Sembcorp's China JV legal proceedings ended

Singapore

CONGLOMERATE Sembcorp Industries (SCI) has concluded the multi-million-dollar legal proceedings over its pollution offences in China, closing a chapter in the case that has grabbed headlines recently because of disclosure issues.

SCI stated in a regulatory filing to Singapore Exchange on Friday after trading hours that its joint venture (JV) wastewater treatment unit Sembcorp Nanjing Suiwu (SNS) had received the final mediation document from the Chinese court.

The legal proceedings consisted of a criminal case and a related civil case over illegal discharge of wastewater by SNS into the Yangtze River. SCI holds a 95 per cent stake in SNS.

Under China court rules, these two cases were regarded and tried as one. SCI's share of the fines and cash settlement for both the criminal and civil claims stands at a total of S$54 million - S$10 million fine for the criminal case and a S$44 million settlement for the civil claim.

SCI stated that these have been fully provided for as at Sept 30 last year, with no further financial impact arising from the conclusion of legal proceedings.

Further, it has committed to new investments of S$45 million over the next four years to support environmental protection in China, with a substantial portion of the investments having been earmarked for upgrading of its wastewater treatment facilities in Jiangsu.

SCI said the upgrading would have been necessary - even without the litigation - to meet new effluent discharge standards coming into force in January 2021. "These investments are expected to deliver financial returns," added SCI.

The outcome of the case had not been disclosed right after the Chinese court dismissed SNS' appeal last October, and this sparked criticism from some corporate governance watchers and a regulator's article on timely and adequate disclosure of significant litigation.

SCI's latest announcement with the JV named and other details included was a stark contrast from its earlier disclosures in September 2018 and mid-January.

The conglomerate said SNS was in "many months of difficult and sensitive negotiations with the provincial prosecutors" over the civil claim.

"While fulfilling its disclosure obligations, in determining the information on the SNS legal proceedings to be disclosed during this period, the group therefore had to balance the interests and disclosure needs of all stakeholders to ensure that legal proceedings are resolved expeditiously under the China legal system and in a manner that minimises the quantum of claims."

Besides penalties for SNS, the Chinese court also meted out imprisonment and fines to 11 SNS executives, including its Singaporean general manager.

Neil McGregor, SCI group president and chief executive, told The Business Times: "At Sembcorp, we do not and will not tolerate any illegal activity. Our commitment to responsible operations and the delivery of sustainable solutions is unwavering.

"Having every employee live and breathe our values is not an easy task, and we will continue to focus on embedding the right culture and strengthening our internal controls and processes."

SCI said it has strengthened processes and internal controls in SNS as well as in its other water and wastewater treatment plants in China.

SCI shares closed 13 Singapore cents or 6.02 per cent lower at S$2.03 on Friday.

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