Constant big "fright" 36 hours of incense attack or have the next wave

For Evergrande (03333.HK), the closing of Hong Kong stocks on the early hours of 21st to 22nd is a thrilling 36 hours.

In the early hours of 21st, Citron, the shorting agency, published a report on its website, accusing Evergrande of being "insolvent and the company has been reporting false information to investors".

On the day of the opening of Hong Kong stocks, Evergrande property prices fell nearly 20%.

13:30 noon the same day, Evergrande Real Estate Board chairman Jiayin Emergency conference call, refuted the practice of incense. Evergrande Real Estate issued a detailed clarification notice on the second day of the afternoon to refute the charges of the two.

At the same time, eight investment banks such as Citigroup and Deutsche Bank, which have been in the grip of Evergrande Real estate, have launched a shield operation, but the short saga has not really subsided until the close of the day.

Some analysts on the "first financial daily" said, because of the release of the only PPT document, no accident, then there will be second, third wave of charges.

Evergrande and the offensive and defensive war between the two have just begun.

The argument of "form outside financing"

In the 57-page report, the most central question is no doubt about the allegations that Evergrande's property is faking its liabilities and cash.

The report notes that Evergrande is using off-balance-sheet financing to make acquisitions, thus reducing the liabilities in its earnings. The charges were based entirely on a prospectus issued by Evergrande Property in January 2010.

He found that in some of the project companies that are wholly owned by the non-Evergrande Real estate, the joint venture partner actually acts as the creditor of Evergrande Real estate. Evergrande Real Estate in the name of equity participation in foreign borrowing, Evergrande Real estate to provide security, form off-balance sheet liabilities, intended to lower the reporting of debt.

On the basis of the information disclosed in the prospectus, Evergrande landed a 51% per cent stake in a subsidiary named "Hunan Xiong Chun Investment Co., Ltd." (hereinafter referred to as "the Hunan Male Quake"), in addition to the existence of a repurchase agreement between Evergrande and the other 49% holders of the male quake in Hunan, The repurchase agreement agreed that Evergrande would be required to repurchase the 49% shares at a price of 19 million yuan in future.

Xiang Chen found that 49% of the owner of the male quake in Hunan province is in fact a Sino-financial trust. During the period from April 2010 to May, the Sino-Financial Trust launched the "Sino-Rong-Heng-da Washington Real Estate Project Investment Collection Fund Trust plan", which was used to acquire 49% of the shares in Hunan.

According to the relevant terms of the trust, during the operation of the trust, Evergrande Real Estate Group will pledge its 51% stake in Hunan Male quake to the Sino-Financial Trust, if the trust is due to not fulfill the payment obligation, then the Sino-Financial Trust has the right to dispose of all the shares and assets of the male quake

It is not a case that Evergrande has actually concealed the trust loan, according to the trading structure of the equity-backed repo.

However, the announcement of the clarification of the constant land production denies it, alleging that the OTC financing mentioned in the report is a complete distortion of the constant land production of the actual accounting operations, Evergrande Real estate for the acquisition of land-holding companies, in the financial statements of the companies have been merged, and the unpaid costs on the balance sheet as the acquisition of land payable.

Evergrande Property also countered that the trust financing implemented by the company has been treated as a liability under the Hong Kong accounting standards and has not been accounted for as a minority shareholder's interest, and that the minority shareholder's interest in the consolidated financial statements of December 31, 2011 does not involve any repurchase arrangements.

However, a CPA told the first financial daily reporter that existing accounting standards on how to deal with the above equity guarantee repurchase loopholes, in fact, the risk of trust financing is much higher than bank loans, in the case of the male earthquake in Hunan, once Evergrande Real estate defaults, it is facing the risk of losing all the shares of Hunan Male earthquake, The details of how Evergrande is handling this part of the debt need further clarification.

The argument of cash balance

Another allegation of the suspicion is that Evergrande property has reported a bank balance. According to the calculation of fragrance, if the current interest income of Evergrande property is divided by the average balance of the current currency fund, the result is 0.45%, or even lower than the bank's current interest rate of 0.5%, to speculate that the actual bank balance of Evergrande Real estate is not as much as claimed.

But Evergrande Property argues that a sweeping approach to the "real" balance of bank deposits is clearly misleading in the report.

The simple use of the beginning and the end of the average method does not take into account the changes in bank deposits in each month, the mainland of China from 2010 to 2011, the annual interest rate of bank demand deposit is 0.36% to 0.5%, and the proportion of interest income is similar to the company.

In addition, some bank deposits of Evergrande property are deposited in US dollar deposits in Hong Kong, while the interest rate of US dollar deposits is much lower than that in mainland China, so the report claims that Evergrande's fictitious bank deposit balance is unfounded.

But one industry insider told reporters although there is no evidence of the suspicion of the cash balance of Evergrande's real estate, it is the usual practice of the listed housing companies to raid a cash deposit before the performance announcement, and the interest income tends to be low during the period due to the temporary deposit of cash into the account.

"The analysis of the constant land production, from the financial point of view is good, but also reflects their lack of in-depth understanding of China's real estate market, thus more easily one-sided understanding of the problem of constant land production." It is not yet possible to determine whether the charges are right or wrong, but in the absence of conclusive evidence, there is a lack of rigour in making such serious accusations against Evergrande property, and a sense of grandstanding. Sheng Fu Capital CEO Huanglichong to reporters.

Huangli continued, "The fragrance pointed to Evergrande Real estate through savage-style growth, in a very short period of time to grow into one of China's top five property listed companies, including a high degree of leverage in many projects, continue to face the pressure of financing and debt repayment, do a lot of market incomprehensible things, including investment team, Investment in some of the listed companies have no income projects, etc., this is the entire Chinese real estate industry, but also as the largest short board of listed companies, in this context with overseas financial analysis of the way to analyze any one of China's private property companies must be a mystery constantly. ”

The eight investment banks involved in the shield are also inclined to use the "State of the nation" approach. JPMorgan said that most of the analysis also overlooked the mainland real estate industry's basic accounting standards.