BY NOW, the outpouring of rage each time disaster strikes a S-chip has become almost predictable.
So I am not surprised to find lots of space in the financial pages devoted to the fiasco now unfolding at corn-starch producer China Sun Bio-chem Techology.
For those who have not followed the saga closely, here is a brief summary of what had transpired so far.
In February, auditor, PwC, highlighted to the company problems it encountered over bank confirmations on a big sum of money which came up to 592 million yuan.
It also could not find “audit evidence” of chairman Sun Guoji’s explanation that the money had been remitted out to buy corn – the raw material used by the firm to produce starch.
It also cast doubts over the existence of debtors who owed the company a further 377 million yuan.
Together, these two sums added up to about S$210 million – not something to sneeze at, considering that the firm only has a market value of S$45 million.
To its credit, the firm then appointed KPMG to try to complete PwC’s audit. But this is where the “fun” started.
Out of the blue, the independent directors sent out an announcement on Monday, complaining of the obstructions which KPMG had encountered in retrieving the data for the audit.
One set of data was purported lost because the truck transporting it was stolen while the driver was having dinner.
Going through the materials sent out by the independent directors, one question crossed my mind: Were the independent directors trying to slam the stable door shut after the horse had bolted?
I have had misgivings about China Sun since 2006 when I reported that it was four months late in disclosing that Temasek Holdings – then a substantial shareholder – had pared down part of its stake in the firm.
The omission was only uncovered when the auditors were preparing the annual report.
I later found out that Temasek was given an outdated fax number in China to fax the change of its shareholdings to the company.
Of course, such a lapse could have been due to a miscommunication between the company and a major shareholder. But somehow, I could not shake off my doubts about the firm.
Glowing reports were written about the firm by foreign brokerages and there were a number of similar listings which subsequently came on the market, all riding on the same theme – that there would be an insatiable demand for starch as the Chinese economy boomed.
Now, with the latest revelations about the accounting irregularities, I am beginning to wonder if we have been somewhat hoodwinked.
But just in case, as I launched into another tirade as to what the independent directors should have done to prevent such a catastrophe from taking place, one of my friends said that I should put myself in their shoes in the light of my own experience as a member of a school advisory committee.
The gist of the conversation went like this:
Ss: How long were you in the committee ?
Ey: Ten years.
SS: How frequently did you meet ?
Ey: We met up at least twice a year. We also turned up for the College Day celebrations and the Teachers’ Day dinner.
Ss: What did you discuss at the meeting ?
Ey: The agenda for the meeting was prepared by the school. They were always talking about raising funds to expand the school and organising trips for students overseas.
Ss: Are you aware of what is being taught at school ?
Ey: The principal and the teachers are the professionals and they run the school. We have to assume that they know what they are doing.
Ss: Did it occur to you to ask ?
Ey: No.
I suppose that after being tricked into acknowledging my own ignorance, I do feel sorry for the poor independent directors who are caught in listed firms which are now floundering.
I am not surprised to learn that many of them are having sleepless nights, wondering if they will be the next to feel investors’ ire, if something should happen to the companies whose boards they sit on.