What’s new: Residential real estate services provider KE Holdings Inc. has rejected accusations of fraud from Muddy Waters, saying the U.S. short seller’s report contained errors and showed “a lack of basic understanding of the housing transactions industry in China.”
In the Thursday report, Muddy Waters said that its calculations showed KE Holdings inflated the value of new home sales it facilitated by over 126% and its revenue from commissions on home sales by about 77% to 96% in the second quarter and the third quarter of this year.
It also said it had found “massive discrepancies” between the transaction volumes, store and agent count reported to investors and Muddy Waters’ own data, which it said were corroborated by field interviews and site visits.
The report is “without merit and contains numerous errors of fact, unsubstantiated statements, and misleading speculations and interpretations,” New York-listed KE Holdings said the next day.
The company said that the method used by Muddy Waters to calculate its number of transactions was wrong, and that the short-seller had failed to take into account other sources of revenue, such as its dedicated new home sales teams.
Beijing-based KE Holdings said it would set up an independent audit committee to conduct an internal review of the key allegations in the report.
Shares of the company slumped as much as 9.3% on Friday in New York before reversing the decline to close up 5.7% at $19.36 from its close the previous day.
The background: KE Holdings, which listed last August, runs the Lianjia residential real estate agency chain and online platform Beike.
The Tencent Holdings Ltd. and SoftBank Group Corp.-backed company made new home sales a priority this year and has been setting up large sales teams since January, a person familiar with the matter told Caixin. For example, in the first half of this year, before the housing market cooled, there were 300 to 400 employees handling new home sales in Shenzhen alone.
Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)
Get our weekly free Must-Read newsletter.
