West China Cement Plunges by Record as $363 Million Wiped Out

  • Shares dropped as much as 46 percent in last hour of trading
  • Short interest in stock is highest in almost four years

West China Cement Ltd. tumbled by a record in Hong Kong in late trading amid speculation a planned acquisition by Anhui Conch Cement Ltd. will run into difficulty.

West China Cement dropped as much as 46 percent before paring its decline to 33 percent at the close, the most since the shares first traded in August 2010 and wiping out HK$2.8 billion ($363 million) of value. Volume was more than 11 times higher than average. The stock was little changed for most of the day before it start to tumble after 3:10 p.m.

Anhui Conch agreed in November to boost its stake in the loss-making company to 51.6 percent from 21.17 percent in a HK$4.59 billion deal that’s still pending approval by China’s Ministry of Commerce. West China Cement is committed to completing the acquisition and the company plans to issue a statement about the deal no later than June 30, Stephen Chu, a spokesman at West China Cement, said by phone Tuesday.

"China is one of the few places where you have to get official permission for these mergers to go ahead and if you run out of time then the merger doesn’t go ahead," said Andrew Sullivan, managing director of sales trading with Haitong International Securities Group in Hong Kong. "For Western investors that’s a very bad sign."

Bearish Bets

No one at Anhui Conch was immediately available for comment. Xi’an-based West China Cement was the biggest loser on the Hang Seng China Enterprises Index, which dropped 0.3 percent.

Short sellers had increasingly targeted the stock, with bearish bets climbing to 3.3 percent of West China Cement shares outstanding on June 24, the highest since 2012, according to the latest data by Markit Ltd. and Bloomberg data.

The company reported a loss of 309 million yuan ($46 million) last year, the steepest since 2008, in part due to plant assets write-offs and yuan depreciation. Anhui Conch’s higher credit rating would help bolster West China Cement’s ability to borrow, while a planned injection of production capacity should also boost 2017 sales volume by as much as 60 percent compared with 2015, according to Bloomberg Intelligence.

"Investors worry about the unfinished deal with Conch," said Yen Chiu, a Hong-Kong based trader with China Securities International Financial Holding Co. "Today’s dip may also trigger some margin-call pressure that creates more selling."

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