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Hangxiao Steel fined for disclosure breach
(Bloomberg)
Updated: 2007-05-14 13:49
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Zhejiang Hangxiao Steel Structure Co. was fined by China's securities regulator for failing to disclose contracts worth more than 10 times the company's market value that sent the stock price soaring to a record.
Zhejiang Hangxiao Steel Structure Co. was fined by China's securities regulator for failing to disclose contracts worth more than 10 times the company's market value that sent the stock price soaring to a record. [newsphoto] |
The penalties underscore the government's attempts to crack down on abuses in a stock market that almost tripled in value in the past year, prompting warnings of a possible bubble by officials including central bank head Zhou Xiaochuan. Small and even money-losing companies have outperformed the benchmark index this year on speculative buying.
Hangxiao Steel said on March 13 that it won 34.4 billion yuan of orders from Angola, five times China's entire exports to the African nation last year. The company's shares surged by the 10 percent daily limit today after the regulator stopped short of questioning whether the contracts are genuine.
The statement "spurred speculation on the stock again," said Zhang Qi, an analyst at Haitong Securities Co. inShanghai.
Shares of the building materials maker, based in the eastern city of Hangzhou, rose 1.35 yuan to 14.88 yuan at the 11:30 a.m. trading break. The stock has risen more than fourfold this year, giving the company a market capitalization of 3.7 billion yuan.
Misleading Comments
Hangxiao Steel failed to disclose the orders from Angola in newspapers or tell investors about the transaction in due time, the statement said, citing the regulator. Comments by company officials relating to the probe were misleading, it said.
Company director Pan Jinshui told media on April 5 that the regulator's investigation was "basically over" and the company didn't violate disclosure rules, the statement said.
Chairman Shan couldn't be reached for comment immediately. Calls to the company's headquarters in Hangzhou and its factory in Xiaoshan were answered by company officials who declined to give their names or the chairman's whereabouts.
Hangxiao shares rose by the 10 percent limit for six consecutive trading sessions in February before being suspended. On March 13, Hangxiao said it had signed a contract with aHong Kong-based company to supply building products for projects in Angola.
The orders are worth more than 18 times the company's 2006 revenue. China's exports to Angola totaled $894 million last year, according to the commerce ministry.
Company Apology
The Angola deal may not be fully completed because there are no default clauses in the contract, Hangxiao Steel said on April 2. The contract, which includes supplies of steel structures, door and window frames, may not contribute to earnings for two years, it said in the March 13 statement.
Corruption and accounting scandals, price manipulation and brokerage collapses helped drive China's stock market down by more than half in the four years through July 2005. The benchmark CSI 300 Index has since risen more than fourfold and is up 83 percent this year.
Hangxiao was established in 1994 and is controlled by Shan, who held 37 percent of the company at the end of last year.
In a separate statement, Hangxiao apologized to investors after receiving a notice from the stock exchange criticizing the company and executives for violating disclosure rules.
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