Research On The Failure Of Renzhi Co.,Ltd.'s Assets Reorganization

On March 25,2019,Renzhi Co.,Ltd.suspended trading since the opening of the market,and disclosed the "Announcement on Planning for Major Asset Reorganization." It is planned to use a combination of non-public issuance of shares and asset replacement to purchase all equity of Ningbo Keyuan Petro Chemicals Co.Ltd.which was priced RMB 10.3 billion.After the completion of the reorganization,Renzhi will transform into a listed company in the high-end fine chemical business focusing on deep processing of fuel oil.At the same time,the controller of Renzhi Co.,Ltd.will be transferred to Keyuan Petro Chemicals.As a result,Keyuan Petro Chemicals will login A-share market through the reorganization.Renzhi Co.,Ltd.'s stock resumed trading on April 9,and continued to reach the daily limit for the next four days.However,Renzhi Co.,Ltd.immediately announced the "The Correction and Retrospective Adjustment of Previous Accounting Errors" on April 12,admintting that some business have false records and inflated profits during 2017.After the retrospective adjustment,the company's profit for the year was-3017.14 million RMB.The company will be issued a delisting risk warning for two consecutive years of losses.On April 22,2019,Renzhi announced the termination of the reorganization.On April 25,Renzhi was filed for investigation by the Securities Regulatory Commission for suspected information disclosure violations in the previous period.With the vigorous development of China's capital market,asset reorganization has become an effective way for improving asset quality and business integration of a campany.However,due to various reasons,speculative and blind cross-border reorganizations which attempted to deceive regulators have emerged.The paper selects Renzhi Co.,Ltd.,which is typically in a difficult operating situation and initiated the “ill” assets reorganization,as the research object,to study the root causes of the failure of the reorganization.In addition,the paper provides countermeasures and suggestions for improving the efficiency of capital market.It is clear that Renzhi Co.,Ltd.has encountered operating difficulties and capital shortages as early as 2017.It is urgent to improve the operating situation,to maintain the qualification of a listed company.It's also necessary to upgrade the company's business and re-allocate resources.As Keyuan Petro Chemicals,the target company,Renzhi is a relatively suitable shell resource because of the dispersive equity and the low-level profitability.For the reasons mentioned above,the paper concluded the root causes for the failure of the asset reorganization.Firstly,Renzhi has been in a poor operating situation,and Keyuan Petro Chemicals failed to fully realized the fact.Secondly,Renzhi's controlling shareholder lacks a long-term strategy planning,taking advantage of the hype to raise the stock price,failed to meet the expectations of the restructuring parties on the results of the reorganization.Finally,Asia-Pacific Accounting Firm,which is responsible for auditing Renzhi Co.,Ltd.,was lack of diligence and fairness and led to the failure of Keyuan Petro Chemicals' s selection of the shell company.In view of the above points,the paper puts forward several suggestions and inspirations.Firstly,the restructuring company should strengthen internal control and capital management of the company.Secondly,the restructuring parties should strengthen information symmetry and fully understand each other's real operating and financial situation to ensure that the restructuring can meet the expectations of both parties.Thirdly,the restructuring company must have a long-term strategic vision to avoid short-term speculation and protect the interests of investors.Finally,it is necessary to strengthen the supervision function of external institutions,and establish a sound law regulations to restrict corporate behavior,promote sustainable development of enterprises,and maintain a healthy order in the capital market.In summary,based on the failure of Renzhi Co.,Ltd.'s assets reorganization,the paper uses the literature analysis method and case analysis method,starting with the motivation for initiating the reorganization,and focuses on the analysis of the root causes of the failure of asset reorganization.It serves as a warning and reference for other companies in the market that are planning or are undergoing asset reorganization.