Produced by Radar Finance, Written by Meng Shuai, Edited by Shenhai

Within just a few days, Central South Construction, helmed by Chen Jinshi, the former richest man in Nantong, Jiangsu, has experienced a series of dramatic events including facing a delisting crisis, releasing good news, the company's stock price hitting the limit, and being subject to "other risk warnings".

On April 18, Central South Construction had to issue a risk warning announcement that it might be terminated from the stock market due to its stock closing price being below 1 yuan per share for ten consecutive trading days. Subsequently, the market spread news of cooperation between PAG (Pacific Alliance Group) and Jiangsu Asset Management and Central South Urban Construction, the controlling shareholder of Central South Construction, regarding debt resolution and equity transactions.

Affected by this news, Central South Construction's stock price hit the limit on April 22. However, as Central South Construction did not disclose relevant information, the Shenzhen Stock Exchange sent a letter of concern to the company. According to media reports, on April 23, the management of Central South Construction revealed that the company's controlling shareholder had indeed negotiated with relevant institutions on cooperation matters, but the company had not received further news.

It is worth noting that due to Central South Construction's average performance in the capital market recently, Chen Jinshi disappeared from the Hurun Global Rich List in 2023. His name cannot be found in the latest Hurun Global Rich List 2024, and the last time he appeared on the list was in 2022, when he ranked 2677th with a wealth of 8.5 billion yuan.

Although PAG may become Chen Jinshi's white knight, there are still many uncertainties regarding whether Central South Construction can escape the danger. In the latest financial report, Central South Construction cannot hide its poor performance of consecutive losses for three years. From 2021 to 2023, the company's net profits attributable to shareholders after deducting non-recurring gains and losses were -4.036 billion yuan, -9.656 billion yuan, and -4.627 billion yuan, respectively.

Due to negative net profits before and after deducting non-recurring gains and losses for the past three consecutive fiscal years, Central South Construction will be subject to "other risk warnings" from April 24 when trading resumes. The stock abbreviation will be changed from "Central South Construction" to "ST Central South," and the daily price limit for stock trading will be 5%. To completely escape the delisting crisis, Central South Construction's stock price needs to return above 1 yuan within the next 8 trading days.

PAG, which is currently negotiating cooperation with Central South Urban Construction, the controlling shareholder of Central South Construction, manages over US$50 billion in assets for nearly 300 institutional fund investors worldwide. Its leader is Shan Weijian, who is known as the "King of Private Equity".

Central South Construction Faces Delisting Crisis, Chen Jinshi May Wait for a White Knight

Due to the stock closing price being below 1 yuan per share for ten consecutive trading days, Central South Construction issued a risk warning announcement on April 18 regarding the possibility of being delisted due to the continuous low closing price.

According to Article 9.2.1(4) of the Shenzhen Stock Exchange Listing Rules, if a company's stock closing price remains below 1 yuan per share for 20 consecutive trading days, it will trigger the condition for termination of listing. This means that if Central South Construction's stock price cannot return above 1 yuan within the next ten trading days, its status as a listed company will be in jeopardy.

On April 19, Central South Construction's stock price fell another 9.52%, and the company issued a second risk warning announcement.

Just as the company was mired in a delisting crisis, PAG sent a lifeline to Central South Construction.

According to media reports, on the afternoon of April 20, led by the Haimen District People's Government of Nantong City, Central South Urban Construction, the controlling shareholder of Central South Construction, negotiated with PAG, a well-known Asian private equity investment company, and Jiangsu Asset Management on debt resolution, equity transactions, and other cooperation matters. Central South Construction also confirmed the above news to the media.

Once the aforementioned good news spread, Central South Construction's stock price rose on April 22. By the end of the day, Central South Construction's stock price had increased by 10.53% compared to the previous trading day, and the closing price of 0.84 yuan per share was closer to the safe line of over 1 yuan.

However, as Central South Construction did not disclose the aforementioned important information in its announcement, the Shenzhen Stock Exchange sent a letter of concern to Central South Construction on the evening of April 22, requiring it to clarify the authenticity of the aforementioned facts.

If there are indeed the aforementioned matters, Central South Construction must explain the specific content, timing, and progress of its cooperation with PAG, and analyze the feasibility of the relevant cooperation. At the same time, Central South Construction must also explain whether Central South Urban Construction and its actual controllers plan to transfer the company's equity, restructure assets, or other significant matters affecting the company.

At the 2023 performance meeting held on the afternoon of April 23, the management of Central South Construction told investors that on April 20, under the auspices of relevant government departments, the company's controlling shareholder did negotiate with relevant institutions on cooperation matters, and the company has not received further news. "If the relevant cooperation involves information disclosure related to the company, the company will urge the controlling shareholder to fulfill its information disclosure obligations in a timely manner."

Radar Finance has learned that the person at the helm of Central South Construction, which has attracted much attention from the outside world, is Chen Jinshi, the former richest man in Nantong, Jiangsu. In the 1980s, with only 5,000 yuan in capital, Chen Jinshi led a construction contracting team of only 28 people to start his entrepreneurial journey, and the renowned Central South Group was born.

Initially, Central South focused on construction, relying on contracting construction projects across the country to grow and develop. Under Chen Jinshi's leadership, Central South Group has developed into a large group listed company with a "4+1" business layout spanning both domestic and international markets over more than 30 years.

As early as 2017, Chen Jinshi made it onto the Hurun Global Rich List with a wealth of 15 billion yuan, ranking 1037th. However, in the following years of 2018 and 2019, Chen Jinshi's wealth declined by a total of 6 billion yuan to 9 billion yuan, and his ranking slipped consecutively by 443 places and 423 places.

In 2020, Chen Jinshi reversed his slump on the rich list and re-entered the Hurun Global Rich List in 1443rd place with a wealth of 14 billion yuan, rising 459 places compared to the previous year.

However, Chen Jinshi's wealth continued to shrink again in subsequent years, falling to 12.5 billion yuan and 8.5 billion yuan in 2021 and 2022, respectively, with his ranking slipping consecutively by 425 places and 809 places to 2677th place in 2022.

In 2023, Chen Jinshi's name even disappeared directly from the Hurun Global Rich List.

In fact, Chen Jinshi's wealth is closely tied to Central South Construction, which he leads. According to Central South Construction's latest financial report, as of the end of last year, Central South Urban Construction Investment Co., Ltd., the controlling shareholder of Central South Construction, held 41.77% of the company's shares.

Chen Jinshi directly holds 12.6% of Central South Urban Construction Investment Co., Ltd. Meanwhile, Central South Holding Group Co., Ltd., which Chen Jinshi directly holds 52.53% of, holds 74.1% of Central South Urban Construction Investment Co., Ltd. Based on this, Chen Jinshi is the actual controller of Central South Construction.

As Central South Construction is currently in a dangerous situation on the verge of delisting in the capital market, Chen Jinshi's fortune is likely to shrink again. As of now, Central South Construction's latest market capitalization stands at 3.214 billion yuan.

According to iFinD, during the period from April 24 last year to April 23 this year, Central South Construction's stock price fell by a cumulative 52%, and its market capitalization evaporated by nearly 3.5 billion yuan during this period. If the timeline is further extended to the past three years, Central South Construction's stock price has fallen by a cumulative 87%, and its market capitalization has evaporated by approximately 21.5 billion yuan during this period.

Three Consecutive Years of Losses, Central South Construction Gets a "Stock Warning"

Although the good news of PAG negotiating cooperation with Central South Urban Construction, the controlling shareholder of Central South Construction, has brought a ray of hope to Central South Construction, the company's future remains uncertain.

On April 22, Central South Construction released its 2023 annual report, disclosing the company's financial data for the past year. The financial report showed that the company recorded a total revenue of 68.49 billion yuan in 2023, representing a 16.01% increase compared to the revenue of 59.04 billion yuan in the same period last year.

From an industry perspective, the real estate development sector is an important pillar of Central South Construction's revenue. Last year, this sector contributed 63.926 billion yuan to Central South Construction's revenue, accounting for 93.34%, and achieving a year-on-year growth of 9.88%.

During the same period, the construction, hotel, and other sectors recorded revenues of 4.614 billion yuan and 898 million yuan, respectively, contributing 6.74% and 1.31% to the company's total revenue, respectively, with year-on-year decreases of 51.32% and 27.25%.

It is worth noting that the real estate development sector was the only sector among Central South Construction's various sectors last year to achieve revenue growth, and it was also the only sector to achieve year-on-year growth in gross profit margin, which increased by 9.88 percentage points to 27.2%. In contrast, the gross profit margins of the construction, hotel, and other sectors decreased by 7.51 and 0.18 percentage points to -18.51% and 25.95%, respectively.

However, from the perspective of contract sales amount and sales area, Central South Construction could not escape the trend of the overall industry not yet fully recovering. Affected by the continuous market adjustment, Central South Construction's contract sales amount in 2023 was 39.88 billion yuan, a year-on-year decrease of 38.6%, and its sales area was 3.332 million square meters, a year-on-year decrease of 38.7%.

Over the past year, there have been signs of improvement in Central South Construction's gross profit margin indicators. The financial report showed that the company's comprehensive gross profit margin in 2023 was 9.77%, an increase of 9.86 percentage points year-on-year. The improvement in the company's gross profit margin indicators is mainly due to the company's further optimization of management and cost control.

Specifically, in 2023, the company's sales rate was 2.39%, a year-on-year decrease of 0.69 percentage points; the management expense rate was 2.87%, a year-on-year decrease of 0.96 percentage points; and the financial expense rate was 2.68%, a year-on-year decrease of 1.54 percentage points.

In terms of net profit, Central South Construction recorded a net profit attributable to shareholders of the parent company of -5.293 billion yuan in 2023. Although the loss scale narrowed compared to the previous year, with a year-on-year reduction of 3.89 billion yuan, it still failed to completely escape the loss dilemma.

In fact, this is the third consecutive year that Central South Construction has been mired in losses since 2021. From 2021 to 2023, Central South Construction's net profits attributable to shareholders were -3.382 billion yuan, -9.183 billion yuan, and -5.293 billion yuan, respectively. After deducting non-recurring gains and losses, the net profits attributable to shareholders were -4.036 billion yuan, -9.656 billion yuan, and -4.627 billion yuan, respectively.

Due to negative net profits before and after deducting non-recurring gains and losses for the past three consecutive fiscal years, according to trading rules, the Shenzhen Stock Exchange will implement other risk warnings for Central South Construction. After trading resumes on April 24, Central South Construction's stock will be subject to "other risk warnings," and the stock abbreviation will be changed from "Central South Construction" to "ST Central South," with a daily price limit of 5%.

In addition, the company also faces certain pressure in terms of liabilities. As of the end of the reporting period, the company's total debt ratio was 91.14%, an increase of 1.33 percentage points from the end of 2022; and the net debt ratio (the ratio of interest-bearing debt minus monetary funds to net assets) was 177.82%, an increase of 69.65 percentage points from the end of 2022.

Among the company's overall liabilities, cash received from the sale of products is considered a contract liability and related deferred taxes before the relevant products are completed and revenue is recognized, totaling 73.66 billion yuan, accounting for 35.62% of the company's total liabilities. After excluding these liabilities, the company's debt ratio is 58.68%. The company's total liabilities and total assets, excluding advance receivables (including contract liabilities, advance receivables, and deferred taxes), have a debt ratio of 86.88%, an increase of 4.41 percentage points from the end of 2022.

Central South Construction stated that as of the end of the reporting period, the company had interest-bearing liabilities of 43.26 billion yuan, a decrease of 4.29 billion yuan from the end of 2022. Among them, various interest-bearing liabilities within one year totaled 22.73 billion yuan, a decrease of 480 million yuan from the end of 2022. Interest-bearing liabilities accounted for 19.06% of total assets, continuing to maintain the lowest level in the industry. Since November 2023, the company's outstanding corporate bonds have all been extended for five years, and the company's debt repayment pressure in 2024 will be less than that in 2023.

In its audit report on Central South Construction, Zhitong Certified Public Accountants pointed out that as of December 31, 2023, Central South Construction's current liabilities exceeded its current assets by 6.742 billion yuan. The current liabilities include interest-bearing liabilities such as short-term borrowings and non-current liabilities maturing within one year, totaling 22.727 billion yuan. The ending monetary fund balance was 7.505 billion yuan, including 3.358 billion yuan of restricted funds.

At the same time, some creditors such as financial institutions and suppliers pursued overdue debts from Central South Construction and its subsidiaries through judicial proceedings, leading to multiple debt lawsuits or arbitrations involving Central South Construction and its subsidiaries. The audit report pointed out that these situations indicate significant uncertainties that may cause significant doubts about Central South Construction's ability to continue operating.

Facing multiple challenges, Central South Construction mentioned in its announcement regarding the implementation of other risk warnings and suspension of trading that the company will take the following measures to reduce operational capital pressure and improve its financial situation, further enhancing the company's ability to continue operating.

Firstly, it will revitalize resources, reduce costs and increase efficiency, strive to maintain a positive operating cash flow, and achieve stable operations. Secondly, it will leverage various policy supports, reasonably increase new financing, and reach new repayment arrangements with financial institutions and various investors regarding existing financing, reducing costs and improving the debt structure.

Who Is This Potential White Knight?

PAG, which may lend a helping hand to Chen Jinshi this time, was recently thrust into the spotlight for assisting Wang Jianlin.

In December last year, Wanda disclosed on its official website that PAG and Dalian Wanda Commercial Management Group jointly announced the signing of a new investment agreement. PAG will join other investors to reinvest in Zhuhai Wanda Commercial Management after the redemption of its 2021 investment period expires and is redeemed by Dalian Wanda Commercial Management Group.