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.
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
- 2018-12-06 Hindenburg et al. short attack
- 2018-12-13 YRIV SEC filed their PR from 12/12, rebuking the short attack
- 3rd party appraiser of 515,600 sq meters land use right value to $600M
- .. more about property value etc later on ..
- Mr Liu was repaid an $7.5M advance with $4.92M in 3Q18 etc ..
- Item 7: China Construction Bank loan totaling $42M or RMB 325M: Wuhan Newport negotiated a loan restructure with the bank and in the meantime, all payments due are suspended. As a result of negotiations, the bank has not instituted enforcement proceedings. (from 10-K 2018)
- Item 1-6: Property buyers doesn’t want to enforce judgement to sell back to company, value higher today. Wuhan Newport prepared to buy. Judgement rendered, no ongoing legal proceedings.
- Items 8-11: Judgements obtained against Wuhan Newport as a guarantor for certain $120M of loans taken out by a large shareholder of Wuhan Newport before it became a subsidiary of the Company (, probably Mr Liu himself). Since the judgments were rendered, the shareholder has undertaken in writing to be solely responsible for all these loans without recourse to Wuhan Newport and has entered into a repayment plan with his creditor(s). Accordingly, no enforcement actions have been instituted against Wuhan Newport and in accordance with legal opinion from PRC counsel, there are no legal or financial liability accorded to Wuhan Newport.
- .. more about the land use right value later on ..
- 3rd party appraiser of 515,600 sq meters land use right value to $600M
- 2019-01-02 The Rosen Law Firm filed a Class Action Suit against YRIV
- Original complaint
- They found only one lead plaintiff with 112 shares, Michael J Behrendsen, the plaintiff, see the redacted complaint with exhibits. Their search for a better plaintiff up until 2019-03-04 has failed.
- Note that the complaint is merely a copy of Hindenburg’s accusations and has not being researched by the ambulance chasing law firm. This is their normal procedure, an opportunistic fishing expedition. See the CMCM case for example, these attempts usually end up in case being rejected.
- 2019-01-23 YRIV files defamation lawsuit in NY against the short seller Hindenburg et al (w/ a full refutation of all ‘short’ claims). (SEC filing of the event),
- Case 150721/2019: All documents available
- 1/25 amended complaint w/ the cause of actions
- Defamation Per Se p20
- Defamation p22
- Tortious Interference With Prospective Business Relations p23
- Tortious Interference With Contract p25
- Civil Conspiracy p26
- Common Law Fraud p27
- YRIV is taking the full risk & responsibility of disclosing all related information within the discovery phase.
- Usually short sellers feel safe that their target is not risking these full disclosures, but not here – they got served.
- YRIV has fully refuted all claims from the short seller, see above
- 2019-01-28 Seven YRIV Shareholder file defamation lawsuit against short seller
- Case 150879/2019: All documents available
- with the cause of actions
- Prima Facie Tort p26
- Civil Conspiracy p27
- Unjust Enrichment p28
- Deceptive Trade Practices under Gen. Bus. Law para 349 p30
- Common Law Fraud p31
- Plaintiffs: Majestic Symbol Limited, Crestlake Holdings Limited, Fortunate Drift Limited, Start Well International Limited, Prolific Lion Limited, Valiant Power Limited and Solid Wise Limited
- They own a total of 68.63M shares and a incurred a minimum UNREALIZED loss of $621.34M
- Ownership Change 2018-12-12 – 2019-02-28
- 2018-12-12 CEO Liu bought 339,435 shares @ $5.00 average
- 2019-01-08 Coleman bought 6,000 shares @ $2.979
- 2019-01-29 Reduced Ownership by 27M shares from 2017 10-K as of 2018-03-08 159.75M (92.34%) to 2018 10-K as of 2019-02-28 132.74M (76.73%) shares (percentage)
- Majestic Symbol 16.6M -> (sold out or below 5% ownership?)
- Crestlake 16.6M -> 13.38M
- Fortunate Drift 16.6M -> 10.86M
- Coleman (Best Future Investment) 4.06M -> 2.32M
- Above four reduced their stake by more than 50% in total 53.86M -> 26.56M
- Float increased by 27M shares from 13.25M to 40.26M
- 2019-03-01 2018 10-K filed
- OS 2019-03-01 173M
- Revenue was zero over last years.
- Cash is low, $121k
- Total Assets $386M including $30M completed property and $345M property under development
- Total Liabilities $214.63M including the $42M Chinese Construction Bank loan, $75.58M convertible notes (advancements), etc etc
- CONVERTIBLE NOTES are all at $10/sh a 8% rate (page F-19) .. interesting, now rate is 11% it seems
- Interest expenses were $11M for 2018 ($8.45M Notes 11%) and $8M ($6M Notes 8%) for 2017, an increase of $2.8M or 34.51%, primarily due to increase of interest on the new convertible notes.
- Interest payable on convertible notes $16.88M and on loans $7M, so all debt accumulates
- Equity $171M or $1/sh roughly.
- Going Concern
- Recurring losses and negative cash flows from operations
- Funded through a combination of bank loans and advances from shareholders
- On 2016-01-29 Company received an undertaking commitment letter provided by the Company’s majority shareholder (CEO) who is willing to provide sufficient funding on an as-needed basis.
- In addition, the Company plans to dispose of the existing developed real estate properties with market value of approximately $42 million when the Company needs cash flows.
- Believes .. currently has sufficient cash and financing commitments to meet its funding requirements for a reasonable period of time.
- 2018 10-K: Lawsuits
- Class Action Deadlines for finding leading plaintiff expired on 2019-03-04
- On 2019-01-23 defamation lawsuit in NY got filed against the short seller
- 2019-03-26 Court Appearance 9:30am
- Court: New York Supreme Court
- Index Number: 0150721/2019
- Case Name: YANGTZE RIVER PORT AND vs. HINDENBURG RESEARCH
- Case Type: CD-EOTHER COMMERCIAL
- Track: Complex
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|
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.
The 2nd Stage Selling
We see the stock price decline in roughly two stages
- 12/3 $11 -> 1/4 $4
- 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
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).
- 2017-07-10 Jim Coleman, Executive Director, describing the project & company.
- Completed 100,000 square meters of office buildings (until 2017-07-10)
- Started 2007 and invested $300M (until 2017-07-10) & at time of interview requires $800M more funding.
- Unite Shipping via Yangtze & Railroad reaching right from Wuhan to Rotterdam, Europe. Already build as part of one belt & one road ..
- Committed annual 5M metric tons shipping
- Docking fee $3.5/tonnes = $17.5M p.a. for coming into the docks only
- Additional Revenue by
- Handling ..
- Warehousing, Freezer, ..
- Train on- off-loading (1900 liters railroad up- & downloading)
- Wuhan is Key Location
- North: Bejing + Harbin
- East: Shanghai etc
- South: Shenzhen + Hong Kong
- West: Western China w/ 300M people
- North-West: Hooks up to Rotterdam/Europe or Lyon/Europe in just 16 days
- Shipping via Yangtze River throughout China
- 2016-01-26 Yangtze River Development Ltd.
To be continued …
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.
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.
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.