Thread by @HindenburgRes

New from us: China Metal Resources Utilization—100% Downside to this Zombie Company $1636.HK

hindenburgresearch.com/cmru/

We are short China Metal Resources Utilization $1636.HK, which we believe is nothing more than a ‘zombie company’; an entity technically alive, but under such severe financial distress and laden with so many red flags, that insolvency seems inevitable.

We believe $1636.HK's Chairman/CEO may have reached the same conclusion: he has disclosed agreements indicating his intention to offload his entire personal stake in the company, which currently represents about 29.65% of the company's outstanding shares

www1.hkexnews.hk/listedco/listc…

$1636.HK's CEO has a history of allegations of inflating revenue & margins at his previous company, Gushan, which saw its valuation implode before it was taken private 96% below its IPO price. CMRU was formed from the wreckage of Gushan

$1636.HK's financials paint a picture of a company in financial turmoil. Recent filings show the company has cash of RMB 64.7 million versus RMB 1,559 million in borrowings due “within one year or repayable on demand”, at an average interest rate of 13.72%

$1636.HK missed a bond payment due in August 2019, before being granted a short-term extension late last month. It also has not repaid loans that look to have matured in 2016.

The operating business at $1636.HK seems wholly incapable of supporting the company's debt load: the company has reported negative GROSS margins and has bolstered its reported metrics through questionable accounting maneuvers

$1636.HK says it "normally" settles payables on 30-day terms. As of now, 95% of the company's payables are past 30 days due and 64% are over 180 days old. We question whether they will ever be paid

$1636.HK has also engaged in an aggressive M&A spree, paying up to HK$1.56 billion on deals replete with hallmarks of undisclosed related party dealings.

In several undisclosed and disclosed related party M&A transactions, there are clear links to CMRU’s Chairman/CEO’s family.

In one case, $1636.HK paid consideration of up to HK$741 million for a 4-month old entity that had just leased an apparently abandoned factory (we visited the site, and have pictures)

$1636.HK stock appears to have had a suspicious non-stop bid at $3 for almost 4 straight years, despite numerous material news releases and high market volatility. During one 398 trading day period, the stock never once deviated by more than 5.75% from its average price of $3.05

CMRU currently has a market cap of about HK$7.7 billion (US$1 billion).

All told, we think it is an obvious near-term zero. $1636.HK

hindenburgresearch.com/cmru/