Police arrest Kangde Xin’s major shareholder in a show of force to support regulator’s crackdown on corporate malfeasance
- Police arrested Zhong Yu, the major shareholder and former chairman of Kangde Xin, after its auditor refused to sign off on the listed company’s cash position
- Kangde Xin, which defaulted on two bonds worth 1.6 billion yuan in December, claimed to have 12.2 billion yuan of cash
Chinese police arrested the owner of a company on the Shenzhen Stock Exchange on Sunday, a show of force after the securities regulator pledged to crack down on malfeasance to force the country’s listed companies to improve their corporate governance.
Zhong Yu, the 69-year-old former chairman and controlling shareholder of Kangde Xin Composite Material Group, was arrested on Sunday, the public Security Bureau of Zhangjiagang city in eastern China’s Jiangsu province announced via its Sina Weibo microblog site.
Zhong’s arrest followed the investigations into Kangde Xin’s financial health, after the producer of polypropylene laminating film defaulted on two bonds worth 1.6 billion yuan in December. The company claimed to have 12.2 billion yuan (US$1.8 billion) of cash on its books at the end of 2018, according to its annual report on April 30.
That cash position could not be affirmed, as Kangde Xin’s auditor Ruihua Certified Public Accountants refused to sign off on the accounts after “failing to obtain all relevant information and explanation.” Kangde Xin’s corporate account at the Bank of Beijing was empty, while the missing billions were found under an account that connects the listed company with its controlling shareholder Kangde Investment, 80 per cent owned by Zhong. Kangde Investment owns 24 per cent of Kangde Xin.
“It sounds like a big joke,” said Renmin University’s finance professor Zheng Zhigang. “The mixed use of capital by the listed company and its controlling shareholder is absolutely forbidden under China’s law. It shows how China’s capital market still requires a great deal of improvement.”