(Bloomberg) -- Sanergy Group Ltd., a little-known graphite maker, came into the market spotlight after a regulator warning about shareholding concentration and margin-unwind trades nearly wiped out all of its market value.
The Hong Kong-listed stock plunged 98% on Tuesday, as traders faced margin calls by brokers to cover losses before a late-day trading halt. The unwinding of bets impacted about 37% of total issued shares that were “forcibly sold” in the open market through securities accounts typically used to trade with borrowed money, according to an exchange filing.
The wild swings come right after the Securities and Futures Commission of Hong Kong shed light on the company’s tightly owned shareholder structure. Investors should exercise “extreme caution” when dealing with the stock as it can fluctuate substantially even with a small number of shares traded, the regulator said in a statement. About 90% of shares issued were in the hands of 31 shareholders on August 19, according to a separate company filing.
Sanergy’s topsy-turvy day reminded investors again of the pitfalls in investing in tightly controlled small-cap companies and volatility seen occasionally in the Hong Kong stock market due to the lack of a market-wide circuit breaker system.
In its filing, Sanergy said its board confirmed that its “business operation remains normal, and that there is no material change to the business operation and financial position.”
The company didn’t immediately respond to a request for comment.
The company’s share price has staged a sizzling rally of more than 1,100% through Monday since being listed in January 2023, in contrast to many lukewarm post-IPO performances in recent years. It reported a gross loss of around $8.1 million for the first six months of this year.
Sanergy’s shares have rebounded 69% since trading resumed Wednesday to trade at around HK$0.55 apiece. The stock was added to the MSCI Small-Cap Index on Friday after market close and is due to enter the Hang Seng Composite Index on September 9.
In April, trading of China Tianrui Group Cement Co.’s shares was suspended after the stock crashed 99% in 15 minutes.
(Updates with the Hong Kong regulator’s comment from a filing in the third paragraph)
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