Hengsheng announced on Monday (26th) that Zhang Zhirong, a major shareholder, resigned as chairman and executive director. Standard Chartered issued a report saying that Zhang Zhirong made it clear during a conference call on Monday night that he would not reduce his stake in the company. he further pointed out that the company's operation has been on the right track under the leadership of the senior management team, and he thinks it is time for the management team to run the business on its own.

Standard Chartered believes that a clearer line between Zhang and the company will help the company improve its image, after which the impact of Zhang's negative news on Hengsheng will be reduced. In addition, Zhang Zhirong has spent 600 million yuan to buy Hengsheng shares since 2010, at a price of 1.93 yuan per share. If he reduces his holdings now, he will record a paper loss.

The report also pointed out that Hengsheng is actively seeking refinancing, and it is estimated that short-term loans account for only 40% of total loans by the end of this year, down from 65% in the middle of the year. The move reflects the company's determination to improve its loan portfolio and dispel doubts about management's ability to execute.

Negative news about Zhang Zhirong has sent Hengsheng's share price down sharply, which has fallen 12 per cent so far this year, making it one of the weakest performers. The stock is trading at a 72% discount to net asset value and 0.4 times the forecast price-to-book ratio for 2012, below the sector's average discount of 37% and 1.1 times book-to-book ratio, respectively. Standard Chartered reiterated its "outperform" rating with a target price of 1.3 yuan.