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Release Date: 22 October 2014

Tianhe Chemicals
Final Response to Tianhe and
2
nd
Open Letter to Deloitte
You should have expected us

anon.analytics@neomailbox.net
Twitter: @anonanalytics
www.anonanalytics.com



1

Disclaimer

Neither Anonymous Analytics nor its principles is a registered investment advisor or otherwise licensed in any
jurisdiction, and the opinions expressed herein should not be construed as investment advice. This report
expresses our opinions, which we have based upon publicly available facts and evidence collected and analyzed
including our understanding of representations made by the managements of the companies we analyze, all of
which we set out in our research reports to support our opinions, all of which we set out herein. We conducted
basic research based on public information in a manner than any person could have done if they had been
interested in doing so. You can publicly access any piece of evidence cited in this report.

All facts, figures, and opinions are as at the last practicable date. This document has been prepared for
informational purposes only. This document is not an offer, or the solicitation of an offer, to buy or sell a security
or enter into any other agreement. We have made every effort to ensure that all information contained herein
that support our opinions is accurate and reliable, and has been obtained from public sources we believe to be
accurate and reliable, and who are not insiders or connected persons of the stock or company covered herein or
who may otherwise owe any fiduciary duty to the issuer. However, we do not represent that it is accurate or
complete and should not be relied on as such, in particular, Tianhe Chemicals (Tianhe or the Company) and
insiders, agents, and legal representatives of Tianhe and other entities mentioned herein may be in possession of
material non-public information that may be relevant to the matters discussed herein. Do not presume that any
person or company mentioned herein has reviewed our report prior to its publication.

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Dont be stupid and invest in the public markets unless you are prepared to do your own homework and due
diligence.


2

Executive Summary

Forged SAIC Filings and Chairman's Signature: By Tianhe's own admission, Fuxin Hengtong is barely
profitable. Given this, it makes no sense for anyone to forge documents related to the subsidiary the
numbers disclosed by Tianhe are horrible on their own. Yet, Management wants to falsely claim that we
went through the trouble of forging SAIC filings and the Chairman's signature on a subsidiary that
effectively might as well not even exist.

Fuxin Hengtong's Profitability (or lack of): Tianhes explanation for the lack of profitability at its Fuxin
Hengtong subsidiary makes no sense. We present new evidence that contradict Management's
explanations that Fuxin Hengtong mainly sells internally to the Company.

Dr. Offord and Mr. Zhang Silang and their Roles at Tianhe's Customers: Tianhe continues to
misrepresent its relationship to purported independent customers Shanghai Top and Xidatong, when
the evidence shows that these customers have either recent or current connections and ties to Tianhe
and are not truly independent. Tianhes explanations for the roles of Dr. Offord and Zhang Silang
simply cannot be believed and fly in the face of common sense and the evidence.

Site Visits: Tianhe claims that Xidatong and Shanghai Top are among its biggest customers. Yet simple
site visits to these customers show how delusional Tianhe's claims are. The photographic evidence we
have gathered do not reflect how real, independent businesses operate they reflect poorly conceived
intermediaries that have been set up by related parties to fool investors and auditors. Check out our
photo album!

Anti-Mar Claims Contradicted by Industry Evidence: Tianhe claims the secret of its profitability stems
from its ability to produce and sell anti-mar in commercial quantities, but refuses to name a single one
of its end-users. Management claims that our market size estimate of 4 tons of pure anti-mar is wrong,
but refuses to provide their own market size with a coherent explanation to support their calculations.
And managements definition of anti-mar seems to be changing, including claims that anti-mar can be
used on solar panels (without even naming a single sizable solar-panel company that uses anti-mar in
such fashion).

Our 2
nd
Open Letter to Deloitte: In this response, we also provide a 2
nd
open letter to Deloitte
explaining why Tianhe's purported tax confirmations contradict the Deloitte-audited SAIC filings why
Tianhe's explanation for this discrepancy makes no sense and fly in the face of basic accounting rules.













3

Introduction

Following the release of our initial report, there was a noticeable divide in sentiment between Western
investors and Chinese/Hong Kong investors.

Western investors remembered names like Lubrizol and DuPont and Solvay, and saw Tianhe as another
glowing chemical company after all, the financial statements looked amazing. But we saw much more
skepticism among Chinese and Hong Kong investors.

The idea here is that those who understand and live with the reality of Chinese frauds on a daily basis
were much more skeptical of Tianhe than the Western funds that applied a 10X multiple to 50% margins
and a 50% growth rate. This may also explain why on the same day that we released our initial report,
Tianhe's management team was not in China or Hong Kong, but in Boston trying to promote the stock to
US investors.
1


Throughout their clarification announcements, Tianhe has responded by twisting and manipulating
Chinese laws and accounting practices minutia that can easily get lost on foreign funds that don't
necessarily have the expertise to understand what they are being presented.

We don't know what the investor base of Tianhe is now. The day Tianhe resumed trading, it plunged
40% as investors sold out. This was a day after Tianhe had published a 55-page clarification
announcement rebuttal in which, among other deficiencies, they refused to name a single end-user of
their most lucrative product (anti-mar) or to acknowledge public tax records, or to explain and reconcile
what is clear evidence of related party transactions. After reading Tianhes side of the story, the stock
price adjusted downward, reflecting investor sentiment about their views of the Companys credibility.

In this response, we present further evidence that Tianhe is a fraud, and we show that the Companys
perverted interpretation of tax and accounting treatments is without any valid basis.

We have also sent a second open letter to Deloitte today, which we enclose at the end of this report.
















1 http://online.wsj.com/articles/tianhe-chemicals-squares-off-against-anonymous-analytics-1410190383

4

Forged SAIC Filings and Chairman's Signature

In Tianhe's 10 September 2014 clarification announcement, Management claimed that we fabricated
documents to mislead investors. Specifically, Management asserted that we had fabricated the income
statement of Fuxin Hengtong for 2011 and the Chairman's signature on Fuxin Hengtong's 2012 financial
summary page:
2


Fuxin Hengtong 2011 Income Statement:



2 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0910/LTN20140910959.pdf pg. 2

5

Fuxin Hengtong 2012 Financial Summary Page:




These two documents show that Fuxin Hengtong generated revenue of RMB275 million in 2011 and
RMB143 million in 2012.
3
According to Management, both these documents were fake. Additionally,
Management claimed that the signature of Tianhe's Chairman on the 2012 financial summary page had
been forged.

Fast forward to Tianhe's subsequent clarification announcement dated 8 October 2014, and investors
were shocked to learn that by Management's own admission, Fuxin Hengtong only generated 6.8% of
Tianhe's revenue in 2011 and 2.6% of Tianhe's revenue in 2012. The market also learned that Fuxin
Hengtong was actually losing money prior to 2011:


3 https://www.scribd.com/doc/238368088/Tianhe-pdf pg. 11 and pg. 12

6

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 8


According to the prospectus, Tianhe generated revenue of RMB3.36 billion in 2011 and RMB4.19 billion
in 2012. If as Management claims, Fuxin Hengtong only contributed to 6.8% and 2.6% of revenue in
2011 and 2012, this means that Fuxin Hengtong only generated revenue of RMB228 million in 2011 and
RMB109 million in 2012.

So by Management's own admission, Fuxin Hengtong is barely profitable. Given this, it makes no sense
for anyone to forge documents related to the subsidiary the numbers disclosed by Tianhe are horrible
on their own. Yet, Management wants to claim that we went through the trouble of forging SAIC filings
and the Chairman's signature on a subsidiary that effectively might as well not even exist.

What a joke.

This is the most asinine and incompetent management team we have ever had the pleasure of exposing,
and we are happy that Tianhe's own disclosures, along with its collapsed stock price have vindicated us.

But we are not quite done yet










7

Fuxin Hengtong's Profitability (or lack of)

In their 8 October 2014 clarification announcement, Management presented tax confirmation letters
which it claims are from Liaoning Yi County State Tax Bureau and Fuxin City Haizhou District State Tax
Bureau.
4
Presumably, Management would want the public to believe that these letters exonerate and
confirm that Tianhe paid all its taxes, based on the numbers presented in the IPO prospectus.

However, what's interesting about these documents is that the letter from Fuxin City Haizhou District
State Tax Bureau shows negligible taxes paid (consistent with our findings), while the document from Yi
County State Tax Bureau purports to show that Tianhe paid massive taxes (inconsistent with our
findings). As we previously noted,
5
we believe that Tianhe was able to forge/obtain fake tax documents
for its Jinzhou DPF-TH subsidiary but not for its Fuxin Hengtong subsidiary. As a result, we believe that
Management has therefore attempted to shift all the revenue and profitability generated by Tianhe to
its Jinzhou DPF-TH sub.

According to its prospectus, Fuxin Hengtong and Jinzhou DPF-TH are Tianhe's only two operating
subsidiaries.
6
Tianhe had never broken out the revenue split between Fuxin Hengtong and Jinzhou DPF-
TH until they were forced to in their 8 October clarification announcement. And when they did, we
suspect all market participants were shocked to learn that according to Management, Fuxin Hengtong
only generated 6.8% to 2.6% of Tianhe's total revenue in the 2011-2013 track record period.

According to Management, the purported reason Fuxin Hengtong's business operation is so laughably
small is due to two reasons:

1) During the Track Record Period, the Group mainly produced TI, HFE and PTFE at Fuxin
Hengtong, which have lower average selling prices than specialty fluorochemicals manufactured
at Jinzhou DPF-TH, such as TEI and other downstream specialty fluorochemicals products
7


2) In addition, the majority of the products from Fuxin Hengtong were used by the Group to
produce TEI and downstream specialty fluorochemicals at Jinzhou DPF-TH. During the Track
Record Period, the external sales of Fuxin Hengtong were mainly attributed to sales of HFE and
PTFE.
8


In our 9 October response, we presented evidence why these reasons as set out by Management make
no sense.
9
Specifically, we presented evidence from Fuxin Hengtong's own website which shows that it
purports to sells high-margin products, including Tianhe's crown jewel chemical anti-mar. Therefore,
Management's excuse that Fuxin Hengtong only sells low margins products and thus has almost no
revenue (explanation #1) is false. We also explained that in China, tax law dictates that transfer pricing is
accounted for at market prices and if Fuxin Hengtong sells internally to Jinzhou DPF-TH, it still has to
record sales and income as an arm's length transaction, which makes Management's explanation #2
false as well.

4 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 8
5 http://www.anonanalytics.com/2014/10/tianhe-chemicals-response-2.html pg. 4
6 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdf pg. I-2
7 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 10
8 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 10
9 http://www.anonanalytics.com/2014/10/tianhe-chemicals-response-2.html pg. 10 and 11

8

Management didn't really provide a coherent answer to our responses, and instead chose to refer back
to its purported tax confirmations.

However, here we will provide further evidence that Management's explanation regarding Fuxin
Hengtong makes no sense:

First, Management claims that Fuxin Hengtong effectively acts as a slave subsidiary manufacturing
feed stock and then sending them to Jinzhou DPF-TH to be processed into much more expensive
chemicals. As a result, Fuxin Hengtong does not generate much in terms of external revenues.

Second, Management also claims that Xidatong is Tianhe's second largest SFC customer, having
purchased RMB1.1 billion SFC products in 2012 and RMB0.7 billion in 2013.
10
Among the purported SFC
products that Xidatong purchases from Tianhe is 4 tons of high-margin, pure anti-mar worth about
RMB500 million. However, an internet search shows that Xidatong repeatedly claims to be the
distributor for Fuxin Hengtong:



If Fuxin Hengtong was truly just a slave subsidiary to Jinzhou DPF-TH, then Xidatong would represent
itself as a distributor of Jinzhou DPF-TH, and not Fuxin Hengtong. Clearly that is not the case, and this
evidence shows yet more holes in Management's ridiculous explanations. It seems that every time
Management puts out a clarification announcement, they attempt to cover one lie with three other lies.

10 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdf pg. I-27 (it is now
established that customer C is Xidatong)

9

Dr. Offord and Tianhe's Unnamed Customers

In its 8 October 2014 announcement, Management disclosed that Shanghai Top used the contact of Dr.
David Alan Offord as a consultant to provide pre-sale technical advice.
11
As background, Tianhe claims
Shanghai Top is a major independent customer, while our reports have shown that Shanghai Top is an
undisclosed related party. Additionally, Dr. Offord is one of three US scientists employed by Tianhe, and
listed as a senior manager of the Company, having been its Chief Technical Officer since 2006.
12


To most, the disclosure of Dr. Offord having had any sort of relationship to Shanghai Top might have
seemed unusual for Tianhe to admit because there was no apparent basis for the disclosure. Some may
even have thought it was the willing disclosure of an honest and open Management team. In reality,
during the time Tianhe was suspended from trading, we privately submitted information about Dr.
Offord to the HKex and the SFC showing that Dr. Offord had an extensive relationship with Shanghai
Top. It's obvious the regulators forced Tianhe to disclose this relationship.

But despite what Tianhe claims, Dr. Offord was more than just a consultant who provided pre-sale
technical advice to Shanghai Top's customers. According to an online profile, Dr. Offord held the title of
Vice President at Shanghai Top and even used the company's email address:


Source: http://www.chemicalregister.com/Top_Fluorochem_Co_Ltd/Supplier/sid18447.htm















11 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 17
12 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdf pg. 187

10

Furthermore, according to multiple online supplier profiles, Dr. Offord was the only contact person
listed for Shanghai Top. For example, this profile showing Dr. Offord as the contact person for Shanghai
Top was created in 2010, 4 years after Dr. Offord joined Tianhe's senior management team:


Source: http://www.guidechem.com/trade/pdetail682190.html


Likewise, this profile showing Dr. Offord as the contact person for Shanghai Top was created in 2008, 2
years after Dr. Offord joined Tianhe's senior management team:


Source: http://www.made-in-china.com/traderoom/topfluorochem


11

Furthermore, the above profile lists Shanghai Top's company address at 4267 Mabel Ave, California. A
property records check shows that this is/was the private home of Dr. Offord and his family:

Source: http://www.spokeo.com/reverse-address-search/search/4267+Mabel+Ave,+Castro+Valley+CA+94546

It's clear that Dr. Offord worked at Shanghai Top during his time as a senior manager at Tianhe and that
he was more than just a consultant. In fact, he seems to have been the only contact person for
customers of Shanghai Top.

Now here is the interesting part: Tianhe claims that it has no idea who its end-customers are because it
uses intermediaries such as Shanghai Top, and the client list of these intermediaries is a trade secret.
13

However, if Dr. Offord was the ONLY customer contact for Shanghai Top at a time when he was, and
continues to be, part of the senior management team at Tianhe, then how can Tianhe possibly claim it
does not know who its end-customers are?

The evidence suggests that that Dr. Offord and Tianhe should have very intimate knowledge of Shanghai
Top's customers.

We remind Dr. Offord that while Tianhe's Chinese management team can escape the justice of US
courts, he cannot. If Dr. Offord continues to claim ignorance and maintain his relationship with Tianhe,
and if Tianhe collapses as a fraud as we have no doubt it will, he as a member of Tianhe's senior
management team he can be held legally and criminally liable, be prosecuted and have his assets seized
to make investors whole.
14


We suggest that it may not be too late for Dr. Offord to turn whistleblower to the Hong Kong Securities
and Futures Commission and the US Department of Justice.

13 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 14
14 http://www.theglobeandmail.com/report-on-business/former-sino-forest-executive-settles-with-osc-
after-alleged-ponzi-scheme/article19690005/

12

Mr. Zhang Silang and Xidatong

In addition to Dr. Offord, we also found the contact information of Zhang Silang on Shanghai Top's
website as a customer contact. For background, Zhang Silang is the CEO of Xidatong, which Tianhe
claims to be another independent intermediary. In reality, our 2 September report provides evidence
that Mr. Zhang Silang is a connected person to Shanghai Top, Tianhe, and Xidatong, and Taina.

In response to our initial report, Tianhe simply claimed in their 10 September clarification
announcement that Mr. Zhang Silang had never been employed by Shanghai Top.
15
It seems that given
the evidence we presented, the HKex was not satisfied with Tianhe's we don't know answer. In a
subsequent clarification announcement dated 8 October, Tianhe changed its story and admitted that
Mr. Zhang Silang had actually been an external sales consultant to Shanghai Top between 2009 and
2011.
16
But even this change in story contradicts reality.

Mr. Zhang Silang's english name Greg Chang can be found as the contact person in Shanghai Top's
product catalog. This product catalog is currently live on Shanghai Top's website, which means Greg
Chang continues to be the contact person for Shanghai Top to this very day:
Source: http://www.topfluoro.com/en/image/catalogs/TopFluoroCatalog.pdf

And how do we know greg@topfluoro.com is Zhang Silang's email address? Because that is the email
contact he provides on his Shanghai Top business card, as per page 43 of our 2 September report:


15 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0910/LTN20140910959.pdf pg. 6
16 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 18

13

So once again, we come to the same question: How can Tianhe claim that the customer list of its
intermediaries are trade secrets when these intermediaries all use the contact information of each other
as sales agents?

Furthermore, in what universe would one competitor (Shanghai Top) ask the CEO of another competitor
(Xidatong) to act as its external sales agent? The mind reels at the stupidity of this explanation.

Beyond Zhang Silang's connection to Shanghai Top, our previous reports also provided ample evidence
that Mr. Zhang is also a top-level executive of Tianhe.
17,18


In their clarification announcements, Tianhe simply claimed they did not know the source of such
information.
19
But if Tianhe consults with their legal counsel, they may learn that claiming ignorance is
not a valid defense.

In reality, the internet is littered with evidence that Xidatong and Tianhe have overlapping management
and are related parties. For example, here is the online profile of Xidatong on an Alibaba-type website:
Source: http://fs.hc23.com/company/100836.html

This profile shows that Xidatong uses Tianhe's email address. No matter how closely these parties work
together, no truly independent customer would ever have any reason to use a supplier's email
addresses. We do not recall any instance where Steve Jobs used sjobs@foxxconn.com as his email
address.

It's simply mind blowing that Tianhe continues to maintain that Xidatong and Shanghai Top are all
independent of each other and of Tianhe in the face of all the overwhelming evidence that shows they
are in fact undisclosed related parties.

17 http://www.anonanalytics.com/2014/09/tianhe-chemicals.html pg. 41
18 http://www.anonanalytics.com/2014/09/tianhe-chemicals_14.html pg. 12
19 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 17

14

Customer Addresses and Site Visits

In Tianhe's 55 page clarification announcement, Management presents the following breakdown of the
addresses of its purported customers:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg.15


To someone who isn't paying attention, it might seem that our initial report overlooked these business
locations by virtue of Management presenting a list of addresses for Xidatong, Shanghai Top, and Taina.
In reality, this list consists of the same addresses we visited and provided pictures for in our 2
September report.
20
We are baffled why Management would want to present these address in their
rebuttal given that we had already visited them and presented picture of offices that are evicted, do not
house the actual company, or lack credible operations.

However, we will present the pictures again, along with new photos, provide further details on our site
visits, and also provide new evidence that these customers are just related parties.












20 http://www.anonanalytics.com/2014/09/tianhe-chemicals.html

15

Shanghai Xidatong

Registered address: Business address:
Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg.15

Registered address

As presented on page 38 of our 2 September report, we had already sent a team to Xidatong's
registered address at Room 388, No. 14, 1700 Luoshan Road.
21
Here is what they found:



This is a room in an abandoned housing community that is littered with garbage and broken furniture.
We are aware that a registered address can be different from a business address, as Tianhe likes to point
out. But a registered address is supposed to accommodate administrative functions such as delivery of
mail, notices, and bills not be abandoned and full of garbage.





21 http://www.anonanalytics.com/2014/09/tianhe-chemicals.html pg. 38

16

Business address

According to Tianhe, Xidatong has two business addresses. We visited the first one (No. 1205,
Huancheng Road 2222, Jiading District, Shanghai) in our initial report and found it to be an office shared
by Xidatong and Taifu. By way of background, Taifu is a company chaired by Mr. Sun Deqing, an
individual who also owns Taina, another of Tianhe's purported independent customers:
22




It seems that in order for Tianhe to provide some coherent explanation of why Xidatong shares an office
with Taifu, Management claims that in this location Taifu processes SFC chemicals for Xidatong.
23


Let's be clear: this is just an office and it is very unlikely that there is any chemical processing occurring
on these premises. Our team visited this address and it is a small office on the 12
th
floor of an office
building. If there was any chemical processing going on here, we can't imagine all the building and safety
codes Xidatong would be violating.

This is not an episode of Breaking Bad.





22 http://www.anonanalytics.com/2014/09/tianhe-chemicals.html pg. 51
23 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 15 (footnote
8)

17

According to Tianhe, Xidatong also has a second business address at No. 688, Chengliu Highway, Jiading
District, Shanghai. Management claims that Xidatong has been operating at this address since May 2011.
We were previously not aware of this location, so we decided to visit it last week.

The good news is that there is a factory at the address. The bad news is that the factory does not belong
to Xidatong. Instead it is owned by a company called Shanghai Kangfute Biochem:





18

Perplexed by Xidatong's obvious absence from this location, we decided to run a background check to
see who the factory is registered to. Here is what we found:

Source: www.sgs.gov.cn

According to the SAIC database, Shanghai Kangfute Biochem's legal representative is Sun Dequing the
same man who owns Taina (another of Tianhe's purported independent customers) and the chairman of
Taifu, the company that shares the above-mentioned office with Xidatong!

So basically, in an attempt to provide a credible explanation of why Xidatong and Taifu share an office,
and to refute that their management teams work in concert with each other, Tianhe presented investors
with a new address for Xidatong to show it has its own operations. However, the business at this new
address is actually owned by the exact same related party!

Here is the direct passage from Tianhe's clarification announcement:
24


Nothing has come to the attention of the Directors that causes them to believe that these
customers operate in concert or that the aforementioned individuals [Xidatong, Taina, Mr.
Zhang Silang, Mr. Sun Deqing] are connected to each other. This view has been confirmed
by these customers themselves.

Everything that comes out of Management's mouth is a blatant lie. Did Tianhe really think we would not
do a background check and find out the address they presented as Xidatong is actually a related party?
This Management team is unbelievable.





24 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 20

19

Shanghai Top

Registered address: Business address:
Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg.15

Registered address

As presented in our 2 September report, we had already sent a team to Shanghai Top's above-
mentioned registered address. Here is what they found:



This address is an office occupied by Boss International and FY. Management can't even explain why the
registered address of Shanghai Top is housed by two unrelated businesses.











20

Business address

As per our 2 September report, we also sent a team to Shanghai Top's business address:



In fairness to Tianhe, this address was the closest thing to a real operational address we found among all
of Tianhe's customers. But even then, this office was small and without the appeal of a multi -million
dollar business. More importantly, we learned that Xidatong shared this office with Shanghai Top until
mid-2013 when Xidatong moved away.

We suspect this separation was an attempt by Tianhe to create the illusion of additional customers
ahead of its IPO.

To summarize, Tianhe presents itself as a multi-billion dollar chemical enterprise and claims that
Xidatong and Shanghai Top are among its biggest customers. Yet simple site visits to these customers
show how delusional Tianhe's claims are. The photographic evidence we have gathered do not reflect
how real, independent businesses operate they reflect poorly conceived intermediaries that have
been set up by related parties to fool investors and auditors.














21

Anti-Mar

Tianhe claims to produce anti-mar an incredibly lucrative coating used primarily on smartphones and
tablets to make them fingerprint and smudge resistant. Anti-mar is Tianhe's crown jewel chemical and
supposedly what gives the Company operating margins that are twice as much as its closest
competitors.

In our previous reports, we presented evidence that:

Tianhe does not produce anti-mar in commercial quantities
No one we contacted, including industry leader Daikin has heard of Tianhe in the anti-mar
business
Tianhe claims to sell 8 tons of pure anti-mar which makes no sense because we estimate global
demand at less than 4 tons

In their rebuttals, Management continues to insist that Tianhe does produce anti-mar, but refuses to
name a single one of its end-users. Furthermore, Management claims that our market size estimate of 4
tons of pure anti-mar is wrong, but refuses to provide their own market size with a coherent explanation
to support their calculations. Finally, Management's definition of anti-mar seems to be changing,
including claims that anti-mar can be used on solar panels (without even naming a single sizable solar-
panel company that uses anti-mar in such fashion).

On the topic of solar panels, we would like to note that Tianhe's own investor presentation focuses
mainly on anti-mar use in smartphones and other touch panel applications:


22

First, we note that this presentation uses Apple iPhone graphics to show anti-mar application. However,
Tianhe does not supply anti-mar to Apple Daikin does. Wouldn't a company that claims to supply anti-
mar for smartphones use pictures of phone brands that actually use its products?

Second, Tianhe had never mention the use of anti-mar on solar panels until we questioned their
accounts. Now Tianhe wants to switch gears and have the market believe that solar panels are
potentially the biggest application of anti-mar.
25
This is the only way that Tianhe can plausibly justify
its claims of having sold 8 tons of pure anti-mar.

To be clear, none of the experts contacted had heard of anti-mar being used on solar panels. These
experts explained that it made no sense to put anti-mar on solar panels because environmental factors
(dust, debris, wind) would destroy the thin film in an outside environment. Moreover, one expert
explained that anti-mar is not light-resistant and if it were to be applied on solar panels, it might change
color and cause undesired effects.

In the end, Tianhe will continue to claim it sells anti-mar and we will continue to show that it doesn't.
This back and forth can get really dry and boring, and we always attempt to write our reports in a way
that is interesting and readable. But the beauty of this discourse is that we are not here to convince
Tianhe's management team that it is committing fraud. We are only here to try and convince the
investing public.

To that end, investors do not need to rely on Tianhe's presentations nor our reports. Investors can
simply call up independent consultants such as IHS, utilize expert networks, or reach out to major
players in the anti-mar supply chain, including Daikin China and E-Touch.

Anyone managing money or investing should be conducting their own due diligence and we strongly
encourage investors that have not yet done so to call independent experts to discover the truth about
Tianhe's purported position in the anti-mar market.

















25 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf pg. 23

23

Final Words

Tianhe's entire clarification announcement is a big joke. We can't fathom what is happening internally at
Tianhe for Management to be producing these kinds of absurd and tortured explanations. These are the
statements of a management team that is imploding and just grasping to stay afloat.

Our conviction that Tianhe is a massive fraud has only been strengthened by Management's poorly
conceived explanations and confounding statements. Clearly, the market is not as stupid as Tianhe
wants to believe and our view has been validated in a spectacular way.
26


We expect investors to continue to exit Tianhe until the only shareholders left are the Wei family, and
we look forward to watching this travesty of an IPO deteriorate to a penny stock that's if Deloitte
doesn't resign first...


































26 https://pbs.twimg.com/media/BzeC3qQCMAEi3yZ.jpg:large

24










Appendix A: 2
nd
Open Letter to Deloitte






































25

22 October 2014

BY EMAIL

Deloitte Touche Tohmatsu
35/F One Pacific Place
88 Queensway
Hong Kong

Barry Salzberg
Deloitte Global Chief Executive Officer
barry@deloitte.com

Lawrence Chia
Deloitte China CEO
lawchia@deloitte.com.hk

Kester Yuen
Managing Partner of Southern Region
kesyuen@deloitte.com.hk

Clement Hung
Chairman of Deloitte China
clehung@deloitte.com.hk

RE: 2
nd
OPEN LETTER TO DELOITTE TOUCHE TOHMATSU REGARDING TIANHE CHEMICALS GROUP LTD.

Dear Deloitte Touche Tohmatsu,

We write this 2
nd
open letter to you following our letter dated 13 October 2014 in which we presented
evidence that shows conclusively that Tianhe Chemicals Group Ltd. (1619.HK) has lied about the taxes it
has paid, and that the tax confirmations that it has presented to you are either the result of bribes or
have been fabricated. We believe that Tianhe has engaged in fraud in connection with its IPO by grossly
misrepresenting the size and scope of its business and making other misrepresentations and false
statements to the market.
27


We are writing this 2
nd
open letter to you, Deloitte Touche Tohmatsu, the reporting accountants for
Tianhes IPO, and to Deloitte Touche Tohmatsu Certified Public Accountants LLP, in order to further
underscore this evidence, because you, its auditors, have not yet resigned despite the fact that the
companys explanations on many issues, tax included, defy the facts, credibility and common sense. You
have told the SCMP that you are taking our 1
st
letter seriously
28
. We write this 2
nd
letter to you to help
you with that investigation.



27 http://www.anonanalytics.com/2014/09/tianhe-chemicals.html
28 http://www.scmp.com/business/companies/article/1616084/tianhe-chemicals-fires-back-anonymous-
analytics-over-fraud

26

In our 13 October letter to you, we pointed out critical issues regarding the purported tax confirmation
Tianhe obtained from the Liaoning Yi County State Tax Bureau for its Jinzhou DPF-TH subsidiary.
Specifically, our letter detailed out three areas of concern:

1) Tianhe's tax confirmation for Jinzhou DPF-TH are inconsistent and show vastly different amount of
taxes paid than the Deloitte-audited SAIC consolidated and standalone cash flow statements.

2) The 'income tax' numbers for Jinzhou DPF-TH as presented in the tax confirmation are all rounded
numbers. We find it highly unlikely that a professional tax authority would issue an official tax
confirmation using rounded numbers.

3) The tax confirmations presented by Tianhe for its Jinzhou DPF-TH subsidiary do not match the tax
reports previously presented and published by the Yi County government (where Jinzhou DPF-TH is
based and pays taxes).

In response to our letter, Tianhe published a clarification announcement responding to our points 1 and
2 (with no attempt to discredit point 3).
29
However, in their rebuttal, Tianhe made arguments that are
misleading, show a lack of understanding of Chinese tax treatments, and simply make no sense.

Let's take it one topic at a time, again:



























29 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1014/LTN20141014005.pdf

27

1. Tax Confirmation Numbers do not Match SAIC Financial Statements

According to the tax confirmation presented by Tianhe, Jinzhou DPF-TH paid total taxes of RMB458
million in 2011 and RMB781 million in 2012:


Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1008/LTN201410081263.pdf Attachment 5


However, according to the Deloitte-audited SAIC consolidated and standalone cash flow statement, the
amount of total taxes paid was far less:


28

As we previously stated, there is no ambiguity that the line item '' which means 'all
taxes paid' includes VAT, income taxes, and all local taxes.
30


Therefore, according to Deloitte, Jinzhou DPF-TH paid total taxes of RMB212 million in 2011 and
RMB390 million in 2012. Yet Tianhes newly obtained tax confirmation claims that Jinzhou DPF-TH
paid RMB458 million in 2011 and RMB781 million in 2012.

Tianhe's response:

Directly from Tianhe's clarification announcement is the following response:
Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1014/LTN20141014005.pdf pg. 1

Why Tianhe's response doesn't make sense:

Tianhe claims the tax confirmation is inconsistent with the cash flow statement line item '
' (all taxes paid) because Tianhe has actually included VAT taxes in a different line on the cash flow
statement, namely Cash Paid for Purchase of Goods and Services. This answer is absurd and goes
against the very nature of how VAT payments are treated.

The only VAT that a company pays to the tax authorities is net VAT. Net VAT is the difference between
the VAT a company pays to suppliers (input VAT) and VAT on sales made (output VAT). Effectively, a
company would pay VAT to the tax authorities and net it off with VAT tax credits for which the company
has received VAT receipts.

For example, if Company A sells chemicals for $100 to Company B, Company B pays Company A $117
(17% VAT tax). Now, if it costs Company A $10 to manufacture the chemical ($11.70 after VAT), then
Company A nets the difference in VAT ($17.00-$1.70) which is $15.30. This $15.30 VAT figure represents
a 17% VAT on the value added ($100-$10).

So in the Cash Paid for Purchase of Goods and Services line, Company A would only record $11.70 ($10
being the cost of manufacturing the chemical and $1.70 being the purchase VAT). The net VAT ($15.30)
would be recorded in the all taxes paid line in the cash flow statement. This net VAT figure is what is
paid to the tax authorities.

It is asinine to suggest that net VAT would go into Cash Paid for Purchase of Goods and Services as
Tianhe has done. There should be no ambiguity here that Tianhe has lied about its tax confirmation.


30 http://www.chinaacc.com/new/635_649_/2009_8_12_le0075121890020.shtml

29

2. Tax Confirmation Shows Rounded 'Income Tax' Numbers

As we noted in our previous letter to you, the 'income tax' numbers presented in the tax confirmation
for Jinzhou DPF-TH are all rounded numbers (refer back to page 27). We find it highly unlikely that a
professional tax authority would issue an official tax confirmation using rounded numbers. This is a
glaring red flag.

Tianhe's response:

Directly from Tianhe's clarification announcement is the following response:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1014/LTN20141014005.pdf pg. 2


Why Tianhe's response doesn't make sense:

The entire purpose of a tax confirmation is just that to confirm taxes paid. Just because a company
pays in advance does not mean that a tax authority would simply parrot the 'pre-payment' as the actual
amount of taxes paid by the company. If anything, any overpayment would be booked as an asset and
not as part of taxes paid.

Any tax authority would surely be able to give the exact figures for 2011 and 2012 (and even 2013
because Tianhe's purported tax confirmation was dated September 2014).










30

3. Tax Confirmation does not Match Tax Reports Published by Yi County and Jinzhou Government

As we previously stated, the tax confirmations presented by Tianhe for its Jinzhou DPF-TH subsidiary do
not match the tax reports previously presented and published by Yi County and the Jinzhou local
government (where Jinzhou DPF-TH is based and pays taxes).

2011

For example, according to an official announcement by the Jinzhou government, the total tax budget of
Yi County in 2011 was RMB190 million, and by 12 December, 2011, the County had collected RMB170
million.
31
Yet, Tianhe claims that Jinzhou DPF-TH paid RMB458 million in 2011.

2012

By 30 June 2012, Yi County State Tax Bureau had collected all tax income of RMB147 million, which was
52.72% of the whole year's planned tax collection.
32


In other words, 2012's entire planned tax collection was around RMB300 million. Yet, Tianhe's tax
confirmation claims that Jinzhou DPF-TH paid RMB781 million in taxes in 2012. That's about 2.6 times
the total tax income of the entire County!

We note that Tianhe completely avoids addressing these massive discrepancies in its clarification
announcement, or even attempting to reconcile what public government reports say vs its purported tax
confirmation.
33


To be clear, it is impossible that both Tianhe's tax confirmation are accurate as well as the multiple
official tax reports published by the local government. Therefore, Deloitte will have to conclude one of
the following:

1) that numerous official government reports are faulty and tax collection rates are understated by
an order of magnitude a crime that would be a death sentence for the officials involved given
the large sums of money; or
2) Tianhe has faked its tax confirmation.












31 http://www.jz.gov.cn/lnjz/2011/12/16/152230.html
32 http://www.ln.gov.cn/zfxx/qsgd/yks_1/yx/201207/t20120720_916081.html
33 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1014/LTN20141014005.pdf

31

Conclusion

As a final plea in its clarification announcement, Tianhe note that in addition to the tax confirmations, it
also obtained bank statements confirming it has paid its taxes. Specifically, Management wants us to
acknowledge these bank statements.
34


Okay, we acknowledge that Tianhe has obtained bank statements. But we will also acknowledge that
Longtop Financial which was exposed as yet another Chinese fraud also obtained bank statements.

You may be familiar with Longtop Financial, because after all, Deloitte was the auditor in that case as
well. Recall that Longtop presented Deloitte with bank statements and it was only after Deloitte
performed additional audit steps that it was found that the bank statements were fake and the result of
collusion between the company and corrupt bankers.
35,36


Just something to consider.

As the auditor that signed off on these filings, we respectfully suggest that you consider your position in
light of these obvious discrepancies. We request that you and your audit teams carefully study the
issues we have raised in this letter and in our previous reports and be prepared to make the hard
decisions we believe you must make on behalf of investors and the integrity of the global capital
markets.

If we are correct that Tianhe is a fraud and Deloitte fails to inform investors and regulators of this risk,
Deloitte may also be held liable in courts of law and in the court of global public opinion in the event of
Deloittes failure.

You may contact us for additional information at this email: anon.analytics@neomailbox.net

Sincerely,

Anonymous Analytics



34 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1014/LTN20141014005.pdf
35 http://www.sec.gov/Archives/edgar/data/1412494/000095012311052882/d82501exv99w2.htm
36 http://www.nytimes.com/2011/05/27/business/27norris.html?pagewanted=all&_r=0