: GS(14)@2012-02-25 13:28:15http://www.mpfinance.com/htm/Finance/20120225/News/ec_eck1.htm
美國證券交易委員會(SEC)近日在曼哈頓聯邦法院提起訴訟，稱Puda Coal董事長趙明在2009年9月將公司主要資產，即該公司間接持有的山西普大煤業90%的股權秘密轉至自己名下，並在2010年7月把其中49%的股權出售給了一家中國私募股權基金。SEC稱，趙明同時涉嫌將山西普大煤業51%的資產做抵押，換取5.16億美元貸款。上述資產轉移未得到Puda Coal董事會批准，也沒有在公開文件中向投資者披露。
: GS(14)@2012-02-25 13:35:11
: GS(14)@2012-02-25 13:35:45http://www.sec.gov/Archives/edga ... aform2509122011.htm
On April 8, 2011, a website article was posted and made allegations regarding certain improper transactions by Mr. Ming Zhao, the Chairman of Puda Coal (the “Article”). Specifically, the Article alleged, among other things, that prior to its initial listing on the Exchange, Mr. Zhao transferred the Company’s 90% interest in Shanxi Puda Coal Group Co., Ltd., the Company’s operating subsidiary (“Shanxi Coal”), from the Company to Mr. Zhao. On April 11, 2011, the Company issued a press release announcing that its Board of Directors had unanimously ratified the decision of its Audit Committee to launch a full investigation into these allegations (the “Investigation”). In the press release, the Company stated that, “although the investigation is in preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings.”
: GS(14)@2012-02-25 13:40:33http://seekingalpha.com/article/ ... hinese-pe-investors
Chinese RTO Puda Coal, Inc (PUDA) Chairman Ming Zhao transferred the ownership of PUDA’s sole Chinese operating entity, Shanxi Puda Coal Group Co., Ltd (“Shanxi Coal”), to himself in 2009 without shareholder approval according to official government filings. Then, in 2010, Zhao sold 49% and pledged the other 51% of Shanxi Coal to CITIC Trust Co., Ltd (“CITIC”), a Chinese private equity fund, for RMB245 million ($37.1 million).
Zhao then recklessly leveraged Shanxi Coal by borrowing RMB3.5 billion ($530.3 million) from CITIC at an incredibly high 14.5% annual interest rate (including fees) to finance the development of its coal mines. PUDA shareholders are completely unaware of these transactions that decimate the value of its U.S. listed shares.
Background – An Industry Facing Government Mandated Consolidation
According to PUDA’s 2010 10-K filing:
In order to improve production efficiency, workplace safety and to reduce coal mine accidents, the Shanxi provincial government issued a policy in 2009 requiring mergers and consolidations of smaller coal mining companies in Shanxi Province. Pursuant to the government policy, the government awarded certain selected larger coal production enterprises the opportunity to acquire, consolidate and restructure smaller coal mines through mergers, acquisitions and asset or share transfers.
The aggressive government mandated consolidation of the coal mining industry beginning in 2009 coincided with the darkest days of the world financial crisis. PUDA management either had to become a consolidator, requiring massive additional capital, or else dispose of its coal businesses. Management, lead by Chairman Ming Zhao, made the decision to pursue aggressive growth by becoming a consolidator. Unfortunately for PUDA, during the financial crisis, the U.S. capital markets were completely closed. Therefore, in September 2009, Chairman Ming Zhao made a fateful first step to attract Chinese domestic investors: he transferred the ownership of Shanxi Coal to himself.
PUDA Chairman Ming Zhao Takes Action, Stealing Shanxi Coal from U.S. Shareholders
In order to raise money domestically, Zhao needed to sever the direct foreign shareholder ownership of Shanxi Coal, PUDA’s sole Chinese operating subsidiary. On 9/3/09, Yao Zhao (Ming Zhao’s brother and the legal representative of PUDA’s WFOE, Shanxi Putai Resources Limited, “Putai”) illegally authorized Putai to transfer 90% of Shanxi Coal to Ming Zhao, adding to the 8% Ming Zhao already held. Additionally, Yao Zhao divided his own 2% of Shanxi Coal between Ming Zhao and Wei Zhang.
An official copy of the “Notification of Share Registry Change” can be downloaded here (.pdf), including a partial translation. The transfers resulted in Ming Zhao owning 99% of Shanxi Coal, leaving U.S. investors with nothing. Incredibly, PUDA’s auditor, Moore Stephens, failed to catch this theft of an entire company that is clearly documented in government ownership filings that any lawyer can obtain directly from the source.
After stealing Shanxi Coal from U.S. investors, Ming Zhao began looking for domestic investors to fund his aggressive expansion plans. At the same time, Zhao brazenly continued trying to raise money for PUDA in the U.S., despite the fact PUDA (without Shanxi Coal) was just a shell company. As U.S. capital markets recovered, on 2/18/10, PUDA sold 3.284 million shares in a public offering underwritten by Brean Murray and Newbridge Securities raising $14.5 million (8-K here), without disclosing to the investors that PUDA no longer owned Shanxi Coal, its sole operating subsidiary in China. Why did Brean Murray fail to perform any basic legal due diligence on the real ownership of Shanxi Coal?
Chairman Zhao Sells Half of Shanxi Coal and Borrows $530.3 Million at 14.5%
In July 2010, Zhao recklessly accepted a highly leveraged RMB2.745 billion ($416 million) equity and debt investment from the $31.3 billion Chinese private equity arm of China International Trust and Investment Company (“CITIC”, website here). On 7/15/10 Zhao sold 49% of Shanxi Coal to CITIC for RMB245 million ($37.1 million) and pocketed the proceeds. An official copy of the “Notification of Share Registry Change” can be downloaded here, including a partial translation.
On 7/19/10 Zhao and Zhang pledged the other 51% of Shanxi Coal to CITIC as security so that the company could obtain a 3-year loan for RMB2.5 billion ($379 million) at a cost of 14.5% (annual interest plus fees) from CITIC. (Note: Zhao pledged 50% and Wei Zhang pledged his 1% of Shanxi Coal to CITIC so that the entire remaining 51% of the company was thus pledged to CITIC). The loan was subsequently increased to RMB3.5 billion ($530.3 million), bringing the combined investment to RMB 3.745 billion ($567.4 million). The official filed copies of the share pledge agreements detailing all these amounts can be downloaded here (.pdf) and here (.pdf).
As of 1/26/11, the outstanding principal, interest and fees payable under the 14.5% 3-year loan agreement amounted to RMB5.0225 billion ($761 million). Annual interest and fees on the loan are an incredible RMB507.5 million ($76.9 million USD), over twice the $34 million EBIT shown in PUDA’s 2010 10-K filing. Shanxi Coal is now a highly leveraged bet on Ming Zhao’s operational ability to dramatically increase coal production and profitability enough to service the company’s crushing debt load. Any disruption could lead to default and loss of the pledged shares to CITIC.
On 12/16/10, PUDA again tapped the U.S. capital markets, this time for $101.5 million by selling 7.85 million shares at $12 per share in a public offering underwritten by Macquarie Capital and Brean Murray (8-K here). PUDA again failed to disclose Chairman Zhao’s 9/3/09 illegal transfer of 99% of Shanxi Coal to himself, nor Zhao’s illegal sale of 49% of Shanxi Coal to CITIC for $37.1 million, nor the $530.3 million 14.5% loan from CITIC secured by the pledge of the remaining 51% of Shanxi Coal shares. Why did Macquarie Capital also fail to perform basic legal due diligence on the real ownership of Shanxi Coal, half of which had been already sold to CITIC? Furthermore, at $12 per share, Macquarie investors paid over six times the $1.91 valuation CITIC paid for 49% of Shanxi Coal in July (see my discussion of valuation at the end of this report).
Chairman Zhao Secretly Returns a Portion of the Shanxi Coal to the Rightful Owner
In a partial attempt to cover up his theft of the company, Chairman Zhao and Wei Zhang transferred their pledged 51% interest in Shanxi Coal to Shanxi Puda Mining Industry Ltd (“Puda Mining”), a former 100% owned subsidiary of Shanxi Coal that, through suspicious shareholder shuffling, Zhao maneuvered to make it the 51% parent of Shanxi Coal. Puda Mining’s 51% interest in Shanxi Coal continues to be completely pledged to CITIC (see official agreement here (.pdf)).
According to the government filing (available here (.pdf)), Puda Mining shares are now 90% owned by Putai (the WFOE), 8% Ming Zhao and 2% Yao Zhao. Following these transfers, PUDA now owns only 45.9% (90% of 51%) of Shanxi Coal, about half of the 90% PUDA owned before Chairman Zhao began his shenanigans.
PUDA’s 2009 and 2010 Audited Financials can No Longer be Relied Upon
Since Ming Zhao stole 99% of Shanxi Coal in 2009, the operating company’s 2009 and 2010 financials should not have been consolidated into PUDA’s 2009 and 2010 audited financials. PUDA’s audited 2009 and 2010 financials can thus no longer be relied upon. For 2011, even though Zhao recently returned 45.9% of Shanxi Coal to PUDA through its 90% ownership of Puda Mining (the 51% owner of Shanxi Coal), Puda Mining’s 51% interest in Shanxi Coal is entirely pledged to CITIC.
PUDA Cannot Consolidate Shanxi Coal’s Financials in 2011 and Beyond
Since CITIC has 100% control of Shanxi Coal, via its 49% ownership plus 51% share pledge agreement including voting, veto and other control provisions, PUDA can no longer consolidate the financial results of this subsidiary (see SFAS 94 page 5 Section 4 link here (.pdf)). PUDA should record its stake in Shanxi Coal as a long-term investment on its balance sheet, valued at cost.
The damage done cannot be reversed. There is no way CITIC will give up their 49% of Shanxi Coal, 51% pledged shares, veto rights and other control provisions. Shanxi Coal owes CITIC over $761 million. Until this debt is repaid (if ever), the share pledge and other control provisions will certainly persist. PUDA is now just a holding company with a minority 45.9% investment in a coal operation in China it does not control, with the added overhead of being a public company (for now at least) in the U.S.
What is PUDA’s Investment in Shanxi Coal Worth?
The book value of PUDA on 12/31/10 was $251 million. Shanxi Coal owns all the mining assets, coal washing plants, cash and receivables and bears the obligation to repay the debt reflected on PUDA’s 12/31/10 balance sheet. The 12/31/10 book value of Shanxi Coal is therefore roughly the same as the 12/31/10 book value of PUDA. I need only to deduct an estimated RMB184 million ($27.7 million) in placement fees and accrued interest on the CITIC loan from the book value of Shanxi Coal, bringing its book value down to $223.3 million. Since PUDA shareholders now only own 45.9% of Shanxi Coal, multiplying $223.3 million by 45.9% gives a value of $102.5 million for PUDA’s Shanxi Coal investment. Dividing $102.5 million that by 30.02 million PUDA shares outstanding at 12/31/10 values PUDA at $3.41 per share.
There is significant risk of default due to the very high leverage and servicing cost of the $530.3 million 14.5% debt of Shanxi Coal. Annual interest and fees on the loan total $76.9 million USD, more than twice times the $34 million EBIT PUDA generated from operations in 2010. Even if Shanxi Coal can grow its profit by 80% in 2011 (as CFO Laby Wu claimed here) to $61.2 million, this growth is insufficient to cover 2011’s $76.9 million interest expense implying Shanxi Coal may incur an operating loss in 2011.
Shanxi Coal is now racing to dramatically increase coal production and profitability from its mines before it defaults on the massive debt load. A default could force the transfer of the pledged shares to CITIC and result in a total loss for PUDA’s U.S. investors. Given the risks, I believe PUDA deserves to be valued at a discount to the $3.41 value of its Shanxi Coal investment.
Apparently, CITIC agrees with me, since the $37.12 million price CITIC paid for their 49% of Shanxi Coal divided by 19.82 million PUDA shares outstanding at the end of the third quarter (when the acquisition occurred) equals only a $1.91 per share valuation.
The average of the valuation CITIC paid ($1.91) and the book value of PUDA’s investment in Shanxi Coal ($3.41) is $2.66. Considering the 2009 and 2010 audited financials can no longer be relied upon, and more importantly, the complete lack of internal control that allowed Chairman Zhao to first steal the company, then sell half the company (pocketing the proceeds) and then pledge the other half of the company to a Chinese PE fund while piling on $530.3 million of 14.5% debt, I strongly believe $2.66 is the most this stock is worth today.
Note: I would like to thank GeoInvesting LLC for obtaining official copies of all the ownership, loan and share pledge records that I cited and linked in this report.
Disclosure: I am short PUDA.
: GS(14)@2012-02-25 13:44:04http://labemp.files.wordpress.co ... -on-sep-10-2009.pdf
http://labemp.files.wordpress.co ... -on-jul-29-2010.pdf
http://labemp.files.wordpress.co ... -on-jan-26-2011.pdf
http://labemp.files.wordpress.co ... wnership-record.pdf
: GS(14)@2012-02-25 13:47:15http://www.abbeyspanier.com/cases-overview/370-puda-coal-inc
Puda Coal, Inc.
ABBEY SPANIER RODD & ABRAMS, LLP, REPRESENTING INVESTORS WHO PURCHASED PUDA COAL, INC., ANNOUNCES CLASS ACTION LAWSUIT AND SEEKS TO RECOVER LOSSES
Abbey Spanier Rodd & Abrams, LLP has filed a class action lawsuit in the United States District Court for the Southern District of New York on behalf of a class consisting of all persons or entities who purchased the securities of Puda Coal, Inc. ("Puda" or the "Company") (Nasdaq:PUDA - News), between November 13, 2009, and April 11, 2011, inclusive (the "Class Period").
The complaint charges Puda and certain of its officers and executives with violations of the Exchange Act. Puda describes itself as a leading supplier of premium high grade cleaned coal used to produce coke for steel manufacturing in China.
The complaint alleges that, throughout the Class Period, defendants failed to disclose material adverse facts about the Company's true financial condition, business and prospects. Among other things, the complaint alleges: (i) that, prior to the beginning of the Class Period, certain of the individual defendants fraudulently transferred Puda's ownership interest to defendant Ming Zhao; (ii) that Puda was nothing more than a shell company during the Class Period; (iii) that Puda's reported operating results and financial condition were materially overstated; (iv) that Puda's financial statements were not fairly presented in conformity with U.S. Generally Accepted Accounting Principles and were materially false and misleading; and (v) that, based on the foregoing, defendants lacked a reasonable basis for their positive statements about the Company, its prospects and growth.
On April 8, 2011, Puda issued a press release announcing that it was currently reviewing the allegations regarding improper share transactions by defendant Ming Zhao, which were published in an article entitled "Puda Coal Chairman Secretly Sold Half the Company and Pledged the Other Half to Chinese PE Investors". In reaction to the article and the Company's press release, shares of the Company's stock declined more than 34% on April 8, 2011, on extremely heavy trading volume.
On April 11, 2011, Puda announced that it had launched a full investigation into the allegations raised in the article alleging various unauthorized transactions in the shares of a subsidiary company, Shanxi Coal. The April 11, 2011 press release noted that, "[a]lthough the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings. Mr. Zhao has agreed to a voluntarily [sic] leave of absence as Chairman of the Board of the Company until the investigation is complete."
In response to the above announcement, trading in the Company's stock was halted on April 11, 2011.
Plaintiff seeks to recover damages on behalf of all purchasers of the common stock of Puda during the Class Period (the "Class").
If you would like more information about this case please contact:
James S. Burrell, II
: GS(14)@2012-02-25 13:47:27http://www.pudacoalinc.com/cgi-sys/suspendedpage.cgi
: GS(14)@2012-02-25 13:48:20http://www.businessweek.com/news ... lleges-in-suit.html
http://www.reuters.com/article/2 ... USTRE81L1H620120223
: greatsoup38(830)@2012-02-25 18:21:37http://www.21cbh.com/HTML/2012-2-24/yNNDE3XzQwNDUyNQ.html
[ 普大煤業負責人回應稱，該起糾紛緣於公司私有化過程中未能與股東達成一致所致，並稱公司目前已在美國應訴 ]
: 鱷不群(1248)@2012-02-26 23:17:08
http://sdinotice.hkex.com.hk/di/ ... AIN&lang=ZH&sa2p=2&
: P4EVER(23901)@2012-03-03 08:56:38
I hope you speak english, since I do not speak mandarin (unfortunately).
I've noticed that you lately posted many info about Puda Inc. and KSE. I hate do admit that it was really interesting to read it.
I was wondering if you are a Puda Inc. shareholder? or if you are doing it just for research purposes.
Anyway, if you are if you are interested, I could give you some more pieces of info about this story. You did an incredibly good job at summarizing what happened with Triumph Fund A, and how Ming Zhao was able to gain access to the HK market (by mean of a reverse merger ... the company was then renamed KSE).
I have some interesting info on Triumph Fund A1, and recent resignations of two CITIC executives from King Stone Energy
I really hope that you are interested,
maybe we could mutually profit from getting in touch.
have a nice week end
To contact me you can drop me a private message on this forum. of you can contact me at firstname.lastname@example.org
: greatsoup38(830)@2012-03-03 18:44:27
I have sent a mail to you, have you received yet?
: P4EVER(23901)@2012-03-03 21:32:22
received! ... are you the same person ? .... greatsoup38 = greatsoup ?
same person ... 2 aliases? ...
: greatsoup38(830)@2012-03-03 22:00:42
greatsoup38 is another alias in this forum...They are same person
: P4EVER(23901)@2012-03-03 22:29:51
I just sent you an e-mail
: GS(14)@2012-03-05 22:13:04http://www.ecitic.com/UserFiles/ ... x/zxjxhjmt1tjxx.pdf
: GS(14)@2012-03-05 22:13:16http://www.81law.com/news/sa_news_aid_2454/
: P4EVER(23901)@2012-03-13 00:51:18http://www.youtube.com/watch?v=RIbOp0w6
Is Shanxi Puda Coal issuing misleading PRs in the PRC to restore its reputation?