(Yicai Global) Aug. 30 -- A Chinese chairman called on staff to increase their holdings in their company two months ago when its stock price was down because the price deviated from its fundamentals.

He also undertook to compensate their losses if they heeded the call.

Two months later, the chairman, acting in concert with the company's major executives, proposed a share reduction plan. This led the Shenzhen Stock Exchange to issue a letter of inquiry to the firm.

Chinese security products manufacturer Guangdong Anjubao Digital Technology Co. [SHE:300155] stated in early June that Zhang called on employees to increase their holdings in the company. If the company and its subsidiary employees increased their holdings in the company from June 5 to 7 and kept these for more than 12 months and were still with the company then, the chairman would fully compensate any loss thereby incurred, but any income generated would belong to the employees, he promised.

The reasons Zhang gave for urging increased holdings was that the company's stock had investment value and to maintain market stability. Twenty-one employees responded to the chairman's call and bought 265,600 company shares. Zhang himself did not increase his holdings at the time, however.

Anjubao then announced the executives' share reduction plan on Aug. 24. Controlling shareholder Zhang issued his and two concerted action plans to reduce Anjubao holdings by up to 25 million shares -- 4.6 percent of the company's total share capital -- within six months. Several major company executives also proposed share reduction plans, including the firm's general manager, deputy general manager, board secretary, directors and supervisors.

Such contradictory behavior caused the Shenzhen Stock Exchange to issue a letter of inquiry to Anjubao yesterday requiring it to ascertain whether Zhang had manipulated the company's share prices via information disclosure and whether the plan that Zhang and other executives proposed was based on undisclosed business and financial information of which they had knowledge.

Anjubao's share prices fell to USD1 (CNY6.71) per share on June 4, near their historical nadir. The shares had risen to the trading limit for three consecutive trading days after Zhang exhorted employees to raise their holdings and pledged to compensate their losses on June 5. On June 8, the share price edged to CNY10 per share, rising 39 percent in four trading days. This rally faltered, however, with shares down ever since. On Aug. 29, the share price closed at CNY7.20 per share.

Anjubao's interim report released on Aug. 28 failed to inspire investors' confidence, either. The company's first-half revenue fell 2.4 percent annually, with a net profit loss of CNY10.21 million after deducting non-recurring gains and losses, its data show.

This was the first time the company had reported a loss in its semi-annual report since it listed in January 2011. 

The firm's low performance and share prices prompted Zhang to take the lead in jettisoning shares, showing its senior management lacked confidence in its future, Dong Dengxin, director of the Institute of Financial Securities of Wuhan University of Science and Technology told Yicai Global.

This is also not Zhang's first share reduction or concerted action. From last July 18 to 20, he and his cohorts sold a total of 12,628,300 shares when the share price was between CNY13 to CNY15.