Yangzijiang Shipbuilding (Holdings) Ltd (SGX: BS6), or YZJ, is one of China’s largest private shipbuilding companies. The group has four shipyards in Jiangsu Province that produce a broad range of commercial vessels including large containerships, bulk carriers, and LNG carriers.
On 8 August, shares of YZJ suffered a plunge from S$1.30 to around S$1.00 on rumours of an anti-corruption investigation by the Chinese government involving the executive chairman of the group, Ren Yuanlin. According to the rumours, he was said to have been “missing” for more than two months and is under direct investigation by Chinese authorities over a corruption case involving Liu Jianguo, the former party secretary of the City of Jiangyin and Jinjiang.
A trading halt was then issued on the day itself, after which the group announced a clarification that its chairman has been granted a leave of absence by the board of directors since 9 August to “assist in a confidential discussion.” Subsequently, when trading resumed on 15 August, YZJ’s share price plunged again to close at S$0.86 before rebounding over the next few days to trade around S$1.00.
From the start of the saga until now, YZJ’s shares have fallen by around 25%, so should investors feel nervous about this situation? Let’s explore the facts.
No direct involvement
In YZJ’s clarification, it said Ren Yuanlin was not the subject matter of the investigation by the authorities. This is important to note, as it confirms that Ren Yuanlin was not involved in any wrongdoing but is simply being asked to assist with another investigation (of which details were not revealed).
Furthermore, none of the other directors of YZJ is implicated in this investigation, and the group’s businesses and operations are also unaffected and proceeding normally.
Scare tactics employed
Investors should be aware that rumours tend to circulate when there is insufficient public information, more so if it involves a Chinese company as there used to be a string of S-Chip (i.e., Chinese companies listed in Singapore) scandals post-global financial crisis, where many companies were involved in outright fraud or misrepresentation.
Traders and market participants who are short-selling the stock may also employ scare tactics in the hopes of buying it back more cheaply. It is, therefore, in the interest of such traders to circulate unsubstantiated rumours and gossip to make people panic and sell their shares en masse so that share prices and valuations get pushed to multi- year lows.
Calm and rational thinking advised
Investors should remain calm and use logic to figure out the situation amid the flood of emotions that accompanied the initial rumours. With the group’s clarification on SGXNet, we can now breathe a sigh of relief as it’s now clear the situation was not as bad as what the rumours initially portrayed. Selling shares in a panic in the face of unverified claims often leads to a destruction of wealth, which should be avoided at all costs.
However, as the investigation is still ongoing, unexpected news may still crop up, which means investors need to continue to monitor developments and stay abreast of the latest news from the group.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.
Motley Fool Singapore 2019