Every Daily Hot Comment | Local state-owned assets "protecting the calves" of local listed companies should not focus only on appearances and neglect substance

Every reporter: Du Hengfeng Every editor: Huang Sheng

Every commentator Du Hengfeng

On March 24, ST Lingnan announced that the company’s current monetary funds are unable to repay Lingnan convertible bonds, and the principal and interest of these bonds cannot be paid on time. Rating agency United Ratings downgraded the company’s long-term credit rating to C and lowered the credit rating of “Lingnan convertible bonds” to C. At the same time, ST Lingnan again reminded that the company faces multiple risks, including significant impacts on its main business, poor collection conditions, a high debt-to-asset ratio, declining profitability and debt repayment capability, liquidity pressure, and the risk of stock delisting due to “wearing stars.”

The crisis facing ST Lingnan has long been apparent. In 2020, the company reported a massive loss of 452 million yuan. Although it turned a profit in 2021, it suffered another huge loss of 1.585 billion yuan in 2022. Among them, the net profit attributable to the parent company for the first three quarters of 2022 was a loss of 427 million yuan, and cash outflow from operating activities also saw a large outflow of 313 million yuan, while the company’s cash reserves were only 648 million yuan, with a debt-to-asset ratio climbing to 71%, current liabilities approaching 10.6 billion yuan, and accounts payable reaching 6.08 billion yuan.

Just as the operating situation deteriorated sharply, in September 2022, ST Lingnan’s controlling shareholder and actual controller Yin Hongwei and others signed a share transfer agreement with Zhongshan Huaying, a company under the management committee of Zhongshan Torch High-tech Industrial Development Zone. Zhongshan Huaying acquired 5% of ST Lingnan’s total share capital for 302 million yuan, while Yin Hongwei also entrusted the voting rights corresponding to 17.32% of the company’s total share capital to Zhongshan Huaying. The actual controller of the listed company changed from Yin Hongwei to the Zhongshan Torch High-tech Industrial Development Zone Management Committee, completing state-owned capital entry.

The “small shareholding + voting rights” model is quite common in the transfer of control of listed companies, as this design reduces the financial pressure and risks for the acquirer, creating more room for subsequent capital operations. However, for state-owned enterprises in Zhongshan, taking over ST Lingnan is not a short-term financial investment, but rather to assist it in overcoming operational difficulties and ensuring sustainable operations.

To address ST Lingnan’s severe funding shortage, the state-owned capital provided 1 billion yuan in related loans, and the state-owned platform also offered 224 million yuan in financing guarantees. Even after the Lingnan convertible bonds became the first state-owned convertible bonds to default in September 2024, the state-owned side purchased 1.4614 million “Lingnan convertible bonds” to mitigate the risk of default and stabilize creditor confidence. In total, the state-owned capital’s exposure to ST Lingnan has exceeded 1.6 billion yuan.

Currently, ST Lingnan has a total market value of 3 billion yuan, while the state-owned shareholding ratio is only 5.62%, corresponding to a market value of less than 170 million yuan. However, the state-owned capital’s risk exposure to ST Lingnan is far higher than its shareholding ratio, bearing responsibilities beyond its equity proportion. More critically, state-owned capital rescue cannot change the reality of ST Lingnan’s operational deterioration.

In 2023 and 2024, ST Lingnan reported losses of 1.092 billion yuan and 984 million yuan, respectively, and in the first three quarters of 2025, it lost another 200 million yuan. Due to uncertainties in continued operational capability, the auditing firm issued a qualified opinion on the 2024 annual report. The company also expects its net assets at the end of 2025 to be negative, and after the disclosure of the 2025 annual report, its stock will be subject to delisting risk warning, i.e., “wearing stars and hats.”

ST Lingnan’s registered address is located in the Torch Development Zone of Zhongshan City, and the local state-owned capital’s rescue efforts have some rationale—being listed is itself a scarce resource, which has a positive impact on local investment promotion, financing, and driving upstream and downstream economic development. Many places also use the number of listed companies and market value as important promotional indicators of local competitiveness.

However, whether for listed companies or non-listed companies, rescue efforts must first answer two questions: First, is it possible to succeed in the rescue? Second, can the costs of the rescue be borne?

In the third quarter of 2022, there was a possibility of successful rescue for ST Lingnan, as the company still had a large amount of accounts receivable and contract assets on its books. As long as these assets can be revitalized, the enterprise has a chance to return to normal operations. However, by the third quarter of 2024, with serious issues such as convertible bond defaults and the original actual controller’s illegal appropriation of funds, the possibility of successful rescue has significantly decreased, and the risk of not recovering continuously invested funds has also increased. At this point, it is more appropriate to stop losses in a timely manner rather than continue investing.

The “face” of the number of listed companies is indeed important, but the “substance” of state-owned capital preserving and increasing value is even more crucial. To preserve and increase the value of state-owned capital, market rules must be respected. Ignoring the quality of the enterprise itself and “protecting local companies” merely delays the exposure of enterprise risks. In recent years, many local state-owned capitals have also acquired control of listed companies through “small shareholdings,” but after taking control, if the risk exposure of the listed company cannot achieve the preservation and increase of state-owned capital, then decisively stopping losses is a more rational option.

Daily Economic News