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Shanshan Group's journey toward restructuring is set to be a highly competitive game filled with alliances, betrayal, legal battles, and capital manipulation. It initially seemed collaborative during the bidding process, but post-bid, relationships deteriorated, exemplified by the awkward dynamic between New Yangtze Business and SymTech. The restructuring will raise crucial questions about fairness and legality: is this a selection of a white knight or a deal for capital players?

Surprisingly, the lead bidder—New Yangtze Business, associated with its backer Ren Yuanlin from the "Yangtze River" conglomerate—is an old hand in the capital market, with its invested firms often ending up under special treatment (ST) or delisted. Hence, this latest round of restructuring for Shanshan Group carries risks of transitioning from one pitfall to another, leading to significant uncertainty for local industry.

The death of Zheng Yonggang, the 65-year-old founder, in Japan in 2023, sparked a crisis for Shanshan Group. The combination of industry cycles and internal struggles for control restricted the group’s cash flow, leading to a debt crisis akin to a domino effect. A power struggle ensued between Zheng's second son, Zheng Ju, and his widow, Zhou Ting, culminating in their mutual loss of control when the group entered bankruptcy restructuring—Shanshan Co. will no longer bear the Zheng name.

Zheng was proud of Shanshan Co.'s achievements in breaking new ground in lithium battery anode materials, establishing the country's first production line. He also targeted the polarized film market, previously dominated by Japan and South Korea, making Shanshan a leader in the global market for large-sized polarized films.

When the restructuring announcement was made, 17 potential investors expressed their interest in the valuable listing of Shanshan Co. These investors included formidable names such as BOE Technology Group and China National Building Material Group.

As an important company in the Ningbo industrial chain, Shanshan Co. is heavily influenced by the local court during bankruptcy proceedings. The selection committee prioritized industry synergy during the investor recruitment process to protect the long-term strategic development of Shanshan Co. and the local supply chain.

After a stringent selection process, major players like BOE and China National Building Material were eliminated, leaving a consortium led by New Yangtze Business as the successful bidder. Despite not offering the highest bid, New Yangtze Business, which operates under Yangtze River Financial Holdings, is primarily focused on investments in metals, shipping, and chemicals, making industry synergy with Shanshan Co. challenging.

Key to their success was a company called SymTech Materials, established in 2007 and initiated by China Minmetals Corporation to develop national strategic emerging materials (nuclear-grade graphite). Today, SymTech is a national "little giant" enterprise, well-respected for its R&D capabilities and tightly aligned with the graphite business, making it an ideal partner for the bidding.

However, restructuring is heavily reliant on supporting the priority creditors, and due to its ongoing IPO preparation, SymTech struggled to provide the necessary funding. Hence, it invited New Yangtze Business to form a consortium specifically for the bidding process, with SymTech's government backing and technical strength as qualifications and New Yangtze handling the financing.

Thus, the partnership comprising New Yangtze Business and SymTech successfully secured the restructuring bid.

This was expected to lead to a new phase where New Yangtze, as an investment company, would buy in at a fair price with plans to exit at the opportune moment. SymTech and Shanshan would ideally complement each other's strengths—the former advancing the domestic supply of advanced semiconductor materials while the latter continued deepening its engagement in anode materials and polarized films, enhancing Ningbo's development.

However, the dynamics shifted dramatically post-bid. Just ahead of the National Day holiday, Shanshan Co. publicly announced its restructuring agreement, leading to widespread astonishment among those familiar with the situation. SymTech, the initial bidder that had paid the deposit, disappeared from the picture, and New Yangtze Business proceeded to ensure that Ren Yuanlin emerged as the actual controller of Shanshan Co.

This development means that the originally qualified bidder has vanished, the industry synergy has eroded, leaving only the capital-centered participants.

Such a turn of events undermines the restructuring process. The core threshold prioritizing industry collaboration was upended, resulting in dual failures of procedural justice and substantive justice, jeopardizing the groundwork for a legitimate and rational restructuring plan. If the qualifying consortium, now deficient without SymTech, manages to gain approval, it is not only unfair to other bidders like BOE and China National Building Material but also irresponsible regarding the future growth potential of Shanshan Group and poses significant risks to the local economic chain.

What transpired during this process? Who exactly is New Yangtze Business, and how did they persuade the selection committee to agree to and disclose this plan?

In fact, Ren Yuanlin's operations in the capital market have been quite adept. In 2007, the shipbuilding company he led went public in Singapore, and in 2022, Yangtze River Financial Holdings also listed in Singapore, skillfully navigating both industrial and financial sectors.

Within the A-share market, over the past 20 years, at least eight companies have borne the "Yangtze River" insignia, including ST Guochuang, ST Guoheng, ST Chengcheng, and Zhongda Shares. The trajectory of these firms shows that Ren Yuanlin and the Yangtze River system are skilled at entering through restructuring.

What is the current status of these companies? ST Guochuang (now delisted), ST Guoheng (now Guoheng delisted), ST Chengcheng (now terminated), and Zhongda Shares (now delisted) have all seen their market exit.

In April 2013, Zhongda Shares officially entered restructuring due to a financial crisis with its major shareholder. By November that same year, Jin Fenghuang Investment Ltd. was selected as the restructuring entity—this entity was operated by the "Yangtze River" capital platform, established just months prior in January.

Afterward, the Yangtze River group quickly intervened in Zhongda's operations, but it is noteworthy that this restructuring produced no substantive improvement in business. Instead, Zhongda remained suspended for trading, ultimately having its shell resources hastily sold off—now also delisted.

From the past experiences of Ren Yuanlin and the Yangtze River group in the A-share market, it appears that their approach involves capital operations rather than facilitating sustainable business development through industry collaboration.

According to the existing restructuring agreement, the path for New Yangtze Business to take control of Shanshan Group is characteristically fraught with the scent of capital manipulation. Under the terms, New Yangtze only needs to provide 1.022 billion yuan (approximately $140 million) to control Shanshan Co., which has a market cap near 30 billion yuan.

Notably, following an industry recovery cycle, Shanshan Co. has returned to profitability this year, which diminishes the need for merely a financial takeover.

The concern arises: once the Yangtze River group gains control over Shanshan Co., what impact will this have? The prospects appear uncertain.

Should a non-industry entity take control of Shanshan Co. facilitated by leverage in capital operations, the company could swiftly become a tool for capital manipulation, potentially undermining its core business.

Through government support, Zheng Yonggang transitioned Shanshan Co. into a leader in the domestic lithium battery anode material industry, breaking the monopolies of Korean and Japanese firms while simultaneously establishing the polarized film business as a secondary growth curve.

The administrators overseeing the Shanshan restructuring had previously mandated that potential investors should possess operational and managerial capability commensurate with Shanshan Co.'s industry and scale. However, New Yangtze, primarily engaged in shipping, lacks familiarity with the new energy sector and does not possess industry resources in this domain. If New Yangtze cannot effectively integrate resources to support Shanshan Co.'s core business development, substantial resource waste and inefficiencies may occur. This would hinder Shanshan Co.'s advantages in anode and polarized film sectors, diminishing critical industry synergies and integration opportunities, affecting local governmental developmental strategy, and weakening regional economic competitiveness.

As a crucial enterprise in Ningbo's local economy, the Shanshan restructuring is now included in a "key project for resolving regional financial risks." The local government hopes this restructuring can stabilize both Shanshan Co. and other firms, aligning with local industrial development strategies.

The question arises: if Shanshan Co.'s restructuring turns it into a mere tool for capital operations, endangering its core business, the fallout would extend beyond the company and its investors, jeopardizing Ningbo's new energy and semiconductor supply chain development and impacting local industrial cluster formation and growth. This could even threaten the industry's security for China's new energy and display sectors.

Given the Yangtze River group's prior interventions that led to delisting or sell-offs, doubts linger regarding their capital motives and capabilities. With the Yangtze system’s limited industry synergy advantages, the new Yangtze consortium’s modest investment in gaining control over Shanshan Co. raises concerns about repeating the cycle of short-term capital returns at the expense of long-term industrial sustainability, an issue the local government and restructuring administrators must remain vigilant against.

Consequently, the shift from an industry synergy-based consortium to a capital-centered body necessitates a comprehensive reassessment by governmental authorities, bankruptcy courts, administrators, and selection committees from the standpoint of industrial safety, to prevent a minor issue from evolving into an unmanageable crisis.

In the face of Shanshan Group’s restructuring and the looming industrial risks, the public might remark that this is akin to gunpowder in a pot—any spark could ignite a significant fire.