Analysis Report on Equity Acquisition and Tax Arrangements for Liqi Intelligent's IPO

Based on the information I have collected, I will systematically analyze the issues related to equity acquisition and tax arrangements in Liqi Intelligent’s IPO for you.

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Wuxi Liqi Intelligent Equipment Co., Ltd. is mainly engaged in the R&D, manufacturing and sales of material automation handling equipment, with downstream customers including CATL, BYD, LG Energy Solution, etc.[1]. The company’s actual controller, Lu Haodong, previously served as the general manager of Wuxi Rose, the Chinese subsidiary of Rose USA.

Transaction Stage	Transferor	Transferee	Equity Ratio	Transaction Amount	Corresponding Valuation
Step 1	De Yida	Rose USA	35%	US$600,000	~US$1.8 million
Step 2	Rose USA	Liqi Intelligent	51%	US$12.6 million	~US$25 million

1. Significant Valuation Discrepancy
   : On the same day, the valuation corresponding to De Yida’s transfer of 35% equity is approximately US$1.8 million, while the valuation corresponding to Rose USA’s transfer of 51% equity is approximately US$25 million, representing a nearly 14-fold difference in per-unit valuation[2].

2. Roundabout Transaction Structure
   : Liqi Intelligent could have directly acquired the equity from De Yida, but instead opted for a transaction chain of “De Yida → Rose USA → Liqi Intelligent”, where De Yida first transferred the equity to Rose USA, which then transferred it to Liqi Intelligent[2].

Under Chinese tax laws, income from equity transfers is subject to corporate income tax or individual income tax. If De Yida had directly transferred the equity to Liqi Intelligent at the price of US$600,000, De Yida would have been required to pay income tax in China on the gains from the equity transfer.

Through the aforementioned transaction structure:

• De Yida’s Transfer to Rose USA
  : The transfer was conducted at US$600,000, which may be deemed a near-cost-price transfer, meaning De Yida was almost exempt from paying Chinese equity transfer income tax
• Rose USA’s Transfer to Liqi Intelligent
  : Rose USA received approximately US$12 million in proceeds, and the tax declaration and payment for this income may have been conducted in the United States[2]

The Shenzhen Stock Exchange has conducted two rounds of inquiries regarding the fairness of the acquisition price, potential interest transfer, whether the transaction constitutes a bundled deal, and other issues[3]. The prospectus reveals that the actual controller of De Yida is Lu Haodong, who is also the actual controller of Liqi Intelligent. This related-party relationship has further raised concerns about the fairness of the transaction pricing.

The prospectus discloses that

, and there was also the issue of illegally obtaining dividend payments. This illegal act persisted from the company’s establishment until De Yida exited Wuxi Rose in December 2020[4]. Although the company claims to have rectified the issue, such historical compliance problems are closely scrutinized in IPO reviews.

1. Inability to Control 51% Equity
   : Liqi Intelligent holds 51% of Wuxi Rose’s equity, but claimed that due to the “Company’s Articles of Association” requiring unanimous consent from all directors for major matters, it was unable to control the company. It only obtained control after acquiring an additional stake to reach 60% in 2022. The Shenzhen Stock Exchange questioned whether there was manipulation of the scope of consolidated financial statements to whitewash performance[4].

2. Fundraising Immediately After Dividend Distribution
   : During the reporting period, the company distributed dividends totaling RMB 130 million, with the actual controller Lu Haodong receiving approximately RMB 100 million. Meanwhile, the company held RMB 340 million in structured deposits on its books, yet plans to raise RMB 200 million to supplement working capital[4].

3. Low R&D Investment
   : The company’s R&D expense ratios were 3.72%, 2.72%, and 3.53% respectively, which are lower than the average level of comparable companies in the same industry[5].

The equity acquisition transaction structure of Liqi Intelligent’s IPO is indeed controversial. Through the roundabout transaction structure of “De Yida → Rose USA → Liqi Intelligent”, the following effects may be objectively achieved:

1. Enable De Yida (a Chinese domestic entity) to complete the equity transfer at a low price, thereby reducing or evading the equity transfer income tax payable in China
2. Receive transaction proceeds through Rose USA (an overseas entity), which may achieve a conversion of tax attributes

Although there is no final determination from regulatory authorities yet, such a transaction structure has attracted widespread attention and questioning from the media and the stock exchange. It is recommended that investors closely follow the subsequent review opinions and relevant disclosures from regulatory authorities.

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[1] Rui Finance - “Liqi Intelligent Secured RMB 130 Million in Tax Incentives Prior to IPO; Lu Haodong Poached Talent from His Former Employer” (https://m.rccaijing.com/news-7358306462101861489.html)

[2] Tencent News - “Confusing Equity Transaction Prices for Liqi Intelligent’s Subsidiary; Major Errors in Executive Resume Disclosures” (https://news.qq.com/rain/a/20260119A03TD600)

[3] Caifuhao - “Manipulating the Scope of Consolidated Financial Statements to Whitewash Performance? Major Asset Restructuring of Wuxi Liqi Intelligent…” (https://caifuhao.eastmoney.com/news/20260107201748324897960)

[4] NetEase - “A Wuxi, Jiangsu IPO Company Has Lower R&D Investment Than Peers; It Plans to Raise RMB 200 Million Despite Holding RMB 340 Million in Structured Deposits” (https://www.163.com/dy/article/KJLOAG9C05568Q6H.html)

[5] Sohu Finance - “Interpretation of Liqi Intelligent’s Response to the First Inquiry: Distributed Nearly RMB 130 Million in Dividends and Plans to Raise RMB 200 Million for Working Capital” (https://www.sohu.com/a/976421021_122014422)