Jiechenig Shareholding Company Denies Disclosure as Loan Default of Tens of Millions Exposed

Economic Observer Reporter Zhang Bin

As of the end of September 2020, Jiecheng Co., Ltd. (300182.SZ), which has participated in investments in films such as “Wolf Warrior 2,” “Operation Red Sea,” and “A Good Show,” still had 258 million yuan in cash and cash equivalents.

However, recently, an insider named Zhao Quan revealed to the Economic Observer that Jiecheng Co. has overdue loans amounting to several tens of millions of yuan that have not been repaid.

According to information Zhao provided on March 4, 2021, in 2020, Jiecheng Co. borrowed 30 million yuan, 25 million yuan, and 30 million yuan respectively from three content partners: a certain education company in Beijing, a technology company in Tianjin, and an investment management company in Beijing. Among these, the 25 million yuan loan to the Tianjin technology company has been repaid, while the other two remain outstanding.

Additionally, Zhao provided a loan agreement between Jiecheng Co. and the Beijing education company, which states that if Jiecheng Co. defaults on repayment, Jiecheng Co. and its wholly owned subsidiary Xinjiang Juxiu Cultural Media Co., Ltd. (“Xinjiang Juxiu”) agree to expand the “exclusive cooperation in the mobile intelligent terminal education field” stipulated in the Content Cooperation Agreement to “exclusive cooperation in the education field.”

Tens of millions of yuan in overdue loans

The loan agreements Zhao provided show that in 2020, Jiecheng Co. entered into short-term loan agreements with the three aforementioned companies, totaling 85 million yuan. In the loan to the Beijing education company, Jiecheng’s actual controller, Xu Ziquan, undertook joint liability for repayment. Xinjiang Juxiu was granted an expanded scope of authorization from the original “exclusive cooperation in the mobile intelligent terminal education field” to “exclusive cooperation in the education field.” In the loan agreement with the Tianjin technology company, besides Jiecheng Co., the borrower also included Beijing Jiecheng Century Digital Technology Co., Ltd., wholly owned by Xu Ziquan. In the agreement with the Beijing investment management company, Xu Ziquan and Jiecheng’s wholly owned subsidiary Jiecheng Huashi Wangju (Changzhou) Cultural Media Co., Ltd. (“Huashi Wangju”) undertook joint liability.

Zhao’s information indicates that after these three loans matured in January 2021, the Beijing education company, Tianjin technology company, and Beijing investment management company all entrusted law firms to pursue collection from Jiecheng Co., but at that time, no repayment was received.

Zhao stated that these three companies have initiated legal proceedings against Jiecheng Co. this year. The property preservation applications provided by the three companies show that Jiecheng Co., Beijing Jiecheng Century Digital Technology Co., Ltd., and related accounts or assets of Xu Ziquan face the risk of judicial freezing.

A relevant person from Jiecheng Co.'s Board Office told the Economic Observer that there are indeed ongoing legal proceedings involving these companies, but since the amount involved does not meet the disclosure standards for GEM companies, no announcement has been made.

On March 5, Zhao said that Jiecheng Co. has already repaid the 25 million yuan loan to Tianjin technology company in February, but the Beijing education company and the Beijing investment management company have not received repayment.

Operational performance decline

According to Jiecheng Co.'s 2020 third-quarter report, as of September 2020, the company had 258 million yuan in cash and cash equivalents, while short-term borrowings amounted to 1.329 billion yuan, and non-current liabilities due within one year totaled 469 million yuan, with total short-term debt reaching 1.798 billion yuan.

The cash ratio, which indicates a company’s ability to immediately pay off its short-term liabilities, is the ratio of cash to current liabilities. A higher ratio suggests better liquidity and repayment capacity. Generally, a ratio above 20% is considered good.

Looking at Jiecheng Co.'s recent years, the cash ratio was 55% at the end of 2016 and 29% at the end of 2017. However, starting in 2018, the ratio sharply declined, reaching 11% at the end of 2018, 4% at the end of 2019, and 7% at the end of the third quarter of 2020.

Additionally, the company’s performance indicators over the past two years have also declined across the board.

In 2019, Jiecheng Co. posted its first loss since listing, with revenue of 3.65 billion yuan, down 28.3% year-on-year; net profit attributable to shareholders was a loss of 2.38 billion yuan, a decrease of 2641.87%.

On the evening of January 29, 2021, Jiecheng Co. released a forecast for 2020, estimating a net loss of 330 million to 480 million yuan, mainly due to extended receivables collection cycles from downstream clients, and expected asset impairment provisions of 680 million to 830 million yuan.

This forecast drew a supervisory inquiry from the stock exchange. On February 1, 2020, the Shenzhen Stock Exchange’s GEM Management Department issued an inquiry letter requesting detailed explanations regarding the provision for bad debts on accounts receivable, including client names, amounts, timing and reasons for formation, aging, previous provisions, and any significant changes in provisioning methods; details of other assets expected to be impaired, signs of impairment, basis and reasonableness of impairment estimates, and the adequacy and reasonableness of provisions in previous periods and the current period.

Jiecheng Co. responded that in 2020, asset impairment provisions totaled 680 million to 830 million yuan, including bad debts of 150 million to 190 million yuan from “Huo Qubing,” “A Good Show,” and other dramas, and inventory impairments of 300 million to 340 million yuan (including 270 million to 300 million yuan for film and television inventory and 30 million to 40 million yuan for technology segment inventory).

Uncertainty in content cooperation in the education sector

Jiecheng Co. was listed on the GEM in 2011. Its main business rapidly expanded from initial audio-visual technology to include film and television content production and distribution, new media copyright operations, and digital education. In digital education, Jiecheng’s partners include iQIYI, Youku, Tencent, Xiaomi TV, and Huawei Video’s education channels.

In its 2019 annual report, Jiecheng stated that its digital education business was developing rapidly, with promotion and pilot programs in primary and secondary schools across more than forty cities. The Jiecheng Smart Education Cloud Platform integrates education management, campus teaching, online learning, and parent-school collaboration, covering over 6,000 primary and secondary schools, serving nearly 10 million teachers, students, and parents with regular, intelligent teaching services.

Zhao told the reporter that the Beijing education company mentioned above has long been a partner in Jiecheng’s digital education business. The loan agreement between the two shows that if Jiecheng defaults on repayment, Jiecheng and its wholly owned subsidiary Xinjiang Juxiu agree to expand the “mobile intelligent terminal education field exclusive cooperation” stipulated in the Content Cooperation Agreement to “education field exclusive cooperation.”

If the loan defaults, will Jiecheng lose its exclusive rights to use the education sector copyrights? Will cooperation agreements with companies like iQIYI, Tencent, Huawei need to be renegotiated? A relevant person from Jiecheng’s Board Office did not respond and said the matter is handled by the company’s legal department.

(Per the interviewee’s request, Zhao Quan’s name is a pseudonym.)