Jiangsu Hengshunda Bio-Energy Co., Ltd. (hereinafter referred to as "Hengshunda"), an enterprise that once claimed to be committed to the industrialization development of biodiesel, has stopped production because of the break of the capital chain caused by bank loans, and even came to the brink of bankruptcy.

The reporter of "China Business News" was informed that Hengshunda has been in arrears with employees for five months’ salary and seven months’ social security due to financial constraints. At present, Hengshunda’s outstanding debts to major banks and financial leasing companies reach about 123 million yuan. Due to the debt default, the company’s working capital was almost exhausted, and Hengshunda stopped production and operation, and tried to negotiate with financial institutions to restructure the debt with the intervention of the local government.

However, in the interview, our reporter also found that the problem that Hengshunda is currently facing is not only debt default, but also many doubts about the company’s operating performance. At the same time, due to the break of the capital chain, it is also unknown whether the biodiesel project that Hengshunda cooperates with Sinopec can be put into production on schedule.

Stop production and pay back wages

Founded in 2006, Hengshunda is a new energy enterprise specializing in the research, development, production and operation of biodiesel and related green renewable energy products, with a registered capital of 91.8 million US dollars.

According to the official website of Hengshunda, the total investment of the company’s project in Zhenjiang New District, Jiangsu Province is 400 million US dollars, which will be implemented in three phases, of which the total investment in the first phase is 90 million US dollars and the registered capital is 30 million US dollars. The main raw materials are waste acidified oil and non-edible animal and vegetable oils, and the annual production of biodiesel is 200,000 tons.

However, on June 24 this year, Hengshunda suddenly announced that due to the shortage of funds, the bank’s working capital loan failed to be renewed in time, resulting in the overdue of some loan principal and interest of the company, and the business could not be carried out normally. The company has stopped production since April this year.

Yan Xiaojian, executive vice president of Hengshunda, also told the reporter of "China Business News" that the main reason for the shortage of working capital is that since last year, banks have stopped lending abroad after collecting loans, and at the same time, based on the total production capacity of the first phase of 150,000 tons, the second phase of the company has also been launched, which requires a lot of capital investment.

At present, the total loan of Hengshunda is 476 million yuan, the collective bill is 130 million yuan, the private debt of small and medium-sized enterprises is 150 million yuan, the balance of financing lease is 38.8817 million yuan, and the bank acceptance bill is 500 million yuan (both of which are 50% deposit). By June 20th this year, the total amount of debts that Hengshunda failed to repay was about 123 million yuan, and its creditors included China Bank Dagang Sub-branch, Zhenjiang Jingkou District Agricultural Union Rural Microfinance Company, China Agricultural Bank Jingdezhen Branch and Great Wall Guoxing Financial Leasing Co., Ltd..

Hengshunda issued a collective bill with an amount of 130 million yuan in July 2011, and it expired on July 29 this year. Dagong International Credit Rating Company believes that Hengshunda’s production and operation have come to a standstill and the capital chain has broken, which has had a great impact on its solvency and main credit rating. The repayment of the company’s bonds in this period greatly depends on external guarantees and debt restructuring. In this regard, Dagong International listed Hengshunda on the negative watch list.

In addition, a piece of information obtained by our reporter shows that Hengshunda owed employees five months’ salary from February to June this year. Since December last year, I have owed seven months of social security, and I plan to give my employees a temporary holiday from June 20.

In this regard, Yan Xiaojian said that the current salary problem of employees has been solved. "The company held a staff meeting on the afternoon of June 26, and talked with employees about the salary and prepared to send it immediately." At the same time, he also said that the local government has intervened in the company’s debt restructuring and stepped forward to help deal with the problem of banks not lending, but it is still uncertain when it can be solved.

According to an employee of Hengshunda, the company has more than 200 workers. Originally, it was promised to complete social security before stopping insurance, but it had already stopped insurance, and then it was changed to complete social security before July 2. Although it is now promised to pay wages as soon as possible, the workers’ stay after production suspension has not been finalized.

Suspected of financial fraud

Biodiesel refers to a renewable diesel fuel made from various animal and vegetable oils, restaurant garbage oils, etc., and exchanged with methanol or ethanol.

At present, the United States, Germany and Japan have vigorously promoted the use of biodiesel in motor vehicles, but the use of biodiesel in China’s transportation field is still in its infancy. Because of this, almost all domestic biodiesel enterprises are in a state of meager profit or even loss.

Yang Jianbin, a technical engineer of Shanghai Zhongqi Environmental Protection Technology Co., Ltd., told the reporter of China Business News that domestic biodiesel has always been a low-profit industry due to problems such as insufficient supply of raw materials and poor application.

"It’s good enough to earn 200~300 yuan a ton. If you don’t manage it well, you will lose money. Now 70%~80% of domestic enterprises are still losing money. If you can earn tens of millions a year, it is already a very good biodiesel enterprise." Yang Jianbin introduced.

However, Hengshunda with broken capital chain is a "heterogeneous" in the industry. According to the financial report, Hengshunda achieved an operating income of 1.174 billion yuan and a net profit of 297 million yuan in 2013.

Liu Mengkai, an analyst at Zhuo Chuang Information, said that the price of biodiesel in China was about 6,500 yuan/ton last year. Assuming that the cost of equipment depreciation is not considered, the gross profit margin of biodiesel can reach more than 20%, but the net profit margin is only about 10%. Without state subsidies, it is only possible for Hengshunda to achieve a net profit of nearly 300 million yuan. Last year, the output of biodiesel needs to reach more than 400,000 tons.

"According to Hengshunda’s current production capacity of 150,000 tons, assuming that the raw material supply is sufficient, the device is fully loaded, and it is produced all year round, under normal circumstances, the output in 2013 is about 200 tons a day, and the annual output can only reach more than 70,000 tons." Liu Mengkai said.

Zhou Xiujie, a consultant researcher of CIC, said that at present, China’s total biodiesel production capacity exceeds 3 million tons, but the actual annual output is only about 1 million tons, and the overall operating rate of the whole industry is less than 30%. The operating rate of large and medium-sized enterprises is barely maintained at over 40%, and the profit per ton is around 500 yuan. The industry is polarized, while large enterprises are still operating well and small and medium-sized enterprises are "hungry".

Our reporter also learned from insiders in the industry that the sales volume of biodiesel in Hengshunda last year was only 30,000 tons, which is above average among domestic enterprises, and there are very few enterprises whose actual annual sales volume can reach 50,000 tons.

However, Hengshunda executives denied this sales volume. Yan Xiaojian said that this data is not accurate, but the specific sales volume is not convenient to disclose. At the same time, he also said that although the country attaches great importance to the biodiesel industry, there is no direct subsidy to the industry at present. "The company basically does not receive government subsidies, and it relies on enterprises to sell their own products to make money."

According to the first quarterly report of 2014, in the first three months of this year, Hengshunda once again achieved an operating income of 212 million yuan and a net profit of 64,558,600 yuan.

Or spread to Sinopec cooperation projects

Hengshunda also plans to launch the second phase of the project on the basis of the first phase of the project, which mainly uses vegetable oil fruits as raw materials and uses the most advanced high-pressure alcoholysis method to establish a production line with an annual output of 200,000 tons of biodiesel.

Yan Xiaojian also said that although the company achieved a net profit of nearly 300 million yuan last year, the shortage of funds this year was mainly due to the large investment in the second phase of the project, and he also said that "the specific investment scale of the second phase of the project is not clear".

Judging from the 2013 annual report, the scale of construction in progress of Hengshunda increased from 461 million yuan at the beginning of last year to 679 million yuan at the end of last year; By the first quarter of this year, the number of projects under construction had increased to 682 million yuan.

In addition, Hengshunda is also cooperating with Sinopec, one of the "three barrels of oil", to build a biodiesel project. On June 29th, 2012, Hengshunda and Sinopec held a signing ceremony in Zhenjiang to jointly build a 100,000-ton/year biodiesel project.

According to an industry source, the cooperation with Sinopec is that Hengshunda will launch a new production line in the original factory area. Sinopec will provide technical support, and Hengshunda will provide funds to invest in a device with an annual output of 100,000 tons. If land and office buildings are not considered, it is estimated that 100 million yuan can be completed. Together with the subsequent sewage treatment and other supporting facilities, the total investment needs about 200 million yuan.

The production of this project has been delayed again and again. "The previous plan was completed in May this year, but it was later postponed to the end of this year for various reasons." The above-mentioned person said.

Although the company’s capital chain has been broken, in Yan Xiaojian’s view, "the cooperation project with Sinopec originally planned to be put into production at the end of this year should not be affected and is still progressing normally."

However, the development of biodiesel industry in China has some problems that can’t be ignored, such as insufficient supply of raw materials, imperfect industrial policies, inadequate implementation of subsidy measures, narrow sales channels, etc., which makes clean energy originally born to replace petrochemical diesel in an embarrassing situation and has become a key problem restricting the development of biodiesel enterprises.

According to Yang Jianbin, the annual growth rate of waste oils and fats in China is not large, and enterprises will never use vegetable oil to produce biodiesel due to cost considerations. At most, some palm oil is imported, but palm oil cannot be used in winter due to its high freezing point, so the raw materials of biodiesel are very limited, and enterprises often "cook without rice".

In addition, the refined oil sales network with "three barrels of oil" as the core has not yet "accepted" biodiesel, which also makes the sales problem of biodiesel difficult to solve.

In Zhou Xiujie’s view, the biodiesel industry has a huge aura of "renewable energy and clean energy", but its profitability is not optimistic. People in the industry and business managers have long known this, and corporate bankruptcy has become commonplace.

"Although Hengshunda’s suspension of production will not worsen the already poor industry environment, the support of the banking system for biodiesel enterprises needs to be strengthened. Once the credit policy is capricious, the operating conditions of enterprises will inevitably be greatly affected, and other enterprises should make preparations for’ suspended loans’ in advance when building projects." Zhou Xiujie said.