Zhongwang to clarify IPO prospectus
China Zhongwang Holdings, the mainland aluminium producer battling media allegations that it faked parts of its initial public offering prospectus, spooked investors by announcing it would 'clarify' an earlier statement that there was nothing wrong with its share sale document.
Zhongwang said on January 5 that auditor Ernst & Young had reviewed the customer data in its prospectus and found 'no material deficiencies'.
The Liaoning-based aluminium company, which raised HK$9.8 billion on Hong Kong Exchanges and Clearing last May, suspended its shares from trading on January 7 without explanation.
Late on Tuesday night, Zhongwang added to the confusion by telling the stock exchange it was preparing an announcement to 'clarify certain matters relating to the announcement dated 5 January 2010'.
When contacted, Zhongwang finance director Vincent Cheung Lap-kei would not answer questions on when this next statement was due out, what it might contain or whether investors should be worried.
Shareholders have been on tenterhooks since November, when Zhongwang said it had appointed Ernst & Young to review the data in its prospectus relating to its top 10 customers, as well as its tax payments.
The Economic Observer alleged in September that the top 10 customers Zhongwang named in the IPO document did not buy from the company in 2008. The mainland newspaper later retracted the article and apologised to Zhongwang.
David Webb, an investor and shareholder activist, said he was worried by Ernst & Young's silence on the matter.
The audit firm has still not said whether it agrees with Zhongwang's January 5 assertion that it found 'no material deficiencies' in its client's IPO prospectus.
'EY has been appointed to address investors' concerns,' Webb said. 'They should at least be able to confirm the accuracy of the [January 5] announcement. If they disagree [with Zhongwang's summary of the announcement] they should disclose why.'
Ernst & Young declined to comment.
Some investors told the Post they had not received satisfactory answers from the company about a rapid change in its sales mix last year.
In its April listing prospectus, the aluminium extruder said that less than 3 per cent of its sales came from outside the mainland in 2008. By September, 25 per cent of the sales were exports.
Zhongwang's shares were among the most shorted on HKEx last year. The short-selling attacks against the company began in late July, according to Bloomberg data, weeks before the Observer's report was published.
The company has fought a rearguard action against the negative sentiment. It has provided investors with contact details for its export intermediary and sent media, including this newspaper, signed statements from some customers asserting Zhongwang has stated their orders accurately.