Fullshare hits back at report
THE Chinese owner of the Sheraton Mirage in Port Douglas has strenuously denied allegations of stock manipulation.
Trading in shares of the Hong Kong-listed Fullshare Holdings, which bought the Sheraton Mirage in 2011, was suspended on April 25 after the release of a report by Californian company Glaucus Research, a known short-seller of target stocks.
Glaucus alleges Fullshare Group is “one of the largest stock manipulation schemes trading on any exchange anywhere in the world”. The company’s share price plummeted when the report was released. Trading was suspended pending a “clarification announcement” by Fullshare.
The allegations of share price manipulation are based on “unusual” trading patterns.
Glaucus said its research found that if investors bought and held onto Fullshare shares between November 14 last year and last week, they would have incurred a loss of 34 per cent.
But if they had bought during the last hour of trade everyday, taken a profit and done the same thing every day until April 21, they would have made 76 per cent.
Analysis of Zall had revealed a similar inexplicable trading pattern.
Company chairman Ji Changqun issued a detailed rebuttal of the allegations about inflated valuations, asset disposal and share price manipulation in a statement on Tuesday (May 2).
Mr Ji said allegations by Glaucus were misleading, biased, selective, inaccurate groundless, and irresponsible speculation. He said Glaucus seemed unfamiliar with Chinese corporate law and governance.
Regarding the share trading pattern, Mr Ji said Glaucus had been selective in the timeframe it quoted and that Fullshare had issued a great many shares in the same period.
Media speculation about Fullshare picked up in September when the Wall St Journal commented (“Fullshare another $13bn HK stockmarket mystery”) on its deal with China High Speed Transmission, China’s biggest maker of gearboxes for wind turbines.
At the time, Fullshare had about 760 employees and was tiny compared with CHST. After the deal, involving share issues and no cash, it suddenly had more than 9000 workers.
Until then, Fullshare, rapidly growing as a conglomerate on the Chinese mainland, had been below analysts’ attention. Indeed its media-shy chairman was hardly known outside of Nanjing.
The WSJ noted Fullshare Holdings had grown “from a valuation of around $US40m to $US10bn, which made it bigger than Goodyear and Gap, companies with many times its assets and sales”.
In November 2016 the South China Morning Post reported on the completion of the CHST deal (“Low profile businessman behind gutsy Fullshare deal to swallow wind turbine gearbox leader”).
It noted Fullshare had a capitalisation of about nine times its net assets. A recognised blue chip developer, China Overseas Land and Investment for example, was sitting on a multiple of just 1.15.
Another deal that aroused interest had been linkage with the Zall group, which builds shopping malls, whose share price tripled since Fullshare bought the stake from Mr Ji in October 2015.
The soaring valuations eventually drew the attention of short-selling specialists, Glaucus.
Glaucus did research on Fullshare, presumably with the aim of uncovering information that would allow it to take a short selling position in its target and then release a damning report so Glaucus would profit when the share price fell.
Its report on Anzac Day did just that.
Glaucus said the company generated “a paltry” 132 million yuan ($19 million) of earnings before interest and tax, meaning its stock – which has soared 851 percent in the past three years – had “a ludicrous valuation” of about 431 times recurring operating profit.
The web of cross ownership and loans between Fullshare, other companies and banks initially led to fears about one or more of these entities being seriously damaged in the long run – with implications, though quite remote, locally for the Sheraton Mirage operation in Australia. Among the hardest hit was China Huarong Asset Management Co, China’s biggest bad-loan manager.
Share prices in some of these, however, have started to recover since the Glaucus report hit.
Fullshare Holdings’ annual general meeting is in Nanjing on May 19.
Fullshare chairman Ji Changqun at the 2016 relaunch of the Sheraton Mirage