(Yicai Global) Sept. 14 – Hong Kong-listed Chong Sing Holdings FinTech Group [HK: 8207] strongly refuted a short-selling report by US Bonitas Research in an statement released on the Hong Kong Stock Exchange today. All allegations are groundless and contain misrepresentations and malicious speculations, per the statement.
“Chong Sing has nefariously been used by its director and largest shareholder, Zhang Zhenxin, to conduct sham transactions and artificially inflate Chong Sing’s reported financial performance to attract investments from unsuspecting creditors and minority shareholders,” Bonitas noted in a report released yesterday, adding that Chong Sing insiders consistently spin assets between Zhang’s cohorts to artificially inflate reported asset valuations and fabricate reported gains from illusory transactions. It said the firm’s equity will ultimately be worth zero.
Chong Sing refuted the allegations one by one.
Chong Sing sold its entire equity interest in online Chinese investment firm 9888.CN to an independent third party in March last year, claiming to have received a CNY514 million (USD75 million) cash consideration and recorded a gain on disposal of CNY408 million. This is only a false asset disposal that seeks aiming to inflate profits and the cash consideration the firm received, per the report.
Independent evidence from National Internet Finance Association of China, State Administration for Industry & Commerce of the People’s Republic of China and the Hong Kong stock exchange prospectus and application show the purchaser of Beijing Phoenix never paid Chong Sing the CNY514 million cash consideration, the report claimed.
Chong Sing received full cash payment which was reflected in its annual report for last year, it said in response. It cited an announcement of March 30 last year, which showed that the sale occurred of its stake in the offshore holding company, and thus payment occurred outside China.
The short seller reported that Chong Sing took a 51 percent stake in Glory Metro for a consideration of CNY179 million (USD26.1 million) and a valuation of CNY350 million in the first half. It could not identify Glory Metro as a registered business in either the mainland or Hong Kong, however.
Glory Metro is a company formed under the laws of the British Virgin Islands which holds the entire equity interest in Beijing Bo Xuan Management Consulting, a firm engaged in museum conference services, exhibition, talent training and consulting services, Chong Sing said in response.
Chong Sing announced its purchase of 48 percent of Leyu Limited for CNY800 million (USD 116.9 million) on Oct. 31, 2016, the report added, saying that the purchase agreement included a Put Option, which gave the remaining 52 percent shareholders of Leyu the right to sell the rest of Chong Sing for 15 times 2017 or 2018 earnings and get newly issued Chong Sing share. Bonitas suspected Chong Sing management inappropriately administered its Leyu profitability to maximize its Leyu Put Option liability, contrary to the interests of Chong Sing’s minority shareholders. Chong Sing shareholders face imminent dilution of 20 percent because of its Leyu Put Option liability, per Bonitas calculation.
Chong Sing replied that the Put Option lapsed as the Option Holders did not exercise it within the 2017 financial year, thus the 20 percent dilution will not occur.
Chong Sing also denied other allegations by the short seller, saying it is consulting with counsel and reserves the right to sue Bonitas Research over the claims in its report.
Editor: Ben Armour