Anonymous research firm says targeted China's Tianhe for public good

Chaoda Modern Agriculture (Holdings)

03/09/2014 09:47

* Anonymous Analytics says has not made money from Tianhe 
    * Says published report for public good 
    * Tianhe says Anonymous report has errors, misleading 
statements 
 
    By Pete Sweeney 
    SHANGHAI, Sept 2 (Reuters) - Secretive stock research firm 
Anonymous Analytics, which has publicly accused China's Tianhe 
Chemicals  1619.HK  of falsifying financial statements, said it 
published the report for the public good, not money. 
    "We do not profit in any way from a decline in Tianhe's 
share price. We have no financial incentive linked to Tianhe's 
stock performance," Anonymous wrote in an e-mail response to 
Reuters, adding that it published the report because it was "the 
right thing to do." 
    The organisation calls itself a "faction" of the Anonymous 
vigilante group, which has gained prominence for attacking 
government and corporate websites around the world.   
    The group does not identify its employees or provide any 
registration information, address, or telephone number on its 
website, relying solely on a secure e-mail box for 
communication. "We don't really talk about AA's structure and 
how we operate," it said in the e-mail.  
    Anonymous Analytics says it has "moved the issue of 
transparency from the political level to the corporate level". 
In the report on Tianhe published on Monday, it advised 
investors to sell shares of the Chinese industrial group with a 
target price of $0 per share. 
    It predicted Tianhe would be delisted and criminal charges 
would be brought against the architects of its IPO.  
    Tianhe, which floated $654 million worth of shares in Hong 
Kong in June, last had a market capitalisation of $8 billion. 
    Tianhe said in a statement late on Tuesday that the 
Anonymous Analytics report contained errors and misleading 
statements, and that it would publish a more detailed response 
soon. It halted trading of its shares earlier on Tuesday after 
they fell 5 percent to HK$2.31. 
    Tianhe shares appear to have been targeted by short sellers 
as soon as the Hong Kong exchange cleared them for shorting in 
mid-August, meaning that market players believed Tianhe's strong 
post-listing performance could not be sustained. The shares had 
gained 25 percent since listing, compared to a 5 percent rise in 
the Hong Kong China Enterprises Index  .HSCE . 
    While Anonymous says it has not directly taken a position in 
the shares, its report allowed that "contacts, consultants, 
affiliates, and/or clients may have a short position in the 
stock or debt of Tianhe and/or options of the stock."  
    Client relationships between short-sale investors and the 
research houses often involve commissions based on profit made 
from short selling. 
    But Anonymous also denied being involved in any such scheme, 
and also said it had not sold copies of its report to 
short-sellers in advance of its publication, another common 
strategy. 
    "We did not sell advanced copies of this report. We have 
made NO money on this report. The only advanced copies we gave 
were a 30-45 minute embargoed heads-up to some journalists." 
     
    MASSIVELY OVER-STATED  
    The report said that Tianhe Chemicals, which listed with the 
backing of Bank of America Merrill Lynch  BAC.N , Morgan Stanley 
 MS.N  and UBS  UBSN.VX , massively overstated its revenues and 
provided inaccurate information regarding its relationships with 
customers.  ID:nL3N0R31OE  
    The report said it acquired all the information from 
publicly available information, but also described visits by 
investigators to sites in Shanghai. 
    Anonymous Analytics has said in the past that it cooperates 
with others in producing reports, telling the Financial Times in 
2011 that it occasionally outsourced "piecemeal work". 
    A source at a corporate investigation firm in Shanghai said 
he had produced a report for sale to a hedge fund, only to find 
some of his report reproduced verbatim in a public Anonymous 
Analytics report targeting a Chinese company. 
    Anonymous Analytics did not respond immediately to questions 
about this allegation and how it works with hedge funds.  
    Anonymous Analytics' secretiveness is not unusual given the 
heavy pressure Chinese government organs and business leaders 
have applied on due diligence investigators in China.  
    Other foreign short-sellers have also complained of 
intimidation against their investigators and that concern, 
combined with depressed valuations for many Chinese stocks that 
made them difficult to short, caused many to move on to other 
markets. 
    China's state media and industry executives have accused 
foreign research firms of deliberately publishing misleading 
reports intended to cause hysteria among uninformed foreign 
investors, slandering otherwise decent Chinese companies in the 
quest for short profit. 
     
    PATCHY RECORD 
    Anonymous' track record of reporting on what it has called 
over-valued stocks has been patchy. Starting in 2011, it has 
published short reports on six listed companies, five of them 
Chinese, but only one - on Chaoda Modern Agricultural Holdings 
 0682.HK  - had a long-term effect. Chaoda's shares have 
remained suspended since 2011.  
    Other targets have proven more resilient. Anonymous 
published reports accusing mainland internet service company 
Qihoo 360  QIHU.N  of overstating its web traffic, but investors 
shook off the allegations. Anonymous reports on Joy Global 
 JOY.N  and Huabao International Holdings  0336.HK  also failed 
to do long-term damage. 
    "We wouldn't say the market shrugged off our report on 
Huabao. Huabao was trading at depressed levels for two years 
after our report," Anonymous said. 
    "It's only in the last few months that it's started to trade 
higher. Regarding Qihoo, that was a unique project for us. It 
was effectively 19 pages of us talking only about computer code. 
Surprisingly, investors don't care that much about an entire 
report dedicated to coding." 
    Analysts point out that market reactions to such reports can 
often have little to do with the veracity of a given allegation, 
especially when the stock in question is a company with deep 
investor support, or if it occurs during a wider market rally. 
 
 (Additional reporting by Engen Tham; Editing by Kazunori Takada 
and Raju Gopalakrishnan) 
 ((pete.sweeney@thomsonreuters.com; +86 21 6104 1777 / +86 158 
2104 8958; Reuters Messaging: 
pete.sweeney.thomsonreuters.com@reuters.net)) 
 
Keywords: TIANHE CHEMICALS/REPORT