Jiechenig Shareholding Company Denies Disclosure as Loan Default of Tens of Millions Exposed

Economic Observer Reporter Zhang Bin

As of the end of September 2020, Jiecheng Co., Ltd. (300182.SZ), which has participated in investments in films such as “Wolf Warrior 2,” “Operation Red Sea,” and “A Good Show,” still had RMB 258 million in cash and cash equivalents.

However, recently, an insider named Zhao Quan revealed to the Economic Observer that Jiecheng Co. has overdue loans amounting to tens of millions of yuan that have not been repaid.

According to information Zhao provided on March 4, 2021, in 2020, Jiecheng Co. borrowed RMB 30 million, RMB 25 million, and RMB 30 million respectively from three content cooperation partners: a certain education company in Beijing, a technology company in Tianjin, and an investment management company in Beijing. Among these, the RMB 25 million loan to the Tianjin technology company has been repaid, while the other two remain outstanding.

Additionally, Zhao provided a loan agreement between Jiecheng Co. and the Beijing education company, which states that if Jiecheng Co. defaults on repayment, Jiecheng Co. and its wholly owned subsidiary Xinjiang Juxiu Cultural Media Co., Ltd. (hereinafter “Xinjiang Juxiu”) agree to expand the “exclusive cooperation in the mobile intelligent terminal education field” stipulated in the Content Cooperation Agreement to “exclusive cooperation in the education field.”

Tens of millions of yuan in overdue loans

The loan agreements Zhao provided show that in 2020, Jiecheng Co. entered into short-term loan agreements with the three aforementioned companies, totaling RMB 85 million. In the loan to the Beijing education company, the actual controller of Jiecheng Co., Xu Ziquan, undertook joint liability for repayment. Xinjiang Juxiu was authorized to expand its scope from “exclusive cooperation in the mobile intelligent terminal education field” to “exclusive cooperation in the education field.” In the loan agreement with the Tianjin technology company, besides Jiecheng Co., the borrower also included Beijing Jiecheng Century Digital Technology Co., Ltd., wholly owned by Xu Ziquan. In the agreement with the Beijing investment management company, Xu Ziquan and Jiecheng’s wholly owned subsidiary Jiecheng Huashi Network Gathering (Changzhou) Cultural Media Co., Ltd. (hereinafter “Huashi Network Gathering”) undertook joint liability.

Zhao’s information indicates that after these three loans matured in January 2021, the Beijing education company, Tianjin technology company, and Beijing investment management company all entrusted law firms to pursue collection from Jiecheng Co., which at that time had not received repayment.

Zhao stated that these three companies have initiated legal proceedings against Jiecheng Co. this year. The property preservation applications provided by the three companies show that Jiecheng Co., Beijing Jiecheng Century Digital Technology Co., Ltd., and related accounts or assets of Xu Ziquan face the risk of judicial freezing.

A relevant person from Jiecheng Co.'s Board Office told the Economic Observer that there are indeed legal proceedings involving these companies, but since the amount involved does not meet the disclosure standards for GEM listed companies, no announcement has been made.

On March 5, Zhao said that Jiecheng Co. has already repaid the RMB 25 million loan to Tianjin technology company in February, but has not received repayment from the Beijing education company and the Beijing investment management company.

Decline in operating performance

According to Jiecheng Co.'s Q3 2020 report, as of September 2020, the company had RMB 258 million in cash and cash equivalents, while its short-term loans amounted to RMB 1.329 billion, and non-current liabilities due within one year were RMB 469 million, totaling RMB 1.798 billion in short-term debt.

The cash ratio, which indicates a company’s ability to immediately pay off its short-term liabilities, is the ratio of cash to current liabilities. A higher ratio suggests better liquidity and repayment capacity. Generally, a ratio above 20% is considered good.

Looking at Jiecheng Co.'s recent years, the cash ratio was 55% at the end of 2016 and 29% at the end of 2017. However, starting in 2018, the ratio sharply declined, reaching 11% at the end of 2018, 4% at the end of 2019, and 7% at the end of the third quarter of 2020.

Additionally, the company’s performance indicators have also declined significantly over the past two years.

In 2019, Jiecheng Co. reported its first loss since listing, with revenue of RMB 3.65 billion, down 28.3% year-on-year; net profit attributable to shareholders was a loss of RMB 2.38 billion, a decrease of 2641.87%.

On the evening of January 29, 2021, Jiecheng Co. issued a performance forecast for 2020, estimating a net loss of RMB 330 million to RMB 480 million, mainly due to extended receivables collection cycles from downstream customers and an estimated asset impairment provision of RMB 680 million to RMB 830 million.

This forecast drew a supervisory inquiry from the stock exchange. On February 1, 2020, the Shenzhen Stock Exchange GEM Management Department issued a notice requesting Jiecheng Co. to supplement details regarding the provision for bad debts on accounts receivable, including customer names, amounts, formation time and reasons, aging, previous provisions, and any significant changes in provisioning methods; details of other assets expected to be impaired, including the timing of impairment signs, basis, and reasonableness of the impairment estimates; and the adequacy and reasonableness of provisions in previous periods and the current period.

Jiecheng Co. responded that in 2020, it made asset impairments totaling RMB 680 million to RMB 830 million, including bad debts of RMB 150 million to RMB 190 million for dramas such as “Huo Qubing” and “A Good Show,” and inventory impairments of RMB 300 million to RMB 340 million (including RMB 270 million to RMB 300 million for film and television inventory and RMB 30 million to RMB 40 million for technology segment inventory).

Suspense over content cooperation in education

Jiecheng Co. was listed on the GEM in 2011. Its main business rapidly expanded from initial audio-visual technology to include film and television content production and distribution, new media copyright operations, and digital education. In digital education, Jiecheng Co.'s partners include iQIYI, Youku, Tencent, Xiaomi TV, and Huawei Video’s education channels.

In its 2019 annual report, Jiecheng Co. stated that its digital education business developed rapidly, being promoted and piloted in primary and secondary schools in over forty cities. The Jiecheng Smart Education Cloud Platform integrates education management, campus teaching, online learning, and parent-school collaboration, covering more than 6,000 primary and secondary schools, serving nearly 10 million teachers, students, and parents with regular, intelligent teaching services.

Zhao told the reporter that the Beijing education company mentioned above has long been a partner of Jiecheng Co. in digital education. The loan agreement between them states that if Jiecheng Co. defaults on repayment, Jiecheng Co. and its wholly owned subsidiary Xinjiang Juxiu agree to expand the “mobile intelligent terminal education field exclusive cooperation” stipulated in the Content Cooperation Agreement to “education field exclusive cooperation.”

If the loan defaults, will Jiecheng Co. lose its exclusive rights to use the education content? Will cooperation agreements with companies like iQIYI, Tencent, Huawei need to be renegotiated? A relevant person from Jiecheng Co.'s Board Office did not respond and said the matter is handled by the company’s legal department.

(Per the interviewee’s request, Zhao Quan’s real name is used in the article.)