Losing Trust
Repercussions of China Ocean Resources’ false disclosure are negatively affecting the South Korean stock market. For instance, Heng Sheng Holdings Group has put off its initial public offering from late this month and the Korea Exchange is planning to prevent substandard Chinese companies’ listing on the South Korean stock market by means of stricter pre-listing inspection criteria. Besides, an increasing number of investors are losing their trust in Chinese enterprises.
At present, a total of 11 Chinese companies are listed on the South Korean stock exchange. According to the Korea Exchange, only two of them – Global SM Tech and Wanli International – showed an increase in stock price between July 11 and 12. This implies that the China Ocean Resources scandal could result in distrust in all of those Chinese companies in the South Korean stock market.
China Ocean Resources announced in April this year that it was sued for having failed to repay 7.4 billion won to a Hong Kong-based company and 30% of its subsidiary shares were subject to provisional attachment, which has turned out to be a lie. The Korea Exchange banned the trading of China Ocean Resources shares on April 25 and is to decide on specific disciplinary measures by July 15. This Chinese company was listed on the South Korean stock exchange in 2009 and has been involved in five different cases of false disclosure since then.
In the meantime, Heng Sheng Holdings Group decided to postpone its IPO in KOSDAQ with institutional investors less interested than expected. On July 11, the Financial Supervisory Service asked it to provide more investor protection measures and it extended its lock-up period for largest shareholders in response. Under the circumstances, its demand forecasting is expected to be carried out on August 3 and 4, instead of July 13 and 14, before listing in mid-August.
Listing of Chinese companies on the South Korean stock market is resuming this year after a five-year hiatus caused by China Gaoxian Fibre Fabric Holdings. Approximately 10 Chinese companies are scheduled to go public in South Korea in 2016 alone. The Korea Exchange is trying to separate the China Ocean Resources issue from them so that listing of these companies can be carried out without a hitch.