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Jiangnan case shows investors still wary of insider trading

(Shenzhen Daily)
Updated: 2007-02-26 10:48

Growth prospects have led to mounting investor doubts over why Jiangnan Mould sold its 6.8 percent stake in the broker even after Guoyuan said its half-year profit hit 300 million yuan.

What's more puzzling is how Anhui Cereals, which only posted a 2006 profit of 3.41 million yuan and has registered capital of 120 million yuan, can fund the purchase.

An official at Jiangnan Mould said the sale plan was considered a few years ago and the company did not expect Guoyuan's earnings to grow significantly. The official also said the possibility of Guoyuan listing was not considered, thus the sale was understandable.

He denied the possibility of any insider trading, noting the stake was sold through public bidding.

However, he declined to comment on how Anhui Cereals will complete the deal.

Officials at Anhui Cereals declined to comment on the deal. Earlier media reports said the company is now considering restructuring to attract foreign investors to shore up capital.

"Regardless of potential insider trading in the case, it has already dealt a blow to the market's image in terms of information disclosure," said Wu Zhiguo, a Guohai Securities Co analyst.

Wu said a public announcement on the transaction was made at least a month after both sides had signed the agreement, a practice that violated existing securities laws.

Officials at CSRC said no final decision on the deal has been made and refused to elaborate on the vetting procedures.

But industry sources said transparent disclosures on the matter are essential to reassure investors and a move to block the deal is possible.

"At least authorities hope to quell investor uncertainty by making everything clear to the public, including whether the bidding is legal and how the deal will be financed," said a source close to the watchdog.

"If irregularities appear, the deal is for sure to be canceled by the regulator, which has made it a priority to protect investors."

Although it's not known how long it will take for regulators to deliver a ruling, market participants widely expect similar cases to pop up in coming months as regulations are tightened and public oversight improves.

"The brokerage industry showed signs of recovering last year and it was definitely not wise to dispose of the stake when a bull market was setting in."

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