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"Risk comes from not knowing what you're doing" Warren Buffett I look and sift the world for such misplaced bets. When I occasionally find one, I first exploit it for profit. Then, I write about it for anyone else interested in such ideas. Twitter: @unemon1 Scribd:... More
  • Recent Chinese Media Report Casts Doubts On Lihua International, Inc.(LIWA). Just Another F-Word China Made ?  23 comments
    Apr 30, 2014 9:31 AM | about stocks: LIWA

    Recent weakens in LIWA might indeed have a valid fundamental reason (go directly to Section XX)

    X - LIWA per SEC Filings

    Lihua International, Inc (NASDAQ: LIWA) is a vertically integrated company in China which develops, designs, manufactures, markets and distributes low cost, high quality refined copper products. The Company also uses recycled scrap copper as a raw material to produce refined copper products including copper anode and copper rod.

    Lihua's corporate and manufacturing headquarters are located in the heart of China's copper industry in Danyang, Jiangsu Province. To serve its diverse base of approximately 300 customers, Lihua has representatives in cities throughout China.

    For an exhaustive description of LIWA's business ... readers are invited to read the Form 10-K for the Fiscal Year ended December 31, 2013 (filed by the Company on March 17, 2014)

    At yesterday Close of $4.35 per share, the total Market Cap of LIWA amounts to approximately $130m

    As of December 31, 2013 (2014 10-K, F-2) the company had $365m in Total Assets, more than $203m in Cash and Cash Equivalents and only $19.5m in total liabilities.

    Moreover, last year (2014) the Company was able to report its highest revenue number ever, namely .... north of $900m. Reported Net Income was $56m (2014 10-K, F-3)

    Do the Financial Statements look familiar to you? ... well ... my first thought went to Longwei Petroleum (LPH): TOO GOOD TO BE TRUE!

    XX - CHINESE MEDIA (Cable NetWork / 电缆网) REPORTS A QUITE DIFFERENT PICTURE ABOUT THE COMPANY!

    A first Report about the police taking coercive measures (March 24, 2014) against Mr. Jianhua Zhu (the CEO/Chairman/President) surfaced on March 28, 2014.

    Original: http://jiangsu.sina.com.cn/news/economy/2014-03-28/064096109.html

    Cached: webcache.googleusercontent.com/search?q=...

    The Article also highlights the following Points:

    - LIWA caught up in a Debt Crisis (* I do wonder how this is possible given a Balance Sheet that's even better than the one of AAPL ... lol)

    - Business Downturn started towards the end of 2012

    - Last Year the factory was running at very low capacity

    - Basically No Activity after the Spring Festival (Jan 31 2014)

    - Local Court sealed the warehouse

    - Danyang police did not respond to reporters' enquiries.

    A Second Report followed on April 10, 2014, when the reported went to the town/location of the Company (NASDAQ:LIWA):

    Original: http://www.cableabc.com/news/20140410045113.html

    Cached: webcache.googleusercontent.com/search?q=...

    Some interesting parts of the article:

    - rumors ... "LIWA boss has been arrested, the Company owed a lot of money ... there are many debt collectors"

    - Some locals also cautioned about doing business with LIWA: "Do not do business with the Company, Lihua International (LIWA) IS A LIAR, fraudulent (骗人的)"

    -Public data show that the Company has more than 300 Employees (see also 2014 10-K p. 13 / 402 employees) ... however, there was basically no activity in front of the "workers/staff house" (的员工之家).

    - Informed sources said that LIWA "Basically discoutinued its activities after the Spring Festival" / "春节过后基本就停产了". //*2014 Spring Festival was on January 31, 2014.

    - Company not taking Cooper Orders (?) "...当即表示暂不考虑接收铜丝订单。"

    - LIWA debt problems have been rumored for quite some time. Total Liabilities should amount to approximately RMB 1.2b (about $191m)... making the Company about RMB 600m (about $96m) insolvent. Currently does have $10m (approx. RMB 62m)

    Look at some pictures of LIWA Buildings. I would not describe it as a busy place ... lol ... again ... it reminds me of ... Longwei Petroleum LPH.

    No Smoke ... No Activity? ... Well ... free to guess! Of course when producing this will also produce smoke.

    Workers house ... Deserted / 利华国际员工之家人去楼空

    It seems to me ... some maintenance work is needed.

    SO ... my advice to you?

    1. DO NOT TRUST ME ...

    2. VERIFY THE SOURCES ...

    3. HIRE A TRANSLATOR ...

    4. DO YOUR OWN DD ... eventually pay a visit to the Company ... ... ... ... and ACT CONSEQUENTLY!

    Here the some SAIC basic details about LIWA's Subsidiaries ... as a starting point for further DD:

    www.jsgsj.gov.cn/baweb/show/sj/details.j...

    www.jsgsj.gov.cn/baweb/show/sj/details.j...

    SAIC Portal:

    www.jsgsj.gov.cn/baweb/show/sj/business_...

    Stocks: LIWA
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Comments (23)
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  • JDBloomington
    , contributor
    Comments (7) | Send Message
     
    This is the most worthless article written. I cannot believe that Seeking Alpha published this to their website.

     

    "Here the some SAIC basic details about LIWA's Subsidiaries ... as a starting point for further DD:"

     

    Learn English you fool.
    30 Apr 2014, 10:17 AM Reply Like
  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » Ok ... You'll finance my English course ... and ... I'll pay the "Learn how to invest for Dummies" course for you. OK?
    30 Apr 2014, 10:20 AM Reply Like
  • Thomas_1971
    , contributor
    Comments (40) | Send Message
     
    Good article. Unfortunately too late for me. How do you found the press releases?
    30 Apr 2014, 12:56 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    It helps if you can read Chinese. Which I do.

     

    Everything looks bad for LIWA investors, except for one small thing: the accusations published in both articles contain no hard evidence. No names. No official documentation. Just heresay and speculation. To make matters worse, the allegations stemming from this very article have been reciprocated through syndication or repetition around the globe, and I'm finding in the last few hours that the reports are no longer clarifying the source nor are they clarifying that these are unconfirmed allegations (for example, I'm not seeing a lot of Chinese sites firmly stating the accusations as fact and linking to one or the other law firms that cropped up soliciting investors). Journalist must always cite their source and also avoid stating alleged accusations as fact, because it then goes around the world and comes back and is accept as fact, which could be considered libel and slanderous.

     

    There's a 50/50 chance that these two articles hold merit, but I'm cautious since the integrity of information coming from Chinese news sites are scrappy at best. Recall that Chinese media, along with North Korean and Iranian media, are routinely caught publishing falsified articles and photoshopped images. This could as easily just be a slander attack. We just don't know with the lack of details.

     

    For now, with trading halted, LIWA holders are stuck in limbo. I'm not holding my breath as to whether the company will respond overnight with a refute, as they have a history of poor communications with shareholders. As for joining one of the class action solicitations, I doubt you'll get anything back if the allegations are true. Even if you did, it will probably just feed the law firm.

     

    The Chinese government will not help you, either, since they have no real intention of cooperating with the SEC. The best thing the SEC can do is to scrutinize and/or blacklist Chinese companies before allowing them to trade on U.S. exchanges. Until then, my advice is to avoid Chinese or foreign firms if you can help it.
    30 Apr 2014, 09:08 PM Reply Like
  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » Your are correct on the fact that the validity of the source is key when evaluating investment Information. This is also why I wrote "2. VERIFY THE SOURCES ...".

     

    Cableabc.com is a cable&wire industry specific news website.

     

    The article of April 10, 2014 ... http://bit.ly/R5fe6n
    ... reports also the name of the "Reporter": 黄嘉颖 /Jiayin Huang
    see the following string in the article:
    (记者 黄嘉颖 汤雯婧 文并摄 本文首发电缆网www.cableabc.com 转载请注明)

     

    If you google the name (黄嘉颖), you can land to the following website: http://bit.ly/R5fbHL

     

    Apparently, 黄嘉颖 is the Director of the Research Department at cable NetWork.

     

    see the following string:

     

    演讲嘉宾:电缆网研究部总监 黄嘉颖15:20-15:30

     

    I think figuring out who's behind the article is important to assess the quality of the information provided. 黄嘉颖 seems not to bee a random-wanna-be reporter.
    30 Apr 2014, 10:31 PM Reply Like
  • Thomas_1971
    , contributor
    Comments (40) | Send Message
     
    When I see the press release from Daphne Huang (CFO) yesterday, then I must say, the game is over. But we can Growe Horwath testify their balance sheet with all that cash and now is LIWA bankrupty?

     

    But my first question was, how can I found better chinese news for my chinese holdings. Which websites I must watch?
    1 May 2014, 04:56 AM Reply Like
  • MBoller99
    , contributor
    Comments (589) | Send Message
     
    I agree that it looks now bad for the shareholders. However, it is bit funny that management holds quite a lot of stocks on his own (about 46% as per Dec 31, 2013) and will lose a lot of money.
    The worst is if the company is over indebted e.g. it could be that huge debts were not recorded in the balance sheet or some manipulation of assets. However, it could probably be more interesting to sue the auditors as they might be the only one's which are still solvent.
    1 May 2014, 05:17 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    I just got off the phone with The Piacente Group. It was they, outsourced investor relations, that posted the PR, not Daphne Huang, even though it was done in her name. So either Daphne Huang doesn't exist, has gone into hiding, or has lost control of the situation. Either way, this does not bode well for Lihua International, its executives, its directors, and its auditors.

     

    I also found a commodity/copper funds manager with the same name, in written Chinese, as Zhu Jianhua, from the same area. This makes me suspect Lihua International's downfall stemmed with the recent Chinese dominated copper market speculation bubble and crash. Chinese speculators went nuts the last few years with copper,
    and since Lihua international produces copper products from recycled materials, the answer is a bit too convenient.

     

    Just my opinion anyway.
    1 May 2014, 07:04 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    Okay, so I did some more DD and see PRC based Chinese have been talking about Lihua's debt and unpaid employee wages for awhile now. I've outlined it on my http://bit.ly/1iLJyJd blog. I'm fairly convinced now that the article is legitimate and that LIWA is a fraud. My opinions, of course.

     

    Basically, it's unfortunate long investors (myself included) had to take a hit on this one, but I read/write Chinese. I should have known about this. I should have looked into this deeper with a fine tooth comb. I got suckered by the assurance of auditors and stellar sheets. There's no such thing as a perfect company.

     

    On the bright side... I now have a promis[ing] career as a Chinese fraud stock shorting expert. Will have to build some capital first, but I will start looking for candidates shortly. It seems to be more lucrative than investing in real stocks, apparently.
    2 May 2014, 12:50 PM Reply Like
  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » Sorry for the money LIWA costed you! ... Anyway ... I do like your ... RATIONAL REACTION ... to the news.
    2 May 2014, 04:43 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    LOL. Yes, I try to stay rational in the face of massive losses. I made the mistake of trying to average down to get out of this rock. Unfortunately... that just made it worse.
    2 May 2014, 04:55 PM Reply Like
  • hhju88
    , contributor
    Comments (4) | Send Message
     
    They should all be hung :-)
    18 May 2014, 02:47 PM Reply Like
  • hhju88
    , contributor
    Comments (4) | Send Message
     
    LIWA is over. I'll close all my Chinese holdings asap. As a native Chinese speaker, I should have found out Zhu was a liar long time ago (still hard to believe there are such people in this world). Now just do a Baidu search, I could see the warning signs three years back.
    I agree with you, Michael. It would be much more profitable to short Chinese stocks than long them :-)
    18 May 2014, 02:48 PM Reply Like
  • hhju88
    , contributor
    Comments (4) | Send Message
     
    Which lawsuit will you join?
    18 May 2014, 08:59 PM Reply Like
  • MBoller99
    , contributor
    Comments (589) | Send Message
     
    I just read an interesting article on a German website. They say that Chinese companies usually prepare 3 financial statements; one for taxes, another for investors and a real one for management. To cook the books seems to be a normal procedure in China - nothing really special. This may also involves banks, suppliers and even auditors.
    Interestingly, Chinese stocks are still trading at the stock exchange in Frankfurt, even if a fraud of a company is obvious. You can find the article here (in German): http://bit.ly/1fZpovJ

     

    The U.S. stock exchange seems to be much more stricter.
    3 May 2014, 09:04 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    I would think by Western standards, you'd want to prepare one set of data and propagate it across any other required filings so data integrity is intact. I don't see the value of having the different financial statements other [than] to avoid paying certain taxes or for fraud. I don't see that as being strict -- just being fiscally responsible.
    3 May 2014, 10:05 PM Reply Like
  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » Thanks, Interesting reading. Do you know when the article was published? ... I could not find 36 companies listed in Germany .. and ... domiciled in China
    4 May 2014, 06:38 AM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    Looks like July 7, 2012.

     

    The article is actually advocating caution for investors of Chinese stocks, suggesting that it may be safer to invest either in Western businesses like Nike or Adidas that have a presence in China or in Hong Kong based companies where the balance sheets can be trusted.
    4 May 2014, 12:18 PM Reply Like
  • MBoller99
    , contributor
    Comments (589) | Send Message
     
    This article was published in July 2012. There are different stock exchange segments in Frankfurt e.g. the prime standard but there are also less regulated segments such as the "Entry standard/Open Market". It seems that these Chinese firms have the same problems as in U.S. e.g. see the following article related to Ming Le Sports: http://bit.ly/1g36h3R
    It is interesting that this stock is still traded in Frankfurt. Overall, I think these these stocks can be still interesting for some (long) investors because the prices are extremely low and the auditors usually do in fact there work. However, it is very very important to diversify such investments.
    5 May 2014, 02:15 PM Reply Like
  • michaeldesantainvestments
    , contributor
    Comments (9) | Send Message
     
    Looks like the CEO and COO resigned two days ago but just turned in the paperwork today. Figures. That still doesn't address any of the shareholder concerns.

     

    http://prn.to/1iYLKTY

     

    So I guess who's replacing the married couple that just resigned? And what about Ms. Huang Yan (Daphne)?
    7 May 2014, 08:19 PM Reply Like
  • MBoller99
    , contributor
    Comments (589) | Send Message
     
    The stock trades at 28 Cents now. Obviously this was a big fraud, the question is how a restated balance sheet would look like. However, why WUXI acquired 44% of stocks is not clear to me. It does not make sense to buy stocks of a company which is over - indebted and without liquidity as it will be liquidated. So this company may still have some low value and wuxi plans to run the company again (?). Or they bought the shares for nothing an can trade them now for 28 Cents. I think the first scenario is more realistic. (I don't think that management would sell the shares for nothing). So maybe the stock is now traded to low...
    28 Jun 2014, 10:28 AM Reply Like
  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » lol ... sell or ... forced to sell? .. that's a pretty big difference. GOOD Luck. I bet we will never hear again from LIWA ... until the an OIP is issued by the SEC.
    28 Jun 2014, 05:40 PM Reply Like
  • MBoller99
    , contributor
    Comments (589) | Send Message
     
    I see your point, only time will tell. If this was everything and we just don't hear from Lihua again I see these Chinese stocks as very risky. These companies can just disappear and "go dark" and nobody can do anything about it. The only thing are some legal class action which might be very difficult because of the different jurisdictions. In addition, I think that in the past no one of management of fraudulent Chinese firm was ever convicted or gone to jail in U.S. SEC would better ban trading of these Chinese stocks.
    29 Jun 2014, 05:35 AM Reply Like
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