Since the beginning of this year, First Capital Securities' investment banking arm has sponsored only three projects on the Beijing Stock Exchange, with one already withdrawn.
Under the strict regulatory principle of "no exemption from liability after delisting," not only are A-share companies punished for violations, but intermediaries also face accountability.
First Capital Securities recently disclosed that its wholly-owned subsidiary, First Capital Securities Underwriting & Sponsorship Co., Ltd. (referred to as "First Capital Investment Banking"), has been penalized for failing to fulfill due diligence in its ongoing supervision of Hongda Xingye's 2019 convertible bond project. The subsidiary was fined a total of 169.8 million yuan under the "confiscate one, penalize three" rule.
Hongda Xingye has been delisted for over a year. In mid-March last year, its shares and convertible bonds (Hongda Delisted Bonds) were both delisted. In June this year, Hongda Xingye was found to have engaged in years of financial fraud, cumulatively inflating profits by over 4 billion yuan. The company and related individuals were fined a combined 57.8 million yuan.
After the delisting of both its shares and bonds, Hongda Delisted Bonds defaulted. According to the company's latest announcement, the bonds will mature on the 16th of this month, and conversion rights will cease the following day. Hongda Xingye stated that it has failed to raise funds for principal and interest payments, making it unlikely to meet its obligations on time.
First Capital Investment Banking has sponsored only three Beijing Stock Exchange projects this year, with one withdrawn. Last year, its IPO withdrawal/rejection rate exceeded 50%.
**Three Violations Identified** More than six years after the issuance of Hongda's convertible bonds and over a year after their delisting, First Capital Investment Banking, as the sponsor and lead underwriter, was suddenly penalized.
The announcement revealed that in mid-December 2019, Hongda Xingye completed its convertible bond issuance, totaling 24.2678 million bonds with a scale of 2.427 billion yuan. Online and offline investors subscribed to 4.47 million and 13.3669 million bonds, respectively, amounting to 447 million yuan and 1.337 billion yuan.
Existing shareholders prioritized 26.28% (approximately 638 million yuan), with the remainder underwritten by the lead underwriter. First Capital Investment Banking underwrote 53,500 bonds (535,300 yuan), accounting for 0.22% of the total.
The bonds had a six-year term with annual interest payments and principal repayment at maturity.
At the end of October this year, First Capital Investment Banking was investigated for allegedly failing to fulfill due diligence in its ongoing supervision of Hongda Xingye's convertible bond project.
Over a month later, penalties were imposed. The Jiangsu Securities Regulatory Bureau identified three key issues: inadequate verification of fund usage and repayment, failure to issue required opinions leading to false records in supervision documents, and non-compliance with reporting obligations.
First Capital Investment Banking was fined approximately 16.98 million yuan under the "confiscate one, penalize three" rule, while two sponsors were fined 1.5 million yuan each.
First Capital Securities stated that the penalties would not trigger mandatory delisting due to major violations.
Hongda Xingye was delisted over a year ago. On March 18 last year, ST Hongda and its convertible bonds were delisted for falling below face value, with the latter renamed Hongda Delisted Bonds.
In late June this year, Hongda Xingye received a penalty notice. The Jiangsu regulator found that the company had misused 1.691 billion yuan of 2019 raised funds and falsified financial reports from 2019 to 2023, inflating revenue by 3.505 billion yuan and profits by 4.078 billion yuan.
Hongda Xingye and eight responsible individuals were fined 57.8 million yuan, while its actual controller, chairman, and general manager, Zhou Yifeng, was banned from the securities market for life.
Hongda's convertible bonds also defaulted. In mid-December last year, Hongda Xingye announced it could not cover interest payments due to debt defaults, frozen assets, and liquidity shortages.
Recently, Hongda Delisted Bonds will cease conversion. According to the latest announcement, the bonds mature on December 16, with conversion ending the next day. Hongda Xingye confirmed it lacks funds for principal and interest payments.
**IPO Withdrawal Rate Exceeded 50% Last Year** Amid the securities industry's recovery this year, First Capital Securities reported revenue and profit growth.
In the first nine months, revenue rose 24.32% to 2.985 billion yuan, while net profit grew 20.21% to 771 million yuan.
First Capital's investment banking business relies on its subsidiary, which excels more in debt financing than equity offerings.
In the first half, First Capital Investment Banking filed one Beijing Stock Exchange IPO application and completed two New Third Board listings. It had two pending Beijing Stock Exchange IPOs and supervised 38 New Third Board companies.
Wind data shows the subsidiary sponsored three Beijing Stock Exchange projects this year, involving Dingxi High-Strength, Jin Wanzhong, and Canon Technology. Canon Technology withdrew its application last month, while Jin Wanzhong's review was suspended for financial updates.
Last year, it sponsored nine projects, with five withdrawn—a rejection rate exceeding 50%, compared to 18.18% in 2023.
However, its debt underwriting performed strongly in the first half, completing 70 corporate and enterprise bond projects worth 25.274 billion yuan, a 296.64% increase, ranking 26th in underwriting scale—up 29 places year-on-year.
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