Well-known private equity firm sues A-share company for over 430 million yuan! Lost in the first trial, still trapped after 10 years of investment

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Spending nearly 600 million yuan to participate in an additional share offering of Shanghai Shiyang Development (600748), only to end up stuck in a long-term downturn—Kunzheng (Ningbo Meishan Free Trade Port) equity investment (hereinafter “Meishan Kunzheng”) is indeed somewhat frustrated. During this period, the listed company was penalized for violations related to information disclosure, which further worsened Meishan Kunzheng’s paper losses. To recoup its losses, Meishan Kunzheng filed a lawsuit, seeking compensation of more than 430 million yuan from the listed company. According to the latest developments, Meishan Kunzheng’s first attempt has failed.

On the evening of April 3, Shanghai Shiyang Development disclosed that it recently received a civil judgment letter from the Shanghai Financial Court. The court held that the transaction causal relationship between the plaintiff’s (Meishan Kunzheng’s) investment decision and the alleged false statements in the case did not hold, so it had no right to demand that the defendant (Shanghai Shiyang Development) compensate its investment losses. In the court of first instance, it ruled: all claims in Meishan Kunzheng’s lawsuit were dismissed; the case acceptance fee of RMB 2.2001 million shall be borne by Meishan Kunzheng.

Qichacha shows that Meishan Kunzheng has Kunzheng Capital serving as the executive affairs partner. Also, according to information from the China Securities Investment Fund Association, the actual controller of Kunzheng Capital is Guotai Junan Investment Management Co., Ltd.

A Securities Times · e-Company reporter noted that this is a dispute that has been unfolding for 10 years.

File suit to claim compensation after losses in the additional offering

In September 2024, Meishan Kunzheng initiated a lawsuit, requesting the court to rule that Shanghai Shiyang Development compensate it for the combined loss of its investment principal and interest losses totaling RMB 801 million, and repurchase the shares of Shanghai Shiyang Development that it holds, among other things.

Meishan Kunzheng stated that in 2015 it signed the “Stock Subscription Contract for Non-public Issuance of Shares by the Company” and related supplemental agreements with Shanghai Shiyang Development. One of the acquisition targets of this additional issuance project was Shanghai Shiyang Longchuang Intelligent Technology Co., Ltd. (the former controlling subsidiary of Shanghai Shiyang Development, hereinafter “Shiyang Longchuang”). Meishan Kunzheng believes that, according to the relevant penalty documents, Shanghai Shiyang Development failed to disclose the issuance information truthfully and should bear the actual losses it suffered due to improper information disclosure.

During the lawsuit, Meishan Kunzheng adjusted the cause of action to disputes over liability for securities false statements, and changed its claims to request that: Shanghai Shiyang Development compensate it for investment losses of RMB 431 million and so on caused by the false statements.

In response, the listed company put forward multiple arguments to rebut. The company believes that Meishan Kunzheng, as a professional investor, should be legally determined not to have relied on the case-related information when making its investment decisions. The “Profit Forecast Report” of Longchuang Energy Saving (the predecessor of Shiyang Longchuang) constitutes predictive information and does not amount to a false statement. Meishan Kunzheng’s contracting conduct occurred before the information disclosure documents related to the case were issued, so there is no causal relationship between the information disclosure content it asserts and its investment decisions. In addition, the subscription price of Meishan Kunzheng was not affected by (the listed company’s) information disclosure content, etc.

This is not the first time the two sides have clashed.

In May 2024, as a shareholder of Shanghai Shiyang Development, Meishan Kunzheng publicly “complained” that the company’s “dividend payout rate and dividend yield were significantly lower than the market average,” and suggested that the company adjust its 2023 profit distribution plan to “RMB 0.15 per share in cash dividends.” However, this proposal by Meishan Kunzheng was rejected by Shanghai Shiyang Development’s 2023 annual general meeting of shareholders.

Stuck in the additional offering for years

In January 2016, Shanghai Shiyang Development completed a non-public issuance. At a price of RMB 11.63 per share, it issued 336 million shares, raising RMB 3.9B. Of this, Meishan Kunzheng subscribed for 51.47M shares for RMB 599 million. In October 2016, Shanghai Shiyang Development increased capital reserves and distributed bonus shares to all shareholders at a ratio of 3 shares for every 10 shares. As a result, Meishan Kunzheng’s shareholding increased to 66.9084 million shares.

On January 22, 2019, the above-mentioned shares held by Meishan Kunzheng were unlocked and listed for trading. At that time, Shanghai Shiyang Development’s share price was only around RMB 5 per share. After that, the company’s share price surged at one point, reaching above the RMB 12 level in late April 2019, but then it fell into a pattern of oscillating decline.

In the late October of last year, Shanghai Shiyang Development’s share price once rebounded to above RMB 8 per share. Together with the more than RMB 4.72B in dividends accumulated over many years (including tax), Meishan Kunzheng’s paper loss narrowed significantly. However, the company did not implement any reduction in its holdings.

Based on Shanghai Shiyang Development’s closing price as of April 3 of this year (RMB 4.69 per share), Meishan Kunzheng’s shareholding is estimated to be worth about RMB 314 million.

Meanwhile, a case involving falsification by a subsidiary of Shanghai Shiyang Development was exposed. According to what regulators determined, Shanghai Shiyang Development’s former controlling subsidiary, Shiyang Longchuang, had inflated revenue by RMB 36.9k and inflated total profits by RMB 614 million over a 6-year period.

In January 2023, Shanghai Shiyang Development was placed on file for an investigation by the China Securities Regulatory Commission. In April 2024, the company was subject to administrative penalties by the Shanghai Securities Regulatory Bureau due to illegal acts including failing to disclose matters in a timely manner and making false records. In June of the same year, the Shanghai Securities Regulatory Bureau imposed administrative penalties on Cao Wenlong, the former chairman and general manager of Shiyang Longchuang. In December 2025, the Shanghai Higher People’s Court rendered a second-instance criminal judgment against Cao Wenlong. The judgment results show that Cao Wenlong’s contract fraud caused losses of more than RMB 118 million to Shanghai Shiyang Development.

Some individual investors “won the case” in the first instance

Worth noting is that some individual investors achieved victories in disputes with Shanghai Shiyang Development over “liability for securities false statements.”

According to court documents disclosed in mid-March on the China Judgments Online website, in October of last year the Shanghai Financial Court issued a first-instance civil judgment. In this case, Dong (董某) was the plaintiff. The defendants include Zeng (曾某), Xu (徐某), Tang (唐某), and a certain company (某丙) of the listed company. Based on information from multiple parties, the “certain company” in the judgment documents is Shanghai Shiyang Development, while Zeng, Xu, and others are the company’s former directors and senior executives.

As revealed by the judgment documents, with respect to group disputes involving investors suing “certain company” for false statements in the annual reports, the Shanghai Financial Court has already issued an effective exemplary judgment—(2023) Hu 74 Min Chu No. 646—confirming that the annual financial statements of “certain company” from 2016 to 2021 contained false records. The implementation date of the false records was March 29, 2017; the disclosure date was January 12, 2022; the benchmark date was March 1, 2022; and the benchmark price was RMB 3.95. For investors who bought shares of “certain company” during the period from the implementation date of the false statements to the disclosure date and held them until the final loss at the disclosure date, it should be presumed that there is a causal relationship between the false statement conduct and the loss. “Certain company” should compensate investors for the investment differential loss, commission, and stamp tax losses caused by the false statements.

The Shanghai Financial Court’s judgment ordered Shanghai Shiyang Development to pay plaintiff Dong a total of RMB 36.9k in investment differential loss, commission loss, and stamp tax loss. Another civil judgment issued in the same period shows that in the first instance, the Shanghai Financial Court ordered Shanghai Shiyang Development to pay another plaintiff Sheng a total of RMB 158.1k in investment differential loss and so on.

However, based on the two sets of adjudication documents above, Meishan Kunzheng’s timing for subscribing to Shanghai Shiyang Development’s additional issuance shares was not within the “period from the implementation date of (Shanghai Shiyang Development’s) false statements to the disclosure date.”

According to Qichacha, the second-instance hearings in 2024 for lawsuits between Dong, Sheng, and Shanghai Shiyang Development, among others, were scheduled and held in mid-January this year. But based on publicly available information, the specific progress of the second instance is unknown.

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