Finance Brief | Debt Crisis Triggers Chain Reaction, Jinlong Shares Faces Mounting Risk Management Challenges

Jinlong Co., Ltd. (000712.SZ) has been embroiled in continuous turmoil. Its controlling subsidiary, Zhongshan Securities, is involved in a major lawsuit with an claimed amount of up to 489 million yuan. Meanwhile, large holdings held by the controlling shareholder and its concerted parties are being judicially disposed of due to debt disputes.

After over 90% of the shares failed to sell at the first auction, the second judicial auction of the remaining 63 million shares was held in March 2026, with 52.5 million shares scattered among multiple buyers.

A massive lawsuit combined with consecutive share judicial auctions has exposed the risks concentrated in this regional financial holding platform. This series of crises reveals imbalances in Jinlong’s equity structure, debt risks, and operational performance.

The company’s heavy reliance on Zhongshan Securities, coupled with the financial difficulties of the controlling shareholder, has led to an excessively high pledge ratio of shares and frequent freezing and auctioning of shares. Due to profit pressure on the brokerage subsidiary, insufficient asset impairment provisions, and potential large-scale compensation liabilities, the uncertainty surrounding the parent company has increased further. The subsequent impact may be even more far-reaching.

Debt Crisis Escalation

Jinlong’s core asset is its 67.78% stake in Zhongshan Securities. This controlling stake was hard-won: in early years, the company increased capital and acquired to gain control of Zhongshan Securities, building it into a platform primarily engaged in securities business.

In 2023, Jinlong planned to sell all of its 67.78% stake in Zhongshan Securities and pre-listed it on the Shanghai United Assets and Equity Exchange to attract buyers. Several interested parties conducted due diligence, but the company ultimately terminated the restructuring plan, citing concerns that the main assets would be cash or lack specific business after sale.

Failure to sell the controlling stake led the controlling shareholder to frequently pledge shares for financing, laying the groundwork for frozen and passively auctioned shares. In July 2024, the controlling person Yang Zhimiao’s New Century Company was subject to enforcement by creditors for unpaid financing debts, and the Guangzhou Intermediate People’s Court froze the circulating shares of Jinlong held by the company’s pledge.

In 2025, the debt crisis worsened. In January, some of Yang Zhimiao’s and New Century’s holdings of Jinlong shares were scheduled for judicial auction, totaling 62.3 million shares, with Yang Zhimiao’s nearly 60.3 million shares accounting for almost 90% of his direct holdings. The creditor in the enforcement case was China CITIC Financial Asset Management Co., Ltd. Guangdong Branch, which had frozen these shares in July 2024 and issued notarized enforcement documents.

Notably, the pledged shares of Jinlong held by the controlling shareholder and its concerted parties are nearing their limits. As of early 2025, 97.98% of Jinlong shares held by New Century were pledged for financing, with Yang Zhimiao’s pledge ratio reaching 99.25%. Another concerted party, Zhu Fenglian, also pledged 94.54% of his holdings.

Such high pledge ratios mean that if liquidity tightens or stock prices fall, forced liquidation could trigger judicial disposal. In fact, besides CITIC Asset Management, New Century and Yang Zhimiao face enforcement cases from other creditors. For example, in October 2024, the Chongqing Fifth Intermediate Court froze 54 million shares of Jinlong pledged by New Century to trust institutions (over 20% of its holdings), corresponding to a principal debt of about 325 million yuan.

Under debt pressure, the controlling shareholder’s shares are repeatedly frozen and auctioned, causing frequent changes in Jinlong’s equity structure.

The latest crisis involves the shares held by the wife of the actual controller, Zhu Fenglian. She owns 132.1 million shares (14.74%), over half of which (about 76.21 million) were frozen by the Dongguan Intermediate Court as early as February 25, 2025.

In December 2025, Jinlong disclosed that 69 million shares held by Zhu Fenglian would be auctioned judicially, with an estimated market value of about 900 million yuan. The first auction in early January saw 17 of 18 lots remain unsold—according to the JD.com judicial auction platform’s transaction confirmation, only two individuals bought a total of 6 million shares at the reserve price, while the remaining 63 million shares failed to attract bids.

The latest auction results showed nine buyers won with the highest bids, collectively acquiring 52.5 million shares for about 524 million yuan. Buyers included Chengdu Jinyao No. 1 Enterprise Management Partnership and individuals like Wang Zixu and Lai Yuekuan, with single bids often around 34.95 million yuan for 3.5 million circulating shares.

Jinlong emphasized that this auction “does not involve the shares of the company’s controlling shareholder or actual controller,” and even if completed, it will not change control—New Century still holds 14.79%, and Yang Zhimiao remains the actual controller.

Zhongshan Securities Under Pressure

As a major profit source, Zhongshan Securities’ recent performance has been volatile, with evident operational pressure.

In 2025, Jinlong’s net profit attributable to shareholders turned profitable, reaching 152 million yuan. Although this marked a significant improvement, it was mainly due to a one-time gain from disposing of Dongguan Securities’ equity. During the period, Jinlong recognized 725 million yuan in investment income, a 101% increase year-over-year, primarily contributed by the partial sale of Dongguan Securities’ stake.

Excluding such non-recurring gains, Zhongshan Securities’ performance remained under pressure. In the first three quarters of 2025, Jinlong’s net interest income was negative 228 million yuan (interest expenses exceeded income), and fair value losses on trading financial assets reached 140 million yuan, mainly attributable to Zhongshan Securities.

However, with market recovery, Zhongshan Securities’ brokerage fee net income increased year-over-year, reaching 265 million yuan in the first three quarters of 2025, up about 35% from 196 million yuan the previous year. Notably, minority interests were -2.63 million yuan, indicating that the subsidiary may still not be profitable, and Jinlong’s profit mainly relies on extraordinary items.

The most concerning issue now is the impact of Zhongshan Securities’ involvement in major lawsuits. According to announcements, Changchun Intermediate Court in Jilin Province has accepted a case filed by China Everbright Bank Changchun Branch against China Merchants Bank Wuxi Branch, Zhongshan Securities, and others, claiming damages of 489 million yuan.

The dispute stems from a 2014 entrusted loan: at that time, Wuxi Branch of China Merchants Bank entrusted Zhongshan Securities to set up a targeted asset management plan, lending 350 million yuan via Ping An Bank Shenzhen Branch to Jilin Liuhe Rice Industry. The loan was not recovered upon maturity. Strangely, Everbright Bank Changchun Branch claimed that its staff and the actual controller of Liuhe Rice Industry forged related agreements and investment instructions, embezzling the bank’s deposits to carry out “entrusted targeted investments,” leading to the misappropriation and loss of the 350 million yuan.

Everbright Bank now requests the court to order Zhongshan Securities and other defendants to jointly compensate the principal and interest (the interest loss as of October 15, 2025, was about 139 million yuan), totaling approximately 489 million yuan. As of the announcement, the case has not yet gone to trial. Zhongshan Securities stated it will actively respond and take legal measures to safeguard its rights.

The unresolved nature of the case introduces significant uncertainty regarding Zhongshan Securities’ current and future profits. If the court rules that Zhongshan Securities must pay damages, with worst-case estimates reaching several billion yuan, this could wipe out nearly all of the company’s recent profits and severely weaken its capital base. The 489 million yuan accounts for about 20% of Jinlong’s net assets.

In addition, Zhongshan Securities faces two other large unresolved matters: a securities dispute with Bairui Trust involving 56.03 million yuan, currently in arbitration; and a financial entrusted loan dispute with Fujian Haixia Bank involving 34.06 million yuan, under trial.

Large lawsuits against securities firms often trigger regulatory inquiries and risk assessments. If Zhongshan Securities is found to have violated regulations or internal controls, regulators may impose measures such as rectification orders, capital increases, or higher risk capital requirements, which could indirectly impact Jinlong’s future performance and creditworthiness.

Control Power Wavering

The debt issues of Jinlong’s controlling shareholder and related parties have a long history. The actual controller, Yang Zhimiao, was a well-known wealthy figure in Dongguan, and his control of New Century Company is primarily through Jinlong’s equity.

Although the ongoing judicial auctions have not immediately shaken Jinlong’s control, risks are gradually accumulating. As Yang Zhimiao’s holdings in New Century have not been auctioned, and Zhu Fenglian still holds about half of her shares, the Yang family currently controls approximately 33.55% of the company.

Jinlong repeatedly emphasizes that the latest auction does not involve the controlling shareholder’s own shares, and control will not change. However, this stability is only relative; if future auctions are won by powerful buyers who acquire large blocks of shares at once, new significant shareholders could emerge, influencing company decisions.

For example, CITIC Trust holds 3.7 million shares, which are not involved in company management but may be held long-term or seek rights protection based on debt-to-equity conversions. Similarly, Zhu Fenglian’s 63 million shares, accounting for 7.03% of total shares, could enter the top two shareholders if acquired by a single entity.

Deeper impacts concern corporate governance and ongoing operations. With the controlling shareholder mired in debt, they are unable or unwilling to support the listed company. For instance, if Zhongshan Securities needs to increase capital due to large compensation liabilities, the major shareholder is unlikely to provide funds. This could lead to the introduction of external strategic investors, potentially changing Jinlong’s shareholder structure and governance landscape.

Currently, Jinlong faces a crisis of debt and lawsuits intertwined. On one side, Zhongshan Securities’ performance pressure and large lawsuits threaten financial stability; on the other, the chain of share pledges by the controlling shareholder risks losing control.

In the context of increasing regulatory focus on financial holding companies’ risks, how to resolve litigation losses, restructure debt, and attract new capital—balancing the interests of “major shareholders and listed companies” and “listed companies and securities subsidiaries”—will determine whether Jinlong can emerge from this crisis.