Caixin
Aug 21, 2019 09:22 AM
FINANCE

Huarong Unit Plunges 60% in Sudden Hong Kong Sell-Off

China Huarong has been rattled by investigations of disgraced chief Lai Xiaomin. Photo: VCG
China Huarong has been rattled by investigations of disgraced chief Lai Xiaomin. Photo: VCG

A unit of China’s state-owned asset manager China Huarong Asset Management Co. Ltd. was hit by a sell-off Tuesday in Hong Kong that pushed the stock down by as much as 60% to a historic low.

Hong Kong-listed Huarong International Financial Holdings Ltd. tumbled 60% in seven minutes during afternoon trading and touched HK$0.235 ($0.02), the lowest since its market debut in 1994. The plunge reflected selling by Hong Kong-based brokerage house Cornerstone Securities Ltd., the largest broker of Huarong International Financial’s publicly traded shares.

The stock finished the day at HK$0.33, down 45% from the previous close. The benchmark Hang Seng Index declined 0.23% Tuesday. The shares have lost 84.4% of their value since April 2018, rattled by a corruption scandal at the parent company that brought down former China Huarong Chairman Lai Xiaomin.

According to information provided by the trading system of Futu Securities International, Cornerstone sold a net 13.7 million shares of Huarong International Financial Tuesday, or about 0.38% of the shares outstanding.

Data from Hong Kong Exchanges and Clearing, the operator of the Hong Kong bourse, showed that as of Aug. 19, Cornerstone held 6.67% of Huarong International Financial’s Hong Kong shares on behalf of investors, followed by 4.44% held by China Huarong International Holding Ltd., another subsidiary of China Huarong.

It is unclear who were the actual investors selling Huarong International Financial’s shares through Cornerstone Securities.

Cornerstone has close ties with several high-profile investors in the Hong Kong market. In 2015, its predecessor Focus Media pledged 51.5% of its shares to Hong Kong billionaire and casino tycoon Ji Xiaobo for loans, market records showed. Ji exited Focus Media by December 2015.

Cornerstone remained the second-largest broker of Imperial Pacific International Holdings Ltd.’s shares, a casino operator founded by Ji. China Huarong International is the largest broker of Imperial Pacific.

Cornerstone is also the second-largest broker of Sino Golf Holdings Ltd., a company founded by mainland businessman Huang Youlong.

Cornerstone Securities was restructured from Focus Media Network Ltd. and entered the securities brokerage industry in 2016. Previously, Focus Media was an outdoor digital media operator which in 2015 acquired 75% of film studio Stan Lee Global Entertainment, a joint venture with Stan Lee's POW! Entertainment.

China Huarong and subsidiaries have been rattled by graft investigations surrounding Lai over the past year. During Lai’s tenure, China Huarong underwent a radical transformation marked by a rapid expansion of its assets, liabilities and business scope. The company grew into a financial holding group that engaged in a range of financial services, including securities, trusts, banking and financial leasing. After Lai’s case went public, China Huarong tried to roll back many of the business lines and implemented more risk controls, Caixin learned earlier.

China Huarong recently forecast a net profit of 2 billion yuan for the first half this year, compared with 685 million yuan a year ago, reflecting a business recovery. The company is set to report earnings Aug. 28.

Contact reporter Han Wei (weihan@caixin.com)

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