Minzhong Opposes Glaucus Report as Aimed at Hurting Shares

China Minzhong Food Corp. (MINZ), the vegetable processor targeted by Glaucus Research Group, said it “strongly” denied the allegations in the short-seller’s report, describing it as going beyond fair comment.

Glaucus’s statements on the Putian, China-based company’s performance were made with the sole objective of driving down the company’s share price and gaining from the decline, Minzhong said late yesterday in a statement.

The response follows a collapse in Minzhong’s market value after Glaucus said the company deceived investors and regulators. More Chinese businesses trading in Hong Kong, Singapore and New York are drawing scrutiny from short-sellers. China Minzhong tumbled 48 percent, the most on record, in less than two hours on Aug. 26 after Glaucus, which has an office in Newport Beach, California, questioned the company’s accounts in a report.

“The manner in which they made these statements and the conclusions which they drew from them were mischievous and calculated to cause panic and impose maximum damage on the price of the company’s securities for their own benefit,” Minzhong said in a 19-page statement that was accompanied by invoices and pictures of its factory lines and warehouses.

The stock was suspended from trading at 53 Singapore cents, after falling the most since the company’s share sale in April 2010, when it raised S$237 million. The company asked for a further trading halt in its shares today.

James Hill, principal at RLM Finsbury in Hong Kong, a public relations firm that represents Glaucus, couldn’t be reached for a comment on his mobile phone yesterday. Glaucus didn’t respond to an e-mail.

Chinese Listings

Minzhong is among 143 China-based firms listed on Singapore’s $558.4 billion stock market, according to the latest data from the exchange. Short interest in the stock rose to a record 7.2 percent of the outstanding shares on Aug. 28 from this year’s low of 3.8 percent in March, according to the most recent data from research company Markit Group Ltd.

The issues raised by Glaucus show “a complete lack of understanding of the way we conduct our business as well as the operating environment in the People’s Republic of China,” Minzhong said, reiterating an Aug. 29 statement. The company didn’t falsely record sales and is consulting legal advisers on its options, it said then.

Minzhong may have fabricated sales and payments to its largest supplier, doctored accounts and overstated capital spending, Glaucus said in the report. It also questioned the food processor’s reported receivables and cash balance.

Fabricated Sales

“Evidence indicates that Minzhong fabricated sales to its top two customers, suggesting that the company overstated revenues in its IPO prospectus by at least a third during the track record period,” Glaucus said.

The Chinese company said it has documentation, including sales contracts, to defend the allegations. Glaucus “used terms such as ‘doctored SAIC financials,’ ‘fabricated sales’ and ‘cover up,’ which they know or ought reasonably to have known are false or misleading,” Minzhong said.

Glaucus was founded by Matt Wiechert, a former investment banker, to probe companies that appear “too good to be true,” according to its website. It has also issued reports on Hong Kong-traded China Metal Recycling Holdings Ltd. (773) and China Medical Technologies Inc. and SouFun Holdings Ltd. (SFUN) in New York.

China Metal

Hong Kong’s securities regulator said in July it found evidence China Metal had inflated the size of its business and is seeking to wind up the company. China Medical filed for Chapter 15 foreign-firm bankruptcy protection in New York last year, while SouFun, China’s biggest real-estate website owner, has surged more than 70 percent since Glaucus’s April report.

Minzhong’s biggest investor, PT Indofood Sukses Makmur (INDF), the parent of Indonesia’s largest instant-noodle maker, said last week it’s comfortable with its investment. Indofood, which doubled its stake in Minzhong to 29.3 percent in March, conducted due diligence before making its investment, Director Thomas Tjhie said Aug. 26, adding that he had spoken to Minzhong’s chief financial officer about the Glaucus report.

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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