S -Chips , check out their external auditors

Hi Reck - Every share has its price. Its simply upside vs downside. As retail investors do not have insider info,  stick to buying low PE & price/NAV shares and wait. Better than chasing high PE shares and sweat.
As for Dapai. it has built up a stong brand and distribution network which is difficult to be replicated by competitors. But its lousy IR dept needs as an overhaul.

Morgan Stanley Goes Against the Shorts in China
It's investing $50 million in Yongye International, a fertilizer company that's been under attack

By Mohammed Hadi, Dune Lawrence and Eva Woo


On the morning of May 18, Kevin Barnes published a report accusing executives of Chinese fertilizer maker Yongye International of using acquisitions to loot cash from the company and manipulate earnings. Barnes, an analyst at hedge fund Absaroka Capital Management in Cheyenne, Wyo., said Absaroka had sold Yongye shares short, betting they would decline. The stock fell 23 percent over the next two days.

While that sounds like yet another case of a short-seller bringing down the stock of a Chinese company trading on a U.S. exchange, this story has a twist. Less than two weeks after Barnes published his report, Morgan Stanley’s Asian private equity unit said it would buy $50 million of preferred stock in Yongye, pushing its Nasdaq-listed shares up 42 percent in a single session.

Morgan Stanley’s is one of at least six private equity funds wagering that accusations made by short-sellers have created bargains among U.S.-listed Chinese companies.  “Half the people, the longs, think the whole market is suffering because of the sins of the few, and therefore it’s a buying opportunity,” says Phil Groves, president of Hong Kong-based DAC Financial Management China, which does due diligence in China for investors. “The other half, the shorts, thinks there are a bunch of companies that are still trading but really worthless. Both have an opportunity to make money, because not every Chinese company listed in the U.S. is bad.”

Short-sellers have been targeting some of the more than 150 closely held Chinese companies such as Yongye that have entered U.S. markets since 2007 by buying a publicly traded shell company, avoiding normal scrutiny by exchanges and investors. On June 9, the Securities and Exchange Commission urged investors to be cautious when buying shares of so-called reverse-merger companies. The agency has revoked the registrations of at least eight Chinese companies since December, and more than 24 have disclosed auditor resignations or accounting flaws to the agency since March, SEC Chairman Mary Schapiro said in an Apr. 27 letter. The problems have cast a shadow over all Chinese stocks trading in the U.S., which have lost about $5.35 billion in market value this year through June 28.

Since February at least six buyouts of U.S.-listed Chinese companies have been announced, with a total value of $1.96 billion, according to data compiled by Bloomberg. On May 20, for example, Bain Capital agreed to buy China Fire & Security for about $234 million.

The provisions of the Yongye deal give Morgan Stanley plenty of protection. The bank is buying preferred shares that can be converted into common stock in the next five years, giving it a stake of about 10 percent depending on company performance, according to filings. The deal has conditions: If Yongye fails to meet specified targets, including at least 20 percent annual profit growth from 2011 to 2014, Morgan Stanley can get its money back with a premium.

Yongye, which produces nutrients sprayed on plants and added to animal feed, is an “exceptional company that has built significant brand recognition,” Homer Sun, managing director of Morgan Stanley Private Equity Asia, said in a May 31 press release announcing the deal. The fund did “extensive due diligence” on the Beijing-based company, the statement said.

Inside a two-story cement office building at a company factory complex in Hohhot, a city of 2.7 million in China’s northern province of Inner Mongolia, Yongye Chairman and Chief Executive Officer Wu Zishen says that all of Barnes’s allegations are false. Negotiations with Morgan Stanley had been going on for months, and the bank provided “a thorough health check to prove we are clean,” Wu says.

Yongye is the third Chinese company to be targeted by Absaroka’s Barnes, who says he worked in the global natural resources investment banking group at JPMorgan Chase from 2003 to 2009. China Shen Zhou Mining & Resources and SkyPeople Fruit Juice both saw shares slump after Absaroka published negative reports.

Barnes hasn’t been as successful with his forecast about Yongye. Shares closed at $5.27 on June 28, up 15 percent since the day before release of the Absaroka report. Short-selling has fallen to 3 percent of outstanding shares as of June 24, from a record 9.4 percent on Apr. 4, according to Data Explorers, a research firm based in London and New York.

Barnes, who traveled to Inner Mongolia in June to continue his research, says he stands by his conclusions. He adds that if Morgan Stanley’s and the other private equity firms’ investments turn out to be successful, it will be in part because the questions raised by short-sellers highlighted concerns the firms could address before making deals. “Private equity investors that are putting new money to work in U.S.-listed Chinese firms,” he says, “are benefiting from a voluminous amount of due diligence work completed by short-sellers.”

The bottom line: Private equity firms see opportunity among U.S.-listed Chinese stocks, some of which have been attacked by short-sellers.

DMG Report 21/07/11
kfc1973-stock.blogspot.com/2011/07/s-chi...n-corporate-day.html

China's economy has been doubling every 7 yrs and will surpass that of USA within 10 to 15 yrs. Nobody can ignore the China market  and S-Chips are here to stay, hence should learn to navigate this minefield or stay out completely. With the recent high profile accounting problems of China companies listed in US, UK etc, hopefully this will be a watershed yr for S-Chips?

Excerpt from BT article some time back. For our education....:


Some IPO aspirants would arrange for auditors and IPO managers to meet bank staff at the branches of Chinese banks, who would then verify that the cash stated in the accounts is intact.

But as some IPO managers have encountered, these bank staff may have been paid to masquerade as officers of the bank.

'The namecard of the bank manager might be real, but that guy you met isn't that bank manager,' said another IPO manager, adding that they rely on introductions through the companies because they have no personal contact with the Chinese banks.

IPO managers have now wised up, showing up impromptu at the banks and requesting an immediate meeting with real bank officers.

In other cases, auditors and IPO managers have sent letters to the banks to verify the accounts. These letters are sent to the companies, rather than to the banks directly.

But instead of sending these letters to banks, some Chinese companies have taken to forging letters from the banks - some of which do not have letterheads in their letters - with fake bank seals.

And because Chinese companies use the company seals instead of signatures of staff on documents, it's not difficult for staff to make some unauthorised transactions with a fake seal too.

What compounds the corporate governance issue is that some owners of Chinese listings believe that it is their right to withdraw money kept in the companies' accounts for their personal use, said one banker.

He noted that a handful of Chinese chief executives had taken out money from the companies' coffers to invest in the booming property market over the last few years, with the genuine intention of returning the money to the company when they have profited from the investment.

'The CEO might actually want to return the money. But when the market tanked, he made losses in his investment and he was suddenly left with no money,' the banker noted.

IPO managers have, for many years now, employed private investigators to check up on IPO aspirants from not just China, but Singapore and other parts of the region, bankers said.

'Their charges are cheaper than lawyers'. And lawyers qualify too many of their statements,' said one banker.

And private investigators have been asked to find out not only how these tycoons made their private wealth but also if the operations of these companies are genuine.

By now, bankers are all too familiar with Chinese companies setting up tours to factories that they've rented for a few days as proof that their operations exist.

Bankers have started to quiz employees at the factories to verify that their operations are not a ruse. It is not uncommon to have 'staff' who were paid to pretend to man the machines for a few hours when there were guests.

Over the years, private investigators have saved IPO managers from going into some dodgy deals, with one banker estimating these to be at least one-third of total transactions that they review, as they've uncovered doctored pictures of shop signs and unsavoury sources of revenue.

The government's recent move to attract more foreigners to settle here has had some positive externalities for the IPO market. Bankers now bring families of Chinese CEOs leading IPO aspirants to Singapore to visit schools and flats, in the hope of getting them to settle here.

The assumption is that if they are based here, it's less likely for them to run away, one banker quipped.

What are the penealties for Independent Directors (IDs) of S-chips that have committed fraud??? When there is trouble, the IDs resign. Does that release them of all responsibilities??? The IDs are supposed to protect the interests of the minority shareholders who have no way to check on the companies. Moreover, some IDs are also IDs in several troubled S-chips. What can SGX do??? What can the shareholders do???