HONG KONG: China Zhongwang Holdings Ltd, a Liaoning-based aluminum producer, plunged in Hong Kong as it resumed trading after denying newspaper reports challenging the accuracy of its accounts. Trading in the stock had been suspended since January 7 after a newspaper alleged the company falsified information in it prospectus.

The shares slumped 27 percent to HK$5.87 at the close of trade in Hong Kong, the most among stocks on the MSCI Asia Pacific Index. The company released a statement on Monday restating that a review of Zhongwang's accounts by Ernst & Young LLP found "no deficiencies" with accounts included in its May 8 initial public offering prospectus.

Zhongwang said that while its audit committee had approved its accounts, Ernst & Young said it found some "external limitations in its verification procedures that require certain information of independent third parties."

"Everyone's dumping the stock," said Castor Pang, an analyst at Cinda International Holdings Ltd in Hong Kong.

"Ernst & Young is saying that apart from sales and taxes there are parts of the internal information they can't touch, limiting their investigation," he said.

The review was commissioned in November after the Economic Observer, a Chinese newspaper, alleged in a September 14 article that Zhongwang had falsified customer information in its prospectus. The newspaper apologized for the report on September 17, Zhongwang said in its statement.

Zhongwang said its audit committee had considered Ernst & Young's views and "concluded that such limitations would not affect their conclusion in relation to the independent review" under the mainland laws.

Ernst & Young spokesman Christian May said the company approved Zhongwang's statement to the exchange, and referred all further enquiries to the Chinese company. Calls to Zhongwang's head office in the mainland's northeastern province of Liaoning weren't answered.

Zhongwang said its audit committee concluded there were "sufficient documents and evidences that existed" to support the validity of the statements in the prospectus.

There was speculation before the suspension that Zhongwang would acquire Qinghai Guoxin Aluminum Industry Inc, William Ni, an analyst at Shenyin & Wanguo Securities Co, said from Shanghai. The company didn't confirm the rumor on a conference call yesterday, said Ni, who added Zhongwang was also catching up with the stock-market decline since January 7.

The 15-member Hang Seng Materials Index, which includes Zhongwang, has dropped 21 percent since January 7.

Bloomberg News

(HK Edition 02/10/2010 page2)