Shares of China Huishan Dairy Holdings Co. Ltd. (06863.HK) fell by a record 85 percent in Hong Kong before the company suspended trading.
The sudden crash wiped out about US$4.1 billion in the company’s market value, Bloomberg reports.
A record 779 million shares in the Shenyang-based company changed hands, the most on Hong Kong’s exchange.
Chairman Yang Kai said online speculation its largest shareholder misappropriated 3 billion yuan (US$435 million) to invest in Shenyang real estate are untrue, NetEase reported, citing a phone interview.
The mysterious tumble will increase concerns about the risks that can befall investors in Hong Kong, after the 47 percent plunge by Hanergy Thin Film Power Group Ltd. (00566.HK) in 2015, Bloomberg said.
The move is also a vindication for Carson Block, whose Muddy Waters Capital LLC said in December it was shorting Huishan Dairy in the conviction the company was “worth close to zero”.
Huishan said at the time allegations in the report were groundless and contained misrepresentations.
“This kind of volatility in individual stocks will alert investors of the potential risk about investing in private Chinese companies,” said Ben Kwong, executive director of KGI Asia Ltd. in Hong Kong.
“Sharp volatility is sometimes related to margin calls from brokers so if they fail to settle margin calls there may be forced liquidation and that would increase selling pressure.”
Liaoning’s government held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan Dairy’s debt, Caixin reported, citing unidentified people.
A Huishan Dairy spokesperson declined to comment, saying the company would issue a statement.
Muddy Waters alleged in December that Huishan had been overstating its spending on its cow farms by as much as 1.6 billion yuan to “support the company’s income statement”.
The report also alleged that the company made an unannounced transfer of a subsidiary that owned at least four cow farms to an undisclosed related party.
Muddy Waters concluded that chairman Yang controls the subsidiary and farms.
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