Date
26 September 2017
A file photo shows Liu Mingsheng, chief financial officer of Dandong Xintai, at an IPO-related event. Photo: P5W.net
A file photo shows Liu Mingsheng, chief financial officer of Dandong Xintai, at an IPO-related event. Photo: P5W.net

IPO sponsorship can be a risky proposition in China

Electrical equipment maker Dandong Xintai will almost certainly become the first Chinese firm to be delisted from ChiNext, a NASDAQ-style board created by the Shenzhen bourse for innovative and high-tech companies.

Xintai was found guilty of providing fake financial data in its initial public offering application. The Dandong-based company has already received an advance notice of penalties from the China Securities Regulatory Commission earlier this month and its shares have been suspended.

The firm’s falsified numbers reportedly spanned accounts receivables, bad-debt provisioning and cash from operating activities.

But Xintai is not the only one in trouble. Its IPO sponsor Industrial Securities (601377.CN) has set up a 550 million yuan compensation fund to protect investors who suffered losses from investing in the equipment maker, China Securities Journal reports.

The payout is set to hit the brokerage firm’s bottom line. But Industrial Securities plans to recover the loss from Xintai afterwards.

As the IPO sponsor, Industrial Securities failed to do proper due diligence and is therefore liable, China Securities Journal noted.

Until the case is settled, the brokerage won’t be able to take up any fresh IPO business.

The firm may learn from the experience and tighten its internal controls. But in a country where everything can be faked, one can never be sure.

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RC

IPO fraud is a serious concern for Chinese investors as well as listing sponsors. The sponsors may face claims and suspension of their operations.


EJ Insight writer

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