NVC Intertwined Bureau: Safran is suspected of "related party transactions" dispute

NVC Lighting (02222.HK)'s "related transactions" are bothering more people. On July 29, people who supported the return of Wu Changjiang (microblogging) provided information that Safran Asia Fund (microblogging) held more than 15% of the shares in Chongqing and Guangdong, and did not Avoid when the board of directors votes on connected transactions.

According to the verification data of the industrial and commercial departments, in the ownership structure of the affiliated companies of the two places, NVC has a certain share of the three major interests in the current stalemate. Among them, Wu Changjiang and some management still hold related companies; Safran Asia Fund holds about 16%-19% of the shares; several of the controllers of the operation centers of NVC participating in the establishment of new brands also have different shares.

Because of these shareholdings, Safran and dealers are also required to see whether they have any eligible arrangements, agreements or commitments in the specific transaction. This is subject to the confirmation of the HKEx, but outside the NVC listed company. The related assets are being viewed by the parties in the dispute as the weight of mutual attack.

Previously, it was believed that the current chairman of NVC was opposed to Wu Changjiang's excessive related transactions in accordance with the listing rules. In fact, the main object of criticism (project) is not the company in which Safran has an equity.

Related party transactions (SEHK language, similar to the mainland "affiliated transactions") has been the focus of disputes. The teleconference between the directors last week did not solve the problem of Wu Changjiang returning to the board of directors and Schneider management's withdrawal. At that time, the attitude was that the Hong Kong Stock Exchange was still concerned about Wu Changjiang’s related party transactions and case investigations because of outside doubts. At this time, the return of Wu was a factor of corporate instability.

Controversial pricing and transfer

The disputes of Safran suspected of related party transactions mainly include Chongqing Enlin Electric Co., Ltd. (hereinafter referred to as “Chongqing Enlin”), its shareholder Huizhou Enlin Electric Co., Ltd. (hereinafter referred to as “Huizhou Enlin”), Zhongshan Shengdi Aisi Lighting The equity transfer of the three companies of the limited liability company (hereinafter referred to as “Shengdi Ai Si”) and the transaction pricing with the listed company.

In NVC Lighting's listing prospectus, all three companies are considered to be Wu Changjiang's associates (SEHK terms, related parties or affiliates) holding. Certain transactions between listed companies and their transactions, or the transfer of interests in the three companies, are considered as connected transactions. Since the price is below the certain limit of the HKEx, the relevant transaction needs to be approved by the board of directors in the case of Wu Changjiang's withdrawal.

After the listing of NVC in 2010, the related transactions subject to the terms of the connected transactions mainly involved three categories: one was the brand use right granted by the listed company, the three companies paid the usage fee of 3% of the sales; the other was the three companies' products borrowed from the listed company. Channel distribution, paying a management fee of 6%-8% of sales (Chongqing Enlin signed the above two agreements in a later period than Shengdi Ai Si); Third, Huizhou Enlin transferred its equity in Chongqing Enlin to a group of natural persons. Chongqing Enlin transferred some of its assets to Schneider Electric and other two transactions.

Among them, Safran has interests in these companies, but its undisclosed information in the listed company documents includes: it passed the former managing director Zhao Yanchao (later transferred to vice president Yang Jianwen) and obtained the transfer of Huizhou Enlin to Chongqing Enlin. 16.8% of the shares, Zhao Yanchao (later transferred to Yang Jianwen) holds a 19.7% stake in Shengdi Ai.

In terms of brand usage rights and distribution commissions, a lighting company source pointed out that NVC Lighting also collects models of brand and distribution commissions, which are rarely used by other lighting manufacturers. It is essentially similar to the OEM OEM model, but in this model, the manufacturer only gets a production profit margin of 10%-20%, and the brand and channel owner will get a much higher return.

When NVC Lighting was listed, Wu Changjiang and his associates signed a non-competition commitment. Therefore, if the OEM OEM model is used, it proves that Wu Changjiang also controls the production line related to the products produced by listed companies. The mode of collecting brand usage fees and distribution fees can be conveniently stated in the statement that the products of the affiliated companies do not compete with the products of the listed company.

When the board approves these transactions, Wu Changjiang needs to evade, and another executive director, Mu Yu, will often support his decision. However, with the support of two directors of Safran Fund, Lin and Lin Heping, among the 10 people (including independent directors) who had voting rights at the time, they were still not an absolute majority.

In theory, the board of directors of listed companies had the opportunity to include Chongqing Enlin in the listed companies. However, in another undisclosed equity transfer related transaction, the board of directors neither declared a waiver nor proposed the use of preemptive rights and options.

Zhao Yanchao, the founder of Saifu, won a 16.8% stake in Chongqing Enlin on January 8, 2011. On the same day, Huizhou Enlin transferred 99% of its equity in Chongqing Enlin to a group of natural persons including Zhao. Huizhou Enlin is regarded as a company controlled by Wu Changjiang. In the transaction of transferring equity, the listed company enjoys the right of first refusal and acquisition.

However, before the deal was reached, the listed company did not issue a notice of the board meeting and did not issue a circular to the shareholders stating that they would waive the above rights. After Schneider paid a price of 380 million to purchase a part of Chongqing Enlin's assets, the board of directors announced that it would waive the purchase and option. Our reporter failed to interview Chongqing Enlin shareholders whether they have received the proceeds from the transaction premium.

A lawyer from a foreign-invested law firm said that since Safran’s shareholding in Chongqing’s Enlin and Shengdi’s Ace is less than 30%, the two companies are generally not considered to be contacts of Safran. “But we generally advise clients to disclose such relationships.”

Since the weekend, people who support Wu have told this reporter that Safran is not negating all related transactions, but it often obtains the equity of the affiliated company (with the commitment) before agreeing to take the lead in the board of directors. Or acquiesced in similar transactions.

Big distributor's interest arrangement

Among the above-mentioned related assets, the interest arrangements of the NVC dealers (the actual controller of the operation center) have finally emerged. The latest industrial and commercial information shows that at least 21% of Chongqing Enlin's equity belongs to the operation center controller Wang Xiaobo (20%) and Ye Yong (1%); and the shareholders of Shengdi Ai Division also have two operation centers controlled by Zhu Shankuan and Li Guanyu. people. In another major affiliate, Chongqing Enweixi Industrial Development Co., Ltd. (hereinafter referred to as “Chongqing Enweixi”), Ye Yong also holds a 6% stake.

According to the multi-party sources, Wang Xiaobo controls Jiangsu's operating center with the highest sales volume through Jiangsu Chuangyijia Trading Co., Ltd.; Ye Yong is the actual controller of the operation centers in Sichuan and Xinjiang; Zhu Shankuan is controlled by Shanxi Operation Center. Li Guanyu is the controller of the Yunnan Operation Center and is regarded as the leader of the distributors to jointly set up a new brand.

NVC has 36 operations centers in mainland China, through which it manages more than 3,000 retail stores. In the stock offering statement, these centers establish business relationships with listed companies through exclusive sales agency agreements, but they are themselves controlled by different controllers. NVC has signed a sales agreement with one year. The agreement mainly stipulates the sales tasks of the current year, and clarifies how much the operating center can float sales around the reference price.

Since the OEM or OEM products of Chongqing Enlin, Shengdi Ai and Chongqing Enweixi are also sold through the operation center, the operation centers associated with these companies may be more inclined to sell the products of these affiliates instead of Products manufactured on the production line of listed companies. These operations centers may also reach Wu Changjiang's sales conditions or credit-to-credit policies superior to those of other operations centers.

A lawyer from a foreign-invested law firm in Hong Kong analyzed: “Based on existing information, the dealer (operating center) should not be a related person unless the 14A.11(4) of the Listing Rules is invoked.” In the eyes of the Stock Exchange, Wu There is an arrangement between the Yangtze River and the dealer, which is sufficient for the Stock Exchange to believe that the dealer is a related person, and then the dealer may also be identified as a related person.

If Wu Changjiang or his associates hold more than 30% of the equity in the operations center, these dealers will become affiliates of NVC Lighting. Our reporter called Ye Yong and the legal representative of Chongqing Enlin, Xiong Dayong. The two did not answer the relevant questions positively. The reporter interviewed the other three operators of the operation center, all said that they did not know much about this arrangement, but claimed that Wu Changjiang did not hold shares in its operation center.

The equity of large distributors may also affect the establishment of new brands starting last week. The NVC management personnel involved in the exhibition said that the new brand is expected to use the production lines of Shandong NVC Development Co., Ltd., Chongqing Enlin, Chongqing Enweixi, and Shengdi Ai. These companies also have a non-competition commitment to listed companies. Once Wu Changjiang is involved, he can no longer hold more than 10% of the shares in the listed company.

After the dealer meeting on the 27th, the media quoted Li Guanxi as saying that the new brand plan will wait and see for a while. This plan was once seen as a demonstration. A recent letter from NVC Chongqing employees to the board of directors indicates that they will resume their work and the deadline for decision-making on the board of directors will be relaxed until August 10.

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