August 3, 2015 / 8:37 AM / 4 years ago

China aluminium maker Zhongwang denies short-seller allegations

HONG KONG/MELBOURNE, Aug 3 (Reuters) - China Zhongwang Holdings, the world’s second-biggest aluminium products maker, said on Monday it plans a detailed statement to respond to short-seller allegations that it inflated sales by sending shipments to companies it controls offshore.

Zhongwang, which said in an earlier filing to the Hong Kong Stock Exchange that the allegations were “groundless or untrue”, was preparing a point-by-point response, although no timeframe had been set, a Zhongwang company officer in Hong Kong told Reuters.

The aluminium maker, which has a market capitalisation of HK$18 billion ($2.3 billion), requested on Friday that trading in its shares be suspended after the release of a report by previously unknown research house Dupre Analytics.

The report echoed similar actions by short-sellers such as Iceberg Research and Muddy Waters which have released research reports questioning a company’s accounting or business practices, and have often targeted Chinese firms.

Dupre, which said it had taken a short position in China Zhongwang’s stock, alleged the firm shipped out semi-finished aluminium products to companies it controls overseas, including in Mexico and Vietnam, where the material was reprocessed back into more basic aluminium billet.

Exports of primary aluminium attract a 15 percent export tax in China, which does not apply to semi-finished products, which instead are granted a VAT rebate.

The report come amid concerns by some global producers over higher Chinese aluminium exports. China’s overseas shipments of semi-finished aluminium rose 30 percent in the first half.

Aluminium giants Alcoa Inc and Rusal say China’s exports have been a factor behind plunging primary prices this year. Benchmark aluminium prices hit six-year lows on Monday.

U.S.-based industry body, the Aluminum Extruders Council, called on the governments of China, Vietnam, Malaysia, Mexico, and the United States to investigate the claims in the Dupre report.

“If these allegations are found to be true, these governments must take all necessary steps to end these schemes,” the council said.

Dupre did not respond to a request for comment. The company’s website appeared to have been set up this year, while an analysis of the IP address suggested the company was based in the United States.

Zhongwang, which listed in Hong Kong in 2009, faced allegations that year from local media that some customers referred to in its prospectus had not bought from the company in the previous year.

It later asked an international accounting firm to conduct an independent review of its sales transactions during January 2008 through June 2009 period. The company later said it had concluded there were no deficiencies in its sales transactions.

The firm was one of a number of companies named in a U.S. investigation into dumping of Chinese extruded aluminium products in a Departement of International Trade Administration report in 2011.

$1 = 7.7517 Hong Kong dollars Reporting by Melanie Burton and Polly Yam in Hong Kong; Editing by Richard Pullin

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