Evergrande Real Estate, the second-largest mainland developer by sales, has reported accusations made against it by United States-based short seller Citron Research to the Hong Kong police.
A source close to the company said Evergrande executive director and vice-president Lai Lixin, accompanied by a lawyer, reported the case to the Commercial Crime Bureau yesterday.
Citron issued a 57-page report last month alleging Evergrande was insolvent and would be severely challenged from a liquidity perspective this year. It identified six alleged cases of accounting misstatement, in which Evergrande either overstated assets or understated liabilities.
'It is the developer's first step before it takes legal action against Citron,' the source said. 'It believes there is a person manipulating Citron to make a profit in the stock market by issuing a negative report on Evergrande. It hopes the police can identify who is behind the scenes.' She said the developer would also report the matter to mainland police soon.
The Citron report, issued on June 21, led Evergrande shares to slump as much as 19.63 per cent in the morning. Standard & Poor's also downgraded Evergrande's outlook from stable to negative.
An analyst said making a police report would not help Evergrande restore its image. 'Citron is based in the US and its background is mysterious. It is difficult to investigate,' he said.
Evergrande rose 3.02 per cent to close at HK$4.09 yesterday. A police spokesman declined to comment.