Cocoa products' auction failure evokes concern
(XU XIAOMIN)
03/15/2002
With a flick of a hammer, China's first ever bankruptcy auction for a wholly foreign owned firm ended in less than six minutes without result on March 7. Not one bid was made on the 116-million-yuan floor price for Shanghai Coline Cocoa Products Co. A second public auction is now planned for the second half of next month. Lack of seats The failure of the auction was contrary to predictions made by the Shanghai Auction Corp (SAC) who hosted the event. One week before the auction, the spokesman for SAC said they were "quite optimistic about the auction's prospects". Lin Yiping, general manager of SAC said the failure of the auction was mainly due to the "short time for preparation". "We received many inquiries from firms from home and abroad, and seven enterprises visited Coline's factory, but most of them said they needed more time to discuss the auction," Lin said. However, the auction still went ahead on schedule, even when faced with requests for more time. Only two firms paid the 10 million yuan (US$1.21 million) down payment to participate in the auction. Over 50 firms sent representatives to the auction as observers, which was more than the expected number. "The first attendee came one and half hours before the auction," said an official with SAC. But he was unwilling to reveal the total number of attendees. At 2:30pm, half an hour before the auction, representatives from different firms were blocked at the gate because of a lack of seats in the room. "I found the information about the auction from television and the newspaper, it was announced as a public auction," said a representative from a Belgian company who was unwilling to give his name, "So I came here very early, but I was not allowed to enter. It was not public at all, it was unfair." Though the representative had many complaints about the auction, like other attendees, he still said he would come to the second round in April. Rise and fall "They lost a golden opportunity," said Lin. "I think next time there will certainly be more competitors and the floor price will be higher in my opinion." The 1.16-million-yuan floor price, actually, is only equal to one third of Coline's assets. The total assets offered for sale at the auction, including Coline's real estate holdings, production equipment and other facilities, are valued at an estimated 300 million yuan (US$36.3 million). In addition, the office building and production equipment are all in good condition, indicating that Coline was once a well-run enterprise. The company entered the Chinese market in 1993 as a joint venture involving investment from Malaysia and a company in the local Jinshan District. Three years later, the Hong Kong-based Eureca Corp acquired a controlling stake in Coline and continued to produce and market chocolate products under two brandnames - Coline and Cemoi - until it went red last year. The company has debts worth more than 400 million yuan (US$48.4 million). "I still have full confidence in the auction of Coline in April," Lin said. "I think with China's entry into WTO more failed firms will face the auction block. It is natural for a failed enterprise to be auctioned in public." Legalized market The auction of Coline is regarded by industrial analysts as an indicator of the increasingly fair and open market environment taking shape in China for both foreign and domestic firms after its accession to the World Trade Organization (WTO). "It signals a national standard for both foreign-invested and domestic companies after China's WTO entry, and the market rule of 'survival of the fittest' will work well for them," said Yue Wenhui, chief partner with Shanghai Zhongyuan & Lantian Law Firm. The current Enterprise Bankruptcy Law is tailored for State-owned enterprises, not offering much for foreign companies such as Coline. In order to reflect a "national standard", a new bankruptcy law is now being drafted according to Shanghai Youth Daily. The law is said to be released soon. Compared with the current law, the new bankruptcy law will enlarge its field, covering all enterprises and business individuals including private firms and foreign companies.
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