Audits of the listed companies' mid-year reports published by the Shanghai and Shenzhen stock exchanges at the end of September uncovered abuse of 57 billion yuan by controlling shareholders.
The audit of first-half earnings reports by the 837 companies with shares traded in Shanghai found that 28.2 billion yuan (US$3.4 billion) in company funds had been taken by controlling shareholders, the Shanghai Stock Exchange said. In addition, 180 companies had problems with shareholders illegally using listed companies' shares as guarantees for debts. The sum involved in such malpractice reached some 28 billion.
"The Shanghai Stock Exchange has sent notification letters to 131 companies inquiring about the use of funds raised, funds taken by controlling shareholders, and their debt guarantee situations," administrators said in a statement.
By the end of September, 64 companies had revised their first-half earnings reports in light of the exchange's audit results and 51 others had provided additional information.
The Shenzhen Stock Exchange published its audit results on September 29. Of the 505 companies listed, 225 were involved in fund abuse, and the sum involved amounted to 28.8 billion yuan.
The illegal guarantee situation is also serious among these companies. A total of 311 Shenzhen-listed companies provided 42 billion yuan (US$5.1 billion) in guarantees. More than a third of them -- 13.1 billion yuan's (US$1.6 billion) worth -- were unlawfully provided.
The statements by the exchanges did not indicate how the controlling shareholders siphoned money from the listed companies or if it was illegal for them to use the funds. However, when large amounts are involved, companies are required to report the transactions.
Neither of them specified the names of those companies involved in fund abuse or illegal guarantees. But a number of them are "ST companies," indicating they are unprofitable, according to both exchanges.
(China.org.cn October 9, 2004)
