Shocked! Lunan Fertilizer Plant, under Yankuang Group, files for bankruptcy with cumulative losses of 3.7 billion

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On October 31, Yankuang Lunan Fertilizer Factory applied for bankruptcy liquidation on the grounds that its assets were insufficient to cover all of its debts and it clearly lacked the capacity to repay them. On October 29, the Intermediate People’s Court of Zaozhuang City in Shandong Province ruled to accept the factory’s application for bankruptcy liquidation. This ruling takes effect as of today. It is reported that the predecessor of Yankuang Lunan Fertilizer Factory was Shandong Lunan Fertilizer Factory, which was established in 1967. In 1993, with the approval of the Zaozhuang Administration for Industry and Commerce, Yankuang Group and China Haohua Chemical (Group) Corporation jointly invested in establishing Yankuang Lunan Fertilizer Factory ； In 2010, Yankuang Group acquired 4.53% of the shares held by China Haohua Chemical (Group) Corporation, with Yankuang Group Co., Ltd. holding 100% of the investment. Public information shows that the main production capacities of Yankuang Lunan Fertilizer Plant are 250,000 tons per year of synthetic ammonia, 350,000 tons per year of urea, and 150,000 tons per year of methanol. In addition, it produces fine chemical products such as potassium carbonate, NHD solution, various high-purity gases, building materials, and xylitol. According to the asset appraisal report prepared by Shandong Sino-China-Singapore Asset Appraisal Co., Ltd., as of the appraisal date of June 30, 2018, the assets of Yankuang Lunan Fertilizer Plant that were included in the appraisal included buildings, equipment, land use rights, the technology related to the polyoxymethylene production project, and certain debts; the total appraised value of these assets was 882.9403 million yuan. On September 26, 2018, Yankuang Lunan Fertilizer Factory signed an Asset Purchase and Sale Agreement with Yankuang Lunan Chemical Co., Ltd., selling the aforementioned assets at their assessed value to the latter. After using this amount to settle the debts owed to it, a balance of 360,279,662.15 yuan remained unpaid. On October 4, 2018, Yankuang Lunan Chemical Co., Ltd. sent a letter to Yankuang Lunan Fertilizer Plant to demand payment. According to the audit report issued by Xinlianyi Accounting Firm Co., Ltd., as of September 30, 2018, Yankuang Lunan Fertilizer Plant had accumulated losses of 3.7 billion yuan, with a debt-to-asset ratio of 290.05%; its current liabilities exceeded its current assets by 3.19 billion yuan. The Intermediate People’s Court of Zaozhuang held that Yankuang Lunan Chemical Co., Ltd. was unable to realize its overdue claims against Yankuang Lunan Fertilizer Factory, and had sent a demand letter to that factory. The asset-liability ratio of Lunan Fertilizer Factory, as determined by an audit, was 290.05%, which is sufficient to conclude that the factory was unable to meet its overdue debts and thus met the criteria for bankruptcy. The applicant’s request complied with the provisions of the Bankruptcy Law; therefore, the court should accept the application for the bankruptcy liquidation of Yankuang Lunan Fertilizer Factory, and it did so. As the parent company of Lunan Fertilizer Factory, Yankuang Group is extremely powerful. According to its official website, Yankuang Group is a super-large energy enterprise whose core industries include coal, chemicals, equipment manufacturing, and financial investment. It is listed among the world’s top 500 companies. Its holding subsidiary, Yanzhou Coal Industry, is listed in Shanghai, **, and New York, while Yankuang Coal Australia is listed in Australia and is the largest independent coal company there. As a result, Yankuang Group is the only coal enterprise in China to have listing platforms in four different regions, both domestically and internationally. At present, Yankuang has become a large-scale enterprise group with coal production exceeding 100 million tons, operating revenue exceeding 100 billion yuan, and total assets of over 200 billion yuan. It ranks 6th among the top 50 coal enterprises in China in 2016, and has established a development framework featuring six major bases in Shandong, Shaanxi/Mongolia, Guizhou, Xinjiang, Australia, and Canada. Before the bankruptcy and liquidation of Lunan Fertilizer Factory, Yankuang Group had already established Yankuang Lunan Chemical Co., Ltd., which was a subsidiary formed by integrating the former Lunan Fertilizer Factory, Yankuang Guotai Chemical Co., Ltd., and Yankuang Guotai Acetate Chemical Co., Ltd. It is reported that Yankuang Lunan Chemical Co., Ltd. currently has total assets of 11 billion yuan, annual sales revenue of 6 billion yuan, and 3,749 employees. The company’s total production capacity is 2.6 million tons, of which 800,000 tons are acetic acid, 500,000 tons are urea, 550,000 tons are methanol, 200,000 tons are ethyl acetate, 150,000 tons are butanol, 40,000 tons are polyoxymethylene, 100,000 tons each are acetic anhydride and butyl acetate, and 200,000 tons are compound fertilizers. As a affiliated company of Lunan Chemical Plant, the operations of Yankuang Lunan Chemical Co., Ltd. have also been poor in recent years. Public records show that in 2017, Li Wei, the general manager of Yankuang Group, visited Lunan Chemical Company for an inspection. Li Wei pointed out that the group company attaches great importance to helping Lunan Chemical turn around its losses. How to enable Lunan Chemical to turn losses into profits or even achieve profitability, and thus fulfill the task of reversing losses assigned by the Provincial State-owned Assets Supervision Commission, is of top priority at present. Over the past year, the Provincial State-owned Assets Supervision and Administration Commission completed certain tasks related to dealing with companies that were losing money or were considered ‘zombie’ companies. New tasks were assigned for 2017, and it is hoped that Lunan Chemical will implement them resolutely. Source: Frontiers in Modern Coal Chemical Engineering