May 9, 2019 / 2:49 AM / 2 months ago

UPDATE 1-China's Kangde Xin says auditor cannot verify $1.8 bln of deposits

(Adds share performance, background)

SHANGHAI, May 9 (Reuters) - China’s Kangde Xin Composite Material Group Co said its bank told its auditor it had no funds in its deposit account, leaving the auditor unable to verify that the firm had deposits worth 12.2 billion yuan ($1.80 billion). Following the disclosure, made in response to regulator’s queries, shares in loss-making Kangde Xin plunged 5 percent on Thursday, the maximum allowed for companies that fall in the “special treatment” category at risk of delisting.

Kangde Xin’s disclosure comes amid growing concern among investors in China’s stock market over poor corporate governance.

Just last week, another company, Kangmei Pharmaceutical Co , said it overstated its 2017 cash holdings by $4.4 billion.

In a statement on the Shenzhen Stock Exchange late on Wednesday, Kangde Xin, a producer of high polymer materials, said that the amount of deposits at Bank of Beijing’s Xidan branch recorded on the company’s books did not match the amount the lender reported to its auditor.

Bank of Beijing’s Xidan branch sent a letter to auditor Ruihua Certified Public Accounts last month saying the balance of the company’s deposit account is zero, although Kangde Xin’s books showed the company and its three subsidiaries had 12.2 billion yuan deposited at the bank.

Kangde Xin was responding to an exchange question as to why Ruihua declined to guarantee the authenticity of its cash positions in its annual auditing report.

Asked how the money is being used, Kangde Xin said that the deposit provides liquidity for daily operations, and is used as reserves for future project investments and overseas expansion.

China is stepping up scrutiny of listed companies’ disclosures.

Last week, Kangmei Pharmaceutical, a producer of traditional Chinese medicines, said in a filing an accounting “error” led to an overstatement of its 2017 cash positions by 29.9 billion yuan ($4.41 billion). ($1 = 6.7818 Chinese yuan renminbi) (Reporting by Samuel Shen and John Ruwitch; Editing by Simon Cameron-Moore)

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