The ink was not yet dry of my previous posting while Glaucus Research posted their short seller report about Real Nutriceutical Group Limited (HK: 2010).
The share is down about 9% at the moment.
Many of the allegations in the report touch on similar concerns related to many of the China listed companies on Bursa.
Thursday, 22 October 2015
Short sellers active again
Short seller Citron Research dropped a "bomb" on Valeant, a pharmaceutical company, the report can be found here.
Interestingly, well known hedge fund manager Bill Ackman is "long" the stock. Ackman himself is short Herbalife.
Bronte Capital wrote "Some comments on the Valeant conference call".
Bloomberg reports: "Ackman Feeling Shortseller's Sting as Citron Sinks Valeant Stock", a snippet:
Ackman, the billionaire hedge fund manager, has long maintained that Herbalife Ltd. is a house of cards -- a suggestion that’s drawn howls from the company. Now another Wall Street scold, Citron Research’s Andrew Left, says one of Ackman’s picks looks like the Enron Corp. of Big Pharma -- a claim the company, Valeant Pharmaceuticals International Inc., rebutted Wednesday.
Yet as Valeant’s share price plunged anew, Ackman was, in effect, getting a small taste of his own medicine. Left, a small-time short seller, had grabbed headlines and captivated Wall Street, much as Ackman has done with his campaign against Herbalife. While this dust-up might seem lopsided -- Ackman runs a prominent hedge fund, Left a relatively obscure investment and research shop -- it nonetheless underscored how vocal short-sellers can gain attention and turn markets against companies fast.
“If there’s one person in the world I don’t feel bad for, it’s Bill Ackman,” Left, a 45-year-old Florida native based in Los Angeles, said in a telephone interview. “If I could switch bank accounts and hair with him, I’d close out tomorrow. Ackman’s a hedge fund manager who goes short and goes long and sometimes you win, sometimes you lose.”
Assuming there’s been no change in its holdings since the end of the second quarter, Ackman’s Pershing Square Capital Management has lost about $2.8 billion on Valeant as it declined 55 percent from an intraday peak of $263.81 on Aug. 6, according to data compiled by Bloomberg.
“In this business, nothing is personal,” Left said. “He goes home and sees his kids, I go home and see mine, and he does what he believes with his opinion.”
Biggest Selloff
If people had never heard of Citron Research before, they have now. Just after 10 a.m. Wednesday, the firm published a note suggesting Valeant was inflating its sales, igniting the biggest selloff anyone had ever seen in the stock. Laval, Quebec-based Valeant plunged as much as 40 percent, prompting a public response from the company and creating billions of dollars of losses for its hedge fund owners.
In a statement, Valeant said Citron’s research is “erroneous” and that the company derives no sales benefit from inventory held at specialty pharmacies mentioned in the report. It suggested Citron had reached inaccurate conclusions, misconstruing links between them that are explained by logistics and support agreements.
Past foes of Ackman saw irony that a company he’s invested in was sent reeling by a short-seller claiming that its revenue is overstated. Citron, the decade-old stock-commentary site originally founded as Stocklemon.com, said Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. “Is this Enron part deux?” the report said.
Just last week Muddy Waters wrote a scathing report about TeliaSonera, a Swedish telco involved in corruption which is, according to Muddy Waters, much larger than reported so far.
Interestingly, well known hedge fund manager Bill Ackman is "long" the stock. Ackman himself is short Herbalife.
Bronte Capital wrote "Some comments on the Valeant conference call".
Bloomberg reports: "Ackman Feeling Shortseller's Sting as Citron Sinks Valeant Stock", a snippet:
Ackman, the billionaire hedge fund manager, has long maintained that Herbalife Ltd. is a house of cards -- a suggestion that’s drawn howls from the company. Now another Wall Street scold, Citron Research’s Andrew Left, says one of Ackman’s picks looks like the Enron Corp. of Big Pharma -- a claim the company, Valeant Pharmaceuticals International Inc., rebutted Wednesday.
Yet as Valeant’s share price plunged anew, Ackman was, in effect, getting a small taste of his own medicine. Left, a small-time short seller, had grabbed headlines and captivated Wall Street, much as Ackman has done with his campaign against Herbalife. While this dust-up might seem lopsided -- Ackman runs a prominent hedge fund, Left a relatively obscure investment and research shop -- it nonetheless underscored how vocal short-sellers can gain attention and turn markets against companies fast.
“If there’s one person in the world I don’t feel bad for, it’s Bill Ackman,” Left, a 45-year-old Florida native based in Los Angeles, said in a telephone interview. “If I could switch bank accounts and hair with him, I’d close out tomorrow. Ackman’s a hedge fund manager who goes short and goes long and sometimes you win, sometimes you lose.”
Assuming there’s been no change in its holdings since the end of the second quarter, Ackman’s Pershing Square Capital Management has lost about $2.8 billion on Valeant as it declined 55 percent from an intraday peak of $263.81 on Aug. 6, according to data compiled by Bloomberg.
“In this business, nothing is personal,” Left said. “He goes home and sees his kids, I go home and see mine, and he does what he believes with his opinion.”
Biggest Selloff
If people had never heard of Citron Research before, they have now. Just after 10 a.m. Wednesday, the firm published a note suggesting Valeant was inflating its sales, igniting the biggest selloff anyone had ever seen in the stock. Laval, Quebec-based Valeant plunged as much as 40 percent, prompting a public response from the company and creating billions of dollars of losses for its hedge fund owners.
In a statement, Valeant said Citron’s research is “erroneous” and that the company derives no sales benefit from inventory held at specialty pharmacies mentioned in the report. It suggested Citron had reached inaccurate conclusions, misconstruing links between them that are explained by logistics and support agreements.
Past foes of Ackman saw irony that a company he’s invested in was sent reeling by a short-seller claiming that its revenue is overstated. Citron, the decade-old stock-commentary site originally founded as Stocklemon.com, said Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. “Is this Enron part deux?” the report said.
Just last week Muddy Waters wrote a scathing report about TeliaSonera, a Swedish telco involved in corruption which is, according to Muddy Waters, much larger than reported so far.
Tuesday, 20 October 2015
IPOs leaning too heavily on cornerstones
From Reuters:
In construction, the cornerstone is an all-important component of a new building. In capital markets, it’s an investor that helps support the value of a company before its initial public offering. In Hong Kong, these cornerstones are bearing too much of the load and undermining the foundation of the local stock market.
In principle, there’s nothing wrong with companies pre-selling some shares to big investors ahead of an IPO. Fund managers ensure they get a decent allocation in return for agreeing not to sell for six months. For the listing company, the endorsement of a shrewd backer can help stimulate interest from smaller shareholders.
The practice in Hong Kong is spinning out of control, however. Big companies preparing to sell shares now routinely pledge half or more of them to friendly investors. Take China Huarong Asset Management, the state-owned “bad bank” that is seeking to raise between $2.3 billion and $2.5 billion. It already has commitments worth $1.6 billion from 10 investors, according to a term sheet describing the deal. That’s more than two-thirds of the total at the middle of the price range.
Huarong isn’t alone either. Cornerstone investors have pledged $1.1 billion to China Reinsurance, which is targeting up to $2 billion. Of the 28 Hong Kong listings that have raised more than $500 million since the beginning of 2013, the average allocation to cornerstone investors was 40 percent, according to Breakingviews calculations. Giving a small group of buyers such large slugs creates an overhang that weighs on the share price.
The cosy arrangement also undermines the whole concept of a public offering. Huarong’s biggest cornerstones are not professional money managers but developer Sino-Ocean Land and China’s State Grid, which is also backing China Re. When one state-backed Chinese company invests in another, getting the best available return on investment may not be the only consideration.
After a botched bailout of the stock market over the summer, the money-go-round in Hong Kong is another example of how state influence can distort public markets. Buildings may depend on the support of a cornerstone. Hong Kong’s exchange participants would do better to start chiseling away at them.
The above is also very relevant in the Malaysian context. Suddenly a few years ago the term "cornerstone investor" was introduced.
Another concept that also doesn't work is artificial holding up the price in the month after the IPO.
In construction, the cornerstone is an all-important component of a new building. In capital markets, it’s an investor that helps support the value of a company before its initial public offering. In Hong Kong, these cornerstones are bearing too much of the load and undermining the foundation of the local stock market.
In principle, there’s nothing wrong with companies pre-selling some shares to big investors ahead of an IPO. Fund managers ensure they get a decent allocation in return for agreeing not to sell for six months. For the listing company, the endorsement of a shrewd backer can help stimulate interest from smaller shareholders.
The practice in Hong Kong is spinning out of control, however. Big companies preparing to sell shares now routinely pledge half or more of them to friendly investors. Take China Huarong Asset Management, the state-owned “bad bank” that is seeking to raise between $2.3 billion and $2.5 billion. It already has commitments worth $1.6 billion from 10 investors, according to a term sheet describing the deal. That’s more than two-thirds of the total at the middle of the price range.
Huarong isn’t alone either. Cornerstone investors have pledged $1.1 billion to China Reinsurance, which is targeting up to $2 billion. Of the 28 Hong Kong listings that have raised more than $500 million since the beginning of 2013, the average allocation to cornerstone investors was 40 percent, according to Breakingviews calculations. Giving a small group of buyers such large slugs creates an overhang that weighs on the share price.
The cosy arrangement also undermines the whole concept of a public offering. Huarong’s biggest cornerstones are not professional money managers but developer Sino-Ocean Land and China’s State Grid, which is also backing China Re. When one state-backed Chinese company invests in another, getting the best available return on investment may not be the only consideration.
After a botched bailout of the stock market over the summer, the money-go-round in Hong Kong is another example of how state influence can distort public markets. Buildings may depend on the support of a cornerstone. Hong Kong’s exchange participants would do better to start chiseling away at them.
The above is also very relevant in the Malaysian context. Suddenly a few years ago the term "cornerstone investor" was introduced.
Another concept that also doesn't work is artificial holding up the price in the month after the IPO.
Friday, 9 October 2015
1MDB needs a new script (2)
I wrote before about the rather curious relationship between 1MDB and Avestra, an asset management company that seems to be managed from a townhouse in the Gold Coast, Australia.
It has been mentioned several times in the press "Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."
It must be noted that 1MDB has never denied the above.
Avestra was fined in the past by ASIC having committed six offences, and being mentioned by hard-hitting blogger "Dr Benway" in a not "very positive way", to put it mildly.
But things are about to get much stranger according to this press release:
ASIC seeks court orders to wind up Avestra Asset Management
ASIC has commenced proceedings in the Federal Court of Australia against Avestra Asset Management Ltd (Avestra), the holder of an Australian financial services licence and responsible entity or trustee of a number of managed investment schemes. Avestra's schemes are managed funds which invest in shares and other financial products. ASIC understands the schemes comprise approximately $18.5 million under management.
ASIC alleges that Avestra has persistently contravened its duties in relation to a number of the schemes, including to:
Among other things, ASIC alleges that Avestra borrowed money on an unsecured basis from the property of its schemes, and invested scheme property in entities and offshore funds connected to its directors without proper due diligence or regard for the interests of members.
ASIC is seeking interim orders to appoint provisional liquidators or receivers to take control of Avestra's assets and report on, among other things, any suspected contraventions of the law, any losses suffered by scheme members, and whether the schemes ought to continue in operation (under a new responsible entity) or whether they should also be wound up.
ASIC is seeking final orders that Avestra be wound up on a just and equitable basis.
According to this article there are clear links with Malaysia, in particular Harvest Court Industries, Eddie Chai and several ACE listed companies:
ASIC: Avestra ‘diverted cash to tax haven’
The corporate watchdog has accused management of Gold Coast funds management group Avestra of diverting investors’ money to unregulated entities in tax haven the Cayman Islands and using fund money to prop up a timber tycoon’s controversial takeover bid for a Malaysian company.
In a blockbuster 200-page Federal Court affidavit, Australian Securities & Investments Commission senior investigator Glenn Childs details the regulator’s concerns about failures to disclose related party transactions, potential breaches of takeover laws and the plummeting value of Avestra’s investments.
Mr Childs said he was concerned that Avestra Asset Management executives Paul Rowles and Clay Dempsey “may not be fit to act as the responsible managers” of the company and “investor funds may be at risk”. The company controls about $18.5 million of investors’ money.
Earlier this month, ASIC asked the court to appoint Simon Wallace-Smith and Robert Woods of Deloitte as provisional liquidators of Avestra with a mandate to take control of the 13 funds run by the group.
Justice Jonathan Beach on Thursday ordered the application be heard on October 27.
Avestra has yet to file a defence and its solicitor, Angela Yates of Moray Agnew, declined to comment because the case is before the court.
Mr Childs’s affidavit reveals that Avestra has been the subject of a full-scale ASIC investigation since December 2014.
He alleges Avestra began moving money to the Cayman Islands funds in May last year after ASIC began inquiring into management of its Australian wholesale funds.
Avestra allegedly closed the Australian wholesale funds — Canton, Worberg and Safecrest — and opened equivalents in the tax haven, Bridge Global CMC and Hanhong High Yield.
However, the underlying investments, allegedly dominated by risky punts on Malaysian second-bourse stocks [most likely the writer means the ACE market], did not change.
Mr Childs alleges that one of the funds into which investor money was channelled, the Avestra Credit Fund, failed to disclose a series of investments that involved conflicts of interest.
The largest was $US5.4m, about three quarters of the fund’s assets, loaned in May last year to Zenith City Investments, a company registered in tax haven Seychelles and run by Malaysian businessman Eddie Chai.
“The circumstances in which the loan to Zenith was made suggest that it may have been used for an attempt by Zenith and its director (Mr Chai) … for an attempt to take over the board of Harvest Court Industries … a company listed on the main market of the Malaysia Bursa,” Mr Childs said.
At the same time, Avestra “itself acquired a significant holding in Harvest Court Industries on behalf of its various schemes”, he added.
Under examination by ASIC, Mr Rowles denied knowing Mr Chai wanted the money to buy more stock in Harvest Court.
Mr Chai succeeded in his takeover bid but it was controversial, sparking a Malaysian High Court case.
The Malaysian regulators (BM and/or SC) might want to take note of the above, several Bursa listed companies do indeed have Avestra as an investor.
Two of the funds that are being managed by Avestra have the following track record according to information from their own website:
In a bit more than one year, the funds NAV price lost 60% of its value.
And this fund lost 46% of its NAV price in only nine months time.
According to its website the company delivers "superior performance", but I can't find any proof of that, in the contrary. I only notice a very bad performance and a extreme volatile NAV price. Losing 40% respectively 34% in a single month is simply beyond my believe.
1MDB is not invested in these two funds, that will be of some relief to Malaysian taxpayers.
But it still leaves important questions, for instance:
It has been mentioned several times in the press "Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."
It must be noted that 1MDB has never denied the above.
Avestra was fined in the past by ASIC having committed six offences, and being mentioned by hard-hitting blogger "Dr Benway" in a not "very positive way", to put it mildly.
But things are about to get much stranger according to this press release:
ASIC seeks court orders to wind up Avestra Asset Management
ASIC has commenced proceedings in the Federal Court of Australia against Avestra Asset Management Ltd (Avestra), the holder of an Australian financial services licence and responsible entity or trustee of a number of managed investment schemes. Avestra's schemes are managed funds which invest in shares and other financial products. ASIC understands the schemes comprise approximately $18.5 million under management.
ASIC alleges that Avestra has persistently contravened its duties in relation to a number of the schemes, including to:
- act in the best interests of scheme members
- exercise the required degree of care and diligence
- do all things necessary to ensure that the financial services provided under its licence are provided efficiently, honestly and fairly.
Among other things, ASIC alleges that Avestra borrowed money on an unsecured basis from the property of its schemes, and invested scheme property in entities and offshore funds connected to its directors without proper due diligence or regard for the interests of members.
ASIC is seeking interim orders to appoint provisional liquidators or receivers to take control of Avestra's assets and report on, among other things, any suspected contraventions of the law, any losses suffered by scheme members, and whether the schemes ought to continue in operation (under a new responsible entity) or whether they should also be wound up.
ASIC is seeking final orders that Avestra be wound up on a just and equitable basis.
According to this article there are clear links with Malaysia, in particular Harvest Court Industries, Eddie Chai and several ACE listed companies:
ASIC: Avestra ‘diverted cash to tax haven’
The corporate watchdog has accused management of Gold Coast funds management group Avestra of diverting investors’ money to unregulated entities in tax haven the Cayman Islands and using fund money to prop up a timber tycoon’s controversial takeover bid for a Malaysian company.
In a blockbuster 200-page Federal Court affidavit, Australian Securities & Investments Commission senior investigator Glenn Childs details the regulator’s concerns about failures to disclose related party transactions, potential breaches of takeover laws and the plummeting value of Avestra’s investments.
Mr Childs said he was concerned that Avestra Asset Management executives Paul Rowles and Clay Dempsey “may not be fit to act as the responsible managers” of the company and “investor funds may be at risk”. The company controls about $18.5 million of investors’ money.
Earlier this month, ASIC asked the court to appoint Simon Wallace-Smith and Robert Woods of Deloitte as provisional liquidators of Avestra with a mandate to take control of the 13 funds run by the group.
Justice Jonathan Beach on Thursday ordered the application be heard on October 27.
Avestra has yet to file a defence and its solicitor, Angela Yates of Moray Agnew, declined to comment because the case is before the court.
Mr Childs’s affidavit reveals that Avestra has been the subject of a full-scale ASIC investigation since December 2014.
He alleges Avestra began moving money to the Cayman Islands funds in May last year after ASIC began inquiring into management of its Australian wholesale funds.
Avestra allegedly closed the Australian wholesale funds — Canton, Worberg and Safecrest — and opened equivalents in the tax haven, Bridge Global CMC and Hanhong High Yield.
However, the underlying investments, allegedly dominated by risky punts on Malaysian second-bourse stocks [most likely the writer means the ACE market], did not change.
Mr Childs alleges that one of the funds into which investor money was channelled, the Avestra Credit Fund, failed to disclose a series of investments that involved conflicts of interest.
The largest was $US5.4m, about three quarters of the fund’s assets, loaned in May last year to Zenith City Investments, a company registered in tax haven Seychelles and run by Malaysian businessman Eddie Chai.
“The circumstances in which the loan to Zenith was made suggest that it may have been used for an attempt by Zenith and its director (Mr Chai) … for an attempt to take over the board of Harvest Court Industries … a company listed on the main market of the Malaysia Bursa,” Mr Childs said.
At the same time, Avestra “itself acquired a significant holding in Harvest Court Industries on behalf of its various schemes”, he added.
Under examination by ASIC, Mr Rowles denied knowing Mr Chai wanted the money to buy more stock in Harvest Court.
Mr Chai succeeded in his takeover bid but it was controversial, sparking a Malaysian High Court case.
The Malaysian regulators (BM and/or SC) might want to take note of the above, several Bursa listed companies do indeed have Avestra as an investor.
Two of the funds that are being managed by Avestra have the following track record according to information from their own website:
In a bit more than one year, the funds NAV price lost 60% of its value.
And this fund lost 46% of its NAV price in only nine months time.
According to its website the company delivers "superior performance", but I can't find any proof of that, in the contrary. I only notice a very bad performance and a extreme volatile NAV price. Losing 40% respectively 34% in a single month is simply beyond my believe.
1MDB is not invested in these two funds, that will be of some relief to Malaysian taxpayers.
But it still leaves important questions, for instance:
- Did 1MDB invest in a fund managed by Avestra, if so who was responsible for the due diligence of selecting the fund manager, and how was that process exactly performed? Did the due diligence result in any red flags?
- Which fund did 1MDB exactly invest in, and what have the returns been so far?
- Is any commission paid to an agent (or other person/organisation) when 1MDB made this investment, if so how much?
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