Shanghai Pharma slides 24pc after fraud probe report
Shares of Shanghai Pharmaceuticals, a leading mainland drug maker and distributor, fell 24 per cent to a record low in Hong Kong after a mainland newspaper reported a fraud investigation into the company.
State-owned Shanghai Pharmaceuticals closed at HK$9.11 - less than half its initial public offering price of HK$23 a year ago - after the shares dropped as much as 35 per cent yesterday.
The company listed in Hong Kong a year ago, becoming the first pharmaceutical company listed in both Shanghai and Hong Kong. Its A shares in Shanghai fell 10 per cent, the daily limit, to 10.75 yuan (HK$13.20) at the close of trading yesterday.
Shanghai Pharmaceuticals was being investigated by the Hong Kong stock exchange and the China Securities Regulatory Commission (CSRC) on suspicion of financial fraud involving two acquisitions earlier this year, the 21st Century Business Herald reported yesterday, citing an unidentified company executive.
The company said in a statement to the Hong Kong stock exchange last night that directors knew of no explanation for the share price drop.
Responding to the Herald's report, the firm said it had not received notice of any investigation by either the stock exchange or the CSRC.
Johnson Sun, an analyst at Guotai Junan (Hong Kong), said infighting within the state-owned company could have led to the fraud report. Sun said he was more concerned about corporate governance at Shanghai Pharmaceuticals than accounting issues.
'In the past several months, two senior members of the management in the company have left,' he said.
Sun said some groups' interest might be threatened as Shanghai Pharmaceuticals expanded through acquisitions and integrated existing businesses.
'The sharp drop in the share price reflected investor concerns that the books might have been cooked,' he said. 'Their worry is excessive and the market reaction is overdone.'
A number of mainland firms, including Sino-Forest and Chaoda Modern Agriculture, were accused of fraud last year, raising concerns about corporate governance and accounting rules among mainland companies.
Deutsche Bank analyst Jack Hu said in a research note that 'as this piece of news is unconfirmed, we would seek further clarification'.
'Meanwhile, we highlight potential downside risk on the stock.'
The amount, in yuan, that Shanghai Pharmaceuticals paid to acquire Changzhou Kony Pharma in February