Standard Chartered Bank

StanChart’s Hong Kong IPO investigation sends shares tumbling 6 per cent

Second SFC announcement in a week, after UBS disclosed it was also under investigation

PUBLISHED : Tuesday, 01 November, 2016, 7:04pm
UPDATED : Wednesday, 02 November, 2016, 2:34pm

Standard Chartered Bank’s share price tumbled 6.08 per cent to HK$63.35 by 10.30 am this morning in Hong Kong after the lender disclosed on Tuesday it is facing a penalty from the securities regulator.

The Securities and Futures Commission plans to take action against Standard Chartered Securities over its role in an initial public offering in 2009, the bank said in its third quarter announcement on Tuesday evening after market closed.

It is the second time in a week the regulator has revealed it is taking action against an international bank for failing in its duties as a sponsor of new listings.

Swiss bank UBS disclosed in its third quarter results last Friday that it was under investigation by the SFC for its role as a sponsor of certain IPOs.

In its statement of results for the third quarter Standard Chartered said there may be financial consequences if the SFC were to decide on disciplinary action.

In London, Standard Chartered’s shares were trading 5 per cent lower than the market opening at 11am London time on Tuesday, having dropped 7.6 per cent in early trading. They closed 5.42 per cent lower in London.

According to Hong Kong law, potential penalties could include a fine or a ban from acting as a corporate financial advisor.

The lender’s chief executive Bill Winters said in the telephone conference that it had shut down the securities business in Hong Kong last year, and had already handed back its license to act as a sponsor to the regulator

Chief financial officer Andy Halford added that possibility of the regulator taking action had only recently come to light.

A spokesman from the SFC told the Post: “It is confirmed that an investigation is underway on Standard Chartered Securities,” but declining to provide further details.

Neither the SFC, Standard Chartered or UBS named the IPOs which had triggered the SFC investigation but stock exchange filing records and court documents showed both were co-sponsors of timber company China Forestry’s IPO in 2009.

The Swiss bank also disclosed it was under investigation by the SFC for its role as a sponsor of certain IPOs.

Halford declined to comment on whether the investigations into Standard Chartered and UBS were connected.

In April, China Forestry’s liquidator sued Standard Chartered, UBS and other advisers on the timber producer’s Hong Kong Hong Kong IPO for alleged offences, including breach of contract and misrepresentation.

China Forestry, which raised HK$1.68 billion from the listing in 2009, has been suspended from trading in Hong Kong since January 2011 after financial irregularities were discovered.

It is now in liquidation and if no valid business proposals are made to the stock exchange in the next few months, it will be delisted in January 2017, according to information on the website of exchange operator Hong Kong Exchanges and Clearing.

Other listings sponsored by UBS have already led to SFC investigations into possible accounting irregularities.

One was China Metal Recycling, which Hong Kong stock exchange data and court filings show UBS sponsored in 2009. It was delisted in January this year after the SFC in July 2013 concluded it should be wound up, alleging that the firm – one of the mainland’s largest recyclers of scrap metal – had fabricated its sales and profits in forged documents and transactions leading up to its listing.

The High Court granted the liquidation order last year and the ruling showed China Metal Recycling “appeared to have obtained its initial listing by fraud”. Hong Kong Exchanges and Clearing cancelled its listing status in January.