Learning from Malaysian stock market

Chinese companies are struggling to raise their profiles as investors are wary of unfamiliar names

When Xingquan International Sports Holdings Ltd sought a listing on Bursa Malaysia - the Malaysian stock exchange - it was welcomed with open arms.

The 2009 initial public offering of China's fifth-largest outdoor sportswear manufacturer was the first by a foreign company after a concerted 16-month effort by the local Securities Commission and the stock exchange to internationalize Malaysia's capital market.

The Fujian-based company's July debut was followed closely by Multi Sports Holdings Ltd, a firm that designs, develops and makes shoe soles, which was listed in August. Three months later, sports shoe and sportswear manufacturer XiDeLang Holdings Ltd also had its IPO.

Hopes were high that the arrival of these Chinese companies would improve the efficiency of the Malaysian capital market, add depth and breadth to the exchange, and pave the way for local investors to access stocks from the world's most dynamic economy. Bursa Malaysia, a latecomer to the game, would finally catch up with the likes of Singapore, New York and London in courting cross-border listings from the economic superpower.

Meanwhile, Chinese companies were able to access funds much faster than on home ground, where a massive backlog could delay listing aspirations and intensify competition for investment dollars.

Xingquan International said it had decided on a Bursa Malaysia listing because of the encouraging support from Malaysian authorities, and local financial institutions and funds.

"We explored several options back in 2008 and found the Malaysian market to be most suitable for us," said Wu Qingquan, Xingquan International's executive chairman and chief executive officer.

But the rosy picture has not panned out exactly as planned.

There are nine listed Chinese companies on the Malaysian exchange: Xingquan International, Multi Sports, XiDeLang, K-Star Sports Ltd and Maxwell International Holdings Bhd are involved in the design and manufacturing of shoes and sportswear; China Ouhua Winery Holdings Ltd produces and distributes wines; HB Global Ltd is a gourmet convenience food specialist; China Stationery Ltd manufactures plastic stationery products; and China Automobile Parts Holdings Ltd makes chassis components used in cars.

They made mostly modest debuts on Bursa Malaysia. Except for China Automobile Parts, which opened 18 percent higher than its IPO price, the others recorded opening price premiums of no more than 10 percent. XiDeLang and K-Star Sports even started below their retail offer prices.

"We had hoped for a better reception. Perhaps the investment community needs more time to understand our company and the market that we are in, and evaluate us differently from the rest," said Wu at Xingquan International.

The companies have also lost considerable value since listing. At closing on Nov 26, their share prices were well below their IPO prices. Xingquan International and China Automobile Parts, for example, were trading at less than half of their IPO prices.

The dismal performance of the entire category has been largely blamed on negative perception and poor investor sentiment, precipitated by accounting scandals involving some Chinese companies listed in Singapore, Canada and the United States.

Some Chinese companies listed on the Singapore stock exchange, for instance, have been implicated in a series of financial irregularities and corporate governance failures. Meanwhile, in the US, investors have lost billions of dollars after the delisting of more than 100 Chinese companies from North American exchanges because of inconsistencies in their books.

HB Global's slide to Practice Note 17 status, which indicates that a company is in financial distress, after its auditors made a disclaimer of opinion in the company's audited accounts, has not done its fellow compatriots any favors either.