Pre IPO Research & Investigation Services for Lawyers
From 2010 onwards, there was a strong, upward trend for Chinese companies to list on non-domestic stock exchanges—be it in Hong Kong, UK or USA. If you are an IPO lawyer needing quick and thorough pre-IPO research for Chinese companies, it is essential that you are comfortable:
- Checking multiple name forms (traditional and simplified Chinese as well as English)
- Interpreting company data from the State Administration for Industry and Commerce (SAIC)
- Understanding the relevance of company reporting anomalies and penalties
- Identifying “red flag” issues within Chinese company networks
- Charting relationships between significant entities
These are fundamental skills that we have developed on a daily basis since the foundation of Veriton Investigations. We have assisted in numerous IPO research projects.
If you are an IPO lawyer, we can help you too. Contact us now for more information.
Pre IPO Research Sample Case Study
- WHO: Hong Kong-based lawyer working for a Beijing company
- WHAT: Investigative due diligence
- WHY: Urgent company checks for IPO attempt
- WHERE: Research in Hong Kong on mainland Chinese companies
Pre IPO Research
CASE STUDY: China Companies Research
- Comprehensive reports— adhering to client template—for 17 companies
- Full identification of problematic entities
- ‘Red Flag’ issues highlighted including corruption
IPO Research: General Client Brief
A Hong Kong law firm, and former Veriton client, needed additional resources to prepare an Initial Public Offering (IPO) for a Beijing engineering company that hoped to list on the Hong Kong Stock Exchange.
First, our client asked us to conduct non-financial, investigative due diligence on 17 companies within the Beijing transport manufacturing and engineering sector. The subjects were either customers or suppliers.
Later, we received a spreadsheet with basic company data. This included management and shareholders for 14 of the larger entities. However, three were not fully identified.
Our goal was to find and document negative news relating to the 17 companies and their key personnel.
Although full due diligence was not requested, our client asked us to include ‘red flag’ issues such as :
- Reports of bribery and corruption
- Litigation (criminal and civil)
- Integrity issues
- Links to other companies that might cause concern
- Major negative news
The client also wanted us to document State-owned Enterprises (SOEs) for the record. In this particular case, SOE involvement was not a red flag. The Beijing company had been partly owned by an SOE. However, the lawyer wanted a clearer picture of the company network structure.
Methodolgy and TAT
The project followed our standard methodology. TAT was challenging at just under 2 weeks. Several of the companies for the IPO research project were large companies with hundreds of employees and multiple branches. Much of the research required proprietary databases.
If you would like us to assist with pre IPO checks, it’s helpful for both parties if you complete a short form outlining your research requirements.
Day 1 - 2: Entity Verification and Reporting Format
The first day was spent verifying the identities of the three problematic companies. We also checked that the remaining 14 had been correctly documented. One had not been. This is not unusual when dealing with Chinese companies as names tend to be long and name changes are subtle.
We discussed findings with client over the next 48hrs. The client also had very specific requirements for reporting formats. We developed these with the client and later ran a test report for confirmation.
Due Diligence Database
Over the following week, our research team entered all English and Chinese data into an in-house database. We designed this several years ago for due diligence purposes. It now functions well and is tweaked to reflect each project’s reporting requirements.
A supervisor constantly checked the database to both ensure integrity of data and spot any omissions.
As we wrote reports, our team was working at full throttle fact-checking. The translation from Chinese to English is never quick. Understanding what seems like a simple newspaper snippet can eat into project time.
There were a few red flag issues that emerged from the IPO research. Notably, a former director of several of the companies had recently been jailed for corruption and related offences.
Another two of the companies had been fined repeatedly by local government for failing to comply with both health and safety regulations as well as annual company filings.
Global Economic Databases: Can you rely on them?
Interestingly, not one of the 17 companies was mentioned in economic global propriety databases we checked. This was despite four of the entities being large, national corporations.