Understanding China, One Blog at a Time

An American in China

Chinese Companies Have Integrity and Trust Issues! More Fraud in China?

Posted by w_thames_the_d on May 20, 2011

“It’s an integrity and confidence issue, and concern that there are these bad-apple companies taints the entire basket of Chinese companies, including those seeking to IPO,” said Rocky Lee, Beijing-based Asia managing partner for law firm Cadwalader Wickersham & Taft LLP, who has worked on more than a dozen U.S. listings by Chinese firms in the last year. “Even IPOs underwritten by major investment banks have felt the impact.”


The Hong Kong-based maker of financial software, whose 2007 initial public offering was underwritten by Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DBK) and which had 11 analyst “buy” ratings, was no match for investor skepticism. Shares slumped 31 percent in a two-day rout that left them at the lowest since March 2009. Yesterday, a day after Nasdaq trading was suspended, the company announced it wouldn’t file financial statements on May 23 as previously planned. It didn’t set a new date.

Longtop’s slide suggests that short-sellers’ allegations of accounting irregularities at smaller Chinese companies that bought their way into U.S. listings are now dragging down the market for larger Chinese IPOs. Renren Inc., a Beijing-based social-networking company, and the 11 other firms that completed offerings in New York this year posted an average offer-to-date loss of 6.3 percent compared with a 5.9 percent gain from all U.S. IPOs, according to data compiled by Bloomberg.

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