FAST NEWS: Hongjiu Fruit’s Chairman pledges 11% company shares

The Latest: Fruit distributor Chongqing Hongjiu Fruit Co. Ltd. (6689.HK) announced Thursday its controlling shareholder and chairman Deng Hongjiu has pledged another 3.9 million shares of the company as security for a loan totaling 29.48 million yuan ($4.1 million) from China Zheshang Bank, bringing the total number of shares pledged to 11.26% of the total number of the company’s issued shares.

Looking Up: It is more flexible for a major shareholder to pledge its shares in exchange for a loan, as there is no need to sell the shares to obtain a sum of money to be utilized and the shares can be redeemed upon repayment of the loan in the future.

Take Note: As the proportion of shares pledged by Deng to the company’s issued shares is quite high, if he defaults, there is a possibility that the shares will be liquidated by his creditors, thus affecting the performance of its share price.

Digging Deeper: Established in 2002, Hongjiu is one of the top three fruit sellers in China, and grew rapidly during the Covid pandemic, and capable of high revenue and profit growth between 2020 and 2022. The company has seen several pieces of negative news since its IPO in September 2022. In addition to multiple pledges of shares by its largest shareholder, it has also been suspended from trading since the end of March, due to delays in announcing last year’s results, and Hang Seng Indexes Company Ltd. has recently announced that it has removed Hongjiu’s shares from the Hang Seng Index series.

Market Reaction: Hongjiu’s shares traded at HK$1.74 before the suspension, plunging 95.6% from their IPO price of HK$40.

Translation by A. Au

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