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.
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.