China Solar Energy Holdings Ltd (中國源暢光電), the solar panel maker that has lost 93 percent of its market value since 2007, said its chairman and two directors have been detained by Chinese authorities on allegations of fraud.
Chairman Yeung Ngo (仰翱), Yang Yuchun (仰於春) and non-executive director Hao Guojun (郝國君) were arrested and have been held since Aug. 26, China Solar Energy said in a statement to the Hong Kong stock exchange on Friday, citing its legal advisers.
The company has been unable to contact them since August and is assessing the impact of the investigation on its financial performance, it said.
The disappearance of China Solar Energy’s directors and the fraud probe underscore investor concern that the business environment in China is opaque and prone to corruption.
“This is just another case of poor governance quality that is characteristic of this market,” David Webb, a former exchange director who founded local governance watchdog Webb-site.com, said by telephone. “Why has it taken nearly two months for the company to figure out they couldn’t contact two of their directors and their chairman?”
China Solar Energy fell 11 percent to HK$0.18 on Aug. 16 before it asked for trading in the shares to be halted pending the release of an announcement about recent movement in the price.
The company is valued at HK$277 million (US$36 million), down from HK$3.7 billion at its 2007 peak. The shares will remain suspended, the company said in the Friday statement.
Yeung, whose age was given as 62 in the annual report and accounts released on July 30, joined the company in March 2011 and is the father of Yang, according to the report. Yeung’s stake in the company fell to 14.6 percent in August from 15.8 percent after the company raised about HK$20.2 million in a private placement, according to an Aug. 13 filing, which did not name the purchasers of the shares.
Hao, whose age was given as 55, became a non-executive director in January and joined a unit named Dali Stream Solar Energy (大理源暢) in 2008 as assistant chief engineer, according to his biography in the annual report.
Based on investigations into allegations made to the Hong Kong stock exchange against the company, one subsidiary in Changzhou had failed to pay a reported increase in its registered capital with the local authority by the due date, according to the statement.
The Dali Stream Solar unit, had failed to pay up its registered capital of US$49.5 million, according to the statement. Its assets were frozen and documents were seized by the Dali public security bureau as part of a probe into a suspected false reporting of registered capital involving Yeung and Yang, the company said.
Both units risk having their business licenses revoked, according to the statement.
China Solar Energy received a clean audit from HLB Hodgson Impey Cheng Ltd on June 28. A telephone call and e-mail to the accounting firm outside of normal business yesterday were not immediately returned.
“Why didn’t HLB in its audit discover that the registered capital of its subsidiaries was not paid up, as the company now admits?” Webb asked. “They have to answer questions about this.”
Deloitte Touche Tohmatsu resigned as the company’s auditor in February last year after taking into account the level of audit fees and its available internal resources, according to a company filing on Feb. 28 last year, and HLB Hodgson Impey Cheng was appointed the next day. The firm was paid HK$1.38 million for audit services for the year ending on March 31, according to the company’s annual report and accounts.
China Solar Energy posted a net loss of HK$137 million for the year to March, compared with a loss of HK$247 million the year earlier, according to its annual report. The company has not reported a net profit since at least 2004, according to data compiled by Bloomberg.
The company’s administrative costs doubled to HK$102.3 million in the 12 months to March from HK$49.6 million the year earlier, mainly due to an increase in consultancy fees, according to a statement dated Aug. 7.
China Solar Energy hired 22 consultants during the period, including Pierre Seligman, who resigned as managing director of the company in January. Seligman quit as executive director of Viagold Capital Ltd on Oct. 7, according to a statement to the Australian stock exchange.