Chinese short seller target gets backing from Morgan Stanley
Morgan Stanley will invest $50 million in Yongye International, a US-listed Chinese plant nutrients producer that has been accused of fraud by a short seller. The investment bank’s Asia private equity unit has agreed to buy preferred shares in Yongye, which are convertible into common stock at an initial price of $8.80 per share. Should the company meet certain undisclosed profit targets, the conversion price may increase to $15 per share.
Yongye plans to use the proceeds to boost capacity, repay debt and supplement working capital as well as for general corporate purposes.
The investment amounts to a huge vote of confidence in the Chinese firm, and its shares rose 42% on Tuesday in response to the news, Bloomberg reported. Yongye's stock remains down 37% so far this year following accusations made in May by Absaroka Capital Management, a Wyoming-based hedge fund, that it has manipulated its earnings. The Chinese firm denied the claims but Absaroka, which holds a short position against Yongye, yesterday said it stood by its original accusations.
Homer Sun, Managing Director of Morgan Stanley Private Equity Asia, said in a statement released by Yongye that the investment decision was based on extensive due diligence. "We believe Yongye to be an exceptional company that has built significant brand recognition in China's agriculture industry," he said.
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