Shanghai Lingang receives a regulatory notice for accounting irregularities, with cumulative underreported liabilities exceeding 5 billion yuan over three years

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Shanghai Lingang Holding Co., Ltd. (Security code: 600848, 900928; abbreviated as “Shanghai Lingang”) recently announced that the company received an administrative regulatory measures decision letter issued by the Shanghai Office of the China Securities Regulatory Commission (abbreviated as “Shanghai CSRC”). Due to inaccurate financial data disclosures during 2022 to 2024, the company was ordered to make corrections. At the same time, the then Chairman, Weng Kaining, and Yuan Guohua, as well as the then General Manager, Liu Dehong, were each issued warning letters.

According to the announcement, after investigation, the Shanghai CSRC found that Shanghai Lingang’s subsidiary, Shanghai Caoghejing High-Tech Park Development Co., Ltd., cumulatively received capital increase funds of RMB 5 billion from Guoshou Investment Insurance Asset Management Co., Ltd. in 2022 and 2023. Because the company has contractual obligations toward Guoshou Investment that cannot be unconditionally avoided with delivery of cash or other financial assets, the capital increase funds should be accounted for as financial liabilities in the consolidated financial statements. However, the company incorrectly accounted for Guoshou Investment as a minority shareholder, which resulted in inaccurate financial data in the 2022, 2023, and 2024 periodic reports.

More specifically, the above accounting treatment errors caused the company’s financial statements to show significant deviations for three consecutive years. The amounts of liabilities understated and owners’ equity overstated in each year are as follows:

The Shanghai CSRC stated that the company’s above conduct violated the first paragraph of Article 3 of the “Measures for the Administration of Information Disclosure by Listed Companies.” It decided to take administrative regulatory measures of ordering rectification, requiring the company to submit a written rectification report within thirty days after receiving the decision letter. For the relevant responsible persons, Weng Kaining (serving as Chairman from January 2024 to date, responsible for the 2023 and 2024 periodic reports), Yuan Guohua (serving as Chairman from September 2015 to January 2024, responsible for the 2022 periodic report), and Liu Dehong (then General Manager) were all subject to regulatory measures of issuing warning letters due to their violation of the fourth article of the “Measures for the Administration of Information Disclosure by Listed Companies.” In addition, the company’s then Executive Vice President and Chief Financial Officer, Yao Wei, had previously already been subject to administrative regulatory measures of issuing a warning letter by the Shanghai CSRC regarding the same matter.

Shanghai Lingang stated that the company and the relevant personnel attach great importance to this regulatory measure. It said that the matter mainly resulted from deviations in understanding and handling the relevant accounting standards that led to accounting errors. The company emphasized that this matter will not affect production and operations or future business development, and there is no situation that harms the interests of the company and all its shareholders. The company will, as required, actively carry out rectification, optimize its operating model and financing structure, strengthen supervision over financial and accounting work, and ensure steady and healthy development of its operations.

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Editor: Xiao Lang Express