Minzhong Says Glaucus Report Misunderstands Business Model

China Minzhong Food Corp. said a report by short-seller Glaucus Research Group that questioned its accounts misunderstood the food processor’s business and it delayed the release of its financial results until this evening.

Minzhong, which this week lost half its market value after Glaucus published the report, is preparing a detailed response that will show its financials are sound and address specific issues raised by the short-seller, the company said. Its shares will remain suspended until the end of the trading day tomorrow.

“Most of the issues raised by Glaucus with regard to the financials of the company were nothing new and arose out of a complete lack of understanding of the company’s business model as well as the operating environment in China,” Minzhong said today in a statement to the Singapore Exchange.

Minzhong is seeking to allay concerns as more Chinese companies trading in Hong Kong, Singapore and New York become targets of short sellers. Minzhong is among 143 China-based firms listed on Singapore’s S$967.4 billion stock market, according to the latest data from the exchange.

The full-year financial report was delayed from this morning to “facilitate the verification and confirmation of certain issues referred to in the report,” Minzhong said in the statement.

Glaucus’s report said that the Putian, China-based company had been “significantly deceiving” regulators and investors, sending the stock 48 percent lower and wiping off S$318 million ($249 million) in market value in less than two hours on Aug. 26 before trading was suspended.

Management’s Quality

“The main issue here is they’re unable to refute the claims in a very clear and strong manner, which investors are expecting,” said Kelly Teoh, Singapore-based market strategist at IG Markets. “That reflects the quality of management. For the time being, I don’t think it is giving investors any confidence at all in the company’s stock.”

Minzhong shares were halted at 53 Singapore cents, after tumbling the most since the company’s listing in April 2010. Short interest in the vegetable processor rose to a record 7.2 percent of the outstanding stock on Aug. 19 from this year’s low of 3.8 percent in March, according to the most recent data from research company Markit Group Ltd.

Glaucus was set up to probe companies that appear “too good to be true,” using experiences ranging from accounting, law and capital markets, according to its website. The company didn’t respond to an e-mail seeking comment.

The firm, which has an office in Newport Beach, California, has also issued reports on China Metal Recycling Holdings Ltd., China Medical Technologies Inc. and SouFun Holdings Ltd.

Indofood’s Backing

Provisional liquidators were appointed to China Metal in July and its Hong Kong-traded stock has been suspended since January. China Medical filed for Chapter 15 foreign-firm bankruptcy protection in New York last year. SouFun, China’s biggest real estate website owner, has surged 70 percent since the April report by Glaucus, compared with the 6.1 percent gain in the Bloomberg China-US Equity index.

Kenneth Ng, an analyst at CIMB Group Holdings Bhd., which rated Minzhong outperform, said in a report this week it’s ceasing coverage of the company.

“We share Glaucus Research’s concerns about Minzhong’s reliance on capital markets for cash generation and ballooning receivable days,” said Ng, who co-wrote the report with Mou Hua Lee.

Doubled Stake

Minzhong’s biggest investor PT Indofood Sukses Makmur, the parent of Indonesia’s biggest instant-noodle maker, said earlier this week it’s comfortable with its investment.

Indofood, which doubled its stake in Minzhong to 29.3 percent in March, conducted due diligence on the company before it made its investment, Director Thomas Tjhie said Aug. 26, adding that he has spoken to Minzhong’s chief financial officer about the Glaucus report. Indofood lost 8 percent in the past three years and closed yesterday at an eight-month low.

Minzhong reiterated its comment on Aug. 26 that it’s seeking legal advice to defend its reputation.

The company said its accounts were prepared according to Singapore’s financial standards and audited by Crowe Horwath First Trust LLP, which hasn’t raised issues with its accounts.

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