Hengan International shares plunge in Hong Kong after short seller brands it ‘worthless’
- China’s largest sanitary towels and baby nappies producer accused by Bonitas Research of fabricating income
- Hengan has no immediate response but says, ‘The company is operating as usual’
Trading in the stock of Hengan International Group Co., China’s largest sanitary towels and baby nappy producer, was suspended after a short seller’s report that branded the shares “worthless” caused them to plunge in Wednesday trading.
Bonitas Research, an Austin, Texas-based short-selling institution, claims Hengan International has fabricated a total of 11 billion yuan (US$1.6 billion) of net income since 2005 that is now reflected as fake cash on its balance sheet. It released the report on Wednesday morning.
Shares of the company had dropped as much as 8.8 per cent before settling at 5.7 per cent, when the trading halt was called.
The company has orchestrated a scheme “using a web of inter-company related transactions to artificially inflate profits and conceal fake cash balances”, and firm insiders have pocketed at least 7.8 billion yuan from dividends, the report said.
The value of the stock is ultimately zero because it has taken on a staggering amount of debt, the report said.
Hengan International declined to respond to the report immediately when a spokeswoman in Hong Kong was approached.
“The management has only just read the report and we do not have a response immediately,” said the spokeswoman, who declined to be named. “The company is operating as usual.”
In a subsequent phone call, another spokeswoman based in Hong Kong said the company plans to put out a statement later.
