China Minzhong shares halve on US short seller’s claims

SINGAPORE — S$300 million and then some: That’s how much was wiped out in two hours yesterday from the value of Singapore-listed Chinese vegetable producer China Minzhong Food Corp after California-based short seller Glaucus Research accused the S-chip of accounting irregularities.

The Glaucus action was eerily similar to the allegations that another American short seller, Muddy Waters Research, had made against Singapore-listed commodities firm Olam last year. Olam denied the allegations and had the support of investment giant Temasek Holdings, which increased its stake in the company.

Trading in Minzhong shares was halted at 11.15am at the company’s request after they had plunged 47.8 per cent from last Friday’s close of S$1.015 apiece to 53 cents. That represented a loss of about S$318 million, with the market value falling to S$347 million.

In a statement yesterday filed with the Singapore Exchange, China Minzhong said it was reviewing the Glaucus report and would respond “shortly”. “The company will take all necessary steps to defend its reputation and will not hesitate to take legal action against those who put up and disseminate false or misleading statements without due regard to their truth and for the purpose of inducing others to deal in securities,” it said.

In its report recommending a “strong sell” on China Minzhong, Glaucus yesterday alleged that the Fujian-based firm, which was listed in Singapore in April 2010, had misled investors over its sales and expenditure. The then Government of Singapore Investment Corp (GIC) had been one of the largest shareholders in China Minzhong but had sold off its entire stake in February.

Glaucus alleged that a Taiwan-based food distributor, which China Minzhong had said was its largest customer between 2007 and 2009, was only incorporated in November 2009. This suggested that “Minzhong simply fabricated the sales figures in its prospectus”, Glaucus said. It also alleged that according to filings by China’s State Administration for Industry and Commerce (SAIC), China Minzhong’s second-biggest customer had “zero revenue and zero cost of goods sold” in 2009, instead of sales of 142 million yuan (S$29 million) as claimed.

Another allegation by Glaucus was that the SAIC had deregistered and stripped the business licence of China Minzhong’s largest supplier for violating China’s laws just two months before its listing in Singapore. “In our opinion, the implication of this deregistration is that the supplier was not a major operating business and that Minzhong fabricated payments to its largest supplier,” Glaucus said.

The short seller also alleged that China Minzhong’s Chief Executive and Chairman Lin Guo Rong had failed to disclose that the company’s second-largest customer was a firm he co-founded. “We put a price target on Minzhong’s shares of zero,” it added.

China Minzhong’s largest shareholder is the Salim Group’s Indofood, which has a 29.33 per cent stake following a placement of shares by the S-chip in March at 91.5 cents apiece. It had bought GIC’s entire 14.33 per cent stake in China Minzhong at S$1.12 a share. CONRAD RAJ