China drugmaker with accounting error used funds to trade shares

Bloomberg

One of China’s largest listed drug makers said related parties used the firm’s funds to trade its shares, a day after the securities regulator alleged financial data had been fabricated.
Kangmei Pharmaceutical Co transferred $1.3 billion to connected entities to trade its own shares, it said in a filing that appeared on the Shanghai exchange.
The management of its capital and related-party transactions had “significant deficiencies,” the firm said, and it sought a risk tag on its stock that will limit its daily moves within 5 percent instead of the normal 10 percent.
Kangmei probably fabricated bank deposits and other financial transactions, and is suspected of buying its own shares through related accounts, the China Securities Regulatory Commission said, following an initial probe.
The company, which produces traditional Chinese medicines, revealed last month that it overstated cash holdings by $4.4 billion.
One securities lawyer said that amount was unprecedented in China.
Kangmei has asked Shanghai’s stock exchange to apply the “special treatment” tag to its shares.
The label is intended to remind investors of the risks associated with trading the stock.
“For Kangmei, wearing a ‘ST’ hat will alert more investors about its risks,” said Zhang Gang, strategist at Central China Securities Co. Now that the CSRC has found issues with its accounting, “the outlook for Kangmei is not optimistic at all — Bear in mind that the exchanges have stepped up its efforts to delist troubled companies with ST tags.”
Kangmei will be removed from the list of China Connect Securities from May 21, the Hong Kong stock exchange said in a statement on its website.
Kangmei shares were suspended from trading on Monday.
They have lost 28 percent this year, among the worst performances on the MSCI China Index, after the company told investors that it was under investigation in December.
Kangmei’s 5.33 percent bond due 2022 plunged 20 yuan to a record low of 32.3 yuan, according to prices compiled by Bloomberg.