Fraud woes hit Chinese firms
By Lydia Chen |
July 19, 2011, Tuesday
|
Print Edition
Print Edition
THE risks for Chinese corporations to be targets of fraud allegations will continue to be above average due to their low levels of internationalization, limited access to information and an under-developed legal system, Fitch Ratings said yesterday.
The report by the global rating agency was second in two weeks after Moody's Investors Service issued a red flag report last week that rocked the shares of Chinese companies in overseas markets over its warnings about the finances and governance of 49 "junk-rated" mainland firms.
Fitch said in yesterday's report that the negative sentiment international investors have for Chinese firms - following a slew of accounting scandals and fraud allegations - may continue at least in the short term and is a task that "takes time to resolve."
It rated its portfolio of 35 Chinese corporations around the "BB" level and below, with mainly state-owned and state-supported companies rated higher at investment-grade and above.
"International investor interest in Chinese corporations is coinciding with low levels of internationalization and limited access to information at the entities," said John Hatton, Fitch's Group Credit Officer for Asia-Pacific Corporations.
Companies that are facing fraud accusations may experience difficulties accessing the capital markets, especially with an accompanying deterioration in investor sentiment over Chinese firms in general, Fitch added.
Fitch said in the report that Toronto-listed Sino-Forest, one of the recent targets of fraud allegations by fraud-buster Muddy Waters, has weaknesses in its financials, including a significant portion of the company's existing revenue base and negative working capital.
Fitch withdrew its ratings on Sino-Forest last week after downgrading it two notches to BB last month.
In Moody's report last week, its analysts identified warning signs - the "red flags" - in 61 Chinese companies, mostly small ones and mainly listed in Hong Kong.
The report by the global rating agency was second in two weeks after Moody's Investors Service issued a red flag report last week that rocked the shares of Chinese companies in overseas markets over its warnings about the finances and governance of 49 "junk-rated" mainland firms.
Fitch said in yesterday's report that the negative sentiment international investors have for Chinese firms - following a slew of accounting scandals and fraud allegations - may continue at least in the short term and is a task that "takes time to resolve."
It rated its portfolio of 35 Chinese corporations around the "BB" level and below, with mainly state-owned and state-supported companies rated higher at investment-grade and above.
"International investor interest in Chinese corporations is coinciding with low levels of internationalization and limited access to information at the entities," said John Hatton, Fitch's Group Credit Officer for Asia-Pacific Corporations.
Companies that are facing fraud accusations may experience difficulties accessing the capital markets, especially with an accompanying deterioration in investor sentiment over Chinese firms in general, Fitch added.
Fitch said in the report that Toronto-listed Sino-Forest, one of the recent targets of fraud allegations by fraud-buster Muddy Waters, has weaknesses in its financials, including a significant portion of the company's existing revenue base and negative working capital.
Fitch withdrew its ratings on Sino-Forest last week after downgrading it two notches to BB last month.
In Moody's report last week, its analysts identified warning signs - the "red flags" - in 61 Chinese companies, mostly small ones and mainly listed in Hong Kong.
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