Huarong-linked companies fall after ties revealed by Hong Kong analyst

XinKong International Capital Holdings

19/10/2018 11:34

* Analyst publishes diagram of shareholding, lending links
    * Many of the links surround Huarong Asset and China
Minsheng Bank
    * Analyst Webb makes no allegations about those
relationships 

    By Alun John
    HONG KONG, Oct 19 (Reuters) - More than 15 Hong Kong-listed
stocks fell on Friday after investor David Webb described a
complex network of shareholding and lending links surrounding
China Huarong Asset Management  2799.HK  and China Minsheng Bank
 600016.SS   1988.HK .
   In a posting on his website titled "The Huarong-CMB network:
26 stocks not to own", Webb provided nine paragraphs of text and
used a diagram to show manifold shareholding, loan and
convertible bond links between a raft of firms.
    He did not make any allegations about those relationships
and told Reuters he has no financial interest in any of the
companies in the network. 
    Crosshareholdings and lending links between companies are 
common in many Asian countries.
    However the report by Webb, known as an expert in corporate
governance, follows his publication last year of another diagram
describing complex cross-shareholdings between 50 Hong
Kong-listed companies.
    A few weeks later roughly half the stocks in what Webb
called the Enigma network plunged suddenly and unexpectedly. The
worst-hit fell more than 90 percent and more than $6 billion in
total market capitalisation was wiped out. [https://tinyurl.com/yd8yvj6d
]         
    Among companies named in the Friday report, Huarong
Investment Stock Corporation  2277.HK , a bond-focused asset
manager, saw the steepest declines, tumbling as much as 18
percent before ending down 12 percent. Huarong International
Financial Holdings  0993.HK , which has broking and lending
businesses, fell 3 percent. The two firms are units of China
Huarong Asset Management.
    China Huarong Asset Management is the biggest of the
country's four state-backed asset management companies that have
their roots in the 1990s clean-up of Chinese bank balance
sheets. Its shares closed down 0.7 percent, lagging a 0.4
percent gain for the benchmark index  .HSI . 
    This week, China Huarong Asset Management's former chairman,
Lai Xiaomin, was expelled from the Communist Party and is to be
prosecuted for suspected corruption.  urn:newsml:reuters.com:*:nL3N1WV1UW
    A representative for China Huarong Asset Management at
public relations firm Porda Havas declined to comment on the
Webb report. China Huarong Asset Management did not immediately
respond to an emailed request for comment.
    Phone calls by Reuters to the public relations department
for China Minsheng Bank  600016.SS   1988.HK , the country's
largest privately owned lender, were not answered.
    Its shares finished 0.2 percent lower in Hong Kong, while
shares in CMBC Capital Holdings  1141.HK , a broker it controls,
slid 4.2 percent.  
    Other firms in the diagram included property and financial
services conglomerate Shenzhen Baoneng as well as property
developer Greenland  600606.SH   0337.HK , which saw its Hong
Kong-listed stock fall 3.7 percent.
    A representative for Greenland did not have an immediate
comment. Baoneng could not be immediately reached for comment. 
    "This is just the information we could get onto one chart.
It is just the tip of the iceberg that is China’s fragile
financial system," Webb told Reuters. "The SFC has said that it
is looking into these networks, but they have a lot more work to
do."
    Hong Kong's regulator, the Securities and Futures
Commission, has vowed to scrutinise listed companies more
carefully following the high-profile collapse of the Enigma
network and several other surprise share price plunges.
    Last week Tom Atkinson, the SFC's director of enforcement,
said the regulator was focusing on what he called "nefarious
networks" of people who own or control listed companies,
licensed dealers, money lenders, financial advisory services and
placing agents.  urn:newsml:reuters.com:*:nL4N1WQ2OA   
   The SFC declined to comment on Webb's latest report.
      
    

 (Reporting by Alun John; Additional reporting by Clare Jim;
Editing by Jennifer Hughes and Edwina Gibbs)
 ((AlunDavid.John@thomsonreuters.com; +852-28415827;))