Shares of GDS Holdings Plunge 37% After Being Hit by a Short-seller Report
Blue Orca said it believes GDS’s equity could be worthless, and GDS’s growth story, "which has made it a market darling, is likely illusory."
Shares in GDS Holdings Ltd. (Nasdaq: GDS) tanked more than 37 percent after a short-seller issued a report claiming the Chinese data center company is inflating its value and the performance of its data centers.
Blue Orca Capital, a new activist short-seller, said it found that GDS, which develops and operates data centers in China, was borrowing recklessly "to enrich insiders by acquiring data centers from undisclosed related parties which are not nearly as valuable as the company claims."
Moreover, the short-seller accused GDS Holdings of falsifying accounting data by "inflating the size of GDS's service area, utilization rates and therefore its reported revenues and EBITDA."
Blue Orca said it believes GDS's equity could be worthless, and GDS's growth story, "which has made it a market darling, is likely illusory."
In particular, the short-seller investigated GDS's data center acquisitions after the company's initial public offering in late 2016. GDS reported six data center acquisitions for a total consideration of 1.18 billion yuan ($173 million). However, "based on our review of SAIC filings and other publicly available records, we believe that GDS inflated the value of such acquisitions by at least 696 million yuan, and that is without being able to verify 3 of the 6 transactions," the report said.
GDS did not immediately respond to the allegations.
After the report, released today, shares of GDS plunged, closing at $21.83 per share in New York. Raymond James, a U.S.-based financial services firm, initiated coverage of GDS two weeks ago with a "strong buy" rating and a price target of $53 per American depositary share, representing a 20 percent increase from Monday's close.
In response to today's moves, several law firms, including the Rosen Law Firm in New York and Bernstein Liebhard LLP, announced they would begin investigating a potential class action suit on behalf of GDS shareholders.
Separately, GDS said the company would report its second quarter financial results on