Shares in one of China’s largest dairy groups Huishan Dairy Holdings plunged 85 percent on the Hong Kong Stock Exchange (HKEX) on Friday, wiping off about 4 billion US dollar from its market value.
China Huishan Dairy was granted a trading suspension after its shares witnessed one of the biggest crashes in the exchange’s history, which likely caused paper losses for investors including BlackRock, the world's largest asset manager, and Vanguard, one of the world's largest investment companies.
Unclear cause
This week has definitely been a roller coaster for the management of the company as a cascade of events culminated into the tragic tumble of its shares on Friday.
On Monday, Huishan Dairy informed creditor banks that it will not be able to repay 300 million yuan (44 million US dollars) in interest on time. The company cited the sudden illness of Ge Ning, Vice President and wife of Chairman Yang Kai, as the reason for the firm’s failure to be timely funded.
On Friday morning, business publication Caixin reported that the government of northeast China’s Liaoning province, where Huishan Dairy is based, met 23 of the firm’s creditor banks on Thursday to discuss the financial status of Huishan Dairy.
Sina Finance also reported that a “major shareholder” of Huishan Daily embezzled three billion yuan (nearly 440 million US dollars) to invest in China’s real estate, but failed to make up the deficit on time.
Soon enough, share prices of the dairy company went into a free fall.
News website Barron's Asia quoted Huishan Dairy Chairman Yang Kai as saying the fall of share prices was the result of a short seller attack, stressing that Sina Finance’s allegations are all fake. Yang said the company would issue an announcement as soon as investigation is completed.
Shares of Huishan Dairy plunged 85 percent on the HKEX on March 24, 2017. /CFP Photo
The firm has previously been through a similar mayhem.
In December 2016, US-based short-selling investment research firm Muddy Waters questioned the firm's profits and said it had inflated spending on its cattle farms to artificially raise capital expenditure figures. The report also led to a trading suspension.
Muddy Waters said at the time it believed the Chinese dairy firm to be worth "close to zero" because it had misrepresented its self-sufficiency in alfalfa used as feed for cattle, was over-leveraged and had overstated its spending.
Regulators on alert
Shenzhen Stock Exchange (SZSE) said it would pay close attention to Huishan Dairy, and has enabled the Shenzhen-Hong Kong emergency response mechanism to call HKEX to urge relevant listed companies to disclose information timely, accurately and completely.
SZSE also issued an announcement to its members, requiring them to strengthen risk disclosure and investor education work, and warned investors to make decisions prudentially. It also reminded investors of difference in regulations and trading systems between SZEX and HKEX.
Shenzhen-Hong Kong Stock Connect program was launched on December 5, 2016, and under the program, investors in each market are able to trade shares on the other market using their local brokers and clearing houses. /CFP Photo
HKEX does not curb the amount shares can fall in a day, unlike other exchanges automatically suspending stocks from trading if they fluctuate beyond a set limit.
Li Xiaojia, CEO of HKEX, said Hong Kong stock market is definitely not a casino, and Hong Kong institutions have a lot of tools to deal with regulatory issues.
Li also compared stock market regulations between the US and Chinese mainland. US regulators pay more focus on information disclosure, while on the Chinese mainland, regulators put attention on investor protection.
Li Xiaojia, CEO of HKEX /CFP Photo
Hong Kong stock market is placed somewhere between these two extremes, which means the regulatory authorities would conduct audit, investigation and closure when necessary, Li stated.
He noted that volatile fluctuation of an individual stock normally occurs in stock markets and is not unheard of.
(Source: Reuters)
