Hong Kong stock investors are eyeing a key earnings deadline Thursday, with dozens of companies unable to file annual results facing a potential trading halt.
As of 6 pm local time on Saturday, according to an exchange statement, at least 73 listed firms said they would postpone the filing of their annual earnings before the March 31 deadline due to the COVID outbreak or a change in auditors. This includes beleaguered builders China Evergrande Group and Casa Group Holdings Ltd, in what is expected to be one of the worst earnings seasons for developers in more than a decade. The list also includes a large number of energy and materials firms.
The suspension risk could dent trading sentiment in the city’s equity market, which has remained fragile after volatility in recent weeks as Beijing vowed to end a year of regulatory action following a historic sell-off.
Under the Hong Kong Stock Exchange’s listing rules, if the company does not release audited earnings three months after the fiscal year ends, its shares will be forfeited. However, due to Covid-related delays, firms are allowed to submit unaudited data by March 31 and the audited version by April 30 to avoid suspension.
A spokesperson for the exchange said that the exchange is “actively communicating” with various stakeholders and continues to monitor the latest developments. He said he expects the “vast majority” of firms to be able to report their audited results by the end of March.
The events of the past year may provide clues as to what lies ahead. The wave of earnings suspension on April 1 resulted in over 50 trading halts. Among them, bad debt manager China Huarong Asset Management Co was put on hold for nine months and sank 50% when business resumed in early January.
“We would be cautious on delayed results because it could indicate financial stress based on last year’s experience with companies like Huarong,” said Marvin Chen, an analyst at Bloomberg Intelligence.
While a delay in reporting could simply mean that auditors need more time to complete a review of financial statements, the situation with Chinese property firms is particularly worrisome. At least nine of the country’s biggest builders are expected to miss this month’s deadline from sales contracted last year.
The announcements have started having an impact on the affected stocks. Powerlong Real Estate Holdings Ltd fell 7.8% on Friday after announcing a delay in its 2021 audited results late on Thursday, while a Bloomberg intelligence gauge of developers in China had a 0.7% slide. Shares of Casa Group Holdings are down 4% since the announcement late Tuesday.
According to Moody’s Investors Service analyst Kawen Tsang, the resignations of several auditors have raised a red flag on the companies’ “weak corporate governance, financial management and planning, as well as transparency and information disclosure”.
All this is adding to the pullback in Hong Kong stocks after a roller-coaster ride earlier this month. The volatility reflects volatility in the broader markets, which are fueled by concerns about accelerating inflation and slowing growth.
Hong Kong and China’s recent Covid outbreak is exacerbating audit headaches, according to Hong Kong President Clement Chan, with the recent surge causing “the most serious disruption to the audit process for both Chinese and Hong Kong firms in the past three years”. Kong Association of Registered Public Interest Entity Auditors.
https://biz.crast.net/trading-halts-loom-with-hong-kong-firms-set-to-delay-earnings/
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