China’s regulator cites investment bank CICC for negligence in arranging Lenovo’s US$1.8 billion IPO on Star Market

CICC failed to completely and accurately evaluate Lenovo’s business nature as to whether it qualified for “scientific and technological innovation,” CSRC said
CICC mainly relied on documents provided by Lenovo, the regulator said.

Lenovo

Iris Ouyangin Shenzhen

Published: 8:46pm, 30 Dec 2021

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China’s securities regulator has taken the nation’s largest investment bank to task for underwriting the US$1.8 billion initial public offering (IPO) by Lenovo in Shanghai, in a move that sends another chilly gust through the capital markets.

China International Capital Corporation (CICC), often described as the “Goldman Sachs of China,” was negligent in arranging Lenovo’s IPO on the Star Market, which was withdrawn in October a week after it was filed.

The bank’s staff failed to follow the review procedures in verifying whether Lenovo’s business qualified for the scientific and technological innovation requirement of the market, according to a statement by the China Securities Regulatory Commission (CSRC), adding that it had summoned five CICC executives to discuss the matter.

It was not immediately clear if CICC faced a reprimand or penalty over the incident. Spokespeople of CICC and the CSRC were unavailable for comment in Beijing. CICC’s shares closed unchanged in Hong Kong, rising 1.2 per cent in Shanghai amid a rally among stockbrokers and investment banks.

Lenovo’s logo at the Lenovo Tech World in Beijing on November 15, 2019. Photo: Reuters

The IPO withdrawal by Lenovo, the world’s largest vendor of personal computers and owner of the IBM Thinkpad brand, was the second major stock sale to be foiled since Ant Group’s US$39.7 billion dual sale was pulled in November 2020. It underscored the push by regulators to redraw the qualifications for listing on the Star Market, which was established in 2019 at the behest of the Chinese president to help the nation’s technology champions raise capital.

CICC mainly relied on documents provided by Lenovo, the regulator said. “Related procedures and the evidence obtained were insufficient to support the disclosure, and [the bank] did not completely and accurately evaluate the [business] nature of the issuer on whether it is of scientific and technological innovation,” CSRC said.

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China’s regulators tightened the rules for IPOs on the Star Market in April, raising the bar for firms to prove their technology credentials. Technology firms, including those involved in information systems and advanced manufacturing equipment will be fast-tracked for approvals. Regulators also banned financial services providers and property investment firms from listing on the board.

Under the new rules, a company must fulfil four criteria to qualify for the definition of “scientific and technological innovation.” Research and development spending must surpass 5 per cent of revenue in the past three years, or more than 60 million yuan (US$9.4 million) in the same period, according to the rules.

Beijing-based Lenovo, which bought IBM’s consumer electronics business in 2005, was often cited as the paragon of China’s entrepreneurial and technological prowess. Founder Liu Chuanzhi was bestowed with the title of “reformist vanguard” in 2018 by the government to mark four decades of China’s economic and market liberalisation.

A successful Shanghai listing would have made Lenovo one of a few Chinese companies to have shares listed in mainland China, Hong Kong and New York. Lenovo’s shares fell 2 per cent in Hong Kong trading to HK$8.81, after dipping 0.5 per cent overnight in New York to US$22.90.

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