Tech Giants: Starting from Bankrupt Companies

118: Chapter 118 CSRC Interviews Corporate Spin-offsNovember 16th, 3:00 PM, CSRC small conference room.

Su Chen arrived on time with Lin Wan.

This was the first time the CSRC had formally interviewed the actual controller of Spark Group, and the atmosphere was much more formal than the last interview with the Board Secretary.

The conference room was small, with an oval conference table made of dark wood, and a chart of the history of capital market development hanging on the wall.

In addition to Director Li, several heads of the Listing Department and the Company Department were also present.

”Welcome, President Su,” Director Li stood up to shake hands. ”Thank you for taking time out of your busy schedule to come here.”

”It’s my duty,” Su Chen smiled. ”Spark Group’s development is inseparable from the support of the capital market.”

After the pleasantries, they went straight to the topic.

Director Li pulled up a projection showing the transaction data of Spark Group for the last five days.

”President Su, first of all, congratulations to Spark Group for achieving such astonishing results,” Director Li said. ”A net profit of 80.3 billion is not only a milestone for Chinese technology companies but also a milestone for the entire A-share market.”

”Thank you,” Su Chen nodded.

”But behind these achievements, there are hidden worries.” Director Li switched the screen to a liquidity analysis chart. ”Look, the turnover rate of Spark Group has dropped below 0.1%, and the daily turnover is less than 2 billion. For a company with a market value of 3.6 trillion, this liquidity is unhealthy.”

Su Chen looked at the chart seriously: ”Director Li, we have also realized this problem. But how can we solve it? We cannot force shareholders to sell their stocks.”

”Of course not,” Director Li said. ”That is why we need to solve it structurally. I invited you here today to discuss a possibility—is Spark Group considering a split?”

”A split?” Su Chen raised his eyebrows slightly.

”Yes,” Director Li pulled up the organizational structure chart of Spark Group. ”Currently, Spark Technology is the parent company, with eight core subsidiaries: Spark Power (automotive three-electric systems), Xinghuo Optoelectronics, Hongqi Automobile, Spark Materials, Xinghuo Chip, Spark Industry, Spark Communications, and Xinghuo Electronics. Under Xingchen, there are Xingchen Military Industry, Xingchen Heavy Industry, Shenyang Machine Tool, and the Xingchen Academy of Sciences.”

”These seven major businesses, if taken out individually, are all companies that can be listed independently. If split, there are several benefits:”

”First, it solves the liquidity problem. Each subsidiary can be listed independently, expanding the circulating shares and allowing more investors to participate.”

”Second, it facilitates better financing and development. Each subsidiary can conduct equity financing or debt financing according to its own business characteristics, accelerating development speed.”

”Third, it clarifies valuation. Currently, the market values Spark Group as a whole, but the value of different businesses is blurred. After the split, Hongqi Automobile can be valued as an automobile company, Spark Materials as a materials company, and Xingchen Semiconductor as a chip company... The total valuation might be even higher.”

Su Chen did not respond immediately. He picked up his teacup, gently blew the tea leaves on the surface of the water, and pondered.

Lin Wan was recording on the side, her typing speed very fast.

”Director Li, a split indeed has benefits,” Su Chen spoke slowly, ”but there are also many challenges. First, the issue of business synergy. The core competitiveness of Spark Group is business synergy—chips provide computing power for cars, materials provide the foundation for chips, and cars provide application scenarios for chips and materials. After the split, will this synergy be weakened?”

”We can establish a holding structure,” the head of the Listing Department interjected. ”Spark Group, as the holding company, will hold the controlling stake in each subsidiary. Daily operations will be independent, but strategic synergy will be preserved.”

Su Chen nodded: ”Second, management complexity. Going from one company to eight companies (the group plus seven subsidiaries), the management difficulty will increase exponentially.”

”But it will also cultivate more management talent,” the head of the Company Department said. ”Right now, Spark Group is too big, and all decisions are concentrated on you. After the split, each subsidiary will need an independent management team, which will accelerate talent growth.”

”Third, time cost,” Su Chen continued. ”Splitting and listing require a lot of time and energy. We are currently in a period of rapid development. Will being distracted by capital operations affect our core business?”

Director Li smiled: ”President Su, this is the core of what we want to talk about today—it’s not about splitting immediately, but planning. We can formulate a three-year split and listing plan, proceeding step by step.”

He pulled up a draft schedule:

”Q1 2018: Start research on the split plan, hire investment banks, law firms, and accounting firms. Complete the plan design and convene a shareholders’ meeting for deliberation. Submit application materials to the CSRC. Once approved, start implementing the split.”

”Q2 2018: List Spark Electronic Technology, asset injection: Xinghuo Electronics (consumer electronics) + Xinghuo Optoelectronics (camera modules).”

”Q3 2018: List Spark Power Technology, asset injection: Spark Power (batteries) + Spark Industry (electric motors and drives).”

”Q4 2018: List Xinghuo Semiconductor, special structure: adopt a ’dual-class stock’ structure (the founding team has special voting rights). Asset injection: Xinghuo Chip + chip-related patents from the Xingchen Academy of Sciences.”

”Q1 2019: List Xinghuo Automobile, asset injection: 80% equity of Hongqi Automobile + 51% equity of Spark-Arab Automobile.”

”Q2 2019: List Xingchen Military Industry, special arrangement: introduce state-owned strategic investors to form a ’private enterprise-led, state-owned capital-supervised’ model. Asset injection: Spark Materials + Xingchen Military Industry + 51% equity of Spark-Arab Defense Company.”

”Q3 2019: List Xingchen Heavy Industry, final split: after other sectors are stable, asset injection: Xingchen Heavy Industry + 80% equity of Shenyang Machine Tool.”

”In this way, in two years, we can complete the capital restructuring of the entire group. It solves the liquidity problem without causing too much impact on the core business.”

Su Chen looked at the schedule and fell into deep thought.

The conference room was very quiet, with only the slight hissing sound of the air conditioner. Outside the window in Beijing, the autumn sunlight shone through the blinds, casting mottled light and shadows on the table.

After a long while, Su Chen raised his head.

”Director Li, this is a very good suggestion,” he said. ”But I need time to consider it, and I also need to discuss it with my team. Also, if we split, how will the rights and interests of state-owned shareholders be guaranteed? Currently, SASAC holds 15% of Spark Group’s shares through Shenzhen state-owned assets. How will the equity structure be arranged after the split?”

”This is exactly the next topic,” Director Li pulled up the equity structure chart. ”Our suggestion is: during the split process, state-owned shareholders will hold equity in each subsidiary in proportion, maintaining the control of state-owned capital in key areas. At the same time, through mixed-ownership reform, we will introduce strategic investors to optimize the governance structure.”

He paused and added: ”President Su, let me be blunt. Spark Group is too big now; it already concerns national strategy. The capital market needs it to develop healthily, and the country also needs it to develop healthily. A split is not to weaken Spark Group, but to turn it from a behemoth into a healthy ecosystem.”

Su Chen understood. This was not just a simple capital operation suggestion, but a strategic consideration from a higher level.

The value of Spark Group had exceeded the commercial scope and had become a symbol of national technological strength. How to manage this symbol and how to keep it vibrant without losing control was a topic placed before the decision-makers.

A split might be an answer.

”I accept this suggestion,” Su Chen finally said. ”After the Spring Festival, Spark Group will start the split research. In Q1 2018, we will start the preparation of application materials.”

Director Li breathed a sigh of relief: ”That’s great. The CSRC will fully support it and open a green channel.”

”But I have three conditions,” Su Chen held up three fingers.

”Please go ahead.”

”First, during the split process, we must ensure that business synergy is not interrupted. We need to establish a sound internal transaction and collaboration mechanism.”

”It can be written into the plan.”

”Second, employee stock ownership must be properly arranged. Currently, Spark Group employees hold options in the parent company. After the split, the options must be converted into equity or options of each subsidiary to protect employee interests.”

”This is a must.”

”Third, after the split, Spark Group must maintain control over key subsidiaries. Especially for strategic businesses like chips, materials, and military industry, the controlling stake cannot be diluted.”

Director Li smiled: ”President Su, what you are worried about is exactly what the country is worried about. We fully agree to these conditions.”

The meeting ended at five o’clock in the afternoon. When they walked out of the CSRC building, it was already dusk in Beijing. The setting sun plated the buildings on Chang’an Avenue with gold, and traffic flowed like a stream. This ancient and modern city displayed its unique grandeur in the autumn day.

”President Su, are we really going to split?” After getting into the car, Lin Wan asked softly.

”It’s the general trend,” Su Chen looked out the window. ”A tall tree attracts the wind. The big tree that is Spark Group now is already so high that people are worried it will fall. Splitting it into a forest will make it more stable.”

”But the management difficulty...”

”That’s why we need to cultivate more managers,” Su Chen said. ”Lin Wan, are you ready to take on a heavier burden?”

Lin Wan was stunned: ”What does President Su mean?”

”If we split, Spark Group will need a CEO to manage the entire ecosystem,” Su Chen looked at her. ”I think you are suitable.”

Lin Wan was shocked: ”President Su, I... I am not qualified yet.”

”In these three years, you have grown from my assistant into a manager capable of handling things on your own,” Su Chen smiled. ”You have handled European negotiations, capital operations, and government relations very well. Believe in yourself.”

The car drove to the airport. Su Chen had to catch a late flight back to Shenzhen.

On the way, he sent a message to several core executives: ”Meeting this weekend to discuss the group split. Keep it confidential.”

The capital market’s frenzy again.

November 17th, Spark Technology’s stock price opened at 3,500 yuan, closed at 3,580 yuan, an increase of 2.3%.

November 18th, opened at 3,620 yuan, closed at 3,685 yuan, an increase of 3%.

November 19th, opened at 3,720 yuan, closed at 3,742 yuan, an increase of 1.5%.

In three days, the cumulative increase was 15%.

The stock price broke through 3,742 yuan per share, and the market value reached 4.116 trillion yuan—breaking the 4 trillion mark.

And the turnover? The three days were 1.8 billion, 1.5 billion, and 1.2 billion, respectively, with the turnover rate remaining at around 0.1%.

Liquidity had completely dried up.

But this time, the market had a new expectation—a split.

On the evening of November 19th, a rumor circulated in the investment circle: ”Spark Group plans to split, and seven subsidiaries will be listed independently.”

The source of the news was unknown, but it spread extremely fast. The next day, almost all brokerage reports began to analyze the possibility of a split.

What does a split mean? It means that holding 1 share of Spark Technology now might mean holding shares of 7 subsidiaries in the future. This is a ”free lottery ticket.”

November 20th, Monday.

Opening price: 3,850 yuan, an increase of 2.9%.

Sealed order funds: 60 billion yuan.

Turnover: 1 billion yuan.

Liquidity dropped to freezing point.

That afternoon, the CSRC issued an announcement: ”Recently, the stock prices of some listed companies have fluctuated abnormally, and market liquidity is insufficient. The CSRC will continue to pay attention and guide listed companies to improve liquidity through various means to promote the healthy development of the market.”

Although no names were mentioned, everyone knew who it was talking about.

After the announcement was released, Spark Group’s stock price briefly pulled back to 3,800 yuan, but was quickly pushed up by buying orders again. In one week, it went from 3,450 to 3,950, an increase of 14.5%. The market value reached 4.35 trillion.

But this rise had a new logic—not blind fanaticism, but a value revaluation based on split expectations.

The market had gone crazy.

The curtain of the split was about to be raised, and a new chapter was about to begin.