S-chips make a comeback in Singapore

[Herodot]

If you only take (NAV - trade receivables), you ignore trade payables (As this would grow and 'consume' the other equity if you remove receivables) and also the cash outflow for dividends.

[Musicwhiz]

Mar 15, 2011
Could more have been done to check S-chips?
Irregularities put role of independent directors, analysts under spotlight
By Jonathan Kwok

FRESH questions are being asked about the transparency and corporate governance of Chinese companies listed here after auditors of two of these 'S-chips' flagged irregularities in their accounts.

Recently launched auditor probes into China Hongxing Sports and Hongwei Technologies have reignited concerns about the wider S-chip sector here.

Some observers have raised questions regarding whether the independent directors, analysts or other parties could have done more to detect problems earlier.

However, no allegations have been made over the conduct of the independent directors in China Hongxing and Hongwei Technologies.

CIMB Research executive director Song Seng Wun said: 'It's the job of the independent director to be aware of such possibilities (of irregularities), given that this is not the first time that questions have been asked of transparency and corporate governance at S-chips.

'These things come back, it seems, with alarming regularity.'

S-chips that have faced concerns over their books in recent years include Fibrechem Technologies, China Sun Bio-chem, China Printing & Dyeing and Oriental Century. China Printing & Dyeing has been delisted while Fibrechem, China Sun and Oriental Century are suspended from trading.

Mr Song added that the market could also question the role of investor relations personnel and analysts, in detecting problems early.

The Singapore Exchange has tightened its corporate governance rules considerably in recent years.

Still, corporate players such as independent directors face a distinct set of challenges when dealing with S-chips.

'It's definitely a lot more challenging to be an independent director at an S-chip,' said Mr Robson Lee, an independent director in several companies.

He noted that the operations of S-chips are located outside Singapore, and management may not be inclined to do things as they are done in Singapore, owing to cultural differences.

Mr Lee added: 'Things are more transparent and rule-based in Singapore, while in other countries, they are more subtle in the way things are communicated and are more relationship-driven.'

China Hongxing, a former market darling whose market value once hit about $4 billion, shocked investors when it said on Feb 25 that Ernst & Young auditors had found irregularities in the books of its China subsidiaries. The next day, Hongwei Technologies announced similar problems with its China unit, also detected by Ernst & Young.

Mr Lee said independent directors and management should sort things out before listing - and that includes bridging any cultural gap.

Other observers noted that scandals can erupt at a company from any country. Mr Philip Chan, an independent director with several companies, said: 'The issue is not whether it's a foreign or local company or whether it's an S-chip or not. It's the attitude of the controlling shareholder that's far more important, and (the company) can be local or foreign.'

Mr Michael Chin, an independent director with three companies including an S-chip, said some Singapore firms too have been involved in fraud.

For instance, in 2005, fraud scandals broke out at the former Citiraya Industries - which has since been restructured as Centillion Environment & Recycling - and Accord Customer Care Solutions, now known as mDR.

Mr Chin said that regardless of whether the firm is Singapore-based or an S-chip, if something goes wrong, the independent directors will need help from auditors and management to detect it.

'What is needed is the cooperation of management, vigilance from independent directors, and the support of internal and external auditors, to work together to ensure the corporate governance structure is in place. This is a triangular model.'

jonkwok@sph.com.sg

[lonewolf]

The word 'independent director' is a misnomer. How can one be truly independent if one is collecting a fat director fee + possible shares option from the company that you are supposed to be policing.

And for a lot of these 'independent directors' its not even their full time job! Many of these have their own regular jobs, and sit on many other board of directors. Logic and common sense must prevail that if one is stretch so thinly, its impossible for anyone to do a good job.

Those of us who worked in a company with a board of directors will no doubt on many occasions, think that those fat cats are wasting money and make questionable decisions. I do not think it is uncommon for the board of directors to be given a 'tainted' version of what's truly happening on the ground. Many times, they are probably clueless. Do you expect a bunch of people meeting 4 times a year to truly know what is happening on the ground? I always find it strange that as an investor I have to splash out hundred of thousands to pay this small group of people to meet just 4 times a year. They probably make more per hour sitting on their BOD than another equally lucrative profession - the so-called world's oldest.

I like to see the whole system of 'independent directorship' change. If we reckon that their are suppose to be policemen, then it only makes sense that a truly independent regulatory body pays for their services. Of cos its unrealistic to expect SGX to foot the bill for all the independent directors of all the listed companies. So the regime should be changed so that the independent director fee paid by the companies is channelled to a centralised fund; to be managed by SGX to appoint independent directors to all listed companies.

Of cos, this is just a pipe dream. And I can already expect a host of protests over my proposal. Ultimately all of us as investors must ask ourselves whether there are any flaws in the current system and what we can do to make it better.

[Herodot]

In defence of the SGX, there have been also serious cases of china based compandy fraud on the US exchanges
http://www.zerohedge.com/article/china-i...e-076share

[corydorus]

Hi Heredot,

Since we know there's fraud concerns in many places.
Should we limit our safeguards to be less than other Exchanges or be even more Vigilant and Stringent ?


Cory

[Musicwhiz]

Business Times - 12 Apr 2011

Uphill task for parent S-chips to tighten control

By JOYCE HOOI

AS S-chips scramble to meet the Singapore Exchange's May 31 deadline for shoring up their defences against Chinese subsidiaries gone rogue, directors are coming up against the nitty-gritty of reality.

Last month, the exchange asked the audit committees and directors of locally listed firms with operations in China to make sure that the Articles of Association of their Chinese units allow them to appoint or remove legal representatives.

This move to rejig existing articles follows incidents of S-chips coming undone over the actions of their legal representative in China. Falmac Ltd, for example, was denied access to crucial accounting records by a legal representative who refused to step down, while civil proceedings are raging against Tat Hong's legal representative of its Chinese joint venture who allegedly mishandled funds.

Legal representatives carry considerable weight in China, as they hold the company seal which can be used to execute transactions and transfer assets, and the potential for wrongdoing is correspondingly large.

However, changing these articles of association to get rid of a legal representative who does not want to go will only be the start of a protracted and costly battle against shenanigans on the mainland, said specialists at a presentation jointly organised by the Singapore Institute of Directors and Khattar- Wong, yesterday.

During the legal proceedings, for example, the parent company will have to submit certain documents to the State Administration of Industry and Commerce - China's equivalent of the Accounting and Corporate Regulatory Authority Singapore.

In some cities, the original copy of the business licence might be required as opposed to just a photocopy.

This is a problem as some legal representatives hold the original copy and might not want to hand it over, said Lin Song, a partner and co-head of KhattarWong's international China practice group.

This tussle over documents extends to other areas and can considerably impede the parent company's attempt to regain control.

'When (the legal representative) refuses to give you documents, you have to get a court order. We are talking about a few years' time to get them, by which time, all the money is gone,' remarked one of the seminar's participants.

In March, Falmac Ltd was unable to clear the audit process for the second year in a row, as the legal representative of its four Chinese units dug in his heels and refused to let the directors onto the factory premises.

'All these difficulties are not going to be totally erased even if you look at the articles of association . . . there are still a lot of loopholes and risk that we are going to encounter,' said Mr Lin.

There are, however, pre-emptive steps that can be taken to minimise the complications of removing a legal representative, like getting critical papers such as the stamp registration form pre-stamped and kept with the company secretary instead, said Mr Lin.

Currently, the articles of associations embedded in most Chinese units are a landmine-filled proposition where removing legal representatives is concerned.

In some cases, the legal representative might be the Chinese subsidiary's general manager, and it is the board of the subsidiary that has the power to appoint or remove the general manager.

'So the parent company has to remove the whole subsidiary's board and then remove the general manager. Imagine the resistance you will face when you're trying to appoint new members to the board,' said Mr Lin.

The urgency for making better provisions is further underlined by the fact that existing articles of association might specify the tenure of a legal representative, but remain silent on his removal.

Apart from making these provisions in the Articles of Association, S-chips have also been asked by the exchange to conduct a review to find out if checks and balances for cash and company seals are adequate, and to tell the exchange of the outcome by May 31.

[iisterry]

Hongwei just released its results.

http://info.sgx.com/webcoranncatth.nsf/V...F002214A2/$file/Ann_Hongwei_FY10.pdf?openelement

What would be the implications?

Vested.

[Musicwhiz]

Hongwei just released its results.

http://info.sgx.com/webcoranncatth.nsf/V...F002214A2/$file/Ann_Hongwei_FY10.pdf?openelement

What would be the implications?

Vested.

Looks pretty normal to me, except cash flows were negative for 4Q 2010.

[Nick]

I was looking at a few S Chips with pretty attractive valuation. Good cash, decent PER, FCF, growth etc In the end, I decided against it - I won't sleep well whenever there is a trading halt! I will stick to much larger ones with strong backing from the Govt or various SWF even though it may not be as cheap.

[iisterry]

Looks pretty normal to me, except cash flows were negative for 4Q 2010.

Hi MW, I meant the listing status.

Would it be too far-fetch to assume that trading suspension would be lifted? Their actions thus far after the suspension seemed to indicate a willingness to resolve the issue, with the exception of a director who resigned.