Stocks of Chinas largest lube additives producer, Tianhe Chemicals, have been suspended from trading on the Hong Kong Stock Exchange after the research firm Anonymous Analytics accused it last week of committing one of the biggest frauds during its listing in June.
The report alleges that Tianhe not only significantly overstated its profitability, but also created two sets of books – one for Chinas State Administration for Industry and Commerce (SAIC), and one for the prospectus of its initial public offering, which raised as much as $654 million.
According to the report, which AA claims is a result of months of due diligence, field research and analysis, Tianhes SAIC filing indicates that the combined revenue from its two major subsidiaries – Fuxin Hengtong, a specialty flurochemicals manufacturer, and Jinzhou DPF-TH Chemicals, which produces lube additives and specialty flurochemicals – was only CNY 649 million ($105.7 million) in 2012, down 15 percent from CNY 760 million in 2011. Its IPO prospectus, however, lists revenue of CNY 4.19 billion in 2012 versus CNY 3.59 billion in 2011, up 16 percent.
AA said its research found Tianhes claims of producing lucrative anti-mar (anti-fingerprint) technology suspect. According to the report, Tianhe only produces a cheap, fluorine-contained solvent used for anti-mar finished products.
Tianhes share price dropped 4.9 percent to HKD 2.31 before its stocks were taken off the market.
AA is a research arm of the Anonymous group. While AA claims to hold no interest in Tianhe, it does admit the possibility that its due diligence contacts, consultants and clients may have a short position in the stock or debt of Tianhe.
Tianhe said in a statement that its board of directors is aware there has been active stock borrowing and short selling on the companys shares recently.
Tianhe denied all accusations, claiming the report contains errors of fact, misleading statements and malicious accusations, according to the statement. A senior Tianhe manager told Lube Report Asia that it is preparing a clarification and will make a public statement when it is ready. In the statement, Tianhe also threatens to take legal actions against AA.
Inside China, however, the news did not make a big scene partly because Tianhe is not a publicly well-known company in China, and partly because the news is not heavily reported by Chinese news agencies.