MINISO claims Blue Orca Capital's allegations to be unsubstantiated

Global Chinese retailer MINISO has said that key allegations made in the short seller report by Blue Orca Capital is unsubstantiated based on the results of its independent investigation.

According to the release on 15 September, MINISO formed an independent committee of the board of directors, consisting of independent directors Xu Lili, Zhu Yonghua and Wang Yongping, to oversee an independent investigation regarding the allegations made in a short seller report released in July.

Based on findings of the independent investigation, which encompassed the allegations in the short seller report regarding MINISO's franchise business model and land deals involving the company's chairman, the independent committee has concluded that key allegations made in the report were not substantiated. However, the company did not unveil results of the investigation or provide substantial evidence.

The investigation was overseen by the independent committee and conducted with the assistance of third-party professional advisors including an international law firm and forensic accounting experts from a forensic accounting firm that is not the company's auditor.

Previously in July this year, MINISO has claimed that the short seller report released by Blue Orca Capital recently was misleading, after the investment firm alleged that MINISO lied about its core business model. The retailer said the company believes the report is without merit and contains misleading conclusions and interpretations regarding information relating to the company.

According to the report released on 26 July 2022, Blue Orca Capital’s seven-month investigation of Chinese corporate records and store level data indicated that hundreds of stores are secretly owned and operated by MINISO executives or individuals closely connected to the chairman. The firm also said in a tweet that it thinks MINISO has lied about its business model. 

The report said: “Through our investigation, first begun in November 2021, we found over 620 supposedly independent franchises, which, according to Chinese corporate records, are registered under the names of MINISO executives or individuals closely connected to the Company’s chairman.” 

Rather than independent franchises managing 99% of MINISO’s stores in China claimed by the retailer, the report said that such evidence indicated that these stores are secretly owned and operated by the company. 

The report also claimed that Chinese corporate filings revealed that the chairman siphoned hundreds of millions from the public company through opaque Caribbean jurisdictions as the middleman in a crooked headquarters deal. Against this backdrop, archived MINISO website disclosures, former employee interviews and media reports in China indicated that MINISO is a brand in decline, with revenues down 40% from pre-IPO peak, large-scale pre-COVID store closures and franchise fees which have fallen 63% over the past two years.

“At a 2017 conference in China, MINISO’s brand director said in an interview that most MINISO stores in tier one cities in China are owned and operated by the company, and that franchising is only limited to lower tier cities.  In November 2019, another article published by Chinese state-owned media reported that 40% of MINISO stores were owned and operated by the company. This tracks with our investigation, and directly contradicts MINISO’s disclosures to investors.”

Most recently, MINISO has faced class-action lawsuits over federal securities concerns filed by US investors, including Robbins Geller Rudman & Dowd LLP and the Klein Law Firm. According to the official statement of The Klein, the law firm has filed a class action complaint on behalf of shareholders of MINISO Group, alleging that the company violated federal securities laws.

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