Fullshare ripple effect as two affiliates see shares hit despite rebuttal of allegations
Shares of Zall Group fell as much as 5.3 per cent on the Hong Kong stock market Wednesday morning despite denials by the company that it had knowledge of any circumstances that suggest its stock price is being manipulated.
A report issued on Tuesday by short-seller Glaucus Research Group California alleges that Zall’s stock has been manipulated in the last hour of trading since November.
“The report wrongly attributes the increase in the company’s stock price solely to Fullshare’s equity investment in the company leading to the company’s stock price being manipulated,” Zall said in a stock exchange filing on Wednesday.
Zall said the report has “completely neglected” its “strategic and business transformation” in the last three years, from a “traditional” property developer to a “one-stop intelligent trading platform” that includes “cloud market trading and service system” combining online and offline businesses, besides logistics and financial services.
It said such a “transformation” was also driving its share price.
According to Zall’s annual results announcement, e-commerce, financial services and supply chain management and trading made up 15.6 per cent of its 1 billion yuan (US$145 million) of revenue last year, up from 0.5 per cent in 2015. The rest was property-related revenue.
It booked a 75 million yuanoperating loss from e-commerce and financial services last year and 1 million yuan of profit from supply chain services and trading, compared to 156.7 million yuan of property-related profit.
The Glaucus report claimed that investors who adopted a buy-and-hold strategy in Fullshare and Zall would have made losses between November 14 last year and last Friday, but would have reaped handsome gains had they purchased their shares at the start of the last hour of trading, sold them just before market close and reinvested the proceeds in the same manner daily over the period.
It concluded that the “highly unusual” pattern is “strong evidence of manipulation”.
The report also said cross-shareholding between Fullshare and Zall allowed both firms to book huge unrealised accounting gains, which were the primary profit contributor of both firms.
Zall said the cross-shareholding was “unintended,” adding that it owns 3.5 per cent of Fullshare.
Fullshare bought an 8.2 per cent stake in Zall in 2015, the report said. Fullshare is no longer a substantial shareholder –defined asowning at least 5 per cent – of Zall, according to disclosure of interests to the stock exchange.
Zall’s shares closed the morning session 1.6 per cent lower at HK$4.43.
Trading in Fullshare remained suspended on Wednesday after it released an exchange filing Tuesday night saying it was preparing a rebuttal against the Glaucus report, adding that it may seek compensation for damages after its share price plunged on the report that it said contained misleading statements and unfounded speculation.
Meanwhile, shares of wind turbine gearbox maker China High Speed Transmission Equipment, in which Fullshare owns a 74 per cent stake via a share swap late last year, declined as much as 2.3 per cent even after it put out a stock exchange filing on Wednesday denying Glaucus’ allegation it had sold a business to a connected party.
The connected nature was alleged in the Glaucus report, which said the buyer was a company partly owned by the Fullshare chairman Ji Changqun and his brothers.
China High Speed, which insisted the buyer was an independent third party, closed the morning session 0.8 per cent lower at HK$7.33.