Which is the most troublesome Hong Kong IPO in recent memory? More than a few investment bankers in the city might pick Tianhe Chemicals.
Positioning itself as a major supplier of lubricant additives to refiners such as PetroChina, the Liaoning firm raised $650 million in June 2014. Its shares did well afterwards, with its market cap surging to more than $8 billion at one point.
But Tianhe then stumbled when it became yet another of the overseas-listed firms targeted by hostile research outfits (see WiC252). Previously China Forestry and China Metal Recycling had seen their shares suspended soon after going public amid questions about their finances. Both have since been delisted. And in early September 2014, or less than three months after Tianhe’s trading debut, the short-selling research group Anonymous Analytics (AA) published a rattling report alleging that it was “one of the largest stock market scams ever conceived”.
Tianhe furiously rebuffed the allegations that it had been inflating its revenues and profits. But its share price plunged 40% in the first trading session after AA’s report came out. Understandably, the drama attracted the attention of the Hong Kong regulators, which put Tianhe (and the investment banks which were its IPO sponsors) under investigation. Trading in Tianhe’s shares has since been suspended for more than four years.
The company’s pre-suspension share price still valued it at $3.7 billion, which is why management has been keen to clear its name and resume trading of its shares as soon as possible. Yet the effort to do so has added another peculiar chapter to Tianhe’s eventful history.
“A court document published on May 5 has revealed Tianhe’s senior executives have been trying to bribe their way out of the trading suspension. But as a result the company lost Rmb144 million to fraudsters,” National Business Daily reported last week.
According to widespread media coverage, scammers claiming to be part of “the Office of National Leaders” persuaded the lubricants firm that they could help it escape the trading moratorium through “state interventions”. These “government officials” solicited fees and gifts from Tianhe during various meetings in 2015, as well as an inspection tour of their offices. Later, the company came to realise that something was wrong and it reported the scammers to the police in September 2017. But by then they had already handed out Rmb144 million ($20.82 million) of financial incentives to the fraudsters.
Documents related to the court case are now circulating online, although there is no mention of whether Tianhe has been able to recover any money from the fraud. Sina Finance believes the reputational damage is a bigger concern, given that company bosses opted to make the payments and then admit as much by going to the police.
Coverage of the episode has already made Tianhe a target for social media ridicule, although it’s the company’s IPO that has come back to haunt some of the banks that were involved in its market debut.
In March Hong Kong’s Securities and Futures Commission dished out a record $100 million in fines to investment banks for failing in their duties as market sponsors, emphasising their responsibility for ensuring that the information in the IPO prospectus be accurate.
Among the banks penalised was UBS, which also hired Joyce Wei, daughter of Tianhe’s chairman Wei Qi, in a move that later saw its appointment as a bookrunner and sponsor on the deal. Subsequently US regulators have fined banks for employing the princeling children of tycoons and company bosses in exchange for IPO mandates, in a probe that began in 2015. But last week it cropped up again when Hong Kong’s anti-graft watchdog charged a former JPMorgan banker with attempting to hire the son of a logistics firm’s chairman in 2010.
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