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NQ Mobile Halts Muddy Waters-Led Rout: China Overnight

NQ Mobile Apps
Apps produced by NQ Mobile Inc. are arranged for a photograph on an Apple Inc. iPhone 4S in Hong Kong. Photographer: Brent Lewin/Bloomberg

NQ Mobile Inc. jumped 25 percent, leading gains in Chinese equities traded in New York, after taking further steps to refute allegations by Muddy Waters LLC that sank the stock by 62 percent in the previous three days.

American depositary receipts of NQ Mobile, a mobile-services provider, surged to $11.01 yesterday, advancing for the first time since Oct. 18. Muddy Waters, the research firm founded by short seller Carson Block, said in an Oct. 24 report that the company inflated revenue and misrepresented cash balances. NQ Mobile denied the allegations. The Bloomberg China-US Index of the most traded Chinese stocks in the U.S. climbed 1.7 percent to 102.6, set for a fourth monthly gain.

NQ Mobile transferred 100 million yuan ($16.4 million) of deposits to Standard Chartered Plc and authorized it to independently verify the deposits as well as make details available to investors. The Beijing-based company also posted a 90-page document to refute accusations mentioned in Muddy Waters’ note, disclosing details including top 100 mobile devices that have activated its security software. NQ said it’s suing Muddy Waters in court in China, without providing details.

“NQ’s detailed information can provide comfort to investors as they gave the real names of third-party handsets, which is good because investors then know where to look for confirmation,” Michael Ding, lead manager of the China Region Fund at U.S. Global Investors, which oversees $2.2 billion, said by phone from San Antonio, Texas yesterday. “Information on actual users and handsets is important to confirm that the business is real, while cash is important to confirm asset safety and, by extension, that the business makes money.”

‘Complete Update’

Block wrote in the Oct. 24 report that investors should sell NQ Mobile, saying its cash balances were “highly likely to not be real.” Tianjin Yidatong, NQ’s largest trade debtor, is controlled by NQ Mobile and not an independent company, Block wrote. NQ’s market share in China is about 1.5 percent, not the 55 percent it reports, and the company’s paying user base in China is fewer than 250,000, versus the 6 million it claims, Block said.

NQ Mobile “will provide a complete update on the balance sheet totals in its regular third-quarter earnings release,” the company said in a statement yesterday. The remaining portion of a planned $100 million transfer to Standard Chartered will be processed soon, NQ Mobile said.

The company was sued by an investor seeking to represent a group of shareholders who allegedly lost money after Muddy Waters’ accusations. Phuong Ho, a stockholder, filed the complaint in federal court in Manhattan on behalf of all investors who bought NQ Mobile securities from a May 5, 2011, initial public offering to Oct. 24.

China Lawsuit

Ephraim Cohen, NQ Mobile’s external public relations manager at MWW Group, said the software company is suing Muddy Waters in a Chinese court. Muddy Waters’ spokesman Zachery Kouwe said he saw the Chinese media report on the lawsuit and had no direct knowledge of the case.

China Petroleum & Chemical Corp., Asia’s largest refiner, surged 4.7 percent to $80.25, the biggest gain in eight weeks. It posted a 20 percent increase in third-quarter profit, beating the median estimate of eight analysts surveyed by Bloomberg.

Sinopec traded at 7.3 times estimated profit, which compares with a multiple of 11.5 for Exxon Mobil Corp. and 8.7 for refiner Valero Energy Corp. President Xi Jinping is expected to push forward more detailed economic reforms during the Communist Party meeting in November.

YY Inc., a social entertainment platform, jumped 15 percent to $49.78, the most in five months.

Baidu reported third-quarter net income of $1.48 per ADR, beating an average $1.46 estimate of 14 analyst compiled by Bloomberg, it said in a statement after market close yesterday. Sales jumped 42 percent to $1.45 billion. The ADRs climbed 6.8 percent in after hours to $170.30 in New York after gaining 3.4 percent earlier.

ETF Advances

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., added 1.3 percent to $37.03 in New York, the biggest gain in three weeks. The Standard & Poor’s 500 Index added 0.6 percent as data showing lower retail sales and consumer confidence fueled bets the Federal Reserve will maintain stimulus as it starts a policy meeting.

The Hang Seng China Enterprises Index in Hong Kong advanced 1.3 percent yesterday to 10,390.56, rising for a second day. The Shanghai Composite Index slipped 0.2 percent to 2,128.86 yesterday, the lowest level since Sept. 5.

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