By Ashwini Raj and Echo Wang
-U.S. short-selling firm Muddy Waters said on Thursday it had acquired a short position in KE Holdings Inc, the biggest housing brokers in China, pushing its shares down as much as 10.9% premarket.
KE’s stocks most of the earlier losses and were down about 2% in morning trading.
The short seller questioned the value of the company’s transaction volumes, store count and agent count, as well as the company’s reported revenue.
KE did not immediately respond to Reuters requests for comment.
Muddy Waters wrote in a research note https://d.muddywatersresearch.com/content/uploads/2021/12/MW_BEKE_12162021.pdf KE Holdings had inflated its new home sales and its commission revenues, listed ghost stores as “active” on its platform and also overstated the value of some acquired assets.
“Similar to Luckin Coffee, this is a real business with significant amounts of fraud,” said Muddy Waters, comparing it to the Chinese rival to Starbucks, which fraudulently inflated its share price by falsifying revenue.
According to Muddy Waters, the company inflated its new home sales GTV (Gross Transaction Value) by over 126% and its commission revenues by about 77%–96%, while operating far fewer brokerages than its platform count shows.
Beijing-based KE, backed by Tencent Holdings and SoftBank Group Corp, raised $2.1 billion in its New York IPO last year, making it the second largest U.S. listing for a Chinese company at the time.
KE provides an online and offline platform for housing transactions and services in China. It is one of the so-called “platform” companies that control vast amounts of data and are now being subjected to an unprecedented regulatory crackdown by Beijing.
Earlier this year, Reuters reported that KE Holdings was planning a Hong Kong stock market listing and had hired Goldman Sachs to lead a float. However, the company had denied this report stating they had no imminent plan.
U.S. regulators has tightened its scrutiny over Chinese IPO hopefuls in the U.S this year. The U.S. Securities and Exchange Commission (SEC) has launched a series of new disclosure requirements following the fallout of Chinese ride-hailing giant Didi’s shortlived New York debut in the summer.[L1N2PU1GE]
The development underscores U.S. policymakers’ concerns that Chinese companies are systematically flouting U.S. rules that require public companies to disclose to investors a range of potential risks to their financial performance.
(Reporting by Ashwini Raj in Bengaluru, Echo Wang in Taos, New Mexico; Editing by Krishna Chandra Eluri and David Gregorio)