However, it has been more than 2 years since Foshan Lighting’s related transactions were revealed. On July 6, 2012, a "Decision on Administrative Supervision Measures" issued by the China Securities Regulatory Bureau brought to the surface a series of related transactions involving raw material procurement and product sales between Foshan Lighting from 2009 to 2012. What is even more shocking is that these related companies all had a close relationship with Zhong Xincai, who was the chairman of Foshan Lighting at the time. Among the actual controllers were Zhong Xincai's eldest son, second son, younger brother, wife and sister, etc. Affected by this negative news, the stock price fluctuated and fell.
Investors who suffered losses put their accounts on Foshan Lighting. The number of plaintiffs in the three batches of cases that have been filed has reached 1,303 and will continue to increase. The materials of the fourth batch have been submitted to the court and are waiting for the filing of the case. Many plaintiffs’ lawyers confirmed this news to NetEase Finance.
"After all, there is still a long time before the deadline for litigation (March 5, 2015). It is estimated that the number of people will exceed 2,000, and the total amount of claims is not easy to estimate," lawyer Wang Zhibin analyzed.
It is worth mentioning that, excluding cases that have not yet been filed, the first three batches of claims have reached 180 million yuan, while Foshan Lighting's net profit attributable to the owners of the parent company in 2013 was only 252 million yuan. It is no wonder that Foshan Lighting has "tenaciously resisted" this lawsuit.
Foshan Lighting’s objection was rejected by the court without any surprise. Nine months later (July 9, 2014), the first instance finally opened. Compared with the plaintiff’s only two lawyers, there were nine lawyers on the defendant’s bench, which was a strong lineup. They all came from the well-established Green Law Firm in Guangdong. They always defended the view that “investors’ losses are caused by systemic risks and should not be our responsibility.”
After the trial, Foshan Lighting refused to submit a mediation plan, which meant that it voluntarily gave up the opportunity for reconciliation. It should be mentioned that this is not the first time Foshan Lighting has given up on settlement. According to insiders, before the trial, the plaintiff's lawyer approached Foshan Lighting to negotiate an out-of-court settlement, but was rejected;
"We reported to the company's senior management after the trial, but there was no settlement plan. From the perspective of shareholders, the more compensation the better, while the company hopes the less the better, so it is difficult to reach an agreement." Li Bote revealed to NetEase Finance the reason why he has always refused to settle. , and he also emphasized that this lawsuit is related to the rights and interests of the company itself and the existing hundreds of thousands of shareholders, and he will go all out.
Regarding the current attitude of Foshan Lighting, the above-mentioned lawyer engaged in securities rights protection analyzed: "Within the two-year effective litigation period, the possibility that the company is willing to settle and admit compensation is very small. Otherwise, those investors who are waiting and watching will immediately join the claim team, causing the amount of compensation faced by the company to increase. Therefore, for Foshan Lighting, the best way is to delay."
"Although the shareholders have a very high chance of winning the lawsuit, they may go through twists and turns before receiving compensation. We do not exclude the judgment after the failure of this mediation, and then the second instance, enforcement, etc., but no matter what, we will represent the plaintiffs and pursue the claims to the end," lawyer Xie Liang of Guangdong Huanyu Jingmao Law Firm, the attorney for some of the second batch of plaintiffs, told NetEase Finance.
The litigation trauma of the "Lamp King"
Although the outcome of the lawsuit is still in suspense, it will undoubtedly cause trauma to the "Lamp King" who is in a critical period of transformation.
First of all, the secondary market has suffered real damage. On the day after the trial (July 10), Foshan Lighting's stock price plummeted 7.09%. It is worth noting that this kind of damage will not be the last before the case is concluded, so He Zaihua believes that it is difficult for Foshan Lighting's stock price to perform in the short term;
The second is the damage to the brand. "The company is a leading domestic lighting company that has been deeply involved in the industry for more than 50 years. It has more than 400 specialty stores and more than 2,000 terminal channel vendors, and has gained extremely high brand visibility and recognition. However, issues such as related-party transactions and letter approval violations have affected the company's brand image," He Zaihua told NetEase Finance.
Finally, once the lawsuit is lost, no matter how large the amount is, part of Foshan Lighting's profits will be swallowed up. If the amount is huge, it will even have an impact on the company's capital chain.
In this regard, Zhang Fan of CITIC Securities Research Department was relatively optimistic in his research report on June 30 and pointed out: "Litigation is a historical issue. Even in worse circumstances, based on financial indicators... The volume impact is also small and has nothing to do with operations. " NetEase Finance inquired about Foshan Lighting's financial data over the years and found that Foshan Lighting's monetary funds in the first quarter of 2014, the end of 2013, and the end of 2012 were as high as 964 million yuan, 898 million yuan, and 985 million yuan, which can be said to be sufficient funds; in addition, Foshan Lighting, known as the "cash cow", distributes bonuses every year Lidu is as high as hundreds of millions of yuan. From 2011 to 2013, the amounts were 245 million yuan, 303 million yuan and 157 million yuan respectively. Finally, there is a set of data that can supplement its financial situation: in the first quarter of 2014, the debt ratio was only 15.62%, long-term and short-term borrowings were zero, and there were no guarantees or mortgages. Foshan Lighting can be said to be debt-free.
But having said that, a good financial situation can only show that Foshan Lighting has a strong ability to resist financial risks. On the road of transformation of this traditional "lamp king" into the LED business, this unavoidable lawsuit has undoubtedly become a fetter. Despite this, many institutions still have high hopes for its future development. The list of the top ten shareholders in the first quarter of 2014 shows that five funds including Essence Securities and China Construction Bank-Huabao Industrial Selected Stock Securities Investment Fund hold heavy shares.
ANNA