Thursday, 7 January 2010
Sino-Environment plot thickens, unsettling questions raised
Sino-Environment shareholders, who have been treated to a roller-coaster ride with the dramatic unfolding of events last year, are now greeted with the sudden resignations of its executive directors and an unsettling probe conclusion by the Fuzhou Public Security Bureau in China.
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Sino-Environment plot thickens, unsettling questions raised
By LYNETTE KHOO
04 January 2010
Sino-Environment shareholders, who have been treated to a roller-coaster ride with the dramatic unfolding of events last year, are now greeted with the sudden resignations of its executive directors and an unsettling probe conclusion by the Fuzhou Public Security Bureau in China.
Acting CEO You Shengquan announced last Friday that the board was notified by the Fuzhou Bureau that it did not find any evidence to suggest that chairman Sun Jiangrong had embezzled company funds and was therefore not placing the case on file. One day later, all three executive directors (EDs) stepped down from the board - after months of refusing to do so.
These latest developments are troubling, raising more questions and providing answers to none.
The outcome of the Chinese probe flies in the face of findings by PricewaterhouseCoopers (PwC) on some $85 million of cash transactions allegedly made without board approval and knowledge, including the purchase of raw materials that were never delivered and investments that saw no work begun.
It appears that the focus of the Fuzhou authorities fell on an unknown Xiamen bank account, in response to complaints against Mr. Sun for alleged misappropriation of funds. The Fuzhou Bureau apparently sought confirmation from Xiamen International Bank (XIB) on the account in question, and a brief document showing the bank account number, a balance of $14 million and an XIB stamp was attached with the company’s announcement on the bureau’s findings.
It’s questionable how much assurance this will give to shareholders. BT understands that the stated bank account number wasn’t among the bank accounts submitted to PwC for its investigations. No one can be certain if the account really belongs to Sino-Environment or any of its subsidiaries.
The $14 million in question concerns the payment made in May last year by a Sino-Environment unit, China Energy Environment, on behalf of another unit to buy raw materials from a Japanese company. But PwC had said in its investigations that the Japanese firm reported that no agreement was ever signed and that it did not receive any payment.
Now, this $14 million is found to be back with Sino-Environment again, and in a bank account different from the one used to pay out the sum. And it calls into question documents submitted to PwC showing payment made to the Japanese company.
Why was a substantial amount of money moved out from one account and put back later into another one? The bureau’s findings do not shed any light on this, nor do they address the many other issues raised by PwC. That it has decided not to pursue the case further cannot be a satisfactory outcome for Sino-Environment shareholders.
Even more puzzling is why the EDs - Mr. You, Mr. Sun and Prof Li Shouxin - chose this time to resign en masse despite the seemingly favourable probe outcome, and for reasons so unanimous - each wanting ‘to concentrate on his development of domestic business in China’.
It is also unclear if the EDs will stop running the group’s subsidiaries in China and surrender the company’s seals - their ‘domestic business’ may well refer to the company’s subsidiaries. After all, they had refused to give up their executive roles in the subsidiaries when they resigned last May from the board, before eventually withdrawing their resignations.
It’s unlikely to be the end of the episode.
Independent directors of Sino-Environment may respond by taking the issue to higher levels at the Fuzhou Bureau and push for a review. An extraordinary general meeting may still be held this month - as granted under court order - to remove the EDs as signatories of the group’s bank accounts, even though they have resigned from the board.
The authorities in Singapore and Hong Kong are still investigating the matter. Any breach of fiduciary duties and governance lapses by the directors would, hopefully, be more effectively enforced under Singapore’s jurisdiction.
So far, the independent directors (IDs) have scored some victories in their legal recourse here - having obtained court orders restraining the powers of the EDs to sell company assets or sign new contracts.
But with most of the alleged misappropriation having taken place through bank accounts in China, it is unclear how the outcome of the probe there could weigh on investigations elsewhere.
This leaves shareholders out on a limb, unsure whether to laugh or to cry as the plot thickens, with the whole development once again highlighting the challenges in seeking proper redress when it comes to S-chips.
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