China halts 60 IPOs amid accounting fraud cases
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Last April, Leshi Holdings, a video streaming provider that sometimes billed itself as “China’s Netflix,” was fined about 482 million yuan ($73.6 million) by regulators for financial fraud committed from 2007 to 2016. But the troubles are not over:
- China suspended 60 IPOs yesterday — 12 in Shanghai’s STAR Market and 48 in Shenzhen’s start-up market ChiNext — amid probes on the intermediary law firms involved in Leshi’s case.
- The agencies, who were lead underwriters in Leshi’s private placement in 2016, include Beijing King & Wood Mallesons, ShineWing Hong Kong, and Deutsche Bank’s China securities venture.
- The China Securities Regulatory Commission (CSRC) launched an investigation last March into suspected law violations during the time the agencies underwrote Leshi’s IPO in 2016.
The context: Last August, China vowed to step up its scrutiny over accounting firms, taking a “zero tolerance” approach toward securities and financial fraud in the hopes of extirpating risk from its capital markets.
- Many of the IPOs affected were up-and-coming technology companies. On the STAR market, they include the chip device maker Beijing Tongmei Xtal Technology, chip foundry Nexchip Semiconductor, and the robot maker State Grid Intelligence Technology.
- This is not the first time China has halted IPOs in order to weed out shifty underwriters. Last August, China suspended 40 IPO plans for similar investigations.
The takeaway: These suspensions will likely delay companies’ listings, but it won’t kill them. On Friday, the chipmaking unit of Chinese automaker BYD was approved to list on ChiNext following a similar regulatory probe which began last May.
