The shares of China Public Procurement (CPP) were suspended in Hong Kong yesterday in reaction to a mainland report questioning the authenticity of 304.2 billion yuan (HK$349.63 billion) worth of deals.
CPP is preparing a reply to the article posted on the website of leading mainland newspaper, the Economic Observer, on the weekend. The announcement will be on the Hong Kong stock exchange website within a few days, a CPP spokesman said.
The firm's shares fell 12.8 per cent from 78 Hong Kong cents on Friday to 68 Hong Kong cents yesterday before trading was halted at 10.19am, pending the release of a 'price-sensitive' announcement.
The article, which is no longer on the Economic Observer's website, questioned the authenticity of a 300 billion yuan deal to procure railway equipment as well as a 4.2 billion yuan coal procurement agreement. In February, CPP announced it had entered into a three-year agreement to provide procurement services for railway equipment worth at least 300 billion to Hua Tie, a subsidiary of China Railway Construction Materials Group, an affiliate of the Ministry of Railways.
In May, CPP announced a one-year agreement to procure 6 million tonnes of coal worth 4.2 billion yuan for the Fifth Engineering Co of China Railway 18th Bureau Group.
According to CPP's business model, the firm charges transaction fees of at least 1 per cent of the procured goods' sales value. The two contracts would provide the company with about 1 billion yuan in revenue a year for the next three years.
Last year, CPP posted a HK$819 million net loss - its seventh in a row - largely due to a HK$744 million impairment of goodwill from its HK$6 billion acquisition of a mainland e-procurement business last April.
A key executive linked to the mainland e-procurement business, Cheng Yuanzhong, stepped down as CPP chief executive last October and resigned as an executive director in February, citing health reasons. CPP's next chief executive, Liu Bo, resigned in April, at the same time that chief operating officer John Ho resigned after being appointed to that post last August. Since the middle of last year, at least 10 directors have resigned from the company.
The firm listed in Hong Kong in 2002 as a footwear manufacturer named Sunny Global Holdings. From 2005 to 2008, the company booked a total of HK$570 million of losses from goodwill impairments.
A weekend report questioned the validity of billions of yuan worth of CPP deals
The number of CPP directors that have resigned since the middle of last year is: 10