China liquor maker Moutai's share rally falters after stake transfer deal

SHANGHAI, Dec 25 (Reuters) - Chinese liquor maker Kweichow Moutai Co’s shares are set for their first weekly loss in two months after it disclosed that 4% of its shares would be transferred for free by its parent company to an entity affiliated with a provincial government.

Moutai’s Shanghai-listed shares fell as much as 1.7% in early morning trade on Friday, extending two consecutive days of falls.

The shares came under pressure after Moutai said on Wednesday that its state-owned parent would transfer 50.2 million Moutai shares - worth about 92 billion yuan ($14 billion) based on the latest share price close - to a unit of the Guizhou Financial Holding Group. Guizhou Financial is affiliated with the Guizhou provincial government, which requested the transfer.

Huaan Securities said in a research note that Moutai’s stake transfer plan was a surprise to the market and that the shares were expected to be liquidated to beef up the local government’s balance sheet.

Guizhou, in southwest China, is one of the country’s most indebted provinces and some state-owned companies there are financially strained.

The Shanghai Stock Exchange said late on Thursday that it had sent a letter of supervision to Moutai, China’s biggest listed company by market value.

It did not disclose the content of that letter, but such letters are typically issued to seek corrections or information when rule violations are suspected.

Moutai could not immediately be reached for comment on the exchange letter. The Beijing News reported on Friday that the letter had no connection with the share transfer, citing a source at Moutai.

Moutai’s parent company had also transferred a 4% stake a year ago to a different entity affiliated with Guizhou Province, which has been offloading those shares in the secondary market.

Shares of Moutai, a favourite among foreign investors, have jumped by more than half this year. ($1 = 6.5300 Chinese yuan renminbi) (Reporting by Samuel Shen and Andrew Galbraith Editing by Edmund Klamann)