Published June 24, 2009

SGX's public rap for China Yongsheng

Company chided over disclosure lapses, told to appoint sponsor

By LYNETTE KHOO

	Email this article
	Print article
	Feedback

(SINGAPORE) China Yongsheng, the former Global Ariel, received a public reprimand from the Singapore Exchange (SGX) yesterday for breaching its listing rule on timely disclosures.

SGX also noted that there are internal control weaknesses relating to board approval and payment procedures, and urged the group to appoint a sponsor as soon as possible.

This public rap followed a review by independent auditor KPMG Advisory Services, which looked into the allegations raised by the former financial controller, Tony Law.

The crux of his allegations related to a joint property project with Suzhou Jinzhu Property Development Co.

KPMG's findings released last month showed that the 'major transaction' was not promptly disclosed, background checks on the joint venture partner were lacking, and the documentation and approval for a land deposit payment were insufficient.

SGX said the company's failure to make timely disclosures on the project and the land deposit payment constituted a breach of Rule 703 of the SGX listing manual.

The rule requires immediate announcements for major transactions exceeding 5 per cent of the group's net asset value, net profit or market capitalisation.

This acquisition committed the group to a total cost of 1.9 billion yuan (S$404 million), representing 434 per cent of the group's net asset value as at March 31, 2008.

But the company did not disclose details of the acquisition when it sought shareholders' approval to expand its business into property development on May 13, 2008, SGX said.

The company also failed to disclose a land deposit payment of 34.4 million yuan, which represented 6.3 per cent of the group's market cap as at Feb 4, 2008 - the date when the first deposit was paid.

Disclosures on the acquisition and the deposit payment were made on May 30, 2008, but only after SGX queried the group on its 2008 first-quarter results where the deposit payment of 34.4 million yuan showed up.

SGX said it takes a serious view of the company's failure to comply with listing rules requirements. 'The Exchange requires the company to publicly disclose the steps taken to improve internal controls and the appointment of a sponsor, and to keep its shareholders informed of these developments.'

In response to the reprimand, the company's board of directors said the group 'had already put in place certain internal controls over some business processes'.

It listed out various steps to strengthen corporate governance, including strengthening its checks on future projects of significant nature and ensuring proper documentation of any payments, among other things.

The board also stressed that KPMG had, in its report, disagreed with assertions from the former CFO - that the company paid lip service to internal controls - and did not find the position of the independent directors being compromised.

China Yongsheng has agreed to switch to the Catalist regime this year and is currently finalising its engagement with a continuing sponsor.

The group had laid out a timeline in its progress report made public last month. It is reviewing the proposals from short-listed sponsors now and will appoint a sponsor in September.

The company is also in the process of recruiting a chief financial controller, as its current chief financial officer Han Yee Yen is leaving. Mr Han had joined last October to replace Mr Law and is stepping down with effect from Aug 15 for 'personal reasons'.