Chinese sewage treatment firm Sound Global’s credit ratings cut on weak governance
Thursday, 02 April, 2015, 10:01pm
Eric Ng email@example.com
Ratings agencies have downgraded mainland sewage treatment firm Sound Global, citing governance deficiencies and internal controls concerns.
This comes two days after the Beijing-based firm said it had “potential audit issues” and would set up an independent review committee that might engage forensic accountants to look into them, despite denying recent allegations from research firm Emerson Analytics that it had faked and inflated revenues in the past few years.“We lowered the ratings on Sound Global [from BB- to B] to reflect our view that the company has governance deficiencies in terms of its internal controls, financial reporting reliability and financial transparency,” said S&P’s credit analyst Gloria Lu in a statement. “We therefore now assess the company’s management and governance as ‘weak’, compared with ‘fair’ previously.”
Moody’s also cut its “corporate family rating” on Sound Global to Caa1 from Ba3, citing concerns about rising default risk on its bonds, as it is required to provide audited financial statements within 120 days from its financial year-end, failing which creditors could demand early repayment.
Sound Global on Tuesday said its auditors Deloitte Touche Tohmatsu could not finish auditing its books by the March 31 deadline pending information from the firm, and that it had found some “potential issues in relation to its financial position”.
Wong See Meng, one of Sound Global’s independent non-executive directors and chairman of its audit committee, had resigned it added.
Emerson said in a February 4 report, “a secret engineering technology service” accounting for some 40 per cent of its sales between 2011 and 2013 was conducted by “a mysterious subsidiary that leaves no trace in the Chinese water industry, a strong indication that the revenue just didn’t exist.”
Sound Global said Emerson’s allegations were based on the firm’s voluntary announcements, an industry portal and anecdotal evidence, which could not be used to draw conclusions.