Tuesday, 3 September 2013

And Glaucus responds .....

Glaucus Research responded within one day on the documents submitted by China Minzhong.

I invite the reader to go through the whole document, the executive summary only takes one page, the more detailed information another 15 pages.

I find it a good, proper and fast response.

From the front page of The Business Times (Singapore) of today, some snippets with comments of mine in [red]:

"It [Minzhong] will also conduct more rigorous checks on the documentation of its customers and suppliers in China.

[sounds like an admission that the documentation of customers and suppliers was indeed not in order]

Mr. Lin: "China is still a developing country. Many things are still not regulated...."

[sounds like an admission that certain items might indeed not have been properly regulated]

"Among various things, Glaucus raised suspicions that China Minzhong's past sales and purchases might have been fabricated.

This was because a key customer which China Minzhong said had contributed to its sales from fiscal year 2007 onwards was found to have been incorporated only in November 2009.

Another key supplier had been deregistered and stripped of its business license in February 2010, but China Minzhong continued to trade with it until October 2010 until the company failed to meet supply quality.

Both China Minzhong CFO Ryan Siek Wei Ting and Mr. Lin yesterday shrugged off the accusations, noting that doing business in China is not a black-and-white matter as the regulatory environment is weak."

[it would have helped if they had been more specific]

"Said Mr. Siek: "When you do business, obviously the formal entity is important. But I think what is more important [seems to indicate that the formal entity might not have been in order] is that the sales are genuine, you really deliver the products, get the receipts, and collect the cash".

[one problem is that the receipts are not available in public, and most likely run in the thousands and thousands of papers, Minzhong only showed a hand full of them]

Lin said: "Business in China is complicated. But facts are facts. You can't run away from the customs, you don't have to use other documentation to catch me out."

[one problem is that the customs documentation is not available in public, and most likely runs in the thousands and thousands of papers, Minzhong only showed a hand full of them]

I find the general impression of all of the above rather weak. It seems to indicate that certain things were indeed not in order, but by showing a few, selected documents (documents that we can't verify) everybody has to believe them.

At the very least, minority shareholders of Minzhong should have been clearly warned about all these matters, which issues are not in black-and-white, which entities might not have been properly registered, etc.

And also, China Minzhong has deliberately chosen not to list in China, but in highly regulated Singapore. It has to take the consequences of that decision.

I think this is the moment that the authorities and the independent directors have to show leadership, and order a independent investigation into the matters raised by Glaucus.

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