Something fishy as Chinese company blames ‘disappearing’ scallops for looming US$114 million loss
Dalian Zhangzidao Fishery draws the ire of state media, with Xinhua rapping the company for ‘hurting the seriousness’ of China’s capital markets
A Chinese seafood company has found itself in deep waters after blaming ‘missing’ scallops for a looming loss of up to 720 million yuan (US$114 million), drawing a sharp rap on the knuckles from state media and raising suspicions on social media.
Dalian Zhangzidao Fishery Group, which is listed in Shenzhen, said late on Tuesday that it expected to post a net loss in the range of 530 million yuan to 720 million yuan for the financial year ended on December 31.
“We have found out that the inventory level of our Yesso scallops farmed in the sea appeared to be abnormal,” said the company in a filing to the Shenzhen Stock Exchange.
“As such, we plan to make impairment provision or a write off for some of our scallop inventories for last year, which is expected to lead to a net loss for the company during the period,” it said.
It also blamed rising competition from imported scallops and changes in foreign exchange rates for the expected losses. It had reported a profit of 80 million yuan in 2016.
Xinhua news agency took a dim view of the announcement, saying in an unusually sarcastic editorial that the company lacked seriousness.
“The recent chaos on the Chinese equity markets makes one feel that participation in the markets is like playing the game Minesweeper,” it said. “You never know when another company will announce that their scallops have fled and they will cause investors losses.”
“There should be no room for the existence of so many dramatic company announcements on China’s capital markets, as they hurt the seriousness of the markets,” the editorial said.
“Companies should not damage market rules by changing their earnings reports recklessly, or breaching the rules for information disclosures, they should not fail investors who supported them with real money.”
It is not the first time the company has blamed scallops for losses. In the third quarter of 2014 it reported an around 800 million yuan loss, citing what it said was a total crop failure caused by an “unusual cold water mass” in the area where it farms them. Regulators looked at the matter at the time, but said they did not find any irregularities.
Some took to social media to suggest however that there may be something fishy in the latest incident.
“The incident is rather shocking, as it is the second time the company has had such a problem,” said Song Qinghui, a financial columnist, on Weibo.
“This also proves there is a big problem with the company’s management structure and the regulators should chase it down this time to see why the problem occurred again.”
The company, founded in 1958, farms the Yesso scallop – a north Asian species – around its base in the northeastern port city of Dalian.
As to whether the scallops could ‘disappear’, marine experts say the creatures are active swimmers sensitive to water movement and vibrations, and have the ability to avoid predators.