--Evergrande Real Estate says allegations of financial
irregularities made in a research report by short-seller Citron
Research are untrue
--Evergrande shares dropped sharply Thursday after Citron's
report, but have recouped some losses
--Citron founder Andrew Left said the firm had not spoken with
executives at Evergrande before issuing the report
(Updates stock prices in 6th paragraph, adds details from
Citron's report in paragraphs 8 and 10, Evergrande's latest
financial details in final paragraphs)
By Esther Fung
Evergrande Real Estate Group Ltd. (3333.HK) Thursday become the
latest Chinese company to face questions over its accounting
practices, denying allegations of financial irregularities made in
a report by Citron Research as its shares fell sharply in Hong
Kong.
Evergrande "noted an institution has issued a report on (June
21) that the company has used accounting tricks and bribes to hide
the fact that it is truly insolvent."
"The company would like to clarify that the allegation in the
report is untrue," the Guangzhou-based, Hong Kong-listed developer
said in a statement to the Hong Kong stock exchange.
The Evergrande claims come amid greater scrutiny of Chinese
companies listed overseas, with a series of alleged accounting
frauds this year--mostly involving little-known Chinese companies
listed in the U.S. Those events have contributed to a shift in
sentiment among investors toward Chinese companies.
U.S.-based short-seller Muddy Waters targeted Canada-listed
Sino-Forest Corp. earlier last year, alleging it overstated its
assets and revenue. Sino-Forest, which was under investigation by
Canada's largest securities regulator, said last month it is
reviewing the allegations made by the Ontario Securities
Commission.
Shares in Evergrande fell Thursday after the report from Los
Angeles-based short-seller Citron Research circulated in the
market. That report alleged accounting irregularities at the
company. A summary of the research report is publicly available on
Citron's web site.
The stock closed down 11.4% at HK$3.97, off an intraday low of
HK$3.60. Trading volume jumped to HK$3.71 billion, making the stock
the mostly heavily traded in Hong Kong. In comparison, the broader
market closed 1.2% lower.
Citron Research founder Andrew Left said in an email to Dow
Jones Newswires Thursday the firm had not spoken with executives at
Evergrande before issuing the report, but said it had been looking
into Evergrande for a few months. He added the firm had been
publishing reports for 11 years. Mr. Left had yet to respond to
further queries after Evergrande's statement rejecting Citron's
claims.
The 57-page Citron Research report seen by Dow Jones Newswires
alleged there were misstatements about Evergrande's investment
property portfolio and land costs in its balance sheet. The report
also claimed Evergrande Chairman Hui Ka Yan led the company to
invest too heavily in "pet projects" such as sports teams and
entertainment companies. Evergrande said it will respond to the
allegations in more detail later Thursday.
Mr. Hui owns China's richest and most successful soccer club,
Guangzhou Evergrande.
Citron also highlighted that Evergrande had been named by the
Ministry of Finance for inaccurate financial statements in the
past.
The finance ministry issued a statement in October last year
identifying companies, including Evergrande, that had reported
inaccurate financial figures in 2009 and paid insufficient taxes as
a result. The government statement at the time added Evergrande had
rectified the situation.
Evergrande earlier this month said that it is China's largest
property developer by sales in terms of floor space. Sales in May
rose 33% on year and 27% on the month to a record 10.37 billion
yuan ($1.63 billion), it said. The developer also set a record for
land prices in Guangzhou when it bought a piece of land in the city
earlier this week for CNY32,968 per square meter, almost double the
CNY17,933 per square meter paid by a rival developer for a parcel
of land in the same area in 2011, local media reported.
According to its latest financial report, Evergrande had cash
totaling CNY28.2 billion and assets worth CNY179.02 billion as of
the end of December. Total borrowings as a percentage of total
assets were 28.9%.
Write to Esther Fung at esther.fung@dowjones.com