Short Seller That Decimated Hong Kong Stock Eyes New Targetsby
Glaucus may publish two more Hong Kong reports this year
Tech Pro shares fell 86% the day Glaucus report was released
After a quiet start to the year, short sellers may be gearing up for a busy few months in Hong Kong.
Short-seller Glaucus Research Group is actively looking into the market and may publish another two reports this year, director of research Soren Aandahl said in a phone interview last month.
Glaucus released a report on July 28 saying Tech Pro Technology Development Ltd.’s stock was worthless, causing the shares to plunge 86 percent that day and another 56 percent the following day. The stock closed at 30 Hong Kong cents on Friday, compared to HK$2.27 the day before the report was made public.
Tech Pro declined to comment on the Glaucus report and other attacks by short sellers, when contacted by Bloomberg News. Tech Pro repeated it "vigorously" denied accusations against the company and said it was seeking legal advice, according to a regulatory filing on July 29. The company plans to sell as many as 2.6 billion new shares at 25 Hong Kong cents apiece, it said in a filing yesterday.
"The reaction of Tech Pro shares to the Glaucus report was certainly surprising, though well deserved," Jon Carnes, a short seller who used the online pseudonym Alfred Little and left China in 2011 after his research caused a stir, said in an e-mail. "No doubt this will draw more scrutiny of Hong Kong-listed stocks from short sellers."
Research firms Glaucus Research, Anonymous Analytics and Emerson Analytics Co. have published reports targeting more than a dozen companies listed in Hong Kong since 2011, including Chaoda Modern Agriculture Holdings Ltd, China Lumena New Materials Corp. and Tianhe Chemicals Group Ltd.
Tech Pro is the first new report about a Hong Kong stock published by the three firms this year, after releasing a record number of reports in 2015. GeoInvesting LLC vice president Dan David had recommended shorting the shares of Tech Pro at the 2016 Sohn Conference Hong Kong in June.
There will probably be more fraud reports this year targeting companies that listed under the old regime for initial public offerings, Anonymous Analytics said in an e-mailed response to Bloomberg News before Glaucus’s Tech Pro report was published.
Hong Kong’s regulators in 2013 introduced stricter requirements for IPO sponsors, following a string of accounting scandals involving publicly-listed Chinese companies. The IPO listing reforms have forced sponsors to take their due diligence roles seriously, Anonymous Analytics said.
Emerson Analytics didn’t respond to three e-mailed requests for comment.
"The reduction in short-seller reports targeting Chinese companies this year may not necessarily represent a decrease in fraudulent or potential fraudulent activities," Diana Shin, a partner at EY Fraud Investigation & Dispute Services, China, said in an e-mail. "Companies have been taking more aggressive actions, including but not limited to legal actions, that attempted to stop short sellers from further disseminating negative coverage."
Shin added that companies are also becoming more cautious about discrepancies in financial information disclosed in public filings, compared with those submitted to Chinese authorities.
"Highlighting discrepancies between the two sets of records is one of the typical tactics used by the short sellers in their reports," Shin said. "It appears that searching of targets may take more time and effort than before."