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Investors Run Into Trouble With China Deals

Posted by Author on July 13, 2010

By Ellen Sheng, Via The Wall Street Journal, July 12, 2010-

Investors are posting losses on a number of private investments in Chinese companies, as projections that seemed like sure winners three or four years ago run into trouble.

These investors purchased bonds and bonds convertible into stock ahead of expected initial public offerings and rich stock-market valuations.

The market for private offerings of high-risk, high-yield debt and convertible bonds in Asia took off in 2006 and 2007, backed by strong demand from hedge funds. Deal watchers say the reasons behind the stumbles vary, but together they show that investments in China and other parts of Asia might be riskier than default figures suggest.

Losses can be tough to track because many such deals aren’t reported and involve investors that generally keep their cards close to their vests, such as hedge funds and private-equity firms.

Liquidator firm Borrelli Walsh says more than half of 11 Chinese companies listed in Singapore that sold convertible bonds from 2005 to 2008 are now unable to repay their debts. Their ranks include China Milk Products Group, Delong Holdings and Celestial NutriFoods, which have all disclosed their problems to Singapore Exchange officials.

The troubled companies together issued at least $700 million in convertible debt, according to Dealogic.

Investors aren’t willing to convert bonds into stock because the current share price is below the conversion price for the bonds and would saddle them with a loss. Some of those companies are involved in payment talks with bondholders.

Another example is China Sun Bio-Chem Technology Group, which was delisted by the Singapore Exchange this year after PricewaterhouseCoopers couldn’t verify the existence of bank and trade-receivable balances totaling 929 million yuan (about $137 million at current exchange rates). The company has since been trying to repay investors in its $100 million convertible bond, which was handled by J.P. Morgan Chase in 2006…….(more details from The Wall Street Journal)

One Response to “Investors Run Into Trouble With China Deals”

  1. freedom said

    No surprises here. With the laws being so unclear and murky there is no surprise that western firms are running into problems.

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