LDK Falls as Credit Concerns Spur Rout: China Overnight

Chinese stocks fell the most in a week in New York, led by LDK Solar Co. and Aluminum Corp. of China Ltd., on concern regulators’ efforts to rein in bank balance sheets will worsen a slowdown in the economy.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. dropped 2.2 percent to 84.12 yesterday. LDK tumbled on concern new share sales would dilute value for existing holders and Aluminum Corp., China’s biggest producer of the metal, sank for the first time in six days. Video website operator Youku Tudou Inc. slid for a third day, while online game company Perfect World Co. surged to the highest price since 2011.

Central Bank Governor Zhou Xiaochuan said China’s worst cash crunch in a decade last month is a reminder to banks that they need to adjust their “asset businesses,” China Business News reported July 1. Higher interbank borrowing costs may force lenders struggling to repay funds raised through wealth management products, some of which are held off balance sheets, to curtail new credit to companies and households. China’s official manufacturing index for June fell to a four-month low.

“The big issue in China now is the new stance of the PBOC against shadow banking,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, said by e-mail. “If we see that kind of credit squeeze then I really think things start getting very difficult by the middle of fourth quarter.”

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., dropped 1.4 percent to $32.02, slumping the most in six days. The Standard & Poor’s 500 Index slipped less than 0.1 percent, as investors awaited a monthly jobs report and the start of corporate earnings.

Diluting Shareholders

LDK’s American depositary receipts slid 5 percent to $1.33, the biggest decline since June 24.

The company, which is burdened with $2.8 billion in debt, sold 25 million new shares to Fulai Investments Ltd. for $25.75 million, completing a purchase agreement they signed in April, according to a statement from the Xinyu, China-based solar manufacturer yesterday. LDK has sold shares three times in the past nine months, issuing new shares to Fulai, which is incorporated in the British Virgin Islands.

“The company is diluting its existing shareholders every times it sells shares,” Gordon Johnson, an analyst with Axiom Capital Management Inc. said by e-mail in New York. “This is also bad as it shows credit in China is tight. Instead of simply getting new loans from Chinese sources, LDK is having to sell shares to pay off its debt holders.”

Chalco, Shanda

ADRs of China Aluminum, known as Chalco, slid 4.2 percent to $7.53. The ADRs, each representing 25 underlying shares in Beijing-based Chalco, traded 1.5 percent below its stock in Hong Kong, a third day of discounts.

A private PMI survey from HSBC Holdings Plc and Markit Economics published July 1 slid to 48.2, the weakest since September. A reading below 50 indicates contraction. The government is scheduled to release a June PMI index for the service sector today.

Melco Crown Entertainment Ltd., a casino operator in Macau, slumped 3.7 percent to $22.16 in New York, trading at a 2.9 percent discount to its Hong Kong shares, the biggest gap in a week. Each ADR of Hong Kong-based Melco equals three ordinary shares.

Youku Tudou, owner of China’s biggest video websites, dropped 4.8 percent to a six-day low of $18.25. Shanda Games Ltd., a Shanghai-based web game developer, retreated 3.1 percent to $4.01 after a two-day rally. Renren Inc., a real-name social networking website, fell 1.7 percent to $2.98, after rising the previous five days.

Perfect World

Perfect World, based in Beijing, jumped 8.7 percent, the most in a month, to $19.82. The price was the highest level since September 2011. Trading volume on the stock was 3.7 times the daily average over the past three months, data compiled by Bloomberg showed.

The Shanghai Composite Index advanced for a third day, the longest winning streak in five weeks, gaining 0.6 percent to 2,006.56. The Hang Seng China Enterprises Index in Hong Kong slumped 1.2 percent to 9,203.85 in the first trading day this month, after sinking 12 percent in June.

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