After a 24.6 billion yuan deal with Rongsheng Petrochemical, Saudi Aramco probably didn't anticipate that it would be greeted by a continuous decline in the latter's stock price, with a sharp drop that resulted in an approximate loss of 16 billion yuan for the Middle Eastern tycoon. At the same time, with a series of insider trading scandals being exposed, Rongsheng Petrochemical was reluctantly at the center of the storm. To reduce the impact of negative news on the company, its holding company chose to initiate a repurchase plan.

Rongsheng Petrochemical "pitifully" Middle Eastern tycoon.

Recently, the China Securities Regulatory Commission (CSRC) disclosed four administrative penalty decisions, exposing the insider trading chaos behind Saudi Aramco's shareholding in Rongsheng Petrochemical. The case involved four individuals, including the then-private equity president, deputy general manager of Rongsheng Energy, deputy director of the president's office of Rongsheng Holding, and manager of the fund management department of the financial management center of Rongsheng Holding.

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Ultimately, the CSRC decided to confiscate a total of 3.56 million yuan in illegal proceeds from the four individuals involved in the case, and imposed a fine of three times the amount, totaling 11.2095 million yuan. The penalty decision showed that none of the four parties involved made any statements or defenses, nor did they request a hearing.

Looking back at the changes in Rongsheng Petrochemical's stock price after Saudi Aramco's shareholding, it can be found that compared to the Middle Eastern tycoon's purchase price of over 24 yuan, the current stock price of the company is only 8.69 yuan per share, which means that Saudi Aramco's investment in this deal has a floating loss of over ten billion yuan.

Perhaps to offset the impact of the insider trading case, on the evening of August 21, Rongsheng Petrochemical's controlling shareholder, Rongsheng Holding, announced a maximum of 1 billion yuan to increase the holding plan, which was only one month after the completion of the previous increase plan.

A mouse warehouse appeared

An acquisition with a premium of more than 90% became an opportunity for some insider traders to profit.

Saudi Aramco began contacting Rongsheng Petrochemical as early as 2018. According to the information disclosed in the penalty decision, at that time, Saudi Aramco planned to acquire 9% of the shares of Zhejiang Petrochemical Co., Ltd., a subsidiary of Rongsheng Petrochemical held by Zhoushan Ocean Comprehensive Development Investment Co., Ltd., but did not reach an agreement after due diligence.

On June 2, 2022, Saudi Aramco Vice President Kameini and Rongsheng Holding Chairman Li Rong held a video conference. At the meeting, the Saudi Aramco side proposed the preliminary intention to acquire some shares of Rongsheng Petrochemical and suggested that both parties sign a memorandum or framework document on this matter.On August 25th of the same year, the Vice President of Saudi Aramco and Li Shuirong, the Chairman of Rongsheng Holding Group and the actual controller of Rongsheng Petrochemical, signed a Memorandum of Understanding via video, agreeing to reasonably discuss the purchase of Rongsheng Petrochemical shares from Rongsheng Holding and crude oil procurement matters.

Up until March 27th, 2023, Rongsheng Petrochemical issued a "Notice on the Introduction of Strategic Investors and the Agreement Transfer of Partial Company Shares by the Controlling Shareholder." The content of the announcement showed that Saudi Aramco was full of sincerity for this transaction, not only was the transaction amount equally huge, but it also offered a very high premium.

The high premium and the huge total transaction amount are undoubtedly a great benefit for Rongsheng Petrochemical. Because of this, Quan Weijun, Wang Xianpeng, Wu Miaoyin, Zhou Wenli, and others who had early knowledge of the outline of this transaction, set their sights on this "fat meat."

The announcement content showed that Quan Mo Ying was the Secretary of the Board of Directors of Rongsheng Petrochemical. On January 4th, 2023, Xiang Mo Rong established a WeChat group called "Saudi Aramco Equity Agreement," and Quan Mo Ying was one of the group members. Quan Mo Ying knew the insider information no later than January 4th, 2023.

Quan Weijun served as the Deputy General Manager of Rongsheng Energy Co., Ltd., a subsidiary of Rongsheng Holding Group. Quan Weijun is the brother of Quan Mo Ying, and the two live in the same community, meet and contact each other frequently, have a close relationship, and have frequent contact during the sensitive period of insider information.

The investigation showed that Quan Weijun used his mother-in-law's "Zhu Mo Juan" Caitong Securities ordinary account, "Zhu Mo Juan" Caitong Securities credit account, and used Quan Weijun's mobile phone number ending in 1866 to place orders for transactions.

The related bank-broker transfers were operated using Quan Weijun's mobile phone number ending in 1866, and the source of the transaction funds was Quan Weijun and his mother. At the same time, Lu Mo Gang admitted to lending the "Lu Mo Gang" Guoxin Securities account to Quan Weijun for use.

In the end, Quan Weijun controlled and used the "Zhu Mo Juan" Caitong Securities ordinary account, "Zhu Mo Juan" Caitong Securities credit account, and "Lu Mo Gang" Guoxin Securities credit account to buy 458,000 shares of "Rongsheng Petrochemical" during the sensitive period of insider information, with a purchase amount of 5,594,668 yuan, selling 458,000 shares, with a sales amount of 6,919,114 yuan, and a profit of 1,315,684.56 yuan after calculation.

Another person involved, Wang Xianpeng, was the Executive President of Hangzhou Jiusheng Private Equity Fund Management Co., Ltd. According to the disclosed information, Wang Xianpeng has known Quan Mo Ying since 2015, often eating and chatting, and had multiple calls and contacts during the sensitive period of insider information. In the end, Wang Xianpeng made a profit of 1.62 million yuan by buying and selling Rongsheng Petrochemical through 8 account groups during the sensitive period of insider information.

Zhou Wenli served as the manager of the capital management department of the financial management center of Rongsheng Holding Group. On February 28th, 2023, Rongsheng Holding Group and Saudi Aramco communicated the payment process through an online meeting, and Zhou Wenli attended the meeting. From March 23rd to 27th, 2023, Zhou Wenli bought and sold Rongsheng Petrochemical, making a profit of 310,000 yuan. Wu Miaoyin, the deputy director of the President's Office of Rongsheng Holding Group, also made a profit of 315,000 yuan from this.The China Securities Regulatory Commission (CSRC) has determined that the aforementioned actions of the relevant personnel violated the provisions of Article 50 and the first paragraph of Article 53 of the Securities Law, constituting the insider trading behavior described in the first paragraph of Article 191 of the Securities Law.

Ultimately, the CSRC decided to: confiscate the illegal proceeds of 1.3156 million yuan obtained by Quan Weijun and impose a fine of 3.947 million yuan; confiscate the illegal proceeds of 1.62 million yuan obtained by Wang Xianpeng and impose a fine of 4.862 million yuan; confiscate the illegal proceeds of 310,000 yuan obtained by Zhou Wenli and impose a fine of 1.2 million yuan; order Wu Miaoqin to legally deal with the illegally held 150,000 shares of Rongsheng Petrochemical, confiscate the illegal proceeds of 315,000 yuan, and impose a fine of 1.2 million yuan.

Saudi Aramco, which has a paper loss of 16 billion yuan, has continued to see the share price of Rongsheng Petrochemical decline despite its "strong support."

Data from Tonghuashun shows that on March 27, 2023, Rongsheng Petrochemical's share price surged by 7.76%. According to the information disclosed in the administrative penalty decision, it was only at 16:54 on this day that Rongsheng Petrochemical issued the "Notice on the Change of Equity Interests Related to the Introduction of Strategic Investors and the Agreement Transfer of Part of the Company's Shares by the Controlling Shareholder," which means that the share price of Rongsheng Petrochemical had already risen sharply before the announcement of the news.

In the following two trading days, Rongsheng Petrochemical even recorded two consecutive daily limits, with the share price reaching a high of 16 yuan per share. However, this is still far from the purchase price of Saudi Aramco at the time.

According to the content of the announcement at that time, Rongsheng Holdings transferred 10% plus one share of Rongsheng Petrochemical's shares to Aramco Overseas Company B.V. at a price of 24.3 yuan per share, with Saudi Aramco being its sole shareholder.

According to Tonghuashun data, the share price of Rongsheng Petrochemical was only about 12 yuan per share on the trading day before the contract was signed, but Saudi Aramco's acquisition price was as high as 24.3 yuan per share, with a premium of more than 100%. Even if calculated based on the share price after closing on March 27 (after surging by more than seven points), the premium is still more than 90%.

In addition, the total transaction amount for this round of transactions reached as high as 24.6 billion yuan, but this Middle Eastern tycoon did not require participation in management, only sending one director, which is undoubtedly a very high-quality capital side for Rongsheng Petrochemical.

However, what greeted Saudi Aramco was the long "bear" journey of Rongsheng Petrochemical. As of the closing on August 23, Rongsheng Petrochemical reported 8.69 yuan per share, which means that if dividends are disregarded, this transaction has resulted in a paper loss of about 16 billion yuan for Saudi Aramco.Perhaps in an attempt to mitigate the impact of insider trading scandals on the company, on the evening of August 21st, Rongsheng Petrochemical's controlling shareholder, Rongsheng Holdings, launched its second share purchase plan for the year. The plan is to increase holdings by no less than 500 million yuan and no more than 1 billion yuan within six months, without setting a price range. The增持 plan will be implemented selectively based on the fluctuation of the company's stock price and the overall trend of the secondary market.

Moreover, on August 21st itself, Rongsheng Holdings had already completed an increase of 2.8271 million shares, with a total amount of 23.8605 million yuan. This comes just one month after the completion of its previous share purchase plan. Data shows that from January to July of this year, Rongsheng Holdings has completed one round of share purchase, accumulating an increase of 116 million shares of Rongsheng Petrochemical, accounting for 1.14% of the total share capital, with a purchase amount of approximately 1.188 billion yuan.

According to information disclosed by Rongsheng Petrochemical, since 2022, the company has cumulatively carried out three share repurchase plans, repurchasing a total of 553,232,858 shares of the company, accounting for 5.4637% of the total share capital, with a total transaction amount of about 6.99 billion yuan (excluding transaction costs).

Fortunately, Saudi Aramco's substantial investment in Rongsheng Petrochemical is not solely focused on its performance in the secondary market; the two parties have numerous in-depth collaborations at the industrial level.

The announcement shows that on January 2, 2024, Rongsheng Petrochemical and Saudi Aramco signed a Memorandum of Understanding, and the two parties are discussing Rongsheng Petrochemical's proposed acquisition of 50% of the equity in Saudi Aramco's wholly-owned subsidiary, Jubail Refining Company, and plan to complete industrial upgrading through expansion.

In addition, Saudi Aramco is also preparing to acquire no more than 50% of the equity in Rongsheng Petrochemical's wholly-owned subsidiary, Ningbo Zhongjin Petrochemical Co., Ltd. The two companies are preparing to jointly upgrade the equipment of Ningbo Zhongjin Petrochemical and jointly construct a large-scale new material project at Rongsheng New Materials (Zhoushan) Company.

Saudi "sweeping" Chinese assets

A crisis brought about by falling oil prices has become an opportunity for the oil tycoon Saudi Arabia to reshuffle.

In 2014, the United States rose strongly with shale oil and surpassed Saudi Arabia to become the world's largest oil-producing country. In addition, the popularization of new energy technologies such as solar and wind energy also led to a continuous decline in crude oil prices.

Data shows that from 2014 to early 2016, the average price of crude oil fell from $93.2 per barrel to $26.2 per barrel, which directly led to a reduction in Saudi Arabia's fiscal revenue from $280 billion in fiscal year 2014 to $162 billion in fiscal year 2015.It is precisely because of the persistently low oil prices that the Saudi government has found itself in a financial crisis, leading to the announcement of a national transformation plan called "Saudi Vision 2030" to the world. This plan aims to promote the diversification of the domestic economy through sovereign fund investments, thereby reducing reliance on energy exports as a single pillar of the economy.

Currently, Saudi Arabia's foreign investments are mainly through the Public Investment Fund (PIF) and Saudi Aramco, both of which are state funds. The PIF is a major shareholder of Saudi Aramco, and Saudi Aramco is the main source of funding for the PIF, with the goal of "acquiring" high-quality global assets, among which Rongsheng Petrochemical is one.

Public information shows that Rongsheng Petrochemical, as the only domestic private refining and chemical enterprise with the qualification to export refined oil products, has continuously had an export quota of over three million tons of refined oil products in the past two years. The company has improved the economic benefits of refined oil product sales by choosing the right time to export.

In addition, Rongsheng Petrochemical currently has an annual capacity of 700,000 tons of butadiene, ranking first in the world, and also has an annual capacity of 100,000 tons of styrene-butadiene rubber and 60,000 tons of butyl rubber, ranking in the top ten in the country. This is one of the chemical products with the highest profit margins.

In terms of performance, according to the semi-annual performance forecast released by Rongsheng Petrochemical for 2024, Rongsheng Petrochemical estimates that the net profit attributable to the shareholders of the listed company for the first half of this year will be between 800 million and 1.1 billion yuan, a year-on-year increase of 171.01% to 197.64%. For Saudi Aramco, the basic situation of Rongsheng Petrochemical has not changed adversely due to the decline in stock prices.

It is worth mentioning that Saudi Aramco's investment intensity in China's petrochemical industry has always been quite large, and in 2023 it became one of the foreign enterprises with the most investment in China.

In any case, if Rongsheng Petrochemical wants to gain more support from investors, it still needs to strengthen its self-regulation while developing its own industry.