Anonymous research firm says targeted China's Tianhe for public good

  • World
  • Wednesday, 03 Sep 2014

SHANGHAI (Reuters) - Secretive stock research firm Anonymous Analytics, which has publicly accused China's Tianhe Chemicals of falsifying financial statements, said it published the report for the public good, not money.

"We do not profit in any way from a decline in Tianhe's share price. We have no financial incentive linked to Tianhe's stock performance," Anonymous wrote in an e-mail response to Reuters, adding that it published the report because it was "the right thing to do."

The organisation calls itself a "faction" of the Anonymous vigilante group, which has gained prominence for attacking government and corporate websites around the world.

The group does not identify its employees or provide any registration information, address, or telephone number on its website, relying solely on a secure e-mail box for communication. "We don't really talk about AA's structure and how we operate," it said in the e-mail.

Anonymous Analytics says it has "moved the issue of transparency from the political level to the corporate level". In the report on Tianhe published on Monday, it advised investors to sell shares of the Chinese industrial group with a target price of $0 per share.

It predicted Tianhe would be delisted and criminal charges would be brought against the architects of its IPO.

Tianhe, which floated $654 million worth of shares in Hong Kong in June, last had a market capitalisation of $8 billion.

Tianhe said in a statement late on Tuesday that the Anonymous Analytics report contained errors and misleading statements, and that it would publish a more detailed response soon. It halted trading of its shares earlier on Tuesday after they fell 5 percent to HK$2.31.

Tianhe shares appear to have been targeted by short sellers as soon as the Hong Kong exchange cleared them for shorting in mid-August, meaning that market players believed Tianhe's strong post-listing performance could not be sustained. The shares had gained 25 percent since listing, compared to a 5 percent rise in the Hong Kong China Enterprises Index.

While Anonymous says it has not directly taken a position in the shares, its report allowed that "contacts, consultants, affiliates, and/or clients may have a short position in the stock or debt of Tianhe and/or options of the stock."

Client relationships between short-sale investors and the research houses often involve commissions based on profit made from short selling.

But Anonymous also denied being involved in any such scheme, and also said it had not sold copies of its report to short-sellers in advance of its publication, another common strategy.

"We did not sell advanced copies of this report. We have made NO money on this report. The only advanced copies we gave were a 30-45 minute embargoed heads-up to some journalists."


The report said that Tianhe Chemicals, which listed with the backing of Bank of America Merrill Lynch, Morgan Stanley and UBS, massively overstated its revenues and provided inaccurate information regarding its relationships with customers.

The report said it acquired all the information from publicly available information, but also described visits by investigators to sites in Shanghai.

Anonymous Analytics has said in the past that it cooperates with others in producing reports, telling the Financial Times in 2011 that it occasionally outsourced "piecemeal work".

A source at a corporate investigation firm in Shanghai said he had produced a report for sale to a hedge fund, only to find some of his report reproduced verbatim in a public Anonymous Analytics report targeting a Chinese company.

Anonymous Analytics did not respond immediately to questions about this allegation and how it works with hedge funds.

Anonymous Analytics' secretiveness is not unusual given the heavy pressure Chinese government organs and business leaders have applied on due diligence investigators in China.

Other foreign short-sellers have also complained of intimidation against their investigators and that concern, combined with depressed valuations for many Chinese stocks that made them difficult to short, caused many to move on to other markets.

China's state media and industry executives have accused foreign research firms of deliberately publishing misleading reports intended to cause hysteria among uninformed foreign investors, slandering otherwise decent Chinese companies in the quest for short profit.


Anonymous' track record of reporting on what it has called over-valued stocks has been patchy. Starting in 2011, it has published short reports on six listed companies, five of them Chinese, but only one - on Chaoda Modern Agricultural Holdings - had a long-term effect. Chaoda's shares have remained suspended since 2011.

Other targets have proven more resilient. Anonymous published reports accusing mainland internet service company Qihoo 360 of overstating its web traffic, but investors shook off the allegations. Anonymous reports on Joy Global and Huabao International Holdings also failed to do long-term damage.

"We wouldn't say the market shrugged off our report on Huabao. Huabao was trading at depressed levels for two years after our report," Anonymous said.

"It's only in the last few months that it's started to trade higher. Regarding Qihoo, that was a unique project for us. It was effectively 19 pages of us talking only about computer code. Surprisingly, investors don't care that much about an entire report dedicated to coding."

Analysts point out that market reactions to such reports can often have little to do with the veracity of a given allegation, especially when the stock in question is a company with deep investor support, or if it occurs during a wider market rally.

(Additional reporting by Engen Tham; Editing by Kazunori Takada and Raju Gopalakrishnan)

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