HK's long trading halts trap investors: Muddy Waters

The Hong Kong Stock Exchange's lengthy trading suspensions have been labelled by short-seller Muddy Waters founder Carson Block as "negative for many investors". Hong Kong's exchange said it was considering revising suspension rules but has not publi
The Hong Kong Stock Exchange's lengthy trading suspensions have been labelled by short-seller Muddy Waters founder Carson Block as "negative for many investors". Hong Kong's exchange said it was considering revising suspension rules but has not published a formal proposal.PHOTO: REUTERS

HONG KONG • The Hong Kong Stock Exchange's lengthy, often years-long trading suspensions are trapping investors into holding shares and can be costly for short-sellers paying to borrow the stock, said the founder of US-based short-seller Muddy Waters.

Mr Carson Block also said his firm was working on exposing possible anomalies at two Hong Kong-listed firms before the pair publish their accounts. The comments come after the stock of one of Muddy Waters' targets, China Huishan Dairy Holdings, lost US$4 billion (S$5.57 billion) last Friday, with Huishan's chairman reportedly blaming a short-seller attack.

Such attacks by short-sellers often trigger a suspension on the trading of the target company's shares. Huishan's shares were halted for just three days after a report from Muddy Waters in December, but due to various factors, including current regulations, trade suspensions can last months or even years.

"The problem with the halts in Hong Kong is that they are very long," Mr Block said. "So, once you get a halt that really stretches out, it becomes negative for many investors, because they just won't get their money out."

Hong Kong currently has 50 trading halts stretching beyond three months, exchange data showed. By comparison, suspensions are resolved in less than a month in the United States, legal experts said.

Hong Kong's exchange said last May it was considering revising suspension rules but has not published a formal proposal. A revision could see firms that are subject to allegations have trading halts lifted if they make clarification announcements denying the allegations, for example, an exchange spokesman said in an e-mailed statement.

"The revised approach... keeps any necessary trading halt to the minimum," the spokesman said.

Muddy Waters rose to prominence in 2012 for shorting Chinese firms listed in North America. It has also targeted companies based elsewhere in Asia, including SGX- listed Noble Group.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 30, 2017, with the headline 'HK's long trading halts trap investors: Muddy Waters'. Print Edition | Subscribe