Chaoda stock falls to two-year low

PUBLISHED : Wednesday, 08 June, 2011, 12:00am
UPDATED : Wednesday, 08 June, 2011, 12:00am

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Shares in Chaoda Modern Agriculture fell to a two-year low yesterday as investors continued reacting nervously to a Hong Kong tabloid report claiming the fruit and vegetable producer has overstated the size of its land bank.

Chaoda told the stock exchange late last Friday it had initiated legal action against Next magazine, which published a May 25 report based on limited site visits alleging Chaoda had exaggerated the size of some of its farms. But when investors got their first chance to trade on the agricultural firm's announcement following the bank holiday weekend, Chaoda's stock slumped 9 per cent to HK$3.18.

A Chaoda spokesman declined to comment.

The farming firm's shares have lost 31 per cent of their value since Next released its allegations. The stock has lost 46 per cent this year.

In its statement last Friday, Chaoda said its figures on land holdings were accurate, and called the Next report 'inaccurate and piecemeal'. The firm said Next's reporter had visited just a few of its sites, and in one case posed as a buyer to interview its employees. A Next representative did not return calls.

Castor Pang, head of research at Core Pacific-Yamaichi, suggested Chaoda could provide more information about its land. 'The company needs to improve its transparency,' he said.

It is difficult for investors to verify farm ownership on the mainland, which has no centralised registry for agricultural land. Big farmers tend to strike land-use agreements with collectives of rural villagers in transactions supervised by village heads.

The mainland agricultural sector has been hit by several scandals in recent months.

Last Thursday, Muddy Waters Research, the vehicle of American short-seller Carson Block, accused Toronto-listed mainland forestry firm Sino-Forest of overstating its land bank and production figures. Sino-Forest said on Monday it rejected all the claims, would provide proof of its land ownership certificates and planned to sue Block. In turn, the Muddy Waters founder vowed to release more research about the company.

Last month, Hong Kong-listed China Forestry admitted its bank statements, logging permits and harvesting records had been faked and slashed the value of its assets dramatically.

Li Hanchun, China Forestry's former chief executive, was detained on the mainland last February for alleged embezzlement.

Pang said Chaoda, which claims to be the mainland's biggest fruit and vegetable grower, had a range of issues investors 'are unsure how to deal with'. He said Chaoda had regularly raised cash from stock and bond sales despite reporting high cash balances. 'And while the company's reported [financial] data is very good,' he said, 'the dividend payout is very limited.'

Chaoda cancelled a planned US$250 million bond sale last month, citing weak market conditions. The company had raised US$571 million in stock and bond sales in the preceding two years.

For the six months to December, Chaoda said it had 3.9 billion yuan (HK$4.68 billion) of net cash, but paid 84 million yuan in dividends.Chaoda paid a 134 million yuan total dividend in the year to June 2010, when it also reported over 2 billion yuan net cash.