S$0.102-CSCF.SI
• Further to our note yesterday we note that SGX is not happy with China Sky’s previous responses with regards to its independent director and chairman of the audit committee Mr Lai Seng Kwoon having provided (via a private company wholly owned by him) accounting-related and consulting-related services to the company from 2008 till 2010. SGX wants an independent audit with regards to the potential conflict of interests and degree of independence as the transaction amounts disclosed by China Sky in the past 3 years had been wrongly stated.
• As well, SGX also wants an independent audit into its 2006 acquisition of land acquisition in Quanzhou city in Fujian from land owner Fujian Fuyuan Chemical Fibre to enable its expansion into upstream production. When asked by SGX, the company was reluctant to disclose the identity of the owner and difficulties with regards to the transfer of land use rights have seen the agreement turning void after 4 years. Fujian Fuyuan had recently refunded the full acquisition amount of Rmb263mln without any interest payment to the company.
• And earlier this year, the company had pre-paid Rmb190mln for new production equipment. When SGX queried about the utilization rates of its existing production equipment, the company refused to disclose it citing competition issues.
• China Sky which was listed in mid-2003 at 55 cents a share and saw its share price surge to an all time high of $2.54 in mid-07 is currently only 2.2 cents above its all time low of 8 cents reached on 23 Sept’11.
• The continued problems associated with S-Chips have continued to negatively impact the sector (even more reputable ones such as China Minzhong, with the stock trading at a depressed 3x PE and 0.8x price to book).
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