South Sea's fast plunge sparks criticism of regulators

PUBLISHED : Wednesday, 01 September, 2004, 12:00am
UPDATED : Wednesday, 01 September, 2004, 12:00am

South Sea Petroleum Holdings stole the limelight in an otherwise quiet Hong Kong market yesterday, tumbling a spectacular 95 per cent in 20 minutes.

The profitless company spiced up the proceedings further by issuing two contradictory statements.

The stock exchange suspended South Sea shares for the afternoon session at the company's request.

Known as Sen Hong Resources Holdings before it changed its name in June, South Sea issued an announcement at 12.05pm stating 'we are not aware of any reasons for such fluctuation'.

At 2.43pm the company issued another statement saying it had requested its shares be suspended 'pending an announcement in relation to price-sensitive information'.

A stock exchange spokesman said it was investigating the statements issued by South Sea.

It was the third time in less than three months that a stock had dropped more than 90 per cent in record time. Each case caught most investors off guard and left them little time to cut their losses.

As on the previous two occasions - involving film-maker B&S Entertainment Holdings and Far East Pharmaceutical Technology - trading in South Sea was halted only after its shares had lost most of their value, prompting fresh calls for more regulatory measures such as circuit breakers, which automatically suspend trading when a stock drops by a specified percentage in a short time.

'This is a classic case of the regulators not reacting in time,' said the general manager of one brokerage firm. 'South Sea has never been a profitable company and it should have been delisted long ago.'

South Sea, which is engaged in the unlikely combination of Indonesian oil exploration and electronics manufacturing in Europe, plunged to an intraday low of 16 cents mid-morning before recovering to 37 cents in time for the midday break.

It had closed at $3.325 on Monday.

Brokers said the sell-off began when the chairman and controlling shareholder, Zhou Ling, failed to meet margin calls for which he had pledged company shares as security.

About 241.9 million shares in the company changed hands yesterday, compared with a daily average of 2.7 million shares over the past six months.