Asia (Group) Certified Public Accountants (Special General Partnership) Special Explanation Regarding Inquiry Letter to KaiRiDe Holdings Co., Ltd.
Shenzhen Stock Exchange:
We have received the "Inquiry Letter to KaiRiDe Holdings Co., Ltd." (Zhongxiao Board Inquiry Letter [2021] No. 2, hereinafter referred to as the Inquiry Letter) forwarded by KaiRiDe Holdings Co., Ltd. (hereinafter referred to as the Company).
We have prudently audited the financial matters that require our explanation in the Inquiry Letter and provide the following responses to the issues involved:
I. The Company plans to provide a provision for bad debts of RMB 17,093.87 million for other receivables from the Company's former shareholder Zhang Peifeng at the end of 2020. Please provide a detailed breakdown of the receivables from Zhang Peifeng, the reasons for their formation, the basis and ratio for the provision for bad debts, and further explain the measures taken and to be taken for the aforementioned uncollected receivables, considering Zhang Peifeng's performance ability and relevant performance guarantee measures. Also, please explain whether the provision for bad debts for related receivables at the end of 2019 was sufficient and complied with the "Enterprise Accounting Standards." Please provide a special opinion from the annual auditor.
Company Reply: According to the "Contract" signed by the Company, Dezhou Jinmian Textile Co., Ltd., and Zhang Peifeng, to maximize the interests of the listed company and small and medium shareholders, Zhang Peifeng voluntarily replaced Shandong Demian Group Co., Ltd. as the obligor for the payment of the "Framework Agreement for Major Asset Disposal of KaiRiDe Holdings Co., Ltd." and the "Supplementary Agreement for Major Asset Disposal of KaiRiDe Holdings Co., Ltd.," to repay the outstanding amount of RMB 249,508,699.00 in installments.
In 2019, the Company provided a provision for bad debts of 10% for the aforementioned receivables from Zhang Peifeng, for the following reasons:
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As of the date of the 2019 annual report, Zhang Peifeng had repaid the first installment on time and in full and repaid the second installment ahead of schedule and in full, totaling RMB 55.44 million, accounting for 20% of the contract amount. In terms of the broader scope of repayment, among the RMB 327.23 million that Demian Group owed the Company for the disposal of textile assets, Zhang Peifeng cumulatively repaid RMB 133.17 million, with a cumulative repayment rate of 41%.
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Although Zhang Peifeng entrusted the voting rights of his 5.19% shares in the Company to Wang Jian, the beneficial owner of the aforementioned 5.19% company shares is still Mr. Zhang Peifeng. Despite the shares being pledged, the proceeds from the sale of the shares after the release of the pledge can still be used to repay the Company's outstanding debt of RMB 249 million.
In summary, considering the payment arrangement, actual payment situation, and Zhang Peifeng's personal circumstances, the Company believes that Mr. Zhang Peifeng has a positive intention and ability to actively repay the debt according to the repayment requirements of the "Contract." Given that the Company has already received a corresponding proportion of the debt and has the possibility of further recovery, the Company believes that the 10% provision for bad debts for receivables from Zhang Peifeng in 2019 is reasonable and complies with the principle of prudence, and does not violate the relevant provisions of the Enterprise Accounting Standards.