Bloomberg News

Chaoda Long-Term Credit Rating Cut By Standard & Poor’s

October 04, 2011

(Updates with Fidelity comment in tenth paragraph.)

Oct. 5 (Bloomberg) -- Chaoda Modern Agriculture (Holdings) Ltd., the Chinese vegetable supplier which delayed its annual results announcement last month, had its corporate ratings cut by Standard & Poor’s Ratings Services.

Chaoda’s long-term corporate credit rating was lowered to “BB-” from “BB”, S&P said in an e-mailed statement yesterday. It also put all of Chaoda’s ratings on credit watch with negative implications.

Chaoda’s shares have been suspended from trading in Hong Kong since the afternoon of Sept. 26, and the company delayed the release of earnings for the year through June, amid allegations of misconduct by two of its top executives.

Holders of Chaoda’s $200 million of convertible bonds due in 2015 can force the company to buy back the debt should the shares be suspended for more than 60 consecutive days, S&P said. “In our view, such an outcome would materially weaken Chaoda’s liquidity position and growth,” S&P said.

The trading halt and delayed results announcement may undermine investor confidence and weaken Chaoda’s ability to access capital markets, S&P said. Historically, the company has pursued growth through debt and equity financing, it said.

Chaoda Chairman Kwok Ho, Chief Financial Officer Andy Chan, and Fidelity Management’s George Stairs were accused by Hong Kong’s financial secretary of insider trading, the city’s Market Misconduct Tribunal said on Sept. 28. Kwok, who founded Chaoda, has a 19.6 percent stake in the company, according to data compiled by Bloomberg.

‘Challenges’

“Chaoda could face significant challenges to restore its image while the market-misconduct investigation is under way, in our opinion,” S&P said yesterday. “The investigation could take a long time to resolve. Chaoda’s potential difficultly in accessing the capital markets during this period could limit its growth prospects.”

The financial secretary says the chairman and chief financial officer told Stairs about a June 2009 share placement three days before it was publicly announced, and the fund manager traded profitably as a result, according to a Sept. 28 notice released by the city’s Market Misconduct Tribunal. A further tribunal hearing is scheduled for Jan. 30.

“An unfavorable outcome from the investigation would confirm our assessment that the company’s corporate governance is weak,” S&P said.

Allegations Disputed

The allegations weren’t made against Chaoda itself and the executives dispute the accusations, Chaoda said in a Sept. 30 filing. Boston-based Fidelity Investments conducted a thorough internal review of the matter in 2009 and believes that Stairs didn’t violate any laws or regulations, according to spokesman Vincent Loporchio. Stairs continues to work for the company, he said.

Chaoda delayed the release of earnings, originally due on Sept. 30, to “include additional audit procedures” after a report from Anonymous Analytics, which describes itself as a faction of the Internet group Anonymous, questioned Chaoda’s accounts.

Anonymous, made up of hundreds of members in several countries, gained renown in December when it targeted EBay Inc.’s PayPal unit, Visa Inc. and other companies deemed hostile to WikiLeaks, an organization that posts secret documents on the Web. A spinoff group called Lulz Security later claimed credit for breaking into websites at Sony Corp., the U.S. Senate and the Central Intelligence Agency.

Chaoda’s shares will remain suspended until the company issues a statement to address the Anonymous Analytics report, it said. S&P said it plans to resolve the credit watch within three months.

“We could lower the rating by one or more notches depending on the level of stress placed on the company’s reputation, operations, liquidity, and access to the capital markets,” it said.

--Editors: Rebecca Keenan, Douglas Wong

To contact the reporters on this story: Marco Lui in Hong Kong at mlui11@bloomberg.net; Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net


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