Hall of Shame

Consumer Staples

Hengan Intl (1044 HK)

Year: 2018

Hengan International Group Company Limited is a Chinese company that operates as a holding company.  The company, through its subsidiaries, manufactures and sells personal hygiene products such as sanitary napkins and disposable baby diapers in China.  Hengan International Group offers baby and adult diapers, tissue papers, and wet wipes.

It listed on the Hong Kong Stock Exchange in August 1998, raising HK$700m in its IPO. Further share offers raised HK$2.39bn; (Oct. 2003: HK$137m, Oct. 2007: HK$1.83bn,  Mar. 2016: HK$425m).

On 12 December 2018 short-seller, Bonitas Research published a report on Hengan.  Bonitas claimed that the company had fabricated RMB11bn of net income since 2005 which had accumulated on its balance sheet as fake cash. The allegations focused on three areas:

  • Hengan’s exceptionally profitable sanitary napkins business which had operating margins of over 50%. Competitors margins were running at 9.3% to 10.5%.
  • Fabricated Bank Balances - 2018, with a reported working vapital of RMB7.6bn, Hengan raised debt by RMB7.6bn mostly earmarked as working capital. Bonitas believed the real reason Hengan had increased its borrowings was because Hengan’s reported cash balance was fabricated. It suspected that nearly all of Hengan’s short-term bank time deposits were fabricated. It calculated that since 2009, Hengan had fabricated an additional RMB1.6bn in interest income from fabricated short-term bank time deposits, giving a total fabricated profits to RMB11bn.
  • Insider Pay-off via oversized dividends, financed by borrowings from third parties, and undisclosed related party transactions involved in the construction and operation of a Hengan-funded non-core property in Fujian, China.

On 13 December 2018 Hengan issued a rebuttal denying all allegations and a detailed response to Bonitas.

On 13 December 2018 Bonitas replied to Hengan’s response saying it was weak and evasive of the key points and failed to address any of the evidence presented in the report.

On 17 December 2018, GMT Research issued a review, "Magic margins", on Bonitas Report and Hengan's financials. In conclusion GMT states "The margins earned by Hengan’s sanitary napkins business are far higher than those of any other comparable business. We struggle to think of a plausible explanation. Nonetheless, any evidence that Hengan has faked its profits is entirely circumstantial. A full market analysis should provide greater confidence either way, but may not fully resolve the issue. However, one easy solution would be for Hengan to reduce its cash to a reasonable level and repay its debt. Such a move, which is entirely within the company’s control, would eliminate most of the doubts regarding its high margins. The negative impact on its share price resulting from concerns about whether it is a fraud must outweigh any small profits earned by engaging in interest rate arbitrage. Until it does this, Hengan is, in our view, uninvestable."

Bonitas Research: Short Hengan HK 1044, 12 Dec 2018
Hengan: Clarification Announcement, 13 Dec 2018
Bonitas Research: Rebuttal Remains Short Hengan, 13 Dec 2018
GMT Research: HENGAN INTL (1044 HK) - Magic Margins,  17 Dec 2018
Hengan:  Annual Report 2017
Hengan:  Annual Report 2018
HKEX: Hengan Filings


Company From To
PwC - -


(IPO - Initial Public Offering, ASO - Additional Share offerings)

Type Date Role Party
ASO-1 24-Oct-03 Lead Manager(s) SBI E2-Capital
ASO-2 25-Oct-07 Book Manager(s) Slaughter and May
ASO-2 25-Oct-07 Lead Manager(s) Morgan Stanley
ASO-2 25-Oct-07 Registrar(s) Tricor
ASO-3 15-Mar-16 Sole Manager Morgan Stanley
IPO 8-Dec-98 Auditor(s) PwC
IPO 8-Dec-98 Co-Manager(s) Everbright
IPO 8-Dec-98 Co-Manager(s) Jardine Fleming
IPO 8-Dec-98 Lead Manager BNP Paribas
IPO 8-Dec-98 Lead Manager(s) BNP Paribas
IPO 8-Dec-98 Legal Adviser to the Issuer(s) Livasiri &*Co
IPO 8-Dec-98 Legal Adviser to the Issuer(s) Maples Group
IPO 8-Dec-98 Legal Adviser to the Issuer(s) Jingtian & Gongcheng
IPO 8-Dec-98 Legal Adviser(s) to the Manager(s) Davis Polk & Wardwell
IPO 8-Dec-98 Legal Adviser(s) to the Manager(s) Slaughter and May
IPO 8-Dec-98 Underwriter(s) Bank of China International
IPO 8-Dec-98 Underwriter(s) Shenyin Wanguo Securities
IPO 8-Dec-98 Underwriter(s) CEF Capital Limited
IPO 8-Dec-98 Underwriter(s) OCBC
IPO 8-Dec-98 Underwriter(s) First Shanghai Capital
IPO 8-Dec-98 Underwriter(s) Celestial Capital Ltd
IPO 8-Dec-98 Underwriter(s) South China Securities Ltd
IPO 8-Dec-98 Underwriter(s) Bank of China International
IPO 8-Dec-98 Underwriter(s) Oriental Patron
IPO 8-Dec-98 Underwriter(s) Core Pacific
IPO 8-Dec-98 Underwriter(s) Pacific Challenge Cap
IPO 8-Dec-98 Underwriter(s) Credit Lyonnais


(CAC/MAC Chairman / Member Audit Committee - NC Nomination /Governance Comm. - CC Compensation/Remuneration Committee)

Type Name Role From To
Executive Xu Chun Man - -
Executive Hung Ching Shan - -
Executive Hui Ching Chi - -
Executive Sze Wong Kim 1-Jun-10 -
Executive Hui Lin Chit CEO, Deputy Chairman, MNC, MCC - -
Executive Xu Da Zuo CFO 30-Nov-16 -
Executive Sze Man Bok Chairman, MNC - -
Executive Xu Shui Shen COO In 1985 -
Executive Li Wai Leung Deputy CFO, Company Secretary 3-Jan-17 -
Independent Wong Ying Kay Ada CAC, MNC, MCC In 1998 -
Independent Wang Ming Fu MAC, CNC, MCC 1-Jan-10 -
Independent Chan Henry MAC, MNC, CCC In 1998 -
Independent Zhou Fang Sheng MAC, MNC, MCC 1-Jan-13 -
Independent Ho Kwai Ching Mark MAC, MNC, MCC 1-Jan-13 -
Senior Management Li Wai Leung Company Secretary - -