Wonders Information Terminates $307 Million Stock Placement

Shenzhen-listed Wonders Information Co. Ltd. (300168.SZ) became the latest publicly traded company to scrap plans for raising funds via private placement with strategic investors after regulators closed a loophole in loosened rules.

Wonders Information, a provider of information technology software and services, terminated a plan to sell as much as 2 billion yuan ($307 million) of stock to its largest shareholder, China Life Insurance Co. (601628.SH), in a private placement, the company said Thursday citing the policy change. Wonders said it is actively pursuing new financing plans.

The reversal deflected a tightening in the definition of strategic investors by the China Securities Regulatory Commission (CSRC) in March 2020. A month earlier, the commission dramatically eased refinancing rules for publicly traded businesses to encourage the introduction of strategic shareholders, allowing bigger sales at deeper discounts.

The new rules prompted a rush by companies to sell shares in private placements. Some businesses designated their own executives and wealth managers as strategic investors and sold them cheap stock. Within the first month, 130 companies unveiled share sale plans, about half of which named strategic investors, according to Shanghai Securities News.

To close the loophole, the CSRC stiffened the definition of strategic investors, specifying that they must own key resources and participate in the company’s governance. It ruled that such investors must also have either technological strengths to help improve profitability or be able to help boost sales.

Wonders determined that the original private placement plan with China Life was no longer feasible under the new definition, China Life said. Neither company explained why China Life wouldn’t qualify as a strategic investor. China Life is Wonders Information’s largest shareholder, with 18.21%. The insurer signed a three-year strategic cooperation agreement with Wonders in November.

The two companies have conducted collaborative sales activities across the country, involving smart city government management and services and medical and health services, the companies said. The insurer said the two companies will continue collaboration in core business areas such as health care, smart city, cloud computing and big data.

The relaxation private placement rules enable companies to sell shares equivalent to 30% of existing share capital rather than 20% as previously allowed. It also increases the number of investors in each deal to a maximum of 35 from 10. The revision also allows shares being sold to strategic investors to be discounted by as much as 20%, up from 10% previously, and halves the period during which resale is prohibited to 18 months.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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