CAD Probes Potential Breaches by China Sky, Directors

Feb. 16 (Bloomberg) -- China Sky Chemical Fibre Co. and its directors face a criminal probe into regulatory breaches in Singapore, one month after the city’s stock exchange dropped a lawsuit against the company.

“The Monetary Authority of Singapore has received a report from the Singapore Exchange on potential breaches of the Securities and Futures Act” by China Sky, the regulator and the police said in a joint statement today. MAS referred the potential breaches to the Commercial Affairs Department, Singapore’s main white-collar crime investigation agency.

The Singapore Exchange sued the Chinese nylon-fiber maker on Jan. 6 to compel the appointment of a special auditor to investigate “interested-party transactions,” a failed land purchase and certain repair costs. Today’s statement didn’t specify the breaches or the directors that are being investigated.

“The matter now being in police hands is even more worrying and suggests that it may be far more serious than expected,” said David Gerald, president of the Securities Investors Association of Singapore, which represents 70,000 retail investors. “The company’s not been explaining to shareholders, who are trapped.”

China Sky’s lawyer Leonard Chia declined to comment on the probe.

All three independent directors at China Sky quit Jan. 5, citing non-compliance with the bourse’s order to name the auditor.

Suit Withdrawn

The exchange withdrew the lawsuit on Jan. 16. The bourse didn’t give a specific reason for dropping the complaint, saying lawyers for both sides had met after the China Sky ignored the deadline to appoint a special auditor.

On Feb. 8, China Sky Chief Executive Officer Huang Zhong Xuan quit for “personal health reasons.” Two days later, group financial controller Hui San Wing resigned, citing a lack of leadership, guidance and support from the CEO and independent directors.

Huang is China Sky’s biggest shareholder with a 37.8 percent stake, according to Bloomberg Data.

Investors have pressed for tougher rules as accounting scandals wiped out millions of dollars in the market values of China-based companies including Sino-Forest Corp. and led others such as FerroChina Ltd. to be delisted. The exchange had accused China Sky of “flagrant disregard” of its order to appoint a special auditor.

Trading in China Sky shares has been suspended since Nov. 17, a day after the exchange first ordered the company to appoint the special auditor. The shares closed trading on Nov. 16 at S$0.102, tumbling 96 percent from their peak of S$2.74 in October 2007.

--Editors: Joe Schneider, Douglas Wong

To contact the reporter on this story: Andrea Tan in Singapore at atan17@bloomberg.net