Confessions of a S Chip CEO

7/28/2019 Confessions of a S Chip CEO

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CONFESSIONS of a S-Chip CEO (unabridged)

Written by S-chip CEO

Saturday, 25 April 2009

A fascinating email circulated around yesterday purportedly from the CEO of a S-chip

company that is in trouble. We reproduce it here in its entirety and form (and bad grammar

in many places), making just one change. We bring up right away the two notes that the

author wrote at the bottom of his near-9000 word email:

1. Not everything is true in this story that I have just presented in order to protect some

friends that still remain friends. In particular, the story before 1995 was inserted in only to give you

a perspective of the difficulties that most Chinese entrepreneurs went through, and how they

eventually all came to resent the ease and ruthless manner in which people like Mr D made great

fortunes leveraging off their hard work.

2. At the same time, I sincerely hope that the investigation report that was pending in the

case of my company comes out being at least fair to me. Otherwise, the more real truths will

follow in subsequent emails......... hahahaha, the power of internet........

S-chip CEO

We are victims as well!!! Let me tell you the story.

By the time you read this article, it would reached have hundreds of investors, bankers, regulators

and journalists. My purpose was to shed some light on the dark sides of the business of S-Chips

(Chinese companies listed on Singapore Stock Exchange), so as to help prevent more financial

losses in the future hurting the ordinary people on the street. From this angle, I wish to redeem

myself somewhat.........

It all started some 6-7 years ago. My colleagues and I were just a few of the million of

entrepreneurs in China struggling to make ends meet at the textile fibre factory that we bought

from the government. Some of our older colleagues had laboured for more than 20 years before

having the chance to privatise the state-owned textile fibre factory in Fujian Province that wehave worked for since the day we left school under the Premier Zhus government retreat, private

sector advance scheme, literally at a song. We thought we were going to be very rich very soon.
http://www.nextinsight.com.sg/index2.php?option=com_content&task=emailform&id=1080&itemid=60http://www.nextinsight.com.sg/index2.php?option=com_content&task=view&id=1080&pop=1&page=0&Itemid=60


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Little we knew that when the local governments of the various counties and villages decided to

retreat, we end up with thousands of privately-owned textile fibre spinners that competed ever

more aggressively. Despite ever rising revenue, margins were disappearing fast....... Sometime,

we just wonder why we have worked so hard only to earn next to nothing. Perhaps, our only

reward was meant to be the master of our own destinies...... But we never really gave up

hope...... One day, we shall strike gold.......

1990, the year after the TianAnMen Incident, was really a very difficult year. Many of our clients,

the textile manufacturers who were enjoying the initial euphoria of the burgeoning export demand,

went belly-up within a short 2 years of economic contraction. However, we pulled through all the

vanishing receivables and anguish cashflow-balancing exercises. By 1993, we were off for the

biggest boom ride of our life-time. Our textile fibre business blossomed as China becomes the

clothing factory of the world, benefiting not least from the one-off Renminbi devaluation that the

Chinese government engineered in 1994. Those were the good old days, where sufficient numbers

of our competitors were eliminated by the TianAnMen-induced recession, and the world began to

look to China for

every piece of garments stretching from the heads to toes. Money was easy......and we expanded

our production capacity as quickly as we could, limited only by the fact that the state-owned banks

were not really very keen to lend money to private enterprises like ours, and we just have to borrow

from our villagers at some 15% interest rates!!! Nevertheless, we did good business and our

leader, the general manager of the factory, could even afford a chaffer-driven Santana. In any

case, he was too old to learn new trick, even as simple as driving itself. I was the rising star which

had to bide my time, as I was the only person who speaks decent English. I was meant to be the

tongue of the company in dealing with the external world. But I am getting impatient. For while the

company was booking increasing profits, we never seems to have cash to be distributed as any

excess cash generated from the business was never e! nough to cover the capital expenditure

needed to expand the production . We just owned an ever-growing production business.

Unfortunately, good profit margins never last in China. Good demand quickly attracted new

entrants into the business as the barrier of entry is relatively low. At the same time, some of the so

called obsolete capacities came back from the grave and soon, we found ourselves struggling to

churn our profit. It was like working for free again......lots of revenues but just no profit!!!

S-chip CEO

By the middle of 1990s, we were doing great business selling to our customers in different areas

of the coastal areas. In 1995, we suddenly found ourselves having to deal with fast rising cost

pressure. However, the market was buoyant enough for us to raise our product prices to pass on

the cost increase to our customers. Then, we realized that we must move ahead in term of

technology and product offering. Like everyone else around us, we took advantage of the tax


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concession offered by the government to the so-called joint venture companies. We recycled our

cash to Hong Kong, set up a foreign company, which in turn pumped back the cash to Fujian in

the form of a joint venture entity, using the cash to purchase some second-hand German

equipment to produce the chemical

fibre! s needed in all kinds of fabrics and artificial leathers.

However, luck did not really favour us, at least thus far. Soon, we were told that our economy was

experiencing very high inflation rates and soon, the then Premier Zhu Rongji stepped a hard brake

on the economy, cutting the bank credit to many state-owned enterprises which were producing

things that no consumers wanted. While as private enterprise we did not enjoy the benefit of bank

credit, its sudden massive contraction hurt us as bad as the state-owned enterprises who received

such reckless loans. We were entangled like the other enterprises in what we called the "triangular

debt problem, where everyone owes the next person money and there was just no money at the

source for anyone to get paid.......!!!

The situation last for quite sometime as we lived from hands to mouths, sometimes having to send

out local thugs to chase for receivable payments from cash-strapped clients. Then again, what else

can we do? We had so much or our friends and relatives money with us investing in all these

machinery now that the only road for us is to struggle forwards......turning back would have made

us the outcast of the village.......

By the time the rest of the Asian economies cracked in 1997 amidst the so called Asian Financial

Crisis, we were already becoming numb to bad news. I remembered there were days that I wished

I had not joined the textile industry, or any industry at all......for making money out of making

something is so darn difficult....... I thought I might have just wasted my youth.

Somehow, we managed to pull through as a group. The general manager of the factory, who is

now getting seriously old, made his sacrifice along the way by selling his Santana in order to keep

more mouths fed. We all had no where else to turn to but to continue pushing hard to sell our new

product, the chemical fibres. Finally, by year 2000, the economy began to recover. Our hard work

and persistence were also beginning to get paid off handsomely as China had become the centre

of all textile, shoe and furniture manufacturing in the world, and all these products required some

forms of chemical fibres. We were beginning to rake in cash beginning 2002!

Then my life-changing incident took place. One fine day in late 2002, I was introduced over the

dinner table to one Singapore Deal-maker who was to become one of the richest men in his

country in the next 5 years. Mr D was still a relatively poor deal-maker at that time. Just like many

so called deal-makers running around China at that time, they hope to make small fees

introducing companies to capital, or vice versa. Mr D claimed that he had successfully engineered

a number of private equity

transactions in China, helping companies with so called mezzanine financing to prepare the

companies to be listed in stock exchanges outside of China. He was fully aware of the psychology

of Chinese entrepreneurs and their deep dissatisfaction with the bias of the Chinese government in

allowing only state-owned enterprises to list on the local stock exchanges. To us, having a listing

status in China is like having acquired the right to print money. One just has to cook up a nice

investment story and he could get Chinese investors to subscribe to the right issues of a listed

company at any price. It was so much more an elegant way to make some money, rather than to

have to toil for a few cents selling chemical fibres.......

Mr D went further to claim that he had taken some of the invested companies public in both Hong

Kong and Singapore Stock Exchanges and given his investors had made some money, he always

have a group of ready-investors willing to back all his stock picks. He went on to ask quite a

number of detailed questions on the operating conditions of our companies over the dinner, jotted

them down carefully on a small note book along the way. Later on, we adjourned up-stair the

restaurant for a KTV

session. I must admit that I remembered clearly Mr D was a good Chinese song singer, having


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sung some hot-off-the-chart songs that I heard my niece hummed sometime shortly before the

incident. His smooth handling of the KTV girls, which he asked for two concurrently, also showed

that he

had been around.........

The next time I met Mr D was three months later, quite unexpectedly as I had thought he could

have decided to give our company a miss given our relative small size. He requested for a factory

visit which, after having consulted our old general manager, I accompanied throughout. As usual,

no

serious business until after dinner and getting slight tipsy after a few drinks forced down by the

KTV girls in the evening. I must admit that Mr D is a seasoned operator. He was quick to recognise

that I was an impatient young man to take over the operation from my older colleagues.

Throughout

the entire evening, he was trying to convince me to move the gear one notch faster to accept some

private investors into the company, beyond which he was confident to help us to get the company

listed in one of the foreign stock exchanges, where everyone will be able to cash out their profit if

they so ! chose. I pretended to be sceptical while deep in my heart, I need no convincing as I have

known many Fujian entrepreneurs shot to fame and riches, 2 of them by turning large tracts of

collective land into vegetable farms and the other bending float glasses he bought from state-

owned factories into auto wind-screens and sell them to car manufacturers. I never doubted that

one can make a lot of money from car wind-screen, but I could have never imagined striking it rich

planting vegetable.......!!!

S-chip CEO

Mr D and myself both agreed later that we need to convince the other older colleagues of mine to

approve such a scheme, and over time, move them aside to allow someone young and dynamicperson like myself to be the face of the firm to cater to the likings of the investors, who were mostly

English speaking. In the meantime, my task was to convince the existing shareholders to allow a

group of Mr Ds friends into the shareholding first, while paying Mr D a structuring and

introduction fee along the way. The easy part was, as Mr D coached me on how to present to the

rest of the shareholders, his fees will not be in cash but rather in equivalent value of shares. He

said that was to assure everyone that he could only make money should he be able to engineer an

eventual listing of the company on a stock exchange, after another year of lock-up period for

promoter shares aft! er listing. All interests would be aligned, as he put it.

Mr D was indeed an experienced operator. He had anticipated all the concerns of the older

colleagues of mine, who feared that this was another one of those leather-bag-company deal-makers that was trying to make money out of no commitment. So he got through the first hurdle of

trust after my carefully orchestrated presentation to the board of the company. However, there


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was still one important issue we could not resolve amongst the board members. The finance

manager correctly pointed out that the company indeed, did not need substantial amount of cash at

this moment as we were not expanding aggressively anymore. The market place for our products

was relatively stable right now with demand and supply growing organically. We will not be able to

drive higher sales without sacrificing our margins by cutting prices. In short, we can only grow

organically at around 10% ! per annum, which was probably not the most exciting story for the

investors. In fact, the board members did not see the need for new capital. However, the idea of

getting listed did appeal to them. They too had many friend who had become paper millionaire

after the companies got listed. They too were looking for the big-pay-off day. So I was tasked to

come up with a solution. In other words, there was a green-light! I did not expect my luck!

Almost immediately after the board meeting, I called Mr D to tell him the outcome, as well as the

issues raised. Again, I thought he must have expected the outcomes. As he explained calmly over

the phone, the first round investors (which he called angels) will not put in a lot of money so that

they would not dilute the existing shareholders very much. These angels are the connected

persons that will come in with their own money (through Mr Ds personal vehicle) that will help

cement the way for some of the well known direct-investment funds to step in at a slightly later

stage, which would provide the company with the credibility, other than funding, to convince the

stock exchanges to allow the companys listing, and the subsequent active participation of other

institutional investors

during the IPO. Mr D went on to explain that the process of getting a Chinese company listed was

in fact, an art. There were not many people like him that could have the trust of many influential

people to conceal their names behind his vehicle to invest in a company, not unless they have

been working on other cases together before and having developed deep working relationship.

These angels will see the company through the process from getting restructured to listed,

rendering their helps in

one way or another through exerting subtle influences on counter-parties, bankers, regulators and

other investors. Mr Ds vehicle will participate in the shareholding of the company first, where they

will invest up to 5% at book value. In other words, they demand for very cheap entry. Mr D will only

take his fees later after having brought in the money from direct investment funds, in larger

quantum, in the form of shares of the company at book value before the entry of new capital. He

wanted 2% worth of the amount of money he would bring in from the funds in such ! shares.

Subsequently, he went on to explain that this was the modus operandi these days as he could

introduce us to the senior executives of the companies who had done business with him for further

due diligence on his

reputation. In particular, he emphasized that my colleagues should not be worried at all given the

fact that it was going to be his and his friends money that will be in their hands, rather than the

other way round. My older colleagues did find some solace in this argument later on.

As for the use of money, Mr D simply pointed out that we will have 6 month to a year to come up

with a new plan on spending the proceed of investment, in the form of new technology and new

products. Arent you guys always looking for money to upgrade production machinery to produce

new stuff for the market? It the same bunch of the customers anyway......, so he quipped.

So the decision process took a few months, where in between, Mr D sent in some accountants and

lawyer to conduct some checks on our operation and accounts. We had nothing to hide then as we

had no reason to fake anything. Everything was ours.......then. Subsequently, the angels came

in, followed by, indeed, a number of reputable direct investment funds a few months down the line.

We got a whopping US$20mn to put up a new plant to produce a new type of artificial fibre, the

machinery of which was to be imported from Germany. The new product was in fact, attractive to a

lot

of customers. However, none of them were going to buy a lot of it at the beginning as they were

not sure their customers were going to like the new types of yarns made of this new fibres.

Business was not as brisk as Mr D had hoped for.......

On the other hands, Mr D seemed quite keen that we could move forward in our listing process. He


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began to educate us the process and requirement of the stock exchanges for listing. We paid visit

to Hong Kong and Singapore, talking to bankers and exchange officials, attending seminars, as

organised by Mr D. We were all psyched up to be a rich millionaire once the company is listed.

However, there was just this little problem.....our new products were not accepted by the market as

fast as we had wished for. Most of our customers operate under very tight cash flow situation. They

only have working capital to provide for the acquisition of raw materials to produce the yarns

ordered by their customers. No one was going to spend a lot of money buying our new fibres,

produce large quantity of products to purvey them in trade shows, despite they all fed back with

good comment

on the potential of the new fibres.

Very quickly, Mr D came up with an idea. In order to boost our sales numbers fast, he will raise

another US$20mn of money from all the direct investment funds in the name of working capital

need. As he explained, they often did the same tricks with those companies they listed before.

They will raise new capital to produce the new products to sell to customers, encouraging them to

help push the new products by offering them more favourable and longer payment terms. With the

increased sales and profitability number, he could get the company to list very quickly to get more

money to help push for more sales....... He claimed he had done it many times before and it had

always worked out. The economy was recovering quickly in 2003, nothing was to going to go

terribly wrong. When I asked whether that would be considered artificially inflating sales number,

he laughed and quipped, ith the capital markets on your side, you can engineer self-fulfilling

prophesies!

Of course, this article cannot be complete, at this juncture, without citing Mr Ds favourite quotable

quote. Water enough money into any company, even a fake one could become real some day.

He believed so much in this that I thought one day, this could cause his downfall.

So we went ahead, sold the new shares at higher valuation to another bunch of investors Mr D

arranged. He took another round of commission in the form of shares. We were beginning to

admire Mr D. Money flows through his hands like water and he did it so effortlessly. We were no

less impressed by his connection to some of the richest and most influential people, particularly in

Singapore. You see, he was viewed as a successful Singapore entrepreneur made good in the

vast land of the North. Through diligence and perseverance, he carved a niche for himself

identifying

promising Chinese companies to groom for listing on the Singapore Stock Exchange which was

losing out in race to Hong Kong Stock Exchange as the Chinese! state-owned enterprises were

encouraged to list in Hong Kong. Mr D was their hero, directing promising private Chinese

enterprises to list in Singapore and along the way, enriching many angels and local investment

banks in Singapore.

I chanced upon many of these angels as well. There were occasions Mr D would have called me to

help arrange for some transport and accommodation in Xiamen for groups for secret visitors.

They are usually small groups of 4-8 people. I would generally put them in comfortable Buick mini

vans,

receiving them from the airports, ferrying them to golf courses, restaurants and night clubs. They

would usually visit one of two factories invested by Mr D. From my impression, these were the

angels behind Mr D, which for obvious reasons, he had to please. There were bankers, lawyers,

other deal makers, stock brokers, fund managers and people that do not have a job, simply

because they were so rich already. Occasionally, there were ex-CEOs or Chairmen of large

government controlled enterprises in Singapore. Once, I even met a supposedly ex-member of

parliament in Singapore. It was obvious to me that Mr D entertained them in separate groups at

separate times, taking pains in ensuring that some of them were not aware of the involvement of

the others, for some reasons. I was always invited to all these golf and night entertainment events

for a simple reason: I speak English and Mr D wanted to be seen as having someone like me to

watch over his investment in this part of the world and helped him to tap into different kinds of local


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relationship. The other Chinese entrepreneurs may not be comfortable in dealing with the whole

bunch of English speaking Singaporeans.

One common trait of all these trips was that all these guys from Singapore seemed to love the

night clubs in China. The daily programme always ended in some night clubs, where these guys

would party till the wee hours, every night they were there. Mr D would sometime, when he was

half drunk,

tell me that he had again nailed some key relationship and one of the travellers in the group

would soon be in his Club. He would whispered that someone in the group was the senior partner

of an investment fund, or someone in another group was connected to the so-and-so in Singapore,

or

someone was closely associated with the chiefs of some Singapore banks, or someone had

influence over the listing approval process ! of the stock exchange, and some would just be some

new investors that he was trying to woo to invest in his pre-IPO projects or the shares in the

companies that he sponsored the IPOs. When I asked why they were all so tireless in their

nocturnal activities, Mr D laughed, This is what I call pent-up demand. You know these people

cannot even come 100-meter close to any KTV in Singapore because of their social status. The

opening up of China is probably the best thing that happened to all these Singaporean men, for

they can at least release their valves once in a while........ Do you know how boring Singapore is?

I have a permanent KTV room booked up in one of most posh KTV in Singapore, costing me half a

million Dollar at the

minimum every year. Guess what, the only important guests I have using that rooms are from

China!

Watching Mr D in action, I finally understood the true meaning of club. He had managed to

combine the social club of friends and KTV clubs so well that I thought every successful Chinese

businessman should learn. And in so many ways, the club in Singapore is really not that different

from the club in China........

So finally, we got our act together to attempt a listing towards the end of 2003, after much of the

financial twisting and engineering to make our company look like a well-funded high-tech textile

fibre company on the verge of experiencing explosive sales take-off. In truth, we produced a lot of

the new fibre products and literally give them to our customer to produce new fabric for marketing

purposes, with the promise that we will not collect money until their products are sold.

Nevertheless, we book

these as receivables. To the dismay of Mr D, my older colleagues had insisted on listing the

company on the Hong Kong Stock Exchange, rather than the Singapore one, where Mr D has

greater control on the process. They felt that the company would probably be accorded higher

valuation in Hong Kong. Besides, they were not comfortable with Mr Ds influence in Singapore

fearing the ultimate loss of the control of their company. Mr D went along grudgingly, helping to

smooth the way to facilitate the IPO.

We got a small investment bank to underwrite the IPO. The big ones were really not interested in

this small piece of business. We went on to file the application to list to Hong Kong Stock

Exchange, who was equally high-handed as Hong Kong was flushed with quality large size state-

owned enterprises queuing up to list there. Being relatively uninterested in small size listing and

more experienced in evaluating the quality of smaller Chinese private enterprises, they were quick

to notice the sudden expansion of account receivables on our accounting statements. They

followed up with a number of questions with the clear purpose of delaying our listing, probably to

see how these receivables will behave given longer period of time. In short, there would be no

quick IPO for us.

Mr D was quick to use this delay to his advantage. He hinted to everyone on the company board

was that one of the reason for the stock exchange delay was due to the lack of a convincing

younger manager helming the company, and that our senior colleague was already too old to

project a


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dynamic image to the Exchange and the investors subsequently. He wanted me to be promoted

to the CEO position while our existing GM to become the Chairman of the board. With his

insistence, my appointment was pushed through the board, which made one of my older

colleagues very angry as he was supposed to be the next-in-line in seniority. But heck, he should

have spent some time learning English!

Mr D, being truly worried about the age of the receivables on our book that would become

increasingly dubious as days go by, pushed us to shoot for a Singapore listing where he feel, with

his broad relationship will help a smooth IPO. This time round, my older colleagues obliged

grudgingly. So we quickly filed an application to list in Singapore. It proceeded relatively smoothly

and we went through an initial hearing very quickly. The market was in relatively stable conditions

and we felt we could get the IPO proceeds quickly at the turn of the year. With lot of money, like Mr

Ds famous words, a fake company can become real....... To be fair, ours was not really a fake

company. We were just doing what the Chinese proverb describes: Accelerating the growth of the

seedling by pulling it up a littl! e everyday......

To our surprise, we got a letter very soon from the stock exchange questioning us the reason for

the failure to disclose to them we had applied to the Hong Kong Stock Exchange earlier. They

asked whether we had been rejected previously and on what ground we had been rejected. Just as

we wonder how they found out so quickly since one could safely assume due to competitive

relationship, these exchanges should not be talking to each other on micro matters like this, Mr D

came storming in over-night. Someone wrote a poison letter to the stock exchange, so he

explained. Someone who knows the situation very well and who is not very happy with the whole

thing, he concluded. We were fortunate, he went on to exclaim, as he felt that given the Hong

Kong Stock Exchange never really rejected our application, he could still salvage the situation

using his relationship and influence.

While there was no hard evidence, we nevertheless took the precaution of asking for the early

retirement of the senior colleague who was passed over for the post of CEO as we suspected him

to be the whistle-blower. We made sure he was well compensated in monetary terms as we

thought that would sooth his anger, with promises to allocate more of the shares to him so that he

would share our desire to see a successful IPO. Then we went on to reply to the stock exchange is

claiming the fact that we were previously rejected, citing our need to access capital markets fast as

ours business was expanding rapidly. Hong Kong was just going to be too long a wait for us. On

the other hand, Mr D worked his network and club of friends to sooth the nerves of the exchange

officials, who were working hard to promote Singapore as the second board for China as the

launch of second board of China in Shenzhen hit a snag when the National Peoples Congress

decided that the Chinese investment public was still too unsophisticated to handle investing in non-

State-controlled enterprises that even the Chinese government may not be able to police

effectively.

So after 3 month, we were informed that we manage to secure the final hearing. Mr D and some

young lawyers and accountants spent a few days preparing me to handle the questions correctly.

I saw the signs of satisfaction on the faces of the officials during the hearing. One of them even

went on to comment on the fluency of my English...... Mr D was right again. My Chairman could

have fumbled and rumbled on just like any other Chinese CEO during such occasions. They were

just the hardworking mulls that built the foundation of the Chineses manufacturing might. I belong

to the generation that would take the company to soar higher as we understand and speak the

language of high-finance, in English!

The battle to IPO was hard won. We got listed in 2004 and to our pleasant surprise, some of our

customers came back to pay down the receivables and asked for more of our new chemical fibres.

By now, China has become the factory of the World that churned out all kinds of consumer and

industrial products so cheaply that the Americans and the Europeans were so addicted to. The

stock markets and physical property markets in the world were becoming buoyant and everyone


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was beginning to feel wealthy and began to spend more. Our new fibre products found more

commercial uses and we bought more machines using the IPO proceeds to produce more

products to cater to the booming demand. Again Mr D was right. Pour more cash into the business

and you will get a real company.........just like the pig-farmers listed on the stock exchange.......as

he put it.

Sensing potential to make a lot of money out of the good performance of the company and the

buoyant market conditions, Mr D descended into town one day and asked me out for a dinner. As

usual, we headed to his favourite KTV after dinner. After a few drinks, he leaned over and

whispered to me, Hey, this is your chance to grow really big very fast. The IPO proceed was not

enough to fund your growth. Now that we are listed, we can place more shares out to raise more

money to accelerate the business expansion to capture more customers before the competitors in

China could replicate our capabilities, which always happen in every industry and business in

China. I was reluctant to agree to help sell the idea to my older colleagues as their shares were

still in lock-up period and I imagined they would hate to see any dilution of their interests further at

this juncture. Mr D went on, I really needed your help as I need to get the shares placed out to

some of those who helped us through the difficult times just not too long ago. We need to let them

make some money as we are entering a bull market soon. In any case, the issuance of more new

shares will give us more power to cement your position as the number one man in your company

as we all support you rather than your older colleagues.

As usual, we kind of half forced the issue through the board with my older colleagues grudgingly

approved some kind of convertible issue to assuage their fear that the new institutional investor

would not be able to sell before they were allowed to. In Mr Ds effort to consolidate his hold of the

board further, a new director from the institutional investor group was appointed to the board. I had

known him earlier as one of those that visited our plant before the IPO, when Mr D was just

beginning to restructure the company shareholding where this new director was once introduced to

me as an angel investor. Apparently, they were good friends that make money together.

By 2005, the Chinese economy had entered into another boom era and our business was literally

flying, just like any other businesses in China. Profit margins were good while sales expanded

quickly, and our share prices rose more than 3 to 4 times from the IPO price. Many of older

colleagues sold their shares and retired happily into the sunset in 2006, only to regret to see the

shares they sold almost doubled again in 2007. Being the new helmsman, I could not easily sell my

shares as it would have been construed as management not having confidence in the business.


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S-chip CEO

By then, Mr D had become one of the richest men in Singapore. Leveraging on his experience and

the capital he accumulated from earlier successful IPOs he conducted, where in some case he

made more than 50 times his capital, he exploited his new reputation as the preferred deal-maker

in

Singapore to the maximum. His club became increasingly larger as many people with moneyand influence joined the club to participate in this unprecedented Chinese feast. He doled out

hot IPO share allocation through investment banks to repay old favour and to cultivate new

relationship. Success begets success and money begets money. It all seemed so easy and so

natural. Everyone got what they wanted. The Chinese companies got their money to expand their

business (which at a later stage, no one is really sure which company really had any business to

start with), the entrepreneurs were handsomely rewarded for the risks they undertook, the deal

makers got their fees, the angels made their killings, the bankers collected their fees and dished

out new loans, the lawyers and accountants recruited more young graduates to cope with the

record work volume, the stock exchange got their new mandate as the second board of the

Chinese companies, the investors got their hot-and-sizzling China concept stocks and above all,

the rich and the influential members of the invisible clubs were all happily enriching their own

pockets......

The reason why Mr D was successful, I realised, was that he always try to help the people who

helped him in one way or another to become richer. Despite the fact that I could not sell my shares,

I got the help of one of his banker friends to obtain some financing by securing my stake in the

company to join in the biggest Chinese feast in Singapore. Just like all the Chinese entrepreneurs

Mr D helped, I became one of his angel investors, taking stakes in promising new companies

through his vehicles, got allocated hot IPO shares and reaped substantial gains within short span

of time. I too, was becoming not only asset, but also cash rich. I took advantage of the Singapore

immigration rule and got myself a permanent resident by purchasing a property in Singapore. I

wanted my son to study in the English school in Singapore and grow up as part of the

establishment there. In any case, I would be able to help him join the club and he will be taken

care of the rest of his life. As for Mr D, he was purchasing properties in the form of tracts of landas he moved to diversify his assets from stock holdings to land holdings, with a sight to become a


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serious property developer. The Singapore property market was getting sizzling hot by the middle

of 2007 and it seemed nothing could go wrong, particularly when 2 casinos were being constructed

in an otherwise very conservative society.

For myself, Mr D was going to be my role model. I went on to fund entrepreneurs and Chinese

companies directly, hoping one day to bring these companies to someone like Mr D, and make

more than the Singaporean deal-maker, at least equal........ Oh, I forgot to mention that the

Chinese local stock market went through the roof as well. To take advantage of this, I needed no

advice from Mr D. My friends in the local banks helped me secure the capital easily just like what

they did for thousands of state-owned enterprise officials. They took the companys cash as

invisible lien to lend money to the managers of these companies to punt in the stock markets.

The profits of such stock market speculation go directly into the pocket of the managers. However,

only in hindsight after the stock market collapse at the end of 2007 that it became obvious a lot of

Chinese companies cash in the bank vanished into thin-air alongside the stock market bubbles.

Our worlds began to unravel at the end of the third quarter of 2007. By then, the Sub-prime Crisis,

as we knew it now, had hit the U.S. economy. We were still busy feasting in the spoilt of the capital

market excesses, unaware of the impacts of such a crisis that originated from the housing

bubbles in a country so far away. We were blind-sighted by the ease of making money from stock

markets and at the peak of the markets in the middle of 2007, we all felt like the masters of the

universe.

The first sign of trouble amongst the Singapore listed Chinese companies appeared when the

share price of a Chinese steel company got sold off aggressively. In good times amidst a vibrant

economy, this company presented to the investing community a story of their ability to turn in good

profit margins by buying hot-rolled steel coils, coating them in zinc and sell them to car and

consumer durable makers. One analyst, whom everyone ignored when the stock prices were

rocketing, did question its business model as firstly, such production method is highly inefficient as

most modern steel mills produce zinc-coated plates in one continuous process, and secondly, the

investing world also knew that the prices of hot-rolled coils became excessively expensive as there

was a preponderance of such downstream ! processing plants who got squeezed by the few

integrated steel giants who have the capability to smelt iron-ore. Then there was the rumour of the

company being privatised by a foreign steel giant seeking easy entry into the China market and its

stock prices shot up before the trading of this steel company was suspended one day. Rumour had

it that it had been reporting fake profits, an official report of which the investing community is still

awaiting after a few months. It was so obvious an insider job to cash out their position to the retail

investors and apparently, the company management was not contactable anymore!

By the second half of 2008, I believed many Chinese company CEOs were having tough times

struggling to keep their business afloat amidst the most serious and swift crisis in memory as the

credit situations around the world got frozen up. Worst, many of us were facing more serious

issues

in our personal finances. All our investments in stock and property markets were plunging in values

amidst the so-called sub-prime crisis. Worse, we could not sell our stocks and properties as the

transaction volume of these investments just vanished quickly together with the confidence of the

investors globally. While we busy feasted in the spoilt of the capital market excesses over the last

2 years, we did not realise that we were piling on quite a fair bit of leverages as we secured our

investments for more bank loans to attempt to reap more profits, when it all seemed so easy. We

never thought! we could have any problem of repaying any of our borrowing as we were sitting on

a lot of gains on our investment holdings.

There was only one easy way out for all the Chinese company CEOs and that was to dip into the

honey jugs. We all understood the importance of having our closest allies to be the finance

managers of our companies so that any small problems could always be ironed out. In this case, I

just borrowed some cash from the company accounts to fill some of the margin calls from the

banks outside of China, which financed my investments in the stocks listed on Singapore Stock


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Exchange, as these foreign banks were ruthless in coming to seize the underlying security when

the margin calls were not met. In some cases, I just pledged more of my personal assets to the

foreign banks. I was becoming very stressed by all these happening and was not sleeping well.

Mr D was not having a good time either. He too was suffering from exactly the same problems as

we were just emulating his investment styles and leveraging activities. I heard of incidents where

he turned to some of other more cash-rich companies that he invested in to borrow some cash

to bridge through some margin calls. He sold down quite a fair bit of his investment holdings to

some friendly hands in a series of stock placements. At this moment, the goodwill and friendship

he built over the years came to his rescue in these moments of illiquidity as the market

transaction volume just dried up almost completely. However, the market prices of the stock

holdings we used to secure our financing continued to drop by the days. Some of our friends and

fellow angels were selling their holdings........and may just be in the same kinds of troubles as

well. No one trusted each others at moments like these. Those that were selling their investments

would not pre-warn their fellow investors as everyone would rush to sell at the same time! It was

a time where everyone

was for himself!

My anguish did not escape the attention of the director on our board that Mr D posted in earlier.

He flew over one day and was visibly concerned about the situation of my finances and of course,

more

importantly, that of the company. He sensed troubles as he knew that I too, had quite a fair bit of

personal investments that were vanishing into the thin air in values. By now, at the end of 2008, I

was becoming desperate. Our company was going into the audit season and obviously, there

was a large cash deficit that we would not be able to explain to the auditor. In the past, we could

have just arranged for some cash to be credited into the bank account for a brief period to satisfy

the auditors check. However, there was no such temporary cash to be found at any price as the

sub-prime crisis had now developed into a full blown credit-crisis around the world. China was not

spared in the process. With no where to turn to and the audit dateline closing in, I took the risks to

brief the director of the true situation and asked for his help. I was surprised that he was not

shocked by my confession. He had probably guessed it!

In any case, the director asked me to remain calm while he would consult Mr D to seek some kinds

of new financing to help bridge this difficult period. He asked that everything remained confidential

as the last thing we wanted the world to know was the missing cash in the company accounts. H

told me that quite a number of the S-chip CEOs were on the same boat and some of the funds

that used to backed their IPOs have been able to extend some credit directly to them ease the

pressure from the foreign banks, secured by again, stock holdings of the CEOs. Little did he know

that my assets had almost been entirely secured by all kinds of creditors already!

Then the irreparable damage struck. I had borrowed some money from the local Chinese banks to

punt in the local stock markets. The arrangement was such that I had to return such cash to the

Chinese banks at the end of the year because they too, were subjected to annual audit. I had

carefully maintained sufficient cash in our company accounts, which served as the collateral to the

conscience of my friends in the Chinese banks. As I began to use them to fund the margin calls

of the foreign banks and the amounts got further depleted by operation losses of the company

amidst the worst economic crisis the world was now facing, my friends in the local Chinese banks

were not going to take a chance on their own fate. They were definitely not friends in need. They

simply deduct the amount I owed personally from our company accounts two days before their

auditors came in, which was of course, a few days before our company auditors came in. The rest

was history...................

The auditor, which was an international firm, was not going to take a chance with their reputation.

They formally informed our board of directors in early 2009. In other words, they were warning the

board that the financial statements they were going to publish would be disastrous and could

cause a serious enquiry by the regulators. I think some insiders proceeded to sell some of their


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daily basis and some even declared themselves bankrupt. It must have been a very trying period

for everyone. However, I did not seem to have much sympathy to all these people. I witnessed how

some of them became filthily rich in a short span of time without having to work hard, while other

enjoyed a

good ride in fortune just because they (or their friends or relatives) were in position of influence. I

was the only one that would be made a scapegoat and had to live a life of exile, while these

guys could

still just lick their wounds secretively and continued on with their life. I do not sympathize those

institutional investors who lost their money as if they did, they were simply either incompetent or

someone had benefited personally along the way in having committed their funds money in such

investments. Curiously, I wonder who will speak on behalf of all the many ordinary people in

Singapore who came to believe the investment potential of these S-chip companies after all the

beautiful packaging the dealmakers and entrepreneurs wrapped around them, and went on to

invest their life savings in the S-chips, only to find out one day that all these were worthless!

So when dust finally settles one day, we shall all look back and evaluate what had gone wrong and

who are to be blamed. I am sure all fingers will be pointing at the Chinese entrepreneurs such as

myself, who are usually labelled as greedy and unscrupulous. There is a ring of truth to that

accusation and I admit I am guilty. But how about those dealmakers, who taught us how to cook

the books? How about those angels, who hid their identities behind some dealmakers and exerted

influences to assist them to succeed in their schemes? How about those institutional investors who

trifled with the money entrusted to them? How about those intermediaries and professionals who

were not vigilant enough to protect the interest of the investing public?

I would like to end with a comparison. The Ming Dynasty collapsed only after the General (Wu San

Gui) they sent to defend the border against the Manchurians opened the gate voluntarily to allow

the Manchurians army to come into the Great Wall. General Wu did that probably out of a promise

to

be made a king later on and be endowed tremendous amount of riches by the Manchurians. Of

course, the historians would like to add that he also needed the help of the Manchurians to defeat

another general that had taken his favourite concubine. In short, the thieves and robbers are only

usually allowed in by the insiders..........

If you have read the story till this part, I am sure you are either a victim or someone who is deeply

interested in the development of the S-chips going forward. Please help to forward this email to

any many such interested parties as possible. We need to put an end to all these irregularities lest

more ordinary people on the street suffer unnecessary losses.

In the process, you will help me to partially clear my name...... For I am not the only one to be

blamed.................

Documents

Confessions of a S Chip CEO