* "Hacktivist" short-seller research firm alleges massive
* Tianhe says Anonymous report has errors, misleading
* Tianhe stock targeted in advance by short-sellers
* Stock down 5 percent on Tuesday before trading suspended
(Adds Tianhe response to accusations)
By Pete Sweeney and Lawrence White
SHANGHAI/HONG KONG, Sept 2 China's Tianhe
Chemicals Group has hit back at allegations that it
falsified statements to auditors and investors ahead of its Hong
Kong listing in June and forced trading in its shares to be
suspended on Tuesday.
The allegations were made in a report by Anonymous
Analytics, a stock researcher that describes itself as a
"faction" of the hacker group Anonymous, which Tianhe says
contained factual errors and "malicious accusations".
"The report contains errors of fact, misleading statements
and malicious accusations against the company and its
directors," Tianhe said in a statement posted on the website of
the Hong Kong stock exchange on Tuesday evening.
The company added that a more complete response to the
report is being prepared for publication "as soon as
Shares in Tianhe dropped 5 percent on Tuesday morning before
trading was suspended at the company's request.
Tianhe's statement said its directors are aware that there
has been active short-selling on the company's shares recently.
Short-selling involves the sale of borrowed shares in the
belief that the price will fall, allowing the stock to be bought
later at a lower price to close the position with a profit.
Firms specialising in shorting will often publish a negative
report on a stock that can accelerate its decline.
The Anonymous Analytics report, which did not include
authors' names, is the first short-selling report targeting a
leading Hong Kong-listed Chinese company in recent years - and
it looks an ambitious one, given Tianhe's large size and
While offshore short-sellers have targeted smaller companies
in Taiwan, Singapore and Hong Kong in recent months, Tianhe is
extraordinary both for its massive market capitalisation, which
last stood at $8 billion, and its stature as a recent IPO
The Anonymous report alleged that Tianhe, which listed on
for $654 million with the sponsorship of Bank of America Merrill
Lynch, Morgan Stanley and UBS,
generates only a fraction of the revenue that it claims.
Morgan Stanley, Bank of America Merrill Lynch and UBS all
declined to comment.
Reuters was unable to confirm any of the allegations
independently, but if they are proven accurate, it would be
embarrassing for China and the institutions involved in clearing
mainland businesses to list in Hong Kong.
It could also create heavy losses for some foreign
investment firms. The company's second-largest investor is
Morgan Stanley Private Equity Asia III fund, which owns 8.6
percent of Tianhe's shares, the fund's largest single equity
investment. The firm originally invested $300 million in Tianhe.
If the allegations are proven false, however, it would lend
weight to Beijing's complaints that foreign short-sellers try to
to exploit investor fears and slander Chinese firms for profit.
TARGET OF OPPORTUNITY
Tianhe looks to have become the target of massive shorting
soon after listing, a Reuters analysis shows. As soon as the
Hong Kong exchange put the company on its designated
short-selling list in early August, about 60 percent of its
daily turnover was short-transactions, compared with the 10.5
percent average for the Hong Kong market.
Data from Markit shows that nearly 80 percent of Tianhe
shares that can be borrowed for shorting are currently on loan.
The company has strongly outperformed the Hong Kong China
Enterprises Index (HSCE) since it listed, rising nearly
25 percent against a 5 percent rise in the HSCE.
The Anonymous Analytics report said that Tianhe provided
falsified documents to its auditor, Deloitte, before its IPO
that did not match previous filings.
Deloitte officials in Hong Kong did not respond immediately
to requests for comment.
"One would have thought that a fraud of the magnitude
envisioned here could not have gotten by the regulators and
investment bankers who do not want to see another one," said
Paul Gillis, professor at the Guanghua School of Management at
Anonymous's report included examination of Tianhe's tax
statements to imply false reporting, which Gillis said could be
damaging to Tianhe.
"They're in a small town and the company doesn't even appear
on the list of the top 10 taxpayers in the county. If these
facts are actually true, that's a real 'gotcha' there," Gillis
JPMorgan Chase & Co bailed out of IPO discussions
with Tianhe in January, a move sources said was driven by
concerns about the bank's employment of Joyce Wei, the daughter
of Tianhe Chemicals Chairman Qi Wei.
Anonymous Analytics has published reports critical of other
Chinese companies in the past, including Huabao International
, Qihu 360 and Chaoda Modern Agriculture
Holdings, though investors shrugged off allegations
made against Qihu and Huabao.
(Additional reporting by Saikat Chatterjee in HONG KONG and
Vikram Subhedar in LONDON; Editing by Matt Driskill and David