JP Morgan drops second China IPO amid 'princeling' probe

Mon Jan 20, 2014 12:05pm EST

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HONG KONG, Jan 20 (IFR) - JP Morgan has ceased working on the proposed US$1bn IPO of Jinzhou-based Tianhe Chemicals amid an ongoing investigation into its hiring practices.

The bank walked away after managers raised concerns over the employment of Joyce Wei, the daughter of Tianhe chairman Qi Wei, according to two sources with direct knowledge of the matter.

Wei worked in the bank's corporate finance group and has recently left for a European investment bank, the sources said.

JP Morgan had been discussing an overseas listing with privately-owned Tianhe since at least 2011, when IFR first reported that the chemical company planned to list in London. It is not clear whether Tianhe signed any formal letter of engagement before or after Wei joined the bank.

JP Morgan declined to comment. Joyce Wei, Qi Wei and Tianhe Chemicals could not immediately be reached.

While news of the exit does not suggest any wrongdoing, the decision to pass over a major overseas listing of a privately owned Chinese company underlines the bank's determination to avoid attracting further suspicion at a time when its hiring policies are under regulatory scrutiny.

It comes only months after JP Morgan walked away from the Hong Kong IPO of China Everbright Bank, a mid-sized Chinese lender, following reports that US authorities had opened a bribery investigation related to its hiring of the children of powerful Chinese officials, often referred to as "princelings".

The New York Times in August reported that JP Morgan had won several mandates from China Everbright Group after it hired Tang Xiaoning, the son of Tang Shuangning, Everbright Group chairman.

CEB went on to raise HK$24.9bn (US$3.2bn) from its Hong Kong share sale, the largest float in the city in 2013.

CHINA FRANCHISE

Despite losing out on the CEB deal, JP Morgan still ranked fourth in China's equity and equity-linked league table in 2013, according to Thomson Reuters data.

However, rivals are questioning the impact of the bank's cautious policy on its China franchise.

"We heard the bank has been avoiding deals related to the China railway sector, and hence it's not actively pitching for the China CNR and China Railway Materials transactions," said a banker at a rival bank.

The SEC was also probing JP Morgan's hiring of Zhang Xixi, the daughter of a now-disgraced Chinese of the Ministry of Railways, the New York Times reported in its August article.

Shanghai-listed China CNR Corp, one of China's biggest train-makers, plans to raise about US$1.5bn in a Hong Kong float this year. China Railway Materials, meanwhile, is looking at a US$1bn deal.

Tianhe had picked Bank of America Merrill Lynch, Citigroup, JP Morgan and Morgan Stanley to arrange its London IPO, IFR reported in July 2011. After wavering between a London and Hong Kong float, the company is now focusing on Hong Kong and is reshuffling its syndicate, according to two other sources.

Tianhe, which supplies grease to refiners including China Petroleum and PetroChina, plans to raise about US$1bn in the second quarter of the year at the earliest.

Goldman Sachs, Morgan Stanley and UBS are at a good position to win a leading role in the transaction, according to a source. Morgan Stanley, through its private equity arm, made a US$300m investment in Tianhe in March 2012. (This article is from IFR Asia, a Thomson Reuters publication, www.ifrasia.com)

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