As of Q2 2012 XIN had $375M as net financial position (cash less debt). This means that for every share we buy, had the company to pay down their debt immediately, only the cash per share would be almost the double of the current share price. It is obvious that the market is pricing XIN as if it does not have this cash and as if it does not have any other assets, as if it does not generate earnings, just because the company is Chinese. Massive money is to be made here,the market is behaving irrationally as usual, too bad I cannot free more cash to invest right now, but I will.
The market is not pricing by cash on hand. They are pricing on fraud risk. Once that is gone, and the company has credibility, they will rise. In the mean time they need to keep buying shares before the price does go up.
I do no think the fraud risk will go away altogether. The issue is that the risk will stay but iy is just mispriced. At the moment the market wants a potential 1 year return of 10 USD to invest 1 USD in XIN. This would mean that the market, assuming an avg risk adversion, is estimating ca 90% probability that XIN is a fraud. Which is obviously overestimated for the reasons already explained in one of my messages above; if I had to estimate what is the likelihood of large scale fraud here, I would say less than 10%, ie XIn should trade maybe not at USD 35 now but definitively not below USD 30.
This is why XIN should do two things: 1. Buy back as many shares as they legally can, as quickly as possible. Every share they buy back is identical to buying a five dollar bill for three dollars. 2. Pay a big four American accounting firm to do a forensic audit of their assets. The price of a few pennies a share in accounting costs would generate dollars a share in returns.