Hong Kong Regulator Probes Accounts of China Fiber Opticby and
Shares halted Thursday as regulator looks into finances
Hanergy, Hontex among other firms previously hit by same rule
China Fiber Optic Network System Group Ltd., a maker of high-speed network cables, is being probed by Hong Kong’s stock market regulator over its past financial statements, a person with knowledge of the matter said.
The Securities and Futures Commission is looking into whether the company overstated its results, said the person, who asked not to be identified because the information is private. The regulator asked some of China Fiber Optic’s major customers to provide it with financial documents related to their equipment purchases from the Hong Kong-listed company, the person said.
China Fiber Optic’s shares were suspended Thursday morning at the SFC’s request, Hong Kong’s exchange said in a filing. It’s at least the fifth mainland company to be halted in the city in recent years as the SFC tries to ensure corporate governance standards are met by its public companies.
“The investor is being saved from selling on the unknown,” Andrew Sullivan, managing director at Haitong International Securities in Hong Kong, said by phone. “The difficulty with it is if you bring a stock to a trading halt then people can’t sell if they are worried, they just have to wait.”
China Fiber Optic said in a separate filing Thursday it is in the process of seeking further legal advice on its rights, as well as how to address the SFC’s concerns and resume trading. The exchange filings Thursday didn’t state specifically why the SFC had ordered the halt.
Randy Hung, China Fiber Optic’s chief financial officer, didn’t answer an e-mail and several calls to his office seeking comment. The company’s management doesn’t have any comment, a representative for China Fiber Optic said by phone. Ernest Kong, an SFC spokesman, declined to comment, while Hong Kong Exchanges & Clearing Ltd. spokesman Scott Sapp said the bourse operator doesn’t comment on individual situations.
China Fiber Optic’s clients include the three major state-owned telecommunications carriers in the country -- China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd., according to its website. Chinese provincial broadcasters also use its products, the website shows.
Rainie Lei, a representative of China Mobile, declined to comment. China Unicom’s spokesman Ivan Wong said his company is not in a position to comment given that China Fiber Optic has been directed by the SFC to suspend trading of its shares. China Telecom’s representative Lisa Lai declined to comment.
The stock suspension falls under a rule that lets the SFC call for a halt when it believes that misleading, false or incomplete information has been included in documents and statements. The rule also allows the regulator to order suspensions to maintain an orderly and fair market, or in cases where it thinks the public interest would be served.
In April, the SFC suspended trading in Sound Global Ltd., a Chinese water treatment company whose shares has previously been halted for 10 months. In July 2015 it used the same rule to stop trading in solar panel maker Hanergy Thin Film Power Group Ltd.
Hanergy, whose stock was halted after it dropped 47 percent in a day, said on Thursday it was taking steps to get the suspension lifted. The company has asked auditors to investigate its accounting systems and said it’s seeking to name a financial adviser that can help on disclosure issues, it said in a filing.
In other cases where the SFC has ordered share suspensions, the consequences have been lasting. In March 2010, it ordered a halt of Hontex International Holdings Co., which was eventually delisted after the regulator accused it of misleading investors in its prospectus. In December 2013 shares in Qunxing Paper Holdings Co. were halted by the SFC, which subsequently froze the company’s assets. The stock remains suspended.
In August last year, China Fiber Optic’s accounts were questioned in a report by Emerson Analytics Co. that called for the firm to be delisted. China Fiber Optic called Emerson’s report “seriously baseless and untrue” in an exchange filing at the time.
The SFC wants to speed up its probes, according to a client note from law firm Ashurst LLP that was based on a talk given by Thomas Atkinson, executive director and head of enforcement at the regulator since May. Atkinson also plans to set up specialized teams for manipulation, corporate fraud and brokerage misconduct, and wants to upgrade the SFC’s surveillance systems, Ashurst said.