I posted last week about Sino Grandness, which is a Chinese company listed on the Singapore stock exchange. I went into detail about the business and in particular the convertible bonds issued however I think I underestimated the risk associated with this investment and as such felt I needed to do a new post.
In my analysis I briefly referred to the fact that the company is Chinese and that although fraud within China is all too common, the Singapore Stock Exchange has strict listing standards. I was wrong in making this statement and in fact the Singapore Stock Exchange has much looser requirements than both the Shanghai and Hong Kong Stock Exchanges.
There have been a number of frauds uncovered among what are now called ‘S-chips’, Chinese companies listed in Singapore. Some have even had one of the big four as auditors, so that doesn’t completely protect you, in fact the big four are more likely to eventually find the fraud and report it.
This is an interesting blog which includes some articles on Singapore listings. It is apparently well known (but wasn’t to me when I wrote the last article) that the Singapore Stock Exchange encourages Chinese companies to list with it that would otherwise struggle to list on the Hong Kong Stock Exchange or in Shanghai.
Now when it comes to Sino Grandness, I don’t personally believe it is a fraud as Goldman Sachs have made an investment themselves, but that doesn’t mean there hasn’t been any manipulation of accounts. For an individual investor like myself it simply isn’t possible to confirm either way. What I do know is that the risk is real and the first rule of investing is don’t lose money. If there is manipulation going on then the listing of Garden Fresh in Hong Kong will fail and huge debt will be piled on the company – in the best case scenario. It’s not a risk I’m willing to take.
Disclosure: I hold no position in SOGF and no longer intend to initiate one
Investing Sidekick
Founder of Investing Sidekick. Works as a research analyst and is an avid value investor, always searching for undervalued shares.
Qualify the auditors!
You are right to exhibit caution on S- Chips and to underline the importance of the auditors.
A “big four”auditor is becoming a pre-condition for an investment in any S-Chip.
Particularly after the damaging “Bear Raid” on China MinHong, , which gives indofood an opportunity
To increase their stake at a much lower price.
let us hope that Chiina Minhong can refute these claims of “shenanigans ” If not, where were Sgx.
It is not enough a question the rise on trading activity after the event!
Why not qualify auditors of all s-chips?
PGL