Minzhong Drop Renews China Overseas Listing Woes: Southeast Asia

China Minzhong Food Corp. lost half its market value in less than two hours yesterday after short-seller Glaucus Research Group questioned the vegetable processor’s accounts, reviving investor concern on Chinese companies traded overseas.

Glaucus said in a report the Putian, China-based company had been “significantly deceiving” regulators and investors, sending the stock 48 percent lower in Singapore trading yesterday and wiping off S$318 million ($248 million) in market value before trading was suspended. Minzhong said yesterday in a statement it’s reviewing the report and will issue a response.

Minzhong adds to the list of targets of short sellers betting against Chinese companies trading in Hong Kong, Singapore and New York, even as four of the six analysts covering the stock recommend buying it. 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 reputation of Chinese companies in Singapore has now rock-bottomed,” said Mou Hua Lee, Singapore-based analyst at CIMB Group Holdings Bhd. “With these new allegations, it’s going to be a very long while before anyone trusts Chinese companies here.”

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.

Probing Investments

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 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.

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 73 percent since the April 3 report by Glaucus, compared with the 7.3 percent gain in the Bloomberg China-US Equity index.

Singapore Exchange Ltd. queried Minzhong on the share price decline and will continue to closely monitor developments, according to an e-mailed statement.

Defend Reputation

Minzhong will take all necessary steps to defend its reputation and won’t hesitate to take legal action, according to a separate statement.

Minzhong may have fabricated sales and payments to its largest supplier, doctored historical accounts and overstated capital spending, Glaucus said in the report. It also questioned the food processor’s reported receivables and cash balance.

“Evidence indicates that Minzhong fabricated sales to its top two customers, suggesting that the company overstated revenues in its IPO prospectus by at least a third during the track record period,” Glaucus said, citing corporate registry records. The company didn’t respond to an e-mail seeking comment on Minzhong’s statement late yesterday.

At least 29 Chinese firms on Singapore’s exchange, where one in five stocks are China-based companies, have been halted or ordered to delist since 2008. The FTSE ST China Index of 37 Chinese stocks traded in Singapore, commonly known as S-chips, has lost 14 percent in the past six months, more than twice the 6 percent slide in the benchmark Straits Times Index.

Avoid S-chips

“We typically avoid S-chips,” Daphne Roth, head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion, said from Singapore. “There is room for Chinese companies to improve corporate governance. That will help improve investor confidence.”

Minzhong’s biggest investor isn’t concerned. PT Indofood Sukses Makmur, the parent of Indonesia’s biggest instant-noodle maker and Minzhong’s largest shareholder, is comfortable with its investment, director Thomas Tjhie said yesterday by telephone from Jakarta.

Indofood, which doubled its stake in Minzhong to 29.3 percent in March, conducted due diligence on the company before it made its investment, Tjhie said, adding that he has spoken to Minzhong’s chief financial officer about the Glaucus report.

Indofood shares declined as much as 3.4 percent to 5,700 rupiah and fell 1.7 percent to 5,800 at the midday break in Jakarta. The stock lost 5.6 percent yesterday.

GIC Investment

Minzhong’s investors also included GIC Pte, Singapore’s sovereign wealth fund that manages more than $100 billion of the city’s reserves. The company said the fund, which invested through its unit Tetrad Ventures Pte, had fully divested its stake in February. GIC said in an e-mailed statement it declined to comment.

Minzhong needs to respond to the claims made by the Glaucus report, said Wei Bin, an analyst at Maybank Kim Eng Holdings Ltd. in Singapore. The brokerage put the stock under review as of today, according to data compiled by Bloomberg. One of the six analysts covering the stock has a hold recommendation.

“There’s still some value in the S-chips but we need to be conservative in our views,” he said. “I don’t have enough facts to prove the report right or wrong at this point.”

The claims against Minzhong come less than a year after short-seller Carson Block said he was betting against Olam International Ltd., the Singapore-based commodity trader, sparking a slump in the stock. Block’s research firm Muddy Waters LLC later said Olam was likely to fail in a report. The commodity traded rejected the allegations.

Muddy Waters has also targeted Chinese firms including Sino-Forest Corp., which plunged 74 percent before eventually filing for bankruptcy protection. Shares of New Oriental Education & Technology Group Inc. and Focus Media Holding Ltd., rebounded after initial slumps when Block questioned their accounting. Both companies have denied wrongdoing.

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