Key stocks tied to missing billionaire Xiao Jianhua hit by 4.3bn yuan sell-off

Three of the stocks in which missing Chinese billionaire Xiao Jianhua owns the most substantial stakes continued their sell off in Shanghai on Monday after his reported disappearance in a Hong Kong hotel on January 27, with a total of 4.3 billion yuan in market capitalisation wiped out since last Friday, the first trading day of the Lunar New Year.

In the latest development, sources said Xiao, the founder of the Tomorrow Group, had returned to the mainland “legally” to help authorities in investigations related to the Chinese stock market crash in 2015 and over his business ties with relatives of some top Chinese leaders. Hong Kong police chief Stephen Lo Wai-chung said there was no evidence that Xiao was kidnapped by mainland agents from a Hong Kong hotel.

Xiao, born in 1971 in the eastern Shandong province, was ranked 32nd with his wife on Hurun’s China Rich List in 2016, with an estimated net worth of US$5.97 billion.

Three stocks which Xiao directly controls through Tomorrow Group led the declines in Shanghai, underperforming the Shanghai Composite, which rose 0.5 per cent to finish at 3,156.98 on Monday.

Cement manufacturer Xishui Strong Year, which is 10.45 per cent held by Xiao via Zhengyuan Investment, briefly sank 9.5 per cent to a low of 15.88 yuan earlier in the morning. It closed down 4.8 per cent to 16.7 yuan, adding to a 10 per cent decline last Friday.

Baotou Huazi Industry, a beet sugar refiner and edible oils maker that is 5.2 per cent owned by Xiao’s Baotou Beipu, ended down 1.8 per cent at 11.95 yuan after falling as much as 6.3 per cent. The stock also dropped limit-down by 10 per cent in the previous session.

Bautou Tomorrow Technology, a raw materials producer which is 34.6 per cent held by Zhengyuan and 3.4 per cent held through Baotou Beida Tomorrow Resource Technology, was suspended from trading for a second straight session on Monday after falling 5 per cent to 9.66 yuan. The stock carries a “ST” tag, which refers to shares suffering losses for two consecutive years or more, and has a daily-drop limit of 5 per cent. Other ordinary shares on the Shanghai and Shenzhen stock exchanges have a daily-trading limit of 10 per cent.

“The sentiment was greatly hit among investors of Tomorrow Group family’s shares, ” said Li Xiaohong, an analyst for China Investment Securities.

“We expect the crackdown to deepen further on stock speculation and market manipulation,” he added.

Last Friday, the three stocks all fell by the daily-drop limit and were suspended from trading, after Xiao’s reported disappearance in the Four Seasons Hotel in Hong Kong captured both local and overseas headlines.

The Tomorrow Group said a statement on its WeChat account on Thursday that its business was “operating normally”.

On Monday, three other stocks associated with Xiao also dropped further on the mainland.

Hua Xia Bank fell 1.3 per cent to close at 11.36 yuan in Shanghai and Industrial Bank shed 0.1 per cent to close at 16.71 yuan.

Shenzhen-listed grain distributor Donlinks International Investment lost 0.6 per cent to 13.26 yuan.

However, other Xiao-related stocks on the mainland bounced back following previous steep declines. Railway component maker Baotou Beifang Chuangye rose 2.3 per cent to 14.64 yuan. Pharmaceutical company Luyin Investment Group added 1.3 per cent to 9.48 yuan.

In Hong Kong, Hengtai Securities, in which Tomorrow Group owns a 17 per cent stake, closed flat at HK$3.4 on Monday. Mason Financial Holdings, which is a cornerstone investor of Hengtai Securities, also fell 2.1 per cent to HK$0.14.

Xiao owns stakes through private holding companies, including Baotou Beida Tomorrow Resource Technology, Baotou Beipu, and Zhengyuan Investment, according to an April 15 interview published on May 6, 2013 in The 21st Century Business Herald.

Xiao’s business empire may be larger than what has been revealed by public records, with mainland authorities also trying to establish the extent of the assets he actually oversees. He possibly controls nine listed companies and owns stakes in 30 Chinese financial institutions, with total assets of nearly 1 trillion yuan, according to a 2013 investigation report by China’s New Fortune magazine.

With additional reporting by Viola Zhou