Walter Hutchens’ Blog

The US SEC has ended its inquiry concerning China Life’s IPO, a NYSE listing that raised US$ 3.5 billion in December 2003 (the world’s largest IPO that year).

Shortly after the IPO, the PRC’s National Audit Office determined a pre-IPO incarnation of China Life underpaid PRC taxes by a substantial amount. The national audit office investigation was apparently underway at the time of the IPO but was not disclosed by the listing vehicle.

As this article in the English-language China Daily notes, the SEC’s action does not end civil suits pending against China Life (however, in China that would effectively bar shareholder litigation against a listed firm for disclosure fraud because China requires an enabling administrative penalty before private litigants can proceed).

Whatever the outcome for China Life, it is noteworthy that since its listing (and the subsequent investigation and litigation over nondisclosure of its predecessor’s tax problems), all jumbo Chinese IPOs have avoided the US.

China Construction Bank (US$ 8 billion) and Bank of China (US$ 10 billion) have listed only in Hong Kong.

Deterring overseas issuers from accessing global capital markets through the US was not a goal of Sarbanes Oxley supporters (a group including, after Enron and Worldcom, virtually everyone in the US Congress), but it seems one consequence of SOX is that the largest PRC issuers are indeed avoiding the US.

US bankers, lawyers, accountants, regulators and stock exchange officials owners will no doubt note this when lobbying for SOX reforms.

I previously noted the China Life matter here and here.