China'S Listed Companies In The Us Urgently Need To Improve Information Openness
Some investors agree with the darts theory.
For those who invest in Chinese companies listed in the US, there will be the feeling of throwing their eyes at darts.
China's wafer maker Jiangxi LDK LDK solar high technology Co., Ltd. (LDK Solar)
Price of stock
It plunged 23% on Friday, after the company sharply lowered its revenue forecast for the quarter ended June 30th.
Some investors were caught unprepared.
The previous revenue forecast was released by LDK Jiangxi at the end of the quarter at an investor conference in July, and the listed company in New York has not yet revised its revenue forecast for the quarter.
Why choose to announce a downward cut now?
Expect
It's not difficult for people to understand.
Like many Chinese companies listed in the US by issuing American depositary receipts, Jiangxi's LDK is registered in the Cayman Islands, so it can not comply with many disclosure rules in the United States.
But one thing that many investors still don't know is what will happen if LDK Jiangxi's stock price falls below 6 dollars.
A document submitted by the company to the US Securities and Exchange Commission (SEC) said that Peng Xiaofeng, chief executive of the company, secured the company's loan with LDK Jiangxi stock.
The danger is that if the share price of Jiangxi LDK falls below "a certain level", Peng Xiaofeng will be forced to take out more shares to guarantee the loan.
This happened in 5 and June in 2010, when the stock price of LDK in Jiangxi fell below US $6, which led to additional margin notices.
A major problem now is that 31% of LDK Jiangxi has been used as a share.
loan
Does the secured Peng Xiaofeng have the financial resources to make additional margin after receiving the notice?
If there is a debt default, the bank lending to Jiangxi LDK can confiscate the Jiangxi LDK stock that Peng Xiaofeng used as a loan guarantee, making it possible to gain control of LDK in Jiangxi or sell Jiangxi LDK stock.
In view of the fact that billions of dollars worth of Chinese companies are held in the hands of American investors, companies that issue these shares are often exempt from compliance with the rules of disclosure that are commonly followed by Listed Companies in the Cayman Islands, and investors can not relax their vigilance.
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