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Ex-UBS banker's parents bought into China IPOs he helped arrange

Wednesday, May 31, 2017 - 09:18

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A former UBS Group AG investment banker was linked to several Hong Kong initial public offerings over the past two years in which his parents featured as investors.

[HONG KONG] A former UBS Group AG investment banker was linked to several Hong Kong initial public offerings over the past two years in which his parents featured as investors.

The banker is Calvin Choi, who left his job as a managing director at UBS in January 2016 to become chief executive of boutique advisory firm AMTD Group Co. UBS has reported one such case to Hong Kong's securities regulator after determining that Choi may have breached internal compliance rules, a person with knowledge of the matter said.

In 2015, Choi was the lead banker for UBS on an IPO by Xinte Energy Co, two people familiar with the deal said.

A company in which his father was a shareholder invested in Xinte before its IPO, the people said, asking not to be named discussing private information.

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A firm linked to his mother was a cornerstone investor, documents examined by Bloomberg show. After Choi joined AMTD, it worked on at least two other IPOs where one or both firms linked to Choi's parents were investors. Shares in the companies are trading below their offer prices.

Hong Kong listing rules don't bar investment bankers from working on IPOs of companies in which family members own stakes or plan to invest in, or require them to report such relationships.

NEGATIVE CONFIRMATION

Yet omitting such information from share-sale prospectuses means other investors aren't "getting the full picture" of the company's dealings, said David Webb, a former elected independent director of Hong Kong's stock exchange's owner. Mr Webb, who spoke in general terms, said cornerstone investors should be asked to sign assurances that they're not related to anyone involved in the deal - a safeguard known as negative confirmation.

Most banks require employees to disclose such ties internally in order to avoid potential conflicts of interest.

In the Xinte Energy case, Choi didn't report his parents' involvement to UBS, something its compliance rules required him to do, one of the people said. AMTD, the firm Choi joined after leaving UBS, also worked on the Xinte Energy sale.

Choi didn't reply to phone calls, text messages and an email seeking comment, and his parents couldn't be reached. A spokesman for UBS declined to comment. A spokesman for Hong Kong's Securities and Futures Commission declined to comment on whether the regulator is investigating.

Cornerstone Mother Choi's father, Choi Kwok Kei, held a stake in Cayman Islands-registered LR Capital Management Co, which through a wholly owned unit invested 500 million yuan (S$110.9 million at the time) in Xinte Energy a few months before its December 2015 IPO, according to the people.

In addition, a firm linked to Choi's mother bought US$30 million of stock in the Chinese maker of solar grade polysilicon as a cornerstone investor, share-sale documents show. The IPO prospectus lists Chan Mei Ching as a 47 per cent owner of the firm that controlled the cornerstone buyer, Cayman Islands-registered LRC. Belt and Road Investment Ltd.

Choi's birth certificate lists a Chan Mei Ching as his mother and a Choi Kwok Kei as his father.

Hong Kong-based AMTD, founded in 2003, is controlled by L.R. Capital, the firm Choi's father has owned a stake in. AMTD representatives weren't available to comment on the firm's policies.

AMTD's Backers A Morgan Stanley private equity fund, China Minsheng Investment Group and billionaire Li Ka-shing's CK Hutchison Holdings Ltd. are also investors in AMTD, according to a bond sale prospectus from March 2016. Morgan Stanley sold most of its stake to LR Capital in 2015.

AMTD deals linked to Choi's parents: China Logistics Property Holdings Co (July 2016): Belt and Road was one of four cornerstone investors, buying US$20 million of stock. Another cornerstone investor was China Fintech Investment Co., a company in which LR Capital owns a stake.

Bank of Tianjin Co (March 2016): Belt and Road was an "anchor investor" in the Chinese lender's US$990 million IPO, according to AMTD's website. The website doesn't say how much Belt and Road invested, and the investment wasn't mentioned in Bank of Tianjin's IPO prospectus.

Cornerstone investors receive early guaranteed allocations in Hong Kong IPOs and typically agree to hold the shares for at least six months, while anchor investors generally buy smaller stakes and aren't subject to a lockup.

It wasn't clear whether Choi, 38, directly worked on the China Logistics and Bank of Tianjin offerings. AMTD had 147 employees at the end of 2015. It managed four IPOs in Hong Kong last year. LR Capital has also invested in other Hong Kong IPOs which neither AMTD or UBS managed.

SHARES FALL

Choi joined UBS in October 2010. At the time of Xinte's IPO, he was a China-focused coverage investment banker. The role entails advising companies on a range of different transactions, from fundraising to acquisitions.

UBS discovered Choi Kwok Kei's ownership in LR Capital by early 2016 when the Zurich-based bank helped arrange a US$500 million bond sale for AMTD, people with knowledge of the matter said. Choi Kwok Kei owned all of MNP P Corp (HK), which held 29 per cent of LR Capital, according to the people. A December filing by MNP with Hong Kong's Companies Registry lists him as a director. The filing doesn't mention his ownership.

This year, as UBS gathered more information on Calvin Choi's connection with Choi Kwok Kei, the bank decided to report the issue to the SFC to be as transparent as possible, even though it's not required to do so, one of the people said. The person declined to say whether UBS reported Choi's mother's involvement in the Xinte Energy IPO to the regulator.

Xinte Energy shares closed at HK$6.80 on Monday, below its HK$8.80 IPO price. Bank of Tianjin and China Logistics have also fallen below their offer prices.

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