Advertisement

China’s oldest brokerage Shenwan Hongyuan accuses cornerstone investor of defaulting on share payments in Hong Kong’s biggest IPO of 2019

  • Shenwan Hongyuan claims China Saite, a construction services company, has defaulted on stock subscriptions worth HK$233 million (US$29.74 million)
  • Brokerage offered its Hong Kong shares at HK$3.63 in April, raising US$1.16 billion in the city’s biggest IPO of the year

Reading Time:2 minutes
Why you can trust SCMP
Shares of Shenwan Hongyuan dropped by as much as 15 per cent to an intraday low of HK$3.10 during its first day trading, and have been struggling to recover since. Photo: AFP

China’s oldest securities firm Shenwan Hongyuan has named and shamed one of its cornerstone investors for failing to pay for stock subscriptions made during its recent initial public offering (IPO) in Hong Kong.

Advertisement

The brokerage said China Saite, a construction services firm, had defaulted on payments for almost 65 million shares during its US$1.16 billion IPO, the biggest in Hong Kong so far this year. It said it was considering legal action against the company.

China Saite agreed to buy 64,193,600 H shares at HK$3.63 each as a cornerstone investor, according to an earlier announcement made by Saite. That makes the default value HK$233 million (US$29.74 million).

Analysts said it was extremely rare for cornerstone investors to fail to meet their financial obligations.

“Cornerstone investments are made by professional investors. The IPO team consists of professional brokers and lawyers. The book building party and the cornerstone investor would have assessed their ability, financially, administratively, and procedure-wise, to complete the investment prior to entering into the cornerstone investment agreement,” said Andrew Lam, director of accounting giant BDO in Hong Kong.

He said the default conjured up many questions to be addressed, including how to make up for the shortfall in proceeds, which parties should be held accountable, and how much money Shenwan is going after from Saite.

Advertisement

“As of the date of this announcement, China Saite and Saite Group failed to make any payment for the H shares originally allocated to China Saite, which constitutes a default … the company reserves all of their rights against China Saite and Saite Group … including but not limited to, taking legal action for all losses and damages,” Shenwan Hongyuan said in a filing to the stock exchange on Monday night.

Advertisement