Sembcorp’s disclosure of China unit’s troubles falls short

On Friday night, Sembcorp Industries (SCI) disclosed that its China joint-venture company, Sembcorp Nanjing Suiwu (SNS), had been fined S$10 million last quarter for illegal discharge of waste water in China. Further, a civil claim settlement had been reached with the local authorities, with the agreement expected to be finalised next month.

SCI added in the regulatory filing that its share of the fine and cash settlement for both the criminal charges and civil claims amounts to a total of S$54 million, which has been fully provided for as of last September.

The timing of the announcement warrants scrutiny.

News that the China water treatment unit had been slapped with a record 50-million-yuan (S$9.8 million) fine had already surfaced online on Jan 8 – with over a dozen China websites carrying it – or almost 10 days before SCI’s announcement.

These websites noted that the errant company could face another whopping 470 million yuan in civil claims arising from its illegal discharge of wastewater.

SCI’s statement followed queries from The Business Times, which had received a tip-off on Friday on a China news report about the case. Its announcement came at a time when the case made it to the list of Jiangsu Nanjing Intermediate People’s Court’s 10 landmark cases late last year. The appellate court had on Oct 15 last year issued a written judgment on why it had dismissed SNS’s appeal and upheld the lower court’s decision.

When SCI previously disclosed the legal proceedings and made some provisions for potential financial penalties and claims in September 2018, the hearing was scheduled to start a month later and did not have a conclusion yet. SNS, which is 95% owned by SCI, might well have been acquitted.

In that regulatory statement, SCI said it “will make timely announcements of any further material developments”.

However, when the appeal was dismissed last October and that decision was final with no further avenue of appeal, SCI did not disclose – until BT enquired – that the S$10 million fine had materialised, with a further S$44 million in settlement claims to be paid.

While some might argue that SCI could be waiting for SNS’s settlement agreement to be finalised before making the disclosure, Singapore Exchange’s listing rules obligate an issuer to provide timely disclosure of material information. “Timely”, as defined in the Cambridge Dictionary, means “happening at the best possible moment”.

It begs the question of whether SCI’s latest disclosure was timely enough when its appeal was dismissed last October and news on the case has been making the rounds online since Jan 8. The delay is particularly troubling given the seriousness of the offence – the irony that a waste water treatment company would illegally discharge waste water – and the quantum of the fine.

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

This brings to mind the lesson from another Singapore-listed company Yangzijiang Shipbuilding.

The company was silent when a news agency reported on Aug 1 last year that an individual “especially closely connected to Yangzijiang” was being probed by the Chinese authorities. The rumour mill went into overdrive later, causing a sell-off in the counter and its shares tanked by almost 30% just on the morning of Aug 8 last year.

The bourse regulator queried Yangzijiang about its wild price swings. The company then responded that its chairman would be assisting in a confidential investigation by the Chinese government authorities but no one associated with the company including the chairman was the subject of the investigation.

However, its market value had by then lost a couple of billions due to Yangzijiang’s initial inaction.

The case is instructive to all: Without timely disclosure, shareholders are disadvantaged by information asymmetry.