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  • project2069 project2069 Feb 1, 2013 6:15 PM Flag

    Shares suspended in China Metal Recycling after fraud allegation made

     

    The company that claims to be the largest metal recycling company in China has suspended trading of its shares on the Hong Kong stock exchange.

    China Metal Recycling (CMR) says it is the largest mainland scrap metal recycling company in China based on its 2008 revenue.

    But a report from American short-seller Glaucus Research Group has branded this a “lie”.

    As a result, CMR has suspended its shares on the Hong Kong stock exchange while it prepares a response to the allegation.

    In the report, Glaucus said: “CMR purports to be the largest scrap metal recycling company in China. We believe that this is a lie.

    “Publically accessible import data from the Chinese Government suggests that CMR is a blatant fraud that has deceived the market about the size of its business.”

    The report notes that the company has never been legally allowed to import more than 87,500 tonnes of non-ferrous scrap metal in a year, yet the company would have to be importing an average of around 120,000 tonnes of non-ferrous scrap per month in 2011-12.

    It also says that CMR is not even in the top ten of monthly scrap copper importers, and that its competitor Chiho-Tiande is the top importer each month despite supposedly being one fifth the size of CMR by sales.

    Sentiment: Strong Sell

    This topic is deleted.
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    • China Metal Recycling Holdings Ltd. (“CMR” or the “Company”) purports to be the largest scrap
      metal recycling company in China. We believe that this is a lie. Publicly accessible import data
      from the Chinese government suggests that CMR is a blatant fraud that has deceived the market
      about the size of its business.
      1. CMR is Nowhere Near its Reported Size. Multiple independent sources show that CMR
      could not be sourcing anywhere close to the volume of scrap necessary to produce its reported
      volume of processed metals.
      a. MEP Import Data Indicates Fraud. Publicly available data from the Chinese Ministry
      of Environmental Protection indicates that CMR has never been legally allowed to import
      more than 87,500 tons of non-ferrous scrap metal in any year, even though the
      Company would have to be importing an average of ~120,000 tons of non-ferrous
      scrap per month in 2011-2012 (~ 1,440,000 tons per year) to produce its reported
      output.
      b. Customs Data for Copper Imports Indicates Fraud. Similarly, in order to produce
      CMR’s reported volume of copper, CMR would need to import ~113,000 tons of scrap
      copper per month, which would make it by far the largest scrap copper importer in China.
      Yet 2011 and 2012 customs data shows that CMR is not even in the top 10 of monthly
      scrap copper importers, and that Chiho-Tiande (HK: 0976), a competitor supposedly 1/5th
      the size of CMR (measured by sales), is listed as the top importer each month.
      c. All the Scrap in China. In order to produce CMR’s reported volume of processed
      copper, CMR would have to account for 34% of all imported scrap copper and over 50%
      of the domestic scrap copper market in 2012. Such a market share is not plausible.
      2. Sales to Top Customer Highly Suspicious. For the Company’s financials to be believed,
      CMR would have to account for 84% of the non-ferrous metals supplied to its largest
      customer (a Guangzhou state owned enterprise) in 2011, a level of supplier concentration we
      find highly improbable.
      3. Fictitious Financials. Many of the Company’s key financial and operational metrics deviate
      so significantly from other scrap metal recyclers that its reported performance defies
      credibility.
      a. Suspiciously Amazing Growth Rate. CMR’s revenue and EBITDA growth from 2006-
      2011 was more than twice its nearest competitor, even though the Company’s spent less
      on capital expenditures than its peers and its capacity utilization was strikingly low.
      COMPANY:
      INDUSTRY: Waste Management
      COMPANY: CHINA METAL RECYCLING HOLDINGS LTD |
      INDUSTRY: Scrap Metal Recycling
      HK: 0773
      b. Revenue per Employee Figures Not Credible. CMR claims to generate $US 11 million
      of revenue per employee, a worker productivity rate that is 10x higher than all of its
      major industry peers and 6x higher than the revenue per employee generated by Apple (~
      $US 2 million per employee), generally regarded as one of the global leaders in yield per
      employee. This is simply not believable.
      c. Inexplicable Inventory Turnover. CMR claims to turn inventory five to six times as
      fast as Chiho-Tiande, its closest domestic competitor.
      d. Madoffian Return on Capital. The consistency of CMR’s return on capital through the
      2008 financial crisis bears more resemblance to Bernie Madoff's fabricated returns than
      the returns generated by a highly cyclical scrap metal business during a commodities
      crash.
      4. Woe be the CFO. Only six months after the Company’s initial public offering, CMR’s CFO
      abruptly resigned on the grounds that the board of directors failed to address concerns over
      potential improprieties that he brought to the attention of the audit committee and denied him
      access to CMR’s financial records.
      5. Chairman Cashing Out. On January 25, 2013, CMR announced that its Chairman, CEO and
      founder, Chun Chi Wai, entered into an agreement with a state-owned enterprise to sell 56%
      of his shares in the Company. When the man who knows the most about CMR cashes out of
      the majority of his shares, investors would be wise to heed his example. We believe that there
      are two possible explanations for this transaction: either the purchaser is another victim of
      CMR’s deception, or officials at the state-owned enterprise are corrupt and thus complicit in
      the fraud.
      6. Valuation. As of June 2012, CMR had HKD 5.7 billion of bank debt outstanding, the
      holders of which would take priority over shareholders. Because we believe that the
      Company has significantly overstated its sales, we doubt the authenticity of its reported
      receivables and inventory. The book value of the Company’s property, plant and equipment
      is only HKD 460 million, so even after senior secured bank creditors seize CMR’s fixed
      assets, such creditors would still be owed over HKD 5 billion! After senior secured debt
      holders, local Chinese unsecured creditors with priority over Hong Kong shareholders are
      owed roughly HKD 10 billion. The Company’s heavily levered balance sheet and the scale
      of its deception suggest that shareholders will be left with nothing. We therefore put a price

    • CMR, which is listed on the Hong Kong stock exchange, said the allegations were "completely inaccurate and wholly unfounded".

      Shorts are after Chinese listed companies. What did lbcb say about Hong Kong exchange and the raiding of US markets? He must be right with this as a false flag so it's still a conspiracy somehow.

      Project next time you post 'news' try to not leave out everything no blatently project the fear campaign point of view, ok buddy?

 
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