Thursday, 26 January 2012

China listed stocks on Bursa: different opinions

Popular blogger "Salvatore Dali" wrote about China listed companies on Bursa Malaysia in a surprisingly positive way:

"I think Bursa/SC have traveled the extra mile in ensuring these China firms are genuine, most if not all have been "site-visited" by them."

"I cannot say this with greater effect. If the hypotheses are true, which means at least most or all of the companies on Bursa are not fraudulent, and to get XDL going through this phase of value creation, which I think will be wildly successful. This could be the catalyst that is needed for the rest of the China companies listed on Bursa to do likewise. As things stand, none of the China firms on Bursa are "fraudulent yet", maybe none are. If enough of them go through the value creation steps led by XDL, it could very well lift Bursa as the "best exchange to list China firms". If this is all true and good, then Bursa and SC must continue to make doubly sure that future China listing go through even more stringent listing checks and balances. So far so good, even with depressed share prices, at least we do not have a total bust up (yet)." 

I have read a lot about fraudulent China companies, and am much less optimistic. I think the chance that at least one Bursa listed Chinese company will go bust this year should be quite substantial. However, some frauds take a long time to unravel. For instance it took more than 10 years for serious problems to surface in two high-profile cases Chaoda and Sino Forest:

On the other side, Salvador might be right, the articles that I have read are from companies that were not listed on Bursa Malaysia so it is theoretically possible that those listed in Malaysia are of higher quality. For instance, in the US many Chinese companies followed the "reverse takeover" (RTO) way to list, where filtering is much less stringent than those that go through a proper Initial Public Offering (IPO), like in Malaysia.

Yet, I am suspicious, to me it doesn't make sense for a good quality company in China to look for a listing in Malaysia. To me, it sounds more like a case for a company that tried to list on other exchanges, but was rejected.

Time will tell.

In Singapore the SGX has a serious problem with China Sky, the company was ordered to perform a special audit, and it simply refuses to do so. The SGX sued the company, but at the last moment withdrew the suit, without giving a reason. All independent directors have since resigned. It would be interesting to see how Bursa Malaysia would handle such case.

An article about China companies listed in the US:

"While many blame China’s business governance for the slew of frauds, breaking down the IPO supply-demand basics reveals nothing exotic about this latest bubble-bust catastrophe. On one side were impressionable and uninformed American investors in search of shortcuts and ignoring fundamentals. On the other, unscrupulous investment bankers spinning public offerings out of anything, coupled with private-equity funds pushing for “timely” exits. These agents of seduction were “born in the U.S.A.” "

An interesting website from Roddy Boyd who writes about China frauds in a very detailed way:


  1. I disagree with Dali's opinion. Corporate exercise will not move the share price. The only reason for share price to soar is the performance of the underlying business. Just a simple question by Moola do we want a lousy, stingy and dishonest business partner like XDL or Xingquan. In fact this corporate exercise is hurting the minorities because they have to fork out more cash and their shares will be diluted after the private placement. Dali's opinion is too speculative

  2. Thanks, I should indeed also have written that I am also very much against the private placement. If a company really needs money then a rights issue should be done, enabling all shareholders to subscribe, not only a selected few (who are never revealed), and at a discount: