Short seller who slammed Samsonite swipes at new target
Man is betting against GDS Holdings, a Chinese provider of data-centre infrastructure
A short seller who made a splash earlier this year for attacking luggage maker Samsonite International SA has a new target on his radar.
Soren Aandahl, who runs Texas activist investment fund Blue Orca Capital LLC, said he is shorting, or betting against, GDS Holdings Ltd., a provider of data-center infrastructure and services in China. The U.S.listed company, which fetches a $4.3 billion market value, has risen more than 50% this year through Monday and has more than tripled since its initial public offering in November 2016.
In a 53-page report published Tuesday, Mr. Aandahl said the Chinese company’s interest payments exceed its gross profits and investors have “indulged GDS’s staggering debt burden because of the belief in its supposedly impressive growth.” He alleged that GDR is overstating the utilization rate at one of its flagship data centers, which could be problematic for how the company measures itself across its business.
“There is never just one cockroach,” Mr. Aandahl wrote in the report.
“We think it’s fair to assume that if the company is overstating utilization at one facility, it is likely doing so at other facilities. If utilization and area in service are overstated, then so are reported revenues and profits.” GDS shares dropped 20% minutes after the report was published Tuesday morning and recently traded around $28. Mr. Aandahl wrote the stock “could easily be worth $0.00.”
In an interview, Mr. Aandahl said the U.S.-China trade tensions and the Chinese govern- ment letting the yuan slide are other reasons to be skeptical about GDS. He said the company’s debt is in U.S. dollars, while it makes most of its revenue in renminbi, a concern if China actively moved to devalue the currency further. GDS didn’t immediately respond to multiple emails requesting comment.
“We identified some pretty classic China hustle behavior,” Mr. Aandahl said. “And these guys are so levered that it’s dangerous. In a devaluation scenario, the exchange rate would completely work against them.”
Mr. Aandahl, a former lawyer who is Blue Orca’s chief investment officer, started the firm earlier this year. Blue Orca’s first public short bet came in late May against Samsonite, saying the company was hurt by “questionable accounting practices and poor corporate governance.”
He also claimed the company’s chief executive at the time, Ramesh Tainwala, should have been fired for fabricating a doc- toral degree on his résumé.
Mr. Tainwala later admitted to The Wall Street Journal that he didn’t have a doctorate. He ultimately resigned for “personal reasons” one week after Blue Orca’s allegations were first published.
Short sellers borrow shares to sell them with the hope of buying the shares back later at a lower price and pocketing the difference. Samsonite’s shares, which are listed in Hong Kong, still trade below where they were before Blue Orca’s report came out.
Other U.S.-based short sellers have recently made bets against U.S.-listed Chinese companies. Carson Block, founder of Muddy Waters, said in June he was short TAL Education Group, an after-school tutoring firm in China that he claims is “a real business with fake financials.” Ben Axler of Spruce Point Capital Management also said in June that he was shorting Chinese internet firm Momo Inc., which operates China’s Tinder.