Hong Kong Watchdog Seeks China Metal Wind-Up After Overstatement
China Metal Recycling Holdings Ltd. (773), once ranked the nation’s biggest scrap metal recycler, faces a winding-up petition after Hong Kong’s securities regulator said it found evidence the company fabricated sales.
The Hong Kong-based company, which counted China’s biggest steelmaker among its customers, inflated the size of its business to gain a listing in the city in 2009, the Securities and Futures Commission said yesterday in a statement. The regulator said it obtained court orders to appoint provisional liquidators.
China Metal Recycling shares have been suspended from trading since January after it was the target of allegations by short-seller Glaucus Research Group. Hong Kong regulators are seeking to toughen enforcement and rules governing share sales after a series of accounting scandals at Chinese companies shook investor confidence.
“It’s proactive on the SFC’s part in order to preserve shareholders’ funds,” said Jeff Maddox, a Hong Kong-based partner at Cadwalader, Wickersham & Taft LLP.
Alan Fung, China Metal Recycling’s group finance director, didn’t answer calls to his office and an e-mailed request for comment.
China Metal Recycling, which first sold shares in June 2009, suspended trading on Jan. 28 after Glaucus Research made allegations against the company and rated it a “strong sell.” The company called the claims groundless and said at the time its chairman planned legal action against the short-seller.
The regulator has appointed two provisional liquidators from Borrelli Walsh Ltd. to the company, in an application made on July 26, according to a statement yesterday from China Metal Recycling. They have the power to take over the company’s operations and assets and investigate its affairs.
“The provisional liquidators will be undertaking an urgent assessment of the operations of the company and its subsidiaries in consultation with the management of the company,” according to the company’s statement. The shares will remain suspended.
Wellrun Ltd., the company’s largest shareholder, objects to the SFC’s application and believes it’s not beneficial to shareholders, it said yesterday in a statement. Wellrun’s sole beneficial owner is China Metal Recycling’s Chairman and Chief Executive Officer Chun Chi Wai.
On Jan. 25, Chun said he would sell 29 percent of the company’s stock under his ownership for at least HK$3.41 billion to China Energy Conservation and Environmental Protection Group. The sale would leave Chun with 23.1 percent of the company and make the buyer its largest shareholder. On July 1, the company said the sale had yet to occur and that new conditions had been attached to its completion, including a deadline of Dec. 31.
The company raised HK$1.55 billion ($199.8 million) when it sold shares in June 2009. Wong Hok-leung, a former chief financial officer, resigned in November 2009 after saying he was denied proper access to the company’s financial information. The company called Wong’s allegations unfounded.
Angel Yeung, a Hong Kong-based spokeswoman for UBS AG, which managed the 2009 share sale, could not immediately comment on the SFC statement.
The SFC has proposed making banks criminally liable for false statements in initial public offering documents after a series of accounting scandals involving Chinese companies eroded investor confidence. Hontex International Holdings Co. agreed in June 2012 to pay shareholders $133 million to end a lawsuit that the SFC brought against it for misleading investors in its prospectus.
China Metal Recycling said on July 1 it was again delaying its 2012 annual results announcement as its auditors needed more time.
The case is Securities and Futures Commission and China Metal Recycling Holdings Limited, HCCW 210/2013, Hong Kong’s Court of First Instance.
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