BEIJING, June 24, 2012 /PRNewswire-Asia/ --Citron, an international short seller first targeted Chinese property stocks and surprisingly attacked Evergrande with a 57-page research report on June 21. The message quickly raised waves in Hong Kong stock market and caused Evergrande's stock price a plunge of 11.4% that day. Evergrande responded quickly and released a detailed clarification announcement on June 22, responding to each of Citron's allegations including fraudulent accounting masks, concealing insolvency, and investing in risky and unprofitable industries such as football and entertainment.
Meanwhile, eight powerful investment banks including Citibank, Deutsche Bank and J.P. Morgan all stated that there were lots of flaws in the Citron report, and that they kept optimistic about Evergrande's efforts on sales and cash flow. In the whole event, Evergrande executives' quick public response and the investment banks' analysis and attitudes played positive roles in timely stabilizing the market and restoring the market confidence. An original report from Sina Leju follows:
Citibank states that most of the points in the Citron report were untrue. The allegations of land auctions, presale data, tax policy, cash balance, and football investment reflect that Citron doesn't have sufficient understanding about Chinese property developing industry. Citibank appeals to the public to look deeply into the nature of the event and to look at the Chinese property developing industry rationally.
Deutsche Bank indicates that although seeming to have ample evidence, the report was based on lots of assumptions and obviously misunderstood Evergrande's basic operations. Deutsche Bank estimates Evergrande's liquidation value close to HK$67 billion and regards it as the first choice among the Chinese property developers.
J.P. Morgan makes a similar judgement that most of the financial allegations in the Citron report were inaccurate and that most of the analysis ignored the basic accounting standards applied by the Chinese property developing industry. J.P. Morgan keeps optimistic about Evergrande's products for high-end demand and its decreasing debt risk due to strong sales momentum and slower expansion pace.
Bank of America Merrill Lynch responded to each of the accounting misunderstandings and all the doubts by the short seller. Taking Evergrande's cash flow plan and contract sales into account, Bank of America Merrill Lynch considers Evergrande sufficiently liquid without any insolvency problem, adding that Evergrande's stock price and P/E ratio are obviously lower than its peers.
UBS also maintains their buy rating on Evergrande and thinks that Evergrande may get re-rated as its sales, cash flow and financial status improve.
Suisse Credit report indicates that there might be some negative influence on Evergrande in the short term. However, it believes that the strong sales momentum in June and July as Evergrande indicated will enhance the stock price and advises the public to buy at the low point. Suisse Credit confirms that Evergrande has a conservative balance sheet and more projects going on sale in the future.
Macquarie doesn't believe Evergrande has severe off-balance-sheet debt. The low interest income in 2011 might be caused by approximately 10 to 15 billion yenrestricted cash in each period. The estimated value of the rental properties is 18.8 billion, with little difference from the accounting report. The low rental yield is mainly caused by the low occupancy rate.
Moreover, DBS analyzes that the Citron report did exist misleading information and wrong explanation on the accounting method. DBS highly appreciates Evergrande executives' quick response and continuous effort, and agrees with the executives' announcements and explanations.
SOURCE Sina Leju
