Business

Monday March 16, 2009

Satyam syndrome in S’pore


Financial scandals involving firms with operations in China surface

SQUEAKY-CLEAN Singapore seems an unlikely place for serial financial scandals to occur.

That has occurred because it is a location for stock exchange listings of companies with operations mainly in China. These China stocks in Singapore are called S-chips. In some cases, S-chips have seen extreme volatility in their share prices amid suspicion of impropriety.

In other cases, shocks of misdemeanour has occurred, with the latest striking Raffles Education Corp Ltd, which is listed on the Singapore Exchange (SGX).

This ricocheted from its associate company, Oriental Century Ltd, an S-chip listed on Singapore’s Catalist market that had replaced the Sesdaq. Raffles Education is the single biggest shareholder of Oriental Century which operates private schools in China.

It’s strangely reminiscent of India’s Satyam scandal in which its chairman confessed to having inflated the company’s cash balances, and other irregularities.

Oriental Century said in a statement to Catalist on Thursday that its executive chairman and chief executive officer Wang Yuean informed the board that cash balances of 234 million yuan (RM126mil), reportedly on the balance sheet as at Dec 31, were “substantially inflated.” Over the years, Wang had diverted unspecified sums to an interested party.

Interestingly, the auditors, KPMG, had informed Oriental Century’s chief financial officer (CFO) on Monday that it had difficulties reconfirming the bank balances and there were doubts about the authenticity of the bank confirmation. Later the same day, the CFO informed the audit committee he had serious doubts over the bank balances.

KPMG then informed the audit committee that following its enquiries, the bank indicated it had no knowledge of having issued the confirmation.

Raffles Education said it is a passive investor, with no management role in Oriental Century. The former added that in a worst-case scenario, if it needs to write off the investment, the effect is S$34.6mil or just 1.5 cents a share in Raffles Education.

In another case, Beauty China Holdings Ltd told the SGX on Friday that it received a statutory demand from its syndicated lenders to repay an entire loan of HK$134mil (RM63mil). The deadline to do so is March 27 and a failure to reschedule the loan will raise a going-concern issue, it said.

In late February, the stock was suspended from trading when the company said its chairman Wong Hon Wai was in talks with a potential buyer for all his shares.

When the stock was requoted on March 3, it crashed 70% from its pre-suspension price of 37 cents to 11 cents.

It was later revealed that all of Wong’s shares, held through a company, were pledged to obtain credit facilities and some of the shares were forced sold.

Beauty China is one of the biggest domestic brands of cosmetics in China. At the start of last year, it had a total market value equivalent to over RM1bil.

In yet another case, Fibrechem Technologies Ltd announced to the SGX last month that its auditors encountered difficulties finalising its audit of trade receivables and cash balances.

In addition, executive chairman James Shang offered to resign with immediate effect, the company said. The company manufactures chemical fibre in Fujian province, China.

As a result, public anxiety over cash balances spread to other companies. That rolled into China Hongxing Sports Ltd after a sell-down in its share price with high transaction volume – the media and blogs questioned if the cash is in the company when it did not declare a final dividend.

That led the company to issue a statement to the effect that it had 1.98 billion yuan cash as at Dec 31, with borrowings of just six million yuan. The company, which makes sports shoes and apparel in China, said in view of the uncertain economic environment, it was prudent to maintain its cash position and not to declare a final dividend.

These transgressions and apprehension have caused Singaporeans and other investors to lose a lot of money, given S-chips’ higher risk profile and a reputation that some do not deserve.

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