IPO Observation: Former Parent Company Falsely Reported Refund Amount, Terminated IPO, and Distant Electronics' Independent Listing Raises Capital of $800 Million

Shaoxing Distant Electronics Co., Ltd. (hereinafter referred to as "Distant Electronics") was once a wholly-owned subsidiary of Shaoxing Lijun Technology Co., Ltd. (hereinafter referred to as "Lijun Technology"), and together with Lijun Technology, they were striving to enter the A-share market. However, after Lijun Technology's IPO efforts did not achieve expected results, Distant Electronics separated from Lijun Technology and began to operate independently.

In this process, the relationship between Lijun Technology and Distant Electronics also underwent significant changes. They are no longer just a controlling shareholder relationship but have become related companies controlled by the same ultimate controller. This change may have some impact on the business operations and development of both companies.

Currently, Distant Electronics has disclosed its inquiry response opinions for its listing on the Growth Enterprise Market (GEM). Although from a shareholding perspective, Distant Electronics has achieved relative independence from Lijun Technology, whether Distant Electronics has the ability to operate independently still needs further observation and evaluation. At the same time, Distant Electronics' total assets began to shrink after separating from Lijun Technology, but its capital raised is not significantly different from that of Lijun Technology.

　　One: Former Parent Company Terminates IPO, Marriage After Divorce Still Needs to Listen to the "Old Wife's" Words

Distant Electronics is a company engaged in the research and development, production, and sale of embedded board cards, CAN-bus communication products, testing and measuring instruments, etc. Its main customers are in the fields of new energy vehicles, photovoltaic energy storage, smart manufacturing, medical devices, etc.

Distant Electronics was once a wholly-owned subsidiary of Lijun Technology, which had also experienced an IPO process. During the IPO process, Lijun Technology was exposed to having falsely reported refund amounts to its largest supplier NXP, which led to the company returning 2,766.03 million yuan and 2,724.40 million yuan in advance payment.

Under various circumstances, Lijun Technology withdrew its IPO application. Three years later, in 2022, based on business and development strategies, Distant Electronics began to operate independently and listed on the stock market.

As for the equity structure, Distant Electronics adopted a series of dilution operations. First, it reduced its stake in Lijun Technology and Guangzhou Suifang Co., Ltd. to reduce its holding ratio. Then, the largest shareholder of Lijun Technology acquired the same proportion of shares as Distant Electronics, which adjusted the shareholders' equity ratios.

According to the prospectus, as of the signing date, Zhou Ligong and Chen Zhiren had signed a consensus agreement, respectively holding directly 35.81% and 31.84% of Distant Electronics' shares, and indirectly holding 2.68% and 6.63% of the company's shares through their holdings in Cherish Investment, Lijun Technology, and Guangzhou Suifang Co., Ltd., totaling 76.96%. The two parties are the controlling shareholders and actual controllers of the company, with Cherish Investment, Lijun Technology, and Guangzhou Suifang Co., Ltd. being the actual controllers' coordinated actors.

Before this IPO, Zhou Ligong and Chen Zhiren were married, both holding permanent residence in Hong Kong. They divorced in March 2022. The above-mentioned consensus agreement was signed before the divorce, stipulating that if the two parties disagreed, Zhou Ligong would follow Chen Zhiren's opinions to convene, propose, and vote.

It is worth noting that from a professional background perspective, Zhou Ligong is undoubtedly more proficient than Chen Zhiren. According to the data, Zhou Ligong graduated from East China University of Science and Technology with a computer science degree and currently serves as the vice chairman of the Guangdong Electronic Institute, vice president of the Guangzhou Software Industry Association, and expert of the Guangzhou Semiconductor Industry Association, while Chen Zhiren graduated from Hunan Education College with a degree in Chinese language literature.

This divorce still requires listening to the "old wife's" words, which has raised concerns at the Shanghai Stock Exchange. In the inquiry process, the Shanghai Stock Exchange directly pointed out the reason for relying on Chen Zhiren's opinions and whether there are other benefits arrangements.

In response to Chen Zhiren's professional background, Distant Electronics replied that Chen Zhiren had co-founded the company with Zhou Ligong in 2001, and has had over 20 years of experience in the industry. During his tenure, he mainly handled the authorization distribution business for Lijun Technology IC products. Additionally, Chen Zhiren has attended various courses on enterprise management at universities such as South China University of Technology, Sun Yat-sen University, and European International Business School.

The reason for relying on Chen Zhiren's opinions was based on the division of labor and roles between the two parties, equal power balance, Chen Zhiren's relevant experience in major decision-making, and Zhou Ligong's respect for Chen Zhiren's opinions, with both parties jointly bearing the responsibility and obligations as actual controllers. There are no other benefits arrangements.

Two: Assets Only Half of Parent Company's, Capital Raised Still Comparable

In this IPO listing, Distant Electronics plans to raise a total of $800 million. This fund will be used for four main projects: the development of new industrial IoT products, EsDA platform upgrades, manufacturing center upgrades, and supplementary working capital.

Among them, the investment amounts for the new industrial IoT product development project and supplementary working capital were 3.21 billion yuan and 2.17 billion yuan, respectively, accounting for a large proportion of the total fundraising.

It is worth noting that Distant Electronics, as a former subsidiary of Lijun Technology, has experienced three years of adjustment and its net assets are only half of those of Lijun Technology. However, despite its relatively low net assets, its IPO fundraising amount is still comparable to that of Lijun Technology.

As for the related transactions with Lijun Technology, Distant Electronics' prospectus notes that the company may have risks due to internal control execution defects, market changes, etc., which could lead to an increase in related transaction amounts or occupation of funds by related parties, ultimately harming the interests of the company and small shareholders.