Luyitong terminates restructuring and resumes trading today; the first blockchain stock falls

"The first blockchain stock failed. After being suspended for half a year, Luyitong ( 31.41 , 2.860 , 10.02% ) announced on the evening of September 29 that the proposed acquisition of a company involved in "Bitcoin" was terminated and the company will resume trading on September 30."

Luyitong's restructuring plan has always attracted much attention from the market. Many securities firms have said that it is expected to become the new industry leader and the "first blockchain stock" in the A-share market through this acquisition. So, after half a year of preparation, why did the company terminate the restructuring?

The reason given by Luyitong is that recent objective changes in the domestic securities market environment, regulatory policies and other objective conditions, especially the introduction of the revised "Management Measures for Major Asset Restructuring of Listed Companies", have made the company face major uncertainties in continuing to promote this restructuring.

In fact, the transaction was indeed the focus of the regulatory authorities. Since the announcement of the restructuring plan in early June, Luyitong has been questioned three times per month about the transaction from June to August. Among them, whether there was a suspicion of "backdoor listing", the target's performance commitment was too high, and the hidden relationship between the top five customers and the company were all "dug into" by the regulators.

Looking back at its restructuring plan, Luyitong originally planned to acquire all the equity of Canaan Creative for 3.06 billion yuan, and planned to raise supporting funds of no more than 1.67 billion yuan for blockchain ASIC chip research and development projects. The company is mainly engaged in the research and development, design and sales of application-specific integrated circuit (ASIC) chips and their derivative equipment, and provides corresponding system solutions and technical services. In the entire Bitcoin industry chain, it belongs to the mining machine industry in the sub-industry. It is understood that the industry profit of blockchain computing equipment is closely related to the price of Bitcoin. When the value of Bitcoin is high, the investment return rate of the mining industry is relatively high.

What aspects did the regulators look into in detail regarding this transaction that cuts into the emerging blockchain industry? After the reorganization plan was released, the Shenzhen Stock Exchange immediately issued 23 questions, requiring the company to explain the reasons for the acquisition, indicate risks, and explain whether it avoided backdoor listings, etc. The regulators believed that Luyitong was a new listed company in 2015, and the transaction was a cross-border merger and acquisition. The target company was established a short time ago, with a high valuation premium. The goodwill of the listed company after the acquisition was huge, and the subsequent operating risks were relatively large. They also required that the rationality of the performance commitment being far higher than the actual performance be explained in conjunction with the development of the Bitcoin industry. At the same time, they pointed out that the target company had a high customer concentration and the sales of the top five customers accounted for a large proportion.

Although Luyitong replied that the downstream Bitcoin industry has a stable development foundation and good development prospects, clear R&D and production plans, good historical performance, and sufficient orders on hand, which provide certain support for future performance, Luyitong was questioned again after responding to the inquiry letter and publishing the revised draft of the restructuring plan.

The regulator inquired about the details of the top five customers of the target, especially whether they had any relationship with the target company. The Shenzhen Stock Exchange noted that one of the top five customers of the target, Hangzhou Weitui, was a company actually controlled by the counterparty. In addition, the exchange asked the company to explain whether the transaction was a reorganization listing. After the reorganization was completed, the actual controller of Luyitong held a total of 32.39% of the shares, and the shareholding ratio after excluding the subscription of supporting funds was 23.89%, while the counterparty held a total of 22.23%, and the difference in shareholding between the two parties was only 1.66%.

Digging deeper, the Shenzhen Stock Exchange issued a third inquiry letter last month, revealing more related transactions and fund flows between the top five customers of the target company. The exchange also asked financial advisors and accountants to verify whether the top five customers during the reporting period were the end users of the target company's products. If so, please explain the verification process and provide relevant evidence; if not, please trace to the end user and verify the source of the end user's funds and whether there is an association with the target company and its directors, supervisors, senior managers, controlling shareholders, and actual controllers.

Luyitong stated that the termination of the reorganization will not have an adverse impact on the company's production and operation. In the future, the company will actively seek more development opportunities through a combination of endogenous and exogenous development and carry out industrial layout around the development strategy.