`Landmine' shares begin showing their weaknesses

The so-called "landmine shares" (|a1p股), which were a nightmare to many investors who played Taiwan's stock market last year, are wreaking havoc once again.

Since the earthquake on Sept. 21, a number of risky investments have begun to emerge. Investors who do not want to get burned should check the chart -- compiled by the Taipei Times -- that accompanies this report.

According to the Cha-ho Securities Investment Advisory (佳和投顧), 45 listed companies' directors have collateralized more than 70 percent of their share holdings. Analysts said such high ratios of collateral raise questions about the soundness of financial conditions at these listed companies.

According Asia Securities (亞洲證券) statistics, some 170 listed companies have recently seen their stock prices fall below book value.

Analysts said if the share prices of such companies continue to fall, the ratio of share collateral held by the companies' directors could reach as much as 70 or even 80 percent. This is an even more dangerous sign for the companies in question.

In order to make the public aware of which listed companies face both of the problems mentioned above, the Taipei Times is indicating, in chart form, the 29 listed companies which match the two conditions.

All 29 listed companies indicated in the chart have at least 70 percent of share collateral held by company directors, and all of their share prices at the close of last week were lower than their book value.

The higher collateral ratios and the lower ratio of share price to company book value normally indicate a higher financial risk at such companies, analysts said.

Among the 29 listed companies, all are among the so-called traditional industries, with 13 construction companies topping the list.

Analysts said the 921 earthquake has shaken the confidence of Taiwan homebuyers, and the construction industry could be devastated before demand re-emerges some six months to a year from now.

The China Times reported last Friday that Sun Splendor Construction Co (?T采建3]) was having financial difficulties and that Bank Sinopac (華信銀|?/CHINESE>) has been invited to monitor the company's operations.

The newspaper said Sun Splendor Construction has been hit hard by the 921 quake, and its main business area is concentrated in Taichung (台??), where there has been hardly any demand since the quake.

But Sun Splendor Construction immediately denied the report and said the company's financial condition was normal.

According to available data, as much as 85.15 percent of directors' shareholdings in the company have been collateralized.

Moreover, the share price of the company has dropped to NT$3.31, about 35 percent of its NT$9.46 book value.

Creditors have yet to determine whether the company has faced up to its financial difficulties, but its financial status quo is definitely in question.

Other listed companies experiencing financial difficulties include Hung Fu Construction (宏福建3]), UB Office Systems (優美) and Crowell Development (皇普建3]).

Analysts said they wouldn't be surprised if other companies listed on the chart encounter financial difficulties.