Hong Kong’s stock regulator suspended trading in Sound Global Ltd., a Chinese water treatment company whose shares were earlier halted for 10 months as the exchange demanded forensic investigations on a cash hole in its accounts.
The Securities & Futures Commission’s suspension falls under a rule allowing it to call for a halt when it believes that misleading, false or incomplete information has been included in documents and statements. The watchdog last year used the same rule to stop Hanergy Thin Film Power Group Ltd. shares from trading without its approval.
Beijing-based Sound Global plunged 62 percent when it resumed trading on Jan. 25 for the first time since March last year. Auditors found a discrepancy of about 2 billion yuan ($309 million) between Sound Global’s bank and book cash balances at the end of 2014 while working on its annual earnings, the company said in April 2015. Deloitte resigned as the company’s auditor in July. Sound Global had previously been accused of accounting irregularities by Emerson Analytics Co., an independent research group.
"It’s very unusual that the SFC actually takes the step to suspend a stock under Rule 8," said Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong. "The company has to remain suspended until it can satisfy whatever the SFC is concerned about. It could be the company’s level of operation or that it is no longer suitable for listing."
A spokesperson at Sound Global said the company will issue a statement in response to the SFC’s suspension order "as soon as possible," declining to give her name. SFC spokesman Ernest Kong said the rule permits the SFC to direct the stock exchange to suspend trading in a company where false or misleading information is included in a document issued in connection with a listing, where it is necessary to ensure an orderly market or it’s in the interests of the investing public.
Hong Kong’s exchange wrote to Sound Global in July, saying the company couldn’t resume trading until it had met four conditions including hiring an independent forensic specialist to assess the missing cash, filings show. Sound Global said in January that it had met the conditions.
In the handful of other cases where the SFC has ordered share suspensions, the consequences have been serious. Hanergy Chairman Li Hejun said in September the trading halt has been a disaster to the company, the holding company, small investors and himself. The SFC said the company had failed to keep investors properly informed.
In March 2010, the regulator ordered a halt of Hontex International Holdings Co., which was eventually delisted after the regulator accused it of misleading investors in its listing prospectus. In December 2013 shares in Qunxing Paper Holdings Co. were halted by the SFC, which subsequently froze the company’s assets. The shares remain suspended.