Muddy Waters Takes Aim At China’s Focus Media Holding

Nov 23 2011 | 8:40am ET

Hong Kong-based research shop Muddy Waters is at it again.

The short seller, which caused a flurry in June of this year by asking questions about Sino-Forest Corp.’s timber holdings, has now trained its sites on Focus Media Holding, a Chinese digital media company.

A new Muddy Waters’ report says the Chinese firm, which operates LCD screens in commercial and residential buildings, has resorted to fraud to hide losses and benefit insiders. Muddy Waters alleges the Chinese company has overpaid for a number of acquisitions over the years—writing down $1.1 billion out of $1.6 billion in acquisitions since 2005. Moreover, the report claims Focus Media has overstated its network of LCD screens by as much as 50% (or one-third of the company’s enterprise value).

Focus Media, shares in which fell almost 40% on November 21, to close at $15, is denying Muddy Waters’ charges. Focus Media Chief Financial Officer Kit Low, on a Tuesday conference call with analysts, said Muddy Waters misinterpreted LCD-display numbers and financial data, according to the Wall Street Journal.

The WSJ says another Focus Media honcho, Chief Executive Jason Jiang, went after short-sellers on his verified account on China's Sina Weibo microblog service. "Why isn't anyone suing these short sellers who are just spreading malicious rumors everywhere?" the message said. "These people should be punished according to the law!!!"

According to Morningstar, a number of funds have exposure to Focus Media as of their most recent filings, led by Renaissance China Plus at 3.6%. Also on the list were Dynamic Power Global Growth Class, 2.9%; First Trust Global Capital Strength, 2.1%; BMO Greater China Class, 1.6%; and Fidelity AsiaStar, 1.2%.

In related (or perhaps not) news, the Muddy Waters web site has been hacked. The home page contains the following message:

“MW regrets that our site has been hacked. We will bring it up as soon as possible.

“FMCN [Focus Media Holding Ltd] is still a Strong Sell.

“Happy Thanksgiving,


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