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| LIS headquarters in Anyang, Gyeonggi Province / Courtesy of LIS |
By Park Jae-hyuk
LIS, a Kosdaq-listed laser equipment and face mask machine maker, has become the latest example of a Chinese-owned company in Korea causing severe damage to local investors as a result of poor management.
On Wednesday, the small manufacturer abruptly withdrew its Dec. 16 announcement of a $900 million contract to supply KF94 face masks to Thailand's Double A Group. This came a day after the pulp and paper manufacturer's Korean subsidiary denied this deal.
Following the withdrawal, the LIS share price, which peaked at 13,550 won ($12), the day of the announcement, plunged 26.3 percent during the trading session. Its share price closed at 6,050 won the following day, down 23.99 percent from the previous session's closing price.
LIS apologized to its shareholders, admitting it did not sign an agreement with Double A.
Given several Chinese-owned firms were previously delisted from the Seoul bourse for alleged accounting fraud and false financial statements, local retail investors attributed this unusual incident to China's Yawei, which became the largest shareholder of LIS in September last year by acquiring a 21.84 percent stake.
According to data from the Korea Exchange (KRX) given to Rep. Hong Sung-kook of the ruling Democratic Party of Korea in October, 12 of the 14 foreign companies delisted from the benchmark KOSPI and the tech-heavy Kosdaq markets were Chinese firms. The lawmaker estimated investors had suffered over 380 billion won in collective losses from the delisting of the firms.
"Chinese companies have entered the Korean capital market because it has a lower barrier to entry than the Nasdaq and is more lucrative than the Chinese market," Hong said. "However, the repeated delisting of Chinese companies is feared to spread China-phobia in the market."
On top of this, stocks of another Kosdaq-listed Chinese company, GRT, have been banned from trading until November next year because the company's financial statements failed to satisfy the financial regulator's requirements.
The U.S. Securities and Exchange Commission (SEC) has already started working to expel Chinese companies with questionable financial statements from Wall Street.
Since September last year, the KRX has also prohibited Chinese-owned companies from going public if their holding firms are located overseas. Before the regulation, Chinese firms had gone public here, after establishing their holding companies in Hong Kong or the Cayman Islands in apparent attempts to conceal their actual financial condition.
The Financial Services Commission also advised investors last month to be careful about investing in Chinese firms of overseas holding companies, saying their financial statements can be misleading.
However, the current regulations cannot prevent Chinese firms from entering the domestic stock market by acquiring KOSPI- or Kosdaq-listed companies.
"Companies whose largest shareholders are Chinese firms are less reliable because they tend to breach their promises on investment and management," Daishin Securities analyst Han Kyung-rae said. "They have tended to exaggerate their sales target, so investors should be more careful."
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