Beauty China turns ugly duckling

To say that it has been a roller coaster ride for the shareholders of Beauty China (BC) in the past 2 days is a gross understatement. No retail investor could have been prepared for the extreme volatility that we have witnessed on BC’s share price. On the morning of 2nd March, BC called for a trading halt pending announcement. BC closed at $0.37 on the previous Friday (27th Feb). The much-awaited announcement that was made on Tuesday noon disclosed that the founder, Mr Wong, was in discussion with some parties regarding the sale of his 38.7% stake.

At first glance, it looks like good news for the shareholders as some parties are interested in acquiring a stake in BC, which was previously a market darling before this downturn. However, it occurred to me that assuming the party was to successfully take control of Mr Wong’s 38.7% stake, it would also need to make a general takeover offer for all shares it does not own at the similar price it paid. If the ultimate intention of the other party is to takeover the whole company, then it seems odd that only Mr Wong alone is in negotiations and not the whole board of directors.

My belief that there was something fishy behind this deal was further reinforced when there was no spike in the share price after the trading halt was lifted. Investors react negatively and the huge wave of selling caused the share price to close at $0.11. It was down 70.3% on just half day of trading. If there is a chart for the most spectacular collapse of share price in the shortest period of time, BC will definitely rank on top. After the market close, BC came out to announce that some of Mr Wong’s shares were sold due to margin call. With that announcement, we finally had a clearer picture what this was all about.

Currently, there is no rule that requires the disclosure of shares that are pledged. Seriously, the authorities should look into this issue and consider making the necessary changes to protect the minority shareholders. This is not the first time such thing has happened and it wont be the last time. A similar incident occurred in Jade Technologies last year.