S-Chips feeling the heat of accounting woes
S-CHIPS here are getting hammered, as accounting scandals surrounding Chinese companies continue to dominate headlines.
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FTSE ST China Index and China Top Index have lost 10.5% and 14.9% year to date
13 June 2011
S-CHIPS here are getting hammered, as accounting scandals surrounding Chinese companies continue to dominate headlines.
The FTSE Straits Times China Index and FTSE ST China Top Index have slipped 10.5 per cent and 14.9 per cent respectively year to date, reflecting the woes facing S-Chips or China companies listed on the Singapore Exchange.
In comparison, the benchmark FTSE Straits Times Index has dipped 3.5 per cent year to date.
Last Thursday, the Singapore Exchange released the damning special auditor’s executive summary on China Milk following the failure of the company to release what the regulator deemed ‘material information’.
China Milk’s special auditors flagged several irregularities in the company’s transactions and found that significant payments were made without board approval and documentation.
The 18-page report highlighted the China company’s poor disclosure and sloppy corporate governance as well as non-compliance with listing manual and accounting standards.
Following that, the Securities Investors Association of Singapore (SIAS) revealed that it had made representations to the Singapore Exchange to consider putting safeguards in place to ensure money raised from the Singapore stock market is not misused.
‘(The) time is right for introducing measures to protect the investments of investors in S-chips. Our representations (to the SGX) are now being considered,’ said SIAS president David Gerald in a statement.
‘Once monies have been transferred from Singapore to a province in China, Singapore investors will not be able to track the use of funds. The prospect of suing the company in China to recover their investments is dim.’
He added: ‘This must be stopped; the only way is to ensure that our monies are not allowed to be misused and in fact (are) used and reported for the purpose which it was asked for.’
Mr Gerald also highlighted this was not the first instance where investors have been burnt.
In 2009, special auditors PricewaterhouseCoopers released findings on Sino-Environment, showing some $85 million of questionable deals made without board approval and authorisation.
It has been a similar tale in Hong Kong, where H-shares, or Chinese stocks traded on the Hong Kong bourse have been the world’s worst performers this month, as allegations of fraud at some smaller companies fuel concerns that slowing economic growth will hurt corporate profits, Bloomberg has reported.
The Hang Seng China Enterprises Index of 40 Chinese companies’ H-shares has retreated 7 per cent this month, the most among 91 global benchmark indexes tracked by Bloomberg.
Regulators and investors have increased scrutiny of Chinese companies traded overseas amid allegations against Longtop Financial Technologies, Chaoda Modern Agriculture and Sino-Forest.
Hong Kong-based Longtop was last month sued by an investor alleging the software provider overstated profit margins and concealed adverse facts.
Chaoda, a vegetable producer, allegedly overstated the size of some of its farms in China, Next magazine reported, although the company says the report is inaccurate and it will take legal action. Short seller Carson Block at Muddy Waters Research said that Sino-Forest overstated its forestry holdings and production.