Asian Citrus (73 HK): Shares in the orange plantation group tumble on news of citrus greening outbreak

Deals Potion Tunneling Fraud:

  • Step 1: Record net gain on change in fair value of biological assets: FY09 RMB210.6m + FY10 RMB306m + FY11 RMB507.7m + FY12 RMB166.9m = RMB1.19bn. Note that the increase in sales from RMB668.5m in FY09 to RMB1.77bn in FY12 is RMB1.1bn.
  • Step 2: Book equivalent amount goodwill from acquisition of assets at inflated valuation: Goodwill on acquisition of BPG F&B on Nov 2010 = RMB1.16bn. Note that the “asset” of BPG, excluding PPE, is RMB1.13bn, an amount which include land use rights, construction-in-progress, intangible assets, deposits, inventories, trade and other receivables, cash equivalents.
  • Step 3: Write-off Net gain on change in fair value of biological assets: FY13 (RMB260.5m) + FY14 (RMB823.8m) = RMB1.08bn
  • Cash outflow from acquisition of BPG to related parties = RMB666.5m + RRMB505.4m (transferred out first from Asian Citrus to BPG before acquisition?)  = RMB1.17bn
  • Profit warning in Jan 2015 on fair value write-down, followed by HLB disease in April 2015

Hopu, Temasek among investors in Chinese juicer Asian Citrus

Eight investors, including Hopu Investment Management and Singaporean SWF Temasek Holdings, have purchased HK$1.55 billion ($200 million) worth of shares in Asian Citrus, the largest orange plantation owner and orange producer in China, to provide the company with capital needed to buffer its acquisition of BPG Food & Beverages Holdings Ltd. Asian Citrus announced last month that it would purchase BPG, a leading supplier of tropical fruit juice concentrates in the Mainland, which had been backed by Lunar Capital. Asian Citrus investors stricken by infection Shares in the orange plantation group tumble on news of citrus greening outbreak The Aim-listed company lost more than a fifth of its value on Wednesday Photo: Andrea Jones By Ben Martin 7:12PM BST 15 Apr 2015 Investors in Asian Citrus were pulped after the Chinese oranges business revealed that one of its plantations had been struck by a deadly disease. Shares in the Aim-listed company tumbled 2p, or 23.9pc, to 6.375p on the announcement that it had discovered Huanglongbing (HLB), better known as citrus greening disease, in trees at its Xinfeng plantation in Jiangxi province. Continue reading


Rolta India: Glaucus Research – “Rolta has fabricated its reported capital expenditures in order to mask that it has materially overstated its EBITDA”

Glaucus Research Group California LLC initiates coverage on Delaware-Issued 2018 and 2019 Corporate Bonds of Rolta with a Strong Sell rating

Rolta India Limited (“Rolta” or the “Company”) is an information technology company with operations primarily in India and North America. In 2013 and 2014, Rolta issued an aggregate of US$ 500 million of junk bonds (the “Junk Bonds”), which are due in 2018 and 2019, and have attracted investors by offering tempting yields.

Based on the evidence and analysis presented in this report, we believe that Rolta has fabricated its reported capital expenditures in order to mask that it has materially overstated its EBITDA. The margin for error is narrowing: Rolta’s net debt has risen from US$ 319mm at FYE 2011 to US$ 740mm in Q3 2015 and the Company has almost nothing to show for its highly suspicious spending.

We believe that in reality, Rolta’s business does not generate free cash flow and that Rolta cannot repay foreign bondholders without refinancing. Indeed, we suspect Rolta approached foreign bond markets because it was unable to borrow in India. Ultimately, we believe that bondholders and ratings agencies have failed to price in evidence that Rolta has materially misstated its financial performance and the risk that Rolta will default on its Junk Bonds. We value the bonds at the recovery value of the offshore assets, which we estimate to be USD 0.16 on the dollar.

China Yunnan Tin Minerals (263 HK): Glaring Error in Accounting and Auditing for Financial Assets at Fair Value

Putting the FRC in Farcical
16th April 2015

All is not well at the Financial Reporting Council (FRC), HK’s auditor investigator, which would also like (correctly, in our view) to take disciplinary matters away from the self-regulatory HK Institute of Certified Public Accountants. Browsing through freshly released annual reports last Friday (10-Apr-2015), we came upon the 2014 annual report of China Yunnan Tin Minerals Group Co Ltd (CYTM, 0263). This is a member of what we call the “Chung Nam Network” of companies that we would never own, so it won’t surprise you to know that its main assets consist of shares in other companies in the network. In 2014, CYTM booked net gains of HK$330.5m on its portfolio, and at the year end it had the following financial assets held as current assets, shown in note 24 of the audited financial statements:


Now, read the words we highlighted carefully. It states that CYTM’s holding in Heritage International Holdings Limited (Heritage, 0412) is more than 10% of CYTM’s total assets, but represents 0.03% of the ordinary shares of Heritage. “FVTPL” is accounting-speak for “Fair Value Through Profit or Loss” and means that the listed shares are valued at market prices at the year-end.

CYTM had total assets of HK$1488.6m, so 10% of that is HK$148.86m, so that implies that the stake in Heritage is at least HK$148.86m. However, if it is only 0.03% of Heritage, then that implies that Heritage had a year-end market value of at least HK$496.2 billion, making it bigger than say, Hutchison Whampoa Ltd. In fact, although we regard Heritage as a bubble stock, its market value at 31-Dec-2014 was HK$6.48bn, nowhere near the implied figure. So CYTM’s stake can’t have been 0.03%, and must have been more like 3% of Heritage, a stake that would be substantially harder to liquidate in a hurry, so the error is material to readers of the accounts, particularly investors. Continue reading

Stock manipulation in Taiwan and its effects: Pump and dump versus stabilization*~hmac=12b1026942c041302ee263375855299550b2c9f2129fc7404216666497e13353

Review of Quantitative Finance and Accounting

May 2015Volume 44Issue 4pp 791-815

Stock manipulation and its effects: pump and dump versus stabilization

Yu Chuan HuangYao Jen Cheng


This study examines the manipulation of stock prices in Taiwan stock markets. Using a new set of hand-collected data, we examine the characteristics and patterns of manipulated stocks and their effects on the market. Our results show that manipulated firms tend to be small and to have poor corporate governance. Most manipulation cases involve a “pump-and-dump” trading strategy and stabilization operations. Pump-and-dump manipulations lead to high temporary price impacts, increased volatility, large trading volumes, short-term price continuation, and long-term price reversals during the manipulation period. They therefore have an important impact on market efficiency. In stabilization cases, the manipulation has no impact on market performance, except that the price drop and abnormal returns of the post-manipulation period are significantly lower than during the pre-manipulation period. Firm fundamentals are important in deciding the price impacts of stock manipulation. Compared with manipulated firms with positive fundamentals, the manipulation of firms with negative fundamentals has a more detrimental effect on market efficiency.

Earnings Management and the Long-Run Underperformance of Firms Following Convertible Bond Offers

Earnings Management and the Long-Run Underperformance of Firms Following Convertible Bond Offers.

Chou, De-Wai1 Wang, C. Edward1 Chen, Sheng-Syan1 Tsai, Sandra1

Journal of Business Finance & Accounting. Jan/Feb2009, Vol. 36 Issue 1/2, p73-98. 26p. 9 Charts.


This paper examines whether the long-run underperformance of convertible bond issuers can be explained by earnings management, as reflected in discretionary current accruals around the time of the offer. Consistent with the earnings management hypothesis, we find that convertible issuers who adjust their discretionary current accruals to report higher net income in the issue year will generally experience inferior operating and stock return performance over the five-year post-issue period. Our findings indicate that there is some temporary overvaluation of convertible issuers by the stock market, but that the resultant disappointed investors will subsequently correct their valuation errors. The similarity of our results to those reported within the prior literature on initial public offers (IPOs) and seasoned equity offers (SEOs) suggests that the earnings management hypothesis is not unique to stock offers, but that it actually extends to convertible bond offers.