China plays lose their shine amid allegations of corporate failings
By Lorna Tan 30 March 2009
They were the toast of the market about two years ago, with investors flocking to the so-called S-chips - China-based companies listed on the local bourse.
Back then, eager investors had envisaged the ‘new kids on the block’ as a path to quick returns.
Now, there has been a striking turnaround, with investors avoiding them like the plague.
S-chips such as Fibrechem Technologies, Beauty China Holdings, Sino-Environment Technology Group and Oriental Century made headlines in recent weeks amid allegations of corporate failings.
Trading halts and suspensions followed, adding to the gloom among investors.
It is no wonder that the value of S-chips has plummeted 67 per cent in the past 12 months.
DBS Vickers Group Research said the recent problems encountered by S-chips fell into three broad categories: cashflow problems; accounting irregularities or fraud; and the forced sale of shares pledged by major shareholders to a third party.
What is alarming is that accounting irregularities and forced share sales pertain to governance and the credibility of managements and major shareholders.
‘These are issues which an investor is unable to pick up from reported financial statements or publicly available information of the company,’ said DBS Vickers.
That leaves ordinary shareholders watching the unfolding train wrecks with a sense of helplessness.
Here’s a recap of the recent problems plaguing S-chips:
FerroChina
News of the steel coil-maker’s cash-flow crunch stunned market watchers in October last year.
It led to FerroChina’s financial demise after banks refused to roll over its loans despite a sterling set of second-quarter results.
It was reported that the restructuring plan for FerroChina - whose shares have been halted from trading since Oct 7 - could take six months or longer. On Oct 9, the company, which has about 3,800 shareholders, said it was unable to repay 706 million yuan (S$157 million) of its working capital loans which had become due.
It also said loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were due soon.
Fibrechem Technologies
This was one of the best-followed S-chips. The first sign of trouble surfaced when the China-based chemical fibre-maker requested a trading halt on Feb 23 this year. That was the day it failed to release, as scheduled, its fourth-quarter and full-year results.
To the dismay of shareholders, the firm’s auditors indicated they had difficulty finalising the audit on its trade receivables and cash balances as of the end of December last year.
Before the trading halt was imposed, the counter plunged seven cents, or 40 per cent, to 10.5 cents, with 9.68 million shares traded.
Meanwhile, founder and chief executive James Zhang resigned from his position as executive chairman.
The company has appointed nTan Corporate Advisory as its independent investigator to examine the questionable transactions. No progress has been announced.
Beauty China
Since March 2, cosmetics firm Beauty China has requested three trading halts.
The problem centres on founder and chairman Wong Hon Wai who had, unknown to shareholders, pledged all his stock - 137.5 million shares, or 38.57 per cent of the share capital - to obtain credit facilities.
Many agree that the financial arrangement he made with his shares is material information investors should have been told about via stock exchange announcements. The shares plunged a stunning 26 cents, or 70.3 per cent, to 11 cents, with about 6.3 million shares traded, when the first trading halt was lifted on March 3.
It soon emerged that his stake was being force-sold by the lender on the open market to help repay the loan. In order to fulfil his obligations to the financier, Mr. Wong was forced to sell 28.8 million of the mortgaged shares between March 4 and March 6, noted DBS Vickers.
Furthermore, on March 6, the firm was queried by the Singapore Exchange on its balance sheet. The firm requested the second trading halt on March 5.
This was followed by its third trading halt on March 9. It remains suspended pending an update on its financial health.
Sino-Environment
The waste treatment firm’s woes started on March 2 when it requested a trading halt after its full-year results.
It must have seemed like a recurring nightmare to some investors, given the similarity to Beauty China’s problems.
Sino-Environment chairman Sun Jiangrong had pledged his entire 56.3 per cent stake or 190.8 million shares, along with other assets, to hedge funds to secure a $120 million loan.
As he had difficulties repaying the loan, the forced sale of the pledged shares was triggered.
The hedge funds had threatened to sell the shares on the open market. That would cause the control of the company to change hands.
It also might plunge the company into a financial crisis, as it would have had to make immediate repayment on a $149 million bond issue - triggered by the change of ownership.
Trading was suspended from March 6 and resumed on March 12.
After the week-long trading suspension, Sino-Environment plunged 73 per cent to eight cents on a hefty volume of 47.4 million shares. The counter closed at 13.5 cents last Friday.
Oriental Century
On March 9, education firm Oriental Century - in which local group Raffles Education had invested $30.2 million for a 29.9 per cent stake - called for a trading halt.
It later shocked investors by disclosing that founder and chief executive Wang Yuean had said he ‘inflated sales and cash balances’ over the years and had diverted unspecified sums to an interested party.
He also claimed that he devised fictitious accounting to mislead management and auditors into believing the firm had a cash hoard of 234 million yuan.
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S-chipped
China plays lose their shine amid allegations of corporate failings
By Lorna Tan
30 March 2009
They were the toast of the market about two years ago, with investors flocking to the so-called S-chips - China-based companies listed on the local bourse.
Back then, eager investors had envisaged the ‘new kids on the block’ as a path to quick returns.
Now, there has been a striking turnaround, with investors avoiding them like the plague.
S-chips such as Fibrechem Technologies, Beauty China Holdings, Sino-Environment Technology Group and Oriental Century made headlines in recent weeks amid allegations of corporate failings.
Trading halts and suspensions followed, adding to the gloom among investors.
It is no wonder that the value of S-chips has plummeted 67 per cent in the past 12 months.
DBS Vickers Group Research said the recent problems encountered by S-chips fell into three broad categories: cashflow problems; accounting irregularities or fraud; and the forced sale of shares pledged by major shareholders to a third party.
What is alarming is that accounting irregularities and forced share sales pertain to governance and the credibility of managements and major shareholders.
‘These are issues which an investor is unable to pick up from reported financial statements or publicly available information of the company,’ said DBS Vickers.
That leaves ordinary shareholders watching the unfolding train wrecks with a sense of helplessness.
Here’s a recap of the recent problems plaguing S-chips:
FerroChina
News of the steel coil-maker’s cash-flow crunch stunned market watchers in October last year.
It led to FerroChina’s financial demise after banks refused to roll over its loans despite a sterling set of second-quarter results.
It was reported that the restructuring plan for FerroChina - whose shares have been halted from trading since Oct 7 - could take six months or longer. On Oct 9, the company, which has about 3,800 shareholders, said it was unable to repay 706 million yuan (S$157 million) of its working capital loans which had become due.
It also said loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were due soon.
Fibrechem Technologies
This was one of the best-followed S-chips. The first sign of trouble surfaced when the China-based chemical fibre-maker requested a trading halt on Feb 23 this year. That was the day it failed to release, as scheduled, its fourth-quarter and full-year results.
To the dismay of shareholders, the firm’s auditors indicated they had difficulty finalising the audit on its trade receivables and cash balances as of the end of December last year.
Before the trading halt was imposed, the counter plunged seven cents, or 40 per cent, to 10.5 cents, with 9.68 million shares traded.
Meanwhile, founder and chief executive James Zhang resigned from his position as executive chairman.
The company has appointed nTan Corporate Advisory as its independent investigator to examine the questionable transactions. No progress has been announced.
Beauty China
Since March 2, cosmetics firm Beauty China has requested three trading halts.
The problem centres on founder and chairman Wong Hon Wai who had, unknown to shareholders, pledged all his stock - 137.5 million shares, or 38.57 per cent of the share capital - to obtain credit facilities.
Many agree that the financial arrangement he made with his shares is material information investors should have been told about via stock exchange announcements. The shares plunged a stunning 26 cents, or 70.3 per cent, to 11 cents, with about 6.3 million shares traded, when the first trading halt was lifted on March 3.
It soon emerged that his stake was being force-sold by the lender on the open market to help repay the loan. In order to fulfil his obligations to the financier, Mr. Wong was forced to sell 28.8 million of the mortgaged shares between March 4 and March 6, noted DBS Vickers.
Furthermore, on March 6, the firm was queried by the Singapore Exchange on its balance sheet. The firm requested the second trading halt on March 5.
This was followed by its third trading halt on March 9. It remains suspended pending an update on its financial health.
Sino-Environment
The waste treatment firm’s woes started on March 2 when it requested a trading halt after its full-year results.
It must have seemed like a recurring nightmare to some investors, given the similarity to Beauty China’s problems.
Sino-Environment chairman Sun Jiangrong had pledged his entire 56.3 per cent stake or 190.8 million shares, along with other assets, to hedge funds to secure a $120 million loan.
As he had difficulties repaying the loan, the forced sale of the pledged shares was triggered.
The hedge funds had threatened to sell the shares on the open market. That would cause the control of the company to change hands.
It also might plunge the company into a financial crisis, as it would have had to make immediate repayment on a $149 million bond issue - triggered by the change of ownership.
Trading was suspended from March 6 and resumed on March 12.
After the week-long trading suspension, Sino-Environment plunged 73 per cent to eight cents on a hefty volume of 47.4 million shares. The counter closed at 13.5 cents last Friday.
Oriental Century
On March 9, education firm Oriental Century - in which local group Raffles Education had invested $30.2 million for a 29.9 per cent stake - called for a trading halt.
It later shocked investors by disclosing that founder and chief executive Wang Yuean had said he ‘inflated sales and cash balances’ over the years and had diverted unspecified sums to an interested party.
He also claimed that he devised fictitious accounting to mislead management and auditors into believing the firm had a cash hoard of 234 million yuan.
The shares have ceased trading since March 9.
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