Bond default by China’s best-performing stock this year sends shares slumping in Shanghai

The one-way ride on the most speculative stock on China’s market this year seems to be unravelling.

Shares of Wintime Energy, the best performer on the CSI 300 Index with gains exceeding 60 per cent in 2019, tumbled by as much as 9.8 per cent to 1.84 yuan in Shanghai on Wednesday. About 535 million shares of the coal producer changed hands, more than six times its 180-day average, according to data compiled by Bloomberg.

The sell-off was spurred by an overnight exchange filing from Wintime that it had defaulted on bond repayments of 1 billion yuan (US$147.2 million) maturing on Tuesday. While such news is normally enough to trigger selling, the bond default was not totally unexpected from the company, which was China’s second-largest defaulter in 2018 with outstanding debts totalling 63.2 billion yuan.

The sudden turnaround in Wintime’s shares, an obscure coal producer in the northwest province of Shanxi, caught traders off guard, sending a reminder to global investors that the world’s biggest emerging stock market is still quite dominated by retail sentiment.

Even after Wednesday’s loss, the stock is still up 37 per cent so far this year. It had slumped 60 per cent in 2018 and was one of the top 10 losers on the CSI 300.

With no fundamental reasons to back the sudden surge in the share price, Wintime’s beaten down stock price and speculation about its debt and asset restructuring made it a good target for punters, according to Wei Wei, a trader with Huaxi Securities in Shanghai.

“It’s a purely speculative bet as the rally isn’t fundamentally justifiable,” she said. “Its absolute share price is low enough for the stock to be more easily manipulated and its poor fundamentals make it ripe for bailout speculation. Investors should stay away from the stock because the risk is big.”

Wintime’s profit for the first three months fell 92 per cent from a year earlier on rising operating costs. Its return-on-equity ratio, a gauge of company’s profitability, was the second lowest among China’s 34 listed coal producers, Bloomberg data showed. Its annual sales were less than a tenth of China Shenhua Energy, the nation’s biggest coal producer.

Still, the 37 per cent gains in Wintime’s shares this year dwarfs LONGi Green Energy Technology and Founder Securities, the second and third best performer on the CSI 300. They have advanced at least 23 per cent in 2019 after policymakers encouraged the construction of renewable energy projects and plans to set up a technology stock board in Shanghai.