On September 17th, ST Red Sun (000525.SZ) issued an announcement stating that the Intermediate People's Court of Nanjing, Jiangsu Province (hereinafter referred to as "Nanjing Court") has ruled to accept the company's bankruptcy reorganization application, and the company is about to undertake reorganization.

The reporter noted that this stems from ST Red Sun's inability to repay the debt to Nanjing Taihua Chemical Co., Ltd. (hereinafter referred to as "Nanjing Chemical"), which led to the latter applying to the court for the bankruptcy reorganization of ST Red Sun. In response, a person from the securities department of ST Red Sun told the reporter that although the company's main business has been operating normally, the occupation of company funds by the controlling shareholder and its related parties has become the main problem faced by the company, and subsequent developments will be based on announcements.

The announcement issued by ST Red Sun shows that as of August 31, 2024, the balance of non-operational fund occupation by its controlling shareholder, Nanjing First Pesticide Group Co., Ltd. (hereinafter referred to as "Nan Yi Nong Group") and related parties to ST Red Sun was 28.83 billion yuan.

Reorganization in Progress

After two years of waiting, the ST Red Sun incident finally ushered in substantial progress.

On September 17th, ST Red Sun announced that it had received the Civil Ruling (2024) Su 01 Bankruptcy No. 20 from the Nanjing Court on September 13, 2024, ruling to accept the reorganization application of the applicant Nanjing Chemical against the company. At the same time, the stock of ST Red Sun will be subject to delisting risk warning treatment on September 19th, and the stock abbreviation will be changed to "*ST Red Sun", while the stock code remains unchanged.

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As early as September 16, 2022, ST Red Sun received the Notice (2022) Su 01 Bankruptcy Application No. 62 and the Reorganization Application from the Nanjing Court. Nanjing Chemical applied to the Nanjing Court for the reorganization of ST Red Sun on the grounds that ST Red Sun could not repay the due debt and obviously lacked the ability to repay, but still had reorganization value, and applied to start the pre-reorganization procedure first.

Subsequently, on November 9, 2022, the Nanjing Court decided to start the pre-reorganization procedure for ST Red Sun and appointed Jiangsu Century Tongren Law Firm as the pre-reorganization administrator of ST Red Sun, clarifying the responsibilities of the administrator.

Entering 2023, the reorganization work of ST Red Sun further progressed. On July 28th, Hubei Tongfu Venture Investment Management Co., Ltd. was determined through selection as the pre-reorganization strategic investor of ST Red Sun. On November 29th of the same year, Gongqingcheng Sheng Heng Investment Management Co., Ltd., Guo Hou Asset Management Co., Ltd., Shenzhen China Merchants Ping An Asset Management Co., Ltd., and Beijing Boya Chunya Investment Co., Ltd. were determined through selection as the pre-reorganization financial investors of ST Red Sun.

However, on February 21, 2024, ST Red Sun disclosed the "Announcement on the Change of Pre-Reorganization Strategic Investor", announcing that the reorganization strategic investor was changed to Qujing High-tech Industrial Development Zone Construction Investment Co., Ltd. (hereinafter referred to as "Qujing High-tech").On the evening of February 23, 2024, ST Red Sun disclosed the "Announcement on Signing the 'Letter of Intent for Strategic Restructuring Investment'". According to the announcement, ST Red Sun has signed the "Letter of Intent for Strategic Restructuring Investment" with Qujing High-tech and the pre-restructuring administrator.

In the aforementioned agreement, Qujing High-tech has committed to participate in the restructuring process of ST Red Sun as an intended strategic investor and to make a strategic investment in ST Red Sun under the condition of meeting the prerequisites for restructuring investment, with the strategic investment amount being approximately 600 million yuan. This investment aims to help ST Red Sun resolve related debts and historical issues, achieving sustainable and high-quality development.

Furthermore, Qujing High-tech will also provide investment funds to support ST Red Sun in addressing issues during the restructuring process. The prerequisite for the restructuring investment is that ST Red Sun agrees to invest in, construct, and operate the industrial investment attraction project in Zhanyi District, Qujing City, Yunnan Province, namely the "Qujing Red Sun Life and Health Industrial Park Project".

Funds Occupied

In fact, the main reason for ST Red Sun's inability to repay due debts is the misappropriation and difficulty in recovering more than 2.8 billion yuan of funds on its books.

Audited as of April 29, 2024, the balance of funds occupied by Nan Yi Agricultural Group and its related parties in ST Red Sun amounted to 2.884 billion yuan, accounting for 328.17% of the company's most recent audited net assets.

From the disclosure of ST Red Sun's 2023 annual report to August 31, 2024, verified by the financial department of ST Red Sun, Red Sun Group Co., Ltd. (a related party of Nan Yi Agricultural Group) has repaid 1.327 million yuan of occupied funds to ST Red Sun.

It is worth noting that Nan Yi Agricultural Group has currently entered the bankruptcy restructuring process.

In response, ST Red Sun stated that the company continues to pay attention to the implementation of the restructuring plan of Nan Yi Agricultural Group, understands and follows up on the assets, liabilities, and operating conditions of Nan Yi Agricultural Group and its related parties. Through regular correspondence or on-site inquiries, the company urges Nan Yi Agricultural Group and its related parties to implement the repayment plan, urges them to repay the occupied funds on time as soon as possible, and eliminate the impact on the company. Currently, the restructuring plan of Nan Yi Agricultural Group has been ruled by the court and is in the execution stage, with relevant parties actively rectifying.

At the same time, ST Red Sun also stated that the company and its directors, supervisors, and pre-restructuring administrators are actively promoting the judicial restructuring work. The company will thoroughly resolve the issue of fund occupation through feasible methods such as debt forgiveness, debt offset, and cash compensation by restructuring investors.Performance Rebounds

Despite facing a debt crisis and operational pressures, ST Red Sun, as a veteran agricultural chemical enterprise, still demonstrates a certain "blood-making" capability.

ST Red Sun is a listed company specializing in the scientific research and manufacturing of green pesticides and their upstream and downstream "three drugs" intermediates, with main products including pyridine alkali, glyphosate, and paraquat.

Looking back at history, from 2019 to 2021, ST Red Sun suffered consecutive net losses attributable to the mother company for three years, with a loss of up to 3.7 billion yuan in 2021.

However, it is worth mentioning that ST Red Sun still achieved a revenue of 4.683 billion yuan in 2021, a year-on-year increase of 16.44%, and a net profit attributable to shareholders after deducting non-recurring gains increased by 5.54% year-on-year.

Regarding the loss in 2021, ST Red Sun analyzed that the company provided for various asset impairments and expected liabilities totaling 3.529 billion yuan (among which: provided for other receivables impairments due to the occupation of funds by the controlling shareholders and their related parties 1.879 billion yuan, accounts receivable impairments 49 million yuan, long-term receivables credit impairments 40 million yuan, inventory depreciation impairments 54 million yuan; provided for expected liabilities due to related guarantees and unresolved litigation 1.507 billion yuan).

However, in 2022, ST Red Sun's performance rebounded significantly. That year, ST Red Sun achieved a revenue of 6.44 billion yuan, a year-on-year increase of 37.51%, and a net profit attributable to the mother company's shareholders of 732 million yuan, a year-on-year increase of 119.56%.

In 2023, it was another challenging year for ST Red Sun. Affected by the continuous downturn in the market, the intensification of geopolitical conflicts, and the cash flow crisis, its performance was hit again, with a net loss of 389 million yuan.

A person from an agricultural chemical listed company told the reporter that the domestic market is facing pressure, and the supply side has entered the production period of a new round of capacity expansion. Coupled with the high prosperity of the industry in the previous two years, which attracted some cross-border investments, resulting in large-scale capacity in 2023, the competition is fierce. In addition, India's pesticide manufacturing industry has risen rapidly in the past two years, and the export share continues to expand, bringing challenges to domestic enterprises and related products.

However, starting from the first half of 2024, ST Red Sun once again showed a recovery momentum. Financial report data shows that during the period, it achieved a revenue of about 1.642 billion yuan, a year-on-year increase of 2.49%; the net profit attributable to the listed company's shareholders was about 21.23 million yuan, a year-on-year increase of 17.81%.ST Red Sun explained that the dual growth in revenue and net profit is mainly due to the steady increase in the company's main business of pesticide sales, which also reflects the improvement of the company's continuous operation and profitability in a complex market environment.

The aforementioned ST Red Sun securities department staff told reporters that at present, the company's main business operations are normal.

Regarding the current competition pattern in the agricultural chemical market, Zhuochuang Information analyst Liu Xin pointed out that high-barrier enterprises have obvious advantages, the elimination of low-end production capacity is accelerating, and technological innovation and differentiated competition have become development trends. In this regard, Liu Xin suggested that agricultural chemical companies should strive to improve technology and product quality, and develop differentiated in the sub-markets.

Looking forward to the second half of the year, Liu Xin expects that the demand for most raw materials may have a good expectation, market demand may increase, and the support from the cost side may be enhanced. Holders have a strong desire for price increases, the raw material market may be stable and slightly strong, and the profitability is expected to be repaired.

ST Red Sun also stated that with the recovery of the global economy, the demand for recovery growth combined with environmental protection and other factors, China's pesticide industry is showing a situation of "both price and quantity are rising", reflecting that China's pesticide industry has entered a trend of overall prosperity, and the market outlook is optimistic.