Mystery surrounds Merchant House International’s skyrocketing shares

Merchant House shares rocketed when it announced the $US20m sale of its Chinese textiles factory, but now they are in an extended trading halt.

After Merchant House International announced the sale of land and property in China for $US20m ($25.8m) on April 16 the stock hit 12.5c before it was suspended from trade.

A fortnight ago ASX-listed textiles maker Merchant House International sold its factory and land in China for the cash equivalent of more than four times its market capitalisation, sending its shares rocketing almost 200 per cent — and that was the last the market heard from it.

A tiddler on the market with a microscopic market value, Merchant House has a corporate web that stretches from its registered office in Fremantle, Western Australia and an incorporation in Bermuda, to its headquarters in Hong Kong, factories in China and even a link to Hollywood and an LA power couple.

Merchant House’s shares were close to 1c last year, and the shares swap hands so rarely that it almost trades by appointment. But after it announced the sale of land and property in China for $US20m ($25.8m) on April 16 the stock hit 12.5c before it was suspended from trade.

For the moment it is the subject of a number of questions from the Australian Securities Exchange around the sale of its Carsan textile factory in Shunde, China, which is located near the Pearl River delta.

Merchant House, founded in 1978, announced a fortnight ago the sale of the Carson manufacturing facility where until now it had made a number of textiles, decorations and gifts including tabletop, wall and outdoor decorations for Christmas, Halloween, Spring and Easter.

In a brief statement to the ASX, it blamed deteriorating economic conditions in China for the factory sale.

“Merchant House International Limited advises that in light of increasingly difficult economic conditions in China, sourcing of raw materials, combined with increased costs of production (labour and raw materials), adverse exchange rates and growing competition from other markets, the board have agreed to dispose of Carsan (Shunde) Manufacturing Co,” it said.

It said an agreement had been executed with Foshan XiongYing Logisitics Co to sell it Carsan for 135 million yuan ($26.9m). “XiongYing will also assume the liability for any capital gains that the company may otherwise owe resulting from the sale,” it said. “Staff terminations and outstanding vendor payments will comprise $US3.8m from the sale proceeds.

“The company confirms that none of the directors are in any way associated with XiongYing.”

The sale price of $US20m was four times Merchant House’s market capitalisation at the time of the deal being struck and when its shares leapt from under 5c to 12.5c it quickly hit the button on a trading halt, which was initially to last until April 20 and then extended to last Friday.

It has requested the trading halt extension pending clarification of the market announcement reporting the sale of the Chinese factory and to give it more time in “responding to queries from the ASX” regarding the Carsan subsidiary sale.

“The company is working with legal counsel to prepare a response to the ASX queries as soon as practicable,” Merchant House said.

The Merchant House company secretary did not return calls to The Australian.

The ASX-listed Merchant House is almost half-owned by businesswoman Loretta Lee, who is also executive chairman. She is described in the Merchant House annual report as a British citizen, born in Hong Kong to a family with longstanding links with China. She is a graduate of Lingnan University in Guangzhou.

Merchant House also has factories in the US and manufactures a range of textiles, pillows, towels and footwear, including workwear safety boots for iconic brand Hard Yakka.

In 2020 three Merchant House directors resigned, including Hollywood advertising executive, philanthropist and art collector Clifford Einstein. Mr Einstein and his wife are a well-known power couple in LA and have had their Einstein Collection listed as one of America’s top 100 art collections, and which has been profiled in Australian Vogue, Vogue Korea, The New York Times and The Los Angeles Times.