West China Cement hit by fraud claim

Shares in mainland cement maker West China Cement were suspended from trading at the company's request yesterday, following the release of an analyst's report alleging the company was guilty of 'blatant fraud'.

In its statement to the Hong Kong stock market, West China Cement requested the suspension 'pending the release of a clarification announcement by the company which is price-sensitive in nature'.

In little more than an hour's trade before the request notice was filed and granted, 34.78 million West China Cement shares changed hands, equivalent to a full day of heavy trading; but the share price fell only marginally from an overnight close of HK$1.32 to HK$1.30 when trading was suspended at 10.51am.

The request followed the overnight release of a scathing report by Glaucus Research Group, a US firm that investigates Chinese listed companies, accusing West China Cement of 'fabricating' its financial statements.

'We believe that West China Cement is a blatant fraud. We believe West China Cement's margins are fabricated,' the report stated.

The report alleged documents by China's State Administration for Industry and Commerce indicated that the profit margin of one of West China Cement's cement plants was far below the margin stated by the company. A cement price war in Shaanxi province last year 'exposes the absurdity of West China Cement's margins,' the report stated.

But a local analyst who declined to be named said he was puzzled by the claims. 'According to our estimates, West China Cement's gross profit sounds reasonable,' he said.