Newly listed Chinese car-parts maker raises investors’ hackles for lending US$27 million shares to short sellers
Shandong Golden Empire infuriates investors after short sellers borrowed 4.7 million shares from senior management on the first day of trading in ShanghaiChina’s market regulator clears the newly listed company of wrongdoing, but says it will reassess the rules governing short selling by senior managementChina stock marketZhang Shidongin ShanghaiPublished: 1:56pm, 20 Sep, 2023Why you can trust SCMP
A little-known Chinese car-accessories manufacturer has stirred controversy after it came to light that some senior executives of the newly listed company had extended more than 200 million yuan (US$27.4 million) of shares to short sellers, prompting a clarification from regulators.
Shandong Golden Empire Precision Machinery Technology, which started trading on the Shanghai Stock Exchange on September 1, drew the ire of investors and academics after short sellers borrowed 4.7 million shares from senior management and key employees on the day of debut. The shorted stocks, which accounted for a stake of nearly 8 per cent in the company, were estimated to be worth 227 million yuan, according to data from the Shanghai exchange and China Securities Finance.
The move complied with rules that allow senior management of companies involved in initial public offerings (IPOs) as strategic investors to lend stocks during specified periods to curb wild swings in new shares, the China Securities Regulatory Commission (CSRC) said in a statement on its website on Tuesday night. The regulator also said it would gather public feedback and review the rules governing such actions.
The official response has done little to quell anger about the regulatory loopholes publicly traded companies leverage to bypass rules. In the case of Golden Empire, investors are unhappy that the senior executives, whose shares are subjected to a 12-month lock-up period, found an alternative way to sell their stakes in the IPO that rose sharply on debut.
“They [the management] are actually converting locked-up shares into ones that can trade freely and increasing the stock supply,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “This is very unfavourable to the market environment. The regulator will plug this loophole at the end of the day.”