China Minzhong

China Minzhong: Strongly refute the claims from Glaucus report; the company produced invoices and regulatory filings on its sales receipts and photographs of their factories/ plants to support that spendings had incurred. Minzhong concluded that issues raised by Glaucus arose from a complete lack of understanding on carrying out business operations in China. Following the 48% decapitation of Minzhong's share price to $0.53, its major shareholder PT Indofood Sukses Makmur (29.33% stake) had stated intentions today that a possible offer for Minzhong were on its cards, requested that Minzhong further extend its trading halt today. Do note that PT Indofood Sukses previously acquired its 29.33% stake from Tetrad Ventures @ $1.12/share on 5 Mar, almost coming to its six months mark. This will relate to queries in the event of a possible GO by PT Indofood Sukses. Below are key claims by Glaucus and Minzhong's refutes: - On its largest customer Yifenli Trading having incorporated only in Nov '09, Glaucus claimed that Minzhong fabricated sales to during its pre-IPO period from '07: Company provided timeline of events prior to Yifenli's incorporation and attached key sales documents which include export VAT invoices, customs declarations of exports and bills of lading. - Second largest customer Putian Daziran Vegetable Produce, did not record any COGS in its filing with SAIC, VAT invoices and tax filings from Putian Vegetables were attached. - On the revoked business license for Minzhong's top supplier (Chengdu Shufeng Nong Ye) in Feb '10, casting doubts that sales made to Minzhong were false: Minzhong was unaware about the revocation and continued its business with them till Oct '10, when Minzhong switched suppliers due to the declining quality. Company claimed that the revocation of Chengdu Shufeng does not have any bearing on the legitimacy of Minzhong's purchase from them. - On the overstating of its capex to mask fake sales on its balance sheet, Minzhong attributed it to differences which Glaucus missed out between PRC GAAP and FRS. In addition, Minzhong claimed that Glaucus only highlighted part of its balance sheet from '10-'12, which failed to show prepayments that were made towards the capex and misled investors that its capex were massively exaggerated. Minzhong provided the full balance sheets which highlights the prepayments and long term deferred expenses. Under PRC GAAP, prepayment and deferred expenses would be classified as PP&E only upon receipt of relevant tax invoices. - On Minzhong's exceptionally high EBITDA compared to industry average, Minzhong responded that EBITDA was the wrong measure for fresh produce, as it included fair value adjustments which are non-cash. However, no comparables were given.