Audits find irregularities in financial statements of 17 Chinese SOEs
Updated May 20, 2011 05:53 PM Comments (0) View comments BEIJING (Xinhua) -- Some irregularities and disciplinary violations were found in the financial statements of 17 Chinese state-owned enterprises (SOEs) for the 2009 fiscal year, according to audit reports released by the National Audit Office (NAO) on Friday. By March this year, 735 cases of irregularities have been corrected and 65 people responsible for the irregularities or violations have been punished, said the office. Last year, the NAO audited the financial statements of 17 centrally-administered SOEs, including CNOOC, CHALCO, COSCO and China Unicom, mostly for the 2009 fiscal year. Assets worth about 1.9 billion yuan (292.4 million U.S. dollars) and profits of 2.63 billion yuan were overstated in the financial statements of those SOEs, while 3.43 billion yuan in liabilities were falsely included, according to the NAO reports. Also, profits of 1.2 billion yuan, assets worth 2.9 billion yuan and liabilities of 2.5 billion yuan were undercounted, according to NAO. Furthermore, owners' equities worth 2.07 billion yuan were not calculated in financial statements.
DEALTALK - Private equity wants to take China orphans home (2011/05/24 11:43AM)
By Stephen Aldred
HONG KONG, May 20 (Reuters - Private equity firms are working on a series of deals to buy so-called " China orphans", mainland firms listed in the United States and Singapore, with their stocks undervalued by investors who don't understand their business model or home market.
The deals are pushing ahead even as a series of accountancy and governance scandals that have tarnished the reputation of China companies listed overseas in recent months, and hammered stock values.
Last week, Bain Capital Partners agreed to buy U.S. listed China Fire & Security Group Inc for $265.5 million, becoming the first major global buyout firm to close in on such a deal.
A slew of other buyout deals are in the works, including Kohlberg KravisRoberts & Co''s planned bid for Singapore listed Oceanus Ltd, Primavera''s privatisation of U.S.-listed Chemspec Ltd , and PAG Asia Capital''s planned buyout of Funtalk China Holdings Ltd .
Singapore''s China Animal Healthcare, backed by Blackstone Group L.P. , is in talks with investment banks to list on the Hong Kong stock exchange and delist from Singapore, according to four sources familiar with the matter. Blackstone and China Animal declined comment.
Such buyouts, known in banking circles as “take China privates”, involve delisting companies from the U.S. or Singapore, and eventually relist them in Hong Kong or China to increase their market values.
The deal sizes are relatively small, but history shows there is a decent upside potential for the right target.
Morgan Stanley Private Equity''s delisting of Sihuan Pharmaceutical Holdings Group Ltd < 0460.HK> is regularly cited as an example of returns that can be made with the right target.
MSPE took Sihuan private in Singapore in 2009, identifying a company that required no additional work before relisting in Hong Kong in October 2010. The stock jumped 28 percent on its IPO, with top-end pricing valuing the company at 26.7 times 2011 earnings.
Even hybrid firms are jumping in on the act, with Morgan Stanley-backed Hong Kong fund Abax Capital in discussions with Harbin Electric for a buyout deal according to sources working on the deal.
Harbin has been in the market since last year and was previously in discussions with Baring Asia Private Equity, while banks are one point tried to line up financing to back a bid by CVC Asia Capital
PLENTY OF RISKS
Such deals are not without significant risks.
The head of a leading regional private equity firm gave an example of a deal where his firm pulled out when it discovered that the target company had hidden unconsolidated shares at a subsidiary and had not disclosed that it had guaranteed loans for the subsidiary company.
" I don''t see this kind of behaviour anywhere else. I can only put it down to people trying to bury their problems, and hoping to deal with them in the future," said the source, who declined to be named because the discussions were private.
Many of the small and mid-cap firms listed in the U.S. got there through reverse takeovers, while Singapore''s small and mid-cap " S-chips" ducked the more stringent requirements on profits and management continuity required by the Hong Kong Exchange.
" There''s a reason why some of these companies listed through the back door. It''s because they couldn''t get i through the front door," said one senior banker whose bank is working on a number of potential buyouts for orphan companies.
Funding for buyouts of Chinese companies is done through an offshore holding company, but the risk of non-payment is high, and many banks cannot lend on such deals.
Banks have to get comfortable with the risk that the firm will make enough revenue to pay the debt, that it will agree to upstream the money to the holding company, and that the Chinese regulators will sign off on the transaction.
A previous Abax bid illustrated the risky nature of the deals and the need for a thorough due diligence process.
Abax, which styles itself as a hedge fund and private equity firm, caught traditional private equity firms off-guard, jumping in with a bid for Fushi Copperweld in November 2010 .
Abax then broke off the talks in February, shortly before Fushi Copperweld restated its results for 2007, 2008 and 2009.
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