US-listed Chinese stocks fall after audit ruling, future murky

[CityFarmer]

An interesting ruling. Does it mean US-traded Chinese stocks need to engage US-base auditors to do the audit, instead of locally base auditors from the Big Four?

US-listed Chinese stocks fall after audit ruling, future murky

24 Jan 2014 06:47
[NEW YORK] A judge's move to sanction auditors of US-traded Chinese stocks at best muddies the picture of investing in these companies, not long after a period when accounting scandals hit many of these shares hard.

US-traded Chinese stocks were down sharply on Thursday, after a US Securities and Exchange Commission judge ruled that the Chinese units of the world's top accounting firms should be suspended from auditing those companies.

The market value of Chinese companies listed on the New York Stock Exchange and Nasdaq Stock Market comes to more than US$1.4 trillion, according to data from the exchanges and Thomson Reuters.

The ruling, issued Wednesday, raises the possibility that companies could see their listings temporarily suspended if the accounting giants fail to appeal successfully. It also could short-circuit forthcoming US listings from China.

Whether it will have a continuing effect on the stocks is another matter. The suspension does not take effect immediately, and the "Big Four" have said they will appeal, so some investors are likely to use the selloff as a buying opportunity.
...
Ref: Reuters, Business Times Breaking News

[kikababoo]

An interesting ruling. Does it mean US-traded Chinese stocks need to engage US-base auditors to do the audit, instead of locally base auditors from the Big Four?

US-listed Chinese stocks fall after audit ruling, future murky

24 Jan 2014 06:47
[NEW YORK] A judge's move to sanction auditors of US-traded Chinese stocks at best muddies the picture of investing in these companies, not long after a period when accounting scandals hit many of these shares hard.

US-traded Chinese stocks were down sharply on Thursday, after a US Securities and Exchange Commission judge ruled that the Chinese units of the world's top accounting firms should be suspended from auditing those companies.

The market value of Chinese companies listed on the New York Stock Exchange and Nasdaq Stock Market comes to more than US$1.4 trillion, according to data from the exchanges and Thomson Reuters.

The ruling, issued Wednesday, raises the possibility that companies could see their listings temporarily suspended if the accounting giants fail to appeal successfully. It also could short-circuit forthcoming US listings from China.

Whether it will have a continuing effect on the stocks is another matter. The suspension does not take effect immediately, and the "Big Four" have said they will appeal, so some investors are likely to use the selloff as a buying opportunity.
...
Ref: Reuters, Business Times Breaking News

apparently the consequences would be that the other 50+ registered china auditing firm in the states will take over the audit of these chinese co listed in states. (the punishment is aimed only at the Big 4 in China).

china co will never allow us auditing firm to go there to audit lol. and it's probably too pricey and inefficient from an overseas audit team to do the job.

[arriyana]

The vice versa also holds true. US audit firms are not allowed to audit china companies. (Although the company's affliated partner still can audit).

[pianist]

seems like the brand name of big four firms (highly regarded in this part of the world) stinks in the USA?

[arriyana]

I wouldn't say it stinks but it is not that highly regarded in Singapore by industry players either.

[CityFarmer]

The US still a hot venue for Chinese companies' IPO...

Chinese firms returning to US market for IPOs

HONG KONG — Chinese companies are flocking to the United States IPO market in their biggest numbers since 2010, drawn by soaring valuations for technology start-ups and undeterred by a flare-up in an accounting row between Washington and Beijing.

About 30 Chinese companies could list in the US this year, investment bankers told Reuters, including JD.com, China’s second-biggest e-commerce firm after Alibaba Group Holding. JD.com, whose investors include the Ontario Teachers’ Pension Plan and Saudi billionaire Prince Alwaleed bin Talal’s Kingdom Holding, said last month it was seeking to raise US$1.5 billion (S$1.9 billion) in the US.

The return to US shores comes on the back of renewed investor enthusiasm for China, particularly for Internet stocks. The country’s online retail market by transaction volume jumped 42 per cent last year to 1.85 trillion yuan (S$387 billion) and is expected to almost double in size by 2016, figures from iResearch indicate.
...
http://www.todayonline.com/business/chin...arket-ipos

[ValueBeliever]

I guess thats USA. They are a nation of people that could right wrong. We really deserve all the swindle and cheating that had been going on in SGX listed S chips.

We should do the same with our current S chip suspend them or at least no more funding and repatriate all money back to Singapore account for redistribution to sharehldrs!

[specuvestor]

(Bloomberg) --
More than half of the $1 billion China Development Bank provided to finance delistings of Chinese companies traded in the U.S. is tied up in two deals that have now gone sour, court filings show.

The state policy lender is applying to wind up Cayman Islands-based Green Dynasty Ltd. after it defaulted on repayments for a $185 million loan to take Fushi Copperweld Inc. private in June 2012, a Jan. 3 filing to a Cayman Islands court shows. Just two months ago, CDB sought to wind up another Cayman firm that borrowed $400 million to delist Harbin Electric Inc. in November 2011.

The court cases illustrate the fallout that China Development Bank faces for financing take-private deals in the U.S. in 2011 and 2012, after a wave of accounting scandals caused shares of Chinese companies traded there to plummet. Fushi Copperweld, a Beijing-based wire maker, and Harbin Electric, an electric motor maker located in the northern Chinese province of Heilongjiang, had both been targeted by short sellers who questioned their accounts. Both have rejected the allegations.

In the Fushi Copperweld deal, China Development Bank lent $185 million to Green Dynasty Ltd., a firm affiliated with Fushi’s former Chairman Li Fu, in order to acquire shares of the U.S. listing, court documents and exchange filings show. Green Dynasty missed two debt payments in February and March 2013 and now owes $205 million in principal and interest, the Cayman Islands court filing said.

Wise Sun

The bank is applying to have representatives of Grant Thornton in Hong Kong and in the Caymans appointed to liquidate Green Dynasty, the winding-up petition says. A spokesman for the accountancy firm declined to comment.

China Development Bank’s Beijing-based press officer didn’t respond to e-mailed and telephone requests for comment.

Bloomberg News couldn’t locate contact details for Green Dynasty. Li didn’t answer calls to a Beijing phone number assigned to him in a U.S. regulatory filing as the representative of Wise Sun Investments Ltd., which was linked to Green Dynasty and Li in the CDB petition to a separate loan default.

The development bank is separately chasing closely held Wise Sun for $60.7 million in unpaid principal and interest on a loan made in 2012, a British Virgin Islands court document dated Dec. 30 shows.

The Beijing address given for Wise Sun in the U.S. filing is the same as the last-known address for Fushi’s headquarters, although a reporter could not find a listing for either company during a visit there this week.

No Relationship

One of Fushi’s assets was Copperweld Bimetallics LLC, a Brentwood, Tennessee-based wire maker that was acquired by the Chinese company in 2007. Scott Samuels, a vice president at Copperweld Bimetallics said the company currently has “no affiliation or relationship” with Li, Fushi or Green Dynasty. Li and Green Dynasty were the “majority principal owner” up until last year, Samuels said in an e-mail, adding that investment advisory firm THL Credit Inc. is now the controlling shareholder of his company.

Fushi Copperweld was delisted after short-seller Muddy Waters Capital LLC said in April 2012 that the company “presents a high risk of fraud,” and overstated production at one of its factories by almost 13-fold. Its 2008 and 2010 financial statements may be inaccurate, according to a report on Muddy Waters’s website. The company denied all the claims, which it called “vague and non-specific,” in a statement on April 11, 2012.

More than 100 Chinese companies were delisted or suspended from trading on the New York Stock Exchange in 2011 and 2012, including some as a result of fraud and accounting scandals, according to McKinsey & Co. In November 2011, U.S. regulators tightened rules governing reverse mergers, which had been a popular way for small- and mid-sized Chinese firms to secure listings there.

A key investor in both the Fushi and Harbin Electric buyouts was Abax Global Capital Ltd., a Morgan Stanley-backed private equity firm in Hong Kong. An Abax representative declined an interview in an e-mail and said the firm has a policy “not to comment on matters subject to litigation.”