Caixin
Nov 15, 2016 05:25 PM
FINANCE

Evergrande Life Promises to Hold Onto Other Companies' Stock Amid Accusations of Speculative Trading

(Beijing) — Evergrande Life, the insurance subsidiary of property developer Evergrande Group, has agreed to keep its holdings in recently accumulated stocks as long-term investments — a response to regulatory concerns about alleged speculative short-term trading.

Evergrande Life promised to hold certain stocks for at least six months, according to statements the affected companies filed with the Shenzhen Stock Exchange on Monday. Those companies include Zhejiang Dongliang New Material Co., Nationz Technologies Inc., Wuhan Zhongyuan Huadian Science & Technology Co. and Integrated Electronic Systems Lab Co.

Evergrande Life said in response to the stock exchange's inquiry that the lockup decision was made after its recent stock sales triggered market concerns and had an effect on the market. The company decided to hold the stocks for a longer term "to support capital market stability and fulfill the insurance company's commitment to long-term investments."

Evergrande Life has been snapping up shares of a handful of Shenzhen and Shanghai-listed companies and swiftly dumping them shortly thereafter, raising concerns of the stock exchanges and regulators. Most of Evergrande Life's holdings are close to 5%, just under the trigger point for disclosure, according to the securities rules.

Commenting on its short-term trading, Evergrande Life said it bought and sold stocks based on its reasonable judgment regarding stock market movement.

Beginning on Sept. 29, Evergrande Life bought batches of shares of Nationz Technologies at an average price of 17.53 yuan ($2.57) and then sold the shares on Oct. 31 and Nov. 1 at an average price of 20.10 yuan, according to Nationz Technologies' filing to the stock exchange. Evergrande Life made similar capital gains in short-term trading of shares of other companies, according to their filings.

From Sep. 28-30, Evergrande Life bought nearly 93.96 million shares of Shanghai-listed Guangdong Meiyan Jixiang Hydropower Co. Ltd., giving it a 4.95% stake and making it the largest shareholder of the company, according to the third-quarter earnings of the hydroelectric power plant. On Oct. 31, Evergrande Life sold all its holdings in Meiyan Jixiang, triggering a stock-price plummet of 10% — the daily maximum — two days later.

Sources close to the Shanghai exchange told Caixin that as of Nov. 2, Evergrande Life held shares in nearly 50 listed companies in the Shanghai market alone. According to earnings reports, Evergrande Life became the top shareholder in 10 companies listed in both Shanghai and Shenzhen in the third quarter.

Evergrande's intensive short-term trading has caught the attention of regulators. On Nov. 8, the China Insurance Regulatory Commission gave a verbal warning to the insurer, explicitly expressing its "unsupportive stance" of its speculative short-term trading of stocks using insurance funds.

The stock exchanges also sent inquiry letters to Evergrande Life, asking the company to disclose its motivations behind its share holdings and justify its trading actions.

The Shanghai Stock Exchange submitted a supervisory report to the China Securities Regulatory Commission earlier this month, reporting Evergrande's speculative trading and suggesting expanding the disclosure requirement to include the biggest shareholders whose holdings are less than 5% of a listed company's shares.

Contact reporter Han Wei (weihan@caixin.com); editor Ken Howe (kennethhowe@caixin.com)

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