Boshiwa nosedives after auditor resigns
Shares of children's wear company Boshiwa International were suspended from trading yesterday after the sudden resignation of its auditor sent its stock price plunging by more than one-third.
The Shanghai-based clothing maker and retailer told the Hong Kong stock exchange that its accounting firm, Deloitte Touche Tohmatsu, had resigned because it had not received some financial information it had sought.
'Explanations provided by the company's management are not to their [Deloitte's] satisfaction,' Boshiwa said, adding that it was disappointed by the auditor's decision.
The company said the departure would force it to delay publishing its annual results and that it was considering appointing a special investigation committee to review the matter.
Boshiwa's share price plunged 35 per cent to close at a 52-week low of HK$1.68 yesterday, the sharpest drop since the company listed.
A Deloitte spokesperson declined to comment on its resignation. Analysts had been sceptical about the company's balance sheet.
Boshiwa had announced aggressive plans to increase retail space by 50 per cent last year to snap up share in a fast-growing 200 billion yuan (HK$236 billion) market. At the time, it was operating 90,000 square metres of retail space in about 1,000 outlets in more than 130 mainland cities.
The company, which had won the licence to produce Harry Potter-brand children's wear in China, raised HK$2.5 billion in September 2010 in its Hong Kong listing, partly to fund its expansion.
According to the 2011 interim report, the company had a net cash deficit of 924 million yuan, compared with a surplus of 18 million yuan a year earlier, as revenue growth was offset by steep rises in operating and financial costs.
'Corporate governance problems remain a major area for improvement with mainland companies,' said Kenny Tang, general manager of AMTD Financial Planning. 'It's not a sprint but a marathon.'
Last year, a wave of auditors resigned from mainland companies listed in the United States, sparking a wave of short-selling of overseas- listed mainland stocks.
Tang said some mainland manufacturers seeking to lift market share could be tempted to strengthen sales figures by relaxing credit controls. Some might even participate in related-party trading by getting involved in setting up retail outlets that would buy their stock, he said.
Chinese companies have been under the microscope since last June, when Carson Block, a short seller, accused Sino-Forest of overstating its assets and cash balances.
Boshiwa's profit in 2010, which doubled from the previous year, according to data from Bloomberg