Singapore “Flyer” Of The Week: China Minzhong

China Minzhong

No prizes for guessing which company clinches the spot for this week’s Singapore “Flyer”. China Minzhong Food Corporation Limited (SGX: K2N) has been in the spotlight for the past one week or so due to an incendiary report released by Glaucus Research. So far this week, it has surged 111.3% to $1.12, at the time of writing, from the close of $0.53 on last Friday.

After the report released on 26th August 2013, the shares were halted till mid-day on 2nd September. During this long halt, China Minzhong strongly refuted the allegations and came up with a detailed 19-page rebuttal on 1st September.

In the rebuttal, it said that the allegations by Glaucus were “mischievous and calculated to cause panic and impose maximum damage on the price of the company’s securities for their own benefit.” The company said Glaucus had also not considered differences in financial reporting under Chinese and Singaporean accounting standards.

Regarding the allegation that it had fabricated sales figures to its two largest customers before its public listing, China Minzhong exhibited sales contracts, tax invoices, customs documents and written confirmation from the legal representatives of the two customers to show that the sales took place.

Regarding Glaucus’ claim that China Minzhong’s largest supplier had its business licence revoked in February 2010 (before China Minzhong’s listing), China Minzhong said it was unaware its supplier’s business licence had been revoked and continued trading with it until October 2010 when mushroom spore quality failed to meet requirements. The company went on to say, “We have the relevant purchase related documents to show our purchases from Chengdu Shufeng (the supplier) for the period in question. During that period, we had also started obtaining mushroom spores from other suppliers, one of whom remains our top supplier today.”

In response to China Minzhong’s repudiations, Glaucus came up with its own 16-page rebuttal on 2nd September 2013. Glaucus said its arguments were based on publicly available documents from independent third parties such as government registries and the filings with China’s State Administration for Industry and Commerce but China Minzhong had used non-public records such as tax filings in its response. It added, “Minzhong knows that neither we nor any other investor can verify or obtain (these records) because of their non-public nature. In our view, this is not a coincidence. The balance of Minzhong’s supporting documents were either generated by the company, thus, in our view, undermining their credibility and importance, or were affidavits from suppliers and customers.”

Amidst this hoo-ha, on 2nd September, Indofood Sukses Makmur, the largest investor in China Minzhong, offered to pay $1.12 for each share of China Minzhong after having bought 3.9% of the company in off-market married deals on 1st September 2013. This took its stake to 33.49%, triggering a compulsory takeover offer as per Singapore’s Takeover Code. An offer to buy shares from all existing shareholders at a fixed price is mandatory when a stake in a listed company exceeds the 30% threshold. This caused the share price of China Minzhong to surge to a high of $1.14 on that day.

Meanwhile, the war of words between Glaucus and China Minzhong did not sizzle off. On 3rd September 2013, China Minzhong released another rebuttal for the Glaucus’ report released on 2nd September 2013 (supplemental report). The company said, “No fresh allegations were raised by Glaucus in the Supplemental Report. Old issues are rehashed in a desperate attempt to justify their earlier reckless opinions, advice and conclusions.” It went on to say that there is no need for the company to provide a detailed rebuttal to Glaucus’ supplemental report.

On 4th September 2013, Indofood’s bid turned unconditional as it had more than 50% control of China Minzhong. In an announcement, Indofood said that it considers China Minzhong’s business to be complementary to that of Indofood and that various opportunities exist for integration and synergies.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.