VNET Ponzi Scheme Exposed

WWW.TRINITYRESEARCHGROUP.COM SEPTEMBER 10, 2014
A Ponzi Scheme of Acquisitions: 21
Vianet Group Exposed

A PONZI SCHEME OF ACQUISITIONS: 21 VIANET GROUP EXPOSED SEPTEMBER 10, 2014
PAGE 2 / 121
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TABLE OF CONTENTS
Disclaimer....................................................................................................................................... 2
Executive Summary........................................................................................................................ 6
List of Exhibits.............................................................................................................................. 11
Introduction................................................................................................................................... 14
Field of IDC Dreams..................................................................................................................... 17
What VNET Does................................................................................................................... 17
Serving Two Masters, Cabinet Growth and Utilization.......................................................... 17
China’s Massive IDC Oversupply .......................................................................................... 20
Defying Gravity: VNET’s Stable Margins ............................................................................. 20
Inconsistent Sales Force Productivity..................................................................................... 21
Feeding the Beast.......................................................................................................................... 23
Part I: Lie ................................................................................................................................ 23
Investigation of IDC Network Shows Material Overstatement........................................ 23
Quickly Losing Partners ................................................................................................... 23
Financial Impact of Overstatement................................................................................... 24
VNET’s Balance Sheet Problem............................................................................................. 25
Accounts (Not) Receivable............................................................................................... 25
Hemorrhaging Cash .......................................................................................................... 27
Increasingly Indebted........................................................................................................ 28
Part II: Cheat and Steal, the Ponzi Scheme at Work............................................................... 29
Master Pumpers ................................................................................................................ 29
(Ab)Use of Proceeds......................................................................................................... 29
An Acquisition Inquisition................................................................................................ 32
VNET’s Midas Touch....................................................................................................... 32
VNET’s Impeccable Timing............................................................................................. 33
Vicious Cycle.......................................................................................................................... 36
A Track Record of Value Destruction .................................................................................... 38
iJoy: Ghost in the (Cache) Machine.............................................................................................. 40
iJoy’s Filings: The Basics....................................................................................................... 40

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Corporate Structure........................................................................................................... 41
iJoy’s Ghost Offices.......................................................................................................... 42
A Ghost Board of Director [sic]........................................................................................ 44
Undercapitalized, Low Employee Count and Other Peculiarities .................................... 45
iJoy’s Orchestrated Acquisition.............................................................................................. 46
Woeful Financial Performance ......................................................................................... 46
Peng Yang’s Takeover...................................................................................................... 47
Two Suspicious Transactions ........................................................................................... 48
iJoy’s Transformation............................................................................................................. 50
Literally Incredible Post-Acquisition Performance .......................................................... 50
Increasingly Far-Ranging Business Scope........................................................................ 52
The Taxing Search for iJoy’s Products................................................................................... 53
A Complete Unknown Selling Useless Software ............................................................. 53
Clues from China’s Tax Authority ................................................................................... 54
iJoy’s Sale of Useless Software to a Trading Company......................................................... 56
The MNS Shell Game................................................................................................................... 59
Cheng Ran and the Seven MNS Dwarfs (the Fable of the “Managed Network Entities”) .... 59
MNS Entities Before VNET Acquisition ......................................................................... 60
MNS Entities After VNET Acquisition............................................................................ 60
Review of the MNS Entities’ SAIC Filings............................................................................ 62
More Ghost Offices........................................................................................................... 62
More Ghost Boards........................................................................................................... 62
Tiny Registered Capital .................................................................................................... 62
Minimal Employee Count................................................................................................. 62
Inconsistent Registered Business Scope and Licensing.................................................... 63
Cheng Ran Missing from Registrations............................................................................ 63
Suspicious Ownership Changes Before Acquisition ........................................................ 63
SAIC Numbers Show SEC Numbers 51% Overstated........................................................... 63
Other Notable MNS Tuck-Ins................................................................................................. 65
A Virtual Tour of VNET’s MNS Shells ................................................................................. 66
What Business Are They Really In?....................................................................................... 80
Not Licensed to Offer MNS Services............................................................................... 82
Music Player and Online Gambling: Managed Network Services? ................................. 85
Shrinking Pool of IP Addresses.............................................................................................. 91

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A Sad Ending to the MNS Fable............................................................................................. 91
MNS, A Ticking Time Bomb ....................................................................................................... 94
Bandwidth Reselling............................................................................................................... 95
How Bandwidth Is Distributed in China........................................................................... 95
Chinese Law Prohibits Bandwidth Reselling ................................................................... 96
China’s Grey Market for Bandwidth ................................................................................ 97
China Telecom and China Unicom’s Response to the PLB/MNS Industry..................... 98
VNET’s MNS Is Mainly a Front for an Illegal Bandwidth Reselling Operation ................... 99
How VNET Describes Its MNS Business ........................................................................ 99
VNET Is China’s Largest PLB ....................................................................................... 100
VNET’s Largest MNS (PLB) Customer Is China Mobile.............................................. 102
MNS Revenue at Great Risk................................................................................................. 106
VNET Blacklisted by State-Owned Telcos .................................................................... 106
Regulatory Intervention to Obsolete PLB....................................................................... 106
iPoo: VNET’s Longtop Moment ................................................................................................ 108
Persona Non Grata of the Broadband Industry..................................................................... 108
Rejected by the People.................................................................................................... 108
iPoo, on Watch by the Government, Already Banned in Three Cities........................... 109
Stiff-Armed by the Chinese SEC, I-Poo-O Fails............................................................ 110
A Commoditized, Overleveraged Declining Business ................................................... 110
Insiders’ Garbage, VNET’s Treasure ................................................................................... 112
History of iPoo Insider Valuation Marks........................................................................ 112
VNET’s Whopper of a Price in Context......................................................................... 113
The Pony In the iPoo............................................................................................................. 113
Giantstone, Part II................................................................................................................. 114
Conclusion .................................................................................................................................. 116
An Educated Estimate of VNET’s Actual Financials........................................................... 117
Liquidation Analysis............................................................................................................. 118
Appendix..................................................................................................................................... 121

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EXECUTIVE SUMMARY
SELL — Target Price: $0
Ticker: VNET FD ADS Outstanding (mn): 66.4
Last Close: $21.88 Free Float (mn): N.A.
52 Week Range: $14.95 - 32.34 Daily Volume Range (ADS): 581,734-7,857,662
Market Cap (mn): $1,455 Short Interest (mn): 6.21
We conducted a six-month investigation of 21 Vianet Group (“VNET”) with an expanded team
of local accountants, lawyers, telecom and Internet industry executives/insiders and VNET
customers, partners and former employees. Our beliefs based on our key findings follow.
 We rate VNET a zero due to overwhelming evidence that the company is committing
accounting and securities fraud. We expect VNET will end up delisted from the Nasdaq.
 Since listing in 2011, VNET has reported fraudulent financials and operating metrics. At
least 31% of total revenue and 100% of EBITDA is fabricated (see Exhibit 1). An
incremental one third of total revenue is illicitly derived and therefore worthless.
 VNET perpetrates its fraud through a Ponzi scheme (see Exhibit 2). VNET overstates
cabinet growth and utilization in the core Internet Data Center (IDC) hosting business
which burns through 27% of (overstated) revenue in cash due to exceedingly aggressive
construction. To make up for the IDC shortfall, VNET fabricates revenue and profits by
acquiring tangential businesses that do not consume cash. The cycle is then repeated through
constant financings. Since the 2011 IPO, VNET has raised 5.7 billion RMB ($915 million)
and done at least 23 non-core acquisitions.
 VNET is overleveraged (Exhibit 3), hemorrhages cash (Exhibit 4) and is technically
insolvent. If even a portion of our findings is confirmed by auditors or debt holders, VNET
will be in official violation of basic debt covenants. A run on the balance sheet from debt
holder redemptions would cause a liquidation that wipes the equity out.
 Our field checks of the acquired subsidiaries found mostly ghost offices, no visible assets or
operations of any kind and a litany of red flags in the local filings. iJoy (one of VNET’s two
VIEs) in particular is a complete fraud that exists only to roundtrip cash into VNET.
 VNET’s Managed Network Services (MNS), the other third of total revenues, is a front for
China’s largest illegal bandwidth reselling operation that was blacklisted by state-owned
China Telecom after investigation (see Exhibit 5) but continues to operate illegally.
 The 2014 acquisitions of Aipu (“iPoo”) and Dermot Holdings (“Dermot”), VNET’s two
largest ever, are signs the Ponzi scheme is spinning out of control. As previous acquisitions
end their useful life as shells used to launder acquisition proceeds back in as revenue, VNET
was forced to sustain the Ponzi by going “all in” with these two deals reminiscent of
Longtop Financial’s acquisition of Giantstone. iPoo failed to gain regulatory approval to

PAGE 7 / 121
list in China, was banned by the government in Guangzhou (a Tier 1 city), Wuhan and
Changsha and was featured in an inflammatory CCTV (largest state-run TV channel) exposé.
VNET acquired iPoo at a monster 2,000% premium to, or 20x, its 2012 valuation.
 Management has pumped the stock through promises of huge cloud revenue and a telecom
license that will never materialize. Despite Microsoft subsidizing the cost of VNET’s
offerings (they are effectively free), revenue is still only 3% of total. Recent regulatory
actions against Microsoft include an unfavorable SAIC investigation and a ban of Microsoft
and IBM from the government’s procurement program. Telecom authorities indicate the
national “basic telecom” license needed to offer interconnection will never be issued to a
private company, which explains why expectations for its issuance were pushed back from
1H2014 to 2H2014 to now sometime in 2015.
Exhibit 1: VNET’s falsified financials belie a materially smaller unprofitable business
Exhibit 2: Illustration of VNET’s Modus Operandi, the Ponzi Scheme
Figures in thousand RMB
FY 2013
(reported)
Fabricated
IDC
revenue
Fabricated
MNS
revenue
Fabricated
iJoy revenue
FY 2013
(clean)
Variance
%
Net revenues
Hosting and related revenues 1,259,303 270,950 - 118,905 869,448 69.0%
Managed network services 707,414 - 175,082 - 532,332 75.3%
Total net revenues 1,966,717 270,950 175,082 118,905 1,401,780 71.3%
Gross profit 516,872 270,950 175,082 109,519 (38,679) (7.5%)
Gross margin % 26.3% (2.8%)
Net income(loss) -47,003 270,950 175,082 109,519 (602,554) 1281.9%
Net margin % (2.4%) (43.0%)
Adjusted Net income 120,466 270,950 28,013 109,519 (288,016) (239.1%)
Adjusted net income margin % 6.1% (20.5%)
Adjusted EBITDA 365,613 270,950 28,013 101,500 (34,850) (9.5%)
Adjusted EBITDA margin % 18.6% (2.5%)
Data Center Build
and
Cabinet Expansion
Capital markets
Cash
Equity
(ADS)
d Non-Core Aquisitions
(shell companies
and
asset-light companies)
Cash
Cash
and
Equity
Sale of Equity (ADS)
Cash (Proceeds of Sale of Equity)
Fake revenue and profit
but no free cash inflow
Step
1
Step
2a
Step
2b
Step
4
Steps
3, 5

PAGE 8 / 121
Exhibit 3: Constant financings to fund acquisitions and IDC expansion leave VNET increasingly indebted
Exhibit 4: VNET’s alarming cash outflow
(200.0)
(100.0)
0.0
100.0
200.0
300.0
400.0
500.0
Revenue Financings M&A Net Debt
2010 2011 2012 2013 1H2014 Run rate
Items FY2010 FY2011 FY2012 FY2013 Total
Net revenues 525,203 1,020,929 1,524,158 1,966,717 5,037,007
Net cash generated fromoperating activities 81,372 166,135 173,923 64,531 485,961
as % of net revenues 15.5% 16.3% 11.4% 3.3% 9.6%
Deduction: investment on capital expenditures
Purchases of property and equiptment (58,619) (255,755) (446,725) (419,126) (1,180,225)
Purchases of intangible assets (730) (802) (133,882) (36,181) (171,595)
Total (59,349) (256,557) (580,607) (455,307) (1,351,820)
Proceeds from disposal of property and equipment 26,713 7,598 202 241 34,754
Free cash inflow (outflow) 48,736 (82,824) (406,482) (390,535) (831,105)
as % of net revenues 9.3% (8.1%) (26.7%) (19.9%) (16.5%)
Deduction: investment on acquisitions and related party transactions
Loans to related parties - - (15,024) (37,050) (52,074)
Receipt of loans to a related party - - - 1,219 1,219
Payments for business acquisitions, net of cash received (47,560) (107,744) (67,067) (61,793) (284,164)
Loans to seller of iJoy - - (12,885) - (12,885)
Loans to seller of BJ Yichengtaihe - - - (24,000) (24,000)
Deposit for acquisition of BJ Yichengtaihe - - - (1,000) (1,000)
Free cash inflow (outflow) after deduction of cash outflow on acquisitions and related
party transactions 1,176 (190,568) (501,458) (513,159) (1,204,009)
Total
Capital expenditures (32,636) (248,959) (580,405) (455,066) (1,317,066)
Cash used for M&A (47,560) (107,744) (94,976) (122,624) (372,904)

PAGE 9 / 121
Exhibit 5: Internal China Telecom notices we obtained show VNET is blacklisted as an illegal operation
Exhibit 6: Summary of our in-person investigation of VNET’s most significant acquisitions through 2013
Ghost
offices (no
physical
location)
Ghost
boards
(only 1
director)
Tiny
registered
capital
(1 mn
RMB)
Registered
under wife's /
sister's /
friends'
names
Registered
business
scope
different
from MNS
or IDC
Revenue
suddenly
spikes
enormously
right after
acquisition
Profit
suddenly
spikes
enormously
right after
acquisition
While rev
spiked,
employee
count
plummeted
Large
injection of
capital from
seller right
before
acquisition
Transfer of
ownership
before
acquisition
Websites
not
aligned
with
business
Beijing Chengyishidai Network
Technology Co., Ltd. (“CYSD”)
X X X X X X X X NA X X
Zhiboxintong (Beijing) Network
Technology Co., Ltd. (“ZBXT”)
X X X X X X X X X X
no
website
Beijing Bikonghengtong Network
Technology Co., Ltd. (“BKHT ”)
X X X X X X X X X X
no
website
Xingyunhengtong Beijing Network
Technology Co., Ltd. (“XYHT”)
X X X X X X X X X X
no
website
Beijing Bozhiruihai Network
Technology Co., Ltd. (“BZRH”)
X X X X X X X NA NA NA
no
website
Jiujiang Zhongyatonglian Network
Technology Co., Ltd. (“ZYTL”)
X NA NA NA X X X NA NA NA
no
website
Fuzhou Yongjiahong
Communication Technology Co.,
Ltd. (“YJH”)
X X X X X X X NA NA NA
no
website
Guangzhou Gehua (“Gehua”) NA NA NA NA X NA NA NA NA NA X
iJoy Holdings Limted, its subsidiary
Suzhou Aizhuoyi Information
Technology Co., Ltd. and affiliate
Beijing iJoy Information
Technology Co., Ltd. (“iJoy")
X X X NA X X X X NA X X
Beijing Tianwang Zaixian
Communication Technology Co.,
Ltd. and
Beijing Yilong Xinda Technology
Co., Ltd. (“TWYL”)
X X X NA X NA NA NA NA NA X

PAGE 10 / 121
Exhibit 7: A history of value destruction: Outcome of VNET’s significant acquisitions
Year Acquisition Rationale Outcome Summary of Findings
May 2007 Tiantian Online Expansion into online video
business
Ceased supporting operations Speculative acquisition that eventually failed. Today, the website provides outdated
news to minimal traffic.
October 2007 Shanghai
Stateline Network
ISP Shut down Corporate website's last update is in 2004.
December 2007 VV91 Regional expansion
Southwest
NA No public or government sources have any information or registration for this
business. Nobody in our industry network has heard of it.
May 2008 Lanmang IDC network expansion Shut down All services have been moved to 69hds.com, a subsidiary of Alibaba Group.
September 2010 Managed
Network Entities
(7 total)
Managed network expansion Business degradation. Failed
to meet profit targets
stiputlated in merger
agreement.
Network of shell companies with no verifiable physical presence or operations.
Multiple business registrations by same owner used to obfuscate centrally managed
illegal bandwidth reselling operations from telcos. Blacklisted by China Telecom for
violation of bandwidth contract.
Prior to October
2010 pre-IPO
reorganization
Five undisclosed
companies
Expansion into new
businesses (specifics
undisclosed)
All written off F-1 discloses disposal during pre-IPO reorganization of five "subsidiaries/investees"
with "insignificant business operations" and "insignificant assets, liabilities and
operating results."
November 2011 Guangzhou Gehua Managed network expansion Business degradation. Failed
to meet profit targets
stiputlated in merger
Shell company with no verifiable physical presence or operations. Acts primarily
as bandwidth reseller (illegal). Only licensed as an ISP.
September 2012 Fastweb Expansion into Content
Delivery Network (CDN)
b i
Losing market share,
achieved only 6% net margin
Financial guidance by management team of 200%+ growth inconsistent with
locally filed financial performance.
February 2013 Tianwang Online Managed network expansion Together with Yilong Xinda,
achieved only 3% net margin
Shell company with no verifiable physical presence or operations. Related party
to Yilong Xinda.
February 2013 Yilong Xinda Managed network expansion Together with Tianwang
Online, achieved only 3%
net margin
Shell company with no verifiable physical presence or operations. Acts primarily
as bandwidth reseller (illegal). Only licensed as an ICP (content provider). Only
evidence of existence is a website with a music player that streams pirated music.
April 2013 iJoy Holdings
Limted and
related entities
Expansion of CDN business TBD Shell company with no verifiable physical presence or operations. Numerous
related party and intercompany transactions despite no evidence of operations.
Sold software to fictitious customer. 95% of revenue fraudulent and round-
tripped, contributing nearly 100% net margin to VNET's consolidated financials.
2014 Aipu Holdings Expansion into
consumer/retail last-mile
services
TBD Filed to go public in Chinese domestic market but failed to get regulatory approval
last year. Gave up IPO due to deteriorating financials and lack of proper licenses
to operate their business. Banned in Guangzhou due to customer complaints.
Subjeect of negative cCTV exposShell company with no verifiable physical
presence or operations. Numerous related party and intercompany transactions
despite no evidence of operations. Sold software to fictitious customer.e. Aquired
by VNET for 20x valuation at which private equity firm sold its stake in 2012.

PAGE 11 / 121
LIST OF EXHIBITS
1: VNET’s falsified financials belie a materially smaller unprofitable business (Page 7)
2: Illustration of VNET’s Modus Operandi, the Ponzi Scheme (Page 7)
3: Constant financings to fund acquisitions and IDC expansion leave VNET increasingly
indebted (Page 8)
4: VNET’s alarming cash outflow (Page 8)
5: Internal China Telecom notices we obtained show VNET is blacklisted as an illegal operation
(Page 9)
6: Summary of our in-person investigation of VNET’s most significant acquisitions through
2013 (Page 9)
7: A history of value destruction: Outcome of VNET’s significant acquisitions (Page 10)
8: VNET’s capacity expansion vs. utilization (Page 18)
9: VNET has consistently lagged guidance (per earnings calls) for capacity expansion (Page 18)
10: VNET’s capacity expansion by quarter vs. utilization (including 2H14 and 2015 projections)
(Page 19)
11: Historical versus projected impact of aggressive cabinet expansion (Page 19)
12: Sales Force Productivity Inconsistent with Utilization (Page 21)
13: Summary of investigation of key IDC metrics (as of 2Q ’14) (Page 23)
14: Wechat conversation with China Telecom Nanjing sales team (Page 24)
15: Account receivable (right hand side) overlaid on top of cabinet deployment (left hand side)
(Page 25)
16: VNET’s low account concentration (VNET investor presentation) (Page 26)
17: Days Sales Outstanding (DSO) vs. Utilization (Page 26)
18: Free Cash Flow Analysis: 2010-2013 (Page 27)
19: Net Debt (Page 28)
20: VNET Financings: 2010-1H2014 (Page 29)
21: VNET M&A Activity (Page 30)
22: MNS’ declining contribution to total revenue (Page 31)
23: Summary financials for VNET’s major acquisitions before and after acquisition (Page 33)
24: History of cabinet expansion and suspicious acquisition timing (Page 34)
25: VNET’s profitable IPOs courtesy of a well-timed profit peak in the well-timed acquisition of
MNS Entities (Page 34)
26: iJoy’s impact on VNET’s consolidated margins (Page 35)
27: Financial consequences of feeding the IDC beast (Page 36)
28: Capex per cabinet (Page 37)
29: A long history of value destruction through acquisitions (Page 39)
30: There are no results for a search for “iJoy” on VNET’s own website (Page 40)
31: Corporate structure of iJoy Holdings Limited (Page 41)
32: Business License of Suzhou Zhuoaiyi and Share Pledge Agreement by Peng Yang and
Suzhou Zhuoaiyi (Page 42)
33: iJoy’s registered office does not exist (Page 43)
34: List of all registered addresses for iJoy and results of our in-person investigation (Page 44)
35: Suzhou iJoy’s corporate structure with single-director governance (Page 45)
36: Beijing iJoy’s business license just before acquisition by VNET (Page 45)
37: Timeline of iJoy’s Corporate History (Page 46)

PAGE 12 / 121
38: Summary financials from Beijing iJoy’s with SAIC filings for 2009, 2010 and 2011 (Page
47)
39: Summary financials from Beijing iJoy’s with SAIC filings for 2012 (Page 48)
40：SAIC filing of Suzhou Aizhuoyi (Page 49)
41: Summary of iJoy’s income statement before and after acquisition by VNET (Page 50)
42: Comparison of gross margins for leading CDN companies (Page 51)
43: Beijing iJoy’s business scope registered with the SAIC (Page 52)
44: Beijing iJoy’s shareholder resolution to change business scope (Page 52)
45: Product offerings on www.unionread.com’s (iJoy’s corporate website) (Page 53)
46: Historical copyright registration records for iJoy’s software (Page 55)
47: Change of Beijing iJoy’s business scope to include import and export of technology (Page
57)
48: July 2013 receipt from sale of iJoy CDN software to CBNB, a top 5 Chinese iron ore
importer (Page 57)
49: Corporate Structure of seven Managed Network Entities (Page 59)
50: Consolidated Summary Financials for Managed Network Entities Post VNET Acquisition
(Page 60)
51: Acquisition Valuation for MNS Entities (Page 61)
52: Effect of MNS Entities’ Acquisition on VNET’s Consolidated Financials (Page 61)
53: Employee count of MNS entities (Page 62)
54: Revenue Reported to SAIC by MNS Entities (Page 64)
55: Revenue from MNS Entities Reported to SEC (F-1 filing) for 1Q2010 – 3Q2010 (Page 64)
56: Summary of findings from investigation of seven MNS Entities (Page 66)
57: Headquarters for Beijing Chengyishidai (“CYSD”) reported to SAIC (Page 67)
58: Pictures of our CYSD office visit (Page 67)
59: Headquarters for Jiujiang Zhongyatonglian Network Technology Co., Ltd. (“ZYTL”)
reported to SAIC (Page 68)
60: Pictures of our ZYTL office visit (Page 67)
61: Headquarters for Beijing Zhiboxintong (“ZBXT”) reported to SAIC (Page 69)
62: Pictures of our ZBXT office visit (Page 70)
63: Headquarters for Fuzhou Yongjiahong Communication Technology Co., Ltd. (“YJHT”)
64: Pictures of our YJHT office visit (Page 72)
65: Headquarters for Beijing BikonghengtongNetwork Technology Co., Ltd. (“BKHT”) reported
to SAIC (Page 73)
66: Pictures of our BKHT office visit (Page 73)
67: Headquarters for Xingyunhengtong Beijing Network Technology Co., Ltd. (“XYHT”)
68: Pictures of our XYHT office visit (Page 75)
69: Headquarters for Beijing Bozhiruihai Network Technology Co., Ltd. (“BZRH”) reported to
SAIC (Page 76)
70: Pictures of our BZRH office visit (Page 77)
71: Headquarters for Beijing Tianwang Online (“TWYL”) reported to SAIC (Page 78)
72: Pictures of our TWYL office visit (Page 79)
73: Job posting by CYSD on 51Job.com (Page 80)
74: CYSD’s website (Page 81)

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75: Job posting by ZBXT on 51Job.com (Page 81)
76: Check results on www.miit.cc for 7 MNS entities’ licenses (Page 82)
77: Beijing Tianwang Online introduction on Baike (Page 85)
78: Beijing Tianwang Online website (Page 86)
79: Job posting by Yiling Xinda on chinahr.com (Page 86)
80: Results of Check on www.miit.cc for Yilong Xinda’s Licenses (Page 87)
81: Yilong Xinda’s website (Page 87)
82: Job posting by Yiling Xinda on alljobsearch (Page 88)
83: Another website of Yiling Xinda (Page 88)
84: Yilong Xinda’s website had suddenly transformed into an online gambling site (Page 90)
85: Comparison of IP address allocations to CYSD as of June 30, 2013 (L) and December 31,
2012 (R) (Page 91)
86: Performance of MNS Entities through FY2013 (Page 92)
87: Effect of MNS Entities’ Sudden Margin Erosion on VNET’s Consolidated Financials (Page
92)
88: VNET acquisition- related accounts due to related parties, 2013 20-F (Page 93)
89: VNET Is Blacklisted at China Telecom as an Illegal Bandwidth Reseller (Page 94)
90: Notice of Investigation of VNET by China Telecom (Page 95)
91: Network topology for a traditional PLB (Page 98)
92: Network topology for a PLB2.0 (Page 98)
93: Internal Notice and regulations issued by CT to stop MNS connections (Page 99)
94: List of 7 MNS entities’ licenses (Page 100)
95: China Mobile Henan Branch Bandwidth Auction Results (Page 103)
96: China Mobile Xinjiang Branch Bandwidth Auction Invitation and Results (Page 104)
97: China Mobile Hainan Branch Bandwidth Auction Invitation and Results (Page 105)
98: China Mobile Hunan Branch Bandwidth Auction Invitations. BKHT is on the list of bidders.
(Page 106)
99: VNET’s revenue mix over time (Page 107)
100: Notice of ban from Guangdong Telecommunication Administration (Page 110)
101: Key Metrics for iPoo (Page 111)
102: Debt-to-Asset Ratio for iPoo and Comparable Companies (Page 111)
103: Key metrics for top three “last-mile” broad band companies (Page 113)
104: VNET’s reported income statement vs pro forma without fabricated revenues (Page 118)
105: Liquidation analysis as of December 31, 2013 (Page 119)

PAGE 14 / 121
INTRODUCTION
At first glance, VNET’s vision is attractive. VNET is purportedly in the early innings of building
China’s leading Internet infrastructure company. The problem is VNET’s vision requires that
industry dynamics support it, and they do not. It is not only that China’s Internet Data Center
(IDC) industry is dominated by the monopolistic state-owned fixed line telecom carriers China
Telecom and China Unicom. The industry is in a state of massive oversupply, with the average
IDC running significantly below half capacity. This has resulted in a mass exodus from hosting
as data center operators refashion themselves into providers of Content Delivery Network
(CDN), Virtual Private Network (VPN) and other bandwidth services.
Except for VNET. Citing insatiable demand for its quickly expanding IDC network, VNET went
public on April 21, 2011 setting irrational expectations for cabinet growth and profitability.
Unable to deliver what the industry could not support, VNET overstated its assets and financials
and embarked on a string of acquisitions to make up the shortfall in revenue and profitability.
Management executed record financing after another by pumping the share price with promises
of continued expansion. And with the proceeds, VNET continued overbuilding while acquiring
non-core assets in between financings to keep the Ponzi scheme going.
Management’s hope all along was that the development of the Chinese Internet infrastructure
industry would catch up to the vision. That demand as well as margins and new, legitimate
sources of profits would evolve quickly enough to cover up the fraud.
But that hope never materialized. Instead, VNET was forced to do increasingly larger financings
and increasingly riskier acquisitions to feed the beast of cabinet expansion. Over time, the Ponzi
scheme got harder, not easier, to sustain. The capital intensive core IDC business burns cash
much too quickly and the fledgling cloud business VNET hoped would save the day is not
ramping enough. Even with Microsoft’s partnership, cloud software revenue is under 3% of total,
hopelessly behind the pace needed to overtake the rate of fraud. So the Ponzi scheme goes on as
it spins out of control.
Beyond the Ponzi scheme’s unsustainability, three major structural problems signal imminent
collapse.
1. VNET is technically insolvent with a balance sheet that will not sustain the recently
stated goal of adding 10,000 cabinets in 2014 (to a base of 14,000 cabinets from 2013)
and then another 10,000 cabinets in 2015. The additional debt and cash burn required to
increase cabinets by almost 2.5 times in two years will cripple the company.
2. The Managed Network Services (MNS) business that VNET uses to make most of its
fraudulent acquisitions is run illegally. VNET’s SEC filings paint a very inaccurate
picture of MNS. In reality, aside from housing most of the fraudulent acquisitions, MNS
is a front for an illegal bandwidth reselling operation that has already been dinged for
violation by China Telecom and could be shut down any day. Moreover, recent
regulatory developments will soon make bandwidth reselling obsolete.

PAGE 15 / 121
3. VNET hopes that cloud software revenue and the receipt of a basic telecom license to
provide high-margin interconnection services will solve the company’s cash flow
problem. Neither initiative will deliver.
The cloud software business which at the moment is just Microsoft (soon IBM too) has
no hope of achieving the type of growth promised to investors. Our field work revealed
that VNET was only able grow cloud sales because Microsoft is subsidizing customer
costs (offering products for free) in an effort to gain share of a market it could not
penetrate otherwise. Even with those subsidies, if the Internet industry’s preference for
open source platforms doesn’t severely limit Microsoft, regulation will. Already, the
Chinese government’s xenophobic policies have banned Microsoft and IBM from their
procurement program.
As for the telecom license, there is a reason why management has pushed back
expectations three times already from 1H2014 to 2H2014 and now to sometime in 2015.
Our regulatory contacts are confident that the government will never issue such a license
at a national level to a private company.
This report presents the results of six months of investigative work aided by an extended team
of local Chinese accountants, lawyers, telecom industry executives and insiders, former VNET
employees, current and former VNET customers and current and former VNET service providers
(e.g. data center construction companies). We organize our findings and their supporting
evidence into the following sections.
 Field of IDC Dreams
We investigated all 72 data centers in VNET’s IDC network for over three months,
visiting in person and conducting over 50 interviews of sales staff, partners, customers,
contractors and competitors. We found VNET overstates cabinets and utilization,
overstates 27% of IDC revenue and has negative EBITDA (not the 20% EBITDA
margins IDC purportedly has).
Our field work points to a highly overbuilt network of overpriced cabinet inventory that
has drained VNET’s balance sheet. As management keeps delaying the data center
rollout hoping demand or the fledgling cloud business will eventually catch up, they have
been forced to lie about the assets and performance of their IDC business while
fabricating the shortfall in revenue and margins through fraudulent acquisitions.
 iJoy: A Ghost in the (Cache) Machine
A deep dive on iJoy, one of VNET’s two VIEs. iJoy, with no fixed assets and nearly
100% net margin, is a shell company whose acquisition was orchestrated by VNET to
roundtrip cash. We provide evidence of the acquisition’s orchestration and the subsequent
money laundering so critical to VNET’s margins.
 The MNS Shell Game

PAGE 16 / 121
A deep dive into roughly one third of VNET’s consolidated revenue, the MNS business.
We review key findings from our in-person investigation of all 10 of VNET’s major
MNS acquisitions, including evidence collected from our in-person field work, review of
local government filings and review of public records. Although we found no assets,
offices or required licensing, we did find a long list of red flags in the government filings
and public records, e.g. fake business registrations, tiny registered capital and employee
count, suspicious asset transfers and most of all huge inconsistencies between their
financial contribution to VNET’s consolidated numbers and historical performance
reported to PRC authorities.
 MNS, A Ticking Time Bomb
MNS was the perfect place to hide the fraud but is now the Ponzi scheme’s weakest link
as it faces shutdown of its illicit operations and technical obsolescence at once. We reveal
evidence of the illegal operations and VNET’s blacklisting at China Telecom.
 iPoo: VNET’s Longtop Moment
The massive back-to-back acquisitions of Aipu (“iPoo”) and Dermot make little strategic
sense but needed to be done to sustain the Ponzi scheme. As ridiculously outsized IDC
expansion looms and the MNS business used to prop margins deteriorates, VNET had no
choice but to acquire again, this time in enormous size. As with Longtop’s acquisition of
Giantstone, these deals mark the top for VNET shares.
 Conclusion
Our concluding thoughts end with a detailed liquidation waterfall that shows what will
happen to every stakeholder across the capital structure in the event of a forced
liquidation of the company due to debt holder redemptions, a shutdown and/or further
erosion of the MNS business or a balance sheet event driven by sustained cash burn and
overleveraging.

PAGE 17 / 121
FIELD OF IDC DREAMS
What VNET Does
VNET has two major lines of business and one minor. Through its core business, hosting and
related services, the company operates a network of Internet data centers (IDCs) from which they
lease cabinets to customers looking to outsource hosting of their Internet servers. IDC is largely
the product of massive capex-driven organic expansion over the years and is the primary
beneficiary of VNET’s capital expenditures. All major strategic initiatives, particularly VNET’s
partnership with Microsoft to offer cloud software services on top of their hosting, have been
undertaken through this business. IDC is the business that investors value. Depending on the
year, between 60-80% of VNET’s business is IDC.
VNET’s other major business, managed network services (MNS), is a mystery to most. It is
usually an afterthought few focus on. MNS purports to operate much of the technology related to
running and maintaining an efficient network, but as VNET acknowledges in the 2013 20-F,
“our managed network services are primarily offered in the form of bandwidth.”1
Through
MNS, VNET buys bandwidth from China’s major telecom carriers, mainly China Telecom and
China Unicom, and packages its own technology services such as “hosting area network
services” and “route optimization” on top of it. Unlike IDC, MNS is not capital intensive, is low
in value-add and has low barriers to entry. MNS is the result of many small acquisitions.
Starting in 2013, the acquisitive VNET entered a third line of business, content delivery network
(CDN), also by acquisition. CDN offers content caching, like competitors ChinaCache (Nasdaq:
CCIH), China NetCenter (CNC, listed in China’s A-share market), and others. This is the
smallest of the three businesses. Even though it does not belong in IDC, VNET consolidates
CDN into IDC and does not break CDN out separately when reporting earnings.
Serving Two Masters, Cabinet Growth and Utilization
Because IDC is highly capital intensive and it is the majority of revenue, VNET’s business
model is not that different from traditional offline retail. Just as a retailer’s value is driven off of
the size of its geographic footprint and the trend in same store sales, number of cabinets in the
IDC network and their overall utilization are the two masters VNET must serve.
If VNET can grow cabinets in its IDC network every quarter and keep utilization up, the
business model must be working. That is the hope VNET has sold to investors and those two
metrics are what ultimately drive VNET’s stock price. The reality is VNET has never been able
to make this simple model work because capacity expansion significantly outpaced demand.
1
2013 20-F filing.

PAGE 18 / 121
Exhibit 8: VNET’s capacity expansion vs. utilization
Management focuses investors on the cabinet growth story, consistently setting overly aggressive
targets they fail to meet.
Exhibit 9: VNET has consistently lagged guidance (per earnings calls) for capacity expansion
Variance
Actual Results vs. Expectations Deployed Guidance Count %
FY2012 Cabinet Additions 4,101 5,000 (899) (18.0%)
FY2013 Cabinet Additions 2,124 8,000 (5,876) (73.5%)
4Q2013 Cabinet Additions 1,081 5,000 (3,919) (78.4%)
1Q2014 Cabinet Additions 734 1,000-1,500 (516) (41.3%)
2Q2014 Cabinet Additions 1,870 2,000 (130) (6.5%)
Despite an expansion much slower than guided, utilization still dropped sharply in 2012 and
2013 from the previous three years due to the overly aggressive pace of cabinet deployment.
Undeterred, VNET continues building and building like the construction companies building out
China’s famous ghost cities2
. Plunging utilization be damned, management continues selling the
story that if they build it, customers will eventually come.
In the latest earnings call CFO Shang Hsiao of Camelot (NYSE:CIS) fame3
provided color on
VNET’s cabinet expansion plans for 2014 and 20154
:
“And like I mentioned earlier, this year, we will [be] adding 10,000 cabinets. Next year,
again, we will add an additional 10,000 cabinets.”
2
http://www.businessinsider.com/60-minutes-chinas-ghost-cities-2013-3
3
http://www.camelotchina.com/investors/investors_corporateGovernance.htm
4
http://seekingalpha.com/article/2456295-21vianet-vnet-on-q2-2014-results-earnings-call-
transcript?all=true&find=vnet%2Bearnings%2Bcall
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Cabinets
Utilization

PAGE 19 / 121
As if that wasn’t absurd enough, after breaking out the remaining portion of that massive ramp
(3,000 in Q3 and 4,000 more in Q4), he goes on to say that utilization won’t change much:
“But going forward, okay, this is starting from the utilization rate, right now, we have
currently around 73,9%. I think this utilization rate probably will be between 70% to
71% in the third quarter. Again, probably 69% to 70% in the fourth quarter.”
Do the following two charts, which put Mr. Hsiao’s words to the eyeball test, make any sense?
Exhibit 10: VNET’s capacity expansion by quarter vs. utilization (including 2H14 and 2015 projections)
Exhibit 11: Historical versus projected impact of aggressive cabinet expansion
Utilization dropped 15 points in two quarters when VNET ramped capacity by 3,620 cabinets.
Does anyone really believe that utilization is barely going to move when twice as many cabinets
are deployed in the next two quarters, and then another 10,000 on top of that in 2015?
If that passes someone’s eyeball test, we have a smell test for them.
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Cabinets
Utilization
FY2012 FY2013 FY2014
1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014P 4Q2014P FY2015
Cabinets 8,027 10,394 11,647 11,917 11,963 12,226 13,307 14,041 15,074 16,944 19,944 23,944 33,944
Increase (cabinets) 211 2,367 1,253 270 46 263 1,081 734 1,033 1,870 3,000 4,000 10,000
Increase (%) 2.7% 29.5% 12.1% 2.3% 0.4% 2.2% 8.8% 5.5% 7.4% 12.4% 17.7% 20.1% 41.8%
Utilization 82.4% 81.2% 67.7% 66.3% 68.1% 70.2% 73.7% 71.2% 73.8% 73.9% 70.5% 69.5%

PAGE 20 / 121
China’s Massive IDC Oversupply
If VNET hits the goal of 10,000 new cabinets in 2014, it is on pace for a 5-year CAGR of 42%, a
nearly 6-fold increase in the face of serious degradation in utilization and industry-wide
oversupply. How much oversupply, you ask? The Chinese government has an answer.
On July 30 of this year, the Ministry of Industry and Information Technology (MIIT), the
regulatory body that oversees the technology sector, issued a report on the state of the data center
market5
, Circular No.225(2014), “Report on Planning and Construction Schedule of China Data
Centers since 2011”. Among the various industry facts disclosed, we highlight these to put
VNET’s insane capacity expansion plans through the smell test:
 From 2011 through the first half of 2013, 255 data centers have been built and 177 of
them have been put to use. About a third of all construction has yet to be commercialized
 The 255 data centers break out as follows: 23 are super data centers (over 10,000 cabinet
capacity), 42 are mid-sized data centers (3,000 – 10,000 cabinet capacity) and 190 are
small data centers (under 3,000 cabinet capacity)
 The industry hugely overestimated demand, since demand was estimated at 7.28 million
servers but only came in at 0.57 million, less than 8% of estimates!
 Here is the kicker: Utilization rates for super, mid-sized, and small data centers are 1.8%
(1 point 8%, not a typo), 21.5% and 40%, respectively
VNET’s IDC network contains mainly small and mid-sized data centers (some partnered
cabinets might be hosted in larger ones), so the benchmark for their purported industry-
leading 73.9% utilization is between 21.5% and 40%.
Does that not smell fishy? Against this kind of industrial oversupply, is VNET really going to
add 10,000 extra cabinets this year on top of the 14,000 they ended 2013 with, of which 30%
were not utilized? And then another 10,000 extra cabinets in 2015?
Defying Gravity: VNET’s Stable Margins
VNET’s CFO himself has stated at conferences and road shows that VNET (as does any IDC
business) has a high degree of operating leverage because over 80% of the cost structure is fixed,
with bandwidth and cabinet leasing making up most of it. Operating leverage, like any kind of
leverage, cuts both ways. When business is booming and data centers are running at full
capacity, any incremental utilization turns into revenue that flows right to the bottom line since
the costs, being fixed, have largely been incurred. But when you have high fixed costs and
monetization drops suddenly, the negative effect on margins is enormous as the shortfall in
revenue has a disproportionate impact on the bottom line for every point of utilization lost.
5
http://www.miit.gov.cn/n11293472/n11293832/n12845605/n13916973/16084590.html

PAGE 21 / 121
As dubious as VNET’s capacity expansion plans may look relative to utilization or, even worse,
relative to the Chinese industrial backdrop, what is really unbelievable is that margins – gross,
EBITDA, net or any other – have held their levels throughout the entire process. This is a
huge red flag.
Any IDC business’s margins are highly sensitive to utilization metrics. That is especially true
when utilization falls while capacity ramps by a factor of two or even three times the base, as it
did for VNET.
Inconsistent Sales Force Productivity
A look at sales force productivity reveals another key operating metric inconsistent with VNET’s
reported utilization trend. VNET breaks out their employee base by function in their 20-F filings,
including head count for “sales, marketing and customer support” (S&M). S&M head count went
from 241 in 2011 to 323 in 2012 and 252 in 2013.
For the full years 2011, 2012 and 2013, reported utilization was 80.6%, 66.3% and 70.3%,
respectively. Even though utilization dropped by over 10 points, which is a massive swing for a
business with high fixed costs, sales per sales and marketing employee almost doubled in 2013
versus 2011.
Exhibit 12: Sales Force Productivity Inconsistent with Utilization
Even in 2012, when utilization plunged year on year, sales force productivity somehow went up.
Since management has consistently indicated monthly recurring revenue has risen in the order of
10% historically, pricing cannot be the reason behind this discrepancy.
Moreover, we learned from our many interviews with management teams and sales executives in
the IDC industry that on average, it takes 12-18 months to fill a new data center to more than half
capacity. VNET appears to be a huge outlier in that they can fill as much as half the new cabinet
capacity coming online within a quarter. In their latest earnings call, management reported that
about half of the approximately 7,000 cabinets coming online throughout the remainder of the
year had been sold already.6
6
http://seekingalpha.com/article/2456295-21vianet-vnet-on-q2-2014-results-earnings-call-
transcript?all=true&find=vnet%2Bearnings%2Bcall
2011 2012 2013
IDC Hosting Revneue (RMB 000) 614,612.0 866,882.0 1,259,303.0
Number of S&M employees 241 323 252
Revenue per S&M employee 2,550.3 2,683.8 4,997.2
Growth 5.2% 186.2%
Full-year utilization 80.6% 66.3% 70.3%

PAGE 22 / 121
Whether VNET’s numbers make sense is a rhetorical question. They don’t. The more interesting
question is how VNET gets away with so much overbuilding without taking a hit on margins or
driving the balance sheet right into a wall with what must be an unbelievable amount of cash
burn. How does VNET feed the beast?
As the old saying goes:
“Lie, cheat and steal.”
Let us first discuss the lies.

PAGE 23 / 121
FEEDING THE BEAST
Part I: Lie
VNET lists the locations of its 72 data centers on the Chinese version of its corporate website.
Click on each section of the map on this webpage to show a complete list of data centers by
region: http://www.ch.21vianet.com/?page_id=927. (Interestingly, the English version of the
corporate website does not list the individual data centers. Clicking on the map does nothing:
http://www.en.21vianet.com/?page_id=176).
Investigation of IDC Network Shows Material Overstatement
Using these regional lists of data centers, which we confirmed with management are updated and
accurate, we conducted an exhaustive field study of VNET’s national IDC footprint throughout
China. We determined the number of cabinets and utilization for each data center by doing a 360
degree review consisting of:
 In-person visits
 Telephone interviews with data center staff, direct and indirect sales channels and
headquarter sales staff
 In-person and telephone interviews of key VNET customers
 In-person interviews with two contractors responsible for construction of VNET’s data
centers
 In-person interviews with senior management of major IDC and CDN companies
 Telephone interviews with telecom carriers
Our investigation concluded that VNET has overstated the number of cabinets in its IDC
network by at least 2,460 (14.5% of reported) and overstated their utilization by at least
11.1 points.
Exhibit 13: Summary of investigation of key IDC metrics (as of 2Q ’14)
Variance
Reported Actual Count % Reported Actual
Partnered Cabinets 5,462 3,950 (1,512) (27.7%) Utiliized Cabinets 12,522 9,090
Self-built Cabinets 11,482 10,534 (948) (8.3%) Utilizaation Rate 73.9% 62.8%
Total 16,944 14,484 (2,460) (14.5%)
Appendix A lists the results of our investigation of all 72 VNET data centers, both partnered and
self-built, by location.
Quickly Losing Partners
Of the 72 data centers that VNET lists in their IDC network, only 12 are self-built. 60 are
partnered, meaning VNET leases cabinets from other companies who own the data centers and
related fixed assets. As you can see from our investigation results in Appendix A, 31 of the 60

PAGE 24 / 121
alleged partnerships had been terminated at the time of our visits and interviews. Given that the
state-owned telcos from whom VNET provisions their bandwidth are also VNET’s biggest IDC
partners, the fact that VNET has managed to get blacklisted for illegal bandwidth reselling at the
largest telco, China Telecom, cannot be helping that partnership. As already noted, throughout
our investigation, we gave VNET the benefit of the doubt when the state of a partnership was
inconclusive, but in doing so we may have undercounted the terminated partnerships given more
recent data points such as the Wechat sales inquiry below. (As you can see from the breakout of
our investigation results by data center, we gave VNET credit for 40% utilization of 250
partnered cabinets in Nanjing.)
Exhibit 14: Wechat conversation with China Telecom Nanjing sales team
It makes a lot of sense that VNET has lied mainly by overstating partnered cabinets. It is much
easier to tell investors you are leasing some extra cabinets from the enormous China Telecom
data center down the road than it is to lie about having built a data center from scratch or making
your own data center appear three or four times busier than its 15% utilization.
Financial Impact of Overstatement
A hopeless optimist might say, overstating cabinets by 15% isn’t that bad, is it? It’s not like they
lied about half their cabinets or anything, right?
It might as well be half. Because margins are highly sensitive to utilization in a data center
business, 11 extra points of utilization is the difference between being profitable and losing
money.
Having 14.5% fewer cabinets running at 62.8% versus 73.9% utilization means VNET’s income
statement gets hit with the double whammy of materially lower utilization off a materially

PAGE 25 / 121
smaller base. This translates to a 27.3% overstatement in revenue. (If you have 100 cabinets
running at 73.9%, you have 73.9 billable cabinets. If you have 85.5 running at 62.8%, you only
have 53.7, or 27.3% less.)
Due to the IDC business’s high fixed cost, this 27.3% comes off the top line and hits the bottom
line almost dollar for dollar. Since VNET has an adjusted EBITDA margin around 18% or 19%,
a 27% hit to EBITDA means the company goes from being in the black with respectable margins
to being deeply in the red.
VNET’s Balance Sheet Problem
Obviously, if VNET is overstating IDC revenue, the overstatement has to come from
somewhere. The balance sheet is a sensible first place to look.
Accounts (Not) Receivable
Below is a chart that shows how accounts receivable changed as VNET built beyond their ability
to fill their data centers to acceptable levels.
Exhibit 15: Account receivable (right hand side) overlaid on top of cabinet deployment (left hand side)
The 99% four-year CAGR in AR, nearly three times the aggressive pace of cabinet
deployment, raises all types of red flags.
All of VNET’s IDC businesses should have little variance in collection terms. They are all
recurring revenue businesses and over two thirds of the revenue is IDC, a well-diversified
business. VNET’s own investor presentation boasts that account concentration is low with the
top customer being under 5% of revenue and the top five customers being under 14%.
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Cabinets
AR
(Thousands RMB)

PAGE 26 / 121
Exhibit 16: VNET’s low account concentration (VNET investor presentation)
VNET has never had a problem collecting. Bad debt charges have never been an issue. Very low
churn proves VNET has a good relationship with customers. In the last second quarter earnings,
overall churn rate was down to almost zero with top customers having literally zero churn.
So what is going on with AR?
A closer look reveals that it was not only AR that spiked as utilization started to plunge. Days
Sales Outstanding (DSO) for AR started to spike upwards, eventually more than doubling from a
stable trend in the 40s throughout the year of the IPO.
Exhibit 17: Days Sales Outstanding (DSO) vs. Utilization
For a business with recurring revenue, minimal account concentration (one huge “bad” customer
cannot derail AR and DSO), good customer relationships with minimal churn and minimal bad
debt, how can these charts be explained?
There are only four possibilities:
1. Billing terms have changed (they haven’t)
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
-
20
40
60
80
100
120
DSO
Utilization

PAGE 27 / 121
2. Customer composition has turned from diversified to concentrated with huge customers
who pay really late (It hasn’t… VNET has low account concentration)
3. Customer relationships have soured (they haven’t, evidenced by very low churn)
4. The AR is not revenue waiting to be collected
We are convinced VNET is fabricating revenue to make up for the shortfall in actual revenue
from the massive ramp in cabinets that coincided with a massive drop in utilization. Of course it
makes sense that AR and DSOs would ramp most aggressively as utilization plunged.
Hemorrhaging Cash
An analysis of VNET’s free cash flow over the years shows what happens when cabinets go
from 5,750 in 2010 to 14,041 in 2013 while utilization goes from mid-80s to 60s and low-70s,
even if you fake those numbers substantially to make growth appear more robust than it is.
Exhibit 18: Free Cash Flow Analysis: 2010-2013
VNET has burned through 28% of its past three years of inflated revenue in cash! Of
course, this 28% assumes every dollar of reported revenue is real, which we very strongly doubt
is the case. We believe VNET actually burns through more than half of its actual revenue in
cash.
The FCF analysis only goes through 2013 because VNET does not report cash flow quarterly.
We cannot wait to see what 2014 will look like when cabinets soar to 24,000 and utilization sags
back down to high 60s or 70% as management projects. Although we won’t know the official
number until next year, we can guarantee it will be stunning… Especially as we expect actual
Items FY2010 FY2011 FY2012 FY2013 Total
Net revenues 525,203 1,020,929 1,524,158 1,966,717 5,037,007
Net cash generated fromoperating activities 81,372 166,135 173,923 64,531 485,961
as % of net revenues 15.5% 16.3% 11.4% 3.3% 9.6%
Deduction: investment on capital expenditures
Purchases of property and equiptment (58,619) (255,755) (446,725) (419,126) (1,180,225)
Purchases of intangible assets (730) (802) (133,882) (36,181) (171,595)
Total (59,349) (256,557) (580,607) (455,307) (1,351,820)
Proceeds from disposal of property and equipment 26,713 7,598 202 241 34,754
Free cash inflow (outflow) 48,736 (82,824) (406,482) (390,535) (831,105)
Deduction: investment on acquisitions and related party transactions
Loans to related parties - - (15,024) (37,050) (52,074)
Receipt of loans to a related party - - - 1,219 1,219
Payments for business acquisitions, net of cash received (47,560) (107,744) (67,067) (61,793) (284,164)
Loans to seller of iJoy - - (12,885) - (12,885)
Loans to seller of BJ Yichengtaihe - - - (24,000) (24,000)
Deposit for acquisition of BJ Yichengtaihe - - - (1,000) (1,000)
Free cash inflow (outflow) after deduction of cash outflow on acquisitions and related
party transactions 1,176 (190,568) (501,458) (513,159) (1,204,009)
Total
Capital expenditures (32,636) (248,959) (580,405) (455,066) (1,317,066)
Cash used for M&A (47,560) (107,744) (94,976) (122,624) (372,904)

PAGE 28 / 121
utilization to hit a level between 30-35%, more in line with the top end of the MIIT-reported
industry average of 21.5-40%.
Increasingly Indebted
So far, VNET’s approach to creating shareholder value appears to be as follows.
1. Promise growth that defies not only the competition’s but also the government’s own
assessment of market demand
2. Burn 28% of (materially faked) revenue in cash to keep the growth story going by
building out the IDC network far beyond what is prudent
3. Deliver hugely outlying utilization and revenue performance by faking the difference
between actual revenue and what the street demands in utilization and cabinets to keep
the share price going
4. Let AR balloon at a 99% CAGR while DSOs are on pace to triple
With this approach, something has to give. And that something is the balance sheet.
Since VNET’s April 2011 IPO left the company in the enviable position of having RMB 1.1
billion of net cash, there has been an enormous 2.7 billion RMB swing in net debt.
Exhibit 19: Net Debt
Clearly, lying about IDC metrics and faking revenue might make the income statement look
pretty but it does a real number on the balance sheet. Most important of all, falsifying IDC
metrics does not put cash on the table. For VNET, as capital intensive a business as we have ever
seen, putting cash on the table to fund the enormous and sustained burn is a matter of life and
death, solvency and bankruptcy.
So where does VNET get all that cash to keep feeding the insatiable beast?
All figures in thousands RMB
Q2 2014 Pro Forma
FY2010 FY2011 FY2012 FY2013 Q2 2014 Post-Acquisitions
Short-term bank borrowings 35,000 100,000 176,961 173,726 296,736 296,736
Current portion of long-term bank borrowings - - 167,879 197,000 64,779 64,779
Current portion of capital lease obligations 15,824 26,012 36,719 14,600 18,076 18,076
Long-term bank borrowings - - 63,000 965,740 924,166 924,166
Non-current portion of capital lease obligations 58,190 73,896 52,352 337,139 355,578 355,578
Redeemable preferred stock/noncontrolling interests 991,110 - - 100,000 100,000 100,000
Bonds payable - - - 998,505 2,263,977 2,263,977
Less:
Cash and cash equivalents 83,256 410,389 432,254 1,458,856 2,138,589 2,138,589
Short-term investments - 894,540 222,701 1,101,826 1,103,634 1,103,634
Restricted cash used as pledge for bank borrowings - - 290,766 292,099 128,087 128,087
Less:
Cash consideration for Aipu (assume 50% of 700,000 RMB) (350,000)
Cash consideration for Dermot (assume 60% of 1,050,000 RMB) (600,000)
Net Debt 1,016,868 (1,105,021) (448,810) (66,071) 653,002 1,603,002

PAGE 29 / 121
Part II: Cheat and Steal, the Ponzi Scheme at Work
They raise it. LOTS of it. Because to pay Paul, you must first rob Peter.
Master Pumpers
Nobody pumps their company better than VNET, which has successfully executed over RMB
5.7 billion ($915 million) in financings since 2011, the year of the IPO. That is greater than half
the entire market cap of VNET today, after the stock has shot up more than 300% in the past year
and a half!
Exhibit 20: VNET Financings: 2010-1H2014
Figures in RMB millions
Capital Inflow (Outflow)
Date Type Financing Activities Counterparty RMB USD
FY2010 Debt Proceeds Increase in short-termbank borrowings domestic banks 35.0 5.2
FY2011 February 28 Equity Sale Equity stake Cisco 32.3 5.0
FY2011 April 1 IPO VNET IPO, issuing 14.95mADS for ~$204.3m IPO investors 1,320.5 204.3
FY2011 Debt Proceeds Change in Bank Debt domestic banks 65.1 10.1
FY2011 Debt Proceeds Change in Capital Leases domestic leasing companies 25.9 4.0
FY2012 Debt Proceeds Change in Capital Leases domestic leasing companies (10.8) (1.7)
FY2013 March 15 Debt Proceeds Proceeds fromDimSumBonds Bond investors 972.8 158.2
FY2013 October 13 Equity Sale Secondary equity stake for $100 million (87%
new shares, 13% existing shareholders)
Temasek 533.3 87.0
FY2013 Debt Proceeds Change in Capital Leases domestic leasing companies 262.7 42.7
FY2014 June 30 Debt Proceeds Proceeds fromDimSumBonds Bond investors 1,265.5 205.5
FY2014 June 30 Debt Proceeds Change in Bank Debt domestic banks (50.8) (8.3)
FY2014 June 30 Debt Proceeds Change in Capital Leases domestic leasing companies 21.9 3.6
Total Financings 5,705.2 914.7
(Ab)Use of Proceeds
And what has VNET done with all that money?

PAGE 30 / 121
Obviously, a substantial portion of the proceeds has been burned to fund the massive data center
build. As we have discussed already, a cumulative $406 million in non-acquisition driven capex
has been burned from 2010 to 2Q2014.
Most of the rest of the proceeds (the majority) from all the non-stop financings went to buy 24
non-core subsidiaries light on fixed assets.
Exhibit 21: VNET M&A Activity
Figures in RMB millions
Capital Inflow (Outflow) Capital Inflow (Outflow)
Date Type Names of Entities Counterparty Type of Business % Stake RMB USD RMB USD
Before 10/2010 Acquisition Five acquisitions (names not disclosed)
through aBitCool
Hosting
6/22/2007 Acquisition Shanghai Guotong Network Co., Ltd. Hosting (61.8) (61.8)
4/30/2009 Disposal Shanghai Guotong Network Co., Ltd. aBitCool Hosting 68.9 68.9
3/1/2010 Disposal Guangzhou Juliang Internet Information aBitCool Hosting 10.8 10.8
9/30/2010 Acquisition Beijing Chengyishidai Network Technology
Co., Ltd
Beijing Shi Dai Tong Lian Technology Co.,
Ltd., a third party company controlled by Mr.
Cheng Ran
Managed Network
Services
51% (172.4) (25.5) (252.6) (37.3)
Zhiboxintong (Beijing) Network Technology
Co., Ltd.
Managed Network
Services
51%
9/15/2011 Acquisition Telehouse Beijing Co., Ltd. aBitCool (21Vianet Zhi Hui Ke Ji Co., Ltd. and
Beijing 21Vianet Zhi Hui Neng Yuan System
Technology Co., Ltd., both controlled entities
of aBitCool)
Manufacturing and rental
of cabinets. KDDI is the
joint investor of
Teleohouse Beijing.
10% (8.2) (1.3) (8.2) (1.3)
10/1/2011 Acquisition Shanghai Cloud 21Vianet Network Co., Ltd. aBitCool (21Vianet Zhi Hui Ke Ji Co., Ltd.
controlled entities of aBitCool)
Shell company without
any operation
100% (18.2) (2.8) (18.2) (2.8)
10/19/2011 Acquisition Guangzhou Gehua Network Technology and
Development Company Limited
Tianjin GuanBang Network Technology
Co.and Beijing Huibang
Managed Network
Services
100% (77.5) (12.0) (116.4) (18.0)
10/27/2011 Acquisition Shenzhen Cloud Information Technology Co.,
Ltd.
aBitCool (21Vianet Zhi Hui Ke Ji Co., Ltd.
controlled entities of aBitCool)
Shell company without
any operation
100% (7.9) (1.2) (7.9) (1.2)
12/15/2011 Acquisition Beijing Chengyishidai Network Technology
Co., Ltd
Beijing Shi Dai Tong Tian Network
Technology Co., Ltd. and Concept Network
Limited
Managed Network
Services
49% (169.2) (26.2) (242.7) (37.5)
Zhiboxintong (Beijing) Network Technology
Co., Ltd.
Managed Network
Services
49%
2/15/2012 Acquisition Radio spectrum in the 2.3 GHz band in Hong
Kong
OFTA Radio spectrum license (121.4) (19.3) (121.4) (19.3)
4/1/2012 Acquisition Yizhuang Venture Investment Fund Yizhuang Venture Investment Fund Venture Capital Fund NA (101.0) (16.0) (101.0) (16.0)
7/2/2012 Acquisition 21Vianet@Xian Holding Ltd. aBitCool Inc. Hosting 100% (16.0) (2.5) (16.0) (2.5)
9/9/2012 Acquisition Fastweb International Holding Lyzh Consulting Ltd. DFS & DFJ Funds CDN 100% (116.0) (18.4) (119.6) (19.0)
2/28/2013 Acquisition Beijing Tianwang Online Communication
Technology Co., Ltd
Beijing Kaihua Kewei Technology Co.,
Limited
Virtual Private Network
Services / MNS
100% (73.4) (11.9) (77.5) (12.6)
Beijing Yilong Xinda Technology Co., Ltd. Virtual Private Network
Services / MNS
100%
4/30/2013 Acquisition iJoy Holding Limited Peng Yang CDN 100% (96.9) (15.8) (178.7) (29.1)
10/21/2013 Acquisition Beijing Yichengtaihe Investment Co., Ltd Land use 100% (198.8) (32.3) (198.8) (32.3)
4/16/2014 Acquisition Minority stake in M87(Series A) Mobile software (18.5) (3.0) (18.5) (3.0)
6/4/2014 Acquisition Sichuan Aipu Network Co., Ltd. Sichuan Aipu Network Co., Ltd. ISP 50% (700.0) (113.7) (700.0) (113.7)
TBD Acquisition Dermot Holdings Limited and its subsidiaries Diyixian.com Limited Virtual Private Network
Services / MNS
100% (1,050.0) (170.5) (1,050.0) (170.5)
Total M&A (2,927.5) (472.4) (3,209.5) (516.2)
Acquisition Date Revalued Up To Date

PAGE 31 / 121
There are some important observations that do not jump out of this chart.
 VNET has been about as acquisitive as any of China’s largest Internet companies, having
done 24 acquisitions since it prepared to go public in 2011.
 But unlike Alibaba, Tencent, Baidu or Qihoo 360, VNET’s total acquisition consideration
is a very large percentage of its market cap (almost 30%) and revenue (about 100% of
2014 revenue guidance).
 Despite having acquired a total consideration of RMB 3.2 billion ($516 million), close to
30% of its current market cap, only 0.5% of total acquisitions went towards assets for
its core IDC business, hosting, and that negligible amount was for an intercompany
transaction with aBitCool (one of VNET’s own VIEs).
 None of the acquisitions targeted companies with substantial fixed assets, which is
surprising since an IDC network is essentially a large fixed asset. In the US, IDC
companies (e.g. Equinix) have claimed to be REITs and applied for conversion to REIT
status. VNET’s highly unusual M&A strategy is analogous to that of a commercial real
estate company that only buys tangential service businesses with no buildings or other
fixed assets.
 The vast majority of the acquisitions have been tucked quietly into the commoditized,
slower-growth, asset-light MNS business that management rarely talks about.
 And yet, despite all the acquisitions, MNS revenue contribution is sharply declining.
Exhibit 22: MNS’ declining contribution to total revenue
 The two CDN acquisitions (FastWeb and iJoy) are consolidated into IDC even though
they have no IDC assets and offer no hosting services.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Hosting and related revenues
Managed network services

PAGE 32 / 121
 The consideration values have gone up consistently and exploded in size in 2014 with the
back to back acquisitions of iPoo and Dermot, which collectively represent over half the
total consideration paid throughout the entire period.
An Acquisition Inquisition
This pattern of constant non-core acquisitions begs many questions.
 It is unusual for a company in massive organic expansion mode to also go on acquisition
binges right before periods of high execution risk when the distraction of M&A is least
desirable. Why is that the only time VNET acquires anything significant?
 For example, why would VNET’s management acquire iPoo and Dermot back to back for
a combined consideration significantly greater than VNET’s own IPO in 2011 right
before it expands capacity by a combined 17,000 cabinets (over 120% growth)?
 Why is virtually all the capital deployed into non-IDC assets, especially the MNS
business the company acknowledges is much less strategic?
 Why does VNET only acquire service businesses with no fixed assets?
 Why would a company confident in its core business bother with so many tiny
acquisitions into the non-core MNS business that is declining in revenue contribution?
 Why is there such poor disclosure about VNET’s many acquisitions? Truly minimal
information such as the names of the acquired entities and occasionally some high level
valuation information is about all we get in SEC filings. Why is there little to no
information reported about the acquired entities’ financial performance and corporate
history before acquisition?
 Why do non-hosting businesses get reported with core IDC? CDN and Microsoft cloud
software do not belong in IDC. The excuse management gave when we asked was that
they are not broken out separately because they are too small. Shouldn’t management
want to report emerging businesses off a small base to show their strong growth? That is
what the large majority of other public companies in this situation do.
VNET’s Midas Touch
Before we decided to investigate VNET’s major acquisitions in person, we spent considerable
time trying to figure out their performance. Although VNET discloses little information about its
acquisitions, we were able to get our hands on filings to China’s State Administration for
Industry and Commerce (SAIC)7
to get a view of their pre-acquisition performance to compare
to the post-acquisition performance reported in SEC filings
7
http://www.saic.gov.cn/english/aboutus/

PAGE 33 / 121
Exhibit 23: Summary financials for VNET’s major acquisitions before and after acquisition
It is not hard to see that VNET’s acquisitions deliver stunning outperformance in growth,
profitability or both immediately after consolidation.
VNET’s Impeccable Timing
It is very unusual for a company to acquire non-core businesses that outperform that dramatically
as soon as they are tucked in. It is even more unusual, and also highly counterintuitive, for that to
happen during critical periods of heightened execution risk e.g. before the IPO (MNS Entities),
when margins plunged (Fastweb) and before substantial ramps in cabinet expansions (Gehua,
TWYL and iJoy, iPoo and Dermot). And yet that is exactly what happens without fail for VNET.
It is practically a law, as the chronological chart of acquisitions overlaid with cabinet growth
shows below.

PAGE 34 / 121
Exhibit 24: History of cabinet expansion and suspicious acquisition timing
Six months before its April 2011 IPO, as VNET realized that a cash-burning unprofitable data
center business might not be well-received by the public markets, VNET got serious about MNS,
a business it was not in previously. On September 30, 2010, VNET acquired the two parent
companies of a seven-company network of MNS businesses it refers to as “Managed Network
Entities” in the 2011 20-F. As Exhibit 23 shows, the MNS Entities’ net margins from 2009-2013
were -2.4%, 7.7%, 18.5%, 19% and 8.6%. The effect of that sudden peak in profitability between
2011 and 2012 was a successful VNET IPO driven by a company that appeared to have turned
the corner in profitability just in time for its listing. We note that profitability was achieved by
acquisition in spite of the core IDC business’s underperformance.
Exhibit 25: VNET’s profitable IPOs courtesy of well-timed profit peak in well-timed acquisition of MNS Entities
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
7 MNS Entities
Gehua (MNS)
Fastweb TWYL iJoy
iPoo
Dermot
IPO
Plunge in utilization
FY 2010 FY 2011 FY 2012 FY 2010 FY 2011 FY 2012
Net revenues 525,203.0 1,020,929.0 1,524,158.0 465,028.0 750,929.0 1,174,158.0
Cost of sale (396,858.0) (744,371.0) (1,098,477.0) (363,761.8) (582,371.0) (877,977.0)
Gross profit 128,345.0 276,558.0 425,681.0 101,266.3 168,558.0 296,181.0
Gross margin % (25.0%) (25.0%) (25.0%) # (25.0%) (25.0%) (25.0%)
Operating expenses (353,614.0) (198,468.0) (327,312.0) (339,027.6) (143,118.0) (267,812.0)
Changes in the fair value of
contigent purchase
consideration payable (7,537.0) (63,185.0) (17,430.0) (7,537.0) (63,185.0) (17,430.0)
Operating income(loss) (EBIT) (232,806.0) 14,905.0 80,939.0 (245,298.3) (37,745.0) 10,939.0
Other income(expense) 1,792 34,170 7,951 1,792 34,170 7,951
Interest income(expense) -2,213 10,541 4,925 -2,213 10,541 4,925
Income(loss) before income tax -233,227 59,616 93,815 -245,719 6,966 23,815
Income tax benefit (expense) (1,588.0) (13,677.0) (36,159.0) (963.4) (11,044.5) (32,659.0)
Net income(loss) (234,815.0) 45,939.0 57,656.0 (246,682.7) (4,078.5) (8,844.0)
Consolidated with 7 MNS Entities Consolidated without 7 MNS Entities

PAGE 35 / 121
Fresh with cash from the IPO, VNET acquired another MNS company named Gehua towards the
end of 2011, right before the company’s most aggressive period of cabinet deployment
theretofore.
Similarly fortuitous timing can be seen in the acquisition of Fastweb, a CDN business that is also
not core to IDC, right after the plunge in utilization we discussed in the last section (see Exhibit
8 for utilization trend). Exhibit 23 shows a business that declined between 2010 and 2011, both
unprofitable years, before it was acquired by VNET in 2012. Suddenly, revenue doubled and net
margins went from negative to a robust 19%. Our calls to the IR team and the CFO over the past
two quarters resulted in wildly bullish projections for Fastweb in 2014 and 2015, although the
level of wild bullishness varied by the day and the source. We were told Fastweb would deliver
anywhere between 150-300% year on year growth in 2015, just in time for the huge 27,000
cabinet build out in 2H2014 and 2015 that will depress utilization and therefore margins.
Throughout our diligence of Fastweb, we were able to interview engineers from Microsoft who
can be found any day of the week at VNET’s headquarters (they are easy to spot, many being of
Indian descent). Who does Microsoft, VNET’s loyal and exclusive partner for cloud software,
use for CDN services in China? Apparently Microsoft’s commitment and loyalty to VNET only
goes so far, since we were able to confirm with both Microsoft engineers and the management
team of industry leader ChinaCache (Nasdaq:CCIH) that Microsoft uses CCIH and not Fastweb,
a business everyone in the industry other than VNET confirms is losing market share. How
Fastweb loses share but projects 150-300% growth next year is as curious as the explosion in
growth and profit immediately after VNET acquired it.
Another case of prescient timing occurs in 2Q2013 when VNET acquired another non-core CDN
business referred to as “iJoy” in the 2013 20-F. This was right after the plunge in utilization that
somehow had no impact on margins but apparently was bad enough to stall cabinet deployment
for three quarters until iJoy was acquired. Not only did cabinet growth resume immediately
thereafter, it is not hard to see how margins held throughout that period from the analysis below.
Exhibit 26: iJoy’s impact on VNET’s consolidated margins

PAGE 36 / 121

It was only after consolidating iJoy that VNET was able to maintain gross margin around 26%
from 2Q2013 to 2Q2014. Similarly, adjusted EBITDA margin was held between 18% and 19%
throughout that period. Without the consolidation of iJoy’s gross profit, VNET’s organic gross
margins would have dropped to as low as 15% and adjusted EBITDA margin would have
decreased to as low as 9% in the last quarter of 2013.
Most recently, right ahead of the exceedingly aggressive 17,000 cabinet build of 2H2014 and
2015, VNET suddenly decided to diversify into two other non-core businesses, consumer
broadband services (“last mile” broadband) and virtual private network (VPN) services, by
making the two largest acquisitions in their long history of non-core acquisitions. The back to
back timing of acquisitions of this size notwithstanding, more curious is their timing ahead of an
epic cabinet ramp as the acquired MNS subsidiaries’ revenue is stalling and margins are quickly
eroding. Even for these much larger acquisitions, VNET will not get much in the way of fixed
assets, so investors might hope there is at least significant strategic value to the core IDC
business. Alas, there is not. They are both non-core add-ons, with iPoo having practically zero
synergy as it is a consumer business. By now the answer to why VNET, a purportedly high
growth business in a developing industry, would deploy so much of its precious cash to acquire
low-growth established companies outside of its core industry should be obvious. It will be
impossible for VNET to survive the massive cabinet build ahead without inorganic financial
help.
Vicious Cycle
It is clear that financings are VNET’s key growth driver. VNET raises a huge percentage of
revenue and market cap to acquire increasingly larger non-core companies to make up for the
shortfall in revenue from the core business. That core business consumes about half the cash
from financings to fund an IDC build that burns cash at an alarming rate. The result has been a
massive swing in the balance sheet from net cash to net debt in three short years.
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Gross margin % (without iJoy) Gross margin % (with iJoy)

PAGE 37 / 121
Exhibit 27: Financial consequences of feeding the IDC beast
While management waits for its nascent cloud software business to ramp, the IDC business is
burning a hole through the balance sheet that will require an enormous amount of fundraising.
Between 2011 and 2Q2014, by far VNET’s period of largest cabinet expansion, capex per self-
built cabinet (since partnered cabinets incur no capex) was approximately RMB 139,000.
Exhibit 28: Capex per cabinet
VNET plans to launch 17,000 incremental cabinets through the end of 2015, which at a rate of
RMB 139,000 per cabinet, would require over RMB 2.4 billion ($396 million) to finance. Note
that this is a conservative assumption since we are not charging the balance sheet with
commitments for the completion of ongoing data center construction and other associated IDC
network expansion costs.
(200.0)
(100.0)
0.0
100.0
200.0
300.0
400.0
500.0
Revenue Financings M&A Net Debt
2010 2011 2012 2013 1H2014 Run rate

PAGE 38 / 121
What will that do to the company’s net debt position, and how will the company’s trailing three
year track record of burning 28% of its total net revenue in free cash flow factor into the
company’s liquidity?
More importantly, if VNET is overstating cabinet count and utilization to such a degree that the
overstatement alone wipes out all the reported EBITDA, an assumption for which we have
provided ample evidence (we have yet to discuss the acquisitions in detail…), how will VNET
stay solvent, let alone support its current expansion plans?
Investors, stockholders in particular, should respect their place in the capital structure and act
accordingly, because a liquidation of VNET today would render all of VNET’s equity worthless,
even without the planned capacity expansion.
A Track Record of Value Destruction
Most companies use acquisitions to consolidate the industry of their core lines of businesses.
Less frequently, smaller acquisitions are used to gain access to promising new lines of business
as established companies saturate their slowing industries. VNET’s acquisitions fly in the face of
these tried and true best practices. VNET only acquires outside of its core business and uses
acquisitions to troubleshoot growth problems in the core.
Since VNET tucks these acquisitions into only two categories, IDC and MNS, breaking out only
revenue separately, investors cannot track regularly whether their capital is being deployed
productively or not.
What happens to these acquisitions over the long term is a critical question—not merely one of
management competence but more importantly, solvency. We have seen that roughly half the
capital raised in VNET’s non-stop financings has yet to deliver an economic benefit as the IDC
network bleeds cash like a stuck pig, making VNET increasingly indebted. Does the other half of
the funds from financings deliver acceptable returns in future cash flows for investors?
VNET’s track record suggests the answer is a resounding no.

PAGE 39 / 121
Exhibit 29: A long history of value destruction through acquisitions
Out of the two dozen acquisitions the company has closed so far (Dermot has yet to close), only
two companies have yet to sorely disappoint: Aipu, which was consolidated into VNET just last
quarter, and the mysterious iJoy, an outlying winner (so far) from a long list of miserable
failures.
So naturally, we began our extensive six-month investigation of VNET’s many acquisitions with
iJoy.
Year Acquisition Rationale Outcome
May 2007 Tiantian Online Expansion into online video business Ceased supporting operations
October 2007 Shanghai Stateline
N k
ISP Shut down
December 2007 VV91 Regional expansion Southwest NA (no evidence of its existence)
May 2008 Lanmang IDC network expansion Shut down
September 2010 Managed Network
Entities (7 total)
Managed network expansion Business degradation. Failed to meet profit targets stiputlated in
merger agreement. Rapidly shrinking contribution to total revenue.
Prior to October
2010 pre-IPO
reorganization
Five undisclosed
companies
Expansion into new businesses
(specifics undisclosed)
All written off
November 2011 Guangzhou Gehua Managed network expansion Business degradation. Failed to meet profit targets stiputlated in
merger agreement. Rapidly shrinking contribution to total revenue.
September 2012 Fastweb Expansion into Content Delivery
Network (CDN) business
Losing market share, achieved only 6% net margin
February 2013 Tianwang Online Managed network expansion Together with Yilong Xinda, achieved only 3% net margin. Rapidly
shrinking contribution to total revenue.
February 2013 Yilong Xinda Managed network expansion Together with Tianwang Online, achieved only 3% net margin.
Rapidly shrinking contributioon to total revneue.
April 2013 iJoy Holdings Limted
and related entities
Expansion of CDN business TBD
2014 Aipu Holdings Expansion into consumer/retail last-
mile services
TBD (just consolidated as of 2Q2014)

PAGE 40 / 121
IJOY: GHOST IN THE (CACHE) MACHINE
In April 2013, VNET completed the acquisition of 100% of iJoy, its subsidiaries and
consolidated affiliates (collectively known as “iJoy”) with a purchase consideration of RMB 97.0
million as part of a purported strategic expansion into CDN/content caching. VNET had
previously acquired another CDN company, FastWeb, and appeared to be getting serious about
the CDN space.
We paid particularly close attention to iJoy because it is listed in the 2013 20-F filings as one of
VNET’s two VIEs, an entity called aBitCool being the other. Also, iJoy appears to be an
incredibly profitable business with nearly 100% net margins.8
Despite all that, we wondered why
VNET is so secretive about iJoy, disclosing so little about this company in its 20-F filings
despite its substantial contribution to consolidated margins. Uncharacteristically, VNET never
issued a press release about iJoy’s acquisition despite issuing one for the less significant
FastWeb9
and the two acquisitions of iPoo10
and Dermot11
that were done immediately after. If
iJoy is significant to VNET, it is certainly hard to tell. iJoy doesn’t even show up on a search on
VNET’s own corporate website:
Exhibit 30: There are no results for a search for “iJoy” on VNET’s own website
iJoy’s Filings: The Basics
As skeptical as we were going into our review of iJoy’s SAIC filings, even we were surprised by
the number of red flags that our first cursory scan of iJoy’s SAIC filings revealed.
8
2013 20-F, page F-39
9
http://ir.21vianet.com/releasedetail.cfm?ReleaseID=708303
10
11

PAGE 41 / 121
Corporate Structure
iJoy’s consolidated PRC variable interest entity is called Beijing iJoy Information Techonology
Co., Limited (“Beijing iJoy”). The wholly owned PRC subsidiary of iJoy Holding Limited is
named Suzhou Zhuoaiyi Information Technology Co., Limited (“Suzhou iJoy”).12
The following
diagram illustrates the current corporate structure of the principal operating entities controlled by
and affiliated with iJoy Holdings Limited:13
Exhibit 31: Corporate structure of iJoy Holdings Limited

iJoy Holding Limited
Asiacloud Wireless Ltd.
(Hong Kong)
Suzhou Zhuoaiyi
Information Technology
Limited
(“Suzhou iJoy”)
Beijing iJoy Information
Technology Limited
(“Beijing iJoy”)
Suzhou Aizhuoyi
Information Technology
Limited
Peng Yang
The founder and seller of
iJoy
Outside PRC
In PRC
VIE 99% equity ownerRelated party
Related party
100% acquired on April 30, 2013
Shanghai iJoy Information
Technology Limited
(“Shanghai iJoy”)
100% owned
Peng Yang’s father
1% equity owner
WFOE
PRC regulation currently restricts foreign ownership of telecommunications value-added
businesses.14
The shareholder(s) of Beijing iJoy must be PRC citizen(s) who is (are) forced to
enter into a share pledge agreement with Suzhou iJoy to provide effective control for Suzhou
iJoy. According to SAIC filings, Peng Yang is the sole owner of Beijing iJoy with a personal
registered permanent residence in Beijing’s Xicheng district.
On October 30, 2012, Peng Yang signed a definite loan and share pledge agreement with Suzhou
iJoy to pledge his 100% shares in Beijing iJoy (北京阅联信息技术有限公司, “北京阅联”). Per
Suzhou iJoy’s SAIC filings, its sole investor is a Hong Kong company, iJoy Information Limited
which was renamed to Asiacloud Wireless Limited in late 2013. This Hong Kong based
company is entirely invested and controlled by iJoy Holdings Limited (BVI). Below is the
12
2013 20-F, page 52
13
iJoy Information Limited (Hong Kong) was renamed to Asia wireless Limited in June 2013.
14
2013 20-F, pages 52, 53 and 54

PAGE 42 / 121
scanned copy of Suzhou iJoy’s business license and share pledge agreement entered into by Peng
Yang and Suzhou iJoy.
Exhibit 32: Business License of Suzhou Zhuoaiyi and Share Pledge Agreement by Peng Yang and Suzhou
Zhuoaiyi

Translation of Business License of Suzhou Zhuoaiyi:
Name of Company: Suzhou Zhuoaiyi Information Technology Co., Limited. The sole owner of Company: iJoy Information Limited
(Hong Kong)
Translation of Share Pledge Agreement by Peng Yang and Suzhou Zhuoaiyi:
The parties who entered into the agreement include Peng Yang and Suzhou Zhuoaiyi Information Technology Co., Limited. Pursuant
to the share pledge agreement, Peng Yang as the nominee shareholder has pledged all his equity interest in Beijing iJoy Information
Technology Co., Limited to guarantee the repayment of the loan specified in the Article 2.0 of the agreement.
The important points are that Peng Yang was the sole owner of iJoy before its acquisition by
VNET and that Mr. Peng apparently went out of his way to set up offshore entities in preparation
for a sale to a foreign-listed company such as VNET.
iJoy’s Ghost Offices
iJoy is registered with the SAIC under a ghost office that is occupied by another company.

PAGE 43 / 121
Exhibit 33: iJoy’s registered office does not exist
We tried to find iJoy’s operations everywhere it made sense to find them but mostly struck out.
We obtained all of iJoy’s registered addresses from Beijing iJoy and Suzhou iJoy’s SAIC filings,
iJoy’s website and other public sources. All but one of the addresses led to ghost offices that
could not have been used for real operations, and two of the ghost offices were occupied by
different companies.

PAGE 44 / 121
Exhibit 34: List of all registered addresses for iJoy and results of our in-person investigation
Name of Company Registered Address Note Source
Beijing iJoy
(北京阅联信息技术有
限公司)
北京市西城区德胜门外大街83号楼4层40
8室
Room 408, 4th
Floor, Building No.83,
Deshengmenwai Avenue, Xicheng District,
Beijing
Ghost address.
The room is occupied by
another company.
SAIC15
Beijing iJoy
(北京阅联信息技术有
限公司)
北京市海淀区西土城10号北京邮电大学
科研大厦202室
Room 202, 2nd
Floor, Science Research
Building, Beijing University of Posts and
Telecommunications
Real office address with
less than 10 people.
Company
website16
Suzhou Zhuoaiyi /
“Suzhou iJoy”
(苏州卓爱易信息技术
有限公司)
江苏省昆山开发区前进东路科技广场150
5室
Room 1505, TechnologyPlaza, Qianjin
Road East, Kunshan Development Zone,
Suzhou, Jiangsu Province
Ghost address.
The room is occupied by
another company.
SAIC
Suzhou Aizhuoyi
(苏州爱卓易信息技术
有限公司)
江苏省昆山开发区伟业路18号现代广场A
座2009室
Room 2009, Modern Plaza, Weiye Road,
Kunshan Development Zone, Suzhou,
Jiangsu Province
Ghost address only for
registration purpose.
Occupied about 60-65
square meters and
nobody found working
there.
SAIC
Shanghai iJoy
(上海阅联信息技术有
限公司)
Established on May 30,
2013 with registered
capital of RMB
5,000,000
上海市浦东新区张江高科技园区郭守敬
路351号2号楼A637-16室
Room A637-16, Building No.2, No.351
Guoshoujing Road, Zhangjiang High Tech
Zone, Pudong District, Shanghai
Ghost address only for
registration purpose.
Occupied about 30-35
square meters and
nobody found working
there.
SAIC
A Ghost Board of Director [sic]
iJoy not only has ghost offices, it also has a ghost board. SAIC filings show only one director
who apparently runs board meetings with himself.
15
http://qyxy.baic.gov.cn/
16
http://www.unionread.com/company_info_contant.html

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