Fullshare’s rebound falls back after Glaucus issues second report refuting original rebuttal
Fullshare rebounded as much as 19 per cent as trading resumed after the property developer and wind turbine gearbox maker hit back at short-seller Glaucus Research Group California’s accusation that trading of its shares and those of its affiliate have been subjected to manipulation that bolstered its otherwise modest profit.
The rebound fell back in early trading after Glaucus issued another report Thursday morning refuting Fullshare’s rebuttal statement issued on Tuesday, calling it “totally inadequate”.
But a rally was seen just before noon, which was sustained until it closed the day 17.5 per cent higher at HK$2.96, after touching an intraday-high of HK$3. The Hang Seng Index closed flat after losing as much as 0.7 per cent on Thursday.
A hefty HK$1.27 billion of shares turnover was recorded by Fullshare, the highest since early December when it plunged 11.4 per cent.
Property developer Zall Group, a Fullshare affiliate, said Thursday evening that it bought 15 million Fullshare shares from the open market at an average price of HK$2.94 per share, for a total of HK$44 million.
Just over a week ago Glaucus had released a report alleging that share trading in both Fullshare and Zall Group, had been manipulated in the last hour of trading daily since November last year
It also claimed that the manipulation of Zall’s share price has helped Fullshare book huge unrealised accounting gains, substantially bolstering the bottom line of the firm which had only a modest underlying profit from core operations.
Trading in Fullshare, controlled by Nanjing businessman Ji Changqun, was suspended on Tuesday last week after plunging 10 per cent in 20 minutes on the negative research report. The lost ground has now been more than recovered.
Fullshare said in a filing on Tuesday this week to the Hong Kong exchange that it “denies all of the allegations in the report”.
The Glaucus report comprised “statements which are misleading, biased, selective, inaccurate and incomplete as well as groundless allegations and irresponsible speculation”, it said, adding it will “consider taking legal action” against Glaucus.
Fullshare insisted trading strategies by the investing public are “market orientated” and are “not within the control of the company”.
Glaucus’ first report said it found that if investors bought and held onto Fullshare stock between November 14 last year to April 21, 2017, they would have incurred a loss of 34 per cent.
But had they bought the shares at the beginning of the last trading hour each day, sold them at the close of the trading day and reinvested the proceeds on each trading day in the period, they would have scored a return of 76 per cent.
Fullshare emphasised, however, that Glaucus ignored the fact the company had issued a large number of new shares at a discounted price during the period, which led to the price decline.
“Simply using the comparison of different trading strategies in respect of the shares in the deliberately selective period is completely inappropriate,” the company added.
In its second report, Glaucus said Fullshare’s rebuttal was “nonsense” since even if the period around Fullshare’s issuance of shares to buy wind turbine gearbox maker China Highspeed Transmission Equipment were excluded, “the intraday trading data still shows strong evidence of manipulation.”
Citing data on the 15 most traded Hang Seng Index constituent stocks between December 5 last year and April 24, it said a buy-and-hold strategy would yield an average return of 5.4 per cent, similar to a return of 5 per cent by adopting a “last-hour trading strategy”.
For the most traded 30 stocks in the Hang Seng Properties and Construction Index, an average return of 15.7 per cent was identified using a buy-and-hold approach, compared to a 9.2 per cent profit with a last-hour trading strategy.
These contrasted with a a 19.7 per cent loss with a buy-and-hold move on Fullshare, relative to a 58.8 per cent gain using a last-hour trading strategy on its shares, Glaucus said.
Zall Thursday closed flat at HK$4.39. Some HK$137.7 million worth of shares changed hands, the highest since last December last year.
A Securities and Futures Commission spokesman said the regulator has no comment to make on the allegation and rebuttal.
Glaucus also alleged in its reports that Fullshare’s chairman and his family have engaged in a number of undisclosed, related party transactions with the company. Fullshare said in its rebuttal that the parties involved were not connected to the chairman as defined under Hong Kong’s listing rules.
Glaucus said filings lodged with the State Administration for Industry & Commerce and information available on the internet have revealed a web of relations between the counter parties and the family, including the lending of funds, sharing of office premises and common directors and senior management between the parties and firms controlled by the family.