By BLOOMBERG
Singapore Exchange Ltd (SGX) has to pay closer attention to the accounting of companies with large operations in China, the bourse’s chief regulatory officer Tan Boon Gin wrote in a column on the company’s website on Tuesday.
Several accounting issues have come to the market operator’s attention, Tan wrote, including customers claiming “compensation more than 10 times the value of the original sales”, sharp increases in trade receivables and significant prepayments.
The column was “based on public information” and the exchange wouldn’t name specific companies, Patricia Choo, SGX’ head of media communications, wrote in an email.
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 showed. During the global financial crisis of 2008, several Chinese companies reported financial irregularities, with many ending up bankrupt, Tan wrote.
“These commercial disputes, such as claims and write-offs, can result in a complete depletion of the company’s entire cash balances or its retained earnings,” Tan wrote. “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.”
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 amidst 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 analysing their financial positions.”
— By Christopher Langner, David Yong & Jonathan Burgos
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