Baoneng emerges as buyer of Pangda in crisis

Following Evergrande's 14.5 billion yuan investment in Guanghui Auto, another capital giant is preparing to take over the dealer group. On October 7, a Beijing Business Daily reporter learned from an informed source that Pangda Group is currently negotiating cooperation with Baoneng Group. At present, Baoneng Group has completed its due diligence on Pangda Group and will wait for the Baoneng Group's board of directors to decide whether to cooperate with Pangda Group. Regarding the above news, Beijing Business Daily reporters verified with Pangda Group, but as of press time, Pangda Group has not yet responded to the matter. Industry insiders believe that as a dealer giant in the domestic automobile distribution field, Pangda Group is in a difficult situation in 2018. The introduction of Baoneng Group this time is reasonable, but the future is still full of challenges.

Potential Investors

As a potential candidate for the next investor, Baoneng Group has been accelerating its layout of the automotive sector in the past year. In December 2017, Baoneng Group invested more than 6 billion yuan to acquire 51% of Qoros's equity. In March 2018, Baoneng's new energy vehicle production base started construction in Xixian New District, Shaanxi. In August this year, Baoneng Group established Baoneng Automobile Sales Co., Ltd. and Baoneng Automobile Import and Export Co., Ltd.

In fact, it is an indisputable fact that Pangda Group is planning to introduce external investors. In July this year, Pangda Group issued an announcement stating that due to the needs of the company's transformation and upgrading, the company urgently needs to introduce strategic investment and introduce third-party high-quality strategic investors through the transfer of shares held by the company's shareholders.

It is reported that Pangda Group has reported its situation to the provincial, municipal and county committees. The three levels of government have expressed their full support for the group to overcome the difficulties. The joint working group of the three committees and Pangda Group went to Baoneng’s headquarters for negotiations, striving to promote cooperation.

Currently, Baoneng Group's business scope covers major industries such as real estate, finance, logistics, cultural tourism, and medical health. As of the end of 2016, the group's total assets were 505.6 billion yuan, net assets were 102.9 billion yuan, and its market value exceeded 500 billion yuan.

The 2018 semi-annual report shows that Pangda Group's total assets were 51.6 billion yuan, a year-on-year decrease of 18.8%, total liabilities reached 37.67 billion yuan, and the asset-liability ratio was 73.02%. The size of Baoneng Group is about 10 times that of Pangda Group.

Well-known economist Song Qinghui pointed out that Baoneng Group's possible acquisition of or even controlling stake in Pangda Group is controversial in the market and not favored by the outside world. Under the current circumstances, it is a helpless move for Pangda Group to introduce external investors to obtain a large amount of funds. If this news eventually becomes a reality, it will help Pangda Group to get out of trouble.

Business difficulties

In July this year, Pangda Group received the "Administrative Penalty Decision" from the China Securities Regulatory Commission due to information disclosure violations. Pangda Group admitted in its 2018 semi-annual report that in the first half of 2018, the negative impact of the investigation by the China Securities Regulatory Commission on the company's operations continued to ferment. Combined with factors such as the tight overall funding environment in 2018, the company's financing difficulties and funding shortages were further highlighted, which seriously affected and restricted the company's normal operations. The company's operating income and benefits both declined year-on-year.

Data shows that in 2017, Pangda Group achieved operating income of 70.485 billion yuan, a year-on-year increase of 6.78%, and net profit attributable to shareholders of listed companies was 212 million yuan, a year-on-year decrease of 44.45%. Entering 2018, Pangda Group's revenue situation is still not optimistic. Pangda Group's 2018 semi-annual report disclosed that the company achieved operating income of 27.114 billion yuan in the first half of 2018, a year-on-year decrease of 17.65%; net profit attributable to shareholders of listed companies was 259 million yuan, a year-on-year decrease of 12.82%.

In order to ease the company's cash flow pressure, Pangda Group has been selling stores to mobilize funds. In addition to selling stores, Pang Qinghua, chairman and actual controller of Pangda Group, has frequently pledged his Pangda Group shares since 2018. In early 2018, Pang Qinghua pledged 133.335 million, 100 million, and 86 million shares of Pangda Group with no restrictions on sale (accounting for 2%, 1.5%, and 1.29% of the company's total share capital, respectively) to the Beijing Economic and Technological Development Zone Branch of Bank of Communications Co., Ltd.

As of July this year, Pang Qinghua held 1.3629 billion shares of Pangda Group without any restrictions on sale, accounting for 20.42% of the company's total share capital; among them, a total of 1.362563 billion shares of Pangda Group were pledged, accounting for 99.98% of the total number of shares he held in the company.

Song Qinghui said that considering that the controlling shareholder of Pangda Group has pledged almost all of the company's shares it holds, Pangda Group may be facing a serious shortage of funds and may face great risks in the future.

Internal and external troubles

The reason behind the plight of Pangda Group is the overall “cold” environment of the domestic automobile market. In August this year, the domestic retail sales of automobile products were 323.9 billion yuan, a year-on-year decrease of 3.2%. Since then, the retail sales of automobile products have been declining year-on-year for four consecutive months.

In addition to the deterioration of the external market environment, the difficulties faced by Pangda Group are also related to its own development model. In April 2011, Pangda Group officially landed on the A-share market. Subsequently, Pangda Group began to accelerate its process of buying land and opening stores. The data of the 2011 semi-annual report showed that in the past year, Pangda Group added 410 new automobile business outlets, an increase of about 59% on the original scale.

However, the sequelae of rapid expansion is the high debt burden. According to the financial report data of Pangda Group, from 2011 to 2017, the asset-liability ratio of Pangda Group was 81.33%, 85.89%, 86.01%, 81.9%, 80.28%, 81.52% and 78.93% respectively, with an average of over 80%.

In the opinion of Wang Hongchang, Secretary-General of the Physical Market Chamber of Commerce of the China Automobile Dealers Association, Pangda Group invested a lot of real estate (land) in advance, but these lands did not produce the expected benefits, which is one of the reasons why Pangda Group is in poor operating condition.

It is worth noting that despite the deteriorating performance, Pangda Group still has strong strength in the field of automobile distribution. Public data shows that as of June 30, 2017, Pangda Group has 1,038 business outlets in 28 provinces, municipalities, autonomous regions and Mongolia.

At the same time, Baoneng Group, which has already made a lot of layout in automobile manufacturing, needs to establish supporting sales capabilities. According to statistics, Baoneng Group currently has, is building, and plans to build automobile production capacity of up to 2.45 million vehicles, most of which are new energy vehicles. According to the vision of Yao Zhenhua, chairman of Baoneng Group, Baoneng Automobile will use 10-15 years to build a "competitive and internationally influential automobile group" and create a complete industrial chain of "R&D-manufacturing-aftermarket". Investing in Pangda Group will obviously help Baoneng Group quickly realize its layout in the fields of automobile circulation and aftermarket.

Industry insiders said that in the process of introducing external investors, Pangda Group's strength in the circulation field is its biggest bargaining chip, which is exactly what Baoneng Automobile needs. Compared with other options, investing in Pangda Group will be a shortcut for Baoneng Group to layout this field. However, even if Pangda Group and Baoneng Group both have the intention to cooperate, the two sides still need to negotiate and resolve a series of issues such as equity distribution.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.