Chinese food processing company Sino Grandness listed on the Singapore Exchange in November 2009. In 2014, the company was attacked by an anonymous short-seller called Newman9 which alleged that the company was faking sales at its beverage subsidiary in order to facilitate an IPO, the proceeds of which would repay creditors. The stock initially halved before recovering. Two years later, in October 2016, short-seller GeoInvesting published a report also alleging fraud. The stock halved but there were no major resignations meaning that the allegations remained unproved. For the next two years, Sino Grandness' stock traded sideways. Then, in November 2018, the company reported disappointing 3Q18 results which seemed to prompt a major sell-off with its shares falling 75% over the next two months. In January 2019, the company announced that it had defaulted on a US$21m loan to a related party, Soleado Holdings. This was unexpected given that it had cash of US$90m at YE18, not to mention receivables of US$231m. 

Last updated March 2022

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Sino Grandness Food Industry processes food, such as canned fruits and vegetables, in China. It listed on the Singapore Stock Exchange in November 2009 raising S$24.8m. The manager of the offering was Collins Stewart. An additional share offering in March 2013 raised S$23.4m (via UOB Kay Hian).

Value Investors Club

On 4 September 2014, a blogger on Value Investors Club called Newman9 published a report alleging fraud. Main issues as follows:

• Sino Grandness needed to IPO its beverage subsidiary, Garden Fresh on an internationally recognised exchange by October 2014 in order to comply with the terms of its convertible bonds and avoid a large redemption payment.
• Reputable third party data sources such as Euromonitor and Nielsen suggested that Garden Fresh's revenues were significantly overstated.
• Channel checks which consisted of speaking with distributors, retailers, former employees, competitors, contract manufacturers and other sources, uncovered overwhelmingly negative feedback regarding Garden Fresh's trends and outlook. This cast significant doubt on the reported size of the business.
• Benchmarking key metrics to industry peers supported the idea that sales were overstated.
• Margins were unbelievably high. Garden Fresh's reported EBIT margins of 25-30% were almost as high as the 30-35% gross margins of leading industry peers such as Tingyi, Uni-President, and China Huiyuan. Garden Fresh’s 2013 reported EBIT margin of 27.8% was 7.9x the median EBIT margin of peers.
• Newman9 saw evidence to suggest the vegetable canning business had overstated earnings.
• The company had never generated free cash flow as reported profits had been consumed by accounts receivable and capex.
• Given the upcoming bond maturities and capex requirements, Newman9 believed the stock was effectively worthless.

Concluding, Newman9 stated that if Sino Grandness did not list its Garden Fresh subsidiary, it would face convertible bond redemptions of RMB723m. Furthermore, the company had a RM600m investment plan in Anhui, bringing total capital requirements to RMB1.32bn, against a mere RMB60.2m in reported cash. Newman9 believed that the required equity issuance was too large relative to the company's true equity value. Its shares were thought worthless.

On 22 October 2014, Newman9 issued an additional report in which it made more allegations, providing pictures to back up its investigative work. The company also addresses reports that the company would commission Frost & Sullivan to write the industry report within Garden Fresh's IPO prospectus. Newman9 alleged that Frost & Sullivan were not independent and had made past mistakes, such as providing the third party data for Tianhe Chemical's IPO. It turned out to be a fraud. Newman9 also downplayed the investment by Thoresen Thai Agencies and PM Group, claiming that they were operating outside their areas of expertise. 

On 23 October 2014, Sino Grandness issued an announcement rejecting the report and stating that it was in a sound financial position and had complied with all the statutory and listing requirements.

Newman9's report led to a halving of Sino Grandness' share price between October 2014 and March 2015. However, by mid-2016, it had recovered its previous highs. There were no major resignations and the allegations were unproven.

GeoInvesting
On 25 October 2016, GeoInvesting released a report on Sino Grandness - "Is This Singapore Listed Company Rotten At Its Core?". Main points as follows:

• Extensive on-the-ground due diligence at Sino Grandness' canned goods manufacturing subsidiaries showed little to no activity. It appeared that either 2016 would be disappointing, or the prior year’s annual results had been materially overstated.
• GeoInvesting obtained 2014 and 2015 SAIC files for Sino Grandness' beverage subsidiaries in July and again in August. The July filings indicated light production according to its revenue numbers. This led GeoInvesting to believe that, combined with its on-the-ground due diligence, Sino Grandness' revenues reported in press releases and annual reports to investors are significantly overstated.
• The company’s SAIC files obtained in August showed numbers for its beverage subsidiaries that were significantly bigger than numbers it obtained in July. It believed the company amended its filings so they would essentially match the numbers being reported in the prospectus of the beverage business, as it prepared to go public in Hong Kong.
• It appeared Sino Grandness' planned IPO of its beverage subsidiary in Hong Kong had suffered a setback, although few details had been given. GeoInvesting suspected the delay could be permanent, and that it might have put the company in a dangerous financial position.
• With its lapsed Hong Kong IPO, the company was proposing a dilutive rights offering in Singapore at a substantial discount to market price, while reporting robust business growth and claiming to have over RMB500m in cash and cash equivalents.

GeoInvesting concluded by saying: "when we are given several substantial pieces of financial data that do not add up, we have no option but to question the business in its entirety and we believe regulators and the company's Hong Kong IPO sponsors should do the same. We also think it's worth noting again that the company's actions suggest that its 'lapsed' Hong Kong IPO is running into difficulties. We hope both Singapore and Hong Kong regulators view this company with as much scrutiny as we have and we look forward to a point by point response from the company."

On 30 October 2016, Sino Grandness issued a response, denying the allegations and clarifying some of the issued raised.  

On 31 October 2016, GeoInvesting responded to Sino Grandness’ rebuttal with 5 points:
   1. The company apparently didn't know that it had a production facility at Beiti Village.
   2. The company offered little clarity to investors regarding its outsourced sales.
   3. The company’s arguments for seasonality did not hold up.
   4. The company was word smithing its way around its SAIC filings being amended.
   5. The company's proposing rights suggested it needed capital.

On 2 November 2016, Sino Grandness issued a response to Sino Grandness' report.

On 3 November 2016, GeoInvesting stated that the company’s explanations were rooted in semantics and half-answers. They did little to address concerns about the company’s business operations and increased GeoInvesting's doubts about the integrity of the company and its management.  GeoInvesting believed the company, its management team and auditor needed to work with regulators to carefully audit its business for the benefit of shareholders.

On 13 December 2016, GeoInvesting issued a final report: "Sino Grandness Re-Prices Rights Offering 32% Lower After GeoInvesting Critical Report". The short-seller commented on the previous days' announcement that the company would now be offering shares at S$0.21 per each rights share, versus a previous price of S$0.31 per each rights share. GeoInvesting said that this action was yet another flag for shareholders.

GeoInvesting's report led to a halving of the company's share price. However, there were no major resignations and the allegations were unproven.

Following GeoInvesting's 2016 report, financial performance started to deteriorate. However, this deterioration gathered pace from following the release of 3Q18 results on 9 November 2018. The company reported a 4% fall in sales and a 20% decline in profits. Although it gave an upbeat operating outlook, its shares fell by 75% between November 2018 and January 2019.

On 16 January 2019, the company announced that it had received a letter of demand by Soleado Holdings (a subsidiary of Thoresen Thai) for US$21m relating to a loan issued in April 2016. Given that the company reported cash of US$90m at YE18, not to mention receivables of US$231m, it should have been in a position to repay the amounts. This raises concerns that these assets had been fabricated to hide fake profits. 

On 23 July 2019, Sino Grandness published its FY18 annual report. The independent auditor raised concerns over the company's ability to continue as a going concern:

• The financial statements indicated that the company’s current liabilities exceeded current assets by RMB264m.
• The company had defaulted on the repayment of debt owed to a related party, Soleado Holdings of US$21.2m (RMB145.5m) with interest thereon which was due on 6 January 2019. The initial due date was 16 May 2018. The company had been served letters of demand on 8 January 2019 and 23 January 2019.
• A subsidiary had defaulted on the second instalment repayment to a financial institution, Deutsche Bank of US$2.5m (RMB17.2m) which was due on 15 October 2018. Arising from the default, Deutsche Bank was entitled to demand immediate repayment of the entire outstanding loan of US$22.9m (RMB157m).

On 11 May 2020, Mr Chan Chun Kit tendered his resignation as CFO to pursue new career opportunities.

COMMENT: Sino Grandness is not a confirmed fraud given that there were no major auditor or management resignations. However, its financials have traits similar to past frauds. The company triggered Beneish's M-Score each year between FY11 and FY15 owing to deteriorating asset quality and high accruals. It also triggered all four points under our Fake Cash Flow Fraud model. Finally, Sino Grandness' major subsidiaries were only audited by Foo Kon Tan (Singapore) for consolidated purposes. The local auditors were relative unknowns such as Procon, Yun Cheng Huang He, Shenzhen Yida, Sichuan Wan Bang, Shan Dong He Hua United, Yichang Tiancheng. Arguably, the only reason for using so many small auditors is to deny any one from understanding the complete picture.

Value Investors Club: Sino Grandness Report for VIC, 4 Sep 2014
Value Investors Club: Sino Grandness Supplemental Report for VIC 22 Oct 2014
Sino Grandness: Announcement, 23 Oct 2014
The Edge Markets: Sino Grandness’ shares “worthless”, says report; company refutes, 23 Oct 2014
GeoInvesting: Is This Singapore Listed Company Rotten At Its Core ?, 25 Oct 2016
Sino Grandness: Response to GeoInvesting report, 30 Oct 2016
GeoInvesting: GeoInvesting Responds to Sino Grandness' Rebuttal of October 25 Report, 31 Oct 2016
Sino Grandness: Update Announcement, 2 Nov 2016
GeoInvesting: GeoInvesting Responds to Sino Grandness November 2 Statement, 3 Nov 2016
GeoInvesting: Re-Prices Rights Offering 32% Lower After GeoInvesting Critical Report, 13 Dec 2016
Sino Grandness: Material Uncertainty Related to Going Concern, 22 Jul 2019
Sino Grandness: Annual Report YE Dec2018
Sino Grandness: Annual Report YE Dec2016
Sino Grandness: Annual Report YE Dec2015
SGX: Sino Grandness Filings
Sino Grandness: Sino-Grandness FY16