Zoomlion’s Dollar Bonds Drop After Company Denies False Sales
Zoomlion Heavy Industry Science & Technology Co.’s dollar-denominated bonds sold in December dropped to a record low after the company denied allegations that it had reported fictitious sales and falsified accounts.
Zoomlion said a Feb. 4 article published by the National Business Daily was “false, groundless and misleading”, in a filing to the Hong Kong exchange. China’s second-biggest construction equipment maker’s response was its second in a month to allegations of falsified sales. Zoomlion’s $600 million of bonds due December 2022 sunk to 93.5 cents on the dollar as of 1:23 p.m. in Hong Kong, from 102.5 on Jan. 7, the day before the first article, BNP Paribas SA prices show. The notes were sold at 99.08 on Dec. 13, data compiled by Bloomberg show.
“The sustained attacks in the press with increasingly detailed allegations of fraud and inflated sales are shaking investor confidence in management’s reassurances,” said Owen Gallimore, a Singapore-based credit analyst at Australia & New Zealand Banking Group Ltd. “Their core argument remains that better-than-peers performance is due to improved sales on higher margin products, higher domestic component sourcing, and market share gains.”
The National Business Daily, based in Shanghai, said in its report that it received documents showing the company made inaccurate revenue statements. Last month, after the first round of allegations, Zoomlion Chairman Zhan Chunxin told reporters that the Changsha, China-based company achieved growth last year by gaining market share. Zhan spoke after Ming Pao Daily said on Jan. 8 that it had received an unsigned letter alleging Zoomlion’s sales are exaggerated.
Zoomlion shares slid by 9.8 percent this year to HK$10.30 as of 1:24 p.m. in Hong Kong today. “No accounting fraud has ever been committed,” the company said in its Feb. 4 statement.
Zoomlion said it books sales strictly in accordance with both its own revenue recognition policy and accounting rules, with auditing by Baker Tilly and KPMG. It said it sometimes exchanges or replaces products for reasons including defects and technological change.
Three calls to the office of Shen Ke, Zoomlion’s company secretary, went unanswered today. An e-mailed request for comment to Shen, Liu Xiaoping, head of brand management, and Sun Changjun, vice president, also went unanswered.
Zoomlion’s $400 million of April 2017 securities were trading at 102.5 cents on the dollar today, from 107.25 at the end of last year, the BNP Paribas prices show.
Companies in the Asia-Pacific region held back from marketing U.S. currency debt today as Lunar New Year holidays approach. The cost of insuring corporate bonds in Japan against non-payment rose, according to traders of credit-default swaps.
The Markit iTraxx Japan index climbed one basis point to 126 basis points as of 9:09 a.m. in Tokyo, according to Citigroup Inc. prices. The measure is on track to fall by nine basis points since Jan. 31, according to data provider CMA.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 115 basis points as of 8:21 a.m. in Hong Kong, Standard Chartered Plc prices show. The gauge is headed for its lowest close this week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Australia index was also little changed at 120 basis points as of 11:09 a.m. in Sydney, Westpac Banking Corp. prices show. The benchmark, which started the year at 127.5, has fallen for five straight months to January, according to CMA.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.
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