The tragedy of gambling: Shenzhen's billion-level sales lost 70 million and settled with the listed company

At the end of last month, Insai Group announced that its lawsuit against Shenzhen Damai Zhengniao Chuhai had been settled through court mediation. The final result was that Zhengniao Chuhai's controlling shareholder Xingzhou Dayang paid Insai Group more than 74 million yuan in equity repurchase funds, and the two parties reached a settlement. So far, this "gamble" that began in early 2022 has come to an end.

In the cross-border circle, cross-border e-commerce companies sign gambling agreements more for backdoor listing. For many companies, when they develop to a certain extent, they will inevitably embark on the road of capitalization and rush for IPO. Compared with independent listing, the backdoor listing process is simpler and can obtain listing qualifications more quickly, while also reducing risks and costs. Therefore, around 2017, cross-border e-commerce companies that bet on listing ushered in a peak moment. This peak started in 2014, when Global Easy Shopping was acquired by A-share listed company Baiyuan Pants Industry for a price of over 1 billion, but the condition was to sign a gambling agreement to achieve a net profit of 452 million yuan in 4 years.

However, to this day, the cross-border e-commerce sales that gambled with listed companies have not had a happy ending, and there are more messes behind them. In 2023, three cross-border e-commerce companies, Zhiou Technology, Saiwei Technology, and Santai Shares, were listed independently on the A-share market, which further highlighted the loneliness of the listed companies that gambled with the listed companies.

In fact, by 2022, cross-border e-commerce companies have begun to seek independent listings, and there have been successful cases, such as Anker Innovations and Gemtek. Under such circumstances, fewer cross-border e-commerce companies have signed performance betting agreements with A-share listed companies. At this time, Zhengniao Chuhai still chose to bet with Insai Group, which attracted the attention of many people in the industry.

A 500 million bet initiated by a billion-level hit

If it weren’t for the lawsuit caused by the failed bet, few people in the cross-border circle would have noticed that Shenzhen still has the potential to be a big seller like bird hunting.

In fact, in 2017, Zhengniao Chuhai had already begun to emerge, and the following year it began to take shape, and determined a new strategy of focusing on home life categories and the coordinated development of peripheral products, taking the boutique route. In 2021, under the impact of the epidemic, annual sales still doubled year-on-year. In recent years, sales have continued to grow and successfully exceeded 1 billion yuan. Its tentacles are spread across multiple platforms such as Amazon, eBay, and Wish. At the same time, it has dozens of brands in categories such as home life, sports and outdoor, and 3C electronics, and many brands have entered the top 10 of platform categories.

The booming performance gave Zhengniao the idea of ​​going further, so it hit it off with the Insai Group, which came to it because of its reputation, in early 2022. But it was this decision that put it in a very embarrassing situation for a long time afterwards.

Founded in 2002, Insai Group is an A-share listed company in China's advertising, marketing and communication services industry with brand management as its core business.

According to Qichacha, on January 17, 2023, Insai Group had withdrawn from investing in Shenzhen Zhengniao Chuhai Technology Co., Ltd., with a shareholding ratio of 11.6526% before withdrawal. Why did the "marriage" relationship break down overnight? Looking back on the whole incident, it can be explained through four timelines:

Early 2022: Signing of a 5-year bet agreement.

On January 10, 2022, Insai Group invested 100 million yuan to subscribe to the newly increased registered capital of Zhengniao Chuhai, corresponding to the acquisition of 11.4259% of the equity of Zhengniao Chuhai after the capital increase. In July of the same year, because the shareholder Gongqingcheng Yunxiu Chuhai Investment Management Partnership (Limited Partnership) failed to fulfill any obligation to pay the capital increase, it was decided to implement a targeted capital reduction on it. After the capital reduction was completed, Insai Group's equity ratio in Zhengniao Chuhai increased to 11.6526%.

In terms of Zhengniao Chuhai, the condition for obtaining this financing is that a five-year "military order" is required. That is, the net profit attributable to the parent company after deducting non-recurring items from 2021 to 2025 will be: 52 million yuan, 71 million yuan, 93 million yuan, 121 million yuan, and 156 million yuan respectively.

As mentioned above, in 2021, Zhengniao Chuhai's performance exploded and its profits reached a new height. Therefore, this year Zhengniao Chuhai successfully passed the commitment completion rate of 103.31%.

The problem arose in 2022. In the first half of this year, due to the impact of the Russian-Ukrainian conflict, inflation, and inventory backlogs, Zhengniao Chuhai's net profit attributable to shareholders after deducting non-recurring items was only 23.6787 million yuan.

End of 2022: Insai Group urges repayment

According to the supplementary agreement signed by both parties, in the first half of 2022, the net profit attributable to shareholders of Zhengniao Chuhai after deducting non-recurring items was lower than 35% of the performance commitment for 2022. Insai Group has the right to require Zhengniao Chuhai to repurchase all the shares it holds.

Insai Group did so. On December 26, 2022, Insai Group issued an announcement stating that it had reviewed and approved the "Proposal on the Exercise of the Right to Request for the Repurchase of the Equity of Shenzhen Zhengniao Chuhai Technology Co., Ltd." and agreed that the company, in accordance with the provisions of the investment agreement and its supplementary agreement, required the management of Zhengniao Chuhai to repurchase all the equity of Zhengniao Chuhai held by the company in cash. The repurchase amount is the sum of the capital increase of 70 million yuan paid by the company plus the interest calculated at 8%/year simple interest. With the consent and confirmation of all parties, the equity transfer price of the target equity is 74.2694 million yuan.

At the same time, Insai Group and Zhengniao Chuhai's controlling shareholder Wuhu Xingzhou Dayang Information Technology Consulting Service Partnership (Limited Partnership), Zhengniao Chuhai's management team Li Bin, Lin Min, Li Yawei and Zhengniao Chuhai signed the "Equity Repurchase Agreement of Shenzhen Zhengniao Chuhai Technology Co., Ltd."

Insai Group requires that within ten working days after the signing of the agreement, the repurchaser must pay the first installment of equity repurchase payment of 5 million yuan; before January 31, 2023, the repurchaser must pay the second installment of repurchase payment of 30 million yuan; and the remaining equity must be paid before March 31, 2023.

June 2023: Bird hunting at sea was sent to the "defendant's seat"

On June 6, 2023, Insai Group announced that it had taken the parties who signed the "Shenzhen Zhengniao Chuhai Technology Co., Ltd. Equity Repurchase Agreement" to court. The reason was that after receiving the first equity repurchase payment in December 2022, it did not receive the remaining 69.2694 million yuan as scheduled.

In fact, since May 2023, the management of Zhengniao Chuhai has proactively proposed a debt-for-equity plan to the company, but Insai Group seems to want to get back real money more, because it stated in its lawsuit that the repurchase amount and interest requested to be paid will be paid first based on the proceeds from the auction of 58.4529% of the shares of Zhengniao Chuhai held by Xingzhou Dayang.

December 2023: Both parties reach a settlement

On December 28, 2023, Insai Group issued an announcement stating that the above case had been settled through court mediation, and Xingzhou Dayang paid it 74,090,191.78 yuan in equity repurchase funds to settle the disputes among all parties in this case.

Insay Group stated that if Xingzhou Dayang is overdue in payment of any installment for a cumulative period of 20 days, it has the right to immediately apply to the court for compulsory execution of all remaining unrecovered equity repurchase funds, and at the same time demand liquidated damages from Xingzhou Dayang.

At this point, this highly-watched "gamble" has come to an end.

The sequelae of "betting" on listing are frequent  

In fact, it is not uncommon for cross-border e-commerce companies to sign gambling agreements with A-share listed companies in the cross-border circle. There was even a small peak around 2017. Youkeshu, Tongtuo Technology, Jiazhilian, Zebao, Paton, Yibai Network and others have all gone through this process.

After a long period of exploration, cross-border e-commerce ushered in an explosion in 2015. As the platforms expanded their layout, more people began to notice this gold mine and entered the market. In order to obtain more funds, brand reputation, public trust and management talents, and promote the rapid development of the company , the existing cross-border e-commerce companies began to seek listing.

However, independent listing is time-consuming, has cumbersome review procedures and high costs, so many cross-border e-commerce sellers choose to sign a bet agreement with A-share listed companies and go public through a backdoor listing.

However, the results they got when they rushed in were not satisfactory, with many sequelae, including the founders being sued and listed companies selling off their acquired assets.

Among them, Sun Caijin, the founder of Zebao Technology, was sued twice.

In June last year , Xinghui Co., Ltd. sued Sun Caijin, Zhu Jiajia and other stakeholders, demanding that the acquisition price of Zebao Technology be reduced from 1.53 billion yuan to 430 million yuan. At the same time, it demanded that Sun Caijin and others return the 1.04 billion yuan acquisition price to Xinghui Co., Ltd.

The reasons for the lawsuit are: first, during the performance commitment period, Sun Caijin and his interest team failed to achieve the performance commitment; second, they manipulated Zebao Technology to violate Amazon's regulations, resulting in Amazon's account blocking, causing the company to suffer huge losses and making Zebao Technology unable to continue to maintain its original business model.

Prior to this, in 2022, Xinghui Co., Ltd. had taken Sun Caijin and his persons acting in concert to court because, in the past few years, the overseas subsidiaries of Zebao Technology had been pursued for tax by the US, German, and French tax authorities, with the total unpaid and overdue taxes reaching RMB 50 million. Sun Caijin and his persons acting in concert were required to fulfill the relevant compensation obligations in accordance with the Agreement on Issuing Shares and Paying Cash to Purchase Assets.

It is worth noting that Zebao Technology is one of the few big sellers that has successfully fulfilled its performance commitments. It can be seen that it is not possible to sit back and relax after fulfilling the performance commitments.

The dispute between Xu Jiadong, the founder of Global Easy Shopping, and Cross-border Communication has also been widely discussed. At the end of 2022, Cross-border Communication said that it had learned from the public security authorities that the company's former chairman and general manager Xu Jiadong had been investigated by the Wanbailin Branch of the Taiyuan Public Security Bureau for suspected embezzlement. After he resigned, the company discovered that he had committed crimes that infringed the company's interests during his tenure, which has now been investigated and verified by the public security authorities.

Xu Jiadong then immediately hit back, saying that this was a false accusation. He also pointed out that these were all economic disputes and personal grudges between Yang Jianxin (now the largest shareholder of Cross-Border Link) and him personally, and that Yang Jianxin had previously changed the charges many times to file a case against him, but to no avail.

In 2014, Global Easy Shopping chose Baiyuan Trousers (the predecessor of Cross-border Link) as its backdoor listing target and successfully completed the backdoor listing, becoming the first cross-border e-commerce company in China's capital market. However, now this cross-border e-commerce leader has not only turned to dust, but its founder is also in trouble.

Let's look at another Shenzhen chain with big selling prices. Its founder Gan Qingcao was also "chased for debt" by Xunxing Co., Ltd. Previously, Xunxing Co., Ltd. won the performance commitment compensation arbitration. Gan Qingcao, Zhu Ling and Shenzhen Common Dream Technology needed to pay 1 billion performance compensation to it. Because Gan Qingcao and Zhu Ling took refuge abroad and refused to execute the effective ruling, Xunxing Co., Ltd. set up a special debt collection team last year to find the property of Gan Qingcao and Zhu Ling.

The sale of M&A assets by listed companies is reflected in Tongtuo Technology. At the end of last year, the cross-border circle was boiling over the strong combination of Huakai Yibai and Tongtuo Technology, two old cross-border e-commerce giants. As for the reason for the sudden sale of Tongtuo Technology, Huading shares said it was to further focus on the main business, optimize the asset structure and reduce operating risks. At the same time, the open letter issued by Tongtuo Technology also stated that the listed company Huading shares made such a decision because of the strategic needs of focusing on the nylon industry.

However, Yien.com believes that in addition to focusing on the core business, what is more important is that Tongtuo Technology's continued sluggish performance has seriously dragged down Huading Holdings.

In 2021, Tongtuo Technology was affected by the Amazon account blocking wave, with a total of 54 stores banned and closed, and frozen funds of up to 41.43 million yuan. Since then, its performance has continued to decline. In 2021, Tongtuo Technology's cross-border e-commerce export revenue was 5.347 billion yuan, a decrease of 1.6 billion yuan from the previous year. In 2022, it continued to decline, with revenue of only 3.290 billion yuan, a year-on-year decrease of 38.47%.

During this period, Tongtuo Technology was also suspected of violating the " PayPal Fair Use Rules", and its independent website's PayPal account was deducted 69 million yuan. The amount frozen by Amazon's account suspension wave plus the amount deducted from the PayPal account has consumed Tongtuo Technology's cash flow of about 110 million yuan.

The cross-border e-commerce business, which has been experiencing declining performance, and the dangerous cross-border e-commerce industry, are both discouraging Huading Shares from investing.

Hot money "cooling down"

The latest data from Qichacha shows that there are 60,513 cross-border e-commerce related companies (including existing and operating companies), of which 6,278 are in Shenzhen. 16,746 new companies were added within a year.

In 2021 and 2022, the cross-border e-commerce industry was hit hard by Amazon's account blocking and inflation, causing the number and scale of companies to shrink sharply. The market environment quickly cooled down from a booming market, and a number of cross-border e-commerce related companies "disappeared". By October 30, 2022, there were only 2,585 companies left.

Judging from the current data, sellers' confidence in the cross-border e-commerce industry has returned.

Not only that, in 2023, the cross-border circle has seen three A-share IPOs, including SRW, Santai, and Zhiou Home Furnishing, which sold well. "It's a very positive signal," said Zhang Heng, an investor at SRW, as capital regained confidence in cross-border e-commerce and the industry has re-entered a new positive state.

Capital's optimism about cross-border e-commerce is related to the current good performance of the industry .

Recently, Lv Daliang, spokesman of the General Administration of Customs and director of the Statistics and Analysis Department, said that according to preliminary estimates, China's cross-border e-commerce imports and exports will reach 2.38 trillion yuan in 2023, an increase of 15.6%. Among them, exports will reach 1.83 trillion yuan, an increase of 19.6%.

Prior to this, Wei Jianguo , former vice minister of the Ministry of Commerce and vice chairman of the China Center for International Economic Exchanges, said that China's cross-border e-commerce will become the fastest growing sector in the world in the next five years, and will form a three-legged pattern with general trade and processing trade in China's exports.

Although the cross-border e-commerce track continues to be favored, overall, investors have become much more cautious.

The "2022 China Cross-border E-commerce Investment and Financing Data Report" released by the China Internet Network Information Center shows that the total financing of China's cross-border e-commerce in 2022 was 6.2 billion yuan, a year-on-year decrease of 70.15%, only 30% of the total financing in 2021, and also the lowest in five years. At the same time, according to statistics from Ebrun Power, in the first half of 2023, a total of 35 cross-border e-commerce related companies completed financing. From the published financing amount, nearly 70% is less than 100 million yuan, and large financing is rare.

Taking logistics as an example, the cross-border e-commerce logistics circle had a financing amount of more than 5 billion yuan in 2019, but by 2022 it had been reduced to a few hundred million yuan, and the capital market has cooled significantly.

This process will have two effects: First, due to the decline in investment enthusiasm, it will be more difficult for cross-border e-commerce companies to raise funds. Many companies have to face the dilemma of finding new financing channels or adjusting their development strategies. Some small and medium-sized cross-border e-commerce companies may even go bankrupt. Second, industry consolidation and reshuffle will intensify. The cross-border e-commerce industry is highly competitive, and the trend of industry consolidation and reshuffle will further intensify. Some smaller or less profitable companies may be swallowed up or eliminated by stronger competitors, and the industry competition pattern will gradually tend to be centralized.

It is also worth noting that the balance of capital investment is tilting towards brand sellers. Data shows that among the 35 cross-border e-commerce related corporate financings completed in the first half of last year, 19 were brand financing events , and they often entered the market in the early stages of brand establishment. The movement of capital indicates the development direction of the cross-border e-commerce industry.

In fact, after the pain of Amazon's account suspension and high inventory, multi-channel and branding have become the consensus of sellers. The "Cross-border E-commerce Blue Book: China's Cross-border E-commerce Development Report ( 2023)" mentioned that cross-border e-commerce has entered the golden age of brand overseas expansion. 2022 is the year of the explosion of Chinese brands going overseas, and a large number of Chinese brands rely on cross-border e-commerce to enter the international market. China's cross-border e-commerce is entering the golden age of brand overseas expansion, and in the future, more Chinese products will enter the global market as "brands". By 2023, "opening stores on multiple platforms to spread risks" and "developing own brands and strengthening brand tone" will continue to be the main directions for sellers to adjust their business strategies.

The outstanding performance during the epidemic has allowed the capital market to see the huge potential of the cross-border e-commerce industry. So what is the future development prospect of cross-border e-commerce?

According to the MMR report, the cross-border B2C e-commerce market size was US$1,122.08 billion in 2023 and is expected to reach US$3,740.86 billion by 2030, with a compound annual growth rate of 18.77% during the forecast period.

FedEx mentioned in its article “Growth Opportunities for Cross-Border E-Commerce” that the fastest growing e-commerce markets in the future include Brazil, India and Argentina. Three European countries, Spain, Turkey and Italy, also ranked among the top ten.

Insai Group

Bird hunting at sea