SINGAPORE (Dec 13): Short-sellers’ target Best World International, which has been suspended pending an independent review, is “cautiously optimistic” that fieldwork for the review will be done by mid-December and that the draft report will be sent to Singapore Exchange Regulation (SGX RegCo) by early January — reaffirming an indicative timeline that was previously disclosed.
The independent review is likely to be released in early February, and Best World would then be able to call for a muchdelayed AGM for FY2018.
According to the company, the review has thus far been a “comprehensive exercise”. Its scope was first determined in March, but subsequently expanded in May, following the issuance of a Notice of Compliance from SGX RegCo.
“Achieving these objectives has involved a wide-ranging fact-finding exercise to establish the circumstances around the relationship with Changsha Best, reviewing documents and data points on sales in China, and reviews of the group’s internal control procedures and corporate governance practices,” says Best World, referring to the entity that is its single-largest customer in China.
The group also noted that, over the course of the review, the independent reviewer had made multiple trips to China to interview franchisees and business partners, as well as review records and documents of the group and third parties.
Best World highlighted how, although it had offered its cooperation to the reviewer by making relevant documents and records available, a large number of the required documents and records were owned by third parties, some of whom had been reluctant to share their records because of confidentiality concerns.
Short-sellers alleged that about $31 million in sales by Best World to Changsha Best had been fabricated. The latter was revealed to be held by the brother-inlaw of Dora Hoan, Best World’s co-chairman.
Although Changsha Best had cooperated with the independent reviewer and granted access to requested additional documents and information, certain information and document requests are still outstanding.
In April, one of the short-sellers, Bonitas Research, had termed Best World a “fraud”, alleging that its sales in China were a fraction of what was reported to shareholders. In its report, Bonitas also questioned the motive of Best World’s management in appointing auditor PwC to conduct a limited, one-year independent review of its 2018 China franchise operations.
Best World shares last traded at $1.36. Prior to the suspension in May this year, the share price had fallen 50.2% year to date.
Even as Best World’s review is being carried out, Bonitas has shifted its attention to another stock: US-based online insurance marketplace Everquote.
On Dec 11, Bonitas flagged its concern over how Everquote’s quote request for 3QFY2019 could have grown 81% y-o-y and 22% q-o-q if its website traffic volume dropped 71% from January to September this year and 37% y-o-y in 3QFY2019.
“Without further information in the public domain, it is unclear to us where the truth ends and where the lies start from Everquote management about how it was able to achieve such incredible growth in quote requests and revenues in 2019 while web traffic declined significantly for its dominant revenue driver, www.everquote.com,” says the report.
On Dec 11, shares in Everquote opened at US$36, but had tumbled 9.7%, or some US$3.48, to US$32.52 by noon. Recovering slightly, the counter closed 5.8% lower at US$33.93 that day.
