Earlier this week Anonymous, the amorphous cyber-collective, entered the securities analysis market with a hard-hitting report on Chaoda Modern Agriculture, a scandal plagued Chinese company.
From the FT:
In its report, Anonymous alleged that management have funnelled more than $400m out of Chaoda “under the cover of inflated capex spending and related party transactions”, having raised more than $1.1bn from investors since its initial public offering in 2000.
On Monday, before Anonymous published its report, Hong Kong’s government said it was investigating Chaoda, prompting its shares to tumble by 26 per cent before they were suspended from trading. Chaoda’s shares have lost three-quarters of their value since late May, when Next Magazine, a Chinese-language magazine in Hong Kong, accused it of overstating its holdings of farmland.
And there’s a read across in the City of London — on the junior Aim market, of course.
Chaoda owns a 13 per cent stake in Asian Citrus, a Chinese orange plantation group. Its shares plunged 29 per cent in Hong Kong overnight and are under pressure in London this morning on concerns about the links between the companies, which extends way beyond the share holding.
The Anonymous report refers to Asian Citrus on a number of counts, all of which are dangerous to repeat here. But, house broker Seymour Pierce reckons there’s nothing for investors to worry about.
A conference call was held for investors by ACHL yesterday to discuss these claims. The first allegation that ACHL is a poorly managed orange plantation is clearly not substantiated. We, and many investors and analysts, have visited the operations and would vouch for the impressive state of the plantations.
Yes, when the plantation was acquired by ACHL after having been left unmanaged for several months, it may have been in need of some maintenance but the quality of the tree stock was clearly good given the yields obtained over the last 10 years. ACHL has sourced organic fertiliser from Chaoda – in 2009, 30%, but in FY11 this had fallen to 20% as ACHL diversifies its fertiliser sources.
The transactions have been deemed by the auditors to be commercially executed and at arms length. Finally Mr Ip was appointed to the board following the 49% stake in ACHL which Chaoda acquired in 2001. At that point there were 5 directors and Mr Ip may well have had influence. However, today with 11 board members, 4 of which are independent and a stake of just 13.4% the influence is marginal at most and Mr Ip is purely non-executive and owns no shares in ACHL.
Analyst Sue Munden reckons the stock is a buy, but concedes it will be difficult for the stock to advance strongly while the uncertainties surrounding Chaoda persist.
Very difficult we’d say.
Update: 1.00pm (London time)
Things go from bad to worse for Chaoda, the key supplier of vegetables to the 2008 Olympic Games. It’s chairman and finance director are facing insider trading proceedings.
The board of directors (the “Board”) of Chaoda Modern Agriculture (Holdings) Limited (the “Company”) notes an article published on 26 September 2011 on Bloomberg News alleges that proceedings have been commenced against the Company in the the Market Misconduct Tribunal (the “MMT”).
The Board wishes to announce that proceedings (the “Proceedings”) have been commenced in the MMT against Mr. Kwok Ho (“Mr. Kwok”) (currently the chairman and executive director of the Company) and Mr. Chan Chi Po Andy (“Mr. Chan”) (currently the chief financial officer and executive director of the Company) and another individual (a third party unrelated to the Company) to determine whether any market misconduct in the nature of insider dealing or otherwise had taken place, the identity of every person who had engaged in the suspected market misconduct and the amount of any profit gained or loss avoided as a result of the suspected market misconduct.
Meanwhile, Liberum Capital joins Seymour Pierce and urges clients to buy Asian Citrus.
It appears that the movement in Asian Citrus’s shares is a knee-jerk reaction to this news relating to Choada. No new on Asian Citrus itself has materialised.
Update: 2.00pm (London time)
Statement from Asian Citrus.
The Board of Asian Citrus notes the press commentary this morning in the UK surrounding an Anonymous Analytics report linking Chaoda Modern Agriculture (Holdings) Limited (“Chaoda”) and Asian Citrus. The Board confirms that Chaoda has an approximately 13% shareholding in Asian Citrus and Fujian Chaoda Group and its subsidiaries have been suppliers of organic fertilizer to Asian Citrus for a number of years on arms length terms. To the best of the Board’s knowledge, Fujian Chaoda Group is 95% owned by Mr. Kwok Ho who is the Chairman, Executive Director and substantial shareholder of Chaoda.
Aside from this recent press commentary, the Board confirms that they are not aware of any reasons for the recent decrease in share price and increase in trading volume in both London and Hong Kong.
Related link:
Chaoda: Execs Deny Insider Dealing Charges – Wall Street Journal