Tianhe Chemicals Group Ltd. (1619) denied allegations of fraud from Anonymous Analytics, as analysts at two banks that sponsored the Chinese chemical maker’s share sale in Hong Kong suspended ratings.
Tianhe, based in Jinzhou, Liaoning, called the Anonymous Analytics’ report malicious and said trading would remain halted as it prepares a full response to the allegations. Anonymous Analytics yesterday issued a strong sell on the stock.
The chemical maker is the latest in a series of Chinese companies that have faced allegations of fraud from short-sellers in the past three years, increasing the scrutiny of investors. Calls by Anonymous Analytics to sell shares in companies it writes about haven’t always been heeded, with some including Qihoo 360 Technology Co. trading higher since the recommendations.
“The report contains errors of fact, misleading statements and malicious accusations against the company and its directors,” Tianhe Chemicals said yesterday in a filing to the Hong Kong stock exchange. “The company is committed to providing full and accurate disclosures and to rebutting any false allegations.”
Tianhe’s shares fell 4.9 percent to HK$2.31 in Hong Kong before yesterday’s trading halt, giving it a market value of HK$59 billion ($7.6 billion).
Equity analysts at Bank of America Corp. and UBS AG (UBSN), sponsors of Tianhe’s listing in June, suspended their ratings pending further information from the company, which supplies specialty chemicals to customers including oil refiners.
Anonymous Analytics, a stock research firm linked to the Anonymous online hacking group, said the company overstated its profitability, kept two sets of books, had related parties as some of its biggest customers and claimed sales of a product that were bigger than the entire market.
Bank of America Merrill Lynch analyst Joon-Ho Lee placed Tianhe Chemicals’ rating, price objective and earnings estimates under review awaiting clarification from Tianhe, the bank said in a research note today. The bank’s research arm had a buy rating on Tianhe Chemicals with a target price of HK$3 in a note issued Aug. 25.
UBS Securities Asia Ltd. analyst Bonan Li suspended Tianhe Chemicals’ rating pending clarification from the company and further due diligence, according to a note released yesterday.
Banks typically separate their research arms from their bankers who market equity and debt.
Rob Stewart, Hong Kong-based spokesman for UBS, and Tiffany Chen, Hong Kong-based spokeswoman for Bank of America, declined to comment. Harriet Ngan, Hong Kong-based spokeswoman for Morgan Stanley, a third sponsor of Tianhe’s listing, also declined to comment.
Scott Sapp, a spokesman for the Hong Kong stock exchange, declined to comment. Ernest Kong, a spokesman for the city’s Securities and Futures Commission, declined to comment.
Anonymous Analytics said it doesn’t hold any positions in Tianhe Chemicals, although contacts, affiliates and clients may have a short position in the securities. Short positions involve the sale of borrowed stock or debt with the intention of profiting by repurchasing the securities later at a lower price.
The company’s directors “are aware that there has been active stock borrowing and short selling activities,” Tianhe Chemicals said in its statement.
The company makes lubricant additives and specialty fluorochemicals, according to its website. Its customers include the parents of PetroChina Co. (857) and China Petroleum & Chemical Corp. (386), known as Sinopec, the website shows.
Anonymous Analytics has targeted China-based companies before, including Huabao International Holdings Ltd., a maker of flavors and fragrances used in cigarettes.
In May 2012, Huabao’s shares dropped to HK$3.70, which at the time was the lowest in more than four months, after Anonymous Analytics questioned its profit margins. The stock closed yesterday at HK$5.71.
The research firm’s biggest impact came after a report on Chaoda Modern Agriculture Holdings Ltd., a Chinese fruit and vegetable producer. The company has been suspended from Hong Kong trade since 2011 after Anonymous Analytics questioned its finances. Chaoda has denied the allegations.
Anonymous Analytics doesn’t just issue negative commentaries. It made a buy recommendation on Demand Media, a U.S. digital media company, in May, although the stock has fallen slightly since the report.
The researcher issued a negative report on a unit of Joy Global Inc., a Milwaukee-based mining-equipment maker, in April 2013. The stock is now higher although lagging the gains recorded by the S&P 500.
In July 2012, it made allegations about user traffic at Qihoo 360 (QIHU), a China-based Internet security company. The stock has risen about fivefold since then.
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