China Sky: 800m yuan loan to entity represented by ex-director not recorded in financial statements

IN response to Singapore Exchange (SGX) queries on Feb 7, troubled China Sky Chemical Fibre Co Ltd said that an 800 million yuan (S$168.94 million) loan made by a unit to an entity represented by former independent director Zheng Kai Su was not recorded in its financial statements.

The queries come on the back a Feb 5 update to the Singapore bourse on Mr Zheng's whereabouts and its Tianjin, Qingdao and Tianyu subsidiaries in relation to a Oct 24, 2016 suit received by the High Court of Singapore against Mr Zheng for the improper use of funds and assets as collateral for securing loans in the sum of about 1.073 billion yuan.

China Sky said that a writ of summons on Mr Zheng, which had initially expired on Oct 23, 2017, had been extended on Dec 20 to Oct 23, 2018. The company is waiting for notification from the Chinese courts that the summon has been received by Mr Zheng despite China Sky having made regular contact with the Chinese courts for updates, the company said in a filing with the SGX on Monday night.

Regarding China Sky's Qingdao Zhongda subsidiary, the company said that proceedings against the former legal representative of the unit, Yu Guang, and Mr Zheng were underway.

With more than a dozen suits received by the company, China Sky said that Qingdao's land and factory buildings were seized by banks on October 2016 under court orders, and factory production had ceased on May 2017.

The court had seized factory equipment for the partial payment preferentially to the employees on November 2017, China Sky added.

Separately, it faces a petition filed by Qingdao Huangdao District Industrial & Commercial Bank for a loan of about 120 million yuan that was granted last year.

China Sky added that 1.9 billion yuan in assets of its Tianjin, Qingdao and Tianyu subsidiaries were either auctioned, mortgaged or seized. The company will update the bourse with more information when it becomes available.

Shares of China Sky had been suspended from trading since August 2016. It had a four-year trading suspension from 2011 to 2015 stemming from a scandal centred on its former chief executive Huang Zhong Xuan, who admitted to making misleading statements on the firm's planned land acquisition in Fujian; the issue was subsequently settled with the Monetary Authority of Singapore with a civil penalty of S$2.5 million.