Huabao suspends shares amid hacker claims

28-Apr-2012 Intellasia | | 7:05 AM Print This Post

Huabao International, a Chinese tobacco-flavouring supplier, suspended trading of its shares on Wednesday after an offshoot of Anonymous, the hacker group, used a research report to attack the business and its billionaire chairwoman.

In a 44-page report entitled “Smoke and Mirrors”, Anonymous Analytics alleges that Huabao overpaid for several companies bought from its chairwoman, Chu Lam Yiu, and disputed results and performance information presented to shareholders.

Following its publication on Tuesday, Huabao requested the suspension of its shares from trading in Hong Kong “pending the release of an announcement which is considered to be price-sensitive in nature”.

The company declined to comment on Anonymous’ allegations but said it would release a detailed response in due course.

The shadowy hacker group, which in September targeted the troubled Chinese vegetable supplier Chaoda Modern Agriculture, admits its contributors have shorted Huabao’s stock and so stand to gain from any share-price declines.

Short sellers have stepped up their attacks on Hong Kong-listed companies this year, having made a fortune shorting US-listed Chinese companies in 2011.

Anonymous’s more traditional tactic – used against many targets, including Sony and the CIA – is the denial-of-service attack, which knocks a website offline by flooding it with traffic. Its unexpected foray into equity research appears to have had a similar effect on Huabao’s stock.

Anonymous Analytics also threatened to publish personal information about various individuals involved with the company, another familiar tactic known as “doxing”.

Huabao, valued at HK$12.6bn ($1.6bn) at the close of trading on Tuesday, was established in 1996 by Ms Chu, 41, one of China’s most successful female entrepreneurs. The holding company, which Ms Chu chairs, owns several flavour and fragrance businesses, with most of its revenue derived from tobacco products.

More than 150 alleged Anonymous members have been arrested around the world in the past year, including Hector “Sabu” Monsegur, a former figurehead of the movement who turned FBI informant after detention last year. Despite the arrests, Anonymous’s hacking activities have continued.

Its research on Huabao does not appear to rely on illegally obtained information and follows September’s report on Chaoda, whose shares had been suspended two days before Anonymous’s publication.

In November, Chaoda’s credit rating was downgraded to junk by Moody’s. Chaoda is one of several Chinese companies to be accused of fraud by short sellers in recent months, prompting denials in each case.

For the short sellers, most of whom have kept their identities secret, the aim of the game is to make a profit by driving down their target’s share price.

Using a technique pioneered by Muddy Waters in North America, the short sellers have published online reports that raised questions about the veracity of each company’s published financial accounts and the nature of its relationships with customers and suppliers.

The Anonymous report’s contributors did not contact or forewarn Huabao ahead of publication and said readers “should assume that certain contributors to this report?.?.?.?as well as our clients have a short position in the stock”.

Huabao’s shares fell by 8 per cent on Tuesday, having already declined by more than two-thirds in the past year.


Category: China

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