Tibet Water, a supplier of luxury bottled water, saw its Hong Kong-listed shares drop by two-thirds on Monday, rivalling some of the most dramatic recent sell-offs in a segment of the stock market where shares are often pledged as collateral for loans.
The company’s stock crashed 67 per cent on Monday amid record volumes, which saw 165 times more shares traded than the daily average over the previous 12 months. The sell-off sliced Hk$2.2bn ($281m) off the company’s market capitalisation by close of trading.
A representative for Tibet Water declined to comment on the fall. By Monday evening the company had yet to file any explanation on the drop with the Hong Kong stock exchange.
David Webb, a Hong Kongbased corporate governance campaigner, said it was unclear why shares in Tibet Water fell.
Mr Webb said that one factor could be margin finance, a practice that remains common in Hong Kong, where shares are pledged as collateral for loans taken out by big investors and company insiders. If a pledged stock falls below a certain level, that can result in a “margin call” where the borrower has to put down more shares, pay back the loan or forfeit stock.
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If a lender holding pledged shares decides to sell them, prices can plummet. Hong Kong’s stock market has seen several episodes of apparent forced sales, including the sell-off that hit the so-called “Enigma” network of stocks with numerous overlapping shareholders flagged by Mr Webb a few years ago. Some of those stocks sank more than 90 per cent in 2017, prompting a probe by local market authorities.
The share price fall for Tibet Water comes a little over two years since the company came under attack from Iceberg Research, a group that previously targeted Noble Group, the Singapore-listed commodity trader.
Iceberg alleged that there were “serious doubts” about the company’s books and said there was a “high probability” of fraud. It also raised concerns about the level of cash flowing to and from third parties. Tibet Water rejected Iceberg’s claims in an exchange filing and said it was considering legal action to protect shareholders’ interests.
Those allegations came on the heels of a backlash from the human rights group Free Tibet and other activists, after Tibet Water signed a deal in July 2017 to become the official regional water partner in China of Liverpool Football Club. In September last year, Free Tibet said it had confirmed that Liverpool FC had not renewed the sponsorship for another year.
