Chaoda reaping the suckers

Same old story. Waits till there is a pop in the share price then raises more capital ($200m bonds).

If successful, the agricultural giant, which has been criticised by analysts for paying too much money for farmland that remains idle, will have raised US$771 million in share and bond sales during the past two years.


Chaoda, which did not respond to emailed questions, said in mail to potential investors it would spend the proceeds from its planned bond sale on expanding its production base and infrastructure.

The company's shares closed at HK$4.89 - a bargain-basement price of 4.5 times forecast earnings.

On March 31, before Chaoda announced its latest fund-raising, analysts at Macquarie accused the company of spending the money it made from its agricultural operations on an "enormous and growing land bank that does not produce revenues".

Macquarie analysts Jake Lynch and Jamie Zhou said the cash Chaoda had raised from regular stock and bond sales "continues to sit on the balance sheet".

In its last set of annual accounts, Chaoda said it had more than 2 billion yuan (HK$2.38 billion) in net cash.

Macquarie estimated Chaoda used only 24 per cent of its land for growing fruit, vegetables or grains, adding the company had never explained in its annual reports what it did with the rest.

There was "no transparency on 76 per cent of the land on the balance sheet", it said.

"The raw fact is that this land generates no revenues now and management cannot tell us when they expect the revenues to commence."

Chaoda, which was founded in 1997 by Kwok Ho, has regularly been mired in controversy since its Hong Kong flotation in 2000.

The company says it is China's largest vegetable grower. But some investors and analysts say this is impossible to prove because the mainland has no formal registry for agricultural land.

In 2002, big four auditor PricewaterhouseCoopers said it could not endorse Chaoda's annual results, and resigned.

The farming firm replaced PwC with the much-smaller CCIF and Baker Tilly, which both stepped down in 2007. It is now audited by mid-sized BDO.

Since 2002, Kwok has gradually reduced his ownership of the company by arranging regular issues of new shares.

The company's chief financial officer, Andy Chan Chi-po, has now sold all his stock, according to Macquarie.