Finance Talk | Debt, Cash Flow, and Collateral: The Triple Pressure, Is Shenzhen Huaqiang Being "Bleed"?

Jiemian News Reporter | Yuan Yingqi

Shenzhen Huaqiang (000062.SZ) has a wealth management fund not exceeding 1 billion yuan that is drawing market attention.

Jiemian News reporters found in the company’s balance sheet that by the end of 2025, Shenzhen Huaqiang’s short-term borrowings reached 5.541 billion yuan, with non-current liabilities due within a year at 690 million yuan, and short-term debt accounting for 76.2% of interest-bearing liabilities; operating cash flow saw a net outflow of 990 million yuan, with financing cash flow showing a net outflow for several consecutive years. Meanwhile, the listed company’s related transactions with Huaqiang Group Financial Co., Ltd. are ongoing—by the end of June 2025, the listed company’s deposit balance at the financial company reached 1.187 billion yuan.

Shenzhen Huaqiang’s “idle money management,” large-scale financing by the controlling shareholder, and nearly half of the listed company’s deposits being aggregated into a financial company controlled by the major shareholder—do these phenomena have a connection? Where exactly is the company’s capital flowing?

Triple Pressure of Debt, Cash Flow, and Guarantees on Shenzhen Huaqiang

Shenzhen Huaqiang reported a net profit attributable to shareholders of 463 million yuan for the full year of 2025, a year-on-year increase of 117.38%, seemingly delivering a solid operational report. However, Jiemian News reporters conducted an in-depth analysis of its financial data and found that behind this impressive performance lies a triple hidden worry of high debt, pressured cash flow, and prominent guarantee risks; the company’s cash flow situation is not optimistic.

The divergence between profit growth and cash flow performance is the primary contradiction in Shenzhen Huaqiang’s financial condition. In 2025, the company reported a net profit of 463 million yuan, but the cash flow from operating activities showed a net outflow of 990 million yuan, indicating a significant differentiation between profit and cash flow.

Behind this divergence is the persistently high accounts receivable and declining turnover efficiency. In 2025, Shenzhen Huaqiang’s accounts receivable stood at 7.12 billion yuan, with the proportion of total assets rising from 28.97% in the same period of 2023 to 38.73% in 2025; the accounts receivable turnover days increased from about 69 days before 2023 to the current 92 days, with the recovery period noticeably extended, further increasing the pressure on capital occupancy and directly intensifying the pressure on operating cash flow.

More critically, cash flow from financing activities also showed weakness, further tightening the company’s cash flow. Data shows that since 2022, the company has frequently experienced large outflows in cash flow from financing activities, with a net outflow of 1.5 billion yuan in 2024 and a net inflow of 1.3 billion yuan in 2022, while only a total net inflow of 700 million yuan was recorded for 2025 and 2023 combined.

“Continuous net outflows in financing cash flow indicate that the company is either actively deleveraging and shrinking financing scale or passively facing a situation of tightened bank credit and restricted financing channels. In either case, it signifies that the company’s capital allocation space is continuously shrinking,” a senior auditor from an accounting firm told Jiemian News reporters.

The imbalance in the debt structure, compounded by pressured cash flow, further exacerbates the company’s financial stress. By the end of 2025, Shenzhen Huaqiang had short-term borrowings of 5.541 billion yuan, with non-current liabilities due within a year amounting to 690 million yuan, totaling approximately 6.231 billion yuan in short-term debt, which accounted for 76% of the total interest-bearing liabilities, concentrating the short-term repayment pressure. During the same period, the company’s cash and cash equivalents stood at 2.886 billion yuan, insufficient to cover short-term debt, indicating a significant funding gap.

“Using short-term borrowings to support long-term operating capital needs is a typical case of ‘short debt long investment,’ and this model itself carries significant liquidity risks,” a representative from a bank’s credit department said in an interview with Jiemian News. Under the dual backdrop of extended repayment cycles and continuous outflows of financing cash flow, the company’s cycle of “borrowing new to repay old” will become increasingly strained. Should financing break down, it could face a liquidity crisis.

The risk of external guarantees has become another hidden danger in the company’s financial situation. By December 2025, Shenzhen Huaqiang and its holding subsidiaries had a cumulative external guarantee balance of 7.506 billion yuan, accounting for 107.88% of the latest audited net assets attributable to shareholders, having surpassed the 100% risk warning line. According to regulatory requirements, any guarantees exceeding 50% of net assets must undergo strict review, and the guarantee ratio of Shenzhen Huaqiang has far exceeded conventional standards, meaning that should any guaranteed party default, the company could face a risk of net assets reaching zero. Although the company claims “guarantee risks are controllable,” this statement lacks concrete quantitative data to support it.

Moreover, the significant differences in the debt repayment capabilities of the guaranteed subsidiaries further amplify the guarantee risks. Data from the end of September 2025 shows that the wholly-owned subsidiary Hong Kong Xianghai has a debt-to-asset ratio of 30.7%, indicating strong repayment capacity; however, Huaqiang Semiconductor (Hong Kong) has a debt-to-asset ratio of 71.3%, exceeding the 70% regulatory concern line, indicating weaker repayment capacity. Additionally, other shareholders of the holding subsidiary Qinuo (Hong Kong) have not provided guarantees according to their shareholding ratios, only providing counter-guarantees through equity pledges. This means if Qinuo (Hong Kong) defaults, Shenzhen Huaqiang will assume full guarantee responsibility, while other shareholders will only bear limited losses through pledged equity.

High Dividends “Bloodletting” the Listed Company

While the listed company faces cash flow pressure, another operation continues—large dividends.

In 2025, Shenzhen Huaqiang has implemented two rounds of dividends: a mid-term dividend of 2.00 yuan in cash for every 10 shares, and a third-quarter dividend of the same amount, totaling 418 million yuan in dividends. The latest annual report indicates that the company also plans to distribute a cash dividend of 1.00 yuan for every 10 shares at the end of the year. The total cash dividends for 2025 reached 523 million yuan, with a dividend payout ratio of 112%.

This is not an isolated case. In 2024, the company paid a total cash dividend of 450 million yuan, with a dividend payout ratio of 211%.

“This means the company is using almost all of its profits, even beyond its profits, for dividends. In the context of tight cash flow and overwhelming short-term debt, such a high dividend policy appears particularly abnormal,” a brokerage analyst who has been tracking Shenzhen Huaqiang for a long time told Jiemian News reporters. Under normal circumstances, companies will appropriately lower their dividend ratio during periods of cash flow tightness and high repayment pressure, retaining funds to supplement working capital or repay debts; however, Shenzhen Huaqiang’s actions are the opposite.

The controlling shareholder, Huaqiang Group, is the biggest beneficiary of this dividend policy. By the end of 2025, Huaqiang Group directly held 728 million shares of Shenzhen Huaqiang (including pledged shares), with a shareholding ratio of 69.59%. By this calculation, from the 520 million yuan in dividends for 2025, the controlling shareholder received approximately 359 million yuan in cash. In 2024, Huaqiang Group received dividends of 313 million yuan.

It raises questions about the timing of the dividends. In the first half of 2025, the company’s operating cash flow decreased by 32.57% year-on-year, with short-term debt looming and financing cash flow showing a net outflow for several consecutive years. Why, in the context of tight funds, would the company distribute a large portion of its profits as dividends?

Exchangeable Bonds—A Hidden Channel for De facto Reduction of Holdings

In 2025, Shenzhen Huaqiang’s controlling shareholder, Huaqiang Group, issued three phases of exchangeable corporate bonds in quick succession. In August of that year, the “25 Huaqiang E1” was issued with a scale of 700 million yuan; in September, “25 Huaqiang E2” was issued with a scale of 1.7 billion yuan; and in December, “25 Huaqiang E3” was issued with a scale of 1.3 billion yuan. The total financing from the three phases reached 3.7 billion yuan, with a coupon rate of 0.01%.

Exchangeable bonds are fundamentally different from convertible bonds: convertible bonds are issued by the listed company, with funds entering the listed company for development; exchangeable bonds are issued by shareholders, with funds going into the shareholders’ pockets. Exchangeable bonds are essentially a financing tool where shareholders pledge their shares in the listed company. According to relevant interpretations from the China Securities Journal, the core logic is that during the bond’s term, holders can convert their debt into the underlying stock at an agreed price. If the stock price rises subsequently, triggering the conversion, holders can sell the stock for profit, while the issuer (controlling shareholder) indirectly completes a reduction of holdings without increasing the total share capital of the listed company.

The subtlety of this financing tool lies in its potential to become a channel for major shareholders to reduce their holdings in disguise. A bond investment manager explained to Jiemian News: “If a major shareholder wants to reduce their holdings but does not want the outside world to know or does not want to immediately lose control, they will opt to issue exchangeable bonds. After issuance, the major shareholder gets the financing, and the bondholders can choose to convert at maturity. There’s a time lag; after the issuance, the major shareholder has already received the funds, and whether and when the shares are transferred will be a future matter. It seems as if the shares haven’t changed, but in reality, it’s already a disguised reduction of holdings.”

The three phases of exchangeable bonds issued by Huaqiang Group all have an initial conversion price of 29.97 yuan per share. All three bonds were issued in 2025 with a three-year term, leaving just over two years until maturity. The terms of the bonds include a redemption mechanism: after maturity, Huaqiang Group will redeem all unconverted bonds at a price of 106% of the par value for “25 Huaqiang E1” and “25 Huaqiang E2”; the redemption price for “25 Huaqiang E3” will be 103% of par value.

“The change in redemption conditions indicates that the market has a more optimistic expectation for Shenzhen Huaqiang’s stock price, and investors are willing to accept a lower guaranteed return,” the aforementioned bond investment manager stated. “However, for the listed company, this is not a good thing—by issuing exchangeable bonds, the controlling shareholder has preemptively secured 3.7 billion yuan in financing, indicating the urgency of their funding needs; if Shenzhen Huaqiang’s stock price remains above 29.97 yuan in the next two years, bondholders will choose to convert, leading to a dilution of the controlling shareholder’s stake, which may affect the stability of company control. More critically, this disguised reduction of holdings does not trigger a reduction announcement, and minority shareholders are often the last to know, leaving their interests inadequately protected.”

Financial Company—The “Hub” of Capital Aggregation

In August 2025, Shenzhen Huaqiang renewed its “Financial Services Agreement” with Huaqiang Group Financial Co., Ltd. According to the agreement, the financial company provides the listed company with a comprehensive credit limit of 2.5 billion yuan, while the listed company and its subsidiaries can have a maximum daily deposit balance at the financial company not exceeding 2.5 billion yuan.

This agreement itself is not uncommon—many corporate groups establish financial companies for internal capital management. However, comparing the terms of the agreement with actual execution, some details warrant attention.

As of June 30, 2025, Shenzhen Huaqiang’s deposit balance at the financial company was 1.187 billion yuan, accounting for 42.90% of the company’s total deposits of 2.768 billion yuan. Meanwhile, the company had zero loan balance with the financial company.

In contrast, the company’s loan balance from banks during the same period was 6.124 billion yuan. The listed company bears the interest expenses on bank borrowings (109 million yuan) while depositing large amounts of funds in the financial company. The financial company uses these deposits for interbank lending or investments, generating interest income. In and out, the listed company incurs interest loss, while the financial company controlled by the major shareholder gains profits.

It is noteworthy that the financial company itself has compliance issues. In June 2025, Huaqiang Group Financial Co., Ltd. was fined 400,000 yuan by the Shenzhen Financial Regulatory Bureau for “failure to rectify issues found during on-site inspections,” and the then-chairman Zhao Jun was warned. The description of “failure to rectify issues” in the penalty announcement suggests that the problems were not discovered for the first time, but have been recurring and not thoroughly addressed.

The related transactions between the listed company and the financial company are not isolated business arrangements. They echo the listed company’s high dividends and the controlling shareholder’s exchangeable bonds—dividends transfer cash from the listed company to the controlling shareholder, while the financial company aggregates deposits into a platform controlled by the major shareholder, and exchangeable bonds allow the controlling shareholder to secure financing in advance. These three channels operate concurrently, all pointing to the funding needs of the controlling shareholder.