Caixin
Sep 29, 2020 05:45 PM
FINANCE

After $1.7 Billion Fraud, Kangde Xin on Cusp of Delisting

What’s new: Scandal-plagued Kangde Xin Composite Material Group Co. Ltd. may be delisted from the Shenzhen bourse in the wake of a nearly two-year probe into one of the most high-profile corporate frauds in Chinese stock market history.

The Shenzhen Stock Exchange may review a potential mandatory delisting of the laminating film manufacturer’s shares after China’s securities watchdog accused it of “serious violations of laws,” according to a company filing to the bourse (link in Chinese) on Monday.

Zhong Yu, the company’s actual controller, and Wang Yu, its former finance director, have been banned for life from serving as executives, directors or supervisors of certain companies, and from working in the securities industry, according to the China Securities Regulatory Commission (CSRC). Two other senior executives — Xu Shu, the company’s CEO at the time of the fraud, and Zhang Lixiong, a former deputy head of its finance center — have been banned from serving the same positions or doing securities work for 10 years.

What’s the background: Kangde Xin rattled China’s bond market with several defaults in 2019. After defaulting on two short-term debt instruments totaling 1.5 billion yuan ($220 million) in principal in January 2019, the company missed a 55 million yuan interest payment (link in Chinese) on a 1 billion yuan five-year note the next month.

A CSRC investigation launched in January 2019 found that about 15 billion yuan of cash and bank deposits shown on the Shenzhen-listed company’s financial statements turned out to be false. Through systematic fraud such as recording fictitious export sales, the company had inflated its profits during a four-year period through 2018 by a total of 11.5 billion yuan, according to the CSRC.

Trading in Kangde Xin’s shares has been suspended since July 8, 2019.

Timmy Shen and Guo Yingzhe contributed to this report.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.

Related: Investigators Reveal How Kangde Xin Carried Out 11.5 Billion Yuan Fraud

Contact editor Marcus Ryder (marcusryder@caixin.com)

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