WASHINGTON (AP) — A $5 billion Chinese chemical company backed by Morgan Stanley disputed overstating its profits, saying that local officials in China have agreed to change outdated records.
The Associated Press cited the records about the company's origins and the source of its key assets in a two-month investigation that revealed discrepancies between financial records and what Tianhe Chemicals Group Ltd. told investors as part of its $654 million public offering. Tianhe said the records were out of date and that local officials have agreed to update them, though the AP has been unable to reach government clerks responsible for making the changes.
Tianhe's statement, filed late Sunday with the Hong Kong's stock exchange, represents the company's official response to the AP. It assured investors that AP's findings, which largely confirmed claims by a shadowy investment research group that had previously targeted Tianhe, had "no material impact on our business and operations." Its shares declined 2 percent in Thursday trading.
Tianhe said the AP's investigation mostly repeated claims by the investment research group, Anonymous Analytics, and said it already had made what it described as "a full and clear rebuttal to each and every of the false allegations." It urged shareholders to rely only on information the company itself distributes, and said it reserved the right to take unspecified legal action for damages or other relief against the AP or others responsible for its coverage.
Neither Tianhe nor Morgan Stanley executives in Asia have responded to phone calls from the AP.
The AP reported that Tianhe revenues cited in commercial business data from government and public sources were a fraction of the revenues the company reported to foreign investors. The AP also found that the company's research budget was unusually low and that some customers did not appear financially able to buy as much of Tianhe's products as Tianhe told investors. The AP also noted that commercial business data and records at a state-owned financial institution identified one of Tianhe's predecessor companies as Chinese government property, although the company's founders said they have long owned it.
The question of state ownership is significant because shareholders may wonder whether Tianhe has a clean chain of ownership for its business.
Tianhe said business filings by a related company, Liaoning Tianhe Fine Chemicals Co. Ltd., which AP cited in its coverage, were out of date. Tianhe said local government offices acknowledged that the old company's records were inaccurate and agreed to update them to reflect that Liaoning Tianhe was privately owned. The AP has been unable since Monday to contact the government clerks who would be responsible for changing those records in the Chinese communities of Liaoning and Jinzhou.
Earlier, in conversations with AP reporters, Tianhe executives said that only business records from such local government offices should be trusted.
Last week, Hong Kong's stock market prohibited investors from making speculative bets about Tianhe's stock for at least 90 days. Unlike, U.S. markets, the exchange has rules designating which companies can be sold "short," in which investors bet that a company's price will fall.
Hong Kong regulators froze the $7.9 billion company's stock for more than a month in September after the allegations by Anonymous Analytics. Since the allegations were made, Tianhe has lost more than a third of its total market value.