Hong Kong’s latest problem is a 99% nosedive

China Tianrui Cement Co

10/04/2024 13:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, April 10 (Reuters Breakingviews) - The last
thing Hong Kong’s struggling stock market needs is for the
shares of a $1.9 billion listed company to plunge 99% in 15
minutes. That's the fate that befell China Tianrui Group Cement
 1252.HK  as trading drew to a close on Tuesday. At present
outsiders can only guess at what caused the problem.
    Tianrui is hardly an unknown company. U.S. private equity
powerhouse KKR chose it for its first mainland China investment
in 2007, before helping to take it public four years later. And
the company has supplied cement for major infrastructure
ventures such as the South–North Water Transfer Project. Chinese
media often describes its chair, Li Liufa, who along with his
wife owns about 69% in Tianrui, as “the richest man in Henan
province”. 
    Yet the company has been bulldozed by the problems in the
country's beleaguered property sector. Last week it reported a
634 million yuan ($45.8 million) net loss for 2023, compared
with a net profit of 449 million yuan a year earlier. In the
past few years, Li has pledged parts of his stake in Tianrui for
loans to support his company’s operation.
     
    That has prompted speculation among financiers in Hong Kong
that Li may have been subject to a margin call. It has happened
before. Jianyuan International Group, a homebuilder that has
since defaulted, sank as much as 89% in one session in January
2019 on what turned out to be a margin call on shares its
chairman pledged as loan collateral.
    Trouble is, substantial shareholders don’t need to disclose
whether they have borrowed against their stock unless it's
related to an issuer's financing. 
    Tianrui, for example, said in a January filing that Yu Kuo,
the vehicle that holds Li's shares, pledged 97 million shares -
just under 5% of its holdings - to secure a 12-month loan for
the group. On the face of it, though, that seems too small to
trigger such a massive price drop. 
    For now, trading in Tianrui shares is suspended pending an
announcement on "inside information". Perhaps that will fill in
all the gaps about why the company's market value now stands at
just $18 million. It'd be better though, if Hong Kong stock
market watchdogs insisted on far more transparency before
there's a crash.
    
    CONTEXT
    The stock price of China Tianrui Group Cement plunged 99% 
in 15 minutes before Hong Kong’s stock market closed on April 9,
slashing the Henan-based cement maker’s market value to only
HK$141 million from HK$14.6 billion ($1.9 billion). 
    Hong Kong regulators allow substantial shareholders in
listed firms to borrow against stock and not disclose their
pledged position.

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China Tianrui's share-price nosedive    https://reut.rs/3PY9k7s
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 (Editing by Antony Currie and Nivedita Bhattacharjee)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com; Reuters Messaging:
KaSing.Chan.thomsonreuters.com@reuters.net))