Hong Kong's Securities and Futures Commission said it is probing a suspected attempt to dress up demand in an initial public offering. The SFC directed the stock exchange to suspend trading in Sichuan Baicha Baidao Industrial Co. starting 9 a.m. on Oct. 13, and, in a statement dispatched on Tuesday after the market had closed, said it has "serious concerns that Baicha's IPO may have been rigged."
Baicha carries a market value of HK$5.9 billion, or $752 million. The company raised roughly $330 million in April 2024, the city's biggest first-time share sale at that point in the year. The debut was rough: shares fell 27% on day one and have not traded above the offer price since. The sole sponsor was China International Capital Corp. The retail portion was subscribed 0.5 times, while institutional investors put in orders equal to 1.1 times the initial allocation.
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Hong Kong is having a strong year for IPO proceeds, helped by a wave of Chinese companies tied to the artificial intelligence supply chain. With deal flow picking up and a few hundred prospective listings queued up, officials have warned about the quality of offerings. They have also begun tightening checks on banks' staffing for deals and the robustness of prospectus materials.
In a separate move, the SFC delivered restriction notices to 31 brokers, prohibiting those firms from handling or executing transactions in assets connected to two suspected syndicates across three IPOs. One syndicate is tied to the listings of Baicha and Cloudbreak Pharma Inc. The SFC limited dealing in client assets of up to HK$4.4 billion among six brokers, calling it the largest such notice in its history. The regulator further restricted 29 brokers from processing transactions linked to the IPO of Tianju Dihe (Suzhou) Technology Co. Ltd., covering client-account funds amounting to as much as HK$285 million.
"We believe that the actions taken to date have significantly disrupted two suspected syndicates which may have been involved in IPO-rigging cases," said Michael Duignan, the SFC's Executive Director of Enforcement. The brokers that received notices are not themselves targets of the SFC's probes, and the orders do not impact the firms or their other clients. The regulator said investigations are ongoing and it will not comment further while they continue.
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