Merchants Securities Dips as Chinese Regulators Open Probe Into Eight-Year-Old M&A Case
Cao Lu
DATE:  Aug 15 2022
/ SOURCE:  Yicai
Merchants Securities Dips as Chinese Regulators Open Probe Into Eight-Year-Old M&A Case Merchants Securities Dips as Chinese Regulators Open Probe Into Eight-Year-Old M&A Case

(Yicai Global) Aug. 15 -- Shares in China Merchants Securities slid today after the leading Chinese broker said it is being investigated by the securities watchdog for suspected violations of the law related to a merger and acquisition for which it acted as independent financial advisor eight years ago. The probe will affect any ongoing initial public offering applications that the firm is handling, an analyst said.

Merchants Securities' stock price [SHA:600999] was trading down 2.1 percent at CNY13.54 (USD2) apiece as of 11:30 a.m. China time today.

Merchants Securities will fully co-operate with the investigation and business continues as usual, the Shenzhen-based broker said on Aug. 12.

Any IPO applications for which the brokerage serves as sponsor will be suspended and no new ones will be accepted, an analyst at a leading securities trader told Yicai Global. When the reviews resume depends on how long the probe will last, he added.

Merchants Securities is sponsoring the listing of 28 companies this year, 15 of which plan to go public on the Shanghai stock exchange’s Nasdaq-style Star Market, according to corporate data provider Wind Information. Of these, one IPO has already been approved, but 19 are still under review.

The case stems from a takeover in February 2014 by a company called Shanghai Feile which paid CNY2.9 billion (USD340.1 million) for a 100 percent stake in China Security and Fire Technology. Shanghai Feile issued 396 million shares to China Security’s parent firm and another 121 million shares to raise CNY1 billion. 

However, China Security and Fire was found guilty of inflating its revenue in 2013, and providing fraudulent information and misleading statements for the takeover. It was fined by the China Securities Regulatory Commission in May 2019.

Last May, as the independent financial advisor, Merchants Securities was ordered by the Shanghai High People’s Court to share responsibility with China Security and Fire and pay a quarter of the compensation to investors.

“Regulators have been making greater efforts to hold brokers to account in recent years and making the punishments more severe,” an industry source told Yicai Global.

Over 50 penalties have been dished out to securities firms and investment banks so far this year for failing to perform adequate due diligence on information disclosure documents, according to incomplete statistics.

Editor: Kim Taylor

 

Follow Yicai Global on
Keywords:   China Merchants Securities,China Security Co.