HONG KONG, March 27 The Hong Kong stock
exchange's lengthy, often years-long trading suspensions are
trapping investors into holding shares and can be costly for
short sellers paying to borrow the stock, said the founder of
U.S.-based short seller Muddy Waters LLC.
Carson Block also said in a telephone interview on Monday
that his firm was working on exposing possible anomalies at two
Hong Kong-listed firms before the pair publish their accounts.
The comments come after the stock of one of Muddy Waters'
targets, China Huishan Dairy Holdings Co Ltd, lost 85
percent of its value, or $4 billion, on Friday, with Huishan's
chairman reportedly blaming a short seller attack.
Such attacks by short sellers often trigger a suspension on
the trading of the target company's shares. Huishan's shares
were halted for just three days after a report from Muddy Waters
in December, but due to various factors including current
regulations, trade suspensions can last months or even years.
"The problem with the halts in Hong Kong is that they are
very, very, very long," Block said by phone on Monday. "So, once
you get a halt that really stretches out, it becomes negative
for many investors, because they just wont get their money out."
Hong Kong currently has 50 trading halts stretching beyond
three months, exchange data showed, including Superb Summit
International Group Ltd which Muddy Waters shorted in
2014. By comparison, suspensions are resolved in less than a
month in the United States, legal experts said.
Hong Kong's exchange in May said it was considering revising
suspension rules but has not published a formal proposal.
A revision could see firms that are subject to allegations
have trading halts lifted if they make clarification
announcements denying the allegations, for example, an exchange
spokesman said in an emailed statement.
"The revised approach, which is closer to the regulatory
approaches of other markets than the previous approach, keeps
any necessary trading halt to the minimum," the spokesman said.
Muddy Waters rose to prominence in 2012 for shorting Chinese
firms listed in North America. It has also targeted companies
based elsewhere in Asia, including Singapore-listed Noble Group
Ltd and Olam International Ltd.
In December, it said China Huishan Dairy had inflated
spending on cattle farms to artificially raise capital
expenditure figures, and questioned the firm's profit. Huishan
said the allegations were groundless.
On Friday after the share plunge, Huishan said it would make
an announcement as soon as practicable after completing
(Reporting by Umesh Desai; Editing by Christopher Cushing)