China Yurun Denies Allegations of Accounting Misstatements

China Yurun Food Group Ltd. (1068), the nation’s second-largest meat processor, rejected allegations of accounting irregularities and contaminated products as “groundless” after its stock sank to the lowest in almost six years.

Yurun shares rose as much as 5.1 percent in Hong Kong trading today after saying it has procedures to ensure that “assets are safeguarded, operational controls are in place, risks are properly managed.” Yurun hasn’t found any food safety concerns related to its products, it said in a statement to the Hong Kong Stock Exchange.

The meat company fell 13 percent to HK$6.51 in Hong Kong trading yesterday, the lowest since October 2006, amid speculation about its use of cash and loans. Yurun’s “large amount of cash on hand” raises questions because it also has low interest income and a high level of loans, Sean Zhang, an analyst at SWS Research Co., wrote in a note yesterday.

“It is essential for the company’s subsidiaries to maintain sufficient cash in hand for operations and expansion,” China Yurun said in today’s statement. “The allegation on unauthorised use of company’s cash resources for improper purposes is clearly unjustified, groundless and fabricated.”

The stock rose as much as 5.1 percent to HK$6.84 before closing at HK$6.75.

Yurun in March replaced its chief executive and said first- quarter earnings are still suffering from reports last year about illegal additives in some of its meat.

The company posted a 34 percent decline in 2011 profit that lagged analyst estimates. Weakened consumer confidence and continuous increases in labor and raw materials had dented earnings, it said.

To contact the reporter on this story: Patrick Boehler in Hong Kong at pboehler@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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