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First US-listed China concept stock files for bankruptcy protection

  • Staff Reporter
  • 2011-10-23
  • 08:35 (GMT+8)
CDC Corp, the parent company of China.com, has not been nimble enough to keep up with a rapidly changing internet market in China. (Photo/CFP)

CDC Corp, the parent company of China.com, has not been nimble enough to keep up with a rapidly changing internet market in China. (Photo/CFP)

CDC Corp, the parent company of China.com and other firms which in July 1999 became the first Chinese internet company to list on the Nasdaq, has now filed for bankruptcy protection at a US court.

China.com Inc, listed in Hong Kong, stressed that that its website will not be affected by the move. Yet many wonder how CDC, hailed as the first "China concept" stock traded on the international market, could probably end in bankruptcy with a share price of less than one digit after having enjoyed glorious days in the past.

Founded by Hong Kong executive Peter Yip in 1997, CDC provides enterprise software, online games, mobile services and applications, and internet and media content services. China.com Inc, formerly known as hongkong.com Corporation, listed on the Growth Enterprise Market of the Hong Kong Stock Exchange on March 2000 with a 75% stake owned by CDC.

Analysts interviewed by Chinese media, including the South China Media Group, said it was inconceivable that CDC could have repeatedly make mergers and acquisitions over the past 12 years without settling on a viable business model.

Yip, who has a master's degree in business administration from Wharton Business School and held a management position at KPMG Consulting, would have gotten involved in a high-risk game against hedge funds on the company's debut of new software and game products in 2006, the analysts said. With its failure to put its new online games on the market in time, the company was besieged with lawsuits for compensation.

CDC has also failed to seize any growth opportunity, although the internet market in China has undergone explosive growth in the past decade. The company's dismal performance has been in sharp contrast to the sustained expansion of other China concept companies.

James McGregor, former China bureau chief of the Wall Street Journal and president of Dow Jones China, noted that the company acquired as many as 50 enterprises in 2000 alone but it turned out that most of the acquisitions failed to generate revenue.

McGregor, who has lived in China for many years, also observed how Yip attempted to require all websites used by Chinese internet users to go through a Chinadotcom Corp service for a fee when Chinadotcom was an affiliate of state news agency Xinhua. The ambitious project failed to take off and the firm was transformed into CDC Corporation for listing in the US at a later stage.

McGregor, who is also author of the book One Billion Customers, explained that he had learned from Yip about a new model of raising capital through China's bureaucratic system. The model entails exaggerating in order to impress others and then take the enterprises public, he said. Such a method helped create CDC, which was supposed to help "incubate" many more enterprises but has failed to do so.

There have been many similar cases involving Chinese companies listed abroad. Xinhua Sports & Entertainment Limited (Nasdaq: XSEL) was delisted in March this year.

McGregor's advice to people considering purchasing shares in Chinese companies is to do one's homework carefully and avoid being hoodwinked. It is still hard to say if investors were taken in by CDC and the company may not necessarily go bankrupt because it is in the process of seeking bankruptcy protection.

The board of CDC still contains senior officials of state-owned Xinhua news agency. There are also more patriotic figures calling for safeguarding the CDC's listed name — Nasdaq: China — or to buy it back if necessary.

CDC's application for bankruptcy protection is still under review by a US court.

 

 

References:

Peter Hak-yung Yip 葉克勇

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