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Analyst says XFML good buying opportunity on weakness today.

May 21, 2007 – Comments (0)

Xinhua Shares Plunge on Media Reports
Monday May 21, 11:05 am ET
Xinhua Shares Plummet on Media Reports the Company Did Not Disclose Damaging Information

NEW YORK (AP) -- Shares of Chinese advertising and market research firm Xinhua Finance Media Ltd. plunged in Monday morning trading on reports that damaging information about the company's former chief financial officer was not disclosed in its initial public offering prospectus.

Shares of the company, a unit of Xinhua Finance Ltd., dropped 16 percent to a new low of $8.31 in morning trading. Xinhua Finance Media has traded between $9.53 and $12.75 since its initial public offering priced at $13 on March 8.

According to an article in Barron's on Monday, former CFO Shelly Singhal ran a brokerage firm during his tenure that has been under a cease-and-desist order from the National Association of Securities Dealers since 2006, as regulators seek a suspension. Barron's also reported that Singhal is fighting a private civil racketeering suit in California courts for his investment activities.

The order and civil suit were not mentioned in the company's IPO prospectus in March.

Late Friday, the company issued a release stating that Shelly Singhal resigned from the boards of both Xinhua Finance and Xinhua Finance Media, as well as from all executive and managerial positions, effective immediately. The company noted that Singhal is currently the subject of a civil suit unrelated to Xinhua Finance, but said the former CFO believes the claim to be "without merit" and that he intends to "dispute it vigorously."

In a statement issued early Monday, Xinhua Finance Chief Executive Fredy Bush said Xinhua Finance Media complied fully with disclosure and due diligence requirements during the company's IPO. In addition, Bush said the company used "the most qualified independent advisers available to oversee this process."

"I look forward to keeping investors and followers informed of our progress and these ongoing initiatives," Bush said.

Barron's said two key employees of Xinhua Finance subsidiary Glass Lewis resigned last week due to the company's failure to disclose the information. Barron's reported that Glass Lewis' head of research, Lynn E. Turner, resigned on Friday and its managing director and research editor, Jonathan Weil, a former Wall Street Journal reporter, resigned on Wednesday.

According to Barron's, Weil wrote in his resignation letter that he was "uncomfortable with and deeply disturbed" by Xinhua's conduct. "To protect my reputation, I no longer can be associated with Glass Lewis or Xinhua Finance," he wrote.

Singhal was replaced as Xinhua Finance Media CFO by David Wang on May 7. Barron's said Wang has also worked for Singhal's brokerage firm.

CIBC World Markets analyst Jason S. Helfstein said last week, Xinhua Finance Media's shares declined 18 percent during a strong week for China media stocks, suggesting concerns over the personnel departures and lawsuit were already in the marketplace.

However, Helfstein said the stock weakness is in no way related to the company's fundamentals and underlined the strength of the ad environment in China.

"While these type of events call into question the character of the current and prior mgmt at Xinhua Finance Media, we believe these issues have no impact on current fundamentals, and that weakness provides a good buying opportunity ahead of seasonally strong second-quarter results," he wrote in a note to clients.