Luoyang Glass in breach of listing statutes

PUBLISHED : Friday, 29 December, 2000, 12:00am
UPDATED : Friday, 29 December, 2000, 12:00am

H share Luoyang Glass has breached listing rules by failing to disclose substantial loans to its parent and its group of companies over the past two years.

This revelation is the latest to hit the sector after a string of scandals ranging from the failure to retrieve bank deposits to the misuse of listing proceeds and violation of compliance rules.

In an announcement yesterday, Luoyang Glass said it provided advances, financial assistance and guarantees to its holding company - China Luoyang Float Glass Group - and its subsidiaries amounting to 851.95 million yuan (about HK$798.44 million) to June 30.

The amount represents about 56.1 per cent of the company's unaudited net asset value.

The latest outstanding figure compared with 378.77 million yuan in 1998 and 901.8 million yuan last year. The latter means the company has lent to its parent 60.7 per cent of its audited net asset value.

Luoyang Glass is one of the largest manufacturers of float sheet glass in China.

The company yesterday said it failed to publicly announce these transactions 'due to an oversight', though it previously made such disclosures in its annual reports.

It would apply to the stock exchange for a waiver from strict compliance under the listing rules with respect to the ongoing connected transactions, subject to, among other things, independent shareholders' approval.

The oversight led to a violation - the general disclosure obligation under Practice Note 19 of the Listing Rules and connected transaction disclosure and independent shareholders' approval requirements under Chapter 14.

The stock exchange said it reserved the right to take action against the company.

The news came two days after fellow H share Jilin Chemical Industrial announced an unexpected large write-off of 670 million yuan on old equipment, raising questions whether other H shares could face similar problems.

Analysts and auditors were surprised to see the company only revealed the information after more than two years, and believed the incident would hurt investor confidence in the H-share sector.

They said Luoyang Glass' management and auditors should be responsible for the mistake as they should ensure the company complied with the listing rules which clearly stated disclosure requirements.

'This will dampen the sentiment towards the sector on disclosure and transparency concerns, despite the standard in general having improved,' said Steve Cheng Ka-wah, executive director of Tanrich Securities.

Disastrous results on the back of China's austerity programme in the past few years have dampened investor confidence in H shares.

The revelation also alarmed investors in other mainland-backed companies over the level of transparency in their financial reports.