There’s much to learn from Bursa’s experience with foreign listings
ALMOST a decade ago, the Securities Commission announced several initiatives to help make Bursa Malaysia a preferred listing destination.
One of these moves was to streamline the regulatory criteria for the listing of companies so that companies with foreign operations would be subject to the same listing criteria as those that apply to companies with Malaysia-based businesses.
Shortly after that, the package of liberalisation policies kicked in and the SC’s guidelines on the offering of equity and equity-linked securities were amended in February 2008 to encourage foreign listings.
However, the first of such initial public offerings after the rule change only happened the following year.
In July 2009, China-based sports shoes company XingGuan International Sports Holdings Ltd made its debut on the stock exchange’s Main Board, the predecessor of the Main Market.
That was the start of a wave of IPOs featuring Chinese companies. By the end of 2013, 10 of these companies (see table) had floated their shares on Bursa, raising about RM630mil in the process.
This particular measure to enhance the stock market’s competitiveness has not yielded happy results. In fact, it’s pretty much a failed experiment.
When unveiling the measures to strengthen Bursa’s ability to attract listings, then SC chairman Datuk Zarinah Anwar (now Tan Sri) said, “Ultimately, a market’s competitiveness is assessed by investors who feel they are getting a fair deal and return on their investments.
“In today’s world of a 24-hour trading book in a global marketplace, investors will tend to gravitate towards markets and companies that they deem to be of quality. Quality markets and companies are built on a track record of good corporate conduct and value creation.”
Unfortunately, quality isn’t the first thing that comes to mind when one considers what has happened to the 10 Chinese companies. Here’s a look at how they have fared:
> China Automobile Part Holdings Ltd (CAP)
According to the company, its profit after tax was halved in 2015 because China’s economic slowdown had impacted the commercial vehicle market. Last year was worse. According to the unaudited results, it suffered a huge loss.
The company missed the April deadline for the release of its 2016 annual report because its auditors needed to perform perform additional work in the audit of the financial statements.
Subsequently, citing the discovery of new information, the auditors withdrew their audit opinion on the 2015 accounts. CAP has until July 5 to reissue its audited financial statements for 2015.
The company has been making losses over the past five years. It blames the “intense” and “chaotic” competition in China’s wine industry. The red ink continued to flow in the first quarter of this year.
The auditors have issued a qualified audit opinion on the 2016 financial statements. This relates to deposits paid for the purchase of some assets.
> China Stationery Ltd (CSL)
CSL was classified a PN17 company in July 2014 after its auditors had expressed a disclaimer opinion on its 2013 accounts. It was uplifted from PN17 status in November 2015. Bursa reprimanded the company and fined six directors over a delay in the release of the 2013 audited accounts and annual report, and also because there was a 17% deviation between audited and unaudited results for the nine months ended September 2014.
CSL is posting profits but revenue and profit in the last three years were substantially lower than in 2012 and 2013.
> HB Global Ltd
Formerly known as Sozo Global Ltd, loss-making HB Global has been a PN17 company since May 2013. The trigger is the auditors’ disclaimer opinion on the 2012 accounts because they could not verify a bank balance and some trade receivables and trade payables.
In its latest announcement on how it will regularise its financial condition, HB Global said it was “still in the midst of procuring and assessing suitable investors to inject new capital and/or new businesses into the group, which may involve a reverse takeover exercise or right issues”.
> K-Star Sports Ltd
Over the past five years, K-Star’s revenue has been declining and it has been making losses. However, its auditors haven’t raised any red flags. In his statement in the latest annual report, the executive chairman says the China sports footwear market will remain challenging but he continues to be optimistic about the company’s long-term sustainability.
Kanger is the standout of this group. Revenue has held steady in the last three years and the company has been profitable since 2012. There are no signs of audit or governance issues so far.
> Maxwell International Holdings Bhd
Yet another company that slipped into PN17 status following a disclaimer opinion by the auditors. In this case, the auditors highlighted nine matters that prevented them from obtaining sufficient evidence to provide the basis for an audit opinion on the company’s 2015 accounts. There’s a similar disclaimer opinion for the 2016 financial statements.
Maxwell reported losses in 2015 and 2016. It had zero revenue in the first quarter of 2017 because its main business ceased operations last year “due to the challenging manufacturing business environment in China”.
Trading in this company’s securities has been suspended since May last year due to its failure to issue the annual report 2015. Its latest available financial results are for the quarter ended March 2016. In a special general meeting last October, shareholders voted in several new directors.
Another company relatively free of audit troubles thus far, although sales and profits have been sliding since 2012. Its 2016 revenue was almost half that of 2012. And in those five years, net profit plunged by 96%. However, the latest quarterly results show sales growth and higher profits.
On June 1, XingQuan said it couldn’t submit its third-quarter results by the May 31 deadline but didn’t offer a reason. It then responded to Bursa’s query and explained that the delay was because its CFO’s employment contract had ended on April 30 and there’s no replacement yet. In addition, the chairman of the audit committee resigned on May 29.
The company said it expected to issue the results by the middle of next month. Meanwhile, trading in XingQuan securities was suspended from Thursday.
Last year wasn’t a good year for the company. Revenue dropped 47% and it had, in the words of the chairman, its “first total comprehensive loss”.
Executive editor Errol Oh is astonished by this high percentage of problematic companies in this group.
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