21st Century Business Herald reporter Zhao Yunfan reports

On the evening of November 8, Sanhua Intelligent Control (002050. SZ) announced that the Shenzhen Stock Exchange has approved the company's withdrawal of the company's application for issuing global depositary receipts (GDRs) in Switzerland and increasing the number of A-share underlying shares.

This also means that Sanhua Intelligent Control has become the first company in the A-share market to announce the termination of GDR issuance after half a year. The company that previously announced the termination of GDR issuance was Oriental Fortune (300059.SZ).

It is reported that Sanhua Intelligent Control began to plan for GDR issuance as early as 2022, and is one of the A-share listed companies that applied for GDR issuance earlier.

In December 2022, the company's GDR issuance was accepted by the China Securities Regulatory Commission; In June 2023, the company released the GDR issuance plan for the first time, and since then, it has continued to update the sponsorship materials for GDR issuance, and even changed the implementation entity of the GDR issuance fund-raising project in the middle of the process.

After more than two years of preparation, Sanhua Intelligent Control abandoned the GDR issuance, and the GDR review speed slowed down, causing companies seeking to quickly expand their business scale to explore other direct financing methods.

"In previous years, when the speed of GDR issuance and approval was relatively fast, the enthusiasm of major enterprises to participate was relatively strong," a Shanghai brokerage sponsor told the 21st Century Business Herald reporter: "Since GDR can be directly converted into A-shares after the expiration of the conversion restriction period, it is equivalent to A-share refinancing in another market, so the issuance of GDR was favored by many domestic and foreign institutions at that time." ”

However, under the policy patch of the regulator last year, GDR issuance as a means of refinancing no longer enjoys the advantages of a green channel compared with other means. From the perspective of issuance review, the business scale of GDR issuers, including the origin of issuance to help enterprises meet overseas layout requirements and business development needs, has also become clearer in the new regulations.

"Both companies and investors want to speed up the process, and companies that abandon GDRs will generally refinance in other ways," the person said.

The H-share IPO replaces the GDR issuance

"In view of the changes in the internal and external environment and other factors, the company has decided to terminate the overseas issuance of GDRs in light of the actual situation and after in-depth discussion and careful analysis with relevant intermediaries." Sanhua Intelligent Control mentioned in the previous termination announcement.

In the recent investigation of the company by financial institutions, Sanhua Intelligent Control made it clear that the company is planning to issue H shares, which is suspected to replace the GDR issuance plan and be used for the funds required for investment in multiple projects.

For Sanhua Intelligent Control, the implementation of overseas direct financing is closely related to the company's overseas production capacity layout plan.

In the past decade, Sanhua Intelligent Control has focused on global layout and has successively set up factories in Mexico, Poland, Vietnam and India. In the North American market, the company has successively laid out two business branches in Mexico, Sanhua Micro Channel and Sanhua Auto Zero, completing an in-depth layout for the car wash industry chain in Mexico.

With the development of major customers in North America in recent years, including the plans of major domestic car companies to go overseas in North America, Sanhua Intelligence also plans to increase investment in Mexico.

According to the previous GDR issuance plan, the company plans to raise 5 billion yuan through GDR, and invest the raised funds into 7 projects, including "Sanhua Mexico with an annual output of 8 million sets of intelligent thermal management components", "Sanhua Poland auto parts production line project", "European technology center project", "Thailand heat exchanger project", and replenish liquidity.

After the disclosure of the termination of the GDR, Sanhua Intelligent Control still stated in the investor relations record that in view of the orders and scale in hand, the company's production capacity has been planned for the next three years, and it continues to plan to increase investment in Mexico, Poland and other regions.

In terms of overseas revenue, Sanhua Intelligent Control will achieve overseas operating income of 5.865 billion yuan, 7.908 billion yuan, 9.932 billion yuan and 11.15 billion yuan respectively from 2020 to 2023, accounting for nearly half of the total revenue.

Transformation of the GDR ecosystem

Sanhua's cancellation of GDR issuance is not unique.

According to the reporter's statistics, since the beginning of this year, there have been a number of people including Foster (603806. SH), Dongpeng Beverage (605499. SH), Sichuan Road and Bridge (600039. SH), Sany Heavy Industry Co., Ltd. (600031. SH), Thundersoft (300496. SZ), Oriental Wealth, and Sanhua Intelligent Holding terminated the termination of overseas issuance of global depositary receipts.

The frequent termination of GDR issuance began in June 2023, with four companies, including Bethel, Jereh and Aiko, all announcing the termination of GDR issuance in just two weeks after June 12. Subsequently, from July to December 2023, five more A-share companies announced the termination of GDR issuance.

At present, the GDR issuance approvals of enterprises, including Guolian Securities, have expired one after another, and the number of cases of stopping GDR issuance may continue to increase.

From the perspective of issuance, since the beginning of this year, only JinkoSolar (688223. SH), Sungrow (300274. SZ) two listed companies have newly disclosed the issuance of GDRs, and the trend of net reduction in GDR queues seems to have been cast.

The

improvement of the GDR issuance policy and the transformation of the GDR issuance ecosystem began in the middle of last year.

In May 2023, the China Securities Regulatory Commission (CSRC) issued a new version of the Regulatory Guidelines for the Issuance of Overseas GDRs, which stipulates the positioning, application procedures, application of rules, and material requirements for overseas issuance of GDRs by domestic listed companies, and clarifies that the issuance of new domestic underlying shares of GDRs will be subject to registration management, and the exchange will review them with reference to the procedures for listed companies to issue securities to specific targets.

In the following July, in order to further regulate the overseas issuance of GDRs by domestic listed companies, the Shanghai and Shenzhen Stock Exchanges respectively issued new versions of the Interim Measures for the issuance and listing of GDRs. Among them, it clarifies the review arrangements for the application for the issuance and listing of new underlying shares in the GDR, and strengthens the supervision of information disclosure in the whole process.

With the implementation and improvement of the two provisions, GDR issuance has begun to pay more attention to the qualifications of applicant enterprises and the compliance of applications. Under a more comprehensive review, GDR issuance has slowed down the pace, the number has become smaller, and the cycle has become longer since the green channel for refinancing.

From the perspective of the timeline, the GDR projects that will be terminated after June 2023 are mainly withdrawn due to the insufficient scale of the enterprise and the issuance conditions, or the supply and demand structure of the industry's production capacity, or the lack of plans for global layout.

or to protect the liquidity of A-shares

From the perspective of enterprise qualification, Sanhua Intelligent Control has a high degree of global layout, the market value of the enterprise is nearly 100 billion, the project investment is in line with the laws of the industry, and the company did not revise the GDR prospectus until September 26 this year, so the company gave up the GDR issuance, which is not comparable with the enterprises subject to the new regulations on GDR issuance.

So what is the reason why Sanhua Intelligent Control abandons the GDR issuance?

It is worth noting that in August last year, Sanhua Intelligent Control mentioned in its announcement of the GDR issuance review feedback that the regulator required the company to clarify and analyze the possible impact of the conversion of depositary receipts into A-shares after the GDR issuance.

In terms of mechanism, after the expiration of the lock-up period, the GDR can be converted into A-shares in the agreed proportion and sold at auction from the A-share secondary market, which is similar to IPO, private placement and other financing models. Generally, the lock-up period for non-controlling shareholders to subscribe for GDR shares is 120 days, and the lock-up period for controlling shareholders to subscribe for shares is 36 months.

According to the issuance information, the A-shares of the new underlying securities represented by the issuance of Sanhua Intelligent Control GDR amounted to about 6.43% of the company's total share capital.

Since the total shareholding ratio of the company's controlling shareholder Sanhua Holding Group Co., Ltd. and its affiliates reaches more than 45%, once the GDR expires and is converted into A-share tradable shares, its increase in the actual tradable shares of A-shares will be more than 10%, which will pose a certain pressure on the company's stock liquidity.

In contrast, the issuance of H shares by the company does not constitute an increase in the number of outstanding A shares, which avoids the liquidity problem of the shares.

Including the previous Sanhua Intelligent Control has completed a round of A-share share repurchase plan, the number of repurchases accounts for about 0.37% of the total share capital.

In fact, in order to protect the pressure of additional issuance and refinancing on market liquidity, the number of additional issuances issued this year has decreased sharply compared with last year.

According to Choice statistics, in 2023, the number of private placement cases successfully issued by all A-share companies will be 331, but as of November 8, the number of A-share private placement cases successfully issued in 2024 will be 115, a sharp decrease of nearly two-thirds.