SFC launches probe into ICBC unit over Powerlong share offering
Naomi Rovnick and Shirley Yam
The Securities and Futures Commission is investigating into ICBC International Holdings, the Hong Kong securities unit of the mainland's largest lender, over its handling of Powerlong Real Estate Holdings' 2009 initial public offering.
The regulator is probing whether ICBCI, whose job was to build demand for shares in the mainland residential and shopping centre builder, allocated stock to people who were not sufficiently independent of the developer to buy into the offering.
Details surfaced in a labour tribunal where a former ICBCI executive director is suing the company for unfair dismissal after being terminated in connection with the suspect transaction.
The regulatory probe calls into question whether ICBCI disregarded Hong Kong's listing rules to make Powerlong's HK$2.75 billion share sale a success.
Powerlong had a less than stellar performance when it made its market debut on October 14, 2009.
The company had slashed the size of its initial public offering 45 per cent from the original HK$5 billion and delayed the fund raising. On the first day of trading, its shares closed only 1.8 per cent above their issue price.
Hong Kong brokers are not allowed to allocate shares from initial public offerings to either the company directors or their associates.
The rule is designed to stop newly listed companies being held only by people who run the business. It also ensures that only those firms that are truly attractive to the investing public can join the exchange.
Former ICBCI executive director Albert Wan Chi-hang, who worked in the bank's equity capital markets division, told the Labour Tribunal he was fired in February following an internal inquiry into the Powerlong deal without any bonus.
Wan said he was one of four equity capital markets bankers that ICBCI sacked after the SFC started its investigation in July last year.
He also said he was sacked because ICBCI found he had 'not investigated the independence of some share applicants in the IPO'.
But he told presiding officer Jerry Tam he had, in fact, reported the suspect share sales to his immediate boss, Charles Wong.
Wan said he had refused a severance package first offered by ICBCI, and instead wanted payment of his 2009 bonus.
ICBCI's lawyer told the tribunal the broker had found 'a series of emails which implicated the claimant' in the matter under SFC investigation.
ICBCI deputy chief executive Mary MacLeod said: 'I am very comfortable with our internal controls.'
An SFC spokesman said he was unable to comment on individual cases.
This is not the first time ICBC's Hong Kong stockbroking operations have come under scrutiny.
ICBC formerly owned 75 per cent of ICEA Finance Holdings, a stockbroking joint venture with Bank of East Asia that was tainted by a series of scandals.
Most notably, ICEA acted as a sponsor of the Hong Kong initial public offering of mainland flower seller Euro-Asia Agricultural (Holdings) in 2001. Euro-Asia collapsed in 2002 after being accused of inflating its revenue by 20 times in the four years before its listing.
ICBC sold its ICEA stake to Bank of East Asia in 2009.
ICBC International was a bookrunner in the initial public offering of Powerlong Real Estate, which raised, in HK dollars: $2.7b