Monday, 18 August 2014

Eratat: another S-chip bites the dust (4)

Announcement by Eratat on the SGX-website:

- HMW is the company’s principal operating subsidiary Fujian Haimingwei Shoes Co., Ltd.
- ABC is the Agricultural Bank of China where Eratat maintained a bank account.
- CRBC is the China Regulatory Banking Commission.

The above announcement seems to indicate a very serious case of fraud, not really unexpected given what happened before, please see the previous blog postings about Eratat.

The above case is also relevant for Chinese companies listed on Bursa Malaysia. There are several China based companies where the amount of cash is unusually high, sometimes as high as RM 1 Billion. The investing public (nor I for that matter) doesn't seem to trust those accounts, and the companies are trading at very low valuations, given their cash holding and profitability per share.

What the Malaysian authorities could do is insist that a high authority at the main office of the banks holding the cash confirm the size of the cash plus indicate that the there are no unreported liabilities. I don't think that is a particularly cumbersome or expensive thing to do.

Either the cash balances (and lack of liabilities) are confirmed as being genuine (in which case the companies might be undervalued), or the opposite (in which case the fraud is exposed, authorities can take action and future damage is prevented, like in Eratat's case).

The transparency provided (either positive or negative) would give a very much needed boost of clarity for all China based companies on Bursa.

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