Crisis At China's Largest VMS Provider, Netposa, Now State-Controlled

By Charles Rollet, Published Oct 07, 2019, 08:45am EDT (Info+)

NetPosa, which bills itself as the PRC's largest VMS provider, is in a crisis. The firm is pursuing huge unpaid bills from clients, and its chairman is being sued for over $220 million of unauthorized loans, resulting in banks freezing NetPosa cash and shares. This all comes as the PRC government recently became NetPosa's controlling shareholder.

IPVM Image

Inside this note, we examine the crisis at NetPosa, including:

  • NetPosa Background
  • Accounts Receivable Explode Amid Government Debt Crackdown
  • Stocks and Cash Frozen
  • Internal Investigation Reveals Massive Unauthorized Loans
  • PRC Government Takeover
  • Conclusion: Will NetPosa Survive?

**********

********* ******* ******* ***** (***** **** a****** **** *** *** *******),*******- ******* ** **** - ** a *** *** ******** *** ******* police. **** **** ******* *** **** when *** ********** ** **************** * ******* **** **** ** February, ********* ******** ***** ********* *********.

*****'******** ************ ************* ******* ** *** ** *** largest *** ***** *********. ******* **** over $*** ******* ** ******* ** 2018 ********* ** ********* ******; *** **********, ********* *** **** than **** ****,** ~$*** *******.

IPVM Image

Accounts ********** ******* **** ********** **** *********

******* *** *********** **** ******** **********, i.e. *** ********* *** *** ****** their *****. *** **** *** ~$*** million ** ** (*.* ******* ***)***-**-**** ****.****'* **** **** *******'* ****** ******* for **** **** *** * **.*% increase **** *** **** ****** (*** almost************ ****** **** ****):

IPVM Image

**** ******** *******'* ********* ******* *** none ** **** ********* ***** ******** clients **** ******* ***** ** ***** repayment *****. *******, *** **** ****** in ******* ****** ********** ** *** ******* ** **** issues ******* ** ***** *********** ********* struggles **** * ******* ************** *********:

*** ** ***high ***** ** ***** ********** **** and the decline ** ***** ********* ******* ********, the growth rate of the company's business needs will slow down, the construction period of the project will be extended, and the period of corporate capital withdrawal will be lengthened. This *** ****** ** ** ******** ** *** ****** ** ******** ********** *** ** ******** ** *** ****** ** *** *****. [emphases added]

*******'* *********** ** **** ******** *********** unchanged, ******** ** $**** (*.* ******* RMB) ** **** ****, * **% increase ****-**-****, *** *******'*****-**** ******,***** ****** **** "** *******, ***** [government] ****** ******** *** ********* *** debt ****** *** ****":

IPVM Image

Stocks *** **** ****** *** ** ********

IPVM Image

****************** ****** **** *** ****** ** its ******** *** ********** ********* ****** ** **** ********* ****** due ** ******** ********* ***. **** affected **% ** *******'* ***** ******. Over $** ** **** **** ** NetPosa ** ***** *** ******** ****.

Internal ************* ******* ******* ************ *****

** ********* **, ***************** ******** ************* ******* **** *** had **** *** **** *** *******'* as ********** ** ***** ***** **** outside *********. *** ***** *****'* **** fully ****, ** ***** ***** *** now ***** *** ********* ****** ** freeze ***'* ****** *** **** ** NetPosa's. *** ***** ****** ** ************ loans ** **** $****, ** ***** only $*** *** **** **** **** so ***.

Chairman **** ***** ** ***** *** ****** *****

*** ***** **** ******* ******* *** for *** ********:

*** ***** *** ** **** *** could ****** *** ************* ******'* ** force-liquidated, ** ** *** ******* **** of **** ** ********** ** ******** for **** (~**% ** *** ****** were ******* ** ** ********* ********** ** ****,**** **** * **** ** ********% ** *******.) ******** ****** ** ****** ** China *** *** **** ***** ** a *****"****** ** ********* ****"**** ***** ****** *******.

****'* *** ** ******: ** *******'* stock ***** ****, ***'* ********* *** more ********** (******) ** ***** *** loans; **** **** **** ****'* **********, they ******** **** (* "****** ****"). The ************* ********* **** ************-****** ***** made ********** ** ***** **** ****** calls; **** **** ****** ** *** and ******* *** *** ** ******** board *************. ** **** ***** ******* board ******* *** **** *** ** such ************, *** ***** **** ** records ** *** ***** **** ******* to **** ***** ***** (** ***** be ********).

IPVM Image

Clearing ******** **********

*** ****** ******* ** *** ***** was ** ****** ********** **** ** clear *******'* ******* ******** ********** *******. Once *****, ***** **** ********* ****** by *** *** *******, *** ******* proper ***** *************.

NetPosa ********

**** ********** *** *** ****** ** the ******* ** *****, *** ******* chairman. ******, ******* **** ** ***** handle *** ******** *** ***** ***** to "***** *** **** ** **** as ********":

*** ******* **** ******* * ****** to ****** *** ********** *** ****** accounts *** ** *** ***-********* **********; at *** **** ****, *** ******* and *** ******* ***** ** ********* will **** *** ****** *********** ***********, Mr. *** *****, ** **** ********* measures ** ******** ***** *** ******** of ****** *********' ******* **********, ******* occupation, ***., *** ***** *****. ******* the ********* *** ***** *** **** as **** ** ********.

NetPosa *** *** ********** **********

**** *** ***** **** ***** *** Chinese ********** ********** ****** *******'* *********** shareholder, **** ****** ****** **** **% of *** *******'* ******.

IPVM Image

** ***** ****, **************** * ******** ***** *** * ********** ** the *****-***** ****** *********** *** ************** Commission (*****) ** ******* ******** ******* Guang ** *********** ***********, **** ***** buying **** ** ***'* ****** ******** and ********* ****** ****** **** *** rest.******* *************** ********** ****** **** ******** *** country's *****-***** ********** ****** *** ****** *** ******** *********** ************* *********. ** ***** *********, *** deal*** ********** *****'* ************.

************ ***** ******* ****** ** **** ** * Sichuan ********** **** ** "******* ******* ***********", **** ******* ********* ** ***** an *&* ****** ** *******'* ******* Chengdu.******* ***** ******* ******* ********** ** the ****, ******* ********* ***** **** *******'* ********* ****** with ***** ********** ********. **** ******** are *** ******* ** *****, ************ as *** ******* *****, ** ******** in *** ***'******** ***** ****** ** ******* ***** to **** **** ******.

*****'* ** ******** ***** *** ***** of *****'* *********** ***** ***** ** the ***** ********, ***** ****** ********* about ***** *** *********. *******'********* ********************** ***** ********** ** "******** **********" by *** *******'* "*******" **********.

Conclusion: ******* *** **** **** **** ***

******* *** ******* ******** ********** ****** and *** ********* ** *** **** unauthorized *****, **'* *** ***** ** us *** ************ ***** ********* ***. In *********** *************, ******* ****** ** ***** *** make *** ******** ***** *** ******** impact ** *** ********:

*** ***** ********** ******* **** ******* proceedings *** **** *** *** **** closed. ** ** *********** ********** ** judge *** ****** ** *** *******'* current ****** ** ****** *******.

**** *** ** ****** ********* ** NetPosa's ******** ****, ****** ****** ** NetPosa's *** ********* ***********. ******* *** not ******* ** *** ******** *** comment.

Comments (7)

Charles, excellent reporting!

Regarding:

Due to the high level of local government debt and the decline in local financial payment capacity, the growth rate of the company's business needs will slow down, the construction period of the project will be extended, and the period of corporate capital withdrawal will be lengthened. This may result in an increase in the period of accounts receivable and an increase in the amount of bad debts. [emphasis added]

I am curious to see how this evolves. PRC government spending on surveillance has been a huge boon for PRC manufacturers. If this changes, it could seriously impact those companies and their overall plans.

Agree: 5
Disagree
Informative
Unhelpful
Funny

As long as Netposa's contracts were won legally, the Chinese government is good to pay and they will pay in the end, they don't have a shortage of money and can always print more.
For companies relying on government money, the problem is always the working capital, it can take years to collect the account receivables and i guess this is the major reason netposa took out the loans.
the government ownership is also probably a way to keep the company afloat (on a side note, i recall a few years ago the Korean government gave out a lot of tenders to upgrade and install new city surveillance projects in Korea to assist local manufacturers).

The major risk for Netposa is if there is some under the table money in any of their projects. it is not uncommon for a local government official to grant you a project and expect some money back from you. if There are cases like this, the government will not pay but instead start an anti graft investigation which will land you in jail and bring the company down.

Agree: 2
Disagree
Informative: 2
Unhelpful
Funny

#2, thanks, good points.

I agree that the government customers should eventually pay but there are still 2 longer-term risks:

(1) If the government customers come back and say "Hey we have not paid you for the other projects but want to do more", what does Netposa do? Risk even a greater liquidity crisis with even longer and more uncertain terms about when to be repaid?

(2) If the government customers are having difficulty paying for what they already bought, what if they stop buying new projects from Netposa? Even if Netposa gets paid for previous projects they face a risk of having problems to find new ones / revenue, yes/no?

Related, revenue was down 12% year over year in H1 for their continued operations which point to the risk of declining customers / sales, see the 3 red circles below:

Agree
Disagree
Informative
Unhelpful
Funny

How is IPVM making money?

Agree
Disagree
Informative
Unhelpful: 9
Funny: 2

You literally asked the same question last week. To quote my answer there:

Member subscriptions. People around the world pay.

No advertising, no sponsorships.

It is pretty simple. We post exclusive reporting on business issues, technology, product test results and people from around the world pay to have access.

Agree: 8
Disagree
Informative: 1
Unhelpful
Funny

Probably doesn't help them buying knight scope :D :D

Agree
Disagree
Informative
Unhelpful
Funny

UPDATE: a Beijing court has ordered the freeze of 17,000 square feet (1,588 square meters) of NetPosa office space in Beijing, according to the latest NetPosa announcement. The freeze is active for three years (until September 2022). The office space is not the same address as NetPosa's Beijing headquarters (although nearby).

This doesn't mean the offices have been physically sealed off. What this means is that the plaintiffs suing Liu Guang and NetPosa successfully got the court to hold the office space for the time being, in case Liu and NetPosa can't pay back their loans. If that happens, the plaintiffs can then seize the offices and liquidate (i.e. sell) them to cover their debts.

One Beijing real estate brokerage puts the price per square meter of the building where the NetPosa office is located at about $10,000 per square meter, so this property could be worth $15,880,000.

Agree
Disagree
Informative: 1
Unhelpful
Funny
Login to read this IPVM report.
Why do I need to log in?
IPVM conducts reporting, tutorials and software funded by subscriber's payments enabling us to offer the most independent, accurate and in-depth information.
Loading Related Reports