The sudden and dramatic plunge in the stock of China Tianrui Group Cement Co. last week has left investors reeling, with nearly all of its market value wiped out in a matter of hours. The company revealed that a margin call involving a major shareholder was triggered by the sharp drop in its stock, shedding light on the events that led to the unprecedented selloff.
According to a company filing, about 133.1 million shares held in the margin accounts of the controlling shareholder, Yu Kuo Co., were forcibly sold in the open market due to the unusual price drop. This represented approximately 4.53% of the total shares, with around half of the selloff on the day attributed to the margin call. Tianrui’s stock plummeted 99% to about HK$0.05 as millions of shares changed hands, causing chaos in the market.
The incident highlights the risks associated with Chinese companies that have high shareholding concentration and are involved in owners’ margin accounts. The trading halt for Tianrui also comes at a time of unprecedented property crisis in China, adding to the stress among developers and investors alike.
Despite the turmoil, Tianrui reassured investors that its business operations remain normal. However, share trading will remain halted as the board seeks to clarify more information, including confirmation on whether there were additional margin calls executed. Yu Kuo is reportedly seeking legal advice on the matter and will take further action as necessary.
The Li couple, who are major shareholders in Tianrui, were once among the richest people in Henan province. However, the company reported a significant net loss last year, citing sector downturn and competition as contributing factors.
The incident at Tianrui is not an isolated case, as other obscure companies have also experienced dramatic plunges in their stock prices recently. With more than a dozen firms facing potential margin calls, investors are on edge about the stability of the market.
As the situation unfolds, Hong Kong securities regulators are under scrutiny for their disclosure requirements for substantial shareholders. The lack of transparency around pledged positions and personal debts has raised concerns about the vulnerability of small-cap firms to sudden price plunges.
The aftermath of the Tianrui debacle serves as a cautionary tale for investors, highlighting the importance of due diligence and risk management in volatile markets.
