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Shirley Yam

Bathhouses, not meeting rooms, are where deals are now  made, because everyone is naked.
The only thing anyone can carry is his or her mind, and perhaps a towel; no cameras or recorders and therefore no evidence of any wrongdoing.
Bathhouses must be really busy nowadays, with the regulators apparently tightening their monitoring of insider trading in recent months.
“Corporate management is getting loads of queries,” one lawyer said.
A public relations consultant said: “There are fewer and fewer  phone meetings. Clients, in particular those from the mainland, want to do it face to face now.”
Is that due to Beijing’s anti-corruption campaign? Or is it to do with a crackdown on insider trading? Nobody knows.
However, a review of the price performance of various stocks involved in major restructuring shows why the regulators see a need to dig in their claws.
The state sector is where most of the head-turning restructurings have happened recently. At least eight state enterprises have been involved,  with seven of them outperforming  the market  in the three months before their suspension (see table).
Among them are train-makers CSR Corp and China CNR Corp, which announced a merger on New Year’s Eve.
Despite a downward market, both saw double-digit gains before their shares were suspended from trading. Their share prices then soared on the announcement of the merger and resumption of trade. Those lucky enough to have held the stock since then are enjoying a 64 per cent gain. Their A shares did even better.
Mainland media pointed to trading in their shares by 25 members of their management and relatives in the six months before the suspension. The most controversial were perhaps CSR trades made by CNR management that included almost every key executive – its chairman, president, financial controller, board secretary, internal auditor and three department heads – and their spouses.
Both companies have denied any insider trading, describing the trades as a result of “individual’s valuation analysis”.
Some “outperformers” would, however, find it difficult to use good fundamentals as an explanation.
Luoyang Glass  is a good example. Formerly the mainland’s top glass maker, it has deteriorated into an unwanted shell, given the losses it made and the scandalous pocketing of listing proceeds by the Luoyang authorities. Yet, its shares have traded up since April last year – weeks after it announced a 100 million yuan (HK$124.8 million)  loss for 2013.
By the time Luoyang Glass suspended share trading for asset restructuring in late June, it had gained 181 per cent, while the market had only gone up by 1.49 per cent.
The subsequent disposal of its loss-making business in return for some profitable ones pushed its share price higher again when trading resumed. Anyone who staked up in advance saw an 83 per cent gain.
The reality is there is no secret when it comes to the restructuring of a state enterprise. Way too many entities – and therefore officials – are involved in the process.
In the case of a national-level enterprise, there are at least five entities involved: the State Council,  the State-owned Assets Supervision and Administration Commission,  the Ministry of Finance,  the China Securities Regulatory Commission  and the controlling company. Double this number if a provincial-level company is restructured. 
Do we seriously expect each and every one of the dozens, if not hundreds, of people involved in the process to ignore the chance of a windfall?
shirley.yam@scmp.com


Regulators can't fail to notice head-turning share price gains

Shares of CSR Corp and China CNR Corp saw double-digit gains before they were suspended from trading. Photo: EPA

Business

China Business

Opinion

With shares of state enterprises significantly outperforming markets ahead of restructurings it's hard to ignore claims of insider trading


Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Money Matters

.css-1m2rp1p{color:#34b8b5;}Money Matters | Regulators can't fail to notice head-turning share price gains

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}With shares of state enterprises significantly outperforming markets ahead of restructurings it's hard to ignore claims of insider trading

Money Matters | Regulators can't fail to notice head-turning share price gains

With shares of state enterprises significantly outperforming markets ahead of restructurings it's hard to ignore claims of insider trading