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It never rains but it pours. The stock price of China Vanke Co., Ltd. (000002.SZ) suffers consecutive plunge, while nine asset management plans under Baoneng Group are on the verge of being closed out. Vanke requests the regulators to check the suspected violations of laws conducted by nine asset management plans under Baoneng.
On July 19, Vanke submitted a report, requesting investigation of violations of laws and regulations conducted by Shenzhen Jushenghua Co., Ltd. and its asset management plans, to the China Securities Regulatory Commission (CSRC), the Asset Management Association of China, Shenzhen Stock Exchange and Shenzhen Bureau of the CSRC.
Shenzhen Jushenghua Co., Ltd. under Baoneng, Foresea Life Insurance Co., Ltd. and the nine asset management plans with Jushenghua acting as inferior mandator keep purchasing the shares of China Vanke on the secondary market since the second half of 2015. As of July 18, Baoneng totally holds 25.40 percent of Vanke’s total share capital, accounting for 28.83 percent equities of China Vanke.
Vanke proposes 12 questionable points
As stated in the report submitted by Vanke on July 19, the information disclosure of the nine asset management plans controlled by Jushenghua is suspected of being involved in violations of laws; the nine asset management plans are unqualified for acquiring listed companies; legal ground is lacked of in the case that the nine asset management plans transfer their voting power to Jushenghua.
Vanke claims that the nine asset management plans, falling into the category of “channel” business which is forbidden by laws, are suspected of being illegally involved in the financing for stock investment; Jushenghua is suspected of being illegally involved in securities trading through the accounts of the nine asset management plans; Jushenghua and its nine asset management plans might have damaged the interests of minority shareholders.
The 12 questionable points proposed by Vanke can be divided into four aspects.
As to information disclosure, Vanke believes that the nine asset management plans fail in complete information disclosure as required; the contract and supplementary agreement for asset management are not stored in the listed company as back up document; there is important omission in contract terms.
As to asset management business, Vanke believes that the nine asset management plans, falling into the category of “channel” business which is forbidden by laws; Jushenghua is suspected of being illegally involved in securities trading and the financing for stock investment through the accounts of the nine asset management plans.
Vanke holds that legal ground is lacked of in the case that the nine asset management plans transfer their voting power to Jushenghua. The nine asset management plans are unqualified for acquiring listed companies, relevant parties all see insufficient ground to exercise voting power and legality is lacked of for the transfer of voting power.
Vanke points out that Jushenghua and the nine asset management plans might have damaged the interests of minority shareholders. Jushenghua is suspected of manipulating stock price through its multiple accounts by making use of its advantage in information and capital. Jushenghua is suspected of pulling up the stock price through the nine asset management plans and then siphons profit into Foresea Life Insurance. Jushenghua and the nine asset management plans fail to remind the risks after the shares are bought to the five percent limit in the secondary market and that might damage the interests of superior mandators.
Vanke requests regulators to check two issues
Vanke requests the regulators to check two issues after proposing the above 12 questionable points.
According to Vanke, Jushenghua enjoys great advantage in capital, shareholding and information since the shares held by minority shareholders are comparatively not much. It’s quite easy for Jushenghua to manipulate the stock price through various accounts. Therefore, the regulators should check the manipulation conducted by Jushenghua, including consecutive trading, contract deal and trading at closing hours, during the shareholding increase of China Vanke.
Vanke suggests regulators to check the IP addresses of a large number of order applications with 9,999 and 10,000 lots from 14:45 and IP addresses of 23 order applications with 8,787 lots at 14:51 of July 5. If these orders were placed by Jushenghua and its persons acting in concert, it breaks the commitment of forbidding selling stocks within 12 months; but if they were placed by other institutions or individuals, regulators should investigate its intention to figure out whether it has something to do with Jushenghua.
Vanke advises regulators to find out whether managers and priority consignors of nine asset management plans have been beforehand informed of that stocks of China Vanke they buy this time will be locked up for more than 12 months and that priority consignors might be harmed as they are not able to reduce or close positions, and whether they have gained approval from all of consignors.
Vanke expressed its earnest request in the report that regulators should inspect the above problems and answer to them. Vanke, as labor union of China Vanke, submitted a case to People’s Court of Luohu District, Shenzhen city, Guangdong province, charging that there was the third party who conducted unlawful act when Jushenghua and its persons acting in concert purchased the company’s stocks through secondary market acquisition to the five limit, and is obliged to submit the above information to the court.
Lawyers claimed the doubts are reasonable.
It might not be acknowledged.
Baoneng has not made any official response on this unexpected report yet.
As to content of the report, lawyer Wang Zhibin thinks that in terms of information disclosure, obligator of information disclosure of nine asset management plans should be asset managers, so Vanke reporting this part is reasonable.
But Wang indicated “According to interpretation into existing regulations, asset managers can exercise shareholders’ right on behalf of asset management plan and can also become persons acting in concert with other parities. It may not be unlawful that asset managers authorize voting right to Jushenghua. So the reasons that Vanke reported this issue remain to question.”
In the opinion of Wang, under the background that there is no specifically clear legislation and standard of law enforcement is relatively vague, Vanke reporting is largely based on its understanding on relevant issues; so it may not be approved by regulators.
“Vanke doubting that Jushenghua is suspicious of manipulating stock prices and transporting interests is reasonable, but regulators do need to find out the truth. It will involve legal determination whether it is manipulation on stock prices based on the truth.” said Wang.
Wang explains further that the act of purchase itself has nothing to do with manipulating stock prices or transporting interests. Whether it is manipulating stock prices or transporting interests will depend on evidence that there is contract arrangement on related transactions, contract arrangement on utilization and distribution of capital and whether there is account exchange among various parties. These need regulators to find out the truth.
(APD/XH FINANCE)
