Wednesday, 14 March 2012

China Sky must be kept functional

Amazing numbers, market cap of Singapore listed China Sky is down from SGD 2,000,000,000 (RM 4.8 Billion!) to only SGD 83,000,000 (-96%) before it was suspended.

A couple of fair questions in this "Letter to the Editor". Especially if the company would be a normal, operating business.

However, my gut feeling (based on the numerous red flags) tells me that this company is toast and that the net asset value per share of SGD 0.77 is not a good indication of the current situation. I would be very worried for a total loss, if I were shareholder of this company.

From The Business Times (Singapore), March 13, 2012

THE standoff between the Singapore Exchange (SGX) and China Sky Chemical Fibre has been well documented. There is now also an investigation by the Commercial Affairs Department (CAD) into some matters involving the company.

Trading in the stock remains suspended, and I am concerned about how the company is being run now and whether its business and assets are being protected.This is a large company by most standards, and it has been profitable and a leader in the synthetic leather industry in China for some years.

China Sky has more than 800 million shares in issue and, as recently as September 2007, its shares traded as high as $2.50 apiece, with the company capitalised at more than $2 billion.

The shares have since come down a long way to 10 cents each (before suspension). However, the net asset value per share remained at 77 cents at the end of September 2011.

While the market cap had shrunk to about $83 million, shareholders' equity stood at $627 million at the end of September 2011 with no debt on the balance sheet.

Meanwhile, the three independent directors (IDs) have quit the board and, recently, the CEO and CFO also resigned.

My question is: who is running the company? There are large assets and a good business at stake.

The SGX queries relating to the abortive land transfer, interested-person transactions relating to an ID and even the repair/ maintenance charges are small in relation to the size of the company and the amount of shareholders' funds at stake.

I hope we are not losing sight of the woods because of our focus on the individual trees. SGX has a duty to protect the interests of many minority shareholders who invested in this company during its IPO when there was much fanfare on its merits.

I would like to know what SGX is doing to ensure the board of China Sky remains functional, and who is in charge of operations and finance, given the resignation of the CEO and CFO. The entire assets and business of China Sky could now be at stake - vulnerable to loss of clients, staff, reputation, and even its business assets and cash reserves.

SGX should nudge the chairman and remaining directors at China Sky to strengthen the company's board and top management team quickly. There is a need to expedite the process of ring-fencing the company and its business/cash before it is too late.

I am sure many small shareholders are in the same frame of mind and are equally worried about how the company is faring at this point of time.

Mano Sabnani

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