Moody's 'red flags' 61 Chinese companies

A number of Chinese companies listed in Hong Kong plummeted Tuesday after Moody's ratings agency assigned "red flags" to 61 mainland firms with possible governance and accounting risks. Moody's identified companies that have recently received "a great deal of attention from regulators and investors" in a report aimed at addressing investor concerns and providing "transparency on our approach to ratings".
The report comes as US and Chinese authorities meet in Beijing to discuss joint inspections of China-based auditing firms that review US-listed companies amid growing concerns in foreign markets over Chinese accounting standards. Moody's uses the red flag system to identify areas of a business that may be of concern to potential investors, such as corporate governance, cashflow and accounting.
Elizabeth Allen, author of the Moody's report published Monday, said the red flags "highlight issues meriting scrutiny to identify possible governance or accounting risks" that "may warrant further investigation." Moody's said the red flags do not represent a change to their analytical approach which already takes account of the difficulties of analysing young, fast-growing Chinese companies.
Four Hong Kong-listed companies, including West China Cement and China Lumena New Materials, were highlighted as having a particularly large number of red flags. West China, which was given 12 flags, plunged 14.1 percent to HK$2.43 (31 cents) on Tuesday while China Lumena, which got 10 flags, dived 9.9 percent to HK$2.74.