Yangtze River Port and Logistics Limited (YRIV) Developing Story

Tracking the nasty developing story about the short attack of Hindenburg et al against YRIV on 2018-12-06. The most remarkable development in this case is that YRIV filed a defamation lawsuit in NY against the short seller on 2019-01-23, taking the full risk & responsibility to disclose all related information within the discovery phase. Usually short seller hope their target will never sue them to avoid disclosing any information in the process. Not so here, YRIV shows strong confidence.

Please read the Disclaimer / Disclosure first. You can find more about YRIV here.

I will update this blog entry to reflect new information, thoughts & aspects.

  • 2019-03-06 Initiated DD, added more details (SH lawsuit, CMCM comparison, ..)
  • 2019-03-07 Adding ‘Cause of Action’ items of the two complaints; Adding Class-Action-Suit; Adding ‘Short Play’ chapter w/ SI
  • 2019-03-08 More color on debt & value from refutation & 10-K, also read comments!
  • 2019-03-09 Added chapter ‘The 2015 Wuhan Newport Asset Swap Deal”, clarifying some questions.
  • 2019-03-11 Added Conclusion, minor edits and coverage on SA
  • 2019-03-12 Added detailed Weekly & Daily chart w/ Fibonacci
  • 2019-03-17 Added impact of Reduced Ownership by 27M shares from Majestic Symbol, Crestlake, Fortunate Drift and Coleman (=Best Future Investment)
    • Timeline: Added Ownership Change
    • Updated ‘Short Play’, increased SI
    • Added sub-chapter: ‘The 2nd Stage Selling’ after ‘Initial Thoughts’
    • Updated Chapter ‘The 2015 Wuhan Newport Asset Swap Deal’
    • Updated Chapter ‘Conclusion’
  • 2019-06-04 Make sure to read the comment section! NASDAQ made their delisting decision.

Brief Overview & Initial Thoughts

The Short Play

Looking at the NASDAQ’s YRIV Short Interest (SI) Data, it is obvious that short sellers well prepared their attack while loading their position upfront before the release.
Usually they kick-off high volume selling in the opening with the release, to create the desired effect of the short confirmation bias. The usual play, then things take their turn by themselves with all the ambulance chaser spamming the news channel and panic.

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
2/28/2019 874,879 4,869,006 1.000000
2/15/2019 597,960 1,610,637 1.000000
1/31/2019 508,827 218,421 2.329570
1/15/2019 583,094 113,925 5.118227
12/31/2018 636,223 511,980 1.242672
12/14/2018 873,529 1,926,162 1.000000
11/30/2018 659,465 308,384 2.138454

Interesting to note these days is that there seem to be no shares to borrow available to short from the usual source, see

So it might be unclear how they continue to suppress the stock price here, they could have covered and loaded, then playing the stock for a little while.
The risky part in their game is that no options are available to hedge their short position with call options.
But I am sure that today on 3/7, the SI will be below 500k shares again. After all a relative small play considering all the efforts and the fact that they are being sued twice now.

Initial Thoughts & Opinion

Usually Hindenburg & Co’s short attack last for only a short while, pun intended. They feel safe, since usually the stock recovers and the targeted company prefers to focus on their core business and would not like to risk full information disclosure in a lawsuit’s discovery process. Not so here, the short seller got server with a law suit. Something went wrong 😉

The short allegations, especially the financing part, seems to be a typical short story line pushed on Chinese companies. It sound a bit familiar with the previous 2017 CMCM short attack, which also got fully refuted.

Valuation wise, stock was traded above $11/sh or $1903M MCAP value on 2H18, which is about 3.17 times today’s land use rights appraiser of $600M.

Historically the stock traded at certain levels for a long and stable time period:

  • 2011 $5/sh or $105M MCAP w/ 21M OS
  • 2012-2015 $0.10 – $1 or $2M – $21M MCAP w/ 21M OS
  • 2016 $4 – $7 or $712M – $1246M w/ 178M OS
  • 2017 w/ $4 – $18 or $776M – $3492M w/ 194M OS
  • 2018 w/ $3 – $12 or $519M – $2076M w/ 173M OS

Here the detailed Weekly chart with the Fibonacci covering down to top over the whole Wuhan Newport asset ownership period. It shows a clear $3.38/sh support also covered in the Fibonacci, hence should be recovered in the next periods.

Same in detailed Daily Chart with above Fibonacci but just ~ 1 year

 

The 2nd Stage Selling

We see the stock price decline in roughly two stages

  1. 12/3 $11 -> 1/4 $4
  2. 1/4 $4 -> 2/19 $0.40

After company & shareholder filed the lawsuit against the short seller, on 2018-01-28 the latter – at least four shareholder reduced their stake about 27M shares significantly, representing more than 50% of their stake.

The second stage decline from $4 down to 40 cents was probably due to these sales. Since they all received their shares at a $10 valuation, they have effectively lost considerable value – at least on paper. Lots of speculations are circulating around these, a few random thoughts are

  • They realized all of a sudden that there is no value – after filing the lawsuit against shorts 😉
  • Unlikely panic sales at a loss and they could have sold higher earlier
  • Fraud usually has the goal of profit taking, here sellers took a loss
  • Coleman is still employed after selling at a loss and driving price lower
  • These funds may have acted together, intentionally depress the stock to….

While the short attack itself is a usual short & distort known game plan, these sales are the most puzzling part of the decline.

Project: Wuhan Yangtze River Newport Logistics Center

Wuhan is the capital of Hubei province and is the most populous city in Central China with a population of roughly 19M in 2015 in the Metro area. Province Hubei’s population is around 59M in 2015.

The Yangtze River is the longest river in Asia and the third-longest in the world. The river is the longest in the world to flow entirely within one country.

The project Wuhan Yangtze River Newport Logistics Center is located in the middle reaches of the Yangtze golden waterway. See the other items in previous project link for details (location, planning and partners).

To be continued …

The Past

The 2015 Wuhan Newport Asset Swap Deal

On 2015-12-29 the entity [Energetic Mind -> Ricofeliz -> Wuhan Newport] took over ‘Kirin International Holding‘ in a asset swap deal valued at with company’s common stock at $10.00 per share or an aggregate of $1510M.

Kirin International Holding‘ is today’s YRIV.

Note that this swap was actually a reverse M&A deal, were the ‘Acquiree Energetic Mind Limited, Hong Kong, Attention: LIU Xiangyao‘ became the new owner of YRIV and the ‘Acquiror GUO Jianfeng‘ exited.

Mr LIU Xiangyao was the controlling shareholder of Energetic Mind (parent) and hence Wuhan Newport (sub), hence he likely is also the debtor of the above discussed $120M due loans which were guaranteed by Wuhan Newport.
The short refutation from 2018-12-12 (see above) says that this debtor is now solely responsible for these loans and hence Wuhan Newport cleared of these leans and therefore YRIV, a strong positive and company is even suing the short defamation.

Mr LIU seems to be wealthy enough, as he even bought shares for $1.7M in December for around $5 per share, stock didn’t even hit bottom yet.

The curious part here is that YRIV was willing to swap out ‘Wuhan Newport’ for ‘Wuhan Economic Development’ assets for an additional $90M cash payment while the new assets represented a lower property value! See the comment elaborating on the 2018 failed transaction and debt situation.

None of YRIV’s note holders including Mr LIU is able to get paid currently, as the $300M S-3 shelf can’t be executed at the current price level. This offering would have actually marked the very first market valuation via a secondary offering and company claimed in its complaint that underwriter were willing and able to execute it without warrants, another positive. This offering is now naturally on ice since the short attack.

+++

The 2015 transaction also clarifies the question of the sold shares of Director Mr Coleman. Mr Coleman represented the ‘Acquiree Shareholder Best Future Investment LLC, Great Neck, New York.

Best Future Investment LLC received 4.98M shares of today’s YRIV in above swap deal, like Mr LIU and others.
The Form 4 sales transactions state that ‘James S. Coleman is the Managing Member of Best Future Investment LLC‘ and were performed for their Indirect Beneficial Ownership. Mr Coleman probably never owned any of these shares personally, but acted as a trustee.
Mr Coleman holds all membership interest in Best Future Investment and therefore is identical with the same.

Best Future Investment LLC is a ‘Foreign Limited Liability Company.

+++

Here is a better overview of the beneficial Acquiree Shareholder, who reversed swapped themselves into YRIV. And voila, we see 4 of the 7 shareholders here who have sued the short seller Hindenburg et al:

  • Crestlake 16.6M shares
  • Majestic 16.6M shares
  • Fortunate Drift 16.6M shares
  • Start Well 4.98M shares

additionally the following entities have received shares:

  • Jasper Lake (Mr LIU now CEO)
    • 91.24M shares and
    • 8% Convertible Promissory Note in the principal amount of $150M
  • Best Future Investment 4.98M shares

Total: 151M shares @ $10/sh for $1510M book value + $150M notes = $1660M book value.

Note: Additional 3 shareholder suing are: Prolific Lion, Valiant Power and Solid Wise.

Note: None of them has sold significant amounts of their shares until today but Best Future Investment LLC.

Note: Majestic Symbol, Crestlake, Fortunate Drift and Coleman sold 27M shares since filing the lawsuit on 1/28, more than half of their stake.

Conclusion

It is theoretically possible that these asset swap deals have inflated the value, but this is a mere speculation and none of the participants have profited from the deal yet.

‘3rd party appraiser of 515,600 sq meters land use right value to $600M’.
Enterprise Value (EV) is just ~ $211M @ 50c/sh and 173M OS, hence $600M EV gets us to $2.75/sh for that land alone not considering the revenue potential and the 1.2M sq meters lease. Interesting to note that $3.50/sh was roughly the floor area of last years trading.

From 2016 to just recently, the market has matched & confirmed the 2015 swap valuation and the MCAP went even above the $1660M overall transaction value.
Additionally the 8% convertible note holder agreed upon the $10/sh conversion price.

Majestic Symbol, Crestlake, Fortunate Drift and Coleman selling 27M shares, more than half of their stake at a great book value loss, is the most irritating play in recent developments here. This has reduced overall ownership from 159.75M (92.34%) to 132.74M (76.73%).

Knowing that ~77% of the original Wuhan Newport stake is still being held by the original owners, they altogether sue the short seller and are willing to disclose all information in the process – may lead to the conclusion that the owners are very confident on the rightful value of the property and project. Only the 50% stake reduction of above mentioned owners at a loss is heavily irritating.

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78 thoughts on “Yangtze River Port and Logistics Limited (YRIV) Developing Story”

  1. Don’t know if NSDQ + FINRA is right, but they surely don’t just pull their accusations out of air.
    You can read my critical stance above, trying to find the truth in the whole story.
    From defending the company’s cause due to disliking the poor short attack, but also being critical to their biz model, financing and actual occurred (insider) trades. The latter raised my eyebrows the most.

    I hope this makes clear that I try to find true value, not merely pumping but DD’ing in a transparent manner.

    I picked up CMCM again last days here https://finesand.wordpress.com/2019/06/01/cheetah-mobile-cmcm-performance-update-1/ , which is a profitable company currently traded (P/E > 0 duh).

    I will continue checking this interesting YRIV story, but trading wise I will be very carefully. Did only two trading rounds here, which was OK, but also risky due to the financials. The $100M ATM ruined the show, a direct offering to investors would have helped of course but they couldn’t find any.

    Like

  2. At this stage, the lawsuit doesn’t really mean anything IMHO. NSDQ & FINRA opinion and NSDQ’s final decision means everything.
    It is much harder to complete the $100M ATM on the OTC, that is clear and company might want to show the world their serious efforts to realize the biz case. Slum fights on court won’t do it, only the pigs enjoy it 🙂

    A bit more lengthily: I initially hoped company would use the lawsuit to strongly demonstrate their business case, so far they did not. Instead both parties throwing their usual accusations against each other.
    And while this happened, somehow some related party (at least location wise) also traded the stock -> FINRA accusation. This caused the NSDQ decision to kick ’em out, now on review/appeal – nothing final yet.

    Some may tell NSDQ that running a $100M ATM is everything but helping the stock running up, but nobody cares.

    What one might would expect is company demonstrating their efforts and work to realize the actual project.

    Big drama…

    Like

    1. Finally YRIV sent a letter https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=IRXA2FwVgqFavbW6TplsDw==
      replying to the court about the other letter sent from HR,
      where they try to use the NSDQ preliminary delisting decision (or opinion) against company.
      Notable, HR’s letter didn’t get processed as the court probably doesn’t like this attitude,
      ‘frivolous’ as YRIV’s lawyers labeled it – well, here I can surely agree.
      The court is not there to help HR with stock manipulation.

      I repeat what I wrote earlier, how can YRIV ‘pump’ the stock price up
      while having the ATM announced? We trader know this is a little bit out of reality.
      NSDQ needs to prove YRIV is at fault here, guilty w/o doubt regarding their major claim (1).
      The rest of NSDQ’s accusation is soft and ridiculous as already laid out, exchange cannot
      force company to match their own timeline in biz execution.

      So what are these YRIV shares worth? One may see it as an option on the play
      whether company can realize the project and hence put the value on the land rights.
      Surely volatile and not easy, still complicated.

      Like

      1. what I don’t understand is why everybody here is so focused on the lawsuit? Better time spend to make an assessment on the actual land right value and so forth. Don’t know whether they ever will debate that on court .. I hope they do, then it would matter – but .. HR can’t afford that long time on court anyways.

        The latter is being supported by his own lawyers, i.e. dismissal b/c they already complain about the costs 🙂

        Like

  3. Notable dates: https://www.sec.gov/Archives/edgar/data/1487843/000121390019010049/f8k052919_yangtzeriver.htm
    – 5/29 NSDQ gave notice
    – 6/4 YRIV filed the 8-K

    NSDQ process as laid out in other blog referenced, 1st phase of 15 days max is about to close, i.e. NSDQ accepting the appeal. 15 days: 5/30 – 6/13 (likely) or 6/4 – 6/18 (max).

    If NSDQ accepts the appeal as assumed, the appeal hearing shall occur within 45 days after the appeal filing.
    So YRIV could have one little win today or on 6/18 the latest, then the actual NSDQ appeal ..

    Here the process elaborated on another drama play: https://finesand.wordpress.com/2018/07/25/biostar-pharmaceuticals-bspms-nasdaq-delisting-notification/

    Like

    1. 52w low was 0.2960, I consider this the temporary downside risk as long they don’t get delisted. On news of appeal OK and finally appeal win SP will go up – or even better: Progress w/ the project. Now back to bed 🙂

      Like

  4. This is the most thorough breakdown I’ve been able to find online. I really appreciate the work you’ve put in here.

    It’s been another couple of weeks. What is the likelihood that a decisions is made on any of the cases?

    Like

    1. I don’t know. IMHO the NASDQ delisting decision is the biggest driver right now .. and that shall come relatively soon with the hearing.

      Like

  5. I am a signifiant bag holder on this one so thank you for your work. holding and hoping to get some of my losses back in the near future. Excellent job and dd. unusual to find… thanks again

    Like

  6. NSDQ’s report re Rule 5101 delistings in 2016: https://listingcenter.nasdaq.com/assets/2016_Nasdaq%20Trasparency%20Report.pdf

    So using Rule 5101 is rare and I haven’t seen much reversal in those prelim decisions from
    NASDAQ’s previous disclosures (see above).

    YRIV also have stated in the delist notification that they have raised $6M from the ATM
    for operations, but that this notice effectively stops the offering.
    Hence not the court decision is what really matters now, but this delisting decision.
    Not yet clear to me how this pending delisting stops the offering, but the ‘dealer’ bank
    (underwriter) probably won’t use the ATM until a decision is been made.

    Like

  7. Here is the SEC search query for 8-K 3.01 with “Rule 5101” (Public Interest):

    https://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp?search_text=3.01%20AND%20%22Rule%205101%22&sort=Date&formType=Form8K&isAdv=true&stemming=true&numResults=10&fromDate=01/01/2016&toDate=07/03/2019&numResults=10

    I walked through the list and YRIV would be the first since Jan 2016 defending and succeeding NSDQ’s decision if successful it seems. Most of the historical examples show that the companies finally gave in voluntarily.
    So this matches the bad looking NSDQ transparency report from 2016.

    Like

  8. 2019-08-06 2Q19 10-Q Notes
    https://www.sec.gov/ix?doc=/Archives/edgar/data/1487843/000121390019014723/f10q0619ix_yangtze.htm

    Missing: NASDAQ Delisting Determination + SEC/FINRA Investigation in
    – Note 18 Legal Proceedings F-23
    – Note 21 Subsequent Events F-23
    (of course, 10-Q risk sections include tons of warnings regarding delisting)

    OS +2M 179.53M

    Cash +$5.6M
    Real estate properties done -$0.7M $ 29.84M
    Real estate properties devl -$7.9M $346.01M
    Total Assets -$3M $392.86M

    Total Liabilities ~same $220.20M

    Total Equity -$3M $172.66M

    Loss from ops $(1.28M)
    Total expenses $(2.12M)
    Comprehensive Loss $(11.35M) -> $(6.20M)

    Note 5: 1Q19 F-12, 2Q19 F-14 – same, no construction progress
    the Company has completed the construction of four buildings covering area of approximately 35,350.4 square meters of construction area.

    Note 6: 1Q19 -> 2Q19: -$4M net book value
    same: 57,450.4 square meters of construction area.
    Land use right with net book value of $171,384,244, including in real estate held for development and land lots undeveloped were pledged as collateral for the financial institution loan as at June 30, 2019

    Note 10: Loans Payable -$1M
    China Construction Bank From May 30, 2014 to May 29, 2020 $41.90M

    Note 15.2
    Amount to Mr Liu +$1.5M: $38.6M -> $40.14M
    Interest to Jasper +$3M: $16.86M -> $19.83M


    p7 Financing Activities. Net cash provided by financing activities were $7,300,426 for the six months ended June 30, 2019, compared to net cash of $3,465,326 provided by financing activities for the six months ended June 30, 2018, representing an increase of $3,835,100 in cash inflow. The increase was primarily because we had issued common stock generating $6,391,678 cash inflow, and we had advances of $1,492,398 from related parties for the six months ended June 30, 2019.

    Going Concern Doubts as usual

    Like

    1. The real @seaofsand posted our take on the 10-Q. Maybe even the 10-Q was one motivation to delist them, as it lacks certain disclosures as posted.
      A genuine recovery would need cash to realize the projects – this is very difficult at value on the OTC, if not impossible. A very hard spot to be now.
      Also see his post about the “Public Interest” statistics, meaning mostly ALL companies delisted using this instrument always got delisted and never came back.
      Hence we both have discussed the very high risk of this company lately – hopefully in a respectful but clear enough manner.

      Like

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