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Fallout from scandal hits Chinese stock overseas
By Chen Li |
September 15, 2011, Thursday
|
Print Edition
Print Edition
IT seems that all overseas-listed Chinese stocks are now being affected by the accounting concerns surrounding just a few plays. Many companies that insist they have done nothing wrong have been tarred with the same brush.
That is particularly true for Chinese software outsourcing firms. Their share prices are sinking in the slipstream of Longtop Financial Technologies, the Beijing-based company facing an inquiry by US regulators over alleged errors in financial reports.
"We have to explain again and again to clients that we are not anything like Longtop," one unidentified senior executive of a domestic software outsourcing firm told 21st Century Business Herald earlier this month.
When the Shanghai branch of Deloitte Touche Tohmatsu resigned as Longtop's auditor in May, citing financial irregularities, the share prices of Longtop and its rivals began their descent.
New York-listed VanceInfo Technologies fell to US$22 at the end of May from US$32. Beijing-based Camelot Information Systems and iSoftStone Holdings both tumbled as much as 28 percent in the same month, while Dalian-based HiSoft Technology International lost more than 20 percent.
As global stock markets have become volatile over the past two months and investors starting fleeing risk, the whiff of scandal has further eroded confidence in China Inc.
In August, Camelot plunged 56 percent, VanceInfo fell 40 percent, and iSoftStone and HiSoft each lost 35 percent, according to iMeigu.com, a Chinese website focused on analysis of US stock markets.
For those firms, the dream of surpassing Indian software rivals crumbled under the shadow of the Longtop scandal.
Peng Qiang, vice president of iSoftStone, told 21st Century Business Herald that Longtop's fall from grace has smeared the image of an entire industry in China.
He said Indian rivals have been quick to seize the advantage, warning foreign clients about the pitfalls of doing business with Chinese software firms.
Another unidentified senior executive at a Chinese software firm told 21st Century: "Some clients ask again and again about Longtop's scandal and they even suspect of us doing the same thing and cooking our books."
All the adverse publicity has caused many Chinese firms to shelve plans for offshore initial public offerings, at least for now.
The number of IPOs by Chinese companies fell to 26 in August, the lowest in two years, according to a monthly report by China Venture. One company listed in the US and 25 listed on mainland markets.
Online video company Tudou was the only Chinese firm to list overseas last month, raising US$170 million in an IPO on the Nasdaq market. In its first day of trading, the company's share price fell 12 percent below its offer price.
This US$170 million, the total for August, is a 67 percent drop from the valuation of Chinese companies offered in August last year, and a 90 percent decline from July this year, the China Venture report said.
"This shows foreign financial institutions are not really interested in Chinese plays any more," the report said, blaming accounting scandals. "The IPO door to Chinese firms in overseas markets is basically shut now."
Longtop, which began trading on the New York Stock Exchange in 2007, was suspended in May as the US Securities Exchange Commission started investigating. The company was delisted last month. At the time trading was halted, Longtop had a market capitalization of US$1.09 billion and its share price was about US$18.93.
Its shares now trade over the counter, closing at 26 US cents on Tuesday.
In May, Joe Mikus, a US investor, sued Longtop in a US court and has been seeking to represent people who bought Longtop shares beginning in June 2009.
Mikus claims investors lost money when the shares fell 33 percent on April 26 to around US$22 after reports questioned the company's finances.
Although, securities class action lawsuits are common in the US, there is a worrying trend. Asian companies now make up the majority of US federal securities class action suits filed against foreign companies, with most coming from China, according to a research paper issued by Marsh (Beijing) Insurance Brokers.
So far this year, 34 securities class action suits have been filed against US-listed Chinese firms, according to Wei Gang, senior vice president of Marsh (Beijing).
Last year, the number was 13 Chinese firms and most of them landed in US markets via reverse mergers, according to Wei. From 2007 to 2009, only nine Chinese firms were sued by US investors.
That is particularly true for Chinese software outsourcing firms. Their share prices are sinking in the slipstream of Longtop Financial Technologies, the Beijing-based company facing an inquiry by US regulators over alleged errors in financial reports.
"We have to explain again and again to clients that we are not anything like Longtop," one unidentified senior executive of a domestic software outsourcing firm told 21st Century Business Herald earlier this month.
When the Shanghai branch of Deloitte Touche Tohmatsu resigned as Longtop's auditor in May, citing financial irregularities, the share prices of Longtop and its rivals began their descent.
New York-listed VanceInfo Technologies fell to US$22 at the end of May from US$32. Beijing-based Camelot Information Systems and iSoftStone Holdings both tumbled as much as 28 percent in the same month, while Dalian-based HiSoft Technology International lost more than 20 percent.
As global stock markets have become volatile over the past two months and investors starting fleeing risk, the whiff of scandal has further eroded confidence in China Inc.
In August, Camelot plunged 56 percent, VanceInfo fell 40 percent, and iSoftStone and HiSoft each lost 35 percent, according to iMeigu.com, a Chinese website focused on analysis of US stock markets.
For those firms, the dream of surpassing Indian software rivals crumbled under the shadow of the Longtop scandal.
Peng Qiang, vice president of iSoftStone, told 21st Century Business Herald that Longtop's fall from grace has smeared the image of an entire industry in China.
He said Indian rivals have been quick to seize the advantage, warning foreign clients about the pitfalls of doing business with Chinese software firms.
Another unidentified senior executive at a Chinese software firm told 21st Century: "Some clients ask again and again about Longtop's scandal and they even suspect of us doing the same thing and cooking our books."
All the adverse publicity has caused many Chinese firms to shelve plans for offshore initial public offerings, at least for now.
The number of IPOs by Chinese companies fell to 26 in August, the lowest in two years, according to a monthly report by China Venture. One company listed in the US and 25 listed on mainland markets.
Online video company Tudou was the only Chinese firm to list overseas last month, raising US$170 million in an IPO on the Nasdaq market. In its first day of trading, the company's share price fell 12 percent below its offer price.
This US$170 million, the total for August, is a 67 percent drop from the valuation of Chinese companies offered in August last year, and a 90 percent decline from July this year, the China Venture report said.
"This shows foreign financial institutions are not really interested in Chinese plays any more," the report said, blaming accounting scandals. "The IPO door to Chinese firms in overseas markets is basically shut now."
Longtop, which began trading on the New York Stock Exchange in 2007, was suspended in May as the US Securities Exchange Commission started investigating. The company was delisted last month. At the time trading was halted, Longtop had a market capitalization of US$1.09 billion and its share price was about US$18.93.
Its shares now trade over the counter, closing at 26 US cents on Tuesday.
In May, Joe Mikus, a US investor, sued Longtop in a US court and has been seeking to represent people who bought Longtop shares beginning in June 2009.
Mikus claims investors lost money when the shares fell 33 percent on April 26 to around US$22 after reports questioned the company's finances.
Although, securities class action lawsuits are common in the US, there is a worrying trend. Asian companies now make up the majority of US federal securities class action suits filed against foreign companies, with most coming from China, according to a research paper issued by Marsh (Beijing) Insurance Brokers.
So far this year, 34 securities class action suits have been filed against US-listed Chinese firms, according to Wei Gang, senior vice president of Marsh (Beijing).
Last year, the number was 13 Chinese firms and most of them landed in US markets via reverse mergers, according to Wei. From 2007 to 2009, only nine Chinese firms were sued by US investors.
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