Regulator goes after erring IPO underwriters

PUBLISHED : Wednesday, 21 October, 2009, 12:00am
UPDATED : Wednesday, 21 October, 2009, 12:00am

The mainland's securities regulator is cracking down on investment bank underwriting ahead of the launch of Shenzhen's Nasdaq-style second board, revoking the licences of two bankers who falsified their resumes.

The move by the China Securities Regulatory Commission is a warning to the mainland's 1,200 certified underwriters to exercise due diligence when companies start to list on the Shenzhen Stock Exchange's Growth Enterprise Board.

More than 1,000 cash-hungry small companies are lining up to list on the second board, which will start later this month. That is expected to bring a windfall to investment banks but has raised concerns that corners may be cut as bankers race to earn fat fees.

Lin Lin of Orient Securities and Wang Zhini of Ping An Securities were disqualified permanently as underwriting sponsors after they falsified their resumes to obtain their licences last year.

'Although it is unknown whether the two have committed wrongdoings in underwriting deals, it is obvious that the regulator is attempting to clean up the lucrative investment banking sector,' said Bohai Securities analyst Zhou Xi. 'After all, cheating with their resumes means the guys are not trustworthy.'

Separately, Zhang Qingsheng, an investment banker at Golden Sun Securities, was barred from doing underwriting business for three months after he was found to have hidden the fact that he had worked for other companies after obtaining a licence.

A Shanghai-based investment banker said the regulator had stepped up oversight of initial public offerings recently.

'We are more cautious and careful in preparing IPO documents,' the investment banker said. 'A pile of draft copies of the documents are reserved in case the regulator wants to cross-check details.'

Beijing embarked on licensing underwriters in early 2004, under which only certified individual investment bankers are allowed to deal with the underwriting business.

The individual bankers are held legally liable if they are found to commit fraud in the flotation process and they are required to oversee the corporate governance of newly listed companies for at least one year after their listing.

Brokerage industry employees said a certified investment banker could earn as much as two million yuan (HK$2.27 million) a year and were normally treated as 'cherished possessions' in their companies.

Professionals cannot obtain a licence unless they pass the CSRC test and have at least three years' investment banking experience. The test covers knowledge of securities including finance, accounting and investment banking.

Beijing gave the approval to the long-heralded Shenzhen growth market last month and announced recently that the first batch of 28 start-up companies would begin trading on the technology-heavy second board on October 30.

'Certified investment bankers are now rare resources, but the regulator definitely hopes they will exercise due diligence in the underwriting businesses,' said Dazhong Insurance fund manager Wu Kan.

Stern warning

Two investment bankers lost their licences after falsifying their resumes

The amount a certified investment banker can earn in a year, in yuan: 2m yuan