It seems like every week another Chinese company listed in the U.S.
implodes. In the world of Chinese reverse mergers there are going
to be problem companies. China Vesting has roamed through scores
of companies in the Middle Kingdom with endless stories (which we shall
share periodically). Let us say this...the majority of these companies
are not bad...just often times misguided. Having a Chinese Chairman/CEO
list their company on a U.S. exchange is no easy task. Without sounding
too sentimental, it really is the embodiment of the American Dream.
The capital markets coupled with the "flat" world in which we live in allows
a company 7,000 or 8,000 miles away to be publicly traded in the good old
US of A.
The purpose of this edition is to list out the most useful websites
in the Chinese Stock Scam busting arena. Before we begin, just today
China Vesting had an interesting conversation with some Chinese government
officials. What we learned is the government has tons of money...(which
we all know). However, their focus is on the large SOEs aka state
owned enterprises...Why? The government wants the market to dictate
corporate governance and the impetus for change is going public.
These are not the smaller Chinese companies that China Vesting focuses
on...we are talking about the multibillion dollar IPOs that list in Hong
Kong and or Shanghai. By having the market force changes..it creates
the ability to avoid direct personal conflict with those that head up these
SOEs.
Another tidbit...we will continue to see a long line of Chinese companies
entering the public markets in the U.S. due to liquidity issues.
Banks are pulling bank loans to small and medium sized businesses to focus
on the major SOEs in hopes of decreasing risk. Let's not get into
a long debate on economic policy right now. The bottom line...Chinese
companies growing like gangbusters need cash and foreign investors are
indeed still needed to provide it. The question posed by professional
investors these days is whether they will see an ROI on the money they
put out to China companies.
Best Sites
Sharesleuth (www.sharesleuth.com)
is a site backed by Mark Cuban of the Broadcast.com and Dallas Mavericks
fame. The editor, Chris Carey, pulls no punches and produces top
tier investigative reporting with serious due diligence. Recently,
SinoCoking Coal and Coke Chemical Industries Inc. (SCOK),
was featured and ripped apart. The full edition is available at http://sharesleuth.com/shorttakes/2010/09/the-shares-of-sinocoking-coal/.
Another Chinese company featured is Telestone Technologies Corp. (TSTC).
Telestone was cited for booking sales and basically not being able to collect.
It is an interesting
read. Although Sharesleuth does not specialize in Chinese stocks
their level of research warrants paying attention when one is featured.
Citron Research (www.citronresearch.com)
was previously known as the hilariously titled Stock Lemon. The only
way to describe the writing style is "In Your Face" and it is very entertaining
to say the least. In a recent write up on China Biotics (CHBT)
boldly titled "China Biotics (CHBT) is a Fraud -Now sue Citron- We Dare You."
the website states:
Citron is confident to state “China Biotics is a fraud”
If we are lying, then please sue us and we will prove it in court.
Or, put out a press release defending yourself and explicitly blame Citron
Research, and we will sue you proactively to prove that you are committing
securities fraud on the investing public.
Citron has been around since 2001, but this is the first time we recall
them reporting on a Chinese company. However, we doubt this is the
last time since shares of China Biotics have taken a beating since Citron
released their due diligence.
The last website mentioned features the "Godfather of short selling",
Manuel Asensio's (www.asensio.com).
Asensio, is more of a crusader type and never shy about the media. China
Sky One Medical, Inc. (CSKI)
has been on the receiving end of Asensio's reports since April of 2009.
Recently a report about a Nasdaq official having ties to Nasdaq listed
Chinese reverse mergers was published. It made for very interesting
reading (available
here). It is not surprising that one of the best known short
sellers is moving into the China space.
Conclusion
Going forward, any companies having problems uncovered by the websites
listed above will be removed from the China Vesting Index.
There are just too many good Chinese companies to pay attention to ones
with problems. The bar is now higher, as it should be. The
level of due diligence across the board needs to be raised. That
goes for the auditors, investment banks, attorneys, deal guys, and anyone
else involved.