21Vianet Gains as CEO Avows Financial StatementsBelinda Cao
21Vianet Group Inc., the Chinese data-center operator accused by a short seller of fraud, rose for a second day in U.S. trading as its top executive denied the claims and presented a detailed response to the allegations.
The American depositary receipts advanced 8 percent to $21.46 in New York. Trading volume of 8 million shares was 3.9 times the average of the past three months. The stock surged 28 percent on Sept. 12 as analysts from Morgan Stanley to Credit Suisse Group AG stuck to their bullish calls following a record rout spurred by Trinity Research Group’s claim that the company overstates its business and uses financings and acquisitions to inflate growth.
Josh Chen, the Beijing-based company’s co-founder, chairman and chief executive officer, wrote in a letter to shareholders today that 21Vianet is his “life’s work and passion” and represents “the vast majority of my emotional and financial resources.” He personally refuted the claims, and the company posted on its website a 91-page report addressing Trinity Research’s accusations.
“It’s more about confidence boosting than the information that’s cited there,” Cheng Cheng, an analyst at Pacific Crest Securities LLC., said by phone from Portland, Oregon. “You sign your name, and there’s a certain expectation that if it’s not true, there could be other repercussions.”
CLSA Ltd. started coverage of 21Vianet today with a buy rating. The company has the fourth-best recommendation consensus among regional peers in the Internet software and services industry, with nine buys and one hold, data compiled by Bloomberg show.
Chen wrote in the investor letter that the company has made six “material” acquisitions since its April 2011 U.S. listing with necessary due diligence and will continue to “prudently pursue investments that are strategically complementary.” The company had 2.7 billion yuan ($440 million) of cash and cash equivalents as of Sept. 5, and has met all requirements under its existing debt covenants, according to Chen.
CLSA analysts led by Hong Kong-based Cher Chen set a 12-month price target of $39.34, indicating a potential 98 percent gain from its Sept. 12 level. They forecast a 52 percent increase in sales this year and 70 percent growth in adjusted earnings before interest, taxes, depreciation and amortization.
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