China Tianrui Group Cement Co. experienced a significant stock price fall last week, which was precipitated by a margin call affecting a principal shareholder. This event led to an almost total evaporation of the company's market capitalization.
On April 9, due to an unexpected decline in stock price, approximately 133.1 million shares owned by Yu Kuo Co. — a major shareholder linked to Tianrui's non-executive director Li Liufa and his partner — were compulsorily sold on the market. These shares accounted for about 4.53% of the total shares.
This forced sale contributed to half of the trading volume that day, with Tianrui's stock dropping 99% to around HK$0.05. This saw about 281 million shares, or a third of its available shares, being traded, with a significant portion occurring in the last minutes of trading.
The dramatic decline highlights the vulnerability of Chinese firms with concentrated share ownership and margin trading by owners, especially amid the country's ongoing real estate crisis affecting developers.
Despite the turmoil, Tianrui has stated that its business operations are continuing as usual. However, trading of its shares has been suspended as the board seeks further clarification on additional margin calls and legal positions regarding the forced sales.
The Li family, once among Henan's wealthiest, saw their fortunes tied closely to Tianrui's performance. The company reported a shift from profit to a net loss last year, attributing it to industry challenges and increased competition.
Other lesser-known companies have faced similar stock declines this month, signaling a broader issue of potential margin calls for firms with high ownership concentration. Hong Kong's regulatory framework does not require significant shareholders to disclose pledged shares unless for company financing, leaving some investments opaque.
Moreover, smaller companies with pledged shares are more exposed to abrupt market movements, with Hong Kong's trading mechanisms offering limited protection against steep declines.
