Thursday, July 19, 2012 9:04:09 AM
By Tom Orlik
The education of U.S. investors on the risks of overseas-listed Chinese stocks continues.
Shares in New Oriental Education & Technology Group (EDU), one of China's largest private education providers, plunged 57% in the last two days, wiping almost $2 billion off the market value. An investigation by the Securities and Exchange Commission, combined with allegations of fraud from short seller Muddy Waters, were the reasons for the fall.
The SEC probe, announced in New Oriental's earnings report on Tuesday, concerns the company's complex ownership structure, known as a variable interest entity. That structure allows New Oriental - an offshore holding company listed in New York - to control an education business inside China that isn't allowed to be foreign owned.
The VIE structure is widely used by overseas listed Chinese internet and education companies. But some observers worry that in a dispute with company management over control of assets and profits, the Chinese courts might not side with investors. Shares in online video company Youku and web portal Sohu, which use the same structure, fell in sympathy.
New Oriental's woes were compounded on Wednesday when short seller Muddy Waters published a report accusing the company of fraud. The short seller alleges New Oriental boosted revenue by disguising franchises as wholly owned outlets. Like other recent short seller reports on Chinese stocks, the allegations are suspicious though not conclusive. But against a backdrop of falling Chinese growth, and with market sentiment fragile, suspicions are enough to do significant damage. The continued hemorrhaging of New Oriental's market value in the wake of Muddy Water's allegations shows investors believe there is a case to answer.
While waiting for a response from management, some homework for investors: write out a hundred times, 'I will not buy shares in Chinese stocks without doing due diligence'.
(Tom Orlik writes Heard on the Street from Beijing. He can be reached at +8610-8400-7724, or at thomas.orlik@dowjones.com)
TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAsia@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
July 19, 2012 05:02 ET (09:02 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.- - 05 02 AM EDT 07-19-12
Recent EDU News
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 08/19/2024 10:07:57 AM
- New Oriental Announces a Special Cash Dividend • PR Newswire (US) • 08/19/2024 09:16:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 08/06/2024 10:08:26 AM
- New Oriental Announces Upsizing of Share Repurchase Program • PR Newswire (US) • 08/06/2024 09:00:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 07/31/2024 12:43:58 PM
- New Oriental Announces Results for the Fourth Fiscal Quarter and the Fiscal Year Ended May 31, 2024 • PR Newswire (US) • 07/31/2024 09:06:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 07/25/2024 10:20:25 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 07/16/2024 10:05:28 AM
- New Oriental to Report Fourth Quarter 2024 Financial Results on July 31, 2024 • PR Newswire (US) • 07/02/2024 09:00:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 05/24/2024 10:57:50 AM
- New Oriental Extends Share Repurchase Program • PR Newswire (US) • 05/24/2024 09:00:00 AM
- New Oriental Announces Results for the Third Fiscal Quarter Ended February 29, 2024 • PR Newswire (US) • 04/24/2024 09:20:00 AM
- New Oriental to Report Third Quarter 2024 Financial Results on April 24, 2024 • PR Newswire (US) • 03/28/2024 09:00:00 AM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 02/22/2024 12:23:32 PM
- Form SC 13G/A - Statement of acquisition of beneficial ownership by individuals: [Amend] • Edgar (US Regulatory) • 02/07/2024 11:10:56 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 01/31/2024 01:10:26 PM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 01/24/2024 12:53:25 PM
- New Oriental Announces Results for the Second Fiscal Quarter Ended November 30, 2023 • PR Newswire (US) • 01/24/2024 11:42:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 01/04/2024 11:06:50 AM
- New Oriental to Report Second Quarter 2024 Financial Results on January 24, 2024 • PR Newswire (US) • 12/28/2023 09:00:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 12/18/2023 11:05:56 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 11/28/2023 12:14:57 PM
- New Oriental Education & Technology Group Inc. Announces Results of Annual General Meeting • PR Newswire (US) • 11/28/2023 10:37:00 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 11/24/2023 11:05:56 AM
- Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16] • Edgar (US Regulatory) • 11/21/2023 12:15:58 PM
FEATURED Element79 Gold Corp. Appoints Kevin Arias as Advisor to the Board of Directors, Strengthening Strategic Leadership • Sep 18, 2024 10:29 AM
Mawson Finland Limited Further Expands the Known Mineralized Zones at Rajapalot: Palokas step-out drills 7 metres @ 9.1 g/t gold & 706 ppm cobalt • MFL • Sep 17, 2024 9:02 AM
PickleJar Announces Integration With OptCulture to Deliver Holistic Fan Experiences at Venue Point of Sale • PKLE • Sep 17, 2024 8:00 AM
North Bay Resources Announces Mt. Vernon Gold Mine Bulk Sample, Sierra County, California • NBRI • Sep 11, 2024 9:15 AM
One World Products Issues Shareholder Update Letter • OWPC • Sep 11, 2024 7:27 AM
Kona Gold Beverage Inc. Reports $1.225 Million in Revenue and $133,000 Net Profit for the Quarter • KGKG • Sep 10, 2024 1:30 PM