Friday, May 30, 2014

YZJ update 2: steal or falling knife

What I post at valuebuddies. For anyone still vested and concerned:

Table4 show the penalty of recent cases, only about 26% of the studied53 cases lead to criminal prosecution.

A good read on the study of insider trading in China. There is another case of everbright security on bloomberg, can't paste the link here.

I did a very quick scan on the long document.

The definition of insider and insider information can be vague and too broad.

YZJ has 3 charges, not all as announced by the news. ( lump with tai Li .. Yuan investment co)

1) insider trading
2) illegal profiting due to the harsh terms of contract ( is a ah long contract$)
3) hindering independent governance and operation of company.

Of the three, 1) is the one that is most difficult...

Personally, which shadow banking product is not on a long terms? (2)

For three, shouldn't tai Li ... Yuan the major shareholder bear the most blame for installing the management, in this case Ren?

For 1) the accusation is on insider information, and hence making the shares purchases illegal, given transparency is always an issue in china, how strong is this accusation?

The outright breach should come from tai Li .. Yuan when he sell its shares for a profits during the holding period.

So, I guess we have 3 scenarios

1) case dismissed after legal challenge or investigation

2) Ren gets away with the alleged illegal profits confiscation and a fine. No criminal prosecution.

3) Ren gets criminal persecution and company is banned from
Involving in HTM trades.

So whether YZJ is a steal or falling knife depends on which is the likely scenario. If it is 1), u get a smart rebound.

2) impact is hard to justify

3) will mean a very severe write down in the company's HtM assets.

Will trading be halt pending the 3 outcomes is anyone guess.

If u ask me, when in doubts, run when dealing with china companies.

If your knowledge ( local or legal) makes u think 1) or perhaps even 2) is likely case, then u make your move to accumulate.

I won't until we get a clearer picture


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