Biomass Electricity Producer Kaidi to Be Delisted for Failing to File Audited Reports

One of China’s biggest biomass electricity producers will be delisted from the Shenzhen Stock Exchange Wednesday after its auditor refused to sign off on financial statements for three consecutive years.

Kaidi Ecological and Environmental Technology Co. Ltd., a subsidiary of the new-energy company Sunshine Kaidi New Energy Group Co. Ltd., is still suffering from a debt crisis two years after defaulting on a nearly 700 million yuan ($105.7 million) bond in May 2018.

The delisting is another blow for a money-losing company that’s been fighting with regulators for years. Headquartered in Wuhan, Kaidi was founded in 1993 by Chen Yilong. In 2018, the securities regulator determined that related parties controlled by Chen, the company’s chairman, inappropriately used about 1.05 billion yuan of the company’s nonoperating funds, a claim repeatedly denied by Chen, who has resisted a regulatory investigation.

In May 2018, Kaidi missed a payment on a 698 million yuan bond, the sixth-largest default that year among Chinese companies. After the debt crisis, the company had an opportunity to carry out a debt restructuring but missed the opportunity amid the unresolved related-party funds issue and constant internal fighting among shareholders.

On the Shenzhen exchange, Kaidi’s stock will now enter a 30 trading-day delisting process starting Nov. 5 and will be delisted the next trading day once the transition period ends, the bourse said. In May 2019, after its auditor refused to sign off on financial statements for two years, Kaidi’s stock was suspended from trading and the company received a delisting warning from the Shenzhen exchange.

Kaidi posted a net loss of 3.78 billion yuan in 2019 on revenue of 2.66 billion yuan, according to its annual report. As of the end of 2019, the company had overdue debt of more than 18 billion yuan and was facing multiple lawsuits by creditors involving 17.6 billion yuan of debt.

Most of the company’s biofuel power plants have ceased production. Of the 87 biomass power plants it purchased, only 18 were operating in 2018 and most of them were running at a loss, Caixin learned. Following the Covid-19 pandemic, fewer than 40% of those plants resumed production this year.

Kaidi’s parent company Sunshine Kaidi has links to Lai Xiaomin, the former head of Huarong Asset Management Co. Ltd., one of the country’s big four state-owned bad-asset managers. Lai was arrested in November 2018 on a range of charges including embezzlement of public assets. Huarong has a 2.81% stake in Kaidi Ecological, according to its 2017 annual report, and was a shareholder of Sunshine Kaidi.

The company had hoped for a bailout from the Hubei government, but so far no state capital has been injected. The local government hosted several meetings to help stabilize the company, but the government never offered to provide liquidity, mainly because of the related-party funds issue.

Chen denied the Hubei securities regulator’s conclusion on the related-party funds issue and reported the regulator and its auditor to the disciplinary inspection department, according to people close to the matter.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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