Short Seller Helps Sink China's Biggest Bad-Loan Manager

Updated on
  • Huarong has 13.4% interest in Fullshare: exchange filings
  • Glaucus Research says Fullshare ‘poised to crash’ in report

China Huarong Asset Management Co., the nation’s biggest bad-loan manager, slumped by a record in Hong Kong trading after a short seller warned of a crash in the shares of a property developer in which Huarong has a stake.

Huarong stock slid 9.3 percent to HK$3.04 on Tuesday, the most since its trading debut in October 2015. Almost 110 million shares changed hands, the largest volume in about five months. The developer, Hong Kong-based Fullshare Holdings Ltd., tumbled 12 percent earlier in the day before trading was suspended.

In an April 25 report, Glaucus Research questioned Fullshare’s intraday trading patterns and said the stock is “poised to crash.” Glaucus said it has a short interest in Fullshare and stands to realize “significant gains” if the company’s stock declines. The report is the latest in a series of attacks on Hong Kong-listed companies such as Huishan Dairy Holdings Co. and Tech Pro Technology Development Ltd. by short sellers questioning inflated stock valuations.

Fullshare declined to comment immediately but is considering publishing an exchange statement regarding the report, according to spokeswoman Ruby Lo. Calls to Huarong’s board office weren’t immediately answered.

“The plunge in Fullshare’s share price will hurt the value of Huarong’s stake in the company,” Justin Tang, a director of global special situations at Religare Capital Markets in Singapore, said by phone. “There’s also the reputational risk. Did they really know what they were getting themselves into?”

‘Paltry’ Earnings

Huarong had a 13.42 percent interest in Fullshare as of April 6, according to a Hong Kong exchange filing.

Companies that Fullshare has stakes in also fell in Hong Kong trading. China High Speed Transmission Equipment Group Co. sank 4 percent, while Zall Group Ltd. dropped 2.4 percent, Applied Development Holdings Ltd. plunged 12 percent and Medicskin Holdings Ltd. declined 2.8 percent.

In its study on Fullshare, Glaucus said the company generated “a paltry” 132 million yuan ($19 million) of earnings before interest and tax, meaning its stock -- which has soared 851 percent in the past three years -- had “a ludicrous valuation” of about 431 times recurring operating profit. Besides property, the company also operates new energy, tourism, healthcare, and investment businesses, Fullshare’s 2016 annual report shows.

Fullshare “is one of the largest stock manipulation schemes trading on any exchange anywhere in the world,” Glaucus said.

Recent calls by the firm in Hong Kong:

  • Nov. 2016: CT Environmental plunged 20% as Glaucus challenged accounting
  • July 2016: Tech Pro tumbled 91% after Glaucus says shares are worthless