Harbin Electric Inc. (HRBN) reversed a 19 percent loss in U.S. trading yesterday after the Chinese maker of electric motors defended itself against a short seller’s accusations.
The stock posted the biggest intraday drop since June 16 after Citron Research said Harbin “fabricated customers” and overstated revenue from corporations including Guiyang Putian Logistics Technology Co. and Daqing Xinchengtai Technology Co. The shares then recovered, ending the day with a 4.3 percent gain, after the Harbin, China-based company issued a statement.
The Citron report is a “patchwork of fabricated evidence, falsehoods, selective use of information, and clearly biased and dishonest reporting,” Harbin Chief Executive Officer and Chairman Tianfu Yang said in the statement.
Harbin has misrepresented its finances and Yang has offered to buy the company in an attempt to inflate the stock price, according to Citron, which said the shares should trade for less than $5 instead of yesterday’s closing level of $17.68. Citron is run by Los Angeles-based Andrew Left, who said in an e-mail that he’s still betting against the stock.
“Tianfu Yang does not want this deal to go through,” Citron said in the report. “He alone knows what his company is truly worth, and he knows about the overstatement of revenues,” it said, adding that the buyout is “not happening!”
Short selling, or the sale of borrowed shares with the hope of profiting when they fall, amounted to 10 percent of Harbin Electric’s outstanding shares as of Aug. 1, according to Data Explorers, a New York-based research firm. That compares with a record 15 percent on June 6.
Chinese companies trading in the U.S. such as China MediaExpress Holdings Inc. (CCME) have faced investor scrutiny this year after disclosing financial irregularities or auditor resignations, raising concern there may be widespread fraud. Carson Block, a short seller at Muddy Waters LLC, helped fuel that speculation with his bearish reports on corporations including Sino-Forest Corp. (TRE), which trades in Canada.
Harbin jumped 59 percent on June 20 after its board agreed to sell the company for $24 a share to a group including Yang, who is also the company’s founder. The deal, subject to shareholders’ approval, is expected to be completed in the fourth quarter this year, the company said.
Harbin has risen 7.3 percent since Citron’s June 1 report questioning the company’s financial statements. The stock is up 1.9 percent this year.
Citron’s Left was disciplined by the National Futures Association for accusations in 1995 that he “cheated, defrauded and deceived commodity futures customers,” according to the association’s website.
Harbin’s owners include hedge funds Abax Global Capital and Pentwater Capital Management LP. Calls and e-mails seeking comment from Hong Kong-based Abax’s representatives and Chicago- based Pentwater’s Chief Operating Officer David Zirin weren’t returned. Messages for Abax were left outside normal business hours in Hong Kong.
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