China firm admits it overstated cash holding by US$4.3 billion

Women sorting medicine in the pharmacy of the Yueyang Hospital, part of the Shanghai University of Traditional Chinese Medicine, in Shanghai (AFP pic)

HONG KONG: One of China’s largest listed drug makers that’s been under a regulatory probe for months said it overstated cash positions after using false documents and transaction records. The stock tumbled by the 5% daily limit.

Kangmei Pharmaceutical Co., a producer of traditional Chinese medicines, said in a filing on Wednesday that such methods have led to an overstatement of cash holdings by 29.9 billion yuan (US$4.3 billion). The company admitted to “serious” deficiencies in its corporate governance and internal controls, according to the filing.

The revelation came after Chinese securities regulator concluded earlier this month that the company probably fabricated bank deposits and other financial transactions. Kangmei said in April an accounting “error” led to the overstatement of its 2017 cash position by about 30 billion yuan, and one securities lawyer said that amount was unprecedented in China.

GP Certified Public Accountants, the accounting firm for Kangmei, has been under investigation by the stock market watchdog since earlier this month.

Kangmei’s shares have lost about 50% this year, among the worst performers on the MSCI China Index, after the company told investors that it was under investigation in December. Kangmei was removed from the list of China Connect Securities from May 21. The company said earlier this month related parties used the firm’s funds to trade its shares.