Guangzhou Pharmaceutical Holdings Ltd. proposed investing up to 6.5 billion yuan ($ 1 billion) in a government-led bailout of Kangmei Pharmaceutical Co. (600518.SH)Kangmei said on Tuesday.
State-owned Guangzhou Pharmaceutical submitted the investment proposal on behalf of a consortium of state-owned investment companies, which are also investors in a newly formed entity to temporarily take control of Kangmei under of a rescue plan orchestrated by the provincial government of Guangdong. Guangzhou Pharmaceutical already controls the exploitation rights of Kangmei, analysts said.
In a separate statement on Tuesday, Kangmei revealed the development of the legal proceedings against his former chairman Ma Xingtian. On October 27, Ma was charged by prosecutors with illegal disclosure, non-disclosure of important information, embezzlement, and manipulation of the securities market.
Ma and Kangmei were also accused of paying bribes to government officials and regulators totaling more than 10 million yuan ($ 1.56 million), according to the acts of accusation disclosed in Kangmei’s statement. Many company officials linked to the corruption case have already been removed from their posts and punished, according to the indictments.
Once one of China’s largest publicly traded drugmakers, Shanghai-listed Kangmei has struggled to survive since the revelation of a multibillion-dollar financial reporting fraud in 2019 and the investigation into Ma’s corruption. Kangmei’s losses in 2020 reached 27.7 billion yuan, nearly five times more than 4.7 billion yuan a year earlier. In April, a Kangmei creditor complaint filed seeking a corporate bankruptcy restructuring, accusing Kangmei of failing to repay 49 million yuan.
An investigation by the China Securities Regulatory Commission later found that the company had engaged in a series of illegal activities, including forging documents for non-existent business activities, resulting in an overestimation of cash holdings. amounting to 88.7 billion yuan from 2016 to 2018. As of May 2020, the securities regulator fine Kangmei 600,000 yuan. The company is also facing a class action investors who have suffered losses.
In July 2020, Ma was taken into custody on suspicion of unlawful disclosure of information and non-disclosure of important information. Two months later, a special purpose vehicle was established by local state-owned enterprises and a pharmaceutical unit in Guangzhou to temporarily take control of Kangmei’s business.
The special purpose entity effectively became the temporary majority shareholder of Kangmei and also took over the management of Kangmei’s business and debt, without assuming any of its responsibilities.
Contact journalist Denise Jia (firstname.lastname@example.org) and editor Bob Simison (email@example.com)
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