Caixin Global reports that a Chinese drugmaker marred by a financial fraud scandal has reported a net loss for 2019 that was worse than previously expected, and its new auditor has raised questions about some of the figures in its latest annual report.
Shanghai-listed Kangmei Pharmaceutical Co. Ltd. reported a net loss of CNY4.7 billion ($656 million) for 2019, a reversal from a net profit for the previous year, Caixin discloses citing the company’s annual financial report released June 18. Its 2019 revenue was down 32.9% at CNY11.4 billion.
According to Caixin, the report’s release came after Kangmei revised its 2019 estimated net loss several times. In January, the company estimated a 2019 net loss of CNY1.4 billion to CNY1.7 billion. But in April, it said last year’s net loss was CNY3.6 billion. On June 4, the company announced it had corrected its net loss estimate to CNY4.6 billion.
Caixin relates that the local securities regulator later accused the Guangdong-based company of failing to disclose information in an accurate manner. The Guangdong bureau of the China Securities Regulatory Commission (CSRC) demanded that the company publicly explain the reasons for the adjustments, according to Kangmei’s filing to the Shanghai Stock Exchange earlier this month.
In the annual report, Kangmei also revised figures for 2017 and 2018. The company said its 2018 net profit should have been CNY374.5 million, rather than the CNY1.1 billion it reported earlier. It also revised down its 2017 net profit to CNY1.4 billion from CNY2.1 billion, Caixin relates.
Caixin notes that Kangmei, one of China’s largest listed pharmaceutical companies, has suffered a credit downgrade and liquidity crunch after the CSRC uncovered fraudulent financial reporting last year. Following a months-long investigation, the CSRC accused Kangmei in August of overstating a category of operating funds by CNY88.7 billion between 2016 and 2018.
The CSRC punished 22 Kangmei employees. The penalties included fines and lifetime bans from China’s securities markets for some top executives. After the scandal, Kangmei’s longtime accounting firm, GP Certified Public Accountants LLP, lost several big clients.
About Kangmei Pharmaceutical
Kangmei Pharmaceutical Co., Ltd. produces and sells Chinese medicines in China. It also offers chemical medicines and food products; and operates hospitals and Chinese medicine pharmacies.
As reported in the Troubled Company Reporter on Feb. 5, 2020, Caixin Global said Kangmei Pharmaceutical became the first listed company to default on a bond issue when the market reopened on Feb. 3 after the extended Lunar New Year holiday.
Caixin said the supplier of traditional Chinese medicines said in a statement Feb. 2 that it couldn’t make principal and interest payments and on CNY2.4 billion ($340 million) of bonds because of tight liquidity. The bonds were issued in 2015 and due in 2022, but the issuer had an option to raise the coupon rate and investors had an option to sell back the bonds at the end of the fifth year.