Linklogis Inc. — Regulatory Filings 2021

Jul 22, 2021

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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Linklogis Inc. 聯易融科技集團

(A company controlled through weighted voting rights and incorporated in the Cayman Islands with limited liability)

(Stock Code: 9959)

CLARIFICATION ANNOUNCEMENT AND RESUMPTION OF TRADING

Linklogis Inc. (the “ Company ”) has noted a research report issued by Valiant Varriors LLC (“ Valiant Varriors ”) on July 20, 2021 (the “ Report ”) which contains certain allegations relating to the Company. These allegations are groundless and the Report contains various misrepresentations, false allegations, and obvious factual errors. The Company is issuing this announcement to provide its responses to the various allegations contained in the Report, and to explain where the logic employed in the Report is flawed.

The Company has sought legal advice and initiated formal legal action against Valiant Varriors. The Company will pursue all legal measures to protect the Company’s rights if necessary.

Application has been made for the resumption of trading in the shares of the Company on the Stock Exchange with effect from 9:00 a.m. on July 22, 2021.

This announcement is made by the Company (together with its subsidiaries and consolidated affiliated entities, the “ Group ”) pursuant to Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

The Company has noted that there was a Report issued by Valiant Varriors on July 20, 2021.

The Report contains certain allegations relating to the Company. These allegations are groundless and the Report contain various misrepresentations, false allegations, and obvious factual errors. The Company is issuing this announcement to provide its responses to the various allegations contained in the Report, and to explain where the logic employed in the Report is flawed.

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The Company vigorously denies the allegations contained in the Report and has sought legal advice and initiated formal legal action against Valiant Varriors. The Company will pursue all legal measures to protect the Company’s rights if necessary.

CLARIFICATIONS

The main allegations in the Report are summarised below, together with the Company’s responses to the allegations:

A. Value proposition of our business and exposure to real estate sector

The Report alleged that supply chain securitization is a backdoor financing tool for anchor enterprise to skirt regulation. It further alleged that the Company intentionally hide about its over-exposure to the real estate sector.

Company’s response

The Report misleadingly presented the value proposition of the Group and its customer sector exposure.

Supply chain securitization offerings enabled by the Group’s technology solutions, like other supply chain finance technology solutions, aim to improve working capital efficiency for suppliers as well as benefiting the entire supply chain by leveraging creditworthiness of the large enterprises. This is an efficient way to provide liquidity support to small and medium-sized enterprises. The Chinese government has been promoting the development of supply chain finance as an effective way to boost the real economy and has introduced a number of regulations and policies to accelerate the development and innovation of the supply chain finance industry since 2017. In February 2021, the China Securities Regulatory Commission (中國證券監督管理委員會) (the “ CSRC ”) commented in response to enquiries that: “by the end of May 2020, a total of 924 supply chain asset-backed securities (“ ABS ”) have been issued and facilitated RMB614.1 billion of financing, which revitalized small and medium-sized enterprises’ account receivables, improved their liquidity and lowered their financing costs. Going forward, the CSRC will continue to expand ABS offerings into more commercial sectors and support more eligible businesses to utilize supply chain ABS” (see: http://www.csrc.gov.cn/pub/zjhpublic/G00306201/202102/t20210226_393206.htm). Furthermore, all ABS/ABN issuances are under the regulatory framework of the CSRC and the National Association of Financial Market Institutional Investors (中國銀行間市場交易商 協會). All those facts make the Report’s allegation that supply chain securitization is a backdoor financing tool to skirt regulation groundless.

The Report cited a text-message exchange between an investor and investment bank analyst, and an excerpt of a blog post to give the readers wrong impression that the Company intentionally hide about its exposure to real estate industry. However, the Company is not to the awareness of and has not authorized such messages. The Company disclosed in its prospectus dated March 26, 2021 (the “ Prospectus ”) that its customers during the three years ended December 31, 2020 primarily consisted of financial institutions and anchor enterprises, including anchor enterprises from the real estate sector, and also disclosed the industry of each of its top 5 customers.

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The Report misleadingly alleged that 80% of the transaction volume enabled by the Company’s solutions are related to the real estate sector, by citing data from public sources. Actually, most of the ABS/ABN offerings are sold as private placements in China and relevant information of such offerings, such as issuance sizes, names and industries of anchor enterprises, etc., are not accurately and completely recorded in public databases. Therefore, the data cited by the Report cannot be relied upon to calculate the accurate volume of the securitization transactions enabled by the Company’s technology solutions. Furthermore, apart from securitization transactions enabled by AMS Cloud and ABS Cloud, the Group’s technology solutions also include Multi-tier Cloud and eChain Cloud, among others, and the operating data of such latter solutions are not publicly available. The Report misleadingly cited some incomplete data for only part of the Company’s solution offerings to misrepresent the overall sector exposure, to give readers distorted impression that the Company is overly exposed to the real estate sector.

The Company would like to clarify that, approximately 45% of the total volume of supply chain assets processed by the Group’s technology solution for the six months ended June 30, 2021 was related to underlying anchor enterprises attributable to its customers in the real estate industry sector. In terms of the number of customers, as of June 30, 2021, financial institutions and anchor enterprises accounted for approximately 40% and 60% of the total number of the Group’s customers, respectively. Among such anchor enterprise customers, approximately 25.5%, 24.8% and 10.6% of them belong to the manufacturing, real estate, and construction industry sectors, respectively.

B. Financial risks resulted from bridge loans and related-party transactions

1. Warehousing and related-party transactions

The Report alleged that the Company has taken on excessive financial risks in the process of warehousing and the associated risks were not adequately disclosed in the Prospectus.

Company’s response

The Group’s ABS Cloud offers a wide range of digital management services in securitization offerings and post-issuance services. Warehousing is only one of the steps involved in the securitization offerings enabled by the Group’s technology solutions, where the Group acts as the originator in the relevant transactions. Warehousing is not a financing business, and is offered by the Group to complement the end-to-end solutions to its customers when the anchor enterprises do not have a factoring subsidiary or an appropriate factoring company to act as the originator.

The risks described in the Report are exaggerated and any risk that may be involved in the warehousing process has already been prominently disclosed in the Prospectus, see the section headed “Risk Factors – Risks Relating to our Business and Industry – We may be subject to risks in connection with the warehoused accounts receivable in the securitization offerings enabled by ABS Cloud”.

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Such risks are subject to robust risk management measures. There is only a very short period of time between the acquisition of underlying assets and the receipt of the proceeds from the securitization offerings which will be used to repay short-term financings involved in warehousing. Accordingly, the risk exposure of the Group in respect of such financings is of a very short-term in nature. In the circumstances where the acquisition of underlying assets is financed using short-term bridge loans from third-party funding providers or the Group’s own capital, the Group typically requires the anchor enterprises to be of an AAA credit rating.

The Company further notes that the alleged related party transactions mentioned in the Report were intra-group transactions at the subsidiary level conducted in the ordinary course of business of the Group and thus was not reported on a standalone basis in the consolidated financial statements of the Group. By separating the financial figures of a specific subsidiary, the Report provided a wrong picture about the Group’s financial position which is irrelevant to the warehousing process and the relevant risks indicated above.

2. Auditor

The Report alleged that the Company has frequently changed its auditors over the past few years.

Company’s response

The Company would like to clarify that, besides its reporting accountants appointed for the Company’s initial public offering (“ IPO ”), the Company has not engaged any other auditor since the Company’s establishment.

The other auditors listed in the Report are auditors for certain subsidiaries of the Company, which were selected based on their expertise and experience in the relevant industries and business sectors in which the relevant subsidiaries operate, as well as other commercial considerations. This practice of using different auditors at the group level and at the subsidiaries’ level, respectively, is a fairly common market practice among companies listed on the Stock Exchange. By intentionally mixing up the concepts of Company’s auditor and subsidiaries’ auditors, the Report attempted to give the readers a wrong impression that the Company frequently changed its auditors.

C. Risk-assets-to-equity ratio

The Report alleged that there was a breach of the regulatory gearing limit of 10 times of riskassets-to-equity pursuant to the Notice 205 promulgated by the China Banking and Insurance Regulatory Commission in 2019 on Strengthening the Administration and Supervision of Commercial Factoring Enterprises (“ Notice 205 ”) by a subsidiary of the Company, Shenzhen Qianhai Lianjie Commercial Factoring Co., Ltd. (深圳前海聯捷商業保理有限公司) (“ Lianjie Factoring ”).

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Company’s response

The Report used cash flow and equity figures to calculate the alleged risk-assets-to-equity ratio, which is wrong and misleading. The risk-assets-to-equity ratio should be calculated as the balance of risk assets divided by the balance of equity. The Company would like to point out that the Company’s factoring subsidiaries including Lianjie Factoring have never exceeded the stipulated 10 times threshold.

D. Company’s revenue

The Report alleged that the Company overstated its revenue by classifying third-party professional fees as part of its own revenue.

Company’s response

The Company would like to point out that the accountants’ report in the Prospectus of the Company has been audited by its reporting accountants. The Company recognises its revenue and income related to its business transactions in accordance with the applicable accounting standards. The Company has disclosed the relevant accounting policies in notes 2(t) and 3(h) to the audited historical financial information included in the accountants’ report in Appendix I of the Company’s Prospectus.

The allegation in the Report is groundless and not supported by applicable accounting standards.

E. Technology capabilities

1. Company’s innovations

The Report alleged that the Company lacks innovation, and its platforms are not used by anchor enterprises and financial institutions at all.

Company’s response

Information on the Company’s advanced technology capabilities is disclosed in the sections headed “Business – Our Solutions” and “Business – Our Technology” of the Prospectus. The Company would like to reiterate that technology innovation is at the heart of the Group’s business. Since inception, the Group has invested significantly in strengthening its technologies to support its business, products and service offerings, and has been making relentless efforts to deepen the connectivity between different parties along the supply chain through its technology solutions.

The Report cited that most of the Group’s patent applications are still in process, suggesting that the Group lacks technology capabilities. This is an unfair statement. The three-year period from 2018 to 2020 has seen rapid developments in blockchain, big data, artificial intelligence and cloud computing. These are the areas where the Group’s core proprietary technology rests. During the same period, the Group submitted over 230 patent applications to build its technology supremacy. Due to the time it takes for the relevant authorities to process patent applications (typically between 18 to 36 months), most of our applications are still in process.

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Contrary to the allegation in the Report, the Company has strong technology capabilities in blockchain, big data, artificial intelligence and cloud computing. For example, the Company is leading the industry with AI-based OCR technology. However, the Report described the Group’s OCR technology as “one thing to say, another thing to prove”. In reality, the Company has already proved its technology capabilities in this area globally. In the Robust Reading Challenge on Scanned Receipts OCR and Information Extraction held at the International Conference on Document Analysis and Recognition, the Company ranked first in scanned receipt OCR, second in text localization and second in key information extraction. (see: https://rrc.cvc.uab.es/?ch=13&com=evaluation&task=1)

The Report made groundless allegation that the Group’s platforms are not used by anchor enterprises and financial institutions. The fact is that the Group’s platforms have been heavily utilized by its customers. For example, based on the Group’s system record, each of the anchor enterprises whose suppliers obtained financing through the Group’s AMS Cloud has logged into the Group’s platform for more than 2,000 times on average during the first half of 2021. More than 50 staff members on average from each of these anchor enterprises are users of the platform.

2. Blockchain expertise

The Report alleged that the Company lacked blockchain expertise because the Company’s blockchain technology was acquired, not self-developed, and there was a lack of blockchain expertise in the Company. Also, customers are reluctant to use the blockchain-based multi-tier platform.

Company’s response

This allegation is unfounded. As disclosed in the section headed “Industry Overview – Competitive Analysis of Supply Chain Finance Technology Solution Market in China”, the Company launched the first blockchain-based multi-tier accounts receivable transfer platform in China, Multi-tier AR Transfer Cloud, in 2017. Through its proprietary blockchain platform, the Group fosters trust among multiple stakeholders in the supply chain finance ecosystem by making transaction data immutable, traceable, and transparent. This allows different parties to gain better visibility into the transaction and fund flows in supply chains.

The Group has a team of over 30 engineers in the field of blockchain technologies development. The blockchain technology of the Company has been recognized by various institutions. In September 2019, two of the Group’s blockchain platforms completed recordation with the Ministry of Public Security and Cyberspace Administration of China. The Company’s blockchain platform has also passed various assessments by the China Academy of Information and Communications Technology. In November 2020, the Multi-tier AR Transfer Cloud was selected by Peking University as a business school case study.

Contrary to the allegation that customers are reluctant to use the blockchain-based multi-tier platform, during the first half of 2021, the transaction volume supported by the Group’s Multi-tier AR Transfe Cloud has increased by over 150%, and the Group acquired over 20 new customers with this solution.

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3. R&D investment

The Report alleged that the Company did not have adequate investment in research and development.

Company’s response

The Company would like to clarify that using figures in the cash flow statement to evaluate the adequacy of investment in research and development is misleading and inaccurate. In contrast, comparing research and development expenses with total operating expenses gives investors a more meaningful picture and is more widely used in practice. For the year ended December, 31, 2020, the Group incurred research and development expenses of approximately RMB104 million, which represent an increase of approximately 73.2% compared to the year ended December 31, 2019, and account for approximately 34.6% of the Group’ s total operating expenses in 2020. This demonstrates the Group’s continuing investments in R&D, which is comparable with technology industry peers.

4. Experienced technology professionals

The Report alleged that the Company lacked experienced technology professionals.

Company’s response

The allegation is unfounded. As disclosed in the section headed “Business – Research and Development” in the Prospectus, as of December 31, 2020, the Group had a team of 397 experienced technology professionals engaged in research and development. Approximately 63% of the Group’s employees were primarily engaged in technology related work, and each of them has contributed to the Group’s innovation and research and development efforts. The Group is increasing its investments in research and development. In the first half of 2021, the Group has added approximately 140 employees engaged in technology related work to its work force. Currently, the AI team in the Group’s research and development department consist of 46 talents and over 95% of the team are holders of masters degrees or higher qualifications.

F. Tax

The Report alleged that two factoring subsidiaries of the Company used the “difference” approach rather than the “full value approach” to calculate the value-added tax by utilizing the grey area in the new value-added tax (VAT) regulations in the People’s Republic of China (the “ PRC ”) promulgated in 2016 pursuant to the tax reform.

Company’s response

This allegation is groundless. The PRC subsidiaries of the Group have submitted true and complete transaction data to competent tax authorities and discharged their respective tax payment obligations accordingly. The PRC subsidiaries of the Group have never been challenged or penalized for any material non-compliance of PRC tax regulations to the date of this Announcement, as evidenced by the certificates of tax non-compliance records (稅務 違法記錄證明) issued by the competent tax authorities.

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CONCLUSION

The allegations in the Report are groundless. The Report contains various misrepresentations, false allegations and obvious factual errors, and the logic employed in the Report is flawed. The Company invites shareholders and investors to refer to its Prospectus for accurate disclosures about the Company’s business operations and financial results.

Save as disclosed above, the Company confirms that it is not aware of any other information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

It is important for shareholders to be aware that the relevant allegations are the opinions of a short seller whose interests may not be aligned with those of shareholders in general, and that it may be intended specifically to undermine confidence in the Company and its management, and to harm its reputation. Accordingly, shareholders should treat such allegations with caution. The Company has sought legal advice and initiated formal legal action against Valiant Varriors. The Company will pursue all legal measures to protect the Company’s rights if necessary.

The Company considers that the Report contained factual errors, misleading statements and unfounded speculations which may lead to unusual price movements of its shares. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

RESUMPTION OF TRADING

Trading in the shares of the Company on the Stock Exchange has been halted with effect from 1:00 p.m. on July 20, 2021 pending the release of this announcement. Application has been made for the resumption of trading in the shares of the Company on the Stock Exchange with effect from 9:00 a.m. on July 22, 2021.

By order of the Board Linklogis Inc. Song Qun Chairman

Hong Kong, July 22, 2021

As at the date of this announcement, the Board of Directors of the Company comprises Mr. Song Qun as the Chairman and executive Director, Mr. Ji Kun and Ms. Chau Ka King as executive Directors, Mr. Lin Haifeng, Mr. Zhang Yuhan and Mr. Zhao Yongsheng as non-executive Directors, and Mr. Gao Feng, Mr. Tan Huay Lim and Mr. Chen Wei as independent non-executive Directors.

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