Bloomberg News

New Oriental Sinks as Block Renews Allegations: China Overnight

October 01, 2012

New Oriental Education & Technology Group Inc. (EDU:US) slid from a two-month high as short seller Muddy Waters LLC said it’s “more convinced than ever” that the Chinese education provider is misleading investors.

The shares fell 0.4 percent to close at $16.60 in New York, giving up an earlier advance of as much as 7.8 percent that was sparked by New Oriental saying a probe into Muddy Waters’s allegations against the company showed no fraud. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. rose 0.1 percent to 92.14, with 31 stocks declining and 24 advancing. Suntech Power Holdings Co. (STP:US) climbed for the first time in six days after the solar company secured government support.

Based on the information the company has released, Muddy Waters’s founder Carson Block said he is “more convinced than ever that New Oriental is materially misleading investors,” according to comments e-mailed by the research firm’s public relations company yesterday. New Oriental had a record slide last quarter as Muddy Waters, which has alleged some Chinese companies listed in North America of misstating assets and earnings, said on July 18 that the Beijing-based company inflated cash balances to obtain approval from their auditor.

“If you can avoid being in stocks where Block is involved it’s probably better for your portfolio,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone yesterday. “Block has built his name on being very public with his calls and you can’t downplay the impact he can have on the market.”

Targets

Block has helped fuel scrutiny of Chinese companies that trade in the U.S. Sino-Forest Corp., the Chinese tree-plantation operator accused of fraud, filed for bankruptcy protection in March in Ontario Superior Court almost 10 months after Muddy Waters said in a June 2011 report that the company overstated its assets.

Muddy Waters has also targeted Focus Media Holding Ltd. (FMCN:US), a Chinese advertising company that received a takeover proposal in August. The short seller issued a fifth report on Focus Media in February, claiming it overstated its advertising network.

New Oriental said on July 17 that the Securities and Exchange Commission had started an investigation into the company’s consolidation of its units’ financial statements. The stock sank 32 percent last quarter and now trades for 16 times estimated earnings, from 29 times in October last year.

Carly Westerman of public relations firm Brunswick LLP in New York relayed a request for comment from Bloomberg News to New Education’s management in Beijing.

ETF Rises

The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., gained 1 percent to $34.94.

The Standard & Poor’s 500 Index (SPX) added 0.3 percent to 1,444.49 as the Institute for Supply Management’s U.S. factory index rose to 51.5 in September from 49.6 a month earlier, surpassing the median economist estimate and above the level of 50 that signals growth. Stocks also advanced as Federal Reserve Chairman Ben S. Bernanke renewed a pledge to sustain record stimulus.

Suntech, the world’s largest solar-panel manufacturer, climbed 1.6 percent to 87 cents. The company got a delisting warning on Sept. 21 from the New York Stock Exchange after its American depositary receipts traded below $1 for 30 consecutive days as of Sept. 10. Suntech will get 200 million yuan ($32 million) from Bank of China Ltd., China Business News reported, and got an offer of support from the regional government in Wuxi, the Chinese city where it’s based.

Baidu Retreats

The bailout and assistance will “probably mean that Suntech is going to remain an employer and that they’re still going to put out modules,” Aaron Chew, New York-based analyst at Maxim Group LLC, which rates Suntech a sell, said by phone yesterday.

Under NYSE rules, Suntech has six months following receipt of the notification to regain compliance with the minimum share price requirement.

Baidu Inc. (BIDU:US) declined the most in four weeks, falling 3.5 percent to $112.77 as the owner of China’s most-used search engine was cut to hold from buy at Jefferies Group Inc. by analyst Cynthia Meng.

Chinese markets in Shanghai and Hong Kong are closed until Oct. 8 for a holiday.

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • EDU
    (New Oriental Education & Technology Group Inc)
    • $25.87 USD
    • -0.28
    • -1.08%
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