Sino-Environment's status as going concern now uncertain

Sino-Environment Technology Group's ability to continue as a going concern is now uncertain, with its chairman-cum-CEO losing shareholding control over the company. The group said this yesterday when it announced that Stark Master Fund, Stark Asia Master Fund and Centar Investments (Asia) 'are deemed to have acquired an additional 25 per cent stake in the company'. The enforcement of some 84.73 million shares under a share charge slashed chairman and CEO Sun Jiangrong's shareholding further from 31.23 per cent to 6.23 per cent. Sino- Environment said there is now 'real uncertainty' on Mr Sun's continued service with the company.

The group said that if Mr Sun resigned, 'there is uncertainty that the company may be able to continue to retain the services of the current management team of the group that work under his direction and supervision'. The latest news came after Mr Sun, who owns his Sino-Environment stake through Thumb (China) Holdings Group, defaulted on certain financial obligations to hedge funds managed by Stark Investments (Hong Kong) Ltd. Before the enforcement action, Mr Sun owned a stake of 56.29 per cent.

He had pledged his shares and other personal assets to hedge funds for original notes worth $120 million. An outstanding $65 million became due on Feb 16. Earlier announcements said various attempts at refinancing and rescheduling of the loan obligations had not been successful and offers to bid for the shares had been solicited by the hedge funds. Yesterday, Sino-Environment also said that its current business contracts may be adversely affected by the change in shareholding as it could trigger 'the bondholders' rights to request for conversion and/or redemption of the outstanding $149 million worth bonds as well as crystalising defaults on the corresponding swaps arrangement with the bondholders'. In the meantime, the board advises the shareholders and the investing public to exercise extreme caution in the dealing of the shares of the company. Trading was halted yesterday pending the announcement of Mr Sun's loss of shareholding control.

Apart from Sino Environment, another S-chip company that has found itself facing woes over pledged shares is China Sky Chemical Fibre. The latter's CEO and controlling shareholder found his pledged shares the subject of claims by lenders. CEO Huang Zhong Xuan holds his stake in China Sky through Rock Mart Equities, which owns 37.72 per cent of China Sky. And to secure personal loans from two lenders, Mr Huang 'had procured Rock Mart to pledge Mr Huang's 50 per cent share of Rock Mart's entire portfolio of the shares' in China Sky.

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