Regulators in China have sent a letter of warning to Citic Securities, China’s biggest brokerage firm, accusing it of providing dishonest disclosure in relation to an initial public offering it sponsored.
Bros Eastern, a Chinese textile maker, launched its Rmb2 billion ($327 million) A-share IPO in June. Two months later, the company dealt a blow to the market when it reported that its net income fell 96% in the third quarter to just Rmb6 million, a far cry from the rosy picture it had presented in the IPO prospectus.
The value of the yarn maker’s shares has fallen 43% from its IPO price of Rmb13.60 — down to Rmb7.75 yesterday.
Citic and its representatives “failed to exercise honesty and integrity” in managing Bros Eastern’s IPO, said China Securities Regulatory Commission (CSRC) in a statement, having failed to clarify the substantial decrease in the company’s 2012 results, it said.
Besides the warning letter, CSRC will suspend processing requests for approvals from two bankers at Citic: Zhang Ning and Liu Shunming, who were representatives on Bros Eastern’s IPO. The three-month suspension period is from October 26, 2012 to January 25, 2013.
A spokesman at Citic had no comments on the matter but said the company would strength governance and complied with all the regulatory rules.
China has been working on boosting confidence in the domestic stock markets by inviting foreign participation and loosening the limit on overseas investment to the markets.
So far this year, Citic has been involved in 10 IPOs in China and Hong Kong, helping to raise a total of $3 billion funds, according to Dealogic. Notable deals include China Communications Construction’s $794 new share sale, Citic Heavy Industries $506 million IPO and Huadian Fuxin Energy’s $345 million offering. Bros Eastern is the fourth-biggest IPO that Citic has worked on this year.
In 2011, Citic was a bookrunner on 17 IPOs that raised a total of $2.9 billion.
The broker’s Hong Kong shares closed at HK$14.84 yesterday, 13.7% down from the February peak of HK$17.20.
