New Oriental Leads Tumble on SEC Probe: China Overnight
New Oriental Education & TechnologyGroup inc. (EDU) (EDU) tumbled the most on record, leading declines in NewYork-traded Chinese stocks, after the company said the U.S.regulator started a probe into the consolidation of its units’financial statements.
American depositary receipts of new Oriental, China’slargest private education provider, lost 34 percent to $14.62yesterday in new York, the biggest decline since its initialpublic offering in 2006. The Bloomberg China-US Equity Index (CH55BN) ofthe most-traded Chinese shares in new York slid 1.9 percent to anine-month low of 84.91. Sina Corp. sank to the lowest sinceSeptember 2010 while Ctrip.com International Ltd. (CTRP) (CTRP) slumped to theleast in three years.
New Oriental said yesterday the Securities and ExchangeCommission is investigating its accounting practices, the secondChinese company in a month incurring a regulator probe. The SECordered on June 29 a two-week trading suspension of ChinaMedical Technologies inc. (CMEDY) (CMEDY), citing questions on the accuracy ofreported information. Sino-Forest Corp. filed for bankruptcy inMarch after it was accused by a short-seller of misstatingbusiness and assets.
“Investors’ confidence in Chinese companies hasn’timproved at all and most people probably just have given up onthe space,” Jeff Papp, a senior analyst at Oberweis AssetManagement inc., which manages $700 million, said by phone fromLisle, Illinois. “Even if we don’t know whether it’s companyspecific, in this type environment, people sell things first andask questions later.”
The iShares FTSE China 25 Index Fund (FXI), the biggest Chineseexchange-traded fund in the U.S., climbed 2.2 percent to $33.19,set for the biggest gain in two weeks. The Standard & Poor’s 500Index (SPX) added 0.7 percent to 1,363.67 as Federal Reserve ChairmanBen S. Bernanke told senators that the central bank is preparedto act to boost growth if the labor market doesn’t improve.
Bernanke told lawmakers yesterday that progress in reducingunemployment is likely to be “frustratingly slow” and repeatedthat the central bank is ready to take further action to boostthe recovery, while refraining from pledging any new policies.
New Oriental said the SEC is investigating “whether thereis a sufficient basis for the consolidation of Beijing NewOriental Education & Technology (Group) co., a variable interestentity of the Company, and its wholly-owned subsidiaries, intothe Company’s consolidated financial statements,” according toits statement yesterday.
The company changed the shareholding structure of BeijingNew Oriental so that it’s held solely by a group controlled byChief Executive Officer Minhong Yu, according to the company’sstatement on July 11.
A spokesman at the SEC declined to comment when contactedby Bloomberg News yesterday.
Chinese Internet companies such as Sina and Baidu (BIDU) (BIDU) inc. haveused so-called variable interest entities, or VIEs, to workaround Chinese restrictions and seek foreign investors since2000.
Sina, which provides a Twitter-like service in China,dropped 7.3 percent to 44.36 in new York, the lowest level sinceSept. 10, 2010. Beijing-based social media company Renren inc. (RENN) (RENN)declined 3.5 percent to $4.14, the lowest price since January.Baidu, the nation’s biggest online search engine, fell 2.2percent to $104.98, the least since January 2011.
Investors didn’t consider it an issue for U.S.-listedcompanies to have VIE structures when they first became listed,according to Trace Urdan, an analyst at Wells Fargo & co.
“Since then we’ve had a number of stories of how peoplemanipulated the VIE structure in China to take advantage of U.S.shareholders,” Urdan said by phone yesterday from SanFrancisco. “The bigger issue is simply that every day with eachnew development in China, these Chinese stocks become harder andharder for investors to own because of the risks and the risksseem to continually build.”
21Vianet Group inc. (VNET) (VNET), an Internet data center servicesprovider, tumbled 16 percent to $9.37, the biggest slump onrecord. Video website owner Youku inc. (YOKU) (YOKU) lost 11 percent, the mostsince November, to $16.03. its smaller competitor Tudou HoldingsInc. also sank 11 percent to a four-month low of $24.34. The twocompanies said in March Youku will acquire Tudou in a stock swapdeal.
New Oriental’s profit (EDU) for the quarter ended may 31 rose 14percent from a year earlier to $16.3 million, it said inyesterday’s statement. Analysts had forecast net income of $17.6million, the average of eight estimates compiled by Bloombergshowed.
For the June-August quarter, the company forecast a 26percent to 31 percent growth in revenue to at least $342.7million, compared with a 41 percent in the same period lastyear. Analysts projected $354 million in sales. CEO Yu said“the lower-than-normal projected revenue growth” is partly dueto “the negative impact from a slowing of Chinese consumerdiscretionary spending” in the statement.
The Shanghai Composite Index (SHCOMP) of shares traded in mainlandChina rallied 0.6 percent yesterday to 2,161.19, rebounding froma three-year low, after the government said it will boostrailway infrastructure investment and forecast economic growthwill pick up in the second half.
To contact the reporter on this story:Belinda Cao in new York at
To contact the editor responsible for this story:Tal Barak Harif at
New Oriental Leads Tumble on SEC Probe: China Overnight
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