(Bloomberg) -- China’s top securities regulator resorted to unusually harsh language to denounce leveraged acquisitions of shares in listed companies, as officials move to rein in financial risks associated with a surge in dealmaking.
China Securities Regulatory Commission Chairman Liu Shiyu also questioned the legitimacy of the funding sources at acquirers that he didn’t identify, saying their behavior challenges the nation’s rules, as well as their own professional ethics. Such acquisitions show “retrogress and decay in humanity and commercial morals, and is by no means financial innovation,” Liu, 55, said.
“By using improperly obtained money to conduct leveraged acquisitions, you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry, ” he said at a meeting of the Asset Management Association of China in Beijing on Saturday, a transcript of which was posted on the regulator’s website. “That’s not allowed.”
The comments came after China Evergrande Group, the country’s largest property developer, last month stepped up purchases of shares in rival China Vanke Co. in the weeks after a warning from the Shenzhen stock exchange that it is closely monitoring Evergrande’s investments, some through its insurance unit, in listed companies. The bourse said it strengthened supervision after finding “abnormal trading behaviors” that affected share prices of Vanke and others.
“This manifests top regulators’ stance on insurers’ buying spree, and it will be helpful for the market to develop along a healthy path,” Zhou Min, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone, citing controversies surrounding insurance companies’ trading in the stock market.
Evergrande joined the fray in a tussle for control at Vanke, which has been trying to fend off advances from the Baoneng Group. Vanke labeled Baoneng “hostile” after it emerged last year as the developer’s largest shareholder, amassing a 24 percent stake by borrowing from brokers and fund managers who raise the money selling private high-yield instruments to wealthy clients.
Evergrande’s purchases were the latest wave of acquisitions since 2014 by companies led by insurers such as Anbang Insurance Group Co., which also owns a major stake in Vanke, and Foresea Life Insurance Co., one of the two main units Baoneng used in acquiring listed companies. Evergrande’s life-insurance unit said last month it would “voluntarily” lock up shares of five Shenzhen-listed companies for six months, after the city’s exchange said share prices were significantly affected by the trading and the insurance regulator urged it to stop short-term speculation in stocks.
While much of the money used for stock purchases by most acquisitive insurers was raised from high-yield, short-term products and poses large liquidity risks, such funds can’t all be categorically called “improperly obtained,” Zhou said. “But we can’t exclude the possibility that the CSRC has collected some evidence of certain wrongdoings at some acquirers.”
Vanke slumped as much as 9 percent to HK$21.25 in Hong Kong trading, the biggest intraday drop since Feb. 11. The Hang Seng Index fell 0.8 percent.
Gree Electric Appliances Inc., part-owned by Foresea Life, tumbled by the 10 percent daily limit in Shenzhen trading. CSG Holdings Co., a glass maker most-owned by Foresea Life, fell 6.5 percent. The benchmark Shanghai Composite Index dropped 1.4 percent.
With assistance from Zhang Dingmin