Singapore Bourse Warns China Companies Over Account Issues

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Singapore’s bourse said it will pay closer attention to the accounting of companies with large Chinese operations after recent incidents raised questions.

“Several” companies have announced changes to their financial positions in “perplexing circumstances,” Singapore Exchange Ltd. Chief Regulatory Officer Tan Boon Gin wrote in a column published on the bourse’s website Tuesday. These included customers claiming “compensation more than 10 times the value of the original sales,” as well of write-offs of trade receivables and supplier prepayments, he wrote.

Corporate defaults and accounting scandals are mounting in China as the world’s second-largest economy grows at its slowest pace in 25 years. Of the 769 companies listed on Southeast Asia’s biggest bourse as of October, 123 are from China, exchange data show.

“The board of directors owes a fiduciary duty to shareholders to act in their interests and to safeguard the interest and assets of the company,” Tan wrote. Auditors should be “vigilant” should they encounter such situations, he said.

The column was based on public information and the exchange declined to name specific companies, Patricia Choo, a spokeswoman at SGX, wrote in an e-mail.

Kaisa Default

Accountants reviewing the books of Kaisa Group Holdings Ltd., which became the first Chinese developer to miss payments on dollar bonds this year, found that the company’s debt was double what it had reported in its public accounts. 

In 2009, Chinese waterworks company Sino-Environment Technology Group Ltd. defaulted on bonds denominated in Singapore dollars amid questions over its cash transaction reporting. That same year, Celestial Nutrifoods Ltd. also went into bankruptcy as a result of accounting issues, leaving bonds sold in the city-state unpaid as well.

“The quality of financial disclosure in China is not as good as in developed markets,” said Clement Chong, a senior credit analyst at NN Investment Partners in Singapore. “Not all companies are transparent. Often, it’s a matter of asking the right questions of management and exercising caution when analyzing their financial positions.”

Due Process

Tan said the bourse is concerned about customer claims being settled without due process. Company boards should appoint third-party valuers to verify such claims as well as conduct their own independent investigations, he wrote.

To avoid companies disposing of fixed assets without proper disclosure, directors should ensure controls are in place to question the methods taken by management to recover funds being written off, while boards should also seek independent professional advice when any doubt arises, Tan wrote.

“SGX is closely monitoring disclosures of companies, including those which show large swings in financial positions and performance,” Tan wrote. “Inaccurate or lack of disclosures on compensation claims and settlements without due process is a breach of SGX Listing Rules.”

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