Korean investors seeing red over Chinese companies
By Yoon Ja-young
The country’s stock market operator (KRX) has been focusing on attracting Chinese companies to list on the Korean stock market, but many have ended up damaging investors. Analysts advise that investors should be cautious because they lack information.
Investors in China Ocean Resources, listed on KOSPI, are raising suspicions that photos of the company ships uploaded on its website seem to be fabricated.
The deep sea fishing company debuted on the KOSPI in May 2009 amid investors’ expectations that it would grow rapidly as more Chinese added more fish to their diets.
But China Ocean Resources has been on a rollercoaster ride since touching 14,150 won around the end of 2014. After a series of plunges, trading of its shares has been halted. The KRX found that the company lied in its corporate filing. The company announced in April that it was being sued by a Hong Kong company for not paying back loans and interest, but it turned out that there was no lawsuit.
Investors are also suspicious that the company fabricated photos on its website. The company said in the first-quarter report that it had 61 ships, including 10 it had acquired around the end of last year. However, investors suspect it inflated the number of ships, as some photos seem to be of the same ship taken from different angles.
There is also suspicion that the CEO embezzled funds, but there is no way for investors to find out because the Chinese company is not subject to Korean law that requires an external audit. The company has no office in Seoul, and investors can only get information through its corporate filing or website. Investors say they are not sure how much they can trust the information.
Most of the Chinese companies the KRX has attracted to the Seoul bourse have troubled their investors.
China Gaoxian Fiber Fabric Holdings, a textile company, was delisted after it was found to have cooked its books, causing huge losses to investors. United Technology Holdings was delisted from the bourse in 2012 after failing to meet listing conditions, and 3Nod Digital and China Food Packaging voluntarily delisted in 2013.
However, the KRX plans to continue trying to attract foreign companies to the Seoul stock market.
“We have strengthened our examination of foreign companies seeking to enter the stock market,” said Kim Jong-il, a manager in charge of attracting foreign companies to list here.
For instance, investment banks leading the IPO of a foreign company should have a 5 percent stake in the company. In this way, investment banks will not continue with the IPO process if it finds a problem.
Korea has also strengthened the responsibility of the investment bank in a company’s filing, and has also strengthened the accounting firm’s responsibility in auditing. These rules apply not only to Chinese firms but to all foreign companies.
Kim said Chinese companies had caused problems on other bourses, such as in the United States, Europe and Singapore, which have also toughened requirements. He said that China’s relatively short experience in a market economy was behind the problems.
He said the KRX was focusing on attracting good foreign companies instead of focusing on simply boosting numbers.
“Markets much bigger than Seoul, such as Nasdaq, are making tremendous efforts to attract good Chinese companies,” he said. “They want more good firms to join them so there can be more capital and investment opportunities. It also enables direct investment to China by diverse businesses and institutions. There are many additional benefits despite the risks and some criticism.”
He said the listing of good Chinese companies on the Seoul bourse would provide opportunities for local businesses as well as investors because economic transactions between the two neighboring countries have been soaring.