Investors in suspended Hontex International Holdings are a step closer to getting their money back as the Securities and Futures Commission yesterday applied to the High Court seeking an order to return the company's HK$1 billion initial public offering proceeds to investors.
The court is expected to make a ruling on June 15.
The SFC suspended trading of the Fujian-based fabricmaker's stock on March 30 last year, just 64 days after its listing, and won a court order to freeze the HK$997.4 million the company had raised through its IPO.
The freeze came after KPMG, Hontex's auditor, told the SFC that its senior manager, Leung Sze-chit, had allegedly accepted a HK$300,000 bribe from an agent of the company.
The Independent Commission Against Corruption later arrested and charged Leung, but he was acquitted by the District Court last month as the prosecutors could not make the charge stick.
The SFC yesterday said Hontex had disclosed materially false or misleading information in its IPO prospectus, which was likely to have induced investors to subscribe and purchase Hontex shares.
'Hontex's financial position, as disclosed in its IPO prospectus, was materially overstated,' the SFC said in a statement.
In the prospectus, Hontex had said it had enjoyed strong profit growth in the three years leading up to its listing, with an income of 242.34 million yuan (HK$275.76 million) in 2008, an increase of 42 per cent from 2007, which in turn was 66 per cent more than it made in 2006.
'Hontex employed a fraudulent or deceptive scheme in relation to its listing in Hong Kong, contrary to section 300 of the SFO [Securities and Futures Ordinance],' the SFC said.
The SFC also said the court order it was seeking would require Hontex to take a number of steps to offer affected investors their money back in return for the cancellation of their shares. These will include stipulating the company convene a general meeting to approve the return of capital to IPO subscribers and shareholders.
Investors who bought Hontex shares at the IPO or after its listing would get their money back. If the IPO proceeds are not enough to cover all payments, the company may need to pay the difference.
Hontex's audit committee in August last year had said the prospectus was not reliable and that investors should be compensated.
The amount Hontex stock lost on its first day of public trading
Traded at between HK$2.63 and HK$1.87 in its record-low 64 days