The crisis that has hit China’s corporate community is worsening after the suspension of trading of Kangmei Pharmaceutical shares, The Wall Street Journal reported Monday (May 20).
Kangmei is one of two Chinese conglomerates that recently raised investor and regulatory concerns over a combined $6 million in cash missing from their books. Reports Monday said Kangmei has admitted to purchasing $1.3 billion worth of its own stock, and regulators said the company inflated its cash holdings by more than $4 billion.
The China Securities Regulatory Commission revealed last last week that it found evidence Kangmei falsified some financial reports between 2016 and 2018. As it probes the company and its auditor, concerns also are growing over Kangde Xin Composite Material Group, the second conglomerate with missing cash on its books and with a suspicious bank deposit. Last month, Kangde’s auditors said they could not verify that bank deposit, and warned that the firm missed interest payments on three bonds, reports said. Police have reportedly detained former Chairman Zhong Yu.
A third company, Tunghsu Optoelectronic Technology Co., is also raising concerns among investors over its borrowing practices, obtaining loans at high interest rates despite large cash deposits on its books.
Stock exchanges and the Securities Regulatory Commission are probing the companies in what experts say is a test for corporate oversight in the company.
“Part of the problem is that the cost of violating the law is too cheap here,” said Shen Meng, director at Beijing investment bank Chanson & Co., in an interview with the WSJ.
The publication also noted problems in the nation’s credit ratings space, with one of the largest debt risk assessors, Dagong Global Credit Rating Co., being taken over by a state-owned enterprise last month after revelations of what government officials called “chaotic internal management” at the firm.