Still trapped after 10 years of investment, a well-known private equity firm sues an A-share company for over 430 million yuan! The request was rejected in the first instance, and they also have to bear a case acceptance fee of 2.2 million yuan.

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A well-known private placement fund subscribed to an上市 company’s private placement, but suffered a major loss afterward; a feud lasting 10 years has now reached a phased conclusion.

On April 3, Shangshi Development (600748) issued an announcement stating that the company recently received a Civil Judgment from the Shanghai Financial Court. The court held that the causal relationship between the plaintiff’s (Meishan Junzheng) investment decision and the alleged false disclosures in the transaction in question does not hold, and the plaintiff is not entitled to demand that the defendant (Shangshi Development) compensate its investment losses. The court’s first-instance ruling: dismiss all of Meishan Junzheng’s claims in the lawsuit; the case acceptance fee of 2.2001 million yuan shall be borne by Meishan Junzheng.

According to the first-instance judgment, at this stage it will not have a negative impact on the company’s profit or loss. However, since the lawsuit is still within the statutory appeal period and the judgment has not yet become effective, the impact on the company’s current-period profit or future-period profit remains uncertain.

Tianyancha shows that Meishan Junzheng appoints Junzheng Capital as its executive affairs partner. In addition, according to information from the China Securities Investment Fund Industry Association, the actual controller of Junzheng Capital is Guotai Junan Investment Management Co., Ltd.

The announcement states that the case stems from Shangshi Development’s non-public offering of shares in 2015. As the subscriber at the time, Meishan Junzheng filed a lawsuit with the Shanghai Financial Court in September 2024, citing a contract dispute, requesting the court to order Shangshi Development to compensate it for the total investment principal loss and interest loss of 801 million yuan, and to repurchase the shares of Shangshi Development it held, among other requests. Later, the case’s cause of action was adjusted to a dispute over liability for securities false statements, and the amount of the claims was reduced from approximately 801 million yuan originally to approximately 431 million yuan.

In January 2016, Shangshi Development completed the non-public offering. It issued 336 million shares at a price of 11.63 yuan per share, raising 3.9B yuan. Among them, Meishan Junzheng subscribed 51.47M shares for 599 million yuan. In October 2016, Shangshi Development converted capital surplus into share capital for all shareholders by increasing shares by 3 shares for every 10 shares. As a result, Meishan Junzheng’s shareholding increased to 66.9084 million shares.

On January 22, 2019, the above-mentioned shares held by Meishan Junzheng in Shangshi Development were unblocked and became eligible for trading. At that time, Shangshi Development’s stock price was only around 5 yuan per share. After that, the listed company’s stock price surged at one point, reaching above the 12-yuan mark in late April 2019, but afterward it fell into a pattern of volatility and downward movement.

In late October last year, Shangshi Development’s stock price rebounded to above 8 yuan per share. Together with dividends accumulated over many years of more than 4.72B yuan (including tax), Meishan Junzheng’s unrealized loss narrowed significantly. However, the company did not reduce its position.

Based on the closing price of Shangshi Development as of April 3 of this year (4.69 yuan per share), Meishan Junzheng’s market value of its shareholding is estimated at about 314 million yuan.

During that period, a fraud case involving a subsidiary of Shangshi Development was exposed. According to findings by regulators, Shangshi Development’s former controlling subsidiary Shangshi Longchuang had inflated revenue by 4.722 billion yuan over 6 years and inflated total profit by 614 million yuan.

Meishan Junzheng stated that in 2015 it signed the “Share Subscription Contract for the Non-Public Issuance of Shares by the Company” and relevant supplemental agreements with Shangshi Development. One of the acquisition targets of that private placement project was Shangshi Longchuang. Meishan Junzheng believes that, according to the relevant administrative penalty documents, Shangshi Development failed to disclose the issuance information truthfully, and it should bear the actual losses it suffered caused by the false information disclosure.

In its defense, Shangshi Development raised multiple arguments, including that the plaintiff, as a professional investor, made an investment decision not based on reliance on the information in question; that the relevant appraisal and forward-looking information does not constitute a false statement; that the information disclosure content is not material; that there is no causal relationship between the investment decision and the information disclosure content, and so on.

After trial by the Shanghai Financial Court, the court held that the causal relationship between the plaintiff’s investment decision and the alleged false statements in the case does not exist. Therefore, the plaintiff is not entitled to request compensation for its investment losses. Pursuant to relevant regulations, the court ruled to dismiss all claims of the Junzheng partnership enterprise, and the case acceptance fee of 2.2001 million yuan shall be borne by the plaintiff.

(This article does not constitute any investment advice. Any risks arising from actions taken based on it shall be borne by the person taking such actions.)

Editor Sun Zhicheng

Based on publicly available information, Securities Times, and others

Cover image courtesy of IC photo (text and image unrelated)

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