OREANDA-NEWS.

1. Singapore Exchange Limited reprimands Sunvic Chemical Holdings Limited (the “Company”) for breaches of listing rules relating to interested person transactions (“IPTs”). The Company failed to make immediate announcements of and seek shareholders’ approval for IPTs conducted in FY2013, FY2014 and FY2015 with associates of Sun Xiao, the Company’s Executive Director and Chief Executive Officer (the “CEO”) (appointed on 9 January 2013) and the late Sun Liping, the former Executive Chairman and CEO (appointed from 24 April 2009 to 9 January 2013). The Company also failed to ensure that IPTs were properly disclosed in the Company’s respective Annual Reports for FY2013 and FY2014.

Details of Listing Rule breaches

Background

2. On 14 April 2014, the Company announced that its auditors, Foo Kon Tan Grant Thornton LLP, issued a Qualified Opinion and Emphasis of Matter on various matters in the financial statements of the Company and its subsidiaries (“Group”) for FY2013. The Emphasis of Matter highlighted, inter alia, breach of SGX listing rules in relation to the IPTs between the Group and Taixing Jinyan Chemical Technology Co., Ltd (“Taixing Jinyan”) in FY2013 where shareholders’ approval had not been obtained. The transactions consist of “short term loans to Taixing Jinyan amounting to RMB 333 million, the purchase of assets on behalf of [interested persons of] RMB60 million, sale of chemical products of RMB180 million, and the transfer of land use rights of RMB20 million.” The auditors noted that whilst the Company has appointed the relevant professional advisers to assist, they had not convened the extraordinary general meeting to obtain shareholders’ approval. The total value of transactions with Taixing Jinyan exceeded 5% of the Group’s latest audited net tangible asset (“NTA”) at the relevant time.

3. In the Company’s announcement of its 1Q FY2014 Results on 15 May 2014, the Company disclosed that the Group “has new IPTs with Taixing Jinyan”. The Company also disclosed that “[t]he Company is in the process of seeking ratification from its shareholders (the “Shareholders”) of such transactions in accordance with the requirements of Chapter 9 of the Listing Manual. As such, the Audit Committee shall be seeking advice from an Independent Financial Advisor (to be appointed) in relation to the Past Recurring IPTs and the Company will be convening the extraordinary general meeting (the “EGM”) in due course to seek the Shareholders’ ratification for the Past Recurring IPTs. In addition, the Group anticipates that as those IPTs with […] Taixing Jinyan will continue in the future and thus proposes to seek Shareholders’ approval for a general mandate for this purpose at the EGM.” (“Statement of Intent”). The Statement of Intent was repeated in the Company’s announcements of its 2Q FY2014, 3Q FY2014, FY2014, 1Q FY2015 and 2Q FY2015 Results.

4. On 26 January 2015, a draft circular for the proposed ratification of past relevant IPTs and proposed inclusion of new transactions in its IPT Mandate was submitted for the Exchange’s review. The draft circular indicated that in addition to Taixing Jinyan, there were further undisclosed IPTs relating to Taixing Yumeng Wuzhi Co., Ltd (“Taixing Yumeng”), Jiaxing Jinyan Chemical Co., Ltd (“Jiaxing Jinyan”) and Jiangsu Yinyan Specialty Chemical Co., Ltd (“Jiangsu Yinyan”). These include the purchase of equipment and the provision of corporate guarantees. The Exchange provided comments and also informed that the provision of corporate guarantees for interested persons are not transactions in the Company’s ordinary course of business, and therefore, cannot be included in an IPT Mandate under Rule 920 of the Listing Manual. The Company withdrew their circular application on 5 May 2015.

5.    On 1 March 2015, the Company disclosed in its FY2014 Results announced that it had entered into “New IPTs” with Taixing Yumeng amounting to RMB102.7 million, representing 4.6% of the Group’s latest audited net tangible assets. 

6.    The Company’s FY2014 Annual Report, issued on 14 April 2015, contained the auditor’s emphasis of matters, inter alia, that shareholders’ approval had not been obtained for certain IPTs, including the purchase of assets on behalf of interested persons and sale of chemical products. The auditors noted that “the Company has appointed the relevant professional advisers to assist. The Company has not convened the extraordinary general meeting as at the date of this report as they are in the process of responding to queries from the SGX in respect of the contents in the shareholder’s circular to the extraordinary general meeting. We draw your attention to the uncertainty related to the outcome of this convening of extraordinary general meeting or the non-compliance of the SGX listing rules.”

7.  The aggregate values of the IPTs entered into with associates of Mr Sun Xiao and Mr Sun Liping exceeded 5% of the Group’s then-latest audited net tangible assets in FY2013, FY2014 and for1H FY2015.

8. The Board explained that notwithstanding the requirements of Chapter 9 of the Listing Manual, the Group had continued to conduct certain IPTs as these IPTs were necessary for the business operations of the Group and stopping them abruptly would have a material adverse impact on the Group. The Board is also of the view that the IPTs “did not result in any prejudice to the interests of the Company and its minority shareholders” and “that upon discovery of the relevant IPTs, disclosures of the IPTs were made in the Company's quarterly financial statements and annual reports, although the Board acknowledges that disclosures were neither timely nor in the prescribed form”.

9.  The Board submitted that it had always intended to seek shareholders’ ratification in relation to the past IPTs and shareholders’ approval for an IPT mandate. It also took the view that “the Board had done the best it could to resolve these issues […] that have persisted to date”.

Relevant Rules

10. Chapter 9 of the Listing Manual requires an issuer to make an immediate announcement of any interested person transaction that is or any IPT which when aggregated with other transactions entered into with the same interested person is, of a value equal to, or more than, 3% of the group's latest audited net tangible assets. The issuer must also obtain shareholder approval for any interested person transaction that is, or any IPT which when aggregated with other transactions entered into with the same interested person is, of a value equal to, or more than 5% of the group's latest audited net tangible assets. It also requires an issuer to disclose in a prescribed format the aggregate value of IPTs entered into during the financial year under review in its annual report.

11. A summary of the relevant IPTs that breached Listing Rules under Chapter 9 is found in Annex A. Details of the relevant Listing Rules are found in Annex B

Basis for reprimand

12. The Listing Rules are clear in the requirements for IPTs. The Company has failed to comply with the Listing Rules.

13. Even if the IPTs were beneficial or were not prejudicial to the interests of the Company and its minority shareholders, such IPTs are nonetheless not exempted from immediate disclosure under Chapter 9 of the Listing Manual. Given the potential conflict of interest, it is for the shareholders rather than the Company to judge whether the IPTs were beneficial or were not prejudicial to the interests of the Company and its minority shareholders. 

14. While the Company has exhibited efforts to procure shareholder approval for certain IPTs, this was not done in a timely manner. In fact, shareholder approval has not been procured to date.

15. Although the Company disclosed some of the IPTs under Related Party Transactions in its Notes to the Accounts, the transactions were not disclosed in its Annual Report in the prescribed format for IPTs as required under Chapter 9 of the Listing Manual.

16. The Listing Rules seek to secure and maintain confidence in the market. They require issuers to disclose information that investors and their professional advisers would reasonably require to make an informed assessment of the securities. Companies’ compliance with SGX’s Listing Rules is crucial to a well-functioning market which has the confidence of market participants. As such, SGX takes very seriously Listing Rule breaches by listed companies.

17. The Exchange reprimands the Company for the breaches set out above.