Hong Kong’s financial market regulator is taking legal action against China’s largest lubricant additives producer to recover HK$3.52 billion (US$454 million) of proceeds from its 2014 initial public offering (IPO) following an accounting scandal.
The Securities and Futures Commission said it has started proceedings in the Market Misconduct Tribunal against Tianhe Chemicals Group and its executive director Wei Xuan for issuing its IPO prospectus that contained inflated sales.
Tianhe overstated its revenue by 6.7 billion yuan (US$981 million) from 2011 to 2013, or 53 per cent of its reported sales for those years, the SFC alleged in its statement late Monday. The move was likely to induce investors to subscribe for its stock offering, or boost its stock price, it added.
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The action represents the market watchdog’s reminder to the industry amid a booming IPO market that has sent investors into a frenzy after a recent record-breaking subscription trend. More than 30 companies have been taken to the tribunal since its formation in 2003 for fake accounting, insider trading and price rigging, among others.
If successful, the sum would represent the biggest clawback in Hong Kong’s market, surpassing the HK$1.42 billion order against Qunxing Paper Holdings in 2018, and the HK$1 billion order against textile maker Hontex International in 2012. Both involved misleading IPO information.
Tianhe, based in northeastern province of Liaoning, raised HK$3.52 billion in net proceeds from its June 2014 IPO, the year’s third-largest stock offering. Activist group Anonymous Analytics alleged the firm cooked its book about three months after its debut, prompting its auditor Deloitte to resign.
The SFC suspended its stock trading in May 2017 and the stock exchange delisted the company on June 11 this year.
Financial watchdog SFC has fined 10 banks almost HK$1 billion for IPO failures … but investors got nothing
The decision to haul Tianhe and Wei to the misconduct tribunal follows complaints by investors who said they were not being compensated for their losses, despite the punitive actions and penalties imposed by the watchdog on IPO sponsors.
UBS was fined HK$375 million and its IPO licence was suspended for one year for its lapses as a sponsor for three IPOs including Tianhe. Co-sponsors Morgan Stanley and Merrill Lynch were penalised by HK$224 million and HK$128 million, respectively.
The various orders sought by the SFC include directing Tianhe and Wei to make restitution payments to shareholders and/or an order to pay damages to them. This applies to shareholders who held Tianhe stock as at June 2, when proceedings commenced, the SFC said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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