Friday 25 March 2011
Gaoxian trading halts: a poser
China Gaoxian has joined the string of S-chips that have seen trading of their shares either halted or suspended. While investors are still anxiously awaiting news from the company, speculation is rife on what could have possibly happened. Investor fears stem from accounting irregularities at some China-based firms listed in Singapore.
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Gaoxian trading halts: a poser
By LYNETTE KHOO
24 March 2011
China Gaoxian has joined the string of S-chips that have seen trading of their shares either halted or suspended. While investors are still anxiously awaiting news from the company, speculation is rife on what could have possibly happened. Investor fears stem from accounting irregularities at some China-based firms listed in Singapore.
In the absence of full information, a trading halt is justifiable to ensure a level playing field. But a pertinent question to ask is why the textile firm has chosen to halt trading of its Korean Depository Receipts (KDRs) one day after the start of its share trading halt in Singapore on Tuesday.
In fact, it had to take a query from the Singapore Exchange (SGX) to China Gaoxian on the unusual trading activities of its shares on Monday to prod the company into requesting a trading halt here for the purpose of ‘investigating the matters prompting SGX’s queries’. By then, the Singapore counter had already fallen by a staggering 24 per cent on that day alone to 19 cents, after some 140 million shares changed hands.
Whether the drastic stock movement suggests that some punters were trading on information not yet made public is anyone’s guess. But in the meantime, China Gaoxian’s KDRs in Korea, which fell only 1.1 per cent to 4,895 won on Monday, slipped a further 14.9 per cent to their lowest level at 4,165 won on Tuesday. This translates to 23 cents since one KDR represents 20 shares.
This raises the question of why the trading halts were not carried out simultaneously on both exchanges. Pending the release of potentially material information, some shareholders trading KDRs on Tuesday could be acting on incomplete or inaccurate information; or worse, some could be trading on insider information.
While no notices have surfaced yet of changes in substantial shareholdings, it would be interesting to await news of whether such transactions took place this week. Such disclosures, if any, will likely be subject to scrutiny.
Understandably, investors haunted by memories of troubled S-chips with accounting irregularities might harbour worries over China Gaoxian pending the release of information.
Earlier this month, SGX queried the group on its unaudited financial results for the year ended Dec 31, seeking clarity on the significant decrease in trade and other receivables and the rise in bank loans despite a significant jump in cash balances. In response, China Gaoxian explained that cash sales made up a larger proportion of total sales in fiscal 2010 than in fiscal 2009.
Receivable turnover days also decreased significantly as exceptionally strong demand in the fourth quarter prompted customers to pay on cash terms to secure the price and supply of products, and the group has tightened credit terms to strengthen cash position, it said.
Justifying the rise of short-term loans amid abundant cash balances, China Gaoxian said it converted bills payable balance to short-term loans to support banks in meeting their loan quota as ‘it is in the interest of the group to maintain close and mutually beneficial relationship with its PRC banks’.
For shareholders not satisfied with the group’s responses to the SGX queries, they had ample time to act on their shareholdings before the Tuesday trading halt. Those who have chosen not to make an exit will just have to bite the bullet and hope that investor fears will prove unfounded.
As the trading halt cannot exceed three market days unless it is converted to a trading suspension, China Gaoxian probably has to shed some light on material developments by today.
It would be surprising if the disclosure throws up any accounting issues at China Gaoxian, which was listed in September 2009 and has recently gone through another round of scrutiny by the Korean Exchange in its dual-listing undertaking. But should the news turn out to be negative, it would perhaps serve as a wake-up call for shareholders that they should not take dual-listing as a guarantee of a company’s health.
After all, being able to pass muster under a different regulatory regime doesn’t necessarily mean that all’s well for a company, except to say that things look okay on paper.
Hopefully, the S-chips cluster will not have to cope with yet another shock, as that would mean that the uphill battle to regain confidence and trust will only get tougher.
Thanks for the post.
Wish I could hear more thoughts about gaoxian from you.
p.s: i can't get enough information about gaoxian in korea. people are just waiting with little information here.
it would help if you share your thoughts.
thanks.
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