Recently, several private equity funds have invested in listed companies through agreement transfers. What is the reason behind this? Recently, Great Wisdom announced that the company's controlling shareholder and actual controller Zhang Changhong signed a "Share Transfer Agreement" with Shenzhen Jiayi Assets. Zhang Changhong intends to transfer 100 million unlimited tradable shares held by the company through an agreement transfer to Jiayi No.1 Fund, representing the fund of the private fund, accounting for 5.0003% of the company's total share capital. The share transfer price is 7.36 yuan, and the total price of the share transfer is 737 million yuan. Great Wisdom is not alone in this trend. According to a reporter from Cailian Society, in the past two months, nearly 10 listed companies, including Great Wisdom, Dongjing Electronics, Zhongjing Electronics, Bochuang Technology, Mingpu Optical and Magnetic, and Gravity Media, have issued indicative announcements, progress or completion announcements of equity transfers with private equity funds, with the equity transfer ratio exceeding 5% in many cases. Regarding the reasons for private equity participation in these investments, a private fund investment director who participated in the above-mentioned investments told a reporter from Cailian Society that it is mainly based on confidence in the market and the company's future stock price. In addition, agreement transfers generally involve discounted stock prices, making it a more rational form of investment. However, this has also raised questions about whether major shareholders are suspected of using agreement transfers to cash out through indirect reduction holdings. Frequent agreement transfers by major shareholders The form of investment where the controlling shareholder or major shareholder of a listed company transfers shares to private equity funds through agreements has become a new trend recently. According to Cailian Society's statistics, since September, several private funds, including Jiayi Assets, Huazhou Investment, Ningbo Ningju, Runyuan, Quanqiao Fund, and Hangzhou Helin, have conducted changes in shareholding by agreement transfers with the controlling shareholder, major shareholder, or shareholder holding more than 5% of the shares of the listed company. Yao Xusheng, a financial planner at Paipai Wealth, told a reporter from Cailian Society that compared to buying stocks from the secondary market, receiving shares from shareholders of a listed company through agreement transfers has several advantages: Firstly, private equity can directly negotiate transaction terms with the shareholder of the listed company, including transfer price, quantity, payment method, etc. This allows private equity to tailor the most suitable transaction plan according to their investment strategy and risk preferences. Secondly, agreement transfers are highly flexible and customizable, enabling rapid large-scale equity acquisitions. Compared to gradually buying in the secondary market, agreement transfers can avoid the price fluctuations and uncertainties in acquisition time that secondary market trades may bring. Thirdly, when private equity funds participate in agreement transfers with shareholders of the listed company, they may gain key information about the company, helping them more accurately evaluate the company's value and investment potential. Fourthly, in some cases, agreement transfers may provide an opportunity for tax planning for both parties, reducing tax costs. Industry insiders: need to be alert to risks of using agreement transfers for reducing holdings From the perspective of private equity, increasing holdings up to the takeover threshold based on confidence in listed companies is normal. However, the recent frequent use of agreement transfers between private equity funds and listed companies has raised speculation and discussions about whether it involves reducing holdings. With the new regulations such as the "Nine New Articles" and the "Interim Measures for the Administration of Reduction of Shares by Shareholders of Listed Companies" strictly regulating reductions by major shareholders, the new rules impose stricter restrictions on the agreement transfer model, requiring the transferee to lock their shares for six months after the transaction. If the transfer leads to the original major shareholder losing their status, they must continue to comply with the six-month reduction limit. In addition, for situations such as judicial enforcement, pledge default disposal, etc., the new rules adopt the same treatment as centralized auction trading, block trading, and agreement transfers, treating repurchase agreements as pledge default disposals. Some industry professionals told reporters from Cailian Society that there are various reasons for private equity institutions and listed companies to choose agreement transfers for shareholding: Firstly, the strict limitations on reductions by major shareholders and board members under the new rules have blocked various channels for off-market reductions. This has made it increasingly difficult for small-cap companies to meet the requirements of block trades and competitive reductions, prompting them to turn to agreement transfers for compliant reductions. Secondly, during the peak of share unlocking and market factors such as price declines leading to broken issuance, shareholders choose to reduce their holdings through agreement transfers. Especially during price declines, agreement transfers become a choice for shareholders to reduce holdings, avoiding a larger impact on the stock price from direct reductions in the secondary market. Thirdly, during market downturns, listed companies use agreement transfers to introduce investors or strategic partners to achieve industrial synergy or optimize asset structures. Fourthly, some major shareholders of listed companies use agreement transfers to address financial issues, such as repaying pledged financing or fulfilling pledge repurchase default obligations. Yao Xusheng also believes that agreement transfers can complete share transfers without directly affecting market prices, helping to maintain price stability. Agreement transfers, as a compliant reduction method, help shareholders of listed companies comply with relevant regulations, avoiding the risks of unauthorized reductions. Additionally, since agreement transfers do not take place directly in the secondary market, they have less impact on the market, helping to maintain market stability. At the same time, Yao Xusheng advises investors to pay attention to potential risks: for example, if a shareholder of a listed company transfers shares to a private equity fund through an agreement, it may be a way of indirectly reducing holdings, which could affect the company's stock price and market confidence. If the shares to be transferred are subject to pledges, freezes, etc., the overall process of agreement transfers will be more complicated and require coordination from third parties. As the transaction amount involved in share agreement transfers is large and the time is long, it is particularly important to protect the security of funds during the transaction process. This can be done through setting up escrow accounts and making staggered payments based on milestone completions to protect fund security. In addition, private fund managers need to pay special attention to compliance issues, especially under the new rules on reductions, to ensure that transactions comply with regulatory requirements. This article was reprinted from "Cailian Society," GMTEight Editor: Xu Wenqiang.