Company Chairman, Wife Cut Stake as Hong Kong Stock Plunged 89%

(Bloomberg) -- The chairman of a Hong Kong-listed property developer and his wife cut their stake just as the stock plunged 89 percent. Shares were halted from trading after sinking again Tuesday.

Shum Tin Ching and his wife Wang Xinmei sold 93.6 million shares of Jiayuan International Group Ltd. on Jan. 17 at an average of HK$2.7611 apiece -- about a 79 percent discount from the previous day’s close -- according to a Hong Kong exchange filing. That reduced their shareholding to 53.92 percent from 57.65 percent. Their trades made up about a quarter of the entire volume in the stock for that day, according to data compiled by Bloomberg.

Jiayuan tumbled as much as 24 percent before shares were suspended. Stocks that plunged last week with Jiayuan also sank, with Sunshine 100 China Holdings Ltd. falling as much as 13 percent and Rentian Technology Holdings Ltd. retreating 9.1 percent.

Traders had struggled to pinpoint the reason behind last week’s rout, with possible explanations ranging from margins calls to maturing debt. Jiayuan said at that time that it wasn’t aware of the reason behind the slump nor of any information requiring disclosure. The chairman was forced to sell the stake because he had pledged those shares as collateral for a loan, according to a Chinese media report Tuesday.

“The stake reduction is a very confusing move,” said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong. “Usually when management reduces their stake, they should have a reason. But when the shares plunged last week, the company said they did not see any reason leading to the plunge."

A representative for the Securities and Futures Commission declined to comment. Hong Kong Exchanges & Clearing Ltd. hasn’t seen “a common problem that needs to be addressed” after the Jiayuan plunge, Chief Executive Officer Charles Li told Bloomberg on the sidelines of the World Economic Forum in Davos.

The declines last week were caused by false information disseminated by short-sellers, QQ.com reported Monday, citing Shum at a briefing with investors. Shum won’t rule out the possibility of increasing his stake with an asset injection or share buyback in the future, the report cited him as saying.

The exchange filing showed Shum and Wang had a short position in the company that was reduced to 24.22 percent from 25.01 percent. An individual has a short position if shares are borrowed or if financial instruments are held, written or issued with the other party being entitled to take the underlying shares, according to HKEX guidelines. Short interest in Jiayuan stood at 5.1 percent of free float on Jan. 18, up from 4.7 percent when the shares were sold, according to data from IHS Markit Ltd.

Read: Jiayuan Chairman’s Pledged Jiayuan Chuangsheng Shares Released

Jiayuan was among a string of Hong Kong-listed companies that saw a wave of selling last week, resulting in prices plunging more than 75 percent in a matter of minutes. Sunshine 100 and Rentian Technology crashed, and at least 10 companies were 20 percent lower by the close that day, wiping out HK$37.4 billion ($4.8 billion) in market value. Jiayuan accounted for most of that loss on record volume.

--With assistance from Sofia Horta e Costa and Jun Luo.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Magdalene Fung, Sofia Horta e Costa

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