- UBS is the first major bank involved in stock listings to face such a suspension in the city
- Helping firms to list is big business in Hong Kong, which was last year’s top IPO destination worldwide
HONG KONG: Hong Kong’s securities regulator banned UBS from leading initial public offerings (IPOs) in the city for a year, while fining it and rivals including Morgan Stanley a combined $100 million for due diligence failures on a series of IPOs.
UBS is the first major bank involved in stock listings to face such a suspension in the city. The $100.2 million in fines are the toughest actions yet taken by the regulator as part of its campaign against what it sees as shoddy listing standards.
The Securities and Futures Commission (SFC) on Thursday fined Swiss giant UBS HK$375 million ($47.77 million). It fined Morgan Stanley HK$224 million, Merrill Lynch HK$128 million and Standard Chartered HK$59.7, all for failures when sponsoring, or leading, IPOs.
Helping firms to list is big business in Hong Kong, which was last year’s top IPO destination worldwide with $36.3 billion raised, according to Refinitiv data.
But, in the wake of a slew of scandals among newly traded firms earlier this decade, the SFC has been cracking down on banks not properly carrying out their duties as sponsor.
In October, it said it had issued nine IPO sponsors with “decision notices” informing them of intended enforcement measures.
Hong Kong IPOs need at least one sponsoring bank, which typically takes the lead in running the IPO and collects a larger proportion of fees than banks listed only as bookrunners.
Sponsors must conduct due diligence to assess the company being listed, and are responsible for assuring potential investors that its IPO prospectus is accurate.
The IPOs in question were those of China Forestry, sponsored by UBS and Standard Chartered, and Tianhe Chemicals, sponsored by UBS, Merrill Lynch and Morgan Stanley.
UBS was also fined for failing to discharge its duties in a third IPO which the regulator did not name, but which sources have identified as China Metal Recycling (CMR), a now-defunct scrap merchant.
“The outcome of these enforcement actions for sponsor failures – particularly failings when conducting IPO due diligence – signify the crucial importance that the SFC places on the high standards of sponsors’ conduct to protect the investing public and maintain the integrity and reputation of Hong Kong’s financial markets,” said Ashley Alder, chief executive of the SFC, in a statement.
China Forestry raised $216 million in its 2009 IPO. Just 14 months after listing, trading of its shares was suspended when its auditor, KPMG, discovered irregularities. The company was subsequently liquidated.
Tianhe, which was engaged in the manufacture and sale of chemical products listed in 2014. Three months later it was attacked by a short seller, who claimed it had inflated profits and presented related groups as customers. The company denied the allegation.
Trading in its shares has been suspended since 2015.
Last month, the SFC suspended the license of a former senior banker at China Merchants Securities (CMS) for failures as sponsor principal in one IPO the bank co-sponsored in 2009.
In 2009, UBS and CMS co-sponsored the $231 million float of CMR.
The SFC also on Thursday suspended the license of UBS banker Cen Tian for failing to discharge his duties as sponsor principal in charge of the IPO of China Forestry, it said.
Cen did not respond to an emailed request for comment.
“UBS takes note of the findings of the Hong Kong Securities and Futures Commission’s (SFC) investigations. We are pleased to have resolved these legacy issues relating to our Hong Kong IPO sponsorship license. We look forward to continuing to service our clients in Hong Kong,” UBS said in a statement.
Morgan Stanley and Bank of America Merrill Lynch declined to comment.
“We welcome the opportunity to resolve this case with the SFC, which stems from matters arising over 10 years ago. We note that on 8 January 2015, Standard Chartered Group announced the closure of institutional cash equities, equity research and equity capital markets activities (including IPO sponsor activities),” StanChart said in a statement.
StanChart closed its equity business in 2015.