Profit woes, SEC claim dent China Rongsheng
China Rongsheng Heavy Industries Group Holdings saw its share price shed up to 19 per cent on its warning of much lower first-half profit, and on news that the US securities watchdog had accused its founder and chairman, Zhang Zhirong, of illegally trading on insider information.
Analysts attributed most of the share price drop to the allegation against Zhang, which exacerbated already-poor sentiment towards the company, the nation's largest privately controlled vessels builder, and the oversupplied industry.
'Today's market reaction can be largely attributed to the insider trading allegations as opposed to the profit warning ... [which was not helped by] the negative sentiment around the company, [stemming] from significant disappointment about the failure to deliver on key promises from the time of listing,' said Jon Windham, Barclays' Asia ex-Japan head of industrials research.
In a statement to the stock exchange ahead of yesterday's market opening, China Rongsheng attributed its expectation of a substantial year-on-year drop in profit for this year's first half to sharp falls in prices and orders for ships. Analysts said this was well expected by the market.
At the weekend, news emerged that the US Securities and Exchange Commission (SEC) obtained an emergency court order on Friday to freeze the assets of Zhang and several unnamed traders, for alleged illegal trading in connection with the US$15.1 billion takeover offer by listed offshore oil and gas major CNOOC for all the shares of Canada-based energy firm Nexen.
The SEC alleged that Zhang and some unknown traders bought Nexen shares based on confidential information before the deal became public on July 23, adding China Rongsheng was a business partner of CNOOC's state-owned parent, China National Offshore Oil Corp.
Zhang bought more than 830,000 US-traded Nexen shares on July 19 and had an unrealised trading profit of over US$7 million based on Nexen's closing price on July 23, the SEC alleges. Nexen closed at US$25.90 on July 23, up from US$17.28 on July 19.
Under the US Securities Exchange Act, it is illegal for anyone to trade on the basis of material non-public information regarding corporate takeover bids if they knew the information originated from an insider.
China Rongsheng said yesterday that it did not expect the allegations to affect the firm's operations as Zhang, a non-executive director, did not have any executive role in it.
Windham said that although the profit warning was not surprising, it added to negative sentiment towards the firm, which also disappointed the market by the lack of progress in the offshore oil-rig construction business and the behind-schedule delivery of large commodities carriers to Brazilian iron ore giant Vale.
Rongsheng slid 16.4 per cent to HK$1.17 a share yesterday, after falling up to 19.3 per cent. Glorious Property Holdings, also chaired by Zhang, fell 10.6 per cent to HK$1.18. He could not be reached for comment.