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Chinese companies brace for tough year in US as trust deficit widens

By Ji Beibei (Global Times)

08:09, May 04, 2012

The credibility crisis for US-listed Chinese companies may get worse and make it challenging for other companies aiming to get listed in the US this year, analysts said yesterday, after a dozen US-listed Chinese companies reportedly failed to file their annual reports by due date.

"2012 would be a tough year for Chinese companies to get listed in the US. And it would also be a bad timing for listing as the credibility crisis would cause low valuation of the companies," Feng Po, an analyst with ChinaVenture, told the Global Times yesterday.

A dozen Chinese companies missed a deadline and failed to file their 2011 annual results to the US stock exchanges as required before Tuesday, China Business News reported yesterday.

LDK Solar, one of China's largest solar panel makers, said it still needs extra time to finalize certain items in its fourth quarter financial results of 2011, the report said.

NASDAQ-listed China Cast Education, on the other hand, excused itself by saying some of its former employees had stolen its business licenses, company seals, and computers of its finance department.

Failure to file results sends worrying signals to investors, as it may suggest a company is disorganized or having disagreements with auditors over the accuracy of its financial statements, analysts said.

And under the US securities law, companies failing to submit financial reports may be ordered to suspend trading in serious cases, a provision which is not always a bad thing, Feng said.

"Some companies, especially small ones, have very small trading volumes in the capital market. Getting delisted or going private when the market valuation is low may not be the worst choice," Feng noted.

On the other hand, the delay in filing results will further hurt the confidence of the market in US-listed Chinese companies and listing hopefuls," said Li Yan, an analyst with Beijing-based information provider imeigu.com.

"While the US market welcomes such companies, it also has concerns about them," Li told the Global Times, noting that these companies should follow the rules, not only before but also after they get listed so as to win lasting interest of investors.

The US capital market showed great interest in the companies from China in 2010. However, trust eroded soon after accusations of accounting violation and misconduct.

AutoChina International, for instance, was sued by the US Securities and Exchange Commission for stock manipulation, and SinoTech Energy was charged with financial fraud last month.

Amid the credibility crisis, some Chinese companies like China Auto Rental have dropped their IPO plans.

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