What An Outrageous Securities Filing Says About China’s Stock Market

The author is Nina Xiang, editor of China Money Network

"We know that there is a Mr. Huang who is behind the manipulation of (our company’s stock). Ten years ago, he used (negative) media reports to engineer an extortion racket, and he was successful.

"Lately, he organized (another attack) with some reporters, lawyers and accountants to threaten and extort us again…We know that he hides in the darkness. His methods are slimy and sordid. But we resolutely do not respond."

These are the contents of an emotional public securities filing of Shanghai Prosolar Resources Development Co., Ltd. dated April 30, 2014.

The Shanghai-listed commodities firm retracted the document after the local exchange regulator met with the company’s executives on May 4. The filing was deemed not in compliance to the Shanghai stock exchanges’ guidelines for public disclosure documents.

Putting aside the question of whether the content is factual, the document is certainly an interesting read.

It reveals that the Chinese stock market has a long way to go to become a mature marketplace, and its participants lack fundamental market sophistication. The entire Chinese stock market is immersed in such a vicious cycle that it will take a very long time to change the dynamics.

The author of the extraordinary filing is reportedly the son of Cheng Rongsheng, founder of Shanghai Prosolar. He described the type of people like Mr. Huang as "slimy cheats." The stock market is depicted as a battleground for different forces: the good, the evil, and everything in between.

The filing exclaims that "it is disappointing and heartbreaking to see this evil force in China’s stock market in today’s civilized society. We hope that media reporters, lawyers and accountants with conscience and righteousness refuse to collaborate with them…and to cause unnecessary waste of society’s internal resources!"

The document suggests that because of the negative media reports, the company’s market capitalization has shrunk by several hundred millions Yuan. That was a blow to the company that was created and developed over many years by a team led by founder Cheng Rongsheng.

"Mr. Cheng has experienced the difficulties and hardship (during the process), and cherishes very much the company that is now publicly listed. It is not easy to handle a strategic transition for the public company. Our controlling shareholders have always been supporting the company, and couldn’t have selfish ideas to enrich themselves from the company!"

Contrast this with what many U.S.-listed Chinese companies have experienced during the past few years. Because of accusations of accounting fraud at some Chinese companies, the whole universe of U.S.-listed Chinese firms were seemingly punished. Many companies saw their share prices drop even if they had no reported accounting issues.

For example, the stock price of NASDAQ-listed Chinese high-end hospital operator Chindex International, Inc. sagged around US$10 from 2011 to early 2013, when many investors perceived Chinese stocks as "untouchables."

But if one truly believes in the long-term future of a company, a temporary price drop should not be a concern. It should be an opportunity.

Like Warren Buffett says, "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

Now, Chindex is being privatized at US$24 per share, very close to its all-time high of US$25.17 reached at the peak of the bubble in March 2008.

So, if Mr. Cheng truly believes in his company’s prospects, he should consider this a good time to buy back the company’s stocks. After all, during the past twelve months, Shanghai Prosolar’s shares have declined 52% to RMB5.07 per share.

That will surely dissolve the attacks of the "evil forces" much more quickly than an emotional and desperate cry for support.

China Expert network