Haidilao International Holding Ltd

According to BofA Securities, China has introduced new rules imposing income tax on the offshore trusts that shareholders of many Chinese companies listed in Hong Kong and the United States have used, and as the tax payment deadline approaches, short-term risks may arise for some stocks. Winnie Wu, China equity strategist at BofA Securities, told Reuters at a press conference in Hong Kong that scrutiny of privately owned companies listed offshore may intensify, while the impact on state-owned enterprises is seen as relatively small. In July, Chinese authorities stated that personal income tax would be levied on assets held in offshore trusts and the income generated from them, with unpaid taxes to be paid within 90 days, and that deadline is now approaching. Major shareholders of Chinese hot pot chain Haidilao unexpectedly sold 259 million shares this month, cashing out 2.75 billion Hong Kong dollars, or 350.59 million US dollars. Since then, the company's share price has fallen 17%, heightening market concerns over the impact of the tax payments on some offshore Chinese stocks. Wu noted that the deadline for this offshore tax is October 22, leaving about a month to gauge the actual impact.

Shares of Haidilao, China's largest hot pot chain, fell as much as 12% to their lowest level since March 2022 after the founder's family prepared to sell shares worth up to $353 million, surprising the market. According to the terms of the share sale document reviewed by Bloomberg, Shu Ping, co-founder and wife of Zhang Yong, chairman and chief executive officer, plans to sell 259 million shares through a company holding assets of a family trust. The sale price is at a discount of about 6% from the latest closing price, and the shares offered represent about 4.6% of the total issued and outstanding shares, or 12.2% of the shares traded in the market. This move comes shortly after the Chinese government announced it would officially begin collecting taxes on overseas trusts established by Chinese citizens, which may have pressured the founder's family to decide on this share sale. Meanwhile, Morgan Stanley analysts noted that the news of the share sale was surprising, as Zhang Yong had just increased his stake in May.