I was taking a look at Tom Winnifrith’s recent post on ShareProphets about Chinese AIM company Camkids (http://is.gd/vlpPbj). This comment really got me thinking:
Hmmmm if a 0.1% return on the supposed cash balances is a “better rate” of interest what was it like before? But the killer point is that Camkids is on the one hand saying it cannot afford a cash payout as a dividend as a relatively small sum when it is supposedly drowning in cash. But on the other hand it is now saying it is confident enough of its financing to tie up material amounts of its (imaginary) cash in medium term bank accounts, ie accounts where you cannot withdraw on demand. Camkids cannot have it both ways.
I actually wonder what bank, specifically, we’re talking about. Could there be a connection between the bank that Camkid uses, and the bank that other Chinese AIM-listed banks use?
It’s just that the same names and locations seem to keep coming up again and again. Same brokers and nomads, for example. Same use of scrip dividends. Now ShareProphets is noticing that auditors “Crowe Clark Whitehill” is cropping up a lot. The way that earnings grow robustly, operating margins are unfeasibly high, and all sorts of other similarities. It’s as if many of these Chinese AIM companies have all been orchestrated by a single organisation working to a template.
Tom’s comment suddenly put things in a whole different light for me. Let me consider a hypothetical example that has no identity to any existing Chinese AIM-listed company. Any similarity would be purely coincidental. OK, got that?
Suppose there was a regional bank that was subject to light regulatory supervision. Imagine further, that there was be someone in that bank, probably high-up, linked to organised crime, that used that bank for nefarious purposes. An unscrupulous business might choose an arrangement with that insider for the mutual benefit of both. The company, through its new-found connections, would find it easy to be listed on AIM through those contacts. That company would then deposit money at that bank. It would even receive interest (albeit at a very low rate), bank statements, and all the usual certificates that proved the existence of the cash. The one thing it could not do is withdraw the money, either legally, or through an “informal understanding”. If you accept that argument, then there is of course no way of checking the purported cash in bank with the amount that certain insiders “understand” is at the bank. You could do as much auditing as you liked, but you’d still come to the same conclusion as to the validity of the balances.
Just a curious speculative scenario on my part, unconnected with any Chinese companies that I have discussed.