Caixin
May 13, 2019 10:05 PM
FINANCE

Police Move Against Controller of Financially Troubled Firm Kangde Xin

Troubled manufacturer Kangde Xin has defaulted on several bonds this year. On Feb. 15, it missed a 55 million yuan interest payment on a 1 billion yuan five-year note. Photo: IC Photo
Troubled manufacturer Kangde Xin has defaulted on several bonds this year. On Feb. 15, it missed a 55 million yuan interest payment on a 1 billion yuan five-year note. Photo: IC Photo

Police have taken action against the controller of the financially distressed Kangde Xin Composite Material Group Co. Ltd., though police haven’t said publicly why or what exactly they have done.

Zhong Yu, the actual controller of the Shenzhen-listed laminating film manufacturer, has been put under “criminal coercive measures,” the Public Security Bureau of the eastern city of Zhangjiagang said Sunday on Weibo (link in Chinese), the Twitter-like microbloggling platform.

The police, however, didn’t disclose exactly the measures entailed. Criminal coercive measures can include things like summons by force, bail, residential surveillance, detention or arrest. Police also did not specify what triggered the measures.

Zhong stepped down as Kangde Xin’s chairman in February, and does not currently hold any position at the company, according to a company announcement on Monday.

In October, Kangde Xin revealed that Zhong had fallen under investigation by China’s securities regulator due to a suspected violation of information disclosure rules.

Kangde Xin has defaulted on several bonds this year. On Feb. 15, it missed a 55 million yuan ($8.2 million) interest payment (link in Chinese) on a 1 billion yuan five-year note after defaulting on two short-term debt instruments 1.5 billion yuan in January.

Zhong told creditors in January that he was even willing to provide a personal guarantee for the company’s debts, promising repayment by the end of March. It remains unclear if he delivered on his promise.

Last month, Kangde Xin’s auditor gave a disclaimer of opinion (link in Chinese) for the company’s 2018 report, and said that major shareholders did occupy some of the company’s capital, but it couldn’t obtain enough evidence to determine the impact that might have had on the company’s balance sheet, according to the audit report. The auditor also said in the report that it could not confirm the authenticity of 12.2 billion yuan worth of company bank deposits.

Kangde Xin had a total of 16 billion yuan in debt as of the end of last year, about 47% of its total assets, according to the company’s 2018 audited report. It earned 280 million yuan in net profit attributable to shareholders, down from 2.5 billion yuan in 2017, the report showed.

Contact reporter Timmy Shen (hongmingshen@caixin.com)

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