China Rare Earth Holdings faces significant asset misappropriation risk

China Rare Earth Holdings Limited (CRE) released a quarterly update on its resumption progress, revealing ongoing suspension of trading since June 18, 2025. The company's board and audit committee have concluded there is a credible risk of asset misappropriation within its subsidiaries, following preliminary due diligence findings. These findings indicate that each subsidiary is involved in at least 45 lawsuits and nine enforcement-related cases.

The company's legal advisers reported that two subsidiaries owe judgment debts, and there is evidence of potential false misrepresentation in the 2023 and 2024 annual audits. Significant bank loans were not disclosed, contradicting reported cash-rich positions. Furthermore, enforcement actions suggest a lack of enforceable assets to fulfill repayment obligations, reinforcing the belief of potential fund misappropriation by management. The subsidiaries' operations appear minimal or suspended for an extended period, and the current board has been unable to retrieve essential financial and operational documents.

An independent forensic accountant is investigating the possible misappropriation of assets, with a draft report expected by the end of December 2025. The company is actively working to change the legal representatives of its subsidiaries to facilitate the retrieval of books and records. It is also exploring establishing a new subsidiary to potentially resume rare earth and refractory material businesses. Trading will remain suspended until CRE meets all resumption guidance and fully complies with listing rules.