Hunan's Taizinai sacks Goldman

Amazing tale of Chinese corporate malfeasance which unfortunately isn't in the minority for Chinese companies. Only thing missing from the story are the mistresses.

Naomi Rovnick in the SCMP:

As Western investments into mainland companies go, Goldman Sachs, Morgan Stanley and UK private equity firm Actis Capital's decision to plough US$73 million into yoghurt drink maker Hunan Taizinai may qualify as one of the worst.

Factories like temples...

"Li's Zhuzhou facility contains several enormous yoghurt factories built in the style of roman temples, clad with marble, with Pantheon-style columns lined up along one wall of each building, two people who have visited said.

The frontage of Li's office headquarters is a near-exact replica of the Gate of Heavenly Peace in Beijing. That building is so vast that the lobby covers around 7,000 square feet. The founder's office, on the floor above, covers 7,000 square feet as well.

Li also erected a life-sized statue of himself in the Zhuzhou grounds, said to be made of solid jade. The price of the statue, which has disappeared from the facility, is unknown. But the ornament is said to have cost HK$130,000 just to transport from Shenzhen, where Li bought it."

Anyone still think they can consistently make money investing in small to midsize China companies?

10 hours of labour to afford a pizza

Jizza Hutt workers can enjoy this lovely large pizza for dinner everyday @HK$208 each. They however need to work 10 hours at Jizza Hutt's hourly wage of HK$21.40 (US$2.80). This is the lowest of HK's major fast food chains so the workers will need to put in some overtime.

Jardines Group which now runs Jizza Hutt in HK, has moved on from running opium to selling pizzas to the natives but in their greed for profits they overlook Henry Ford's idea of paying the workers enough to afford their products.

But then, their worker serfs can just settle for the regular sized pizza and break even with only one day's work.

New World again

The most shameless developer in town, greed that can only be tamed at the end of a guillotine.

"Five years ago, New World Development sold about 200 flats to staff and business partners at The Merton in Kennedy Town - a project it developed with the Urban Renewal Authority. The private sale sparked criticism of the way developers go about marketing their projects.



Now similar questions are being raised about another New World-URA project, The Masterpiece in Tsim Sha Tsui. And once again, New World is being accused of manipulating the property market by selling 39 flats to business associates at the beginning of private sales - a practice which lawmakers said was aimed at artificially creating a picture of good sales. At a later stage flats were also sold to the company's top management and their relatives "

Push to extend flat sale curbs to URA partners

Robber barons at work assisted by the Urban Renewal Authority, first rezone commercial areas to residential then profit. New World Development the same barons who bought the Hung Hom Peninsula for well below market and then hired the Permanent Secretary for Housing, Planning and Lands, Leung Chin-man when he retired.

The New World conglomerate's grand-father cheng when asked would he gift his new grand-daughter in law, replied: 'she's getting my grandson, isn't that enough of a gift?'

Class and humility.

"Development minister Carrie Lam Cheng Yuet-ngor yesterday pledged to ask the Urban Renewal Authority to consider extending to its project partners the authority's restrictions on sales to staff.

The pledge came after seven of the first 30 flats of The Masterpiece development in Tsim Sha Tsui were found to have been bought by relatives of New World Development managing director Henry Cheng Kar-shun."

Society breaking down

The wealth gap is widening such that there is no middle class - just into two camps where the 1% owns 90% of the resources. Teachers, scientists, technicians and engineers have become the slaves of that 1% where they are taxed at multiple points, first by the government then by the 1%.

Dual income couples starting off cannot break into the housing market generating hopelessness, frustration and anger.

This is an international phenomenon and the guillotines will be rolling out soon.

Wealth Disparities in U.S. Approaching 1920s Levels

HK government puppets, business masters

One person multiple votes.

SCMP:

Among the 12 seats, four small functional constituencies had fewer than 200 registered voters, with the financial sector having just 140 - the smallest number of voters in all the functional constituencies. However, the actual number of voters may be even smaller than the official figures, as some large companies can have more than one vote in one sector through their subsidiaries.

In the transport constituency, which had only 178 registered electors in 2008, property tycoon Cheng Yu-tung's New World Development had five votes, including Citybus and New World First Ferry Services.

Tycoon Li Ka-shing's Hutchison Whampoa (SEHK: 0013) controlled at least four votes in this sector with its subsidiaries including Hongkong United Dockyards and Hongkong Salvage and Towage.

With subsidiaries taking in the property, hotel, retail, transport and information technology industries, Li's Cheung Kong (SEHK: 0001) Group and Hutchison Whampoa had at least 20 multiple corporate voters across eight sectors in the 2008 election, according to a search of the two companies' subsidiaries listed in their annual reports. The Kwok family's Sun Hung Kai Properties (SEHK: 0016) controlled at least 10 votes, with a number of voters in the tourism sector, including The Royal Garden and Royal Park Hotel.

New World Development had 11 multiple voters, while tycoon Lee Shau-kee's Henderson Land Development (SEHK: 0012) Company controlled at least seven votes. Wharf, chaired by former chief executive candidate Peter Woo Kwong-ching, had at least six votes.

And as expected from a non representative government, they pull from the bin of pathetic ridiculous excuses...

In its consultation paper on constitutional reform, the government noted public views that the functional constituencies electorate should be broadened, but proposed no alternatives.

The paper said: "This is because the process would be too complicated and involve the interests of many different sectors and individuals. It would not be easy for the community to reach consensus on this matter."

New World China Land 0917

Make 200+% profit by being a son-in-law of Cheng Yu-tung, the controlling shareholder of a publicly listed company.

"

A mainland appraiser put the value at 6.6 billion yuan (HK$7.49 billion). Doo is selling it for 5.8 billion yuan.

Doo, who initially held 30 per cent of the project, bought the remaining 70 per cent through two separate deals from New World in December last year and June for a total of 1.3 billion yuan. New World valued the project at about 1.9 billion yuan, although an independent appraiser put the value at 4.5 billion yuan in December and raised it to 5.2 billion yuan six months later. New World did not explain why it had chosen not to price the project according to the independent appraisal.

"

Verdict: avoid even if New World was the only listed stock on the market available for investment - spend your money on beer instead.

Sinotronics 1195 shenanigans webs Webb

Another one of the notorious Fujian based companies (amongst others like First Natural, Chaoda,...) with opaque corporate governance.

Sinotronics is an electronics manufacturing company with has a NAV of over HKD$1/share, cash of ~$1.17/share, total debt of 0.81/share. At the time of writing Sinotronics had a market cap of $154m.

In summary:

The trouble started in Feb/April 2007 when they entered into two interest swap agreements with Douche bank with notational values of $390m and USD$100m. This was a disastrous deal, which while they received upfront payments of HKD$39m and USD$10m from Douche bank, they had to settle semi-annually with some index contrived by the bank ("Douche bank Pan-Asian Forward Rate Bias Index"). The "bias" in the name didn't set off alarm bells.

The controlling shareholder, Lin Wang Qiang, to his credit (or regret) subsequently offered to indemnify Sinotronics against derivative losses on Dec 2007.

The famous crusader of corporate governance in HK, David Webb purchases 880k shares avg 0.88/share giving him a total of 34m shares (6.09%)

Sinotronics decided the terms of the interest swap agreements were onerous and stopped paying interest on Oct 2008 and Douche bank sued and Sinotronics counter sued saying a Douching bank employee allegedly misled them.

Webb sells 600k shares @0.38 (-56% loss) and is below the 5% reporting threshold and has 27.7m shares left. Together with his other vehicle Preferable Situation has 3.4m shares or 6.04%.

Sinotronics and Douche settled on Nov 2009 with Sinotronics agreement to pay "less than US$23.7m" the original demand, the exact amount is not revealed.

To access the funds to pay this (keep in mind they have HKD$648m in cash):

- Lin Wang Qiang under terms of his indemnity agreement was now on the hook for HK$29.2m and to pay this he decided to sell all his shares (230m shares).

- Sinotronics decides to do a open offer of 1 share for 2 at a price of 0.18cents/share.

Friday 20 Nov 2009, Union Day Group files a notice saying they have 169m or 30% of the company.

Tuesday 24 Nov 2009. Stock is suspended from trading and reopened on Wednesday with the announcement that Mr Lin had sold all his shares to Upbest the unbelievable price of 0.18 each and with regulatory requirements will make a general offer for all outstanding shares at the derisory price of 0.18 each.

Stock opens at 0.45 (from the previous closing of 0.275), peaks at 0.59 and at this time trading at 0.44 giving it a market cap of $245m.

Now this is a company that for the last 5 years averaged over $100m/year in FCF. Why are they continuously raising funds when they have so much cash? Is the cash still there?

Endwave (ENWV) hubris

.. or greed?

Entrenched management with hands in cookie jar - salaried helpers who just can't release that tit. The Endwave (ENWV) management really needs to end it all and liquidate. Trading at $2.40, no debt and $7/share in cash.

How to strip a company in HK

Let's say you have a company listed on the HKEX and you have voting control and there are numerous family controlled companies on the HKEX.

The 3 simple steps to legally raping the public shareholders:

1. Form a BVI company owned by the chairman

2. Issue warrants/convertible bonds to said BVI company at a STEEP discount, vote in favor of this.

3. PROFIT!!!!

Of course there is no requirement to disclose who really owns the BVI company.

What will the HKEX do? (Sweet FA)

More about how Tack Hsin (0611) company is doing it.

Ex-Ernst & Young partner strips Akai assets

Even the auditors are in bed with the thieves. In a similar situation in the US there would be lynch mobs and blood on the streets, here in HK there is just ghostly silence from the regulators who are acutely aware who feeds them.

E&Y settles with the liquidators for US$400m when their documents were found to be forged. A E&Y partner who was in charge of audit and now chairman of E&Y resigns, obviously spent his time on the audit drinking.

They claimed that David Sun Tak-kei, the independent review partner on the audit from 1991 to 19999, did a mere seven hours of work on Akai's audit in the three years leading up to the company's collapse.

Sun is now Ernst & Young's co-managing partner for the Far East, although he relinquished his other role as chairman for China and Hong Kong on September 30, the day after Ernst & Young's premises were raided by the Commercial Crime Bureau.

Another ex-partner accused of raping Akai by moving it's assets to one of his own companies now settles for US$100m.

The HK police have opened an investigation into E&Y forgery (going by their record this won't amount to much) but hopefully they will open another case into Ho and Grande, not to mention the Akai founder, Ting.

HKEX does what it does best... sweet FA.

SCMP:

Akai saga ends with 'US$100m payout'
Naomi Rovnick
Oct 06, 2009


Almost a decade after the spectacular collapse of Hong Kong electronics conglomerate Akai, the saga has ended with the failed firm's liquidators securing a major moral and financial victory for its creditors.

Hong Kong tycoon Christopher Ho Wing-on and his locally listed company Grande yesterday settled a High Court case brought against them by Akai's liquidators, Borrelli Walsh. The payout exceeded US$100 million, people familiar with the negotiations said.

Borrelli Walsh began suing Ho and Grande for up to US$500 million in late 2007. They claimed Ho conspired with Akai's former chairman James Ting to strip the failed company's assets, so there was nothing left in the business for its creditors. They have also claimed Ting plundered US$800 million from Akai, concealing the thefts with the use of fake bank accounts and fabricated investments. Ho and Grande have denied the claims against them.

On September 23, Borrelli Walsh wrested about US$400 million out of Akai's former accountants, Ernst & Young Hong Kong, which it had accused of audit negligence. The accountant's defence collapsed after the liquidators said the firm had falsified some of its evidence. Hong Kong police are now investigating that claim.

Akai collapsed in 2000 owing more than US$1.1 billion to creditors, including HSBC (SEHK: 0005, announcements, news) and Standard Chartered. When liquidator Cosimo Borrelli took charge of the business in 2001, he found just US$167,000 worth of cash and assets, according to previous court rulings. In the mid-1990s, Akai had more than 100,000 staff and owned brands including America's Singer Sewing Machines, Akai Electric and Sansui.

In November 1999, Ting and Ho injected all of Akai's businesses into Grande, according to multiple court rulings. Akai's shareholders and banks were not told about the deal, which the Hong Kong Stock Exchange has never investigated. EY Hong Kong was alleged to have advised Grande on the transaction.

Ting was imprisoned for false accounting in 2005 but released a year later on appeal, following errors in the prosecution's case.

Grande Holdings now licenses the Akai and Sansui brands to electronics manufacturers, according to its most recent annual report.

The settlement has saved Ho from a potentially embarrassing session in the witness box. He was due to be cross examined by the liquidators' barrister Leslie Kosmin QC.

Last week Ho, through his lawyers, told the court he borrowed HK$500 million for gambling from Sociedade de Turismo e Diversoes de Macau, casino mogul Stanley Ho Hung-sun's holding company. Kosmin said the loan document the Grande boss provided did not look authentic.

In February, Mr Justice William Stone froze Ho's assets to stop him potentially shielding his wealth from the liquidators.

Ho breached the terms of that order by "siphoning" HK$300 million of cash through his family trust, Stone wrote on September 1. Ho then lost control of all his assets, which the judge placed into receivership. With the settlement, this order has been reversed.

Ho, who did not appear in court yesterday, could not be reached for comment. Grande could also not be reached.

Chinese officials threaten to blow up family's dam

Official extortion

''Foreigners should not invest in China. It's no use. When they see something valuable, they steal it.''"

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.

Things didn't get better for them. Soon, they were told a new company was prepared to buy the main company's assets for $298 million as part of a restructuring plan. The plan would pay foreign creditors even less for their debt than Mr. Kwong's earlier offer, according to a preliminary estimate: senior-note holders would receive about 20 cents on the dollar, while the PIK noteholders who were owed a total of around $800 million, would receive just one cent on the dollar. That compared with 13.5 cents in the previous offer.

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.

PCCW vote buying

Puppet Master: ??

Deputy Puppet Master: Francis Yuen - ex stock exchange CEO, ex chairman Pacific Century Insurance, present deputy chairman  Pacific Century Regional Developments

Puppet controller: Lam Hau-wah: regional director, Fortis Insurance (Asia) (formerly Pacific Century Insurance Company Ltd)

Puppets: 465 Fortis insurance employees

Cost of Deal: $15B HKD

For privatizations in HK there has to be supported by >50% number of shareholders and >75% share holders. Since many public companies are family controlled (minimum 25% of shares with the public) they can get past the later hurdle easily. In this case to get over the 50% number of shareholders hurdle, 500,000 shares were bought (500 board lots) ~@ $3.5/share, total $1.75m HKD and were distrubed to Fortis employees in exchange for signing a proxy in support for the PCCW privatization.  This exchange was described in various terms as a "bonus" by Yam Hau-wah who obviously has a warped sense of what a bonus is.  

Michael Todd QC, counsel of PCCW, descended from an alternate universe, reading from the 1984 playbook, argued that the SFC was "attacking innocent people such as PCCW's minority shareholders". An absurd argument that reflects the hubris behind the main business players who expect to steamroll the SFC and HK government as they have done in the past.

Expected verdict: Spirit of the law was violated but is legal. PCCW will be privatized, main players will grant themselves a huge cash dividend to pay for the deal and get the rest of the upside. Minority shareholders can work hard for the next 10 years to repair their balance sheets until they forget and buy into another Tom IPO.

Greed blinds christies

“Christie’s regrets that the State Administration of Cultural Heritage has taken the unusual step of announcing reprisal measures as a consequence of Christie’s legal auction of the fountainheads in Paris this week,”

"Unusual" but surely not unexpected.  A shortsighted scramble for silver coins in a snake's cage. An unbelievable demonstration of poor judgement which can only be the consequence of greed.

“We continue to believe that sale by public auction offers the best opportunity for items to be repatriated as a result of worldwide exposure,” the Christie’s statement said.