By: Steve Toloken
August 28, 2013
Financially-struggling Chinese PET film producer Fuwei Films (Holdings) Co. Ltd. said Aug. 27 that its majority shareholder, a state-owned Chinese company, was unsuccessful in auctioning its interest in the film extrusion firm, following six consecutive money-losing quarters.
Fuwei, based in Weifang, said the shareholder, the Weifang State-Owned Assets Operation Administration Committee, tried to sell its ownership stake at an Aug. 27 public auction in Jinan.
The unsuccessful auction comes one month after Fuwei was threatened with delisting on the Nasdaq Stock Exchange, because its market value fell below the exchange minimum of $5 million.
Weifang, which owns 52.9 percent of Fuwei’s public shares, proposed selling its stake for $5.16 per share, for a value of 218.7 million Chinese yuan ($35.7 million), Fuwei said.
But the auction “did not result in a successful bid having been accepted,” Fuwei said. “The company believes this public auction failed due to a lack of bidders registered for the auction.”
The asking bid was about five times the $1 per share that Fuwei had been trading at in the two months before the company announced the auction on Aug. 14.
That difference prompted one equity research firm to label the auction a “game,” suggesting the company wanted to raise its stock price.
The firm has had a difficult time of late, losing money for six straight quarters. Its sales in 2012 dropped to 372.8 million yuan ($59.8 million), from 537.6 million yuan in 2011.
It reported Aug. 23 that its losses deepened in the second quarter. Sales dropped 16 percent to 77.4 million yuan ($12.6 million), while net losses rose 51 percent to 18.2 million yuan ($3.0 million).
The company blamed both stronger competition in China and an 11 percent drop in its total sales volume. Its sharpest sales drop came in exports, which it said was partially because of anti-dumping actions taken by the United States and South Korea.
Fuwei said it believed a third production line that it wants to bring on-stream could help it recover.
Fuwei said it was studying options regarding delisting, including regaining compliance before Nasdaq’s Jan. 21, 2014 deadline. It noted that if the value of its publicly-held shares exceeded $5 million for 10 consecutive days, Nasdaq “will provide the company with a written confirmation of compliance.”
The company did not respond to questions to provide additional details about the auction.
An analysis by one research firm on the financial website Seeking Alpha labeled the auction a “game.”
“There seemed to be an initial belief by many investors that the auction news implied that [Fuwei] was worth $5.16,” according to an analysis by the Skippack, Pa.-based equity research firm Geoinvesting LLC, posted on Seeking Alpha. “We think the stock could trade lower than $1.00 as investors who have yet to digest the facts of this story may rush to sell their shares.”
Fuwei’s stock rose to about $3 a share on Aug. 15, the day after the announcement, but dropped back to $1.40 by Aug. 27.
In 2009, three of Fuwei’s founders were sentenced by a court in Shandong for corruption, in a case with its roots in an earlier auction.
In an SEC filing, the company said the executives had been charged with selling state-owned assets at low prices and “crimes of irregularities for favoritism.”
The case grew out of an earlier auction in which Fuwei acquired some of its production capacity, the company said in SEC filings. One of the founders was sentenced to death, with a stay of two years, while the other two executives were sentenced to life in prison, Fuwei said.