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The Shorts Have Irked ONP



July 07, 2010 – Comments (15) | RELATED TICKERS: ONP

Disappointing news out of Beijing today. Orient Paper has informed us a scant 12 hours before we were supposed to meet them at their plant in Baoding that they will not be able to host us for a tour and meeting. Apparently their "management team will be traveling to Henan Qinyang with an outside due diligence team to hold meetings with the manufacturer of our new 360k t/a paper machine and get an understanding of the progress of the assembly of the machine" and would like to reschedule...for a time when we will not be in the area. Further, "our Board is formulating a policy to vet all visitor requests to tour the factory...Now for me to communicate with our Board, I have to report to them (1) the main purposes of Global Gains' visit, (2) any special request during your visit, and (3) the means of publishing report after you finish your visit."

ONP had peaked our interest following the stocks' sharp decline after Muddy Waters Research issued an opinion calling the company a fraud. Frankly, we'd think they'd want more investors to come take a look at the facility and offer their opinions if MWR's allegations are so misguided. Unfortunately, we won't be the people offering that opinion. Also, if I can publicly offer some unsolicitied advice to ONP, controlling access to your facility really isn't the best way to foster a culture of transparency.

If you don't know what I'm talking about and haven't been following this saga, it's recommending reading. Although you have to register to get get MWR's original report, you can find most their work hereONP's rebuttal here, and  ONP's rebuttal to the rebuttal rebuttal here. Given that our visit has been canceled, I suspect more of these rebuttals. Good times.

15 Comments – Post Your Own

#1) On July 07, 2010 at 1:04 PM, Superdrol (32.37) wrote:

do you think they are a fraud ?

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#2) On July 07, 2010 at 1:16 PM, AltData (32.15) wrote:


It's not surprising that they pulled into their shell after being burned like that by Muddy Waters. Maybe one of your group should break off and attempt to make that rescheduled visit and you could all regroup later.

It would be like,

an adventure!

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#3) On July 07, 2010 at 2:20 PM, USNHR (29.86) wrote:

Sounds like a short to me.

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#4) On July 07, 2010 at 2:27 PM, thanatos2 (< 20) wrote:

In the "rebuttal to the rebuttal rebuttal" (say that four times fast), ONP states that they were planning an unscheduled trip to Henan Qinyang  with a group of their larger investors in order to allow them to verify what is going on for themselves.  That being said, it surprises me that they would be able to scedule it all so quickly, unless most of the largest investors are locals.

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#5) On July 07, 2010 at 3:49 PM, urmston123 (< 20) wrote:

that's "piqued" our interest, not "peaked."


Sorry, it's my pet peeve. Other than that, thanks for the interesting report, which illustrates the value of having you guys on the ground out there.



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#6) On July 07, 2010 at 4:09 PM, JSMBAPhD (< 20) wrote:

Superdrol, I don't know about ONP, but I would guess that Muddy Waters is a fraud. 

There have been recent bear raids against numerous Chinese stocks, typically small caps for which the transparency is low.

Let's start out by conceding that shorts can perform an important service. Most longs do not research companies in depth. They rely on others to do the research for them. As we know, those who do the rating can be compromised.

Let's also concede that, in part due to the lack of transparency and the difficulty of doing due diligence on site, a number of small Chinese companies have proven to be less than advertised. I'm not sure that they're any more fraudulent than US microcaps, but it certainly is an investing space where caution is advisable. 

I had the opportunity to follow in great detail the attack on CMFO and was appalled by the quality of the "research" that went into attacking CMFO. What it came down to was some questions about insider dealing and the level of disclosure of the financial statements of a company that CMFO bought, some innuendo based mostly on the fact that most Americans don't read Chinese (one of the shorts was unaware that China has more than one language), and so on. In other words, these people are spreading panic in order to drop the price of the stock. They didn't even sign onto the conference call to ask the questions they claimed the company wasn't being forthcoming about. They even started throwing out wild numbers that that they could not substantiate, and refused to correct themselves. In other words, they were willing to lie. 

Are the shorts right? Did CMFO overpay and engage in insider dealings? Maybe. Is it a "fraud"? Maybe.  But they sure as h--- didn't prove their case. What they proved is that they're hustlers and liars. 

BTW, I chose the term "bear raid" deliberately. In the lead up to the 1929 crash, big investors made their money by "booming" and "busting" stocks. A bear raid is the spreading of derogatory information in the hope of buying a stock cheaper.  Nowadays, you can even make money at shorting the stock on the way down, then make money on the way up. 

Such abusive short sellers are not performing a service. They are hogs, and they are damaging the small cap market in a way that will cost all of us for years to come. It's time for either some serious investigation or some serious regulation of short sales in small caps.  (the large caps can take care of themselves). 

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#7) On July 07, 2010 at 5:36 PM, informationasy (< 20) wrote:

Did anyone here actually listen to ONP's conference call this morning? I was so surprised that for all the debates, no body dare to ask a question on the call. Where is the short-seller? Where is your question? It looks like ONP is ready but the short-seller has no more smoking guns after the company showed all the hard evidence.


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#8) On July 07, 2010 at 11:12 PM, sigma (< 20) wrote:

If they can't stand the heat......

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#9) On July 08, 2010 at 1:10 AM, jacobske (< 20) wrote:

Tim, I sent a note to Crocker Coulson (IR) about the company not supporting the visit as scheduled.  What a wasted opportunity! I believe them putting you guys off is very shortsighted!


Waiting to re-buy or run away from ONP



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#10) On July 08, 2010 at 3:13 AM, TMFMmbop (28.03) wrote:

Worst part is...they invited us!

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#11) On July 08, 2010 at 9:09 AM, jacobske (< 20) wrote:


Are you going to place a link to to this blog entry in the GG message board, "Stocks That Interest You"?  We have other discussions there about ONP (formerly OPAI) and I'd hate to lose the entry/discussion thread. 

At this time Crocker Coulson has not responded to my e-mail.



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#12) On July 08, 2010 at 10:58 AM, JaysRage (78.63) wrote:

I really hope Muddy Waters gets legally slammed for this.   It was a hatchet job all the way.    I can understand ONP being hesitant after the freight train that hit them with the Muddy Waters thing, but yeah, it would have done them well to let a legitimate objective news source in.   

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#13) On July 08, 2010 at 7:34 PM, fg144331 (< 20) wrote:

I'm such a skeptic, this isn't the first Black Eye that MW has

given to a company,  sounds to me as if MW is shorting just before they

publish the bad report!  Possible right, no body says they are

ALL honest ! 

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#14) On July 10, 2010 at 12:29 PM, jacobske (< 20) wrote:


I asked ONP investor relations if the meeting took place.  They sated, "It turned out that it (meeting/visit they scheduled with you) conflicted with the investor tour of the equipment supplier and the management could not be in two places at once. It is unfortunate and we will try to reschedule."

Not a confidence building measure for sure with the GG community--very disappointing.


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#15) On July 30, 2010 at 5:03 PM, aapries (41.07) wrote:

Well Tim,

Obviously they're going to have a serious issue with outsider visits. Just reschedule and find the truth out for yourself. They are probably dealing with a myriad of problems regarding these allegations not to mention the primary task of running a profitable business.You on the other hand have to plan your questions, hotels, and meals.

Put yourself in the CEO's shoes - you start a business and after 14 years watch it grow into something worth the sweat, just to see it crumble in one month because some random guys want to make money by spreading lies about you being a fake. Would you know the proper way to react right off the bat? Give them a break and just reschedule. 

A very shrewd investor said to invest when there is maxium uncertainty and low risk. I can't think of a better example than ONP.

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