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 and China Minsheng Bank. 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.
Among companies named in the Friday report, Huarong Investment Stock Corporation, a bond-focused asset manager, saw the steepest declines, tumbling as much as 18 percent before ending down 12 percent. Huarong International Financial Holdings, 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.
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.
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 , 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, 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, 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. The SFC declined to comment on Webb’s latest report.
Author: Alun John