Chinese real estate broker KE Holdings to investigate fraud allegations

SINGAPORE — Chinese real estate brokerage KE Holdings Inc.

BEKE 1.23%

said on Friday he would conduct an internal review of fraud allegations made by a major US short seller, and disputed the allegations in the investment firm’s report.

A day earlier, Muddy Waters Capital LLC released a 77-page report on New York-listed KE Holdings, which operates a popular online platform in China used by many real estate agents, owners, buyers and individuals alike. search for apartment rentals. The company collects fees to facilitate transactions involving new and used homes and has a unit that offers real estate financing, home improvement and property management services. KE Holdings is known as Beike, the Chinese word for “seashell”.

Muddy Waters said he took a short position in the company and established similarities between Beike and Luckin Coffee Inc.,

LKNCY 2.45%

the former Nasdaq-listed Chinese coffee chain that inflated its reported income for months before disclosing major accounting fraud.

The company run by US short seller Carson Block said it found discrepancies in Beike’s reported transaction volumes, number of stores and agents after conducting due diligence that included “field interviews and site visits “and data collection from the broker’s platform. He accused the company of dramatically boosting its commission income and business volumes. Beike shares ended down 2% on Thursday after the report was released by Muddy Waters.

Beike said Friday that the Muddy Waters report is “without merit and contains numerous errors of fact, unsubstantiated statements and misleading speculation and interpretations.” He added that the report “shows a lack of basic understanding of the real estate transaction industry in China.” He then criticized Muddy Waters’ methods of collecting data, researching and analyzing its transaction volumes and attempts to verify its store and agent numbers, and said this was largely based on evidence. incomplete data.

The company also said that an independent audit committee had been authorized by its board of directors to perform “an internal review of the principal allegations contained in the Muddy Waters report, with the assistance and advice of independent third party advisers who will be engaged by the audit committee ”. and it will provide updates where appropriate.

Beike is listed on the New York Stock Exchange in August 2020 after raising more than $ 2 billion during its IPO. Its market capitalization soared to over $ 80 billion in the months following its trading debut, but has since fallen to around $ 22 billion.

The company’s backers include SoftBank Group Body

Vision Fund, Chinese Internet giant Tencent Holdings Ltd.

, and private equity firm Hillhouse Capital Group. Last year, Beike reported net income equivalent to $ 113 million after years of losses, and said its net income jumped 53% to the equivalent of $ 11 billion.

In May of this year, Beike said his co-founder, chairman and majority shareholder Zuo Hui died from an illness he did not detail. Company general manager Peng Yongdong then assumed the role of chairman.

The company’s trading volumes – and the share price – have fallen this year amid a general decline in real estate sales triggered in part by financial problems at China Evergrande Group and other large developers. In the first nine months of this year, Beike said its revenue fell 12% from the same period in 2020. The company said it had nearly 50,000 active stores, up 20% compared to a year ago, and 468,014 active agents as of September 30.

Evergrande, the world’s most indebted real estate company, has embarked on a social media campaign to show construction has resumed and is doing whatever it takes to deliver homes. WSJ compares these messages with those from disgruntled buyers. Composite photo: Emily Siu

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