SGX orders China Milk to appoint special auditor

Firm continues to keep mum over cash audit despite repeated reminders

By LYNETTE KHOO
06 April 2010

The Singapore Exchange (SGX) has ordered China Milk Products to immediately appoint a special auditor to investigate its state of affairs, after the company continued to keep mum over a cash audit which it was asked to carry out.

China Milk also failed to release its interim financial statements for the third quarter ended Dec 31, 2009, despite a seven-week extension which expired yesterday. SGX said yesterday that its directive was prompted by the company’s ‘failure to provide timely and satisfactory responses to the exchange’s requests for information and the continued uncertainty surrounding its state of affairs’.

The exchange queried the company on March 29 on why it did not provide its auditors ‘certain executed documentation’ for a cash audit to be conducted. China Milk was also instructed to disclose the timelines for completing the cash audit and to recruit a new chief financial officer, as well as measures to effectively safeguard its cash.

SGX also sought board confirmation on whether the firm’s earlier claim of having sufficient funds in its bank accounts to meet its obligations on convertible bonds still holds true.

But China Milk has not responded to any of these queries. It was to have disclosed the findings of the cash audit by March 15 but failed to do despite repeated reminders. Calls by BT to some directors in the company also drew a blank.

Trouble at China Milk first began earlier this year when it defaulted on convertible bonds (CBs), with repayment obligations amounting to US$170.56 million.

China Milk had said that it had insufficient funds outside of China to repay the CBs but assured that it had enough cash within China to settle the repayment. As at end-September 2009, the group’s cash and cash equivalents stood at 2 billion yuan (S$409.7 million). It claimed to be only awaiting Chinese regulatory approval for the funds to be repatriated out of China.

An audit review of fiscal third quarter results ended Dec 31, 2009, was also delayed due to the sudden resignation of chief financial officer Martin Choi on Jan 31 and a reshuffling in the audit committee after independent director Sum Yee Loong stepped down in February.

Mr. Sum was replaced by a new independent director (ID) Lai Seng Kwoon, who owns an audit firm and is ID for a handful of troubled S-chip companies.

China Milk suspended trading of its shares on Feb 12.

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