I made a routine call my stock broker on Monday just to catch up on various events on the market. She told me she was busy in the morning handling distraught clients who lost money due to 2 S-chips getting suspended over the weekend for accounting irregularities. There is nothing unusual about S-chips going bankrupt overnight or their CEOs running off and cannot be found and so on. What rocked the market was it happened to 2 companies at the same time . For those of you not familiar with the stock market, S-chips are mainland Chinese companies listed in Singapore. I wrote about them a few times (S-Chips : From Red Hot Chips to Rotten Chips.... , Confession of an S-chip CEO. ). The 2 companies that were suspended were China Hongxing and Hongwei.
The authorities have not done much about the situation. 2 years ago when these companies started failing one by one, SM Goh made this remark:
"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]
A few years back, many companies in China wanted to get listed in China. The Chinese authorities wanted to prioritise these listings by letting the bigger state oowned companies get listed first on the Shanghai and Hong Kong stock exchange i.e. the top quality companies got listed in Shanghai and Hong Kong. Smaller companies had to wait their turn. Singapore wanting a piece of the IPO action decided to entice these smaller companies to list in Singapore. The listing regulation was loosened up as what SM Goh said, if the regulations were tight, these companies wouldn't come here. So if you're the head of a Chinese company with dubious accounts where would you go? Singapore, Shanghai or Hong Kong? ..The answer is obvious but it is more obvious when you consider the fact that Singapore has no means to prosecute the wrong doers without the help of China. In a few cases, the CEOs have simply disappeared. I recall only one case of prosecution - that of Chen Jiulin for the accounting iregularities in China Aviation Oil(CAO). That case was a rare exception because a state owned enterprise was involved and the Chinese leaders probably didn't want to appear to be haboring fraudsters.
SM Goh spoke of a "small percentage" of companies defrauding investors. The number has since grown and we are no longer talking about a small %. From Wikipedia[S-chip Scandals]:
Fibrechem Technologies Limited (SGX: F12) (Bermuda)
FerroChina Ltd. (SGX: F33) (Bermuda)
China Printing & Dyeing Holding Limited (SGX: M67) (Singapore)
Zhongguo Jilong Limited (SGX: Z03)
Zhonghui Holdings Ltd. (SGX: Z04) (Singapore)
Sino-Environment Technology Group Ltd. (SGX: Y62) (Singapore)
China Hongxing Sports Limited (SGX: BR9) (Bermuda)
Oriental Century (SGX: 5II) (Singapore)
China EnerSave (SGX: 531) (Singapore)
China Sun Bio-Chem (SGX: C86) (Cayman Islands)
China Aviation Oil (SGX: C47) (Singapore)
China Fibretech Ltd. (SGX: F6D) (Bermuda)
Sino Techfibre (SGX: AD8) (Bermuda)
The number of Singaporeans hurt by S-chip fraud is not small. In a statement yesterday, SIAS reported that there were 14,000 shareholders[link], I believe mostly Singaporeans, with stakes in China Hongxing and Hongwei.
"Valuations have eased to a more attractive
level, following the recent market sell-down and with net
cash of some 20 Scts per share backing the stock, we
upgrade China Hongxing to a BUY, with a target price of
S$1, based on 20x FY09 earnings" - Analyst Report on China Hongxing[Link]
Right now I know some of you may be thinking that the losses of these investors are part and parcel of stock investing so they only have themselves to blame. I suggest you think a little more about this. Didn't our regulators open the doors to allow this to happen? Our SGX is itself a profit-oriented company, various IPO managers and brokerage stand to gain in the form or fees and commissions benefited from this and ordinary Singaporean investors are the ones who lost their hard earned money in these companies. Is its right for govt to have a system so lax that foreign companies can defraud ordinary investors and do nothing about it as long as a select group of businesses benefit from the scheme of things?
Tens of thousands of Singaporeans have been hurt by these scandals. Yet the authorities have not done anything to prevent these scandals from happening again....no board of inquiry,, no investigation, no lessons learnt, no shouldering of responsibility for this mess. Some of you have a resigned acceptance of this "you die, your business" govt.....I don't and I'm angry they are doing nothing about this and so many Singaporeans have been and will be hurt by all this.