China IPO Train Hits Bump With Vancl Resignation 中国上市事件撞上凡客诚品CFO辞职

By newsdoug on March 20, 2012

All eyes will be on discount online retailer Vipshop later this week when it should officially become China’s first New York IPO in months, testing whether investor sentiment has improved toward this group that was rocked last year by a series of accounting scandals. But in the meantime, a potential new scandal brewing at leading online clothing retailer Vancl will hardly help the situation. Details are quite scant and the company isn’t even confirming anything, but Chinese media are citing unnamed sources saying Vancl’s chief financial officer has resigned and that the company’s planned IPO now won’t happen until 2014 at the earliest. (Chinese article) Again, there’s little or no explanation about what’s happening at this company, but the resignation of a CFO is a never a good sign, as this is obviously the top person in charge of the company’s accounting and the implication is that he left due to questions about that part of the business. The big delay for Vancl’s IPO, if true, is also quite surprising, as the company was reportedly all set to make a public offering last summer before deciding to indefinitely delay the deal after market sentiment tanked. So the fact that sources are saying that the IPO won’t happen for at least 2 years now seems to indicate that auditors may have found some serious problems in Vancl’s accounting that will require a while to fix before the company can make a new effort at an IPO. The same reports say Vancl estimates it will post a loss of 1 billion yuan, or about $160 million, for the current fiscal year ending in June, which clearly isn’t the kind of story you want to tell investors before a big IPO. Of course, the problem with all of this is that the source of the information isn’t named in the report, so it’s hard to know how much is really accurate. My guess is that the CFO resignation and large loss are true, as the e-commerce space has been suffering from rampant competition for much of the last year driving everyone deeply into the red and setting the stage for a much needed consolidation as companies run out of money. In fact, Vancl was just one of many e-commerce firms to reportedly lay off employees last year, cutting about 5 percent of its workforce to conserve cash. (previous post) It’s unclear if Vancl is facing an internal accounting scandal, but, as I said above, the fact it’s delaying its IPO by 2 years when it’s clearly in need of cash certainly seems to indicate something is happening. With investors unlikely to provide any new funds until the e-commerce landscape starts to settle down, look for more layoffs at Vancl in the year ahead, and for the company to possibly even become insolvent or get acquired. In the meantime, this development could weigh on Vipshop’s upcoming IPO, causing investors to avoid this important first new offering for a China-based web firm in half a year.

Bottom line: The reported departure of Vancl’s CFO and delay of its IPO point to accounting issues at the company, which could prolong investor concerns about Chinese accounting practices.

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