Tianhe Says E-Mail Hacked, Fends Off Fraud Allegations

China’s Tianhe Chemicals Group Ltd. rejected fraud allegations by a stock research group connected to the Anonymous online hacking collective, including claims that it kept two sets of books and inflated sales.

A Sept. 2 report from Anonymous Analytics “includes a combination of falsified information, forged signature of the company’s chairman and blatantly untrue statements,” the Jinzhou, Liaoning-based company said yesterday in a statement. Tianhe’s response prompted a statement of support today from investor Morgan Stanley Private Equity Asia.

The chemical maker is the latest in a series of Chinese companies that have faced allegations of fraud from short-sellers in the past three years, increasing the scrutiny of investors. The release of its rebuttal was triggered by the discovery that its e-mail system had been hacked, said Tianhe, whose shares remain suspended as it continues to address questions from the Hong Kong stock exchange.

Tianhe’s response will be “absolutely unable to convince the market,” said Francis Lun, the Hong Kong-based chief executive officer of Geo Securities Ltd. He questioned the company’s reported profit and margins last year.

Equity analysts at Bank of America Corp. and UBS AG, sponsors of Tianhe’s listing in June, suspended their ratings pending further information from the company, which supplies specialty chemicals to customers including oil refiners.

Three calls to Rob Stewart, Hong Kong-based spokesman for UBS, went unanswered. Tiffany Chen, Hong Kong-based spokeswoman for Bank of America, declined to comment.

Stand Behind

“We stand resolutely behind Tianhe’s world class management team,” Homer Sun, chief investment officer and head of China for Morgan Stanley Private Equity Asia and a non-executive director of Tianhe, said today in an e-mailed statement.

It “has steadily and consistently invested in R&D over the past two decades to build global market leading positions in its two principal business segments of lubricant additives and specialty fluorochemicals,” he said. Morgan Stanley is a third sponsor of Tianhe’s listing.

In its report, Anonymous Analytics said Tianhe had overstated profitability, kept two sets of books, had related parties as some of its biggest customers, and claimed sales of a product that were bigger than the entire market.

Tax Paid

In its point-by-point response, Tianhe said it keeps only one set of books and that some documents presented in the Anonymous Analytics report were fabricated. There was no material difference between financial statements seen by different auditors, it said in the statement.

Tianhe denied allegations that it hadn’t paid the amount of tax it had reported, saying it has receipts and confirmations. The company also said it didn’t disclose the identity of customer Citic International in a prospectus because permission to do so came too late for inclusion.

Anonymous Analytics underestimated the size of the market for the company’s products by a factor of at least five, showing “a lack of understanding of the specialty fluorochemicals industry,” Tianhe said.

The company said it will “take all appropriate actions” against the report’s authors, and that its controlling shareholders may make purchases of its stock in the market.

Short Positions

Tianhe closed at HK$2.31 in Hong Kong on Sept. 2 before the stock was suspended, giving it a market value of HK$59 billion ($7.61 billion). The company believes the claims against it were used “to undermine the company’s reputation and to manipulate the price of the shares,” it said in yesterday’s statement.

Anonymous Analytics has said it doesn’t hold any positions in Tianhe, although contacts, affiliates and clients may have a short position in the securities. Short positions involve the sale of borrowed stock or debt with the intention of profiting by repurchasing the securities later at a lower price.

Anonymous Analytics has targeted China-based companies before, including Huabao International Holdings Ltd., a maker of flavors and fragrances used in cigarettes. Calls by the research firm to sell shares in companies it writes about haven’t always been heeded, with some including Qihoo 360 Technology Co. trading higher since the recommendations.

Perhaps Anonymous Analytics’ biggest impact came with its report on Chaoda Modern Agriculture Holdings Ltd., a Chinese fruit and vegetable producer. The company has been suspended from Hong Kong trade since 2011 after Anonymous Analytics questioned its finances. Chaoda has denied the allegations.

— With assistance by Guo Aibing, Joshua Fellman, and Helen Yuan

Before it's here, it's on the Bloomberg Terminal.