The listed unit of a Chinese steelmaker touted by a government as a model of debt restructuring has admitted having inaccurate inventory figures – just six months after a private investor sank billions into the parent company. Fushun Special Steel, the Shanghai-listed subsidiary of Dongbei Special Steel, issued three risk warnings via the Shanghai Stock Exchange on Wednesday, saying its books were not accurate, it would report losses for 2017, and it might delist. Analysts said the discovery could deter other private investors from buying into troubled state-owned enterprises just as Beijing is trying to enlist private players to revive ailing state businesses through “mixed ownership reform”. Half a year ago, a firm controlled by private Chinese steelmaker Shagang ploughed 4.5 billion yuan (US$711 million) into Dongbei Special Steel for a 43 per cent equity stake in a restructuring deal involving deep haircuts for creditors and a series of debt-to-equity swaps. Xi Jinping’s debt-relief recipe: how China’s biggest bond defaulter unloaded its liabilities The deal gave Shagang 38.22 per cent of Fushun, replacing the Liaoning government as the listed unit’s biggest and controlling stakeholder. Shagang stocks were also suspended from trading in Shenzhen on Wednesday. Fushun did not say how big the discrepancy was, saying only that it found “untrue” inventory figures in a “self-examination” and its financial results of previous years had to go through “significant adjustments” as a result. “The company could post a net loss in 2017 and for previous years,” according to Fushun’s exchange filing. “The precise amount and impact are still being verified.” It said the result could mean the company did not have enough assets to cover its debts. According to the company, its net assets were about 2.1 billion yuan as of the end of September, and it had an inventory of 2.6 billion yuan in finished products, raw materials and semi-finished products at the end of June. In a separate online statement, Fushun said the China Securities Regulatory Commission ordered it to submit a remedial plan before the end of February. The regulator said the company’s management of its assets – mainly inventory, fixed assets and projects under construction – was weak and Fushun could not ensure its financial reports were accurate. Chinese steelmaker defaults on HK$1 billion debt just days after ‘chairman commits suicide’ Fushun previously reported a 112 million yuan profit in 2016 and 197 million yuan in 2015. Under the Shanghai bourse’s rules, companies that report financial losses for two years in a row are subject to a series of restrictions, including fundraising constraints and daily trading limits of 5 per cent rather than the standard 10 per cent. A third year of losses will result in delisting. Dongbei Special Steel gained attention in 2016 for defaulting on bond repayments 10 times in a row. The ensuing restructure was hailed by the Liaoning government as a “successful example of using the bankruptcy law to save companies in difficulty”, even though some creditors who refused to accept the debt-to-equity plan lost as much as 78 per cent of their money. Shagang, now China’s third-biggest steelmaker by output, then stepped in and took a controlling stake from the government. An industry observer said the Fushun announcements could “be a one-off loss, but no one knows how big it is”. “Investors will be more cautious [about mixed ownership of SOEs] in the future.” Chinese retail investors in the steelmaker were shocked by the revelation. In Guba.com.cn, an online community of retail investors, many commenters suggested suing the company for fraud.