Lessons CAO can teach us
Ignoring these may lead to similar scandals
Tuesday December 7, 2004
Lee Han Shih
IT is strange that so many people here are surprised that China
Aviation Oil (CAO) a blue-chip company controlled by a Chinese
government-linked company was able to rake up US$550 million
($898.45 million) in losses in oil futures without giving fair
warning to its investors.
The Singapore Exchange (SGX) is "disappointed".
The Securities Investors Association of Singapore is "shocked", while
CAO's investors are devastated.
Analysts who months ago were pushing the stock to clients have
lowered their earnings projections.
Some gave up covering CAO when it began to look like it might not
survive its losses.
Fund managers who bought CAO now talk sagely of the unreliability
of "red chips".
The entire Singapore stock market has been caught napping by the
Meanwhile, there are market watchers who question whether the local
bourse has been naïve in pursuing China listings.
From Hong Kong and Taiwan to London and New York, it is common
knowledge that investing in Chinese companies can be dicey.
Hong Kong investors conditioned by scandal after scandal, including
the infamous one involving loan irregularities at the Bank of China
know that putting money in red chips is a calculated risk.
In the United States, brokers now point out routinely to clients the
danger of investing in Chinese "high-fliers" on the New York Stock
Exchange and the Nasdaq.
Business magazine Fortune states in its Dec 13 issue that China state-
owned firms are prone to "inflated IPO (initial public offer) prices,
unexpected dilution, misused proceeds, even bankruptcy". Investing in
them is like gambling in Las Vegas, it added.
Yet, investors in Singapore seemed blissfully unaware of any such
dangers until CAO dropped its bombshell.
Considering that a full 10 per cent of all companies listed on the
SGX about 68 of them are from China, with more on the way, this
ignorance could lead to similar problems in the future.
In China, companies are used to operating above, below and around the
law. It is likely that many will continue to operate the same way
even after they are listed on foreign exchanges, regardless of the
prevailing regulations in those exchanges.
In Singapore, it was perhaps near impossible to have spotted the
troubles at CAO before the problem was disclosed.
However, investing is a statistical game. And statistics dictate that
once the number of Chinese companies on the SGX reaches a critical
number, scandals are to be expected.
This is something local investors should be made aware of.
And yet, the SGX, instead of using the CAO fiasco to educate
investors, has chosen to downplay the situation.
In her statement, Ms Yeo Lian Sim, head of risk management at SGX,
stated: "The developments at CAO are specific to this company and
cannot be extended to any other company."
Given that CAO has just shown how difficult it is to penetrate the
workings of Chinese companies, it will be interesting to know how Ms
Yeo arrived at that conclusion.
The writer is a freelance journalist.
Comments: Mellanie Hewlitt
27 Nov 2004
GIC's Handling of Insider Trading Highly Questionable
The GIC has close ties with Singapore's First Family (the Lees), and is
chaired by "Minister Mentor" Lee Kuan Yew. It was cleared of any wrongdoing by
the Monetary Authority of Singapore (MAS) on the very convenient grounds that
Senior Management was unaware of the atrocities on-going in the GIC.
It is unknown to the public whether this was the first case of insider trading
(and corporate abuse) involving Singapore's GLCs as such companies are managed
in a non-transparent manner with a general lack of accountability. The latest
incident only came to light because it was formally brought to the attention of
the MAS by Japanese Authorities. Otherwise, the general policy of Singapore's
GLCs would be to maintain a closed door hush hush approach to such breaches.
The GIC is amongst the highly secretive and elusive government linked
corporations (GLCs) and state owned entities which are allowed access to state
reserves under the amended Constitution. Unlike other companies, it is exempt
from publishing its financials and its actual Balancesheet and Profit/Loss
Statements are a closely guarded secret. This is an unusual departure from GAAP
that is extended to all of Singapore's GLCs and is tolerated by the Attorney
General's office and Ministry of Finance.
Singapore's Judiciary and Executive arms of government have long since adopted
a compliant and "government friendly" approach when dealing with matters which
directly or indirectly involve Singapore's Ruling Elite. So often are rules and
policies bent and so blatant are the double standards that these incidents
raise questions concerning preferential treatment and nepotism within the senior
ranks of a very top heavy and bloated government bureucracy.
This preferential treatment extends to all areas of "governance" from;
a)the judiciary (which habitually facilitates defamation suites by PAP
b)the Attorney General's Office (which is willfully blind to management of
public funds by State Owned Entities and endorses a policy of secrecy and
non-transprency in management of accounts of GICs and TLCs) to;
c)the Legislative Arm which endorses the re-drafting of the Constitution to
allow State Owned Entities, Government Linked Corporations access to state
d) a compliant local press and media which serve primarily as public relations
tools used by Singapore's Ruling Elite to filter and desseminate heavily
censored infomrtaion to the public.
Below article by John Burton from the Financial Times provides further insights
on these deep dark secrets.