New controversy over rail supplier's accounts
China Public Procurement, the embattled rail supplier suspected by mainland media last year of faking a 300-billion-yuan (HK$358 billion) contract, was embroiled in fresh controversy yesterday when its auditors said they could not sign off on the company's 2010 accounts.
Public Procurement's shares were suspended from trading in July last year, a few days after newspaper the Economic Observer published a report questioning the authenticity of the 300 billion yuan procurement contract the company claimed to have won from the Beijing-government-backed China Railway Construction Materials Group.
Public Procurement's auditors Morrison Heng wrote in the company's annual report that it was 'not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion'.
Morrison Heng's concerns did not relate to the China Railway Construction contract.
Instead, they could not verify whether a HK$390 million 'receivable' - money Public Procurement says it is owed by a customer - was going to be paid.
This, Morrison Heng said, made it unsure whether the total value of receivables disclosed on Public Procurement's balance sheet had been 'fairly stated'.
Public Procurement, whose shareholders include global asset management giant Legg Mason, announced in February last year it had won the three-year deal to supply China Railway Materials with what it described as 'equipment, facilities and materials'.
Given the company's short track record in the industry, this was an impressive coup.
Public Procurement, which changed its name from Sunny Joy in April 2009, has changed its business model constantly, usually via acquisitions that eventually became unprofitable.
The firm owned a footwear manufacturing business until 2005. In 2006-7, it bought an internet television company, a broadband services business and a mobile phone trader.
In 2009, the company slashed the value of its previous acquisitions by HK$744 million, in other words admitting they were worth much less than what had been paid for them.
Public Procurement entered the public sector procurement industry in April 2009. It paid HK$6 million for British Virgin Islands company Hero Joy which owned, among other things, a newly created firm it claimed was preparing to win supply contracts from state-owned enterprises.
Hero Joy generated no sales during 2008 and was running at a loss.
One of its selling shareholders was Kenneth Ho Wai-kong, who became Public Procurement's chairman in January last year.
The following month, the company said it had won the China Railway Construction contract.
A few days later, Public Procurement sold HK$40 million of convertible shares to Standard Bank of South Africa.
The Hong Kong stock exchange has ruled that Public Procurement's shares will not resume trading until the company issues a statement addressing the Economic Observer's questions over the authenticity of the 300 billion yuan contract, as well as demonstrating it has adequate internal controls.
In a brief interview, Ho said the company 'would address all of those points'.
Down the drain
In 2009, China Public Procurement slashed the value of previous acquisitions by, in Hong Kong dollars: $744m