Sunday, December 06, 2009

Sino-Environment : Mystery bankers, dodgy deals, missing millions

We have about 170 Chinese companies listed on the SGX. These are know as S-share or S-chips (those in Hong Kong are known as H-shares). The SGX initiated efforts to court Chinese-based companies to raise equity funds in Singapore in 90s. This was aimed at developing the capital market in view of the limited number of companies in Singapore, given the size of our economy.The exchange has inked MoUs with the provincial governments of Zhejiang, Shandong and Liaoning, as well as the Wuxi municipal government to facilitate the listing in Singapore of companies from those areas. The number of S-shares hit by accounting problems is very long including Oriental Century Ltd, China Sun Bio-Chem Technology Group Company and Fibrechem Technologies Ltd. FerroChina Ltd has halted production in China and filed for bankruptcy. The latest scandal involves Sino-Environment and the extent of its problems became clear only when auditors from PwC went to China to do a special audit on the company - before that, the company ran into problems when it was found the the company CEO had pledged his stock to borrow from the bank and defaulted on the loan.

'SIAS calls on the authorities in China to immediately demonstrate its willingness to conduct a thorough investigation into this company's affairs in China and bring any wrongdoing under the weight of the law, if the confidence of Singapore investors in Chinese companies is to be restored' -Mr Gerald of SIAS.
.
The Chinese authorities have thousands of corruption cases in their own country to investigate so it is not clear when they can 'help' Singapore. Afterall it was SGX that wooed all these companies to list in Singapore. We can't do anything about these wrongdoers after they run back to China. It will be too late anyway for investors because in most cases, the money is already gone. Singapore has no authority to presecute these wrongdoers so you can guess what type of companies will want to seek a listing here.
.
SGX will always seek to expand the number of companies listed on the exchange as it is a profit oriented company that has to answer to its shareholders. These moves serve to develop our capital market. As Singapore aims to develop its capital market to benefit the banks, brokers and stock exchange, it should not do so at the expense of the ordinary Singaporeans who are investors. These companies because they can cook the books are frequently used by syndicates[Read Confession of an S-Chip CEO] to make money. It is foolish (for Singapore as a whole) to boost the profits of our brokerages by $100M but end up with losses of $200M for Singapore investors. SIAS instead of asking Chinese authorities to help with the mess, should be pushing our regulators to tighten up listing rules in Singapore. While there is no way to absolutely avoid fraud, more can be done to reduce the number. We should at least have Singapore appointed auditors look at the books of these companies before their carry out their IPO here...otherwise it as easy as coming to Singapore to scoop tens of millions back home to China.

After all the problems faced by investors for these S-shares, SGX now want to court Russian companies to list here:[Link: Singapore Stock Exchange Listing To Lure Russian Companies]. I'm sure they will be more than happy to come here during our next bull market.

---------------------


Mystery bankers, dodgy deals, missing millions


(Business Times)


Sino-Environment supposedly paid millions for materials that were never delivered: PwC


By LYNETTE KHOO



(Singapore) THE auditors travelled to China to probe cash transactions made by Sino-Environment. It turned out to be a rocky journey as the company staff and its supposed 'bankers' appeared to have laid roadblocks at every step.
.
The company's chairman and CEO refused to provide authorisation letters for PricewaterhouseCoopers (PwC) to obtain statements directly and independently from the banks. PwC officers were forced off the premises of one bank by a 'branch manager' (as he introduced himself) and had the roller shutters pulled down in their faces. Elsewhere, a specific bank officer was similarly pre-arranged to meet the auditors and they could not verify the statements they were shown. Even so, the special audit by PwC found that some $85 million worth of transactions were made by Sino-Environment without board approval and authorisation.But no raw materials or equipment were delivered despite the purchase agreements nor was there any significant work done at the projects that the group purportedly invested in.


.
SIAS president David Gerald said that the association will approach the Chinese embassy in Singapore to relay its concerns.
The damning report was released yesterday by the independent directors. PwC, the group's statutory auditor, was engaged in May to review significant cash transactions from January to June. In March, the company was in possible default on repayment of a $149 million convertible bond issue and its shares have not traded since September.PwC based its findings on interviews and review of documents available up to Sept 15.Its report noted that Sino-Environment unit, China Energy Environment, made a payment of about 920 million yen ($14 million) on May 22 allegedly to a Japanese company on behalf of another unit Fujian Thumb Environmental Facilities Co (Thumb Facilities) to buy Denox raw materials.But as at Aug 26, no raw materials had been delivered.


PwC was later informed by the Japanese firm that it did not enter into the purchase agreement, had not received any payment, and did not have an employee bearing the name of the representative who signed the contract.The management took PwC to Xiamen International Bank rep office in Quanzhou, where there were only the bank officer, receptionist, and a 'branch manager'. The bank officer came with prepared bank statements and refused to take questions. Here was where PwC was forced off the premises by the 'branch manager'.PwC also found that another Chinese subsidiary, Fujian Fuda Desai Environment Protection Co, paid a total of 230 million yuan ($50 million) to various parties from Jan 1 to June 30 to invest in four separate waste power plants projects. However, there were no documents showing that the rights to the rubbish dumpsites had been transferred and no significant work has been carried out on any of the projects. Later, when the auditors tried to verify the bank documents (on these investment payments) given to them by the management through visiting Bank of Communications, Fuzhou branch, the specific bank officer who met them was a relationship manager for personal banking (according to his name card) - not for corporate banking.The bank officer only provided the auditors with the documents the following day and refused to let them approach other bank staff to confirm the authenticity of the documents. PwC noted that there were also instalment payments of 46.50 million yuan made by unit Thumb Facilities to buy equipment for a plant.


.The auditors said that they are unable to comment on the 'reasonableness of the costs' of these assets as they could not inspect them up-close during their site visits nor review any competitive tenders.The audit findings also showed that another group subsidiary Fujian Weidong EPT Co made two interest-free loans totalling 55 million yuan to two parties not related to the group. Independent directors (IDs) of the group - Goh Chee Wee and Wong Chiang Yin - yesterday expressed extreme concern about the PwC findings and reiterated their call for the executive directors (EDs) to step down.'The findings in the PwC report call into question the conduct of the executive directors, and in particular, the conduct of Mr Sun Jiangrong, the chairman and CEO of the company,' the IDs said.Mr Sun's personal financial woes snowballed into lawsuits between him and his creditor, his loss of a 56 per cent stake in the group and led to the group's possible default on the convertible bonds. He claimed to have $40 million in the company's coffers during his phone conversation with David Gerald, president of Singapore Investors Association of Singapore (SIAS) on Monday. But the EDs clarified that this was an estimated aggregate sum which included trade and other receivables.The IDs said that they were 'surprised and troubled' by this change of position and urged the EDs to inform shareholders of the exact amount of cash reserves and remit them to the group's Singapore bank account immediately.The EDs had asserted that they would remit the $14 million from the account in a Xiamen bank to Singapore if the IDs agree to certain conditions. The IDs said that 'to avoid further debate on this issue', they agreed to the conditions and 'fully expect the EDs to remit the $14 million from XIB to the company's Singapore account without delay'.Mr Gerald said that SIAS will approach the Chinese embassy in Singapore to relay its concerns.'SIAS calls on the authorities in China to immediately demonstrate its willingness to conduct a thorough investigation into this company's affairs in China and bring any wrongdoing under the weight of the law, if the confidence of Singapore investors in Chinese companies is to be restored,' Mr Gerald said.He also urged the IDs, together with shareholders, to take action to appoint a new board to ensure that the company's remaining assets are fully protected.

25 comments:

Anonymous said...

That is why one should invest in monopolistic GLCs - SGX in this case.

Anonymous said...

Something is better than nothing, whether it is foreign talents or foreign companies seeking listing. They can afford to try and do various kinds of things, never mind losses, whether to govt or people. But if win, it will be very good for the economy and minister pay.

Anyway why worry if political power (98% seats for PAP) will always be assured?

Anonymous said...

if you die it is your business...you went in with your eyes open...the risks were all outlined in the prospectus...this is the garment's standard mantra when any policy trips...

Anonymous said...

Why point the finger at the China company only?

There are other parties who benefited from the IPO. The people from Singapore who brokered the deal. No monkey business from them?

Anonymous said...

SGX is only one of the many stock exchanges that has listed Chinese companies. Although many stock exchanges have their share of companies with problems, SGX has an exceptional number of them from China. Good chinese companies generally would not list in Singapore. There is no need to. The good ones will be better off in HK, US, or even the shanghai stock exchange. How many similar cases have we heard so far from those markets? Another question to ask is that of those that are listed on SGX, how many of these companies are backed by VC/PE, reputable investment firms? Why would a chinese company which can command a better valuation and liquidity in HK, US, or Chinese stock market choose to list in country like SGX? There is no good reason to list in Singapore. Singapore has many appeal to attract companies here, but the stock market is definitely one of them.

Anonymous said...

but the stock market is definitely NOT one of them.

sorry. typo.

LuckySingaporean said...

anon 12:38,

There were probably Singapore syndicates helping to bring these companies to IPO similar to cases prosecuted by the SEC for bringing dodgy dot.com to the market. I've always maintain that Singapore needs a SEC. But our regulators in the name of deregulation and under the putting off responsibity using "buyer beware" philosophy cannot be expect to do anything. We see some of this behavior in the structured products (minibond)...basically if nobody makes any noise, its "you die, your business".

Anonymous said...

The good ones will be better off in HK, US, or even the shanghai stock exchange.

This is like the "foreign talents" becoming citizens here. The truly first class talents will also not become citizens here and we wonder about the quality of people becoming citizens here.

Anonymous said...

i've never invested in china stocks, thank goodness! I am determined to keep it that way after reading this. Thanks, Lucky!

the singular pursuit to increase gdp/profit has permeated to all areas - sgx is one good example. Time for me to look into some real markets eg. dow jones/nasdaq

Anonymous said...

The PAP govt under right winger LHL clique has been following Greenspan's mantra of less regulation, the market will sort itself out, mollycoddle the capital owners, and similar BS. One old man who is absolutely clueless and only knows to blindly cover for his useless son will rub salt in your wound and chimed "your eyes are open".

Anonymous said...

Lucky, just 0.5% (example) of commission for getting a co to IPO is A LOT.

I can imagine some going to extreme, even unethical, lengths to earn that money.

THe country provides a long list of reasons before reluctantly giving the poor ~$300, yet turns a blind eye to possible white collar crime amounting to millions.

Reminds me of Stomp. So many comments of inconsiderate people refusing to give seats to elderly, yet no mention of crime or fraud at Stompers' own workplace.

Misplaced priorities? Or is it simply the case of the watchdog, if it exists, actually benefiting from the IPOs as well?

Anonymous said...

That S chips are con jobs shouldn't be news?!!
Who are the directors in sino-env?
Any PAP MPs?

Btw, whats ur view on maccook Ind reits.
I was expecting somewhat higher standards from the aussies. SIAS did not seem to blink at the daylight robbery.

Norman said...

I made the decision not to touch China-linked stocks, after one counter I owned decided to hold its AGM in Hong Kong instead of Singapore. Glad that I have kept it that way ever since.

Anonymous said...

Lucky Tan,

This is a good posting from you, to educate unwary investors and the state of affairs of the stock market.

Keep it up.

Anonymous said...

I have several of these "S chips" the longer I hold them the less I like them, they look cheap and then you realize you have been sold a story AWT for example, The sgx seems to be in the pockets of the banks who like to sell warrants and other rubbish not run in the interests of investors ,for example if you want to do a simple short of say the second largest stock on the exchange wilmar for some reason its not possible ! also nobody as in the uk or us will offer fixed price cash brokerage , its all percentage when the cost of executing a big trade is the same as a small one ...

DanielXX said...

Phantom transactions... that is how these Chinese companies' owners make money by systematically embezzling money "legally" out of the listed company. One way to lessen the risk is to oonly go for the well-known brands and good dividend payers.

The Sino Environment head has a brother whose company is listed in HK. Avoid China Green. The whole group of Chinese bastards are corrupt.

Anonymous said...

sounds like Raffles Town club saga.

Still do not understand how a modern day Singapore allow the shareholders (current and past) to draw up millions (30 mil??)of dividends for themselves, and not a sound from the PAP govt or AG can do anythings about it for the members.

Daylight robbery!

Anonymous said...

Singapore is always getting the bad deals. Stupid government and stupid people. For the sake of what? Growth?

Anonymous said...

Hi

Maybe you can help to put up a post to all Sino Environment shareholders to email sinoeminority@gmail.com and call for an EGM.

CNA article here: http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1021603/1/.html

Thanks.

Alan Wong said...

We got conned by the Chinese. Even Temasek & GIC got conned by the Americans.

Greed is the only reason why we all got conned.

Xtrocious said...

The blame game will never stop :(

How did these (often dodgy) Chinese companies get to be listed here?

Someone must have courted them and taught them how to jump through all the hoops correctly...

Hmm...if we could sort these scandal-hit companies via lead managers, we may be on to a trend here...

Anonymous said...

Xtrocious 7/12/09 15:45

"Someone must have courted them and taught them how to jump through all the hoops correctly..."

Haha. What a wonderful statement!

Have you heard of CONsultants and their consultancy companies?

Where there are weaknesses in regulations and enforcement, they will set up business, whatever the area or expertise needed.

This is what some also call the by product of a free market.

And Singapore is definitely very free and friendly for business and for everyone, local and foreign.

But not for politics!.

Viola said...

Such a nice blog for those who are concerned about security both residentially and commercially. Roller Security Shutters are by far the most popular type of doors. Roller Shutter doors can be installed on both industrial and commercial buildings. As I have got from Roller Security Shutters.

Web Design Company said...

Nice information, many thanks to the author. It is incomprehensible to me now, but in general, the usefulness and significance is overwhelming. Thanks again and good luck! Web Design Company

exposicion muebles madrid said...

Little doubt, the dude is completely just.