When Deutsche Boerse set off eight years ago to lure Chinese companies to Germany with fast listings and low fees, it dreamed of one day landing a giant like Alibaba.
But as the New York Stock Exchange basks in the $22bn debut of the Chinese e-commerce company, the German exchange operator is licking its wounds after a raft of scandals involving Chinese firms listed in Frankfurt.
Investors are wondering how to seek redress and what can be done to prevent it happening again.
In the latest and most bizarre case, Ultrasonic, a small Chinese shoemaker listed on the Frankfurt Stock Exchange, announced last week that Wu Qingyong, the company’s chief executive, and his son had disappeared, along with $60m from the company’s bank account.
Late on Sunday Wu resurfaced, saying in a video interview shown by Chinese news outlet Sina that he had simply been on holiday with his grandson and had lost his mobile phone. On Monday, Ultrasonic said Wu had contacted the group’s finance chief to say he would return to the company, along with the money.
Ultrasonic’s shares more than doubled to around 2.3 euros in Frankfurt on Monday, but were still more than 60% down from where they began last week.
It was the third time that shares in a Chinese firm listed in Germany have collapsed amid accusations of wrongdoing.
The Frankfurt Stock Exchange says it has rigorous listing standards to protect investors from fraud, but the scandals suggest that in the drive to win Chinese listings in the face of tough competition from New York and London, officials in Frankfurt may not have fully appreciated the risks.
Maserati
With little hope of any compensation from China, a member of German private investor lobby SdK has suggested investors should consider taking auditors and underwriting banks to court.
The company’s auditors declined to comment and Frankfurt-based brokerage BankM, lead manager in all three listings, or IPOs, said there was no way it could have known.
“This is a total catastrophe,” said Thomas Stewens, head of corporate strategy and communications for BankM, which staked its reputation in part on the Chinese listings. “It’s unimaginable how this could come to pass.”
There were few signs that anything at Ultrasonic was amiss, Stewens told Reuters. “We were in China regularly, certainly 20 times over the past few years, and we regularly checked production on site,” he said.
Qingyong Wu, the chief executive, seemed to live entirely for his company. His son, chief operating officer Minghong Wu, was also part of the family operation. “Then the son bought himself a Maserati. We had to ask: “Is that really necessary?” But we had no way of knowing that there was an outbreak of megalomania,” Stewens said.
Japanese bank Nomura’s decision to give the company a $60 million unsecured credit facility also indicates that nothing seemed to be amiss. People involved in the loan talks said the bank did exhaustive background checks.
Questions
The scandals have brought pressure for change in a corporate governance system designed to claw back funds from wrongdoers based in Germany rather than overseas.
Prosecutors in Cologne, Germany, where Ultrasonic has its legal headquarters, said they had not yet been contacted by the company about launching a criminal investigation.
