The inspiration of the Delong incident

1． The industrial integration model itself is not a model that cannot be explored

The core idea of ??the Delong model is "industrial integration." Tang Wanli, chairman of Delong's board of directors, once summarized this idea as: First of all, the industry Conduct research and identify target companies; then form an industrial operating platform through mergers and acquisitions or strategic alliances, conduct industry integration on this platform, expand business scale and scope, and achieve industry leadership; finally acquire international terminal markets and enhance The overall value of the enterprise. Delong did the same in the early days: first take control of a listed company, raise funds through this window, invest in industrial development, improve company performance, and then raise funds to enter the next cycle. It can be said that this is an operating method with a very high capital utilization rate. It makes full use of the financing function of the capital market through leverage to strengthen itself. However, due to the natural limitations of private enterprises, they are inherently deficient in grasping macroeconomic policies. At the same time, because it moved too fast in industrial integration, the front was drawn out too long, and some of its practices were too idealistic, it led to Delong's failure. If enterprises can better grasp the macro-policy aspects of industrial integration and be more rational, they may not be unable to succeed. Therefore, we cannot completely deny the industrial integration model because of Delong's failure.

2． There are greater risks hidden behind the industrial integration model

After all, industry and finance are different in nature. Generally speaking, the speed of industrial integration benefits cannot keep up with the speed of financial expansion. So this creates a structural difference. In order to achieve balance, not only horizontal and complementary investments in terms of content are needed, such as complementarity between finance and industry, and industrial chains, but also structural arrangements in terms of investment rhythm need to be paid attention to, that is, the proportion of long-term, medium-term and short-term investments is reasonable. . Otherwise, if the proportion of long-term investment is too large, it will affect the liquidity of assets; although attractive investment opportunities and industrial integration opportunities are seized, the potential risks brought by the company's rapid growth may be ignored.

3. The risks of the industrial integration model have been taken to the extreme by Delong

Delong's industrial integration is based on capital operation. A small amount of initial capital has controlled a huge amount of industrial capital after several changes, and the newly integrated industries Most of them cannot realize the normal operation of cash flow. Although Delong holds high the banner of industrial integration, industrial integration has not brought cash flow to Delong. For example, although the industrial integration of Xinjiang Tunhe seemed to be successful in expanding the company's scale, it has not been able to achieve normal cash flow. From 2001 to 2003, Xinjiang Tunhe had a cash gap of 500 million yuan in investment every year, while its operations The cash flow contributed by activities is only a drop in the bucket. In desperation, this growing gap can only be filled through two methods: First, bank loans. Delong solved the funding problem by mortgaging the legal person shares he held or through mutual guarantee loans through his affiliated companies. For example, the debt scale of three companies, Xianghuo Torch, Alloy Investment, and Xinjiang Tunhe, all increased significantly after Delong took over, and many external guarantees exceeded 100% of their net assets. In addition, Delong has successively intervened in many non-bank financial institutions such as Jinxin Trust, Xiamen United Trust, Northern Securities, Taiyang Securities, Deheng Securities, Hengxin Securities, Xinjiang Financial Leasing, New Century Financial Leasing, as well as in Changsha, Nanchang and other places. Commercial banks hope to control risks internally. Delong obtained funds from these financial institutions in the name of various projects and related companies. According to investigations by regulatory authorities, from 2002 to 2004, Delong's loan amount in the entire banking system was as high as 20 billion to 30 billion yuan. Among loan categories, short-term loans account for the vast majority, and short-term debt repayment risks are extremely high. Once banks tighten their lending, Xinjiang Tunhe's carefully built capital and industrial chain may be broken. The second is financial management funds. A considerable part of the huge funds for Delong's industrial integration (mostly long-term investments) come from "financial management" funds from long-term investment and short-term financing. In other words, Delong provides short-term financing to banks and other corporate institutions with a high return of more than 20% per year on principal and interest payments for its own long-term projects. At the end of each year, customers withdraw large sums of funds, and Delong's funds are lost. It’s very stressful, but at the beginning of the second year, the customer’s money is usually invested again.

Delong relies on this "dangerous game" to develop himself. And when the doubts surrounding Delong and the central bank's tightening of monetary policy finally shook the confidence of customers, the money that escaped never came back, and Delong's "long-term investment and short-term financing" game was broken. In the process of capital operation, Delong has always claimed that it is a "strategic investment company." But the market has always regarded it as a representative of "bookmaker". In order to break this image, in the second half of 2003, Tang Wanli, who had always been reclusive, began to appear frequently in public, revealing information about his industrial strategy, corporate management and other aspects. However, various actions seem to be difficult to change the deep-rooted impression in investors' minds. Delong stock has long become an "ornamental plant" in everyone's mind. At the same time, with the further regulation of the securities market, listed companies controlled by Delong can no longer easily raise funds, and means such as additional issuance and allotment of shares are no longer arbitrary games. For a master of capital operations like Delong, if he loses strong financial support, all his operations will lose their roots. It is estimated that the Delong Group's market value has evaporated on the stock market in recent years, exceeding 20 billion yuan. The cumulative value of entrusted financial management services has reached more than 10 billion yuan in three years, and the interest and marketing expenses paid for this are at least 8 billion yuan. Moreover, Delong has continued to spend large amounts of money on equity acquisitions in financial institutions, which amounts to at least more than 5 billion yuan. In just three years, the above-mentioned major financial black holes totaled nearly 40 billion yuan. How can Delong bear such a heavy burden?

4. Huarong's custody of Delong is a realistic and feasible choice

It is very necessary and urgent to timely and effectively control and reduce the financial risks that Delong Group adds to the commercial banking system. When the disintegrated and leaderless Delong is helpless, it is undoubtedly more reasonable for the government to come forward and entrust Huarong Company to take overall custody of Delong, unravel the complex debt chain of Delong, and integrate Delong's high-quality assets. institutional arrangements. For financial regulatory agencies whose main goals are to reduce financial system risks and prevent new financial risks, Huarong Custody Delong is also a realistic and feasible choice.

5． The congenital defects of private enterprises cannot be avoided

The Delong problem, especially the capital black hole problem, has exposed the industrial expansion and capital operations of private enterprise groups, the risk prevention and resolution of the financial system, and the supervision system of financial regulatory agencies. There are still many shortcomings and defects in other aspects. Therefore, we should take the handling of the Delong issue as a rare opportunity to deeply reflect on and summarize the diversified business strategies of private enterprise groups, and reform the capital operation mechanism of private enterprise groups. and management model, further improve the risk management and control system of the financial system, improve the financial supervision system (including supervisory concepts, supervisory regulations and policies, supervisory means and supervisory models, etc.), strengthen financial market supervision, and effectively prevent and resolve financial risks. Through continuous and beneficial exploration and attempts, we can promote the mutual integration and penetration of financial capital, industrial and comparative capital, and then lay a solid foundation for the establishment of a real financial holding group in our country. In this sense, Huarong’s trusteeship and participation in the Delong restructuring have accumulated necessary regulatory experience for relevant regulatory agencies, and will provide a reference model for handling similar private enterprise group crises in the future.