Muddy Waters Research Company Shorts Chinese Real Estate Trading Platform KE Holdings
On Thursday, Muddy Waters Research released a report on its latest short-selling target: a U.S.-listed, China-based real estate trading platform, KE Holdings, pushing its shares down as much as 10% in premarket trading.
The report said, “The reason why we are short KE Holdings is that we concluded that the company is suspected of systematic fraud, which we believe is a huge scam. We estimate that its revenue data in the second and third quarters are exaggerated by 77%-96%, and the total turnover of new houses (GTV) is exaggerated by 126%, and the turnover of stock houses is exaggerated by 33%.”
Muddy Waters also said on company earnings calls, one sentence constantly repeated was that “do the right thing, even when it’s difficult”. This is not the case. In short, they uncovered massive fraud, including a bogus takeover that appeared to be designed to cover up fraudulent income. Their field research uncovered ghost shops, clone shops and secret schemes to return cash through affiliated brokerage firms to increase revenue. Like Luckin Coffee before, this is a real enterprise with a lot of real fraud.
KE Holdings responded on Thursday night that the company has always ensured the authenticity and standardization of the data in its financial reports. They welcomed investigation into their numbers, but resolutely resist malicious short selling by any institution. The company said that Muddy Waters lacks the basic cognition of the business and the correct interpretation of the three reports because they don’t understand the Chinese real estate market. In order to ensure the rights and interests of investors and not be guided by wrong information, KE Holdings will disassemble and reply to the contents of the report one by one within 24 hours.
The third quarterly report of KE Holdings shows that in the third quarter, KE Holdings achieved an operating income of 18.1 billion yuan ($2.84billion), down 11.9% year-on-year. After the adjustment, net losses were 888 million yuan. Turnover was 830.7 billion yuan, down 20.9% year-on-year. Among them, the turnover of the stock house business was 378.2 billion yuan, down 34.3% year-on-year. The turnover of the new housing business was 410.1 billion yuan, down 2.5% year-on-year. The turnover of emerging and other services was 42.3 billion yuan, down 20.4% year-on-year.