(Yicai Global) July 29 -- China's securities regulator has suspended 43 initial public offerings and refinancing cases being handled by the country's second-largest accounting firm, including IPOs on the country's new Nasdaq-style trading venue, as the company is probed for allegedly falsifying information.
Ruihua Certified Public Accountants, which audits almost a third of all listed companies in China, is implicated in a scandal involving chemical maker Kangde Xin Composite Material. The struggling firm is accused of inflating profits by CNY11.9 billion (USD1.7 billion) from January 2015 to last December. As the CPA responsible for the company's auditing all those years, Ruihua is also under scrutiny, the China Securities Regulatory Commission said in a statement on its website on July 26.
The Zhangjiagang, Jiangsu province-based firm is also suspected of bumping up its operating income through fictitious sales, exaggerated operating costs and fictional expenses on research, development and sales. If found guilty, the company and its controllers will be issued with the maximum penalty and will be banned for life from the stock market, the CSRC added.
The Beijing-based accountancy denies any wrongdoing and says that is has fully performed its auditing duties regarding the chemical makers' earnings report, it said in a statement yesterday.
Nevertheless, 29 IPO projects it was handling have been suspended, the CSRC said. Some 10 of these were for main board IPOs, seven were for the small and medium-sized enterprise board, and 12 were for Shenzhen's ChiNext board. One of Ruihua's clients has actively withdrawn its IPO application.
Of the 511 companies awaiting regulatory review of their IPO applications, some 30 are audited by Ruihua and all of those have been turned down, according to financial information service provider Wind.
The turmoil has also spread to Shanghai's new science and technology innovation board, the Star Market, which debuted a week ago today. Four of Ruihua's clients, Beijing LongRuan Technologies, Beijing Transuniverse Space Technologies, Luoyang Jianlong Micro-Nano Materials and Shenzhen JPT Opto-Electronics have all been stopped from going public.
Ruihua's refinancing projects have not been spared either. Seven listed companies' refinancing plans have been halted as the CPA comes under investigation, the firms said on July 26. Two other public companies audited by Ruihua had to stop their refinancing for the same reason, they said in statements yesterday.
Another client of Ruihua is under investigation, this time by the Shanghai Stock Exchange. Despite CNY1.8 billion on its balance sheet, Furen Group Pharmaceutical was unable to issue cash dividends of CNY60 million. The bourse's enquiry discovered over CNY1.7 billion missing, and that the Shanghai-based drugmaker only has CNY3.8 million in liquidity.
Last year, Guangdong Zhengzhong Zhujiang CPA's IPO projects were also halted pending investigation.