Chinese meat firm Yurun plunges on talk of Muddy Waters report

HONG KONG/SHANGHAI (Reuters) - China Yurun Food Group Ltd (1068.HK), a meat processor that has seen some of the world's most well known investors among its shareholders, sufferedof publiclyst ever fall on Monday, hit in part on market talk that it was the target of Muddy Waters, a now famous short-seller whose negative reports have decimated shares of publicly traded Chinese companies listed overseas.

Shares of listed Chinese companies, from Toronto to New York, have taken a beating recently on concern over their accounting practices amid a spike in scandals and shareholder lawsuits alleging fraud.

Singapore state investor Temasek Holdings and China-focused private equity firm Hopu invested in Yurun last year, according to reports, and both J.P. Morgan Asset Management and Fidelity were also shareholders, according to filings.

In a statement to the Hong Kong stock exchange late on Monday, Yurun said it was unaware of any reason or event that might have caused the sharp fall in its shares, and its business was operating normally.

Analysts who did not want to be named said that Yurun planned to hold a conference call with investors and analysts on Monday night to address the stock plunge.

The nearly 20 percent plunge in Yurun's shares came as Asia-focused brokerage Mirae Asset Securities said in a note that markets were betting the company would be the target of the next Muddy Waters report. It also reiterated its "reduce" rating on the stock, partly on potential government intervention to stem pork price increases.

"There has been talks in the mainland about Muddy Waters (of Sino Forest fame, www.muddywatersresearch.com/)trying to issue a report on one mainland company. The market is betting that it will be on YURUN."

"Muddy Waters has setups in the mainland for channel checks and ground research. Therefore, the market's speculation on them issuing a Yurun report can be well-grounded," the note, obtained by Reuters, said.

Muddy Waters was not available for comment. So far, Muddy Waters has not written a report on a company without a North American listing.

Hopu and Temasek had bought $247 million worth of shares in Yurun from the company's controlling shareholder Willie Holdings, a source told Reuters in April 2010.

It was not immediately clear how much these investors owned in Yurun as of Monday. Temasek and Hopu were not available for comment.

Investors in Nanjing-based Yurun have also included ING Investment Management, according to Thomson Reuters StreetSight. JP Morgan Asset Management (Hong Kong) Ltd held 3.6 percent of Yurun, according to a filing made on April 28, 2011.It was not immediately clear what their current holdings were as of Monday.

BIG JUMP IN TURNOVER

Turnover in Yurun's shares surged on Monday with over 11 times its average 30-day volume changing hands. Short-selling was 17 percent of the turnover, making the stock the second-most shorted stock in value for the second successive day, rare for a small-cap.

Bearish bets in Yurun shares have picked up steam this past week lifting the average daily shorted volume for June to 28.6 percent of turnover compared with about 9 percent for the Hong Kong market.

Shares of Toronto-listed Sino-Forest Corp TRE.TO have plunged more than 85 percent this month, following accusations of fraud leveled by Hong Kong-based short-seller Carson Block and his firm Muddy Waters.

China is looking into accounting issues involving Chinese companies listed in North America, an official at the country's securities regulator said in the watchdog's first public remarks since a series of accounting scandals.

In June, Standard & Poor's ratings agency withdrew ratings on Nine Dragons Paper (Holdings) Ltd (2689.HK), saying the Hong Kong-listed paper recycler had "an aggressive debt-funded growth appetite" and was not allowing sufficient access to management to judge its strategy.

(Additional reporting by Samuel Shen in SHANGHAI and Alison Leung and Lee Chyen Yee in HONG KONG; Writing by Kazunori Takada; Editing by Anshuman Daga and Michael Flaherty)