Advertisements

Western Tools To Catch An Asian Snake?

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | January 12, 2015
Bamboo Innovator Insight (Issue 65)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.
 Western Tools To Catch An Asian Snake?“Why are there so many short-sellers’ reports, including those by Muddy Waters’ Carson Block, Kerrisdale’s Sahm Adrangi and Anonymous Analytics, in 2011? Why do so many Chinese stocks unravel in accounting frauds in 2011? There’s Sino-Forest, Long-Top, China Agri-Tech, ChinaCast Education etc. Is there a contagion effect in accounting fraud cases? Is accounting fraud a systemic risk? Why is 2011 so ‘special’ as a year of accounting fraud?”

Interestingly, “2011” had happened before – in the late 1990s.

This week marks the 16th anniversary of the bankruptcy of GITIC (Guangdong International Trust and Investment Corp) on Jan 16, 1999, which was the biggest in the history of China to date, and still the first and formal of a major financial institution. The collapse of GITIC led to the closure of hundreds of trust companies and thousands of urban credit cooperatives. Zhu Rongji tasked financial wizard Wang Qishan, the current Vice-Premier and anti-corruption tsar, to clean up the mess. Accounting irregularities were uncovered in many Chinese companies that were affiliated to GITIC. The central government did not bail out GITIC despite great expectations and foreign bondholders in GITIC saw a recovery rate of 12.5%.

2011 is the year of the shadow banking crisis rearing its ugly head, akin to the late 1990s, leading to a tightening in credit conditions, which in turn resulted in companies finding it more difficult to opportunistically use the roll-away “other receivables” accounting tunneling trick with cheap money. The GITIC case informed us that many of the audited investment and financial assets that stood in the books of the balance sheet to generate “revenue” in the income statement did not belong to GITIC at all since it held it in some sort of “trust”. Hence the low asset recovery rate. Credibility of China and Chinese financial system was tarnished for a long time.

Last week also witnessed the first Chinese property company – Kaisa Group Holdings (1638 HK) – to default on offshore bonds held by foreign investors, ranging from BlackRock to Fidelity. Kaisa has total debt of around $5bn.Kaisa

This news was followed by the $24bn reorganization of the business empire controlled by Asia’s wealthiest entrepreneur Li Ka-Shing.  The non-property assets of Li’s Cheung Kong (1 HK) and its subsidiary Hutchison Whampoa (13 HK) would be injected into a new company, Caymans-incorporated CK Hutchison (CKH). Property interests will go into another new Caymans-registered entity, Cheung Kong Property (CKP), which will seek a separate listing.

The “official” reason is said to eliminate the 23% valuation discount that the Cheung Kong stock has to bear with as a holding company of Hutchison. Under the restructuring plan, Cheung Kong shareholders will receive one CKH Holdings share for every Cheung Kong share, while CKH will offer Hutchison shareholders 0.684 CKH share for every Hutchison share. All eligible CKH shareholders will receive one CKP share for every CKH share. The share swap ratio puts Cheung Kong shareholders, including the Li family, at an advantage. Hutchison shareholders will get 31% less of the new entity of the future property and non-property arms than their Cheung Kong peers. The Li family will get a 30.15% direct ownership in both the property and non-property arms, instead of an indirect holding of Hutchison through Cheung Kong.

Noteworthy is that Hutchison could have sold its property business to Cheung Kong for the latter’s non-property assets. This could have been followed by a distribution of Hutchison shares held by Cheung Kong to Cheung Kong shareholders. In addition, Li’s controlled companies have been reducing their exposure to Greater China property, with Hutchinson Whampoa selling off its stake in Hutchinson Harbour Ring, which owns two properties in Shanghai, and other property assets in China. Coupled with the Kaisa default event, the strong actions appear to reflect his bearish outlook on the Greater China market, that something ominous could be imminent?…

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

http://accountancy.smu.edu.sg/faculty/profile/108141/KEE-Koon-Boon

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

Advertisements

Bamboo Innovator Daily Insight: 13 Jan (Tues) – A Man Fell Down A Massive Hole In China And Turned The Experience Into An iPhone Game

Life 

A Man Fell Down A Massive Hole In China And Turned The Experience Into An iPhone Game: BI

How ‘Active Listening’ Makes Both Participants in a Conversation Feel Better: Use Body Language and Verbal Cues to Encourage the Person Talking and Prevent Listener Burnout: WSJ

Let Me Die, Chinese Mother Says as Cancer Bills Pile Up: Bloomberg

One Of The Most Common Theories Of Effective Education May Be A Myth: BI

When a moral machine is better than a flawed human being; Scrutiny of artificial intelligence must challenge ideas about our superiority: FT

Rethinking punishment of CEOs: JA

I tried a brain-altering wearable that allows users to change their moods on demand: Quartz

Grooming Asia’s finance leaders; We need leaders with the prominence to represent the interests of Asian markets, who can help the evolution away from being “regulation-takers”. BT

CEOs in Asia Want More Strategic Thinking From CFOs: CFO

Elusive Middle Ground in Punishment of White-Collar Criminals: NYT

Berkshire Beyond Buffett: Final Chapters: StevenTowns

Greater China

“China’s Buffett” tops ranking of wealthy Chinese investors: FT

Physical exam industry in China looks to be altered by big data: WCT

Xi faces struggle to rein in ballooning car ownership in China: SCMP

More telecoms acquisitions in store for Li conglomerate in Europe: SCMP

In China, Projects to Make Great Wall Feel Small: SCMP

China Water Stress May Worsen Even With Transfer Projects: Bloomberg

Chinese Car Dealers Find Days of ‘Printing Money’ Ending: Bloomberg

Falling Oil Prices Help Overhaul of a Hong Kong Empire: NYT

China’s $300 Billion Errors May Mask Fund Outflows, Goldman Says: Bloomberg

India

Bold messages from Bollywood in an era of intolerance; India is producing films that are socially relevant, entertaining and profitable: FT

Modi Advances Solar Plan for India With $4 Billion Plant: Bloomberg

Japan & Korea

Investors turn away from Korea-style long-short funds: Maeil

Short Sellers Bet Korean Shipyards’ Misery to Deepen: Bloomberg

Korea’s tax agency clamps down on value-added cheating: JA

Trucks zoom when economy tanks in Korea: JA

Korea in the next 40 years: KT

ASEAN

Stronger measures in pipeline to keep Singapore’s anti-corruption culture alive: PM Lee: CNA

Stock Exchange of Thailand and SEC to plug private placement loopholes to prevent retail investors from being taken advantage of, and putting them on an equal footing with public investors: NM

Macro

Under investor pressure, DuPont sells its 130-year-old theater: Fortune

Predictions 2015: Animal Spirits and Crisis Ghosts: Reuters

TMT

Rebuilding History’s Biggest Dot-Com Bust: Online-Grocery Firm Instacart Farms Out Jobs and Food, Hoping to Make It Where Webvan Failed: WSJ

Here’s Why Some People In The Wearables Industry Think Apple’s Watch Will Fail: A black screen sitting on someone’s wrist will not look good, and therefore, the product will fail. BI

SAP profits meet expectations as it shifts to the cloud: FT

Dealmaking puts Brazil at the centre of global telecoms war: FT

With Golden Globe Win, Amazon Shakes Up Yet Another Industry by becoming the first digital streaming service to win one for best TV series: NYT

How Baidu is Following in Facebook’s Footsteps; Facebook won over many skeptics by demonstrating rapid mobile growth. Now, Baidu is blazing a similar trail.: Barron’s

Silk Road Case Shines Light on Shadowy Online World: Trial of Alleged Mastermind Ulbricht Is Test of Government’s Reach Over Internet Crime: WSJ

Here’s How The Apple Watch Could Help You Go Grocery Shopping: BI

Healthcare

US healthcare: Big data diagnoses fraud; Investigators use data mining tools to claw back billions stolen by crooked doctors and clinics: FT

Commodities & Energy

StanChart faces $4.4 billion commodities hit, may need to raise cash – analysts: Reuters

As Oil Slips Below $50, Canada Digs In for Long Haul: WSJ

A group of Australia’s richest individuals and families has lost more than $5 billion combined on the stockmarket in the past 12 months, with shares hit hard by falling commodity prices and uncertain economic conditions.: TheAge

Consumer & Others

How Tiffany Lost Its Shine: Four Challenges Facing the Blue Box: Bloomberg

%d bloggers like this: