China Minzhong Food Corp. lost half its market value in less than two hours after short-seller Glaucus Research Group questioned the vegetable processor’s accounts, reviving investor concern about Chinese companies traded overseas.
Glaucus said in a report the Putian, China-based company had been “significantly deceiving” regulators and investors, sending the stock 48% lower in Singapore trading yesterday and wiping $318 million off its market value before it was suspended. Minzhong said it’s seeking legal opinion and will comment as soon as possible.
Minzhong is the latest target of short sellers betting against Chinese companies trading in markets such as Hong Kong, Singapore and New York, even as five of the six analysts covering the stock recommend buying it. Minzhong is among the 143 China-based firms listed on Singapore’s $967.4 billion stock market at the end of July, according to the exchange.
“The reputation of Chinese companies in Singapore has now rock-bottomed,” said Mou Hua Lee, Singapore-based analyst at CIMB Group Holdings Bhd. “With these new allegations, it’s going to be a very long while before anyone trusts Chinese companies here.”
Minzhong shares were halted at 53 cents, after tumbling the most since the company’s listing in April 2010. Short interest in the vegetable processor rose to a record 7.2% of the outstanding stock on Aug. 19 from this year’s low of 3.8% in March, according to the most recent data from research company Markit Group.
FABRICATED SALES
Singapore Exchange queried Minzhong on the share price decline and will continue to closely monitor developments, according to an e-mailed statement.
The company said late yesterday it's reviewing the Glaucus report and will respond "shortly." It's also taking steps to defend its reputation and won't hesitate to take legal action, it said in an e-mailed statement.
Minzhong may have fabricated sales and payments to its largest supplier, doctored historical accounts and overstated capital spending, Glaucus said in the report. It also questioned the food processor’s reported receivables and cash balance.
“Evidence indicates that Minzhong fabricated sales to its top two customers, suggesting that the Company overstated revenues in its IPO prospectus by at least a third during the track record period,” Glaucus said, citing corporate registry records.
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