Firms battle to withdraw deposits
The stock exchange is demanding greater transparency from H-share companies after Dongfang Electrical Machinery and Maanshan Iron & Steel (Magang) disclosed that their deposits placed with mainland-based banks cannot be withdrawn.
Economists and analysts suspected other H shares might have similar problems and said the two cases were the tip of the iceberg at a time mainland banks were facing financial difficulties.
An exchange spokesman yesterday said the subject had been brought to its attention and the exchange would send letters to the two companies seeking more information.
It would also send out notices to the remaining 40 H-share firms reminding them to give prompt and proper disclosure should similar incidents occur.
Under present exchange listing rules, companies are required to disclose, in a timely manner, incidents that could have a material impact on their financial positions and operations.
In the cases of Dongfang Machinery and Magang, greater disclosure was necessary because these companies operated in the mainland under a different financial regime to Hong Kong's, the spokesman said.
Dongfang Electrical is suing the Luohuang department of China Construction Bank's Chongqing sub-branch for 156 million yuan (about HK$145.24 million) in deposits the bank failed to honour under its repayment obligations.
Magang would not identify the 'several mainland banks and non-bank financial institutions' unable to honour their obligations to repay 339 million yuan in fixed deposits due late last year.
Magang company secretary Su Jiangang yesterday said it was considering every measure including legal action to get back its deposits.
He said the company aimed to get the money back this year.
Neither of the firms would say whether provisions would be made this year.
Credit Suisse First Boston senior regional economist Tao Dong said the cases exposed the weaknesses of the mainland's banking system.
'Apparently, there is some shortage of capital among some mainland financial institutions,' he said. 'The situation is likely to further deteriorate.' He said the problem reflected deteriorating economic conditions in the mainland which were affecting enterprises.
'This is a problem that we have been noticing,' Mr Tao said.
He said weak management of banks and financial institutions was also to blame.
Mr Tao said some non-bank financial institutions and even banks were offering high interest rates to firms placing deposits with them.
'The problems relate to compliance. I doubt whether these banks have reported to their respective headquarters,' he said.
Mr Tao expected Dongfang Electrical and Magang were not the only companies that could not withdraw their deposits.
He said some mainland companies had made similar agreements with non-bank financial institutions to secure high interest rates.