Missing money and execs add new twist to China mystery
A Germany-listed shoemaker became the latest Chinese company to report the disappearance of top executives, underscoring the danger of doing business in the Asian powerhouse at a time of heightened scrutiny of its firms’ corporate governance.
Ultrasonic AG said chief executive Qingyong Wu and chief operating officer Minghong Wu had been missing since the weekend, and most of its cash reserves in China and Hong Kong had disappeared.
The mystery is likely to fuel concerns about corruption and corporate malfeasance in the world’s second-biggest economy, as shortsellers increasingly target smaller Chinese companies with claims of falsified financial statements and other dubious practices.
“Most of the company’s cash funds at PRC (People’s Republic of China) and Hong Kong levels have been transferred, being no longer in the company’s range of influence,” Ultrasonic said in a statement.
Its German holding company still had a “relevant six-figure amount” at hand to meet its payment obligations, it added.
Ultrasonic shares plunged 72 percent in heavy volume on Tuesday after the announcement, closing at 1.798 euros.
Money Gone
There were fears for the status of a $60 million credit facility which the company, valued at $29.5 million, secured from Nomura International (Hong Kong) Ltd in August to help fund acquisitions.
Two banking sources familiar with the facility said the money had gone. The facility could be drawn within three months of the deal being signed but Ultrasonic gave no details about its status in its statement on Tuesday.
Nomura declined to comment. A source familiar with the matter said the brokerage would hold a conference call on Thursday with backers of the loan.
Ultrasonic finance chief Kwong Clifford Chan, who is due to step down on September 30 for family reasons, and the supervisory board was in talks with authorities and business partners in a bid to clarify the situation.
Missing in Action
The disappearances will bring further unwanted attention to mainland Chinese firms and their executives at a time when they are also being targeted by short-sellers.
“These events are a constant reminder that China is still a developing market with a weak grip of law, high level of corruption and high level of fraud, and investors need to discount the risk of that into the price that they need to pay for the stock because what they see in the account is not always the truth,” shareholder activist David Webb said.
China’s Tianhe Chemicals Group became the latest victim of short-sellers this month when researchers linked to hacker group Anonymous accused it of falsifying statements to auditors and investors. Tianhe said the report contained factual errors and “malicious accusations.”
On July 21, shares of menswear maker Fujian Nuoqi fell 33 percent in mysterious circumstances. The following month the company revealed that its chairman, Ding Hui, was missing amid media reports that he had run up large debts. The company has not commented on the reports.
Nuoqi said this month its chief financial officer, Au Yeung Ho Yin, had resigned, adding that nothing related to his decision needed to be brought to shareholders’ attention.
Shares in Nuoqi, which has a market value of $78 million, remain suspended.
Also in July, trade center operator Hydoo International Holding, which has a market value of $994 million, said in a statement it had been unable to contact its chairman.
It said later that month the chairman had been sacked.
Another Germany-listed Chinese manufacturer, Youbisheng Green Paper, initiated insolvency proceedings earlier this year after its CEO went absent without explanation.