reverse mergers

After a two year stalemate, China and the US signed a memorandum of understanding on enforcement cooperation last Friday, opening the possibility of US regulators gaining access to the audit papers of hundreds of Chinese companies listed on US exchanges. The agreement was signed between the US Public Company Accounting Oversight Board (PCAOB) and China’s finance ministry and its Securities Regulatory Commission (CSRC).

What are its ramifications? Read more

Just when you thought you had heard the last of Chinese reverse mergers, along comes another accounting scandal that puts them back in the spotlight again.

The victim this time? Caterpillar, which on Friday stunned the market with news that it would have to take a $580m write down in the fourth quarter after it unearthed accounting irregularities at ERA Mining Machinery, a Chinese company that it acquired last June for $886m. Read more

Things are heating up between the US Securities and Exchange Commission and some of the US’s leading accounting firms.

The SEC on Monday charged the Chinese affiliates of Ernst & Young, PwC, KPMG, Deloitte Touche Tohmatsu and BDO with violating US securities law after the five firms allegedly refused to turn over audit work papers and other documents related to nine Chinese companies that are currently being investigated for potential accounting fraud. Read more

It is not a good week to be a promoter of US-listed Chinese companies.

First Nasdaq halted trading in Tibet Pharmaceuticals and Global Sources. Then Ernst & Young resigned as Sino-Forest’s auditor. And now a Chinese pork processing company has become the focus of a US Securities and Exchange Commission investigation on insider trading. Read more

Things keep getting worse for Sino-Forest, the Toronto-listed Chinese forestry company that filed for bankruptcy protection last week.

Ernst & Young resigned as Sino-Forest’s auditor on Thursday, and the Toronto stock exchange announced that the company’s shares will be delisted next month. 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

Step by step, Sino-Forest is moving closer towards bankruptcy or a restructuring of its $1.8bn of bonds.

On Monday, the scandal-plagued Chinese forestry company announced it had received notices of default from the holders of its bonds due 2014 and 2017 after failing to publish its third-quarter results, which were due last week. Read more

Moody’s On Wednesday withdrew its rating for Sino-Forest, the Chinese forestry group fighting allegations of financial irregularities, as the agency believes it has insufficient information to support maintaining a credit rating. Read more

For investors in Sino-Forest, the Chinese forestry group fighting allegations of fraud, things are going from bad to worse.

Late on Monday, the Toronto-listed company said it would miss an interest payment on its debt and was unable to say when it would be able to publish its earnings statement, which would put it in default on $1.8bn worth of bonds.

The company’s bonds fell sharply on Tuesday as investors continued to abandon what was once a darling of the Canadian stock market and one of the biggest issuers of debt the Asian bond market. Read more

Muddy Waters, the short-selling group famous for triggering the collapse in the share price of Toronto listed Chinese company, Sino-Forest, was at it again last week.

US-listed shares in the Shanghai advertising firm, Focus Media, dived last Monday following the publication of a less than flattering report by Muddy Waters, which alleged it had overstated the size of its advertising network. 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

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