Small caps plunging as much as 93% spark share pledge fears

Reports abound that a large holder liquidated shares after a loan soured.

Bloomberg reports that over US$1.4b was wiped from the value of five small-cap stocks in Hong Kong without explanation, raising concerns that a forced seller that pledged against shares was behind the sudden downturn.

At one point, Sino Haijing Holdings Ltd., plunged by as much as 93% at one point whilst Beijing Gas Blue Sky Holdings lost as much as 71%.

“Normally when shares crash like this it’s usually someone pledging a lot of shares with a broker and failing to meet margin calls,” Francis Lun, Hong Kong-based CEO of Geo Securities Ltd told Bloomberg.

Bourse rules allow for the borrowing against a stock without the need for disclosure provided that it’s used for personal finance purposes rather than loans, guarantees or other forms of corporate support which was the case when cash-short HNA Group put up most of its share in a Hong Kong-listed unit to borrow money.

Hong Kong is no stranger to sudden stock declines in some of its more obscure companies, where a history of concentrated ownership and complex holding structures are often blamed for wild swings.

Here’s more from Bloomberg.