Hall of Shame

Consumer Discretionary

Anta Sports (2020 HK)

Year: 2019

ANTA Sports Products Limited is a Chinese company who designs, develops, manufactures, and markets sportswear, including sports footwear and apparel for professionals and the general public.  It listed on the Hong Kong Exchange in July 2007 and raised HK$3.64B during is IPO.   In four later share offerings HK$7.15B was raised ; ( Oct.2009 - HK$800M, Oct.2014 - HK$1.14B, Mar.2017 - HK$3.79B, Jul.2018 - HK$1.42B).

June 13, 2018  GMT Research published an accounting report on listed Chinese sportswear companies; "Chinese Sportswear: Fake or Fabulous?".  In it's report, GMT Research noted that nine out of the sixteen Chinese sportswear companies listed since 2005 have turned out to be frauds.  Their financials shared a number of characteristics which are rarely exhibited by other listed companies.  Whilst reviewing the seven remaining companies, GMT noted that Anta shared these fraud-like traits,  Operating margins and returns on production assets are almost double that of peers but similar to past frauds. Attempted explanations can be easily refuted or impossible to verify. The company continues to raise capital excess to requirements which is once again similar to past frauds. While a sizeable dividend confirms the existence of much of the business, it’s possible that some portion of sales are being fabricated, distribution channels stuffed, or costs held off-balance sheet.

May 30, 2019, At the 2019 Sohn Conference in Hong Kong, Soren Aandahl, founder of Blue Orca Capital, questioned the Hong Kong-listed company’s accounting and corporate governance; alleging the company inflated sales in certain business lines, including in its Fila brand of sports gear.

Between July 7 and July 22, 2019, short seller Muddy Waters published a report on ANTA Sports in five parts :-

July 7 -  ANTA Part I: Turds in the Punchbowl
Investors cannot rely upon ANTA’s financials.  Muddy Waters believe that ANTA posts industry-leading operating margins not because it’s so well operated; but, rather because ANTA uses numerous secretly controlled Tier 1 distributors to fraudulently boost its margins.

July 8 -  ANTA Part II: “Mens Rea” 
ANTA undertook a series of transactions shortly after its IPO that convince us that ANTA insiders always intended to defraud outside investors, and enrich themselves at investors’ expense. In 2008, insiders stripped the company of a valuable asset, its international brand retail business, and attempted to conceal this fact.

July 10 - ANTA Part III: FilaBuster
ANTA has been reporting Fila numbers to its auditors and the public, all the while claiming to own all Fila stores. Does ANTA consolidate financials from stores that it does not own? Just as we believe with ANTA brand financials, ANTA likely just makes the numbers up – i.e., it likely reports fraudulent financials for Fila as well.

July 14 - ANTA Part IV: “Liars Lie”
Muddy Waters present evidence of fraud (in this case, well over 100 pages and counting), the company denies it, and surrogates come out to defend the company.  In this case, the company has shifted almost all of the burden of defense to the ever-pliable sell-side, effectively turning some analysts into little more than sock puppets.  Ordinarily, managements have no effective downside to trying to lie their way out of fraud accusations – there is usually no increased regulatory penalty or shareholder opprobrium, so lying in the fact of fraud accusations becomes one of the most asymmetric bets a management can undertake.  In ANTA’s case, it has outsourced much of the lying to the sock puppets, effectively mutualizing the reputational risk.

July 22 - ANTA Part V: “Controlled Major Supplier and Another Fila Lie”
Muddy Waters reveal Peng Qingqi’s ownership of four online stores, including two called ANTA Ruidong and Jinjiang Dingdian. This revelation shows yet another bald-faced lie about ANTA’s operations, and reinforces that ANTA’s financials and Fila’s numbers cannot be relied upon.

GMT Research:  Chinese Sportswear: Fake or Fabulous? - June 13,2018

Bloomberg: Short Seller Aandahl Targets China Apparel-Maker Anta Sports - May 30, 2019

Muddy Waters: ANTA Part I: Turds in the Punchbowl
Muddy Waters: ANTA Part II: “Mens Rea”
Muddy Waters: ANTA Part III: FilaBuster
Muddy Waters: ANTA Part IV: “Liars Lie”
Muddy Waters: ANTA Part V: “Controlled Major Supplier and Another Fila Lie”

ANTA Sports Products: Annual Report  2018
ANTA Sports Products: Annual Report  2017