The awareness of stock markets has grown in last couple of years and amount of people participating in stock trading has grown. Chinese companies are also using the stock market to raise money to fund projects outside China. Chinese construction companies are very active in Africa. So when Hangxiao Steel company announced that have won a construction project in Angola worth 30 billion RMB, the shares went up six times the initial value.
Amidst allegations of wrongdoing, The China Securities Regulatory Commission (CSRC) decided to investigate the company.
There were also reports that a senior company executive may have leaked information about the contract to workers at an entertainment venue before the official announcement and the boss of the venue traded in Hongxiao’s stocks.
The Chinese state owned television network launched its own investigation in to the case. They figured out the GDP of Angola and its foreign exchange reserve.
The contract is worth 4.3 billion USD, while Angola’s GDP in 2005 was about 30 billion USD. So the contract is worth approximately 14% of Angola’s GDP. Angola’s foreign exchange reserves is about 6.5 billion USD. The contract worth about 2/3 of its foreign exchange reserves.
CCTV tried asking the official bodies responsible for development projects in Angola if they had any information on this project. The 16 agencies they contacted refused to confirm this project. The company downplayed CCTV’s report saying that the Angolan authorities had not outright denied the existence of the project. They are still insisting that they have the contract.
The latest news is that the Chinese Stock regulators have stated that they plan to punish Hangxiao stell for inaccurate and incomplete information disclosure. Several people involved with the case have been asked to stay put in China.
We are not sure how this issue will play out but it wont be the last case where a company uses an African project to raise its profile. Would this issue affect legitimate companies trying to fund their overseas projects? Would the media take the role of doing homework for the investors in such cases in the future?
– by Preetam Rai