China sows seeds of fear in Singapore

John Burton
The Financial Times

A suspension in share trading of two Singapore-listed Chinese companies due to debt servicing problems has undermined investor confidence in the China-related sector that has been a driving force behind the Singapore Exchange’s recent growth.

The trading halts were in response to a disclosure by FerroChina, a steel-coil maker, that it was unable to repay short-term loans and reports that the owners of China Printing & Dying Holdings had gone into hiding due to financial troubles.

Analysts say the debt problems of FerroChina and China Printing suggest bankruptcy threats in China could be more widespread than has been officially admitted.

There are fears that other Singapore-listed China companies, known as S-chips, might face similar difficulties, which has helped push down the FTSE-ST China index by more than 80 per cent this year.

Even the best-known S-chips have not been immune from selling pressure. Cosco, a shipyard company, and Yanlord, a property developer, are the two worst performers among the 30 stocks included in the mainboard Straits Times index this year, although analysts say their balance sheets are healthy.

FerroChina and China Printing “are creating the impression that problems may be lurking among other S-chips. This is going to affect investor sentiment towards them for some time,” said Alan Lok with SIAS Research Investment in Singapore.

Equity analysts have been blamed for failing to heed warning signs, but “it’s also a question of transparency,” said Mr Lok.

FerroChina’s sudden debt disclosure “caught us and the market by complete surprise, given that recent meetings with FerroChina yielded no inklings of such problems,” Lawrence Lye, an analyst at CIMB-GK, a local brokerage, said in a research note.

Transparency issues have been a focus of attention since China Aviation Oil, another S-chip, failed to provide timely information on losses stemming from oil derivatives trading in 2005, which resulted in the city-state’s biggest stock market scandel since Nick Leeson. a Singapore-based trader, caused the collapse of Barings Bank in 1995.

The SGX since then has sought to improve corporate governance and tighten listing procedures for S-chips, which have been crucial to its strategy to expand beyond its limited source of local listings.

About 150 China companies, most of them small and medium-sized businesses, make up nearly a fifth of the 775 listings on the SGX. They are among the most heavily traded stocks by retail investors due to their relatively low prices, with Ferrochina having been among the most popular.

“There is a perception that Hong Kong gets the best China companies and Singapore the second rate ones,” said a Hong Kong-based regional economist.

“Big Chinese companies prefer Hong Kong because it offers greater exposure and closer geographical proximity,” said Mr Lok.

But Han Meng Tan, a Singapore-based Citigroup analyst, says Singapore has been able to attract market leaders in several Chinese sectors, such as textiles. “The financial problems affecting S-chips are also being felt in Hong Kong. This is not just a Singapore problem,” he said.

%d bloggers like this: