Housing broker Beike could face delisting from the New York Stock Exchange within three weeks after the Chinese firm’s American-listed entity this week was added to a US government watch list of public companies whose books are blocked from regulatory review.
Beike, which went public in New York in August 2020 and has seen its stock price slide 64 percent since that debut, has until 12 May to clear up the matter or face a delisting of its American depositary shares, which trade under the name KE Holdings.
The Beijing-based company was added to a US Securities and Exchange Commission watch list on Thursday after falling afoul of the Holding Foreign Companies Accountable Act, which requires that companies listed on US exchanges make available the source documents behind their audited financial statements.
“The company has been actively exploring possible solutions to protect the interest of its stakeholders,” Beike said Thursday in a release. “The company will continue to comply with applicable laws and regulations in both China and the US, and strive to maintain its listing status on the New York Stock Exchange.”
Held to Account
According to the SEC, the records of the companies on the watch list, including Ke Holdings, cannot be inspected or investigated completely by the US Public Company Accounting Oversight Board, due to a position taken by an authority in a foreign jurisdiction.
The companies identified under the US rules are primarily Chinese concerns, including big names like internet company Sohu, cafe chain Luckin Coffee, wealth management firm Noah Holdings and Hong Kong-based casino operator Melco Resorts & Entertainment, led by Lawrence Ho.
Beike, which owns the Lianjia property agency in China and the Ke.com property listing website, saw its accounting come under the microscope last December when Muddy Waters Research issued a report accusing the company of “systemic fraud” and “massive discrepancies” in its financial statements.
Among other disparities, US-based Muddy Waters alleged a 126 percent inflation of the number of new home sales handled through Beike’s platform, a metric that forms the primary basis for the company’s revenues. The investment firm has been short-selling Beike’s shares, which are down about 35 percent since the report.
Beike issued a statement at the time portraying the Muddy Waters report as without merit and riddled with factual errors, unsubstantiated statements and misleading speculations and interpretations that showed “a lack of basic understanding of the housing transactions industry in China”.
But the firm founded by Carson Block has been on target before, making a name for itself by exposing fraud at since-bankrupt Chinese firms like Luckin Coffee, Sino-Forest and NQ Mobile while shorting their stocks.
Fending Off Legal Action
Beike filed its annual report for 2021 with little fanfare earlier this week. In the document, Beike acknowledged that a US class-action lawsuit had been filed against the company in late December, with the plaintiffs seeking damages as a result of alleged misstatements and omissions in Beike’s SEC filings and public disclosure documents.
“We intend to vigorously defend ourselves against this and any related litigation,” Beike said in a filing with the SEC.
The firm founded by the late Zuo Hui posted 2021 revenue of RMB 80.8 billion ($12.7 billion), up 14.6 percent year-on-year, and a net loss of RMB 524.8 million ($82.3 million), backsliding from a net profit of RMB 2.8 billion in 2020.
Last September, Reuters reported that Beike was planning a Hong Kong stock listing and had gone so far as to hire Goldman Sachs to lead a float, but the company denied having an “imminent plan” for an HKEX listing or any share sale.