Saturday, April 04, 2009

S-Chips : From Red Hot Chips to Rotten Chips....

A few years ago I received an SMS from my sis who was attending the AGM of a listed Chinese company (commonly known as S-shares the Chinese companies listed in Hong Kong are known as H-shares). The message from my sis was "Sell everything....". Alarmed by the message, I called my sis up immediately, she told me the CEO has been acting strange throughout the meeting and was evasive when questioned. The stock had more than quadrupled from the price I bought them but fell by 40% from the peak. With plenty of rumours going around, I decided it was time to let go and proceeded to sell the stock. I sold most of it over the next few days and I was down to my last 23 lots....it was a Friday and I had arranged to meet a friend at the PC Show, I decided to sell the remaining shares on the following Monday. It was a bad mistake. That Friday, the company announced that the CEO had cooked the books. The company, China Aviation Oil[Link], lost something like $800M on oil trading and had manipulated the numbers to show a profit. The CEO, Chen Jiulin was jailed for 5 years [Link]. As this company was linked to the Chinese govt and had been granted a monopoly to supply jet fuel in China, it was not allowed to fail...they had to fix it and stock holders eventually got 1 lot for 5 lots they were holding. The China Aviation Oil scandal occurred in 2005. I learned an important lesson about these S-chips - you can make plenty of money on the upside, but when the time comes to get out you have to hop off quickly. The recent scandals we are seeing surrounding S-chips are far worse - some of the companies have been found to be cooking their books before they were even listed. There were cases of fake cash[Link], fake receivables, cases of companies that suddenly faced massive losses after they were listed. There were a few cases of major shareholders who pledge their stake as collateral for loans and when the stock fell, the lenders dumped the stock to repay these loans causing the stock to spiral down rapidly. With so many of these s-chips suspended or on the verge of bankruptcy, it is starting to stink as badly as CLOB for Singapore investors left holding the bag.

Why are so many of these Chinese companies listed here in the first place? Most Chinese companies prefer to be listed in China, Hong Kong or New York and they choose Singapore only when they cannot meet the stricter listing standards of these countries. If these companies are not so good, why are they wanted here? The reason is there is plenty of profits to made by the underwriters, brokerages, SGX and IPO managers. The SGX and brokerages being prime beneficiaries of the high trading volume for these stocks. The boom in s-chip listings created a pair of new remisier kings [Link]who made hundreds of millions handling the IPOs. I leave you to correlate the millions they made, the IPOs they handled. the performance of these IPOs and the outcome for investors who put their hard earned savings into these IPOs. The onus to regulate and establish listing standards falls on SGX and there is very clear conflict of interest here because SGX has to take care of its own bottomline, the interests of its member firms (brokerages) and the investing public. This sorry saga is very similar to what happened during the dot.com bubble when many dubious companies (now known as dot.con companies) went for listing on Nasdaq. When the these companies fail en masse, the US SEC went after everyone from the CEOs to analysts to find out how they were responsible for that sorrry saga. The lesson learnt was that when there was money to be made and people think can get away without taking responsibility, bad things will happen - analysts hyped stocks the knew were bad because their firms stand to gain financially from business relationships with these companies.
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"If they allow a small percentage of these companies to defraud investors, that's going to spoil the reputation of other Chinese companies, good companies, listed in Singapore. If we tighten (regulations) too much, we can lose some of these companies from being listed every year" - MAS Chairman, SM Goh Chok Tong, Friday March 27 [Link]
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"Sir, if we don't tighten our people as a whole will lose even more in the future....and the small % is not small it is closer to 30-60%" - Lucky Tan
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Where is MAS in all this? After this whole mess broke out, SM Goh who is the chairman of MAS asked the Chinese authorities to help to regulate their companies that list in Singapore[Link]. Why would the Chinese authorities do that when it is the MAS/SGX that responsible for the listing regulation to bring these companies to Singapore?! The Chinese are smart enough to have tighter regulation and enforcement over their own companies.....it is Singapore that allowed these Chinese companies which incorporate in Bermuda, Caymens Island etc out of the reach of the authorities to list in Singapore. Now that things have gone wrong, SM Goh is saying the Chinese authorities should help us?...That is so ridiculous. I wonder at which point MAS will begin to blame its regulatory failure on investors themselves a.k.a "they go in with their eyes open", buyer beware etc.

How much to regulate is not too hard a question to answer. Successful and good regulation should result in overall long term gain for Singaporeans commensurate with the investment risk. Regulation has to take at least care of 2 things - that the accounts of the companies at IPO can be trusted with high level of certainty and that the company is setup in a way that wrongdoers can be presecuted when the need arises as a deterrent. In this sorry saga money was made by a few local business entities but these crooked Chinese firms made off with plenty of money from Singaporean investors who had no realistic chance of long term returns. The current regulation can't be right unless the goal of MAS/SGX is to help IPO managers and brokerages make money without any regard for the investing public - the ordinary Singaporeans who trust our govt to do the right thing.

15 comments:

Anonymous said...

UOB Kay Hian's David Loh and Han Seng Juan have also gone into property development - Centurion Kovan Pte Ltd. The developer behind Kovan Residences that was launched last year. They went in at the peak and is now forced to slash prices hehe.

Anonymous said...

无作东,无作西,收民钱,chiak liao bee
经济垮,无主意,等美国,不然毙。
你自称,世界级,最终还,搞个屁!”


世界级的领导人:
干泥酿成的粪桶
烂扒的一群狗仔
拦脚步向民主制
照纪排队走下坡
你还要选他们吗?
还不快拉他下台!

维生

Anonymous said...

The higher the knowledge component of a profession the more easily they can exploit, make big money from customers. Hence some hospitals, big lawyers firms, brand software companies and in this case financial consultants involved in launching IPOs can become very rich.

Add to that if there is close partnership, vertical integration or what some might even say collusion of their profession with the supply chain - suppliers in partcular - and to boot even some type of monopoly or oligopoly, they indeed can be called wealthy kings and untouchable at that even by regulators because hitherto free-market capitalism has no checks and balances on their income.

Just to give an indication of how much such kings can earn, it was reported a few years back that the CEO of Oracle (software company) received near to US$1 billion in bonus for a year.

Customers or end-users cannot be expected to know all the ins and outs of what are involved - be it medical treatment, legal procedures, balance sheets and profit and loss of listed companies.

Hence customers usually have little choice but to take these professionals on trust even though they might be investing their life savings as in the case of Lehman's mini bonds.

This is how capitalism has evolved. But given the current financial crisis, now the G20 sees a need to regulate, to check the excess pay of bankers. LINK

G20 and UN in fact ought to regulate also all excesses of top executive pay in all professions including that of politicians, top bureaucrats, top executives of GLCs such as those in Singapore.

The CEO of CapitaLand earning $20M in bonus for the year is a case in point. A president doing next to nothing but earning close of $300K a month aside from bonus is another case in point.

Anonymous said...

All those traitors here are like Lucky Tan; they like to post bad things about Singapore! (no, that huge bulge in my cheek is my tongue)

In contrast, PAP Internet Brigade know how to encourage us to think positively about Singapore. Thank you so much! PAP IB and MM wan sui, wan sui, wan wan sui!

We have the greatest media in the world. Our leaders are incredible! At the rate Singapore is going, very soon the world will kiss our feet!

The UN, the IMF, the World Bank and all institutions and MNCs will relocate to our great nation. We will import half the populations of other Asian countries as Foreign Talents, so our population will increase to 2000 million by 2050. We will be richer than anyone else because we have sucked away all their talents.

DBS and MAS will manage more money than all other banks on this planet put together.

NUS will be ranked 1st, NTU 2nd, SMU 3rd universities in the world. People everywhere will give up University places in Harvard and Cambridge for the honour of studying A Levels at RJC.

Nearly everyone except the elite will live in a 5000 storey HDB that uses 'bullet train' lifts. By that time, our great media will promote Sleeping While Standing Up and Shitting While Standing Up because each HDB 5 room flat will be about 100 square feet.

We will be the capital of the world, a super-duperpower under the wise Senior Minister Mentorship of 100 year old Lee Hsien Loong, the wise Minister Mentorship of 70 year old Lee Hongyi, the wise Prime Minister-ship of Lee Hongyi's son. Although this son is not yet born, as he is a Lee I predict he will be smarter than Einstein, win all scholarships and accolades that can be won on this planet, and will become Chief of Army, 5 star general, at age of 30.

The SAF will defeat and conquer the United States which will be one big PAP GRC with 50 PAP MPs. Each PAP MP will be paid $10 billion a year to match his skills.

We will appoint a mayor to run Indonesia. PRC is very kwai kwai, no opposition candidate, single member constituency can already. India will be ruled directly from Prime Minister's office as it has the 'wrong ethnic mix leading to bad government'.

Our Future is Bright, Singaporeans! Thank you, yours sincerely, Reporter Chua Lee Gongkia of SPH!

Anonymous said...

it is a well known fact that the singapore bourse is a joke and frankly speaking i am amazed it has not yet inploded ....

Anonymous said...

@Anon 12:34
Ah Ah Ah brilliant.

Anonymous said...

Anonymous said...
12:34 PM

I hope you are just poking fun at the establishment. I believe IMH still has a vacancy for you! heehee

Anonymous said...

This is another example of economic "growth" at all costs! Just like the Minibond thing. Of course there is growth but there are also consequences! The ordinary folks who bought them bear it most, if not all!

What to do, it has happened. Anyway the million dollar salaries and bonuses are still assured. So will be 50% walkovers, 66% mandate and 98% seats. Maybe much better next round!.

Anonymous said...

"I believe IMH still has a vacancy for you! heehee"

hahaha, what to do that guy got too stressed out by PAP, he is definitely at the point of mental breakdown.

Anonymous said...

To Anon at 12:34pm

Our million dollar MiniStars all say a big YES to your article because they will soon become billion dollars MajorStars ! HA HA !! But of course in public they will be coy and say they are not in civil service for the $$$ but to serve the people !!

Anonymous said...

LEEporter Chua Lee Gongkia has written to me:

Thank you for your feedback.

Your suggestions have been forwarded to the relevant authorities.

Our world class ministers will shortly consider your proposals. We are particularly interested developing a strategy to draw all talents on this planet to Singapore.

If we increase GST to 100%, we will probably be able to offer more scholarships to foreign talents. We will also increase university school fees by 500%. As fees for Singaporeans are already heavily subsidized, we are confident the public will support our move towards making NUS the top ranked university on the planet.

We are sure that the voting public will support our proposals at the next election.

Anonymous said...

Lucky, I don't believe they will do anything to help the public. Making money is uppermost in their mind and it is a situation of head I win tail you lose.

Remember CLOB which replicate the KLSE in Singapore, which the govt guaranteed, and when it was shut down they washed their hands and let the public bear the losses.

What about the minibonds and high notes, one clever old man chastised the public for being stupid to walk into the trap with their eyes open.

Things will never changed in Singapore when the losses come in and as long as it's not theirs they wouldn't be bother and when they made mistakes they only make honest mistakes.

The maxim in their book is head I win tail you lose.

Anonymous said...

If you think about it, PAP is not worried that S'poreans who cannot make it here emigrate abroad because then there will be less anti-PAP votes. So I don't think PAP will ever relent on its greedy money-making and power-consolidation policies to make life more difficult for the people.

But there are some things which PAP cannot get rid of.

One is that there will always be the lower and lower-middle income people.

Although PAP refuses to build new smaller flats in sufficient number to accomodate these groups of people, I heard that now it is planning to convert a few vacated blocks of old HDB flats in Toa Payoh opposite SAFRA club into such smaller flats to accomodate the demand.

(That does not seem like the original intention when PAP resettled the residents from those flats; PAP was probably trying to sell that land to private developers to build condos.)

Another unavoidable matter is the burden of old people and their need for healthcare.

For this reason Minister Khaw has now approved the use of CPF at some Johor's hospitals and nursing homes. He had suggested our people take advantage of such cheaper accomodation and healthcare.

In a recent interview which you may view at wayangparty.com he defended this policy as not one of chasing our people away.

The point is that a country should look after its own citizens in terms of affordability of livelihood.

Mr Khaw stressed in that interview his Buddhist beliefs forbids him to enact a policy to make people unfilial to their aged parents.

I appreciate that. However regarding the subject of human organ trading he had already flipped flopped 180 degree. While previously he was firm that there should be no organ trading, now the talk from him is to approve what he call compensation for donors of organs.

Is'nt that the same thing put in a different way?

I happen to still think highly of Mr Khaw but given that someone higher in there has the final say in all things, personal beliefs of his subordinates will take second place even at the expense of embarrassing the later publicly for flip-flopping 180 degrees.

This is the reality ; good people are just as good (or as bad) as a pathological boss allows them to be.

Anonymous said...

> Mr Khaw stressed in that interview his Buddhist beliefs forbids him to enact a policy to make people unfilial to their aged parents.

Khaw is a fake Buddhist.
Simple as that.

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