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Forest of zombies

2 November 2016 By Richard Beales

Standard Chartered and UBS both just revealed investigations by the Hong Kong regulator. Dodgy initial public offerings are the problem. The 2009 float of China Forestry is common to both probes, according to news reports – the two banks jointly sponsored the issue. If that’s the pace of justice, there are dozens more stock zombies that could yet lash out at bankers.

Hong Kong’s main board can claim the dubious distinction of having 50 stocks that have been suspended for more than three months. China Forestry, a PRC timber firm backed by U.S. private-equity firm Carlyle at the time of its $216 million IPO, is one of the hoariest of these unfinished tales. Trading was stopped in early 2011, and the company is now in the late stages of delisting and liquidation; the liquidators, for their part, are suing both banks.

While due process shouldn’t be rushed, the China Forestry cases have spent a long time in limbo. Both UK-based StanChart and Switzerland’s UBS were only recently made aware of the possible Securities and Futures Commission sanctions they disclosed in their respective earnings reports.

For StanChart, the passage of time has left it with less to lose. Though it may face financial penalties, it no longer has an IPO sponsorship licence in Hong Kong. UBS, though, could find itself banned from the listings business, at least temporarily. Even outside Hong Kong, banks can do without dings to their reputation as they compete for business.

No two situations are the same, of course, but if the timing of this SFC investigation is any guide, there are plenty more undead listings that could rise again to torment the living. The threat could keep Hong Kong IPO banks and bankers looking over their shoulders for years to come.

 

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