Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

And you thought it was tough being an investment banker in Hong Kong with equity deals half what they were in 2015. The city's securities regulator just added some more pressure to that already uncomfortable position.

The Securities and Futures Commission has filed a lawsuit against Standard Chartered Plc, UBS Group AG and KPMG LLP over China Forestry Holdings Co.'s 2009 initial public offering. It's seeking unspecified damages for minority shareholders related to alleged market misconduct with regard to China Forestry's sale prospectus and the company's financial statements for 2009 and the first half of 2010, documents filed with Hong Kong's High Court on Jan. 16 show.

That's a fairly unusual move and one that appears to be aimed squarely at sending a message to underwriters: Hard times shouldn't be an excuse to loosen standards.

End of the Party
Equity offerings in Hong Kong dropped by half in relation to 2015 last year
Source: Bloomberg

The lawsuit could be particularly painful for UBS, which led equity-league tables in the headiest years. The Swiss lender signaled in October that punishment for any potential slips in past transactions may result in it being suspended from taking part in Hong Kong share sales.

UBS was ranked 16th for equity offerings in Hong Kong last year, down from second in 2015 and third in 2014, according to data compiled by Bloomberg.

The bank won't suffer alone, however. Advisers and auditors have long been under scrutiny and all signs point to that spotlight widening. One of the most successful recoveries was achieved by Canadian lawyers who sued Sino-Forest Corp.'s auditor Ernst & Young LLP.

Lawyers and accountants aren't enough, Hong Kong's SFC seems to be saying, and it's true that few cases in Asia have evoked such ferocity from a regulator.

Price of Success
Deals from some of UBS's best days in Hong Kong are coming back to bite
Source: Bloomberg

The fact the SFC is targeting UBS, along with Standard Chartered, won't be lost on other lenders. IPO due diligence standards will become tougher and financial institutions more likely to turn down a transaction that shows any sign of red flags.

If the city's investment bankers needed anything else to worry about, they just got served.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. China Forestry shares have been halted from trading since January 2011 and the company was in the process of delisting after financial irregularities were discovered. Liquidators were appointed in June 2015 by a court in the Cayman Islands, where China Forestry is incorporated.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net