Sun Hung Kai Opens Down 15% After Joint Chairmen Arrested In Antigraft Body's Bribery Probe
03/29/2012| 10:42pm US/Eastern
Sun Hung Kai Properties Ltd. (0016.HK) fell 15% when it resumed trade Friday morning, as investors dumped the blue-chip developer's stock after Hong Kong's antigraft agency on Thursday arrested two prominent company executives on suspicion of corruption.
Sun Hung Kai, the city's biggest property developer by market capitalization since December, was down 11.8% at HK$98.00 at 0159 GMT. Shares of the company were halted from trade Thursday morning, shortly after markets opened.
Sun Hung Kai said late Thursday that its chairmen, Thomas and Raymond Kwok, were arrested by the Independent Commission Against Corruption in connection with a bribery probe.
It said the arrests won't affect the normal business and operations of the company. The company also noted that the board had unanimously voted to allow Thomas and Raymond Kwok to continue with their roles at the company, saying it will be in the best interests of the group.
No charges have yet been filed against the brothers, who were released late Thursday. As part of the same investigation, the ICAC also arrested the city's former No. 2 official, Rafael Hui, on suspicion of bribery and misconduct in public office, according to a person familiar with the situation. Sun Hung Kai declined further comment when contacted Friday, while Hui couldn't be reached for comment.
Barclays on Friday cut its rating for Sun Hung Kai to Underweight from Equalweight, saying that it expects the stock to trade lower following the arrests. It, however, kept its target price at HK$92.16.
Meanwhile, analysts pointed out that strong fundamentals at the blue-chip company could underpin some buying interest on dips.
"Whatever the outcome, this should not alter SHK Properties' profile of strong recurrent income and the fact that it owns some of the most prime property assets in Hong Kong and probably Shanghai as well," Daiwa analyst Jonas Kan wrote in a note Friday.
Other Hong Kong developers also fell sharply, tracking Sun Hung Kai's decline, with Sino Land Co. (0083.HK) down 3.9% at HK$12.36, and Henderson Land Development Co. (0012.HK) off 3.4% at HK$42.35.
"I think this is a company-specific issue and shouldn't impact other developers," said SHK Financial strategist Daniel So. SHK Financial is unrelated to Sun Hung Kai Properties.
After the knee-jerk reaction, funds may actually be rotated out of Sun Hung Kai Properties and into its blue-chip peers, So said.
-By Chester Yung and Robert Li, Dow Jones Newswires; 852-2832 2331; firstname.lastname@example.org