This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China RTO Yongye Gets $50 Million From Morgan Stanley

NEW YORK ( TheStreet) -- The Chinese reverse-merger company Yongye International (YONG) announced Tuesday that it got a boost from some big Wall Street money, receiving a $50 million investment from Morgan Stanley's (MS - Get Report) Asian private-equity unit.

The move comes as a surprise. In recent months, institutional investors have increasingly forsaken Chinese small-cap stocks amid an expanding fraud scandal. At least 18 Chinese stocks are under trading halts or have been de-listed. The Securities and Exchange Commission has been investigating the space since last year.

Recent problems at Longtop Financial (LFT), a Chinese company taken public through a straightforward IPO by Goldman Sachs (GS - Get Report), have increased worries among investors that financial accounting in the People's Republic isn't what it seems, and that overstated profits might be widespread. As with other Chinese companies this year, Longtop's Big Four auditor resigned, indicating that the company's management appeared to have forged bank documents and actively thwarted auditors' efforts to investigate.

Yongye -- which, like several other U.S.-listed Chinese small caps, produces organic fertilizers -- hasn't escaped negative attention. Several reports circulated on the Internet and written by investors with short positions in Yongye stock have raised questions about the company's financial reporting.

Yongye has denied the charges. But its stock, along with Chinese small-caps in general, have nonetheless taken a pounding. It has plunged more than 56% from above $8.50 in early January to $3.75 as of the close of trading Friday.

Morgan Stanley's interest in Yongye is, if nothing else, contrarian. "After extensive due diligence, we believe Yongye to be an exceptional company," said Homer Sun, a managing director of Morgan Stanley Private Equity Asia, in a press release announcing the deal.

Yongye said the deal contains a sweetener. If the company hits certain "multi-year profit commitments," Morgan Stanley will be able to convert convertible stock at $15 a share. The company didn't name the specific earnings targets or the amount of convertible stock that will be issued to Morgan Stanley.

Trading in Yongye stock was halted breifly Monday morning, joining more than a dozen other Chinese stocks under trading suspensions. There was a big difference, however. Yongye had favorable news to report. The other companies are under scrutiny because of fraud allegations.

Once trading began, Yongey stock exploded higher. Minutes after the opening bell, the company's shares were trading at $5.59, up more than 50%.

-- Written by Scott Eden in New York

>To contact the writer of this article, click here: Scott Eden.

>To follow the writer on Twitter, go to http://twitter.com/ScottEden.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
YONG $7.05 0.14%
GS $207.80 0.00%
MS $38.17 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs