Yongye International Inc (NASDAQ:YONG) , a Chinese fertilizer maker fails to build its report again in the market even by a buyout offer from Morgan Stanley. The company in order to raise its public confidence manipulated some accounting standards.
Morgan Stanley and its group agreed to buy Yongye International Inc (NASDAQ:YONG) On Oct 15. Before that Yongye International Inc (NASDAQ:YONG) has trimmed half of its shares on the Nasdaq Stock Market. Now the stock traded at 22% with a discount to offer price.
Absaroka Capital Management LLC, The short seller of the company said if the company is involved in any unfair practices then it would be delisted from the U.S exchange. The company lowered down its private equity which attracts the eyes of the potential investors.
U.S regulators now involved in the investigation that whether the company is really associated with some unfair practices.
Short Interest:
On Oct 15 Yongye International Inc (NASDAQ:YONG) rallied 17% to $5.61. According to the company they received a non binding offer from the buyout group for the purchase of the company’s share in $6.60. At the same time they said the deal is not yet finalized and they are looking for a better opportunity. The company also mentioned about a new offer concerned from Abax Global Capital Ltd, a Hong Kong based company and the company are working on the study of analysis of the $295 million offer.
Its share declined by 0.8% to $5.12.
As the news of buyout spread all over, the short interest in the company declined to 1.5% from 8% on September 10. In short selling the investors are not involved in acquiring the shares with a long-term vision. It only goes on in purchasing the same with an intention to sell it off for a short term gain. And by betting a lower price they can buy back the shares again.
Yongye International Inc (NASDAQ:YONG) commercialized the buyout deal with Morgan as a weapon to raise its investor’s confidence in the global market.
In 2009 the company is involved in a reverse merger to purchase a shell company to gain a listing. But the reverse merger may lead to fraud according to the SEC.
Thus by the merger the company is able to raise its capital with the help of the investing bank.
Muddy Waters:
The Chinese company list in U.S lost its public confidence as its share declined considering the short seller. Now the investors and regulators are very keen about the scrutiny of the Chinese company. Muddy water research LLC, by a short sale discovered the financial irregularities in companies such as SINO FOREST CORP (PINK: SNOFF) and media express holding Inc, a plantation company filed for bankruptcy protection.
The situation became more dangerous when the SEC got a refusal from 9 Chinese companies including Deloitte Touche Tohmatsu CPA Ltd., E&Y Hua Ming LLP, KPMG Huazhen and PWC Zhong Tian CPS’s Ltd to cooperate with the accounting investigation established for the companies. This results in a decline in the share value of Yongye International Inc (NASDAQ:YONG) to $260 million below its net worth.
Exceptional Company:
According to a report by Kevin Barnes, an analyst at Cheyenne, Yongye International Inc (NASDAQ:YONG) in order to transfer cash out of the company involved in a $30 million acquisition of lignite coal exploration and production right. But while asking, Yongye International Inc (NASDAQ:YONG) mentioned it as lawful as per that date. And replied that he did so to reduce the production cost which was legitimate.
After a fortnight Morgan Stanley private equity Asia decided to invest a $ 50 million on Yongye International Inc (NASDAQ:YONG).
SEC Query:
The investors are concerned about raising account receivables and negative cash flow of the company.
As the company increased its distribution activities, its cash flow from operation became negative. The increased distribution cost was due to the sales of the company which goes up inevitably from $18 million in early 2008 to $130 million in the third Quarters.
Yongye International Inc (NASDAQ:YONG) is down by 2.33% to close at $5.04, SINO FOREST CORP (PINK: SNOFF) closed at $1.38.
