Citic Securities slides after Shenzhen exchange investigates China’s biggest brokerage over IPO sponsor role

Citic Securities slides after Shenzhen exchange investigates China’s biggest brokerage over IPO sponsor role

Citic Securities slides after Shenzhen exchange investigates China’s biggest brokerage over IPO sponsor role

Citic Securities tumbled by the most in 18 months after the Shenzhen Stock Exchange said it would conduct an on-site supervision of China’s biggest brokerage by market value for its role as IPO sponsor of Liangang Optoelectronic Technology.

It is the first of its kind investigation after the regulator pledged to tighten initial public offering rules this month.

Shares of the state-backed brokerage slumped 4.9 per cent to 19.50 yuan in Shanghai on Monday, its steepest since September 16, 2022. Its Hong Kong-traded stock lost 3.9 per cent to HK$13.18, its lowest close since November 4, 2022.

The sell-off came after the Shenzhen bourse said on Friday night that it would take action against Citic Securities for failing to fully clarify issues flagged by the exchange regarding the IPO prospectus of Liangang.

Shenzhen Stock Exchange has launched three rounds of inquiry into Liangang Optoelectronic Technology and its IPO sponsor Citic Securities. Photo: Roy Issa

The exchange had initiated three rounds of inquiry into the company and IPO sponsor Citic Securities on issues ranging from corporate governance to internal financial control and accuracy of information disclosure.

The purpose was to hold sponsors accountable for their responsibility as “gatekeepers” and to improve the quality of listed companies right from the beginning, the bourse said.

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Citic Securities did not reply to an email seeking comment.

Such regulatory checks on IPOs are rare for the industry’s biggest players, especially state-backed Citic Securities.

The episode underscores the tightening scrutiny since Wu Qing, dubbed as “broker butcher” for his tough approach, was appointed chairman of the China Securities Regulatory Commission (CSRC) last month.

The watchdog promulgated four documents this month, pledging to raise the thresholds for companies seeking to list, and conduct more random checks on IPO applicants as part of a drive to boost the quality of new listings.

“It clearly sends a regulatory message of heightened supervision since the new CSRC chairman took over,” said Wang Chen, a partner at Xufunds Investment Managements in Shanghai. “Even giants like Citic Securities are not exempted now. That will set a good example within the industry by improving professional ethics.”

Citic Securities has been in the regulatory spotlight after it did not directly reply to a query by the Shenzhen exchange on whether Liangang’s shareholding was too concentrated and its fallout on corporate governance.

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The brokerage defended the shareholding structure, naming eight companies with high family ownership that have gone public. It also highlighted Liangang’s internal control system that said it could safeguard the interests of small investors.

Liangang’s major shareholders and concerted parties control 98 per cent of the Dongguan, Guangdong province-based maker of optical communications and electroacoustic products, according to its prospectus.

The company’s first-half profit fell 24 per cent year on year in 2023 because of shrinking demand for electronic products amid a weak macro environment, it said.

Citic Securities has withdrawn seven IPO applications so far this year, compared with three each in 2022 and 2023, according to industry data. The brokerage still has 32 IPOs in the pipeline, the data showed.

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