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Jiangnan case shows investors still wary of insider trading

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

When Jiangnan Mould and Plastic Technology Co last July agreed to sell its stake in a loss-making broker, investors seemed unconcerned about the deal and it drew little media coverage.

But as 2006's stock boom brought hefty gains to securities houses, a group of Jiangnan Mould shareholders opposed the transaction, claiming the broker was sold too cheaply.

The deal, now under the spotlight as China strives to nurse a market recovery after four years of losses, reflects mounting challenges authorities face to reverse the image of an industry long plagued by insider dealings.

Shenzhen-listed Jiangnan Mould last year inked a deal to sell 140 million shares in Guoyuan Securities Co at 1.38 yuan (18 US cents) each to Anhui Cereals Oil and Food Stuff Import-Export Group Corp.

The deal, approved by shareholders, is still awaiting the green light from the stock regulator.

Now some industry insiders say the value of Jiangnan Mould's stake in Guoyuan could have soared at least 10 fold from the summer on euphoria over Guoyuan's business growth and its plan to seek a back-door listing.

The outlook is prompting some investors to post articles on the website bulletin board at the China Securities Regulatory Commission (CSRC) in an attempt to block the deal.

"Selling the stock at such a low price was unbelievable even at the time when the deal was clinched," said Chen Wenjun, a 28-year-old engineer who owns shares of Jiangnan Mould.

"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."

Shares of Jiangnan Mould rose nearly 21 percent last year, lagging a more than 110 percent rise on the Shenzhen Composite Index.

Some analysts predicted the stock could have at least doubled its current price if the firm hadn't proposed to sell the stake.

Anhui Province-based Guoyuan posted a net profit of 558 million yuan last year, compared with a loss of 120 million yuan in 2005, according to its full-year financial report issued on the interbank market.

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