Another Unfortunate Barron's Article on China
By David Feldman at 29 August, 2010, 9:22 am
Barron’s magazine is once again trashing Chinese reverse mergers. In Thursday’s issue they lay out an extensive investigation of the history, players and performance of Chinese reverse mergers. They acknowledge that about 350 Chinese companies have gone public since 2004, when the pace really started to pick up. They point to a handful of problems that have indeed arisen (including the need for accountants to be particularly vigilant as pointed out in my previous entry). They further trash the performance of several well-known investment banks, hedge funds and an IR firm. But even when trashing they had to admit, at least in one case, that the fund’s performance was as good as the Russell 2000.
It seems strange to me that the article compares the performance of Chinese companies to that of a well-known China stock index which only a few short years ago Barron’s also trashed as allegedly manipulated and strewn with conflicts. Yet in this article the performance of the index as compared to the players they highlighted looked much better. Suddenly it seems Barron’s believes the index is reliable and worthy of use in an argument of comparison to others. This convenient change of heart is confusing to me, to say the least.
Yes there are some real problems with a few Chinese companies that are facing lawsuits and the like. And, frankly, it seems no player is immune, since some of the more recent alleged frauds related to companies advised by some of the most prominent law and accounting firms around, and included some of the brightest minds with a strong history working on Chinese deals on their boards. But if someone is determined to commit fraud, it is not always that easy to spot – read Enron, WorldCom, etc. So it is not just small companies or Chinese companies where this is a challenge.
There is no question that anyone involved with Chinese reverse mergers should work with experienced players who understand the culture of those they are dealing with. But that’s true in a reverse merger in any country. Frankly there’s been some fraud in US deals as well, all as we work so hard to upgrade the legitimacy, acceptance, transparency and reputation of IPO alternatives which can be an efficient and cost-effective way to help a company move to the next level when the players do so with integrity.
I am looking forward to the article highlighting the great successful Chinese companies that have grown and made a great deal of money for their investors. I wonder when that will be.
I nominate you to write one. You can write, and you know the issues.
The upgrading process from the OTCBB to an exchange can take 6 months or more. Is there a way to cut down the lag time?
The larger exchanges are thorough in their review of new listings, which is one of the reasons they have been able to maintain the respectability and confidence which they have. Unlike the OTC Bulletin Board and Pink Sheets, there are both quantitative and qualitative reviews of a company seeking a listing. That said, all the exchanges are anxious to add new companies and spend quite a bit of money on sales type folks who are out there looking for new ones. Some say that finding a shell trading on Nasdaq or NYSE AMEX helps speed this process, but our experience has been that this is not really the case, as a full initial listing application and new company review takes place upon the change in control. So unfortunately the process is what it is. The way to make sure there are no delays: be careful and thorough in your approach to applying, and be prompt in responding to their questions and comments.