Scandal-Plagued Kangmei Hit With Bankruptcy Restructuring Suit
A creditor of Kangmei Pharmaceutical Co. (600518.SH) filed suit seeking bankruptcy restructuring of the scandal-plagued drugmaker as the company posted a massive annual loss of 27.7 billion yuan ($4.3 billion).
Guangdong Jiedong Rural Commercial Bank sued Kangmei in a local court April 22, Guangdong-based Kangmei said in a filing Tuesday as it reported 2020 financial results. Jiedong Rural Commercial Bank accused Kangmei of failure to repay 49 million yuan of debts.
Kangmei’s 2020 annual losses reached 27.7 billion yuan, surging nearly five-fold from 4.7 billion yuan a year ago, the company reported the same day. Kangmei attributed the widened losses asset write-offs mainly due to inventory impairment.
The court hasn’t formally responded to the bankruptcy restructuring request, but the case will bring uncertainties to some of Kangmei’s creditors which are pursuing a class action against the company.
Earlier this month, a court in southern China’s Guangzhou city accepted a lawsuit filed by a group of retail investors through a special representative against Kangmei on fraud allegations, marking the first ever class-action lawsuit against a listed company in China.
Zang Xiaoli, a lawyer at Beijing Shize Law Firm, said if the bankruptcy restructuring is formally accepted by the court, all other civil lawsuits and litigation against Kangmei will be suspended, affecting the class-action suit.
Once one of the country’s biggest listed drugmakers, Kangmei has been struggling to survive since the revelation of a multibillion-dollar financial reporting fraud in 2019 when Kangmei acknowledged multiple “accounting errors” in its 2017 results, leading to a 29.9 billion yuan overstatement its cash holding.
An investigation by the China Securities Regulatory Commission subsequently found that the company engaged in a series of illegal activities including forging documents for nonexistent business activities leading to an overstatement of cash holdings amounting to 88.7 billion yuan from 2016 to 2018. In May 2020, the securities regulator fined Kangmei 600,000 yuan.
In July, Kangmei’s then-Chairman Ma Xingtian was taken into police custody on suspicion of illegal disclosure of information and failure to disclose important information.
The Kangmei scandal sent shockwaves through China’s bond market and triggered a broader crackdown on financial institutions’ misconduct in bond issuance. GF Securities Co. Ltd., a major underwriter of Kangmei’s bonds, was banned from the securities-sponsorship business for six months and from bond underwriting for a year for its role in the affair.
Kangmei said in July that its controlling shareholder, Kangmei Industry Investment Holdings Co. Ltd., was planning a “major event” that might lead to a change in control. In September, a special-purpose vehicle was set up by local state-owned enterprises to temporarily take control of Kangmei as part of a rescue orchestrated by the Guangdong provincial government, according to Kangmei filings.
Kangmei’s creditors said at that time they would reserve judgment on the deal. “We still need to observe how the takeover goes, see if there’s any liquidity support for Kangmei and if there will be any moves to restructure the company,” one institutional bondholder told Caixin in September.
According to Kangmei’s latest financial report, its total assets stood at 36.2 billion yuan by the end of 2020 with only 552 million yuan in cash holding. The company has become insolvent with 43.3 billion yuan of debt.
Timmy Shen contributed to this story.
Contact reporter Han Wei (firstname.lastname@example.org) and editor Bob Simison (email@example.com)
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