Harbin Electric denies concerns over PE-backed management buyout

Harbin released a statement saying that its CEO, Yang Tianfu, had never admitted guilt in a 2004 loan fraud case. It also said that a $400 million credit line to fund the buyout is in place. However, Yang and Abax have yet to make a formal bid for the company.

Citron Research, a research firm run by short-seller Andrew Left, raised questions in a report published Thursday about the credit agreement between Yang and China Development Bank. Harbin's US-listed shares promptly fell 51%, although there was a modest recovery of 16% on Friday. The stock remains well below the $24 per share management buyout offer.

Citron's report also included documents stating that Yang's brother, who is also vice president of Harbin, made fraudulent use of an official company seal to provide a fake loan guarantee for Yang. Citron claims that Yang admitted guilt in order to get the company involved, China Construction Import & Export Corp., to drop criminal proceedings.

Harbin is one of a number of Chinese companies that listed in the US via reverse mergers that have come under pressure from short-sellers and hedge funds.

Abax, a hedge fund set up in 2007 to target special situations investments in Asia, counts Morgan Stanley and China Development Bank among its strategic partners.

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• Topics
• Industrials
• Buyouts
• Greater China
• Morgan Stanley
• China Development Industrial Bank