As the sponsor of the fraudulent issuance of the first Amethyst Storage (688086.SH, *ST Amethyst) under the registration system, China Securities (601066.SH) was severely sanctioned by the industry.
A few days ago, the Securities Association of China released the evaluation results of the investment banking business quality of securities companies in 2022, and the investment banking business quality of China Securities was rated as Class B. This is also the only top brokerage firm that is not a Class A in the “Three Middles and One China” camp.
Investment banking has always been the leading business of China Securities Investment. In the first half of this year, the number of equity financing projects and lead underwriting amount of China Securities Construction Investment ranked second in the industry. However, at the beginning of this year, Amethyst Storage, a sci-tech innovation board project sponsored by China Securities Investment, was investigated. Last month, it was found to have been fraudulent in its financial affairs after its IPO and listing. It was suspected of fraudulent issuance or was forced to delist. In this single project China Securities Construction Investment, which charges 119 million intermediary fees, cannot escape the blame.
Not only that, since the beginning of this year, China Securities has withdrawn more than nine IPO projects. At the same time, the company has also received regulatory fines due to problems in several projects such as Amethyst Storage and Liyuan Refining. In addition to being downgraded this time, China Securities may also face severe penalties such as huge fines and suspension of business qualifications.
The quantity of investment banking business ranks second but the quality is not as good as peers
The number and amount of lead underwriting projects are ahead of the peers, but China Securities Investment is lagging behind in the quality evaluation.
A few days ago, the Securities Association of China released the results of the evaluation of the quality of investment banking business of securities companies in 2022. Evaluation results.
According to the disclosure of the Securities Association of China, the scope of this evaluation is 77 sponsor institutions that have completed projects in 2021, a total of 1,349 main board, gem, and science and Technology Innovation Board IPO and refinancing projects. According to the final evaluation results, 12 companies including CITIC Securities, CICC, and Huatai United were rated as Class A; 50 companies including China Merchants Securities, Dongxing Securities, and China Securities were rated as Class B; 15 companies, including , Bohai Securities, etc., were rated as Class C.
To the surprise of the market, CITIC Construction Investment, which has just entered the 10 billion performance camp, did not get a top student in the brokerage exam.
A reporter from the Changjiang Commercial Daily noticed that with the advancement of capital market reforms in recent years, China Securities, as one of the leading securities firms, has steadily improved its profitability. From 2019 to 2021, China Securities Investment achieved operating income of 13.693 billion yuan, 23.351 billion yuan, and 29.872 billion yuan, a year-on-year increase of 25.54%, 70.53%, and 27.93%; net profit was 5.502 billion yuan, 9.509 billion yuan, and 10.239 billion yuan. An increase of 78.19%, 72.85%, and 7.67%.
Among them, in 2021, the net profit of China Securities Construction Investment will exceed the 10 billion mark for the first time.
The industry ranking shows that in 2021, China Securities’ operating income and net profit will rank sixth and ninth in the industry respectively.
Since the beginning of this year, affected by fluctuations in the capital market, China Securities Investment has also seen an increase in income and a decrease in profits. In the first three quarters, the company achieved operating income of 22.703 billion yuan, a year-on-year increase of 10.15%; net profit was 6.437 billion yuan, a year-on-year decrease of 11.32%.
It is worth noting that the pattern of the top brokerage firms of the “Three Centrals and One China”, once dominated by CITIC Securities, China Securities, CICC, and Huatai Securities, is also changing. In the first three quarters of this year, CITIC Securities still sits firmly in the leading position, and the revenue scale of China Galaxy, Guotai Junan, and Huatai Securities follows CITIC Securities. From the perspective of net profit scale, CITIC Securities is also the only securities firm with a net profit exceeding 10 billion, followed by Guotai Junan, Huatai Securities, and China Galaxy, while China Securities’ revenue and net profit scale rank fifth among listed securities firms.
With the advancement of the registration system and the normalization of IPO issuance, top brokerages continue to make efforts in investment banking projects. In the first half of this year, China Securities completed 39 equity financing projects, with a lead underwriting amount of 74.17 billion yuan, ranking second in the industry. Among them, the number of IPO lead underwriters is 22, and the lead underwriting amount is 40.598 billion yuan, ranking second in the industry.
In the aforementioned investment banking business quality evaluation results, China Securities Investment became the only leading securities firm in the “Three Centrals and One China” that did not receive a Class A evaluation.
The first case of fraudulent issuance under the registration system may face severe punishment
Kicked out of the list of Class A investment banks, China Securities Investment is not innocent, and is currently involved in the fraudulent issuance of the first registration system.
According to the data, in February this year, Zijing Storage, a company listed on the Science and Technology Innovation Board, was investigated for alleged violations of information disclosure laws and regulations. Last month, the company received the “Administrative Penalty and Market Prohibition Notice” from the China Securities Regulatory Commission and the supervision letter from the Shanghai Stock Exchange, and the details of its financial fraud were announced to the public.
The regulatory authorities found out that in the IPO process, Amethyst Storage was suspected of inflating operating income and profits by fabricating sales contracts, forging logistics documents and acceptance documents, arranging fund repayment, and confirming revenue in advance. The proportion of increased profits to total profits for the current period was 35.82%, 32.59%, and 137.33% respectively. After listing, Amethyst Storage continued to inflate operating income and profits through the aforementioned financial fraud methods. In 2019 and 2020, the company’s inflated profits accounted for as high as 94.55% and 151.1%. If the penalty is officially implemented, Zijing Storage will be forced to delist due to fraudulent issuance and major violations of the law.
As the IPO sponsor and lead underwriter of Amethyst Storage, a reporter from Changjiang Business Daily noticed that in this single IPO project, China Securities Investment received 119 million yuan in sponsorship fees and underwriting fees. With huge intermediary fees, Amethyst Storage is still making financial fraud under the noses of brokerages, and the fraud has lasted for more than five years. CSC cannot absolve itself of the blame.
In April of this year, the Shanghai Stock Exchange notified Liu Nengqing and Qiu Ronghui of Amethyst Storage’s continuous supervision of insurance agents, China Securities Construction Investment, and Qiu Ronghui, and issued regulatory warnings to the two insurance agents again in December.
According to the new “Securities Law”, if a sponsor issues a sponsorship letter with false records, misleading statements or major omissions, or fails to perform other statutory duties, it will be ordered to make corrections, given a warning, confiscated business income, and fined one A fine of more than ten times but not more than ten times.
According to relevant media reports, since the beginning of this year, the number of projects sponsored by China Securities Investment has withdrawn more than 9 companies. As of the end of June this year, China Securities has 92 IPO projects under review, ranking second in the industry.
Since there are precedents in the review system where securities companies have been suspended for business qualifications due to fraudulent sponsorship projects, China Securities may become a model of key supervision under the registration system, and multiple penalties such as huge fines and suspension of business qualifications will follow.
In addition to the Amethyst storage project, in November this year, the Jilin Securities Regulatory Bureau took administrative supervision measures against China Securities Investment and three relevant responsible persons, mainly involving the 2017 non-public projects of Liyuan Refining.
It is worth mentioning that Dongxing Securities, which was also involved in the fraudulent issuance of the science and technology innovation board company Zeda Yisheng (688555.SH, *ST Zeda), also received Class B in this classification evaluation. China Merchants Securities, which was previously fined 63 million yuan for sponsoring problematic projects, and Ping An Securities, which had its sponsorship qualifications suspended this year, also received Class B evaluations.