Tianhe Chemicals Group says its auditor has resigned

China’s Tianhe Chemicals Group Ltd. has informed the Hong Kong Bourse that its auditor Deloitte Touche Tohmatsu has resigned effective September 16, 2015.

In an earlier announcement, lubricant additives maker Tianhe Chemicals disclosed that its audit committee was reviewing a draft auditor’s report prepared by Deloitte, which contained a disclaimer opinion. The audit committee recommended to the Tianhe board not to accept the draft report with the disclaimer opinion, “in light of a wide range of work performed and inter-locking confirmations received from various independent third parties.”

“The Board has also unanimously concluded not to accept the Draft Report for incorporation in the Company’s audited consolidated financial statements and informed Deloitte on 15 September 2015. In these circumstances, Deloitte is of the view that, for all practical purposes, the audit has come to an end. Against this background, on 16 September 2015, Deloitte has given a formal notice to the Board and the Audit Committee of their resignation as auditors of the Company with immediate effect.”

Tianhe Chemicals raised USD 654 million in an initial public offering (IPO) in Hong Kong in June 2014, selling 2.82 billion shares at HKD 1.8 per share (USD 0.23) per share. Tianhe Chemicals’ troubles came soon after a report by a group called Anonymous Analytics claimed that the company, in which Morgan Stanley’s Private Equity Asia III fund owns 8.6%, after investing USD 300 million before the IPO, generates only a fraction of the revenue that it claims.

Morgan Stanley said it had conducted millions of dollars’ worth of due diligence before investing in Tianhe Chemicals. Homer Sun, the managing director of Morgan Stanley’s Asian private equity arm sits on the Tianhe Chemicals board.

Tianhe Chemicals became the target of massive shorting soon after listing, a Reuters analysis showed. As soon as the Hong Kong exchange put the company on its designated shortselling list in early August 2014, about 60% of its daily turnover was short transactions, compared with the 10.5% average for the Hong Kong market.

The company requested the Hong Kong bourse to suspend trading of its shares effective March 26, 2015. Trading of Tianhe Chemicals shares continues to be suspended.