THE cost of borrowing shares in China’s Tianhe Chemicals has risen since an equities research house alleged last week that the company cooked its books, suggesting the report was gaining traction with investors.

    Trading in Tianhe shares is halted at the Hong Kong-listed firm’s request as it prepares a statement denying the allegations, but those who own shares can still loan them to short sellers betting the price will fall.

    Data from trading platform Interactive Brokers show the cost of borrowing Tianhe shares stood at 14.5 percent Tuesday, up from 11.35 percent Sept. 2, when the report by Anonymous Analytics went public and dragged the stock down 5 percent in a few hours.

    The average cost of borrowing shares in mainland companies trading in Hong Kong stands at around 1 percent. Some traders and bankers said Tianhe’s shares were targeted as soon as they were eligible to be shorted in August at a rate of 7 percent.

    The Anonymous Analytics report said Tianhe had inflated its revenues, misrepresented its customers and misstated its taxes.

    Tianhe has said the “malicious” report contained errors and misleading statements. It has yet to issue further details.

    Morgan Stanley, UBS and Bank of America led Tianhe’s Hong Kong initial public offering (IPO) in June, and Morgan Stanley’s private equity arm still holds an estimated US$300 million stake in Tianhe. Shorters note that such investors have deep financial resources to buy up shares themselves to resist a short trend and defend the value of their investments.

    Traders and bankers say that short sellers can end up losing money even if allegations prove to be correct.

    The mainland and Hong Kong stock markets have been rallying. That can lift even weak stocks and prompt stock lenders to demand shorters return their shares at a loss. (SD-Agencies)