Yangzijiang's stock tumult: a primer for firms to respond swiftly, not recoil

TIMING is everything in the stock market - or so, it goes.

Based on Singapore-listed Yangzijiang Shipbuilding's two encounters with stock turbulence - last month and five years ago - and how it took charge of the situations rather differently, we can also surmise these - bad news travels fast, good news comes early and delayed reaction can cost you.

When Yangzijiang's shares tumbled over 10 per cent in mid-2014 after which trading was halted amid allegations of misdeeds by a Shenzhen-listed railway firm against the shipbuilder's founder, controlling owner and executive chairman Ren Yuanlin, a clarification was shot out within two days.

The China-listed firm's incumbent board had alleged the misdeeds as it was resisting Mr Ren's attempt to reconstruct the board after he emerged as largest shareholder. Mr Ren quashed the charges and in fact, had earlier confidentially submitted his rebuttals to the Shenzhen Stock Exchange - said Yangzijiang in response to a trading activity query by the Singapore Exchange.

The next day when trading resumed, its share price gained as investors rewarded China's largest non-state owned shipbuilder for quickly clearing the air.

So, in the more recent episode this August, it's hard not to wonder - had Yangzijiang been just as swift-footed, could it have spared itself a gut-wrenching loss of a couple of billions in market value and the need to cough up several more millions to earnestly mop up its shares to buttress its once-again panic-hit counter?

On Aug 1, at 10.37am, global shipping news service TradeWinds posted an article subtitled "Chairman of Yangzijiang Shipbuilding founder Ren Yuanlin's charitable foundation becomes a target of Xi Jinping's anti-corruption commission".

News on Beijing's probe

According to the article, Liu Jianguo, a "veteran political patron of the shipbuilding industry" who is "especially closely connected to Yangzijiang" was being probed for disciplinary violations since June this year by Beijing's powerful anti-graft body.

There was no suggestion that Mr Ren, who has won accolades in China for both his entrepreneurship and charitableness, nor the company, one of China's largest shipyards generally well-liked for its strong balance sheet and ability to score jobs amid a tough cycle, was involved in China's probe.

Rightly or wrongly, however, it is fathomable that the article had induced some concern and more so, curiosity among investors.

The shattered reputation of many S-Chips following cases of corporate scandals may have also helped sow some doubts.

This time, Yangzijiang chose to sit it out - or at least, it appeared so - with no response and for at least two days, all had seemed hunky-dory; even the stock price had not budged.

But by the following week on Aug 5, the sell-off had started with the shares falling 2.8 per cent on volumes of more than double its daily average. Still, nada from Yangzijiang.

The shares slipped steadily until Aug 8, when rumours about the company and Mr Ren switched to overdrive, causing it to plunge as much as 28 per cent in the early trading hours, prompting a query from the bourse's regulator, followed by a trading halt.

Interestingly, the source of the news or rumour that tanked the stock that morning is unclear as it followed a week after Tradewinds' article - an eternity in the realm of social media and Internet - but based on the company's eventual clarification six days later (post two back-to-back public holidays straddling a weekend), they seem connected.

In its response on Aug 14, Yangzijiang said the board has granted Mr Ren leave to focus on "assisting in a confidential investigation carried out by certain PRC governmental authorities". Providing no further details on the probe, it also added that none of its directors including Mr Ren were the subject of the investigation.

Murky information

On trading resumption, the potential overhang of Mr Ren's assistance in the investigation was reason enough for investors to dump the shipyard's shares which plumbed to a year's low of 86 Singapore cents; the shares have rebounded a tad since at around 90 Singapore cents.

If anything, the latest event involving Yangzijiang ought to be a primer for public companies to resist providing any opportunity for murky information - indeed, great fodder for rumours and a magnet for traders and short sellers to employ scare tactics - to fester in the market.

The more severe the rumour, the quicker the company needs to come clean. Holding out or pushing the responses back will more often than not be perceived as a bad sign by the market. And that, as we all know, can be costly.