This could lead to change of control at firm and loss of his CEO position
By LYNETTE KHOO
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IN a situation reminiscent of that at Sino-Environment, the chief executive officer and controlling shareholder of another S-chip company, China Sky Chemical Fibre, has found his pledged shares the subject of claims by lenders.
China Sky said in a filing yesterday that the possibility of sale of CEO Huang Zhong Xuan's stake in the company could result in a change of his substantial shareholding and his loss of the CEO position.
The company said this to explain why it called for a share trading halt, which began on Monday and was lifted yesterday.
Mr Huang holds his stake in China Sky through Rock Mart Equities which, according to yesterday's announcement, owns 37.72 per cent of China Sky. And to secure personal loans from two lenders, Mr Huang 'had procured Rock Mart to pledge Mr Huang's 50 per cent share of Rock Mart's entire portfolio of the shares' in China Sky.
On April 6, Mr Huang and Rock Mart received a letter from the first lender, setting out various terms to settle outstanding loans. This lender had on April 2 sold 500,000 shares to recover part of the loan owed to it.
Among the terms stated in the letter, the first lender required Rock Mart and Mr Huang to settle the debts in instalment, failing which it will exercise its legal rights, including its rights to dispose the pledged shares held by Rock Mart. This offer from the first lender expired on April 8.
China Sky noted that since early this year, Mr Huang had been in discussions with the two lenders to settle the debts without any forced sale of the pledged shares.
But as at Sunday, Mr Huang had not been able to obtain any written confirmation from the lenders that they would not proceed to dispose the pledged shares to reduce the debts.
According to China Sky's board, Rock Mart and Mr Huang are in the course of negotiating an amicable settlement with the lenders.
Rock Mart is jointly owned by Mr Huang and the chairman Cheung Wing Lin. But Mr Cheung and Mr Huang both confirmed that these issues only concern and affect Mr Huang.
When China Sky shares resumed trading yesterday, the stock closed 12.9 per cent higher at 17.5 cents. It was either a case of market players shrugging off the bad news or the stock playing catch-up in a market which has seen penny stocks in play this week.
Meanwhile, at Sino-Environment, executive chairman and CEO Sun Jianrong saw his stake in the company further pared down as his creditor enforced its rights on Mr Sun's pledged shares.
More of the pledged shares in Sino-Environment were transferred from Mr Sun to Stark Investments (Hong Kong) Ltd, reducing his stake held through Thumb (China) Holdings Group from 51.23 per cent to 31.23 per cent. This made Stark Investment a substantial shareholder with a 20 per cent stake.
Some 5.0565 per cent of his Sino-Environment stake that were earlier transferred to Stark Investments last month were forced-sold within a week.
Sino-Environment had disclosed last month that Mr Sun had defaulted on repayment of an outstanding debt of $65 million owed to hedge funds managed by Stark Investments (Hong Kong) Ltd and faced the risk of losing his controlling stake and potentially management control.
Any change in control of Sino-Environment could trigger bondholders' rights to convert or redeem $149 million worth of bonds issued by the company, raising doubts about its ability to continue as a going concern.
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