China Sky says $167m loan not recorded in financial statements

An 800 million yuan (S$167 million) loan made by a unit of troubled China Sky Chemical Fibre to an entity represented by one of its former independent directors was not recorded in its financial statements.

The admission on Monday followed a query from the Singapore Exchange (SGX).

It also came on the back of a Feb 5 update to the SGX on the whereabouts of the former independent director, Mr Zheng Kai Su.

The firm gave updates in the statement on Monday about its Tianjin, Qingdao and Tianyu subsidiaries in relation to a 2016 suit received by the High Court of Singapore against Mr Zheng.

This concerned the alleged improper use of funds and assets as collateral for securing loans of about 1.073 billion yuan.

China Sky said a writ of summons on Mr Zheng that had expired on Oct 23 last year had been extended to Oct 23 this year.

The company is awaiting notification from the Chinese courts that the summons has been received by Mr Zheng.

This is despite China Sky having made regular contact with the Chinese courts for updates, the company told the SGX.

The company said proceedings against Mr Yu Guang, the former legal representative of its Qingdao Zhongda subsidiary, and Mr Zheng were under way.

China Sky added that Qingdao's land and factory buildings were seized by banks on October 2016 under Chinese court orders, and factory production had ceased in May last year. The court seized factory equipment for partial payment of wages to employees in November last year.

Separately, China Sky faces a petition filed by Qingdao Huangdao District Industrial & Commercial Bank for a loan of about 120 million yuan that was granted last year.

China Sky added that 1.9 billion yuan in assets of its Tianjin, Qingdao and Tianyu subsidiaries were either auctioned, mortgaged or seized.

The firm's shares have been suspended from trading since August 2016. It had a four-year trading suspension from 2011 to 2015 stemming from a scandal centred on former chief executive Huang Zhong Xuan, who admitted to making misleading statements on the firm's planned land acquisition in Fujian.

The issue was settled with the Monetary Authority of Singapore with a civil penalty of $2.5 million.

A version of this article appeared in the print edition of The Straits Times on February 14, 2018, with the headline 'China Sky says $167m loan not recorded in financial statements'. Print Edition | Subscribe