November 30, 2020

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Hong Kong’s SFC starts legal proceedings against Tianhe Chemicals

Hong Kong's SFC starts legal proceedings against Tianhe Chemicals

Hong Kong’s Securities and Futures Commission (SFC) has commenced proceedings in the Market Misconduct Tribunal (MMT) against Chinese additive maker Tianhe Chemicals Group Limited (Tianhe) and its Executive Director, Wei Xuan, for allegedly issuing Tianhe’s listing prospectus in which the company’s revenue was overstated by more than CNY6.7 billion (USD980 million).

The SFC is also seeking orders from Hong Kong’s Court of First Instance under section 213 of Hong Kong’s Securities and Futures Ordinance (SFO) to restore all public shareholders of the company to the position before their subscriptions or purchases of Tianhe’s shares.

Wei was also a substantial indirect shareholder and chief executive officer of Tianhe at the time of the initial public offering (IPO) Tianhe issued the prospectus on 9 June 2014 for its initial public offering in Hong Kong and raised net proceeds of approximately HKD3.52 billion (USD454 million).

The SFC alleges that Tianhe’s prospectus contained materially false or misleading information regarding its sales revenue and profits for its track record period for the financial years from 2011 to 2013, which was likely to induce subscriptions for or purchases of the shares of Tianhe and/or to increase the share price of Tianhe Chemicals in Hong Kong.

The SFC’s investigation revealed that about 53% of Tianhe’s total track record revenue of CNY12.6 billion (USD1.8 billion) disclosed in the prospectus was overstated.

The various orders sought by the SFC in proceedings under section 213 of the SFO include but are not limited to an order directing Tianhe Chemicals and Wei to restore all public shareholders who held the shares of Tianhe as of 2 June 2020 when the proceedings commenced to the position before their subscriptions or purchases of those shares, by making restitutionary payments to the public shareholders or repurchasing the shares from the public shareholders, and/or an order to pay damages to the public shareholders.

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