Selling spree may hit retail shareholder confidence

Large shareholders in a number of companies listed in Shanghai and Shenzhen have been reducing their holdings since the beginning of May, according to disclosures to the exchanges concerned.

Market observers say this paring of holdings may dent small investors' confidence and hurt prices of some stocks.

In the first seven trading days this month, large shareholders sold 543 million shares worth 14.02 billion yuan ($2.13 billion; 1.88 billion euros) in various companies, China Securities Journal reported.

This almost matches similar sales through May, which saw major shareholders sell 435 million shares worth a combined 14.43 billion yuan. Each large shareholder holds more than 5 percent in a company's stock.

China Securities Journal reported that 45 companies, through 52 filings, disclosed large shareholders' plans to sell 1.21 billion shares worth more than 29 billion yuan.

They will sell these shares over three months to a year as per regulations. A big shareholder is required to disclose any substantial paring of its holding and complete such sales within a given time frame.

Since the start of May, big shareholders in nine companies listed in Shanghai and Shenzhen disclosed that plan to sell the entirety of their holdings. Among them, three firms will see big shareholders sell shares worth more than 1 billion yuan within 12 months.

Many companies that are seeing sales by big shareholders are small- to medium-cap enterprises in emerging sectors such as biochemicals and high-technology. For instance, Shanghai Hile Biopharmaceutical Co Ltd, a drug maker, has seen heavy selling in their counters.

On May 3, the first trading day of the month, shares in Hile closed at 42.97 yuan in Shanghai. By June 1, they had fallen to 16.37 yuan and closed at 15.22 yuan on June 17, marking a 65 percent decline.

Although the meltdown is attributable to the automatic price shrinkage due to the company's 13-for-10 stock split on May 4, the large shareholder sale is also believed to be a major factor.

A research note from Ping An Securities says a number of companies in emerging sectors listed recently, suggesting that large shareholders may be exiting to secure their gains.

Citing filings, analysts attributed the sell-off to a desire among big shareholders' to stay liquid.

A research note from Chang Xin Asset Management says the recent paring of holdings had a limited impact on the A-share market, given the small size of sales relative to the whole market. But small investors holding shares in these stocks may feel the pinch due to drops in price.

Zhang Shaofen, 56, an investor in Shanghai, says it's understandable if big shareholders like institutional investors reduce their holdings to boost their liquidity, but if individuals such as company founders or senior executives, or their family, are behind such sales it could mean they are cashing out or eager to get rid of the company's shares for some reason.

"Usually, large, individual shareholders have close knowledge of a company's profitability, operations and financial situation. If such individuals sell shares in bulk deals, small investors may interpret the move as a sign of erosion of confidence in the company's future."

However, brokerages say block deals do not necessarily mean big shareholders are giving up on the company or that they are cashing out or exiting for good.

A research note from Guangfa Securities says some block deals could well be in anticipation of possible mergers and acquisitions. M&A activity usually stands a better chance of success when the equity structure is clear and simple.

wuyiyao@chinadaily.com.cn

( China Daily Africa Weekly 06/24/2016 page29)