Activist short-seller Bonitas said today that equity of Hong Kong-listed Chong Sing Holdings Fintech Group will be worth zero.
The fintech firm (HKEX: 8207), formerly known as Credit China, went public in November 2010 as a short-term secured finance provider, according to Bonitas.
Since its listing, Chong Sing has made multiple acquisitions and ventured into different business areas such as payments, technology-enabled lending, cryptocurrency mining, blockchain, and traditional loans and financing services.
“We believe that Chong Sing has nefariously been used by its director and largest shareholder, Zhang Zhenxin, to conduct sham transactions and artificially inflate Chong Sing’s reported financial performance to attract investments from unsuspecting creditors and minority shareholders,” Bonitas noted.
According to the short-seller, it has published a report with evidences suggesting Chong Sing insiders consistently spin assets between Zhang’s cohorts to artificially inflate reported asset valuations and fabricate profits of RMB 408 million in 2017 from illusory transactions.
However, all these are just the tip of the iceberg of the scandal, according to the short-seller.
“There’s no trace of evidence that Glory Metro exists—a supposed RMB 350 million exhibition services business in which Chong Sing invested RMB 179 million in 1H’18,”, he short-seller said. “We’re also puzzled by the RMB 10 billion valuation given to Chong Sing’s Bitfily, a newly launched blockchain hardware business within the first six months of its establishment.”
Bonitas claimed it has uncovered numerous undisclosed related party transactions centered around Chong Sing’s director and largest shareholder Zhang Zhenxin.
Bloomberg intraday trading data suggests that Chong Sing is one of the most manipulated stocks on the HKEx, the short-seller added.
Chong Sing doesn’t have enough cash to satisfy its short-term liabilities
As of June 30, 2018, Chong Sing only had RMB 1 billion in tangible current liquid assets—which are primarily cash—to satisfy RMB 3.7 billion of current borrowings and payables due, said the short seller.
“Chong Sing simply does not have enough cash to satisfy its short-term liabilities, said Bonitas. “Considering its inability to generate cash from operations and its existing indebtedness, we are highly skeptical that creditors will collect money owed in full. This will leave little, if any, value for minority “shareholders.