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January 27, 2008


Tell Me Something I Don’t Already Know

Leslie Norton writes in this week’s Barron’s about criticism of recent Chinese company IPOs in the US by an outfit called RateFinancials:

“Giant Interactive (GA), LDK Solar (LDK), China Nepstar Chain Drugstore (NPD), Yingli Green Energy (YGE), and Agria (GRO) were the five largest Chinese IPOs by deal size last year on the New York Stock Exchange.

… the companies’ filings reveal myriad shortcomings, including very short operating histories, multiple company-holding structures and concentrated ownership. The companies also have engaged in many related-party transactions. And they operate in regulatory environments like the Cayman Islands and China ‘that have historically had issues with law enforceability’ … The companies don’t have to file proxy statements because the SEC deems them foreign-private issuers, or ‘controlled companies’ … The majority of these companies’ stock is in very few hands …

RateFinancials found ‘evidence of quality of earnings weaknesses’ at all the companies, including big increases in receivables, negative operating and free-cash flows, significant amounts of deferred revenues, major prepayments and sizable long-term commitments to suppliers.”

Take the time to read the financial statements of practically any Chinese company, no matter where it’s listed, and all of these shortcomings are obvious. Caveat emptor.

This entry was posted on Sunday, January 27th, 2008 at 11:27 am (utc+8) and is filed under China, Investing.

4 Responses to “Tell Me Something I Don’t Already Know”

  1. David said:
    January 27th, 2008 at 12:53 pm

    Did you know that the feed item for this article ends with, “time saved” (twice) and then an ad for HP Printers. (At least it does when I view it from Google Reader.)

    “time saved” comes from an akismet div (and is visible despite the display:none style), and the ad comes from the show_ads.js page.

    It’s all probably intentional, but I remember when you were having trouble with spam.

  2. C. Maoxian said:
    January 27th, 2008 at 1:14 pm

    David: Thanks. I don’t use akismet or know where it comes from, but I am running ads in the feed which are handled by Feedburner. I make about $12 a month doing that. :)

  3. Tom D said:
    January 27th, 2008 at 2:59 pm

    Chairman, Possibly this is why Morgan Stanley’s China A share fund (CAF) trades at a 30-40% discount to net asset value, as do many of the China funds to lesser degree, except the “index” ETF’s which carefully manage the spreads to earn their fees. Even so, Morgoon Studley CAF was up hugely in 2007. I love bubbles! ;)

  4. Brian said:
    January 27th, 2008 at 5:17 pm

    The internal controls at Chinese banks make Societe Generale’s look impenetratable.

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