HONG KONG -- Shares of Next Digital, publisher of Hong Kong's outspoken Apple Daily newspaper, soared up to 330% as they resumed trading on Thursday for the first time since the city government froze founder Jimmy Lai's controlling stake in the company.
The 71.3% stake, along with the bank accounts of three private companies owned by Lai, were frozen by order of Security Secretary John Lee on May 14 in relation to charges the businessman faces under the Hong Kong national security law of colluding with foreign forces for his alleged role in supporting calls for other nations to sanction Hong Kong and China.
Next shares opened Thursday morning at 45 Hong Kong cents, compared with a pre-freeze price of 18.6 Hong Kong cents. They soon reached 80 Hong Kong cents but settled back to eventually close up 50.5% for the day at 28 Hong Kong cents.
Some 539.69 million shares changed hands, making the small capitalization stock the third-most traded in the city for the day.
Sympathetic residents of the city rallied to the shares, as they had last August when the company's offices were raided by police. Hong Kong stocks are traded in board lots, equivalent in Next's case to 10,000 individual shares.
"Bought five lots to support," one person posted on the local LIHKG online forum on Thursday. Another said: "Enter the market and support as the price rises. Buy the newspaper as well."
It is unclear how much the online discussion reflected real trading. The flurry of market activity also likely involved speculators seeking to profit on the stock's sudden momentum.
"(That) Lai's shares have been frozen effectively reduces the available stock. With less stock available to trade, you would expect the value to go up," said Andrew Sullivan, a market analyst and director at Electronic Research Interchange. "We are also seeing pro-democracy supporters willing to support the stock in defiance of the administration, just like in the past."
Hong Kong police last September arrested 15 people on suspicion of conspiracy to defraud and money laundering for allegedly manipulating Next's shares using social media and generating 38.7 million Hong Kong dollars ($4.99 million) in profits.
Like other media companies, Next has been under intense pressure, particularly amid the COVID-induced economic downturn. It has faced the extra burden of an informal advertising boycott by the Hong Kong government and pro-Beijing businesses.
The company has recorded five straight years of net losses. It also posted a loss of HK$146 million for the half year through Sept. 30.
The personal support of Lai, who originally made his fortune with the Giordano clothing chain, has been key to keeping the publisher afloat. Next's half-year report published in December showed Lai had provided an unsecured loan of HK$106 million in November, adding to an outstanding balance of HK$500 million as of Sept. 30.
Lai received a 14-month prison sentence in April for taking part in unauthorized assemblies during pro-democracy protests in August 2019. He is to be sentenced on Friday after pleading guilty to charges of participating in an unauthorized October 2019 rally.
Next sought to dispel fears of a cash crunch on Wednesday evening, disclosing that it had HK$521.4 million in bank and cash balances as of March 31. It said this should provide ample working capital through September 2022, even "without additional funding from Mr. Lai."
Lai has previously pledged to provide up to HK$765 million in aggregate to the company, but in its statement, the company said, "There is no loan covenant that requires Mr. Lai to continue to provide funding or pledge of Mr. Lai's shareholding."
The board added that it "does not expect the issue [of Lai's asset freeze] to have an immediate negative effect on the financial situation or operations of the group."
In explaining his freeze order, Secretary Lee said Thursday that the authorities had "sufficient reason" to believe that Lai's assets were backing illegal activities.
"The security law empowers law enforcement bodies to freeze certain assets pertained to national security crimes, which are very serious offenses in Hong Kong," he told reporters. "Normal business operations will not be affected."
Reuters reported on Thursday that Lee had recently sent letters to Lai and branches of HSBC and Citibank, where the tycoon holds his accounts, threatening bankers with up to seven years in prison for any dealings with his assets, including transfers out of Hong Kong.
Former Hong Kong Chief Executive Leung Chun-ying, who has long campaigned against companies advertising with Apple Daily, this week revealed that he holds a small stake in the company.
In a post on a Facebook, Leung, vice chairman of China's national political advisory council, said he had made a complaint to Hong Kong law enforcement, alleging that Next management had misrepresented the company's situation and infringed the interests of shareholders.
Sullivan, though, noted that there are no signs the authorities will go beyond freezing Lai's stake for now.
"Actual company operations have not been frozen and at this stage there has been no talk of liquidating [his share]position," he said. "I do think if they did that, then you would see a much wider sell-off because that would herald a new era of uncertainty for HK investors. That is something Beijing would not want to see ahead of the [Chinese Communist] Party's 100 anniversary."
That event is to be commemorated on July 1.
Additional reporting by Narayanan Somasundaram, Michelle Chan, and Cora Zhu in Hong Kong.