Quick Summary of the Key Points
Recently, Haidilao’s share sale has left the capital market in a state of confusion: Just four months ago, founder Zhang Yong invested HK$150 million to increase his holdings in the company’s stock, clearly sending a signal to investors that he was optimistic about the company’s future. However, shortly thereafter, the family trust owned by his wife, Shu Ping, sold off Haidilao shares totaling 4.65% of the total capital, realizing a profit of HK$2.75 billion. The selling price was even 20% lower than the market price at the time, indicating a desire to dispose of the shares as quickly as possible. Following the announcement, Haidilao’s stock price plummeted by more than 13% in two days, reaching a new low for the period. The company officially explained that this was a private financial arrangement by the shareholders and had nothing to do with the company’s operations. However, the market widely speculates that the sale is related to the new offshore trust taxation regulations introduced in July. In the past, many wealthy individuals from mainland China placed their shares in overseas trusts to avoid taxes. Now, with the new regulations requiring tax payments, there is suspicion that Zhang Yong’s family sold the shares to meet the tax obligations. This incident serves as a reminder to all investors that when purchasing shares in Hong Kong-listed private companies, in addition to considering the company’s performance, they must also be wary of the possible sudden impact of major shareholders’ personal financial needs on the stock price.
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Plain Language Explanation of the Key Points
1. Contradictory Actions: Buying Shares First, Then Selling a Large Amount
Many people may not have realized the inconsistency in Zhang Yong’s actions: In May this year, Zhang Yong actually invested HK$150 million in Haidilao’s shares when the company’s stock price had just dropped from a high of HK$85 to around HK$10. The market was skeptical about Haidilao’s future, but Zhang Yong’s investment seemed to reassure investors by demonstrating his confidence in the company. However, just four months later, the family trust owned by his wife sold off shares worth HK$2.75 billion, 18 times the amount he had invested, and at a discount, indicating a desire to sell quickly. Even though the seller was Shu Ping’s trust and not Zhang Yong himself, the company repeatedly stated that the sale had no impact on its operations. Investors were skeptical: If they truly believed in the company’s future, why would they sell shares at a discount? Could there be some undisclosed negative information? As a result, the stock price dropped by 13% in two days.
2. The Speculated Reason for the Sale: Tax Payments Due to New Regulations
The most common speculation is that the sale was to pay taxes on offshore trusts. To explain this in simpler terms, in the past, many wealthy individuals from mainland China placed their shares in overseas trusts to avoid taxes. These trusts are registered in places like the Cayman Islands or the Virgin Islands. The advantage was that they didn’t have to pay taxes on the profits generated by these shares. However, new regulations have clarified that anyone with primary income from China is subject to Chinese taxation, regardless of their nationality. Zhang Yong and his wife may have Singaporean citizenship, but their wealth was earned through Haidilao, so they are still subject to taxation in China. The new regulations specify that taxes must be paid on the appreciation of the shares, on dividends received during the trust’s holding period, and on the proceeds from the dissolution of the trust. There is also a 90-day grace period for voluntary declarations, which may explain why Zhang Yong’s family was eager to sell the shares to pay the taxes. Although this is still unconfirmed, lawyers have noted that they could also use other sources of income to pay the taxes, not necessarily by selling shares.
3. The Hidden Danger of Offshore Trusts
The intense reaction to this incident is not unique to Haidilao, as similar actions are common in the Hong Kong stock market. In 2018, at least 15 mainland Chinese companies listed in Hong Kong had their shares placed in offshore trusts, with a total market value of approximately HK$28.5 billion (RMB 200 billion). Previously, these trusts were completely opaque, and the outside world had no idea about their assets, dividends, or tax obligations. The new regulations have made these practices transparent. If these companies need to pay taxes, they may be forced to sell shares, which can significantly impact the stock price, especially for ordinary investors.
4. A Warning for Ordinary Investors
In the past, investors chose stocks based on simple criteria such as company performance and growth. However, the Haidilao incident highlights that the personal financial decisions of major shareholders can have a significant impact on stock prices. If a large portion of a private company’s shares are held by the founder, and the founder’s wealth is tied to those shares, any personal financial needs of the founder can affect the stock price. For example, if Zhang Yong’s family needs to pay taxes, they may have to sell shares, regardless of the company’s performance. This means that investors need to be more cautious when investing in such companies and check whether the founder’s shares are held in offshore trusts to avoid unexpected losses.