Thursday, March 12, 2009

Sick of s-shares

Do you know what s-shares stand for?

S-shares stands for stupid shares. Actually they are Singapore listed, China-based companies. What have they done to incur the wrath of investors locally? Let's trace it...


1. All began with Ferrochina. The details are hazy, but it goes more or less like this: Debtors force ferrochina to repay their short term debts, and nobody wants to lend ferrochina money to tide them over. Company declared bankrupt, and shareholders 'dieded'. Suspended from trading.


2. China printing & 'Dying' - this one is comically, though not so funny to shareholders. The husband and wife CEO team from the parent company went runnng. Suspended from trading.


3. Fibrechem – auditors have problems finalizing the trade receivables and cash balances at 31st December 2008. Shares are suspended from trading now.


4. Beauty china – Some party wanted to buy over the shares of the CEO, who is a major shareholder himself, as his stakes take up 38.7% of the total shareholdings. It seems that part of the shares sold by the CEO are due to margin calls - which means that the CEO had pledged his shares to do some borrowings. Suspended.


5. Sino-env - CEO had a company, who pledged his shares in sino-env as a pledge to hedge funds. Now, unable to repay their payment obligations, hedge funds threaten to sell off shares. Might affect the company's solvency and ability to pay off bond holders. Suspended.


6. Oriental century – Subsidiary of Raffles education. This is the most recent case where s-shares are involved. CEO substantially inflated sales and cash balances and had diverted unspecified sums to an interested party. There are fictitious accounting and related records, thus leading everyone to believe that the cash they had were in existence. Raffles education shares, who held 29% of oriental century, are halted from trading now. Oriental century shares are suspended from trading.




So who’s the next one to fall? These incidents reflect very poorly on s-shares because of the lack of good corporate governance. If the statements they published publicly cannot be trusted, nobody can do a proper valuation of the company and determine how strong their financial standing is currently. This will affect investors’ ability to judge for themselves the strength and prospect of a company. It’s a shame that such low quality companies are allowed to be listed in SGX.

I remembered fondly in 2006 that any company with CHINA as their names will do very well as punters bid them up, citing very valid and logical reasons like China being able to decouple from US, China being the next powerhouse etc. It’s great that I didn’t participate much in this orgy, though my sins are equally as bad – I bought some of them on the way down.

I’ve two s-shares currently (I do not consider pac andes as s-shares, since they are not china based companies, more like HK based) – china milk and hongguo. Both reported okay business – still making profits but lesser amounts. Both of them share a common attribute, which is they have excellent cash positions. Now, I would have to wonder if the cash reported are really there or not. It sucks big time to me because I can’t even be sure if there accounts are true!

You know what? I’m sick of s-shares.

12 comments :

Anonymous said...

Well, the market need some sort of gambling shares at any one time. Remember those days with Malaysia counters Clob ones. And if you are a male, which is better, buying well packaged S-shares or marrying a beautiful China Chinese lady?

Akatsuki said...

Hi Lp,

First of all..Good summary of S-shares! Most of them lack good goverance and proper internal control, investors are more or less sick of them. But then again, not all S-shares are dishonest, just like not all China Gals are sluts/money minded.. there are certainly some good ones out there (hopefully chinamilk is one such company) and those who have the guts now, to buy these few good S-shares will certainly see good returns in the future?(Who knows)

Anyways, ive already talked to Martin Chio (ChinaMilk's CFO), his responses were satisfactory with regards to their cash holdings and reporting standards, but then again who would show their hand in poker until the end of the game..i sincerely hope that the company (including China Essence) are honest with their reporting if not, i think i'll also ALL avoid S-shares for now...

la papillion said...

Hi anonymous,

Actually if I am a male, I'll choose a wife material instead of gf material :) haha!

You are right though, the s-shares of the present feels like the clob shares of the past. Same medicine, different bowls - to paraphrase a chinese quote.

la papillion said...

Hi akatsuki,

I agree, not all s-shares are bad, but it's quite hard to tell in advance which are the rotten ones and which the better ones. If we can't even be sure of the accounts, it's very hard to gauge which are the good from the bad. I also hope that china milk isn't one of them.

Martin cho is the guy who speaks with a slang :) I've seen his video presentation on china milk's website before. But just like all the troubled banks who said that they are fine until they went belly up, it's hard to tell if he's telling the truth.

Seems like faith is the only word here. Have blind faith!

Touzi said...

S-share companies don't seem to see shareholders as owners of the companies. Shareholders are there just to provide fund :-(

With a few counters, I am worried.

BTW,I wonder why inflated cash was not discovered by auditors !!

Lemizeraq said...

Hi la papillion,

Can add China Aviation Oil to the list too when the then CEO nearly brought down the company through losing $500 million by derivative trading.

The S Stocks are certainly high risk, but some have gave high returns to investor too.

A bit ironic that some of them listed here because of the perceived standard of corporate governance being higher, so that they can get more funds from investment but some of the companies themselves messed up the reputation of the S stocks.

This article from the Seeking Alpha- Singapore slammed by China Shares complements what la papillion said.

la papillion said...

Hi touzi,

You're very right. They treat shareholders like atm machines - no money issue rights!

I'm also wondering why the cash inflation are not discovered. I heard from auditors/accountants that cash are very hard to fake it. They must be really good in their game or there's a whole lot of rotten pple in the companies concerned.

gyaradoz said...
This comment has been removed by the author.
Stupidbear said...

As for the auditors which Touzi mentioned, they are practically inexperienced staffs checking the accounts in a very tight time frame. Unless something very material occur or the audit teams willing to go all the way to check the accounts, audits are basically a "follow the montion/regulation" event.

Being in the a/c field myself, i doubt the reliablity of audits.

Haha!

la papillion said...

Hi stupidbear,

Thanks for you insights on the accounting/auditing field :) Hmm, seems that I place too much hope on auditors being able to check on the accuracy and integrity of the statements.

Touzi said...

I just realised that I was wrong. According to ST report, KPMG did question the authenticity of the fake bank documents.

I guess this is an improvement over auditors who shredded documents to remove evidence of wrong doing during the Enron fiasco. ( Remember the Heineken Christmas TV commercials ?...)

BL Trading Team said...

A lot of these problematic companies have one consistent sign: negative free cashflows.

This shows that the rate of cash outflows is higher than the rate of generating new cash inflows. Over time problem will come.

Guess what?! There are still a lot of potential problematic companies listed.