Hong Kong Exchange rejects insurance broker’s IPO

A Chinese state-owned insurance broker that describes itself as “the largest local corporate insurance brokerage and risk solutions firm in Hong Kong” has had its initial public offering (IPO) blocked by the Hong Kong stock exchange. The exchange cited a “substantially incomplete” prospectus as the main reason for rejecting the proposed IPO of AMTD Strategic Capital Group, which also acts as an investor in the technology sector as well as an insurance broker and risk consultant. AMTD has been added to a so-called name and shame list of those whose IPO materials do not meet the exchange’s standards. Although the exchange was not forthcoming about exactly what was incomplete in the prospectus, it has been suggested in local news reports that the concerns centre on AMTD’s investment business rather than its insurance broking or risk management arm. In particular, it is believed that the exchange cited inadequate disclosures over investment strategies, investment funds, risk management and accounting treatment. The decision to block the AMTD IPO is not without irony, given that Hong Kong has been the world’s most active IPO hub in the past two years and AMTD has been an adviser in many of the biggest IPOs and bond issues during this period, including those involving two Chinese conglomerates – Fosun and HNA Group. Furthermore, the IPO, which was expected to raise more than $200m, had some illustrious backers in Wall Street bank Morgan Stanley and Chinese billionaire Li Ka-shing, and was sponsored by two Chinese banks – China Everbright Capital and China Merchant Securities. According to Reuters, Hong Kong’s equity market has endured a volatile time of late. In among the huge growth of its IPO market has been a lack of corporate governance, a number of corporate scandals and, more recently, unexplained price crashes. Consequently, the exchange along with the local securities regulator, the Securities and Futures Commission (SFC), have sought to raise standards. In 2014, the exchange introduced stricter listing rules and started to name and shame IPO sponsors and issuers whose applications or accompanying literature were in any way incomplete. The AMTD case also highlights what some have perceived as a rift between the for-profit exchange and the SFC, due to the regulator taking more of a hands-on role in the market and enforcing its powers to block suspect IPOs or suspend stocks. For example, in a recent blog post quoted by the Financial Times, the head of the Hong Kong Exchange, Charles Li, likened the exchange to a traffic policeman ensuing that the market runs smoothly while the SFC acted as a sheriff with the powers to “get on to the highways with its big flashlights and heavy weapons whenever it deems necessary and appropriate, but doesn’t do it frequently to avoid unduly disrupting the general traffic”. In addition to its work on the IPO market, AMTD has also advised a number of China’s more acquisitive companies on their M&A activity. And in recent months, the authorities in mainland China have sought to curb the prolific M&A market of yesteryear. For its part, AMTD refutes the “views being taken” on its business model, adding that “the group’s business momentum is robust, with its investment banking team completing two of the three biggest IPOs in HK this year and over 20 Asia bond issuances”, according to the FT.

Hong Kong Exchange rejects insurance broker’s IPO

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