When the concept of Tibet enters the stock market

2011-08-03 - michelle
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tibet 5100

Editor note: This article, originally published in inmediahk.net, tells how a small company can turn into giant enterprises through the mysterious network and relationship with officials.

As a Chinese Proverb says, “Having a bad life is still better than getting a bad name”. It seems that this proverb not only applies for human being, but also applies in the stock market which is known as “concept stocks”. For example, Mongolia Energy Corporation (蒙古能源, MEC) formerly known as New World Cyberbase. It is a subsidiary of New World Development. It was renamed and transformed into emerging markets with the concept of “Mongolia”, and packaged as a natural resource stock. However, changing name does not necessarily reward by good luck. MEC’s share price has fallen from HK$17.7 (offer price on 30 May 2008) to HK$ 0.98 currently. An authoritative domestic magazine “Caijing” (Finance) mocks MEC as “the most monster share in China”.

Another notorious example is “Zhongguo Senlin” (中國森林, means Chinese Forest). It sold shares in the initial public offering (IPO) in 2009. With the name included “China” and “forest”, although it did not do the Muddy Waters Research, the four characters really worth a lot. Its share price was increased by hundred times. Unfortunately, this “forest” was not sustainable. Before the company disclosing any violations, it was ordered suspended this year because of its enormous loss.

Magical outstanding accomplishment

If you have bought one of these stocks, is it only because you are unlucky? History always repeats itself. Last month, “Tibet 5100 Water Resources Holdings Limited” (hereinafter refer as “Tibet 5100”) was listed in the IPO market. The shares include two “hot-concepts” which are “Tibet” and “water”. Will it be another “Emperor’s new clothes”? “Suspected” chairman of Dong Limin was an official in the 90s, as well as former secretary of the son of Deng Xiaoping (former PRC’s chairman). He was well known for his financial skills and manipulation of capital market. This may be too early to judge his performance. But Tibet 5100 does have a fabulous performance: it made over 100millions RMB profit from 0.5millions RMB capital. Who else do not recognize China as a gold mine? There are so many commercial opportunities in China. Yet, not everyone can take advantage from these opportunities. Therefore, the focal point is who will have such ability?

The Chinese government will not miss to share profit from great commercial opportunities. Market has rumour that Tibet 5100 has the background of the Communist Party School. It has raised 2.3 billion of capital. What does “5100” represent? It refers to the springs located at 5,100 meters height above sea level in Tibet Nyainqentanglha mountain. These seven water sources are the lifeblood of the company. The company paid 0.5millions RMB to Tibet geothermal geological unit in 2011 in order to obtain the mineral-water mining rights. The company then increased its profit from 11.9 millions in 2008 to 115 billions in 2010 miraculously and listed in IPO within three years.

Changing of state-owned enterprises

Tibet 5100 ranks first in the domestic market of high-end mineral water, contributes for nearly thirty percent of the market share. What is high-end mineral water? For those Hong Kong people who always travel to Guangzhou, they may often see this brand. This is the free bottled water given by the railway company during the journey of the Guangzhou-Shenzhen railway. This 330 ml bottled water is sold for 7.9 RMB in the market. It seems that the company will have a promising future. However, the fact is the company is highly depended on China Railway Express (CRE) ─ ─76.8% of the gross revenue of Tibet 5100 was billed to China Railway Express (CRE) in 2008, and the figure were 81% in 2009, and 80.5% in 2010 respectively. The company would provide 750 million tons of 330ml mineral water annually from 2001 to 2013.

During the financial crisis, economy of the United States and Europe remained weak. Chinese government invested four trillion RMB to boom the economy, and it was hailed as “Chinese model” by the world. Regional governments were heavily indebted and private enterprises are difficult to survive in the market competition. Most of the revenue goes to the “subsidized private enterprises” such as Tibet 5100, which are survived by dependent on Chinese government or monopoly of state-owned enterprises. Like another example “China optical fiber”(3777), China's three major telecommunication networks accounts for half of its turnover. Recently, governance problem of Chinese-styled private enterprises has become research focus of foreign investors. Yurun shipin (Yurun food) is heavily relied on governmental subsidies which has become chasing target in stock market. In the absence of perfect market competition, hidden network, relationships and the transfer of benefits become hotbed of corruption. So problems of “private enterprises” are just the tip of the iceberg.

Where does water come from?

Tibet 5100 is able to make huge profits, it is because it obtains the right of the spring water from government with very low cost. It becomes the master of the spring water. Yet, who should own the flowing water?

The springs are located in Nyainqentanglha snow mountain in Tibet Damxung province. Damxung province has temperate semi-arid plateau monsoon climate and its annual rainfall is only 481 mm. That’s why it is also known as semi-dry land or semi-dry grassland, and less precipitation is found in western mountains. Since the province is lack of rainfall, glacier water is very important to local residents. However, due to construction of dams, deforestation, global temperature change and other reasons, according to Glacier inventory statistics 2002, 80% of the glaciers in the western China has been shrinking since 1980s. The shrinking ranges are varied from 2% to 18%. ALECTIA, the company which assess the listing of Tibet 5100, estimates extraction of the spring water source can be up to 1.1 million tons per year, while the regional government permits 500,000 tons for maximum annual extraction. Although Tibet 5100 only produced 60,000 tons of mineral water in 2010, it has claimed to find new sources recently. Do we have unlimited water supply, or there are other considerations?

American environmental expert Lester R. Brown states that the rapid melting of glaciers in the Tibetan Plateau will lead to Asian food crisis. Amount of the water source directly affects agricultural industry of countries in downstream. Nyainqentanglha mountain is the source of Nu River and Brahmaputra river (China's fifth largest river). The former is the main river of Burma and the latter is the second largest river of India and Bangladesh.

Tibet 5100 paid 1.4 million RMB to Damxung regional government for the right to use 106,774 square kilometers of land for 50 years, i.e. 13 RBM per square kilometer. It claims that all plants are built in Tibet. Is this appropriate to establish plants at an altitude of 5,100 meters? Fragile alpine environment, high transportation costs, how to handle plants waste and daily garbage of employees? How to deal with wastes derive from production such as equipment cleaning and plastic generated? Internet has these accusations already, but the company and the regional government are failed to disclose environmental impact assessment. National people know nothing about it.

How to go public? How to speculate?

No matter it is Tibet or water resources, they seems to be hot concepts for market speculation. If it is just another case of hidden relationship between officials and private enterprises, it will impact thousands of investors. But if the concepts are really successful, the impact may be even greater. When we buy stocks, whether to make quick money or to wait for long-held interest, do we observe the company’s operation? After Tibet 5100 goes to public, its governance problems have been reported. For example, the boards issued a statement to clarify the “double-chairmen” incident. Recently rumour about two-thirds reduction in the procurement of CRE has been heard. How do the authorities check and prevent investors or National people to get out of trouble?

References:
南方周末︰谁的5100 Nánfāng zhōumò︰shuí de 5100 (Whose 5100?, Simplified Chinese only)
http://www.zhanghua.org/?p=4520
东方早报(上海)︰西藏5100称霸记 Dōngfāng zǎo bào (shànghǎi)︰xīzàng 5100 chēngbà jì (Hegemony of Tibet 5100, Simplified Chinese only)
http://money.163.com/11/0624/16/77B0OTB900253B0H.html
绿色中国 ︰喝掉冰川 不是空穴来风Lǜsè zhōngguó︰hē diào bīngchuān bùshì kōngxuéláifēng (Rumour of dried up glacier, Simplified Chinese only)
http://www.lvsecn.org/html/EnvironmentProtect/huanjingpinggu/2011/0629/2...
中国西藏信息中心︰高原地势所决定的西藏水资源特点 Zhōngguó xī cáng xìnxī zhōngxīn︰gāoyuán dìshì suǒ juédìng de xī cáng shuǐ zīyuán tèdiǎn (Plateau topography determines the characteristics of Tibet water resources, Simplified Chinese only)
http://big5.xinhuanet.com/gate/big5/tibet.news.cn/misc/2008-11/06/conten...
中国西藏新闻网 Zhōngguó xī cáng xīnwén wǎng (China Tibet News website, Simplified Chinese only) http://www.chinatibetnews.com/pinglun/2008-06/10/content_87838.htm
Sharing data on mining in Tibet
http://tibetanplateau.blogspot.com/2011/07/wdfwe.html

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