China’s securities regulator has dumped Ping An Securities to the bottom of its rating universe in response to the broker’s misconduct, signalling that it intends to take a tough line on sponsors.
As part of its annual assessment of all 96 securities houses, the China Securities Regulatory Commission (CSRC) also downgraded Minsheng Securities and Nanjing Securities. All three firms were fined in May for committing fraud in sponsoring A-share initial public offerings.
Ping An falls six notches to C, from its previous A rating, while Nanjing and Mingsheng were downgraded by five levels to CC and C, respectively. No other firms received ratings as low as C, according to a report released last Friday on the regulator’s website.
CSRC’s ratings range from AAA to E, based on assessments of internal risk controls, market competitiveness and compliance.
It is not a credit rating, as such, but the CSRC regulates securities firms differently based on their ratings, which can affect decisions to grant administrative licences for new business applications and the frequency of its spot checks, said the CSRC in its report.
The three securities houses were fined for failing to conduct adequate due diligence and endorsing false financial numbers in a series of IPOs.
Ping An Securities was suspended from underwriting deals for three months and fined Rmb76.65 million for its role in the Rmb425 million IPO of Wanfu Biotechnology (Hunan) Agricultural Development in 2011. Minsheng and Nanjing were pulled up for the IPOs of Guangdong Xindadi Biotechnology on ChiNext and TNS Solar in Shenzhen.
“The results of the assessment show the CSRC’s determination to rein in the overall business of the badly behaved sponsors,” said an investment banker at a large Chinese brokerage. “The ratings for the three will warn all sponsors not to commit fraud or falsify numbers in IPOs.”
No company has ever been allocated a rating of D or E by the CSRC since the scheme took effect in 2010. A firm rated this low would be subject to legal action to address the risks it faces.
The regulator ranked 21 firms at AA, including CICC, Citic Securities, Bank of China International, Guosen Securities and Guotai Junan Securites. The joint venture partners of Goldman Sachs and Credit Suisse are also rated at this level.
