pipeline Intelligent Terminal”) at a price of zero yuan.

The “Daily Economic News” reporter (hereinafter “the reporter”) noted that this seemingly “free” transaction actually conceals a committed capital contribution obligation of up to 50 million yuan. Moreover, the seller in this transaction is a wholly owned subsidiary of Donghong Co., Ltd.'s controlling shareholder. The target company was established only a year ago and has not yet engaged in substantive operations.

Although this related-party transaction does not require shareholder approval and has the backing of a sponsor institution and independent directors, whether it can dispel investor concerns remains to be seen.

Zero Yuan Acquisition Corresponds to 50 Million Yuan Capital Commitment

According to the announcement, the transferee in this transaction is Qufu Donghong Technology Innovation Research Institute Co., Ltd. (hereinafter “Donghong Research Institute”), a wholly owned subsidiary of the company. The transferor is Shandong Donghong Technology Group Co., Ltd. (hereinafter “Donghong Technology Group”). The target is 100% equity of Donghong Pipeline Intelligent Terminal held by Donghong Technology Group.

Data shows that Donghong Pipeline Intelligent Terminal was established on February 28, 2025. Its main business covers land pipeline transportation, municipal facility management, engineering management services, sales of intelligent basic manufacturing equipment, development of intelligent water systems, and intelligent control system integration, among other fields.

The reporter noted that Donghong Pipeline Intelligent Terminal, with a registered capital of 50 million yuan, has not yet made capital contributions nor begun formal operations. As of the disclosure date, the target company has not engaged in any business activities, so there are no relevant financial data. Additionally, in the past 12 months, the company has not undergone asset valuation, capital increase, capital reduction, or restructuring. This transaction also does not involve transfer of debts or claims.

In this context, after mutual agreement, the total transaction price was set at zero yuan, and no audit or valuation was required. Since the equity of Donghong Pipeline Intelligent Terminal to be transferred has not been paid in full, Donghong Co. believes the pricing is fair and reasonable, with no benefit transfer involved.

Image source: Donghong Co. announcement

However, this “zero yuan” transaction does not mean there are no costs. The agreement explicitly states that after the transaction is completed, Donghong Research Institute will acquire the equity (including all shareholder rights, obligations, and unpaid capital contributions) and agree to undertake the corresponding unpaid capital contribution obligations.

This means Donghong Research Institute must strictly fulfill the unpaid registered capital of 50 million yuan as stipulated in the company’s articles of association before December 31, 2029, and pay the full committed capital on time.

Donghong Co. stated that this transaction aims to implement the company’s strategic plan and promote business development in the field of pipeline intelligent terminals. After completion, the target company will become a secondary subsidiary of the company and be included in the consolidated financial statements.

However, Donghong Co. also warned of risks: the target company is a startup, and its future operations may be affected by economic conditions, macro policies, industry development, and market changes, which pose certain operational, management, and operational risks. Investors are advised to be cautious.

Target is a Zero-Revenue Startup, Related-Party Transaction is Compliant

Besides the stark contrast between “zero yuan price” and “50 million yuan paid-in capital,” another focus of this transaction is its related-party nature.

According to the announcement, the counterparty Donghong Technology Group was established on June 7, 2024, with a registered capital of 1 billion yuan. The legal representative is Kong Yamin. Equity penetration shows that Donghong Group holds 100% of Donghong Technology Group and also owns 46.51% of Donghong Co., making it the controlling shareholder.

Therefore, the counterparty Donghong Technology Group is a wholly owned subsidiary of Donghong Co.'s controlling shareholder. According to relevant stock exchange rules, this constitutes a related-party transaction but does not amount to a major asset restructuring.

It is worth noting that since the transaction amount does not meet certain thresholds, shareholder approval is not required. Nonetheless, the matter has undergone multiple internal review procedures.

Donghong Co. announced that on March 2nd, the company held the first meeting of the fourth board of directors’ independent directors in 2026, with independent directors Kong Xiangyong, Lu Xin, and Wei Xuejun unanimously approving the proposal. They believed the matter aligns with the company’s strategic development needs, follows principles of voluntariness, fairness, and consensus, and does not involve benefit transfer to related parties or harm to the company and minority shareholders.

On the same day, the company’s fourth board of directors’ audit committee also reviewed and approved the matter, confirming the legality and compliance of the decision-making process. Subsequently, at the 24th meeting of the fourth board, the proposal was officially approved, with related directors Ni Liying and Ni Fengyao recusing themselves from voting.

Additionally, Huafu Securities, as the sponsor institution during the ongoing supervision phase of Donghong Co.‘s issuance of A-shares to specific targets, issued a dedicated verification opinion. After review, the sponsor believed that the matter had been approved by the company’s independent directors’ meetings, audit committee, and board, complied with relevant laws and regulations, followed necessary legal procedures, and adhered to fair and just market principles, without harming the interests of the listed company or non-related shareholders. The sponsor has no objections to the related-party transaction.

Donghong Co. also committed that this transaction will not affect the company’s independence and will not lead to industry competition after completion. If necessary, the company will strictly follow relevant regulations for related-party transactions, ensuring proper decision-making procedures and information disclosure to protect the rights and interests of the company and all shareholders, especially minority shareholders.

Despite detailed compliance assurances and risk warnings from all parties, the secondary market remains cautious. The fact that a wholly owned subsidiary of the controlling shareholder is acquiring a “zero-asset, zero-revenue, unpaid” startup from another wholly owned subsidiary raises ongoing concerns about future business development and capital movements.

Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before acting. Use at your own risk.