Hong Kong Regulator Said to Probe CCB International's IPO Work

(Bloomberg) -- Hong Kong’s securities regulator is investigating CCB International Holdings Ltd., the No. 2 underwriter of initial public offerings in the city last year, for its role advising a Chinese seafood supplier on now-scrapped listing plans, according to people with knowledge of the matter.

The Securities and Futures Commission has been interviewing staff of the Chinese investment bank and requesting documents relating to its work during 2014 on the proposed IPO of Fujian Dongya Aquatic Products Co., according to the people. It is focusing on CCB International’s due diligence on the company to see whether the bank properly vetted the listing applicant, the people said, asking not to be identified because the information is private.

The regulator has been probing whether CCB International, a unit of China Construction Bank Corp., adequately looked into Fujian Dongya’s revenue sources, according to one of the people. It questioned why some seafood buyers didn’t pay Fujian Dongya directly and had a seemingly unrelated party pay for them, a practice known as “third-party payments,” the person said.

Third-party payments, which are common in some industries in China, involve a company buying goods from a supplier and then asking a separate entity to settle the bill on its behalf. The party transferring the funds may itself owe money to the buyer it’s making the payment for, though often the details of such informal business arrangements can’t be backed up with a paper trail.

The practice doesn’t necessarily suggest any illicit behavior, and the SFC inquiry may not lead to any action against CCB International.

Representatives for CCB International and the SFC declined to comment. An administrative staff member who answered the phone at Fujian Dongya’s office said the company doesn’t answer inquiries from media and declined to transfer calls. Fujian Dongya didn’t immediately reply to an email seeking comment.

Due Diligence

SFC Chief Executive Officer Ashley Alder has said the regulator wants to make sure banks’ due diligence procedures are strong enough to properly vet information provided by Hong Kong listing candidates. The probe comes amid tighter scrutiny of IPO sponsors after a new system in 2013 holds senior banks on a deal accountable if offer documents contain untrue statements.

There is little publicly available information on Fujian Dongya. It sells products including squid, according to an online storefront on Soyuli.com, a Chinese electronic directory of seafood suppliers.

The China Securities Regulatory Commission announced in December 2014 that it had approved Fujian Dongya’s proposal to sell shares on the main board of the Hong Kong bourse. CCB International submitted some preliminary documents on Fujian Dongya’s proposed offering to the Hong Kong stock exchange, though it later decided not to proceed with the application, according to the people with knowledge of the matter.

CCB International was the No. 2 adviser on Hong Kong initial public offerings last year with a 5.4 percent market share, according to data compiled by Bloomberg. It trailed only Haitong Securities Co.’s overseas unit, which had 5.7 percent, the data show.

The SFC filed a lawsuit in January against Standard Chartered Plc, UBS Group AG and audit firm KPMG LLP over an initial public offering by China Forestry Holdings Co. in 2009. The regulator is seeking unspecified damages for minority shareholders related to alleged “market misconduct” by the defendants connected to China Forestry’s IPO prospectus. Standard Chartered, UBS and KPMG have declined to comment on the court filing.

--With assistance from Benjamin Robertson and Alfred Liu

To contact the reporters on this story: Crystal Tse in Hong Kong at ctse44@bloomberg.net, Cathy Chan in Hong Kong at kchan14@bloomberg.net, Prudence Ho in Hong Kong at pho83@bloomberg.net.

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Marcus Wright at mwright115@bloomberg.net, Young-Sam Cho at ycho2@bloomberg.net, Timothy Sifert

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