Tuesday, August 25, 2009

China investment risk

Frightening article highlighting the lack of regulations in China, which unfortunately happens too often. Management gain owernership of companies through opaque background dealings and the lack of regulatory control and enforcement.

The safest path of China investment is in large cap/quasi government companies which can both withstand and punish (bullet in head) fraud.

The buyer, called Golden Concord, immediately aroused suspicions among some investors because its management included unidentified Asia Aluminum executives. Creditors say Asia Aluminum's court-appointed receivers told them Mr. Kwong had no financial interest in Golden Concord, but little else.

Golden Concord didn't respond to requests for comment.

"I'm amazed the employees of a bankrupt company would have so much money that they could take it over," says Damien Wood, head of credit research for Asia ex-Japan at Credit Suisse in Singapore. "It just raises massive questions everywhere."

Some creditors tried to fight that plan, enlisting Norsk Hydro, a Norwegian aluminum maker, as a white knight. But even before Norsk Hydro could make a firm offer, government officials in Zhaoqing, the city where Asia Aluminum's facilities were based, issued a statement saying that they weren't interested.

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