Moody’s Investors Service cited five Chinese companies as having more “red flags” on corporate governance than others it examined, sending shares of West China Cement Ltd. to a record decline.
The ratings company looked at criteria that “highlight issues meriting scrutiny to identify possible governance or accounting risks,” analysts led by Elizabeth Allen in Hong Kong wrote in a report issued yesterday. All 61 companies Moody’s examined raised “red flags,” with West China Cement, Winsway Coking Coal Holding, China Lumena New Materials Corp., Hidili Industry International Development Ltd. (1393) and LDK Solar Co. cited as “negative outliers.”
These companies all raised at least nine out of 20 possible red flags, more than were raised by Sino-Forest Corp. (TRE), the tree- plantation owner that fell 83 per cent last month after being targeted by short seller Carson Block. West China Cement Chairman Zhang Jimin’s 41 per cent stake in the company, cited as having the most red flags, dropped by as much as HK$1.3bn (US$167m), according to data compiled by Bloomberg.
“Investors have already been nervous about this kind of news and it’s making them lose confidence in some private Chinese companies,” said Ben Kwong, chief operating officer at KGI Asia Ltd. “In the short term, investors will be more prudent in investing in them.”
Sin Lik Man, West China Cement’s board secretary, said that the company is “absolutely” in line with international financial reporting standards.
“I disagree with Moody’s claim and think it is misleading,” Sin said.
Huang Lanyi, Hidili Industry’s board secretary who is in charge of investor relations, said by phone today that the Moody’s report is “not based on fact.”