Jiechenig Shareholding Company Denies Disclosure as Loan Default of Tens of Millions Exposed

Economic Observer Reporter Zhang Bin As of the end of September 2020, Jiecheng Co., Ltd. (300182, Stock Bar) (300182.SZ), which has participated in investing in films such as “Wolf Warrior 2,” “Operation Red Sea,” and “A Good Show,” still had 258 million yuan in cash and cash equivalents.

However, recently, an insider Zhao Quan revealed to the Economic Observer that Jiecheng Co. has overdue loans amounting to tens of millions of yuan that have not been repaid.

According to materials Zhao Quan provided on March 4, 2021, in 2020, Jiecheng Co. borrowed 30 million yuan, 25 million yuan, and 30 million yuan respectively from three content cooperation partners: a certain education company in Beijing, a technology company in Tianjin, and an investment management company in Beijing. Among these, the 25 million yuan loan to the Tianjin technology company has been repaid, while the other two remain outstanding.

Additionally, the loan agreement between the Beijing education company and Jiecheng Co. provided by Zhao Quan shows that if Jiecheng Co. defaults on repayment, Jiecheng Co. and its wholly owned subsidiary Xinjiang Juxiu Cultural Media Co., Ltd. (“Xinjiang Juxiu”) agree to expand the “exclusive cooperation in the mobile intelligent terminal education field” stipulated in the Content Cooperation Agreement to “exclusive cooperation in the education field.”

Tens of millions of yuan in overdue loans

The loan agreements Zhao Quan provided show that in 2020, Jiecheng Co. entered into short-term loan agreements with the three companies mentioned above, totaling 85 million yuan. In the loan to Beijing education company, Jiecheng’s actual controller, Xu Ziquan, undertook joint liability for repayment. Xinjiang Juxiu was authorized to expand its scope from “mobile intelligent terminal education” to “education” in the agreement. In the loan contract with Tianjin technology company, besides Jiecheng Co., the borrower also included Beijing Jiecheng Century Digital Technology Co., Ltd., wholly owned by Xu Ziquan. In the agreement with Beijing investment management company, Xu Ziquan and Jiecheng’s wholly owned subsidiary Jiecheng Huashi Wangju (Changzhou) Cultural Media Co., Ltd. (“Huashi Wangju”) undertook joint liability.

Zhao Quan’s information indicates that after these three loans matured in January 2021, the Beijing education company, Tianjin technology company, and Beijing investment management company all entrusted law firms to pursue collection from Jiecheng Co., but none received repayment.

Zhao Quan stated that these three companies have initiated legal proceedings against Jiecheng Co. this year. The “Property Preservation Application” submitted by these three companies shows that Jiecheng Co., Beijing Jiecheng Century Digital Technology Co., Ltd., and related accounts or assets of Xu Ziquan face the risk of judicial freezing.

A person from Jiecheng Co.'s Board Office told the Economic Observer that there are indeed legal proceedings involving these companies, but since the amount involved does not meet the disclosure standards for listed companies on the Growth Enterprise Market, no announcement has been made.

On March 5, Zhao Quan said that Jiecheng Co. has repaid the 25 million yuan loan to Tianjin technology company in February, but has not received repayment from the Beijing education company and Beijing investment management company.

Decline in operating performance

According to Jiecheng Co.'s Q3 2020 report, as of September 2020, the company had 258 million yuan in cash and cash equivalents, while its short-term loans amounted to 1.329 billion yuan, and non-current liabilities due within one year were 469 million yuan, totaling 1.798 billion yuan in short-term debt.

The cash ratio, which indicates a company’s ability to immediately pay off its short-term liabilities, is the ratio of cash to current liabilities. A higher ratio suggests better liquidity and repayment capacity. Generally, a ratio above 20% is considered good.

Looking at Jiecheng Co.'s recent years, the cash ratio was 55% at the end of 2016 and 29% at the end of 2017. However, starting in 2018, the ratio sharply declined, reaching 11% at the end of 2018, 4% at the end of 2019, and 7% at the end of the third quarter of 2020.

Additionally, the company’s performance indicators over the past two years have also declined across the board.

In 2019, Jiecheng Co. posted its first loss since listing, with revenue of 3.65 billion yuan, down 28.3% year-on-year; net profit attributable to shareholders was a loss of 2.38 billion yuan, a decrease of 2641.87%.

On the evening of January 29, 2021, Jiecheng Co. released a forecast for 2020, estimating a net loss of 330 million to 480 million yuan, mainly due to extended receivables collection cycles from downstream customers, with provisions for asset impairments estimated between 680 million and 830 million yuan.

This forecast drew a supervisory inquiry from the stock exchange. On February 1, 2020, the Shenzhen Stock Exchange’s Growth Enterprise Market Management Department issued an inquiry letter requesting detailed explanations regarding the provision for bad debts on accounts receivable, including customer names, amounts, timing and reasons for formation, aging, previous provisions, and any significant changes in provisioning methods; details on other assets expected to be impaired, including the basis and reasonableness of impairment estimates; and the adequacy and reasonableness of provisions in previous and current periods.

Jiecheng Co. responded that in 2020, provisions for asset impairment totaled 680 million to 830 million yuan, including bad debts of 150 million to 190 million yuan from “Huo Qubing,” “A Good Show,” and other dramas, and inventory impairments of 300 million to 340 million yuan (including 270 million to 300 million yuan for film and television inventory and 30 million to 40 million yuan for technology segment inventory).

Suspense over content cooperation in education

Jiecheng Co. was listed on the Growth Enterprise Market in 2011. Its main business rapidly expanded from initial audio-visual technology to include film and television content production and distribution, new media copyright operations, and digital education. In digital education, Jiecheng’s partners include iQIYI, Youku, Tencent, Xiaomi TV, and Huawei Video’s education channels.

In its 2019 annual report, Jiecheng Co. stated that its digital education business was developing rapidly, with promotion and pilot programs in primary and secondary schools across more than forty cities. The Jiecheng Smart Education Cloud Platform integrates education management, campus teaching, online learning, and parent-school collaboration, covering over 6,000 primary and secondary schools, serving nearly 10 million teachers, students, and parents with regular, intelligent teaching services.

Zhao Quan told reporters that the Beijing education company has long been a partner of Jiecheng Co. in digital education. The loan agreement between them shows that if Jiecheng Co. defaults on repayment, Jiecheng Co. and its wholly owned subsidiary Xinjiang Juxiu agree to expand the “mobile intelligent terminal education” exclusive cooperation to “education” exclusive cooperation.

If the loan defaults, will Jiecheng Co. lose its exclusive rights to use the education domain? Will cooperation agreements with iQIYI, Youku, Tencent, Huawei, and others in the education field need to be renegotiated? A person from Jiecheng Co.'s Board Office did not respond and said the matter is handled by the company’s legal department.

(Per the interviewee’s request, Zhao Quan’s name has been changed in the text.)