Nov 03, 2021 05:40 AM

Kangmei May Get $1 Billion Rescue Led by Guangzhou Pharmaceutical

Kangmei had a loss of 27.7 billion yuan in 2020.
Kangmei had a loss of 27.7 billion yuan in 2020.

Guangzhou Pharmaceutical Holdings Ltd. proposed to invest as much as 6.5 billion yuan ($1 billion) in a government-led rescue of scandal-plagued Kangmei Pharmaceutical Co. (600518.SH), Kangmei said Tuesday.

State-owned Guangzhou Pharmaceutical submitted the investment proposal on behalf of a consortium made up of state-owned investment firms, which are also investors in a newly formed entity to temporarily take control of Kangmei under a bailout orchestrated by the Guangdong provincial government. Guangzhou Pharmaceutical already controls operating rights to Kangmei, analysts said.

In a separate statement Tuesday, Kangmei disclosed developments in the legal proceedings against its former Chairman Ma Xingtian. On Oct. 27, Ma was charged by prosecutors with illegal disclosure, failure to disclose important information, misappropriation of funds and manipulation of the securities market.

Ma and Kangmei were also charged with paying bribes to government officials and regulators totaling more than 10 million yuan ($1.56 million), according to indictments disclosed in Kangmei’s statement. Many of the company officials related to the bribery case were already removed from their positions and punished, the indictments said.

Once one of China’s biggest publicly traded drugmakers, Shanghai-listed Kangmei has been struggling to survive since the revelation of a multibillion-dollar financial reporting fraud in 2019 and bribery investigation of Ma. Kangmei’s 2020 losses reached 27.7 billion yuan, surging nearly five-fold from 4.7 billion yuan a year earlier. In April, a Kangmei creditor filed suit seeking a bankruptcy restructuring of the company, accusing Kangmei of failing to repay 49 million yuan.

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. The company also faces a class-action lawsuit from investors who suffered losses.

In July 2020, Ma was taken into police custody on suspicion of illegal disclosure of information and failure to disclose important information. Two months later, a special-purpose vehicle was set up by local state-owned enterprises and a Guangzhou Pharmaceutical unit to temporarily take control of Kangmei’s business.

The special purpose entity effectively became the temporary controlling shareholder of Kangmei and also took over the management of Kangmei’s business and debt, without assuming any of its liabilities.

Contact reporter Denise Jia ( and editor Bob Simison (

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