Chinese Stock That Jumped 4,500% Set to Be Cut From Russell 2000

(Bloomberg) -- Wins Finance Holdings Inc., the Chinese loan guarantor that rode a mysterious 4,500 percent surge in its stock, is poised to be ousted from the Russell 2000 Index for failing to meet new requirements for inclusion.

“The impact within the Russell U.S. Index is currently isolated to the projected removal of Wins Finance Holdings,” FTSE Russell said in an April 3 statement, after Bloomberg News reported on the mysterious gain in Wins shares. The company may be moved to the Russell Global Index, with FTSE Russell making the final decision ahead of its annual June index reshuffling.

Wins is among those expected to be designated a so-called Chinese N Share company and not eligible for inclusion in a Russell U.S. index, according to the statement. To quality for that designation, firms must be incorporated outside of China, controlled by entities there and derive more than 55 percent of their revenue from the country, FTSE Russell said.

Wins, incorporated in the Cayman Islands, generates more than 66 percent of its revenue in Jinzhong, a city in the coal mining province of Shanxi, according to its most recent annual report. It started trading on Nasdaq in October 2015, and was almost removed because only about 9 percent of available shares are held by institutional investors, according to data compiled by Bloomberg. The firm appealed the exchange's decision, and said in a February 2016 statement that it would remain listed.

Read also: This Chinese stock soared 4,500% and no one knows why

That month the company also said that it switched its principal office from Beijing to New York, though it later began listing both in government filings. Calls in March to the company's New York phone number were answered by a man named Neil Gong, who said several times that he needed to consult the headquarters in China about scheduling an interview. No interview was offered.

It's unclear whether Wins's pending removal from the Russell 2000 will affect the company's planned sale to Freeman FinTech Corp., a Hong Kong-based financial-services firm that signed a deal in December to buy a majority of the company for a steep discount to its share price. Wins founder Wang Hong agreed to sell his 67 percent stake for $19.35 a share, a 79 percent discount to where the company was trading the day before he reached the agreement.

Wins shares were down 7.8 percent to $129.58 at 3:02 p.m. in New York, and have lost more than half their value since the Bloomberg story was published.

To contact the reporter on this story: Lily Katz in New York at lkatz31@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Steven Crabill, Peter Eichenbaum