An obscure furniture maker has come under the spotlight in China’s stock market, after authorities launched a probe into a shareholder transaction, in a key test of official resolve to revive investor confidence.
(Bloomberg) — An obscure furniture maker has come under the spotlight in China’s stock market, after authorities launched a probe into a shareholder transaction, in a key test of official resolve to revive investor confidence.
The country’s securities regulator has begun investigating undisclosed moves by a top shareholder of Nanjing OLO Home Furnishing Co. to cut its stake to near zero from over 7%, according to a company filing to the stock exchange. The stake reduction may have violated securities laws that require any shareholder owning more than 5% to disclose transactions whenever the holdings change by 5%, the filing showed.
Nanjing OLO’s shares fell by the 10% daily limit Thursday, after surging 10% in each of the previous eight sessions. The stock has almost doubled since Aug. 25.
The case is drawing intense scrutiny as it comes on the heels of a slew of measures by Beijing to restore investor confidence, from lowering transaction costs to restricting share sales by top stakeholders of certain firms. How regulators will deal with long-standing irregularities such as poor disclosure and insider trading is seen as key to their efforts to build trust and re-energize a languishing stock market.
“While illicit share sales by stakeholders in urgent need of cash are not rare, OLO has really bad timing— so bad it almost seems intended to annoy or upset the regulators,” said Shi Peng, a fund manager at Loyal Capital Ltd. in Tianjin.
Five stakeholders acting in accord, including Yu Fanyi, cut their combined stake to 0.001% as of Sept. 6 from 7.1% as of end-June, according to the filing. The five are effectively considered a single shareholder.
As part of the latest round of market-supportive measures rolled out late last month, the China Securities Regulatory Commission also said it will restrict share sales by top stakeholders at firms whose stock prices have fallen below initial public offering prices or net asset levels, or those who haven’t paid sufficient dividends in the past three years. Stocks rallied on the news immediately afterward.
“This puts the authorities in a very tricky position,” said Loyal Capital’s Shi. “If there isn’t any punishment harsh enough to assuage people’s anger, it would be detrimental to investor mood. But right now it doesn’t have anything more severe than fines for such cases in the legal framework.”
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