By any measure, Barranquilla-based glass and aluminum manufacturer Tecnoglass (NASDAQ: TGLS) is a Colombian success story. The almost 40-year-old company was founded by José Manuel and Christian Daes, and exports architectural plate glass, and finished door and window components primarily to the US. So far this year, the company reports revenues of $456 Million and Adjusted EBITDA of $140 Million Year to Date Through November 2021.
In a recent statement, the company says it remains on pace to deliver another year of record cash flow with cash flow from operations at approximately $100 million year to date through November 2021. Based on the financial performance through November 2021, the company is increasing its full year outlook, with its expectation for revenue to be in the range of $490 million to $495 million and Adjusted EBITDA in the range of $147 million to $150 million.
Last week, Tecnoglass increased its quarterly cash dividend by 136%, as a sign of its confidence in the company’s ability to achieve its growth objectives and the strength of the momentum in the U.S. single-family residential business. Additionally, the favorable terms and increased financial capacity afforded by the upsizing of its oversubscribed credit revolver in November 2021 reinforce the company´s financial and operational strength.
Watch: Christian Daes of Tecnoglass discusses facing challenges & the future of the company (2017)
A day later, Tecnoglass shares plunged over 40% on NASDAQ after a report was released by short seller Hindenburg Research. Short selling is a practice where a speculator borrows shares in a company and then hopes (or tries to make) the value of those shares fall significantly. The short seller then buys the now cheaper shares at a low price returning them to make good on the loan, but profiting in the difference between the original share price and the now depleted share price. While many consider short selling unethical when tied to practices designed to manipulate the stock price, it is not always illegal.
The report by Hindenburg Research says that long before Tecnoglass was a public company, charges were filed by US prosecutors against the Tecnoglass founders, but then all charges were completely dismissed. The Daes brothers have passed background investigations and hold valid US visas and residency, and have been cleared by the SEC to serve as directors and officers of a public company.
Above photo: Despite attempts to mischaracterize the company, Tecnoglass has been both proud and open about its heritage as a family business.
Even the Hindenburg report had to admit that: “A May 2006 court order (from the United States District Court, Southern District of Florida) clarified that Jose Daes was no longer considered a fugitive and that the “case was disposed of. A separate June 2011 court order indicated that the indictment against Christian Daes had been previously dismissed.”
The report accuses Tecnoglass as having a shady relationship with the glazing firm, GM&P, but in 2017 Finance Colombia reported on the Tecnoglass acquisition of the firm. As far back as 2016, Finance Colombia reported on Tecnoglass’ acquisition of Miami based E.S. Windows, where the Daes brothers openly disclosed that 1: It was a company that they had a stake in, and 2: Cherry Bekaert LLP, a member within accounting and advisory network of Baker Tilly International, carried out the financial due diligence.
The rambling report continues on an apparent fishing expedition and attempts to string together various histories and events in Barranquilla from between 10-20 years ago, such as an alleged 33 million peso fine. The exhibit the report links to is a ticket that shows a fine of zero pesos.
Tecnoglass, in its early days going from a local family business to a public company had a CFO who was not accustomed to the rigors of SEC reporting and struggled to comply with the dual requirements of being listed on both the BVC and NASDAQ. The company appointed Santiago Giraldo, a capital markets veteran with US experience as the new CFO to manage the books with the requisite level of compliance demanded by institutional investors, bank lenders, and regulators. Finance Colombia conducted the first interview with Giraldo upon his hire in August, 2017. The company has maintained stable relationships with auditors and held BB- and Ba3 ratings from Fitch and Moody’s until it paid off all outstanding bonds early, eliminating the need to maintain ratings.
Tecnoglass issued a public statement on Monday saying: “that it believes the recent report issued by a short seller contains inaccurate statements, groundless claims, character attacks, and speculation with the intent of misleading investors and driving down the value of the company’s shares for their personal gain. The personal, and arguably discriminatory, attacks on Tecnoglass executives made by the short seller appear to have been made to distract from the company’s achievements and progress. The company also notes that following the issuance of the short report, multiple stakeholders that are very familiar with the company, including long-term clients, have expressed their continued support of the company and the management team.”
Tecnoglass shares already appear to be shaking off the short attack, up 5.36% in Tuesday’s trading as analysts and the company responded.
“Tecnoglass remains focused on executing its strategy and encourages shareholders to read the company’s filings with the Securities and Exchange Commission, including its financial results, audited by PricewaterhouseCoopers Ltda., including its New York based National Office, the company’s independent registered public accounting firm, for the third quarter ended September 30, 2021 for more details on Tecnoglass’ performance, related party transactions, accounting policies and practices, and its outlook. The company urges investors to not make decisions based on the short seller report and to review public filings for material information that pertains to its business,” the company concluded in its statement.
Analysts not impressed with Hindenburg.
Sidoti analyst Julio Romero upgraded Tecnoglass to a Buy rating with a $34 price target in light of the bargain created by the Hindenburg report.
Timothy Wojs of Baird said that the 20 year old activities cited in the report are “largely known” to investors.
Alex Rygiel of B. Riley also said that much of the factual information in the Hindenburg report has been in the public domain for many years (as Finance Colombia reporting shows). “Although we recognize that some of the disclosures in the report may be new to some investors, upon our initial review, we do not see evidence to change our current forecasts or thesis,” said Rygiel.
Federal Prosecutors May Turn The Tables On Short Selling “Researchers”
The next day after Hindenburg published its Tecnoglass report, Bloomberg reported that the US Justice Department has launched “an expansive criminal investigation into short selling by hedge funds and research firms” run by the Department of Justice’s fraud section in Los Angeles. The government is looking at how research funds like Hindenburg, though they are not mentioned by name, may manipulate stock prices for their own gain by issuing self-serving research
According to Bloomberg, “The government is examining how the investors handle information and set up their bets, especially in the run-up to publication of reports that move stocks. Authorities are looking for signs that money managers sought to engineer startling stock drops or engaged in other abuses, such as insider trading, said two of the people, asking not to be named because the inquiries are confidential.”
Corporate executives and retail investors alike have long called for more scrutiny of short sellers and what they see as blatant and sometimes nefarious manipulation of stock values for their own gain. Short sellers defend themselves by saying they act in some ways as investigative reporters—though investigative reporters don’t generally take financial stakes in or against the companies they rake muck upon.
Tecnoglass has purchased display advertising on Finance Colombia, but did not participate in, or have any prior knowledge of the preparation or publishing of this news article.
Above photo © Loren Moss