Shougang Fushan Extends Loss, Denies Shortseller Report

Shougang Fushan Resources Group Ltd., a Chinese coking coal producer, fell for a second day in Hong Kong after a short seller said the company inflated profit margins. The company denied the allegations in a statement today.

The shares fell 2 percent to close at HK$2.48 in Hong Kong. The stock fell 3.1 percent yesterday when the report was released.

All public information released by Shougang Fushan -- 29.4 percent owned by state-owned steelmaker Shougang Corp. -- is “accurate and true,” Chairman Li Shaofeng said in an interview yesterday.

The U.S. short seller Glaucus Research Group California LLC said Shougang Fushan overpaid a related company for coal mines and inflated profit margins. Li countered in the interview that the acquisition was well received by investors and the higher margins reflected superior coal quality. He said the company was never contacted by Glaucus Research.

Glaucus Research was founded in January last year “because I noticed a demand in the equity research market for a firm that conducted deep due-diligence,” founder Matt Wiechert said in an e-mailed response.

“We have accepted Fushan’s clarification and recommend investors not follow Glaucus to short-sell on Fushan,” Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd., wrote in a note to clients following a conference call with the company yesterday. She maintains a “hold” recommendation on the stock.

Shougang Fushan has 17 “buy” analyst recommendations and five “buy” ratings, according to data compiled by Bloomberg. About 320 million shares traded today, almost 13 times the three-month average volume, according to data compiled by Bloomberg.

Short investors bet against a stock by selling borrowed shares with the expectation of repurchasing them at a lower price. Long investors buy shares betting the price will rise.

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