Clutch of Small Caps Plunge as Much as 93% in Hong Kong

(Bloomberg) -- A string of Hong Kong stocks suddenly plunged Thursday with no explanation, leaving traders to speculate that a forced seller was behind the moves.

More than $1.4 billion was wiped from the value of five small-cap stocks, with Sino Haijing Holdings Ltd. at one point dropping 93 percent. Traders pointed to speculation that a large holder might have been forced to liquidate shares after a loan went sour. An employee at Sino Haijing said nobody could respond to questions, while a spokesperson for Beijing Gas Blue Sky Holdings Ltd., which lost as much as 71 percent, couldn’t be reached.

Clutch of Small Caps Plunge as Much as 93% in Hong Kong

“Normally when shares crash like this it’s usually someone pledging a lot of shares with a broker and failing to meet margin calls,” said Francis Lun, Hong Kong-based chief executive officer of Geo Securities Ltd. “These are small companies so it wouldn’t cause that much alarm to the market.”

The Rules

Hong Kong exchange rules say a controlling shareholder can borrow against stock and not disclose as long as it’s for personal finance reasons rather than loans, guarantees or other forms of support for the company. China Huishan Dairy Holdings Co., suspended since March 2017, had almost 71 percent of its stock pledged as collateral by its largest holder, leaving minority shareholders stuck in their positions. More recently, cash-strapped HNA Group Co. put up most of its shares in a Hong Kong-listed unit to borrow money.

In mainland China, concerns over share pledges bubbled in recent months after some firms warned of forced selling of stocks as major investors failed to meet additional collateral demands. In a bid to stem risks, authorities have announced measures to help private companies struggling for liquidity.

Big Losses

A spokesperson for AUX International Holding Ltd., which tumbled as much as 71 percent, couldn’t immediately be reached by phone. A call to Asia Television Holdings Ltd., which dropped 63 percent before reversing losses, went unanswered. An employee for China Baoli Technologies Holdings Ltd., which slid 50 percent, said no spokesperson was available for comment. Nobody was immediately available for comment at Skyfame Realty Holdings Ltd., which fell 72 percent.

Hong Kong is no stranger to sudden declines in some of its more obscure companies, where concentrated ownership and complex holding structures stretching across multiple stocks are often blamed for wild swings. Critics have called on the equity market to tighten its corporate governance oversight, saying the city is a breeding ground for volatility.

Hong Kong’s exchange operator said it doesn’t comment on individual companies.

An “Enigma Network” of 50 stocks roiled the city’s markets last year, triggering a crash in dozens of interlinked companies weeks after activist David Webb published a report. Exchange data show the biggest positions in Blue Sky and Sino Haijing that had been lodged with Hong Kong’s securities settlement system were held through Kingston Securities Ltd. The brokerage said a spokesperson wasn’t immediately available to comment.

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