Best World shares plunge 12%; SGX issues query

Singapore

SHARES of Best World International, a direct seller of skincare and wellness products, on Tuesday fell 12 per cent or 18.5 Singapore cents to close at S$1.355 on news of China's crackdown on pyramid schemes.

The stock opened at S$1.48 but dived to its lowest point of S$1.22 at 11.54am. It was one of the most actively traded stocks on Tuesday, with 29.1 million shares traded.

The unusual share volume movement prompted a query from Singapore Exchange.

Best World referred to a Bloom-berg article "Herbalife, Nu Skin shares plunge over fears of Chinese crackdown" published on Tuesday as a possible explanation, although the company is not named in the article.

The company stated that the article reported on market concerns of a crackdown by China's regulators on the market practices of certain direct selling companies, or pyramid sellers, due to a statement posted on China's State Administration for Industry & Commerce (SAIC) website on Monday.

The crackdown will look into pyramid selling schemes and their recruitment methods, especially those targeted at new graduates.

Best World said the statement by SAIC was "widely anticipated" in the light of the recent news reports on the drowning of a university student in China who allegedly fell victim to a certain pyramid selling scheme's advertisement posted on a popular recruitment website.

Operators of pyramid schemes profit from the act of recruitment, and not the sale of products or services. Products are often sold without a reasonable return guarantee, coupled with high entry fee to participate in the scheme.

In response, the company highlighted that although it holds a direct selling licence, it has not converted its business in China to direct selling yet. At present, its products - DRs' Secret, Avance and Optrimax - are available for purchase by customers through DRs' Secret outlets and workshops.

Said the company: "As such, the above SAIC statement has little or no impact to our China business. The company also wishes to highlight that all current preparations for conversion to direct selling are in line with the above SAIC statement."

Best World added that all its service outlets set up in China are subject to verification by the local authorities beforehand and are not within or near to any school compound. Their membership criteria, upon conversion to direct selling, will also not accept students, civil servants, police and military personnel.

The company reiterated that it adheres to "strong principles of legal business, transparency and corporate governance and is fully compliant with the rules and regulations of business operations under China's laws".