Chinese companies

By Ben Simpfendorfer of Silk Road Associates

The rise in China’s outbound investment is a divisive subject. On the one hand, some worry that Chinese multinationals will emerge as powerful competitors by leveraging their economies of scale and cheap funding. On the other hand, many firms are excited about the opportunities to collaborate with Chinese partners in their home markets.

For the most part, however, the hype is still greater than reality, and subsequent waves of investment will be very different to the one the world is currently witnessing. Read more

A web games company is about to test the appetite for Chinese floats in the US in one of the first such deals since the accounting scandals that rocked many Chinese companies in 2011.

7Road.com is the games subsidiary of Changyou.com, a Chinese online game developer that in turn is majority-owned by Nasdaq-listed Sohu.comRead more

What price a reputation? Earning a good one takes time. Losing it can take a moment. So some of the biggest companies based in Brazil, Russia, India and China may not be pleased to read a report issued this week by RepRisk, a consultancy that calls itself “the leading provider of business intelligence on environmental, social and governance (ESG) risks”. Read more

Small Chinese companies as well as big state enterprises are casting their eyes on neighbouring Myanmar as it opens its economy to foreign investment. Among them is China Polymetallic Mining (CPM), a Hong-Kong-listed mining group, based in the minerals-rich province of Yunnan which lies along China’s border with Myanmar.

Company officials claim CPM is well placed to profit from developing Myanmar’s mining riches. But, with far bigger Chinese and international resource companies looking at Myanmar, CPM will have to be quick if it is to get ahead of the game. Read more

By Valentina Romei and Rob Minto

Another month of disappointing China trade data: on Monday, overall Chinese exports increased just 2.7 per cent in August from a year earlier, and imports dropped 2.6 per cent. Export growth was higher than July’s worrying 1 per cent, but it’s still far from the double-digit growth that was once the norm.

So which companies are providing China’s exports, and where will growth come from in future? Chart of the week takes a look. Read more

China’s downturn is spreading to the sectors and companies that were expected to withstand the slowdown and drive growth in the region.

Cash is king in all aspects of business – and everyone knows that companies can only report good accounting results for so long if their underlying cash flows aren’t backing up this picture. This is especially the case if companies have been driving sales with vendor financing.

One-third of companies in an analysis by the FT slipped into negative cash flow in their most recent quarter – and of those about 30 per cent had not shown similar patterns last year, meaning it was unlikely that seasonal factors were at play. Read more

By Alexandra Stevenson

When considering the risks of investing in Chinese companies, Sino-Forest typically comes to mind. Investors got burned for not probing its opaque accounting. But there is also a fully-disclosed accounting detail that investors in Chinese companies would do well to get acquainted with.

It’s called variable interest entity (VIE). Read more

As investors have turned cautious and demand for technology IPOs has shrunk, these are great times for short sellers. Over the past year, firms like Muddy Waters and Citron Research have attacked one Chinese firm after the other with accusations of accounting fraud or other misrepresentations of fact, in the process bringing down some companies such as Longtop Financial.

But the attackers have their weaknesses as well. This week, Andrew Left, the short seller behind Citron Research, went for Qihoo 360, the Chinese internet security software maker. In a note published on Tuesday, he called Qihoo “the most overvalued and misunderstood Chinese Internet Stock” and set a target price of US$5 – 75 per cent below its current trading range. Read more

Short-sellers beware: shares in Toronto-listed Silvercorp Metals, the Chinese silver miner accused of fraud, are up more than 16 per cent in the past two days after it said earlier this week that KPMG Forensic published a report backing its financials. Read more

Claims from Anonymous, the amorphous cyber-collective, of fraud at Chaoda Modern Agriculture, a scandal-hit Chinese vegetable producer, on Wednesday revived the argument about transparency in emerging markets companies.

The activists’ report, which prompted the Hong Kong authorities to start an investigation into Chaoda and suspend its shares, comes hot on the heels  of regulatory probes into Hong Kong-listed China Forestry and Toronto-quoted Sino-Forest.  It’s enough to prompt a close look at EM earnings quality.  And right on cue comes Morgan Stanley. Read more

From Jim Chanos, best known for his strident bearish call on China to Muddy Water of Sino-Forest short-selling fame, shorting China has become something of an industry sport within the fund investment community over the past year.

But are those shorting Chinese stocks about to get their fingers burnt?

Société Générale certainly thinks so. According to analysts at the French bank, China is now “The World’s Most Crowded Short” and Chinese stocks are on the verge of a “massive short squeeze”. Read more

Sino-Forest, the Chinese forestry company fighting allegations of fraud, is heading for a calamitous default on its $1.8bn of international bonds.

That, at least, is the verdict of the bond market. Read more

Well this news didn’t come as a surprise, but we almost missed it: Sino-Forest on Sunday announced the resignation of its chairman and CEO. The announcement came quiet as a mouse, after a very confusing news day for Sino-Forest investors at end of the trading week.

On Friday the Ontario Securities Commission ordered shares to “cease trading” on the Toronto Stock Exchange and called for the resignation of senior executives at the company. Later that day the OSC reversed its order, stating it does not have the power to make such an order without holding a hearing first. Excerpts from Sunday’s statement below the page break… Read more

(The OSC has reversed its order calling for the resignation of senior executives at the company, including chairman and chief executive Allen Chan.)

This just in: Sino Forest shares have stopped trading on the Toronto Stock Exchange following a “cease trade” order from the Ontario Securities Commission on Friday morning.

The reasons given by the OSC (after the page break) are not going to help Sino Forest’s case. Read more

By Shaomin Li and Seung Ho Park of the Skolkovo Institute for Emerging Market Studies (SIEMS)

Behind the latest accounting scandals in many foreign-listed Chinese companies lies a widespread problem of data manipulation. It is nicely summed up in a modern Chinese parable: a locally-listed food company makes up a news release saying a flood washed away its turtles – a Chinese delicacy – and later issues another saying the turtles swam back when the flood receded. But the problem also shows up in hard numbers. Read more

Hong Kong-listed Yurun has been one of  a string of recent casualties of the Muddy Waters saga – despite the fact that the short-seller has yet to utter a word on the Chinese meat producer.

The old adage of ‘buy on a rumour, sell on a fact’ appears to have turned on its head. Read more

Grizzly bearShorters of overseas-listed Chinese stocks are coming out of the woodwork and they’re more shameless than ever. At an event in Bevery Hills devoted entirely to reverse mergers, a group of short sellers – many of whom are producing research alleging Chinese companies are fraudulent, and then taking positions against them to profit from share price falls – grabbed the chance to broadcast their success.

“This is harvest time for our side. If you don’t see a bunch of really wealthy guys up here, you’re not looking close,” one investor said, according to Reuters. Read more

After weeks of allegations from short-seller Muddy Waters, Sino Forest held an analyst call on Tuesday in a bid to assuage the concerns of investors – who have watched the share price plummet 70 per cent in recent weeks – and to announce first quarter earnings.

Maybe it was the awkward way in which a few analysts’ questions were cut off, or the way some questions were ignored entirely, that unsettled the market:  immediately after the call, the stock fell 12 per cent on the Toronto Stock Exchange. It closed down 32 per cent. Read more

Sino Forest is the latest company to exemplify what is fast becoming a truism: if a company has Sino or China in its name and was listed abroad via a reverse takeover, shorting it might be a very profitable play.

The Toronto-listed forestry firm plunged more than 20 percent on Thursday following a highly critical research report. China MediaExpress Holdings, a firm that places ads on buses, had its Nasdaq-listed stock halted in March after falling nearly 50 percent in six weeks. China Agritech, another Nasdaq-listed firm, had lost more than 60 percent since late last year before its shares were suspendedRead more