2Joy Global is a US$6 billion company that trades on the N
ew York Stock Exchange (“JOY:NYSE”) and is a
major manufacturer of heavy equipment and machines for the mining industry. Between 2011 and early2012, Joy spent US$1.4 billion acquiring a Chinese company name International Mining Machinery
Holdings, Ltd. (“IMM”) in an effort to expand its reach in China’s massive coal mining machinery market.Relative to its size, Joy’s US$1.4 billion acquisition of IMM was substantial in scope.
IMM bills itself as a leading designer and manufacturer of underground longwall coal mining equipmentin China.
IMM was originally a publically traded company listed on the Hong Kong Stock Exchangebefore it was acquired by Joy Global.
Recently, concerns regarding the integrity of IMM’s financial information have
surfaced in the mediaand amongst investment professionals. The genesis of these concerns is an announcement made earlierthis year by global heavy equipment manufacturer Caterpillar that a recently acquired Chinesesubsidiary
had engaged in “accounting misconduct” and woul
d write down the value of this subsidiary.As it turns out, there are deep connections between the subsidiary where Caterpillar uncovered
and IMM, as both originally shared some of the same key owners anddirectors. As a consequence of these connections, some in the financial community were worried that just like Caterpillar, Joy Global would find accounting issues at IMM and likewise be forced to take awrite-down
a painful process given the relative size of the IMM acquisition.We have conducted months of analysis and field work which shows that the concerns expressed by achorus of media outlets, analysts, and critics were well-founded. The evidence we have gatheredsuggests that from its very beginning as a Hong Kong listed company, IMM was committing fraud. Most
of IMM’s biggest customers appear to be nothing more than shell entities set up solely to transaction
with IMM on paper, or inter-related parties owned and operated by IMM employees. Moreover, theaddress listed for mo
st of IMM’s largest customers are either residential compounds, vacated buildings,
or simply do not exist. Indeed, IMM has gone to great lengths to obscure the identity of its customers,including deliberately omitting the Chinese names of its customers in the Chinese version of its IPOprospectus.
In the wake of Caterpillar’s announcements regarding the accounting misconduct that it discovered at
its own newly-acquired Chinese subsidiary, Joy has publically stated that the financial informationcoming out of IMM is reliable. Yet despite these reassurances,
Joy’s disclosures in its most recent
10-Kfiling confirm that Joy did NOT evaluate the internal controls over financial reporting at IMM.
, we show that one of IMM’s founders and his business
partners have attempted to avoidnecessary regulatory disclosures and also violated a non-compete agreement, potentially breakingsecurities and contract law. Based on the evidence presented in this report, we have every reason tobelieve IMM has engaged in prolonged fraud dating back to its IPO days. Accordingly, we are confidentJoy Global will book a substantial write-down of its assets and faces considerable devaluation risk.