Chaoda drops 26pc on fears of misconduct
Chaoda Modern Agriculture (Holdings) lost more than a quarter of its market value yesterday following reports the mainland farming firm is being investigated by Hong Kong's Market Misconduct Tribunal.
The company, which in May was accused by Next Magazine of overstating the size of its land bank, halted trading in its shares yesterday afternoon without commenting on the inquiry.
A spokesman for the tribunal, to which cases are referred by the Securities and Futures Commission through the financial secretary, also declined to answer questions on what the investigation was about.
'The stock could be suffering due to lack of information from the Market Misconduct Tribunal or the company about what exactly is being investigated,' said Brook McConnell, the president of South Ocean Management, a Hong Kong-based fund manager that holds Chaoda shares.
Chaoda shares fell 26.7 per cent to close at an 81/2-year low of HK$1.10.
The firm, founded in Fujian province by Kwok Ho, the son of a People's Liberation Army officer, bills itself as the country's biggest vegetable producer. It has seen its market capitalisation shrivel 85 per cent since October last year to just HK$3.6 billion.
The tribunal, based in a small, single-unit office in Admiralty's Lippo Centre, fines companies or executives it finds guilty of insider trading, false trading or stock market manipulation. Executives found guilty by the tribunal, which is chaired by Mr Justice Michael Lunn, do not receive prison sentences, although they can be disqualified as directors.
Insider dealing is both a civil and a criminal offence in Hong Kong. If the SFC believes a finding of insider dealing can be proven beyond reasonable doubt, it asks the Department of Justice to start criminal proceedings. If the regulator has weaker evidence, it sends the case to the tribunal.
The tribunal first posted details of the Chaoda investigation on its website on August 31, although investors did not react to the news until it was reported by Bloomberg yesterday.
In its May 26 report, Next Magazine claimed its journalists had visited a selection of Chaoda's sites and discovered smaller plots of land than the company claimed to own.
Chaoda denied all of the magazine's allegations and vowed to take legal action against it.
Analysts have also questioned the value of Chaoda's land bank and its high spending on new farms and equipment.
In March, Macquarie analyst Jake Lynch said Chaoda had a large collection of 'forestry plantations, livestock grazing grounds and mountain land of vague value'. Nomura analyst Emma Liu wrote in late May that Chaoda's capital expenditure per mu (0.067 hectare), which includes spending on irrigation systems and greenhouses, was twice the industry average.
Kwok has gradually sold down his stake in the business since it joined the Hong Kong stock exchange in 2000. He owned 31 per cent of the company at the beginning of 2007, but he now owns less than 20 per cent.
Chaoda also has a history of swapping auditors. PricewaterhouseCoopers resigned as its auditor in 2003. Baker Tilly and CCIF then stepped down in June 2007, a few days after Kwok sold a large chunk of Chaoda shares.
Amount, in US$, that Chaoda has raised in stock and bond sales to spend on new farms and equipment in the past two years