SOURCE / COMPANIES
Short-shelling could promote Chinese firms’ listing shifts: experts
Published: Apr 15, 2020 07:38 PM

Photo: IC



Chinese online education platform  GSX Techedu was criticized by US-based short-selling agency Citron Research in a report on Tuesday, which alleged that the company had falsified its sales figures.

It was the second such accusation against GSX in the past two months, amid a series of similar actions against Chinese firms taken by shorting agencies.

These short-selling actions could lower investors' confidence in Chinese companies. However, they could also prompt these overseas-listed companies to shift to China's A-share market or the Hong Kong stock market, financial experts told the Global Times on Wednesday.

In its report, Citron Research said GSX repeatedly counted the same sales, which led to an inflation of revenues in 2019 of as much as 70 percent. GSX later in the day denied the claim in a statement, saying that Citron doesn't understand its revenue sources and the report is groundless.

Rukim Kuang, founder of Lens Company Research - a third-party research institution — told the Global times that though it's hard to say that GSX is innocent, the evidence in the report is not adequate to support Citron Research's claim.

"For example, the report said it had tracked 20 percent of GXS's course sales, and Citron then calculated total revenue in 2019 based on the 20 percent portion, but what if this portion only includes cheaper courses?" Kuang said.

GSX is not the only company that has been shorted recently. iQiyi, the Chinese version of Netflix, was also criticized by well-known short-seller Muddy Waters, which said that the company had been involved in accounting fraud by inflating revenue and exaggerating the number of users and customers.  

The video platform's stock price dropped more than 14 percent on the same day, although it later rebounded. As of the close, iQiyi shares were up 3.22 percent to $17.3.

Luckin Coffee, which aims to beat Starbucks in China, has also encountered similar claims.

According to Kuang, after Luckin shares were shorted, the short sellers wanted to take advantage of the trend to short the shares of other Chinese companies, because investors' confidence had been weakened by the Luckin incident. 

As China-US ties have been harmed by the trade war, many Chinese companies are willing to shift their listings to the A-share market or the Hong Kong market, Kuang said.

Ade Chen, general manager at Fund Investment, echoed Kuang's words, saying that choosing Hong Kong for a listing would be more culturally familiar, with investors who understand their business.

"Some Chinese companies — including Xiaomi and Alibaba — chose Hong Kong to be listed after the previous short-selling wave against Chinese companies in about 2012, so more Chinese companies could choose to make similar moves," Chen said. 

"Furthermore, as the A-share market and Hong Kong market are connected now, capital in the Hong Kong market is more active than before, so I think some of those overseas-listed companies would choose to shift," Chen added.

However, there are some barriers, such as the A-share market's strict requirements, according to Kuang.

"There are some requirements, including profitability, blocking them" from moving their listings, Kuang noted, urging Chinese authorities to promote market reform to help their listings.




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