KUALA LUMPUR (July 8): Some Malaysian-listed Chinese companies -- or M-chips as some have termed them -- are in danger of being kicked out of Bursa Malaysia soon as they repeatedly fail to meet listing requirements, even one as basic as producing audited accounts for public perusal.

But what is more telling, is that their departure may not be missed, as The Edge Malaysia's senior news editor Cindy Yeap and senior writer Liew Jia Teng wrote in the cover story 'China-based firms under scrutiny' for the week of July 10-July 16.

Undeniably, the bad publicity and poor perception investors have of most, if not all China-based companies, “is certainly serious”, Lya Rahman, general manager of the Minority Shareholder Watchdog Group, better known by its acronym MWSG, told the weekly.

And it cannot just be “wrong perception” if there had been bad corporate governance and fraudulent practices, she said. But, she was also quick to point out that, to be fair, not all China-based companies should be tarred with the same brush.

Yet, it doesn't help that among the 12 Malaysian-listed Chinese companies -- 13 if Sino Hua-Ann, which has Chinese assets, is included -- at least three have been questioned by external auditors and another three have been late in submitting their audited accounts.

Last Monday, Bursa issued a show-cause letter to Multi Sports Holdings Ltd, demanding that the company, listed here in August 2009, explain by July 10 why it should not be delisted after failing to produce its audited accounts despite having been given more time.

Sino HuaAnn International Bhd, among the earliest China-based companies to list in Kuala Lumpur, has also been given a deadline to regularise its operations or face delisting.

Understandably, many of their share prices have fallen well below their initial public offering price, with investors losing as much as 98% of their initial capital. Case in point: Maxwell International Holdings, which also made its debut on Bursa in 2009.

It doesn't help that those with sizeable cash hoards have been showing seemingly low interest income in their balance sheet. More baffling is how those with such cash balances, like XiDeLang Holdings Ltd, still found it necessary to make cash calls.

“Why should a company like XingQuan (International Sport Holdings Ltd), sitting on an enormous cash pile in its books, carry out a rights issue to raise cash from Malaysia? Why was its huge cash reserve not employed internally for business expansion?” Datin Ho CHoy Meng, president of Malaysian Investors' Association, asked. 

The fall in M-chips stock price may be partly because of the lack of research coverage on them, though analysts can't be blamed entirely for the lack of conviction in these counters. “The fixed assets of these companies are located too far away, which means greater difficulty in doing any site visiting” for investors to “check their premises, staff and working conditions”, said Ho. 

It would be extreme if regulators shut the door on foreign IPOs to protect investors just because these foreign companies are too far away to be checked out. Still, greater scrutiny is warranted, the weekly wrote.

“We certainly need stricter rules, going by what has happened in the past. Bursa has been trying to beef up the listing requirements applicable to China-based companies and hopefully, with more stringent rules, we can prevent or reduce such undesirable happenings and head in the right direction,” said MSWG’s Lya.

Stock exchanges, she asserted, “should not compromise on quality just to attract more IPOs”. She is also calling for a thorough analysis on why scams “seem to be more rampant among China-based companies”.

“What stock exchanges require are quality companies with good corporate governance practices and not those that will tarnish the capital markets and cause investors to lose money and suffer.

“The last thing we want is to have the image or reputation of our capital market dented and investor confi dence shattered. Regulators should ensure that investors’ interests are protected,” she added.

Pick up a copy of The Edge today to find out more on what's the latest with these M-chips, the major shareholders who dumped their shares after the debut, and what really needs to be done. Check out also what's going on with Chinese companies listed outside Malaysia.

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