Singapore Exchange withdrew a lawsuit filed to force China Sky Chemical Fibre Co. to comply by listing rules, and said lawyers for both sides met after the company ignored a deadline to appoint a special auditor.
China Sky’s lawyer is seeking further instructions from the Quanzhou City, Fujian-based company, the exchange, Southeast Asia’s biggest bourse by value of shares traded, said in a statement yesterday. Singapore Exchange didn’t give a reason for withdrawing the suit, according to a separate statement.
Investors have pressed for tougher rules as accounting scandals wiped out millions of dollars in the market values of China-based companies including Sino-Forest Corp. and led others such as FerroChina Ltd. to be delisted. The exchange had accused China Sky of “flagrant disregard” of its order to appoint a special auditor.
“SGX must show its teeth and pressure errant companies,” said Aloysius Wee, managing principal at the Singapore operations of Beijing-based Dacheng Law Offices. “Legal proceedings may not be the appropriate way.”
Singapore Exchange, also known as SGX, sued the Chinese nylon-fiber maker and four of its Chinese directors on Jan. 6 to compel the appointment of a special auditor to investigate “interested-party transactions,” a failed land purchase and certain repair costs. All three independent directors at China Sky quit Jan. 5, citing non-compliance with the bourse’s order.
SGX issued the two statements after a closed hearing on the lawsuit at Singapore’s High Court yesterday.
“Close-door mediation would be the best way forward,” said Wee, who isn’t involved in the case. “It’s face-saving for both.”
Some demands made by the bourse “were extremely unreasonable,” China Sky said in minutes of a Dec. 24 meeting in Singapore between its Chief Executive Officer Huang Zhong Xuan and the bourse’s Lawrence Wong. The Chinese company released the minutes in a Jan. 6 statement to the Singapore Exchange. China Sky will “continue to communicate with SGX to resolve the impasse,” it said in the statement.
Shares of Singapore Exchange Ltd. rose 1.3 percent to S$6.18 as of 1:04 p.m. local time. The bourse yesterday reported a 12 percent drop in net income for the three months ended December as daily trading volumes plunged 37 percent.
Trading in China Sky shares has been suspended since Nov. 17, a day after the exchange first ordered the company to appoint the special auditor. The shares closed trading on Nov. 16 at S$0.102, tumbling 96 percent from their peak of S$2.74 in October 2007.
Guoco Group Ltd., the second-largest investor in China Sky with a 10.3 percent stake, had strongly urged the Chinese firm to “speedily resolve” the dispute with the exchange, according to Stella Lo, a Guoco spokeswoman.
“There’s little comfort in SGX withdrawing the lawsuit,” said David Gerald, president of the Securities Investors Association of Singapore, which represents 70,000 retail investors. “There’s still no word on whether China Sky will comply or when the share suspension will be lifted. Shareholders are in a limbo.”
The case was Singapore Exchange Securities Trading Ltd. v. China Sky Chemical Fibre Co., Huang Zhong Xuan, Cheung Wing Lin, Song Jian Sheng and Wang Zhi Wei OS11/2012 in the Singapore High Court.