Six years after the incident, the Hongda Xingye case has resurfaced with new repercussions. On October 29, the China Securities Regulatory Commission (CSRC) launched an investigation into First Capital Securities' (stock code: 002797.SZ) wholly-owned subsidiary, First Capital Securities Underwriting and Sponsorship Co., Ltd. (referred to as "First Capital Investment Banking"). The investigation results were announced on December 8.
According to the announcement, First Capital Investment Banking failed to fulfill its due diligence obligations during the ongoing supervision of Hongda Xingye Co., Ltd.'s (referred to as "Hongda Xingye") 2019 convertible bond project. As a result, the subsidiary was penalized with a "confiscation plus triple fine," totaling 16.98 million yuan. Additionally, two sponsor representatives, Fan Benyuan and Song Yao, were each fined 1.5 million yuan.
First Capital Securities stated that it has urged its subsidiary to learn from the case and accept the penalty. The company emphasized that this incident does not constitute a major violation warranting forced delisting and that its operations remain unaffected.
First Capital Investment Banking is primarily engaged in investment banking services, including equity and debt financing, mergers and acquisitions, structured finance, and New Third Board listings. After reporting losses in 2023 and 2024, the subsidiary turned a profit in the first half of 2025, with operating income of 128 million yuan and operating profit of 41.56 million yuan.
The penalty stems from issues identified during the supervision of Hongda Xingye's 2019 convertible bond project, including inadequate verification of fund usage and failure to report irregularities. The Jiangsu Regulatory Bureau found that First Capital Investment Banking and its representatives neglected their duties, leading to false records in supervision documents.
Hongda Xingye's convertible bonds, issued in December 2019, raised 2.427 billion yuan for a PVC production project and working capital. However, the company diverted 1.691 billion yuan of the funds to its parent company and affiliates without authorization. Hongda Xingye also inflated revenues and profits, resulting in false financial statements from 2020 to 2023.
The company, once a leading chemical firm, faced severe financial distress, with 12.93 billion yuan in unpaid debts by 2022. After being delisted in March 2024 due to stock price violations, Hongda Xingye was fined 18.5 million yuan in June 2025 for multiple violations. Its chairman, Zhou Yifeng, was banned from the securities market for life.
The convertible bonds, now labeled "Hongda Defaulted Bonds," are expected to default on principal and interest payments due on December 16.
Despite the penalty, First Capital Securities reported strong performance in the first three quarters of 2025, with revenue up 24.32% year-on-year to 2.985 billion yuan and net profit rising 20.21% to 771 million yuan. The growth was driven by proprietary trading and brokerage businesses.
First Capital Investment Banking's debt financing business also saw significant growth, completing 70 projects worth 25.27 billion yuan in the first half of 2025, a 296.64% increase year-on-year. However, the subsidiary's reputation has been tarnished by its involvement in other problematic cases, including financial fraud at *ST Dongtong (300379.SZ).
Industry experts suggest that First Capital Investment Banking must strengthen internal controls and rebuild client trust to mitigate the long-term impact of the penalty.
The case highlights the importance of rigorous supervision and accountability in China's capital markets, with regulators demonstrating a commitment to addressing past violations regardless of timing.
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