Continuous daily limit down despite frequent positive developments: Is the 4.4 billion yuan contract in question?

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The Muliangu project commenced construction in March; the project’s senior management team is now in place. Shenwu Environmental Protection recently announced that it has signed an EPC contract worth nearly 4.4 billion yuan with Shaanxi Lianggu Clean Environmental Protection Technology Co., Ltd. This contract relates to the production of high-value chemical products through the selective and graded utilization of coal, thereby improving the overall level of coal utilization in Shenmu, Shaanxi. According to Shenwu Environmental Protection, the project is progressing smoothly at present; work is underway on the overall layout planning, environmental impact assessment, energy assessment, and water resource evaluation, as well as site surveys. Construction is set to begin officially in March this year. According to the project schedule, handover of the project is to be completed by September 30, 2020 ； Complete the feed-in trial run by October 8, 2020. It is reported that the project has received support from Shenmu City **. As early as May 2017, ** in Shenmu City, Shaanxi Province, held several in-depth discussions with Shenwu Environmental Protection. Through inspections and evaluations, it fully recognized Shenwu Environmental Protection’s preheating furnace pyrolysis technology for processing the local powdered long-flame coal, thereby producing high-value products such as blue carbon and needle coke, and addressing the issue of capacity upgrading in the local traditional coal chemical industry. In September 2017, the **Committee of Shenmu City assigned relevant leaders to lead a team from the enterprise to conduct research on Shenwu Environmental Protection, thereby determining the final technical solution. In September 2017, senior officials from Shenmu JinKong and Hongxin Chunshi visited Shenwu Environmental Protection to discuss the shareholder structure and investment agreement for a potential partnership project. The joint venture company for this project was registered in November 2017. Over the past two months, the board members, supervisors, and senior management of the joint venture have been appointed, and a team of 35 people has now been established, including a chief engineer, an engineering department, a technology department, and a general administrative department ； The project manager, design manager, planning manager, cost control manager, construction manager, procurement manager, and document control manager from the general contractor Shenwu Environmental Protection’s project team are all in place, and the capital required to initiate the approval processes and to operate the joint venture has also been secured. Regarding the shareholder background of the joint venture, Shenwu Environmental Protection stated that it was established with contributions from Shenmu JinKong – a large state-owned enterprise directly under the municipal government with a registered capital of 2.8 billion yuan – Hongxin Chunshi Investment, and Shenwu Environmental Protection itself. Hongxin Chunshi Investment holds 51% of the shares, Shenmu JinKong holds 30%, while Shenwu Environmental Protection, acting as the technology provider, holds 19% of the shares. However, it has been revealed that in order to further streamline the shareholder relationships, there will be changes in the shareholder structure around the Spring Festival. Shenmu JinKong, Hongxin Chunshi, along with other strategic investors, will jointly fund the establishment of a Shenmu JinKong Energy Industry Investment Fund Company. This fund company will then use industrial funds to increase its investment in Shaanxi Lianggu Clean Technology Co., Ltd., thereby taking over a total of 81% of the shares held by Shenmu JinKong and Hongxin Chunshi. At that time, Hongxin Chunshi will act as the management company for this fund, while Shenwu Environmental Protection’s shareholding in the joint venture will remain unchanged. In December 2017, the joint venture project passed the evaluation by a review committee headed by Du Minghua, the former director of Shenhua Research Institute, which deemed the project to have good economic and social benefits. During this period, the Shaanxi Provincial Development and Reform Commission and the Environmental Protection Department approved the energy consumption and environmental capacity indicators, and the project was registered on December 8 (registration number: 2017-610821-25-03-045450). Meanwhile, the project was designated by the Shenmu Municipal Party Committee and Government as a key chemical project within the Northern Shaanxi Energy and Chemical Industry Base, and a project promotion team headed by the executive vice mayor was established to oversee the progress of implementing this project. Despite repeated positive announcements, the stocks continued to hit daily price limits downward. A 4.4 billion yuan EPC contract came under scrutiny. The two companies in the Shenwu group – Shenwu Environmental Protection and Shenwu Energy Saving – which resumed trading after the cancellation of their restructuring plans, have recently faced severe difficulties: the stock price of Shenwu Environmental Protection hit daily price limits downward for four consecutive days, while that of Shenwu Energy Saving dropped by 8.91% last Friday, following three such days of declines. To boost investor confidence, Shenwu Environmental Protection and Shenwu Energy Saving have recently announced a number of positive developments. In addition to the aforementioned large contract worth 4.4 billion yuan signed on January 8, Shenwu Environmental Protection also revealed that the company recently signed a memorandum in Mongolia with Fumeng Resources Limited regarding cooperation in the field of coal chemical processing. The two parties intend to pursue strategic partnerships for coal-to-gas projects in Mongolia, with Shenwu Environmental Protection acting as the EP+S contractor for such projects; the ultimate goal is to produce 3 billion cubic meters of natural gas per year. Additionally, on January 16, Shenwu Environmental Protection announced that the \"Chemical Integration Demonstration Project for the Utilization of Long-flame Coal: Supply and Construction Contract for a 400,000-ton/year calcium carbide production facility\" and the \"Supply and Construction Contract for the Preheating Furnace System of the same project\" – contracts signed in 2014 between Shenwu Xinjiang, a subsidiary of Shenwu Environmental Protection, and Xinjiang Shengwo (collectively referred to as the \"Phase 1 of the Xinjiang Shengwo Project\") – had been put into operation. However, these positive developments related to Shenwu do not seem to have convinced its investors. At the midday session on January 19, 2018, both Shenwu Environmental Protection and its related companies saw a rebound in their stock prices, but this was only temporary; subsequently, the stock prices of these two companies dropped rapidly. Shenwu Environmental Protection closed at the lower limit of its range, with a closing price of 17.61 yuan per share. Shenwu Energy Saving saw a decline of nearly 9%, closing at 21.36 yuan per share. According to investigations by reporters from China Business News, there may be more “secrets” behind this large project worth 4.4 billion yuan. The signing date of this contract is stated to be January 17, 2018, which was the day before it issued its announcement, and also the first day of the review of Shenwu’s \"Twin\" project. Upon checking business registration records, the reporter learned that Shaanxi Lianggu was established with joint investment from three companies. Among them, Beijing Hongxin Chunshe Investment Management Co., Ltd. (hereinafter referred to as “Beijing Hongxin Chunshe Investment”) contributed 765 million yuan, holding a 51% stake ； Shenmu City Financial Holding Group Co., Ltd. invested 450 million yuan, holding a 30% stake ； Shenwu Environmental Protection invested 285 million yuan to hold a 19% stake. Looking at the composition of the three shareholders, the first two major shareholders seem to be more skilled in financial investment, while the latter may place more emphasis on the real economy. Furthermore, the legal representatives of both Beijing Hongxin Chunshi Investment and Shaanxi Lianggu are Wei Chuwén. Beijing Hongxin Chunshi Investment was established in December 2013, with a registered capital of only 50 million yuan. On November 1, 2017, the company was listed as having abnormal business operations by the Tongzhou Branch of the Beijing Administration for Industry and Commerce due to the fact that it was impossible to get in touch with its registered address or place of operation. According to business registration records, the registered address of Beijing Hongxin Chunshe Investment is 203-1, 2nd Floor, Building 5, Jiacang Road, Tongzhou District, Beijing. A person claiming to be a shareholder of Beijing Hongxin Chunshe Investment told reporters from China Business News that the company’s main business is financial investment, and it has a long-term partnership with Shenwu Group in the capital market; however, it does not invest in coal-related projects that are high in energy consumption. The reason for investing in Shaanxi Lianggu was merely to maintain a fund structure. The shareholder did not reveal the name of the fund, but said that they do not plan to invest in this project any further.