Xiangyi Rongtong subsidiary lawsuit concludes: What hidden risks are lurking in the pawn industry?

On March 2, the People’s Court of Changning District, Shanghai, issued a civil mediation agreement, officially ending the pledge dispute between Shanghai Xiangyi Pawn Co., Ltd. (hereinafter referred to as “Shanghai Xiangyi Pawn”), a controlled subsidiary of Xiangyi Rongtong (600830.SH), and Fuxing Group Holdings Limited (hereinafter referred to as “Fuxing Group”). The dispute originated from a 50 million yuan stock pledge loan at the end of 2024, which went through overdue default, litigation recovery, and was ultimately settled through installment payments.

Remaining Loan to Be Repaid in 6 Installments

The root cause of this pledge dispute was a stock pledge loan agreement signed on December 30, 2024, between Shanghai Xiangyi Pawn and Fuxing Group.

According to the contract, Fuxing Group used its 58.48 million freely tradable shares of Fuxing Corporation as collateral to apply for a 50 million yuan pledge loan from Shanghai Xiangyi Pawn. The loan term was six months, from January 3, 2025, to July 2, 2025, with a one-time repayment of principal at maturity and monthly payments of loan fees.

Initially, Fuxing Group performed relatively normally, paying monthly loan fees as agreed and repaying a total of 13.4 million yuan of principal and related fees. By the loan’s maturity on July 2, 2025, Fuxing Group still owed Shanghai Xiangyi Pawn 36.6 million yuan in principal. However, after the due date, Fuxing Group failed to fully repay the remaining principal. According to pawn business rules, the pledged 58.48 million shares of Fuxing stock became “forfeited,” and Shanghai Xiangyi Pawn lawfully held the priority right to recover the debt from these shares.

Subsequently, Shanghai Xiangyi Pawn repeatedly demanded repayment from Fuxing Group, but the latter only repaid a total of 10.78 million yuan in principal and late fees between July and December 2025. As of December 25, 2025, Fuxing Group still owed 31 million yuan in principal and 2.059 million yuan in late fees. After repeated negotiations, lawyer notices, and unsuccessful collection efforts, Shanghai Xiangyi Pawn officially filed a lawsuit with the People’s Court of Changning District, Shanghai, in January 2026, requesting the court to order Fuxing Group to repay the remaining principal, late fees, and legal costs, with Hubei Han Chuan Wire Rope Factory bearing joint liability, and to seek property preservation and exercise of the priority right over the pledged shares.

During the litigation, both parties engaged in multiple negotiations on debt repayment, ultimately reaching a mediation agreement. According to the court’s mediation document issued on March 2, 2026, Fuxing Group repaid an additional 2.9476 million yuan by the date of mediation. Both parties confirmed that the remaining debt included 28.5 million yuan in principal, 2.6297 million yuan in late fees as of February 13, 2026, future late fees calculated at an annual rate of 24%, and legal fees of 100,000 yuan. They also agreed on a six-installment repayment plan.

The mediation agreement further stipulated that if Fuxing Group failed to make full and timely payments in any installment, the entire debt would become due early, and Shanghai Xiangyi Pawn could directly apply for enforcement and dispose of the pledged shares to realize its claims. Thus, this months-long pledge dispute was settled through mediation.

Fuxing Group’s Financial Difficulties

The underlying reason for the loan was that, at that time, Fuxing Group, as the controlling shareholder of listed company Fuxing Shares, was facing significant financial pressure. Public information shows that Fuxing Shares mainly focus on real estate and metal products. In real estate, they primarily develop residential properties, with some commercial projects, mainly in Wuhan’s core areas, and also in Xiaogan, Xianning, Enshi, and Beijing.

Amid deep adjustments in the real estate sector, Fuxing Shares, as a real estate company rooted in Hubei, faced declining sales and tightening financing, leading to years of shrinking net profits and large losses starting in 2024.

According to Fuxing Shares’ financial data, in 2024, the company reported a net loss of 2.601 billion yuan; in 2025, losses continued to widen, with an estimated net loss between 2.6 billion and 3.9 billion yuan, facing high risk of delisting due to financial issues. Prior to this, Fuxing Shares’ net profit had declined for five consecutive years, from 599.8 million yuan in 2019 to 68 million yuan in 2023.

As the controlling shareholder, Fuxing Group is closely linked financially with Fuxing Shares. The ongoing losses of the listed company have strained its cash flow, making it unable to support the parent company financially, and possibly requiring Fuxing Group to provide guarantees, further increasing its financial burden.

Additionally, Fuxing Shares faces 96 judicial cases, 1,230 deep risk issues, and 75 litigation-related relationships, which further restrict its financing options. As a result, Fuxing Group has had to turn to non-traditional financing channels such as pledging assets.

Notably, as of March 6, 2026, Fuxing Group had pledged a total of 161 million shares of Fuxing Shares, accounting for 49.20% of its holdings. This high proportion of share pledges is a key financing method and reflects its extreme need for liquidity. Using stock pledges for pawn transactions is also one of its last attempts to activate its equity assets and obtain short-term funds.

Overall, in the context of deep adjustments in the real estate industry, Fuxing Shares, as a real estate enterprise rooted in Hubei, faces dual pressures of declining sales and tightening financing. Traditional channels like bank loans and bond financing are insufficient, making stock pledge pawns a reluctant but necessary choice due to their quick approval, simple process, and relatively lenient qualification requirements.

What Are the Risks of Stock Pledge Pawn Transactions?

This case not only reflects Fuxing Group’s financial difficulties but also highlights potential risks in the stock pledge pawn industry.

In recent years, with the development of capital markets, stock pledge pawns have become an important way for pawn companies to expand business and increase revenue. However, these transactions are highly affected by stock price fluctuations and corporate operating conditions, with significant hidden risks.

First, stock price volatility risk is the core risk of stock pledge pawns. Stock prices are influenced by macroeconomic factors, industry cycles, corporate operations, and market sentiment, often fluctuating sharply. A significant drop in stock value can lead to collateral depreciation. When the stock value falls below the outstanding debt, the lender faces the need to require additional margin or supplementary collateral. If not addressed promptly, the pawn company risks not recovering the full amount. According to the “Pawning Management Measures,” the disposal of listed company shares in pledged assets requires the consent and cooperation of the pledgor; they cannot be sold, discounted, or auctioned off unilaterally, which further complicates disposal after a sharp decline in stock prices.

Second, risks in the disposal of pledged stocks. Even though pawn companies have priority rights to recover from pledged stocks, actual disposal may face obstacles. Stock disposal involves judicial procedures that are often lengthy (3 to 6 months or more), tying up funds and affecting cash flow. Additionally, large volumes of pledged stocks may cause further price declines if sold publicly, resulting in lower-than-expected recovery and potential losses.

Third, borrower default risk. The repayment ability in stock pledge pawns heavily depends on the borrower’s operational status and cash flow. If the borrower faces operational difficulties or liquidity issues, they may default on principal and interest payments. Fuxing Group’s default was primarily due to ongoing losses and a strained capital chain, making full repayment impossible.

Furthermore, some borrowers may engage in malicious defaults or asset transfers, complicating recovery efforts. For example, they might split equity or falsify operational data to obtain pawn funds, then be unable to repay, forcing pawn companies into lengthy legal proceedings that are time-consuming and may find no assets to enforce.

Overall, stock pledge pawns carry significant risks related to stock price fluctuations, disposal difficulties, borrower default, and potential malicious behaviors, requiring pawn companies to carefully assess and manage these risks.