Research On The Motivation And Economic Consequences Of Private Placement Reverse Takeover Of Kuang-Chi Technologies

As China’s capital market is becoming more and more mature,China Securities Regulatory Commission(CSRC)is increasingly strict about the conditions for backdoor listing.In order to avoid the strict requirements of supervision,some unlisted companies choose to go public by the way of private placement reverse merger.In this way,the listed company first realizes the change of control through private placement,and then acquires the original assets of relatively high quality controlled by the unlisted company.It has the advantages of loose conditions,convenient procedures and lower costs.This is the way that Kuang-Chi Group realizes the indirect listing with the help of Longsheng Auto Parts,and then the Longsheng Stock is changed into Kuang-Chi Technologies.Therefore,the study of "Kuang-Chi Technologies" is helpful to grasp the characteristics of private placement reverse acquisition and the problems that may arise in the application of this method and the impact on the company’s economic consequences and other aspects,and provide reference for other companies that intend to adopt this method.This paper first introduces the theory and current situation of private placement and reverse merger,besides analyzes the case from three aspects.One is the program characteristics of Kuang-Chi Technologies’ private placement reverse merger.The second is to analyze the motivation of Kuang-Chi Group to carry out the reverse merger;The third is to evaluate the market reaction,financial performance and risks of Kuang-Chi Technologies after the private placement reverse takeover through the event study method,accounting index method and Z-value analysis method.To sum up,the following conclusions are drawn: from the characteristics and motivations of the scheme,it is found that this approach is helping the company successfully achieve strategic transformation.It also enables unlisted companies to achieve rapid development with the help of listed company platform.From the aspect of economic performance,the company announced the suspension of trading due to planning directional additional issuance,causing widespread concern in the market,the company’s share price rose sharply.However,it was discovered that due to the lack of preparation in the early stage of the implementation of the scheme by "Kuang-Chi Technologies",the market response was mediocre.After implementation,there are many risks,such as market risks in developing new business areas,operational risks in failing to carry out the raised projects,risks brought by shareholders’ pledge and reduction of holdings.In addition,the company is still in the transition period and its financial situation is unsatisfactory.Finally,this paper puts forward the following suggestions: First,Non-listed companies should fully consider whether the actual situation of listed companies in terms of development direction,economic benefits and other aspects meets their own requirements before adopting the way of private secondary issue reverse merger;Second,the non-listed company should fully consider the research and development situation,industrialization situation and profit situation of the newly developed business before the implementation of this method;Third,when determining the financing scale of private placement,the actual situation of the company should be fully considered to prevent the pressure of capital cost caused by excessive financing;Fourth,the correct assessment of the subscription objects to ensure the safety of funds.