Hong Kong suspends UBS, fines it and other top banks $100m for IPO failures

Hong Kong IPOs need at least one sponsoring bank, such as UBS, which typically takes the lead in running the IPO and collects a larger proportion of fees than banks listed only as bookrunners. (Reuters)
Updated 14 March 2019
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Hong Kong suspends UBS, fines it and other top banks $100m for IPO failures

  • UBS is the first major bank involved in stock listings to face such a suspension in the city
  • Helping firms to list is big business in Hong Kong, which was last year’s top IPO destination worldwide

HONG KONG: Hong Kong’s securities regulator banned UBS from leading initial public offerings (IPOs) in the city for a year, while fining it and rivals including Morgan Stanley a combined $100 million for due diligence failures on a series of IPOs.
UBS is the first major bank involved in stock listings to face such a suspension in the city. The $100.2 million in fines are the toughest actions yet taken by the regulator as part of its campaign against what it sees as shoddy listing standards.
The Securities and Futures Commission (SFC) on Thursday fined Swiss giant UBS HK$375 million ($47.77 million). It fined Morgan Stanley HK$224 million, Merrill Lynch HK$128 million and Standard Chartered HK$59.7, all for failures when sponsoring, or leading, IPOs.
Helping firms to list is big business in Hong Kong, which was last year’s top IPO destination worldwide with $36.3 billion raised, according to Refinitiv data.
But, in the wake of a slew of scandals among newly traded firms earlier this decade, the SFC has been cracking down on banks not properly carrying out their duties as sponsor.
In October, it said it had issued nine IPO sponsors with “decision notices” informing them of intended enforcement measures.
Hong Kong IPOs need at least one sponsoring bank, which typically takes the lead in running the IPO and collects a larger proportion of fees than banks listed only as bookrunners.
Sponsors must conduct due diligence to assess the company being listed, and are responsible for assuring potential investors that its IPO prospectus is accurate.
The IPOs in question were those of China Forestry, sponsored by UBS and Standard Chartered, and Tianhe Chemicals, sponsored by UBS, Merrill Lynch and Morgan Stanley.
UBS was also fined for failing to discharge its duties in a third IPO which the regulator did not name, but which sources have identified as China Metal Recycling (CMR), a now-defunct scrap merchant.
“The outcome of these enforcement actions for sponsor failures – particularly failings when conducting IPO due diligence – signify the crucial importance that the SFC places on the high standards of sponsors’ conduct to protect the investing public and maintain the integrity and reputation of Hong Kong’s financial markets,” said Ashley Alder, chief executive of the SFC, in a statement.
China Forestry raised $216 million in its 2009 IPO. Just 14 months after listing, trading of its shares was suspended when its auditor, KPMG, discovered irregularities. The company was subsequently liquidated.
Tianhe, which was engaged in the manufacture and sale of chemical products listed in 2014. Three months later it was attacked by a short seller, who claimed it had inflated profits and presented related groups as customers. The company denied the allegation.
Trading in its shares has been suspended since 2015.
Last month, the SFC suspended the license of a former senior banker at China Merchants Securities (CMS) for failures as sponsor principal in one IPO the bank co-sponsored in 2009.
In 2009, UBS and CMS co-sponsored the $231 million float of CMR.
The SFC also on Thursday suspended the license of UBS banker Cen Tian for failing to discharge his duties as sponsor principal in charge of the IPO of China Forestry, it said.
Cen did not respond to an emailed request for comment.
“UBS takes note of the findings of the Hong Kong Securities and Futures Commission’s (SFC) investigations. We are pleased to have resolved these legacy issues relating to our Hong Kong IPO sponsorship license. We look forward to continuing to service our clients in Hong Kong,” UBS said in a statement.
Morgan Stanley and Bank of America Merrill Lynch declined to comment.
“We welcome the opportunity to resolve this case with the SFC, which stems from matters arising over 10 years ago. We note that on 8 January 2015, Standard Chartered Group announced the closure of institutional cash equities, equity research and equity capital markets activities (including IPO sponsor activities),” StanChart said in a statement.
StanChart closed its equity business in 2015.


No need for more talks over draft budget: Lebanon finance minister

Updated 21 May 2019
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No need for more talks over draft budget: Lebanon finance minister

  • Lebanon’s proposed austerity budget may please international lenders but it could enrage sectors of society
  • Lebanon has one of the world’s heaviest public debt burdens at 150 percent of GDP

BEIRUT: Lebanon’s finance minister said on Tuesday there was no need for more talks over the 2019 draft budget, seen as a vital test of the government’s will to reform, although the foreign minister signalled the debate may go on.
The cabinet says the budget will reduce the deficit to 7.6% of gross domestic product (GDP) from last year’s 11.2%. Lebanon has one of the world’s heaviest public debt burdens at 150% of GDP.
“There is no longer need for too much talking or anything that calls for delay. I have presented all the numbers in their final form,” Finance Minister Ali Hassan Khalil said.
But Foreign Minister Gebran Bassil suggested the debate may go on, telling reporters: “The budget is done when it’s done.”
While Lebanon has dragged its feet on reforms for years, its sectarian leaders appear more serious this time, warning of a catastrophe if there is no serious action. Their plans have triggered protests and strikes by state workers and army retirees worried about their pensions.
President Michel Aoun on Tuesday repeated his call for Lebanese to sacrifice “a little“: “(If) we want to hold onto all privileges without sacrifice, we will lose them all.”
“We import from abroad, we don’t produce anything ... So what we did was necessary and the citizens won’t realize its importance until after they feel its positive results soon,” Aoun said, noting Lebanon’s $80 billion debt mountain.
A draft of the budget seen by Reuters included a three-year freeze on all forms of hiring and a cap on bonus and overtime benefits.
It also includes a 2% levy on imports including refined oil products and excluding medicine and primary inputs for agriculture and industry, said Youssef Finianos, minister of public works and transport.
“DEVIL IN THE DETAIL“
Marwan Mikhael, head of research at Blominvest Bank, said investors would welcome the additional efforts in the latest draft to cut the deficit.
“There will be some who claim it is not good because they were hit by the decline in spending or increased taxes, but it should be well viewed by the international community,” he said.
Jason Tuvey, senior emerging markets economist at Capital Economics, said: “The numbers will be of some comfort to investors, but the devil will be in the detail.”
“Even if the authorities do manage to rein in the deficit, it probably won’t be enough to stabilize the debt ratio and some form of restructuring looks increasingly likely over the next couple of years,” Tuvey said.
The government said in January it was committed to paying all maturing debt and interest payments on the predetermined dates.
Lebanon’s main expenses are a bloated public sector, interest payments on public debt and transfers to the loss-making power generator, for which a reform plan was approved in April. The state is riddled with corruption and waste.
Serious reforms should help Lebanon tap into some $11 billion of project financing pledged at a Paris donors’ conference last year.
Once approved by cabinet, the draft budget must be debated and passed by parliament. While no specific timetable is in place for those steps, Aoun has previously said he wants the budget approved by parliament by the end of May.
On Monday, veterans fearing cuts to their pensions and benefits burned tires outside the parliament building where the cabinet met. Police used water cannon to drive them back.