Hong Kong stock exchange to delist China Metal Recycling for ‘obtaining listing by fraud’
Company ‘significantly overstated its business and profits’
Hong Kong’s stock exchange has decided to cancel the listing of suspended China Metal Recycling (Holdings) because it “obtained its initial listing by fraud” and is no longer suitable for listing.
“Through the fraudulent scheme, the company obtained its initial listing, for which it should not have qualified,” the exchange said on Thursday morning. “It also misled the investing public to rely on the fabricated operations and financial position presented in its accounts published at the time of the IPO and years thereafter.”
The exchange said the company’s management had acted against the interests of minority shareholders.
“There is a serious concern about management integrity, based on the court findings that Chun Chi-wai , being the chairman and one of the two executive directors, was highly likely to have planned and implemented the fraudulent scheme,” it said.
“As Mr Chun held and continues to hold a 53 per cent interest in the company, it is highly likely that he will be able to exert substantial influence over the operation and management of the company even if he resigns as a director of the company.”
The company will be delisted unless it can come up with proposals to address its unsuitability for listing by January 17, the exchange said.
Trading in China Metal Recycling was suspended on January 28, 2013. In July of that year, the Securities and Futures Commission applied to wind up the company to safeguard the interests of investors and creditors. It was the first time it had applied to wind up a listed company.
In February this year, the SFC won a landmark court order to wind up the firm. China Metal Recycling had claimed to be the mainland’s largest recycler of scrap metal but was alleged by the SFC to have grossly inflated sales and profit by forging documents and transactions.
The SFC said China Metal Recycling had overstated its sales by about 46 per cent, or HK$8 billion, and its gross profit by 72 per cent or HK$1 billion between 2007 and 2009.
The stock exchange said the High Court ruling showed China Metal Recycling “appeared to have obtained its initial listing by fraud”.
“According to these findings, the company had implemented a fraudulent scheme to create accounts which significantly overstated its business and profits,” the stock exchange said.
“These accounts were set out in its IPO prospectus for the purposes of its application for initial listing and inducing investors to subscribe for shares. In the circumstances, the company or its business should not have qualified for initial listing in the first place.”