HONG KONG: Hong Kong’s markets watchdog is investigating 15 banks and securities firms for “substandard work” on initial public offerings (IPOs), broadening a probe that has already shamed UBS and Standard Chartered for their role in a 2009 flotation. The Securities and Futures Commission’s enforcement head Thomas Atkinson detailed the wider investigation into IPO sponsors — who organise and advise companies on their listings — at a Thomson Reuters regulatory summit on Wednesday. He said investors suffered billions of dollars of losses because of the firms’ shoddy work, which included failing to verify companies’ revenues and other important data before launching their listings on Hong Kong’s market.
The SFC is trying to shake Hong Kong’s reputation for not doing enough to contain fraudulent activities in its financial markets, particularly fraud involving Chinese companies. Mr Atkinson also told the conference that the SFC, which is looking at 136 “active fraud cases”, is exploring new ways to address cross-border crime involving China. The SFC is expected to force investors to identify themselves from early next year. UBS and Standard Chartered are being sued by the SFC for their roles in the 2009 IPO offering of China Forestry Holdings, which was suspended in 2011 and is being liquidated. Standard Chartered closed its equities division, which handles IPOs, in 2015. UBS has said that the SFC’s action could lead to a suspension for its IPO sponsoring business. In a prophetic warning, last month the Swiss bank’s global investment banking head Andrea Orcel said more banks would be probed for their sponsorship work on IPOs. Mr Orcel also said UBS had not sponsored a single IPO in Hong Kong this year, because the high risks were not compensated with high returns. One equity capital markets banker said SFC would likely focus on the most egregious cases to set an example. He added that enforcement on 15 different firms did not seem practical as it would “kill” the IPO market.
In 2015, UBS was the top sponsor for IPOs in Hong Kong, according to data from Dealogic. So far this year, Chinese banks have dominated the industry; China International Capital Corp and Guotai Junan Securities have the top two rankings and six of the top 10 IPO sponsors are Chinese. The other top 10 Hong Kong IPO sponsors for 2017 include Bank of America Merrill Lynch, JPMorgan and Goldman Sachs. The SFC made sponsors legally responsible for claims made in prospectuses in 2013, and has warned investment bankers that they must improve due diligence on companies when preparing for a float. The SFC filed a lawsuit against Standard Chartered, UBS and KPMG in January 2017, alleging “market misconduct” because of issues with the prospectus for China Forestry’s $216m IPO and its annual and interim results announcements in 2009 and 2010. In another notable case, the Hong Kong Stock Exchange in 2016 rejected an application to list Shenhua Health, a Chinese pharmaceutical company that JPMorgan sponsored. The US bank’s name was published on an exchange website in a so-called “name and shame” list of failed applications.
