Mainland aluminium producer China Zhongwang Holdings cloaked itself in mystery yesterday by suspending trading in its shares after they had risen 39 per cent in eight days.
The company, which was one of the most shorted stocks on the market last year and was accused by mainland media of falsifying its initial public offering prospectus in September, gave no reason for the suspension.
Zhongwang's abrupt decision to halt trading shocked market watchers because, on Tuesday, the company announced that independent auditor Ernst & Young had found 'no discrepancies' in its share sale document. The Liaoning-based aluminium extruder's shares rallied on the good news, rising 7 per cent on Tuesday and a further 15.3 per cent on Wednesday, closing at a three-month high of HK$8.07.
In September, the China Economic Observer said, in a report it later retracted, the top 10 customers named in Zhongwang's prospectus did not buy from the firm in 2008.
Then analysts at stockbroker Cazenove and Japanese bank Nomura published reports saying they had interviewed Zhongwang's customers but could not reach conclusive results.
Zhongwang commissioned the independent report, which it has not made public, to clear its name. The company's announcement about Ernst & Young's findings was cursory. Zhongwang only disclosed that the auditor had not found material deficiencies in its reports of sales transactions with customers from January 2008 to July last year, or in its tax payment records.
When asked if Ernst & Young agreed with Zhongwang's brief summary of its findings, a spokesman for the accounting firm declined to comment. 'At this point, we are referring any inquiries to the company,' the spokesman said.
A public relations spokesman for Zhongwang said the company had not told her when it was likely to give reasons for the share suspension.
Zhongwang raised HK$9.8 billion in its initial public offering in April last year, propelling chairman Liu Zhongtian to eighth place in Forbes magazine's ranking of the richest people on the mainland.
However, the company has been dogged by negative speculation since last summer, when hedge funds began shorting the stock. The attacks surged in early November, when 20 per cent of the company's shares were lent out to short sellers, according to Bloomberg.
Many analysts attributed the fast rise in the stock this week to a so-called 'short squeeze', where short sellers were forced to buy Zhongwang's shares to reverse their loss-making negative positions.