Is This Peak Insanity? Blanket Company With P/E of 6000 Pledges 30% of Shares As Collateral

I nominate this as a contender for most insane behavior in the Chinese stock market bubble of 2015.

Last month I posted Chinese Price to Earnings Ratios; 5800 Times Earnings for Blankets, Only 275 Times For Internet Video. The company that was 5800 times earnings was Hubei Landing.

Market Cap $8.5B
P/E 5,891.46

HUBEI LANDING HOLDING CO.,LTD. is a China-based company principally engaged in the manufacture and distribution of textile products. The Company’s main products include blankets, woolen cloth, yarn-dyed fabrics, suits. It distributes its products in the domestic market and to overseas markets.

A blanket company had a P/E of 5800 at the peak. Shares have plunged, but the P/E is still above 3000. Shares fell more than 60% from their peak. This week, they were limit down on Monday, halted for three days, and limit up on Friday.

Just in case you think the P/E ratio may be distorting things, the price-to-sales ratio is above 70. Debt-to-assets is 23 times. Price-to-book 159 times.

By itself, this is crazy enough to show how the bull market was an indiscriminate liquidity driven momentum trader market. But this is not the end of the story.

Reuters: China's companies at risk of stock-backed loan recalls

Chinese companies that borrowed money using shares as collateral may have to put up more assets or repay their debts, carrying the ripples from the stock market plunge into the wider economy.

A near 30 percent collapse in share prices has started to endanger some businesses using such financing, and the country's banking regulator said on Thursday it would let financial institutions renegotiate lending terms in these circumstances.

Bank and other loans backed by listed shares officially increased around 260 percent in May to 58.4 billion yuan ($9.4 billion) from a year earlier, representing about 4.8 percent of total social financing for the period.

"There is no doubt all the companies are facing a financing dilemma," said Zhang Jihong, board secretary at Hubei Landing Holding Co Ltd, a textile company that suspended its shares from trading on Tuesday - roughly half of all shares on mainland bourses are now suspended - after its stock fell 61 percent.

Hubei Landing has 29.9 percent of its shares pledged as collateral for a loan from a trust company.

The CFO quit on June 18. Hubei Landing Holding Co Ltd

If someone can find something more insane, a shot of baijiu to you.

As mentioned, shares resumed trading on Friday.

Retuers: Hubei Landing's shares to resume trade after shareholder, main executives' pledge
There's much more in the Chinese statement: 湖北蓝鼎控股股份有限公司 关于维护公司股价方案暨复牌的公告

Companies of all directors, supervisors believe that the current stock price is significantly undervalued, based on the company's mergers and acquisitions Good expectations and confidence on the future development of listed companies soaring scientific and technological projects, as well as The current long-term stability of China's capital market to the good judgment, in order to take the initiative to maintain the stock market and this The company shares were steady, planned to legal and compliant way to purchase company stock, and the purchase completed

Here we go, another company with zero experience in the technology sector doing acquisitions. Now the insane P/E makes a little more sense.

April 7: Hubei Landing to acquire Gosun Technology for 1.5 bln yuan

Hubei Blanket may be the poster child for the current Chinese economy. An old industrial company that can no longer compete on low cost, low margin items. Uses the booming stock market to move up the value chain, shifting into technology as per the central government's desire for the overall economy. Then it falls into the trap of debt financing that put China's economy in a bind to begin with, pledging 30% of its inflated shares as collateral for a loan from a trust company. All that's missing are credit guarantee firms.