China Hongqiao, the world’s largest aluminium maker and a target for short sellers, has applied for an injunction to block negative reports on the company published earlier this year by Emerson Analytics.
The attempt to remove reports circulating for months was uncommon, people in the hedge fund industry said.
However, short-sellers have faced setbacks this year when taking on Hong Kong-listed Chinese groups, highlighted by the ruling against US-based Citron Research over a report on Chinese property developer Evergrade.
Hongqiao, which has an annual aluminium capacity of 6.46m tonnes, has battled short-sellers for years over claims it has not been straightforward with its financial reporting.
This week Hongqiao said in a filing to the stock exchange that it had applied for an injunction to block two reports by Emerson that, among other things, claimed it had inflated its profits by understating its energy costs. A hearing will be held on November 27, according to the filing.
Companies often take short-sellers to court and seek damages following reports that question their financial reporting. However, the attempt to block reports that have been published is a novel move, according to people familiar with the industry.
“This is already widely circulated,” said one person at a hedge fund in Hong Kong, pointing out that a block on the reports would do little to stop the spread of the information.
The original report from Emerson Analytics early this year forced Hongqiao to suspend trading in March. Its shares jumped more than 70 per cent last week when it resumed trading after a seven-month suspension. Hongqiao closed up slightly on Monday at HK$12.58.
Several other short sellers have targeted Hongqiao in various reports over the past two years, raising similar concerns.
Analysts covering the company said the rise in its share price was a response to the increase in valuation among its peers during the time it was frozen.
“The valuation was much lower compared to its peers after being frozen for seven months,” said Kevin Guo, an analyst at Guotai Junan Securities in Shenzhen, who downplayed the short reports. “The company has clarified all of these questions already.”
In a separate case earlier this year, a Hong Kong tribunal said that short-seller Andrew Left at Citron Research was culpable of market misconduct for a negative report he wrote in 2012 regarding the Chinese property developer Evergrande.
The case was the first example in which Hong Kong’s Market Misconduct Tribunal took on unregulated published commentary.
Emerson Analytics has targeted several other Chinese groups with short sell reports this year. The identity of the people behind Emerson is not known. It its latest report it stated that “we are determined to expose as much of the fraud in the Chinese stock market as we can”.
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