CHK Oil Limited Announces Major Disclosure: Significant Trade Deposits and Breach of Listing Rules

CHK Oil Limited (Stock Code: 632) has released a comprehensive announcement detailing substantial trade deposits made by its wholly-owned subsidiary, Palm Energy (Hainan) Co., Limited, to three key suppliers: Anda Xingda Chemical Co., Ltd. (“Anda”), Jilin Songyuan Petrochemical Co., Ltd. (“Songyuan”), and Hainan Longyou Group Industrial Co., Ltd. (“Longyou”). The disclosure, prompted by Hong Kong Listing Rules, unveils vital information for shareholders, including breaches of regulatory requirements and remedial actions.

Key Highlights from the Announcement

• Large Trade Deposits Paid:
  • Palm Energy paid aggregate trade deposits of RMB239,476,733 to Anda, RMB111,890,000 to Songyuan, and RMB133,728,000 to Longyou. These payments were made to secure future deliveries of oil, condensate oil, crude oil, and related products.
  • As at the announcement date, unutilised balances remain: RMB12,500,000 for Anda and RMB75,157,967 for Longyou.
  • Refunds and deliveries have taken place, but not all deposits have been fully utilised.
• Breach of Listing Rules:
  • The Company failed to disclose these trade deposits in a timely manner as required by Rules 13.13, 13.14, and 13.15 of the Hong Kong Listing Rules due to an oversight and misunderstanding by management.
  • Key trigger dates for disclosure obligations were exceeded, with assets ratios above the reporting thresholds.
  • Management initially considered these deposits as ordinary procurement, not financial advances, leading to the overlooked disclosure.
• Legal Action Taken:
  • Palm Energy filed a claim against Anda for the refund of RMB12,500,000, plus interest at 12% per annum from 3 September 2025 to the date of full repayment, following a discrepancy in delivered product quantities. Anda has agreed, via a court-mediated settlement, to settle by 30 May 2026.
  • Longyou must refund any unutilised trade deposit balance, plus 3% accrued interest, within 14 days of termination if unable to deliver by 30 June 2026.
  • Songyuan was contractually obliged to pay a default payment of 10% of contractual value if unable to deliver by 31 December 2022.
• Credit Risk and Impairment:
  • The company recognised an impairment loss of approximately HK\$3,003,000 for the six months ended 30 June 2025 on the trade deposits.
  • Monthly monitoring and credit assessments have been implemented, with expected credit losses (ECL) evaluated based on supplier credit quality.
• Remedial Actions and Enhanced Internal Controls:
  • CHK Oil has completed a legal training session for all Directors and employees to improve understanding and compliance with Listing Rules.
  • Regular compliance training, strengthened reporting and approval procedures, and a new alert system for monitoring transaction amounts have been implemented.
  • Collaboration with legal advisors and professional consultants has been reinforced to avoid future breaches.

Details of Trade Agreements

• Anda Purchase Agreements:
  • 22 agreements for ~38,689 tons of oil-related products (Nov 2023 – Sep 2025).
  • No interest or security on the deposit; legal claim filed for remaining balance.
  • Refunds and deliveries made, but a material portion remains unutilised.
• Songyuan Purchase Framework Agreement:
  • Agreement for 100,000 tons of condensate oil (April 2022 – Dec 2022).
  • Deposits paid, deliveries made, and refunds received for unutilised amounts.
  • Default payment clause for non-delivery.
• Longyou Purchase Framework Agreements:
  • Agreement for 50,000 tons of crude oil (Feb 2024), later expanded to other oil products and extended to 30 June 2026.
  • Deposits paid, partial deliveries and refund received. Remaining unutilised deposit subject to refund and interest if not fulfilled.
  • Interest at 3% per annum on unutilised deposit.

Supplier Information

• Anda: Petroleum and chemical sales; owned by Zhang Haitao (70%) and Zhang He (30%).
• Songyuan: Wholesale of refined oil; majority owned by Changchun Yitonghe Petroleum Marketing Co., Ltd.; minority state-owned.
• Longyou: Wholesale of crude oil, hazardous chemicals, refined oil; owned by Ren Hudong (51%) and Liu Keqiang (49%).

Shareholder and Price-Sensitive Implications

• Potential Share Price Impact:
  • Significant trade deposits expose the company to counterparty and credit risk. Legal claims and unutilised deposits could impact liquidity, financial stability, and future earnings.
  • Breaches of Listing Rules may affect investor confidence and invite regulatory scrutiny.
  • Impairment losses and delayed compliance could be viewed negatively by the market.
  • Remedial actions may restore investor confidence but highlight previous weaknesses in internal controls.
• Transparency and Risk Management:
  • Shareholders should closely monitor the outcome of legal claims, the status of unutilised deposits, and the effectiveness of new internal control measures.
  • Any further delay or failure to recover deposits may materially affect the company’s financial performance.

Conclusion

This announcement contains highly price-sensitive information regarding large financial advances, regulatory breaches, and remedial actions that may materially affect CHK Oil Limited’s share value. Investors are urged to consider the heightened risks and ongoing legal claims, as well as the company’s commitment to improved compliance and risk management.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own analysis and consult professional advisers before making investment decisions related to CHK Oil Limited.

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