(Yicai Global) May 13 --  Chinese police have arrested Zhong Yu, the former chairman and actual controller of chemical company Kangde Xin Composite Material Group, on suspicion of embezzling over CNY10 billion (USD1.5 billion) of assets from the firm. 

Zhangjiagang, Jiangsu province-based Kangde Xin is in financial straits and its shares [SHE:002450] closed down 4.9 percent at CNY3.9 (USD0.60 cents) today in the biggest drop allowed for companies with delisting risk warnings -- the Shenzhen bourse has issued the  alert since May 6 based on the firm's shaky finances -- in a single day, has already dived 22.6 percent this month.

Kangde Xin reportedly had several defaults earlier this year, including USD9 million for an interest payment in March and one for USD8.2 million on a CNY1 billion (USD145 million) note in February.

Its bank account had CNY12.2 billion in cash, per its annual report released on April 30. The company claimed on May 10, however, that it was unsure whether these funds had been taken by its controlling shareholder, Kangde investment Group, which Zhong controls.

Zhong is thus the largest shareholder and actual controller of Kangde Xin with about 19 percent of its equity through Kangde Investment Group. He resigned as chairman of the board for personal reasons in February and many other board members and senior managers have since followed suit.

Zhangjiagang police gave no grounds taking him into custody, but the ex-chairman is very likely suspected of breach of trust and impairing the company's interests, said Zhang Zhiwang, senior partner with Beijing-based Deheng Law Offices, online media Sina Finance reported.

His detention will not directly affect Kangde Xin's production and operations and the firm has been resolving its preliminary problems, determined its future development direction, and improved since the formation of its new board of directors on Feb. 27, it said in an open letter it posted on its website today.

Editor: Ben Armour