Online game operator Perfect World (Nasdaq: PWRD) has come under attack from an anonymous blogger who may have been trying to blackmail the company, sending its prices plummeting and showing that short sellers aren’t the only ones looking to profit on the credibility crisis plaguing US-listed Chinese companies. Shares of Perfect World, which was already struggling from slowing business (previous post), have been on a roller coaster ride these last 2 days, plunging 27 percent on Monday after the anonymous posts came out (Chinese article), only to bounce back 20 percent on Tuesday after the company strongly denounced the reports. (company statement) After all that, Perfect World shares are still down 12 percent from their levels before the articles appeared, indicating this story may not be over yet and investors are still concerned about some of Perfect World’s business practices. A bit of guess work is necessary here as no one, including the company statement, is telling the complete story. But reading between the lines, it appears the anonymous blog posts questioned some transactions conducted by Perfect World CEO Chi Yufeng between companies under his control. The articles appear to imply that some of the transactions were made at favorable prices to Chi’s other companies, at the expense of Perfect World. Such practices are hardly unusual in the tainted world of US-listed Chinese firms, whose founders often use their companies as personal kingdoms to conduct transactions that may benefit themselves but aren’t always in the best interest of their other shareholders. Two other companies, Focus Media (Nasdaq: FMCN) and Giant Interactive (NYSE: GA), came under similar attack last year for dubious transactions unrelated to their core business, though in the Focus case the attack was mounted by a short seller. (previous post) In Perfect World’s case, the company implies the attacker wasn’t a short seller, but rather a blackmailer looking for money in exchange for not publishing its articles. Such blackmailing is relatively common in China, and this particular case spotlights yet another danger scandal-tainted US-listed Chinese companies will now face as they work to clean up their image.
Bottom line: An apparent attack on Perfect World by blackmailers spotlights another vulnerability for US-listed Chinese firms as they struggle with a credibility crisis over their business practices.
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◙ Cleanup Resumes, Facebook Sniffs Out China Investors 在美上市的中国企业将继续面临“大清洗”
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With all the buzz out there about a looming China Internet bubble, new downwardly revised guidance from Perfect World (Nasdaq: PWRD), one of China’s more innovative and outward looking online game operators, looks like a potentially worrisome warning flag. According to its newly released latest estimate, the company expects to earn around 720 million yuan in revenue for the third quarter, or about $110 million, down by a sizeable 8 percent from its previous forecast given out just 3 weeks ago for about 780 million yuan. (
