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Moody's Sees Flaws In Hong Kong Listings

DONALD H. GOLD Investor's Business Daily 07/13/2011 21:31
Moody's Sees Flaws In Hong Kong Listings - Hong Kong - Business - stock market - Moody's

A report from Moody's Investors Service warns that dozens of Chinese nonfinancial companies listed on the Hong Kong Stock Exchange show particular vulnerability to credit weakness and, in some instances, fraud.

Chinese stocks took a full drubbing in Tuesday's session. Asia's session also had to deal with the fresh convulsions of the EU sovereign-debt crisis. The Moody's report only added to sellers' sense of urgency. Hong Kong's Hang Seng Index plunged 3.1% in heavy trade Tuesday, its biggest one-day loss in more than a year. Also, the Shanghai composite dropped 1.7%.

Some 61 Chinese firms raised what Moody's calls "red flags." These red flags, 20 in all, fall into five different categories: corporate governance, risky or opaque business models, fast-growing business strategies, poor quality of earnings or cash flow, and concerns over auditors and financial statements.

Moody's noted five companies with a particularly heavy concentration of red flags. They are West China Cement (12 red flags), Winsway Coking Coal (11 red flags), China Lumena New Materials (10 red flags), Hidili Industry International (nine red flags) and NYSE listing LDK Solar (LDK) .

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