Sembcorp’s disclosure of China joint-venture’s distress still wanting

On Friday night (17 Jan), it was disclosed by Sembcorp Industries (SCI) that its China joint-venture company Sembcorp Nanjing Suiwu (SNS), had been subjected to S$10 million fine last quarter for the offence of illegal discharge of waste water in China. While a civil claim settlement had been struck with the local authorities, next month will see the finalisation of the agreement.

According to the regulatory filing by SCI, as of September 2019, the cash and fine settlement for the civil claims and criminal chargers summing to S$54 million have been fully provided for.

However, the timing of the announcement begs some scrutiny.

On Wednesday (8 Jan), the news already circulated the web that the China water treatment unit had been fined the amount 50 million yuan (S$9.8 million). Over a dozen Chinese sites hosted the news around 10 days prior to SCI’s announcement.

Due to its illegal discharge of wastewater, the firm could be fined an extra 470 million yuan in civil claims, the websites wrote.

The Business Times (BT) queried SCI after receiving a tip-off on Friday from Chinese news sources, after which SCI made its statements. As the case was classified into the list of Jiangsu Nanjing Intermediate People’s Court’s 10 landmark cases in late 2019, the announcements were made then. On 15 October, the appellate court issued a written judgement explaining why it maintained the lower court’s decision and dismissed SNS’s appeal.

In September 2018, when SCI made provisions for possible financial claims and penalties while also disclosing legal proceedings, the hearing was slated to start a month after that and without conclusion. At this point, SNS, 95% owned by SCI, is as good as acquitted.

SCI reported in its regulatory statement that it “will make timely announcements of any further material developments”.

With the decision finalised with the appeal dismissed October last year, SCI kept to itself the fact that the S$10 million fine had come their way, alongside the additional S$44 million in settlement claims to be paid. But this only came to light when BT queried.

It could be that SCI only disclosed the information after waiting for the finalisation of SNS’s settlement agreement, even if Singapore Exchange mandates an issuer to provide timely disclosure of material information.

Due to the already circulating news since 8 Jan and the dismissal of its appeal October last year, questions have arisen whether the disclosure by SCI was timely enough.

Two glaring issues involved are the magnitude of the fine as well as the seriousness of the offence of illegally disposing waste water.

Timely disclosure is crucial for the Singapore market to operate in a transparent, fair and orderly manner.

A similar past case in August 2019 saw the Singapore-listed company Yangzijiang Shipbuilding’s key individual who is “especially closely connected to Yangzijiang” face probation by the Chinese authorities.

The aftermath included collapsing shares leading to losses in the billions and Yangzijiang being queried by the bourse regulator.