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UPDATE 1-Carlsberg seeks auditors for China's Chongqing Brewery
January 20, 2012 / 8:10 AM / 6 years ago

UPDATE 1-Carlsberg seeks auditors for China's Chongqing Brewery

* Carlsberg to seek shareholder nod of auditor plan on Feb 7

* Dacheng Fund has proposed to remove chairman

* Chongqing Brewery has fallen 70 pct over past two months

* Share fall due to statement on drug trial by biotech unit (Add analysts comment, detail)

By Samuel Shen and Melanie Lee

SHANGHAI, Jan 20 (Reuters) - Danish brewer Carlsberg A/S is seeking to have independent accountants to audit Chongqing Brewery, in the latest shareholder action against the Chinese company hit by slumping share prices and accusations of mismanagement.

China’s third-largest brewer by market capitalisation, which is nearly 30 percent owned by Carlsberg, has been under fire as its share prices tumbled 70 percent during the past two months, wiping out nearly 30 billion yuan ($4.8 billion) in value.

The free-fall was triggered by a Dec. 7 statement from the company that was interpreted by the market as suggesting failed results from the trial of a new hepatitis B vaccine, conducted by its biotech arm, Chongqing Jiachen Biotechnology.

Dacheng Fund Management Co, which owned a more than 10 percent stake in Chongqing Brewery before selling some of it last quarter, has called for a shareholder meeting on Feb. 7 to take up its proposal that Chairman Huang Minggui be removed from the post for mismanagement of information disclosure.

Carlsberg, which inherited its initial stake in Chongqing Brewery through its takeover of UK’s Scottish and Newcastle and boosted its stake in the Chinese company in 2010 to become its biggest shareholder, will seek approval for the hiring of independent auditors also at the Feb. 7 meeting, Chongqing Brewery said in a statement posted on the Shanghai stock exchange late on Thursday.

“Of course, the company is responsible for misleading investors,” said Zhang Haochuan, fund analyst at Z-Ben Advisors. “But on the other hand, some fund managers may not have done adequate due diligence on Chongqing Brewery and may have ignored the potential risks of drug development failure.”

The Chinese brewery also said in the statement that it forecast a roughly 50 percent slump in its 2011 net profit, but its shares ended up 0.8 percent on Friday.

Analysts say the slump in the share price was more an uncoiling of the hype over the hepatitis drug that been built up over the past decade as well as a reflection of deep-rooted problems in China’s stock-trading culture.

Chongqing Brewery acquired pharmaceutical firm Chongqing Jiachen Bioengineering in 1998, a year after the brewer’s initial public offering in Shanghai, as part of a plan to develop a hepatitis B drug.

The business was attractive to investors as more than 100 million people in China are reported to be suffering from the illness, and pushed up Chongqing Brewery’s share prices to exorbitant levels.

The company’s stocks traded above 100 times earnings before the slump, representing an exaggerated premium to its main rivals such as Tsingtao Brewery Co , which traded at 20 times in Shanghai.

Despite the fall, Chongqing Brewery shares are still trading at a PE ratio of around 46 times.

Dacheng Fund Management Co, which slashed its holdings in Chongqing Brewery by more than 10 million shares during the fourth quarter amid the share slump, said in its quarterly report on Friday that it failed to reduce shares at a proper time. ($1 = 6.3167 Chinese yuan) (Additional reporting Ruby Lian; Editing by Kazunori Takada)

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