Tuesday 19 August 2014

Eratat: another S-chip bites the dust (5)

On the same subject, an article in the Business Times (Singapore), some snippets (with some comments by me in red):

The Fujian office of China's bank regulator China Banking Regulatory Commission (CBRC) has found that an Agricultural Bank of China (ABC) bank document purportedly showing a cash balance of 577 million yuan (S$117 million) in an Eratat subsidiary bank account was forged by the subsidiary.

Even more egregiously, representatives of the subsidiary might have impersonated as ABC bank staff to reassure visiting independent auditors and company directors that everything was okay.

They apparently used the bank's Jinjiang Chendai Branch premises earlier this year, verifying the forged bank statement as true. They even informed the visitors that the Eratat subsidiary concerned was a good customer and did not have any loans with the bank.

The news is likely to hit retail investors, who own about three quarters of the company. Eratat had a market valuation of almost S$50 million before trading was suspended in January.

It would be rather naïve if retail investors still expected to get some return on their money, after all the previous information, for instance here. They should have counted on a total loss, anything else would be a bonus.

But Eratat executive director Ye Sanzhi sold off his entire 6.77 per cent stake for S$4.44 million last August.

That is indeed a red flag, and unfortunately not uncommon.

Last November, Eratat was awarded runner-up in the "Most Transparent Company Award 2013, Mainboard Small Caps Category", by the Securities Investors Association of Singapore. The same month, with the company trading at about nine cents a share, Voyage Research had an "increase exposure" call on the company with a target price of 28 cents a share.

Awards etc. do not mean much. There is a whole list of companies being featured on the front page of magazines like Fortune or Forbes which have gone down the drain. Often the moment they were featured was their highest point, after that things only went downhill. Companies with good governance can turn for the worst.

Much more useful is a list of companies with bad governance, they seldom improve.

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