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Spreadtrum says Muddy Waters' accusations “groundless”

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Spreadtrum Communications Inc. (SPRD-Q), the latest U.S.-listed Chinese company targetted by Muddy Waters, defended itself on Wednesday, saying the short-seller's accusations of a likely misstatement in financial reports are "groundless."

Shares in Spreadtrum slid more than 30 percent at one stage on Tuesday after Muddy Waters said in a letter that it was most concerned about the company's 2010 and 2011 numbers.

But buyers emerged by midday and the shares recovered most of their losses to close down 3.5 percent on the day.

An investor relations official at the Shanghai-based semiconductor company said it would release a statement and hold a conference call with investors late on Wednesday in response to Muddy Waters' negative "open letter" to its Chairman Leo Li.

Some analysts said the rebound in shares suggested Muddy Waters' report did not shed much new light, adding the concerns had been raised and already answered over the past few years.

"We note that NOTHING NEW is actually raised in the letter," wrote Needham analyst Quinn Bolton in a report, reiterating his "Buy" rating and a $30 US price target.

"We believe Muddy Waters is taking advantage of its success in identifying other fraudulent companies in China to raise questions about Spreadtrum in order to profit from its short position in SPRD."

OPEN LETTER

Spreadtrum is the latest U.S.-listed Chinese company to be hit hard following a report questioning its accounting practices. The shares are down 32 percent on the year.

Spreadtrum has a market capitalization of $625 million US. Canada-listed Sino-Forest (TRE-T), another target, had a market cap of several billion dollars before its shares were decimated on a Muddy Waters report.

Shares of Hong Kong-listed China Yurun Food Group Ltd. lost a third of their value in recent trading sessions on rumours that Muddy Waters would issue a report on the meat producer, although they rebounded sharply on Wednesday as fears eased.

Muddy Waters' research director Carson Block laid out his concerns in an "open letter" to Spreadtrum Chairman Li, asking about recent sales trends and turnover in its board of directors.

"We have identified a number of issues in Spreadtrum's filings, and we believe that there is a high risk of material misstatement in the reported financials," according to the letter, posted on Muddy Waters' website. "Our concerns are gravest regarding 2010 and 2011 numbers."

The company earned $346.3 million in 2010 -- an annual increase of 229 percent according to Thomson Reuters data -- after two previous years of revenue declines. It earned 43 cents a share.

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