China's bond issuers lacking in accountability

Hong Kong

TRANSPARENT accounting may be one of the topmost concerns of bond investors in developed markets. When it comes to China, well, things aren't so straightforward.

Take the case of a Chinese textile company that has faced questions on its ownership, troubling foreign observers. When discrepancies arose after Shandong Ruyi Science and Technology Group Co sold a five-year dollar bond in June, the securities predictably tumbled. But not for long, and they're now trading a stone's throw from where they issued. Here's the sequence of events: Shandong Ruyi in an offering circular for its US$200 million of notes indicated it had a link with a state-owned enterprise, which are sometimes assumed to have the government's support. The document listed Yinchuan Tonglian Capital Investment Operation Co, a local government financing vehicle (LGFV), as its No 2 shareholder as at the end of last year, with a 26 per cent stake.