Another Warning Sign: China-Based, Singapore-Listed Firms Rapidly Collapsing

[Watchman]

Another Warning Sign: China-Based, Singapore-Listed Firms Rapidly Collapsing Amidst Debt And Fraud
Joe Weisenthal | Jan. 24, 2010, 7:47 PM



Here's a fascinating, just-out artcile in Hong Kong's South China Morning Post (sub req'd) about the collapse of Singapore-listed, mainland China-based firms that have collapsed amidst an inability to repay debt and fraud.

Since late 2007, a spate of so-called S-chips - mainland companies listed on the Singapore exchange - have borrowed money then failed to repay the debts, with some becoming mired in fraud scandals.

Of the 11 S-chips that issued convertible bonds between 2005 and 2008, six have declared themselves unable to repay. Two of those six - steel group Delong Holdings and property developer Sunshine Holdings - have successfully restructured their finances while the rest remain locked in talks with creditors.

Convertible bonds are debt instruments that investors can convert into shares at a later date.

Another five S-chips failed to repay bank loans during 2008-9. The effects on their share prices have been, predictably, crushing.

Not surprisingly, global investment banks have been involved in pushing the S-chips' debt onto investors

In June 2008, blue-chip investment bank Morgan Stanley sold US$109 million worth of convertible bonds issued by waste recovery group Sino Environment Technologies, based in Fujian , to a group of lenders including US investment firm Stark Investments.

Sino-Environment's share price has since crashed from S$1.30 (HK$7.18) on the day it sold the convertible bonds to S$0.135 when the stock was suspended from trading in September.

During that period, Sino not only defaulted on its bonds - the Singapore-listed firm is also being investigated by the city state's Monetary Authority, a person involved in the case confirmed, after its auditors Pricewaterhouse Coopers said they could not verify the whereabouts of US$85 million of Sino-Environment's cash.

The most interesting is probably this one, which is involved in an industry where you don't typically get a lot of publicly-traded action:

The most recent S-chip bond default came from China Milk Products Group, based in Heilongjiang, that produces bull semen and cow embryos for cattle breeders,

The vast majority of the investors who bought US$150 million worth of convertible bonds China Milk sold through Deutsche Bank in December 2006 have exercised an option to get their money back, a person close to the agricultural company confirmed.

China Milk's net profit tumbled 73 per cent in the three months to last June compared to a year previously. The business was hit by last year's tainted milk scandal on the mainland, which cut demand among dairy farmers for new livestock.