Singapore's S-Chip Scandal

In 2007, Singapore’s stock exchange started enthusiastically pitching for Chinese SMEs to list on the SGX.

Since then, an astoundingly large number of these so-called “S-Chips” have been embroiled in accounting scandals - mostly involving missing cash or fraudulent transactions in the Chinese operating subsidiaries.

Just this week, another two companies have admitted to “accounting irregularities”: sportswear maker China Hongxing (whose shares were suspended on Friday after tanking from 15.5c to 11.5c over the previous two days on extremely heavy volume); and polyester fibre manufacturer Hongwei Technologies (whose shares have been halted since Thursday after plunging from 26c to 18c over the previous week).

The rogue S-chips have turned into a bit of a publicity nightmare for the SGX. Goh Eng Yeow, senior markets correspondent for the Straits Times, called for governance reforms as early as 2009. After the Hongxing and Hongwei suspensions, those calls will only get louder.

Afterthought: Yes, this is pretty much the same problem that the US has been having with the spate of fraudulent Chinese reverse-IPOs. In Singapore, though, the Chinese companies don’t even have to bother with a reverse merger; they can (and did) IPO by themselves without anyone raising any eyebrows.

John Hempton and co would have a field day on the SGX, I suspect.