Tianhe Chemicals hits back at analysts' claims of fraud

After US analyst group calls for prosecutions and a delisting, the mainland company rejects allegations of misconduct and threatens action

PUBLISHED : Tuesday, 02 September, 2014, 1:06pm
UPDATED : Wednesday, 03 September, 2014, 12:32am

Tianhe Chemicals Group has strongly denied allegations of fraud by Anonymous Analytics, a US group of anonymous analysts, and threatened to sue it for damages.

In an announcement last night, the Hong Kong-listed firm said there has been active stock borrowing and short selling of its shares recently. Its shares were suspended from trading at 11.20am yesterday, shortly after Anonymous Analytics issued a report that alleged fraud, accusing Tianhe of inflating its sales and profits.

"The report contains errors, misleading statements and malicious accusations against the company and its directors," the Tianhe statement said, adding it reserved the right to sue Anonymous Analytics for damages.

The Hong Kong stock exchange and the Securities and Futures Commission declined to comment.

"We expect that regulators will delist Tianhe and prosecute the executives and promoters responsible for this fraud," said the report by Anonymous Analytics.

The [Anonymous Analytics] report contains errors [and] misleading statements …

On August 22, the SFC said: "In considering whether to take action against any persons, including sponsors, who have authorised the issue of a prospectus containing a material untrue statement, the SFC will have no hesitation in relying on the existing criminal liability provisions."

Tianhe's profits and revenue are far less than what it reported, Anonymous Analytics said, citing State Administration for Industry and Commerce documents, mainland official reports and tax returns. SAIC filings of Tianhe's subsidiaries show that in 2012, its revenue was 85 per cent less than it reported and its net profit was almost 100 per cent less, Anonymous Analytics alleged.

Another mainland company, Fujian Nuoqi, was hit by scandal just months after it listed in Hong Kong in January. In July and August, the garment retailer announced its chairman and chief executive, Ding Hui, went missing and transferred 232 million yuan (HK$291 million) from the company.

Tianhe listed in Hong Kong in June, raising HK$3.5 billion. The joint sponsors were Morgan Stanley, UBS, and Bank of America Merrill Lynch. Morgan Stanley declined to comment. In 2012, Morgan Stanley Private Equity Asia invested US$300 million in Tianhe, Tianhe's initial public offering prospectus said.

The investment was the largest by the Morgan Stanley private equity fund, said a hedge fund manager who declined to be named.

During Tianhe's pre-IPO roadshow in May, its executives told the hedge fund manager that Morgan Stanley had spent millions of US dollars doing due diligence on Tianhe before it listed, the hedge fund manager told South China Morning Post.

UBS confirmed that Joyce Wei Jiao, the daughter of Tianhe chairman Wei Qi, still works at the Swiss bank after leaving JP Morgan in late 2013. It would not comment beyond that.

In January, JP Morgan withdrew its involvement in the IPO, on concerns about the US bank's previous employment of Joyce Wei.