Polyphenylene sulfide resin maker China Lumena New Materials Corp. said it's having difficulty “maintaining the continual support” of its banks and creditors, following months of being unable to answer allegations from two analyst firms that had raised major questions about Lumena's finances.
The Chengdu, Sichuan province-based company told the Hong Kong Stock Exchange Dec. 2 that the allegations, contained in reports issued earlier this year, were now forcing the company to cut its production to “low” levels.
As well, Lumena said its chairman, Zhang Zhigang, and its CEO, Zhang Daming, both “have suffered from health issues and may not be able to fully perform their respective duties.”
Two financial analysts, the Glaucus Research Group and Emerson Analytics, issued reports in March and April accusing the company of inflating its financial health, and said sales and profit of PPS were 90 percent less than Lumena claimed.
At the time, Lumena strongly disputed the charges and accused the analysts of short-selling, or trying to push the stock price lower so that Glaucus and Emerson could profit. Trading in its shares was halted by the Hong Kong exchange in late March.
But since then, in spite of its denials of the accusations, the company has been unable to meet conditions Hong Kong regulators set for it to return to trading, including publishing past due financial reports and answering the allegations from Glaucus and Emerson in detail.
It missed a self-imposed deadline of Nov. 30 to release its full-year 2013 financials, and two days later issued the statement saying that it was having difficulty with its banks and creditors.
“Subsequent to the issuance of the reports by certain research groups against the group in March and April 2014 … the company has encountered difficulties in maintaining the continual support from, among others, local banks in [China], creditors and suppliers, which has impacted the group's operations,” it said.
“As a result, the group can now only maintain a low level of production of its major products of thenardite and polyphenylene sulfide,” the company said. Thenardite is a mineral used in medicines.
Lumena told the Hong Kong market in a Nov. 28 filing that it would try to publish its 2013 year-end financial report by March 31, 2015, one year after the March 28, 2014, initial deadline.
The company said it's been talking with other manufacturers of PPS and thenardite on the future of those businesses.
“With a view to improving the existing thenardite and PPS production and business operation of the group, the company has been in discussions with several industrial peers and other third parties on possible co-operation arrangements for the PPS and thenardite business operation,” the company said.
The company said it has the world's largest manufacturing capacity for PPS, an engineering thermoplastic used in a wide range of applications.
In September Lumena recruited two new board members to ‘'take all necessary steps'' to help it publish its overdue financial reports and respond to the Glaucus and Emerson allegations.
The two directors, Shi Jianping and Au-Yeung Kwong Wah, were each paid HK$1.08 million (US$139,000) for their one-year contracts, the company said.
Au-Yeung Kwong Wah was the lead signer on the company's Dec. 2 filing, rather than Lumena Chairman Zhang, as had been company practice.
In 2012, Lumena and Netherlands-based DSM Engineering Plastics announced they were in talks to jointly distribute and develop grades of PPS and polyamides, but it's unclear if those talks ever resulted in agreements.
In May, Hong Kong's South China Morning Post newspaper reported, citing mainland Chinese media reports, that Lumena's Zhang and the company's controlling shareholder, Li Yan, had fled with HK$12.4 billion (US$1.6 billion) in company funds.
But the company issued a statement calling the mainland Chinese media reports “ungrounded.”