Chinese firms unwelcome on Seoul bourse

By Jhoo Dong-chan

Concerns are mounting among investors as more listed Chinese firms in Korea are failing to get the green light from auditors. If auditors call a company's annual report “unqualified” in their opinions, the Korea Exchange (KRX) could delist these firms from the bourse.

According to the KRX, China Great announced Thursday a Korean auditor gave an audit opinion calling the firm's 2018 corporate financial statement “unqualified.”

The KRX immediately suspended the Chinese sport fashion wear firm's stock trading the following day in a bid to protect investors.

Another Chinese firm East Asia Holdings was also suspended from trading the firm's stock on the day because the Kosdaq-listed firm is likely to fail to meet the deadline for its 2018 audit report slated for April 22.

A series of news articles engulfing Chinese firms' mandatory audit disclosure is looming after the delisting of China Ocean in 2017. China Ocean was a deep-sea fishery company listed on the secondary Kosdaq in 2009 after failing to get the green light from audit companies.

Following the stock trade suspensions of China Great and East Asia Holdings, share prices of other listed Chinese firms here have also plunged on the Seoul bourse.

The share price of CKH was down 14.09 percent from its previous session on Friday. Chinese Heng Sheng Group suffered a 4.61 percent decline in its share price.

Share prices of Chinese electric car supplier duo Rothwell and S&C Engine Group also dipped 1.61 percent and 1.23 percent, respectively, on the day.

So far, 11 Chinese firms have been delisted from the Seoul bourse. Of them, four companies were delisted after failing to receive the “Qualified” opinion from Korean auditors.

Market analysts said, however, the suspension of two firms' stock trading won't lead to a prolonged downtrend in Chinese firms' share prices.

“Korean auditors also started refusing to give the green light to Korean firms due to the tighter regulations,” Hana Financial Investment researcher Kim Yong-ku said.

“I don't think the suspension of only two Chinese firms' stock trading will influence other Chinese firms' stock prices for a long time.”

According to the Financial Services Commission, auditors declined to give the green light on 37 financial statements by listed companies for 2018, about a 68 percent increase from a year earlier.

The jump came as the government took steps to ensure that auditors have independence from the companies that hire them, while increasing penalties in cases of fraudulent accounting.