Lygend Resources has strong operating cash flow and a lower debt ratio than its peers, yet it has been distributing large dividends to its controlling family while simultaneously seeking to raise 4 billion yuan from the A-share market. The necessity of this fundraising is questionable. At the same time, the company's governance structure appears to exhibit characteristics of family-run management. Surprisingly, the actual controller's brother holds shares and serves as a director, but has not been identified as a joint controller, potentially setting the stage for future share sales by family members after listing. Additionally, the company's equity ties with partners have drawn regulatory scrutiny over related-party transactions, raising concerns about hidden governance risks.

Lygend Resources recently took a step forward in its A-share listing bid, now entering the registration stage. This marks the first main board IPO under the registration system where a company fully transitions from H-shares to A-shares. The company plans to issue no less than 172,881,500 and no more than 305,126,000 ordinary shares (excluding over-allotment options), representing at least 10% and no more than 16.40% of the total post-issuance share capital. The proceeds, totaling 4.047 billion yuan, are earmarked for two core projects: a 2.062 billion yuan wet-process residue resource utilization demonstration project and a 1.985 billion yuan MHP refining production project.

Is the Fundraising Necessary? Dividends Alongside Capital Raising

Public information shows Lygend Resources is a key player in the global nickel industry and a critical service provider in China's nickel resource supply chain. Its business covers the entire chain from upstream nickel resource procurement and nickel product trading to nickel product manufacturing and sales. During the reporting period, the company's downstream customers for nickel-cobalt compounds are primarily domestic well-known ternary battery material producers for new energy vehicles, while its laterite nickel ore and ferronickel products are sold to stainless steel manufacturers and large, creditworthy commodity trading firms.

From 2023 to 2025, the company's revenue and net profit both grew. Net profit attributable to parent company shareholders was 1.05 billion yuan, 1.768 billion yuan, and 2.862 billion yuan, respectively, with growth rates of -39%, 68%, and 62%. Operating cash flow also improved steadily, reaching 6.464 billion yuan in 2025. Given this strong cash-generating ability, the decision to raise another 4 billion yuan raises questions about potential market exploitation. Notably, the company has been distributing cash dividends while simultaneously seeking funds.

Between 2023 and 2025, Lygend Resources paid cash dividends to all shareholders for three consecutive years. The dividends were 0.30 yuan per share on January 3, 2023 (total 467 million yuan), 0.20 yuan per share on May 21, 2024 (total 311 million yuan), and 0.35 yuan per share on May 21, 2025 (total 545 million yuan). Based on the same 1,555,931,350 outstanding shares, cumulative cash dividends exceeded 1.3 billion yuan. As a typical family-controlled company, these dividends likely flowed primarily to the major shareholder.

As of the prospectus signing date, Cai Jianyong directly and indirectly controls 51.42% of the voting rights and serves as chairman. His brother Cai Jianwei directly and indirectly holds 1.32% of shares and serves as director and deputy general manager. Another brother, Cai Jiansong, directly and indirectly holds 0.99% of shares and serves as deputy general manager. His daughter Cai Xiaou directly holds 0.66% of shares and works at the company but does not hold director or senior management positions. The company's debt ratio is lower than the industry average, which ranged from 58% to 61% during the reporting period, compared to the company's 53% to 56%. This raises the question: Is the company exploiting the market by distributing dividends while seeking high-value fundraising?

Are There Hidden Governance Risks?

Notably, close relatives of the actual controller hold shares and executive positions but have not been designated as joint controllers. The prospectus states that Cai Jianwei, the brother of the actual controller, directly holds 0.67% of shares and indirectly holds 1.32% through the controlling shareholder, LYGEND Investment, while also serving as director and deputy general manager. Cai Jiansong directly holds 0.50% and indirectly holds 0.99% through LYGEND Investment, serving as deputy general manager.

According to Article 83 of the Measures for the Administration of the Acquisition of Listed Companies, two situations involving close relatives are presumed to be concerted actors: (9) when a natural person holding more than 30% of an investor's shares has close relatives serving as directors, supervisors, or senior managers of the investor, and those relatives hold shares in the same listed company; and (10) when directors, supervisors, senior managers of a listed company, and their relatives as specified in the previous item, simultaneously hold shares in the company. This includes siblings and their spouses. Furthermore, Article 5 of the Regulatory Guidelines for Listing – Category 1 clarifies that close relatives such as natural persons, their spouses, and siblings, as described in Article 83(9) and (12) of the Measures, should be deemed concerted actors unless evidence to the contrary is provided.

In other words, the actual controller's brother, who holds shares and serves as a director, falls under the presumed scenario. Unless sufficient contrary evidence is provided (e.g., independent voting rights, no concerted action agreement, no participation in major decisions, or a commitment letter), he should be identified as a concerted actor. However, the company has not listed him as a joint controller. The key criterion for A-share IPO lock-up periods is whether one constitutes control or a concerted action: if a controller exists, the controller and their concerted actors are locked up for 36 months, while other shareholders are locked for 12 months.

The company explained that Cai Jianwei does not constitute a joint controller because: (1) his direct shareholding of only 0.67% provides very limited voting rights at the shareholder level, and his indirect stake through LYGEND Investment is controlled by Cai Jianyong; (2) as an executive director, he holds only one of nine board seats and cannot lead board decisions; (3) as deputy general manager, he is responsible for the trade division, executing daily management based on decisions by the shareholder meeting and board. He has not signed a concerted action agreement with the actual controller and has issued a commitment not to seek control.

Additionally, the actual controller has faced controversy over a "technical divorce." In August and November 2024, Cai Jianyong transferred a total of about 8% of company shares to his ex-wife, Xie Wen, at nearly zero consideration. The first transfer was 4.002% of shares at 0.00001 yuan per share, totaling about 623 yuan. The second transfer was 4.02% of shares at the same price, totaling about 624.44 yuan, for a combined total of about 1,247.44 yuan for 124.7 million shares. Before filing for the A-share IPO in 2025, the couple had completed their divorce, so Xie Wen was not identified as a joint controller in the prospectus.

Furthermore, the company has equity ties with its partners. During the reporting period, its Indonesian partner was the core supplier of laterite nickel ore for its smelting operations, accounting for 70.51%, 64.32%, and 55.87% of the company's total laterite nickel ore procurement for production in each period. The company established joint ventures such as HPL, ONC, KPS, and HJF with this partner. In HJF, a pyrometallurgical project, the partner holds 63.10% equity, while Lygend Resources holds 36.90%. Under the HJF shareholder agreement, HJF shareholders have preemptive rights under equal price and transaction terms.